Rogers Communications Inc. blamed intense competition as it posted fourth-quarter results that sailed below analyst estimates, revealing more erosion of its wireless lead even as executives focused on the smart-phone market.
The company faced heightened competition from old rivals BCE Inc. and Telus Corp., and from new wireless upstarts such as Wind Mobile and Mobilicity.
But as Rogers defended its turf, analysts noted several worrying trends: The company gained fewer subscribers than it had during the same period last year, saw an increase in the rate of wireless customers leaving, and had to pay out large sums to upgrade wireless customers whose contracts were expiring.
Profit in the quarter was still up, however, by 5 per cent to $327-million or 58 cents a share from $310-million or 51 cents in the same quarter last year. Revenue increased 3 per cent, which executives attributed to a 32-per-cent rise in wireless data revenue from smart phones. The company also announced an expected 11-per-cent annualized dividend of $1.42.
Rogers, which is still the country's largest wireless company, continued to make headway on its core strategy of pursuing lucrative smart-phone customers - it activated or upgraded 635,000 smart phones in the quarter, a new record for the firm.
"What we're going after is higher-value customers," Nadir Mohamed, Rogers president and chief executive officer, said, noting that it was a "key piece" of the company's strategy. "That's been a platform we've had for a few years."
Rogers, which posted a profit drop of 24 per cent in the previous quarter, continues to bear the brunt of the turmoil in Canada's increasingly volatile wireless sector - ranging from new competitors, most of which launched first on Rogers' Toronto turf, to the costly subsidies and hardware shortages behind the shift to smart phones.
Rogers' overall share of new post-paid customers (as opposed to less valuable "pre-paid" top-up card customers) has also fallen off dramatically, largely because of a new, shared network Bell and Telus launched in November, 2009. Rogers gained only 49,000 of such customers in the quarter compared to 109,000 the year before; on the other hand, Bell gained about 157,000 of those customers and Telus picked up 109,000 last quarter.
As a result, Rogers accounted for only 16 per cent of the national post-paid additions in the fourth quarter, according to Canaccord Genuity analyst Dvai Ghose's calculations - a sliver of Rogers' share in early 2009, when it was around 57 per cent. "Rogers is clearly losing post-paid share to Bell and Telus," Mr. Ghose wrote in a note to clients.
At the same time, Rogers saw a slight increase in the number of customers leaving the company, or "churn," which increased to 1.66 per cent of Rogers' 8.9 million wireless customer base. "We're absolutely focused on churn and protecting our base," Mr. Mohamed said. "What we end up losing, they're not high value."
RBC Dominion Securities Inc. analyst Jonathan Allen noted that the fourth quarter was incredibly competitive and that Rogers may be over the "big hump."
"While the results and guidance were disappointing on a few fronts, it was not the disaster that investors had feared," Mr. Allen wrote.
As competition increases, of course, so too has the cost of keeping clients. For incumbent telecom providers, the cost of retaining and gaining new subscribers is going up as competition in the marketplace heats up. For Rogers in particular, costs were even higher in the quarter - $269-million - due to the sheer number of its existing customers coming off contracts.
Mr. Mohamed stressed that the short-term financial sting of such retention and customer upgrades is more than worth it, given that the company is staking its future on the increase in wireless data.