Pandemic gives Canada’s big telecom firms a win in Ottawa
Investors have worried about the changing rules for Canada’s big communications companies. But a few of those regulatory clouds may be about to lift.
For all that Covid-19 has disrupted the Canadian economy, there’s a silver lining for telecommunications firms, according to National Bank Financial analyst Adam Shine. Having huge numbers of people working from home has made everyone, including regulators, more aware of the importance of reliable internet access, he said in a note this week.
That’s one reason Shine expects the Canadian Radio-television and Telecommunications Commission (CRTC), which regulates the industry, to change a 2019 ruling that slashed how much the country’s incumbent telecom companies are allowed to charge internet resellers for access to their networks.
Big carriers have said the new rates, which were cut as much as 77 per cent in some cases, retroactive to 2016, were below cost and could jeopardize future spending on networks, resulting in slower expansion into remote or rural areas. On the weekend, Innovation Minister Navdeep Bains issued a statement that agreed with that argument.
“It may not get fully reversed, but the CRTC is inevitably going back to the drawing board,” Shine wrote.
The three largest Canadian players — BCE Inc., Rogers Communications Inc. and Telus Corp. — have all underperformed the S&P/TSX Composite Index this year, with Rogers’ 13 per cent drop being the largest.
But Ottawa has also created problems. Since the beginning of the year, the valuation gap has widened between the American and Canadian telecom industries, Shine wrote.
Bains’s Aug. 15 statement struck a more positive tone for the incumbents. “The Covid-19 pandemic has only reinforced the importance of connectivity,” he said. The government “is concerned that these rates may undermine investment in high-quality networks, particularly in rural and remote areas.”