Q2 2019 Earnings Call
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[music]. Thank you for standing by this is the conference operator, welcome to the Rogers Communications Inc. second quarter 2019 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 and zero.
I would now like to turn the conference over to Paul Carpino with Rogers Communications. Please go ahead Mr. carpino.
Thank you Ariel good morning, everyone and thank you for joining us today I'm here with our President and Chief Executive Officer, Joe Natale, and our Chief Financial Officer, Tony Staff. Gary Today's discussion will include estimates and other forward looking information from which our actual results could differ. Please review the cautionary language in today's earnings report and in our 2018 annual report regarding the various factors assumptions and risks that could cause our actual results to differ with that let me turn the call over to Joe.
Thank you Mr. carpino and good morning, everyone today I'm pleased to share our results and our progress in the second quarter.
Overall, it was a pivotal quarter for Rogers and the Canadian wireless industry.
We continue to deliver strong fundamentals.
And is this from this position of strength that we introduce fundamental changes to our wireless offerings.
We made these changes after a thorough and thoughtful analysis on where the industry is going and what matters most to our customers.
Now more than ever customers want to worry free data.
Fiveg is at our doorstep, and we need to unlock and unleash customer demand for data.
This is a bolt on important step forward and I truly believe it is the right time to lean in and drive this industry direction.
We approach this change with three main objectives number one drive growth in data usage by delivering a worry free proposition for customers.
Secondly, get ready for Fiveg by shifting the value proposition from cat data.
To focus on the quality and capability of the service unnecessary evolution and a key market construct to prepare Canada for Fiveg.
Thirdly.
Redefine industry economics around equipment financing and a better customer experience to drug affordability reduce friction and reshape the subsidy model overtime.
Overall, we believe the small moderation as short term growth rates will yield sustainable superior economics in the medium and long term.
While it is still early days. The response has been overwhelmingly positive our customers and our frontline team loves the simple easy pricing.
Our national competitors saw the strategic Merit of our moving followed our lead overall this was the right move for our customers our company and our country.
I will share further details on customer uptake in a few moments, but first let me turn to our overall second quarter results.
Overall, we continue to deliver strong profitable growth.
In wireless we saw strong growth in service revenue and adjusted EBITDA, We attractive 77000 postpaid net additions and we executed strong pricing discipline to attract the right customers with the best lifetime value. We grew blended ARPU by 2% and we delivered postpaid churn of 0.99% for the second consecutive quarter, reflecting our steadfast steadfast focus on the customer experience and customer base management.
In cable we delivered solid growth in revenue margin adjusted EBITDA and free cash flow accompanied by strong Internet loading. We also continued to grow and internet penetration.
For the 16th consecutive quarter.
On a consolidated basis, we grew revenue by 1% and adjusted EBITDA by 9%.
We returned over $300 million to shareholders through dividend payments and share repurchases in the second quarter.
And we will return over $1 billion to shareholders. This year.
As I said earlier, thanks to these robust fundamentals.
We were able to introduce a number of strategic moves to put our customers first we were the first national carrier to introduce unlimited data plans with no overage fees and Canadians are responding.
365000 subscribers are already on these new plants.
When you look at our customers, who migrated roughly two thirds upgraded their price plan choosing to spend more and one third are spending less overall. These customers are using 50% more data. This is impressive growth in just six short weeks and it's tracking favorably to our business case.
Thanks to the simpler pricing construct an important digital investments online transactions are up substantially and average handle time is down both in retail and care a great reminder, that customer experience and cost management do work hand in hand.
In addition, we were also first to introduce both 24 and 36 month device financing.
We have made an instantly more affordable for Canadians to purchase the latest devices any day of the year at zero dollars and interest rate.
In the first two weeks between the two options more than 50% are choosing the 36 month plan. It is clear customers value the longer term payment plan as it helps them purchase the latest devices on more affordable terms.
These new financing options only make wireless services more affordable, but by separating the embedded subsidy. It is also more transparent.
Overall, we believe this cost structure to improve device subsidy economics over the long term.
The team delivered these two critical customers first initiatives flawlessly.
And I'm incredibly proud of their execution efforts were in a long term journey to deliver the best possible experience to our customers and these were important moves.
With more to come.
We also made significant headway on our Fiveg roadmap, we started to deploy 600 megahertz capable radio equipment and we'll start to deploy 600 megahertz spectrum later this year.
As you recall, we secured 52 of 64 available licenses of this precious resource in every single province and territory.
This low frequency wide area spectrum is foundational to our fiveg rollout starting next year.
Last month, we announced a partnership to open a new National Center for Cyber security at Ryerson University last week, we announced the creation of a Fiveg innovation lab with communities and Waterloo. We also completed our first successful Fiveg tests calls in Brampton, Toronto and Vancouver.
Fiveg is unlike any other wireless technology, we have seen before and that is why we need the right partnerships to bring the right economic use cases, and the write applications to market working with Ericsson a global Fiveg leader, we will lead and bring the very best of Fiveg to Canadians.
We also made strategic advances in cable I'm pleased to share, we're making steady progress on ignite TV, we expanded our service to Newfoundland and we will expand to new Brunswick later this summer over 160000 customers almost 10% of our base are using the service and we're on track to reach our subscriber target for the full year.
And we continue to see impressive results, including significantly improved early lifecycle churn likelihood to recommend and average revenue per account.
This innovative service has a great future roadmap for the connected home and it rests on our leading reliable broadband network a network, we continuously invest and build on just last month, we introduced ignite Wi Fi hub to give customers more control over their Wi Fi experience and we now monitor two and a half million Wi Fi devices daily to ensure customers have a terrific in home experience.
More broadly I'm proud of our team's deep commitment to drive our customers experience.
Our multiyear program to drive improvement in channels is paying off in the call Center service levels are strong. The first call resolution is improving at a healthy rate and digital sales adoption is up.
Almost 10% and online sales volume is up almost 50%.
In retail we continue to modernize our in store experience. Ultimately this is all about serving our customers where and when they want.
Finally, I am proud to share that our team achieved on employee engagement score of 85% the highest in our company's history and five points above global best in class. We believe a high performing culture is critical to our success and it is a sustainable competitive advantage.
In summary, our fundamentals are robust we delivered strong growth across all the key value drivers of our business. We made significant headway on our strategic long term plan.
We have a strong management team and a strong frontline team along with the right strategy and the right priorities to lead and win.
I'd like to thank our entire team for their incredible dedication and commitment.
And with that let me pass it over to Tony.
Thank you Joe and good morning, everyone.
Rogers delivered solid Q2 results, reflecting strong quality loading in both wireless and Internet subscribers continued margin expansion healthy service revenue gains and positive blended ARPU growth.
As we have highlighted in previous quarters, our focus continues to be on balancing growth opportunities with sound economic returns to ensure we create long term sustainable value for shareholders and customers alike.
In wireless we reported healthy service revenue growth of 3% and adjusted EBITDA grew 10%.
Wireless margins were 50.3% and expansion of 380 basis points from last year as a result of strong growth in wireless service revenue successful cost management and the impact of adopting IRS 16.
We continue to execute on our quality loading strategy and delivered 77000 postpaid net subscriber additions.
Contributing to the strong service revenue growth were increases in both blended ARPU.
And blended ARPU blended ARPU was up 2% and reflected our 13th consecutive quarter.
Of year on year blended ARPU growth.
ABPU was up 4% in the quarter.
As Joe noted, it's early days with our Rogers implement infinite plans, but we are pleased with the results to date, while infinite had minimal impact in the second quarter. We are excited with the customer benefits and cost savings opportunities that these plans are expected to generate as we move into a fiveg world.
In addition to the value of these plans provide our customers, we anticipate on ARPU and ARPU lift over time.
Already we are seeing our monthly recurring revenue being net higher for all those customers that have switched to our infinite plans of course. This is impacting overage revenues, but at a rate that is shallower and faster than we anticipated.
Operationally, we are already benefiting from the simplicity of these plans as we are seeing fewer and shorter calls to our call centers and greater adoption of digital ordering these types of benefits should drive greater efficiency in our wireless business going forward.
Importantly, both the revenue and cost saving improvements should be accretive to margin expansion and adjusted EBITDA growth in the future.
Enhancing Rogers infinite plans, our newly introduced 24 month, and 36 month consumer friendly device financing programs. These simpler zero down zero interest financing options now put total control in the hands of those customers interested in acquiring new devices and builds on the savings that all customers can access through the value embedded in our no overages and unlimited data plans. We currently spend over $2 billion each year on handsets, including significant subsidies that only benefit customers wanting new handsets with reduced subsidies going forward combined with a venture with the eventual securitization of those financing receivables. This plan is expected to expand margins be accretive to adjusted EBITDA and drive stronger cash flow going forward.
Turning to cable we grew revenue by 1% this quarter and adjusted EBITDA by 3%.
Our internet offering continues to be a key driver for our cable business Internet revenue grew 7% this quarter, reflecting the movement of internet customers to higher speed and usage tiers, some service pricing changes and a larger internet subscriber base.
We remain uniquely positioned to meet customer demand for faster speeds and higher data with our ability to offer ignite gigabit internet across our entire cable footprint.
In Q2, we reported 22000 net internet subscriber additions. This reflects the 16th consecutive quarter of increasing Internet penetration rates. In addition, internet ARPU grew compared to the prior year quarter.
We also expanded cable margins by 130 basis points. This quarter due to continued focus on efficiencies and product mix shift to higher margin Internet.
And importantly, we again made good strides in reducing our capex intensity and cable down to 29% combined with our EBITDA margin expansion in the quarter, our cash margin for cable expanded to 19% this quarter from 11% last year.
Good progress towards our goal of 25% cash margin by the end of 2021.
Moving to media revenue was 3% lower largely as a result of the sale of our publishing business in the second quarter and lower revenue from the Toronto Blue Jays. This was partially offset by higher subscription and advertising revenue generated by our sports net properties media EBITDA was strong up 20% driven by efficiencies and lower Toronto Blue Jays salaries.
On a consolidated basis, we delivered total revenue growth of 1% and strong adjusted EBITDA growth of 9%, we invested $742 million in capex for the quarter, which increased 13% year over year.
The increases in capital expenditures in wireless this quarter are a result of the ongoing investments being made to augment our networks as we continue to drive towards a fiveg world.
Capital intensity was a bit higher this quarter driven by both the timing of our investments as well as lower revenue in our hardware sales.
With respect to cash flow and returning capital to shareholders, we generated free cash flow of $609 million this quarter, an increase of 2%.
The increase this quarter was a result of higher adjusted EBITDA, partially offset by higher planned capital expenditures and higher cash income tax payments in the quarter.
We do however, until we anticipate our cash tax rate to be in the 6% range for fiscal 2019 as a percent of adjusted EBITDA compared to our full year 2018 cash tax rate of 8.2%.
During the quarter, we continue to demonstrate our commitment to returning cash to shareholders through dividend payments of $257 million and repurchasing $50 million in class B nonvoting shares.
Our debt leverage ratio at the end of Q2 was three dot zero times, reflecting a 50 basis point increase compared to the end of 2018.
IRS 16 lease accounting drove 20 basis points of the increase and the completion of our 600 megahertz spectrum purchase added 30 basis points with a healthy business and strong free cash flow, we expect to continue reducing our leverage moving closer to 2.5 times in the future.
We had liquidity of $2.6 billion at the end of the quarter and a solid investment grade credit ratings with a stable outlook.
Additionally, our balance sheet is well positioned with long term maturities and low interest rates on our outstanding debt.
In summary were very pleased with our Q2 results and the long term outlook for Rogers, we remain laser focused on effectively managing our base business driving greater efficiency throughout the operations improving the customer experience.
And ensuring our growth is underpinned by sound economic fundamentals.
With that I'll ask the operator to open the lines for questions.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone.
You will hear a tone acknowledging your request.
If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then Q.
Our first question comes from David Barden of Bank of America Merrill Lynch.
Hey, guys. Thanks for taking the questions.
I guess first.
Just if I could get a little clarification, Tony I think you said in your I'm sorry, Joe in your prepared remarks that we should expect the short term moderation in growth with respect to the.
Infinite plan, but then you shared some staff that roughly two thirds of the customers who are adopting plan. Thus far are spending more.
So.
I'm just trying to understand the next couple of quarters are we expecting growth to slow down or or is this actually going to help.
From kind of a cadence standpoint over the course of the next couple of quarters and then.
Second.
I think you highlighted that about 10% of the base has now the new ignite TV.
Program I was wondering if you could kind of elaborate a little bit about how what the the goals in the shape of that are in terms of expectations for the rest of the year and into next thank you.
Could David Thank you.
While our star 21, you can which have been so.
When you look at the two thirds the.
Upgraded.
To the plans versus the one third and you do the sort of monthly service revenue math on that we're seeing a positive.
Another positive monthly service revenue.
The.
Moderation of overage than we said last time or is that we've been having meetings that overage for Rogers is less than 5%.
The overage overtime will diminish and therefore moderate our growth our growth rates as a whole.
And that's exactly what we're seeing we're still seeing a healthy vibrant wireless market with penetration growth opportunities with data growth opportunities and we think we picked are good.
Price point with respect to these unlimited plans and we think that will just serve in the medium to long term to drive sustainable growth in the business as a whole in the short term, we'll see some moderation.
But Tony feel free to comment on that specifically if you if you like.
Sure to put a finer point on it.
David So you saw in the second quarter service revenue growth of 3%.
And as Joe said, the recurring MRC is coming in quite nicely on a positive basis.
It's the overage piece that.
As you would expect than we expected.
Some of that to melt.
It's not as much as we thought more of it in terms of subscribers.
But thats in our opening remarks, we said it was shallower than we expected.
So that 3% you can expect a slight moderation of that growth rate.
In the back half of the year on service revenue.
But again, it's only six weeks into the plan and so as best as we can estimated that's that's what we're seeing for the rest of the year, we don't expect it to be a material impact to our wireless service revenue.
So we think we pick the right balancing point for the future health of the business and the ability to make the shift in pivoted with the right economics. So we're very pleased with the results. So far early days, we're very pleased so far on your question around ignite TV.
We.
Our goal is to migrate the entire base over the next couple of years.
We're taking a thoughtful approach and doing it steadily quarter by quarter, we're seeing good results.
Economics of customers that do move as I said earlier it shows up in better churn. It shows up in higher ARPA and most importantly shows up and very strong likelihood to recommend of the service as a whole.
And one thing we are making sure is that we do it in a manner, that's not stirring our base than we just do it in a manner that is thoughtful and at a pace that make sense overall.
And and over the course of the next couple of years, we should be completed the migration.
Thank you.
Just as a quick follow up you called out the kind of an expansion of the Nike.
As is kind of a contributor to the higher cable Capex. This year is is.
Is that going to plan or.
Kind of the trajectory in cable capex intensity seem to be falling rather than rising.
Is there anything to to kind of calm.
Talk about there.
Yeah, what we're seeing David quite frankly is.
Very good unit cost efficiencies.
That are driving that cable capital intensity down we're getting the migrations from legacy to ignite that we expected the unit cost on a per home basis are at and in fact slightly better than than we anticipated we've talked about.
Legacy home costing us upwards of $1100 and the new ignite platform at.
Under $400 and falling and so that's coming in as a.
Expected, but on top of that what we're seeing is.
Efficiency improvements in our nodes segmentation program.
As well as efficiency improvements in our truck rolls and installation rates. So thats, what you see coming through so we do see it as sustainable declines.
In our cable capital intensity.
Great. Thanks, guys.
Thanks, David next question area.
Our next question comes from Vince Valentini of TD Securities.
Thanks, very much let's stick with that last 0.1st so I believe in your original guidance in January you were talking about cable capex intensity, not really declining much from the sort of low thirtys percentage last year. You are now 29% year to date, and you're saying, it's kind of sustainable so can I read correctly that cable capex, maybe coming in a bit below where you thought originally Tony but on net flip side. It looks like your wireless Capex is potentially on the Fiveg side is ramping up so total capex is still where your thought but diminished shift from cable into wireless.
Let me clarify a few of those points. So on cable Capex, yes, we do think it's sustainable so as you look to the back half of the year. Our expectation is that will continue to sit around 29% to 30%. So below what we originally thought.
On the wireless side, the uptick that you saw in the second quarter as really as a result of timing and so we don't see it necessarily transcending to the back half of the year. So on a total basis.
Our capex may come in slightly below or in the lower range.
That we provided in guidance.
Thats very clear thank you and just back on the the unlimited data trends and so forth.
And can I clarify different way to 365000, I'm not 100% sure on that I think that dies of basically now or in the last couple of days or is that as of the end of Q2.
Doesn't like yesterday, Vince Okay, and is that virtually all migrations or does that include a lot of new gross adds coming in on those plans as well.
It's a combination of migrations and new customers.
And would you can you characterize at all to be mostly migrations or.
So it's.
It's as expected or that we're not getting into the specifics other business as expected it's been a great attraction for new customers and also.
A good opportunity for existing customers. So we're happy with our balance overall.
Okay and lastly on that is that in the name of our mind is like we're really happy to see the positive ARPU that we're getting from the monthly revenue as we kind of weighed our way through the overage.
We think is good news on the other end you'll bear in mind that as I said earlier over just less than 5% and if you were to do a full economic analysis on that small piece of revenue.
On an entire business a full economic analysis around.
What is the extent to which we speak to those customers are negotiating that overage number.
Our dealing with it on their bill or having follow up conversations with our issuing credits.
Our driving a propensity to churn around it is.
In some ways revenue with no real economic outcome. So.
Weaning ourselves off our revenue.
And driving the goodness around unlimited plans given the positive ARPU, we're seeing so far again early days, we think is the right formula for the business moving forward you think about the fact that.
We have some of the lowest data growth rates globally.
That's not sustainable that's not an environment, where we are going to head into fiveg, where customers are afraid of using data. So it all kind of helps the other from that perspective.
I fully appreciate that and you kind of segue to my last question is in terms of those cost reductions in the benefits.
Is it fair to say, even though you may be seeing a slight moderation in service revenue growth for the back half of the year that you can fully make up for that at the EBITDA line with with various cost initiatives. So whatever your guidance was before our consensus was before you are still comfortable with.
Thats right Vince.
I think you said it well.
Notwithstanding some of the as you would expect forecasting an estimation.
That we're going through on the revenue side, what we do know with a higher degree of certainty are the cost reductions are coming in.
First and foremost the subsidy changes have been implemented.
And you see that when you look at our web sites and how the cost of the devices factored in to the 24 and 36 month periods.
As well as on the subsidized plans you see some moderation in the subsidies there on the Fido brand and so.
Thats already started to happen, but as Joe said in terms of average handling time on the call. We're seeing very good reduction.
And there are other pieces of it that we had talked about customers coming in on auto bake.
He bill and again, while it's early days thats coming in nicely as well and so on a net net basis, what we do have good line of sight to is.
A strong impact to EBITDA and free cash flow.
Thank you.
Great. Thanks, and our next question area.
Our next question comes from Maher Yaghi of days our debt.
Thanks for taking my question I just wanted to go.
Maybe a little bit bigger picture here on the health of the wireless market in general.
When I looked at your gross adds.
Still down year on year, but half of the decline that we saw in the first quarter can you talk a little bit Joe about.
The overall wireless postpaid market how is it changing shifting with the introduction of these unlimited plans.
And.
Your competitive positioning in the market.
Sure. Thanks Meyer.
So overall, we're still very bullish about the growth opportunity in the wireless market.
The circumstance around have not changed.
Penetration opportunity in Canada is still very strong at 87% penetration.
On the road to similar to the US 120% penetration so that penetration gain is still available to us.
We are seeing and modeling in in our forecast you know overall subscribers.
Growing at about 4.5% for the year ended periods ended period. So we're still seeing that kind of growth and believing it's there for the taking.
I would say to you that the first part of the year Q1 was quiet I mean, we talked about on the last call, but we saw the other market wakeup about halfway through.
Q2, and it's been active and strong ever since and bear in mind that we're still in the.
Early part of the year, despite half of the calendar year, having gone by two thirds of the volume of our industry happens in the second half of the year between.
All the various black Friday of back to school et cetera.
We think that some of the affordability auctions that we've introduced will help to stimulate the growth opportunity and that's part of the thinking behind infinite and behind device financing. So we're very pleased with what we're seeing around the 36 month plans already clearly Canadians have spoken enough said you know what we love the choice between 20 436 months, we love the affordability options.
In six weeks, we've seen more than half of our customers more than half of a 365000 customers.
Who have chosen the infant applies to.
Or the ones, who have gone on financing have chosen 36 months as a whole right. That's that's an impressive start to equipment financing and more to come.
No.
From a macro perspective, some of our view as to unlock the future growth potential we had to do two important things. One is took away the fear in the burden of overage.
When the overage regime in Canada was such that people were paying $100 for a gigabyte coverage or had to sign up to a number of.
Top up approaches that we have to manage and worry about whether their son or daughter or family member was using too much data et cetera. It it creates a burden on our customers and it shows up in the data growth rates.
Well, we've seen already that you know with this cohort of infant customers, we've seen those growth rates client.
Substantively.
And then you take a look.
Affordability of handsets handsets are getting more expensive, but less expensive. So we have.
In some ways a duty to our customers to help them figure out how to afford these handsets through choice of 20 436 months et cetera.
And so we think those are two very important catalysts to continue driving the growth opportunity that exists in our market as a whole.
Wireless as a service for everyday life is becoming even more vital and important.
And it's insinuated itself into every facet of life.
And therefore, I think the upside continues to be very strong.
The applications around Fiveg I think although early days right now in all the right now they all seem rather of theoretical nature, we're having a very similar conversation on the advent of Fourg and look what is done to change.
The approach for consumers and to create the on demand economy.
Fiveg will create a new real time economy with all kinds of use cases that we have only begun to anticipate.
And I think it's still bodes well for both the medium and long term growth prospects of our sector.
Great. Thank you and just a follow up on the second half you mentioned, that's very important as we all know.
In your planning and to the launch of the unlimited plan.
Did you have in mind or your market research indicate that the early adopters of Nissan Unlimited plans are mostly guys, who would upgrade or downgrade because I'm looking at your two thoughts are there.
The new unlimited plans takers are.
Have upgraded versus downgraded so.
Do you believe in the second half are mostly guys who.
We continue to upgrade or how do you see this high annual taking taking place in the second half with the back to school period.
Marrying our modeling when we had.
Put together our outlook for the incentive plans.
Our expectation was that early on the majority of customers would be down graders.
And they will change the savings quickly and the Upgraders, we're going to take a while I understand the plan I understand the commitment they are making to a higher price point and that always takes a bit of time and so we actually had the inverse modeled in our plan. So we were quite.
Quite pleasantly surprised to see the inverse happening and so our expectation then is with upgraders waking up and adopting the planes sooner than we expected.
I think we should expect to continue to see that.
We'll be in that direct proportion don't know, but I think it's off to off to a good start as as Weve said with the MRC being net positive that's what we had hoped as the long term.
Outcome and its happening sooner than we expected so good news on that front, but again six weeks.
Six weeks into it.
Great.
And just one last question on airfare might bear in mind that as a portion of our entire base the potential upgraders are.
Vastly larger vastly larger.
And the.
The portion of John graders, what we're seeing is the customer perception of value the customers value for money.
Mindset.
You know, saying that what worry free data is worth spending a bit more for and as a result, we're seeing more of the upgrader population move earlier on that which is nice to see actually.
Yes, I agree and just one last question on cable.
The net adds on cable on on high speed.
How old is just can you talk a little bit about the competitive picture and GCA area.
From.
As of the competition increases on on fiber to the home.
The pricing environment.
Sure well first of all the competitive landscape and intensity has not changed in either direction frankly, it's been roughly the same as it has been the last long while as a whole.
Bear in mind.
That.
No.
As I mentioned earlier this was 16 quarters four years of Internet penetration growth for our organization, we're now sitting at 57% penetration.
Across our footprint of 4.4 million homes and businesses past.
And those numbers are holding up whether it's in a competitor's fibre territory or not.
It's holding up in condo buildings in downtown Toronto is holding up in suburban parts of Canada, It's holding up in more sparsely populated parts of Canada, where we have a footprint in operations as a whole.
What we what we really see from customers more than anything else as they want internet reliability, they want internet and wildfire that works and works well.
And the fact that we've got the capability of a one gig service with now managed Wi Fi capability across the entire base and some more developments are coming on that front, our new Wi Fi hub is a great product and device and it allows our customers to manage the wonderfully in their home, but also allows our technicians and our service operations people to look into the house and see how the wildfires performing.
And if you take a look to proactively manage the Wi Fi environment for our customers even before they call even before they have noticed they have a problem. So we're doubling down on this notion of reliability or think us number one item that matters most.
And.
No we're seeing customer response from that value proposition as a whole they will continue to be competitive intensity in the market, that's not going to change.
But.
We're very excited about the ignite roadmap.
And whats coming around the corner and as a result.
No.
There's some really interesting stuff coming we've got a new generation of Wi Fi extenders that will be launched sometime very soon we've got new capability around.
Television viewing new opportunities around the connected home. So we'll continue to create reasons to believe in the Rogers product set and reasons to buy for people that will overcome.
Some of the price only competition that we've seen historically.
Great. Thank you very much guys.
Thanks, Nick next question area.
Our next question comes from drew Mcreynolds of RBC.
Thanks, very much good morning, two for me first Joe or Tony on the unlimited plans that you have at their end market you talk about wanting to stimulate data consumption can you I know early days, but provide us a little bit of an update in terms of what you're seeing.
In terms of behavior in those unlimited plans relative to what the behavior was before and then secondly bigger picture just on the regulatory outlook.
In the last six months I think if you look at all the wireless pricing change that they are in the Canadian market it's been.
Pretty amazing to see and how fast it's all unfolded.
Hi, maybe Joe talk about whether expectations have changed from a regulatory standpoint, as we look forward into the wireless hearing thank you.
Well you want to take the for sure on the commercial and government regulatory drew on the data we said from the outset that one of the key success.
Points, we would look at on this is actually driving up data growth.
Within.
Our population and its probably not dissimilar to the rest of the industry. What we saw was data usage growth slowing to about 20%.
Year on year, and so what we wanted to do is really.
Ignite that that growth rate for customers of the 365 cuffs thousand customers that have switched to the new plans. What we saw immediately within the six week period is sequentially there.
Usage grew by 50%. So when you look at it sequentially as well as year on year very healthy data usage growth, which was the behavior. We were expecting we didn't expect it as quickly as we thought there's some reasons for that the biggest one being.
Customers no longer toggling their Wi Fi on Wi Fi off switch and so just by leaving it off they are comfortable using the data which is the experience we wanted.
And Thats what were seeing in the in the usage rates.
And drew on the regulatory front.
One thing that some of the moves that we've made have done, especially around unlimited and equipment financing.
Is really demonstrates it really demonstrates that we are perfectly aligned with.
The overall agenda for the government on the regulatory front with respect to making wireless services more accessible and more affordable for Canadians.
And my simple view of it is.
The more we focus on what's important to the customer the more we focused on the customer experience as a whole.
The more aligned it becomes with the overall regulatory review and policy of government.
And we've had some very encouraging conversations around some of the moves that Weve made most recently very supportive conversations from the minister and other members of <unk>.
Of the cabinet as a whole.
And we think that's a good sign.
We've got a very precious resource in Canada and that is.
Wireless infrastructure.
Our networks are.
Truly amongst the best in the entire world.
In terms of capability in terms of reach to rural parts of the population in terms of speed pick any metric in Canadian networks are amongst the best in the world.
And the Best Avenue, we believe too.
Drive the continuous investment of that precious resource and drive economic return from that investment in the country is sparsely populated as Canada is to make the voice of the customer b the loudest on the landscape to preserve.
That infrastructure for the use in the future and for Fiveg and all the that brings so I'll get off my my platform now, but I would just say to you that we think these are all aligned to what matters, most and we're seeing good support from the on that front.
Okay. Thank you.
Thanks, Joe next question area.
Our next question comes from Tim Casey of BMO.
Yeah, two for me one Joe could you talk a little bit about what you're seeing in.
Across brands given the new infinite plans are all on the on the premium brand.
And it looks like chat or had a decent quarter at least loading terms just wondering what to what you're seeing if anything in terms of movement across brands as a new plants have been introduced and second point.
How should we think about any regulatory discussions with respect to the three year financing plan you said.
More than half of a customer so far have responded to them, but I know there is.
A little bit of confusion out there about how those plans will fit in with the code just wondering how you would frame that debate. Thanks.
Okay.
Thanks, Tim.
One of our goals in launching infinite was to really focus on the value proposition for each of our three brands in wireless.
And I'm happy to report that through this change Fido has done very well.
And kept the momentum that it had strong momentum it had and on top of that charter is performing well.
You know, we're trying to create delineation, where the Rogers brand is a brand that is about.
Customers that want worry free unlimited data and a.
More for more value proposition.
The fighter brand is aimed at people that are looking to spend somewhere in that 40 to $60 range. When a good experience when a good service and a good network.
But you know have.
Less opportunity to spend.
The higher amount and the chatter brand is available it's a great service to anyone with a great value proposition.
And opportunity for people that are either budget constrained or that want to manage their wireless services and.
A very new approach. It's good for people that are new to Canada. So a lot of new Canadians on the chatter brand. It's great for students. So we are really doing a better job of sharpening the segment focus of each of the parts of the Canadian market across the three brands.
The goal being that each of the three brands is attractive to those different parts of the market and drives good strong economics and enough themselves.
We are happy with that result, as a whole in terms of regulatory discussion.
We feel that our approach is right for consumers.
Weve, giving consumers a choice of 24 or 36 months.
We separated the equipment financing from the monthly service fee.
So it's completely transparent and open.
And.
Customers whenever they like can pay off the balance and do whatever they want with their phone at that point. So we think it's very customer friendly very transparent very open. We believe it is completely aligned with the intent and the spirit of the wireless code and regulation and we've been incredibly cooperative with US here I do see around providing information and insight into why these plans are right for consumers and we await there.
We await their consideration.
Thank you.
Okay. Thanks, Tim next question area.
Our next question comes from Jeff fan of Scotiabank.
Thanks, Good morning, and thanks for taking the question.
I've got it do you.
Very quickly just number one on overage.
Because you launched the plans the incentive plans I guess late in the quarter.
Was there any impact of overage in your second quarter number I guess, we'll start to see a little bit more of that in the third quarter in the second half just wanted to clarify that.
And then also clarifying the I guess the moderation.
Well grow so I'm wondering as you kind of go through this transition when should investors expect to see.
Thanks re acceleration.
Of the service revenue growth as you look further out and how you.
Mall without the impact of all of the Internet.
And then I guess the last one is on network usage.
It's great to see that those that have come across on incident seeing an increase of 50%.
As you sit back on on the network capacity what are your thoughts in terms of how this may or may not impact capacity, and therefore wireless capex and whether usages.
Over time could could may be substitute some of the broadband usage of fixed broadband usage. That's in the home and that's that's I guess more of a longer term story. Thanks.
Hi, Jeff I'll start with the first one straightforward.
Virtually no overall impact in the second quarter as you said, we launched it two weeks before the end of the quarter and so it there was hardly any impact in the second quarter.
I think the second part of your question is.
How do we how do we see this sort of unpacking in terms of time, our expectation was that.
The full implementation of this was going to play itself out over six to eight quarters somewhat in line with the contracted base may happen, a little sooner, but what we sort of see is.
On the overage side it.
It's happening at a more moderated pace than we expected so that might suggest it goes on a little longer but as we've said, it's really a moderation to the growth rates and.
It's probably all we can say is as we said six weeks into it so it's tough to predict but we're expecting.
Longer.
Impact.
Rather than than shorter.
Yes, not unlike you know one of the analogies we've been.
Talking to some of you about is roam like home and we did that what we saw was a very quick adoption of the value proposition.
And a much quicker in terms of probably four to five quarters adoption and impact on the revenue melt that that it had and so you know for what it's worth that's somewhat of an analogy both in terms of value proposition as well as a materiality of the of the amount.
That's probably all we can say at this point on that one.
In terms of network, we model network.
Consumption and impacts over the long term.
We feel very comfortable with.
The types of growth rates that we would anticipate we benchmark them against.
Different countries in the world and their data growth rate and their consumption.
We've got a great spectrum position and has recently by the 600 megahertz.
Acquisition as a whole so we've got the ability to deliver the capacity.
In terms of going forward, we're investing in fiveg, and adding more capability, which will deliver even more capacity at a better unit cost.
As I said earlier.
In Fiveg, it's inevitable they will make as an industry make the pivot from.
Data as a scarce resource that as measured by.
Just tonnage or quantity to pivot around the quality of service or capabilities that customers are paying for.
And there are new technologies that are coming along level, even create further capacity migration from threeg to fourg across the entire.
Footprint four by four Mimo technology will create capacity.
New spectrum at 3500 will create strong capacity.
We came from a paradigm if I can use a phrase paradigm of scarce data was sort of a thing that.
Ill defined the Threeg and Fourg era, the fiveg narrowly defined more by the level of capability and quality of service.
And I think thats the important thing the very mind.
You know a dynamic spectrum sharing would change that opportunity in a big way. So we feel very confident around the overall Jeff.
Okay.
Thanks, Jeff aerial we have time for two more questions. Please.
Certainly our next question comes from Simon Flannery of Morgan Stanley .
Great. Thanks, very much good morning.
Joe you talked quite a bit in the past about surfacing value from some of your investments. How are you prioritizing that at this point and then maybe just a follow up on the video business.
Can you just talk about what's going on in that business in terms of cord cutting or what are you seeing in gross adds what are you seeing in churn and how does the profitability split I think you said the margins are higher and then internet, but any color you could give us around what happens when somebody.
On a video loss versus an internet AD. Thank you.
On servicing value Simon for some of our investments I've got nothing really new to report we continue to look for opportunities that make sense for the business in the long term and when we have something that is meaningful the happy to share what we're thinking.
With respect to video.
Video.
We're seeing the video market is really the market is coming together in sort of two segments as a whole overall market roughly runs at about 50% margin.
Versus internet.
As you know is largely.
Capex and fixed cost and the margin.
Is much stronger as a whole.
What we're finding is that the top end the video market, we're doing very well, we're doing very well for customers that want.
So lots of content.
Once an abundance of choice and programming as a whole.
And we're seeing very strong ARPU growth.
In TV as a whole, we're seeing 4% ARPU growth.
As a result of that continued growth in that part of the market and it's driven by ignite helium things that we're doing it's the other part of the market.
We think of the market is sort of being two sets of customers.
The cause I.
LTT kind of appetite and there are some service offerings in different parts of the country that.
Require you know.
Very little investment in terms of installation or set top box and TV services for a very basic service starting about $5 a month.
We don't have a play in that part of the market yet, but something is on the horizon for us and there our goal is to create more choice for customers where.
They have a very very affordable entry point and then through the course of time, they can buy content in a much more snackable approach. They can buy a series or an episode they can buy the raptors playoff as.
Service overall, they can add on as they see fit.
And we would see ourselves merchandising this is an add on to internet.
And.
Just take a step way back that is our goal Internet is our primary service broadband to the home.
And we'll continue to find offerings, whether its video.
All you can eat video or all you can choose video or whether it's a smart home monitoring of the connected home to add value add.
Opportunity for that broadband connection, but we're still very bullish on video still think it's an important part of our business.
It's going through the transformation that we see all around the marketplace frankly globally.
Happy with our addressing of the video opportunity on the upper end of the market and more to come with respect to be on a card part of the market.
Great good color. Thank you.
Great. Thanks, Simon and our last question please area.
Certainly our final question comes from Aravinda Galappatthige of Canaccord Genuity.
Good morning, Thanks for squeezing me in two quick ones for me number one on the wireless side.
I fully recognize the simplification of the the wireless offerings under the new incentive structure.
For for Joe or Tony maybe just do you worry that that perhaps creates gaps in the market that though a lot of your competitors to maybe take a little bit Moshe if you think about the $75 plan.
Roger still obviously today they than anything that's that's.
Generally lower than that so you kind of forced to go to the flanker add do you feel that for that segment of the market.
Once that 55 60 $65 plan.
That that creates a gap that that might cost some share drain that and second question real quick on media. Tony I was wondering if you can give us a little bit more color on that.
The puts and takes we should think about the second half I know that was a little bit of noise around David salaries and distribution that from MLP as well as that publishing sale. Just wondering if there's anything notable for the second half.
Thanks.
I'll take the first one Tony take the second one.
So our vendor we as I said earlier really trying to create.
Christopher delineation between the brands.
We have done a very thorough analysis of the Rogers base and.
You know the opportunity for that base to sign up to the infinite plans and we're very happy with the delineation that we've created around these price points, so far those doing very well so.
We're pleased with that direction as a whole.
And we'll continue to March forward now at the end of the day in the market will continue to evolve as a dynamic market, but we're pleased with the way we're approaching it and we're confident in the right direction.
On the second part of your.
The question our vendor.
Yes, a couple of things I think you should expect to see.
Good healthy topline and EBITDA growth in the second half for media the days of viewership.
And monetization will continue to struggle, but in the back half we have the other sports franchises coming.
On board.
Hockey and basketball, notably.
And so we expect that to drive good numbers as we head into the fall and Thats underpinned by a continuation of radio having a very good solid.
Growth trajectory into the back half that combined with the cost efficiencies that you've seen in the second quarter that will continue into the back half so I think the.
The outlook for media continues to be a continues to be strong for us.
Great. Thank you.
Great. Thanks, Arvind and thanks, everyone for joining us on the call today, if there's any follow up questions. Please feel free to reach out to the IR team. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.