Smart phones energize Rogers’ profit

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Rogers Communications Inc. (RCI.B-T34.740.391.14%)posted better-than-expected quarterly results on Tuesday, as Canada’s largest wireless company looks to capitalize on a growing consumer appetite for next-generation mobile devices.

Rogers posted adjusted profit of $423-million or 76 cents a share for the quarter ended March 31. Analysts had expected earnings of 72 cents on average, according to Thomson Reuters. Revenue rose 4 per cent to $2.99-billion. Some investors and analysts have held low expectations for Rogers as wireless competitors become more aggressive and a host of new startups threaten many of its core divisions.


Are earnings expectations too high? “The first-quarter results represent a healthy start to 2011 for Rogers,” said Nadir Mohamed, president and chief executive officer. “We've maintained solid top-line growth rates as a result of continued investments in our customer relationships, networks and products, supported by a sharp focus on wireless data and subscriber retention initiatives.”

Much of Rogers’ new revenue came from the increasing consumer adoption of faster, more data-hungry smart phones, such as iPhones, BlackBerrys and devices powered by Google’s Android operating system. Almost half of Rogers’ entire wireless customer base now uses next-generation smart phones. Even as Rogers lost some 15,000 prepaid wireless customers, it added 45,000 postpaid wireless subscribers.

During the first quarter of the year, Rogers activated and upgraded roughly 534,000 smart phones – the largest number of quarterly smart phone activations in the company’s history – compared to 348,000 such devices in the first quarter of 2010.

“These subscribers generally commit to new multiyear-term contracts, and typically generate [average revenue per user] nearly twice that of voice-only subscribers,” the company stated.

Still, adjusted operating profit at Rogers’ wireless division actually fell 5 per cent year over year, as the company spent heavily to subsidize consumer purchases of expensive new smart phones, hoping to offset that spending with higher data revenue.

Concerns about the company’s growth opportunities have grown in recent months as various nimble competitors – ranging from startups in the wireless space such as Wind Mobile to Internet video services such as Netflix – continue to chip away at some of the company’s core and emerging businesses. Competitors Bell and Telus have invested heavily in network upgrades, eroding the company’s traditional leadership position.