April 2012

Rogers Q1 2012 wireless Results

Rogers Q1 2012 wireless Results

Looking at the Q1 2012 Rogers wireless results, it is difficult to find any good news.   It seems that every single metric (with the exception of Data revenue) actually went in the wrong direction.



Overall churn was high for Rogers, with some 513,000 subscribers leaving Rogers during the quarter.  Bringing them very close to losing 2 million customers in the last 12 months (1,987,000).  That is a lot of customers to lose in one year!

Rogers Wireless Q1 2012 Prepaid Nets

Rogers Wireless Q1 2012 Prepaid Nets

Prepaid churn is cyclical and always high in Q1, but this time, Rogers lost a significant number of prepaid subscribers.  They had negative nets of 72,000 which is the biggest loss in the last 7 years.  This compares with a net loss of only 10,000 prepaid subscribers in Q1 2011.  We have yet to see what TELUS and Bell did in terms of losses in prepaid, but the signs are that the incumbents lost significant prepaid share to the new entrants.

Even postpaid churn was high.  While 1.26% is not significantly higher than the Q1 2011 number of 1.23%, it was definitely going in the wrong direction with 287,000 postpaid customers leaving (Q1 2011 was 271,000), despite upgrading 422,000 subscribers to smartphones (some of these were already on smartphones, but required a newer smartphone).


ARPU has long been a Rogers strength, but no more, it is heading down quickly.  Voice ARPU declined in terms of both rate per minute (almost a whole cent) but the minutes of use declined also.  Together these suggest that there is not only a change in the Rogers mix (which means they are not getting their fair share of high value customers), but also some base reprice on the voice side.  Behavioral changes away from voice to messaging suggests that Rogers are not gaining the lost voice revenue in data revenue.  iPhones using iMessage, Blackberries using BBM and applications like whatsapp are also repricing text messaging.

For the second quarter in a row, postpaid ARPU was below the key $70 mark at $67.39.  Apart from Q4 2011, Rogers has had postpaid ARPU above $70 every quarter since Q1 2007!  Oops.  This is also nearly $3 down over Q1 2011 when postpaid ARPU was $70.18.

Prepaid ARPU was up, but only marginally at $14.99 (Q1 2011 was $14.32), but this is significantly below the reported ARPUs of Public Mobile, WIND and Mobilicity which all have ARPU around $30.


Even gross was down.  At 488,000 subscribers, Rogers was short of Q1 2011 by nearly 10K subscribers.  Some of this could have come from closing the video stores, except they said they kept the wireless parts of these stores open.  Assuming that they continued to expend their points of distribution, this means same store sales were significantly down.  They did mention saving some channels costs, but at what price – not getting your fair share?



Total subscribers went down for the first time in living memory, maybe the first time ever – we will have to check as our current data only goes back to Q1 2005.  This loss was driven by prepaid losses, which they point out only account for 5% of revenues, but still this might suggest that the three brand strategy is no longer working.


Revenue & EBITDA

Both Down.  Total wireless revenue was $1,706m down from $1,721m in Q1 2011.  This was driven by lower network and handset revenue, but more on the handset side.

EBITDA was down at $717m from $790m in Q1 2011.  On the conference call they were proud of their margin being 46%, but this was down from 48.9% in Q1 2011.  A closer look also shows that Operating profit (not adjusted Operating profit which excludes stock-based compensation expense and Integration) slipped more dramatically from 49% to 44% – that looks like a 5% margin decline!

Rogers Wireless Q1 2012 summary

Overall this was a poor quarter for Rogers, for their sake, one can only hope that Bell also struggled, because most signs suggest TELUS had a great quarter.

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Wireless competition in Canada

Wireless Competition in Canada

Wireless competition is certainly changing.  The 2008 AWS new entrants have not really gained the traction they need to compete with the incumbents.  Their networks are too small, their services are too focused on the low end and they have been relegated to competing with incumbent flanker brands rather than their core brands.  This means prices in the core brands have stayed high, if not increasing while Virgin, Koodo and chatr have successfully shielded Bell, TELUS and Rogers brands from real competition.   But the recently announced 700MHz rules and changes in foreign ownership could be starting to level the playing field.

In March the Industry Minister announced that there would be changes to the telecommunications act to allow for foreign ownership in companies with less than 10% market share.  He also announced a framework for 700MHz and said that they would start consultation on the 700MHz soon.

Like most people we thought that it could not be soon enough, but our Government has been very busy and this week made two large steps in the right direction.

On Wednesday Industry Canada announced the start of the 700MHz licensing framework consultation process and yesterday the Finance Minister tabled The Budget Implementation Act, 2012, which includes a section that will amend the Telecommunications Act.  See section 41 for the detailed changes.

After many years of slow moving progress, we now seemed to have picked up the pace.  This is good news for all Canadians.  Good job Industry Canada!

A combination of the 700MHz auction and the changes to foreign ownership, which in Nadir Mohammed (CEO of Rogers) words will drive consolidation:

“But I think what is useful to glean out of these decisions, maybe on a macro level, is something that I believe that the minister alluded to as well. Which is what you are really seeing is a policy that essentially could serve as the catalyst for consolidation. The minister I believe made reference to the fact that you could see a world where four or so players would be in the market; and as you know currently we have way more than four players in any given area.”

In our view this is a good thing.  A combination of consolidation and foreign capital should create a fourth national player that has the scale and resources to compete with the incumbent players, driving lower prices and better services for all of Canada’s wireless subscribers.


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Rogers Q1 Results – smartphones

Rogers Q1 Results – smartphones

This week Rogers released their results.  Overall we think the market was not expecting good results, so they mostly met expectations.  Nothing was tragic and we will write about their results in greater detail later, but we did notice some changes in smartphones:

1.  This quarter a large percentage of the smartphone loads were in fact upgrades rather than new customers.  This tells us that despite claiming the first and largest LTE network and the best array of smartphones, they did not manage to steal smartphone share and had to upgrade a huge number of existing customers to keep them from churning?

Q1 2012 Rogers smartphone loads

Rogers smartphone loads - new and upgrades

2.  Each call the metrics on smartphones creep down.  First smartphone customers produced 2x the ARPU of non-smartphone customers, then 1.9x, this call that slipped further to 1.8x a non-smartphone subscriber.

3.  Rogers always claims that smartphone customers have materially lower churn than non-smartphone customers and this quarter they went further to say not only do they have lower churn, but it is more ‘stable churn’ – does this mean they predictably churn?  If smartphone customers churn less and they are now at 70% smartphone penetration (up front 45% in Q1 2011), why did postpaid churn go up from 1.23% to 1.26%?

4.  Finally data ARPU is starting to slow – big time – our back of the envelope calculations suggest that in Q1 2011 smartphone data revenue was over $18 per smartphone, a year later data revenue per smartphone had dropped to $13 per smartphone.  This looks like a combination of reprice, LTOs, mix changes and changing habits away from SMS.

Despite all this negative data, Rogers still seems convinced that things are heading in the right direction with smartphones – we will watch with interest.


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