Q4 2019 Earnings Call
Thank you for standing by this is the conference operator, welcome to the Rogers Communications Inc. fourth quarter 2019 results conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
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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.
Thank you very all good morning, everyone and thank you for joining us today I'm here with our President and Chief Executive Officer, John Italys, Our Chief Financial Officer, Tony Staff, Gary and our Chief Technology knowledge information opposite George Fernandez.
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 then our 2018 annual report regarding various factors assumptions and risks that could cause <unk> actual results to differ with that let me turn it over to John .
Thank you Paul.
Good morning, everyone.
This morning, we released our 2019 fourth quarter and full year results along with our 2020 gardens.
Let me start with some comments on the overall year, followed by the fourth quarter.
29 team, we took significant steps to position Rogers for long term growth and success.
On the street two fronts, we led the industry with the launch of unlimited data.
We accelerated the rollout of big like TV, we laid the critical foundation for Fiveg.
We drove solid growth in our B to B segment.
We repositioned media for the future.
We also made meaningful progress on the customer experience front.
We improve service levels grew digital adoption.
Increase the critical customer metrics likelihood to recommend.
And reduced our overall cost to serve.
From a culture perspective, we hit a record 85% and employee engagement.
Exceeding global best in class by five points.
Probably were named one of the kind of those most admired corporate culture.
Overall, we made substantial progress on our strategic priorities.
In terms of financials for the full year, we continued to deliver cash flow and EBITDAR growth you put aside the impact of unlimited transition we continue to grow the key underlying fundamentals of the business.
Turning to the fourth quarter or the financials came in as expected and subscriber metrics were very strong.
In wireless we delivered stable financials in the strong saw strong underlying growth. We added 131000 postpaid net subscribers and grower in front of based to 1.4 million over.
Overall the rate of Internet adoption continues to exceed our expectations. It is very clear we have a compelling value proposition that resonates with Canadians.
As a reminder, we let the industry with the launch of unlimited data and equipment financing to achieve three objectives.
One stimulate due to use thing get ready for fiveg by driving affordability.
To drive a step change in the customer experience and reduce the cost to serve.
Evthree reduce the cost of acquisition and retention.
We're seeing good momentum on all three fronts I remain incredibly proud of our team for the leadership and their disciplined execution of these plants.
In cable, we delivered solid financials in the fourth quarter, driven by Internet and the adoption of ignite TV Internet remains the cornerstone of our cable business and we continue to deliver strong and steady growth in revenue and continue to sustained growth in penetration.
We ended the year were 325000 subscribers I think my TV and completed the rollout of the service to our entire cable footprint.
As a exclusive product for our cable footprint.
In 29 team has significantly enhanced our product roadmap, we launched global best in class why five hub technology introduced self install added Amazon Prime.
And sports and that now with more streaming services to come.
Looking ahead to 2020 NR cable strategy, where even more excited about our product roadmap.
It includes more connected home technologies video entertainment flexibility along with popular content OTI T. integration.
Finally, we continue to return capital to shareholders maintained the strength of our balance sheet and delivered on our capital allocation priorities, we returned $1.7 billion in cash to shareholders through dividends and share buybacks at almost 70% increase over last year.
And we delivered industry, leading total shareholder returns of 36% over the past three years.
This morning, we released our 2020 outlook reflects our continued planned transition to unlimited data with no overage fees as we highlighted last quarter. Our results will be muted in the first half of the year, we will return to growth in the second half fundamentally it as about improving our trajectory as the year progresses.
Looking ahead to our wireless strategy 2020 begins the rollout of Fiveg.
35 years ago, we were the first to launch wireless services in Canada, and we're proud to bring this new important technology to Canadians on candidates only national network.
Last week, we announced the start of our Fiveg rollout, bringing it to downtown Vancouver, Toronto, Ottawa Montreal. So it is ready when fiveg devices become available. This year. We just finished testing Canada's first fiveg device from Samsung, which will become available in March we further we will further expand or.
Network to over 20 more markets this year.
Our Fiveg network will initially used to and a half gigahertz spectrum.
And expand to use 600 megahertz spectrum later this year last year, we secured 80% of the available 600 megahertz spectrum in every single province, and territory. This premium Fiveg spectrum provides great propagation across long distances of through dense urban environments, creating more consistent coverage and remote.
What areas and smart cities.
I will also start deploying dynamics spectrum sharing technology, which will allow fourg spectrum to be used for fiveg.
Earlier. This month, we became the exclusive Canadian member of the New Fiveg future Forum.
Fiveg mobile edge computing Alliance that includes Verizon Vodafone Telstra Korea Telecom and America Imobile.
The global Alliance will create a common framework for fiveg applications across the Americas Asia Pacific and Europe .
For the next several years Fiveg will start to transform businesses and industries.
With increase speed and capacity more efficient use of spectrum improved battery life lower latency fiveg is more than just the overall.
Overtime Fiveg will support a massive increase in the number of connected devices.
Devices were required near instantaneous connections.
For smart cities for remote patient health care.
Robotics driverless vehicles virtual reality and gaming.
Fiveg will touch every industry and transform our world. Unlike any other wireless technology.
As you know Rogers has partnered with Ericsson North America's Fiveg partner of choice. We have established key partnerships to research incubate and commercialize made in Canada Fiveg technology.
This includes R&D partnerships will be University in British Columbia University of Waterloo and community check. It includes collaboration with government and industry through Ryerson University at Encore Fiveg.
These relationships are not only advancing fiveg.
Our attracting young talents, who want to shape, Canada's fiveg roadmap with us.
Investment is the lifeblood of wireless networks investing in Fiveg is not only critical to Canada digital economy. It is critical to kind of those global competitiveness.
The race to Fiveg is not with other companies it is with other countries.
Over the past 35 years, we've invested over $30 billion to bring Canadian the best wireless networks in the world.
We invested because we have the right public policy, the right regulation to spur investment and spur innovation.
In 2020 alone we plan to spend almost $3 billion in capital to build Canada's communications infrastructure.
This capital in this investment is at risk.
I have the right regulation.
As we enter the world of Fiveg regulatory certainty is critical to investment when these regulation that encourages investment and fuels innovation punitive regulation will slow or worse stall fiveg deployment.
And the expansion of rural conductivity will happen at a snail's pace if at all.
Ultimately it is about balancing affordability with investment striking the right balance is key to Canada digital future.
The government has shown that can effectively achieved this balance and they must do it again for Canada.
Looking ahead, we are well positioned to drive long term growth.
Deliver the most advance networks and dramatically improve our customers experience.
And with that let me turn it over to Tony Tony overview.
Thank you Joe.
Hi, good morning, everyone.
Overall, we're pleased with momentum with which we exited the fourth quarter of 2019, particularly on the subscriber front.
We had strong subscriber metrics in both our wireless and cable offering driven by the continued transition associated with our unlimited data infinite plans.
Customers continue to embrace these plans and the revenue improvement ARPU lift and efficiency benefits associated with these plans should contribute to healthy financial growth in the second half of 2020.
I'll provide more color on our guidance for 2020 momentarily, but let me give you a quick recap of the quarter.
In wireless service revenue decreased 1% year on year, driven by a reduction in blended ARPU as a result of reduction in overage fees.
Importantly, however, the year over year rate of decline in ARPU in the fourth quarter is already starting to improve compared to Q3 as overage declined slowed and more customers came in on infinite plant.
Gross and net postpaid subscriber additions as well as subscriber adoption of our infinite plans were strong in Q4 net postpaid loading was up by healthy 17% as we added 131000 postpaid subscribers.
This robust growth was driven by an active market were Rogers clearly benefited from the appeal of our infinite and Fido plans, our extensive distribution channels and our leading wireless National network churn was up three basis points from last year and again better trending in the 11 basis point increase we saw in Q3.
And better than we expected going into the quarter.
I do want to draw your attention to an adjustment we made to our postpaid base in the quarter effective October onest, we reduced our postpaid subscriber base by 53000 subs to remove a low ARPU public service customer that is in the process of migrating to another service provider.
This adjustment had very minimal impact in the quarter to churn and net additions on blended ARPU our year over year decline was 1.6%, including these subscribers and was a decline of 1.2% when removed.
Equipment revenue was up 7% this quarter benefiting from higher postpaid gross additions and a shift in the product mix to higher value devices.
While the fourth quarter remained a competitive period, it's important to note that price plans for infinite have remained stable since launch and subsidies on a per unit subscriber continue to decline year on year, albeit at rates still well below our expectations. When we first launch equipment installment plans back in July .
For the full year, our overall subsidy expenses down on a full year basis as well as in Q4.
In 2020, we anticipate further declines in our subsidies as our value propositions for customers continues to shift to unlimited data plan offerings and zero interest rates on our equipment financing.
Despite the ongoing reduction in overage revenue wireless adjusted EBITDA grew 4% or flat year on year, when excluding the lease accounting impact.
We remain very encouraged by the faster uptake unlimited infinite plans and we continue to expect further operational and financial benefits from these plans as we complete the migration.
Offering customers simple unlimited plans paired with zero percent device financing is healthy for our industry as we improve our cost structure lower the cost for consumers and ultimately have happier customers with a lower propensity to churn.
As important this transformation will better position us for sustainable long term growth in Fiveg World. We're data usage will be materially higher ultimately usage growth will not only drive growth for our industry, but continue to drive down the cost per gig for our customers.
Turning to cable revenue was flat compared to the prior year fourth quarter and adjusted EBITDA grew by 2%.
Our internet offering performed strongly and continues to be a key driver for our cable business Internet revenue grew 7% this quarter, reflecting the movement of internet customers to higher speed tiers, and a larger internet subscriber base in Q4, we reported 27000 nets Internet subscriber additions.
2000 more than the prior year fourth quarter.
This reflects the 18th consecutive quarter of increasing penetration rates. In addition, internet ARPU grew year over year.
We're in a strong position to meet customer demand for faster speeds and higher data with our ability to offer ignite gigabit internet.
Internet across our entire cable footprint.
Cable margins expanded by another 100 basis points. This quarter due to continued focus on efficiencies and product mix shift to higher margin Internet.
EBITDA margins were 50.4% and cable Capex intensity was 29% down significantly from the 43% in Q4 2018.
As reflected in these results we continue to make excellent progress towards our goal of 20.2% cable capital intensity and 25% cash margins by the end of 2021.
Moving to media revenue was 2% lower year on year, largely as a result of the sale of our publishing business.
Excluding the impact of the sale of publishing media revenue would have increased by 1% this quarter.
Media EBITDA was down 45% due to lower revenue and higher programming costs during the quarter.
On a consolidated basis, we reported a slight decline in revenue and adjusted EBITDA growth of 1%.
We invested $791 million in capex for the quarter, which decreased 4% year over year.
The decrease in capital expenditures was largely driven by our cable business as we overlap or ignite TV ramp up lower customer premise equipment purchases and a network and network investments we've pulled forward to realize the economies of scale.
Capex intensity in wireless was 14% during the quarter, we continued augmenting our existing LTE network with our Ericsson Fiveg ready technology investments. We're also working on deploying our 600 megahertz spectrum, along with other bands to expand or Fiveg coverage.
Rogers these excited to be leading Canada's fiveg charge as Joe as highlighted the significant investments, we're making are critical to the successful deployment of fiveg and essential to keeping Canadians competitive on a global scale.
Our commitment to generate strong free cash flow and returned significant capital to shareholders remains strong even during this heightened investment cycle and launch of our infant implants, we generated free cash flow of $497 million this quarter, an increase of 6%.
The notable increase this quarter was the result of higher adjusted EBITDA, along with capital efficiencies in cable.
Our cash tax rate as a percentage of adjusted EBITDA was 4% in the quarter and 6% for the year and we anticipate our cash tax rate to remain in the 6% range for fiscal 2020.
We returned cash to shareholders through dividend payments of $256 million and repurchased 370 $357 million in class B nonvoting shares in the quarter for the full year, we returned $1.7 billion to our shareholders with more than $1 billion in dividends.
And 655 million in share buybacks in 2019, our capital return to shareholders was almost 70% higher than 2018.
Our debt leverage ratio at the end of Q4 was 2.9 times, reflecting a 40 basis point increase compared to the end of 2018.
As we mentioned in previous quarters, I, FRS 16 lease accounting drove 20 basis points of the increase and the completion of our 600 megahertz spectrum purchase added 30 basis points avatar growth during the year helped drive leverage down by 10 basis points.
With a healthy business and strong free cash flow, we expect to continue reducing our leverage over time moving closer to 2.5 times in the future. However, given the current low interest rate environment, we expect to do so at a steady natural pace.
We had liquidity of $2.5 billion at the end of the quarter and have solid investment grade credit ratings with a stable outlook.
Additionally, our balance sheet is well positioned with long term maturities and low interest rates on our outstanding debt.
Our weighted average interest rate at year end was 4.3% with average term to maturities of 14.1 years.
Let me move onto our 2020 guidance.
In October of 2019, we updated our 2019 financial outlook to reflect the accelerated adoption of Rogers infinite plants. There were three key items. We highlighted then.
First it was that the majority of overage revenue is going to be eliminated in four to six quarters versus the six to eight quarter timeframe. We had originally estimated in July .
The second key item was that the second half of 2019 and first half of 2020 would share similar growth dynamics in terms of year over year, ARPU and revenue declines.
The third was that this accelerated adoption rate also meant that we would realize the costs and the revenue benefits of these plans sooner.
For our 2020 outlook, we are reiterating the dynamics, we highlighted back in October and we have built our outlook accordingly, starting with revenue we expect service revenue growth for the full year to be between positive, 2% and negative 2%.
Previously, we provided total revenue guidance, including hardware revenue.
Given the hardware dependency of this metric together with the noncash impact of IRS accounting and equipment installment plans. We have transition this guidance metric to service revenue, which is a more meaningful metric for the business.
For EBITDA, we anticipate delivering between flat to up to 2% year on year growth.
As already mentioned, we anticipate the first half of 2020 to reflect negative year over year growth in both of these metrics, but in the second half of the year. We continue to anticipate these numbers to resume year over year growth. The second half improvements reflect the benefit of ARPU improvements greater cost efficient.
We ended with our unlimited plans as well as other cost productivity initiatives.
Capital expenditures are expected to be in the $2.7 billion to $2.9 billion range. However, as Joe has noted our investment program could be reduced meaningfully if any regulatory decision proves to be unsupported to making these investments.
Finally for free cash flow, we expect solid growth of 2% to 4%.
2020 will be an exciting year for Rogers overage revenue will become less than 1% of our wireless service revenue device subsidy cost will be reduced customers will have simpler and robust data plans and data usage will grow as we drive forward with our Fiveg network.
These are all healthy signs of a strong and highly competitive Canadian while wireless industry. We embrace the leadership role. We have is Canada's largest wireless company and look forward to providing our customers with the best network performance and best customer experience in our industry.
With that I'll ask the operator to open the lines for questions.
Thank you we will now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad.
You will hear tone acknowledging your request if you are using the speakerphone. Please pick up your handset before pressing any Keith.
To withdraw your question. Please press Star then.
We will pause for a moment as colors join the queue.
Okay.
Our first question.
From Vince Valentini of TD Securities.
Yes, thanks very much.
Start with wireless ARPU and overage.
If my math is correct you would have been plus one instead of minus wide on on ARPU growth without the overage that points to about 40 million.
Totally correct me, if I'm wrong on that.
That would be a bit lower than the 50 million you talked about in Q3. So that means is that correct in that I mean, it there can be lumpiness in seasonality from quarter to quarter, because obviously had more customers on unlimited plans in Q4, the new dating in Q3, but yet the amount of lost seems seems to have come down a bit.
So if you can clarify that first and then.
Secondly, with this capex guidance I'm, what to make sure I am cleared.
The reduction in cable you're talking about by the end to 2021 doesn't look like a lot of that is baked into your guidance range for 2020 are you expecting most of that decline from call. It 29% down to 20 to 22 to happen next year and not not in 2020.
And then last related to that as well just to clarify how you phrased. It is the 2.9 billion.
An aspiration all high end Capex number that only as possible. If we have a perfect regulatory world. This year in terms of no NVNO is at all no implementation of those lower CPI rates, if there's anything negative on the regulatory front you'd be less than 2.9.
Thanks.
Thanks Vince.
Let's start with.
First question, it's related to the overage decline in the fourth quarter.
Your math is roughly correct in the third quarter, we disclose that we had overage decline of about $50 million in the fourth quarter, we had slightly less than that a little more than the $40 million that you're quoting.
But we saw a slight year on year decline.
Notwithstanding the fact that we had more customers come onto the infinite plans keep in mind that.
Q3 is a seasonally high quarter with respect to overage revenues and so what you had in the fourth quarter is the combination of the seasonal decline offset by the increased number of customers on the infinite plants.
With respect to your second question on Capex. The range, we provided a two seven to two nine.
Reflects our intent to continue to reduce cable capital intensity. This year in 2019, you saw us come down to 29% for the full year and we're pleased with the progress that we made on that.
And so you'll continue you should continue to expect.
Cable capital intensity to decline further in 2020.
And so it will be good meaningful progress and then we expected to decline again, so that our exit rate by end of 2021 is in the 20% to 22% capital intensity range.
In terms of regulatory impact the range, we provide a two seven to nine is based on the fundamentals we've always talked about.
Wireless capital intensity in the 14% range cable talked about coming down.
And then a few other items related to corporate initiatives.
To the range. We provided was intended to give us a bit of flexibility for a number of factors, including the timing of some of the fiveg investments, but also.
The migration and pace of and quantum of migration of customers to ignite TV and so we wanted to give ourselves a bit of flexible flexibility for that.
Fleet range, we provided to seven to two nine is based on our current regulatory outlook and so to the extent that.
Regulatory decisions in the year were adverse or negative to currently exists.
We could very well see an investment range of less than 2.7 or the bottom end of our Capex range.
Excellent. Thank you.
Our next question comes from Simon Flannery of Morgan Stanley .
Good morning. This is Landon park on for Simon I was wondering if you could just walk through some of the levers at your disposal given the fact that your your revenue guidance has a wider range than your EBITDA guidance and what you might be able to do if revenues do trend.
Two one extreme or the other.
And then secondly, I was wondering if you could talk a bit more about the performance uplift we should expect on your low band Fiveg versus what we would have seen on low band Fourg network.
Do you have any specific expectations pins on the timing.
Psas in devices and availability of that technology.
Okay, one I'd take the first one land and then we're going to ask George to comment on the low band Fiveg performance comparing it to Fourg.
On the person if you look at our guidance.
We.
We took it from a perspective of putting forward.
A conservative.
Set of financial guidance points.
No we.
Give ourselves a wide berth on the revenue front just to make sure that we had the understanding and the opportunity to kind of.
Manage through whatever competitive dynamics might happen in the marketplace.
As we work through some pretty substantial changes that are happening.
The move to a limited the move to equipment financing. These will have a broader impact on the market.
Rest assure that we are squarely focused on growing EBITDA and expanding margins in the business we've had a history.
Driving good margin expansion and if you recall between 2017 2018 over the two year period, we expanded margins by 200 basis points.
Then we've got a series of.
Opportunities in our cost playbook.
And cost discipline ideas that will continue to drive that trajectory.
And therefore provide.
Great support with respect to the EBITDA guidance would put forward and the ability to kind of manage any sort of ups and downs in the marketplace also bear in mind that part of the reason we go to unlimited is to drive the simplicity dividend and if you look at unlimited we're already seeing in the underlying.
Members of strong.
Cost efficiency payback as a whole.
Give you a few sort of specific thoughts on that we've talked about the underlying ARPU being strong when you when you adjust for the overage decline, but if you look at likelihood to recommend is very strong for infinite base.
And churn has materially lower so that drives very good lifetime value economics, the propensity to call is far lower as a whole.
And therefore, you know we're seeing less activity in our call centers with our incentive base and these were all the things that translate through to better cost efficiency.
As we launch equipment financing and make the.
No.
The primary way of getting a device.
On the Rogers brand.
And the fighter brand it will continue to drive better efficiencies on that front, our assumption in our guidance is.
That you know equipment subsidies will largely be as they were last year. So anything that comes along in terms of improved equip equipment subsidies is goodness to the overall plan that we have in place.
For our business.
So we see these as big opportunities and we have our ice fairly squarely focused on driving cost margin that will in turn allow us to create better affordability for our customers. So there can be greater adoption and penetration of our services and also too.
Free up cash to invest in the future of this business and Thats the virtuous cycle that were after.
George Thank you Jeff.
On the.
On the performance of the five kilos bands as we've explained before.
Our spectrum strategy is based on the combination of the low band spectrum.
Primarily for coverage.
Mid band for coverage and capacity and then overtime high band millimeter wave for deployment in areas, where we have high density.
Of users.
The issue for low band spectrum is not so much about.
An immediate it's great to performance send fourg, it's more about providing an equivalent coverage footprint than fourg at relatively low cost given that the site footprint is already there.
Real benefits over time comes when the Fiveg Standalone core becomes available at that point, we'll be able to combine both the new capabilities of fiveg, namely around.
I would see capacity and low latency with the very wide.
Available coverage, so thats the thats the key.
On the dynamics spectrum sharing we're currently testing that technology.
We'll be available later this year.
Obviously that will give us greater flexibility.
Of course, as a fiveg and set growth happens, we will have the flexibility to manage spectrum of call across.
Fourg and Fiveg, Fiveg and use our current and future.
Spectrum assets in a more efficient way.
Thank you thanks, Brian DSS.
To be in Atlanta devices this year.
Yes, yes, we do.
Okay, great. Thank you very much.
Thanks, Glenn in next question area.
Our next question comes from Tim Casey of BMO.
Thanks.
Sorry, if you went over this already Joe, but could you talk a little bit about.
The uptick in Q4 of.
Of subscribers to infinite and and how you think that progress through.
Next year and just a clarification the sub count adjustment you made.
Can you can you flesh that out for us Tony because I know you had removed some of the the federal contract I believe it was last year that was going over to a competitor how should we think about.
The adjustment this year in respect of the 100.
31000.
Postpaid adds you you posted thanks.
Tim we're very pleased with the adoption of infinite in Q4 and has exceeded our expectations I think we're thinking maybe closer to one three and a bit.
Coming out of one for again was ahead of expectations and the way to look at it is.
We see that concerning too.
RAF if you will through the first half of the year and then get to more of a steady state place in the second half of the year.
Is the way I would kind of look at it as a whole the mix we're seeing is still.
In the same range I talked about last time, 60% of people adopting infinite our upgraders and 40% are.
Dow greater spending lesser rate optimizing.
If you will.
But the vast majority of the transition to infinite will be done by July versus our current projection and after that will be kind of steady state.
Price plan changes new customers coming along.
Pre to post migrations vivo migrating from Fido to Rogers all those sorts of things that are kind of normal course of business.
So again as I said to lend in just a minute ago, we're really happy with the underlying.
Economics of what we're saying, it's playing out exactly as we had hoped the underlying recurring ARPU is strong when you take into account the mix I talked about the churn benefits our material.
And the impact in terms of cost to serve cost to support.
As far better.
All kind of.
All kind of held up by the likelihood to recommend which should be on the day kind of is a very key metric in terms of customers desire to stay with us over the long run their next big sort of focus is working the equipment subsidies side of the equation.
As we've said before there is a big opportunity there we have some of the biggest subsidies of any country in the world.
And often our price gets confused between what is inherently the subsidy burn off for the leasing of the device compared to the underlying rate or service plan. So our goal is to make things more clear and simple for our customers and distinguish those two items.
All along the way we have we think we have an opportunity to drive better overall economics, so again use that money for.
Driving affordability and investing in Fiveg and in the future as a whole. So that's kind of the tale of the take over the last total while.
You will be the volume of calls that we're taking right now.
To go to Infinity to discuss infinite our outweighing.
The lessening of the support calls for the base and that sort of those lines will really begun the cross in the middle of the year, but you can imagine that the volume of activity.
He has been substantial window.
If you look at.
The volume of activity around price plan changes or customers asking about this we're seeing three to four times the regular volume of normal inquiries around rates and plans and things of that nature. So thats kind of the tax paying in the short term.
As the lights Cross, we'll see the goodness come to the surface.
We're seeing that underlying the metrics right now as we kind of evolve.
This transition.
On the second part of your question Tim.
As I said, we may be adjustment for 53000 customers was a provincial government contract there were looking for pricing.
At extremely low ARPU is that economically didn't make sense for us and so that business is transferring to another service provider.
In terms of the transition during the fourth quarter. The number was very small literally a few thousand and so it had.
Negligible impact on our net postpaid subscriber reported number as well as on our churn number and in terms of the impact to the base as I said at the year on year growth rate.
It was impacted by 40 basis points as a result of that adjustment and so we wanted to follow the same type of approach. We did for the government income of Canada as you highlighted.
And wanted to avoid the distortion that it would provide in in our metrics going forward, particularly given the the low ARPU that we're talking about.
For this as I said, the economics, just didn't work for us the lifetime value was negative.
In diluted to to our business and so we think we made the right decision on that.
Thank you.
Thanks, Kim next question area.
Our next question comes from Maher Yaghi of days are done.
Thanks for taking my question.
I'm trying to get my head around the guidance Im sorry to get back on on that topic again, but.
When I looked at your exiting results for Q4 on EBITDA with plus 1%, you're calling for EBITDA for 2020 to between zero and 2%. So middle ground is 1% why why.
Should we see continued degradation and EBITDA growth.
And.
First half one.
A lot of the pain and while some pain already has materialized in Q3 in Q4 and affected your EBITDA growth. So I'm trying to just to figure out.
What's the cause of the increased pressure on that but growth in the first half.
And.
I guess inside that guidance what's your.
Assumption on subsidies are you continuing to assume that the subsidy model will continue.
Ill.
Continue in 2020 or some relief.
Isn't there to get your tier guidance.
I have a follow up question on wireless please.
Okay and several of those two in there.
In terms of our performance for the fourth quarter, we reported adjusted EBITDA growth of 1%. It's important to keep in mind that that 1% is inclusive of the IRS lease accounting impact year on year, which we've said is about three points of impact year on year.
So you ought to think about as we go into each of the quarters in 2020.
The lease accounting impact will be an apples to apples in terms of year on year and you can remove that three point adjusted so in the first quarter. So in the fourth quarter that 1% equates to.
And I for us adjusted number for lease of negative 2%.
And so thats the important factor to keep in mind for the first half of 2020 in terms of our outlook for subsidy as Joe mentioned by.
At the end of this month and into the first week in February we have announced that we will retire the subsidy plans and move to all installment equipment installment plans.
We think thats the right approach for the customer and as part of that we think we'll continue to see reductions in subsidy cost as the value proposition focuses on the connectivity rates in the plans and unlimited.
And worry free overage plans in Fido.
In terms of our outlook in our plan, we haven't necessarily relied on that to happen in order for us to hit our EBITDA guidance and so we think thats, a big opportunity for the industry and we'll need to see how the competitive dynamics play out.
But we're primarily focused on other cost playbook initiatives.
In order to to be within our guidance range on EBITDA.
And when do you Tony on on diet for a 16 impact, but when you look at your 2019 guidance of three to five and removing that impact to high FRS 16, basically calling for the same kind of EBITDA growth in 2020 versus 29 teams. So again I'm going back.
To trying to figure out you guys talked about the second half improvement and the game.
You expect to get from the launch of unlimited and the cost benefit and so.
From the guidance that you are giving in 2020 doesn't seem like.
We're at the point too.
Begin to benefit from that transition. So when is that benefit going to be fully reflected so we're looking at plenty plenty one now.
Okay couple of things are just just to level set for the full year 2019, we had flat revenue and EBITDA growth of 4% adjusting for lease we had EBITDA growth of 1%.
For the full year and as we saw it play out it was really a tale of two stories in 2019 first half in second half and what you saw in the second half was declining topline and declining EBITDA and.
Compared to what you saw in the first half of 2019, and so we are reiterating.
The same type of.
Approach for 2020 in reverse we'll continue to see a drag on top line as well as EBITDA for the first half of the year and then we expect to see growth in the back half and we want to be cautious about how we see that growth. It will depend on a number of dynamics and in particular competitive.
Mixed in the marketplace in what is a very busy period. So we think our our guidance appropriately reflects.
Yes, the the type of quarterly and first half back half skew that we previously talked about.
Okay and on sorry.
On the wireless you had the nice.
Quarter in terms of floating postpaid customers.
I guess there is there was a lot of.
Subsidies there are lot of gift cards going around and the fourth quarter.
I would have thoughts your ARPU would have been more effective than what it showed up in the results can you talk a little bit about the quality of the customers are getting and how that ARPU number.
Came out to where it was.
Showing some improvement sequentially.
Sure a couple of things of meritor be helpful. On that first I'll start with the quality of the customers coming in we're very pleased with.
With the lifetime value as well as the ARPU and if you're to look at one of the things I've talked about before is we look at ARPU in and it's up year on year.
And when I say ARPU I mean, I FRS ARPU, obviously ABPU is up as we have more device attach rates.
Meaningfully ARPU is up year on year end, the lifetime value of the customers coming in is up significantly. So we're very pleased with the with the mix of customers that made up.
Not only to postpaid nets, but also the gross additions that we had in the wireless business Q4 was as always extremely competitive.
What we did see when you step back and look at.
All in promotional.
Subsidy and promotional costs for the quarter, they were actually down year on year on a cash basis and so you saw some of that bleed into our fourth quarter year to look at equipment net equipments subsidy costs. They were down slightly year on year and as you know as a result of the amortization over the life of the contract.
You will see more that bleed in but if you step back and look at the economic cash basis.
It was down year on year again less than we would have.
Targeted back in July , but notwithstanding that still on on a positive trajectory as we head into 2020.
Okay. Thank you.
Okay. Thanks next question area.
Our next question comes from Jeff fan of Scotiabank.
Thank you good morning couple of clarifications and then maybe.
Broader question.
Clarification regarding the service revenue.
Quarter saw a bit of an improvement from last quarter last quarter was down minus one six it was down only 1% this quarter Tony based on your comment as we look out to 2020. We are you expecting does first half given the seasonality of.
Overage and other factors that you will be worse than the minus 1% and gets worse before it gets better on the inflection maybe just help us out one clarifying that.
The second clarification is just regarding the subsidies so.
So you are you planning to move subsidies I'll give you system, but you haven't included in your guidance it sounds like do not.
Assuming that your competitors will just simply follow.
So for your contract asset, which I guess picks up the subsidies are you assuming that's going to be roughly similar to 2019 is what you would likely see in 2020, and then just on a broader question.
As you kind of look at the competitive environment.
What we've seen in the last quarter at a loss nine months or so and then looking out to 2020.
Is there any are there any plans to may be considered altering your reporting to blend your post in prepaid subscribers and report phone just to kind of shift to focus away from pure loading.
And focus more on maybe the financials and service revenue et cetera, I want to get your thoughts there. Thanks.
Okay I'll start with.
The first one Jeff as you highlighted we had a bit of an improvement in the trajectory of service revenue.
So we're pleased with that as we look to the first half of 2020.
You should expect about the same as what you saw in the fourth quarter.
Q3 was a decline of almost 2% and improve.
In the fourth quarter as we look to the first half as I said it will be we think about the same as the.
As we saw in Q4 I want to be careful that we don't start to slide into quarterly guidance, but at same time, we want to be very helpful. In terms of first half in second half.
So hopefully that that will help you in terms of subsidy.
Two things to highlight one is.
Moving away from the subsidy model construct to installment plan.
Isn't necessarily by itself about reducing the promotional discount if you will it's about making it simpler for the consumer so we're much more transparent and what the connectivity rate plan is versus what the cost of the handset is in so simplicity and transparency is really the focus there at the same time.
We have and will continue to.
Reduce the amount of promotional discount that's inherent in.
In the device pricing and so.
And that's true whether it's on the old subsidy rate plans or whether on installment plans.
That is going to be highly.
Market, driven we'll need to do we need to be competitive in the marketplace and so we'll see how that plays out as I said in the fourth quarter we saw.
Bit of a decline year on year and so within our plans for 2020, we've assumed a very modest decline.
And I would describe it as not terribly significant.
To achieving our results our cost playbook is really centered around other factors.
And so that could be an incremental opportunity depending on how it plays out in the marketplace.
And then finally on your last question with respect to import reporting.
Yes.
And whether our focus goes back to some of fundamentals, let me start with.
First and foremost our fundamental we start with as always.
Revenue EBITDA and cash Thats really what we focus on and every quarter, what we look at his revenue share.
How we performed on revenue sharing but for the overage decline I think what you would've seen as a very healthy track record of leading capturing leading share of.
Of revenue share and EBITDA growth share.
So those are going to continue to be fundamental.
Key first principles in terms of secondary leading metrics.
Well.
I don't want to get too far ahead of ourselves in terms of what will provide at the end of Q1.
But I think theres merits too.
Having some what I would describe minor modifications, but.
Still still more to come on that front.
We just had one comment.
Jeff I mean, if you look at the what drives that underlying economics of our business as Tony said revenue EBITDA cash flow those core economics share revenue growth.
It's a combination of things as you know there there are gross additions that that come in to our business.
Roughly one point.
6 million postpaid gross adds last year.
There are deactivations, roughly 1.2 million Deactivations and then as much as one third to one half of our base was going through either price plan change our retention activity the quality of each of those transactions is what really drives the fundamentals of our business the quality of what comes in.
What goes out.
And so the interaction throughout the course of the around retention at adjustments is really what drives the fundamentals of revenue growth EBITDA growth and cash flow growth. So we'll continue to kind of point to the quality of those items.
Increasingly.
Pure net adds are only a small part of the story when you look at the broader picture of all the activity that goes on every single day.
Great Thanks to the color.
Thanks, Jeff area, we have time for two more questions with.
Certainly our next question comes from drew Mcreynolds of RBC.
Yes, thanks, very much good morning, two housekeeping or maybe three housekeeping items that for me on Roger is media.
Can you just speak to the dynamic the higher programming costs in the quarters that something that we'll see for 2020 in how should we overall be modeling Rogers media second question on the cable EBITDA margins certainly still continue to.
Going the right direction wondering if Tony can you just comment on the drivers of that going forward in terms of further margin expansion.
Respect either mix or or certainly additional cost efficiencies and then lastly, just on the capital return.
Side of the equation can you just fine tune.
Some comments in and around how you see the buyback and with respect to dividend growth I don't think anyone was certainly expecting.
Gross another increase today, but just what needs to come together to to resume some dividend growth in the future. Thank you.
Okay drew a couple of things.
I'll start with.
The media portion of it.
As you know, it's always a bit lumpy and media in terms of timing of programming costs.
To be the revenue profile and so there is never a perfect matching with any month or quarter. So as you looked at 2020, you ought to think about media as.
Good solid growth and we've always talked about growth in media.
A more consistent basis in the.
On the 2% range and that continues to be our outlook for media and you should expect margins and therefore EBITDA growth to be somewhat more consistent.
Again with some of the numbers you would've seen throughout 2019, when you exclude the impact of publishing.
And so again.
Topline growth together with EBITDA growth and some.
Modest margin expansion in media.
On the second piece of it.
I'll come back from margin I, just need some clarification, but on capital return.
Again, we reiterate that we're committed to.
Cash return model, we think from a balance sheet perspective, we said.
At a comfortable place in terms of liquidity leverage at two nine is a little more elevated but.
We comfortably burn that off in the normal course of our operations in growth.
And so with that in 2019, you saw some pretty healthy cash returns of.
$655 million through share buybacks. In addition to the dividends as we looked at 2020.
The three factors that are top of mind for us as you would expect and and one is the timing and pacing of our cash flow growth.
And so you can expect us to toggle it with that and we've talked about the first half of the year being.
More muted in terms of growth.
The second piece of it relates to.
The upcoming spectrum option and so we'll need to get further clarity on the timing of that and how we think about timing and quantum of.
Of share buybacks.
In the third is somewhat related to that is how we're naturally burning off our.
Our debt leverage ratio as well so those are sort of the three factors. We we think about in that and then on your.
Second part on margin expansion Im not sure I got the question if it related to all businesses or.
Just just the cable and Tony.
On the cable one two things we expect.
As Joe said over the last several years, we've seen very good margin expansion on cable and it's really been on two fronts. One is the indexing of more subscribers and therefore revenue to internet, which is naturally a higher margin business together with.
Cost efficiency things that we've continually been able to focus on and so as we look to 2020, we see continued improvements in EBITDA margins.
And.
Certainly at the cash margin level I've talked about.
Capex intensity continuing to move down for cable and that'll continue to contribute to.
We think a pretty good.
Cable cash margin expansion in 2020.
Bear in mind, we're going through drew we're going through another transition in cable we're going through the migration to ignite we ended the year return and 25000 ignite customers and we also decided to stop so.
Our legacy solution.
We also as I mentioned in my comments upfront launch self install so we're trying to work our way through that transition with a lower capex CP footprint, given the inherent inefficiencies of the new solution versus our legacy.
Dramatically different CP footprint in terms of cost.
We believe those good opportunity on the self install front.
We know that.
Other.
Peers of ours, who launched similar products are seeing good success on that front and just getting to that same level is of great inherent benefit to us. So we're kind of working that calculus of the same time.
As just driving the overall performance of the business once we're in steady state with respect to the ignite transition there'll be no.
We have worked our way through that that's that's goodness on many fronts.
Thank you.
Okay. Thanks to last call area.
Certainly our final question comes from Richard Choe of JP Morgan.
Hi, Thank you.
Wireless loadings were solid service revenues when it came in better.
And broadband revenue came in better the only kind of weakness was on the video side, but guidances for minus two plus two for service revenue that seems pretty wide given the way the trends.
Are going to is there something we're missing there.
Sure.
On the revenue side we.
A couple of things as we make the trends continue to make the transition to unlimited.
Still a number of moving dynamics for us and frankly for the industry in terms of.
What may play out on the competitive front.
On the cable side, we see good path to continued growth in 2020.
But it's really the former that we wanted to leave ourselves room to make sure that we have the flexibility to do what we need to do in the marketplace in the short term to have the right long term result, and so.
Notwithstanding the fact that we provided what.
You've described as a fairly broad range on service revenue.
I think the key point.
They were trying to making guidances.
We will land EBITDA within the somewhat narrower range that we provided.
And so I think thats really important point that.
We'd like you to walk away with.
Great and one quick follow up Theres been some I guess.
Thoughts of big upgrade cycle coming how much Lee we have you provide yourselves for your EBITDA guidance to be.
Okay.
And in terms of.
When you talk about the upgrade cycle I don't know, if you're referring to perhaps a fiveg migration or can you just clarify that Richard what you're referring to fiveg the iPhone cycle.
I think look as.
Okay.
A couple of things on that.
It's not unlike what we saw from Threeg to Fourg in Canada, we sort of think about the migration is happening.
In in normal course, we might see a bit of heightened activity depending on the utility value for.
The customers.
But thats some will play out I would say, we factored in some heightened activity, but our expectation is.
It's not going to be something substantial in terms of when you look at it as a percentage of our total base.
In 2020.
Great. Thank Jeremiah very minor Richard that the iPhone 11 was very successful device and therefore, the inherent activity and the subsidies around that high volume device are.
Part of the 2019 numbers that were comparing against.
And we'll look carefully at what comes out of the device ecosystem and that will determine along with fiveg capability. The extent of but I think we provided sufficient headroom for ourselves to function.
Well in particular.
Launch.
Great.
Thanks Richard.
And thank handle sorry, and thanks for joining us on the call today and please feel free to call out with any follow up questions. Thank you.
Thank you.
This concludes today's conference call you may disconnect your lines, thanks for participating and have a pleasant day.
HM.
Yeah.