News: Rogers' rise fails to excite market

Newser from July 30, on Rogers. Your basic earnings story; profits were up but market sentiment was down on lower-than-expected sales figures in the telecom giant's wireless division.

By Jamie Sturgeon, Financial Post

A double-digit rise in second-quarter revenue reported by Rogers Communications Inc. yesterday did little to dispel the perception the telecom giant faces a difficult road ahead.

Total revenue for Toronto-based Rogers climbed 11% to $2.8-billion from $2.5-billion in the year-earlier quarter. The company posted a profit of $301-million, or 47¢ a share, in the three months ended June 30, compared with a loss of $56-million (9¢) in the year-earlier quarter.

The company gained 92,000 new subscribers to its all-important wireless business in the quarter, while average revenue per user (ARPU) rose 4% to $75.48 a month.

Yet both figures were below market expectations, sending Rogers shares down almost 7% to $34.96 on the Toronto Stock Exchange.

"The market is reacting pretty negatively," said UBS analyst Jeffrey Fan. "The results were a bit mixed. The financial results were in line or slightly better than what we were expecting, but the subscriber results were not."

Rogers' stock price has slid more than 16% this year, due to the looming spectre of squeezed margins, due to increased competition from existing and launching wireless rivals.

"Things are getting tougher," said analyst Davi Ghose of Genuity Capital. New plans and marketing strategies from rivals such as Telus Corp., Bell Mobility and Virgin Mobile "clearly took some market share" in the quarter.

The loss of subscribers could be a taste of what is to come for Rogers, Mr. Ghose said, as a pair of new rivals in Shaw Communications Inc. and Globalive Communications Corp. are ready to hit the national market after winning a fair share of licenses in Ottawa's recently concluded wireless spectrum auction.

"The competitive pressure is only going to get worse over the next 18 months," Mr. Ghose said.

Adding to the market's concerns was a lack of raised revenue estimates for the third-quarter yesterday, despite Rogers' exclusive launch of Apple Inc.'s vaunted iPhone 3G on July 11, according to UBS's Mr. Fan.

"They talked about some of the costs, but they didn't raise their subscriber estimates or their revenue estimates," Mr. Fan said. Yet he added that it is likely too early to estimate sales going forward, and expected to see "the iPhone have a pretty meaningful impact" next quarter.

In its other businesses, Rogers added 41,000 new home-phone customers, as well as 23,000 digital cable subscribers. Internet customers grew by just 13,000, hit in part by sluggish economic conditions, the company said.

Still, even as the market reacted unfavourably to the results yesterday, colourful chief executive and company founder Ted Rogers rebuked doubters.

"Whether it's radio, cable or wireless, Rogers has seen the number of competitors ebb and flow over the years," he said in a conference call. "We've not only survived, but thrived. We will continue to do so. That is the DNA of Rogers."

jasturgeon@nationalpost.com