| dachinesedude | 09-06-2011 02:38 PM |
Shaw shuns cellular, bets on WiFi
Shaw shuns cellular, bets on WiFi - The Globe and Mail Quote:
Shaw Communications Inc. (SJR.B) has ditched a $1-billion plan to enter the hotly competitive cellphone business, opting instead to take a cheaper route by offering customers WiFi access that plugs into the company’s broadband Internet network.
After initiating a strategic review of the venture, jump-started when the company paid $190-million for wireless licences in 2008, Shaw’s executive team decided that it wasn’t worth building a full cellular network and taking on incumbent giants and eager new entrants in an increasingly competitive sector.
The startling retreat is the first major move by chief executive officer Brad Shaw, and erases three years of preparations by the company to enter the wireless business under his older brother Jim Shaw – who departed late last year as Shaw’s CEO.
“One of the things that we’re good at is looking at how we spend capital,” Shaw president Peter Bissonnette said in an interview. “This was just a horrible return on a significant investment.”
The company came to the decision as the Canadian wireless market, which Mr. Bissonnette characterized as “bleak,” sheds its former status as an oligarchic utopia. A flurry of upstarts, such as Mobilicity and Wind Mobile, have helped to whittle down the sector’s profit margins by offering rate plans as much as 60 per cent lower than those offered by industry giants such as Rogers Communications Inc. At the end of 2010, new entrants were responsible for nearly 30 per cent of net new wireless subscribers.
Shaw plans to exploit its dense network of fibre optic cables crisscrossing Western Canada, erecting WiFi hot spots in businesses, shopping centres, downtown rail lines and heavily trafficked areas of cities such as Vancouver and Calgary. The end result will be a data-focused alternative to an expensive cellular network that saves hundreds of millions of dollars for the company, while offering Internet customers wireless data services for tablets and smart phones.
“Anywhere people gather, we want to have an access point that will extend, essentially, our broadband pipe into their tablet or WiFi-enabled device,” Mr. Bissonnette said. After looking at the economics of building out a cellular network, he added, his colleagues said “For the next ten years we’re going to spend over a billion dollars building this network, but it’s never going to be over. You’re never finished building that network. And the margins are starting to deplete.”
But as margins start to come under strain at large wireless carriers such as Rogers as subscribers make fewer calls, future growth is increasingly about wireless data. Some analysts worry Shaw will lose out, gaining only incremental revenue from the increased pricing power that comes with a better Internet service. The company also spent $180-million on wireless infrastructure, only about $50-million of which can be salvaged for a new WiFi venture. RBC Dominion Securities analyst Jonathan Allen warned investors to expect writedowns.
Dvai Ghose, a Canaccord Genuity analyst, said it was clear that Shaw and Rogers could not come to any agreement on a much-rumoured wireless collaboration. “We are underwhelmed by Shaw’s ‘wireless’ announcement,” Mr. Ghose wrote in a note to clients, adding that the deal “gives Shaw peripheral exposure at best to wireless data, the only real growth driver in the sector.”
But Shaw is not inventing the wheel: Cable companies south of the border, such as Cablevision Systems Corp., have already abandoned wireless network blueprints for a WiFi-only launch.
Scotia Capital analyst Jeff Fan said it’s a capital-efficient approach for cable companies to defend against traditional phone companies as they increasingly offer Internet and video services. In the U.S., Cablevision’s Optimum Online WiFi service has tried to fend off Verizon Communications Inc.’s FiOS offering. In Western Canada, Shaw is hoping to do the same against Telus’s renewed push of Optik TV.
“It’s a smart move,” Mr. Fan said. In the wireless industry, “if you ask any of the new entrants what they are experiencing now versus what they had expected two or three years ago before they launched, I think the conditions are completely different. It’s much more challenging than they thought.”
Quebecor Inc.’s cable unit, Vidéotron Ltée, has seen network-building costs erode many of the early returns from its one-year-old wireless network. And Mr. Bissonnette has clearly been paying attention to his Canadian cable peer’s quarterly results.
“Well, Quebecor, God bless ‘em, they believe they’re doing what’s right for themselves – I think they would acknowledge that it’s very expensive,” Mr. Bissonnette said. “I think we came to that conclusion really quickly.”
| coles notes:
most thought Shaw would enter the cell phone business, well it aint happening, they gonna invest in wifi hot spots instead, which is freaking awesome (if the coverage is good)
do it like pccw, pay a monthly rate, get wifi pretty much everywhere, but again, it depends on the coverage area |
