Shaw’s WiFi move ‘smart’, comes after failed network sharing negotiations

Shaw Communications Inc.’s announcement Thursday to build out a WiFi network rather than a mobile HSPA+ or LTE service comes after spectrum sharing negotiations with Rogers Communications Inc. fell through. Industry analysts said Thursday that Shaw's decision to deploy a WiFi network instead of mobile wireless—which received criticism following more than one false start for the company for the launch of a mobile network—could be the result of failed spectrum sharing negotiations with Rogers. Scotia Capital analyst Jeff Fan speculated that negotiations were held between the two companies in the spring and summer. “I think that Rogers probably wanted a significant commitment,” he said in an interview. “Not only on the initial build, but also on future build, future upgrades to next generation networks, as well as future spectrum acquisitions.” Dvai Ghose, an analyst with Canaccord Genuity, commented on the negotiations between Rogers and Shaw in a research note released Thursday. “There was speculation regarding network sharing earlier this summer,” Ghose wrote. “But given Rogers’ high wireless market share in the West and Shaw’s lack of progress in wireless, we are not surprised that such talks appear to have led to nothing.” Rogers did not provide comments by deadline Thursday. Fan said Shaw's decision to build a WiFi network was not unexpected, and that it is a smart move. “Shaw is the first to do it in Canada and some probably have difficulty understanding what this is about,” he said. “But if you look in the U.S. and talk to any of the cable operators in the U.S., you know WiFi has become core to the wireless strategy.” In an early August research note, Fan wrote that, based on Cablevision Systems Corp.’s WiFi strategy in the U.S., Shaw could deploy WiFi access for its subscribers at a cost of roughly $230 million to $270 million. Fan said recent data shows that WiFi usage is on the rise and that a majority of data consumed on tablets runs on WiFi. WiFi use on smartphones is also high, he said. “Even though iPhone, for example, has cellular data, 40 per cent of that data is being used on WiFi,” he said. Shaw issued a release Thursday that said, as a result of a strategic review of wireless business opportunities, the company decided that a WiFi network would be “a more prudent approach.” Shaw said a WiFi network would allow it to extend its reach beyond the customer home without risking more than $1 billion in capital expenditures. “We view wireless as a defensive investment,” CEO Brad Shaw said during a conference call Thursday. “We believe there are other options and alternatives to offering product if over time, it becomes apparent that we need wireless for strategic reasons.” Shaw noted in a release that the economics of a new mobile wireless business “are extremely challenging,” adding that new entrants “lack the economies of scale and scope to compete effectively against well established incumbents with ubiquitous coverage, extensive device ecosystems, deep spectrum positions and large retail networks.” Ghose said Shaw’s bowing out of the mobile wireless market, for now, could be detrimental because it allows Telus Corp. and Rogers to have “free run” of the West. “If Shaw never enters wireless, it means less competition in the West for TELUS, who can continue to invest their surging wireless cash flow to aggressively subsidize TV and Internet customers to the detriment of Shaw,” Ghose wrote in the research note. But Fan said that, given the expense of deploying a new mobile network, the company was right to carve its own path. “I think that, for Shaw, by focusing on this , it is probably a smart move on how to deploy capital,” he said. Shaw said a WiFi buildout will be an important network asset if the company decides to move towards a service like LTE in the future. “Everybody knows that you can’t buy enough spectrum and enough towers to deal with the wireless broadband demand that you are going to see out there,” Brad Shaw said. “So this is sort of the tail end of something that, if in the future, we felt that LTE actually makes sense, we could do or provide access to carriers that wanted to offload.” Shaw said that as time progresses, WiFi will become an important element in every major wireless plan. In its release, Shaw said all consumer devices support a WiFi connection and that consumers are actively seeking out WiFi “hot spots” to lower their data usage and rates. As the demand for wireless increases and customers seek access to streaming services such as music and videos, existing 3G and 4G plans will not support data consumption, Shaw’s CEO said. “You can’t build enough capacity to do it. You need WiFi,” he said. The company said major wireless carriers around the world are deploying WiFi in an attempt to offload 3G and 4G traffic, which reduces network building costs and improves capacity as well as coverage. It is because of this offload that Shaw believes “cable operators are uniquely positioned to take advantage of Wi-Fi,” the company's release said. Brad Shaw said the company’s WiFi network will be based on the U.S. Cablevision model. “There’s sort of a proven model that Cablevision has sort of demonstrated in the U.S.,” Shaw said during the conference call. “It’s going to be a combination of outdoor sites that can exist on existing plants.” The CEO said Shaw plans to target businesses where it believes value could be added through the establishment of WiFi hot spots. Of marked interest to the industry Thursday was the future of Shaw’s spectrum holdings. The company spent $190 million on spectrum licences during Industry Canada's 2008 wireless auction. Wind Mobile chairman and CEO Anthony Lacavera told the Business News Network in an interview Thursday that Wind is interested in purchasing the company’s spectrum. “We’ve always been interested in having this conversation with Shaw,” Lacavera said. “Even in the past, we said we have been open to partnerships with other new entrants and we think it makes a lot of sense to build one new national network. We certainly will reach out.” Brad Shaw said Thursday that the company is in no rush to sell its spectrum assets. “We’re going to sit there and park that,” Shaw said. “We believe it’s certainly an asset that has value and will continue to increase in value. So you know, we’ll just take it from there and see where things roll out.” Peter Bissonnette, Shaw’s president, also told BNN Thursday the company's spectrum has “great value” given the demand for spectrum and “data needs” in Canada.” “That spectrum has a lot of value. It’s not diminishing in value, it’s going to be increasing in value,” Bisonnette said. “We won’t sell it at a loss.” dgrenier@thewirereport.ca

Shaw’s WiFi move ‘smart’, comes after failed network sharing negotiations

News | 09/01/2011 9:32 pm EDT

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