Wire­less giants amassed 100,000-plus sub­scribers each dur­ing lat­est quar­ter

Telus still trails larger in­dus­try ri­vals, but posts big gains and raises div­i­dend

Vancouver Sun - - FINANCIAL POST - EMILY JACK­SON Fi­nan­cial Post ejack­son@na­tion­al­post.com

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.

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. DAR­REN EN­TWISTLE, Telus Corp. CEO

PETER J. THOMP­SON/NA­TIONAL POST

Telus, which is in the midst of an ex­pen­sive in­fras­truc­ture up­grade, said it ex­pects to con­nect half of its foot­print to fi­bre-to-the-home con­nec­tions by early 2018. It says in­fras­truc­ture spend­ing will de­cline slightly as the up­grade is rolled out.

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