Rogers Communications

We transfer coverage of the Canadian telecom providers: Rogers, BCE, Telus, Quebecor, and Cogeco. These firms account for nearly all of the wireless and wireline services provided in Canada, with all but Cogeco operating national wireless networks, and Rogers and BCE the largest wireline networks.

The bottom line: We lower our fair value estimates for Rogers to CAD 60 from CAD 70, BCE to CAD 40 from CAD 45, Telus to CAD 15 from CAD 20, and Cogeco to CAD 70 from CAD 80. We raise our fair value estimate for Quebecor to CAD 70 from CAD 55. We have lowered our Rogers, BCE, and Telus moat ratings to no-moat from narrow, and maintained our no-moat ratings for Cogeco and Quebecor. Competition in wireless remains elevated, and government-mandated wholesale wireline access has limited pricing growth, making it difficult to achieve attractive returns. We lower our capital allocation ratings for BCE and Telus to Poor from Standard. The firms' balance sheets have become strained, and returns on invested capital have deteriorated due to investments in US expansions and non-telecom businesses, respectively

Long view: Our uncertainty rating for each of our Canadian telecom companies is Medium. The earnings and cash flow generated by these five firms' telecom businesses are relatively stable and recession-proof, but M&A and non-telecom businesses have introduced some uncertainty in recent years. We don't see significant relief on the horizon for wireless competitors until restrictions on Quebecor price increases expire in 2032. We expect Quebecor will then raise prices to earn a sufficient return on its wireless investments. In wireline, we expect growth to be meager as broadband net additions and potential price increases are offset by declining television and wireline phone subscriptions.

Bears say: Slow population growth and reduced immigration have weighed on an already tough wireless industry, and market-wide net additions are unlikely to return to early-2020s peaks.

Our USD 43 fair value estimate for Rogers is based on the Aug. 31 exchange rate of CAD 1.39/USD 1. This assumes Rogers will deliver modest revenue growth and incremental margin expansion in its telecom services businesses. We expect a contraction in the consolidated operating margin due to growth in the lower-margin media segment. Given Quebecor’s downward pressure on wireless pricing, we expect Rogers will slow wireless investment and focus incremental capital spending on fiber-to-the-home network upgrades and on integrating Maple Leaf Sports and Entertainment into its media segment. Our fair value estimate implies an enterprise value of 8 times our 2026 EBITDA estimate, and a dividend yield of 3%.

In wireless, we expect Rogers to maintain market share over our forecast period. Given Quebecor’s commitment to keep prices below the Big 3’s 2023 average, blended average revenue per prepaid and postpaid customer, or ARPU, will likely remain under pressure until the back half of our 10-year forecast, when Quebecor more fully builds out its own network and is no longer allowed to rent infrastructure from Rogers at sweetheart rates. Despite pricing pressure, customer churn remains low, likely because only the most price-sensitive consumers are opting for Quebecor over the Big 3, and Rogers can bundle wireless and broadband in many areas where Quebecor has no cable footprint. We project a slow decline in ARPU until 2032, after which it flattens out at around CAD 53.50 per month. We believe Rogers’ stable market share and modest market growth will generate sufficient customer additions to offset declines in ARPU.

In total, we expect wireless service revenue to grow at an average annual rate of 1.5% through 2035. We expect wireless EBITDA service margins to hover in the low- to mid-60s, as decreased broadband maintenance and customer care costs offset ARPU erosion.

We expect the consumer broadband business to be largely flat as incremental customer additions are offset by declining monthly average revenue per account, or ARPA. We expect the business will largely be able to reverse the declining ARPA trend, which should help improve EBITDA margins, albeit slowly.

Rogers will likely continue to shed traditional television subscribers as more consumers choose streaming services. This will create downward pressure on ARPA as video customers shed higher-revenue television services but retain lower-revenue broadband services. Additionally, in the most valuable provinces, broadband saturation is quite high, leaving less room to add new customers. However, we see declining network spending per subscriber and greater customer loyalty from bundling broadband with wireless as tailwinds that will largely keep Rogers’ broadband share stable.

On a consolidated basis, we expect 2.5% annual revenue growth over the next 10 years, with margins contracting slightly as media revenue becomes a larger portion of the business. We believe capital expenditures will remain below 12% of revenue annually throughout our forecast, averaging under CAD 3 billion. With the firm well past its 5G deployment and slowly upgrading some of its cable network to fiber-to-the-home, we don’t expect any major capital-intensive projects in the immediate future.

We assign Rogers a no-moat rating, despite aspects of efficient scale and cost advantage in the firm’s telecom business and intangible assets in the firm’s media segment stemming from its ownership of the Toronto Blue Jays and Maple Leaf Sports & Entertainment, or MLSE. When stripping out the effect of media assets assumed when acquiring portions of MLSE, returns on capital have exceeded Rogers’ cost of capital in all but two years, 2024 and 2025, but not meaningfully, and returns have been on a general downtrend.

Rogers’ wireless and wireline offerings benefit from two common telecom moat sources: efficient scale and cost advantage. Canada’s telecom landscape has historically been home to three large national-scale competitors: Rogers, BCE, and Telus, along with a larger group of regional players. In 2023, Rogers acquired Shaw to consolidate the broadband market but agreed to spin off Shaw’s wireless business to Quebecor, a regional player based in Quebec, to secure regulatory approval. To increase customer choice and keep pricing down, the Canadian government has effectively propped up Quebecor as a national wireless operator, guaranteeing access to the larger carriers’ networks. We think it is possible for all wireless players to achieve reasonable profitability but think it is unlikely without greater impetus for rational competition and given Canadian regulators' preference for cheaper and more widely available telecom services.

Rogers’ wireless segment benefits from favorable cost advantages. Rogers can spread its substantial fixed costs from building and operating a national mobile network across one of Canada’s largest subscriber bases, with roughly 30% wireless market share. As wireless data consumption continues to grow, the economics of high fixed costs and low variable costs become increasingly favorable for large incumbents.

After years of deflationary pricing, we expect the market to act more rationally, especially in 2033 and beyond when Quebecor is no longer contractually obligated to offer discount pricing. That being said, we think the CRTC will continue to aggressively seek to protect and foster consumer welfare, making the market a very challenging one in which to earn durable excess returns on capital.

Rogers also benefits from a cost advantage through the greater scale and network density created by combining its cable operations with Shaw. The larger customer and asset base allows Rogers to spread network, technology, procurement, customer-service, and administrative costs across more subscribers while eliminating overlapping expenses. However, the resulting cost savings have not increased EBITDA sufficiently to offset the substantial increase in invested capital associated with the acquisition. In a competitive broadband market, one where wholesale network access is prevalent, part of the cost advantage may also be passed through to consumers in the form of lower prices or greater network investment.

Despite the media segment’s reported poor profitability, we believe Rogers’ sports franchises possess an intangible asset moat. The Toronto Blue Jays and the teams owned through MSLE benefit from scarce league memberships, territorial exclusivity, nationally recognized brands, deeply embedded fan loyalty, and ownership of difficult-to-replicate live sports content. A competitor cannot readily recreate another MLB, NHL, or NBA franchise, and these structural protections give the teams enduring economic value beyond the profits reported in any single year. The Maple Leafs, Raptors, and original MLSE investment have appreciated at rates nearing 20% annually over their respective measurement periods. This long-term appreciation supports the view that the underlying brands, league rights, and market positions are scarce and economically valuable intangible assets.

Still, while we believe Rogers will continue to eke out a very slim positive economic profit over the next 10 years, we think there is too much uncertainty regarding the regulatory environment and simply too much time until relief on wireless pricing may come (2033). The wireless and cable businesses have not been particularly conducive to strong returns in recent years. While we think the sports franchises have value beyond the profits they generate, we don’t think they are strong enough to support the wireless and wireline networks, which we believe are broadly similar to those of BCE and Telus and have no moat.

Rogers’ telecom business remains resilient despite an increasingly unfriendly operating environment. As Canada’s highest-quality telecom business, improving results should boost the stock price.

Rogers’ broad wireline footprint gives it a greater ability to bundle its wireless and broadband services, reducing churn and customer acquisition costs while improving household economics.

We think the market underappreciates Rogers’ unique media assets, including the Blue Jays, Raptors, and Maple Leafs.

Quebecor’s emergence as a fourth national wireless carrier continues to squeeze Rogers with aggressive pricing and promotional activity.

Canadian regulators prioritize affordability and encourage competition. Expanded wholesale access or other measures could constrain Rogers’ pricing power.

With broadband adoption maturing, we expect little opportunity for revenue growth from subscriber additions, as Telus and BCE have largely closed the internet-quality gap.