Rogers – A poor cable quarter
Rogers had a pretty bad wirelessquarter and this has been given deserved attention, but cable results were also pretty weak. Overall Cable subscribers were down (21k), digital subscribers were down (1K), Cable telephony flat and Cable high speed customers were up 13k, but not enough to avoid the double blow of negative nets in both cable and wireless. Again margin declined and despite lots of positive talk about nextbox 2.0, it is
not clear that this is the answer. Bell has not really got started with their IPTV, so we can’t understand why Rogers would be struggling for subscribers?
Bell has not even started to compete, yet!
In Cogeco’s call they made it clear that they were losing subs to TELUS not Bell and so if Rogers is not loading, where are the subs going? We are pretty sure not Bell, although we could be proved wrong when their results come out. So we can only assume that Rogers TV subs are cutting the cable, either going with free to air antennae or just using the Internet and over the top alternatives.
Telephony subscribers are churning, but where are they going?
Cable telephony continues to grow (Rogers 1k, Shaw 54k & Cogeco 14k), but the incumbent telcos are losing subs faster than the cablecos are picking them up. Are all these homes going with alternative VoIP solutions or are they moving to wireless only? If the latter, surely we would start to see a bump in subscribers or ARPU or at least MOU? With better in building coverage, we assume that this wireless substitution market skews to the better quality networks of the incumbents? But no obvious bump in their wireless numbers? Most estimates we have seen suggest that Canada lags on fixed wireless substitution, so are the churning subscribers going to small unknown VoIP providers? Not sure, but looking at the combined (video, internet and telephony) results of Rogers, Cogeco and Shaw, the glory days of cable may be over.
End of cable’s glory days?
Despite cable’s marketing headline of faster speed for Internet (actual speeds tend to differ), telcos seem to have regained the momentum. After many years of regulatory support, the cablecos might have to fight the next few wars on a level playing field. They have never really competed in the core TV business and have predominantly used price to win telephony customers, supported by a Pre-forbearance regulator that made it easy to win. Welcome to real competition. Despite the family-controlled nature of the four biggest cablecos, we would be surprised if their shareholders are happy to sit on the sidelines and watch the telcos eat their lunch? This is particularly true when the families and other investors have come to rely upon a healthy dividend payment. As payout ratios increase, there will be a time where one or more of them are forced to slow or even cut dividends, expect the market to be at least as ruthless as it was when MTS cut its dividend.
The start of cable companies’ Arab-spring?
After years of no alternative and the combined insults of high prices and poor service, cable companies could be in for their own Arab-spring, where customers revolt and leave in droves? OK, maybe this is too dramatic, Canadians are more loyal and less likely to talk with their feet than most, but we think the tide has changed. TELUS has definitely got Shaw looking over their shoulder, and Cogeco! If Bell and MTS can get their acts together Rogers, Videotron and Cogeco could be in for a tough time. For Rogers this is indeed unlucky timing, as they have serious pressure on their wireless business for the first time. Despite the management’s unwavering belief in the franchise, we see RIM-like denial of an unavoidable outcome unless they do something more significant than cut costs.
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