SHOMI EATS SHAW PROFIT
On right track despite ‘choppy’ quarter: CEO
Shaw Communications Inc. reported “choppy” firstquarter results Thursday despite its cable business faring better than analysts anticipated, posting a sharp drop in profit mainly due to a charge from shutting down video- s t reaming ser vice Shomi.
The Calgary- based telecommunications company reported profit of $89 million or 18 cents per share in the three months ended Nov. 30, down 59.2 per cent from $218 million and 43 cents per share in the same period last year.
It credited the drop to a $ 107- million charge from winding down Shomi, its joint venture with Rogers Communications Inc. The cable giants hoped to compete with the likes of Netflix, but closed the curtains on the two- year- old service in November, with Shaw narrowing its focus on wireless, Internet and a premium IPTV product using Comcast’s X1 set- top box. Shaw launched the product, called BlueSky TV, on Wednesday.
The lower income also reflects $ 80 million from discontinued operations, as Shaw sold its media division to Corus Entertainment last year. Shaw’s top executives took 20- per- cent voluntary salary reductions to reflect the sale of the media division, according to the company circular.
Shaw also missed expectations when it came to its wireless business, which it rebranded to Freedom Mobile from Wind Mobile this quarter in an attempt to get away from Wind’s baggage around customer- service issues and network problems. It added 9,400 subscribers, missing consensus expectations of 31,000 additions.
But CEO Brad Shaw told reporters that Shaw intentionally backed off its marketing efforts as it rolled out its new LTE- advanced network so consumers didn’t sign up for the old network, then needed to come back a month later to switch handsets and plans.
“We purposely slowed down,” Shaw said after the annual general meeting in Calgary. “We feel we’ve got good momentum and we’re excited about the new network.”
Shaw currently offers only two phones that operate on its LTE network, but expects to have eight to 10 choices in the next six months, Shaw said, adding he hopes to land Apple and Samsung devices this year. The company will further expand its wireless offering once it finished rolling out the LTE network, Shaw said in his speech at the AGM.
“We cannot overstate the importance of our wireless acquisition and the spectrum and expertise it contributes to our ability to deliver better connectivity to Canadians,” Shaw said.
Analysts expect the launch of BlueSky TV will help quell cable subscriber losses in the coming quarters.
RBC analyst Drew McReynolds, who described the quarter as “choppy” in a note to clients, chalked up low wireless subscriber growth to a combination of the transition to LTE and the Freedom brand, along with more competition.
Desjardins analyst Maher Yaghi said in a note to clients that he believes it would be best for Shaw to sell non- core assets such as ViaWest and Corus holdings to invest in wireless.
In a call with analysts, Freedom CEO Alec Krstajic said subscriber additions picked up in December so investors should expect a good recovery.
Shaw’s revenue and operating income were in line with Bay Street’s predictions and its cable, Internet and telephone subscription numbers were slightly better than expected.
It lost about 16,000 cable s ubscribers and 1 2, 000 phone subscribers, fewer than in this period last year and fewer than the 18,000 and 14,000 analysts expected.
Its satellite business fared worse with about 16,000 subscriber losses compared to about 13,000 last year and analyst expectations of 11,000.
Shaw reported stronger than expected gains in Internet subscribers, gaining 14,000 subscribers, topping the street’s expectations of 11,000 and nearly doubling the 8,000 additions l ast year.
Shaw credited last summer’s launch of a high-speed Internet product for driving growth. The company stated it’s on track to complete upgrades to its entire footprint by fiscal year end, and expects improved subscriber numbers from Wednesday’s launch of its BlueSky TV product and improvements to Freedom’s LTE- advanced network.
BlueSky TV will launch in Vancouver in a number of weeks and other markets by spring, a “relatively quick launch” the CEO believes will gain traction f aster than Comcast did when it first launched the product in the U. S. He said the positively differentiated product will help in “dust ups” in a market with aggressive price competition between Shaw and its main competitor, Telus Corp.
WE FEEL WE’VE GOT GOOD MOMENTUM.