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Report on Business Telus attracted more new wireless customers than expected in second quarter, reporting profit gain

Darren Entwistle says he believes new wireless plans that do not charge customers additional fees when customers go over monthly data limits will be a success for Telus Corp. because the price is as certain as “death and taxes.”

The Vancouver-based telecom’s chief executive said Friday that in the weeks since Telus introduced the plans (following the lead of rival Rogers Communications Inc.), more than half of the customers who have signed up for the new pricing have chosen to pay more for an option that comes with no data overage fees.

Canada’s three national carriers will face a reduction in that overage fee revenue, – which analysts estimate to be about 4 or 5 per cent of their wireless revenues – but in addition to wooing some lower-spending clients into larger data plans, Mr. Entwistle says the new pricing will cut expenses by reducing complaints to call centres.

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“We’re not getting a call flow that reflects billing query after billing query after billing query, because we’ve given customers price certainty,” he told analysts during a conference call after Telus reported its second-quarter financials. “Death, taxes and next month’s phone bill. There is certainty in that regard.”

Along with the new pricing structure, Telus, Rogers and BCE Inc. also recently launched device-financing options that allow customers to get a smartphone of their choice for $0 down and pay it off in equal installments over two or three years.

But those financing options have come under regulatory scrutiny and on Friday afternoon, the Canadian Radio-television and Telecommunications Commission said it plans to examine the three-year options and may prohibit carriers from offering terms of that length.

The federal telecom regulator essentially banned three-year mobile phone contracts in 2013 when it introduced the wireless code of conduct, which says carriers cannot charge a cancellation fee after two years. The goal was to increase competition by making it easier for consumers to switch to a new carrier.

The Big Three providers have said they believe three-year financing terms comply with the code because the financing costs are separate from the cost of wireless service. They argue that high-end smartphones, some of which can now cost in the range of $2,000, are so expensive that customers want a longer time to pay them off.

In a statement Friday, the CRTC said it recognizes that device-financing plans longer than two years “may render devices more affordable and attractive for Canadians customers,” but it is concerned that such options do not comply with the wireless code.

“The CRTC is concerned by these financing plans as they appear to make it difficult for a customer to switch service providers even after 24 months,” CRTC chairman Ian Scott said in the statement.

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The commission said it will publish a formal notice about its plan to examine the issue in greater detail and for now, it is “asking” all wireless providers to stop offering device-financing terms of longer than two years.

Telus did not initially offer three-year financing, but introduced it after Rogers launched three-year options. In an interview earlier in the day on Friday, Telus chief financial officer Doug French said he believes if customers “really support” the option that the regulator should take that into account.

Meanwhile, Telus reported Friday that for the three months that ended on June 30, it attracted more new wireless customers than expected in the second quarter.

Telus added 82,000 new mobile subscribers in the quarter, beating consensus estimates in the range of 55,000. The company changed the way it reports wireless subscribers this past quarter, combining prepaid and contract customers and creating a new category for connected devices. The changes have made it difficult to compare the company’s results directly to its peers.

However, analysts on Friday characterized the company’s wireless performance in the quarter as strong. “Wireless subscriber activity was a positive surprise, with phone gross adds outperforming our expectations,” said Citigroup’s Adam Ilkowitz.

On the residential side, Telus added 25,000 internet customers and 16,000 television subscribers, in line or slightly ahead of analyst expectations.

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Telus said overall profit was up 31 per cent to $520-million, owing in part to a $121-million benefit in the company’s favour related to a reduction in Alberta’s provincial corporate tax rate.

On an adjusted basis, the company earned $416-million, or 69 cents a share, missing analyst forecasts by 3 cents. Revenue increased by 4.2 per cent to $3.6-billion, in line with consensus estimates. EBITDA of $1.4-billion was up 9.8 per cent and also in line with forecasts (EBITDA means earnings before interest, taxes, depreciation and amortization).

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