When Telus Corp. reports on Wednesday afternoon it will add the final few brush strokes to the picture that is emerging of the communications sector in the first quarter.
Rogers Communications Inc. and BCE Inc. ’s Bell Canada provided a mixed set of results over the last two weeks, but analysts expect Telus to deliver a solid performance.
All three players are relying on the booming wireless market to drive growth, offsetting the slowing or declining performance of older land-line services, including home phone connections and regular TV service.
Vancouver-based Telus enjoys a geographic advantage over its two rivals in the East because its regional cable competitor Shaw Communications Inc. decided not to build a wireless network. And both Telus and Bell have a cost advantage over Rogers because they split the expense of their shared wireless infrastructure across the country.
For these reasons and others, Telus shares trade at a significant premium to rivals. They are valued at almost 16 times earnings, compared with between 12 and 13 times for BCE and Rogers. After a 21-per-cent return over the last year, Telus shares appear to be priced for perfection, leaving management with little room for mistakes.
Analysts expect Telus to post overall profit growth of nearly 4 per cent, to $339.7-million, on sales of $2.65-billion, up nearly 5 per cent from a year earlier.
Wireless will continue to be the biggest driver of that growth. Phillip Huang, of UBS Securities Canada Inc., forecasts that average revenue per user (ARPU), a critical measurement, will edge up to $58.18. That would compare with wireless ARPU of $57.65 for Rogers (which was down 4 per cent in the first quarter) and $53.84 for Bell (up 4 per cent in the same period).
Beyond wireless, the market will be watching the gains made by Telus’ Internet Protocol TV (IPTV) service called Optik TV. The company has already reached its initial target of passing 2.2 million homes with its IPTV infrastructure, while Bell still faces significant expenses to hit its target of 3.3 million homes by the end of this year, says Dvai Ghose of Canaccord Genuity Corp.
IPTV is important to telecoms because it is usually sold as a bundle of services that can include high-speed Internet access, home phone and wireless. As such it’s an essential tool in offsetting the heavy losses in land-line connections that the phone companies have been suffering for years.
Analysts credit Bell’s IPTV for contributing to some of the pain at Rogers, which reported declines last month in virtually every aspect of its business. Telus, meanwhile, has acquired more than 500,000 TV customers, mostly at the expense of Calgary-based Shaw Communications. But those acquisitions have come at the cost of expensive promotional discounts and a pricing war with Shaw.
Even though Optik TV likely helped Telus boost land-line services revenue by 3 per cent last quarter, the price war probably helped push down earnings before interest, taxes, depreciation and amortization (EBITDA) for the division by 3 per cent, Mr. Huang calculates. He thinks that Optik subscriber growth slowed in the first three months of the year, even as Telus introduced new features, including the ability to watch the service on a laptop or smartphone.
Investors are hoping that the combination of steady wireless growth and the expanding success of Optik TV will allow Telus to keep increasing the cash flow that supports a healthy 4.1-per-cent dividend. Both BCE and Rogers offer higher payouts of 5.4 per cent and 4.3 per cent, respectively. But some analysts believe Telus now has the best flexibility to keep increasing its dividend.
Editor's Note: The date of Telus' earnings release has been corrected in the online version of this article.
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