Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications Inc. First Quarter 2021 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.

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 2020 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. This time last year, we were weeks into navigating what we had hoped would be a short-term disruption to our everyday lives. As a business, we've only started to experience what will result in significant shifts in our economy and consumer behaviors. What transpired over the past year is beyond what any of us could ever have imagined. But as vaccines roll out across the country, we do see the light at the end of the tunnel. While we continue to navigate a third wave of the pandemic across the country, I'm incredibly proud of our team's ability to pivot and deliver solid results across our business. The changes we have made over the past year have allowed us to quickly adapt our operations and have positioned us well for the long term with new capabilities, including digital solutions for our customers. Today, I'll take you through the highlights of our first quarter, followed by an overview of our continuing ability to deliver for our customers while successfully managing costs. I'll then share some thoughts on how our business is well positioned to deliver sequential improvements throughout this year before turning to Tony for a more detailed commentary. Despite varied degrees of lockdowns and openings this past quarter, we continued to see improvements across our business. In Wireless, we saw our strongest Q1 loading in postpaid net additions in 3 years, with 44,000 new subscribers. This was a solid result given Q1 is typically a quiet quarter. And although travel restrictions continue to impact roaming revenue in our Wireless business, total service revenue was down by only 1%, and we expect soon to lap the overage amount associated with unlimited plans. We further maintained strong customer retention this quarter, achieving postpaid churn of…

Thank you, Joe, and good morning, everyone. Despite the challenges associated with the ongoing pandemic, each of our businesses continue to recover in Q1. On a consolidated basis, revenue and EBITDA, both returned to year-over-year growth with revenue up 2% and adjusted EBITDA up 4%. In Wireless, we delivered strong postpaid net adds and impressive margin improvement despite ongoing pressure in service revenue. Service revenue declined 6% year-on-year driven by the impacts of reduced roaming revenue and continued overage revenue declines. With air travel continuing to be very limited, roaming revenue declined $66 million or 64% from 1 year ago. ARPU was $49.09, down 7% from 1 year ago. Overage revenue declined $24 million or 45% year-on-year associated with the impacts from our transition to Rogers Infinite unlimited plans. We are now in the final quarters of the majority of our overage revenue transition, and this puts us well ahead of our national competitors in terms of preparing our customers for 5G. Importantly, we have now removed the headwinds of unsustainable overage fees to support service revenue growth going forward. Despite service revenue being down 6%, Wireless adjusted EBITDA only declined 1%. This resulted in continued improvement in adjusted EBITDA service margin to 63%, reflecting an improvement of 310 basis points from last year. Our efficiency initiatives are gaining traction, which should further underpin strong revenue flow-through and profitability growth rates as revenue recovers. Our cable business continues to deliver strong results. Revenue increased 5%, driven by an increase in ARPA, more customers transitioning to our Ignite Internet and TV offerings and the result of disciplined promotional activity. Homes passed and customer relationships each grew year-over-year and sequentially. Despite operating in a full pandemic environment this quarter versus Q1 last year, we still achieved increases with Internet net additions of…

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

Maybe a bigger picture question here. So good loading this quarter, and it sounds like the momentum and activity out there continues in Q2. Joe or Tony, can you comment on what's driving the market expansion or the market activity in particularly on the postpaid side of it? Secondly, on operating leverage, Tony, you've commented in the past few quarters that certainly, you see a little bit more potential flow-through here as the top line recovers, should it play out that way through the rest of the year. Is there any change to that view? And lastly, maybe 1 back for you, Joe. On the digital execution, it sounds like a lot of progress has been made in the last year. Where are you on further progress in that digital journey? Or is most of kind of your capability in place? Or is there still much more to do on the digital side?

Sure. Thank you, Drew. Thanks for the questions. Let me take first one and the third one. I'll ask Tony to speak to the leverage question. In terms of the market growth, I think it's a combination of things we saw in Q1. We saw the market open up a little bit as restrictions were lifted partway through the quarter around that sort of end of February time frame. That's one. Second, some pent-up demand from last year as people were kind of working through what their thinking was around getting a new phone, getting an upgraded plan, et cetera. Given the on-again, off-again restrictions around COVID, a number of customers just didn't feel as comfortable getting out there and doing their thing. I think with that in relation to your third question is we've got a lot better at digital execution over the course of last year. And my view on that, Drew, is that that's sort of like painting the Golden Gate Bridge. By the time you think you're finished, time to start again. And digital execution will be a never-ending journey for this organization. I'm very proud of the things we accomplished last year, the ability to order online and have on the Pro On-the-Go deliver to wherever you want, the ability to order online and have curbside pickup, et cetera, and all kinds of abilities to make price plan changes and conduct business online through the app, et cetera. That will be an ongoing piece of our work. You couple with that some of our capabilities with respect to the data analytics and running both the sales and marketing function as well as the service function through data analytics, the ability to look into the data deeply and see which customers might deserve some outreach and…

Drew, on your question of operating leverage, really is reflective, as we look forward, reflective of what we have done on our fixed cost structure and margin expansion and how do we see that playing out. Traditionally, we think about flow-through to use the term you mentioned of being at 50% to 55% sometimes 60% in the wireless space. Our expectation in the near term is that flow-through rate should be slightly higher than that, owing to the work we have done on our fixed costs. In the short term, as I mentioned in my scripted comments, you may not see the margin expansion that you saw over the last 3 to 4 quarters. As our expectation is as things open up, there are some upfront costs related, for example, to our store distribution channels. And so some of those heightened expenditures we've taken into account expenditures, et cetera. And so while we continue to see good solid margins, the magnitude of year-on-year expansion in the near term will be less than you've seen looking backwards. But notwithstanding that, you'll see very good flow-through going forward.

And just 1 more comment, Drew, just going back to your first question. The other anticipation we all have is around growth in the market with respect to new Canadians. Our estimate says that in any given year, especially given our current stance from our government around immigration, we're expecting 400,000 plus new Canadians to arrive here permanently, roughly another 400,000 that are coming on work visas, plus on top of that foreign students. So these are all sort of upside factors that have yet to play into the marketplace on top of the sort of latent demand and excitement around getting a new device that has been a holdover from last year. So there are some things that are present in the market and other things we're anticipating in the market as part of the recovery on top of the roaming and everything else that Tony has talked about.

Our next question comes from Jeff Fan of Scotiabank.

On -- a couple of questions. So first, just on the transaction, on the Shaw transaction. I think I heard you say that the closing is expected in the first half. I think at the time when the deal was announced back in March, you said it was going to be a year. Is there a change in that timing? Or is that just a more general time frame that you want to give to The Street? And then more importantly, on the integration, I know we're still early, but wondering if you can talk a little bit about the planning around the integration and the teams that you may be putting together in preparation of that integration so you can hit the ground running in about a year's time. And then just finally, just for this year, when we think about ARPU trajectory for the second half, how should we think about this? Because vaccination rates are going up in Canada. I know cases are still going up in some parts of the country, the vaccination rates are going up. How do we think about how vaccination rates tie back to how you think about ARPU trajectory for the second half? So if you can just help us think about that a little bit.

Thanks, Jeff. Why don't I start on your 2 questions with respect to Shaw and then ask Tony to talk about ARPU in the second half and the correlation to pandemic recovery and vaccination. So first of all, our view on timing hasn't changed. We've said, generally, it's in about a year's time, and that hasn't changed. And of course, we can't be specific. We don't know how that's going to play out, but that's generally our view and nothing has changed to move us from that view. In terms of integration, I think it's important to understand the companies continue to operate as 2 separate companies until the deal is approved. There is a governance structure that we outlined in the purchase agreement that allows for a high-level discussion during this regulatory approval cycle. And we started that process. We started that process of high-level discussion and vetting some of the key items that we're allowed to talk about. In the meantime, we've struck a integration team with dedicated full-time people led by one of our senior leaders with functions across all aspects of our business. And there's a work plan that involves a number of very specific work streams and all the different topics you might imagine. And our goal is to have a fully detailed integration plan in the next 6 to 9 months, an integration plan that allows us to hit the ground running the minute we get approval. That looks at exactly how we will drive the synergies, exactly the operating structure, exactly what we plan to do with different parts of the organization, et cetera, to the extent that we can unravel that during this period of operating as 2 separate companies. But we feel we have the right structure. It will be led…

Jeff, to answer your question in terms of how we see the vaccination rollout impacting ARPU, ultimately, we equate vaccination with increasing the safety and comfort of individuals, both on the consumer side and the business side to move outside of the home, and we equate outside of the home to increase usage. We do know that as soon as we come out of lockdowns, and we particularly saw it last summer, there's a huge spike in usage on our traffic. And so ultimately, that is the driver of ARPU as individuals use more, they then see the more obvious or moving up in tiers. And so we see the catalysts to be very strong in the correlation to be strong in terms of usage and therefore, customers moving up in plans. But secondarily, it means opening up of our retail distributions, and that continues to be a very strong channel to have strong upgrades and upsell in terms of tiers given the one-on-one human experience and advice that our agents can provide. So that's really at the core of it is driving that usage and the need for higher tiers.

Our next question comes from Aravinda Galappatthige of Canaccord Genuity.

A couple for me. Obviously, on the Cable side, very strong results, 5% revenue growth, 8% EBITDA. There appears to be sort of a trend in the industry where you're seeing the cycle of upgrades, obviously, largely due to the work-from-home conditions. Can you just talk to that cycle and the trend that you've seen at Rogers? And how you see that sustainability as we sort of think about sort of a post-pandemic or post-lockdown period, how that will play out? Will that cycle kind of sustain itself a little bit and spill over? And then secondly, with respect to CapEx, we've seen the telco counterparts have announced some increases and expansions to take that CapEx up. I was wondering, I know you've given fairly clear guidance on '21. On the Cable side, are you fairly comfortable with sort of the current trajectory and the current levels? And then lastly, if I may, any sort of learnings from sort of the outage from a couple of days ago that you can share?

Thanks, Aravinda. Tony, why don't you take the...

Yes, sure. Yes. Aravinda, I think if I understood your first question, what we did see during the pandemic is very obvious, but clear demand for bandwidth. And in particular, very high bandwidth as you had multiple members of the family, either working from home or doing school work from home, et cetera. And so we clearly saw that in our tiering. And if you were to look at the proportion of customers that now sit above 100 megs, it is clearly the vast majority in our customer base. And how we see this playing out post pandemic? Two things. One, if you were to look at most of what's out there in terms of media and leading thought on workplace environment going forward, the most seems to coalesce around a probable mix. And so to the extent that there is still some work from home, we think at those times when individuals are working from home, they're going to demand the best connectivity possible still. And two, strong bandwidth, strong reliability is something that when you need it, even though maybe more infrequent, you're not willing to sacrifice and move down to something less. So we see the risk of migrations down as being a small risk, and we continue to see the opportunity for upsell to be more on the stronger side. So we're fairly confident about the demand for our product, particularly with respect to the higher speeds going forward. As you know, we have ubiquitously 1 gig available across our entire footprint, and that's soon to be 1.5 gigs. And so from a product standpoint, we're quite comfortable in terms of the product advantage we have there. Your second question relates to CapEx and whether or not I think you're asking how we see it for…

Aravinda, thank you for the opportunity to address the intermittent wireless service issues experienced by many of our customers earlier this week after the recent software upgrade. It led to congestion and service impacts for many customers across the country. I'm deeply disappointed that our customers had to experience that problem. Our team is deeply disappointed. We have worked very hard to earn the trust of our customers. And we're going to work very hard to earn it back. Despite all the testing that we did with respect to the software upgrade, it simply caused the problems and it took us a while to recover. Problem really started in the middle of the night on Monday, where we started seeing intermittent failure, intermittent connectivity, inability for customers to connect and for the better part of about 16 hours before we can get things back to normal. Our team worked diligently to restore the service as quickly as we possibly could. You have my commitment and you have the commitment of Ericsson. I've had a number of conversations with their CEO in the last few days that we're not just going to get to the bottom of this, but work very hard to make sure it doesn't happen again. Connectivity more than ever is an important part of what we all have learned to rely on and at the heart of it. It's not -- it's about trust, and we work very hard to earn that trust, as I've said. And we're going to work very hard to regain that trust with customers that I have had difficult time during that period on Monday. Thanks for the question, Aravinda.

Our next question comes from Simon Flannery of Morgan Stanley.

This is Diego Barajas filling in for Simon. Similar to the Cable upgrade question, can you unpack some of the drivers behind 5% revenue growth and 4% growth in ARPA, maybe the balance of pricing increases versus upgrades this quarter? And then on the MVNO decision, just curious to get your initial thoughts on the decision and also your view on the inclusion of the lower cost plans.

Diego, thanks for the question. I'll take the first one and then Joe will respond to the MVNO part of your question. In terms of the ARPA and what's contributed to the growth or more generally, I think your question was the 5% revenue growth. 4 points of that was really the ARPA growth and the other point is increase in subscribers over the course of the last year. With respect to increase in subscribers, as pandemic eases up, we fully expect volumes to improve as well and the ability to upgrade our customers to the Ignite platform, the pace at which we do that will improve. And that comes with accretive ARPA for us. And so we're quite optimistic in terms of both the volume side as well as that contributing to ARPU growth, as I said, as the pandemic eases up. In terms of the 4% ARPA growth, it's made up of 2 primary things, and you've touched on them. Last year, we did introduce a price increase, and that is certainly helping the year-on-year comparisons. But importantly, we've gotten a lot better at managing promotional discounting and driving that discipline within our channels so that customers are more comfortable in terms of paying for the value that they're getting. and the reasons for it, and so that seems to be working nicely. And so as I said in my scripted comments, as we look to Q2, and frankly, beyond Q2, we continue to expect to see very good ARPA improvements on the back of those items, but also up tiering, as I mentioned, as customers move to the Ignite platform.

And Diego, in terms of the wireless review outcome and decision that came last week, first of all, I believe the MVNO decision provides certainty for our industry. And we can proceed with investments knowing that the government is supportive of facilities-based competition and a facilities-based approach to our market. We've been waiting for that decision for a while, and the degree of certainty is very, very helpful and underscores that investment matters, underscores that we are looking to build the capability in Canada that allows investment to reach far into rural Canada, that allows investment to continue to allow leadership on a global basis. Canadian wireless networks across the board have been the top performing in the world for the last many, many years. We're ranked #1 and #2 historically. I think this decision underscores the fact that investment matters in the facilities-based approach to the regulation environment matters. We're going to keep reviewing to understand some of the nuances in the ruling. And we look forward to a very healthy dialogue with the CRTC on that front as we kind of unpack some of the very specific decisions and comments that are in there. And as I've said before, we're committed to working with regulators. Our goal is the same fair, free enterprise investment-based competition, an industry that continues to evolve and lead globally and continues to create affordability options for all Canadians. And on the comment of your rate plans, we're committed to the affordability options, and we'll look at those rate plans and see how to best articulate them in our channels and in our marketing as we go forward and work closely with the CRTC on those items.

Our next question comes from Jerome Dubreuil of Desjardins.

Congratulations on the results. Maybe if you can comment a bit more on the MVNO decision. First, how confident are you that the mechanism set for pricing could work and have a fair pricing going forward? And also, does that provide a read-through on the decision for wholesale Internet? And then a second question regarding media revenue, obviously, you mentioned the stadium attendance restrictions, but stronger-than-expected results this quarter on that front. Can you maybe explain the higher sports-related revenue since we also had the NHL in Q1 last year?

Sure. I'll take the MVNO comment a question, Jerome, and maybe Tony take the media sports question as a whole. As I just said, around the decision last week -- first of all, to your second question, it's really hard to understand whether there's any read through on the decision. The TPIA decision, Third-Party Internet Access decision, is one that's still pending. And really, we're just waiting to hear what come backs -- what comes back from that decision. And therefore, I don't think there's anything we can read through from that perspective as a whole. In terms of the rates that have been put forward, I think the message is loud and clear, and let's continue to drive affordability options for Canadians. And we've been doing exactly that. We've been doing exactly that as we've created rate plans through our Chatter, our Fido and our Rogers brand that create different affordability options and capabilities for Canadians. I think there's a way to work these affordability rate plans into the equation. What you've seen from us on the wireline side and the cable side is indicative of that. I said in my remarks that we were one of the first to launch the Connected For Success program back in 2012 that provides affordable Internet for Canadians that are in subsidized rent to income in sort of geared homes, disability services or on guaranteed income supplement. We just amped that up to reach about 750,000 Canadians through that program, and their Internet rate plans starting above $10 and something we intend on driving forward across the west as we include Shaw in that footprint post the approval process. And we're just going to keep looking for affordability options. We're completely aligned with the government from that perspective as well. And we'll work through the details of the to see exactly how these are well positioned in the marketplace.

Jerome, on the second part of your question in terms of media revenue, I think a couple of things. One is clearly Sportsnet is the biggest impact in terms of those year-on-year numbers. So what you saw in the first quarter were generally more NHL games than you would have had last year. And so while we had a season last year, the concentrated schedule provided for more games. But importantly, it's interesting that the viewership on the games this year and the format, the Canada on Canada format seems to have elicited a much higher viewership, which we're pleased to see. And so both of those have factored into with revenue numbers we were quite pleased with overall. So that's really the driving factor on that.

Ariel, we have time for one more question.

Our final question comes from Sebastiano Petti of JPMorgan.

Just had a quick follow-up on Tony, your comment. If you can just -- can you provide perhaps a little bit more color on your comment about continuing to anticipate strong Wireless margins, although year-on-year growth rates will be flat to slightly positive? Is that on a -- you're thinking about relative to the first quarter? Or are we thinking about relative to 2Q '20? Just maybe give a little bit of color there would be great.

Sure. The comments with respect to margins, twofold. One, what you have seen is very good in terms of what I would describe absolute margins in wireless over the last several quarters, and it's been on a very good trajectory in terms of improvements. And you see that year-on-year as well. And so I am sort of -- when you look at the 310 basis point improvement year-on-year in Q1, I just want to be careful that we get too far ahead of ourselves and continue to expect to see that type of margin expansion as we start to lap some of the cost initiatives that, frankly, started in Q2 of last year in part out of necessity. And so the amount of expansion, particularly in the next few quarters, will just be more muted, A, because we're lapping. And as I said, there are some costs as things open up that we tend to incur in terms of, as I said, store costs, training and just general things as we ramp up that are more onetime in nature. So continued good margins, but the year-on-year pacing will just slow down a bit over the next few quarters in wireless.

Okay. That makes sense. And then a quick follow-up. I think in the past, Tony, as well you've talked about getting to that 30% kind of cash margin in Cable. You've provided some color on where you expect CapEx to kind of come in. Obviously, you unpacked the drivers of EBITDA margin expansion as well. As we're thinking about that 30% kind of cash margin, is that something we should be expecting or moving closer towards as we get into 2022 and beyond? Any changes to perhaps your previous expectations around that?

In terms of our Cable cash margins, we continue to target 30% or better as what we describe our interim threshold or target. You would have seen in Q3, Q4 cash margins being in the 29% range. Because of the seasonality, you saw it come down a little bit in Q1. But for the current year in '21, we continue to see, I would say, cash margins in the 28% to 30% range for this year. So it isn't something we're pushing out to next year. We'll have some ebbs and flows. And again, to some of the pandemic-related expenses may impact that on the margin. But that 30% beacon is still what we're focused on and headed towards this year.

Great. Thanks, Sebastiano. and thanks, everyone, for listening in. Our AGM is being held today at 11 a.m. And if you'd like to access our remarks, Joe's remarks, you can get there through investor -- our Investor Relations site. Thanks again. And if you have any follow-ups, please reach out to Investor Relations.

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