Andrew Willis: After an outage at Rogers hit both landlines and wireless services last week, leaving millions without phone and internet services, we think the greatest fallout might be the frustration of consumers rather than lasting trouble for Rogers.
Equity analyst Matthew Dolgin says he doesn't think the outage will have a material long-term impact on valuation, and the only way it impacts the fate of the Rogers-Shaw merger is if there is retaliatory blowback or acquiescence from regulators to public outrage. And the merging of wireline internet doesn't necessarily increase the risk of a future outage.
When it comes to compensation for the outage and potentially further regulations, we don't think it will be material enough to change our long-term valuation forecast for Rogers. The threat of increased government intervention is ever present already, and sure, we need more competition, but any changes to the status quo will require a smaller competitor to take subscribers from one of the big three. And the big three aren't letting go of any 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 keep that 90% share of the market. Practically speaking, we don't believe smaller competitors could hope to offer superior service. When looking back at the Rogers outage of 2022, put in the context of the big three, which we believe all have solid moats that protect them from any current or future competition, cooperation might even be mandated to prevent future outages, which is at least one win for consumers.
For Morningstar, I'm Andrew Willis.
Check out Morningstar.ca to watch Stock of the Week: Alibaba.