Shaw Communications Inc.
Q2 2019 Earnings Call Transcript

Published: 9 Apr 2019

[Operator:]

Thank you for standing by. Welcome to the Shaw Communications' Second Quarter 2019 Conference Call and Webcast. Today's call will be hosted by Mr. Brad Shaw, CEO of Shaw Communications. At this time, all participants are in a listen-only mode and the conference is being recorded. Following the presentation, there will be a question-and-answer session.[Operator Instructions]. Before we begin, management would like to remind listeners that comments made during today's call will include forward-looking information and there are risks that actual results could differ materially. Please refer to the company's publicly filed documents for more details on assumptions and risks. Mr. Shaw, I will now turn the call over to you.

[Bradley Shaw:]

Thank you, operator and good morning everyone. With me today are members of our senior management team, including Jay, Trevor, and Paul. Earlier this morning we released our second quarter results for fiscal 2019 which reflects strong financial performance both in the quarter and year-to-date. We continue to make progress on our strategic priorities and our journey to a modern Shaw and we are excited about a number of recently announced initiatives. We delivered growth in our wireless business with postpaid subscriber additions of approximately 65,000 in the quarter. While the subscriber results reflected a less-active period compared to a year ago, we have grown postpaid subscribers by almost 20% on a year-to-date basis compared to fiscal 2018, which as everyone will recall included a record Q2 net additions last year, partly due to our initial launch of the iPhone. Wireless ARPU increased 7.5% as we continue to attract customers to big gig data plans, partially offset this quarter with additional promotions to compensate for lower market activity as well as higher retention spending by our competitors. As we enhance our customer experience through the roll out of the 700-megahertz spectrum, more and more customers are staying with Freedom as postpaid churn improved 30 basis points to 1.36% [ph] in the quarter. As previously communicated, we are expanding our wireless network in 2019 with the launch of Victoria and Red Deer on February 8 followed by six communities in Eastern Ontario in early March. We are encouraged by the early results and are excited to launch additional markets throughout the remainder of the year. Over the past few days, we have introduced some new advertising that continues to call wireless customer pain points in a direct manner. We are proud of our wireless network, the improvements we have made in our innovative and data centric offers. Canadians need to know that owning a wireless device with an abundant data plan doesn't need to be unaffordable or complicated. We have also introduced new prepaid wireless plans, and I'm pleased to announce that we have finalized an agreement with our third national retail distributor Mobilinq, who will carry Freedom prepaid offers in all 50 of their locations that will start to roll out later this month. This segment of the market has become increasingly competitive over the last several months, while our priority remains to target and attract higher value postpaid customers. We can also participate more effectively in the growth of the prepaid market with attractive offers, including LTE data. In our wireline business, we delivered improved broadband results over the previous year and previous quarter. The consumer team is embracing our agile, digital-first model, and we are making incremental changes that are driving results. In Q2, value plan penetration of our new Internet customers was one of the strongest on record, leveraging our fast for all campaign that doubled the speeds of our top Internet tiers in late November. We continue to make positive strides with self-install, which is up to 37% [ph] of total activity in the quarter. More than ever, it is simple and easy to choose the right Internet plan, order online, have the equipment delivered, and self-provision of services in just a matter of minutes. On April 4th, we launched Shaw BlueCurve, a fresh new brand campaign that captures this momentum and showcases our technology and transformation to a broadband first-all IP company. BlueCurve is a simple and powerful new technology that besides just speed, gives customers more coverage and greater control over their in-home Wi-Fi experience, while also helping to redefine the relationship with in-home connected devices. Our BlueCurve Gateway Home App and Pods are the latest, innovative, in-home consumer products that we have brought to the market through our Comcast partnership and enables us to differentiate our Internet service and technology from the competition. Just as residential customers are benefiting from the network investments, so too are Shaw Business customers, with speed increases to our top tiers and additional new services including the launch of gigabyte Internet in early March. Our year-to-date performance has been strong, and we are delivering on our operating plan and executing better. We still have hard work ahead of us and we are only halfway through the VDP exits, but we have exciting new products, brand, and advertising campaigns, and the teams are engaged and motivated to deliver results. Now I'll turn it over to Trevor to go through the Q2 results in a bit more detail. Trevor?

[Trevor English:]

Thank you Brad, and good morning everyone. Our second quarter results have contributed to a strong first half for fiscal 2019. On a consolidated basis, Q2 revenue of 1.32 billion declined marginally year-over-year largely due to lower wireless equipment revenue as the prior year’s quarter included a record subscriber performance. However, consolidated EBITDA grew by almost 14% with strong contribution from both our wireline and wireless segments. In our Wireless business, we delivered a 26% increase in service revenue to almost $170 million in the quarter as we continue to grow our postpaid customer base including those who subscribed to our big gig data plans. However, equipment revenue of $78 million did decline by 40% due to lower sub loading compared to the previous year. Blended ABPU in the quarter was up 7.5% from a year ago, but did include additional promotions to compensate for the lower activity and the competitive dynamics in the wireless market. Wireless EBITDA of 52 million in the quarter increased by almost 190% year-over-year reflecting continued subscriber growth, higher ABPU and ARPU but also the large impact that IFRS 15 had on our Q2, F’18 results. In Wireline, Q2 consumer revenue was essentially flat at 923 million compared to the prior year, while business revenue increased almost 6%. Wireline EBITDA growth of 7% to 479 million includes approximately 27 million in VDP-related cost reductions. Second quarter wireline margin of 46% represents a 280-basis point improvement compared to a year ago, and does include VDP savings, lower marketing expenses, and our overall focus on profitability. We also had one-time favorable accounting adjustments of approximately 5 million in the quarter. Reinvestments in tools and automation related to our VDP enablement did commence in the quarter, but we continue to expect these investments to accelerate in Q3 and Q4. The shift in timing to the second half of F’19 is largely driven by our product roadmap. However, regardless of timing, we remain firmly on track to deliver 140 million of combined operating and capital cost savings this year related to VDP. Capital expenditures of almost 280 million in the quarter was in line with last year with continued reductions in Wireline offset by increased wireless spending, largely related to the deployment of the 700 spectrum and expansion of our network and retail locations into new cities and communities. We're at the halfway point of the year and overall we have delivered strong EBITDA performance in the six month -- first six months of F’19. We do not expect these growth rates to carry through to the back half of the year due to tougher comparable as VDP savings did commence in March 2018. The expectation of additional VDP reinvestments in Q3 and Q4 as well as higher marketing spend in the second half to support the launch of Shaw BlueCurve and our new wireless campaign. Considering all of these factors, we are confirming that we remain on track to deliver F’19 EBITDA guidance of 4% to 6% capital investments of approximately 1.2 billion and free cash flow in excess of $500 million. However, considering our performance to date, and our outlook for the remainder of the year, we would be disappointed if we do not achieve the top end of our EBITDA guidance range. Brad, back to you for closing remarks.

[Bradley Shaw:]

Thank you, Trevor. Let me close by saying that this is such an exciting time for Shaw. We're making progress on several initiatives including a significant step forward with our IP broadband strategy supported by a new look and feel with respect to the launch of our Shaw BlueCurve branding initiatives. We will continue to inform Canadians about our innovative and affordable wireless offers, expansion of the network into new communities, and our refreshed prepaid offers that enable us to more effectively target that segment of the market. A big, big thank you to all of our teams at Shaw and Freedom that are driving change and delivering results. Thank you. And I'll turn it back to the operator for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator instructions] Our first question comes from Jeff Fan of Scotiabank.

[JeffFan:]

Hi, good morning. A couple of questions; one on the cable side with video and then another on wireless. Just on the video side, I understand the strategy is to not chase after some low ARPU video subscribers, that's obviously not having much of an impact on financials, but strategically as you look ahead with more customers looking for more flexible TV packaging and TV product like the one that you actually offer with FreeRange, I'm wondering if that becomes more of a strategic focus for you to try to go after that market especially given your competitors out there with with a skinny product like Pick? And then the second question on wireless is just on the state of the wireless industry, I think given that the incumbent seem to be quite focused on churn, that's having an impact on volume in the overall market. Part of that is certainly seasonal, but I think that may continue through the rest of the year. I'm wondering from Freedom's perspective, how do you operate and are there things that you think you can do to try to stir the market a little bit to drive some volume from Freedom's perspective? Thanks.

[Bradley Shaw:]

Thanks Jeff. It's Brad here. I'll start first. I think for us at Shaw, the advantage and benefit we have with that Comcast strategic partnership is that they get to go first with the new products and services, and we can we can learn from that and come in behind and look at what works best for us. I think as a partner of Comcast, we certainly would -- the Flex TV service would be available for us that Comcast launch if we desire to roll out to our customers. And listen, it's very interesting product as you look at just what's happening within the market, and for those customers that don't take a traditional video package, I think it could be quite interesting. So, we're going to take it, and have a look at how it fits into both our roadmap, how and when. Because I know that Comcast just launched it on the 21st of March, so it is something we're going to take a closer look at.

[Paul McAleese:]

Jeff, it's Paul. On the stir -the-market as you say, we've seen pretty significant investments from the incumbents on retention, and you've noted that in some of our recent reports. We're doing a number of things to stir the market right now in the back half of the year, you would have seen the launch of a new campaign over the last week kind of featuring the fictional, Monolithic Wireless and kind of reminding Canadian consumers that there are strong alternatives and better value in the marketplace. And that's a big part of what we have to do is to continue to make sure that our message is out there and that the availability of affordable large data buckets is therefore prevalent within our service footprint. We also are continuing to benefit from a very strong referral base. So as our network matures and improves, our existing customers are increasingly coming on with additional lines, and we're seeing a strong amount of referral volume coming out of that source. And then the last thing I'd say is we're continuing to make solid, deliberate efforts in the growth of our retail distribution. We've opened as you know a number of new corporate stores over the course of the last six months, we'll continue to open those over the back half of the year, adding Mobilinq is a nice addition as well, and we'll continue to expand our distribution both for postpaid and for prepaid making sure that more Canadians have the availability of access to Freedom services.

[JeffFan:]

Okay. Thank you.

[Operator:]

Our next question comes from Sanford Lee of Macquarie.

[SanfordLee:]

Hi there thanks for taking the call. I had a question on 2019 guidance. I understand that obviously H2 becomes much tougher as far as comps goes, but if my math is correct, it looks like even at the high end of guidance for this year, that could imply a lot. You know that's a negative 0.7% in H2 ‘19. So, I'm wondering if you could comment on your expectations for the year, obviously you're hoping to be above the high end, I think, on guidance.

[Bradley Shaw:]

Yeah, sure. Thanks Sanford. You are tracking well, but there are some investments that are going to accelerate in the second half. We haven't made that many sort of VDP-enabled new investments. That's going to be about 10 million to 15 million in the second half, probably more weighted to Q3 versus Q4, and that's on the OpEx side. Also, some higher marketing spend, we haven't -- the marketing spend has been a little bit lower in the first half of F’19 compared to historical amounts. We obviously had some one-time favorable accounting adjustments that hit us this quarter. So all too well, we still feel comfortable with our existing guidance, but clearly we're trending towards the top end, and then obviously I would say just on the volatility within the wireless business and what's going on with the dynamics, it's hard to sort of pinpoint exactly what that looks like in the second half, but we do feel comfortable with our current guidance, and if warranted, this is something that we'll probably adjust or we're taking a closer look at Q3, just as we're through another quarter of VDP transition. It's a big quarter for us in Q3, there was about 375 exits, in Q3, another 305 exits in Q4. The majority of that frankly is within our operations team, it's about 65% to 70% of the exits in the second half is in the back -- probably is in the back half. So, we're being agile, obviously with our investments, but we still feel comfortable with the current guidance that we have out there.

[SanfordLee:]

Okay, great. Thanks for that. And if I could ask one quickly on the wireless ARPU, not the ABPU, but the ARPU itself. I mean, I guess we were used to the company trending at 7% kind of growth range and obviously a lot higher promos in the quarter that sort of thing, so down to 3.5%. It doesn't look like the wireless environment is kind of getting any easier as far as ARPU goes. Can you give us a sense of, I guess, maybe where the competitive environment has been tracking in this current quarter?

[Bradley Shaw:]

Yes, thanks Sanford. Two points on ARPU. One is, just a reminder that we're continuing to see kind of a buildup of the subsidy amortization, it’s kind of flowing through that we aren't fully through our two year build of that. And of course so, we don't have the benefit of customers that have rolled off the amortization, so we're still seeing a sort of an ever increasing amount of impact on that. So that will get better over the course of the next year, but it won't be better in the next six months, until we hit our two year anniversary of the launch of the iPhone. On the broader market, we actually have seen a little bit more pricing sort of run more rational pricing over the course of last 30, 45 days. During the second quarter, particularly in December and January, we did see kind of narrowing of our price umbrella relative to the incumbents, kind of was well reported. That's come back up a little bit over the last little while, so the discounts that impacted ARPU and ABPU over the course of the last quarter we think have moderated somewhat in recent weeks.

[SanfordLee:]

Great. Okay. Thanks. I'll get back in line.

[Operator:]

Our next question comes from Aravinda Galappatthige of Canaccord Genuity.

[Aravinda Galappatthige:]

Good morning, thanks for taking my questions. A couple from me. First of all, I know a couple of quarters ago you've talked about initiating certain cross-selling sort of processes. I wanted to get a sense of whether there's any early feedback and what sort of the potential is there and how you would kind of look to ramp up those initiatives? And secondly, on the wireless margins, I knew you alluded to that in your last answer, a pretty good number service margins of about 31%. If you kind of track some of your comps you know that even in fairly limited scale I've got to sort of the mid-40s in terms of margin. I wanted to get a sense of how you see that tracking over the next couple of years. Are there sort of any fixed step costs that will probably cause an up and down sort of trend there, or is there sort of a fairly sort of a steady line in terms of margin expansion going forward?

[Jay Mehr:]

Yes, it's Jay. Super quickly in cross-selling. We're very much early days as I think we mentioned on the January call. We'd open the Chinook [ph] store that is a combined Shaw and Freedom location. In the quarter, we also open Metro town in the lower mainland and initial trials are extremely positive, it emanates the store, spend a day in the Metro Town store, and its exciting to be able to talk both products with our customers and make sales. That said and we're not contributing a meaningful portion or even close today to polls overall numbers. But it's a nice test for the future. I'll let you take them, Mark.

[Trevor English:]

Yes, sorry it’s Trevor, maybe just on the wireless margins service. We don't see a material step up in the service margin in the foreseeable future. But its – we’re sort of taking a slow and steady approach as we go about next year. And I don’t want – earlier we don’t want to get too much into guidance looking for beyond F 2019. But for the remainder of F 2019 and then we talked about it on the consolidated basis within our merger within wireless we sort of see that at high-teen to low 20% and we continue to see that in our plans going forward.

[Aravinda Galappatthige:]

Great. Thanks Trevor. And just if I wrap up, any change in the geographic mix in the gross adds and wireless? Thanks.

[Paul McAleese:]

It’s Paul. Very modest change as we opened up the Red Deer and Victoria market which is both form strongly in the first six or eight weeks. Of course that is offset by the opening of some Eastern Ontario markets and markets as well. So, no meaningful change yet on that quarter-to-quarter distribution of that. But over the course of the next year I do expect to see that move a couple of percentage points in the favor of the West.

[Aravinda Galappatthige:]

Got it. Thank you.

[Operator:]

Our next question comes from Phillip Huang of Barclays.

[Phillip Huang:]

Hi. Good morning guys. A couple of questions from me. First is I wanted to get your take on the launch of xFi and BlueCurve later on this year. I was wondering how you expect these new products to potentially change your or improve your subscribers on the wireline side? And then I have a follow-up on the wireless side. I was wondering if you could provide an update on the potential to introduce a premium brand into the market. When do you feel would be the right time for that to happen? Thanks.

[Jay Mehr:]

Great. Thanks Phillip. It’s Jay. On your question xFi and BlueCurve and subscribers. I mean, we’re quite excited with where we are in the business. In consumer we’ve had pretty strong financial quarters. We’ve moved back to Internet growth in Q1 at 5600 and consumer were little better than 11,000 net in Q2. Our full philosophy around fiscal 2019, we got together with every people manager in the consumer business in September action in part sell, and we’ve reoriented the business around profitability which you’ve seen in our results. And for us profitability means monthly recurring revenue churn and growing our Internet customers. We’re actually having good success in whole of those things. And I think it’s very difficult to read-through on the subscriber numbers and understand. I think to Jeff’s comments you can see it in the profitability numbers. I’ll just say quickly on video, because I know it’s a matter of discussion. We’re not unhappy with where we are in the video business. We’ve achieved our video revenue every single month for budget this year. Our video ARPU held up nicely in the quarter and disconnects of cable video decrease 24% from Q2 last year, has been widely reported we’re not chasing on profitable subscribers and cable gross adds were 43% lower than Q2 last year. Satellites doing great, video ARPU grew nicely and disconnects were also down year-over-year, wanted to note that if you look at our fiscal year and our plan and we’ve made our plan every month in video including March. If you look at our plan we haven’t seen video profit margin combine satellite and cable in Q4 as we do in Q1. So we actually maintain video profitability throughout the year. And I know it's hard for you to see that in the subscriber numbers, but that’s the power of segmentation. To your question about the BlueCurve launch, I mean, we’re super excited about how it animates the space. And it’s a chance for us to take our brand and Shaw is still a loved brand. Consumers in Western Canada's like that we take our shoes off of the door and that we -- and that we take care of our customers. In recent year the tech and product performance wasn’t leading in the market. And so BlueCurve have chance for us to take forward, more confident, modern Shaw’s performance brand and it embraces not only the network but to gear in the overall experience and it's really about shifting its speed coverage and control. Clearly, it also generates new revenue models and you’ve seen our new video pricing. You’ve seen our new Internet pricing as -- video was December, Internet April 4, the opportunity to sell BlueCurve Home, the opportunity to sell BlueCurve Pods where they don’t directly reflect a BlueCurve Home, the opportunity to sell BlueCurve Pods, where they don’t directly reflect subscribers. I think you can see what they do to monthly recurring revenue. And so we’re pretty comfortable. It’s little by little, step-by-step in the consumer business, but we’re pretty comfortable with the trajectory we’re on that.

[Paul McAleese:]

Phillip, it’s Paul. Your question on the premium brand, we’re really pleased with the growth there we’ve got on Freedom and its doing their great job very efficiently. It’s covering segments right from entry-level prepay up to those $60 plus subscribers that we’ve been happily loading over the course of the last number of quarter. So, for now that the Freedom brand is doing a really good job of bridging across a multiple value segments and we’re happy with that. We've been holding on the launch of our premium brand until such time that we’re satisfied that the network will support that in a way we want that story to be told. So, nothing to report other than to say that we think patience is the right approach here. As we mature the network we’ll have an option to bring to market later on.

[Phillip Huang:]

That’s very helpful. I just have a quick follow-up perhaps to Jay. On the wireline side, obviously you guys have shifted focus on broadband marketing to better capture broadband only site, which is obviously a growing site in the urban markets. I was wondering if you can maybe give us some color around to what extent is that sort of contributing to the improvement in your broadband subs? And why do you believe we are seeing full benefits about shift yet? Thanks.

[Jay Mehr:]

Yes. Thanks Phillip. Its super early days and you know, the lot of the work that everybody and the consumer team has been doing at Shaw. And for the first six months of the year lots of it was internal. It was channel management getting our clean structure in place, its really focusing on our investments. It’s on every single day focusing on monthly recurring revenue and turning, growing Internet customers. I think as you see with the launch of BlueCurve that approach becomes quite externally focused. To be clear our whole approaches in the market is to compete aggressively with your customers Internet provider overwhelmingly on our two-year value plan and then to come up the stack in terms of selling in more services which absolutely includes video on a home phone, but also wall-to-wall Wi-Fi, BlueCurve format, Cloud-based DVR and all of the new services that are coming on the roadmap, so totally early day, very happy with the result so far.

[Phillip Huang:]

That’s very helpful. Thanks guys.

[Operator:]

Our next question comes from Maher Yaghi of Desjardins.

[Maher Yaghi:]

Thanks for taking my question. I wanted to ask you, Trevor on the VDP savings. You had approximately $27 million from what I see in your results in Q2, yet your operating income before amortization was up $32 million. So I'm just trying to figure out your comment about the second half about how much of the decline in growth are we to expect because from what I can see is that you are running ahead of those savings in terms of growth. So your starting base is actually positive year-on-year even before those savings from the VDP. So, are you saying that you’re going to invest more than $30 million let’s say in all these initiatives that you’re talking about marketing and your IT investments?

[Trevor English:]

Yes. Thanks Maher. I mean, considering the performance of date and plans for the second half of the year we are very comfortable just confirming the delivery of the 140 million of VDP related savings during the year. And you’re right, if anything we might be running slightly ahead of our plan with respect to OpEx savings in higher – little bit higher per CapEx saving being a bit behind compared to original guidance or plan of $85 million in OpEx and $55 million in CapEx. And due to a variety of factors such as is in self installed that frankly a little bit better than expected. And what we’re not ready to adjust any of the plans as Q3 is our highest number of employee exits. And we are expected to have a accelerated investments in Q3 and Q4 of roughly $50 million, the investments that we did in the first half of the year we’re in the single digits, so it’s fairly light. But if we continue to track ahead of this plan in terms of the upcoming quarter we will provide an update on the expected saving breakdown between OpEx and CapEx, if warranted in F 2019 guidance. We are expecting to spend some additional spend in Q3 and Q4 definitely related to market spend. Spend some of additional spend in Q3 and Q4 definitely related to marketing some of the campaigns that we launched last week by Paul on the wireline side and also last week by Jay on the wireline side sort of part of the poll with the wireless side. So, we generally feel really comfortable again at that topper end of the guidance range of 6%. So there are going to be some other investments. And you can see from Q2 results it was really driven off of VDP savings and clearly in Q3 and Q4 we started to realize VDP savings last year of roughly $60 million in Q3 and $23 million in Q4, so we are lapping some tougher comps. And again, it’s really difficult to sort of forecast wireless EBITDA growth such because it really depends on volume and the volatility of the volume loading.

[Maher Yaghi:]

Okay. And going to wireless, you guys talked a little bit about your strategy here. But I talk -- ask a question about your 5G plans. I mean, a lot of -- some of your peers have started talking about some of the timing of launch of 5G sometime late 2020, 2020, early 2021. Can you talk a little bit about how you're going into this upgrade cycle? What's the strategy? Some of the early signs of how much could it cost? I mean, I know you can’t contemplate – give a quantitative answer to this. But just maybe just talk a bit about capital wire – I mean, wireless capital intensity as we go into 2020 and 2021?

[Paul McAleese:]

Maher, it’s Paul. So, we’re not going to give too much on kind of 5G going forward. I think our capital intensity we’ve already indicated its going to remain around the $400 million spent for both this year and next, and no change in guidance on that at this point. We’re very excited about the prospects of 5G. It’s going to driven mostly by device availability which I think you’re aware sort of pushing out a little bit more by the day. We’re excited for the prospects on that and of course the opportunity to bring a new and differentiated service to the market. At this point though I think it’s a little speculative for all of us to talk about how this going to come to the market. So we’ll give you maybe a little more color on the next call.

[Maher Yaghi:]

A bit early. Again, one last question IFRS 16, again, I’ll go back to Trevor, you know, all your peers now except Cogeco are running on IFRS 16 for their 2019 fiscal years. You’re still using the old methodology puts you a little bit at disadvantage I would guess. Can you quantify what would – if you have an early estimate of what’s your EBITDA impact could be on their IFRS 16 that would be helpful?

[Trevor English:]

Yes. Thanks Maher. Clearly our peers have all reported the impact of IFRS 16 on F 2018 results. Due to different year end we’re not require to report until Q1 F 2020 and of course our F 2019 annual report we'll have the next required disclosure. We’re well down the path in terms of implementation for the new policy. But frankly at this stage Maher it would be premature to provide any estimates. But as we go through the work that we need to do behind the scenes will provide the appropriate update at the appropriate time, but nothing for right now.

[Maher Yaghi:]

Okay. Thank you.

[Operator:]

Our next question comes from David McFadgen of Cormark Securities.

[David McFadgen:]

Hi. I have two questions. Just on the wireless ABPU and ARPU, I was wondering if you could comment what were the factors that cause it to decline from Q1, 2019 to Q2 2019? And the other question just on the 700 megahertz you talk about going in fiscal 2020 that was deployed. But do you think it’s possible that could be all lit up by the end of calendar 2019?

[Paul McAleese:]

David, it’s Paul. On ARPU and ABPU, the two primary drivers of the discounts are the subsidy amortization effect and in the last quarter the discounts we put in place in order to provide ourselves a little more of price space versus the incumbent. On 700 do you want to…

[Jay Mehr:]

Yes, David, just on that, I think we talked about in last quarter we’re going fast and as efficiently as we can. We’re really happy with how many sites we’ve lit up. It will spill over into F 2020 though. And I think your assumption that will be done by the end of calendar 2019 is probably bit premature, probably spill into the majority in F 2020 or pretty sure [ph] in 2020 as well.

[David McFadgen:]

Okay. All right. Okay. Thank you.

[Paul McAleese:]

David, it’s Paul, one of the dynamic on that. We are seeing a notable improvement in the calls related to network performance in those markets where we have 700 already performing. So, there has been prudent pronounced immediate effect to that which we’re grateful for.

[David McFadgen:]

So maybe just follow-up on that, how much you compare your network performance versus the incumbents in the areas that you have lit up 700?

[Paul McAleese:]

Obviously much better with 700 lit up, we continue to look for ways to optimize the performance there, but I think every passing day gets closer and closer to the level of quality that the incumbent that we’re seeing.

[David McFadgen:]

Okay. All right. Thank you.

[Operator:]

Our next question comes from Adam Ilkowitz of Citi.

[Adam Ilkowitz:]

Thanks for taking the question. Two if I could. The network expansion and the 700 megahertz rollout that you’re doing. Can you just describe the type of equipment that you are installing? Is it 5G ready and is it capable of handling additional frequencies such as those that maybe coming up for auction or are available for auction? And then the second question I have is can you talk about the productivity of the newer distribution points that you've been adding over the past 12 months, notably the third-party ones. Are they -- do you think that they are selling your clinical fair share within those channels? Do you see more room for improvement? Thanks.

[Jay Mehr:]

Thanks Adam. And answer to your first question is yes and yes. So they are compatible and we are 5G ready on those including in the core. On the second aspect, we’re seeing on our new distribution point, there always going to be less efficient because they’re not special, right. So our primary distribution for the first number of years of our existence within own stores and in dealers control dealers. As we move into areas like the Mobile Shop and Walmart and Mobile Link, I think we’re getting our fair share, but as we add those store doors they are by definition kind of less efficient for us than something like the corporate store. So these are good still often times for geography where they maybe a small town that has perhaps a Walmart and a Mobile Shop and doesn’t a Mall that would support a corporate store. So I think we’re always going to see they’ll be a little less efficient than our kind of incumbent distribution, but we’re very happy to have it into the mix and we think they bring lot to the equation.

[Adam Ilkowitz:]

Sure. Maybe just one question on the wireline side, with the introduction of BlueCurve there are few branding names from Shaw in the market, WideOpen, FreeRange. Can just talk through how you’re presenting all these things to the customer and where you think this is going to make sure you have a clear message?

[Paul McAleese:]

Yes. I think if you think about where we’re headed, there is for sure, we’ll keep active products in the market. We have moved away from individual product naming to a much clearer broadband experience naming architectures or our next set of services in the market is certainly Shaw BlueCurve Home, BlueCurve Pods. You'll ultimately be seeing BlueCurve video was rolled to IP. You can well imagine just by following the Comcast roadmap you know what interest Comcast fascinates us. You can imagine what products are coming forward from us in the future and those will be under the BlueCurve banner as we really compete between the customer’s Internet provider and then come up the stack and sell them a whole range of services.

[Adam Ilkowitz:]

Thank you very much.

[Operator:]

Our next question comes from Drew McReynolds of RBC Capital Markets.

[Drew McReynolds:]

Yes. Thanks very much. Just two follow-ups from me. First, on BNS or Business Services within wireline, obviously a pretty good growth driver there. Jay, just can you comment on any headwinds or even almost a tailwind because you're the price disruptor presumably not market from the Alberta economy and just overall how that business is tracking? And then secondly, just if we could get a little bit of an update in terms of your views on the CRTC wireless reviewing and clearly the consultation with language on MVNOs, does that to any extent pushback or change your wireless investment curve in the near term? Thank you.

[Jay Mehr:]

Great, Drew. It’s Jay. I’ll start on the business question as you suggest and we’re quite excited about where we’re headed in terms of our business, wireline business. Again as we think about the wireline business we think about 5% to 7% revenue growth in business and all of that leading to 1% overall wireline revenue growth. And I think you’re starting to see the potential power on EBITDA of what’s possible about that sort of focus on wireline. In terms of the Alberta economy, I think you’ve accurately reflected it. Our annual growth rate in Alberta year-over-year is slightly higher than the rest of our business footprint. So we get maybe some benefit. I think if you go back to the original plan, six or seven years ago in a different economic environment with our envision fiber asset in Calgary, we would've expected that we would drive our growth. So Alberta is neither pulling us down in business nor is it maybe the engine that we won so far. We’re got super exciting things happening in business. We’ve got SD-WAN which really focus on connecting our multi location businesses together. We got Ethernet over DOCSIS. We’ve got new SIP integration with SmartVoice, SmartVoice, SmartWi-Fi, SmartSurveillance are all coming along ,look for 5% to 7% growth rate. You see some noise in the RGUs in business which is largely a closure of a work camp some of which was in Q2, a little more of that came into through Q3. We got a competitive wins again some of it in Q2 and Q3 and RGUs are probably less of a predictor in business because of the way we [Indiscernible] excited about the business going forward and again think about that 5% to 7% annual growth rate as I think 1% overall wireline revenue growth.

[Bradley Shaw:]

All right. Drew, this is Brad here. Just to comment on the mandated MVNO. Like others in the industry we were very surprised if not shocked to see this CRTC come out with their preliminary view in support of mandated MVNO. Clearly, we are absolutely opposed to this view and we’ll be participating in the comment period as to why the mandated regime is not only bad for Canadians but also bad for their future of sustainable wireless competition in Canada and the future of 5G in Canada. We think we are absolutely doing our part being more affordable – bringing more affordable services to Canadians. And unless and this is something we’re going to go through. There’s going to be many stages over the course of the year and even in the election. But again we’re going to be an active participant, but its really hard for me to comment right now on how these change is going to make it affect our decision-making, but I can just tell you, we’re going to be very active and full participant in that process.

[Drew McReynolds:]

Thank you.

[Operator:]

Our next question comes from David Barden of Bank of America.

[David Barden:]

Hi, guys. Thanks for taking the question. I wanted to maybe ask a little about the consumer broadband business. Obviously, we had the 2x lift and speed in the quarter. So I guess there would've been three affects. One would've been the potential upsell from the Internet 100 plan up to the three and 600 from an ARPU perspective, a churn benefit and then potentially growth that benefit. So I was wondering if you could kind of maybe map out how those things kind of unfolded in the quarter and how we could think about them sustaining into the forward quarters? And then depending on the answer to that question could we expect a miniature version of that to follow in the business outside of the house now that we've kind of double speed there? Thanks.

[Bradley Shaw:]

Yes. I think that’s insightful question. We’ve got some win in our back in the Internet business. Our growth as are up on a year-over-year basis and this is even high to prior to BlueCurve and really animating the market. When we talk about our approach to profitability and the consumer business being monthly recurring revenue and managing that every single day when you open up the shop in the morning and you close it at the end of the night you have an extra dollar and monthly recurring revenue. That’s our goal, dramatically lowering churn and growing Internet customers. On the churn side we know on the Internet that are ValuePlan customers, to your ValuePlan customers have 60% lower churn than in our month-to-month customers and over the life of the customer that’s 45%. Notably in September 43% of our Internet gross adds were on ValuePlans and in February that moved to 78% of our gross adds. So you can just play those churn characteristics really more starting in August and flowing through Q1 and Q2. And then you see you're happening there. I think also if you look at our pricing that we launched April 4th it's all about base management, and you can see the opportunity to move from a month-to-month Internet 100 pricing up $3, $5, $7 and move all the way up to Internet 600 plan with the XP 6 with the BlueCurve Gatewin [ph] BlueCurve home, and that whole experience so you can see the month of recurring revenue focus on internet in that pricing into every conversation is about just moving that customer up. So I think you see all of those things coming together and you'll see churn improvements also happening as we unfold. So we're pretty excited about the trajectory of our consumer business generally and Internet and broadband in particular.

[David Barden:]

And then do you see that flowing through into the business side, now that you've kind of taken the same approach there?

[Bradley Shaw:]

Yes we think that's right. We're excited about the business side of the business, and we were a bit more evolved with some of the marquee platforms in the smart Wi-Fi services that exist, the leadership of Katherine Emberly and the team there they are doing a terrific job on base management and are probably a quarter or two later in terms of some of those moves, because of the speed changes and those things, but that'll be a big part of moving business, the high end of that range.

[David Barden:]

Great. Thanks for taking the question guys.

[Operator:]

There are no further questions at this time. I would like to turn the conference call over to Mr. Bradshaw for closing remarks.

[Bradley Shaw:]

Great. Thanks everyone. Thank you operator and we'll talk to you soon.

[Operator:]

This concludes today's conference call. You may disconnect your line. Thank you for participating and have a pleasant day.