August 4, 2012 / 12:27 PM / in 5 years

Telus profit up on wireless growth, boosts outlook

(Reuters) - Telus Corp (T.TO), one of Canada’s largest telecommunications providers, reported a higher quarterly profit on Friday on strong results at its wireless business and it raised its outlook for revenue and cash flow growth this year.

Telus shares rose after the company said wireless margins were higher in the second quarter and revenue climbed 7.1 percent. Both the total number of subscribers and their average bills rose.

“I thought they were exceptional wireless results,” said Canaccord Genuity analyst Dvai Ghose.

But Ghose said margins were likely helped by the fact that few high-profile devices launched early in the quarter.

The recent launch of Samsung’s Galaxy S3 and Apple’s next iPhone, widely expected this fall, may make it difficult for Telus to sustain the margin improvement.

Wireless providers like Telus typically subsidize purchases of sought-after phones for postpaid subscribers, who sign multi-year contracts and pay more each month than prepaid users.

Ghose was impressed with Telus’s lower monthly churn, or the average proportion of subscribers that cancel their service each month, which he attributes in part to strong customer service.

Churn fell to 1.39 percent, from 1.67 percent in the same quarter last year. Churn for postpaid subscribers fell to 1.00 percent from 1.34 percent.

“You spend a lot of money to acquire customers,” said Ghose. “The longer they stay, the more profitable you are.”

The Vancouver-based company added 112,000 net postpaid wireless subscribers, 22 percent more than in the year-earlier quarter, and more than competitor Rogers Communications Inc (RCIb.TO), which added 87,000 subscribers in the same quarter. [ID:nL2E8IO1P7] Telus’s other major competitor, BCE Inc (BCE.TO), reports second-quarter results next week.

The average Telus wireless customer spent C$60.29 each month, 2.4 percent more than last year, as higher spending on data offset falling sales from voice services.

Citing stronger than expected wireless performance, the company raised its 2012 revenue forecast by C$50 million to between C$10.75 billion and C$11.05 billion but left its earnings per share forecast unchanged.

Telus now expects earnings before interest, taxes, depreciation to increase between 3 and 7 percent in 2012, up from its previous forecast of 1 to 6 percent.

In the wireline segment, which include landline voice, Internet and television services, revenue rose 1.3 percent, but earnings fell as higher-margin local and long-distance calling revenue fell.

Net income for the second quarter rose to C$328 million ($327 million), or C$1.01 a share, from C$324 million, or 99 Canadian cents, in the year-earlier period.

Excluding items, including tax adjustments and a gain on a real estate development, adjusted earnings per share rose to C$1.02 from 96 Canadian cents a year earlier. Revenue rose 4.3 percent to C$2.67 billion.

Analysts, on average, had expected earnings of C$1.01 a share on revenue of C$2.68 billion, according to Thomson Reuters I/B/E/S.

Shares of Telus rose 1.5 percent to C$63.34 on the Toronto Stock Exchange on Friday afternoon.

STRIKING BACK AT MASON

Mason Capital Management LLC stepped up its battle with Telus late Thursday, calling for a meeting of holders of the company’s voting shares to prevent it from reviving a failed plan to consolidate its two classes of stock on a one-for-one basis.

Speaking on Friday’s conference call, Telus Chief Financial Officer Bob McFarlane called the move “another in a series of nuisance steps by Mason Capital.”

He said Mason’s proposal, which would amend the company’s by-laws to ensure a premium valuation for voting shares in any consolidation, would need two thirds of the votes cast by both common and non-voting shareholders, voting separately, to pass.

The U.S. hedge fund owned about 19 percent of Telus’s voting shares as of March 31, according to Thomson Reuters data. A guaranteed premium would likely boost their value.

In May, Telus withdrew its share restructuring plan, in a victory for Mason, which had led opposition to the scheme. The fund had borrowed a large number of non-voting shares, and thus stood to benefit if their price fell.

FOREIGN OWNERSHIP RULES “UNSUSTAINABLE”?

In March, the Canadian government said it would loosen curbs on foreign investment in telecoms, allowing non-Canadians to take control of carriers with market share of 10 percent or less.

Foreign ownership of Telus and its peers is still limited. McFarlane criticized the partial deregulation.

“In the medium to long run it’s an unsustainable situation, to say that some companies in the same industry are subject to a constraint that others are not,” he said in an interview.

“If you’re going to liberalize ... then you need to do it for everybody, otherwise you’re creating an unequal playing field.”

($1=$1.00 Canadian)

(Editing by Peter Galloway and Frank McGurty)

This story corrects the wireline revenue growth in the 14th paragraph

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