Shaw hangs up plans to launch wireless network

Shaw Communications has pulled the plug on plans to launch a wireless phone service, favouring instead a less risky venture into Wi-Fi services — a decision that one analyst deemed “fundamentally flawed.”

Shaw Communications has pulled the plug on plans to launch a wireless phone service, favouring instead a less risky venture into Wi-Fi services — a decision that one analyst deemed “fundamentally flawed.”

After spending three years and millions of dollars towards a wireless network rollout, the Calgary-based telecommunications company said Thursday it has determined that the potential payoff doesn’t justify risking the $1 billion investment required.

“The wireless business is challenging from a number of perspectives and it became clear from our review that the economics of a new entrant wireless provider are not compelling,” CEO Brad Shaw said on a conference call with analysts.

That’s because new entrants lack the economies of scale and scope to compete effectively against well-established players, the company said.

Toronto-based Rogers Communications Inc. (TSX:RCI.B) has Canada’s largest base of wireless customers, followed by BCE Inc.’s Bell Canada (TSX:BCE) and Telus Corp. (TSX:T), Shaw’s main rival in Western Canada.

There are smaller, newer wireless carriers that have sprung up since the federal government auctioned off additional spectrum and set aside a portion of it for newcomers.

Shaw said the company (TSX:SJR.B) reached its decision after reviewing its assets, including how wireless would fit within its existing service bundles that include Internet, cable television and satellite television.

Instead, the company will focus on building a Wi-Fi network that will let customers use Shaw services outside their home — at coffee shops, shopping malls, and other ’hotspots’— a trend it has pegged for growth as it sees a shift in Internet usage toward handheld devices.

“We believe consumers are seeking Wi-Fi access points to reduce data costs, stay connected and customers are now exploring Wi-Fi for data intensive streaming and downloading of content,” Shaw said.

But Dvai Ghose, Canaccord Genuity head of research, said he believes “a Wi-Fi only strategy seems fundamentally flawed.”

Among other reasons, Ghose doesn’t see how it can generate revenue as he has seen no evidence of a profitable Wi-Fi only model.

“If you charge zero and you’ve got the cost of backhaul, then by definition you lose money,” he said.

Shaw has already poured about $180 million into the development of a wireless network, about $50 million of which it will be able to use in the transition to the less capital intensive Wi-Fi network in Western Canada. Analysts estimate the Wi-Fi build will cost the company about $400 million.

Shaw said it is in discussions with Cisco Systems Inc. to launch in key markets by spring of 2012.

The wireless industry has changed dramatically since Shaw bought wireless licences at an auction in 2008 that opened up Canada’s wireless industry to a number of new entrants, most of which have already launched.

The market has become saturated with new entrants including Wind Mobile, Quebecor’s Videotron (TSX:QBR.B), Mobilicity, and Public Mobile. EastLink Communications is also planning to launch its own wireless services in Halifax.

Telecom analyst Maher Yaghi believes Shaw’s decision to shelve its ambitions for a wireless business will impact the company negatively partly because many had assumed it would announce a wireless-sharing agreement with Rogers in the west.

“Overall, this announcement is negative from an operational perspective, as Shaw will not be able to compete head-to-head as effectively against Telus.”

The reversal in Shaw’s plans leaves the market speculating on several potential outcomes including acquisition or sale opportunities, Yaghi said.

“By not building its own wireless network, Shaw is leaving the door open to be acquired by Rogers should the Shaw family be willing to sell down the road as the combination should satisfy the Competition Bureau,” he said.

However, the company could also be waiting for one of the new wireless players to tank before making an offer for the company — giving Shaw an established wireless business for less than the cost of building a new network, he said.

Shares in Shaw fell three per cent or 70 cents to $21.70 in afternoon trading on the Toronto Stock Exchange.

Shaw’s retreat leaves Western Canada the only part of Canada where the cable competitor is not in wireless.

But Shaw believes the addition of a Wi-Fi service will help it to retain existing cable and Internet customers by giving them a value-added service.

The company also plans to generate revenue from selling the service to carriers looking to offload the burden of heavy downloading and data traffic on their own 3G and 4G networks, which some users complain has been bogged down by devices like the iPhone which are notorious for using a lot of data.

Shaw said the decision falls in step with major U.S. cable carriers Cablevision and Cox Communications who have launched Wi-Fi networks.

There is no way wireless companies will be able to build enough towers or create enough capacity on their traditional networks to deal with the coming influx of wireless broadband demand, and wireless companies might look to Shaw for support, the company said.

But Ghose wondered why Shaw believes its competitors would pay it for a Wi-Fi service rather than build their own, especially because Shaw mentioned that if the Wi-Fi business is successful it could be a launching pad to re-enter the wireless realm.

After the announcement Thursday, reports surfaced that Wind Mobile owner Globalive was interested in acquiring the wireless spectrum Shaw purchased in 2008, but Shaw said on the call it will “sit”on the licence and let it appreciate in value.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A vial of the Medicago vaccine sits on a surface. CARe Clinic, located in Red Deer, has been selected to participate in the third phase of vaccine study. (Photo courtesy www.medicago.com)
Red Deer clinical research centre participating in plant-based COVID-19 vaccine trial

A Red Deer research centre has been selected to participate in the… Continue reading

Asymptomatic testing will now be available for "priority groups" who are most likely to spread the COVID-19 virus to vulnerable or at-risk populations. File photo by THE CANADIAN PRESS
Red Deer jumps to 449 active COVID-19 cases on Sunday

1,516 new cases identified in Alberta

The QEII was closed Sunday morning due to a pole fire. (Photo courtesy City of Red Deer)
UPDATE: QEII near Red Deer reopens

The QEII has been reopened after being closed due to a pole… Continue reading

Innisfail RCMP are investigating a single-vehicle crash that happened west of Bowden on March 21, 2021. (File photo by Advocate staff)
Bashaw RCMP investigate fatal collision in central Alberta

Bashaw RCMP are investigating after a fatal collision Saturday afternoon. Police were… Continue reading

A damaged unicorn statue is shown in a field outside of Delia, Alta. in this undated handout photo. It's not often police can report that a unicorn has been found, but it was the truth Saturday when RCMP said a stolen, stainless-steel statue of the mythical beast had been located in a field not far from where he'd been taken. THE CANADIAN PRESS/HO, RCMP *MANDATORY CREDIT*
Mounties get their unicorn; stolen statue of mythical beast found in Alberta field

DELIA, Alta. — It’s not often police can report that a unicorn… Continue reading

Investigators from the Vancouver Police Department were in Chilliwack Saturday, collecting evidence connected to a double homicide. (file photo)
Police investigate shooting death of man outside downtown Vancouver restaurant

Vancouver police say one man was killed in what they believe was… Continue reading

Dr. E. Kwok administers a COVID-19 vaccine to a recipient at a vaccination clinic run by Vancouver Coastal Health, in Richmond, B.C., Saturday, April 10, 2021. THE CANADIAN PRESS/Jonathan Hayward
B.C. to start registering people 18 years and older for COVID-19 vaccines

VICTORIA — The British Columbia government says it’s inviting people 18 years… Continue reading

San Jose's Tomas Hertl, center, celebrates with teammates Patrick Marleau, left, and Rudolfs Blacers, right, after Hertl scored a goal during the first period of an NHL hockey game against the Minnesota Wild, Friday, April 16, 2021, in St. Paul, Minn. (AP Photo/Stacy Bengs)
Patrick Marleau set to break Gordie Howe’s games record

For Patrick Marleau, the best part about Monday night when he is… Continue reading

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, speaks during a press briefing at the White House, Tuesday, April 13, 2021, in Washington. (AP Photo/Patrick Semansky)
Half of U.S. adults have received at least one COVID-19 shot

WASHINGTON — Half of all adults in the U.S. have received at… Continue reading

People are shown at a COVID-19 vaccination site in Montreal, Sunday, April 18, 2021, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
Federal government to send health-care workers to Ontario, Trudeau says

MONTREAL — Prime Minister Justin Trudeau says federal departments and some Canadian… Continue reading

People cross a busy street in the shopping district of Flushing on Tuesday, March 30, 2021, in the Queens borough of New York. Access to the COVID-19 vaccine in the United States is growing by the day. THE CANADIAN PRESS/AP-Kathy Willens
Despite COVID-19 vaccines, Americans in D.C. not feeling celebratory — or charitable

WASHINGTON — This might make Canadians jealous of their American cousins for… Continue reading

A man pays his respects at a roadside memorial in Portapique, N.S. on Thursday, April 23, 2021. RCMP say at least 22 people are dead after a man who at one point wore a police uniform and drove a mock-up cruiser, went on a murder rampage in Portapique and several other Nova Scotia communities. THE CANADIAN PRESS/Andrew Vaughan
Memorial service in Nova Scotia marks one year since mass shooting started

TRURO, N.S. — A memorial service is planned for today in central… Continue reading

In this April 23, 2016, photo, David Goethel sorts cod and haddock while fishing off the coast of New Hampshire. To Goethel, cod represents his identity, his ticket to middle class life, and his link to one the country's most historic industries, a fisherman who has caught New England's most recognized fish for more than 30 years. (AP Photo/Robert F. Bukaty)
‘It’s more than just a fish:’ Scientists worry cod will never come back in N.L.

ST. JOHN’S, N.L. — The latest assessment of Atlantic cod stocks, whose… Continue reading

Most Read