Why Did Telus Shut Down Public Mobile?

And what does it mean for Canada’s big three?

The Motley Fool

Late last week, Telus (TSX: T)(NYSE: TU) announced it would be shutting down Pubic Mobile’s cellphone network after acquiring the company late last year. The move means more than 260,000 subscribers will be migrated over to Telus’s 4G network by about mid-August. They will have to upgrade their phones, but Telus has offered some small discounts to help its new customers with the migration.

Telus’s announcement certainly caused some controversy. Public Moible’s customers are generally lower-income, and chose the company for its cheaper talk-and-text plans. They likely would have chosen another provider if they wanted a higher-quality phone and more powerful network. Canadian Industry Minister James Moore even said that it “seems like an odd business decision to alienate thousands of Public Mobile users as you absorb Public Mobile itself.”

But in the end, it wasn’t much of a surprise. Public Mobile’s network is generally viewed as outdated, and the company’s spectrum isn’t used for the latest smartphones. This is precisely why the merger was approved in the first place. And Telus did not buy Public Mobile for its subscriber base. Public Mobile’s limited spectrum will give a small boost to Telus’s 4G network, and Telus will also get a financial benefit from Publc Mobile’s tax losses.

So what does this mean for the industry?

On the surface, it looks like Telus’s goal all along was to eliminate a competitor, and it has succeeded in doing that. So this can only be seen as a positive for Telus’s large rivals, BCE Inc (TSX: BCE)(NYSE: BCE) and Rogers Communications (TSX: RCI.B)(NYSE: RCI).

And the events are yet another sign that the wireless upstart experiment has been a failure. The other two small competitors, Wind and Mobilicity, are struggling to find a buyer. None of the upstarts has made a serious dent in the market share of the big three. Consumers who want a fast, powerful, modern network, still have limited options. This is a good news for the wireless giants and their investors.

Darker clouds long-term

Even though this is a net positive, the telcos should have concerns about their long-term profitability. James Moore’s suspicions are shared by many Canadians, who have grown tired of paying high wireless bills. As time goes by, politicians are being put under ever-increasing pressure to reign in the telcos’ excesses. And now that Telus is shutting down Public Mobile, that pressure can only increase.

Foolish bottom line

Telus did not teach us anything new last week. It is clear to everyone involved that the big three dominate Canada’s airwaves, and that will not change anytime soon. At the same time, future actions by the Canadian government can put a damper on the profitability of these three companies.

The telcos remain good options for dividend-focused investors. But that could change before long.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »