Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications, Inc. Fourth Quarter and Full Year 2020 Results Conference Call. [Operator Instructions] The conference is being recorded. [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.

Great. Thanks, 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 to begin.

Thank you, Paul, and good morning, everyone. It's been almost a full year that our country and our world have been living through a health crisis, unlike anything we have seen in many generations. The impacts to society and to the economy as a whole, have brought many new challenges, new perspectives, but also opportunities to all of us. It's encouraging to see vaccines starting to roll out across the country. And although early days, we can see light at the end of the tunnel. But we know the effects of the pandemic will be with us for some time. We recognized more fully than ever the role that our networks play in underpinning every aspect of our society and our economy. And I'm incredibly proud of the role that our teams continue to play in supporting Canadians and the Canadian businesses, large and small, through every phase of this pandemic. Today, I'll take you through some highlights of the quarter, followed by a discussion of our continued success in adopting to meet the needs of our customers while streamlining costs. Finally, I'll provide some thoughts on what we can expect heading into 2021 and before turning it over to Tony to provide more detailed commentary. Despite the spike in the second wave across the country, and a new series of restrictions that have been rolled out and expanded in December in certain provinces, we saw continued improvement in many areas of our business. Our team executed strongly in Q4, delivering a number of sequential improvements, including margin expansion across the businesses, driven by continued operational efficiency gains, solid customer additions, excellent performance from our cable business, solid adjusted EBITDA improvements and strong free cash flow. In wireless, we saw strong loading in postpaid with net additions of 114,000. Though…

Thank you, Joe, and good morning, everyone. Our fourth quarter results reflected healthy sequential gains in margins across all our businesses, excellent free cash flow growth and strong revenue growth in cable. The expanded late quarter lockdowns during the key boxing day selling period did affect wireless revenue late in Q4, but margins were very strong. Let me break down results in each of the businesses a bit more and then provide some commentary on our outlook for the first quarter. In wireless, margins were strong despite the pressures on service revenue and adjusted EBITDA associated with the extended and expanded lockdown and the ongoing impact of limited roaming revenue. Service revenue declined 8% year-on-year, driven by roaming revenue declines of $75 million or 67% from 1 year ago. Additionally, as we continue the transition to Rogers Infinite unlimited data plans, overage revenue was down $40 million or 54% year-on-year. Importantly, overage revenue is now only about 1.5% of service revenue, and we continue to anticipate overage melt to continue to impact our year-on-year growth rates until the end of the second quarter. Notably, this timeline is in line with our original expectation on the launch of unlimited plans back in 2019, where we estimated the impact on our financial growth rates to take 6 to 8 quarters to overcome. The extended and expanded shutdown in late December further impacted service revenue versus Q3 as well as on a year-over-year basis. In addition to the reductions in roaming and usage revenue, there was an additional $30 million decline from the fourth quarter last year, which relates to the impact of onetime fees for activations and related items. We attribute the decline in these fees to the COVID environment in the fourth quarter, and in particular, in the final weeks. We…

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

Tony, let me push you a bit on the ARPU in Q4 and the commentary you've given. So first off, can you give us a bit more color on what this $30 million of lower consumer activity impact is? You keep mentioning activation fees, but mean if I assume $40 as an activation fee on average, I mean, sometimes you waive those fees. But at $40, that would be 750,000 gross adds that would be needed to -- to be down year-over-year to add up to $30 million. So there's got to be something other than just activation fees in there. And one thing I don't hear you talk about in terms of the ARPU trends and Q4 being a bit worse than Q3 is, I think we all acknowledge there were some pretty aggressive promotional behavior going on back in the August, September period as the lockdowns ended and everybody started jamming out promotions to try to catch up on sub adds. Is there not a bit of an impact there from that as well that as you have a full quarter of some of those subs that were loaded at lower price points that had a bit of a drag on Q4 ARPU relative to Q3? And if that's the case, can you or Joe give us some thoughts on the more recent activity we've seen, which seems to be a bit more encouraging in terms of some of those aggressive promotions being pulled from the market by all the incumbents and even some price increases announced selectively by some of the wireless carriers. So a few different dynamics on ARPU, if you don't mind?

Great. Thanks for the question, Vince. A couple of things. In terms of the $30 million, comprises a couple of things. I mentioned the activation fees, our price plan change fees, our reconnection fees. But the other item that is rather significant or what we call the one-time promotional credits, such as gift cards. And so it's that volume that we sort of saw down year-on-year. Second part of your question relates to whether or not we saw pressure on underlying ARPU as a result of the promotional activity. And the short answer is yes, but at the margin. Those types of promotional activities played out in the flanker brands. And so while we saw good ARPU growth with moves from our customers and new customers to unlimited. What we saw was a bit of an erosion on ARPU as a result of those promotions. Net-net, it had a very slight, I would say, minor impact to our underlying ARPU and service revenue trends in the quarter. Those were to continue, and continue to have a growing impact. But what we saw in the marketplace is a pullback of those promotions after year-end. And so we continue to be confident with the underlying ARPU growth profile for this year. But of course, it will depend on market competitive intensity and how it plays out later in this quarter or into next quarter.

I can add a couple of comments, Vince. We saw some, to your point, really significant pricing aggression through Q4. And Tony is right in terms of how he impacted. But that level of aggression always creates froth in the marketplace. The team did well in terms of adding customers, but also the churn. And so the churn is down 7 basis points. But as part of that, there is a retention activity that's required. When customers see some of those prices in the window, then we get phone calls asking, hey, can I get that price? So there is a price plan impact that happens across the industry. Whenever we see that kind of aggression and promotion going on. I would say to you that the aggressive wireless price bundling with cable that we saw that happened and started in Western Canada, in our minds, it's not something -- it's a bit of a zero-sum game. It's not something that -- we've seen it before in different parts of the business here in Ontario and in other countries. It's not sustainable in the sense that it doesn't really do anything to change share dynamics in a structural way whatsoever. And the experience in the past is that all it does is it creates some of the ARPU pressure and economic impacts for everybody. So we're really pleased to see the return to discipline in Q1 around the pricing environment. And it's just normal that in Q4 that there is aggression in pricing. It's just been the case in Q4 forever. I think part of what played as well is we'll see how big the market was in Q4. Our sense, the market was somewhere between flat and down a few points. And so you get this sort of increased intensity when there's no immigration. There's no growth in the wireless market. And again, as that returns or that gets to a place where both penetration growth and immigration growth create more new net customers to the market. Our experience has been that some of the pricing aggression remediates or dampens as a result of that.

Our next question comes from Jeff Fan of Scotiabank.

Just 1 question regarding the wireless competitive outlook. And then another question on 5G. On just the competitive outlook, what we saw last year in 2020, as Vince alluded to, when the market opened up, there was a rush to promotional activities. As you kind of look out to this year, I mean, we are hopefully coming out of a lockdown sometime in Q1, maybe in Q2. How do you think about the competitive dynamics as you kind of go into that middle of the year, are we -- could we see a repeat of what we saw last year is when the pool is still small and operators are chasing? Or do you think the market is going to be a little bit more perhaps rational waiting for some of the volumes to come back, as you alluded to, Joe? And then on the 5G question with -- Rogers obviously leading with respect to being first and the biggest on 5G. I'm just wondering when you think customers will start to really recognize 5G as a major differentiator versus 4G? And what there are some of the indicators that you're looking at as positive signals for that to -- could start to happen?

I think to your question, will this summer be like last summer? And I would say, last summer was our first real understanding of what it felt like to come out of a pandemic. I mean, Jeff, it's no playbook for it, right? We just said, okay, the game on. What -- people are out and about, restrictions have been softened, lifted in many parts of the country. We saw data growth spike tremendously almost overnight. We saw 30% to 50% data growth. So there's sort of a muscle reaction that says, okay, game on, let's go. And therefore, it creates a sense of froth growth and let's go make up for whatever didn't happen in the previous few months. I think we'd all look back at that period, and now we have a much more sanguine understanding of the real economic outcome, a lifetime value and economic outcome of that froth in that intense period. So I think our second time through it as an industry, I think it will be a mix. I'm sure there'll be some level of aggression, but I think there'll be a much more kind of rational sanguine, look at it and say, where are the value economics in this? What are the value drivers in this? So that's my view. And my hope is that there's not a third crack at it. And that everything points to the fact that we'll come out. I think the biggest thing that you should take comfort in Rogers is that the capabilities we have now are vastly different than the capabilities we had a year ago. I mean our ability to transact online was, I would say, not terrific a year ago. Right now, I think it's very good, very strong. And the ability -- I…

Our next question comes from Simon Flannery of Morgan Stanley.

Tony, I wanted to follow-up on the operating leverage. It's great to see the margin improvement despite the top line pressures here. And you've talked a lot about digital transformation and things like that. How should we think about as the economy reopens, as travel rate recovers, how much of this improvement is permanent? And how much will be kind of given back in terms of increased roaming costs and other things that you're not spending on currently? And on that roaming piece specifically, how much of it is attached to business travel returning, which might take a little bit longer than tourism?

Thanks for the question, Simon. I think with respect to leverage on costs, if I understood the question, what we should see as roaming returns and some of the other items is a very high flow-through rate to our margins. And so we currently have, even in a very low growth environment, plans to continue to expand margins. And so what we should see as roaming returns net of roaming costs is a good healthy flow-through rate in excess of 50% and probably as high as 60% to put a rough estimate on it.

Great. And what about other -- are there other costs that you were able to save on this year that may come back in terms of as activity, advertising, T&E, things like that, that we should be aware of?

There are variable costs, of course, that are going to -- as the market expands or the size of the market and our volumes increase, there are variable-related costs, as Joe referred to, COA or COR type of costs. Those are variable in nature. But I think it's important to highlight that the quantum of them have come down, particularly as we move to more efficient channels like digital. And so again, within the broader margin expansion comment that I made, we've captured those within that. If I had to sort of go through each of the specific items, I've talked about channel mix. I think it's important to highlight the margin improvement we've seen from moving to installment plans. And as volumes go up, we don't think that's going to erode. Obviously, that's going to depend on the economy. And then there are improvements that we're seeing throughout our businesses in back office. Again, as we move to more and more AI and automation in those areas. On our cable business, some of the areas that we're seeing cost improvements, Joe mentioned, self-installation. Number of service truck rolls has come way down, and that really gets at the operating efficiency of having completed some of the service calls the first time. We've had good progress on our content costs. And you see that in our P&L in terms of managing what was previously continually escalating costs for us. And we've been much more creative and better executing in terms of those costs. Of course in cable, we have the digital capabilities as well improving and the back office pieces that I mentioned earlier. Hopefully, Simon ,that gives you a more comprehensive...

And then on business travel?

I'm sorry, on the business travel, our expectation is when we look at the mix of it, generally for us, it ends up being about 50-50. Depending on the quarter, you may see spikes going to 2/3, 1/3 either way. So it really is going to depend on when things open up. If we think about them in the back half of the year, towards the summer months, it would obviously be indexed towards consumer. And as we head back into the fall, the ratio or index heads back to business.

Our next question comes from Drew McReynolds of RBC.

Joe, just to add to Jeff's comment or question on 5G and your comments. Just update us in terms of your subscribers that are currently using your 5G network? Are there any kind of data points you can update us on specifically on that? And then secondly, on the CapEx, I appreciate you don't want to quantify anything at this point. Are you able to -- bigger picture you've done in the past, just comment on how you think CI generally trends, both in cable and wireless. Are we still tracking to what has generally been kind of guided to over the last 2 or 3 quarters? And then lastly, for you, Tony, you've talked about looking at ways to get better recognition in the public markets at some of those non-telecom assets. So just wondering whether initiatives are continuing to kind of move forward on that file.

Thanks, Drew. On the 5G subscriber side, we have not disclosed any specifics. But what I would tell you just through sort of maybe more self-evident is that the 5G subscriber base is indexed towards the iPhone, and we have the largest iPhone base. The 5G subscriber base is tied to unlimited. And therefore, they are, by definition, our highest value, most data consumptive customers. So this really is about the very top decile of the market. And part of our energy around getting out there quickly is inside the -- if you were to do a segment analysis of our base, we've got a very strong top end of the market base that we've had historically because of structural advantage around the iPhone and going back even to when the Blackberry was a thing. I know it sounds ancient at this point in time. But -- so that base has a need for certain capabilities. And unlimited is there, the sharing nature of unlimited has played well with that base. And they were the first to sign up for a 5G phone. So very important to the retention lifetime value of our most valuable customers. On the CapEx front, the core of our CapEx is going to be spent on a handful of things. One is continue on the 5G front. Our view is we're -- we've got good momentum in terms of our capability. The team has done a great job and well-tuned in terms of the multiyear road map around it. We've done a good job of negotiating great agreements with our vendors. Both vendors of technology and the vendors of the civil engineering efforts around that. And therefore, we are on a role. And the best thing you can do when it comes to network build…

On the last part of your question, Drew, in terms of -- I think what you're getting at is we had stated in the past, looking at surfacing value from some of our significant assets that sit on our balance sheet today. We haven't lost sight of that. We continue to look at alternatives and want to be careful and very opportunistic about it. And during this COVID environment, it doesn't lend itself as an optimal time, particularly as we switch our execution focus on operating -- new operating methods and processes during COVID. And so that's where the focus has been. Nothing to report new on that -- on the other assets front.

Our next question comes from Tim Casey of BMO Capital Markets.

Two for me. Just 1 clarification. Tony, could you just revisit an earlier question about the $30 million onetime -- you alluded to gift cards and things like that. Could you just walk us through what's happening practically on that related to lost activations and things like that? And second, just on your iPhone leadership. Just wondering if you have enough loading of 5G to offer any early insights on what you're seeing on behavior? And if you think that one of the -- the potential for an iPhone loading or super cycle, it's often referred to, is that one of the things that is making it difficult for you to provide guidance this year? Is that too much of an unknown factor? Just wondering how that is influencing your thinking?

Tim, I'll start with the first one. In terms of the $30 million, as I said, it really relates to the onetime fees that typically in Q4, with a much higher volume, drives a certain amount and we just saw lower volume this quarter. I talked about activation. Implicit in there, I should have highlighted, it includes hubs as well. And so one of the things you do see are the activations, but you don't necessarily see are the hardware upgrades. And we had lower volume this quarter, much lower volume than we would have had last year in the fourth quarter. A number of other fees. I talked about price plan changes and then upfront promotional fees. And often we pivot to those rather than recurring discounts. And so we've had some of those in the quarter. Some of the other fees, and we can provide you a full list, but they would be late payment fees, suspension and reconnection fees. And there are a few others that fall into that category that are down year-on-year. And so that really is the quantum of the $30 million. In some respects, the decline of some of those fees relate to our bad debt performance just being better, better than we expected and somewhat better on a year-on-year perspective as well. Then the second part of your question, Tim. I'm not sure we got it, but maybe you could rephrase it to help us frame the response?

I'm just wondering what your expectations are for iPhone loading? And if that's a swing factor in how you're thinking about guidance?

I wouldn't put it in the category of material swing factor. We have a healthy mix. As Joe referred, certainly, iPhone would be at the top of the list in terms of handsets for us and the makeup of our base. But it isn't a factor from a guidance perspective for us.

Our next question comes from Aravinda Galappatthige of Canaccord.

Two on cost reduction from me and a quick regulatory question. On the cost reduction front, we saw a 13% decline in wireless of the OpEx, yet again, as we saw in Q3. Obviously, part of it relates to roaming, but I was curious to hear, Tony, if you can talk a little bit about what component of that can be ongoing as we kind of look at some of the progress that you've made on the digital front? And secondly, I think, Joe, perhaps a year ago, you kind of gave us some updates on sort of the total wireless COA, in particular, the P&L impact of the wireless subsidies being somewhere in the $900 million neighborhood and COA probably being $400 million, $450 million. I know that you can't disclose specific numbers, but directionally, how much progress has been made on that front and maybe sort of the outlook from thereon? And lastly, given some of the changes to leadership, ISAT, is there any comments you want to make about sort of government relations ahead of potential decision on the wholesale front?

Aravinda, I'll start with your question in terms of some of the cost categories. I've touched on them earlier on the call. Just to reiterate, I put them probably for the wireless side into 3 categories. And I wouldn't underestimate the impact that installment plans and the related margin improvement has had. If you were to look at our 370 basis point margin expansion in wireless, about 1/3 of that comes from hardware margins. And so that shift has been a good one for us and a good one for the industry in Canada. The second piece relates to channel mix and costs on channel mix have just become much more efficient, especially as we move to direct channels and digital channels. And that's coming through. And as we said, our COA and our COR and even as volumes improve, it's a per unit cost that has actually come down quite substantially. And so that's been helpful. And then the third is what we lump together as back office costs, including our call centers. And so there are a number of factors in there, but if you took even just the call centers with the migration of our base more and more to unlimited, we are seeing the reduction in call volumes, for example, that we had expected. And so that continues to drive it down. In terms of the sustainability, other than the first one, channel mix and back office costs, we continue to see opportunity, and they are sustainable. And similarly on hardware margins, although those are more impacted by market conditions. And we'll continue to follow sort of how that plays out in the market. But we do believe, it is an opportunity for continued improvements. And then on the cable side, we're seeing much of the same in terms of categories. I'd replace hardware margin with content costs, which in our cable business represents 50% of our cost structure. And what we've seen is, with the Ignite platform, more of an ability to change the packaging and channel lineup so that we are dropping channels that cost us money, but aren't of interest to customers. It sounds very basic. But the team has been very particular in going through that and reducing costs. Even in the event that it's a 1%, 2% or 5% cost reduction on an $800 million cost base, it ends up being significant savings. And then finally, self-install and reduction of service truck rules, some of that is capitalized, but some of it is OpEx. And so you're seeing that play out in both our capital improvements as well as our OpEx. We continue to see opportunities to continue to improve that. And so again, I would put those in the category of very much being sustainable.

Aravinda, I hope that helps because Tony hit the punch line that the majority of those cost changes are structural and sustainable, and that's where we focused our attention as opposed to more temporal costs. And we're pleased with -- you heard the 1/3 of 370 basis points in margin is around equipment margins. So that goes to your second question, really, which is are we seeing that subsidy ameliorate? Are we seeing better COA? You couple that with some of the channel mix that we've seen, every reliance on digital and Express Pickup delivery to the home with Pro On-the-Go, et cetera. Every one of those is a far better seal way than some other channels. So indexing there. And I think customers are really enjoying it. Our satisfaction scores are super high in each of those customer journeys. I think that they will persist far beyond COVID in terms of how we do business. So they're also structural in nature. In terms of ISAT, one of the opportunities that COVID provided to us was the ability to create a far more productive, collaborative relationship with government, both at the ministerial level and the departmental level. We've seen that cooperation all through the last year overall. I do think that will persist. I think the common goal of how do we help support the needs of rural Canadians? How do we drive forward together between industry and government to bridge the digital divide for the 10% or 15% of Canadians that don't have access to the best internet for really largely economic reasons? And the return on investment in those areas has been very challenging since the beginning of the telecommunications industry. So being on the same side of the table around the rural connectivity issues, I think, will bode well in terms of the nature of the collaboration, the cooperation that's there. I have -- I'm grateful to Minister Bains for the support that he provided while he was in office. We had nothing but great discussions about the future of the industry. And I'm very pleased with the conversation I have with Minister Champagne. I think he's got an incredible background and understand the technology sector and understand the business environment, and we've had some great discussions around just what's important on a go-forward basis. And I think at the heart of all regulatory environments is strong collaboration between industry and government on what matters most to the future. And that's where it starts. And those are all good things.

Ariel, we have time for 2 more questions.

Our next question comes from Jerome Dubreuil of Desjardins.

Trying to look a bit ahead to a potential recovery. First in cable, we've seen a nice improvement in ARPA. How would you segment the impact from price increase versus maybe other factors like your customers moving up in terms of download speeds? And then in media, last year, you said that it could be difficult to achieve positive EBITDA without Game Day revenue. Now that's been better than expected. But if ever, the Blue Jays can't go back to playing in Rogers Center. Do you also expect a challenge in terms of generating positive EBITDA?

Thanks for the question, Jerome. On the first one, very specific to cable and the sustainability of ARPA increases, I think a couple of things. The price increase had, I would say, about a 1/3 impact of the ARPA -- contributed 1/3 to the ARPA increase that you saw. The other 2 factors that we saw play out nicely in not only this quarter, but in prior quarters, was a reduction in promotional activity, something we've talked about in terms of trying to bring discipline to end of promotion periods. And do a better job of getting customers on to a new rate plan that is sustainable rather than just renewing promotions again. And so we've been focused on when we look at total promotions as a percentage of revenue and bringing that down. And we're starting to see good success in the marketplace on that. The second piece of it relates to upgrades, not only in migrating to our Ignite TV, but also to hire speed tiers, as you would expect. And so both of those are contributing nicely to the growth in ARPA. And so it's the latter 2 that we're really focused on as being very much sustainable and continuing to drive ARPA growth for throughout the year. Your second question related to media. I'm not sure I got it, but let me try to help. In terms of the Jays, ideally, we're looking at, and as I talked about before, breakeven type of scenario for our media business. The Jays is really the big swing factor. And so if they play in Toronto, there are more advertising revenues, as you would expect, that we can garner from that. And if there are audiences, then that's a huge potential for additional revenues, even if it's 1/4 or 1/3 of ticket sales. So to the extent that they end up playing not in Toronto and back in Buffalo or somewhere else, then what we're going to see is a significant drag on our media business. I don't want to provide too much direction in terms of what that could be, just given the unknown variables. But it's a very material swing either way and contributed part of the reason we held back on giving guidance. That was one of the big 3 or 4 items that is still just a big unknown.

Great. Thanks, Jerome, and thanks, everyone, for attending the call. If you have any questions, please feel free to give us a shout. Thank you.

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