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By Alastair Sharp and Euan Rocha
TORONTO, August 1 (Reuters) - Canada's three biggest telecom firms, keen to keep shareholders happy with fat dividends, are breaking into businesses ranging from banking to healthcare to drive growth as they run out of expansion options and shy away from overseas purchases.
BCE Inc, Rogers Communications Inc and Telus Corp dominate their industry in Canada but with landline connections on the wane, cable TV losing out to online portals and wireless growth slowing, Canada's telecom giants are pushing into uncharted businesses.
Some of the moves - such as Rogers' C$5.2 billion-deal ($4.8 billion) for exclusive National Hockey League broadcast rights - may bring a rapid pay-off. Others, like Telus' bid to dominate healthcare services, are gambles that may not pay off for many years.
"They're all quite different bets," said Iain Grant, head of Seaboard Group, a telecom consultancy. "I was quite impressed by the audacity of Rogers making the bid for NHL in Canada," he said, pointing to a likely immediate boost to earnings as more live sports content is consumed on mobile devices.
Along with NHL rights, Rogers has also obtained a banking license as part of a foray into mobile banking and has launched its own standalone credit card, without backing from another financial institution.
"The bank stuff is unique," said Canaccord Genuity analyst Dvai Ghose, noting the baby steps into financial services offers only marginal upside even if enough customers ultimately use their phone as a credit card.
Rogers hasn't disclosed the financial performance of its new banking arm, which doesn't have retail branches or take deposits.
Rogers and BCE also jointly control a sports empire that owns the NHL's Maple Leafs as well as professional basketball, baseball and soccer teams in Toronto.
Meanwhile, No. 3 Telus has sought growth in the health sector with remote diagnosis and patient monitoring, pharmacy benefits and medication management - helping patients remember to take pills, order refills, or file insurance claims, and helping doctors share x-rays and other data with colleagues.
"What Telus is doing, if they can pull it off, is a lot closer to their core business than, shall we say, running the Toronto Maple Leafs," Seaboard's Grant said, adding that it could be years before it is seen as a core part of the company.
"If you look at Telus a decade from now you might say it was obvious they were moving their revenue stream from three percent healthcare to 30 percent healthcare, but it isn't quite so obvious today," he said.
Telus Health's revenue of C$550 million in 2013 accounted for less than 5 percent of the company's overall revenues.
Telus has poured over C$1 billion ($926 million) into health solutions over the last six years and it is now Canada's biggest provider of electronic medical records.
The business still only accounts for a fraction of its overall capital spending in the last six years of almost C$14 billion. Telus spent C$2.1 billion in 2013 on telecom infrastructure alone.
Last week, BCE made a C$3.95-billion offer to take private its regional affiliate Bell Aliant, in which it owns a 44 percent stake.
The offer highlighted the limited options available to the three major telcos, BCE in particular, which are trying to boost their bottom lines and maintain the all-important dividend to shareholders.
"For BCE to do this deal signals just one thing - it says we can no longer grow our business as well as we used to, otherwise we would have just kept on reinvesting in our business," said John Goldsmith, deputy head of equities at Montrusco Bolton, an investment manager which owns positions in some of the telcos.
In a similar move that underscored the domestic growth challenge, regional cable and telecom company Shaw Communications Inc on Thursday said it would pay $830 million to buy U.S. data center services provider ViaWest Inc.
For BCE, the Bell Aliant deal follows several big purchases to create and then enlarge its media arm: it paid C$1.3 billion for CTV in 2011 and a C$3 billion deal for Astral Media in 2012.
Questions over viable growth options - and the dividend growth story - have begun to affect the stocks. Telus is off 10 percent since a mid-June all-time high. BCE stock also hit a record last month but has since slipped 3 percent. Shares in Rogers are down almost 20 percent since a peak in early 2013.
The three have posted about 10 percent annual dividend growth over the past three years. That is estimated to slow to between zero and 4 percent by Scotiabank analyst Jeff Fan, who also expects share buybacks to be trimmed.
With the government determined to boost competition and clamping down on takeovers by the three majors, especially in wireless, expansion via acquisition is an unlikely path.
Ottawa last year openly encouraged U.S. telco Verizon to enter the market as a fourth player and the government also ordered telcos to sell wholesale access to their networks at lower prices than they currently do.
"We sold the telcos, mainly because the government is regulating the rates down," said Greg Taylor, a portfolio manager at Aurion Capital Management. "The competitive threat is only going to get worse, and it's probably time to step aside."
Going abroad also seems to be off the table. Long accustomed to fat margins and a comfortable marketplace, Canadian telcos are reluctant to venture overseas, due to the prospect of heavy investments in competitive markets.
Asked about foreign growth opportunities, new Rogers CEO and former Vodafone executive Guy Laurence said last week that the company is "absolutely not focused on that."
"Why on earth would I expand outside the borders?" he asked rhetorically, calling Rogers "one of the best train sets in the world." ($1 = 1.0804 Canadian Dollars) (Additional reporting by Allison Martell; Editing by Amran Abocar and John Pickering)