Q3 2021 Rogers Communications Inc Earnings Call
Thank you.
[music].
You for standing by this is the conference operator welcome to the Rogers Communications, Inc. Third quarter 2021 results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
Following.
The presentation, we will conduct a question and answer session to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to Paul Carpino, Vice President of Investor Relations.
With Rogers Communications. Please go ahead.
Thank you Earl and good morning, everyone and thank you for joining us.
I'm here with our President and Chief Executive Officer, Joe metallic our interim Chief Financial Officer, Pauline them, all our and our President and wireless day four.
Today's discussion will include estimates and other forward.
Forward looking information from which our actual results could differ please review the cautionary language in today's earnings report and in our 2020 annual report regarding the various factors assumptions and risks that could cause our actual results to differ with that let me turn it over to Joe to begin thank you Paul and good morning, everyone.
I'll take you through the highlights of our third quarter, then I'll provide more details on our priorities and how we are meeting the needs of our customers.
Also we'll talk about.
We are well positioned to drive long term growth.
Before turning to Paulina Molnar.
Our interim CFO for more.
Commentary on our financials.
As many of you are aware Paulina assumed the interim CFO role with US late last month.
She has been with Rogers for 16 years, most recently, serving as senior Vice President controller and risk management lead.
Paulina brings.
Brings 26 years of industry experience to the role and we're very fortunate to have her leadership at our table on great for very grateful for poly unison contribution.
Before we begin I want to briefly touch on the recent reports in the media.
As you know board discussions.
Detour and should remain confidential. So we will not be providing commentary on board meetings, and we will focus our discussion on our strong Q3 results from the improvements we are seeing across our business.
As we move through the final few months of 2021 the economy.
He is opening up travel restrictions are easing with the planned reopening of the land border with the U S and we're all encouraged to see more of life return to pre pandemic routines and experiences.
And as we recover from the pandemic the improvements across our business are clear.
Economy, My leadership team and I remain fully focused on continuing to build on this momentum and growth over.
Over the coming months and quarters.
We delivered strong results in Q3 with continued improvements across all of our businesses led by a very strong recovery in wireless.
<unk>.
Our wireless postpaid net loading service revenue growth blended ARPA and impressive wireless postpaid churn rates all improved during the quarter.
Notably our 175000 wireless postpaid net additions were well above the levels seen prior to the pandemic in.
119 and.
In fact, Q3 reflects our strongest quarterly wireless postpaid net loading since 2008.
Multiple factors drove these improvements.
As the economy continues to open up and people become more mobile.
20th pent up demand for new phones, and our services.
Secondly to meet this increased demand we have been able to leverage our strong national distribution network as customers return for the in store shopping experience.
Additionally.
<unk> the investments that we've made in our digital capabilities continued to pay strong dividends, enabling us to support the needs of our customers through convenient digital purchasing options, which have never been stronger for the Rogers organization.
Finally, our ongoing efforts to lower churn.
We are.
And better manage our base continue to pay off this is reflected in our 0.95% in wireless postpaid churn rate, which was a record low.
In the third quarter, despite the highly competitive back to school selling period.
Importantly.
These improvements are flowing to the bottom line wireless service revenues continue to recover and was up 3% year over year, London. Our pool of $51 31 is also improving and was ahead of our previous expectation for the third quarter a $50. This was aided in part by some modest improvements in roaming revenue as.
<unk> begun traveling more.
And while our roaming revenues remained substantially below pre pandemic levels during the quarter. This increase in travel extends to the land border with the U S, which will reopen early next month to non essential vaccinated travelers coupled with improving.
People National travel, we expect to see sustained roaming revenue improvements in the coming quarters.
Turning to our cable business we.
We delivered year over year revenue growth of a solid 3% and adjusted EBITDA was up 2%.
Both of which which were in line.
And at expectations.
This was achieved despite our decision to postpone.
This increases.
And as we continue with our capital spending to connect more communities and businesses and bridge, the digital divide and effects underserved Canadians.
On a product basis.
Our Internet net subscriber additions include 17000, net new broadband subscribers.
And our ignite TV platform growth remains very strong.
Attracting an additional 64000 subscribers in Q3.
This now brings our total ignite TV base to.
Even with a 730000 subscribers unimpressive, 55% increase compared to just a year ago.
Our ignite TV platform combined with our ignite Internet gigabit one five service continues to be well received.
By our customers.
More than finally at our sports and media business revenue was slightly below the prior year and adjusted EBITDA was positive both of these were in line with our expectations.
And while we remain focused on delivering improvements as we move past the impacts of the pandemic.
We also remain committed to making the right investments to deliver long term value to our customers.
To our shareholders.
And for Canada.
Our consistent focus on investments in our networks delivers incredible value to our customers.
Recent Pwc report assessing.
Seeing the relative quality and relative cost to build telecommunication networks across the G 20 nations.
That while Canada face is the highest cost to build networks.
We also continue to lead the group and the quality and capability of our networks.
Rogers Network leadership has been recognized consistently throughout the year.
We were named the best in test for the third year in a row by whom locked.
Additionally, open signal ranked Rogers number one for.
<unk> reach for five <unk> availability.
For the <unk>.
<unk> App experience.
And for the five G gaming experience and five G upload speeds.
Finally book club, the global leader in fixed broadband and mobile network testing applications.
Recognize rodgers of Canada's most consistent national wireless.
G band provider for the fifth quarter in a row.
These awards are just awards, they reinforced that our investments in our world class networks, not only keeps Canadians.
Connected to what matters most today, but will also help bring them the very best service.
In the future and for years to come.
An example of this network leadership is our accelerated rollout of Canada's largest and most reliable <unk> network.
We now connect more than 850 communities.
And by the end of the year, we will extend our <unk> network to more than a thousand communities reached.
Reaching 70% of the Canadian population with <unk>.
The strong performance of our networks is underpinned by the strategic investments we have made in spectrum.
This includes our success at the most recent 3500 megahertz auction.
Where we secured enough spectrum to cover.
Only nine 4% of the Canadian population.
This spectrum builds on our foundational investments in low band 600, megahertz and makes Rogers, the largest single investor and biopsy spectrum in the country across rural suburban and urban markets.
As we continue to lead.
<unk> deployment, we also remain committed to expanding fast and reliable internet connectivity to communities across Canada.
In July we announced a $140 million investment to deliver fiber technology to more than 20000 homes and businesses and Quincy West Belleville in Prince Edward County.
Lead and last week, we announced that we will invest over $188 million to extend our fiber network to connect more than 24000 homes and businesses in auto what Clarence Rockland, North Granville and Carlton. Please.
By the end of 2021 we will reach more than 500000 households.
Rural and underserved communities.
Only helps rolled into serve communities will also help drive future growth, we continue to work hard to expand coverage and high speed capability to rural Canadians.
And while I'm proud of our ongoing efforts to connect rural and underserved communities.
And we know more must be done.
Fast and reliable connectivity not only enables people to learn and participate in the digital economy. It's also critical lifeline, providing vital access to health care, social services and emergency services.
The scale of a generational.
It was needed to address our country's ongoing connectivity needs is significant.
Which is why our agreement to come together with Shaw is so important.
Together, our two companies will deliver world class connectivity to communities across Western Canada faster than either company.
Invest ever do alone.
Not only will this give rural remote and digital communities better and more comprehensive service. It will also create jobs.
It will attract investment.
And drive greater comp drive greater.
Competition for consumers and businesses.
Any could we continue our constructive engagement with the regulators as they review the transaction and we expect the deal to close in the first half of next year.
Before I hand over to Paulina to give a more detailed overview of our financials.
I would like to thank the entire.
Rogers team.
4000 team members across the country.
Incredibly proud to lead a team of people, whose dedication and determination continues to deliver outstanding service to Canadians and Canadian businesses, while continuing to improve our operations manage costs and deliver improving performance.
That's it from quarter to quarter to quarter.
And with that let me now turn the call over to Paulina.
To share more details about the quarter Paulina over to you.
Thank you Joe and good morning, everyone.
Our Q3 results reflect solid improvements across our businesses.
Led by our strong performance from our wireless operations.
In wireless we delivered postpaid net additions of 175000 or 27% increase from one year ago.
Impressively. These net additions were all smartphones.
This healthy recovery unloading reflects.
The impact of our continuous reopening of the economy, the effectiveness of our extensive physical distribution channels and digital capabilities and a record low churn rate for Q3 of 0.95%.
Yes.
The strength of the wireless recovery can also be seen in.
To date performance, where wireless postpaid net additions of 318000 or 57% higher than the 203000 and the pre pandemic first nine months of 2019.
Service revenue improved 3% from last year and <unk> was 51.
Our year 31 up 4% sequentially from Q2.
The sequential service revenue and <unk> improvement reflect the better loading environment as well as some additional roaming revenue.
However, roaming revenue is still remains at about 50% pre pandemic levels given lower travel.
Finally wireless adjusted EBITDA was up 2% and adjusted EBITDA service margin was strong at 65% in Q3.
Yeah.
Our cables business continued to deliver solid financial results total revenue grew 3% and adjusted EBITDA was up 2%.
Percent year over year.
Cable margin was a strong 51% and capital intensity was 23%.
Cash margins for beans at a healthy 27% in Q3.
Yes.
We continue to see growth in our Internet and ignite TV subscriber base, we eat it we.
17000 broadband additions within our overall net internet additions and ignite TV subscribers grew by 64000.
68% more than Q3 last year.
Impressively, our ignite TV subscriber base now stands at 732000.
A 55% increase from one year ago.
Overall with these additions we grew our net households by 8000.
Moving to our media business, we continue to see the volatility of the pandemic on broadcasting advertising and Blues Blue Jay game day revenue.
And underlying operational trends are improving as the economy opens up.
Yes.
Media revenue was $473 million down 3% from a year ago. This was driven by lower advertising and broadcasting revenue associated with the NHL and NBA completing their season's late in the third quarter.
But last year.
This decline was partially offset by the higher Toronto Blue Jays game day revenue resumed this year, but still well below typical pre pandemic levels.
While year over year comparisons of adjusted EBITDA are skewed by the pandemic impact of sports broadcasting schedules adjusted EBITDA.
Let's turn to a positive $33 million in Q3.
At a consolidated level total revenue for the third quarter was flat with flat on a year over year basis, and adjusted EBITDA was down 2%. However service revenue was up nicely growing 2% year over year.
COVID-19 impact on Q3 was still notable with estimated impacts of $112 million in revenue and $117 million and adjusted EBITDA.
Yes.
Capital expenditures in Q3 were $739 million or 47% higher than last year.
Year to date Capex was just.
EBITDA was $2 billion or 17% higher than 2020, reflecting capital intensity of 18%.
As we have highlighted throughout the year the increased capital spending is aligned with our continued commitment to investing across Canada.
These investments are critical to building, our <unk> network and then improving the digital.
Under the buy to connect more Canadians.
Cash income taxes of $175 million were up 100 million from Q3 last year, but consistent with levels reported in Q2 of this year.
This represents a cash tax of 11% as a percentage of adjusted EBITDA.
Digital tire this year, given our transition to device financing.
Free cash flow was $507 million down 42% as a result of increases in cash income taxes and capital expenditures.
Yeah.
As of September 30th we had over $6 4 billion of available.
Quiddity. This includes $1 6 billion in cash and cash equivalents and a combined $4 9 billion available under our bank credit facilities and our receivable securitization program.
Our weighted average cost of borrowings was three 8% and our weighted average term to maturity was 12 four years.
<unk> leverage was three times adjusted EBITDA at the end of third quarter.
Industry payments for the 3500 megahertz spectrum have been pushed further into the fourth quarter as the government works on clearing certain spectrum for wireless using hinted on.
We anticipate that this will be completed in the fourth quarter at which time, we will pay.
For our spectrum and leverage will be approximately three five times adjusted EBITDA.
Yeah.
Let me now turn to our Q4 outlook, which continues to reflect positive momentum in our business.
In our wireless business, our traditional retail distributions.
<unk> are fully open our digital capabilities are strong and the economy continues to improve.
Against this backdrop, we anticipate healthy loading environment to continue in Q4, particularly given the holiday selling period.
We believe service revenue will show solid growth on a year over year basis of approximately.
Or at least 5%.
Despite typical seasonality in Q4, our pools should grow 2% year over year.
We anticipate our strong wireless adjusted EBITDA service margin performance to continue at the 63% level and we expect capex intensity for wireless to be approximately.
But at least 16%.
In our cable business. The company has not implemented any price increase in 2021.
However, we still anticipate revenue to be consistent with Q4 last year.
Or a 1% increase sequentially from Q3.
Cable adjusted.
So our margins are expected to range remain in the 51% range and we expect capex intensity to remain at 23% as we continued to enhance our cable infrastructure and provide connectivity to more communities.
In our sports media business, we expect revenue to grow.
<unk> on a year over year basis to just over 500 million as more professional sports programming ramps in Q4.
With the resumption of normal NHL and NBA schedules, we will also incur some additional programming rights of broadcast costs.
Adjusted EBITDA is expected to be negative by approximately 35 million.
And he was finally on cash taxes and free cash flow, we expect our cash taxes to be in the $25 million range.
In Q4, and as we have paid the majority of our taxes in.
In the first three quarters of 2021.
We anticipate free cash flow to be similar to Q3 was somewhat similar.
Capex spending.
Overall, we're very pleased with the improvements in our business as the economy continues to recover.
Our team is executing well and as we move past the pandemic, we expect our results should reflect the quality and potential of our wireless cable and sports media assets.
Let me now turn this back to the operator to commence with Q&A.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request if.
If you are using a speakerphone. Please pick up your handset before pressing any fees to withdraw. Your question. Please press Star then two we will pause for a moment as callers join the queue.
Okay.
Our first question comes from drew Mcreynolds of RBC. Please go ahead.
Yes.
Thanks very much.
Good morning, everyone.
For you Joe just to be clear for for shareholders. We see this morning, Our board formed an executive overnight Committee and is conducting a governance review obviously you have the support of the board.
Just three sub questions here have any.
Any strategic or operational priorities of the company changed in any way do you see any impact on the company's ability to close the transaction with Shaw and then lastly from your perspective, just any change in your ability or commitment to execute our you know.
And what you intend.
To do looking forward.
Thanks drew for the question.
Let me be unequivocal.
Commentary.
Alright.
Strong unequivocal support from the board.
To direct the strategy of the company that has been.
Been approved over the last many strategic sessions with the board to.
To keep driving the operational initiatives that we've been talking about are we lost money.
Quarters that continue to drive the improvements of the momentum that you're seeing.
And to support the approach around the short term transaction I'm feeling.
As comfortable as I have been in the past with the Shaw transaction both in terms of <unk>.
Our ability to get it approved and the synergies that stand behind it so.
I feel supported and rest assured the team entire executive team is focused on.
Two things.
One running the.
Business to keep driving performance and to landing the Shaw transaction and the synergies and integration efforts that stand behind it.
Okay.
I hope that Nokia Shanghai Bell.
That does thank you and then just to follow up on wireless clearly.
Q3, just to hit the Mark on almost every K P I and it sounds like that momentum will continue into Q4.
Maybe a question for Dave just.
Just on the lower churn in the quarter I'm still not necessarily a fully normalized Q3, but.
Impressive to see the churn reduction.
Just could you comment on whether that's a function of better base management is it a structural decline in churn or are there other dynamics there on on that drop thank you.
Yeah sure drew.
Happy to cover that yeah, I think it's a number of things and certainly we are pleased with what is really a record low churn number for us in what is normally a.
A higher churn in the quarter given the promotional activities that are usually underway in Q3 with back to school I think I'd point to four things.
The first would be base management as you said I think the team has done a great job of effective base management.
Uh Huh has helped with a number of structural improvements.
And how we manage our base and how we manage our customers are the other ones I point to though it would be.
Ltd.
As you know is.
As was said by Paulina and Joe We're now at two point million $2 9 million.
Subscribers on Rogers wireless.
Or on the unlimited plans are therefore, not being impacted by.
Significant overage revenues.
And then the other kind of key points.
Two is if you look at the final base, which is a material component of our consumer base roughly 85% of the Fido base are on data overage protection plans, which is the Fido version of Rogers Unlimited plans.
Again, they don't arent subject to overage unless the customer chooses to buy a top up.
So with both of those two numbers you can see that the vast majority of our consumer base is on unlimited plans.
And what we've seen as you know when you get to somewhere in the range of a 25 BP improvement on churn.
On Rogers wireless if you look on the final base, we actually get almost twice that.
That are in the range of about 45 basis improvement from customers on data overage protection. So I think that's actually a very significant factor in this.
And the overall churn reduction the other two I'd point to is we've made a lot of service improvements.
To enhance our likelihood to recommend and our promoter scores.
And the team have done a great job of removing friction for.
For our customers and servicing and supporting our customers both in retail and in our call centers.
And that for sure has significantly material long term benefits on churn.
For I think obvious reasons and the final one I'd point to are the material.
Significant network investments that we have made.
And improving the quality and capability and coverage of our <unk> network and now have the largest fiber network.
The most reliable <unk> network <unk> network.
And all of that is a significant material player and the service and experience.
The value proposition that we deliver to our customers.
So I really think it's it's all four of those things.
Kind of coming together to.
To create the record low churn numbers that youre seeing and hopefully will continue as we go into Q4 and next year.
Great appreciate the detail I'll.
I'll pass it thank you.
No problem. Thanks, Thanks Truth next question area.
Our next question comes from Vince Valentini of TD Securities. Please go ahead.
Yes, thanks, very much and my congratulations as well on those strong wireless kpis.
One I had a different question, but im going to start with visitors.
To follow up on something you just said, Dave any chance you can give us anything more granular on the net promoter scores or likelihood directly.
Recommendatory in terms of how much it improved versus where it was before or how rogers might stack up with industry peers.
Yeah.
You know my view on likelihood to recommend Vince is you never really done right, it's an ongoing journey and.
Good enough for me is when 100% of our customer base.
Willing to recommend our services to others. So I don't you know, we're not going to disclose the exact numbers I would say, we've had pretty material and.
If I can improvements in that metric over the last.
Three to four years.
But it's nowhere near where it needs to be.
And.
I think we still got a lot of opportunity and room to improve and the team is focused on doing that to do right by our customers.
Fair enough.
Thanks.
My question was going back to the churn is great, but obviously your gross adds were up pretty meaningfully year over year as well.
Is there any concern and Joe or Dave whoever wants to take this is there any concern you may be doing too well I mean, we haven't seen numbers from bell or tell us yet, but I suspect that 175000 is going to ease.
When the quarter.
For the industry do you think that if you have too much success it could engage a bit of price response that is not.
If something you want from from them and maybe as part of that is there anything you can tell us about the mix of what you said theres no tablets in that number but.
The mix of our flanker brand versus.
<unk> main brand that comprise that 175.
I'll take the first part Vincent and I'll ask Dave to comment on.
The mix side of it.
So first of all.
What you saw from the Rogers team this quarter.
Was the strength of our distribution.
Easily into full focus and Thats, what retail traffic is still not really where it was pretty bad dummitt retail traffic is roughly 75% of where it was pre pandemic.
But the other thing you saw as.
When we started.
We had a very limited.
Very minimum.
Come in digital capability to transact outside of our stores.
The team has worked.
Good night and since the beginning of the pandemic to shore up that capability, where we think it's a competitive strength.
And a very least parity with the competition. So now you know we can fight with both.
Both hands.
And we're going to keep these muscles growing and going I can't predict the competitive reaction in a particular season or quarter or any particular.
Set of results I would say to you. We're very pleased with the results. These are high quality subscriber.
Next that will have a very strong.
Similar flow through associated with them.
And.
And you have the other channel capabilities, we've built like pro on the go and other things that youre going to hear from us in the coming.
A few quarters, you'll see that we continue to build distribution strength.
And distribution strength along.
<unk>.
Service friction reduction and improvement.
<unk> bye bye likelihood to recommend to your first question Vince like Bell.
The secret sauce of this business overall the network quality is there now are best in class.
We understand that network quality is.
The parity discussion.
Given the quality of networks across Canada. So you win by distribution capability and you win by customer service and likelihood to recommend and both of those have a very strong momentum.
And we're just not going to relent on them.
Over to you.
Yeah. So.
I think Vince that well first of all on your question around the mix of that loading first of all it was a point is that all on smartphones. So that's great news in terms of the brand mix I'd say, we were exceptionally pleased that we really kind of had strength in all three.
Areas of our postpaid business so.
As you looked at the numbers as we went through the quarter Fido had an outstanding AR.
<unk> was well ahead of its its projected number but we also had strength in beats on Rogers consumer wireless and on our fee business, our PDP business.
So I think.
All three areas.
We showed strength. So that's good news I am not going to get into the exact splits between them certainly.
The biggest number of those three would it be on Fido.
Which is I think typical before.
What happened in this business across the board on enough linker side of the business for.
Many quarters.
But we were in a positive position across all three of those brand segments.
And to your <unk>.
First question I used the only top up on what Joe said is listen I think I'm very comfortable that.
We did not.
Get the net additions in the gross adds.
In the quarter through excessive and aggressive promotional activity.
Certainly we were matched up well against our competition as we went through this but.
It wasn't through undue.
Promotional aggression as you went through the quarter.
And in fact.
No.
When you look at the split between additions in gross adds that ported their number into us.
Versus gross adds that did not in other words, where net new numbers.
Most of our benefit on the port side actually didn't come from.
It came from the fact that our term was much better. So in other words, we were losing less port outs.
As opposed to a huge win on port ins and what where he had a lot of strength on was in the non port.
Growth in our businesses.
Crew counts and families within within our.
Our existing.
Account structure so.
Thanks, very much I mean, Vince Ive taken note of written down to good I've known you for about a decade. We've had many calls together with investors in earnings calls that I've never heard you say the word too good so I'd I'd Mark this moment in time eight.
Before on this particular Dave.
So so so by Vince because we're in the midst of budget discussions for 2022, So I'll also make sure.
I remember that.
It's makes a lot of them.
Yes.
Thanks, Ben next question.
Third email.
Our next question comes from Jeff Fan of Scotia Bank. Please go ahead.
Thanks, and good morning.
Just a quick clarification to start I think I've heard the 174000 loading where all smartphones.
I hear that correct.
Question.
Maybe I'll start there and then a couple of very quick follow ups.
So yes.
Yes.
All of them were smartphones.
In fact, our smartphone loading in the quarter was.
Closer to 180.
Correct, which we were slightly negative on tablet loading.
So yes, okay great.
That's great to hear.
My My next two questions are related to governance and Michelle deal just on the governance side.
To follow up on Judy's question about the executive oversight Committee.
Sure.
That was.
Can you give us a bit more details on the same date of the committee because theres no disclosure.
On your site.
Is there any overlap or how does that overlap with the with the executive Committee. So that's the question on governance. The other question is related to the Shaw transaction and.
And particularly on the financing.
Talk about new debt that you have to wait for that transaction.
Can you update us on any discussions with lenders rating agency.
Related to that financing, especially in light with the recent spectrum spend and can you just update us.
What youre plans are related to the financing for that transaction. Thanks a lot.
Sure. Thanks, Jeff I'll take the first comment.
On the governance question when asked paulino to frame up the financing and some of our recent discussions with rating agencies et cetera.
So let me say this.
Close in our MD&A.
The executive oversight committee was created to advise and assist the chair.
And me the CEO in carrying out our respective duties and to establish clear protocols or interactions between the chair and members of management.
And that's essentially what it is.
Is.
The board has also resolved to undertake a comprehensive corporate governance review, which boards do from time to time take a corporate governance review.
I think these initiatives will will serve to continue to strengthen our governance practices, which are always always always been excellent in terms of the company.
And.
Rest assured.
I continue to work very collaboratively with every member of the board.
We just had a board meeting yesterday it was a very good discussion on the future of the business on the Shaw deal on what's driving the momentum in one of the biggest challenges ahead of us.
It was a very strong collaborative.
And thoughtful discussion with all board members.
And that will persist.
<unk>.
Belinda do you want to talk about the financing.
Yes, Thank you Jeff.
In terms of the financing I guess for the spectrum that we need to pay for it with our leverage that I talked about.
Over $6 billion were covered there we've got the financing to pay off that spectrum that will be coming up in the fourth quarter.
In terms of the Shaw acquisition.
Yes, we're going to be.
Looking at the debt levels, there and what we need to do $20 billion.
We.
We've started planning for that you'll see that we've put some hedging in place.
For interest rates during the quarter, we've got.
The term loan that we put in place the prior corner you know we are going to be looking for those synergies of $1 billion in where I'm feeling very comfortable around that over the first.
It appears.
That will help us bring down some of that that level as well.
Our debt leverage will be $3 fine as I said.
Once we pay for the spectrum, we think it'll go to over five times after the Shaw transaction.
And they will come down within 36 months back.
<unk> five times.
Or discussions with the rating agencies are ongoing and we're committed to working with them to say our investment great things.
Thanks for the question.
Okay.
Thank you.
Yes.
Thanks, Jeff Our next question Arrow.
Our next question comes from our <unk> of Canaccord. Please go ahead.
Good morning, Thanks for taking my questions. Two from me first of all with respect to.
On the wireless side, the cost of equipment, obviously receipts down 10%.
No there has.
Has been sort of a trend towards <unk>, a little bit in Q3 I was wondering if you can comment on that and whether you see that is that a more of a temporary movement. Obviously if that does continue that have positive implications for <unk>.
Wanted to get your thoughts on that and then secondly on the cable front.
You're faced with.
On one hand, I know the pandemic has affected sort of the movement in terms of Internet net adds on the other hand, you faced with sort of more aggressive fiber rollouts from the telcos.
Wanted to get your.
Your thoughts on sort of your own fiber initiatives can we sort of expect that.
Ci on the cable front would remain where it is or would you need to kind of step that up a little bit. Thank you.
Thank you everyone.
As David talked about.
Driving the cost of equipment.
What does it is temporal versus structural overall and then I'll.
Couple of questions David over to you.
Yeah. Thanks for the question.
Yes, I would say most of it's probably temporal.
You said, a modest decline in cost of equipment.
I think as a lot of people on the call will be aware.
The OEM and smartphone Oems.
We're constrained on image.
Both Samsung and Apple.
Which would be the two largest.
And arm.
Our mix in our base.
Struggled with chipset availability.
They are happening across the industry.
I'd say, we did the team did an excellent job of managing that.
Right.
And making sure that we hit the right phone available for our customers when they wanted it needed it but I think that did dampen.
Some upgrade activity and renewal activity within our base.
And probably caused the mix to skew a little more heavily towards bringing.
Thanks.
As people were basically decided to stick with the advice that they had when they waited for availability on the.
The phone that they really wanted to get right and.
Next question, probably will be do we see that continuing as we get into Q4 likely.
Likely I think the chipset constraints.
Your own to buy are going to continue to challenge the supply chain within the industry.
Throughout Q4, and probably as we get into Q1, and we will have to do a very good job of working with our partners at Samsung and Apple.
Two.
Manage inventory and make sure we get it out to our various different retail locations.
Immediately and quickly to make sure we continue doing a good job matching up.
Our customer.
With the with the device that they want.
Thanks, David.
On the cable question or questions.
A couple of thoughts overall, let me just first talk too.
Our.
Strange for technology roadmap.
First of all bear in mind.
The Bell's fibre to the home.
<unk>.
Just under 50% of our cable footprint.
And also bear in mind that we offer speeds of one gig across our entire footprint.
Net of roughly $4 5 million homes passed since our footprint.
And then we're also in the midst of upgrading to 1.5 gig profile in specific areas and with more to come we're going to run that of course across our footprint.
At the same time in areas where.
We believe that it makes sense.
As.
Notes and we've done a lot of work splitting nodes are homes per node is half of what it was four or five years ago.
And we continued on that path to get to a passive network and all the things we've talked about in the past around that but in some areas. It just makes sense to go to <unk> and we're doing that.
London, Canada, where it's largely aerial infrastructure, we looked at node splitting and we said you know what.
But it's not.
Spend the money on those putting our coax network, let's just go with G. PON.
And we've done that and we've done that in other parts of brownfield and for Bell.
Splitters now are greenfield locations have all been fiber.
Is that right to the home. So we continue to have a combination of fiber.
And DOCSIS.
We're very pleased with the DOCSIS roadmap, we know there's been a lot of discussion around DOCSIS 4.0.
Overall.
Hybrid fiber coax network.
<unk> four is set to deliver symmetrical multi gig speeds.
Turn down six up.
Sort of.
Limits on the current thinking around the DOCSIS protocol specification.
And that'll be step towards that level.
And it's a highly.
<unk> August secure low latency network. It's in the early stages of development, but we've got a lot of runway with our current infrastructure a lot of runway.
Our average of our base is sitting at about 300 Meg.
Of service.
Alright.
And so the road from 300 to 1.5, and then DOCSIS four on the back end of that.
Supported by G. PON, it where it makes sense, we think we got a really good winning formula from my perspective, what is it going to cost it's going to cost somewhere.
Around 20% Capex intensity, 20% to 22% what will drive it to 22, 23% is the amount of service expansion that we have.
In front of us and as I've said to you in the past we're committed to driving service expansion not just by leveraging some of the funds and the.
UBS on other programs, but also by driving our fixed wireless capability.
Fixed wireless.
About.
Eight to 12 months behind our peer in terms of deploying fixed wireless capabilities all of their work very hard to put it to the test.
And this quarter, it's a very de Minimis.
Call it less than a thousand or about a thousand of our net adds are fixed wireless we think that can drove grow dramatically.
And so when you take the let me stack it up where you take the recovery from the pandemic as you know.
Our sales teams are out and about driving volume as stores.
Or open up again and the channels are back to full speed you add to it the incredible competitive advantage of the Comcast.
Ignite platform and you've seen that in our TV numbers, we have TV nets are positive for the first time in 10 years in our business.
And then you add to it.
Our Wi Fi capability that we've worked hard to create.
Around our whole home Wi Fi in the smart home automation, that's coming in the next few quarters, we have a winning product formula.
We've been winning product formula that I think will do very very well in the marketplace.
And combined with the fixed wireless capability.
Capability and we can see continued growth and improvement in our expansion and net additions the macro conditions are still there. We still believe that housing starts will be in that 60 to 80000 range.
Any particular year.
And given the investment in 3500 megahertz spectrum for fixed wireless.
Wireless opportunity is quite large.
Not just in our current serving territory, but we bought a lot of spectrum in Western Canada.
In areas that will be.
Great for fixed wireless capability, so theres an opportunity there that's part of the Shaw transaction as well so I'll just I'll just stop there that's sort of the color on.
On the topic of fiber versus DOCSIS.
On the topic of where we see not some fixed wireless is going and the CIO hopefully that answers your question.
Yes. It does thank you so much.
Vasily.
Thank you.
Next question Arrow.
Our next question comes from.
Jerome Deborah Jordan. Please go ahead.
Yes, thanks for taking my questions.
First question is on maybe the drivers of our pool, which which was probably better than I expected.
How much how.
How much roaming revenue.
Has returned in the quarter also we start.
See some some fees coming back like a late payment fees.
If he can comment on that please.
Yes sure.
Happy to jump.
So I would say you know the drivers of ARPA in the corner and we are first and foremost saw strong subscription revenue.
Growth from the strong net additions that we enjoyed.
This quarter and to some extent last quarter as well.
And more critically the mix of those that we've already discussed towards being high quality smartphone editions.
So that'd be the.
The biggest driver.
That positive return.
<unk>.
I also do think to my comments earlier around the percentages of our base both in Fido and Rogers that are now on.
Unlimited and data protection plants data overage protection plants I think that's also contributed to this and that we are through the lion's share of the headwind.
That was overage revenue declines that we had been impacted by in previous quarters.
And then the third one is roaming as you already noted drone and that is it's up quarter on quarter.
Still down pretty and it's up year on year, but down pretty materially from 2019. So we.
Range of about 50%.
Our 2019 rounding levels, so certainly still significant upside and room to grow there as Canadians.
Get back to traveling.
Okay.
Okay. Thanks, that's helpful and just also on the migration to unlimited and you touched on that.
A few a few times, but on.
On the cost front.
Although the migration I understand it's mostly completed where are we in terms of achieving.
We're calling the simplicity dividend.
Where are we in terms of the cost benefits of this migration to until limited.
We're in the store.
According to various simplicity dividend when we launched.
Unlimited and data protection.
<unk>.
June 2019.
But drew them, we actually went back to the business case, just in the last couple of months instead, where are we versus the business case.
I'm happy.
Happy to report that we're right in the target zone of what we anticipated.
What we'd be roughly around 3 million Rogers customers were two point noted.
Fido, we've actually overachieve, where we thought we'd be in terms of the percentage of customers on data protection as Dave mentioned its 85%.
In terms of.
Of the churn benefit.
You heard Dave talk about <unk>.
25 bps on Rogers and $45 47 bps on Fido.
Pretty much in the zone.
We did milk the overage revenue that was part of our strategy.
And that has now.
Hit bottom.
At the bottom of the J curve I know, we said that would take six to eight quarters and here, we are roughly six to eight quarters.
After that and.
We turned the corner on that overage melt as a whole and then if you look at the call drivers in our business you look at the digital adoption you know in terms of call minutes we.
Then reducing anywhere from.
12% to 18% of call minutes for the last couple of years and there are a number of drivers around the call minute reduction with like a call minutes to think of it as the number of calls times of duration of calls which is really what the cost drivers are.
And that has gone.
<unk> is a broad set of actions, but the heart of that is the simplicity dividend that we've been describing so it shot up most starkly in terms of reduced cost to serve.
Phone call cost is about $10 and that's a substantial cut in the number of phone calls and duration of phone calls.
And then with that.
Because.
We alluded to likelihood to recommend scores I would tell you that managing an overage and bill shock conversation is a very painful and debilitating exercise for a lot of our call center reps and those who have this essentially.
<unk> gone down to a very very small.
That is what number of calls so it has shown up on that front as well quite broadly.
And then we have the opportunity now that we're continuing to mine around base management in touring people up to the higher tiers of unlimited, which come with other services and capabilities.
Like.
<unk> ER tablets.
Okay, and or like Disney plus or things of that nature that you may have noticed in your mystery shopping. So we're very pleased with that I'll come overall, the simplicity dividend very much in the bull's eye.
Where we wanted it to be and now we got the overage melt behind us and I think we actually have a structural advantage at this point because I don't.
No what our peers were appears are up but they've never really disclosed.
To which they're basis on unlimited.
We're through the hard part now we've got the advantage. We all talked about you remember me talking about the fact that.
We were marching into <unk> with an overage ray plant structure that was conceived and.
Additional.
Right and that's now behind us.
The only other one I'd add until as part of that simplicity dividend.
<unk>.
Along with the reduction in minutes. It comes at a pretty significant reduction in credits credits and fee waiver because the thing about.
<unk> revenue is a material percentage of that ended up getting credit get back to customers. When they found out and complained and we had done to mitigate your bill shock as well right. So.
And.
I think all of those things have helped contribute to our margin improvements that you've seen in the business over the last.
A number of years.
<unk>.
With them and the customers on data protection and unlimited when people start traveling again roaming is a very different context, yes, they'll buy a ruling class right, but they're not worried about the minute bucket or the data bucket anymore.
And that's a bit of an interesting sort of.
No benefit to worry free roaming as well.
Of that over thank you paid quite helpful. Thank you.
Thanks, John next question Ariel.
Our next question comes from Sebastiano Petti of J P. Morgan. Please go ahead.
Okay.
Great. Thanks for taking the question just wanted to circle back on something.
One of the comments David made regarding.
Just the device supply chain.
Not at all are you seeing in terms of supply chain constraints as it pertains to the <unk> network deployment. Obviously, you gave the target for year end coverage, but as youre thinking about and planning for the 3500 megahertz and other future.
Five G spectrum deployments.
Any issues in the supply chain and beyond wireless anything that perhaps on the cable side as well that you're seeing.
Yeah. Thanks for the questions, especially on them, we feel we're in good shape in terms of Bell wireless network deployment bear in mind that a lot of the heavy lifting is already done.
I don't know if you recall, but when we did our <unk> LTE advanced.
Implementation and the radios, we put up on the towers et cetera. We did that later in the <unk> advance cycle and therefore, we were able to secure five G ready radios from Erickson So a.
Equipment is already there and for other things that we need along the way we've been stockpiling are supply chain issues have become a global phenomenon, we've been stockpiling things.
And you know building up our inventory.
To make sure we don't have a challenge whether it's in the network uplift on <unk>.
The coverage and capacity building, but we're doing a or whether it's in our cable uplift G. PON capabilities. So we feel good about that.
In terms of CPE and the cable business, we feel good about where we are in that we've also managed to improve safety stock levels in the supply chain team has done an incredible job of managing.
Managing in the face of what's been happening in terms of global chip shortage.
The Nexus of focus has really been on the smartphone side right because.
These are hot devices.
And in the scheme of the global supply chain for smartphones, Canada collectively amongst all the players.
It is a small part of the base and therefore.
<unk> always a question of if not you know.
Where they can go in terms of companies, where they go in terms of the country.
We are fortunate to have very strong relationships with the major smartphone providers and work very collaboratively with them on that given we have the largest.
In this business and the volume up.
But that's really where the focus and Dave's world is but we're fine in terms of network and cable CPE.
Hope that answers the questions about any of them.
Yeah, that's great and then circling back I think Joe in your prepared remarks, you talked about.
At the end of 'twenty one.
I, just worry about 500000 households in rural and underserved communities.
I guess two questions related to that when do you I guess you'd like those up in terms of marketing.
Trying to target those and when does that become a when you start to see those numbers penetration gains et cetera start.
To come through the Internet and broadband Kpis.
<unk>. Thank you.
So I'm just to be clear Sebastiano, that's a cumulative number in terms of our rural base and we typically from I'm, we liked them up and we've been adding to it all year.
And bear in mind, there are about 2 million.
Underserved homes across Canada, So that's the the.
The target market set that's available.
To us to go build two with either.
Fiber.
Fixed wireless or any other sort of technology that comes along the way and to that end. There are many different government programs to help subsidize.
The funding and non economic areas and to my comment earlier I believe fixed wireless is a very important part of our strategy for us.
As well as some of the UBS and other opportunities to partner with governments.
All orders of government provincial and federal to kind of close that gap, but in terms of when we.
We finished.
The construction and installation of a particular neighborhood or site to the time, when we actually let it up.
It's measured in months is measured in months a lot of it has to do with sometimes you build ahead.
If its a greenfield operation even in rural there are small communities being built in rural.
And the trenches open we put the fiber in and then we have to really wait for people to move in so that's more a function of people moving in but if it's an area where there are existing.
Rural customers.
Where are you know we're actually.
Building and delivering like right away and fixed.
Wireless like theirs, we light up the tower and then it's a sales effort and the CPE doesn't get installed until we have a customer.
If we're running fiber down a farm community or our country community are.
We've already.
No.
Docked on doors and got if you will.
Support.
We're doing and therefore, we have already made our base of customers in that particular community. So the cycle between construction and revenue is well managed and a very tight from that perspective.
Thanks for taking the questions.
Thanks, Sebastiano, we're at the top of the.
The hours so that'll we'll conclude our call, but please feel free to reach out to the Investor relations team with any any follow ups you may have.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Mr. Carpino for any closing remarks.
Thanks.
Please feel free to follow up if there's any additional questions.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Hum.
[music].
Thanks, Eric.
[music].
Yes.
[music].
Hum.
[music].