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Report On Business Rogers pinning cable turnaround hopes on Internet protocol TV

A Rogers store in downtown Toronto.

Fred Lum/The Globe and Mail

Rogers Communications Inc. is hoping that a long-awaited launch of its new television platform late this year will help to spur a "turnaround" in its cable TV business.

Over the past two years, the Toronto telecom and media company has made inroads in tackling customer-service problems and has revamped many of its products – emphasizing network quality and speeds and including content perks in data packages – and its second-quarter results, reported on Thursday, showed positive momentum in wireless and Internet subscribers.

Now, Rogers plans to upgrade its television service and says it is targeting the very end of the year for the launch of its IPTV (Internet protocol television) product, an initiative the company has been developing in-house for several years.

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"A significantly enhanced video product is an important element in our strategy to own the home," chief executive officer Guy Laurence said in a conference call with analysts. "With IPTV, we will introduce a differentiated product, positioning us well to reverse the trend of TV subscriber losses.

"We are confident we can start to make a turnaround in cable in 2017."

Telephone companies – including Rogers's main rival in Ontario, BCE Inc. – started introducing IPTV over the past decade, taking a bite out of the monopoly over television subscribers that cable operators had enjoyed.

In recent years, cable companies have looked to introduce similar IP-based services that can offer modern features that cable does not. The advantages of IPTV include sleek search interfaces that seamlessly integrate video-streaming services, such as Netflix, as well as the ability to switch between devices and pause and restart programming in different rooms or on tablets or mobile phones.

But the technical challenges of launching IPTV over cable infrastructure are steep and since 2014 fellow Canadian cable companies Cogeco Communications Inc. and Shaw Communications Inc. both scrapped plans to develop their own IPTV solutions, licensing technology from U.S. companies instead. Rogers has persevered, but it has pushed its IPTV launch date out several times (in February, 2014, the company predicted that it would launch in 2015).

"We will launch it when it's ready," Mr. Laurence said on Thursday in a separate call with reporters, noting that the end-of-year date could be pushed back as well if necessary. "IPTV as a platform is not a simple product to bring to market and it's not just the product itself. You've got the service, you've got the set-top box, you've got changes to the network. And we wanted to line up all of those together. We're close now."

He declined to provide specifics on the features, but analysts were largely impressed after receiving a private demonstration of the product in June.

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"Its functionality very closely matches the advantages of online services including search (content-focused with ability to mix sources), usability (cloud-based, any device, anywhere) and flexibility (personalized [user interface] such as viewing time and content control for kids)," Macquarie Capital Markets Canada Ltd. analyst Greg MacDonald wrote at the time.

As Rogers approaches its IPTV launch, analysts are also pleased that it will be investing less capital in its development, which has sprawled out over the past several years.

"We believe the implementation of the new TV user interface starting by the end of 2016 will provide Rogers with a competitive advantage over its IPTV competitor and should help the company on the cable subscriber net additions front," Desjardins Securities Inc.'s Maher Yaghi said on Thursday.

Rogers's shares gained as much as 4.6 per cent on Thursday, its largest intraday increase since October, according to Bloomberg, after the company reported its profit grew 8.5 per cent to $394-million, or 77 cents a share, in the three months ended June 30.

Wireless-service revenue increased by 5 per cent as Rogers attracted 65,000 new-contract customers, ahead of the 35,000 analysts predicted, and subscribers continued to sign up for premium smartphone plans.

Rogers also reported 15-per-cent growth in Internet revenue in the quarter while adding 12,000 customers.

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Yet, analysts continue to highlight profit margins as a concern. Wireless equipment costs and subsidies increased as Rogers added customers and at the cable division, the loss of 23,000 television customers and 5,000 home-phone subscribers offset gains on the Internet side.

Rogers's overall wireless revenue increased 1 per cent to $1,931-million, while adjusted operating profit also increased 1 per cent to $846-million.

The cable division reported flat revenue and adjusted operating profit at $870-million and $415-million, respectively.

Despite the "lingering wireless margin pressure," RBC Dominion Securities Inc. analyst Drew McReynolds noted the strong wireless subscriber numbers and better-than-expected cable numbers, calling the results a "notable improvement after a slow start to the year."

In the first quarter, Rogers's results were dragged down by restructuring costs and lower revenue at the media division as it conducted a round of layoffs and advertising sales were down.

The media business reported better results in the second quarter, with revenue up 6 per cent to $615-million and operating profit flat at $90-million.

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That was largely because of the success of the company's sports properties, particularly the Toronto Blue Jays and the Toronto Raptors, and Mr. Laurence said sports now accounts for almost two-thirds of revenue at the division.

Rogers's total consolidated revenue for the second quarter increased by 1.5 per cent to $3.46-billion, slightly below analyst estimates.

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