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RCI, Videotron in Network Sharing Pact

Zacks Equity Research

Canada-based Rogers Communications Inc. (RCI) entered into a 20-year deal with Videotron to expand the 4GLTE coverage across Québec and the Ottawa region in Canada.

Per the agreement, Rogers and Videotron will use both their resources to build the 4GLTE network as soon as possible. The companies will share the newly-built network across those rural places in Canada, hence reducing the gap between rural and urban population in terms of network speed.

The new network will not only expand Rogers’s 4GLTE reach but will also drive customer satisfaction in terms of better service and speed. Moreover, the inclusion of another company like Videotron to build and share the network will also reduce the cost of deploying and maintaining the 4GLTE network.

The deal also states that both Rogers and Videotron will also receive payments of $200 million and $93 million, respectively, for providing service to each other. The amount will be payable to each other over a period of 10 years.

Hence, we believe that this pact will not only improve the companies’ cash position but will also drive margins, going forward. Moreover, we also believe that the extra savings generated from the deal can be utilized to upgrade the network performance.

The new deal will also enable Videotron to boost its handset portfolio by adding popular 4GLTE-based devices to its smartphone line-up. Moreover, it will also allow both these companies to improve their service offerings against popular telecom operators like TELUS Corp (TU), BCE, Inc. (BCE) and Shaw Communications Inc. (SJR).

Apart from the network sharing agreement, Videotron has also decided to give away its Toronto AWS spectrum license of $180 million to Rogers, after clearing all the regulatory hurdles in the beginning of next year.

Currently, Rogers Communications has a Zacks Rank #3 (Hold).

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