Rogers Enters Phone Wars
Ted Rogers, the 67-year-old communications tycoon, is clearly feeling under the weather - a bottle of Buckley's cough syrup on his desk is a dead giveaway, as is his raspy voice. On top of the pesky bug, he's suffered two serious setbacks in recent weeks in the frantic race among Canada's communications companies to become the country's convergence titans. One was BCE Inc.'s giant step forward in mid-September when it took control of The Globe and Mail and its Internet assets, creating a new $4-billion media company pooled with the CTV network and its specialty channels. The other, a lurch backwards for Rogers, occurred in the same week, when he lost a long and critical battle with Quebecor Inc., the Montreal-based printer and publisher, over Groupe Vidéotron Ltée, the dominant Quebec cable company.
Regardless, Rogers' mood is feisty. Not only is he prepared to delay his retirement plans, but the cable guy - Rogers heads up Rogers Communications Inc., which owns Canada's largest cable company - is ready and eager to go head-to-head with his archrival, Jean Monty of BCE. This week, Rogers will announce the creation of Rogers Telecom, a new unit set to move into the residential local and long-distance telephone market using Rogers' existing network.
Competition in the communications biz now means convergence - and that means there is a scramble on among the major companies to amass properties. The driving force is the Internet and its ever-increasing capacity to transmit streams of data - be they sound, pictures, written text or voice. Suddenly, it makes sense for the telephone company to own a television network - at least that's what BCE Inc. argued last week before the Canadian Radio-television and Telecommunications Commission in defence of its acquisition of CTV. And for the cable guy, it's time to add landline telephones to Rogers's smorgasbord of telecommunications offerings. "The telephone business is absolutely essential for us to be involved in," he said in a wide-ranging interview last week with Maclean's.
Rogers is well aware that a battle over telephone service with BCE's Bell Canada could be the fight of his career. "They dominate local telephony, 99.9 per cent," he said. "They dominate long distance. There are corpses where there used to be competitors of Bell and long distance." But he knows that in this eat-or-be-eaten environment, he has to keep up. Bell, with a phone in just about every home in southern Ontario, is firmly entrenched in the market where Rogers is strongest in cable - and where he will launch his phone service. It doesn't matter. "If we are going to compete in the home with Bell, we have to offer everything Bell offers," he says.
Rogers has mused before about getting into the phone business. This time, though, he is serious. The goal is to have service available in some areas in about a year. He estimates it will cost between $600 and $800 per customer to deliver. He has hired Peter Ciceri away from his job as president and managing director at Compaq Canada Inc. to run the new unit. Ciceri, who took up his new duties last week, said Rogers Telecom will take advantage of the company's existing cable network and wireless phone capacity. Customers would not have to change their phones, or phone jacks, he said. Conversations can be sent from the phone, through the jack, along a wire to the home's cable modem and then along cable lines. Or, they'll be transmitted by a fixed wireless panel that will sit on the outside of people's homes and be connected by a wire to the jack.
The plan is to be able to offer Rogers' clients a bundled package - in short, the more services taken, the better the price. "Look at the company," said Ciceri. "We've got the content, we've got the cable TV, we've got Internet, we've got wireless, and what we need now to make the package complete, either as a bundle or ^ la carte, is the telecom piece." And Ciceri is not worried about taking on Bell Canada. "We can add significant value over and above what Bell does. I don't think Bell is the end-all, be-all for the market."
The telephone business is only one of a series of different avenues Rogers is pursuing. The company may go after a television network, if the CRTC gives the nod to BCE's bid to buy CTV, Rogers told Maclean's. "If Bell gets this approved, you could bet your buck Rogers is going to be out hustling to get one or start one." He also responded to rumours suggesting that Rogers Media Inc., which includes Maclean's in its stable of magazines, is being shopped around. Rogers said the media division could be spun out in an initial public offering, with parent company Rogers Communications maintaining an 80-per-cent hold on the group.
In the name of convergence, Rogers and his deputies have been out scouting. Last week, John Tory, president of Rogers Cable Inc., had a two-hour meeting with Pierre-Karl Péladeau, head of Quebecor and victor in the Vidéotron contest. Both players stayed mum as speculation rose about a merger or alliance of the two Central Canada powerhouses. Rogers simply said possible co-operation could range from sharing technology to common billing - "whatever makes sense."
Rogers also has been talking with the father and son team of Izzy and Leonard Asper, who control broadcaster CanWest Global Communications Corp. While in Winnipeg recently to deliver a speech, Rogers stopped in to pay his respects, he said. Rogers declined to elaborate on what was discussed, but industry speculation covers the gamut. CanWest, the owner of 10 Global Television Network stations across Canada and 13 major daily newspapers, plus a 50-per-cent ownership in the National Post, could very substantially fill out Rogers' $600-million media business, a division, he told reporters last week, that he would like to bring closer to parity with the cable and wireless sides of his business, both of which take in more than $1 billion. Rogers is also keeping in touch with Calgary's Jim Shaw, president and CEO of western-based cable firm Shaw Communications Inc. The two had dinner last week at Rogers' Toronto home. Again, no details were forthcoming. "I always marvel at the end of dinner how much I've learned," Rogers said.
Many observers point to Torstar Inc., owner of The Toronto Star, four other southern Ontario dailies and romance publisher Harlequin Enterprise, as another strong contender for a Rogers alliance. Torstar, which is focused on the same southern Ontario region as Rogers, is one of the few remaining media companies that is not part of a platform that can be cross-promoted, one Bay Street analyst said.
Whatever else, Rogers clearly has no intention of dropping out of the race. At a speech to the Canadian Club in Toronto last week, he noted that some articles about his failure to buy Vidéotron forecast that he would give up and sell out in two or three years. "Never!" he boomed into the microphone. "We lost! They won! Next!" When speaking with Maclean's, he was asked about his succession plans. "I'm not leaving," he said. And then he hedged about an earlier promise to leave when he turns 70, which occurs in 2003. "We'll just see if that makes sense," he said, adding, "but I think it makes sense for the company." The strategy, it seems, is the same as for all the potential new deals out there: keep the door open.
Rogers Communications Inc.
Market value: $7.2 billion
1999 revenues: $3.1 billion
1999 loss: $116 million*
Weekly closing price of RCI B-class shares: Sept. 22: $35.55
*Including one-time items, Rogers shows a profit of $840 million
Maclean's October 2, 2000