Poor earnings reports by Canada’s big three telecom carriers sparked a review of a 2019 regulatory ruling by the Canadian Radio-television and Telecommunications Commission (CRTC).
According to Yahoo Finance, the 2019 ruling cut reseller rates as much as 77 percent, retroactive to 2016. Not anticipated in the ruling, however, was COVID-19. With consumers staying home and retail operations closed, roaming and device sales dropped significantly, hitting carriers hard. Rogers Communications Inc. reported a striking 13 percent drop on the S&P/TSX Composite Index.
National Bank Financial analyst Adam Shine reported the valuation gap has widened between the American and Canadian telecom industries.
“Major Canadian telecommunications companies tend to perform well and enjoy a valuation premium over U.S. peers, except during periods of more regulatory pressure,” said Shine. “Muddled regulatory decisions can overhang valuations and undermine strategic and investment decision-making.”
Innovation Minister Navdeep Bains this weekend issued a statement agreeing with Shine. “Rate cuts below cost could jeopardize future spending on networks, resulting in slower expansion into remote or rural areas,” said Bains.
Speaking for telecom giant BCE Inc, Caroline Audet said, “We trust the CRTC’s review will reflect the government’s objective to drive network investment, especially in rural and remote regions, with wholesale rates that are fair and reasonable.”
Reseller TekSavvy Solutions Inc. said it will lose if wholesale rates rise again. “We lowered our prices after that decision a year ago because we took it to heart,” noted Andy Kaplan-Myrth, vice president of regulatory and carrier affairs. “The CRTC’s goal was to give us fair rates that we could use to compete.”