Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications Inc. Second Quarter 2022 Results Conference Call. . I would now like to turn the conference over to Paul Carpino, Vice President of Investor Relations with Rogers Communications. Please go ahead, Mr. Carpino.

Thanks, Ariel, and good morning, everyone, and thank you for joining us. Today, I'm here with our President and Chief Executive Officer, Tony Staffieri; and our Chief Financial Officer, Glenn Brandt. 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 2021 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 Tony to begin.

Thank you, Paul, and good morning, everyone. Our results for the second quarter demonstrated strong growing momentum across each of our businesses. As our economy and our markets continue to expand, our teams executed well in capturing an increasing share of this growth and converting it into meaningful financials for each of our Wireless, Cable and Media businesses. Our drivers of top line growth centered on a few main factors, namely the return of travel as well as market share gains in our Wireless business, the expansion of our footprint into new areas while capturing a growing penetration rate in our Cable business and the return of fans to the Rogers Centre together with meaningful growth in advertising revenues for our Media business. Our network outage just after quarter end was a major disappointment to all of us at Rogers. Network quality and reliability have been a core foundation of our company. And this isolated, albeit significant outage had a major impact on our customers. Changes are already underway to address not only the root cause of the outage but more importantly, to ensure we emerge from the incident with more strength and resiliency that is truly industry-leading. As I've stated publicly in recent days, we can and will do better and I am committed to ensure we make the necessary changes to earn back the trust and confidence of our customers and Canadians. Our improvements will include changes to our network architecture that will separate our wireless and wireline networks for better redundancy; better partitioning of our network to reduce the risk of a national spreading of an outage; changes to our internal processes on how we plan, control and execute network upgrades; and, importantly, a fail-safe method of ensuring communications for emergency and essential services work all the…

Thank you, Tony, and good morning, everyone. I'm glad to be with you this morning. Rogers' second quarter results reflect the benefit of a recovering economy through the second quarter together with the continued commitment by our teams to drive better and more consistent operating and financial performance across each of our businesses. In Wireless, service revenue was up 11% year-over-year. We are seeing the benefits from higher roaming revenue as global travel recovers, a larger postpaid and prepaid subscriber base and an overall increase in market activity as Canadians return to being more mobile. This has included domestic activity such as return to office and school as well as the resumption of travel and more immigration and an increase in foreign students. Our second quarter KPIs also reflect the hard work and investments our teams have made over the past year in improving customer service levels and driving sales and operating performance. We delivered postpaid mobile phone net customer additions of 122,000 in the quarter, roughly doubling the 60,000 from 1 year ago. This was driven by strong base management strategies benefiting from very low postpaid mobile phone churn and by providing customers with value and flexible plan offerings, all against the backdrop of a growing and competitive marketplace. These drivers also contributed to growth in our prepaid mobile phone base where we added 55,000 prepaid subs compared to negative loading 1 year ago. Our postpaid mobile phone churn through the quarter was very strong at 0.68%, an 8 basis point improvement year-over-year. With continued increases in travel activity by Canadians, ARPU is also recovering and was up 6% for the quarter to $58.83. Given the pent-up demand by Canadians to resume traveling, Q2 roaming revenue is now at 130% of the second quarter pre-pandemic levels of 2019. Additionally,…

. Our first question comes from Vince Valentini of TD Securities.

Yes. Congrats on the strong second quarter. Two questions, if I could. One on roaming. The 130% is a bit surprising. I don't think we're anywhere near back to 100% of travel volumes for people, especially on the business side. Can you give us any sense of where the new global should be? A lot of people were expecting more roaming revenue growth in 2023, and I don't want you to leave the impression that, that won't happen anymore. Is 150% or 170% of where you were in 2019 a better end point now given higher subscribers and rate changes? And the second question, just on the Q3 guidance and the full year guidance. I appreciate the color. But can you confirm that the unchanged guidance for the full year factors in what you're seeing on the customer side as well? I mean the $150 million is clear in terms of credits. But I assume there has to be some kind of impact to churn and sub adds at least temporarily that you've already seen. So can you talk about what you've seen in the past couple of weeks in terms of subs and just confirm that despite those headwinds, you're still confident in the guidance?

Thank you, Vince. It's Glenn. Let me start with the roaming question and then I'll let Tony take the second question around customers. On roaming, we've seen a strong recovery underway in the consumer segment, still recovery to come in the business segment. Many of us are still looking to return to office, let alone return to business travel. And so more to come in that. But on the consumer side, we're seeing roaming traffic roughly 3/4 of where we were pre-pandemic. So we haven't seen a full recovery yet on volumes and that's flowing through to the levels you see at 130%.

Vince, with respect to the second part of your question on our outlook for Q3 and the full year. Since the outage of July 8, we did see an impact on our subscriber results, but we're encouraged by the patience our customers have shown and we're seeing very good trending on a daily basis. And so as we look to the back half of the quarter, and keep in mind, in back-to-school and as we close out the quarter, we still have, commencing in about mid-August, 80% of the quarter's activity ahead of us. And so based on the trending we are seeing, as I said, we are encouraged with the trending that's there and have confidence in our ability to maintain the full year guidance.

Our next question comes from Maher Yaghi of Scotiabank.

Congratulations on the results. Strong momentum seen here. Can you discuss a little bit the market -- the Wireless market? Beyond the fact that you have more activity by consumers or recovering economy, how do you feel about your own market share gains you did in Q2 here on postpaid versus the level of activity overall in the market? And going into the second half, where do you think -- are you seeing any initial impact from a declining or a slowing economy? We've seen results early coming in from U.S. such as AT&T discussing some weakness on the consumer side in terms of payments -- in terms of delayed payments. Are you seeing any of those so far here in Canada?

Thanks for the question, Maher. In terms of Wireless growth, I'll start with what's driving the market. And one of the biggest drivers is certainly the immigration students returning and that's all helpful to the growth in the marketplace. On a year-over-year basis, we expect the market will probably be, if not at 5%, over 5% growth for Q2. In addition to that, we're seeing good increases in penetration rates. Second phones and third phones continue to come along nicely. And so that's contributing to the increased size of the market as well. Our execution in terms of share has really been about focus. We've always had a very strong distribution network. And as things continue to open up fully in the second quarter, we're pleased with the way those distribution channels behaved and performed. In terms of the slowing economy, we believe that in large part because of what we're seeing as continued immigration and students to Canada, we haven't seen the impact of a slowing economy yet. And again, are optimistic that it's probably going to be moderated because of those immigration levels, but we'll have to see how that plays out. We are not, to date, seeing any deterioration in performance on our receivables and customer accounts.

And if I can, maybe, have a follow-up on the outside date change that you did for the Shaw transaction. You were doing smaller increments when it comes to changing the outside date. Any read through from this significant increase in the outside date change on how we should, as investors, interpret your view on the timing of closing the transaction?

You should think about our extension of the outside date to the end of the year, which is after the tribunal process, as really reflecting the commitment that we and Shaw have to getting this transaction done. And now with the sale of Freedom Mobile to Quebecor, the commitment that Quebecor has to getting this transaction done. And so amongst all 3 parties, we're committed to seeing this through and wanted to set a date that made it clear that we have that commitment.

Our next question comes from David Barden of Bank of America.

It's Matt sitting in for Dave. Congrats on the strong quarter. I just wanted to ask kind of a follow-up to the kind of economy question. It's good to hear no impact on the consumers yet. But it seems like costs haven't seen an impact yet. So I was just wondering if you could comment on the inflationary pressures you may be seeing and maybe if you can add some color along the lines of how much of your cost might be exposed to inflation or, conversely, how much are locked in and you're protected from it. And then separately, looking at the Shaw transaction, as the outside date kind of matches the financing redemption date, are there contingencies in place that investors could be aware of that -- along the flexibility of what can happen with minor delays past the current anticipated outside date?

Thank you, Matt. On the inflation question, we see some pressure as we work with vendors and have been managing, for a couple of years now, both price pressures as a result of supply issues coming from COVID as well as just length of delivery on the supply. We've been managing that for a couple of years now, not really seeing any additional pressure right now. In fact, we're starting to see some of those ease. As well, we've been working hard through that in preparing for the Shaw acquisition as well as just in terms of looking at our own performance and results on some efficiency measures across the organization, trying to address if and when the economy turned and we were facing inflation pressures that we could build in a little bit of buffer, that seems to be helping us to manage so far. We're not seeing an undue amount of pressure coming from the vendors, which is what you see reflected in the expanding margins across both Wireless and Cable. And so -- and then within Media, again, with the recovery of our revenues with the Blue Jays back, the revenue resurgence that we've seen from that and the ad pickup from the sports-related advertisers has helped buffer anything there. Turning to your question around the extension of the outside date and the year-end time line for our special mandatory redemption on the bonds that we issued in March. We have a number of strategies open to us and plenty of runway and time to manage that. We also remain confident that there is plenty of time between now and year-end to close the transaction and to use those bonds to fund the acquisition. In the event that isn't -- it doesn't prove to be possible when we get to the year-end, then we have a few different avenues we could go. We could seek alternate funding through bank group. We could seek to extend the SMR. We could seek to access the capital markets. Any one of those are open to us. First and foremost, our intention is to close the transaction within 2022. And we're confident we should be able to do so.

Our next question comes from Drew McReynolds of RBC.

Great to see the results here. That question was my question. So I'll move on here. Two from me. Just first, just in terms of what you're learning on the outage and certainly the government's kind of scrutiny of the outage, is there any change in kind of general network approach here in terms of how you architect or where you network share? Has there any -- been any thinking there versus your previous position? And then second question, just on fixed wireless. Where is Rogers in terms of expanding that footprint? Is there still some expansion to go and, presumably, there is a percentage of your Internet loading that comes from that. If you're willing to quantify that, that would be great. But -- yes, just wondering where you are in that expansion trajectory.

Thanks for the questions, Drew. With respect to the outage and the impact on how we think about the network, I think there's probably 4 key points that are worth highlighting. And I touched on them in my upfront comment is we focus on 2 things: the resiliency and redundancy of our network is 1 category. And the second is what are the procedures in place for the telecom industry more generally for emergency calls. And I'll come back to that one. With respect to our network, there's really 3 main points to think about. And 1 is today, much like all carriers around the world, we have a common IP core gateway for wireless and wireline. And the strategy goes back some time in terms of doing that to capitalize on efficiencies. As we provide services, particularly in the enterprise small business sector, the importance of redundancy is ever more clear coming out of the July 8 outage. And so we're going to proceed to separate -- physically separate the wireless and wireline networks for core gateways so that we prevent an outage that would impact our entire system. We've disclosed that we estimate the cost of doing that will be about $250 million, and that will be over several years. The Shaw transaction will help, in part, reduce that cost, but importantly reduce the time line. And so as we work through the closing of that, that will be an important benefit of the transaction in terms of redundancy. The second thing we're focused on is greater partitioning of our network. So if we have an outage in a particular area for whatever reason, it does not spread to our entire national network. We had what I would describe as firewalls in place to prevent that, but they…

Our next question comes from Sebastiano Petti of JPMorgan.

Just want to follow up on the inflation that you're seeing here on our end. And I think you called out in the press release that the Bank of Canada has talked about a potential recession in the next 6 to 12 months. While you're not necessarily seeing the inflationary pressures now, I mean can you update us perhaps on some of the conversations you're having with your business partners or some of your customers on the enterprise and SMB side? What, if any, impact are you seeing there? Are they also benefiting from the improvements just overall market activity, immigration flows, et cetera?

I think we're seeing -- through the first half of the year, Sebastiano, I think we've seen strengthening from the recovery of coming out of COVID, and we're still seeing some of that build. Return to office here is still underway across the country in various stages. As we move through the summer and come on the other side of Labor Day, I suspect we'll see that more in earnest. Certainly, we all see the media reports of the impact of gas prices on home wallets and spending and the impact of that on pressures within businesses in terms of demands on wages and what have you. And so we'll see that roll through. I suspect somewhat through the second half of the year, some of that will roll into 2023 as companies -- many of us look to increases at the start of the year as opposed to through the year. And so there's probably going to be a bit of a staged effect on that across businesses. We're not seeing or hearing anything particularly notable beyond those broad trends in talking with our customers. I think all of us are watching carefully to see what's happening with our overall costs, whether it's from the capital markets, from wage pressures or input pressures. The input pressures we've all been managing in terms of source of supply and price on input costs for the last 2.5 years. If anything, some of that might be tempering a little bit as we come further out from COVID.

It's worth adding that what we have seen past slowdowns is, for our industry, more of an impact on the enterprise business side. That is still a growth opportunity for us and are very much underpenetrated in that segment of the market relative to our competitors. And so structurally, from an exposure standpoint, we stand much less exposed to that impact of an economic downturn.

And then the press release, I think you called out just that you continue to pursue the divestiture of the deal and the definitive agreement documents are progressing. Obviously, a key area of focus as it pertains to the broader overall transaction and, obviously, you announced today that you're committed to the deal. Any kind of update on that? Obviously, it's something that's topical for investors as it pertains to the deal, any color on time.

Sebastiano, in terms of the deal, there's not a lot more to say other than what we have disclosed. We've extended the outside date. We continue to work with Quebecor on the definitive agreements. As you would expect, it's a large deal. It's close to $3 billion and contains quite a few complexities as we work through that. And we're committed to that deal, and we believe our partner is as well. We'll work through the bureau process. The next process is the key step, I would say, is the tribunal. But as I've said in the opening remarks, we'll continue to engage with them and see if there's an opportunity to meet their requirements and concerns sooner, but we'll just continue on with the process.

Our next question comes from Simon Flannery of Morgan Stanley.

This is Diego filling in. You've noted that you expect customer trends to normalize as we get to the back half of the quarter. I'm just wondering what are you doing, some of the specific actions that you're taking to retain customers given the network outage. Is there a proactive customer outreach, other offers or actions that you're taking besides the service credits and/or the competitors being aggressive on this front? And then maybe you can touch on the differences you're seeing on Wireless versus Cable, that would be helpful.

Thanks for the questions, Diego. Let me start with a couple of things. The activity we have seen is calling in into our call center on the customer credits. And as we've publicly disclosed, those are going to be automatically applied to bills in the third quarter and we've disclosed the estimated cost of that. In terms of subscriber activity, both in terms of gross adds and churn, as I mentioned earlier, we certainly saw an impact in the early days following July 8, but we're very much encouraged by the improvements we're seeing each sequential day on those metrics that really get at the customer sentiment over our entire customer base. And I would say we're seeing it equally in terms of Cable and Wireless, both continue to improve well in that. In terms of what we're seeing in the marketplace in terms of offers, as we enter into the back-to-school period, what we are seeing is the usual pickup in competitive intensity that's not dissimilar to prior years. So we haven't seen anything that is noteworthy in terms of market dynamics other than what you would expect to see.

That's helpful. And then I had a separate question. We just heard Xplornet announced that Xplornet Mobile that they'll be shutting down their wireless service, noting how slow the MVNO regulatory framework has moved. Can you just provide what's the latest you've heard from regulators on that front? Obviously, you have your own agreement with Quebecor and them. But can you just touch on how that policy is moving along? And any opportunities that you see there?

In terms of the MVNO construct in Canada that was announced a little while ago by our Canadian government. The construct is in place. It's well understood. And that's really a question more for Quebecor on how they intend to avail themselves of that MVNO regime. I think based on public statements they've made, they intend to be an aggressive competitor in the wireless space at a minimum through the acquisition of Freedom in at least 4 provinces, and as I said, covering almost 90% of the population. So I think the .

In the competitive dynamics in Wireless after the Shaw potentially -- Shaw transaction is closed.

Thanks for the question, Jerome. We've thrived on competition over our 60-year history, and we welcome competition. And today, as we look to each of our markets, we have at least 4 Wireless competitors in each of those markets. And in addition, on the Cable front, there's a wholesale regime that's referred to as TPIA, and we compete with resellers in the Cable markets and there's competitive intensity there as well. We have operated with that competition over many years. And our performance in Q2 reflected that competitive environment. With the purchase of assets, we fully expect Quebecor to be fully engaged, and that's why we think they would be a terrific buyer of those assets. They get up every day thinking about Cable and Wireless. And so are well suited to be the owners of those assets and continue to ensure the competitive intensity across all of the markets in Canada. In terms of what our value proposition will be, it won't change. We will focus in Wireless on our network, and we've talked about the things we will do there, combined with customer service. And then added to that, the strength of our distribution channels. Those are really the fundamentals, and there are other items. But for the sake of brevity, those would really be the 3 main ones. And in our Cable business, it's really going to revolve around product superiority. We have the Ignite platform that we, post Shaw, will launch nationally and that includes not only a terrific video platform, but smart home monitoring that's about to be improved as well. And importantly, a very competitive and leading Internet product. You would have seen earlier in the quarter, we announced trials where we have symmetrical 8 gigabits of speed up and down in our network. We introduced a new product where we have already in market 2.5 gigs of speed symmetrical on an all-fiber network and you'll continue to see more of that. And so it will be product superiority, combined with continued improvements we have made and will continue to make with respect to our service, faster service, more reliability on service kind of things we're focused on there. And so I think the fundamentals aren't going to change, and we think those will -- that will be the right formula to continue to compete.

Our next question comes from Aravinda Galappatthige of Canaccord Genuity.

I just wanted to go back to the impact on the sub ads from the outage. Thanks for the comments you've already made. But I was wondering if you can dissect a little bit how the impact is sort of broken down between gross adds as opposed to churn and then, obviously, wireless versus wireline as well. And then secondly, a separate question related to the network and your 5G initiatives, I mean you were the first -- you had announced earlier in the year that you were the first to set up a stand-alone commercialized 5G network. What are you thinking of in terms of milestones on that front for the next, let's call it, 12 months?

Thank you, Aravinda, for the question. I'll start with the second part of it in terms of the 5G initiative. A few quarters ago, we talked about the heightened investment we would do in network and putting aside the investments we're going to put into the outage, we continue to aggressively expand on our 5G initiative. And so the key milestones what you recently saw was the deployment of the 3,500 spectrum as soon as it became available. We're looking forward to the 3,800 megahertz spectrum auction so that we can quickly deploy that on a national basis. And so what you should expect to see is further penetration of that spectrum, we would call midrange, mid-band spectrum of 3,500 more nationally. We did quite well in the last spectrum auction, and we're working aggressively to deploy that. And so we should look to a rate of deployment on that. Secondarily, the densification of our network, both in terms of macro and small cells. And over time, you'll continue to see a ramping up of the pacing of that densification.

Aravinda, on your question around the impact of the outage on gross adds, I'm not going to be able to give you maybe the granularity that you're asking on or looking for. What I would tell you is we have made sure that we've invested in our call center staff so that we have folks on hand to take the calls. We have seen those call volumes settle off some as we've moved through the ensuing weeks as we've dealt with the rush of calls in the early days. And also, frankly, as we've announced the 5-day service credit and the automatic nature of that, that has settled off some of the call volumes that we saw in the very early days following the outage. In terms of day-to-day activity, we are finding that in stores and for our reps that they are seeing some wins as well as we obviously had seen some churn, again, more pronounced in the early days. We have seen that settle off some and are anticipating as we move through July and move in towards some of the campaigns around back-to-school that, that will help move past the traffic that we saw in the earlier days and the churn that we saw in the earlier days. So there are a couple of different things going on that we anticipate will help temper that. We've been quick to respond with customers on the 5-day service credit and on retention for our customers as they call in, that is helping. There's not really much more to put to it than that.

Ariel, we have time for two more questions.

Our next question comes from Stephanie Price of CIBC.

The first one on the cable side, margins were up 140 basis points year-over-year. I was hoping you could talk about the efficiencies that you're putting in place and how much of these efficiencies are Shaw related in the expectation of the close of the transaction. And then for my second question, post the outage, Rogers has talked about spending $10 billion over 3 years to build and strengthen the network. Hope you can comment on what that encompasses and how much of that's expected to be incremental?

Sure. Thank you, Stephanie. On the increase in the gross margins, it really is mixed. We still have some significant work to come and progress to come on driving some of the synergies that we've identified. But you're right in asking we have started that work in earnest identifying some of the cost areas, whether it's on content, on people costs, just general administrative costs through all of our business units, but particularly within our Cable unit, as that's the one that is going to be most affected with the Shaw acquisition. And so Ribeiro coming in as a new head of the business unit has come in with an eye to driving a strong sales culture as well as a strong performance culture. And really, you see that across the entire ELT. And so some of these efforts would have been in place regardless of having the Shaw transaction. However, the Shaw transaction will certainly transform our Connected Home business by bringing it national and some of these efficiencies are to drive better margins. Some of the efforts underway are to create some headroom or identify those opportunities for creating headroom for bringing in leadership and employees from the Shaw base. And then on the content side, that is another one of our large categories. Again, some of those efforts would have been underway regardless of Shaw. However, it's no secret as to the size that we will have once we come together with Shaw in terms of subscribers and, certainly, that will factor in for driving additional synergies going forward as we work with programmers and acquiring content. And then on the capital expenditures, the $10 billion estimate that we've made or forecast we've made for the improvements in our spend, that's a large envelope that every year we prioritize what we are going to work on. And every year, job one really is to ensure that we have resilience and redundancy across our networks. The outage has identified that we have some more work there to do around processes and investment, and we have already started looking at and implementing some of those changes. But that $10 billion number is ample envelope with which we can direct our investing. Our networks are very strong, very well-built, well-designed networks. It's not that there is -- they are in need of a wholesale change, they're not. They are leading-edge technology on the Wireless side. We have the largest individual portfolio of spectrum. We will continue to invest in spectrum. We will continue to invest in large and small cell sites. On the wireline side, we continue to expand our footprint with fiber. And so it's more determining our processes and the separation of our networks just to help build on the resilience. And so that will be within that $10 billion envelope. And the $250 million to separate our wireless and wireline, again, we will find priorities around that to find the capital for it.

Ariel, last question, please.

Our final question comes from David McFadgen of Cormark Securities.

Great. So a couple of questions. When I look at the Wireless ARPU growth, 6%, obviously, quite strong. And you've called out roaming as the primary factor, but I was wondering if you could give us a breakdown between how much of that 6% is roaming and how much is just from people moving up to higher price data buckets or just increased sub growth? Because obviously, we're seeing a big resurgence in travel and that's positively impacting roaming revenue. But sooner or later, we're going to get into an environment where the roaming revenue growth settles down. So I'm just kind of wondering what the ARPU growth might look like then. And then the second question would be on the $150 million customer credits. How much of that will be flowing through Wireless and how much will flow through Cable because when I look at your results for the first half in Cable, obviously, quite strong. So I was just wondering, assuming or excluding the impact from the outage, would it be reasonable to think that Cable EBITDA growth could continue in the 5% range for the balance of the year.

Thank you, David, for the questions. The -- on the ARPU growth, it's split roughly half and half across the roaming revenue impact and then broadly across customer impacts, whether it's trading up in plans, we also, as you saw in the quarter, we have added significantly to our customer base. Obviously, that provides revenue growth as well. And so it's subscriber growth, it's moving more of those subscribers to our premium plan to our Rogers brand. And then travel is roughly half of the overall increase in ARPU. On the $150 million service credits, if you roughly use the proportion of revenues, that would give you a pretty good approximation as to how they will impact our Cable and Wireless business.

Okay. And then just lastly, I just wanted to reconfirm some comments made earlier on this call. So is it going to take a couple of years before you actually affect the separation of the wireless and wireline networks or can it be accomplished sooner than that?

David, we expect that would be in the 12- to 36-month time frame. And as I said, the completion of the Shaw transaction would cut that time approximately in half. And so that will be an added benefit as we look to improve redundancy.

Great. Thanks, David, and thank you, everyone, for joining us. And if you have any follow-up, please give us a call.

Thank you all.

Thanks.

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