BCE, Telus report lower profits in first quarter as telecoms prepare for stiffer competition

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BCE Inc. BCE-T and Telus Corp. T-T reported lower first-quarter profits as they brace for heightened competition from Rogers Communications Inc. RCI-B-T after the completion of its takeover of Calgary-based Shaw Communications Inc SJR-B-T.

BCE and Telus each boosted their first-quarter revenue and topped analyst expectations, even as their profits slipped on higher depreciation and amortization costs.

During conference calls to discuss their quarterly results, both telecoms – which had vigorously opposed Rogers’s $20-billion takeover of Shaw – were asked about the deal’s impact on their future profitability. Top executives at BCE and Telus said they are ready for the increased competition, having spent the past several years aggressively building out their networks in preparation.

Rogers on Wednesday announced revamped 5G wireless plans aimed at capturing a larger portion of the market for bundled services after consummating the Shaw takeover last month after two years of regulatory hurdles.

Toronto-based Rogers is now able to bundle its cellphone plans with residential offerings such as internet and television services in Western Canada, where it previously had no cable infrastructure. The telecom said its market for bundles doubled when it closed the deal, with roughly 70 per cent of Canadian households now able to purchase all of their services from Rogers.

That could “stir up competition in the Ontario and Western Canadian markets in the coming quarters,” Bank of Nova Scotia analyst Maher Yaghi said in a research note Thursday.

All of the Big Three telecoms – Bell, Telus and Rogers – are also expected to face competitive pressure from Quebecor Inc.’s QBR-B-T Vidéotron Ltd., which has expanded beyond its home market of Quebec by purchasing Shaw’s Freedom Mobile for $2.85-billion. Rogers and Shaw were forced to divest the wireless carrier to gain regulatory approval for their deal. Vidéotron, meanwhile, has promised Ottawa that it will offer wireless plans that are 20 per cent cheaper than those offered by the major wireless carriers on a specific benchmark date.

Desjardins analyst Jérome Dubreuil said Telus is likely to be affected the most by competition from Vidéotron, as well as from Rogers’s push to sell more bundled services.

“Among the Big Three, Telus has the most exposure to wireless in B.C., Alberta and Ontario, where we expect competition to increase in the coming months,” Mr. Dubreuil said in a note to clients.

Asked about the heightened competition from two of its rivals, Telus’s chief financial officer Doug French said the Vancouver-based telecom has been consistently bundling wireless and residential services over the past two years as it accelerated the build-out of its fibre-optic network.

“Our operational execution was to ensure that irrespective of what the outcome of the Shaw-Rogers decision was, we would be in the best position possible with more fibre, which is a superior product to cable by a significant amount,” Mr. French said in an interview.

BCE has also been investing in its infrastructure, including its fibre-optic internet and 5G wireless networks, to prepare for the heightened competition post Rogers-Shaw merger, chief executive Mirko Bibic said during the company’s annual shareholder meeting, also held on Thursday.

“With the very best networks, the best brands and the best customer experience, we’re going to be well positioned to be competitive against all those who are in our industry. And let’s not forget, we’ve been competing against these players for years and years and years, quite successfully,” Mr. Bibic said.

Telus reported $4.96-billion of revenue for the three-month period ended March 31, up 15.9 per cent from a year ago when it reported $4.28-billion of revenue. The Vancouver-based telecom attributed the increase to growth in its health business, driven by its acquisition of human-resources company LifeWorks Inc., a rebound in roaming revenues and new wireless and internet subscribers.

Its profit for the quarter came to $224-million, down 45 per cent from the same quarter last year, when it had $404-million of profit.

The company blamed the decrease on higher depreciation and amortization relating to its accelerated network investments, and restructuring costs related to its integration of LifeWorks. The company also made a lump-sum payment of $67-million related to ratifying its new collective agreement with the Telecommunications Workers Union, United Steelworkers Local 1944.

After adjusting for restructuring and other costs, Telus’s profit came to $386-million, down 7 per cent from a year ago, while its adjusted basic earnings of 27 cents per share were down 10 per cent. Analysts had been expecting adjusted earnings of 26 cents a share and revenue of $4.89-billion, according to the consensus estimate from S&P Capital IQ.

Montreal-based BCE reported $6.05-billion of revenue in its first quarter, up 3.5 per cent from a year ago. Its profit came to $788-million, down 15.6 per cent as it grappled with inflationary cost pressures.

After adjusting for severance and acquisition costs, asset impairments, losses or gains on investments and other items, BCE’s earnings came to $772-million, down 4.8 per cent from a year ago. The adjusted earnings amounted to 85 cents per common share, down 4.5 per cent from 89 cents a share a year ago. That beat analyst expectations of 77 cents per share of adjusted earnings and $5.99-billion of revenue.

The company also announced that its chief financial officer, Glen Leblanc, is retiring in September. He will be replaced by Curtis Millen, who is currently senior vice-president, corporate strategy and treasurer.