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Earnings reports reflect battle for wireless supremacy

George Cope, president and CEO of BCE Inc., takes a question from a shareholder during the company's annual meeting in Toronto, May 12, 2011.

Chris Young/CP/Chris Young/CP

Canada's biggest telecommunications companies will report their fourth-quarter earnings this week, providing investors with a check up on the state of wireless competition and the budding popularity of Internet protocol TV.

While a handful of companies will participate in the earnings parade, financial results from BCE Inc. and Telus Corp. are this week's two main events. That is bound to fuel more comparisons of the two telecom giants and their respective strides in wireless and IPTV.

Aggressive holiday promotions by new wireless entrants like Wind Mobile and Mobilicity provided a prelude to this earnings season, as those rivals dialled up the competition on both pricing and improved handset choices.

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As a result, sharper levels of competition are expected to pinch the incumbents' net subscriber additions, while also pressuring other key metrics like average revenue per user (ARPU) , which is essentially the price of monthly wireless bills. Additionally, there could be some uptick in incumbents' "churn" rates, which measures how many customers are lost every quarter.

"We do expect churn to nudge up once again [excluding seasonal effects]with lower overall churn at Telus versus Bell and Rogers," wrote Drew McReynolds, an analyst with RBC Dominion Securities Inc., in a research note to clients.

Still, he and others note that promotions by wireless newcomers largely target the "lower-end of the market," suggesting incumbents still have an edge with more lucrative post-paid customers who are increasingly scooping up smartphones. Those trendy handsets are helping drive up the industry's data ARPU, even as voice revenues decline.

"Margins, especially in wireless, have thus far been resilient – even in the face of intense price discounting by new entrants," analyst Maher Yaghi of Desjardins Securities Inc. wrote in a recent report. "In a sense, the deliberate market segmentation by incumbents has been successful in protecting their brand, image and pricing."

Analysts, though, will be looking for any signs of margin pressure caused by the ongoing smartphone revolution, particularly the surging popularity of the iPhone 4S.

On the IPTV side, Telus' results are expected to provide fresh evidence that it is stealing western Canadian market share with its Optik TV product. Telus, which began rolling out the product in mid-2010, is expected to report 54,000 net subscriber additions in the fourth quarter, according to consensus estimates. Such a result would surpass the 50,000 additions it made in the third-quarter.

"Telus is expected to once again post strong Optik TV and Internet growth as its IP advantage, whole-home PVR functionality and slick user interface should help maintain its competitive positioning against Shaw," said Adam Shine, an analyst with National Bank Financial, in his quarterly preview.

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BCE, meanwhile, is expected to record modest TV subscriber growth during the fourth-quarter due to its continued rollout of its Fibe IPTV product in Toronto and Montreal. During the third-quarter, Bell's net TV subscriber additions were roughly 26,000.

Analyst Phillip Huang of UBS Securities Canada Inc. recently noted that while Fibe's "halo effect" may not be evident during this batch of results, the accelerating rollout of that product will be a key driver of BCE's growth this year, in addition to wireless and media.

"We believe BCE is well-positioned to deliver another year of solid performance in 2012," observed Mr. Huang. "We see significant headroom to improve wireless profitability, expect IPTV to support high-speed growth/residential line loss, and TSN/RDS negotiations to drive media growth."

BCE reports its financial results on Thursday, followed by Telus on Friday. Consensus estimates put BCE's fourth-quarter earnings per share at 66 cents, and Telus' quarterly EPS results at 79 cents.

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