Shaw’s wireless delay Telus’ gain, analysts say

Industry analysts agree that Shaw Communications Inc.’s latest delay in its wireless launch is Telus Corp.’s gain—but they’re divided about what the setback means for Shaw. “For a number of different reasons, from the strategic to the financial to the regulatory, is absolutely vital,” Dvai Ghose, an analyst with Canaccord Genuity, said in an interview. “So I think that they’ve made a strategic mistake myself.” Ghose said Shaw did not prioritize its wireless network enough from the beginning and has now been knocked off course by Telus’ recent announcement that it will launch LTE early next year. Shaw announced in a quarterly report last week that it would delay the launch of its wireless network for the second time. The company had announced in January that it wouldn’t launch until early 2012—three months later than scheduled. No time frame was given with the latest setback. “The dynamics within the wireless industry continue to evolve at a rapid pace and we believe all options need to be carefully considered in advance of the launch of a wireless service,” CEO Brad Shaw said on a conference call last week. “We announced today that we are adjusting our wireless build activities as we evaluate technology, including LTE options, and strategic alternatives with respect to our wireless initiatives.” Shaw said he is allowing for uncertainties, such as technology developments, to “become clear before we move forward and articulate our wireless plans.” Shaw also told the Business News Network Tuesday that the wireless sector is becoming more competitive. “When you look at retention spending, ARPU pressure, new competitors coming in. It’s challenging,” he said. Brownlee Thomas, principal analyst at Forrester Research Inc., said she does not believe the delay will hurt Shaw in the long run. “I think that, given their market environment, they’re probably still in the learning phase to make sure that they get it right,” she said in an interview. “I don’t think it’s going to cause any suffering for them. It’s an opportunity for Telus but it’s not really a big, serious loss for Shaw.” Shaw hit its first speed bump of the year in early January when Laurence Cooke, the company’s vice-president of wireless—just hired in the summer to lead its foray into wireless—left the company. Shaw announced a three-month delay in its wireless launch shortly thereafter. And this month, Telus announced plans for an urban LTE launch in “early 2012.” Ghose attributed Shaw’s most recent delay to Telus’ fast-tracking of its LTE plans, and said he be believes the company is now re-evaluating whether to launch an HSPA network at all or jump straight to LTE. In January, Brad Shaw told analysts during a conference call that there was “a logical migration” from HSPA to LTE and that his company was not waiting to launch directly to the latter. “I think Shaw’s now in a real bind whether to launch HSPA or LTE,” Ghose said. “I think they’ve delayed it so long now that they have no choice but to go to LTE, but I don’t think that puts them in a position of strength. I think that’s a position of weakness. Essentially, Telus has dictated their launch date by making their own LTE announcement, which I think is very disappointing for Shaw.” Ghose said switching to an LTE launch now would lead to further delays, pointing to a lack of LTE-compatible devices. Telus will continue to benefit from Shaw’s absence from the wireless market, Ghose said, an absence that becomes more pronounced as customers seek a wireless alternative for devices such as tablets. “I think that very much favours Telus. It says to me, for perhaps another year … Telus will not have a local cableco, in this case Shaw, in the wireless market,” Ghose said. “I think that’s a huge strategic benefit for Telus.” BMO Capital Markets analyst Tim Casey, in a research note released last week, also highlighted the competitive threat Telus poses. “Waiting for LTE may be the prudent long-term move in wireless, but does leave Shaw vulnerable to TELUS in the near term,” he wrote. Thomas said a long-term view is more important, even if the delay pleases Telus for now. “I think when they launch it, they want to do it a la Vidéotron and really kind of come in with a bang and not with a whimper,” she said. “We certainly would not want Shaw to enter the market and fall flat, vis a vis Telus. That would not be something that would be very good for Canadian buyers of its services.” Ghose also made the comparison to Quebecor Media Inc.’s wireless launch via Vidéotron Ltée, saying that, historically, Shaw hasn’t prioritized its wireless service. “Unlike Quebecor, which bought the whole set-aside for new entrants in Quebec, these guys only bought 10 to 20 MHz in Western Canada,” he said. “So they only spent $190 million on spectrum versus $500-odd million for Quebecor.” Ghose warned that the delay could result in regulatory problems, or at least frustrations. Shaw and other new entrants received the benefit of mandated roaming with their purchase of set-aside spectrum during the 2008 wireless auction, but that provision expires in 2014. “If you start building your network in 2013, it basically gives you a year to build a ubiquitous network,” he said. “Or you have to rely on roaming without a mandate. Now you can easily say that Rogers will provide you with roaming—maybe even Telus or Bell would provide you with roaming. But if there’s no mandate or regulation to dictate that the incumbents have to provide you with roaming, at the very least, they’re going to charge you more.” The delay could also land Shaw in the regulator’s doghouse, Ghose suggested, because competition was supposed to result from the 2008 auction’s spectrum set-aside policy. “To take spectrum, which is essentially protected and carved out for new entrants in order to create competition, and not come through with competition now for a period of three-years (and growing) since the auction ended, it has to be disappointing for the regulators—which is not necessarily in the interest of Shaw either,” he said. Ghose added that he is not convinced Shaw will launch its wireless network in 2012. But he wrote in his research note that wireless penetration continues to rise and could reach 100 per cent by the time Shaw launches. Ghose also wrote that Shaw has spent $367 million on wireless to date, including spectrum costs. mburgess@thewirereport.ca

Shaw’s wireless delay Telus’ gain, analysts say

News | April 19, 2011

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