Citing gov’t signals, Cogeco CEO indicates renewed interest in wireless

MONTREAL — Cogeco Inc. is feeling more optimistic about the possibility of entering the wireless market, potentially as a facilities-based operator, president and CEO Louis Audet said Thursday. “When we see a government asking the CRTC to re-appraise the eligibility of WiFi operators to become cellular operators … then this signals a change in attitude at the government level. Perhaps not a compellingly convincing change of attitude, but it’s a change in attitude,” he told reporters in Montreal Thursday. “And link that with the government expressing continued dissatisfaction with high prices, then you’re starting to get a number of signals that say ‘hey, maybe there’s hope here’... maybe what we thought was impossible has become possible.” Cogeco, the only publicly-traded telecom in Canada without a wireless division, has long said it would enter the wireless market as a mobile virtual network operator (MVNO) if the conditions were right. Last year, Innovation Minister Navdeep Bains told the CRTC to reconsider a decision that closed the door on mandating access by MVNOs to wireless carriers’ networks, saying that a WiFi-based model could benefit consumers. The CRTC has yet to issue its decision on the consultation it launched in the wake of Bains’ order. Audet noted that Cogeco has “WiFi in virtually all the homes we serve.” In 2015, the company began rolling out multi-signal routers in people's homes to provide both private WiFi signals to residents and separate public signals to visitors or those in the vicinity. He said should the CRTC go ahead and mandate wholesale access by WiFi-based MVNOs, that would be one of the conditions it would need to enter the market. “If there was some flexibility for WiFi operators such as us to get involved in cellular service, that would be a very good start,” he said. “Another one would be reasonable roaming rates, when you’re outside of the WiFi perimeter, and currently the roaming rates that are charged … are unrealistic for someone to be a profitable operator,” he said. In previous discussions about potentially expanding to wireless, Cogeco has generally showed an interest in operating as an MVNO, with the company’s director of regulatory affairs saying in 2014 that the company would not build its own wireless infrastructure. On Thursday, Audet said that it would also consider operating as a facilities-based carrier. However, for Cogeco to be able to participate in spectrum auctions, Innovation Canada would have to define smaller geographic areas that companies could bid on, he added. “So we could more or less closely match them to our coverage areas where we have our cable systems, because it is now obvious that all wireless operators in Canada are in fact owned by wireline operators, and they take their strength from their existing wireline ,” he said. “So for us, we would get involved in the geographies we serve.” He gave the example of the Toronto area, noting that “the current frequency allocation model now is… Toronto-Hamilton. We only serve Oakville, Burlington, Hamilton, St. Catharines, Niagara. So for us, bidding on all of Toronto, we’re automatically excluded. And we’re not going to start competing with all the other guys in Toronto who have wireline networks there, which we don’t have … it would be pure suicide,” Audet said. Other factors influencing participation in an auction include having set-asides for new entrants, he added. Both set-asides and smaller licence areas were subjects of debate in the government’s recent consultation on the upcoming 600 MHz spectrum auction. Audet’s comments came as the company released its first-quarter results. They showed overall revenue in the three months ending Nov. 30 was up 0.5 per cent from a year earlier, standing at $586.1 million in the first quarter. That increase was driven by growth in its communications segment and partially offset by market pressure on its media activities, Cogeco said in its shareholders’ report. Revenue in the communications segment was up 0.8 per cent to $553.6 million, mainly due to rate increases as well as growth in internet service customers in both Canada and the United States, and “the movement of customers to higher value packages.” Profit in that segment was also up 1.9 per cent to $76.5 million. Overall profit, however, was down 0.2 per cent, to $81.8 million. The company said that “resulted mainly from the decreases in depreciation and amortization and in financial expense, partly offset by a lower adjusted .” The company added a total of 11,350 internet customers, fewer than the 19,437 it gained in the same quarter a year earlier. “The lower net additions is mainly due to competitive offers in the industry combined with a higher churn following the end of promotional activity in Canada combined with lower connects and a delayed bulk agreement activation both as a result of the impact of hurricane Irma in the United States,” it said. Cogeco lost a total of 7,997 TV customers in the quarter, more than the 2,712 it shed in the same quarter in 2016. It said the “net losses resulted mainly from competitive offers in the industry and the changing video consumption environment in both Canada and the United States.” The company ended the quarter with 779,434 Canadian and 274,912 U.S. internet customers and 715,604 Canadian and 233,174 U.S. television customers. Audet touched on the company’s prospects in the two countries during the round table with reporters. He said that Cogeco hopes to eventually earn more revenue from its U.S. operations than Canadian ones, since there are many more opportunities for acquisitions in the U.S. than in Canada. The company earned $326.9 million from its Canadian telecom operations aimed at residential and small and medium business customers, and $157.7 million from the same division in the U.S. “All the families that are in this business have no intention of selling, and they’ve said so and it’s clear… that’s not going to change any time soon,” he said. However, that doesn’t mean the company plans to get rid of any of its Canadian cable holdings in order to fund U.S. expansion. “That is definitely not in our mind,” he said earlier that day during a call with analysts. “We are a Canadian company. We take pride in serving our Canadian customers and being active in the Canadian market. Were there other acquisition opportunities in Canada, we would execute on them. There aren’t, so we’ve turned to the U.S. market.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Ahmad Hathout atahathout@thewirereport.ca CORRECTION: This story has been updated to include revenue figures in Canada and the U.S. A previous version of this story said Cogeco does not report those figures.

Citing gov’t signals, Cogeco CEO indicates renewed interest in wireless

Broadcast | January 11, 2018

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Citing gov’t signals, Cogeco CEO indicates renewed interest in wireless

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