‘Half-pregnant’ Shaw needs to decide on wireless: analyst

Shaw Communications Inc. is facing awkward timing and stiff competition as it plans its wireless future, leaving industry experts questioning what the company will do next. According to a report released by Canaccord Genuity on July 13, Shaw is in a weak position when it comes to the latest wireless technology. “I don’t think they are going to do either in a traditional fashion,” Dvai Ghose, an analyst with Canaccord Genuity who wrote the report, said in an interview. “If you do 4G, you’re doing it too early. If you do 3G, you’re doing it too late.” Back in April, Shaw announced in a quarterly report that it would delay the launch of its wireless network for the second time, with no new timeframe given. In January 2011, the company had said it planned to launch wireless in early 2012, already three months behind its original schedule. In a conference call that month, CEO Brad Shaw said his company would not roll out LTE, opting instead to build a 3G+ network that could be upgraded to 4G at the right time. “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.” But with Rogers Communications Inc.’s launch of LTE service earlier this month and western competitor Telus Corp. planning to launch LTE early next year, Shaw could find itself behind competitors. By April of this year, Shaw had already spent $367 million on wireless, but Ghose said an LTE launch at this point in time could cost the company even more. Though he stressed he was only estimating, Ghose said that Shaw might have to spend up to $1.5 billion to build an HSPA+ network, and nearly $2 billion if it were to go straight to LTE. “We’re talking big amounts,” he said. “And LTE even more than HSPA.” Ghose said Shaw has two main problems with the launch of either HSPA+ or LTE service. Firstly, even if Shaw were to roll out a new service, it still doesn’t have its own back office and billing department, he said. Right now, Ghose said Shaw would have to partner with Rogers to even be able to distribute its service effectively. “If you want to outsource all your billing and back office to Rogers, that’s very dangerous,” Ghose said. “Not because Rogers is bad at it. But if you want to bundle, produce one bill for the customer and so on, you don’t do that if you don’t have your own billing platform.” Ghose said the company’s second fundamental problem is distribution. Canada is still waiting on 4G-enabled devices to be made available to consumers. “How are you going to get the device into people’s hands?” he said. Even Rogers, which was the first to launch an LTE network, is still waiting for LTE-enabled smartphones from Samsung and HTC to become available in Canada later this year. Its service is available on a Rogers LTE Rocket Stick until then. Presently, Verizon Wireless only has three LTE smartphones advertised on its website and MetroPCS only has two, Ghose wrote of the U.S. providers. “Apple and Research In Motion (RIM) have yet to launch LTE-compatible devices, and we do not expect either vendor to launch an LTE compatible device until at least late 2012,” he wrote. Ghose told The Wire Report that if Shaw decides to wait on an LTE rollout, its stocks would go up initially. However, he wrote the move would have shareholders wondering where Shaw’s future growth might come from and would also “cement Telus’ strong strategic position when competing against Shaw” for wireless. “A near-term solution for shareholders is for Shaw to say, ‘we’re not spending any more money on wireless,’” Ghose said. “In fact, you’re just giving to Telus.” In the research report, Ghose wrote that Telus obtained 80 per cent of its cash flow from wireless in 2010, while 80 per cent of Shaw’s cash flow came from cable. “This means that Telus can use its surging wireless cash flow to compete aggressively against Shaw in Internet, telephony and TV without any fear of retaliation in wireless,” he wrote. But Iain Grant, managing director of SeaBoard Group, said in an interview that if Shaw decides to wait, it might not be detrimental because a cableco operates in a different market than a telco. Grant said Shaw already has a significant subscriber base and can offer, for example, bundled cable and wireless packages that a telco can’t. “It’s quite a different sales proposition,” Grant said. “You don’t really have to be the fastest, because this isn’t the only sizzle in your steak. So it’s more important for Shaw to get it right.” In launching late, Grant said Shaw has effectively lost an advantage because its HSPA+ service, for example, will not be as new and exciting. “If launch now, with essentially 10-minutes-ago technology, it’s not going to be anything exciting,” Grant said. “It’s going to be, ‘OK, I can do that too.’” Brownlee Thomas, principal analyst at Forrester Research Inc., told The Wire Report in an April interview that she does not believe a delay will necessarily 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,” Thomas said. “I don’t think it’s going to cause any suffering for them. It’s an opportunity for Telus but it’s not a big, serious loss for Shaw.” But Ghose said Shaw needs to make a decision soon, because inaction or an abandonment of wireless at this point could hurt the company by letting Telus secure an advantage. “This idea of being half-pregnant, I think it’s just a bit strange.” Brad Shaw spoke to reporters at the CRTC’s vertical integration hearings in late June and said Shaw would probably make an announcement about wireless “over the next month.” Shaw president Peter Bissonnette told The Wire Report he could not comment on his company’s plans because the issue is still being discussed. dgrenier@thewirereport.ca

‘Half-pregnant’ Shaw needs to decide on wireless: analyst

News | July 20, 2011

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