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Has Rogers Communications Inc. become a sanctuary for beaten investors?

Six years ago the idea would have seemed laughable. The nation's largest cable and wireless operator staggered under billions of dollars of debt and yearned for cash flow. But in 2002, the notion of high-speed Web surfing on a cellphone was also unbelievable.

Yesterday marked a new period in Rogers' history. Quarterly results soared on the back of Apple Inc.'s iPhone wizardry, and company founder and chief executive officer Ted Rogers made a case to investors that the stock is now a shelter.

"Compared to many companies today, we are extremely well financed to weather a storm, even a big one. Our balance sheet is rock solid with every manageable leverage," he said during a conference call.

Growth of 20 per cent in the wireless business and a steady, rising stream of monthly payments from phone, Internet and cable customers has given the company the strength and flexibility to continue investing in the business, he said.

One example is the 255,000 people who bought iPhones in the quarter. Rogers calculates that these customers are worth 150 per cent more in sales than the average subscriber. One-third of iPhone buyers were new Rogers subscribers, and they have been locked into three-year contracts.

The company's shares, offering a 3.4-per-cent yield at current levels, offer a "healthy dividend beyond reproach," Mr. Rogers added. When Rogers Communications shook off the effects of the last downturn in 2002, the company was paying $430-million a year just to service its debt and only dreamed of paying a regular dividend.

Throughout the 1990s, Rogers Communications developed an addiction for other people's money, as Mr. Rogers pursued his vision of an integrated communications company built on the emerging technologies of the Internet and wireless. He believed long-term revenue would eventually offset short-term debt.

For a brief period 11 years ago, liabilities loomed larger than assets. The company officially put shareholders' equity at $3.6-million, but one analyst at the time calculated that Rogers Communications actually had slipped into negative net worth.

Shortly afterward, Rogers shrewdly managed to woo two heavyweight investors, Microsoft Corp. and AT&T Inc., to its cable and wireless operations. That helped the company through some of its darkest moments, and set it up for more borrowing and another spending spree after 2002. Key investments included putting its cable and wireless assets under one roof by purchasing the minority interests, and paying $1.4-billion for independent cellphone player Microcell Telecommunications.

The result is "an ideal set of interrelated businesses," Mr. Rogers said yesterday.

"In today's age of broadband, television and wireless revenue systems are defensive ones in a down economy," he said. "We have eight million customers. We are well diversified, and if something goes wrong with some customers, it doesn't bring down the ship. How many companies in North America are like that?"

Rogers Communications carries even more long-term debt today than during the last economic downturn, amounting to $7.51-billion at the end of September. But the company is now generating plenty of cash so that it can manage the debt, continue to invest and hand out regular quarterly dividends.

Rogers Communications generated $890-million of cash from operations in the quarter. That was down from $982-million a year earlier, primarily due to about $95-million in marketing and subsidy costs to launch the iPhone. Interest on long-term debt rose to $147-million from $140-million.

For the three months ended Sept. 30, Rogers said profit rose 84 per cent to $495-million, or 78 cents a share. Sales climbed 14 per cent to $2.98-billion. Shareholders' equity stood at $5.18-billion.

ROGERS (RCI.B)

Close: $32, up $2.93

Third-quarter comparisons

2008 2002
Revenue $2.98-billion $1.11-billion
Profit/loss $495-million ($99.8-million)
Debt $7.51-billion $6.1-billion
Interest on debt $147-million $133-million
Cash flow from operations $890-million $219.1-million

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