Rogers Communications Inc. will increase spending on its wireless network in a bid to get back on the same footing as its rivals, says new chief executive officer Joe Natale, who sees demand for mobile data as one of the company's biggest growth opportunities.
In an exclusive interview with The Globe and Mail, Mr. Natale conceded that Rogers, Canada's biggest carrier and first to widely deploy LTE or fourth-generation wireless technology, has lagged BCE Inc. and Telus Corp. on network spending. That has resulted in service that, by some measures, is not as good as those two carriers, but the new CEO is promising to close the investment gap, starting now.
Canada's national networks are all strong, but a series of recent third-party tests – from Open Signal, PCMag and Ookla – have shown BCE and Telus, which share the radio-access portion of their networks, now consistently and noticeably beat Rogers on maximum- and average-download speeds. Rogers also scores worse on latency, the time it takes for a signal to get from source to destination.
"When I got here, I said, 'Let's look at all the investments we have going on,'" Mr. Natale said during the hour-long conversation. "As I crafted my priorities and looked at, where are the places we're making our biggest bets, I really wanted to engage the entire leadership team … to drive out those areas of opportunity.
"Now, I've laid those out and I've been very clear about this: We're going to see our [capital expenditure] intensity in wireless to be more in line with our peers. Network capability is very important to us."
The focus on wireless networks is a reversal of the path Rogers took under former CEO Guy Laurence, who was fired last year after running into conflict with members of the Rogers family, which has voting control. Mr. Laurence made a number of moves to try to boost growth in wireless – including a rebranding effort for the Fido unit, customer-friendly roaming rates and content deals with Spotify, Vice Media and the National Hockey League that were offered exclusively to subscribers.
But Rogers also pared back on spending on its wireless network for the better part of two years while BCE and Telus invested aggressively. Capital intensity – the ratio of investment compared with wireless revenue – was 8.9 per cent at Rogers in 2016, while it was 10.2 per cent at BCE and almost 14 per cent at Telus.
Those numbers reflect the fact Rogers spent $702-million on wireless investments last year, down 19 per cent from $866-million in 2015. Telus spent $982-million and BCE spent $733-million – and their network-sharing agreement makes that spending even more significant. (Not all of the money they spend goes into the shared portion of their networks, but the two telecoms benefit from each other's investments in cell sites and radio equipment.)
Mr. Natale, who started at Rogers in April, says he will close the gap, bringing the company's capital intensity on wireless back up to historical levels of 12 per cent to 14 per cent, in line with its rivals. Rogers is expected to invest $825-million in its wireless business this year and $1.1-billion in 2018, according to estimates by Desjardins Securities analyst Maher Yaghi. Those annual increases combined represent an additional $500-million in spending over the level of investment in 2016.
To pay for it, he and his management team have chopped spending elsewhere. Sources say this has included a round of layoffs at the enterprise business unit, where he has also revised the overall strategy, cutting certain complex and hard-to-sell product lines. There have also been spending reductions in the media unit.
Trimming costs has been a priority since Mr. Laurence left more than a year ago. Chief financial officer Tony Staffieri began to rein in spending on a range of items, including travel and hiring. That focus has continued under Mr. Natale, who, for example, has scrapped Mr. Laurence's practice of conducting quarterly meetings with a large group of managers at the Four Seasons hotel.
On the network side, sources close to Rogers say the company has relied heavily on microwave transmission of data between cell towers and back to the core network. Its rivals have dragged more fibreoptic wires directly to their cell sites for that so-called "backhaul" function. (Fibre sends signals along tiny strands of glass at high speeds.)
Its competitors have also invested more in small cells, which help fill gaps in coverage and provide increased data capacity in busy urban areas. And Telus and BCE have deployed newer radio technologies over the past two years, building what carriers call "4.5G" or "LTE advanced" networks.
Mr. Natale plays down concerns over Rogers not matching Telus and BCE on peak speeds in tests, saying customers care more about "reliable, worry-free performance" than "theoretical speeds."
Rogers has also done well at acquiring and keeping customers, Mr. Natale said, noting the company's churn – or rate of customer turnover – is at its lowest level in eight years. "Customers vote with their feet and I think the team's done a very good job of delivering [network] capability and quality." The company's churn rate for contract wireless customers was 1.16 per cent in the third quarter, an improvement of 10 basis points from a year earlier. That's still more than Telus, which reported churn of 0.86 per cent, but right in line with BCE.
He insisted that microwave technology "is still very strong," but added: "We're adding fibre to our network every day. We'll continue looking at where are the right opportunities to build more fibre. Our capital plan contemplates that."
He is also clear that network investments are a strategic priority for the company. "Right now, we're in the middle of a 4.5G investment," he said.
Scotia Capital analyst Jeff Fan says the investments are the right move and they come at a time when Rogers has strong wireless operating results, which helps make the case for greater spending.
"If you don't have sufficient backhaul, cell-site density and upgraded technology, then as you load more customers who are using more data, it affects everybody," he said in an interview. "I think Rogers is doing the right things to make up for it and I don't think they're too late at all."