Telus Corp.'s Darren Entwistle says competition in Canada’s wireless industry is “bordering on the irrational” after months of promotional battles have led to more generous data plans.
The Vancouver-based company’s chief executive officer said Friday that slowing growth in wireless prices is the “new normal" and warned that “these larger data buckets and promotions risk prematurely consuming the major capital investments that the industry is making in spectrum and network capacity and coverage.”
Mr. Entwistle’s comments came after Telus reported second-quarter numbers that included the addition of 87,000 new wireless subscribers on contract, in line with expectations although still fewer than its national rivals BCE Inc. and Rogers Communications Inc., both of which added 122,000 in the quarter. Together, the trio have added more than 540,000 subscribers in 2018, about 30 per cent more than at this time last year.
Despite the fast pace of subscriber growth, the average amount the carriers charge customers – which includes both lucrative subscribers on contract as well as prepaid users – is slowing. Average billings per user (ABPU) increased just 0.6 per cent at Telus to $67.24 in the second quarter. BCE revealed a similar trend when it reported its results on Thursday (Rogers has reported faster ABPU growth but it is shedding lower-value customers from a long-term government contract now held by BCE).
Increased competition from Shaw Communications Inc.’s regional carrier Freedom Mobile has put pressure on the Big Three to offer bigger data packages and collect fewer overage charges from customers who go over their limit. Mr. Entwistle said there were rate-based promotions in 23 out of the first 26 weeks of the year. “I would say the competitive intensity is not just healthy but bordering on the irrational.”
Yet, Canadian carriers still enjoy healthy profit margins. Telus reported an adjusted EBITDA margin for its wireless business of 43.8 per cent for the second quarter while BCE had a margin of 44.2 per cent and Rogers came in at 44.6 per cent. (EBITDA means earnings before interest, taxes, depreciation and amortization; EBITDA margins are used to measure operating profit as a percentage of operating revenue).
Shaw’s wireless business, which is still improving its network and distribution, had an operating margin of 26.2 per cent in the most recent quarter.
Mr. Entwistle said Telus would keep profit growing by managing costs, encouraging lower-revenue customers to move to larger data plans with premium smartphones and looking for new business opportunities, such as data-connected sensors in the burgeoning internet of things market.
“Decline in industry ABPU growth was generally slightly faster than the Street’s expectations,” Desjardins Securities analyst Maher Yaghi said in a report. The combination of subscriber growth and increases in average monthly prices was “a big reason that the sector was able to post strong results in recent years," he said, adding that “losing momentum on wireless ABPU growth could put a damper on future earnings growth for all participants.”
Telus’s rate of customer turnover or churn remained lower than its rivals at 0.83 per cent per month, compared with 1.01 per cent at Rogers and 1.10 per cent at BCE.
The company’s landline business posted strong revenue and subscriber numbers, with 29,000 new internet customers and 15,000 TV subscribers, far ahead of analyst forecasts. The company has been investing in fibre-optic service to customers’ homes in a bid to win residential clients away from Shaw, its main competitor in British Columbia and Alberta.
Telus said overall revenue increased 5.3 per cent in the second quarter to $3.45-billion, while adjusted EBITDA grew 3.6 per cent to $1.29-billion, both in line with analyst estimates.
Profit increased slightly to $397-million or 66 cents a share. On an adjusted basis, Telus reported earnings of 70 cents a share, also in line with estimates.
Telus said profit was flat partly because of increased depreciation charges as well as higher employee benefits expenses after several recent acquisitions by its Telus Health division and its Telus International offshore call centre business.
The company also said Friday that it has reached an agreement to sell Telus Garden, the commercial, retail and residential development in downtown Vancouver where it has its headquarters; it will remain a tenant. Concurrent with the sale, on which it expects to make $170-million, Telus is committing $120-million to a charitable foundation, with $100-million to be donated this month and the balance over the next 10 years.
Telus also said it has named Christine Magee, co-founder and co-chair of Sleep Country Canada, to its board of directors, effective Thursday. Long-time board member John Lacey retired from the board in May.