MONTREAL – Cogeco Inc. CEO Louis Audet has long said his company would get into wireless if, and only if, it made economic sense for him and Cogeco shareholders.
That means he’s always wanted to do it profitably – which of course meant he was never going to sink hundreds of millions of dollars into overbuilding wireless infrastructure in the company’s Southern Ontario and Southern Quebec footprint, or beyond. “We like to eat our cake and still have it… that’s our philosophy,” Audet told financial analysts this morning on a conference call discussing the company’s third quarter results.
Regulations had to change, first of all. Then technology had to develop to a point where doing wireless would be easier and cheaper for a company the size of Cogeco. According to Audet, we might finally be at that point, which was already foreshadowed, of course, by its recent spectrum purchases, something the company had studiously avoided.
“We did not attempt to get involved in the wireless sector a number of years ago when spectrum was put up for auction. The reason is that we felt, first, that the roaming and access conditions were not conducive to a successful entry, and, second, that we did not have the financial stamina to be successful,” continued Audet.
The fact that none of the new wireless entrants without a pre-existing network which launched in and around 2010 still exist as launched show that Cogeco’s decision to stay out of wireless was the right one, he explained, even though launching wireless is something Audet certainly wants to do.
“We remain interested in offering wireless services to complement our service offering to customers within our traditional cable footprint and grow our share of our customers’ telecommunications spending,” he said. “Fortunately, two new trends have emerged which can help us enter the business on financially attractive terms.”
First, those regulations look to be changing in a way which can help Cogeco launch some sort of wireless service without breaking the bank. “There is growing frustration in the public with regards to the price of wireless services in Canada. This is being echoed at the government and regulatory levels, thus it is likely that a more favorable regulatory environment will come to be,” Audet said.
“The opportunity exists to start with a blank sheet of paper and leapfrog existing legacy network topology and build directly using the technologies of the future.” – Louis Audet, Cogeco Inc.
Second, emerging 5G technology which in many cases will require small cell radios that could be installed on Cogeco’s existing infrastructure (a.k.a. it won’t need any huge towers) featuring direct access to fibre will make wireless deployments in the future far cheaper than they have been historically. Audet said it could be done “at little or no additional feeder cost.”
So, “the opportunity exists to start with a blank sheet of paper and leapfrog existing legacy network topology and build directly using the technologies of the future,” he continued. “Hence, Cogeco Communications may conceivably participate in the benefits of existing wireless services such as voice, data and internet, as well as explore emerging low latency services such as the Internet of Things, driverless cars, intelligent cities and the like.”
However, despite the favourable changes that he can see coming, wireless still isn’t something the company will do entirely on its own. The CEO said he envisions a hybrid business model that may include an MVNO (a mobile virtual network operator leases wireless network resources from other providers), other partnerships and its own wireless facilities.
“It will consist of segments relying on the MVNO model, whether negotiated or imposed, as well as some segments where we will be a facilities-based operator. That is why we have started devoting relatively small amounts of capital towards accumulating spectrum which we may use in such a hybrid MVNO model, or offer up in a partnership arrangement. The value of this spectrum is supported by a vibrant market,” Audet explained.
He added that while Cogeco will look to participate in next year’s 600 MHz spectrum auction, it will only be with a partner, “whether with a current operator or otherwise.”
However, all of that still means that when it comes to capital allocation at Cogeco, wireless sits in third place behind additional U.S. cable purchases, which have “proven to be highly rewarding financially,” he said, and building and strengthening its existing plant in Canada and the U.S.
File photo by Steve Faguy, Montreal.
