Rogers chief executive warns excessive regulation may lead to ‘digital divide’ in cell service
Rogers Communications Inc. chief executive Joe Natale is warning federal regulators that that any changes that negatively affect his company could lead to curtailed capital investment, especially when it comes to the rollout of the company’s nascent 5G wireless network.
“Punitive regulation will slow, or worse, stall 5G deployment. An expansion of rural connectivity will happen at a snail’s pace, if at all,” Natale said on a conference call with analysts following the release of Rogers’ fourth-quarter earnings Wednesday.
The Canadian Radio-television and Telecommunications Commission is currently conducting a review of the wireless sector in Canada, and looking into creating a regulatory framework for mobile virtual network operators (MVNOs) — smaller companies that can buy access to national wireless networks at wholesale rates and offer competing service to customers.
In an interview with the Financial Post, Natale said that sort of wholesale marketplace in wireline internet has led to a digital divide between urban and rural areas, and MVNOs would recreate that dynamic in wireless.
“We’re going to be the ones that invest in 5G. Resellers that come along that have no infrastructure, that have no capital to invest, they’re not going to be building 5G,” Natale said.
“So if the regulatory environment is created such that it impairs our ability to drive investment, we’re going to have to cut and pull back.”
Natale’s warning came as Rogers, along with other wireless providers, is transitioning its businesses for a data-intense future, a shift reflected in its full-year 2019 financial results and the outlook for the coming year.
For the second consecutive quarter, Rogers reported a decline in services revenue driven by a reduction in overage fees as customers shift to unlimited data wireless plans.
So if the regulatory environment is created such that it impairs our ability to drive investment, we’re going to have to cut and pull back
Joe Natale, Rogers CEO
Rogers added 131,000 postpaid wireless subscribers in the fourth quarter of 2019, and the company said that it now has 1.4 million people subscribed to its Infinite unlimited data plans.
But the company reported a one per cent decline in services revenue, largely because they’re collecting less in data overage fees.
In 2019 Rogers had net income of $2.04 billion on overall revenues of $15.07 billion.
For 2020, Rogers chief financial officer Tony Staffieri said they’re expecting both revenue and earnings to be flat overall. In the first half of the year they expect declines as more people sign up for those unlimited plans, but that transition will be finished by the middle of the year.
“We expect service revenue growth for the year to be between positive two per cent and negative two per cent,” Staffieri said.
“We anticipate the first half of 2020 to reflect negative year-over-year growth in both (service revenue and EBITDA), abut in the second half of the year we continue to anticipate these numbers to resume year-over-year growth.”
The company forecast capital spending between $2.7 billion and $2.9 billion, but Natale told analysts that if they get hit with unfavourable regulatory decisions, the Rogers might curtail spending below the bottom end of that range.
Maher Yaghi, equity analyst with Desjardins Capital Markets said that the threat to cut back on capital investment probably isn’t just sabre-rattling.
“You look at what other companies in other parts of the world have done, when faced with that kind of outcome they have cut their capex significantly,” Yaghi said.
“That’s a decision that will reduce profitability for these companies significantly.”
Natale argued that the unlimited data plans represent a major decrease in prices to consumers, because on a per-gigabyte rate they’re much cheaper.
“We’ll continue to drive the affordability because we want our products to be used more by Canadians,” Natale said.
“Wireless prices have come down by 50 per cent over the last five years, and in fact with the launch of unlimited and Infinite just a few months ago, that sticker price has come down 25 per cent for an equivalent amount of data.”