July 2012

Rogers Wireless Q2 2012

Rogers Wireless Q2 2012

(first draft – no graphs yet either)

Too much cash?

Before we get into the wireless results, Rogers paid back dividends of $207m and repurchased 9.6m shares for $350m returning a total of $557m in the quarter.  Incredible. To put this is perspective, this is more cash returned to shareholders than Shaw Communications will create this whole year (Shaw’s revised guidance is $450 free cash flow for the FY 2012).


Although they give good reasons for investing less in pp&e than Q2 2011, we don’t see a good reason for them to be investing less than Bell and TELUS. Assuming you agree with us that the Bell-TELUS network is larger and superior, we believe that now is a good time to out invest its collaborating competitors.  There must be opportunities to increase the LTE footprint and improve back haul to these sites, particularly in the West.


Postpaid gross adds were impressive.  This is before the Samsung Galaxy S III launch in Q3 and  before back to school, which is traditionally Bell’s quarter to shine.  Gross was down significantly, but we would be interested to see the other incumbents results before passing judgment.  Rogers was significantly down in both postpaid and prepaid gross loading.  They struggled to load new prepaid customers in a quarter where new entrants focused on price to hold their share.  We believe it was sensible to forego the share and keep prices at a reasonable level. Good call.


Postpaid Churn was much lower at a impressive 1.15% which improved both sequentially and year or year for the quarter. While some of this was driven by their innovative FLEXtab, allowing a more flexible upgrade path, we believe that the timing of the blockbuster devices Samsung Galaxy S III which launched in Q3 and the iPhone 5 which will almost certainly launch in Q4, had a big impact on churn and we should see similar impacts at Bell and TELUS.  While not at Verizon (0.84%) or AT&T (0.97%) levels, this is a good result.   Prepaid churn at over 4% was ugly, driven by uncompetitive prepaid plans. But if you are going to lose any customers, it is better to lose he price sensitive low end prepaid customers.


Postpaid nets were good on he back of lower churn.  Prepaid poor on the back of low gross and high churn.


ARPU declined less than expected in postpaid on the back of strong data revenue growth.  His was mostly driven by an increase in he mix with more smartphone than ever.  It remains a concern that with a huge increase in smartphone base, hat the data revenue is growing at a much slower rate, suggesting reprice. There is also significant reprice in voice, where MOU increased, but lice ARPU decreased. With a relatively small gross quarter this suggests that it might be a result of base reprice rather than LTOs offered to entice new customers.  Base reprice while you are upgrading to smartphones is not a good thing.   Interestingly AT&T who also released results today, improved their postpaid ARPU by 1.7% for the quarter.

Revenue and operating income

Revenue increased modestly and operating income improvements were appealing based on cost cutting and productivity improvements. But profit is always going to be good in a low gross quarter.


Overall a good quarter to generate some cash while customers wait for he big devices of the year.  Well executed.


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Verizon Wireless Q2 2012 results

Verizon Wireless Q2 2012 results

This last quarter Verizon Wireless really blew the lights out.  This shows what a combination of a good strategy and good execution can achieve.  If in any doubt as to who is winning in the market, look at the charts.

Revenue Growth

Retail Service Revenue grew 8.6% y/y to $15.2Bn on the back of Retail postpaid revenue growth of 8.3% and retail prepaid revenue growth of 27.2% y/y.  Data revenue was up 18.5% y/y to $6.9Bn.  Data revenue now accounts for 43.6% of service revenues.  Considering the overall economy in the USA, these growth rates are fantastic.

USA wireless quarterly revenue

Verizon Q2 2012

Net Adds

While retail net adds were down to 1,178k from 1,318 in Q2 2011, retail connections still grew 4.9% y/y on the back of very impressive churn numbers.

They added 888k retail postpaid nets and 290k retail prepaid adds, resulting in an increase in retail prepaid base from 5% to 5.6% y/y.


Retail postpaid churn dropped to a very impressive 0.84%, which was down sequentially from 0.96% and from 0.89% y/y.  This was the lowest retail postpaid churn in 4 years.  Only 7% of retail postpaid base upgraded during the quarter, we suspect this is the iPhone 5 waiting game?

USA wireless postpaid churn

Verizon continues to win on the churn front



Retail Smartphones grew 13.8% to reach 50% of the base.  5.9m smartphones were sold in Q2 and 73% of postpaid phone sales were smartphones.  41% of smartphone upgrades came from phones, rather than other smartphones.  Low churn and more smartphones together drove ARPU improvements.  There were 3.2m 4G LTE devices sold in the quarter, bringing the total to 10.9m devices reaching 12.2% of retail postpaid connections.


Retail Postpaid ARPU grew 3.7% y/y to $56.13 while overall phone ARPU grew 4.9%.  Retail postpaid data ARPU was up 15.4% y/y to $24.53.


Even in this market Verizon managed to improve ARPU


EBITDBA Service margin reached an impressive 49% on the back of $2bn in expense reduction target in 2012.



Great quarter.  We assume the iPhone 5 launch will cause significant upgrades and new additions once launched.

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CEO performance measured by share price

CEO performance measured by share price

Sometimes new leaders can re-invigorate a business, find low nagging fruit and produce superior returns.  Sometimes financial performance improves, sometimes a new executive is just lucky on timing.  In the blog we will measure only one thing: Share price increase from the week before until now measured against peers and similar companies.  Below is the summary table which shows each company’s share prices percentage increase compared with the average of the four (Bell, Rogers, Shaw and Telus) during the tenure of the current CEO.  It also shows the company’s performance compared with the other companies during their tenure.


Difference from Cope Mohamed Brad Shaw Entwistle

























For a more detailed look, we will go alphabetically by company:

BCE: George Cope

George Cope became CEO on July 4, 2008.   After 4 years, many acquisitions including Virgin, The Source, CTV, MLSE (1/2) and Astral Media.  Bell has also laid off thousands of employees, increased dividends many times and in total BCE has increased revenue from $17.7bn to $18bn over three years (CAGR 0.51%), all resulting in a share price increase of 15%.  By comparison, TELUS enjoyed a 48% increase in share price during the same period.  During the same period of time, Rogers had negative 5% increase in share price while Shaw was pretty much flat with a 1% decrease over the same period.    In the eyes of investors, BCE took value from Rogers and TELUS took value from all.  One might argue that BCE’s share price was high at the time he took the helm because of the pending closure of the privatization, but that did not happen.  If you measure George Cope from the point just after the privatization collapsed (Dec 19, 2008), the share price increase would be significantly better at nearly 100%, (TELUS 75%, Rogers 14% and Shaw at -8%), but then BCE did use unpaid dividends during the strategic review to increase dividends afterwards.

Bell Share price vs peers during Cope Tenure

Bell Share price performance vs peers during George Cope tenure

Rogers: Nadir Mohamed

Nadir Mohamed became CEO on April 4, 2009.  Since then he has restructured the cable and wireless businesses into one division, expanded media and acquire the other half of MSLE.  Under his leadership Rogers have taken fewer big bets, but have be consistent in delivering financial results if not subscriber results.  Recently Rogers started cost cutting, it seems to make Bay street happy, but even this has not allowed his share price to shine.  During his time in office, Rogers has increased it share price by a very reasonable 27.37%, which seems like a lot compared with Shaw who were again almost flat at 0.85% decrease.  But BCE had a stock increase of 68.34% and TELUS of 79.56%, over the same time period clearly marking a shift from cable company to telephony.  Note that from when Ted Rogers passed away to when Nadir Mohamed took the helm, the stock had already dropped 15%.

Rogers share price performance vs peers during Nadir Mohamed tenure as CEO

Rogers share price performance vs peers during Nadir Mohamed tenure as CEO


Shaw Communications:  Brad Shaw

Brad Shaw always had a tough act to follow, after his older brother Jim grew the business almost 10 fold during his tenure.  Brad Shaw cancelled wireless, instead focused on wifi and faster deployment of new set-up boxes.  During his relative short tenure, he has increased cable sales by 4% and profit by 2%.  There have also been a steady flow dividends, by increasing the payout ratio to around 85%.  Since Brad Shaw took the helm, the Shaw share price has declined 8.77%.  At the same time Rogers has increased their share price by 2.79% despite losing the wireless advantage to TELUS and Bell during this time frame.  BCE has increased 27.3% and TELUS has increased 37.82% showing a strong swing away from Shaw towards TELUS during Brad Shaw’s leadership.

Shaw share price performance vs peers during Brad Shaw tenure as CEO

Shaw share price performance vs peers during Brad Shaw tenure as CEO

TELUS: Darren Entwistle

In the 12 years that Darren Entwistle has led TELUS, much has changed.  Their wireless business has grown from strength to strength, their emerging TV business is easily taking back customers previously lost to Shaw and their acquisition strategy, unlike the others has been focused outside media.  In the last three years, they have acquired two healthcare related businesses in Emergis and more recently Wolf.  They also acquired Black’s to improve their wireless distribution.  There has been less focus on mass layoffs and cost cutting for the sake of it.  Revenue CAGR has been 4% in the last 7 years and EBITDA 2%, but most of this is organic growth rather than the acquisition fueled growth of Shaw, BCE and Rogers.  During Darren Entwistle’s time in office, the share price has increased a healthy 53.72%, but Rogers has increased nearly 83% in the same time frame.  Shaw grew 7.87% during this time.  (Note that BCE’s data only starts in 2006 for the purpose of this comparison.)

TELUS share price performance vs peers during Darren Entwistle tenure as CEO

TELUS share price performance vs peers during Darren Entwistle tenure as CEO



In terms of overall share price performance, Darren Entwistle is the clear leader, but then he has been in his role longer and there were times when his share price was under water.  On the other end of the spectrum, Brad Shaw is still struggling to find his feet in terms of share price performance versus peers.

Overall all these companies have increased their dividends significantly faster than the companies have grown or their profitability improvements.  While good for shareholders in the short term, we worry that none of them are investing enough in the future, while they reap the rewards of their predecessor’s investments (except Darren Entwistle, who made the original investments to reap today’s rewards).


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