Rogers and Hockey Agreement

Canadian Telecom Giants Widen Circles to Keep Investors Happy

August 4, 2014 - Written By Cory McNutt

The Big Three- Rogers Communications, BCE, Inc., and Telus Corp. dominate Canada’s wireless mobile service. The subscribers are as used to high monthly plans and rates as their shareholders are to big dividends.  However, with the Canadian Government making wireless expansion harder for the Big Three as they ‘bend’ the rules so that a fourth new carrier can grow – in an effort to spark competition and consequently lower rates for subscribers – Canada’s telecom giants must look elsewhere to provide those big dividend checks.

They have all started to go into unchartered territories – from businesses ranging from banking to healthcare in an effort to drive growth, all from within Canada as they shy away from overseas investments.  Once Bell and Rogers dominated the industry, first with landline connections and then with cable TV, but with both of those giving way to online access and with wireless mobile growth slowing as the market becomes more saturated, they have to look elsewhere for revenue sources.

All three telecoms are hedging their bets in a different manner, ones that may not pay dividends until years from now, while other moves may start to get the ball rolling now.  Rogers in a move that nobody saw coming, announced that they spent $5.2 billion for the exclusive rights to the National Hockey League broadcasts and this may bring a rapid payoff if marketed properly.  Not only can they show them over the more traditional cable channels, but also on mobile devices, as there is a definite increase in sports content is being watched over mobile devices.

Besides the NHL rights, Rogers has also tapped into the banking business with not only mobile banking but also their own branded credit card – without the backing of an outside bank.  Rogers also has joint control with Bell of a sports empire that owns the NHL’s Maple Leafs, as well as pro basketball, baseball and soccer teams in Toronto.

Bell is now investing outside its own business and buying up stakes in over companies.  John Goldsmith, deputy head of equities at Montrusco Bolton said, “For BCE to do this deal signals just one thing – it says we can no longer grow our business as well as we used to, otherwise we would have just kept on reinvesting in our business.”

Telus, the number three carrier, has gone a different direction altogether by investing in the healthcare industry with remote diagnosis, pharmacy benefits, medical management and patient monitoring.  Providing alerts to help patients remember to take their medicines, order refills or filing an insurance claim.  Seaboard’s Grant said, “What Telus is doing, if they can pull it off, is a lot closer to their core business than, shall we say, running the Toronto Maple Leafs.  If you look at Telus a decade from now you might say it was obvious they were moving their revenue stream from 3% healthcare to 30% healthcare, but it isn’t quite so obvious today.”  In the last six years, Telus has only spent about $1 billion of its $14 billion in capital spending on healthcare, and in 2013, their health revenue was $550 million or about 5-percent of its total revenue – a figure that is likely to grow over the next few years.

With all of these questions and signs that growth is slowing down for the Big Three, it has started to affect their stock prices.  Telus and BCE hit an all-time high price in mid-June, but since then Telus is down 10-percent and BCE is down 3-percent.  Since a peak in early 2013, shares of Rogers are down almost 20-percent.  While all three have always posted about a 10-percent dividend over the past three years, some are estimating between zero and only 4-percent. Shareholders will not be happy about this, but will have to adjust their expectations with the reality of today’s market conditions.

Bell of Canada ATM