July 26, 2011 / 11:28 AM / 6 years ago

Cable helps Rogers offset wireless pressure

<p>A pedestrian uses his mobile phone while walking past a Rogers store in Ottawa July 21, 2008. REUTERS/Chris Wattie</p>

TORONTO (Reuters) - Under assault from competitors, Rogers Communications reported an almost flat quarterly profit on Tuesday, sending its shares sharply lower, as it had to fight hard to keep its lead position in Canada’s wireless sector.

Improved margins and sales in the Toronto-based company’s cable unit were offset by tighter margins in its wireless business caused by rising expenses and a lower-than-expected average monthly bill for customers, Canaccord Genuity analyst Dvai Ghose said.

“At the moment there’s nothing particularly positive on the wireless side apart from the fact that the (subscriber) numbers weren’t as bad as they have been,” he said.

Shares in the company fell 4.8 percent to C$36.00 on Tuesday morning on the Toronto Stock Exchange. Prior to the results, they were up almost 10 percent this year.

Rogers said it added 135,000 net wireless subscribers in the second quarter, consisting of 108,000 postpaid and 27,000 prepaid customers, and 16,000 cable-based customers for its television, Internet and landline telephone products.

Earnings for the wireless unit were hit by subsidy costs linked to activating almost 600,000 new smartphones, now in the hands of almost half of Rogers’ postpaid customers.

In addition, rival BCE Inc’s Bell Canada unit is offering new competition to Rogers Cable with its Internet protocol television offering.

“The company’s wireless division continues to be a drag on results; with a resurgent Bell competing with IPTV, we remain wary that the level of margin improvement exhibited in cable cannot persist indefinitely,” Desjardins analyst Maher Yaghi wrote in a note to clients.

Rogers executive Rob Bruce, who heads the wireless unit, said modest gains can still be made in cable.

“Nobody should misunderstand, cable is really a mature portfolio and it is not the place to go crazy in terms of aggressively chasing growth, but (it has) lots of sustainable pockets that we can mine in an intelligent fashion,” he said on a call with analysts.

In wireless, where Rogers gets more than half its revenue, the company seeks out the more lucrative postpaid customers, who sign long-term contracts and typically spend four times as much a month as those on prepaid deals. The additions for both types of wireless customers exceeded most analyst estimates.

The company’s average wireless customer paid C$60.26 a month, up from C$59.91 in the previous quarter, but down from C$63.27 a year earlier, while data revenue grew 31 percent.

Rogers, which turned on its next generation long-term evolution (LTE) wireless network in Ottawa earlier this month and plans to expand to other major cities by the end of the year, has seen its leadership position in wireless eroded in recent years.

Main rivals Telus and Bell Canada built a shared network upgrade more than a year ago that enabled them to also carry Apple’s iPhone, while new entrants such as Globalive’s Wind Mobile and Mobilicity court the budget-conscious with aggressive talk and text pricing.

“When we see Bell and Telus report their results next week you’ll see much better wireless deltas, admittedly they start from a position of weakness so they have much more to gain,” Canaccord’s Ghose said.

Rogers, which also owns publishing and media businesses as well as Major League Baseball’s Toronto Blue Jays, had an adjusted second-quarter net profit of C$467 million ($492 million), or 85 Canadian cents a share, up from C$464 million, or 80 Canadian cents a share, a year earlier. Revenue rose 3 percent to C$3.1 billion.

Analysts had, on average, had expected Canada’s largest wireless provider to earn 81 Canadian cents a share on revenue of C$3.1 billion, according to Thomson Reuters I/B/E/S.

The company lost 9,000 basic cable-TV subscribers and added 2,000 digital cable users, 11,000 Internet customers and 14,000 cable telephone lines.

Canaccord’s Ghose said the overall results kept him cautious and that income investors would get better value from Telus and Bell.

Reporting by Alastair Sharp; Editing by Peter Galloway

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