In Mr. Rogers' neighbourhood, there is "us" and there is "them." Mr. Rogers, of course, would be the 71-year-old founder of Rogers Communications Inc., the cable television, cellphone and media conglomerate. That's "Us." "Them" are the traditional telephone companies, primarily Bell Canada and Telus Corp. - fierce and unrelenting rivals to Rogers in the market battle for cellphones, television signals and Internet services.
And the war is heating up. The phone companies are soon expected to invade more of Rogers' turf by adding wire-based TV distribution to their satellite services. In turn, Rogers hopes to crack the telcos' local phone market through Internet telephony.
Mr. Rogers often likes to portray his firm as the underdog David in a market dominated by the telco Goliaths. But David moved to add another powerful weapon to his arsenal last month, with the proposed $1.4-billion takeover of Montreal mobile phone firm Microcell Communications Inc. by Rogers Wireless Communications Inc.
In fact, during a conference call, Mr. Rogers defined the deal in terms of the new entity's relationship with the telephone companies. "The proposed combination of Rogers Wireless and Microcell," he said, "will create a stronger single entity with the scale to continue our rich history of providing a challenge to those telco providers in all 10 provinces." In classic Ted Rogers hyperbole, he declared it "a great day for Rogers and Microcell shareholders, management and employees, a great day for the Canadian wireless industry, and most importantly a great day for wireless customers in Canada."
And, vowing to keep Microcell's Fido brand and its technology platform, which is similar to its own, he insisted that his firm would be a builder at Microcell, "instead of someone coming in and tearing everything down, closing it up and firing the people."
Clearly, in Ted Rogers' view, anything that challenges the power of the entrenched phone companies is good not just for Rogers, but the country.
From Rogers' side of the ledger, there's no question that the deal looks positive. In acquiring Microcell, it eliminates a competitor, boosts the number of Rogers Wireless customers to more than five million, and cements Rogers' role as the dominant player in what is certain to be one of the next decade's key technologies. But it also comes with enormous risk. In effect, Rogers Communications is mortgaging the farm to buy into its founder's vision, betting that long-term wireless revenue will offset the short-term debt. And it's doing so at a time when large questions are beginning to loom over Rogers' succession.
"He's the only person wanting to take on the challenge of Bell and Telus, [with]not even anywhere close to the capitalization of those two companies," says Kaan Yigit, president of Solutions Research Group, a Toronto technology market research firm. "You have to admire him for that. [But it will be]tough to keep the whole thing working with spit and tape, on the back of one entrepreneur's vision."
That "spit and tape" involves a complex web of borrowing that keeps Rogers Wireless, its sister companies Rogers Cable and Rogers Media, and parent Rogers Communications afloat. Ratcheting up the Rogers group's debt to pay for Microcell, Rogers Wireless will use $100-million of cash, draw down $700-million from its bank lines of credit, and get a $600-million bridge loan from parent Rogers Communications.
"It's going to leave very little room for error in the way the company executes over the next little while," observes Rory Buchalter, an analyst at Dominion Bond Rating Service in Toronto. DBRS has put all the companies in the Rogers group "under review with negative implications." Still, Mr. Buchalter says, the deal is "doable," because the wireless operations have the prospect of generating solid cash flow.
It is precisely that prospect of expansion within the exploding wireless business that has many observers praising the Microcell takeover. "It's a brilliant move on [Ted Rogers']part," says Dean MacDonald, a former Rogers Cable executive who is now chief executive officer of Persona Communications Inc., a Newfoundland-based cable television firm. "He's going to lever up [debt]a little bit, obviously, but that company is going to kick off some cash flow."
Mr. Yigit agrees that Rogers' commitment to boost its wireless business is a crucial strategic move, despite the financial balancing act required. Rogers is now a powerful player "where the fire hoses meet," he said - in the key areas of entertainment, technology and communications. Of those, cellphones and ancillary wireless applications are the fastest growing. Mr. Yigit says the technology is now at the point where the Internet was eight years ago: poised to make a huge impact on the way almost everyone lives and works.
Of course, in 1988, Mr. Rogers made a similar kind of commitment and gamble: on the long-distance telephone business. In competition with the telcos, Rogers invested hundreds of millions, buying a 29.5-per-cent stake in long-distance provider Unitel Communications Inc. It was an unmitigated disaster. In 1995, Rogers finally walked away, after racking up losses of about $500-million.
But wireless, Mr. Yigit insists, is another story. Long distance was a discounted, low-margin commodity game, he notes. "Wireless looks to be significantly better - a different animal." With enhancements such as video and data being added to cellular service, "ultimately you'll be able to generate more revenue and profit per subscriber."
The pattern in other countries that have greater rates of wireless penetration may provide some guidance for how the Canadian market will evolve. While the proportion of Canadians who have cellphones is expected to hit 50 per cent next year, it's already close to 100 per cent in places like Sweden and the Czech Republic. (Not everyone in those countries owns a phone, but people with more than one device push up the numbers.)
But the competition for Canadian cellphone users will be intense - even with the removal of Microcell from the marketplace. The three heavyweights, Rogers Wireless, Telus and Bell Mobility, will soon be joined by a new player, Richard Branson's Virgin Group PLC. In partnership with Bell, Virgin Mobile Canada LLC is poised to introduce a low-end cellular service. Virgin, Mr. Yigit predicts, is "going to come out swinging."
Nor is wireless communications the only theatre of war. Rogers Cable, like other cable companies, is planning to launch local telephone service next year, using new technology that allows calls to be carried over its cable Internet wires. Rogers has said it will spend about $200-million to create the new business, with payback projected over about three years. The Canadian Radio-television and Telecommunications Commission held hearings recently to determine how to regulate the new services.
Rogers' decision to pursue the local telephone business is wise strategically, says Brahm Eiley, president of Convergence Consulting Group Ltd. in Toronto. It "wouldn't be unreasonable" to expect as many as 50 per cent of Rogers' cable television customers to be buying telephone services from the firm by the end of the decade, Mr. Eiley predicts. He calls it a "no-brainer," especially if prices are competitive. Adds Mr. Eiley: "We think all the cable companies are going to do very well offering wireline telephone service."
Other cable revenue streams will also emerge, because new technology allows for the addition of profitable "bells and whistles," such as video-on-demand, high-definition television, and personal video recorders. But while Rogers may be able to exploit these new technologies, it will have to keep one eye peeled for Bell and Telus; both plan to beef up their satellite television distribution with new wireline delivery of TV signals.
The third leg of Rogers Communications is its media division, a mixed bag of specialty television and radio stations, and magazines such as Maclean's and Chatelaine (picked up in the 1994 purchase of Maclean Hunter Ltd.). While these assets don't mesh closely with the cable or wireless businesses, they do provide a national media presence and platforms for low-cost cross-selling.
One consultant who has worked closely with Mr. Rogers says the media division is likely to stay, mainly because "Ted hates to sell stuff." Moreover, "radio is where he started and he has a real affection for it."
Its debt load notwithstanding, the issue that hangs most heavily over the Rogers empire is what happens when Ted Rogers, its guiding visionary, is no longer there to lead it. Although there is no sign he plans to retire any time soon - his employment contract runs to the end of 2006 - the succession question has often been raised by company observers.
Two of Mr. Rogers' children work for the company: Son Edward is CEO of Rogers Cable, while daughter Melinda is vice-president of strategic planning and venture investments at the parent company. Edward is perceived as competent in running the cable arm, says an executive familiar with the company, but "the vast consensus is that if he wasn't Ted's son, he wouldn't be there." Others, however, are more positive. Mr. MacDonald, the former Rogers Cable executive, described Edward as "extremely bright," hard working, and very knowledgeable about all facets of the business.
George Fierheller, a long-time director of Rogers Wireless who helped pioneer the cellphone business in Canada, says it will be up to the Rogers Communications board to determine who will run the company after Ted. "That's what the kids understand," Mr. Fierheller says. "Ted has been quite clear that the board of RCI will have to make that decision at the time." The board will "look at the Rogers family members and see what role is appropriate," Mr. Fierheller said, and it could very well recruit an outsider if it sees fit.
But the Rogers legacy will likely remain. Whoever succeeds him, it will still be Us against Them.