TORONTO – Rogers Communications falling share of new post-paid customers, thanks in part to new competition from a shared network Bell and Telus launched in November, 2009, has led Canaccord Genuity to recommend that wireless investors switch from Rogers to Telus.
Rogers gained only 49,000 of such customers (a much more lucrative lot compared to less valuable “pre-paid” top-up card customers) in the quarter compared to 109,000 the year before. In comparison, Bell gained about 157,000 of those customers and Telus scooped up 109,000 last quarter, noted Canaccord Genuity analysts Dvai Ghose and Sanford Lee.
As a result, Rogers accounted for only 16% of the national post-paid additions in the fourth quarter. “Rogers is clearly losing post-paid share to Bell and Telus,” says Ghose in a note to clients.
Ghose says his key concerns regarding Rogers surrounded:
– continued loss of postpaid wireless market share;
– continued ARPU declines
– worst in class cable subscriber growth
– rising capex
– flat to declining EBITDA and FCF
“Rogers only accounted for 16% of national incumbent postpaid net additions in Q4/10. At 1.66%, churn was up sharply from 1.39% in Q4/09. Due to better than expected data growth, ARPU of $61.72 was above our $60.88 estimate, but down an industry-leading 2.4%. At $697 million, EBITDA was in-line, but down 6.3%,” writes Ghose.
Ghose comments that despite record retention expenses, which equated to a “whopping 16.3%” of network revenue in the quarter, postpaid churn rose sharply to 1.35% in Q4/10 from only 1.08% in Q4/09.
“In our view, Rogers has become less competitive on the postpaid front due to enhanced networks, device selection and distribution at Bell and Telus. This is not a one quarter phenomenon.”
He also added that basic cable, digital, Internet and telephony subscriber results were “much weaker than expected.”
“While cable segment EBITDA of $370 million beat our $348 million estimate and was up
13.8%, this was in part due to weak subscriber loading.”
He adds that Canaccord has reduced its wireless estimates for Rogers and this reduces their price target to $36, from $37. “We would switch to Telus for stronger FCF growth and less wireless margin contraction risk.”
