Rogers Communications Inc.
Q2 2017 Earnings Call Transcript

Published: 20 Jul 2017

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Rogers Communications Q2 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 Thursday, July 20, 2017 at 8

[Amy Schwalm:]

Good morning, everyone and thanks for joining us. I am 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 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 Joe to begin.

[Joe Natale:]

Thank you, Amy and good morning everyone. It is a pleasure to speak with all of you again today. And before Tony and I discuss our Q2 results I will share some high level insights and thoughts on our priority areas of focus. First and foremost I'm incredibly impressed by the passion and engagement of our team. There is an energy across the organization underpinned by both commitment and innovation that is truly unique to Rogers. As I look across the business I see a great mix of assets. As the largest wireless provider and the largest cable operator in the country I see meaningful growth potential in both businesses. In media, we have the rights to the most coveted and meaningful content Canadians want to watch with large force. Collectively these tremendous assets provide a strong foundation for growth. On the customer experience front, I am encouraged by the progress we have made on churn, and I believe we can do even better. I believe there is a fundamental need to fix systematically and holistically our customers experience end-to-end. This has not been the core focus for us in the past and it is now. Overall there will not be a radical shift in our strategy. Think of it as an evolution not a revolution or a thoughtful progression from where we are today. Strategically we are focusing on our core businesses and investing for sustainable growth and shareholder returns. Here are some initial thoughts on our key areas of focus. First, the customer experience. I put this at the top of the list because it all starts and ends with our customers. We want to create a best in class experience for our customers who will do this by putting our customers first in everything we do, driving deeper end-to-end accountability for service and loyalty. Fundamentally this means offering innovative, compelling products and services that our customers view as clear, simple and fair. The benefits of greater customer loyalty are immense; lower churn, as a result an improved cost structure; more opportunities to invest, and fundamentally better growth prospects. Second, we will invest in our networks to support the ever-growing need of our customers for bandwidth, performance and reliability. Networks are the lifeblood of our business and world-class performance is critical. Next is innovation and delivering exciting solutions and content to our customers. This is not innovation for innovation sake. It is about delivering innovation to our customers that they value and makes their lives easier. Our investment here will be twofold; to focus on bringing our customers the best products and services by leveraging ideas from across the globe and to focus on delivering stronger returns for our shareholders. Next we want to drive growth in all the markets we serve. This will require relentless focus on the critical growth drivers in our main lines of business. It will require a companywide focus on cost efficiency to drive profitable and sustainable growth. We are reviewing all aspects of our business and developing a playbook to reset our cost structure. We have exercised some near-term opportunities and you have seen this in our results this morning. Cost efficiency will be a natural outcome of a better customer experience as we drive out complexity, eliminate unnecessary customer activity and friction. In short, we are committed to delivering an ever improving experience for our customers while we continue to focus on enhancing the fundamentals, and that is revenue growth to drive higher margins, profit, free cash flow and return on investment as these are the key drivers of shareholder value. Now turning to the quarter, we are very pleased with our strong operating and financial results and our continuing momentum overall. Looking at some of the highlights, we reported strong service revenue and AOP growth of 5% largely driven by accelerated momentum in wireless, where we have delivered across the board. Cable AOP and margins grew meaningfully and our residential Internet business showed ongoing strength. During the quarter we acquired an AWS-1 spectrum license in the greater Toronto area at an attractive valuation. We expect to deploy this spectrum in the near-term to increase capacity for our customers in what is a key market. We recently simplified our organizational structure for deeper end-to-end accountability. We also made some changes to our management team and elevated the importance of digital with the appointment of a Chief Digital Officer. We are moving fast here so we can lead the industry in driving better customer experience and reducing operating costs. Turning to wireless, we delivered another quarter of impressive results. Postpaid ARPA was up 7% and blended ARPU grew 3%. Ongoing adoption of our share everything plans drove this growth and represented a higher percentage of our overall mix. These plans resonate well with our customers because they can bundle in various features and manage data across usage, across multiple devices. Postpaid net additions of 93,000 were up 28,000 on our lowest churn rate in eight years. Postpaid churn improved 9 basis points to 1.05 with substantially lower churn rates on our share everything plans. As I mentioned we are extremely focused on ensuring end-to-end accountability for the customer experience, which will ultimately contribute to churn improvements over time. In cable, total service unit net loss has increased and internet net additions were down slightly given the highly competitive environment with aggressive offers. Notably cable churn improved year-on-year for the fourth quarter in a row and we saw lower churn across all products. On Internet, our [indiscernible] is tracking well with about half of our residential Internet customers now on speeds of 100 megabits per second or higher. On the TV side we are building a best in class next-gen suite of our essential services with the X1 platform. The platform continues to evolve, integrating more choice for our customers through natural language voice search and the use of [indiscernible] that is not easily replicated, and we are seeing its success play out very well sell through the border. The excellent innovation goes beyond TV to the digital home providing customers with a simple, fast and intuitive way to control and manage their connected devices. Overall, we are excited about the long-term outlook for our cable business. In media, we delivered revenue growth of 4% which was driven by sports. Sportsnet continues its reign as Canada's number one sports media brand as well as the number one specialty channel. As I said earlier, live sports programming is the content our customers want most. At the same time we continue to make inroads in digital media following our strategic shift from print to digital last year. There is more work to do in this area. We will start to ramp our efforts. Before I turn it over to Tony I like to thank all 26,000 Rogers team-members for their hard work in serving our customers and delivering a terrific quarter. I'm grateful for their commitment and dedication. I'm also excited about our future and confident we are well-positioned to deliver more value to our customers and shareholders. Tony, over to you.

[Tony Staffieri:]

Thank you, Joe. We are very pleased with our financial performance this quarter. Topline growth is coming in nicely with strong flow-through to adjusted operating profit and margins as we further improve our execution and operating leverage. As Joe said earlier, the entire company is focused on capturing cost efficiencies, some are more near-term than others but we see opportunities in both wireless and cable to improve margins from where we exited last year. You saw some of this come through in our Q2 results. Quarter-to-quarter there maybe some lumpiness with the timing of spend and seasonality but overall we are looking to positively change our cost structure. Turning to wireless, service revenue growth of 8% reflected a healthy combination of both subscriber growth and meaningful ARPA and ARPU growth. Additionally roaming again this quarter contributed to positive revenue and ARPU growth and is no longer weighing on our reported growth metrics. So continued momentum in service revenue growth again this quarter with very healthy flow-through of 57% to adjusted operating profit, which was up 9% and marked our best growth rate since 2010. Wireless margins expanded 70 basis points on stronger operating leverage notwithstanding our significant customer investments. Turning to cable, cable AOP and margins were up substantially on stable revenue year-on-year. Internet revenue increased 7% in the second quarter. Excluding the impact of the lower wholesale revenue from the CRTC's decision to reduce rates, cable and Internet revenue would have increased 1% and 10% respectively. Cable AOP increased 3% and margins were up 150 basis points. Excluding the impact of lower wholesale revenue, AOP would have increased 6% this quarter. Higher AOP and margins were primarily driven by cost efficiencies and the ongoing product mix shift to higher margin internet services. Internet revenue comprised 46% of total cable this quarter. We look forward to more positive trending in cable as this segment returns to growth and momentum improves further on the popularity of our IGNITE Internet offerings and a compelling X1 product roadmap. In our media business, revenue grew in all of our segments excluding the impact of the publishing restructuring. Sports led the growth driven by the Toronto Blue Jays and the strength of Sportsnet with higher NHL advertising revenue. AOP declined year-on-year largely due to higher player salaries at the Blue Jays combined with a higher foreign-exchange rate. In addition our shift from print to digital late last year is expected to impact overall media results year-on-year in 2017 as we ramp up the new digital business. I will now go through some additional details on our financial results. Higher AOP helped generate operating cash flow of 823 million, which supported dividend payments of 247 million this quarter. AOP growth and lower CapEx drove free cash flow of 626 million, up 26% year-on-year. CapEx was lower due to timing of spend as well as proceeds from certain real estate sales in the quarter. Overall CapEx intensity came in at 12.6%. Cable CapEx intensity is expected to decline post our launch of X1, while we expect annual wireless CapEx intensity to increase more in line with industry norms. Of course, there could be some variability in any one quarter depending on the timing of spend for different projects. Moving to overall performance below the operating line, adjusted net income was up 20% primarily due to higher AOP and lower depreciation and amortization. Net income increased 35%, which included a gain on the real estate asset sales. With respect to our financial flexibility, we ended the second quarter with a debt leverage ratio of 3.0 compared to 3.1 a year ago. We held the ratio of stable sequentially despite our spectrum license acquisition. We expect ongoing AOP and free cash flow growth to fund debt repayments and generate further improvement in the ratio. Our balance sheet remains healthy with our solid investment grade credit ratings with stable outlooks and attractive rates on our outstanding debt. To close, we are on track to achieve our 2017 guidance. We are determined to build on our momentum and drive further growth in fundamentals and there are a number of compelling opportunities for us as we focus on cost and productivity improvements, while continuing to deliver a better experience for our customers. So with that, I will ask the operator to open the lines for questions.

[Operator:]

[Operator Instructions] We will now take the first question from the line of Vince Valentini with TD Securities. Please go ahead.

[Vince Valentini:]

Thanks very much, and congratulations on the strong quarter. Joe can you [stretch out] a little bit more your expectations on improving the customer experience and getting churn down; I mean, churn obviously has already done very well down to 1.05, are you confident you can get down sustainably below 1% and is that sort of realistically a 2018 goal or does it take longer than that to achieve?

[Joe Natale:]

Sure and thanks Vince. First of all, the focus on the customer experience and loyalty is one that requires the whole organization to play. I think to date we have focused very well on what we call the lower hanging fruit. We have gone after things like bill shock and created some very important elements like overage alerts and data management. We have gone after different parts of individual channels with respect to customer contact. The focus that I am really pushing on the organization is to look end-to-end; look end-to-end across all of our channels, across all of our product sets. All too often the people that are serving the customer everyday are dealing with things that have gone wrong in marketing, in sales and promotions and the product feature set etcetera. And without that end-to-end focus we are not really getting at systemic issues. They are merely driving the problems as a whole. There is a lot to do on the end-to-end side of things. It is not sort of one single thing to point at. Fundamentally it is about driving the right culture where everyone in the organization sees the world with they play and that customer experience whether they see the customer everyday or not they know what they do to those needs. For example, our product manager is worried about the product feature set as to handle about how the feature set is deployed to our channels, is supported by our agents and the experience of the field. And driving that thinking in a more holistic and systematic way as part of it. That takes time, that’s not going to happen overnight but it’s important and great opportunity on that front we’re going to continue to push hard on it and we will go after how we measure outcomes across the business, we’re going after how we structure for success, having the right people in the right roles, looking at fundamental processes across the business. And I believe we can drive the channel right below our percent, it will just take some time to really do it in the fundamental way that’s sustainable.

[Vince Valentini:]

Thank you.

[Joe Natale:]

Thanks Vince.

[Operator:]

We will take the next question from the line Aravinda Galappatthige with Canaccord Genuity, please go ahead.

[Aravinda Galappatthige:]

Good morning, thanks for taking my question. I just wanted to catch on the CapEx profile, obviously in a way sometime usually it is lower spend on the wireless side and I know utility you mentioned cable CapEx come off plus 1, how should we think about holistically consolidate CapEx intensity on a go forward basis, beyond 2017. Maybe just help us with the thinking there? Thank you.

[Joe Natale:]

I think first of all it’s important that we continue to invest in the right capability, capacity, coverage and performance. It’s important that we have vibrate capable networks and infrastructure and we future it for ourselves for all that’s coming, in the upper side for data is doubling every 16 to 18 months across all of our cable and wireless businesses. Then wireless what you will see is that our CapEx intensity resemble more the CapEx intensity of our peers, so of course, it’s a 12% or 14% range. On the cable front right now we’re in the middle of the investing cycle as we bring the X1 product to market, seasonally good job of enabling our entire footprint on cable with DOCSIS 3.1 capability and we’ve 1 gigabit capability across the board. We will see some of that moderate overtime once we get through this investment cycle, this investment phase. Recognizing that as we sighted more customers and hired speed tiers and drive greater shortest levels in cable footprint it’s more of a success based capital profile than anything else. Tony, if you can answer that.

[Tony Staffieri:]

I will add that as you look to the current year the capital intensity you see in the first half is really reflective of the timing that Joe referred to. So as you think about the CapEx for 2017 we provided a guidance range of 2250 to 2350 and even expect us to land further a million and maybe even towards the higher end of that range. And so what you see in the first half is really as I said just timing. I don’t want to get into providing guidance for 2018 I’ll be getting ahead of ourselves just to pick up on which Joe described on capital intensity and wireless. It’s really what you see in terms of the lower intensity now, it’s timing and on the cable side we talked about directionally as we move to the excellent platform and we have lot of the heavy lifting behind us. There is that upfront investment because away for us and additionally if that product moves very quickly to a self installed model there is significant opportunities to reduce who we call the acquisition and overall cost structure for each customer. CPE will come down, installation cost will come down and we go from as we said before at cost structure today that’s over a $1,000 for customer to something that’s probably less than $400. And you will see that come through and some of that will be offset with more investment in our networks in terms of segmentation but as I said on here to forward ourselves on beyond 2017. Thank you.

[Aravinda Galappatthige:]

And I may squib a quick one on the cable results, you have great subscriber gains in the last few quarters, little bit of a slower down in Q2, I was wondering if you would just like to touch on that? Thank you.

[Joe Natale:]

I’ll start Irvin, I would say, what you see in the second quarter keep in mind, we typically have higher level of disconnects as college and university since 40 year and so you see against that backdrop that suppressing some of the numbers. I should add early in the quarter we looked at shifting some of our emphasis away from single broadband acquisitions to multi-product double and triple play acquisitions and so as we made some of that shift what you saw is a bit of slowing down in the single, but as we look to our trending as the quarter progress and certainly into the early weeks of Q3 we continue to see good trending on our subscriber metrics.

[Operator:]

We will take our next question from the line of Jeff Fan with Scotia Bank, please go ahead.

[Jeff Fan:]

Hi, good morning and congrats on the quarter. Given the excellent results in the first half, you didn’t change your guidance range for the full year which would imply bit of a slowdown in the second half on AOP growth. I’m wondering if you can just elaborate on that a little bit you’re thinking around what investor should be thinking about for the second half?

[Joe Natale:]

Sure Jeff. We see continued momentum for the second half, but there is lot of work to be done in the second half still, march around whether we’re going to see IP launches overall and this seasonality that’s very important since we won’t do as much as two-thirds of our volume or activity in the last half of the year. So I think it’s pretty much for us to really keep our pattern drive on that so we make it through the next quarter and really kind of see how these factors involve and then looking back to. But we don’t see anything sort of different on the horizon that we’re concerned about, we’re just being prudent and concerned with our approach.

[Jeff Fan:]

Would you characterize that as more about cause and side rather than the revenue picture being impacted in the second half?

[Joe Natale:]

I wouldn’t, we think about both sides of it. Cost clearly within our control and as you all said, as we develop and execute on our cost play both we’re confident in the savings that we projected for the second half and those are more within our control. Couple of part is the competitive intensity that happens in, as Joe said, the more significant part of the fiscal year for our business in both wireless and cable. And so, we want to make sure that we’re prepared for whatever happens in the marketplace and then obviously subsidy is a big part of the cost structure and that’s going to depend on the launch of that product roadmap. So, we will need to see what that looks like from the various app or others and the impact that’s going to have.

[Operator:]

We will take our next question from the line of Drew McReynolds with RBC, please go ahead.

[Drew McReynolds:]

Yes, thanks very much, good morning. Just continuing on, just the margin discussion, just two questions. First, on the cable side I think on the last quarter you alluded targeting flat cable margins year-over-year for this year. I’m just wondering given the progress you’ve made certainly in this quarter whether that’s a little conservative. And as you get into next year with X one and you kind of commented of that being margin neutral, I’m just wondering if that still the case. And then, just on the wireless side just could you comment on just further on the decline year-over-year in the upgrade cycle with your adjusting subscriber base or obviously seeing that serves on the border with your peers as well. I’m just wondering if you can add some additional granularity on what driving that lower upgrade cycle whether it’s just pending iPhone launch or there is other dynamics underneath that? Thank you.

[Joe Natale:]

Thanks Drew. On the cable margin question, we talked about last quarter that we see opportunities for cost efficiencies there and as I said in the opening remarks we’re helped by the natural margin expansions with that that happens with the migration towards internet. As we, and what we have to that is we expect that the opportunity to expand margins in cable is about a 100 basis points from where we exited last year. And so, what you see in the first half of this year is some of that coming through. I think there may be an opportunity to see some of that ending 2017 but as we get into 2018, there is particularly in the cable cycle launch of X1 and there'll be as you would expect us associated with that. And so, in the early days that may have an impact. And so, prudent perhaps but our thinking is that over the two year period, '17 and '18, we continue to think it's reasonable to expect margins to expand by roughly a 100 basis points. In terms of wireless hub is you said within the quarter, a bit of a slowdown is traditionally slower. They are down year-on-year. And frankly, I think that's largely reflective of the promotional activity and some of the expectations that surround a potential new devices coming out this fall and the customers propensity to wait for that. In terms of a percentage of the base that upped in the quarter, for Q2 it was 4.9% down about eight or nine point's year-on-year. So, relatively small in terms of decline, but it's really as I said indicative of market factors more than anything else. I understand so we have a slow through that, and on macro basis handset lifecycles are getting longer and is more useful life and it has it's in total, partially because we're not seeing as many sort of iconic evolutions of capabilities and natures. And as a result of the secondary market that is vibrant around handsets and people are handed their phones to kids in their family which supports our share with any add on capability. So, it's more of an ability to kind of get a longer return on that investment subsidy for us as well.

[Drew McReynolds:]

Thank you, very much.

[Operator:]

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

[Jeff Fan:]

So, I just had a quick follow-up. There has been some confusion I guess regarding pricing in the market especially regarding informal plans. I just wanted to get your thoughts again on whether you expect there'll be some type of equipment installment type pricing in Canada and maybe just your thinking around that.

[Joe Natale:]

Great. Jeff, I'm glad you asked the question. Frankly, we're disappointed to see some of the coverage recently on this topic. To be absolutely clear, we have no interest in getting into the equipment financing business. We believe we have all the pieces for a vibrant and successful smartphone market, in effect the subsidy model that's been created. It works at all levels from the entry points to the premium plus category. We're seeing great growth in the larger sector as a whole. And with that strong share from us as well. The premium plus category we created actually helps in the sense, handset adoption as a whole. Handset balances on the bill can help people understand when they can upgrade. We just finished talking about hubs and handset upgrades a minute ago. We were very finally approached that. I think we've created a vibrant smartphone upgrade market. We don’t see any real need for any financing at this stage again.

[Jeff Fan:]

Thanks, Joe.

[Operator:]

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

[David McFadgen:]

Thank you. A couple of questions. So, first of all, you talked about efficiency savings throughout the organization. Do you have a target or is there anything you can share with that in terms in the actual magnitude you expect to realize when we say the next 12 to 24 months. And then the second question is on X1. Can you give us an update on timing as when you expect that to come to market?

[Amy Schwalm:]

Sure.

[Joe Natale:]

David, in terms of the cost structure and expectations, commentary on this is consistent with what you heard last quarter. I just talked about without getting to the specifics of where the cost will be. It is very generally, they'll play themselves out in terms of margin expansion in cable of a 100 basis points by the end of 2018. And as we look to wireless, we see further margin expansion of upwards of a 150 basis points over the 24 month period. So, I don’t want to get into too many specifics, so the specific areas are line items but that generally that's how we think it'll play out in terms of margin and open to cash flow improvement for those two segments. On the X1 question, just to get a context first of all, that we understand some very proven products, there's been strong success with Comcast, with cost. We're following the path of the employees and we're on plan, we're targeting a soft launch early next year. Right now, we're going through a process of methodically going from lap trial to tech trials and employee trials and soft launch and then a full launch. It's important we do this well. It's important that we have not just a high quality product, but a very customer friendly set of processes and how we market sale support fulfil and deliver on the experience. For us is the game changer. So, we're going to watch it very carefully. We had the normal sets of hiccups you might imagine in any sort of platform launch of this nature. And that we're driving part for a soft launch early next year. And we will then when we believe we're in a good hardened state at some point later next year and then we'll double down and go vibrant on the overall launch which is moment we are all driving for.

[David McFadgen:]

So, do you expect to have excellent deploy across your entire footprint by the end of 2018?

[Joe Natale:]

No, not across inside the footprint. The goal is to roll through it. And first of all, we want to make sure that we set a place in the market where we're not overwhelmed by the demand of the grade. We can find the opportunity kind of step into other parts of our segments, that is and then we'll probably go through each sort of value band in our customer base and look at its transition from current platform to the X1 platform. It will take a number of years before we fully replace the entire base. Now, there are some benefits to be had and decommissioning the qualms and log and digital kind of capability that we have across the board and going to full IT. No question, we're focused on that. But at the same time we are not intent on disrupting our entire customer base, do so in an economical and friendly way to the foremost time.

[David McFadgen:]

Okay. And then just you commented earlier that its reason well to expect that the launch X1 there will be some impact to the margin just because worsening cost and payments to Comcast. Can you give us any idea on the magnitude of that?

[Joe Natale:]

It's not something that we're prepared to disclose in terms of just what we're going to spend to market the product. I think it's really highly sensitive information. I think the real price is the outcome they were after. If you look closely what Comcast has generated over the last eight quarters in terms of positive video ads and enhanced momentum in the internet base, followed by ARPU lists substantially given the benefit and teach us a capability over the legacy product. That's the real price. And we will spend accordingly and prudently to make sure when knows about this great product that we're launching.

[Operator:]

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

[Simon Flannery:]

Great, thanks very much. Just continuing on the video. On the trajectory there, the penetration of homes passed dropped about 41.5% this quarter versus 44.3% a year ago. What are you seeing in the marketplace, is this really something that can be reversed completely with X1 or are you seeing more millennials and others doing the cord cutting and really taking broadband as a standalone product. Any color around your ability to stabilize that with X1 or other structural factors underneath it, thanks.

[Joe Natale:]

Thanks for the question, Simon. A couple of thing to be, I should clarify the penetration rates you describe relates to the video product only. And so, for you to look at across the product set the natural as you would expect a natural migration from video to internet as we think about our total household ARPA and if you look at penetration rates just in terms of number of households that are connecting to Rogers that penetration rate continues to improve for us and we’re pleased with the way that’s trending overall. In terms of videos specifically that’s why we’re moving to the X1 platform. It’s really about that experience that Joe just mentioned that we think is going to be a compelling value proposition. Like there is a number of areas in the marketplace, OTT is one of them and while we see some of that happening in the marketplace I would be careful not overstate what you’re seeing there. There is a lot of compelling local content and sports just to name a few that continue to have value for layer and we think something like the X1 user interface for example is going to be key to making that happen. I’ll just add on the cable internet side we have a great product today we have a leading capability four times the footprint with respect to our DOCSIS 3.1 enabled 1 gig service and internet growth you saw in the results of 7% and we will continue to push forward on that front. So we are well placed with internet broadband in the very immediate term as we go forward. As we add the X1 video solution to come, talk about some great future sets. One future set I think that’s going to play very well with our customers is the fact that Netflix is integrated inside of X1 directly and to me the battle is for HDMI 1 source button on your remote control and with Netflix integrated inside the Rogers experience and searched through voice activation and natural lavish voice for movie or TV title it will bring up all sources of that title whether it comes from Rogers on demand or it comes from Netflix or comes from YouTube or other sources. So we’re currently really de-marketizing the search and acquisition of content for our customers and we think not customer friendly, it’s clear, simple and fair going back to my things earlier and the double, a one-two punch of great internet capability with the X1 offering. It is going to be a game changer for us.

[Operator:]

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

[Phillip Huang:]

Thanks, good afternoon. First question on the ARPU side, your ARPU growth accelerated this quarter, there is still a bit of a gap between your blended ARPU versus your peer side, I know that’s partly due to the mix. But I was wondering Joe if that is currently your focus for you to close that gap or do you measure with sort of the success based on other metrics like ARPA and also returns and such being more prominent than say ARPU?

[Joe Natale:]

Sure. Thanks for the question. First of all, you’re right. There is structural mix gap that is not insignificant between prepaid and postpaid that’s roughly worth few dollars a difference between ourselves and our peers overall. But as it relates to sort of two apples-to-apples comparison, we’re going to work hard to try to close that gap. We’ve met the team now a number of times and look at different ARPU and have some ideas. It’s really hard to act directly in ARPU because you really are -- there’s a market pricing dynamic that goes on you can always predict, in fact, really predict and also try and do manage the re-rate potential some of those moods and changes that come along. But to have the discipline around ideas that drive value and drive ARPU it’s something that’s very important to me and very important to all you like and we’re going to push on that front. In terms of whether it’s ARPU or ARPA it’s kind of with both, we get insightful information from both, it’s not just raised to win subscribers more than average raised to win households. And when we look at the households overall that we have on our share raising plans, there’s very attractive relative ARPUs in those households and very attractive relative [indiscernible] in those households. So we’re going to fire on both fronts to make sure that we’re quite established but also going after households and going back to the previous comments as it relates to internet and X1 I think we have a very compelling platform in the works as we go forward. After that some of the work that’s coming down the road with respect to the digital home capabilities of the X1 platform, our smart home marketing business and it all starts to kind of coalesce together into household and family offering that we think will help to warrant this business and help all aspects of our business.

[Phillip Huang:]

Well, that’s very helpful. If I can follow up with question on some of the assets that you guys hold which some of us may view as perhaps less core to the business, I am talking about say the Coach codeshares as well as some on the media side the Blue Jays and MLSE whether you’ve been there for 13 weeks and you certainly I’m sure looked at all the different assets in there. I was wondering if there are any strategic alternatives that you might sort of consider for some of these assets or you’re happy with the returns that say the media side is generating for you and what are some of the alternatives that you might be thinking through?

[Joe Natale:]

Sure. To start I would say right now we’re happy with the mix of assets that we have across the business. I think there’s a very rich and important set of assets as described in the beginning. I will say that we’re perpetually unhappy with our results in any part of our business and that’s really a state of mind as – I’m not trying to betray the saying we’re forever driving a greater focus on results with the customer and results in terms of shareholder value as a whole. In the course of time we will continue to look at some of our holdings and better way of servicing value. We will certainly consider them. They are sort of nothing that we will look at holistically in the facts and database approach.

[Operator:]

We’ll now take the next question from the line of Richard Choe with JP Morgan. Please go ahead.

[Richard Choe:]

Great, thank you. Two quick follow-ups one on the customer service improvement. Is this being done under the umbrella of that margin improvement or should we see some kind of cost come in to help facilitate that?

[Joe Natale:]

I have deep – really believe that improving customer service goes hand-in-hand with driving cost performance. The two are not mutually exclusive, the two are opposing. They’re actually completely synergistic and that’s what we look at. I give you one example we as a company take about 47 million phone calls per year. Average phone call for members costs about $10. Some of those phone calls, a good part of those phone calls are important phone calls to our customer relationship and to ongoing sort of services for our customers. But along those phone calls and also cost because of challenges we’ve had along the end-to-end customer experience as we drive a purpose to the customer experience. We will drive call volumes and that’s a huge amount of money in the map on the overall basis, it’s tremendous. And by definition will continue to drive margin improvement as we’ve driven margin improvement this past quarter. And there are other areas that we’re looking at we spent of $5 billion a year in procurement in a combination of OpEx and CapEx through every category of spend and really look for ways to improve value, to control the vendor base, to drive a better cost efficiency and again well contribute to the [indiscernible] as a whole. So the cost efficiency is a direct outcome of customer service improvement not a detractive factor.

[Phillip Huang:]

And then, in terms of the share everything planned, can you give us a sense on where we are in the adoption curve, is there a lot more to do and when does the ARPU continue to go higher or we kind of in the middle or tail end of that?

[Joe Natale:]

Actually I would say, we think about the share. We think it still a way to the go on it. It’s only been a few years if you look at customers coming in I would say that roughly two-thirds of them are coming in on share everything. In terms of the Rogers brand and so there’s still that gives you a sense of the opportunity in terms of the Rogers brand and so there is still I can just sensor the opportunity to continue to improve that. We see considerable value in the share and when we look at the metrics around share everything in terms of churn, ARPU and ARPA there is tremendous value there in terms of lifetime value and so that's something that we still think has quite a bit of runway for us.

[Operator:]

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

[Vince Valentini:]

Yes. Thanks very much. Can you talk about the one area that was not creating numbers being the AOP in media. So is it the vast majority of the decline in Blue Jays Salaries and if so can you give us any context, is there some timing issue here or when the salaries get paid and timing on the FX rates because obviously the dollar has gone the other direction here in the past few weeks. Should we see some relief on those costs or is this sort of structured for the whole year?

[Joe Natale:]

Vince, thank you for your questions. So couple of things, in terms of the Jays Salaries on the seasonality as you expect they are kind of salaries going in line with the seasons. So it's sort heads us Q2, Q3 and then depending on what happens in the playoff season then that will triple into Q4. And so what you see is that coming through certainly to expand that there is any triggers that happened before the trade deadline that could have a impact on it. But our salaries or salaries based on the roster we have today and so that will continue to come through. In reference to is that the only item, there are things that are up and down but for us to look at media overall, but for that salary increase we give or otherwise see positive media [indiscernible] and then on the foreign exchange piece of it and certainly we go through the hedging process but over the last several years, notwithstanding the hedging a year advance those hedge costs have come up and so that's been an increase of over 10% year-on-year that we see there. So really is those two factors alone that suppress media.

[Vince Valentini:]

Thanks and separately enterprise and business telecom you made 1% revenue growth there. It's been an area where I’m hesitant to say where Rogers has not done as well some of the U.S. cable companies in penetrating that market. Joe you obviously have experience running business telecom operations in the past. Do you have any initial thoughts there about potential to accelerate that business. I know you had a dean as the head of it but if you can give us any more color on what you are going to do and when we might, just results should be much appreciated.

[Joe Natale:]

Sure. Thanks Vince. You have the nail on the head, one hand wireless side of the business we done a good job of driving growth in wireless. We are going to spend more time driving better focus on value not just growth of STARBRUSH in the wireless enterprise. On the wire line side or the cable side of enterprise as a whole we’ve a very small share, we have less than 5% share and right now we’re going to reset in that business, we’re going to go back to basics fewer but core products. We are going to rebuild the sales team as a whole. We are very fortunate to have a dean coming on board. There is a good experienced team with enterprise there and many parts of the organization with dean’s leadership will bring the whole thing together and really go after the fact that we have underutilized plant and facilities across both our cable and fiber networks. They are running right buy businesses all across Canada and we just haven't leveraged that synergy and that capability very well. So it's kind of a very simple back to basics, small and medium business focus to approach leveraging our cable footprint with combination of data, voice, video, internet services that are simple themselves, simple to buy and I think that's important. And I think in the course of time we can get to where our cables peers are on the strut. I don’t see any reason that will hold this back in the obstacle at the whole it will take, let's not come back to that question maybe in the future quarters. Right now we are just re-assembling and rebuilding the capability as a whole. The other thing that's going to be important is, as we build that capability along LTE-Advanced and on the path of 5G as we [indiscernible] across our cable network we have an opportunity to be much more synergistic and how those facilities can be orchestrated, designed and installed in a way that we leverage the potential for B2B business and that's something that I think is very important. I will be working very closely with enterprise team and the network team on making that happen. And so stay tuned we will come back with more details in the near future.

[Operator:]

We will now take the next question from the line of John Hodulik with UBS. Please go ahead.

[John Hodulik:]

Thanks. Maybe just a couple of quick follow-ups on the X1 rollout. Joe thanks for providing the details in terms of the X1 rollout, but are there any guide posts you guys can give us in terms of penetration of the base with the X1 services as we look out to availability and then for Tony, I believe at one point you said that you are hoping to get the CPE per home to below $400, one just some clarification on that if I was correct and number two where is it now. I am just trying to get a sense of sort of a capital efficiency while looking at in terms of the conversion from [indiscernible] sort of platform. Thanks.

[Joe Natale:]

Okay great. Thanks for exercising. It's sort of the piece of information that we are not really going to get into sort of what is the penetration, we’re after the time we get penetration. I mean, highly sensitive for us competitively so slow down our results between ourselves when we come up here. Tony.

[Tony Staffieri:]

In terms of the CPE, John you did hear me correctly. We are looking to move that below 400. From something that’s over a $1,000 today and so think about it in terms of, in today's world with set-top boxes that have hard drives within them. You have an average per household of just over two of those, include the modem I mean you have installation box and really the three primary items that get you to as I said over the $1,000 today with the excellent platform and cloud-based operating what you see is CP for the set-top boxes coming way down in addition together is IP based. It offers much more alternatives in terms of CPE although having said that we will follow the Comcast road map and benefit from that. And because its IT based it lends itself very well to self install and so that's the other piece that you see coming out also.

[John Hodulik:]

That 400 number that you guys are quoting that includes labor as well?

[Tony Staffieri:]

It does.

[John Hodulik:]

Got you. Okay thanks.

[Operator:]

Well ladies and gentlemen there is time for two additional questions today the first which will come from the line of Rob Goff with Echelon Wealth Partners. Please go ahead.

[Rob Goff:]

Thank you very much and good morning. First question would be on the media side where Tony you had said that there would be some pressure on the results while you ramp up on digital. To what extent will that be a reference to the need to build digital revenues or does it also suggest that there are operating investments made into that digital product?

[Tony Staffieri:]

I think it would be both. As you would expect, certainly on the digital side as we ramp that we will make investments in the product itself and the offering for that and so like you see going out is really the removal of print revenue and print cost. We continue to as you see everywhere else in that space, be convinced that we made the right decision on it at the right time and so as we go through when you look at our year-on-year metrics on that you will see that coming through and so as we exit the year and then are into 2018 I think you will see a revenue cost profile that would make more sense.

[Rob Goff:]

Thank you and if I could as a follow-up, I think we just passed the one year anniversary on the Unison products. Could you perhaps give us an update or refresh on the traction you have seen in those?

[Tony Staffieri:]

Yes, good question. So in terms of, for those who are not familiar Unison is a product that we launched on the enterprise side of our segment. It's an offering that gives businesses the opportunity to replace the business landline with something that is more integrated and much more functional with the wireless devices. And so since its launch we have seen healthy acquisitions on it and functionality of the product we continue to invest and we see that coming along well. We are not going to disclose the specifics relating to the product obviously, but it continues to be one of our core product offerings within the enterprise phase and we see a lot of upside potential for it still.

[Operator:]

And our final question for today will come from the line of Maher Yaghi with Desjardins. Please go ahead.

[Maher Yaghi:]

Thank you. Can you hear me well?

[Joe Natale:]

Good.

[Maher Yaghi:]

Okay. Thanks for taking my question. Joe I wanted to ask you a bigger picture question regarding your wireless network. Can you comment on what you have seen so far on the readiness of the network for the next upgrade cycle and if you need to increase your fiber footprint to service it better, I am talking specifically on the next upgrade cycle and as well as your view on network sharing agreements in general, the strategy behind that and if you need to increase work on that area in the future?

[Joe Natale:]

Sure. So in terms of our wireless network and readiness for the evolution of wireless relates to 5G and we start there. 5G is still early days, we really are waiting on the status around 5G and we are waiting on quite yet that is supportive of 5G and fundamental use cases that makes sense for us in our Canadian market around 5G. So if that evolves and develops then we can have the clear view as to what needs to happen to network investment on the path today, right now lot of I’d call press release trials going on in different parts of the industry and a lot of experimentation going on. Our job is to take a very close look to the global players defining ecosystem and really be at best for the tracks from that perspective. On the road to 5G there is a lot of work to do with respect to what I would call 4.5G, that really is advanced now and continue to kind of make investments in carrier aggregation, make investments in 4 x 4 my mall and we are going to keep driving on that path so that we get the fundamental benefit of accessibility. With respect to fiber backhaul, the teams did good job of building fiber backhaul to where it's necessary, we do have high capacity microwave and a portion of our network at backhaul, but high capacity microwave is really driving even greater, greater potential we are seeing it will speed up to 20 gig on that front overall. So we will do those – we make those changes in backhaul as we think appropriate right now we are not disadvantage anyway she perform as it relates to backhaul, she is doing a good job of actually staying current on that front. But having said all that data consumption as I said earlier is doubling every 16 to 18 months and there’s never been a great appetite for mobile data and clearly read the world with respect to their appetite for data, mobile data. Canadians lead the world with respect to their appetite for mobile data, certainly in the top ranks of countries and we developed an industry in Canada that is very much focused on investment in infrastructure. It's great to see that the government is supportive of infrastructure investment approach in the industry. And we will continue to kind of drive for them on that front. As it relates to network sharing we are very happy with the network sharing, we have in place with Videotron. We are open to other network sharing agreements that are out there, but we don't think that there is fundamental or critical to our success. We have another good agreement in place in Manitoba. We will be selective and thoughtful around doing that. Right now we have got the capability to continue to have best in class performing networks and we’ve the CapEx capacity to continue to invest in near future.

[Maher Yaghi:]

Thank you Joe and good luck.

[Joe Natale:]

Thank you Maher.

[Operator:]

Ladies and gentlemen, this does conclude the Q&A session for today. Thanks for participating. And please disconnect your lines.