04/12/2013 09:15 EDT | Updated 06/12/2013 05:12 EDT

Shaw Communications Q2 profits up slightly, video subscriber losses widen

CALGARY - Shaw Communications Inc. says its marketing initiatives will focus more on providing equipment to customers than trying to woo them with discounts.

"The operating environment requires us to be flexible on how we market our services to new and existing customers," CEO Brad Shaw told analysts on a conference call Friday.

"Going forward, we intend to focus more on providing equipment to customers while refraining from overly promotional pricing."

Shaw made his remarks after the Calgary-based telecommunications and media giant (TSX:SJR.B) reported a modest increase in quarterly profits.

Competition between Shaw and Vancouver-based Telus Corp. (TSX:T) has been fierce in Western Canada.

After trying to one-up one another with promotions, more discipline has been restored to the marketplace over the past year or so, said Jay Mehr, Shaw's senior vice-president of operations.

"We've moved from 12-month promotions to six-month promotions and now to really quite modest three-month promotional offers," he said.

"I believe the marketplace is responding well to the plan and it's very much anchored in the theory that last-in-best-served is the opposite of how we're going to operate our business."

The next phase of that strategy involves offering customers equipment both with and without contracts later this spring, Mehr said.

Earlier Friday, Shaw reported a profit of $182 million, or 38 cents per share, in the three months ended Feb. 28 — compared with $178 million, also 38 cents per share, in the same period a year earlier.

Consolidated revenue totalled $1.25 billion, up 1.6 per cent from $1.23 billion.

It said it lost nearly 30,000 video customers during the quarter, a steeper drop than the nearly 10,000 it lost during the same 2012 quarter.

It added 7,800 Internet customers, compared to 21,328 a year earlier, and about 13,090 digital phone customers versus 51,359 added in the same 2012 quarter.

Chief financial officer Steve Wilson said the video numbers shouldn't be drawing the most attention.

"In the old days you thought about the video customer as the base, but that's not the case now. The base now is an Internet customer and we're looking at the overall mix of everything," he said.

"It's really not subscriber growth that's going to drive results going forward. It's going to more be the ability to price products and offer value to customers."

New network customers tend to add more expenses than revenue in the early stages of a subscription, so the slower Internet and digital phone growth may have helped the bottom line while growing revenue.

The company also increased its guidance for free cash flow for the year — mostly as a result of reduced capital spending plans weighted to the second half of the 2013 financial year ending in August.

In October, Shaw had said it expected free cash flow in its 2013 financial year to be about the same as 2012 when it recorded $482 million for the year.

"With the first half of the year behind us and modest positive variances across service operating income before amortization, capital investment and interest and cash taxes, we now expect free cash flow to approximate $550 million," Shaw said.

Last week, Shaw signed a deal to buy Enmax Envision Inc. from City of Calgary-owned utility Enmax Corp for $225 million.

Envision runs one of Calgary's largest fibre-optic networks and specializes in providing large amounts of bandwidth to businesses and that require a connection or connect multiple locations over private networks.

Shaw said it will use Envision to expand its Shaw Business service with products and services complementary to those offered by Envision.

"It's modest in scope and impact, but we really like the deal on a whole bunch of levels," said Mehr.

"It certainly gives us growth opportunity, it provides us with fibre network that connects us to over 560 buildings in Calgary. A replacement value of that network would be substantial, if you could even replace it."

Shaw's network is mainly residential, so there is very little overlap with the Envision assets, which gives Shaw reach into businesses in both the downtown core and further-flung industrial parks.

Shaw provides cable television, high-speed Internet and home phone services in Western Canada.

The company also owns Global Television and 18 specialty networks including HGTV Canada, Food Network Canada, History and Showcase.

Its shares fell nearly two per cent to $24.20 on the Toronto Stock Exchange.