U.S. Markets closed

Telus Bets on Wireless and Fiber Opportunities

Zacks Equity Research

On Jun 19, 2014, we updated our research report on Canadian telecom service provider Telus Corporation (TU). We remain optimistic about Telus based on stable growth in its wireless and wireline businesses owing to its investments in LTE and high speed broadband services. Nevertheless, continuous access lines erosion along with competitive threats and increased capital expenditures keep us cautious. Telus currently carries a Zacks Rank #3 (Hold).    

Improving churn, increasing average revenue per unit, accelerating wireless data services and growing wireline fiber optic networks are the catalysts for Telus’ growth. The carrier also remains optimistic about the success of its shared data plans and the growth prospect owing to increased data penetration from roaming and expanded range of services and applications.

Telus is continuing with its 4G LTE network expansion, which covers 81% of the population while 4G HSPA+ has now penetrated 99% of the population. This in turn is fueling data and roaming revenues, thus offsetting declining voice business. The company is witnessing solid growth in its post-paid division with smartphones comprising almost 78% of the post-paid base.

In an attempt to compensate for access line loss, Telus continues to add features as well as upgrade the existing features of its Optik TV and Optik High-Speed Internet broadband services that are gaining traction across various markets. Further, Telus remains committed toward enhancing shareholders’ wealth and expects a payout ratio between 65% and 75% of sustainable earnings over the long term. The operator increased its quarterly dividend to 38 cents in May 2014.

However, the Canadian government aims to reduce tariffs and enhance customer choice by bringing in more competition within the wireless segment. This can prove to be a major cause of worry for Telus. Another concern is Videotron’s spectrum wins in Ontario, British Colombia and Alberta that not only increase competitive pressure on Telus but also open up the prospect of another large telecom carrier in Canada.

Additionally, Telus continues to lose local access line to competition from cable TV operators that have started offering phone service based on the less costly Voice-over-Internet Protocol (VoIP).

Furthermore, the company has abandoned its latest effort to acquire struggling rival Mobilicity, owing to regulatory hurdles. Telus’ failed attempt means it will not get hold of Mobilicity’s spectrum portfolio, which was its most attractive proposition. We thus prefer to remain sidelined on the company at present.

Other Stocks

Better-ranked stocks in the industry include KT Corp. (KT), BT Group Plc (BT) and Level 3 Communications Inc. (LVLT). KT sports a Zacks Rank #1 (Strong Buy) while BT and LVLT hold a Zacks Rank #2 (Buy).

Read the Full Research Report on LVLT
Read the Full Research Report on TU
Read the Full Research Report on BT
Read the Full Research Report on KT

Zacks Investment Research