Delay in wireless launch puts Shaw in awkward position, analysts say

The three-month delay of Shaw Communications Inc.'s wireless launch to early 2012 may leave the company dealing with the consequences of awkward timing, analysts say. “You're really caught between 3G and 4G,” Dvai Ghose, a telecom analyst with Canaccord Genuity, said in an interview. “By 2013 the incumbents at least will start building 4G. So as soon as you're building 3G in the case of Shaw, you may very quickly have to operate 4G.” On Thursday, Shaw CEO Brad Shaw told analysts during a conference call the company's wireless launch has been delayed to the first quarter of 2012. “We remain committed to wireless ... as with all our other significant investments at Shaw, we believe it is best to take a disciplined approach,” Shaw said. “We now expect to launch these services in our first major market early in calendar year 2012, which is approximately three months later than previously anticipated.” Shaw indicated that the delay isn't the result of issues in acquiring equipment for the roll-out, but rather of company strategy. “We certainly feel we need a disciplined approach to the business in ensuring that as we go along we're learning and we're understanding how the market works in a wireless ,” Shaw said. The company acquired 20 MHz of auctioned advanced wireless services (AWS) spectrum in July 2008 for $190 million. In most cases the acquired spectrum, located in Western Canada, overlays the company's cable footprint. In 2010 Shaw invested about $100 million into the network, and is expected to spend another $150 to $200 million in 2011. “If you want to build a robust AWS network you need a lot of sites, and that's what we're focusing on right now,” Shaw said. Shaw said the company would focus its efforts this year on building out the essential infrastructure for its network, including fibre and tower deployment, as well as retail locations. Shaw also put an end to rumours that the company's new network will be LTE, also called 4G. Instead Shaw said the company is building a 3G+ network that can be upgraded to 4G when the time is right. “If you were to turn on the network tomorrow it would be HSPA+,” Shaw said. “We're not waiting for LTE, there's a logical migration.” Brownlee Thomas, a principal analyst at Forrester Research Inc. in Montreal, said in an interview it wouldn't make sense for Shaw to invest in 4G now when the market isn't ready for the new technology. Thomas said its wise for Shaw to follow other companies' lead when it comes to deploying 4G, instead of being the market leader, because it is new to the wireless sector. But Ghose said that the timing of Shaw's launch is awkward because it is falls too close to the anticipated launch of 4G technology in Canada. Under Industry Canada's current mandated roaming policies, wireless providers can only offer roaming on the kind of network they offer. This means that if Shaw launches 4G, it cannot offer roaming on Bell Canada or Rogers Communications Inc.'s 3G+ networks. But even if Shaw launches a 3G+ network, the company could still run into problems with roaming, Ghose said. Carriers are currently required to reach roaming agreements with wireless entrants under the mandatory roaming policy, but in 2014 that obligation will be removed. “If Shaw starts in early 2012, then they have two years to build a network presumably because you can't demand mandated roaming on the incumbents' networks two years later,” he said. The end of mandated roaming in 2014 means that after two years, Shaw wireless customers won't have reception outside of the company's network, unless it can reach a roaming agreement with another provider. But Ghose acknowledged that Shaw's delayed launch will give the company enough time to ensure it can provide customers with a satisfactory wireless experience. “You don't want to launch hastily in as much as if you don't have the network quality and network elements like distribution, handset agreements and all that in place,” he said. “If you give your customers a bad experience it's something that's difficult to offset, and in the case of a company like Shaw that has multiple products, it has a bad impact on your products ... in terms of perception.” In a research note released Thursday, CIBC World Markets analysts said they do not expect the delay will hurt Shaw's wireless plans given that it can market the service as part of its bundle. “Given that Shaw's wireless business model involves selling (bundling) wireless to its captive cable subscriber base, we do not believe that this small delay will have much of an effect on the success of the venture,” CIBC wrote. “Notwithstanding the cost of entering wireless, Shaw has plenty of advantages it could leverage, including a trusted brand, network assets and a captive customer base to sell into,” CIBC wrote. But Ghose noted that Shaw is taking a particularly long time to launch its service. “Remember this auction ended in the middle of 2008, and then they're probably launching by the middle of 2012. Four years is a very long time,” he said. Ghose said that delaying the launch may hurt the company as wireless penetration continues to increase in Western Canada. “Wireless penetration goes up everyday in Canada and one of the reasons why new entrants are excited about Canadian wireless opportunities is that wireless penetration in Canada is relatively low for a developed country,” he said. “Within Canada, Western Canada ... has the highest penetration and so there's a risk the penetration could be 100 per cent when they launch, at least in the major cities in Western Canada.” Shaw said it will be taking a market-by-market approach to its wireless deployment—which means the company is likely to first launch its wireless service in Calgary and spread out from there. “Everything we've done before with new products is that market-by-market disciplined approach. We see this as no different,” Shaw said. Ghose said the delay also puts Shaw in a difficult position when faced with competitors that currently offer unlimited data plans, particularly for popular tablet devices like iPads. Thomas said the delayed launch probably won't have a strong effect on Shaw, but it may be hurt because it will be missing out on the Christmas 2011 season. “The material difference will be that they're going to miss that prime smart phone, iPhone, BlackBerry, ... tablet device season,” she said. “But as they say, it's more important that they do it right.” When asked during the conference call whether the delay may hurt the company, Shaw said the company will benefit from taking its time to learn the business and offer an optimal customer experience. “We feel comfortable there are good opportunities ... we see data moving and all the opportunities there. We're comfortable that we can continue to grow ... and be disciplined in that approach and our costs,” he said. kfournier@thewirereport.ca

Delay in wireless launch puts Shaw in awkward position, analysts say

News | January 14, 2011

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