Think Canadian telecom stocks are a good place to hang out in a defensive environment. Think again, says one investor.
Shaw Communications (Shaw Communications Stock Quote, Chart, News TSX:SJR.B), for example, may seem like the smart play during times of economic uncertainty but investment manager Michael Decter would beg to differ.
Decter says the telecom space as a whole could be in for a rough ride if Canadians get what they want out of the upcoming election, namely, cheaper internet rates.
“We’re a little worried about the telco sector,” says Decter, CEO and chief investment officer at LDIC Inc, who spoke to BNN Bloomberg on Wednesday. “There’s been a lot of talk again in this election about lower rates.”
“My son who is a filmmaker in Los Angeles came home and he saw my Rogers bill, which was a couple hundred dollars for the month, and I said, ‘Well, I get a lot of things [for it],’ and he said, ‘Yeah, pops, I get all of that in LA and I pay $30 a month for it,’” Decter says.
Earlier this week, the Federal Court of Appeal granted a temporary stay on the Canadian Radio-television and Telecommunications Commission’s ruling in August that, for the purposes of encouraging better competition in the home internet market, set final rates for how much large internet service providers such as Rogers Communication, BCE and Shaw can charge smaller third-party operators such as TekSavvy and Distributel for accessing their networks.
The temporary stay is being taken as a win for Canada’s big telcos, who will be hoping that the courts will permanently overturn the CRTC’s ruling, while smaller players will have to wait to see if there will be ample room at the table for them.
“For now, TekSavvy will move forward with the pricing previously announced,” said Janet Lo, vice-president of privacy and consumer legal affairs, in an e-mail to the Globe and Mail. “We’re disappointed that the big incumbents continue to dispute what is a very considered, studied CRTC decision to correct inflated wholesale rates down to more reasonable levels.”
But Decter says that the big telcos could take a significant hit if the new government responds to the pleas of consumers for cheaper rates.
“There are all the Canadian arguments. We’re a big country with a small population. My friend [president and CEO of the Canadian Wireless Telecommunications Association Robert Ghiz] would say that on behalf of the wireless association, we have to get to 5G, that we need to put a big investment in and there’ll be big benefits,” says Decter.
“All of that is true but there’s also a feeling that people want to cut the cord on cable, they just want to stream and they want more flexibility,” he says.
“When the electorate wants something they may not get all of it but they get some of it,” he says. “So, we’ve been tiptoeing back a bit from the wireless sector. I’d be careful. They’re good businesses but if they get pricing pressure or regulatory hoops then they may come off,” Decter says.
Shaw Communications, which will be delivering its fourth quarter financials later this month, posted a profit of $229 million in its fiscal third quarter delivered in June, with revenue increasing by almost three per cent year-over-year and boosted by strong performance from the company’s Freedom Mobile wireless business.
Shaw’s share price has had an up and down year so far, with the stock currently sitting up almost five per cent year-to-date.