MONTREAL – Strong growth in its Bell Mobility, Bell Sympatico High Speed and Bell ExpressVu divisions led Bell Canada Enterprises to a solid second quarter of 2005, ended June 30th.
The wireless unit posted 146,000 net adds, up 54%; high-speed Internet had 92,000 net adds, up 42%; and video (mostly ExpressVu but some wireline) saw 63,000 net adds, up 163%. All figures are compared to the second quarter of 2004.
Quarterly revenues for the telecom and media giant were $5 billion, up 4.2% from the same period last year. Operating income for the quarter was $1.1 billion, unchanged from the previous year, and earnings per share (EPS) were $0.61 cents, up $0.01 from the previous year.
EBITDA (earnings before interest, taxes, depreciation and amortization) was $2 billion, up 2.5% from the same period last year. EPS before restructuring and other items and net gains on investments were up $0.03 at $0.58 compared to $0.55 the previous year.
Cash from operating activities was $1.5 billion in the quarter, up from $1.1 billion for the second quarter of 2004, while free cash flow was $138 million, up from $64 million for the same period last year.
“Bell Canada saw double-digit growth in wireless, high-speed Internet and video combined with continued positive results in the Business segment this quarter," said Michael Sabia, president and CEO of BCE, in the press release. "These results show very good progress in meeting our objective of cost-effectively ramping-up growth of our new services to more than offset the decline of our legacy business."
Both Consumer and Business segments achieved their results while managing operating costs effectively and preserving BCE’s overall 40% EBITDA margin. The company’s cost reduction plans remain on track and a number of Galileo initiatives will start rolling out in the third quarter to further increase the level of savings.
In the Consumer segment, subscriber growth is providing Bell Canada with an expanding base of high-value multi-product customer relationships, says the release, referring to product bundles. These relationships can be further leveraged as the reach and appeal of the company’s product mix and value-added services (VAS) continues to expand.
Within Bell Canada overall, 44% of total revenues came from growth services compared to 40% six months ago; important progress in Bell’s planned shift in revenue mix away from legacy (local and long distance telephony) services. The company is moving towards its target of 55% of revenues from growth services by the end of 2006.
Video
ExpressVu posted its strongest second quarter on record as net additions jumped 163% over the same quarter in 2004 to 63,000. By June 30, 2005, total subscribers reached the 1.6 million mark, up 12% compared to June 30, 2004. Churn remained low at 0.9%, and slightly improved over the previous year. As reported by www.cartt.ca, the company also completed its "Smart Card" replacement program to its entire customer base, making its satellite platform free from piracy.
Video revenues increased by 12% year-over-year driven by the higher customer base and an improvement in ARPU of $1. EBITDA remained positive despite a marked increase in new additions. EBITDA performance was driven by a reduction of nearly 20% in the average unit cost of acquiring new customers.
As announced yesterday, Bell purchased the residential assets of Cable VDN, a local cable company selling residential TV and high-speed Internet services in Montreal. This acquisition allows Bell to cost-effectively deliver a quadruple play (video, high-speed Internet, wireless and long-distance) to the multi- dwelling-unit (MDU) market in Montreal.
Bell also continued its fibre-to-the-node (FTTN) rollout by deploying another 593 neighbourhood nodes, raising the total number of nodes served to 1,355. The company’s objective is to deploy 2,000 nodes by the end of 2005.
As well, Bell made steady progress in the deployment of very-high bit-rate digital subscriber line (VDSL) to large multiple-dwelling units (MDUs). By the end of the quarter, it had signed access agreements with 537 buildings and had provisioned VDSL in 345 buildings.
The cost of acquisition of video customers remains high, but is falling. Bell reported COA for video services in the second quarter and first six months of 2005 decreased by 18.9% and 24%, respectively, to $462 and $466 per gross activation from $570 and $610 per gross activation in the same periods last year. The significant improvements can be attributed primarily to lower set- top box (STB) pricing, reflecting the negotiation of a favourable supply contract, our STB rental program and the increased purchasing power of a stronger Canadian dollar, partially offset by a higher number of customers taking additional STBs.
High-speed Internet
High-speed Internet additions were 92,000 in the second quarter of 2005, an increase of 42% over the same period in 2004. The total high-speed subscriber base exceeded the 2 million mark, up by 24% over the second quarter of last year. The popularity of Bell’s 128 kbps DSL service, which is both attracting new customers and converting dial-up customers to DSL, contributed to the growth this quarter.
VAS subscriber growth, such as MSN Premium, Security Services and Home Networking, grew by 99,000 in the second quarter of 2005, to reach a total of 865,000 – double the number a year ago.
Sympatico.MSN continued to be the country’s most popular online destination with 15.8 million unique visitors to the site monthly. Portal revenues increased by 131% and VAS revenues increased by 61%, year over year.
During the quarter Bell launched a series of service innovations to further simplify the customer experience. The new "Grab ‘n Go" offer simplifies the installation process by allowing customers to pick up their DSL kit and modem directly in Bell retail outlets. The company also implemented improvements to its on-line Net Assistant service to provide additional functionality including a "Customer Chat" capability for billing related issues. These improvements also give customers greater control over their service with better automation capabilities and "quick fix" solutions, says the release.
Wireless
Total wireless subscribers reached the 5.1 million mark, an increase of 11% when compared to June 30, 2004. The increase in net additions is attributable to the success of new rate plans, the introduction of Bell’s Push-to-Talk service, known as 10-4, new RIM customers, the launch of the Virgin Mobile service, and strong growth in the west.
The company gained 117,000 postpaid net new customers in the second quarter, an increase of 50% over the second quarter of 2004. Postpaid customers also generally represent higher Average Revenue per User (ARPU) than prepaid customers. This contributed to an overall ARPU in the quarter of $50, up $4 from the first quarter of 2005, an increase that returns the company to the levels reached in the second quarter of 2004. Blended churn was at 1.6% per month, with improvements in postpaid churn from last quarter, continues the press release.
Wireless revenues for the second quarter reached $771 million, an improvement of $73 million, or 10%, over the second quarter of 2004. “Due to effective cost containment, wireless EBITDA margin was above 42% in the second quarter of 2005, despite the costs associated with a very large number of new customer acquisitions,” says the company.
Wireless COA improved by 2.9% to $401 per gross activation in the second quarter of 2005 and by 10.4% to $389 in the first half of 2005 from $413 and $434 per gross activation for the same respective periods in 2004. Despite an increase in hardware subsidies incurred to acquire higher quality customers, the year-over-year improvements in COA were driven primarily by a greater number of gross activations, reduced promotions and advertising costs, and a slightly higher proportion of prepaid activations, said Bell.
With relatively low wireless penetration in Canada, the company has introduced offers that will tap underserved segments of the market. On July 25, Bell launched Solo Mobile, a wireless service designed specifically for the youth market. Solo is based on Push-to-Talk technology and provides Bell’s innovative 10-4 service for $1 per day on top of the basic rate plan. The company estimates that this represents a potential market of 5 million in its serving territory with a penetration rate of only 50%.
