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Quebecor's short-term pain for long-term gain

A radically altered Quebecor Inc. is pushing out of a tumultuous year and positioning itself for the new normal in the telecommunications sector: intense competition and convergence.

The Montreal-based communications giant on Tuesday posted weaker-than-expected fourth-quarter results, which executives blamed on the launch of its Quebec-only wireless cellphone network.

That network represented more than just thinner margins: It was behind the telecom turmoil that is transforming the sector in Quebec - forcing rivals to react in a manner that will ripple across the country - and symbolizes continued diversification away from Quebecor's more mature businesses, such as cable.

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"Over the years, our telecommunications segment has powered our growth by launching new services," Quebecor president and chief executive officer Pierre Karl Péladeau said. He noted that the company continues to focus on new opportunities "to make up for the declines in some of our historic lines of business."

The past fiscal year has seen Quebecor build and launch Vidéotron Ltée's wireless network; cut staff and deal with a bitter two-year lockout at its flagship newspaper Journal de Montréal; prepare to launch a national English-language TV news channel; and negotiate a 25-year agreement that includes naming rights and content arrangements for a Quebec City arena in which Mr. Péladeau hopes to install a new hockey franchise.

Profit was down in the fourth quarter, falling to $43.5-million, or 68 cents a share, from $73.8-million, or $1.15 a share, a year earlier. Mr. Péladeau blamed this on the costs involved with signing up 41,000 new wireless customers in the quarter.

Quarterly revenue rose 5.4 per cent to $1.09-billion. At the same time, the company reported year-end results showing profit dropped in 2010, to $230-million or $3.58 a share from $277.7-million or $4.32 the previous year.

Most analysts remain bullish on Vidéotron.

Large national wireless companies, such as Rogers Communications Inc., face pressure to their existing businesses as new players push into the market. But Vidéotron benefits from the profitability of its existing cable, home phone and Internet businesses even as it pushes into one of the most lucrative sectors - wireless, where the company said it's adding about 3,500 customers a week.

Analysts think the French-language environment of Quebec makes Quebecor's cache of French media invaluable as the industry shifts more toward mobile video.

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"While we saw some areas of weakness in the results, our overall thesis remains," Canaccord Genuity analyst Dvai Ghose wrote in a note to clients, reiterating his belief that "Quebecor is one of the only growth vehicles in the sector."

Other new wireless players, including Wind Mobile, Public Mobile and Mobilicity, are startup businesses that don't have Vidéotron's heft or ability to "bundle" together for customers the four crucial telecom services - high-speed Internet, home phone, TV and wireless service.

Quebecor's ability to handle the industry turmoil drew analyst approval. Maher Yaghi, a Montreal-based telecom analyst with Desjardins Securities, said this type of competition will eventually hit Western Canada as Calgary-based Shaw Communications Inc. launches its own wireless network.

"When you compare the competitive activity in the East versus the West, you do see more competition over here," Mr. Yaghi said.

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