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Report on Business Telus hikes dividend despite slow wireless growth as pressure for higher data allowances rises

Despite the slowdown at its primary growth business, Telus announced a dividend increase Thursday and said it plans to aim for annual hikes of between 7 per cent and 10 per cent for the next three years.

Mario Beauregard/The Canadian Press

Telus Corp. says wireless revenue growth continues to slow as pressure to offer larger monthly data allowances limits how much it can charge smartphone-toting customers, even as those clients spend more time online.

Competition from regional carriers Shaw Communications Inc.’s Freedom Mobile and Quebecor Inc.’s Videotron has spurred Canada’s national carriers to increase data caps on some of their wireless plans and led to a decline in fees the companies charge subscribers for going over monthly limits.

Telus said Thursday that wireless service revenue in the first quarter increased by 1.4 per cent to $1.49-billion, compared with a growth rate of 4 per cent in the same period last year.

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Despite the slowdown at its primary growth business, Telus announced a dividend increase Thursday and said it plans to aim for annual hikes of between 7 per cent and 10 per cent for the next three years. To keep profit growing and support that shareholder payout, the company is targeting higher-value subscribers and counting on keeping costs under control at its wireless division.

“We continue to be ever-more focused on quality,” Telus chief executive Darren Entwistle said on a conference call with analysts, pointing to efforts to attract more premium smartphone customers and promote lucrative shared monthly wireless plans. He said that approach is “coupled with ongoing cost efficiency initiatives that are so critical in today’s environment.”

Telus said Thursday that it is changing the way it reports many key measurements at its wireless division, in part to help support its goal of prioritizing high-value customers.

The company added a total of 11,000 new mobile customers in the first quarter, but its reporting changes make it difficult to compare Telus’s results with those of its rivals, BCE Inc. and Rogers Communications Inc., as well as to analyst forecasts.

It said it will no longer break out contract and non-contract (or postpaid and prepaid) wireless customers and is instead recording them all as mobile-phone subscribers. Telus also removed tablet customers from the mobile-phone classification, moving them to a new “connected devices” category that also includes IoT (internet of things) connections, which it had not previously disclosed.

Bay Street typically focuses on the number of new postpaid wireless customers the carriers win each quarter. Telus chief financial officer Doug French said in an interview Thursday that the priority on postpaid leads to pressure to increase the figure in ways that don’t support “the long-term economics for us.”

For example, he said, carriers often offer incentives such as gift cards or large subsidies on smartphones to persuade prepaid clients to move up to monthly contracts. Those customers might not pay much more on a monthly basis but the company spends heavily on those costs of acquisition.

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Carriers also offer subsidies on tablets to sign up new monthly contract customers that are often an add on of just $5 or $10 a month to a more expensive smartphone plan.

By separating those lower-value tablet customers out of its mobile phone numbers, the company’s average monthly billing also increased sharply.

“We think the changes make sense because it aligns with how management is measuring the business and highlighting the focus on higher-value subscribers,” said Scotia Capital analyst Jeff Fan, noting that U.S. carriers have taken a similar approach.

However, he noted that the only objective measure on which to compare Telus with its peers is now wireless service revenue, which came in below expectations.

“This confirms our view that the wireless market growth is slowing, especially in postpaid. BCE was the only incumbent that improved the year-over-year growth in the first quarter because of prepaid [increases],” Mr. Fan said.

On the landline side of its business, which includes home internet and television subscribers, Telus reported strong customer growth. It added 22,000 internet customers and 17,000 TV subscribers, both ahead of analyst estimates and up from the same time last year.

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Telus said overall revenue for the first quarter increased by 3.8 per cent to $3.5-billion, which was in line with analyst expectations. Profit grew by 6.1 per cent to $437-million, or 71 cents a share. On an adjusted basis, the company earned 75 cents a share, also meeting analyst forecasts.

The company also met expectations for adjusted EBITDA, which was up 8.6 per cent at $1.42-billion. (EBITDA means earnings before interest, taxes, depreciation and amortization.)

Last month, Telus spent $931-million on 12 licences for wireless airwaves in a government spectrum auction. That was the first of three planned auctions for spectrum that is expected to be used for 5G, or fifth-generation, wireless technology. The next two auctions are set for 2020 and 2021.

The Canadian government is conducting a cybersecurity review of 5G technology. Telus, along with BCE, is waiting to find out if it will be able to continue to use network equipment made by Huawei Technologies Co. Ltd. amid concerns that the company could conduct espionage on behalf of the Chinese government.

Telus has not yet selected a network equipment vendor for 5G. Asked about the urgency for an answer from the government on the Huawei question, Mr. French said, “a decision sooner versus later and getting clarity is always helpful. But that being said, we do have time based on the fact that the 5G spectrum is still not available and still needs to go through an auction process.”

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