(RCI) Rogers Communications Announces Diversification

Rogers Communications Inc. (RCI), a leading cable MSO and wireless operator in Canada, has decided to diversify vertically. Management plans to apply to government for introducing a bank under the Canadian Bank Act. However, the company announced that if granted permission, Rogers Communications will primarily focus on credit, payment, and charge-card services and it has no immediate plan to convert the bank as a full-service deposit taking and lending financial institution. It may take more than one year to get banking license from the government.

We believe Rogers Communications is trying to establish its foothold in the mobile-banking vertical. The mobile-banking is a rapidly growing still unsaturated market opportunity in Canada. This was primarily attributable to massive growth of smartphone, which can be used as an electronic wallet for netbanking, credit card, insurance or brokerage account information and payment. Industry researchers estimated that nearly 13% smartphone users in Canada used their handset for mobile-banking purpose.

Rogers Communications’ wireless operations, which account for nearly 56% of the company’s total revenue and almost 65% of its EBITDA, are well positioned with the lead share (37%) of the Canadian market. Wireless penetration in Canada is little more than 60%, providing significant growth opportunities for the well-positioned Canadian operators. In the second quarter of 2011, wireless Data revenue was $591 million, up 31% year over year. Wireless Data revenue represented around 35% of total wireless network revenue compared with 27% in the prior-year quarter.

In Canada, several non-financial institutions already established their own credit card services. Retail firm Canadian Tier Corp. Ltd., grocer Loblaw Companies Ltd., and global retail giant Wal-Mart Stores Inc. (WMT) are few examples. Rogers Communications is eying to leverage its smartphone activation business to capitalize on the promising mobile-banking market of Canada.

In the previous quarter, wireless segment activated 591,000 smartphones, up 53.5% year over year. Most of these smartphones are either iPhone of Apple Inc. (AAPL), BlackBerry of  Research In Motion Ltd. (RIMM) or Google Inc. (GOOG) developed Andriod-based handsets. Out of the total, around 40% were new smartphone subscribers, which was a historic high figure.

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