Rogers Communications Inc.'s chief executive is warning that the company will make a significant reduction to the nearly $3-billion it plans to invest in infrastructure this year if the federal government brings in policies that are “punitive” to the telecommunications industry.
On Wednesday, Rogers CEO Joe Natale said he’s pleading with the government to strike the right balance between making telecommunications services affordable and encouraging investment in the country’s wireless and internet infrastructure.
“If we don’t have that balance, if the regulatory environment is punitive from a fuelling-investment point of view, we will have to cut investment,” Mr. Natale said during an interview at the company’s Toronto headquarters.
“Sadly, we will have to do it, and it will impair or impede our ability to deliver the next generation of capability that is critical to the digital economy," he added, referring to the deployment of fifth generation, or 5G, wireless technology that’s currently under way.
Mr. Natale’s comments come ahead of next month’s hearings on the mobile wireless market, which will take place in Gatineau in front of the Canadian Radio-television and Telecommunications Commission (CRTC). Among the issues that the CRTC will consider is whether to force the national carriers such as Rogers, Telus Corp. and BCE Inc. to sell access to their networks to wireless resellers, referred to in the industry as mobile virtual network operators (MVNOs), which don’t have their own infrastructure. Reselling network access is currently voluntary.
The CRTC has said its preliminary view is that the national carriers should be forced to sell wireless network access to resellers because the benefits of a well-developed MVNO market would outweigh any negative impact on network investments.
“Further, properly structured rates, terms and conditions should further mitigate potential negative impacts on future investments," the regulator said in its notice of hearing.
The CRTC is also weighing whether to reconsider its August ruling that ordered telephone and cable companies to lower the rates they charge smaller internet service providers (ISPs) for access to their networks, and to make retroactive payments – totalling an estimated $325-million, according to court documents – to make up for the higher prices charged since interim rates were set in 2016.
Matt Stein, chief executive officer of Distributel and chair of the Canadian Network Operators Consortium, an industry group for independent ISPs, said it’s not the first time that the big telecom companies have threatened to curtail investment, although in the past they have failed to make good on such threats. He pointed to one instance in 2010 when BCE Inc.'s then-CEO George Cope told the CRTC that mandating access to its new fibre networks would cause him to limit investment.
Justin Trudeau’s Liberal government is looking to bolster competition in the wireless industry to fulfill its election promise of reducing cellphone bills by 25 per cent. A spokesperson for Innovation, Science and Economic Development Canada Minister Navdeep Bains said cellphone prices are putting too much pressure on Canadians’ budgets.
“We will work with industry partners to reduce the average cost by 25 per cent, so that Canadians pay fair prices for these important services,” Véronique Simard said in an e-mail. “Our toolbox includes spectrum auctions, legislative review, bringing new types of competitors into the market and potential changes around MVNOs.“
According to Mr. Natale, however, competition in the sector has never been stronger. Last summer, the company introduced new data plans – which eliminate overage fees and instead throttle customers’ speeds when they hit their data limits – prompting its competitors to follow suit. The shift has had an impact on Rogers’ financial results, causing the company to miss analyst expectations for two back-to-back quarters as more customers than expected signed up for the new unlimited data plans.
On Wednesday, Rogers reported revenue of $3.95-billion for the three-month period ended Dec. 31, below the consensus analyst estimate of $3.97-billion from S&P Capital IQ. Meanwhile, its fourth-quarter net income totalled $468-million, down 7 per cent from $502-million a year ago. The earnings amounted to 92 cents a share, down from 97 cents a share during the same period last year.
Rogers said roughly 1.4 million subscribers have signed on to the unlimited data plans – about three times what the company had expected by this point. The shift to unlimited data plans has led to a drop in lucrative overage charges, which historically have represented about 5 per cent of the company’s wireless service revenues annually.
However, a number of the company’s key performance indicators – including the number of net new internet and wireless subscribers – were better than analysts had expected.
Rogers added 27,000 net new internet subscribers and 131,000 net new postpaid wireless subscribers during the quarter. (Postpaid subscribers are those who are billed at the end of the month for the services they used, versus prepaid customers, who pay upfront for wireless services.)
RBC Dominion Securities Inc. analyst Drew McReynolds called the fourth-quarter results “better than feared.”
The company’s shares were up more than 3 per cent Wednesday, closing at $66.67. That’s in contrast to the 8-per-cent dive that the company’s stock took last fall, after reporting a $50-million reduction in overage fees during the third quarter.
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