Rogers blames glitch during promotion for low customer numbers

Analysts question strategy behind deals as telecom firm misses analyst estimates

Rogers shrugged off concerns about heightened competition and blamed a technical glitch for adding fewer new wireless customers than expected in the fourth quarter — a period that was marked by unprecedented deals on data from the major telecom players.

Rogers Communications Inc. said Thursday it added 72,000 new wireless subscriptions in the three months ended Dec. 31, missing analysts’ expectations of 103,000 additions.

Chief executive officer Joe Natale said a problem with Rogers’ price change system during a five-day promotional rush cost it 35,000 customers and increased the rate of customers ditching it for competitors by 15 basis points to 1.48 per cent.

The isolated problem was fixed, Natale said in a conference call with analysts, adding that churn settled to normal levels after the seasonal promotions ended.

But analysts questioned the strategy behind the deals, which Rogers sparked by lowering data rates in Western Canada to end a lull in sales after a record-breaking Black Friday weekend. BCE Inc. and Telus Corp. quickly followed, resulting in long line ups and call centre wait times as consumers rushed to get 10 gigabytes of data for $60 a month in Alberta, B.C. and Ontario.

The offers “appear to have done more damage than we thought,” Barclays analyst Phillip Huang wrote in a note to clients.

“While the higher-than-expected average revenue per user compensates financially for the lower-thanexpected net adds, the market is likely to focus on the weakness of the latter metric,” Desjardins analyst Maher Yaghi noted to clients.

Rogers’s stock ended the day down about one per cent to $60.34 in Toronto.

Natale said there will be promotions from time to time, but that Rogers is focused on price discipline. He insisted the activity in the fourth quarter was not a response to Shaw Communications Inc.’s Freedom Mobile, which introduced a similar rate plan in mid-October and made it available for iPhones in late November.

“Let me be clear. The promotional activity in the fourth quarter had nothing to do with any one of our competitors,” he said. “There will always be promotions during seasonal periods.”

Rogers has been competing with Freedom for a decade since it entered the market as Wind Mobile, Natale added.

“The impact that they’re having on us is very small at the margin, it’s not material, it’s not of consequence overall,” he said. “There’s absolutely zero concern from the board, from management, about that impact whatsoever.”

Average revenue per user increased 5 per cent, which helped push the wireless division to its best financial performance since 2009, Natale said. For the full year, Rogers added 354,000 wireless subscribers.

The tactical rationale behind the promotion remains unclear, RBC analyst Drew McReynolds wrote in a note to clients. But RBC believes Shaw’s impact will be manageable for the incumbents even though they will likely add fewer subscribers than 2017.

Rogers’ overall financial performance beat analysts’ estimates. Revenue rose 3 per cent to $3.63 billion year-over-year and adjusted earnings increased 6 per cent to $1.34 billion. Profit hit $419 million compared to a loss of $9 million in the same period last year due to a $484-million writedown on internal development of an IPTV product.

Given the positive financials and improved guidance for 2018, analysts expressed surprise that Rogers did not announce a dividend increase.

“We believe more investors than not were expecting a dividend increase this quarter,” RBC’s McReynolds noted.

Natale said dividend growth will resume eventually, but that his top priorities are investments in Rogers’ core business, such as networks and the upcoming spectrum auction, and decreasing leverage in 2018. Another priority is returning capital to shareholders, he said.

On the cable side of business, Rogers lost 13,000 television subscribers and gained 17,000 internet subscribers. Rogers will launch its new IPTV product later this year after an “exhaustive” trial with 500 employees who are testing the product, Natale said.

“It’s a game changer for our customers and the long term success of our cable business,” he said of the product called Ignite TV, which runs on Comcast’s X1 platform and will offer connected home solutions including a home phone application.

Rogers media division posted a decline in revenue and profit this quarter, given the Toronto Blue Jays did not make the post season in 2017 and the shift to digital media.

When it comes to the future of the Toronto Blue Jays, CFO Tony Staffieri addressed rumours of a potential sale.

“To be clear, there are no plans to sell the Jays,” Staffieri said. “We do see tremendous value in the Blue Jays that isn’t reflected in our share valuation. We’d like to see it better reflected.”

Natale said sports remain a very important part of Rogers’ business, citing the success of Sportsnet and the NHL deal.