For Canadian telecom investors, 2026 has so far been a disappointing year.
While the overall S&P/TSX Composite Index has risen by about 11 per cent since the beginning of this year, the five-company telecom index fell by more than 16 per cent – and the performance of the three largest telcos has been poor.
Shares of Bell Canada parent company BCE Inc. BCE-T are down 11 per cent since the beginning of the year. Rogers Communications RCI-B-T shares are down 13 per cent year to date. And shares of Telus Corp. T-T are down 33 per cent since January.
As of Friday afternoon, shares in Bell and Telus were both trading at levels that, before recent weeks, had not been hit in 15 years or more.
What’s behind the stock slide?
One factor is the recent rise in global bond yields. As these yields rise, dividend-paying stocks face stiffer competition from other safe investments.
If U.S. Treasury notes are yielding around five per cent, while the telecom companies’ dividends are yielding a similar amount, it makes the telecom stocks “less attractive to investors who are income-oriented, as it’s more risk for the same income,” said Veritas Investment Research analyst Liam Gallagher.
Moreover, higher interest rates could in the future increase the cost of borrowing for heavily indebted companies, as they may need to refinance at increased costs.
Combined, Bell, Rogers and Telus have nearly $100-billion of long-term debt on their books.
Another factor putting pressure on telecom stocks this year is the potential competition from satellites for cellphone service, according to Rebecca Teltscher, a portfolio manager for Newhaven Asset Management Inc., a Toronto investment management company.
Bell closer to launching space-based service as it begins testing satellite ground station in Quebec
It’s a debate that has been playing out among telecom analysts in recent years, as Elon Musk’s Starlink in particular has been edging closer to providing its own direct-to-cell technology.
Generally, analysts have been skeptical about the ability of low-Earth-orbit constellations to put significant pressure on incumbents, given the limitations of spectrum physics: Satellite-based cell service is most useful in rural areas, while it currently struggles to provide service in dense areas, where terrestrial-based connections are much faster.
Meanwhile, the use of spectrum for direct-to-cell service currently requires a commercial agreement with a Canadian mobile network operator, and foreign ownership restrictions in the Telecommunications Act could also apply, the federal department of Innovation Science and Economic Development said in an e-mail.
“On wireless, we continue to see no risk of disruption owing to Canadian foreign-ownership rules and a lack of spectrum availability,” TS Securities analyst Vince Valentini said in a recent note to investors.
Shares of the three largest U.S. telecom providers fell last week after Starlink parent company SpaceX said it was acquiring spectrum that would allow it to provide better cell connection in urban areas. SpaceX executives told investors during a quarterly earnings call that the company plans to take “quite a few” customers from incumbents.
SpaceX’s spectrum deal still leaves it far from rivalling telecom giants
In Canada, shares in Bell, Rogers and Telus also experienced a dip after the news. They have now largely recovered. All three telecoms have made agreements with satellite companies to offer this service over their networks, although Rogers is the only one to have rolled it out so far.
“In Canada, satellite has so far emerged as a coverage enhancement sold by incumbents, not as a competing network,” Ms. Teltscher said.
Underlying the pressure coming from bond yields and satellite concerns, however, is continued stress within the mature Canadian telecom sector itself.
In recent years, telecom companies have competed more fiercely for subscribers, in part by discounting cellphone-plan prices, tightening their average earnings per customer.
This has especially been the case after Quebecor Inc.’s QBR-B-T takeover of Freedom Mobile as part of Rogers’s merger with Shaw. Quebecor’s promises to Ottawa to keep prices below a certain benchmark has forced the telcos to compete on pricing, as Quebecor’s lower prices have been winning it an outsized portion of new subscribers. Unlike its rivals, Quebecor’s stock is up 25 per cent from the beginning of the year.
Immigration has continued to remain stagnant, meaning fewer new customers for the large telecom companies to compete over. And regulatory conditions – including the recent restriction of certain customer fees, and requirements that certain telecoms offer their competitors access to their fibre networks – has added to investor uncertainty about future growth.
“These are real concerns, but we believe the market has discounted a significant amount of pessimism into valuations at current levels,” said Ms. Teltscher.
Rogers, Telus and Bell are all pursuing different strategies to pay down debt and look for revenue in new areas.
Rogers has acquired expensive sports assets, but plans to imminently sell off a portion, and has significantly reduced its capital expenditure plans.
Telus, under new chief executive officer Victor Dodig, halved its dividend, and is working toward plans to hive off assets – in particular, its health care business – either in part or full.
And Bell is building out its U.S. fibre business and doubling down on AI data centres.
“Ultimately, these companies own essential infrastructure, generate recurring cash flows, and benefit from significant barriers to entry,” Ms. Teltscher said.
“We believe the essential nature of their services should provide a degree of capital protection should the broader market enter a correction.”