Verizon Will Stay Out of Canada, Spurring Relief Rally
BCE Inc. (BCE), Rogers Communications Inc. and Telus Corp. rallied after Verizon Communications Inc. (VZ) said it wouldn’t expand into Canada, maintaining the domestic carriers’ lock on the country’s wireless market.
“Verizon’s clarification of its intentions toward Canada should enable Rogers to recover much of the lost ground it recently succumbed to, with Telus poised for at least mid-single-digit gains and BCE likely seeing upside as well, albeit more modestly,” Adam Shine, an analyst at National Bank Financial Inc., said in a report to clients yesterday.
Shine and analysts at RBC Capital Markets, National Bank of Canada (NA) and BMO Capital Markets raised their ratings on the stocks, helping spur the rally. BCE rose 3.9 percent to C$44.86 at the close in Toronto today, the biggest one-day gain since August 2011. Telus (T) climbed 5.5 percent to C$34.50, the most since August 2009. Rogers jumped 7.2 percent to C$44.59, the most since November 2008.
Verizon said yesterday it was not coming to Canada after it agreed to buy Vodafone Group Plc’s (VOD) 45 percent stake in Verizon Wireless, giving it full control of the most profitable U.S. mobile-phone operator for $130 billion in the biggest acquisition in more than a decade.
“Verizon is not going to Canada,” Lowell McAdam, chief executive officer of New York-based Verizon, said yesterday in a phone interview. “It has nothing to do with the Vodafone deal -- it has to do with our view of what kind of value we could get for shareholders. If we thought it had great value creation we would do it.”
Shares of Canada’s existing wireless companies, including Toronto-based Rogers (RCI/B), began climbing on Aug. 29 as news of the potential Verizon-Vodafone purchase surfaced, fueling speculation that a deal would diminish the U.S. carrier’s appetite for expanding in Canada. The stocks had slumped after Verizon said in June it was weighing a bid to buy Wind Mobile, the largest of three new Ontario-based carriers.
“Due to the uncertain rate environment, these yield stocks might not get back to previous highs over the next few months, but they should come close,” Chris Damas, an analyst at BCMI Research in Barrie, Ontario, said in a note yesterday.
Shine increased his rating for Rogers to outperform, the equivalent of a buy, while Tim Casey, an analyst with BMO Capital Markets, increased his rating for Telus to outperform.
Drew McReynolds, analyst with RBC Capital Markets, today raised his rating for both Telus and Bell to outperform, from sector perform, the equivalent of a hold.
Today’s surge left shares of Montreal-based BCE 5.2 percent higher this year, and Vancouver-based Telus 6 percent higher, while Rogers was little changed.
BCE, Rogers and Telus together account 90 percent of Canadian mobile-phone customers, even as the federal government has tried to foster more competition by reserving airwaves for new entrants and barring the larger carriers from taking over the smaller companies.
The three biggest carriers vowed yesterday to continue lobbying the government to change the rules at the next spectrum action in January. The restrictions limit BCE, Rogers and Telus to bidding on just one of four blocks of 700-megahertz spectrum, prized for its ability to penetrate dense urban areas. New entrants can bid on two prime blocks, which the carriers say favors foreign companies.
“It’s never been about Verizon coming to Canada,” Josh Blair, a spokesman for Telus, said in a phone interview from Vancouver yesterday. “It has been and continues to be about fair access to spectrum.”
The Verizon news is “significant,” said Mark Langton, a spokesman for BCE, said in an e-mail yesterday. “But the regulatory loopholes that give advantages to big foreign carriers remain and should be closed.”
Rogers said it has always welcomed competition. “We have been asking for a fair and level playing field that treats large foreign carriers the same as established Canadian carriers,” Jennifer Kett, a Rogers spokeswoman, said by e-mail.
Verizon’s McAdam said speculation that the company might try to expand in Canada was “way overblown.”
“The press made much more of our interest in Canada than there was inside our company,” he said.
Verizon Chief Financial Officer Fran Shammo said the company was considering a wireless venture in Canada at a June Wall Street Journal conference.
“We’re looking at the opportunity,” Shammo said at the time. “This is just us dipping our toe in the water.”
Bob Varettoni, a Verizon spokesman, said later that Wind Mobile, was “one of many” options the company was considering.
“We are more committed than ever to offering Canadians a true alternative to the big three telecoms,” Tony Lacavera, Wind Mobile founder, said by e-mail yesterday. “We don’t need Verizon to have a competitive telecommunications market -- prices have already come down almost 20 percent in markets where Wind operates, and we maintain our long term commitment to bringing all Canadians more choice for their wireless dollars.”
Industry Minister James Moore said last month he will not change the timing of the auction or rules on block allocations. Deposits on the bids are due Sept. 17.