BCE Inc. (BCE), Canada’s largest telephone operator, announced first-quarter 2010 adjusted earnings per share of 65 Canadian cents (US63 cents per ADS), beating the Zacks Consensus Estimate of 61 Canadian cents (US59 cents per ADS) and the year-ago quarter’s adjusted EPS of 57 Canadian cents (US46 cents per ADS). 

Adjusted earnings exclude $17 million in restructuring charges and C$125 million (US$120 million) in net gains on investments, mainly arising from the sale of BCE’s stake in satellite service operator SkyTerra Communications. 

Net income surged 61% year-over-year to C$608 million (US$584 million) or 79 Canadian cents per share (US76 cents per ADS) as revenue grew on the back of strong results from the carrier’s wireless operation, boosted by aggressive promotion and a newly-launched high-speed network. 

Consolidated revenues increased 2.3% year-over-year to C$4.43 billion (US$4.26 billion), as increased revenue from Bell Canada was partly offset by the decline at Bell Aliant. EBITDA grew 1.4% year-over-year to C$1.78 billion (US$1.71 billion). 

Segmental Results

Bell Wireless 

The segment reported 7% year-over-year growth in revenues that reached C$1.15 billion (US$1.11 billion), driven by higher wireless data revenue (up 40%) and a 4.9% increase in product sales due to the acquisition of the remaining 50% stake in Virgin Mobile Canada and the acquisition of leading Canadian retail chain “The Source.” 

Blended ARPU (average revenue per user) declined to C$50.07 (US$48.1) from C$51.52 (US$49.5) a year ago as a result of lower postpaid ARPU, which was hit by lower voice usage due to a weak economy and customer migration to low price plans. Churn increased to 1.8% from 1.6% a year ago due to higher prepaid churn, which rose to 3.4% from 2.9%. 

Total net subscriber additions improved 84% year-over-year to 55,625 customers, bringing the wireless customer base to nearly 6.89 million (up 5.5%). Net additions were boosted by high-end smartphones (including iPhone, BlackBerry and Android phones) and the launch of HSPA+ technology-based 3G wireless network in November 2009 in collaboration with Canadian peer Telus Corp. (TU). 

Postpaid net additions more than doubled year-over-year to 81,212 (a first quarter record), while the prepaid segment posted a net loss of 25,587 customers (up from 4,726 lost a year ago) due to higher churn. BCE’s competitor Telus recently reported 48% year-over-year growth in postpaid net additions while another key rival Rogers Communications (RCI) posted a 57% annualized decline in net contract customer gains. 

Bell Wireline 

The segment posted a 2.5% year-over-year growth in revenues to C$2.66 billion (US$2.56 billion) as growth in product sales driven by the acquisition of The Source and higher video revenue were offset by lower local and access (down 5.3%) and long distance (down 14.4%) revenues. Declines in local and access and long distance revenues were due to persistent erosion in the network access services (NAS) customer base. 

Total NAS lines declined by 99,829 in the quarter, an improvement compared to a net loss of 104,239 lines a year-ago, bringing the NAS customer base to roughly 6.76 million lines. The lower NAS line erosion reflects annualized declines in both residential and business NAS lines losses. 

High-speed Internet connections grew by 10,467 lines to reach roughly 2.07 million. Bell’s new Fibre Internet service has boosted residential net activations in the quarter. BCE has increased spending on broadband to facilitate the deployment of fiber-to-the-home (FTTH) network, which promises to offer downlink speeds of at least 100 megabits per second (Mbps). 

The video subscriber base reached 1.97 million with 19,889 connections added in the quarter. BCE is gearing up to launch IPTV service in 2010, leveraging the advanced fiber-to-the-node (FTTN) broadband network deployments. The service will strengthen the carrier’s competitive position in key markets and complement its existing TV franchise.
 
Bell Aliant
 
Revenue from this segment decreased 4.8% year-over-year to C$779 million (US$749 million), largely due to a persistent decline in local and access (down 4.5%) and long-distance (down 8%) revenues.
 
Dividend & Share Repurchases 

BCE remains attractive for income-oriented investors based on a healthy dividend yield and continued share repurchase initiatives. The company increased its annual dividend by 7% year-over-year in December 2009 and paid a first quarter dividend of 43.5 Canadian cents per share. Moreover, BCE repurchased 4.2 million shares worth C$125 million (US$120 million) under its 2010 stock repurchase authorization. 

Outlook 

BCE has reiterated its financial forecasts for 2010. The carrier continues to expect revenues and EBITDA at Bell Canada to grow by 1%-2% and 2%-4%, respectively. Projected free cash flow for the year remains between C$2 billion and C$2.2 billion (US$1.92 billion and US$2.11 billion). BCE has reaffirmed its adjusted EPS forecast of C$2.65 to C$2.75 (US$2.54 to US$2.64) for 2010.
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