Phone firms bleeding from no-limit ratesPaul Marck, Journal Business Writer, Edmonton, 10/01/98
The long-distance wars are far from over; but the latest battle tactics could be bleeding telecommunications companies of millions of dollars in lost revenue.
No-limit, long-distance packages introduced over the summer have proved a bonanza for consumers, but at a cost to providers.
On Monday when Sprint Canada announced it was capping its $20-a-month, off-peak calling package to 800 minutes, the company said it was losing money on some high-volume users.
Rumours persist that bigger players like Telus and Bell Canada have suffered heavily since matching Sprint's discount plan in late July.
Speculation suggest that Telus will record a loss in third-quarter earnings in the tens of millions of dollars as a result of its own Your Way Unlimited calling plan, which has drawn 150,000 subscribers in eight weeks.
Stock-watcher Angus Watt of Levesque Scecurities said a lot of companies will show lower third-quarter earning or losses, but at least Telus has a cushion. "The company is cash rich," Watt said.
Telus reputedly has a $264-million war chest of accumulated earnings as it searches for an acquisition target or partner.
Third-quarter results are due Oct. 26. In the meantime, Telus isn't saying anything about its figures and won't admit to any decline in long-distance revenues, or if discount plans have eaten into its bottom line.
Third-quarter results are due Oct. 26. Telus earned $73.4 million in the second quarter, up $37 million from the same period last year.
"We don't know what impact there will be. We're analysing everything, we just don't have any numbers," said Telus spokesperson Kathy Howe.
Industry watchers suggest short term bleeding is an expected consequence of the price wars between telecommunications companies.
Watt said he expects Telus's numbers could well be down in the third quarter. But it doesn't matter.
"Anytime you're trying to protect a market, you might feel short-term pain for long-term gain." Watt said.
Telus has staked out its territory, saying it won't be beat on price and that's a promise customers and shareholders alike can expect to see maintained. "You have to play hardball," Watt said. "I agree with the course they've taken ... they'll still make money."
Ian Angus, of Angus Telemanagement Group in Ajax, Ont., said telecommunications companies bidding to outdo each other in long-distance discounting are looking like airlines with seat sales.
"The result of their pricing plans is that consumers are changing their calling habits," said Angus.
Despite a crunch on long-distance line access, they're still not fully utilized and it makes business sense for companies to try to make money from long-distance callers rather than leave the lines idle.
Companies across Canada are adding long-distance capacity which in turn will bring prices down even further; Angus predicts.
"I don't think the price war is even close to being over."