Rogers Communications Inc.
), the largest cable operator in Canada has signed an agreement
Shaw Communications Inc.
) to secure an option to purchase the latter's AWS spectrum
holding in 2014 along with acquiring Shaw's Ontario-based cable
business - Mountain Cablevision Limited. According to Rogers, the
alliance apart from strengthening its wireless network will also
bring synergies for its cable business.
Shaw, on the other hand, will acquire Rogers' one third
interest in specialty TV Network - TVtropolis -- and will
negotiate with the largest cable operator for starting certain
services in Western Canada. Shaw has to spend $59 million to get
hold of TVtropolis and the transaction is expected to close in
the first half of 2013, subject to regulatory approvals.
Shaw's AWS spectrum covers 188 million MHz POPs (Point of
Presence) including 20MHz across Alberta and Manitoba and 10MHz
in Saskatchewan and Northern Ontario markets. The acquisition of
Shaw's unused spectrum is vital for Rogers as it will allow the
company to maintain its network leadership position in western
Canada where it has a significant share of the wireless market.
Additionally, integrating Mountain's bundled cable, Internet
and telephone service with itself will allow Rogers to expand its
operations in the Southern Ontario and will provide cost
synergies for the cable MSO (Multi Service Operator) in due
course. Similar to TVtropolis, the Mountain transaction will also
close in the first half of 2013, subject to regulatory
Rogers will initially invest $250 million to acquire Mountain
and pay $50 million for the option to purchase Shaw's spectrum. A
final consideration of $400 million will be paid if Rogers
exercises its option of acquiring the spectrum, and also takes
into account the service agreement between Rogers and Shaw, which
will bring the total consideration to $700 million. Rogers will
be able to exercise its option in the period between receiving
approval from Industry Canada and Competition Bureau and its
expiry in March, 2015.
Shaw's decision to offload its spectrum assets doesn't come as
a surprise as the company abandoned its plan to enter the
Canadian wireless market on September 2011 and decided to sell
its existing wireless spectrum. The company focused on building a
cheaper Wi-Fi network, which will enable offloading 3G/4G
wireless data traffic across a short distance.
We believe the money received from the spectrum sale will
allow the company to build its Wi-Fi network and will enable its
customers to connect smartphones, tablets, and other mobile
devices to Internet in a cost effective manner. Acquiring
Mountain will solidify Rogers' position as a pure-play Canadian
broadcaster as it had previously acquired a 100% stake in
specialty TV business of Canwest Global Communications Corp.
Higher proliferation of smartphones and tablets along with
increased games, HD-movie downloads are exerting huge pressure on
networks, resulting in slower network speed. Rogers remains
committed to invest in spectrum to meet this growing demand of
mobile Internet services. We expect the company to exercise its
option of acquiring Shaw's unused spectrum as it will aid its
customers in the form of increased network speed.
We maintain our long-term Neutral recommendation on Rogers
Communication Inc. Currently, it holds a short-term Zacks Rank #3
ROGERS COMM CLB (RCI): Free Stock Analysis
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