New no-data-overage plans drive down Rogers Q3

Wireless revenue for Rogers Communications Inc. struggled over the summer, primarily due to a larger-than-expected migration to the company’s new unlimited data plans, according to Rogers management in a third-quarter earnings call Wednesday morning. Rogers CEO Joe Natale told analysts that one million customers have switched to the new plans, three times the rate the company expected, hitting data overage revenue by $50 million. The “unlimited” plans Rogers first launched in June throttle users’ connections once they reach their data limit instead of charging overage fees. But Natale said the quarter “was the beginning of a critical and necessary shift in the Canadian wireless industry. The launch of unlimited data is fundamentally changing how Canadians use their wireless service and how operators drive sustainable growth economics into the long term.” Revenue from the wireless division was down 1.6 per cent to $1.81 billion from $1.84 billion, while total revenue was down 0.4 per cent to $3.75 billion from $3.77 billion during the same quarter a year ago. Net income was down slightly to $593 million from $594 million, and wireless average revenue per user (ARPU) was down 2.1 per cent to $56.01 from $57.21. The company added 103,000 postpaid subscribers in the wireless division, up 1.2 per cent from how much it added in the same quarter last year. Internet adds were also up by 41,000, or 4.2 per cent over 35,000 adds this time last year. TV subscriber losses continued declining, as the company lost 35,000 subscribers this quarter, almost double the 18,000 it shed in the third quarter of 2018. Natale said that the lower-than-expected returns on wireless were primarily due to customers switching to the unlimited data plans that have shaken up the Canadian wireless market in recent months, and the downward pressure on ARPU will continue until the second half of 2020, when the company expects it to stabilize. In an earnings call with analysts that was as much focused on justifying the decision to initiate the drive toward unlimited data plans as it was focused on earnings, Natale pointed out that the results released today are the first full quarter under the new pricing schemes. Despite the lower-than-expected revenue rates in wireless, Natale said the company was still confident in its decision to launch the move toward unlimited, citing its desire to increase data usage rates amongst customers. Natale said that Canadian data usage had stagnated to one-third the U.S. average and was in the bottom quartile of the world’s developed economies. Since introducing the new plans, data usage was up 50 per cent, he said. The new schemes would also cut down on service costs by eliminating “bill shock,” Natale said, and conflict within families related to data sharing plans, creating what he called a “simplicity dividend.” Unlimited data plans, in conjunction with the phasing out of device subsidies and new financing plans, would also improve “the economics of acquisition and retention,” after handset costs have dramatically escalated in recent years, according to the company. “As we limit and eventually sunset data subsidy plans, the shift from device subsidy to device financing is expected to drive significant cost efficiencies. While the savings were modest this quarter given the competitive dynamic by one player in particular, we expect the market demand for lower monthly device costs will stimulate penetration of these plans particularly as subsidy levels reduce,” Natale said. In a Wednesday afternoon note, Scotia Bank analyst Jeff Fan rated the results as “negative.” “For patient investors, we think a wireless inflection point as we lap the overage impact in mid-2020 would be the constructive positive thesis at the moment. But wireless results are likely to get worse before they get better, and consensus expectations have to be reset,” Fan wrote. In a Wednesday morning note from Desjardins analyst Maher Yaghi, he wrote that the effects of the revenue drop may ripple on for several quarters. He said that “given the precipitous drop in earnings growth, it could take investors a few quarters to regain confidence in the medium-term outlook." Last month, BCE Inc. chief financial officer Glen LeBlanc told investors at the CIBC Eastern Institutional Investor Conference in Montreal that the move toward unlimited data was “premature.” “Let’s be honest, this will not be accretive to ARPU in the short term,” LeBlanc said in September. “Data overages remained fairly significant in our industry in Canada and this is going to ultimately reduce significantly the data overage revenue that we earn.” Rogers is the first of the Big Three to report its earnings under the new pricing regime. Bell is scheduled to report its own next week, with Telus Corp. following the week after that. — With reporting by Michael Lee-Murphy at mleemurphy@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

New no-data-overage plans drive down Rogers Q3

News | October 23, 2019

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New no-data-overage plans drive down Rogers Q3

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