Pressure on Rogers and Telus Presents Possible Buying Opportunity

Companies in the Canadian wireless telephone business will be in the spotlight today after Industry Canada unveiled its wireless spectrum auction rules with lower barriers for new entrants.

UBS analyst Jeffrey Fan expects shares of both both Rogers Communications Inc. (RG), and Telus Corp. (TU) to react negatively. He does not think these developments will impact the closing of Bell Canada Inc.’s (BCE) privatization.

In a note to clients, Mr. Fan said that,

The rules appear to encourage a national new entrant, which would enjoy potentially longer mandated roaming period and lower initial network coverage requirement. This could be the catalyst for Videotron, MBT and Shaw to form a partnership to take advantage of these rules.

The analyst said the only positive for incumbent carriers is that the rules did not include mandatory pricing or a national set aside. Mr. Fan considered the rules generous for new entrants.

Meanwhile, Desjardins Securities analyst Joseph MacKay thinks the recent sell-off in Telus and Rogers shares “more than adequately reflects” industry Canada’s announcement, and creates a buying opportunity in both stocks.