Rogers Communications Inc. is falling behind its rivals in attracting smartphone users, a massive challenge for the company as the battle for top-end wireless consumers intensifies.
The Toronto-based telecom giant is increasingly feeling the heat from Telus Corp., BCE Inc. and wireless newcomers, which were able to woo customers during the holiday season with aggressive promotional activity and competitive plans.
While Canada's largest wireless carrier sold a record number of smartphones in the fourth quarter of 2011, the company lagged behind Telus and BCE in gaining new subscribers.
Rogers added 42,000 postpaid wireless subscribers – mostly those who sign long-term contracts – in the three months ended Dec. 31, 2011, a drop of 7 per cent compared with the same period in 2010. Telus and BCE, meanwhile, reported 148,000 and 132,000 postpaid wireless subscriber net additions, respectively.
The fight for top-end mobile users is a key battleground for the sector, whose future is becoming increasingly tied to smartphones. Canadians are among the most prolific smartphone users in the world, with over 40 per cent of the market owning those devices as of September, according to comScore Inc.
For wireless companies, the fight for those data-hungry consumers – and those considering making the upgrade – is critical. Smartphone users are more stable clients and their monthly bills are four times larger than lower-end counterparts.
Rogers, which hiked its annualized dividend 11 per cent on Wednesday after reporting higher fourth-quarter profit, also suffered a rising postpaid churn rate, which crept higher to 1.49 per cent from 1.35 per cent in the same period last year. Pointing to an intensely competitive period in the industry, chief executive officer Nadir Mohamed said much of that pressure was felt at the lower end of the market.
"We've got some work to do here and we can do better on this metric," he told analysts on a conference call.
But Rogers also earned less money from its more lucrative postpaid customers, which represent the bulk of its wireless subscribers. Its blended Average Revenue Per User, a measure that reflects the average monthly bill, slid by $2.49 to $58.82.
Over all, wireless revenue growth was 2 per cent for the quarter and the division's results were pinched by other factors including upfront costs related to smartphone activations, a constrained iPhone supply and lower monthly bills.
Tim Casey, an analyst with BMO Nesbitt Burns Inc., downgraded Rogers' stock to "market perform" from "outperform."
"[Fourth-quarter results reflect continued operating pressures in wireless," Mr. Casey wrote in a note to clients. "Although consolidation is expected among new entrants, some of the challenges in the business will remain despite any relief at the low end of the market."
Rogers, though, still remains Canada's biggest mobile carrier with more than 9.3 million subscribers, compared with 7.4 million at BCE's Bell Mobility and 7.3 million for Telus. And Mr. Mohamed stressed the company is busy executing on a plan to sharpen its competitive edge.
In addition to stemming the uptick in lost customers, it is focusing on expense controls and growing its wireless data revenue. It is also tweaking its data roaming plans and is expanding its long-term evolution network with an eye to delivering data at lower costs.
Wireless data now comprises 37 per cent of wireless network revenue and increasing numbers of its customers are flocking to data-hungry smartphones such as the iPhone, Blackberry and Android devices.
Meanwhile, it is finding new ways to entice high-end consumers to upgrade their handsets more frequently, which bolsters retention. Its new handset upgrade program allows a customer with only six months tenure to upgrade their handset to the latest iPhone, for example, as long as that client absorbs the remaining subsidy costs and signs a new contract.
"This will become more and more relevant going forward to ensure that customers have the capability of being on the device when they want to be," said Rob Bruce, who heads up communications.
Other industry trends will bode well for Rogers, he said. Smartphone penetration continues to charge ahead and competition among handset manufacturers will likely cause handset prices to fall over the coming years.
"I think we are seeing it already as RIM gets even more aggressive to hold its market share. So I believe there will be some downward pressure on pricing of devices," he added.
Earlier in the day, Rogers said its fourth-quarter profit increased to $327-million or 61 cents per diluted share from a year-earlier $302-million or 50 cents, on flat revenue.
The Toronto-based company also boosted its annualized dividend by 11 per cent to $1.58 and announced plans to repurchase up to $1-billion worth of the company's class B non-voting shares.
For all of 2011, its profit rose 4 per cent to $1.56-billion from $1.5-billion in 2010, while operating revenue edged up by 2 per cent to $12.43-billion.