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Room for ‘reasonable’ price increases for TV, internet, says Cogeco CEO

Written by on July 11, 2019

TORONTO — The CEO of Canada’s fourth-largest publicly traded cable and internet company said Thursday that there’s still room to introduce “reasonable” price increases despite competition from other technologies.

A relatively small proportion of Cogeco’s television subscribers are cord-cutters, who drop cable in favour of “over-the-top” services such as Netflix, Cogeco chief executive Philippe Jette told analysts.

Even for those who “cut the cord,” there’s more dollars available from them to increase speeds on their internet, he said.

“So we see capacity for price increases in the future, being reasonable and making sure customers see the value we’re bringing to the table.” 

Likewise, Jette said he’s not concerned about wireless plans from rival carriers that charge a fixed monthly fee for unlimited amounts of data over wireless networks, subject to a speed slowdown after a certain level.

He said a typical residential internet customer uses about 160 gigabytes of data per month and transfer speeds over Cogeco’s updated lines are up to one gigabyte per second — with 10 gbps speeds on the horizon.

“So there’s a huge, huge difference in using a wired network versus a wireless network and homes are largely consuming from their wired connection. . . . And this is here to stay.”

Jette said that an erosion of Cogeco’s Canadian television subscriber base from March to May was bigger than usual due to temporary issues, as was slower than usual growth in home internet subscriptions.

A price increase introduced in January, new marketing initiatives and the positive impact of a new customer management system — to replace the one that caused problems last year — will restore revenue growth, he said.

Cogeco estimates revenue growth at its Canadian cable and internet arm will be in the “low single digits” in the fourth quarter and fiscal 2020, compared with a one per cent decline in the third quarter

It also estimates that its U.S. cable operations in 11 eastern states will have slightly stronger growth.

Analysts said earlier they were surprised by the reported financial and subscriber strength of Atlantic Broadband, Cogeco’s the main U.S. subsidiary.

Notes issued by RBC Dominion Securities and Canaccord Genuity say Cogeco’s addition of about 14,000 U.S. internet subscribers (about double the estimate) was partly due to a Florida acquisition early this year.

They also say Cogeco’s preliminary outlook for the 2020 financial year, which begins Sept. 1, is slightly stronger than anticipated because of Atlantic Broadband.

Cogeco Communications reported late Wednesday that it had $587.3 million of revenue for the third quarter, up 3.6 per cent from a year ago or 1.7 per cent after adjusting for $10.8 million in positive currency effects.

Net profit was $182 million, including $82.45 million from discontinued operations that have been sold. Diluted earnings per share totalled $3.59, including $1.65 from discontinued operations.

Last year, Cogeco Communications had $567.1 million of revenue and a profit of $65.2 million, or $1.24 per share including a loss of 11 cents per share for discontinued operations.

The discontinued operations included Cogeco Peer 1, a managed IT service provider that was sold April 30 for $720 million cash, which represented an $82.4 million gain recorded in the third quarter ending May 31.

The company says it will use some of the proceeds from Peer 1 to repurchase up to 1.87 million subordinate voting shares by May 20, 2020.

Cogeco Communications is a publicly traded subsidiary of Cogeco Inc., which also owns radio and television businesses in Quebec.

Cogeco Inc.’s net profit was $185 million, including $82.45 million from discontinued operations. Diluted earnings per share totalled $3.68, including $1.61 from discontinued operations. Revenue was $617.6 million.

Cogeco Inc.’s shares gained $5.20 or 6.3 per cent at $87.25 in afternoon trading on the Toronto Stock Exchange. Cogeco Communications shares were up $5.41 or 5.8 per cent at $99.26.

 

Companies in this story: (TSX:CCA, TSX:CGO)

David Paddon, The Canadian Press