Wireless revenue a drag on Rogers’ profit in third quarter

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Rogers Communications Inc. posted a smaller profit in the third quarter as a drop in wireless revenue offset better results at the company's cable and media divisions.

Rogers reported profit of $464-million for the third quarter, compared with $466-million in the year-earlier quarter. Revenue declined 2 per cent in wireless, the unit that is the main driver of profit for the Toronto-based telecommunications, cable and media company.

The smartphone market is maturing, and wireless companies are increasingly battling for new customers. The number of Rogers wireless customers with smartphones rose to 73 per cent of its postpaid base from 65 per cent last year, but sales of all handsets fell by 17 per cent.

Canaccord Genuity analyst Dvai Ghose called Rogers operating results "weak." He said he expected more new wireless customers and that the number of clients leaving would have fallen further. "The real issue is the company doesn't have any growth drivers," he said. "I think that this company is underperforming and one of the main reasons why it is underperforming is its quality of [customer] service."

Rogers said it added 80,000 net wireless customers while reducing the rate at which they are leaving, known as churn, to 1.23 per cent.

Nadir Mohamed, Rogers' chief executive officer, said the company's customer loss rate compares well with its rivals, but "there is more work to be done."

Rogers' wireless division saw revenue fall to $1.8-billion. The cable division boosted revenue by 4 per cent to $873-milion, while the media division's revenue rose by 12 per cent to $440-million. Total revenue rose by 2 per cent to $3.2-billion.

RBC Dominion Securities analyst Drew McReynolds said consolidated revenue met his expectations but wireless revenue fell short. However, wireless profit margins of 47 per cent were higher than expected, he said in a research note.

Macquarie Capital Markets downgraded Rogers stock to "neutral" after the results came out, citing weak wireless results.

Mr. Mohamed is retiring on Dec. 2 and being replaced by Guy Laurence, CEO of Vodafone UK Ltd. Speaking on his final quarterly earnings conference calls with analysts and the media, Mr. Mohamed said the incoming CEO is a "seasoned veteran" accustomed to competitive markets.

On the regulation front, Rogers and its rivals are facing an uncertain year. The federal government in its Throne Speech this month said it wanted to cut Canadians' expenses by reducing domestic roaming fees and ending the bundling of cable TV channels so viewers did not have to pay for channels they never watch.

The Canadian Radio-television and Telecommunications Commission, meanwhile, is studying both domestic and international roaming rates, a frustration for many Canadians who cross the border.

Although some analysts surmise that it may begin regulating rates, especially the wholesale rates carriers pay each other for domestic roaming, the CRTC has said it is too soon to speculate on its plans.

Adding to the uncertainty is Canada's new wireless code, which goes into effect on Dec. 2. The CRTC's new rules allow wireless customers to end their contracts after two years instead of three.

Rogers posted blended average revenue per user of $60.81, down from $61.92. That key wireless metric comprises ARPU generated by both prepaid customers and more lucrative postpaid subscribers who pay their bills at the end of each month.

The number was expected to fall after Rogers lowered its roaming fees for customers who travel to the United States. Mr. Mohamed said lower roaming fees are important to ensure customers are comfortable using their phones when they travel, and use them more as a result.

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At a glance

Wireless revenue fell by 2 per cent, to $1.8-million, from the same period a year earlier.

440,000 wireless customers left Rogers, while 520,000 signed up.

Average revenue per wireless user (blended) fell to $60.81.

Monthly churn fell to 1.23 per cent from 1.34 per cent.

Cable revenue rose by 4 per cent to $873-million.

Media revenue rose by 1 per cent.