Imagine yourself, or your child or your grandchild, sitting in a brand-new, oligarch funded pleasure dome in Moscow, streaming a Word Cup soccer match through your mobile phone, along with your live commentary, to less fortunate friends left at home.

It would take a massive network capable of handling enormous amounts of data. Would you or your kin be pirating the content? Would your friends back in North America be able to enjoy your broadcast through their service provider? Infrastructure is being laid, deals are getting consummated, and lobbying is well underway.

Streaming high-definition video–allowing you to connect with friends and family, no matter where they are, to watch TV on your handheld that looks like the big-screen in your living room, to work from home because you can go to meetings through your mobile phone–is the not-too-distant future. And that’s a small world.

The build-out of 4G Long Term Evolution (LTE) networks is the essential element. And the importance of relationships with device makers such as Research in Motion (TSX: RIM, NSDQ: RIMM) and Apple (NSDQ: AAPL); the  iPhone has had a significant impact on North American culture and on the bottom lines of service providers that offer it to their customers.

The major question is whether public officials will permit service/content providers the absolute leverage they’d love to have, allowing them total control over the entertainment they own. But at a minimum having your own shows to stream better make your service more attractive to existing and potential subscribers.

The acquisition of content providers by service providers is a tactical move that will capture eyeballs, hang onto them and allow successful integrators to grow dividends and build wealth for shareholders.

Content and Infrastructure: The Twain Shall Meet

The last two and a half years have been tough on Canada’s telecommunications service providers and the investors who own them. The competition to grow and survive in what is a mature market, already intense, has ratcheted significantly in the new wireless age.

Add in the worst global economic climate in decades and you have a highly unstable environment that’s particularly hospitable to disruption. Incumbents are establishing more robust networks, and their gobbling up television assets to run on them. The process of weeding out winners and losers has accelerated of late, though it will still take several years before long-term investments begin to pay off for aggressive players.

Shaw Communications (TSX: SJR/B, NYSE: SJR) is buying the television assets of Canwest Global Communications for CAD2 billion. The content part of the equation is still subject to regulatory approvals. The network side will be resolved by 2011, if management’s timeline for rolling out a wireless service on a 4G LTE platform holds together.

With BCE’s (TSX: BCE, NYSE: BCE) purchase of CTV, the largest private broadcaster in the country, all of Canada’s large telecommunications service providers will own television assets–except for Telus Corp (TSX: T, NYSE: TU). An ongoing appeal by Telus would ultimately persuade the Canadian Radio-Television and Telecommunications Commission (CRTC) to explicitly rule that Shaw can’t exclusively distribute television content to its wireless subscribers. That’s Telus’ dream.

The nightmare is that Shaw be able to deny subscribers to Telus’ wireless service access to “19 of Canada’s most popular specialty channels.” Shaw also inherits Canwest’s efforts to stream full episodes of “fan favorite” programs and benefits from the fact the content provider is the first Canadian broadcaster to offer first-run US shows via video on demand (VOD).

The CRTC has never before made rules about how content is delivered to wireless phones. Telus, No. 3 wireless carrier in Canada, has argued that assurances by Shaw that it won’t stop competitors from distributing television content aren’t enough and that government action is required. How the CRTC handles Telus’ entreaties will do a lot to identify wheat and chaff in the Canadian telecom sector. Right now Telus–the only one of the majors without television assets–is looking a little scaly and distasteful next to the competition.

The political/legal scrum is sure to result in another addition to the lingua franca of global telecommunications: “content exclusivity.”

Telus, the second-largest telecom in Canada reported second-quarter earnings per share of CAD0.92, a 19 percent year-over-year improvement. Total operating revenues were essentially flat with second-quarter 2009 levels. The wireline segment saw revenues drop 3 percent, while the wireless segment grew revenues by 6 percent. Operating income improved 14 percent over the same period. But much of the income growth came from lower restructuring and depreciation expenses.

Telus stock has outshined BCE, Shaw and the other majors this year, beating its closest rival on a total return basis by more than 50 percent. After a recent boost in the quarterly dividend to CAD0.50 per share from CAD0.475 the stock yields 4.4 percent. The payout ratio, which has been rising the last few years, is 60 percent.

The stock is near a 52-week high, and management may soon regret its failure to get a piece of the content action. Telus Corp is worth holding onto, but there are better opportunities for new money in the Canadian telecom industry.

The announcement of BCE’s deal for CTV followed by a day Quebecor’s (TSX: QBR/B, QBCRF) announcement of its wireless program for Videotron, an effort squarely aimed at BCE wireless unit Bell’s customers in Quebec.

CTV’s broadcasting assets, including Bell’s existing 15 percent stake, were valued at CAD1.5 billion. BCE will assume CAD1.7 billion in debt, pushing the total transaction value to CAD3.2 billion. BCE CEO George Cope said the deal “extends our leadership in mobile video, premiere sports and music properties… hedges us against increasing programming costs and clearly levels the playing field with the integrated cable companies as we compete for end customers.”

The package includes 27 Canadian television stations, 30 specialty channels, online properties such as MTV.ca and TheComedyNetwork.ca, and CHUM Radio, which operates 34 radio stations throughout Canada.

Much like Shaw’s acquisition of Canwest, the driving factor for BCE’s purchase is the emerging importance of multi-platform video content consumption– BCE’s three largest cable competitors are fully integrated, and management certainly didn’t want to buy all its content from its competitors. Cope said TV and video is now a CAD1.7 billion business for Bell. It’s also the company’s fastest-growing cost. BCE will also be able to deliver more Bell advertising through its CTV assets.  

This is all about content and platforms. There’s a lot you can do when you own licenses and copyrights–edit it, repurpose it, etc. BCE and Bell now have original content for all their platforms–but mobile is critical. Telus may benefit from short-term fund flows as yield investors turned off by the acquisition expense move out of BCE. But Telus at a strategic disadvantage when it comes to content negotiations in the future: Content costs may rise faster for Telus than they do for its competitors.

Management at Shaw and BCE must lever their TV acquisitions–whether they get “content exclusivity” or not. Content has to confer a competitive advantage that helps them hold onto existing subscribers, add new ones, and consistently up-sell all of them to new data-centric services. This is how telecoms boost average revenue per user (ARPU), a key measure of business health.

Shaw Communications and its 3.9 percent yield is a buy up to USD20. BCE, yielding 5.4 percent as of this writing, is a buy on dips below USD30.

Quebecor began executing on its convergence strategy a decade ago, when it purchased Videotron, the largest cable TV and internet service provider in Quebec. A once perilous financial condition has improved, and the company has ample liquidity to fund growth initiatives, though an estimated CAD1 billion cost to roll out additional mobile services could sap earnings.

Anxious to grab content somehow, some way, Quebecor CEO Pierre Karl Peladeau has bandied about the idea of purchasing an NHL hockey team to guarantee prime content for Videotron subscribers. Quebecor does have an existing deal with CTV, which controls hockey broadcasts, to purchase NHL content for its subscribers. But that deal could be reviewed now that CTV is under BCE’s control.

Quebecor is up nearly 50 percent in 2010, and it faces similar problems negotiating with content providers that could plague Telus. The stock’s rally this year and the prospect of rising content costs make Quebecor a hold.

Rogers Communications (TSX: RCI/B, NYSE: RCI) is Canada’s largest wireless carrier. The company recently bought Atria Networks LP, which operates a fiber-optic network in southern Ontario, for CAD425 million. Rogers’ goal is to broaden its data-services offerings to business customers. Rogers owns content via Citytv and Sportsnet

Rogers Wireless and BCE unit Bell are both testing high speed wireless networks that both companies hope will make their customer experience similar in terms of data speed to being on the Internet at home. Rogers has made launching its high-speed wireless network it the lynchpin of its branding strategy.

It has also teamed with Montreal-based Astral Media (TSX: ACM/A, OTC: AAIAF), a broadcaster of premium pay and specialty television services, to get Rogers’ customers access to channels such as HBO Canada, the  Family Channel and Playhouse Disney. Customers will be able to view this content anywhere, around the clock, and virtually through any visual medium.

Astral, by the way, could be the next content morsel digested by one of the major telecoms. Rogers Communications is a buy up to USD40.