BCE executives announced a 7.7-per-cent common share dividend increase on Friday and threw $750-million of cash at the company's pension plan deficit, signalling Bell is as confident as ever as it heads out of one tumultuous year and into another.
The dividend increase, to $1.97, was larger and earlier than analysts had expected, and the company also committed to eradicating its pension deficit by 2014. The moves comes at the end of a year during which the company saw spectacular growth in its wireless business, particularly gaining ground on Rogers Communications Inc. in the smart-phone space.
But for almost every lucrative smart-phone subscriber BCE gained over the past year, the national telecom giant spent more than $500 subsidizing their high-end device, which ate into the company's earnings.
That initial outlay is expected to pay off over the next year, however. As Bell turns its attention to rolling out its Internet protocol TV (IPTV) service, the Montreal-based provider will rely on monthly payments from those wireless customers to absorb the financial sting of the new, and entirely necessary, TV venture - paving the way for stronger earnings in 2011 than this year.
"[Bell]Mobility should be positioned to begin delivering much higher returns, year-over-year, than you saw in 2010 and, consequently, we have a buffer there that can be used to absorb some of the early startup costs for IPTV," BCE chief financial officer Siim Vanaselja in an interview. Combined with paying down the pension deficit, that "is going to be a big boost to our earnings and our cash flow."
Friday's announcements, Mr. Vanaselja said, were about being "financially prudent" with the company's extra cash. It's a good thing the company's balance sheet is now cause for comfort, because the wider Canadian telecom industry is in turmoil: New wireless providers have launched with cutthroat rate plans, Bell's Montreal-based nemesis Quebecor Inc. has just launched its own wireless network that plugs into the company's wildly popular French-language broadcasting properties, and the federal Industry Minister is weighing how to structure the next government wireless auction and whether to permit foreign giants to bid for licences.
Amid this tumult, however, Bell seems to be doing fine, despite a dip in profits near the end of the year partly due to smart-phone subsidies. Toronto-based Rogers, on the other hand, which has long led the Canadian wireless industry, is beginning to see that lead eroded by new wireless players such as Mobilicity and Wind Mobile, as well as the advanced network shared between Bell and Telus Corp. that launched in late 2009. Rogers, whose executives called this "the new competitive reality," were also hit by the cost of subsidizing expensive smart phones.
"There is pressure," Rogers president and chief executive officer Nadir Mohamed said at an investor conference this week. "Frankly, I don't see that going away."
Ironically, Bell is riding the new wave of competition rather than facing it head on - not just with its new wireless network, but with a high-quality TV product that president and CEO George Cope has said could destroy the "last monopoly" cable companies have in urban Canada.
Maher Yaghi, an analyst with Desjardins Securities in Montreal, said Bell's performance may burnish the shine on telecom stocks even as concerns about competition rise.
"That extra kick in cash flow is going to position the company in a better competitive profile," Mr. Yaghi said. He added that despite competitive concerns, "2011 actually looks like a good year for BCE."
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