By Greg O’Brien
WHEN TELUS RELEASES its second quarter results July 31st, company executives will surely have to answer a fair number of questions about their primary western Canadian competitor’s new brand, Shaw Mobile, when they host their quarterly conference call with financial analysts at noon ET.
Those analysts all published their takes on the launch of Shaw Mobile and agree the dramatic discounts offered by Shaw will surely draw customers away from Telus, Rogers and Bell – while shoring up Shaw’s wireline customer base at the same time. As we reported, Shaw has gone to market in Alberta and B.C. with unlimited nationwide text and talk for $0 per month and a bundled-with-Fibre+-home-internet unlimited data plan which includes 25 GB/month on Shaw’s LTE network for only $45. The company also launched a By-the-Gig option which starts at $10 per GB.
(Pictured is a screen cap of Shaw CEO Brad Shaw at the company’s official launch Thursday morning at Calgary’s Market Mall.)
Scotiabank’s analyst Jeff Fan was upfront with his feelings, headlining his note to investors “Where do I sign up for this?”
“We think the introductory $45/25GB offer is very attractive for Shaw Internet customers in AB and BC and that it will drive wireless subscriber share growth and improve internet net additions,” wrote Fan.
“Not only will Shaw Mobile drive wireless share growth from its 6% subscriber share in the west, we believe it will improve internet share for Shaw through at minimum better retention and likely higher activation volume. We estimate wireless service revenue growth of 14% and 16% in F21 and F22, respectively. For internet, we have net adds improving from 9K in F20 to 35K in F21 and 50K in F22,” he added.
Indeed, Shaw Communications president Paul McAleese told reporters Wednesday an important plank to the launch of Shaw Mobile was so the company can grab far more of the home broadband customer net additions in the west. While Telus and Shaw generally have about half of the home broadband market each in Alberta and B.C., Telus has been grabbing far more of the net additions of late.
“We estimate that there are about 800k gross Internet adds in western Canada per year, but only about 120k net adds. That means a lot of households switch between Shaw and Telus. Shaw’s objective is a 50/50 split of the net adds every year, versus its recent pace of only about 25% (or ~30k in a non-Covid-19 year),” explained TD Securities analyst Vince Valentini in his Thursday note to clients.
“From Shaw’s perspective, the lowest Internet price that qualifies for Shaw Mobile bundled discounts is $80 for 25 Mbps. Theoretically a home could add six wireless talk/text lines for free and thus the ARPU spread over seven subscribers would be only $11.43. We would roughly estimate $5 in direct costs per line, plus $10 in service/overhead cost per month, so a total of $45 in direct costs. That still leaves a gross profit contribution of $35 per household in this worst-case scenario (not necessarily incremental gross profit if the customer already had Shaw Fibre+ Internet),” his note explained.
“In other words, Shaw can do these bundled discounts and still make money.” – Vince Valentini, TD Securities
“In other words, Shaw can do these bundled discounts and still make money.”
“We think this offer is primarily aimed to improve wireline internet market share and retention,” said BMO Capital Markets analyst Tim Casey in his note to investors. “Shaw has significantly underperformed Telus over the past five years as it has captured roughly 22% of net internet adds versus Telus during this period.”
However, Shaw Mobile won’t just hit Telus. Analysts expect both Rogers and Bell to take a hit as well because they can’t offer the same bundled service and pricing Shaw is offering – and Telus is likely to respond with – out west. But expect all the incumbents to hit back hard at Shaw’s Freedom Mobile brand in Ontario, where most of Freedom’s customers live.
“We estimate that Rogers and Bell currently have well over four million wireless subscribers in Alberta and British Columbia. Presumably, this subscriber base largely overlaps with Shaw’s wireline base (more Rogers than Bell) as Telus wireless subscribers are incentivized to bundle wireline-wireless in Western Canada. As a result, we expect that Shaw Mobile’s initial gains would likely come at the expense of Rogers and Bell, which may put pressure on the incumbents’ subscriber growth in the region,” wrote Canaccord Genuity’s analyst Aravinda Galappatthige.
One person who is quite happy with this new offering is ISED Minister Navdeep Bains. Not only was he quoted in Shaw Mobile’s official announcement, he also appeared, via video conference (pictured), at the company’s launch event in Calgary.
Bains reminded anyone watching the video that the federal government’s last spectrum auction set aside a chunk of the airwaves for companies l
ike Shaw which “provide more choices and lower prices, and that’s exactly what we’re seeing here today,” he said.
“We know competition leads to more affordable options for Canadian consumers and product offerings like the one that Shaw is introducing… Today’s announcement is evidence that we’re moving in the right direction together.”
That this launch will make Ottawa happy was not lost on the Bay Streeters – who also hope this move will tamp down the feds’ enthusiasm for mandated MVNO. Shaw Mobile’s lower pricing “is also a strong signal to Ottawa that new regulations (including mandated MVNOs) are not necessary to drive more competition in wireless, and we note with interest that Minister Bains was quoted in the release praising Shaw’s affordability,” reads Valentini’s note.
The analysts don’t expect the incumbents to simply match the Shaw pricing “because it will have a significant repricing and financial impact,” added Fan, but the western market will surely see shifts in other ways. “We think some possible indirect retaliatory moves may involve video (Pik-TV) or internet (PureFibre), increasing the focus on the whole-home solution (security and smart home), increasing the use of flanker brands in the west and/or in Ontario against Freedom, or highlighting the 5G differentiation. On the other hand, we also think Telus could pull back on some of its wireline promotional efforts, which could cause Shaw to land at a higher permanent price point for Shaw Mobile,” added Fan’s note.
However, if this new bundling in the market – coupled with whatever bundle Telus might respond with – has the effect of slowing the pace at which westerners change providers, it could pay off for both Shaw and Telus. “If this bundling can lower both the gross and net add activity in the market (in other words, lower churn for both players), we believe it could be a win-win,” according to Valentini.
