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Verizon Communications Inc. (VZ), TELUS Corporation (USA) (TU), Rogers Communications Inc. (USA) (RCI): Analysts Are Wrong About Canada’s Big Telecoms

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Prices for mobile phone plans in Canada have decreased by 13% since last year, putting the potential profits of Canadian telecommunications providers into question.

Verizon Communications Inc. (NYSE:VZ)The Industry Canada and the CRTC commissioned the study, which investigated common phone packages that include voice, call display, text and voice mail. Another study, completed by Wall Communications, said prices for smartphone plans including data fell by about 5%. That study stated competition from other companies, such as Wind Mobile (which Verizon Communications Inc. (NYSE:VZ) is rumored to be interested in purchasing) is increasing competition in a market dominated by 3 major companies.

Wind has helped lower the price in Canada, the studies suggest. Verizon Communications Inc. (NYSE:VZ) has likely seen that strength, and wants to purchase the company now, when the price is relatively low, before it really starts to take over market share and before its potential purchase price increases alongside that dominance.

This takeover of market share, which has happened gradually over the last few years, means incumbents TELUS Corporation (USA) (NYSE:TU) and Rogers Communications Inc. (USA) (NYSE:RCI) likely feel threatened by Wind — that’s explicitly expressed by falling costs for phone plans. Be warned that about 90% of the Canadian telecommunications field is owned by Telus, Rogers or Bell.

If Verizon Communications Inc. (NYSE:VZ) does buy Wind, it will have to compete with those top 3 firms, which are estimated to have a combined 24 million subscribers, according to the Canadian Press. According to Wind, it has only about 600,000 subscribers, but that’s growing, and Verizon looks prepared to catch that momentum.

Analyst estimates don’t appear to reflect increasing competition

TELUS Corporation (USA) (NYSE:TU) is the strongest of the Canadian Big 3 according to analysts. Earnings are set to steadily increase into the future despite increased competition. Analysts don’t appear to be shaken by the threat of Wind and others that have moved in on the Canadian telecom market. The analysts’ consensus is $2.04 in EPS this year and $2.29 next year. In 2015, EPS is estimated at $2.56. The firm’s 12-month analyst price target is $35.67, and the company is now priced in the low $30-range.

But I think TELUS Corporation (USA) (NYSE:TU) has its work cut out for it if the company wants to keep control of its market share. Furthermore, analysts estimates likely don’t reflect the recent surveys that were conducted that show a 13% reduction in the cost for a cellphone plan since last year. That decrease, coupled with increased competition, will eat into profits at Telus, and that makes this a company for investors to avoid.

Analyst estimates are also off will Rogers

The picture also looks bleak for Rogers Communications Inc. (USA) (NYSE:RCI). But this time, analysts agree with me, at least for the next year they do. Consensus estimates indicate the company will experience a 1.75% decline in earnings this year. However, the following two years feature earnings increases of 7.31% and 7.33%, respectively. On a per-share basis, earnings are expected to climb from $3.36 this year to $3.61 next year and $3.87 in 2015. Morningstar ranked Rogers as the Canadian telecommunications provider with the most upside, and stated its stock price could experience a 30% increase.

But, like TELUS Corporation (USA) (NYSE:TU), the company faces a similar dog fight for customers, and that will result in a continual drop to phone plan prices. Rogers Communications Inc. (USA) (NYSE:RCI) isn’t in as much trouble as Telus, however, as in 2012 it controlled 34% of the market share, compared to 27% at Telus. Be wary, though, with Wind expected to breeze in and pick up a piece of that pie, Rogers will suffer, despite having more customers than its Canadian counterparts.

Furthermore, last year, Rogers Communications Inc. (USA) (NYSE:RCI) earned 58% of its revenue from the wireless industry. That spells trouble in the years ahead that I don’t think analysts have considered. And it isn’t reflected in the company’s current stock price. If Verizon Communications Inc. (NYSE:VZ) does purchase Wind, it won’t be long before revenue takes a nosedive.

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