When Bell Canada announced in June that it was selling Northwestel to a consortium of northern Indigenous communities, it signaled a change for its parent company, Bell Canada Enterprises (BCE).
The company now appeared to be focused on “building value in its business and monetizing standalone assets,” CIBC analyst Stephanie Price said in a recent research note.
That is, it was time to sell the parts of the company that no longer made sense to keep.
As Canada’s telecommunications sector faces challenges such as slower growth and fierce competition, dominant players are poised to continue shedding assets to cut costs, observers say.
Bell is not the only company taking this approach, Mr.me Price. Rogers Communications has announced plans to sell some assets, including nearly $1 billion in real estate. This comes after Rogers sold its stake in Cogeco in December 2023 for $829 million.
Analysts say the big three – Rogers, BCE and Telus – as well as Quebecor and Cogeco, have room to pursue a series of divestitures.
Canada’s largest telecommunications companies are behemoths, with vast divisions beyond their phone and internet offerings. These range from media to sports and entertainment to health products and services.
“The Canadian telecommunications environment has become more competitive recently, with price wars leading to slower revenue growth and a focus on restructuring,” said Mr.me Price in his note last month.
“In this type of environment, we believe telecom providers are looking for efficiencies, with divestments on their radar as debt remains elevated and interest rates continue to fluctuate.”
A turning point
Dave Heger, senior equity analyst at Edward Jones, said the Canadian telecom sector reached a “turning point” last year when Rogers completed its $26 billion purchase of Shaw Communications, which also saw the spin-off of Freedom Mobile from Shaw as part of a sale to Quebecor.
With a more competitive wireless market, large companies have reported slight declines in their average revenue per user. “The price side has become more competitive in a four-player environment,” Heger said.
He added that companies have been taking on debt in recent years as they build out their 5G networks with the promise of faster speeds and more reliable connections. Meanwhile, BCE and Telus have been “aggressively” building out their fibre-optic internet networks across Canada.
But the global rollout of 5G technology hasn’t been as “disruptive or revolutionary as expected,” said Erik Bohlin, a professor of telecommunications economics, policy and regulation at the Ivey School of Business.
Bohlin said that 10 years ago, there were expectations that 5G could be more lucrative for telecom operators. Those hopes were based on the anticipated growth of Internet of Things applications, as well as network slicing, a technology that creates multiple virtual networks for wireless traffic to reserve capacity for individual users.
“I think the expectations that growth is imminent have not really come to fruition,” he said. “It’s business as usual in a sense.”
Mobile phone antennas, media and sports assets are among potential targets for continued divestment, analysts say.
Despite a long-standing reluctance to ditch antennas, “now is as good a time as it gets” for such deals, Scotiabank analyst Maher Yaghi said in a recent report.
With infrastructure investors keen to buy tower assets, he said Telus and BCE, which already share towers across Canada, could net $3 billion to $4 billion in sales, while Rogers could get as much as $6 billion.
“We believe the economics supporting a sale are attractive; however, none of the three incumbents wants to be the first to sell for fear of losing a competitive advantage,” he explained.
U.S. giants like AT&T and Verizon have also divested media assets in recent years, M noted.me Price. However, such sales in Canada are considered less likely “given the Canadian regulatory environment and the limited pool of potential Canadian buyers.”
Instead, Canadian telecoms may seek to offload their sports assets.
Rogers and BCE each own a 37.5% stake in Maple Leaf Sports and Entertainment, which owns the Toronto Maple Leafs and Raptors, as well as the city’s CFL and MLS teams. Rogers also owns the Toronto Blue Jays, while Bell has a 20% stake in the Montreal Canadiens.
Mme Price estimated the value of Rogers’ sports assets at $6.7 billion and BCE’s at $4.5 billion. The latter could be “a more motivated seller than Rogers.”