Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications Inc. First Quarter 2020 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Paul Carpino, Vice President of Investor Relations with Rogers Communications. Please go ahead.

Thank you, Ariel. Good morning, everyone, and thank you for joining us. Today, I'm here with our President and Chief Executive Officer, Joe Natale; and our Chief Financial Officer, Tony Staffieri. 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 2019 annual report regarding the various factors, assumptions and risks that could cause our actual results to differ. With that, let me turn it over to Joe.

Thank you, Paul, and good morning, everyone. I hope all of you and your families are safe during this unprecedented time. Our country is in the midst of an incredibly challenging moment in our nation's history, where our collective actions and responses are needed to make a difference. It's amazing to think that for the first time in our lives, the phrase, "what can I do to help?," is now relevant and applicable to all 37 million Canadians. We all have a role to play, and that includes the telecom industry, which has stepped up to the challenges of the new demands in our lives imposed by the COVID-19 pandemic. Our networks provide the foundation for the way we are living today, how we stay in touch, work, learn, stay informed and entertained. And our efforts at Rogers are going beyond our business to new community partnerships to help provide extra help to those who are most vulnerable in this crisis. We are committed to supporting our customers and Canadians through these challenging times now and into the future. Despite a meaningful slowdown in business in March, our overall Wireless and Cable financial results were in line with our expectations going into the quarter, although media felt the pressure associated with the cancellation of all live professional sports. Tony will take you through some details momentarily, but let me give you a broader perspective on how we look at the business during this period. In this environment, near-term monthly and quarterly results are not a reflection of our company's underlying fundamentals, our financial strength, the quality of our assets, the soundness of our strategy and long-term growth prospects or the effectiveness of our daily execution. Results in this environment, business and Canadians doing what is essential now for the long-term…

Thank you, Joe, and good morning, everyone. Our first quarter results captured the initial stages of the COVID pandemic issues that we experienced as a company. And as a result, in and of themselves are not reflective in the usual sense of the run rate of our business. In fact, the impacts were only experienced in the last several weeks of the quarter, and we've learned a lot more in the 3 weeks following our quarter end. As a result, my comments will provide more color on the first quarter results with a view to how they were impacted specifically in the final month of the quarter. And then I'll expand these comments to include some context on trends we are seeing post quarter end. Before I do get into some of those details, however, I wanted to take a moment to thank our entire Rogers team for continuing to deliver and doing the right thing for our customers and for each other. While these are difficult times, the attitude of our entire workforce has been inspirational. I also want to give a big thank you to our entire finance team who achieved a major milestone in closing our Q1 books, all remotely from home this quarter. Even more impressive, they did it in the same time frame they would have completed this task if they were all at the office. Out of necessity, we are all learning creative and innovative ways of working and collaborating to get things done. And as you heard in Joe's remarks, we are seeing this across all lines of our business, and these learnings will make our organization stronger and more productive going forward and will no doubt help shape our operating models going forward. Our operating cadence has changed quickly during this pandemic…

[Operator Instructions] Our first question comes from Vince Valentini of TD Securities.

Congrats for all the hard work you're doing to help your employees and society through this. A couple of questions on costs. The $90 million reduction in your cash costs for equipment subsidies in Q1. Tony, can you talk to us a little bit about how much of that translated into an EBITDA benefit? And under IFRS 15 with the more significant reductions in Q2, will we see like a quarter of that or 40% of that benefit EBITDA in 2020? Or does it really get stretched out over 2 years?

Thanks for the question, Vince. It's a combination of both factors, actually. So we saw $90 million in Q1, as you said. The volumes of handsets that we see today are running 50% to 60% lower year-on-year. You're going to see 2 aspects. Some of it will flow through right away under IFRS accounting as we allocate some of the total contract revenues to hardware revenue. You'll see some of that in better margins in Q2. You saw some of that in Q1. We expect to see slightly more in Q2. So of the handsets that are being sold and offered, there's much less of a discount than you would have seen previously. And so that's a continuation of trend that we saw in January, February, and comes together with installment financing and that piece of it seems to be going well. The second piece of it will be seen over 24 months of the contract term. And so that one is a lot harder to predict. But all of that to say is between those 2 items, the number will be higher in Q2.

Okay. And just a couple of other quick cost ones, I'll leave -- I'll throw them both out there. One, I'm not quite sure I understand your Blue Jays salaries comment. Is that just saying that you had planned to have lower salaries this year versus last year and that showed up? Or are you saying that the players are actually not being paid when the games aren't happening? And then the last one, can you just confirm there was no bad debt allowance in Q1. You're not taking any reserves for trying to predict what bad debt might be at this time, it's going to wait until the second half? That's it for me.

Okay. On both of those, Vince, in terms of Blue Jays player salary costs, that's correct. The players aren't played (sic) [ paid ] if there aren't games, except for a very small amount that are put in the category as immaterial. And so those are costs that are suspended, if you will, until games are actually played. The second piece of your question, we did not increase our bad debt allowance in Q1 as we go through our typical processes of quarter end estimation. We didn't see and continue to see very limited default during collections. And so we are calling out a potential risk that may arise in the second half, we think likely will arise as unemployment continues to rise and the period seems more extended than we might have originally thought. And so you should expect to see that likely increasing in Q2.

Our next question comes from Jeff Fan of Scotiabank.

Hope everyone is doing well on the call. I have a question on the Internet side and then maybe a post-pandemic question. On the Internet side, I guess one of the great things about DOCSIS is that you've been able to expand your network very quickly to 1 gig service across your footprint. Wondering what you're seeing in the market today in terms of demand, I guess, couple that with your ability to self-install 100% now. Are you seeing your service demand pick up as a result of the ability to offer that 1 gig across your footprint on a more consistent basis? That's the first question on Internet. The second question is just looking -- trying to look beyond, I guess, the pandemic a little bit. Some of your revenue streams related to -- on the wireless side or even on the Internet side related to overage and roaming are obviously all coming off. Do you think on a more, I guess, at a high level, that structure of pricing is something that will remain? I guess I'm asking because Rogers was obviously a leader in shifting everyone over to unlimited. Wondering if there is any opportunities there post-pandemic to kind of wean yourself off of some of these kind of revenue streams?

Thanks, Jeff. Good questions. Let me start with Internet. I look at the Internet demand sort of in 2 ways. Let me just first talk about the current demands, and then I'll talk about DOCSIS and the advantage. In terms of current demand, as I said, we're seeing -- when we first started looking at network load right in early March or so, we saw Internet demand go up 20%, 30% on average. In the last 2 weeks, we've been sort of seeing a 60% year-on-year increase in Internet demand from customers in terms of households in general. And the network has fared very well. The team has done a very good job of adding capacity in the moment, whether it's reallocating some of the RF spectrum in our DOCSIS network, whether it's looking at different ways of changing the payloads coming on the network, et cetera. Done a really good job of tuning it, and it's performing very, very well given the increased load. To put that in perspective, that's about 2 years of growth, that's -- as I said, that's happened really in the last number of weeks. In terms of ads, we're not out there promoting or stimulating in the market for all the reasons we talked about. We're trying to find the time when it's both appropriate and worthwhile to try to stimulate the demand. We don't think that's right now, but we are seeing unsolicited demand come through for people that are at home, using their network more than ever for working at home, like the top payloads right now are Netflix is number one and then all forms of video conferencing are number two, whether it's Zoom, FaceTime, Skype, WebEx, et cetera. And then number 3 would be sort of YouTube and general kind…

Great. Thank you, Jeff. Next question, Ariel. Sorry, Joe, go ahead.

Well, there's another part of the question, sorry, Paul, sort of post pandemic. And I think, Jeff, you had a question post pandemic around some of the constructs around price plans and will they change. We decided last June that some of the constructs in the business were ripe for change. It was time to make the move towards unlimited. It was time to make the move towards overage protection on Fido. Our views have not changed. And I do think as there are certain behaviors that are being set right now with consumers in general, some of them will stick and some of those behaviors are very positive, we believe, for the future of the industry from a productivity point of view and from our relationship with stakeholders and government as a whole. And we're going to look at each one of these on a case-by-case basis. I do think that, as we said last year, overage will continue to kind of diminish until it becomes immaterial, for that matter, over the course of time as more and more people move to Infinite. We have stepped back from stimulating the market in terms of promotional activity for all the reasons that we talked about. So therefore, you've seen some of the Infinite migration continue, but really slow in terms of pace as a whole. I think the roaming constructs will remain intact once people feel comfortable again traveling. I think that the getting on an airplane and traveling will be one of the last steps in terms of resumption of the economy. Personally, I believe that's one of the very last steps. And that's probably the furthest out in terms of resumption as a whole. But we're seeing good resiliency in the core subscriber business. Any challenges we face will really be a reflection of the economy in terms of unemployment or business defaults.

Our next question comes from Drew McReynolds of RBC.

Yes. Two relatively high-level questions for me. First, maybe for you, Tony. In terms of visibility, and not just kind of on the 2020 outlook but more specifically in terms of getting back to a little bit more normal where you shift gears from the pivot you rightfully did to serve customers and society back to focusing on KPIs. What -- do you have any sense when that visibility or what kind of milestones or things you'd be looking for at this point? Would they come in Q2, Q3? Maybe very high level, just comment on what you're looking for on that front. And then secondly, maybe for you, Joe, on the 5G deployment road map. You've been very active out of the gate here in 2020 on initiatives. Wondering how all of this at this point, to your knowledge, impacts your 5G plans as you go forward here?

Okay, Drew, why don't I start with the first part of your question? As I've said, we focus on overriding cash flow because the short-term impacts are difficult. I think the 2 pieces we look to, one is when will people be able to be out and about, malls open up and have confidence to be out there shopping, et cetera. And so for our Wireless business, that's going to be the key factor in terms of that market starting to resume in terms of subscriber volumes and growth. And then the second piece of it is as well, even on our Cable business, that they're comfortable looking at alternatives and have time to consider best Internet, best TV and things like that. And so we think that's going to be a while in terms of whenever that happens. But the second piece of it is equally important, which is when do the macroeconomic factors like unemployment rates and our government's assistance programs, how long do those go for? How deep is it? And those will have an enduring impact for a while. Our business is a momentum business. And so even after those happen, it will take a while for that momentum to start picking up again. And so we don't see it something that happens in the very short term, but rather, it's going to take many months and probably several quarters, but that's what we look to as kind of the key factors that will get the momentum in our business going again.

Drew, on the 5G question, the last few weeks, we've sat down and looked at all of our capital projects and initiatives that we had on the go or we were about to start. We kind of categorized them into sort of 3 buckets or 3 flavors, if you will. One was capital that is volume oriented, where volumes right now are changing. For example, we think there'll be a bunch of new homes added to the footprint -- to our footprint in the very near term. These are subdivisions that we're just about to have people move into the homes. But housing starts have fallen off, and there will be a diminishment in terms of housing starts as a result. And we typically have been adding 60,000 to 80,000 homes a year to our footprint. So there's volume-oriented things that we are adapting or shifting. Number two is initiatives where there is or isn't permission. In other words, if we worked very hard to get a building permit to put up a tower to do something, and we can still do it, then we're doing it. If it's -- if we still require that permission, given that a lot of building departments are closed, that a lot of roadwork is not happening, et cetera, then of course, that capital won't be spent. The third category which gets to 5G is what are the strategic priorities that still makes sense to go after, that we believe is still possible to get it done efficiently, effectively, and that is still reasonably tied to the expectation of revenue or return. Last thing we want to do is put capital on the ground and have it lie fallow for a long time. We think in the case of 5G, and we were first…

Our next question comes from Tim Casey of BMO.

One for Tony, one -- or I guess, 2 for Tony, probably. Tony, can you help us understand what the baseline for bad debt expense would be and how, if you increase that, that will work through reported EBITDA and also cash flow, just what the puts and takes there will be as you work it through? And then just a clarification. The roaming impact you cited for the quarter for Q2, is that all Roam Like Home? And would that number be a decent quarterly run rate? Business travel may be down in the summer, but vacations are up. Do they sort of offset? Or does that number seasonally peak at other periods of the year?

Great. Thanks for the question, Tim. Yes, in terms of putting bad debt into context, we typically run bad debt at about 3.8% of revenue on a normalized basis. That translates to about $130 million a year for us a quarter -- a year, I should say. And so we kind of think about it as if that number were to double, the magnitude we're talking about is $130 million. And so we have different models sort of depending on a number of factors. But we kind of see the bad debt. If we had to put fence posts on it, we think somewhere between $50 million to possibly up to $250 million is kind of the outer post of it. And so while it's significant in the overall scheme of things, it's not drastic, and we do see it -- or sort of see it as a onetime item as opposed to something that will continue. But again, it's early days, and we're only seeing very small inklings of it even today. So we'll -- it's something we're watching closely. And so those numbers I gave you are really just to provide sort of the context around it. While it's a risk, it's not an unmanageable risk. The second question you had was on -- sorry, Tim, go ahead.

And that's directly on EBITDA, Tony, that flows directly through the income statement?

That's correct. The second question you had was -- well, let me expand on that. I think the accounting for that separately in terms of whether it's an EBITDA or onetime item, we'll decide at the right time how we account for it, but it will be transparent, but that's sort of the number that ultimately impacts cash flow, Tim. The second piece of it -- of your question related to roaming. Let me give you a bit of context on that and color. When we talk about roaming, it's both inbound and outbound roaming that we see a reduction of. Our total roaming revenue is slightly less than the total overage revenue we talked about, about a year ago. So it'd run around, on an annual basis, roughly $400 million. And so the $80 million that we talked about for Q2, it is typically a seasonally higher period and we see that coming down by $80 million or roughly 80% in Q2. That would include folks that pay under the per-use, Roam Like Home, or they may still not be on Roam Like Home and they just pay roaming charges at -- on a per-use basis. So that combines both numbers as well as, as I said, the inbound roaming volume that is coming down.

Our next question comes from Maher Yaghi of Desjardins.

Yes. I wanted to ask you on your Cable business related to SMBs and enterprise. We talked a lot about bad debt, et cetera, but can you maybe talk a little bit about what you've seen so far in terms of collection and maybe a reduction in services related to enterprise customers in your Cable business? Knowing that it's not a big exposure for you, but still maybe it's interesting to know what's going on there. And maybe a bigger picture-type question related to the spectrum auctions that are coming up. Given all the efforts you guys are doing to continue to support Canadians with their demand for connectivity, but still facing quite a bit of pressure on the revenue and EBITDA, would you say at this point would be a better thing to push out the spectrum auction that is coming up late this year, early next year? And just on the free cash flow, when you say you continue to expect strong free cash flow, is that a qualitative assessment that it will be positive in terms of growth year-on-year? Is that what you're meaning by that?

Thanks, Maher. Why don't I take the first 2 questions on the B2B sector and spectrum auction, and then, Tony, I ask you to frame up the free cash flow for Maher. So on Rogers for Business, our enterprise business, you're correct, Maher, in that it is a more smallish part of our business, relatively speaking. We're under-indexed against our peers in that sector as a whole and, in some cases, materially so if you look at proportion of revenue coming from that sector. Right now, the most difficult part of the enterprise business is in Alberta. And there, it's a very small part of our business in the enterprise sector. Think of it as mid-single digits in terms of proportion of revenue and mostly wireless in nature. We are starting to see more phone calls coming from the business sector. I would say it's coming more from the main street stores, single operators who can't open up their shop and, therefore, are suspending their services. And we've created some disconnect mechanism so they can suspend but keep it active and alive, so we don't actually lose the customer or force a change in customer, but we actually turn it back on again relatively easily when the economy begins to resume as a whole. So we feel that we're in a good position on a relative basis with respect to exposure to the sector. And that given our mix based on SIC or industry codes, if you look at it that way, we've done an analysis based on which industries are most affected, least affected in the short to medium term. And as you know, it's quite a range. We feel we also have a good mix that we can manage our way through overall. And I think you'd be…

I may have a couple of comments on free cash flow. I think I'd start kind of summarizing the impacts to free cash flow. I've talked about -- we've talked about the impacts we see in each of our business on the revenue side, and they will vary from Cable probably being the least impacted, to Media having the most significant impact. And so we -- and that part is difficult to predict. Some of the costs will naturally come down. It won't be one-to-one with respect to revenue. But on a business, it generally has a 50% to 60% flow through rate. You probably should expect to see that on the other side. And so there'll be an EBITDA impact as well. And the way we've defined free cash flow, it's adjusted EBITDA less some of the big cash items, the largest one being CapEx. And based on the trending we're seeing, we expect CapEx to come materially down from the original guidance range we provided, one, because of lower volumes on some things that get capitalized like installation, the unit cost coming down, but also the pacing of work. It's just a lot more difficult to execute getting permits from cities and things like that is much more difficult, but also combined with our focus on what's more essential right now given the environment we're in. So we expect CapEx to, as I said, come down. So when you net those out on balance, based on what we see now, there's probably a good probability that we'll deliver free cash flow, not materially off of the previous guidance that we provided. But then again, there's still quite a few moving pieces, but that's as far as we can see right now. We don't include working capital adjustments and, in particular, the various account movements related to lower handset volumes. And so that will be an additional cash flow help, if you will, to the extent that, that market continues to be stagnant or soft on a year-on-year basis. And so that will provide additional free cash flow depending on the definition that you're using. Hopefully, that provides good context on how we're seeing it.

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

It's Matthew sitting in for David. Just 2 quick ones, if I could. To start off with just on Wireless. You mentioned, if I understood correctly, that you're seeing some downgrade in the service packages that people have. And I was wondering if you were able to kind of put some color to that comment. Are you seeing that, do you think, mostly because people are at home and they're offloading to WiFi? Or is this kind of the beginning signs of perhaps some financial distress that, that group of customers is facing? And then the other thing that I wanted to ask is, obviously, the self-install has been positive and something that you were pursuing even before this pandemic kind of changed everyone's way of living. I was wondering if the acceleration of self-install has kind of changed your previous outlook for the kind of achieving a 25% cash margins in the Cable business. I believe it was by the end of 2021 previously. If you think now looking past this crisis that, that might be accelerated or be able to achieve earlier. Just your thoughts would be helpful.

Matt, why don't I start with a couple of those. First off -- I'll start with the second question on self-install. The acceleration of that has -- and moving to 100% self-install is quite promising in terms of the customer experience, but also in terms of the cost reduction. Today, we're on a model that we would describe as assisted self-install where the tech is close by and helps the customer inside. That model will evolve over time over the longer term to something that is a complete self-install. And so it will for sure help OpEx a little bit, but materially, it's going to help CapEx on the cable CI side in the longer term. In the near term, I've talked about the reduction being a 30% cost reduction. But the bigger factor is the lower volumes that we're seeing in the short term in terms of migrations to different tiers as well as new activations in the market. So for a while, that's going to be the bigger factor that's going to reduce Cable CapEx. But in the fullness of time, we expect that volume to come back. So all those factors combined, could it lead to an earlier achievement of the 25% Cable cash margins? It could. But I caution on the EBITDA side of it. While we see some good prospects for cost reductions, revenue may be pressured by some of the factors relating to downward tier migrations. And so the net of those is difficult to predict. There's a good prospect that we could achieve it earlier. All the ingredients seem to be there, but there's still quite a few variables that are difficult to predict. And so I don't want to call that out too soon. The first part of your question is whether…

The only thing I would add, Matt, is that fundamentally, we are a barometer of the economy with respect to unemployment and business losses, and that's the biggest thing that will drive that phenomena. I don't think we're getting some sort of fundamental switching behavior. We know that people are relying on both wireline and wireless services more than ever. And if you add them both together, it's still up dramatically year-over-year, including voice services that have peaked to record highs.

Great. Thank you, Matt. Thank you, everyone, for joining us. Today, we will be following up as needed. Just a reminder that our Annual General Meeting is this morning as well. You can listen to Joe's remarks shortly after 11:00 a.m., and we will make those remarks available on our website as well. Thanks for joining us, and everyone stay safe as well. Thank you.

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