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Should You Hold TELUS (TU) Amid Bright Wireless Prospects?

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On Mar 22, leading Canadian telecom service provider TELUS Corporation (TU - Free Report) was upgraded to a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The rating upgrade comes on the back of recent developments in the company’s wireless and fiber optic network business.

Some Positives

TELUS continues to benefit from the increased adoption of smartphones, higher average revenue per unit, accelerating wireless data services and growing wireline fiber optic networks. The company anticipates balanced growth for its wireless and wireline businesses owing to investments in high-speed broadband technology and services along with its Customer First strategy.

Meanwhile, the company is aiming to strengthen its foothold in the Internet of Things (IoT) market through the TELUS Global IoT Connectivity platform. This should help TELUS to deliver seamless connectivity and simplified billing across 200 networks globally.

TELUS is also focusing on its PureFibre network business and fiber optic network business. The company is investing $250 million to connect more than 90% of homes and businesses in the Surrey directly to its fiber optic network.

The company’s continuous efforts to reward its shareholders are also encouraging. To this end, TELUS has decided to pay a quarterly dividend of C$0.48 per share on the issued and outstanding common shares on Apr 3, 2017 to holders of record at the closure of business on Mar 10, 2017.

Wireless Business Expansion

Following the acquisition of Manitoba Telecom Services Inc. (“MTS”) for $3.9 billion by Bell Canada – a subsidiary of BCE Inc. (BCE - Free Report) – on Mar 17, 2017, TELUS is looking forward to expand its postpaid wireless business in this Canadian province. TELUS will receive 13 retail locations in Manitoba. Also, BCE will divest about one-third of MTS postpaid subscribers, for total proceeds of approximately $300 million to TELUS, to dispel regulatory concerns and trim cash outlay, as per a prior agreement.

In Jan 2017, TELUS also invested $1 million to build a new wireless site along Highway 29. This will take its wireless service to approximately 23 kilometers of Highway 29 between Hudson’s Hope and Highway 97 Junction.

Segmental Risks

TELUS faces fierce competition both in the wireless and wireline segments.

In the wireless segment, the company competes against the likes of Rogers Communications Inc. (RCI - Free Report) and Bell Canada as well as small regional carriers like MTS and SaskTel in Saskatchewan. Such intense competitive pressure has resulted in reduced subscriber addition. In the last reported fourth quarter of 2016, postpaid customer net addition was 87,000, up 40.3% year over year. Prepaid customer net loss was 9000. Moreover, Shaw Communications’ decision to venture into the Canadian wireless market with the WIND Mobile acquisition makes competition stiffer for TELUS.

The wireline segment also faces threats from cable TV operators such as Shaw Communications Inc. and requires regular capital investments in broadband infrastructure to lure business and residential customers.

Price Performance

Over the past three months, shares of TELUS grew 1.65% but failed to surpass the Zacks categorized Diversified Communication Services industry's gain of 5.22%.

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