Canada’s telecommunication industry will likely be cooled by higher costs this year, with profits growing by just 3.2% in 2007, the Conference Board of Canada said in a report released today.

Total telecom earnings will likely just top $6 billion in 2007, the Conference Board said in its quarterly industrial outlook.

“Even though the telecom services sector has been plagued by weak pricing and sales growth, profits have improved steadily thanks to weak appreciation in material costs,” Michael Burt, the board’s principal economist, said in a statement.

“However, with cost growth expected to accelerate, profit growth will be sluggish for the rest of the forecast period. Industry costs are expected to increase by 5.4% in 2007 and will rise by an average of 3.6% for the next four years.”

The board also cites regulatory changes, particularly the deregulation of local voice communication services in large urban areas and an early 2008 government auction for new wireless spectrum licences, as factors likely to increase competition in the sector.

The board predicts “business will continue as usual” after the spectrum auction, with modest gains in pricing but the possible entry of new wireless players could put pressure on prices.

Industry profit margins are expected to fall slightly with profits growing slowly to $6.3 billion by 2011.