Shaw adds subscribers, but falls short on targets
Officials laud bargains on new product line
Shaw Communications Inc. added cable television subscribers for the third quarter in nearly seven years, with executives crediting sweet deals on its new product offerings for finally delivering subscriber growth.
Calgary- based Shaw reported Wednesday it gained 13,000 net new cable subscribers in the three months ending May 31, crushing analysts’ estimates of 1,600 additions and reversing the trend of TV losses for the first time since fiscal 2010. It also added 20,000 Internet customers, toppling estimates of 3,600.
The long-awaited gains in cable, however, came at the price of dampened revenue and tighter margins due to increased marketing costs and promotional discounts for BlueSky TV, the Comcast X1 platform launched in January, and its high- speed Internet product.
But the bundled deal for the two products provided price certainty and value that enticed new customers and “notably reduced” disconnections, CEO Brad Shaw said in a conference call with analysts. Both products are now available across Shaw’s entire footprint, which Shaw believes leads to a competitive advantage. Its main competitor, Telus, is still racing to build ultrafast fibre connections to consumers’ homes.
Even though the promotions ate into margins on the wired side, Shaw’s wireless business Freedom Mobile helped push its profit from continuing operations up to 33 cents per share from 14 cents per share in the same period last year. Shaw’s overall financial results were in line with Bay Street’s expectations.
All eyes have been on Shaw’s wireless play since it announced earlier this month plans to s ell its data centre business ViaWest for $ 2.3 billion to invest in wireless. It inked a $ 430- million deal to buy spectrum from Quebecor Inc. and promised an additional $ 350 million to deploy it in existing operating areas in Alberta, B. C. and Ontario. President Jay Mehr subsequently told investors that Shaw’s goal is to have “millions and millions and millions” of wireless subscribers.
Yet Freedom added only 20,000 new subscribers compared to analysts’ predictions of 28,000, bringing its total up to 1.1 million customers. But average revenue per user ticked up to $37.05 from $ 36.30 in this period last year, reflecting customers moving to premium handsets on the new LTE network Shaw is deploying ahead of schedule, Mehr said on the call Wednesday.
The long-term plan is to attract higher-value customers to its better network, Mehr said, adding that growing its customer base on the older 3G network “isn’t really a big part of that story.”
Citi analyst Adam Ilkowitz questioned when Shaw expected to see mobile subscriber growth given the ambitious goals it stated recently.
“It’ll be another year or so until we get all of the pieces in place that we’ll be able to be a meaningful player in some of the spaces that we’re not a meaningful player in today, but we’re a company that’s prepared to make those investments,” Mehr said.
“There is no doubt for us that there is a space in Canada … for a company worried about the consumer, worried about the opportunity to do things a little bit differently.”
While Freedom’s handset ecosystem doesn’t yet include iPhones — they aren’t compatible with its existing Band 66 spectrum — Mehr is optimistic Apple Inc. will create a product that works on its network, though the timing remains a mystery.
Analysts reacted positively to the results.
“The Street should be pleasantly surprised by the subscriber beat in cable,” Desjardins analyst Maher Yaghi wrote in a note to clients.
BlueSky TV’s success could also be seen as positive for Rogers Communications Inc., he noted, as it plans to launch the same video platform in 2018.
RBC analyst Drew McReynolds noted to clients he was encouraged by the renewed traction in the consumer market, though he expects margins to remain under pressure as BlueSky TV ramps up. He expects volatility in wireless for the next six to 12 months as Shaw works to deploy spectrum, upgrade its network and expand its handset offerings.