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Morningstar | Shaw's Mobile Strategy Is Working, but a Difficult Wireline Environment Offsets the Gains

Though Shaw served less than 5% of the total Canadian wireless market at the end of 2017 (compared with a collective 90% for Rogers, BCE, and Telus), it is making a large-scale effort to become a fourth major provider. Shaw re-entered the wireless space in 2016 with its acquisition of Wind Mobile. Shaw subsequently bought key spectrum from Quebecor and upgraded Wind's 3G network to 4G. Concurrent with Shaw's continuing deployment of considerable resources to further upgrade the network, it is pricing aggressively to lure new customers. The multifaceted strategy has shown signs of success, with Shaw's much improved network leading to substantial improvement in customer churn, steady growth in postpaid customers, and improving margins. Though we expect it to remain small, we think Shaw is becoming a legitimate national wireless competitor. Unlike previous upstarts, Shaw has the resources from its cash cow wireline business to see its effort through and allow for the aggressive pricing strategy. We believe having that time will lead to lasting success. We think low prices for large amounts of data initially entices customers to overlook a currently inferior network. As the network constantly improves, customers will no longer be faced with a dramatic trade-off. With a network on closer to equal footing with competitors, margin expansion from the scaling customer base, and a lower-priced offering, Shaw's wireless business would be valuable. We believe the firm will eventually need to raise prices to show economic profits, but we think it will have room to do that once it is a more legitimate competitor. We are less optimistic about Shaw's wireline business. Though we expect Shaw to maintain its western Canada duopoly with Telus, its advantage is reduced due to Telus' recent fiber deployment. We expect Shaw will remain a quality wireline provider, with its hybrid fiber-coax network, DOCSIS 3.1 upgrade, and Comcast X1 television offering, but we project the firm to lose market share and be in a more price-competitive market. Even so, we anticipate technological advances and more IP-based offerings will lead to modest margin expansion.