Skip to main content

Shaw Communications Inc. predicts surging growth at its wireless business will continue – fuelled by the addition of the iPhone to its handset lineup, network upgrades, expanded distribution and low-cost monthly data packages – offsetting declines elsewhere as its cable division continues to bleed customers.

Shares of Calgary-based Shaw spiked sharply on Thursday after it reported its Freedom Mobile division added 93,500 new contract customers in the quarter ended Feb. 28, essentially doubling analyst estimates of 45,000 to 50,000, and marking a significant departure from its typical quarterly addition of about 30,000 subscribers. The company’s stock closed up more than 9 per cent or $2.25 a share at $26.42.

Canada’s fourth-largest carrier struck an agreement with Apple Inc. last year and began selling the iPhones directly to customers in December, offering large subsidies on the cost of the popular smartphone. And earlier last year, Freedom launched low-cost monthly plans for large data buckets and began improving its LTE (long-term evolution or 4G) network by repurposing airwaves previously used for 3G service.

The country’s three national carriers – Rogers Communications Inc., BCE Inc. and Telus Corp. – took notice and launched a price war for five days over the holiday season. Shaw admits it lost some business during those days, but says that did not slow Freedom’s overall momentum, which it hopes to spur even further with expanded retail distribution. It said on Thursday it will begin selling handsets and wireless service at 100 Loblaws grocery store locations this month, the first time it will be on the same retail shelves as its larger competitors. Executives said they hope other retailers will soon follow as the company gains credibility in the market.

“This is not a single-quarter result,” Shaw president Jay Mehr said on a conference call. “Wireless is the single biggest growth opportunity at Shaw. We don’t think of it as a vehicle to stabilize [the cable business]. We think it is the fundamental creator of shareholder value for our future.”

Later, on the subject of the Big Three’s higher prices for large data buckets, he said: “We hit a market where consumers felt mistreated by the way data was being offered by our competitors.”

Freedom Mobile operates in British Columbia, Alberta and Ontario and the company says 70 per cent of its business comes from the eastern province, where it has recently finished swapping out airwaves to improve service. Shaw does not yet disclose the rate of customer turnover, or churn, for wireless, but Paul McAleese, Freedom’s chief operating officer, said network improvements helped it hang onto far more subscribers than usual.

Wireless revenue spiked by more than 100 per cent to $290-million, compared with $141-million in the same period last year, but Shaw reported “significantly higher equipment sales,” which put pressure on its profit margins in the business. Operating income before restructuring costs and amortization was up just 24 per cent to $36-million.

Barclays Capital analyst Phillip Huang called Thursday’s report “the inflection point for wireless,” adding that he believes the market is undervaluing the growth potential “partly due to near-term execution issues.” He upgraded his rating on the stock to overweight (buy) and increased his share price target to $32 from $29.

Yet, overall revenue at the company – which includes both its wireless and cable divisions – increased by only 12 per cent to $1.355-billion and operating income declined slightly to $501-million, as Shaw continues to lose television and home phone customers and added fewer new internet subscribers than at this time last year.

The company lost 18,115 cable TV customers versus 11,604 in the second quarter of 2017 and added only 5,638 internet subscribers, compared with 17,322 last year.

In early 2017, Shaw launched BlueSky TV, an internet-based platform using technology licensed from Comcast Corp., which initially slowed subscriber losses. But executives now say the product has not shown the same benefits that it did for Comcast – which was able to reverse the trend of losing TV subscribers – and, in recent months, Shaw pulled back on price promotions, saying it will focus on profitability.

Shaw also reported a net loss of $164-million, compared with a profit of $150-million in the second quarter last year. It attributed the majority of the swing to a restructuring charge of $417-million tied to a voluntary buyout program in which 3,300 employees, or about one quarter of its work force, accepted severance packages. The company said on Thursday that the departures will be staggered over two years, but about 1,200 will leave within this fiscal year, which ends in August.

Desjardins Securities analyst Maher Yaghi said Shaw’s revenue for the quarter exceeded expectations but margin pressures brought operating income down and the company’s cable division subscriber numbers were weak.

“While we expect a positive reaction in the stock price today, we will be monitoring the results in the coming quarters to see if momentum in wireless is sustained − which is key to the long-term growth thesis.”

Report an error

Editorial code of conduct

Tickers mentioned in this story