Why Telus Corporation Is Your Best Short-Term Option in the New Pick and Pay World.

The fact that Telus Corporation (TSX:T)(NYSE:TU) does not produce its own content may give it an edge over its national competitors.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

It has been less than a week since the CRTC released its landmark Pick and Pay cable service initiative to the Canadian public. This ruling will significantly alter the telecommunications landscape, while balancing the changing viewing habits of Canadians. For the most part, consumers who have been promised more choice in the future have applauded the decision. However, telecoms, content providers, and investors are concerned about their futures.

What sets Canada apart from other nations is that so much of its television programming is both produced and broadcasted by cable companies. That is with the exception of Telus Corporation (TSX:T)(NYSE:TU), which might just be the strongest bet for investors in the early stages of the Pick and Pay world.

Pick and pay and pay and pay

The new regulations from the CRTC stipulate that cable providers must now offer a basic package that costs no more than $25.00 per month. It must include all local and regional stations, CPAC (plus its provincial counterpart), APTN, provincial education channels, and community channels. For Telus, this new basic package price will not be much of a stretch, as its current “basic” package already costs $29.00 for 34 channels, with 16 theme packs and 100 pick and pay channels available.

All remaining channels will then be offered either individually or through small (five to 10 channel) bundles at a “reasonable price.” This will inevitably lead to the death of smaller niche channels, but Telus shouldn’t be affected, as many of these fringe channels only survive through conventional bundling.

Redistribution of revenues

As of this moment the vast majority of the 14 million homes in Canada still pay for conventional television services, but we are entering a generation with different tastes and viewing habits. The emergence of Netflix and similar Internet streaming services has shifted how a growing number of people consume media content. But this reliance of consumption through the Internet comes at a price, and Telus and the other telecoms secretly welcome the new found dependency on the Internet.

The belief among many is that all of the telecoms will simply take any lost television revenues and make up for it with higher Internet prices, or more aggressive data-cap penalties. Last month Telus ended its long-run offering of unlimited home Internet data and introduced capped data packages, with fines up to $75.00 for exceeding your monthly plan. Telus justifies this by stating that the 5% of customers that make up the heaviest users consume 25% of the data on the network.

With the shift to watching TV and movies online, these ratios will only grow higher, as an hour of HD video typically consumes 2.5GB of data usage. This increased dependency on streaming will push the existing national infrastructure to its limits, which will require increased monthly prices to upgrade and maintain. Telus has been one of the few companies to be very proactive in its attempts to upgrade its network in western Canada to fibre-optic to mitigate some of these issues.

Bundling your portfolio

We cannot forget that this new era of pick and pay isn’t the only thing in Telus’ favour. Its “free TV” with a three-year contract initiative has been very successful in many parts of Canada.

Not to be forgotten is Telus’s wireless division, which last year became the second largest in the country in terms of subscribers.

Generally, Telus has received the CRTC’s decision in a positive light, declaring it a “real win for Canadians.” In the short term this deal has the possibility to turn Telus’ stock into a real win for investors, as the drop in price to $42.08 opens up a good buying opportunity. Telus is generally seen as a stock that tracks upward at a slow and steady pace, making any sharp drop prime buying time. The average price target may only be set at $44.80, but this is offset by the dividend, which has an annualized payout of $1.60 with a yield of 3.8%.

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 Cameron Conway has no position in any stocks mentioned. David Gardner owns shares of Netflix. The Motley Fool owns shares of Netflix.

More on Investing

Cogs turning against each other

Top 2 Stocks That Could Beat the Recession

Recession-resistant stocks like Dollarama (TSX:DOL) should be on your radar in 2022.

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

The 3 Best Dividend Stocks for Monthly Passive Income

These three dividend stocks are the best options for those seeking high passive income in the next few years in…

Read more »

clock time
Dividend Stocks

Got $10,000 to Invest? 1 Cheap TSX Stock to Buy Right Now

This top TSX dividend stock is finally on sale and has made some savvy buy-and-hold investors quite rich.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Want Monthly Passive Income? These TSX Dividend Stocks Are for You

If you want monthly passive income from TSX stocks, you have to do a little digging. I've given you a…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Bank Stocks

The Most Valuable TSX Stock Out There Is up 10% This Month!

This TSX stock is the best value stock out there, expanding even during a downturn and setting itself up from…

Read more »

ETF chart stocks
Dividend Stocks

3 International ETFs to Buy for a Diversified Portfolio

Some international markets may prove more resilient against economic downturns, and exposure to them may strengthen your portfolio during crashes…

Read more »

Payday ringed on a calendar
Dividend Stocks

TFSA Pension: 3 Canadian Dividend Stocks to Buy for Monthly Passive Income

These high-yield Canadian stocks look good to buy right now for a TFSA focused on monthly passive income.

Read more »

A worker uses a laptop inside a restaurant.
Tech Stocks

2 U.S. Stocks Canadian Investors Can Buy and Hold Forever

Blue-chip companies such as Microsoft and Coca-Cola are forever stocks that have the potential to beat the market in 2022…

Read more »