When Nadir Mohamed walks down the street, he sees dozens of potential new customers. But they aren't the ones you might think.
As the man in charge of the country's largest wireless business – about one in three Canadians over the age of 14 carries a handset from Rogers Communications Inc. – Mr. Mohamed is, of course, paying attention to the phones that consumers are using to talk, surf the Web and text. But he's also taking notice of the humble parking meter.
Once simple devices, meters are becoming increasingly sophisticated. In many cities, they can take credit cards, relay information to drivers looking for spots, or alert city employees of the need for maintenance. This requires a wireless connection, and each transmission uses data – and represents a chance for Rogers to make money. And that's something Mr. Mohamed can't get out of his mind.
This is his view of the future: Machines talking to machines, wirelessly, making the world a more efficient place – with Rogers in the middle of many of those digital conversations. The company's network is already used to control traffic lights. It might be used for a lot of other things, too. "There is a world out there that we haven't even seen," he said.
That the Rogers chief is talking about things like parking meters and traffic signals is either a sign that he's a visionary or a portent of trouble at one of the country's top communications firms. The latest set of financial results, which sent the stock tumbling this week, hint at a difficult truth: After decades of growth on the back of two big consumer trends – the move to cable television and the mass adoption of wireless phones – Rogers lacks an obvious third act.
All of the company's main businesses are now either facing significant headwinds or are in decline. In wireless, it is battling network-sharing incumbents BCE Inc. and Telus Corp., which have broken Rogers' once-lucrative Canadian monopoly on the iPhone, while being undercut by scrappy upstarts at a time when most Canadians already own a cellphone. The cable-TV business, while still very profitable, is now losing customers, and is threatened by new technologies. The home phone business has flat-lined. Rogers' media unit, which owns a host of television channels and magazines, is struggling in a soft advertising market.
Small wonder that at this week's annual general meeting, Mr. Mohamed spent as much time talking about saving money as he did about earning money. He talked about a recent decision to stop renting videos and games at its remaining 93 retail outlets and danced around questions about the need for more layoffs following a 300-person reduction in the last quarter.
"I expect it to continue being a tough period, but I have no doubt in the strength of the franchise," he said as the company reported first-quarter revenue that was about 1 per cent lower than a year ago.
His challenges are clear. The economics of the smartphone are changing. Consumers still want iPhones and other high-end devices, but most want to avoid $100-a-month bills for using them, so they choose lower-cost data plans. Rivals such as Mobilicity are offering Android phones with cheaper plans, putting further pressure on prices.
The cable business, meanwhile, is being bruised by the budding popularity of Internet protocol TV offered by BCE Inc., which is helping that company gain urban customers that have traditionally shunned its satellite service. Other TV alternatives, including over-the-top services like Netflix that provide movies and television shows with an $8 monthly subscription, are also giving consumers fresh incentive to cut the cable cord.
The pressures have left revenues flat, margins under pressure, while thrusting the company into a new era of austerity that analysts predict will include more cuts to its work force of 30,000. Beyond the cost cuts, Mr. Mohamed faces the formidable challenge of steering the communications giant through a slow-growth environment.
"We're not expecting growth to come from any new markets," says Desjardins Securities analyst Maher Yaghi. "There's no new sources of revenue at this point, anything they are doing is too small to have any impact." He expects cable and wireless revenues to increase by low single digits for the foreseeable future. But the technological advantages that once gave it a leg up over its competitors – including a superior network – have largely vanished.
Founder Ted Rogers, who died in 2008, was a larger-than-life visionary. His forceful personality and entrepreneurial drive – along with a lot of borrowed money, used to pay for acquisitions – propelled the company to a long period of growth.
Whoever followed him was going to have a difficult job. The task fell to Mr. Mohamed, a 56-year-old Tanzanian immigrant who had earned a reputation as a smart operator during his time as an executive at Telus Corp. and then Rogers. Everyone knew he could run a business. Nobody was sure if he had his predecessor's knack for spotting the next wave.
The man himself believes Rogers is already planting the seeds of its next growth phase – even if no one can see it yet.
"I think it is really important that our DNA is understood. We are always looking for the next opportunity," Mr. Mohamed said in an interview this week. "And sometimes what you find is you don't get the appreciation until you've got enough scale in the business. And that's fair ball, but nobody should confuse that with not having an opportunity."
A few of these are new consumer-based services, such as home monitoring, or a subscription service that gives people the ability to watch five hours of sports per month on their smartphones for $5. Mr. Mohamed sees them as a way to distinguish the company from its peers and keep customers hooked, making it harder for them to leave (and more apt to bear the higher-than-inflation annual price increases required to protect profit margins, analysts say).
While some of those opportunities are relatively nascent, Mr. Mohamed says a number of initiatives should start contributing to growth within the next five years. Wireless data is at the heart of most of these efforts, and his vision extends far beyond consumer-based Web surfing, e-mails and apps – or, for that matter, consumers. The future is about machine-to-machine communication, he says, which could include such things as helping companies manage their vehicle fleets or delivery firms figure out the best routes.
Rogers has already signed up major clients such as Hydro-Québec and convenience-store operator Alimentation Couche-Tard Inc. He said it generates about $50-million in revenue, in what he describes as the division's "startup phase."
It's not much for a company that does more than $12-billion in annual sales, but it's a start.
"Fifty million is small. You don't see it. But I can assure you ... when we were launching BlackBerry, the first couple of years, we were talking exactly the same way" about the opportunity to gain new wireless revenues, he says. "Fifty million becomes $100-million becomes what is today is clearly in the hundreds of millions for wireless data – $600 million plus for the [first]quarter."
There are other business lines being developed. One is a mobile payment service, through Rogers Bank. The idea is to have the smartphone's SIM card double as a mobile wallet that holds everything from virtual credit and debit cards, driver's licences, transit passes and loyalty points. As owners of the SIM card, Rogers can potentially charge "rent" to store that information.
And while the focus is largely on wireless, Mr. Mohamed knows he can't turn his back completely on the company's past. Cable still generates nearly $1-billion of revenue each quarter, despite increased competition from companies such as Bell and Telus. That legacy cable network will continue to evolve, he said, as the company digitizes its signals and offers new services to its customers – such as improving its network so that it can offer better speeds, higher-end services and personal video recorders with more features.
"So yes, we'll battle out the day-to-day issues in the business that we are in," he said. "... But nobody should think of that as kind of the product sets we are working with – we've got a whole bunch more that we are going to bring to market."
His vision is optimistic, far more so than that of Bay Street analysts, many of whom doubt the company can evolve beyond the utility-like behemoth it is today. Of the 17 who follow the company, only six rate it a "buy" – and shareholders have earned almost nothing over the past five years, even when dividends are included.
The problem, analysts say, is that while the company once had the luxury of extending into new businesses without worrying about competition eating away at its legacy lines, those days are clearly over. Telus, Bell and the new wireless entrants have commoditized the handset market, for instance, forcing Rogers to heavily subsidize smartphones to win new customers and keep the ones it has from leaving.
"They were a leader on all fronts for the longest time and had such strong market share because of a long period of superior offerings backed by a competitive advantage on technology and limited competition," said UBS analyst Phillip Huang.
"But that advantage goes away because now what you're selling is a commodity and the only differentiator is your brand. And that is more difficult."
He expects the bulk of the company's growth will come from increased use of wireless data, something that holds true for the entire industry. The cable business is more difficult, because telcos are aggressively rolling out new, fibre-optic television services that that are better able to compete with the cable television packages that have been the standard in Canadian households for decades.
"It is partly beyond their control, how much growth they can squeeze out," Mr. Huang said. "They can raise prices, that's always done on the cable side. But how much of that price increase flows to the bottom line depends on how competitive the environment gets. If you have to keep matching your competitors on acquisition offers, then most of that benefit will be eaten away."
In the past year, for example, Rogers has seen an $80-million bump to its earnings thanks to price increases. But Mr. Huang said most of that will be eaten away by another line item – the one that shows how much the company had to spend to keep customers from leaving for rivals.
"[Customers say]'Bell offered me this, what will you give me not to leave?" Mr. Huang said.
Mr. Mohamed see things differently. The critics who say the company isn't growing aren't looking at things the right way. Cable doesn't just mean television subscribers any more , for example, because the Internet is a more important part of the cable equation. Its wireless customers may be spending less on average than they used to each month – $57.65 a month, compared to more than $62 two years ago – but the company is still signing them up in healthy numbers.
"People prematurely think the business is maturing," he says. "It is maturing. But don't think of no growth ... What you want to do is drive revenue through new uses that consumers find valuable."
"We've got to keep doing what we do best – seeding new business to create growth."
It almost sounds as easy as pulling money out of parking meters.