TORONTO - Rogers Communications Inc. (TSX:RCI) hit a snag in its wireless division as iPhone sales slowed during the fourth quarter to about half of what they were selling in the previous three-month period.
About 130,000 new iPhone accounts were created during the quarter and 40 per cent of those were new subscribers, Rogers said Tuesday.
The results were a drastic slide from the 255,000 iPhone accounts activated by Canada's largest wireless network in the third quarter, of which two-thirds were for existing Rogers customers.
The company said Apple's iPhone helped boost the number of new wireless subscribers by about three per cent to 199,000 in the fourth quarter of fiscal 2008, compared with 183,000 new additions in the year-ago period.
However, the drop in iPhone activations had investors and analysts wary as they consider a new year that's already being characterized by a shaky economy that's expected to dampen consumer spending.
Rogers shares were down nearly six per cent in late morning trading, falling $2.19 to $35 on the Toronto Stock Exchange.
The wireless additions were slightly higher than consensus analyst estimates of 195,000 new cellphone customers in the December quarter, which is usually the period of greatest growth in the wireless sector because it includes the Christmas selling period.
However, UBS analyst Jeffrey Fan said the iPhone results missed his estimates.
"The pace of iPhones sold fell to 10,000 per week and the drop from Q3 was more than expected," he wrote in a note.
The sentiment was echoed by Dvai Ghose of Genuity Capital Markets who wrote in his own analysis that the iPhone additions were "surprisingly weak."
"While the iPhone was less of a new product in (the fourth quarter), we assumed that iPhone net additions would be in line with the third quarter because of the Christmas period and the fact that Bell and Telus faced BlackBerry Storm availability issues."
Research in Motion's (TSX:RIM) BlackBerry Storm -- coined the iPhone killer by technology watchers -- was expected to be a hot seller for the holiday season. RIM noted last month that it was having trouble keeping up with the initial demand at retail stores.
Aside from the iPhone, Ghose noted that overall wireless additions exceeded his estimate of 175,000 new subscribers, which was below consensus estimates.
Rogers, Canada's largest cable TV and wireless communications operator, is also facing a developing battle in its cable operations where it gained only 4,000 net additions to its basic cable TV operations in the fourth quarter, compared with 20,000 additions for the same 2007 period.
The results were well below Ghose's forecast of 15,000 additional cable subscribers in the quarter. Digital cable subscriptions grew by 61,000 in the quarter, same as last year's growth.
Some analysts have suggested that Canadians might consider reducing their pricey cable channel line-up as they tighten their purse strings.
"Rogers ended 2008 with healthy growth in both our wireless and cable subscriber bases reflecting our innovative offerings that have the features, convenience and value that Canadians want," Alan Horn, chairman and acting CEO of Rogers Communications, said before stock markets opened Tuesday.
"While our fourth-quarter cable subscriber additions reflect the challenging economic backdrop, we continued to enhance our high penetration levels in Internet and home phone and achieved success during the fourth quarter with our seasonal digital cable campaign."
Horn, 56, has been acting CEO since founder Ted Rogers was hospitalized with an existing heart condition in October. Rogers died Dec. 2, age 75.
While investors pulled down Rogers stock during the Tuesday trading session, Scotia Capital analyst John Henderson suggested that it had a lot to do with a broader exit from telecom stocks, which have been a safe haven for investors over the holiday season.
"Obviously the Rogers subscriber results were a little bit on the weak side, and that contributed to larger than usual selloff on Rogers stock," Henderson said.
However, "the market is moving some money out of more defensive names and taking a more aggressive stance."
Other telecom stocks like Telus Corp. (TSX:T) and BCE Inc. (TSX:BCE) were also lower on the day, even though the Toronto stock market was higher overall.
Rogers plans to release full financial results for the fourth quarter on Feb. 18.
