Rogers Communications Inc. (RCI) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Rogers Communications Inc. Q1 2015 Results Analyst Conference Call. [Operator Instructions] This conference is being recorded today, Monday, April 20, 2015. I would now like to turn the call over to Bruce Mann with the Rogers Communications and management team.

Great. Well, thank you very much, Saul, and good afternoon, everyone. We appreciate you joining us. I'm here in Toronto with Rogers President and Chief Executive Officer Guy Laurence; and our Chief Financial Officer, Tony Staffieri. What we'll do is crisply provide you with a bit of additional color on the results upfront and then spend the majority of the call answering as many of your questions as time permits. Undoubtedly, the discussion will at some point touch on some estimates and other forward-looking information from which our actual results could be different, so please review the cautionary language in the earnings report today as well as in our 2014 annual report, the various factors and assumptions and risks that could cause our results to be different. All those cautions apply equally to the dialogue on the call. So with that, I'll turn it over to Guy and then Tony, and then we'll be pleased to take your questions.

Thanks, Bruce, and good afternoon, everyone. Last time we met, I spoke about the fact that we're moving into the executing of our 3.0 plan, which as you know is a multiyear journey. 2015 is all about execution and we're off to a good start. When you look at Q1, you can see that we are starting to increase our velocity, including a further escalation in revenue growth and delivering a number of new commercial initiatives into the market. Before I comment on what we've been doing on the commercial side, let me put our financial results in context. First, the trends in the financials are what we expected, and Tony will get into more detail in a couple of moments. As you saw, our revenue growth accelerated to 5%, with blended ARPU at wireless up over 2%. And we also disclosed that the average wireless revenue per account or ARPA grew by 4%. We are pleased by the top line trend, which is a direct function of our shift from volume to value over the recent quarters. The trajectory of postpaid wireless subscriber metrics improved relative to Q4. And the churn is up, I mean, modestly, a marked improvement from the year-over-year increase you saw in Q4. In step with the rest of the wireless industry in Canada, we made planned investments in customers to get ahead of the expiration of 3-year contracts which is set to occur this summer. So in essence, our retention spend this year is more front-end loaded to the first half than you would have seen in prior years. Because of this, wireless adjusted operating profit on a year-over-year basis was impacted. These underlying investment-related costs are partially offset by our underlying operating efficiency focus, where we continue to remove cost from the business. Looking at the cable business, the subscriber metric this quarter include the impact of a regulatory change away from 30-day notice of cancellation. This came into effect at the end of January, giving a bit of a double cohort effect, if you will, with essentially 2 months of churn being recorded in the month of transition. This accounted for over half of the cable subscriber net losses you see reported. Our plan to evolve our cable business began to unfold at the end of Q1 with the launch of the new Rogers IGNITE plan. The subscriber vibrations here to some degree have followed the trend you saw in wireless, which peaked in Q4, but then started to improve as we delivered more value in our commercial offerings. Higher programming and customer investment cost, together with the revenue noise from the removal of the 30-day cancellation notices, impacted cable-adjusted operating profit. Turning to the execution of our Rogers 3.0 strategy. This was the most productive quarter yet with regards to rolling out value-added services for our customers in order to differentiate our product offerings in the market. We continued our industry leadership in international roaming with over 1 million of our Share Everything customers opting in to use ROAM LIKE HOME since its launch in November. These customers are now using 5x as much data as before and actually consume more data in the U.S. than they do in Canada. 2 weeks ago, you saw us extend ROAM LIKE HOME to include more than 35 European countries with a $10 price point. Our Fido brand introduced new postpaid wireless plans with DAILY VICE and Spotify Premium. Spotify is the world's most innovative streaming music experience and the DAILY VICE app features VICE's first-ever mobile news show. These are great differentiators for this millennial-centric brand. We also delivered a further enhanced network experience to our wireless customers this quarter. We launched VoLTE, and we're the first Canadian carrier to do so. It will deliver faster call connection speeds together with higher voice and video call fidelity to our customers. In our cable business, we introduced Rogers IGNITE in response to customers' demand for Internet plans that meet their growing needs. Whilst we only launched in late Q1, the early traction of this service is promising in terms of uptake by our customers. We will continue to give our customers a better digital TV experience on the NextBox platform this year, so stay tuned for updates. We believe these enhancements will have a positive reception by our customers. Turning to the NHL, we wrapped up the busiest quarter for production and programming with 21% more games than in Q4 and roughly 25% more than we expect in Q2. So Q1 is the highest production expense quarter and hence, the least profitable for our Media division of the season. Thus, the year-over-year decline you see is what we expected. Importantly, this flips around in Q2 as we now enter the most exciting part of the season, with the Stanley Cup playoffs starting with more Canadian teams than in the last 10 years. Overall, NHL hockey across the English networks has reached 28 million Canadians. That's a 2% increase from last season. And on GameCentre LIVE, we've seen a 40% growth in usage since the start of 2015. Overall, we're right on plan for NHL, it's just that 2-1 -- Q1 is by far the highest cost portion of the season. On the regulatory front, the CRTC released its decision in relation to the Let's Talk TV hearing. We see the requirement they laid out as an opportunity to refresh our packaging and to offer more individualized content to our customers. This is something we've wanted to offer customers for some time. In general, on the TV front, the regulatory uncertainty of the past 2 to 3 years seems to be behind us. Turning back to our customers, we continue to make progress on our customer experience plan, which is a key pillar of our 3.0 strategy. We have some early feedback with the recent release of the CCTS mid-year report. We reduced the number of wireless complaints by more than -- over 20% over the last 6 months. This is on top of a nearly 30% reduction we saw in CCTS full year report published in 2014. So it's still early days, but I'm encouraged by this trend. Also, 2 new key executives took up post in the last 2 weeks. First, Dirk Woessner, previously from Deutsche Telekom, who we announced back in mid-January became President of the Consumer Business Unit; and Jamie Williams, an internal appointment, became Rogers' CIO. He has 20-year track record of transforming IT systems in complex and challenging North American telecoms environments. To conclude, we are making steady progress against our plan, and we will continue to do so this year. With that, I'll turn it over to Tony to talk more about the financials in the quarter.

Thank you, Guy, and good afternoon, everyone. Let me quickly provide a bit more detail and color around the first quarter results and then we can get to your specific questions. Before I detail the quarter, I first want to mention an addition you would have seen to out subscriber metrics that we've hinted at introducing over the past few quarters. We've introduced postpaid ARPA, which is becoming an industry norm and perhaps becoming more relevant than ARPU as a reflection of the value of a customer who may have multiple devices at different rates. We have, however, kept postpaid and blended ARPU as a reporting metric for comparison to those companies that do not report ARPA. Two other quick things on the subscriber metrics front. First, on the wireless side, you would have also seen a 92,000 cumulative adjustment to the postpaid subscriber base representing Wireless Home Phone subscribers that were previously not included. This makes our reporting practice consistent with industry peers. And to be clear, this was an adjustment to the subscriber base and not part of net add activity. Then on the cable side, there was a bit of a double cohort effect, as Guy referenced, in terms of reported subscriber deactivations in Q1 as a result of a policy change which no longer required canceling customers to give us 30-days notice post January 23. This policy change effectively resulted in an extra month of customer disconnects being counted during the quarter, which equated to about 40,000 total subscriber units, of which 17,000 were TV, 15,000 Internet and 8,000 cable telephony. The inflated number of deactivations is a onetime effect in the quarter, but the revenue effect from the step-down will continue for the full year. We estimate the impact in the first quarter was approximately $3 million on cable revenue, and we estimate it will be approximately $23 million for the full year 2015. Now turning to the financial results. As Guy mentioned, we continue to make progress driving top line revenue growth, accelerating to a 5% year-on-year growth rate with equal or better sequential improvements across all our segments. Even if you exclude the incremental NHL portion of Media's revenues which weren't there last year, the consolidated growth rate would be about 2%. Wireless network revenue growth of 2% was helped by our ongoing strategic shift to lifetime value over volume again this quarter, as we continue to drive higher ARPU in versus ARPU out. The trend is very much supported by the growing penetration of our Share Everything plans that now represent about 38% of our Rogers postpaid base, up from 30% last quarter. So ramping well and with plenty of room for continued growth. As we said to expect last quarter, wireless subscriber nets were modestly negative, mostly driven by the loss of lower-value subscribers as we continue to shift our in-market and base management emphasis from discounting to adding value. A couple of important things to note behind the net postpaid subscriber numbers though. First, the decline in postpaid gross adds of 5% improved sequentially from being down 17% in Q4. And importantly, postpaid churn was up just 4 basis points year-on-year versus being up 12 basis points in Q4. As well, we saw improved trending as the quarter progressed, and we recorded positive net adds in March, all of which is evidence that our new product differentiators and service improvements are starting to gain traction in the market. Excluding the impact of the changes in roaming constructs that we implemented, Wireless network revenue would have been up 4% and postpaid and blended ARPU would have each been up 4% and ARPA up 6%. Total roaming revenues, both inbound and outbound, were down 18% year-over-year versus a decline of 15% in Q4, reflecting a full quarter impact of our popular U.S. ROAM LIKE HOME plans which were introduced partway through Q4 in early November. With the recent announcement of the expanded coverage of ROAM LIKE HOME to an additional 35-plus countries, I should add that we are not expecting a material impact to these trends for 2 reasons. First, users of U.S. roaming are on the uptick so volume is beginning to offset price. And second, the non-U.S. international component is much less material to roaming revenues overall. Turning to cable. Revenue was up 1% led by Internet at 6% growth and offset by declines on Home Phone and television and including the impact of the cancellation notification policy change I spoke to a moment ago. While TSUs were down year-over-year, TV and Internet ARPU were up approximately 5%, which is a proof point of our successful focus on value over volume in this segment as well. This improvement also includes the recent launch of our reinvigorated consumer bundles under the Rogers IGNITE banner, which Guy referenced, and the early indications are that they are being well received in the market. Jumping to Media. The 26% top line growth largely reflects the success of our NHL rights, which continue to deliver as expected with strong audiences and increased use of GameCentre LIVE. Excluding the national portion of NHL which wasn't in the results last year, Media's revenue would have been down about 2.5%. Turning to adjusted operating profit. A couple of things to point out here as well. Continuing on the NHL front with Media, the reported decline in adjusted operating profit you see was largely driven by seasonality associated with our NHL coverage. In summary, we allocate the NHL rights cost evenly over all season games notwithstanding that some games, and in particular the playoffs, earn a disproportionate share of the season's revenues. So what you saw in Q1 was a large volume of games and therefore cost, with the higher revenue generating games to come largely in Q2. So it's a timing issue only. Excluding this effect, Media's Q1 adjusted operating profit would be up year-over-year. Our profitability expectations for the NHL full season still remain unchanged. And with more Canadian teams in the playoffs than we've seen in over 10 years, we may see some upside to our expectations for full season revenues. Turning to Wireless operating profit. As Guy mentioned, the year-on-year decline is due to our selective early hardware upgrades in advance of the double cohort this summer. We assumed in our full year plan and guidance that we pull a number of upgrades forward into the first half of the year, compared to the typical seasonality you have seen in the past couple of years. This quarter, we upgraded 18% more devices to existing subscribers than the same quarter last year, with the volume skewed towards iPhones and more expensive devices generally associated with our highest-value customers. This drove retention cost up 32% year-over-year, which led to the decline in operating profit. This tactic will continue into the second quarter and then reverse somewhat in the second half of the year. And we made good progress, such that at the end of Q1, just under 16% of the postpaid consumer base was left on 3-year contracts. So excluding equipment cost, Wireless OpEx was actually down 1% demonstrating our focus on continuously taking cost out of the business despite an increasing number of initiatives and improving volumes. On a consolidated basis, while CapEx was relatively steady year-over-year, higher depreciation and amortization expenses, combined with the accelerated wireless upgrades and NHL seasonality, pressured earnings per share. And while free cash flow was over $0.25 billion for Q1, much of the year-over-year change below operating profit was simply due to the timing of cash, income tax installment payments, which aren't spread equally through the year. With that free cash flow, we returned $235 million of cash to shareholders, which I'm pleased to point out, our board announced earlier this quarter, has been increased by 5% effective with the dividend we paid on April 1. On the balance sheet, we ended the quarter with $2.4 billion in available liquidity. And with leverage relatively steady, which we continue to focus on managing back down to within our budget range below 2.5x debt to adjusted operating profit. To sum up, I would say that the first quarter was solid from a top line growth perspective and on plan generally with the timing of wireless upgrade volumes and NHL seasonality driving much of the year-on-year decline in adjusted operating profit and earnings per share. Net-net, we're still on plan for the year and feel good about some of the momentum we're beginning to create. With that, let's get into the questions you have.

Well, pardon me, thanks Guy and Tony. And quickly, we'll just -- before we begin taking questions, we request, as we do on each of these calls, that those participants asking the questions try to limit them to one topic so that many people as possible have a chance to participate. And then to the extent we have time, we'll circle back and take additional ones or we'll certainly get them answered for you as quickly as we can right after the call. And then so, Saul, if you would go ahead and please explain to the participants how you'd like to organize the Q&A pooling process, we would be ready to go.

[Operator Instructions] And our first question comes from the line of Drew McReynolds with RBC.

Two questions for me. Just first, I guess, Tony, just with respect to -- including the Home Phone -- Wireless Home Phone subs in the numbers, just wondering if you could comment on the contribution of those subs to net adds in the quarter? And then second question, just with respect to priority uses of capital. You alluded to getting -- wanted to get back below 2.5x net debt-to-EBITDA. Just wondering just given kind of the reaction of the shares recently if you had any updated thoughts with respect to a buyback. And I'll leave it there.

Thanks for the question, Drew. Let me start with the Wireless Home Phone. So you'll see in our disclosure is, we now included -- we included the 92,000 in the base. In the quarter, the net adds for Wireless Home Phone was 9,000 or just under 9,000, 8,600 to be exact. So that was the net adds on the Wireless Home Phone front. In terms of getting our capital leverage, you saw that at the end of this quarter it was up slightly to 3.1. That's just really related to seasonality. We had some working capital investment, namely in handsets that we made, together with some use of cash for the income tax installments that was skewed towards the first half. So for the full year, we continue to look to bring that down. Our target is still to continue to get that under 2.5. In terms of us looking to reallocate our capital to share buybacks, we continue to be focused on debt repayment as a priority, even given where the shares are today.

Tony, if I can just squeeze one more. And just with respect to ARPA, you alluded to the, I think, 4.2% growth in ARPA year-over-year. Just wondering if you could kind of broaden the horizon out here. Is that a metric that you see accelerating in terms of growth or is that growth stable and obviously higher than the postpaid ARPU?

Drew, a couple of things on that. It's something -- even though we didn't disclose it, we tracked it and wanted to make sure our reporting systems for it were robust and accurate. And so, what we have been seeing over the last several quarters is good progression in ARPA. And so as you'd expect with the success of Share Everything plans and the impact of roaming revenues becoming less and less, we expect the trend in ARPA to continue and again, to be more reflective of the value of the Share Everything plans.

Our next question comes from the line of Glen Campbell with Bank of America Merrill Lynch.

My questions are on Wireless margins, and I think they'd be for Tony. So first on the handset upgrade rate, we saw the increase this quarter. And I think Guy alluded to an expectation that they will be down in the second half. Can you talk a little bit about what you expect would be the upgrade rate perhaps for the year, what's baked into your guidance? And maybe just talk generally about whether the rate should shift permanently higher now that we're on a 2-year contract renewal cycle after the this summer, as opposed to the 3-year cycle that drove last year's 22% rate.

Okay. Well, in terms of -- as I talked about, the retention volumes were up 18% in the first quarter, relative to the skew that you saw in previous years. As I said, we expect most of it to happen in the first half of the year. If you were to look at the total, I don't want to provide guidance on the total upgrades -- retention upgrades that are going to happen for the year, but it ties in with your second question. Just the math would suggest that as we move from 3 to 2 years, then we move to a cycle where, on average, we're up theoretically, hopping customers 50% of the contracted base each year as opposed to 1/3 that would be the case under the 3-year model. And so, what you see in our pricing constructs is just that, moving our economics and preserving our lifetime values by getting those pricing constructs to align to the 2-year contracts.

Glen, this is Guy. I would actually just add though that I don't think it's automatic in some respects though because it depends a little bit on the attractiveness of the handset in the marketplace and whether people perceive them as a big increase. Secondly, it depends on how those handsets are priced in the market given the U.S. Canadian dollar rate and where it is at the moment. So maybe for the sake of argument let's say Apple produced an upgrade that wasn't particularly attractive and was deemed expensive because of the exchange rate that it might -- people might sit out and wait because the quality of the handsets a lot of people have at the moment, quite frankly, would last longer than 2 years.

That's a fair point. And did I hear you say that at the end of Q1 it was 16% of the base that's still on 3-year contracts?

That's right. Of the consumer postpaid base, just under 16% is still on 3-year contracts.

Okay, perfect. And one follow-up, if I might. Again, on margins, you talked about data usage by the more than 1 million sharing customers who are doing roaming -- ROAMING LIKE HOME being higher in the U.S. than in Canada. That's an interesting number. Is that creating a meaningful source of pressure on your costs? We don't know your roaming cost, but could you give us a sense of how much margin pressure might be arising from that higher usage?

I said no, it's not creating a pressure.

Our next question comes from the line of Jeff Fan with Scotiabank.

Quick housekeeping for Tony regarding the 3-year contract. You said 16% at the end of Q1. What was that number at the end of the last quarter, Q4?

At the end of the last quarter, Jeff, it was 21%.

21%, okay, great. And then just a follow-on regarding ARPA. One of the interesting metric that you can get from ARPA is the number of connections that you have per account. And if I do that math correctly, it looks like you're at about 1.6 devices per account. So in terms of looking forward, how important is this metric's growth, I guess the number of devices per account in driving ARPA growth? And what -- do you think you have the kind of pricing plans in the market in terms of usage and bucket that allows you to grow that further if it is an important metric?

Jeff, we do think -- I'll start backwards with your questions. And so what we are seeing is good success with the Share Everything plans. So 60% of the gross adds coming in on Rogers are coming in on Share Everything. So we're pleased with the traction it's having in the marketplace. So we're seeing the success on that front. The other thing to keep in mind in terms of your calculation of average SIMs, that's about right. A little bit light, but there's a couple of things that go on there. One is not only to help ARPA, but gets at the stickiness of the customer. And so we're pleased when we look at Share Everything, with not only the ARPU and ARPA of the Share Everything profile, but the significantly improved churn profile that we're seeing in those plans.

Our next question comes from the line of Simon Flannery with Morgan Stanley.

Guy, as part of your Rogers 3.0 plan, you divided the business into business and consumer, and I think you talked particularly about the opportunity to go after the business telephony in the cable footprint, like the U.S. carriers have done. You appointed some executives late last year. Can you give us a little bit of an update on how that is going and when should we start to see some meaningful benefit from those initiatives?

Yes, so Nitin joined us from Cisco in back end of last year and finished his induction sort of late January. He's got his management team together. And in fact, I think the last 2 people arrive in the next 2 or 3 weeks. So we're pretty much at first base in terms of action in the marketplace. But in terms of planning, we're well-advanced and where we expected to be at this point in time.

Okay. So we should see some traction later this year?

As you know, it takes time to roll these things out. We'll be here in 2016, as well as being here in 2015. So to me, it's more about getting it right than hurtling into the marketplace with something that's half thought through.

Our next question comes from the line of John Hodulik with UBS.

Two quick ones. First a follow-up on the Wireless margin questions. It looks like the increased investment in upgrades, largely about a 250-basis-point decline on a year-over-year basis, gone from, I guess, 21% on a 3-year to 16%. Now they've got sort of one quarter to go, I mean, should we expect that sort of increased investment on a sequential basis and potentially more margin impact as we look into the second quarter? Then given that, can you -- do you still expect to grow EBITDA marginally here in '15 for the year? And then, my second question is on the sub trends, I think it was Tony, you talked a little bit about some change in trend during the quarter and actually adding subs in March, could you talk about sort of what's driving that and do you have enough visibility at this point to suggest that maybe you can add subs in the second quarter?

John, thanks for the questions. A couple of things, one is, in terms of the timing of the upgrades, number of dynamics that go into it. Certainly, we are proactive in it, and so that drives it. To what extent are you going to see that in Q2 relative to Q1? A number of dynamics, one of which Guy mentioned is, how consumers are thinking about the handset lineup that's out there, whether they want to wait for the fall. And so I think I don't want to put a number or a direction out there that has a lot of potential volatility to it. But from our perspective and what we can do, we are looking to have most of that come through in the first half, as we said before. How it relates to Q1, don't know for sure, but we'll see how it plays out. As we look to the full year, and I think your question is really getting at, how are we thinking about guidance, we continue to look to achieve our adjusted operating profit, including these early upgrades within the guidance that we provided.

Great. And on the sub trends?

Yes, on the sub trending, what we've seen is, really, over the last 6 months, if you were to look at sequentially what's happening on a monthly basis from when we first launched what I would describe the execution of our volume to value, we continue to see every month, every week a good sequential progression. And so what I can tell you, in March, we saw that move into positive nets. And so based on the experience we've seen, we expect that progression to continue into Q2 and the rest of the year.

Yes, the one thing I would say though, and I've said it before, and I get pushed back for this, but I'm going to say it again anyway is that, we'll get some vibrations in some numbers as we go through the year, as we flush out different cohorts of different -- that have different levels of return on investment. So I don't want to be held hostage to a particular sub number. We can only put revenue in the bank, we can't put customers.

And our next question comes from the line of Greg MacDonald with Macquarie.

So Shaw has spoken recently about the strategic approach it's taking in cable, deemphasizing the home phone product, emphasizing or focusing more on the broadband product in terms of sales and pricing efforts. Number one, could you talk to us a little bit about how you're thinking about home phone these days. Are you actually actively marketing and selling that product still? And then, number two, any concern that broadband lacks a differentiation, at least enough differentiation to support higher pricing power, which might suggest -- WiFi, a lot of cable companies are doing. WiFi, is there an indication internally that you guys think that, that is a product that will be needed for differentiation down the road?

Well, I would say we continue to market all the products we have available to us. We've chosen to emphasize in this quarter broadband, Rogers IGNITE and the new plans have been received very well. It's clear that demand in the average family is growing quite quickly. The number of devices connected to a router is increasing. And the bill payer in the family is looking for more certainty about what their outgoing is in this area, and that's why we chose to give them certainty on a price level, but also give them certainty on a quality level. And the quality of our broadband product is very high, and that's not just me saying, it is certified by third-party sources as well. So we're focusing on making broadband worry-free for families and encouraging them to connect as many devices as possible. With respect to the kind of WiFi issue, if it is an issue, I think that WiFi is a bearer, and it has a role to play in the mix of different technologies we can deploy. And if we see it being relevant to deploy it vis–à–vis wireless, we'll do it. But I think we see it as complementary at the end of the day. I don't think I see it as a replacement technology.

Our next question comes from the line of Dvai Ghose with Canaccord Genuity.

Just want to go back to your guidance for the year, which calls for, as you know, 0% to 3% EBITDA growth and flattish free cash flow. You produced negative 3% EBITDA, negative 20% free cash. Now if I look at the drivers you've talked about, which get you to your guidance, you've talked about reduced retention expense in the second half, more efficient NHL OpEx and perhaps the end of the double cohort issue in cable. But at the same cash taxes, but at the same time, your CapEx was a bit light in the quarter. You guided a flat top, 4%, it was down 3% in the quarter. Is there anything else I'm missing in terms of how you make your guidance?

No, Dvai, I think you've captured it. And so with all of those factors, we continue -- I should say that the items that you saw come through in Q1 is in line with the plan that we put together when we laid out our guidance for the full year. So there are no surprises there. As you look to each of the cash items, and I'll start with CapEx, probably worth commenting on briefly, you saw in Q1 come down slightly. The 2 single-biggest drivers there, one is with the rollout of NextBox in our cable TV platform over the last year, we're starting to see the need for that investment starting to come down. And the second piece, quite frankly, is success we're having on unit cost in CapEx. And so what we're finding is a good ability to do more with less. And so some of that is starting to show through. That doesn't necessarily mean you'll see it every quarter being down year-on-year, but I think what you saw in the first quarter is really a reflection of that.

Fair enough. If I could pull in one other question. When I'm asked what will eventually get this stock moving, the obvious answer is an interest-sensitive dividend, stock is free cash flow growth. You're guiding towards flattish this year. Do you think you're creating the platform for meaningful free cash flow growth from '16 onwards?

Yes, Dvai, absolutely. The biggest driver of free cash flow growth has to be revenue, and so you can see that starting to move on the top line. One of the things we have consistently done well is translate top line into strong margins in both our cable and wireless business, and we expect to do that. If we were to take out what we've been transparently laying out as the onetime items in the various businesses, what you see is our underlining cost structure continuing to come down, notwithstanding that we have more activity in terms of programs, et cetera. So we're pleased with the way that's coming through. And then finally, the last piece of it is going to be CapEx. And we said this year was going to be the year that we were going to increase CapEx a little bit in order to make the investments we needed in a number of different areas and in particular, customer service. And so, we expect long term, that there's an opportunity for that to come down. And so, again, I'd close with, it's going to be driven by revenue and our continued execution to translate that to free cash flow growth.

Our next question comes from the line of Phillip Huang with Barclays Capital.

Just wanted to come back to the double cohort impact here. So just based on the pace of your migration of subscribers to 2-year contract, it appears that you'll have roughly, call it, 10% of your postpaid base still on 3-year contracts by June 30. First is, do you think this assumption is fair? And second, are there any notable characteristics with the remaining chunk of subscribers still on 3-year contracts, perhaps lower ARPU or lower value that you might be a little bit less concerned about in terms of these guys potentially churning off?

No. I would -- one of the things I want to be careful of is not put more science into this double cohort than is actually there. And so there's just a number of different dynamics, and so don't want to provide necessarily a direction. The other thing just to clarify, it's -- the number we gave in terms of 16%, that was consumers of the total postpaid base. And so the 3-year contract impacts the consumer so that's why I gave that as the relevant stat.

Our next question comes from the line of Michael Rollins with Citigroup.

I was just wondering, if we think a little bit longer term over the next 2 to 3 years, can you review for us how you look at the importance of content in differentiating your wireless product versus your competition. And are there some early signals or test results you're seeing from your customers as you try to leverage the content that you already have across your properties?

It's Guy. What I would say is that nobody goes down to the pub and says, "I consumed 25 megabytes today. It was a great day." People go down to the pub and they talk about the Montréal versus Ottawa game which 3.2 million people viewed, and that's what they want to talk about. So content is far sexier than megabytes. That's just a fact. And if you can entangle the 2, you got to believe that at some stage that will change the way that people view brands and create differentiation. Now it's a theory that I would say is relatively new in the wireless market, but we do believe in it. And I think that it's fairly natural in some respects. If I look at our Fido proposition and our new pulse plans for instance, where you get Spotify Premium built-in as well, music is something that people want to consume on the move. Spotify is by far the best streaming service in the world, why not put them together because people like to listen to music on the go. So we believe in it. It doesn't mean to say that all plans should have content and you couldn't buy SIM-based plans that just -- that don't have any content, but I do think it has a role.

Our question comes from the line of Tim Casey with BMO Capital Markets.

You talked a little bit about how the continued strength in the U.S. dollar is impacting your financials, particularly on the handset side. Are you having to absorb any of the prices that some of your suppliers may be putting through? And is it -- are you seeing an impact in the marketplace?

Tim, a couple of things on that. In terms of the U.S. dollar exchange, we are -- there's a couple of ways I should describe it. One is, from the balance sheet standpoint, we have U.S. dollar borrowings that are fully hedged, whether they're short term or even up to 30 years. I should clarify that they're fully hedged for the full 30 years or whatever the term is. So there's no foreign exchange risk on that. And I would say the counterparties to those hedges are strong financial institutions. And so from that standpoint, little to no risk. When we look at our expenditures that are denominated in U.S. dollars, we've been following a steady program of hedging far in advance several years. So as we look to the current year, pretty much all of our U.S. dollar denominated expenditures have been hedged. And as we go into next year, much of that has been hedged as well. The one thing though is, notwithstanding what the contract is denominated and even if it's in Canadian dollars that comes from a U.S. source, it will certainly have an impact. And our strategy to date is to make sure that our lifetime values hold. And so if it means increasing the price at the retail level, then that's what we have and will do.

Our next question comes from the line of Richard Choe with JPMorgan.

I wanted to ask about high-speed data. It was down this quarter and also last quarter. But I think if you exclude the regulatory change, it was up. Should we expect it to continue to grow going forward or will it be kind of continue under pressure?

Sorry, Richard, if I could just clarify, are you you're talking about in terms of subscribers or revenue?

Subscribers for the cable net adds, high-speed data net adds?

Yes, if you were to look at the -- on the subscriber front, we reported net loss of 7,000. As I said, the 30-day deact had an impact on that, and that was 15,000 in the quarter. So it was actually positive 8,000. Compared to where we've been, it's come down a little bit and it really relates to some of the bundling offers that we've been competing with out there. And so it's really as we compete for the whole home then the Internet is getting included as part of that. So while the trend is improving, we're not happy where it is, but it's headed in the right direction in terms of where it was in Q4.

Our next question comes from the line of Rob Goff with Euro Pacific.

My question would be on the investments you've made in enhancing the subscriber value proposition, i.e., the IGNITE and the roaming and the Spotify. Do you have a, like a broad figure that you would put forth, i.e., $40 million has gone into this or...

Short answer is yes, but we're not going to share it. But it's certainly fundamental to our strategy in how we're going about keeping that cost in perspective, in negotiating, I think, is pretty confidential.

Okay. And if I may then, could I ask how -- what your reading is of the current marketplace on promotional activity, whether it's intensifying, whether it's stabilizing and as a measure of discipline?

In cable or wireless?

On the wireless?

I would say, certainly, March was pretty fizz. As well, every month's fizz, but I would say relatively speaking March was pretty fizz. It's clear that some of the players in the market are choosing to throw money at the wall and hope it sticks. And that's fine if it's their strategy.

Our next question comes from the line of Maher Yaghi with Desjardins Securities.

I wanted to -- Guy, I wanted to go back to one of your original objectives coming in to Rogers. You talked about improving the revenue growth of the firm. And we've seen steady progression of the revenue line growth, even if I exclude all the Media revenue growth that you got from investing in the NHL program. But could you talk a little bit about your -- how you see that revenue growth progression continuing later this year? Do you see it continuing to improve or we should wait to see it improve further in 2016 because you're already at 2% growth. But what is your -- what would be your growth objective for 2015 as a whole? And in terms of your cable positioning in the marketplace with the new IGNITE product, it's quite competitive on the Internet side, but you still have some things to deal with on the TV side to compete against the triple bundle. Can you talk a little bit what kind of technological improvements you are doing on the TV side to improve your positioning in the marketplace to -- with IGNITE still helping you on Internet?

So on the first question, I mean, say, you can only put revenue in a bank, you can't put customers. And therefore, we're very focused on continuing to grow the revenue line. There's been a propensity in quite a few countries to rely on price increase as the main way of achieving that growth. And I think that, that as a strategy has probably had its day to a degree or solely relying on it, I should say, it's probably had its day. And therefore, you have to look to provide better bundles, packages, content, whatever it is that encourages the customer to consume more of your product or use higher-value packages. And that's where we are focused. So I can't give you, and we shouldn't give guidance for 2016 now. But what I would say is, is our philosophy is to encourage the customers to take more products and use them more and hence grow our revenue line that way versus naked price increases. On the second part of your question to do with the TV product. You are right that we've concentrated thus far on broadband. Development times on the TV product can be quite long, but we are focused on improving them. And in fact, today, I was with John Chambers on a call just going through the road map for the rest of this year. And we are not too far away from the first of the upgrades we're going to do. It's not seismic, it's one of a series of upgrades we'll do to our TV products. And we're very clear where we want to enhance it because we've got that from the customers. And we've translated that into engineering requirements, and that's now coming down the pipe, and we'll launch them in a series of releases over the course of this year. So we're not relying on a brand-new release of IPTV or something to suddenly come in and be a category-killer overnight. We are focused on developing our long-term IPTV strategy at the same time in enhancing our legacy products as well.

Our next question comes from the line of Robert Peters with Crédit Suisse.

Just a quick one for me. I was just wondering, when you're talking about the new IGNITE brand, you said that the initial response has been positive. But I was just wondering, with the IGNITE 100 package being unlimited, have you seen -- and I'm not sure if you can give me this in the occasion -- but have you seen some subscribers that maybe would have been taking, say, your Hybrid-Fibre 60 package before actually upgrading to the unlimited one since you no longer have the download cap on that?

Yes, we have. And congratulations for actually pronouncing our old tariff correctly because most people can't. But certainly, our base is very attracted to the new plans. And the migrations team that we have actually, we've had to put more staff on to cope with the demand we've had for it.

Ladies and gentlemen, we have time for one more question. And our next question comes from the line of Vince Valentini with TD Securities.

Questions on the customer service journey, probably for Guy. You mentioned before in the enterprise segment you're at sort of first base. I'm wondering how you would characterize where you are in terms of improving customer service. Obviously, the complaint stats have come down, and that's nice, but how about Net Promoter Score? Can you share with us anything there and how well that's getting better? And where do you think you are? Is it still another year before you get customer service to where you really think it should be?

Well, I think I've said before, Vince, that customer service is a journey, not a destination. And therefore, originally, I said it would take us 3 years to get it to where I wanted it to be. Maybe we'll get there faster, but it's about improving what we're doing every single day. And so the reason you see the complaints tumbling so fast with CCTS is as a result of that. With respect to NPS, we've only just installed it. So it literally went in, in January, and we haven't got it into every single channel yet, but we're pretty far through it. I would say probably 80% of the channels now have it. And then, of course, the staff have to get used to interpreting the results and then act accordingly and so on and so forth. But it's not just about NPS. I mean, NPS at the end of the day is an output. It's how your customer are feeling. The question is, what are you doing as part of your input? If you look, we've just reconfigured and rearchitected rogers.com and fido.ca. So interestingly, the response times on those 2 was fairly slow, and we just put new architecture in which means the access is faster. As part of our rebranding of Rogers and Fido, we've just laid out the website in a different way. We just upgraded MyRogers. We've just overhauled all of the community forums for both Rogers and I think Fido is now live as well. We've just improved the information knowledge system internally for our reps so they can give better information faster. And we've got another quite large announcement on the customer services side. It will come out in a couple of weeks time, which we also believe will move the dial. So again, I don't think there's any one thing you do to change customer services. It's about everything you do and everything communicates. And we are literally tackling it one at a time. How do you eat an elephant? You eat it one bite at a time. And that's the elephant we're eating right now. And -- but I'm happy with the progress. And Deepak who's coming from Google, he used to run global customer care for their B2B side in 100 countries, he's got a firm grip of the operation. He's got a good team around him. And -- but I will never be happy on customer service. I mean, we have this call in 4 years' time and I still won't be happy because if I've got an unhappy customer out there it means we didn't get it right. So don't expect me to declare victory on this one anytime ever.

Ladies and gentlemen, this concludes The Q&A session for today. I would like to turn the call back over to Bruce Mann for any closing remarks.

Right. Well, Thank you.

Bruce, I can't believe Bob wasn't on the call. It's his 50th birthday and he didn't come on the call. I thought -- the one thing he would want for his 50th birthday was to be on my call. I can't believe it. And the other thing I'm surprised at this time around is Dvai didn't give us one of his zinger questions that he normally comes in with. So I think it's his last call, isn't it? Is it true?

That's what I understand.

Dvai's last call? And then he's going off to become global operations director -- or god for short, global research director, only one initial out. Well, good luck to you, Dvai. And Bob, we're sorry, we missed you. Sorry, I am hubris.

Well, thank you very much, operator, and the team here. Thanks, everybody, for investing some of your time with us this evening. We know it's a very busy time. If you've got questions that weren't answered, you can get a hold of myself or my colleague Dan or Bruce, all 3 of us are going to be around this evening and tomorrow. And our contact information is on the release. If you're in Toronto or going to be tomorrow, join us for our Annual Shareholders Meeting at our headquarters here at Bloor and Jarvis at 11:00. It will be a relatively quick meeting, and we've got a product showcase afterwards with some refreshments, and would be a good investment of your time. Thank you very much for your support.

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation, and you may now disconnect.