A Rogers Plus store sign is seen in Toronto February 16, 2011.
The bad news for Canadian telecom investors? Moody's Investors Service recognizes that the tough competitive environment means that the growth in cash flow is slowing down. The good news? There's a big difference between slowing and retreating growth.
Moody's pointed out that this was a long-time coming: Technological changes years ago meant that cable companies were able to compete against incumbent telecom companies, like BCE Inc. in the fixed-line arena. More recently, though, public policy changes have allowed for new entrants into the wireless arena, which is having a noticeable effect on the sector.
To make things even more challenging, network upgrades mean that the big three incumbent players -- BCE, Telus Corp. and Rogers Communications Inc. -- cannot differentiate themselves on capabilities.
"Operating results for every company in the Canadian telecommunications and cable sectors are under pressure as competition increases," said Bill Wolfe, senior credit officer at Moody's. "We have been expecting this for some time, but it is only in the past few quarters that stress has become obvious."
If it sounds like a bad time for investors, Moody's suggests that -- at least from a credit-ratings perspective -- things are okay.
"Despite increased competition, ratings will not be adversely affected over the mid-term since we expect cash flow growth to slow but not retreat into decline, and since each of the rated companies has sufficient financial flexibility with which to defend its rating," Mr. Wolfe said.
Meanwhile, he also pointed out that not all telecom companies are the same. He highlighted Rogers as being the most vulnerable, given that its former competitive advantages have been "largely mitigated." At the other end of the spectrum, Quebecor Media has a "unique footprint" given its francophone brand, giving it the most defensible cable franchise and the most to gain from a new wireless service.
David Berman