CAN YOU HEAR ME

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Team 4

AGENDA

• The Structure of the Canadian Telecom Space

• The AWS Auction and its Outcome

• Incumbents’ Reaction to New Entrants

• Government Changes to Foreign Ownership Policy

• Winners and Losers

• Financial Community’s Thoughts

• Is it Worth It?

CANADIAN TELECOM SPACE BEFORE AWS AUCTION

Tier I / High Value (National)

Tier II / Discount (National)

THE NEW AWS TELCOS

Tier III / Mass Discount (Regional)

Tier II / Discount (Regional)

INCUMBENTS REACT TO NEW ENTRANTS

Tier I / High Value (National)

Tier II / Discount (National and Regional)

Tier III / Mass Discount (Regional)

FOREIGN OWNERSHIP RULES

• Up until recently, foreign investors could own up to 46.7% in combined direct and indirect stakes in Canadian carriers

• CRTC had considered three options: Increase direct ownership to 49% Full ownership of telecom providers with less than

10% market share Complete removal of restrictions

• New rules are designed to increase investment and competition in the sector

GOVERNMENT POLICY CONSIDERATIONSD

ere

gula

tion…

Poses considerable risk to public safety and national security • Telecommunications

systems are backbone of all critical infrastructure systems in Canada

Hinders authorities’ ability to follow intelligence priorities set by CabinetCanada is not alone in its concerns• In 2011, U.S. barred

China’s Huawei Technologies Co. from bidding for work on a national emergency network

Sta

tus

Quo…

Concerns regarding security risks or employment impact overstated• No control over physical

telecom infrastructure connected to millions of homes

Canadian control will not guarantee Canadian jobs • Carriers already outsource

customer service jobs • Retail and corporate sales

will remain in Canada regardless

OWNERSHIP RULES CHANGE: BILL C-38

• Restrictions lifted for any wireless carrier with less than 10% market share by revenue

• Designed to spur investment and competition in a sector dominated by the Big 3

Remove barriers to investment for companies that need it most…

WINNERS AND LOSERS

New Entrants and Regional Incumbents

Rogers Communications Inc., BCE Inc., Telus Corp. • Together control more

than 90% of the market

WINNERS: CONSUMERS

I know people are worried about too

much foreign control of the telecom

industries, but if it breaks up the

Telus-Bell-Rogers cartel, and

forces expansion of service up north,

and brings the quality of service and

economy of price found in the U.S.

and Europe to Canada, it can only be

a good thing.“

WINNERS: CONSUMERS AND BUSINESS“THERE ARE 30 OECD MEMBER COUNTRIES, AND ONLY THREE

COUNTRIES HAVE INVESTMENT AND OWNERSHIP RESTRICTIONS THAT APPLY TO ALL PUBLIC TELECOMMUNICATION OPERATORS. THESE COUNTRIES ARE CANADA, MEXICO, AND KOREA. OF THE

THREE COUNTRIES, CANADA HAS THE MOST SEVERE RESTRICTIONS.”

WINNERS: NEW ENTRANTS

• Ability to raise further capital?

• Team up with multinational peers?

• More competitive offerings for Canadian?

• Greater market share and growth?

LOSERS: INCUMBENT CARRIERS

• Regulations are asymmetrical, for the benefit of small players

• Rules benefit foreign competitors while discouraging domestic entry

• In a wireless industry where 1/3 net subscriber adds captured by new entrants despite smaller network coverage, limited distribution, fewer handset selections, huge concern

• Differential treatment under the Telecommunications Act and the Broadcasting Act

• Gives companies with access to capital a competitive advantage (ie. Wind Mobile)

LOSERS: INCUMBENT CARRIERS (CONT’D)

For Rogers, short-term impact not meaningful Rogers has no major partner unlike other two incumbents,

which can share wireless spectrum Bell Canada says it is a "solution in search of a problem” May see long-term disadvantage against Bell and Telus Telus relatively quiet, given recent allegations by smaller

competitor Globalive regarding Telus’ foreign ownership stakes

WHAT DOES THE FINANCIAL COMMUNITY THINK?

“This is positive for the smaller players, especially the likes of Manitoba Telecom.”

– Greg Macdonald, Macquarie

“…probably the most balanced way to do it, it starts us down the road of greater foreign

ownership in the telecom space but at the same time it attempts to protect the incumbent players.”

– Carmi Levi, Independent analyst

“…competition in the low end of the wireless market should remain fierce…and possibly step up into the mid market segment...spurring M&A and

presenting event risk to investors”- Madhav Hari, Standard & Poor’s

Employees 29,000 55,000 41,000

Revenues $12.65B $19.9B $10.5B

Market Capitalization

$14.6B $30.9B $18.0B

Head Office Toronto Montreal Vancouver

IS IT WORTH IT?

IS IT WORTH IT?

125,000 Jobs$43.05B in Revenue

$63,5B in Market Capitalization

25.5 million mobiles$7.51/month more than USA

$2.3B savings per year

Protect Deregulate