Rogers Communications Inc.
Q1 2015 Earnings Call Transcript

Published: 21 Apr 2015

[Operator:]

Welcome to the Rogers Communications Inc. Q1 2015 Results Analyst Conference. During today's presentation, all participants are in a listen-only mode. Following the presentation, the conference will be opened for questions. This conference is being recorded today, Monday, April 20, 2015. I will now turn the call over to Bruce Mann with the Rogers Communications management team.

[Bruce Mann:]

Thank you very much, Saul. Good morning, everyone. We appreciate you joining us. I am here in Toronto with Rogers President and Chief Executive Officer, Guy Laurence and our Chief Financial Officer, Tony Staffieri. What we will do is, crisply provide you with you with a bit of additional color on the results upfront and then spend the majority of the call answering as many of your questions as time permits. Undoubtedly, the discussion will at some point touch on estimates and other forward-looking information from which our actual results could be different, so please review the cautionary language in the earnings report today as well as in our 2014 Annual Report, the various factors and assumptions and risks that could cause the results to be different. All those cautions imply apply equally to the dialogs on the call. With that, I will turn it over to Guy and then to Tony. Then we will be pleased to take your questions.

[Guy Laurence:]

Thanks, Bruce. Good afternoon, everyone. The last time we met, I spoke about the fact that we are moving into the executing of our 3.0 plan, which as you know is a multi-year journey. 2015 is all about execution and we are off to a good start. When you look to Q1, you can see that we are starting to increase our velocity, including a further escalation in revenue growth and delivering a number of new commercial initiatives into the market. Before I comment on what we have been doing on the commercial side, let me put our financial results in context. First, the trends in the financials are what we expected and Tony will get into more detail in a couple of moments. As you saw our revenue growth accelerated to 5%, with blended ARPU of Wireless ARPA of 2%, and we also disclosed that the average wireless revenue per account or ARPA grew by 4%. We are pleased by the top-line trends, which is a direct function of our shift from volume to value over recent quarters. The trajectory of postpaid wireless subscriber metrics improvement relative to Q4 and the churn is up modestly, a marked improvement from the year-over-year increase you saw in Q4. With the rest of the wireless industry in Canada, we made planned investments in customers to get ahead of the expiration of three-year contracts, which is set to occur this summer. In essence, our retention spend this year is more front-end loaded to the first half than you would have seen in prior years. Because of this, wireless adjusted operating profit on a year-over-year basis was impacted. These underlying investment-related costs are partially offset by our underlying operating efficiency focus, where we continue to remove cost from the business. Looking at the Cable business, the subscriber metrics this quarter includes the impact of the regulatory change away from 30-day notice of cancellation. This came into effect at the end of January given that the double cohort effect, if you will, for essentially two months of churn being recorded in the month of transition. This accounted for over half of the cable subscriber net losses you see reported. Our plan to evolve our cable business began to fold at the end of Q1 with the launch of the new Rogers IGNITE plan. The subscriber vibrations here to some degree and some of the trends you saw in wireless, which peaked in Q4, but then it started to improve as we delivered more value in our commercial offerings. Higher programming and capital investment cost together with the revenue noise from the removal of the 30-day cancelation notices impacting Cable adjusted operating profit. Turning to the execution of the Rogers 3.0 strategy, this was most productive quarter yet with regards to rolling out value added services for our customers in order to differentiate our product offerings in the market. We continued our industry leadership in international roaming with over 1 million of our share of everything customers opting in to use Roam Like Home since its launch in November. These customers are now using five times as much data as before and actually conceive more data in the U.S. than they do in Canada. Two weeks ago, you saw us extend Roam Like Home to include more than 35 European countries for the $10 price points. Our private brand introduced new postpaid wireless plans with DAILY VICE and Spotify Premium. Spotify is the world's most innovative streaming music experience and the DAILY VICE app features first mobile news show. These are great differentiators for this centric brand. We also delivered a further enhanced network experience to our wireless customers this quarter. We launched VoLTE, and we are the first Canadian carrier to do so. It was one of the faster call connections speeds together with higher voice and video call video call to our customers. In our Cable business, we introduced Rogers IGNITE in response to customer's demand for internet plans that meet their growing needs. Whilst we early launched in late Q1, the early traction of this service is promising in terms of uptake by our customers. We will continue to give our customers a better digital TV experience on the platform [ph] this year, so stay tuned for updates. We believe these enhancements will have a promising reception by our customers. Turning to the NHL, we wrapped up the busiest quarter for production and programming with 21% more games than in Q4, and roughly 25% more than we expect in Q2, so Q1 is the highest production expense quarter and hence the least profitable for our media division, thus the year-over-year decline you see is what we expected. Importantly, this flits round in Q2 as we now enter most exciting part of the season with the Stanley Cup Playoffs, starting with more teams than in the last 10 years. Overall, NHL hockey across English networks has read 28 million Canadians. That is a 2% increase from last season and our GameCentre LIVE, we have seen a 40% growth in usage since the start of 2015. Overall, we are right on plan for NHL is just to 151 [ph] is by far the highest cost portion this season. On the regulatory front, the CRTC released its decision decisions in relation to the Let's Talk TV hearing. We see the requirements they laid out, there is an opportunity to refresh our packaging and more individualized content to our customers. This is something we wanted to offer customers for some time. In general on the TV front, the regulatory uncertainty the past two to three years seems to be behind us. Turning back to our customers, we continue to make progress on our customer experience plan, which is a key pillar of our 3.0 strategy. We have some early feedback with the recent release of the CCTS mid-year report. We reduced the number of wireless complaints by more than over 20%, over the last six months. This is on top of a nearly 30% reduction we saw it CCTS full year report published in 2014, so it is still early days, but I am encouraged by this trend. Also, two new key executives took up post in the last two weeks. First, Dirk Woessner, previously from Deutsche Telekom, who we announced back in mid-January, became president of the consumer business unit and Jamie Williams, an internal appointment became Rogers CIO. He has a 20-year track record of transforming IT systems in complex and challenging North American telecom's environments. To conclude, we are making steady progress against our plan and we will continue to do so this year. With that, I will turn it over to Tony, to talk more about the financials in the quarter.

[Tony Staffieri:]

Thank you, Guy, and good afternoon everyone. Let me quickly provided a bit more detail and color around the first quarter results and then we can get to your specific questions. Before I detail the quarter, I first want to mention in addition you would have seen to our subscriber metrics that we have hinted at introducing over the past few quarters. We have introduced postpaid ARPA, which is becoming an industry norm and perhaps becoming more relevant than ARPU as a reflection of the value of a customer who may have multiple devices at different rates. We have however kept postpaid and blended ARPU as a reporting metric for comparison to those companies that do not report ARPA. Two other quick things on the subscriber metrics front, first on the wireless side, you would have also seen a 92,000 cumulative adjustment to the postpaid subscriber base, representing wireless home phone subscribers that were previously not included. This makes our reporting practice consistent with industry peers and to be clear. This was an adjustment to the subscriber base and not part of net adds activity. Then on the Cable side, there was a bit of a double cohort effect as Guy referenced in terms of reported subscriber deactivations in Q1, as a result of a policy change which no longer required canceling customers to give us 30 days notice post-January 23rd. This policy change effectively resulted in an extra month of customer disconnects being counted during the quarter, which equated to about 40,000 total subscriber units of which 17,014 were 15,000 Internet and 8,000 cable telephony. The inflated number of deactivations is a one-time effect in the quarter, but the revenue effect from the step-down will continue for the full-year. We estimate the impact in first quarter was approximately $3 million on cable revenue and we estimate there will be approximately $23 million for the full-year 2015. Now turning to the financial results, as Guy mentioned, we continue to make progress driving top-line revenue growth, accelerating to a 5% year-on-year growth rate, with equal or better sequential improvements across all our segments. Even if you exclude the incremental NHL portion of media's revenues, which went there last year and consolidated growth rate would be about 2%. Wireless network revenue growth of 2% was held by our ongoing strategic shift, the lifetime value over volumes again this quarter, as we continue to drive higher ARPU in versus ARPU out. The trend is very much supported by the growing penetration of our share everything plans and now represent about 38% of our Rogers postpaid base, up from 30% last quarter, so ramping well and with plenty of room for continued growth. As we said to expect last quarter Wireless subscriber nets were modestly negative, mostly driven by the loss of lower subscribers as we continue to shift our end market and base management emphasis from discount adding value, a couple of important things to note behind the net postpaid subscriber numbers though. First, the decline in postpaid gross adds of 5%, improved, sequentially, from being down 17% in Q4. Importantly, postpaid churn was up just four basis points year-on-year versus being up 12 basis points in Q4. As well, we saw improved trending as the quarter progressed and we recorded positive net adds in March, all of which is evidence that our new product differentiators and service improvements are starting to gain traction in the market. Excluding the impact of the changes in roaming constructs that we implemented, wireless network revenue would have been up 4% and postpaid and blended ARPU would have each been up 4% and ARPA, up 6%. Total roaming revenues both, inbound and outbound, were down 18% year-over-year versus the decline of 15% Q4, reflecting a full quarter impact of our popular U.S. Roam Like Home plans, which were introduced partway through Q4 in early November. With the recent announcement of the extended coverage of Roam Like Home to an additional 35-plus countries, I should add that we are not expecting a material impact to these trends for two reasons. First, users of U.S. roaming are on the upticks, so volumes is beginning to offset price and second non-U.S. international component is much less material or roaming revenues overall. Turning to Cable, revenue was up 1% led by Internet at 6% growth and offset by declines on home phone and television, including the impact of cancellation notification policy change I spoke to a moment ago. While TSUs were down year-over-year, TV and Internet ARPU were up approximately 5%, which is a proof point of our successful focus on value over volumes in this segment as well. This improvement also includes the recent launch of our reinvigorated consumer bundles under the Rogers IGNITE banner, which Guy referenced and the early indications are that they are being well received in the market. Jumping to Media, the 26% top-line growth largely reflects the success of our NHL rights, which continued to deliver as expected with strong audiences and increased use of GameCentre LIVE. Excluding the national portion of NHL, which was not in the result last year, media's revenue would have been down about 2%. Turning to adjusted operating profit, a couple of things to point out here as well, continuing on the NHL front with media. The reported decline in adjusted operating profit you see was largely driven by seasonality associated with our NHL coverage. In summary, we allocate the NHL rights costs evenly over all season games, notwithstanding the some games and in particularly the playoffs earned at disproportionate share of the season's revenues, so what you saw in Q1 was a large volume of gains and therefore costs, with a higher revenue generating games to come largely in Q2, so it's a timing issue. Excluding this effect, Media's Q1 adjusted operating profit will be up year-over-year. Our profitability expectations for the NHL full season still remains unchanged, and with more Canadian teams in the playoffs than we have seen in over 10 years, we may see some upside to our expectations for full season revenues. Turning to wireless operating profit as Guy mention, the year-over-year decline is due to our selective early hardware upgrades in advance of the double cohort this summer. We assumed in our full-year plan and guidance that we pull a number of upgrades forward into the first half of the year compared to the typical seasonality you would have seen in the past couple of years. This quarter, we upgraded 18% more devices to existing subscribers than the same quarter last year, with the volume skewed towards iPhones and more expenses devices, generally associated with our high-value customers. This drove retention cost of 32% year-over-year, which led to the decline in operating profit. This tactic will continue into the second quarter and then reverse somewhat in the second half of the year and we have made good progress, such that at the end of Q1 just under 60% of the postpaid consumer base was left on three-year contracts. Excluding equipment costs, wireless OpEx was actually down 1%, demonstrating our focus on continuously taking cost of the business despite an increasing number of initiatives and improving volumes. On a consolidated basis, while CapEx was relatively steady year-over-year, higher depreciation and amortization expenses combined with the accelerated wireless upgrades and NHL seasonality pressured earnings per share. While free cash flow was over $0.25 billion for Q1, much of the year-over-year change below operating profit was simply due to the timing of cash, income tax installment payments, which are not spread equally through the year. With that, free cash flow. We returned $235 million of cash to shareholders, which I am pleased to point out, our board announced earlier this quarter, has been increased by 5% effective with the dividend we paid on April 1st. On the balance sheet, we ended the quarter with $2.4 billion in available liquidity, and with leverage relatively steady, which we continue to focus on managing back down to within budget range below 2.5 times debt to adjusted operating profit. To sum up, I would say that the first quarter was solid from a top-line growth perspective and on plan generally, with the timing of wireless upgrade volumes and NHL seasonality driving much of the year-on-year decline in adjusted operating profit and earnings per share. Net-net, we are still on plan for the year and feel good about some of the momentum we are beginning to create. With that, let us get into the questions you have.

[Guy Laurence:]

Thanks, Tony. Quickly, just before we begin taking questions, we request as we do each of these calls that those participants asking the questions try to limit them to one topic, so as many people as possible have a chance to participate and then to the extent we have time, we will circle back and take additional ones or we will certainly get them as quickly as we can right after the call. Saul, can you go ahead and please explain to the participants, how you would like to organize the Q&A polling process. We would be ready to go.

[Operator:]

Thank you, sir. We would now begin the question and answer session. [Operator Instructions] Our first question comes from the line of Drew McReynolds with RBC. Please go ahead.

[Drew McReynolds:]

Yes. Thanks very much. Good afternoon. Two questions for me. First, I guess, Tony, with respect to including the wireless home phone subs and the numbers, just wondering if you could comment on the contribution of those subs to net adds in the quarter. Then second question, just with respect to priority uses of capital. You alluded to wanting to get back below 2.5 times net debt to EBITDA. Just wondering, just given how the reaction of the shares recently, if you had any updated thoughts with respect to a buyback, I will now leave it there. Thanks.

[Tony Staffieri:]

Thanks for the question, Drew. Let me start with wireless home phone, so you will see in our disclosure is, we included the 92,000 in the base. In the quarter, the net adds for wireless home phone was 9,000 or just under 9,000. 8,600, to be exact, so that was the net adds on the wireless home phone front. In terms of getting our capital leverage, you saw at the end of this quarter, it was up slightly to 3.1. That is just really related to seasonality. We had some working capital investment, namely in assets that we made together with some use of cash for the income tax installments that were skewed towards the first half. For the full-year, we continue to look to bring that down. Our target is still to continue to get that under 2.5. In terms of us looking to reallocate our capital to share buybacks, we continue to be focused on debt repayment as a priority, even given where the shares are today.

[Drew McReynolds:]

Okay. Thanks. Tony, if I can just squeeze one more in just with respect to ARPA, you alluded to I think 4.2% growth in ARPA year-over-year, just wondering if you could kind of broaden the horizon out here. Is that a metric that you see accelerating in terms of growth or is that growth stable and obviously higher than the postpaid ARPU?

[Tony Staffieri:]

Drew, a couple of things on that, it is something even though we did disclose it, we tracked it and wanted to make sure our reporting systems for it were robust than accurate, so what we have seeing over the last several quarters is good progression in ARPA, so as you would expect with the success of Share Everything plans and the impact of roaming revenues, becoming less and less, we expect the trend in ARPA to continue and again to be more reflective of the value of the Share Everything plans.

[Operator:]

Thank you. Our next question comes from the line of Glen Campbell with Bank of America Merrill Lynch.

[Glen Campbell:]

Yes. Thanks very much. My questions are on wireless margins. I think they would be for Tony. First on the handset upgrade rate, we saw the increase this quarter, and I think I alluded to an expectation that they will be down in the second half. Could you talk a little bit about what you expect would be the upgrade rate perhaps for the year, what is baked into your guidance and maybe just talk generally about whether the rate should shift permanently higher now that we are on a two-year contract renewal cycle after this summer as opposed to the three-year cycle that drove last year's 22% rate? Thanks.

[Tony Staffieri:]

Okay. Well, as I talked about the retention volumes were up 18% in the first quarter relative to the skew that you saw in previous years, as I said we expect most of it to happen in the first half of the year. If you were look at the total, I do not want to provide guidance on the total upgrades, retention upgrades that are going to happen for the year, but it ties in with your second question. Just the math would suggest that as we move from three to two years then we move to cycle where on average were up theoretically helping customers 50% of the contracted base year as opposed to third that would be the case under the three year model, so what you see in our pricing constructs is just moving our economics at preserving our lifetime values by getting those pricing constructs to align to the two-year contracts.

[Guy Laurence:]

Glen, it is Guy. I do not think it is all dramatic. In some respect so because it depends little bit on the attractiveness of the handsets in the marketplace and whether to see people perceive them in a big increase. Secondly, it depends on how those handsets are priced in the market given the U.S. Canadian dollar rate in wireless at the moment, so it maybe - Let's say Apple produced an upgrade what will be particularly attractive and it was deemed expensive, because of the exchange rate. People might sit up and wait, because these are handsets a lot people have at the moment quite frankly would last longer than two years.

[Glen Campbell:]

Those are fair points. Thanks. Did I hear you say that at the end of Q1 it was 16% of the base is still on three-year contract?

[Tony Staffieri:]

That is right. The consumer postpaid base just under 16%, is still on three-year contracts.

[Glen Campbell:]

Okay. Perfect. Thanks. One follow-up if I may, again, on margins. You talked about data usage by more than 1 million sharing customers who are doing roaming, roaming like home, being higher in the U.S. than in Canada. That's an interesting number, is that creating a meaningful source of pressure on your costs? We do not know your roaming costs, but could you give us a sense of how much margin pressure might be arising from that higher usage?

[Guy Laurence:]

No. It is not creating a pressure.

[Glen Campbell:]

Okay. Excellent. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Jeff Fan with Scotia Bank.

[Jeff Fan:]

Hi. Good afternoon. Thanks for taking the question. A quick housekeeping for Tony, regarding the three-year contract, you said 16% at the end of Q1. What was that number at the end of the last quarter Q4?

[Tony Staffieri:]

At the end of the last quarter, Jeff, it was 21%.

[Jeff Fan:]

21%, okay. Great. Then just a follow on regarding ARPA, one of the interesting metric that you can get from ARPA is the number of connections that you have per account. If I do that math correctly, it looks like you are at about 1.6 devices per account. In terms of looking forward, how important is this metric growth, I guess, the number of devices per account in driving ARPA growth? Do you think you have the kind of pricing plans in the market in terms of usage and bucket that allows you to grow that further if it is an important metric?

[Tony Staffieri:]

Jeff, I will start backwards with your questions, so what we are seeing is good success with the Share Everything plans, 60% of the gross adds coming in on Rogers are coming out Share Everything, so we are pleased with the traction it is having in the marketplace, so we are seeing the success on that front. The other thing to keep in mind in terms of your calculation of average - that is about right, a little bit light, but there is a couple things that go on there. One is, not only to help ARPA, but gets at the stickiness of the customers, so we are pleased when we look at Share Everything with not only the ARPU and ARPA of the Share Everything profile, but the significantly improved churn profile that we are seeing in those plans.

[Operator:]

Our next question comes from the line of Simon Flannery with Morgan Stanley.

[Simon Flannery:]

Thank you very much. Guy, as part of your Rogers 3.0 plan you divided the business into business and consumer. I think you talked particularly about the opportunity to go after the business telephony in the cable footprint like the U.S. carriers have done. You appointed some executives late last year. Can you give us a little bit of an update on how that is going and when should we start to see some meaningful benefit from those initiatives? Thanks.

[Guy Laurence:]

Yes. Nitin joined us from Cisco in backend of last year and finished his introduction sort of last January. He has got his management team together. In fact, then last two people arise in the two-three weeks, so we are pretty much service base in terms of action in the market place. In terms of planning, we are well advanced and where we expect it to be at this point in time.

[Simon Flannery:]

Okay. We should see some traction later this year?

[Guy Laurence:]

As you know it takes time to roll these things out, we will be here in 2016 as well as be here in 2015, so it me, it is more about getting it right than hurtling into the marketplace [ph] through.

[Simon Flannery:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from the line of John Hodulik with UBS.

[John Hodulik:]

Okay. Thanks. Two quick ones. First, a follow-up on the wireless margin questions, it looks like the increased investment in upgrades led to about a 250-basis point decline on a year-over-year basis going from, I guess, 21% on the three-year to 16%. Now they have get sort of one quarter to go. I mean, should we expect that sort of increased investment on a sequential basis and potentially more margin impact as we look into the second quarter? Then given that, do you still expect it to grow EBITDA marginally here in 2015 for the year? My second question is on the sub-trends, I think it was Tony, you talked a little bit about some change in trend during the quarter and actually adding subs in March. Could you talk about sort of what is driving that and do you have enough visibility at this point to suggest that maybe you can add subs in the second quarter? Thanks.

[Tony Staffieri:]

John, thanks for the questions. A couple things, one is in terms of the timing of the upgrades. A number of dynamics that go into it. Certainly, we are proactive in it, so that drives it to what extent are you guys see that in Q2 relative to Q1. Number dynamics, one of which Guy, mentioned is how consumers are thinking about the handset lineup that is out there. Whether they want to wait for the ball, so I think I do not want to put a number or a direction out there that has a lot of potential volatility to it, but from our perspective and what we can do we are looking to have most of that come through in the first half as we said before. How it relates to Q1, do not know for sure, but will see how it plays out. As we look to the full-year and I think your question is really getting at how are we thinking about guidance, we continue to look to achieve our adjusted operating profit including these early upgrades within the guidance that we provided.

[John Hodulik:]

On the sub-trends?

[Tony Staffieri:]

Yes. On the sub-trending, what we have seen is really over the last six months if you were to look at sequentially what is happening on a monthly basis from when we first launched what I would describe the execution of our volume to value. We continue to see every month, every week, a good sequential progression, so what I can tell you in March we saw that move into positive nets, so based on the experience we have seen, we expect that progression to continue to Q2 and the rest of the year.

[Guy Laurence:]

One thing, I would say though is and I have said it before. I get pushed back from this one. I will say it again anyway is that, we will get some vibrations in sub numbers as we go through the years. We flush out different cohorts, have different levels of return on investment, so I do not want to be held hostage to a particular sub-number, recur input revenue in the bank [ph] for customers.

[John Hodulik:]

Got it. Thanks guys.

[Operator:]

Again, our next question comes from the line of Greg MacDonald with Macquarie.

[Greg MacDonald:]

Shaw has spoken recently about the strategic approach of taking cable, deemphasizing the home phone product, focusing more on the broadband product in terms of sales and pricing efforts. Number one, could you talk to us a little bit about how you are thinking about home phone these days? Are you actually actively marketing and selling that product still? Then number two, any concern that broadband lacks a differentiation, at least enough differentiation to support higher pricing power, which might suggest Wi-Fi, a lot of cable companies are doing Wi-Fi. Is there an indication internally that you guys think that that is a product that will be needed for differentiation down the road? Thanks.

[Guy Laurence:]

I would say, we continue to market all the products we have available to us. We have chosen to emphasize in this quarter broadband and Rogers IGNITE and the new plans are being received very well. It is clear that demand in the average family is growing quite quickly. The number of devices connected to a router is increasing and the [ph] in the family is looking for more certainty about what their outgoing is in this area or not, so I would chose to give uncertainty on a product level, but also give certainty on a quality level and the quality of our broadband product is very high and that is not just me saying, so it by third-party sources as well. We are focusing on making broadband worry free for families and encouraging them to connect as many devices as possible. With respect to the kind of Wi-Fi issue, if it is an issue, I think that Wi-Fi, it is era and it has a role to play in the mix of different technologies we can deploy. If we see it being relevant to deploy vis-à-vis wireless, but I think we see it as complementary. At the end of the day, I do not think [ph] is a replacement technology.

[Operator:]

Thank you. Our next question comes from the line of Dvai Ghose with Canaccord Genuity.

[Dvai Ghose:]

Yes. Thanks very much. I just want to go back to your guidance for the year, which calls for as you know 0% to 3% EBITDA growth and flattish free cash flow. You produce negative 3% EBITDA and negative 20% free cash. Now, if I look at the drivers you have talked about, which get you to your guidance, you have talked about reduced retention expense in the second half, more efficient NHL OpEx and perhaps the end of the double cohort issue in cable, but at the same cash taxes, whether the same time your CapEx was a bit late in the quarter, you have guided a flat top 4%. It was down 3% in the quarter. Is there anything else I am missing in terms of how you make your guidance?

[Tony Staffieri:]

Dvai, I think you have captured it, so with all of those factors, we continue. I should say that the items that you saw come through in Q1 is in line with the plan that we put together when we laid out our guidance for the full-year, so there no surprises there. As you look to each of the cash items and I will start with CapEx probably worth commenting on briefly. You saw in Q1, come down slightly. There two single biggest drivers there. One is with the rollout of an Xbox, cable TV platform. Over the last, year we are starting to see the need for that investment starting to come down. Then the second piece quite frankly is success we are having on unit cost and CapEx, so what we are finding is a good ability to do more with less, so some of that is starting to show through. It does not necessarily mean you will see it every quarter being down year-on-year, but I think what you saw in the first quarter is really a reflection of that.

[Dvai Ghose:]

Fair enough. If I could pull one other question, when I am asking what will eventually get this stock moving, the obvious answer is an interest sensitive dividend stock is free cash flow growth, you are guiding towards flattish this year. Do you think you are creating a platform for meaningful free cash flow growth from 2016 onwards?

[Tony Staffieri:]

Yes, Dvai, absolutely, the biggest driver of free cash flow growth has to be revenue, so you can see that starting to move on the top-line. One of the things we have consistently done well is translate top-line into strong margins in both, our cable and wireless business and we expect do that. If you are to take out what we have been transparently laying out as the one-time items in the various businesses, what you see is our underlying cost structure continuing to come down notwithstanding that we had more activity in terms of programs et cetera, so we are pleased with the way that is coming through. Then finally, the last piece of it is going to be CapEx. We said this year, we are going to be the year that we were going to increase CapEx a little bit in order to make the investments we needed in a number of different areas and in particular customer service, so we expect long-term, but there is an opportunity for that to come down. Again, I close with it is going to be driven by revenue and our continued execution to translate that to free cash flow growth.

[Operator:]

Thank you. Our next question comes from the line of Phil Huang with Barclays Capital.

[Phil Huang:]

Afternoon, I just wanted to come back to the double cohort impact here. Just based on the pace of your migration subscribers to your contract it appears that you will have roughly, call it, 10% of your postpaid base still onto your contracts by June 30th. First is, do you think this assumption is fair. Second, are there any notable characteristics with the remaining chunk of subscribers still onto your contracts, perhaps lower ARPU or lower value that you might be a little bit less concerned about in terms of these guys potentially churning off?

[Tony Staffieri:]

No. One thing I want to be careful of is not put more science into this double cohort than is actually there, so there is just a number of different dynamics and so I don't want to provide necessarily a direction. The other things just to clarify, it is the number we gave in terms of 16%, that was consumers of the total postpaid base, so the three-year contract impacts to consumers, so that is why I gave that is the relevance stat.

[Operator:]

Thank you. Our next question comes from the line of Michael Rollins of Citigroup.

[Michael Rollins:]

Hi. Thanks for taking the question. I was just wondering, if we think a little bit longer term over the next two to three years, can you review for us how you look at the importance of content in differentiating your wireless product versus your competition? Are there some early signals or test results you are seeing from your customers as you try to leverage the content that you already have across your properties? Thank you.

[Guy Laurence:]

It is Guy. What I want to say is that, now if we go down to the pub says I consumed 25 megabytes today. It was a great day. People go down to the pub and I talked about the Montréal versus Ottawa game, which 3.2 million people viewed and that is what they want to talked about, so content is far sexier than megabytes. That is just a fact. If you can entangle the two, you got to believe that at some stage that will change the way that people view brands and create differentiation. Now, it is a theory that I would say is relatively new in the Ottawa's market, but we do believe in it and I think that it is fairly natural in some respect. If I look at proposition on new post plans for instance, where you get Spotify Premium built in as well, music is something that people what is consumes on the move, Spotify is by far the best streaming service in the world. Why not put them together, because people like to listen to music on the go, so we believe in it. It does not mean to say that all plans should have content and you could not buy thin based plan that just do not have any content, but I do think it has a role.

[Operator:]

Thank you. Our next question comes from the line of Tim Casey of BMO Capital Markets.

[Tim Casey:]

Thanks. You talked a little bit about how the continued strength in the U.S. dollar is impacting your financials, particularly on the handset side. Are you having to absorb any of the prices that some of your suppliers may be putting through and are you seeing an impact in the marketplace? Thanks.

[Tony Staffieri:]

Tim, A couple of things on that, in terms of the U.S. dollar exchange, there is a couple of ways I should described it. One is from a balance sheet standpoint, we have U.S. dollar borrowings that are fully hedged, whether there are short-term or even up to 30 years, I should clarify that they are fully hedges for the full 30 years or whatever the term is, so there is no foreign-exchange risk on that. I would say the counterparties to those hedges are strong financial institutions, so from that standpoint little to no risk. When we look at our expenditures that are denominated in U.S. dollars, we have been following a study program of hedging far in advance several years. As we look to the current year, pretty much all of our U.S. dollar denominated expenditures have been hedged and as we go into next year, much of that has been hedges as well. The one thing though is notwithstanding what the contract is denominated and even if it is in Canadian dollars it comes from U.S. source, it will certainly have an impact and our strategy today is to make sure that our lifetime values fold, so if it means increasing the price at the retail level and that is what we have and we will do.

[Operator:]

Thank you. Our next question comes from the line of Richard Choe with JPMorgan.

[Richard Choe:]

Great. Thank you. I wanted to ask about high-speed data. It was down this quarter and also last quarter, but I think if you exclude the regulatory change, it was up. Should we expect it to continue to grow going forward or will it be kind of continued under pressure?

[Tony Staffieri:]

Sorry, Richard. If I could just clarify, you are talking about in terms of subscribers or revenue?

[Richard Choe:]

Subscribers, the cable net adds. How you see data and net adds?

[Tony Staffieri:]

Yes. If you look at the on the subscribers front, we reported net loss of 7,000. As I said the, 30 days the adds had an impact on that and that was 15,000 in the quarter, so it was actually positive eight. Compared to where we have been, it has come down a little bit and it really relates to some of the bundling offers that we have been competing without there, so it is really as we compete for the whole home, then the Internet is getting included as part of that. While the trend is improving, we are not happy where it is, but it is headed in the right direction in terms of where it was in Q4.

[Operator:]

Thank you. Our next question comes from the line of Rob Goff with Euro Pacific.

[Rob Goff:]

Thank you very much. My question would be on the investments you have made in enhancing the subscriber value proposition i.e. the IGNITE and the roaming and the Spotify. Do you have like a broad figure that you would put forth i.e. $40 million has gone into this?

[Guy Laurence:]

Short answer is yes, but we are going to share it.

[Rob Goff:]

Okay.

[Guy Laurence:]

It is fairly fundamental to our strategy and how we are going about keeping that cost in perspective and negotiating I think it is pretty confidential.

[Rob Goff:]

Okay. Thanks. If I may then, could I ask how what is your reading is of the current marketplace on promotional activity whether it is intensifying, whether it is stabilizing and is there a measure of discipline?

[Guy Laurence:]

On cable or wireless?

[Rob Goff:]

On the wireless.

[Guy Laurence:]

I would say certainly March was pretty fair. I mean through our every months says but I would say relatively speaking March was pretty fair. It is clear that some of the players in the market choosing to throw money capable and hope it sticks [ph] finally it is their strategy.

[Rob Goff:]

Okay. Thank you very much.

[Operator:]

Thank you. Our next question comes from the line of Maher Yaghi with Desjardins Securities.

[Maher Yaghi:]

Yes. Thank you for taking my question. Guy, I wanted to go back to one of your original objectives coming into Rogers. You talked about improving the revenue growth of the Firm and we have seen steady progressions of the revenue line growth even if I exclude all the media revenue growth that you got from investing in the NHL program. Could you talk a little bit about how you see that revenue growth progression continuing later this year? Do you see it continuing to improve or we should wait to see it improve further in 2016, because you are already at 2% growth, but what would be your growth objective for 2015 as a whole? In terms of your cable positioning in the marketplace with the new IGNITE product that is quite competitive on the Internet side, but you still have some things to deal with on the TV side to compete against the triple bundle. Can you talk a little bit what kind of technological improvement you are doing on the TV side to improve your positioning in the marketplace with IGNITE still helping you on Internet?

[Guy Laurence:]

Yes. On the first question, revenue [ph] for customers in that we are very focused on continuing to draw the revenue line. There has been propensity in quite a few countries to rely on price increases the main way of achieving that growth and I think that the strategy has had its day to a degree or slowly relying on it I should say. It has probably had its day and therefore you have to look to provide better bundles, packages content whatever it is that encourages the customers to consumes more of your products or use higher value packages, so that is where we are focused. We should not give for 2016 now, but I would says is our philosophy is to encourage the customer to take more products and use them more and hence draw a revenue line that way versus making price increases. On the second part of your question has to do is the TV product. You are right that we have concentrated thus far on broadband. Development times on the TV products can be quite long, but we all focused on improving them. In fact, I was with John Chambers on a call just going through the roadmap for the rest of this year. We are not too far away from the first of the upgrades we are going to do. It is not seismic. It is one of our theories what price will do to our TV product, so we are very today where we want to enhance it, but we have gone after the customers [ph] and we have translated that to engineering requirements and that is now coming down the pipe, but we have launched a series of releases over the course of this year, so we are not relying on a brand new release of IPTV or something to suddenly come in and be a category killer over night. We are focused on developing a long-term IPTV strategy and at the same time enhancing our legacy products as well.

[Operator:]

Thank you. Our next question comes from the line of Robert Peters of Credit Suisse.

[Robert Peters:]

Hi. Thank you for taking my question. Just a quick one for me, I was just wondering, when you are talking about the new IGNITE plans, you said that the initial response has been positive, but I was just wondering with the IGNITE 100 package being unlimited, have you seen and I am not sure if you can give me this indication, but have you seen some subscribers that maybe would have been taking, say, your Hybrid Fiber 60 package before actually upgrading to the unlimited ones since you no longer have the download cap on that?

[Guy Laurence:]

Yes. We have and congratulations for actually pronouncing our old tariff correctly, because most people can't. Seriously, our base is very attractive to the new plan and the migrations team that we have actually, we have to put more staff on to cope with the demand…

[Robert Peters:]

Perfect. Thank you very much.

[Operator:]

Ladies and gentlemen, we have time for one more question. Our next question comes from the line of Vince Valentini with TD Securities.

[Vince Valentini:]

Thanks very much. Questions on the customer service journey, probably for Guy. You mentioned before in the Enterprise segment, you are at sort of first base. I am wondering how you would characterize where you are in terms of improving customer service. Obviously, the complaint stats have come down and that is nice, but how about net promoter score? Can you share with us anything there and how well that is getting better and where do you think you are? Is it still another year before you get customer service through where you really think it should be?

[Guy Laurence:]

Well, I think I have said before, Vince, the customer service is a journey not a destination, therefore the reason I said it would take us three years to get it to where I wanted to that to be. Maybe we will get that faster, but it is about improving what we are doing every single day. The reason you see the complaints tumbling so far to CCTS is as a result of that. We respect to MPS, we really just did not stole it, so it actually went in January and we have not gotten into every single channel yet, but we are pretty fast. Obviously, 487 for channels they have it and then of course the staff has to get use to interpreting the results and act according, so it is not just about MPS. At the end of the day is how your customers are feeling. The question is what are you doing as far as your input? If you look we just reconfigured and re-architected that rogers.com and FidoHub.ca, so interestingly the responds times on those two were fairly slow and we just put new architecture which means the assets is faster. As part of our rebranding of Rogers and Fido, we have just laid out the websites in a different way, we just upgraded my Rogers, we have just over hold all of the community forums about Rogers, I think, Fido is now live as well. We will just improved the information knowledge system internally for our reps, so they can give better information faster and we have got another quite a large announcements on the customers services cycle. Come out in a couple of week's time, which we also believe we will move the dial. Again, I do not think there is any one thing you do to change customer services. It is about everything you and everything communicates. We are obviously tackling it. When is the time how do you eat an elephant? That is the elephant we are eating right now, but I am happy with the progress and Deepak. He is from Global Customer Care Google. He is driving global customer care so at least reside in 100 countries. He has got a certain the - operations. He has got good team around them, but you know I would never be happy on customers I mean, we have this Vince in four year time and I still won't be happy because I have got up and catch the customer out there. It means, we did not get it right, so do not expect me to declare victory on this one any time ever.

[Operator:]

Ladies and gentlemen, this concludes the Q&A session for today. I would like to turn the call back over to Bruce Mann for any closing remarks.

[Guy Laurence:]

I can't believe Bob was not on the phone. It is his 50th birthday and he did not come on the phone. I thought the one thing he would want for his 50th birthday would to be on our call. I can't believe it. Other thing I am surprised that Dvai did not give us a kind zinger questions that he normally comes in with. I think it is last call. Is it true? I heard he is going up to becoming global operations director of core, for sure or global research. Good luck to you Dvai and Bob, we are sorry. We missed you.

[Bruce Mann:]

Thank you very much, operator. The team here thanks everybody for investing some of your time with us this evening. We know it is a very busy time. If you have questions that were not answered, you can get hold of myself or my colleagues Dan or Bruce. All three of us are going to be around this evening and tomorrow and the contact information is on the release. If you are in Toronto, we are going to tomorrow. Join us for our Annual Shareholders Meeting, at our headquarters here at Bloor 11 o'clock. It will be a relatively quick meeting and we have got a product showcase afterwards with some refreshments and it would be a good investment of your time. Thank you very much for your support.

[Operator:]

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.