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Quebecor CEO uses Q2 call to outline view on wireless expansion outside Quebec

Quebecor is keeping up the pressure on Ottawa to implement what it says are fair rules that would encourage it to expand the Videotron wireless phone business outside of Quebec.

"We will work at ensuring all conditions are right to minimize our risks," Quebecor president and CEO Pierre Dion told analysts on a conference call to discuss second-quarter results, which showed a smaller loss compared with a year earlier.

While Quebecor hasn't committed to wireless expansion outside its home province, Dion wasted little time on the call before he outlined what Videotron would need to become Canada's fourth national wireless carrier.

Dion said one factor would be lower wholesale roaming rates, which Videotron would need to pay other networks in areas where it doesn't have its own network built.

The industry's telecommunications regulator has been studying the issue as well as a number of others that will affect the ability of smaller carriers to compete with the three dominant national wireless network operators, Rogers (TSX:RCI.B), Telus (TSX:T) and BCE's Bell (TSX:BCE).

The Canadian Radio-television and Telecommunications Commission announced Thursday afternoon that it had found clear instances where Rogers Communications (TSX:RCI.B) has prohibited smaller service providers from using any other carrier's network. The federal regulator said it will prohibit such exclusivity clauses in inter-carrier contracts.

The CRTC also said Thursday that it had found clear instances where smaller carriers were overcharged for wholesale roaming. However, the CRTC said the federal government had already amended the law in June to impose a cap on such fees pending a broader review that the regulator is undertaking.

The federal government has said it wants at least four wireless carriers competing in each of Canada's major regions but industry observers think Ottawa would prefer to have a fourth national carrier big enough to take on the three main incumbents, which collectively have more than 90 per cent of the country's mobile subscribers.

Quebecor's Videotron cable and Internet unit started competing with its own wireless service in 2010 but, as of the end of the second quarter, it had only about 551,300 mobile subscribers. By comparison, Toronto-based Wind Mobile had about 735,000 in three provinces and each of the big three had at least 7.7 million.

The Quebec company bought wireless spectrum earlier this year in Ontario, Alberta and British Columbia for $233 million, opening an opportunity for it to expand beyond its provincial borders. Some analysts have said Videotron may work with other carriers, or buy Wind Mobile, but no deals have been announced.

"We continue to meet with several potential partners to assess their interest in partnering with us should we decide to consolidate the industry following positive regulatory developments," Dion told analysts.

On Thursday, Quebecor Inc. narrowed its second-quarter net loss to $54.8 million, or 45 cents per share in the quarter, compared with a loss of $93.6 million, or 75 cents per share, in the same quarter of 2013.

Adjusted profits from continuing operations grew to $66 million, or 54 cents per share, which came in seven cents higher than analysts expected, according to a survey by Thomson Reuters.

Revenues were relatively flat, rising $6 million to $1.07 billion year-over-year, driven by its telecommunications division.

Quebecor (TSX:QBR.B) also says it's creating a new division called Media Group for its entertainment and news media properties, including Sun Media Corp. and TVA Group Inc.

The company's telecommunications division had revenues of $20.7 million in the quarter, up 3.1 per cent year-over-year.

Wireless subscribers at Videotron grew by 29,700 subscribers, while its Internet operations lost 3,600 subscribers and its cable operations 17,100.

Revenues in Quebecor's news media division were down 7.3 per cent to $14.6 million in the quarter.

"We believe that it will be difficult for Quebecor shares to outperform until national wireless expansion uncertainty is lifted," said Canaccord Genuity analyst Dvai Ghose in a note.

"Unfortunately, we do not expect clarity until new wireless wholesale rules are released and this is only expected in spring 2015."

Shares of the company rose three cents to $26.50 in afternoon trading on the Toronto Stock Exchange.

The Canadian Press


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