MONTREAL — Facing tougher competition, profit at Rogers Communication Inc. dropped 24 per cent in its third quarter as it spent more money to keep its BlackBerry and iPhone customers.
“I think this quarter, frankly, is just the recognition of that new reality, that there are more competitors in the market,” said Rob Bruce, president of Rogers’ wireless division.
“And that Bell and Telus have common networks platforms to us, as well as common devices,” Bruce told a conference call after Rogers said it earned $370 million in its latest quarter.
Rogers activated and upgraded 529,000 smartphones for its high-value, data-using customers who usually get subsidies to make the devices cheaper on long-term contracts, instead of buying them at full cost.
President and CEO Nadir Mohamed said subsidized smartphones appear to be the norm in the market, saying Rogers sees it as an investment in its customers.
“It’s always difficult because you get hurt in the quarter, but this is a long-term game,” he said. “To me, it’s entirely on our game plan and we will continue doing that.”
In late afternoon trading, Rogers’ shares slipped 7.4 per cent, or $3.08, to $38.23 on the Toronto Stock Exchange
Bruce said the average subsidy on smartphones has gone up to $241 from $205.
He said about 37 per cent of its post-paid contract customers have smartphones, adding there’s a lot of room for further growth.
The Toronto-based wireless, cable and media company (TSX:RCI.B) said its profit amounted to 64 cents per share, in the three month period ended Sept. 30. That was down from $485 million, or 79 cents per share, in the same period a year ago.
Revenue increased three per cent to $3.1 billion, compared with the average analyst expectation of $3.19 billion.
Rogers said Tuesday that increased competition resulted in fewer net subscriber additions of 125,000 to its wireless services, compared with 167,000 in the same quarter last year.
But Mohamed said new wireless players have had “for the most part, fairly limited impact.”
Wind Mobile, Public Mobile, Mobilicity and Quebecor’s (TSX:QBR.B) have all launched in recent months.
Average revenue per user slipped to $64.80 from $66.45 a year ago.
Mohamed said as Android phones become more popular and Microsoft’s Windows Mobile operating platform gets adopted by mobile phone makers, subsidies on all devices may come down as a result and make mobile phones less expensive.
Bruce also said Rogers is also trying to “reign in” some of the costs associated with subsidies by making sure “not to push every single person necessarily to a smartphone when all they maybe want to do is text.”
RBC Capital Markets analyst Jonathan Allen said Rogers’ wireless margins were likely to come down from their highs in the same quarter last year.
Customers upgrading their iPhones will squeeze margins as well as some costs to launching discount brand Chatr, Allen wrote in a recent note.
Mohamed also noted that Rogers would like the next federal auction of radio waves to be held sooner than later to allow it to launch its next advanced network that will use Long-Term Evolution technology.
Rogers is Canada’s largest wireless provider and has the Rogers Wireless and Fido brands as well as Chatr, launched in the summer.
Rogers also provides cable, Internet, phone, specialty and conventional television services and also owns radio and TV stations, publishes a stable of magazines and owns the Toronto Blue Jays.