Action of the week: Rogers

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Andrew Willis: After an outage at Rogers (RCI.B) hit both landlines and wireless services last week, leaving millions without phone and internet service, we think the biggest consequence could be the consumer frustration – rather than lasting problems for Rogers.

Equity analyst Matthew Dolgin says he doesn’t think the outage will have a significant long-term impact on the valuation, and the only way it affects the fate of the Rogers/Shaw merger is if there is retaliation or acquiescence by regulators to public outrage. And the merger of wired Internet does not necessarily increase the risk of a future outage.

When it comes to compensation for the outage and potentially other regulations, we don’t think it will be significant enough to change our long-term valuation forecast for Rogers. The threat of more government intervention is already looming, and of course we need more competition, but any change to the status quo will require a smaller competitor to take subscribers from one of the Big 3. And the Big 3 don’t let go. of all customers easily. Notice how during the Rogers outage the carriers came together to find a solution? With oligopoly comes responsibility, especially when you want to retain that 90% market share. In practice, we do not believe that smaller competitors can hope to offer superior service.

When you think back to the Rogers outage in 2022, put it in the context of the Big 3 which we believe all have strong moats that protect them from any current or future competition. Cooperation could even be mandated to prevent future outages – which is at least a win for consumers.

For Morningstar, I’m Andrew Willis.

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