CRTC decision on “Home Networks” could be a negative for telco stocks, Canaccord Genuity says

An upcoming decision from the Canadian Radio-television and Telecommunications Commission (CRTC) could cause a downtick in the telecom sector, says analyst Aravinda Galappatthige, who in a compendium report to clients on Tuesday said that a lot hangs in the balance for companies like Bell, Telus and Rogers.

Last year, the CRTC responded to a complaint filed by Rogers against wireless startup Sugar Mobile, which was offering wireless plans for as low as $19/month. The company is owned by Ice Wireless which operates in Canada’s North and has an agreement with Canada’s major telecom networks to allow its customers to use their networks while roaming.

Rogers claimed that Sugar Mobile was selling access to its 3G networks to customers who were spending 100 per cent of their usage outside of Ice Wireless’s territory —essentially, a back-door way to sell to all Canadians cheaper access to established wireless networks.

Last March, the CRTC sided in Rogers’ favour and ordered Sugar Mobile to refrain from using Rogers’ network, but two months later, federal Innovation Minister Navdeep Bains called on the CRTC to reconsider its decision, saying that Canadians should have access to cheaper wireless services.

With the CRTC’s decision due sometime this month, Galappatthige says that while it’s anyone’s guess what the regulator will come up with, the likely scenario could involve an expansion of the definition of “Home Network” to allow for greater competition within the sector.

“One possibility is that the CRTC could deem Carrier Wi-Fi (as opposed to Public Wi-Fi) to fall within the definition of a legitimate ‘Home Network,’” says Galappatthige. “This, in turn, lowers the bar for new entrants to the wireless market. In that backdrop, hypothetically, a service provider can simply set up a Wi-Fi network (say in a particular province) and a service based on those facilities and leverage this ‘Home Network’ to access incumbent’s networks outside that province under the wholesale provisions.”

The analyst says that such a decision would have the major wireless providers up in arms, arguing that quality of service provisions would decline as a result.

“If the changes to the definition are modest and merely cosmetic, we do not expect a meaningful impact on the Telecom stocks. However, a more pronounced change to the definition of ‘Home Network’ could cause a downtick for the incumbents,” says Galappatthige.

Galappatthige says that Minister Bains has effectively put the CRTC in a position where it has to add some form of amendment to the initial decision, which the analyst saw to be the right one in the first place.

“To us, the decision was in no way controversial,” says Galappatthige. “However, with the Minister directing the CRTC to revisit the issue, the regulator is now placed in a position where it presumably has to introduce some form of amendment while at the same time remaining true to its existing policy of facilities based competition.”

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