On Mar 19, 2014, we issued an updated research report on Canadian telecom major BCE Inc. (BCE). We believe management’s six strategic initiatives will deliver profits consistently in the coming quarters. However, access line loss, increased competition and higher expenses could drag the margins down. The leading telecom operator holds a Zacks Rank #3 (Hold).
BCE will benefit from robust activities in the wireless business, strong subscriber addition, drop in churn rates, the Astral acquisition 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.
BCE expects smartphone subscriber addition, higher LTE data usage and increased access rates on new two-year contracts to be accretive to ARPU growth. The company will also leverage from Fibe TV and Fibe based Internet growth, price hike and an improved business market stemming from a steady economy.
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. Further, solid cash flow generation and pay-out ratio are the other positives for 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 builds up competitive pressure on BCE, but also opens up the prospect 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. This is reflected by persistent erosion in overall network access services on a year-over-year basis, hurting revenues of the local and long-distance operations.
Key Pick from the Sector
Better-ranked companies within the telecommunication sector include SK Telecom Co Limited (SKM), Shenandoah Telecommunications Inc. (SHEN) and Level 3 Communications Inc. (LVLT). SKM and SHEN carry a Zacks Rank #1 (Strong Buy) while LVLT currently holds a Zacks Rank #2 (Buy).