McAleese decries pricing discipline of Big Three
By Greg O’Brien
CALGARY – While the Covid-19 crisis has hit everyone hard, Shaw Communications posted what can only be considered a good third quarter, considering all that has happened during the pandemic. It announced its Q3 results after the markets closed on Friday.
Also, with 90% of its stores now reopened (albeit with much less traffic so far) and customer activity increasing in its wired and wireless (Freedom Mobile) segments, executives also said Friday the company has rehired 50% of the approximately 1,000 employees it furloughed in April.
“While we continue to navigate through a period of widespread uncertainty, the solid performance of our business underscores the resilient and critical nature of the services we provide to our customers,” said CEO and executive chair Brad Shaw in the company’s press release.
“Although subscriber activity was subdued during the quarter, primarily due to Canadians staying home to restrict the spread of Covid-19, the financial performance of the company was excellent… We have invested billions on building and improving our network and services and the benefits of these investments have never been more critical for Canadians during this crisis.”
Due to the physical distancing requirements shutting down so many things in Canada and globally, few Canadians were in the mood to shop for wireless deals. That meant far lower customer additions, but also record-low churn levels. Freedom postpaid net additions increased by 2,200 in the third quarter, ended May 30 and postpaid churn was 0.96%, due to that reduced customer activity. The company also lost 7,700 post-paid customers.
Company president Paul McAleese told analysts during a Friday conference call he found it unusual and perhaps illuminating the Big Three have been offering some deep discounts during the pandemic. While Freedom margins rose to 40% (thanks to things like ad spending being at an all-time low), “I would still be cautious given the downward pressure that we’re seeing on retail pricing and some of the activity that you’re seeing out of the Big Three, particularly on unlimited,” he told analysts.
“I’ve seen 20-Gig plans from one of the Big Three as low as $54, which is regularly priced at $65. We’ve had a good part of the last month where the Big Three had their unlimited plans priced below Freedom… I think that’s probably going to be reflected in fairly painful ARPU numbers for them in the coming next little while,” he added.
“The pricing discipline – or lack thereof – from some of our competition is astonishing to me.” – Paul McAleese, Shaw Communications
“I don’t know where the end of the runway is there, but I’d be starting to get pretty uncomfortable if I were piloting that plane… when you look at where unlimited launched last June and where it has tumbled to precipitously, the pricing discipline – or lack thereof – from some of our competition is astonishing to me.”
Freedom’s service revenue for the three-month period increased 17% to $206 million over Q3 2019 “due to the increased subscriber base and growing penetration of Big Gig data plans,” adds the company release. “Third quarter ABPU (average billing per unit) grew by approximately 5.7% year-over-year to $44.27 and ARPU (overage revenue per) increased 2.6% to $38.94 reflecting the increased number of wireless customers subscribing to higher service plans, partially offset by lower roaming revenue in the quarter due to less travel and roaming outside of the Freedom network.”
On the Shaw Cable side, new customer activity was also lower. Consumer Internet experienced a net loss of approximately 5,100 and video losses were approximately 22,000 in the quarter, which was a slight improvement compared to the prior year, reads the release. Third quarter wireline revenue of approximately $1.06 billion decreased 1.1% year-over-year, while adjusted EBITDA of approximately $508 million was a 6.9% increase.
“Although subscriber activity was reduced, the company continues to see an acceleration in the number of customers that elect to self-install, which increased dramatically to approximately 72% in the quarter.”
“While uncertainty continues to lie ahead, I am confident in our ability to execute, to continue providing the critical services that our customers need, and to build upon our agile approach to customer service, providing long term benefits to all stakeholders,” added CEO Shaw.
On May 27, 2020, the company launched several new Internet products for all needs and budgets, including the introduction of Fibre+ Gig Internet, available to more than 99% of Shaw’s residential customers. In addition to rolling out the fastest speeds ever available to its customers, Shaw launched a new entry-level Internet plan and a new lineup of Internet tiers, providing customers a full range of choices depending on their connectivity needs.
These new plans are already starting to have a positive effect. “We’ve seen a nice lift,” McAleese told the conference call. “In the old days when we spoke with the customer, it costs us money, and now because of the availability of higher speeds – and frankly the demand related to Covid and the pressures on residential Internet speeds and just the greater utility we’re demonstrating – we’ve managed to turn that into something that’s a positive for us. So it’s been a very favorable last six weeks.”
The company also cautioned we’re nowhere near out of the woods, despite the company’s Q3 results. For example, we don’t yet know what the impact will be when the federal government winds down its business and consumer aid plans.
“While the financial impacts from Covid-19 in the third quarter were not material, the situation is still uncertain in terms of its magnitude, outcome and duration. Consumer behaviors could still change materially, including the potential downward migration of services, acceleration of cord-cutting and reduced ability to pay their bills, all due to the challenging economic situation,” added the company release.
“Shaw Business primarily serves the small and medium sized market, who are also particularly vulnerable to the economic impacts of commodity price challenges and ovid-19, including mandated closures or further social distancing restrictions.”
For more on Shaw’s third quarter, please click here.
