BCE Poised on Wireless & Gigabit Fibe Prospects; Risks Stay

On Dec 21, we issued an updated research report on Canada's leading communication service provider BCE Inc. BCE.

The company reported strong financial results in third-quarter 2015 with both the top and the bottom line outpacing the Zacks Consensus Estimate. Going forward, BCE's wireless business is poised to benefit from solid subscriber gain at the postpaid segment along with increased data usage by smartphone users.

Notably, in order to offer 1 gigabit-per-second of Internet speed in Toronto, BCE's subsidiary Bell Canada's had launched Gigabit Fibe, which is now available to more than 2 million homes across Quebec, Ontario and Atlantic.

Moreover, in Apr 2015, Bell Canada revealed plans of investing $20 billion in Canada in the 2015–2020 period to enhance its broadband fiber and 4G LTE mobile networks. Such significant investments will help the company gain customers and also put a check on churn.

Further, Bell Canada recently struck a deal with video streaming giant Netflix. Per the deal, all Fibe TV and FibreOP TV subscribers will be able to access their Netflix accounts directly through set-top boxes. Notably, the company expects its wireline segment to record EBITDA growth on gains from an increase in Fibe TV and FibreOP TV customer count. As of Sep 30, 2015, TV subscriber count increased 3.9% year over year to 2.70 million.

Meanwhile, in Nov 2015, Bell Media struck a long-term licensing deal with HBO. This lends Bell Media the flexibility to offer all current, past and library HBO programming exclusively on its linear, on-demand and over-the-top OTT video streaming platforms like CraveTV in English and French across Canada. Bell Media also plans to expand its Eastern Canadian pay-TV channel – The Movie Network (TMN) – into a national one.

Bell Media will thus be the first company to solely deliver all HBO content, thereby expanding the reach of its lucrative suite of pay-TV channels which include The Movie Network and HBO Canada. We believe that such positive developments will give a significant boost to Bell Media and result in higher revenues for the segment. In the third quarter of 2015, Bell Media generated revenues of approximately $529.2 million, up 4.1% year over year on higher advertising and subscriber revenues.

However, the company's local line access for traditional telephony service continues to face a decline among large customers owing to higher wireless substitution and migration to IP-based services. In the third quarter of 2015, Network access services (NAS) lines fell 5.9% year over year to 6,795,576. To add to the woes, stiff competition and union issues might continue to hurt profits.

Zacks Rank & Stocks to Consider

BCE currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Ruckus Wireless, Inc. RKUS, AT&T, Inc. T and United States Cellular Corporation USM. While Ruckus Wireless sports a Zacks Rank #1 (Strong Buy), AT&T and United States Cellular hold a Zacks Rank #2 (Buy).

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