Competition in Canada's Wireless Market Threatens Rogers Communications

| About: Rogers Communications (RCI)

We downgrade our recommendation for Rogers Communications Inc. (RCI - Analyst Report) to Neutral as a result of increased competition in the Canadian wireless market. Canadian wireless rates are among the highest in the world. In a bid to improve service and prices through competition, the Canadian federal government has licensed four new operators. Out of the four, Globalive, which will use the Wind Mobile brand, intends to offer its services in most of the country.

The regulatory authority of Canada has proposed the imposition of a TV-tax which may increase the monthly bill of cable TV subscribers to a large extent. This may result in a significant drop in the number of cable TV customers and impact the entire broadcasting industry. Rogers’ cable operations are currently facing increased competition. Bell Canada’s (BCE - Analyst Report) entry into cable TV services is increasing competitive pressure, and may likely, in our view, shave Rogers’ market share and cap margin expansion. On Oct 10, 2008, Bell Canada and Telus Corp. (TU - Analyst Report) partnered to launch their CDMA based wireless networks using HSPA technology by early 2010.

Rogers is also feeling the brunt of the slowness in the economy. The general softness in the Canadian and the Ontario economy has negatively impacted Media’s advertising sales, and lowered net additions of most cable and Internet products. The lower net additions of cable telephony lines reflect the impact of a slowing Ontario economy. The softness at Media was due to weakness in advertising-related revenues in Publishing, Radio and Television, and at The Shopping Channel reflecting general retail sales declines.