Heated Rivalry: Cautious on Canadian Telcos, Assume Underweight Telus & Rogers, Equal-weight BCE

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Heated Rivalry: Cautious on Canadian Telcos, Assume Underweight Telus & Rogers, Equal-weight BCE

FoundationMthe most attractive communications markets globally into one facing structural

headwinds across both Wireless and Wireline/Broadband, while Starlink risk appears

underpriced, especially relative to the US. Canadian incumbents continue to operate

in an environment characterized by persistent price competition, pro-consumer

regulation, slowing population growth and increasing technological disruption. We

upgrade Bell Canada to Equal-weight (from Underweight) on the most attractive of

the call options with an inexpensive call option on the AI Fabric infrastructure

opportunity (and having already cut the dividend a year ago), downgrade Telus to

Underweight (from Equal-weight) on rising dividend risk, and remain Underweight

Rogers, where attractive sports assets are offset by continued pressure in the core

business and elevated valuation.

Wireless Competition: Canada increasingly resembles a structurally ex-growth

communications market, characterized by high fixed costs, high ARPUs and elevated

financial leverage. Wireless competition remains intense following the creation of a

stronger 4th national operator in Quebecor/Freedom, while regulatory policy

continues to prioritize affordability over industry returns. At the same time, slowing

immigration, weaker population growth and a softer Canadian consumer have

reduced one of the industry's most important structural demand drivers. Together,

these factors have resulted in little to no service revenue growth across the

incumbent operators.

Tale of the Tape: Unlike the US Wireless market, where pricing has stabilized and

promos are coming down (acting more like a 3-player market with an effective