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3. S w 9B11M015 1 ROGERS COMMUNICATIONS INC. Kevin Melhuish wrote this case under the supervision of Professor Ariff Kachra solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected]. Copyright © 2011, Richard Ivey School of Business Foundation Version: 2011-05-03 Always keep the number one in the market in your cross-hairs. Avoid getting distracted by targeting number four or five. There’s a reason those companies are not number one. 2 Always aim high and look for vulnerability in the market leader. –Ted Rogers, Founder of Rogers Communications Inc. Nadir Mohamed, president and chief executive officer (CEO) of Rogers Communications Inc. (Rogers) considered these words from the company’s founder, Edward ‘Ted’ S. Rogers. It had been nearly two years since Mohamed had taken the reins of the company following Ted’s death at the age of 75. During this interval, competition in the telecommunications industry in Canada had intensified and brought an assembly of changes. Innovation was at an all-time high, and the notoriously rapid pace of change in the industry was accelerating. Rogers was a force to be reckoned with in all areas of the telecommunications sector including wireless, television, Internet and landline telephone. Rogers had impressive 2009 results, growing profits by approximately 23 per cent from the previous year, but Mohamed still contemplated the Use outside these parameters is a copyright violation. future growth opportunities of the company that he now controlled. From his vantage point on the 10th floor of Rogers’ corporate headquarters, Mohamed could see Ted’s former office, which had since been converted into a boardroom. As he stared across the hall, Mohamed asked himself two pressing questions: What were Rogers’ vulnerabilities, and what should be the strategic direction of the company moving forward? THE TELECOMMUNICATIONS INDUSTRY There was an intense race for market share in the telecommunications industry: consider that in 2009, Rogers incurred expenses of $4333,4 to acquire each new customer. By comparison, Rogers’ two biggest For use only in the course Administrative Policy at University of Manitoba taught by Jijun Gao from May 06, 2019 to August 02, 2019. 1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Rogers Communications Inc. or any of its employees. 2 Ted Rogers and Robert Brehl, Relentless: The True Story of the Man Behind Rogers Communications, HarperCollins, Toronto, 2008, p. 115. 3 All amounts are denominated in Canadian dollars unless otherwise indicated. 4 Rogers Communications Inc. 2009 Annual Report. 29 Page 2 9B11M015 competitive threats, BCE (Bell) and Telus, had costs of acquisitions of $3505 and $337,6 respectively. To retain existing customers, Rogers offered discounts of five, 10 and 15 per cent, respectively, for those who bundled two (double play), three (triple play) or four (quadruple play) services together (see Exhibit 1). Bundling also helped to reduce churn, which was the percentage of customers who discontinued their services and often switched to a competitor over a given period of time. Historical churn rates in Canada had ranged from between 1.00 to 1.70 per cent.7 Wireless technologies, and more specifically mobile devices, were driving revenues in this capital intensive industry. Prior to the emergence of wireless, wireline technologies such as television, Internet and landline telephone services fuelled the industry’s growth. Wireless Rogers, Bell and Telus were Canada’s three national wireless carriers and collectively serviced approximately 95 per cent of the country’s total subscribers. Rogers owned 37 per cent market share representing 8.5 million customers, and competed in the wireless marketplace under its Rogers Wireless, Fido and Chatr brands. Bell controlled 30 per cent market share, serving 6.8 million customers under its Bell Mobility, Virgin Mobile and Solo Mobile brands, while Telus claimed 28 per cent market share representing 6.5 million customers under its three brands: Telus Mobility, Koodo and Mike. Each flagship and discount brand offered similar voice and data plans that were competitively priced. Each carrier also had comparable relationships with major mobile device suppliers, and provided a portfolio of smart phones and talk-and-text cell phones that were available to their consumers and enterprise customers. For selected year-over-year wireless and wireline customer statistics across competitors, (see Exhibit 2: from 2006 to 2009 Rogers’ and Telus’ wireless subscriber base has grown by 8 and 9 per cent respectively. Bell’s subscriber growth rate has been five per cent. Wireless penetration in Canada, meaning the percentage of the population who owned a mobile device, was 69 per cent in 2009. Penetration in Canada was expected to grow by approximately four to five percentage points each year for the next several years. By comparison, the United States had a penetration rate of 93 per cent, while residents of the United Kingdom had more than one device apiece at 129 per cent penetration. Globally, the most significant growth for wireless was in the Asia-Pacific region: China and Use outside these parameters is a copyright violation. India both had relatively low levels of penetration at 46 per cent and 30 per cent, respectively.8 Mobile Devices Rogers and Bell had undertaken similar strategies in recent years by pushing customers to adopt smart phones, while Telus had focused on price-sensitive customers that used talk-and-text devices. More than half of Canada’s smart phone users were Rogers' subscribers, and 31 per cent of all Rogers Wireless customers were smart phone users in 2009, up from 19 per cent in 2008. Furthermore, Rogers activated approximately 1.5 million smart phones in 2009, of which 55 per cent were upgrades from existing customers while 45 per cent were from new subscribers. For use only in the course Administrative Policy at University of Manitoba taught by Jijun Gao from May 06, 2019 to August 02, 2019. 5 BCE Inc. 2009 Annual Report. 6 Telus Corporation 2009 Annual Report. 7 Rogers, BCE and Telus Annual Reports. 8 “Asia Pacific Mobile Observatory: The Parallel Development Paths of the Mobile Industry in Asia Pacific,” GSM Association and A.T. Kearney, http://www.atkearney.com/images/global/pdf/GSMA_AsiaReport.pdf, accessed on June 27, 2010. 30 Page 3 9B11M015 Nokia, Samsung and LG had the most significant presence amongst mobile device manufacturers globally, and controlled approximately 28, 17 and seven per cent of total worldwide market share, respectively. 9 Apple and Research in Motion (RIM) were the fourth and fifth largest global suppliers, each owning approximately three per cent total worldwide market share. In Canada and the United States, however, RIM and Apple were the most prominent mobile device manufacturers with approximately 12 per cent market share each and used their own proprietary software on their devices. Conversely, Google’s open- source software, Android, was the most widely adopted mobile operating system in North America, and more than one-quarter of all smart phones worldwide were Android devices. Samsung was the top Android seller worldwide, but other mobile device manufacturers including Motorola and HTC used Android software on select devices. RIM’s relationship with Rogers and Bell dated back to 2000, while Telus first partnered with the BlackBerry manufacturer in 2003. Initially targeted towards enterprise customers, RIM had begun to increase its presence within the consumer segment. In 2009, RIM provided services to approximately 25 million subscribers on more than 475 wireless carriers worldwide, and BlackBerry handheld sales accounted for 82 per cent of RIM’s total revenues. Service contributed to 13 per cent of RIM’s revenues, while other software accessories tallied the remaining five per cent of the company’s top-line.10 Geographically distributed, 63 per cent of RIM’s revenues came from the United States, eight per cent from Canada, six per cent from the United Kingdom and 23 per cent from the rest of the world.11 Apple launched the iPhone in Canada in July 2008; Rogers remained the exclusive Canadian provider of the iPhone until November 2009, when Bell and Telus gained access to the device upon upgrading their wireless networks. Originally launched as a consumer product, Apple had seen its market share increase in the enterprise segment. In 2009, iPhone sales made up approximately 18 per cent of Apple’s total revenues, while Macs (Apple’s personal computer product) generated 38 per cent of the company’s top-line; in addition, iPod and iTunes sales respectively contributed 22 per cent and 11 per cent of the company’s total revenues.12 Apple also launched the iPad, its tablet computer product in 2010. RIM’s response to the iPad, the BlackBerry Playbook, was scheduled to be released in 2011. The relationship between mobile device manufacturers, wireless carriers and consumers was interesting, especially given that consumers were demanding more sophisticated devices such as new BlackBerry and iPhone models that commanded high price points. As a stand-alone device, an iPhone cost between $650 Use outside these parameters is a copyright violation. and $750 depending on the model, yet consumers only paid between $150 and $250 for the newest device.
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