Summary
The Calgary-based cable company, Shaw Communications Inc., has declared its plans to launch wireless services in late 2011. In 2008, Shaw purchased a $190 million wireless spectrum from a government auction in hopes of bringing back and attracting more customers. More than 1,055 customers switched from Shaw cable to Telus TV last year. Although wireless services provide crucial growth for these type of industries, analyst, such as Bank of America's
Connection
This article pertains to outsiders. Outsiders, such as Shaw's bankers, shareholders, and investors, use this to determine the profitability and liquidity of Shaw's assets. Examining the balance sheet of Shaw, I found that its financial ratios are not as ideal as I had anticipated. For example, let's look at its current ratio, which is calculated by taking the total current ratio divided by the total current liabilities. In 2008, Shaw's current ratio is 0.49 (404.47/828.64) and in 2009, it is 0.55 (757.67/1,377.02). Despite the low annual current ratio, it has increased by 6% from 2008 to 2009. The ideal current ratio is outlined in the textbook is 2:1. However, the actual ideal range of current ratio for Shaw is dependent on its type of industry. Since Shaw is considered as a servicing business, its expected range is between 1.1 and 1.3. Referring to the calculated figures above, the company's ratio is less than satisfactory, which indicates that Shaw may have a low cash flow and may be unable to pay off its long-term debts if needed.
Reflection
I agree that Shaw's announcement may not turn out to be as favorable as Mr. Shaw claimed. There are already a lot of companies who have matured cell phone plans for their customers, such as Telus, Rogers, and Bell. Shaw has taken too long to introduce this service, which explains why its customers has switched to companies, like Telus, that offer 'bundled' plans. 'Bundled' plans generate more profit for the company and customers are not as likely to switch to another company. With Shaw offering wireless services in the 'quad-plan' (cellphone, home phone, cable and internet) next year, competition between the companies will become more fierce. Although this may not sound appealing to investors, a wireless phone service is good news, especially for Shaw's customers. Consumers will have more selections of companies to choose from, resulting in competitively low prices.
For consumers like us, it is a very good thing that Shaw is finally introducing cellphones because more competition in this market likely means that prices will be lowered slightly. Not only that, like you said, this will also benefit Shaw the company itself as it can help generate more sales to increase the cash flow and improve the current ratio. I also agree in that people are more likely to stick to bundled plans which can save money. For instance, my family has never used anything other than Telus for our telephone, Internet and cellphone plans.
ReplyDeleteIts funny how they purchased the wireless spectrum in 2008, yet they declared its plans to launch wireless service late next year. I think it's great they are going to create cell phones, but at the same time i do not think they will do very well. For one, they don't have much of a cell phone reputation. With so many cell phone companies out there, people will mainly go to one they already know is stable. Unless they do some major advertising, or have a truly superior cell phone. As a consumer, i will probably stick with my phone company for a while. My TV, land phone, and internet is shaw- so unless they give me a great cell phone plan , they won't get more money from me, or any other person that thinks the same way.
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