A Top (Canadian) Stock in Telecom

We think this company is well-positioned to increase market share

Morningstar 16 February, 2021 | 4:38AM
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The pandemic has materially affected the businesses of Canada's wireless carriers. Not only do we believe the industry in general is poised for dramatic business improvement when the pandemic ends, but we think BCE's business in particular is best positioned among its peers: We think it's favorably positioned in both wireless and wireline.

Over much of its wireline footprint, we think BCE is now a strong alternative to other cable companies, including Rogers, its primary competitor. Historically, BCE's copper-based network has offered less quality than cable competitors for television and broadband service. However, over the last several years, BCE has been building out fiber to the home, which now passes about 5.5 million homes and businesses. With its anticipated fiber-to-the-home build-out now nearly 60% complete, we believe it is substantial enough to impact results in the near term, and we think the runway extends for several years, as it continues increasing the number of homes it passes. The company eventually intends to pass 9 million to 12 million homes and business. It is also looking to upgrade service to more rural locations with its fixed wireless offering, which is now available in over 400,000 locations.

On the wireless side, BCE and Telus, which share a network, have consistently been rated as having the top Canadian networks over the last few years. However, we don't think BCE faces the same geographic pressure as Telus does. Over the last couple of years, Shaw has re-entered the wireless market and has aggressively pursued customers, offering high amounts of data for very low prices, with the best deals available for Shaw's wireline customers. Little of BCE's wireline footprint overlaps with Shaw, so we see it as less susceptible to Shaw's insurgence. We think BCE is well positioned to continue adding customers at an industry-best rate, and when the pandemic ends and travel resumes, there is significant upside to sales with the return of roaming revenue.

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