Mobile Network Operators Shift Focus to Convergence Services Amid Competition

Mobile network operators (MNOs) are offering discounts and competitive pricing on home fibre services to sustain customers and revenue. Prepaid average revenue per user (arpu) has bottomed out, and net additions are expected to remain weak. Postpaid net adds are expected to continue momentum in Q4 2025 as MNOs drive adoption through high-value bundled convergence offerings. The shift towards convergence is evident from CelcomDigi's recent move to emphasize average revenue per account. The outcome of Digital Nasional Bhd's restructuring and U Mobile's 5G launch augur well for OCK Group's 5G infrastructure deployment plans. Fixed-line players are expected to see rising demand for international and terrestrial connectivity. Kenanga Research retains a "neutral" stance on the telecommunications sector amid persistent uncertainty surrounding the 5G Dual Network framework.

Bell Canada (BCE Inc.) is making significant strides in Western Canada, marking a pivotal shift in the country's telecommunications landscape. The company has announced plans to offer home internet services in British Columbia and Alberta by leveraging Telus's fibre network, a move that signals a new era of competition in the industry. This strategic maneuver comes on the heels of the Canadian Radio-television and Telecommunications Commission (CRTC) mandating that large telecom carriers share their fibre networks with competitors.

The expansion is expected to give Bell immediate access to approximately 3.4 million Telus-connected homes in British Columbia and Alberta, significantly bolstering its customer base in the region. Bell CEO Mirko Bibic emphasized that the move is both consumer-focused and financially disciplined, aligning with the company's broader strategic plan to reduce costs and improve cash flow.

BCE's three-year strategic plan, unveiled at its October 14 Investor Day, aims to achieve $1.5 billion in cost reductions by 2028. This includes near-term cuts of about $1.1 billion, which will help fund network expansion and enhance cash flow. The plan also targets a reduction in capital intensity, with capex as a percentage of revenue dropping to around 14% by 2028, down from the high-teens in recent years.

Free cash flow growth is a key focus for BCE, with projections indicating a ~15% compound annual growth rate (CAGR) from 2025 to 2028. The company aims to generate about $22 billion in cumulative pre-capex cash flow, underpinning roughly $5 billion in common dividends over the next three years. This refocusing on free cash flow growth is critical, given the recent 56% dividend cut implemented to address high debt levels.

Telus, traditionally dominant in Western Canada, is not sitting idly by. The company has started signing up home internet customers in Bell's Eastern markets, leveraging its strong customer service reputation and bundling to grab a toehold in Bell's heartland. This competitive dynamic is likely to unfold over time, potentially benefiting consumers with more choices and promotions.

The competitive landscape in Western Canada is set to become even more intense with Rogers' acquisition of Shaw, which will allow Rogers to compete head-to-head with Bell and Telus in the region. This increased competition could drive better prices and service quality for consumers.

BCE's expansion into Western Canada is more of a marketing move than a new build-out, at least initially. By renting capacity on Telus's existing fibre lines, Bell can quickly gain scale without the need for significant upfront investment. This strategy allows BCE to differentiate its service offerings through product bundles, such as Bell TV or wireless discounts, to attract new customers.

In conclusion, Bell Canada's westward expansion marks a significant shift in the Canadian telecom market. The move signals the CRTC's pro-competition policy taking effect, with BCE pragmatically leveraging the rules it once opposed. The competitive dynamics are expected to unfold over time, potentially benefiting consumers with more choices and promotions. For investors, the focus is on BCE's ability to execute its cost reduction and free cash flow growth targets, positioning the company for long-term success.