Shaw faces tough tests in quest for growth: analyst

Quebecor Inc.’s Videotron is often seen as the blueprint for how a new wireless entrant can quickly build market share, but one analyst doesn’t expect things to go as smoothly for Shaw Communications Inc.

Videotron has said its goal is to grab a quarter of the wireless subscribers in its operating territory and, to that end, it has amassed nearly one million subscribers in Quebec and parts of Ontario since its 2010 launch.

While Shaw has said it is just as ambitious as it vies for wireless subscribers in Ontario, Alberta and B.C., two key differences may slow its progress, Barclays analyst Phillip Huang wrote in a note to clients Monday.

First, Shaw — which operates under the wireless brand Freedom Mobile and has about 1.1. million subscribers — doesn’t have a network sharing agreement with one of Canada’s largest network operators, Huang noted. This means it alone must finance network upgrades. Videotron, on the other hand, is four years into a 20-year deal with Rogers Communications Inc. to build and operate a shared network in the region. BCE Inc. and Telus Corp. also have a network sharing agreement across most of Canada.

“Shaw does not and likely will not in the foreseeable future, benefit from network sharing with a Big Three player, which means it will take much longer for Shaw to attain the service quality that Videotron can offer in Quebec,” Huang wrote.

Decades ago, Rogers and Shaw divided the cable business between east and west, but it would be hard to replicate the agreement for wireless given they are directly competing in the same regions. Meantime, Shaw is investing heavily in the Freedom network as it lags in scope and speed.

Second, Shaw should consider “potential retaliation” to its wired business from Telus, its top competitor in Western Canada, Huang wrote. Telus offers fibre-tothe-premises service across Shaw’s most important markets, Huang noted.

“By contrast, Videotron did not face the same threat of retaliation from BCE fibre-to-the-premises when it initially launched wireless, and thus had greater freedom to grow share,” he wrote.

Eight years ago, traditional cable companies had a wider speed advantage over their telecom competitors because it was cheaper to upgrade their networks to offer fast service. Since then, telecoms have been building expensive fibre networks that offer the same or better speeds.

Still, Shaw has a “much greater and more attractive opportunity in wireless” than Videotron given it covers nearly three times the population in provinces where cellphone bills are much higher, Huang wrote.

He noted that Quebec has become a “relative safe haven” for wireless since Shaw launched the iPhone in late 2017, sparking an increase in promotions in Western Canada and Ontario.