Q4 2020 Rogers Communications Inc Earnings Call
1000.
This base now stands at an impressive two and a half a million subscribers and continues to position us well as five G networks and capabilities develop.
Postpaid churn improved to 1.19% compared to 1.26% last year. The improvement reflects strong execution by our teams in the COVID-19 environment during a very competitive quarter.
Although we can't control the revenue impacts driven by the pandemic.
G to control our cost and overall efficiency, despite revenue being down 8% wireless adjusted EBITDA only declined 3%. This resulted in continued improvement in adjusted EBITDA service margin to 63, 2%, reflecting on improvement of 370 basis points.
From last year.
Clearly our efficiency initiatives are gaining some traction which should further underpin strong revenue flow through and profitability growth rates when revenue recovers.
Overall, we're pleased with how our teams continue to navigate our wireless business in this unprecedented environment.
While we currently remain in Lockdown in both Ontario, and Quebec, we built out our competencies since the pandemic impacts started accelerating 10 months ago.
We're now very well prepared to support customers with advanced digital capabilities have all our colleagues working from home online ordering with same day pick up and are providing home delivery options that are being well received by our customers.
Moving to cable revenue increased 3% driven by an increase in ARPA as well as more customers transitioning to our ignite internet and TV offerings as well as modest service pricing adjustments homes passed and customer relationships each grew year over year and sequentially.
While the Internet and ignite TV net additions were down year over year sequentially Internet net additions increased to 20000 and ignite TV net additions almost doubled for 71000.
Adjusted EBITDA grew nicely up 5% year over year as a result of the increased revenue as well as continued improvement in cost efficiencies. This gave rise to margin of 51% this quarter up 60 basis points from last year.
We continue to see improvements in capital spending efficiency as well with self install now representing over 93% of all installations and ongoing improvements in hardware costs.
Capex intensity for cable remained at 22% for the second straight quarter and as a result cash margins for cable we're at 29% for the full year cable capital intensity was 24% down from 29% in 2019 and 36% in 2018.
We believe that these improvements are sustainable and we continue to expect to operate in the low 20% capital intensity range for the foreseeable future.
In our media business revenue decreased by 23% year over year as a result of reduced live sports programming, primarily from delays for the start up of the NHL and NBA seasons and softness in the advertising market due to COVID-19.
Media adjusted EBITDA increased by $60 million from last year, primarily due to the delayed startup of major sports leagues and lower General General operating costs as a result of reduced operating activity.
On a consolidated basis total service revenue was down 7% and adjusted EBITDA was up 4%.
If you exclude the impacts of roaming in overage, we would've been down, 3% and revenue and up 11% and adjusted EBITDA.
Over at 19 impacts in Q4 were notable with estimated impacts of $285 million in revenue and $60 million and adjusted EBITDA.
On a full year basis, you can see how meaningful the effects of Covid, where do our business. We estimate revenue for the year was down $1 4 billion in 'twenty 'twenty and adjusted EBITDA was down $500 million.
These are meaningful disruptions to our business and our customers, but our teams have managed these impacts as well.
In dealing with these significant declines we established a $90 million provision for bad debt in the second quarter last year, while it continues to be difficult to predict how consumers and businesses will be affected by the extended lockdown I'm pleased that the performance to date within our bad debt allowance is currently running better than anticipated.
And our provision continues to offer.
Appropriate and sufficient coverage as the economy continues to work its way through the Covid environment.
Capital expenditures in Q4 were $656 million up 30% sequentially as we played catch up on some projects that were deferred due to the pandemic.
With this increase capital intensity was also up sequentially to 17, 8%, we expect to increase our capex in 'twenty and 'twenty one from the $2 $3 billion spent in 2020 as we accelerate investments in our five G and broadband networks and I'll provide a bit of color on that shortly.
Cash income taxes increased this quarter as a result of the timing of installment payments as our base quickly moves to installment plans for their handsets. This results in the unexpected earlier taxable event, which is onetime in nature as a result, our cash tax rate as a percentage of adjusted EBITDA was 11%.
Sent in the quarter up sequentially from 5% in Q3.
We will see our cash taxes temporarily increase in 'twenty and 'twenty, one as we continue to transition to a device financing business model.
And I will comment on our outlook momentarily.
Free cash flow for Q4 was $568 million.
14% from a year ago, but down 35% sequentially as a result of the higher capex and cash taxes.
In terms of financial strength, we ended the year with $5 7 billion of available liquidity.
We also returned $253 million in dividends this quarter and $1 billion for 2020.
Our weighted average cost of borrowing was 4.09% as at December 31, 2020, and our weighted average term to maturity was 12 eight years and.
In our focus to maintain a strong balance sheet, we prudently managed our borrowings.
<unk> determined cost of boring, it's what we believe is an optimal mix.
Turning to 'twenty 'twenty, one we continue to hold off on providing annual guidance at this time.
The COVID-19 conditions that led to our withdrawal of our guidance back in April of 2020 continues today and there is little if any further clarity of the impact of the pandemic on our business and its recovery.
That said, we will continue our approach of providing the quarterly transparency. We have provided since the pandemic commenced in Q1 last year until such time that are useful incredible guidance range can be estimated.
While we have reasonably good insights as to how our business may perform on a quarterly business, we will need better visibility on the progress of Lockdowns and the resumption of growth drive growth drivers in order to have a reliable for full year outlook.
These drivers include roaming.
Economic recovery on resumption of immigration to Canada to name a few.
As you saw in Q for the need by provincial governments to quickly implement additional safety measures even late in the quarter can impact results.
However, I think it's important to reiterate that while we can't control in the near term events, such as additional lockdowns or timing of vaccinations. Our teams have adjusted significantly.
Significantly in terms of how to operate in this volatile environment on.
Q1 of 2020 Q1, this year will reflect a full COVID-19 quarter in which there are broader and extended lockdowns.
In our wireless business as you have seen in the past years. The first quarter has become a very quiet loading period for the industry, even when stores are operating under normal conditions.
With the additional lockdowns in effect in both Ontario, and Quebec, continuing into February we anticipate that Q1 will likely be quieter than normal and wireless loading and service revenue opportunities.
Over the past two years, you've seen us approach for the Q1 environment with less promotional activity given the moderate demand environment and that is always our approach.
Regardless of the demand environment, we are on a strong position to provide first rate service to our customers through our significantly expanded digital capabilities and services such as express pickup and pro on the go.
We believe our pool will improve its year on year profile. So that the percentage decline will be less than what we saw in Q4, although we may likely see a site a slight sequential decline due to the seasonality of our pool variables.
With overage revenues were approaching the end of the impacts of the overage melt associated with our shift to unlimited plans. We believe we are well ahead of our peers in completing this transition and we anticipate Q1 overage to be down $25 million on a year over year basis.
We expect to be through the majority of that this transition by the end of Q2 and as we have highlighted in the past underpinning. These plans are better our RP opportunities lower churn and improve customer satisfaction by driving the simplicity dividend for them.
Lower roaming revenue will continue to impact revenue in <unk>, and we expect it will be down approximately $75 million year on year in the first quarter.
In our cable business, we expect additional year over year growth in revenue.
Adjusted EBITDA and.
And adjusted EBITDA margins as we benefit from efficiency gains and modest price increases while this business is not completely immune to the economic pressures related to the Covid lockdowns. It is more stable as customers continue to rely on their home connectivity and are moving to higher speeds to support their business and family.
Needs. Additionally, capex intensity is expected to be approximately 22%.
Down from 26% in Q1 last year as benefits from self install and the ignite TV platform continues.
Yeah.
In our sports and media business after a quiet Q for sports programming is ramping up for the NHL and NBA in Q1 and fans and advertisers alike will welcome their return.
As a result of the increased live sports broadcast programming fees will increase in Q1, but advertising revenue should also start to make a modest recovery from Q4 levels. Our best estimate at this point is that revenue and adjusted EBITDA for our media business will be in the same absolute dollar range as Q1 last year.
Of all three leagues MLB is expected to have a full 162 games schedule starting in April and at this point, we do not know if the Blue Jays will be playing up the Rogers center or if any games will benefit from in stadium attendance and revenues.
This could result in additional losses for the JV for the full year, but we will continue to monitor how the season unfolds and provide updates as appropriate.
In terms of Capex, we are planning to increase our investment in 2021 from the 2020 levels as we continue to enhance our cable and fiber networks.
Although we're not providing full year guidance at this time, we anticipate capex in the first quarter will be at about the same spending level as Q1 last year and then we'll ramp up from that level in the following quarters.
By the time, we reported our Q1 results in April we could have additional clarity on the impacts of Lockdowns on our capex activities and we may be in a position to provide additional guidance on our 'twenty 'twenty, one capex expectations at that time.
And on cash taxes.
<unk> seen in Q4, we will continue to reflect our transition to a device financing business model that results in earlier recognition of equipment revenue for income tax purposes. As a result, we expect a final $325 million cash tax installment in the first quarter as mentioned earlier these advanced tax payer.
<unk> are onetime in nature and by the end of this year, we expect our ongoing cash tax rate to be back to a range of 8% to 10% of adjusted EBITDA.
Finally free cash flow in Q1 will reflect the impacts of higher taxes, and we expect this will be the only major reason it will be down on a year over year basis.
In summary, I hope this extensive quarterly transparency gives you some good insight on the business until the time, we returned to annual guidance as we head into 'twenty 'twenty. One we're very proud of how the Rogers team is navigating the current environment.
While there continues to be uncertainty in the near term as to how the ongoing impacts of Covid will influent influenced the Canadian economy, we have implemented significant changes throughout the company over the past 10 months and we believe we are positioned very well to manage through the short term volatility and as the economy recovers.
Let me now turn the call back to the operator to commence with our Q&A.
Thank you.
I will begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear account acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any teeth to withdraw your question. Please press Star then two.
Our first question comes from Vince Valentini with TD Securities. Please go ahead.
Yeah, Thanks very much.
Tony Let me push you a bit on the DRP in Q4 and in the commentary you've given.
First off can.
Can you give us a bit more color on what this 30 million of lower consumer activity.
Impact is because you keep mentioning activation fees, but.
I mean, if I assume $40 as an activation fee on average I mean, sometimes you waive those fees, but at $40 that would be 750000 gross adds it would be needed to to be down year over year to two to add up to $30 million. So there's got to be something other than just activation fees in there and one thing I do.
Here you talk about in terms of the <unk> trends in Q4 being a bit worst in Q3 as you know I think we all acknowledge that for some pretty aggressive promotional behavior going on back in the.
The August September period, as the Lockdowns end ended and everybody started day jamming up promotions to try to catch up on on sub ads is there not a bit of an impact there from that as well on it as you have a full quarter of some of those subs that were loaded it at lower price points that had a bit of a drag on on Q4 our per rep.
For Q3, and if that's the case can you can you are you will give us some thoughts on the more recent activity, we're seeing which which seems to be EBIT more encouraging in terms of some of those aggressive promotions being pulled from the market by all the incumbents in and even some price increases are announced to selectively buy some of the wireless carrier. So a few here.
Current dynamics on ARPA, if you don't mind.
Great. Thanks for the question Vince.
Couple of things in terms of the $30 million comprises a couple of things Ive mentioned, the activation fees or price plan change fees reconnection fees, but the other item.
That is rather significant or what we call the onetime promotional credits such as gift cards.
And so it's that volume that we sort of sat down year on year.
Second part of your question relates to whether or not we saw pressure on underlying ARPA as a result of the promotional activity.
And the short answer is yes, but at the margin on those types of promotional activities played out in the flanker brands and so while we saw good ARPA growth with moves from our customers and new customers to unlimited.
It was a bit of an erosion on <unk> ER as a result of those promotions net net it had a very slight I would say minor impact to our underlying <unk> and service revenue trends in the quarter. Those were to continue would continue to have.
A growing impact, but what we saw on the marketplace is a pullback of those promotions.
After year end and so we continue to be confident with the underlying ARPA growth profile for this year.
But of course, it will depend on.
Market competitive intensity and how it plays out later in this quarter or into next quarter.
Yeah.
If I can add a couple of comments.
We saw some two point really significant pricing aggression.
Through Q4.
And Tony is right in terms of how it impacted.
But that level of aggression, you know always creates froth in the marketplace. Our team did well in terms of.
I think customers, but also the churn just for the churn down seven basis points.
But you know as part of that there is a retention activities required when customers see some of those prices in the window than you know we get phone calls asking hey can I get that price. So there is there is a price plan impact that happens across the industry whenever we see that kind of.
That kind of progression of promotion going on I would say to you that that day.
On the aggressive wireless price bundling with cable that we saw that happen and started on western Canada.
In our minds, it's not something it's a bit of a zero sum game, it's not something that we see.
We had before.
In different parts of the business here.
Here in Ontario, and in other countries.
It's not sustainable on the sense that it doesn't really do anything to change share dynamics in a structural way whatsoever.
And the experience from the past is that.
All it does is it creates some of the <unk> pressure on economic impacts for everybody. So we're really pleased to see.
Returned to discipline in Q1 around the pricing environment.
And it's just normal debt in Q4.
That there is aggression in pricing its just been the case in Q4 forever I think part of what played as well as we'll see what how big the market was in Q4 are our sense of the market was somewhere between flat and down a few points and so you get this sort of increased intensity when theirs.
No immigration, there's no growth in the wireless market and again as that returns for that gets to a place where both.
<unk> growth and immigration growth create more new net customers to the market.
Our experience has been that some of the pricing aggression remediate or champions as a result of that.
Thank you.
Thanks, Vince next question Ariel.
Our next question comes from Jeff fan with Scotiabank. Please go ahead.
Thank you good morning Hope you guys are well.
One question regarding the wireless for all.
Okay.
And then another question on slide G on on just the.
The competitive outlook.
What we saw last year in 2020.
Vince alluded to when.
When the market opened up there was a rush to promotional activities.
And you kind of look out to this year I mean, we are hopefully coming out of a locked down some time in Q1, maybe in Q2.
How do you think about the competitive dynamics as you can.
Kind of go into that.
For the year.
We see a repeat of what we saw last year is.
When the pool still small operators are chasing or do you think the market is going to be a little bit more.
Perhaps for Arsenal waiting for some of the volumes to come back.
You alluded to Joe and then on the five G question.
You know.
Oh.
Rogers, obviously, leaving with respect to being firsthand the biggest on five G on them.
Just wondering when do you think customers will start to really recognize.
<unk> is a major differentiator versus for <unk> and what are some of the indicators that we're looking at is positive signals for that too could start to happen. Thank you.
Okay.
Thanks for your question.
Well this summer B.
Last summer.
And I would say you know last summer was on.
Our first real understanding of what it felt like to come out of a pandemic I mean, Jeff there's no playbook for it right. We just said okay game on.
What people are out and about restrictions have been.
Softened lifted in many parts of the country, we saw data.
Growth Spike tremendously almost overnight, we saw 30 to 50 per cent data growth. So there's sort of a muscle reaction that says okay game on let's go and therefore, it creates a sense of.
<unk> trough growth and let's go to make up for whatever it didn't happened in the previous few months I think we'd all look back at that period and now we have a much more sanguine understanding of the real economic outcome for lifetime value on economic outcome of that froth in that intense period. So I think our second time.
Through it as an industry I think it'll be a mix, but I'm sure there'll be some level of aggression, but I think there'll be a much more kind of rational sanguine look at it and say you know where where the value economics in this or other value drivers on this so but that's my view. It's you know and my hope is that there's not a third crack at it.
And that everything points to the fact that well will come out I think the biggest thing that you should take comfort in Rogers is that the capabilities. We have now are vastly different on the capabilities. We had a year ago I mean, our ability to transact online was I would say you know.
Not terrific a year ago.
Right now I think it's very good very strong and the ability I touched on in my comments the ability to order online pick up in store, how 'bout delivered to your doorstep. These are all things that the team worked hard to make happen through last year and you know part of the reason you see some of the margin improvement is that we've been able on kind of.
Some channel mix that has a far more attractive C O way as a result, and therefore, we've got an ability to not just play the game differently, but to do so with better economics, given the channel and C. O N characteristics that that are leaning on our favorite because of those capabilities and team who worked so hard on so that.
A view on that you know in terms of five G.
<unk> is a like like for <unk> and on other investments were in the investment cycle of five G.
And you know the capabilities are here and now in terms of the Ericsson investment that we made on the ability to light it up.
Standalone coordinator to be done at some point. So we did it we will keep expanding it et cetera, and as I've said to you I think in the past you know five G will come in tranches. Unlike for G and three G, which for these sort of big turn on the lights and now we have a brand new capability by Jabil com in tranches. The first tranche is.
Is there anything happening as five G iphones and <unk> Samsung phones in the market.
We will see more.
More of those into our base and given some of the capabilities of five G architecture, we have a better ability to deliver.
A gig of data at a better unit cost.
And you know when Canada sits at three gigs on.
A month on average in the U S is closer to 10 and Korea is closer to 30.
Some of them were on that path and the ability to do so in a way that's far more cost effective is important to the economics on this industry. So that's sort of the first price. The first price is really kind of economics for bandwidth.
The second price around five G.
I think it will be a series of applications that come to light along the way one of them, we will certainly be fixed wireless access.
You've seen the beginnings of what I would call for <unk> fixed wireless access in the industry.
You know five G will make those economics for them that capability and population density enablement, even better around that front, how far away is that.
That's in the next call it one for two years away.
And then the one that gets on the media attention is around what are the Iot low latency type of applications.
I would tell you that they're being worked on right now.
And there is evidence of some of those are already in the market.
Like the automation, we've done in the city of Colonna for example, thats been publicized or some of the work that we're doing with mining companies around using five G capabilities too.
Create more automated capabilities on the mine site et cetera. These are beta be applications and be able to happen is each of the b to b verticals matures and some verticals on mature more quickly than others.
So maybe if you're looking for a full P&L on five G. A I think you know.
Real material P&L is in the three to five year time zone away.
But we got to invest now because these things take time and effort.
70% of the work in network investment is civil Engineering work 70 per cent is people digging trenches trenches acquiring sites building towers, bringing fiber.
And you can't turn those things on on a dime you Gotta do them. You know years ahead of time, and that's what you're seeing coming from us as an organization.
Along the way, where you're hearing us say as well as you know we've got a great network. We've got the best network and we continue to get accolades for it all around.
It was on this call a few years ago that people were asking you know how does the Rogers about work doing a lot of questions around on capability and performance I would tell you that we have best in class networks, and we lead the industry and it's more of a reinforcement that that that's a crown, but we're never letting go of and probably also a sense of pride for this.
Organization, and being first and driving the largest opportunity and I think a sense of pride innovation on the Hearts and minds of engineers is importance of the culture of I'm, sorry, a telecom company.
So I think that's those are the the honest to goodness mindset reasons around it we're blessed in Canada have very good for getting upwards LTE networks, you know when you look.
The countries that have you know a lack luster for Aegean networks for Gs taking on a lot more prominence. So the contrast between four and five G will come will come over time as I've said, the one thing we have to do to get ready for <unk>, because we had the launch on limited we had to like we we couldn't have a.
A overage based regime around the customers that want to use the most data. There was you know in a paradigm that came out of three of them for G and I expect to ever take advantage of <unk> and look at some of the early gaming ops you can burn up 10 gigabytes in a few minutes alright. So.
My point is this is all the orchestration towards the five G future and you know I would say that later on this year, we will probably once again have a bit of a <unk> worth of all going for Rogers discussion.
Once we come out of the quiet period or on the spectrum auction I think that'd be a great thing to do and all of a set it up for the investment community.
Yeah.
Thanks, Joe.
Thanks, Ken next question Arrow.
Our next question comes from Simon Flannery of Morgan Stanley. Please go ahead.
Right. Thank you good morning I'm Tony.
Wanted to follow up on the operating leverage it's it's great to see the margin improvement.
The top line pressures here and you've talked a lot about digital transformation and things like that how should we think about as the economy reopens as travel recovers how much of this improvement is permanent and how much will it be kind of giving back in terms of increased roaming costs and other thing.
So if you're not spending on currently and 10 on that roaming piece, specifically how much of it is attached to business travel, returning which you might take a little bit longer than tourism. Thank you.
Yes.
Thanks for the questions on it I think.
With respect to leverage on costs, if I understood the question.
What we should see as roaming returns are and some of the other items is a very high flow through rate to our margins and so we currently have a even in a very low growth environment plans to continue to expand margins.
So what we should see as roaming returns net of AR net of roaming costs are is a good healthy flow through rate.
In excess of 50 per cent and probably as high as 60 per cent.
To put a rough estimate on it.
Great and what about other are there other costs that you weren't able to save on this year that may come back in terms of.
As activity advertising T any things like that that we should be aware of.
There are variable costs of course that are going to.
Market expands or the size of the market on our volumes increase there are a variable.
A related costs as Joe referred to Coa.
Or CLR type of cost those are variable in nature, but I think it's important to highlight that the quantum of them have come down, particularly as we move to more efficient channels like digital.
And so again within the broader.
Within the broader margin expansion comment that I made we've captured those within that if I had to sort of go through each of the specific items.
You talked about channel mix I think it's important to highlight the margin improvement we've seen for moving to installment plans and as volumes go up we don't think that's going to erode, obviously, that's going to depend on.
On the economy and then there are improvements that we're seeing throughout our businesses and back office again, as we move to more and more AI and automation and those areas are on our cable business. Some of the areas that we're seeing cost improvements Joe mentioned self.
Collation.
Number of service truck Rolls has come way down and that really gets at the operating efficiency of of having completed some of the service calls are the first time, we've had good progress on our content costs are and you'll see that in our P&L in term.
<unk> of managing what was previously a continually escalating costs for us and we've been much more creative and better executing in terms of those costs of course on cable we have the digital capabilities as well improving.
And the back office pieces that I mentioned earlier.
Hopefully some of that and anything on the comp.
Does this travel.
I'm sorry on the business travel our expectation is when we look at the mix of it.
Generally for US it ends up being about 50 50.
Depending on the quarter, you may see spikes going to two thirds, one third either way.
So it really is going to depend on when things open up if we think about them in the back half of the year.
You know towards the summer months, it would obviously be index towards consumer and as we head back into the fall.
The ratio or index heads back to business.
Great. Thanks, so much.
Thanks, Juan on the.
Next question Arrow.
Our next question comes from drew Mcreynolds of RBC. Please go ahead.
Yeah. Thanks, very much good morning, Joe just to add to Jeff's comment or question on five G. In your comments on just update us in terms of your subscribers that are currently using.
Using your five G network are there any kind of data points you can update.
That's on our specifically on that.
And then secondly on.
On the Capex.
I appreciate you don't want to quantify anything at this point.
You're able to bigger picture you've done in the past just comment on how you think Ci generally trends both in cable and wireless or are we still tracking to two when it's generally been kind of guided to over the last two or three quarters.
And then lastly for you Tony.
What about.
And looking at ways to get better recognition that public markets. Some of those non telecom assets just wondering.
Whether initiatives are continuing to kind of move forward on that file. Thank you.
Yeah.
Ex true.
On the <unk> subscriber side.
We have not disclosed any specifics.
But what I would tell you just through you know sort of.
Maybe more self evident.
Is that the five G subscriber base is index towards the iPhone and.
And we have the largest iPhone base five G subscriber base is.
Hi to unlimited.
Therefore, they are by definition, our highest value most data consumptive customers. So this really is about the very top decile of the market.
And a part of our energy around getting out there quickly as you know inside the if you just segment analysis of our base, we we've got a very strong.
The top end of the market base that we've had historically because of you know.
Structural advantage around the iPhone in.
On a going back even to win the Blackberry with the thing.
It sounds ancient at this point in time, but but so that base has a need for certain capabilities and unlimited there. The alimta sharing nature of unlimited has played well with that base and they were the first to sign up for a <unk> phone. So so you know are very important to the retention and lifetime value on our most valuable customers.
Yeah.
On the Capex front.
The core of our Capex is going to be spent on.
A handful of things one is continue on the five G front.
Our view is or a we've got good momentum in terms of our capability team has done a great job on well tuned in terms of the multi year roadmap around it we've done a good job of negotiating great agreements with our vendors both vendors technology and the vendors on.
The civil engineering efforts around that and therefore, we are on a roll on the best thing you can do when it comes to network build is keep it going and have continuity and not have start stop start stop as the death of network build efficiency. So we're going to keep rolling on that front.
And when it comes to the cable business.
Moving to keep rolling on that from both a brownfield and Greenfield a node segmentation, we've been doing node uplifts across our cable business for roughly about <unk> of.
The way through that.
See the homes passed per node has gone down.
Down dramatically over the last few years as a whole and where you've got some G. PON activities and efforts underway in Atlantic, Canada, and where those areas of opportunity to do so more on a more attractive basis or we're going to keep.
Pushing on that front for the same reasons I just described and third is is.
We've seen tremendous benefit from there our digital efforts and we've got an even bigger appetite for some things down the road on digital and it's not just digital in terms of service or in terms of sales as we've described today, but a whole bunch of digital opportunities in terms of better managing network capability and reliability.
Ill give you an example.
We've got some AI tools that every day look through the network and because of the new ignite gateway and capability. We have an opportunity to understand you know what is the performance like inside the Mick Reynolds House.
And are there issues with either Wifi or devices et cetera that are causing hyper growth stress to you on your family Drew and then we have the ability to proactively either heal those or do you mean, you knowing about it.
Or we will just proactively send someone to.
Just for maintenance or support for you or swap out a particular box for device proactively. So we built these tools that are a combination of analytical tools.
Supplemented by machine learning engine that gives us an even better ability to understand you know what's about to go into an unacceptable state for a customer on what can we do practically so those three things its foot on the gas and lets you know to the extent debt that we can let's go the the biggest question Mark is with Covid.
It's building permits and city planning departments and all the things that got Norway last year. So far so good but you know those are the kind of the question marks our our goal. Our view is the capex intensity that we've articulated particularly it is still intact, you'll think about 22% or so for Kay.
And think about you know 12 to 15 per cent for wireless so nothing's changed in terms of those zones of Ci.
Just really focused on the areas that matter most as you would expect us to be and our ability to get more done for the same dollar has gone up tremendously.
We have strengthened the capability of our network organization, they've done an incredible job actually of negotiating new contracts and getting better unit costs.
So we can get a lot more done at the same C. R.
We could even a few years ago.
So that's sort of the Ci picture and I'll pass on to Tony on the third question.
On the last part of your question drew in terms of I think what you're getting at is we had stated in the past looking at surfacing value from some of our significant assets.
That sit on our balance sheet today, we haven't lost sight of that we continue to look at alternatives and want to be careful and very opportunistic about it and during this COVID-19 environment. It doesn't lend itself as an optimal time, particularly as we switch our execution focus are on operating.
Our new operating methods and processes during COVID-19 and so that's where the focus has been nothing to report new on that on the other assets for them.
Okay. Thanks very much.
Thanks for your next question area. Our next question comes from Tim Casey of BMO Capital markets. Please go ahead.
Thanks.
Two for me just one clarification Tony could you.
Just revisit.
On the earlier question about the $30 million. One time, you you alluded to gift cards and things like that could you just walk us through what's happening happening practically.
Net related to lost Activations and things like that and then second just on.
Your iPhone leadership.
Just wondering if you have enough.
Loading of five G to offer any early insights on what you're seeing on behavior and.
If you think.
That's one of the E is the potential for a nice phone loading or super cycle, what's often referred to as that one of the.
Things that is.
Making it difficult for you to provide guidance this year or is that too much of the that's been done on factor just wondering how that is influencing their thinking.
Tim I'll start with the first one in terms of.
The $30 million you know as I said, it really relates to the onetime fees that are typically in Q4 with a much higher volume.
You know drives a certain amount and we just saw lower volume this quarter I've talked about activation.
Implicit in there I should've highlighted it include ups as well and so one of the things you do see our the Activations, but you don't necessarily see our the hardware upgrades and we had lower volume this quarter much lower volume than we would've had last year in the fourth quarter, a number of other fees I talked to him.
Price plan changes are.
And then upfront promotional fees and often we pivot to those.
Rather than you know recurring discounts and so we've had some of those in the quarter. Some of the other fees and we can provide you with a full list, but you know they would be late payment fees suspension and reconnection fees and there are a few others that fall into that category.
That are are down year on year, and so that really is the quantum of the of the $30 million.
In some respects the decline of some of those fees relate to our bad debt performance are just being better better than we expected and somewhat better on a year on year perspective as well.
Then the second part of your question Tim.
I'm not sure we got it but maybe you could rephrase it on to help us.
Premium response.
But just wondering what your expectations are for iPhone loading and if if that's it.
Swing factor in how youre thinking about guidance.
I wouldn't put it in the category of material swing factor.
We are we have a healthy mix as Joe referred you know certainly iPhone would be you know at the top of the list in terms of handsets for us and the makeup of our base.
But it isn't a factor from a guidance perspective for us.
Thank you.
Thanks, Tim next question Arrow.
Our next question comes from Arab Linda.
Of Canaccord. Please go ahead.
Good morning, Thanks for taking my questions I had two on cost for that some from me on a quick regulatory question on.
On the cost reduction front are you know we saw a 13% decline in wireless on the Opex I, yet again as we saw on Q3.
Part of it relates to well, making a bad debt I was curious to hear a Tony if you can talk a little bit about what.
What component of that can be ongoing as we kind of look at some of the progress that you've made on the digital front and secondly, I think Joe maybe.
Perhaps a year ago, you kind of gave us some updates on on that.
It's the total wireless Coa in particular on the P&L impact on the wireless subsidies being somewhere in the 900 million neighborhood.
And CLA, probably being sold for 50.
I know that you cant disclose specific numbers, but directionally how much progress has been made on that front and maybe you set aside the outflow from there on and lastly, you know given some of the changes I said leadership is there any comments you wanted to make about sort of government relations are ahead as you know.
The decision on the wholesale front thanks.
And I'll start with.
And in terms of some of the cost categories I've touch on them earlier on the call just to reiterate I put them in probably for the wireless side into three categories and I wouldn't underestimate the impact that installment plans and the related margin improvement has had for you to look at.
Our 370 basis point margin expansion in wireless about a third of that comes from hardware margins and so you know that shift have has been a good one for us and a good one for the industry in Canada.
The second piece relates to channel mix and our costs on channel mix have just become much more efficient, especially as we move to a.
Direct channels and digital channels, and that's coming through and as we said, our Coa and our C. O R E and as volumes improve it's a per unit cost that has actually come down quite.
Quite substantially and so that's been helpful. And then the third is you know what we lump together as back office costs, including our call centers.
And so there are a number of factors in there, but if you took even just the call centers with the migration of our base more and more to unlimited. We are seeing the reduction in call volumes. For example that we had expected and so that continues to drive it down in terms of the sustainability other than the <unk>.
First one on channel mix and back office costs.
We continue to see opportunity and they are sustainable and.
And similarly on hardware margins, although those are more impacted by market conditions and we'll you know we'll continue to follow sort of how that plays out in the market on but we do believe.
It is an opportunity for continued improvements none on the cable side.
Seeing much of the same in terms of categories I would replace hardware margin with content costs, which in our cable business represents 50% of our cost structure and.
And what we've seen is with the ignite platform more of an ability to change the packaging and channel lineup. So that we are dropping channels that cost us money, but aren't of interest for customers.
Sounds very basic.
But the team has been a very particular and going through that and reducing costs and even in the event that it's a one two or five per cent cost reduction.
On an $800 million cost base. It ends up being a significant savings and then finally self install and reduction of service truck rolls some of that is capitalized but some of it is opex and so you're seeing that play out in both our capital improvements as well as our on.
Opex, we continue to see opportunities to continue to improve that and so again I would put those in the category up very much being sustainable.
Yeah.
I hope that helps because you know just.
On a hit the punch line the majority of those costs.
Changes are structural and sustainable and that's what we're focused on all of our attention as opposed to more temporal on on costs.
And we're pleased with them you know you heard the one third of a 370 basis points of Martinez is around.
Is around equipment margins. So that goes to your second question really which is.
Are we seeing that subsidy ameliorate or are we seeing better Coa you couple that with some of the channel mix that we've seen heavy reliance on digital and express pickup a deliberative on with pro on the go et cetera. On every one of those is a far better way than some other channel so <unk>.
Sitting there and I think you know customers are really enjoying it our satisfaction scores on our super high in each of those customer journeys.
That they will persist far beyond Covid in terms of how we do business. So there also a structural in nature in terms of I said.
You know one of the one of the opportunities are.
Covid provided to us was.
On the ability to create.
Create a far more productive and collaborative relationship.
With government and both on P ministerial level and the.
Departmental level, we've seen the cooperation on through the last year overall I just think that will persist I think you know the common goal of how do we how do we help support the needs of rural Canadians, how do we drive forward together between industry and government.
To bridge the digital day.
<unk> for the 10 or 15 per cent of Canadians, who don't have access to.
On the best Internet for really largely economic reasons and the return on investment in those areas is very has been very challenging because at the beginning of the telecommunications industry.
So being on the same side of the table around the rural connectivity issues I think will bode well in terms of the nature of the collaboration on the cooperation.
That's there.
I have.
Grateful to minister Bains for the support that he provided while he was in office.
We have nothing but great discussions about the future of the industry.
And you know Oh.
I am very pleased with the conversation I had with administer champagne.
I think he's got an incredible background.
And understand the technology sector and understands the business environment. We've had some great discussions around just what's important on a go forward basis I think at the heart of all regulatory environments is strong collaboration between industry and government on what matters most of the future and that's where it starts in <unk>.
Those are all good things.
Thank you Barry.
Part of it.
Thanks, I have in our area, we have time for two more questions.
Our next question comes from your own Cagoule of day Chardan. Please go ahead.
Yeah. Thanks for taking my question.
Trying to look at a bit of had two potential recovery.
First on cable we've seen a nice improvement in our in our Bob How would you segment the impact from price increase versus maybe other factors like get customers moving up in terms of the.
Download speeds and then in media last year, you you said that it could be difficult to achieve positive EBITDA without game day revenue now that's been better than expected, but if if February the Blue Jays can't go back to playing in Rogers Center.
Do you also expect our cash.
Salvage in terms of generating positive EBITDA.
Thanks for the question your AUM on the first one.
Very specific to cable and the sustainability of ARPA increases I think a couple of things the price increase had.
I would say about a one third of the impact of the ARPA contributed a one third to the ARPA increase that you saw the other two factors that we saw play out nicely.
In not only this quarter, but in prior quarters was a reduction in promotional activity something we've talked about in terms of trying to bring discipline to our end of promotion periods and do a better job of getting customers onto our new rate plan that.
That is sustainable rather than just renewing promotions again and so we've been focused on when we look at our total promotions as a percentage of revenue in bringing that down and we're starting to see a good success in the marketplace on that the.
The second piece of it relates to upgrades not only in migrating to our ignite TV, but also to a higher speed tiers as you would expect and so you know both of those are contributing nicely to the growth in ARPA.
And so you know it's the latter two that we're really focused on as being a very much sustainable and continuing to drive ARPA growth for throughout the year.
On your second question related to media.
I'm not sure I got it but let me try to help.
In terms of.
For the Gs ideally, we're looking at and as I talked about before.
Breakeven type of scenario for our media business.
On the Gs is really the big swing factor and so if they play in Toronto. There are more advertising revenues as you would expect that we can garner from that.
And if there are audiences and that's a huge a potential for additional revenues, even if it's a quarter or a third of our ticket sales.
So to the extent that they ended up playing not in Toronto and.
And back in Buffalo or somewhere else than what we're going to see is a significant drag on our media business I don't want to provide too much.
Direction in terms of what that could be just given the unknown variables, but it's a very material swing either way and contributed part of the reason we held back on giving a guidance of you know that was one of the big three or four items that is still just a big unknown.
Yeah.
Great. Thank you.
Thanks, Jerome and thanks.
Everyone for attending the call if you have any questions. Please.
Feel free to give this a shot.
Yeah.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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