Okay, welcome back, everyone. We're delighted to have Cogeco Communications here with Patrice Ouimet, who is the CFO. I think everyone in the room knows Patrice. I thought we'd start off, Patrice, maybe just talk a little bit about the new management structure since you know, a new CEO coming in this year, and you've done some reorganization on how you're managing the company. Maybe just talk a little bit about that, and what you hope to drive out of that.
Sure. Well, thanks for having me. So, yeah, a lot of changes this year. So a new CEO, Frédéric Perron. Some of you have met him. He started in March. He used to run our Canadian business, so, for the past four years. And I've been with the company for a while, and I can see that he's done a lot of good changes in Canada, during his tenure, basically operationally and also in positioning us well, for competition. And what's going on right now, actually, the company's been doing well. If you look at our reported numbers in the past year. This summer we went a step forward, so basically we announced a reorganization. So most of the managers in the company now are managing both Canada and U.S.
It used to be more decentralized, so there's pluses and minuses with these structures, but at the size we have and the speed at which technology is evolving and the industry is moving, we thought it made a lot of sense to do it. It speeds up our decision-making, and basically we just focus on having one discussion on finding the solutions and dealing with the opportunities as well, so early signs are good, actually, from what I'm seeing, so but effectively it was starting last week, but some groups started a bit earlier this summer.
Frédéric has talked about, you know, analytics being a key part of what he hopes to bring out of this. Maybe flesh that out a bit for people on how, you know, some of the specific things you're working on there.
Sure. There's a couple of things. Analytics, digitalization as well. In terms of analytics, we have a team that's been there for a number of years, but it's quite small, and it's something that probably we're under-indexed on, and now we're actually gonna revert that. The idea is to make sure we did benchmark all our activities in the past year, and we know there's opportunities to improve what we're doing, both on revenue and cost as well. That's optimizing our sales channel, making sure we push the right products to the customers so they are satisfied. It also ensures that for us it's effective the way we do it.
To do this really well, like some companies do it in Silicon Valley, you need to invest in data analytics, so we're doing that. There's things also, basic things like the maintenance we're doing on our network, CPEs as well. There's a lot of data that exists and allows us to do preemptive maintenance before it breaks. It's not something we're doing as much today, but that's in the plan, so that's a three-year plan. The first year we'll be more focused on setting the base for it and investing there. This will pay for itself as we did the reorg this summer. There's savings there, but we will be investing that there, and the other piece is digitalization. So basically, it's ensuring that we can evolve our services and also the way we go about it to the...
as much as we can, so an example is a chatbot we've implemented three months ago in the U.S., and in the past few weeks in Canada. It's the same solution. So what it does is it basically contains the answers, so the bot basically answers the customer's questions rather than having employees behind the curtain, which we used to do before with the chats. And so far it's been going really well. We're handling basic questions right now, the more simple ones, but we have an agenda to add more complexity to it in the coming year. And the next phase will be on the voice as well. We have voice systems, obviously, but these will be improved with AI as well in the coming year.
That's great, and maybe we should drill down into the businesses. Why don't we start in Canada, and maybe give us an update on what you're seeing out there in the competitive marketplace, and maybe compare and contrast Ontario and Quebec as we move into a new fiscal year.
Sure. Well, Canada has always been competitive. It is for sure now. I would say in wireline, it hasn't been as much as a shift as you're seeing in wireless. But I've been answering this question every year, and I've always said it's competitive. What we do is we fight back, basically, and we all fight to get customers and customer satisfaction as well, and we've done well, actually, if you look at the past year. The idea is we have a bit of a different approach, being more local and local touch in how we approach the market, but we do offer the services and the technologies as well. We've advanced a lot.
We're not fully done, but close to it in Canada, offering gigabit speeds, which are fairly large speeds for what consumers want and need, and I would say in terms of promotions, there are more that we're seeing in Quebec than Ontario, but these things change every quarter, and there's been a bit more bundling activity, but I would say it's less impactful than just pure promotions on the acquisition front, which have an impact on ARPU. How do we play with this? Well, again, we have to make sure we segment the market, and we make sure we push the right product at the right price to consumers, and at the same time, we're cutting costs as well, so this...
At the EBITDA level, we can offset some of these ARPU pressure.
You touched on bundling. How do you go to market when you know your wireline competitor is able to bundle wireless? And obviously, we're gonna get to your MVNO strategy in a moment, but just in terms of blocking and tackling, that's been in place for a while, but it seems the bundling activity is increasing at the margin. And how is that playing out for Cogeco?
I'd say for now, at least, it's a bit more at the margin. So what's more impactful is just the pure promotions, because bundling also works when you drop pricing, right? So it comes down to a pricing game. The bundling activity, it's nothing new. Like, in the U.S., it's a little different. We might talk about this, but some players went from, not having it to having it, whereas in Canada, the competitors have had, wireless and wireline for a long time. So it's not new. The effort to bundle more is, we're seeing a little more, but, but I'd say it's more on just the pure promotions.
Right. Okay. How about... let's talk about wireless. You announced that you've reached an MVNO agreement. Maybe talk a little bit about what you've announced so far, and then give investors a feel for the milestones and how you're gonna report to the community and whatnot as you roll that out.
Sure. So yeah, so we were happy a couple of weeks ago to announce a five-year MVNO deal. We've always said that, we try to be, very efficient with capital and how we go about it, so this is a pure MVNO for five years. Actually, it's longer than what's required under the regulation. And for technology, we have signed a deal with Eastlink as well, which is an operator of wireless, has been for many years. So this will facilitate also the entry, minimize risks as well, operationally. We haven't set a date yet, so we will once we're closer to launch. So, that's why we haven't come out, with it at this point. We are planning to focus on the areas where we currently operate a wireline network, where we have, brand name recognition and customers.
And the idea is to help with some churn reduction for those who take the bundle, and also on the acquisition front for customers who want to bundle, like, let's say, a house with kids, and, let's say, the family wants a bundle, then we'll be able to offer it. Hasn't been an issue so far to operate in areas where we don't have it, but it will definitely help, going forward to have it.
Should we think about a formal launch this calendar year, then?
I'll have to come back to you with the date, but I would say it's not in short order because we have work to do. Because even though it's an MVNO, you still need to hook up the systems between Eastlink, the MVNO provider, and we have some limited integration with our systems as well as our agents need to be able to use the systems.
Okay. And how about TPIA? We've got, you know, a third-party internet access framework out there now, that may attract more bundling opportunities. It's, I mean, but you can participate in it as well. Is this... How is Cogeco thinking about TPIA and what its implications are?
Yeah, I mean, for TPIA, we did buy a TPIA, a bit more than a year ago called Oxio. So we use it out of footprint, footprint being where we have a wireline operation as a TPIA player, which offers internet, and we're basically paying a fee to access the networks. So that's been growing. And in footprint, we're using it primarily as a flanker brand. We used to have only one brand, and our competitors have multi-brands in Canada. Again, very different than the U.S. So that allowed us to do that. So I think it is an opportunity out-of-footprint. In footprint, we've been fighting TPIA for a long time, so the regime's been there for a long time. I would say with what just came out, there's a...
One of the thing that happened in the past year is, or two years, is the Big Three have been buying TPIA as well, like we did. And, the regime was done basically to help new entrants come in the market, as opposed to do the reverse and increase the size of the Big Three. So we think that's something the regulators should be fixing, and we think there will be more to come on this.
In terms of... What more would the regulator do?
We'll have to see, but this. I don't think this is over in terms of... Because, I think in the past, there's been decisions that have changed as well, so we'll have to see. But we believe that this, the ability of the Big Three to use the regime without building is not something that's in the best interest of Canadians.
Okay. All right. Maybe talk a little bit about how your go-to-market strategy is evolving with the three product bundle you have now, given that, you know, the cable bundle, the legacy bundle, just continues to erode because, you know, streaming services are so much more ubiquitous, and we see more and more sports programming going to streaming, which may accelerate that trend. How does Cogeco think about that? It's not a new question, but it's certainly one that is evolving as the streaming services mature.
Yeah, you're right, it's evolving. So the video platform, so traditional video is evolving. There is cord-cutting, for sure, in the industry, but what we're seeing in Canada, it's not as what we see in the U.S. Couple of reasons. One is the bundles are cheaper in Canada than what you see in the U.S. because the regulation has forced an ability to have flexibility with the different packages, all the way to skinny, which is not that much used, but there are smaller packages. The areas where we operate is mainly single-family homes in the regions and rural areas, so typically the bundle is more interesting.
So we have about two-thirds of our customers who take the TV product, and what we do is, we make sure we are efficient with our costs in terms of self-installs. We evolve the technologies. We have an IPTV product. You can put the OTT products on it as well. It's an Android box, voice-activated. So that's how we make sure that the product remains relevant for those who want it. For those who don't want it and want to go with... Well, they could have nothing and just an internet line, but if they want to subscribe to over-the-top channels, specifically, typically it will work if you want one channel, but when you start adding more, then it quickly becomes expensive compared to the linear TV. So that's how we see it.
We think the product has a life, but it's something we're watching and making sure we're efficient with.
Okay, maybe we'll switch. It's a good segue to talk about Breezeline in the U.S., operations. You know, how is the bundling and the legacy issue different in for you on that side of the house?
Yeah, the cord-cutting in the U.S. has been higher, especially for the industry as a whole. Us, a little less than the industry, given that also we are more regional and rural in the U.S., but there's been more cord-cutting, so there are more options on the over-the-top, so if people want to take things separately, and I would say during the last year, the cord-cutting has decelerated a little bit. It varies by quarter, especially as pricing has started to increase for these OTT products, especially for the general ones, like Netflix, for example. There's been decisions taken on password sharing as well, so it has been more difficult to get OTT services in a cheap fashion in the U.S., but that being said, there is a cord-cutting element.
We have about a third of our customers in the U.S. that take the video package. There as well, we want to be very efficient in how we deliver it, so our IPTV boxes are quite inexpensive. The idea is to increase the level of self-installations as well, so we don't have to roll trucks. That's how we see it.
You know, this fall marks or September, pardon me, marks the second year in a row we've had fairly high-profile carriage disputes with distributors in the U.S. How do you approach that in terms of your negotiation and maybe specifically with the sports programmers, which, of course, are the most expensive part of the legacy bundle?
Yeah, sports and retrans, so, that doesn't exist in Canada, but, these are the main two. Retransmission. So, I mean, it's difficult discussions. I mean, we typically sign two to three-year deals, but I would have told you the same thing three years ago. So the idea is that as there is cord-cutting, obviously, it creates pressure. The programmers are trying to recoup some of the lost money by higher increases. At the same time, we have a limited ability to pass these increases. So, that's how we go about it. It's not like you have a choice as well, because a channel is owned by one content owner.
In the end, we typically get to a resolution, but sometimes it gets to the last few days before going. So we've never gone dark on channels before. Might happen in the future, but as you said, there's one going on right now, and there was one a couple of months ago.
Yeah.
One a few years ago. Typically, they don't last very long. They typically happen with the bigger organizations.
Can you talk about the competitive dynamics in the U.S.? And maybe if I could frame the question, you know, you're in a number of different regions, and some of them are you know, more dense, some of them are more rural. Maybe talk about competitive dynamics in Breezeline and how they're evolving.
Yeah, you're right. So we have different areas. So I would say, in general, we are more of a regional and rural operator. There are exceptions to this. So Florida is very different, so this is high-rises and gated communities primarily. So we sign long-term contracts with these areas, where we provide the service to the whole community. So it's 100% penetration, and typically, the deals are for seven to ten years. Then we have the Ohio region, where we bought an overbuilder. That this is, I would say, more. It's not the downtown core, but it's more dense as in areas, and besides that, a bit more rural.
Our go-to market is very different in these areas and how we market the products, price the products as well, depending on the competitive dynamics.
And speaking of that, maybe can you comment on how you're assessing the fixed wireless offers out there? And there, I know the narrative for a while was that it wasn't sustainable because of there'd be network congestion and things would resolve. That doesn't appear to have happened yet, but how are you thinking about fixed wireless competition in the U.S.?
Sure. So, and, and this is where we've had. We see it in different regions, but it's been more impactful in the Ohio region, that, an acquisition we made a few years ago. Basically, you're right, we haven't seen a slowdown in the level of competition or the, I would say, the impact on pricing in the market. That being said, that's an entry-level service that is limited in terms of speeds and also the stability. It's not like a wireline connection, obviously, in the house. And what you've seen from what these companies are telling investors as well is that they do expect a slowdown in number of additions of adds. So the past two years, they've taken 100% of the net adds in the U.S.
From all the research I read, this should not be the case next year, and especially the year after. We should now start to see a reduction in the number of net adds, and it has happened with one of the two players already, and the pricing is increasing on those products. The available market is limited as well. Not everybody will want to go with these services at lower speeds, so I think it's coming, but I would say in the day-to-day activity we're seeing, it's not yet necessarily evident, even though the net adds are starting to decline.
Okay, so that competitive element remains out there, but you have reacted, and you did announce that Breezeline has deployed. It's a different kind of MVNO than what you're doing in Canada. Maybe fill people in on the differences there and an update on the progress of...
Yes, and just to be clear, what I was talking about was FWA, so-
Yeah
... competing with wireline and MVNO. Yes, so we did... We're happy we were able to launch this a few months ago. So we're on one of the large operators in the U.S. We have also, on the technology front, a third party that does this, that exists in the U.S., that operates with others as well. We didn't have it to buy spectrum, so it's really a pure MVNO there. So our focus initially has been on just launching and making sure there was no hiccups, and our agents could take orders, and that worked out well, so that was good. I would say the focus right now is ramping up the base. It's still really small, but the idea is to ramp up the base. It always takes time to get going.
We're targeting our customer base and their neighbors sometimes who are not with us, so in the areas where we have again the brand name. You have to subscribe to internet also to get that service. Same logic, as I said, for Canada. The idea is to do a churn reduction for those who take the service, and also increase the ability to acquire new customers for those who are looking for a bundle.
So how should investors think about the wireless initiative? Like, how will you define success for US wireless operations?
Yeah, so we have plans we have not disclosed, but we have plans to grow the base, and it's mainly a penetration of our customer base over several years. So this is how we'll define success on how we track to that. Now, it's still very early days, and as we get more data, we'll be able to see the benefits as well on churn reduction, how we can implement pricing as well. So that's more to come, but I would say the success will be primarily on growing this base over time.
What should our expectations be about how and when you'll disclose metrics on the wireless business?
Yeah, we're waiting, especially on the subscribers, waiting to have a bit of critical mass, and so, not clear exactly when we'll do it, but, at one point we will. And as for financials, it will remain a small percentage of what we do for a long time. It could be a bigger piece of our growth, but, still overall, so we'll have to see. The practice of disclosing the financial component is very different by operator, so we'll see that later on.
Okay. One of the other growth drivers in the U.S., has been taking advantage of various government subsidy programs and whatnot. One of them is winding down. The BEAD program is still in place. Maybe talk a little bit about that aspect of Breezeline's growth strategy.
Yeah, so, we have done some network expansions. We do some every year that are just new streets and neighborhoods where we operate, but we have done some overbuilding with fiber in the areas that were nearby. We still have some ongoing, but a bit less than before. The focus now is looking at the BEAD program, so that's $43 billion of subsidies going for unserved homes. We've had a lot of success in Canada, doing it in Quebec. Now we're building in Ontario. So we're planning to bid, but the requirements are very different by state.
The construction costs can vary a lot as well by area, so we'll be very prudent at it, and if we feel that it's a good opportunity, we'll do it, especially areas that are very close to where we operate. If we feel the requirements are too stringent or the cost to build are very high, which increases the risk profile, we'll be happy not to participate much as well, so we'll just do it if it makes sense financially and operationally.
The other growth strategy in the U.S., of course, is M&A. You haven't bought anything in a while, and you know, we'll get to your balance sheet in a minute, I'm sure. But what's your appetite for more assets in the U.S., or conversely, would you... Are you considering maybe lightening up on some of your asset pruning, perhaps?
Sure. So we're not planning to make big acquisitions in the short to medium term. Our focus right now is in using what we have. We have enough across the two countries to optimize, as I was talking about... and there's a lot of value we think we can extract, both on revenue and cost from that standpoint. We are looking at our network, especially in the U.S., right now, and 'cause we're in different places, and if we feel that some areas could be good disposal candidates, we'll look at it.
I'm not gonna comment too much publicly about it, but it's not something we were looking at doing a few years ago, but now it's something that is a possibility if it makes sense strategically, operationally as well, when we look at the interconnection of our networks, and also financially.
Right. Any questions before I keep going? Oh, one here.
Patrice, just, building on what Tim was asking before on Breezeline. So Cogeco or Breezeline has always been relatively agnostic on cable versus fiber, more fiber and edge outs and network expansions and multi-dwellings. Where would you say your fiber versus cable homes pass mix is right now for Breezeline, and where would you see that five years from now?
Right now it's a small percentage because we've been building fiber for probably 10 years, so anything new, we always do with fiber, but we have not overbuilt our network with fiber. Similar to other cable players, it's more efficient to just upgrade. The ideas will be highly dependent on the builds we're doing. We might be doing overbuilding here and there, but it will be more limited. I think 5 years from now will still remain a small percentage of what we have, but the network as a whole will continue to evolve and offer multi-gig. That's the idea.
Yeah. Maybe let's close out and talk about the balance sheet and capital priorities and maybe start with your goals in terms of balance sheet leverage and maybe some cadence or timing comment on when you think you can get there.
Yeah. So in our last published quarter, we were at three and a half turns of debt to EBITDA. Our target is the low threes, so we're not too far from it. Because we're not making acquisitions at the moment and prudent with capital, we are repaying debt at the moment, and we're planning to do so in the foreseeable future. So I think we'll get there soon enough. Probably in the next year or so, we should probably get to the low threes. In the meantime, we have these expansions going on. That's the usage of capital, but we're pretty much done with spectrum acquisition. We typically raise the dividend. We'll see what we do in Q4 when we release our numbers.
We've been buying shares as well, not at the moment, since we bought a chunk in the second quarter. But this is definitely in the toolbox. We are planning to buy back shares eventually, but right now the focus is on repaying debt.
What's the narrative in terms of capital intensity? How should investors think about the CapEx line?
Typically we run our business under 20% capital intensity, so like 18, 19%. That's to run the business, improve our networks and everything. And with these expansions, we're running in the low 20s% this year in our guidance. Next year, we'll see what comes out with guidance, but we're gonna be still above 20% because we're building mainly Ontario. The year after that will start coming down because Ontario will. We still have a year and a half to continue building.
Okay.
Yeah.
You know, I think we've got about a minute left, so I'll just turn it over to you. What message do you want to leave with investors as you start fiscal 2025?
Yeah. We'll have more in the month and a half when we release our guidance, but I think I'm quite excited with the changes we just did. There's definitely a new tone in how we're operating, and the focus is really on efficiency, growing the top line as well, and making sure we turn all the rocks to make sure we're very efficient. This way, this new one team approach will definitely accelerate decision-making as well. Something I'm quite excited about. We have a three-year vision for this, and we have definitely an ambition to grow over this. The more impact will be in year two and three, but you need to build a foundation to get there initially.
Excellent. Thanks so much, Patrice.
Great. Thank you.
Thank you. Good job. Thanks.