Rogers Communications Inc. said its first-quarter profit took a hit from increased spending to hang on to cellphone customers in advance of an upcoming surge in expired contracts and lacklustre broadcast revenues from mid-season NHL hockey games.
The Toronto-based company also said a new policy from Canada's telecom regulator that made it possible for cable, Internet and home phone customers to cancel with no advance notice led to an increase in subscribers lost during the period.
Rogers reported a profit on Monday of $255-million for the first three months of the year, down 17 per cent from the same period last year. Its earnings were 53 cents a share on an adjusted basis, falling short of the 62 cents analysts projected on average.
Overall revenue was up 5 per cent to $3.175-billion but its three biggest divisions – cable, wireless and media – all took a hit on profits amid increased expenses and subscriber losses.
Revenue was up 4 per cent to $1.8-billion in the company's wireless division but operating profit dipped 3 per cent to $765-million.
Rogers attributed this to higher expenses as it spent 32 per cent more than last year on customer retention efforts, offering early upgrades on handsets, particularly iPhones and other higher-end devices.
The company, along with other carriers, is wooing customers in advance of a June 3 deadline, when any still-existing three-year contracts will be terminated according to a provision of the wireless code introduced two years ago by the Canadian Radio-television and Telecommunications Commission (CRTC).
Meanwhile, its media unit was also under pressure in the quarter with an operating loss of $32-million on revenue of $464-million. Executives pointed to the NHL hockey rights, which the company bought in 2013 for $5.2-billion over 12 years, noting that Rogers spreads that expense equally across all games annually, regardless of how much advertising revenue they attract. During the first quarter – the middle of the hockey season – there were a high number of lower-earning games, particularly compared with the more lucrative playoff games now under way.
"I would say that the first quarter was solid from a top-line growth perspective and on-plan generally, with the timing of wireless upgrade volumes and NHL seasonality driving much of the year-on-year decline in adjusted operating profit and earnings per share," Rogers' chief financial officer Anthony Staffieri said on a call with analysts Monday.
Rogers has implemented a strategy over the past year aimed at attracting higher-spending customers, while accepting that it might lose subscribers along the way. Chief executive officer Guy Laurence said Monday he was happy with the "top-line trends," calling them a "direct function of our shift from volume to value over recent quarters."
Rogers said it lost a total of 26,000 postpaid wireless subscribers in the quarter, slightly worse than the 21,000 analysts, on average, expected it to lose.
The company made more off wireless customers who are increasingly spending more on mobile data, with average revenue per user up $1.01 to $66.21 for postpaid subscribers. The rate of postpaid customer turnover, or "churn," was essentially flat compared to last year at 1.24 per cent per month.
The company's cable division also reported subscriber losses and similar to Western Canada cable operator Shaw Communications Inc., which reported its earnings last week, Rogers blamed that in part on a CRTC decision.
In December, the regulator banned policies requiring customers to give 30 days' notice before cancelling television, Internet or land-line service and Rogers said that resulted in the one-time loss of about 40,000 extra subscribers in the quarter.
Analysts said Rogers' results were slightly worse than expected.
The company will hold its annual general meeting on Tuesday.