Shaw, CanWest and the Canadian Wireless Market

Includes: BCE, CWGVF, RCI, SJR, TU
by: Streetwise Blog

By Andrew Willis

Shaw Communications (NYSE:SJR) is making a big bet Monday that TV content will help the cable company win the high-stakes battle for domination of the wireless market.

Shaw, dominant in western Canadian cable, is about to roll out a cell phone network that will compete with regional incumbent Telus (NYSE:TU), along with the not-inconsiderable firepower of BCE (NYSE:BCE) and Rogers Communications (NYSE:RCI).

Peek inside the brain of CEO Jim Shaw – a slightly frightening prospect – and you would find wireless strategy is top of mind. Shaw plans to spend $100 million rolling out its network this year, and will have phones in the hands of consumers in 2011. While that’s a later start date than other new enterants to the field, Shaw has a habit of executing well and winning whatever contests it enters.

Making the Shaw wireless offering compelling to customers helped drive Monday’s $2 billion purchase of CanWest Global Communications’ (OTC:CWGVF) stable of TV networks, according to a report from BMO Nesbitt Burns analyst Tim Casey.

The acquisition makes financial sense on its own, according to Mr. Casey’s first take on the numbers, as the TV unit is cash flow positive and generated $255 million of earnings before interest, taxes, depreciation and amortization or EBITDA last year. (The BMO analyst noted that number was goosed slightly by the timing of programming costs.)

Looking ahead, though, Mr. Casey said the acquisition is “potentially positive” because “Shaw will position the television group to help differentiate, in time, its broadband and yet to be launched wireless offering.”

Telus has a fledgling TV presence, but nothing near the content that Shaw will soon own. In the past, Telus has steered clear of any direct ownership of media assets, preferring instead to expand in specialized areas such as information and communications systems for the health care sector.

Rogers, on the other hand, is a major player in media, with TV networks and the Toronto Blue Jays baseball team. BCE holds minority stakes in a number of properties, including CTVglobemedia and the Montreal Canadiens hockey team.

The other major upstart in domestic wireless, Quebecor, has massive media holdings, and is winning better-than-expected market share as it rolls out cell phones in its home market.

If Shaw has this right, and owning TV content helps build a wireless network, then its stock should command a premium valuation. Investors have traditionally looked favourably on companies that dominate the high-margin, high-growth world of wireless.

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Tagged: Canada
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