Good morning. For those of you that don't know me, I'm Stephanie Price. I'm the Telecom Analyst here at CIBC. Up next, we've got Rogers. We're very pleased to have Glenn Brandt, CFO of Rogers, here to provide us with an update. Welcome, Glenn.
Thank you, Stephanie. Good morning, everyone. Thanks for joining us.
I've been starting out with back to school. It's been relatively quiet in terms of the wireless promotions, and ARPU has actually been improving sequentially recently. Maybe you can give us an update on the wireless environment. There's some puts and takes. Obviously immigration remains well down. You've got activation fees that were prohibited by the government this quarter. How do you think about the puts and takes as you kind of get back to growth in the wireless business?
Sure. There's a few themes in there. We came out with our back-to-school promotions. We launched them in July, a little bit earlier than usual. We wanted to set our own tone, and we've emphasized premium service rather than price. We've continued our feature-rich approach to our plans but launched them at price points that were familiar to the market. We've been disciplined with that. I'm pleased to have seen more discipline in the sector in the second and through the third quarter, through back to school, with not leaning in nearly as much on discounting as what happened in the first quarter.
I think the first quarter was another reminder to our entire sector that all the discounting does is encourage churn. At the end of it, even the one of us who had started the discounting, and it wasn't us, the one of us who had started the discounting, by the end of the quarter, all three of us had just had heightened levels of churn, increased pressure on pricing, and nobody was the winner through that. Nobody picked up share.
I think we got a reminder of that lesson. Through the second and the third quarter, the discounting has-- It's still very competitive, but we're not emphasizing discounting nearly as much. We have stayed away from it. The back-to-school numbers are not like what we have seen in prior years. The volumes have been down throughout this year. International student population is down, and in that environment, there's no sense chasing volume. There's no sense trying to energize a market that just doesn't have a substantial number of new customers coming in.
We're focused on base management. Our churn levels are similar to prior year, up a very minor amount because we had a price action that we also brought in in quarter. Again, looking to try and help support ARPU and revenue growth longer term. Even with that and our emphasis on base management has resulted in churn, roughly flat, as I say, up a minor amount year- over- year for the quarter.
The volumes through this back-to-school season, I think sector-wide, certainly for us, the volumes are much more muted than we've seen in prior back-to-school seasons. That's okay. Our emphasis on base management allows us to look for growth through penetration gains, through reasonable price actions. The sector itself, through this quarter, is dealing with the regulatory action on our subscriber setup fees.
Yeah.
We're, as a sector, looking to try and figure out how to offset the cost recovery from that through other means, whether it's delivery costs and what have you. There are underlying costs to setting up a customer phone at a store counter and what have you, that we're still looking at trying to offset. The impact of that regulatory action is going to roll through ARPU for the sector this quarter. The cost recovery efforts offset some of that. I think you are going to see some of that pressure this quarter and likely into the fourth quarter for the sector. Even with all of that, we are seeing with the reduced emphasis on discounting and with our price action, I think there is some stability coming into the market-
Okay.
...that is a little bit more optimistic looking than where we have been in prior quarters.
Okay. It sounds like things incrementally getting better.
Yeah.
How should we think about the activation fee impact in the near term? It sounds like you think you can offset it going forward, potentially.
Some. Over time-
Okay.
...between price actions as well as there is a cost to shipping phones.
Yeah.
Those used to be part of those setup costs.
Yeah.
Well, now we've always had delivery charges that could be applied, but now they get applied to cover those costs, things like that. It's a work in progress for the sector to continue to work on that cost recovery without shocking the buyer.
Yeah.
I think we are working through those-
Okay.
...those changes.
Okay, that makes sense. SpaceX has been-
Yes.
...topical this conference.
Yes.
Maybe you could talk a little bit about how you're thinking about SpaceX as a competitor in satellite broadband in Canada.
The quick answer to that is we don't think of them as a competitor so much as we think of the technology as being complementary. We have an arrangement with SpaceX that from the 49th parallel to the 58th parallel, from the Pacific to the Atlantic, we have ubiquitous coverage for satellite to mobile backup. Our mobile coverage covers roughly 99% of the Canadian population. But it's about 12% of the land mass.
For the rest of that land mass, you have very thin population. The economics of building a tower are strained across the vast portion of that in terms of trying to build out a mobile network. The satellite coverage covers that ubiquitously. Right now, it is the version one of that satellite coverage. You can use it for texting, you can use it for apps, for maps and what have you, for phone calls through WhatsApp.
You cannot use it the same way you would use your phone inside wireless coverage network area where if you want to make a call, you pick up your phone, you dial your number, you make your call. Version two of that will offer that feature. It will be 5G sat to mobile backup, where if you want to make a call and you are not in a wireless coverage area, you pull out your phone, you make your call as if you were calling from your home network, and it will just connect without having to go through an app.
We see all of that as being complementary to what we do, the economics of covering the country and having that ubiquitous access from a B2B or enterprise opportunity. Virtually every road in the country is now covered with wireless connectivity. Having said that, in terms of it being a competing technology, if you are in an office building, you cannot connect to a satellite. You have to have clear path to the satellite. Starlink works because you put the antenna on the outside of your house, that is your clear access to the satellite.
But if you are in an office tower, you are blocked. There are limitations to satellite technology. So we see it as complementary. We see it as a way of expanding our network without incurring the cost of trying to figure out how to build towers through the rest of that 88% of the land mass. There are regulatory restrictions around foreign ownership of spectrum and infrastructure within Canada. As well, the operators generally own all of our towers. Even the financing deals that you see done by Telus and what have you, Telus still controls those towers.
Yeah.
And controls access on those towers. It is a different environment within Canada than within the U.S. with far more of the tower companies available to buy access to, and SpaceX can own spectrum within the U.S. Not the same case in Canada. The model for SpaceX outside of the U.S. has generally been to partner with one or more of the telecoms in that area, work with the local telecom company in that country, and expand globally that way. SpaceX's play is very predominantly providing strong rural coverage globally.
If you were to try and connect a city or even a town of 200,000 people through satellite access coverage, you would overwhelm the bandwidth capacity of the satellite. The aperture of the satellite on a town, you have that entire town covered by that one satellite. Whereas with cell towers, you have far more bandwidth speed capacity, and you can locate multiple sites. I will pause there, but that is why we see it as complementary and not as a competing technology.
Just to be clear, in your rural areas right now, you are not seeing any increase in competition from Starlink on broadband or internet speed?
No. Far from it.
Yeah.
We see it as an opportunity for us-
Yeah.
...to use that for folks who work in the resource sector and are leaving the wireless coverage area. Right now, you're relying on satellite phones, Garmin devices, things like that. We see this now as being very complementary to your phone, now becomes as usable within Canada where you're out of network as it is when you travel through your international roaming plan.
Right. Maybe switching over to cable and you saw solid organic growth in cable revenue and your share of internets was quite good in Q2. Can you talk a bit about the wireline strategy and how you think about organic growth in wireline-
Sure.
...in Ontario and Western Canada?
Sure. This is one where the business case for the transaction that Rogers and Shaw closed a few years ago really comes to the forefront. We have now got bundled service opportunities on our own networks in B.C., Alberta, Ontario, and Atlantic Canada, where on our own network, we can sell to roughly 60% of the homes with both wireline and wireless coverage. Outside of that 60%, we can use fixed wireless coverage to reach the rest of the 40% of those homes, virtually all of those 40% of homes, through fixed wireless coverage.
We have a bundled opportunity for fixed broadband as well as mobile wireless service in virtually all of the provinces, coast to coast. Our peers do not have that. Telus is still predominantly western based with its wireline facilities. It is a national wireless company, but its bundling opportunities are very predominantly in the west. Bell, Central Canada, and Atlantic Canada, and us, as I say, coast to coast.
The shared wireless network for Bell and Telus offers them some challenges on offering fixed wireless outside their wireline footprint, because where Telus is going to want to compete in fixed wireless, that is their wireless partner's front yard, and vice versa. Where Bell would want to compete, that is their wireless partner front yard for its wireline business. For us, the national market, each of the provincial markets are a natural home for us to offer bundled services. It becomes a little more problematic for Bell and Telus. Same for Quebecor Videotron, where they have got bundled opportunities in Quebec on their own facilities.
Outside of Quebec, it is their wireless offering that they offer. We found growth through that bundling opportunity. The rest of it is very fine attention to detail on just the day-to-day block and tackle. There is not any large home run hit that is allowing us to find revenue growth. When we first closed on the Shaw- Rogers transaction, the revenue decline was approaching 4%, and we now are in a challenged quarter on the right side of zero and generally in the range of 1% revenue growth.
That's really just coming from attention to detail around base management, price actions where appropriate, without straining the competitive realities of the market, and growing through that bundled opportunity. All of that together is allowing us to find a modest level of growth, but some level of growth. The real opportunity for wireless and wireline will come back when, as a country, we start growing the population again. That's not going to happen in 2026 or 2027. Maybe come 2028, we'll see some rejuvenation of that economic growth that comes from population growth. But if we can hold on to the 1% growth in revenue that we're showing within cable and bring in a little bit of population growth, there's an opportunity there.
I loved the details on fixed wireless because obviously you are the only ones doing it in Canada at scale. Can you give us a bit of an idea of the learnings that you've found from offering the product to date?
Yeah.
And the margins and the economics that you see on fixed wireless versus the base business?
I think there's a tremendous opportunity there. I live on a farm road. Many of you have heard this in other conferences and in my quarterly earnings calls. I live on a farm road in Cogeco territory in North Hamilton, just north of Waterdown. It's not Rogers wireline territory, but it is wireless territory. When we all experienced COVID, six years ago now, I can't believe it's been six years, and started working from home, I was working from home for two years in my office in my house, through a Cradlepoint 4G modem, not even 5G, a 4G modem that still drives my home office.
I've got 5G fixed wireless for my home entertainment, and I purposely separate my home office from my family's entertainment. That 4G modem provided my connectivity for day-long conference calls that ran for two years, and I think over the course of that time, I might have been disconnected a half dozen times. It is powerful, it is strong, it is reliable. It survives storms. It survives pretty much everything other than a broad-based power outage.
What we have found is that has worked extremely well for expanding our bundling opportunities and our coverage opportunities for home broadband service. You have got to build to capacity. You have got to make sure you stay up with the data loading and the growth in homes for that. There are limits to how you cannot cover every home in a region. But you can cover enough of them that when you are working from coast to coast, that is where a significant part of our growth opportunity comes from.
We are not as restricted in where we can offer bundled services. We are not as restricted in where we can find greenfield growth opportunities. As each year we load 30%+ more data, and as we add customers, that is where adding the spectrum on the towers, the radio capacity on the towers, helps to fill in that growth opportunity.
Maybe switching over, you talked about cable margins, and you obviously have very strong cable margins. How much are you using AI internally, and how do you think about AI as a driver of margins in the future?
I think there's certainly an opportunity here. I would say we are at the starting point of identifying those opportunities and putting them in place, both for network management as well as for customer engagement and helping our call center staff look after our customer calls. Whether it's summarizing the history of a customer account and prior interactions, whether or not it's summarizing potential solutions for that customer live on the call, there are tremendous opportunities. We all see it today when you run a Google search for something and you see the AI response come back.
No longer do you have to go and open up an annual report to figure out somebody's history of earnings or whatever. AI is right there for you. The capabilities of it are fast, and where reliability isn't an issue, then it can be a substantial help. We're at the start of bringing that in. We've deployed it where it makes sense within our systems and with our network operations. As each application comes in, we find more and more opportunities. The emphasis for us is on service capability improvement and cost reduction.
Yeah.
The interesting aspect of this, and I'm not going to go down a rabbit hole here, but the interesting aspect of this for me is the amount of capital and the amount of investment that it is absorbing for AI and for data center capacity to drive these capabilities are, at least right now, I think, those valuations are outstripping what the near-term revenue opportunities are for the sector. My favorite example on the tech side is SpaceX. SpaceX today has about a $2 trillion valuation.
It had come off some, and it's back up to somewhere approaching $2 trillion valuation for the entity. SpaceX has the same revenue as Rogers Communications, different currency, U.S. dollars, Canadian dollars. It is $20 billion of revenue, and they're a $2 trillion company. There's a tremendous amount of capital going into high tech and going into AI and data center capacity and capability that for a company like Rogers, there's a remarkable opportunity for those capabilities to use them to better meet customer needs at a lower cost.
But that's a key part of it. We're trying to displace cost and capability with AI promise. The capital and the valuations that are going into it, when I look at what we have available in our cost structure to put into AI and my peers, not just within telecom, but broadly across sectors, I don't know whether or not the revenue opportunity for the data center growth and for the AI growth matches the valuations. What I do know is there's a tremendous opportunity for the technology to improve what we do, though. Somewhere in between there there will be an equilibrium. We're looking forward to using AI more and more to help us meet our customer needs and wants at a more cost-effective basis. I'll stop there.
I want to make sure we get in time for MLSE. We sat in similar chairs a year ago. You outlined the MLSE strategy, and you've executed exactly to that strategy. I want to give you time to give us a bit of an update on how you're thinking about MLSE here.
Sure. We still have a couple more key steps to take in that strategy, but I thank you for the lead into that, Stephanie. We've followed that plan closely. We have a negotiated price agreed with Kilmer. It's going through its league approvals now, which I expect to be straightforward to obtain. We're a known quantity to each of the leagues. We already control MLSE through our 75% interest, and I expect those approvals to come in due course. I expect that acquisition to close, hopefully early in the fourth quarter.
I'm saying hopefully because you're never certain when it's going to close, but the expectation is early in Q4 we'll be able to close the acquisition of that remaining 25% interest. We will then own 100% of MLSE. We already own 100% of Toronto Blue Jays and Rogers Centre, and we will then move to combining our Rogers Sports & Media operations. Most predominantly there, or of greatest interest, is the combination of Sportsnet and Sportsnet+ with Toronto Blue Jays and Rogers Centre and all of the properties within MLSE.
That combined group will own and operate all of the major sports franchises within Toronto, but also many of the live entertainment concert venues within the city with Rogers Centre, Scotiabank Arena, RBC Stage down at Ontario Place, as well as Rogers Stadium, which we have the sponsorship for up in North Toronto. Coca-Cola Coliseum at the EX, where the Marlies play out of.
When you combine all of those properties, the opportunity to operate that degree of sports and concert facilities and businesses within a city the size of Toronto, that is what we see as a huge opportunity and many of the prospective investors that we are talking with and that we will go out to are seeing the same. When I look globally, there are other firms that own multiple sports franchises or multiple arenas, but not with this degree of concentration in the same city. Mark Walter was getting close in L.A., a bit of a change in strategy and plan there. We have, I think, a very unique opportunity with having that synergy that is driven the revenue and the cost synergy opportunities that are driven by being able to focus all of those resources in one city.
Mm-hmm. We have time for one more question. I have got a bunch, but is there any in the audience? All right. Maybe we will touch on CapEx.
Sure.
You reduced your CapEx guide material in Q1. New guide implies a material step down in H2. How do you think about capital intensity and the opportunities both to reduce it, but also the government with their investment summit-
Yes.
...last week was kind of talking about potentially a better investment environment for telcos.
Yeah, and somewhere in there, I think you thread the needle. Certainly our intent and our emphasis is on lower capital intensity. The guide we have for this year is CAD 2.5 billion- CAD 2.7 billion on our capital spend for 2026, and we've signaled since making that announcement that that's not expected to be a one and done, that that is expected to be sustained going forward. Part of the federal government's initiative around building infrastructure is a Trans-Canada fiber line, which we have not built in decades, and which to maintain capacity that's a key initiative for the government.
I expect that that will get built. In past years, we would do that on our own or with our peers as a shared build, but on our own balance sheet. My expectation is much more of that type of infrastructure build is going to come from available pools of capital outside of our balance sheet. We'll buy capacity on that as we need, as our build business grows to support our customer needs. But the days of us investing the billions of dollars to own and operate that national fiber like we did back in the late 1980s.
Just before I joined the company. Those days, we now bring in the available pools of capital that are looking for investing in infrastructure to help us with completing those builds. I expect our capital intensity will stay more modest than where we have been. We've completed the integration of the Shaw operations to a very, very substantial extent. That level of investment has lightened. If I go back to where we were prior to the Shaw acquisition, we were always a national wireless company. We still are a national wireless company.
We've been able to manage both wireline and wireless or scale businesses. We've been able to manage that intensity down as the revenue has grown. Within wireline, now that we're through the integration of the Shaw operations and systems and network, we're able to bring that down as well. We are in this lower growth environment, regulated and competitive environment. We are looking to grow EBITDA and free cash flow, and part of that is bringing our capital intensity down to the levels you see.
Great. Thank you very much, Glenn.
Thank you, Stephanie. Thank you, everyone. Thanks for your time.