On wholesale rates, companies cry foul, but analysts aren’t convinced

Quebecor Inc.’s Videotron and Shaw Communications Inc. added their voices this morning to the list of telecom companies upset about the CRTC’s new wholesale broadband pricing, though indications are financial analysts aren’t worried about its effect on the sector. In a Wednesday morning French-language statement, the company said the new tariffs will cost them $50 million in retroactive payments, and said it is “worried about the potential consequences for the economy.” The $50-million hit for Quebecor is less than the $100 million the new tariffs will cost BCE Inc., and the $140 million it will cost Rogers Communications Inc., according to both statements released by both companies on Tuesday. Rogers said Tuesday it is “determining next steps, including a review of all future investments in rural and remote communities.” Shaw Communications Inc. too, said the decision will have adverse impacts on communications infrastructure in the country. “In time, this decision will be seen as short-sighted, and have negative far-reaching consequences for consumers and for the future investment required to build network capacity in all parts of Canada,” CEO Brad Shaw said in a Wednesday statement. Financial analysts covering the sector, however, seem unperturbed. Few have published any commentary on the reaction to the wholesale prices at all. The $100-million retroactive payment announced by Bell is not far outside the $45 to $95 million range predicted by Desjardins analyst Maher Yaghi last Friday in a note which categorized its takeaway from the new rates as “neutral.” According to a Monday note from Scotiabank analyst Jeff Fan, wholesale retroactive payments mandated by the new regime will cost roughly $330 million across the industry and “will not have a material impact on the ongoing revenue and of the facilities-based telcos and cablecos.” “After fine tuning our assumptions, we reaffirm our initial estimate that the annual EBITDA impact of the lower wholesale revenue is less than 1% of consolidated EBITDA,” Fan wrote. “The facilities-based providers can also leverage their owners’ retail pricing flexibility, flex their marketing muscle, and take advantage of their distribution and scale to maintain share in the ISP market,” the note read. Fan also wrote in the Monday note that the impact would be greatest on Cogeco Inc. -- which said Monday the decision would cost it $25 million -- followed by Quebecor, Rogers, and Bell. Reached by phone and email this week, two other analysts said they would not be publishing notes on the announcements from Bell and Rogers that they would reduce or are considering reducing their infrastructure investments, with one saying the announcements were immaterial. Another analyst, speaking on the condition of anonymity, said that Bell’s announcement of pulling back connecting 200,000 rural households was “more messaging, perhaps, than balancing the scale.” Innovation, Science, and Economic Development Minister Navdeep Bains said in a Tuesday statement that “we are deeply disappointed Bell is considering walking back its commitment to Canadians in rural and remote communities.” “I am confident new competitors will step up to make these investments,” he said, referring to possible Bell cuts. Responding to the threats from Bell and Rogers, NDP MP and Innovation critic Brian Masse renewed his long standing call for the government to use money generated from spectrum auctions to pay for a federally-funded infrastructure roll out. “The government is taking in lucrative paychecks all along, and kept that money, allowed prices to be ratcheted up, and services never be developed,” he said in a phone interview, adding that the CRTC’s regulatory decisions were inadequate. “How can -- that especially has a heritage component of Canada -- do this, almost gleefully, to the customers and the people of communities expecting to get service to this?” Masse said. In 2016, the CRTC lowered wholesale rates for wireline internet prices, and while some analysts at the time predicted there might be a decrease in infrastructure investments from the telecoms companies, no such decrease occurred. Then in March of last year, the CRTC enforced retroactive payments for lowered wireless roaming rates, which also did not garner threats of decreased infrastructure from the telecom companies. Conservative MP and Innovation critic Dan Albas did not respond to requests for comment. The CRTC declined to comment on the announcements from the telecom companies. — With reporting by Michael Lee-Murphy at mleemurphy@thewirereport.ca and editing by Ahmad Hathout at ahathout@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca.

On wholesale rates, companies cry foul, but analysts aren’t convinced

News | August 21, 2019

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On wholesale rates, companies cry foul, but analysts aren’t convinced

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