Wireless results summary – Canada – Q1 2012

Wireless results summary – Canada – Q1 2012

Well, now that all of the incumbents have reported, it is worth looking at how they did against each other.  Who won the quarter?  TELUS, followed by Bell with Rogers a distant third.  But that is just our opinion, it really depends how you measure.

The chart below is a summary of the last 5 quarters.  Although this is just a snap-shot and these metrics are not really equal in weight, these are the main metrics that the street and executives focus on in determining how they are doing compared with both the past and each other.

Rogers Bell TELUS key metrics summary

Key metrics summary

At first glance Rogers still rules the roost with 5/9 first places, but TELUS has started to win where it counts, Postpaid Nets, Churn, ARPU and EBITDA Margin.  We were pretty concerned when we saw that Rogers loaded 334K Gross Postpaid, but only grew their postpaid base by 47K subscribers.  Seems like a pretty uneconomical way of growing compared with TELUS who came in third with only 257 Postpaid Gross, but the highest postpaid nets at 63K.

 

So let’s look behind the superficial numbers to see what is going on and why the incumbents are going in different directions:

Gross

With more points of presence and no longer struggling for iPhone 4Ss, Rogers blew the lights out with 33k Gross Postpaid and 154K Gross Prepaid.  Rogers has more points of presence, probably close to 1,500 with third party, specialists, Wireless Wave, dealers and corporate stores.  TELUS on the other hand has few points of presence and does not benefit from wireless wave, which in our humble opinion is the best of the specialist channels.

Wireless Gross Share Bell Rogers TELUS Q1 2012

Wireless Gross Share Q1 2012 (Incumbents)

Nets

With a relatively modest gross numbers and high churn, both Rogers and Bell had negative nets.   We have tracked the incumbents quarterly since the beginning of 2005, but our data goes back more than another ten years and we have not seen negative nets for any incumbent let alone two.  This was admittedly driven by prepaid losses and Q1 has been net negative for the incumbents since 2007.  But with significantly smaller prepaid bases than postpaid, it is unusal to lose so many prepaid subs that it impacts your overall number.

wireless prepaid incumbent nets Q1

wireless prepaid incumbent nets Q1

Also the fighter brands of chatr, Koodo and Virgin have breathed new life into prepaid, so this certainly looks like a big win for the AWS new entrants.  Since Videotrons numbers were not crazy high at 22k nets, and WIND was much lower than expected at 12K nets, assuming that Mobilicity was also around 10K, this means that the total nets of the new entrants beat the total nets of the incumbents, albeit mainly on the back of significantly lower ARPU customers.

Incumbent wireless net share

Incumbent wireless net share

 

Postpaid nets were positive, but flat compared with last Q1 while the overall industry grew.  Note that Bell dropped from 81K in Q1 2011 to 63K in Q1 2012.   Rogers was flat year over year and TELUS grew by 11K in postpaid nets.  Some of this is by design, as it is dangerous to try to get Q1 volume by extending the Christmas discounts into Q1.  This should be a good quarter to keep your powder dry on COA and bank some EBITDA.

wireless postpaid nets share incumbents Q1 2012

wireless postpaid nets share incumbents Q1 2012

 

Churn

Churn was the divisive metric this quarter.   Rogers was ghastly – Blended churn moving from 1.71% a year ago to 1.83% and in the process moving from the best of the incumbents to worst churn in 5 quarters.   Bell was modestly better, improving from 1.9% to 1.84%, but some of this was driven by having so few prepaid subscribers left.  Bell’s postpaid churn also improved, from 1.4% to 1.35%, but since their base has grown, this still meant more actual postpaid subscriber churning, up from 219K in Q1 2011 to 231K this quarter.  TELUS enjoyed a marked improvement in churn, where blended churn came down from 1.7% to 1.55% year over year.

Wireless percentage churn Q1 2012

Wireless percentage churn Q1 2012

In postpaid absolute churners reduced from 220K (same as Bell) to 194K.  These are great churn numbers and we did not see a commensurate pickup in retention to achieve this – retention spend for TELUS was down 6% at $138m.

Churn numbers by volume

Churn numbers by volume

Smartphones

Smartphones continued in a phenomenal way, although we did hear some tempered comments on the conference calls, in particular, Rogers seemed to have slipped from ARPU of 2X non-smartphone to 1.9X and now to 1.8X.  At the same time the non-smartphone ARPU for Rogers has also been declining.   They suggested in the past that they expected cheaper smartphones that would reduce their requirement for the huge COA investment, but this has not happened.  What has happened is that lower end smartphones are unsurprisingly attracting lower end subscribers, who are more likely to be price sensitive, spend less and have a higher propensity to churn.   The smartphone share chart show the decline of Rogers and the rise of Bell and TELUS following from a level playing field in handsets and the significantly better network coverage and quality that the Bell/TELUS network partnership offers.

 

EOP

EOP was largely unchanged mainly because of the Bell and Rogers negative nets.  There were share changes though.   In EOP postpaid market share, Rogers dropped to the lowest (38.5%) since Q4 2005.  TELUS and Bell both gained share.

Postpaid total subscribers share

Postpaid total subscribers share

ARPU

All three incumbents have had declining voice ARPU for some time.  This is partly due to re-price, which has been more relevant at Rogers, partly due to Smartphone LTOs resulting for a more competitive market, but also from a reduction in voice minutes.  The reduction is voice minutes is partly behavior changes – customers spending more time communicating via email, text, IM and so many other social media platforms, but also a change in demographics, where younger customers are more likely to have a high end smartphone, but can’t afford the high end voice plan.

blended ARPU wireless incumbents

Blended ARPU wireless incumbents

 

Rogers average price per minute dropped suddenly with the introduction of chatr.  Bell and TELUS have trended down, but not at the same rate.

The text-voice substitution is marked as the smartphone penetration rates increase, voice revenue declines.  Although we have not read anything about VoIP using the carriers networks, there are many solutions that offer this and the 3/4G networks are more than capable of offering high quality calls over the data network at a fraction of the price.  We expect significantly more pressure on voice in the foreseeable future.  TELUS had another quarter (6 consecutive quarters) of ARPU growth to $58.87.  Voice decreased 10%, but data grew 29% resulting in an overall growth of 1.7%.

WIND reported a 2.2% increase in ARPU, but at $27.30, this still significantly lower than where it should be in our opinion.  This is less than half the incumbent ARPU, which does not sound sustainable.

Revenue and EBITDA

Overall Incumbent service revenue grew nearly 4%, Rogers was down marginally, Bell was up 6% and TELUS up 7%.   But all were well below the average of over 7.5% year over year growth average from 2007-present.  There was an overall decline in hardware revenue of 9% based on lower handset sales, this is normal for Q1.

Incumbents share of industry EBITDA

Incumbents share of industry EBITDA

 

Bell and TELUS grew their EBITDA at 13%, while Rogers EBITDA declined 9%, giving an incumbent average of just of 3% in EBITDA growth.   EBITDA share for Rogers declined to 2006 levels.

Summary

We really thought Bell had a good quarter, until we saw the TELUS results.  TELUS seems to be operating at a level of detail that is absent from the others.   Rogers had a very poor quarter and the new entrants failed to capitalize on incumbent weaknesses in gross loading and churn.

 

 

 

 

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