EUR 850.00 For Business Accounts Only

Morningstar | TU Updated Forecasts and Estimates from 15 Feb 2019

After years of having an inferior wireline network than Shaw in the western Canadian geographies where it competes, Telus is over 60% finished with replacing its copper infrastructure with fiber-to-the-home (FTTH). By the end of 2019, the company expects to have built FTTH to over 70% of the residences it passes, and it will likely not expand much beyond that, as it will not likely be cost effective to lay fiber in more rural areas. We think the network improvement cannot be overstated. Telus already was a respectable competitor to Shaw, despite its slower and less reliable network. Not only will it now offer faster speeds than Shaw to most customers, the new network should reduce maintenance costs and allow for higher pricing, all contributing to margin expansion and what we expect to be an increasing share of subscribers in western Canada. We also see Telus with strength in its wireless segment. With just less than 30% share of Canadian wireless customers, it is one of the big three national providers, including Rogers and BCE, that collectively serve almost 90% of the market. It also has a network sharing agreement with BCE that we think leaves the service it provides second to none, as evidenced by industry-low churn and its place as the current holder of PCMag's "Fastest Canadian Mobile Network" title. We are concerned Telus may be more susceptible to Shaw's move to become a national wireless competitor, as Shaw's gains may come disproportionately in the western provinces where it has a wireline business and name recognition, a footprint that overlaps with Telus. Nonetheless, we expect Telus' wireless business to benefit from industry growth. With less than 90% mobile penetration in Canada (as opposed to over 100% in the U.S. and up to 140% in parts of Europe), we expect continued expansion in Canadian wireless. We think Telus' network strength will help it to continue gaining subscribers, even as we project it to lag industry growth.