Shaw Communications Inc.
Q2 2017 Earnings Call Transcript
Published:
- Operator:
- Welcome to Shaw Communications' Second Quarter Fiscal 2017 Conference Call. Today's call will be hosted by Mr. Brad Shaw, CEO of Shaw Communications. At this time, all participants are in 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’d now turn the call over to you.
- Brad Shaw:
- Thank you, Operator. Good morning, everyone, and thank you for joining us today. With me today are members of our Senior Management Team including Jay, Vito, Nancy and we are also joined this morning by Glen Campbell, Senior Vice President, Wireless Planning. We are pleased this morning to report solid financial results for the second quarter. Our performance highlights our leadership's team commitment to the execution of our long-term strategic plan and the historical and ongoing capital investments required to be a leading Canadian connectivity company which is delivering exceptional products and services to our customers across the country. We have never had more to do but remain disciplined at ensuring we prioritize flawless execution and deliver results for all of our stakeholders. Through our network investments including the rollout of DOCSIS 3.1and development of best-in-class partnerships with global leaders such as Comcast, Cisco Meraki, Broadsoft, and Nokia, we have remained focused on providing our customers with more value enhanced experiences and choice. On April 5, we launched BlueSky TV to all Shaw markets in Western Canada and this represents an important milestone for our Company. With its voice-activated remote and easy-to-access content, BlueSky TV completely transforms how customers experience television. BlueSky TV is more than just a new set-top box but rather a flexible and innovative in the home platform that will adapt over time and enhance our customers’ viewing experience and connected life. In the second quarter, the execution of our strategic plan was generated - has generated strong results largely driven by our wireline competitive advantage. In consumer, we have the best quarterly subscriber performance in five years showing an improvement of 36,000 RGUs year-over-year. This quarter, we demonstrated that our two-year value plans, flexible video packaging options and WideOpen Internet 150 are resonating with customers in the market. Shaw WideOpen Internet 150 is now available in 99.2% of our footprint. This means that today we are able to offer approximately three times faster speeds to virtually all Western Canadians versus our direct competitors across our footprint. Within our business segments, including BNS and BIS, we continue to see strong organic growth driven by sustained customer demand for our products and services. In wireless, we delivered solid results adding 33,000 new customers in the quarter. However, competition remains intense and as we look to build the business for the long-term benefit of our shareholders, we would expect to experience some periods of volatility. We remain committed to building a wireless offering that is an affordable option to more Canadians. Before my closing remarks, I would now turn the call over to Vito to go through the financial results for the second quarter. Vito?
- Vito Culmone:
- Thanks Brad, and good morning to all of you for joining us this morning. The reported consolidated results for the quarter include revenue of 1.3 billion, up 13.3% and EBITDA of 540 million, up 7.6% on a year-over-year basis. Adjusting to exclude the wireless results, revenue in the quarter for the combined consumer BNS and BIS divisions was up 1.1% while EBITDA was up 1.8% compared to a year ago. Looking at the divisional details, consumer revenue of 933 million in the quarter was down 0.1% while EBITDA of 403 million was flat compared to the prior year. In consumer, our focus is on attracting customers into our ecosystem providing them with the best experience to leading products such as WideOpen 150 and BlueSky TV and ensuring price certainly through multiyear value plans to deliver long-term growth and stability for our business. BNS results for the quarter include revenue and EBITDA of 146 million and 73 million, up 6.6% and 10.6% respectively over the prior year. Excluding legacy satellite services, our core business revenue increased 8.6% in the current quarter. Wireless results in the quarter include revenue of 140 million and EBITDA of 29 million compared to the first quarter fiscal '17 revenues up 1.5% and EBITDA is flat. Wireless financials reflect the result of RGUs gained in the quarter partially offset by a slight decrease in blended ARPU, an increased commercial cost associated with the branding transition to Freedom Mobile and other promotional related costs. BIS reported revenue and EBITDA for the quarter of 91 million and 35 million, up 2.2% and 6.1% respectively over the prior year. Excluding the effect of foreign exchange in U.S. dollars, revenue and EBITDA increased by 7.7% and 11.4% respectively. Consolidated CapEx in the quarter was 297 million, the increased CapEx in the current quarter compared to a year ago is due primarily to the addition of wireless investments of approximately 53 million, offset partially by reductions in each of the consumer BNS and BIS divisions. Free cash flow of 147 million for the quarter increased from 119 million a year ago, primarily as a result of the higher EBITDA, Corus dividends, and lower cash taxes partially offset by free cash flow from the former media division and higher CapEx for wireless. We delivered net income in the quarter of 147 million or $0.30 per share, which is an increase over the prior-year net income from continuing operations, primarily due to equity income from our investment in Corus and non-operating losses incurred in the prior year. On a full-year basis, there is no change to our fiscal '17 guidance for CapEx, EBITDA, or free cash flow. In the quarter, we also completed a $300 million, 10-year senior note offering capitalized on attractive market conditions. The net proceeds of this offering, together with cash on hand were used to repay the 400 million principal amount of senior notes due March 2, 2017. With that, I’ll hand the call back to Brad for closing comments.
- Brad Shaw:
- Thanks Vito. As noted in our second quarter news release this morning and as through our transition plans, Alek Krstajic is stepping down as CEO of Freedom Mobile. Over the past year, under Alek's leadership, Freedom Mobile has achieved significant milestones including activating Freedom's LTE advanced network and establishing the Freedom Mobile brand for value conscious Canadians. This morning we're pleased to welcome Paul McAleese, as Chief Operating Officer, Freedom Mobile. Paul will guide Freedom's operations and continued growth going forward and will be instrumental regarding the integration of our wireless operations within Shaw. Paul brings more than two decades of experience in mobile communications from the U.S., U.K., and Canada and we are excited to welcome him to the Freedom Mobile and the Shaw leadership team. On a personal note, Alek is a builder, a value creator, and always brings an entrepreneurial spirit to everything he does. It is these qualities that we have always admired. We thank Alek for all of his contributions and his stewardship since we completed the acquisition and wish him all the best. Alek is with us this morning on the phone and we'd like to invite him to say a few words before we provide closing comments. And both Jay and I will be able to address any questions regarding our wireless business during the Q&A session to follow. Alek?
- Alek Krstajic:
- Brad, thank you very much. Look I want to - special thanks Brad to you and the entire Executive team, Jim and Peter and Vito, Zoran, Trevor, Nancy and especially Jay, you guys have made this transition after purchasing the company and this last year really all about teamwork. I have never felt more welcome and so I want to say thank you. I’m very proud of some of the things you mentioned what the team did over this last year creating the Freedom brand, the accelerated LTE network and quite frankly this last quarter of 33,000 net adds in building the momentum back in the business after launching both the new brand and LTE. So, very proud of that. It is time for me to move on and I'm excited about that. Obviously I’m going to remain - for me a significant shareholder and I’m very excited about my old and good and close friend Paul McAleese coming in as COO. Paul and I knew each other from 20-30 years ago from the Rogers days, he is a proven operator but that is core he is a marketer and I think he is the best marketer in North America so I think the business is left in really solid hands and once again I thank you for all the kindness and the way you’ve made us feel this past year. All the best.
- Brad Shaw:
- Thanks Alek. In closing, we look forward to carrying the momentum we are delivering throughout the remainder of fiscal '17. We are focused on delivering long-term growth to our shareholders and our best-in-class connectivity experience for our customers. I would like to extend a sincere thank you to all Shaw employees for helping us execute and deliver on our strategic plan. In particular I'd like to highlight the massive launch of a new service like BlueSky TV is no easy undertaking. It's because of our committed employees that we're able to accomplish this very important milestone in Shaw's history. Thank you for joining us this morning and we now turn it back to the operator to open for Q&A. [Operator Instructions] The first question today comes from Jeff Fan with Scotiabank. Please go ahead.
- Jeff Fan:
- Thanks. Good morning. And good quarter on cable and I want to touch on that very quickly. On the consumer TV ads that you saw or TV improvement that you saw in the quarter, wondering if you can just help break down a little bit for us what is helping that achievement on a year-over-year basis? Is it the -- specific BlueSky or is it Internet-driven? And if you can just shed some light on what's happening with gross ads versus churn within the consumer TV that would be really helpful.
- Jay Mehr:
- Great. Thanks Jeff. It's Jay. Happy to share some color there. We had BlueSky and Calgary for the quarter, which was certainly helpful and a month of BlueSky in Vancouver and that absolutely is visible in our video results. To be clear, as you look at the cable business and it's actually true with the satellite business as well, we've seen quite significant churn reduction year-over-year over the quarter and that's just the implementation of our strategic plan, our focus on network congestion, network advantage, the way we're selling service agreement. Gross sales actually weren’t up year-over-year although we had some nice response to BlueSky in the markets that we launched. The story is really a story of churn reduction, which I think you'll like.
- Jeff Fan:
- And as we look over the next as you ramp up BlueSky now across all your markets, how do you expect this dynamic to unfold either for the rest of the year or next year, however you want to phrase it.
- Jay Mehr:
- Yes, Jeff, we're super excited that April 5 we launched BlueSky nationally and have paired it with 150. You've asked us some version of this question for the last couple of years and we've responded with marbles in our mouth. We're completely excited about what's made possible about making BlueSky and 150 available to all of our footprint. This was the plan to be clear, winning looks like positive video subs on cable and we're headed in that direction. We would be disappointed if we didn't have a positive video cable quarter in Q3.
- Jeff Fan:
- Well, you can spit out those marbles now. Just final question, regarding your holdings in Corus, I know you've been receiving the drip in shares. Can you just -- it looks like you haven't sold any shares based on the numbers, but I just wanted to confirm that. And if you can just shed some light on now that the lockup on those shares or one third of it has come off. Can you just shed some light on what your plans are with respect to that holdings going forward?
- Brad Shaw:
- Sure Jeff. It's Brad. Well a couple things, one is we continue to be very supportive of Doug and team over there. We love the strength of the portfolio and we think they're just doing a top-notch job. We have right now no plans to sell any shares either off the drip or in lockup as they come off. So that's pretty clear and we're were very supportive of where Corus is going right now.
- Jeff Fan:
- Great. Thanks guys.
- Operator:
- The next question is from Vince Valentini with TD Securities. Please go ahead.
- Vince Valentini:
- Thanks very much. May I echo congrats on the strong sub numbers and now all the best in your future endeavors. Couple of questions, first just to stick on the video and BlueSky for a second. First, can you clarify where you are with Netflix or any other OTT services in terms of integrating them? And second, is there -- you say positive sub ads would be your goal Jay. Should we think of you guys starting to actively migrate existing customers and be a little more forceful with BlueSky virtually immediately or is there some merit in maybe waiting for the new version of X1 with the wireless platform and all IP before you really start putting a lot of boxes into the field.
- Jay Mehr:
- Thanks Vince. What's great about where we are today is we're in market with all of our customers having access to BlueSky and 150 and we're in a position that we've been -- we've been working to be able to deliver that to our customers. The reason that Brad and the direction was so clear to join Comcast was not for today because there's lots of great video products out there , it was for the roadmap that comes with where we are today. So, the beautiful thing about being on the Comcast roadmap is really every quarter and some quarters more often than that we're bringing unique new value to consumers. And so, if you look at what's been announced on the Comcast roadmap, all of that is planned for us as you can appreciate there is commercial negotiations involved in their aggregation. But remember the platform at its core is an aggregation play and so the philosophy of our partners is they'd like to bring all of these services, whether it's Netflix, whether it's YouTube, whether it's whatever else you would imagine into an integrated search and into an integrated environment. So we don't want to get ahead of ourselves in terms of giving you specific dates, but we've got an exciting 2017 ahead in terms of all of -- all of our new launches and new applications that will be available to customers. In terms of migration, I think you've seen on April 5, we launched new packaging with 150 and BlueSky and we think that's terrific packaging for existing and new customers. Our initial response over the course of the first week has been right with both. We're running about half and half of our sales under new and about half of our sales are to existing and we love the pace of that and we love the financials of what it means because people are paying more to get more and enjoying a terrific service and we're just going to ride that wave.
- Vince Valentini:
- Okay. And maybe I can ask you a question on wireless as well before I hop off, so Paul McAleese is cited as Chief Operating Officer. I am not sure -- does that mean he is your senior executive in Wireless for the foreseeable future or is it implied that you may be looking for a CEO for that business as well? And also on Wireless, the sub numbers have certainly improved, but the ARPU did not versus Q1. Are you satisfied with the mix of pricing versus volume that you're getting or are you guys thinking there's some work to do there to try to move up closer to $40 on ARPU sometime soon?
- Brad Shaw:
- Sure. Let me talk about the leadership, and I'll let Glen answer the first ARPU question and we can talk about it as we go forward. We are so proud of the contribution of our freedom team and the work that Alek and team has done. It's been terrific. This has always been the acquisition of Wind was never to operate a standalone wireless business. It was always a strategic acquisition and we're taking the next step as planned and moving -- and moving towards it. And so think about freedom as a business unit just as Shaw consumer is a business unit and so Paul is the leader of that business unit based in Toronto who is doing an actually terrific job. Paul will report to me as Alek did and the -- no significant change there. I think what you'll see is we're becoming a wireless company at year end of the transition and you'll see us integrate all of our corporate functions and so that will have one finance team and will have one HR team and they'll serve both business units as clients and that's absolutely our model going forward. I know Alek is excited about this next step. Alek was critical in bringing Paul on Board and we couldn't be more pleased with Paul's leadership. Paul is our wireless business unit leader and he is based in Toronto. So let me let Glen talk to you about the ARPU question.
- Glen Campbell:
- Hi Vince. So just to give you little more color on ARPU, there's a couple things that go into that number. There's the headline revenues we're getting and then there are the promotional discounts that come off and so you'll know that over the last several months, we've been making a lot of these promotional discounts. It's a way to upsell people to higher ARPU plans. So the weight of that promotional spending is there in the ARPU. The good news is you look at the -- let's say the average price point that people are coming on to Freedom, it is never been higher. The number continues to climb and it was very strong in the February quarter. So the weakness you see in our in the quarter is a function of our making a lot of use of those service credits during the quarter in preceding month. I'll also add and this won't be apparent from the reported numbers, there is an element of seasonality as well. The February quarter is down from the November quarter. That's true this year and it was true the year before. But on a year-over-year basis, we're still seeing a nice -- a nice increase in reported ARPU despite the spending. So we're pretty happy about the trajectory on plan next and the outlook for the future.
- Vince Valentini:
- Thank you.
- Operator:
- The next question is from Phillip Huang with Barclays. Please go ahead.
- Phillip Huang:
- Hi, thanks, good morning and first congrats Alek and Paul on the condition. I do have a clarification question, first for BlueSky TV. Are you guys currently offering the hybrid version of the set-top box or the full IP version of the set-top box?
- Paul McAleese:
- We are offering it as Comcast is offering. So it’s – we're on the roadmap and will transition to IP over the course of the next 18 months. Today all of our on-demand services and of course the interface itself is being offered on an IP-based along with all the applications that go there. We're using - the interface tunes to the digital feeds when tuning in the live TV.
- Phillip Huang:
- Got it. Now that's very helpful. So it sounds like there's a bit of an opportunity to - is it - am I right in assuming that the full IP version of the box will be quite a bit cheaper and so there's some opportunity to even further to lower the cost going forward then?
- Paul McAleese:
- Yes, we moved on to the Comcast equipment roadmap a couple of years ago and so the roadmap is compelling over the next couple of years as we move to a single gate platform which becomes our DOCSIS 3.1 modem in the home along with very sophisticated in-home application and ultimately not gateway becomes the single gateway that also powers the video platform. So there's some nice cost savings over the course of the next 18 months and it will roll in that direction. To be clear though, the cost structure that we have today is terrific and I think you may recall we achieved tremendous cost savings through the previous gateway solutions just moving to the Comcast volume on the hardware that we're deploying today. And so I understand that others along - think if you are starting today, you would probably launch and wait a year or whatever's involved in launched in an all IP basis, we're in a position where not same as Comcast, same as COGs, we're just going to arrive that roadmap on an incremental basis.
- Phillip Huang:
- Right, I got it. That's very helpful. And then a quick question on the pricing environment for wireless, certainly I appreciate Glen's comments on the color on – so the reported ARPU and the seasonality are very helpful but I was wondering if you guys could give us an update on the pricing environment for wireless just because it seems like there was quite a few brand promotions in the quarter, you know with public mobile and chatter, was wondering if you could comment a bit on the price environment. Thanks.
- Jay Mehr:
- Maybe I'll just start at a high level and then will let Glen fill in some of the details. This is an interesting environment, I mean the flankers and fighters being extremely aggressive. They like to get underneath the price. Freedom is an affordability prime, rather an affordability brand and we're committed to Canadians having affordable wireless and that's our spot and we’re going to see in that spot and now we move from that spot. I think over the course of the quarter, we saw December was extremely active with the flanker and fighter brands as a continuation November, January and February, it stops a little bit, more activity in March. It's an interesting environment. We do want to flag that we went from under 10,000 to 33,000. I think as you heard from our comments the 2017, you’re going to see stability in our RGU numbers on wireline, we’re seeing a strategic plan that we're well into the implementation of it and that's where we are in the business plan in our cycle. Where we are with handsets and LTE and our new brand, we’ll see some volatility in terms of wireless and in 2017 I think you will see stability as we get to 2018 and move further down our plan but that's kind of the hand that we're playing today. I’ll let Glen talk more specifically about the competitive environment.
- Glen Campbell:
- Yes, thanks Jay. As Jay mentioned in Q1 weakness reflected the price work force that went on late October, November and continued to some degree in December. I mean was extremely aggressive and we've seen a much more discipline and much more rationale pricing environment through January and February. We left the service credit in place which is the reason you see a nice subscriber results for February. If you look now, you'll see that we've got - we've harmonized our LTE and non-LTE pricing - smartphones starting at 40 bucks, we're not offering service credits. So, we've got a good line up there. We are seeing more discipline environment but as Jay mentioned all of this is happening at the background of evolution of our LTE capability. We started the launch was one hand and one rate plan. We've now got a full suite of rate plans and we’ll finish April with five and by the end of the calendar year - our whole – we’ll have LTE across our entire footprint and the full line of Android handsets. So that’s the backdrop and our view against that is the right amount of promotional intensity is - it's hard to get it precisely right at every point in time but we’ll get to a good place.
- Phillip Huang:
- Right. You guys certainly have a pricing and market share advantage particularly in Western Canada where you certainly have a lot of upside. Was wondering if you know of the volume that you saw in the quarter are you able to maybe provide some color geographically. Are you seeing obviously you know lower term risk in Western Canada but where are you seeing the biggest upside momentum in the quarter?
- Brad Shaw:
- So Phil we’re not going to give specific numbers but we are really pleased by the trend we're seeing on churn, churn is coming down steadily, very happy about that. And you know what our footprint is the East-West mix. Our subscribers roughly reflect that historically would been stronger in the east and weaker in the west but since the acquisition there's been a shift in favor of the west. They're not - not a dramatic one but there has been a shift and I think we’ll leave it at that.
- Phillip Huang:
- That’s perfect. Thanks very much.
- Operator:
- The next question is from Drew McReynolds with RBC. Please go ahead.
- Drew McReynolds:
- Thanks very much. A couple of questions just on the consumer side, maybe for you Jay. Can you just speak to overall consumer ARPU, hopes or expectations as you deploy BlueSky through the next few years. And then a follow-up to that, surprised this quarter just to see the consumer EBITDA margins flat year-over-year. You alluded to maybe some upfront pressure, as BlueSky gets deployed and if you come off promotional pricing the second year you kind of get a lift in ARPU and margin. So just what are the puts and takes around consumer EBITDA margins as you look out the rest of this year and into next, that will be great. Thank you.
- Vito Culmone:
- Hi Drew, it’s Vito. Good morning. Couple of things, first of all on ARPU on the consumer side, you see quarter-over-quarter ARPU slightly down. Important to note that that reflects the bit of the omission of the Shaw Media in our base numbers. So we are quite happy with the how – when we look at the total subscriber base and the revenue and the ARPU combinations. Internet is strong, video is obviously the churn significant improvement, a lot of moving pieces there but as we look forward they're very strong and happy with where we are going. Working hard on the cost side of the business obviously to ensure that the margin side is as favorable as can be, we are really focused on value to our customers and ensuring that they stay in our system and are happy to be in their system and as our products that involve. So that's where I would leave it, Jay anything from you?
- Jay Mehr:
- As you get to bigger base into planning, you start to see a little bit of cost associated and the margin I don’t think you're going to see anything that scares you and I think you’ll see lots of upside. We would like to flag with our national launch April 5 of the BlueSky 150 combination that without question it's the largest advertising campaign in our Company's history. So you will see that in our Q3 results and we think that's an important investment for the future.
- Drew McReynolds:
- Okay thanks. Thanks for that. And then if I can squeeze just one more, on that competitive environment Western Canada again on the consumer side, just if you can provide an update. Obviously you're gaining some success out there in the market and have a pretty good product suite that you're fully deploying and marketing. Have you seen aggressive responses from competitors, is there any change kind of relative to last quarter – over the last couple of quarters. Thank you.
- Jay Mehr:
- I think Western Canadian benefit from the highly competitive environment and we've certainly seen extremely competitive environment in this fiscal year in Alberta and BC. And we think our primary competitors is also doing well and everybody's trying to grow the business and I suspect you’ll see new video solutions from them in the days and weeks ahead. So we are ready for those discussions. I think it's fair to say that the competitive environment outside of Alberta and BC has been less vibrant and we certainly had lots of success in Manitoba throughout the transition and we think we could have a couple of good years in Manitoba and so we’re going to continue to lean into that. So we’ve got some slightly different things. Our primary competitor is fierce and does a great job and that's what this is going to continue to be.
- Drew McReynolds:
- Thank you.
- Operator:
- Next question is from Tim Casey with BMO. Please go ahead.
- Tim Casey:
- Thanks. Just a clarification Jay, did you say that you expect subs - video subs to be positive in Q3?
- Jay Mehr:
- Yes.
- Tim Casey:
- Okay. And that continuing from then on your expectation with respect to your comment about stability and trend on the wireline side?
- Jay Mehr:
- Yes, I would like to be clear on what we said, we also expect satellite video subs to be positive in Q3 but I wasn't referring to that, I was referring to positive video subs. Going forward I think what I would say is what is winning look like and I would say winning looks like positive video subs. We are going to be in a very intense competitive environment so that mean every quarter, while I think that depends on what happens in the environment and I think that depends on the next video offering, that's the competitor brings and how they market it and pricing and packaging and so it will be all those kinds of things. But we are signaling that there's a difference in what winning looks like and that starts in Q3.
- Tim Casey:
- Okay, excellent. And the other question I had was is respect to two bigger picture wireless issues specifically Spectrum. Do you have any thoughts on expectations on timing and rules for the next low band auction and can you comment a tall and any discussions you might be having with Québecor with respect to their assets?
- Jay Mehr:
- Yes, I’ll talk in terms of the discussions around the rules on this 600 auction and 600 is important. We need low band spectrum. We're committed to providing affordable wireless offerings to Canadians and I think Canadians want something different than what's been offered by the big 3s and low band spectrum will help us do that. And so we think it's important and I think the government is consulting with all appropriate parties and falling what's happening in the U.S., we should see some announcement on their auction in the next couple of weeks. It's super important for us and for Canadians that there is spectrum that goes to focus besides the big three. I don't know Brad if you want to talk about any other things. I think we’ll just probably leave it there. We were…
- Brad Shaw:
- I don’t think there is any point in speculating on other things we’re focused on 600, and we think it's an opportunity to level that playing field.
- Vito Culmone:
- And we bought a business plan that we're very comfortable with the spectrum position and feels that. So we're comfortable with the roadmap we have and where we're going and when we’re going to drive to fulfill that.
- Tim Casey:
- I understand, thanks guys.
- Operator:
- Next question is from Aravinda Galappatthige with Canaccord Genuity. Please go ahead.
- Aravinda Galappatthige:
- Good morning. Thanks for taking my questions. Just want to get an update on the LTE rollout. You obviously indicated goal of completing the rollout towards the end of fiscal '17, as well as your capital budget of 250 million. I just wanted to get an update as to how that's tracking particularly in light of sort of the management change. Are those goals still very much on track?
- Brad Shaw:
- Yes, absolutely on track and ahead of schedule and so we're pleased with the LTE rollout and Brian and Zoran and the team are doing a terrific job and so we're ahead of - as you know we're little bit ahead in the handset ecosystem which we think it's fine. We want to get ready and be prepared. So we launched Toronto and Vancouver proper. We had a great expansion of our Toronto - LTE experienced greater Toronto as we light up throughout the GTA, some other communities in Ontario. Edmonton and Calgary will come on as the big bang. We're not activating sites as we build them. We will turn them on collectively and that's going to be in this fiscal year for sure. And I think earlier than we originally planned along with a number of major communities in Ontario. To be clear in keeping with our plan, there's some smaller communities in Ontario that will get activated LTE in the next fiscal year, but that's not that just how we’re scheduled as a matter of prioritizing resources. So everything is on budget, I had a schedule and we’re pleased with our key role.
- Aravinda Galappatthige:
- Okay, thank you. And just a quick one on business structure ViaWest, healthy excess ex-revenue growth albeit so the reason court seems to suggest that the double-digit growth we’ve seen in the past is sort of eased towards the mid single-digit range particularly I think if you factor in the acquisition. I wanted to get a sense of the competitive environment there I mean has there been sort of fundamental change there and do you expect the possibility of sort of reverting back to high single-digit or double-digit revenue growth there?
- Nancy Phillips:
- Listen I would say in general but we live in a certainly a competitive field there is no doubt about it but I think that ViaWest is definitely distinguished itself in terms of products suite that we brought to market. Historically we have certainly seen very, very low churn rates. We had sort of point in time single customer, certain non-core last year that certainly bumped our churn rate up a little bit. We normalized back to our traditional churn rate. I always think good sequential growth Q1 into Q2 and I am very confident - to normalize through that event, you would clearly see that double-digit growth profile. So very confident in terms of trending back to that and we have very clear line of sight in terms of our churn in our fiscal '17. And again really strong demand profile we saw great Q2 bookings and so feel good about where we’re headed here in fiscal '17 on certainly both our revenue and EBITDA position.
- Aravinda Galappatthige:
- Great, thank you.
- Operator:
- Next question is from Greg MacDonald with Macquarie. Please go ahead.
- Greg MacDonald:
- Thanks, good morning guys. Wanted to ask a question on overall promotional strategy it was pretty clear that there was some in the quarter. And here is the question I have, is it safe to assume that some of your promotional focus is on customers that are not yet upgrading to BlueSky seems like there would be some rationale for this. I mean there are also customers that are broadband customers, that's important to you might be customers that could upgrade as time goes on. Is that kind of a two part focus focusing on customers that are upgrading, but also customers that do not?
- Brad Shaw:
- Yes, I mean maybe Jay can comment on the customer segment so that, but there's no question that all customers are important to us from that perspective and there's probably a segment of the market frankly our lower segment Jay that we’ve maybe haven't been as focused on and they’re important to us and you've seen some personal activity and are going against that and that's obviously helping our overall subscriber numbers. And at the end of the day revenue we probably didn’t otherwise have. Anything else Jay?
- Jay Mehr:
- Yes, I think that’s fair, I mean BlueSky you’re going to see us remain relatively disciplined on BlueSky pricing because it is our future and we actually don’t believe it’s a moment in time to heavily discount the product. It’s packaged with 150 and service agreements and it's for people who love broadband and love TV and want a best-in-class experience. And so we’re excited about that opportunity and we’re going to compete as our primary competitor does in all of the other spaces and I think you’ll see that going forward.
- Greg MacDonald:
- Okay, thanks for that. So I’m going to kind of wrap this into the cost question again then I'm trying to get a sense of how big an impact on the margin, the lower gross adds year-over-year was. I want to kind of get a sense of the sustainability of the margin it was high margin in the quarter, higher than I would have expected given the revenue miss that you had. Help me understand what's happening there was the lower gross ads a material impact on lower costs and is there sustainability for that.
- Jay Mehr:
- Yes, I think that’s a great question Greg and we’re going to obviously watch that closely. Lot of moving pieces across the board on all of that. A bit of mix shift like Internet obviously improving in a bigger component of our revenue base quarter-over-quarter, year-over-year as even forward and we know that obviously Internet has a higher margin component than video does. So that's a positive and obviously we’ll monitor going forward we got to watch - there is some timing issues related to some corporate costs and some promotional programs. So I wouldn’t get over the top excited about a particular margin in the quarter, but overall I mean I think you know stabilizing the consumer business moving to base that we really feel good about continuing to operate it as efficiently as possible and be humble in the way we go about things and moving forward on the margin pace is what we’re going to be focused on, but a lot of moving pieces.
- Brad Shaw:
- And building on that, remember Q2 was the story of churn reduction and that’s a primary driver. We had continued success on 150 which is very margin friendly. And we saw some balance from BlueSky in Calgary and Vancouver, but the Q2 story was primarily churn reduction. If you hear the repositioning of our business going forward now that our strategy is in place and in market, we’re looking for the combination of both churn reduction and additional improvement in sales which is what I think you’ll start to see in Q3. And so it will be a slightly different margin story as you go forward in the second half of this year, with the growth I don't think there's anything you won't like about but a big part of the Q2 story which was churn reduction and of course it's very margin friendly.
- Greg MacDonald:
- That makes sense. And finally guys there was nothing unusual in the cost this quarter on a year-over-year basis comparable was there - outside of what we just discussed here?
- Brad Shaw:
- No.
- Greg MacDonald:
- Okay, thanks very much.
- Operator:
- [Operator Instructions] The next question is from Maher Yaghi with Desjardins. Please go ahead.
- Maher Yaghi:
- Yes, thank you for taking my question. I wanted to maybe just to go back to your comment on wireless and I mean we've seen a lot of improvement in Q2 versus Q1 in terms of net adds. How much would you say this improvement due to the new branding that you’re doing in the market and you talked about volatility in the wireless net adds, I'm trying to just understand how much of that improvement is due to this launch factor versus more sustainable a growth path that we should be looking for. And as a follow up on the wireless as well, we've seen Québecor which is something, I would say is very similar to how you would like maybe to undertake your wireless expansion, undertake network sharing agreement in the province of Québec with Rogers. Can you talk about your view on potential network sharing agreements and if you need to have that for the long term in order to reduce your cost or you can go at it alone.
- Brad Shaw:
- Yes, so why don’t we take there’s lots Maher so we’ll take it in sequence. In terms of the wireless brand launch, Freedom launch is gone great, it's got terrific recognition and we wanted to get out in front of creating a brand, it’s affordability for Canadians. We think affordability matters to Canadians whether they live in Calgary with some other things that are happening here in Alberta or where they live in Toronto with housing cost or Vancouver with housing cost. There is space for affordability in the long-term. And Freedom is resonating with Canadians for sure, does all of that sort of wait around the name change, great traffic in our stores and quite I think it does. I think it actually there is an argument that the LTE conversion actually slows us down a little bit that we might have had more success had we state simply on the 3G path continuing to package it extremely low end. The conversion to Band 66 handsets makes it difficult to bring your own device to our network. And that’s just for a moment in time all the new devices are coming out of Band 66 and two years from now it won’t matter if you go it will be just cable stacks. We’re in that process of transition along with should I be on LTE, should I be on 3G, so it's a complicated time and I think to be clear at various times our competitors have taken advantage of this moment in time with their fighter brands primarily but also their flanker brands and of course they're all on the same network and so it's a different game that they're playing. That's where the volatility comes from is the short term subscriber results until we get - we're going to get the Samsung handset here in a couple of weeks. We're going to be in a good Android position by the summer, building on that throughout the fall. I think we'll be in a position where we're much more - we can have the same confident on wireless that we have on wireline in terms of month in, month out subscriber numbers. Today there's a little bit more volatility, that having been said, Freedom launch has been a success. We're completely committed to affordability for Canadians and you'll see that as we move forward. In terms of Québecor network share, let me say this, the Québecor model is a fantastic model in terms of the bundle and the quad play and we certainly paid attention to that. It's clear to us the only folks that are still around from the original 2008 auction are the folks that we're bundled. We understand the Québecor story and it's a terrific story. Are we open to having network share conversations and another things? I guess we would be, but none of that is what the business plan is built on. We've got a plan going forward. We're investing and we've got a significant cost advantage over our competitors as we enter into the market and we're going to continue to explore that. So always open, but it's not something that we're working aggressively on today. It's more Roger's question, there you go.
- Maher Yaghi:
- Thank you.
- Operator:
- The next question is from David McFadgen with Cormark Securities. Please go ahead.
- David McFadgen:
- Okay. Thank you. I've two questions. One, can you tell us what the impact was to the Freedom EBITDA from the branding transition in Q2. I don't know if it was anything material? And then secondly, can you give us an update with respect to your intention regarding your initial Corus investment and in terms of taking cash dividends or continuing with the drip?
- Jay Mehr:
- David, I think Brad addressed the first one in regards to our Corus investment. Very happy with what the plan there is and with our holdings and no intention to convert drip into cash at this time. In regards to your first question of Freedom EBITDA, there was an impact actually in the quarter and related to your promotional cost. You heard me reference that in my script. I would rather stay away from the number obviously, but a few million dollars for sure. And so - and I take it back to volatility right. You heard us reference volatility as a board, very happy with the business and we're heading there you’ll see some choppiness obviously on the EBITDA as we move forward on the Freedom quarter-to-quarter. But very happy with where it's positioned.
- David McFadgen:
- Okay. All right, thank you.
- Operator:
- This concludes the time allocated for questions and for today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
- Brad Shaw:
- Thanks everyone and have a great day and great weekend.
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