Telus successfully dials down costs
Telecom company hikes dividend while building fibre optic network
Telus Corp., one of Canada’s big three telecommunications companies, posted earnings that topped analysts’ expectations, signing up significantly more wireless customers than expected despite tough times in Alberta.
While revenue was slightly lower than analysts expected, operating costs dropped to help boost the bottom line to $416 million in the second quarter (adjusted to reflect restructuring costs and wireless spectrum gains), 2.2 per cent higher than adjusted net income of $406 million in this period last year.
The Vancouver- based company’s performance improved enough for it to raise the lower end of a handful of 2016 target forecasts, announce plans to speed up its fibre deployment by investing $200 million more in broadband infrastructure this year and boost its quarterly dividend to 46 cents per share, an increase of four cents from last year.
Telus is accelerating its investment in its fibre optic network — cables that deliver ultra-fast Internet and 4K television — because of currently low interest rates and the scope of fibre’s applications for Internet speeds, growing data demand and upcoming 5G wireless networks, CEO Darren Entwistle said in a conference call with analysts Friday. It’s a consumer driven decision, he said, as they’ve responded well to the higher speed service.
Telus plans to cover its footprint in Western Canada and eastern Quebec with fibre within the next five years — it’s currently connected to 830,000 households with a goal of one million by the end of 2016 — and is aiming for a penetration rate of 30 per cent, Entwistle said. When an analyst questioned whether the rate was too low, he said it’s what is enabled in the home that drives returns.
“If we can go to two sources of revenue within the home to five sources of revenue in the home because of that fibre connection … then man oh man, I’m getting a greater bang on my buck,” he said.
The investment in fibre over traditional copper wires comes as Telus and Shaw Communications Inc., which delivers high speed Internet over cables, battle for Internet customers in Western Canada. Telus beat Shaw this quarter with 18,000 subscriber additions compared to Shaw’s loss of 8,760 customers, but Shaw announced a deeply discounted high-speed Internet offering after posting its results.
Telus’ Internet and television subscribers beat analyst estimates but were down from last year, reflecting economic troubles in Alberta. Telus added 4,000 fewer Internet customers than last year and 13,000 television customers, down from 17,000 last year. It lost 20,000 telephone subscribers, fewer than expected.
But the highlight for Telus was its wireless results. It added 61,000 postpaid wireless customers — more than 20,000 higher than analysts expected, but fewer than the 76,000 added in this period last year. The adds trailed slightly behind competitors BCE Inc. and Rogers Communications Inc., which reported 69,848 and 65,000 new subscribers respectively this quarter.
Average revenue per user rose 1.4 per cent to $64.38, marking the highest among the big three and the 23rd consecutive quarter of growth for this metric, and blended churn dropped to 1.15 per cent.
Entwistle credited the strong wireless results to more data usage and a larger number of customers signing up for premium smartphones. Telus’ decision to notify customers when they’ve almost reached their data limits reduced the company’s costs by making customers happy and resulting in fewer inbound calls to its support centre, he said.
The higher-than-expected increase in wireless customers should ease concerns of market share loss after Bell and Rogers posted strong gains, Barclays analyst Phillip Huang wrote in a note to clients. RBC Capital Markets analyst Drew McReynolds said the in-line results should ease fears around growth and called the postpaid wireless additions a “positive surprise.”