Bell Q2 2012 Results

Bell Q2 2012 Results

Wow, another great quarter from Bell.  They really seem to be executing at a new level.  I bet the private equity firms who were going to buy BCE are kicking themselves right now?

Gross Adds

Gross adds were good for Q2, although down 10% Y/Y and down 4% for postpaid gross, but so were Rogers (down 14% and down 7%postpaid) and TELUS (down 12% and down 8% postpaid).

 

Net Adds

Overall Nets were up a healthy 29% up at 47,208 which was significantly better than Rogers and TELUS who both has lower nets Y/Y.  But one should take into account that Postpaid Nets were only up 8% at 102,067 and that the lower net losses on prepaid drove most of the overall net growth.  Bell has now had 10 consecutive quarters of negative nets in prepaid.  In fact the prepaid base is shrinking so quickly, it is improving blended churn and blended ARPU metrics.  By comparison, Rogers was down 70% Y/Y for overall nets and down 19% for postpaid nets, from 108,000 to 87,000.   A solid adds quarter for Bell considering the market.

 

Churn

Blended churn improved dramatically from 2.0% last Q2 to 1.7%, the lowest since Q2 09, or 12 quarters!  This is a very good result, but before we celebrate too much, both Rogers and TELUS (Q2-11:1.67% down to Q2-12:1.39%) also enjoyed good churn improvements, suggesting that there might be more than meets the eye.  Firstly since Bell has a much small base of prepaid subscribers, their impact on blended churn is less.  Or calculations suggest that as much as 25bps of blended churn can be attributed to the shrinking prepaid base.  Secondly and more significantly, we believe there were few churners in many carriers, including Verizon and AT&T who had their best churn numbers in many years.  We think this is the iPhone 5 effect.  Despite enormous success, many Androidphiles waited for the prices to drop on the Samsung Galaxy S III, which is probably the best phone ever made…so far.  At $700 without a contract and over $200 on a three year contract, the Samsung Galaxy S III is still a very expensive Android device.  A recent survey showed that up to 90% of current iPhone users intend to upgrade to an iPhone 5.  So anyone who has an Apple device did not move carrier this quarter.  The same goes for RIM, where loyal RIM users see no reason to change carriers until a new RIM device emerges.  We suspect they will wait for BB10 before moving.  If we assume that Apple has about 30% market share a year ago and RIM 40%, at least 70% of smartphone users are playing a waiting game.  So we believe that all the smartphone churn was probably subscribers leaving RIM to go to Android?

Blended Churn Share Incumbents Bell

Bell’s share of blended churn increase sequentially but was down y/y

In a quarter where all carriers move in the same direction, share is often the best way to determine the winners and losers.  From a share of churn perspective, Bell and TELUS were down Y/Y but only Bell was up sequentially over Q1.  The pattern is the same, but more dramatic in postpaid churn.  Bell’s share of postpaid churn was up to 34.1% (Q2-11 was 32.8% and Q1-12 was 32.4%).  While Rogers still lost the most postpaid customers, they have a larger base.  See the charts.

Postpaid Churn Share Incumbents

Bells share of postpaid churn increases

 

 

ARPU

Blended ARPU was up a healthy 4.5% of blended ARPU growth.  Bell says a combination of lower voice and higher data revenue growth of 31.1% pushed the Blended ARPU higher.  While we are impressed with the data growth, the voice declines are not good news especially considering that Bell had an unusually good quarter in terms of MoU improvement of 7% Y/Y bringing this metric North of 300 for the first time since Q3 2009.  As with churn, some of the Blended ARPU improvement can be attributed to a smaller prepaid base.  We have not done the math yet, but will update once we have.  Either way, ARPU growth is always a good thing especially when Rogers is experiencing ARPU declines in the same market conditions.

 

Revenue and EBITDA

Revenue was up 6.7%, mainly due to more subscribers, more smartphones and more data usage.  Bell’s wireless EBITDA grew a huge 20.9% to $556m.  This is a fantastic result.  Bell says it is the best since Q1-07, but this might actually be the best ever?  Don’t forget that this was on the back of lower gross and churn, improving both COA and COR spend.  COA per subscriber was also lower and Bell has been working hard at their costs.  A great result, well done.

Conclusion

A great quarter, difficult to find anything wrong with it.  Well done.

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