Since the start of 2024, Bell Canada parent company BCE Inc. shares have fallen nearly 40 per cent, according to data from S&P Capital IQ.Sean Kilpatrick/The Canadian Press
For Canadian telecom investors, 2024 was a year they would rather forget.
While the overall S&P/TSX Composite Index rose by about 18 per cent over the year, the five-company telecom index fell by more than 20 per cent – and the performance of two of the largest telcos was worse than in 2008, when the global financial crisis pummelled markets around the world.
Fierce competition for mobile customers suppressed revenue growth. High debt levels persisted or even increased further, in some cases, despite companies’ goals to pay them down. And controversial regulatory decisions created lingering uncertainty over the future of shared networks.
Meanwhile, the telecoms remained beholden to a sluggish economy, regulation set by the Canadian Radio-television and Telecommunications Commission, and the whims of the federal government, which lowered immigration targets for future years, limiting future customer growth.
Despite this, 2024 also saw the country’s largest telecommunications providers positioning themselves for the future realities of a mature market, orienting their ships down slightly different paths.
While some of those decisions confused investors, others unveiled the promise of potential new revenue streams, outside the country and embodied within existing infrastructure. Canada’s telecom companies could now be poised to unlock new opportunities – as long as they can get control of the wheel.
“It’s an acknowledgment that the operating environment is very intense,” said Scott Rattee, senior vice-president of credit rating agency DBRS Morningstar Ltd. “It just underscores, from a telco point of view, that this is the new normal.”
There’s no doubt: the Canadian telecommunications sector had a challenging 2024.
Since the start of the year, the shares of Bell Canada parent company BCE Inc. BCE-T have fallen nearly 40 per cent, according to data from S&P Capital IQ.
The drop was largely the result of investor reactions to Bell Canada’s $5-billion acquisition of U.S.-based Ziply Fiber and plans for future capital expenditures south of the border, a dividend pause and a continuing high payout ratio.
Analysts and institutional investors have since called for BCE to reduce the dividend by as much as half, though the company has maintained that it will maintain the dividend until its payout and net debt ratios are tracking toward target policy ranges.
Rogers Communications Inc.’s RCI-B-T shares are down 29 per cent since January. The company entered agreements to purchase Bell’s $4.7-billion stake of Maple Leaf Sports & Entertainment and to exchange a minority stake of a section of the revenues from its backhaul network for $7-billion to pay down debt – two deals expected to close in 2025.
Although the company has captured significant cost synergies after its takeover of Shaw since last year, its deleveraging plans stalled in 2024, Mr. Rattee said.
Even Telus Corp. T-T, which has the most “buy” recommendations among analysts of the big three in December, is down 19 per cent since January. Next year, Telus may work toward spinning off its two divisions – its health business, and its agriculture and consumer goods business – if the sleepy equity markets stage a comeback.
Each of the big three lowered various guidance measures throughout the year, as rivalry from Quebecor Inc.’s QBR-B-T Videotron drove them to offer discounts to attract customers. Though they started the year with similar debt ratings and common messages – an intention to deleverage – none truly succeeded in this goal, Mr. Rattee said. Rogers and Bell each had more than $40-billion in debt, as of Sept. 30.
Of the two other companies on the S&P/TSX Capped Communication Services Index, Quebecor was down 0.5 per cent and Cogeco Communications Inc., subsidiary of Cogeco Inc., was up about 10 per cent from January.
Quebecor’s Freedom Mobile has continued to put pressure on the rest of the market. As of the end of November, as Canada’s fourth-biggest provider, Quebecor held about 10-per-cent market share, but was attracting 25 per cent of new customers, Bank of Nova Scotia analyst Maher Yaghi said in a note to investors.
He said the company will need to keep prices low in coming years to gain market share and to be able to compete in the longer term. “Freedom Mobile shows no signs of straying from its competitive pricing strategy,” he said. “This includes maintaining a 10- to 30-per-cent discount to incumbents on price.”
Parent company Cogeco Inc.’s share price is still under $60, making the company’s $475-million market cap less than half of what Rogers and a U.S. partner offered to acquire it for in 2020 – which Cogeco rejected. The company has said it expects to roll out its mobile wireless services – for which it recently filed trademarks – in the next few quarters. But it will be entering a competitive market.
And the regulatory environment remained controversial, with the largest fight going into the new year centred on whether the big three should be allowed to resell internet over each other’s networks, outside of their own footprints. The debate has seen Telus, which analysts say has more to gain as a result of geographical coverage, split from its rivals.
After riding a nearly 40-year wave of sectoral growth in wireless and internet, Canada’s telecoms are facing a mature market with high service penetration. This year, the big three each took steps toward defining their futures.
Bell is signalling an attempt at U.S. expansion and digital transformation of its media assets. Rogers is doubling down on its sports empire and embracing its content aggregation plans. Telus is honing its business-to-consumer arms and verticals, including its health offerings.
Quebecor and Cogeco are targeting national expansion, with Quebecor aiming to further expand its Freedom brand countrywide and with Cogeco preparing to launch mobile wireless offerings.
“The three major incumbent telcos have all now staked out, essentially, different non-telecom sort of growth trajectory or strategic decision,” Mr. Rattee said. “They are looking for other avenues of long-term growth. I think it just underscores the clear maturing of the Canadian marketplace.”
Some things will stay the same next year, analysts say: Canada’s operators will continue looking to attract customers bundling internet and wireless, pursuing new business-to-business revenue streams for their 5G networks such as data centres and home security, and lowering their costs to serve.
“Regardless, what has become clear to us is that the long-standing status quo for Canadian operators is unlikely to cut it for stakeholders,” Royal Bank of Canada analyst Drew McReynolds said.
Analysts remain divided on the degree to which competitive pressures will ease in 2025.
Mr. McReynolds expects stabilization, albeit with subdued revenue growth, calling a meaningful Canadian telecom comeback “more of a 2026 story.”
“We expect the pricing environment to improve in 2025, but less market expansion points to another low revenue growth environment,” he said in a December note to investors.
Meanwhile, Morgan Stanley’s Benjamin Swinburne, in a December report, projects the industry may not see service revenue growth for some time, given convergence (combining different services into a single network), the open access regime supported by the CRTC, and the dilution of average revenue per user, as new customers are brought on at lower prices.
“While it is possible that in 2025 the industry reverts back to the pre-Shaw merger marketplace, we are skeptical,” he said.
One possible future is one that separates infrastructure and service, as has occurred in other markets globally. This would be a decades-long transformation, but the Canadian market got its first taste of what this could look like in Rogers’ sale of its backhaul. (Rogers will maintain full control of the infrastructure and retains the right to buy back its stake).
While Canadian telcos have historically held on to their passive infrastructure, investors have been hoping for years the market would open up, said Eve Bernèche, managing director of infrastructure for the Caisse de dépôt et placement du Québec, an institutional investor and pension manager with a significant infrastructure arm.
Experts say 2025 could see an early wave of initial infrastructure and real estate deals, as telecoms aim to profit off their networks and pay down debt.
These kind of sales could be prompted in the longer term if traditional telecom revenues fall, artificial intelligence and automation trigger new demands for data, or if the regulatory environment reduces the benefits for the telecoms to be vertically integrated, RBC’s Mr. McReynolds said.
Earlier this year, Scotiabank’s Mr. Yaghi said infrastructure deals could net up to $4-billion for Telus and Bell’s combined network, and $6-billion for Rogers, and that timing was “as good as it can be” to initiate or complete a deal.
“We believe that Canadian wireless incumbents have fewer reasons to keep those towers now than in any time in the past, in our view,” Mr. Yaghi said.
Editor’s note: A previous version of this article incorrectly referred to Cogeco Inc. as a constituent of the S&P/TSX Capped Communication Services Index. Subsidiary Cogeco Communications Inc. is the constituent. Elsewhere in the article, Cogeco Communications Inc. was incorrectly described as the parent company. Cogeco Inc. is the parent. This version has been corrected.