Canada’s leading telecommunications firms are poised for an aggressive year of mergers and acquisitions, driven by the urgent need to divest non-essential assets, reduce substantial debt loads, and invest in new growth avenues. However, the sluggish performance of the telecom sector poses significant challenges for industry giants BCE Inc., Rogers Communications Inc., and Telus Corp., as they confront a staggering combined long-term debt of nearly £100 billion.
A Shifting Landscape for Canadian Telecoms
Analysts are increasingly vocal about the shifting dynamics within the Canadian telecom industry. Drew McReynolds, an analyst at the Royal Bank of Canada, noted in a December report that the traditional strategies employed by Canadian telecom operators are no longer sufficient to satisfy stakeholders. The sector is grappling with minimal growth in earnings before interest, taxes, depreciation, and amortisation, as highlighted by DBRS credit rater Scott Rattee.
The outlook is particularly concerning; with one major telecom’s credit rating hovering just above junk status and the others only slightly better, the room for missteps is minimal. Rattee remarked that 2025 was a pivotal year for these companies to recalibrate their strategies, but the time for execution has now arrived.
Dealing with Debt: Telecom Giants Take Action
Despite expectations for a quieter period following Rogers’ £20 billion acquisition of Shaw in 2023, the subsequent years have been anything but subdued. In 2024, Rogers is set to gain complete ownership of Maple Leaf Sports & Entertainment and is exploring ways to capitalise on its sports assets, which include the Toronto Blue Jays. The potential sale of a minority stake in this portfolio, valued at £20 billion, could provide much-needed liquidity. However, with long-term debt already at £35.9 billion post-Shaw acquisition, Rogers faces a delicate balancing act amidst the backdrop of lowered credit ratings.
Moody’s, S&P, and Morningstar DBRS have all rated Rogers’ senior unsecured notes just above non-investment grade. While Moody’s and Morningstar maintain a stable outlook, S&P shifted its perspective to negative last November, raising concerns about the time required for significant debt reduction. Analyst Aniki Saha-Yannopoulos warned that it could take up to 18 months for meaningful deleveraging to materialise.
Strategic Moves by BCE and Telus
BCE is pursuing a growth strategy that hinges on expanding its data centre and enterprise services, particularly in artificial intelligence. Although these emerging revenue streams are expected to contribute only modestly to overall earnings in the near term, BCE is actively seeking to lighten its debt burden, having identified £7 billion in assets for potential sale, with approximately £5 billion already divested. Analysts speculate that BCE may consider offloading its 20% stake in the Montreal Canadiens, which Forbes estimates to be worth £3.4 billion.
Despite expressing pride in its association with the Canadiens, BCE CEO Mirko Bibic has indicated that the company will explore all avenues to unlock value from its assets. In a recent interview, he noted ongoing discussions regarding the sale of Northwestel to Indigenous communities, although this transaction has encountered delays as the coalition seeks financial backing.
Telus, on the other hand, is looking to streamline its operations by selling its Telus Health division and other non-core assets, including copper infrastructure and real estate. The company is also examining strategic options for its agriculture division, as confirmed by spokesperson Richard Gilhooley. While Telus maintains an investment-grade debt rating, concerns linger over its decision to pause dividend increases, which some analysts believe may not be sufficient to appease investors and credit agencies.
The Future of Canadian Telecoms
As the Canadian telecom sector navigates these turbulent waters, customer complaints continue to rise across all major carriers, further complicating matters. Telus’s reduced dividend growth rate target, followed by a complete pause, has drawn scrutiny from analysts, with Moody’s noting its negative outlook for the company. Despite these challenges, Telus remains optimistic, forecasting compound annual free cash flow growth of at least 10% from 2025 to 2028.
In the face of substantial debt and the pressing need for structural changes, the future of Canada’s largest telecom companies hangs in the balance. Their ability to adapt and implement effective strategies will be pivotal in determining not just their survival, but their potential for growth in an increasingly competitive landscape.
Why it Matters
The actions taken by these telecom giants will have far-reaching implications for the Canadian economy and consumers alike. With mounting debt and the need for strategic realignment, the ability of these companies to navigate their financial challenges will ultimately influence the level of competition in the market. As they grapple with innovative growth strategies, the outcome will affect everything from service quality to pricing for millions of Canadians, making this a critical moment for the industry.
