The fierce rivalry between Western Canada’s biggest cable giants – Shaw Communications and Telus, has been a well-documented affair at TheTelecomBlog. In January, Shaw claimed an upper hand in this intense battle by adding 60,000 digital cable subscribers in the quarter thanks to the launch of its premium digital cable service, Gateway and a high conversion rate from its analog customers.
In February, Shaw launched EXO – the “ultimate network” running on “technology like never before” and offering “the fastest Internet speeds in Canada”. A month later, it appointed Jim Little as Chief Marketing Officer, in a bid to re-strengthen the Shaw brand across Canada.
However, despite all those moves, there’s no doubt that Shaw’s cable business has been badly hurt by Telus’ aggressive growth. Though Shaw’s quarterly earnings report released yesterday show that its total earnings rose over three per cent, the worrying sign is that its operating margin went down 2.2 percent. The company posted a drop in free cash flow in the fiscal second quarter, reflecting higher capital investment on various strategic initiatives and customer-equipment subsidies.
The company’s earnings were little changed at C$178 million or 38 Canadian cents a share. Revenue was up by 3% to C$1.23 billion, in line with analyst estimates. In terms of revenue, the cable division accounted for $804 million, the satellite division contributed $211 million while Shaw’s media division (erstwhile Canwest television business) contributed $242 million of revenue in the quarter.
During the second quarter, Shaw reduced its cable subscribers loss to 9,946 from the 13,662 subscribers lost the year prior. The company increased its digital subscribers by 46,564 to 1.9 million after adding 35,403 a year earlier, and added 18,681 Internet subscribers versus 10,772. Shaw also cut its 2012 cash flow outlook to C$450 million ($451.6 million) from C$550 million.
Shaw says it was forced to spend more on new marketing strategies as arch rival Telus has been snapping up market share through promotions and discounts. The softness in the advertising market further contributed to Shaw’s woes in the cable segment.
“This approach to the competitive environment, including costs associated with staffing, marketing expenditures, and the impact of our subscriber activity over the last quarter, has caused financial results to come under pressure,” CEO Brad Shaw said on a conference call with analysts. “We view the majority of these expenditures as core investments that provide long-term benefits for our company.”
Given the company’s dwindling fortunes in the cable segment, it would be interesting to see the eventual fate of Shaw’s much-hyped WiFi network. In fact, Shaw’s made no secret of its ambition to lead the Canadian broadband space as the Internet is a key driver for its “TV everywhere” strategy. The company’s game plan is to eventually provide access in places such as along LRT routes and in neighborhood arenas, thereby offering a low-cost alternative its customers to access data as compared to wireless data plans.