Shaw Communications slows wireless plans

Shaw Communications Inc. (TSX:SJR.B) says it’s tapping the brakes on a planned wireless rollout — the second delay of the new business to be announced in a matter of months.

People walk past the headquarters of Shaw Communications in Calgary

People walk past the headquarters of Shaw Communications in Calgary

Shaw Communications Inc. (TSX:SJR.B) says it’s tapping the brakes on a planned wireless rollout — the second delay of the new business to be announced in a matter of months.

Chief executive Brad Shaw told analysts Wednesday that the company has decided to pause before expanding into wireless communications because of changes in technology, consumer preferences and intensified competition.

“The dynamics within the wireless industry continue to evolve at a rapid pace and we believe all options need to be carefully considered in advance of the launch of a wireless service,” Shaw said in a conference call to discuss the company’s quarterly financial report.

“We announced today that we are adjusting our wireless build activities as we evaluate technology, including LTE options, and strategic alternatives with respect to our wireless initiatives.”

Short for “long term evolution,” LTE is a step beyond HSPA — the technology used in the most advanced wireless network offered by Telus (TSX:T) and Bell(TSX:BCE), Canada’s two largest phone companies.

One of the drawbacks of going LTE early would be the limited number of handsets currently available for consumers. However, an advantage would be the fast data transfer for music and video to mobile devices.

Shaw, which is Western Canada’s biggest cable operator, has been under pressure from Vancouver-based Telus — which has offered wireless services for more than a decade and competes with Shaw on Internet and TV distribution.

The two companies offered a number of discount plans last summer and fall to woo new customers, eating into Shaw’s profit margins. But those limited-time offers are coming to an end and both carriers raised prices in April.

Shares of Shaw Communications were down more than three per cent, dropping 69 cents to close at $19.80 on the Toronto Stock Exchange.

In January, Shaw pushed back the start date of its wireless division by three months into early 2012, citing the rapid evolution of wireless technology and market conditions.

A number of new players have entered the Canadian wireless market in the last year or so, making it far more competitive and squeezing profit margins for the traditional dominant players — Rogers Communications (TSX:RCI.B), Bell Mobility and Telus (TSX:T).

On Wednesday, new wireless operator Mobilicity announced it will launch its mobile network in Calgary in two weeks, providing more competition in the wireless sector in Alberta’s oil capital.

As well, Shaw is still digesting the $2 billion acquisition of the former Canwest Global TV stations, a deal last year that made the Calgary company a major private broadcaster and expanded its workforce to 13,000 employees.

Earlier Wednesday, Shaw reported that its profits rose 20.6 per cent in the second quarter to $167.3 million or 37 cents per share. The results were in line with average predictions from analysts compiled by Thomson Reuters, and above a profit of $138.7 million, or 32 cents a share posted a year earlier.

Revenue increased 28.8 per cent to $1.2 billion from $929.1 million in the comparable period of last year.

Analysts appeared to be lukewarm towards the results, and the company’s uncertain outlook for the coming months.

“The cable segment continues to show signs of weakness, as Shaw faces heightened competition in Western Canada,” wrote Desjardins’ Maher Yaghi in a note.

“And the company continues to feel pricing pressure in relation to past promotional activity.”

The cable division’s quarterly revenues were up 4.9 per cent to $769.4 million, but Yaghi pointed towards subscriber numbers as an area of “difficulty.”

Basic cable net losses were 13,662 versus Desjardins’ expectations of 4,000, while both Internet adds of 10,772 subscribers and cable telephone services adds of 32,512 were also below Desjardins’ expectations.

Shaw has been restructuring its operations in recent months and said it expects to book about $25 million to $30 million as part of recent layoffs of 550 employees, which included 150 staff in management roles.

Shaw expects to save more than $50 million annually through the effort.

Canaccord Genuity analyst Dvai Ghose said that results were disappointing adding that he had several issues with the company’s outlook, starting with its recluctance on wireless.

“It’s not surprising that they delayed their wireless launch. This only helps Telus even more,” he said.

“I also believe that having 100 per cent dividend payout at a time when you have to spend aggressively on upgrading your cable and building wireless is not necessarily prudent.”

“I think this company has a lot of problems,” he added.

Ghose has a “hold” rating on Shaw’s stock with a $20.50 target price.

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