February 9, 2012 / 7:43 PM / in 6 years

Bell Canada parent comes up short of forecasts

(Reuters) - BCE Inc (BCE.TO), parent of Bell Canada, provided an uninspiring 2012 outlook on Thursday while reporting quarterly profit and wireless subscriber numbers that fell short of forecasts, sending its shares down more than 2 percent.

The disappointing fourth-quarter results in part reflected intense pricing competition during the holiday sales season, forcing BCE to pay heavily to lure and retain valuable smartphone customers.

While adjusted profit rose 8.5 percent, analysts were expected faster growth. A target range provided by the Montreal-based company opened up the possibility that BCE could show no growth in 2012 by one important earnings measure.

On new wireless subscribers, the company fared even worse, with about 132,000 contract, or “postpaid” customers, or about 4,000 fewer than expected, even with the October launch of Apple’s iPhone 4S likely flattering the number. A year earlier, it signed up nearly 157,000 of these valuable subscribers.

“Overall, the results show that competitive pressures in the market are accelerating,” said Desjardins analyst Maher Yaghi in a note to clients.

Montreal-based BCE’s rivals include a handful of established cable providers that bundle mobile with TV and Internet services, plus upstarts focused on low-cost wireless service.

Revenue from Bell’s landline operations fell at a faster pace as customers disconnected home phones and Internet growth slowed to a crawl. Landline, which includes fixed-line telephone and Internet service, which still accounts for 59 percent of operating revenue.

“The real problem was wireline. ... The wireline trends were terrible,” said Canaccord Genuity analyst Dvai Ghose, adding that Bell was not spending enough to push its Fibe Internet television service, or IPTV.

“The solution to your wireline problem is to invest in IPTV,” he said. “The problem is in the near-term it will just get a lot uglier, but you have to do it because the alternative is to just let cable eat your lunch, which is what I think you’re seeing here.”

Building out Fibe is an expensive undertaking that pressures profit margins, but is seen as vital so Bell can better compete against cable rivals including Rogers Communications and Quebecor’s Videotron.

BCE said Fibe would reach 3.3 million homes by the end of 2012, up from about 2 million reached currently.

But without question, smartphones are the main drivers for BCE and its wireless competitors. They account for 48 percent of Bell’s postpaid customers, up from 31 percent a year earlier.

While advanced devices such as iPhones can help subscriber numbers and revenue, they also shrink earnings as Bell and its competitors heavily subsidize the devices to attract customers to multi-year contracts.

BY THE NUMBERS

Net profit rose to C$486 million ($488 million), or 62 Canadian cents a share, from C$318 million, or 42 Canadian cents, a year earlier.

On an adjusted basis, earnings came in at C$484 million, or 62 Canadian cents. Analysts, on average, had expected earnings of 66 Canadian cents on that basis, according to Thomson Reuters I/B/E/S.

Revenue rose 10.4 percent to C$5.17 billion, just shy of the average estimate of $5.19 billion.

REVENUE GROWTH EYED

BCE is targeting 2012 earnings, excluding items, of C$3.13 to C$3.18 a share. This is shy of the current consensus view of C$3.20 a share, and at the low end would mean little or no growth earnings.

The company sees Bell showing growth in earnings before interest, taxes, depreciation and amortization (EBITDA) of 2 to 4 percent in 2012. BCE said operational savings in 2012 are expected to offset cost pressures from the growth of Fibe TV.

The company expects 3 to 5 percent revenue growth from Bell in 2012 on the back of steady wireless revenue growth, along with stronger TV and Internet subscriber growth.

Shares in the company fell 2.8 percent to C$39.70 by early afternoon on the Toronto Stock Exchange. They have steadily risen over the last three years and gained 20 percent in 2011.

($1 = 0.9954 Canadian dollars)

Additional reporting by Euan Rocha; Editing by Frank McGurty

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