Rogers Cable Ramping up for VoIP - Maybe?

Yesterday, Rogers announced its year-end 2005 numbers. Not quite as fancy an event as BCE's earlier this month, but the overall performance is quite good. Revenues are up, profits are up, subscriber growth is up, and churn is down.

As with BCE, wireless is the story, and the basic results reflect a healthy market that has relatively little competition. One thing is for sure, as oligopolies go, Rogers and Bell are pretty well managed. Their vision is another story, but for the most part, they're pretty good at keeping the markets to themselves.

Not much to talk about there. I just wanted to focus a bit on their telecom operations. Unfortunately, I missed the call, but from all accounts, Rogers plans to add 200k to 250k cable telephony subscribers in 2006. That's a healthy number for this market, and at face value, should give Bell - their main, and practically only rival - cause for concern. Mark Evans had a nice post on this, and served as a coda to a recent post of his about the overall outlook for cable telephony subs in Canada.

Having had a quick read through their reported results on telephony, I'm not so sure about where they're coming from on this, and am wondering how they're going to get this kind of takeup.

From what I can see in their filing, Rogers only had about 48,000 cable telephony subscribers at the end of 2005. The service launched on July 1 (Canada Day if you're keeping score), and coincided with the closing of their Call Net acquisition, where they inherited about 500,000 residential POTS subscribers.

So, 48,000 subs in 6 months - I'm assuming these are new adds for their VoIP service. It's not clear if these are coming at Bell's expense, or just conversions from their Call Net subscribers.

Nevertheless, any guesses as to how much we're talking about in terms of revenues? Well - it's $3.8 million. That's not much of anything, and I'm sure Time Warner spends that much on lunch money every few weeks. Of course, there's a honeymoon period with free service for new subs, etc. But, really, this is not going to scare anybody.

Stepping back, Rogers had about 2.3 million cable subs at year end, and a little under 50% have broadband - about 1.1 million. With 48,000 subs, that's a 4% penetration of broadband users. Not bad, actually.

For Rogers to hit their target of 200-250k additions, that means coverting something like 20-25% of their Internet customers. That sounds pretty amibitious to me, especially when you consider how low key their marketing has been so far. So, if that's the plan, we should expect to see some pretty sexy advertising any day now, and some pretty happening bundles to get this machine going.

I'm not saying that it can't happen, but Rogers is pricing VoIP "rationally" and not leaving money on the table the way Videotron is. So, I wouldn't look to Videotron's numbers for a precedent for Rogers.

Ditto in the West, where Shaw is having pretty good success, with what I would consider a premium-priced offering. However, they are in a less competitive market, and their main competition - Telus - is not as formidable as Bell in the East. Telus has had a host of problems that are largely over, but they have created enough dissatisfaction to cause many to jump at the first available alternative - Shaw. Secondly, Telus does not have a consumer VoIP offeirng yet, and cannot counter Shaw the way Bell can with Rogers.

So, I just don't know. It doesn't really add up for me, but you never know. There are many wild cards here, such as where the CRTC VoIP regulations will fall, how aggressive Bell will be with IPTV, and how much priority Rogers will give to its real money-makers - video and wireless - compared to the pocket change they're getting so far from VoIP.