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Report on Business Analysts wait to see impact of new wireless plans on telecom company earnings

Investors will closely watch as Rogers Communications Inc. reports its first quarterly numbers since launching cheaper data plans and new smartphone financing options, spurring a shift in the Canadian wireless market as its rivals rushed to match the deals.

Rogers has reassured financial analysts that those moves – which it announced in mid-June, just before the end of the second quarter – were deliberate and calculated to ensure that revenue will continue to grow. The Toronto-based company’s earnings report on Tuesday will shed light on how much competition it faced in the period and whether that played into its pricing changes. Any tweaks to its financial guidance for the rest of the year will also be revealing.

The shift in wireless pricing included a range of new plans with larger data buckets and no extra charges for going over monthly limits (customers instead have browsing speeds dramatically slowed down or “throttled”). BCE Inc. and Telus Corp. quickly followed with similar plans of their own, moving the Canadian industry toward pricing that has been common in the United States for several years.

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“We believe investors’ main focus will be on the significant shift in incumbents’ wireless market approach as telcos adopted ‘unlimited’ plans and certain players also rolled out additional device financing options, moving closer to the U.S. model,” wrote Desjardins Securities’ Maher Yaghi in a research note.

BMO corporate debt analyst Nicholas Kim agreed that the market is likely to focus "on the various moving parts of these pricing changes and any implications for 2019 guidance and beyond.”

Analysts estimate overage charges account for about 4 to 5 per cent of the Big Three’s wireless revenues and the pricing shift will cut into that. The new data offerings could also prompt customers paying for more expensive plans to move down to cheaper offerings.

But eliminating the customer irritant of unexpected extra charges should cut down on complaints to call centres, which would reduce costs and could help with subscriber retention. And the promise of predictability could also encourage subscribers on less expensive plans (that still include overage charges) to move up to the larger data buckets.

Rogers also made a move into equipment financing, offering smartphones for $0 down with interest-free payments spread out over two or three years. Under existing plans, carriers typically offer an up-front subsidy on a handset but do not recover the full cost of the device. Analysts estimate the company could reduce the amount it spends on subsidies and equipment financing combined to about $100 per subscriber on average, down from current subsidy levels of $400 to $500.

In an interview earlier this month, Rogers wireless president Brent Johnston was unwilling to comment on the details of those potential savings, noting that the company was in a quiet period ahead of its earnings report. Executives are likely to address the issue on Tuesday during a conference call with investors.

Management could also address the demand for more up-front capital that will come along with the financing model as Rogers will initially cover the entire cost of increasingly expensive smartphones. Carriers in the U.S. have used bonds or securities backed by the stream of payments from smartphone financing contracts to help alleviate balance sheet pressures and Canadian carriers could follow that lead.

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Telus has also introduced $0-down smartphone financing options though it has not offered a three-year term, saying it believes that would not comply with federal regulations (it offers a two-year term). Rogers says it believes the longer terms do follow the rules but the Canadian Radio-television and Telecommunications Commission is investigating; last week it asked carriers for information on new device financing offers.

Rogers added 122,000 new wireless subscribers on contract in the second quarter last year and analysts on average expect it will report that it added about 84,000 in the same quarter of 2019, a consequence of a trend toward lower volumes of new subscribers at the Big Three.

Consensus estimates call for the company to report about $3.8-billion in revenue, with EBITDA of $1.6-billion and earnings of $1.17 a share (EBITDA means earnings before interest, taxes, depreciation and amortization).

BCE reports its second-quarter results on Aug. 1 and chief operating officer Mirko Bibic is included in the list of speakers for the analyst conference call. Last month, the company announced Mr. Bibic will succeed George Cope as chief executive when the latter resigns in January. Mr. Bibic also joined Mr. Cope last week for a meeting with Prime Minister Justin Trudeau.

Telus reports on Aug. 2.

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