New wireless subscribers boost BCE revenue
Company increases spending as ban on cancellation fees after two years takes effect
BCE Inc. has topped second-quarter revenue forecasts on solid wireless subscriber growth in the wake of regulatory changes that put millions of cellphone contracts up for grabs.
The Montreal-based communications giant on Thursday said it added 61,033 net postpaid wireless subscribers in its June quarter, versus 24,000 for leading carrier Rogers Communications in the same period and the consensus estimate for 59,600 new subs.
Net income was up 25 per cent to $759 million, or 90 cents per share, versus $606 million, or 78 cents, in the same period last year.
The income figure includes $94 million from the sale of BCE’s 50per-cent stake in retail business Glentel to Toronto-based Rogers, as well as contributions from full ownership of eastern Canada unit Bell Aliant. Operating revenue was up 2 per cent to $5.3 billion, just ahead of the $5.1 billion consensus forecast.
A $64 million year-over-year increase in spending to retain wireless customers, however, squeezed operating profit margins. The net loss of postpaid wireless customers, or churn, was also greater than forecast, although average revenue per wireless account rose 5.3 per cent as data use soars.
“We again took market share from the largest wireless carrier in the country,” chief executive George Cope said on an earnings call in reference to Rogers, “. . . so we’re really pleased with the results.”
Wireless carriers are stepping up spending on subsidized phones and discounted packages to lure new customers and retain existing clients in the wake of CRTC changes that banned cancellation fees on wireless contracts after two years. The changes in force since June allow consumers to abandon the three-year terms that had been the norm.
This year, as many as 40 per cent of all wireless contracts will expire around the same time, with the socalled double cohort of two-year and three-year cancellations expected to have peaked in the second quarter.
BCE’s retention spending increased 22.7 per cent in the period versus 11 per cent for Rogers, as CEO Guy Laurence focuses on increasing the value of each wireless account.
Postpaid churn was up marginally year over year as of the second quarter, but Rogers’s average revenue per user was ahead by about 4 per cent.
“Importantly, there wasn’t a significant spike after the start of the double cohort,” Laurence said during Rogers’ second-quarter call with analysts in late July.
Bell said its customer retention costs rose to 12.9 per cent of wireless service revenue in the quarter from 10.1 per cent a year ago. The cost of acquiring wireless subscribers increased 7.7 per cent to $434 million.
Barclays analyst Phillip Huang said he expects retention spending to remain elevated in the second half, but said BCE is positioned to gain more market share in wireless and fixed line phone services.
“We’ll definitely see a little lift in retention the second half of the year and we’ll be able to absorb that with- in the revenue growth we’re seeing on wireless,” Cope said on the earnings call. He added that an economic slowdown in Canada has created weakness in BCE’s business services segment, but any impacts on consumers where not apparent in the quarter.
Bell Media reported revenue of $740 million, a 2.8-per-cent decrease over last year, as advertising was hit by the loss of NHL playoff broadcast rights on specialty sports services TSN and RDS, increased competition in social media and continuing softness in the conventional TV market.
Bell added 18,600 net Internet service subscribers and 50,000 customers to its Internet Protocol Bell Fibe television service. It lost nearly 34,000 satellite TV service subscribers, but said its new CraveTV streaming service finished the quarter with 730,000 customers.
Bell also said about 1.3 million households in Ontario and Quebec can sign up for the higher-priced Bell Gigabit Fibe service with Internet speeds of up to one gigabit per second starting Monday.