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BCE Inc. (BCE $35.16)
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TELUS Corporation (T $18.58)
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Rogers Communications Inc. Class A Shares (RCI.A $55.26)
What am I missing here. Three main players in the Canadian market with a government enforced moat. Highest prices in the world.
Services provided: Phone, Cell, Internet - fundamental requirements to participating in today’s society.
Common costs to providers as in the rest of the world, ie towers, cable, switching systems, processing centres.
Why are these Canadian Telecoms not shovelling money? Are they incompetent? Have they become largely bureaucratic and inefficient?
I cannot understand how this business is not thriving. What say you?
These companies are doing fine fundamentally with decent margins and cash flows and steady albeit low top-line growth. They are also competitive businesses that to the end user are a bit of a commodity. The only way to really differentiate on internet access, as an example, is by price, so this does keep pressure on net margins. We think the issue is really just one of growth. Canadian population growth and economic growth are low, so they can't grow much on this side of things. Meanwhile, a lot of these companies have already pushed prices higher to levels where they can't pull this lever as aggressively anymore either. So, options to grow are limited and some companies may have got a bit over their skis on certain capital allocation decisions. A lot of this is priced in at these valuations we think and they can do fine from these levels but it is in general not a space we would expect fireworks from.