Telus Q2 mixed: profit flat, wireless growth modest but wireline additions strong

Telus Q2 mixed: profit flat, wireless growth modest but wireline additions strong
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Telus Corp. surprised analysts with the strength of its second-quarter residential subscriber growth but its net income and adjusted earnings were flat compared with the same time last year as its wireless operations faced pricing challenges.

Western Canada’s largest residential phone company — which is also one of Canada’s three national wireless companies — said it had $390 million of net income attributable to common shares, up 0.3 per cent from last year.

Its adjusted earnings were up 0.5 per cent at $414 million or 70 cents per share, which was in line with estimates from Thomson Reuters Eikon.

Revenue was also in line with expectations at $3.45 billion, up 5.3 per cent from $3.28 billion in last year’s second quarter. Wireless network revenue was up 2.7 per cent to $1.5 billion, while wireline revenue was up 7.6 per cent to $1.5 billion.

But the wireless division — which faces more price competition since Shaw’s Freedom Mobile completed a network upgrade and began offering Apple iPhones for the first time last December — experienced slower growth than in previous periods.

Telus said its average monthly billing per user (ABPU), a new metric that’s been introduced alongside average monthly revenue per use (ARPU), was up a modest 0.6 per cent compared with the same time last year.

“This is the new normal — a moderated ABPU or ARPU environment — given what’s transpiring within the competitive landscape and, also, certain aspects as it relates to regulatory intervention,” Entwistle said.

In response to those factors, Telus is working to drive higher wireless network volumes as well as new sources of revenue, such as the Internet of Things, which refers to machine-to-machine or device-to-device communications.

“As the growth of sensors significantly outstrips the growth of smartphones, (that) is a key area for us,” Entwistle said.

In addition, there are a number of “micro cost efficiency improvements” that can have a positive effect at converting average revenue per user to higher average margins per user, he added.

Telus must also have complementary “macro cost efficiencies” including its supply chain as well as taking advantage of the opportunities to bundle wireless and wireline services.

“We’ve got lots of exciting opportunities to pursue in that regard,” Enwistle said.

“If you look at our results this quarter, I think they are indicative of the potency of driving growth holistically on a diversified basis across wireline and wireless.”

Analysts said they were positively surprised by the number of subscribers that Telus added to its wireline networks, which provide phone, internet and IPTV television services in western Canada and eastern Quebec.

In total, the company added 135,000 new wireless, high-speed internet and TV customers.

That included 87,000 net additions to its postpaid wireless service, an industry benchmark, as well as 29,000 high-speed internet subscribers and 15,000 Telus TV customers.

Barclays Capital analyst Phillip Huang described the Telus wireline subscribers as “the standout” for the second quarter and attributed the gain to deployment of fibre-to-the-home, which increases residential network speeds.

Internet additions were above the consensus estimate of 15,000, TV additions beat the estimate of 4,000 additions and the phone lines were down only 10,000 compared with the estimate of 20,000, Huang wrote in a commentary.

“Telus is currently the furthest along in its FTTP (Fiber To The Premises) program, and we believe it continues to enjoy a more stable competitive environment, relative to its peers in Central/Eastern Canada.” Huang wrote.

Meanwhile, Telus wireless net additions were close to analyst estimates, but Huang said the financial results “reflect that the pricing environment has become more competitive this year.”





Companies in this story: (TSX:T, TSX:SJR.B)

David Paddon, The Canadian Press

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