Canadian Communications CANADA
26 January 2009
Initiating coverage
1/23/09
Company Ticker Rating Price Target
BCE Inc. BCE Neutral C$25.07 C$25.50
Rogers RCI.B Outperform C$33.67 C$40.00
Shaw SJR.B Neutral C$20.29 C$22.50
TELUS T Outperform C$34.10 C$39.50
Source: Macquarie Research, January 2009
Inside
Summary 2
Power to the people 4
Canada’s communications landscape 7
Wireless services 8
Wired services 15
Cash use 18
Risks 19
BCE Inc. 21
Rogers Communications Inc. 28
Shaw Communications Inc. 35
TELUS Corporation 42
Appendix – Comparable companies 49
Glenn Jamieson, CFA
(416) 848-3658 glenn.jamieson@macquarie.com
Michael Siperco
(416) 848-3520 michael.siperco@macquarie.com
Power to the people
We are initiating coverage of Canada’s four largest communications service
providers – BCE, Rogers, Shaw and TELUS.
Slowing growth near term – efficiency and cashflow the focus
In the near term we look for the ability of these companies to navigate the economic
downturn. We see resilience but not immunity to the slowdown. In the face of
slowing revenue growth, efficiency of operations and cashflow should be the focus.
Long-term consumerization to become key driver of success
Over the long term, the consumerization of the sector and the way these companies
adapt may be the biggest determinant of leadership in the group.
We see a change occurring. While network quality will always be important,
eventually we see it as less of a differentiator as technologies converge and service
providers offer an increasingly similar range of services.
Factors such as brand strength, breadth of service, strength of customer care and
distribution reach should become increasingly important in determining market
leadership.
Sector is financially sound
Overall, we see the sector as relatively attractive given healthy balance sheets, solid
free cashflow generation, attractive dividend yields and multiples towards the low
end of historical ranges. We see the opportunity for dividend increases for all four
companies, with Rogers, Shaw and TELUS having most flexibility.
Our picks
We favour the mix of growth, operational leverage, balance sheet strength, assets,
potential dividend increases and valuation at Rogers and TELUS. We have an
Outperform recommendation on both stocks.
Shaw continues to execute well, its operating metrics lead the industry and it has
a rapidly growing dividend that we believe could continue to increase. As a result,
the stock has held up well through the downturn. However, due to its premium
valuation, we currently see more upside elsewhere. We have a Neutral
recommendation on Shaw.
BCE offers the highest dividend yield of the group. However, we view the company
as a turnaround that might take time to complete. While the yield is safe, we also
see BCE as having less flexibility to increase dividends than its peers. We have a
Neutral recommendation on BCE.
Our 12-month price targets are DCF-based. Our target for Rogers is C$40.00,
implying a 7.7x 2009E EV/EBITDA multiple. Our target for TELUS is C$39.50,
implying a 5.0x multiple. Our targets for BCE and Shaw are C$25.50 and C$22.50,
respectively, with implied multiples of 4.5x and 8.3x.

Summary
The growth versus dividend yield trade-off for the Canadian communications industry has shifted.
Growth has been rapid in the past few years, driven primarily by wireless. Strong cashflow
generation, sound balance sheets and a weak economy have caused the gap between growth and
dividend yield to tighten (Fig 1). Slower growth has been reflected in multiples at the low end of
historical trading ranges.
Rogers, the leading Canadian wireless provider and largest cable operator, remains well positioned
to maintain or extend its share in its focus markets. The balance sheet is solid and we expect the
company to grow at a reasonable rate, maintain healthy levels of investment in its networks and
increase dividends. A sell-off following the release of Rogers’ 4Q subscriber additions provides a
decent entry point.
TELUS’ stock has underperformed its peers. As a result, the stock is trading at multiyear lows based
on EV/EBITDA and at a multiyear high based on its dividend yield. While we do not see an
immediate catalyst for the stock, we do see value at current levels, and a strong balance sheet and
strong cashflow generation provide the opportunity for further dividend growth.
Shaw continues to execute well. Its operating metrics lead the industry, and it has a fast growing
dividend that we believe can continue to increase. As a result, the stock has held up well through the
downturn. However, due to its premium valuation, we currently see greater upside elsewhere.
BCE offers the highest dividend yield of the group. However, we view the company as a turnaround
situation, which may take time to complete. While the yield is safe, we see BCE as having less
flexibility to increase dividends than its peers.