With its stable cash flow and hefty dividends, the telecom sector has served as a solid shelter for investors since markets turned south last spring. This week, BCE Inc. and Telus Corp. are to report third-quarter results, which should refocus investors on the fundamentals of each company.
We have already had a preview of what's to come, following results from Rogers Communications Inc. last Wednesday. Shares of Rogers edged up about 3 per cent after the company showed a mixed performance. It exceeded expectations for new cable, telephony and Internet customers. But Rogers gained far fewer new wireless accounts than analysts expected and saw a decrease in the amount it collected from the average wireless customer's monthly bill.
Wireless has been the engine of growth for all three telecom incumbents, but they are facing fresh competition. New arrivals, such as Wind Mobile, Mobilicity and Public Mobile Inc., are eating into the lucrative market that BCE's Bell Canada, Rogers and Telus have long controlled. While customers are opening up new wireless accounts at a near-record pace, greater competition and improved technology require the telecoms to sell more data-rich services if they want to keep wireless revenue growing from each customer.
In contrast to Rogers, which posted a decline in average revenue per user (ARPU) for the last quarter, both Telus and BCE will show ARPU growth in the last quarter, said Maher Yaghi, an analyst with Desjardins Securities. Telus, which reports Friday, is likely to show the greatest percentage increase in subscribers year-over-year and should deliver a 0.5-per-cent increase in ARPU, he said. BCE, reporting on Thursday, should post a 2.5-per-cent gain in ARPU.
The land line phone business is on a very different trajectory than wireless, with customers continuing to pull the plug on traditional home phone accounts by the tens of thousands every quarter. Some analysts say that Telus may have held back the tide thanks to its new Internet Protocol TV (IPTV) service, which delivers video over fibre and copper phone lines and is often bundled with phone and Internet service.
Telus is likely to report 45,000 new customers for its Optik TV service, following a similar number in the second quarter, according to Phillip Huang of UBS Securities Canada Inc. By next year, the expanding Optik subscriber base should help the company boost margins in its land line business, he adds.
Analysts expect that Telus will announce a 5-per-cent dividend increase as part of an earlier commitment to deliver semi-annual hikes amounting to about 10 per cent a year.
Investors will also be looking for growth from Bell Canada's IPTV service. The company has recently ramped up marketing of its Fibe TV. But Jonathan Allen, of RBC Dominion Securities Inc., warns that Bell's overall video numbers are being held back by customers dumping its satellite TV service. He thinks the company shifted focus last quarter to satellite customer retention, which should help the overall video subscriber numbers.
The market will also be paying close attention to how BCE's recently acquired media assets performed. This will be only the second quarter of consolidated reporting since BCE closed its $1.3-billion purchase of the CTV network, the TSN franchise and other specialty channels. Management gave unexpectedly strong guidance for the media unit last May.