Sector outlook: Telecom

Sectors in-the-know investors will definitely want to keep an eye on

On Dec. 11, federal Industry Minister Maxime Bernier made good on his promise to expose more of the telecommunications sector to free-market forces, by overruling the Canadian Radio-television and Telecommunications Commission and accelerating the deregulation of local land lines. BCE and Telus cheered the move, claiming it will give them the flexibility they need to compete with new phone offerings from cable companies and Internet-based services.

You can't blame them for savouring the victory. Both telcos were forced to abandon plans to convert to income trusts when Ottawa announced a policy to tax trusts the same as corporations. These days, telecom companies will take whatever regulatory wins they can. As technological changes wrought by the Internet place new pressures on their businesses, the love-hate relationships communications companies have with the CRTC and other federal government bodies become even more polarized.

Don't expect the tensions to ease much in 2007. Whoever succeeds CRTC chairman Charles Dalfen, who completes his term Dec. 31, will be watched closely for how he or she upholds the Commission's relevancy and independence, particularly in light of Bernier's hands-on approach. Once the CRTC settles which markets can be deregulated under Bernier's new rules, the incumbent telcos must figure out how they'll use their new leeway to retain and win back customers.

Another matter expected to come up for review at the CRTC is mandated wholesale access–the pricing rules by which incumbent telcos sell network access to rivals without full networks of their own. “It's going to be important to the business market,” says Iain Grant of the SeaBoard Group, noting that national companies Bell, Telus and Rogers–and one alternative, owned by MTS Allstream, which buys access from the others–are all targeting corporations. “This is essentially a discussion of does Allstream have a future or not.” The answer may also decide the future of Manitoba Telecom Services, which owns Allstream; MTS is rumoured as a takeover target with Bell and Telus as possible suitors.

Meanwhile, Industry Canada will likely issue a consultation paper on how to proceed with wireless spectrum auctions for mobile telecom operators. The big question is whether to allocate at least some new spectrum for new competitors, and possibly lower foreign-ownership restrictions. Of course, what happens should a federal election go ahead in late winter or early spring is anybody's call.