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Rogers Wireless Q2 2012

Rogers Wireless Q2 2012

(first draft – no graphs yet either)

Too much cash?

Before we get into the wireless results, Rogers paid back dividends of $207m and repurchased 9.6m shares for $350m returning a total of $557m in the quarter.  Incredible. To put this is perspective, this is more cash returned to shareholders than Shaw Communications will create this whole year (Shaw’s revised guidance is $450 free cash flow for the FY 2012).

CAPEX

Although they give good reasons for investing less in pp&e than Q2 2011, we don’t see a good reason for them to be investing less than Bell and TELUS. Assuming you agree with us that the Bell-TELUS network is larger and superior, we believe that now is a good time to out invest its collaborating competitors.  There must be opportunities to increase the LTE footprint and improve back haul to these sites, particularly in the West.

Gross

Postpaid gross adds were impressive.  This is before the Samsung Galaxy S III launch in Q3 and  before back to school, which is traditionally Bell’s quarter to shine.  Gross was down significantly, but we would be interested to see the other incumbents results before passing judgment.  Rogers was significantly down in both postpaid and prepaid gross loading.  They struggled to load new prepaid customers in a quarter where new entrants focused on price to hold their share.  We believe it was sensible to forego the share and keep prices at a reasonable level. Good call.

Churn

Postpaid Churn was much lower at a impressive 1.15% which improved both sequentially and year or year for the quarter. While some of this was driven by their innovative FLEXtab, allowing a more flexible upgrade path, we believe that the timing of the blockbuster devices Samsung Galaxy S III which launched in Q3 and the iPhone 5 which will almost certainly launch in Q4, had a big impact on churn and we should see similar impacts at Bell and TELUS.  While not at Verizon (0.84%) or AT&T (0.97%) levels, this is a good result.   Prepaid churn at over 4% was ugly, driven by uncompetitive prepaid plans. But if you are going to lose any customers, it is better to lose he price sensitive low end prepaid customers.

Nets

Postpaid nets were good on he back of lower churn.  Prepaid poor on the back of low gross and high churn.

ARPU

ARPU declined less than expected in postpaid on the back of strong data revenue growth.  His was mostly driven by an increase in he mix with more smartphone than ever.  It remains a concern that with a huge increase in smartphone base, hat the data revenue is growing at a much slower rate, suggesting reprice. There is also significant reprice in voice, where MOU increased, but lice ARPU decreased. With a relatively small gross quarter this suggests that it might be a result of base reprice rather than LTOs offered to entice new customers.  Base reprice while you are upgrading to smartphones is not a good thing.   Interestingly AT&T who also released results today, improved their postpaid ARPU by 1.7% for the quarter.

Revenue and operating income

Revenue increased modestly and operating income improvements were appealing based on cost cutting and productivity improvements. But profit is always going to be good in a low gross quarter.

Conclusion

Overall a good quarter to generate some cash while customers wait for he big devices of the year.  Well executed.

 

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