Rogers Communications Inc. (RCI) Q3 2020 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications' Third Quarter 2020 Results Conference Call. The conference is being recorded. Following the presentation, we'll conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference to Paul Carpino, Vice President of Investor Relations with Rogers Communications. Please go ahead.

Thanks, Ariel. Good morning, and thank you for joining us 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. Before we begin, I want to remind everyone that 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.

Thanks, Paul, and good morning, everyone. Let me start by speaking briefly about our third quarter results. Tony will provide additional detail and insight in a few minutes. Next, I will share an update on how we're continuing to adapt our business to both meet the needs of our customers and drive operating efficiency. And finally, as Canada's largest 5G provider, now covering 130 cities, I'll discuss our 5G rollout and the role our next-generation technology plays in driving long-term growth and supporting Canada's future. First, our results. Rogers delivered significant sequential improvements in Q3 across each of our businesses, with a solid performance in customer additions, revenue growth profitability and free cash flow. As we previously noted after Q2, our results during the economic shutdown did not reflect the underlying fundamentals of our company nor the long-term growth prospects of our wireless, cable or media businesses. This is evident in our Q3 results, which rebounded as demand growth resurfaced, and we pivoted our operating model. Our results show we are managing the environment effectively, and our long-term strategy is sound. In Q2, the overall wireless market declined by more than 80%. In Q3, as our stores reopened and our digital sales capability ramped, we delivered strong postpaid net additions of 138,000, up 34% from the same period last year. In addition, we delivered 30,000 prepaid net additions. This growth was driven by a number of factors: pent-up consumer demand, an active back-to-school shopping period, growth in our digital sales and service capabilities and a continued growth in our 5G ready unlimited plans. Our Rogers Infinite unlimited plans grew by $300,000 this quarter to 2.2 million customers. This represents the largest unlimited customer base by far in Canada, customers are no longer paying overage fees, enjoy worry free data usage and are well positioned for 5G. Our Infinite base has higher ARPU, lower churn, far better lifetime value with a lower cost to serve and their data consumption is more than double that of customers on legacy plans. These results are certainly in line with our expectations and create a strong foundation as we grow our ever-expanding 5G footprint and iconic 5G devices like the exciting new iPhones arriving in Canada. Despite the competitive intensity in the quarter, our team continues to do a good job of managing churn. Postpaid churn in Q3 came in at 1.1%, a full 10 basis points better than Q3 of last year. Switching to our cable business which also improved sequentially from the anomalous lows of Q2. Revenue was flat. Adjusted EBITDA grew 2% year-over-year. And despite COVID related delays and adjustments in the home building industry and the condo rental and Airbnb market dynamics, we delivered solid operating gains. We're very pleased to report that our DOCSIS and fiber network investments continue to gain recognition. Earlier this week, Ookla, a leader in network testing, recognized Rogers as the Internet provider with the fastest speeds in Canada and the best consistent performance nationally. Switching to media. With the return of live sports in Q3, our media business delivered year-over-year revenue growth and significant sequential improvements in EBITDA. This represents a material reversal after this business is the most significant impact during the depths of the COVID-19 lockdown. All 4 major sports and their viewing audiences were back in Q3. Viewing numbers were strong and advertising showed notable improvements from Q2. Advertising across all media was up 18% from a year ago, with sports advertisements showing even strong gains. This underscores the essential strength and resilience of live sports above all other media categories. Next, I want to highlight some recent business improvements that will play an important role in driving both efficiency and growth into the future. As I mentioned last quarter, COVID-19 fundamentally changed how we operate and greatly accelerated our business transformation plans. We fast-tracked initiatives that we had planned, including enhanced TV and Internet self-install, stronger digital capability, customer care agents working from home, just to name a few, and launching these changes in record time. This is more important than ever as customer behaviors and expectations change rapidly. Our ability to be agile and adapt how we serve customers is critical, and it's a muscle that is developing at Rogers. This will pay dividends well beyond the period of the pandemic. In many cases, across industries, the move to online shopping is 3 years ahead of forecast. Choice matters and multiple sales and service channels matter. Building on our digital gains in the early days of the pandemic, our digital volumes continue to even as our stores reopened. Digital sales adoption is up materially year-over-year, and we're seeing a healthy mix between digital bricks-and-mortar retail. This channel mix and the resulting improvement in channel economics allow us to be nimble, meet customer needs and drive margin improvement. At the same time, digital service and digital support is up substantially, resulting in fewer service costs. Last month, we moved to digital self-serve only for simple transactions, such as making bill payments, changing contact information. Today, nearly all our top 5 service transactions are completed digitally. Our virtual assistant conversations jumped over 200% since last year and nearly 20% sequentially. We've now handled over 5.4 million conversations since the Rogers virtual assistant launched 18 months ago. With ongoing improvements through AI technology, we expect it to continue to deflect more cost, lowering costs, and importantly, saving our customers even more time. In cable, we continue to see excellent ongoing advancements with the self installed capabilities of our Ignite services. Our Express self-install option delivered via courier makes up a growing percentage of our Ignite installs, eliminating a truck roll entirely. Together with our enhanced self installs, where our technicians drop off equipment and provide support for our customers through our virtual assistance app. These contact-less installs represented 95% of our cable installations in Q3. When our customers do call us, our technical support agents also use our virtual assistance app. With the app, they now solve the majority of issues right away without needing to book a service appointment. We remain on track to save our customers an estimated 400,000 hours of their time and save us approximately 100,000 service truck rolls this year. This is an example of how our digital capability drives an enhanced customer experience as well as increases the efficiency of our service processes. In addition to efficiency and cost management opportunities, investing for growth remains a top priority. Investing in networks is a critical part of our long-term and future success. In fact, it's an immediate imperative as we move to a 5G future. Today, Rogers' customers enjoy the best Wireless network experience in the country. Umlaut, a global leader in network testing and benchmarking that ranks the performance of typical consumer use cases and tests, has things like network reliability, download and upload speed, call setup time, video streaming stability and quality, has awarded Rogers the best wireless network in Canada for the last 2 years. To get to this point has required $30 billion of investments in our wireless network over the past 35 years. This is a scale business, and the importance of scale is more important now than ever as we begin the biggest generational cycle in technology and network capability. 5G will transform industries, fuel innovation across sectors and drive economic growth in our tech-driven recovery. It will reduce the cost of data and fundamentally change how Canadians and businesses connect to the world. 5G technology is engineered to support a thousand fold traffic increase over the next decade. While the full network's energy usage is expected to be half the current levels. 5G is not just about innovation, but also supports a better environmental outcome. Rogers operates Canada's first and largest 5G network powered by our long-time network partner, Ericsson. We started the rollout in Downtown, Toronto, Ottawa, Montreal and Vancouver back in January. And we have since expanded to 130 cities and towns including the first city in Atlanta, Canada. Just last week, coinciding with announcement of Apple's 5G iPhones, we announced that we doubled the reach of the Rogers 5G network. Today, our 5G network is 10x bigger than our peers. 5G requires the right infrastructure, the right partners and investments to be ready to fully capitalize on its potential. We are well prepared in this regard. In addition to our network partner, Ericsson, our strategic partnerships to research, incubate and commercialize 5G solutions extend to campuses across Canada, including the University of British Columbia, the University of Waterloo and Communitech. These partnerships and investments in digital infrastructure are critical to help Canada not just recover but be rebound from COVID-19. From tech start-ups to small and medium-sized businesses to large enterprises, they all need strong networks to unlock growth and unlock productivity. And of course, none of this great work and none of these accomplishments during this quarter could have happened without the dedication of our team members. I want to thank our entire team for their incredible upward and commitment they have demonstrated since the start of the pandemic. During the most complex business environment we have seen in our elect time, our team has been there for our customers and for our communities. This also has been reflected in our recent annual employee engagement survey. We achieved the score of 87% total engagement. I could not be prouder of the continuous improvement culture that has been built at Rogers. And this will serve us well as we invest in more service and technology innovation and rolling up the team of wireless broadband capabilities. And with that, I'll turn it over to Tony to provide some more details on Q3. Over to you, Tony.

Thank you, Joe, and good morning, everyone. Q3 results reflected solid improvements in each of our businesses as the country slowly emerged from the COVID lockdown of the second quarter. Consumers came back to our stores or through our digital channel in healthy numbers to meet their connectivity needs. Q3 also delivered strong free cash flow and solid margin improvement in both wireless and cable as we roll out our efficiency playbook. In wireless, service revenue declined 9% year-on-year but improved 4 points sequentially, despite roaming revenue still being down over 70% or $90 million from 1 year ago. Additionally, we saw a decrease year-over-year of more than $50 million in overage fees as customers continue to shift to Rogers Infinite Unlimited data plans. We are not quite through the full overage transition. On a year-over-year comparison, roaming revenue, combined with the overage contributed 8 points of our year-over-year revenue decline. Furthermore, transactional fees such as late payment charges and restoral fees continued to be down in Q3 by another $20 million, representing another one point of our decline. So in summary, excluding roaming and a slight decline in onetime fees, our underlying service revenue run rate is now flat year-on-year. Wireless service revenue margins measured as wireless EBITDA over wireless service revenue, grew nicely, up 300 basis points to 66% compared to the same time last year, reflecting solid operating efficiency improvements. As we transition to full device financing, this measurement helps us understand the quality of our service revenue profile. As you heard Joe speak earlier, our efficiency initiatives, along with the largest base on unlimited plans underpins this margin expansion. Both post-paid gross and net loading were very strong in Q3. Post-paid net additions of $130,000 were up 34% year-over-year and gross loading was up 3%. Unlimited plans were up $300,000 sequentially from Q2 reflecting Canadians embrace the value of unlimited plans. No one in Canada has more customers on unlimited plans than Rogers does, and no one has a bigger 5G network. This positions us very well as the marketplace moves into a 5G world. Following the significant COVID-driven slowdown in Q2, where the market was down over 80%, we estimate that the overall market will be down about 5% in Q3 compared to last year. This level of recovery clearly highlights the priority consumers place on wireless services as well as how effectively our operations are able to respond. Blended ARPU was down 9% on a year-over-year basis, went up $2 or 4% sequentially to $51.12. The year-over-year decline was largely due to reductions in roaming and overage revenues, as I previously mentioned, while sequentially, we benefited from related fees, fewer concessions and bigger data plans. With our leading position in unlimited plans, we continue to focus on driving the best long-term ARPU growth as we move into 5G. We saw significant competition during the quarter, most notably of flanker brands, and we matched pricing promotions as needed. I think it's important to highlight the short-term nature of promotions in our industry corresponds to active consumer shopping and are reflective of healthy competition in the market. As you saw in Q2 and Q1 of this year, promotional activity was low as the market eventually shut down and very quiet. With the significant in business activity, we were pleased to see that handset costs are no longer a drag on our P&L. Owing to increased MSRPs, more OEM funding and stronger discipline and handset pricing, we now see accretive margins for handset sales. Overall, the shift to EIP had a positive effect on the Canadian industry economics. Last year in Q3, equipment margins were negative 2.7% and today, they are 1.6%. The reversal in margins is even more stark if you look to equipment margins before the lock to VP at the beginning of Q3 last year. Despite the increased competitive intensity and expected disconnects from some customers dealing with the economic follow from COVID, churn was lower at 1.1% compared to 1.2% last year. The improvement reflects the benefit of our growing unlimited plans, which continue to improve the customer experience through no more overages, simple billing and great value offered by these plans. Wireless adjusted EBITDA was down 4% versus last year, but up 19% sequentially from Q2. Unlike Q2, where we booked a $90 million incremental for potential bad debt exposure, no additional provision was needed this quarter. The ongoing impact from COVID is still unclear. However, the performance to date within our bad debt allowance is currently running better than anticipated. And the $90 million provision previously established continues to provide sufficient coverage as the economy continues to work its way through the COVID environment. Moving to cable. Service reps flat year-over-year and up 3 points sequentially, despite the slowdown in the rental and home development markets. As we highlighted last quarter, no price increases are in Q3 as we chose to defer increases earlier this year during the pandemic. Home pass and customer relationships each grew year-over-year and sequentially while Internet and Ignite TV net additions were down, they both recovered from Q2 with internet net additions up threefold to 16,000 and Ignite TV net additions doubling to 38,000. On the financial side, the cable operations performed well on a year over year and sequential basis. EBITDA grew 2% year over and 12% sequentially. And EBITDA margins in Q3 grew to 51.4%, the highest in our history. This improvement was driven by capturing efficiency initiatives throughout our cable business, lower churn and the elimination of the concessions provided to customers during the extra challenging period in Q2. Additionally, no incremental provisions for bad debt were required. We continue to be very efficient with our capital spending. Self installed now represent 95% of all installations, and the hardware costs continue to come down. CapEx intensity for cable is 22% achieving the target we were initially anticipating to achieve by the end of 2021. As a result, margins for cable were at an all-time high of 29%. In our media business, we delivered notable improvements in Q3, with a return to revenue growth and profitability. Revenue was up 1% year-over-year and was up 65% sequentially as live sports returned and advertising started to recover. The pace and size of this improvement demonstrates the attractiveness of sports properties to advertisers and the significant appetite consumers have for our sports broadcasting properties. This improvement was also achieved despite no continuing revenue from Blue Jays home game. While adjusted EBITDA in media was down 32% on a year-over-year basis, we saw a very healthy recovery on a sequential basis. Second quarter EBITDA went from a negative $35 million in Q2 to positive $89 million in Q3, reflecting the improvement in advertising revenue. On a consolidated basis, total service revenue was down 5% and adjusted EBITDA was down 4%. If you exclude the impacts of roaming and overage, we would have been flat in revenue and adjusted EBITDA. Or said in another way, in Q2 we had estimated total COVID-related impacts in the quarter of $725 million in revenue and $300 million on adjusted EBITDA. In Q3, the estimated impacts were $195 million in revenue and $80 million in adjusted EBITDA. While these are still notable numbers and there remains significant uncertainty in the coming months and quarters due to the potential impact of a second wave of COVID, our teams are managing the environment very effectively. We invested $504 million in CapEx for the quarter which was a year-over-year decrease of 23% and reflected a consolidated CI ratio of 14%. The decrease in capital expenditures was driven by deferral of projects including greenfield projects given in the pandemic as well as improvements in cable CapEx efficiency associated with self-install internet and Ignite TV. I think it's important to note that even as our consolidated CapEx spend is down, we're not holding back on key strategic investments. Our CI ratios in our cable & wireless businesses affirm our investment leadership in these assets. Today, our entire cable footprint already enjoys 1 gig internet speed and Ignite TV platform is up over 115%, and we have the largest 5G network in the country with 130 communities already enjoying 5G. The 5G pace is pretty impressive, given our rollout started in mid-January. With the improvements in adjusted EBITDA and lower CapEx, we generated free cash flow of $868 million this quarter, a 13% increase year-on-year. Our cash tax rate as a percentage of adjusted EBITDA was 4.6% in the quarter and should be in that same range for the rest of the year 2020. The company's liquidity remains very healthy at $5.5 billion available. Additionally, our balance sheet is well-structured with long-term maturities and lower interest rates on our outstanding debt. Our weighted average interest rate at quarter end was 4.16% with an average term to maturity of 13.2 years. In terms of an outlook, we won't provide specific guidance. But similar to last quarter, let me share some color as to what we see at this point. In general, we anticipate additional sequential financial and operating improvements in Q4. In wireless, the current loading environment remains healthy, with competition driven by consumers upgrading phones and increasing data plans. Whether the industry will repeat the same level of subscriber growth in the traditionally busy Q4 holiday season is too difficult to predict at this point. But nevertheless, the industry has recovered well of off depths of Q2. We believe ARPU in Q4 will improve slightly on a sequential dollar basis compared to Q3, but will remain under pressure year-over-year as we do not anticipate roaming to wrap up in the near term. However, with a more active market looking to upgrade highlighted by our $300,000 sequential increase in unlimited plans, we continue to have the right focus on ARPU drivers as the underlying fundamentals of these plans remain positive. In terms of overage revenues, we anticipate Q4 will be down $30 million on a year-over-year basis given the near-term transition to our unlimited plans. As we continue to work through the near term overage declines, we do anticipate multiple financial and operational benefits to be reflected in our results as this transition is completed. As we have highlighted in the past, these plans have improved ARPU lower churn and higher customer satisfaction for the consumer and also drive simplicity dividend for us in the form of fewer calls to call centers, e-billing and other areas. In our cable business, we expect sequential improvement in revenue, EBITDA margins and loading should continue with a modest sequential improvement in Q4 as housing starts -- seem to be improving. Capital intensity in both wireless and cable business should continue at around the current Q3 levels. We have seen significant increase this year as we continue to benefit from the scale and historical relationships we enjoy with our current vendors and realize ongoing efficiency opportunities in the capital projects we are implementing. As our 5G progress to date shows, we remain as committed as always, to invest for growth. In our sports and media business, we will see some sequential declines in revenue and adjusted EBITDA as some of the key sports' transition to late fall and early winter seasons. Our losses for the year are expected to be much less than we anticipated earlier this year. And excluding the Blue Jays, our media business will be net positive on adjusted EBITDA. In terms of cash flow, we anticipate the fourth quarter should remain at approximately the same dollar range as Q3, based on improved adjusted EBITDA and the continuation of efficient capital spending. We're very proud of how the Rogers team is navigating the current environment. While there continues to be significant uncertainty in terms of how the ongoing impacts of COVID will influence the Canadian economy. Through the rest of the year, our Q3 results show we are effectively managing growth opportunities. Profitability improvements, operating efficiency, cash flow generation and disciplined capital investment during this period. Let me now turn the call back to the operator to commence with our Q&A.

[Operator Instructions] Our first question come from Drew McReynolds of RBC.

Two for me. First, on the wireless side on the competitive intensity front. Joe, you alluded to the wireless market being down about 5% or maybe, Tony, you did. And I believe that was up 4% pre-COVID. I think there's concern out there, in a market that's contracting or expanding less going forward that promotional activity gets too aggressive. So I would love to get updated thoughts here on how you see in this lower growth market balancing acquisition with retention and any changes here in growth versus profitability on the wireless side? And the second question, somewhat related. Clearly, Rogers leading on unlimited 5G coverage. I believe you have the largest iPhone base among your peers. Seems like you're well positioned here. 5G capability, particularly iPhone coming to the Canadian market this quarter. Can you talk to your broad expectations on that set up, but particularly the migration that you're seeing or you expect to see the premium tiers as consumers gravitate towards that bigger 5G capability?

Drew, it's Joe. We saw quite a bit of price aggression in Q3 to your first question. Our views of the market was down, call it, 10% or 15%, was down to the level of 10% or 15% of the previous year in Q2, so down radically in Q2. In Q3, we bounced back. We'll see when everyone reports what it looks like, but we believe it was maybe 5 percentage points off of last year or roughly the same as last year. So I think when the market opened up again, everyone said, "okay, game on". Game on. We saw a lot of competition in the flanker brand and the flanker brands -- we were not the aggressor, just to be absolutely clear. But it's a lot of competition in the flanker brand as the market kind of woke up again. And when the market's active, it does create froth, it does create opportunity for loading overall. Our view has always been to balance volume with profitability as a whole. But we will always be there in the market, always to be present in the market overall, when it comes to the open for customers to transact. And we kind of timed our store openings and timed our capability around digital ramping up et cetera as the market kind of came to fruition. But don't forget, we also have some tools at our disposal around overall growth. I mean the unlimited plans are one of those tools or opportunities around profitability. The average unlimited customer giving us about $20-plus of increased ARPU compared to the legacy base. So there are levers and things happening to take advantage of the volume and get the nets. At the same time, we have capabilities to drive people up the tier of different price plans into unlimited and even from pre to post along the way so that the profitability is part of the balancing act as well. We're not overly worried about that balance as a whole. You asked about that the handset discipline that Tony talked about in the beginning. We're seeing equipment margins positive -- positive equipment margin probably for the first time in the history of the industry as a whole. So it's the nature of the game is changing, but there's still a square focus on growth versus profitability, as I described. On your second question, we're really pleased with how well we're positioned for the future. It's not by accident that we've got the largest 5G network in the country. As we were upgrading to 4G LTE advanced, we had 5G squarely in mind. As we picked Ericsson for our partner, we did so because of their capability and readiness to do a software upgrade from LTE advanced to 5G. And you saw that come to fruition in a very short period of time from January to now over 130 cities. We're very pleased with our growth in unlimited. Unlimited has 2.2 million customers. We believe, it is the largest unlimited base by far in Canada. And the 5G is only available on those plants as a whole. So it's sort of also not by accident that we've connected the dots on that point as well. And as it relates to the new iPhone, we're quite excited but the new iPhone. We've seen very robust preorders. Bear in mind that over half of our base is on an iPhone. So it's a very significant part of our day-to-day business. And we believe we have the largest iPhone base in Canada. So you kind of add that together and you say, "we're ready to go as it relates to 5G in the future and ready to go as we move from a marketplace of scarcity of data to a marketplace of abundance of data". And that's where the market is going. The market's going through abundance of data, and 5G will enable that capability, and we're ready for it as the shift happens. That's why we launched unlimited a year ago. That's why we took the pain around the overage melt through the course of last year, so that we're well prepared for this moment in time and what's going to transpire into the future.

Our next question comes from Vince Valentini of TD.

A bit of a different variation on Drew's question. You mentioned the equipment margins being positive. And obviously, you're starting to have a positive impact, and that's great. Can you talk about the impact to ARPU from the lower equipment subsidies, Tony? Is that something that's starting to show up in your numbers? And maybe a bit of the reason bounced back to over 51% in ARPU versus 49% in the second quarter? And then just to follow up, you haven't mentioned Cogeco, so also just throw it in there. If there's anything you can say as an update. There's a lot of market speculation that you're considering selling all of your CCA and CGO shares, if they continue to refuse to sell to you. So if you can say anything publicly about that, I think it would help a lot of people.

Why don't I answer the second question first, Tony, and then throw it to you. Vince, thanks for the questions. Let me say this on Cogeco. Altice and Rogers have put forward, what we believe, is a very compelling offer, one that materially benefits all shareholders and all stakeholders. The offer expires on November 18. I don't think it's fair to provide any other comments on the dynamics of the situation, the dynamics of the offer. If it's not accepted, we would do what you would expect us to do. We review our capital allocation priorities with our Board, as part of our normal course of planning and strategic priority setting. And we come back to the investment community on what our thoughts and findings are on capital allocation. I think that's pretty much all I'm going to say about Cogeco today and really want to focus the energy and attention on the hard work of the quarter and what the team has delivered. But thank you for asking the question. I'm sure people have been wondering about that. Vince?

Just on the first part of your question on margins. The sequential improvement in ARPU from Q2 to Q3 was predominantly as a result of improvements in the 3 categories that I mentioned earlier. Overage revenue in terms of the amount that it was down as a proportion of service revenue came down a little bit. Roaming revenue, while still down quite a bit year-to-year, bounced back a little bit. It was down 30% year-on-year, compared to -- sorry, down 70% year-on-year compared to down 95% in Q2. And then there was other feeds that I referred to in terms of restoral fees or late payment charges. So each of those sort of had more of an impact sequentially. You are right, as you point out, with better equipment margins and reduced subsidies over time, we'll see a positive impact to ARPU through the way the accounting allocation works between of the service revenue and equipment revenue, but it's pretty small still to date. Since we launched it in, earnest, in Q3 of last year. And volumes in Q1 and Q2 have been relatively light on a year-over-year basis. There hasn't been enough in the base to cause that movement in ARPU. But volumes continue at a healthy base should expect, particularly by Q1 to see that equipment margin help the service revenue ARPU as well.

Our next question comes from Tim Casey of BMO.

Couple for me. One, could you just talk about the sustainability as you see it on the wireless side? Obviously, so many moving parts in terms of the shutdown and reopen. But also less immigration, less foreign students. And still, you posted a very strong number. I'm just wondering how sustainable you think that trend is? And could you talk a little bit about the progression through the quarter. Just wondering if September was a particularly strong month? Because the public comments you made earlier in September, I thought were a little more cautious than the numbers that came out today, I'm just wondering if September finished very strong?

Thanks, Tim. Thanks for the questions. Let me start with the second question first. Starting in late June, the market kind of woke up. People felt more comfortable going into malls and shopping. We opened up stores, and we saw this incredible pent up demand hit. And the question we kept asking ourselves is "how much of this is pent up demand, how much of this is just sort of seasonal ramp? " and if you saw any sort of moderate view from us in -- earlier in the quarter through some of the conference discussions, it's really because we weren't quite sure if it was -- how much was pent-up demand versus seasonal demand. What we did see is that the volumes and the activity persisted throughout the whole quarter. Right from the starter's pistol right to the finish, there was volume week in and week out. And for us, even as the stores opened, we saw our digital volume continue to build and do well. Clearly, before the stores' opening, it was largely all digital volume, a handful of stores we kept open for health workers, et cetera. And seeing both those things continue on the right path was encouraging. As we kind of marched into Q4, the early part of Q4, as Tony had mentioned in his commentary, still lots of activity in the marketplace. I think what it underscores is that connectivity is an important part of life as a whole, and mobile connectivity matters, whether you're on out on the boat, it matters whether you're in your car or it matters whether you're at home, and people enjoy having connectivity in their pocket or within arm's reach all the time. So I think we're seeing the essential nature of the services we provide as a whole. In terms sustainability, I think it's really a first derivative of the economy. Right now, what we're seeing is that you listen to the banks and credit card balances are declining. And Tony talked about our bad debt performance, people are paying their bills. So the general health of the economy looks quite good right now. The question everybody is asking is, "We're in the middle of stage 2 of COVID. And what will this play out like?" What I do know is that we're ready, really ready in terms of how however this might go, in terms of people's propensity to want to visit a store not visit a store, shop online, let a technician in their home or not let a technician in their home. We've got all modalities fully functioning and well polished. And we're ready to transact in whatever means of mechanism that's out there. And so far, we're seeing a very healthy focus on wireless. You're right, in terms of temporary visitors to Canada and foreign students, those volumes are down. And when they do come back, we do very well in that market. It will be even more accretive to the overall volume opportunity that's there for the Rogers team as a whole. I'll pause there, and I'll leave it at that.

Our next question comes from David Barden, BOA Merrill Lynch.

It's Matt sitting in for David. I just wanted to touch on the wireless margins and get your views. I understand what's been driving it today is the efficiency gains that you're getting. There's the accretive margins on equipment, but I wanted to look ahead and get your thoughts on how sustainable you think those components are going forward and what you think the trajectory is as we look into next year, what those margins in wireless should be? And then just on -- quickly on cable CapEx intensity. It sounds like you're claiming victory and saying you've achieved your previous target of the 22% capital intensity. And should we -- since those goals have been advanced, is there any more progression that we should see past 2022 now? Or is this kind of a steady state from here on out?

Thanks for the question, Matt. Yes, both of them -- I don't want to get too far ahead of ourselves in terms of looking out into 2021. But what I can say a couple of things on Wireless margins, we continue to execute on our playbook, and we're really pleased with the progress we made in Q3. We'll continue to execute that for Q4. And so we do see good prospects for continued margin expansion on a year-over-year basis. As we head into 2021, it will depend on a number of factors. And probably, that's all I'll say about '21. But they are enduring and they're fundamental in nature. And as Joe talked about, we've pivoted several and maybe many of our operating models, capturing digital in a much more fundamental way, not only at the customer level. But if you think about our back office, and transactions. And so there's a fundamental shift in the quarter going on, and we do see it as enduring. So if you look to Q4, expectation of continued margin expansion in wireless. And that's similar for the cable side as well, although your question was more in the context of CI. I think a couple of things. One is, in the cable CI, we had a concerted effort to try to get cable CI in the 20% to 22% range by the end of Q4, 2021. And through necessity, in part, we were able to, again, pivot to better operating models that fundamentally gave us the opportunity to reverse -- reduce the CapEx spend and capitalize on efficiency. And so I think for the next little while, you can expect cable capital intensity to sit in and around 22%. Depending on the volumes, you may see a little bit of a creep in Q4. But as we head into next year, the next wave or ongoing wave of both cost efficiency should continue to keep it in check in the broader 20% to 22% that we had been targeting. Thank you, Matt.

Our next question comes from Aravinda Galappatthige of Canaccord Genuity.

A couple of follow-ups to start with. With respect to the overage numbers, Joe, thanks for providing that yet again as well as the outlook. I know that in the past, you talked about sort of getting to that target of around 1% of service revenues. Is there sort of a time line there that I forget what the previous timeline there? I forget what the previous timeline was. But I was wondering if there was an updated timeline given sort of the downswing you're seeing in over the rate of decline? And then secondly, on the cost, I mean, certainly, the Wireless OpEx -- the other OpEx decline of 13%, definitely impressive. And I think Joe, you talked about a lot of the drivers there, including the digital touch points, which a lot of them sound sustainable. So just to kind of follow-up on your previous comments, how can we think about the sustainability of sort of that downswing? I mean, should we think of those cost reductions and see maybe 2/3 of that being sustainable beyond sort of the current COVID conditions? And lastly, bit of a question on the regulatory environment. Sounds like -- it seems like there is sort of a change of heart, at least on the wire-line side of things. I was wondering if you sort of translate that to the overall conditions even for Wireless easing, in particular, given the pricing in the competitive environment we're seeing today?

Yes. Let me start on the overage question maybe, Tony, talk a bit about where we started in June of last year and how this sort of evolved. Yes. Aravinda, you may recall, as we launched unlimited, and we progressed in rolling it out, in the early days, it exceeded our expectations. You may recall, by the third quarter when we had our call in October, we were already at 1 million subscribers. And at that pace, our projections were by this period we'd probably be at about 2.8 million subscribers. And so we had an initial run rate that we talked about taking 6 to 8 quarters to run off the overage. Given the early demand we had to shorten that to 4 to 6 quarters, so by about this time, we thought we'd be over the, what I would call, over chump, if you will. And we ended, we're sitting today at about 2.2 million. And so while the demand for unlimited is robust, it's trailing compared to what our heightened expectations were at this time last year. Still healthy, but because of COVID, it slowed down a little we talked that in Q2. And so the drag on overage it is probably back to the 6 to 8 quarters that we had originally estimated. And so the expectation is probably it will be about Q2 of this year before we're fully over it, and it's no longer a drag on ARPU. To put some numbers to it by the end of the year, we think we'll have left about $75 million of overage. And so in the overall context of our wireless revenue, you can see it as a much smaller amount. And so we'll keep you updated and be very transparent on where that's heading. Second part of your question were cost and wireless. Sure, Joe, why don't you take that?

Yes, yes. I'll take just cost overall in terms of our end. I think it was more of all the cost improvements as a whole, are they sustainable? COVID didn't create brand-new cost initiatives. COVID actually accelerated the ones we had in motion already. And I just went through a mental list of all of them from the benefits of self-install in cable. We were at 5% full technician install. We're probably running about 10% right now. We think that's completely steady state, where 90% of the installation will happen through either full self install or the kind of drop-and-go approach, that I discussed in my opening remarks. The digital support service will continue to ramp. Digital in our business historically have been sort of 10% percent of sales mix overall. It's been closer to about 40% in the last while. And it's not sort of or, it's a bit of and. We worked hard to create the sort of order online and pick up in store, order online and pick up curb side of the store. So we created all these modalities that leverage the power of our physical distribution and digital capability. And so therefore, we can swing in those directions. You add to it pro-on-the-go, which allows you to order online or call into order and have someone bring it to your home or bring it to wherever you might be. So I think the key is choice above all else. And with that choice comes not just economics in terms of the cost of fulfillment. But the channel economics are fundamentally different, between third party, between store, between the channel, I just described, et cetera, and they're very encouraging to see that channel mix move in our favor from that perspective. That's not going away. In terms of work for home for our care team, it's working very well. And although we might not remain at 100% work from home, I could see us in a place where it's 50-50 or something of that nature. So the vast majority of the cost improvements are things that are enduring, and will continue to pay dividends, and we'll continue to invest all of them. I talked about virtual assistant in my opening comments, we'll continue to invest in that capability as well. So my view is that I'm expecting not less but more as we go forward on the front. In terms of the regulatory environment, we've never had a better relationship with our regulator and with government at both the -- administrative leadership levels of government or at the political level of government. And I think the fact that that the service we offer has become a lifeline in every respect of the word. I think, it is a very useful platform from which to build greater trust and greater collaboration. Most of the conversations as late have been around how do we bridge the gap around world connectivity? How do we do more for the 10% or 15% of Canadians that aren't online? They don't have great ability to get online because of broadband connectivity issues in rural Canada. And it's a great conversation to have from the same side of the table, looking at how do we build Canada's future through 5G fixed wireless through expansion, the footprint and the like. Add to that, the results of the Edelman Trust score that I quoted, I think, a couple of quarters ago, our industry is up 19 points in terms of trust. And I just think it just creates the foundation for a holder from dialogue and with government more focused on collaboration than the past. Hope that's helpful, Aravinda.

Our next question comes from Simon Flannery of Morgan Stanley.

This is Diego Barajas, filling in for Simon. Just going back to wireless and the channel mix, are you at all rethinking the retail store footprint or even the office footprint, as you mentioned, working from home in a post-covid environment? Any savings there? Second, on the Shaw Mobile launch, have you seen a material impact on competitive activity, particularly in Shaw's wireline footprint?

Thank thanks, Diego. On the store front, we have a great physical distribution advantage. We intend to keep it and to grow it. We think the one-two punch is physical distribution and online capability and creating customer journeys and modalities that integrate the two. I talked just briefly about the fact that we're doing a lot with a combination of order online, pick up in store. Or order online and have pro on the go, like these -- and the store increasingly is a place to go and experience the technology and the capability of 5G and our Ignite road map, et cetera. So we're a big believer of physical distribution. We believe in the integration of the 2. As it relates to office space, we'll see as we decide what the working environment is coming out of COVID. A lot of our people are very -- are comfortable working from home. I think that 100% work from home in perpetuity is not the right answer for our organization. I think it depends on the role. It depends on the type of work that people are doing. The more they're working on complex tasks, transformational tasks across organizations and different groups and departments, you can't replace face-to-face on that front. However, there are many people that enjoy the benefit of supporting our customers through our care operations, working from home. And there, we already had roughly 800 agents working from home permanently before Covid. They will come in the office over a few weeks to stay connected, get some training, kind of culture days if we can call them that, et cetera. So we'll find that sort of hybrid mix in areas where it makes sense. Certainly, it will mean less office real estate versus more, but how much less, we're not sure right now overall. And then in terms of Shaw Mobile, no question, It created competitive intensity in Western Canada. We fared well in that intensity over the course of the quarter. And our brand stood up well and our value proposition stood up well, and we're pleased with the outcome.

Our final question comes from David McFadgen of Cormark Securities.

2 questions. So just on the cable business, you talked about your expectations for a sequential improvement in revenue, EBITDA and EBITDA margin going into the fourth quarter. And you previously stated that the EBITDA margin was a record for Rogers. So I'm just wondering, is there a theoretical cap for the EBITDA margin for cable? Or you just think that this can continue to improve as people do more self installs and you kind of continue to put through price increases into the market? And then secondly, on the media business, in the past, you've talked about the fact that you thought EBITDA would be negative for media if there wasn't any home games for the Jays, and there weren't any home games in the quarter, but yet you delivered a nice positive EBITDA in the quarter. So I was just wondering what changed?

Thanks, David for both questions. I'll start with cable. As we go into Q4, I reiterate that we are looking at sequential improvements in top line. That will have a very healthy flow-through rate to EBITDA. So that will be a natural margin lift for us. We also have the cost programs that will continue to reduce costs year-on-year. And that will be the sort of the second, what I would call, margin expansion piece of it. And then the third is, don't forget the mix shift impact that is a natural driver of margin expansion as more of the revenue comes from Internet, which carries very little ongoing variable cost compared to video. That helps margin as well. And so it's all 3 of those factors that were in play in Q3 and will be in play in Q4. So I don't want to sort of predict the overall margins and where they might cap out at. We'll just keep driving on all 3 of those factors and continue to have sequential and year-on-year improvements. And then in media, the factor of that was a good outcome for us was higher advertising revenue during the sporting events. We were somewhat worried that the duplication or triplication of sporting events at the same time would dampen the amount of ad revenue we'd be able to generate. But it came in quite nicely across all the sports franchises. And so it was good upside that we hadn't totally expected, but that's what contributed to that positive upside in Q3. Thanks for the question, David.

Great. Thanks. David, thanks, everyone, for joining us on the call, and we will talk to you soon.

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