Quebecor Inc. is counting on its wireless division for future growth, but don't expect the company to make any sudden moves to expand its mobile services to the rest of the country.
Pierre Dion, chief executive officer of the Montreal-based telecom and media company, said Thursday he's thrilled to have a stockpile of spectrum – airwaves used to build cellular networks – sufficient to support "our fast growth in the Quebec mobile market for years to come."
"As for acquired out-of-region spectrum licences, we have not changed our approach, that is to look at all of our options in order to maximize return on investment while minimizing risk," he added during a conference call with investors.
Quebecor reported slightly lower-than-expected second-quarter results Thursday amid higher spending on sports investments and also said Érik Péladeau, the eldest son of Quebecor founder Pierre Péladeau, is rejoining the board of directors.
Over the past year and a half, the company has purchased licences for cellular airwaves outside of Quebec in three different federal auctions. Mr. Dion declared in June, 2014, that the company was ready and willing to expand its wireless business to the rest of Canada under the right conditions, but management has since been more guarded on the prospect, saying it will take a "disciplined" approach that respects the company's balance sheet.
The value of those airwaves may have increased since Rogers Communications Inc.'s recent $465-million purchase of Mobilicity, and Mr. Dion said Thursday that Quebecor is "happy to have this out-of-Quebec spectrum in our hands."
"We're talking to different players and looking at all the options," he said, declining to comment on whether he liked the spectrum more for its resale value or the prospect of putting it to operational use.
Quebecor reported consolidated revenue of $960.1-million, up $67.9-million or 7.6 per cent, but below analyst estimates of $965.6-million.
It had net income of $72.1-million in the quarter, or 59 cents a share, ahead of expectations and up from a loss of $54.8-million in the same period last year, due primarily to a swing in the losses it recorded from discontinued operations this year.
Adjusted operating income was $349.3-million, about $20-million less than Bay Street predicted and down 2.9 per cent compared with last year, due in part to the costs associated with winning new wireless customers. including handset subsidies and marketing.
It added 40,800 wireless subscribers in the quarter and the division now has more than 700,000 customers.
"Our telecom business continues to deliver solid financial results despite higher wireless subscriber growth, which requires up-front investments and is impacting our operating income in the short term," Mr. Dion said, adding, "However, over the long term, we are confident that this subscriber growth will translate into superior profitability and cash flows."
The company said the decline in adjusted operating income reflected "major investments required for the pursuit of our business plan, including the development of the TVA Sports specialty channel and our new venue management activities at the Videotron Centre in Quebec City."
TVA Sports – which had the exclusive French-language broadcast rights for the NHL playoffs this year – now has 2.1 million subscribers, although increased operating costs related to producing those games led the TVA Group division to post a loss for the quarter this week.
Quebecor submitted an application on July 20 to bring an NHL team to Quebec City and the expansion fee if it wins that bid is expected to be in the range of $500-million (U.S.). "We will soon be approaching potential partners," for that investment, Mr. Dion said on the call.
Chief financial officer Jean-François Pruneau later added, "One important thing to mention here is we would be looking to maintain majority control of the team."
Management said the NHL team would be held by Quebecor Media, the company's main subsidiary. "That means that if and when we do it, the Caisse de dépôt [et placement du Québec, which owns 25 per cent of Quebecor Media] would have been supportive," Mr. Pruneau said.
Quebecor's wireless average revenue per user (ARPU) – a closely watched metric – grew 13.5 per cent to $47.03. Management said on the call that the unit's operating profit was up "slightly" but did not specify an amount.
Meanwhile, Quebecor continued to lose cable subscribers, shedding 23,000 in the quarter, and Internet customers were also down by 4,000.
The company's sports and entertainment division posted an operating loss of $4.1-million.
"Quebecor reported second-quarter consolidated results that were slightly below expectations financially but again showed strong subscriber metrics in wireless," said Maher Yaghi of Desjardins Capital Markets. "We continue to believe that Videotron should continue to post mid-single-digit earnings growth. Hence, coupled with valuation at a discount to peers, the stock continues to offer good upside potential."
Barclays Capital analyst Phillip Huang said investors would have questions about Mr. Péladeau rejoining the board after a five-year absence.
The eldest Péladeau son previously worked at Quebecor and was a director and vice-chairman of the board. He was involved in the creation of Quebecor's digital content offerings and also works at Groupe Lelys Inc., a labels company he founded.
"After devoting several years to my own company, I wanted to make a contribution to Quebecor, the company founded by my father where I worked for more than 28 years," Mr. Péladeau said in the news release. "The Board felt my experience could be useful and welcomed my offer."
"We're happy to have him back," Mr. Dion told analysts, saying that Mr. Péladeau likes "innovation," "new media," and "new products," and that's where he would contribute.
Erik's brother Pierre Karl Péladeau, the company's controlling shareholder, is the leader of the separatist Parti Québecois and questions have swirled around his continued influence over Quebecor, which owns many of the province's print and television media outlets.
Quebecor announced during the second quarter that it would sell its Archambault Group retail operations to Renaud-Bray. It also closed the sale of its Sun Media chain of English-language newspapers to Postmedia Network Canada Inc.