CALGARY – While Shaw Communications’ decision to step back from spending what could have been a billion dollars on a traditional wireless build seems like a good idea to most, blanketing its cable footprint with Wi-Fi instead has left some perplexed.
Earlier this year, a combination of factors led executives at Shaw to drop anchor on its sail into the rough wireless waters. Buffeted by fast-blowing winds like the rapid development of LTE, the costs to build what was, at the start, an HSDPA net, and the trouble the other wireless newcomers like Wind, Videotron and Mobilicity were having attracting customers, Shaw pulled into port in the winter to think about its next tack.
Shaw has become known as a company which often takes the road less travelled and the decision to build a high capacity managed Wi-Fi network is certainly that among Canadian operators. While many companies from cablecos to coffee shops to canneries to car dealerships offer hotspots here and there throughout the country, service is just that: spotty. Shaw aims for far more, especially if it wants to be a reliable wireless backhauler for other carriers, as company executives said is part of the plan during its conference call with the financial community Thursday morning.
“Large wireless carriers are looking at Wi-Fi as offload for 3G and 4G,” said senior vice-president of planning Michael D’Avella. “Everybody knows that you can’t buy enough spectrum and you can’t build enough towers to deal with the wireless broadband demand you are going to see out there… You can’t build enough spectrum to do it. You need Wi-Fi.
“This is going to be a comprehensive and extensive network… where people will say (using Shaw’s Wi-Fi) is a better idea than building another 3,000 towers.”
When questioned by some analysts on the revenue potential of the new network (which will likely launch in the first half of 2012), Shaw executives insisted backhaul will be an important part of the equation. Since this new service is not meant as a new retail product but an additional extension to the Shaw services for which consumers already pay, it’s mostly a churn-reducer for individual families.
But, as company president Peter Bissonnette put it, offload backhaul for carriers “is a critical part of the monetization of this build.”
Of course, the analysts also wanted to know what the company plans to do with the advanced wireless spectrum it purchased in 2008. “We’re going to sit there and park that and we believe it is certainly an asset that has value and will continue to increase in value,” said CEO Brad Shaw.
However, the company can’t sit too long as Industry Canada regs say the company must begin using the spectrum within five years of gaining the 10-year spectrum license. (The spectrum license could also be sold right now to any of Wind, Mobilicity, Videotron, Public Mobile, MTS Allstream or SaskTel. As of 2014, the big three incumbents are then allowed to come knocking for the AWS spectrum purchased in the 2008 set aside portion of the auction.)
Company executives were also asked if Shaw plans to participate in the 2012 or 2013 700 MHz auction (for which there is not yet a set date, nor established rules). They were non-committal, saying the company wants to see the auction guidelines before deciding what to do. “It’s pretty hard to go one way or another when you don’t even know what the rules are or what the government is going to come out with,” added Brad Shaw.
So, Shaw says it will provide a managed Wi-Fi network that will allow its customers to extend their Shaw services beyond the home (broadband and TV) to serve a developing world where broadband Internet access is moving increasingly to wireless devices (smartphones, tablets, laptops, netbooks). If they really want voice, the company expects customers can make that work on their own with Skype, for example.
So, if you a customer has a smart phone with Wi-Fi capabilities (so, any smartphone) and is also a Shaw broadband subscriber, he will be able to get online to access various Shaw services via Wi-Fi at no additional monthly charge. The company plans to make the Wi-Fi zones ubiquitous using rights of ways it already has (poles, cabinets) and through new agreements with businesses and local governments where bases stations can be installed (malls, bus stations, etc.).
The analyst community appears a little puzzled by Shaw’s announcement.
“We have seen no evidence of a profitable Wi-Fi only model,” wrote Canaccord Genuity analyst Dvai Ghose to his clients. “As consumers can access Wi-Fi for free at Starbucks, libraries, schools, airports, etc. and Wi-Fi still generates significant backhaul costs, we wonder how it can be financially successful. We also believe that Shaw may be overestimating the wholesale opportunity.”
That said, American MSO Cablevision is enjoying success with its Wi-Fi network, Cox has stopped its cellular build in favour of wireless and rumours are rife out of the States that Comcast and Time Warner plan to do the same, for the same reasons (churn reduction, backhaul) that Shaw cites.
“A mesh WiFi offer should help with churn management. However, the potential for monetizing the service seems unclear to us,” added BMO Capital Markets analyst Tim Casey in a note to clients. “Capital intensity may decline over the long term, but is unlikely in the near term.”
Adds Scotia Capital’s Jeff Fan: “According to (Shaw), a new 3G/4G wireless network would have cost well over $1B. If (the company) follows Cablevision’s plans, we estimate the Wi-Fi network would cost around $250M over multiple years, which is a significant reduction over time. On opex, (Shaw) would save equipment subsidies and the need to establish a retail distribution presence.
“This is less of a threat for incumbent wireless carriers’ subscriber market share as Wi-Fi is not a replacement of 3G/4G service,” continues Fan. “Over time, however, subscribers that have 3G/4G smartphones/tablets may be less likely to pay for large data plans or go over on their usage if there is a ubiquitous Wi-Fi service available when they subscriber to SJR broadband. So we believe this creates more of a risk for wireless data ARPU over time.”
