Shaw Communications Inc. announced plans Friday to launch wireless services late next year, ending endless speculation about its crucial entry into Canada's wireless market.
The announcement by the Calgary-based cable company came as it posted a dip in second-quarter profit to $139-million or 32 cents a share, from $157-million or 37 cents a year earlier, due to increased competition from Telus Corp. in Western Canada and maturing Internet and home phone markets.
"We are advancing our strategy to offer a competitive wireless offering and are now planning for an initial launch in late 2011," chief executive officer Jim Shaw said in a statement.
"Accordingly, we are accelerating our wireless capital spend and expect to invest approximately $100-million in fiscal 2010. The investment in this new business will primarily be funded by cash on hand."
Analysts have been waiting for this news for some time. The company bought $190-million of wireless spectrum at a government auction in 2008. But so far Shaw has been coy and reserved about its strategy compared to Quebecor Inc.'s Vidéotron Ltée, which has been boastful of the success it will encounter when it launches wireless service in Quebec this summer.
With Shaw launching wireless service, competition with Telus in Western Canada for "bundled" customers is likely to become much more fierce as Telus continues to roll out a TV offering to combat Shaw. Bundled customers, who receive more than one service from a company, generate more revenue and are less likely to switch to a competitor.
"Cost containment may be a bigger part of the picture in the coming quarters as competitive risk from Telus' broadband/(Internet protocol) TV efforts increases," wrote Greg MacDonald, an analyst with National Bank Financial, in a research note earlier this week.
Mr. Shaw noted in the release that his company faces an increasingly competitive market in Western Canada, as Shaw posted another basic TV subscriber loss of 1,055 customers, likely because of Telus TV.
Shaw's earnings and financials were roughly in line with estimates. Dvai Ghose of Genuity Capital Markets had previously pegged Shaw's revenue growth at just over 11 per cent. The company's consolidated revenue came in at $929-million for the quarter, an 11-per-cent increase.
More importantly, however, this marks the first time Mr. Shaw has given any idea of his plans for a wireless strategy. Some analysts consider the hesitation prudent, given the upheaval about to wash across the wireless landscape as new players join the industry. Others consider any delay to launch a potential threat to gaining a foothold in the market among the other new entrants.
A recent posting on Shaw's website for a "Senior Wireless Architect" only added fuel to industry chatter. Previously, the profitable cable company had been considering a wireless "resale," whereby it sold service that utilized a more established wireless providers' infrastructure.
Wireless is considered the next crucial growth area for cable companies that face maturing Internet and residential home phone markets. But a wireless foray also presents risks to investors, and some analysts have expressed concern over the possible short term financial pain to stake out a long term strategic position. Shaw regularly throws of dividends, but the stock has suffered of late.
Mr. Ghose suggested in a research note that Shaw may continue to underperform because of growing competition, uncertainty surrounding its both its wireless rollout and a takeover bid for CanWest Global Communications Corp.'s broadcasting assets, its premium valuation, and "limited dividend growth potential."
Mr. Shaw moved to stress that the wireless build out would commence mainly with cash on hand, but he will likely have to appease inquisitive analysts on a conference call on Friday afternoon.
"We are excited about the future and the strategic investments we are making in wireless and CanWest to drive further growth," Mr. Shaw said. "We will execute on these with the same financial and operating discipline our investors have come to expect."
That call may also reveal more details on the wireless strategy, which will affect other new entrants who are launching or have launched service in Shaw's home base, such as Globalive Wireless Management Corp.'s Wind Mobile.
"Management's comments on wireless this morning, which should be expanded upon during the conference call later today, have removed the uncertainty regarding the timing of the launch on the wireless side," Desjardins Securities analyst Maher Yaghi wrote in a note to clients. "Although the CanWest issue is still hanging over the stock and will take some time to resolve, our view is that the clarity on the wireless strategy should support the stock in the near to medium term."
Bank of America Merrill Lynch analyst Glen Campbell said he expected "an initial one-city build-out announcement. Barring a surprise on the details, we would see this as marginally negative for Shaw."
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