By Alastair Sharp
TORONTO (Reuters) - Rogers Communications Inc , Canada's largest wireless telephone company, reported quarterly results on Wednesday that were much weaker than expected, blaming regulator-mandated changes to its wireless pricing that hit revenue and profit.
Shares in Rogers fell more than 5 percent to a five-month low after the company, also a major cable-TV provider, released the results and pointed to more tough times ahead.
"I'd like to see better execution on the wireless front. On cable, I wouldn't say they are doing horribly, but they could improve," said Dave Heger, an analyst at Edward Jones.
Heger recommends buying Rogers stock based on a heavily discounted price relative to its potential if it runs its businesses more effectively.
"Guy Laurence has his work cut out for him to reinvigorate the business," he said, referring to Rogers' new chief executive, Guy Laurence, who left Vodafone UK to take the job late last year.
The company's ability to command a premium price for its Internet, television and telephone services has suffered in recent quarters as rivals match its technical prowess and offer heavy promotions to win market share.
Toronto-based Rogers added 34,000 net postpaid wireless subscribers in the fourth quarter, far fewer than expected and down from 58,000 a year earlier.
Postpaid customers sign multiyear contracts and typically pay much more each month than prepaid subscribers, and are therefore highly coveted by telecom executives.
By comparison, rival BCE Inc's Bell Canada unit said last week that it added almost 120,000 contract wireless customers in the fourth quarter.
The monthly bill of an average Rogers wireless customer, a blend of pre- and post-paid users, was little changed from the previous quarter at C$58.59.
Canaccord Genuity analyst Dvai Ghose said both Rogers' operational and financial results missed analysts' estimates across the board and that Rogers deserves the valuation discount it is getting relative to its main competitors, BCE Inc and Telus Corp . Telus is due to report quarterly results on Thursday.
Rogers said it was hurt by changes to its wireless pricing strategy that were forced by the introduction of a federal wireless code which, among other changes, shortened the maximum length of a phone contract to two years from three.
The company's media unit also notched a slip in profit as it shouldered the cost of broadcasting more National Hockey League (NHL) games.
Rogers will have to get used to paying for hockey, Canada's most popular spectator sport, after signing a C$5.2 billion ($4.7 billion) 12-year deal in November to broadcast NHL games.
That deal was a major victory over BCE as each has raced in recent years to buy content to distribute on smartphones, tablets, computer screens and televisions.
FOCUS ON LOOKING FORWARD
Rogers lost 28,000 cable-TV subscribers in the fourth quarter, and that was a bright spot as investors had expected it to lose more. The company added 13,000 Internet customers.
"As I was only here for the last few days of the year, I will focus my comments more looking forward," CEO Laurence said on his first earnings conference call, in which he provided little concrete guidance.
"However, I will say that with respect to the results of Q4 and certain of the trends, that whilst there are areas of strength overall, they are not satisfactory to me and over time I expect to do better."
Excluding one-off costs, earnings fell to C$357 million ($323 million), or 69 Canadian cents a share, in the quarter from C$448 million, or 86 Canadian cents, a year earlier.
Analysts, on average, had forecast a profit of 74.5 Canadian cents a share, according to Thomson Reuters I/B/E/S.
RBC Capital Markets analyst Drew McReynolds said the results were mildly negative for Rogers and signal tough times ahead for its main wireless and cable businesses.
The company said it will increase its annual dividend by 5 percent, while analysts had hoped for something closer to 10 percent. It said it expects adjusted earnings to be flat in 2014 as capital expenditures flare.
But on its conference call with investors, the company made it clear the higher cash outlays will be temporary. Rogers is currently bidding on 700 megahertz spectrum licenses in a government auction, which will be a major expense.
Net income at Rogers, which also owns television stations, magazines and the Toronto Blue Jays Major League Baseball team, fell to C$320 million from C$522 million. Operating revenue was down 1 percent at C$3.24 billion.
Rogers expects adjusted operating profit to rise to between C$5 billion and C$5.15 billion in fiscal 2014, with growth in the wireless unit of between 1 and 5 percent.
Its shares were down 4.8 percent at C$43.50 at midday on the Toronto Stock Exchange, on track for their sharpest one-day fall since June. They were at their lowest point since September.
(Editing by Chizu Nomiyama; and Peter Galloway)