For Canada's telecoms, battle for data dollars heats up

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Surging data use on smartphones is enabling Rogers Communications Inc. to generate fatter monthly bills from its wireless subscribers, but competition is heating up for those top-end mobile users.

Canada's largest wireless carrier reported first-quarter results late Monday that showed more of its customers are upgrading to smartphones, which is generating higher data revenues as users access Internet-based services. But Rogers is also spending more to attract and keep those customers loyal, providing rich subsidies to entice consumers to make the switch to the fanciest phones on the market.

So-called retention spending, which includes subsidies on smartphone upgrades, increased to $247-million in the first quarter from $208-million a year ago as consumers opted for the slickest gadgets, including iPhones and Samsung devices.

That increase in spending signals a growing industry battle for customers. It's a trend that is showing no signs of slowing down as carriers of all sizes compete for the best customers in a maturing smartphone market.

"More and more of the business is about retaining customers," said chief executive officer Nadir Mohamed during a conference call with journalists.

"When you look at subsidies now, it is not just the cost of acquisition in terms of a hardware subsidy when a new customer comes on board. But a principle that we really hold on to is that we'll treat existing customers at least as well as new (customers). And from that perspective, we extend that pricing to existing customers. That is really is playing out in the hardware subsidy."

He later added: "It is part of loyalty. It's part of actually keeping our customers and growing with them."

"We see it as an investment in the customer," Mr. Mohamed said.

During the first quarter, the company activated and upgraded 673,000 smartphones, one-third of which were for new subscribers. Roughly 71 per cent of the carrier's postpaid subscribers are now using smartphones.

But Canada's largest carrier recorded only 32,000 net additions of postpaid customers versus 47,000 for the same quarter last year. The battle for postpaid subscribers is intensifying across the industry as smartphone penetration increases. Postpaid customers are the most lucrative subscribers because their bills tend to be higher than those for more budget-conscious customers prepaying for service and limiting use.

Rogers's monthly churn rate for postpaid subscribers declined to 1.22 per cent from year-ago 1.26 per cent, suggesting it is retaining more of those top-end mobile users despite heated industry competition. Still, at least one analyst suggested that churn continues to weigh on the carrier's net additions.

"We're highly focused on reducing this further. I see this as, frankly, our best opportunity to drive a more balanced share of net additions," Mr. Mohamed said.

About 45 per cent of Rogers' network revenue is now attributable to wireless data revenues. During the quarter, consumers fuelled the increase thorough increased use of email, web surfing, text message and data roaming on a variety of devices including smartphones and tablets. That surge in wireless data revenues bolstered Rogers' blended average revenue per user (ARPU), a key industry metric that reflects the average consumer bill, rose by $2.03 on a year-over-year basis to $59.68.

The Toronto-based company said its quarterly profits increased to $353-million or 68 cents a share, versus year-ago profit of $305-million or 57 cents a share. Revenue increased 3 per cent to $3-billion.

"While market was hoping for a big beat, this was not," wrote Dvai Ghose, an analyst with Canaccord Genuity, in a note to clients late Monday. "While [we] were impressed by strong wireless data ARPU and wireline Internet subscriber growth, wireless subscriber growth and churn and loss of basic cable subscribers remain key concern along with (Rogers') premium valuation."

The company's core television subscription division lost 25,000 subscribers as competitors increased their efforts to steal marketshare and over-the-top providers such as Netflix continued to make gains, with 2.189-million subscribers at the end of the quarter. Profit in the division gained 13 per cent, however, to $429-million.

It gained almost 26,000 subscribers in its Internet division, however, to 1.9 million. The company said it now provides Internet to about 49 per cent of the homes that have access to its cable network, and 86 per cent of its television subscriber base.

Rogers is scheduled to hold its annual shareholders meeting in Toronto on Tuesday morning.