Shaw Communications Inc.
Q4 2019 Earnings Call Transcript

Published: 25 Oct 2019

[Operator:]

Thank you for standing by. Welcome to Shaw Communications Fourth Quarter 2019 Conference Call and Webcast. Today's call will be hosted by Mr. Brad Shaw, CEO of Shaw Communications. [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 Mehr, Trevor English, and Paul McAleese.Our strategy in 2019 was clear. We were focused on growing wireless and broadband customers, improving execution and delivering stable Wireline results, as well as managing through our critical year in respect to VDP departures. The industry’s shift to unlimited plans did not adhere ability to grow our wireless customer base. During the back-to-school season, we delivered the best quarterly subscriber results in the company history with approximately 91,000 customers added in the fourth quarter.Our success in attracting and growing subscriber base is a product of our innovation, our improving and expanding network and our effective advertising and messaging to consumers. In July, we continue to expand our service offering with the launch of the Big Gig Unlimited and Absolute Zero plans, anchored around device pricing as our advantage. The result of this strategy have been positive as not only did we achieve our subscriber record in the quarter, approximately 30% of all postpaid activations in the month of August were on the $75 or higher service plan.Due to this success in our subscriber growth which included postpaid additions of 280,000 in the year, our Wireless business surpassed 1 billion in annual revenues in fiscal 2019. We delivered strong service revenue growth of 24% and our Wireless operating margin improved to approximately 20%, both of which supported significant EBITDA growth of 45% to over $200 million.The wireless network team has done incredible job as we continue to strengthen and expand the network. An enhanced network experience is a key driver of the material churn reduction that Freedom delivered in F'19. We are approximately 70% complete with our 700-megahertz spectrum deployment in the western markets and this will continue to roll out as part of our F'20 plan. In addition, we launched Freedom Mobile in 19 new communities, the majority of which happened in Q4, and we now have wireless service available to over 80 million Canadians.In Wireline, we grew broadband subscribers throughout F'19 including over 11,000 in the fourth quarter. We exceeded our targets with respect to self-install, which was above 45% of total activations in the quarter and launched our BlueCurve, regaining our position as a technology leader.Beginning in March, we launched our IPTV service which is now available to approximately 70% of our video footprint. This is a key transition of our legacy video platform that supports our digital transformation and lowers our cost to serve customers.Our business division delivered another year of strong revenue growth fueled by additional product launches including gigabyte internet speeds and the continued success of our SmartSuite products with small and medium business customers.In F'19, Shaw business was also successful in winning some key enterprise accounts which is attributable to the strength of our product offerings, network and our focus on this segment. Our strong operational and financial results were accomplished while also managing through the significant change in our business through our digital transformation where we ended the year with approximately 70% of our VDP program complete. As a result of our focus on improving execution and delivering VDP savings, our Wireline margin improved 90 basis points to over 45% in F'19.We believe we are taking the right steps to grow and transform our business, to enhance our customer experience and improve our day-to-day operations for employees. This focus is driving significant operating and capital efficiencies and in F'19 we delivered adjusted free cash flow of 570 million.This is a remarkable 90% increase over F'18 when removing the impact of the [indiscernible] dividends. Both the asset realignment and the internal transformation in our business over the last several years has positioned us well, and we are entering a key inflection point with respect to our free cash flow generation.This is evident in our F'23 cash flow expectation of approximately 700 million, enabling us to implement some enhanced capital return initiatives, which I will now turn it over to Trevor to discuss along with our F'19 results and F'20 guidance.

[Trevor English:]

Thank you, Brad, and good morning, everyone.As Brad articulated, we've had a busy and successful year while making significant progress on several fronts. Full-year consolidated revenue increased 3% to 5.35 billion and EBITDA of 2.16 billion grew 5% year-over-year. However, adjusting for both the $15 million onetime IP licensing payment in Q3, as well as the $10 million charge related to CRTC regulatory matters in the quarter, our adjusted F'19 EBITDA increased 6.3% over F'18, which met our commitments and guidance.Growth in F'19 was driven by a combination of continued strength in our Wireless business, stable Wireline results, and the delivery of 135 million of total operating and capital savings under our VDP program. With lower capital requirements particular in our Wireline business, we delivered free cash flow of 545 million or approximately 570 million when considering the onetime impacts previously mentioned.This is a significant improvement over recent years, which saw us invest substantial capital to improve the wireless experience for our customers and to support the Wireline network to deliver faster speeds and new technologies. Our Wireline network is stronger than ever with record-low congestion and is supplemented by state-of-the-art customer-premise equipment that both improve the customer experience and reduces our overall cost to serve.As we enter F'20, our strategy remains centered around wireless, broadband and business as our growth drivers and a relentless focus on delivering efficiencies through a more agile operating model.We're pleased to introduce F'20 guidance including EBITDA growth that is expected to range between 11% and 12% versus F'19 reported results. Our guidance reflects the adoption of IFRS 16, which for us commenced on September 1.We will apply this new accounting standard on a prospective basis, and therefore, we will not be restating F'19 results. However, we estimated the impact from IFRS 16 on fiscal 2019 is approximately 155 million, of which 55% is attributable to Wireline and 45% to Wireless.Removing the accounting impact, EBITDA growth in F'20 is expected to range between 4% and 5%, capital investments are expected to be 1.1 billion, and free cash flow is expected to approximate $700 million. Please note that both CapEx and free cash flow are not impacted by the IFRS 16 accounting policy change.Through our VDP program, we expect to deliver a total of 200 million in savings or an incremental 65 million over F'19, with the majority of the incremental savings this year arising from reduced capital expenditures. All VDP-related efficiencies are embedded within our F'20 guidance, and we remain confident in our ability to manage through the remaining departures of approximately 850 employees.We believe that F'20 marks a significant inflection point, and the strengthening free cash flow profile is concrete evidence that our asset realignment and evolution of our operating model are both yielding positive and meaningful results that are flowing to the bottom line. As we've gone through our significant transformation over the last several years, we've maintained financial strength and flexibility throughout.At the end of F'19, our leverage ratio stood 1.9 times and is the lowest among North American peers. On October 1, we repaid 1.25 billion of maturing notes from balance sheet cash which of course had no impact on our leverage metrics.Considering our sound business fundamentals, strategy, and focus on execution going forward, current leverage, and strengthening free cash flow profile, we are pleased to announce some enhancements with respect to our capital return initiatives. Subject to TSX approval, we have implemented NCIB program to purchase up to approximately 25 million Class B shares which represents 5% of all issued in outstanding class B shares.Through recent years where we made significant investments to drive our growth - our long term growth strategy, we maintained a healthy dividend, and we believe that an NCIB program is a flexible and efficient alternative to additional capital to shareholders.With F'23 cash flow expected to be in excess of our total dividend, we also plan to satisfy our share delivery obligations under a DRIP program by purchasing Class-B shares in the open market, thus, avoiding additional future equity dilution and creating synergies with the contemplated NCIB program. In addition to this change, we’ve also announced that we are eliminating the DRIP discount which is currently at 2% and we expect this will lead to a significant reduction in DRIP participation.We remain committed to long-term dividend growth and are confident in our ability to generate sustainable free cash flow. However, we believe that the enhanced capital allocation initiatives announced this morning provide us with a more balanced and flexible approach to return additional capital to shareholders.I will now turn it back to Brad, before we open the line for questions.

[Bradley Shaw:]

Thank you, Trevor.I am very proud to say that we have built our company on the foundation of being a strong facilities-based service provider. Just earlier this week, Ookla released the latest Canadian speed test report where Shaw ranks as the fastest ISP in all the cities listed within our footprint. In a separate monthly index compiled by Ookla, Canada ranks 11th in the world for download speeds.Results like this speak to Canada's position as a technology leader, creating consumer choice and effective sustainable competition, while providing employment and advancing infrastructure and possibilities in our communities.Facilities-based competition from Shaw and Freedom is working and will continue to work for Canada. As an industry, we are all expanding and improving our networks. Consumers want more from their providers not less. We can offer these services and introduce new ones, because we have invested significantly in the breadth and quality of our networks on which these services so heavily rely upon.The recent regulatory environment creates unnecessary uncertainty that has the potential to do more harm over the long term. If companies can no longer have the opportunity to earn an appropriate return, they will change their investment profile, and therefore innovation services and technologies such as 5G, Internet-of-Things; and the fundamentals of artificial intelligence will diminish along with the service levels that Canadians have been accustomed to. Canada requires strong facilities-based investment to compete on the global stage.Since the announcements of the wireless MVNO hearings and the reduced TPI rates, we have already altered our plans with respect to launching new higher-speed Internet tiers and additional wireless expansion beyond our current footprint. Throughout the regulatory process, we are hopeful that the government recognizes the critical role that facilities-based companies play and the ability to usher in new technologies and deliver better and faster services for all Canadians.Despite the recent regulatory uncertainty, we couldn't be more pleased with our strategy and execution. To the entire Shaw team, the progress that we have made over the past number of years is absolutely remarkable, and it could not have been done without you. We have challenged each and every one of you, in your day-to-day roles and responses has been overwhelmingly positive. Let's continue to build on our success and carry this great momentum and beyond 2020.Thank you, Operator. We'll now open up for questions.

[Operator:]

[Operator Instructions] Our first question comes from Vince Valentini of TD Securities.

[Vince Valentini:]

First off, can you just clarify some, Trevor, the 10 million charge for this year, CRTC decision that should be a hit to revenue I believe in your consumer division or did you just book it as an expense?

[Trevor English:]

No, it’s impact to revenue as well. It's actually split between consumer and business a bit. And - just to be clear Vince, it's about 6.5 million or so on revenue. On EBITDA, there was also another regulatory provision that we took as well to aggregate expense. But it does impact revenue as well.

[Vince Valentini:]

On the free cash flow guidance, congrats 700 million is a great target to go towards. Can you just clarify a couple of things for us so you'll save about 70 million in interest costs from that bond you just paid off with cash. Do - your guidance embed that you will refinance with some longer-term debt and incur other interest costs to replace some of that 70 million or is that full 70 million you expected to flow through. Second, can you just let us on restructuring costs and contract assets. Is there anything that we should expect to be materially different in those two lines in 2020 versus 2019?

[Trevor English:]

Yes Vince, I’m not sure if it’s - the full 70 million, we do expect some financing in the year. So I don't - there’s not a $70 million decline in interest to get that's driving the free cash flow growth. I think the driver of the free cash flow growth really is EBITDA growth of 4% to 5%, which is roughly $85 million to $110 million and then of course, on capital.And the capital moderation frankly - it's about $100 million lower than reported F'19 results - that moderation sort of split equally between Wireline and Wireless. On the Wireline side, some VDP related savings and efficiencies there and our partnership with Comcast. I think, historically maybe we haven't articulated the strategy as well as we could have.But there has been some - there's some complex trade-off for a significant CapEx efficiency through the technology roadmap and the partnership that we've embarked on with Comcast and other global scale providers. Self installed through the working for us it’s about 45%, as Brad mentioned in his remarks, and we continue to see that accelerate.So, there is real Wireline moderation. On the Wireless side, Brad mentioned in his opening remarks, it was a busy year on the Wireless side of things, expansion into 19 new communities, expansion into retail, significant retail, and that's sort of behind us. We're going to continue to plow through the 700. We’re about 70% in Western Canada. That will be done by the end of calendar year.And then in the East, it will be substantially complete or fundamentally complete by the end of F'20 as well. So - there really is a moderation of capital, like Brad said. Maybe some of the capital within Wireless is a little bit holding a bit back considering some of the regulatory uncertainty that's in the market right now. But the free cash flow profile we're very proud of and we continue to see that strength going forward.

[Vince Valentini:]

And if I can throw one in for Paul. I'm sure there will be lots of questions on Wireless, but I just want to ask you. How are you thinking about competitive intensity right now and certainly seeing from the Rogers’ results as we did there. They're hurting a little bit, if you look at your book and did sort of lifetime value of customers over the past three months let's say. I mean if you factor in the ARPU you're getting, the likely increase in equipment subsidies given the absolute zero program.And then there is a pure volume of subs you're adding. Are you happy with where all those vectors line up or do you think yourselves and the industry could be doing a little bit better if somebody got more disciplined and others followed?

[Paul McAleese:]

Well, it's hard not to argue with - not to agree with the last point. I think by any objective measure, it's fair to describe Q4 as one of the most competitively intense periods in Canadian wireless industry has ever seen. You've got all of the incumbents launching unlimited, two of those guys being the largest media leaders in the country. So, we certainly saw some significant pressure over the course of a 90-day period.Though I would argue, and I think you saw the earlier this week that there is something of a lack of pricing discipline in the market really across the board. My perspective is unlimited came out and below the rate they probably should have done. And certainly the results you saw here this week probably support that. So overall, just in broad summary of your question, we still love what we're getting here. Absolute zero for us was an absolute homerun.We were able to move 30% of our postpaid adds to a rate plan of $75 and above. We're clearly moving into the neighborhood of the premium brands, and we saw that in our reporting numbers. It was certainly an expensive quarter from a subsidy standpoint, but what we got in exchange for that trade was something we would take again and we'll do again. So, we like where we are.There's probably 10 to 15 basis points in churn and I would put in the seasonal category and attributable to that intensity. But we expect that to moderate over the course of the next year and still see the churn for us - is somewhere in that range of 1.3% to 1.35% over the course of the next 12 months.

[Operator:]

And our next question comes from Drew McReynolds of RBC.

[Drew McReynolds:]

Starting with back to the Wireline side maybe for you, Jay or Trevor, when you look at the trajectory of that business in fiscal 2020, obviously a lot of recalibration and focus on base management over the past couple of years. Can you refresh us on what your assumptions are for the topline and the extent to which potentially you can get EBITDA margin improvement over the medium term, and then secondly, a couple of housekeeping items.Just to confirm, Trevor, the growth guidance excluding IFRS 16 for fiscal 2020, that's off the 2,161 million number. And then secondly, just comment on the cash tax rate year-over-year if there's any really major move there? Thank you.

[Trevor English:]

Okay, there is a lot there, Drew. I’ll take the easy ones first yes, it is off - just to be clear the growth guidance that we gave is our reported results. And cash taxes, we expected sort of the last couple of years it's approximately at around 160 million we expect that to be about the same for F'20 as well. Maybe I'll start than on the Wireline your first question on Wireline trends.I think, F'20 is really going to be a continuation of our overall strategy to deliver growth through wireless, but then also broadband business while managing through the VDP exits in F'20. On wireline, in F'19 we certainly delivered improved broadband growth of around 35,000 subscribers. We expect this trend to continue, offset by declines in some other categories, more maturing products like TV and home phone.Overall Drew, on the topline, if you look at consumer revenue, it has been decreasing over the last 7 years at a rate of about 50 basis points. And frankly, we expect that trend to continue and maybe modestly accelerate a little bit as we - there's additional OTT competition with Disney coming into the fall - does that accelerate cord-cutting or cord-shaving a little bit. We’re cautious on the video business and then what it does from a revenue perspective.Traditional home phones are going to continue its current pace of declines just due to wireless substitution. And then on the Internet revenue side, continued growth there, there's no doubt about it. But perhaps we're just going really monitor the competitive dynamics that's happening out there specifically within TV space as well considering a lot of the uncertainty there. That's all going to be offset by continued growth obviously in business as well.We're targeting 5% to 7% again and combining those two really F'20 looks a lot like F'2019 which is sort of flat to maybe down a little bit on consumer revenue is the way that we're running the business. And then from an EBITDA perspective, there is some VDP savings incremental $25 million of OpEx that we're going to deliver to the bottom line, but there are some incremental costs coming with our strategy which is significant capital efficiencies. Again, just want to highlight the free cash flow.And the simple free cash flow that’s being generated out of the wireline business, it's very impressive. But from a margin perspective, we continue to see opportunities but some - there is going to be some offsets through VDP, through higher syndication costs with our partners, some other outsourcing costs as we move to the cloud. That being said, if you look at sort of reported EBITDA growth rates of 2.1% on wireline, 3.3% for the year, adjusted when you take out some of those one-times, we continue to see wireline growth this year.And maybe a bit of wireline margin expansion but we do think it's fairly modest. And it really is about stability and profitability again at the wireline business it’s really the focus. And hopefully, everyone saw last year quarter-over-quarter it was sort of anywhere between 490 million and 500 million. It was - in the quarter, very consistent stable wireline EBITDA results and that's what we're focused as a management team again to deliver this year.

[Jay Mehr:]

It’s Jay, Drew. Building on Trevor’s remarks, kind of qualitatively a good summary from the improvement, the S&P prize was about focus on monthly recurring revenue, focus on churn, growing Internet customers every quarter, and super proud of the team. We did all the - all three of the things we set out to do.I think as we stand on the foundation in F'20, it's all about customer data segmentation and selling the right product to the right customer. Our systems, our teams have become so much more advanced in this area and where you can see it in our strategy and in our CapEx and we can see it in everything we do.And really driving that in pursuit of customer lifetime value in F'20 and tremendous opportunity there makes matters a lot. So more of the same based management focus that you've talked about. And we're going to continue to work hard in F'20.

[Operator:]

Our next question comes from Jeff Fan of Scotia Bank.

[Jeff Fan:]

Just a quick housekeeping before getting to the real question. On the CRTC 10 million charge, the revenue impact satellite was 6.5 million, it was a split between business and consumer. If you can just help us with that because it looks like business…

[Trevor English:]

It’s both. Sorry, Jeff. It’s about 2 million in business and the rest for consumer.

[Jeff Fan:]

And then my questions are one for Paul on the wireless side. I think given what we saw with some of the incumbents lose in the quarter, you guys did a great job in attacking the handset pricing and you continue to leverage subsidies to get [indiscernible] 00

[Paul McAleese:]

I'll take the first couple. On your question about subsidy in EIPs, we have a very different view of the EIPs than some of our peers. I think it’s worth spending a minute on kind of highlighting those distinctions. First, I think, other operators that describe the EIP is like a sort of magically removed hundreds of dollars of subsidy investment without any customer impact. And that's a remarkable oversimplification from our perspective.And I’d simply put, the EIPs, the way that they've been characterized in the Canadian market of late are really just a massive price increase wrapped up in a fancy financing bow. We think Canadians are smart enough to do the math on that. It's painful. And when the incumbents launch there are limited plans over the summer.They collapsed much of their rate plan umbrella that we saw. But their ambition to coincidentally introduce EIPs to pay for those rate reductions has clearly not come to fruition. You saw echoes of that failure earlier this week.And I want to be clear about our strategy on subsidy. We are going to continue to use device pricing to distinguish freedom from our competition, and we don't take direction from the competition on phone pricing. So, the promise of the $75 unlimited plan and a subsidy free EIP isn't one that we planned on [indiscernible] 00

[Trevor English:]

And on the sustainability of the CapEx, Jeff, let me break it into the two components. On Wireline, you saw we went from 24% CapEx intensity in F'18 to around 19% this year. And we continue to see that moderating and sustainable moderation going forward.We don't see a step-down as much as we did obviously from F'18 to F'19, but we continue to see that more in that 18%. And some of the drivers there, Jeff, again is just our networks in fabulous shape to handle the loads and the traffic on our wireline network.We've got IPTV now rolled out to 70% of our footprint, and that will continue throughout the year. There’s a significant capital savings related to that, not just on CPE but more so, frankly, on our cost to serve and just our self-install. We weren't able to self-install a TV customer last year with this - the technology that we had out there. With IPTV, we can. And that's just again the benefit of the holistic benefit of the partnership with our technology providers being Comcast. So, that's very sustainable.On the Wireless side, there’s some moderation this year as well. I think I talked about it with my previous response to Drew just in the overall free cash flow guidance. That’s coming down a little bit this year. Some of that's because of the activity that we've done. Some of it's because we're a bit concerned with the regulatory environment when Brad mentioned in his remarks. We had some plans maybe on some quarter orders between some of the cities.In light of some of the hearings they’re kicking off in January. We just want to make sure that when we're spending capital within all of our businesses including wireless, that we're going to get an appropriate return on our capital.So we have a delved that back a little bit and that's something that may, depending on the outcome and the environment that may be something that there is some additional capital that goes into wireless versus - if we think about F'21 versus F'20 looking forward. But we don't see it being materially higher than probably the F'19 total capital that were spent of 385 million.

[Jeff Fan:]

If I can just ask one quick follow up Paul, on the ARPU. On the Absolute Zero customers, that are coming in or migrating, what kind of ARPU are you getting if you can share that?

[Paul McAleese:]

Yes. I mean, Absolute Zero is a little bit of [indiscernible] 00

[Operator:]

Our next question comes from Aravinda Galappatthige of Canaccord Genuity.

[Aravinda Galappatthige:]

First question was on, obviously, your expansion on the Wireless side to a lot of the communities in the West. Think the total population sort of close to 1.5 million, I wanted to get a sense of sort of the different dynamics within those territories versus of the areas you’ve been competing in. I mean would you characterize that as - I know, it’s always competitive, but would you, relatively speaking, characterize that as more sort of low-hanging fruit, that could help us, sort of potentially ramp up the - your net adds going forward?And then secondly, with respect to the capital efficiencies that you talked about. Obviously, the 45% self-installed numbers, sort of jumps out as a key positive, I was wondering if you can give a little bit more color on that. Are you talking about all installs with Internet ad TV or on a bundle basis, 45% being self-installed/ And the proportion of savings actually emanating from that. Thank you.

[Trevor English:]

Yes. The 45% is of our total number of installs and it's a fantastic result ahead of our target. We had a terrific back-to-school period. We are busy, we won back-to-school week, this week - this year and I got attacked every single day from our VP of Operations, wondering when the installs were going to come through.And I've not seen that in 23 years of back-to-school, here self-installed back-to-school here. Self-install changes everything. I think if you look at our success in terms of truck rolls and operational savings, it's easy for you to figure out the math. Important to know with IPTV is there is no in-home wiring as well until there's a real simplicity that comes with getting - not using the cable in your house the whole planet [ph] gets odd 00

[Paul McAleese:]

Aravinda, it’s Paul. On the first question regarding the new market in the West, just under a million of the 1.4 million subscribers we added this year in terms of coverage were in the West. Great work from the engineering and network team to build that out in such rapid fashion. I don't know if I characterize it as low-hanging fruit. You sort of got two dynamics occurring at the same time. There's certainly a pent-up demand and a lot of customer anticipation as we go into those markets, so we’re met with open arms and we see some good early volume there.But the other side of it is that those, the network and the brand are new in those markets. So, they are subject obviously to some bedding in, and we have to build each of those out in a way that makes sense and familiar in those markets.So, I think that's probably about a push over the course of the first year that they're in the market. We love growth in the West in wireless because it ultimately sets us up when we bring the two businesses closer together, wireline and wireless, we love the opportunity that those markets bring us. So, I think that story gets written a little more over time, but we're certainly happy with the initial results in those new markets.

[Aravinda Galappatthige:]

Thanks Paul. And just a quick follow-up to that point. Are you still sort of in that sort of, roughly speaking, 60/40 split with respect to East-West in terms of gross add?

[Trevor English:]

So, it’s 70/30, Aravinda, which has been its historical level.

[Operator:]

Our next question comes from Tim Casey of BMO.

[Tim Casey:]

A couple from me. But, Paul, just on the subsidies again. I totally get where you’re coming from, but one of the pushbacks or the thrust the other operators are making that with the high cost of handsets, it is with subsidy model is punitive over the long term. I'm just wondering how you think about balance sheet management in that as high-end handsets are obviously quite expensive?And just one spectrum question. Any chance you could talk about how your plans are coming to deploy the 600-megahertz spectrum? Thanks.

[Paul McAleese:]

Thanks, Tim. I mean, we view subsidy not in isolation. So, our perspective from reading from the customer outwards is more of a total cost of ownership structure. So, I understand the commentary around the price increases that we've seen in the market on devices, although that has moderated significantly with the launch of the iPhone 11 over in September. We've seen a pretty significant reduction in those entry-level prices. So, there has been a bit of shift in the other direction.I’d perhaps provocatively argue that the significant decline we saw in the price of our unlimited from the Big Three might have been prejudged to be perhaps a little too aggressive and a bit too early. That’s going to be one of the things that factors into their overall cost of ownership as well. So, we just don’t look at devices in isolation.So from our perspective, we are very comfortable with the level subsidy we’re putting into market. It has been coming down and will continue to decline over the course of the year. And in the overall mix, we’re happy with the [indiscernible] 00

[Operator:]

Our next question comes from Maher Yaghi of Desjardins.

[Maher Yaghi:]

My first question is on the guidance. Looking at your 4% to 5% growth organic here, well, apples-to-apples, the range is quite tight, $20 million buffers on a total base of 2.2 approximately. What gives you this kind of level of granularity in terms of giving this outlook with such a small bracket? And I have a question on the initial cohort. I’ll wait for your answer, and I’ll ask a question on the iPhone.

[Bradley Shaw:]

Thanks, Maher. I mean, hopefully you saw at the last year live within our commitments when even last October when we came up with 2019 guidance of 4% to 6%. There was a lot2019 guidance of 46%, there was a lot of questions about that and whether that range was too tight or too conservative. And clearly, we had some one-time impacts that impacted the guidance. But we really delivered it.The management team here is laser-focused on execution and running the business on a daily basis looking at key metrics and key KPIs, and we feel very, very comfortable about the budgeting process and the planning process that we went through in excruciating detail this year.So, you're right. It's a fairly narrow range when you look at a company of our size, but we're very comfortable with the range, and we're going to go and deliver it this year just like we did last year.

[Maher Yaghi:]

I'll take it another way. It seems like you're so confident that you're giving this smaller range. So, I'm trying to figure out what part - what made you - let's say, not go to 6% if you have this kind of confidence and giving this range like…

[Jay Mehr:]

Yes. I think that's sort of the competitive environment. I mean, where consensus estimates were at. They were above 5% range. We didn't want consensus to stay where they’re at. I want to think I walked through and articulated the realities of the Wireline business.But listen, we're very comfortable with the Wireline business and the free cash flow generation of the business, so I think, I hope investors are really not just looking at EBITDA and the EBITDA guidance range but really focusing on the free cash flow generation of the business. And yes, the competitive dynamics in the Wireless business are intense. We just went through probably one of the more intense back-to-school periods.And so, we don't want to get over too much on Wireless as well about whether it's growth and service revenue and flow-through the EBITDA margins and margins expansion. So, we're very comfortable with the guidance range that we have out.

[Maher Yaghi:]

Okay. Well, that gets me into the free cash flow, because I wanted to ask you a question on that. 700 million, and you said in your prepared remarks that you’re embarking on an improving trend in the free cash flow, and because of that, you started with the NCIB and the DRIP changed. What do we have – if we look further out, what are the things that you like to see the company perform in terms of free cash flow growth rate beyond the 700 million in 2020? How should we look at 2021, 2022? Is that a continuous improvement in free cash flow that you're expecting longer term, or is there something in 2020 with the CapEx being reduced like that, that is a one-time in nature?

[Jay Mehr:]

I think I talked about it earlier on the Wireline capital side, again, specifically with the strategy that we embarked on a number of years ago and the transformation. The CapEx savings are real sustainable and we continue to focus on other efficiency alter – opportunities in front of us well and a lot of those are on the capital side of things. So we feel very, very comfortable about the right level of investment in our Wireline business and it's moderating and we’ve continued to see opportunities going forward.So we don't foresee any big CapEx bite, we did talk a little bit already about Wireless. Maybe we're holding a little bit back this year, but it’s not that much and we don't see any significant spikes in Wireless Capital from - for example, the run rate that we delivered in F'19 of 385 million.So we continue to see EBITDA growth rates beyond F'20, and we consider to see all of that flowing through to the bottom line in that combination of things that continued to generate strong free cash flow above our 700 million in future years.

[Maher Yaghi:]

Is it fair to say that you’re holding back a little bit on the Wireless because of what the upcoming hearing is going to bring out in terms of change or not in terms of policy in Canada?

[Jay Mehr:]

Yes, a little bit. If I wasn’t clear with my previous remarks, that’s what we’re trying to imply at. A little bit.

[Maher Yaghi:]

And my last question is on iPhone and I'm trying to figure out what you kind of implied in your guidance when it comes to the cohort of iPhone customers that you loaded closing in on two years now in end of November or early December. What kind of generate implied and not cohort versus the churn rate you're currently having in your base, and the type of subsidy that you are implying to retain those customers?

[Paul McAleese:]

Thanks Maher. It’s Paul. I won’t get into the specific levels of that, but I will just give you a couple of guiding principles. First, any time we have a customer that’s in a two-year device financing plan, we see a significant improvement in the churn profile, looking more in the sort of 1% range than in the 1.3% range.So, when we report postpaid churn that of course includes BYOD, which has a higher churn profile. So, you can always assume that we're looking to put people into a device financing plan because it has great characteristics on all fronts. When we launched the iPhone in December of 2017, of course every month we've been taking essentially another cohort of financed subscribers into our amortization schedule and have not had the benefit of customers rolling off that 24-month schedule.And if you just think about the life of the average life of an iOS subscriber in Canada's 2.9 years according to Apple, which means that once they roll off the amortization schedule month 25 through, say, 35 – 34, 35, they pop back up to their complete ARPU. So, there's no longer an accounting impact for that.So, it means that in December-January of this coming year, you'll start to see that fiscal roll-off that will be accretive to ARPU. It's not a big pop right out of the blocks because, of course, we're also adding people in behind it, but it means that our ARPU story starts to get incrementally better over the course of the last half of the year. And that's a benefit that we have, and we're looking forward.The other operators, of course, have already had that 24-month rolling thing. We'd still been filling up that bucket. So, we have three or four more months left of filling it up and then, we get to sort of start to take withdrawals from it which is a positive to our story.

[Operator:]

Our next question comes from David McFadgen of Cormark Securities.

[David McFadgen:]

A couple of questions. Let me now start with first on with a clarification. Just on the 700 megahertz spectrum, did you say that as far as Western Canada goes, you’ll be done deploying that in calendar 2020, but in Eastern Canada, you will be done in fiscal 2020? Can you just clarify that?

[Jay Mehr:]

I’ll hold you, David, with that Paul just corrected me, we meant calendar 2020, it will be done by.

[David McFadgen:]

For both?

[Jay Mehr:]

In Western Canada and substantially complete in Eastern Canada by the end of F'20.

[David McFadgen:]

So, calendar 2020 first one, 2020 after. So, just a question on Wireless, post now we're in the Q1, have you seen any impact on your loading from the incumbents unremitted plans?

[A –Paul McAleese:]

Thanks, David. It’s Paul. I mean, probably, the most significant impact we saw would have been in the early days of it as you had a kind of an initial rush and that certainly impacted us, as I indicated, for – from the churn basis 115 basis points.So, we saw an initial bit of activity there. We continue to like what we see for loading both the quality and quantity. We've been very clear in kind of telegraphing that we look to have a balanced scorecard in the way that we manage the Wireless business, which means we're looking to do something in the area of 250,000 net ads over the course of each year and continue to have a strong revenue and EBITDA growth story.And we continue to be tracking nicely on that front. So, I think the – for all the energy and initiative that we faced from the big three, we weathered that storm brilliantly through the course of the summer and continue to do so now.

[David McFadgen:]

And then a question just on the Wireline side of the business, when you look at the video, the cable video losses, they seem to just kind of be hanging in at this rate. Is there anything in your mind coming on the horizon that could actually potentially lower them?

[Jay Mehr:]

Yes. It’s Jay again. I mean, first of all, we were very pleased with our Internet loads and it’s great on strategy for the quarter, which is a significant – and we're very comfortable with what’s happening in the satellite video space and there's the natural seasonality, which we'll see in Q1. We've got ARPU of $84 in satellite now and that business is very profitable.And so, that will be a continuation of trend. I think your question was specifically about the broadband or cable video of – we made a significant loss of 32,000 in the quarter, and that really reflects we’d launched our IPTV platform in up to 70% of our customers in the last five weeks of the quarter with some of it being launched with two weeks left in the quarter.So we're in a little bit of a technology change, so we’re holding our powder a little dry and also a little bit more focused on [indiscernible].You probably have seen this week that we’ve launched our next-generation packaging called BlueCurve Total, and that really brings all of the advantages of the Comcast program, the very best of the Comcast roadmap to consumers. And so, we're already seeing a significant uptake in that percentage of double-play installs this quarter as opposed to Q4.So we won't get ahead of ourselves. I mean, the Video business is the Video business, and we’re steady as she goes in terms of how we're pursuing it. But we’d certainly be disappointed if we hadn't another number like Q4 and Q1.

[Bradley Shaw:]

Great. Thanks, everyone. And we're really looking forward to F'20 and we'll see you at the next call or talk to you on the next call.

[Operator:]

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