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…

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…

[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…

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…

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…

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.