With the iPhone, Freedom like a ‘new business’: Mehr

Shaw Communications Inc.’s wireless brand may see its strongest quarter yet following the introduction of the iPhone to its roster, the impact of which, the company’s president Jay Mehr said on a conference call with analysts Thursday, has transformed the business. “It does sound like a new business starting in December,” Mehr said following Shaw’s fiscal first quarter earnings, regarding the month that saw the Alberta-based company make the Apple Inc. product available. The quarter ended on Nov. 30, so the impact of those sales will be realized in the upcoming quarterly report despite presales beginning on Black Friday in the previous month. In October, the company said it had reached a deal with Apple to sell the phones, as well as a broader range of other LTE-compatible devices, and was working to rejig and deploy spectrum to support them on its enhanced network. But Mehr admitted that initially, he didn’t truly understand the phone’s importance to the business, despite saying how significant it was on a previous call as the company was still negotiating for the phones. “I underestimated the importance of the iPhone to our business,” Mehr said Thursday. “It has changed all aspects of our wireless business. We’re adding customers, all of them north of $50 . We’re selling a lot of phones.” Mehr said the sales represent a change from a time when the company wasn’t known to sell phones to a high percentage of its net subscribers, as it has largely been based on a bring-your-own-device model. He added analysts can expect a net gain in future quarters “that’s meaningfully stronger than what you’ve seen from us at any time” as well as a “really healthy revenue component” to those gains. Prior to Thursday’s call, analysts this week anticipated a continuation of momentum for Freedom in the first quarter, but said the impact of the $0 iPhone offer would not be realized until the next reporting period. Barclays Capital analyst Phillip Huang previously noted that he expected the $0 iPhone wouldn’t last long, though the company was still offering it as it released the quarterly results Thursday. And while Mehr said he thinks that device pricing is sustainable, he added the company may adjust down the road. In the meantime, Mehr said the company expects a bump up in customer migration to higher data wireless plans such as its “big gig” offering. Freedom sparked activity in the market following the announcement of the big gig plans, which consists of a baseline 10 GB for $50, and 10 GB with unlimited calling for $60. At first, Rogers Communications Inc. and BCE Inc. shrugged off the offers because of what they described as an inferior network. But what followed was a competitive firestorm. Those same companies raced to grab a share of the market Freedom was looking to nab during the holiday season with limited-time offers of 10 GB for $60, which were also offered by some flanker brands in Freedom’s operating territory. In those four or five days when the competition had their similarly-crafted promotions, Mehr said on the call that Freedom saw “record disconnects,” largely because those competitors have greater distribution. But he said this isn’t unfamiliar territory, as the company’s 3G base has been exposed to this kind of competition before. Mehr added that if the big three want to “activate the market” again in the long run, Shaw will benefit from people shopping around for deals. He said Freedom now established itself in the market, so when $60 for 10 GB including unlimited voice becomes mainstream, it will be positioned appropriately. In a Friday note, Huang predicted that the big three would be reluctant to launch similar deals in the future, since he believes "the negative side effects from the retaliation, both expected (repricing, churn) and unexpected (negative publicity, call volumes), were greater than had anticipated." He added that Shaw would be least likely to target Telus Corp. customers, given their overlapping operating territories mean Telus could retaliate with its wireline businesses. Now on the back of its expanded handset lineup and pricing, during the three months leading up to the quarter’s end, Freedom grew its postpaid wireless base by 33,050, compared to 14,307 in the same period the year prior. Combined with the 384,342 prepaid subscribers — which grew by 1,260 in the quarter compared to a loss in the last equivalent period — total wireless subscribers by quarter end stood at around 1.2 million. That helped push wireless revenues up 26.8 per cent to $175 million versus the last equivalent period. Average revenue per user (ARPU) also increased slightly to $37.52 compared to $36.79 in the prior year. Furthermore, the company also said Thursday that it has finished deploying its AWS-1 spectrum in Vancouver, Calgary and Edmonton. The wireline division, however, didn’t fare as well. That segment’s consumer revenues decreased 1.3 per cent to $935 million compared to the same period a year before, moderated by an increase in the business side. The dip was due to a reduction in promo activity, particularly on the cable video side, as well as more satellite video losses. Total wireline revenues were down slightly to around $1 billion. Digging into the numbers specifically, the cable video side lost about 18,000 subscribers in the quarter, more than the 13,146 losses it suffered in the same period the year prior. In total, cable video subscribers stood at about 1.65 million by quarter end. Satellite video losses in the quarter were 20,500, roughly 5,000 more than the previous equivalent period for a total at the end of November of about 753,000. The losses confounded some analysts, who remarked in Thursday notes that the declines were higher than they were expecting. Desjardins Capital Markets analyst Maher Yaghi said in a note that the numbers are a disappointment “given the relatively recent rollout of the X1 platform.” Meanwhile, Canaccord Genuity analyst Aravinda Galappatthige said he was “particularly surprised” by the loss of 18,000 subscribers, which was much higher than the 7,000 he was expecting the company to lose. Despite that, consumer internet subscribers in the quarter increased by 17,694 compared to the 16,964 it added in the prior year. The total number of internet subscribers by the end of November stood at around 1.9 million, not including the 170,150 total business subs. The company also said Thursday that over 90 per cent of customers are taking speeds of 75 Mbps or higher. All that said, the company reported net income that grew 28.1 per cent to $114 million versus the end of November 2016. Revenue also increased, though not as drastically, by 2.7 per cent to $1.25 billion, in line with analyst estimates. The focus now shifts to the second quarter, which some analysts agreed Thursday was the important quarter to grasp the real impact of how far Shaw has come with wireless. While RBC Capital Markets analyst Drew McReynolds called the next quarter and beyond the “real focus,” Yaghi said he expects to see still improved trends the next time around. — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

With the iPhone, Freedom like a ‘new business’: Mehr

News | January 11, 2018

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With the iPhone, Freedom like a ‘new business’: Mehr

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