© IT World Canada
© IT World Canada

Shaw Communications Inc. has turned thumbs down for the time being on joining one of the biggest growth areas of communications companies – the cellphone business.

The Calgary-based cable company astonished some industry and financial analysts this morning by saying it won’t capitalize on the $189 million it spent on cellular spectrum in 2008.

Instead of spending what it estimates would be $1 billion to build an LTE cellular and data network across Western Canada, it will build a network of Wi-Fi hotspots instead.

That way, Shaw [TSX: SJR.B] said, it can leverage the huge number of Wi-Fi-enabled laptops, tablets and smart phones carried people in its coverage area.

At a conference call for financial analysts Thursday morning, CEO Brad Shaw said the cable operator – which this year spent $2 billion buying the CanWest Global television network – said the return on investment on cellular today “was not attractive” and would only create “marginal incremental value” for shareholders.

Competitive conditions have changed since Shaw bought its spectrum, he said. On the other hand, he said, so far the return from Global has been “phenomenal.”

Shaw is talking to Cisco Systems Inc. about being the company’s Wi-Fi equipment supplier and hopes service will start next spring.

He noted several U.S. cable companies have built Wi-Fi networks that offer free service to their cable and Internet subscribers.

“We believe a managed, reliable and secure Wi-Fi product extends our customers’ broadband service and experience beyond the home,” he said. It would also differentiate its Internet service from Western Canadian competitors, he added. “It has the potential to extend all of our current services [television, home phone and Internet] outside of the home, including TV everywhere.”

The next generation of Wi-Fi technology, 801.11ac, will have throughput of 1 Gigabits per second, company officials told financial analysts on a conference call. However, that technology isn’t in the current devices people use.

Shaw won’t build a cellular network “for the foreseeable future,” the CEO said. As for participating in the upcoming 700 MHz spectrum auction, which cellular carriers are eagerly looking forward to because of the spectrum’s efficiencies, Shaw is non-committal. Bidding will depend on the yet-to-be-announced auction rules he said.

That suggests he wants to hear whether Ottawa will again set aside spectrum for new entrants to bid on. A completely open auction would disadvantage new entrants and favour carriers who have deep pockets.

Shaw’s position could put pressure on Ottawa, which wants to encourage more cellular operators and increase competition. The government is expected to announce its rules for the auction and foreign telecom ownership before the end of the year.

On the other hand Shaw didn’t rule out partnering or merging with other cellular operators to offer cellular service.

In fact the company counting on partnering with other carriers who want to offload some of their data traffic onto Shaw’s Wi-Fi network, which will be carrier-grade.

While industry and financial analysts see cellular as the technology of the future, with operators already reaping millions in data fees, Shaw said for his company it would be a “defensive investment” at this time.

The decision was immediately called a missed opportunity by Dvai Ghose, a telecom financial analyst at Canaccord Genuity.

“You’re going to compete against Starbucks for Wi-Fi?” he asked. “It puts them in a very weak position strategically, in my view, Not only because they have no access to wireless data growth. Where is wireless data growth coming from? iPad, iPhones, BlackBerrys, Android. They’re not going to sell any of these devices.

“I would assume when most people think of wireless they think of ubiquity. This doesn’t provide ubiquity. There a ton of hotspots already in Canada, the vast majority of which are free.”

He also argued that Shaw’s biggest competitor in the west, Telus Communications Co. [TSX: T, T.A; NYSE: TU],  has been successful in eating into Shaw’s cable growth because it has been pumping millions into its IPTV offering, money that comes from the cash it pulls in from cellular.

On the other hand, Iain Grant, managing director of the SeaBoard Group, a Montreal-based telecommunications consultancy, said Shaw’s decision could be a huge opportunity for wireless startups Wind Mobile and Mobilicity to partner with the cable operator. Both have cellular operations in Shaw’s biggest markets in Calgary, Edmonton and Vancouver.

Mobilicity head David Dobbin, Grant added, has experience setting up city-wide Wi-Fi networks from his time leading Toronto Hydro Telecom, Grant added.

In a news release that announced the strategy, Shaw said “the economics of a conventional wireless business as a new entrant are extremely challenging. New entrants lack the economies of scale and scope to compete effectively against well established incumbents with ubiquitous coverage, extensive device ecosystems, deep spectrum positions and large retail networks. Even with our established base and considerable strengths and assets [as a cable, Internet and VoIP provider], we could not justify a wireless network build at this time.

“We believe that a more prudent approach for us is to provide a managed Wi-Fi network that will allow our customers to extend their Shaw services beyond the home. This will achieve our objectives without risking well over $1 billion in capital expenditures on a traditional wireless network build.”



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