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Canada’s leading telephone operator, BCE Inc. (BCE - Analyst Report), reported third-quarter 2013 adjusted earnings of 72 cents per ADS (75 Canadian cents), missing the Zacks Consensus Estimate of 76 cents. The earnings, however, improved 7.1% from 70 cents per ADS (70 Canadian cents) in the year-ago quarter. The improvement was backed by strong year-over-year growth at Bell Wireless and Bell Media.

Revenues increased 2.3% year over year to $4.88 billion (C$5.1 billion) but fell short of the Zacks Consensus Estimate of $4.99 billion. The growth came on the back of strength in the Wireless, TV, Internet and business service segments.

EBITDA grew 2.2% year over year to C$2.06 billion ($2.00 billion) in the reported quarter supported by strong contributions from the Wireless and Media units.

Revenue Segments

Bell Wireless: Revenues from Bell Wireless increased 4.1% year over year to C$1.49 billion ($1.44 billion). Service revenues were up 5.0%, thanks to post-paid subscriber growth and higher blended ARPU (average revenue per user).

BCE’s net wireless subscribers increased 3.0% year over year to 7.95 million. Post-paid net addition decreased 10.6% or 102,714, while prepaid net losses improved 29.3% or 13,255. Blended ARPU rose 1.7% year over year to C$58.30 ($56.24) on enhanced data usage by an increased number of smartphone users.

Blended wireless churn (customer switch) improved to 1.5% from 1.6% in the year-ago quarter. Post-paid churn remained unchanged at 1.2% while prepaid churn also remained unchanged at 3.3% as compared to the year-earlier quarter.

Bell Wireline: Revenues fell 0.9% year over year to C$2.48 billion ($2.39 billion) due to lower local and access (down 8.0%), long distance (down 4.2%) and equipment and other revenues (down 4.7%). Data revenues rose 2.5% to C$1.45 billion ($1.38 billion) owing to Fibe customer growth, increased IP-based broadband connections revenues and better data product sales.

Network access services (NAS) fell 7.5% year over year to 5.34 million in the reported quarter. Residential NAS losses decreased 30.3% or 25,583. Business NAS losses decreased 15.3% or 3,786.

BCE activated 36,638 high-speed Internet customers compared with a net loss of 13,146 customers in the year-ago quarter. Bell FibeTV subscribers at the end of the quarter were 419,129 versus 200,064 million in the year-ago quarter. At quarter end, total TV subscribers grew 7.1% year over year to 2.44 million.

Bell Media: Bell Media generated revenues of C$664.0 million ($640.5 million), up 21.6% year over year. Strong advertising and higher subscriber fees were the key drivers of growth.

Bell Aliant: Revenues from this segment inched up 0.3% year over year to C$696.0 million ($671.0 million) based on increased growth in data and TV services, which was offset by continuous decline in local and access, long distance and equipment and Other revenues.

Liquidity

BCE exited the quarter with C$603.0 million (approximately $581.7 million) of cash and cash equivalents compared with C$129.0 million (approximately $128.0 million) as of Dec 31, 2012. Capital expenditure was C$880.0 million ($848.8 million), down 5.8% year over year.

Dividend

The company’s board of directors declared a quarterly dividend of 58.25 Canadian cents per share, payable on Jan 15, 2013 to shareholders of record on Dec 16, 2013.

Our Take

BCE currently retains a Zacks Rank #3 (Hold).The company displays a robust wireless business model, improving wireline operations and expanding activities in the media sector. We believe that the company’s focus on investing in broadband networks and rendering better services, supported by a competitive cost structure will deliver positive results, going forward. However, stiff competition, continued decline in network access services, constant need to invest in technology and union issues remain the primary concerns for the company.

Other Stocks

Other stocks worth considering are Orange (ORAN - Analyst Report), Vodafone Group Plc. (VOD - Analyst Report) and Shenandoah Telecommunications Co. (SHEN - Snapshot Report). All these stocks also carry a Zacks Rank #1 (Strong Buy).

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