TV, internet outshine wireless for Telus
New clients in wired business top estimates
Telus Corp.’s wired businesses outshone its wireless results in the second quarter, with executives crediting investments in fibre connections for higher demand for internet and television services and better customer retention.
The Vancouver-based company reported Friday wired business revenue of $1.57 billion for the three months ended June. 30, up 7.1 per cent from the same period last year thanks to the addition of 29,000 internet customers and 15,000 TV customers. The influx beat analysts’ expectations of 15,000 and 4,000 new customers, respectively.
Revenue in its wireless business rose at a slower rate of 3.6 per cent to $1.94 billion. Telus added 87,000 new customers, but average billings per user edged up just 0.6 per cent to $67.24. While the subscriber volume met Bay Street’s predictions, Telus fell short of its top competitors, with Rogers Communications Inc. and BCE Inc. each adding 122,000 wireless subscribers in the period.
Still, overall revenue increased 5.3 per cent in line with analysts’ predictions. Profit was flat at $390 million or 66 cents per share.
The outperformance for wired services caught analysts’ attention since mobile operations across the industry have stolen the spotlight in recent years as revenue continuously climbed due to increased data usage and higher smartphone adoption.
On a conference call with analysts, Telus chief executive Darren Entwistle said the momentum in highspeed internet and TV sales shows the success of building fibre-to-the-premises connections. Fibre customers, he said, require fewer technician visits, call customer service less frequently, spend more money and have a lower churn rate, meaning they’re less likely to ditch Telus in any given period.
As such, Telus, which is known for an industry-low churn rate of 0.83 per cent on the wireless side, will focus on customer retention and churn in the wired business, Entwistle said.
On the wireless side, he expects moderated revenue growth to continue due to competition fuelled by larger data buckets and extra gigabyte promotions that he described as “not just healthy, but bordering on the irrational.”
“This is the new normal,” he said.
He pointed to “extremely aggressive” data promotions in 23 of the first 26 weeks of the year as proof of the competitive intensity between the Big Three, adding it would be wrong to conclude the pressure is entirely from newer entrant Freedom Mobile. He cautioned against diluting the value of data too quickly.
“These larger data buckets and promotions risk prematurely consuming the major capital investments industry is making in spectrum and network capacity and coverage,” Entwistle said.
He downplayed the gap between Telus’ wireless subscriber additions and those of its two largest competitors, stating Telus cares more about adding high quality subscribers who will stick around for higher lifetime revenue per customer.
“Don’t judge our loading performance by a quarter,” he said. “There have been a lot of loading ebbs and flows over the years… many, many times we’ve been in the loading leadership position.”
Analysts agreed Telus faced heightened competition in wireless. Desjardins analyst Maher Yaghi noted that industry-wide average billings per user growth is declining slightly faster than expected.
“Losing momentum on wireless average billings per user growth could put a damper on future earnings growth for all participants,” Yaghi noted to clients.
Still, Telus posted a “standout” performance in internet and TV, Barclays analyst Phillip Huang noted to clients. This reflects the advantage of fibre-to-the-premises connections, he said.
Telus also disclosed additional information about Telus International, its contact centre business. TI surpassed $1 billion in annual revenue, Entwistle said, adding that it expects to have best-in-class margins of 12 to 15 per cent in the next year.
Telus also revealed plans to sell Telus Garden, its downtown Vancouver headquarters that it built in partnership with Westbank Corp., for $170 million. Telus plans to donate $120 million in proceeds from the deal to a charitable fund. It will donate a lump sum of $100 million in August, with the remainder given over 10 years.
‘THERE HAVE BEEN A LOT OF LOADING EBBS AND FLOWS OVER THE YEARS.