Telus leads rivals in new wireless clients
Telus still trails larger industry rivals, but posts big gains and raises dividend
Telus Corp. gained more wireless, internet and television subscribers than Bay Street expected in its latest quarter, continuing the positive momentum across the entire industry as Canadians demand more data and faster connections.
Canada’s third-largest telecommunications company reported Thursday that it added 115,000 high-value postpaid wireless subscribers in the three months ended Sept. 30, beating analysts’ expectations of 93,000 additions.
While the Vancouver-based telecom continued to trail its top rivals Rogers Communications Inc. and BCE Inc. — they added 129,000 and 117,182 wireless subscribers, respectively — its results sealed yet another strong quarter for the $23.2-billion wireless industry.
Wireless services remain the focal point for communications giants given growth levels that repeatedly surprises analysts. The Big Three added 361,182 subscribers in this quarter compared to 308,265 in the same period last year.
Smaller players Videotron and Freedom Mobile, owned respectively by Quebecor Inc. and Shaw Communications Inc., also boosted subscriber numbers, with Videotron topping 1 million subscribers.
For Telus, higher revenue from wireless services helped push its profit to $370 million in the third quarter, up 4.2 per cent from $355 million the year before. Operating revenue increased 4 per cent to $3.366 billion and adjusted earnings (excluding restructuring and other costs) rose 4.4 per cent to $1.232 billion.
Telus raised its dividend for the second time this year to 50.5 cents per share, a growth of 7.1 per cent for the year. The financial results, including the dividend boost, were largely in line with analysts’ expectations. Adjusted earnings per share of 66 cents, however, missed average estimates of 69 cents per share.
Despite increased competition from Calgary-based Shaw Communications Inc., its primary competitor in Western Canada, Telus also topped analysts’ estimates for internet and TV subscriber additions. It added 19,000 internet customers and 9,000 TV customers, compared to predictions of 13,000 and 8,000.
It lost slightly fewer land line connections than anticipated, losing 20,000 customers compared to predictions of 23,000 losses. This follows similar trends at Bell and Rogers, indicating more people are holding onto their home phones than expected. Companies credit bundled service deals for slowing cord cutting.
Telus, which is in the midst of an expensive infrastructure upgrade, said it expects to connect half of its footprint to fibre-to-thehome connections by early 2018. It intends to spend less on capital expenditures next year, releasing guidance of $2.85 billion in 2018 down from an anticipated $3.0 billion this year and $2.97 billion in 2016. That marks the lowest infrastructure spending since 2010.
In a conference call with analysts, CEO Darren Entwistle confirmed Telus’ capital expenditures peaked in 2017 for its generational investment in fibre, which will ultimately replace copper wires.
“Look how long we’ve earned a return from copper. If we can earn a return on fibre even half as long as we’ve done on the copper front, that’s going to generate a lot of returns for many, many years,” Entwistle said.
His goal is to finish two-thirds of the fibre build by the end of 2019 and to keep adding services that require high-speed connections such as home security, home automation or health services. This will make up for losses of land lines, which have high profit margins.
“If on the fibre front we can get a nice voice pull through on the back of our high-speed internet access and TV connection, that’s gravy for us,” he said.
Desjardins analyst Maher Yaghi noted the capital expenditure guidance is a “significant decline” since it reverses the trend of increased spending. The change is expected to improve free cash flow next year.
It was a strong wireless quarter overall, but Telus continued to “deliver on rising expectations,” RBC Capital Markets analyst Drew McReynolds noted to clients.
Telus topped its rivals when it came to customer retention. It reported an industry-leading churn of 0.86 per cent, the rate of customers that cancel their service in a given period.
Entwistle touted Telus’ relationship with Apple Inc., pointing to strong demand for the iPhone X and previous generations going into the holiday shopping season.
He also shed some light on Telus International, its outsourcing division that recently made two significant acquisitions of Xavient and Voxpro. It “was not a great year” for the unit due to problems with exchange rates and two of its clients, but Entwistle believes the acquisitions will help grow the business in 2018.