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Neutral on Rogers Communications

Zacks Equity Research

We reiterate our long-term Neutral recommendation on Rogers Communications Inc. (RCI). In the previous fiscal, the company achieved quite a few milestones including the sale of the highest number of smartphones to new customers, the highest number of smartphone activation, and a significant increase in wireless data revenue. We believe the company will continue to perform well as it has become the first wireless carrier in Canada to launch super-fast (4G) LTE networks.

In the previous quarter, wireless segment activated a historic high 791,000 smart-phone devices (up 24.6% year over year). Most of these smartphones are either iPhone of Apple Inc. (AAPL), BlackBerry of Research In Motion Ltd. (RIMM) or Google Inc. (GOOG) developed Andriod-based handsets. Of the total, approximately 277,000 (around 35%) were new smartphone subscribers, which is also a historic high figure. Smartphone customers now constituted 56% of overall Postpaid subscribers compared with 41% in the year-ago quarter.

Meanwhile, the Canadian wireless market has become intensely competitive and has already started putting pressure on Rogers’ margin. Rogers is gradually deploying its high-speed HSPA+ wireless network and DOCSIS 3.0 cable network to sustain future growth. The company has decided to diversify in the mobile banking segment. This was mainly attributable to massive growth of smartphone, which can be used as an electronic wallet.

Rogers Communications recently declared a new capital return program. The Board of Directors has approved an 11% increase in the annualized dividend to C$1.58 per share effective immediately. Further, the Board has approved a renewed share buyback program for repurchasing up to C$1.0 billion of Class B Voting shares on the open market during the next twelve months.

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