February 10, 2012 / 12:27 PM / 6 years ago

Telus profit rises five percent on TV, data growth

(Reuters) - Quarterly profit at Telus (T.TO) rose by a weaker-than-expected 5 percent as higher costs to sign up new customers offset strong growth in smartphone and Internet TV subscribers, dragging down the Canadian telecom's shares on Friday.

Vancouver-based Telus said it added 148,000 net wireless subscribers on lucrative "postpaid" contracts, comfortably beating expectations for the fourth quarter. It also signed up 56,000 Optik customers as it expanded the reach of the Internet-based television service.

But the cost of acquiring wireless customers and signing them up for multi-year contracts jumped 18.5 percent to C$421 as a result of higher subsidies and stepped-up competition. The television growth also hurt the bottom line as Telus forked out to install the service and subsidize set-top boxes.

Even so, analysts viewed Optik as a positive for the company as it helps offset a steady decline in profitable local and long-distance phone services, an industrywide trend.

"Video is now contributing enough on the wireline side to mitigate the decline in profitability on legacy products," Desjardins analyst Maher Yaghi said.

Indeed, Telus's wireline business, which includes fixed line telephone and Internet services, showed a net increase in customers in 2011 for the first time in seven years thanks to the contribution of Optik.

The success of Optik helped Telus sign up more customers to landline Internet, with 24,000 new lines in the quarter, as it bundled the products together.

The company added voice and gesture control for Optik this month and also released a mobile version so customers can watch the same content on smartphones and tablets.

RBC Capital Markets analyst Drew McReynolds, in a note to investors, said subscriber additions across Telus' product lines were strong. He said Telus was "the best of the bunch."

Telus competes against cable company Shaw Communications for television and Internet customers in Western Canada and against Rogers Communications and BCE's Bell for wireless subscribers across the country.

HIGHER WIRELESS BILLS

Canada's third-largest wireless service, which also sells landline phone, Internet and television services, said profit rose to C$237 million ($238 million), or 75 Canadian cents a share, from C$226 million, or 70 Canadian cents, a year earlier.

Analysts had, on average, expected Telus to earn 78 Canadian cents, according to Thomson Reuters data.

Revenue rose 5 percent to C$2.69 billion, matching the average estimate.

Wireless customers paid an average of C$59.08 a month, a 1 percent increase, as rising data usage offset slipping voice.

Telus and Bell - which share a wireless network - this week turned on next generation long-term evolution (LTE) which promises faster download speeds for mobile video and other data. Rogers is also rolling out an LTE service.

Telus' quarterly performance was generally in line with a lackluster showing by BCE. The Bell Canada parent said it added 132,000 postpaid wireless customers but missed forecasts when it reported results on Thursday.

Rogers, Canada's largest wireless operator, is due to report financial results on February 22.

Shares of Telus were down C$1.68, or almost 3 percent, at C$56.64 early Friday afternoon in trading on the Toronto Stock Exchange.

Telus' shares have gained more than Bell's and Rogers' over the last year as investors see competitive threats to be less intense in Western Canada, where Shaw abandoned a planned wireless service last year. Shaw shares have dropped 10 percent in that time.

STAY HUNGRY

Telus said it has no intention of moderating its aggressive expansion of Optik at the expense of Shaw's traditional cable business, despite the risk that Shaw responds with further discounts and perhaps even ignites a pricing war.

"Our goal is to maintain value in the marketplace, at this moment in time with this great window of competitive advantage, we have to drive very hard," Joe Natale, the company's chief commercial officer, said during a conference call after the results were released.

Telus also said it was standing by the outlook it presented in December, when it said it expected a 6.5 percent jump in revenue in 2012 and earnings of as much as C$4.15 a share, up from C$3.76 in the year just ended.

Reporting by Alastair Sharp; Editing by Derek Caney

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