On Apr 4, 2014 we maintained our Neutral recommendation on Canadian telecom service provider Telus Corporation (TU). We remain optimistic on the company’s wireless segment, technology upgrade, post-paid plans, increased rollout of smartphones and expansion of the 4G LTE (Long Term Evolution) network. Furthermore, investments in Optik TV business and high-speed broadband technology and services will likely work in favor of Telus. Nevertheless, continuous access lines erosion along with competitive threats and increased capital expenditures keep us cautious. Telus currently carries a Zacks Rank #3 (Hold).
Deeper penetration of smartphones, improving churn, increasing average revenue per unit, accelerating wireless data services and growing wireline fiber optic networks are the catalysts for Telus’ growth. Launch of various rate plans, in particular the high-end post-paid plans along with exceptional service will improve the performance of the company.
Expansion of 4G LTE network, offering of the latest LTE-based handsets and launch of SharePlus rate plans that come with an unlimited talk and text option will expedite growth within Telus’ wireless segment. The company also launched PTT service in Canada under the brand Telus Link, which allows walkie-talkie voice communications over the carrier’s HSPA and LTE networks.
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 British Columbia, Alberta and Eastern Quebec. Further, Telus remains committed to enhance shareholders’ wealth and has increased its quarterly dividend to 36 cents. Telus also enhanced its share repurchase program to $2.5 billion by 2016.
However, the Canadian government aim to reduce tariffs and enhance customer choice by bringing in more competition within the wireless segment. Another concern is Videotron’s spectrum wins in Ontario, British Colombia and Alberta that not only add 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). We thus prefer to remain sidelined on the company.
Better-ranked stocks in the industry include SK Telecom Co Limited (SKM), Level 3 Communications Inc. (LVLT) and Shenandoah Telecommunications Co. (SHEN). All these carry a Zacks Rank #1 (Strong Buy).