Barron’s Online gave Rogers Communications (RCI) a nice write-up yesterday, succinctly outlining the bull case. Barron’s noted the positive dynamics of the Canadian wireless market which has just 60% penetration and therefore promises several more years of well above average growth (unless Canadians end up being a lot less fond of mobile phones than the rest of the world). Remember wireless service was launched in Canada about three years after the US and if you overlay the penetration curves from the launch date they look remarkably similar. The US saw double digit growth throughout the period that Canada is entering. RCI also benefits because Canada presently has just three national wireless operators vs. six in the US. As a result, the market is less competitive and supports higher margins. Last quarter, RCI and Telus (TU) each had margins over 50%. In the US, only Verizon enjoys a similar level of profitability….

Speaking of TU, yesterday the company announced that as part of the ongoing strategic review by BCE Inc. (BCE), formerly Bell Canada, TU and BCE were exploring a merger. BCE is also considering overtures from two different private equity groups. BCE is the other national wireless company in Canada, while TU and BCE each also offer wireline services. I think a combination of BCE and TU would be bullish for RCI as the merger integration would likely create an opportunity for RCI to gain subscribers while the BCE and TU brands were being consolidated.
Canadian regulators will give any TU-BCE combination a tough review given the wireless market would have just two national companies. TU and BCE are probably assuming that regulators may let them slide because a fourth national license is on the drawing boards. Additionally, they are playing the patriotism card as the sale of BCE to private equity led buyout groups would reduce Canadian ownership of the telecom infrastructure.
RCI makes a great takeover candidate itself for private equity or a major US cable company but there is no indication that family patriarch Ted Rogers has any interest in selling. The family’s massive investment and patience with RCI is finally paying off – the shares have more than tripled since the end of 2004 including a double in the last year and a gain of about 50% this year. With fundamentals very solid for the next year or two, it seems unlikely the Rogers family would sell but one never knows.