Canada's Rogers Communications profit slips on wireless weakness

TORONTO (Reuters) - Canadian cable, telecommunications and media company Rogers Communications Inc RCIb.TO reported a 13 percent drop in first-quarter profit on Monday, as a move to more customer-friendly pricing led to a slip in earnings at its major wireless phone arm.

The price changes didn’t help bring in new business, however, with Rogers adding only 2,000 net postpaid wireless subscribers in the quarter, a sharp miss on analysts’ forecasts even amid external warnings that tough winter conditions may have kept potential customers out of retail stores.

On a call with analysts, new Chief Executive Officer Guy Laurence said his leadership team has since sought to scale back on promotions as it seeks a balance between average bill growth and overall subscriber increases.

“We are experimenting with changing tactics,” he said. “We have reduced the amount of promotional activity, and we are continuing to monitor that to see how it plays in the marketplace.”

The postpaid subscriber metric is closely watched as a proxy for lucrative wireless growth, and Rogers, Canada’s largest wireless company, also missed expectations on it last quarter, the first with Laurence at the helm.

“These results were poor across the board and we continue to recommend a switch to Telus, BCE and Quebecor,” Canaccord Genuity analyst Dvai Ghose wrote in a note, referring to Rogers’ biggest rivals.

Rogers has in recent quarters lost luster with investors who favor Telus Corp's T.TO earnings growth and BCE Inc's BCE.TO dividend yield, while Quebecor Inc QBRb.TO may embark on a national wireless expansion.

“Wireless drivers were poor, but weak gross additions and lower-than-expected device upgrades drove better-than-expected margins,” Ghose said, adding that he had expected Rogers to add 22,000 postpaid wireless customers.

CEO Laurence said he will present a plan to his board in coming weeks that could presage foundational changes to improve weaker parts of the company over the longer term.

“As is apparent from our first-quarter results, while there are some areas of strength, there are also areas where we clearly need to and will improve,” he said.

An average Rogers wireless customer, a blend of contract and prepaid subscribers, paid C$57.63 a month in the period, down from C$59.68 a year ago.

Rogers said simplifying plans and lower roaming prices hurt the wireless division, while losses in basic cable moderated.

The company, nevertheless, said it would increase its dividend by 5 percent to an annual payout of C$1.83.

Rogers spent more than C$3 billion on wireless airwaves in a recent spectrum auction - far more than either of its biggest rivals Telus and BCE Inc BCE.TO, which share a national mobile network.

It also paid more than C$5 billion late last year for a 12-year deal to broadcast National Hockey League games, beating out BCE for the TV rights to Canada’s most popular sport.

“They are both long-term plays. They’re not for the fizz and buzz of the next few weeks,” Laurence said on a call with journalists.

The cable division, Rogers’ second-largest unit at half the revenue of wireless, was flat as falling television and landline phone sales offset steady but slowing growth in Internet service. The company lost 20,000 TV customers, but added the same number of Internet connections and 10,000 phone lines.

Toronto-based Rogers said net income fell to C$307 million ($279 million) in the quarter, from C$353 million a year earlier. Operating revenue slipped slightly to C$3.020 billion.

On an adjusted basis that excluded one-time and non-operating costs, the company said it earned 66 Canadian cents a share. It was expected to earn 71 Canadian cents a share on revenue of C$3.06 billion, according to Thomson Reuters data. ($1 = 1.1018 Canadian Dollars)

Reporting by Alastair Sharp; Editing by Nick Zieminski and Jan Paschal