Videotron’s expansion outside Quebec opens up a new market for Quebecor. However, this opportunity for growth requires the injection of billions of dollars and is framed by conditions that should not be underestimated.
Investors should pay attention to the concessions Rogers and Quebecor have agreed to make, says Scotia analyst Maher Yaghi.
A possible change in the product offering and increased regulatory oversight are significant risks, this expert points out in a report published in reaction to the purchase of Shaw by Rogers and the acquisition of Shaw’s wireless subsidiary, Freedom Mobile, by Videotron, authorized Friday by Ottawa.
Main conditions accepted by Videotron
• Offer in British Columbia, Ontario and Alberta, over a period of 10 years, plans at least 20% more affordable than those of other major players in the industry as of February 10, 2023
• Invest more than $150 million in Freedom’s infrastructure to enable 90% of customers to have access to the 5G network within two years
• Expand mobile service in Manitoba through a Mobile Virtual Network Operator (MVNO) agreement or other means
• Increase the local data limit of existing Freedom customers’ plans by 10% at no additional cost
The market structure is, he said, set to change in the telecommunications industry in the country, particularly in Ontario, Alberta and British Columbia, with the transaction making Quebecor the fourth player in the country in the wireless. -thread. A new dynamic is anticipated.
“Quebecor will not have as strong a competitive position as in Quebec,” says Montreal portfolio manager Philippe Hynes of Tonus Capital.
Investing in Quebecor was previously a way to benefit from growth in Quebec and the company’s dominant position in the province, he says.
The margins are likely to be a little worse than what Quebecor generated in Quebec.
Philippe Hynes, portfolio manager of the firm Tonus Capital
Philippe Hynes adds that times are more difficult for cable distributors. “Subscriptions are harder to get. Freedom will bring in new cell phone subscribers, but that comes with the risk of entering a market that Videotron knows less than its Quebec bastion. »
The competition is ready
Quebecor will have to execute its strategy by protecting the newly acquired clientele from Shaw-Rogers when the competition has had time to see the situation coming for months.
Although it will be necessary to follow the retaliatory measures of competitors in the Quebec market and the expenses that may prove necessary to establish activities outside Quebec, Quebecor will notably benefit from network access agreements with Rogers to help it in its breakthrough in the West and in Ontario, says analyst Adam Shine of National Bank Financial.
This analyst points out that Videotron’s growth has slowed in Quebec due to the degree of saturation reached by the company and the decrease in immigration to the province, which has resulted in relatively weaker population growth than in other Canadian provinces. .
Quebecor could surprise more than one, according to Adam Shine. “It looks like the bar will initially be set relatively [bas] “, he underlines in a recent research report.
On the other hand, Mr. Shine wonders to what extent the written commitments to Ottawa on the prices to be offered will affect the flexibility to execute the expansion strategy, but he assumes that the management of Quebecor has kept a margin of maneuver reasonable.
Quebecor’s management must, he says, think about how it intends to communicate its strategy to investors to help them monitor progress and better understand growth prospects. However, the time to communicate will come fairly quickly, at the latest when its results for the start of the fiscal year are published in May.
Investors will want to know how Freedom will integrate with Videotron, at what pace, and what success will be associated with it.
“Fierce Fight”
Adam Shine expects Freedom to adopt Fizz name, Videotron’s low-cost cellphone and internet provider, and Quebecor to offer wireless services and bundle in Ontario, Alberta and British Columbia through a third party internet access services agreement with Rogers.
Quebecor indicated on Friday to The Press that an interview with Pierre Karl Péladeau was not possible between now and the closing of the transaction. The big boss of Quebecor nevertheless offered a comment by email.
As Videotron did in the Quebec market, Freedom will lead a fierce fight against wireless service providers in Canada in order to bring about lower prices for the benefit of consumers.
Pierre Karl Péladeau, President and CEO of Quebecor
Portfolio manager Stephen Takacsy of the firm Gestion Lester believes that Quebecor is a winner in the transaction concluded with Rogers and Shaw. “The price paid for Freedom is lower than what the market expected,” he says.
“So less debt than the market expected and above all no dilution. There will be no share issuance, something the market was concerned about. »
Investors reacted favorably Friday by advancing the action of Quebecor to a peak of the last 52 weeks on the stock market. Rising sharply since the fall, the stock closed Friday’s session up 3% at $33.41 in Toronto. The stock was worth $23 in October.