Having the exclusive rights to the hottest smart phone on the market has been great for Rogers Communications Inc.
But the telecom and cable giant's third-quarter profit numbers, which shattered Bay Street's expectations, come on the eve of a seismic change in the Canadian wireless landscape that will see Rogers fight heated battles to maintain its share of both the high and low ends of the market.
Bell Canada and Telus Corp. will launch their own plans next month for the iPhone – until now, available in Canada only through Rogers – hoping to take a big bite out of their competitor. And several new firms are entering Canada's wireless market at the low end, offering unlimited voice plans in a bid to lure users.
“In this quarter you have the luxury of knowing that Bell couldn't steal iPhone customers from you, nor could Telus, and they couldn't steal the latest BlackBerry customers from you either because they didn't have the latest devices,” Genuity Capital Markets analyst Dvai Ghose said.
Rogers surprised the market with Tuesday's results. While revenue and profit numbers changed little from the same quarter a year ago, adjusted profit of 82 cents a share was far higher than expected – the consensus analyst estimate was around 54 cents a share.
“Our third quarter results represent a healthy balance of growth, cost control and margin expansion, and double-digit increases in cash flow generation and cash returns to shareholders,” Rogers president and chief executive officer Nadir Mohamed said in a conference call.
The wireless division was the company's best performer, offsetting declines in other areas, such as cable. The wireless adjusted operating profit in the quarter jumped 22 per cent over the third quarter of 2008. In part, the gain is due to lower costs for Rogers, which spends money on subsidizing smart phones – the company saw fewer customers upgraded to the iPhone this quarter than during the same period last year, when the device was still relatively new in Canada.
But in less than two weeks, Rogers will be one of three companies selling the ultrapopular Apple Inc. smart phone. Bell and Telus will begin offering the iPhone in early November, after their new high-capacity network goes online. The new network means the two firms will be able to competewith Rogers in the iPhone game and with other devices, such as next-generation phones and electronic book readers.
(Adding yet more pressure on Rogers, Telus also announced Tuesday that it will introduce new phone rate plans that eliminate system access and 911 fees, often criticized by consumers as a confusing and unnecessary addition to their phone bills. Rogers previously eliminated both fees from its own pricing plans, but added another “regulatory recovery fee” of between $2.50 and $3.50, partially offsetting the decrease.)
However Mr. Mohamed argued that simply offering a new device isn't enough.
“I don't think people should get confused: the idea that somebody announces that they have the technology of choice is very different from actually having a network that has the reliability and quality that we have,” he said.
While Telus and Bell attempt to swing market share away from Rogers in the high-end market, increased competition looms in the low-end. Three independent firms are trying to enter the wireless market – and all intend to offer unlimited voice plans.
That increased competition may well mean that Rogers' better-than-expected quarter will be very difficult to recreate in future quarters, Mr. Ghose said, as the company is forced to more aggressively market and subsidize its products. “That, in turn, may mean that this is the calm before the storm,” he said.
