Analysts divided on wholesale rate appeal outcome

As analysts predict the CRTC’s decision on wholesale internet rates is likely to be appealed, they are divided on what impact the new rates would have on the industry as a whole. In a note released Monday morning, Desjardins analyst Maher Yaghi wrote that, while telecom companies will likely file an appeal process in the Federal Court of Appeal, any attempt to get the CRTC to review its August decision will likely not result in higher wholesale rates. He made no prediction on the potential success of a court challenge. The CEO of Quebecor Inc.’s Videotron has told The Wire Report that the company is discussing an appeal with its counterparts. In explaining that he doesn’t expect the decision to be changed as a result of any review and vary process within the CRTC, Yaghi points to the amount of time -- more than three years -- that the regulator took to set the new rates, and to the fact that the CRTC could have gone further by regulating retail prices, “which it could have to drastically cut prices for consumers.” All in all, Yaghi wrote that his assessment of the impact of the decision remains unchanged. “We continue to believe that the decision on rate changes by the CRTC us unlikely to materially alter the industry’s competitive dynamics,” he wrote. While Yaghi made no comment on the potential success of a court challenge to the new regime, TD Securities analyst Vince Valentini was confident the courts would overturn the CRTC’s decision. In a lengthy report from September 4, Valentini wrote that he believes there are “good odds” that the wholesale rate decision will be overturned, “or at a minimum revised in favour of the facilities-based telecom and cable players.” Valentini predicts that there will be first a Federal Court appeal this week, followed by appeals to either the federal cabinet or the CRTC itself before November. The report also says that if the new rates are allowed to stand, telecom companies could cut their yearly investments in wireline and cable infrastructure by an estimated $1.68 billion, or about 22 per cent. And the infrastructure cuts won’t be limited to just rural areas, according to Valentini. “We believe the implications will go far beyond network extension into rural areas, and even projects geared towards increased broadband capacity, quality and innovation in urban areas will be reduced,” the report reads. The reduction in rates could, Valentini writes later in the report, “render Canadian telecoms, and the Canadian digital economy as a whole, uncompetitive versus most other developed economies in the world.” “We believe that the cost of capital for Canadian telecoms will increase because equity and debt investors will perceive better returns with lower risks in other countries, and then with higher hurdle rates and less attractive investment opportunities, the cable and telecom companies will be forced to reduce capex.” Days after the CRTC’s announcement of a new wholesale rate regime, a number of telecom companies -- BCE Inc., Rogers Communications Inc., Shaw Communications Inc., and Quebecor Inc. among them -- said they would be trimming infrastructure investments. Several analysts at the time said the financial impact of the new regime across the industry was “immaterial.”

Analysts divided on wholesale rate appeal outcome

Brief | September 9, 2019

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Analysts divided on wholesale rate appeal outcome

Brief | September 9, 2019

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