All right. We'll, we'll get back, and, Philippe, thank you. [Foreign Language] . We have Cogeco and, you know, I'll start maybe, same question I asked, Doug and, and, and Mirko. Big picture objectives that you'd like to achieve in 2024, so that we know how your business is tracking and how you can attain your objectives that, that you set on your guidelines.
Well, that's a good point. It's a good place to start. First, thanks to having me here. And I'd like to remind everyone that we are mid-year in our fiscal 2024. Our next public disclosure is April 11th, so we are currently in a blackout, but I'll try my best, my very best, to answer all your questions. Your first one is kind of simple: what is our priorities for the year? And network expansion, network evolution, accretive acquisition, and mobile. So we have four. We're not a very complicated business. We're highly focused. So if you don't mind, let me dive in the four. Network expansion, it has certainly a geographic angle to it. So we have successfully completed the expansion in Quebec with Opération Haute Vitesse.
Now, from construction, we are moving to sales, and the sales pick-up rate is quite good. Ontario is where we focus, actually, our network expansion in Canada. In the U.S., we as well have expansions going on. West Virginia and New Hampshire are two areas where we've expanded. In Virginia as well, we had some subsidized expansion, and we are preparing for the BEAD program. That's the $42.67 billion-dollar program that is about to land in the U.S.
A lot of telcos are excited about it.
Well, I think there will be a lot of money flowing to the different markets. Now, the, w e're at the stage where it's still in preparation. The NTIA has assigned envelopes to states.
They're starting to allocate.
Yeah. So some early states are active and starting, but this will be an ongoing process. We're going to be talking about BEAD for quite some time because there's a bidding phase, and after that, there will be a construction phase, so it will span across 3-5 years. So that's kind of physical network expansion, but there is also expansion in how we look at market segmentation. So after the acquisition of Oxio, for example, in Canada, we have unlocked another segment in the Canadian market space with a 100% digital offer, and that is opening a new market segments for us, so market expansion physically and across, subscriber segmentation. Network evolution, our second priority. Of course, we always want our products to be the best, and we want to keep them there.
So, you know, our one of our strongest differentiation in the market is customer service. In Canada, to demonstrate that, when you look at the complaint rates at the CRTC, the CCTS, we are, of the biggest network, the lowest in terms of complaints per year. We invest. We have built our customer service and experience to be the best, simply the best in the market, so we're investing there. We're also investing in capacity of our network, so when you think of high-speed internet, it means speeds, but also reliability. We're investing a lot in making our network reliable, and when you think of video, it's actually migrating from older analog TV products to full IP, modernized IPTV platform. So network evolution is our second point of interest when it comes to moving our products to the best quality possible.
The third is accretive acquisition, and right now, given the market conditions, the macroeconomy, our current leverage, you've seen us close, for example, something in Niagara, not that very long ago. I think that's the size of acquisition that you should expect.
Staying on the smaller side.
On a much smaller scale, side for the short to mid-term, but we will continue to be really active across our footprint to unlock additional efficiencies or synergies or, acquisition based on the know-how we could bring and create value. And last but not least is our work on mobile. So everybody knows that we're at it. We're working hard on the Canadian side, inside the regulatory regime, but also in open commercial conversations. And in the U.S., we're moving faster because the ecosystem there, the American Tier One carriers are open for business, so they have wholesale structures. There's more than 135 MVNOs in the U.S., so we're moving in the U.S. quite fast. And it's possible that we launch in the U.S. before we launch in Canada. We'll see.
Okay, great. I mean, how those tie into allowing Cogeco to continue to grow the dividend, which is, I think, one of the most important drivers for your stock, and historically, management has, you know p ut that in front as your number one goal, you know, to continue to grow the dividend. How do you see the next couple of years for Cogeco in terms of dividend growth, in terms of EBITDA growth, free cash flow growth?
Yeah. Well, thanks for that question. We've been able to provide a healthy growth in terms of dividend, 10% or more growth per year in the last 10 years. And we intend to continue to do as much as we can on the dividend side. We can because we have a dividend payout ratio that is very low, sub 30%, so we have room. But we also know that it starts with very efficient operations. So we have high EBITDA margins. We can drive that with our operational focus. We can extract a lot of margins from the operation and still maintain good product qualities. And being reasonable in our affordability range with capital and capital allocation and network expansions, for example. So it creates a strong free cash flow.
We're trying to capture the market opportunities right now to grow, like subsidize expansions. They are once- in- a- lifetime opportunities. And with a very low payout ratio, we still have room to manage this dividend at the end of this. So we know our investors appreciate our dividend focus.
Consistency
And the ten-year consistency. We continue to focus on this, but given the parameters I just explained, and we have room.
Maybe we'll break the discussion for the U.S. part and the Canadian part, but I'll start with the U.S. because you're facing increased competitive pressures from fixed wireless that I think will help us understand your view, how that can change your view and, you know, for the Canadian assets. So we'll start there. You know, when you got into the U.S., you know, generally cable was seen as a you know, a very good business to buy into, and the multiples were not expensive, so it made great sense to acquire those assets. As you look at the business at this point in time, with the current competitive dynamic with fixed wireless, and we heard Verizon this morning say that, you know, for them, they still have a lot of capacity. They can continue to sell into their markets.
How long you think fixed wireless will be a key contributor for your subscriber growth to continue to be pressured? You know, trying to get the sense of when do we get that behind us?
Okay. Well, first, let's if we just remind ourselves, we are a very good operator when it comes to suburban areas and rural areas. We've really master, I think, this type of operation that is very different from dense urban markets. Operating in rural areas is not operating in New York City, and there are fundamental difference there. So we are good to cover regional, suburban to, like, lower- density markets. We have this knowledge, and we put it at work every day. So our U.S. model was to actually focus on rural areas and and suburban areas, and it will remain that. Of course, through our acquisition, we also have more competitive, higher- density areas like Florida and Ohio. They, they are slightly different, but we have learned to operate in both.
We admit that we are a lot more efficient in rural areas. 45% of the U.S. market, in 45% of our footprint, we face DSL-like operation, and we keep on improving our products. We keep on making investments in speed, reliability, and customer service, and that makes it difficult for competitors actually to come in in lower density area. Now, when it comes to Ohio, we are seeing fixed wireless access. We don't really have it in a meaningful way in the other part of our footprint, but in Ohio, yes, it's there. So let's remind ourselves as well that when we plan to enter the market of Columbus and Cleveland, our Ohio footprints, they were three-player markets. But with the addition of fixed wireless access that came in at the same time we've purchased assets. We went from a three-player to a five-player market.
Now, we absolutely, like, the whole market underestimated the room for fixed wireless access. We understood that pricing is the main reason for fixed wireless access. Ease of use, plug-and-play, was highly attractive to these customers, but it has been replaced over time as people now have experienced fixed wireless access with reliability. So now it's price and reliability. So our answer to T-Mobile and Verizon taking some space, this product is good enough for a tranche or a segment of the population, we admit that. It's at the low end, so we've reacted in augmenting the quality of our products, moving upscale, improving ARPU, improving speed, increasing reliability, that is now the second factor. And we are keeping a conversation with the whole market with low price point, but we're not trying to build in that lower segment. We are trying to cross-sell and to upsell these customers.
Similar strategy I think Comcast also has, has talked about. Not trying to move everybody at a lower price point to compete against fixed wireless, but to take a long-term view that eventually they might come back.
Exactly. Well, maybe for them, they might come back. For us, I think, we took the time to understand the market dynamics, and now we are with very specific market analytics. We can, we can move upmarket and actually improve and balance that equation between PSUs, volumes of sale, as well as ARPU. And I think we have a healthier mix today of stronger ARPU up in the quality chain, and we're selling to customer that actually appreciate the higher characteristic of our products.
So we, we've left some room for fixed wireless access. Now, that said, we think there is now proof in the market with the fixed wireless access players either taking out of the market their low price offers or moving their price up, that they've filled most of their capacity, and it's time for them to be price builders. So we'll see where that continues, but we have taken notice that the low price offers are now slowly being retired from the market. And that's not true across the U.S. It's true for our markets, but we'll see how they play this game.
So you said Ohio essentially is where you see that competition coming from. Do you expect it, or do you have, intelligence that tells you that, "Okay, it's gonna hit us in Connecticut," or, "It's gonna hit us in Florida more now?
Well, the mobility business case in the U.S. were mainly built about the dense urban centers. That's where they've built the most capacity. Rural coverage is actually a benefit that is built for urban subscribers. So there is, t he capacity is light in rural, or far rural, suburban. So they can certainly launch a wider offer, but it won't have much capacity unless they decide to go against the economics of the product. It's very expensive per bit to build a fixed wireless access network to cover, to compete with wireline access.
They're selling excess capacity, basically. -
Well, that's what we think. We'll see how much of it they have.
Okay. So, so when we think about your U.S. business, can you tell us a little bit your expectations of what you can achieve in 2024, without talking about specific quarters? What are the key objectives you'd like to attain in terms of, PSU growth versus ARPU growth versus, you know, revenue growth? Let's, let's start.
As yes, as I just mentioned, we're working really hard on balancing that PSU, ARPU equation. So through the addition of many analytic projects in our business, we have improved our knowledge of the markets and our efficiency at better improving the economics. We're also, as I described, moved up our products, so we focus intensely on Ohio, but that's also true across the U.S. So we're moving up. 1 gig on the download was something we already offered in most of our market, but now we're working on the upload as well, so moving it to 100 and eventually 200, 300, and more. So there will be, y ou'll see us move up and bring the market up, translating into higher ARPU and a reasonable volume of PSU.
Now, I think behind your question was the trend, the PSU trend in Ohio, and we said many quarters ago that we wanted to change the trend and come back to a positive net addition. We're still working on that, but we've seen the trend getting better, and we are still working to get into eventually the positive territory.
Okay. You know, when you think about DOCSIS 4.0 deployment in the U.S., probably I would assume it's gonna start, you know, be a little bit further advanced than in Canada, in terms of timeline to play deployment spending?
So when it comes to DOCSIS, DOCSIS is one of the tool we have to actually improve our network. So DOCSIS is how many subscriber we could put on a number of bits. So it's more about the modulation we use. But we have other techniques on how we assign the spectrum in the HFC or the fiber network, or the wavelengths in fiber, and we also have node splits, and the way we configure the number of customers per node. So all that to say is that DOCSIS is not the only tool, and for us, a more regional carrier with a more regional focus, there are still features in DOCSIS 3.1 that we have not.
They're not fully utilized.
They're not turned on yet because we're ahead of the market, ahead, ahead of the demand in the market, so we still have room to play for those tools. And that's a good thing for us. We are now a trendsetter with new technology. We are a fast follower, and as other bigger players actually deploy DOCSIS 4 or other techniques, the price of the cost unit of these technology will actually improve and get lower. So when we will really need DOCSIS 4, I think it will come with a reasonable price. We don't need it now. We have three other techniques that we're using daily to manage our capacity and our network, and that works perfectly for us.
So it's not a short- term.
It's not a short- term.
CapEx budget that you need to worry about.
For everything I'm saying today, the CapEx numbers are included in our guidance. Wireline or wireless, there is no other envelopes. Everything is in our guidance.
Okay, great. I'll touch on the Canadian side. Maybe first, if you were to compare the competitive dynamic in the U.S. to the current competitive dynamic in Canada, which one you would say is more competitive versus the other? Which one has more price pressure? Which one has more long-term growth opportunities?
Well, in the long-term growth opportunities, I think the, just the raw size of the U.S. make it the clear winner there. We'll have to see how we execute on that, but the very large U.S. market is 12x the size of Canada.
Are you saying you are willing to sell the Canadian business?
No, I'm not saying this. I'm saying that.
I'm joking.
Canada is very competitive, and we have learned and grow into that market. So we've learned to fight Bell every day. Bell is our number one competitor. TELUS is, for 7% of our footprint, the other telco. We have not seen in Canada, wireless taking a meaningful space to compete against broadband networks. I think one of the reason for that is we have very good broadband networks, wireline broadband networks, and it, it's going to be hard for wireless to compete in fixed wireless access. In the U.S., it's not the case. As I said, 45% of our footprint is still DSL, so. It's a, if fixed wireless access is a 100 Mbps product, DSL is still a 25 Mbps-50 Mbps, so making it better than DSL, but clearly subpar to the 1 Gbps wireline.
Fiber to the home
HFC or fiber that we have. So, relatively speaking, in the U.S., FWA doesn't sit at the same place. In Canada, it sits at the bottom. DSL.
We'll touch on the fixed wireless access in Canada in a second.
Perfect, so I'll come back to this. So in the competitive to compare competitively, Canada is very, very competitive in terms of price are going down. I think some carriers feel a lot of pressure. They are not as optimum as they should be to operate and extract the EBITDA they need. So right now there's a lot of PSU chasing.
If you look in our markets in Canada, where Bell, again, is our number one competitor, and they have built a lot of fiber, look at our PSU numbers. We're still growing PSUs. So they do what they want. We stay focused. We continue to up our numbers, with the HFC and fiber networks that we're building, and as I said at the beginning, with a new customer segment that was open, 100% digital, with the purchase of Oxio. So we're holding our own against fiber. We continue to grow, and I don't see any reason why we will not be able to continue to differentiate with customer service. People do need a good customer service. And on the other extreme, a 100% digital model, I believe we have the best full digital offer on the market.
The reason I say that, even though the Oxio brand is not the most known, but for those who know Oxio, it's the best brand that they've scored us as the best brand in Canada.
Okay. Now let's touch on fixed wireless here. You know, if we go back a few years in the U.S. when fixed wireless was becoming introduced, the cable companies, I'm not going to name names, but big companies said, "Don't worry about it. Then we worried about it, and now it's, like, basically happening, and everybody's worrying about it. I, I don't want to put words in your mouth, but, you know, should we not worry about fixed wireless in Canada also?
I'm not as worried. In the U.S., as I said, they, t hat product is good enough, for the reason I just explained, that they were able to position themselves in a segment of the market. It's the low end. They want it, they can have it. In Canada, the wireline network are pretty much all up there. They're highly competitive products, and it's going to be hard to compete, first, with wired networks. Second, Canada has a lot more square kilometers, so the density of mobile coverage in rural areas is not as good as they need it to compete with wireline networks. If we look at the offers on the market today, they can.
$50.
Well, just at the product characteristic, they can feed one TV per household. They can't feed it in HD, it's an SD quality delivery. So customers are going to be limited in speed and limited by a household cap as well. So at the end of the month, the more people in the home, the more usage, they will eventually face a total cap of consumption cap. So I think there is some consumers that are going to go for this. The, again, it's the low end of the market. Now, we'll have to see how much there is for that segment.
How is, you know, Oxio, for example, or the flanker brands can fill that gap and be more competitive against fixed wireless? Because in the U.S., we don't have that kind of market segmentation, aggressive market segmentation that we have in Canada. So how can you work with Oxio to bridge and close that gap?
Well, I think.
Do you bring down your price to?
Well, we can, relatively speaking, bring our price down, but we're limited by the costs, the wholesale cost of it. So as you know, there's a full review at the CRTC right now, when it comes to the TPIAs, and you've heard us loud and clear two weeks ago, we've asked for to ban Bell, Rogers, and TELUS from using or renting capacity on regional players' network. It's completely ridiculous today. The program that was made for small players is now being used mostly by the large incumbents, so.
I think Bell is trying to sell fiber in, well, in Trois-Rivières, right?
Yeah, they have said it.
Selling your network in Trois-Rivières, not. So that, that's the first time I saw this in covering the sector.
Yeah, but that's true. They are trying to.
They're trying to see if the regulator is going to give the tax.
So I think the regulator will clearly see in their games that they are trying to oust the regional and the small players from the market. First, they've started to acquire them and build more flanker brands. And now second, they're trying to extract capacity and having us subsidize through our network investment their growth. No, we're saying simply no.
You're basically saying that reselling should be only offered to independent ISPs.
Yep.
Not, not like TELUS, who is saying, "Let's open up the market for everybody to compete everywhere.
Absolutely not.
Bell, who is sticking, let's say, with the traditional view of not... rather not have access.
So we're saying three things to the CRTC: Ban the three big incumbents from using smaller network capacity. They have big networks, they have capital, they are 19x-20x our size. They should invest and do their things. Second, the CRTC should encourage more investments in building fiber or new networks in areas in Canada where we don't have high-speed internet. So we're asking for a three-year or a number of household, we set it at 350,000.
So to give us a period where we can monetize the investment before opening these, nascent investment. Bell and TELUS had a seven-year regulatory break with their fiber investments, and they are still complaining about, smaller players, to have access to their networks. So, the third thing is we've asked the CRTC to set cost right. It shouldn't be, acceptable, to assign cost to a carrier, or to set a price that is below its operating cost, so they don't have it right. All speed are of the same.
It can affect the whole market.
Yeah, it will affect the whole market, and they have it as, all speed are one price. Price should move up with speed. Everybody understands that, but it's not in the current pricing model.
Unfortunately, 30 minutes go past very fast.
I said we were small and simple, but maybe we're more complex than simple.
We'll finish off, maybe just one last question. I won't ask you about wireless, because you definitely did not want to answer questions on wireless until you launch. So I'm not, a nd I'm gonna leave you, I'm gonna leave you, you know, alone with that, but-
I promise when we will have things to communicate on wireless, we will.
We'll have one question. So, just to finish off, you know, as we think about Cogeco, are there assets that are non-negotiable that you're not looking to sell? Are you more of a buyer than a seller? Are there, you know, potentially views that you can focus on one market versus another? How should we think about Cogeco down the road?
Well, I think you should look at us as a network builder. We are expanding. And when we decide completely where to go, how to design things, they are highly efficient in terms of synergy with the rest of the organization. When you acquire things, of course, there are some components that you went for that are highly desirable, and others, that if you can optimize it, then in later stage, you would. So think of us as an organization that will always look to optimize its operation. We have leading margins in the industry in terms of EBITDA margins, in terms of very efficient operations.
We will continue, but synergies and arranging the portfolio to be more efficient is something that we have to think about to grow our business and to flourish in the future for our investors.
Great. Okay, let's stop there, and thank you for, n ext year, we'll talk about wireless, won't we?
Thank you very much, Maher.
Thank you.