2. AGENDA
• The Structure of the Canadian Telecom Space
• The AWS Auction and its Outcome
• Incumbents’ Reaction to New Entrants
• Government Changes to Foreign Ownership Policy
• Winners and Losers
• Financial Community’s Thoughts
• Is it Worth It?
3. CANADIAN TELECOM SPACE BEFORE AWS AUCTION
Tier I / High Value (National)
Tier II / Discount (National)
4. THE NEW AWS TELCOS
Tier II / Discount (Regional)
Tier III / Mass Discount (Regional)
5. INCUMBENTS REACT TO NEW ENTRANTS
Tier I / High Value (National)
Tier II / Discount (National and Regional)
Tier III / Mass Discount (Regional)
6. FOREIGN OWNERSHIP RULES
• Up until recently, foreign investors could own up to 46.7%
in combined direct and indirect stakes in Canadian
carriers
• CRTC had considered three options:
Increase direct ownership to 49%
Full ownership of telecom providers with less than 10%
market share
Complete removal of restrictions
• New rules are designed to increase investment and
competition in the sector
7. GOVERNMENT POLICY CONSIDERATIONS
Poses considerable risk Concerns regarding
to public safety and security risks or
Deregulation…
Status Quo…
national security employment impact
• Telecommunications systems overstated
are backbone of all critical • No control over physical
infrastructure systems in telecom infrastructure
Canada connected to millions of
Hinders authorities’ homes
ability to follow Canadian control will not
intelligence priorities set guarantee Canadian
by Cabinet jobs
Canada is not alone in • Carriers already outsource
customer service jobs
its concerns
• Retail and corporate sales will
• In 2011, U.S. barred China’s remain in Canada regardless
Huawei Technologies Co.
from bidding for work on a
national emergency network
8. OWNERSHIP RULES CHANGE: BILL C-38
• Restrictions lifted for any
wireless carrier with less
than 10% market share
by revenue
• Designed to spur
investment and
competition in a sector
dominated by the Big 3
Remove barriers to investment for companies that need it
most…
9. WINNERS AND LOSERS
New Entrants and
Regional Incumbents
Rogers
Communications Inc.,
BCE Inc., Telus Corp.
• Together control more than
90% of the market
11. WINNERS: CONSUMERS AND BUSINESS
“THERE ARE 30 OECD MEMBER COUNTRIES, AND ONLY THREE COUNTRIES
HAVE INVESTMENT AND OWNERSHIP RESTRICTIONS THAT APPLY TO ALL
PUBLIC TELECOMMUNICATION OPERATORS. THESE COUNTRIES ARE
CANADA, MEXICO, AND KOREA. OF THE THREE COUNTRIES, CANADA HAS
THE MOST SEVERE RESTRICTIONS.”
12. WINNERS: NEW ENTRANTS
• Ability to raise further capital?
• Team up with multinational peers?
• More competitive offerings for Canadian?
• Greater market share and growth?
13. LOSERS: INCUMBENT CARRIERS
• Regulations are asymmetrical, for the benefit of small players
• Rules benefit foreign competitors while discouraging domestic entry
• In a wireless industry where 1/3 net subscriber adds captured by
new entrants despite smaller network coverage, limited distribution,
fewer handset selections, huge concern
• Differential treatment under the Telecommunications Act and the
Broadcasting Act
• Gives companies with access to capital a competitive advantage (ie.
Wind Mobile)
14. LOSERS: INCUMBENT CARRIERS (CONT’D)
For Rogers, short-term impact not meaningful
Rogers has no major partner unlike other two incumbents, which can
share wireless spectrum
Bell Canada says it is a "solution in search of a problem”
May see long-term disadvantage against Bell and Telus
Telus relatively quiet, given recent allegations by smaller competitor
Globalive regarding Telus’ foreign ownership stakes
15. WHAT DOES THE FINANCIAL COMMUNITY THINK?
“This is positive for the smaller players, especially
the likes of Manitoba Telecom.”
– Greg Macdonald, Macquarie
“…probably the most balanced way to do it, it
starts us down the road of greater foreign
ownership in the telecom space but at the same
time it attempts to protect the incumbent players.”
– Carmi Levi, Independent analyst
“…competition in the low end of the wireless
market should remain fierce…and possibly step up
into the mid market segment...spurring M&A and
presenting event risk to investors”
- Madhav Hari, Standard & Poor’s
16. IS IT WORTH IT?
Employees 29,000 55,000 41,000
Revenues $12.65B $19.9B $10.5B
Market $14.6B $30.9B $18.0B
Capitalization
Head Office Toronto Montreal Vancouver
17. IS IT WORTH IT?
25.5 million mobiles 125,000 Jobs
$7.51/month more than USA $43.05B in Revenue
$2.3B savings per year $63,5B in Market Capitalization
Protect Deregulate
Hinweis der Redaktion
Canadian GovernmentPoses considerable risk to public safety and national security Impacts integrity of Canada’s telecommunications sector Telecommunications systems are backbone of all critical infrastructure systems in CanadaTherefore, key component of national strategy to protect such infrastructureHinders authorities’ ability to follow intelligence priorities set by CabinetCanada is not alone in its concernsIn October 2011, the U.S. barred China’s Huawei Technologies Co. from bidding for work on a national emergency networkRecently, Australia banned Huawei (China’s largest telecom equipment manufacturer) from contracts to build a national broadband network being developed by the government
Harper government announces foreign ownership rule changes to Telecommunications Act in March 2012 C-38 – essentially remove barriers to investment for companies that need it mostIs this a move to liberalize the entire sector?
New entrants:Wind Mobile, Public Mobile, Mobilicity, VideotronRegional incumbents: MTS Allstream. MTS, which sells phone, TV, Internet, and wireless services in Manitoba could be the most immediate beneficiary. MTS, which has struggled to grow, could end up being acquired by a foreign company (namely, AT&T, which held an ownership stake in Allstream more than a decade ago under name AT&T Canada). Back in 2002, AT&T Canada filed for bankruptcy protection citing huge debt balances and a ‘parent’ that was not obligated (per Canadian ownership rules) to step in. Cairo-based Orascom, which backs newcomer Wind Mobile, would also benefit from the change. Because of ownership restrictions, Wind Mobile had no choice but to take on a huge amount of debt instead of receiving equity stakes by its deep-pocketed parent.
Example 1: Wind Mobile is backed by Orascom Telecom Holdings SAR. Orascom recently merged with Amsterdam-based Vimpelcom Ltd., the world’s sixth-largest wireless carrier