Laurence’s Rogers refit bears fruit

TORON TO • A surprise surge in new wireless customers propelled Rogers Communications Inc. to a profitable third quarter that beat expectations and that chief executive Guy Laurence says proves his turnaround plan is bearing fruit.

The country’s largest wireless operator attracted a net 77,000 monthly contract subscribers in the three-month period ended Sept. 30, more than four times the 17,000 it gained during the same quarter in 2014. The percentage of users who discontinued their service, known as monthly churn, was flat at 1.31 per cent.

“Doesn’t mean we’re going to do 77,000 every other quarter,” chief executive Guy Laurence said in a phone call with reporters. “It just means we got this quarter absolutely right.”

Laurence is almost 18 months into the multi-year strategic overhaul known as “Rogers 3.0,” a shift in focus from luring and satisfying subscribers using steep price discounts to offering value in the product for those willing to spend more. After two quarters where Rogers posted a net loss of postpaid subscribers, it gained a net 95,000 customers in the past two quarters, a signal that consumers are giving Rogers a chance again.

“When we launched (Roger s) 3.0, we talked about steady improvements every quarter not sending out fireworks just for the sake of the financial community but on an underlying basis, improving the business. We’re delivering on that,” Laurence said.

“Subscriber trends for Rogers had been pretty bad,” said Edward Jones analyst David Heger. “It looks like they’re turning the corner and, potentially, a sign that their efforts to turn things around are taking hold.”

But Rogers is also paying more to keep the subscribers it has, reporting a 13 per cent increase in retention spending that ultimately weighed down the segment’s adjusted operating profit, which fell one per cent to $879 million from $888 million in 2014. It shed a net 31,000 cable subscribers while gaining a net 24,000 subscribers in broadband, which will be a bigger story as more Internet data is being consumed in homes.

And despite the fact that a third of postpaid wireless customers are on higher-priced plans and are using more data, the average customer spent just six cents more per month on their cellphone than last year.

In a release, Rogers said Thursday it reported sales in the third quarter of $3.38 billion from $3.25 billion, beating analysts’ estimates of $3.32 billion, according to data compiled by Bloomberg. It posted earnings per share on a GAAP basis of 90 cents, exceeding analysts’ estimate of 74.7 cents. Free cash flow, a closely watched metric for many yield-seeking telecom investors, grew to $660 million from $370 million in 2014.

Rogers stock has jumped 12.7 per cent over the past month and a total of 14.6 per cent so far this year. Still, it seems equity analysts can’t agree on the company’s prospects. Of

A sign that their efforts to turn things around are taking hold

the 22 analysts who cover Rogers, nine have issued a buy, 11 a hold and two a sell and their 12-month price targets on average is $48.79.

Rivals BCE Inc. and Telus Corp. report their earnings on Nov. 5.

In a note published Wednesday, Desjardins analyst Maher Yaghi said “Rogers’ performance has been consistent with our view that it will be a slow transition for the company to crystallize value from its Rogers 3.0 strategy,” adding he expects some investors to take profits after the stock’s gains.

In the race to connect homes and business in Canada to the fastest broadband speeds available, Rogers unveiled a capital spending program this month to connect roughly four million homes to the Internet at a speed of up to one gigabit per second. In June, BCE said it’ll spend $1.14 billion over the next few years in Toronto to upgrade its fibre-optic cable network. It isn’t clear how much the upgrades will cost them both, but what is is that the cable company has to spend less to upgrade its network on a per customer basis.

“The Holy Grail is to get to one gigabit per second type of speeds for Internet, and cable companies appear as though they can do that at a much lower capital investment per subscriber,” Edward Jones’ Heger said. “The cablecos won’t have to be making as big of a capital investment as the telcos, leaving more room for the dividend. Over time, it could be a benefit for a Rogers shareholder versus a Telus or BCE shareholder.”