Rogers slides into the red on writedown

Takes $484M hit on failed IPTV experiment

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stock surged after reporting strong growth in wireless and Internet subscribers in the fourth quarter, even though it took nearly a half-billion-dollar hit from its failed Internet protocol television experiment.

In the first reporting period since Rogers ousted former chief executive Guy Laurence, Rogers posted a net loss of $9 million due to the $484 million writedown on its five-year attempt to build an IPTV service to rival competitor BCE Inc. It abandoned the project in favour of inking a deal with Comcast to use its X1 video platform.

Interim chief executive Alan Horn believes these “tough” choices set Rogers on the right long-term path, he said in a conference call with analysts Thursday.

“We ended 2016 with continued momentum and strong operating performance,” Horn said.

Horn confirmed that Joe Natale, the former Telus CEO hired to replace Laurence, will start in July. Rogers previously attempted to negotiate an earlier start date with Telus, which has a non-compete contract with Natale that doesn’t expire until July. Telus didn’t bite.

Rogers’ stock surged, closing at $56.04, up 6.58 per cent in Toronto trading.

Rogers beat Bay Street’s expectations when it came to its wireless business. It added 93,000 postpaid wireless subscribers in the quarter, the highest growth since 2009 and triple the number of subscribers it added in the same period last year. Average revenue per user, an important industry metric, also rose.

Chief financial officer Tony Staffieri credited the expansion to a growing market size and consumers using more data — overall data usage jumps 40 per cent to 50 per cent monthly, he said — and signing up for larger data plans and adding more devices. He anticipates the growth will be stable.

Internet subscribers jumped by 30,000 in the quarter, two-and-a-half times greater than subscriber gains in 2015. Approximately 46 per cent of Rogers’ residential subscribers now receive high-speed Internet of more than 100 MBps, which is now available to its entire Canadian footprint.

Rogers blamed the Canadian telecom regulator’s decision to lower wholesale Internet rates for dampening its profit in the Internet and cable divisions.

Cord-cutting slowed for the cable giant. Rogers lost 13,000 television subscribers for a total of 76,000 fewer TV customers in 2016, down by about 40 per cent from 2015 losses.

It hopes to gain back market share once it rolls out Comcast’s X1 platform, but that isn’t expected until 2018. Western Canadian cable rival Shaw Communications Inc. already offers the Comcast platform to its customers.

Media revenue of $550 million in the quarter was two-per-cent lower than last year due to fewer post-season games for the Toronto Blue Jays, lower revenue and lower circulation.

Rogers laid off 77 employees in its media division in November, citing a transition to digital amid falling print advertising revenue.

Analysts reacted positively to the better-than-expected subscriber numbers and to Rogers’ 2017 revenue guidance, also higher than anticipated.

“Given the momentum going into 2017, we see the stock being better-positioned to deliver positive returns for shareholders in 2017,” Desjardins analyst Maher Yaghi wrote.

Strong subscriber results potentially came at the expense of Bell, Yaghi added.

“It is positive that the delay in cable video platform transition isn’t holding back customer growth on the Internet side,” Citi’s Michael Rollins wrote in a note to clients.

Rollins noted, however, that margins are expected to be tighter next year due to costs of implementing X1.

Adjusted earnings increased to $382 million or 74 cents per share up from $331 million or 64 cents per share in this period last year. Revenue for the full year increased two per cent from 2015 and adjusted profit remained stable.

Rogers did not increase its dividend and does not expect to during the CEO transition, executives told analysts. Former Telus CEO Joe Natale will start as the new chief executive officer of Rogers in July.