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BCE's Post-Paid Business Strong Despite Stiff Competition

On Oct 17, 2014, we issued an updated research report on Canada’s leading telephone operator, BCE Inc. (BCE).

BCE delivered negative earnings surprises in three quarters last year, with an average miss of 1.29%. The company reported second-quarter 2014 numbers wherein the bottom line missed the Zacks Consensus Estimate while the top line was on par with the same.

BCE’s wireless segment is expected to benefit from strength in its post-paid business which has added a substantial number of subscribers lately. Significant investments in network coverage, customer retention, attractive data plans, launch of new handsets along with the introduction of net protection are likely to drive customer addition further. Also, churn rate in the reported quarter reduced to 1.47% from 1.64% in the year-ago quarter.

The carrier’s mobile TV also continues to grow on the back of significant LTE expansion. At the end of the second quarter of 2014, Bell’s Fibe TV footprint covered nearly 4.6 million households against 3.8 million last year. The figure is expected to scale up to 6 million homes by 2016.

However, the price cap rules introduced by the Canadian regulators are limiting rate increases and reducing the amount that incumbent carriers can charge competitors for network access. As BCE attempts to offset inter-carrier price caps by raising the fees for its end-users, the market dynamics and dictating elasticity have reduced overall demand as customers are turning to lower-priced carriers.

In addition, advertisement rates are expected to remain subdued in 2014, as corporate marketing expenses continue to shift to other non-TV platforms. Moreover, losing out TV broadcast rights to rival Rogers Communications Inc. (RCI) for the new National NHL contract is quite damaging for BCE.

Although BCE has won 31 wireless licenses in the 700 MHz band, the immediate concern for the carrier will be the expected presence of four carriers in each region. The Canadian government aims to bring down tariffs and enhance customer choices by instilling more competition in the wireless segment.

Currently, BCE carries a Zacks Rank #3 (Hold). Other better-ranked stocks that warrant a look include Verizon Communications (VZ) and Chunghwa Telecom Co., Ltd. (CHT). Both the stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on BCE
Read the Full Research Report on CHT
Read the Full Research Report on VZ
Read the Full Research Report on RCI


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