Rogers Communications Inc.
Q2 2018 Earnings Call Transcript

Published: 19 Jul 2018

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Rogers Communications Q2 2018 Results Analyst Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time for you to queue up for questions. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded on Thursday, July 19, 2018 at 8

[Glenn Brandt:]

Good morning everyone and thank you for joining us. I'm here with our President and Chief Executive Officer, Joe Natale; and our Chief Financial Officer, Tony Staffieri. Today's discussion will include estimates and other forward-looking information from which our actual results could differ. Please review the cautionary language in today's earnings report and in our 2017 Annual Report regarding the various factors, assumptions, and risks that could cause our actual results to differ. With that, let me turn it over to Joe to begin.

[Joe Natale:]

Thank you, Glenn, and good morning everyone. Today, I'm pleased to share our second quarter results with you. Let me start with our financials. In Q2, we posted strong results with total revenue growth of 4% and adjusted EBITDA growth of 8%. These results were driven by very good performance in both our Wireless and Cable businesses. In Wireless, we delivered strong financial and operating metrics. We achieved the best postpaid churn and the highest second quarter net additions in nine years, overall, an exceptional quarter in our largest segment. In Cable, despite the competitive intensity, we reported solid financial and operating results. We grew total service unit net additions by 17,000. This was driven by our Internet business where penetration grew for the 12th straight quarter, delivering 23,000 net additions, the best Q2 result in 13 years. In Media, we saw some softness in revenue, while adjusted EBITDA was up. We remain firmly focused on our strategy of driving growth, with live sports and local news, so overall with a terrific quarter and a rock solid first half of the year. More broadly we continued to make steady program on the fundamentals focusing on consistent and sustained performance across financial and operating metrics. Execution discipline and well timed investments remained the key to our success. With respect to network evolution, we continue to make steady progress on our 5G deployment plan. We assigned key strategic agreements with more to come and plans are underway to deploy thousands of small cells. We are working with Ericsson, the 5G North American partner of choice, to densify our network with small and macro cell size. We continue to upgrade our 4.5G network with the latest 5G-ready technology and we're testing a new set of global 5G standards released just last month. On the Cable side, our Internet capability continues to deliver well ahead of consumer demand. We already offer one gigabit speeds to all of our consumers today across our footprint of 4.4 million homes and businesses. Our DOCSIS roadmap will evolve the support increasing upload and download speeds across this footprint. And as I've mentioned, this remains a success based and evolutionary investment. On the TV front, we continue to advance the strategic rollout of Ignite TV, the first phase of our Connected Home roadmap. In Q2, we expanded our soft launch to select customers in Ontario. Thousands of team members and customers are now using the service and early feedback has been positive. We continue to fine tune our execution to ensure our great customer experience as we rollout the service. This is supported by a phased awareness and advertising campaign that started this week. Over the long-term this is much more than an IPTV service. It is a roadmap to connect everything in the home. The Comcast roadmap will give our customers a Connected Home solution that integrates everything in the home. A home powered by voice technology integrating home security, lighting, temperature control, and beyond. I believe that Connected Home represents a significant mass market shift similar to the Smartphone revolution 10 years ago. We truly have a competitive advantage in Cable with our world-class Internet and our Connected Home service. Together this gives us a winning formula to deliver the home of the future. We continue to make meaningful progress on the customer experience fronts. This is reflected in reduced churn, reduced calls into our call center, along with the solid uptick in digital adoption. I'm pleased with the progress we're making and the customer first momentum that we are making across our organization. On this front, we continue to build our customer first culture internally. In our recent annual employee engagement survey, we achieved an 82% engagement score. This surpasses global best-in-class standards and reflects our efforts to make culture a significant and foundational competitive advantage over the long-term. Before I turn it over to Tony, I'd like to thank our 26,000 team members across Canada for their incredible commitment to our customers and their great work in Q2. Tony, over to you.

[Tony Staffieri:]

Thank you, Joe, and good morning everyone. We had another quarter of strong execution and we're extremely proud of our results. We continue to build on the fundamentals of our business and this is reflected in both our financial and operational performance this quarter. Our top-line growth is still coming along nicely and combined with our cost playbooks, is translating into meaningful improvement on both adjusted EBITDA and our margins. As a reminder, we implemented Accounting Standard IFRS 15 last quarter and all the financial figures I'll be discussing are under this new standard. To help with the transition, we've provided the financial results for this quarter under the previous Accounting Standard with the year-over-year comparisons in the Supplemental information posted on our website. On our consolidated results, we posted total revenue growth of 4% and adjusted EBITDA growth of 8%. As we drive cost efficiency deeper and deeper into our culture, we see margins improve and progress towards our full-year goal of 100 to 200 basis point improvement in 2018 compared to 2016. Adjusted EBITDA margin grew 160 basis points this quarter and at the same time we delivered strong subscriber numbers in both Wireless and Cable. Turning now to our Wireless business, we reported service revenue growth of 5%, driven by excellent subscriber performance and the strength of our ARPU growth. Consumer demand for data is still the largest contributor to the health of our ARPU. We continue to see network usage grow year-on-year and the 3% and 4% growth we saw on blended ARPU and blended average billing per user or ABPU respectably in the quarter remains consistent with our goal of delivering 2% to 4% full-year growth on blended ARPU and 3% to 5% on blended ABPU. Not only did we see impressive growth in our ARPU and ABPU, we also reported 122,000 postpaid net subscriber additions and postpaid churn of 1.01% in the quarter, reflecting both the highest level of second quarter postpaid gross additions and the lowest postpaid churn rates in nearly a decade. On adjusted EBITDA for Wireless, we reported growth of 12%. We again saw Wireless margin expansion this quarter with margins expanding 240 basis points as we steadily improve our cost structure. We're taking our fair share of subscribers in a growing market on the back of long-term sustainable economics. Turning to Cable, we grew revenue by 2%. Internet remains the growth engine here with revenue growth of 10%. This reflects our ability to monetize consumer demand for data while continuing to attract and retain customers. The percentage of our residential Internet based on speeds of at least 100 megabits per second has a reached 58% compared with 51% at this time last year. With our ability to offer Ignite gigabit Internet to our entire footprint, Internet is the anchor product for us, and this quarter we have 23,000 net additions which is the best Q2 result we've had since 2005. The strength of our Internet offering is translating not just into stronger attach rates with our TV and home products, but is also driving continued positive net household additions. Our Cable business also delivered growth in adjusted EBITDA of 2%. We kept our margin levels at similar levels to the prior year despite improved subscriber loading and significant planned investments in our front line employees. From a year-to-date perspective, margins here have improved 70 basis points and we remain on track for a planned full-year margin expansion of 80 to 100 basis points over 2017. In Media, revenue declined year-on-year largely due to the Blue Jays. But cost efficiency initiatives across our other Media assets delivered Media adjusted EBITDA growth of 2% in the quarter. Turning now back to our consolidated figures, capital spending increased 46% this quarter year-over-year which drove a decline of 7% in free cash flow. I should highlight however that last year, in the second quarter, we had real estate sale proceeds which decreased our reported net capital spend. Normalizing for this disposition, our free cash flows in the current quarter would have increased 5%. On the capital front, we're progressing as anticipated on the investments on our networks. In Wireless we're investing in 4.5G and paving the way for 5G. In Cable, our hybrid fiber coax network continues to provide us network capabilities that surpass consumer demand and we continue to pull forward spend on node segmentation to recognize better economies of scale. The timing of our CapEx spend will be uneven quarter-to-quarter, but we will be within the CapEx guidance range we provided earlier this year. With respect to our financial flexibility, strong adjusted EBITDA helped generate operating cash flow of $1.05 billion which supported dividend payments of $247 million this year. We ended the quarter with a debt leverage ratio of 2.6 compared to 3.0 a year ago which was driven by higher adjusted EBITDA and lower net debt. We have made steady improvement on this front and moved closer to our optimal ratio range of 2 to 2.5 times. Our balance sheet remains healthy with liquidity of $2.05 billion at the end of the quarter with solid investment grade ratings and stable outlooks. While we're pleased with our progress here, we're focused on the value drivers of the business and will revisit long-term sustainable dividend growth at the right time. To sum it up, we've executed on the key areas we laid out with our focus on the fundamentals of the business, this quarter reflects another step in delivering on the strong guidance we announced earlier this year. With that, I'll ask the operator to open the lines for questions.

[Operator:]

Thank you. Ladies and gentlemen, we will now conduct a question-and-answer session. [Operator Instructions]. And your first question will come from the line of Vince Valentini with TD Securities. Please go ahead.

[Vince Valentini:]

Thanks very much. Congratulations, Wireless numbers are just phenomenal guys. Two questions, if I can. One I really don't understand the guidance anymore and I just want to make sure this is just conservatism or are you deliberately saying your expected EBITDA growth to be virtually zero or very low-single-digit for the second half of the year to get you from 10.9% that you're at now back into that 5% to 7% guidance range or you leaving some sort of huge cushion for marketing battles in back to school or Christmas season or could the guidance just be conservative you don't want to change it yet? And the second question Tony maybe for you, correct me if I'm wrong trying to read the contract assets understand this new accounting. So it looks like for me your cash flow statement, the contract asset increased by only $25 million in the second quarter in the first quarter went up $69 million. So I guess that would imply the year-over-year difference in how many new equipment subsidy dollars you put out was less in Q2 than it was in Q1. Just hoping you could help me understand that because I suspect your competitors may complain a bit that your incredible subscriber loading and low churn is maybe being matched by spending on equipment subsidies. It doesn't show up anymore because of IFRS 15, but I think it does show up here on the cash flow statement and it's -- it looks like a recently modest amount of spending. So I just want to if you can help clarify that it will be great. Thanks.

[Tony Staffieri:]

Great, thanks for the questions, Vince. On -- I'll start with the second one in terms of the contract asset. As you said, the contract asset will vary depending on volume and the subsidy embedded within that. But notwithstanding that it still continues to be anchored on the subscriber metrics that you saw in the results both in terms of gross and net. I encourage you to take a look at prior accounting basis which is in the Supplemental information what you see there is continued margin expansion even with the net subsidy cost embedded in the quarter. So I think that ought to clear up any debate that might arise as a result of IFRS 15. In terms of some of the specific reconciliations, we can provide that to you offline between old and new on the contract asset.

[Joe Natale:]

With respect to guidance, let me say first of all we're very pleased with our healthy and robust performance and we've got good momentum in the business that will continue throughout the rest of the year. We're just being sanguine and conservative. But bear in mind that 65% of our volume happens in the second half of the year. We don't anticipate any challenges or problems of any magnitude, but I think investors rely on us to be thoughtful and conservative about the way we approach our financial commitments, we have every ounce of commitment in delivering our guidance.

[Operator:]

We'll now take the next question from the line of Jeff Fan with Scotiabank. Please go ahead.

[Jeff Fan:]

Hi, thank you, good morning. I want to ask you about churn as you guys alluded to it’s been the best churn rate that we've seen in the second quarter in almost a decade and you go back before the new entrants actually enter the market. So I guess my question is when you look at your disconnects, which segments if you can elaborate a little bit, do you think you are, you're doing well in and I guess that the key question going looking forward is, is how sustainable you think this improvement that we're seeing in the quarter can last through the rest of the year or into next year and if you can just remind us of what your longer-term goal is for churn?

[Joe Natale:]

Sure Jeff. I’ll say a couple of things on churn. First of all, the team has worked very hard at developing the capability around base management and that's what you're seeing coming to fruition is a much more thoughtful and analytical approach to dealing with all value segments within our base and delivering on a better outcome overall. The changes that we've made are sustainable and now part of the elm, the muscle of the organization and we anticipate to continue driving greater churn improvement. There’s been some question in the past, some speculation about getting to 1%. I looked at this as a sort of steady progress towards better and better improvement and Rome wasn't built in a day and what we're looking for is a capability that is truly sustainable in terms of managing churn. In terms of where it's coming from, I think it's not appropriate for us to comment on which segments are driving improvements in churn or disconnections et cetera. I think that's very competitively sensitive information that I wouldn't want to broadcast on this call.

[Jeff Fan:]

Okay, maybe I can add one more. One of your peers Cogeco, has been talking about entering the Wireless space. It seems like they may just want an MVNO, I'm not sure but maybe can you comment a little bit in general about your whether you see potential MVNO opportunity as a wholesale provider and whether there's a segment there that could provide you with net benefit, if you were to be a wholesale provider to someone like Cogeco.

[Joe Natale:]

It’s hard for me to comment on Cogeco's wireless strategy I have to speak to them about that specifically. As it relates to different types of wholesale arrangements or MVNO type approach it's not something that's part of our strategy or our focus right now as an organization very much focused on building our business in the three very important brand that we have in the marketplace.

[Operator:]

We will now take your next question from the line of David Barden with Bank of America. Please go ahead.

[David Barden:]

Hey guys thanks for taking the question, congrats on the quarter. The -- just first question on the kind of CapEx and thinking about the Cable CapEx in particular feels like the catalyst for opening up a cash cushion to restart the dividend is going to come from the CapEx reductions in part related to Ignite TV but just overall the kind of progressing through the nodes splitting exercise, could you guys give us a sense as to how far to that node splitting exercise you guys are today and kind of current course and speed what kind of CapEx improvements could we be thinking about looking into 2019 and the second kind of hand in hand with that is now we've launched the awareness campaign for Ignite TV, is this the precursor to a more fulsome launch in the second half and what kind of impact on spending and margins and marketing do you think we should kind of expect for the second half of the year? Thanks.

[Joe Natale:]

Okay, why don't I start just on the whole node segmentation approach and Tony maybe you can comment on the CapEx and the dividends and I'll give it to Ignite. So we're saying right now across our footprint at about 300 homes per node. We're working very well to on a case-by-case basis, success basis to really do nodes of segmentation splitting as appropriate. In some cases, we are completed that activity in some neighborhoods, other neighborhoods we are not. We're just kind of working our way through it, it's very evolutionary, very success based. Right now our capability around DOCSIS allows us to have a one Gig solution or service across the entire footprint of 4.4 million homes and businesses. So we feel that we've got lots of runway, lots of roadmap to sustain the future of this business and the more we look at DOCSIS and cable labs and what they're up to the more excited we are about future capability on the road to 10 Gig and the road to full duplex. And we feel we've got the capital headroom to drive that roadmap without any sort of extraordinary events with respect to the cable investment as a whole.

[Tony Staffieri:]

With respect to capital intensity or CapEx for Cable, more specifically David, two items there that we said would be major reductions in our CapEx and capital intensity. As we move into the rollout and launch of our Ignite TV product which is IP based the heavy lifting CapEx has been coming off quite dramatically. Then the second piece of it is the CPE and installation cost and time related to the new product relative to the old is down significantly. We've talked about in previous calls our average cost per new home today running about $1,100 and moving to something under $400 and so that's going to be a significant driver of CapEx reduction in the cable business. In the near-term, as we've said previously we intend to substitute one of those savings with increased node segmentation which dovetails with the IP platform expansion but at the same time it's giving us considerable and somewhat material cost efficiencies as we do the segmentation on a neighborhood, neighborhood-by-neighborhood continuous basis. I don't want to overreach and provide CapEx guidance into 2019 but the major movements of CapEx are the pieces I described.

[Joe Natale:]

On Ignite David, we did the soft launch in Q2, we will continue to ramp our efforts on that front. Don't look at Ignite as sort of a big bang or one day wonder, it's really meant to be a rolling campaign that will build overtime. The marketing efforts that you'll see come to fruition through advertising and media are fully baked into our guidance and already reflected in terms of the forecast that we put forward. And we're very pleased with what we're seeing so far. We've fully integrated YouTube into our capability 4K TV it is live and working well with respect to Ignite TV. The most important thing to consider is that now we really believe we have, the ability to fight with both hands on one hand we have a strong 1 gigabit capability across our entire footprint; on the other hand we have the best-in-class video entertainment solution that is really one step or Phase one of the connected home roadmap and having spent quite a bit of time with Comcast and the future of that roadmap we are very excited about what's to come as a whole. Our focus in the early days of Ignite will really be on the service experience above all else. The service excellence around Ignite needs to match the capability of the products. We're starting to talk about what's next and there is a constant evolution of ideas and opportunities that are coming across on a regular basis, but the very important initial focus is on reinventing the cable experience for today's consumer and for today's marketplace. And to your question about the financial part of that's all been baked into our guidance and we feel comfortable with our plan to do so.

[Operator:]

We'll now take the next question from the line of Tim Casey with BMO. Please go ahead.

[Tim Casey:]

Thanks. Good morning. Could you provide a little bit more color on the cable and wireline side, in terms of what you're seeing across the GTA versus some of your other regions and obviously where I'm going on this is, is the competitive intensity with Bell and inside which is clearly ramping up on their side but based on the numbers you're throwing out today you're extremely withstanding the pressure, could you just talk a little bit more on what's going on there? Thanks.

[Joe Natale:]

Sure. So I think the results speak very loudly and speak for themselves. We posted revenue and EBITDA growth of 2% and best quarter in a long time 2005 with respect to Internet net additions. And there will always be aggressive pricing on the margin there is always going to be competitive intensity we've seen that for a very long time. Don't forget that our competitors has been in the marketplace with fiber to the node now for about 10 years and from a marketing perspective they now has been positioned as fiber. So we've been sort of building those strong capability in really understanding how to win in that marketplace. The promotional activity that you see is happening at the margins. The key is discipline. Discipline and promotions and the balance of managing revenue in the base versus loading which is our job we get paid for. Offers will come and offers will go over all with respect to what's happening. In terms of where it's happening specifically I'm not going to get into sort of a -- the details of our marketing strategy but I would say this to you that we're getting success across our footprint whether it's fiber to -- whether we're competing against fiber-to-the-node or fiber-to-the-home, whether we're competing in Brownfield or Greenfield we're seeing strong success across all variations of footprint as a whole and teams done a good job of managing that outcome as a whole, the key is our execution discipline above all else.

[Tim Casey:]

Just as follow-up Joe is the SMEE and business given new management recently is that starting to show traction in the numbers that or is that still a longer profile.

[Joe Natale:]

There's a little bit of growth in that area but it's still early days. I think there is still opportunity for us in terms of reaching our full market potential with small and medium business. But the team has really been a good job of rallying capability, building the strength within the sales force and the product sets to go after that. And we'll continue to focus on it. But there still lies the growth opportunity if that's your question, Tim, absolutely.

[Operator:]

We'll now take the next question from the line of Aravinda Galappatthige with Canaccord Genuity. Please go ahead.

[Aravinda Galappatthige:]

Good morning. Thanks for taking my question. I wanted to focus a little bit on the wireless OpEx side because it's been one of the key drivers of your really strong EBITDA in that space. I was wondering if you can talk about and this has been the case for the last couple of quarters as well you've been able to reduce the other OpEx component of the cost there and I was wondering if you can talk a little bit about which set of areas you've exploited in terms of sort of achieving that cost reduction and which areas really remain untapped as you look to kind of continue on with that rationalization journey. Thanks.

[Joe Natale:]

I'll start Tony and then you can add as you see fit. So we said that our goal was to drive 200 basis points of margin improvement in 2018 over 2016 and we certainly are accomplishing that across both our Cable and Wireless businesses. Broadly it's come from and Tony alluded to in his opening remarks, it's come from our cost playbooks in each areas of the business we've developed a very thoughtful set of playbooks that look at taking non-strategic cost out of the organization, that look at opportunities for driving reduction in call volumes I mean I think I've said in this call in the past, we take as an organization 50 million calls per year, roughly 60 million contacts if you include online chat et cetera at roughly about $10 a call. So we've worked very hard to systematically go after that call driver base. We've looked at many parts of our infrastructure that we believe can be made more efficient more productive as a whole. And maybe Tony talk a bit more about that and some of the other areas that we're looking at in the future.

[Tony Staffieri:]

In terms of and we alluded to on previous calls in terms of our cost playbooks the broad categories are what you would expect certainly efficiency and execution within the organization continues to improve. We continue to work with our suppliers on unit costs and we're seeing very good improvements in that as we work with global partner on that front we continue to see us getting closer and closer if not at or below global benchmarks in terms of unit costs and the inputs. And then the third piece is actually driving down activity and a lot of what we've done on the digital front has been very encouraging in reducing the volume of conventional touchpoints that we would otherwise see. And so that predictive type of digital solution is yielding good results on the cost front. And to go on your question where do we see opportunity that broad area is probably one of the bigger items that continues to have huge opportunities for us on the cost front.

[Joe Natale:]

And our mindset on cost improvement is not that it's a project that has a start and an end. Better cost efficiency is a reality of our business. The demand for data as we talked about earlier continues to grow at a strong clip -- strong rate. And we have to do two things really well to manage the economics of that. One is to have discipline with our go-to-market activities and two is manage the cost profile across all elements of cost. So we continue to deliver the resulting margins and we think there is still opportunity on both those fronts to continue to drive better margin performance across the organization.

[Operator:]

We will now take the next question from the line of Maher Yaghi with Desjardins Capital Markets. Please go ahead.

[Maher Yaghi:]

Thank you for taking my question and I just wanted to reiterate congratulation on very strong results. I wanted to ask a question on how do you see ARPU in the market behaving with the promotions that we saw last year, how are they impacting you overall billing and we've seen a slight decline quarter-over-quarter in terms of growth rates, how do you see the second half of the year behaving on ABPU or ARPU growth? And the second follow-up question I wanted to ask is on leverage it continues to come down 2.6 times, mind you there's been an impact versus last year from the change in accounting but still 2.6, how do you feel about your leverage right now, what's your target by the end of the year and you previously talked about the dividend having affected by leverage and growth and we're now seeing much lower leverage and growth is very strong so maybe your thoughts on the dividend going in the second half?

[Tony Staffieri:]

Thanks Maher for the questions. Couple of things, I'll start with the ARPU that we’re seeing, as I said in the opening comments, we see, continue to see good performance on the ARPU and the ABPU front. As I said on conventional ABPU, if you will, we're seeing that for the rest of the year in the 2% to 4% range and this quarter we landed at 3%. So that continues to come along nicely and in a moment I'll talk about factors that are contributing to it. But I sum it up to say it really is related to data growth and us being very careful in the way we are translating what we continue to see as consistent year-on-year growth in data usage on a per user basis into ABPU growth. And that's also true of ARPU as well and on the ARPU front, we continue to see that moving as well under the new IFRS 15 and we've talked about that for the year being in the 2% to 4% range and we're right in the middle of that. So again to reiterate for the year, we continue to see on ABPU -- on ABPU for the year 3% to 5% and on ARPU of 2% to 4%. So I wanted to be clear on that and its tied to base management across the entire portfolio as one of the big drivers. Much as Joe said on the Cable side you see a lot of promotional items, those really tend to be on the margin in terms of impact and there's a large base underneath that we continue to focus on. On your question on leverage, good improvement as you highlighted and its good improvement under the prior accounting basis as well, so we're pleased with the way that's coming in. As we look to the end of the year, we continue to see opportunities to move closer and closer to our desired range of two to two-and-a-half times as possible by the end of the year we may be at two-and-a-half times, we'll continue to work it but don't want to necessarily provide guidance for the end of the year on that specific metric. And then, finally in terms of dividend, nothing has changed in terms of the factors we look at. We've always said that we think about dividend increases as something that we want to be very careful and thoughtful about because they need to be long-term and sustainable and the metrics continue to come in well that we look at. But as we continue to improve on the fundamentals and continue to improve our balance sheet, we will continually reassess it; there is no change in our thinking on that.

[Operator:]

We'll now take our next question from the line of Greg MacDonald with Canaccord. Please go ahead.

[Greg MacDonald:]

Hi, Greg MacDonald with Macquarie. Thanks. Joe, I wanted to ask you a question on gross add loading and it's not really just to Rogers question, I mean your numbers have been good but the industry numbers have been good as well and have been good for more than two years and I guess when I first saw the list in gross adds and we’ve talked about a number of drivers whether that be immigration or second hand iPhones and whatnot, I kind of assume that at some point within a one to two year period you'd see this bump up and then a flattening, it seems like we're starting to see or we're continuing to see growth on growth. Is there something else going on out there Wireless-only customers seems to be something that people are talking a little bit, I wonder if you just might comment on what you’re seeing in terms of trying to get an understanding of sustainability of this gross add phenomenon which is benefiting everyone. Thanks.

[Joe Natale:]

Sure, Greg thanks for the question. I will say that there are probably four key growth drivers that we believe provides sustainable market penetration and opportunity for us in our Wireless business and as the largest Wireless player in Canada, I think it presents a very strong opportunity for the Rogers organization. The first is penetration growth specifically and Canada sits at about 87%, the U.S. is 120%. There is really no reason, no structural reason why we shouldn't be at U.S. levels of penetration. In the fullness of time, we will advance that from 87% to 120% as and industry and it will happen over the course of the next few years. Second thing I would say is that we have enjoyed healthy economy in Canada with strong GDP growth the last few years and that is certainly contributing to people's desire and ability to spend on the Wireless business as mobility as a service is fundamentally important to people's lives. And yes there is an element of cord cutting that is happening out there are lot of Wireless only households and increasingly so especially as Minnennials join the workforce as the next-generation joins the work force, we're seeing a lot more Wireless reliance independents versus traditional home phone which we think is good for our business as a whole. Third thing I would say is immigration. Immigration sits at roughly about 2% in Canada and immigration I think brings with it workforce and individuals that are Wireless savvy and want to make that happen. I think and the last point is when you alluded to is, longer life cycle on devices it's not just the fact that there's a fleet of devices out there that is available as hand-me-down devices. There's more of a phenomenon people separating their work life from their home life and having a work device and a home device. That phenomena has been a lot more present in the U.S. over the last many years that I believe is taking firmer root in Canada right now. We're seeing a lot more people as there is the availability of a second phone that's still in good shape, they're deciding to add it to a share plan or construct that which is doing very well for us and have that as a secondary device and allow them to sort of manage both parts of their large work in personal. So I think we're seeing across all those realms that it doesn't even begin to sort of comment on what's to come with respect to a machine, machine or IoT or the B2B2C part of the marketplace that's not reflected in the penetration comments I just described because a lot of those devices that don't show up as subscribers but we're seeing strong activity on that front which will continue to ramp even more readily and steadily as we approach 5G. I think there's going to be an explosion of IoT capability and therefore opportunity for us in a 5G world that will show up in a different sort of measure of penetration if you will not a traditional one that's been measured around Smartphones et cetera. So those are the things that we think are still valid underpinnings of the growth in Wireless and we don't see any short and medium term abatement in any of those factors, we think it's is a good opportunity for us in this marketplace.

[Greg MacDonald:]

And thanks for that, Joe and then so I'm going back to your first comment on your number one penetration growth comment, you mentioned a few years, so you suggest that you think there is good sustainability at least on the post -- I'm really focusing on the postpaid growth opportunity, is there anything within the three or four points that you made their outside of IoT that is new marginal growth that's kind of just more in the last year. So I'm wondering about wireless only within that question.

[Joe Natale:]

I don't see anything that's sort of a specific material change. I think it’s too early is to sort of declare that Wireless only is created a fundamental shift in the marketplace. We're watching it very carefully. And no question is contributing to it but in terms of the last year, we really haven't seen any sort of new dramatic factor I think if you’re looking at our results specifically what I would say Greg is the teams did a very good job at just execution. Execution we as a company have a very strong distribution advantage we're in 2,500 locations across Canada and it's always been one of our strengths. You couple that with a better ability around base management and team is working very hard on and you can see very clearly how it shows up in the churn performance this quarter. That's a great sort of turbocharger effect if you want to look at it that way as we leverage in terms of distribution and manage to convert more gross to net because of our churn capability. I will continue to kind of do well from that perspective and then having the penetration growth available to us as a backdrop. But we watch it very carefully something does come up that is a new factor would be happy to discuss it with investors.

[Operator:]

Your next question will come from the line of Drew McReynolds with RBC Capital Markets. Please go ahead.

[Drew McReynolds:]

Yes, thanks very much for fitting me in, good morning. First Joe maybe for you just can you talk to your mix of postpaid growth Smartphones versus other devices in the quarter you obviously provided some granularity on that in Q1, so maybe just provide an update there? And then, secondly, just big picture back to your comments on machine to machine and IoT. Are you able to give us just a sense of what that revenue contribution is today and I guess the second question there is, is it really a waiting for 5G for this to take off? And then lastly just on the Comcast roadmap are there any kind of milestones or things you can point to where we can see that owning a home strategy really begin to be monetized. Thank you.

[Joe Natale:]

Let me start in reverse order with the Comcast roadmap. I think I've given you a sense of how the entertainment solutions, Ignite TV will lead to certain connected home capabilities for everything from home security through lighting, temperature control et cetera. The timing of that evolution is something that we'd rather not reveal for competitively sensitive reasons but we do have a very specific roadmap and a staged evolution around a few very interesting and exciting kind of milestones with respect to that kind of roadmap and we'll keep you abreast of those as we feel comfortable describing and disclosing what they are. But I'll just reiterate what I said earlier through that that Ignite TV is step one of many, Ignite TV is just the beginning of our connected home solution and be happy to kind of share that with you when the time is right. On machine-to-machine front overall, you're right there is opportunity right now that doesn't require 5G that we're seeing growth in IoT as we speak with 4.5G capability and narrowband IoT, we're seeing a lot more interest and peaked desires from our base of business customers. We are right now the market leader in Canada in machine-to-machine IoT have been since the early days of GSM. Then we continue to focus in that area, we believe that we have a natural ability to propagate our leadership through 4.5G and then eventually to 5G. I think 5G is going to be a massive next step on that front because it will bring near zero latency, 10 millisecond latency capability to devices which will allow for a lot more real time applications. And then low -- better battery life, talking battery life in the realm of five to 10 years is what we're seeing and talking to some of our partners and vendors, so it will open up a host of ideas and solutions that we haven't even thought about. We often talk about Smart cities and Smart communities and smart buildings all of a sudden, the economics of enabling some component, the one example we've been using in some of our discussions imagine if you could put an IoT device on every garbage bin in the city. Well, today with the evolving technology that might be a reality five to 10 year battery life et cetera and then you could take a very different approach to garbage collection, it's a rather kind of simple idea or solution but it just really points to the fact that every realm of life work life business life, services will be exploring how old IoT might provide an opportunity for them. And then look inside the Smart home, I remember thinking a few years ago well the average paid home has 10 connected devices that is growing rapidly. It’s -- I think we will get to a place where we'll see 50 connected devices sometime soon not in the -- not in too far distant future and where I look at my home for example. And I've got three daughters each with laptops, iPads, you start looking at all the other devices in the home and it adds up pretty quickly. And to be sort of at the center of that functionality and capability and being the integrated provider of the solution or service I think is a very exciting place for us to be. But I think this opportunity for us that is now and also well into the future, is the economic model all proven up for IoT? No, it hasn’t been all proven up. It will be an industry-by-industry, vertical-by-vertical play and we're going to decide which verticals we play and work our way through it. On your last comment may be I’ll ask Tony to comment on the -- may be you had a question around our postpaid mix Smartphone versus not Smartphone.

[Tony Staffieri:]

Yes, in terms of I think Drew if you're certainly getting a ARPU or life time values, those were metrics for both accretive with specific reference to Smartphones I think was your specific questions, the activations were up in the quarter actually up 6% in terms of Smartphone activations and so that continues to have a healthy pacing of year-on-year increases and slightly increasing the reason I mentioned the stat is it outpaces our overall subscriber growth and so it's a healthy penetration of Smartphone that we continue to see upward.

[Operator:]

We'll now take the next question from the line of Philip Huang with Barclays. Please go ahead.

[Philip Huang:]

Hi, thanks good morning. Thanks for fitting me in and congrats on the solid numbers. Two questions, first on ARPU, I was wondering if you might be able to provide a bit more color given the strong performance to what extent it was driven by your postpaid pace moving to higher rate plan versus the increase in your postpaid mix. And then the second question is on Smart Home monitoring. How is that business doing and I understand when this year is included in your broadband subs I was wondering to what extent a driver of that, the strong broadband subscribers in the quarter? Thanks.

[Joe Natale:]

So I’ll take the first one, Tony maybe you can talk about Smart Home monitoring. On the ARPU front, Phil, the entirety of the growth in ARPU has come from managing our base -- managing our base and working through all customer value segments and helping them get onto the right plan, helping them upgrade their plan to higher tier et cetera. There is no magical shift and mix in our base. And it is truly driven by just good work and locating managing customers calling and then helping them get into a better plan and therefore doing that effectively given their appetite for more data along the way. If you're asking about, somewhere in that question around pre to post, pre to post is a typical kind of activity we think it’s a strong value-added activity and it's not of any material difference in mix or consequence than we've seen in the last in a while pre to post migrations.

[Tony Staffieri:]

Phil on your second question of Smart Home monitoring, it's a very, very small immaterial part of the Internet metrics that you see. I should also highlight that prior years was restated on a consistent basis and so there is no impact to the year-on-year metrics when you look at the Internet stats. The opportunity for Smart Home monitoring really is in the bundling opportunity that it gives us and as we continue down the connected home roadmap particularly with Comcast not only adopting but investing in the platform that drives this the Icontrol platform, it's going to be a key piece of that connected home strategy and that dovetails well with it. So the material upside to that product set is still to come and we're encouraged by the opportunity but as of right now the numbers are extremely small.

[Operator:]

We'll now take the next question from the line of Simon Flannery with Morgan Stanley. Please go ahead.

[Simon Flannery:]

Thank you. Another good year-over-year improvement in television losses is that the early stages of a Ignite TV picking in is that better broadband and do you think that's sustainable? And then on 5G talked a little bit about some of your small sell rollout working with Ericsson, so how are you designing this network is this going to be a millimeter wave based or you're going to focus more on those mid downs 2.5, 3.5 how do you think of the architecture of this network. Thanks.

[Joe Natale:]

Okay, on the first one Simon the impact is really from focusing on the whole home. Ignite TV is very early stages, the impact with respect to our improvement in TV losses which are substantial in the quarters we are very proud of the improvements stemming of those losses but is really happened from just a better focus on go-to-market discipline and a better focus on base management. I know we keep saying base management but it really is a huge and important part of this business and we work very hard on looking after the whole home and looking at household ARPA and as opposed to just Internet only or sort of specific product sets only because we believe that winning the home matters most and rather win the whole home in just expected quarter with Internet only subscribers. So that's what you're seeing in that number specifically. With respect to 5G look the last part of the global standards kind of just came out very recently. It's really a combination of frequencies right now there's a focus on 3.5 Gig because it's most readily available spectrum. A lot of it which we own already and therefore it's the most immediate focus, as millimeter wave frequencies become available we'll be ready to pitch up and make sure that we have what we need for the future in this business you have to invest to grow and the key to all this is a very solid 4.5G underlay and as I said in the previous calls, we have had the fortune of investing in 4.5G at a timely point in the cycle evolution of that technology. All 4.5G investments we’re making right now in our network will all be 5G-ready. So software upgradable to 5G is where we're headed with that capability. And including some of the small cell work that we’re doing is all sort of 5G-ready, 5G capable. If you talk to operators across the globe, a number of them that invested in 4.5G and small cells early in the cycle now are finding they have to go through some very significant upgrades to make them ready and capable for 5G. So we've had the benefit of timing it very well and as a result I believe we will be in a very good place when both of those frequencies are available for 5G. Our technology team has been working hard to test the capabilities; we are working very close with Ericsson on whole series of 5G tests with various pieces of equipment and various frequencies. So we feel that we're on the latest in terms of understanding what is the art of the possible, bear in mind that this is all evolving as we speak. The global ecosystem of 5G is something that is happening before very eyes and it's changed dramatically from 12 months ago to six months ago to literally in the last couple of months. What we are focused on right now is acquisition of small cell locations across the country and you heard me allude to that earlier in the call that we signed a large number of key agreements that give us attachment rights across the country. So that's a very important factor, just getting ready for that deployment and this will be sort of an evolutionary deployment that happens over time, I mean there's been a lot of written as to when will 5G be ready, I think there is an article yesterday about the Korean service providers doing some work in 2019 et cetera I believe the commercial availability readiness of 5G will be somewhere between 2020 and beyond and it will happen in a more of evolutionary fashion rather than some sort of massive rip and replace that we've all been used to as we have gone from 2 to 3 to 4G, this is not going to be like that. It's going to be really application specific, geography specific as to whatever need for fulfilling the 5G and as those plans materialize and they're not compatibly sensitive, we would be happy to share with you exactly what we're doing.

[Operator:]

We'll now take the next question from the line of Richard Choe with JPMorgan. Please go ahead.

[Richard Choe:]

Great, thank you. Just wanted to get an update on the wireless margin, it's done very well how much more room for improvement could there be and then on the cable side, the TV revenue continues to come down where should -- will this be bottoming out or should we expect it to continue to deteriorate? Thank you.

[Tony Staffieri:]

Richard on both questions, I will start with the first one in terms of Wireless margins. Good performance this quarter on the wireless margins but it's in the line with the objective we have for the full-year. In the last year we improved wireless margins by close to 100 basis points and this year what we said is we continue to improve it and Joe at the outset talked about our original objective over the two years was 100 to 200 basis points. And I think it’s fair to say we’re well on our track to achieving closer to the 200 basis point improvement over the two years so 2018 compared to 2016. And so that means for this year on average we're seeing, we're expecting for Wireless margin improvement of 80 to 100 basis points and that’s under both the new and the old accounting standards. So there isn’t anything that's an accounting play there, it's fundamental margin expansion. And then your second question was on Cable margins and margin expansion overall. I assume you meant it from an overall portfolio, we continue to see actually positive momentum on Cable margins, we are helped by the mix shift that naturally happens from traditional TV which is very broad strokes of 50% margin business moving to Internet which is almost all margin. And so that's been helping us on the margin expansion front in Cable and combining that with cost efficiency items that we have in Cable that continues to do well and some of that has been offset with investments that we've made this quarter the investments were in a few areas significantly in terms of our customer experience agenda. And the second piece is some of the upfront costs that we incurred as we roll out our Ignite TV platform and getting ready for that. So you can expect the cable much like Wireless frankly to be a bit lumpy from quarter to quarter but as we said on the Wireless side, it's true on the Cable front as well; we expect to see margin expansion for the full-year in the 80 to 100 basis point improvement basis over 2017. And that follows 2017 having margin expansion improvement of almost 100 basis points. So on both the Cable and the Wireless front, the margin agenda is moving along nicely.

[Operator:]

Ladies and gentlemen, that is all the time we have for questions and this does conclude the Q&A session for today. I will now turn the call back over to the management team for any closing remarks.

[Glenn Brandt:]

Thank you very much everyone for your attention and your time today. We are happy to take any follow-up questions if you reach out to us directly. Thank you for your time this morning.

[Operator:]

Ladies and gentlemen, this concludes the conference call for today. Thanks for your participation. You may now disconnect your lines.