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Rogers chief executive warns Ottawa against making negative regulatory changes

TORONTO — Rogers Communications Inc. plans to spend nearly $3 billion on capital investments this year but its chief executive warned Wednesday that amount could be reduced if Canada’s government or telecom regulator adopt the wrong policies.
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TORONTO — Rogers Communications Inc. plans to spend nearly $3 billion on capital investments this year but its chief executive warned Wednesday that amount could be reduced if Canada’s government or telecom regulator adopt the wrong policies.

The Toronto-based company — owner of one of Canada’s biggest wireless and internet businesses — issued 2020 guidance that includes an estimate of between $2.7 billion and $2.9 billion of capital expenditures this year.

But that’s assuming there’s no negative changes to the regulatory environment.

“If the regulatory rules change, we will cut our investment. We’ll have no choice,” Rogers chief executive Joe Natale said in an interview.

“If we lose the confidence of shareholders, then by definition our cost of capital goes up. Then, by definition, we can afford to invest less.”

The warning comes as the Trudeau government and the industry’s regulator work to chart a path through several contentious issues that will affect Rogers, Bell and many other Canadian telecommunications and media companies.

Most critical for Rogers is it’s ability to justify the billions of dollars it’s spending to prepare for fifth-generation wireless technology, and a parallel upgrade of land-based networks to connect cell towers and customers with fibre optics.

“As we enter the world of 5G, regulatory certainty is critical to investment,” Natale said in a conference call with analysts.

“We need regulation that encourages investment and fuels innovation. Punitive regulation will slow, or worse, stall 5G deployment and expansion of rural connectivity will happen at a snail’s pace if at all.”

Natale said following those remarks that the most critical regulatory issue for Rogers is whether builders of Canada’s wireless and landline networks are forced to sell wholesale access to competitors at rates that are too low.

Rogers, Bell and their peers are fighting similar battles against mobile virtual network operators (MVNOs) and independent internet service providers (ISPs) that want low wholesale rates for tapping into the bigger infrastructure.

Supporters of MVNOs and independent ISPs argue they can provide a competitive alternative that stimulates the big telecom companies to provide consumers with lower prices and more innovative services.

Opponents of MVNOs and independent ISPs argue that they haven’t made comparable capital investments and shouldn’t be guaranteed access to the big networks if it undermines their ability to fund future investments.

Natale said the environment will hinge on a regulatory review of wholesale wireless rates, yet to be set, and appeals against wholesale landline rates set in August by the Canadian Radio-television and Telecommunications Commission.

Rogers has spent $35 billion on infrastructure over the past 35 years and currently has about $18 billion of debt accumulated to fund that, he said.

Natale added that Rogers is already running 5G pilots to test commercial applications for the technology, which he said would be as transformative as the arrival of internet access.

Rogers announced last week that it has begun rolling out its first 5G networks in downtown Vancouver, Toronto, Ottawa and Montreal so it is ready when 5G devices become available this year.

Natale said Wednesday that Rogers has finished testing Samsung’s first 5G phones for Canada, which he said would be available in March.

Rogers has also made a number of adjustments to the way it prices its wireless services, such as a switch to plans that provide unlimited data for a fixed monthly price, which has significantly reduced what it collects from overage fees.

The company expects the loss of overage fees will depress its revenue for the first half of 2020 but growth will return in the second half.

The Rogers wireless business accounted $2.49 billion of revenue in the quarter ended Dec. 31, up one per cent from a year earlier. However, that increase was due to an increase in equipment sales that offset a decline in service revenue.

The company’s overall revenue, including the Rogers cable, internet, and media businesses, was $3.95 billion, compared with $3.94 billion of revenue a year.

Overall net income was $468 million, down seven per cent from a year earlier. Adjusted net income was $511 million, down from $585 million in the fourth quarter of 2018.

Net income amounted to 92 cents per share and adjusted diluted earnings amounted to $1 per share.

Analysts had estimated $1.02 per share of adjusted earnings with $3.95 billion of revenue, according to financial markets data firm Refinitiv.

Rogers Communications shares closed up $2.10 or 3.2 per cent to $66.67 in Wednesday trading on the Toronto Stock Exchange.