The Big Three have been very profitable for longer-term investors, as their shares have continued to pay out impressive, growing dividends over time. A good amount of capital gains has been rewarded over the last 10 years. Though such gains have been harder to come by lately amid macro headwinds and rate-related concerns.
Undoubtedly, federal regulators and Canadian wireless users want to see a big fourth player in the scene. Such a fourth player could drive down prices and provide better prices for users. Of course, we’ve seen Shaw Communications attempt to take on the Big Three with its Freedom Mobile business. Freedom has had limited success, given how difficult it can be to keep up as the tides shift toward new telecom tech.
Undoubtedly, 5G infrastructure does not come cheap. With interest rates on the rise, the costs of borrowing to build out one’s network have gone up. And they could continue to rise if the Bank of Canada continues its hikes in a bid to drag inflation back to manageable levels (think the 2-3% range or so).
Can Quebecor take on the Big Three?
With the Quebec-based telecom looking to go national, I wouldn’t rule out a scenario where the firm “disrupts” the Big Three. It will not be an easy feat, as Freedom Mobile showed us over the past several years. It’s tough to dethrone the kings, especially if they’ve been dominating for such a long time.
With Rogers and Shaw joining forces, the Big Three may be too powerful for a fourth player to be able to make noise without a bit of help from federal regulators. Though I do think the competent managers over at Quebecor can give the Big Three a run for their money, it will take time. Perhaps many years before Quebecor can make the slightest dent in the share of the Big Three.
Telus is a pure-play telecom that doesn’t have a media business that’s dragging amid macro headwinds. With a magnificent network and a huge budget, it will be hard for any smaller telecom to catch up. Quebecor will need to be aggressive with promos and other efforts if it’s going to put up a fight. And let’s not forget about the magnitude of spending it’ll have to put up in an effort to pull ahead in a certain target market.
Though I’m a big fan of Quebecor, investors should mute their expectations when it comes to disrupting the Big Three. When it comes to changes in Canada’s telecom scene, I do think it will take many, many years for things to play out. Going up against the Big Three will not be a cakewalk. Quebecor likely knows this, and it could take a different angle as it looks to carve out a small share for itself outside of Quebec.
In any case, there doesn’t seem to be too much investor enthusiasm as Quebecor looks to expand its footprint beyond its home turf. The stock trades at just 12.8 times trailing price-to-earnings, with a 3.5% dividend yield.
When it comes to the telecoms, why not bet on all four names? Quebecor for value and long-term growth, and a name like BCE for income (the 6.3% yield is a thing of beauty) in the present.