How new CEO Guy Laurence plans to shake up the game at Rogers by Rita Trichur, Iain Marlow and Paul Waldie
Nov 30, 2013
Source: Globe and Mail
On the evening of Oct. 26, Guy Laurence was seated in Rogers Communications Inc.’s corporate box at the Air Canada Centre, watching the Maple Leafs battle the Pittsburgh Penguins.
The 52-year-old British telecom executive, who is taking over as Rogers’ chief executive officer on Monday, was cheering on his new home team as the Leafs crushed the Penguins 4-1.
He snapped pictures of the game on his smartphone and sent them to his three daughters back home.
Mr. Laurence had quite a few questions about Canada’s national game. After all, he needs to familiarize himself with the sport because Rogers just paid $5.2-billion for wide-ranging rights for the National Hockey League’s next 12 seasons.
One question he asked the assembled Rogers executives: How exactly does a faceoff work?
He’s about to find out.
For years, Rogers CEO Nadir Mohamed – who retires Monday as Mr. Laurence steps up – has tried desperately to stick-handle a deteriorating situation from the top of the telecom industry’s greasy pole. Rogers has long been the biggest of the Big Three in wireless and cable, the sector’s most lucrative areas, and has amassed a media empire that now includes valuable NHL rights.
But the firm has lost wireless market share to new upstarts, struggled in key markets against a rejuvenated BCE Inc. and suffered as Telus Corp. made huge gains in Western markets.
Rogers customers leave the company more often than at its big rivals.
And the telecom firm is now experiencing slowing growth in its core businesses, while seeing its industry leading metrics, including customer retention, gradually eroded by competition.
That Rogers would hire Mr. Laurence – a turnaround artist deployed to fix Vodafone Group PLC’s struggling regional properties – underscores the depth of the Canadian telecom giant’s challenges. He rose to top leadership roles within Vodafone, which has around 403 million subscribers in more than 30 countries, as an unconventional executive who upturned traditional work cultures with madcap management tactics.
But Mr. Laurence has more than rivals to worry about. He will also have to grapple with an industry where the rules of the game are a lot more fluid than in hockey because of an activist-minded regulator and a federal government in Ottawa obsessed with injecting competition into an arena long dominated by three players and coddled by foreign ownership restrictions.
“Guy will bring a very different perspective, which is good,” said Charles Sirois, a Rogers director who was on the search committee to select the new CEO. “Nadir was a continuity and a consolidation of [Ted] Rogers’ creation. And I think that now Guy will bring something different.”
Mr. Laurence, who was kept apprised of the deal’s process by Rogers executives, is excited about taking over with the new stable of NHL rights, according to Rogers’ chief financial officer Anthony Staffieri. The NHL is clearly a marquee property, and Rogers scored a coup by muscling out its competitors.
But spending $5.2-billion for NHL hockey was the easy part. Now the hard work begins: Even some at Rogers admit that maximizing returns on the 12-year deal for national broadcast and digital rights remains a big challenge.
“With this last deal, I think Guy will have marvellous assets, but there is a lot of work to make sure that these assets will be leveraged in all the dimensions of Rogers – wireless and cable and TV and radio,” Mr. Sirois said. “The next big challenge [for] Guy will be to make all those assets sing together.”
Critics say it is unclear exactly how Rogers will use sports content to benefit its core wireless, cable and Internet businesses. The CRTC’s vertical integration rules in particular are a hurdle because they prevent Rogers from providing broadcast content on an exclusive basis to its own wireless subscribers – unless that content was specifically created for mobile.
Given the current regulatory environment, Rogers may not have much luck testing the regulator on NHL content.
The company, however, has other levers to make money. Live sports, for instance, is key to Rogers charging lucrative national advertising rates.
“It is obviously PVR proof,” said Keith Pelley, president of Rogers Media. “People watch it live.”
There are also expectations that subscription fees – the money Rogers will charge other TV service providers to carry its specialty channels that showcase hockey games – are likely to rise, which is bound to impact consumers’ monthly bills.
For example, Sportsnet 360, previously the Score, earns roughly 15 cents per subscriber a month, according to sources, and Rogers is now trying to double it. Hockey will also help Rogers play catch-up with rival Bell Media; the latter’s TSN receives about 50 per cent more per month from subscribers.
“I think subscription revenue is always based on the most compelling content and what is fair-market value ... We have a pretty compelling service,” said Mr. Pelley, noting that the company’s goal is to make the content available to all consumers, on all screens and through all providers.
Already the prospect of higher rates is raising concern from some television providers. “We fight tooth and nail for our clients, in difficult negotiations, to make sure that prices [for channels] don’t increase too much. And if someone makes an unreasonable request, then we will have a dispute, an amicable one,” Louis Audet, president and CEO of Cogeco Inc., said this week.
“If that doesn’t work, then we will complain to the [broadcasting regulator] CRTC, which is now much more sympathetic to consumers.”
There are also other potential revenue streams, including the sublicensing deals. Its agreement with TVA, for instance, is worth $127-million a year on average, sources say.
The deal also gives Rogers access to everything in the NHL archives and lots of flexibility on what to do with it. The company could create niche products for Leafs or Habs fans, as well as broadcast classic games and old highlights packages.
“The archive is a wonderful asset that we have plans for,” Mr. Pelley said. For instance, Rogers could have theme days on Sportsnet such as Montreal Canadiens day or rivalry day featuring the Habs versus the Leafs. There could be merchandise opportunities through the Shopping Channel.
And it could be an interactive experience for fans because Rogers could use social media ahead of time to allow viewers to chime in on which historic matchups they would like to see on the lineup.
They could also show classic interviews with players such as legendary Habs right-winger Guy Lafleur and Leafs centre Darryl Sittler.
“And that would culminate with a Leafs-Montreal Canadiens game live that particular night on Hockey Night in Canada,” Mr. Pelley said.
There is even talk of creating a Sidney Crosby camera to create special content for Pittsburgh Penguins fans. “The scope of the rights that we have is daunting,” Mr. Pelley said. “We haven’t even scratched the surface on how we are going to use them.”
The company, according to a source, decided to gun for the NHL deal alone in order to ensure flexibility – a decision influenced by their experience in having to run by partner Bell every minor decision relating to MLSE.
Analyst Steven Harley of London consultancy Ovum said Rogers is pursuing hockey in the same way British telecom companies have approached soccer. BT, or British Telecom, has been making a big push into soccer, eating into British Sky Broadcasting’s dominance and offering games for free to BT broadband customers.
A couple of weeks ago, BT scored a big win over Sky by paying $1.55-billion for a three-year deal to broadcast all Champions League and Europa League games – 350 games a year starting in 2015.
Rogers’ Mr. Staffieri said revenues will exceed costs even in the first year of the deal, meaning it will be accretive to earnings of Rogers Media from the get-go. “We will start to make money in the first year on media alone. The cable and wireless benefits, which we think are significant, will only add to that. And so that’s why this made obvious financial sense to us.”
Competition heats up
While it sees a future of profits from the NHL, Rogers is feeling pressure on its current earnings. Rogers is still Canada’s largest carrier, but its home base of Ontario has turned from a cash cow into one of the most competitive regions in Canada.
During the third quarter of 2013, Rogers trailed both Telus Corp. and BCE Inc. on its so-called postpaid churn rate, an industry metric that measures how many high-end mobile customers leave the company each month. Rogers reported a postpaid churn rate of 1.23 per cent compared with 1.2 per cent for BCE and just 0.99 per cent for Telus.
In its mainstay cable business, Rogers lost 39,000 customers during the quarter, while Bell added 46,685 TV subscribers on its Fibe service and Telus added 34,000 new TV customers. On high-speed internet, which is another high-margin service, Rogers added roughly 18,000 new customers, while Bell added 36,638 and Telus added 19,000.
The wireless battle is most intense in Rogers’ key market of Ontario, where upstart wireless carriers undercut on price while using splashy advertising to mock traditional wireless carriers such as Rogers for poor service and high rates.
Mr. Laurence must also contend with a customer service problem that is eroding client loyalty and pinching profitability. The recent annual report for the Commissioner for Complaints for Telecommunications Services found Rogers had a 32-per-cent year-over-year increase in complaints. Dvai Ghose, an analyst with Canaccord Genuity, said it would be a mistake to dismiss poor customer service as a “soft” issue, because it has real financial consequences for carriers: It drives up the cost of acquiring new customers, as well as the price tag of hanging on to existing ones.
“Customer service is a big issue there [at Rogers], and buying as many sports franchises and rights as you want is not going to help that,” said Mr. Ghose, who estimates it costs incumbents roughly $400 on average to gain a wireless subscriber. “Telus, which owns none of that stuff, has the least complaints and the best quality of service – so clearly there is no correlation.”
Rogers has taken some steps to address its customer relations problems. Rogers’ outgoing chief, Mr. Mohamed, previously spearheaded the creation of an ombudsman’s office, simplified the complaints process for customers and put a focus on tackling client grievances on social media platforms such as Twitter.
Rogers also recently announced a new loyalty program. Rob Bruce, president of communications, stressed that Rogers was “relentlessly focused” on improving service.
By the end of the year, Rogers aims to have 90 per cent of customer calls answered within 15 seconds, he said. “We’ve got to resolve customers’ problems,” Mr. Bruce said in an interview. “It is fundamental.”
It is also necessary. The federal government is promising to lower the cost of domestic roaming, which could allow more new entrant carriers to offer nationwide voice and data plans, and is also vowing to introduce pick-and-pay television packages.
Mr. Bruce said the firm’s expansion into mobile payments, home monitoring and credit cards will further improve customers’ experience, but Mr. Ghose, the analyst, thinks this lack of focus might be contributing to Rogers’ problems.
“This is a company that has spent a lot of time on MLSE, on [this NHL] deal, on things like starting up a bank,” Mr. Ghose said. “One wonders how much time is being taken away from the core assets?”
An ‘unconventional’ executive
Into this strides Mr. Laurence, a veteran executive with wide-ranging experience across the media and telecom sectors and a reputation for taking on tough assignments.
After working in the entertainment industry in Los Angeles, including at MGM, Mr. Laurence was hired by Vodafone Group PLC to head its content portal efforts – first in a joint venture with Vivendi, and later within Vodafone itself.
Like all of the telecom industry’s early attempts at harnessing content to boost subscribers, these early content efforts fizzled, but Mr. Laurence kept moving up. Terry Kramer, who was Vodafone Group’s global HR director and later regional president in the Americas with responsibility for Vodafone’s 45-per-cent stake in Verizon Wireless, said Mr. Laurence had an offbeat, creative flair that stuck out in staid, group executive meetings.
“If someone said, ‘Did this guy used to work in L.A. in the entertainment industry?’ You would look at him and say, ‘Yep,’ ” Mr. Kramer said in an interview. “This is a guy who would look at what’s around him and say ‘That’s in.’ What somebody’s wearing is cool. I love this ad, whether that ad had anything to do with the mobile industry or not.”
Mr. Laurence was then dispatched to head Vodafone’s struggling unit in the Netherlands, at a time when Vodafone Group faced slowing growth in mature, highly competitive markets. There, he spearheaded a transfer of the headquarters from Maastricht to an open-concept office in Amsterdam, and was later promoted to CEO of Vodafone Group’s larger – and similarly flailing – U.K. unit.
In the U.K., Mr. Laurence faced a balancing act. The company had slipped well behind rivals, and Mr. Laurence had to overturn the company’s stuffy, corporate image within Britain’s increasingly competitive mobile market. He had to expand the brand’s mass-market appeal among ordinary consumers – where IDC Europe’s vice-president of mobility John Delaney said it had a reputation as “your dad’s” phone company – without alienating the company’s core business clients. He did this by turning the company inside out.
“Guy’s reputation is kind of as a shakeup specialist,” says Mr. Delaney, who has met Mr. Laurence and visited Vodafone’s office numerous times. “If someone needs being taken by the scruff of the neck a little bit, Guy was your man.”
Not only did he do away with executive offices, he did away with all offices, entirely. He did the same thing with the dress code, asking people to dress “like customers,” according to one former Vodafone executive.
Another source said he made one team dress all in black as a team-building exercise, known within Vodafone as the “men in black.”
He also implemented a clean-desk policy that encouraged desk-hopping but struck some people as a bit severe since family photos weren’t allowed and everything left behind was gathered up and incinerated. Mr. Laurence also enforced a paperless policy by tracking how much paper each person used, according to the former executive.
All of this was to make employees more responsive to customers. Frank Rovekamp, who was Vodafone’s group chief marketing officer and worked with Mr. Laurence for eight years, said in an e-mail that Mr. Laurence’s tactics were “unconventional and highly successful.” Mr. Laurence, according to a former Vodafone executive, was more open than others at Vodafone Group to the idea of outsourcing jobs to a Vodafone-owned services centre in India at a time of broader management concern over British jobs – thinking that, since the move would lower costs and be good for the customer, that it would consequently benefit employees.
These moves would be jarring at any company but stood out at Vodafone U.K. because the company also happened to share a campus in Newbury, Berkshire, with the headquarters of Vodafone Group, the more conservative parent company run by CEO Vitorrio Colao, the Harvard MBA, deal-making son of an Italian military police officer.
Some colleages thought Mr. Laurence – a self-made man with L.A. eccentricity who eschewed university – was unlikely to rise any further within Vodafone Group, according to one former executive.
“I think Rogers making that choice is a definite signal that they’re not happy with the way things are going and they want some change,” the former Vodafone executive said. “He’ll shake things up … You can probably expect a lot of people changes, cultural changes in the next nine months.”
Even some of Rogers’ competitors suggest that might be a good thing.
Anthony Lacavera, rival Wind Mobile’s CEO, said Mr. Laurence would do well to run the firm with the spirit of Ted Rogers, who died five years ago. Mr. Lacavera doubts that Mr. Rogers, unlike Mr. Mohamed, would have allowed Shaw to buy up CanWest, or have permitted the Bell-Telus network sharing deal to happen without finding a way to “neutralize” it – either by a regulatory fight or Rogers similarly partnering with a new entrant carrier.
“Ted Rogers was one of the greatest risk takers in Canadian telecom history,” Mr. Lacavera said. “Now that the critical Ted factor is missing, Rogers risks becoming conservative to a fault. ... The key is for Guy to continue the Ted factor.”
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