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Manon Brouillette, president and CEO of Vidéotron,Christinne Muschi

While Quebecor Inc. decides whether to expand its wireless network nationally, its four-year-old cellular division is showing increased signs of promise in its home province.

The Montreal-based company launched a Quebec wireless business in 2010 and despite the advantages its subsidiary Vidéotron Ltd. already had – with strong brand recognition and an existing customer base of cable, Internet and home phone subscribers – it did not easily win market share.

Vidéotron's mobile business didn't report an operating profit until the first quarter of 2013, and has posted a loss or simply broken even in three of the past six quarters (it doesn't disclose operating income figures but has noted on quarterly calls whether the division had a gain or loss).

Although the wireless business accounted for just 8 per cent of Vidéotron's total revenues in 2013, soaring mobile-data consumption offers the promise of growth as the company faces mounting pressure on its legacy cable television businesses. National Bank Financial analyst Adam Shine projects wireless sales will increase by 25.6 per cent this year to $277-million, up from $221-million in 2013. He projects cable television revenue will decline by 1 per cent, to $1.08-billion from $1.09-billion last year.

Thanks in part to a network-sharing agreement struck with Rogers Communications Inc. last year, Vidéotron recently launched LTE (or fourth-generation) service, allowing it to offer improved wireless data services and compatibility with an expanded range of popular handsets. It now has 550,000 customers and 12.5 per cent of the Quebec mobile market, where Rogers, BCE Inc. and Telus Corp. dominate.

"When we look at the market dynamic, we are quite satisfied with the journey we've taken over the last four years," Vidéotron chief executive officer Manon Brouillette said in an interview. "It's pretty good if you compare us to any other new entrant in the industry."

She admits there is still room to gain market share but is optimistic about the trend toward increasing mobile Internet usage, noting that Vidéotron's most popular wireless plan includes the significant monthly amount of six gigabytes of data.

Quebec's wireless pricing has become increasingly competitive and Barclays Capital analyst Phillip Huang notes that Vidéotron charges just $80 a month for that plan, compared with the incumbents, which charge between $85 and $95 a month (after lowering their prices from around $125 a month). Analysts have often remarked that Videotron's approach has led to less average revenue per user than the Big Three.

But analysts are viewing Vidéotron's mobile division more favourably this year, particularly after it began selling Apple Inc.'s iPhone in March. The company's network technology did not work with the popular device until the iPhone 5c and 5S launched last fall, after which Vidéotron had to negotiate a distribution agreement with Apple.

"I would say that we are fully in the game now in terms of our handset portfolio," Ms. Brouillette said. "When we launched the iPhone we saw a lift."

Greg MacDonald, head of research at Macquarie Capital Markets Canada Ltd., said the company has also benefited from lower wholesale rates for roaming on its competitors' larger networks. The federal government legislated those rates on an interim basis pending the outcome of the Canadian Radio-television and Telecommunications Commission's review this fall.

Ms. Brouillette, who was promoted to CEO from chief operating officer in May after running the division as president for a year, said the outcome of that review will factor into the company's decision on whether to expand outside of Quebec. She declined to go into further detail, but said that the rates Vidéotron proposed in its submissions to the CRTC "would definitely be fair." The company is asking the commission to set wholesale rates at 0.5 cents a minute for voice calls and 0.45 cents per megabyte of data.

Canaccord Genuity's Dvai Ghose is skeptical of the value of expanding outside Quebec but still believes Vidéotron was smart to launch a wireless business.

"It's taking a lot longer than people thought in terms of profitability, but they should be in the wireless market," he said, noting it gives the company another product with which to challenge its rivals. "While I think it's been a tough slog, I think it's been a worthwhile slog."

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