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Analysts say Rogers job cuts could be good if they lead to revitalization

TORONTO - With Rogers Communications Inc. (TSX:RCI.B) confirming that it has eliminated "several hundred middle management positions" as part of its Rogers 3.0 corporate revitalization plan, analysts say the Toronto-based company's new CEO Guy Laurence is taking necessary steps to shake up the company after a period of stagnation.

"Quite frankly, what do you do when you come in as the CEO of a troubled ship? You cut a lot of costs. You basically attribute it to previous management. You take a lot of (accounting) charges. And, perhaps in this case, you have to back off from guidance," Canaccord Genuity analyst Dvai Ghose said in an interview Tuesday.

"These are potentially positive moves. Obviously, we will see how they execute on them."

Ghose said that under Nadir Mohamed, who succeeded company founder Ted Rogers as CEO in 2009, the company was unprepared for the loss of its technological edge in the wireless and cable sectors as rivals such as BCE Bell (TSX:BCE) and Telus (TSX:T) that rolled out faster mobile networks and new television services.

"I think shaking up what I would consider a complacent management team is in itself something which is a positive. Now, obviously the proof is going to be in the pudding. There's going to be some big (accounting) charges, no doubt. Perhaps as early as when they report Q2 results this Thursday and, indeed, when they report Q3 results in three months time."

"But, in general, we're very positively surprised. It's absolutely necessary," Ghose said.

The company, which has Canada's largest base of mobile phone subscribers as well as major cable, Internet and media businesses, has lost market share to long-time rivals Telus and Bell and there's concern that Quebecor's Videotron (TSX:QBR.B) could add to the pressure if it decides to expand its wireless business beyond Quebec.

Macquarie Research said earlier this week that Rogers is the most likely major telecommunications and media company to miss analyst estimates for the second quarter. It also said that the wireless sector is maturing, resulting in slower revenue growth and pressure on average revenue per user.

"The market is clearly concerned about the dividend growth outlook and returning to revenue growth is vital to reassure that sentiment," the Macquarie report says.

In addition, several analysts expect that Rogers continued to lose cable subscribers during the quarter — continuing a trend that began after Bell, and its affiliate Bell Aliant (TSX:BA), began offering fibre-optic television service to homes. Calgary-based Shaw has faced a similar incursion in the West, but Bell has been slower than Telus to roll out its IPTV product.

Barclays analyst Phillip Huang said he wouldn't be surprised if Rogers will lower its key financial targets for 2014, to reflect the impact of its new CEO's initiatives.

"They're very much in turnaround mode and I think the whole reorganization inevitably would have had some disruption to the business," Barclays analyst Phillip Huang said Tuesday in an interview.

Laurence, who took the job at Rogers late last year, told reporters in May that he expected there would be some reductions in the management ranks at Rogers as it reduced bureaucracy to become more agile. The company said this week that it has reduced the number of senior executives (vice presidents and above) by 15 per cent and cut "several hundred" middle management positions.

"The goal is to become a more nimble, agile organization with much clearer accountabilities. Savings will be reinvested in areas like training and systems to better serve our customers," an emailed Rogers statement said, echoing Laurence's earlier remarks.

According to data compiled by Thomson Reuters, analysts are generally estimating Rogers will have about $12.8 billion in revenue for 2014. That would include about $3.2 billion in the three months ended June 30 — about the same as the second quarter of 2013 and up slightly from $3.02 billion in the first quarter of 2014.

Analysts generally estimate about 84 cents per share of adjusted earnings for the second quarter, or 85 cents under standard accounting — both up from the first quarter ended March 31 but down from the year-earlier comparables.

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