WIRELESS BOOSTS ROGERS AS IT DELAYS TV PRODUCT
Growth driver adds record subscribers; IPTV upgrade to launch later in 2018
Rogers Communications Inc. boasted strong quarterly results driven by its expanding wireless division, but the cable giant is still in the testing phase for the television product it hopes will reverse the fortunes of its cable division.
Canada’s second-largest communications company said Thursday its adjusted profit surged to $523 million, or $1.02 per share, in the three months ending Sept. 30, jumping 22 per cent from the same period last year.
Wireless remained Rogers’s top growth driver — it added an eightyear high of 129,000 postpaid wireless subscribers and handily beat analysts’ financial expectations given increased data usage and fewer device upgrades — but its traditional cable business was largely stagnant due to TV losses despite a solid addition of internet subscribers.
CEO Joe Natale reiterated it will take until later in 2018 for Rogers to launch its internet protocol TV product on the Comcast X1 platform, a major upgrade required to catch up with the market sharestealing IPTV offering from its main competitor BCE Inc.
In a conference call with analysts, Natale emphasized the importance of a smooth rollout.
“We believe the prize is really worth making sure that we have a great execution capability and a great experience for our customers,” Natale said, adding that U.S. cable company Cox Communications has seen a 20-per-cent reduction in churn for customers on the X1 platform.
“You have to go slow to go fast.” Rogers will begin a product trial with 1,000 employees in November followed by a soft launch to employees and existing customers late in the first quarter next year, Natale said. It expects to phase out its legacy TV product by 2019.
The Toronto-based company originally tried to develop its own IPTV product to compete with Bell, but killed the project last year at the cost of $484 million to use Comcast’s technology instead. Cox and Western Canadian Shaw Communications Inc. already use the X1 platform and credit it for subscriber growth.
Natale isn’t concerned about the timing of Rogers’s launch.
“With every product introduction, you always ask the question, ‘should we have done it earlier,’ ” he said in an interview.
But he said waiting enables Rogers to launch a full IPTV solution on the X1 platform, whereas Shaw and Cox started with a hybrid system that they will eventually have to migrate to IPTV.
“We’re pleased with the timing right now frankly,” Natale said.
Rogers lost 18,000 television subscribers and gained 27,000 internet subscribers in the third quarter. Revenue and operating profit in the cable division rose by one per cent and two per cent, respectively.
Its media division posted a three-per-cent drop in revenue, primarily due to the success of the World Cup of Hockey last year, while operating profit fell 18 per cent due to higher salaries for Blue Jays baseball players and declining print media revenue.
But the story continued to be Rogers’s strong wireless performance. Relatively soft demand for the iPhone 8/8+ improved margins as Rogers spent less on upgrades. While demand for the iPhone X is expected to be higher and could tighten margins in the fourth quarter or early next year, depending on when inventory arrives, executives noted the very high price point could encourage consumers to keep their old smartphones longer.
As for the new deal from Shaw’s Freedom Mobile that offers 10 gigabyte plans for $50 (Fido, Rogers’s second-tier brand charges $115 for a comparable amount of data), Natale didn’t seem worried or inclined to drastically increase data buckets.
“To date, we haven’t felt much competitive intensity from Freedom,” he said in an interview. “They have a lot of work to do on the network quality side,” he told analysts on the call.
Network reliability, whether it’s being used during rush hour on the highway or inside a condo tower, matters most to clients, he said. He added Rogers customers don’t have to worry about data roaming when they leave a home network zone. (Freedom customers are charged for roaming inside Canada.)
Ultimately, the wireless division shone with a seven-per-cent jump in service revenue and a nine-per-cent increase in operating profit. As a result, Rogers updated its guidance to five- to six-per-cent growth this year, up from two- to four-per-cent growth. It also revised its capital expenditures upwards by about $100 million.
Analysts reacted positively to the results. RBC analyst Drew McReynolds noted that Rogers delivered on high expectations, with Desjardins analyst Maher Yaghi noting the proceeds from the strong wireless results will go to more capital investment in the business.