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Telus Corporation to Beef Up its Western Infrastructure: Time to Buy?

Telus Corporation (TSX:T)(NYSE:TU) is a terrific defensive play for an income investor who wants long-term dividend growth. The Canadian telecom industry is about to experience a new level of fierce competition as Shaw Communications Inc.’s (TSX:SJR.B)(NYSE:SJR) Freedom Mobile looks to steal subscribers from the existing Big Three incumbents.

Sure, Freedom Mobile’s infrastructure isn’t at the same level as the Big Three yet, but Shaw has been investing heavily in changing this. The management team at Shaw made it clear that Freedom Mobile will remain a discount wireless carrier, even though the network will be improved through investment initiatives in the years ahead.

The threat of Freedom Mobile is real, but I think Telus is best prepared of the Big Three to fight off competitors thanks to its market-leading customer service and promising growth initiatives in the pipeline that will help the company stay ahead in an extremely competitive market.

Telus is a dominant force in western Canada, which leaves the company quite vulnerable to the rising threat of Freedom Mobile. Telus has stated that it will invest approximately $4.2 billion in new wireless and broadband infrastructure in Alberta by 2020. Telus is also set to invest about $4.7 billion in infrastructure in British Columbia with the hopes of staying competitive relative to its peers.

Will its infrastructure investments be enough to fight off Freedom Mobile?

The investments will definitely help, but Freedom Mobile is going to apply a huge amount of pricing pressure on the Big Three, so Telus may have to create family package discounts with extras in the same way that Rogers Communications Inc. has to attract new subscribers.

I believe Telus’s unbelievable customer retention will allow it to grow as competition heats up in the Canadian telecom scene. Telus and Shaw will be the dominant forces in western Canada, and the other wireless carriers may find themselves losing subscribers in the west if they’re unable to keep up.

Valuation

Telus trades at a 21.28 price-to-earnings multiple and a 3.3 price-to-book multiple, both of which are higher than Telus’s five-year historical average multiples of 17.4, and 2.8, respectively.

Telus isn’t cheap, and it’s going to find itself in a tougher competitive environment, but I think the company is very well positioned to defend its moat. Income investors looking for a solid yield and a shareholder-friendly management team should consider picking up shares of Telus today.

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Fool contributor Joey Frenette owns shares of Telus Corporation and Shaw Communications Inc.

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