Lower U.S. roaming rates and a move to two-year cellphone contracts proved a drag on the wireless division of Rogers Communications Inc., lowering its third-quarter revenue by two per cent to $1.85 billion.
But the Toronto-based telecom company reported a slightly higher profit on Thursday with its third-quarter adjusted net income up one per cent from last year to $501 million, just ahead of analysts' expectations.
In its wireless division, Rogers said it had 64,000 net new customers in the quarter on multi-year contracts, down from 76,000 in the same quarter last year. These customers, usually Apple, Android or BlackBerry smartphone owners, are the most valued for the amount of money they spend monthly.
"My sense is that all of the changes in the industry associated with the transition..from three to two-year contracts, along with the timing and impact of device launches in the quarter, combined to moderate market growth somewhat," CEO Nadir Mohamed told financial analysts on his final conference call before he retires in December.
Mohamed said lower roaming rates dropped the average monthly revenue taken in from mobile phone users to $60.81, down 1.8 per cent year-over-year.
Canaccord Genuity analyst Dvai Ghose said he expected Rogers to have 90,000 net new customers, adding that the company's overall results in the wireless division were disappointing. But he anticipates better from Bell and Telus, which will report their financial results in early November.
"We expect 100,000-plus postpaid net additions from Bell and Telus, reflecting Rogers continued market share issues," Ghose said in a research note.
Revenue in Rogers' cable division, which includes Internet and TV services, was up four per cent to $873 million. Rogers said its Internet service represents more than a third of the division's revenue.
But Rogers did lose 39,000 net basic cable subscribers, down 5.5 per cent year-over-year.
Mohamed said aggressive pricing from Bell's Internet protocol TV service and "some ongoing cord cutting" contributed to the loss of TV subscribers.
Canadian telecoms have been a key target this year of the federal government's "consumer-first" agenda that has pushed for reducing the length of cellphone contracts to two years, more foreign competition in the industry, lower roaming rates and more choice in the selection of TV channels.
Netflix, the internet video subscription service, has also offered a challenge to telecoms. But Mohamed said he doesn't consider Netflix a threat because it's no different than Rogers offering channels from its competitors.
He also said Netflix could eventually be offered by Rogers if certain technical issues could be resolved. Netflix is said to already be in talks to add its service to the set-top boxes of U.S. cable-television operators.
"We've got to work through the set-top box issues, but the direction is clear and that's to give customers choice," Mohamed said later in a media call.
In its financial results, Rogers (TSX:RCI.B) said it earned 97 cents per share on a diluted basis, up from 96 cents or $495 million in the third quarter of 2012.
Analysts had projected Rogers would have 96 cents per share of adjusted earnings, according to Thomson Reuters estimates.
The telecom and media company's operating revenue grew two per cent to $3.22 billion from $3.18 billion in the third quarter of 2012.
Rogers' overall revenue was slightly below estimates as its wireless sector experienced a two per cent decline from last year, dropping to $1.85 billion from $1.89 billion.
The company has Canada's largest base of wireless subscribers with almost 10 million customers, operating the Rogers, Fido and Chatr brands.
Net income under standard accounting was $464 million, or 90 cents per share, essentially flat from a year earlier when it was $466 million, or 90 cents per share.
Shares in Rogers were down 3.1 per cent, or $1.48, to $45.60 in afternoon trading on the Toronto Stock Exchange.