A 5G partnership between Shaw and Rogers could be in the works, Frank Mersch says

It’ll be a number of years before the next generation 5G wireless technology is fully up and running, with its impact on the fortunes of Canada’s big four telco’s yet to be determined.

But with its Freedom Mobile network, Calgary-based Shaw Communications (Shaw Communications Stock Quote, Chart, News: TSX:SJR.B) is likely to receive its portion of the first tranche of the 5G spectrum in Canada, says Frank Mersch, chief strategist at Jamekk Capital Management, who says that a 5G partnership between Shaw and rival telco Rogers Communication would serve both companies well.

A paradigm shift is on its way, with 5G networks promising download speeds as much as 200 times faster than current LTE networks. Earlier this month, Innovation minister Navdeep Bains said the federal government will be holding its 5G wireless spectrum auction sometime in 2020, a timeline that communications companies think is too delayed and at risk of making Canada a telecom laggard.

“You will not be able, as a Canadian, to use the latest Samsung phone, or the latest LG, or the latest Huawei, or even the latest iPhone, till 2021,” said Telus CTO Ibrahim Gedeon to the Toronto Star.

Whenever the change comes, Mersch says that in Shaw’s case, its recent move to find a buyer for its Corus Entertainment branch could serve as a potential income source to support the company’s 5G efforts.

“Corus is probably up for sale, and [Shaw] could use the funds from Corus to put into its wireless side,” says Mersch to BNN Bloomberg recently. “Shaw has got a fair amount of debt but they’ve also got a fair amount of cash flow. They’ll be beneficiaries of any spectrum that comes in.”

“What’s interesting to me is that perhaps it would be wise for Shaw and Rogers to share their services across the country once the spectrum has been allocated,” says Mersch. “That would be a major [benefit] more so to Shaw but also for Rogers at the end of the day because there are certain parts of the country that Rogers doesn’t have a footprint in and certain parts that Shaw doesn’t have a footprint in. To effectively compete with Bell Canada, it would be nice to see those two companies to come to an agreement.”

Mersch says that for investors, Shaw has a lot going for it.

“Shaw pays a nice dividend, it pays a monthly dividend, which has got about a four per cent yield,” says Mersch. “And if you look at the last quarter, it had pretty good subscriber growth. That could be because of a rebound in Western Canada, with oil prices going above $60.”

“We’ll have to see over the next quarter what their subscriber adds are, because, really, for the communications industry, it’s all about mobility and the Internet driving the business. The cable business is mature and and it’s being assaulted on many fronts by other things such as Netflix and the like,” he says.