MTS sees bright future for Allstream

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This article was published 16/12/2010 (5622 days ago), so information in it may no longer be current.

TORONTO — MTS management says it believes its struggling national enterprise division has finally turned the corner toward profitability.

At a 2011 outlook conference with equity and market analysts in Toronto on Wednesday, MTS CEO Pierre Blouin said, “The big news today is the turnaround at Allstream.”

But many of the dozen-plus analysts in attendance said they remained skeptical.

“I thought it was a good story today,” said Dvai Ghose, an analyst with Cannacord Genuity. “But I don’t think it fundamentally changes the positives or negatives in my mind.”

The company is forecasting that by late 2012 or early 2013, Allstream, its corporate telecom services division, will start making a profit. Next year, it is forecasting a 10 to 12 per cent increase in revenue in its most profitable Internet Protocol (IP) line of services.

Allstream has already reduced its losses by about $60 million over the last year and it’s forecasting a $30-million increase in the division’s EBITDA (earnings before interest, taxes, depreciation and amortization) in 2011.

Manitoba Telecom Services Inc. said it plans to trim about $35 million in costs out of the company, similar to what it did this year. It announced about 150 job cuts by the end of the first quarter from its Toronto-based Allstream division, which employs about 2,500 people.

A new, more efficient wireless billing system to be implemented early next year will also reduce costs and provide the ability to add data applications and services over time for all products.

Allstream president Dean Prevost said he believes that in the future, Wednesday’s event will mark the day the company effectively announced the turnaround.

“I feel really good about what’s taking place, compared to when we were back on our heels in earlier years,” Prevost said. “We are making the changes and they are now starting to show up in many metrics.”

“We are selling what we intend to sell (the more profitable IP services), margins are increasing and we are selling more than we expected,” said Prevost.

Total revenue at Allstream is forecast to be down slightly next year and for the year to date this year, revenue is down 5.6 per cent. In 2009, Allstream’s revenue was $997 million.

But while the profitable IP business represents 26 per cent of Allstream’s total revenue now, it’s forecast to be up to 40 per cent by 2013.

The company has put its plans to offer a branded wireless service to its national enterprise customers on the back burner, choosing instead to “double down,” as Prevost said, on its efforts to win more customers on its IP suite of services.

IP is the general term for the services that allow businesses to move more and more data on very high-speed Internet and pipes and all of the applications that can be put on it — from cash registers in stores to a company’s full corporate system.

“Everything runs on data and requires more and more speed and capacity,” Blouin said. “And that is what Allstream sells and the demand is going up hugely.”

In fact, it has put a “stop sell” order on some of its older, low margin legacy business and is focusing much more on the higher profit IP lines. The strategy will mean lower revenue on the top line for 2011, but is designed to produce long-anticipated juice on the bottom line.

In a specific, targeted strategy, the company has identified 675 commercial building across the country to link up to its 18,000-kilometre national fibre network. One new customer to its IP services per building covers the cost of the connection and any additional customers that can be won in each building becomes very profitable business.

Blouin said it is understandable analysts are taking a wait-and-see approach because there is a long lag between the time a new IP customer is signed up until revenue from the account shows up on the financial results.

“You can see stability in our second- and third-quarter results numbers. Unfortunately, it is hard to show to people what we (already) see is happening because it is not reflected in the short-term results,” Blouin said in an interview. “When we make an IP sale, it takes between six and nine months before it shows up in our results.”

The company has been touting big pickups in IP customers, but still its revenue in that space was only up 2.6 per cent in the third quarter.

“But sales are up and that is supporting the revenue numbers that we will see in Q4 and the balance of next year,” he said. “Half of next year is already done, so we have a good view of what is going to be a good year.”

MTS is also on the verge of firing up its new high-speed packet access (HSPA) wireless network throughout Manitoba in the first quarter of 2011.

The new network will allow for higher-speed mobile data services. Just like in the business space, consumers are demanding higher speeds and services and applications — and customer spending — are growing dramatically.

The company will continue to operate its current network and all current handsets will be unaffected, but the company said it believes most of its new customers will buy newer smartphone handsets that can utilize the faster HSPA network.

MTS has spent $70 million on the new network and in August announced a $125-million, five-year plan to install fibre-to-the-home to about 120,000 homes in close to 20 Manitoba communities. The regions that are being targeted are where the company’s entire portfolio of wireless, high-speed broadband and television services are not currently available.

Commitment to that kind of targeted capital spending is what makes MTS a good story, said Eamon Hoey, an independent Toronto-based telecommunications consultant.

“MTS is spending 20 per cent of revenue on capital expenditures — that is higher than the 16 per cent industry norm,” Hoey said. “I’m not sure we can ask for more.”

 

martin.cash@freepress.mb.ca