A New Reason to Invest in Canadian Wireless

Includes: BCE, ORSTF, RCI, TU
by: Market Blog

By Simon Avery

Canadian telecom shares are taking a beating Friday after Ottawa overturned the CRTC’s ruling that Globalive Communications does not meet foreign ownership and control rules.

The thinking is that Rogers Communications (NYSE:RCI), BCE’s (NYSE:BCE) Bell Canada and Telus (NYSE:TU) will lose a significant number of wireless customers to Globalive’s brand, Wind Mobile, which has teased consumers with talk of lower fees, simpler contracts (without three-year terms), and better customer service.

It’s hard to argue that Wind won’t hurt the incumbents, especially as its financial backer, Egyptian-based Orascom Telecom (OTC:ORSTF), is the 11th largest wireless operator in the world. That means better economies of scale, a wealth of data on how customers use their phones, and perhaps the willingness to undercut the established players’ prices.

But here’s the contrarian point of view: by overturning the CRTC’s decision that Globalive did not meet foreign ownership and control rules, the federal government has established a new de facto standard, which Rogers, Bell and Telus will now surely look to exploit themselves.

Rogers, Bell and Telus are minor players on the global scale but enjoy very juicy margins. That could mean big U.S. or international operators buying into the Canadian carriers at a nice premium, jacking up the stock prices.

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