Rogers Communications Inc. (RCI) Q2 2016 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Rogers Communications Q2 2016 Results Analyst Teleconference. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Thursday, July 21, 2016, at 8:30 a.m. Eastern time. I will now turn the conference over to Ms. Amy Schwalm with Rogers Communications' management team. Please go ahead.

Good morning, everyone, and thanks for joining us. I'm here with the President and Chief Executive Officer, Guy Laurence; and our Chief Financial Officer, Tony Staffieri. Starting this quarter, Guy and Tony's formal remarks are being synchronized with presentation slides, which you can view on the live webcast. The link is available on our website at rogers.com/webcast. As always, today's discussion will include estimates and other forward-looking information from which our actual results could differ. Please review the cautionary language in today's earnings report and in our 2015 annual report regarding the various factors, assumptions and risk that could cause our actual results to differ. With that, let me turn it over to Guy to begin.

Thanks, Amy, and good morning, everyone. So this morning, we released our second quarter results, which show our 3.0 strategy continues to gain traction in the market. We delivered steady revenue growth of 2%, improved subscriber metrics across all of our segments and grew adjusted operating profit. In particular, our Wireless and Internet businesses posted strong performances, building on recent trends. In the last 12 months, we have shown steady revenue growth trajectories in both Wireless and Internet. Turning to Wireless, service revenue grew 5%, and for the fourth quarter in a row, we significantly increased postpaid net additions year-over-year, reporting 65,000 net adds this quarter. We also grew adjusted operating profit by 1%, an improvement over the flat AOP we posted in the first quarter. Postpaid churn continues to decrease. In fact, it was our best quarterly churn performance in the past 2 years. Our compelling value propositions, improving customer experience and best-in-class networks continue to drive strong results in our Wireless segment. In our cable business, total service unit nets was significantly better than we've seen in the past couple of years. Internet continues to be the highlight. We grew Internet revenue by 15%, maintaining our double-digit growth rate once again this quarter. We also delivered the best Q2 net additions in the past 8 years. The competitive landscape remains intense in cable, as evidenced by aggressive bundle pricing. Rogers' advantage lies in our ability to meet the customer's need for speed which is driven by the increasing consumption of data in the home. Our high-speed IGNITE packages are proving very popular. Nearly 40% of our residential Internet base is now on a 100 megabits or higher, up from 15% in the same quarter last year, with more migrating every month. We have lots of opportunities to capitalize on the data opportunity whilst delivering a more robust service to our customers. Our gigabyte Internet service now covers about 2 million homes, and we are well on track to offer this service to our entire residential footprint by the end of this year. Our TV subscriber trends continue to move in the right direction. We expect to introduce IPTV at the very end of this year, and this will give us the service we need to start winning back video customers. A significantly enhanced video product is an important element in our strategy to own the hub. We are leveraging the clear competitive advantage of superior network performances. We are delivering 1 gigabit speeds years ahead of our competitors, at a fraction of the costs. We are leaders in providing 4K TV content, and we are uniquely capable of distributing it across our footprint without compromising the use of Internet bandwidth. And with IPTV, we will introduce a differentiative product, positioning us well to reverse the trend of TV subscriber losses. We are confident we can start to make a turnaround in cable in 2017. Turning to customer experience. We continue to make good progress as you can see from our churn metrics. We extended our roaming offering to fiber. Roam Like Home, has proved to be hugely successful for the Rogers brand, and we expect Fido Roam to be just as popular. A major focus for us, at the moment, is self-serve. So that customers can manage their experience through apps like, MyRogers at the time and place of their choosing. Many people prefer this over having to pick up the phone or to send an e-mail. The latest example of self-serve technology we've added is data top ups, which allow our Wireless customers to manage their data consumption on a month by month basis and purchase extra data if needed. This tool strikes a good balance between improving customer experience and allowing us to monetize increasing consumption of data. Rogers brand self-service transactions were up by 56% since last year, and we're seeing a steady decrease in the number of times customers are contacting us, down 8% this quarter from a year ago. We're happy to have our contact center agents focused on higher-value activities whilst making sure customers have the best plans for their needs. In the media segment, we also reported stronger results. Our diverse portfolio of sports outfits drove revenue growth, with sports making up almost 2/3 of media revenue this quarter and nearly 3/4 of operating profit. All of our sports assets have been growing. We completed year 2 of our NHL agreement and generated another year of revenue growth and positive margin contribution. In Q2, the success of the Blue Jays and Raptors led to increased advertising revenues for Sportsnet as well as higher subscriber fees. The Jays have now reached new levels of support this season, with the first 81 games averaging 825,000 viewers on Sportsnet, that's up over 50% from last year and sets a record for us for the first half of the season. Sports is becoming increasingly important in the media sector. Last month, the CRPC announced, for the first time, sports channels made up the half of Canada's top 10 growth in specialty TV channels in 2015. We've now largely completed the previously announced restructuring of our traditional media businesses within -- traditional businesses within media. With these changes, we are moving to a more optimal cost structure, better aligned with revenue opportunities. And before I close out, let me touch on our enterprise business. We continue to make good headway and introduced 2 more leapfrog solutions this month. Rogers Unison is a business collaboration solution that allows small businesses to eliminate their landline by offering the features of a traditional desk phone on a mobile phone. This is a disruptive technology that will save businesses money, allow them to be more responsive to customers and make them forget why they ever needed landlines. We believe the typical small business could save at least 40% of the cost of their fixed wireline bill. We also introduced the first of a new portfolio of cloud solutions. Rogers Public Cloud enables businesses to manage their IT infrastructure in the cloud securely and cost-effectively. These are the latest in our ongoing rollout of services for business customers. In summary, we are delivering on our Rogers 3.0 strategy, and it continues to yield results, particularly in Wireless, our largest segment; and Internet, which is a significant driver of our cable business. I will now turn it over to Tony to provide further detail on our results.

Thanks, Guy, and good morning, everyone. I'll provide additional context around our second quarter performance, and then we can get to your specific questions. We continue to improve key fundamentals, again, this quarter, recording year-over-year growth, and in many cases, demonstrating improved trends from the previous year -- from the previous quarter. Since revenue -- service revenue increased 3%, adjusted operating profit of $1.35 billion was up 1% over last year's second quarter despite 41,000 more net customer additions in our Wireless postpaid base. We expect to maintain positive growth in AOP through the second half of the year, driven by top line momentum and ongoing traction from productivity and cost efficiency initiatives. Below the operating profit line, adjusted net income and adjusted earnings per share were up 4%, primarily due to growth in AOP and better contribution from our joint ventures, partially offset by higher depreciation and amortization expense. Turning to the segment results. Wireless service revenue was up 5% to $1.79 billion. Wireless revenue benefited from growth of our subscriber base over the last year, as well as shift towards higher-value subscribers. We increased postpaid gross additions by 36,000 or 12% from the prior year, and postpaid net additions also increased significantly, as Guy mentioned. The popularity of our Share Everything plans also contributed to growth and led to a 5% increase in ARPA. Blended ARPU grew 1% when adjusted for the Mobilicity transaction completed in July of 2015. Beginning in the third quarter, our prior year results will include the new subscribers acquired in the Mobilicity transaction, which amounted to about a 1% positive contribution to revenue growth in Q2. We also recently introduced Fido Roam. And earlier this year, we extended Roam Like Home to a number of additional countries. We know these programs are extremely popular with our customers, and we expect volume increases to offset rate declines over time. In the interim, we anticipate these factors will have a moderating impact on Wireless revenue growth in the second half of this year. Wireless AOP margin was impacted by higher acquisition and retention cost, associated with strong subscriber additions, as we continue to take back share in a competitive marketplace. Turning to cable. Overall revenue was flat. This is an improved year-on-year trend from last quarter, as growth in Internet revenues is now fully offsetting the decline in TV and phone revenue. Internet revenue grew 15% year-on-year. We continue to see an ongoing shift in product mix to higher-margin Internet services. Internet net additions tripled from the same quarter last year, while video subscriber figures continued to trend in the right direction. Total service unit net losses improved by 33,000, which represents a notable progress compared to recent trends. Our cable network continues to give us a tremendous advantage over telcos when it comes to delivering higher-speed broadband to our customer in a timely and capital efficient manner. The bandwidth capacity of our hybrid fibre-coax network is enabling us to offer 1 gigabit service to our entire cable footprint this year at a cost of less than $50 per home. Our CapEx is success-based. Network segmentation will continue to be completed as local demand warrants and within our annual capital planning model. This highly capital efficient model positions us well to deliver timely and attractive returns on invested capital. In media, revenue increased 6% while AOP was flat. Again, a substantial improvement in year-over-year metrics from last quarter. We expect to see margin expansion in the coming quarters. I will now turn to our financial flexibility. Our leverage ratio improved to 3.1x at quarter end from 3.2x in the first quarter. We expect the ratio to decline in subsequent quarters on a higher AOP and free cash flow. We generated strong operating cash flow of $1.12 billion and a free cash flow of $495 million in the quarter. We continue to maintain solid investment grade credit ratings and attractive terms on our outstanding debt. Substantially, all of our expected U.S. dollar expenditures for the rest of this year are hedged at favorable rates. We are reaffirming our guidance for full year 2016. We're on track for revenue growth and AOP growth of 1% to 3%. We're confident that CapEx will be lower than 2015, in the range of $2.3 billion to $2.4 billion, which is expected to help drive free cash flow growth of 1% to 3%. In summary, we're making good progress in a number of priority areas. We have reaccelerated revenue growth in a sustainable manner and are focused on translating this growth into strong margins, profits, free cash flow and return on investment. With that, we'll open the call to any questions you may have.

[Operator Instructions] We'll now take the first question from the line of Tim Casey with BMO.

The Internet -- or pardon me, the loading numbers on Wireless were quite strong. Could you provide a little more color on what you saw in the market during the quarter in terms of competitive activity? And also your own go-to-market strategy? Did you -- were you a little more aggressive on promotion? Or could you just give us a little more color as to what contributed to those numbers?

Sure, Tim. It's Guy. So first of all, it's interesting, somebody -- I can't remember who wrote a couple of days ago that they thought the quarter had not been very competitive, and then thereafter, everybody wrote that the quarter haven't been very competitive. So just to set that straight guys, it was hugely competitive. We just happened to have a good quarter. And to your question, Tim, it came from, I would say, a more methodical approach to have. We were tackling the market in our different channels and just being very versatile and agile. It's also helped by the continuing of PLO, the value-added propositions that we get. The fact that customer experience is improving and that our networks are so solid. So it is kind of a cumulative thing with good quality execution, but don't kid yourself, it was a very competitive quarter.

We'll now take our next question from the line of Jeff Fan with Scotia Capital.

Just continuing onto that theme, Guy. I'm wondering if you can talk a little bit about how you think the wireless competitive market is going to shape out for the rest of the year or even just looking out the next couple of years. Is it a market where these value-added propositions going to continue or expand? Is that really the way to get customers? I was wondering if you can just elaborate a little bit on your thinking there.

The thing is it's always dangerous to forecast what the public will find attractive in a few years' time. I didn't think that this summer, in amongst terrorist incidence, the Trump election, potentially, that we'd see Pokemon Go coming out and people walking to the middle of freeways to play on their mobile phone. So I'm not going to forecast consumer trends. But what I would say is that, we use value-added propositions as part of our portfolio, and we adjust what they are, how long they go in terms of 6 months, 12 months length of contract. And you know, as their appeal climbs and wanes, we will adapt them. So I can't be a market seer. I can just say what our strategy is, it's different from the others. And it's produced good results this quarter.

Great. And maybe just a very quick follow-up on the cable side of the business. I know you don't disclose the number of customer relationships that you have. But that's a number that I think would be interesting to hear some color about -- on the number of customer relationships you have on the cable side and whether you're starting to see a bit of a turn on that, the household figure, based on what you're doing on the cable Internet front.

Jeff, good question on the cable front. A couple of things, we've talked about it on previous calls. We'll continue to look at the right time to start disclosing households and ARPA. And it certainly has been part of our internal reporting metrics and the way we think about that business. I think, as a proxy for now, if you were look at total TSU trends, I think that'll give you a good indicator of what household trends are looking like. I think we certainly feel like if you're to look at it in terms of a U curve, we feel like we are probably at the bottom or maybe a little bit past the bottom of that U curve. So we like to trend on that, and in terms of disclosure of it, we'll look to it for future quarters.

Your next question will come from the line of Phil Huang with Barclays Capital.

I have a question on the wireless service margins. Obviously, with the stronger net adds and churn, I'd imagine there is a corresponding increase in acquisition -- customer acquisition and retention. But I was wondering if you could elaborate a little bit on the higher Wireless OpEx this quarter? Were there any incremental drivers in the lower service margin?

Yes. A couple of things, Phil. I mean, as we said, if you exclude the cost of handsets, we've been doing a couple of things within our operations, where we've been investing areas. One of them a hard value add proposition and so, while they come with a higher cost, they're also a big contributor to both revenue and ARPU increases. And so that's a part of the cost structure. And the second is the investment we're making in not only channel but also the broader customer experience. And then we look to offset that with productivity improvements everywhere else. So I think on balance, given the amount of investment we've been doing, we're pretty pleased with where the margin is trending on wireless, when you look at it, both with and without hardware costs.

Great. That's very helpful. A follow up on the ARPU front. Just to clarify, just based on your opening remarks, do you -- did I hear you correctly, that you did mentioned roaming to have a bigger impact on ARPU in the back half of this year? Or -- I just wanted to probably get a sense as to the -- because, usually, as you mentioned when you expand the roaming program that's this popular it tends to have initially a dilutive impact. But are we seeing a bigger -- or do you expect to see a bigger impact in the second half versus this quarter?

The comment, Phil, is really meant to help moderate some of the thinking around our Wireless revenue growth as well as ARPU. Q2, a strong revenue growth overall at 5%. As we look to the second half of the year, we're only highlighting that there'll be some things that will temper that rate of growth in the short-term. Roaming will be one impact, as we continue to extend it within our base and continue to extend the number of countries. When we look at roaming, overall, I will say for Q2, it's at the point where it now has a very small impact, it's sort of single-digit millions, in terms of impact to our revenue and ARPU profiles. As we introduce new parts of the plan or extend it, within a quarter, it creates some short-term impacts, and so, that's what we're calling out at this stage. I wouldn't overplay it in terms of our trajectory. It's just a highlight of the reality. So what happens to the revenue curve as we launch those.

Great. You mentioned ARPU, or is roaming is one of those impact. Would you be able to, maybe, elaborate a little bit on what the other potential items might be for the back half of the year?

Well there are 2 biggest ones, as I said, were roaming and the other is Mobilicity. So as we lap the acquisition of Mobilicity that happened in Q3 of last year, that will come off. And as I said, that was worth 1 percentage point in the quarter. So that -- I think those are the 2 main ones that will sort of help give you a view of what those could be. I don't want to take away from the fact that we continue to see very healthy trends on ARPU, and in particular, ARPU end. So, to follow on Guy's comment about the value-add proposition, it's putting forth a very healthy ARPU trend for us. And so we expect that piece of it to continue into the back half of the year.

Your next question will come from the line of John Hodulik with UBS.

Maybe some questions on the cable side. Guy, could you talk a little bit about the Eclipse or the IPTV rollout, I guess, in the fourth quarter? Does that get rolled out across the service footprint all at once? Will all the new customers get the product at that point, and maybe talk about how it'll be priced? And then, I guess, a little bit longer-term, do you expect it to change some of the submetric trends we've been seeing for the last few years? And then, I guess, Tony has said that the cable margins you expected to some improvement, is there any margin impact from the rollout that we should expect to offset some of those margin improvements you're talking about?

Sorry John, you might have missed some of the other presentations we've done on this. But we -- so I'll tell you what we told everybody else. We basically -- we're rolling this out at the very end of this year. So in the dying days of this year we'll put it out there with the public to check that everything works, and then we'll scale it through 2017. So it will have 0 impact this year, and a very moderate impact in the early part of 2017, as we scale the platform. Obviously, it's a new platform, we need to make sure it works. Currently got it underway in testing, with several thousand of our employees, or elements, I should say. And so, I can't really give any forward guidance on how it's going to impact exactly other than we're extremely pleased with how it looks. And I think the consensus was absolutely 100% of the people who saw us at the demonstration the other day that this is a stunning product. And therefore, it is going to have a positive impact on our video business combined with our advantage on speed over the competition. But we're going to bring it to market at the pace that we think is appropriate. I'm not going to be rushed on that.

To answer your question, John, on cable margins. A couple of things I'd say. Long term, this is a big enabler to cost reductions in the cable side as we move our network to all IP and all those things -- all that means for cost reductions on the cable side. In the interim though, we do expect as we go through, just as you would expect with the launch of any significant product, that there's going to be learning curves, et cetera, install times and things like that. So in the short-term, we do expect it will have an impact on cable margins. In some respects, it's a nice problem to have. To the extent the volumes are high, the more of an impact it will have. Having said that, we do expect 2 headwinds going the other way will help stabilize and offset that. By how much? We don't know. And those 2 factors are the natural mix that we're seeing in the cable business from video to Internet. Internet, obviously coming at a much higher margin. And the second is, the continued productivity improvements that we make in cable. And so it's those 3 factors that are probably the big ones on cable margins, but long-term, it ought to mean an improvement. In the short-term, as we launch, it may have an impact. To what extent? We don't know.

And I'm assured you're familiar with the fact that on top of everything Tony has just said, we felt the industry change was moving to [indiscernible] at the end of the year as well, which have a question mark in terms of what you -- this people's views are, of how much that will effect, and what I would say, I'm broadly optimistic on that one, rather than a pessimistic.

Your next question comes in the line of Drew McReynolds with RBC Capital Markets.

Tony, just to follow-up on -- about Wireless network margins. You talked about an improving kind of flow through from the revenue growth down to EBITDA. Is there a point, just with all the moving parts underneath, as you had gained greater traction in Wireless where you get a, I guess, a faster pick up on that EBITDA flow through in Wireless?

Sure. I think it's going to be highly dependent. I mean the single biggest factor is going to be the volumes of gross adds, and that's within a particular quarter, which, as we approach the second half of the year, is going to depend on the popularity of devices that are issued. And so it's tough to predict that. I think, you know as we've talked about, we continue to see the opportunity for this year to land with margins that are roughly on par with last year in the Wireless business. And then longer-term, we continue to see margins sitting in or around where they have been again as increased costs and, hence, that investments get offset by productivity improvements elsewhere. So that's sort of the longer-term view, but within any quarter, that will be the biggest dependency and driver.

Okay, that's great. Just 2 others for me. And just on -- can you just comment on the competitive dynamics, where you are seeing kind of fiber being rolled out in the urban markets. We're obviously seeing some pretty heavy promotional activity in now both in Eastern Canada and Western Canada. So if you can comment on that, that'd be great. And then lastly, just on the business side, Guy, you just commented on your cloud solution and Unison being rolled out. Can you just remind us what we currently see in the numbers from those products, and just also remind us once what gets captured in RBS versus the core cable business?

About 5 questions there. What was the first one again?

The first one was fiber-to-home markets.

Okay. So on that one, I think we and our competitors are being consistent that we are battling sort of house-by-house in areas where we're investing and they're investing. And that is resulting in some surprising promotional pricing, which my philosophy is not going to match. If I say they'll match here, I want initiative but I'll match it. And that continues, and sort of dogfight continues, and I expect it to continue for some time. I can't comment on the west because I have less knowledge of what's kind of happening out there. On the 2 enterprise products, in terms of our strategy, first of all let's take Rogers Unison, because I think it's a very interesting product. I mean, one of the things that staggers me is the cost of a fixed line telephone for small business. I mean, it just being punitive pricing to me. I can't believe that the companies have got away with it for all these years. Now this technology now exists where you can take all the functionality of what you can do on a fixed phone and put it onto a mobile phone. And let's face it, for small businesses, you know they actually don't want to be tethered to an office, they want to be out and about in front of the customers. These are entrepreneurs who are trying to build their business, trying to do their best to learn a craft and they need to be out in front with their customers. So the fact that can be in front of customers and have all of their wireline calls coming through to their mobile, makes them more productive. It's good for their business, it's good for Canada. So this is a product where I really believe in, we spent a long time building it, and it's fascinating. I was listening to the sales calls coming in yesterday, and it clearly resonates with small businesses because they can see the advantage. Rogers Public Cloud is different, we've done a partnership there. Again, we see a greater need for businesses, I would say more medium-size businesses, some small, but only medium businesses to move some of their IP infrastructure into the cloud where it's secure. And I think we all worry about cybersecurity these days. And it allows them to have flexibility in terms of how much capacity they need to phase that up and down. And therefore, that's a service we also see developing over time. If I had to contrast between the 2, I would say Unison is probably more material for us than the cloud. But nevertheless, they're part of a suite of leapfrog solutions that we have deployed. In terms of where they go into the P&L, and I'll let Tony handle that in a second. In terms of how are they selling, well we only launched them a couple of weeks ago. So forgive me if I haven't got figures to hand right now, but what I would say is listening to the enthusiasm of the sales calls yesterday, I'd say Unison for sure is going to be a big hit with small businesses.

Drew, in terms of where you'll see it, you'll largely see it within the Wireless revenue side of things.

Your next question will come from the line of Aravinda Galappatthige with Canaccord Genuity.

A question on the CapEx side. With respect to cable, obviously with the IPTV project getting to its latter stages, and the investments around legacy TV obviously starting to see. I was wondering if you were expecting a material step down in CapEx on the cable side in '17? You're in the high 20s as of now. I was wondering if you expect a bit of a drop to the lending straightaway or is it we expect a more gradual decline?

On the CapEx side for cable, we're sitting at CI index of just over 30%. We've consistently said that longer-term, as we move to IP, the lower CapEx that, that requires, combined with lower CPE costs over time, is going to drive that CE index down significantly for that business. In the short-term, we'll continue to make investments in the platform. And so you may not -- to answer your question specifically, you may not necessarily see it right away, but rather it is something that we'll measure over the course of the next several years. Again, we're building that platform for the long-term. And so we'll make the necessary investments we need to make, but at the same time, we'll be very clear and transparent with you on how we expect to get the proper payback on the investment.

Okay. And just to follow-up on the question about the competitiveness in Ontario on the cable side. Guy, do you expect sort of this battle to continue to spill over into 2017? And if it does, I mean, does that sort of impact your cable margin expectation that Tony was referring to earlier?

Is it going to continue? I have no idea. You probably have to ask my competitor there. In terms of FX margins, it depends on whether we're dealing with skirmishes, line of sights, battles or nuclear war, and that little bit again depends on the actions of the competitors. So I think its best directing it to their call in couple of weeks' time.

We'll now take our next question from the line of Simon Flannery with Morgan Stanley.

So nice to hear the take up of the 100 meg product plus at 38%. Can you just talk us through your plans to take advantage of these new gigabit speeds? And what are we seeing? Is this new customers coming in, or are you actively going back to existing customers and offering them these new speeds? What sort of ARPU uplift are we seeing? Maybe you could just help us understand how that flows through over the next few quarters?

Sounds like an actual tactic. So the need for speed is there. It's just there. It's a basic need for any family. You need the speed because you've got -- originally, currently, I think, it was 11 on-average devices connected to a router. We forecast that it will go to 21, and therefore, we are attracting new customers who clearly see the need for speed. I mean why anybody would go with less than 100 meg is a puzzle to me. And the second thing is, our existing base are upgrading. So it's a good mix, it does vary from week to week. So I think that's going to continue to be quite frank. It will be, at some stage, it'll start to slow down because there is a certain economic group that probably don't want to stretch as far as 100 megs. But at least for the time being, we see positive momentum, and you see that in our nets, best Q2 for 8 years. I would have to tell you, something's going on.

And what sort of ARPU are you getting from some of these higher speeds? Some of the existing base uplift does that average $10 a month? Or more than that?

Simon [ph], it's a blended earning. Certainly, it will depend on -- I mean, if you just take a look at the [indiscernible] and the pricing of it. In some areas, we'll have, again dating back to the competitive intensity, promotional discounts on that for a period of time, which even with that ends up being accretive for us. I think, if you just -- again, look to the revenue increase in the Internet, and I can tell you that it's best supported by correspondingly strong ARPU growth as well in Internet, and that's where we see it coming through.

But the problem is that when we're answering the question is the fact that you've got different types of customers and hence different actions. So it's a triple play with the highest speed, then you might have a promotion in that to get that whole package and you're going to allocate that in with a discount somewhere, whereas if it's broadband owner it will be slightly different. So that's why it's difficult to pin down the exact figure. But in the round, it's good for us and then we're making it happen.

Your next question will come from the line of Greg MacDonald who's with Macquarie.

Just a clarification question and then, a larger, strategic one. Tony, just on the cable CapEx, it seems to me what you're suggesting is 30-ish capital intensity on cable will remain for some time, is that the message?

In terms of cable CI, I think in the -- it depends on the period you're measuring it in. Don't expect drastic change in Q3 and Q4, and possibly, as we head into Q1, or early next year, I should say. Trying to be careful not to overextend myself and give good guidance in terms of CapEx for next year. But it's largely -- I think I'll leave it at that, Greg, and just say for the short-term, the next few quarters, don't expect any significant right turns on it.

Okay, that's helpful. Larger question would be this. Rogers 3.0 seems to be progressing to plan, good ARPU metrics, churn metric's in the right direction, cable, pressure stabilizing. I mean in cognizant of Tony, of your U curve comment, and room for optimism here with IPTV and customer service metrics improving still to have an impact. The decision to pause the dividend growth in early 2016 was, one, mostly focused on deleveraging, but success on the operating budget, I suspect, is also a very key influence on this. How would you describe your operating performance versus planned year-to-date, all things considered, number one; and then number two, remind us of the process the board takes about dividend decisions. Because historically, dividends have changed or increased in February of every year. Does the board just look at everything once a year? Or is the dividend considered quarterly?

So 2 parts to your question, Greg. On the first one, in terms of where we're tracking relative to our plans. I mean, our plans are tied to the guidance that we put out, and we see ourselves on track at just past the mid-year point. So that's tracking well. And as you said, in terms of translating that to dividend growth, we look to 2 things: progress on the balance sheet, and progress in our fundamental operating metrics. And we like the trend that we're seeing on both of those. Although from the last time we talked, it's only been 90 days, and I think we'd like to see continued progress on them before we look to translate that to dividend growth. In terms of process or governance process on dividend, our process isn't different from probably most public companies, in that management prepares a recommendation based on our outlook of cash flows and a number of other factors and presents that to the Board for consideration and approval. We meet with the board on a regular basis. And so the opportunity to discuss that is on a regular basis, but we'll bring it forward at the right time. So I don't want to be more prescriptive or directed than that.

Your next question will come from the line of Maher Yaghi with the Desjardins Securities.

Just to talk about the bundle strategy on the cable side, with the positive net additions on home. Can you describe what's -- it's been a while, I haven't -- we haven't seen positive numbers there. What is taking place on the bundle? Is that the real driver for positive phone numbers? And if so, is it mainly at the expense of wholesalers or your direct competitor in the market in Ontario? And just on your strategy for business Wireless, with the product that you launched. What is the risk of cannibalizing your existing Wireless business postpaid numbers, and if there's not a lot of a risk of cannibalization. Can you talk about the pricing differential between the newly launched product and your existing business, Wireless ARPU?

You lost me a little bit on the first one, because you started talking about home phone and then, I think, you started to talk about internet. So can you just clarify the first part of the question for me.

Yes, no. It's the bundle strategy, the positive phone additions. Is it at the expense of wholesalers or your direct competitor in the market in Ontario?

Okay.

I'll start with the first one. In terms of the home loan piece of it. It's largely coming from the bundling strategy, as you would expect. And so where it comes from, for competitive reasons, I don't want to disclose whether its wholesale or the competitors retail side of it. But it's really a part of the bundle strategy. And I think the -- going back to some of the competitive offers that we're matching out there, I think what you see is Home Phone drag along coming at a very low incremental price for consumers. And so it's good for consumers while it has an impact on ARPU. It probably hurts the other guys more than it hurts us. But that's what's really driving it on the home phone side.

On the business side, the way that it works is basically we have a mobile phone with us. So we're getting whatever ARPU we get today or if it's a new customer, obviously, it's new revenues. And the difference to the small business owner is that instead of paying an extortionist amount for a wireline phone, they do away with that, and they have all of the functionality on their mobile phone for a modest amount of money. So now, instead of paying 2 bills, one for your wireline phone and one for your Wireless phone, you're paying 1 bill. And that's the key. Now if you look at our wireline penetration, you'll see that it's relatively modest. And therefore, the amount of cannibalization we would face would be extremely modest. Obviously, if you were a telco, who for generations have survived on exorbitant ARPUs from wireline phones whilst providing very modest quality service, you're in for a big shock.

And that's a good way of describing it. And could you talk about the ARPU that you can deliver by adding these additional services on top of your current wireless bill?

Well I've only been selling it in 2 days. Give me chance.

You know, with the incremental, I mean you can see the [indiscernible] rate on it and so, you can do the math. I mean, you have to have a wireless phone with a sim, and then it's an add-on feature to that. And so you can get a sense as to what the ARPU lift would be.

Your next question will come from the line of Rob Goff with Echelon Wealth Partners.

The first, I guess, a follow-up on the Unison. Is that product not playing into your historical sweet spot on business where you're stronger in this new marketplace? And then, as a second question, if I may, on the Internet, could you perhaps profile a bit more the source of growth there? Be it business, be it broadband-only? Or is this a pull though edition?

So on the first one, again, going back to this -- so let's go back to our small business owner. So we may well have -- let's say that, we have very low market share, and therefore, we have very low risk of cannibalization. But where we do pick up that customer, they're so grateful for the fact that they don't have to pay this exorbitant fees anymore, that they're more likely to give us their Internet business, which we may or not have to begin with. And if we do have it, we also give them the chance to upsell them on higher speeds because small businesses can appreciably benefit from the current 100 meg services that some of our competitors can't provide. So actually, when you look at the way that we frame into the small business, is they look -- they need to look at the total cost of ownership. So what is the total cost of ownership of their Wireless phone, their wireline phones, the Internet services. And in the case that they're slightly bigger, maybe their cloud or their computer storage helps as well. And then you can sit down and say, for once in a generation, you haven't got the chance to rearrange this mix now, save money, make yourself more productive and give all your services to Rogers, and that's where we're focused.

We'll now take our next question from the line of Rob Peters with Credit Suisse.

Just on your comments on ARPU growth improving in the back half of the year. When you special out the Mobilicity acquisition, maybe looking at this in a different way. You mentioned Pokemon Go on your initial comments. I don't think we've really seen a phenomenon like this in the mobile gaming side with the number of press reports there, with the people -- number of people out there using their wireless device to play this game. I was wondering, it's very early days, but do you see any potential for that to drive upsizing their plans or potential overages as people kind of use up their data, walking around the city? And maybe to build on that, what's the biggest driver for you guys currently in the mobile data side?

So it's not Pokémon GO to be quite frank. The consumption of it is modest, I would say, in reality versus the use of video, so -- because people have relatively well-sized buckets of data. Then I actually think that's all to use up some of the slack about the bucket, but I don't see it as a big driver for ARPU growth. The real use case -- to your second part of your question is really video. It is kind of, there are 3 use cases. Video, video and video. And they come through different ways. YouTube, Facebook. I mean if you look on your Facebook stream, pretty much every other post is now a video. And therefore, will especially will also play, it means that the real data growth is coming through from that kind of service, and whilst it's always interesting to see these, things like Pokémon Go, erupt into the marketplace, I wouldn't say it should alter your models right now.

We'll now take the next question from the line of David McFadgen with Cormark Securities.

I have 2 questions. Can you give us any color or details on the consumer interest or consumer uptake of the 1 gig internet product now that it's rolled out, it's about half a year to cable footprint? And then, secondly, what impact would you expect, the Fido Roam product to have on the wireless EBITDA margin?

I'm sorry, I missed the second half of the question. What impact...

Would you expect the Fido Roam -- the introduction of Fido Roam to have on your wireless EBITDA margin?

Okay. I'll let Tony clear that one. The first half was about 1 gig. So we don't reveal the actual numbers of customers on 1 gig. It's a high-end product. But I don't think you should think about it this way. I think you need to focus on the need for speed. So the fact that we can offer up to 1 gig allows us to have multiple sales opportunities with the customer. So, as I say, my view is any customer that can get to a 100 meg, that should be the baseline. And then, depending on their needs, which depends on the number of people in their house, or how much 4K they consume, or whatever it is, how much content they're consuming, they can then scale upwards from there towards 1 gig, and if they're of a certain size, they'll take the 1 gig product. So you should see 1 gig as more of a heading under which there are multiple price points, speeds and opportunities to have a conversation with a customer rather than the absolute number of 1 gig customers being important. It's really the opportunity to pull through ARPA as we move customers up the speed curve, which is only reflecting their needs getting the amount of devices that they have in their house.

And on your second question, in respect to Fido Roam. If you look at it in the short-term, so you're asking specifically an individual quarter of Q3 or Q4, I put it in the context that, if I'd put a fence around it, it will be under 1%, but as we -- in terms of ARPU impact, and so -- but as we try to measure things at the margin and we're all looking at ARPU in terms of single-digit percentages, it could be an impact, but it'd be less than 1% in terms of ARPU impact, if that helps, in terms of putting the risk out there. And then as you flow that down, that would have a similar potential impact on margins as well.

Okay. And if I can just have one follow-up. When you launch your IPTV product, I would assume that you're going to go after Bell's 5 territory. Would that be a reasonable assumption?

Well, given the number of competitors in Ontario is relatively limited, it would be difficult to expand the product without going after Bell side products -- customers.

Ladies and gentlemen, we have time for one additional question today, which will come from the line of Bentley Cross with TD Securities.

I was just curious to know what sort of regional trends you guys have seen in wireless this last quarter?

You know, across the -- so what have we seen on wireless revenue trends across the country?

Whether it'd be revenue or net adds? I mean, obviously, Alberta weakness has been a consistent theme. So I'm wondering if that's still playing.

I would say, overall, I mean, we don't disclose the regional side of it. But it's not inconsistent with what you would think of. We see good growth across the entire country in a relatively consistent format. Alberta, obviously, a weakness. But I don't want to sort of overstate the weakness from our perspective. But it's certainly there, but I would say it's generally equally distributed across the different regions.

Okay. And separately, if you don't mind if I tuck in one last question. Just wondering your thoughts on the shomi product, especially in light of Shaw's write off.

I guess there is 2 parts to that question in terms of the Shaw's write-off. I mean, that's up to Shaw to explain. As we heard on their call, it really relates to the course transaction and their exit from media, and so, that was a specific event for them. We continue, like all our investments, continue to always look at all alternatives and maximizing value and given that's Shaw is a partner with us in that. Not a lot we can or will say about it until we have something to say together with our partner.

Ladies and gentlemen, this will conclude the conference call for today. Thank you for your participation. You may now disconnect your lines.