On Jun 18, 2014, we issued an updated research report on Canadian telecom major BCE Inc. (BCE). We believe management’s strategic initiatives will aid profits consistently in the coming quarters. However, access line loss, increased competition and decline in advertisement revenues could drag the carrier’s performance. The leading telecom operator currently holds a Zacks Rank #3 (Hold).
BCE will benefit from robust activities in the wireless business, strong subscriber addition, drop in churn rates and focus on technology upgrades. The company’s wireless segment is expected to benefit from its post-paid business as it continues to enjoy solid subscriber addition. Significant investments in network coverage, customer retention, lucrative data plans and the launch of new handsets along with the offering of net protection will drive customer addition.
BCE will also leverage from Fibe TV and Fibe based Internet growth, price hike and an improved business market stemming from a steady economy. The company continues to expand its IPTV footprint and now covers 65% homes in Quebec and 59% homes in Ontario. BCE is also betting on attractive service plans to boost its high speed Internet growth.
BCE’s Bell Media segment is performing better than expected with rapid growth in video usage, increase in contract-based specialty TV rate and contribution from the Astral business. Astral has already started delivering meaningful performance and BCE is expected to receive $720 million from the divesture of some of Astral’s assets, thus boosting its liquidity. Further, solid cash flow generation and pay-out ratio are the other positives that stand in favor of the company.
The immediate concern for BCE is the Canadian government’s focus on reducing tariffs and enhancing customer choices by bringing in more competition within the wireless segment. Further, we believe Videotron’s spectrum wins in Ontario, British Colombia and Alberta not only build up competitive pressure on BCE, but also open up prospects of another large telecom carrier in Canada.
BCE’s local line access for traditional telephony service continues to decline due to higher wireless substitution and competition. Additionally, Rogers Communication Inc. (RCI) has recently announced its plans to expand its wireless network in British Columbia based on a 700 MHz spectrum, which will offer faster speeds, thus challenging BCE’s service in the region. Shift of corporate marketing expenses to other non-TV platforms also do not help BCE’s cause, forcing us to remain sidelined on the stock.
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