Canada wireless shares diverge after robust airwaves auction

TORONTO Thu Feb 20, 2014 11:33am EST

A woman walks by a sign at the Rogers Communications headquarters building on the day of their annual general meeting for shareholders in Toronto, April 25, 2012. REUTERS/Mark Blinch

A woman walks by a sign at the Rogers Communications headquarters building on the day of their annual general meeting for shareholders in Toronto, April 25, 2012.

Credit: Reuters/Mark Blinch

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TORONTO (Reuters) - Shares of Canadian wireless phone companies moved in sharply divergent directions on Thursday after the results of a surprisingly robust auction of airwave licenses were revealed the day before and heralded the emergence of a new national challenger from Quebec.

Shares of Montreal-based Quebecor Inc (QBRb.TO) surged 9 percent to C$25.77 after its cable and wireless unit, Videotron, moved outside its Quebec home market to grab a swath of mobile connectivity in Ontario, Alberta and British Columbia.

Shares of market leader Rogers Communications Inc (RCIb.TO) fell more than 3 percent to C$41.20 after it paid almost C$3.3 billion ($2.99 billion) to secure airwaves that its executives say will set the company up for decades.

Investors were concerned about Rogers' capital outlay and altered debt profile, and one analyst suggested the company was now less likely to attempt to buy Western Canada's Shaw Communications Inc (SJRb.TO), which sat out the auction and is trying to sell to Rogers unused airwaves that it bought in a previous auction.

Analysts cheered the options that arise for Quebecor after it used the auction to grab the tools it needs to build a national presence.

RBC Capital Markets analyst Drew McReynolds wrote in a note that Quebecor could now choose to sell its new spectrum to U.S. giant Verizon Communications Inc (VZ.N), which has pondered entering the Canadian market; or it could enlarge its network by

buying one or two struggling new entrants; or it could wait to see if the government loosens transfer rules and allows the airwaves to be sold to one of the three dominant domestic operators.

After Rogers, the other two of Canada's big three telecoms are BCE Inc (BCE.TO) and Telus Corp (T.TO). BCE shares were flat Telus stock was off 0.3 percent. The pair share a national network and are the country's second- and third-largest wireless providers with around 7.8 million customers each.

Telus bid C$1.14 billion in the auction, while BCE's Bell spent C$565.7 million. Both will be able to cover just as many customers as Rogers with their cheaper purchases.

Winners of the 700 MHz spectrum, which was vacated by television broadcasters during their transition to digital signals, will use the new capacity to help support booming demand for mobile data such as video streaming. The cost of improving their networks, however, could constrain profit margins just as subscriber growth starts to plateau.

"Given the higher-than-expected amount paid for the spectrum, we have lowered our target prices on BCE, Telus, Rogers and Qu├ębecor but have kept our ratings unchanged," Desjardins analyst Maher Yaghi wrote in a note.

Overall, the telecoms subindex .GSPTTTS of the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE was off 0.4 percent in early trade, while the broad index was up 0.1 percent.

(Reporting by Alastair Sharp; Editing by Peter Galloway)

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