Shaw Communications Inc.
Q4 2017 Earnings Call Transcript

Published: 26 Oct 2017

[Operator:]

Welcome to Shaw Communications' Fourth Quarter Fiscal 2017 Conference Call. 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.

[Brad Shaw:]

Thank you, operator, and good morning, everyone, and thank you for joining us today. With me this morning are members of our Senior Management Team including Jay Mehr and Vito Culmone. Our asset base strategic partnerships and long-term outlook have never been stronger. We believe our focus in 2017 has enabled a significant progress we have made on our key strategic initiative. We're excited about the growth opportunities in both our Wireless and Wireline businesses. We will continue to make the necessary investments to bring both businesses together into single experience for Canadian as our converged networks becomes a reality over the coming years. During fiscal 2017, we monetized our U.S. data center business at an attractive valuation and bought additional spectrum from Quebecor. Long spectrum will significantly enhance our current network capabilities, the addition of future low-band spectrum remains critical to the level, the playing field and for Shaw to be a viable long-term competitor in wireless space. Considering the realities of our spectrum position and how the incumbents have historically secured this key asset required to compete in the Wireless business particularly the low frequency spectrum, we strongly support the governments proposed approach to the 600 megahertz auction. The framework will help ensure that Canadians have affordable and competitive choices for years to come. While we are proud of the improvements we have made to the Freedom network, a substantial set aside in the upcoming 600 auction is required for Canadians to truly enjoy choice in their wireless experience. Almost a year ago, we rebranded WIND with the launch of Freedom Mobile and today, more than 1.1 million Canadians choose Freedom as their wireless carrier. In fiscal 2017, we completed the roll of our LTE network and made Shaw go live by available to Freedom customers, creating immediate and tangible improvements to the wireless experience. This investment create a powerful LTE advanced data-only network that we are now offering to Canadians in the way that they have not experienced before. Our approach to the growth of our Wireless business has been thoughtful and patient. The highlight of this strategy is that in the near term we'll deploy some of our recently acquired spectrum to enable hundreds of thousands of existing Freedom Mobile customers to move from their current 3G data experience to our fast LTE network. This innovative approach to spectrum management will also technically enable millions of Canadians to bring their own devices to Freedom and enjoy the full benefits of our LTE network, and in addition to take advantage of our new big gig rate plate. These plans lead the Canadian market in turns included data value and are perfectly suited for the data savvy modern wireless customer. Furthering our appeal to this important market segment, we're also excited to confirm that we have finalized the agreement with Apple to bring an iPhone to our wireless customers and we look forward to future announcements on Apple iPhone availability and pricing. Considering these recent announcements, we believe we are significantly expanding our addressable market and going forward there will be continued network and product improvements, including the launch of voice over LTE by the end of this fiscal year. In 2017, we sell to successfully change the trajectory of our Wireline subscriber trends. We delivered positive consumer RGU growth of 25,000 compared to a loss of 170,000 in the previous year. We believe our strength in broadband will continue to grow as our customers see tremendous value and products such as WideOpen Internet 150 and unlimited data. We also delivered positive consumer video ads in FY 2017, another significant improvement over the loss of approximately 93,000 last year. In April, we launched BlueSky TV adding a premium TV experience to our video portfolio. The roadmap that we have in front of us with respect to technology in the home continues to be very exciting in support of our strategy to provide an exceptional customer experience. In FY 2017 we pushed the boundaries with the launch of BlueSky TV and TV and WideOpen Internet 150 with unlimited data to grow our Wireline business. In order to affect this change, we purposely spent on marketing and customer premise equipment, and we drove promotional activity, all of which you can see in the results, both subscriber and financial. Vita will provide you more details regarding our FY 2018 guidance, but you can expect a profitable and value accretive focus regarding our growth initiatives as we continue to make investments to improve both our Wireline and Wireless businesses. Maintaining investment grade ratings remains a priority for us and our ability to fund investment and continue to pay a healthy dividend is supported by our strong balance sheet, the strongest balance sheet we have ever had. With leverage under two times and over 500 million in cash available, our financial strength was enhanced through the strategic investment and divestitures over recent years. This purposely designed has enabled us to fund growth initiatives including wireless infrastructure and spectrum. That allows us to target a wide variety of segments in response to competitive market dynamics. Fiscal 2017 was another year of significant milestones and achievements. Our strategy and focus on execution has never been clear, and I am very confident that we are making appropriate investment decisions to deliver long term growth and value for all stakeholders and I'm excited about the opportunities that lie ahead. I will now turn the call over to Vito to review the Q4 and fiscal 2017 financial results as well discuss our 2018 guidance. Vito?

[Vito Culmone:]

Thank you, Brad and good morning everyone. Before I get into the detailed financial results, I would like to remind everyone that Q4 and full year 2017 results have been segmented into continuing operations comprised of Consumer, BNS and Wireless as well as discontinued operation which would include Wireless, Shaw Tracking and Shaw Media in some of the year-over-year comparison. Our fiscal 2017 reported revenue and EBITDA from continuing operations in the amount of $4.882 billion and $1.997 billion, respectively, represented an increase of 8.1% and 1% versus fiscal 2016. As it relates to Q4, year-over-year consolidated revenue and EBITDA from continuing operations was $1.24 billion and $479 million, respectively. Revenues increased 2.6% and EBITDA decreased 6.8% as a growth in Wireless and BNS were more than offset by higher plant cost in the Consumer division. Let's start with Consumer as it had the largest impact on this quarter's results. Revenue and EBITDA in Q4 was approximately $937 million and $374 million, respectively. The lower year-over-year EBITDA reflects tolerated levels of promotional activity, higher network programming fees along with increased operational and marketing costs as we continue to create awareness for BlueSky TV. For the full year, Consumer revenue of $3.7 billion was down 0.1% from fiscal 2016 and EBITDA declined 5% to $1.58 billion as the Consumer segment carried most of the increased cost of launch and service new products, create customer awareness, grow the subscriber base and absorb increases such as programming costs. We are pleased with the subscriber results in FY 2017 and we've been very thoughtful and deliberate in our promotional strategies, notwithstanding RGU growth came at a cost. We made the necessary investments to reverse the subscriber trends and launched new products and services that we expect will deliver growth over the long term. Business Network Services revenue and EBITDA increased 6.8% and 7.5%, respectively in the fourth quarter. For the full year, reported revenues of $554 million and EBITDA of $281 million increased 7.6% and 11.5%, respectively, as customer demand for the smart product suite remains strong. Wireless revenue increased 16.2% to $172 million in the quarter while EBITDA increased 13.8% to $33 million compared to fiscal 2016 Q4. For the year, Wireless generated $605 million in revenue and $133 million in EBITDA. Continued growth in this segment is due primarily to subscriber and ARPU growth as we continue to load customers on our LTE advanced network. We're pleased with the growth that Wireless delivered in fiscal 2017 and we will continue to build upon this momentum and Fiscal 2018 and beyond. Turning to capital, spending in the quarter increased to $398 million or $61 million higher than Q4 of fiscal 2016 bringing the full year investment to $1.225 billion for continuing operations. Fiscal 2017 investments were focused around continued improvements to our network to drive growth including completion of the LTE rollout, integrating Shaw Go WiFi services and launching voice over WiFi. We continue to push fiber deeper into the network, invest in DOCSIS 3.1 and maintain the lowest network congestion in our history as we support a significant number of internet subscribers taking faster speeds. Free cash flow which includes continuing and discontinuing operations for the year was $438 million down 9.1% compared to fiscal 16 due mainly to higher capital expenditures in fiscal 2017 coupled with free cash flow contribution from Shaw Media in the previous year. Net income in Q4 and for the full year was $481 million and $851 million respectively. The increase in the quarter reflects a $330 million gain on the sale of Wireless. On the full year basis, net income was nowhere primarily due to net income from discontinued operations in fiscal 2016, partially offset by higher non-operating gains in fiscal 2017. To sum up the FY 2017 discussion, let me look back for a moment and touch briefly on our 2017 guidance. As you recall, we provided refined guidance last quarter, which included fiscal 2017 EBITDA to range between $2.135 million and $2.160 billion, capital of $1.35 billion and free cash flow greater than $400 million. By removing the full year impact of Wireless and Shaw Tracking which equates to EBITDA of approximately $146 million and capital of approximately $114 million, we delivered reported results in line with the revised 2017 guidance when adjusting for these divestitures. As we look ahead to another year, we will continue to execute on our strategic initiatives and build a best-in-class converged network. We will invest in enabling the newly acquired 725 megahertz spectrum. We will focus on profitable subscriber growth and we will continue to introduce compelling products and services to our X1 move-in. As always, we will continue the pursuit of operational efficiencies. With that as a backdrop, we're pleased to introduce fiscal 2018 guidance as follows. We expect consolidated operating income before restructuring costs and amortization growing to approximately $2.1 billion, a year-over-year projected increase of approximately 5%. Capital investments of approximately $1.38 billion and free cash flow of approximately $375 million. We expect most of the growth in consolidated operating income before restructuring costs and amortization to occur in the back half of fiscal 2018. I also want to discuss the change in the basis of presentation for fiscal 2018 results. Effective for Q1 fiscal 2018, we will be combining the Consumer and BNS divisions, and recording them as Wireline. Our org design has evolved and we have integrated the management structures for consumer in BNS. These changes were made to increase agility and have proficiency. As a result, cost, these are operating or Netflix related, are increasingly inseparable between Consumer and BNS. We will of course continue to report revenue RGUs and other KPIs consumer in BNS. Wireline will remain a separate reporting. Finally as Brad mentioned earlier, our balance sheet metrics are strong and we exited fiscal 2017 with net debt to EBITDA under 2X and over $500 million in cash. Our overall financial position is more than capable of supporting the required strategic investments and support our dividend payments for years to come. With that said, I'll turn the call back to you for closing remarks.

[Brad Shaw:]

Great. Thanks Vito. Before we turn to questions, we are excited to announce the addition of Mike Sievert, Chief Operating Officer of T-Mobile will be joining our Board of Directors at our Annual General Meeting in January. Mike brings a wealth of wireless experience to our board with a strong background in operations and marketing through senior roles at several organizations including T-Mobile, Clearwire, Microsoft, AT&T and E-Trade Financial. While Shaw will continue to chart our unique path and offering a differentiated mobile experience for our customers, Mike's breadth and depth of hands-on experience will be an asset to us. We appreciate all of our stakeholders support as we execute our strategic plan. Our long-term growth orientated strategy is built with our customers' needs at the heart of every decision. We have the financial resources and balance sheet strength to continue to purposefully invest with a view of delighting our customers and delivering value to our shareholders. Thank you, and we turn over – back to you operator for questions.

[Operator:]

[Operator Instructions] The first question is from Vince Valentini of TD Securities. Please go ahead.

[Vince Valentini:]

Thanks very much. One question on Cable and one on Wireless, if I could. So, on the cable side, your guidance for 2018 clearly implies that things will bounce back. I'm wondering if you can flesh that out a little bit more? Is that mostly just the increased subscriber volumes you have flowing through or do you anticipate a deliberate move back to more of what I call normal promotional behavior with less than 12 months at a discounted price and perhaps a more normal advertising budget at some point? And would you care to comment on approximately when you think you'd make that shift? On Wireless, congrats on the Apple deal and your release – your separate release today says you'll have the vast majority of existing LTE devices compatible with your network. Can you give us a little more color there and exactly when that happens and what devices we're talking about? Is that sort of all that – the old iPhones, the 7s to 6s, the SE and then the old Galaxy devices? Are those all compatible with your network, and if so when?

[Jay Mehr:]

Great. Thanks Vince. It's Jay, and I will start with a Wireless and a little bit of color on Cable, and then Vito could help with some more detail on guidance. In terms of Wireless, we're excited about the next steps. To your specific question, as we reallocate our spectrum, in some markets launching near the end of this calendar year and some early next calendar year for bring your own device. We are going to support successfully all of the Apple devices. You listed the Samsung Galaxy, you listed the vast majority of LTE devices. In simple terms, an LTE device that works in AWS-1 will be bring your own device opportunity for Freedom. I think you'll appreciate, that's a major shift for us as we build out our LTE network. So, your assumption is right. All those phones will work, which is great news. In terms of Cable, yeah, I think you – look we decided that we're going to purposefully shift the RGU environment after many, many years of not having success in the marketplace. And we are clear that we did what was required, including investments and marketing and cost of goods sold and some discounting. I think if you look at our approach this year, it is going to be more balanced approach as we kind of pivot from share to share of wallet, and you'll see that throughout the year. You will see Q1, will look not all that different were it a Q4, and then as the year unfolds, we'll see significant improvement. Some of the moves you are anticipating in the market place, you'll probably see, but I don't know if that is helpful for us to give you specific timing. BNS?

[Vito Culmone:]

Yeah. Thanks Jay. I think Vince the way you characterized and the way Jay characterized is accurate. When you look at the back half of 2017, you see an increased cost profile and I think the 2018, you will see sequential improvement in bottom-line results and year-over-year comparison, and that's driven by the timing of the costs both in 2017 and as we head into 2018. And the effect of – you know the revenue base, the revenue you talked about the RGUs and how they flow through, the pricing opportunities and also the promotional plans. And I think, the only thing outside that is when you look at our Internet in particular, we really see a continued opportunity to migrate customers and people love the value we're packaging and the congestion of the network is amazing, so real strong opportunity for us to expand that revenue for us as we move through.

[Operator:]

Our next question comes from Drew McReynolds of RBC. Please go ahead.

[Drew McReynolds:]

Yeah. Thanks very much. Maybe one for you Vito, just on the CapEx guidance, just to break kind of the bucket down a little bit, can you give us some color just in and around what's going on with the cable CapEx side just as you continue to deeply X1? And just on the Wireless side, I think you alluded to before spending $350 million to deploy that Quebecor spectrum in the market. Can you kind of quantify how much of that is included in the fiscal 2018 guidance? Thank you.

[Vito Culmone:]

Yeah, maybe I'll start and then Jay you can pick up as well. I think when you look at the increase year-over-year, the $1.225 billion to $1.380 billion we're projecting, that increase clearly leans on Wireless. You know we're clearly focused on improving efficient spend and with a view to significantly advancing our converged network platform and really enabling us to properly offer value enhancing products as we move forward. You know specifically on the Wireline side of the spend will reflect, I'll say consistent level of aggregates spend as in FY 2017 and focused on remains on really maintaining our broadband leadership, leadership in key markets and managing both growth and future-proofing our network with fiber deeper. You know on the Wireless side, clearly the FY 2018 spend reflects investments in both our new and reforming existing spectrum pursuant to the release this morning. And in addition, we'll have – you know, we don't want to – more macros, small cells and a whole bunch of other components. We're taking a bit of an incremental approach. Don't want to leave the community with the view that the $1.375 billion necessarily reflects the full deployment of 700 and 2500, but we think that's the best use of our capital as we move forward. Jay, anything else you want to add? Okay with that. Thanks Drew.

[Drew McReynolds:]

Yeah thanks. So, Vito, if I can just kind of squeeze one additional one in here. On the Wireless strategy, interesting announcement this morning in terms of Mike Sievert joining the board, you are a couple years into the Wireless process. Can you just kind of comment relative to when you started down Wireless? Has your kind of strategy changed materially do you think with Mike coming on Board, that from a strategic standpoint, that changes at all going forward?

[Brad Shaw:]

Drew, it's Brad. No, you know I don't think so. I think you know Mike certainly brings a wealth of wireless knowledge operations, marketing, and you know and as we – as I said earlier, you know Canada is bit different than the U.S. and is different dynamics and different type of market. And, so we need to be the responsible into that and make sure we're sensed to that. But you know he's going to – he's going to be a great asset for the Board and the family, and very privileged to have him, but we wouldn't see anything changing in the strategy.

[Operator:]

Our next question comes from Jeff Fan of Scotiabank. Please go ahead.

[Jeff Fan:]

Thanks good morning everyone. Just a couple of follow-ups, one regarding the device line-up. So, well, you have deployed the low band spectrum as you launch these devices with the iPhone. So, I guess the question is, is it just going to work on the 2500 and some of the reformed ASW-1 or will there be low band that's compatible with some of the older devices, older iPhone – Apple devices? Then the second question is related to just the CapEx. It's great that you guys gave some guidance for 2018, but if we look out how much do you think the network will be at a place that will allow you to rebrand Wireless in the west which Shaw after 2018 CapEx is done? And can you give us some direction as to what maybe FY 2019 may look like given your plan? Thanks a lot.

[Jay Mehr:]

Thanks Jeff. Let me start and then Vito can help with some comments on FY 2019 CapEx. Maybe I'll start with just refreshing our Wireless strategy, so that we have clarity and then I'll deal with your specific questions about it. You know we're taking a step-by-step approach to our Wireless business. The first step is you are well aware, and we needed to build an LTE band only network and we've done that and it's working great. The next step was to make it available for Canadians. We're competing with – we're competing with the big three. We've had the benefit of voice networks as they've built over a 25 year head start and if we were going to compete as a junior member of the big four, with the same pricing and packaging as the big three had, I don't think we would have been successful. Quite frankly our LTE network works great for data and license of Big Gig is our way of offering that network to Canadians. So, that's step two. Step 3 is really creating a handset ecosystem that's available to our customers which the addition of the iPhone helps a lot and Pixel 2 and now Samsung we've come a long way and as we launch all those products, I think we'll have handset ecosystem clarity. Step 4 is the ability to open up our LTE network which is a fantastic network and the vast majority of LTE devices, which we're doing through the spectrum reforming from markets this year, this calendar year some market next. Step 5 is to complete the new spectrum which will include meaningful investments in 2500 and 700 this year and clearly some investments as Vito talked about it at 2019. Step 6 is voice over LTE and really then bringing that data network to voice. We haven't done anything to improve those three full voice network and that's it. And then step 7 is likely 600. So, what I think as we think through the model, I hope you see us taking a very methodical approach to adding value to Canadians and stuffing into our lineup. I'll let Vito talk about capital in 2019

[Vito Culmone:]

Yeah. Jeff, thanks for the question. You know, I don't know that we really want to get into FY 2019 capital and give too much guidance around that at this point, because obviously our plans are do as I think what Jay has outlined is very, very clear as far as how we're thinking about the steps. I think Jay, it's fair to say that's probably an 18 to 24 month path that you just charted there. And you know we've really believe we have a bit of a once in a lifetime opportunity here as step into the Wireless side of things, which will – obviously continuing to support our Wireline, but expand the addressable market. Capital decisions, Jeff, you know aren't necessarily made in isolation. Obviously, we'll be looking for EBITDA growth as we move forward here and keep an eye on the free cash flow. So, I think what I can say about FY 2019 is as you look FY 2018, probably it's reasonable to assume that we don't have a significant differential as far as on the upside. While at the same time, you know I don't think there is a step down coming off of our FY 2018 project level.

[Jeff Fan:]

Great. Thank you.

[Operator:]

Our next question comes from Phillip Huang of Barclays. Please go ahead.

[Phillip Huang:]

Yes. Good morning. Maybe just to go back to the device one last time, you know just to clarify, with the reforming of your AWS-1 by early 2018 across your entire footprint, does that mean the older iPhones such as the 6S and the 7 will also work on LTE across your footprint?

[Jay Mehr:]

Yes.

[Phillip Huang:]

Okay. That's great. And then, quick follow-up on the Cable side, very strong internet this quarter. TV growth appears to have slowed a bit from last quarter despite some of the marketing and increased consumer awareness of BlueSky TV. Just trying to better understand the difference there as you typically get more internet only subscribers in your fiscal Q4, or are you seeing a little bit more seasonality to the TV growth than internet? Thanks.

[Jay Mehr:]

Yeah. Great. Thanks you. Look we're excited by the RGU turnaround we had at our Wireline business and very, very pleased with our results. That having been said, I think a number of quarters ago we talked sort of positive video, Plus1 video being winning it looks like and I think we achieved that for the fiscal year. I don't know that there is a lot of advantage driving on that. I'm not sure that we're going to necessarily have a video gain every single quarter. If you look at the big three opportunities for our business, by far the biggest growth opportunity as we become an EBITDA growth story is Wireless. The second biggest opportunity is probably small and medium business, and the third biggest opportunity it is broadband and driving broadband revenues and recognizing the math on two and three are probably about the same. So, where they fit in the weighting, we think we're super excited about where we are in the video space and we've got a great offering. As we pivot to a more profitable approach, you might see us, even give a few videos of stack, potentially Q1. And I think that we should be able to grow video in the long-run. To be clear, videos are tough business and there isn't simple answer to what's happening in the video space today. And you won't see us over chase RGUs to the extent of profitability.

[Operator:]

Our next question comes from Greg MacDonald of Macquarie. Please go ahead.

[Greg MacDonald:]

Thank you. Good morning guys. The questions on Wireless subs and mostly in looking for a description of the profile, the new subs being added on, it was a decent number 41,000. Can you talk a little bit about the post pre – sorry the post and prepaid mix and the ARPU more importantly the ARPU mix in the quarter?

[Jay Mehr:]

Fairly consistent, Greg. I mean we are pleased with the with the mix of maybe just give us a couple of seconds here and I can grab the number for you. ARPU obviously, we like where people are coming on as we look at our Big Gig plan. I mean we had obviously a sequential quarter-over-quarter improvement and a year-over-year improvement, and you know the early take on the big data very, very early we like what's happening. So, as we look into FY 2018, the – everybody is contributing to our 5% guidance, right. And when we look at the businesses, Wireless, Wireline, BNS, Consumer, everybody is participating in that year-over-year EBITDA growth and Wireless is leading in heavily with ARPU improvement being a component of that. Anything else?

[Brad Shaw:]

Yeah. We can build on that a bit for sure for the postpaid story and the last one you already know, adds from postpaid with nice ARPU gains. If you look at the last six days, we've had a really exciting last six days in our business. Not that volume has sky rocketed, although volumes are healthy since we launched our new pricing, we've had thousands of our customers migrate upward, kind of $6 to $7 a month range. And of course our ads are now coming in above $50 a month and then the pricing, which is a major stuff for us. So, we're really excited about license of Big Gig and what it means for our revenue mix.

[Greg MacDonald:]

Great. That's helpful. And a quick follow-on if I could, the addition of Mike Sievert on the Board is obviously good news. Wonder what this might mean for strategic opportunities for the Company? I'm thinking specifically on roaming agreements, Shaw – T-Mobile has a very high unlimited, so a very high data cap strategy and it's pretty similar to Shaw and Shaw has got lots of spectrum and therefore the ability to maybe be a beneficial rumor for a company like that. Are we getting – am I getting too fast-forward on something like that or is that something that see as an opportunity vis-à-vis the addition to the board?

[Brad Shaw:]

Yeah. I think we'll always look at opportunities of relationship and you know and I think with T-Mobile, it works for both companies that makes good sense. I can't say that there's anything a big long list here of anything that would be significant or things we need to do. But, certainly it is and we'll see how the opportunities arise as we go forward.

[Greg MacDonald:]

Are there roaming announcements to be made in 2018?

[Brad Shaw:]

I don't think so.

[Operator:]

Our next question comes from Aravinda Galappatthige of Canaccord Genuity. Please go ahead.

[Aravinda Galappatthige:]

Good morning. Thanks for taking my question. Just a couple from me. First of all [indiscernible], early days I know, but was wondering if you can share a little bit more of your early learning there. I know that initially you've talked about that as kind of a very good retention – retention kind of a tool, but I also wanted to see what your thoughts are in terms of actually winning subs from competitors with X1? What's some of the profile you see from the new X1 customers? And then secondly, on the Wireless side, you've laid out, lot of your priorities, very helpful. Just wondering what your thoughts are on the distribution aspect. Are you satisfied with the distribution that you have, or is that something that you would look to ramp up in the near as well? Thank you.

[Jay Mehr:]

Thank you very much. We're excited by what we've seen in terms of BlueSky and the rollout of X1 platform. I mean if you think about Video subscribers kind of in three particular segment, you know the majority of the market, probably about 60% is still TV lovers. These are folks that have a TV in a main room in the house, watch a couple of hours TV at night and are consuming TV in kind of the traditional way you consumer TV. TV lovers love BlueSky and its created tremendous value in terms of now the integration of Netflix and other services being aggregated and that's a fantastic product for that customer base and it is driving usage and on-demand and ARPU as you can expect. The other two segments are increasingly, there is much more of a value conscious video base are interested in video at sort of $20 price point and those kinds of things. And we play a little bit in that space, so that's not really where BlueSky is. And then of course, there is the streaming base that's dealing with over-the-top service and other services. And there probably is an opportunity for us to move that technology into base. So, we really want to go launch it, target it, clearly at TV lovers and its getting the – all of the right metrics and similar experiences to what Comcast and Fox and others. So, we're super excited to have it. On distribution, we need to ramp up distribution in Wireless. We clearly need national distribution with some of the big players and be able – people have the choice of freedom as they are shopping with us household name retailer that you think about, it's certainly going to be our focus and we'll continue to in our budget or our plan to continue to amp up on the distribution model. To be clear, there is also a pivot as we change our pricing and commission and all those things that happened with the retail model when you do a major shift like the Big Gig, so we're working hard on the implementation of that downstream into our distribution channel and excited about what that makes it possible.

[Operator:]

Our next question comes from Tim Casey of BMO. Please go ahead.

[Tim Casey:]

Thanks. Just a question on X1. Can you talk a little bit about your transition from a current deployment to an all IP environment? Is that – I'm assuming that's in your comments with respect to guidance I was just wondering if you could talk – flesh that out a little bit more, the actual platform you'll be deploying? Thanks?

[Jay Mehr:]

Yeah. Great. Thanks. We're super excited about our X1 roadmap and very happy with where we are in the roadmap where we're in full deployment, hundreds of thousands of TVs enjoying X1 today. We also have a step-by-step approach here, so you've seen the interrogation of Netflix which is I think fantastic results in terms of the way customers are using Netflix. You will see other aggregation launches on that stream. Today, we're doing a hybrid com IP which basically all of your on-demand service being done on IP and all of your live streams – I mean all of your on-demand services, IP and all of your live stream on com will launch before the end of this calendar year, likely or beginning of next calendar year. A series of new channels on a linear basis on IP which will be our first step into IP linear, and then as you walk through calendar 2018, we'll be able to move to the full IP architecture. For us that won't necessarily change the customer experience maybe all that dramatically, there is huge advantage of course in success-based capital and [indiscernible] and all of the things that makes possible in terms of transforming our business. So, I think we're on a say more a time line to others for IP in terms of Mac deployment and that's likely in the second half of next calendar year.

[Operator:]

The next question comes from Maher Yaghi of Desjardins. Please go ahead.

[Maher Yaghi:]

Thank you taking my question. Jay, thanks for telling us about your Wireless plans a bit more and the steps that you mentioned, the one to six, but in those steps, I didn't hear about the timing or the plans about becoming more in line with what's driving consumer behavior in terms of choosing the partner or the supplier of services with a subsidy model. I mean you have – you guys have – you can call it a subsidy model, but you know you have to spend $90 to start getting real savings on handsets with your plans. Can you talk about what you are thinking about implementing a real subsidy model, and if you do, in which of those steps that you mentioned it would be introduced?

[Jay Mehr:]

Yeah, it's certainly part of the customer value equation. I hear comments that were coming at the markets slightly different than others have come on the market. There is – I didn't call that out as a major shift, because I see that as degrees that we're adjusting as we move into the marketplace. I don't know if you'll see us very – all that materially from what you described, although it's a current part of customers making choices. We're clearly super excited about enabling the bring your own device market, which is getting more and more significant and the opportunity to just move over to our network, enjoy tremendous packets of data with phones that you already have. So, I don't think you'll see us double down on the subsidy model although you'll probably see greater investments in what you've seen so far.

[Maher Yaghi:]

So maybe bring down the level of ARPU that a customer needs to pay to get more savings, is that what you're referring to?

[Vito Culmone:]

Well, Maher, I will kick in here. Obviously there is a connection between the subsidy and the overall ARPU profile and the overall economics, right. So, as I think we move through the next 24 months, you will see us continue to tweak and evolve as Jay has described.

[Maher Yaghi:]

Do you accept the hypothesis or the theory that the ARPU that you have which is low compared to other companies out there is due to the specific issue that you are not subsidizing customers and harder to get them to spend more with you?

[Jay Mehr:]

Your question seemed to be related. Look our overall customer ARPU is low today, because we're primarily on the 3G network competing on the spectrum that was available to us. And there is no question if we – to our previous comments, if you look at our business through the lens of the big three with all of their free spectrum and their 25 years of sensational operating margins that they've invested back into the network. There is no question that we have to play the game differently and you are going to see us play the game differently than the victory of playing the game. And I would make the argument that Canadians don't need the (me too), I would make the argument that the Canadians need a differentiated wireless service. So, I mean in the moves that we're making on our LTE ARPU are very encouraging and I'm not totally fussed about the 3G base and where that ARPU moves. Those are customers that have made a good choice in terms of where they want to be and the price value relationships they want to play. We're already building ARPUs for the future.

[Maher Yaghi:]

And just my last question on the video side, you are looking for TV sub too you said declined in the next quarter? Did I hear you correct?

[Jay Mehr:]

Yeah. What I was refreshing for people that we believe maintaining and growing the video base is what winning looks like and that's what we said a number of quarters ago and we're not changing our positions. I also was saying that we're not going to drive video subs at the expense of profitability now that we've shifted the market. And I was signaling that as you make pivots in the marketplace, that it takes a period of time for those pivots to flow through to numbers. So, we're certainly signaling that we weren't going to necessarily be up every quarter in video, in this fiscal year and our comments on Q1 and we were only half way through Q1 and we'll see where we land. But I don't want people to think that we're driving hundreds of thousands of new video subs through this model. This is about creating a fantastic video experience for Canadians and increasing our video subs in a profitable way.

[Maher Yaghi:]

So, in order to drive growth in your subscriber base on TV, are you looking forward into the IP platform to drive that growth versus just going up and down every quarter? Is that – is the IP version the one that you think will get you to grow that business, the subsidies, the subscriber base on a sustainable basis?

[Jay Mehr:]

Yeah. I mean I certainly understand the question. I'd like to reset it with – to be clear, Shaw is an EBITDA growth story and we're starting this year with EBITDA growth of 5%, which is probably a good start and we're going to get moving. The three biggest opportunities are Wireless first, absolutely and then two and three are probably a tie small and medium business and the opportunities to grow broadband revenue. We're excited about video presence, it's a super important part of our business. Do we see dramatic increases in video revenue and video profitability over the next couple of years? I'm not sure that we do. I think that we see some challenges in economics of video going forward and it's a part of the story. We're going to look to maintain and perhaps slightly grow our video market share. And what happens of ARPU and video is really consumers being in control and consumers will make the choices they make and we're in a great position to offer them whatever they want to aggregate with us. So, I – we're excited about where we are. I think the IP story will not only deliver new experience to Canadians including cloud DVR which is a significant breakthrough from – and the ability to put the content with use, some integration on the Wireless side, so there is certainly some upside in that space, but I don't think video makes the big three growth opportunities.

[Operator:]

Our next question comes from Rob Goff of Echelon.

[Rob Goff:]

Thank you very much and good morning. My question will be related to the disciplined growth on the cable side. Could you talk to the impacts you have seen from rate increases that were implemented this summer on existing contracts?

[Jay Mehr:]

Yeah. Rob, the pricing that we do on existing service agreements is fixed within the service agreement. So to the extent that we make changes, the month-to-moth pricing, it doesn't apply to customers who are in the service agreement. So, if you can well appreciate the – the changes in annual pricing, practically has much less of an impact than you would have traditionally seen in in the cable business some time ago.

[Vito Culmone:]

Rob, I can add that when you think about the two-year plans and the slip from year one to year two, we've actually been pleased with the transition and customer behavior as they move from that year one price to year two price.

[Operator:]

Our next question comes from David McFadgen of Cormark Securities. Please go ahead.

[David McFadgen:]

I just have a question following up on comment Vito made about CapEx in 2019 versus 2018. So, given the cost to deploy that Quebecor spectrum, it was one-time in nature. I would have thought that the CapEx profile would go down in 2019 versus 2018. So, given you've seen all that, it's probably going to be somewhat similar. Does that entail some geographical expansion of your wireless network in 2019 to rely less and less on other for roaming, or you if you could just provide some context as to why it wouldn't be going down a fair bit?

[Vito Culmone:]

David just to – you know that 350 number that we reported, we still feel decent about that obviously and probably should at some point, not yet too specific about certain components and stay at a bit of a macro level. But they are going – you know that spectrum cost and that activation cost as Jay alluded to is really over a two-year period, so FY 2019 will also reflect the significant amount of spend related to spectrum line-up of that 350 original estimate.

[David McFadgen:]

Will there be some geographic expansion in the wireless network, or you don't really envision that?

[Jay Mehr:]

I would – I mean if you talk about our multi-year horizon, I think it's premature to announce one – these various markets. I think you will see our wireless growth strategy and our EBITDA growth focused on existing markets in FY 2018.

[Operator:]

There are no more questions at this time. I would now like to turn the call over to Mr. Brad Shaw for any closing remarks.

[Brad Shaw:]

Sorry about that. Thanks everyone. And we appreciate your time and we look forward to continue to give you some great update. So, talk soon.

[Operator:]

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