November 4, 2010 / 11:32 AM / in 7 years

BCE profit beats Street on strong wireless growth

TORONTO (Reuters) - BCE Inc, Canada’s biggest communications company, reported a quarterly profit on Thursday that beat expectations despite a rise in upfront costs to sign up customers for lucrative data-heavy smartphone plans.

<p>George Cope, president and chief executive officer of BCE Inc., prepares for the company's annual general meeting in Montreal May 6, 2010. REUTERS/Christinne Muschi</p>

The company, which sells phone, Internet and satellite-TV services under the Bell Canada brand, has been racing to sign up customers for wireless data plans as it faces tough competition from established rivals that have been spending heavily on promotion, and from new entrants offering low-cost plans.

BCE, Rogers Communications and Telus Corp dominate Canada’s wireless sector. BCE has said it aims to grab a third of the wireless market.

It added 159,465 postpaid wireless customers in the quarter and each contract customer on average spent C$65.04 a month, an increase of 95 Canadian cents from the year-before quarter. Overall, average revenue per user (ARPU) in wireless rose by C$1.41 to C$53.54.

“The results are quite a nice achievement,” said Desjardins analyst Maher Yaghi, who has a “buy” recommendation on the stock. “They had a very strong wireless net add number...and ARPU was not under pressure like what we saw at Rogers.”

Rogers, Canada’s largest wireless provider, posted a 24 percent drop in profit last week as it also paid heavily to add a large number of smartphone subscribers.

Subsidies for customers using smartphones such as Apple’s iPhone, Research In Motion’s BlackBerry and devices running Google’s Android software pull down margins and raise costs in the short term. BCE said it paid C$392 per gross activation in the quarter, a 22.5 percent jump from the year-before quarter.

Quebecor’s Videotron cable-TV arm launched wireless service in Quebec in September, posing a direct challenge to Montreal-based BCE, which has in turn launched an Internet-based television service.

Telus is due to report quarterly earnings on Friday and Quebecor reports next Tuesday.

BCE expects to close a C$1.3 billion ($1.3 billion) deal to buy CTV, Canada’s biggest private broadcaster, by mid-2011 as it bets consumers will increasingly watch video over the Internet and on mobile devices. It is already offering CTV’s specialty business channel to its wireless customers.

BCE’s chief executive, George Cope, told an analysts’ call the company had more than one million subscribers on the HSPA+ network that it and rival Telus built a year ago and each contract customer paid more than C$80 per month.

BCE said net earnings dipped 5 percent in the third quarter to C$528 million, or 70 Canadian cents a share, from C$558 million, or 72 Canadian cents a share, a year earlier.

On an adjusted basis it earned 82 Canadian cents per share, aided by a tax-related gain, compared with analysts’ average expectation of 76 Canadian cents.

Revenue was C$4.52 billion, topping analysts’ expectations for C$4.43 billion Revenue from wireless data grew 39 percent and now accounts for more than a quarter of the average wireless customer bill, BCE said.

Shares in BCE gained 1.1 percent in morning trade to C$34.13 on the Toronto Stock Exchange.

BCE said it added 21,668 high-speed Internet customers and 18,538 television subscribers in the quarter.

BMO Capital Markets analyst Peter Rhamey had expected the company to add 120,000 wireless postpaid subscribers, 15,000 Internet customers and 20,000 television subscribers.

BCE said the shriveling market for landline voice services slowed its decline in the quarter, with 92,000 lines cut in the quarter, compared with 103,000 a year earlier.

The company did not change its financial forecasts for the full year. It upped its 2010 outlook and dividend in August and launched a budget brand, Solo Unlimited, to focus on urban markets where new entrants in the market offer low-cost prepaid plans.

BCE said that from January it will use International Financial Reporting Standards (IFRS) for its accounting instead of Canadian Generally Accepted Accounting Principles (GAAP).

The company expects the change to reduce capital assets by C$2 billion and for 2010 adjusted EPS to rise by around 8 Canadian cents.

($1=$1.00 Canadian)

Reporting by Alastair Sharp; editing by Peter Galloway

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