Verizon's entry could hit Canada's wireless stocks for several years: analyst

TORONTO -- If Verizon enters the Canadian market it could hit the stock prices of domestic carriers for several years until the actual market impact of the U.S. telecom giant becomes known, says RBC Capital Markets analyst Drew McReynolds.

Bell (TSX:BCE), Rogers (TSX:RCI.B) and Telus (TSX:T) have already seen their share prices impacted by the possibility that Verizon will enter Canada as the country's fourth major wireless player, McReynolds said in a research note.

"Although we believe the pullback in BCE, Rogers and Telus offers a potential buying opportunity for more risk-tolerant investors should Verizon not enter Canada, we see another leg down for the wireless stocks should Verizon enter," he said.

"Furthermore, we see the persistence of a major overhang on the group in this scenario for potentially several years until visibility on Verizon's actual market impact emerges."

BCE's chief executive George Cope recently said that Bell, Rogers and Telus have taken a cumulative hit of $15 billion on the capital markets since the news about Verizon's possible entry broke.

McReynolds is recommending investors move to invest in regional wireless companies Cogeco Cable (TSX:CCA), Quebecor Inc. (TSX:QBR.B) and Manitoba Telecom (TSX:MTS) to lessen risk.

"Our bias is toward the regional operators until wireless visibility improves."

Verizon hasn't confirmed whether it's entering Canada's domestic cellphone market, but there have been reports the U.S. giant is interested in buying new wireless companies Wind Mobile and Mobilicity, which have about 900,000 subscribers between them.

Verizon has about 100 million subscribers compared with a total of about 25 million for Rogers, Bell and Telus combined.

The federal government has loosened foreign investment rules, allowing for telecom companies that have less than a 10 per cent share of the market to be bought by foreign companies such as Verizon.

Meanwhile, domestic carriers Bell,Telus and Rogers aren't able to buy up new wireless startups.

The big three wireless players are lobbying against the entry of Verizon under the current rules.

The Canadian carriers are also disputing rules that would allow Verizon to use their wireless networks and to bid on more wireless spectrum -- the radio waves used by mobile communications devices -- than the incumbent carriers at a January auction.

So far, the federal government has said it is standing by the rules, which it says were intended to encourage competition.