Where oh where your wireless bill goes

August 26th, 2008Where oh where your wireless bill goes

Ever wonder when that fat telco bill lands every month, where exactly all that money goes? How much does it cost to run a wireless network anyway? Never fear friends a little forensic finance plotting reveals all. Lets use the nation’s largest carrier Rogers for an example. All figures drawn from Rogers Communications Inc. wireless division Q2 2008 published results.

Rogers average revenue per user is $75 this quarter. So, for your $75 you spend on your Rogers bill here’s were it goes:

General overhead, shiny offices, salaries etc: $30
Cost of sales (Direct costs, electricity bill for those towers etc.): $7.69
Marketing (You might have seen some): $7.44
Depreciation (Infrastructure cost of the network): $6.06
Debt (interest on loans for past spectrum auctions and investments): $3.55
Profit (before taxes): $27.89

Note that Rogers debt expenses are currently on low side historically, though they did just draw down a billion in Q3 for that new spectrum. All said and done, nearly 90% gross margins before all those fixed costs come in to play is quite a business to be in.

James

Since overhead and compensation is a separate line item, the marketing cost is far understated. There must be a considerable number of employees working in a marketing role. Does not the ROI work out to be outrageously high?
WirelessNorth

So the 90% margins is a little misleading. Certainly some part of this (like customer service salaries) have components of variable cost that should apply to each customer.

One of the most striking things about this breakdown is that the physical network and equipment isn't the largest cost of running a carrier. In reality Rogers is more of a service company than a network company.

I wouldn't be surprised to see this trend extended in future years as carriers outsource and/or lease larger parts of their network operations.
mattroberts

These numbers make no sense compared to their last Q2 results.

If you could show how you arrived at them it would a help. Its a big disingenuous to say that 90% gross margins are quite a business to be in when as you point out its before the cost of any of the important fixed cost stuff... like you know... an actual network.
Cris

That's normal for any business, why would Rogers Wireless be any different. They have help from the Canadian government to run their GSM monopoly, best thing to do is not to jump on the bandwagon. I don't own an iPhone so they don't get $75 from me instead they get $30 cause I do need a wireless phone.
markus

So the $6.95 SAF + $0.50 e911 charges pay for the marketing, pretty much in it's entirety... that and bringing the Bills to Skydome.
Mogilny

I have seen more of the Rogers version of Friends more than the actually Friends. With monster profits, it is easy to be wasteful. If the Ontario's Teachers Pension think this is a business to get into, then this business will have sick returns. i.e., Maple Leafs Sports and Entertainment.
John

If you're not buying stock in Rogers now then you should be. Those profits won't slow down until the real completion starts with 4G technology. Which is going to be another 4 years or so.
Craig

I was almost expecting the marketing slice to be even bigger. It's sad that when I look around on the TTC that there's ads for just about all of the telecom's on every vehicle. The other day I saw a Rogers ad, next to a Koodo ad, next to a Telus add, with Bell ad's plastered on the opposite side. If they spent a 1/4 of this on customer service they wouldn't have to market so much as word-of-mouth would probably do it for them.
Ken Seto

We know where the money isn't going: Their crappy ass website where I've yet to successfully use any of the Member Services features without a system error message.
Rob Britton

Nice! I should start me up one of those companies.

Wirelessnorth.ca

August 26th, 2008Where oh where your wireless bill goes

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