Telecom sector poised to shed assets amid slower growth and more competition

When Bell Canada announced in June it was selling Northwestel Inc. to a consortium of northern Indigenous communities, the telecom giant hailed the $1-billion deal as a milestone in advancing Indigenous self-determination.

Bell said Northwestel, which provides phone, internet and television services in Canada’s north, would benefit from commitments by its new owner, known as Sixty North Unity, to double fibre internet speeds and expand high-speed availability.

But the deal also signalled a shift for Bell’s owner, BCE Inc., which appeared focused on “unlocking value from its business and monetizing standalone assets,” said CIBC analyst Stephanie Price in a recent research note.

That is to say, it was time to sell off parts of the company it no longer made sense to keep.

As Canada’s telecommunications sector copes with challenges such as slower growth and fierce competition, the dominant players are poised to continue shedding assets to reduce costs, industry watchers say.

Bell is not alone in that approach, Price added.

Rogers Communications Inc. has said it intends to sell off certain assets, including nearly $1 billion in real estate. That comes after Rogers divested its stake in Cogeco in December 2023 for $829 million.

Analysts say the so-called Big 3 — Rogers, BCE and Telus Corp. — along with Quebecor Inc. and Cogeco, have an opportunity to pursue a range of divestiture options.

Canada’s largest telecommunications companies are behemoths, with wide-ranging divisions besides their phone and internet offerings. Those span from media to sports and entertainment, along with health products and services.

“The Canadian telecom environment has become more competitive recently, with pricing wars leading to slower top-line growth and a focus on restructuring,” Price said in her note last month.

“In this type of environment, we believe that the telecom providers are seeking efficiencies, with divestitures on the radar as leverage remains elevated and interest rates continue to fluctuate.”

Dave Heger, senior equity analyst at Edward Jones, said Canada’s telecom sector reached a “turning point” last year, when Rogers closed its $26-billion purchase of Shaw Communications Inc., which also saw Shaw’s Freedom Mobile spun off in a sale to Quebecor.

With a more competitive wireless market, the big companies have been reporting slight drops in their average revenue per user.

“The pricing side of things has gotten tougher in a four-player environment,” said Heger.

He added companies took on debt in recent years as they built out their 5G networks with the promise of faster speeds and more reliable connections. Meanwhile, BCE and Telus have been “aggressively” building out their fibre internet networks across Canada.

But the global rollout of 5G technology hasn’t been as “disruptive or revolutionary as expected,” said Erik Bohlin, chair in telecommunication economics, policy and regulation at the Ivey School of Business.

Bohlin said there were expectations a decade ago that 5G could be more lucrative for telecom carriers. Those hopes were pinned to anticipated growth associated with Internet of Things applications, as well as network slicing — a technology that creates multiple virtual networks for wireless traffic to reserve capacity for individual users.

“5G is incrementally adding, of course, better capacity and also better latency and also perhaps providing platforms for selective Internet of Things applications … but I think the expectations that the growth will be just around the corner hasn’t really come to pass,” he said.

“It really hasn’t happened, so it’s still business as usual in a certain sense.”

Cell towers, media and sports assets are among the potential targets for continued divestments, according to analysts.

Despite a longstanding reluctance to give up towers, “the timing is as good as it can be” for such transactions, said Scotiabank analyst Maher Yaghi in a recent report.

With infrastructure investors keen to buy tower assets, he said Telus and BCE — which already share towers across Canada — stand to make between $3 billion and $4 billion in sales, while Rogers could get as much as $6 billion.

“We believe the economics supporting a sale are attractive; however, none of the three incumbents wants to be the first to sell for fear of losing a competitive advantage,” he said.

U.S. giants such as AT&T and Verizon have also shed media assets in recent years, Price noted. However, such sales in Canada are considered less likely “given the Canadian regulatory environment and the limited pool of potential Canadian buyers.”

Instead, Canadian telecoms could be looking to punt their sports assets.

Rogers and BCE each own a 37.5 per cent stake in Maple Leaf Sports and Entertainment, which owns the Toronto Maple Leafs and Raptors, as well as the city’s CFL and MLS teams. Rogers also owns the Toronto Blue Jays, while Bell has a 20 per cent stake in the Montreal Canadiens.

Price estimated a value of $6.7 billion for Rogers’ sports assets and $4.5 billion for that of BCE, which could be “potentially a more motivated seller than Rogers.”

But either company could be tempted to at least consider selling a portion of their sports team ownership, said Heger, who pointed out demand is strong among potential buyers.

“When you look at sports assets, probably the market value of those assets relative to the financial impact, there’s in my mind kind of a disconnect,” he said.

“It just seems like valuations of sports teams keep going up and for Rogers or BCE … it wouldn’t have that big of an impact on their reported numbers relative to the potential cash value they could get selling some of that ownership.”

In May, Rogers CEO Tony Staffieri poured cold water on the possibility, calling sports teams key to Rogers’ core business and saying the company would continue to hold onto those “valuable assets.”

“We’re a communications and an entertainment company and so we think about sports ownership as one of the fastest growing entertainment vehicles frankly,” Staffieri said at a luncheon hosted by the Canadian Club Toronto.

“Sporting events are still the most watched events, particularly live, and so it’s a good asset to own.”

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