BCE: Firm Will Successfully Navigate Requirement to Offer Wholesale Access to Its Fiber Network

The Canada Radio-television and Telecommunications Commission announced an initial decision requiring telecom companies to allow resellers access to fiber networks in much of Ontario and Quebec. A review is ongoing, and although we expect mandatory fiber wholesaling to survive the final decision, we expect specifics to evolve. BCE BCE is the only telecom firm materially impacted in Ontario and Quebec. BCE immediately announced that it would reduce fiber capital spending by $1 billion over the next two years. After considering the various ramifications of the CRTC’s decision, we are not changing our CAD 65 fair value estimate.

We believe BCE is successfully using its remaining leverage by deciding to build fiber to fewer homes, though BCE already now passes more than half of the 12 million premises we expected it would eventually reach. The CRTC has set the initial wholesale rates that telecom firms will receive for allowing fiber access, and we see two potential directions for the CRTC to go as it sets longer-term rates. We don’t expect either outcome to make a material difference in our valuation. We expect slower internet subscriber growth in either case, but incremental wholesale revenue will help offset fewer subscribers, and BCE will optimize capital spending for however the regulatory backdrop evolves.

If the CRTC is vested in most of the population having access to a fiber broadband choice, it will set rates that are more favorable to the telcos, as it will need them to continue building fiber. Under this scenario, the additional revenue stream from favorable wholesale rates will help to offset slower internet subscriber growth, and BCE will continue expanding its fiber footprint. If the CRTC instead settles on unfavorable rates, BCE will continue to collect incremental wholesale revenue, though not as much, and it will see perhaps a bigger hit to subscriber growth. However, durably lower capital spending would largely offset the less favorable revenue.