Rogers rakes it in with iPhone sales

The runaway success of the Apple iPhone 3G in Canada appears to have resulted in a financial bonanza for Rogers Communications, the sole provider of the device in Canada.

Rogers recently posted at 84 per cent increase in third quarter profits, which rose to $495 million, or 78 cents per share, from $269 million, or 42 cents, in the same period a year earlier.

But Rogers’ representatives say they can’t categorically attribute the huge profit spike to iPhone sales – noting that the company spent a whack bringing the device to the Canadian market.

“The iPhone actually drove at least $100 million of extra expense,” said Elizabeth Hamilton, director of corporate communications at Rogers Wireless.

At least one Canadian analyst believes this is a valid claim.

“It would be almost impossible to get a profitability component, especially right now,” says Lawrence Surtees, an analyst with IDC Canada in Toronto, who specializes in wireless communications.  “[The iPhone] is such a new product.”

Surtees says with a big launch such as this one, it typically takes around 24 months for a carrier to recover costs and break even.  “After that it’s gravy. The money becomes pure profit.”

That’s why wireless providers have long term contracts for a least two, ideally a three years, Surtees says. By the third year they get a year’s worth of profit, which Rogers hasn’t seen yet.

According to Hamilton, Rogers has sold 255,000 iPhones between July 11 and Sept. 30 – and a Rogers Wireless press release did note the company had a best-selling weekend when the iPhone was released.

Another Canadian analyst also believes factors other than iPhone sales could be responsible for Rogers’ impressive third-quarter profits.

“The phones are pretty heavily subsidized and it actually takes a few years before they make money on those accounts,” said Mark Tauschek, senior research analyst at London, Ont.-based InfoTech Research.

But he said the iPhone has positively affected other financial metrics at Rogers in the months since its launch.

The device contributed to their “average revenue per user, which was up four per cent, and they added 239,000 new subscribers.”

The impact of these metrics, Tauschek says, will potentially be felt two years down the road, when costs incurred – from subsidizing the iPhone – are recovered by Rogers.

While Rogers Wireless would not confirm the co-relation between its 84 per cent quarterly profit spike, and the iPhone launch, it is significant that AT&T – the Apple device’s exclusive provider in the U.S. – has experienced a similar Q3 windfall.

AT&T reported net income of $3.23 billion for the third quarter of 2008, up from $3.06 billion in the third quarter of 2007. Revenue grew from $30.1 billion to $31.3 billion, the company said.

About 2.4 million AT&T customers activated iPhone 3G devices during the quarter, with 40 per cent of them being new AT&T customers, the company said.

The iPhone is built for a GSM (global system for mobile communications) network, and as Rogers Wireless is the only carrier with a GSM national network in Canada, it became the sole provider of the iPhone here.

Other major Canadian carriers use the CDMA (code division multiple access) network, which until recently only allowed for roaming within North America.

But Rogers may not enjoy its privileged position for long.
Bell Canada Enterprises (BCE) Inc. and Telus Corp. formally announced an agreement to build a 3G wireless network together. The billion-dollar undertaking is expected to be completed in time for the 2010 Vancouver Winter Olympics.
The high-speed network is based on the latest version of high-speed packet access (HSPA) technology and will provide both companies with a clear pathway to the emerging 4G long-term evolution (LTE) standard.
“I was actually a little bit surprised they said they were going to do build 3G GSM network, I would have thought they would have gone straight to 4G,” noted Tauschek, “They might as well do it now because they’re going to have to do it at some point.”
Both Bell and Telus will be using wireless equipment sourced from Nokia Siemens Network and China’s Huawei Technology Co. Ltd. to upgrade their network.
Does this mean Canadian consumers will be able to get their iPhones from other carriers as well?

Experts say that’s unlikely, at least in the near future.

They note that Apple typically chooses a single provider per country to sell the iPhone and Rogers has already established a relationship, so it’s sitting pretty.

Apple’s practice of partnering with a single carrier per country is unlikely to change next year or the year after, said Tauschek.

While Rogers’ may not have to worry about losing its “exclusive” iPhone provider status, the supremacy of the iPhone itself as the smart phone of choice for consumers may be in question.

There’s going to be all kinds of cool new smart phones coming out, such as the Google Android and Blackberry Storm, Tauschek notes. He says Canadian consumers can also look forward to seeing prices drop, more creative plans, and increased compatibility to roam around different networks.

“In the last quarter Apple’s worldwide unit sales overtook those of Waterloo, Ont.-based Research in Motion (RIM) Ltd. in terms of– Apple sold 6.9 million iPhones, while RIM sold 6.1 million BlackBerrys,” said Tauschek.

However, he says RIM’s BlackBerry Storm, which is slated to be launched in Canada by the end of the year, could offer stiff competition to the iPhone.

And on the carrier front, Rogers appears to be gearing up for greater competition.

On Oct. 1 the company revised its iPhone voice and data packages– offering customers greater bandwidth for their buck. For $60 a month users now get 250 voice minutes and 1GB of data (up from 400MB), while $75 gets them 400 voice minutes and 2GB of data (up from 750MB).

But the company’s promotional plan that for an additional $30 per month offered users the transfer of 6GB of data is no longer available.

From October 1 Rogers also began offering new data  plans – ranging from $25 per month (for 500MB) to $60 per month (for 3GB) that can be added to an existing wireless voice plan.

According to Tauchek, Rogers looked at their numbers and saw most users were not even close to utilizing 1GB – far less 6GB.

“Armed with that information they decided we don’t need to have a 6GB data plan, no one is going to use it.”

Ever since the iPhone was released the price of the voice-data plans in Canada – which many consumers believe are exorbitant, as compared to what AT&T offers in the U.S. – has been a sore point.

In fact industry insiders believe it was “hardball negotiations” over plan pricing – between Apple and Rogers Wireless – that accounted for the initial delay in bringing the iPhone to the Canadian market.

This is a rumour neither party confirms.

For the second generation 3G iPhone, Tauschek says that there was speculation that the 400MB, 150min, $60 plan was just not acceptable to Apple and Rogers caved two days before the launch and offered a 6G plan.

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Jim Love, Chief Content Officer, IT World Canada

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