UPDATE 2-Canada's Rogers protects wireless margin, growth slips

Thu Jul 24, 2014 10:11am EDT

(Adds executive comments from conference calls, share price)

By Alastair Sharp

TORONTO, July 24 (Reuters) - Rogers Communications Inc chose quality over quantity in the second quarter, shunning wireless promotions in order to protect margins as mobile subscriber growth fell.

The company, Canada's largest mobile phone company, took a 24 percent hit to net income, it said on Thursday, but investors cheered the early results of a refreshed business strategy with a 2.7 percent share price rise in early trade.

"Given low expectations and the lack of change in 2014 guidance, today's release may provide some relief," Canaccord Genuity analyst Dvai Ghose wrote in a note to clients. "All in all we see some signs of progress."

Rogers added 38,000 net wireless subscribers on contracts, a sharp drop from the 98,000 added a year ago. But the average Rogers wireless customer, a blend of contract and prepaid subscribers, paid more per month in this quarter, at C$59.18, versus the previous one.

The lower volume of smartphone sales and upgrades, which Rogers must pay upfront to handset manufacturers, helped lift adjusted operating profit for the unit.

The Toronto-based company, which is also a major cable television provider, faces tough competition in its major markets and uncertainty around government policy that could usher in an upstart challenger.

Quebecor Inc, a regional operator, has said it would consider buying small rivals to expand to become a fourth national wireless operator, a key goal of the federal government's telecom policy.

"There's a lot of froth at the moment," Rogers Chief Executive Guy Laurence said on a conference call with analysts, referring to the potential for a new competitor to emerge. "That creates some nervousness in the marketplace and you see that reflected I think in everyone's share price right now."

Rogers has network-sharing deals in place with Quebecor, and Laurence said he would wait to see if they do decide to expand before considering how that relationship might change.

Profit at the cable division, Rogers' second-largest, slipped as the company lost a net 33,000 cable TV customers and landline phone and Internet service sales barely grew.

Rogers said net income dropped to C$405 million ($378 million), or 79 Canadian cents a share, from C$532 million, or C$1.03 a share, a year ago. Revenue was stagnant at C$3.21 billion, despite several data center and cable network acquisitions in the last year.

Excluding restructuring and acquisition costs and stock-based compensation, Rogers earned 84 Canadian cents a share, in line with the average analyst estimate in a poll by Thomson Reuters I/B/E/S. Revenue also came in as expected.

The company said it has cut almost 15 percent of management positions at and above the vice president level and several hundred mid-management jobs in a rejig to be done by September.

Laurence presented a plan of attack to his board in May that has so far resulted in less promotional pricing to attract and retain wireless customers. (Editing by Franklin Paul, Jeffrey Benkoe and Meredith Mazzilli)

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