Why BCE Inc. Is Not a Long-Term Buy

BCE Inc. (TSX:BCE)(NYSE:BCE) might be a great investment today, but don’t be so quick to just buy and forget it.

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There are some investments that are touted as “buy-and-forget” purchases that you’ll never have to worry about. The phrase is a bit overused, and I prefer to avoid it for the most part, because in today’s changing landscape, it would not be wise to assume what’s here today will be here tomorrow. A few decades ago, companies like Sears Canada Inc. and Hudson’s Bay Co. were likely viewed favourably and were expected to be great long-term investments; that’s certainly not the case today with the former in liquidation and the latter feeling pressure from shareholders.

BCE Inc. (TSX:BCE)(NYSE:BCE) is one stock that I see having a similar fate. It has nothing to do with sales growth or profitability, but instead it’s to do with the mentality of the company’s management and the need for BCE to face limited competition for the company to be successful.

The company’s focus on preventing piracy is misguided

Recently the company wanted the government to step in and restrict websites to limit piracy. The obvious problem with this is that there is a lot of grey area when it comes to piracy, and it would be a very complex process to say the least. Rather than the company focusing its efforts on providing value-added services that would attract users, it believes that preventing piracy will improve its sales.

This is not to say that I am for piracy, but it’s a common theme we’ve seen from the company before. It’s a bit arrogant for BCE to assume that users that pirate content, left without the option, would gladly become paying customers of what I’d consider to be overpriced products and services. After all, consumers that have gone to piracy likely have done so to avoid paying any cost, or they did not like what was available with most providers, including BCE. In both those situations, it’s unlikely that BCE would stand to gain anyway since those users would probably just find other ways to pirate content.

The telecom industry as a whole could be in trouble if the CRTC allows less-restrictive rules on foreign ownership

One of the results of the ongoing NAFTA re-negotiations could be easier access for U.S. telecom providers in the Canadian marketplace. It may not be a certainty, but as consumers begin to demand more content and better-priced products and services, it appears to be an inevitability that the day will come when U.S. giants like AT&T Inc. and Verizon Communications Inc. could start competing for Canadian consumers. This would not only make the situation worse for BCE, but other providers, like Telus Corporation and Shaw Communications Inc. as well.

What does this mean for investors?

Investing in BCE is still not a bad investment; after all, the company has consistent sales and a strong dividend. However, 10 years from now, the competitive landscape could look very different, and I wouldn’t be surprised to see foreign competition solidifying its place in the Canadian marketplace. Up until now, BCE has had the comfort of knowing that with the minimal competition it faces, it does not have to work at innovating or offering more competitive prices, since there is no incentive to do so.

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 David Jagielski has no position in any stocks mentioned. The Motley Fool owns shares of Verizon Communications. Verizon Communications is a recommendation of Stock Advisor Canada.

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