Quebecor’s Business Remains Stagnant as It Awaits Freedom Mobile Decision

As has been the case recently, there was not much interesting in Quebecor’s QBR.B fourth-quarter results. The mobile and broadband customer bases are growing slowly while the firm manages declines in television and wireline phone subscribers and holds margins in a tight range. We expect the inertia to soon break. Either the approval of the Rogers/Shaw merger will result in Shaw’s Freedom Mobile going to Quebecor, or Quebecor will begin organic expansion into the national wireless market. Our model currently assumes the organic wireless expansion, and we are maintaining our CAD 35 fair value estimate. However, we expect a decision on Freedom Mobile any day, and if the deal is approved, we will revisit our forecast.

Telecom services revenue grew 3% year over year during the fourth quarter, driven by modest mobile and wireline subscriber growth over the past year and slightly higher wireless average revenue per user. Quebecor added only 13,000 net new mobile customers and 1,000 net new wireline customers in the quarter. Higher roaming revenue and data usage led to the wireless ARPU growth. Over time, we expect a lack of pricing power and Quebecor’s pushing of its lower-cost Fizz brand to limit growth in ARPU. The loss of 6,000 net television subscribers and 19,000 wireline phone customers in the quarter is in line with what we expect to be the long-term trend. In our view, Quebecor has largely maximized its potential in Quebec and will be relegated to similar growth without a national expansion.

Total revenue for the fourth quarter and full year was roughly flat, with lower advertising revenue and telecom equipment sales negating the growth in telecom services. Adjusted EBITDA margin contracted a bit versus the same periods last year, down 130 basis points in the fourth quarter and 60 basis points for the full year. Higher media content spending and employee costs offset the cost-reduction initiatives and strong wireless margins.