Telus Corp.(NYSE:TU) and BCE Inc. (NYSE:BCE) are expected to finalize a decision to upgrade their cellular networks for 3G soon. This means equipment costs of C$75,000 to C$100,000 per site, according to Jeffrey Fan at UBS Securities. With roughly 5,000 locations for both companies, he told clients that this translates into anywhere from C$360-million to C$480-million in total combined costs.
Meanwhile, Nokia Siemens Networks and Huawei Technologies are the companies Mr. Fan considers well-positioned to capitalize on the additional spending from Telus and Bell Canada.
While the move will allow them to offer more handsets to customers and alleviate some technical concerns, the analyst told clients that other benefits like lower handset costs and higher revenue from roaming “are both difficult to quantify and may not materialize for some time.”
He also noted that Telus and BCE will have to be careful to maintain service quality through the monitoring of subscriber loads and traffic. Then there is the issue of higher costs associated with managing multiple networks, which Mr. Fan said will also have to be managed against Rogers Communications Inc. (NYSE:RCI) and potential new competitors like Shaw Communications Inc. (NYSE:SJR), Quebecor Inc.’s (NASDAQ:IQW) Videotron and Globalive Communications Corp. in the next 12 to 18 months.
While he believes Rogers can withstand this competitive push given its “2-year head-start on 3G, superior network coverage and execution,” he considers this a short-term negative that will lead to volatility for the stock.
As a result, UBS has a short-term “sell” rating on Rogers and Telus, and a “buy” rating on BCE based on its C$42.75 privatization price.