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A Rogers store in downtown Toronto. (Fred Lum/The Globe and Mail)
A Rogers store in downtown Toronto. (Fred Lum/The Globe and Mail)

Rogers CEO Laurence defends increasing cost of wireless plans Add to ...

Rogers Communications Inc. chief executive Guy Laurence is defending the escalating prices of wireless plans, comparing the value customers get from the money cellular carriers pour into their networks every year to the cost of a daily coffee.

The Toronto company is Canada’s largest wireless provider and, along with BCE Inc. and Telus Corp., it is in the midst of pushing through a $5-a-month increase for new customers of many popular smartphone plans. The Big Three carriers attribute the bump to the cost of maintaining and improving their networks, and say the swooning Canadian dollar hurts as they pay for much of their network equipment in U.S. dollars.

“I think we need to keep the price increases a little bit in perspective,” Mr. Laurence said during a call with reporters Wednesday after the company reported its fourth-quarter financial results. “It costs about $2.43 to use a mobile phone each day in Canada. I got a latte this morning – that cost $3.62. It’s 50-per-cent more expensive. If you think about how much work it takes to build, run and upgrade a national mobile network, trust me, it’s a lot more work than making a cup of coffee.”

(Rogers spokeswoman Terrie Tweddle said in a later e-mail the $2.43 figure is based on the reported and estimated 2015 wireless revenues of Canadian carriers that report public results, plus 13-per-cent sales tax, divided by the number of customers and the days in the year.)

Rogers has been pleased with customers spending more on high-end smartphone plans and said Wednesday its wireless business drove the company’s growth in the quarter, with revenue at the division up 4 per cent year-over-year to $1.98-billion. But while Rogers added 31,000 new postpaid customers, it also faced increased costs in the period as it paid subsidies on handsets to win customers away from its rivals.

“[The fourth quarter] was the most fiercely competitive quarter probably in the history of Canadian mobile,” Mr. Laurence told analysts on a conference call. “You have to look at our figures and see what we delivered despite that.”

The wireless industry continued to see the effects of the “double cohort” in the last three months of 2015, as more customers were shopping for wireless services after regulatory changes ended cancellation fees for three-year contracts and two-year agreements expired at the same time.

Rogers executives also came under fire for the company’s decision to leave its quarterly dividend unchanged at 48 cents a share, a move that surprised analysts who had forecast an increase of 5 per cent. The company’s shares closed down 5.4 per cent, or $2.74, at $48.13 on Wednesday following the dividend news.

Rogers’ free cash flow increased 17 per cent to $1.7-billion for 2015, but Mr. Laurence and chief financial officer Tony Staffieri said the decision was driven by a desire to focus on “fundamentals” and improve the company’s ratio of net debt to earnings before returning more cash to shareholders.

Rogers spent heavily on cellular airwaves and the NHL hockey rights in 2014 and also purchased startup carrier Mobilicity in a $465-million deal last year.

“I would say our value really comes from building a solid, growing business rather than being a dividend play,” Mr. Staffieri told reporters. “It’s also important to keep in mind that we’re not saying we’re not paying any dividends. We pay close to $1-billion in dividends every year.”

Several analysts questioned the value of that move Wednesday, arguing a 5-per-cent increase in the dividend would have cost Rogers about $50-million over the course of 2016. That would not make a significant dent in its leverage ratio considering the company has estimated debt of about $15-billion.

“Pausing dividend growth sends a concerning message. We believe the board and management are just being conservative, but the market will wonder what it is missing,” Macquarie Capital Markets analyst Greg MacDonald wrote in a note to clients. He said the company is likely looking to the cost of buying more cellular airwaves in a spectrum auction expected within the next two years as well as the risk of “cord-cutting” in its cable business.

Scotia Capital Inc. analyst Jeff Fan said the stock dip on the dividend news could be a buying opportunity, noting Rogers has made progress in its wireless business with lower customer turnover and subscriber trends at its cable division are also improving as it adds more Internet customers. “We believe Rogers is a free-cash-flow story for 2016,” Mr. Fan said.

Rogers’ consolidated revenue across all of its divisions in the fourth quarter was up 2.6 per cent to $3.45-billion, just short of analyst expectations. Net income was flat at $299-million or 58 cents a share. On an adjusted basis, profit was 64 cents a share, less than the 69 cents a share that analysts expected.

The company’s media division reported 3-per-cent growth in revenue to $560-million, which it said was primarily due to sports, citing advertising and subscription revenue from its Sportsnet television network and merchandise and ticket sales from the Toronto Blue Jays baseball team’s post-season playoff run.

But Mr. Laurence said declining advertising sales continued to plague the rest of its media business, which includes the City and Omni television networks, a chain of radio stations and more than 40 consumer and trade magazines.

“These decisions are never easy but they are right for the business long-term,” he said, commenting on Rogers’ announcement this week that it plans to cut 200 jobs from the division.

“Our focus remains on sports, news and digital, and we project strong growth in these areas. In fact, sports already represents over 50 per cent of media’s revenues and adjusted operating profit,” Mr. Laurence added.

Rogers added 16,000 new Internet subscribers in the fourth quarter but revenue at the company’s cable division slipped 2 per cent to $855-million as it continues to lose television and home phone subscribers.

Sales also decreased 2 per cent at Rogers’ enterprise services division, dropping to $95-million in the period.

Rogers also announced Wednesday that is expanding its “Roam Like Home” roaming option to new countries in Asia and the Pacific Ocean. The offer allows subscribers of certain high-end sharing plans to use their own monthly data allotment while travelling abroad for a fee of $5 per day in the U.S. and $10 per day in about 100 other international destinations.

The company said that while the Roam Like Home offer has led to a decline in average revenue per user figures, customers actually using their Rogers’ devices while abroad is starting to make up for that loss.

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