In many of my previous pieces, I’ve mentioned how Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) will be a major disruptor to the Canadian wireless market over the next five years and beyond. As Shaw continues to improve its wireless infrastructure, I believe the company will capture a huge chunk of market share at the expense of the Big Three in the coming years. Shaw management believes that it can capture a quarter of the Canadian wireless subscriber base at some point, as it attracts Canadians with its cheaper wireless plans.
Shaw is a real threat that will likely hurt long-term profitability for all the Big Three incumbents. For the Big Three, it’s going to be a scramble to retain its wireless subscribers, as Shaw continues its network improvements while ramping up on subscriber growth initiatives. Canadians pay some of the highest wireless fees in the developed world. Shaw realizes this, and it is determined to change the Canadian wireless industry for the better of Canadians (and Shaw shareholders).
Investors of the Big Three telecoms need to start worrying about the impact of Shaw’s entrance into the wireless market. I don’t think it’s a matter of if Shaw will be successful in becoming a member of the Big Four; it’s a matter of when.
The Big Three players have been ramping up infrastructure upgrades to remain top contenders. Telus Corporation (TSX:T)(NYSE:TU) previously announced its intent to spend $4.2 billion on infrastructure upgrades in Alberta by 2020, with $4.6 billion on upgrades in British Columbia. That’s quite a bit of spending in a rising interest rate environment, mostly just to retain its subscriber base!
Freedom Mobile could receive advantages from regulators
The Ministry of Innovation, Science, and Economic Development recently put forth a proposal which would allow new wireless entrants to receive an advantage when 600 MHz band spectrum licences are auctioned. Shaw management stated that such an advantage to new entrants would “correct” the “huge imbalance” that exists in Canada’s wireless space.
The Big Three CEOs argued that Shaw’s wireless business Freedom Mobile shouldn’t be considered as a “new entrant” since it has been in the cable business for decades. But I don’t think the Big Three players have a case in the end, since such a move would spark an increase in competition in an industry that’s in dire need of it.
Regulators are likely to part sides with Shaw, as it attempts to shake up the Canadian wireless space. Whether that’s through first dibs on new spectra or preventing Big Three players from exhibiting further anti-competitive practices, it’s clear that the Canadian government wants to spark competition in the telecom space, so Canadians can receive better wireless service at more reasonable prices.
That’s a huge advantage that Shaw’s wireless business has over the Big Three incumbents. If you own shares of any Big Three telecoms, it may be time to swap them for shares of SJR.B today, because by the time we refer to Canada’s major telecoms as the Big Four, it’ll probably be too late.
Stay smart. Stay hungry. Stay Foolish.