MONTREAL – With 51% of company revenues now coming from the "growth" services sides of the business (video, data, wireless) – as opposed to the legacy side (local wireline, long distance), the last quarter of 2006 could well prove to be Bell Canada’s "tipping point" back to stability and development, said CEO Michael Sabia.
"This was another quarter of steady progress in what has been a year of continuing improvement in our financial performance," said Sabia. "The ramping up of our EBITDA growth, an improving business mix, very strong performance on cost reduction, and our expectation that we will see stabilization of access line losses in 2007 give us confidence that we are on the right trajectory to deliver our 2007 business plan."
Bell achieved steady revenue increases in its wireless, video and high-speed Internet services, given significant increases in ARPU across these growth platforms. This contributed to an important milestone at the end of 2006 when Bell revenues from growth services exceeded 50%, reaching 51% of Bell’s total revenue at the end of 2006.
Wireless posted its strongest revenue growth in two years, solid margin performance, a significant increase in ARPU and excellent churn, although postpaid net additions were down year over year. However, wireless customer growth was softer than expected and Sabia said that is currently being addressed.
"Going forward, our business units are intensifying efforts to capture our fair share of net additions and to do so profitably, particularly in postpaid wireless, where the company experienced some market challenges this quarter," said Sabia.
Solid operational progress also continued on the cost side, where this quarter’s $223 million in productivity improvements were the highest in any quarter to date, contributing to an increase in margins. For the full year, Bell realized $724 million in efficiency gains, 38% more than in 2005 and a significant portion of the $1.6 billion in cost reductions realized over the last three years. This reflects employee reductions, other productivity improvements and discipline in acquisition costs.
Bell Canada revenues were $17.348 billion in 2006, an increase of 0.7% compared to the year before. Q4 revenues of $4.451 billion were unchanged compared to last year, due in part to a shift away from one time hardware sales towards recurring revenue opportunities.
Local access line (NAS) losses in Q4 were in line with company expectations. Local revenue erosion decreased by 4.5% compared to 5.8% in the third quarter of 2006. NAS losses in Q4 amounted to 181,000 lines, compared to 122,000 losses in Q4 2005. Total NAS at year-end declined by 4.2% over year-end 2005. Due to improved performance in the residential sector, overall long-distance revenues declined 12.3% in the quarter, an improvement from a decline of 14.1% the year before.
BCE reported revenues of $17.713 billion for 2006, an increase of 0.6% over the previous year, reflecting higher revenues from Bell Canada and Telesat. BCE revenues for the fourth quarter were $4.547 billion, an increase of 0.2% as compared to the previous year.
Due largely to restructuring and previously announced net benefit plan costs, Bell Canada’s operating income was $782 million in the quarter, $105 million lower than in Q4 2005. Full year operating income was down 10.7% to $3.353 billion, for the same reasons, as well as the impact of the transaction costs for the creation of Bell Aliant. Bell Canada’s operating income before restructuring and other items was $868 million in Q4, $43 million lower than Q4 2005 due to expected higher net benefit plans cost and amortization expense, offset by higher EBITDA. These factors also impacted the full year amount of $3,685 million, which declined $124 million.
BCE reported operating income of $3.332 billion for the year, a decrease of 11.4%, for the same reasons as above. BCE Q4 operating income was $760 million, down from $881 million, due again to the restructuring and other costs incurred by Bell Canada.
Bell Canada’s EBITDA grew 2.7% in the quarter to $1.779 billion, as compared to Q4 2005. This was driven by solid operating performance, a focus on profitable growth, continued cost reduction and lower cost of acquisition. Bell Canada’s EBITDA margin increased to 40% in Q4 2006 from 38.9% in the same period in 2005 and rose to 42% for the full year from 41.7% in 2005. Bell Canada EBITDA for the year was $7.3 billion, an increase of 1.4%. BCE EBITDA for the year increased 1.3% to $7.329 billion, due mainly to growth in EBITDA at Bell Canada, while Q4 EBITDA rose 1.9% to $1,773 million.
"We are seeing good operational progress in all areas of our business. From improving profitability in our business market where we are focused on driving recurring revenues to successful winback campaigns, targeted promotions, and disciplined pricing in our consumer segments, we are developing better competitive capabilities," said George Cope, president and COO of Bell Canada.
"Given the market challenge we experienced this quarter, we have specific action plans in place to ensure that we capture our fair share of additions in growth services, especially in the postpaid wireless sector. These include a refreshed and expanded distribution approach, disciplined but competitive pricing strategies, including winning our share of the wireless discount market with our Solo brand and a continued focus on improving customer service," added Cope.
The total wireless subscriber base grew to 5.87 million, up 7.9% from the previous year. Postpaid net additions for the year increased 5.5% from 289,000 in 2005 to 305,000 in 2006. Postpaid net additions were down by 47.2% quarter over quarter to 67,000, largely due to decreased retail traffic during the holiday period and a lack of promotional offers and short-term price reductions, said the company’s release.
The Bell multi-product household strategy continued to drive increased penetration of households subscribing to three or more products, reaching more than 25% of Ontario and Quebec households within the Bell footprint at the end of the fourth quarter, compared to 22% this time last year.
The video unit reported strong financial performance given increased ARPU and a consistently low churn rate. Customers continued to upgrade programming packages, and the unit saw higher pay-per-view revenues and successful customer retention efforts. Reduced net additions were the result of reduced retail traffic in stores, softer performance in independent channels and an ongoing focus on profitable growth.
Revenues grew by 11.2% to $298 million in Q4, while revenues for the year grew by 17.8% to $1.15 billion. ARPU increased by $3 to $55 and EBITDA was up significantly in the fourth quarter to $30 million, an increase of 30.4%; full year EBITDA was $181 million. Total subscribers were up 5.4% year over year to 1.82 million; net additions were 32,000 in Q4 compared to 50,000 in Q4 2005; full year additions totaled 93,000. Churn remained low at just 1% per month, unchanged from 2005.
On the high speed Internet side, ISP revenues grew 15.5% year over year as total subscribers grew to 2.46 million, a year-over-year increase of 12.2%. Q4 net additions were 59,000, as compared to 61,000 net adds in Q4 2005. Fourth quarter portal revenues grew 44.6% and there were 19.3 million unique visitors to sympatico.msn in the quarter, representing 87% of all online Canadians. There were 65 million video streams over sympatico.msn in Q4, a six-fold increase over Q4 2005.
