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Smartphones power Bell to better-than-expected results

BCE Inc. CEO George Cope.


Canada's largest communications company is riding the wave of consumers flocking to data-hungry smartphones.

Montreal-based BCE Inc., which five years ago was considered a laggard in the mobile space, posted stronger-than-expected wireless results on Thursday at a time of fierce competition in the industry.

Smartphone users comprised more than half of Bell's postpaid subscriber base during the first quarter of 2012, compared to 34 per cent during the same period last year. And that, in turn, is bolstering data revenues and usage of products like its Bell Mobile TV service.

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BCE's results come about a week after chief rival Rogers Communications Inc., which is Canada's largest mobile carrier, reported that a slowing wireless data revenue growth rate from previous quarters was weighing down its results. Rogers had activated and upgraded 642,000 smartphones during the quarter, but penny-pinching consumers were increasingly opting for the cheapest data plans.

Wireless numbers are helping to offset the pain BCE is suffering in the traditional home and business phone space. Faced with those losses and with increasing competition for cellphone users, the company is also making blockbuster acquisitions in an effort to beef up the content production side of its business. After teaming up with rival Rogers to acquire a controlling stake in MLSE, owner of the Toronto Maple Leafs and Toronto Raptors, in December, BCE announced plans to acquire Astral Media Inc., which has a stable of specialty and pay television channels, radio stations and digital media properties to bolster its French-language content offerings.

BCE chief executive officer George Cope is predicting the company's entire wireless subscriber base, which stands at more than 7.4 million subscribers, will migrate to smartphones in the coming years.

"A great opportunity still for growth here. Because still half of our client base have not converted to what are known as these smartphones – they generate incremental revenue for us and we expect our entire base will migrate over the next number of years to these smartphone products."

More than three-quarters of Canadians already have a cellphone, but Mr. Cope is predicting that wireless penetration will exceed 100 per cent as consumers increasingly carry multiple devices including tablets and other wireless devices.

During the first quarter, mobile data revenue growth was up 31 per cent, while blended average revenue per user, a key metric that reflects the average monthly bill paid by consumers, rose by more than 4 per cent to $53.84.

Its wireless division recorded postpaid net activations of 62,576 versus 80,648 during the same 2011 period, but also spent less money to retain customers. Cost controls, meanwhile, helped fuel Bell wireless EBITDA growth of 13 per cent, prompting some analysts to question whether such levels are sustainable going forward.

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"Rogers was so much more profitable than BCE to begin with that BCE's margins only had one way to go, which was up, and Rogers' one way to go, which was down," said Dvai Ghose, an analyst with Canaccord Genuity.

He predicts that despite BCE's competitive push in western markets, quarterly earnings due out from friendly rival Telus Corp. next week may indicate that BCE is likely making more gains at the expense of Rogers rather than Telus. (BCE and Telus share a wireless network.)

"I think it is a little bit of the reversion to the mean as they call it because Rogers' competitive advantage has been taken away for good," he said.

BCE's strong wireless performance helped offset weaker-than-expected results from its traditional home and business phone business – known as "wireline." Revenues in that category were down 3.5 per cent on a year-over-year basis as more households cut their cord on their home phones, in addition to a decrease in long distance and other revenues.

A bright spot, however, was that net activations for its Internet protocol TV product, Bell Fibe, topped 33,000 during the quarter, which helps stem the loss from the traditional phone products. Fibe TV's total subscriber base stands at 120,000.

BCE Inc.'s first-quarter profit rose by more than 14 per cent to $574-million from $503-million during the same period last year. Its net earnings amounted to 74 cents per share versus 67 cents a year ago.

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On an adjusted basis, earnings were $580-million, or 75 cents per share, compared to $543-million or 72 cents for the comparable 2011 quarter. Total revenue was up 9.9 per cent to $4.90-billion.

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