Source : Globe & Mail

Cable king Ted Rogers reached a milestone this month in his battle against rival BCE Inc. when his company became the largest communications service provider in Canada by market value.

The combined market value of Rogers Communications Inc. class A and class B shares at the close of trading Monday on the Toronto Stock Exchange was $24.09-billion, Bloomberg data shows BCE, which is still the biggest communications company when it comes to customers and revenue, finished the day with a market cap of $23.67-billion.

Rogers leapfrogged BCE courtesy of a dramatic makeover. Mr. Rogers piled on debt as the company went on a shopping spree, transforming itself from a regional cable operator into a communications giant that sells wireless, Internet and land-line services from coast to coast.

National Bank Financial analyst Greg MacDonald questioned Monday whether Rogers could now take advantage of its high-flying stock and make a move on its cable counterpart in Western Canada, Shaw Communications Inc.

"Since Rogers is big (it is now the largest market cap in our coverage universe) an acquisition of Shaw is quite digestible," Mr. MacDonald wrote in a note to clients.

That wouldn't have been the case at the end of 2001, when Toronto-based Rogers had a much smaller market capitalization: $5.74-billion. At the time, Rogers was in the middle of an expensive network upgrade. The improvements promised to pave the way for new services such as digital television and land-line phone service, but further down the road. As a result, Rogers's stock was headed down in 2002.

"The reason they were way lower five years ago is they were losing money hand over fist as they built out the digital network," said Gavin Graham, chief investment officer at Guardian Group of Funds, which holds shares in Rogers and BCE. "It was, ‘Oh gosh, Ted is once again spending loads of money on something we don't know whether there will be an immediate return for.'"

"They had a long-term strategic plan, they stuck to it ... and they delivered," Mr. Graham added.

One move that helped Rogers was its expansion in the wireless market. In 2004, the company acquired the stake it didn't own in its Rogers Wireless arm and also snapped up rival Microcell Telecommunications Inc. Rogers now generates just over half of its revenue from wireless, compared with 21 per cent at Montreal-based BCE. That's a big advantage, as wireless is the fastest growing part of the communications market.

Rogers's shares took off in 2005, and recently hit an all-time high of $38.79. Over five years, they have gained 193 per cent. Rogers also issued more new shares than BCE, contributing to the higher market value.

The widely held class B non-voting shares rose 20 cents to $37.30 Monday, while the class A voting stock, closely held by the Rogers family, slipped 39 cents to $41.

"Since 2004, the outperformance of Rogers has largely been due to the appeal of the Canadian wireless market and the company's exposure to this market as a percentage of its business," Malcolm White, a portfolio manager at Signature Advisors, which holds Rogers and BCE shares, wrote in an e-mail.

In contrast, BCE's market capitalization has shrunk since the end of 2001, when it totalled $29.11-billion, Bloomberg data show. The stock has dropped 16 per cent in the past five years. It fell 11 cents to $29.15 in TSX trading Monday.

The telecommunications market, BCE's home turf, has changed dramatically since 2005. That's when cable operators including Rogers entered the phone market and started winning customers.

Now BCE and other phone companies find themselves in the same situation as the cable operators a few years back. They are revamping their networks in order to offer TV service over land lines.

"Rogers has pretty good running room for the next 12, 18 months, while BCE has to spend a lot of money to get to the same position," explained Jim Hall, a portfolio manager at Mawer Investment Management, which holds BCE shares.

But the gap between the two is close, and Mr. Hall believes the leader could change. BCE has generated value by selling off non-core assets to focus on its main phone business, Bell Canada, Mr. Hall said. "Investors are very pessimistic towards BCE's prospects," Mr. Hall said. "If they continue to execute over the next two years as they have over the last 12 months, people may not be as pessimistic. So the market cap of BCE may regain its No. 1 spot."

Jan Innes, a Rogers spokeswoman, declined to comment on the stock's market value. Mark Langton, a Bell spokesman, said the company will continue to focus on "surfacing" shareholder value, and expanding growth services such as wireless. (BCE owns a minority interest in CTVglobemedia Inc., owner of The Globe and Mail and CTV television network.)

© Globe and Mail