The Canadian telecom industry, long characterized by intense competition and substantial debt burdens, is now showing clear signs of rejuvenation. This revival is underscored by significant stock price growth among leading telecom companies such as Rogers Communications, BCE, Telus, and Quebecor. Since mid-June, Rogers alone has seen a 21 percent increase in its stock value, while BCE, Telus, and Quebecor have experienced growth of 5, 3, and 1.5 percent, respectively. These gains suggest a possible end to the stagnation that has plagued these companies, heralding brighter prospects for the sector. Additionally, strategic maneuvers like Rogers’ acquisition of BCE’s stake in Maple Leaf Sports and Entertainment for $4.7 billion on July 2 have further catalyzed optimism. This acquisition is expected to bolster Rogers’ market presence and operational capabilities, driving a more proactive stance in the evolving telecom landscape.
Strategic Financial Moves and Growth Indicators
The recent uptick in stock prices is accompanied by strategic financial actions undertaken by major telecom companies, aimed at enhancing their balance sheets and reinforcing growth. Rogers, for instance, executed a substantial $7 billion backhaul deal and proactively made cash offers to repurchase U.S. $1.25 billion and $400 million worth of outstanding senior notes. Telus also undertook financial maneuvers, raising U.S. $1.5 billion through issuing junior subordinated notes aimed at funding tender offers, alleviating debt burdens, and supporting corporate activities. Such efforts are anticipated to translate into year-over-year revenue growth once these companies report their quarterly earnings. Analysts are optimistic about the upcoming earnings releases, expecting robust financial performances as these strategic actions are fully realized. Parallelly, Quebecor is projected to lead in wireless net additions, targeting 70,000 new customers, an impressive achievement following the 54,400 additions made last quarter.
Moreover, the telecom sector is witnessing a trend of increasing wireless prices among major carriers, including Rogers’ Fido, BCE’s Virgin Plus, Telus’ Koodo, and Quebecor’s Freedom Mobile. These price hikes, despite average costs remaining lower than in 2023, could bolster earnings in the long term. Analysts assert that this upward revision in pricing is pivotal to restoring the average revenue per user (ARPU), a key profitability metric. However, industry experts like Stephanie Price from the Canadian Imperial Bank of Commerce emphasize the significance of monitoring customer repricing at lower levels, as complete repricing of the telecom customer base may require several years to materialize. Desjardins analyst Jérome Dubreuil supports this forecast, anticipating a gradual recovery in ARPU yet acknowledging valuation multiples hint at an impending bottom, rendering the sector increasingly attractive to investors.
Competitive Dynamics and Economic Contributions
The telecom sector is poised to transcend its lowest point in recent history, buoyed by altered competitive dynamics that may allow it to achieve full-year guidance midpoints even amid conservative growth forecasts. Despite intense competition primarily triggered by Freedom Mobile’s lower-priced plans, the recent trend of aggressive end-of-quarter discounting aimed at augmenting subscriber numbers appears to have ebbed. Drew McReynolds from the Royal Bank of Canada underscores this shift, suggesting that a calm in competitive fervor presents favorable conditions for sector growth. Besides, a PwC report has highlighted the telecom industry’s significant contribution to Canada’s economy, pouring an impressive $87.3 billion directly into GDP in 2024, alongside supporting 661,000 jobs.
Telecommunications initiatives have contributed $30.1 billion through sector-specific jobs and outputs, while productivity and enablement gains across various industries yield an additional $57.2 billion. Canada’s telecom sector exhibits pronounced capital intensity compared to peers like the UK, US, and Australia. PwC underscores the strategic importance of maintaining healthy investment capacities to preserve Canada’s economic independence, enhancing productivity through advanced technologies such as AI, inclusive labor participation, and improving trade corridors via real-time logistics integration.
Anticipation of Strategic Developments
The recent rise in stock prices is aligned with significant financial strategies by major telecom companies, aiming to improve their financial standing and support growth. Rogers, for example, executed a hefty $7 billion backhaul deal and made moves to repurchase $1.25 billion and $400 million in senior notes. In a similar vein, Telus issued $1.5 billion in junior subordinated notes, designed to fund tender offers, reduce debt, and boost corporate activities. These strategic moves are expected to reflect positively in their year-over-year revenue growth when quarterly earnings are reported. Optimism abounds among analysts who anticipate strong financial outcomes as these strategies unfold. Simultaneously, Quebecor is on track to lead in wireless net additions, targeting 70,000 new customers, following a last-quarter gain of 54,400.
The telecom sector also sees rising wireless prices from key players like Rogers, BCE, Telus, and Quebecor. Although prices remain below 2023 levels, these increases could enhance long-term earnings. Experts stress the importance of monitoring customer repricing, as full repricing may take years. Analysts predict a gradual recovery in ARPU, with valuation multiples suggesting the sector’s appeal to investors.
