Wireless

Bell vs Rogers Q3 2012

Bell vs Rogers Q3 2012

Bell and Rogers had very different wireless results.

Gross Adds

Overall gross was down y/y for both companies, but this appears to be a strategic shift away from lower value prepaid subscribers.  Postpaid gross was marginally up for both Bell 373k ( y/y growth 0.1%) and Rogers 386k (y/y growth 1.6%) for the third quarter, but the big difference came in postpaid nets.

Net Adds

Bell’s postpaid nets adds grew 17.1% y/y to hit 148.5k for the quarter.  This was almost double Rogers at 76k postpaid nets (growth of 2.7%) despite higher gross.  Much of this was on the back of much improved churn.

Churn

Rogers postpaid churn improved 2bps to 1.34% for the quarter but Bell’s improved a whopping 30bps to 1.2%.  This meant that postpaid churn volume for Bell dropped 14k to 231 in the quarter, while Rogers postpaid churn volume was flat at 306k postpaid churners.  This is the most significant churn improvement we have seen in any carrier in North America for Q3.

In the investor call, George Cope credited John Watson with improvements in customer service for the dramatic change in churn.  He also said that they are getting more share of enterprise customers who also churn less.    We also notice a 20% y/y increase in retention spend and a flawless iPhone 5 launch.  (TELUS and Rogers both struggled to activate iPhone 5s, although George Cope dismissed this as not significant).   Whatever you did keep doing it.

Financials

Bell also blew the lights out on the financial results.  While they still trail Rogers in terms of Revenue, EBITDA and margins, they showed a significant improved y/y, closing this gap quicker than expected.   Bell’s service revenue grew 6.4% to $1,307m while Rogers grew 2.2% to $1,744m.  Bell’s EBITDA margin grew 322bps to 42.4% to deliver $554m EBITDA while Rogers Adjusted Operating Profit margin grew 0.71% to a record 48.3% producing $843m AOP.

Conclusion

Fantastic quarter for Bell’s wireless division, they invested more CAPEX, loaded more postpaid smartphones, saved more churners and improved margins.  Rogers have a bit more work cut out for them.

More detailed analysis after TELUS has reported.

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Wireless: Verizon vs. AT&T

Wireless: Verizon vs. AT&T

Verizon wireless and AT&T wireless just posted very different Q3 2012 results.  Both companies pointed to many metrics to show improvements, but some of this is the overall market.  What matters to me is their relative performance over time.  Let’s explore some key comparisons before concluding who actually won the quarter:

 

Gross Adds

For gross adds, we have focused on postpaid retail numbers only.  This is the profit engine and the proving ground for sales and marketing success.  Our calculations suggest that Verizon wireless loaded 4 million gross postpaid retail subscriber to AT&T’s 2.4 million.  While Verizon needs to load more gross to stay flat, since it has a larger retail postpaid base, this certainly is a decisive win for Verizon.

postpaid_gross_adds_Q3_2012_verizon_att_wireless

Postpaid Gross Adds – Calculated

Listening to the AT&T quarterly call, we believe this was in part due to AT&T’s decision to keep all the iPhone 5 stock for existing customers.  This shows in their postpaid churn which improved significantly over Q3 2011 despite the earlier launch of the iPhone.

 

Churn

Churn is traditionally measured as a percentage of the base on this metric, Verizon came in with a stellar 0.91% postpaid churn while AT&T also improved to deliver 1.08% postpaid churn.

post_paid_churn_Q3_2012_verizon_att_wireless

Postpaid Churn

This means that Verizon lost approximately 2.4m postpaid subscribers in Q3 to AT&T’s loss of 2.2m postpaid subscribers in Q3.   For AT&T this was around 100k fewer losses versus Q3 2011 while for Verizon this was in fact more than 30k more subscribers lost.  The second learning we get from this is that while AT&T could have achieved their entire gross from Verizon losses, the converse it not possible.  This leads us to believe that Sprint and T-Mobile continue to lose significant customers who signed up at Verizon.

Postpaid_churn_volume_Q3_2012_verizon_att_wireless

Postpaid Churn Volume – Calculated

Together gross adds and churn provide us with what looks like a very unbalanced quarter in terms of net adds.

 

Net Adds

Again we will focus our analysis on postpaid retail.  Here Verizon added 1.5m postpaid subscribers, more than the last 2 quarters put together and nearly double last Q3.  AT&T on the other hand added a dismal 150K postpaid retail subscribers.  It looks like they really did keep all the iPhones for existing customers!

postapid_net_share_Q3_2012_verizon_att_wireless

Postpaid Net Share

 

 

Smartphones

The smartphone numbers were particularly interesting.  Both had record loads for smartphones, Verizon loaded 6.8m smartphones in the quarter to AT&Ts 6.1m.  Considering AT&T’s gross was approximately 2.4m this is over 4m (and close to 6% of base) that were upgraded to smartphones.  Verizon on the other hand did approximately 3.6m smartphone upgrades which was less than 4% of their base.  The second point of interest in smartphones was the iPhone.  Verizon loaded 3.1m iPhones of which 650k (or 21%) were iPhone 5.  AT&T on the other hand loaded 4.7m iPhones of which 1.3m (or 28%) were iPhone 5.   This has two impacts:  Firstly operators have to subsidize iPhones more than Android and other smartphones, costing precious EBITDA in the short term, but secondly iPhone customer generate higher ARPU and are more loyal.  So short term loss for AT&T, but long term win.

 

 

ARPU

Verizon stopped reporting ARPU, so our analysis only includes a calculated ARPU which is not accurate, but is probably directionally appropriate.  Our calculations suggest that despite being approximately $10 per subscriber higher on ARPU, that AT&T had a postpaid ARPU increase of 2.37% to Verizon’s (our estimate) postpaid ARPU increase of 2.59%.  We concur with the executives of both companies that the data share plans will be accretive, especially if they can attract customers away from value destroying unlimited plans.

ARPU_Q3_2012_verizon_att_wireless

Postpaid ARPU

 

 

Network

We were very impressed with AT&T’s network numbers.  It is about time they invested in a big way and we believe that network superiority is a necessary (but not sufficient) condition to attract and retain the best customers.  Well done.

 

Financials

Both enjoyed improved margins and higher revenue.  Where most operators around the world are struggling to maintain ARPU, both Verizon and AT&T have enjoyed data growth faster than voice melt.  If they can continue to manage the transition from voice to data, they are already better than most operators globally.

 

Conclusion

While AT&Ts quarter was not as good as the headlines suggested or Verizon’s, it was a good foundation for future quarters.  Verizon continues to be the clear winner and we cannot see any amount of M&A or foreign investment changing this in the short or medium term.   If AT&T can use their new LTE network to deliver the speed and consistency of Verizon’s they could alter the balance of power while Verizon goes through a more complicated migration from EVDO to LTE.

 

 

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RIM Outrage Outage

RIM Outrage Outage

It is a strange time to have a RIM outage.

 Why some of us switched

About this time last year, RIM had a significant outage, for some users it lasted up to five days.  After more than a decade of carrying a Blackberry on my hip and at least 15 different blackberries, sad and frustrated, I too switched to Apple.  I did not stand in a line or pre-order the device, it was more impulsive than that – I saw the store brimming full of excited new iPhone 4S users, gave my sad blackberry one last check – the last email received was 5 days old – it was an easy decision.  Since moving to Apple, I have enjoyed many of the consumer functions, but missed the keyboard, businessy stuff and the ability to actually sleep next to my device.  I rarely use my iPhone for music, video and games, as that kills the battery and then I can’t use it to satisfy my primary use – communication.  It is very good at FB, Linked-in, Skype and I really appreciate the integration of iMessage into SMS (it sends text messages as iMessage when possible, otherwise as text messages, whereas BBMs and SMSs were separate on my last Blackberry).

Getting used to my iPhone

During the last year I have got used to the iPhone keyboard, with some very embarrassing mistakes like texting our nanny saying “are you loose?” instead of “are you close?” and recently it changed “Mimico” to “minicomputers”, which caused a lot of confusion.  Now, as of a couple of days ago with iOS6, one can finally put your iPhone in “Do not disturb” and get a whole nights sleep.  Although it does not change state automatically when you charge and you have to remember to turn the notifications back on in the morning, otherwise, you miss everything.

 Disturbing my sleep

But what I find really disturbing is the timing of this latest RIM outage.  What are the odds that RIM would have a major outage on the day of a competitor’s launch?  Must be pretty small.  For it to happen twice in one year and both times to coincide with the launch of the latest iPhone?  Maybe I should stick with the 4S until the BB10 is released and compare it with the iPhone 5 before committing to another contract and device?  What do you think?

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iPhone 5 Launch date

iPhone 5 Launch date

Today reports in the WSJ suggest that Sharp has fallen behind on the production of the iPhone 5 screens.  http://on.wsj.com/R1aWVJ  This will almost certainly impact the launch date and will impact iPhone 5 supplies.  Does the date of the iPhone 5 launch matter to Canadian wireless carriers?  We think so:

Launch in Early September?

If the iPhone 5 were to be launched in early September and there were no availability issues (Rogers reported these with the 4S), then we think this would be better for the carriers.   We think this has been a relatively quiet period in terms of new loads and churn for all the carriers, following the best churn quarter ever in Q2 2012.   Our hypothesis is that churn was low because many customers are waiting for the new iPhone.  So an early launch would mean that churn and gross would both increase in Q3, which would not be a bad thing considering how they have already had two very quiet months in Q3.  The churn and COA will be spread over two quarters.

Launch in early October?

Most churn will come in one quarter and Q4 is normally a big quarter anyway.  Ardent Apple-philes could offload their 1 year old 4S to get the newer device causing a second wave of carrier independent churners.  All the churn, COA and seasonally higher retention spend will occur in Q4.

Conclusion

Most reports suggest either Sept 12 or 21 as the announcement date.  It is probably fair to add two weeks for first availability and another two weeks for reasonable volumes in Canada.  Timing will make a difference.  EBITDA margins should be lower due to higher COA and retention spend in the quarter that Apple releases their next device.     This could impact short term investors.  Either way, incumbent wireless carriers could have the best and worst financial quarters in the same year.

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Disappearing Canadian Landlines

Disappearing Canadian Landlines

 

Substitution?

Churning landline customers are leaving telcos, but they are not going to cable

For the last 14 consecutive quarters, the telecoms companies of Canada have lost more subscribers than the cable companies have gained.   This had happened a few times in the past, but was put down to timing like moves in Quebec.  The real driver for telecoms landline losses was cable.  Not anymore.  In Q2 2012, Bell, TELUS, MTS and Bell Aliant lost nearly 188,000 landline subscribers between them.  In the same period, Rogers, Shaw, Videotron and Cogeco only added 56,000 cable telephony subscribers.  Note that MTS actually added landline customers, something that has happened every Q2 for the last six years.

Canadian landline subscribers

Telcos are declining and cablecos increasing, but not at the same rate

Fixed wireless substitution

In previous quarters telecoms executive have put this down to customers increasing reliance on wireless.  This makes sense with improved wireless coverage and speeds for wireless data (since many took a landline because they needed the internet anyway and cable companies offered landline for as little as $10 extra if you took a bundle), but it is not supported by the data.  The last CRTC published number of 13% wireless only households in 2010 was significantly below the USA equivalent at 25% at the same time.  We also have not seen an uptick in incumbent postpaid subscribers that one would associate with wireless only households.

 

Anatomy of a wireless only household

Why would we expect the wireless only subscribers to be postpaid and with incumbents? If you only have one phone, firstly it would need to work at your home with good in-building coverage.   New entrants WIND and Mobilicity have less coverage and weaker indoor signals due to less effective AWS spectrum.  If we further assume that many wireless only households will also be in condos as this demographic is more likely to be comfortable relying on wireless, they would probably have to sign up with an incumbent to get coverage above the 5th floor in a concrete and steel structure.  So why postpaid rather than prepaid?  Well assuming this demographic wants a smartphone that will serve all their household needs, they will want the handset subsidy and voice/data plans that can support all their needs.

 

The numbers

As you can see from the chart the telcos continue to shed customers in business and consumer.  At the same time, the cablcos are not growing their cable telephony bases.  If they are not going to wireless, we can only assume that they are going to smaller VoIP providers.

Landline net adds

The telcos continue to shed customers, but they are not all going to cable companies

 VoIP providers

There is a growing number of small CLEC and VoIP providers.  Many of these offer very reasonable termination rates, Long Distance at the same price as local and significantly lower MRC.  In addition all of the features like voicemail, caller ID and 3-way calling come standard.  Starting a CLEC or VoIP provider has never been easier and the low capital requirements mean many can offer services at much lower rates, but customer acquisition is still a problem.  Particularly in an industry where the same telcos and cablecos dominate the media which is required to advertise your services and create a new brand.  Even reasonably well funded wireless new entrants have struggled to create a proposition where you can acquire a new customer at an investment that makes sense.  It might make sense for a company like Bell to acquire a new wireless customer at $400 since they will make this back in the year and have financing at a cost of capital less than 3%.  For a new VoIP company to make a return the acquisition costs per customer need to be significantly lower, probably less the $20 per customer.  But $20 per customer does not even get you the first page of a Google search, which relegates them to word of mouth, radio and affordable outdoor advertising.   But these media also have a self selection problem, so they attract the wrong customers, who they never make any money from.

 

Conclusions

Telcos and eventually cablecos will continue to lose customers to wireless and better VoIP providers.  According to the CRTC there are 605 licensed VoIP providers that must establish brands and this probably means significant consolidation to get economies of scale.  Ironically VoIP providers need very little scale to provide a service, in fact this is one of their competitive advantages against the ageing technology of the landline.  But they do need scale to achieve customer acquisition at a reasonable investment.

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Prepaid’s declining relevance in Canada

Prepaid’s declining relevance in Canada

Looking at the last few years there have been some dramatic changes in prepaid in the Canadian market.   Canada might already have the lowest percentage of subscribers of any market we know.   The chart below shows how Bell, Rogers and TELUS compare with Vodafone operators in 21 countries.   This chart shows that only the UK, Spain and the Netherlands have less than 50% prepaid and Italy has 82.5% prepaid.

Prepaid as percentage of total subscribers Vodafone vs. Canada

Canada remains a postpaid market in a prepaid world

 

Trending lower

All of the incumbent carriers are shedding prepaid customers in favor of postpaid customers, while the new entrants engage in a price war for the bottom end of the market.   Bell has consistently being moving away from prepaid since Q3 2007 and only increased before this on the back of Virgin.  Rogers has been moving towards postpaid consistently until the introduction of their second fighter brand chat.r and TELUS increased their prepaid mix with the introduction of Koodo, but prepaid percentage has been declining for all incumbents recently.

Prepaid Net Adds for Canadian Incumbents

Incumbents look to be exiting the prepaid business. Bell has not had positive net adds in prepaid for 10 quarters, TELUS only once in 6 quarters.

ARPU & Churn

Since prepaid is becoming a less significant part of the overall customer base, it has positive impacts on two key metrics:  Churn and ARPU.  The recent success in the incumbent blended ARPU increases and blend churn declines can in part be attributed to a smaller base of prepaid subscribers.

 

Prepaid as percentage of total subscribers - low and trending down

All incumbents are shedding prepaid subscribers

Strategic

It seems like the incumbents have made a strategic decision to move away from prepaid.  They have managed to entice many more subscribers into expensive postpaid plans by offering great subsidies in return for a 3-year contract.   So fickle subscribers who might be switching prepaid SIMs in other counties are instead stuck with a carrier sponsored SIM-locked high-end device.  This has led to higher rates of smartphone adoption and our carriers offer some of the best network coverage, quality and speed on the planet, but at a price.  The incumbents have very cleverly isolated the price war to lower end devices, on slower networks with less coverage.  So the new entrants fight for fickle customers who will leave to save a few cents, while the incumbents have managed to keep healthy margins and maintain their already high price per minute and price per megabyte charges.

 

Conclusion

It seems hard to believe that Canada is so different in terms of the overall market structure, yet the incumbents are going from strength to strength by playing by a different set of rules to the new entrants.   Despite much help from our government, finance and knowledge from abroad, the new entrants have been unable to re-invent the Canadian wireless landscape.

 

 

 

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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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Rogers Wireless Q2 2012

Rogers Wireless Q2 2012

(first draft – no graphs yet either)

Too much cash?

Before we get into the wireless results, Rogers paid back dividends of $207m and repurchased 9.6m shares for $350m returning a total of $557m in the quarter.  Incredible. To put this is perspective, this is more cash returned to shareholders than Shaw Communications will create this whole year (Shaw’s revised guidance is $450 free cash flow for the FY 2012).

CAPEX

Although they give good reasons for investing less in pp&e than Q2 2011, we don’t see a good reason for them to be investing less than Bell and TELUS. Assuming you agree with us that the Bell-TELUS network is larger and superior, we believe that now is a good time to out invest its collaborating competitors.  There must be opportunities to increase the LTE footprint and improve back haul to these sites, particularly in the West.

Gross

Postpaid gross adds were impressive.  This is before the Samsung Galaxy S III launch in Q3 and  before back to school, which is traditionally Bell’s quarter to shine.  Gross was down significantly, but we would be interested to see the other incumbents results before passing judgment.  Rogers was significantly down in both postpaid and prepaid gross loading.  They struggled to load new prepaid customers in a quarter where new entrants focused on price to hold their share.  We believe it was sensible to forego the share and keep prices at a reasonable level. Good call.

Churn

Postpaid Churn was much lower at a impressive 1.15% which improved both sequentially and year or year for the quarter. While some of this was driven by their innovative FLEXtab, allowing a more flexible upgrade path, we believe that the timing of the blockbuster devices Samsung Galaxy S III which launched in Q3 and the iPhone 5 which will almost certainly launch in Q4, had a big impact on churn and we should see similar impacts at Bell and TELUS.  While not at Verizon (0.84%) or AT&T (0.97%) levels, this is a good result.   Prepaid churn at over 4% was ugly, driven by uncompetitive prepaid plans. But if you are going to lose any customers, it is better to lose he price sensitive low end prepaid customers.

Nets

Postpaid nets were good on he back of lower churn.  Prepaid poor on the back of low gross and high churn.

ARPU

ARPU declined less than expected in postpaid on the back of strong data revenue growth.  His was mostly driven by an increase in he mix with more smartphone than ever.  It remains a concern that with a huge increase in smartphone base, hat the data revenue is growing at a much slower rate, suggesting reprice. There is also significant reprice in voice, where MOU increased, but lice ARPU decreased. With a relatively small gross quarter this suggests that it might be a result of base reprice rather than LTOs offered to entice new customers.  Base reprice while you are upgrading to smartphones is not a good thing.   Interestingly AT&T who also released results today, improved their postpaid ARPU by 1.7% for the quarter.

Revenue and operating income

Revenue increased modestly and operating income improvements were appealing based on cost cutting and productivity improvements. But profit is always going to be good in a low gross quarter.

Conclusion

Overall a good quarter to generate some cash while customers wait for he big devices of the year.  Well executed.

 

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Verizon Wireless Q2 2012 results

Verizon Wireless Q2 2012 results

This last quarter Verizon Wireless really blew the lights out.  This shows what a combination of a good strategy and good execution can achieve.  If in any doubt as to who is winning in the market, look at the charts.

Revenue Growth

Retail Service Revenue grew 8.6% y/y to $15.2Bn on the back of Retail postpaid revenue growth of 8.3% and retail prepaid revenue growth of 27.2% y/y.  Data revenue was up 18.5% y/y to $6.9Bn.  Data revenue now accounts for 43.6% of service revenues.  Considering the overall economy in the USA, these growth rates are fantastic.

USA wireless quarterly revenue

Verizon Q2 2012

Net Adds

While retail net adds were down to 1,178k from 1,318 in Q2 2011, retail connections still grew 4.9% y/y on the back of very impressive churn numbers.

They added 888k retail postpaid nets and 290k retail prepaid adds, resulting in an increase in retail prepaid base from 5% to 5.6% y/y.

Churn

Retail postpaid churn dropped to a very impressive 0.84%, which was down sequentially from 0.96% and from 0.89% y/y.  This was the lowest retail postpaid churn in 4 years.  Only 7% of retail postpaid base upgraded during the quarter, we suspect this is the iPhone 5 waiting game?

USA wireless postpaid churn

Verizon continues to win on the churn front

 

Smartphones

Retail Smartphones grew 13.8% to reach 50% of the base.  5.9m smartphones were sold in Q2 and 73% of postpaid phone sales were smartphones.  41% of smartphone upgrades came from phones, rather than other smartphones.  Low churn and more smartphones together drove ARPU improvements.  There were 3.2m 4G LTE devices sold in the quarter, bringing the total to 10.9m devices reaching 12.2% of retail postpaid connections.

ARPU

Retail Postpaid ARPU grew 3.7% y/y to $56.13 while overall phone ARPU grew 4.9%.  Retail postpaid data ARPU was up 15.4% y/y to $24.53.

USA ARPU

Even in this market Verizon managed to improve ARPU

Profit

EBITDBA Service margin reached an impressive 49% on the back of $2bn in expense reduction target in 2012.

 

Conclusion

Great quarter.  We assume the iPhone 5 launch will cause significant upgrades and new additions once launched.

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CEO performance measured by share price

CEO performance measured by share price

Sometimes new leaders can re-invigorate a business, find low nagging fruit and produce superior returns.  Sometimes financial performance improves, sometimes a new executive is just lucky on timing.  In the blog we will measure only one thing: Share price increase from the week before until now measured against peers and similar companies.  Below is the summary table which shows each company’s share prices percentage increase compared with the average of the four (Bell, Rogers, Shaw and Telus) during the tenure of the current CEO.  It also shows the company’s performance compared with the other companies during their tenure.

 

Difference from Cope Mohamed Brad Shaw Entwistle
Average

1.03%

-21.07%

-23.80%

9.45%

 
Bell

0.00%

-51.48%

-36.69%

-7.07%

Rogers

20.55%

0.00%

-12.06%

-29.26%

Shaw

16.36%

26.97%

0.00%

45.85%

TELUS

-32.81%

-59.76%

-46.46%

0.00%

For a more detailed look, we will go alphabetically by company:

BCE: George Cope

George Cope became CEO on July 4, 2008.   After 4 years, many acquisitions including Virgin, The Source, CTV, MLSE (1/2) and Astral Media.  Bell has also laid off thousands of employees, increased dividends many times and in total BCE has increased revenue from $17.7bn to $18bn over three years (CAGR 0.51%), all resulting in a share price increase of 15%.  By comparison, TELUS enjoyed a 48% increase in share price during the same period.  During the same period of time, Rogers had negative 5% increase in share price while Shaw was pretty much flat with a 1% decrease over the same period.    In the eyes of investors, BCE took value from Rogers and TELUS took value from all.  One might argue that BCE’s share price was high at the time he took the helm because of the pending closure of the privatization, but that did not happen.  If you measure George Cope from the point just after the privatization collapsed (Dec 19, 2008), the share price increase would be significantly better at nearly 100%, (TELUS 75%, Rogers 14% and Shaw at -8%), but then BCE did use unpaid dividends during the strategic review to increase dividends afterwards.

Bell Share price vs peers during Cope Tenure

Bell Share price performance vs peers during George Cope tenure

Rogers: Nadir Mohamed

Nadir Mohamed became CEO on April 4, 2009.  Since then he has restructured the cable and wireless businesses into one division, expanded media and acquire the other half of MSLE.  Under his leadership Rogers have taken fewer big bets, but have be consistent in delivering financial results if not subscriber results.  Recently Rogers started cost cutting, it seems to make Bay street happy, but even this has not allowed his share price to shine.  During his time in office, Rogers has increased it share price by a very reasonable 27.37%, which seems like a lot compared with Shaw who were again almost flat at 0.85% decrease.  But BCE had a stock increase of 68.34% and TELUS of 79.56%, over the same time period clearly marking a shift from cable company to telephony.  Note that from when Ted Rogers passed away to when Nadir Mohamed took the helm, the stock had already dropped 15%.

Rogers share price performance vs peers during Nadir Mohamed tenure as CEO

Rogers share price performance vs peers during Nadir Mohamed tenure as CEO

 

Shaw Communications:  Brad Shaw

Brad Shaw always had a tough act to follow, after his older brother Jim grew the business almost 10 fold during his tenure.  Brad Shaw cancelled wireless, instead focused on wifi and faster deployment of new set-up boxes.  During his relative short tenure, he has increased cable sales by 4% and profit by 2%.  There have also been a steady flow dividends, by increasing the payout ratio to around 85%.  Since Brad Shaw took the helm, the Shaw share price has declined 8.77%.  At the same time Rogers has increased their share price by 2.79% despite losing the wireless advantage to TELUS and Bell during this time frame.  BCE has increased 27.3% and TELUS has increased 37.82% showing a strong swing away from Shaw towards TELUS during Brad Shaw’s leadership.

Shaw share price performance vs peers during Brad Shaw tenure as CEO

Shaw share price performance vs peers during Brad Shaw tenure as CEO

TELUS: Darren Entwistle

In the 12 years that Darren Entwistle has led TELUS, much has changed.  Their wireless business has grown from strength to strength, their emerging TV business is easily taking back customers previously lost to Shaw and their acquisition strategy, unlike the others has been focused outside media.  In the last three years, they have acquired two healthcare related businesses in Emergis and more recently Wolf.  They also acquired Black’s to improve their wireless distribution.  There has been less focus on mass layoffs and cost cutting for the sake of it.  Revenue CAGR has been 4% in the last 7 years and EBITDA 2%, but most of this is organic growth rather than the acquisition fueled growth of Shaw, BCE and Rogers.  During Darren Entwistle’s time in office, the share price has increased a healthy 53.72%, but Rogers has increased nearly 83% in the same time frame.  Shaw grew 7.87% during this time.  (Note that BCE’s data only starts in 2006 for the purpose of this comparison.)

TELUS share price performance vs peers during Darren Entwistle tenure as CEO

TELUS share price performance vs peers during Darren Entwistle tenure as CEO

 

Conclusion

In terms of overall share price performance, Darren Entwistle is the clear leader, but then he has been in his role longer and there were times when his share price was under water.  On the other end of the spectrum, Brad Shaw is still struggling to find his feet in terms of share price performance versus peers.

Overall all these companies have increased their dividends significantly faster than the companies have grown or their profitability improvements.  While good for shareholders in the short term, we worry that none of them are investing enough in the future, while they reap the rewards of their predecessor’s investments (except Darren Entwistle, who made the original investments to reap today’s rewards).

 

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