Recession hits Telus, Bell revenues

Wireless revenue was supposed to be the saviour for a number of global telecom companies, who for some time have been seeing dropping local phone and long distance income due to competition from cable companies.

But the release Thursday of first quarter financial figures of this country’s biggest phone companies showed that the growing recession and competition is also eating into their wireless revenue. Both Telus Corp. and Bell Canada Enterprises (BCE) said their overall operating revenues were almost flat because of the economy, with their wireless revenues going up less than four per cent.

By comparison, Rogers Communications reported earlier this week that its wireless revenue went up eight per cent in Q1 year over year.

Vancouver-based Telus reported its overall revenue for the quarter was $2.375 billion, an increase of only one per cent over the same period a year ago. Surprisingly, wireless revenue grew only three per cent, which officials blamed on the souring economy in its British Columbia, Alberta and Ontario. Meanwhile, wireline data revenue jumped six per cent. That offset the ongoing declines in local and long distance wireline revenues.

“We are not satisfied with the performance of this company in the first quarter of 2009,” Telus president and CEO Darren Entwistle told shareholders at the company’s annual general meeting in Ottawa. “The economic impact has been quite punitive to our wireless business.”

Meanwhile BCE said revenue for its quarter dipped a half of one per cent to $3.6 billion compared to the same period a year ago. Wireless revenue was up 3.5 per cent.

“The softer economy has led to more cautious consumer spending and reduced business investment,” BCE president and CEO George Cope said. Increased video, residential Internet and postpaid wireless activations helped counter that.

Bell also said that it’s buying out the 50 per cent of its partnership with Virgin Mobile Canada that it doesn’t already own for $142 million, apparently to prepare itself for battling new low-cost wireless startups that could enter the market as early this fall. As part of the deal Bell retains long-term rights to the Virgin Mobile brand.

Started in 2005, Virgin Mobile Canada’s largely pay-as-you-go service has been pitched at younger wireless buyers, but also competes with Bell’s Solo value brand. However, according to Amit Kaminer, a research analyst at SeaBoard Group, Virgin, a worldwide brand, is a better-known than Solo. “But Virgin’s problem was that the marketplace is changing,” he said, thanks to last summer’s AWS auction that will bring in new entrants like Public Mobile and Globalive Wireless.

Running on Bell’s CDMA network, Virgin was a virtual mobile operator which had to carry Bell’s cost structure plus its own. “By taking those costs out of the equation you’d be able to better maximize the brand recognition.” It also prepares Bell to better bring Virgin Mobile service for sale in The Source electronic retail store chain it is in the process of buying.

Public Mobile and Globalive have talked about offering $40 a month unlimited service plans, which Kaminer said could have been hard for Virgin to match. The value market will also include Telus’ Koodu and Rogers Communication’s Fido brands. By gaining full control over Virgin Mobile, Bell will have two value brands. Kaminer believes only one can survive.

However, Bell spokesperson Julie Smithers said at this point both brands will be carried, with Virgin and Solo operating separate kiosks in shopping malls as well as in outlets such as Future Shop. The two brands are aimed at “slightly different” customers, she said. The Virgin buyout was made to make Bell more flexible in the wireless marketplace, she said.

In its quarterly financials, Bell said its wireless division had 35,000 postpaid net activations in the quarter, up 25 per cent yuear over year. However, it lost 5,000 prepaid customers in the quarter.

Average wireless revenue per customer, a key measurement, dropped “due to aggressive pricing in the discount segment and lower usage as customers reacted to the weakening economy,” the company said in a news release. On the other hand, wireless data revenue jumped 36 per cent. While Bell continued to lose residential wireline customers, for the sixth consecutive quarter the rate of loss slowed.

Telus’ wireless results weren’t a surprise. On April 8 it warned that wireless subscriber net additions for the quarter would only be 48,000, a 46 per cent decline year over year. On Thursday the company said it also suffered higher subscriber retention and other costs. During the Q1 results call with financial analysts, CFO Robert McFarlane said some of the cause in poor wireless performance was due to business that use its two-way Mike service. While it accounts for only 11 per cent of wireless subscribers, many companies in the manufacturing, automotive, construction, transportation, dispatch and energy sectors use Mike. “All these sectors experienced significant employment declines” recently, he noted. Looking at the economy, Telus has slightly lowered its revenue forecast for the year.

Despite the quarterly performance, Entwistle aggressively defended Telus’ overall financial state by saying the company has recorded “spectacular” results over the past six years.

While Telus will work on saving by increasing efficiencies, he made no apologies for capital spending this year that will come close $1 billion. That includes building the new GSM-HSPA wireless network with Bell that will run side-by-side with their CDMA networks, as well as wireline network spending to gain business customers in Ontario and Quebec.

Most carriers are cutting capital spending, Entwistle told the annual general meeting. “We’re a little bit out of fashion,” he said, “but we’re convinced it’s for the right reason … Those investments will underpin our long-term competitiveness,” he said. In the call with financial analysts later on the Q1 results he said this will be a peak year for capital spending.