Wireless Auction Should Be a Positive for Rogers and Telus

With the wireless spectrum auction set to begin on May 27, investors may turn their focus to speculation regarding the potential outcomes for Canada’s wireless players.

With healthy gains for both Telus Corp. (TU) and Rogers Communications Inc. (RCI) in the past month at 5% and 21.5%, respectively, RBC Capital Markets analyst Jonathan Allen wouldn’t be surprised to see a pullback in their shares as the auction approaches. However, he does expect that the auction will ultimately prove to be a positive for both companies when compared to expectations, given that three or four regional players, primarily consisting of cable companies, are expected to emerge with spectrum.

Telus recently launched the discount Koodo Mobile wireless brand targetting young people, which not only presents another challenge to new entrants, but also takes up shelf space at retailers like Best Buy (BBY) and Wal-Mart (WMT).

In terms of speculation that Telus should replace its CDMA technology with the GSM format, Mr. Allen told clients that he continues to consider such an investment a waste of money, particularly because it would take Telus and network-sharing partner Bell (BCE) at least a year to build the basics of a new national network.

He said:

They would also not be automatically eligible for domestic roaming on Rogers’ network, like other new entrants, and hence would not be able to turn on the network until a decent network is built.

Even if they spent roughly C$500-million to build 2,000 transmission sites and cover 60% of the population, Telus would still have inferior coverage to Rogers and may not be able to even match its prices, the analyst added.