All eyes on Cogeco after CRTC’s landmark wireless ruling

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All eyes are on Cogeco Inc. following a decision issued last week by Canada’s telecommunications regulator meant to encourage more competition in the wireless market.

In the long-awaited ruling, the Canadian Radio-television and Telecommunications Commission stated it will mandate that the country’s large wireless incumbents — Rogers Communications Inc., BCE Inc. and Telus Corp. — plus the smaller SaskTel, give regional providers that invest in spectrum and infrastructure wholesale access to their networks for seven years.

Analysts have pointed out the language surrounding the CRTC’s decision lacks clarity on whether Cogeco will be eligible for wholesale access to national networks, as the regulator’s decision mandates access for facilities-based operators, which means companies that have their own network infrastructure already.

“It is unclear to us whether Cogeco with its current spectrum ownership … is eligible to gain network access under the facilities-based MVNO framework,” Royal Bank of Canada analyst Drew McReynolds wrote in a Friday morning note.

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The Montreal-based company is the second-largest cable provider in Quebec and Ontario, with 3.9 million customers. It holds wireless spectrum — the airwaves that transmit wireless service — but does not have wireless infrastructure, such as towers, to develop its own mobile service.

Cogeco has said it wants to enter the wireless market but has held off due to the price incumbents demand to rent network access.

“We’ve been trying for years to partner with them,” CEO Philippe Jetté told the Financial Post in March. “They don’t want anyone else in the ecosystem. They would like to keep it closed.”

The company issued a statement Friday afternoon that called the new regulations an “important step.”

“Cogeco advocated a balanced regulatory approach, one that meets the desire of Canadians for increased competition in wireless services by reducing barriers to entry while ensuring ongoing investment in networks. The decision released by the CRTC yesterday is an important step forward toward that goal,” Jetté said in the statement.

“The new framework also provides more clarity as we develop our plans to offer mobile wireless services in a financially disciplined way.”

Jetté was unavailable to comment further due to an upcoming 5G spectrum auction.

Adam Shine, an analyst at the National Bank of Canada, pointed out in a note that cord-cutting continues to pose a threat to cable providers — which are increasingly looking to expand into the wireless market to float the business — and Cogeco has pushed for “a regulatory framework that would be more conducive to its entry (into wireless).”

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In February last year, as the CRTC held hearings on how it could stoke competition, Cogeco proposed a hybrid model that would allow it to expand into the market.

At the time, public interest groups and smaller wireless companies advocated for the CRTC to step in and mandate that the incumbents give mobile virtual network operators (MVNOs) access to their networks and regulate wholesale rates, arguing that would drive competition and lower consumers’ bills. MVNOs do not invest in or own wireless infrastructure, and instead seek to rent access to mobile networks, in order to provide cheaper services to consumers.

The incumbents argued that mandating access and setting rates would discourage their investment in rural connectivity and 5G infrastructure.

Cogeco proposed a middle ground that would see the CRTC mandate facilities-based wireless and cable companies be given access to the national companies’ wireless networks while those same companies continued to invest in expanding their coverage.

Shine said he’s keeping a careful eye on whether the ruling will be enough to push the cable operator to enter the wireless market.

“Our attention goes first to whether Cogeco is satisfied with the CRTC’s decision and believes the stars have finally aligned to enable it to carefully enter the wireless sector following its intended participation in the 3500 MHz auction this summer,” he wrote.

Vidéotron, Eastlink and Xplornet — with their existing network infrastructure — also stand to benefit from the CRTC’s ruling and could potentially expand, Shine wrote.

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“We’ll see how quickly regional carriers, like Quebecor’s Vidéotron, Bragg’s Eastlink, and Xplornet, choose to venture outside their current wireless footprints and whether other players, including possibly Cogeco, jump into wireless for a viable go at it.”

Cogeco could have a shot at entering the wireless space, regardless of its eligibility, McReynolds believes.

In March, Rogers announced it would acquire Shaw Communications Inc. for $26 billion in a deal expected to close in the first half of next year, following heavy regulatory scrutiny. Rogers could be forced to divest some of its wireless assets in order to receive approval.

If that turns out to be the case, McReynolds views Cogeco as a possible contender to pick up Rogers’ wireless assets and leap into the market.

Financial Post

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