BCE sees solid wireless growth as industry competition heats up

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As the wireless industry navigates a competitive summer that will test customers' loyalty, BCE Inc. reported solid growth in mobile subscribers in the second quarter, even as it is spending more to keep them.

BCE added 61,000 net postpaid wireless subscribers – who sign contracts and tend to pay more – beating analysts' expectations as the company appeared to grab market share from its largest competitor, Rogers Communications Inc.

Canadian wireless carriers are feeling the pressure of the so-called "double cohort," when two– and three-year contracts will expire at the same time because of a regulatory change banning longer terms. The industry was expected to spend heavily to keep customers with promotions, and BCE said the cost of retaining and attracting subscribers spiked by $64-million year over year.

Perhaps as a result, BCE's churn rate in postpaid subscribers – which measures how many cut their service – rose to 1.23 per cent, worse than analysts predicted. Yet the telecommunications giant's results were buoyed by a 5.3-per-cent bump in average revenue per user, compared with a year earlier, driven by customers who are gobbling up more mobile data.

"We'll definitely see, I think, a little lift in the retention spend in the second half of the year, and we'll be able to absorb that within the revenue growth we're seeing on wireless," George Cope, BCE's president and chief executive, said in a conference call with analysts.

BCE owns 15 per cent of The Globe and Mail.

For the second quarter, which ended June 30, BCE reported net earnings of $759-million, or 90 cents per share, up 25 per cent from $606-million, or 78 cents a share, in the same quarter last year. The increase was due largely to BCE's full takeover of Bell Aliant, and to a $94-million gain from selling a 50 per cent stake in the Glentel wireless retail business to Rogers.

Operating revenue was nearly $5.33-billion, up 2 per cent from the prior year, and slightly ahead of analysts' expectations.

"Overall, we consider this a mixed quarter with a slight positive in wireless, but in our view, not enough to change consensus earnings or the market's investment thesis," Greg MacDonald, an analyst at Macquarie Capital Markets Canada Ltd., said in a research note.

BCE's stock price was fairly flat in trading on the Toronto Stock Exchange Thursday morning.

After announcing in June that it plans to spend more than $1-billion on a faster gigabit-per-second, fibre-based Internet service in Toronto, the company said Thursday it will roll the service out to more than 1.3 million homes in Ontario and Quebec on Aug. 10. It expects to add another 900,000 homes to the service by the end of the year.

"It's very clear to us, as we look out over the next five, 10 years, the market's going to demand these speeds, and so we have to start it now," Mr. Cope said. "Frankly, it's a matter of table stakes, from our perspective. That will be the business for broadband."

BCE also added 19,000 net Internet subscribers, about 1,000 better than than last year's second quarter, and 50,000 net television subscribers to its Bell Fibe IPTV service. It lost 34,000 satellite TV subscribers – a trend that's picking up speed as viewers switch to new fibre-based and cable offerings.

In July, BCE took a competitive hit when the Canadian Radio-television and Telecommunications Commission ruled that the country's large Internet providers must open up access to their latest-generation, fibre-based networks to smaller, independent players. On Thursday, Mr. Cope said BCE is "disappointed in the decision," but will work to pivot to the new rules before they come into effect, likely next year.

"We'll adjust our business model and investments as we have always done, based on the incentives or the barriers put in place by the CRTC's regulatory framework," he said.

Revenue in BCE's media business was down 2.8 per cent to $740-million, a larger decline than was expected. Advertising revenue continues to suffer in a soft market, exacerbated by Bell Media's loss of broadcast rights to the NHL playoffs, but cushioned by the popularity of the FIFA Women's World Cup this summer. The company also said it has 727,000 customers using its CraveTV video streaming service, out of 3.5 million homes that can access it – though it will be available to some 11 million households starting Jan. 1, 2016, when Bell opens access to CraveTV to anyone with an Internet connection.