We are downgrading our recommendation on Rogers Communications Inc. (RCI) to Underperform following its weak financial results for the first quarter of 2012, which missed the Zacks Consensus Estimates. Rogers is currently facing tremendous pressures in all three business segments. The Canadian Wireless market has become increasingly competitive exerting huge pressure on Rogers’ ARPU and margins. In the previous quarter, the growth rate of the wireless data revenue slowed further.
Meanwhile, the Cable segment has started facing the brunt of the aggressive rollout of IPTV by its competitor. Moreover, the Media segment is facing the continued softness of the advertisement market. We believe huge competitive threats in all front may jeopardize the company’s free cash flow and profitability in the future reporting quarters. We do not find any immediate growth catalyst for Rogers Communications.
Incumbent competitors, such as BCE Inc. (BCE) and Telus Corp. (TU), have already launched iPhone 4. These two entities partnered to launch their CDMA based wireless networks with HSPA technology enabling them to access a wider selection of wireless devices, and compete for HSPA roaming revenue, which are expected to increase with time as HSPA becomes more widely deployed.
Rogers’ Cable operations are currently facing increased competition. BCE Inc.’s entry into cable TV services is increasing competitive pressure, and may likely, in our view, shave Rogers’ market share and cap margin expansion. BCE Inc. is aggressively rolling out IPTV network, resulting in loss of 21,000 video subscribers of Rogers in the previous quarter. BCE Inc. is offering triple-play services with highly attractive prices, which is quite popular particularly among the lower-end of the market segment.Read the Full Research Report on TU
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