WHISTLER – John Gossling, executive VP and CFO at Telus told an investors conference last week that high-end smartphones such as the iPhone 6 and others give the company the ability to address any potential downside from the expiry of a large number of contracts in the latter part of this year.
He was referring to the CRTC’s June 2013 decision, outlawing three-year contracts. It came into force on December 3, 2013, which means that all wireless carriers, not just Telus, will have to deal with the ending of both three-year and two-year contracts this year, a number that is larger than previously experienced and something investors are worried about.
If demand for the iPhone 6 continues – and Gossling said the device is seeing good uptake – it “will in some ways be the lead into double cohort and maybe gives us an ability to smooth things a little bit too,” he said, adding that Telus’ previous experience with two-year contracts on Koodo and the Telus brand will help as well.
“What device is hot at the time, whether it continues to be iPhone 6 or there’s a new Samsung product out or an HTC product, I think that will determine how this year plays out,” said Gossling during his January 23 appearance at CIBC’s 18th annual Whistler Institutional Investor Conference.
Asked to talk about the economics of handset subsidies, particularly since some of the high-end devices carry big price tags (the 128 GB iPhone 6 Plus sells for $595 on a two year plan from Telus), the Telus financial chief argued that they still do in fact make sense.
“The economics of smartphones, despite the very high subsidies that we see on an iPhone or Galaxy, it all works. We’ve got premium ARPU (average revenue per user), great data usage [and] very low churn. So those initial fears when iPhone first launched at the high subsidy, I think they’re well behind us, I think the math works just fine,” said Gossling.
The 30-minute conversation with CIBC cable, telecom and media analyst Bob Bek explored other wireless topics including the upcoming roaming decision from the CRTC and two spectrum auctions scheduled to take place in the next few months. On roaming and the federal government’s four national carrier push, Gossling said it all seems to be settling down now after the 700 MHz auction and the Wind Mobile ownership issues.
For the AWS-3 spectrum auction in March, he noted that prices for this slice of the Canadian airwaves are unlikely to reach the levels being seen in the US’s AWS-3 auction. Gossling added that because this auction will see 60% of the spectrum be set aside for operating new entrants and have a single bid, second price format, it’s difficult to predict how it will play out. He appeared to be more bullish on Telus’ prospects in the 2500 MHz auction slated to begin in April.
This auction, which will return to the combinatorial clock format used in the 700 MHz band, opens doors for Telus to close the spectrum gap it has with Bell Canada and Rogers Communications. There are spectrum caps in place meaning that Bell and Rogers are limited in where they can bid on spectrum.
“That leaves Telus and perhaps some regional players and the new entrants that could bid [and] it feels like that should be a very good outcome for Telus and help us close the gap.” – John Gossling, Telus
“That leaves Telus and perhaps some regional players and the new entrants that could bid [and] it feels like that should be a very good outcome for Telus and help us close the gap,” said Gossling. “This will be an important year for that.”
Bek also questioned the Telus executive on its landline losses as well as its prospects in the TV market. In the landline market, Gossling noted that line losses are coming almost exclusively from wireless substitution and that the cable home phone market is having little effect on its business.
On the TV side of the house, Gossling acknowledged that over the top services (OTT) are having an impact, but it’s better to get on board with them.
“There’s not much you can do to stop [OTT] so you might as well as embrace it,” he said adding that the company has launched CraveTV, is considering offering shomi and is even thinking about making Netflix available through the set top box.
“Why wouldn’t we make that available? Why not make it easy for customers to get to their Netflix account? Is there a lot of money in any of these things for us? Not really. There’s some usage that will go through the internet pipe,” said Gossling, pointing to the importance of providing its customers with the biggest selection of content as possible.
