‘Revenge of the cable business’
Rogers CEO insists future is bright
Rogers Communications Inc.’s new chief executive officer said he sees a huge opportunity for resurgence of its traditional cable business, even as its wireless division continues to steal the spotlight for strong performance.
Rogers’ stock price hit a record high Thursday after it reported its first set of quarterly results since CEO Joe Natale took over in April. Better-than-expected performance in wireless impressed both analysts and the market, despite subdued cable results.
But Natale believes changes in video consumption and advancements in digital homes will reinvigorate the cable business, which has flattened under pressure from cord cutting and competition from BCE Inc.’s internet protocol television platform.
“For the last few years, everyone believed we’re in the ninth inning of the cable business. I fundamentally believe we’re actually in the second or third inning,” Natale said in an interview.
“I call it the resurgence or the revenge of the cable business.”
Rogers sank $484 million into creating its own IPTV platform to compete with Bell’s, but ultimately abandoned the project in late 2016. Instead, it plans to launch Comcast’s X1 platform in early 2018. Shaw Communications Inc. also turned to X1 after its IPTV plans failed.
Natale said Rogers does well going to head-to-head with its main competitor given its gigabit-speed internet offering, which offers faster speeds, where Bell has yet to build fibre-to-the-home connections. Bell is investing billions in these ultra-fast connections.
“With the arrival of X1, we’ll be able to fight with both hands,” he said.
The new platform will also cut costs of setting up new customers from about $1,000 to $400, executives said, further improving margins.
Natale has been relatively quiet in his first three months on the job, which he began after Rogers bought out his non-compete agreement with his former company, Telus Corp. He gave analysts more insight into his strategy on his first quarterly conference call as CEO.
“Overall, there won’t be a radical shift in our strategy,” Natale said on the call, describing the changes under his leadership instead as a “thoughtful progression” and an “evolution, not revolution.”
His first priority remains customer service, the area of expertise he was known for at Telus Corp. One third of Rogers’ 26,000 employees serve customers daily, he said in the interview, adding he’s taking a look at their ideas for improvements rather than following the playbook he used at Telus.
“I believe we can drive the churn rates below one per cent, it’ll just take some time to do it in a way that’s sustainable,” he said.
Next he pointed to investment in networks, which he called the “lifeblood of our business,” and innovation to offer the best product and services. Finally, he mentioned growing the business across all markets with a focus on cost efficiency.
There are already signs of progress in customer experience, a historically shaky area for Rogers. The churn rate of subscribers leaving the company dropped to 1.05 per cent, the lowest in eight years, as average revenue per user increased 3.2 per cent to $62.13.
Rogers added 93,000 wireless subscribers in the three months ending June 30, topping analysts’ estimates of 77,000. Its top competitors Bell and Telus also enjoyed gains in the market after Rogers beat expectations for subscriber growth and reported higher demand for more expensive smartphone plans.
Demand for data is doubling every 16 to 18 months, Natale said.
“A healthy wireless market should benefit all operators,” RBC analyst Drew McReynolds noted to clients, pointing to increased demand for wireless services and limited competition from Shaw’s Freedom Mobile.
When it came to cable, Rogers lost 25,000 TV subscribers (analysts estimated it would lose 20,000) and gained 11,000 internet customers, lower than expectations of 22,000 additions.
Still, the strong wireless results overshadowed the weaker cable results, Desjardins analyst Maher Yaghi noted to clients.
“While this was likely an effect from positive industry trends,” he wrote, the lower-than-expected churn rate “should bode well for future quarters.”