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Analyst Blog

Rogers Communications Inc. (RCI - Analyst Report), the largest cable MSO of Canada, will launch its first next-generation (4G) super-fast LTE (Long-Term Evolution) network in Ottawa, in the third quarter of 2011. LTE network will expand into another 25 cities ofCanada in 2012. Rogers is yet to disclose the initial speed and pricing of its LTE network. Rogers selected LM Ericsson AB (ERIC - Analyst Report) to supply infrastructure equipments for its upcoming LTE networks.

The wireless operation is becoming the largest catalyst of Rogers Communications in the long run. In the previous quarter, the company achieved a strong 49% margin for its wireless segment supported by the healthy demand for high-end mobile phones. In the last quarter, wireless segment activated 534,000 high-end smartphones. Of the total, around 36% were new smartphone subscribers, which was also a historic high figure. Smartphone customers now constituted 45% of overall Postpaid wireless subscribers compared with 33% in the year-ago quarter. Wireless data revenue was $554 million, up 30% year over year and represented 34% of total wireless segment revenue.

Massive growth of smartphones and mobile Internet data services are forcing the Canadian wireless operators and cable MSOs to install 4G super-fast networks. The incumbent telecom operator BCE Inc. (BCE - Analyst Report) will also launch LTE network in late 2011 and Telus Corp. (TU - Analyst Report) will follow suite in 2012. Rogers’ wireless operations, which account for more than half of the company’s total revenue and almost 65% of its EBITDA, are well positioned with the lead share (37%) of the Canadian market. Nevertheless, it is very much necessary for the company to cope up with the next-generation technologies in order to maintain its dominant position in the market.

We maintain our long-term Outperform recommendation on Rogers Communications. Currently, it holds a short-term Zacks #2 (Buy) Rank on the stock.