Shaw expects price increases for cable and telecos

Prices for communications services are headed up despite the battle between phone and cable companies for customers, predicts Shaw Communications Inc. chief executive officer Jim Shaw.
“Consistently, all telcos and cablecos will continue to raise rates,” Mr. Shaw said Friday on a conference call to discuss the company's fourth-quarter financial results.

That would be a bonus for both Calgary-based Shaw along with its Quebec peer Cogeco Cable Inc. Both companies reported higher revenue Friday as they not only added subscribers, but also charged them more. Life isn't nearly so comfortable for the U.S. cable operators. The biggest one, Comcast Corp., said rivals are cutting prices more than ever.

One big difference is that the cable operators in the U.S. face intense competition from phone carriers that offer land-line TV service, analysts say. The big Canadian telcos have been slower rolling out land-line TV service. That means that while the cable operators are quickly luring away phone customers, they aren't facing fierce competition for their TV clients from the telcos.
The different competitive landscapes are reflected in the performance of cable stocks on both sides of the border. Shaw and Cogeco have gained 41 and 52 per cent respectively, this year, while Comcast is down 25 per cent.

Shaw announced it will boost its dividend 9 per cent. In the most recent fiscal year, Shaw doubled its payments to $201.2-million. Canadian cable operators are “in the sweet spot right now when it comes to their product performance and their ability to charge a premium price for it,” said National Bank Financial analyst Greg MacDonald. “While that's the case, I just wouldn't bet against these stocks.” Cable operators' winning streak started in 2005, when they entered the phone market. They gained enough market share that the big phone companies were recently set free from regulation for local phone service because authorities decided the new competitors no longer need that advantage. Despite that change, there's little pricing pressure to speak of, according to Mr. Shaw.

In its fiscal fourth quarter ended Aug. 31, Shaw added 41,604 digital telephone lines, 29,857 Internet subscribers, 15,709 digital TV customers, and 1,686 satellite clients. It lost 2,057 basic cable customers. The phone and basic cable results missed some analysts' forecasts.
Nevertheless, Shaw's operating profit before amortization rose a better-than-expected 19 per cent, helped by higher prices. Profit fell as a large income tax recovery from the previous year wasn't repeated.

For fiscal 2008, Shaw expects an increase of between 10 and 12 per cent in operating profit before amortization, a slight drop from 15 per cent in fiscal 2007. Cogeco reported Friday after the market closed that its fourth-quarter revenue jumped 40 per cent, boosted by the acquisition of a Portuguese cable company. Cogeco added 21,173 phone subscribers, 12,363 Internet customers, and 8,747 digital TV clients. However, it too lost 2,627 basic cable subscribers. “Our balance sheet is solid and we are looking forward to achieving a strong fiscal 2008,” Cogeco chief executive officer Louis Audet said in a statement.

Shaw seems content to continue on its current path. Cogeco, based in Montreal, is more likely to make a bold move. It made its first purchase abroad a few years ago, buying a cable company in Portugal.