TORONTO (Reuters) - Telus Corp (T.TO), Canada’s No. 2 phone company, reported a 5.5 percent increase in quarterly profit on Friday as wireless revenue rose and new mobile phone and Internet subscribers flocked to the company.
Telus said it was raising its revenue outlook slightly for 2008 to reflect its performance. However, it lowered its forecast range for basic earnings for the year — a move seen as reflecting, in part, the costs of taking on large numbers of new customers.
The company said it earned C$267 million ($250 million), or 83 Canadian cents a share, in the second quarter ended June 30. That was up from a profit of C$253.1 million, or 75 Canadian cents a share, in the same period a year earlier.
The company said its net wireless subscriber additions rose 37 percent to 175,600 from a year earlier — a second-quarter record for Telus. Lucrative postpaid subscribers made up 157,200 of that total, an increase of 59 percent. The results included those of Koodo, a low-cost brand Telus launched in late March.
“Great subscriber adds, obviously clearly beat even the highest estimates on the Street,” said National Bank Financial analyst Greg MacDonald.
Investors cheered the results, as Telus shares rose C$1.80, or 4.6 percent, to C$40.75 on the Toronto Stock Exchange.
While subscribers signed up rapidly, the average revenue per wireless subscriber dropped 1.4 percent to C$62.73 a month, Telus said, blaming declines in the money generated from voice calling.
MacDonald said the decline suggests that a substantial number of the new subscribers signed up through Koodo are spending less each month than users of the main Telus brand.
Telus chief executive Darren Entwistle said the company’s decision to launch Koodo was important given the anticipated increase in wireless competition following Canada’s recent auction of spectrum licenses.
“Our approach as it relates to a value-based brand is not short-term in nature,” Entwistle told analysts during a conference call.
Several new companies, including Globalive Communications and Quebecor Inc (QBRa.TO)(QBRb.TO) are expected to enter the market in coming months. This promises to increase competitive pressure and could squeeze the profit margins of the big existing players, Telus, BCE and Rogers.
Telus also added 23,600 high-speed Internet users, a 70 percent jump from a year earlier. Last year, its ability to add Internet subscribers in the quarter was hit temporarily while it put a new billing and customer service system in place in Alberta.
The company’s total revenue rose almost 8 percent to C$2.4 billion from C$2.23 billion.
For 2008, Telus said it expects revenue of C$9.675 billion to C$9.825 billion. That is higher than its original target of C$9.6 billion to C$9.8 billion.
However, it trimmed its basic earnings per share target to between C$3.50 and C$3.70 from between C$3.50 and C$3.80.
“Adding that many people has an extra cost to it,” MacDougall, MacDougall & MacTier analyst Troy Crandall said of the lowered outlook. “In a way, it’s like short-term pain for long-term gain.”
Reporting by Wojtek Dabrowski; editing by Rob Wilson