Will Rogers’s outage affect its stock price?

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The extensive Rogers Communications Inc. RCI-N network outage left millions of customers unable to access the internet and their phones. But the company’s stock price hardly moved, reinforcing the idea that telecom stocks are immune to a consumer backlash.

Keep that in mind when you’re looking for a safe stock.

Rogers’s shares closed at $61.54 in Toronto on Friday, down all of 1.17 per cent.

The move wasn’t out of line with the share-price moves of BCE Inc. BCE-T and Telus Corp. T-T, underscoring the collective shrug of indifference among investors.

The market inaction suggests that investors are assuming that the outage – which affected customers across the country, and disrupted 911 emergency services and payment systems – will have zero impact on the company’s profits as customers mull their options.

In many ways, this is remarkable. Despite Canada’s cozy telecommunications sector, dominated by three large companies, customers do have a choice. One call to an eager rival, and you can punish your current telecom provider by taking your business elsewhere.

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Well, that is, if you can get your phone to work or re-summon your outrage after service is restored.

However, there is a general reluctance among consumers to change providers, even when they have said they will switch – and it’s part of a global phenomenon related to a couple of factors that work in favour of large telecom companies.

One, customers may be locked into phone or internet contracts, which means they will have to commit to moving to a different provider perhaps many months from now.

Two, customers may be benefiting from bundled services, where their phones, internet and cable TV may be lumped together with a nice discount.

Bundling can make it more difficult to make the decision to rip everything out and start again, especially when irate customers are placated with another deal or see other telecom companies also struggling through the occasional outage.

“Why do customers not change? Well, it’s an outage, we’ll put up with it, and maybe next week the other guy will be out,” said Bob Schulz, a professor at the Haskayne School of Business at the University of Calgary.

Plus, it can be a burden to change from one provider to another. Most people at this point, Mr. Schulz added, are saying: “Is it worth it? I don’t know.”

Rogers provides a handy example of just how sticky customers can be, even as anecdotal evidence suggests some are exploring alternatives.

In April, 2021, the company suffered another countrywide outage that lasted 12 hours, drawing condemnation from politicians demanding greater competition within the industry.

Yet, the stock did not suffer: After a slight initial dip, the share price increased by about 10 per cent over the next three months as investors bet – as they did on Friday – that the company would get through the setback virtually unscathed and benefit from a continuing recovery from setbacks earlier in the pandemic.

Indeed, Rogers’s second-quarter financial results in 2021, which reflected the period when the outage occurred, actually exceeded analysts’ estimates in at least one key measure.

The company gained 99,000 net wireless postpaid subscribers, who are billed at the end of the month for the services they use. That was well ahead of expectations for a gain of 64,000 new subscribers.

In the third quarter, things got even better, even as the company navigated through leadership turmoil and its $26-billion deal to acquire Shaw Communications Inc.: Rogers added 175,000 net new wireless subscribers during the quarter, which was ahead of expectations for 142,000 additions.

If customers were angry during the past outage, they must have forgotten their rage soon after. Will their reaction to Friday’s national outage be any different?

Perhaps not, and for investors there’s a compelling takeaway here: Telecom companies’ apparent ability to get through operational setbacks adds to their impressive reputation as a defensive sector that can stay profitable and boost impressive dividends through good times and bad.

That’s something to consider as central banks raise interest rates and economists grow increasingly concerned about economic activity in the months ahead.

Though the S&P/TSX Composite Index is down more than 10 per cent this year, telecom stocks are down less than 3 per cent and stand with utilities and consumer staples as solid holdings in an uncertain world.

Happy customers are great. But dividends are divine.

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