Telus Corporation (TU) reported results for third-quarter 2009 with adjusted (excluding favorable tax related adjustments) earnings per ADS of 76 US cents (83 Canadian cents per share), missing the Zacks Consensus Estimate of 79 US cents. Adjusted earnings also declined from 86 US cents per ADS (89 Canadian cents per share) reported in the year-ago quarter. 

Reported net income for the quarter registered C$280 million (US$209 million) or 87 Canadian cents a share (79 US cents per ADS), declining 2.1% year over year. Excluding the impact of tax-related adjustment of $14 million, net income declined 7% year over year. Telus remains challenged by the weakening Canadian economy, which is mostly affecting its wireline business. 

The second largest Canadian telecom carrier reported revenues of C$2.4 billion (US$2.2 billion), down 1.6% year over year due to persistent decline in voice revenues. Consolidated EBITDA decreased 5.3% year over year to C$923 million (US$839 million) due to higher restructuring costs and lower revenues. 


Wireless revenues increased 0.3% year over year to C$1.2 billion (US$1.1 billion). Network revenue decreased 0.6% year over year to C$1.1 billion (US$1 billion) as increase in data revenue due to strong market adoption of smartphones and data services was offset by lower voice revenue. Wireless data revenue currently accounts for 20% of the total network revenues, compared to 16% a year ago. 

Average revenue per user (ARPU) declined 7.3% year over year to C$59.45 (US$54) with the fast growing data component representing 20% of the total. Blended monthly subscriber churn increased to 1.55% from 1.52% in the year-ago quarter due to increased deactivations by the customers, given the weak economy. 

Net wireless subscriber addition for the quarter was 125,000, reflecting a 29% year over year decrease due to the economic recession and increased churn. Telus added 131,000 postpaid customers and lost 6,000 prepaid customers in the quarter. The company exited the quarter with 6.41 million customers, up 7.2% year over year. 


Revenue in the wireline segment decreased 3.3% year over year to C$1.2 billion (US$1.1 billion) due to declines in local and long distance revenues, partially offset by data revenue growth. Data revenues increased 1.6% year over year to C$524 million (US$476 million) due to increased TV subscribers and enhanced data and hosting services. 

Long-distance revenue declined 14.5% year over year to C$148 million (US$135 million) while local voice revenue declined 5.7% to C$466 million (US$424 million) due to lower revenue contribution from basic access, increased competition and declining residential and business access lines. 

Net high-speed Internet subscriber additions in the quarter were 9,000 (reaching 1.12 million in total), a decline from 13,000 registered a year-ago due to a matured domestic broadband market. Total network access lines declined by 44,000 in the quarter to 4.1 million, due to continued losses in residential lines resulting from intense competition and wireless substitution. Telus TV subscriber base reached 137,000 at the end of the quarter, with net additions of 22,000 customers. 


Telus has revised its guidance for 2009 to reflect the impact of a weak Canadian economy on its wireline business, launch of the new wireless network and cost associated with the launch of new smartphones including the iPhone. The company now expects overall revenue to reach C$9.6–C$9.7 billion (US$7.68–US$7.76 billion), a decline from its previous guidance of C$9.65–C$9.8 billion (US$7.72–US$7.84 billion). 

EBITDA guidance has been lowered to C$3.475–C$3.575 billion (US$2.78–US$2.86 billion) from C$3.6–C$3.7 billion (US$2.88–US$2.96 billion). Telus has also reduced its EPS (basic) target to C$3.10–C$3.30 (US$2.48–US$2.64) from C$3.35–C$3.55 (US$2.68–US$2.84). 

Capital expenditure target for the year has been increased to $2.1 billion (US$1.68 billion) from C$2.05 billion (US$1.64 billion). Total restructuring expenses have been increased to C$160 million (US$128 million) from C$150 million (US$120 million). The exchange rate forecasted by the company for guidance is C$1 = US$0.80. 

Telus is banking heavily on the new HSPA+ technology based 3G wireless network launched recently in collaboration with its Canadian peer BCE Inc (BCE). The network offers peak downlink speeds of up to 21 megabits per second (Mbps). Moreover, leveraging the HSPA+ network, Telus also launched Apple Inc’s (AAPL) iPhones (3G and 3GS), ending Rogers Communication’s (RCI) exclusivity on the iconic handset. Rogers, the largest Canadian wireless carrier, has been selling iPhone since July 2008. 

Telus contends with a sluggish Canadian economy and stiff domestic competition, which is set to intensify with the entry of new wireless players in late 2009 and early 2010. However, we are encouraged by the company’s prospects in wireless driven by the network upgrade, expanded distribution capability and a rich portfolio of next-generation smarphones that may boost wireless ARPU moving forward.
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