The current generation of Canadian telecom CEOs are experienced deal makers, adapt at building their businesses through acquisitions.
That dog no longer hunts. In the wake of BCE's takeover of Manitoba Tel this spring, domestic telecom companies have nothing left to buy. The only obvious targets are the family-controlled cable businesses, and it's highly unlikely one will come up for sale. There's no easy path to expansion outside Canada, an approach that's being used in other mature sectors, such as banking, retail and utilities.
Which means successful chief executive officers such as BCE's George Cope and Telus's Darren Entwistle, and their successors, need to set aside well-honed acquisition skills and instead focus on eating their own cooking, by boosting profits from the collection of businesses they've assembled through years of takeovers.
Going forward, winning the battle for the consumer is the obvious path to success for the country's five dominant telecom companies – BCE, Telus, Rogers Communications, Shaw Communications and Quebecor. That's got to be good news for a country that loves to complain about the cost and quality of cellphone and cable coverage.
Investors in telecom stocks, however, will experience something akin to giving up their morning caffeine fix. It's hard to replace the financial kick that comes from acquiring a smaller rival. Buying Manitoba Tel increased BCE's cash flow by $500-million this year, when it can take advantage of tax benefits, and more than $200-million annually going forward. Mr. Cope needs to sell a whole lot of Bell Fibe subscriptions to match that jolt.
With takeovers off the table, we're going to find out which telecom company has the best homegrown strategy for winning market share, and more importantly, who can execute on these plans. This will be a true test of each company's management expertise.
We'll find out which team is best at controlling costs in a sector that demands constant investments in networks. We'll see who can predict what fickle consumers want in a world that reinvents itself around each generation of cellphone.
Winners and losers will be relatively easy to determine, as financial results from core phone and cable operations are easy to compare across the five biggest companies. And each CEO is going to be judged on the merits of what they have built, as there are significant differences in the business mix at each company.
BCE, Rogers and Quebecor embraced sports, TV networks and other content as a way to lure customers to their telecom offerings. Telus's Mr. Enwistle, on the other hand, has openly questioned the value of owning media businesses, and instead took Telus into sectors such as health-care technology. While it's possible each company has made winning bets, past experience with diversification by telecom companies tells us someone in the sector is going to stumble.
For Canadian politicians, a competitive telecom sector with five deep-pocketed players represents the regulatory promised land: Consumers should benefit from fierce competition on price and service.
For CEOs, and the boards of the telecom companies, deal-making prowess that was valued in the past becomes less important. In military terms, generals skilled at blitzkrieg will be replaced by leaders well versed in trench warfare. The next generation of CEOs will be adapt at marketing and technology, rather mergers and acquisitions.
And for investors, the Canadian telecom companies will evolve into dividend plays, rather than growth stocks that were able to feed profits by gobbling up smaller rivals.