Telus has a history of rewarding shareholders with dividend growth, according to Yield Hog panelist Tony Demarin of BCV Asset Management.SHAUN BEST
Telus Corp. reported a 21 per cent boost in second quarter profit and a huge gain in new wireless subscribers on Friday that exceeded analysts' expectations.
The Vancouver-based telecommunications company reported profits of $296-million and 92 cents per share, up from $244-million and 77 cents from the same time last year. Consensus estimates on earnings per share were 76 cents. The company also announced a quarterly dividend of 50 cents per share, payable on Oct. 1, and said it would hold off on reposition its discount Koodo Mobile brand to deal with new wireless competitors.
However, Telus continued to see erosion in its land line residential and business phone business - an industry-wide trend for telcos - and stiff competition in its TV and Internet businesses.
The company also said it gained 124,000 new wireless subscribers in the quarter, around 20,000 more than analysts had been expecting, with lucrative post-paid subscriber additions, mostly smart phone users, up 15 to 109,000 in the quarter.
This means Telus essentially showed the most impressive wireless growth out of the Canada's Big Three providers in the last quarter, with BCE Inc.'s Bell Mobility unit and Rogers Communications Inc. posting slightly results. Dvai Ghose, an analyst with Canaccord Genuity, had expected net wireless subscriber additions of around 106,000.
Like its rivals, Telus saw a big gain in wireless data revenue from smart phone Web browsing, emailing and online video-streaming and Internet data sticks for laptops was up 26 per cent, a metric which lagged behind the other telcos. The average revenue per wireless user, which is the cash a provider pulls in per customer, was also down, as expected but in contrast to its rivals -- who admitted to aggressive competitive discounting in the quarter.
Telus, which has invested heavily in its wired networks to push the expansion of Optik, its Internet-based TV (IPTV) product, added 29,000 TV customers in the last quarter, bringing the total TV customers to 228,000 - a full 98 per cent increase from the year prior. However, the company reduced its revenue guidance looking forward because of the wired side of the business. The company reported that it lost 63,000 residential and business land lines, a number nearly double what some analysts had expected.
Desjardins Securities analyst Maher Yaghi saw these strained wireline results as a drag on a quarter that otherwise saw great results from the wireless side of Telus's business, which continues to be the driving growth force for telcos.
"While we view the IPTV Optik rollout favourably, we do not think it will be enough to overturn the competitive forces causing damage to Telus's wireline business, which continues to experience steady (land line) losses," Mr. Yaghi wrote in a note to clients on Friday.
On a conference call with analysts on Friday, Telus executive vice-president and chief financial officer Robert McFarlane blamed the losses on intense competition and price discounting from Shaw, the main cable player in the region.
With its results, Telus brings to a close a comfortable earnings season for the country's largest telecom providers. The impact of new wireless competitors, such as Wind Mobile and Mobilicity, has largely not registered yet and is likely to increase in the second half of the year as these new companies gain traction. However, since most of these companies have launched first in Toronto, Rogers has likely felt the majority of the sting. Bell, also, faces the wireless network launch of entrenched Quebecor Inc.'s Videotron Ltee in Quebec, a player with more heft than other new wireless entrants.
Telus, on the other hand, has some breathing room. Although facing pressure from Calgary-based Western Canadian rival Shaw Communications Inc. in the wireline side of Telus's business, Shaw's wireless network launch is much more distant than Videotron's, giving Telus the chance to sign up more TV customers in what is likely to be a battle of "bundled" services -- where providers try and upsell an entire household until all of their services, from home phone to TV to Internet to wireless, are all from the same provider.
On the conference call, Telus president and chief executive officer Darren Entwistle said the company was not going to pursue the same strategy as Bell, which will reposition Solo Mobile as an unlimited urban discount plan, and Rogers, which has already done so with the launch of a new brand, Chatr Wireless. He pointed to the company's wireless results this quarter, and indeed for all three of the big providers, as evidence that incumbent telecom providers are maintaining dominance in the sector's lucrative smart phone space.
"Sometimes it makes sense to be expeditiously reactive," Mr. Entwistle said. "Other times, I think it makes sense to keep your powder dry. And from a Telus perspective, for the present point in time, we're going to follow the latter and keep our powder dry and have a watching brief in terms of what's unfolding within the competitive landscape of our industry."