Samsung Galaxy S8: First Major Test For Shaw’s Freedom Mobile … – Seeking Alpha

On Friday, April 21, 2017, the Samsung Galaxy S8 and S8 plus launched in Canada.

The phone launched on the incumbent carriers and their flanker brands owned by Rogers Communications Inc. (NYSE:RCI), BCE Inc. (NYSE:BCE), and TELUS Corporation (NYSE:TU).

Of more importance is the launch of the recently re-branded Freedom Mobile, owned by Shaw Communications Inc. (NYSE:SJR). Shaw, like the incumbents, also offers subscription television service, land-line telephone service, and internet services.

Discount carrier Freedom Mobile has launched or is in the process of launching LTE in the non-roaming areas it serves. Those areas include the greater Vancouver, Calgary, Toronto, and Ottawa areas, and other parts of Eastern Ontario. Freedom is unavailable, except via roaming in an "Away" zone in many other parts of Canada, including Quebec.

As I previously wrote on this site, when Freedom launched its LTE service, it was incompatible with Samsung (OTC:SSNLF) and Apple (NASDAQ:AAPL) devices. At the time, the company only offered two phones that were compatible on its LTE network: a ZTE (OTCPK:ZTCOF) phone and an LG (OTC:LGEAF) phone. This was because the company launched LTE on the AWS-3 Band 66 spectrum.

The new Samsung Galaxy phones are compatible with this spectrum, giving Freedom its first meaningful opportunity to compete with the incumbents on its LTE network.

Based on the ever-increasing stock price of Shaw, it seems investors have high hopes for growth of Freedom subscribers.

Below is a table reporting the number of subscribers of the four major companies in some major competing segments.

Most Recently Reported Number of Subscribers and Year-Over-Year Percent Change (except Shaw subscriber change, which is total subscriber change quarter over quarter)

Segment

BCE (Q4 ended December 31/16)

Rogers (Q1 ended March 31/17)

TELUS (Q4 ended December 31/16)

Shaw (Q2 ended February 28/16) *Consumer only, excludes business

Wireless

8.469 million

+2.7%

10.292 million

+4.3%

8.585 million

+1.5%

1.086

+33,427 (q over q)

TV

2.745 million

+0.2%

1.796 million

-4.0%

>1.0 million

+5.4%

2.421 million

-11,735 (q over q)

High-Speed Internet

3.477 million

+1.9%

2.175 million

+5.4%

1.7 million

+5.7%

1.818 million

+13,466 (q over q)

We can see from the above table the following:

All companies reported seeing subscriber growth in wireless and internet.

Rogers and Shaw are seeing declines in consumer TV subscribers. TELUS, which offers services in Western Canada, in competition with Shaw, is seeing growth in TV.

Shaw's Most Recent Reported Earnings

For the most recent quarter, Shaw reported earnings per share of $0.30. If earnings remained constant, this would work out to $1.20 on an annualized basis. (All amounts are in Canadian dollars unless otherwise indicated).

On April 24, 2017, Shaw closed at $28.65 on the Toronto Stock Exchange. This means that Shaw's most recent quarterly earnings, if annualized would have a P/E of almost 24. In comparison, Western Canadian-based competitor TELUS has a P/E of about 21, according to Yahoo Finance.

During its most recent conference call, an analyst asked Shaw about its consumer products in Western Canada (which include its television and internet bundles marketed as Internet 150 and BlueSky TV). President Jay Mehr noted:

"I think Western Canadian benefit[s] from the highly competitive environment and we've certainly seen [an] extremely competitive environment in this fiscal year in Alberta and BC... Our primary competitor is fierce and does a great job and that's what this is going to continue to be."

Given the results of its consumer internet and TV businesses, it appears that wireless growth is the main thing getting investors excited about Shaw, which closed near a 52-week high of $28.79.

That is why the new Samsung phones should provide a good first indicator of Shaw's ability to compete with the incumbents. I have summarized some of the incumbents' online flanker brand offers (as at the time of pre-sale, advertised on their websites from April 19th to the 21st, 2017) on the lowest priced Samsung Galaxy S8 phone and compared them to Freedom Mobile. All offers were for the province of Ontario.

Carrier

Minimum Up-Front Price of Samsung Galaxy S8 (excludes any activation, SIM card, or other fees or taxes)

Required Monthly Payments Over Two Years To Get Phone For Minimum Up-Front Price

Minimum Cost of An LTE Monthly Plan

Total Monthly Cost Before Taxes and Other Fees

Fido

(Rogers)

$489

$25

$65

1 GB of data

$90

Virgin Mobile

(Bell)

$489.99

Platinum Plan Required

$90

1 GB of data

$90

Koodo Mobile

(TELUS)

$490

$21

$69

1GB of data

$90

Freedom (Shaw)

$59

$35

$30

250 MB full-speed data

$65

Freedom (Shaw)

$59

$35

$40

4 GB full speed data

$75

Freedom and Koodo also conspicuously advertised a free Samsung Gear VR with a pre-order. I am unaware of whether the other carriers offered it, but I am most interested in the money that a customer has to put down to get the phone (prior to any fees for SIM cards, activation, etc.)

I showed two of Freedom's plans above because it is clear that Freedom is aggressively competing on upfront price and monthly plan price.

It is also apparent the incumbents are not competing with each other on price of this phone, when one considers the total cost of a two-year plan.

So Far No Price War On The Samsung Galaxy S8

As of the time of writing (Tuesday, April 25, 2017), none of the flanker offers has changed from the pre-sale offers I saw advertised on their websites. This is good news for Shaw/Freedom as despite lower pricing from Freedom, an all-out price war has not resulted.

If this trend continues, Freedom should be able to increase market share among value-conscious Samsung fans. It appears the incumbents are prepared to let Freedom try to gain those consumers, rather than sacrifice margins.

The incumbents' flankers offer lower-priced plans for other phones. For example, as of the time of writing, if you bring your own phone to Koodo or Virgin Mobile you can get plans starting at $30 per month. Fido offers bring-your-own phone plans at $40 per month.

In other words, the value proposition is different for customers who already have their own phones. I suspect that is because customers who already own their own phones are able to move to whatever network they want (with the exception of moving to Freedom LTE, which, as discussed, requires an AWS-3 Band 66 compatible phone).

If you do the math, Freedom is selling the phone for $899 to its customers over a two-year term. Management previously said during a conference call that its goal was to get average revenue per wireless user to $40 per month. The company is offering more data than its competition for that price. It is foreseeable that absent a price war, in regions including Toronto and Vancouver where Freedom has already rolled out LTE, Freedom will continue its trend of wireless growth.

The Bigger Test Comes With Apple

Apple sells iPhones in its retail stores, resulting in customers willing to pay full price becoming free agents, who can port their phone numbers to any carrier. Assuming that the next iPhones will be compatible with the AWS-3 Band 66 network, this increases the probability that customers may be willing to give Freedom a chance. If they are dissatisfied, they can always change to any of the incumbent carriers' brands.

Originally posted here:

Samsung Galaxy S8: First Major Test For Shaw's Freedom Mobile ... - Seeking Alpha