February 11, 2011 / 1:27 PM / in 7 years

Telus profit surges on data and wireless revenue

TORONTO (Reuters) - Telus Corp posted a 46 percent jump in quarterly profit on Friday, driven largely by strong data and wireless revenue, the Canadian telecoms company said, as it pushes ahead with its Internet television service.

<p>A pedestrian is reflected in the window of a Telus store while using a mobile phone in Ottawa February 11, 2011. Telus said its quarterly profit rose 46 percent, driven largely by strong data and wireless revenue and growth in its landline Internet television service, Optik. REUTERS/Chris Wattie</p>

But stiff competition in the wireless sector, which provides about half the Vancouver-based company’s revenue, meant Telus failed to sign up as many new customers as analysts expected.

Its mobile phone customers spent more, however, suggesting most of the weakness was in the low-end of the market.

“We are seeing very heavy competition at the low end,” said Maher Yaghi, an analyst at Desjardins Securities in Montreal.

“They’re not getting dirty ... they are trying to concentrate on bundles,” he said, referring to more loyal customers who sign up for phone, Internet and television packages. “Those are customers who Bell and Telus are concentrating on.”

Telus and BCE Inc’s Bell Canada unit share an upgraded national wireless network that has helped them win share from market leader Rogers Communications as they offer more high-end smartphones such as Apple’s iPhone.

One-third of Telus’s wireless customers now have smartphones , accounting for two-thirds of wireless voice and data activity in the quarter, executives said. Wireless data revenue jumped to C$326 million.

Bell, Canada’s largest telecoms company, also posted strong wireless growth this quarter, boosting profit and revenue.

Telus Chief Commercial Officer Joe Natale told analysts during a conference call that the company’s Internet TV service, Optik, would now turn its focus to boosting content packages after reaching 314,000 subscribers.

“That’s roughly 10 percent market share in Western Canada; that’s a critical mass where we can turn the jets on,” he said.

Telus is odd man out in Canada’s increasingly integrated telecom industry, where competitors are buying TV content providers to complement their distribution services.

It competes fiercely in Western Canada against cable company Shaw Communications, which bought the television assets of bankrupt Canwest Global Communications last year for C$2 billion.

Shares of Telus slipped 32 Canadian cents, or 0.7 percent, to C$47.57 on Friday afternoon. They have risen 2 percent since the company issued robust 2011 guidance in December.

NET INCOME SURGES

Telus said fourth-quarter net income rose to C$227 million ($229 million), or 70 Canadian cents a share, from C$156 million, or 49 Canadian cents, a year ago. The company reported a 4 percent rise in revenue to C$2.55 billion.

Analysts, on average, had expected Telus, which provides phone, Internet and television services mostly in Western Canada, to earn 72 Canadian cents a share, on revenue of C$2.51 billion, according to Thomson Reuters I/B/E/S.

It added 119,000 wireless subscribers, 3,000 less than a year earlier. But its mobile customers on average paid C$58.48 a month, a first year-on-year increase since early 2007.

Signing on lucrative smartphone users comes at a cost, however. Telus paid C$170 million in subsidies as customers upgraded to iPhones and Research In Motion’s BlackBerry smartphones.

Its fixed-line operating margins were also squeezed by costs to expand its Optik service. Telus added 48,000 Optik subscriptions and is now available to more than 2.1 million homes in British Columbia, Alberta and eastern Quebec.

“We’re seeing the growth there but it’s still small,” Yaghi said. “It’s actually putting pressure on the bottom line because when you hook up customers the initial cost is high.”

Typically for the industry, Telus’s revenue from fixed-line operations is sliding as customers become more mobile.

Telus’s wireless numbers, with the more lucrative postpaid subscriber growth static at 109,000, reflect pressure from newcomers like Globalive that have entered the sector since a 2008 government spectrum auction, as well as from budget brands owned by Bell and Rogers.

Globalive’s low-cost and contract-free Wind Mobile has grabbed more than 250,000 subscribers since its late 2009 launch. Two other wireless-only entrants, Mobilicity and Public Mobile, also offer unlimited talk and text packages.

Wind Mobile and Mobilicity are moving west in earnest but Telus got a reprieve when main rival Shaw delayed the launch of its mobile service until early in 2012.

Additional reporting by Bhaswati Mukhopadhyay; editing by Rob Wilson

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