Shaw Communications ( SJR), Canada's No. 2 cable and satellite provider, posted a solid third quarter.

The Calgary, Alberta, company said late Thursday that net income rose to $35 million, or 13 cents a share, from the year-ago $20.4 million, or 5 cents a share. Revenue rose to $459 million from $435 million.

The company noted its progress in offering digital phone service, saying installed and pending digital phone lines amounted to 22,450 at May 31.

"Shaw's entry into the telephone business is a defining moment in our history," said Chief Executive Jim Shaw, whose company recently launched digital phone service in major Western markets. "Digital Phone gives us the capability to tap into a new revenue stream leveraging off our existing infrastructure and we are pleased by the success in our first full quarter of Digital Phone operations."

Despite the solid showing, RBC Capital downgraded Shaw to underperform from sector perform. RBC said in a research note that while the quarter's numbers were in line with expectations, subscriber results were mixed, with digital and satellite numbers lagging behind. The firm also said that 2006 guidance was disappointing and that Shaw's premium valuation is difficult to justify in light of the company's lower growth profile.

The company reported customer growth of 0.1% in basic cable, 1.7% in digital television, 2.5% on the Internet and 0.8% in satellite.

"Customer growth was positive, which reflects the strengthening of our bundled products, particularly with Shaw's entry into the triple play market of video, data and voice and the continued roll out of service enhancements across all product lines and services," said Shaw.

Shaw also boosted its annual dividend by a penny, starting in September.

Shaw Communications was down 21 cents to $20.21 in midmorning trading Friday.

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