‘Unlimited’ deals give Freedom price advantage: analyst

Canaccord Genuity analyst Aravinda Galappatthige said the wireless frenzy unleashed by the new no-overage plans will negatively impact Rogers Communications Inc. and Telus Corp., while benefiting Shaw Communications Inc.’s Freedom. Galappatthige downgraded Telus’ stock to hold, from buy, because the promotional activity following the elimination of data cap overage charges has put a damper on wireless. Meanwhile, he upgraded Freedom’s stock to buy, from hold, as “increased activity and market adjustment can open the door for the challenger brands to step up to the next level.” Specifically, Galappatthige notes that Freedom’s advantage lies in the price gaps between what it can provide and the minimum the incumbents charge for the new “unlimited” plans, which generally start at $75. The simplicity of the pricing plans “opens a window for Freedom to capitalize, especially within the market segment that is unwilling to step up to the $75/month level,” Galappatthige said. “This could lead to the challenger brands taking more of the national net adds than expected, which could be negative for incumbents in particular if this renewed market activity does not stimulate as much volume growth as anticipated. “A customer looking to stick to a sub-$70 or sub-$65 service fees are forced to consider Fido or a competitor. This backdrop in our view opens up that middle block in the market for Freedom to capitalize on with its $60 big gig plans.” As for BCE Inc., it “remains well positioned with strengthening wireline trends and, more recently, sector-leading wireless results,” Galappatthige said. Rogers introduced its new permanent no-overage offering last month, becoming the first national carrier to bring such a plan into the market. Bell and Telus followed with promo offers of a similar kind, with the latter later making its options permanent and the former saying it currently has no end date for its own options. The “consistent stream of promotions and counter promotions” that followed could lead to a short- to long-term moderating effect on the wireless industry that could last through the end of this year and into the next, Galappatthige said. “This, in our view, highlights one of the key concerns we had with the thesis that these new plan structures would ultimately be positive for the industry,” Galappatthige said. “The concern is that it appears to have disturbed a level of equilibrium in the market and each player is now looking to counter their competitor, potentially leading to a different economic picture” whereby price reductions lead to reduced average revenue per user and therefore profitability. Scotiabank analyst Jeff Fan also noted the negative impact the no-overage plans could have on the whole industry, suggesting a repricing could be in the works in the near- and long-term. Those negative impacts would blunt the initial positive effects of the new offers, which include expected lower call volume and less back office requirements from the fewer plans and no overage charges. Other cost savings are derived from new financing options for customers looking to purchase a device over time. Rogers announced this month that it will allow customers to finance their devices, at $0 upfront, over a period of 24 or 36 months, with some wondering whether the three-year option would run afoul of the Wireless Code’s two-year maximum contract terms. The new equipment financing options will effectively reduce the subsidy -- by some analyst estimates, between $300 and $500 -- that the telecoms pay to bring down the price of the phone to customers by having the customer pay for the entirety of the device in exchange for having to pay nothing upfront. Galappatthige noted that Rogers had indicated it hopes to reduce subsidies over time to just $100. The CRTC has since asked the wireless carriers to respond to questions that would clarify aspects of those financing plans. But that could also be blunted by heightened competition, which could drive handset promotions that could reduce the benefit of those decreased subsidies, Galappatthige said.

‘Unlimited’ deals give Freedom price advantage: analyst

Briefs | 07/22/2019 6:18 pm EDT

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