Rogers Communications Inc.
Q2 2015 Earnings Call Transcript

Published: 23 Jul 2015

[Operator:]

Thank you for standing by. Welcome to the Rogers Communications Q2 2015 Results Analyst Teleconference. At this time, all participants are in a listen-only mode. Following the presentation, we'll conduct a question-and-answer session, and instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference is being recorded on Thursday, July 23 at 7

[Bruce M. Mann:]

Thank you, Ron. Good morning, everyone. Appreciate you joining us bright and early here in Toronto with our President and Chief Executive Officer, Guy Laurence; and our Chief Financial Officer, Tony Staffieri. What we'll do is crisply provide you with a bit of additional color and detail on the results upfront, and then we'll spend the majority of the time we've got this morning answering as many of your questions as time permits. The discussion will undoubtedly touch on estimates and other forward-looking types of things, and from that our actual results could ultimately differ; so please review the cautionary language in the earnings release today and in our 2014 Annual Report. The various factors, assumptions, risks, et cetera that could cause the results to differ apply equally to our dialog this morning. So with that, I'll turn it over to Guy and then to Tony, and then we'd be pleased to take your questions.

[Guy Laurence:]

Thanks, Bruce, and good morning, everyone. So last quarter, I talked about early traction in the execution of our Rogers 3.0 plan. I'm pleased to report that the quarterly results released this morning demonstrate both a continuation of positive financial trends and improvements in subscriber metrics. Our revenue and free cash flow growth is continuing and we're delivering a steady flow of strong new commercial initiatives. Before I comment on what we've been doing from a product and customer experience perspective, let me highlight a couple of key financial points before Tony gets into the detail. As you saw, on a year-over-year basis, consolidated revenue growth was 6%, consolidated adjusted operating profit increased to 2%, and free cash flow growth was up by 9%. In Wireless, network revenue grew by 2% with adjusted operating profit flat year-over-year. Importantly, however, this represents a 3-percentage-point improvement in the growth rate sequentially from Q1, despite the fact we are managing the double cohort. Also notable is the postpaid Wireless subscriber net additions, which turned positive after two quarters of decline as we gained traction across multiple segments. At the same time, average revenue per Wireless account or ARPA was up about 4%. And while postpaid Wireless churn was up very marginally year-over-year, it was down from Q1; and importantly, there wasn't a significant spike after the start of the double cohort. In Cable, the reported revenue was basically flat as the 5% growth in Internet revenue was offset by declines in TV and Home Phone. However, we saw sequential improvements from Q1 in subscribers, with positive Internet net additions and TV sub losses improving somewhat. This part of the business is obviously operating in a highly competitive marketplace, but starting next week, we will introduce a newly enhanced guide for the Rogers NextBox, and this is the first of several new upgrades to our customers' TV experience in the coming quarters. Going forward, we're the leading in-market 250-megabyte offering to almost all of our Cable customers today, and a clear path to a 1-gig offering as the Cable industry implements DOCSIS 3.1 in the not-too-distant future. Our broadband offering is well positioned vis-à-vis our telco competitors, especially given our fiber coaxial network platform where we have inherent advantages in terms of widely deploying 1-gigabit speeds without the need for expensive and time-consuming rebuilds to replace the last mile of plant. In terms of the evolution of our consumer offering, we also announced that following our successful beta trial, our shomi streaming video service will be available to Canadians right across the country later this summer. It's interesting to note that the leadership we are showing in this area is now being copied by a competitor, who clearly craves for the success we've been having although they won't be launching until next year. In Media, both the revenue and adjusted profit were up substantially as the first season of our exclusive at national NHL rights came to a successful and profitable conclusion with a plus 10% profit margin for the season almost bound with our plans. The seasonal trend from Q1 to Q2 is exactly as we told you it would be last quarter. Closely associated with that, Sportsnet was rated the number one most-watched televised sports brand in Canada. While subscriber and ratings momentum have been building for some time, there is no doubt that the addition of the national NHL rights this season pushed us solidly to the number one spot. With the first season now concluded, I think it's clear that the NHL has been a success. Separately I'm sure that you saw that the Mobilicity and Shaw spectrum acquisitions we successfully executed on late in the quarter, both of which we've now closed, with Shaw concluded by the end of the quarter and Mobilicity on July 2. These were complicated set of deals, almost akin to solving a Rubik's Cube involving multiple stakeholders with different interests and objectives. At the end of the day, we were able to procure a significant amount of prime spectrum. This is contiguous with our existing holdings across three of the largest population regions in the country, Ontario, BC, and Alberta. And importantly, we did so at very favorable prices especially compared to recent AWS auctions both in Canada and the U.S. which saw prices paid by carriers up to three times higher in metropolitan areas like these. As an example, one of our competitors, just four months ago, spent over C$6 per megahertz pop at auction to the AWS-3 spectrum in Toronto and Southern Ontario, nearly three times as much as we paid for the prime spectrum we acquired across the three very large population centers with this deal. The key to the AWS spectrum we acquired, besides the fact it is contiguous to our existing spectrum in these areas, is that unlike AWS-3, it is immediately deployable on our current LTE network without additional equipment investments and without waiting for new devices that can operate on it. Indeed the spectrum out west is now live for our customers to enjoy even faster speeds and this comes just four weeks after its purchase from Shaw. And the tax loss carry-forwards we acquired at the same time from Mobilicity are also of significant value and as you can see in today's release, enabled us to increase our free cash flow guidance for 2015. We also participated in a 2,500-megahertz spectrum auction during the quarter, which shores top of our spectrum holdings in that frequency range with an additional 41 20-megahertz blocks of licenses across Canada for a modest C$27 million all-in. This means we now have 40 megahertz of contiguous 2,500-megahertz spectrum essentially across the country. Both of these spectrum acquisitions clearly fit with the Rogers 3.0 strategic pillar of maintaining our network leadership. In terms of another key pillar of the plan, customer experience, we continued to make important investments and strides there as well. A couple of examples include introducing a simplified new customer bill for Rogers services that makes it easier for our customers to understand their spending, which is the number one reason for calling us. Not only is the new bill less complicated, it's available across multiple platforms including mobile. Over 3 million customers are now receiving the new bill and we've had 2.5 million downloads of our MyRogers app, allowing those customers to view their bill on their mobile device. At the same time, we've expanded our online self-service offerings to make interacting with Rogers easier for the half a million customers who go online to pay their bill. Not only did we measurably speed up the website response times, we also enhanced the look and feel whilst greatly improving search and navigation capabilities and the customers' self-serve portal as well. All in, we've already reduced the incident of customers contacting us by 12% year-over-year in just the first six months of 2015. This quarter, we also expanded our leadership in international Wireless revenue by extending ROAM LIKE HOME to 35 countries across the EU. We now have 1.6 million customers enrolled in ROAM LIKE HOME and we're seeing an 800% increase in U.S. data roaming volume. So far, competitive reaction has been muted, although one competitor launched an imitation product recently that is 40% more expensive, which customers tell us is not very attractive. We also launched Fido Pulse wireless plans that target the millennial cohort with attractive value-add services including a music streaming subscription to Spotify and VICE Canada that is gaining considerable traction with this target segment. Turning to the regulatory front, the government of Canada has now met their regulatory objective of having a fourth carrier operating in all territories across Canada. The wholesale roaming cost proceeding is still outstanding and so there's nothing to report on that file with submissions due later this year. But importantly, we now know that MVNOs aren't the future of the Canadian wireless market, well certainly not anytime soon. On the wholesale broadband decisions that came out late yesterday, our initial read is that it appears to create a more level playing field between cableco and telco providers of high-speed Internet offering. In that, it wouldn't exempt telco fiber-to-the-home from wholesale requirements. Assuming that CRTC gets the cost models right, we see little risk that the overall regime will hinder continued network investment by incumbent providers. Over time it also seems that the decision will require resellers to invest more in infrastructure, which is a fairer sharing of the required costs and is more consistent with a facilities-based competition model. In summary, this quarter had some clear positives and shows we are making steady progress against our Rogers 3.0 plan. I expect that to continue as we move through the second half of the year. With that, I'll turn it over to Tony to provide a bit of additional detail and perspective on the second quarter's financials.

[Anthony Staffieri:]

Thanks, Guy, and good morning everyone. I'll provide a bit more detail around certain aspects of the second quarter financial results, and then we can get to your specific questions. During the second quarter, we continued to generate solid cash flow and strong operating margins, while at the same time, as Guy mentioned, we continued to gain traction, driving topline revenue growth which grew 6% year-over-year. Excluding the incremental NHL portion of Media's revenues, consolidated growth was 2%. A year ago, it was flat. And adjusted operating profit this quarter of C$1.34 billion was up 2%; last quarter it was down 3%. So, we're clearly making solid progress. At Wireless, the network revenue growth of 2% was driven by our ongoing strategic shift to lifetime value over volume, as we continue to see higher ARPU in versus ARPU out. This trend is very much supported by the growing penetration of our Share Everything plans that now represent 42% of our Rogers' postpaid base, up from 38% last quarter; so, ramping well and with plenty of room for continued growth. And importantly, we put up the third consecutive quarter of year-over-year positive postpaid ARPU growth. As I've described in previous quarters, our new roaming offerings, including our popular U.S. and European ROAM LIKE HOME plans have had and continue to have an impact on our Wireless revenue and ARPU profiles. The plans are working and we're seeing unique users on the uptick, and the increased volumes are beginning to offset the pricing changes. And the rate of decline in roaming revenues is decelerating. If you exclude the impacts from roaming changes, postpaid network revenue and ARPU would have been up over 3%. Another important data point is that after two quarters of postpaid subscriber losses, postpaid net additions turned positive in Q2. While there was a slight uptick in Wireless postpaid churn of 6 basis points year-over-year, new customer additions were strong and in line with the same period last year; so continuing improvements in gross and net addition trends, all of which is evidence that our new product differentiators and customer service improvements are starting to gain traction in the market. Smartphone demand has remained strong as we activated 682,000 in the second quarter, one-third of which were new subscribers. Not only were smartphone activations up by 16% overall year-over-year, in particular we saw 24% increase in higher-value iPhone customer activations during the quarter versus Q2 of last year. This quarter, we upgraded 14% more devices for existing subscribers than the same quarter last year due to our selective early hardware upgrades in advance of the double cohort, resulting in a 6% upgrade. This drove retention costs up 11% or C$21 million year-over-year. So, we executed our upgrades more cost-effectively this quarter than in Q1. You may recall that in that quarter, we upgraded 18% more devices for existing subscribers but retention costs were up 32% year-over-year. So another good trend for our second quarter, and despite the higher spending on retention this quarter, we were able to hold Wireless operating profit flat year-over-year, as the higher retention spending was offset by flow through of the accelerating topline growth together with ongoing cost efficiency improvements. Turning to Cable, revenue was flat with Internet growth at 5%, offset by declines on Home Phone, Television, and the impact of the CRTC-mandated 30-day cancellation notification policy change. Importantly, without this regulatory-driven change, Cable revenue growth would have actually been modestly positive versus what you see reported. While TSUs were down year-over-year, TV and Internet ARPU were up 4%, which was a proof point of our successful focus on value over volume in this segment as well. We're also seeing improved churn on these two products. This is obviously being supported by the recent launch of our reinvigorated consumer bundles under the ROGERS IGNITE banner which are gaining traction in the market. Cable adjusted operating profit was down year-over-year in the quarter on the impact of a cancellation policy change and a 1% increase in operating expenses that resulted from higher programming and customer-facing investments, which we partially offset by productivity improvements initiatives. At our Media segment, the 23% topline growth largely reflects the success of our NHL rights which continued to deliver as expected with strong audiences during the playoffs across all platforms. Excluding the incremental NHL impacts, the underlying Media segment revenue would have been down 2%. While we're experiencing strong growth at Sportsnet and positive contributions of the Toronto Blue Jays and Next Issue, these were partially offset by continued softness and structural shifts in conventional TV and print advertising. Overall, Media's C$36 million or 67% increase in adjusted operating profit year-on-year was for the most part the result of the contribution from NHL and Sportsnet combined with the realization of significant cost savings, particularly in the Television publishing divisions. On a consolidated level, free cash flow for Q2 was up 9% to C$476 million, the result of higher adjusted operating profit, lower cash income taxes, and lower interest, which more than offset increased CapEx in the quarter as we continue to focus on more efficiently deploying our investments across the full year. This allowed us to return C$248 million in cash dividends to our shareholders with the additional free cash flow helping to fund the Glentel investment and Shaw acquisition we completed in the quarter. On the balance sheet, we ended the quarter with C$1.9 billion in available liquidity and while there was a small tick up in leverage to just over three times at the end of the quarter on the close of the Glentel and Shaw spectrum transactions, we continued to focus on managing leverage towards our target range to below 2.5 times debt to adjusted operating profit. Turning to 2015 guidance, we expect to be able to utilize all of the tax loss carry-forwards associated with the Mobilicity acquisition in the current year. These losses will reduce our cash taxes for the year by C$175 million as they offset cash taxes otherwise payable. Accordingly, we are increasing our full-year 2015 free cash flow guidance by the C$175 million to a range of between C$1.525 billion and C$1.675 billion. To sum up, I would say that Q2 delivered solid margins and cash flow, while continuing to demonstrate a positive financial trajectory on both the topline and adjusted operating profit lines and did so at the same time, showing some positive inflections in our subscriber metrics. With that, let's get into the questions you have.

[Bruce M. Mann:]

All right. Thanks, Guy and Tony. Ron, quickly before we take questions from the people on the call, I'd like to request on behalf of the team here as we do on each of these calls that those participants who would like to ask questions, please limit them to one topic, that way as many people as possible have a chance to participate. And then to the extent we have time, we'll circle back and take additional questions or we'll get them answered for you separately after the call. So with that, why don't you just please explain how you want to organize the Q&A polling and then we'll go into it.

[Operator:]

Thank you. Ladies and gentlemen, we'll now conduct a question-and-answer session. Your first question will come from Simon Flannery with Morgan Stanley. Please go ahead.

[Simon Flannery:]

Yeah. Thanks very much. Good morning. I didn't hear any reference to the macro environment, perhaps you could just touch on the impact of the weaker macro trends and in particular the weak currency and what that means for handset prices, upgrade rates, CapEx, et cetera? Thanks.

[Anthony Staffieri:]

Simon, I'll take that one. Let me start with the latter part of your question. In terms of foreign exchange, as you point out, a certain portion of our costs, and in particular handsets are tied to the U.S. dollars. We for the most part hedge our foreign currency exposures many years out, and so as we look to the near-term, we see ourselves in a position to be well-covered from much of the foreign exchange fluctuations that you see. Longer term, we'll keep an eye on what the foreign exchange looks like, but our intent is to continue to manage our lifetime value, and so to the extent that our net handset costs go up, then we'll continue to follow an approach where we adjust our prices accordingly, the market allowing, so that our economics remain whole.

[Simon Flannery:]

Great. And on the overall economy, bad debts, all of that kind of thing?

[Anthony Staffieri:]

Today, we haven't seen any negative impacts from any of that. I think as you look to some of the broader trends in terms of economic factors for Canada, they're somewhat mixed; and from our perspective we don't see any adverse implications. As we look to our bad debts both in the consumer as well as the enterprise space, we continue to see that in line with our expectations and previous trends.

[Simon Flannery:]

Thank you.

[Operator:]

Your next question will come from Jeff Fan with Scotiabank. Please go ahead.

[Jeff Fan:]

Hi. Thanks. Good morning. And a couple of questions around ARPU and ARPA, looks like the postpaid ARPU growth slowed a little bit in the quarter. But on the other hand, Guy, as you mentioned the ARPA growth accelerated. So wondering, if you can talk a little bit about that? Should we start to see the focus on ARPA and maybe multi-device accounts to see that ARPA growth continue to accelerate as we see more connections per account? And maybe you can just talk about the opportunity there in the market? Thanks.

[Anthony Staffieri:]

Thanks for the question, Jeff. A couple of things. In the near-term, we see both ARPA and ARPU being relevant. Certainly, the proliferation of Share Everything and the movement of customers to that, ARPA is an important metric and so we're pleased with the way that's moving. As we look to number of connections per device, that continues to move in a positive direction. We told you last quarter it was just under two and it's still trending towards two devices on average per account, so that's moving well. On ARPU, the slight downtick that you saw in this quarter is really a couple of things there. I should say when we round the numbers this quarter was a 1% increase, last quarter was 2%. If you added a digit to that, the difference is really less than 0.5%. But the second thing is, in the second quarter, we put in place some promotional offers that gave customers some larger data buckets and that was on a very short-term basis. And so what that caused was a slight decline in what we typically saw as data overage revenues, but isn't something that we expect to be a trend longer term.

[Jeff Fan:]

Thank you.

[Operator:]

Your next question will come from John Hodulik with UBS. Please go ahead.

[John C. Hodulik:]

Okay. Thanks. Now that you guys have successfully navigated the double cohort and as you look forward, sort of should we see the inverse of some of the factors that affected the results heading into it, more specifically some lower retention spending that could help drive margins and maybe continued improvements in churn? Thanks.

[Guy Laurence:]

So to be clear, you say we've successfully navigated the double cohort, I think we've successfully navigated the start of the double cohort, of course double cohort is not a one-quarter wonder. So, we've got a number of quarters to go on it and we are ready and prepared in terms of our plans and we've executed extremely well this quarter, but we have to see what the market does in the coming quarters.

[John C. Hodulik:]

Okay. If I could quickly just bounce in one question on the spectrum, you guys have said you've deployed the new spectrum you got for Shaw in the west. Can you talk a little bit about some of the benefits you may be seeing from a network performance or speed standpoint? And when can we see the extra 10-megahertz you guys picked up in Toronto deployed? Thanks.

[Guy Laurence:]

So out west, we've only had it live a couple of days, so I'm not sure I've got any results to share with you to be quite frank. In terms of when we deploy it in Toronto, it's going to be a little while yet. We've got some more work to do, but we're also not short of speed in the area anyway. So, it was more future proofing than immediate need, and it will come on stream later this year.

[Operator:]

Your next question comes from Maher Yaghi with Desjardins. Please go ahead.

[Maher Yaghi:]

Yes, thank you for taking my question. I wanted to ask you, as it relates to Wireless, you have launched over the last couple of quarters some interesting new product offering with some attractive deals, some additions like music, et cetera. Can you talk a little bit if those new product innovations that you discussed initially on the call were the main drivers behind the improvement in the subscriber trends? Or it is more related to the promotional activities that you undertook in the quarter?

[Guy Laurence:]

No, the improvements in subscribers is related to the propositions where we're using content. So the use of promotions is somewhat muted, has been since I joined the company. So it's very much related around content.

[Operator:]

Your next question will come from Phillip Huang with Barclays. Please go ahead.

[Phillip Huang:]

Hey. Thanks. Good morning. So first, just want to clarify on the double cohort. Our sense is that consumer awareness of June 3 has been relatively low so far and you guys have made significant progress on the volume to value strategy. I was wondering, as we're heading into the more competitive back half, do you expect to see the improvement we saw this quarter on the wireless trends to sustain? And then my follow-up on the roaming side is it looks like the decline, while it's still dilutive to ARPU, the decline seems to be really improving. I was wondering if you could give us an update on the penetration of your ROAM LIKE HOME plans and the resulting usage growth and whether we have better visibility to it becoming accretive to ARPU. Thanks.

[Guy Laurence:]

Can I just clarify the first part of your question. Did you say that you feel the awareness of the double cohort was low amongst consumers?

[Phillip Huang:]

Right. Yes. Our sense is that, while we certainly are watching it closely, consumers don't really appear to be very aware that June 3 was the date where all of your contracts have ended. And so there was certainly no mad dash to the retail stores for upgrade that we were concerned about months before. So I was wondering what you're seeing in the market?

[Guy Laurence:]

Yes. So just to clarify that point. Actually awareness of the double cohort is quite high amongst consumers, primarily thanks to national press writing very large articles encouraging customers to look at their contracts. So I don't think it's a safe assumption that awareness is low. Behavior is certainly different to what it could have been in that you haven't got queues forming out of stores, but awareness continues to grow and is at a relatively high base. I'll let Tony answer the question about the roaming plan.

[Anthony Staffieri:]

Phillip, I believe your question was on data usage and just to clarify, are we talking about domestic or roaming?

[Guy Laurence:]

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[Phillip Huang:]

Yes. My question relates to the penetration of your new ROAM LIKE HOME plans both in the U.S. and I guess early signs in Europe, if any at all. And also whether the usage volume growth is increasingly starting to offset the repricing impact, and whether we have better visibility to when roaming might actually become accretive to ARPU rather than dilutive currently?

[Anthony Staffieri:]

Okay. So there's two dynamics there. In terms of the U.S. ROAM LIKE HOME, which has been in market a little longer than the international side of it, we're seeing good traction there. So when you look at both data usage as well as number of unique roamers, that's up significantly. When you translate that to roaming revenues from the U.S., what we're seeing is we're pretty much at the inflection point where we're starting to see actual revenues flat to slightly positive. And so as we continue through the summer months, it'll be something we keep our eye on, but the trajectory seems good in terms of what we expected. On the international side, that was introduced subsequent to the U.S. launch, so it's still earlier days for that one. What we are seeing is very good traction again in terms of number of subscribers using it as well as actual data usage per subscriber. So we're getting the right behavior, and so we expect the trend to follow what we've seen in the U.S. In terms of the impact on our ARPU and revenue profiles for Wireless, that's still several quarters we expect to have an impact. And as I said, Q3 will be an important one in terms of heavy travel season. So it probably won't be until early 2016 that we start to see a change in impact on ARPU and revenue.

[Operator:]

Your next question will come from Vince Valentini with TD Securities. Please go ahead.

[Vince Valentini:]

Yes. Thanks very much. Congrats on the better sub adds this quarter. Just wondering if you're getting some traction on the better customer experience, and you certainly have identified several programs there. Do you have any expectation of when you think postpaid churn will flatten out or even decrease year-over-year?

[Guy Laurence:]

It's a good question, Vince. I think the short answer is no, because there's lots of moving parts. So you've got customer expectations which are not static. They move over time. You've got competitors who're obviously doing stuff in addition, and then you've got the work that we're doing. So in my experience kind of over last 15 years, it's very difficult to forecast at what point you achieve what you're describing. So I wouldn't like to hazard a guess on that, except that we're committed to the program of improving customer experience and always will be. As long as I'm doing these calls, we'll be talking about our plans to continue to improve it.

[Vince Valentini:]

Thanks.

[Operator:]

Your next question comes from Richard Choe with JPMorgan. Please go ahead.

[Richard Y. Choe:]

Great. Thank you. Just to follow up on the double cohort a little bit. I know we've talked about it a lot, but just kind of going forward are you expecting things to get worse? Have you seen any evidence of that? Or is this going to be less of a negative issue than everyone else thought? And then also in terms of the prepaid business, it seems like a nice rebound there. Should we expect that to continue to be positive going forward?

[Guy Laurence:]

On the first one, I don't know because it depends on what happens in the marketplace. I only dictate what we do. I don't dictate what the market does. So it's not that it's not competitive out there. I don't think you should take away from this call that it's not competitive or that consumers are not aware of the double cohort. It's just that we have managed to navigate this quarter very well and as we go into the next few quarters with new handset models and so on and so forth, the situation may change. It may get even better, it may get slightly worse, I don't know. But I think the point is that we have managed this quarter very well in terms of our retention spend, where we've invested in customers despite the fact that awareness is high and there's been a lot of noise in the marketplace and the press. Second part of your question I didn't catch actually. Could you repeat it, please?

[Richard Y. Choe:]

The Prepaid business, we saw growth there. Should we expect that to kind of grow going forward? You mentioned it's a little bit up with the new plans.

[Anthony Staffieri:]

Yes, Richard, the prepaid fees, we're quite pleased with the way that's trending. As you all know, we relaunched the chatr brand with a new identity and it's still very early days, but there's a renewed focus on that segment of the marketplace. And so we're pleased with the way it's going, but it is very early days and tough to extrapolate a trend at this point. It will depend on a number of different dynamics.

[Guy Laurence:]

I think it is true to say that over the last year, as we've been cycling through, revisiting different parts of our business, chatr was pretty much at the back of the list given its size. Now we've applied the same treatment as we're applying to Fido and to Rogers brands in terms of refreshing them and sharpening their commercial offers, you are seeing a reflection of that phenomenon. I don't think we know how big the market is for prepay yet. So we'll experiment as we go on. We've just hired a new person to run prepay for us. He's got a lot of experience and so let's see what happens on that one.

[Richard Y. Choe:]

Great. Thank you.

[Operator:]

Your next question comes from Aravinda Galappatthige with Canaccord Genuity. Please go ahead.

[Aravinda Suranimala Galappatthige:]

Good morning. Thanks for taking my questions. I just had a question on the enterprise side. Now that you've got the sort of team together and sort of ready to go, maybe if you can just expand on the magnitude of the opportunity there and what sort of initial milestones you're looking for as you kind of roll out there?

[Guy Laurence:]

So Nitin started at the beginning of the year and he had a good team that he inherited, but we supplemented that with a number of other people from Canada and beyond. So I think they're still pulling everything together. I don't want to say too much about what the milestones because unfortunately our competitors listen to these calls, but what I would say is that I think as we probably get to Q4, we'll be ready to start making announcements in terms of product sets and new commercial offers in line with the plans that we've got. Overall, the opportunity for our own enterprise is very large because we're under-indexed significantly. I think we're somewhere around the 20% market share, which is very low versus our consumer market. So there's lots of upside, but we're approaching the entry to that in a methodical way, rather than trying to rush out into the marketplace and to say to Nitin. He's only been here for, I don't know, 25 weeks so far, so.

[Aravinda Suranimala Galappatthige:]

Great. Thank you.

[Guy Laurence:]

I would say more to come on that. I'm sorry I can't give you more details, but more to come, but not for this quarter, not for next quarter. It'll probably be in terms of the first announcements probably in Q4.

[Operator:]

Your next question will come from Drew McReynolds with RBC. Please go ahead.

[Drew McReynolds:]

Yes. Thanks very much. Just back to the roaming, obviously we're kind of cycling through the C$9.99 year-over-year. We got the ROAM LIKE HOME in the U.S. and international that's impacting things. Just big picture, maybe for you, Tony, just wondering when you look out over the medium term, do you think that the changes that you put through, those three changes, are roughly sufficient to what you have to do to recalibrate the business and get the volume growth? Or is it one of those scenarios where you're constantly putting kind of new recalibrations into the roaming equation? And then just secondly, just on the double cohort, just wondering if you can update what percentage of contracts are still on the three year? Thank you.

[Guy Laurence:]

I'll take the roaming one if I may. I think the fact that uptake on ROAM LIKE HOME is so all-encompassing for our Share Everything customers, it's so well liked, tells you that we've got the formula right. And we're constantly reviewing the consumer feedback we get on it, but it's broadly positive. So I'm not sure how much more we need to do on roaming incentives. There is a stubborn group of customers who still don't sign up for it, even though they're eligible, believe it or not, because they just can't believe it's true. So my challenge is actually winning them over. But I think we've largely actually achieved what we wanted on roaming and we've covered now the major destinations. So that I think is largely a tick in the box other than a small part of the customer base we've yet to tackle. Also as I said in my speech, the competitive reaction has been somewhat muted but there's imitation offer out there that's 40% more expensive. But I wouldn't say I was – I'm not flustered by that, if you know what I mean. Second half of your question I'm going to turn over to Tony. Can you just repeat it again, please?

[Drew McReynolds:]

Yes. Just an update on the percentage of consumer postpaid subscribers that are still on three-year plans?

[Anthony Staffieri:]

So Drew the short answer is at the end of the quarter it's zero because what happens at June 30 is all of the customers then become out of contract. So going into June 3, 12% of our consumer postpaid base was still on three-year contracts. And so as you would expect, some of those renewed into new contracts, largely two-year contracts. If we were to look at the overall – for our consumer postpaid base, at the end of the quarter the impact in terms of total that are now out of contract, it was roughly a 1% impact or a one point impact, I should say, in terms of the total percentages.

[Drew McReynolds:]

That's great. Thanks, Tony.

[Operator:]

Your next question will come from Greg MacDonald with Macquarie. Please go ahead.

[Greg MacDonald:]

Thank you. Good morning, guys, with the emphasis on morning. Not a negative comment. I love early-morning conference calls. Question for you is on postpaid gross adds. After a number of quarters on decline, it showed a nice flat number there. And, guys, I'm going to make the assumption that there wasn't a major industry spike this quarter, that in fact it seems like your gross add share has improved this quarter. Guy, you talked a little bit about the decline in inbound customer service calls. That's a good indicator. Was that the single biggest driver in that gross add improvement number? Or were there other things that mixed into that? And can you talk about the profile of gross adds this quarter, Fido versus Rogers, in any way, whether Fido was bigger than Rogers? Whether there was a trend toward Fido? I know this is somewhat competitively sensitive but what can you tell us on the profile? Thanks.

[Guy Laurence:]

I'm not sure I'd link the reduction in calls coming into the call centers with the increase in gross adds if that's what you have in mind.

[Greg MacDonald:]

Well, what I'm wondering is overall improvements in customer service can improve customers coming to your brand. And I wonder whether that's the major thing or were there other things like product profile improvement that you're talking about?

[Guy Laurence:]

I don't think it – I think we're too early in the game for that. You are correct, but I think we're too early in the game to claim that. No, I think the increase in gross adds came down to different propositions out there. Links back to the previous question around the inclusion of content, so I think that's what increased – well, sorry, I know that's what increased the gross adds. The decrease in the number of calls coming in is because we are increasing our online self-serve, number one, and secondly, because we've got a higher first call resolution now in fixing customers' issues when they do call us without the need for them to call back, and a number of other improvements. Customer service is always a cocktail, it's never one or two things, it's a whole series of things. So I wouldn't link those two right now and probably in the mid-to-long term, I'd like to get to that point to speak quite frankly, but it's a bit early for that.

[Anthony Staffieri:]

In terms of the split grade on gross adds, we don't disclose, as you described, specific numbers related to Rogers and Fido, but what I can tell you is two things

[Greg MacDonald:]

Okay. That's helpful. Thanks, Tony.

[Operator:]

Your next question will come from Bob Bek with CIBC. Please go ahead.

[Bob Z. Bek:]

Thanks. Good morning. Guy, you highlighted in your comments the inherent strength of the cable pipe for broadband speed and throughput. Is it fair to say you're going to start pushing these advantages more going forward? I know you got the IGNITE product in the market for a couple of quarters, but you've got a competitor that spent a few years building a brand about fiber and just looking to see whether you're at a position now where you think you might be more aggressive as far as pushing what is a very strong inherent strength of your network?

[Guy Laurence:]

Well, I think over the last year, being human beings we can only tackle so many things at once and we focused on the Wireless business and we've got traction there. We're certainly turning our attention now to the whole residential area. And my view is that we needed to accelerate the development of our legacy TV product, that we needed to reposition broadband and that we needed to make improvements to customer services there. And so we've repositioned Internet now with IGNITE. We've got a new guide coming out on NextBox next week, and therefore I would say we're getting ready to put our foot down, to prosecute our natural advantage being a cableco. The short answer to your question is yes. But, again, don't expect some set of fireworks to go off tomorrow morning and then that's it. This is about steady, methodical improvements over quarters. And given that we're coming from some way behind, it's going to take time to get traction on that. But we have a number of natural advantages. I would say those were enhanced by yesterday's decision by the CRTC, in that they've created a level playing, more level playing field between cableco and telco and I'm encouraged by that. And therefore, yes, we will put our foot down on improving that business as steadily as we have with Wireless.

[Bob Z. Bek:]

That's helpful. Thank you. Can I, just a clarification for Tony while I'm on here. The tax loss carry-forwards for Mobilicity, just to be clear, it's entirely used in 2015? So by 2016 we'd return to a more normalized cash tax outlook?

[Anthony Staffieri:]

A couple of things, Bob. So, one, that's correct, we are going to use all of the tax losses in 2015. And as we get into 2016, I don't want to extend myself and provide guidance for that year. There are number of tax planning things that we continue to work on and so stay tuned in terms of cash taxes for 2016.

[Operator:]

Your next question will come from Tim Casey with BMO. Please go ahead.

[Tim Casey:]

Thanks. Guy, you mentioned that you're releasing a new guide this week. Can you just talk a little bit more about what you're doing on the video side to try and arrest some of the declines that you've experienced over the last several quarters? Thanks.

[Guy Laurence:]

Yeah. So just to take you backwards to something I've said a couple of quarters, and I think you may have heard these comments before, Tim. So when they started the program for IPTV, which was before I joined, there was a decision to stop development of the current legacy products, which in hindsight was probably a mistake. And so we had to fire that machine back up again, which has taken us a bit of time. And therefore, I'm continuing to invest in the legacy product in terms of the user experience the way that particularly videos and the discovery mechanisms – search mechanisms, discovery mechanisms, ease of use on use cases that the consumer uses repeatedly and so on and so forth. So this first release coming out is largely foundational. And what the public will actually see and play with is probably only about 25% of the code that we're actually releasing. The other is preparation for future releases. Nevertheless, they'll see some improvements that they've been asking for and we have had the new release out in test with 500 of our own staff for the last month or so while we've been refining it. And certainly the feedback's been good. But I would say the general philosophy and trajectory is that we want to continue to enhance the legacy products, and whilst we continue to work on IPTV so that we can get into a better competitive situation. And that, combined with my previous comments around Internet and prosecuting a revitalized residential play over a number of quarters is, if you like, encapsulated the plan.

[Tim Casey:]

So one of the other cable companies has really started to de-emphasize the voice bucket and really look at other products. Are you guys changing any of the way you go to market with bundles? Or are you still pursuing a more wholesome offer?

[Guy Laurence:]

I think we have some basics to fix to be quite frank. And I would say I'm more focused on that, the fact that the search capability on our service wasn't good enough and will be vastly improved and things like that, I would say our direction of travel is more that than what you've described.

[Operator:]

Your next question will come from Robert Peters with Credit Suisse. Please go ahead.

[Robert Peters:]

Hi. Thank you very much for taking my question. Maybe just circling back onto roaming for a second, with the deployment of the ROAM LIKE HOME plans in Europe, I was just wondering, I think in the past you've indicated kind of how – or at least that the majority of your roaming comes from people traveling in the U.S. I was wondering, is there any kind of way we could think about the proportion of the roaming that's coming from the U.S. versus Europe in terms of the impact of the new European roaming plans?

[Anthony Staffieri:]

Hey, Robert. A couple points to be helpful, first off when you look at our total revenue profile, 7% of our postpaid revenues are coming from roaming. So just to put it in perspective of the size of the total bucket, of that roughly two points to three points is international with the rest being U.S. And so, as I've mentioned before, the U.S. won, in terms of the product it has a bit more maturity than the international, and so the positive trending on that is more pronounced. Still early days for international and as I said, we expect it to closely follow what we saw in the U.S. Hopefully that helps in terms of putting it into perspective.

[Robert Peters:]

No, that's fantastic color. Thank you very much. And then maybe talking about some of the inherent advantages in cable and specifically when we look to see the fact that there's DOCSIS 3.1 networking gear that's going to be coming out I believe later this year if not out already that can do higher speeds and frankly comparable speeds that have been seen by some of the fiber offerings. How do you guys think about managing the speeds available to customers going forward in, like, say, the next year or so?

[Guy Laurence:]

Well, we have very clear points of view on that and I'm absolutely not going to share them with you. Sorry about that.

[Operator:]

Ladies and gentlemen, we have time for two more questions today, the first of which will come from Adam Shine with National Bank Financial. Please go ahead.

[Adam Shine:]

Thanks a lot. Good morning. Guy, a lot of the talk around customer service obviously focuses on the call center, but maybe if we go into the retail stores, are you generally satisfied with where KPIs are trending and is there an opportunity still to perhaps achieve some efficiencies and drive some more throughput through the retail outlets? I say that in the context of – I'm not suggesting the Rogers' staff is slower than peers, but there's a lot of maintenance work going on, particularly on the weekends, maybe bogging down some of the sales, and curious if that's part of some of the backend stuff that's being worked on to maybe drive, as I said, additional throughput through the system for low hanging fruit in terms of additional subs going forward.

[Guy Laurence:]

So, we were lucky enough to recruit Dirk Woessner from Deutsche Telekom who is no doubt an expert in retail and managing retail channels. He joined us a number of months ago, and it's true to say that he has taken a firm grip of what we're doing in retail. And I'll never be happy about what we do in any channel, to be quite frank, because I always want to improve whatever we've got. He feels the same way and we're making a number of enhancements on retail backend IT systems at the moment, which we will continue over the coming quarter and beyond, in fact. So there's some work to do on the aesthetics because formats get tired and need refreshing and foot traffic also degrades the stores as well. But primarily our focus is actually on the IT and backend process side. In addition, we've just built our first retail training center which we launched in this quarter that's just gone, and now our retail managers are going through a much more rigorous and formal training, and that will extend down to the frontline that they manage as well, which brings us more in line with the, I'd say the, European norms in terms of the amount of training that's done and the rigor with which it's done. So we've got some very talented people in our retail estate and I get letters from customers on a regular basis telling me that, but it's true to say that I think that perhaps the support mechanisms for the stores have not been optimal and the training support as we develop new products and services has also not been there, and that's really what Dirk is focused on at the moment, and I think you'll continue to see improvement in that area as a consequence.

[Adam Shine:]

Okay. Thank you for that. And maybe just one quick one for Tony. Just in the context of the Rogers Home Phone, particularly as we look to see Wireless substitution accelerating, and we're obviously seeing the telephony disconnects right across the marketplace picking up pace, but for Wireless subscriber at Rogers, you can get the Rogers Home Phone for $10 in sharp contrast to what otherwise appears to be a $35 to $40 plus, plus landline proposition. Can you speak to any acceleration in the uptake of that product?

[Anthony Staffieri:]

Yeah. Again, if you look at the trending on that there's a couple of things, one is on the Wireless Home Phone product there is a propensity for it to do better outside of our, what I would describe as our natural footprint, so that'll give you a sense of the mix. And two, the volumes are low and relatively steady. So we don't see a significant increase in what you describe as substitution within the footprint. So I'd still describe it as relatively modest. Much of what you see on the revenue front for Home Phone continues to be some of the repricing that you're seeing in the market and us matching that, particularly as part of a bundle.

[Operator:]

And your final question will come from Rob Goff with Euro Pacific. Please go ahead.

[Rob Goff:]

Good morning. Thank you very much for taking my question. My question would be on the 1-gig service for the high speed. To what extent do you see that as a niche service? Or is a broadband flagship preferable? And could you give us any additional perspective on your ability, timing, cost to introduce that type of service?

[Guy Laurence:]

I'd love to, but I think that's going to stray into areas which I don't want to share with my competitors right now. So I think I'll just say stay tuned on that.

[Rob Goff:]

Okay.

[Guy Laurence:]

Sorry.

[Rob Goff:]

Okay.

[Operator:]

And ladies and gentlemen, this does conclude the Q&A session for today. I will now turn the call back to Bruce Mann for any closing remarks.

[Bruce M. Mann:]

All right. Well, thanks everybody from the team here at Rogers for investing some of your time with us this morning. I know it's a busy period and I know it was a bit earlier than usual, but we very much appreciate your interest and support. If you have questions that weren't answered, please give myself or one of my colleagues, Dan or Bruce Watson, a call. All of our contacts are on the earnings release this morning, and we'll be happy to take care of you as quickly as possible. So this concludes today's teleconference.

[Operator:]

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