Rogers Remains a Wireless and Fixed-Line Leader in a Slow-Growing Canadian Telecom Market

Senior Equity Analyst

Matthew Dolgin

Rogers is a premier national telecom provider in Canada that is as well positioned as any peer. It is the largest wireless services provider, based on mobile phone customers served, and after acquiring Shaw in 2023, it has a nationwide fixed-line network that covers two thirds of the country. 

Several years ago, we thought Rogers’ wireless network was falling behind its two big rivals, BCE and Telus, but it has invested heavily in its network, including by spending more to secure spectrum at auctions since 2019 than any peer. We no longer think Rogers’ 4G or 5G networks have any practical differences versus its two big rivals. Since 2022, Rogers has had the strongest wireless business in Canada, and we don’t expect it to lose ground. However, with Quebecor entering the market as a national wireless competitor and four participants offering excellent networks, we expect competition to weigh on pricing power throughout the industry, which should temper wireless services revenue growth. 

In its cable business, we continue to believe that BCE’s fiber buildout will allow it to take market share from Rogers. We think Rogers’ new footprint in Shaw’s legacy territory faces the same fate versus Telus. We don’t think Rogers’ network is inferior in any geography, but it is simply facing competition that is of a higher quality than it had historically, when Rogers had the clearly superior network. We expect performance to improve now that the fiber competitors are no longer brand new in most markets. But given the competition combined with long-term secular declines in television and landline phones, we don’t expect much organic cable revenue growth, as slightly growing internet bases and pricing will not materially offset the legacy declines.

We think Rogers' media unit, or at least parts of it, has more value in a sale than it does as an operating business. According to Forbes magazine estimates, the Blue Jays are worth $1.8 billion, but the team generates no operating profit. We also believe the move away from linear TV viewership and the shift to digital media content has impaired the print publication and television and radio station holdings.

Business Strategy & Outlook

Rogers' narrow moat stems from efficient scale and cost advantages in its wireless and wireline businesses, which accounted for 52% and 36% of total sales in 2023, respectively. 

In wireless, Rogers is one of the three big national competitors, and we believe they all have strong moats. Rogers, BCE, and Telus share 90% of the total market. Although wireless penetration in Canada is less than in the US and some European countries, it is a mature enough market that a smaller competitor would have to siphon subscribers from incumbents to reach more comparable scale. Canada is often regarded as having among the best wireless networks in the world, and we don't believe smaller competitors could hope to offer superior service, leaving them to compete on price and facing unattractive wireless returns. With the scale that the incumbents have come significant cost advantages, as they can spread their marketing, overhead, and other fixed costs over comparatively massive subscriber bases.

Between the three main wireless competitors, pricing has historically stayed rational and network quality is generally similar. We don't expect this to change, and we don't think any of the three is likely to meaningfully separate from the pack. Given the long-term similarity we expect from the networks of Telus, BCE, and Rogers, with their similar resources and current positioning, we don't think any of the three have long-term advantages or disadvantages to each other, and we think the efficient scale with which each operates will allow all of them to maintain economic profitability. We think any attempt by any one firm to make drastic changes in pricing or network enhancements to edge the others would simply serve to weigh on that company's returns. With our view that each of the three companies is rational, we don't see that happening.

Quebecor, which bought Freedom Mobile in 2023 and is now competing on a national level, offers a good test for our thesis. Its network is improving, and it will be competing on price, but we don’t think it will be able to take significant share from the national incumbents. We believe it will generally keep industry price levels lower throughout Canada, but on an ongoing basis, we don’t think it will be able to price at enough of a discount to take significant share while also investing to keep its network up to par with the Big Three incumbents. 

Rogers has similar advantages in its cable business, where it provides internet, television, and landline phone services. After acquiring Shaw, its footprint covers nearly two thirds of Canada's households. It primarily competes with the phone companies—BCE in the east and Telus in the west. Though we think Rogers' edge over the phone companies has narrowed since the latter overhauled their legacy copper networks with fiber, we think efficient scale advantages will keep regions where Rogers operates as duopolies. With legacy networks in existence and offering performance that competitors could realistically hope only to match rather than exceed, we don't see the economic attraction in undertaking the tens of billions of dollars it would take to build a network. As with hypothetical wireless upstart competitors, a competitor would have to steal share in a mature industry from companies with existing customer bases that corner the market, first-rate networks that cannot realistically be edged, cost advantages due to their scale, and slim enough economic profits that there is little room to profitably settle for less. Short of government intervention, we don't see the efficient scale advantages allowing room for legitimate competitors outside the two incumbents.

The ever-present threat of increased government intervention is what keeps us from assigning Rogers a wide moat. In the wireless space, the government favors more robust competition for the top three providers, as evidenced by it historically giving other competitors favored status in spectrum auctions and the terms it required when it allowed Quebecor to buy Freedom Mobile. Regulators have also looked to enhance competition in the wireline space by requiring fiber owners in some areas to share their networks at wholesale rates with competitors. In the wireline space, some governments view broadband service as a public utility. With that in mind, we cannot assume that the current environment will persist over a 20-year period, and our level of confidence in long-term projections is tempered by the industry's sensitivity to government influence.

Narrow

Economic Moat

Rogers Communications

Chatr is a Canadian mobile virtual network operator owned by Rogers Communications targeting entry-level customers. It is one of three wireless brands owned by Rogers Communications, including Rogers Wireless, and Fido Solutions. The provider launched its service in Toronto, Ottawa, Calgary, Edmonton, Vancouver, Quebec City, and Montréal under the name Chatr Wireless on July 28, 2010. The company re-branded to its current name in 2015. The carrier initially launched by limiting plan features to only specific regions of Rogers' network, dubbed "chatr zones". The company now offers coverage for most urban areas of Canada, and additional plans for certain cities.

Chatr

Fido Solutions is a Canadian cellular telephone service provider owned by Rogers Communications. Although Fido's parent company, Rogers Communications, also operates another cellular service Rogers Wireless, Fido remains a separate entity and retains its own retail chain, customer service call centres, network servers and CEO. Fido pioneered the concept of providing unlimited service in select Canadian cities. Fido was the first carrier in Canada to launch a GSM-based network and the first wireless service provider in North America to offer General Packet Radio Service on its network.

Fido Solutions

Rogers Communications, Inc. engages in the provision of wireless communications services. It operates through the following segments: Wireless, Cable, and Media. The Wireless segment refers to wireless telecommunications operations for Canadian consumers and businesses. The Cable segment includes Internet, television, telephony, and smart home monitoring services. The Media segment consists of a portfolio of media properties such as sports media and entertainment; television and radio broadcasting; specialty channels; multi-platform shopping; and digital media. The company was founded by Edward Samuel Rogers, Jr. in 1960 and is headquartered in Toronto, Canada.

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