Rogers results to show extent of data deals damage

Investors will get a glimpse Thursday into whether unprecedented wireless data deals in December affected the bottom lines of Canada’s Big Three providers when Rogers Communications Inc. reports its fourth-quarter financial results.

Just before Christmas, the Big Three introduced limitedtime deals of 10 gigabytes of data for $60 per month in response to similar offers from Shaw Communications Inc.’s Freedom Mobile. Consumers rushed to get the discounts, which Shaw executives said led to four of five days of “record disconnects.”

These big promos “aimed at curbing Shaw’s strengthening momentum” may prompt more conservative guidance for Rogers’ wireless business in 2018, Barclays analyst Phillip Huang said in a recent note to clients.

Huang estimates Rogers will have a strong quarterly showing when it comes to adding new wireless customers, but expects smaller improvement when it comes to the customer churn rate.

Analysts monitor churn closely since retaining customers tends to be far cheaper than attracting new ones. Churn is expected to be higher across the board for the fourth quarter of 2017 as consumers jumped between providers.

The discounts could also impact Rogers’ annual growth in average revenue per user given the repricing of some subscriptions, Huang noted.

Rogers, which has roughly 10.6 million wireless subscriptions, was the first of the Big Three to launch the promotions in Western Canada, but BCE Inc. and Telus Corp. quickly followed and the pro- mos spread to Ontario. Bell and Telus report their results in the coming weeks.

RBC Capital Markets analyst Drew McReynolds expects the “infamous” deals, the new slate of iPhones and Freedom launching iPhones for the first time could lead to more volatility in the fourth quarter and 2018 in general, if there are more promotional skirmishes.

But in an industry report this month, he said investors should look through the “noise.” RBC expects Shaw will gain incremental traction on wireless, but that the Big Three will be able to man- age the impact due to Canada’s strong wireless market and Shaw’s relatively limited distribution and network capability.

Desjardins analyst Maher Yaghi believes average revenue per user will continue to grow despite competition from Shaw in Ontario, Alberta and B.C. because of increasing smartphone penetration.

In a report this week, Yaghi analyzed what happened to average revenue per user in Quebec when a fourth player — Quebecor Inc.’s Videotron — joined the mix. Since new entrants typically use price to gain market share, he found that Videotron’s entry would have negatively impacted revenue in Quebec if more people weren’t buying smartphones. Smartphones drive increased data consumption and higher revenue, so Quebec’s average revenue per user has actually increased since Videotron’s entrance.

“Smartphone adoption has been a major factor masking the impact of new competition,” Yaghi wrote.

If Shaw replicates Videotron’s strategy it could have a negative impact on average revenue per user for incumbents, Yaghi wrote, but Shaw has not yet invested enough to do so when it comes to network performance and retail presence.

“Shaw’s strategy must evolve for the service to be disruptive,” he said.