May 26, 2011 / 11:42 AM / in 6 years

UPDATE 3-Quebecor profit lags as wireless costs weigh

* Q1 adj EPS C$0.56 vs est C$0.58

* Revenue up nearly 5 pct

* Wireless build weighs on profit

* Shares gain slightly in early trade

(Adds details, analyst quote)

TORONTO, May 26 (Reuters) - Cable and media company Quebecor (QBRa.TO)(QBRb.TO) reported quarterly profit that came in below analyst expectations on Thursday, as it paid to grow its fledgling wireless operation.

Quebecor’s Videotron unit launched a provincial wireless service last September. The company has spent heavily to build its network and entice customers in a market dominated by Telus (T.TO) and BCE’s (BCE.TO) Bell Canada unit, and by phone and cable company Rogers Communications (RCIb.TO). [ID:nN09185742]

“The roll-out of Videotron’s new mobile services network negatively impacted net income in the first quarter,” Chief Executive Pierre Karl Peladeau said in a statement.

The company spent C$178.6 million on telecom equipment in the quarter, a 41 percent increase on a year ago but slightly less than last quarter.

Revenue from the new product is not sufficient to cover the higher expenses, including amortization charges in the case of the 4G network, Peladeau said.

Videotron added 28,600 customers to its wireless network in the quarter, for a total of 143,600 that includes some transferring from a previous virtual network, Quebecor said.

The mobile phone service adds a fourth element to Videotron’s cable television, broadband Internet and landline telephony in Quebec, where it also owns significant French-language broadcast content.

It lost 3,000 cable subscribers, added 24,100 digital TV users, and signed up 11,500 Internet customers and 15,500 digital phone customers in the quarter.

“Overall, subscriber activity for core cable products was weak in the quarter due to maturity and competition,” said Desjardins analyst Maher Yaghi. “Wireless subscriber growth was not as disappointing,” he said.

The Montreal-based company’s net income was C$34.3 million ($35.1 million), or 53 Canadian cents per share, compared with C$34.9 million, or 54 Canadian cents a share, a year ago.

Adjusted income from continuing operations was 56 Canadian cents compared with 67 Canadian cents a year ago.

Revenue rose nearly 5 percent to C$990.5 million.

Analysts on average had expected adjusted earnings of 58 Canadian cents, on revenue of C$1 billion, according to Thomson Reuters I/B/E/S.

Quebecor owns the right-leaning Sun chain of tabloid newspapers, including the Toronto Sun. In French-speaking Quebec, it owns the Journal de Montreal daily newspaper, TVA television and the LCN all-news channel.

It launched a Sun News TV channel in April.

Quebecor shares gained 0.5 percent to C$33.57 on Wednesday morning on the Toronto Stock Exchange.

The company adopted International Financial Reporting Standards in January and restated prior year figures. ($1 = $0.978 Canadian) (Reporting by Alastair Sharp in Toronto and Bhaswati Mukhopadhyay in Bangalore; editing by Janet Guttsman)

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