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

A meter measures energy use.
Dividend Stocks

Is Fortis Stock a Buy, Sell, or Hold for 2025?

Fortis has increased its dividend annually for the past five decades.

Read more »

analyze data
Dividend Stocks

3 Dividend Stocks That Are Screaming Buys in November

Here are three top dividend stocks long-term investors won't want to ignore during this part of the market cycle.

Read more »

analyze data
Energy Stocks

Buy 8,850 Shares of This Top Dividend Stock for $2,000/Month in Passive Income

Let's do the math on what it would take to generate $2,000 a month in passive income from Enbridge (TSX:ENB)…

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

Generate $175/Month in Passive Income With a $30,000 Investment

Dividend aristocrats offer reliability, and many of them also offer generous yields. With sizable enough discounts, these yields can become…

Read more »

dividends can compound over time
Dividend Stocks

Best Dividend Stocks to Buy Now for Canadian Investors

These three stocks would be excellent additions to your portfolios, given their solid underlying businesses, consistent dividend growth, and healthy…

Read more »

hand stacking money coins
Investing

A Few Years From Now, You’ll Wish You’d Bought This Undervalued Stock

A modestly undervalued stock with decent growth momentum may not be compelling to some investors. However, its business model and…

Read more »

Confused person shrugging
Investing

Gold vs. Energy: Better Stocks for November?

Different demand-and-supply cycles, geo-political factors, and economic conditions influence gold and energy stocks.

Read more »

data analyze research
Dividend Stocks

3 Undervalued Stocks to Watch in November

Not all undervalued and discounted stocks are destined or poised to make a comeback soon, and a protracted timeline can…

Read more »