BCE Inc. has pushed past what chief executive officer George Cope called “the new competitive intensity” in the Canadian wireless sector to post solid fourth-quarter earnings.
Bell posted a 25-per-cent boost in profit on Thursday as it reported earnings that either beat or were in line with analysts’ expectations.
The company also released a healthy outlook for 2011, with revenue growth between 1 and 2 per cent and adjusted earnings per share of between $2.90 and $3 as its wireless unit benefits over the coming year after absorbing the steep costs of acquiring customers in 2010.
Profit in the quarter rose to $439-million and earnings per share of 58 cents, compared to $350-million and 46 cents last year. Overall revenue was up slightly, growing 0.7 per cent to $4.683-billion from $4.65-billion, but revenue in the wireless division was up more than 8 per cent as the Bell Mobility unit continues to erode Rogers Communication Inc.’s lead in the Canadian wireless market.
The solid earnings reflect Bell's evolution from a company of wired phone and Internet networks to a modern giant of advanced smart phones, iPads and high-end TV service. As some of Bell's old core businesses mature or decline, it has more than offset the losses by pushing hard into the profitable wireless sector.
Bell added slightly more than 156,000 new premium wireless customers, the best fourth-quarter growth since 2002, the company said. It also upgraded nearly 400,000 customers to more expensive phones and plans.
“It was another exceptional quarter of wireless activations,” said Siim Vanaselja, BCE's chief financial officer, on a conference call with financial analysts.
However, that strong subscriber growth pinches margins in the short term as the phone company subsidizes customers’ expensive new devices.
As well, the number of new subscribers dropped by about 28 per cent, to 116,782, and the less-profitable prepaid clients, who use top-up cards, declined after an increase last year. The number of wireless customers who left the company – known as “churn” – also increased to 1.5 per cent from 1.3 per cent among higher-end customers, and to 3.6 per cent from 3.2 per cent for the less- lucrative prepaid clients.
Both of these negative trends are a result of more options in the marketplace.
“There's no doubt there's a new competitive intensity,” Mr. Cope told analysts, noting he thought the cost of keeping customers as they upgrade was going to increase. “We need to move a little more aggressively than we have in the past.”
Wireless data, on the other hand, was a strong addition to earnings this quarter, with revenue from it increasing by 38 per cent – roughly in line with what other major wireless companies are seeing in Canada. That helped offset the industrywide declines in voice revenues, as people talk less and text and e-mail more.
The results and the company's focus demonstrate that for top-end providers, such as Bell, the true growth is still in smart phones and data. But there were short-term concerns from financial analysts that device subsidies would squeeze margins, as they have at Rogers.
“Heavy wireless customer growth and higher acquisition costs were evidently a big pressure on wireless margins this quarter,” RBC Dominion Securities analyst Jonathan Allen wrote in a note to clients.
On the conference call, Mr. Cope was grilled about the “usage-based billing” debate – which involves the federal telecom regulator’s recent ruling on how companies such as Bell lease their networks to smaller Internet service providers (ISPs) – and whether there was a possibility of a negative impact on future data revenues.
Mr. Cope said his interpretation of Industry Minister Tony Clement’s comments – Mr. Clement has said he will overturn any decision that comes back from the regulator’s formal review process without radical changes – is that there will be no material impact on Bell’s financial results. However, Mr. Cope added, “There's always risk.”
Later on Thursday, Bell’s senior vice-president for regulatory affairs, Mirko Bibic, appeared in a similar capacity before the industry committee in Ottawa in front of a hostile group of MPs who had gone as far as to ask representatives of the smaller ISPs, in earlier testimony, for questions they should be asking Mr. Bibic.
Mr. Cope was also asked about an embarrassingly timed glitch in Web-based software that allows Bell's users to calculate how much data they've used, so that they don't incur extra-data charges. Because of the error, which was inflating some customers' Internet usage, Bell took the service down for all of its users. Mr. Cope said the false readings had affected around 2,700 Internet customers, and that each has been contacted.