Industry experts foresees that Canada’s telecom sector currently faces challenges like slower growth and intense competition, prompting leading companies to consider selling assets as a strategy to cut costs.
Despite that, the investment potential of the sector remains and asset managers anticipate a turnaround once some of the uncertainties are laid to rest in the near-to-medium term.
Canadian Telcos Adapt to Competitive Environment
According to analysts, Canada’s "Big 3" telecom companies—Rogers, Bell Canada, and Telus—along with Quebecor Inc. and Cogeco, have opportunities to explore various divestiture strategies.
This is due to the fact that the Canadian telecom landscape has grown increasingly competitive, with price wars slowing revenue growth and pushing companies toward restructuring.
"In this type of environment, we believe telecom providers are seeking efficiencies, with divestitures on the radar as leverage remains elevated and interest rates continue to fluctuate," noted CIBC analyst Stephanie Price in a research report.
In recent years, telecom companies have taken on significant debt to develop their 5G networks, aiming to offer faster speeds and more reliable connections. At the same time, Bell and Telus have been aggressively expanding their fiber internet networks across Canada.
In June 2024, Bell Canada announced plans to sell Northwestel Inc. for CAD $1 billion to a consortium of northern Indigenous communities, a move expected to double fiber internet speeds and extend high-speed access. This decision also reflects a strategic shift for Bell’s parent company, BCE Inc., which appears focused on “unlocking value from its business and monetizing standalone assets,” Price added.
In layman’s term, it means selling off parts of the company that no longer bring value in the long run.
Additionally, Rogers Communications Inc. plans to sell assets, including data centers, to pay off debt from its merger with Shaw Communications, potentially raising nearly CAD $1 billion. This follows its sale of a Cogeco stake for CAD $829 million in December 2023.
5G in Canada
A previous Ericsson ConsumerLab study revealed that around 4 million Canadian smartphone users intended to upgrade to 5G subscriptions in 2023. However, consumers now have higher expectations for 5G performance quality and tend to hold providers responsible when the internet connection falls short.
This leads to a "satisfaction gap," where Canadians are 10% less happy with the quality of their 5G service after using it for more than a year, said Jasmeet Sethi, Head of Ericsson Research's ConsumerLab.
In the same context, Erik Bohlin, chair in telecommunication economics at the Ivey School of Business, noted that the global rollout of 5G hasn't been as "disruptive or revolutionary as expected," despite earlier hopes for greater profitability for telecom carriers.
To adapt to growing expectations, Canadian telecom providers should focus on offering elevated connectivity to their customers, where users could pay a premium to ensure the connectivity of their device is prioritized when a network gets busy.
Another strategy cited is network slicing, where in each slice allocates dedicated capacity for specific users or 5G applications. This technology enables the creation of multiple virtual networks on a single physical network.
While the Canadian telecommunications sector spent over USD 11 billion in capital expenditures in 2023, more investment is needed for last-mile connectivity, ensuring that everyone is connected.
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