Q1 2012

WIND Canada Q1 2012 Results

WIND Canada Q1 2012 Results

After a fairly strong Q4, we were expecting strong results from WIND, who with the some momentum were poised to make significant customer gains in a quarter where incumbent usually lose lots of subscribers.  Well the incumbents did lose a lot of subscribers, more than ever and for the first time, both Bell and Rogers had negative nets.  So we assumed that this would mean a blow out quarter for the new entrants.  Videotron underwhelmed so we assumed the incumbent losses were not in Quebec.  But now that WIND has released their numbers, we are concerned on two fronts.  Nets and ARPU.

Nets

Yes, nets grew by nearly 12,500 subscribers, but in a quarter where incumbents lost nearly 200,000 prepaid subscribers and lost nearly 25,000 total subscribers, we thought that all of this could be picked up by the new entrants.  And in their conference call, Bell talked about increasing fixed-wireless substitution and Bell and TELUS lost over 150,000 wireline subscribers.  If we assume that a third of the landline losses went to VoIP providers (they did not go to cable), then the other 66% went to wireless-fixed substitution.  Then there should have been a total of 125,000-300,000 subscribers up for grabs in the quarter, but WIND and Videotron only account for 35,000 of these?  We would be very surprised if Mobilicity and Public made up the difference.  We think Mobilicity blew out the lights in Q4 in the hope of raising additional finance on these results, so they had no dry powder for another big quarter.   Public Mobile did not noticeably lift their game either.

EOP

So assuming Mobilicity gains 10k and Public 20k new net customers, this means that the new entrants will still have less than 5% of the overall market despite huge subscriber losses at Bell and Rogers.

ARPU

Our second worry is ARPU.  WIND’s ARPU was up 2.2% from $26.7 to $27.3 or a whopping 60 cents per subscriber.   But TELUS was up 1.7% and Bell up over 4% (although much based on mix changes from losing so many low ARPU prepaid subscribers).  In fact TELUS enjoyed nearly and extra $1 per subscriber across nearly 7.5m subscribers, whereas the poultry $0.60c increase across 415k subscribers if not nearly as significant.   With ARPU of less than half of the incumbents, WIND and Mobilicity have a fundamental problem with their business model.  So it might be a good thing they did not acquire too many new customers?

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Wireless results summary – Canada – Q1 2012

Wireless results summary – Canada – Q1 2012

Well, now that all of the incumbents have reported, it is worth looking at how they did against each other.  Who won the quarter?  TELUS, followed by Bell with Rogers a distant third.  But that is just our opinion, it really depends how you measure.

The chart below is a summary of the last 5 quarters.  Although this is just a snap-shot and these metrics are not really equal in weight, these are the main metrics that the street and executives focus on in determining how they are doing compared with both the past and each other.

Rogers Bell TELUS key metrics summary

Key metrics summary

At first glance Rogers still rules the roost with 5/9 first places, but TELUS has started to win where it counts, Postpaid Nets, Churn, ARPU and EBITDA Margin.  We were pretty concerned when we saw that Rogers loaded 334K Gross Postpaid, but only grew their postpaid base by 47K subscribers.  Seems like a pretty uneconomical way of growing compared with TELUS who came in third with only 257 Postpaid Gross, but the highest postpaid nets at 63K.

 

So let’s look behind the superficial numbers to see what is going on and why the incumbents are going in different directions:

Gross

With more points of presence and no longer struggling for iPhone 4Ss, Rogers blew the lights out with 33k Gross Postpaid and 154K Gross Prepaid.  Rogers has more points of presence, probably close to 1,500 with third party, specialists, Wireless Wave, dealers and corporate stores.  TELUS on the other hand has few points of presence and does not benefit from wireless wave, which in our humble opinion is the best of the specialist channels.

Wireless Gross Share Bell Rogers TELUS Q1 2012

Wireless Gross Share Q1 2012 (Incumbents)

Nets

With a relatively modest gross numbers and high churn, both Rogers and Bell had negative nets.   We have tracked the incumbents quarterly since the beginning of 2005, but our data goes back more than another ten years and we have not seen negative nets for any incumbent let alone two.  This was admittedly driven by prepaid losses and Q1 has been net negative for the incumbents since 2007.  But with significantly smaller prepaid bases than postpaid, it is unusal to lose so many prepaid subs that it impacts your overall number.

wireless prepaid incumbent nets Q1

wireless prepaid incumbent nets Q1

Also the fighter brands of chatr, Koodo and Virgin have breathed new life into prepaid, so this certainly looks like a big win for the AWS new entrants.  Since Videotrons numbers were not crazy high at 22k nets, and WIND was much lower than expected at 12K nets, assuming that Mobilicity was also around 10K, this means that the total nets of the new entrants beat the total nets of the incumbents, albeit mainly on the back of significantly lower ARPU customers.

Incumbent wireless net share

Incumbent wireless net share

 

Postpaid nets were positive, but flat compared with last Q1 while the overall industry grew.  Note that Bell dropped from 81K in Q1 2011 to 63K in Q1 2012.   Rogers was flat year over year and TELUS grew by 11K in postpaid nets.  Some of this is by design, as it is dangerous to try to get Q1 volume by extending the Christmas discounts into Q1.  This should be a good quarter to keep your powder dry on COA and bank some EBITDA.

wireless postpaid nets share incumbents Q1 2012

wireless postpaid nets share incumbents Q1 2012

 

Churn

Churn was the divisive metric this quarter.   Rogers was ghastly – Blended churn moving from 1.71% a year ago to 1.83% and in the process moving from the best of the incumbents to worst churn in 5 quarters.   Bell was modestly better, improving from 1.9% to 1.84%, but some of this was driven by having so few prepaid subscribers left.  Bell’s postpaid churn also improved, from 1.4% to 1.35%, but since their base has grown, this still meant more actual postpaid subscriber churning, up from 219K in Q1 2011 to 231K this quarter.  TELUS enjoyed a marked improvement in churn, where blended churn came down from 1.7% to 1.55% year over year.

Wireless percentage churn Q1 2012

Wireless percentage churn Q1 2012

In postpaid absolute churners reduced from 220K (same as Bell) to 194K.  These are great churn numbers and we did not see a commensurate pickup in retention to achieve this – retention spend for TELUS was down 6% at $138m.

Churn numbers by volume

Churn numbers by volume

Smartphones

Smartphones continued in a phenomenal way, although we did hear some tempered comments on the conference calls, in particular, Rogers seemed to have slipped from ARPU of 2X non-smartphone to 1.9X and now to 1.8X.  At the same time the non-smartphone ARPU for Rogers has also been declining.   They suggested in the past that they expected cheaper smartphones that would reduce their requirement for the huge COA investment, but this has not happened.  What has happened is that lower end smartphones are unsurprisingly attracting lower end subscribers, who are more likely to be price sensitive, spend less and have a higher propensity to churn.   The smartphone share chart show the decline of Rogers and the rise of Bell and TELUS following from a level playing field in handsets and the significantly better network coverage and quality that the Bell/TELUS network partnership offers.

 

EOP

EOP was largely unchanged mainly because of the Bell and Rogers negative nets.  There were share changes though.   In EOP postpaid market share, Rogers dropped to the lowest (38.5%) since Q4 2005.  TELUS and Bell both gained share.

Postpaid total subscribers share

Postpaid total subscribers share

ARPU

All three incumbents have had declining voice ARPU for some time.  This is partly due to re-price, which has been more relevant at Rogers, partly due to Smartphone LTOs resulting for a more competitive market, but also from a reduction in voice minutes.  The reduction is voice minutes is partly behavior changes – customers spending more time communicating via email, text, IM and so many other social media platforms, but also a change in demographics, where younger customers are more likely to have a high end smartphone, but can’t afford the high end voice plan.

blended ARPU wireless incumbents

Blended ARPU wireless incumbents

 

Rogers average price per minute dropped suddenly with the introduction of chatr.  Bell and TELUS have trended down, but not at the same rate.

The text-voice substitution is marked as the smartphone penetration rates increase, voice revenue declines.  Although we have not read anything about VoIP using the carriers networks, there are many solutions that offer this and the 3/4G networks are more than capable of offering high quality calls over the data network at a fraction of the price.  We expect significantly more pressure on voice in the foreseeable future.  TELUS had another quarter (6 consecutive quarters) of ARPU growth to $58.87.  Voice decreased 10%, but data grew 29% resulting in an overall growth of 1.7%.

WIND reported a 2.2% increase in ARPU, but at $27.30, this still significantly lower than where it should be in our opinion.  This is less than half the incumbent ARPU, which does not sound sustainable.

Revenue and EBITDA

Overall Incumbent service revenue grew nearly 4%, Rogers was down marginally, Bell was up 6% and TELUS up 7%.   But all were well below the average of over 7.5% year over year growth average from 2007-present.  There was an overall decline in hardware revenue of 9% based on lower handset sales, this is normal for Q1.

Incumbents share of industry EBITDA

Incumbents share of industry EBITDA

 

Bell and TELUS grew their EBITDA at 13%, while Rogers EBITDA declined 9%, giving an incumbent average of just of 3% in EBITDA growth.   EBITDA share for Rogers declined to 2006 levels.

Summary

We really thought Bell had a good quarter, until we saw the TELUS results.  TELUS seems to be operating at a level of detail that is absent from the others.   Rogers had a very poor quarter and the new entrants failed to capitalize on incumbent weaknesses in gross loading and churn.

 

 

 

 

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TELUS Wireless Results Q1 2012

TELUS Wireless Results Q1 2012

This was an exceptional quarter for wireless at TELUS.  We were very impressed with Bell’s wireless numbers, but it seems like TELUS has trumped them on almost every number.  To really understand how well the companies are doing, we find comparing them with each other more useful than comparing themselves with previous quarters, which is the tradition.   This assumes the past is a predictor of the future, which it is not.

Gross Adds

Gross adds were down for TELUS y/y but despite significantly less distribution still delivered 363k which is respectable for a first quarter, which is always lower in gross.  This was 6% lower than the previous year. Gross Postpaid at 257K also declined, by 5.5%.  TELUS share of gross in the incumbents was 29.3% vs. last year’s Q1 at 29.6%.

Net Adds

Overall Net Adds were down 31% to 22k on the back of a 105% increase in prepaid losses.  All incumbents lost prepaid subscribers, which is a seasonal effect.

wireless prepaid nets Rogers Bell TELUS Q1 2012

Prepaid Nets Q1 2012

TELUS has had negative nets in prepaid for the last 3 first quarters.  Postpaid Net Adds were up a healthy 21% on the back of very good retention and churn numbers.   Interestingly TELUS spent 6% less on retention than a year ago, suggesting that their networks, brand and customer service are keeping customers without the need to purchase their loyalty.  With Bell and Rogers having negative nets, TELUS was the only incumbent that grew its subscriber base in the quarter, suggesting a big quarter for the new entrants.  Perhaps we can see WIND and Public beat 100K nets and Mobilicity beat 50K?

Smartphones

TELUS had a great quarter for smartphones, loading 19% more smartphones or 175k over the previous Q1 at 147k.  This brings the total smartphone base to 56% of postpaid subscribers.

Churn

Blended churn was 1.55% down from 1.70% a year ago.  This is a tremendous achievement considering how the other incumbents have experienced more pressure.  While the absolute number of postpaid subscribers increased close to 6% for Bell and Rogers, TELUS reduced the number of postpaid churns by nearly 12%.

EOP

TELUS grew it EOP by a modest .3%, but this was better than the subscriber losses of Bell and Rogers.  Postpaid EOP was up just over 1% sequentially.

Postpaid Canada incumbent subscriber growth

Growth starts to slow for the incumbents

ARPU

TELUS Blended ARPU grew, while Rogers declined, keeping TELUS at the top of the ARPU leaderboard for the second straight quarter.  AT $58.87, this is industry leading ARPU with a significant $22.83 coming from data.  Clearly TELUS is attracting the high end smartphone subscribers that the incumbents all say they are getting and we can see the impact in their accretive ARPU.

Revenue and EBITDA

Network revenue was up 7% at $1.288bn, a great Q1 performance.  Margins grew over 5% or 2.5pts to deliver industry leading EBITDA of $622m.

Summary

This was a fantastic quarter for TELUS.  They have showed that despite fewer points of distribution, that better execution can turn fewer gross into more nets, delivering better in quarter EBITDA without having to invest incremental COA in new customers or having to invest more in retention spend to prevent churn.  A lower gross, lower churn, higher nets model will reward them with significantly better financial results to come.

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Bell Wireline Results Q1 2012

Bell Wireline Results Q1 2012

While Bell’s wireless results were outstanding, wireline was a bit of a mixed bag.  Sure there was some good news:  Internet subscribers were up 12,393, after being pretty much flat for 3 quarters.  But they were still down over Q1 2011, when they added 13,161.

Canada wireline phone subscriber nets

Canada phone subscriber net additions (and losses)

NAS losses continued with 96,530 total losses between business and residential, this was not good compared to Q1 2011 when they gained business customers for a total loss of only 59,243, for a total percentage change of nearly 63% worse.

Bell Fibe gains traction

The big changes came in TV, where Bell added 17,623 TV subscribers, by losing 15K satellite customers and gaining 33K IPTV customers.   We are not sure which provider they lost their subscribers to, but it looks like Rogers lost customers to Bell’s IPTV platform.  On the call they also said that 85% of customers were taking a triple play, suggesting that IPTV should be helping both internet and residential phones.  Assuming that there is no churn on IPTV yet, this means some 28K customers took FTTN internet and assuming that there is only 20% cannibalization of DTH from IPTV, 22K customers were new to TV and took internet, meaning a net negative of 5k-15k DSL internet subscribers.

More disciplined execution

On the IPTV front, it seems that Bell have been more disciplined in their marketing.  We guess that with the confidence of a better platform, they have been comfortable reducing promotions from 12 months to 6 months.  On the conference call George Cope (CEO) made the comment that if you give a promotion for 12 months, it really feels like a rate plan, then customers feel you have raised prices after a year, when the normal prices kick in.  This discipline will mean a faster flow through of ARPU, which is currently at $60 and does not seem low considering the level of competitiveness.

Summary – Bell wireline Q1 2012 was a mixed bag

So some good (IPTV & triple play), some bad (NAS losses , DSL and Satellite).  Once Videotron and TELUS have reported we will really know how they did.  Interestingly between Bell and Bell Aliant, they now have over 3 million internet subscribers.

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Bell vs. Rogers – Smartphones

Bell vs. Rogers – Smartphones Q1 2012

Big increases in Bell smartphones

In Q1 2012, Bell made a huge leap forward in smartphones.   Rogers said they had such a big quarter of smartphone loads because of iPhone 4S shortages in Q4 2011, yet Bell loaded 523K smartphones to Rogers 640K smartphones in the quarter.  Bell increased 45% in volume of smartphone loads vs. Rogers 20% compared to Q1 2011.  And Bell was up 47% over Q4 2011 while Rogers was down nearly 20% over Q4 211.  But it was Rogers that complained of iPhone shortages?  This is a huge change!

Bell v Rogers smartphone war

Bell winning on smartphones

But made sure they were value enhancing

Bell went from 34% smartphones to 52% in one year, while Rogers went from 45% to 70% in the same period.  So Rogers actually grew their smartphone base faster.  But looking at the relative spends on retention, Bell could be getting new smartphone customers who are ARPU accretive vs. Rogers who are upgrading existing smartphone users, perhaps to new rate plans which are value destroying, hence the difference in smartphone ARPU trends.   Since Bell did not disclose this number, so we can’t be sure, but either way, I think there is more value in an operator with lower smartphone penetration and increasing ARPU, rather than Rogers with declining ARPU and 70% smartphone penetration.

 

 

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Bell Wireless Results Q1 2012

Bell Wireless Results Q1 2012

Bell’s wireless results were fantastic.  Both in terms of metrics and financials, Bell really did well in Q1 2012.  Until TELUS reports, we cannot be 100% sure, but it looks like in an overall market that we relatively flat in terms of gross adds, Bell focused on postpaid subscribers in business and out West, to bring home a great quarter.  This indicates an exceptional example of delivering to plan, where execution must have been harmonic to be able to achieve the following three metrics together:

Gross Adds

Postpaid gross was down but only 2% down, (Rogers was up) but still better than five out of the last six Q1 postpaid gross results.  Prepaid gross was down a whopping 24% over Q1 2011, confirming Bell strategy to focus on the more lucrative postpaid business.

Net Adds

Net losses (21,327) were not good due to huge losses in prepaid subscribers and postpaid

Rogers and Bell Prepaid Nets Q1 2012

Incumbent prepaid nets in Q1 2007-2012

net adds were 22.4% lower at 62,576.  The lower postpaid nets was driven by a combination of lower postpaid gross and postpaid churn of 231,000 subscribers.

Churn

Prepaid unsurprisingly got worse at 3.9% but postpaid churn improved in terms of percentage from 1.41% to 1.35%.  This is very impressive but especially since we did not see a huge retention spend (approximately $120m) and this improved sequentially from 1.52% in Q4 2011.  A dramatic turnaround in one quarter indeed.  Churn still remains our biggest concern with Bell, but if they can turn this into a trend, that would be exciting for shareholders.

EOP

Postpaid EOP growth was slow at 2.2% versus Q1 2011 when it was 5.2%, but this was largely driven by higher churn (lower percentage of a bigger base lead to 231K postpaid subscribers leaving vs. Q1 2011 where only 219K left.  Even Rogers with dire results grew at 3.3% off of a large gross loading number and lower postpaid percentage churn.

Revenue & EBITDA

Revenue was up 5.1% (6% for service revenue which is the important number) and EBITDA up a very impressive 13% on widening margins, which grew y/y from 36.9% to 39.5%, nearly breaking the key threshold of 40%.  In the call they said they had 500 fewer employees in wireless, but this does not account for all of the improvement.  They must have executed both their hardware subsidies and their smartphone upgrades incredibly well since retention spend and COA were still very modest.

Impact on New entrants (WIND, Mobilicity & Public)

Looking at a combination of Bell and Rogers, the incumbents have already lost 50% more prepaid subscriber than the total for Q1 2011.  This bodes well for new entrant loading.  Assuming they do not have high churn numbers, we should see significant net and EOP gains for the new entrants.

Summary

Comparing this quarter with Q1 2011, Bell did really well.  It will be interesting to see how TELUS does as this will really tell us who executed best in what looks to have been a competitive quarter.   Great quarter – well done.

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Rogers – a poor cable quarter

Rogers – A poor cable quarter

Rogers had a pretty bad wirelessquarter and this has been given deserved attention, but cable results were also pretty weak.  Overall Cable subscribers were down (21k), digital subscribers were down (1K), Cable telephony flat and Cable high speed customers were up 13k, but not enough to avoid the double blow of negative nets in both cable and wireless. Again margin declined and despite lots of positive talk about nextbox 2.0, it is

Cable TV Net subs Canada

Cable nets turn negative

not clear that this is the answer.  Bell has not really got started with their IPTV, so we can’t understand why Rogers would be struggling for subscribers?

Bell has not even started to compete, yet!

In Cogeco’s call they made it clear that they were losing subs to TELUS not Bell and so if Rogers is not loading, where are the subs going?  We are pretty sure not Bell, although we could be proved wrong when their results come out.  So we can only assume that Rogers TV subs are cutting the cable, either going with free to air antennae or just using the Internet and over the top alternatives.

Telephony subscribers are churning, but where are they going?

Cable telephony continues to grow (Rogers 1k, Shaw 54k & Cogeco 14k), but the incumbent telcos are losing subs faster than the cablecos are picking them up.  Are all these homes going with alternative VoIP solutions or are they moving to wireless only?  If the latter, surely we would start to see a bump in subscribers or ARPU or at least MOU?  With better in building coverage, we assume that this wireless substitution market skews to the better quality networks of the incumbents?  But no obvious bump in their wireless numbers?  Most estimates we have seen suggest that Canada lags on fixed wireless substitution, so are the churning subscribers going to small unknown VoIP providers?  Not sure, but looking at the combined (video, internet and telephony) results of Rogers, Cogeco and Shaw, the glory days of cable may be over.

End of cable’s glory days?

Despite cable’s marketing headline of faster speed for Internet (actual speeds tend to differ), telcos seem to have regained the momentum. After many years of regulatory support, the cablecos might have to fight the next few wars on a level playing field. They have never really competed in the core TV business and have predominantly used price to win telephony customers, supported by a Pre-forbearance regulator that made it easy to win.  Welcome to real competition.  Despite the family-controlled nature of the four biggest cablecos, we would be surprised if their shareholders are happy to sit on the sidelines and watch the telcos eat their lunch?  This is particularly true when the families and other investors have come to rely upon a healthy dividend payment. As payout ratios increase, there will be a time where one or more of them are forced to slow or even cut dividends, expect the market to be at least as ruthless as it was when MTS cut its dividend.

 The start of cable companies’ Arab-spring?

After years of no alternative and the combined insults of high prices and poor service, cable companies could be in for their own Arab-spring, where customers revolt and leave in droves?  OK, maybe this is too dramatic, Canadians are more loyal and less likely to talk with their feet than most, but we think the tide has changed.  TELUS has definitely got Shaw looking over their shoulder, and Cogeco!  If Bell and MTS can get their acts together Rogers, Videotron and Cogeco could be in for a tough time.  For Rogers this is indeed unlucky timing, as they have serious pressure on their wireless business for the first time.   Despite the management’s unwavering belief in the franchise, we see RIM-like denial of an unavoidable outcome unless they do something more significant than cut costs.

 

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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.

 

Churn

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

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.

Gross

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?

 

EOP

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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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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