BCE, Telus Results Demonstrate Why Verizon is So Important

Wireless is the growth driver for both. Investors are concerned this might disappear.

Iain Butler

Chief Investment Advisor, Motley Fool Canada Fool since November 2012 Iain Butler, CFA, is Lead Advisor on Discovery Canada 2017. He is also the Chief Investment Advisor for Motley Fool Canada and is the lead advisor on its flagship Stock Advisor Canada product. Before joining the Fool, Iain was a “buy-side” analyst and through this experience is well-versed in the idiosyncratic ways of the Canadian market. His investing interests are centred on scouring the market for interesting businesses that trade at reasonable prices and offer an appealing risk/reward relationship. Since joining the Fool in 2012, Iain dedicates each day to spreading Foolishness throughout this great country!

Published August 8, 2013 12:35 pm EDT

| More on: BCEBCET

Two of Canada’s big 3 telecoms reported their quarterly results this morning and both came in pretty much as expected.

BCE (TSX:BCE,NYSE:BCE) posted quarterly adjusted EPS of $0.77 which slightly exceeded the consensus estimate of $0.74. And Telus (TSX:T) reported adjusted EPS of $0.54, also slightly exceeding the consensus estimate of $0.52.

Investors however aren’t all that interested in what these company’s quarterly results look like right now. Of more interest is what they might look like if Verizon does indeed set-up shop on this side of the border. And today’s results help demonstrate why the possibility of this significant 4^th competitor entering our wireless market is so top of mind.

As the tables below demonstrate, wireless is the growth driver for both companies.

Revenue	Wireline Growth	Wireless Growth
BCE	-0.9%	5.4%
Telus	6.1%	5.8%

Source: RBC Capital Markets

EBITDA	Wireline Growth	Wireless Growth
BCE	-2.9%	8.9%
Telus	-1.2%	5.0%

Source: RBC Capital Markets

Aside from a solid bump thanks to the Data portion of Telus’ Wireline segment, these legacy assets are on a slow but steady decline. Ex this Data segment, year-over-year revenue and EBITDA growth was substantially better in the company’s respective Wireless segments compared to Wireline.

Foolish Bottom Line

Should another competitor with sizeable clout enter our market, growth in the Wireless segments of both is sure to slow. This will completely alter the appeal of either name to the investment community. Investors are unlikely to ascribe the same multiple to a company that just had one of its primary growth drivers taken away. That being said, regardless of Verizon’s decision, cash flows will still be strong for both, therefore the dividends are likely to help hold the stocks in. But still, as the Globe outlined this morning, there could be another lag down for the stocks in this sector.

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Fool contributor Iain Butler does not own shares in any company mentioned at this time. The Motley Fool doesn’t own shares in any of the companies mentioned.