Rogers reported an excellent quarter across all segments (wireless, cable, and media) with increased revenue, upgrades and subscribers and a declining churn rate YoY. Although the metrics are mostly positive, the tone of the call was gloomy as it addressed the nationwide network outage that occurred on July 8th. They also addressed the Rogers-Shaw merger and why they pushed the rollout date to the end of 2022. There are also the looming inflationary pressures on consumer spending that will impact the national economy in the second half of the year.
Positive results across all segments
- Service revenue increased 11% YoY and mobile ARPU had a 6% increase YoY as people are returning to work and travelling. Although equipment revenue was down YoY by 6%, overall revenue was up 7% due to the significant increase to the service revenue.
- The boost in service revenue is driven by roaming fee revenue that has now increased as travel and immigration begins to settle back to pre-pandemic levels. Return to work has caused a 40% increase in data usage and this is expected to grow in the second half of the year as students return to school in September and immigration continues to pick up.
- Rogers has been working to improve their cable sector and they saw the largest quarter for cable that they ever have with 21K net additions to video and 26K additions to retail internet. Rogers has now reached 4.7M homes passed for their cable segment.
- The Media segment saw the biggest growth this quarter with media adjusted EBITDA reaching $2M CAD. This is a 103% increase YoY and is a result of the Rogers Centre being able to reach full capacity and the supported teams, like the Blue Jays, being able to have a full season with home games.
The impact and next steps to recover after the network outages
According to statements during the call, Rogers has seen an immediate impact on subscriber base in the early days following the outage, caused by a coding error, but churn has seemed to improve daily. Rogers has promised $150M worth of credits that will be automatically applied to customers monthly bills in Q3 to reconcile the loss of network connection these customers experienced. The CAPEX for 2022 has increased from $2.8B CAD to $3.0B CAD to cover the losses and implement preventative measures. Going forward, Rogers has created a plan to instill safeguard to prevent this level of outage again and the plan is as follows:
- Rogers uses a common IP core gateway to capitalize on efficiency, the outage highlighted issues with this method so there will be a physical separation of wireless and cable router gateways. This plan will cost $250M over the course of several years. Rogers believes that the Shaw merger will further help reduce the cost and timeline of this project.
- Greater partitioning of the network at a more local basis, so if there is an outage in one area that nowhere else besides that area should be impacted.
- The internal process in writing, moderating, and executing code will be re-evaluated and updated to help prevent errors like this from occurring.
- Failsafe measure for emergency calls, partnering with other carrier to provide a 100% working method to transfer those emergency calls to another network in case of those issues and that will happen within the 60 days mandated by the minister to telecommunication.
Rogers-Shaw merger updates
The expected date of the merger has now been pushed to the end of 2022 from the optimistic goal of the end of Q2 2022. The outage was not the only factor to impact this date change, the competition bureau had appealed the merger due to the lack of evidence that this acquisition of Shaw will have a positive impact on the state of competition in the Canadian wireless market. Rogers focused on Quebecor being the new 4th player in Canada market as they are the ones who are set to purchase Freedom mobile from Shaw once the merger has been finalized. The deal is expected to cost Quebecor $2.85B CAD for Freedom mobile, this purchase will be the launching point for Quebecor to launch their network outside of Quebec and into the western provinces.
Expected inflation impacts
Rogers is optimistic about its outlook for the second half of 2022 despite the inflationary pressures that will be impacting the economy and the possibility of a recession. Historically, enterprises usually see the highest impacts from recession and Rogers has claimed that since they are focused on consumers, negativity will be limited. Rogers has managed to grow their revenue and subscriber base to a point that they will be able to withstand hiccups to consumer spending in the second portion of this year and they will maintain the guidance provided at the end of 2021 for 2022. Rogers remains the top carrier in Canada, as Rogers website and stores covered over 23% of the smartphone sell-through in Q2 as per Counterpoints Canada channel share tracker.