Canada: Telecommunications blackhole

It never ceases to amaze me how backwards the Canadian Telecommunications industry is. In other countries, the industry is being opened to more and more competition, while in Canada, there was actually serious talk about 2 of the top 3 players merging  (Bell and Telus). This would have resulted in only 2 players, meanwhile the UK has 5 MNOs and plenty of MVNOs. Not to mention how expensive wireless service is and the ridiculous 3 year contracts.

Now I just read on a blog by Larry Borsato that Rogers is bucking the trend of most of its contemporaries and actually increasing prices. Also see Mark Evan’s blog for a good piece on it.

Back in my banking days, I used to arrange financing for European cable cos such as NTL/Telewest (now Virgin Media), Liberty Global and Auna/Ono. The thing about cable was that while they required heavy capex investment, their EBITDA margins were always strong (~ 40%). I decided to take a look at Rogers Cable’s margins and compare them to US and European companies, to see if there was any justification for increasing prices, or if this was just a money grab.

Company                                            Q3/07 EBITDA margin
Rogers Cable                                              39.0%
Virgin Media Cable                                    39.5%
Liberty Global Int.                                    40.7%
Time Warner Cable                                   35.7%

Rogers margins look pretty healthy. They are doing better than Time Warner in the US and inline with Liberty Global and Virgin Media.

Notes: 
I stripped out Business Solutions and Retail (ie. DVD rentals) from Rogers for a better like-for-like comparison with the others. I wasn’t able to strip Business out of Virgin Media, but unlike Rogers, Virgin’s business unit has respectable margins and won’t skew the results as much.

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