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Morningstar | Shaw’s Wireless Strides Continue, but Wireline Still Composes Most of Its Business

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 entered the wireless space in 2016 with its acquisition of Wind Mobile, which had only a 3G network and subpar spectrum holdings. Shaw has since upgraded the entire network to 4G and bought key spectrum from Quebecor. As a small player, Shaw will also have government-favored status in anticipated spectrum auctions in 2019, 2020, and 2021. Concurrent with Shaw's deployment of considerable resources to upgrade its network, it has an aggressive pricing strategy to lure new customers—a strategy that has paid off in the few quarters since Shaw upgraded to 4G and was finally able to offer more popular phones.While Shaw has an uphill battle to level the playing field, we like its strategy and think that it will have some success. Unlike previous upstarts, Shaw has the resources from its cash cow wireline business to see its effort through and allow for the aggressive strategy. We think low prices for large amounts of data will entice a number of potential customers to overlook a currently inferior network. While the customer base grows under this strategy, we expect the network to make huge strides in the next several years as Shaw deploys new spectrum. We see the result being a network on closer to equal footing as competitors, a sizable customer base, and a lower-price offering. To truly succeed, Shaw will ultimately have 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 expect Shaw's wireline business to maintain its western Canada duopoly with Telus. Though its advantage over Telus is lessened with Telus' recent fiber deployment, Shaw's hybrid fiber-coax network, DOCSIS 3.1 upgrade, and Comcast X1 television offering (BlueSky) will, in our view, allow it to keep about half the market's customers for the foreseeable future. We expect technological advances and more IP-based offerings to lead to margin expansion even as it faces more formidable competition from Telus.