Shaw Communications Inc. has driven the final stake in its dream of operating its own cellular phone network.
In a series of deals announced late Monday, Shaw said it was selling Rogers Communications Inc. an option to eventually buy its wireless licences, which mostly cover Western Canada. Shaw is also selling Rogers its Hamilton-based cable operations, Mountain Cablevision Ltd., while picking up Rogers's minority interest in television channel TVtropolis.
The deals, which are worth about $700-million combined, represent a key step for Shaw in its plan to rid itself of non-core assets as it wages war in the west with Telus Corp. They also mark one of the last steps toward abandoning its once-grand plans to launch a wireless service. In September 2011, the company halted a $1-billion effort to enter the wireless business after deciding it was too costly to compete in an already cutthroat market.
The Calgary-based cable company had spent $189.5-million on wireless licences in 2008 and was expected to bid in the auction of the 700 MHz frequency this year. It has instead opted to pursue a less costly WiFi strategy.
Shaw plans to use the money from the asset sales to Rogers to sharpen its focus on its five-year strategic plan, which involves speeding up its WiFi rollout, modernizing its mainstay cable TV operations (including a new TV anywhere app) and building a new data centre in Calgary.
Of the $700-million total, about $400-million represents the price tag for Mountain Cable. The option to purchase Shaw's spectrum licences, meanwhile, is worth $50-million – a figure that does not reflect the full price that Rogers expects to pay for the those radio waves if it achieves regulatory approval down the road. Shaw, meanwhile, expects to pay Rogers $59-million for the 33.3-per-cent stake in TVtropolis that it did not already own.
Shaw chief executive officer Brad Shaw said the moves show the company intends to focus on its key home market in western Canada, where it has been fighting an escalating war with Telus for cable, internet and home phone customers.
"Our fight tends to be in the west," he said. "If we can take these dollars and better utilize them, that makes sense for us."
The advanced wireless spectrum that Shaw purchased in 2008 covers areas of British Columbia, Alberta, Saskatchewan, Manitoba and northern Ontario.
"We've always said that we are not going to build a traditional wireless network," said Mr. Shaw, adding the company could always pursue the option of signing a wireless resale agreement with Rogers down the road should it become necessary to fill that hole in its product lineup.
"Here's an opportunity to monetize or give some money back to reinvest it more strategically for us," he added.
Rogers, meanwhile, will seek regulatory approval for the transfer of wireless licences after September 2014 to respect Ottawa's probation on the sale of new entrant licences to incumbents.
CEO Nadir Mohamed said the company would use the spectrum to feed growing data demand, particularly on its new long-term evolution network, in western Canada.
"This series of transactions fits squarely in our strategic game plan, it strengthens our core wireless and cable business," he said.
"It really ties back to where we see growth in wireless, which clearly is on wireless data."
Dvai Ghose, an analyst with Canaccord Genuity, suggested that Monday's move rolled out the possibility of Rogers making a "near-term" bid for Shaw. It also raised questions about whether other incumbents would try to buy other new entrants' spectrum.
"Shaw seems to have entirely given up on wireless and we note that the services agreement in Western Canada does not include wireless resale for Shaw – we view this as a key positive for Rogers and TELUS, the largest wireless incumbents in the West," Mr. Ghose said.
"We believe that Rogers has some degree of comfort in assuming that Industry Canada will allow it, the largest wireless incumbent, to purchase Shaw's AWS set-aside spectrum in 2013. While the official new entrant set-aside moratorium expires in September 2014, we wondered if regulators would really allow incumbents to buy new entrant set aside spectrum," he said.