TORONTO (Reuters) - Shaw Communications Inc plans to launch a wireless service in late 2011, the Canadian cable and telecom company said on Friday as it posted an 11 percent drop in quarterly profit, in line with expectations.
Shaw, which is a major player in Western Canada, said it will invest about C$100 million ($100 million) in wireless in the second half of 2010.
The Calgary-based company plans to spend “slightly more” than C$100 million in each of the following few years as it builds up its network, Chief Executive Jim Shaw said on a conference call with analysts.
The market has keenly awaited details of the launch since Shaw spent C$189.5 million in a government auction of wireless spectrum in 2008 that is expected to shake up the industry as new players enter the market.
Shaw is largely seen as a dividend stock and one caution that investors may have on the capital budget for wireless is that it could end up eating into the regular payouts, said Greg MacDonald, an analyst at National Bank Financial.
“Investors should not be concerned ... this company is not going to cut its dividend,” he said. “It’s got a very strong balance sheet, in fact it’s got C$670 million in cash and short-term investments, more than enough to cover this investment.”
Canada’s wireless industry is currently dominated by Rogers Communications, Telus Corp, and BCE Inc, which control about 95 percent of the market.
Shaw is one of five new entrants that plan to battle the incumbents for market share.
Globalive launched its Wind Mobile service in December, Public Mobile plans a May launch, and Data & Audio Visual Enterprises Wireless Inc is eyeing a spring launch under the Mobilicity brand. Quebecor’s Videotron has said it will start service in Quebec this summer.
Shaw owns wireless spectrum across its cable operating footprint in Western Canada and northern Ontario.
Analysts say its biggest challenge will come from Telus, which has recently taken steps to bolster its wireless and Internet infrastructure in Western Canada.
Shaw has also made waves recently with its contested bid for the television assets of bankrupt Canwest Global Communications Corp, Canada’s largest media company.
Shaw has made a minimum commitment to acquire C$95 million of class A voting shares in a restructured Canwest, for a 20 percent equity and 80 percent voting interest.
The company said that net earnings for its second quarter, ended February 28, fell to C$138.7 million, or 32 Canadian cents a share, from C$156.6 million, or 36 Canadian cents a share, a year earlier.
Shaw said this year’s quarter was hurt by debt-retirement costs, while the year-before quarter benefited from a tax recovery of about C$23 million.
Sales rose about 11 percent to C$929.1 million.
Analysts, on average, had expected Shaw to earn 32.8 Canadian cents a share on revenue of C$926.2 million, according to Thomson Reuters I/B/E/S.
Basic cable subscribers fell by 1,055 to 2.3 million, while digital customers rose by 98,544 to 1.5 million. Internet customers rose by 26,735 to 1.8 million and digital phone lines grew by 54,922 to 978,287.
While the basic cable subscriber numbers missed market expectations, the data, voice and digital subscriber numbers topped expectations, BMO Capital Markets analyst Tim Casey said in a note to clients.
Shares of Shaw gained 18 Canadian cents, or 0.9 percent, to close at C$19.85 on the Toronto Stock Exchange on Friday.
Additional reporting by Abhiram Nandakumar in Bangalore; editing by Peter Galloway