Quebecor second-quarter earnings grow as discount Fizz Mobile adds customers

Quebecor Inc. reported significantly improved second-quarter earnings as its discount cellular carrier Fizz Mobile attracted more subscribers.

The Montreal-based company’s net income attributable to shareholders was $140.2 million, or 55 cents per share, up from $42 million, or 18 cents per share in the same quarter of 2018 — figures that have been restated to reflect a change in accounting requirements for lease agreements.

The company’s Videotron telecommunications segment — which operates wireless and cable services in Quebec — saw revenue growth of 11.9 per cent for mobile phones and 2.6 per cent for internet access.

Mobile subscribers increased by 38,300 in the quarter, compared with a growth of 31,900 in the same period of 2018, thanks largely to the addition of Fizz.

“This quarter we posted our best second quarter… in terms of gross ads since launching our mobile services in 2010,” Videotron president Jean-Francois Pruneau said during a conference call.

While the company declined to specify how many of the additional subscribers were for Fizz versus its premium service, he acknowledged there’s “a significant impact” coming from Fizz, which also offers fixed broadband services.

“We are successful in attracting a consumer segment that is complementary to Videotron’s customer base, namely younger and more urban in nature,” he told analysts.

Although the number of subscribers grew, average billing per user declined 2.1 per cent to $52.56 as more customers used their own devices and Videotron continued to discount Fizz’s pricing as it addressed a technical glitch.

Maher Yaghi of Desjardins Capital Markets noted that all three of Quebecor’s incumbent wireless competitors showed improved ABPU in the same quarter.

“Although the decline in wireless ABPU warrants some scrutiny, we do not expect modest declines in wireless ABPU to represent a material … headwind given continued wireless subscriber and margin momentum,” added Drew McReynolds of RBC Dominion Securities Inc. in a research note.

Pruneau said its wireless results were strong in July — as the third quarter began —  even though the company has declined to match the unlimited data plans offered by its national rivals — Rogers, Bell and Telus.

Instead of offering no-overage monthly plans with 10 GB of full-speed data at $75 per month, Videotron is offering 17 GB of full speed data for $65 per month with notification being sent as customers approach overage charges.

“I think we’ve chosen the right path and the future will tell.”

Meanwhile, Quebecor CEO Pierre Karl Peladeau said the federal telecom regulator should ensure certain competitors don’t gain an advantage by launching 36-month financing options for wireless handsets.

The Canadian Radio-television and Telecommunications Commission has said the 36-month financing plans may violate the CRTC’s code of conduct, which doesn’t allow penalties for customers that break a contract after 24 months.

Peladeau also called for a “more equitable” regulatory model for paying companies, such as Quebecor, for content distributed by other cable and phone companies.

In April, Quebecor temporarily suspended TVA Sports’ signal for Bell subscribers until a judge ordered the return of the service. Quebecor has criticized Bell for not paying it royalties that reflect the fair value of its specialty channels, especially TVA Sports, which is suffering because the Montreal Canadiens missed the playoffs two years in a row.

Peladeau said TVA performed well in the quarter despite the challenge coming from low subscription fees.

“The Canadian broadcasting regulatory model must implement a more equitable and clearer fee for carriage framework that no longer protects broadcasting services that benefit from decades of regulatory fees and monopolies to the expense of new competing services,” he said.

He also criticized the move by Bell Media to scoop up Groupe V Media, a conventional French-language channel to compete against Quebecor’s TVA.

“It would further weaken an already competitive and fragile media environment in Quebec,” he said, adding he’s counting on the Competition Bureau and the CRTC to block the sale.

Quebecor said its revenue for the second quarter was $1.06 billion, up 1.8 per cent from the same period of 2018.

Adjusted income from continuing operations was $136.2 million, or 53 cents per share, compared with $105.9 million, or 45 cents per share, a 29 per cent increase.

Analysts had expected revenue of $1.07 billion and adjusted income of $127.7 million, or 49 cents per share, according to financial data firm Refinitiv.

Ross Marowits, The Canadian Press