Rogers Communications Inc.
Q1 2017 Earnings Call Transcript

Published: 19 Apr 2017

[Operator:]

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Rogers Communications Q1 2017 Results Analyst Teleconference. 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 today on Tuesday, April 18, 2017 at 4

[Amy Schwalm:]

Good afternoon, everyone and thanks for joining us. I am here with our Chairman, Alan Horn; 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 2016 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 Alan to begin.

[Alan Horn:]

Okay. Well, thanks, Amy and good afternoon everyone. Thanks for joining us. I will be brief, I think the Q1 numbers largely speak for themselves. And then, I will pass it over to Tony to speak to our results in more detail. So, overall, we are very pleased with our financial and operating performance in Q1 which reflects the high quality of our asset base and the ongoing solid execution against our plan. We recorded strong service revenue growth of 4% and we are seeing that flow to adjusted operating profit with growth of 6% this quarter. It's good to see revenue growth flowing through to AOP. These results are a testament to the contributions of our leadership team and all 25,000 of our employees and delivering exceptional performance during the period of transition. Wireless our largest segment was clearly the main contributor to these results. We delivered across the board on all key wireless metrics. Posting strong growth in revenue, adjusted operating profit and full state net additions. We substantially improve churn year-on-year reflecting our ongoing commitment to improving the customer experience. In cable, our leading Internet offering continue to resonate with customers and led to another quarter of improved subscriber metrics. Our preparations for the launch of the compelling X1 platform are on track and our customers can look forward to a continuous stream of innovations and an exceptional video experience in the home. Media had an improved Q1 helped by distribution from Major League Baseball. So, as we go forward we expect to maintain revenue momentum. We will continue to focus on streamlining our organization, improving our cost structure and capturing efficiency opportunities. And of course, we are delighted to have Joe Natale join us President and CEO starting tomorrow because actually one minute past midnight actually. So all of us, the Board of Directors, our executive leadership and all of our employees will of course be working with Joe to ensure a seamless transition. And so with that, I will turn it over to Tony.

[Tony Staffieri:]

Thanks Alan and good afternoon everyone. Alan covered up our consolidated results, so I will read into segment performance. Wireless revenue and subscriber growth was impressive and importantly this robust growth did not come at the expense of profit and in fact, wireless AOP growth of 7% is the best we delivered in seven years even while recording the most Q1 postpaid net additions in eight years. Strong service revenue growth of 7% reflected a healthy combination of both subscriber growth and meaningful ARPU growth. Blended ARPU and postpaid ARPA increased 2% and 7% respectively on higher penetration in our premium value bands and as customers add lines to existing accounts. Postpaid net additions of 60,000 increased 46,000 year-on-year driven by healthy gross additions and a substantial reduction to churn despite another competitive quarter, wireless postpaid churn declined 7 basis points to 1.10, which mark the lowest rate since 2010. We will continue to target churn reduction as it is one of the biggest value drivers for us given we have the largest subscriber base. Lower churn should help drive revenue at higher margins as the cost of retention is generally lower than the cost of acquisition. Our high quality network value-add offerings and improving customer experience have resulted in favorable trend in churn and subscriber share over the last year and we expect sustainable traction going forward. Turning to cable, revenue and AOP were stable year-on-year, Internet results continue to be the largest contributor and the positive trend in our residential Internet business remain very strong. Excluding the impact of the lower wholesale revenue from the CRTC's decision to reduce rates, cable and Internet revenue increased 1% and 11% respectively and cable AOP increased 3%. Cable PSU net additions were positive for the third consecutive quarter driven by Internet net additions of 30,000 up 14,000 year-on-year nearly half of our residential Internet customers are now on plans of 100 megabits per second or higher compared to just over a third a year ago. It's clear customers are valuing faster speeds and Rogers can deliver. We offer the fastest lively available speeds in our footprint with 9 gigabit Internet service available to our entire footprint. In short, our competitive advantage is tracking well in the market not only are we tracking Internet customers, we continue to see positive household net adds and look forward to improving cable metrics this year on the strength of our higher margin Internet offerings. And the prospects for cable only get more compelling with the launch of X1 IPTV and the digital home solution expected early next year. In addition of the elegant customer experience, the X1 platform offers, we also expect cable CapEx intensity to decline post-launch, as the licensing model is a variable OpEx one for us and just a significantly the average customer investment per home declined as more functionality moves to the cloud and we leverage self-installed capabilities. The X1 integration is underway and we are leveraging the learnings of Comcast and other partners. Recall, this is a proven platform with a history of integration and deployment by several syndication partners, so lower execution risk for us. The ecosystem around X1 is relatively small, so we only need to deal with Comcast and a limited number of other service providers. We continue with a number of initiatives to improve the customer experience with a focus on self-serve. Our overarching goals to make things easier for our customers, give them control and save them time, so what the customer wants and helps to reduce churn, call volumes, truck rolls and improves our productivity. During the quarter, we improved usability of our data manager tool, added online billing features and expanded our EnRoute service to our entire cable footprint. We are the first Canadian telecom to launch this sort of time saving tool, which allows customers to track on their mobile phone when a technician will arrive for an installation or service call. The overwhelming majority of the initial feedback, rate of the tool, fiber five. These efforts to address customer pain points are reflected in improvements in our wireless postpaid churn and in our cable products. We are doing a better job at solving customer problems with positive trends and first time resolution rates. The digital agenda is also a big focus for us and we are looking to integrate digital solutions into traditional ways of doing business. We look at our digital sales channels relative to our sales coming from retail traffic, the number of small in comparison today. But, we are targeting three times as many digital sales transactions than we have today by the end of this year. We are starting on small base but I think it speaks to the focus we have. Our initiatives continue to resonate with customers. In the first quarter, self-serve transactions were up 35% on the Rogers brand and overall customer contact volumes were down 7% year-on-year. We made progress but we also see a big opportunity to further improve the experience for customers, while also enhancing our productivity and efficiency. The year results trended favorably year-on-year primarily due to higher sports related revenue including a distribution from Major League Baseball and higher subscription revenue from Sportsnet. As you know, we restructured our print business to shift to digital media in order to keep pace with changing audience demands. This is expected to impact overall media results in 2017 as digital sales take sometime to ramp-up to replace the print decline. Turning now to some additional details in our financial results. Higher AOP helped generate operating cash flow of $596 million with supported dividend payments of $247 million this quarter. Robust AOP growth combined with lower CapEx drove free cash flow of $338 million up 54% year-on-year. We expect CapEx to ramp up with initiatives like the X1 integration accelerating in Q2. Moving to overall performance below the operating line, adjusted net income and net income increased 34% and 28% respectively largely due to increased AOP and lower depreciation and amortization partially offset by higher income tax expense and in investment gain recognized in the prior year. We ended the fourth quarter with a leverage ratio of 3.0 compared to 3.2 a year ago, due to seasonal increases in working capital, we have typically seen the ratio move up sequentially in Q1. But this quarter remains stable on the back of strong AOP growth year-on-year. We expect ongoing AOP and free cash flow growth for debt repayment to generate further improvement in the ratio and we continue to focus on enhancing the fundamentals that is revenue growth to drive higher AOP, free cash flow and return on assets, recognizing these are the key drivers of shareholder value. Our balance sheet remains healthy with our solid investment grade credit rating with stable outlooks and attractive rates on our outstanding debt. To sum it up, our first quarter results represent a good start toward achieving our guidance for 2017. We are executing well in a competitive market supported by our high quality asset base. We expect sustainable revenue momentum with greater cost efficiency to ensure a healthy flow through to profit and free cash flow and as a backdrop to it all, we remain committed to delivering a better customer experience for our customers. All of this should undoubtedly translate to increased value for our shareholders. With that, we open the call for any questions you may have.

[Operator:]

Thank you. One moment please. Ladies and gentlemen, we will now conduct a question-and-answer session. [Operator Instructions] We will now take the first question from the line of Jeff Fan with Scotia Bank. Please go ahead.

[Jeff Fan:]

Thanks. Good afternoon. Congrats on the numbers. Tony, I think in the past you are trying to give us some ideas about the cable household and the ARPA. I know you are not disclosing the details, but can you just give us a bit of an update us to, what is -- what's going on in there in terms of the household counts and ARPA from a cable perspective. And then, I guess the second part is, do you see enough momentum driven by Internet to continue to allow you to have the positive RGU trends that you have been seeing across the board, I guess taking into account some those fiber expansion and I guess with TV improvement going into next year.

[Tony Staffieri:]

Okay. Thanks for the question Jeff. As you said in terms of disclosing house holding and ARPU, we haven't done that but what I can tell you is, the trend continues to be positive both in absolute and in terms of year-on-year trending as well we continue to do that on the back of maintaining strong ARPA. And so, the good thing you see is, household improvement and penetration improvement without diluting ARPA and so we are pleased with the way that's coming in. In terms of the second part of your question, and how we are competing in our marketplace with the competitor products. As we said, our entire footprint is gigabit-enabled and so we what we do is while the number at a gigabit in terms of customers is small today. The need for speed and if you look at the customer profile continues to move up. As I said, almost half our customers now are in speed of over 100 megabit. And at 100 megabit, we are still at a very strong competitive advantage relative to our competitors product. And so that will continue to do well we think for the next long while. If you were to look at our coverage for gigabit as I said it covers our entire footprint, we estimate the relative to our competition that's at least four times more than they can deliver in terms of gigabit fee. So, as I said -- the other thing I should say is, we have added a new tier of 500 megabit per second as well and that's still early age. But, we continue to have speed tiers that address the demand that we are seeing out there. That competitive advantage will continue we think for some time and when we combine it with the prospects that we see for the Comcast video and digital home product, we think that's going to continue to help make the customer sticky on the back of Internet that continues to -- as I said, they offer a very strong horsepower.

[Jeff Fan:]

And if I can just add a quick follow-up regarding the Comcast video rollout for next year, can you just remind us, when you expect to rollout and how quickly you think you can get it across your entire market?

[Tony Staffieri:]

So in terms of the first part of the question, Jeff, we plan to launch it in the first quarter of 2018. So that hasn't changed and then we weren't committed to that. In terms of the speed of the rollout, we are not going to disclose too much on that for obvious reasons, but as you expect the rollout will be well-phased to ensure a very robust execution of the product. The best probably all I can say at this point.

[Operator:]

We will now take our next question from the line of Vince Valentini with TD Securities. Please go ahead.

[Vince Valentini:]

Yes. Thanks very much. Couple of things. Probably most for you Tony. The Major League Baseball payment, did you able to quantify that and is this something unusual or is it something you see a different times in the year and maybe it came in a different time this year?

[Tony Staffieri:]

On the distribution, Vince, it's related to sale of the [MOB] [ph] that you might have saw, the amount is not disclosed. And so in accordance with our agreement with MOB, we can't disclose the amount we received. But, I think to be helpful, what I would say is, if you were to look at media revenue growth excluding that one-time payment, it would still be slightly positive year-on-year.

[Vince Valentini:]

Great. Second, you just sold the former army building at Lakeshore & Bathrust. I think for $67 million, just to clarify, that would not have been closed in Q1, so it hasn't been reflected in your debt leverage? And second, is there any other peripheral real estate that we might expect you guys to monetize sometime soon?

[Tony Staffieri:]

So, in terms of the sales that is not reflected in our Q1 results. The closing of that is happening in the second quarter. In terms of additional real estate dispositions, we continue to look at other opportunities for them, but nothing that I can talk about or we would talk about now.

[Vince Valentini:]

And last your -- I mean you obviously got 6% EBITDA growth here in the first quarter and you didn't do it the wrong way, if I can call that with low you have a fantastic sub-loading especially on postpaid, so that should carry through with good financial sort of for the balance of the year. Is there anything we should read into guidance remaining at 3% to 4%, is that actually realistic or is there possibility, you are just conservative and its too early in the year to think about revisiting it?

[Tony Staffieri:]

Short answer is yes, still too early, I mean, we are quarter into it, is a good healthy start to it. But there are number of things we built into guidance. And I would say given the cyclicality of our business, it's still a big part of our business to play out in the remaining three quarters.

[Operator:]

We will now take the next question from the line of Drew McReynolds with RBC Capital Markets. Please go ahead.

[Drew McReynolds:]

Thanks very much. Tony just a follow-up on that. One the wireless EBITDA growth another strong quarter up 6% or 7% and that follow with a strong quarter in Q4. And then previous to these two strong quarters, you had struggled with operating leverage. So, I'm just trying to understand all the puts and takes, in particular can you just talk to the upgrade cycle that's -- that is flowing through now under the two year contract. And then, second, if I could just squeeze in a second one, just on ARPU growth, can you just remind us, if there was no negative impact from Roam Like Home, I think it was neutral last quarter and just what do you expect in terms of the sustainability of that postpaid ARPU growth or blended ARPU growth looking out for the rest of the year? Thank you.

[Tony Staffieri:]

Okay. I will start with the second part of the question. In terms of ARPU growth, I'm pleased to tell you that roaming did not have an adverse impact on our revenue and ARPU growth percentages. And so we took bold step sometime ago in terms of putting together like the Roam Like Home package and it impacted our total wireless revenue for sometime. And we are now at the point where the volume increases have allowed that to not have an impact and will serve slowly entering what I'll describe as year-on-year growth, albeit it's very small. But, at least it's no longer having a drag on our growth metrics for revenue and ARPU. The second or the first part of your question, I hope I got this right. In terms of the 7% AOP growth that you saw in wireless, I think there was a couple of things I would say there, one is, we continue to see healthy backdrop in terms of size of the market and so as best we can tell the market seems to continue to do well much like we saw in the fourth quarter. And so, we are pleased that both on a gross and net basis, we got a healthy share of the market and so you saw that cost come through and notwithstanding the subscriber net additions of 60,000. That's included in delivering this 7% AOP growth. So, I wouldn't necessarily, if that was your question, conclude that there was a slowdown in either the acquisition or retention or upgrades I should say that slowdown in the first quarter. I think the underlying metrics continue to be somewhat the same from a year-on-year perspective.

[Drew McReynolds:]

Okay. And if I can just add a third one quickly. Tony just on Internet net adds, just can you talk to any impact they will bear from resellers and in terms of your Internet net adds, just any granularity on kind of the breakdown directionally between wholesale and retail SMB? Thank you.

[Tony Staffieri:]

Okay. We don't breakout the split between the retail and wholesale. But, what I can tell you consistent with what I said in the past, the wholesale piece of it continues to be extremely small almost all of our Internet adds are on the retail side of it. Given some of the things that we have seen in terms of pricing on the wholesale side, it's a segment that we have been watching very closely and I would tell you that the movements that we see in that market in terms of subscribers at least from our perspective continue to be very small. And in any particular month you will see it move slightly up or slightly down.

[Operator:]

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

[Tim Casey:]

Any comment on what's happening on trends and media in Q2 particularly given the receipt levels for the NHL contract that's being reported now that look quite strong compared to last year. And second, Tony, can you remind us on price increases for wireline, I know this year increases for TV and Internet packages go up, they take effect in late April. Can you just maybe comment on what -- when you -- in terms of timing when they went through last year, any comment on stickiness, I know they have one through here, but if you are getting any feedback from call centers on your ability to capture all those increases? Thanks.

[Tony Staffieri:]

Great, Tim. Let me start with the first one, in terms of media clearly, the play-off front is having good success, it's still early days in terms of the play-off period, but early days and a good mix of Canadian teams. And so that piece of it is coming in as well advertising revenue continues to track favorably year-on-year on our NHL specifically as you would expect in, of course, the JEs started-off this year in terms of viewership. But both of those are still early days in Q2. But, continue to bode well for the quarter. In terms of second part of your question price increases, last year, on the wireline side, we have done some price increases in the first quarter. It had been later this period and so, they are actually really starting on 24, and so you will see that come through in the second quarter, albeit only for part of the quarter. There is a billing cycle that happen. So you are into it 30 days and so you really only pick-up about half of it and maybe a little less than that in the second quarter in terms of flow through.

[Tim Casey:]

Thank you.

[Operator:]

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

[Simon Flannery:]

Thanks very much. Good evening. I noticed you continue to have Internet ads and revenues maybe in the opposite direction from the TV, I think now your Internet revenues above your TV revenue, your sub-serve by 21% higher. Can you just comment on what you ware seeing in terms of core cutting, in terms of the demographics there and move to skinny bundles and how you think of that -- over the top, you are obviously seeing a flurry of new offerings coming out in the U.S. market, appreciate your thoughts on how that evolves. And is the TV drop temporary and something you can reverse with X1? And then, any comments on what you are doing in terms of trailing 5G and looking at opportunities on that side? Thanks.

[Tony Staffieri:]

Okay. Thanks Simon. I will start with the -- in terms of the Internet ads vis-à-vis the video platform, notwithstanding that the video still fits in a negative position, it has made huge progress over the last year, if you look at it sequentially on a year-on-year basis continues to be much better. Absolutely as we head into first quarter of next year and launch the X1 Comcast platform. Our expectation is that, that will drive positive net adds and expected to have a positive impact on our ARPU. And that's really based on what we are seeing not only for our Comcast but early days for the syndication partners as well. But, I don't want to get too far ahead of ourselves on that. In the meantime, we continue to make improvements with the video product we have. And we are starting to see that via contributor to the numbers. And looks at our previous calls, when we look at customers, are they staying with us or coming in, we find that over half of them are choosing their in-home services provider based first on Internet and having Internet speed and Internet reliability seems to be the most important factor and we think that will only increase over time. In terms of OTT alternatives or core cutting, always hard to read the market on that. I think what we -- what I can tell you and what we've seen play out well with a Comcast product is, it integrates some of the more popular ones as they come on board into the product. And so in the X1 today they have Netflix fully integrated and that seems to be working well and they've announced recently the addition of YouTube and no doubt that will work well also. And so I think what you find is, it will be a very compelled proposition from user interface and be the gateway to various other OTT alternatives. So we think it's a good strategy. But as I said in terms of core cutting and core shaving, we're not seeing any significant trends to the negative. In terms of skinny bundles that you mentioned, the numbers we had the skinny offering over a year ago, we moved more of a pick-and-pay in December, which is the numbers that we're seeing on, if you want to call it skinny bundles or summer packages, it's still extremely very small and consumers who are generally seen to continue to find value in the bigger bundles that we have. And then, finally, your last question is on 5G and the roadmap for that, not a lot of change since we last spoke about quarter beyond this. I would say that there is a lot more discussion about it, but it's still early days as I said before we're working with Vodafone and our vendors and we'll certainly be a fast follower when the technology becomes implementable in a very practical way. But, right now, we continue to watch and somewhat participate in the trials, but it's still very early days and ultimately in our roadmap for 5G is going to be defined by the revenue opportunities in the business case, which everything that seem today suggest it's still very nascent. But, the last comment I'd make on it is fundamentally it's still an evolution about 4G and so to the extent that we sit with a very good 4G network across the nation, it will be a very good platform to move into 5G as it becomes much more practical for us.

[Simon Flannery:]

Great. Thanks for that.

[Operator:]

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

[Greg MacDonald:]

Thanks. Good evening guys. Quick question on the timing of price increases, and then, I have a second follow-on. I think Tony it was about a two-month delay, this period versus last year, right, where -- that you're going to be impacted by price increases, is that true?

[Tony Staffieri:]

Yes. It's a little over two months, it was in the second quarter this year and it was in the first quarter of last year, of course the end of January, so it's actually little more than two months.

[Greg MacDonald:]

Little more than two. And can you possibly quantify in your EBITDA -- it doesn't really matter to me, but can you quantify what that impact was or would be I suppose if there was on an apples-to-apples basis price increase?

[Tony Staffieri:]

No, sure, it's tough to do and the reason I say that Greg is we -- some of that as you work it through end of working it through in terms of retention discounts et cetera and so trying to do apples-to-apples is always difficult in any particular quarter and year-on-year and so to avoid the potential of misleading anybody and we're going to stay away from try to give you an absolute on it.

[Greg MacDonald:]

Okay. That's fair. Maybe another way, is it possible to say roughly what percentage price increase you're looking for at the end of the day?

[Tony Staffieri:]

No. In terms of percentage wise, if you look at the increases we did very well, I would say its low single-digit percentage and it could vary from product-to-product in terms of where the pricing is, but it's generally in and around 3%, would be the number if I had to summarize overall across the categories.

[Greg MacDonald:]

Okay. That's helpful. The second question I have is on the X1 product you mentioned that 2Q cable CapEx will pickup a bit as that spending comes in. Can you just describe generally speaking what are the major things that need to be done from a network and a back office perspective to prepare for X1? And then, anything you can say on the cost timing and magnitude on the CapEx line would be helpful as well.

[Tony Staffieri:]

Sure. So couple of things in terms of -- I'll start with the second part of it, in terms of CapEx profiling as you would expect as the project moves along you will see sequentially more, more CapEx flowing through it, so that's where the distribution of it over the extra three quarters, then it will be some into next year as well in terms of CapEx on that project. I would say overall CapEx for the year we can provide the guidance early on and we continue to see that as the profile, so don't take the year-on-year lower amount in terms of CapEx to be indicative of where you'll see the rest of the year play out, still a number of projects to ramp up particularly the Comcast piece of it. I think the -- if you remind me the second part of your question.

[Greg MacDonald:]

It needs to be done generally speaking from a network and back office perspective.

[Tony Staffieri:]

In terms of -- couple of things I would say, one is there is little innovation that's being done on a product itself, the product is the Comcast X1 product and select the other syndication partners we intend to rollout that product. You're not going to see customization from the user interface perspective. But, with that there is integration of the product into our systems -- everything from the way you order and buy it to the way it gets those to our ordering process, truckload process and eventually billing process. And so all of that integration into our systems is a key part of it when you think about from end-to-end. And so without getting into all the details of it, it is much more than just the product itself.

[Greg MacDonald:]

That's it.

[Operator:]

We'll now take the next question -- sorry, go ahead sir.

[Tony Staffieri:]

The final point I'd make on it is each of those pieces in terms of integration is something that Comcast is dealt with not only for their own purposes, but through for their other syndication partners. And so while there is always update of customization to it in terms of integration, it's a roadmap that has been followed by the others and so as I said earlier carries with it a low level of execution risk.

[Operator:]

We'll now move on to the next question from the line of Maher Yaghi with Desjardins Capital Markets. Please go ahead.

[Maher Yaghi:]

Yes. Good afternoon and congratulation on the results. I just wanted to start with a quick modeling question, how many cents in the EPS you think Taylor Bordeaux goal yesterday was worth?

[Tony Staffieri:]

One more time, we didn't get it.

[Maher Yaghi:]

Yes. I just wanted to ask you how many cents in EPS you think Taylor Bordeaux goal yesterday was worth to your results in Q2. Okay, seriously my first question I wanted to ask is, I'm trying to get to the bottom of what's driving the decrease and year-on-year cost of acquisition, it seems like when you look at the net losses that you had on prepaid and then let's try to say that you were much better in converting prepaid to postpaid in the quarter than you have been previously and that has helped to reduce your cost of acquisition.

[Tony Staffieri:]

All right. I think just be helpful in terms of some of the dynamics I would -- cost of acquisition if you think about the key components of it is the hardware subsidy and I would say that piece of it is, if you were to look at it sequentially your year-on-year that's not going down and generally has been stable to slightly up. The other piece of it is commissions and that one we are seeing the improvements in efficiencies and so on a per unit basis that has some good trending, but to be clear it's the subsidy piece that's the biggest part of it. And that one is relatively stable to up slightly. If you're looking at our prepaid numbers, I will say the migration from prepaid to postpaid continues on the track it's previously been on. If you're looking at the lower prepaid subs, this quarter and trying to understand whether there was a higher than usual migration of postpaid that's not necessarily the case our prepaid really lower sub numbers related to our charter brand and some changes we made during the quarter and our commission with one of our big channels that have an adverse impact we corrected that late in the quarter. And so our prepaid business is, I would say resuming to back on track and so that isn't necessarily what you're seeing in the COA metrics.

[Maher Yaghi:]

Thank you, Tony. That's a good clarification. And just on the dividend since you, you held your dividend stable now we're starting to see nice progression in AOP, is it fair to say that the decision to increase the board -- the decision to increase the dividend now is basically waiting for the AOP improvement or growth year-on-year to be sustainable and that will be the final measure in which probably when that is held then you can start looking at dividend growth.

[Tony Staffieri:]

I would say I don't want to box it in as narrowly as you defined it. Maher, I would say nothing has really changed from what we have been saying. Look, we're focused on the fundamentals of long-term value and its revenue growth, its profit growth, cash flow, and return on assets that's what we're focused on and at the right time we'll look at the dividend and our board will look and consider it, but it's still too early to give you any indication of anything on dividends.

[Maher Yaghi:]

Okay. Thank you.

[Operator:]

We'll now take our next question from the line of David McFadgen with Cormark. Please go ahead.

[David McFadgen:]

I have two questions from me, I was wondering if you can give us an idea of what you expect your leverage target to be reduced by in 2017, 0.2, 0.3 or values pick and actually may end up at 5 at the end of the year. And then, secondly on the wireless ARPU, you're tracking in the 2% range and it's obviously very good, but it's still a debt below BC and Telus and I was wondering if there was anything structural that would explain why I make it lower than they are. Thank you.

[Tony Staffieri:]

Thank you for the question. On both on those in terms of leverage, we don't expect it to be flat on a year-on-year, we have been over the last several quarters making good progress on it, I would say in general that's the casing that we continue to see as we had to the end of the year and so we expect continued improvements sequentially and year-on-year as the year unfolds. In terms of ARPU growth, it's the blended ARPU that you're referring to so keep in mind it includes for us given the prepaid base that we have the impact of the prepaid side of it also I think the direction of travel for the ARPU growth is what we've been planning for and it's headed in the right direction for us and so I wouldn't say too much more than that in terms of the ARPU breakdown.

[David McFadgen:]

All right. Thank you.

[Operator:]

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

[Phillip Huang:]

Yes. Thanks. Good afternoon. Just a clarification question on X1, I was wondering if there is -- there will be any significant differences in the X1 product that you guys will launch versus what Shaw already has in it's market, you guys obviously have gone through lot of preparation for a different IPTV product in the prior years, but I wasn't wondering to what extent you guys might be able to benefit from those prior investments. And then, secondly, I think that here obviously very solid quarter on the wireless side and I was wondering you alluded to a healthy market overall, but I was wondering if there is any as Rogers enjoying greater differentiation in the market and also potentially gaining some market share from your competitors. Thanks.

[Tony Staffieri:]

So on the -- with respect to the X1 product, I will say that we're launching the IP version of the X1 product, so it's the next evolution of it and one of the main advantages of the IP version is that people will love from more features more functionality, I don't want to gauge get too far ahead of ourselves in terms of what all that entails. Other than to say it will be the next version of it and it will largely be what you see today plus additional features and so that's really all I can say about it. It rides on the IP network and so leverages the DOCSIS CCAP 3.1 investments that we made and we continue to make sure that we have a network that's capable and ready to carry the all IP transport. Second piece of your question related to wireless and you faded out of it, but I would say we continue to especially we can read it to the healthy growth in the wireless market. We think the key contributors for continue to be some of the fundamentals in the Canadian economy both in terms of immigration, GDP, disposable income and all those macro factors. And at the same time wireless penetration rates continuing to be much below with some of our neighboring -- the U.S. is and so we see opportunity for continued growth there and we see that moving up, but I think share everything contracts that we have our good platform to provide build certainty as consumers add more and more devices and businesses adopt, share everything type plans and so that's only going to help the penetration rates. When you look at our share everything, we continue to see when we look at average number of devices per account, we continue to see that moving nicely in the right direction and so it's that type of penetration that we were aiming for and that's moving in the right direction. I don't know I have answered your question completely.

[Phillip Huang:]

Yes. I know that's very helpful. Maybe just a quick follow-up on that last point. Do you see any room for greater differentiation for Rogers on the wireless side maybe over the next several years or even as we look towards 5G, is there perhaps greater room for differentiation than where it seems right now because it sounds like the overall market has been pretty healthy and its lifting sort of the -- the tide is lifting all boats, I'm just wondering if that could potentially change in anyway over the next several years and how you see that potentially importing for Rogers. Thanks.

[Tony Staffieri:]

Without getting to out there in terms of strategy I think it will continue to revolve around the fundamentals of it. Our success to-date has been centered around quality network first and foremost and that will continue to be out there, we put around value offerings both in terms of plans that make sense and what the customers looking for adding to that innovative apps and online tools that give the customers what they need. So, there is a lot of different things, it's really about focusing on what the customers looking for and just trying to be slightly ahead and delivering on that need and so has been the key piece of the formula to-date and that's what we'll continue to focus on is, is what the customer is looking for.

[Operator:]

We'll now take our next question from the line of Rob Goff with Echelon Wealth Partners. Please go ahead.

[Rob Goff:]

Thank you very much for taking my questions. My first question would be on the broadband side, could you -- whether or not reduced churn or increased key traction where significant factors behind the broadband performance.

[Tony Staffieri:]

Rob, can you -- we're having trouble on our end and you're fading out -- in and out on us, could you please repeat it, sorry to make you do that.

[Rob Goff:]

Certainly. On the broadband side, could you say whether lower year-on-year churn was the significant factor or was higher traction in this key market a significant factor.

[Tony Staffieri:]

This is rough for the cable broadband side of it.

[Rob Goff:]

Yes. I know you don't give a churn for it, but just in terms of behind the numbers.

[Tony Staffieri:]

Yes. I would say it's all of the above. So if you were to look at certainly in a small business side of it, I think they're very much appreciating the reliability and speed that we offer and so we're making good inroads on the speed side of it. You see our Internet subscriber churn numbers coming down and for a lot of the same reasons. And then, finally, on the acquisition front, we see that moving nicely and it's increasing our penetration rates very nicely as well, so it's all of the above factors that seem to be going in the right direction for us.

[Rob Goff:]

Okay. Thank you. And if I could one question on the wireless and this may link back to the prior question, do you feel that your relative outperformance on growth ads, is also consistent with perhaps a more modest year-over-year ARPU growth also to your peers.

[Tony Staffieri:]

Rob, If I understand your question, is the subscriber performance coming at the expense of ARPU and I would say absolutely not. I think if you look at on the growth side, we've consistently performed well in our channels in getting what I will describe as the majority of the share of the gross ad market and that continues to perform well for us for a number of factors. And so that piece of the model is working well. When you look at our plans relative to the marketplace they continue to be competitive. We like what we see in terms of the mix of subscribers to the premium plans. I would point you, if you were to look at ARPA; ARPA increase year-on-year at 7% continues to be a healthy number for us. And so, when we look at lifetime value and ARPU on a segment-by-segment basis we're actually really pleased with the way it's trending. As I said when you're looking at the blended ARPU side of it, you're mixing in the success we've had in the prepaid side and so relative to what you're seeing from the other to seem to be exiting that space. For us it's been a growth area and so ways on the blended ARPU growth numbers that you see.

[Operator:]

Ladies and gentlemen, we have two more questions. The first of which will come from the line of Richard Choe with JPMorgan. Please go ahead.

[Richard Choe:]

Great, thank you. On the wireless side, I was wondering if we can get a little bit more color on what grow the churn improvement and should we expect to improve on a year-over-year basis kind of going forward at this level or is there something more on the competitive landscape that could change to cope -- did not drive that higher.

[Tony Staffieri:]

Yes, Richard. I think there is on a competitive side, we're always looking to see what's happening in the marketplace and is there something that's driving our customers to leave us then we're all working to stay on it. I would say over the last little while, we're seeing good churn improvements as I said this quarter 7 basis point improvement year-on-year. Our plan is to continue to make improvements on a year-on-year basis as we go forward. And it's really come down to -- we think customer experience being first and foremost, we set out plans to focus on the things that were pain points for the customers and as you expect we looked at reasons why they were leaving us and we're trying to get a focus and addressing each of those in a very disciplined and methodical way and what you are seeing come through a success in that. There is still more work to do. We certainly have things to improve on, but very good progress quarter-on-quarter and year-on-year. And so yes, we continue to expect to see it continue to improve, but as I said at the outset always got to predict the competitive dynamics, but that is our goal.

[Richard Choe:]

And then on the video side or cable side, it seems like their lower losses, but the television revenues almost flat without the price increases coming in, in the first quarter can we see this kind of flatten out at some point or should we expect declines to continue?

[Tony Staffieri:]

Just real quick on the video side, if I understand your question correctly and I said before we didn't have price increases in the first quarter and so that's not contributing to I think you're getting at the video ARPU, what is driving that is customers moving up in packages and so they continue to see the value in that and that's what you're seeing on that side of it.

[Operator:]

And your final question will come from the line of Adam Ilkowitz with Citi. Please go ahead.

[Adam Ilkowitz:]

Thanks for taking the question. I was wondering back on the wireless side, have you seen any shift in the gross ads that you're having coming in on a BYOD basis, our people bringing their devices. And then, secondly, can you talk about the shift between phones and other devices, is there any difference that you're seeing in the number of tablets or other types of connecting devices that might be connecting. Thanks.

[Tony Staffieri:]

Thanks Adam. So in terms of customers that we're seeing on the growth side I wouldn't say that there is any shift towards or from BYOD sort of relatively stable quarter from what we've seen in the previous ones if anything is slightly coming down, so a slight up tick in terms of fully subsidized model in the quarter. But again, it's a very small shift, so nothing that I would drop from it in terms of conclusions. And then, the second part of it is what we're seeing in terms of tablets; tablet numbers are continued to be very small in the overall scheme of our growth in net position, it's certainly something that consumers find helpful and share everything and get more value from that, but the numbers continue to be small.

[Adam Ilkowitz:]

Thanks. Maybe just a follow-up, can you share number of devices per account at this point.

[Tony Staffieri:]

We don't disclose the number of devices per capital, what I can tell you continues to vary quickly approach to which for a relative little period of time that we've been in -- we share everything, it's been a pretty good progression over the last little while.

[Operator:]

And ladies and gentlemen, this will conclude the conference call for today. Thank you for your participation and you may now disconnect your lines.