Although oligopolies are often targets of populist political ire, as income investors it’s hard not to love the three giants that dominate Canada’s telecommunications landscape. After all, their “rational competitive environment,” as Morningstar puts it, has allowed for high yields and steady dividend growth.

Canada’s Big Three—BCE Inc. (TSX: BCE, NYSE: BCE), Telus Corp. (TSX: T, NYSE: TU) and Rogers Communications Inc. (TSX: RCI/B, NYSE: RCI)—have an average forward yield of 4.4% on top of dividend growth that’s averaged 9.4% annually over the past five years.

In fact, those numbers helped BCE and Telus garner the top-two positions in our Dividend Champions Portfolio, as evidenced by their weightings. Meanwhile, Rogers remains on our watch list until its earnings improve.

Though oligopolies can help entrenched firms extend their dominance over the long term, that very dominance can also create political risk.

Indeed, Canada’s ruling Conservative Party has repeatedly attempted to engender greater competition by creating set-asides for upstart mobile operators at government auctions of spectrum—the lifeblood of the wireless industry. Ottawa expects that the results of recent auctions will help lower the Big Three’s share of the wireless market to 75% over time, down from more than 90% currently.

This populist policy didn’t come out of nowhere. The cash flows that help power these firms’ payouts partly result from the fact that on average Canadians pay more for wireless service than consumers in many other developed countries.

Nevertheless, we wouldn’t bet against the Big Three.

They boast the considerable power of incumbency, along with the scale and financial strength to help ensure their continued dominance.

The latest example of this could come courtesy of Manitoba Telecom Services Inc. (TSX: MBT, OTC: MOBAF).

In May, this CAD2.3 billion company, which ranks a distant fourth in terms of market cap among Canada’s telecoms, announced the results of a comprehensive strategic review that examined why MTS had been performing so poorly.

In particular, management identified the firm’s struggling enterprise-oriented Allstream unit as one of the culprits behind its lackluster numbers and immediately implemented a reorganization by cutting 500 jobs, or about 25% of the division’s workforce.

The segment’s revenue has fallen every year since 2009, which is when the company started reporting numbers for the unit. At the same time, Allstream failed to reduce costs to help offset declines in revenue.

While new CEO Jay Forbes acknowledged that Allstream offers a “significant opportunity,” he also conceded that its risk profile is materially different from the company’s other operations and declared that “Allstream is not integral or strategic to MTS’s future.”

MTS tried to unload Allstream previously, back in 2013, but the Canadian government quashed the deal owing to national-security concerns—the potential buyer was a foreign investment firm.

Up for Bid

In late August, speculation heated up that, in addition to the Allstream unit, the whole company might be in play, with analysts tipping BCE as the most likely buyer.

TD Securities believes that following the divestiture of Allstream, “the stage will be set” for a sale of the rest of the company to one of the Big Three by mid-2016.

The bank’s analyst believes BCE would be the ideal candidate, since MTS’s remaining operations would be a “seamless and synergistic fit” for the firm, which has only a minimal presence in Manitoba, Canada’s fifth most populous province.

BCE currently has no wireline assets in Manitoba, and controls just 6% of its wireless market. And the company doesn’t actually own any wireless assets in Manitoba either. BCE’s share of Manitoba’s wireless market is dependent on a partnership with Telus, which allows its competitor to use its network in the province.

TD notes that BCE’s wireless unit added just 173,000 new subscribers last year, so acquiring MTS and adding its 500,000 subscribers to its customer rolls, would be a “rare opportunity” to add the equivalent of nearly three years’ worth of organic growth.

Should BCE pursue a bid that manages to overcome the objections of regulators, and TD believes it would with minimal concessions, the deal would be the latest in a series of prudent acquisitions that have proved accretive to cash flow.

With an Allstream carve-out likely and the entire firm possibly in play, shares of MTS have climbed 22.8% in Canadian dollar terms since their late-March low, but still trade more than 7% below their trailing five-year average.

Based on the consensus forecast, MTS currently trades just shy of full value. However, TD’s buy target, recently boosted to CAD33.00, includes a premium from a potential acquisition and is about 15.2% above the current share price.

Meanwhile, TD’s buy target for BCE, at CAD59.00, factors in the additional free cash flow that would result from acquiring MTS and is about 8.2% above the current share price. In addition to increasing its buy target last week, TD also raised BCE’s rating to “buy” from “hold.”

To be clear, TD’s sudden bullishness isn’t shared by all of its peers. Analyst sentiment currently tilts toward neutral, at 10 “buys” and 12 “holds,” while the consensus 12-month target price, at CAD56.94, is just 4.3% above the current share price.

But even if a deal doesn’t happen, BCE is still expected to grow adjusted earnings per share by 6% to 7% annually through 2017, along with further dividend growth of 3% to 5%. BCE is our top holding in the Dividend Champions Portfolio and a buy below USD44/CAD58.