Shaw Communications Inc.
Q2 2015 Earnings Call Transcript
Published:
- Operator:
- Thank you for standing by. Welcome to the Shaw Communications Fiscal 2015 Second Quarter Conference Call. Today’s call will be hosted by Mr. Brad Shaw, CEO of Shaw Communications. At this time, all participants are in a listen-only mode and the conference is being recorded. Following the presentation, there will be a question-and-answer session. [Operator Instructions] Please also note that an investor slide presentation in relation to the conference call is being displayed on the webcast. It is also posted in the Investor Relations section of the Shaw website under Presentations and Meetings. [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 thanks to everyone for joining us today to discuss our second quarter fiscal 2015 results. With me today are members of the senior management team, including Peter Bissonnette, President; Jay Mehr, Executive Vice President and Chief Operating Officer; Barb Williams, Executive Vice President and President of Shaw Media; Nancy Phillips, Co-Founder and CEO of ViaWest; Rhonda Bashnick, Senior Vice President of Finance; and Trevor English, Senior Vice President, Corporate Development and Capital Markets. Earlier today we released our Q2 financial and operating results. In the quarter, we delivered consolidated revenue and EBITDA growth year-over-year of 5% and 5.5% respectively. Free cash flow in Q2 was almost $170 million, and year-to-date we have generated over $360 million of free cash flow. This represents an increase of 15% compared to the same six months period a year ago. We maintained our focus on profitability and maintenance of our overall RGU base. We are pleased with the margin performance of all of our business segments and while our subscriber results reflected the impact of the 30-day disconnect policy by approximately 35,000 RGUs, our entire customer base remains in excess of 6 million RGUs. We continue to scale our WiFi network, now have approximately 60,000 access points in over 1.7 million active registered devices on our network. Our customers continue to find value in this product, which has now achieved 33% penetration of our Internet base, while maintaining 30% lower churn levels across a much wider user base. We have now successfully entered into approximately 80 municipal agreements, which include all of the major municipalities within our footprint. As we expand and create more awareness of our WiFi network, we believe the Shaw broadband experience will continue to set us apart from our competition. We are encouraged by the financial and operational benefits related to some of the restructuring initiatives we began to rollout last year as part of our multiyear focus to deliver program. Focus to deliver is becoming ingrained in our corporate and operating D&A and represents a more focused and disciplined approach in executing on components of our strategy, enhancing our efficiency, and growth potential while better serving the needs of our customers and viewers. More specifically, during the quarter we effected a realignment of our customer care operations in the Consumer division, which accounted for the majority of the $38 million restructuring charge. We anticipate annual savings of $25 million once the realignment is complete and operating efficiencies are realized. It has been a busy quarter with respect to the regulatory environment. The CRTC announced a number of decisions regarding last fall’s Let's Talk TV hearing. While the new regulatory environment will not be without its challenges, we support the government’s direction and the commission’s commitment to maximize choice for Canadians. It is difficult to estimate or predict the possible long-term operating and financial impact to our respective businesses. However, we believe that through the provision of innovative and flexible packages, and a differentiated broadband service, experience, we believe that our Distribution business is appropriately positioned to compete in a profitable manner under the revised regulations that become effective in 2016. Our Media business last week announced an organizational realignment that is focused around strengthening the two core pillars in Shaw Media’s business; content and revenue. Shaw Media has a portfolio of strong brand and engaging content that is valued by our viewers and we are focused on repositioning our Media business to reflect the realities of the operating and regulatory environment. In closing, I want to reaffirm that our year-to-date performance is on track. As we head into the last half of the year, we continue to be on track to deliver our fiscal 2015 guidance, including annual free cash flow of more than $650 million and EBITDA growth between 5% and 7%. Thanks to everyone for joining us today and we now like to open the phones to answer any questions.
- Operator:
- Thank you. [Operator Instructions] The first question is from Bob Bek of CIBC. Please go ahead.
- Bob Bek:
- Thanks. Good afternoon. A couple of questions, just a big picture one, perhaps, for Brad to start off. Can you update us your thoughts on the Alberta economy and the effect upon Shaw, I know you talked about it last quarter, we're obviously getting more data and more anecdotal evidence of issues, so just your current thoughts on the potential effect upon Shaw, whether it be jobs or pricing and then I have a follow-up question as well?
- Brad Shaw:
- Sure, Bob. Thanks. There is no doubt we continue closely monitor the impact of lower commodity prices in Western Canadian economy and the impacts on our business. I can tell you that, I think, a lot of us were caught off-guard by the dramatic shift in pricing of oil. But I am certainly confident that the Canadian energy sector will weather the storm and get through this current period of volatility. We have seen -- there has been some job losses in Alberta. I would say, over the last six months around 30,000. But as I look at it on the big picture scale, its 5.3% unemployment rate in Alberta is quite bit lower than the national average of 5.9%, and I also look at what -- where we operate elsewhere in Manitoba and Saskatchewan would be the two lowest unemployment rates in Canada. But you also look back, Bob, in history and you go -- on these times of tough economic challenges, the value proposition of broadband and the home we think is still key, the TV entertainment bundle even becomes more valuable, I think, in this, as you look at shows and movies and going out to dinner, so that whole comparison I think is relative and puts us in a somewhat stronger shape. But that being said, lot’s more choices on video these days as you look at it, and we know that, but we really think with our TV Everywhere, with Shomi, with Shaw Go WiFi, really positions us well with customers to help manage their costs and manage their share of the wallet. So and just on that, as we look at our WiFi base, I think we have over two-thirds of customers actually say the service helps them avoid mobile data costs. And so we can reinforce that, but it’s a great value proposition. On the business side, I tend to look at it and say, we have more and more exposure to the vertical, that’s correct in oil and gas. But as we look at it, we are very small component of their overall costs. When I look at cost increasing, there are other segments, when you look at construction and labor that has gone up a lot more than the services we would provide. And I also tend to think when you are offering fiber and Internet and telecom and voice, they tend to be services that are pretty sticky and that are somewhat essential. So there is no doubt. And then just on that a little bit more on the business side, there is going to be some impact on the hospitality side as we look at some of the camps up north and some of the challenges there. But we’ll have to duly manage it. But there will be a small impact from that. And just on the size and scope of things, we talked about Alberta being about 35% of our overall business, BCs in the mid 40s, low 40%. You look at our diversification with Shaw Media right across the country. We look at ViaWest diversification in the U.S. It gives us some comfort that we can weather the storm. We’re somewhat diversified in this regard and we feel relatively good about that.
- Bob Bek:
- That’s a lot of info. Thank you. Actually, my second question was on the business side, so you answered that. So thanks very much.
- Brad Shaw:
- Thanks Bob. Operator?
- Operator:
- The next question is from Jeff Fan of Scotiabank. Please go ahead.
- Jeff Fan:
- Thanks. Good afternoon. Few questions, first, maybe start-off on the subscribers. If we exclude the 30-day impact of 30,000 or 35,000 on the consumer side, we still saw a bit of a slowdown, I guess, in terms of -- or increase in the losses. I’m wondering, if you can just talk about each specific line and kind of help us think about where you saw some improvement in strength and whether you saw some deterioration in terms of adds from a year-over-year basis? Thanks.
- Jay Mehr:
- Hey Jeff, it’s Jay. When you look at the subscriber numbers for the quarter, we certainly appreciate that it’s a noisy quarter with the 30-day disconnects and there’s little bit of a lack of precision in the numbers. The story though for us is a clear story and it’s one around Home Phone, and I think we talked a little of both about this but I don’t know that we’ve given clear context. We’ve got a shift in strategy in how we approach Home Phones. We used to move forward very much with triple-play bundles and trying on promotional basis and trying onboard all of our customers with triple-play and make our promotion structure in that way, so that it was really to your incentive to take triple-play whether you wanted it or not. We moved away from that to single play onboard. And we want our customers to take the services that they value. And as a result, we had an understandably tough Home Phone quarter. And I think we’re going to have a tough Home Phone quarter for the next quarter or two as we work our way through those six-month promotions. I think when you look at the business, we’re quite comfortable with that segment to approach the Home Phone. We want to sell Home Phone to a customer who wants Home Phone. Our experience with the triple-play promotions were your customer would take Home Phone for the first six months. It really wouldn’t pay you anything for it of significance and then the churn rates were quite high as you move to regular billing. So I think the softness that you are seeing is a Home Phone story.
- Jeff Fan:
- So on to the Internet then, would you say that the trends on Internet is still, if you were to exclude the 30-day cancellation impact, would you say the adds were positive and still show -- they exhibited the kind of positive trend that we’ve been seeing for the last couple of quarters?
- Jay Mehr:
- Yeah, for sure. Certainly the adds are positive on Internet. I think to be fair and again we’ve given you approximate numbers because there is only so much precision. To be fair, we’re a few thousand lower in terms of our number of adds and Internet for the quarter. But we certainly don’t see anything to read too terribly much into that. But we were certainly nicely positive for the quarter.
- Jeff Fan:
- Okay. And then just stepping back, if we think about the competitive landscape and also capital spending that’s required to maintain competition to maintain your competitiveness. Telus is talking about spending more on capital with fiber-to-the-home now. You guys obviously went through spending with ACF and that’s supposed to drop down going into ‘16. Is there anything along with that you have seen in the last little while that would suggest that you need to pick up your spending again or maintain at ACF going into ‘16 or are you still pretty comfortable that given your capital budgets for this year and also the step down going into next year that you can continue to be very competitive against your key players?
- Jay Mehr:
- Jeff, we’re very comfortable. We’ve done a tremendous amount of work on the capital side of the business. I think when you look at the decrease in capital spending year-over-year both in terms of the core capital and the decrease from F‘15 in terms of ACF spend, I hate to have you left with the impression that that meant, we were, by definition, doing that much less. A huge part of focus to deliver has been our strategic sourcing initiatives in our capital allocation discussions and we’re certainly getting way more bang for our buck from our capital spend as a result of that. There is no question that ACF ends with this fiscal year, and that we have the flexibility going forward to make all kinds of choices in terms of fiber, next-generation video, and the investments that we need to make to be competitive. So there’s certainly -- I mean, the story you’re seeing here in terms of the weak first half and the stronger second half of this year is the story that we’ve talked about throughout. There certainly isn’t anything that gives us pause about the free cash flow characteristics of the business going forward.
- Jeff Fan:
- Okay. Thank you.
- Operator:
- Next question is from Vince Valentini of TD Securities. Please go ahead.
- Vince Valentini:
- Yeah. Thanks very much. Couple things, first let me stick with CapEx. If I look at the segments you provide, the CapEx for new housing development was up 38% year-over-year in the quarter and for the year-to-date it’s up 18%. It seems a bit surprising given what we’re seeing in terms of new home sales and starts in Alberta. Can you give any context? Is there some sort of timing issue with that number or is it all BC and Saskatchewan?
- Brad Shaw:
- There is a little lumpiness in the number. It certainly doesn’t translate to consumer housing start. It also includes some fiber builds and other things that we have invested in the quarter. And clearly while there is -- we're making significant fiber investments if we build those two new subscribers. So there is certainly a little bit of lumpiness there but some of it is just investment in network which we think is healthy.
- Vince Valentini:
- So we shouldn’t use that as a leading indicator of new home growth in the second half of the year, is what you’re saying, Jay?
- Jay Mehr:
- I would say, you weighted partially that. I mean, you know, the -- we live and work in Calgary. And if you look around at the number of cranes that we have on residential developments in the town right now, it’s still going good. People are finishing what they started. And so I think you’re going to see a nice housing start number in terms of developers finishing what they start. We’re less bullish on new starts where there aren’t currently holes in the ground. So I think you’re seeing that factor as well.
- Vince Valentini:
- Okay. And then let me ask on the cost reduction, maybe for you as well, Jay. We see the restructuring charge and $25 million savings, should we start to see that closure in the third quarter. And is it just $25 million from the call center activity or there is some of the other focus to deliver initiatives from prior quarter that will stand to ramp up in terms of OpEx savings in Q3 and Q4?
- Jay Mehr:
- Yeah. You’re going to continue to see the focus to deliver OpEx savings. We’ve got 11 work streams that we’re working on. We’ve now completed four of the 11 work streams and we’re declining call center as complete and that we’ve announced our plans. We haven’t worked our way to it. We will see some of that savings in the second half of this year from the call center specifically. You’ll see more of it next year to declare the $25 million number is through the service excellence program in the call center as we hit complete implementation. So some of that pushover is a reduction of staffing. Much more of it though was entered in what we are actually doing around the service excellence initiative and just to catch everybody up on what we’ve done with our call centers is we bought cable systems over the years. Every cable system has some call centers. In each call center, we did sales calls. We did billing calls. We did technical support calls. We did collection calls. We did field support calls and so you had this disparate group of call centers all across the country, all trying to do the same thing in a distributed manner. This is fundamentally a shift in how we deliver the customer experience by going to not only in our smaller number of call centers, but a center of excellence formula so that we only do two or three things than we do them really well in each of the markets we serve. So, $25 million is both a reduction in headcount and also all of the efficiency that come with the focus and service excellence model that we are implementing nationally. So heavy lifting but you will see certainly see that starting materially in F’16 and then rolling as F’16 rolls out.
- Vince Valentini:
- That’s great color. Thanks. And one last related is the restructuring charges. If you’ve only done 4 of the 11 work streams and you took a $38 million charge this quarter, that mean we should expect more charges as you complete more projects in future quarters?
- Jay Mehr:
- I can start and then maybe we will have Rhonda finish. There is certainly some media activity that’s happened, that’s been announced. I don’t in many ways, Focus to Deliver is a 36-month transformation project that we are now -- transformation initiative we are now 15-months in. In many ways, we frontloaded the heavy hard lifting and so that most of that heavy hard lifting is behind us. So, I don’t think you will see a continuous stream as we go through the rest. I mean, the other key initiatives, there is probably not rocket surgery to what Focus to Deliver and things like accelerated self served, things like self installed and some of the more technology based deliverables happen as we go into the second half of Focus to Deliver and also try to contain kind of restructuring charges.
- Rhonda Bashnick:
- Yeah. I will just confirm, Jay, with to your comments that yeah, we will see something probably next quarter with respect to the media restructuring that we just announced. And then I would expect that that’s going to start to diminish as we go forward because a lot of these initiatives are to Jay’s point that is not restructuring charges necessarily associated with them directly.
- Vince Valentini:
- Okay. Thanks.
- Operator:
- The next question is from Glen Campbell of Bank of America Merrill Lynch. Please go ahead.
- Glen Campbell:
- Yes. Thanks very much. A couple of small ones to start. So the Historia and Series+ would have affected the revenue comparison in media. Could you give us a sense of how big that might have been?
- Rhonda Bashnick:
- Yeah. It’s about $1 million with, if you normalize those results of our Historia and Series+ probably is about $1 million.
- Glen Campbell:
- Okay. Great. Quite small then. And then in the core cable and satellite business Opex, was that sort of a clean number this quarter or were there any unusual expenses?
- Brad Shaw:
- Yeah. I’d say two things on that, Glen. One is we have some Q2 seasonal expense changes that as you go back over the last three or four years are always there. And I don’t know, however, why it’s been reflected in the forecast. The two primary drivers is the way CPP and EI kicks in on January 1st, which is not an insignificant number when you are comparing Q1 to Q2. And then one of our two major network deals with a vertically integrated company has its rate increased January 1st and so you see those two things and you’ve seen them in all of our Q2s over the last number of years. And then I mean most of the restructuring charges of all the changes that we made in the quarter, our annual restructuring charge and I think it’s fair to say that there is some of those cost a much smaller number than it ended up above the line and that you see in our OpEx.
- Glen Campbell:
- Okay. That’s very helpful. Thanks. And, Jay, a more general question. So the commission’s decision on program packaging actually gives you a lot of flexibility about whether to promote packages like you have today or smaller packages or pick and pay or la carte. If you look forward to few years, what do you think will be the dominant form of packaging as you envisage the way you are likely to price and put it out there? Do you think it’s likely to be pick and pay or more like the current program or is it in between?
- Jay Mehr:
- Let me start and then I will get Jay to add a little bit. Just on -- let’s talk to the EI, I think we are certainly, we are satisfied with the commission, has introduced a measured approach and balances increasing choice for Canadians, which were all about while providing the industry some flexibility and an opportunity to innovate and invest. We are also very pleased with the orderly implementation and the new opportunities which, I think just reflects the overall consultative and collaborative approach that was taken with all constituents. I think with respect to the financial impact on our business, I will give you a sense. From a distribution point of view, we certainly think that we don’t expect any material impact on the business. To give you a sense, we think that most importantly, the founding decision is based on customer choice and providing those in that principal and that is definitely in our corporate DNA and we really feel that we have a good opportunity to continue to grow that. The big thing of course in the distribution business is the skinny basic, that the reduction in price, which excludes rental equipment and I think HD is largely offset by savings and programming and other costs on the EBITDA margin. So, we think it’s a small reduction on the EBITDA side but it still allows us to offer existing packages. It’s still allows us to market small theme packs and when I look at our overall survey and as we talk to customers and we have 80% that are very happy with what they got. And we really think we continue to be in good shape there to be able to have the flexibility to give customers what they want, meanwhile continuing to provide more and more choice. And just a little bit on media and sorry, I’m going on here but I got to lots to talk about and let’s talk TV. Genre protection elimination and I think, skinny basic are the two key things in media. We already think there is quite blurred lines with genre protection and we think the elimination is manageable. We always look at our core brands and services and say that’s really the strength of what we have and it is truly above brand and content. So, we are comfortable there. It gives us an opportunity to exploit the brands even greater across these off limit genres that were there, that we couldn’t go before. So, we see an opportunity there but there is no doubt as you look at it. For us, we see stronger channels but fewer and as proliferation of pick and pay grows that may change. But I think as we look at it, we also realize that we have some great core services we want to focus on. We want to make sure we continue to support going forward as consumers choose. But there is some changes in the air. We are going to manage it very well and feel pretty comfortable that we are going to be able to do that. The skinny basic won’t really impact media in F’15. I think you will start to see that more in F’16, as things become more implemented. But lastly, listen, there is a few small carrots in the decision that allows us to be, that the commission look to gives us more opportunity to grow content, more prime time as I would call it, if we call Rookie Blue and those options. And so there is good opportunity there and it’s not without challenges. Don’t ever get me wrong that we think a, the world’s great, we are not going to be able to do that. Of course, we have to manage. Of course, we have to be able to adjust, but generally we think we are -- it's very manageable and we think not only is it manageable. But there is an opportunity for us to create new packages and new opportunities and serve Canadians in a different way in certain consumer segments. So we are going to take this and look at how we could create more opportunity versus going the other way. So sorry for jumping in there, but I had to give you a little color on that.
- Glen Campbell:
- That’s great. Thanks very much.
- Operator:
- The next question is from Phillip Huang of Barclays. Please go ahead.
- Phillip Huang:
- Hi. Thanks. Good afternoon. My question is, I think we saw some increased promotional activity near the end of the quarter on the cable side. I think from what I was able to observe some offers extending promotional period from six months to 12 months. I was just wondering if you guys could give us a quick update on the competitive landscape and whether there has been any notable change beyond just the temporary increase in promotions at quarter end and whether any of the promotions or at all the response and perhaps, how the market might have reacted to the rate increase that were put through in January?
- Jay Mehr:
- Great. It’s Jay again. Maybe I will take that question in reverse and do rate increase first and then promotion second. We can tell you about the rate increase and again we’ve got a bit of a cloudy mucky data quarter because of the 30-day disconnect timing coinciding almost precisely with the rate increase timing. We implemented the change in 30-day disconnect, January 15th. So that gave you double the disconnects from January 15th to February 15th almost. So because of that, you can’t be too precise. What I can tell you is there is no material difference in the stickiness, our first rate increase than previous rate increases. And we can see no material other than stated that drove increased disconnects. We also can tell you that our key measure in our business is our customers' likelihood to recommend Shaw to our friend -- to their friends and family. And while we saw a very slight 2 percentage dip at the -- in January, it rebounded nicely and is actually sort of ahead today of where it was prior to rate increase. So we haven’t seen a noticeable brand or recommendation hit in terms of our rate increase. And in terms of promotional activity, I think it’s fair to say that through the fall we had somewhat increased promotional activity that was in the marketplace on both sides. We’ve seen that come down nicely in terms of our gross promotional discount over the course of last six weeks or so.
- Phillip Huang:
- Got it. Okay. And just to clarify, I don’t know if this was addressed early. But I was wondering the 30-day cancellation policy impact, do you guys have any visibility as what that would be for the remainder of the year and fiscal Q3 and fiscal Q4?
- Jay Mehr:
- Yes. So there won’t be a subscriber impact because the subscriber had almost taken in that 30-day period where you had the disconnects that had given 30-day notice between December 15th and January 15th, plus any disconnects that happened from January 15th to February 15th. There was no requirement. So all of that subscriber impact was outlined in the quarter and I think we are on the given financial guidance.
- Rhonda Bashnick:
- Yes. So we’ve included just our estimate of sort of the monthly revenue and EBITDA impact sort of given an amount there for the 7.5 months and you can close that up for 12 months sort of go forward impact what really is. It is an ongoing sort of reduction in your run rates from Q1 sort of going forward now.
- Phillip Huang:
- Got it. So no subscriber impact beyond, okay. That’s helped for the clarification. And then finally, I was wondering if you could give us an update on your progress through the transition of your key platform towards IT and what related CapEx projects you expect to see over the next 12 to 18 months or so related to this initiative? Thanks.
- Brad Shaw:
- Phillip, I would simply say that I cannot wait for the call, but I will be able to answer this question.
- Peter Bissonnette:
- We really look forward to that call and I think it’s going to come soon. I will stay tune when we are able to answer the question. If we land where we think we are going to land today, you won’t mind the direction. In terms of what it means from a capital perspective, there is nothing scary in it. We’ve got a hybrid approach to our transition as we talked about before. We’ve got multiyear roadmap and all of that is factored in, funded in sort of capital reduction that we have been doing.
- Phillip Huang:
- Sounds very exciting. So is it like still it’s within the next 12 months type initiatives or like we expect some sort of announcement within the next 12 months or is it figure out you guys think?
- Brad Shaw:
- No, I think you can expect some sort of announcement in the next 12 months. Again how many more calls can we do?
- Phillip Huang:
- Well, thank you very much for that, looking forward to it.
- Operator:
- The next question is from Drew McReynolds of RBC Capital Markets. Please go ahead.
- Drew McReynolds:
- Thanks very much. Couple of questions. Just wondering if you could give us a sense of -- from the restructuring charges taken last year in fiscal 2014, how much of the $50 million in cost savings are we now seeing it in the number this quarter? And second question maybe for you Barb, just obviously we saw the press release around the reorganization at Shaw Media, just wondering if you could help us in terms of how that better positions that segment for obviously the big changes that are coming?
- Rhonda Bashnick:
- Yes. I will start and just give you sort of estimated restructuring charge last year. We had sort of put out in estimated savings on an annualized basis of about $50 million and we are seeing that come in. That was sort of the reduction in the headcount that we saw, and so it’s about $12.5 million in the quarter.
- Drew McReynolds:
- Okay.
- Barb Williams:
- And I would say from the media point of view, we were accomplishing a couple of things of that restructure last week, one of them more certainly just tightening down on our traditional broadcast business as that being sort of flattens out. We know we need to be even tighter on cost. So part of 90 plus exits was about just continuing to manage costs very, very tightly on our broadcast business. And then the other part of that was about positioning ourselves to play in a larger media space going forward beyond just the traditional broadcasting company. And so about 40 new positions brought back into the company that are all with the new skill set around new kinds of content, new kinds of platforms, and new kind of advertising products. So partly battening down the hatches on the traditional business and partly repositioning to play more successfully in a wider media space.
- Drew McReynolds:
- Okay. That’s great. Thanks for that. And maybe just a final question, maybe for you Peter, just with respect to cord cutting, it’s clearly a recent phenomenon relatively speaking. Just wondering because you are seeing near term some weakness in Alberta, I am curious to know whether we get accelerated substitution in the bad times so to speak. We obviously haven’t been through that cycle from a cord cutting issue. Just wondering if you are seeing any evidence of that or if you can provide some perspective on what you think would happen in that kind of scenario.
- Jay Mehr:
- Yeah. It’s Jay, again, I’ll take it and talk about, we haven’t seen any evidence of increased cord cutting as a trend yet. We are certainly staying very close to that, as Brad alluded to in his comments on the economy. When we’ve had downturns in the past, we’ve done very well, but it’s fair to say consumers had fewer choices than they have today. And so we are certainly staying very close to that. You’ve heard Brad’s message around value and everything that you are doing on value. We continue to drive Shaw Go WiFi. We loved it that almost 70% of our Shaw Go WiFi customers think it saves their money on their cellular data charges and we’d love to see some of that substitution coming other way.
- Drew McReynolds:
- Okay. Thank you.
- Operator:
- The next question is from Tim Casey of BMO Capital Markets. Please go ahead.
- Tim Casey:
- Yes. Thanks. Couple for me. First, just on the media restructuring, should we assume the charges similar in magnitude to what went through this quarter or will it be smaller than that?
- Barb Williams:
- On the media restructure charges that will come in Q3 are distinctly different and lower from the restructuring charges you would have seen second quarter related to the larger Shaw business.
- Tim Casey:
- Got you. Thank you. Just on the coming back to CapEx. I just want to be clear. So the ACF expires at the end of this year. But it sounds like that you’re leaving your options wide open to bring in future projects or should we assume that level of spending goes away and does not come back?
- Jay Mehr:
- You should assume that level of spending goes away and does not come back would generally modeled on the Canadian business and signaled to the markets I believe on the last call. And you think 50 on the Canadian wide CapEx, that’s on the Canadian wide CapEx, but not current …
- Tim Casey:
- Do you expect to fund your roadmap to IPTV and others on that 850?
- Jay Mehr:
- Yes. Absolutely. And some other choices that we have the flexibility to make within that.
- Tim Casey:
- Got it. Okay. And last one, just can we return to these comments you made about Home Phone and how you’re not emphasizing it anymore. I mean, that’s a product with about a 90% product margin and profit margins. Why not keep it in the mix given it’s so profitable?
- Jay Mehr:
- Yes. I would answer that two ways, Tim. One is, it’s not that we’re taking it out of the mix. It’s that we’re taking a segmented basis to it. Two things to understand and one of the reasons you’ll see a two or three quarter adjustment phase is on the margin the people didn’t have Home Phone when they came to us and we sold them Home Phone because the triple play packaging for the first six months made it almost in your interest to take Home Phone and then they overwhelmingly disconnected at the end of six months. There wasn’t a 90% margin on the home -- there wasn’t any margin really on that particular point in time when you do the all at once. So it’s an unhealthy part of the business. We’re interested in selling Home Phone to people who want Home Phone. And we know that generation access consumers with kids, 87% of those customers have Home Phone and we want to be their Home Phone provider. We know that empty next couples, 93% have an Home Phone. We know that empty nest are singles, 81% have a Home Phone. Millennial with kids even 75% have a Home Phones. So it’s a segmented story of selling Home Phone. Millennial, singles and couples only 57% have a Home Phone today. So for us to enter the marketplace choosing to try and force a university student who is moving away from home for the first time to take the triple play bundle in his or her university dorm. We don’t think it’s in the long term interest of our business. We think we should sell that first that customer more into that. And so I understand that that sounds certainly counterintuitive to the approach we’re taking in 2008. Here in your comment you might think we’re early in 2015 to start to take a much more segmented approach. We’re confident that by 2017-2018 we’re all going to be doing that. So really it’s just approach to segmentation and the impact, well will show up the subscriber numbers. It’s not going to flow through the financial the way you think it is because of the way the six month promotions have activated.
- Tim Casey:
- Got you. Thanks for that.
- Operator:
- The next question is from Greg MacDonald at Macquarie Securities. Please go ahead.
- Greg MacDonald:
- Thanks. Good afternoon, guys. Question is on the Media division. I wonder if you may give us an update on the outlook for ad trends versus subscription that actually if I get backtrack. What were the ad trends versus subscriptions trends in the quarter relative to what we saw in the one Q2 and 4Q period, was there any change this quarter? And with ad, the ad outlook particularly, is there anything changing in the second half in terms of your conversations with ad buyers? Thanks.
- Rhonda Bashnick:
- Sure. So Q2 ad revenue story and our year-over-year perspective have actually been better than Q1. A little bit of market coming back in Q2. So our Q2 revenue year-over-year was actually up a sneak where as we’ve been down a bit in Q1. So an improving trend from that point of view. And as we look out to the rest of the year, we actually, hope we might see a little bit of that momentum continue, but certainly are optimistic that we can stay flat in the year-over-year basis from a revenue point of view, on -- but not the ad revenue. On the subscriber path, subscribers are sliding a tiny bit on us, but actually much as Jay said, we’re not seeing a huge change there certainly yet and we are well-protected in our concentration base rate cards from our revenue point of view. So, again, feel confident we can be in a flat to slightly up mode for the remainder of the year.
- Greg MacDonald:
- Okay. That’s helpful. Thanks. And can you remind me, the Shomi impact that’s an equity accounted business, is that not?
- Rhonda Bashnick:
- Yeah. That’s correct.
- Greg MacDonald:
- Okay. And so the impact on Media margins is essentially operating leverage normal. There is nothing unusual going on there.
- Rhonda Bashnick:
- Correct. Yeah.
- Greg MacDonald:
- Thanks very much, guys.
- Brad Shaw:
- Thanks.
- Operator:
- The next question is from Maher Yaghi of Desjardins Securities. Please go ahead.
- Maher Yaghi:
- Yes. Thank you for taking my question. I just want to go back to what you described as effecting your Home Phone subscriber metrics and you believe its going to take only a couple of quarters to resolve itself? From what you describe, it seems all the reasons you described are generational issues and I would -- other people describe them as wireless substitution and these are trends that are just starting? So why do you believe from what you discuss that these issues will get resolve in the quarter or two, because it seems like more and more people are asking for these Home Phone to be disconnected.
- Jay Mehr:
- Yeah. I apologize, if I didn’t, I’d probably being, just going to thinking particular query. What interesting about this segment is, in our research has really told a clear message that actually our customers who value Home Phone, really value Home Phone, really value Home Phone. In fact, value it as high as Internet and higher than video for the customers who value Home Phone. And the customers who don’t, there’s a very small group of customers who have price sensitivity value on Home Phone, that if you gave it to them for the right price they value it. And then there is a rolling group of customers that you described that is generational that place almost no value on Home Phone. And so the challenge with our packaging and how we’ve done it in the past is we did one size that fits all and we tried to push everybody into the triple-play bundle. And as a result, we are probably undercharging Home Phone in the bundle because customers who really valued it and saw there is an essential part of life was probably, have been willing to pay more and in order to get customers they are certainly paying less. So what I talked about in terms of the two or three quarters is we have a bucket of customers on the margin that are in a triple play bundle and are going to churn off home when they go to a regular pricing, because in essence we put them in a triple play bundle in order to get the RGU. So the one-time impact is just to let that group flush through the six-month promotion. We don’t disagree with you that there is also just a generational shift around boys, but we don’t think there is any thing unique to show in that generational shift. And we’ve been confirmed as a product to the segments that we talked about and we shared some of the overwhelming numbers to the things we talked about it’s going to be viable for a long time.
- Maher Yaghi:
- Thanks for that clarification. Could you quantify what this subgroup of subscribers would represent in total that you believe are taking Home Phone but do not value the Home Phone product?
- Brad Shaw:
- They are taking Home Phone but won’t be able to -- won’t choose to take it at whole price you are saying.
- Maher Yaghi:
- Exactly, yes.
- Brad Shaw:
- Yeah. I would suggest that we are going to be looking at Home Phone -- let me answer it this way, I’m looking at rather just to see if I could answer it this way. Directionally, I would suggest we are looking at Home Phone losses in the next couple of quarters, kind of in the mid-teens.
- Maher Yaghi:
- Okay. Okay. That’s helpful. Thank you. And in terms of the CRTC impact on subscribers on video and Internet, would you -- would it -- I think it would be helpful if you can maybe help us and understand how much of it was on cable and how much of it is in Internet so that we can look at it going forward and compare a little bit your Internet trends because for us looking at your business, Internet is by far the most important subscriber group to follow because that’s where the revenue is going to come in the future. And at this point it’s hard to understand how much of the decline that we saw in the quarter was due to CRTC and how much of it is losses or competitive losses?
- Jay Mehr:
- I understand what you are trying to go with the last -- it’s not a precise quarter. And we don’t think it adds value to disclosure to try and breakthrough the best guesses on each of the various products. So, I understand where you are trying to go and I’m not sure we can help you get there.
- Brad Shaw:
- I think maybe to answer it differently, I think we talked a little bit about -- we didn’t see a material uptick in core cutting this quarter, so that was an impact in our video subscriber trends. We continued to see positive growth on the Internet side. And I think Jay talked and alluded to that, definitely some weakness within the consumer Home Phone, residential sector. But we are not going to give specific details. But directionally, we throughout the call, we have given details on each individual components or the RGU base.
- Maher Yaghi:
- Okay. Great. And just one last question on the IPTV offering, I don’t want to steal your thunder when you announce it. It’s quite exciting, I understand your position. However, I just wanted to understand when you are going to be discussing this issue in the future quarters, is that going to come inside the rollout strategy or it’s going to be an announcement of the technology deployment that will take few quarters to be sold to clients. I am just trying to understand what we are talking about here with the announcements you mentioned?
- Jay Mehr:
- Yeah, the -- I don’t think we can add much more to what we said previously. I don’t think we can add much more to what we said previously.
- Maher Yaghi:
- Okay. That’s fair. Thank you very much.
- Operator:
- The next question is from Rob Peters of Credit Suisse. Please go ahead.
- Rob Peters:
- Hi. Thank you for taking my questions. Just two quickly on Shomi, I was just wondering I think on the media segment you guys had about $3 million in revenues from transaction with Shomi in the quarter. And I think you had about $5 million in Q1, just wondering do you expect that to kind of continue over the back half of the year or these kind of now that Shomi is getting more ramped up we would expect those to drop off in the second half?
- Rhonda Bashnick:
- I think you’ll continue to see probably in that lower range closer to the three on an ongoing basis but five included someone trying them out for some programming that was sublicensed to Shomi. So it’s more the app step we’ll continue forward and as of advertising sort of ramped down after we get out of the startup phase event.
- Rob Peters:
- Perfect. Thank you very much. And then on, in terms of kind of the ramp on the impact on the income statement, I believe you guys had mentioned in the previous call that it was more front-end loaded, is that front end loaded in terms of 2015 or is that front-end loaded as in like, it’ll be in there for -- we’ll see a similar hit in the rest of the year and then in 2016, it will come down?
- Rhonda Bashnick:
- Yeah. Well, I think it’s just a start off. So I think what we are sort of expecting to see in that low of sort of double digits that we are picking up now for the next on coming quarters into ‘16 as well and then it doesn’t start to ramp down for the loss.
- Rob Peters:
- Perfect. Thank you very much.
- Operator:
- The next question is from Sanford Lee of Canaccord Genuity. Please go ahead.
- Sanford Lee:
- Hey, Telus recently introduced usage-based billing on their Internet product basically as the rest of the industry. Do you plan on doing that any time soon?
- Jay Mehr:
- We are certainly paying very close to it and following the changes that happened in the market place doing lots of this. We’ve talked about segmentation and value testing with customers to see what makes the most sense. We wouldn’t say that we have any immediate plans, but we are staying very close to the trends in the marketplace.
- Sanford Lee:
- Great. Thanks. And the other question I had was on ViaWest, your revenue and EBITDA growth expectations are low-to-mid teens and can you say what the growth rates would be ex U.S. dollar appreciation?
- Rhonda Bashnick:
- That is in U.S. dollar forecast. So we are as in terms of our forecasting still trending to that low-to-mid teens as the U.S. forecasted company.
- Sanford Lee:
- Okay. Thank you.
- Operator:
- [Operator Instructions]
- Brad Shaw:
- Thank you, Operator. Thanks everyone. We will see you in next call.
- Operator:
- This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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