Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rogers Communications Inc (RCI, Financial) reported a 4% increase in wireless service revenue and a 6% rise in adjusted EBITDA for Q2 2024.
- The company achieved industry-leading wireless margins of 65% and added 162,000 mobile phone net additions, including 112,000 postpaid and 50,000 prepaid.
- Rogers' 5G network was recognized as Canada's most reliable by Umlaut and OpenSignal, reinforcing its network leadership.
- Cable adjusted EBITDA grew by 9%, with cable margins expanding to 57%, reflecting strong operational efficiency.
- The media segment saw a 7% revenue increase, driven by the Toronto Blue Jays, and is expected to return to profitability in the second half of the year.
Negative Points
- Cable revenue declined by 2% in Q2 2024, although this was a slight improvement from the 3% decline in Q1.
- Postpaid mobile phone churn increased by 20 basis points year-over-year to 1.07%, indicating some customer retention challenges.
- The company faces ongoing competitive pressures in both the wireless and cable markets, which could impact future growth.
- Rogers' debt leverage ratio remained high at 4.7 times, with a target to reduce it to 4.2 times by year-end.
- The sale of non-core assets, including real estate worth an estimated $1 billion, is taking longer than anticipated due to market softness.
Q & A Highlights
Q: Can you give us a sense of what's driving the continued demand for the Rogers main brand, particularly in terms of ARPU performance?
A: The main drivers include the reliability of our network, the effectiveness of our national distribution network, the introduction of Disney+, and convenient financing options for phones through Rogers MasterCard. Additionally, bundling wireless with home products, especially in the West, has contributed to growth.
Q: Can you discuss the uptick in prepaid subscribers this quarter and the potential for migrating these customers to postpaid?
A: We leveraged our Chatr brand in the flanker space, which is particularly well-suited for new-to-Canada customers without a credit history. The average ARPU for prepaid is just under $30, and many customers are on autopay. We are successful in migrating prepaid customers to postpaid, often directly to the Rogers brand. The increase in prepaid subscribers is organic and not expected to result in a net negative in future quarters.
Q: How should we think about ARPU trends in wireless for the second half of the year, especially with back-to-school dynamics?
A: We expect to continue ARPU growth despite competitive pressures. Our focus will be on the Rogers brand and bundling with home Internet products. We will maintain discipline on handset financing and avoid subsidizing handsets, focusing instead on the value proposition of our 5G network and Rogers brand.
Q: Can you provide more color on the drivers of wireless ARPU growth going forward?
A: Key drivers include focusing on the Rogers brand and base management, up-tiering customers to higher-value plans, and introducing roaming packages that offer more certainty. These initiatives are expected to have a favorable impact on ARPU.
Q: What are your views on TPIA and how do you see this evolving, especially with your recent moves in Quebec?
A: We believe in a regulatory framework that encourages facilities-based investment and ensures wholesale rates reflect full costs. Our TPIA offering in Quebec and Southwestern Ontario aims to provide bundled solutions in markets where we don't have homes passed, expanding our reach and offering more competition.
Q: How do you see the prospect of larger cost rationalization in the industry, especially with the advent of AI?
A: We see significant opportunities for cost reductions through AI and digital transactions. AI tools will help reduce costs in customer interactions and back-office operations. Improving digital capabilities will enhance customer experience and reduce transaction costs, all within our CapEx and OpEx envelopes.
Q: Can you discuss the competitive pricing environment in wireless and your expectations for back-to-school promotions?
A: We expect the competitive dynamics to be similar to last year, with robust competition from four main players. Our focus will be on the Rogers brand, bundling, and value propositions relevant to students. We will respond to competitive offers as needed but expect overall pricing dynamics to remain consistent with the prior year.
Q: What are the drivers for the expected acceleration in EBITDA growth in the second half of the year?
A: Historically, a larger portion of our annual EBITDA is earned in the second half of the year, driven by the seasonality of our media business. We expect this pattern to continue, with strong contributions from the Toronto Blue Jays and Sportsnet, as well as continued efficiency improvements across the business.
Q: Can you provide more details on the uptick in video losses in the cable business and the impact of satellite losses?
A: The increase in video losses is more seasonal than a new run rate. Satellite is a mature business, and its losses significantly impact the overall cable revenue decline. Without satellite, the negative 2% revenue decline in cable would have been substantially lower.
Q: How do you view the potential for larger cost rationalization in the industry, especially with the advent of AI?
A: We see significant opportunities for cost reductions through AI and digital transactions. AI tools will help reduce costs in customer interactions and back-office operations. Improving digital capabilities will enhance customer experience and reduce transaction costs, all within our CapEx and OpEx envelopes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
