Freedom on new, ‘sustainable’ trajectory after record sub adds: Shaw

On the heels of record wireless subscriber growth in its second quarter, Shaw Communication Inc.’s Freedom is on a path to steady growth, its president said on a conference call Thursday, emboldened by migrations to higher-priced data plans and stronger retention of existing customers. The company added 93,500 new wireless customers within the three months that began during the holiday season and ended Feb. 28. And while Freedom president Paul McAleese cautioned against multiplying this figure by the remaining quarters, he said the company is seeing good pace. “We believe that we’re on a new and sustainable trajectory, so we’re confident in our growth potential,” McAleese said on the call. “There’s ample...growth for the industry to maintain good price rationality, so if you look at what happened over the last quarter, the industry reported strong growth and we’re pleased to join those numbers and that group.” As such, McAleese pointed to the holiday season and addition of Apple Inc.’s iPhone to its device offerings — which it started supporting as it deploys old and new spectrum — as key drivers for the dramatic boost. But it was also the company’s ability to build existing customer relationships, contributing to lower churn, that helped fatten the figure, McAleese said. It’s a strategy previously employed by other telecoms who have also looked to improve customer relationships to reduce churn. McAleese also noted on the call that as the business matures and normalizes, it will look to make its churn metric public in fiscal 2019. He said Freedom saw a historically low percentage of gross additions coming from customers bringing their own devices — at under 50 per cent in the quarter — and an uptick in those picking up better devices on its industry-moving Big Gig plans. The Big Gig plans, starting at $50 for 10 gigabytes of data, were introduced late last year and ignited a firestorm of competition during the holiday season. McAleese said on the call that the company has been focusing on upgrading existing subscribers to those plans. “We’re focusing on those longer-term relationships that we can acquire through higher value customers on better devices on Big Gig rate plans, many of them financing their device over a couple of years,” McAleese said, adding BYOD is still important to the business. The move to more expensive plans was reflected in Shaw’s average revenue per user (ARPU), which increased to $38.43 versus $36.44 in the same quarter last year. The company also said it had completed repurposing 10 Mhz of its AWS-1 spectrum across its footprint in recent weeks, while Shaw president Jay Mehr said its 700 Mhz deployment will make up a “chunk” of its wireless spend next year. With that, a trend that historically saw low migration to higher priced plans has been reversing, McAleese said. “What we’ve seen of late is a significantly larger percentage of our base every month migrate...we continue to recognize and see that our existing subscriber base sees incremental value, particularly after the refarming, in moving to the Big Gig rate plans, so I would speculate at this point that over the coming quarters, we’ll continue to see favourable migration that’ll positively influence ARPU.” As a result, wireless revenues of $290 million for the quarter improved 106 per cent over the year compared to $141 million in the second quarter of 2017. That was due to increased handset revenue of $148 million compared to $24 million a year prior and service revenue that improved 21 per cent to $142 million. Total wireless customers by quarter end were at roughly 1.27 million — 890,649 postpaid and 380,536 prepaid. Prepaid pulled back on the total numbers, as that segment lost 3,806 subscribers, which was substantially more than the 155 it lost in the same quarter last year. Also Thursday, Shaw announced Loblaws Co. Ltd. will be its first national retailer to sell Freedom services, starting this week. “The Mobile Shop” will be in 100 Loblaw locations across the country. Shaw foreshadowed the deal in October, when it said in a conference call that it needed stronger national distribution. In the meantime, the wireless growth story comes against the backdrop of its major multiyear restructuring program that includes a voluntary departure program. In February, the company said 25 per cent, or 3,300, of its workforce accepted a January buyout offer of their contracts as part of a major restructuring. The company expects 1,200 employees to leave before the end of fiscal 2018. Other high profile departures include CFO Vito Culmone and, as reported in the Globe and Mail Thursday, chief marketing officer Jim Little. Both Culmone and Little will leave May 4th. The “total business transformation” initiative cost the company $417 million in the quarter. The initiative will involve moving customer interactions to digital platforms, a push for more customer self-serve, and streamlining the business that builds and maintains the networks. As such, the company experienced a net loss of $164 million compared to net income of $150 million in the second quarter last year. Otherwise, the company saw total revenues increase 12.4 per cent to $1.3 billion over the year with wireless doing the heavy lifting. And that’s because wireline hobbled. The company lost 17,715 consumer video subscribers in the quarter, more than doubling the loss of 7,124 in the same period last year. The combined TV losses in the quarter were 22,000, when factoring consumer satellite video losses of 4,301 subscribers for a total of 748,736 by quarter end. BlueSky TV, the video product based on Comcast Corp.’s X1 platform, was seen last year as the product that floated TV sub numbers in a climate of cable-cutting uncertainty. On the call, Mehr said it simply hasn’t lived up to their expectations. “When we originally launched Blue Sky, we wanted to duplicate the success that our American counterparts achieved a few years ago with the launch of the X1 platform and drive market share growth,” Mehr said. “It’s clear as we executed that strategy, that we got a different outcome,” he said, noting competitive pressure in the West, where people moved to smaller packages, and the global evolution of video. But while Barclays Capital analyst Phillip Huang said in a Thursday note that cable is the primary source of risk, he expects performance to stabilize over time. He added the financials were better than expected — a conclusion also reflected in a note from RBC Capital Markets analyst Drew McReynolds — which should provide relief. The internet segment saw a subscriber bump of 5,476 in the quarter, less than the 13,466 it gained in the same period last year, for a total of 1.88 million subscribers by quarter end. Total wireline revenues, for both consumer and business, were flat at $1.06 billion, but the former experienced a 0.8 per cent year-over-year decline to $926 million. To help buoy wireline, some analysts on the call asked whether the company would consider bundling those services with the burgeoning wireless segment, to which Mehr said that while there could be an opportunity for that in the future, he doesn’t view wireless “as a vehicle to stabilize wireline results.” The company also said Thursday it expects to see a reduction in roaming costs of about $12 million, to be realized in the next quarter, due to the CRTC finalizing wholesale roaming rates as part of its MVNO decision, which effectively slashed them anywhere between 44 and 99 per cent. Looking to the next quarter, Mehr fielded a question about whether Freedom could top the 20,000 additions it made in its last third quarter. “We’ve got great momentum,” Mehr said. “At the pace we’re going, you can absolutely hold us accountable to double that...we might do a little better than doubling that, but if you think about something in the fours, I would consider that to be the current trajectory given the level of activity that we have in the marketplace. If you follow that seasonality curve, you should expect more from us in Q4 than that because that’s how the business unfolds.” — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Freedom on new, ‘sustainable’ trajectory after record sub adds: Shaw

News | April 12, 2018

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