IN OUR EVER-MORE connected world, there are fewer secrets. People talk, they e-mail, they SMS, Facebook, tweet and YouTube.
They often use those outlets to speculate, pontificate, fustigate, postulate and guesstimate. Which means those “secrets” are sometimes true. Sometimes not. Sometimes educated guesses. Sometimes hopeful. Sometimes fuelled by less than good intentions.
So, it’s a good idea once in a while to take a few of those secrets and rumours floating around and ask someone in charge about them – and also to put the issues of the day facing our industry in front of someone at the top.
For this Cartt.ca IN-DEPTH, that person is Rogers Communications chief Nadir Mohamed (pictured). We packed in as much as we could in our 30 minutes with the man driving what we’ve come to call the big red machine and what follows is an edited transcript of our chat from Monday.
Greg O’Brien: I was wracking my brain for an original question to start off with and I finally thought of it in the car on the way here. They were talking on 680 News about RIM reporting results on Thursday, so I looked online – when I stopped. I try not to text when I’m driving…
Nadir Mohamed: That’s smart.
GOB: So I looked and your market cap is now ahead of RIM, where not too long ago, that was definitely not the case. So what do you think that says about the wireless world and Rogers’ place in it?
NM: At the highest level we’re talking about wireless, but clearly, you’ve got different ecosystems where we’re a distribution-content company, and RIM has its own business, between their platform in terms of operating systems and devices – and I think everybody goes through different cycles.
I have to tell you as a proud Canadian I love the company, and we’ve been great partners together. It’s been tremendous for us and hopefully, we’ve helped them. I always remind people that when you look at companies like RIM, where seemingly everybody has a BlackBerry, that we shouldn’t lose sight there’s a huge market in Canada that, frankly, is still available to them, and then you factor in all of the different countries and places that they will have the opportunity to penetrate the market, it’s pretty big.
But when I look at our company, what I find interesting is… you work through different cycles. And we probably talked two or three years ago about the cycle we’re in with some of the changes and what we needed to do and focus on. So I think most people look at Q1 of this year – the last quarter that’s been publicly announced – it’s a quarter that says the game plan is being executed.
In the context of four or five new players in wireless, the two things that we’ve been focused on would be data penetration and retention. Look at smartphones in Q1 – the largest smartphone activation of new customers we’ve had. This is with the most new players, ever. Data growth continues to be phenomenal – 30% growth, (where) 45% is based on smartphones.
So we see that as great, and… it ties into the whole notion of the strength of the franchise and the company. Market cap is more of a financial metric, but if you think of the market as day-to-day, you-and-I-consuming-as-customers, retention’s been a big focus for us and being able to deliver 1.21% churn is pretty good in the context of all of the new stuff that’s going on.
As people look at discontinuity, talk about new players, new challenges, I really focus on the strength of the franchise that we have, and so long as you’re executing a game plan, you don’t get defocused, (but) day in, day out, think about how do you do better with customers – the game plan is unfolding – lots of work as we go forward.
GOB: Are there platforms, apps, devices that are taking a lead or gaining on an iPhone, or BlackBerry in Canada? I know you don’t break down those numbers publicly but can you speak to that a bit and how difficult it is as a company to keep track of all of the stuff that just emerges from around the world? Rogers is a big deal in Canada, but not as far as the global wireless game is concerned, and there’s a lot of stuff coming at you.
NM: Take RIM and Apple and… think from a device perspective, there’s a huge set of options for their devices there. Every day, there’s a new product, a new competitor that seems to be coming into the market.
GOB: And I left out Android, too.
NM: That’s a good lead-in because I was about to say that really, if you step back from that – what we’re starting to see happen is really a platform world that’s being played out. What I mean by that is you’ve got a RIM ecosystem in terms of their operating platform, you’ve got Apple… with fans that will take nothing else and clearly, on the iPhone, iPad, there’s a whole ecosystem that’s being built around Apple in the wireless world.
Then, you’ve got Android, and when you ask me about some of the changes and how you keep up, there is now clearly a huge, significant take on many, many suppliers coming out with the Android operating system.
So in many ways, when you lift up from the devices you really see operating systems RIM, Apple, Android – and Android is clearly growing because lots of hardware players are representing them. Then you’ve got Microsoft/Nokia as another operating platform. The key over time is going to be which platforms win, and fortunately, that’s something that we don’t plan, but we take advantage of each one that’s there.
GOB: But when you’re keeping track of all of those things, does that come out of your R&D budget? And how much of an R&D budget does Rogers have?
NM: Significant. We do a lot of it in terms of supporting R&D… through Ericsson, where we have a relationship. They have one of their largest R&D shops, right in Canada, and that’s a partnership that in many ways, helps their Canadian R&D. We do some of it on our own, but frankly most of our focus is really taking product and service to the market.
Our innovation tends to be around: “How do we get to the market first?” So from that perspective, we’re not directly engaged in the ecosystem R&D, but we’re definitely engaged in taking that to market.
So LTE, which is not R&D, would be a response to: “All of these things, what do they say to us? They say to us that the world is going to be rich with data consumption and video (and) what’s the best platform?”
Well, you’re going to need incredible speeds, incredible throughput, great performance on latency because all of the applications demand that, and to me, that was the thinking that led to, “Let’s get out with LTE. Let’s get ahead of the curve and bring LTE to Canadians first.”
In many ways, that kind of captures the way we approach stuff, and our DNA is to get out there first, so being able to do that says that we can, in a way, take advantage of all of the innovation that’s getting out, and most importantly, get our customers to take advantage.
GOB: I’d like to talk, too, about the vertical integration hearing that’s coming up as well next week.
NM: Nice segué (laughter).
GOB: Exactly.
NM: I thought you did a great article with Phil (Lind, Rogers’ vice-chairman and executive vice-president, regulatory).
GOB: Thanks.
NM: I thought that was fun to read, and knowing Phil, I can just see it – where did you do it?
GOB: Right next door (Lind’s office is right beside Mohamed’s at Rogers’ 333 Bloor St. E. headquarters).
I wrote an article for The Mark… about vertical integration, and one of the points I made was to defend vertical integration, because when we look at this world we live in, it’s hard to keep the borders up for a lot of things.
So how do you defend Rogers when people come to you and say, “Hey, Rogers is too big. Rogers does too many things. You’re going to prefer your own content when it comes to over-the-top video.” There’s just so much involved when you say vertical integration… so what are the messages you’re going to be carrying to the CRTC to say: “Okay, vertical integration is a good thing. We need strong companies to be able to compete if we’re going to make our own content, continue to be Canadian.”
NM: We’ve had media for a long time as a company. I remember three years ago, and even before, sitting with Ted, and a lot of investors would ask us, “Why do you have a media asset within the portfolio?” Of course, the question’s now different because it’s become the de-facto…
GOB: People ask Telus now instead, “Why don’t you have a media arm?”
NM: Exactly, so the world indeed has changed. The reason I go back to that is a couple of years ago, I spent a lot of time trying to understand it because our media portfolio was relatively new to me three years ago. I had been around it, but not directly leading it, and there are couple of observations I think are important.
One is as a media portfolio, we have a breadth of platforms, everything from magazines to radio to conventional TV, specialties, and a great e-business engine called The Shopping Channel. When we looked at it we said “it’s a solid business, makes money as a group, but relatively modest revenue.” What was interesting is the biggest threat and opportunity were platforms – moving from conventional to delivery of that content over the web, whether it was wirelessly or on a wired network.
And at that point, I went, “Geez, that happens to be our strength as a company, and one way or the other, we’ll be able to figure out how to make that intersection of content and wireless and wireline platforms work for the consumer.”
So there are two different things. One is what content do you want to own or have access to, and the second is how do you make it available to the consumer on a platform of their choice across many, many devices and make that intersection work.
GOB: Right.
NM: By the way, that is the centerpiece of our game. It’s saying three or five years from our vision is we’re the company that will make it seamless for consumers to get access to that content, whatever device, whatever platform, wherever they are. That is different from either being in the distribution business or being in the content business, per se.
On the content side, there’s a few observations. One is there’s been lots of talk about exclusives and non-exclusives. I start with a premise, very simple, and as somebody who’s now led this part of the business for some time… when you own media content in Canada, you quickly come to terms with the fact that you don’t want to limit distribution.
We’re not a large country in terms of people, and there isn’t one distributor that generally owns more than a third, at best, of distribution, so you want that content accessed by all Canadians. If you think of linear programming over conventional TV, our premise is very straightforward – that it should be made available to other providers, including online, not just on linear conventional TV. So that’s what informs my thinking.
In fact, I go further and say that if the content’s truly iconic, it’s hard for me to think that Canadians would find it acceptable that you would have to change suppliers or providers to get access to that iconic content. So I think it all works to say generally speaking, (exclusivity) is not going to make sense.
Now, can you have value-add services where you deliver extra content, whatever form that might take in terms of apps? Absolutely. But generally speaking, the big-picture stuff that’s iconic, that’s a must-have for Canadians, I think both sides of the equation – the consumer and the supplier and the content provider – have the same goal in mind, which is access to as many Canadians as possible.
GOB: Especially since a lot of that content is ad-driven, and (your clients) want their ads in front of as many people as possible.
NM: The interesting thing is that the question is defined by conventional media and when you think online and on the net, it’s hard to think of worlds that are defined by three or four players… down to where just about anybody can set up a site or a blog or have content – through to (companies) that are much bigger than us in terms of the Googles of the world or Yahoo, or any one of these players. They’re all going to have content or services or apps on the net, and you don’t have the same bottlenecks. So I think the world changes.
GOB: But what do you say – and now this is sort of a different lane on the same road. What do you say to the folks who are worried or think that Rogers is going to take Netflix and slow down Netflix traffic in favor of Rogers on Demand Online?
NM: It doesn’t really make sense to me… People always ask, “Is Netflix a competitor or a partner?” It really depends on which part of our business. If you look from a distribution perspective, they’re a great provider of content that our consumers want. It drives bandwidth in terms of service that we offer. That’s good for us. If you’re looking at having a comparable movie channel or content that competes, well great. I always come back to, as a service provider, we should never forget that actually the consumer rules, and what you want to do is deliver consumers a great service, so how would it make sense, from a consumer perspective, to throttle content?
GOB: Especially when there’s so many other tools out there that they can use to figure out if anyone is doing it.
NM: When we manage networks and people look at network management, that’s actually done to make it better for consumers. It’s not to throttle. Network management is actually designed to improve service for consumers. The techniques get bogged down, and people say “well, you’re throttling it.” That’s one word to describe it. Another word to describe it is network management that actually makes it more accessible to more Canadians more times. It’s just a different perspective.
GOB: That leads me the next topic, when customers are using Netflix or other online video, they run into bit caps. My ISP, Cogeco, has them, you have them. But Shaw has decided to change and dramatically increase them. What are your thoughts on the retail side of that, before we get into discussing the wholesale side?
NM: We’ve had usage-based billing on both wireless and the wireline for some time, right? I’ll start with the proposition that most Canadians, in my mind, find consumption-based pricing as a reasonably well understood model. It’s no different from many, many industries, and… in fact, done right and done in a consumer-friendly manner, is something people will embrace, and have.
What’s interesting is to go back six months or three months before the wholesale issue came to the forefront. We had the service, and I can categorically tell you that we have lots of challenges in terms of customer service. This has not been a big topic.
If you go back to the adoption of usage- based pricing on the wired side, I think it’s one of the things that we truly did well. I don’t want to sound immodest but… the industry did a good job of making sure consumers knew well in advance, had sample billing, knew when they were going to get to the cap and understood. I think the challenge is when you take pricing at a point in time, and you superimpose demand three-to-five years out and say, “Well, the pricing doesn’t make sense because if you consume this amount of video, you will get well over the bit caps that are in place today.”
The thing that I point out is what we do for a living is continually adapt pricing to fit what we think consumer patterns are. So there’s no question in my mind that caps and throughput will go up just as speeds are going up.
So I think it’s part of the business model. I don’t think usage-based pricing in itself is something Canadians are averse to. One way to look at it is what’s the percentage of overage? How many people are going over? Is it the majority? Is it a minor piece? And if it’s the majority, you don’t have pricing right. That’s not the case today, and we’ll continually adapt to make sure we’re on the right side of that curve.
So when I look at the pricing that’s in market in the west, I think that it’s trying to get to the same issue, which is saying: “Let’s not create a scenario where the pricing gets in the way of what consumers want to do,” but understand that most people today – their patterns are what we’ve been experiencing.
You probably remember this; when we launched the iPhone, (there were) lots of challenges because people thought about consumption – and it was new. (But) to this day, the average iPhone consumer consumes less than half a gig. And so you price it on a basis of what you think consumption is, and same thing on wired.
GOB: The other aspect of Shaw’s move is competitive, as well. They’re fighting tooth and nail with Telus on other fronts, not just broadband, and this is a good tactic for them.
NM: Pricing’s always in the context of a market and it’s hard to actually take pricing from one area and say that’s what makes sense in your area because there’s a consumer, there’s supply and there’s a competitive market in terms of what your competitors are doing.
GOB: Like the OECD data that came out last week. It’s hard comparing (Canada) to Finland or to other parts of the world, and when you take only one megabyte of data transferred – not really the way people use it – you’re not comparing apples to oranges. You’re comparing apples to monkeys.
NM: Whenever you talk pricing, you have to think of behavior and usage and factor it all together… and sure, there are always going to be people that use a lot. I have a favorite example that Terrie (Tweddle, Rogers VP corporate communications) doesn’t like, but I’m going to use it anyway.
This example goes back a year and a bit, but one of the things that I like doing is when I get a chance, to take my nephew out, spend an evening. Once in a while, we’ll go shopping for food to take home and eat… from Whole Foods.
So I don’t know if you’ve been Whole Foods, but they have a salad bar, and I wanted some rice. I’m a big carb guy, so I load up on the rice, and I get to the cashier, and I’m stunned by the bill, and I’m going, “It can’t be.” He says, “Well, it is what it is.” I said, “Well, I’m sure there’s a mistake.”
What it was, was the rice is kind of heavy, and I had lots of rice on there, and so I said, “Well, I know that rice can’t be the most expensive thing in the world, so how come it costs so much? I can get rice even in a restaurant cheaper?”
And then you realize that the pricing for a salad bar is based on weight, and whoever came up with pricing – didn’t assume that you’re going to use the whole box to put rice in it. The pricing doesn’t work for rice. It works for rice as a piece of the equation.
I remember when we introduced wireless data. If you think of it in that context, it actually makes sense that your pricing has to be based on what you think consumption’s going to look like. There’ll always be the one-in-a-million who comes in to just put rice in their box. The pricing won’t work because there are actually different options.
GOB: And those are the people we tend to hear about that plug in their iPhone to use it as a modem when they go to Mexico for a month and then their bills are through the roof.
Let’s talk about the next spectrum auction… Let me give you the devil’s advocate question because I heard this a lot at the Canadian Telecom Summit: Doesn’t Rogers have enough spectrum already? What’s wrong with a cap on the incumbents when the (700 MHz) auction comes in 2012?
NM: There’s a couple of observations. Today, Rogers has over 8 million wireless customers, so contextually, you have to look at spectrum, usage and a good proxy would be how many customers and how they use the network. If you look at both aspects, by far, the consumption on networks is going to be largely on Rogers, even within an incumbent space.
Secondly… the spectrum that we’ve got – if you are talking about 2500, which we use as part of Inukshuk, or AWS spectrum, we participated in auctions just like anybody else and actually paid for that spectrum. It’s easy to say, “Well, it’s not being used” but most people in business actually know that deployment of networks on spectrum is on the basis of the ecosystems.
You can build a network, but if you don’t have devices and apps, it’s not going to do much, and to me, it leads right to our deployment of LTE. We looked at the LTE market, we’ve been observing it, following it, trying to figure out what the best timing is, and frankly, I think we’re in the leading side in terms of going out first.
We are going to use multiband. If you think of the Ottawa announcement that we made just a short while ago in terms of deploying the LTE, the first card is a Sierra wireless card, and it is going to be running on AWS spectrum with fallback on 850 and 1900. So, now that the ecosystem is there, most people would agree that we’re first and, frankly, one of the first countries anywhere to deploy LTE. I would say we’re doing exactly what we intended to do, which is acquire spectrum and use it to take advantage of what’s being offered.
If you fast forward to a year from now, whenever this auction is, late ’12 or ’13, we’ll be in a position where people are going to look at and go, “Just as we said, here we are deploying and using the spectrum.”
GOB: Does the Videotron proposal make any sense where they’re saying, “if you already own 800 spectrum in a region, you can buy only one block of 750, but if you don’t already have a spectrum in whatever region it is, you can buy two?”
NM: Well, that’s interesting, and I can understand why Videotron would say that. You have to look at how many customers and the demand. It’s not like our 850 can just be freed up because it is actually being consumed today, and so I have trouble with saying, “Well, because you have, you shouldn’t get more,” and my perspective is it ignores things like ecosystems.
When I look at what’s happening on LTE, it’s probably fair to say the European model – and it’s early enough that you can’t declare it’s going a certain way – but most people would agree today it likely is going to be a deployment on 2600… and in the North American ecosystem, if you look at Verizon and AT&T, they’re deploying on 700 and AWS.
So in many ways, you need access because what you don’t want to do, from a roaming perspective or taking advantage of devices on the scale the U.S. has, is be in a position… where you don’t have 700, you can’t actually take advantage of those new devices.
It’s much more about ecosystem – all the way from devices, network applications to even roaming for both folks coming in from the U.S. or internationally, taking advantage, using those two bands, or our customers going and taking advantage. You wouldn’t want a customer to have only two bands that work in the U.S. but not in Europe and vice versa. So that’s where I think anything that slices without a view of the bigger picture becomes a challenge.
GOB: Right. Do you think we’re a competitive market in Canada?
NM: We see it day in and day out. The answer is very clear.
GOB: Sure, I knew what the answer would be, but you’ve seen critics who say we need more foreign investment in Canada in order to bring more companies into Canada. That’s sort of antithetical to what actually is going on in the world though where most countries have two, three, four big wireless operators.
NM: Just look south of the border. There’s AT&T buying T-Mobile. If they’re successful in consummating that deal, then you’ve got AT&T, Verizon and Sprint as the three national providers, and arguably, one of them is struggling. So it’s hard to think when you look at that structure, that Canada can be that different.
Having said that clearly… when we look at government, I start with where the industry and where we are as leaders in the industry. We’ve got to demonstrate to consumers that we have a competitive environment in the way of choice and pricing and practices, and we’re working hard to kind of try and address some of those issues that Canadians have said are an issue for them.
And I think the more successful we are doing that then you would have government in a position where they don’t feel they have to do things to change what the market’s doing. I was worried because that action sometimes blinds what’s really happening in the market, and I’d say today, the market’s very different from what it was even three years ago.
GOB: One last one. Mergers and acquisitions. I’m sure everyone in here before me and after me probably asks you about the Leafs, so I will too.
NM: I assure you that the answer won’t be any different. I just find it’s one of those topics that anything you say leads to speculation one way or the other, and so I’d just as soon move on.
GOB: But on the cable side and telecom side, too, though. Do you see Bell and Telus getting together? What are the machinations that could happen?
NM: We’ve looked at growth and opportunities, and the business market is an opportunity for us. If you look back over the last year, we made several acquisitions, including Atria Networks to position ourselves for our strategy.
In terms of national consolidation on the cable front, I think most people understand that cable companies… are controlled by families, so timing tends to be when the families look to make a change. Our perspective has always been the best way to be positioned for an acquisition is have your multiples in the best position to be able to capitalize, and so that means winning in the markets that you’re in today so that you’re ready, should an opportunity come.
GOB: Unless you know the Rogers family or the Audet family, the Shaw family or Mr. Péladeau, you don’t really know what’s for sale, right?
NM: I can tell you that we’re looking at acquiring and being on that side of the fence, for sure.
GOB: I’m looking down at my notes here at one thing I missed if I could. I’m wondering what your interests are in building your national LTE network with a partner, specifically Shaw, the way Bell and Telus have gotten together for their wireless network?
NM: We’re open to looking at different options and I think if you’re in the business, you get that the things you have to work through are: “what’s the capital reduction that comes from it and what does it mean in terms of the competitive landscape of having a shared network. Does it mean you’re taking a differentiator out of the way? What does it mean to market shares and what you offer versus them.”
If there’s a good deal to be had for both parties, great. We’ve done a couple in the past year with TbayTel and MTS, so you know that we’re open to them. At the end of the day it comes down to the specifics and it’s very hard when you already have a network and the other companies don’t. It makes the equation more difficult.
To be fair, when you’re building a new network like LTE, to your point, there may be options.
