TORONTO and CALGARY – Rogers Communications said late Monday afternoon it plans to pay Shaw Communications $700 million to acquire Hamilton Ontario-based Mountain Cablevision and to secure Shaw’s AWS spectrum holdings in 2014.
The deal will also see Shaw purchase Rogers' one-third interest in TVtropolis for $59 million, giving it 100% of the specialty channel, and Shaw will enter into negotiations with Rogers for the provision of certain services in Western Canada. The press release did not specify what those services will be although Shaw CEO Brad Shaw hinted where some co-operation is being worked on.
The decision to option the spectrum to Rogers simply backs up what Shaw executives have been saying for two years – that it is just too expensive and risky for it to build a traditional cellular network; and also confirms what most thought – that it will not bid for spectrum in this year’s 700 MHz auction. Shaw paid about $200 million for AWS spectrum in Alberta, British Columbia, Manitoba and Northern Ontario in the 2008 auction, but decided not to build a cell network. Instead, it has turned its attention towards making Wi-Fi ubiquitous in its cable footprint.
“We think we are certainly making the right decisions (going Wi-Fi) and the economics of a traditional wireless network are just unsustainable for us,” CEO Brad Shaw told Cartt.ca in an interview explaining the rationale behind moving the spectrum (which is pending regulatory approval).
The price paid for Mountain Cable amounts to $400 million of the total amount of the deal, or near a whopping $10,000 per subscriber (assuming the Hamilton, Ontario-based system is close to the same 41,000 customers it had when its founder Owen Boris sold the company to Shaw in 2009). Shaw paid $308 million for the system three-and-a-half years ago.
“The cash consideration for the transactions includes a $250 million deposit for Mountain, as well as a $50 million payment for the Option to purchase the spectrum holdings. Upon the closing of the Mountain component, total cash consideration of $400 million will have been paid in respect of this cable business – an amount that includes not only the value of Mountain, but also takes into consideration the value of the bundle of transactions taken together, as well as consideration for the timing of cash payments between the parties,” reads the Shaw press release.
When this reporter perhaps ungraciously pointed out that the Hamilton system could have been had much cheaper just a few years ago (In 2009 Rogers lost a bidding war for Mountain to Shaw, even though Boris – who died in 2011 – when interviewed by Cartt.ca after the sale said he really wanted to sell it to RCI in the first place because of a gentleman’s agreement he had with the late Ted Rogers), Rogers Communications CEO Nadir Mohamed said he prefers to look ahead, not back. “Obviously we’re looking at this from a going-forward perspective,” he noted, adding: “The valuation, basically, if you look at the earnings multiples, are essentially the same (as when Shaw purchased the system).”
Besides, the Mountain system serves a growing suburban population featuring a desirable demographic where its broadband penetration is already north of 80% and digital cable and home phone is 90%-penetrated, well ahead of industry norms.
And unlike Shaw, Rogers’ existing cable footprint is right nearby in Brantford. Despite some technological differences between Rogers and Shaw plant, “we can leverage our existing cable business to expand into that area,” added Mohamed. “We love the cable business. I’ve been a strong believer that our asset mix is the best asset mix in North America.”
Shaw noted the company’s other Ontario systems are not for sale. “We’re comfortable with where we’re at,” he said. “We’re very pleased with the deal we got from Rogers and we’re happy to maintain Thunder Bay and Sault Ste. Marie and all the other little spots we have in Ontario.” (such as Marathon, Dryden, Kenora, etc.)
The majority of the proceeds for Shaw will be plowed right back into its network, says its CEO. “This will allow us to reinvest in our network and accelerate some of our strategic initiatives that allows us to compete at a level we need to compete at here in the west and continue to reinvest back into the business,” he told Cartt.ca.
That means a bigger push for its Western Wi-Fi initiatives and TV Everywhere solution. “We’re really comfortable in how we’re seeing the Wi-Fi ecosystem take off… and it fits in well with our TV Everywhere strategy,” said Shaw. “We’ve been in such a price war with Telus, but I’m seeing a move from more of a consumer price decision to more of a service, a customer experience decision.”
That means broadband speeds must continue to rise “to continue to deal with this explosion of data that has proliferated across our network,” he explained. “There’s a variety of things happening and the business has changed so much… that we have to make sure to continue to invest.”
Rogers, too, sees the spectrum it has optioned as an investment in meeting wireless data demand, albeit on the cellular network. “Wireless data has been a big part of our story and we see it as a tremendous growth opportunity,” said Mohamed, noting new spectrum is just one way to respond “to this explosion in demand” as wireless data throughput on its network is “growing in the hundreds of percent per year every year, consistently… and as you know, no speed is fast enough,” he added.
“The LTE ecosystem is using 700 and AWS bands in North America and with regulatory approval… we’ll be able to get access to this spectrum to really address what we think are the needs of consumers in Western Canada,” said Mohamed.
Rogers believes there will be no regulatory hurdles standing in its way gaining the spectrum, other than the waiting period set out in the 2008 AWS spectrum auction rules. Industry Canada said that any spectrum bought in the set aside blocks in 2008 could not be sold to any incumbent for five years, a timeframe which expires in 2014.
“We don’t want to pre-conclude in any way how the government is going to look at it, but obviously from our perspective this makes sense and will get approved. One of the key things that we look at is the fact it is unused spectrum and Shaw has been pretty public in saying they are not going into wireless as we would define it, so one of the things we look forward to is actually using that spectrum for Canadians,” said Mohamed.
Shaw's AWS spectrum holdings cover 188 million MHz POPs including 20 MHz across B.C., Alberta and Manitoba and 10 MHz in select B.C., Alberta, Saskatchewan and Northern Ontario markets. Under the agreement Rogers’ option may be exercised only following receipt of Industry Canada and Competition Bureau approval.
And when it comes to those services Shaw and Rogers are negotiating on, they could certainly be talking about carrying live calls to and from wireless cell networks to Wi-Fi – and back again. When talking about how his and other networks are changing, Shaw noted: “Eventually you’ll see things happening between Wi-Fi and LTE where we’re testing handoff of live calls,” he said.
“Those things are happening and we’re going to be a part of it.”
