Glentel purchase could help Bell, Rogers avoid competition: analysts

A deal announced Christmas Eve to split the ownership of wireless retailer Glentel Inc. between BCE Inc. and Rogers Communications Inc. will help the incumbent carriers stave off competition from a potential fourth national wireless player in Canada, according to analysts. Glentel sells mobile services and related products from Bell, Rogers and their flanker brands, as well as products from Saskatchewan Telecommunications Holding Corp., at nearly 500 locations across Canada through a variety of brands including WirelessWave and TBooth Wireless. The retailer also operates about 900 international outlets. Bell originally announced its plan to buy Glentel for $670 million on Nov. 28. Rogers challenged that purchase in an Ontario court, but has now dropped that filing as a result of the Dec. 24 deal that will see Rogers pay cash for an equal share of the ownership of the retailer once Bell closes the acquisition, which it said will happen in this year's first quarter. The deal ensures that the two carriers can keep control of a major wireless distributor in the face of potential competition from a fourth national wireless carrier, Scotia Capital telecom analyst Jeff Fan said in a Dec. 29 research note. “We believe the major known benefit for BCE (and Rogers) is that, rather than having Glentel independently owned, which leaves the distribution channel open to a stronger fourth operator's acquisition or retail presence, they have removed the risk of these stores ending up in the wrong hands,” he said. Fan said the joint venture is an “ideal and efficient way” to split the cost of removing a potential avenue for a fourth carrier, which could have struck a deal with Glentel for national distribution. Without Bell’s decision to split the company, he said, Rogers might have stopped dealing with Glentel altogether. Greg MacDonald, Macquarie Capital Markets' head of equity research, said in a phone interview on Monday that the two companies should be concerned about intervention from regulators if they intend to freeze out competitors from Glentel’s stores. “Nobody will talk about it because it's the issue that the Competition Bureau might be concerned with,” he said. “That, to me, is the source of risk — the regulatory approval that needs to happen for this deal to go through.” The deal with Rogers helps Bell’s case for regulatory approval, MacDonald said, as it splits the control between two separate companies. “They can point to the fact that it isn't owned by a single carrier and therefore the control of the distribution channels has been diluted,” he said. “And maybe that's enough to get it approved." MacDonald said Bell could also be looking to control more of the “economics of distribution” as the wireless market matures. “The wireless subscriber bases of all of these companies are fairly large now,” he said. “As a result of that, your ability to control churn as a company is growing in value, particularly your ability to control churn in a cost-effective way.” Consolidating control over distribution will allow the company to control costs such as commission revenue, MacDonald said, and reduce churn even as lower-cost devices and shorter contracts give customers more ability to switch carriers. Yet MacDonald said he does not anticipate much change in the carriers’ customer service, a core driver of churn, even though Glentel staff will become front-line representatives for the companies. Bell spokesman Jason Laszlo said in an email that the purchase strengthen's Bell's "sales execution and customer retention." "Retail distribution is key to the execution of our wireless and customer service strategies," he said. "Glentel will operate as standalone entity and will continue with its strategy of offering competing dual-carrier wireless brands to Canadian consumers and business customers." Representatives from Rogers were not available for comment. — With reporting by Peter Henderson at phenderson@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Glentel purchase could help Bell, Rogers avoid competition: analysts

News | January 5, 2015

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Glentel purchase could help Bell, Rogers avoid competition: analysts

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