Q4 2020 Shaw Communications Inc Earnings Call
[music].
Thank you for standing by.
Welcome to show Communications fourth quarter, 2020, Oh, that's cool and wet.
Todays call will be hosted by Mr., Brad Shaw Executive Chair and Chief Executive Officer of Shaw Communications.
At this time all participants are in a listen only mode and the conference is being recorded.
Following the presentation, there will be a question and answer session to join the question queue simply press Star and one on your Touchtone phone at any time during the call.
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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 that actual results could differ materially.
Please refer to the Companys publicly filed documents for more details on assumptions and risk Mitra.
Mr., Sean I will now turn the call over to you.
Thank you operator, good morning, everyone and thanks for taking the time.
To join us to discuss our results for Q4 and fiscal 2020 with me today are members of our senior management team, including our President Paul Mclean, and our Chief financial and corporate Development Officer Trevor English.
As we close in on all speak once since COVID-19 was declared a pandemic. It has undoubtedly altered many of the everyday task in our lives and injected a new level of uncertainty across all industries and businesses.
We have also been impacted at Shaw. However throughout this crisis, we have demonstrated the strength and resilience of our business and a strong execution and engagement from all of our Shaw employees drove a time of significant change.
With the health and safety of our employees as a priority we shifted to work from home effectively manage this significant increase.
Traffic on our network accelerated digital programs, including self install and supported our communities.
Fiscal 20 are critical high quality connectivity services have never been more essential to the lives of our customers as you said sort and and remains materially above pre co with levels today.
During the pandemic, we launched new broadband services, including our Fiberplus gig Internet services, they're virtually all customers in our operating footprint importantly, our gig Internet service is now available available to over a million more customers than our main competitor showcasing our leadership position.
With respect to the breadth and capability of our robust fiber plus network. The direct result of years of facilities based investments.
Further validation just last week, who couldn't name Shaw the fastest most consistent internet provider in Western Canada.
Our digital initiatives are being embraced by our customers in this environment.
In Q4, 79% elected to self install their broadband service compared to 45% a year ago. The result of which is an improved customer experience and cost effective solution that has proven valuable as social distancing remains a priority.
Our focus on profitable customer interactions and cost management resulted in an improved wireline margin for both the quarter and the year changes in our broadband pricing and disciplined promotional investments impacted subscriber activity. In addition to cope with.
However, we believe our focus on customer profitability is a prudent and effective approach considering the maturity of our wireline products and services.
Shop business delivered approximately 2% revenue growth and 20 as the Coleman impacts were more pronounced in the small and medium sized business sector. However, the team did an excellent job of proactively working with our customers to find unique and personalized solutions that continues.
Support them through this difficult period.
Small businesses are at the heart of our economy, and we are proud to serve and support them pretty.
Particularly through these hard and difficult times more recently Shaw business added to its unique line of smart products, providing customers with additional tools and solutions that support a robust and secure work from home environment.
Earlier this week, we announced our partnership with Teck resources, a Nokia to launch Western Canada's first dedicated Fiveg ready private LTE network for mining projects. Just another example of how our business units adapting to and embracing the evolving needs of our business customers with.
New services and technology.
In our wireless business.
Q4 marked an important milestone for our company with introduction of Shaw mobile on July Thirtyth.
Customer demand for this innovative service has outpaced our expectations and has remained strong the launch was supported with new shop branded stores as well as additional sales channels through our national retail partners, including the expansion of our partnership with the mobile shop.
I would now offers both internet and wireless services.
Although over 19 had an impact on wireless customer loading in the competitive environment continues to intensify we delivered strong wireless net additions of approximately 60015% growth in service revenue and 25% EBITDA growth in the quarter.
We were also one of the only wireless providers in Canada, with ABPU and ARPU growth.
For the year, including our strong Q4 performance Thats, all these metrics increase approximately 7% and 4% respectively.
We believe we are well positioned with our two wireless brands to drive continued subscriber growth increased retention through our bundling initiatives and improved customer count profitability.
Our significant accomplishments in fiscal 2020 were achieved while managing through a pandemic and simultaneously growing our business as.
As Trevor will discuss in a moment, we are very pleased with our financial performance in 2020, delivering consolidated EBITDA EBITDA growth of 3.7% and an increase in free cash flow by nearly 40% to approximately 750 million.
These results are calculation of our robust facilities based networks.
Our focused strategy.
And our strong execution by the team I want to thank our employees for going above and beyond every single day, and particularly those on the front lines that continue to serve our customers.
Now I'll turn it over to Trevor discuss the financial results in more detail, including our expectations for the F 21. Thank.
Thank you for out and good morning, everyone.
During the unique and challenging environment that emerged for the year. We're very pleased with our Q4 results and our overall fiscal 2020 performance, which to deliver growth that was largely in line with our original guidance that we issued last October we.
We are proud of our results and the execution by the team considering the amount of uncertainty we face to the buyer spread commodity prices collapsed in parts of the economy shutdown.
Our consolidated Q4 performance continued to deliver stable results with adjusted EBITDA growth of 3.7% due primarily to strong orders performance in the quarter. Our wireline segment has been resilient throughout the cold and pandemic, including business revenue that has stabilized however uncertainty does remain.
Okay.
While wireline or to use were soft in Q4, the broadband pricing that was implemented at the end of may alongside reduced promotional investments have supported ARPU growth across all products.
Combined with the overall effective cost management, we grew adjusted EBITDA by approximately 1.4% on a pre pre are for a 16 basis and improved or wireline operating margin in both the quarter and year to over 48% on a reported basis.
Wireless service revenue increased approximately 15% in the quarter on the back of continued subscriber additions as well as ARPU and ARPU growth of 6.6% and 4.2% respectively.
On a pre hire for US 16 basis Q4 wireless adjusted EBITDA growth was approximately 25% over the prior year.
Turning our attention to have 20 annual results, while customer activity was impacted by the pandemic, our wireless business or pardon me, our wireline business remained stable throughout the year adjusted EBITDA grew approximately 1% and profitability improved.
Our wireless segment, which continues to face of intense competitive environment added over 160000, new subscribers and we delivered service revenue growth of over 17% in that 2800 $50 million and adjusted EBITDA growth for the year at over 30%.
Consolidated capital investments of approximately $1.1 billion were largely as planned.
No material changes in our capital project for F 2000, considering our business performance.
Wireline spending continues to decline even with record usage on our network. This reflects decades of significant facilities based investments.
Wireless capital spending in 2020 supported the deployment of spectrum additional retail locations related to shell mobile and preparations for the delivery of a fiveg wireless service.
Our focus this year resulted in substantial free cash flow of almost $750 million. This represents significant growth over prior years.
Direct result of our focus strategy to enhance our connectivity business and the transformation of our organization become more agile and capitalize on efficiencies.
With a strong free cash flow and have 20, we returned approximately 610 million to shareholders in the form of dividend payments, an additional $140 million for the repurchase of 5.6 million class B shares were NC IB program.
As we look forward to fiscal 2021, we maintain a great deal of confidence in the strong fundamentals of our business as well as we're excited about the new initiatives that will support our growth and strategic focus going forward and have 21, we expect to generate continued positive EBITDA growth.
Capital investments of approximately $1.1 billion in free cash flow of approximately $800 million.
While historically weve provided EBITDA growth range with her outlook, we continue to be faced with ongoing uncertainty related to coal that and the unknown in bags key areas of our organization, including shop business and overall sales activity within our wireless and wireline segments. However, we remain focused on delivering stable wireline result.
It's in growing our wireless business supported by a robust facilities based networks in a continuous focus on capturing efficiency opportunities.
Our consolidated capital investment profile is moderating and were generating more than double the free cash flow compared to just three years ago, yes.
Yesterday, our board approved the renewal over in JV program, which enables us to repurchase up to 5% or approximately 25 million class B shares.
While our NCR deal activity was paused in April as Colin was unfolding and we elected to preserve liquidity. We continue to have considering considerable balance sheet strength with leverage of 2.3 times, which is again below our targeted range and significant liquidity, including cash balance of 700.
$60 million with no near term debt maturities with the stable performance of our business.
Improving and strengthening free cash flow profile, an attractive dividend. We continue to believe that Vince JV program as a flexible and efficient means to return additional capital to shareholders.
Brad back to you for closing remarks, Thank you Trevor I am so proud of our performance and our team over this past year, we are moving forward with our strategy on our front foot and remain committed to enhancing.
Customer experience, while providing additional value to Canadians.
Fiscal 2021 will bring new and enhanced services to both wireline and wireless customers we.
We will focus on bundling opportunities, we saw mobile to deepen existing relationships and build new ones. We will continue to enhance our wireless network with the deployment of critical spectrum to enable Fiveg service. This year and we will further advance our digital initiatives to improve the customer experience.
And reduce the overall cost to serve.
While we have accepted that our new environment is different we are excited to continue playing a critical role in the lives of our customers and.
In closing I'm very pleased to announce the nomination of Steve will like to our board of directors. Steve has an extensive background in operations and deep knowledge of the cable industry for the past, let 11 years. He has served as president of Comcast Cable division in the Western United States and has held senior.
Additionally, at Mt broadband and telecommunications, we look forward to Steve's contributions beginning in January thanks.
Thank you operator, we will now take on some questions.
We will now begin the question and answer session.
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The first question is from Vince Valentini with TD Securities. Please go ahead.
Sure much three questions I'll throw them all out just so you can think about them to decide how to order how to answer them in order.
One is on.
Dividends. So if we look at your 800 million in free cash flow target for this upcoming year that would mean dividend payments of about 605 million would.
Would be 76% payout ratio, if you increase the dividend, 5% that would take a pair ratio up to 79, it's not a meaningful difference.
Still well covered and as you know your balance sheet is is very strong. So your perspective on if and when we can get back to dividend growth would be very helpful.
Number two would be on internet probably for Paul.
Q4, obviously wasn't very pretty and in terms of Internet sub adds but you didn't watch our mobile till till August and I think there was a lot of distortion in June and July from consumer activity and pricing changes you did relative to tell us. So if you can give us any context on how maybe September and October look relative to.
The weaker Q4, I think that would that would help people a lot.
And last May view as well Paul out on on wireless churn being up 10 basis points can you talk about what's going on there and specifically I'm I'm I'm not sure I am sure how they how you how are you.
Treated when you have these bounty offers from from the incumbents trying to steal your customers. If somebody just wants to sign up for freedom for two or three days and then switch to an incumbent to get one of their discounted offers would you treat that as a gross add and then and then churn or is that not in.
The higher churn that were seeing thank you.
Rick.
This is Brad I, just I'll talk about the dividend the guys to take the other two questions.
You know as we know at a macro level its.
The dividend increase from a board decision and both management and the board are committed to long term sustainable dividend growth.
I would say right now today, we pay a very healthy 5% yield.
And that being said, we certainly are confident about the long term free cash flow profile of the company.
But I'd say in these uncertain times in this environment, we really prefer the flexibility of a share repurchase to return excess capital to shareholders and you know I would also say that just looking year to date of the class B shares are down, 14%, which is creates an attractive price.
To to do the buybacks and I would just say that we have.
We have a great.
Different cash balance, which we can deploy $760 million, which I think is very good news and we continue to.
Well I would just say we continue to make sure. We in this environment you want to have sustainable dividend growth over the longer term and that's something we feel that we will continue to address as we go forward and.
And leave that with the board to make the right decision.
Vince Paul Youre going on that will pick up on the other two on Internet sub as you're right to comment that we had during the early part of the quarter.
Significant price disadvantage relative to to tell us you'll recall that we move to the launch of our Fiberplus gig program.
Late May may 27.
Entellus Didnt respond in any way into the first week of July on on pricing not been didnt enough when come all the way. So we maintain a price be through the course of the quarter. So we had a relatively slow start to the quarter.
And of course, we didn't launch on mobile until the.
Very into July so the things that we expect it will over time help improve our wireline market share in that market share I described as a process.
We've been very clear about what our objective this year and that starts with returning our internet base deposit in subscriber growth, but it's a process with the very deliberate set of moves not dissimilar to what we did in the wireless business over the last two or three years.
And while I'm impatient. These are all things that are now underway. So the first thing we did during the quarter. You will have seen is make sure that we improved the product foundation for Internet and that began with the launch of those two new high speed tiers.
Getting gig into the market to make sure that we were there to address the emerging needs to work from home and the other pressures that we're seeing at the residential internet level.
But overall, we felt that through the course of the quarter, we made and continue to make and we'll continue to make in this quarter significant product enhancements for the customer experience.
Those product changes are there going to be supported by a.
Broadened and improve distribution model for Internet you will have seen in Brad commented that this week. We brought on law was mobile shop, they've been a fantastic partner for us on our wireless business in recent years, they've been a fantastic supporter of Sean mobile since its launch in late July and you can expect to see US continue to build on our third party distribution.
I'd for Internet this quarter as well as continuing to open more of our.
Very effective and stunning new corporate stores stocked branded corporate stores in BC, and Alberta, where we frankly locked in appropriate retail presence in local markets. We just haven't had.
In where people wanted to buy us. So those are all things that happen over time.
Finally, we see the bundle here Vince as.
A really important part of our growth strategy. It has enormous potential to complement our wireline profitability in that business.
But we face the competitor in tell us very very well managed competitor.
Who continue to spend very aggressively to acquire customers in a mature market.
You don't have to look at car to look to find a 500 dollar visa gift card for signing up too.
Thomas Internet bundle gone you've heard me in the past be very plain about our view on.
The level of swapping between the two companies in a mature market and we continue to think that that's.
Unnecessary and lost economic rent on so we as long as we face that economic pressure those sort of acquisition pressures. We now have a tool in from mobile that we will deploy as necessary to meet our business objectives. On you will have seen earlier. This week, we launched $25 unlimited plan.
And we will see how that goes but know that we have our hands.
Finally on the throttle Lynn as necessary, if we continue to see hundreds of dollars of investment from the other the other side of the house.
We'll use those those tools accordingly to make sure that we reach our numbers. So we have.
We operate in a market where our competitor has their bundling we have ours. We prefer ours. We think mobile is a more compelling proposition from the consumer standpoint.
And we'll see how it plays out over the next in a while.
We do not expect to see a dramatic turnaround in.
In our numbers over the course of of this quarter.
It is a process and it's going to take some time it doesnt these things don't happen overnight, but.
Unlike the plan that we have and we've been able to execute similarly in the wireless business before so.
I think to some good lessons that we can bring from wireless and wireline here and that process is underway.
On your wireless question, Yes, we continue to see.
Kind of a disappointing lack of discipline on.
On the wireless competitive otherwise competitive front it feels like the market is chasing frankly pretty considerable expensive very small pool available available growth.
With less immigration in the financial pressures in the economy right now I think real growth is at a very very modest level and the promotional pricing you are seeing out there is intense you'll have seen this week.
In all three competitors now have.
Well I'll loosely call in ETP, but I think we all know is broadly just an available plan that has 20 gigabytes out at $50 that was a $180 18 months ago.
We are the fourth player in the market, we have less than 20% of the sub the big three each we do not drive this ship and if we're going to see that lack of lack of discipline its.
I think any casual observer would come to the conclusion you can solve the service revenue problem ARPU problem by discounting at this level, particularly when there's not a lot of market growth. So.
In the end it if we're going to see these bounces back and forth.
As a new entrant with a smaller less mature network, we're going to need to be priced below the incumbent so there is a real risk that if this continues.
It will drive us to price lower.
I am an optimist, so I'd like to think that the market pressure on service revenue growth will ultimately prevail here.
But we'll see we'll have to see.
In answer to your specific question I have for customers cut back and forth to take advantage of the bounty we count that as a negative growth that doesn't affect our overall trends that attend the 10 basis point inflation in churn was related to the impact of this kind of activity and the just the general macro competitive pressure.
Hey, thank.
Thank you.
The next question comes from drew Mcreynolds with RBC. Please go ahead.
Thanks, very much Vince covered awful lot of my questions.
Three follow ups here.
I think first.
From a capex standpoint, Trevor you alluded to obviously, a nice reduction in overall capex and they give us $1.4 billion. A few years ago now 1 billion guided tour for this fiscal just can you comment on.
Kind of a degree of sustainability of that level of capex given both of year.
Wireless and wireline segments.
Second maybe to you Paul on Fiveg, I think Brad just mentioned that.
That will be launched.
Launched in market I think having said this year I'm, assuming that's just this fiscal year.
Maybe comment on.
Where where Shaw is currently on.
Buildouts.
Are you still intending to be.
A fast follower and.
More and more Fiveg developments play out over the next few years.
Lastly on the operating environment more in the B to B side you.
You do sound cautious I think everybody is cautious out there.
Maybe Trevor content provide what you are seeing as of today and.
In terms of.
The trend from businesses.
That would be that would be helpful. Thank you.
Yes, sure drew thanks for the questions and I will start on the Capex sustainability, obviously, you've seen our capex intensity moderate over the last few years as you correctly point out and again most of that is frankly within wireline and I'd say a big part of that is just related to our transformation that we embarked on a number of years.
As a go when we see that as being very sustainable I would say yes.
Continued sort of.
Slight decline this year versus 20 in terms of what we guided toward the majority of that is within wire line again and again self install supports our.
Our networks are fabulous shape, and our wireline network and I'd say again that is due to the significant investments that we've done over over numerous years, we're going to continue to invest in the wireline network as we need to.
But again that that is moderating we're sort of looking at more of a.
17, 18% Capex intensity going forward on wireless we continue to make the right investments investments to improve the network and the customer experience in general we look at that sort of bucket has been fairly stable this year versus last year around the 300 million dollar Mark and we.
We don't see significant sort of forklift capital required in the future I think we can really live within the roughly billion dollar for Capex envelope to fund the investments that we need to drive this business going forward. So we're we're pretty confident drew.
That that capex in that profile that we've got more import that of course really supports.
Very very attractive free cash flow profile as well. So we have a lot of conviction that the management team and the board of the free cash flow profile of the company, which which reflects a moderating capital intensity in the consolidated business that being said, we're not starving the business of capital either we're still spending a few billion dollars.
We think that's the right envelope now and into the future.
Yes drew high on the Fiveg question.
Following up on Brian's comment will you can expect to see us might in the market.
In early calendar 21, so kind of Intel and early kind of mid mid calendar Q Q1.
We are.
Optimistic and bullish on on Friday potential I think you've seen from other operators.
In globally, just the potential that this has that said in the short term, while we are essentially a fast follow simply because of the way that the spectrum.
Auctions work and affected 600 hasn't been unpacked yet.
We were excited about this but I think in the short term the voice of the customer is going to what's really important here.
We do extensive research as you can imagine event.
This and well the industry is talking up by GE, I think and quite sensible way right now there isn't really a compelling use case, even we've done some research and in the last number weeks against.
Tenders, the Apple by GE iPhone.
People that are buying it from us tell if they want the new iPhone, but they're not really that interested in the fiveg part of it because there is not a use case that is really driving that at this point, so that will happen and it will happen in time, and we will take advantage of that I think the industry may.
Want to reconsider how we monetize is that over time, we're kind of a little bit disappointed at this point the signal from the Canadian industry is that it will be not directly monetize POSIDUR just moved up into specific rate card rate tiers that they strategy I suppose I'm not I'm not sure if necessary the best one.
But over over the early part of that 21, you will see us fairly promise.
Prominently in the Fiveg game and until that time, we also will be able to service our customers with a faster LTE network.
That is more than capable for the vast vast vast majority of the uses that consumers are are playing into today. So excited about it long term think it's got great potential continue to believe it.
Open up all kinds of new doors for Shaw, particularly given.
Some of our other relationships in Western Canada, and what it might do for.
For businesses, but at this point, we will be slightly behind the market in terms of timing, but not concerned about that billing.
And terrific. Your third one was just on the overall sort of environment with respect to the.
It's me in the business market here in Western Canada, and clearly that is something that we're extremely proud of in terms of still delivered 2% growth during the last year I think.
The teams led by customer numbers did a fantastic job working individually with each one of our customers. We have a lot of customers in the spring that went on temporary suspension of services a lot of those have come back. However, I'd say that come back at reduced services, specifically within hospitality in the restaurant industry. They.
The lift the lid up their internet service again, but their TV services and some of the others were were maybe not to the same levels really you can see from the revenue trajectory is it really has stabilized over the last quarter couple of quarters, and there's still some uncertainty going forward through it it's the western Canadian environment is still continue.
As to be challenging you.
You've started to see some consolidation within the the energy landscape recently and I think most are anticipating that that will.
Increased.
That being said the teams have actually done a great job in terms of some additional sort of enterprise wins.
New business and the announcement yesterday I think around the tech deal is again. Another example of sort of news innovative solutions that we're providing to the business market and also I just say generally speaking the disruptor the value proposition that we're providing to small and medium businesses.
We're pretty encouraged by the product suite that we have in front of US we've lost some additional products, that's really focused on helping businesses and their employees work from home. So.
There's there's puts and takes but it's clearly something that we're very cautious on drew it's one of those things like.
One of the reasons why we're not necessarily prepared to come up with more of a prescription as prescriptive guidance from an EBITDA EBITDA perspective, as we historically have we've been generally growing that revenue on.
Our business segment around 5%.
A year over the last number of years. This year was 2% because of the pandemic and it's really tough to see where that SAP, but we think we've we're doing the right thing for business customers added and it has stabilized so I don't want to scare investors, but some but it's really tough in terms of immediate line of sight on on where things are going here.
Okay understood appreciate the detail. Thank you.
Thank you.
The next question comes from Jeff fan with Scotiabank. Please go ahead.
Thank you and good morning, everyone.
Thank you.
Picture question for Brad perhaps the start.
And then I'll ask the others as well.
The Big picture question is I guess over the last few months since we spoke last quarter. There has been more news about.
The potential for cable consolidation here in Canada.
So for broad wondering if you have any kind of high level comments.
We want to make about cable M&A is in Canada, and what role potentially solid play in that.
And then the other question is just on the wireless growth as we look out.
41, and perhaps even beyond.
And this is probably a question for Paul in light of the competitive landscape that you talked about.
In light of the shell mobile launch.
Do you see a bit of a shift in terms of how service revenue growth wireless service revenue growth looks.
And the contributors to that.
Describer growth versus ARPU growth you guys have done a good job of growing ARPU in the last couple of years wondering if there is a shift there in terms of a greater focus on driving subscriber growth, especially in this environment kind of continues.
I'd also like in light of that can you still grow EBITDA margins, if ARPU growth slows down thanks.
Hey, Jeff its Brad Thanks for the question I kind of expect to something like that would come on this call.
Just a couple of things certainly as a family were very committed to the long term strategy at Shaw Wi.
Solid strategic plan, we are delivering on our commitments, we have substantial and growing free cash flow and I think when you look at the balance sheet of an enviable financial position right with strong liquidity tied to that and.
And I, just I know they look kind of going what you know where we're going from here and you know, we just launched our mobile and truly believe we have some untapped growth opportunity.
Realized both both.
Both on the consumer side and then eventually on the business side, which also includes of course Fiveg service.
And then I just I think about just the technology the partnerships we have with Comcast.
And what's really allows us to enhance video and broadband services.
And finally, I would just say Hey, you know 50 years in business as a company we're very proud of.
Of our legacy of serving our customers and our communities over that period of time, and we're pretty we're pretty comfortable where we stand now with the with where Shaw looks and.
In a comfortable in that position.
[music].
Jeff on your wireless question.
Which was quite broad so if you'd just indulge in a moment.
We've been clear.
For my time here over the last three years that we look to grow our wireless subscriber base by something in the range of recordings subscribers a year and we will continue to reiterate our expectation that we will grow our wireless subscriber base by a quarter million subscribers year. So.
Just in case not unclear to anybody on the call.
The means by which we will get that May change over time, and you'll certainly see for example, the stronger bias to western Canada than we would have in the past and we signal that some time ago historically Western Canada has been about a third or 30% to 33% of our our gross adds that numbers clearly shifting upwards with our new priority onshore mobile and ARPU.
Two.
And this is probably a longer conversation for another day, but ARPU will of course start to moderate as a result of.
Lower revenue, Sean mobile customers, but of course is a value trade there with the wireline side. So even if you look at the move we made earlier this week, it's a $140 plus for our customers by about $25 plan on our gig so.
It's going to that will have a dilutive effect on ARPU, but it'll have a materially positive effect at the residential level for Shaw. So we may be prepared are prepared to trade some of those traditional metrics.
In a way that enhances value for the organization I think theres going to be some.
Kind of reporting things, we'll have to get to probably next fiscal and that may change or not but just as you start to watch our metrics know that there is going to be some impact from that over the next it a while I'm thrilled with how well ARPU performed I think we remain above consensus on the beat this quarter.
And certainly the more successful we are on in kind of Western Canada, you'll start to see those numbers moderate.
We are definitely seeing impairment not to the same extent the big three that were seeing impairment that looks semi permanent on roaming.
Of course ours is a larger rather a smaller percentage of our overall ARPU, but that's a difficult to replace and it's certainly difficult to replace against the backdrop of the wireless intensity that we're seeing so my earlier comment about my optimism was driven by the fact that I think it's hurting the other guys worse than us and.
If you are a believer in how well managed this category is done.
And I am over the years.
You'd like to think that the kind of greater sense prevails.
Maybe it's worth observing that for a long time these have been growth businesses for the victory and right now they're just not good business is not really on the on on a net basis. There is a lot of stuff kind of buried in the numbers as we all know in terms of new subscribers.
And maybe.
Maybe they need to be managed more like a mature business than a growth business and if that were the case that I think we probably stop doing stuff like 20 gig for $50 into center changes around the around the market. So.
I'd like to think that MRC is going to be a bigger contributor to to.
ARPU than it has it has been in the past is going to need to be if overages are gone if roaming.
Roaming is impaired and.
Those look like unfortunately longer term proposition to this point so.
We are running enormity bullish on our wireless business, we continue to believe that our growth.
Aspirations are manageable and achievable, but yes. We are we are done with end of the market on lot of things you're right. We're a small player and we don't we don't dictate the terms of of of market condition. So.
Maybe a question on.
Nearly desk some other folks over the coming weeks.
Thank you both.
Hi, Jeff.
Chip.
The next question comes from.
The other parties with Canaccord. Please go ahead.
Good morning.
Everyone. Thanks for taking my question a couple from me first of all.
I think you alluded to some of the tech deal that you announced yesterday.
I wanted to kind of build a little bit on that and get your thoughts on that.
Product line.
Particularly in terms of economics as well as positive.
The runway to kind of expand in that particular area private networks is getting more and more popular so wanted to get your thoughts on that and perhaps any kind of capital commitments that you would have to to employ to decide to that area.
And secondly.
Bad debt provisioning that have wanted to get a sense as to what you're seeing in terms of collections of any sense that variances that should be highlighted had a quick follow up on the internet net adds.
Was wondering if you can talk a little bit more about the retention aspect I mean, it sounds like it's mostly gross adds but just on the retention aspect of high end, where that was and continues to be sort of at a more meaningful.
Differential in pricing I look at that thank you.
Thanks, Arvind, it's Paul I'll take the first one and the third doing Interboro take the second one.
Yes, Hi, I'm thrilled with the tech deal and Continental team did a great job of bringing it to market really a first of its kind private LTC deal in this country and we think the first of a number there we'll look to announce over the course of the coming quarters. This is a decent sized opportunity.
And really a great spark, it's a great indication of the fact that this still life in.
In the reserve sector in Western Canada in a lot of regards we are seeing a lot of interest on deals like this has been inbound even since since the release and the team continued to work not file it is very efficient for us. It's one of those sort of.
Wonderful opportunities.
Thats not spectrum that would have typically been deployed.
Enter in any residential or consumer way on the fact that we're able to deploy it in a manner that so is so.
Useful for those for those companies. These are really really exciting and it does signal a new opportunity just broadly for our wireless business.
On the Capex side of it is actually quite efficient oftentimes, we're able to work the cost of that right into the deal.
And this is typically equipment that is owned and operated by the by the company themselves or third party. They brought in on their behalf. So it's quite addition from a capex standpoint and.
We are expecting to see more progress year over the coming quarters, but great great work from the team there.
Yes, I know thats theres or generally speaking over the long tenor deals as well as others, but to Paul's point. Each deal is somewhat unique from a capital perspective, but most of that is Jim covered by that.
The customer from a bad debt perspective, and just collections in general I'd say, we continue to be extremely pleased from the payment history, both on the wireline and the wireless customers over the last number of months or eight months since COVID-19.
The boat you know there hasn't been any significant material issues that we've had to deal with we're watching it on a daily basis if.
If you remember that we took a about a $5 million charge last quarter related to bad debt across the enterprise, we did take some incremental.
Expense related to bad debt in in Q4, However, I would say it was fairly immaterial was less than the charge that we took in in Q3. So overall, we think we've provisioned at appropriately is less than about $10 million, just around $10 million little bit less for the year and and again, we're very.
We're very very pleased with the payment of all of our customers and I think it goes to value proposition specifics on the wireless side.
In terms of the average ARPU just over $40 and the utility that we're providing to customers in their home into businesses. They are paying their bills and we're watching it closely but it's clearly a risk going forward of intermodal, we'll update you and the entire street, if theres material changes, but as we sit right now here.
Good.
Silver theories, we feel like we're in good shape.
And their vendor back to me on you are pushing in both retention on Internet and it maybe answered a couple of different ways. We.
For a number of years, we were frankly, losing ground to tell us in terms of the way your customers' perceived are.
Our wireline networks, specifically the internet product.
And the launch of fiber plus and our new rate plans back in May It has very.
Very quickly started to turn that around so while I acknowledge the softness in Internet net adds this quarter I would draw your attention to the fact that we also had significantly better than expected contribution from that that line of business as well. So we focused a little more on quality during the quarter, while we were rebuilding that.
Inclined that I spoke to earlier and one of the things that has been a nice outcome is that we have started our our 715 gig speed tiers.
I started to appeal to.
Part of the market that we were previously losing on a pretty much exclusive basis to to tell us.
Those more affluent families. Those folks that are looking to just simply improving harden the network quality within their their their residents.
Really are now provided with the choice in the market, where PVC there wasn't one.
And we're seeing a nice uptick in our.
Shifting demographics in terms of who's who's now buying that product so encouraging signs on that front as we as we kind of move up into the right on the on.
On the speed tiers and.
And then just on a separate related comment on retention I'd also tell you that.
Well, it's early Sean mobile is by definition a tool designed to secure an interest.
Hi in terms of our relationship with our existing wireline subscribers. So.
By definition to be a strong mobile customer you need to be shown internet qualifying China customer. So as we grow that market over the course of the coming quarters, we will essentially introduce into the math.
Cohort of subscribers, who are essentially very very well secured and very well protected from.
From competitive offers and we essentially fall out of the denominator of potential Turner's so while it's early.
We're starting to see some nice nice security on that front and again as designed Sean mobile is there to protect and.
And cover our Internet base that higher margin products.
Thank you.
Yes.
Okay.
The next question comes from Tim Casey with BMO. Please go ahead.
Yes, Thanks couple for me Paul.
Paul I'm wondering if you could expand upon your comments about.
Your concern regarding the monetization model for Fiveg that you see out there.
Wow.
What kind of model would you be supportive over or aspire to with respect to that and then maybe if you can talk about how you're monetizing the private network model with Tech as unit sales.
Foray into that.
And the other question was.
Could you talk a little bit about your digital onboarding ability in wireless.
Reduce foot traffic.
Those type of things, obviously would hinder a traditional retail distribution model.
Just wondering if you can give any stats on on how you're progressing with respect to onboarding people without the traditional model.
Be it a hybrid model or a pure online onboarding model. Thanks, Yes, certainly thanks, Tim Thanks for those.
Do you know there was a comment about fiveg monetization was more of a reflection that I.
I was hoping that the industry didnt simply absorb the costs the incremental costs of that fiveg spectrum and build out into a declining pricing environment and.
I appreciate that initially there was a signal from the market that it would be temporarily suspended and then monetize to some incremental degree, perhaps 10 or $15 more for those faster rate plans.
And it looks like the markets kind of come off that and now is simply saying, we're just going to as long as you're on a certain level of plan.
We will include Fiveg.
I would have liked to have seen a little more.
Consumer tests, there and to see whether or not.
There was a capacity and willingness to pay for that anybody that operates in Toronto and drives along the the toll road that is the four seven knows it sometimes you pay for faster lanes and you're willing to do so.
There would have been nice if there was an opportunity to kind of test that and I'm not sure that we're going to get that opportunity. So the risk here is that we spend billions of dollars on spectrum and build out and simply just.
Absorbing all so from my standpoint, I would have preferred to see something that maybe look a little bit like to Threeg LTE pricing back in the day, where it was a bit of a step up to the higher speed, but again, we're not the driver of that particular pricing strategy. So we will probably be the kind of the price taker on that front with that once.
The market decides where its going to going to net out on the private LT deal with the terms of those.
Deals are as you imagine are confidential, but suffice.
Suffice it to say that we as Terry pointed out. These are long term deals that are because they're built into these in India facilities are very very secure essentially no churn and very very encouraging.
Kind of from a pricing standpoint, so we like the partnerships there.
Digital Onboarding I would characterize us as being somewhat behind the industry, but all kind of turns to all of the fill in the blanks on the y.
When we look at our wireless business today, which has been historically, 70% in Ontario.
We compete against operators there specifically.
Rogers and Bell, who have had the opportunity to cure rate.
They are residential partners and residential customers for credit so really a lot of what they when they talk about kind of clicks in bricks I think they are often talking about.
Really hybrid of recognizing that they know the creditworthiness of a lot of these vessels because of their wireline relationship.
And been able to sort of.
Managed them accordingly, so today in Ontario for example, if someone wanted to buy new iPhone 12.
And gave me their address an awful lot we have a really difficult time determining whether that household was sufficiently creditworthy.
And kind of trustworthy from a fraud risk standpoint, because I simply don't have any other relationship with them lenders or bell if they have a payment history with them on that home to the last three or five or 10 years is in a much better position to establish whether or not thats a risk that can take.
We said I think on on wireless in Ontario, They have an advantage. There that was is probably structurally permanent relative to us.
In the western part of the country, we've been busy working with our finance colleagues to develop exactly the same capability.
And to make sure that our data analytics and our digital capabilities. Our one of our top development priorities I'd say, we're rapidly closing the gap that exists between ourselves and the incumbents, but I'm quite comfortable saying that this is an area, where we have a lag.
Frankly aren't having been the owner of this wireless business for four years now most of our priority early on Tim with making sure that we brought our network quality and distribution up to speed and these are some of the things that laugh you.
It would have been nice to have been more on top of the digital capabilities.
And I'll take responsibility for not having done that over the last couple of years, because I was in the seat, but it is something that we're now quickly.
Quickly, bringing bringing things up to up to speed on one of the reasons until we're excited about having partnerships for wireless in the west that looked like Walmart in Loblaws is because regardless of what might happen in traditional malls.
As a good friend of mine says people still need to eat so we.
We will continue to see traffic considerable traffic in laws in walmarts retail footprint here in Western Canada, and because of the strength of our partnership with them on the wireless front, we will continue to have opportunities there as well so expect us to get better digital.
We recognize that we probably have a structural disadvantage in Ontario and in the West. We will then have a structural advantage.
Thanks for that if I could just squeeze one follow up in regarding internet loading.
And.
The aspiration you had set out earlier this year due to get more of your fair share of of net loading in Western Canada.
That's a.
An achievable target for fiscal 21 or are we more likely to see something trending to that.
22 were 43.
Yes, there is nothing like someone bringing back your first comment from that being in the new job. Thanks. Thanks for that then yes I can.
We.
I have enormous aspiration and confidence in our team that will be able to get our fair share. Let me maybe take this opportunity to redefine fair share it's a tricky.
No.
So the valuation and we had this conversation yesterday with our board around what is actually in the denominator for ourselves and tell us when we report and.
Without trying to sound like I'm hedging on this one of the things we struggled with here is the lack of transparency probably both organizations on whats in Internet net adds on is difficult to make make an apples to apples comparison so.
I don't think Theres any debate that we have been in a losing position on market share over the course of last number of years.
But what I want to make sure we do as accurately as possible is not over or under react to competitive moves that we may not necessarily have.
Even an opportunity of sharing so I'll use for example.
The market of Golden out here, where a large community that these covered by Calluses wireless network, but not really doesn't have much of a wireline presence for anybody and tell us have a very strong.
Presents for their wireless hub product, which I believe gets reported as an internet net add in which we have absolutely no ability to have any market share there because we don't have deploying spectrum in that market.
So that likely counts in their net adds.
There is the internet for good program, which they've been very aggressive with during Kobin, which is obviously a very low income low revenue piece of the piece of the pie.
Our aspiration here tend to be clear is to ensure that we get our fair share where we compete and I should have been more specific about that when I talked about it in April so clean that up now, but where we have where we have facilities in where we compete against talents and thats what were looking to get.
Our fair share.
Can you put a parameter on that how much of your footprint would you say you have the ability to compete.
Where our Alizay, Tim we're doing that analysis now are when you think about.
Fixed wireless for example, that's a that's an example, we have probably.
Somewhere between two and 300000 households in Western Canada, where we have wireless coverage, but not wireline coverage I suspect that number is significantly higher for tell us we were doing that math now.
But.
It's probably going to have to wait for the next call. Thank you for me to give you a more thorough answer on that one.
Thank you thank.
Thank you.
The next question comes from David Mcfadgen with Cormark Securities. Please go ahead.
Hi, Thank you, yes, a couple of questions on some of the I don't know if you can provide us with these data points, but there would be helpful.
I was hoping if you could tell us.
What percentage of your net adds were actually seeing some amount in the quarter and then I know some of on that adds.
What percentage are taking abandonment imagines, probably 100% or close to 10% and then lastly.
When you look at the Internet.
Apartments in the corner has some about delivered any brand new internet customers for you or is it just too early because it just launched and other some of our customers our preexisting shy internet customers. Thanks good.
Good question. Thanks, David.
In order consistent with what the treatment that income would use for delineating between brands, we won't be breaking out strong mobile versus freedom branded anymore than.
The others do between their flanker fighter and and primary brand. So that just going forward you won't see us break that out in any at any point.
It is if you'll recall, we launched on July Thirtyth. So we only had a month of that activity within the year's numbers. So our with excuse me during the quarters numbers, you can kind of get a sense of.
How that may have impacted the quarter Youre correct, 100% of the people that are onshore mobile are in the bundle. So again today a qualifying event.
Push on mobile is that you need to be within one of the uplink Internet plans and to be clear. If you. If you were to remove yourself from the Internet plan Youre pricing.
Changes on mobile so there isn't a essentially.
Our reward for staying within that bundle and so far we've seen essentially everybody stay within it so that the churn on that group is exceedingly low during during the quarter.
And then so.
Sorry, the third question was on on new subscribers, a new Internet subscribers, yeah fundamentally the early appeal of this which you won't be surprised by is for existing subscribers, but increasingly as you see some of the product changes that we talked about in some of the distribution changes and then the move earlier this week to reward.
Disproportionately people that take our higher value plan that will have a higher pull through of competitive users I suspect.
Okay, and then maybe if I could just have one follow up.
Did you see any discernible negative impact to freedom from ensemble bile in the marketplace.
I wouldn't call any of it negative there is certainly a small degree of brand migrations, which we're very comfortable with so we do we do have people that are on offer.
Freedom, who may also be a shock customer and we were very prepared and quite happy with them coming over locking moving from freedom mobile over to Shaw and locking into the bundle, we love that value trade and if we can secure that we'll take that all day long, it's a relatively small percentage, though David so I wouldn't I wouldn't.
Characterize it as something that's going to have an impact on any any of the freedom metrics.
Okay, alright, thanks, so much.
You are welcome.
This concludes the question and answer session.
I'd like to hand, the call back over to Mr. Shaw for his closing remarks.
Great. Thank you operator and.
Our best wishes for everyone to stay safe and we'll talk to you in the new year. Thank you.
This.
The time allocated to todays conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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