Rogers CEO warns a bad regulatory policy could stop investment 'in its tracks'

TORONTO — Canada's communications companies need to continuously update their networks and that means they need a regulatory environment that creates incentives for investment, Rogers chief executive Joe Natale said Thursday.

"Our networks are a living, breathing organism. And they need constant growth and investment," Natale told shareholders of Rogers Communications Inc., owner of one of Canada's biggest wireless networks.

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He added that the industry needs "the right policies" to ensure the right investments are made for the long term — after noting that Rogers has spent $30 billion on wireless networks over 35 years.

"Regulation will never be a substitution for innovation . . . At its worst, it is a barrier that stops innovation, and investment, in its tracks."

The comments seemed like a message to the federal government, particularly Innovation minister Navdeep Bains, who recently announced a new policy direction for telecommunications in February.

The proposed policy, which is going through an approval process, signalled a lower priority for investments in telecom networks and a higher priority for lowering prices through a wider range of competition.

That was followed by a CRTC announcement in March that it was beginning a review of Canada's mobile wireless market with the "preliminary view'' that there should be more opportunity for mobile virtual network operators (MVNOs).

Natale said Thursday in an interview Rogers agrees with "the philosophical direction" of increasing telecom affordability for Canadians if it's "underpinned by investment and investment returns for the people who are making the investment."

"Create an environment with a light regulatory touch, create an environment where there are incentives for people to enter the market . . . and I think you can have the best of both worlds."

He said MVNOs — which buy capacity on mobile networks from other companies that have built their infrastructure — may have led to lower consumer prices in some countries but reduced investments and network quality.

Earlier Thursday, Natale told analysts that Canada's wireless industry experienced an unusually slow first quarter, with subdued promotional activity in January and February, but suggested the pace will pick up as the year progresses.

"Overall, we have confidence in our long-term growth plans, and remain on track to deliver on our healthy outlook for 2019."

"We continue to see robust growth opportunities. It may not be as high as Q4 (2018) . . . but still very healthy growth overall."

Several of the company's financial metrics fell short of analyst estimates in the first quarter.

On an adjusted basis, Rogers said it earned $405 million or 78 cents per share for the quarter ended March 31, down from an adjusted profit of $477 million or 90 cents per share a year ago.

Revenue totalled nearly $3.59 billion, down from $3.63 billion in the same quarter last year. The wireless division accounted for $2.189 billion in revenue during the first quarter.

Analysts on average had expected a profit of 94 cents per share and revenue of $3.72 billion, according to Thomson Reuters Eikon.

Rogers reported 23,000 net additions to its post-paid wireless services — down from the year-earlier net addition of 95,000 postpaid subscribers. The consensus estimate had been for the net addition of 84,000 postpaid subscribers.

Last week, rival Shaw Communications Inc. said its mobile arm — which only has networks in Ontario, Alberta and British Columbia — had a net gain of 64,700 postpaid subscribers.

Analyst Aravinda Galappatthige of CanaccordGenuity said in a research note to clients that 2019 growth may be "a lot more moderated" than in 2017 and 2018 and more competition from Shaw's Freedom Mobile, especially in the West.

He said CanaccordGenuity has lowered its estimates to the lower end of the Rogers 2019 guidance range and lowered its price target for Rogers stock to $70 per share from $75 per share.

Rogers stock closed Thursday at $68.90 on the Toronto Stock Exchange, after falling $2.04 or 2.9 per cent.

Companies in this story: (TSX:RCI.B)

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