On Jun 18, 2014, we issued an updated research report on
Canadian telecom major
). We believe management's strategic initiatives will aid profits
consistently in the coming quarters. However, access line loss,
increased competition and decline in advertisement revenues could
drag the carrier's performance. The leading telecom operator
currently holds a Zacks Rank #3 (Hold).
BCE will benefit from robust activities in the wireless
business, strong subscriber addition, drop in churn rates 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. Significant investments in network
coverage, customer retention, lucrative data plans and the launch
of new handsets along with the offering of net protection will
drive customer addition.
BCE will also leverage from Fibe TV and Fibe based Internet
growth, price hike and an improved business market stemming from a
steady economy. The company continues to expand its IPTV footprint
and now covers 65% homes in Quebec and 59% homes in Ontario. BCE is
also betting on attractive service plans to boost its high speed
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. Astral has
already started delivering meaningful performance and BCE is
expected to receive $720 million from the divesture of some of
Astral's assets, thus boosting its liquidity. Further, solid cash
flow generation and pay-out ratio are the other positives that
stand in favor of 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 build up competitive pressure on BCE, but also open up
prospects 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
Rogers Communication Inc.
) has recently announced its plans to expand its wireless network
in British Columbia based on a 700 MHz spectrum, which will offer
faster speeds, thus challenging BCE's service in the region. Shift
of corporate marketing expenses to other non-TV platforms also do
not help BCE's cause, forcing us to remain sidelined on the
Key Pick from the Sector
Better-ranked companies within the telecommunication sector
Level 3 Communications Inc.
). Both Level 3 and Kyocera carry a Zacks Rank #2 (Buy).
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