Bump in wireless customers boosts Rogers’ Q2 results
Addition of 65,000 clients is nearly double analysts’ average estimate
Rogers Communications Inc.’s second quarter performance beat analysts’ expectations by attracting a whopping number of new wireless subscribers amid a “dogfight” for cable television and Internet customers.
On Thursday Canada’s secondlargest telecommunications company reported earnings, excluding some items, of 83 cents per share, topping the consensus estimate of 82 cents. Revenue and operating profit for the quarter ending June 30 of $3.46 billion and $1.35 billion were in line with street estimates.
Ultrafast Internet sales made up for the loss of 23,000 television subscribers, but the highlight was 65,000 new wireless customers — 41,000 more than Rogers added in the same period last year and nearly double average analyst estimates of 35,000 additions.
Executives couldn’t point to a single driver for the wireless boost but credited the popularity of its shared plans, its out-of-country roaming program, now expanded to flanker brand Fido, improvements to customer service and an expansion of its network.
“It was hugely competitive. We just happened to have a good quarter,” CEO Guy Laurence told investors in a conference call on Thursday morning.
Wireless operating margins, however, missed analysts’ expectations, due to higher acquisition and retention costs.
Laurence’s portrayal of the Big Three wireless companies “slugging it out” this quarter contrasts with descriptions from analysts, with Phillip Huang at Barclays calling it a “relatively benign competitive environment.”
Until BCE Inc. and Telus Corp. report their results in early August, it won’t be clear whether Rogers convinced customers to switch from competitors, captured the lion’s share of new wireless customers or if the market expanded. (About 85 per cent of Canadian households have wireless service, according to the CRTC.)
Cable TV customers continued to slip away, but Laurence said he’s confident this trend will turnaround next year due to the scheduled launch of Internet Protocol television in the last days of 2016. Rogers’ push for 4K televisions — its media division gives it an advantage in creating content — and its rollout of gigabit Internet service across its entire cable footprint by year-end (half of its customers already have access) will also help “start winning back video customers,” Laurence said.
He was cagey with details on the IPTV offering but said its interface could be more appealing to those who axed their subscriptions or never had one in the first place.
“We’re not banking on bringing cord cutters back, but I wouldn’t rule out,” he said.
He also expects 2017 will mean more competition with Bell.
“We and our competitors, we are battling house-by-house in areas where we’re investing and they’re investing, which has resulted in some surprising pricing,” he said. “The dogfight continues, and I expect it to continue for some time.”
The company reported the most new Internet customers in the past eight years, with 12,000 new customers signing up. Nearly 40 per cent of residential Internet customers subscribe to 100 megabits per second or higher Internet speeds — only about 10 mbps is needed to stream Netflix without a headache — up from 15 per cent last year, Laurence said.
“The need for speed is there,” he said, noting that data consumption is forecast to rise as households have more devices online. “I don’t know why anyone would go with less than 100 mbps these days.”
Increased revenue from the Internet segment and a 5,000 increase in home telephone customers kept the cable division steady.
Despite a bad NHL season for Canada, Rogers Media sports division posted strong results. It pulled in $615 million, well above consensus estimates of $574 million.
Sports made up almost twothirds of media revenue this quarter, with the success of the Blue Jays and the Raptors increasing advertising revenue for Sportsnet. The Jays reached an average of 825,000 viewers per game, a record for the first half of the season, Laurence said.
Analysts reacted positively to the news, although they weren’t overly upbeat.
“Rogers is making progress on its transformation, but it doesn’t appear to be having a greater than expected impact on competition as yet,” Citi’s Michael Rollins wrote to clients, adding he’s waiting on the rest of the wireless results.
Desjardins analyst Maher Yaghi expects the new IPTV offering will give Rogers a competitive advantage and “should help the company on the cable subscriber net additions front.”
Rogers stock jumped 3.86 per cent, to close at $55.67.