Shaw Communications Inc. Will Disrupt the Moats of the Big 3 Canadian Telecoms

Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) continues to invest in WIND mobile, which will slowly steal market share away from its competition.

The Motley Fool

Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) will be a disruptor to the Canadian telecom scene. Canadians have always been very unhappy with the high prices that the Big Three telecom giants charge on cellphone plans.

Shaw versus the Big Three

The big three is comprised of BCE Inc. (TSX:BCE)(NYSE:BCE), Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI) and Telus Corporation (TSX:T)(NYSE:TU), which have formed an oligopoly in the Canadian market for a long time. With the recent focus on its wireless segment and the continued investment it’s making on it, we can expect that Shaw will take a huge chunk out of the moats of the Big Three, and the Big Three will shortly become the Big Four.

It’s no secret that the acquisition of WIND Mobile for $1.6 billion is going to be a tough uphill climb for Shaw, especially considering how poor the WIND network is compared to the Big Three. Shaw sold off its entire media arm, so it could focus and invest in a wireless infrastructure that would be good for Canadians and bad for the Big Three.

Which direction does the WIND blow?

WIND is primarily known as a discount wireless carrier–one that is cheap for Canadians–but it doesn’t always offer the best connection and lacks a 4G LTE data network. Shaw has been aggressively investing in this department; the 4G LTE network is set to be rolled out by 2017. Although Shaw’s competitors already have a fully functional 4G LTE network available right now, the rollout, when combined with the discounted services as well as possibilities of bundling, will cause some fierce competition in the Canadian telecom scene.

Shaw still plans to keep WIND a discount carrier, but as it grows its network, we can expect that the company will have an interesting time balancing its profit margin, while trying to take customers from the competition.

WIND currently has the fewest paid subscribers at about one million, which is much lower than Rogers, BCE, and Telus, which all have subscribers north of the eight million mark. As Shaw continues to invest into WIND, it will be stealing market share away from the Big Three. And with Shaw’s current, impressive bundling platform, we can expect great growth from this undervalued telecom play.

Great growth prospects, but what about the value?

Shaw is definitely one of the best growth plays in the telecom market, and this should capture the attention of dividend investors. We could have a rare opportunity of a high dividend combined with huge capital gains over the next few years, as WIND slowly takes subscribers away from the Big Three. It will not be easy as Shaw will need to invest wisely in the infrastructure. I believe Shaw has the ability to do this; consider that Shaw Open WiFi is a very successful rollout of free WiFi services for its customers.

Shaw currently trades at a hefty 22.96 price-to-earnings, but its price-to-book is at a ridiculously cheap 2.1, which is lower than its five-year historical average price-to-book value of 2.7.  When considering the huge market share that is Shaw’s to grab over the next few years, I believe it is one of the best value and growth plays on the TSX today.

Dividend investors will be very happy collecting the bountiful 4.5% yield, while collecting impressive capital gains and dividend raises over the next few years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any stocks mentioned.

More on Investing

ways to boost income
Investing

2 Financial Stocks That Canadian Investors Should Grab in November

Great-West Lifeco (TSX:GWO) and another financial stock have huge yields and upside potential in 2025.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Investing

Here’s the Average TFSA Balance at Age 64 in Canada

This highly diversified Vanguard retirement income ETF is perfect for passive income.

Read more »

money goes up and down in balance
Bank Stocks

Is Toronto-Dominion Bank Stock a Good Buy?

TD stock is underperforming its peers in 2024. Will 2025 be different?

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, November 26

U.S. consumer confidence and new home sales data will remain on TSX investors’ radar today.

Read more »

Dividend Stocks

Top Canadian Stocks to Buy Right Now With $1,000

Investing in stocks is not about timing but consistency. If you have $1,000 to invest, these stocks offer an attractive…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Investing

1 Way to Use a TFSA to Earn $250 Monthly Income

Here's one way long-term investors can utilize a Tax-Free Savings Account to generate $250 per month in passive income in…

Read more »

cloud computing
Dividend Stocks

Is Manulife Stock a Buy for its 3.5% Dividend Yield?

Manulife stock has been a long-time dividend winner, but the average has come down over the last few years. So…

Read more »

Person holds banknotes of Canadian dollars
Dividend Stocks

This 7.5% Dividend Stock Pays Cash Every Single Month

Monthly dividend income can be a saviour, but especially when it provides passive income like this!

Read more »