TORONTO – While recent events, including the possible entry of US behemoth Verizon into Canada and Monday’s cabinet shuffle, have left many in the investment community wondering how these will affect the regulatory landscape, the telecom sector won’t see an impact on the bottom line just yet.
Financial results for the second quarter of 2013 will not reflect any of these regulatory concerns, says BMO Capital Markets Second analyst Tim Casey.
“We expect Verizon will continue to quietly negotiate with the owners of the existing new entrants – Wind and Mobilicity – with offers that are contingent on favourable regulatory conditions,” Casey wrote in an investors report Wednesday.
The incumbents, on the other hand, Casey writes, are expected to become increasingly vocal and will “ramp up the rhetoric” with a major public relations push highlighting the unfairness of a regulatory system that favours such a large foreign multinational – with possible consequences that could include threats of job losses, reduced capital investment and slower rural 4G roll-outs – and a call for a level regulatory playing field with respect to Verizon.
Answers surrounding this regulatory uncertainty may come within the next couple of months. “If [new Industry Minister] Mr. Moore adjusts the auction rules to address a ‘level playing field’, we would expect an announcement, notionally, in four to six weeks. Down payments for the upcoming spectrum auction are due September 17. If Verizon is poised to enter the Canadian market, that’s the de facto due date on its intentions.”
Until then, BMO Capital Markets is recommending large cap telecom/cable stocks with relatively lower exposure to wireless, and currently maintaining “outperform” ratings on BCE Inc. and Shaw Communications, and “market perform” ratings on Telus and Rogers.
