Ottawa continues to impose new rules on Canada’s main wireless firms in an effort to encourage more competition. These measures include restricting the new radio frequencies (or spectrum) they can buy, cutting wireless contract terms from three years to two and capping roaming charges.
Meanwhile, new rules will force TV providers to let subscribers buy the channels they want, instead of having to purchase a package.
Today we look at two telecoms we cover regularly in The Successful Investor, and how they are adapting to the changes.
BCE INC. (Toronto symbol BCE; www.bce.ca) is Canada’s largest provider of telephone services, with 5.1 million customers in Ontario and Quebec. It also has 2.2 million high-speed Internet customers and 2.3 million TV subscribers. Together, these services supply 47% of the company’s revenue.
BCE also sells wireless services across Canada. Its 7.8 million mobile subscribers provide 28% of its revenue.
A further 13% of BCE’s revenue comes from its Bell Media division, which owns CTV Television, specialty channels and radio stations. It gets the remaining 12% from its 44% stake in Bell Aliant.
BCE recently spent $566 million on new blocks of wireless spectrum. This will let it offer high-speed wireless services in more parts of Canada.
Thanks to steady demand for wireless and its Fibe TV service, BCE’s earnings rose 8.7% in the first quarter of 2014, to $615 million, or $0.79 a share. A year earlier, it earned $566 million, or $0.73. Without unusual items, per-share earnings rose 5.2%, to $0.81 from $0.77. Revenue gained 3.7%, to $5.1 billion from $4.9 billion.
BCE’s $2.47 dividend yields 5.0%.
Dividend stocks: Manitoba Tel maintains high dividend despite recent setbacks
MANITOBA TELECOM SERVICES INC. (Toronto symbol MBT; www.mts.ca) gets around 55% of its revenue from its 1.3 million telephone and wireless customers in Manitoba.
The remaining 45% comes from Allstream, which sells integrated telephone, Internet and other communication services to businesses across Canada.
The company has suffered a couple of setbacks in the past few months. The first came late last year, when Ottawa blocked its plan to sell Allstream for $405 million to a private firm controlled by an Egyptian billionaire.
Allstream has struggled in the past few years, mainly due to intense competition from larger telecoms, like BCE and Telus. Moreover, Allstream mainly sells landline services, so it can’t offer bundles that include wireless phones. Manitoba Telecom is now making Allstream’s networks faster, which should help it compete.
As well, the company recently lost a lawsuit related to the funding of an employee pension plan after the company’s 1997 privatization. The ruling increases its pension obligations by up to $142.1 million. Manitoba Telecom recently sold $238 million worth of new common shares, so it has enough cash to cover this cost.
However, the company continues to benefit from rising demand for wireless and high-speed Internet services in Manitoba. It ended 2013 with 501,388 wireless customers, up 0.8% from 2012. Rising demand for wireless data downloads increased its average monthly revenue per subscriber by 3.2%.
Manitoba Telecom also had 192,928 high-speed Internet subscribers at the end of 2013, up 7.5%. Revenue per subscriber rose 3.0%.
The company will probably spend $315 million on network upgrades this year, up 6.4% from $296 million in 2013. Even after these outlays, it will have free cash flow of $150 million.
The company’s $1.70 dividend yields a high 5.5%.
In the latest edition of The Successful Investor, we consider the earnings outlook for both of these telecoms in 2014 and whether they can keep increasing their high dividends. We conclude with our clear buy-sell-hold advice on the stock.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Do you think the government’s persistent attempts to increase wireless competition with its rulings will cut into the earnings and dividends of the big telecoms? Which would you rather see—more choice for consumers, or higher earnings and dividends for investors? Or do you think both are possible?
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