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Shaw Communications (SJR) |
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WIKI ANALYSIS
Shaw Communications (NYSE: SJR) is a Canadian telecommunications company that provides broadband technologies, cable TV, Internet, digital phone, telecommunications, and satellite services to approximately 3.4 million customers.[1] Shaw focuses on two segments, Cable and Satellite, and provides services for both homes and businesses. The company makes revenue through subscriptions to its television, telephone, internet, DTH, and satellite services. Shaw operates primarily in Canada, and its only foreign-based subsidiary does not contribute materially to Shaw's revenues.
In 2009, Shaw generated total revenues of $3.65 billion, up 9.9% from from 2008.[2] However, net income decreased in 2009 by 1.6% to $535 million.[2]
During 2008, Shaw participated in the Canadian Advanced Wireless Spectrum auction and was successful in acquiring 20 megahertz of spectrum across most of its cable footprint.
Company Overview
Shaw Communications provides broadband technologies, cable TV, Internet, and digital phone connections to both homes and businesses. It also provides digital satellite video and audio services to customers who prefer satellite connections. It makes revenue through customers' subscriptions to its services that pay monthly usage fees. Shaw also offers many levels of service, so that the more options customers want, the more expensive their plans will be.
Shaw has continued to expand its service offerings to attract more customers. For example, the company introduced "Power Boost" which gives Internet content downloads added speed.[3] Shaw concentrates its infrastructures in large urban centers with growth potential, lowering the company's costs.
Business and Financial Metrics
Third Quarter Fiscal 2010 Results (ended May 31, 2010)[4]
During the quarter, Shaw reported service revenue of $944 million, up 10% over the comparable period last year. Total service operating income before amortization of $436 million billion improved 10% and 17% over the same periods. Net income during the quarter totaled $158 million or $0.37 per share compared to $132 million or $0.31 per share for the same period last year.
Digital customers increased 87,092 to 1,595,619, and Internet and Digital Phone lines grew by 25,661 to 1,796,973 and 66,123 to 1,044,410, respectively. Basic and DTH were up 2,322 and 1,856 customers, respectively. During the quarter Shaw achieved several significant milestones including a record quarterly gain in Digital Phone and surpassing 1,000,000 Digital Phone lines.
The values in the table below are in thousands of Canadian dollars except for the percentages.
SJR Financial Metrics[2]
| Shaw | 2006 | 2007 | 2008 | 2009 |
| Revenue | $2,459,284 | $2,774,445 | $3,104,859 | $3,650,000 |
| Net Income | $458,250 | $388,479 | $671,562 | $535,000 |
| Net Margin | 18.63% | 14% | 21.63% | 15.78% |
Business Segments
Shaw Communications focuses on two primary business segments: Cable and Satellite.
Cable (78% of 2009 revenue)[5]
The Cable segment includes Shaw's Cable TV, Internet, digital phone, and Business Solutions services. Shaw's Business Solutions develops and manages the company's inter-city Fiber Optics network that provides Internet and telecommunications services to large businesses and other organizations.[1] Shaw Communications is the largest cable TV provider in Western Canada with over 2.3 million customers in five provinces, including British Columbia, Alberta, Saskatchewan, Manitoba, and Ontario, for a total of approximately 30% of Canada's cable TV market.[1] The company has added value to its cable services by increasing its offerings to include digital television, video on demand, high definition television, and digital phone. Additionally, Shaw offers a range of cable service that can include as little as basic programming to as much as HD, premium, VOD, and music channels. Similarly, it offers a range of Internet services with downstream speeds ranging from 256 Kbps to 25 Mbps.[6] Shaw offers the "triple play," a bundling of Internet, phone, and cable services common among communications providers, after launching its digital phone service, which is available to over 90% of households.[6] Following its other services, Shaw has different levels of phone service with added calling features at each level of service, and accommodates households and small, medium, and large businesses. Furthermore, it routes telephone traffic to lowest cost long distance providers to cut costs.
Satellite (22% of 2009 revenue)[5]
The Satellite segment includes direct-to-home (DTH), called Star Choice, and satellite services. Star Choice is one of two DTH satellite operators licensed by the Canadian Radio-television and Telecommunications Commission.[3] It provides digital audio and video programming subscriptions directly to homes and businesses. Beginning in 1997, Star Choice has grown to have 892,528 subscribers across Canada, broadcasting over 450 channels including 42 HD channels.[3] The satellite services redistribute television and radio signals to cable providers via satellite and also provide mobile tracking and messaging services to almost 600 long-haul trucking companies. The two services use the same satellite infrastructure to make revenue from two distinct markets: the residential and the business market.
Acquisitions
Over a number of years, Shaw has acquired and divested various cable systems to complement its cable clusters. During fiscal 2009, Shaw announced that it had entered into an agreement to purchase Mountain Cable, a cable system located in Hamilton, Ontario. The closing was completed in October 2009 upon receipt of the necessary regulatory approvals. In 2009, Shaw acquired the cable system located in and around Campbell River, British Columbia and in 2007 Shaw completed the acquisitions of several cable systems, including Whistler Cable, Grand Forks, Wood Lake, Lumby and Pender Island, all in British Columbia, as well as Norcom Telecommunications Limited operating in Kenora, Ontario.[7]
Trends and Forces
The decline of industry regulation by the CRTC causes growing competition
Shaw operates in a heavily regulated industry, which is governed by the Canadian Radio Television and Telecommunications Commission. The company relies on the CRTC for the renewal of licenses to continue operations while also hoping that the commission does not grant additional licenses to competitors that do not yet have them. For example, Shaw is one of only two licensed operators of DTH services in all of Canada (BCE is the other).[8] The CRTC is beginning to deregulate the local telecommunications sector, relying on market forces to direct competition and achieve policy goals.[9] As a result, the CRTC has granted forbearance to several competitors, including Telus (TU), Manitoba Telecom Service (MBT), and SaskTel, in a large portion of Shaw's operating territories so that they can compete more directly, which negatively affects Shaw's operations.[10] Although Shaw is expanding its digital phone service into more territories, the CRTC's granting of forbearance to Shaw's competitors in these territories can stunt Shaw's growth in the digital phone sector.[10]
Subscriptions are prone to seasonal fluctuations
Shaw is subject to seasonal fluctuations in its Cable TV and internet subscribers. Its fall season is generally the strongest with the most subscriptions, and this is often attributed to the return of families from vacations as well as the beginning of new television seasons.[11] On the other hand, the summer season is usually the weakest with the fewest subscriptions as families take longer vacations or move to summer homes, causing them to temporarily disconnect their services.[12] For Shaw, the fiscal year begins in September of the year prior, so that the quarters run September to November, December to February, March to May, and June to August. According to the basic cable subscription data for fiscal 2008 going into fiscal 2009, there were 8,138 new subscriptions in the first quarter of 2008, 6,524 new subscriptions in the second quarter, 2,495 in the third, 4,122 in the fourth, and finally 9,198 new subscriptions in the first quarter of fiscal 2009, illustrating the seasonality of subscription growth.[13][14][15][16][17]
Anti-trust litigation and low interest rates have promoted Shaw's acquisitions strategy[18]
In 2000, Shaw and Rogers Communications made a contract stating that Shaw would only provide services to Western Canada while Rogers would only provide services to Eastern Canada. However in July of 2009, Shaw expanded its cable television services into Eastern Canada through the purchase of Mountain Cablevision, based in Hamilton, Ontario. This has resulted in a lawsuit by competitor Rogers Communications, which argued that Shaw was breaking its nine-year-old contract stating that Rogers and Shaw would each provide services to only one half of Canada.[19] Rogers has sued because it says that Mountain Cablevision is within its operating territory, but Rogers lost the suit after the judge ruled that there is not enough direct competition in the area and that such a contract would only lead to a monopoly in each half of the country. The acquisition of Mountain Cablevision has added 41,000 Television, 28,000 Internet, 27,000 phone subscribers to Shaw's customer base.[19] As a result of the failed lawsuit, Shaw is now able to continue its acquisition strategy further east into Canada where Rogers primarily operates.
Also, due to the high capital requirements of the telecommunications industry, Shaw primarily uses long-term debt financing in its capital structure. Although some of Shaw's bank loans have floating interest rates, it periodically converts these loans to fixed-rate loans through public market debt issues.[20] From 2006 to 2009, interest rates have gone from 4.5% to 0.5%.[18] Low interest rates allow Shaw to engage in more aggressive acquisition activity and expand faster.
Competition
Shaw competes with both regulated cable services and unregulated, illegal internet services that stream television to computers for free. Shaw's competitors offer many of the same services to both homes and businesses, with telephone, television, and internet offerings at the companies' cores. Therefore, the biggest differentiation comes from smaller specialized service offerings and the geographical regions in which the companies operate. Competitors include Telus (TU), Saskatchewan Telecommunications Holding Corp., Manitoba Telecom Service (MBT), Rogers Communications (RCI), and Bell Canada Enterprises.[8]
Since Shaw primarily operates in Canada, it only directly competes with other companies operating in Canada. Shaw does own a US subsidiary named Shaw Business Solutions US Inc., but since beginning operations in 2002, it has not made any significant revenue.
- Telus (TU) - Telus (TU) provides Telecommunications services, including telephone, internet, and television services, each with multiple feature offerings. It also offers digital phone, and mobile internet and television services, such as mobile internet access through wireless connect cards, mobile radio, and on-the-go television. However, Telus (TU)'s TV products are limited to Alberta and British Columbia, and the company only has a large stake in local telephone services.[9]
- Saskatchewan Telecommunications Holding Corporation - SaskTel is a Saskatchewan Crown Corporation, meaning that it is owned by the Saskatchewan government, is operated on behalf of the province's citizens to ensure high quality services at reasonable costs in the areas in which these services are not otherwise be provided, and it reports indirectly to the government's cabinet.[21] SaskTel is the largest telecommunications provider in Saskatchewan and offers internet, television, telephone, cellular, and wireless services to its customers.[22]
- Manitoba Telecom Service (MBT) - MTS caters to medium and large businesses by operating a national broadband Fiber Optics network that delivers internet, voice, and data communications services.[23] It also provides wireless, high-speed internet, digital television, and land-line telephone services. Furthermore, MTS offers security and alarm monitoring services through its subsidiary, AAA Alarm Systems Ltd.[23] Although the company is incorporated, it is still a Crown Corporation of Manitoba, operating primarily in Winnipeg and Manitoba.[8]
- Bell Canada Enterprises, Inc. (BCE) - BCE is Canada's largest communications company (in terms of revenue) and offers land-line phone, wireless phone, wireless internet, cable television, and digital television services to both homes and businesses in Western Canada.[24]
- Rogers Communications (RCI) - Rogers provides wireless phone, data and internet, high-speed internet, cable and digital television, as well as digital video disc and video game sales and rentals. Also, it operates a retail chain of about 450 stores that sell home entertainment and wireless products.[25] Finally, Rogers provides radio and television broadcasting, and televised home shopping services. It operates over 50 radio stations and multiple television stations, including channels featuring sports, biographies, and technology.[25]
| Company | Service Revenue ($M) | Operating Income ($M) | Net Income ($M) | Gross Margin | Operating Margin | Increase (Decrease) in Revenue |
| Shaw Communications | $3,104.9[26] | $903.1[26] | $671.6[26] | 21.6%[26] | 29.1%[26] | 11.9%[26] |
| TELUS | $8,610.0[27] | $1,742.9[27] | $943.7[27] | 11.0%[27] | 20.2%[27] | (14.6%)[27] |
| SaskTel | $1,240.2[28] | $154.5[28] | $132.3[28] | 10.7%[28] | 12.5%[28] | 7.2%[28] |
| MTS | $1,921.5[29] | $283.9[29] | $144.0[29] | 7.5%[29] | 14.8%[29] | 0.8%[29] |
| BCE | $17,698[30] | $2,864[30] | $819[30] | 4.6%[30] | 16.2%[30] | (0.3%)[30] |
| Rogers | $11,335[31] | $2,024[31] | $1,002[31] | 8.8%[31] | 17.9%[31] | 12.0%[31] |
References
- ↑ 1.0 1.1 1.2 SJR 2008 40-F pg. 18
- ↑ 2.0 2.1 2.2 SJR 2008 Financial Statements pg. 6
- ↑ 3.0 3.1 3.2 SJR 2008 40-F pg. 20
- ↑ Shaw Communications Investor Relations: "Shaw announces third quarter financial and operating results" June 30, 2010
- ↑ 5.0 5.1 SJR 2008 40-F pg. 91
- ↑ 6.0 6.1 SJR 2008 40-F pg. 19
- ↑ SEC Form 40-F: Shaw Communications
- ↑ 8.0 8.1 8.2 SJR 2008 40-F pg. 122
- ↑ 9.0 9.1 SJR 2008 40-F pg. 34
- ↑ 10.0 10.1 SJR 2008 40-F pg. 35
- ↑ SJR 2008 40-F pg. 128
- ↑ SJR 2008 40-F pg. 129
- ↑ SJR 2008 1st Quarter 2008 pg. 4
- ↑ SJR 2008 2nd Quarter 2008 pg. 4
- ↑ SJR 2008 3rd Quarter 2008 pg. 3
- ↑ SJR 2008 4th Quarter 2008 pg. 4
- ↑ SJR 2009 1st Quarter 2009 pg. 3
- ↑ 18.0 18.1 Bank of Canada: Canadian Interest Rate
- ↑ 19.0 19.1 Bloomberg.com: Shaw Communications - Company News
- ↑ SJR 2008 40-F pg. 36
- ↑ Encyclopedia of Saskatchewan: Crown Corporation
- ↑ 2008 Annual Report pg. 21
- ↑ 23.0 23.1 MBT.TO 2008 Annual Report pg. 13
- ↑ Yahoo! Finance: BCE Inc.
- ↑ 25.0 25.1 RCI 2008 Annual Report pg. 27
- ↑ 26.0 26.1 26.2 26.3 26.4 26.5 SJR 2008 40-F pg. 41
- ↑ 27.0 27.1 27.2 27.3 27.4 27.5 Yahoo! Finance: Income Statement for TELUS Corporation
- ↑ 28.0 28.1 28.2 28.3 28.4 28.5 2008 Annual Report pg. 51
- ↑ 29.0 29.1 29.2 29.3 29.4 29.5 MBT.TO 2008 Annual Report pg. 42
- ↑ 30.0 30.1 30.2 30.3 30.4 30.5 BCE 2008 Annual Report pg. 84
- ↑ 31.0 31.1 31.2 31.3 31.4 31.5 RCI 2008 Annual Report pg. 87
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