At the end of Rogers Communications Inc.’s second quarter earnings call Wednesday, chief executive Joe Natale took a moment to remind everybody that the core business is still solid, even as the telecom company reported double-digit declines in nearly every key financial metric.
“There is a solid business with a strong and resilient base of recurring revenue. In wireless, 90 per cent of the revenue is in that strong, recurring base,” Natale said. “We spent a lot of time today talking about the 10 per cent, the vast majority of which is impacted by COVID and will recover.”
Analysts agree with Natale that the overall telecom business remains solid, but Rogers is getting hammered by fluctuations caused by the global pandemic.
Total revenue was down by 17 per cent year-over-year, with profits down 53 per cent.
The second quarter, running from April to June, was the first three-month period that fully captured the effects of the pandemic, and Rogers reported revenue declines in nearly every key metric.
The company normally counts on around $400 million annually just from roaming fees, but those fees have dried up as most people are staying home due to COVID-19.
Rogers executives emphasized that the company has a strong balance sheet, and adapting to COVID-19 could drive long-term business efficiencies, such as shifting to a self-installation system for new internet customers, so that Rogers doesn’t need to send a technician.
Rogers has withdrawn its financial guidance due to the uncertainty of the economy, but Maher Yaghi, an equity analyst with Desjardins Group who covers the telecom sector, said that the company’s optimism depends on a return to normal before too long.
“Broadly speaking, I think this is how investors should see this: Two years of growth that the industry would have made is now erased by this pandemic,” Yaghi said.
“I think the assumption here is that somehow things will get back to normal, and people get back to work, get back to travelling, get back to vacations, et cetera. That assumption needs to be there to have a long term view that (Rogers’) business is not affected.”
The upheaval caused by the pandemic is also highlighting differences in the business structure of the big three players in Canadian telecom, and investors will get a better picture of the competitive dynamics when Telus Communications Inc. reports its earnings next week and BCE Inc. reports the following week.
Yaghi said Rogers is in a better position to pull back on capital expenditure than Bell, who’s spending heavily to build fibre optic cable to subscribers’ houses. But Rogers and Bell are both more reliant on roaming fees and the media business than Telus.
Another competitive dynamic to watch, according to IDC telecom industry analyst Lawrence Surtees, is Rogers’ potentially losing market share to its competitors.
The company’s executives highlighted low churn in wireless subscribers, but Surtees said that a closer look at the company’s revenues indicates that they are losing customers.
“They’re blaming the slow market and the fact that their stores were closed. The other factor that they wouldn’t be willing to identify but may be as important is if some of that has been picked up by other (competitors),” Surtees said.
“Rogers had the most to lose in terms of subs(cribers) — that’s a function in terms of being the biggest — and there may be things in terms of service quality and how they treat their people.”
Surtees said a lot of the numbers would be much more dramatic, except that internet and cell phones have been absolutely vital during the pandemic, and the need to communicate has prevented people from cancelling their service.
On that front, Yaghi said Rogers and some of the other big telecom players will likely get credit where it really counts — with regulators — for decisions to waive usage caps, and offer flexible payment plans for people who can’t afford to pay their bills.
Yaghi also said none of the Big Three have slashed jobs in an effort to cut costs in the short term, and the whole system has remained functional during the crisis.
“I think that eventually should help the industry on the regulatory side, because they’ve shown that their networks are solid, not like in Europe where some companies had to lower internet speeds for their customers because there was so much demand,” Yaghi said.
“In Canada we didn’t have to do that because their networks are solid and they’ve invested a lot in their networks. I think that is going to have a lasting impact on how regulators see the industry.”
Financial Post
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