BCE Earnings: Good Financial Results Come With Signs of Competitive Pressure

BCE BCE had a good third quarter but exhibited some signs that are worth watching. On the positive side, sales and profits are tracking full-year targets, and net customer additions remain strong in wireless and broadband. However, wireless customer churn ticked up significantly in the wake of Quebecor’s entrance as a nationwide competitor, and pressure on average revenue per customer, or ARPU, worsened. We’re adjusting our long-term forecast slightly to reflect the competitive dynamic and reducing our fair value estimate to CAD 65 from CAD 67.

BCE added 143,000 net postpaid wireless phone customers, continuing the trend of very strong gains. BCE is the first of the major wireless carriers to report third-quarter results, but we suspect that all carriers continue to benefit from the tailwinds of Canada’s immigration policy, as gross additions neared records. The firm also added prepaid customers, meaning the postpaid strength didn’t result from customers shifting to different plans. However, the strong gross additions made up for a 20-basis-point year-over-year rise in monthly postpaid customer churn to 1.10%. Excluding last year’s fourth quarter, when churn is seasonally higher, this quarter’s churn reflected the highest level since the pandemic materially reset typical customer defections.

Wireless ARPU was down 0.8% year over year, but ARPU in last year’s third quarter was especially strong, making for a tough comparison, and many factors affect ARPU. Most notably, roaming revenue has normalized, and the mix of plans can make the metric volatile. From the second quarter, ARPU was up. We don’t expect meaningful ARPU growth over the next couple of years due to the competitive dynamic, but we do expect stability. In all, wireless service revenue grew 4% year over year.