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Report on Business BCE reports strong second quarter financial, subscriber results boosted by discount wireless brand

George Cope, president and CEO of BCE Inc. addresses the company's annual meeting on April 28, 2016. The company said Thursday that it added 46,000 new prepaid wireless customers in the three months ended June 30, a swing from a loss of 8,000 in the same period last year.

Paul Chiasson/The Canadian Press

BCE Inc. reported strong financial and subscriber results for the second quarter as it saw a surge at its discount wireless brand Lucky Mobile.

The company also got a boost from its media division, where it posted record TV broadcast numbers for the Toronto Raptors’ NBA championship run and the final seasons of Game of Thrones and The Big Bang Theory.

Montreal-based BCE said Thursday that it added 46,000 new prepaid wireless customers in the three months ended June 30, a swing from a loss of 8,000 in the same period last year. In the middle of the quarter, the company announced an exclusive distribution deal with Dollarama Inc., which now sells Lucky Mobile SIM cards at more than 1,200 locations.

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BCE also added 103,000 new wireless subscribers on contracts, which are more lucrative as they spend more on monthly data. That was down from 122,000 this time last year but ahead of analyst expectations for about 93,000 and it came after rival Rogers Communications Inc. said last week it added 77,000 contract subscribers in the second quarter while pointing to “overall softness in the market."

Profit at BCE was up 8.2 per cent to $817-million and the company earned 85 cents a share. On an adjusted basis, it reported earnings a share of 94 cents, beating the consensus forecast of 90 cents.

BCE’s revenue increased by 2.5 per cent to $5.93-billion, slightly ahead of expectations, while adjusted EBITDA was up 6.8 per cent to $2.6-billion, also beating forecasts (EBITDA means earnings before interest, taxes, depreciation and amortization).

Canaccord Genuity’s Aravinda Galappatthige said the quarter was better than expected on both financials and subscribers, calling the wireless performance “a strong result considering recent softness in volumes across the market.”

Citigroup’s Adam Ilkowitz similarly called the second quarter results “solid” and noted that BCE maintained its financial guidance targets for the rest of the year. However, he cautioned that “results in the second half of the year could be pressured by the new wireless pricing plans.”

In mid-June, Rogers introduced new wireless plans with larger data buckets and no fees for going over monthly limits (users’ browsing speeds are instead slowed down after they hit their cap). BCE and Telus Corp., Canada’s third national carrier, followed suit with similar plans.

On a call with analysts Thursday, BCE chief executive George Cope said it was not his company’s choice to launch such plans – noting that he believes they will eventually “moderate” growth in average monthly spending by customers – but said BCE responded because it will “always be competitive in the market.”

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The plans feature a simpler pricing structure and, with all of Canada’s major carriers now offering them, Mr. Cope said he hopes BCE will stand out on the strength of its wireless network performance.

“On that front, we come out way ahead of the competitor that led this change,” he said, referring to Rogers, adding that BCE is “in a good position to continue to gain market share.” In third-party tests in recent years, BCE and Telus, which have a network sharing agreement, have surpassed Rogers on speeds.

Carriers will begin building next-generation, or 5G, networks over the next year or so, but BCE and Telus have not yet selected equipment vendors for the new technology. They have both used equipment from Huawei Technologies Co. Ltd. extensively in their current networks and are waiting for a decision from the federal government on whether that can continue for 5G. Earlier this week, Public Safety Minister Ralph Goodale said that decision will likely not come before the federal election on Oct. 21.

Mr. Cope said he believes that timing is workable in terms of BCE’s plans for selecting a vendor for 5G. “Some resolution of this [the Huawei issue] shortly after the election would fit within our strategic timeframes.”

Mirko Bibic, the chief operating officer who will take over as CEO of BCE when Mr. Cope retires early next year, was also on the conference call on Thursday and lauded the performance of the Lucky Mobile brand.

“Clearly we’re taking market share in this segment, and over time we hope to convert many of these customers to postpaid [contract] service,” Mr. Bibic said.

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BCE’s wireless business reported revenue up 3.2 per cent to $2.19-billion while adjusted EBITDA increased by 9.9 per cent to $980-million.

On the residential (or “wireline”) side, BCE added 19,000 internet subscribers and 17,000 IPTV (internet protocol television) customers while it lost 14,000 satellite TV subscribers.

Revenue at the wireline business increased by 0.9 per cent to $3.1-billion and EBITDA grew 2.1 per cent to $1.4-billion.

Bell Media saw revenue increase by 6.4 per cent in the quarter to $842-million, led by growth in advertising and TV subscriber fees. That, combined with continuing cost-cutting efforts, led to a 23.9-per-cent increase in EBITDA to $254-million.

BCE owns an interest in the Raptors through the company’s investment in team owner Maple Leaf Sports & Entertainment Ltd. and Bell Media’s sports network TSN shares half of the broadcast rights with Rogers’s Sportsnet. Bell Media also controls HBO content in Canada and used the popularity of Game of Thrones to boost subscribers to the premium version of its Crave TV streaming service.

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