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Despite a profit hit, momentum seen in Rogers report

A man walks by a Rogers store in Toronto.

gloria nieto The Globe and Mail

For Rogers Communications Inc., success lies in pulling off a tricky feat: keeping customers happy without resorting to deep discounting or promotions.

When chief executive Guy Laurence unveiled a reorganization plan in May aimed at tackling customer service troubles and improving competitiveness, he warned there would be "some bumps on the quarterlies" as the company moved away from chasing high-volume subscriber sign-ups, but said he was focused on the long term.

Indeed, Rogers reported a 24-per-cent drop in second-quarter profit and much weaker subscriber numbers than this time last year. But its shares rose as much as 2.9 per cent Thursday before closing up 1.1 per cent at $42.88, as investors saw hints of momentum in the report.

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Revenue at the company's all-important wireless division was essentially flat at $1.8-billion, but Mr. Laurence insisted there were signs of improvement aligned with the new emphasis on better service and away from promotions to attract new customers.

"[This] more disciplined approach to pricing … starts to shift the balance somewhat away from just new-subscriber volume and more towards value," Mr. Laurence said on a conference call Thursday.

"Basically, we are making sure we pay as much attention to the opportunities we have with our significant customer base as we do to that of growing the base of customers."

Canada's biggest wireless carrier added 38,000 postpaid subscribers in the quarter, compared with 98,000 this time last year and short of the 43,000 analysts projected according to Bloomberg data.

But it improved customer turnover with postpaid churn down to 1.13 per cent versus 1.17 per cent last year. Analysts also highlighted better-than-expected average revenue per user at $66.40 for postpaid users and $59.18 for postpaid and prepaid customers combined.

"Rogers's decision not to pursue aggressive wireless promotions since the start of 2014 is clearly having an impact," said Dvai Ghose, head of research at Canaccord Genuity.

He said cable and media numbers were weak – Rogers lost 33,000 basic-cable subscribers in the quarter and added only 2,000 Internet customers while operating profit at the media division slipped 16 per cent to $54-million – but the wireless results were encouraging. "All in all, we see some signs of progress."

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The company's consolidated revenue was flat at $3.21-billion, in line with analyst expectations.

Net income dropped to $405-million, down 24 per cent from $532-million in the same period last year, while earnings per share on an adjusted basis were $0.84, down 13 per cent from $0.96 a year earlier but also in line with consensus projections.

Rogers said this week it has eliminated 15 per cent of "vice-president and above positions" and cut "several hundred" middle-management jobs as part of its restructuring.

Mr. Laurence said Thursday the reorganization should be "largely complete" by September and does not foresee cuts to front-line jobs but plans to reinvest money saved into items such as training of customer-facing staff.

He brushed off talk of a fourth national wireless carrier emerging – a prospect that has bruised Rogers's share price in the past – as "a little bit too much froth in the discussion at the moment." He said he was not sure what effect the potential consolidation of Canada's smaller wireless players would have, noting that there are already more than three players operating in most regions of the country.

"The government seems to continue to be very focused on having a fourth player…. They're entitled to their opinion. I'm on record as saying I'm not sure it's the wisest strategy given the geography of the country and what we've seen in Europe," he said, referencing recent signs the European market is consolidating down to three players from four.

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One of the most vocal proponents of the theory that a consolidated fourth player led by Quebecor Inc. will emerge, Macquarie Capital Markets Canada's Greg MacDonald, said he believes Rogers would be seriously affected if that scenario plays out.

However, he added that signs that Rogers's wireless business is stabilizing could return investor interest to the stock and position the company well in the face of regulatory risk as Ottawa pursues its vision of a more competitive cellular industry.

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About the Author
Telecom Reporter

Christine Dobby covers the Canadian telecom industry for The Globe and Mail. Before joining the Globe in May 2014 she reported for the Financial Post for three years, most recently writing about telecom and media. She has also reported for the Toronto Star and New Brunswick Telegraph-Journal. More


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