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BCE reports wireless strength as IPTV, Internet subscribers slow

BCE president and chief executive officer George Cope addresses shareholders at the company's 2015 annual meeting.

FRED THORNHILL/REUTERS

Consumers are flocking to the Internet for media content and BCE Inc. says it will meet them there with a plan to offer its traditional TV service over an app-based interface.

The company said Wednesday it will launch the service within the next six weeks in a bid to compete with so-called over-the-top – or OTT – services that offer video content online.

"In essence, it's an app-based TV service that is in our traditional TV footprint," chief executive officer George Cope said in an interview. He said BCE will offer the new product in areas where it has a licence for its Internet protocol television (IPTV) service, which are Ontario, Quebec, the Atlantic provinces and now Manitoba (after closing its acquisition of Manitoba Telecom Services Inc.).

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That means BCE can leverage its existing TV product and broadcast rights but offer a more flexible delivery format. Mr. Cope did not share other details, such as price, but said the service would be available on devices such as tablets and streaming media players.

The Montreal-based company said Wednesday that subscriber growth for its IPTV service is slowing. It said it added 22,000 Fibe TV customers in the first quarter, down from 48,000 in the same period last year. Mr. Cope said that was a result, in part, to slower expansion of areas where it offers the service but also because some customers are cutting out TV subscriptions entirely and opting for online streaming services instead.

The new service "will target those who have cut the cord, those who have moved to the OTT market," he said. "It is a recognition that there's a marketplace developing for the consumption of video service through non-traditional methods."

The company's earnings report Wednesday highlighted continued strength in its wireless division, which drove overall revenue and profit growth, offsetting weaker TV and Internet subscriber numbers.

BCE added 36,000 new contract wireless customers in the first three months of the year, ahead of analyst estimates but still behind rival Rogers Communications Inc., which said last week it added 60,000 contract subscribers in the same period. Telus Corp. reports its first-quarter results on May 11.

BCE's average revenue per user increased 4.2 per cent in the quarter to $65.66 and remains well above Rogers's ARPU of $59.96. Revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) at BCE's wireless division were up 7.1 and 7.5 per cent, respectively.

Mr. Cope said his company's investments in network improvements to boost speeds have led to a 37-per-cent increase in data usage. "People just use more and more video content on their wireless device."

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Growth in the Canadian wireless market as a whole is strong right now, he said, pointing to two main reasons: many customers are getting second lines, carrying smartphones for both work and personal use, and Canadian immigration policies produce population increases of 200,000 to 300,000 a year.

Consolidated revenue in the first quarter increased 2.2 per cent to $5.38-billion, ahead of analyst expectations.

Profit was down 4.4 per cent to $725-million because of costs associated with the company's $3.1-billion deal to acquire MTS, which closed in the quarter.

On an adjusted basis, Canada's biggest communications provider said net earnings increased 2.4 per cent to 87 cents a share, a beating the average analyst estimate of 84 cents. The company increased its annual dividend 5.1 a cent to $2.87 per share.

BCE added 15,000 new Internet customers in the period, in line with estimates, but down from 20,000 a year earlier as it faced aggressive promotions from Rogers and Videotron Ltd.

The company said it was negatively affected by regulatory decisions in the quarter, including the Canadian Radio-television and Telecommunications Commission's move to bar it from substituting its own Canadian ads over the feed on U.S. channels during this year's Super Bowl. Lower advertising demand resulted in the loss of an estimated $11-million, leading to lower adjusted EBITDA at its Bell Media division.

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BCE said it also had lower revenue from wholesale Internet services due to a CRTC ruling that slashed the rates large Internet providers can charge smaller competitors for network access.

The company adjusted its financial outlook for the year on Wednesday, factoring in the effects of the MTS transaction. It said it expects revenue and adjusted EBITDA will both be higher (in the range of 4 to 6 per cent), but that adjusted earnings will be no more than $3.40 per share, down from its previous full-year estimate in February.

Barclay's Capital analyst Phillip Huang said the new targets could be conservative, considering the cost savings expected from the MTS deal. "We believe management has a strong track record on cost reduction and a history of being conservative on guiding M&A synergies," he said.

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About the Author
Telecom Reporter

Christine Dobby covers the Canadian telecom industry for The Globe and Mail. Before joining the Globe in May 2014 she reported for the Financial Post for three years, most recently writing about telecom and media. She has also reported for the Toronto Star and New Brunswick Telegraph-Journal. More

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