Shaw Communications Inc.
Q4 2014 Earnings Call Transcript

Published: 24 Oct 2014

[Operator:]

Thank you for standing by. Welcome to the Shaw Communications Fiscal 2014 Fourth Quarter Conference Call. Today's call will be hosted by Mr. Brad Shaw, CEO of Shaw Communications. [Operator Instructions] And the conference is being recorded. [Operator Instructions] Please also note that an investor's 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 and Press Releases. [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, and 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 S. Shaw:]

Great. Thank you. Thank you, operator, and thanks to everyone for joining us today to discuss our 2014 fourth quarter and year-end results. With me today are members of our senior management team, including Steve Wilson, Executive Vice President, Corporate Development and CFO; Jay Mehr, Executive Vice President and Chief Operating Officer; Barb Williams, Executive Vice President and President, Shaw Media; Nancy Phillips, co-founder, president and CEO of ViaWest. Unfortunately, our President, Peter Bissonnette, is not with us today as he is flat out under the weather and is unable to join us this afternoon. Earlier today, we released our Q4 financial and operating results. We are pleased with our performance and remain focused on delivering exceptional customer and viewer experiences, leading technology, operational efficiencies and value for our stakeholders. Our diligent cost management and disciplined pricing approach to the market continues to resonate in our financial results. In Q4, we delivered consolidated EBITDA growth of 6% compared to a year ago, and our Cable EBITDA margin in the quarter was in excess of 49%. We continue to invest in and leverage our superior network, which now exceeds 850,000 kilometers of fiber throughout North America and over 45,000 WiFi hotspots across Canada. We continue to balance financial results with maintenance of our overall customer base. We had another quarter of strong broadband additions of approximately 12,000, and we continue to have over 6.1 million RGUs. In fiscal 2014, we delivered 3% revenue and EBITDA growth. Free cash flow in F '14 was approximately $698 million, which represents a 16% increase over the previous year. Our F '14 results meet our revenue and EBITDA guidance, and we exceeded our increased free cash flow guidance of $650 million, which was actually increased in June from our original guidance released in October. We expect fiscal 2015 consolidated EBITDA growth to range between 5% and 7%, including our target F '15 ViaWest EBITDA of USD 85 million. Consolidated free cash flow is expected to exceed $650 million after accounting for additional interest expense and investments associated with the ViaWest and increased cash taxes. Besides our F '15 financial guidance, we are also pleased to confirm some other key metrics, including

[Steve Wilson:]

Thanks, Brad, for the kind words. 10 years ago, I traveled with my family to Calgary to join Shaw as CFO. Over the last 10 years, I've had the opportunity to work with one of the best teams in this industry. The company has grown substantially from analog TV to phone and now as the leader in high-speed broadband, with a successful Media operation. Revenue and shareholder value have increased significantly, and along the way we did some important game-changing acquisitions. We were also one of the leading MSOs in North America to introduce a dividend. It's been a great ride for the last 10 years. I will miss the day-to-day excitement of the industry as well as the talented and engaging people at Shaw. The company is in great shape, both strategic and financially, and the foundational investments are in place to continue with a track record of success. After a decade like that, I've decided to change pace. I'm looking forward to continuing my community work as a member of the Board of Governors of the University of Calgary, doing public and other board work and potentially, some teaching and writing. I'm extremely proud of the finance organization. They are dynamic, capable, strategic thinking and provide the support needed by the business. They also work hard to ensure that there are no miscues and there have been none. I'm happy to be joined on the call by some of them to address questions that may arise today. This will be my last conference call, and I won't be taking questions, but I do get a parting word. There are many brilliant and thoughtful analysts and investors who have been a pleasure to work with. I leave you with the recommendation that you never underestimate the strength of commitment of the family, the Board and a great senior leadership team. They are clear thinking in their strategy, prepared to make the investments necessary and forward-looking to navigate the many changes we'll see in this industry in the coming years. Brad, it's been a pleasure working you, J.R., Jim and the whole team over the last decade. I look forward to tracking your achievements in the years to come.

[Bradley S. Shaw:]

Thanks, Steve. As Steve mentioned, we're happy to be joined today in the room by other senior members of our finance team, including Rhonda Bashnick, Senior Vice President of Finance; and Trevor English, Senior Vice President of Corporate Development & Capital Markets. I'd now like to ask Nancy to give some insight on ViaWest. And we recently had our first Board meeting, and I'll ask her to say a few things, and then we'll go from there. Nancy?

[Nancy Phillips:]

Great. Thanks, Brad. We had the pleasure this week of hosting the Shaw Board and many of the Shaw executive team members here in Denver, Colorado. I'm going to designate them as our lucky charm for the Broncos, so let's see if we can win tonight as well. But, obviously, a great week that we were able to engage on many fronts. And I think the theme was really just a lot of excitement about the adjacencies in the products that we're bringing to the market. We continue to see great traction and opportunities emerging not only here in United States, but my team -- and a genuine -- real excitement around the Canadian market opportunity and what we can do. Clearly, we think that the breadth of services that we have honed over the last several years are really compelling, and very excited to get started here in the summer of 2015 with our flagship Calgary data center that we are working actively on in terms of getting that up and operational. We're starting to see early demand, both coming from the U.S. and Western Canada. And obviously, working very closely with many of the team members to create the right synergies as we move into that marketplace with the Shaw business unit. So overall, very excited. I think a real positive on the selling front. Excited in terms of the opportunity ahead for the company. And I'm happy to answer any questions that you might have here this afternoon.

[Bradley S. Shaw:]

Okay. Great. Thanks, Nancy. So thanks, everyone, for joining us today. And operator, we'd now like to open the phones for questions.

[Operator:]

[Operator Instructions] The first question is from Jeff Fan of Scotiabank.

[Jeffrey Fan:]

My first question is just a clarification on the WiFi. Brad, you talked about, I think, 1.25 million registered devices. Wondering how many households that roughly represents? So I guess, looking at a penetration number in terms of the number of households that are actually using the WiFi. And then the second question is really on internet. I guess, with all the over-the-top news that we've been hearing in the last couple of weeks, one of the things that I'm thinking about is, what is the importance of the Internet-only subscribers, that's in your base? We're seeing some pretty good growth in your disclosure, I think, roughly 20% of your base is now Internet-only. Can you talk a little bit about the profile of these customers? Just give us a sense as what the ARPU and churn in usage may be? Because, I guess, as OTT becomes bigger, this space could become a lot bigger. I'm just wondering how that would impact financially going forward.

[Bradley S. Shaw:]

Sure. I'll start, and I think Jay will add something, and I might go a little further than you want on WiFi. From a penetration point of view, on a homes passed, it's 28% of actual customers, Shaw customers, home penetration -- not homes passed, sorry. It's interesting, as we look at the WiFi development worldwide and what's going on, the new technologies, this Hotspot 2.0, the roaming relationships happening around the world, the new business models being created, the opportunity when you look at it just from a point of view of our extension of broadband, and how that's resonating with customers, the likelihood to recommend, as I mentioned in my speech. All very important for us and all, I think, tremendous signs that WiFi has a role in mobility, in the wireless world. We certainly think there's many opportunities. We're working closely with Industry Canada and making sure there's more WiFi spectrum coming along the way. And as we look forward, we believe that the WiFi for us will be a fundamental piece in the broadband story. And we couldn't -- when you look at home spots, you look at trying to densify your network, you're looking where the people are, you're looking at the heat maps, you're building things to where customers will get the most benefit. When I look at just the users and the people using it, when you look at video and video streaming, is it portable? Is it mobile? We really think we have an answer for customers, and there's a tremendous value proposition. And as you can see from the device growth, the account growth, we're very excited. We are very focused on continuing to add value right across our markets. And we're continuing to look at what types of roaming things. And I think one thing I'd be able to say is, as we look out over the next few quarters, and you might have to give us a couple, but we'll be able to, I think, give a little more sense of the WiFi roadmap, and you can get a little more understanding of what some of the things we're looking at and timing. And we can -- we'll be able to fill you in a little bit better there. Jay?

[Jay Mehr:]

Great. And picking up on your Internet-only question. So, as you've seen, we now have 400,000 or so internet customers without video. And to be clear, we love those customers. They're very profitable, and they're a big part of the future of our company, and we're making investments in things like shomi and to a lesser extent, Rdio, to provide experiences for the segment. And we think of our business as a network and content experience company. And we're going to work hard to deepen our relationship with those customers. And when we talk about deepening that relationship, we're talking about deepening it in a way that provide services that customers -- that, that customer segment values, not trying to take them back to some services that they've left behind. So we're doing lots of things with shomi. I think, as we get to the other side of Optik TV, SR&ED, we're going to continue to try to build the best-in-class video experience that absolutely is going to bring this customer segment back into experiencing Shaw video.

[Jeffrey Fan:]

Okay. Just one clarification. The 28% number, is that percentage of your internet subs?

[Bradley S. Shaw:]

Yes, yes, that's correct. Yes.

[Operator:]

The next question is from Vince Valentini of TD Securities.

[Vince Valentini:]

A couple of free cash flow questions to start. You mentioned that the core CapEx beyond the accelerated CapEx fund is still $750 million. Correct me if I'm wrong, that was the figure prior to acquiring ViaWest. Now you seem to be including ViaWest CapEx and it's still $750 million, so does the number not go up when you add in ViaWest spending?

[Bradley S. Shaw:]

That's correct. The core Cable CapEx is more on the residential and Shaw business CapEx figures. So you would have a higher CapEx when you include the ViaWest.

[Vince Valentini:]

Okay. So when you say it includes consumer and business, that doesn't include ViaWest in the $750 million then?

[Steve Wilson:]

It doesn't include ViaWest, it doesn't include the current Satellite group, it doesn't include the current Media group. And we'll clean up as we report in the new segments for the first time in Q1. So you can get flexibility. I think we're just simply reinforcing that our path hasn't changed from what we talked to you about before.

[Bradley S. Shaw:]

And similar to what we said on July 31, I mean, we're forecasting ViaWest CapEx to approximate the EBITDA figure that we gave this morning as well.

[Vince Valentini:]

Right. And in other free cash flow drivers, cash taxes, you said those will be higher. Can you remind us where we are, I think, it was a 5-year period of accelerated or inflated cash taxes after the deferred or limited partnerships got shut down. Is this -- can you remind us where we are on that, and how much of that is still left to spend in 2015?

[Rhonda D. Bashnick:]

It's Rhonda. We're in year 4 of that. So it will be coming off next year. Next year we'll have another year of taxes and then it will roll off. And we're estimating the cash tax number to be approximately $375 million this year.

[Vince Valentini:]

When you say next year, Rhonda, you mean it rolls off in 2016?

[Rhonda D. Bashnick:]

2016 will be another year of pickup for cash taxes on the partnership. That will be the last year. 2017 rolls off.

[Vince Valentini:]

2017 rolls off. Okay, yes. And one last one, if I can switch gears, maybe for Barb. In the immediate sort of environment, you guys seem to have posted reasonable organic growth numbers, because you had a couple of assets that were divested and you still had flat revenue. Can you give us a bit of commentary on what you're seeing in terms of the ad market environment out there, despite things like digital media taking share or the Canadian dollar being weak? I mean, how much pressure are you seeing on traditional advertising spending?

[Barbara Williams:]

There is some pressure. We're seeing a little bit of softness this quarter, pacing a little bit behind. But we are seeing some catch-up in that. The advertiser is making decisions later and later, but the demand does seem to come. It certainly does put an emphasis for us though on containing costs carefully as we go forward, and being sure that we manage our way through whatever softness might be there.

[Operator:]

The next question is from Glen Campbell of Merrill Lynch.

[Glen Campbell:]

So another question for Barb on Media. Could you talk a little bit about shomi from a Shaw perspective? I guess, I understand that this is your project. We see in the press release that Shaw's committed $67 million. How is -- how do you expect the numbers to kind of flow through the financial statements? And how does the partnership between Rogers and Shaw work in terms of, say, the platform as well as the content?

[Barbara Williams:]

I'll let Rhonda speak to you the financials. It is a 50-50 between Shaw and Rogers in the JV of shomi. From a content perspective, we are leveraging the opportunities that both Shaw and Rogers can bring to the table in terms of dealmaking for the content of service. But as far as the financials, Rhonda, maybe you want to speak about.

[Rhonda D. Bashnick:]

Sure. So it is a 50-50 joint venture and we are -- so it won't be proportionately consolidated in our results. It will be equity accounted for.

[Glen Campbell:]

Okay. Great. And just to follow-up. There's also the platform development aspect of shomi, with authentication, the menu, the interface and so on. Who's taking responsibility for that?

[Barbara Williams:]

That process was started by the Rogers team back before we became partners with them. So the outstanding user interface actually, the Rogers team deserves credit for getting that underway. But there is a shomi team, an independent shomi team that has its own technical group, has its own content group. And on a go-forward basis, they will be managing both the upgrades and changes, improvements to the user interface over time, as well as responsible for the ongoing relationship with our customers and with our content suppliers.

[Glen Campbell:]

Okay. Great. We'll look forward to that. And then one last one, again on the CapEx. So the $750 million has been identified, I guess, as the core Cable CapEx for fiscal '15. How should we think about the medium term? Is that a maintenance number, and the actual spend's likely to be kind of a little above that? Or should we think of that as being a good run rate for '16 and beyond?

[Jay Mehr:]

It's Jay. You should think of that as being a good run rate for '16 and beyond in providing us with enough flexibility to make decisions as we go along and make investments as we go along.

[Operator:]

The next question is from Phillip Huang of Barclays.

[Phillip Huang:]

Question on ViaWest. I understand it's provided a platform for future growth in a less competitive Tier 2 U.S. market. And you guys currently have a pretty strong presence in the Western U.S. markets. And I think you guys have talked a little bit about looking at potential opportunities in the East Coast over the next 18 months due to demand for -- from customers. I was wondering if you might be able to give us an update on your thinking on this front? And whether you see any attractive expansion opportunities in the near term?

[Nancy Phillips:]

Yes, I think, we have seen some very good customer demand. We have long-tenured customers who, in many cases, like to be in multiple data centers with us. And the East Coast has, obviously, been part of that early demand. So as you know, historically, we've grown in 2 ways, either through greenfield builds, much like our Minneapolis center that we opened this year, and/or through acquisition. And I think the key here is that we want to pick the right way to go-to-market in the East. We've been a very patient expansion company. And I think we are obviously participating in conversations as we see opportunities potentially come to the market. But I think the key is that it -- we really are looking for the enterprise-grade capabilities that our customers have become accustomed to, especially in the mid-sized market. And so I think we're looking at it sort of through that lens of both not only greenfield, but potential opportunistic acquisition. And so that's kind of where we're at today, continuing to take a look at what's going to make sense.

[Phillip Huang:]

Right. No, that's helpful. In terms of more for modeling for us, you mentioned that it's going to be largely net -- free cash flow neutral over the next couple of years. Beyond that, like, how should we think about the cash flow contribution for ViaWest?

[Bradley S. Shaw:]

It's Brad. I think, we -- when we came into the business and the diversification is -- we wanted the growth, we certainly see a lot opportunity going forward over the next 18 months and beyond, and we want to continue to maintain that growth focus and that commitment around that. So you're going to continue to see us support that model.

[Unknown Executive:]

Just to add. Of the $85 million roughly of CapEx guidance we're giving for this year for ViaWest, I mean, the lion's share of that is growth capital. The maintenance capital within the business is around...

[Nancy Phillips:]

2% to 3%.

[Unknown Executive:]

2% to 3%.

[Nancy Phillips:]

Yes. I mean, We've been very much on line. So it's -- the lion's share is definitely about success-based capital in terms of our organic growth strategy now.

[Phillip Huang:]

Got it. Okay. And then, perhaps one final question for you guys, maybe give us an update on the AWS spectrum transfer to Rogers? I believe, September was the last month of the 5-year moratorium. So I was just wondering whether you've started the process of applying to Industry Canada for the spectrum transfer. And should that transfer not be approved, I was wondering if you have some idea in terms of the timeline when you expect to return the $200 million deposit to Rogers.

[Bradley S. Shaw:]

A couple of things on that. I think -- we have talked to the appropriate parties, and they are awaiting feedback as we go through the fall here. It's something as you look at, we really love where we are in WiFi, and our focus and attention there. We're committed to following through on the deal with Rogers on the AWS spectrum. And even in that deal, there's options for them beyond that to allocate the spectrum. And so for us, and subject to all those things happening and all that coming into place and not happening, you have to consider just where things are at from our point of view. And if you do get the spectrum back, what does that actually mean? And so it's prudent on our part to be having some thoughts around that and going from there. But we still believe the spectrum will get approved.

[Phillip Huang:]

Right. Is any part of your consideration linked to the upcoming sort of wholesale rulings from the CRTC? Or is that completely sort of irrelevant to the way you guys think about the spectrum, more how it relates your strategy overall?

[Bradley S. Shaw:]

Oh, yes. It's all relevant. I think, for sure, it's -- as you look at it, you go, okay, what are the things that are going to change, and what's happening, and what's different than 5 years ago, and what's happening around, both in North America and globally. I think, it's prudent on our part to look at all those things. And as you look at it -- but we're -- we love our play in WiFi. We think there are so many opportunities there. We're just starting to crack the egg, and you're going to see us continue to make sure we develop our WiFi and want to extend WiFi wherever possible. Now, how we want to extend it? We're going to continue to build and continue to make sure we create value through partnerships and other ways. And from that -- but I would say, from a point of view of -- incase -- you look at all scenarios. So I can leave it to that.

[Operator:]

The next question is from Drew McReynolds of RBC.

[Drew McReynolds:]

Most of my questions have been answered. Just I might as well touch on Satellite. Just big picture, just wondering if could give us some granularity just on, obviously, some erosion on the subscriber front. Is that a function of the price increases you put forward? Is it competition? Is it cord cutting, potentially in some of the more urban areas? Just wondering if you can give us some big picture context?

[Jay Mehr:]

It's Jay. The -- yes, I mean, clearly the Satellite subscriber loss is a subscriber number that really stands out from our trajectory. It's fair to say that it's in a very competitive triple play environment that we're struggling with our acquisition economics for better net subscriber numbers that -- than you've seen, and getting a return on the capital invested required to get those numbers. So our approach has been clear. It's to maximize free cash flow. And that approach has delivered, I think, this quarter, with 8% year-over-year EBITDA growth, and we had a very nice free cash flow profile in Satellite. But we certainly understand the core question. Q4 is actually seasonally a good quarter for those that follow the Satellite business policy. And we still had a subscriber loss of 6,600. So what does that mean in the medium- and long-term profile of the business? I think we will see some more stability over time. We believe we're in the competitive part of the business cycle in Eastern Canada as the triple play battles heat up. And we believe strongly that we can maintain Satellite EBITDA, including run rate EBITDA. And so shifting dynamics, bigger focus on retention to mitigate the loss over time. To be clear, Q1 is seasonally our toughest quarter because we have our seasonal summer business that we do with cabins. And I think you'll see a Q1 number that's significantly weaker than Q4. But overall, we're going to have solid EBITDA growth both in Satellite and the whole consumer division. We think it's a terrific business. We've got industry-leading customer satisfaction scores. Our core part of the base in rural has a compelling customer experience. And we're just not really chasing new customers aggressively right now to fit in with our strategy of maximizing free cash flow and maintaining EBITDA.

[Drew McReynolds:]

Okay. And maybe just one last one from me. Just on shomi, and perhaps for you, Barb, interesting development, I think, for the industry and interesting to see Shaw in there, just given kind of where your exposures lie on TV and broadcasting. Just wondering, how you're positioning shomi. Do you view it as a hedge? Do you view it as complementary? Is it really thematically about just serving content up for your best internet customers, knowing that you have a very strong internet offering? Can you just help us strategically put it into context?

[Barbara Williams:]

Sure. I think generally, we have seen statistically that the initial OTT offerings have been complementary. So we don't see this as a direct hit as much as an opportunity to offer more choice, more place for people to connect with our content. We are more and more able to engage in a larger basket of rights, which allows us to use this content across more platforms, including shomi. So I think this is all about respecting the customer's desire to engage with content where, when and how they want, and being sure that we continue to offer a wider variety of options for them. And shomi is just a great opportunity for us to leverage off the tremendous content success we've had in the traditional media business and extend it into this future platform.

[Bradley S. Shaw:]

And just to add to that Barb, I think it's also, when you look at it, TV Everywhere meets a certain part of the market when you look at how they want to consume content, where they want. I think OTT plays also a role in there. And ultimately, for us, we're not going to sit here and say, "Oh, potentially we're going to sit here and guard everything, and hold and protect." You have to be able to look around and be able to even somewhat disrupt yourself. I look way back when -- yes, it's a little different scenario, but when we got into Satellite, we said 2 out of 3 customers is fine with us, and we're willing to play in that game. So I see this very similar. I think there's also -- when you look at it, I think there's always -- when you look at Netflix and what they're doing, the pressure on rights and the things that are going on and the volatility of things is also a driver somewhat for us in that regard.

[Operator:]

The next question is from Tim Casey of BMO.

[Tim Casey:]

Just one clarification and then a question. On shomi, I understand that your equity accounting the P&L of shomi itself, but will you still book content sales from your Media group through Shaw consolidated P&L?

[Bradley S. Shaw:]

I think -- let us -- can we maybe take that offline and we'll get back to you on that?

[Tim Casey:]

No worries, no worries. Just on WiFi, I mean, I -- certainly, obviously, it's being widely accepted by your subscriber base. Are you able to provide any discrete financials on what it's contributing? Or is it still really part of the package so you're not able to draw that out? And secondly, just can you comment on what you're seeing on the voice side. As -- are you able -- are you offsetting what one would think would be erosion of your voice subscribers in an urban environment. Are you offsetting that with gains on the SME side? Or what's happening on the voice part of the bucket?

[Bradley S. Shaw:]

I'll -- on WiFi, just from the churn benefits, I think it more than pays for the cost of rolling out WiFi. And we -- as I said earlier, we continue to look at the model, continue to make sure we have a great network. We're densifying, we're planning well. And listen, even though we have 45,000 hotspots, we're just starting in a lot of our municipal deals. We have over 60 of them that cover 4 million potential, and continue to build off those. So -- and we're also going to continue to make sure we build where the people are. And so we're constantly looking at that. Not with quite the success rate, but almost similar to that. So -- and we continue to look at the models and the potential for it. And -- but we're very focused on making sure we have a clear roadmap on what we're going to do and how we are going to do it. And making sure we're clear on what's coming at us, because there's a lot there. And we just want to make sure we're prudent on how we manage it.

[Jay Mehr:]

Great. And picking up on the voice side. Yes, I mean, I think we're pretty comfortable with sort of maintaining overall lines, as you've seen. I think you've correctly identified that you're seeing some modest declines in the consumer voice base that are being offset by some modest increases in the very small base. The way we sell voice to medium-sized customers and other technologies doesn't really drive RGUs in just the way we recognize things. It drives revenue. So I don't think the business growth line is as big as you might think it is. But for sure, there is some offset there.

[Operator:]

The next question is from Greg MacDonald of Macquarie Capital Markets.

[Gregory W. MacDonald:]

The question I have is on the internet pricing power. This is one company certainly with the deployment of WiFi that you've got, that probably has a higher-than-average pricing power on the internet side of things. And let's face it, this is an industry that some would argue, I certainly would, is losing pricing power in a number of areas, but this is one that's strong for you guys. Can you comment on what pricing levers you could pull in 2015 to help hit the guidance numbers that you have? And then I've got one definitional question after that.

[Jay Mehr:]

It's Jay again. Why don't I just talk about rate adjustments in general terms for us in F '15, and then we can come back to some conversations about potential future pricing power driven by WiFi. So just to level set for everybody, on the Cable side of the business in F '14, we did our annual across-the-board adjustment in September. And as we made plans for F '15, we modeled a number of scenarios, including doing the annual adjustment in September, as has been done in the past. And there were a number of moving pieces in the ecosystem. And we all talked it through and decided that it might be prudent this time around to give the market a little bit of time. So we're going to come with our consumer and business rate adjustments that will now happen on January 1. And so I mean, when you look at it, as a number, the consumer number's a lot more material than the business number, so maybe focus our comment there. We've got 2.8 million consumer households. And our January rate increase is going to net about $9 million a month. So a little bit more than $3 per month per customer. I think if you model that through, I think it's fair to say the 4-month delay probably takes what would have otherwise been a great F '15, when you combine the Cable business with our focus to deliver cost cuts. But now it's just probably going to be a good F '15, with the growth in the second half. First quarter looks -- will look a little tough, just because of the combination of our annual network fee and salary increases, without the offsetting adjustment, which are in a slightly negative base in consumer. But the year turns around nicely and goes to nice growth in the second half. In terms of opportunities for WiFi, I mean, we include WiFi in our internet packaging today. It's certainly, we've got -- a likelihood to recommend on our WiFi product in the -- deep into the 80s. And it's taken likelihood to recommend our internet product overall into the 80s, which is a dramatic increase over where it was a couple of years ago. And so -- I think it's fair to say there will be other ways to monetize that over time, but for F '15, we are really looking at adoption.

[Gregory W. MacDonald:]

Okay. So no price increases on internet or will there be?

[Jay Mehr:]

Yes. The vast majority of that price increase will on internet, January 1.

[Gregory W. MacDonald:]

January 1, okay. And Jay, just to clarify, is there -- help us with the rationale on waiting. Is there a competitive aspect to that? Or is that literally you've sensed that there's a little higher churn than you want, so you're delaying for that reason?

[Jay Mehr:]

Yes. It wasn't...

[Gregory W. MacDonald:]

Just Telus -- is the reaction to Telus? Or is it sort of internal?

[Jay Mehr:]

It wasn't -- it certainly wasn't churn related. We had some momentum in the marketplace, and we wanted the opportunity to bring some additional value to our consumers. Certainly, there was lots of noise around pricing and packaging over that period of time, and we didn't necessarily want to step right into the middle of that. And we weren't sure about signals in the marketplace in terms of what was there, and in the gap, our primary competitor stepped in end of October and did a significant second in the year internet rate increase. And so it's certainly has also provided an umbrella to walk into it a little bit.

[Gregory W. MacDonald:]

Okay. That make sense. And the definitional question, you could probably help me this also, is in the guidance you talk about "propose including a stable customer base in the assumptions." How does that relate to the PSU assumption? Because I think most of us are probably still modeling a negative PSU overall. Does that mean you're assuming a stable PSU number when you say stable customer base?

[Jay Mehr:]

I think our focus in the business, and certainly on the Cable side of the consumer business, we've already talked in detail about the Satellite business. Our focus in the Cable business is absolutely to maintain our number of customers. And when I say customers, I mean, unique billing relationships, and we're certainly driving our messages, you heard us say, "We're happy for our customer to take whatever product from us they see value on." So it's really not about chasing a customer who no longer wants to subscribe to home phone home, or really not about changing a customer who doesn't want to subscribe to a premium video customer, but to maintain that relationship with the customer.

[Gregory W. MacDonald:]

Right. So we should think of it terms of not necessarily users, which is kind of the PSU definition, but more in terms of accounts. Is that what you're suggesting?

[Bradley S. Shaw:]

The customer relationship.

[Jay Mehr:]

Yes, I think that's helpful. And If think about it in terms of number of accounts using your phrase, the X and Ys being that in our group, we've got a nice package as well as for customers.

[Operator:]

Next question is from Maher Yaghi of Desjardins.

[Maher Yaghi:]

I wanted to go back to a question that was asked on wireless. And you mentioned that you're reviewing what's going on worldwide in terms of wireless to guide you into what your next move will be. Can you maybe be more specific on what you referred -- or you meant by looking at what's going on in the world?

[Bradley S. Shaw:]

I think, you ultimately start with WiFi and certainly everything going on there and the success of it, and the development in the R&D, and the coordination, and the first WiFi, and the variety of different things we continue to look at and continue to have conversations in doing that. I think it's relative when you look at WiFi, you certainly look at the whole mobile space. I think, for us, it's -- as you see certain things happen, you want to have certain data points, you want information, you want to be able to understand what's going on related to different markets and knowing they're all different. But for us, it's research, it's homework, it's all the things we like to do. It's all the patience and the rigorous around what we're doing, and this is no different. And we'll take it as we see it. And I think the more informed you are, the better you are. So it's as simple as that.

[Maher Yaghi:]

Do you believe -- I mean, are you referring more specifically to the use of WiFi to deploy wireless services in addition to just the regular internet access?

[Bradley S. Shaw:]

Well, I think, ultimately, you go -- where will it broaden, where does the technology go, what opportunities are there? You have Hotspot 2.0, your Affinity [ph] things. But ultimately, for us, it's making sure what technology, what roaming, whatever other things we do fits into the model, fits into the business case, gives us opportunities to grow, to increase revenue, to increase that strong link with the broadband home and continue to do that. So that's always core for us and in our core thinking. How it translates and how well things go and develop beyond that, we're certainly interested to see and want to be on top of it.

[Jay Mehr:]

Building on Brad's thoughts, our WiFi strategy is to be our customer's primary network. We want to have them on a great WiFi experience in the home, and we want them on Shaw Go WiFi anywhere they go in a day. And so, of course, in that world, where we're trying to create that level of value, we're interested in what else is happening in the ecosystem. And so if there were to be a fourth provider from somebody else on very competitive roaming, that would help shape how we would package our WiFi primary network strategy. And so it's about a primary network, and we're absolutely staying on that path.

[Maher Yaghi:]

That make sense. And just on the accelerated CapEx, you've spent $350 million so far, you still have only $150 million to go. Can you talk a little bit about the achievements you had so far in spending those $350 million? And when you look forward, are there any particular additional investments that you feel you need to make above and beyond that $750 million that you talked about as a run rate for the Cable business?

[Jay Mehr:]

We're certainly pleased with the progress of our accelerated capital fund. We think it's had an impact in the marketplace. And we think it's allowed us to provide a differentiated internet experience. And to recap for everybody, we're $350 million invested so far. The final $150 million invested in F '15. The investments include, just to revisit our program, completion of our data center, further digitization of our network, we got additional bandwidth upgrades, Shaw business investments for growth and absolutely to expansion and WiFi. And we just went through a process, focused to deliver, as we've talked about before, has 11 work streams to it, and we just went through and completed our capital efficiency work stream, which was up a top to bottom 0 base review of 591 buckets of capital. And so we're very close to our capital spend and can affirm that, that $750 million number going forward gives us lots of room to make choices in the future and give us the opportunities to do the things we want to do. It is a little premature this quarter because we're just in the process of changing segments. So I think as we get into January, there will be a cleaner story to tell as you can see how the capital flows across the consumer business and how it flows across the business-business unit, and it might be a little easier for you to model from there.

[Operator:]

Next question is from Rob Goff of Euro Pac.

[Robert Goff:]

In terms of questions, Brad, I would -- I typically ask about the growth in the -- SME marketplace, whether you're there between the 10% and 20% annual growth. My second area of questioning would be on the internet only. With -- when you look at the addition of roughly 72,000 on the year, to what extent would they be new to Shaw? Or would they be those leaving video and just taking it on a streaming basis?

[Bradley S. Shaw:]

Okay. I'll start with SME and see if I can help you with the Shaw business math, which again gets a little confusing just with a couple of our changes. So as we've talked about in the past, in F '13 and F '14, Shaw business grew at 20% per year, and that included both organic growth and some growth through acquisition. You'll recall we purchased Envision, and Envision happened over 2 years. It was an April closing. And so it was part of that 20% number in each of the 2 years. So if you break that down a bit further, in F '13, Shaw business grew revenue by $48 million, and that was $37 million organic, which was 15%, and $11 million from Envision. In F '14, it was $37 million organic again, and 12% and $21 million from Envision. So we would see a similar level of organic growth in F '15 on that part of the business, which is what has historically been called the Cable Shaw business. We're very pleased with our reorg in that we've put together every experience that a business can choose from Shaw into a single business unit here in Canada. And so added to that is the Satellite B2B businesses. And 2 of those are much lower growth. So we've got our Shaw Tracking business that offers tracking services to the long haul trucking market, and we've got Shaw Broadcast doing Satellite video transport. And those are both very stable businesses and have generated approximately, almost right on, between them, $80 million in revenue each of the last 3 years. So there's not really growth in those businesses, but they're very good free cash flow. And then just closing out the business segment, the B2B Shaw Direct business has had nice growth, just like the Cable B2B space, with mid-teen growth over the last 2 years. And in F '14 contributed $23.5 million in revenue. So hopefully, that lets you sort of build back the equation and have a look at next year.

[Operator:]

Your next question is from Vince Valentini of TD Securities.

[Vince Valentini:]

Jay, just on the factors you were going over for delaying the rate increases this year. Was regulatory one of them, given that the Let's Talk TV hearing was in September, and you would have been raising rates right on top of that?

[Jay Mehr:]

Yes, I wouldn't overplay that. I thing to be fair, there were a number of factors in the decision. But common sense dictates that would be one.

[Vince Valentini:]

Okay. Great. And a totally different question, I don't know, maybe for Trevor, but can you update us on what your company-wide P&L foreign exchange exposure is to the appreciating U.S. dollar? I mean, now that you have ViaWest in there, and I forget if you have any hedging of your sort of U.S. dollar purchases and what the sort of net impact may be if we continue to see this U.S. dollar strength?

[Bradley S. Shaw:]

Sure. On the core business, we roughly have about a $300 million exposure on the U.S. dollar, related to purchasing equipment with respect to modems and set-top boxes and so on and so forth. I mean, we typically engage in a hedging program where we've -- in the past, we've been around 20% of that exposure hedged. We don't have as much on right now, to be frank. We do, obviously, with that natural short position in the currency, we've got a long equity exposure with the ViaWest entity going forward. We're not doing any hedging with respect to ViaWest's operations, obviously, economically it's matched. Their revenue and EBITDA will be used to fund sort of organic capital in the U.S. But hopefully that clarifies sort of where our U.S. exposure is at right now.

[Operator:]

Mr. Shaw, there are no more questions at this time.

[Bradley S. Shaw:]

Thank you. Great. Thank you, operator. Thanks, everyone. We'll see you next call.

[Operator:]

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