You didn't stick around for the movie theater?
I didn't stick around for the movie.
Okay, welcome everyone. We're really thrilled to have Rogers back again. I think everybody knows these gentlemen, Tony Staffieri to my left, and Glenn on the far side, whose the CFO. Welcome, guys. I thought we would just get right into cable to start the discussion, 'cause that is certainly a question we hear a lot from investors, is: What happened to the revenue growth profile of cable, and when is it gonna recover? So, maybe I'll just throw it over to you with that, Tony.
Thanks, Dan. Thanks for having us. A couple of things. You know, on the cable side, we continue. I think it's important to sort of set the context-
Sure
... for it. As we think about wireless, cable, and now satellite, we continue to view all three being essential for connectivity. So there isn't a world we see anytime soon or even in the longer term, where one supplants the other just because of growing requirements of connectivity, whether it be latency, just sheer tonnage of data, et cetera. So, as we look to the cable business and the decline we had, we reset on a few fundamentals. One is, we have to have the best network, and so we doubled down on the DOCSIS roadmap. And we are very much hand-in-hand with our U.S. peers on investing in that, and what we have been doing is mid-split and high- split. The West is done, the East is underway.
And so you see much better performance on our network, and it's good to see third-party validation from Umlaut, OpenSignal, et cetera, as fastest and most reliable internet on that side of it. The second was to refocus our marketing on brand so we dropped Fido internet, and we are solely Rogers as part of our brand consolidation strategy and that was important because Fido was same internet just at a cheaper price and as Rogers customers or Fido customers tried to bundle, it just was too confusing for them, and so we had to simplify the value proposition and simplify the brand go-to-market, and then the last piece of it was to really leverage our distribution network. We were predominantly wireless-only throughout our stores, and stores are still important.
So, being able to leverage that, so all of our stores, whether it's a Rogers store and/or a Fido store, they're equipped to bundle with Rogers' home products. And that was important as well in terms of go-to-market. So those are some of the fundamentals that we had to change. We continue to see a total size of market growing in the 2% to 2.5% range. Housing supply, notwithstanding the population growth in the country, really hasn't materialized in terms of uptick. It was originally just in getting caught up in, to talk to developers, just in terms of permitting, was slow, and now the economy has just brought that to a halt. Our expectation is, over the midterm, that we'll see housing supply, once it resumes, in the 2.5% to 3% range.
And so that's a good backdrop for us. With the wireline network we have, we cover 60% of homes in Canada, and so what we decided to do strategically is start to address the 40% we don't cover with wireline, with fixed wireless access, as well as wholesaling from our competitor where it makes sense. So now we have 100% coverage. So our path to growth, which we said we would grow top line in cable segment by the Q4 of this year, and we're on track for that, is really founded on a couple of things. First and foremost, increasing market share where we have wireline. We had dipped to low thirties in terms of market share, and in a largely two-player market, was unacceptable. We are trending towards 50% by the end of the year.
And that was our first milestone, is just getting the fundamentals of market share to compete on something other than just price. And we reduced the promotional intensity, and we wanna get fair value for the network that we have. And so what we're seeing is good improvement in ARPA as well as ARPU and broadband in particular. So that was important. We launched fixed wireless access. We intended to focus on territories, as I said, where we don't otherwise pass with wireline, but we launched it nationally, and the product's doing extremely well. And that revenue is in our cable business as part of the home offering as well as small business, and that's doing well. And then there's enterprise.
In enterprise, we've been under-penetrated in both the East and West, and that's something that is growing double digits for us, and it's becoming a sizable business. And in large enterprise, more and more, we're being invited to the table to bid on larger contracts. You know, recent win, AT&T, for their global customers, we just didn't have enough of a wireline network, and we just won that contract, just given the sheer scale that we now have to be able to address it. So those are some of the fundamentals we're focused on in driving cable back to top-line growth. And with that, we're trying to make sure that we don't grow the cost base and continue to expand margins.
We sit at 57% today, and I'm sure Glenn will talk to it. We continue to see good opportunity to expand those margins with a good flow-through rate.
... Did you want to add on there, Glenn, on?
Maybe just in terms of the question, bringing it back specifically to the target of getting to revenue growth by the end of the year. We were at negative 4% through some of the periods in 2023, narrowed it to negative 3%, and then you saw negative 2% when we reported our Q2, so we're making progress. That negative 2%, almost half of that is contributed from satellite and the balance from cable. And so there's two different solutions there. Satellite is, there's not a whole lot of alternatives for satellite customers, and so you've got to be judicious with the prices. But annually, there is some room for using price service offerings to grow revenue within satellite. That's not going to grow organically with subscribers, but there is still a path to offsetting some of the decline within satellite.
Within cable, it's a mix of... And Tony's touched on the initiatives, organic growth with the subscribers, as well as being careful, but mindful of using price and service enhancement offerings to bump ARPU, providing organic growth within cable. And so we're pushing on all of those levers to get to revenue growth. But it's important to denote, you know, we've solved a substantial portion of the issue with revenue decline within cable, with more initiatives coming through the H2 of the year. And I'll leave it at that.
Okay, and maybe just a couple of follow-ups. On the Xfinity progression, what does that mean for customers? Like, are... Will there be updated user interfaces and things coming out? What about the customer experience there?
A few months ago, we announced the renewal of our agreement with Comcast, which is the next generation of Xfinity, and you may have seen that, the OS platform for video, but as well very much tied to the technology roadmap on internet, as well as the AI tools for the network so we've expanded our relationship with them so think about us as licensing a lot of the infrastructure that we would otherwise have to invest ourselves and so we variabilize that cost for us so what customers are gonna see later this fall, a couple of things. One is the new platform, which lends itself to more streaming, and less what I would call linear bundling.
And so it's a really good migration tool from linear to the new world that we look to monetize. The second piece of it relates to some of the internet tools, and so we've announced Storm-Ready. And so it's home Wi-Fi with 5G backup that's automatic. We think that's pretty important, and it's gonna be a good value offering for the market. So those are some of the things that we'll start to put into the market. The last piece that I'll mention is we streamlined our home monitoring product. And we've gone to the...
It's an app-based, that they have, Comcast has, which significantly reduces the amount of CPE, that we need to invest in that product, and it's been a very good add-on product, not just for home, but for wireless sales as well.
Okay. On fixed wireless, you've talked about network slicing, I think first responders and then for customers. What's the timetable there? And maybe just taking a step back, how does that enhance the product for people who may not have read about it?
So a couple of things. Somewhat different in terms of fixed wireless access and network slicing. Think about network slicing as being able to create lanes for different types of traffic. So as we launched fixed wireless access, we wanted to be careful that, learning from our peers in the U.S. in the early days, that we didn't run into network congestion for our wireless subscribers. What network slicing does is allow us to create a lane dedicated to fixed wireless access, but also for other applications. So first responders can have a dedicated lane, so they always have first priority, for example, but it'll also allow us, over the next year, to customize our value proposition centered around network experience.
And so, you know, we envision a world not too far away, where our ultimate premium customer is on the fastest lane, never gets congestion, doesn't matter when it is, New Year's Eve, et cetera, trying to send texts or pictures, that's gonna be a priority lane. Or it could be an enterprise or business customer, where latency is important, and so we could create that type of lane. And so being able to monetize our 5G network, and then 6G next, in a more bespoke way, is the opportunity that we see there.
Okay. How about TPIA? The framework has come down, you talked that it, it's sort of one of the arrows in your quiver. I mean, how are you thinking about the framework as we understand it now, and what that means for Rogers going forward?
There really hasn't been a lot of change for Rogers specifically. You know, as we think about the wholesale framework, here in Canada, you know, wholesale market continues to be 7%, roughly, of the total market, and it really hasn't moved. Putting aside the questionability of the public policy framework, you know, what we saw was wholesalers really not investing as they got scale, and most of them have sold. And so, you know, a big question mark on the policy of it, but notwithstanding that, we can see the government trying to create a more fair and equitable playing field, and therefore opening up fiber. The real issue is at what rates, and they continue to be cost-based rates, and so that's good to see.
So overall, we're seeing a policy framework that continues to incent facilities-based players to continue to invest, which is good. But I don't know that we see any of the changes as particularly negative or positive for Rogers.
Got it. Okay. Before we talk about the wireless business, Glenn, can we get an update on the deleverage profile? Obviously, that's-
Mm-hmm
... has been topical since Shaw. Maybe just walk us through how you're thinking about that now, and update us on some of the items on that file.
So first and foremost, earnings growth is the primary lever for de-levering our balance sheet, and so very pleased with the cost synergy profile. We realized cost reduction synergies in Q2 of CAD 240 million, and so we're really at a run rate now that we are realizing the CAD 1 billion run rate within just over a year of the acquisition closing. Very pleased with that. CAD 1 billion of capital generated to pay down debt is a 0.1 reduction in our leverage. CAD 1 billion of EBITDA is 0.4-0.5x reduction in our leverage, and so that remains the most effective tool. We announced just over a year ago a target of CAD 1 billion in asset sales for non-core assets. That remains a work in progress. The...
And I think you've heard me say this for a few quarters now. The interest rate environment coming into around this time last year, we saw a substantial softening in the reception for our initiative around selling our data center business, as well as some surplus real estate assets. We have multiple towers in several large cities, as well as our location out in the former Nortel campus out in Dixie Road, in the west end of Toronto here, that we were looking to sell. The real estate market has pulled back with interest rates. We've had three rate reductions from the Bank of Canada this year, since June. I think that will help to start to turn the tone in the real estate market, but we really haven't seen that yet.
Capital is still pulled back, and so we're not desperate. We, we have a number of different alternatives to, to pull on. One of them was our Cogeco shares, and we realized as we were closing out last year, the real estate, initiatives were probably going to be delayed. We had intended to first get to CAD 1 billion in asset sales, and then pivot to the Cogeco shares, and we just reversed order. And so we've realized on about CAD 840 million of proceeds from the Cogeco shares, that's not instead of CAD 1 billion. Still working on a process with a couple of, number of interested parties, but a couple in particular on the data centers. That's still working through. I have a couple of other initiatives that, we're working on as well.
I do expect to have something this year, and so more to come on that as we close out 2024, and so that covers the asset sales initiative. Remains a work in progress, but a priority for me. In terms of where we are, we're at 4.7 times on leverage as we closed Q2. That was with a CAD 500 million investment in the 3.8 spectrum, the 3,800 spectrum, and otherwise would have been at 4.6. Organically, we will come down 0.4-0.5x annually as we work through our de-levering. We have, for 2024, we will have about CAD 3 billion of free cash flow.
We have a DRIP program in place on our shares that preserves about CAD 300 million of cash on the roughly billion dollars a year of dividends, just over a billion dollars. And so, net, I expect that we will be able to pay down debt in the range of CAD 1 to CAD 1.5 billion in 2024. That's after the five hundred million dollar, roughly, investment in spectrum in the H1 of the year. So pleased with our organic progress on de-levering. Remains a work in progress on the asset sales, but that remains an excellent opportunity for us.
Is your thought changing at all on tower assets? It seems there's been a bit of an evolution in thinking, certainly from your competitors or from an asset that was always viewed as strategic and not for sale, but people seem to be a little more open-minded. How are you thinking about tower assets?
We haven't really changed course substantially in terms of the tower structures themselves. Those are a critical part and a lifeblood of our wireless network, in terms of control of the towers, control of where we put our receivers and transmitters, and access to the towers to put the bands of spectrum on as we acquire the spectrum and as we need it, particularly as we roll out fixed wireless, and so that remains core and central to any decisions we make on our infrastructure. If there's an opportunity to infill, to expand coverage, to expand capacity more efficiently rather than us building ourselves, and particularly in rural areas, we're open to it. You know, and so far, that really hasn't produced large results for any of us in the country.
But, we're open to where it will expand our capabilities. As a straight finance or financial engineering tool, if you sell the towers, we could sell our towers today and raise a huge amount of capital. But the way IFRS accounting works and the way the credit rating agencies work, so I take the proceeds from the tower sale, pay down debt, and then IFRS would force me to capitalize the lease commitments on the towers that are fixed commitments, and it's just, what's your discount rate on your tower leases, and what was the cap rate on the sale of the towers? And those rates are gonna be roughly equivalent. The IFRS back-in on the capitalization of the leases, as well as what the credit rating agencies look at, it becomes neutral. So as a financial engineering exercise, not so much.
If there is a way to find part of our infrastructure that, you know, somebody can help us with increasing coverage or with doing something other than straight financial engineering, we'll look at it, but it's gotta be something more than just a financial engineering exercise.
Got it. That's a great segue. Why don't we talk about the wireless business? You know, we're coming out of back to school. Obviously, it pricing has been under pressure. How's Rogers' thinking about wireless metrics?
As we look to back to school, it was gonna be an important barometer for us for the H2 of the year. We decided to take the approach that we would focus on the Rogers brand. Early on, late July, early August, we were very clear on what our value proposition was gonna be in terms of a bundle, and we stuck to it, and didn't veer off it, and so what we saw was, I would say, market activity that was more subdued than the prior year.
As the market, our competitors looked to deal with their ARPU declines, we think we're seeing a good backdrop in terms of the value propositions being centered on more than just price, which is good to see, and a good indicator for the H2 of the year, we think. So with that, we continue to focus on migrations from Fido to Rogers. That continues to be a healthy strategy for us as we focus on everything Rogers, frankly. You know, over the last several quarters, that's what's given a solid ARPU performance vis-à-vis the market and the competition. We're pleased with that, while still getting leading market share.
So we continue to see ourselves performing well in terms of market share, and intend to throughout the H2 of the year. On ARPU, we continue to see good prospects for stable to growing ARPUs, and there are a number of initiatives we have. In the very short term, there's some pressures on roaming, just as we see less travel in both business and consumer, as well as just given the promotional activity over the last six to nine months, in terms of larger data buckets, some of the data overage revenue is softer than we would have expected, or maybe we did expect, but the market pushed that. So, you know, near term, very near term, I would say some ARPU pressure, but they're very defined items.
You know, what we are pleased to see is a pullback on the flanker side of the market, which. And I always remind, I take the opportunity to remind everyone, it's a segment of the total market. It's about 1/3 of the market, and not that we ignore it, we continue to play in it, and get our fair share, particularly in new to Canada category. But we're pleased to see that, on those cap plans, the amount of data buckets that are in there continues to come down. There's some promotional offers from time to time, but by and large, they're being pulled back to the 10 and 20 gig data buckets, which we think is important to continue to redefine the value proposition for that segment.
Any concerns about device financing trends in the market?
We continue to see on the handset side, very disciplined, particularly compared to the U.S. If you were to look at our financials for the last many quarters, you'll see that handset costs are generally neutral to us in any given quarter, and so we don't intend to lead with handset discounting. So one of the things we continue to focus on is the value proposition in terms of financing that. On our credit card we launched, you can finance up to 48 months, so essentially cutting the monthly payment in half. That's worked really well in the marketplace. And we're billing that at 0% interest. And so one of the things we are looking at is that portfolio of receivables and, you know, are there opportunities to monetize that?
A series of product announcements out of Apple yesterday. What are your thoughts on the potential for an upgrade cycle?
... still to be determined, frankly. It certainly has compelling features, but it's up against a backdrop of a difficult economy. And so, we're prepared for many scenarios, and so, really don't have any insights as to how it'll perform in the market. But, you know, as always, expect it to be strong.
Yeah.
It's just a question of how strong.
Any questions out there? Okay.
Maybe this is for Glenn. Can you talk about, you know, the hybrid, the interest rates and yields have come down. Can you talk a bit about how you view issuing hybrids? And then maybe compare that to using unsecured, given how dynamics have changed over the last year.
Sure. We've got roughly $3 billion of hybrids on our balance sheet today. They're all issued at around 5%, some in Canada, some in the U.S. The rates and the yields on hybrids had moved substantially higher than that. I think we keep looking at it to see if there's an opportunity. I would say, you know, for now, we don't see a particular need for more hybrids. They get 50% equity, 50% debt treatment, for those that aren't familiar with the instrument. They're similar to preferred shares, except the coupons are tax deductible, and so a little bit more efficient for a corporate issuer. We're happy with the three billion we've issued. Not looking to supplement that, particularly right now. The rates are still quite a bit higher than where we issued.
Our overall average rate on our, all of our long-term debt sits at around 4.8%, fixed for somewhere, in the range of ten to eleven years, or a term to maturity of somewhere in the range of ten to eleven years. And so we don't have floating rate that we're looking to move in or out of. We maintain, predominantly fixed interest rate balance sheet, and and fortunately are in a de-levering cycle now, and so as rates have moved up, we're not forced to, to replace maturing debt. With more debt coming on, we'll be looking to pay it down. Happy with that debt profile. So we keep looking at it, but I don't see, an impending need for, for now.
Anyone else? Okay, we've only got a couple of minutes left. Maybe just quickly on the media side of the business. Tony, you made some interesting great acquisitions earlier in the year. How are you thinking about the media business, and maybe talk a little bit about the strategy on the programming deals you did?
A couple of things. You know, as the largest content buyer in the country now, what we decided to do strategically is more and more buy content that is actually being watched. So we picked the ones that are driving the viewership and looked to try to buy direct from the studios. So that's what those deals were about, both with Warner and Bravo. And you can expect us to continue to do that more and more. So it isn't necessarily... So first and foremost, it's cost strategy. But secondarily, it's an important one in terms of getting all the rights we want with respect to streaming, particularly as we launch the new Xfinity platform, which lends itself to more and more streaming and on-demand type of viewing.
And there were rights we didn't previously have, and that were gonna come at more cost. And so we decided to do bundle deals that give us all the rights we need for the new platform. So that's really been the focus of that strategy.
Mm-hmm.
And at the same time allowed us to give us the opportunity to make a little bit of money as well as we resell that to other distributors.
Got it. Okay. I think we're plenty out of time. Thanks so much, guys. Thanks for coming.
Great. Thank you.
Thank you.
Thank you.