Internet, video and wireless keys to replace lost landline revenue

Bell Canada and Telus Corp. are implementing a number of measures to reduce lost revenue from local landline erosion. Both companies indicate that growth areas such as video, Internet and wireless will help offset losses in their traditional legacy telephony business. As a result of pressure from the cablecos and VoIP resellers, the country’s two largest incumbent telephone companies continue to bleed local residential subscribers. On a year-over-year basis, Bell lost nearly 6% of its subscribers while slightly more than 4% left Telus (see box on page 1 for more details). It’s no surprise that the two companies are focusing on growing video and Internet customers to help offset these losses, but it’s not clear yet whether both telcos are accomplishing the tasks they have set out to do. While Telus appears to be doing quite well in attracting new high-speed Internet subscribers, Bell seems to be feeling the pinch in some areas. Bob McFarlane, CFO for Telus, noted during the company’s recent first quarter financial results conference call that strong data subscriber additions in the quarter were a carryover from the fourth quarter of 2005. Telus added 39,000 high-speed Internet customers, up 74% from last year’s Q1. This was due, said McFarlane, "to strong marketing programs, increased distribution and reduced churn." Shaw Communications Inc. has been very aggressive in the telephony market in Western Canada, but Telus noted the impact of Shaw’s programs has been minimal as Telus’ line losses could have been worse. "Suffice to say, our line losses have been superior or better than those of most other carriers and I think that reflects the competitive resiliency that we have," McFarlane said in response to an analyst’s question. "And certainly not having a labour disruption underway puts a completely different colour on the dynamics in the marketplace in the first quarter as compared to what we experienced last year." Added Telus chief executive Darren Entwistle: "It also speaks to the efficacy of our Telus TV undertaking." As Telus is feeling the heat from Shaw in the West, Bell is under considerable pressure in Quebec from Vidéotron ltée. On the Internet front, Bell reported 71,000 net high-speed subscribers, down considerably from the 128,000 it added in last year’s first quarter. While the Quebec cableco played a role in the lower net additions, George Cope, president and COO of Bell, noted that Bell’s footprint expansion last year was a major contributor to Q1 2005 net additions. He is bullish on prospects for the rest of the year though. "I am encouraged by our which grew to over $40 this quarter and has an opportunity to continue to grow as we roll out higher speed services later this year at higher prices," he said. But Bell is really focusing on hitting some key operating metrics over the next few quarters. Cope highlighted the video business where ARPU increased $5 year over year, had churn of 0.9%, revenue growth of $56 million and earnings before interest, taxes, depreciation and amortization (EBIDTA) of $43 million. "The operational focus over the next three quarters will be first of all to improve and to continue to improve the EBIDTA flow-through on all of our growth products; focus on slowing the NAS erosion, particularly now as we enter the stage where we can begin winback programs; focus on the pricing issues in Quebec; and also slow the erosion of re-price of our traditional service," he said, adding an example of that is the decision to increase access fees in long distance from $2.95 to $4.50.

Internet, video and wireless keys to replace lost landline revenue

News | May 11, 2006

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