 |
   |
     |
|
|
Financials |
 Download this section
(415 KB, PDF) |
|
 |
page number:
1
2
OUTLOOK 2001
Telecommunications Industry
The Canadian telecommunications industry in 2000 continued on the path of increasing competition, consolidation and technological convergence. These events have been driven by a move towards deregulation and globalization in the industry for a decade. However, Canada has foreign ownership restrictions of 33 1/3% on voting shares. This serves to restrict access to capital to a degree and reduces demand for voting shares for certain communications companies, including TELUS. The federal government, in the context of domestic and international policy considerations, is examining this issue, which could result in a change within the next few years.
The Canadian telecom industry in 2000 generated revenue of about $32 billion (according to Company estimates) of which Bell Canada and its affiliated regional telcos controlled more than half. The acquisitions of Clearnet and QuébecTel added more than $800 million of annual revenue to TELUS. As a result, TELUS controlled about $7 billion of revenue in 2000 or 22% of the industry - up from 20% a year ago. There are more than a dozen other companies competing for the remainder.
The 2000 revenue growth in the Canadian telecom market was about 11%. Growth rates varied widely among the types of service, with data, Internet, and wireless leading the way while long distance has become priced as a commodity. TELUS has clearly stated that it will more tightly focus on the high-growth markets of enhanced data and wireless nationally and to ensure we participate in high-speed Internet growth in the West.
Industry experts point to several important catalysts for future growth and change in telecommunications. These include moving through the upward acceleration or inflection point in the ratio of population using wireless, the convergence of data/IP, voice and wireless services, and the explosive growth in IP data transmission.
In 2000, Canada passed the inflection point where one-quarter of the population are wireless subscribers. Experience in other countries suggests that Canada with its 28% wireless penetration of total population ratio - a gain of 6% in 2000 - is moving into a period of accelerated wireless growth. This growth is being spurred by an array of new products, applications and marketing approaches with wireless Internet at the forefront.
The convergence of communication applications provides new service opportunities from new applications like IP over wireless, but also from the complexity of telecommunications technology and services where a full service company can bundle services and offer one-stop solutions.
Industry commentators point to IP/data growth of 100% or more a year that will soon position IP as the dominant form of traffic on long-haul networks driving high growth but also lower prices. Network scale and utilization will emerge as important determinants of cost competitiveness. With the current difficulties for new entrants in raising capital and the need for incumbent telcos to restructure to meet these changes, we may see more consolidation and a continued reduction in players in North America.
Moving into 2001, there are a number of economic and capital market factors that may accelerate consolidation and actually reduce the aggressiveness of certain competitors. The softening of the economy and the severe decline in values of most IP-based companies has severely constrained their access to capital and, in some cases, growth. Many new entrants are conserving cash and laying-off employees. This is clearly an opportunity for well-capitalized companies, with continuing access to sources of funding, that intend to grow through acquisition. On the other hand, an economic slowdown may affect volume growth going forward for all communication companies.
Key Priorities and Targets for 2001
TELUS is intent on delivering on six strategic imperatives as outlined in the President and CEO's letter. Furthermore, the Company is focused on delivering on six key priorities related to People, Customer Satisfaction, Mobility, Data/IP, Growth and Financial Position. A key financial priority is to refinance a significant portion of our short-term bank facilities with mid to long-term maturities. See 2001 Financing Plan.
In addition, there are a number of potential issues and potential developments in 2001 that investors should be aware of that are covered in the 2001 Targets, 2001 Financing Plan, and Risks and Uncertainties sections.
Financial Targets and Issues
TELUS is focused on achieving solid growth in revenue and EBITDA in 2001 facilitated by increased capital spending and aggressive customer growth targets. The following objectives were publicly announced on February 14, 2001. These projections are subject to the forward-looking statements and certain forecast sensitivities discussed below.
The revenue increase target range is generated approximately equally from organic growth and from the full-year inclusion of Clearnet and QuébecTel results. Contributing to the revenue growth is the targeted increase of approximately 500,000 net additional wireless subscribers (a 23% increase), and 95,000 new high-speed Internet subscribers (more than double). In addition, the newly formed Global Trading & Partner Solutions, which targets the wholesale market, is expected to increase revenues.
Double digit EBITDA growth reflects the strength and continued cost control of the western wireline business offset in part by the start-up costs in new national growth initiatives, including the negative EBITDA position of newly acquired Clearnet
A key sensitivity to the EBITDA target is the expectation that the CRTC decision on 2001 contribution charge methodology will not be overturned or modified. If overturned, it could have a negative EBITDA impact of approximately $90 million.
TELUS management considers Cash EPS to be more representative of economic value creation for its shareholders because of its lack of distortion by many non-cash or non-recurring charges. Accordingly, the 2001 financial targets focus on Cash EPS rather than conventional EPS.
Cash EPS will be lower in 2001 due primarily to full year impact of financing costs from the Clearnet and QuébecTel acquisitions and a higher number of shares outstanding arising from the Clearnet acquisition.
Not included in these EPS numbers are planned first quarter 2001 one-time restructuring and refinancing charges estimated to be between $275 to $325 million pre-tax related to the corporate re-organizations as well as the Clearnet and QuébecTel acquisitions completed in 2000.
Capital expenditures are focused on generating long-term growth, principally in the wireless and data areas. The largest increase is at TELUS Mobility, caused by inclusion of a full year's expenditures and the extension of our digital coverage footprint in all regions of Canada, which entails new cell sites and switches plus the acquisition of additional spectrum in 2001. Other examples of new capital investments are high-speed ADSL Internet deployment, next generation integrated network platforms and Web-hosting sites. Offsetting this will be lower expenditures on the largely completed national fibre network and the traditional local and long distance voice network.
OUTLOOK 2001
Telecommunications Industry
The Canadian telecommunications industry in 2000 continued on the path of increasing competition, consolidation and technological convergence. These events have been driven by a move towards deregulation and globalization in the industry for a decade. However, Canada has foreign ownership restrictions of 33 1/3% on voting shares. This serves to restrict access to capital to a degree and reduces demand for voting shares for certain communications companies, including TELUS. The federal government, in the context of domestic and international policy considerations, is examining this issue, which could result in a change within the next few years.
The Canadian telecom industry in 2000 generated revenue of about $32 billion (according to Company estimates) of which Bell Canada and its affiliated regional telcos controlled more than half. The acquisitions of Clearnet and QuébecTel added more than $800 million of annual revenue to TELUS. As a result, TELUS controlled about $7 billion of revenue in 2000 or 22% of the industry - up from 20% a year ago. There are more than a dozen other companies competing for the remainder.
The 2000 revenue growth in the Canadian telecom market was about 11%. Growth rates varied widely among the types of service, with data, Internet, and wireless leading the way while long distance has become priced as a commodity. TELUS has clearly stated that it will more tightly focus on the high-growth markets of enhanced data and wireless nationally and to ensure we participate in high-speed Internet growth in the West.
Industry experts point to several important catalysts for future growth and change in telecommunications. These include moving through the upward acceleration or inflection point in the ratio of population using wireless, the convergence of data/IP, voice and wireless services, and the explosive growth in IP data transmission.
In 2000, Canada passed the inflection point where one-quarter of the population are wireless subscribers. Experience in other countries suggests that Canada with its 28% wireless penetration of total population ratio - a gain of 6% in 2000 - is moving into a period of accelerated wireless growth. This growth is being spurred by an array of new products, applications and marketing approaches with wireless Internet at the forefront.
The convergence of communication applications provides new service opportunities from new applications like IP over wireless, but also from the complexity of telecommunications technology and services where a full service company can bundle services and offer one-stop solutions.
Industry commentators point to IP/data growth of 100% or more a year that will soon position IP as the dominant form of traffic on long-haul networks driving high growth but also lower prices. Network scale and utilization will emerge as important determinants of cost competitiveness. With the current difficulties for new entrants in raising capital and the need for incumbent telcos to restructure to meet these changes, we may see more consolidation and a continued reduction in players in North America.
Moving into 2001, there are a number of economic and capital market factors that may accelerate consolidation and actually reduce the aggressiveness of certain competitors. The softening of the economy and the severe decline in values of most IP-based companies has severely constrained their access to capital and, in some cases, growth. Many new entrants are conserving cash and laying-off employees. This is clearly an opportunity for well-capitalized companies, with continuing access to sources of funding, that intend to grow through acquisition. On the other hand, an economic slowdown may affect volume growth going forward for all communication companies.
Key Priorities and Targets for 2001
TELUS is intent on delivering on six strategic imperatives as outlined in the President and CEO's letter. Furthermore, the Company is focused on delivering on six key priorities related to People, Customer Satisfaction, Mobility, Data/IP, Growth and Financial Position. A key financial priority is to refinance a significant portion of our short-term bank facilities with mid to long-term maturities. See 2001 Financing Plan.
In addition, there are a number of potential issues and potential developments in 2001 that investors should be aware of that are covered in the 2001 Targets, 2001 Financing Plan, and Risks and Uncertainties sections.
Financial Targets and Issues
TELUS is focused on achieving solid growth in revenue and EBITDA in 2001 facilitated by increased capital spending and aggressive customer growth targets. The following objectives were publicly announced on February 14, 2001. These projections are subject to the forward-looking statements and certain forecast sensitivities discussed below.
The revenue increase target range is generated approximately equally from organic growth and from the full-year inclusion of Clearnet and QuébecTel results. Contributing to the revenue growth is the targeted increase of approximately 500,000 net additional wireless subscribers (a 23% increase), and 95,000 new high-speed Internet subscribers (more than double). In addition, the newly formed Global Trading & Partner Solutions, which targets the wholesale market, is expected to increase revenues.
Double digit EBITDA growth reflects the strength and continued cost control of the western wireline business offset in part by the start-up costs in new national growth initiatives, including the negative EBITDA position of newly acquired Clearnet
A key sensitivity to the EBITDA target is the expectation that the CRTC decision on 2001 contribution charge methodology will not be overturned or modified. If overturned, it could have a negative EBITDA impact of approximately $90 million.
TELUS management considers Cash EPS to be more representative of economic value creation for its shareholders because of its lack of distortion by many non-cash or non-recurring charges. Accordingly, the 2001 financial targets focus on Cash EPS rather than conventional EPS.
Cash EPS will be lower in 2001 due primarily to full year impact of financing costs from the Clearnet and QuébecTel acquisitions and a higher number of shares outstanding arising from the Clearnet acquisition.
Not included in these EPS numbers are planned first quarter 2001 one-time restructuring and refinancing charges estimated to be between $275 to $325 million pre-tax related to the corporate re-organizations as well as the Clearnet and QuébecTel acquisitions completed in 2000.
Capital expenditures are focused on generating long-term growth, principally in the wireless and data areas. The largest increase is at TELUS Mobility, caused by inclusion of a full year's expenditures and the extension of our digital coverage footprint in all regions of Canada, which entails new cell sites and switches plus the acquisition of additional spectrum in 2001. Other examples of new capital investments are high-speed ADSL Internet deployment, next generation integrated network platforms and Web-hosting sites. Offsetting this will be lower expenditures on the largely completed national fibre network and the traditional local and long distance voice network.
< previous
 |
|
 disclaimer security copyright privacy |
  |