Canadian wireless incumbents would suffer on any verizon entry: analyst
It may be a long shot at this point, but the potential entry of Verizon Communications Inc. into the Canadian wireless market warrants a closer look. Verizon has confirmed it is considering the idea, and the fact that both Wind Mobile and Mobilicity are up for sale could make any such entry rather quick and easy. “We believe Verizon could be a ver y strong contender in Canada if it chooses to take the step, given its sheer size, strong handset buying power, roaming advantage in the U.S. and the upcoming 700Mhz spectrum auction, which could be used to roll out a national platform,” Maher yaghi, a telecommunications and cable analyst at desjardins Securities, told clients. “However, at this point in time, we believe the odds that the company will make this investment are not high, as Verizon is actively looking to buy out Vodafone’s position in Verizon Wireless and given the relative maturity of the Canadian wire- less space.” Nevertheless, Mr. yaghi thinks investors should consider the potential downside for Canada’s large wireless incumbents if Verizon enters the market. “Canadian telcos trade at a premium to their U.S. counterparts,” he said. “An entry by Verizon would disrupt valuations, in our view, as it would jeopardize growth prospects and pressure margins for incumbents.” Without assuming any multiple contraction, the analyst estimates wireless incumbents could see their share prices dip 10% to 18% if Verizon decides to take the plunge into Canada. For investors looking to hedge that risk, he suggested BCE Inc. since it has the lowest wireless exposure among the incumbents. The analyst found that a realistic long-term market share gain of 15% for Verizon, combined with a 7% deterioration in EBITdA margins for incumbents, could reduce consolidated EBITdA for the largest Canadian players by 6% to 13%.