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Rogers Communications Inc. (RCI)

Q3 2019 Earnings Call· Wed, Oct 23, 2019

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Transcript

Operator

Operator

Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications Inc. Third Quarter 2019 Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Paul Carpino with Rogers Communications. Please go ahead, Mr. Carpino.

Paul Carpino

Analyst

Great. Thank you, Ariel. Good morning, everyone, and thank you for joining us today. Today, I'm here with our President and Chief Executive Officer, Joe Natale; our Chief Financial Officer, Tony Staffieri; and our Chief Technology and Information Officer, Jorge Fernandes. 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 2018 annual report regarding the various factors, assumptions and risks that could cause our actual results to differ. With that, let me turn the call over to Joe.

Joseph Natale

Analyst

Thank you, Paul, and good morning, everyone. Today, I'm pleased to share our Q3 results and our progress on key strategic initiatives. Let me start with some overall comments, and then Tony will take you through the results in more detail. In Wireless, we completed our first full quarter after the fundamental shift to Infinite plans with unlimited data. I am pleased to report that Infinite adoption is 3x the rate we expected, and we now have 1 million subscribers on these plans. Normalizing for the anticipated decline in overage revenue, we're very pleased with the underlying performance of our Wireless business. We are seeing growing ARPU and data usage, notable cost-saving opportunities and significantly happier customers. As we work through this transition over the next several quarters, we believe our Wireless business will be well positioned for the future. Cable continued to post improved performance, underpinned by strong residential and small business Internet results. Despite [ 8 ] years of fiber-to-the-home investments by our major competitor, we continue to increase our penetration and deliver healthy loading, while almost doubling our cash margins during a period of major technology and product investments. Importantly, during this period of strategic transition and heavy investments, we have delivered a long-term capital allocation program that strikes a healthy balance between maintaining a strong balance sheet, investing consistently in our core networks and 5G spectrum and returning sustainable and notable levels of capital to shareholders. While we have adjusted our 2019 outlook to reflect this expected short-term transition in Wireless, we remain confident in the long-term strategic positioning of your company. Let me offer my perspective on the move to Infinite and what we're seeing. Q3 was the beginning of a critical and necessary shift in the Canadian wireless industry. The launch of unlimited data…

Anthony Staffieri

Analyst

Thank you, Joe, and good morning, everyone. Our Q3 results reflect the first full quarter of our strategic transition to our Infinite unlimited plans, so I'll start my remarks by outlining the impact of this transition to-date on our financials. We want to be transparent in describing the moving pieces of this transition so that you can assess the progress on our underlying fundamentals, and that is why we've disclosed the largest impact reflected in the approximately $50 million of overage revenue decline this quarter as a result of the migrations to our unlimited plans. As Joe outlined, we're extremely pleased with the success to-date of our Infinite plans and the implications for our key underlying customer value economics. However, as we highlighted when we launched our Infinite plans, our results would be impacted in the short term by the timing and reduction of overage fees that customers were previously incurring. The faster-than-expected adoption of these plans is resulting in a faster-than-expected decline in these overage revenues. As a result, rather than a transition and gradual decline in overage revenues occurring over a 6- to 8-quarter time period, we now expect this transition to happen in as little as 4 to 5 quarters, and have adjusted our 2019 full year outlook to reflect this dynamic. Let me start by providing you with additional color on both the third quarter and on our unlimited plans. In terms of overall wireless financials, we reported service revenue that was down 2% year-on-year as a result of the short-term impact of the overage revenue decline. Even though adoption of the value-rich unlimited data plans continues to accelerate, the industry experienced a very competitive and dynamic market in Q3. For example, some players continued to offer heavier promotional discounting and hardware subsidies that in our…

Operator

Operator

[Operator Instructions] Our first question comes from Simon Flannery of Morgan Stanley.

Simon Flannery

Analyst

So I wonder if you could just give us a little bit more color around the impact of the Infinite plans. When you had second quarter earnings, you'd obviously had a few weeks to see what was happening. And what sort of changed during the quarter? I think the experience from the U.S. was that the people with the biggest overage moved the quickest and then it sort of settled down, but it sounds like you're saying, and certainly your guidance implies -- about a 10% [indiscernible] in EBITDA for Q4 -- that there will be more to come, that it's not going to really moderate for some time. So any color you could give about what you've seen in the last month or 2 that's really caused this change? And then any comments on the election, and how we should think about some of the political commentary around cutting cell phone rates?

Joseph Natale

Analyst

Okay. Why don't I start, Tony, and then you can pick it up overall. So Simon, in terms of some color around Infinite, we provided quite a list of insights. But let me add some color commentary around it. Q3 was the first really full quarter of the change. We expected somewhere in the neighborhood of 250,000, 300,000 migrations to Infinite. We got to 1 million, largely because customers saw the value and inherently wanted these plans. If you just look at sort of our gross loading for the quarter, it's up 5% year-over-year and a very strong gross loading performance on the whole. If you look inside, you'll see a couple of things that we find very compelling. One is 60% of customers are upgrading to the unlimited plans, only 40% are downgrading. And as we mentioned, the underlying recurring monthly fee or ARPU is actually up 1% to 2%. So the overage decline is what has been accelerated, just as we anticipated. It's exactly in the same proportion that we anticipated, but the volume's far greater as a whole. When we look inside that base, what do we see? We see a 50% reduction in the primary call drivers that we talked about, which just bodes well for the future in terms of the cost reduction opportunity around propensity to call, around duration of calls. Everything we're seeing is lining up behind that very clearly. What we're also seeing is very strong early life cycle churn. I mean it's very hard to draw a complete trend line around churn at the Infinite base given it's only been 1 quarter. But if you compare it to early life-cycle churn of other new customers or other people who migrated in the past to our legacy plans, we're very pleased with the churn profile that we see from Infinite customers. I wanted to pause there and give Tony a chance, and I'll take it back on the election.

Anthony Staffieri

Analyst

Simon, we had talked about our overage revenue being just under 5% of the total service revenue. So we have originally outlined our expectation that that decline of that revenue would take 6 to 8 quarters. So what you're seeing is the same quantum, just compressed in terms of decline over what we now think 4 to 5 quarters. And as Joe said, it really relates to the volume of switcher to the new Infinite plans compared to our original expectations. While -- when we reported Q2 results, sort of still early days in the launch of the plans. And what we saw is a consistent cumulative acceleration of the adoption of these plans. So our comments are, as we look to Q3 and the next several quarters, we're just taking that current run rate. And based on current volume trends, our expectation is it'll be about the same impact in each of the subsequent quarters.

Joseph Natale

Analyst

On the election front, I don't anticipate a lot of change or departure from what we've said in the past overall. First of all, Canada has some of the best networks in the world. I think it's readily recognized by our government that we have some of the best networks in the world. The government is very supportive of making sure we maintain the thesis around investing in infrastructure in Canada, especially given rural Canada, the population density and all the importance of making sure we connect Canadians. And we're very much aligned to the topic of affordability. Our move to unlimited, everything else that we've been talking about around equipment financing is very much aligned on that front. There is the potential of a new Minister of Industry. We're not sure. We're waiting for the cabinet to be announced. There is a new deputy in charge of the industry portfolio. So we have an opportunity to sit down with people and just work through and talk about how we've built such a great network capability in Canada and why perpetuating that capability into the future, especially around the digital economy and 5G, is fundamentally very important. So we're feeling good about things overall on that front.

Operator

Operator

Our next question comes from David Barden of Bank of America Merrill Lynch.

David Barden

Analyst

I guess I wanted to follow up a little bit on Simon's question, Tony. Just in terms of the ARPU outlook, is the messaging that we're kind of at the $66 level and the net of the uptick of higher-end plans and the continuing pressure from overage will net out flat, and so $66 is kind of like the right zip code as we think about into next year when things start to grow again? Or is there incrementally more overage pressure than uptick pressure as we look into 4Q and 1Q? And then I guess the second question was on the lower CapEx guide. I think, Tony, you mentioned something about a lower investment in Ignite. I think the plan for the year was to invest pretty aggressively, maybe take advantage of the opportunities that Bell might be leaving on the table with the 50% of their footprint that doesn't have a fiber overbuild. Has that plan changed? And if so what's kind of going on with that?

Anthony Staffieri

Analyst

Okay. I'll start with the first one, David, in respect of ARPU. I'd remind you, there's always a bit of seasonality in each of the quarters with respect to ARPU. And so I'll make my comments with respect to growth rates rather than the absolute dollar ARPU that you were referring to. This quarter, we had blended ARPU declines of minus 2%. And keep in mind when I talk ARPU, I'm talking true IFRS ARPU. And as I said, the biggest impact, if you were to compare it to private -- previous quarter, is roughly 2 points on the overage revenue decline. We also saw a little bit of softness in our base as a result of repricing on some items, and I made reference to add-a-line. And so with the launch of unlimited Infinite plans, one of our competitors launched more aggressive pricing on add-a-line, and we matched that in the marketplace. And so that would be one of the more significant impacts that impacted our ARPU within the quarter. So as we look to the rest of the year, our expectation is that rate of decline would be about the same. As we get more volumes on the Infinite plans, where their underlying recurring monthly rate is growing at a rate of 1% to 2%, and we get some volumes, it will offset some of that natural decline. And so without getting too far ahead of ourselves, but as we think about the first part of next year, we see ourselves possibly moving to roughly flattish ARPU, blended ARPU. Still might be slightly negative, but improving over the first course of next year. And then of course, as we said, as we get into the back half of next year, and in particular this time next year, having…

Operator

Operator

Our next question comes from Vince Valentini of TD Securities.

Vince Valentini

Analyst

Two things. One, the move to equipment installment plans, I know it hasn't gone quite as fast as you had hoped. But have you had any benefit from that in your numbers yet in Q3? And can you remind us, even if you've seen that in your sort of run rates and volumes, how long it's going to take for any related cost benefits to flow through your numbers under IFRS? And the second question is, I mean you seem very positive about the underlying trends on the move to Infinite and unlimited plans and the data usage increases, the cost savings and so forth. But obviously, it's translated into lower results for this year because of the pace of migration. Can you answer this question, I mean without giving us hard numbers? You would have had a plan for 2020 before that would have had some level of EBITDA growth in your mind. Would you now think the percentage growth in EBITDA in 2020 is higher than what your plan was 3 months ago because the base is now lower, and because of all the underlying positives from unlimited?

Joseph Natale

Analyst

All right. I'll take the first one, and Tony will follow up on the second one. So Vince, in terms of equipment installment plans, we believe that is the right focus and structure for the industry. The impact in the quarter is modest. I think we're just starting to see a change and a turn in that direction. It was exacerbated by one of our competitors taking a very aggressive stance with subsidies during the promotional period. We're really trying to rearchitect the value proposition here for consumers to see, here's an opportunity to get unlimited data, to get worry-free data and the like to stop some of the dilution from the premium brands that we've talked about, mixing in the flanker brands, stop some of the line stripping that was going on in the premium brands, et cetera. And we think that the better model overall is to drive equipment financing and drive it hard. We think it creates better affordability given the construct of equipment financing for consumers in terms of financing the total cost, whether it's the tax cost, whether it's the potential recovery value at the end of term, et cetera. So I think it will take some time for that to shake out. And I think the readiness around systems and capabilities hasn't been completely there yet overall. But it's a big number. And we spent almost $1 billion last year on subsidy. And when cell phones were a few hundred dollars, it wasn't as big or relevant a cost. But now as they're cresting $2,000 and beyond, it's -- it behooves us take a look about how do we re-architect or restructure that subsidy profile and approach. At the same time, make sure we create constructs that are affordable for customers as a whole because it's just not the right way to drive the future of the business. So you're going to see us really try to drive discipline on this front. And you're going to see us really build capabilities that continue to offer feature sets around financing that customers will find attractive. And that's our view on it.

Anthony Staffieri

Analyst

If I could pick up on that, Vince, and in answer to the other part of your question, I think you were getting at, is there an expectation that we would see some [ savings for ] this year on it. And the answer is absolutely. As Joe said, when we launched the plans, it was a balanced set of economics on good value with unlimited plans but a much lower subsidy. But that was complemented with very attractive terms of 24 to 36 months financing that kept the rate low for customers and would significantly reduce the almost $1 billion in subsidy on an annual basis that Joe talked about. That wouldn't have all come into Q3 or Q4 this year. Just under IFRS accounting, a couple of things happen indirectly which sort of get smoothed over a 24-month period. But notably, hardware discounting, or the subsidy that continued in the marketplace, just the way IFRS accounting works, a significant portion of that discount is offset against the ARPU. And so it provided a revenue and ARPU drag for us in the quarter, and will in Q4 as well. And so when I made previous comments about the ARPU declines in the base relative to our expectations, that would be an additional factor for it. Notwithstanding that, we're confident that the industry, as Joe said, will kind of realize the competitive dynamics, will realize the need to get to this balance on subsidies, and we'll have to see how that plays out, not only in Q4, but particularly as we head into the first quarter of next year. So we don't want to get too far ahead of ourselves to talk about how we think about EBITDA for next year. But coming back to the restated guidance for this…

Operator

Operator

Our next question comes from Maher Yaghi of Desjardins.

Maher Yaghi

Analyst

So I want to go back to the comments you just made on guidance, Tony. So the delta on the revenue for the new guidance versus the previous guidance is $600 million and on EBITDA, it's $240 million. So you said in your MD&A that overage was about $50 million of impact in the quarter. Assuming all of it went straight to the bottom line, I'm struggling to understand the reduction in your EBITDA guidance because as you mentioned just now, your cost in operating the Wireless business and the Cable business is down year-on-year. So what is causing the reduction in EBITDA beyond the overage here? Because assuming the overage impact in Q3 is also the same level or even higher, I still don't get to $240 million of EBITDA. And I have a follow-up question on ARPU.

Anthony Staffieri

Analyst

Okay. A couple of things, Maher. One is the reduction in EBITDA from previous guidance to current, depending on whether your $240 million sort of takes the midpoint. And I think if you were to look at the first half of the year, given the lower revenue we had, we were trending towards the lower end of guidance. If I take that 7% to the midpoint of the new guidance range of 4%, you get roughly, on $6 billion of annual EBITDA, $180 million versus your $240 million. But let's say it's roughly $200 million to help you walk through. Think about it as the overage melt, $50 million this quarter. We're expecting about the same for next quarter. And so that's half of it, about $100 million. We saw some additional discounting, and you see that in our blended ARPU coming down. And so you can put that in the range of roughly $50 million of unexpected run rate impact for the back half of the year. And then finally, as I said, the subsidy piece of it; our expectation was with reduced subsidy in the market, that it would not only help ARPU because of the accounting that I talked about in reducing the offset to it, but also reduce the net subsidy cost. And that was expected to be in the range of $50 million to $100 million in the back half of the year. So those are really the 3 components that impacted us that we weren't expecting. As I said in my scripted comments, everything else continues to be on track in terms of the underlying. And it's really those 3 main components that bridge to the roughly $200 million or $240 million that you referenced.

Maher Yaghi

Analyst

Okay. So -- and so why were you expecting a reduction in subsidy in the back half of the year even before you launched the unlimited plans? What -- that's -- it seems like that was a -- implied in your guidance. But what was the reason behind that assumption?

Anthony Staffieri

Analyst

Oh, let me help you with that. The -- as we thought about where we were trending at midyear, we were already experiencing lower-than-expected revenue. We still had 2/3 of our business to go. And so our expectation was there were some things in revenue that we were expecting that would allow us to continue to hold our guidance on each of revenue, EBITDA and free cash flow. And so as we reevaluated at midyear, what we thought the back half was going to look like vis-à-vis the guidance ranges we provided in January, that was some of the new dynamics that we had factored in at that time.

Maher Yaghi

Analyst

Okay. And on ARPU, if I look at the impact of the $50 million, comes out to $1.55 on ARPU. And I -- if I look at it year-on-year, it's 2.5% -- 2.7% lower. So you have said in the past that your overage accounts for about 5% of your total ARPU. So on 1 million subs that transitioned on unlimited out of a total of 9.3 million, you lost half of the overage. It seems pretty high. So I'm trying to figure out what -- where to go from here?

Anthony Staffieri

Analyst

What we'll try to do, Maher, is rather than walk you through that detailed math on this call, we'll certainly share with you -- help you with the reconciliation. And for the benefit of other analysts on the call, we'll do the same in terms of sharing that. But we are not quite at the halfway mark of reducing overage, is the simple answer. And there are other items that were helped in terms of revenue and ARPU that offset that. So as I said, rather than doing that reconciliation now, I'd prefer to do it offline with you, and we'll broadly distribute that.

Operator

Operator

Our next question comes from Drew McReynolds of RBC.

Drew McReynolds

Analyst

Just first, Tony, thanks for all the additional granularity, helping us kind of sort through this. Two follow-ups for me. First, maybe, Joe, on the migration rate dynamics, you were pretty clear through September what was happening. Just wondering, from a Rogers perspective, how you view the accelerated migration and the ripple effects we're going to recalibrate here today and the benefits and pros and cons of that versus maybe controlling that migration rate in a more measured way. And then second, kind of back to kind of Vince's, I guess, attempt on 2020, I'll make the same attempt. Do you think the point B here at the other end has meaningfully or materially changed in terms of the economics of the business? Or some of the growth targets and just dollar targets overall that you think the business is heading to?

Joseph Natale

Analyst

Thanks, Drew, for the questions. First of all, on the accelerated migration, let me be very clear. We're very happy with the fact that the migration is happening more quickly. We knew there was going to be a J-curve in this migration. We said originally it would be somewhere in the range of 6 or 8 quarters. The fact that it's happening within 4 or 5 quarters, and that the underlying assumptions around where the value drivers would come from are holding true, is a good thing as a whole. We've really strived to make sure that the approach that we've taken is clear and simple. You heard me talk about the simplicity dividend. What we've asked customers to do is to migrate the entirety of their share plans over to Infinite, therefore creating a very simple construct as a result. We are seeing customers adopt those very readily, and I think it's a good thing because the underlying savings in terms of the cost to serve, we're seeing evidence of that already. And we do anticipate that there will be another factor around equipment subsidy that we've talked about. The sooner we get to those points in time when we've migrated through the vast majority of our base, the more quickly we can resume the type of growth that we believe is on the other end, including the ARPU economics. When we look inside this base, just to repeat the point from earlier, we are seeing that an Infinite customer, on average, their recurring ARPU is up 1% to 2% after this migration dynamic. So more is better with respect to the migration path versus a longer approach to this. So as I said, we expect in the latter half of next year to have fully worked through the…

Anthony Staffieri

Analyst

On the second part of your question, Drew, in terms of 2020 EBITDA. Again, I -- we don't want to make this a guidance call for 2020. But to be helpful, here are the moving pieces as we think about 2020, we've talked about the overage decline overshadowing the underlying growth in Wireless. And so we'll likely see a year where the first half will continue to be pressured on revenue. And it won't be until the second half of 2020 that we start to see net-net Wireless revenue growth. And that's true of ARPU as well. On the cost side of it, you should expect us to continue to deliver the type of absolute cost reductions and efficiencies that you've seen. And we're fairly confident about our cost program on that. And then the third piece of it -- and that one is really going to be driven by market dynamics -- we continue to believe that installment financing is a win-win for us, the industry and consumers in many ways. And so it will be -- we'll have to see how the market adopts those and at what pace, but that will yield significant savings for us and the industry in 2020. And so that will be a big determinant of the overall EBITDA profile for the year. But I think I would characterize the year overall as a slower start in the first half and a different growth profile in the second half. Where that nets out for the full year, in many respects, is less relevant. We think it's more the quarterly direction of travel that's going to be important.

Operator

Operator

Our next question comes from Jeff Fan of Scotiabank.

Jeffrey Fan

Analyst

Lots of details have been given. So I won't go too far into the details. But question for Joe and Tony. You guys are obviously happy about the migration pace to Infinite, but at the same time, lowering the outlook is probably -- was not probably part of that plan. So if you look back, is there anything that you think you could have done, would have done differently that would have made this transition perhaps a little bit easier? Because I don't think anyone is debating whether this move is inevitable, it's just -- I think both of those things kind of need to be reconciled. And then just lastly, on the subsidies, the -- again, not to point too much to 2020, but competition has kept the subsidies in place. And is your assumption that all operators are going to go to EIP-only plans at some point in the near and medium term in the industry?

Joseph Natale

Analyst

Let me start, and Tony, maybe you can talk about our views on subsidies. Jeff, thanks for the question. We spent a lot of time talking about the move to Infinite. And we did a lot of careful analysis, as I said. And we drew up for ourselves the J-curve and what it might look like. The thing we couldn't thoroughly test was the rate at which consumers would rally and gravitate towards these plans. And that ended up being 3x the rate that we had anticipated, which I think is a good thing. So to your point, we are positive around that, that move. Looking back, I wouldn't change anything, frankly. And we had a long discussion with our Board before we did this. We talked about the reasons for doing it. And we stood firm collectively on the ground, this is the right thing for consumers, the right thing for the industry. Let's go do this. And if it takes 8 quarters, great. If it takes 4 quarters, great. We'll just figure out as we go just the pace at which it's going to happen. I think everything else that we anticipated is coming in largely in line with what we thought. The pace was very hard to gauge. Despite the fact that we did a bunch of focus groups and we talked to customers, and we saw initial great enthusiasm, it's really hard to figure out what is that pace. Would we have liked to have a better view on what that might have looked like so we could have been -- had -- knew that we wouldn't be surprised by 3x the pace? Yes. But like at the end of the day, it's the right direction and the right move, and we think -- I wouldn't have changed a thing overall, frankly.

Anthony Staffieri

Analyst

On the second part of your question, Jeff. When we launched this, we thought -- when we launched the Infinite unlimited plans, we also launched the installment plans. And -- but we kept in place the legacy subsidy model. And it's less about -- the EBITDA savings is less about whether it's installment plan or the subsidy model, which bundle together the service with the cost of the phone, but it's more about the inherent discount that's provided on the device. And so back in July, what we did say is we were going to keep the subsidy plans in place to help consumers understand the transition. We very much like the simplicity and appeal of the phone. As we said, it was a great value in terms of connectivity with the unlimited plans. And the device was very simple. It's the cost of the device over the term you want to -- the customer wants to finance it. And so we thought that simplicity had terrific appeal. But we kept in place the subsidy ones for those customers that weren't quite sure yet. And we did them both at the same economics, so there were much reduced subsidies. So in the past, on average, as you would know, Jeff, the average subsidy would sit in the $400 to $500 range previously in terms of what was the pure discount on hardware provided to the customer for entering into a 2-year contract. We reduced that substantially when we launched our plans in July in both the installment plan as well as on the subsidy. Our point is that the market continued to offer subsidies throughout Q3, largely in the $400-plus range. And in order to compete, we matched that. We've seen that those numbers have come down post the quarter end. And so it's difficult to predict where the market is going to go in Q4, and as I said, particularly into Q1. Our expectation is that as we head into the new year, we will move, and we think it's the right move to move to all installment plan. But if there continues to be subsidy in the marketplace that some customers want, as we see our competitors continue to offer it, then we'll do the right thing and match, of course. But we think the move to installment is the right plan, and it's taking a little bit longer than we expected.

Operator

Operator

Our next question comes from Tim Casey of BMO.

Tim Casey

Analyst

Two for me, please. Tony or Joe, could you talk a little bit about what -- how we should think about the inherent cost reductions that come out of this migration? In other words, do we need to get to a point where you've bled off all the overage, sort of the end of 2020, before you see -- before we'll see a marked reduction in costs associated with the call centers and whatnot now? In other words, when will the simplicity dividend come through in the numbers specific to the plans? And second, just to talk about wireline for a second. Tony, you mentioned you were going to invest in an acceleration plan of -- and you're no longer selling the legacy plans, but you're going to try and accelerate the migration. How should we think about that in terms of financials? Is that -- are you going to be able to do that with your current cost base? Or is there another transitional sort of onetime costs that you're setting us up for there?

Joseph Natale

Analyst

I'll take the first one, and Tony, you can grab the second one. Tim, in terms of the pace of the cost improvements, think of it this way: think, this quarter, we made an investment in speaking to 1 million customers around Infinite plans or supporting them through the transition. Typical number of price plan changes in the quarter may have been 1/6 or 1/7 of that number. And therefore, there were specific associated costs with helping customers make this transition. What we're seeing is, from the customers that adopted right away, what their behavioral patterns are around calling and interacting and their early churn behavior as a whole. So think of it as, as we get through the bulk of the transition, and as we come out sort of the other side in terms of the rate at which it's happening, the simplicity dividend will overtake the investment effort required to make the transition happen. I mean without sounding like a calculus professor, it is sort of that bow wave we're going to get through. And I think we'll start to really see it manifest itself more clearly in the latter half of next year, as Tony was describing. But in the meanwhile, you can count on the fact that we'll be looking at all the specific details to make sure that the direction of travel, all of those key metrics, is going in the right direction. And what we're seeing right now is exactly that. We're seeing that direction of travel. Bear in mind that we talked earlier that we saw a 13% reduction in calls this quarter, right, as a whole, as a business. 13% reduction is significant. That's after taking into account the efforts required to transition 1 million Infinite customers and the efforts required to transition another 40% of the Ignite customers, which are not insignificant efforts in terms of the customer hand-holding required and the digital adoption going up 11%. So we'll continue to have broader macro plans that will deliver the cost savings that Tony quoted a few minutes ago, while we're looking specifically at this migration path to make sure that the benefits are materializing, which they are.

Anthony Staffieri

Analyst

And the second part of your question, Tim, related to the Ignite migrations. The migrations carry with them both CapEx and OpEx, as you would expect. And so think about our Cable CapEx, we've talked about being on a trend to continue to lower it. And our expectation is, notwithstanding the migrations that we're expecting, we will continue to improve our Cable capital intensity into next year, from the 29% that we're seeing this year. On the OpEx side, there are some initial, what I would call, upfront costs, as you would expect, in terms of heightened training for technicians, et cetera, that fall in the range of OpEx rather than being capitalized. And so for a couple of quarters, you may see our Cable margins pressured a little bit. In terms of the net between the growing Internet revenue and some of these investments, too early to call out now. Much like Infinite, the pace of these migrations is still customer-dependent, and so it'll depend on the pacing of that. And so you may see some of that pressuring on the cost side for cable, but it -- we don't expect it, on a net basis, to be significant.

Operator

Operator

Our next question comes from Richard Choe of JPMorgan.

Richard Choe

Analyst

Just wanted to follow-up a little bit on the plans. Given the popularity and simplicity of them, is there any way that we might see these plans expanded beyond the current, I guess, base that's being targeted?

Joseph Natale

Analyst

Richard, these plans are very much focused on the Rogers brand, a brand that is a premium offering in the marketplace, that has a share construct around it, that is a brand that has a number of other service features and metrics, including the one we just launched. We just launched Pro On-the-Go, where someone will come to your home or your office and get you set up, kind of a retail store on-the-go approach. So it's really we're focused on that brand. The Fido brand is focused more at a lower price point, digital-first type brand with capped plans and Data Overage Protection instituted and organized by the customer. And we think that is doing very well. And we look -- even in the midst of Q3, everything that happened with the change to Infinite, the Fido brand performed very well. So we think the one thing we've managed to achieve with this is much clearer and crisper brand differentiation between the two. And our goal is to create a margin profile on Rogers or Fido that is roughly the same. Again, one is a premium brand, the other is aimed at the smart shopper, and therefore will be largely supported by a digital set of service and tools. And if we can get to that place, we become, in some ways, indifferent to the nature of the loading and where it comes from. And that's very much what we're focused on doing next year for the Fido brand and as well as to perpetuate sort of the move to Infinite.

Richard Choe

Analyst

And then in terms of the margin -- and there's a lot of moving parts given the overage and some of the subsidy and promotions -- but, in going through the migration or transition, and then the transition with the handset financing, it seems like the second half of next year could see a real uplift in Wireless margins. Is that fair?

Anthony Staffieri

Analyst

Richard, we entered the shift on -- with a view that this was an opportunity to expand margins in our Wireless business. As we've talked about, there's a few moving pieces. The inherent subsidy is certainly a big part of that. But as we said, our expectation was to come out the other end with improved margins.

Operator

Operator

Our next question comes from Aravinda Galappatthige of Canaccord.

Aravinda Galappatthige

Analyst

I wanted to focus in a little bit on this 1 million cohort of subs that have taken up the unlimited plan. I know, Joe, you mentioned that the underlying ARPU growth is around 1% to 2%. I'm trying to get a sense of what this cohort would have looked like prior to the migration. Are they -- were they -- that 1% to 2% comment suggests that they were, even previously, somewhat higher-priced subscribers that kind of moved up a little bit to unlimited. But then, of course, there can be a mix as well. What I'm really curious about is the ability of that $75 unlimited plan to pull up subscribers who could have been $60 or $65, attracted by sort of the unlimited features. Could you give us a sense of whether you're seeing sort of a cohort or a segment of those 1 million that were previously in that bucket that you're kind of pulling up more materially?

Joseph Natale

Analyst

Sure, Aravinda. So 40% of the 1 million downgraded in terms of what they were spending on a monthly basis. And 60% upgraded. So 60% were spending less than the $75 price point. And there is a distribution there that ranges across a wide spectrum. So it wasn't just someone that was spending $70. It was a wide distribution. I won't go into the details because it's sensitive. But -- so 60% upgrading, 40% downgrading is the very key metric. And the resulting economics are strong. As well, we're seeing quite a healthy number of subscribers opting for the higher plans, the plans that are pegged at $95 to $120, which is great; which says that the consumers are looking for worry-free, are looking to share the unlimited plans as a whole and looking for simplicity in the construct. We did 2 things that were very important. One is we allowed our base to migrate to these plans out of the gate. We felt it was important that in the spirit of driving the simplicity dividend, we had to make it available to the base. And the second thing we did is that we drove simplicity around the structure where everybody in the plan needed to be on unlimited. Those 2 things created this 60-40 dynamic, which I think is a very healthy dynamic. And that's why I think you're seeing the 1% to 2% ARPU increase. And we think the economics are working from that perspective.

Operator

Operator

Our next question comes from Adam Ilkowitz of Citi.

Adam Ilkowitz

Analyst

I wanted to understand -- into the fourth quarter in the wireless competitive landscape, there's been some recent pricing changes in the last couple of days, actually, from one of your competitors -- how that is impacting what you're thinking about the plans. And then on Cable, I'm kind of intrigued by the ARPU changes you're seeing. Most of what we expect is ARPU flexibility on the Internet side, but it seems like your video ARPUs are rising much faster than your Internet ARPUs, which are rising around 2%, I think. Can you kind of go through how the pricing structure is working in Cable? And what's kind of driving that dynamic?

Joseph Natale

Analyst

Sure. I'll take the first one, Tony will talk to the video ARPU commentary. What we're seeing in Q4 so far is a couple of things. One is subsidy overall in the marketplace has come down substantially. We think that's good in terms of the competitive dynamic. We have seen one of the competitors raise the entry point to $85 for unlimited. We don't think that drives the right dynamic as a whole. I think it creates too much complexity around, as I said earlier, mixing and matching subscribers within a share plan overall. We're not going to comment exactly in terms of what we're going to do in terms of pricing move. That's, again, competitively sensitive. But we think we picked the right price point at $75, and we think it's driving the right mix of upgraders and downgraders. And it's driving the simplicity that we were after overall. And I think that the discipline around simplicity and the discipline around subsidy are the magic ingredients here. And we're committed to driving discipline in both those areas because we think that's how to rearchitect the economic structure that we've been professing.

Anthony Staffieri

Analyst

And the second part of your question, Adam, if I understood it right, is really reconciling the ARPU growth between Internet and the video piece of it. I would say, on the Internet side, we're pleased that we continue to see growth. But the growth on Internet ARPU continues somewhat to be dampened by the competitive offers that are out there, that continue to be beyond a 3-month period. And so as we've said before, we'll continue to match on those as needed to win in the marketplace. We do it, first and foremost, on product superiority. But where we need to, we will match on price. And you're seeing that dampen some of the Internet ARPU. On the video side, you're really seeing the strength of the product come through. And so as we see customers migrate from legacy to Ignite TV or new customers coming in on Ignite, that's accretive to us on an ARPA basis. Ignite is sold largely, almost entirely, as a bundle with Internet. And so when you look at the 2 products, we continue to see $10 to $12 ARPA increase on a household that converts from legacy to the Ignite platform. And so it really speaks to the premium nature of the platform and for the premium segment of the video viewer that's willing to pay for that functionality. Now having said that, there is admittedly a bit of an allocation that happens between Internet and TV, but we try to stay true to that based on relative market prices between the two. And so they are a fairly accurate reflection of market dynamics in each of them.

Adam Ilkowitz

Analyst

Sure. And maybe following up to Joe's answer. I noticed that upgrade rates on the equipment side inside Wireless continues to fall, and your gross adds have been about flat. So are you seeing any change in the mix of customers taking BYOD as a result? And is that having a negative impact on ARPUs as well?

Joseph Natale

Analyst

Yes. Our gross is actually up 5%, Adam. So we've seen a very strong gross performance in gross loading. I think it's a combination of our distribution strength and the way we position the merchandise, Infinite, and the simplicity of it coming home to attract customers and say, that makes a lot of sense. We're seeing the gross strength as a result of that. Sorry, I forgot, the second part of the question was...?

Adam Ilkowitz

Analyst

Just if you're seeing a greater mix of BYOD customers pressuring ARPU as well?

Joseph Natale

Analyst

No, no. The mix has been relatively stable overall. The -- we've seen greater growth overall in terms of add-a-line and add-a-line retention and add-a-line growth as a whole. We talked about the add-a-line discounting that happened in the quarter. And that certainly had an impact because add-a-line discounting went from $5 to $15, which we think is aggressive overall. But no, we haven't seen any change in that mix.

Operator

Operator

Our next question comes from David McFadgen of Cormark Securities.

David McFadgen

Analyst

Two questions. So just looking at Wireless, you say that in about a year from now, you expect the overage to be only 1% as opposed to, say, 5%. I was just wondering, can you give us an idea approximately what percentage of the sub base you would expect to convert to unlimited to get to that point? And then secondly, when I look at your Wireless operating expenses, as you noted, they were down 8% in the quarter. I was just wondering how much of that reduction is reduced call volumes, I guess largely from migrating people over to unlimited?

Joseph Natale

Analyst

David, I'll take both of them. In terms of the second part of your question, think about our OpEx really coming through a few areas. Certainly, call center is one of the big ones, that we've seen call volumes come down. The digital adoption is up 30% year-on-year, so we're really pleased with that transition. As we said in our scripted comments, we're already starting to see some of the Infinite benefits come through on the call center in terms of material reductions in time spent on the call; but also once the customer moves to these plans, a material reduction in the number of callbacks we get as customers second-guess their plan. It's the simplicity of these plans that really avoids that second call. And then also importantly, the reduction in churn that entails for those customers that move to the plan. And while it's early days, and it's only 4 months, if you look at a cohort-to-cohort of previous versus new, there's a substantial reduction in that churn piece of it. The second piece of it continues to be what we would call back-office efficiencies. And the digital adoption certainly helps drive some of that. Simplicity is certainly a piece of it. But continuing to incorporate things like AI into some of our back-office machinery is certainly helping. So those will sort of be the big buckets, as you would expect. And then David, the first part of your question, can you just repeat that?

David McFadgen

Analyst

Sure. I was just wondering what percentage of your postpaid sub base you would expect to be on unlimited to get you down to, say, 1% of your service revenue still on overage?

Joseph Natale

Analyst

Sure. Let me answer it this way. For competitive reasons, we just want to be careful in anything that allows our competitor to understand how many Fido customers we have versus Rogers, so we're very sensitive about that, for obvious reasons. And so what we can say is by this time next year, we expect the vast majority of our Rogers customers to be on the Infinite plans and maybe just leave it at that.

Operator

Operator

This concludes the question-and-answer session. I'd like to turn the conference back over to Mr. Carpino for any closing remarks.

Paul Carpino

Analyst

Great. Thank you, everyone, for sitting in on the call today, we will be available for additional calls later today. Thanks for your time.

Operator

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.