Boston, MA -- (SBWIRE) -- 08/27/2012 -- Canada's mobile sector expanded by only 8,000 subscribers in Q112 to reach 25.895mn, based on data from operators such as Rogers, Bell, Telus and MTS. BMI continues to hold on to our view that operators are focusing on the higher value areas such as LTE, which has led to a dip in demand for prepaid services. We believe that the number of prepaid subscribers in Canada fell to about 4.9mn in March 2012, down from 5.1mn in December 2011.

The weaker-than-expected mobile subscriber growth has resulted in a revision in our forecasts. We now expect 27.071mn mobile subscribers in Canada at the end of 2012, and we predict this number will increase to 30.138mn in 2016, representing a penetration rate of 83.9%. The slow growth momentum is expected to continue due to operators' heavy emphasis on higher income, postpaid clients over prepaid. Meanwhile, we have largely retained our forecasts for the Canadian fixed-line and internet sectors.

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In May 2012, Astral Media's shareholders approved the proposed takeover by Bell. However, the deal, which could be completed in H212, is still subject to the approval of the telecoms and competition authorities. We remain bullish on the pending acquisition by Bell as it would leave the company well positioned to cater to growing demand for mobile content. Astral is the eighth largest media outlet in Canada, operating 22 TV channels and 84 radio stations, as well as 100 websites and other digital media content. However, regulatory approval could prove a challenge. If allowed to pass, Bell would be violating ownership rules surrounding how many radio stations a company can own in particular regions. However, we expect Bell would make moves to sell these, as they are less important to the company's strategy - for Bell, the crucial content obtained through the deal would be television access.

Economic growth will slow in Canada in 2012, with overstretched households retrenching their spending, and weakening global conditions. We continue to forecast Canadian real GDP growth forecast of 2.0% in 2012, followed by 2.3% in 2013 (down slightly from 2.4% in our previous set of forecasts). Real GDP growth came in at 1.8% q-o-q annualised in Q411, much weaker than the 4.2% posted in the previous quarter, leaving the 2011 growth rate as a whole at 2.5%. However, the underlying components of growth in Q411 suggested a more robust economy than the headline number may suggest. Real private consumption expanded by 2.9% (versus 1.8% in Q311), while non-residential fixed investment soared by 8.1% (vs 2.1% in Q311). The major drags came from weaker residential investment, a greater subtraction from government spending, and higher imports (which were partly a function of stronger domestic consumption). We expect these themes to continue into 2012.

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