Pandemic’s costs will linger for two years
Telecom company will suffer financially for at least two fiscal years, CEO says
The COVID-19 pandemic took a $10.7-million chunk out of Sasktel’s net income for 2019-20, and the company is bracing for a “significantly negative” impact in the current fiscal year.
Doug Burnett, Sasktel’s chief executive officer, said the only question is how bad it will be. He cited the pandemic’s toll on customer spending, as well as efforts the company made to protect customers by waiving data overage charges and deferring interest payments on bills. He said the hit has already been “very significant.”
“The bottom line is this will have a negative impact on our financial results this year — that I’m sure. The extent to which that will come home to roost is still to be determined,” he said during an online conference with reporters on Wednesday, as the company delivered its 2019-20 annual report.
Burnett said that could force the company to pare back the amount of money it pays into provincial coffers through dividends in 202021, but will not reduce capital spending to upgrade the network.
Sasktel failed to meet its net income target in 2019-20. The company made $119.8 million in profit, down from $136.8 million the year before.
One of the main reasons for the shortfall was a $10.7-million writedown to the value of the phone book business, as businesses are expected to spend less on print advertising in the yellow pages put out by Sasktel subsidiary Directwest. The annual report blamed that on COVID-19.
Don Morgan, minister responsible for Sasktel, didn’t brush aside that loss. But he still framed the year as one of “strong financial results” for Sasktel.
Revenue of about $1.28 billion also fell short of the company’s goals, with the report citing fierce competition on wireless pricing and changing consumer behaviour. About 25,000 customers cut their land lines over the 2019-20 fiscal year, contributing to a $20.9-million drop in Sasktel’s legacy revenues. That’s almost 10 per cent.
“I’m astounded by the number of people that have cut their land lines,” said Morgan. “But I think it will be made up for in other services that are being provided.”
Burnett said cord cutting has followed a steady trend over the previous three to four years. He said Sasktel has always succeeded in replacing that revenue through growth in internet and wireless. He believes that will continue.
Wireless data usage was up more than 20 per cent in 2019-20, and broadband internet connections grew by 16,152 customers. That helped boost revenues by $10.9 million for wireless and $16.1 million for internet, maxtv and data, more than making up for the land line losses.
Sasktel’s salary, wages and benefits expense was down $8.8 million compared to the year before. That was partly related to salary savings of about $2 million from the 17-day Crown sector strike in the fall.
The strike also had an impact on the way employees feel about the company, with Sasktel’s employee engagement score falling seven points. Burnett accepted that the strike played a role.
“We do believe that the results were impacted by the fact that we had a labour disruption. That’s fairly natural,” he said.
“Since the day the employees came back, we have had a very focused effort on trying to put any ill will associated with that strike behind us.”
There was also a reduction in full-time equivalent positions, which Burnett put at about 150 to 175. He said reductions will continue this year.
At the beginning, the pandemic kept about 90 per cent of employees working remotely. Many have started heading back to their offices; Burnett said about 50 to 60 per cent have returned.
Sasktel spent $262.9 million on capital investments over 2019-20, including $63.8 million for fibre connections and $47.5 million for LTE and Wi-fi. Investments will continue this year, and could even accelerate, as Sasktel looks to play a role in the province’s economic stimulus spending.
The company is pushing forward with its plans to bring 5G technology to the province. It has still not chosen a vendor, though Morgan has previously indicated that controversial Chinese supplier Huawei is probably out. It is expected that the rollout could be delayed for as much as a year.
Burnett noted that Sasktel lost about $600,000 per month as it waived overage charges during the early stages of the COVID-19 pandemic. The charges resumed in early June. Sasktel noticed some “unexpected behaviour” as a result.
“Customers who had maybe larger plans then elected to take cheaper plans, plans that provided less data, simply because it didn’t matter whether you went over a 25-megabit plan or a 50-megabit plan, there was no additional charge,” said Burnett.
“As the data overage is now back, charges are back on, those customers are generally migrating back to the plans that they truly need.”
He said Sasktel hasn’t noticed any major changes in data usage in the month since, though it might be too early to tell.