Q4 2019 Earnings Call
Thank you for standing by welcome to Shaw Communications fourth quarter, 2019 conference call and webcast.
Today's call will be hosted by Mr. Bradshaw CEO of Shaw Communications.
At this time all participants are in listen only mode and the conference is being recorded following the presentation. There will be a question answer session.
To join the question Q simply press Star and one on your Touchtone phone at anytime during the call should.
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Before we begin management would like to remind listeners that comments made during today's call will include forward looking information and there are risks the actual results could differ materially. Please refer to the company's publicly filed documents for more details on assumptions on risks Mr. Shah I will now turn the call over to you.
Thank you.
Operator, and good morning, everyone listening to your members of our senior management team, including Jay Mehr, Trevor English and honestly.
Our strategy in 2019 was clear we were focused on growing wireless and broadband customers improving execution delivering stable wireline results.
Well as managing through a critical year with respect to BDP departures.
The industry shift to unlimited plans did not impede our ability to grow our wireless customer base. During the all important back to school season, we delivered the best quarterly subscriber results in company history, It's approximately 91000 <unk>.
Customers ads in the fourth quarter.
Our success in attracting and growing subscriber base is a product of our innovation are improving and expanding network and our effective advertising and messaging to consumers.
In July we continued to expand our service offering with the launch of the big unlimited and absolute zero plants anchored around device pricing as our advantage. The results of this strategy has been positive as not only did we achieve our new subscriber record in the quarter approximately 30% of all post paid off.
The actions in the month.
Yes, we're on a $75 or higher service plan.
The success in our subscriber growth, which included postpaid additions of 280000 linear our wireless business surpassed 1 billion an annual revenues in fiscal 2019, we delivered strong service revenue growth of 24% and our wireless operating margin.
Proved to approximately 20%.
Both of which supported significant EBITDA growth of 45% to over $200 million.
The wireless network team has done an incredible job as we continue to strengthen and expand the network and enhance network experience is a key driver of the material churn reduction that freedom delivered enough 19, we are approximately 70% complete with our 700 megahertz spectrum deployment.
In the western markets and this will continue to roll out as part of our F 20 plan.
In addition, we launched freedom old 19, new communities, the majority of which happened in Q4, and we now have wireless service available to over 18 million Canadians.
In wireline, we grew broadband subscribers to Roadmaps 19, including over 11000 in the fourth quarter, we exceeded our targets with respect to self install which was above 45% of total activations in the quarter and launch job luker regaining our position as a tech.
Oh Gee leader.
Beginning in March we launched our IP TV service, which is now available to approximately 70% of our video footprint.
This is a key transition of our legacy video platform that supports our digital transformation and lowers our cost to serve customers.
Our business Division delivered another year of strong revenue growth.
Fueled by additional product launches, including gigabyte Internet speeds and the continued success.
Our smart suite products with small and medium business customers.
NF 19 shop business was also successful and winning some key enterprise accounts, which is attributable to the strength of our product offerings network and our focus on this segment.
Our strong operational and financial results were accomplished well, while also managing through the significant change in our business via our digital transformation, where we ended the year with approximately 70% of RVP program complete.
As a result of our focus on improving execution and delivering BDP savings are liar or wireline margin improved 90 basis points to over 45% Ines 19.
We believe we're taking the right steps to grow in transformer business to enhance our customer experience and improve our day to day operations for employees. This focus is driving significant operating and capital efficiencies and an F. 19, we delivered adjusted free cash flow a five.
Hundred 70 million.
This is a remarkable 19% increase over F 18, when removing the impact of course dividends.
Both the asset realignment and the internal transformation in our business over the last several years has positioned us well and we're entering a key inflection point with respect to our free cash flow generation. This was evident in our F 20 free cash flow expectation.
Approximately 700 million, enabling us to implement some enhanced capital return initiatives, which I'll now turn it over to Trevor to discuss along with our EFT 19 results and F 20 guidance.
Thank you Brad and good morning, everyone is bread articulated we'd had a busy and successful year, while making significant progress on several fronts.
Full year consolidated revenue increased 3% to 5.35 billion and EBITDA of 2.16 billion grew 5% year over year. However, adjusting for both the 15 million dollar onetime IP licensing payment in Q3 is well the 10 million dollar charge related to see or Tc regulatory matters in the quarter.
Our adjusted EPS 19, EBITDA increased 6.3% over EFI team, which met our commitments and guidance.
Growth in F 18 was driven by a combination of continued strength in the wireless business stable wireline results and the delivery of 135 million of total operating and capital savings under VTB program with lower capital requirements, particularly in our wireless wireline business, we deliver free cash flow of 545.
Million were approximately 570 million when considering the onetime impacts previously mentioned.
This is a significant improvement over recent years, which saw a system got substantial capital to improve the wireless experience for customers and to support the wireline network to deliver faster speeds and new technologies.
Our wireline network is stronger than ever with record low congestion and is supplemented by state of the art customer premise equipment that both improved customer experience and reduces our overall cost to serve.
As we enter up 20 or strategy remains centered around wireless broadband and business as their growth drivers and a relentless focus on delivering efficiencies through more agile operating model.
We're pleased to introduce F 20 guidance, including EBITDA growth that is expected to range between 11, and 12% versus definitely team reported results. Our guidance reflects the adoption of wire for a 16, which for US commenced on September 1st we will apply these new accounting standard on a prospective basis and therefore, we will not be restating.
That's 19 results. However, we estimate the impact from my first 616 on fiscal 19 is approximately 155 million of which 55% is attributable wireline and 45% to wireless really accounting impacts EBITDA growth enough 20 is expected to range between four and 5% capital investment.
As expected, we 1.1 billion in free cash flow is expected to approximate $700 million. Please note that both capex and free cash flow were not impacted by the IRS 16 accounting policy change.
Drew PDP program, we expect to deliver a total of 200 million and savings or an incremental 65 million over an 18 with the majority of the incremental savings this year.
Arising from reduce capital expenditures old PDP related efficiencies are embedded within a rough 20 guidance and we remain confident in our ability to manage through the remaining departures of approximately 850 employees.
We believe the F 20 marks a significant inflection point in the strengthening free cash flow profile is concrete evidence that are acid realignment and evolution of our operating model are both yielding positive and meaningful results that are flowing to the bottom line.
As we've gone through a significant transformation over the last several years, we've maintained financial strength and flexibility throughout.
At the end of ethane 18 or leverage ratio stood at 1.9 times and this is low and is the lowest among north American peers.
On October 1st we repaid a billion in a quarter of maturing notes from balance sheet cash, which of course had no impact on our leverage metrics.
Syria or sound business fundamentals strategy and focus on execution going forward current leverage and strengthening free cash flow profile. We're pleased to announce some enhancements with respect to our capital return initiatives.
Subject to TSX approval, we will implement and instead I'd be program the purchase up to approximately 25 million class B shares.
Represents 5%, while issued and outstanding class B shares to read through in recent years, where we made significant investments to drive or growth. Our long term growth strategy, we maintained a healthy dividend and we believe that and instead be program as a flexible and efficient alternative to return to return additional capital to shareholders.
With that 20 free cash flow expected to be in excess of our total dividend. We also plan to satisfy our share delivery obligations under a drip program by purchasing class B shares in the open market that's avoiding additional.
Future equity dilution and creating synergies with the contemplated NC IB program. In addition to this change we've also announced that we were eliminated the dirt eliminating the drip discount which is currently a 2% and we expect this will lead to a significant reduction in drip participation.
We remain committed to long term dividend growth and are confident in our ability to generate sustainable free cash flow. However, we believed that the enhanced capital allocation initiatives announced this morning provide us with a more balanced in flexible approach to return additional capital to shareholders I'll now turn it back to grab before we open the lines for questions.
Thank you Trevor.
Im very proud to say that we have built our company on the foundation of being a strong for facilities based service provider.
Just earlier this week.
Released their latest Canadian speed Test report, we're Shaw ranks as the fastest ice p. and all the city's listed within our footprint.
In a separate monthly index compiled by who glut, Canada ranks as labs in the world for download speeds results like this speak to Ken its position as a technology leader, creating consumer choice and effective sustainable competition, while providing employment.
And advancing infrastructure and possibilities in our communities.
[noise] facilities based competition from Sean Freedom is working and we will continue to work for Canada as an industry. We are all expanding and improving our networks consumers want more from their providers not less we can offer these services and introduce new ones because we have invested significantly in.
In the breadth and quality of our networks on which the services so heavily rely upon.
The recent regulatory environment creates unnecessary uncertainty that has the potential to do more arm over the long term.
If companies can no longer have the opportunity to earn an appropriate return they will change their investment profile, and therefore innovation services and technologies, such as Fiveg Internet of things and the fundamentals of artificial intelligence will diminish along with the service levels that Canadians have been accustomed to.
Yeah.
Canada requires strong facilities based investment to compete on the global stage.
Since the announcement of the wireless them, you know hearings and the reduced PPI rates.
We have already altered our plans with respect to launching new higher speed Internet tears and additional wireless expansion beyond our current footprint.
Throughout the regulatory process, we're hopeful that the government recognizes the critical role that facilities based companies play and the ability to usher in new technologies, and deliver better and faster services for all Canadians.
Despite the recent regulatory uncertainty.
We couldn't be more pleased with our strategy and execution.
To the entire Sean team.
Progress we have made over the past number of years is absolutely remarkable and it could not have been with data without you. We have challenged each and every one of you and your day to day roles and responses has been overwhelmingly positive.
Let's continue to build on our success in carry this great momentum in depth 20.
Thank you operator, we'll now open up for questions.
Thank you we will now begin the question and answer session to join the question Q. Please press star and one on your Touchtone telephone you will hear a tone acknowledging your request. If you are using a speaker phone. Please I'm sure you lift your handset before pressing any Keith.
If you wish to remove yourself from the question Q you May press star and to anyone who has a question May press star and one at this time.
Our first question comes from Vince Valentini of TD Securities.
Thanks very much.
First off can you just clarify some trevor the the 10 million a charge for this year GC decision that shouldn't be a hit to revenue I believe in your consumer division or did you just bucket as an expense no. It is it's an impact to revenue as well.
Actually split between consumer and business a bit and I just to be cleared Vince its about six and a half million are still in revenue on EBITDA. There was also another regulatory.
Provision that we took as well to come to aggregate to Pat maybe it does impact revenue as well. Thank you.
On the free cash so guys, congrats 700 million to a great targeted to go towards.
Can you just clarify a couple of things for us so.
You will save about 70 million and interest costs from that bond you just paid off with cash do you do your guidance in bed that you all refinance with some longer term debt and incur other interest cost to replace some of that 70 orders for 70 expected to flow through second can you just level set us on.
On restructuring costs and contract assets is is there anything that we should expect to be materially different in those two lines in 2020 versus 2019.
Yes.
So I'm not sure if it.
The full 70, we do expect some financing.
In the year. So I don't there is known to 70 million dollar decline in in interest to get to that's driving the free cash flow growth heading to the drives or free cash flow growth really is EBITDA growth of 4% to 5%, which is roughly $85 million to $110 million and then of course on on capital and the capital moderation.
Your frankly is it's about a $100 million lower than reported.
18 results.
Moderation sort of split equally between wireline and wireless and wireline side, you have some PDP related savings and efficiencies there and our partnership with Comcast I think historically, maybe we haven't articulated the strategy as well if we could have but there's been some theres some oxecta trade off for significant capex efficiency through the.
Technology roadmap in the partnership that Weve.
Embarked on with Comcast and other global scale providers, you'll self installs really working for US is booked 45% as Brad mentioned in his remarks, and we continue to see that accelerate so there's there's real wireline moderation on the wireless side, Brad mentioned in his opening remarks. It was a busy year on the wireless side of things expansion into.
19, new communities expansion into retail.
Significant retail and that's sort of behind US we're convinced going to continue to you'll pull through the 700 were about 70% in western Canada that will be done by the end of calendar year and then in the east it'll be substantially complete we're fundamentally complete by the end of 20 as well so theres, they're really use a moderation of capital play Brad said.
Maybe some of the capital within wireless is a little bit holding a bit back considering some of the regulatory uncertainty that's in the market right now, but the free cash flow profile, we're very proud of and we continue to see that strengthened going forward.
Thanks, and if I can throw one in from for Paul I'm sure that we'd like to questions on wireless, but I. Just wanted to ask you. How are you thinking about competitive intensity right now.
Certainly seem from the Rogers resulted in this week that there there are hurting a little batch.
You look at your blended.
Sort of lifetime value of customers are over the past three months, let's say if you factor in the ARPU, you're getting the likely increase in equipment subsidies given the absolute zero program.
And then Mr. pure volume of subs, you're adding are you happy with where all of those vectors line up or do you think yourselves and the industry could be doing a little bit better if that if somebody got more disciplined and others follow up.
Well, it's hard not to not to argue with they are not too I agree with the last point Vince I think by any objective measure. It's fair to describe Q4 is what are the most competitively intense period the Canadian wireless industry is ever seen you've got.
The all of the incumbents lodging unlimited.
Two of those guys being in the largest media owners in the country. So we certainly saw.
Some significant pressure over the course 90 day period.
Yes, there I would argue and I think you saw the earlier this week that.
There is.
Something on the lack of pricing discipline in the market.
For the across the board My perspective is unlimited came out in a way below the rate that it probably should have done.
Certainly the results you cited as we probably support that so overall just in broad summary of your question, we still level, we're getting your absolute zero for us was with an absolute home run.
We were able to move 30% of our postpaid adds to a rate plan of $75 and above where clearly moving into the neighborhood of the premium brands and we saw that in our putting numbers.
Certainly an expensive quarter from a subsidy standpoint, but what we got in exchange for that trade was something we would take again and we'll do again, so we like where we are theres, probably 10 to 15 basis points in churn that I would put in the seasonal category and attributable to that intensity, but we expect that to moderator with of course of the next year.
We're in still see the trend for us is somewhere in that range of one three to 135 over the course of the next to the next 12 months.
Yeah.
Our next question comes from drew Mcreynolds of RBC.
Thanks, very much good morning, starting with back to the wireline side, maybe for you.
Jay or Trevor.
When you look at the trajectory that business in fiscal 2020, obviously lot of.
Recalibration and focus on base management over the past couple of years can you refresh us on what your assumptions are for.
The topline.
And the extent to which potentially could get.
EBITDA margin improvement or the medium term.
And then secondly, a couple of housekeeping items just to confirm.
Trevor.
Growth guidance, excluding I for F 16 for fiscal 2020, that's off the 2161 number and then secondly, just comment on the cash tax rate.
Year over year, if there's any.
Really major moved there. Thank you. Okay. There is lot there dropped but they'll be easy ones first yes. It is off the just to be clear the growth guidance that we gave is off reported results and cash taxes.
We expect to sort of the last couple of years its approximated around $160 million, we expect that to be focusing for F 20 as well.
Maybe I'll start then on the wireline your first question on on wireline trends I think.
20 is really going to be a continuation over overall strategy to deliver growth through through wireless, but then also broadband business, while managing through the BDC exits enough 20.
You on wireline.
Definitely team, we certainly delivered improved broadband growth of around 35000 subscribers. We expect this trend to continue.
Offset by declines in some other categories more mature in products like TV in home phone. The overall drew on the top line. If you look at consumer revenue. It has been decreasing over the last seven years at a rate of about 50 basis points.
And frankly, we expect that trend to continue and maybe modestly.
Accelerate a little bit as we as we.
There is additional OTI.
Competition with Disney coming into the fall on does that accelerate cord cutting or cord shaving a little bit we're cautious on the video business isn't what it does from a revenue perspective.
Additional home phone is going to continue its current piece of declines just due to wireless.
Substitution and then on the Internet revenue side continued growth there theres no doubt about it.
But perhaps we're just going I'm really monitor their competitive dynamics, that's happening out there specifically within that you guys space as well considering.
Ill or the uncertainty there.
That's all going to be offset by continued growth obviously in business as well, we're targeting 5% to 7% again and combining those two.
Really 20 looks a lot like US 19, which is sort of flat to maybe down a little bit on consumer revenue is the way that we're running the business and then from an EBITDA perspective.
There is some BDP savings incremental $25 million of Opex.
We're going to deliver to the bottom line, but there is some incremental costs coming with our strategy, which is significant capital efficiencies again, just want to highlight the free cash flow in the simple free cash flow that being generated out of the wireline business, it's very impressive but from a margin perspective, we continue to see opportunities, but there is going to be some offsets.
Through the PDP through higher syndication cost with our partners.
Some other outsourcing costs.
As we move to the cloud.
That being said if you look at sort of reported EBITDA growth rates, a 2.1% on wireline, 3.3% for the year adjusted when you take out some of those one times, we continue to see wireline growth this year and maybe a bit of wheel wireline margin expansion, but we do think it's very modest and it really is a.
City and profitability again at the wireline business is whether the focus and hopefully everyone saw last year.
So quarter over quarter, it was sort of anywhere between 490 in 500, it was <unk> million a quarter very consistent.
Steve will wireline EBITDA results and Thats, what were focused as a management team again to deliver this year.
And if it stayed or building on travelers are large kind of qualitatively good somebody from either the S&P price was about.
Focus on monthly recurring revenue focus on churn growing internet customers every quarter Super proud of the team. We did all the all three of the things we set out to do I think as we stand on that foundation. That's 20, it's all about customer data segmentation and selling the right product to a bright customer.
Our systems our teams have become so much markets in this area and were.
You can see it in our strategy ended our tactics and I think you'll see it and everything we do and really driving that in pursuit of customer lifetime value enough 20.
And tremendous opportunity there mix matters a lot. So more of the same base management focus that you've talked about and we're kind of continue to work hard enough 20.
Hi, it's great great color. Thank you.
Our next question comes from Jeff fan of Scotiabank.
Thanks, Good morning.
Just quick housekeeping before getting to the real question.
On the CR TC 10 million charge.
The revenue impact satellite with six and a half what was the split between.
Business and consumers can just help us with that because it looks like business revenues to both surge up it's about 2 million in business and the resi value because.
Okay got it.
And then my questions are one for Paul on the wireless side.
I think given what we saw with somebody incumbence moves in the quarter.
You guys, great job and attacking the the handset pricing.
And you continue to leverage subsidies to get.
Joe customers and.
Sounds like you're quite happy with what the results that you got and am I in my right Im reading that subsidies will continue to be an important part of your customer loading and retention.
And then the second wireless question is around ARPU.
Half a percent growth that's great that it's still positive considering what we're seeing in the industry.
But can you talk a little bit up the mix impact because if it is strong prepaid and maybe even the loading in absolute zero and how subsidies may have impacted your service revenue and how do we think about ARPU growth.
In 2020.
And then my last question is what Trevor on the Capex 1.1 billion for next year.
Do you think this is.
Sustainable both on the wireless and wireline side, just want to make sure that this is not a one year cut that before we go back up thanks.
All right, Jeff Paul Thank you I'll take the first couple.
On your question, but subsidy in ERP is we have a very different view.
And some of our peers I think it's worth spending a minute on kind of highlighting those distinctions.
The first any other operators have described the IP like they sort of magically remove hundreds of dollars a subsidy investment without any customer impact and thats a remarkable oversimplification from our perspective.
Simply put the IP is the way that they've been characterized in the Canadian market of later or really just a massive price increase wrapped up in a fancy financing bolt on we think Canadians are smart enough to do the math on that it's painful and when the incumbents launch their unlimited plans over the summer they collapse much of the rate plan umbrella that we saw but they're ambition to cool.
Suddenly introduced the IP I used to pay for those rate reductions is clearly not come to fruition you saw it goes in that area or earlier this week and I want to be clear about our strategy on subsidy, we're going to continue to use device pricing to distinguish freedom from our competition and we don't take direction from the competition on phone pricing so the price.
Most of the 75 dollar unlimited plan in a subsidy free IP isn't one that we plan and adhering to we did make that promise, we're not going to keep it.
Secondly on the point of ARPU.
There's been a lot of interest not I understand that over the course of last Abbas number of days I want to be clear that for us that we continue to see ARPU is a growth metric and Thats 20.
Our expectations, there to meet or exceed F., making performance was 3.2%. This is of course objective continued irrational competitive activity.
We're confident in that outlet because we don't really share the same ARPU risk profile to some of our peers do and specifically in two key areas. One is we don't have you exposure of overage revenue to lose so you've seen in kind of glaring terms. This week, how gravity ultimately effects toxic revenue.
And that early in 2020, we finally begin to reap the ARPU accretive impacts of that through your.
IPhone cohort rolling off the subsidy amortization schedule. So it means that ARPU gains for this year are very much a second half 20 storage area, but we feel confident we can deliver that went through the course of here.
And on the sustainability of the Capex, Jeff Let me break it into the two components on wireline you saw we went from 24% capex intensity and EFI team to around 19%.
This year and we continue to see that moderating.
And sustainable moderation youre going forward.
I don't see stepped down as much as we did obviously from.
Efifteen definitely team, but we continue to see that more in that 18% in some of the drivers there. Jeff again is just their networks and fabulous shape.
To handle the loads in the traffic on our wireline network, we've got IP TV now rolled out.
70% of our footprint and that will continue throughout the year. There is a significant capital savings related to that not just on CP, but more so frankly on our cost to serve and just are self install we weren't able to self install the TV customer last year with the the technology that we had out there with IP TV, we can and.
It's just as we begin the benefit of the holistic benefit of the comp the partnership with our technology providers being Comcast. So that's very sustainable on the wireless side. There's some moderation this year as well I think I talked about it with my previous response to drew just in the overall free cash flow guidance, you lets coming down a little bit this year or some of that's because of the activity that we've done.
Some of it's because we're we're concerned with the regulatory environment when when Brad mentioned in his remarks, we had some plans maybe on some quarters between some of the cities.
In light of some of the hearings are kicking off in January we just want to make sure that when we're spending capital within all of our businesses, including wireless that we're going to get an appropriate return on capital. So we have dialed that back a little bit and Thats something that me.
Depending on the outcome in the and the environment, maybe something that Theres. There is some additional capital it goes into wireless versus.
We think about 21 versus out 20 looking forward, but a we don't see of being materially higher than probably would be up 19.
Total capital that was spent 385 million.
Great to me if I can just last one quick follow up Paul on the ARPU.
On the absolute zero customers that are coming in.
Or migrating what kind of ARPU are you getting if you can share that.
Yes, I mean assets there is a little bit of Turkey way to keep track of because it has pretty significant accounting implications. The way that we've got a structured that quick math on the Jeff is that we bring those customers in on the $75 rate plan or above on something around 40% of that gets booked in the month. So we hit consensus on EBIT in the quarter, but that means that.
We've got about 40% of the cost of that subsidy already in the books and behind us.
Respectively means that will then amortize the remaining 60 odd percent over the course of the next 24 months. So the ARPU coming in on those plans today is kind of in high Fortys.
Important to remember that thats over the first 24 months, when we roll into the 25th month and and beyond for those subscribers that ARPU reverts back to $75. So lot of the benefit that we're seeing in our growth story really doesn't start to work into our math until a couple of years out.
But we really like what we're getting on on though is on those subscribers and Thats a story, we're going to continue to press into.
Okay. Thanks very much.
Our next question comes from Aravinda Galappatthige of Canaccord Genuity.
Good morning, Thanks for taking my question.
The question was on obviously expansion on the wireless side too a lot of the communities and in the West I think the AD that total population sort of close to last half million I wanted to get a sense of sort of the different dynamics within those territories versus the the.
The areas you've been competing and I mean would you characterize that as I know, it's always competitive but would you relatively speaking categorize that as more sort of low hanging fruit that that could help set up potentially wrap up.
Thats going forward.
And then secondly, with respect to the.
The capital.
Fission things that you talked about obviously, the 45% self install number so that jumps out as as a key positive.
I was wondering if you can give a little bit more color on that you're talking about all installs, but its internet TV or on a bundled basis, 45% being self installed and at the the proportion of savings to actually emanating from back. Thank you.
Yeah, the 45%.
It is of our total number of installs and it's a fantastic results ahead of our target.
We had a terrific.
Back to school period were busy we won back to school week. This week this year and I got a text every single day from our.
We have operations wondering when the installs were going to come through and I've not seen that in 23 years of back to school here.
Self installs changes everything I think if you look at our success in terms of.
Of truck Rolls and operational savings, it's easy for you to figure out the math important to note with IP TV, there's no in home wiring as well and so there's a real simplicity that comes with.
Getting we're not using the cable there has the whole plant is flawed.
The promise that we talked about through the transformation is absolutely being delivered and we're going to build up 45% this year.
Look at a much bigger number for that in F 22, you're seeing that and the free cash flow characteristics of our company now.
Part of it as Paul on the first question regarding the new markets in the West just under a million of the 1.4 million subscribers. We added this year in terms of coverage we're in the west.
Great work from the engineering and network team to build that out in such rapid fashion I don't know if I'd characterize it is looking for you sort of got two dynamics occurring at the same time.
There is certainly.
Pent up demand and lot of customer anticipation as we go to those markets. So were met with open arms and we see some good early or the volume there, but the other side of it is it does the network and the brand our new in those markets. So they are subject obviously to some some bedding in and we have to build.
Each of those.
Weighted.
Make sense familiar in those markets. So I mean, that's probably about a push over the course of the first year that they're in the market.
We love growth in the west in wireless because it ultimately sets us up when we bring to two business is closer together wireline and wireless we love the opportunity did those markets bring us so.
Think that story gets written a little more over time, but we're certainly happy with the initial results and in those end markets.
Thanks, Paul and just a quick follow up to that point are you still set of and that sort of roughly speaking 60, 40 split with respect to east West.
Gross at.
Hi, Tech 70, 30 or event, which is been its historical level.
Thank you.
Our next question comes from Tim Casey of BMO.
Thanks.
A couple from me, but Polk just on the subsidies again.
I totally get where you're coming from but one of the you know the push backs or the for us the.
Other operators are making that with the high cost of handsets.
It is.
You know subsidy model this punitive over the long term I'm just wondering how you think about balance sheet management and that is of high end.
Handsets are obviously quite expensive.
And just one spectrum question it any chance you could.
Talk about how your plans are coming to deploy the 600 megahertz spectrum. Thanks.
Thanks, Tim.
Yeah, I mean, we view subsidy not an isolation so our perspective heard from reading from the customer Edwards, it's more of a total cost of ownership structure. So I understand the commentary around the.
The price increases that we've seen in the market on on devices, although that has moderated significantly with the launch of the iPhone 11 over in September we've seen a.
Pretty significant reduction in noted and those entry level prices. So there has been a bit of shifting the other direction.
I am.
Perhaps provocatively argue that.
This significant decline we saw in the.
Price of unlimited from the from the Big three might have been prejudge to be perhaps a little too aggressive in a bit too early.
That's going to be one of the things that factors into their overall cost of ownership as well. So we just we just don't look at devices.
Relations so.
In our from our perspective, we are very comfortable with the level of subsidy, we're putting in the market. It has been coming down and we'll continue to decline over the course of the year.
And in the overall mix, we're happy with the with the blend that we're getting here so.
I don't think theres much of the story there is that we've discussed earlier on are not a magic here at anything it just all it has to go into the math and.
What we saw in August and continue to see is very strong consumer response, so we like our model and we're going to continue to to press into it.
600, I think it's early for that as I think we mentioned on the last call. We're continuing to make sure that are now.
Our infrastructure is ready for 600, when it gets to unpack from that from the broadcasters, but we'll be we'll be reporting more on that in subsequent calls as we get closer to the date.
Thank you.
Our next question comes from Mary Yagi of day Jordan.
Thank you for taking my question. My first question is on the guidance looking at your.
4% to 5% growth organic here well.
I will stop both.
The range is quite tight.
$20 million on a total base up 2.2 approximately.
What gives you.
This kind of leveled off granularity in terms of.
Giving giving this outlook with such a small bracket.
And I have a question on.
The initial cohort, though I'll wait for your answer.
Last question on Idol.
Thanks for I mean.
Hopefully you saw us last year.
We live within our commitments when even last October when we came up with 2019 guidance of 4% to 6% there was a lot of.
Questions Buildout and whether that range was to tighter too conservative and clearly we had some onetime impacts that that impacted the guidance, but we we really delivered at the management team here is laser focused on execution and in running the business on a daily basis looking at key metrics include Cpis and we feel very Eric.
Vertebral about.
The budgeting process in the planning process that we went through it excruciating detail. This year, so you're right. It's.
A fairly narrow range when you look at a company of our size, but we're very comfortable with the range and we're going to go and delivered this year just like we did last year.
Well I'll take it another way all right.
Seems like you're so confident that youre, giving this growth small range. So.
I'm trying to figure out what are what made you in let's say not go to 6%. If you had this kind of confidence and giving this range like.
I think I think thats sort of the competitive environment. I mean were we know where consensus estimates were they were above.
5%.
As we didn't want.
Consensus the stay where they are out by water I think I'll walk through Unarticulated.
The realities of the wireline business, but listen we're very comfortable with the wireline business in the free cash flow generation of the business. So I think I hope investors are really not just looking at EBITDA and EBITDA guidance range, but really focusing on the free cash flow generation of the business and and yeah, we would compare.
Dynamics in the wireless business our intense we just went through probably one of the more intense back to school periods.
So we don't want to get over us too much on wireless as well about whether its growth in service revenue and flow through to EBITDA margins in margins expansion. So we're very comfortable or with the guidance range that we have out.
Okay, well that gets me into the free cash flow because I want to ask your question on that.
700 million and you said in your prepared remarks remarks that you are embarking on a improving trend and free cash flow and because of that just started.
Would that be and on the trip change.
What do we have if we look further out what are the things that you like to see the company perform in terms of free cash flow growth rate.
Beyond the 700 2020, how should we look at 2021 2022 is that continuous.
Improvement and the free cash flow that you're expecting longer time or is there something in 2020 would the capex being reduced like that that is a onetime in nature.
No I think I talked about it earlier on the wireline capital side again, specifically with the strategy that we embarked on a number of years ago in the transformation.
The Capex savings are real sustainable and we continue to focus on other efficiency alter all opportunities in front of as well in a lot of those are on the capital side of things. So we feel we're very comfortable above the right level investment in our wireline business and its moderating and we continue to see opportunities going forward. So we don't.
Foresee any big Capex Spike, we did talk a little bit already about wireless.
We were holding a little bit back this year, but it's not that much and we don't see any significant significant spikes in wireless capital from for example, the run rate. So we delivered enough 19 of $385 million. So we continue to see EBITDA growth rates beyond up 20, and we consider you see all of that's flowing through to.
The bottom line in that combination of things.
To continue to generate strong free cash flow above EUR $700 million in future years.
Is it fair to say that you're holding back a little bit on the wireless because a fourth.
The upcoming hearing as going to.
Bring out in terms of change or not in terms of.
Policy in Canada, Yes, a little bit if I wasn't clear with my previous remarks. This that's what we're trying to imply.
Okay, and my and my last question is on on on iPhone and.
I'm trying to figure out what you kind of implied in your guidance when it comes to the cohort of iPhone customers that you loaded.
[noise] closing in on two years now and have MBR early December .
What kind of China rate, the implied analyst and not cohort versus the churn rates, you're currently having any our base.
And the type of subsidy that you are implying.
We'll retain those customers.
Thanks, Bill Hearts Paul.
I will get into the specific levels of that but I will just give you a couple of guiding principles first.
Anytime we have a customer it it's in a two year device financing plan, we see a significant improvement in their churn profile looking more in the sort of 1% range than in the 1.3% range. So when we report postpaid churn that of course includes be way I'd, which has a higher churn profile. So yes.
We've assumed that we're looking to put people into a device financing plan because it has great good characteristics on on all fronts.
What.
When we launched the iPhone in December 2017.
Of course every every month, we've been taking essentially another cohort of financed subscribers into our amortization schedule and have not had the benefit of customers rolling off that 24 months schedule and if you just think about the life of I think the average life of an iOS subscriber in Canada is 2.9 years according to Apple.
Which means that once they roll off the amortization schedule.
25 through say 30, 530 435, they pop back up to their complete ARPU. So there's no there is no longer and accounting impact to that so it means that in.
In December January this of this coming year, you'll start to see that first cohort roll off that will be accretive to ARPU, it's not a big pop right out of the blocks because of course, we're also adding people and behind it but it it means that our ARPU story starts to get incrementally better over the course of last half of the year.
And Thats a benefit that we have.
We're looking forward to to the other operators of course of already had that 24 month Rolling thing, we've still been filling up that bucket. So we have three or four months left of filling it up and then we get to sort of start to take withdrawals from it which is a positive to our story.
Makes sense, okay. Thank you very much.
Our next question comes from David Mcfadgen Cormark Securities.
Oh, great Yeah, a couple of questions I mean, I'll start with first when the clarification.
Just on the 700 megahertz spectrum did you say that as far as Western Canada goes it will be done decline that in calendar 2020, buddies encana you'd be done in fiscal 2020.
She is David with the whole is just correct. We remain calendar 2020, it will be done by.
Hey, Mike in Western Canada.
And substantially complete in eastern Canada by the end of 20.
Okay. Okay. So I found that 2020 person asked when you try after.
So just a question on wireless.
Post Ah.
Now on the Q1 have you seen any impact on your loading from the incumbents unlimited plans.
Thanks, David Paul Let me, we could probably the most significant impact we saw would've been in the early days of it is you had kind of an initial Russian that.
Certainly impacted us as I indicated for from the churn basis 10 to 15 basis points. So we saw an initial they'd have a of activity. There. We continue to like what we see for loading both the quality and quantity we.
We've been very clear in kind of Telegraphing that we look to have a balanced scorecard in America. We did we manage the wireless business, which means we're looking to do.
Something in the area 250000 net adds over the course of each each each year and continue to have a strong.
Revenue and EBITDA growth story, and we continue to be tracking nicely on that front. So I think the.
For all the energy and initiative that we face from the Big three we weathered that storm brilliantly through the course of the summer and continue to do so now.
Okay.
And then and then a question just on the on wireline side of the business and when you look at them video the cable video losses.
They seem to just trying to be hanging in at this rate is there anything.
In your mind coming on the horizon that can actually potentially lower them.
Yeah, David J. again.
I mean first so we were very pleased with our internet loads and is right on strategy for the quarter, which is a significant.
And we're very comfortable with what's happening in the satellite video space.
And there's the natural seasonality, which you'll see in Q1, we've got ARPU of $84. A time right now and that business is very profitable. So that'll be a continuation of trend I think your question was specifically about the broadband or cable video of.
We had a significant loss through 2000 in the quarter and that really reflects we launched our IP TV platform.
In the 70% of our customers in the last five weeks for the quarter with some of it being launch with two weeks left in the quarter. So we're in a little bit of a technology treat until we're holding our our powder a little dry and also little bit more focus on soon as you probably have seen this week that weve.
Your next generation packaging Lugar total that really brings all of the advantages of the Comcast program. The very best of the Comcast roadmap the consumers and so we're already seeing.
Significant uptick in the percentage of double play installs in this quarter as opposed to Q4. So we won't get ahead of ourselves I mean, the video business is the video business and were steady as she goes in terms of how we're pursuing it.
So it certainly.
Disappointed if we had another number like Q4 Q1.
Okay.
Alright, thank you.
Great Thanks, everyone and.
We're really looking forward to F 20, and we'll see at the next caller talk to you in the next call.
This concludes today's conference call you may disconnect your lines, thanks for participating and have a pleasant day.
So.
Okay.
No.