Telus beats rivals to win most wireless customers as industry continues growth
As Canada’s wireless market continued to grow at an impressive clip in the second quarter, Telus Corp. beat its top two rivals to win the most new wireless subscribers in the period, albeit at a higer cost that dampened its profit.
The Vancouver-based telecommunications giant surprised analysts by adding 99,000 postpaid wireless subscribers in the three months ending June 30, up from 61,000 in this period last year and nearly double expectations of 53,000. Rogers Communications Inc. and BCE Inc. added 93,000 and 89,000 wireless subscribers respectively.
But Telus spent more to acquire and keep its customers, costs that dampened its adjusted earnings per share to $0.68 compared to Bay Street’s expectations of $0.72.
CEO Darren Entwistle defended the higher spending to get high-quality smartphone customers as long-term value creation for the business. In a conference call with analysts, he focused on the dramatic drop in churn, the rate of customers ditching their mobile plans. It fell to a record low of 0.79 per cent, well ahead of both Bell and Rogers.
“It was a great result for us. It’s not some overnight achievement,” Entwistle said, calling it the result of a decade focusing on customer service.
“When you look at that result, if we beat it again on a go forward basis, that would be a nice thing, but again I don’t think it’s realistic,” he said. “If we can camp out in that zone, I think that’s something to strive for.”
He noted that Telus’ wireless gains came despite it not leading the pack with promotional offers.
Desjardins analyst Maher Yaghi noted to clients that profit likely softened due to higher subsidy costs for high-end smartphones.
“We believe this is an investment in future profitability, and the company is doing well loading customers while the market is strong,” he wrote.
Indeed, the Big Three added 281,000 postpaid wireless subscribers, up from 196,000 in the same period last year.The second quarter is traditionally slower than the second half of the year, where an expected iPhone launch and back to school, Black Friday and Boxing Day promotions attract more customers.
Telus also posted decent additions in its wired business, adding 17,000 internet customers and 5,000 television customers despite intense competition with Shaw Communications Inc., which currently offers faster internet speeds to more customers as Telus accelerates its build out of fibre-to-the-home connections.
Entwistle also focused on Telus’ investment in fibre as a boon for Canada’s future, given its capacity for ultra-fast broadband networks and applications for 5G next generation mobile networks.
He used this to highlight his disappointment with the federal government’s proposed rules for the auction of 600 MHz band of spectrum, airwaves seen to be critical for 5G networks. Entwistle was the first of the Big Three CEOs to comment on the rules.
“I’m disappointed by the presence of a proposed set aside,” he said of the rules released last week by the Ministry of Innovation, Science and Economic Development. The proposal favours newer wireless entrants, namely Quebecor Inc.’s Videotron and Shaw’s Freedom Mobile, by prohibiting the Big Three from bidding on about 43 per cent of the spectrum licences.
“I’m kind of scratching my head in that regard particularly given the size, the balance sheet strength and the permanency of the fourth players that we’ve seen emerge,” Entwistle said. “I don’t get it.”