BCE – Where's the Growth?

Sure, there's some good news from BCE's fourth-quarter results - it scooped up a huge bunch of wireless subs, the high-speed Internet access business is rolling, and CTV's doing well due to the strange fascination among couch potatoes with American Idol. What you can't ignore, however, is that BCE's core business – selling telephony services to big corporations – is struggling to generate top-line growth. Why? There's plenty of competition, the CRTC is no longer as BCE-friendly, and you have the emergence of Internet Protocol technology, which could lower prices as corporate clients aim to reduce their telecom spending. If you add it all up, BCE CEO Michael Sabia has to stay with his tried-and-true strategy of cutting costs (BCE prefers to call its “productivity gains”). This means cajoling employees to take voluntary retirements, getting out of non-core businesses, and walking away from low-margin contracts. The good news for BCE is that misery loves company. Allstream Inc., for example, is counting on a flurry of new IP services to reverse its revenue declines. Allstream's strategy, which sounds much like BCE's, is to control costs – including a eye-opening 10% capex-to-revenue ratio – and hope that large corporate customers get a bad case of IP fever. If you want a good reality television show with plenty of drama: set up a camera in the office of a telecom CEO.

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