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.

No comments

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.

 

 

No comments

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.

No comments

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.

No comments

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.

 

No comments

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.

No comments

TELUS Wireless Results Q1 2012

TELUS Wireless Results Q1 2012

This was an exceptional quarter for wireless at TELUS.  We were very impressed with Bell’s wireless numbers, but it seems like TELUS has trumped them on almost every number.  To really understand how well the companies are doing, we find comparing them with each other more useful than comparing themselves with previous quarters, which is the tradition.   This assumes the past is a predictor of the future, which it is not.

Gross Adds

Gross adds were down for TELUS y/y but despite significantly less distribution still delivered 363k which is respectable for a first quarter, which is always lower in gross.  This was 6% lower than the previous year. Gross Postpaid at 257K also declined, by 5.5%.  TELUS share of gross in the incumbents was 29.3% vs. last year’s Q1 at 29.6%.

Net Adds

Overall Net Adds were down 31% to 22k on the back of a 105% increase in prepaid losses.  All incumbents lost prepaid subscribers, which is a seasonal effect.

wireless prepaid nets Rogers Bell TELUS Q1 2012

Prepaid Nets Q1 2012

TELUS has had negative nets in prepaid for the last 3 first quarters.  Postpaid Net Adds were up a healthy 21% on the back of very good retention and churn numbers.   Interestingly TELUS spent 6% less on retention than a year ago, suggesting that their networks, brand and customer service are keeping customers without the need to purchase their loyalty.  With Bell and Rogers having negative nets, TELUS was the only incumbent that grew its subscriber base in the quarter, suggesting a big quarter for the new entrants.  Perhaps we can see WIND and Public beat 100K nets and Mobilicity beat 50K?

Smartphones

TELUS had a great quarter for smartphones, loading 19% more smartphones or 175k over the previous Q1 at 147k.  This brings the total smartphone base to 56% of postpaid subscribers.

Churn

Blended churn was 1.55% down from 1.70% a year ago.  This is a tremendous achievement considering how the other incumbents have experienced more pressure.  While the absolute number of postpaid subscribers increased close to 6% for Bell and Rogers, TELUS reduced the number of postpaid churns by nearly 12%.

EOP

TELUS grew it EOP by a modest .3%, but this was better than the subscriber losses of Bell and Rogers.  Postpaid EOP was up just over 1% sequentially.

Postpaid Canada incumbent subscriber growth

Growth starts to slow for the incumbents

ARPU

TELUS Blended ARPU grew, while Rogers declined, keeping TELUS at the top of the ARPU leaderboard for the second straight quarter.  AT $58.87, this is industry leading ARPU with a significant $22.83 coming from data.  Clearly TELUS is attracting the high end smartphone subscribers that the incumbents all say they are getting and we can see the impact in their accretive ARPU.

Revenue and EBITDA

Network revenue was up 7% at $1.288bn, a great Q1 performance.  Margins grew over 5% or 2.5pts to deliver industry leading EBITDA of $622m.

Summary

This was a fantastic quarter for TELUS.  They have showed that despite fewer points of distribution, that better execution can turn fewer gross into more nets, delivering better in quarter EBITDA without having to invest incremental COA in new customers or having to invest more in retention spend to prevent churn.  A lower gross, lower churn, higher nets model will reward them with significantly better financial results to come.

No comments

Bell vs. Rogers – Smartphones

Bell vs. Rogers – Smartphones Q1 2012

Big increases in Bell smartphones

In Q1 2012, Bell made a huge leap forward in smartphones.   Rogers said they had such a big quarter of smartphone loads because of iPhone 4S shortages in Q4 2011, yet Bell loaded 523K smartphones to Rogers 640K smartphones in the quarter.  Bell increased 45% in volume of smartphone loads vs. Rogers 20% compared to Q1 2011.  And Bell was up 47% over Q4 2011 while Rogers was down nearly 20% over Q4 211.  But it was Rogers that complained of iPhone shortages?  This is a huge change!

Bell v Rogers smartphone war

Bell winning on smartphones

But made sure they were value enhancing

Bell went from 34% smartphones to 52% in one year, while Rogers went from 45% to 70% in the same period.  So Rogers actually grew their smartphone base faster.  But looking at the relative spends on retention, Bell could be getting new smartphone customers who are ARPU accretive vs. Rogers who are upgrading existing smartphone users, perhaps to new rate plans which are value destroying, hence the difference in smartphone ARPU trends.   Since Bell did not disclose this number, so we can’t be sure, but either way, I think there is more value in an operator with lower smartphone penetration and increasing ARPU, rather than Rogers with declining ARPU and 70% smartphone penetration.

 

 

No comments

Bell Wireless Results Q1 2012

Bell Wireless Results Q1 2012

Bell’s wireless results were fantastic.  Both in terms of metrics and financials, Bell really did well in Q1 2012.  Until TELUS reports, we cannot be 100% sure, but it looks like in an overall market that we relatively flat in terms of gross adds, Bell focused on postpaid subscribers in business and out West, to bring home a great quarter.  This indicates an exceptional example of delivering to plan, where execution must have been harmonic to be able to achieve the following three metrics together:

Gross Adds

Postpaid gross was down but only 2% down, (Rogers was up) but still better than five out of the last six Q1 postpaid gross results.  Prepaid gross was down a whopping 24% over Q1 2011, confirming Bell strategy to focus on the more lucrative postpaid business.

Net Adds

Net losses (21,327) were not good due to huge losses in prepaid subscribers and postpaid

Rogers and Bell Prepaid Nets Q1 2012

Incumbent prepaid nets in Q1 2007-2012

net adds were 22.4% lower at 62,576.  The lower postpaid nets was driven by a combination of lower postpaid gross and postpaid churn of 231,000 subscribers.

Churn

Prepaid unsurprisingly got worse at 3.9% but postpaid churn improved in terms of percentage from 1.41% to 1.35%.  This is very impressive but especially since we did not see a huge retention spend (approximately $120m) and this improved sequentially from 1.52% in Q4 2011.  A dramatic turnaround in one quarter indeed.  Churn still remains our biggest concern with Bell, but if they can turn this into a trend, that would be exciting for shareholders.

EOP

Postpaid EOP growth was slow at 2.2% versus Q1 2011 when it was 5.2%, but this was largely driven by higher churn (lower percentage of a bigger base lead to 231K postpaid subscribers leaving vs. Q1 2011 where only 219K left.  Even Rogers with dire results grew at 3.3% off of a large gross loading number and lower postpaid percentage churn.

Revenue & EBITDA

Revenue was up 5.1% (6% for service revenue which is the important number) and EBITDA up a very impressive 13% on widening margins, which grew y/y from 36.9% to 39.5%, nearly breaking the key threshold of 40%.  In the call they said they had 500 fewer employees in wireless, but this does not account for all of the improvement.  They must have executed both their hardware subsidies and their smartphone upgrades incredibly well since retention spend and COA were still very modest.

Impact on New entrants (WIND, Mobilicity & Public)

Looking at a combination of Bell and Rogers, the incumbents have already lost 50% more prepaid subscriber than the total for Q1 2011.  This bodes well for new entrant loading.  Assuming they do not have high churn numbers, we should see significant net and EOP gains for the new entrants.

Summary

Comparing this quarter with Q1 2011, Bell did really well.  It will be interesting to see how TELUS does as this will really tell us who executed best in what looks to have been a competitive quarter.   Great quarter – well done.

No comments

Rogers – a poor cable quarter

Rogers – A poor cable quarter

Rogers had a pretty bad wirelessquarter and this has been given deserved attention, but cable results were also pretty weak.  Overall Cable subscribers were down (21k), digital subscribers were down (1K), Cable telephony flat and Cable high speed customers were up 13k, but not enough to avoid the double blow of negative nets in both cable and wireless. Again margin declined and despite lots of positive talk about nextbox 2.0, it is

Cable TV Net subs Canada

Cable nets turn negative

not clear that this is the answer.  Bell has not really got started with their IPTV, so we can’t understand why Rogers would be struggling for subscribers?

Bell has not even started to compete, yet!

In Cogeco’s call they made it clear that they were losing subs to TELUS not Bell and so if Rogers is not loading, where are the subs going?  We are pretty sure not Bell, although we could be proved wrong when their results come out.  So we can only assume that Rogers TV subs are cutting the cable, either going with free to air antennae or just using the Internet and over the top alternatives.

Telephony subscribers are churning, but where are they going?

Cable telephony continues to grow (Rogers 1k, Shaw 54k & Cogeco 14k), but the incumbent telcos are losing subs faster than the cablecos are picking them up.  Are all these homes going with alternative VoIP solutions or are they moving to wireless only?  If the latter, surely we would start to see a bump in subscribers or ARPU or at least MOU?  With better in building coverage, we assume that this wireless substitution market skews to the better quality networks of the incumbents?  But no obvious bump in their wireless numbers?  Most estimates we have seen suggest that Canada lags on fixed wireless substitution, so are the churning subscribers going to small unknown VoIP providers?  Not sure, but looking at the combined (video, internet and telephony) results of Rogers, Cogeco and Shaw, the glory days of cable may be over.

End of cable’s glory days?

Despite cable’s marketing headline of faster speed for Internet (actual speeds tend to differ), telcos seem to have regained the momentum. After many years of regulatory support, the cablecos might have to fight the next few wars on a level playing field. They have never really competed in the core TV business and have predominantly used price to win telephony customers, supported by a Pre-forbearance regulator that made it easy to win.  Welcome to real competition.  Despite the family-controlled nature of the four biggest cablecos, we would be surprised if their shareholders are happy to sit on the sidelines and watch the telcos eat their lunch?  This is particularly true when the families and other investors have come to rely upon a healthy dividend payment. As payout ratios increase, there will be a time where one or more of them are forced to slow or even cut dividends, expect the market to be at least as ruthless as it was when MTS cut its dividend.

 The start of cable companies’ Arab-spring?

After years of no alternative and the combined insults of high prices and poor service, cable companies could be in for their own Arab-spring, where customers revolt and leave in droves?  OK, maybe this is too dramatic, Canadians are more loyal and less likely to talk with their feet than most, but we think the tide has changed.  TELUS has definitely got Shaw looking over their shoulder, and Cogeco!  If Bell and MTS can get their acts together Rogers, Videotron and Cogeco could be in for a tough time.  For Rogers this is indeed unlucky timing, as they have serious pressure on their wireless business for the first time.   Despite the management’s unwavering belief in the franchise, we see RIM-like denial of an unavoidable outcome unless they do something more significant than cut costs.

 

No comments