Telus reports solid quarter after fibre expansion, but wireless lags behind peers
Telus Corp.’s strategy to deploy ultra-fast fibre networks appeared to pay off for its internet business in the first quarter of the year, but its wireless growth lagged behind its peers.
On Thursday, the Vancouver-based communications giant reported results in-line with analysts’ expectations for the three months ended Mar. 31. As expected, it raised its dividend by 6.6 per cent to $0.525 per share. Its stock price dipped about 1.3 per cent by mid-afternoon.
Telus added fewer wireless subscribers than its top competitors BCE Inc. and Rogers Communications Inc. — it added 48,000 new customers on contract compared to 68,000 and 95,000 – but chief executive Darren Entwistle said Telus is in a “great position” due to the combination of wireless and wireline performance.
“It’s not a one-trick pony type organization,” Entwistle said on a conference call with analysts. “That diversity component is critical.”
Entwistle noted the entire wireless market is growing, adding 60 per cent more subscribers than the same period last year. He touted Telus’s industry-leading churn rate — the percentage of customers leaving for another provider has been below 1.0 per cent for five years — and noted it was the national carrier with the fewest complaints to the Commission for Complaints for Telecom-Television Services.
“I continue to believe that the organization that will do well within a competitive environment is the organization that’s got the best loyalty and retention because it’s got the best customer service and the best network performance,” Entwistle said.
While Telus came in third this quarter, wireless “ticked off all our boxes” and led to strong underlying results, RBC analyst Drew McReynolds noted.
On the wired side, Telus added 22,000 internet subscribers and 6,000 television subscribers, beating both Bay Street’s estimates of 14,000 and its top Western Canadian competitor Shaw Communications Inc. when it came to attracting new customers. (Shaw’s Freedom Mobile, however, added 93,500 customers, although its quarter ended in February and included the holiday shopping season marked by unprecedented data deals.)
Telus has spent billions on broadband networks over the past four years. Its fibre-optic deployment hit a milestone in the period, covering 51 per cent of Telus’s footprint in the west and in Quebec. Barclays analyst Phillip Huang said the milestone supports “not just the improved wireline results, but also future 5G deployment.”
Fibre is expected to be valuable for homes, which will become increasingly connected, and next-generation 5G wireless networks that will use fibre as backhaul to ensure fast speeds. Fibre costs less to repair than copper networks, plus the churn rate is about 35 per cent lower for customers on the latest technology.
Telus’s capital spending on fibre hit a peak in 2017 and will slow down in the future, improving its free cash position. It expects to be two thirds done its fibre build in 2019 when it starts launching 5G networks.
Telus reported a $412-million profit in the quarter, down 2.4 per cent from last year. Revenue grew 6 per cent to $3.4 billion and adjusted earnings rose 5.2 per cent to $1.3 billion.
Analysts reacted positively to the results, although they noted momentum is slowing across the wireless industry regarding how much money is earned from each customer.
“Now that all three incumbents and Quebecor have reported, one takeaway from their results is a generally faster-than-expected decline in wireless average revenue per user growth overall,” Desjardins analyst Maher Yaghi noted.
“The combination of wireless subscriber and ARPU growth was a big reason the sector was able to post strong results in recent years. Losing momentum on wireless ARPU growth could put a damper on future earnings growth for all participants.”
Entwistle agreed that average revenue per user growth may become “more modest” over time. But he said growth based on volume rather than price increases proves the industry is healthy.
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