Winnipeg Free Press - PRINT EDITION

MTS harbours high hopes for secure data centre

Firm records higher earnings, lower revenue in first quarter

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The start of construction on a high-quality, very secure, environmentally friendly data centre in Winnipeg this month will give Manitoba Telecom Services another platform to maintain a strong hold on the telecom market in Manitoba.

MTS continues to operate an aggressive marketing organization and has a leading market share in wireless, high-speed Internet, TV service and other phone services. At some point, it's going to have the whole province wired.

But Pierre Blouin, the chief executive officer of MTS, said there is plenty of runway yet for the company to grow, pointing out wireless-data revenue grew by 17.9 per cent in the first quarter.

About one-third of Manitobans are not yet linked into any high-speed digital network and Blouin pointed to a 10.1 per cent increase in Internet revenue this quarter to note there's still solid growth there.

"People are moving more and more to buy faster-speed Internet packages," he said. "Everything around us runs on the Internet."

MTS held its annual meeting in Winnipeg Tuesday and released its first-quarter results, reporting higher net earnings of $41.9 million, up 35.6 per cent compared with the same quarter last year. But revenue was down 1.3 per cent to $401.5 million.

'We think the market will draw a negative conclusion from these results'

-- Greg McDonald, analyst for Macquarie Securities Group

The results beat analysts' expectations on the profit side, but fell short on the top line.

While the results did not set the world on fire -- MTS shares closed up one penny to $31.37 Tuesday -- Blouin was upbeat about the company's prospects and its strategies.

"In the future, growth may come from totally different areas, like IT (information technology)," he said.

MTS acquired the Winnipeg IT service provider Epic Information Solutions in September.

David Reid, Epic's president who will manage MTS's new Epic Data Centre, said the service offering from the data centre will be unmatched in Manitoba.

He was unwilling to comment on the revenue potential for the facility but both he and Blouin are convinced the timing of demand dynamic is perfect.

'The gross revenue is yet to be determined but it's all a recurring revenue stream... This will generally be 10 years or more'

-- David Reid, manager of MTS's new Epic Data Centre, on the stability and growth prospects for IT

"The gross revenue is yet to be determined, but it's all a recurring revenue stream," Reid said.

"When we bring customers in it won't just be a one-time, short-term contract. It's not like cellphone users who might switch every three years. This will generally be 10 years or more. And no one is going to need less service. They will always be adding equipment."

Reid said as everything becomes connected to the Internet, it will drive data and computing requirements.

"We will never saturate the wireless market," he said.

"Pop machines will have wireless cards to say they need more pop and that will be another wireless client for MTS."

IT revenue may be a small part of MTS's total results now but that number will continue to increase.

But it may take a while for it to surpass the importance of the Allstream division to MTS's fortunes. The Toronto-based high-speed national business network -- which was about to be sold until Ottawa blocked the $520-million deal last year -- saw its total operating revenue decline 5.7 per cent.

Even though its high margin converged IP revenue was up 4.3 per cent and the company continues to win new contracts, there are plenty out there who are still waiting to be convinced that Allstream can help MTS's bottom line.

Greg McDonald, an analyst for Macquarie Securities Group is one of them.

"It is too early to conclude that Allstream is on the mend," McDonald wrote in a report to investors Tuesday.

"We think the market will draw a negative conclusion from these results, mainly because revenue missed in the Allstream division and increasingly the future prospects of this stock are tied to Allstream's turnaround."

 

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition May 14, 2014 B6

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