Shaw Communications Inc.
Q3 2015 Earnings Call Transcript
Published:
- Operator:
- Thank you for standing by. Welcome to the Shaw Communications Fiscal 2015 Third 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.
- Bradley Shaw:
- Thank you, Operator, and thanks to everyone for joining us today to discuss our third quarter fiscal 2015 results. With me today are members of our 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; Vito Culmone, Executive Vice President and Chief Financial Officer; and Rhonda Bashnick, Senior Vice President of Finance. I’d like to start the call with two brief announcements before we get into more fulsome discussion regarding our quarterly results. The first announcement is to officially welcome Vito, our new Executive Vice President and Chief Financial Officer, who started with us June 1. Vito is a great fit for Shaw as we enter our next phase of growth. His background and previous experience will be a tremendous asset as we continue to lever an exceptional customer experience and compete in this dynamic industry. Vito has a strong reputation related to the development and leadership of a best in class finance organization that is focused on partnering with the business to help drive results. We look forward to his contribution and are pleased to welcome him to the Shaw team. The second announcement is the retirement of our dear friend and colleague Peter Bissonnette on August 31 of this year. Peter has been a main stay at Shaw for over 25 years. His contributions have helped build Shaw to a great company that it is today. He has helped to guide us through significant growth, acquisitions, new product launches in an ever-changing regulatory and competitive environment. Peter, your insight and stewardship will be missed by all. We wish you health, happiness and all the best in your retirement. And since this is your very last conference call, I’ll ask you to say a few words before we get to the details of the quarter.
- Peter Bissonnette:
- Thanks, Brad. During my 26 years at Shaw, I’ve actually participated in almost 90 analyst calls. It’s like 10 baseball games. The world has changed and I’m proud to say that Shaw has been a part of that change for Canadians from coast to coast. I’m retiring knowing that the future looks very, very bright for Shaw as shareholders, as customers and employees. And I wanted to make a special thank you to each of our business analysts for your participation, your interest and focus on Shaw and this very exciting industry. Over these many years, we’ve come to actually look forward to your perspective on our business. Going forward, I’ll continue my involvement with Shaw as a member of the board and look forward to sharing my insights learned as an officer of this great family of company. Thanks, Brad.
- Bradley Shaw:
- Thank you, Peter. Earlier today, we released our Q3 financial and operating results. Third quarter results were strong with each business segment delivering year over year growth led by Business Network Services and Business Infrastructure Services. In the quarter, we delivered consolidated revenue and EBITDA growth year over year of 6% and 7%, respectively. Q3 free cash flow of $256 million represent a 7% increase compared to the same period a year ago. As we move into the final quarter of this year, we are on track to deliver our fiscal year financial guidance with EBITDA expected to be near the lower end of our 5% to 7% range and free cash flow to exceed $650 million. We remained disciplined with our pricing and promotional strategies had another strong quarter of over 7000 broadband net additions and we continue to have a strong base of loyal and engaged customers, totaling over 6 million consumer and business RGUs. As we discussed during our prior quarter’s conference call, we have moved away from bundling and promotional strategies on Home Phone products that were previously attracting low ARPU customers and have focused our efforts on the value propositions that our customers are increasingly demanding. This is reflected in our RGU results this quarter, where Home Phone accounted for almost half of total RGU losses. However, our overall consumer ARPU remained strong. Shaw Go WiFi continues to add significant value to our broadband service and remains a key differentiating factor with approximately 65,000 access points over a third of Shaw broadband customers are actively using Shaw Go WiFi, averaging 1 gigabit per month outside of the home. Eve4n as we go deeper into our broadband base, we continue to exhibit an impressive 25% lower churn profile compared to customers that do not use WiFi. Each quarter we built momentum with this service and we will continue to optimize coverage and improve network performance through the strategic deployment of additional access points and new technologies. Initiatives that we have started under our Focus to Deliver program are having the desired effect on our customers. [indiscernible] has increased 3% from the last quarter to 76% and we continue to introduce new tools and features to both our customers and employees to make every interaction count. The first phase of our call center realignment is well underway and our consumer margin of over 46% reflects the result of our multiyear Focus to Deliver initiatives. During Q3, we continued to refine our strategy within our business segment, where we expect to drive strong growth going forward. Our media team recently returned from LA with some new and exciting properties that will start premiering this fall, adding to our already strong programming lineup. Following this, we held our annual upfronts in Toronto earlier this month, with our approach this year reflecting the changing nature of our industry. Instead of doing one mass event, we’re doing a variety of different events, targeted at specific audiences. As previously disclosed, this quarter we announced organizational changes focused on improving our media division’s cost base and laying the foundation to transform from a traditional broadcaster to a broader media company. The evolution from a broadcaster to a media organization reflects the focus to encompass all types of content across all platforms engaging and monetizing audiences in the rapidly changing industry. Scale is a key factor in our business, particularly as we enter the world of next-generation video. Today, we’re excited to announce that we are working closely with Comcast to begin a technical trial on their cloud-based X1 platform. Shaw is the first in Canada to capitalize on Comcast’s cloud technology, offering consumers a seamless experience across multiple screens and devices both in and out of home. We’re building partnerships that deliver best in class customer experiences and we look forward to providing more updates as we move forward throughout the coming months. In closing, I’d like to congratulate Guy and the entire Rogers team on gaining Industry Canada approval on the spectrum transfer. It was a complicated and difficult filing and Rogers certainly used some great creativity to get over the finish line. Well done. This represents the conclusion of a multifaceted transaction for Shaw that occurred over a number of years. In 2013, we entered into a transaction whereby we sold our Hamilton cable assets and an option on our AWS spectrum for a total valuation of $750 million. Over the last three years, we have invested $500 million of the proceeds into our accelerated capital fund. The ACF plan HAs worked and has changed the trajectory of Shaw. Our investments in datacenters, WiFi, digital network upgrades and next generation back office have enabled the evolution of Shaw from the cable company into a broadband company. We are excited about the future and thanks to everyone for joining us today. We’d now like to open the phone and answer any questions.
- Operator:
- [Operator Instructions] The first question today comes from Jeff Fan of Scotiabank.
- Jeff Fan:
- Congratulations to Peter on his retirement going forward. Couple of questions around the video, on the video losses, last year it was around $12,000, this year is a bit higher than that. I’m wondering if you can just talk about the source of some of those losses. And then looking ahead to the X1 technical trial, having seen some of their platform and then what it can do, there is a lot of work in the background to get X1 running. I’m just wondering if you can share the type of investments that you’ve already made on the network and infrastructure to ensure that you can get X1 up and running and the kind of experience that your customer should get on that platform?
- Bradley Shaw:
- I’ll maybe start at a high level and then Jay can add to it. I wanted to step back. We used to be an engineering-driven company that build stuff. We used to be the aggregator. And we’re not that anymore. We’re now a customer centric organization defined by customer experiences. And when you look at it, the Internet has changed everything in this new world and we need scale. And so we’re committed to getting scale through industry solutions that are partner-led. And Comcast is an example of that this morning and a proof-point of this strategy. And as we go forward over the next year, you’re going to see a variety of announcements from us that prove that this relationship is the right way and these relationships are the right direction for this company.
- Jay Mehr:
- To build on your specific question, Jeff, it’s Jay, on the Comcast technical file and where we’re headed with this, we’ve done a tremendous amount of work on back office systems, on the ability to leverage on understanding what’s required in the network for the trial and we share your view around the complexity of it. I feel great confident in the richness and depth in relationship we had with Comcast. As we look at the complexity of this roll out, it’s hard to imagine for us that we could have done something like this on our own, like our first effort was in this area. So we don’t underestimate the challenge, but we’re really excited about the opportunity to create a differentiated video product that has many layers. In terms of your first question on video losses, we would say that RGU losses generally, as we’ve alluded to, primarily the softness in our RGU losses has been created by the unbundling of our on-boarding, which as you saw is primarily impacting phone, but we use to the only way to get a promotional discount from Shaw was to take all three products and we use our promotional discount to entice customers to take the products we want them to take. The shift that we undertook was to provide all of our customers the opportunity to get a six month promotion to whatever products they wanted to take from us and to put them in the driver seat. That primarily drove the phone change, there is a little bit of that in video as well as you can see [indiscernible] only customer which we’re certainly embracing. I would say beyond that primary piece which is around how we are packaging our bundling, there is a series of other smaller factors that probably have some effect on video and other subscribers. There was some movement in fiber to the home by our primary competitor. We got some promotional activity from the primary competitor, probably the beginning to some economic changes. And so we got three or four other relatively smaller things impacting it, but that was within our RGUs generally.
- Jeff Fan:
- And just follow-on, the investment to support X1, is it fair to say that you’ve given us some post-ACF CapEx levels going forward that you can stay within that and then you feel comfortable that the investment to support X1 has been made and that you can keep to that kind of CapEx level going forward and still get the product launched successfully?
- Jay Mehr:
- Absolutely. We’ve announced the technical trial today. As we move forward through the various stages, we will make other announcements. We can tell you that this is very capital-friendly, it’s a very capital-friendly program and I would say two things to think about how the ultimate roadmap would end up capital-friendly as we work our way through the trial. One is we’ve embraced the set top box strategy of Comcast and because we are launching only boxes that are the same as Comcast has in production, we’ve achieved up to just over 40% savings in our CPE equipment going forward like-for-like experiences and that’s obviously capital friendly. And in addition to that, the technical trial and presumably the ultimate architecture will strongly leverage Comcast’s video cloud and therefore not requires to duplicate that cloud in Canada.
- Operator:
- The next question comes from Bentley Cross of TD Securities.
- Bentley Cross:
- Just to follow on that last question of if it’s capital friendly, is it going to be margin unfriendly, are there going to be recurring licensees associated with that X1?
- Jay Mehr:
- I certainly wouldn’t view those two words together. I think, in general terms, as you think about industry with partner-led and this is one of a series of things you will see to stew over the next 18 months. I think it’s fair to say that as you move to some software as a service and infrastructure as a service business models, which we believe is the future of Internet world, that there is some shift over time from CapEx to OpEx. I think that’s fair to say. As we look at our 46% margin in the consumer division and everything that we are doing on Focus to Deliver, we’re quite confident about our margin profile going forward. I think that’s going to move the needle dramatically.
- Bentley Cross:
- And then can you share any sort of timeline as to when this will actually be available or are you keeping your cards close to the chest for now?
- Jay Mehr:
- Your second point. We will update you as we go forward sure, but we can’t do that right now.
- Bentley Cross:
- And then just lastly, little bit of housekeeping question, the timing of rate increases [indiscernible] have you guys decided when you are going to put through rate increases this year?
- Jay Mehr:
- Yeah, for sure. It’s Jay. [Increasing] everybody up and we’re talking mostly for our most interested and what we’ve historically called the cable side of the business within consumer and that’s slightly different timing on satellite side in consumer business side. We’ve historically done rate increases in the summer months which align with when our costs go up in September on most of our programming deals and some of our staffing cost and other costs. Last year, it was well reported in our results, we sort of moved that rate increase from September 1 to January 1. We are returning to our summer rate increase period. We announced and put on our website new pricing June 1 and have informed our customers that effective August 1, we’re going to do our annual rate increase and come back to cycle. We’ve said to our customers as we work through this process through our call centers and other things that we are returning to our regular annual cycle that there will be no changes in rates over the cold month period. And we’ve communicated packaging and so forth there. So that sets up nicely as you think about those changes to our base coming this summer and then the two-phased changes, the Talk TV and similar things that makes possible, the pricing and packaging and margin in December.
- Operator:
- The next question comes from Glen Campbell of Bank of America Merrill Lynch.
- Glen Campbell:
- First, a clarification on your last answer, Jay, so did I hear correctly that there will be an increase this September 1, it’s a return to your usual cycle, but you’re going to use the repackaging to do you increases in 2016?
- Jay Mehr:
- Not really, no. What you heard is we are going to – it’s good, I mumbled. What we’re doing is a rate increase August 1. We won’t be doing one September 1, because we are doing on August 1 and then there won’t be another rate increase obviously for a 12-month period and we’ve made that as part of our packaging for customers. So that change in general terms, think about $2 on the Internet, $3 on TV.
- Bradley Shaw:
- And those new rates are on our website today.
- Glen Campbell:
- And then just on the new X1 platform, when you look at what you can do product-wise relative to let’s say the media platform deployed by your competitor, what potential do you see for an edge? And our understanding of the platform is there are some elements of the upgrade that are possible with the existing set-top box base and some which would require new set-tops, I was wondering if you can give us a bit of color on that, could you confirm that? If that’s true, how much of your existing set top box base could take advantage?
- Jay Mehr:
- The positive thinking about how much information, let me see how to comment, great, let’s come at that this way. I’ll say we’re prepared to say this. If you look at the Microsoft media platform and the first generation of IPTV platforms, I think they really took an approach much similar to the approach, quite frankly, of the write-down that we took today on our first attempt at IPTV. They took an approach of taking really the legacy approach to delivering video services duplicated in the IT world. And so it was able to give you the stability of some Internet-like functionality, but very much in a first generation [indiscernible] what the team at Comcast has done has totally embraced the complete integration of the Internet into its customer experience and that it’s a very differentiated product from the first generation services. We also think the TV Everywhere element to the products bring compelling advantages and a similar experience to consumers. So we’re quite excited about the technical trial and the opportunity to move forward with Comcast.
- Glen Campbell:
- On the existing set-tops [indiscernible] that can take advantage of a portion of the features?
- Jay Mehr:
- There’s a portion of them that will be able to take advantage of the portion of the features, but I’m going down a rabbit hole as I further answer these questions. So I think I want to leave it there.
- Glen Campbell:
- Maybe just one last one, looking at the TV subscriber trajectory, it’s a bit negative on the business side, is that a structural trend or do you think that going forward that negative becomes a positive?
- Jay Mehr:
- Speaking plainly, we’ve seen – and they are not high ARPU customers that we’ve seen a decrease of RGUs in northern Alberta belated to the oil sands activity. Very small ARPU, very small margin [because] it’s got sophisticated supply chain organizations, but that’s what you’re seeing in business.
- Glen Campbell:
- So longer-term stable or maybe up?
- Jay Mehr:
- Longer-term stable, maybe up, let’s see how the new platforms affect our opportunity.
- Operator:
- The next question comes from Phillip Huang of Barclays Capital.
- Phillip Huang:
- Just a quick follow-up on the consumer segment. For the TV subscribers, to what extent, I know you mentioned that the biggest piece of it was due to the unbundling impact, but to what extent was the TV subscribers somewhat impacted by the economy in Alberta and also historically how have your customers responded to your price increases? I’m just wondering given the price increase that you really expect to put through on August 1, whether we should expect a corresponding potential increase in churn maybe of your lower end customers?
- Bradley Shaw:
- Sure, we can say this. The stickiness of our rate increases has held [on our customer] rate increase to be fair because of some of the packaging changes that we’re making, it’s been a couple of years since we’ve done a TV increase. So we don’t necessarily have the data points on that, although we certainly believe that if you look hard at our personal TV package that [indiscernible] we offer very favorable value compared to what’s available elsewhere in the market. If you remember, we’ve already repackaged on the video side and you know Glen Campbell put out a great piece a couple of months ago that shows you how our repackaging and what’s done to video ARPU. So we think we have less exposure there. In terms of subscriber numbers, look, as we alluded to, there is clearly a number of things happening in the marketplace that are softening up things a little bit and I think it’s reasonable to say that economic conditions in Alberta are one of those things. I think it’s possible to overstate that and I also think it needs to be put in the context of in the quarter we had some pretty aggressive promotional activity, we had some one-time market share shift with the fiber to the home rural development of communities that never had optic and went directly to the fiber to the home. So they are not increasing our primary competitors, it’s increasing market share beyond what it is in the cities, but playing a little bit a catch up because they’ve had quite low penetration in some of those really smaller communities. So we’ve got a number of factors into it.
- Phillip Huang:
- Just maybe a bigger picture question, you guys have made a number of changes recently to make your overall business more efficient and with your call center and organizational structure, I hear you guys emphasize a lot on improving the scale of the business, have you stepped back and look at the assets that you owned, do you see any more steps that you could take to may be further optimize the scale of the business? For instance, if I look at the media industry, it seems to make a lot of sense for further consolidation where possible. Do you see any opportunities for optimization on that front?
- Bradley Shaw:
- It’s dynamic and very fluid. We’ve always said that we are very happy with the assets we have. We’ve gone through a lot of focus in the media side to remove costs, kind of address from a traditional media to focus more on the digital on where that’s going and stuff, but we feel we can continue to manage and grow the business. But you know the headwinds in there and the challenges and we had successful trips down in LA, which was very good. And the ratings are good. If you look at some of the performance this quarter of Shaw Media is very strong. But that being said, you’re always trying to see what the other guys are thinking and doing. And we like to take that approach.
- Phillip Huang:
- And a final question, just a housekeeping one, you guys mentioned in the MD&A that there was some accelerated maintenance cost in the Infrastructure Services business, could you maybe elaborate a little bit on what that was?
- Rhonda Bashnick:
- Yeah. We’ve planned expenses that, just from a timing perspective in the third quarter, they are typically things related to our mechanical and electrical infrastructure, so across multiple regions we ended up doing some simultaneous maintenance with regard to the plan. So those were planned, accelerated and one-time for the third quarter.
- Operator:
- The next question comes from Drew McReynolds of RBC.
- Drew McReynolds:
- Just two satellite questions, if I can, I guess, maybe for you Brad, you talked about exploring opportunities here, just with you now focusing on X1 going forward, just wondering how satellite fits in with the broader TV platform and obviously with the business under little pressure, is there a little bit more appetite to think about scaling that up with obviously the other satellite operator here? And also just on the satellite sub front this quarter, just wondering little bit better than what we were looking for, is there anything unusual in the quarter?
- Bradley Shaw:
- Jay can answer the last one and I’ll talk about the first two. We love the business, we love the free cash flow that Shaw Direct kicks off. We’ve seen this quarter how we’ve been able to continue to turn that business around with the right focus, with the right segmentation as we continue to go with the market. We still tend to have more of a rural base in there. And listen, when we think of the TV market and video market, we think of that’s somewhat trying to look at both on the cable side and the satellite side of how do we create value and what things we can do. And we think we have some good things on the come to be able to add value there. And we’re pleased because we think at the end of the day what DC wants to do and what we want to do, I think, are a little bit different. It always makes sense when you can look at those things to do that, but I think DC feels that’s very important to them and it’s a big driver and a big EBITDA contributor, I think. And certainly is the same for us. But I think we have a refocus on satellite and you are seeing that results and that’s going to continue and we are pleased to have that.
- Jay Mehr:
- Filling in on the quarter, I think we’ve sort of flushed through some of the changes that we’ve made to the satellite business and we are seeing some nice stability there which we think will continue, notwithstanding obvious seasonal implications that you get in Q1 with cottages and stuff like that, that you're quite familiar with. We’re quite happy with the performance of the asset in terms of the industry leading customer satisfaction and we think that’s driving our results. We’ve done some great repackaging to redefine the right spot in the video space, not all the way down to skinny basic, not all the way up to $90 video packages and we’re having success in that space. And I think the team is doing a tremendous job. You can’t really see it in the results because we’ve confined the consumer division, but there have been many quarters where we were high mid-40s on cable margin and low mid-30s on satellite margin. And if you look at the combined margin of the new consumer division delivering 46% margin, we’re pretty proud of what the team has done in creating a new consumer organization to serve our [clients].
- Drew McReynolds:
- Hopefully two quick follow-ups here, just on the financial side, just wondering for fiscal 2015 if the $375 million in cash taxes is still the number to go with? And then just lastly on free cash flow priorities, as we look out in the fiscal 2016 and beyond, you’re going to have some decent uptick in free cash flow as well as your balance sheet looks certainly healthy these days, just wondering if there’s been any change or evolution on the free cash flow priority front?
- Vito Culmone:
- I will take that. In regards to the increases in tax rates and any impact on F2015, no material impact on our FCF guidance for the balance of the year. On an annualized run rate, the increases into F2016 will be about $10 million on a cash basis. So that’s the first part of the question. In regards to as we look into F2016, I think we will be in a better position as we complete our capital planning and our budgeting process here in October to come back with some guidance on FCF, but I agree overall with your sentiments for sure.
- Operator:
- The next question comes from Greg MacDonald of Macquarie.
- Greg MacDonald:
- Let me add good luck to Peter in his retirement.
- Peter Bissonnette:
- Thank you.
- Greg MacDonald:
- I wanted to ask you guys a quick question on business services, the metrics, they were just a little softer in the 3Q relative to the 2Q. You mentioned, I think, Brad, northern Alberta, I wonder if there is maybe a little more softness in the economy there, can you talk a little bit about the economy? It’s been a while since we got an update there, sometimes there is a lag effect to what goes on in terms of the commodity and then the follow on there with the business impact, if you could talk a little bit about that I think will be helpful for all of us.
- Bradley Shaw:
- Sure. I will certainly talk about the business space which is, I think, the origin of your question and will let folks jump in if there are other comments more general. So we had a shift in approach with Business Network Services and we had a leadership change in early January, on January 4 and appointed Ron McKenzie to lead our Business Network Services team. We really just weren’t living into the potential of the opportunity as you could see in the numbers. A number of things have happened and Ron for six months of the job and we’re delighted with the progress that we’ve made so far. Ron has built a new organization in Shaw Business. It did feel like we’re trying to run through the mud and we’ve got momentum with the high powered, high energy crisp organization. It’s just big organizational change of Ron, he directly report to only one of them reported to his previously, completing the sales structure, working on new sales plans, new strategy. So you see a number of expenses in the current quarter that are related to that strategy, a few million dollars of actual strategy work with our strategy consultants to really do a deep dive and make sure that we get it right this time. And what’s exciting for us is the funnel is coming together nicely and so we had a record sales month in May. I think it may be a one-month record, I think we might beat it again in June. We certainly got a shot at it. And so as that funnel flows through F2016, I think you’re going to see us live into the potential of the business on the revenue side. Clearly, the analysis has shown us that we’re under-indexed in sales resources compared to Cox and Comcast and some of the organizations that have really stepped into this opportunity. So I think if you look at next fiscal year, you’re going to see revenue gains better than you’ve seen. It’s certainly the goal so far. You will see EBITDA growth, but it won’t be the same pace as revenue for a few more quarters as we invest our way into the business space.
- Greg MacDonald:
- Anything on the economy overall, can I assume therefore there wasn’t necessarily more negative impact this quarter?
- Bradley Shaw:
- There is no doubt, I think, there is some softness there and it might be a little early. And we stayed close to it, but I think you can look at the results of the new builds area, I think it was up 16% year over year, but we are going to continue to stay close to it. And as Jay mentioned a little earlier, we had some low margin camps up in northern Alberta. We had some impact, but we’re not seeing it, but it might be a little early.
- Greg MacDonald:
- And then a quick follow-up on ViaWest, maybe just a quick comment on the pipeline outlook there. And then with respect to guidance, it looks like you need to get a pretty nice step up in the 4Q to hit that guidance number? You didn’t change it. So can we assume therefore that something is happening in the 4Q, either it’s seasonal bump up or expectation of customers coming on?
- Nancy Phillips:
- We contained to see very strong demand the portfolio of services and products that we have in the market, outsourcing in the US remains top of mind especially as we see it in the security compliance and kind of big data demand factor. So we’re seeing an expanding pipeline, good growth. We have seen some additional complexity on some – almost point in time deals that probably extended our sales cycle a little bit. We don’t see that as a continuing trend of the opportunities that we’ve been presented in our region. We will be converting those opportunities. So we will continue to support, obviously, that low to mid term, long term growth strategy on the long-term. So we see continued health in the business and strong demand for our capabilities in the regions that we represent. Particularly, pleased with our recent announcement around the security asset that we picked up that applied trust opportunity we think again fits nicely in our portfolio and we are seeing very strong demand dynamics and pull through opportunities within our existing base of customers as well.
- Greg MacDonald:
- And anything unique in the margin, I’m just looking at that guidance number thinking it’s a bit of a bump up expectation in the 4Q, is that something we should expect? Is there something unique in that?
- Nancy Phillips:
- No, I think we feel good about – obviously, in terms of meeting that low to mid teens guidance on the growth side of the business. Q3, we did have some one-time expenses, number one as I mentioned on the acceleration on some maintenance expense that we did see, on top of that some additional business development expense related to, as we mentioned, we’ve been looking in the market and spending some time working on our next greenfield opportunities. So those were some one-time expenses that hit us and then we saw a little bit of the contribution on the Canadian expenses starting to come in in the third quarter as well. So those three things contributed to the third quarter, most of them being one-time expenses.
- Operator:
- The next question is from Maher Yaghi of Desjardins Capital Markets.
- Maher Yaghi:
- I wanted to ask you just a follow-up on the X1 platform you’re going to be trying out, is that for [indiscernible] or the XG1 which is the hybrid?
- Jay Mehr:
- I think it’s fair to say that we are trialing in the technical trial all elements of the Comcast X1 platform and that includes those elements that are in production today and [indiscernible] future. So I think you can look at the partnership as a rich and deep partnership and the trial is a broad one.
- Maher Yaghi:
- And that drives into life, I mean, basically the question I had on my mind which is you’re trying to develop an all IPTV platform, trying to unplug your system from the QAM technology. Now through transitioning to hybrid system, you’re still going to have to work with the QAM hybrid system, how long do you believe you’re going to be on that platform until you become an all IP, because your competitors are launching gigabit Internet and FTTH across multiple areas in Western Canada. So in terms of your competitiveness on Internet, how do you see Shaw is positioned in the medium term let’s say?
- Jay Mehr:
- Maybe I will take your direct question which is about competitiveness on the Internet because I didn’t necessarily follow all of the pieces going into that, but let me – but let’s deal that directly. For sure, we are like others in the cable industry, we are committed to delivering the next generation Internet performance and you’ve seen our investments 3.0, you’ve seen our investments CCAP and you will see our investments in DOCSIS 3.1 and you’ll see our investments in fiber. We think we actually are well positioned to be able to compete on a very cost-effective basis in terms of the next generation Internet services. I mean, that’s the guts of our business. So all of our strategy is in terms of that.
- Maher Yaghi:
- So in terms of Internet connections, on the business side, what drove the decline? You believe you talked about some weakness in the economy in northern Alberta, is that the main reason why Internet net additions on business was weaker than last year or was there some key or let’s say contract losses?
- Jay Mehr:
- No, there weren’t key contract losses. It’s going to become harder and harder to link RGUs on the business side of the business as a predictor of future revenues. If you look at how – it’s certainly still accurate of today and to be clear the northern Alberta losses are not big numbers that are low rates and low margins. So they don’t really have a significant financial impact, but they certainly have a subscriber impact. As we go forward though, we’re quite bullish on the revenue growth opportunity in the business, we are not convinced that it will be reflected in the growth of our legacy RGUs. If you look at the way we deploy Internet connectivity, if you look at the way we deploy next-generation voice in all of our cloud-based IT services which are the center of small and medium sized business growth, those deployments don’t necessarily drive our views, they drive monthly recurring revenue. And so will there be some pull through because of the momentum and the number of sales people and the opportunity, there will be some pull through on our legacy RGU delivered numbers in business, there may will be, but really that depends on the mix that consumers choose. So the content that we are necessarily installing in Internet modem in a traditional sense as the mechanism to deliver Internet is not in many instances the way we are doing it. And certainly the concept that we are putting in individual digital phone terminal in order to feed voice is not necessarily the way the next generation of services get deployed. It’ll be a little harder seeing the RGU business connection directly to revenue going forward.
- Operator:
- The next question comes from Rob Peters of Credit Suisse.
- Robert Peters:
- Just briefly on ViaWest, I was wondering if you can give us an update on the impression on the Oregon data center, I know it’s supposed to be completed over this summer, is there any chance we are going to see any revenues from that in 2015 or is that all primarily in 2016?
- Nancy Phillips:
- Yes, it actually opens late July, we are on track to have that commissioned and we are in the process as we speak. So that is on time and we have presold quite a few customers. So they will start to install during the August timeframe. So it’s very successful probably six to eight months out in terms of our pre-selling opportunities for that with several customers ready for installation post commencement.
- Robert Peters:
- And maybe just going back to when the transaction was originally done, I’m not sure if this has been answered, but with the spectrum option with Rogers, will there be any tax implications on the $100 million payment now that’s completed?
- Vito Culmone:
- Yes, we will have a gain on that transaction and there will of course be tax associated with that.
- Operator:
- Mr. Shaw, there are no more questions at this time.
- Bradley Shaw:
- Great. Thanks, everyone. Have a great summer.
- Operator:
- This concludes today’s conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.
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