MONTREAL – More cost cutting and fewer than expected losses in its traditional wireline business led to a "steady" first quarter for Bell Canada Enterprises, the company announced this morning.
NAS losses in the quarter, ended March 31, 2007, slowed by 20% compared to Q1 2006.
"Once again, we were able to deliver solid EBITDA growth and that contributed to an increase in earnings per share," said Michael Sabia, president and CEO. "Overall, our wireline services held their own against competitors this quarter. There was less erosion in our local and long distance revenues and we had good performance in high-speed Internet. We also continued to deliver on our cost reduction goals.
"However, aggressive changes in our wireless strategy during the last quarter had a significant adverse impact on wireless subscriber growth," he said.
In this quarter, local line losses decreased "due in part to winbacks and other initiatives in our residential and SMB units. These results support the company’s expectation that residential local line losses will stabilize in 2007," reads the company’s press release.
Bell achieved steady revenue increases in both its residential high-speed Internet and video services. The SMB unit also had solid revenue growth. The Enterprise unit achieved higher margins on customer deals won this quarter and contributed positively to EBITDA. However, demand in the enterprise data market remains a challenge, according to the release.
In the wireless segment, net activations were 13,000 this quarter compared to 76,000 last year due primarily to lower postpaid gross activations and higher prepaid churn. Despite the lower level of activations, wireless revenues grew due to a $4 increase in ARPU which reflected pricing initiatives and growth in wireless data revenues of over 50%. Wireless EBITDA increased 23% and margins on network revenues increased by 4.1 percentage points due mainly to higher ARPU and lower subscriber acquisition costs.
"Although we’re pleased with the performance of our wireline segment, the challenges we encountered with wireless subscriber growth in Q4 extended into this quarter," said George Cope, president and COO of Bell Canada. "We continue to work toward striking a balance between achieving our fair share of gross activations while at the same time growing ARPU more cost effectively. New initiatives like Bell to Bell Calling and an improved handset line-up showed traction in March and April, but there is more to do.
"We will continue to expand our handset line-up, improve our distribution effectiveness, introduce innovative promotions and pricing plans, promote our SOLO brand, and further enhance the quality of our network," added Cope.
Bell’s cost-cutting brought in an additional $86 million of savings this quarter, on track with the target for 2007.
As for customer service, Bell increased first call resolution by 3.6 percentage points from Q4 2006 to 78%, while the rate of missed appointments for wireline installations and repairs improved by 10% and 23% respectively compared to Q1 2006. For Internet customers, residential high-speed repair times improved by 69% over last year and service outages were reduced by 20% compared to Q4 2006. For video, customers in 86% of postal codes can now get next day service. For wireless customers, dropped call rates improved and contact center service levels were enhanced, says the release.
Progress was also made expanding Bell’s distribution channels. During the quarter, 10 new corporate stores were opened and 58 new retail partner locations were added.
In the first quarter of 2007, BCE changed its financial reporting so that results of operations are now reported in four segments: Bell Wireline and Bell Wireless (collectively referred to as Bell), Bell Aliant and Telesat.
Bell’s revenues were $3.58 billion in the first quarter, an increase of 0.4% compared to the same period last year. BCE’s revenues were $4.4 billion this quarter, up 1% due to higher revenues at Bell, Bell Aliant and Telesat.
Operating income of $711 million for Bell and $917 million for BCE this quarter reflected increases of 8.7% and 7.4% respectively compared to the same period last year. In each case, lower restructuring costs and higher EBITDA more than offset higher amortization expenses.
Bell’s EBITDA grew this quarter by 4% to $1.4 billion due to ARPU growth, lower subscriber acquisition costs for wireless and lower pension expenses, more than offsetting the continued erosion of higher margin legacy voice and data services. BCE’s EBITDA this quarter grew by 2.5% to $1.74 billion due to EBITDA growth at Bell.
As for divisional highlights, BCE’s press release set them out as such:
Bell Wireline
* For the quarter, Bell Wireline revenues decreased by 2.2% to $2.64 billion as gains in video, high-speed Internet and VAS/VCIO revenues were more than offset by legacy revenue erosion and a decline in ICT sales.
* Bell Wireline operating income decreased 4.6% to $416 million due to the loss of high-margin legacy services and higher amortization expenses.
* Local and access revenue erosion was curtailed for the second quarter in a row, but revenues declined by 5.3% to $910 million due mainly to the loss of NAS and related line features to cable competitors.
* NAS declines of 107,000 this quarter were an improvement over the decline of 133,000 in Q1 2006 due to fewer losses in our residential unit as a result of an increase in customer winbacks as well as higher wholesale demand and moderating losses in our SMB unit. This was the first quarter of reduced year over year NAS losses since the launch of competing services by cable companies.
* Long distance revenue declined 9.1% to $310 million compared to last year due to NAS erosion and substitution to wireless and the Internet. However, the rate of decline of long distance revenue has been steadily improving since Q1 2006 due to various pricing actions. Long distance continues to face competitive pricing pressures, particularly in enterprise and wholesale markets.
* Data revenues increased 0.7% this quarter to $893 million due to growth in Internet revenues, higher IP Broadband revenues and higher VAS/VCIO sales to SMB customers partly offset by the further erosion of legacy data services and lower enterprise ICT sales.
* Fiber-to-the-node rollout continued this quarter, increasing the number of neighbourhood nodes deployed by 180 to 3,792.
High-speed Internet
* Total subscribers grew by 10.3% to 1,941,000.
* Net additions of 43,000 subscribers, were up 16.2% over last year, reflecting the success of hardware offers, including PC Fusion and LCD Monitor programs, improved performance in the Québec market, as well as a new low in churn.
* Portal revenues increased by 33%.
* Sympatico/MSN had 19.8 million unique visitors this quarter, representing 87% of online Canadians.
* Sympatico/MSN also had 75 million video streams, or four and half times more than last year.
Video
* First quarter revenues were up 13.4% from last year to $314 million.
* ARPU increased by $4 to $57.
* EBITDA grew by 34.1% to $55 million with EBITDA margin increasing by 2.7 percentage points to 17.5%.
* Total subscribers increased by 4.9% to reach 1,824,000.
* The net addition of 4,000 subscribers this quarter was lower than the 12,000 recorded last year due to decreased sales through independent retail channels and slightly higher churn at 1.1%.
Bell Wireless Segment
* Bell Wireless revenues grew 8.1% this quarter due to higher ARPU and a larger subscriber base, partly offset by lower handset sales. Wireless network revenues increased by 11.9%.
* Operating income for Bell Wireless increased by 35% to $295 million reflecting higher revenues, lower total subscriber acquisition costs and lower customer retention and handset upgrade costs.
* With higher ARPUs and lower subscriber acquisition costs, Bell Wireless EBITDA increased 22.7% to $405 million and EBITDA margins on network revenues increased 4.1 percentage points to 45.7%.
* Blended ARPU increased by $4 to $52 while postpaid ARPU and prepaid ARPU increased by $3 and $2 to $64 and $15, respectively. Wireless data revenue growth of over 50% contributed to the increases.
* Blended churn was unchanged year over year at 1.6% with postpaid churn decreasing to 1.2% from 1.3% while prepaid churn increased to 2.9% from 2.5% reflecting a change in the prepaid deactivation policy to better align with industry practice.
* The Bell Wireless customer base increased by 5.5% to 5,821,000. This total reflects the removal of 146,000 non-revenue generating customers from the prepaid subscriber base at the beginning of the year as a result of a change in the prepaid deactivation policy.
* Total gross activations were 296,000, down 13.5% from last year due to lower postpaid activations caused by weaker sales, fewer promotional incentives, a stricter credit policy for new activations and new handset introductions by our competitors.
* Total net activations were 13,000 this quarter compared to 76,000 in Q1 2006 due to lower postpaid gross activations and higher prepaid churn.
* The outlook for growth of wireless customers in 2007 is now in the 4%-6% range rather than the 8%-10% range originally expected given the level of additions this quarter and the recent termination of a significant public sector contract that will increase the level of deactivations as the individual service agreements under the overall public sector contract expire.
* Consistent with North American industry practices, total wireless gross activations, net activations and subscribers include 100% of Virgin Mobile’s subscribers.
* Wireless ARPU, churn, usage per subscriber and cost of acquisition continue to be computed by including 50% of Virgin Mobile’s results, a level corresponding to Bell’s ownership position.
* Bell’s high-speed Evolution, Data Optimized (EVDO) network now has a footprint covering approximately 60% of the Canadian population.
* Bell began the Rev A overlay to the EVDO network which will enable peak download speeds of more than 3 Mbps.
* Introduced Canada’s thinnest handset, the Samsung m610, and announced that the BlackBerry 8830 World Edition smartphone, the first CDMA BlackBerry to support international roaming on GSM/GPRS networks will be available this summer.
