More than nine million Canadians now own a mobile phone on Rogers Communications Inc.'s wireless network, but they aren't doing much talking.
Rogers reported a modest decrease in second-quarter profit, earning $410-million, down 9 per cent from the year before. The results beat the estimates of Bay Street analysts, but also exposed a worrying decline in the average monthly bill for wireless customers, which slipped 4.8 per cent.
At the heart of that drop: People are spending a lot less on wireless voice services. Rogers said the average revenue per user (ARPU) dropped 15 per cent during the quarter. Cellphone users are texting more and making greater use of e-mail, the Web and Internet video on their handsets, giving a boost to data revenues. But there is a concern that more customers are not using their Rogers phones to actually talk, crimping an important source of wireless revenue.
The trend is industrywide and has been continuing for the past couple of years, but the trend is more pronounced at Rogers than at its competitors.
"As we look at the quarter, you can look backward and look at voice [prices]" Nadir Mohamed, Rogers president and chief executive officer, said on a conference call. "But most importantly, I think, is for us to look forward, and look at the business from the perspective of where customers are growing. And to me that world is all about data, it's all about smart devices."
Smart phone growth was strong in the quarter, as Rogers added a net 108,000 customers who were mainly buying Apple Inc.'s iPhones, Research In Motion Ltd.'s BlackBerrys and devices running Google Inc.'s Android operating system.
Revenue from wireless data services was up 31 per cent, and now account for 35 per cent of total revenue flowing from Rogers' wireless network. The company also recently launched Canada's first LTE network, utilizing the Long Term Evolution wireless technology standard that enables much faster data speeds.
Jonathan Allen, an analyst with RBC Dominion Securities Inc., notes that Rogers is getting hit much harder by declines in voice revenue than its large peers in the wireless sector, BCE Inc. and Telus Corp., both of which are catching up with Rogers on various metrics as the former leader slips. By comparison, Bell and Telus had year over year voice ARPU declines of only 5 per cent and 4 per cent, respectively, in the last quarter.
"Wireless data actually hit all of our estimates for the quarter," Mr. Allen said. "It's really more the concern of what's happening on the voice side, and whether they can slow that trend. The decline in voice has deteriorated quite materially over the last year … A lot of investors are really questioning why voice ARPU is declining so much."
The trend is not as simple as people talking less. Rob Bruce, president of Rogers' communications division, said the declines are also a result of the sector's "proliferating competition" - inroads made by both big competitors and new entrants, which have undercut established cellphone plans by as much as 60 per cent.
Rogers also has its stronghold in the lucrative market of Toronto, where new wireless players such as Wind Mobile and Mobilicity have concentrated their efforts. It also had a monopoly of sorts - now steadily eroding - on the so-called premium, higher-volume business users, as well as on roaming revenues for voice services.
The company's cable and media divisions, meanwhile, did better in the quarter than expected, though there was a net loss of 9,000 basic cable TV subscribers. Dvai Ghose, an analyst with Canaccord Genuity, wrote that the results held some "positives, but over all the results lead us to remain cautious," given the declines on wireless profitability and the potential threat ahead from Bell Canada's gradual rollout of a new TV service in Rogers-dominated Toronto.