At last, Shaw Communications has jumped with both feet into mobile acquiring Wind based on a “compelling strategic rationale”  to provide a full suite of services to its subscribers.

In our view, and for as many years as we can recall, the marriage of cable (or fibre) broadband and mobile is key to achieve networks that are sustainable for the long term. This has been critical to Rogers’ success in the past. More recently, Videotron and Eastlink have proven its effectiveness even in fairly well developed mobile markets.

Not surprisingly, this model is also in vogue elsewhere. Cablecos have been acquiring  mobile carriers as well as growing MVNO operations in many European countries; the acquisition of Numericable by SFR in France being a prime example.

John Malone’s Liberty Global/Broadband Group has been forging ahead in mobile under a variety of scenarios. Its Belgium cableco Telenet, first operating as an MVNO, acquired mobile operator Base. In the Netherlands, its cableco Ziggo also offers mobile services. There are also persistent rumours of a link up between Vodafone and Liberty. Liberty may also surprise us by pursuing a similar strategy in the US in the not so distant future.

These realignments can yield tectonic shifts in industry structure and competitive rivalry in a given country.

Our first thoughts on the Shaw/Wind development in the Canadian market are:

  • Shaw will be able to offer the quad play in key markets that include Alberta and BC and compete head on with TELUS, with the added benefit of its WiFi capabilities, once the LTE deployment is completed. It could be that the deal with Shaw brings with it the acceleration of LTE deployment so that these benefits can be realized faster.  TELUS shares are down a significant 6-8% mid day. However, the Shaw shares are also down by a similar percentage. 
  • The Shaw/Wind combination is very likely to increase competition in wireless across most of Canada and thus the share values of Bell as well as of Rogers have taken a hit today (by 3 % to approximately 5% respectively at mid day).
  • Shaw is now a significant player in Ontario with room to grow. Will Shaw be looking for options to provide the full suite of services, i.e. adding wireline, in other markets such as in Ontario?
  • There could be more than four (4) mobile service providers in Manitoba and Saskatchewan in the future if/when Shaw decides to offer mobile services in these markets which are an important part of their base wireline subscribers. MBT shareholders are not too worried at the moment as MBT share value is up  1% .
  • Will Shaw/Wind conclude a network sharing agreement with Rogers as Videotron did? They could arguably both benefit from enhanced coverage and capacity in many areas of the country.
  • Wind still lacks spectrum below 1 GHz. Sources of low band spectrum could be Quebecor (one 5+5 block in 700 MHz ) or future 600 MHz spectrum. The stakes for the  600 MHz auction just jumped up a notch.

As for the two Quebec-based cablecos left out in the cold in this rearrangement of Canadian telecom:

  • What are now the future prospects for Cogeco as now the only major cableco in Canada “sans wireless”? Could this deal lead to a Cogeco MVNO anytime soon? The Cogeco Cable shares are down 2-3% today.
  • When will Quebecor sell its spectrum outside of Quebec and to whom? The Quebecor share value has been hovering around the zero change mark today.

In a BNN interview, Wind CEO Alek Krstajic mentioned the possibility of forging a national mobile offer with other regional mobile carriers including Eastlink, Videotron, MTS and Sasktel. This could hold some promise but may be difficult to pull together at least until the WIND offer becomes more similar to that of the other carriers.

As a final note, a little over 10 years ago, Microcell with approximately 1.2 M subscribers (mix of post pay and pre paid similar to Wind) was acquired by Rogers for close to $1.4B CDN . Now, WIND is acquired by Shaw for $1.6B CDN bringing 940K subscribers and less spectrum than Microcell at the time (30 MHz of PCS spectrum in the 1.9GHz band and much more in the 2.5 GHz band). There seems overall to be limited impact of inflation or of the mobile broadband prospects on the value of a fourth carrier in Canada over the last 10 years. This is not a surprise considering the travails of Wind and others since 2008.

However, although Shaw paid much more for Wind in late 2015 compared to what it could have paid in 2014, we would say that the “price is (still) right” considering the improved Wind metrics and their cache of spectrum.

The acquisition of Microcell proved to be a major and defining win for Rogers. This deal could do the same for Shaw.