MTS Allstream's legacy-to-next-gen growing pains take a toll on its Q1 earnings

MTS Allstream (Toronto: MBT.TO) has set a bullish outlook on IP-based consumer and business services, but that vision wasn't enough to prevent its revenue from declining from CAD 446.7 million (USD 465.9 million) to CAD 439.3 million (USD 458 million) in Q1 2011.  

However damaging its earnings decline was, MTS' EBITDA actually rose from 135.5 million in Q4 to 149.8 million in Q1 2011.

At MTS, ongoing growth in both wireless and wireline broadband services (high speed Internet and IPTV), which collectively increased 9.4 percent, drove up the division's revenues and EBITDA 3 percent over Q1 2010.

MTS also benefitted from driving down landline losses to 5.9 percent and a 6.1 percent rise in bundled service customers. What helped drive bundled growth was the introduction of a quad play bundle targeted at rural Manitoba customers.

Driven by an ongoing rise in broadband data and IPTV, MTS' broadband and converged IP revenues were up 7.2 percent in Q1 over Q1 2010. IPTV, in particular, rose 17.3 percent based on 1.1 percent subscriber growth and higher customer ARPU.

Kelvin Shepherd, President of MTS, said in the earnings release that its "commitment to run fiber-to-the-home technology to over 20 new communities in Manitoba over the next five years, combined with our existing network, will allow MTS to bring broadband to 65 percent of Manitoba households by 2013."

Likewise, in the Allstream division, the focus continues to be on winning high-margin on-net IP revenues, discontinuing sales or exiting various legacy services, reinvesting cash flows from legacy services into IP platforms and reducing costs.  

During Q1 2011, Allstream's Allstream's EBITDA improved by $16 million when compared to the first quarter last year, which marks Allstream's second consecutive quarter of year-over-year EBITDA growth.

The key element to Allstream's business service success continues to be the IP-based service portfolio. In Q1 2011, converged IP revenues rose 7.9 percent from Q1 2010.

After a busy sales month in April, Dean Prevost, President of Allstream, said that they are on track to meet their 10-12 percent converged revenue growth goal by the end of 2011.

Allstream's growth goals are being supported by an ongoing success-based investment plan to continually add new fiber-fed buildings to its network. In Q1 2011 alone, Allstream added 75 buildings to the network, increasing the service provider's total number of fiber-fed buildings to 2,164 as of the end of March.

For more:
- see the release

Special report: Wireline in the first quarter of 2011

Related articles:
MTS Allstream Q4 revenue declines slightly amidst strong data, TV growth
MTS Allstream: IP, broadband services drive Q3 53 percent profit rise
Allstream racks up 46 customer wins on expanded fiber network