Rogers Communications Inc (RCI) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Rogers Communications Incorporated and Rogers Wireless Communications Incorporated first quarter 2003 earnings. During the presentation all participants will be in a listen only mode. . After that there will be a question and answer session. At that time if you have a question please press the 1 followed by the 4 on your telephone. As a reminder this conference is being record recorded Thursday, April 17th, 2003. I would like to turn the conference over to Bruce Mann, Vice President Investor Relations. Please go ahead sir.

Thanks, operate. Good morning everybody. Appreciate your joining us. What we've done as we have done in previous quarter is spend the first portion of the call discussing and taking questions around Rogers Wireless and the second portion focusing on remainder on Rogers Communications Group. I'm here in Toronto along with Nadir Mohamed, Rogers Wireless Communications Inc., President and CEO, and John Gossling, Rogers Wireless Communications Inc., Senior VP and CFO, Rob Bruce, the Chief Marketing Officer, and Bob Berner in charge of engineering and technology. Also with us from Rogers Communications is Alan Horner CFO as well as Ted Rogers who is joining us remotely on the line and wanted to share a few brief openings opening remarks in just a moment. Just quick administration. Detailed first quarter earnings Releases for both Wireless and Rogers Communications were made available this morning.

If you don't have a copy, they're on the www.rogers.com, they're on Newswire and First Call and both releases include some important cautionary of safe harbor language that applies equally to any statement or discussions on the call this morning. We will keep our comments brief so we can focus on your questions rather than summarizing the releases as you know are fairly comprehensive. With that I'm going to turn the call over to Ted Rogers and go to Nadir for broth brief comments. Go ahead, Mr. Rogers.

Good morning, everyone. And thank you for joining us today. Thank you for your interest in Rogers Communications and Rogers Wireless. As you can see building on the momentum created last year, Rogers has had a great first quarter. Revenue is up 14%, operating profit 29%, and CAPEX is down 22%.

This is a solid start for 2003. It's also a powerful start in that the excellent performance was balanced across all three of our operating divisions. These results clearly reflect some of the things we've been focusing intently on over the past several quarters, particularly at Cable and Wireless. Let's focus these into three main categories. The first is to simplify what we do to reduce activity and cost, and it really does. It also improves service. Second is to structure pricing and offers to minimize product and customer turn. And the third is to both lead and follow in capturing opportunities to rationalize pricing in both of these industries. Rogers very much focuses on the basics, and its working. You're already seeing the results.

Nadir Mohamed and his team at Rogers Wireless once again delivered impressive results across all of their key operating metrics, with further reductions in churn, a continued focus on post-paid subscribers, and excellent top-line and EBITDA growth and combined with continued reductions in capital spending. Cable continue to strand of solid sales performance -- driving good levels of high-speed Internet and digital cable subscriber additions as well as a good first quarter on basic subscriber levels. John Tory and his team at Cable put some very focused initiatives in place late in 2002 to assure that we had a quick start in 2003, and these were clearly successful. John, Edward, and Deane are also seeing successes on the operating side, reducing activity levels and fine-tuning their operating and marketing programs.

While the completion of the rebuild projects in Cable are solidly on track. So Cable is off to a good start, has set a strong foundation for the balance of 2003. Tony Viner and his team at Media also had a good start in 2003, in the quarter drawing off of the work that they did this past year, positioning their assets and managing their cost structure. While the businesses within the radio, television, and publishing divisions are all solid category-leading assets with good growth, I think in particular Media is going to create some very substantial value as they focus particularly on developing the potential of Omni and Sportsnet TV businesses, all of which are doing very well in 2003. Over all, this is a quarter where I think the numbers speak for themselves.

We look forward to the balance of the year. But it's still early in the year. And while we clearly have a somewhat positive momentum towards the potential for out outperforming some of the targets, we set out for 2003, we are cautious and not at the point where we are going to change any of the targets that we set out earlier. We will update you later in the year, as appropriate, as some of the changes and opportunities around us play out. We generally look at our guidance as an annual view, and not something that we want to be tweaking each quarter along the way.

For 2003, we are committed to delivering double-digit top-line and EBITDA growth for the corresponding 25% decline in capital spending. That's a very powerful financial combination. We have a solid funding and liquidity position and have started to nibble away at reducing the holding company borrowings. We've got terrific leadership teams with plenty of bench strength to take the business forward. So we're off to a good start for the year.

Appreciate your support. I'd like to turn it over to Nadir Mohamed to talk about the results at Rogers Wireless.

Thank you, Ted, and good morning, everyone. In the first quarter, we remained focused on our core objective of profitable growth, delivering our sixth consecutive quarter of double-digit year- year-over-year operating income growth. This is definitely a quarter where our key drivers were all going in the right direction. Network revenue is up 15%. Post paid ARPU up $1.15 or 2.2%, Data revenues up 142%, operating income up 42%, post-paid churn down to 1.82%, and CAPEX down 23%.

And importantly, our operating margin on network revenue improved to 33% from 26.9% a year ago. Our release is relatively comprehensive and the numbers pretty much speak for themselves, so I'll just highlight a few key points. In Q1 we continued our success and shifting the mix of our loads toward higher revenue post-paid customers with Q1 post-paid net loads of 61,000, up 6.1% over last year, while continuing with our strategy of not subsidizing pre-paid. On the top line, year-over-year and network revenue growth of over 15% is our strongest quarterly performance in the last three years. This was enabled by our higher and better post-paid mix throughout the last year, growth in data and optional services, and the success we've had in managing our customer base through targeted retention efforts.

On the customer acquisition front, the blended cost of acquisition of $428 for growth [Inaudible] reflects our focus on higher value and term contract customers and is also reflective of the competitive landscape. 92% of growth additions were on a term contract of 12 months or longer, compared to 79% in the first quarter of 2002. And importantly, significantly more are on two-year contracts. We are clearly seeing the dividends of higher ARPU and lower churn resulting from the acquisition strategy that we put into place early last year. Looking beyond sales and marketing, on the operating cost side, our focused management of expenses has resulted in a 7.9% reduction in operating costs per customer.

In actual terms, costs are flat year over year. On the capital investment side, our capital spending of 78 million for the quarter is down 23% from the same quarter last year and primarily reflects the completion during 2002 of GSM, [Inaudible] network overlay. We're pleased with the recent announcement by [FITCH] that our debt rating outlook has been changed from negative to stable. Let me summarize by saying that we are encouraged with our start for 2003. Our Q1 performance bolsters our confidence in our ability to deliver double-digit top-line and EBITA growth with a corresponding reduction in capital investment. With that I'll turn it back over to Bruce.

Thanks very much, Nadir. Operator, we will be ready to take questions from the participants on Wireless in just a moment. Before we do, I want to quickly remind everybody on the call that we'll cover Cable, Media, and anything cooperate related to Rogers Communications on the second portion of the call. We would appreciate it if you could focus the questions on this first portion on Rogers Wireless. If you could take a moment and explain how you want to conduct your polling process and we'd be ready to take questions. Thanks.

Thank you. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by 4 on your telephone . You will hear a three-tone prompt to acknowledge your request. If your question has been answer answered and you would like to withdraw your registration, please press the 1, followed by the 3. If you are using a speaker phone, please lift the handset before the request. One moment for the first question. Our first question is from Richard Talbot of RBC. Please proceed with your question.

Thank you very much. Good morning and congratulations on some very encouraging results here. Nadir, on the Wireless side, perhaps you can talk a bit about the EBITA market expansion year over year from under 25% now to 30%. That would be consistent with what you did through the latter part of last year. But I'm wondering if you can break it down in terms of what you felt were the main reasons for that increase. And also is a 30% plus margin sustainable through the balance of the year?

Richard thank you and I think you slipped a second question in there, but hopefully it's not a trend. Anyway, let me start by the margin question. Obviously really pleased to hit 33% this quarter. And to your point, actually, if you looked at the quarter over quarter performance last year, Q2 and Q3, we were running in the 30% plus range. Q4 is obviously a quarter with a lot of heard net loads and intensive depressed margin in the quarter-- there are two things I look at in terms of EBITA margin , and first is what is happening on revenue.

We are really encouraged. The 15% revenue growth, best in three years. Really a result I think of all the work that was done last year, not just the post paid focus, but within post-paid, we've been focused on higher value customers in terms of going after the business market which we are seeing some success with. So if you take revenue and pick it apart, you've got the customer mix, but also some very impressive performance ending on the revenue coming from existing customers, [inaudible] services are up significantly year over year, our data revenue starting to show some traction and we already seen that and I guess the number that captured that would be post-paid ARPU going up 2% year over year.

On the flip side is what is happening on the expense and I think that's an equally compelling story. Our expenses are year over year on a par sub basis are down, you but if you look at it in total, including sales and marketing are up less then 6%. With revenue growth up 15%, expenses all included less than 6% growth, you can see the expansion in margin. On the expense front, to give you a complete picture, I think two pieces particularly that contributed, one is our customer service costs are down year over year, and that's, you know, in a sense, quite a turn-around in terms of performance in that area, given our difficulty a couple of years back.

It speaks to the stability of our billing and caring environment. The thing to notice on expenses on customer service revenue, it's not just expensive but our quality index is high in that customer service levels are hitting 80% and high higher consistently. That's encouraging. Roaming expense, something we'll talk about later, is also down year over year. Those are some of the factors. One we can talk about later, not to take too much on the first question, is churn with much better performance. That I think answers the first part. In terms of sustainable 33%, I think, you know, we talked about guidance -- I don't want to lead to anything that suggests we're changing guidance, but clearly the thing to do for us is to continue to hit the drivers that result in the margin expansion. But caveat certainly in terms of how the quarter evolved as I referred to earlier on. Thanks, Richard.

Thank you.

Operator, do we have another question?

Our next question is from Paul Pew, GMP Please proceed with your question.

Thank you very much. Just with regards to blended ARPU for a second. It was up 4% year over year. Is that reasonable from an estimate perspective when you look out for the remaining three quarters of this year, or are there seasonal impacts and fluctuations that may cause that number not to be quite as attractive result later on. It does lead into obviously some discussion on any pricing actions by your competitors that may be giving you cause for concern, or do you see the market being reasonably stable at this particular point. Thank you, Nadir.

I'll get John to lead off on seasonality and Rob can talk about the pricing environment, some of the things we are seeing and doing in the market.

Paul we don't intend to focus on ARPU, it is more a factor of the mix. If you look at the post-paid ARPU and go back two or three years, the seasonality is quite clear how it trends through the year. We do get a pickup in the second and third quarter and it comes back down in the fourth quarter. That's driven by both air time and roaming traffic. Roaming is a little soft but not significantly -- roaming. That's a bit of a caution going forward. I want wouldn't want you to believe that was anything more than a single digit kind of flattening in recent months on that. I think, you know, we're expecting the normal seasonality on ARPU that we've had in the past couple of years. In terms of price I'll let Rob Bruce take that one.

Hi Paul, in terms of pricing what we're seeing out there is overall that pricing is getting more rational. Although we continue to see selected outbreaks of aggressive pricing for some of the key high high-value segments. The thing that I think you know is that we're committed to continuing to move pricing up upwards and as we previously announced, we're taking action to move our clock in May, and we know that a lot of the competitors are committed to profitable growth, and we think it's quite possible the industry may move up and may follow the clock lead, and certainly I think that would make a pretty good question for some of our competitors on upcoming calls with them. Again, as an industry and as Rogers is committed to seeing pricing moving up and we're going to continue to take action to make that happen.

Can you just comment on -- with proving moving the clock, can you give us a sense for what sort of enhanced ARPU you would expect to see from that percentage-wise? What does that actually mean?

Paul, as you know, moving the clock will be affected -- will only affect new customers, not our base, so I should qualify that. It's actually hard to predict exactly what will happen because of the elasticity of demand as we move the clock to 8 p.m. I think on the impact, customers, our judgment is that we would see an ARPU increase of $1 to $2 for the impacted customers. But what I empathize is what we think one of the biggest benefits may be the impacts on customer retention in the industry, because now, as customers migrate, they stand to lose significant things. As you know, we made the change to moving to permanent billing from per second. And now with a clock change, a customer moving would potential potentially lose both a preferred clock as well as losing per second billing. This would be a customer in our base. We think that will have a very positive impact on churn.

Right. Thank you very much.

Our next question is from Peter Rhamey, BMO Nesbitt Burns. Please proceed with the question.

Yes, thank you very much. You're recording higher than expected revenue growth due to ARPU, and this might be a simplistic question. Your CAPEX is down 23%. You're targeting, Nadir, a decline at 25%. There's reason why to expect, with your better success in the marketplace, that your CAPEX would be driven up higher than you had previously expected. Is that a fair statement?

Peter, just to kind of put it in context, when we look at last year, obviously, in the first part particularly of last year, we were actually completed our GSM cards rollout, so there is the impact you have to factor into normalize. What drives the capital spend this year is much more success-based. It's actually based on the kind of loads post-paid, and then the usage from those loads, and not to get too detailed, but also usage in terms of time of day and busy hour. So that's very much, you know, factored into our current view in terms of the guidance that we gave was based on the success that we're seeing, and so it's a matter of, you know, managing the growth and seeing what happens the balance of the year. But just to be clear, part of the reduction year over year does reflect a couple of things that were special last year as opposed to looking at decrease in capacity.

When you look at that CAPEX trend longer-term, do you think you can get even more efficient with regard to the CAPEX efficiency here in '04-'05?

Peter, it's one of those things we haven't given specific guidance, but the reality is, you know, if you look at every element of our business, we're looking to get better at in each piece of it, including how efficient we get on network. I think the trick on the network side is to not only think it have as just capital, but what are we doing in market to drive the need? Are there opportunities like the one that we just talked about a minute or two ago, which was changing the clock, which can help the profile in terms of minute usage that would help the profile in terms of demand on network? So we're looking at much more of a holistic view of network, but, you know, at the end of the day, a lot of this really depends on loads in the balance of the year and what's going to happen in market. That's clearly the biggest driver. Not to take anything away.

Great. Thanks very much, Nadir.

Our next question is from Dvai Ghose, CIBC World Markets.

Yes, thanks very much. Nadir, if I could follow on the CAPEX theme. Certainly CAPEX seems a lot more variable going forward EBITDA is going up but the one potential small roadblock in this success story is the question of edge. I think you said in the past you're going to spend about 30 million on edge this year. How do you reconcile that with your success base CAPEX philosophy given there doesn't seem to be any discernible demand out there for higher band width wireless data services?

Just to make sure everybody is kind of herd what our plans are specifically with respect to edge. Our intent is to start with very modest introduction the latter part of this year in one market, and it would be essentially a trial or a test with deployment next year. The level we talked about that would include complete edge rollout would be about $25 million in total. But your point, it's going to be based on our view of the market and the demand that that can drive. If you look at our comments on data, we are starting to see some traction. One of the things, particularly in the business market, is bandwidth or speed, and I believe edge gives us a great advantage in terms of fulfilling that demand. But, you know, just to make sure that we're not, you know, suggesting a huge amount of capital. This year, literally, I think $ $2.5 million of capital investment in edge, so it's pretty constrained. The other piece of it is, these are not things that we lock in as, you know, absolutes. The key thing that we're going to watch for is where is the market going, what's the demand, and base it on that demand. So, you know, we've definitely understood the notion of not investing in a building some kind of scenario, but very much based on markets. One of the drivers will be devices. What's the availability of the devices that are edge-enabled, and we'll be watching that carefully. We need to see, in fact, what the manufacturers are telling us does, in fact, play out in terms of the timing, which today would suggest that Q4 would be a good time, based on what we read of the availability of devices. But that's again something that we'll just -- we'll monitor.

So there's the fact that one XRTT is slightly higher bandwidth then [GPRS] have to do anything to do with edge or is that largely irrelevant to the customer today?

I think if you look at customers surveyed, our focus on the whole data play -- we've launched a whole bunch of products and services, to get the channels, the learning part done, to make the processes very simple, easy for the customer. That's really our key focus in the next couple of quarters, and in that context, we're certainly not feeling any way handicapped in terms of speed. But if you look at applications that are coming, I think speed can actually be a very positive thing for us in terms of differentiator over the other guys. But I'll tell you, it will be based on what we see as tangible winning in the market as opposed to any kind of religious feel having to do on edge. The other piece that we should not underestimate is edge also includes getting additional capacity that comes along with it. There is a speed element to it but also capacity side to it.

Thank you very much, Nadir. Great to see another good quarter.

Our next question is from Chris Li, Merrill Lynch. Please proceed with your question.

Hi, good morning. I just want to find out if there were any one-time items that helped produce these strong EBITDA results during the quarter?

No there’s nothing in that at all. As Nadir mentioned it's driven by strong revenue growth and good control on expenses.

Great. Thanks.

Do we have another question, operator?

Our next question is from Rob Goff of Hey Wood Partners.

Nadir could you discuss your comfort level with the current COA, particularly in light of the reduced churn numbers.

Hey Rob thank you. I'll start and John can give specific details on components. But at the highest level in terms of strategy, in my opening remarks I referred to the higher COA, partly a reflection off the focus on higher value customers in this context, particularly the business segment, and also term contracts where we've put incentives in market to get better valued customers and longer tenure customers. The other piece, I made quick reference to the competitive nature of the market, and I think Paul was the person that asked on the call earlier, what the story was in terms of pricing in market and Rob talked about market. The one thing I should talk about in the context of COA, we have definitely in our case and I think reflective of the market seen an increase in COA to generate the kind of growth that we've been delivering. What I think is good news is we're disciplined in terms of the core rate plan, if anybody is looking at how to get better value from those plans, and looking at COA as a way of creating the right kind of inducements and respond to a competitive marketplace. To a certain extent, our COA does reflect what we would consider a more competitive landscape, particularly in the kind of the February time frame in our case. John, you want to fill in on the --

Sure. In terms of the numbers, Rob, year over year, the approximate $50 increase in our COA, unlike last year, it is not being driven by mix. Mix is stable pretty much year over year. What is driving it, though, as Nadir mentioned, two-year terms –and primarily high revenue business customers. That is accounting for just over half of that $50 increase. The other half is partially caused by fixed costs as we had investments in direct channels and those are ramping up to sort of ongoing volume. So there is an effect of that. And as well, you know, there is a rate impact of slightly more aggressive offers. That is actually less than 30% of the change. So I don't want you to think that that $50 increase was all just money spent on pure aggressive offers. In fact, it's less than 30% of that change was a rate issue.

Good. Thank you very much.

Our next question is from John Henderson, Scotia Capital. Please proceed with your question.

Thank you. I wonder if you could update us on the issues concerning number portability and what level of risk does that represent? Has the government already kind of put it to bed or is it something that could creep up on us?

John, it's Nadir. Nothing on the Canadian front in terms of any new news. Obviously we're watching what's happening in the U.S., and I think November is the time frame when un-report ability becomes real in the U.S. I say that in quotes because obviously -- I think it was this week or late last week, there's some proceedings to review that and there is at least some proponents that would suggest or argue the case that that should be delayed. As you know, it has been delayed before, so I don't think it's anywhere -- I wouldn't say that it's anything close to certainty , that November would be what we'd see in the U.S., but I think that will be something to watch for. And then what the experience is after that. We've looked at, by the way, the experience in other parts of the world where that's happened, and , boy, depending on the country, it's quite varied in terms of the response in market, anywhere from increased churn to, in fact, level churn, even after the implementation of un unreportability. So short answer nothing in the Canadian market that suggests this is going to be happening soon.

Thank you very much.

Our next question is from Luis Carvello of Morgan Stanley.

Good morning and congratulations on a good quarter. I have a just a clarification on the [TDMA] to GSM tradition. If you could give us some color of how it is proceeding and numbers on percentages of basis and what are the big lessons learned up to this point?

Well, just to tell you. One of the real successes in market, if you look back when we implemented last year to now, over 700,000 customers now on GSM. So a significant portion, in fact, in-market. You know, most of the customers we're getting now are on GSM. You know, one of the things that we counted on is getting on the global standard would allow us to have not only the network efficiencies but also great choice of product and services. And it's just been tremendous in terms of the choice of devices that we've got, both from a core you know, phone base devices as well as the data side. Being on the GSM standard has meant great things for our customers. Rob can fill in on some of the devices, Luis, that I'm sure you're aware of, color phones and so on. Rob, do you want to

Luis, we've built our GSM base up to 700,000 in Q1 time frame, 75% of our loads were on the GSM network. It's definitely building momentum all the time and our [TDMA] customers, many of them are keen to migrate there. We've seen significant success. We're seeing really solid uptake of those GSM/GPRS customers signing up for the services that those phones will enable. In fact on an every use basis, we've seen almost 50% of our GSM/GPRS customers on those handsets, trying those new services and about 25% of them sticking and using them on a consistent basis. We're excited about the trends. Still managing the balance, we've capped our, it TDMA investment, and we are managing to some target in terms of a mixture of TDMA and GSM to make sure we do a good job of managing the capital. Bob I don’t know if you want to add anything on this.

It's Bob Berner here. One of the advantages that we were expecting is to take advantage of world wide economy of sale in both handsets and network. We're definitely seeing the impact of network with various analysts and groups predicting about 85% of the world population of mobile subscribers all evolving in the same direction, down the GSM path. It's gratifying to see that, in fact, the capital efficiencies that we would expect are occurring for us, and that's part of a contributor to our use of capital going forward.

Thank you very much.

Ladies and gentlemen, we have time for one more question. And that question comes from the line of John Grandy of Yorkton Securities.

Thank you very much. I wonder if you could walk us through the rationale for moving the retention costs into GNA and out of selling expense, and also if you could tell us what retention costs were in Q1.

Sure John it's John Gossling. If you look at retention costs, the nature of them actually are all to do with the existing customer base. Actually nothing to do with customer acquisition. So they don't vary at all with growth addition. When we look at our counterparts in the U.S. and around the world, pretty much all of them include retention costs in OPEX or some call it cash cost for users. We didn't feel it was appropriate to have that in an acquisition metric, it belongs in a base type of metric. And we've pulled it out of COA in the past and shown it both ways. This was the final step to get it to where we really think it belongs in operating costs.

Can you tell us what those costs were in the quarter?

About $29 million in the quarter and usually around half of it in any given quarter, it's hardware in terms of upgrades.

And is that number reasonable in terms of ongoing for the balance of the year, do you think?

You know, there's a bit of pressure on the fourth quarter, as the market offers more aggressive. I think you'll find in time retention costs are going to increase and perhaps your acquisition, while it's always going to be important, will not quite be driving as much, you know, growth adaptively net-net you're going to be seeing more of your benefit coming from churn reduction than simply driving growth asset.

Thank you very much.

Thank you very much, operator Operator if I could ask you and the participants as well as well to be kind as to give us a few moments. We will shift a few people around and then start the second portion of the call. Standby. Thank you very much.

Operator?

Please go ahead, sir.

I think we're ready to begin the second portion of the call. Do we have the participants online?

All participants are online at this time.

Well thank you very much, as I said moment ago we will focus the second part on Rogers Communications excluding the results of Wireless which we covered. With me today in addition to Alan Horn, are John Cue and Edward Rogers the co-CEO’s of Roger Cable; Dean MacDonald ,COO Cable; Don Hough, VP of Financial Cable; And Mike Lee, Marketing and Products of Cable. As well as Tony Viner and Lorraine Nixon, the CEO and CFO or Rogers Media respectively, are with us, as well as Greg Henderson our Corporate Controller. Before we take our questions I think I would be remiss if I didn't acknowledge something I find significant in my own role, and that is this will be John Tory's last quarterly results conference call with before he departs to devote his full-time attention to his mayor bid for the city of Toronto. John I just want to say that from the Investor Relation perspective and I think I speak for many of the more than 200 people on this conference call and web cast that your energy and passion will be missed, the hard work and initiative that you and your team put in place are clear in both the results and the momentum of the business. You've been a great supporter and an active participant in our investor relations efforts and you've been a terrific spokesperson for the company. So, John, on behalf of all of us in and around the investment community, we wish you a speedy and successful journey to city hall. Operator, at this point we're ready to take your questions regarding the participants' questions on Rogers Cable, Rogers Media, and anything corporately related to Rogers.

Ladies and gentlemen, to register for a question, please press the 1, followed by the 4 on your telephone. Our first question is from Benjamin Swinburne, Morgan Stanley. Please proceed with your question.

Thanks. Good morning, guys. Question for Mike. If you book out sort of 12 to 18 months from now and assuming the data continues to grow, you know, over 30% penetration of subs potentially, high-definition gets rolled out to more subscribers, and you start marketing and adding titles to VOD, from a network perspective, what kind of spectrum allocations do you have to make those products? Is there any chance you have to reclaim analog spectrum putting more boxes out in the field, and what do you think of note sizes that actually can handle those products once they're more aggressively marketed.

As we take a look at the products going forward, I think you're seeing right now a specific sort of interest in HD, which I don't think is going to be sustained based on the number of the services that we'll introduce over that period of time. So, you know, we introduced HD and are quite committed to that, it's high definition earlier on, because it is a showcase product for us in terms of demonstrating the value of cable television. But I don't think -- we looked for and we talked to a lot of our distribution partners, that we see there's going to be a significant amount of new services coming on the horizon that really are replication of the existing services we have today. We don't think there's going to be significant spectrum pressure pressures in the 12 to 18 month time frame. I think when we take a look at the [Inaudible], as you can see from our results, the growth continues to be strong. We are quite comfortable with the fact that we've got basically in our systems either one to three allocations per channel for cable or [Inaudible] that is by redistribution across those channels that we shouldn't have a problem to allocate another channel in the system for any projected usage for the data side of the business. And on VOD, we've done allocation of an extra channel in anticipation that as we continue to roll out VOD further into our systems, increase the amount of content that be available in those systems, and that usage continues to grow, that you will see the value of demand and the intensive innovatetive services that we will be bringing to market, that the incremental channel that we've allocated already should be sufficient for the growth in that time frame. With regards to note side, I probably should defer that to the engineering side because they always give me trouble when I start talking about it.

It's John speaking. One thing we can say is we've done our rebuild in such a way by dropping optical devices -- without the need for rebuild or upgrade activity, so that we really can, you know, do more to address that, if we have to, without rebuild activity, and at very minimal cost.

Great. Thanks a lot, guys.

Our next question is from Chris Li of Merrill Lynch. Please proceed with your question.

Hi, good morning. I have one question for Tony. Tony, if you can make update us on the performance of Omni 2 and SportsNet thus far?

I'd be glad to. Omni 2 is going very well. First off, it was launched into a strong Toronto market, but it's working both in financial terms and in bringing services to the various ethic ethnic communities in Toronto. I think the best -- on the financial side, we're actually [Inaudible] it as we conceived it. When you look at the financial results, we have a full 24/7 television service and our expenses quarter over quarter have increased by approximately one third, so we were able to really launch a new television service with one third addition additional cost to our infrastructure. Generally speaking, when you launch a new television service, you can go several years with sustaining operating losses, and we, frankly, have forecast one for Omni to this year. But it would now would appear that we will not sustain an operating loss and that we'll at least break even. With respect to SportsNet, again, television is doing very well. They are ahead of their budgets. We've done very well on the -- especially on the advertising side, in part because of the excellent performance of the various hockey teams to which we hold rights, specifically the Canucks and 15 Leaf games that we had. So on that side, they're looking quite strong.

Great. And if I can sneak in one more question. For the cable side. The cable CAPEX for the quarter was relatively low. Do you expect that to be a sustainable rate going forward?

Don Hough here. I think as we said at the beginning we're not in a position right now to change our guidance which is in the below 500 range, 500 to 525. Typically we have seasonality to our cap CAPEX in the recent months that we just came out of in the first quarter. It's usually low, so I think that's probably about how I'll leave it for now.

Okay. Great. Thanks.

Our next question is from Gregory MacDonald, National Bank Financial.

Thanks, operator. Good morning, guys. Let me start off by saying good luck to John in his upcoming mayoral race. Going into the question, it is really a question on pricing power, as Ted made reference to pricing rationality in his opening comments, certainly has been an issue that has impacted the sector. I wonder if you could walk through potential pricing increases for the rest of the year, I'm thinking in particular on digital services? Some might argue that holding prices in digital to constant level is the best way going forward given the opportunity to drive penetration in that product in anticipation of an opportunity in VOD. But I wonder how you think of pricing increases across the board, in particular digital. Thanks.

I'll take that one. I think we're very glad to see that pricing in our business is going up, and it's a business that has more rationality being built into it. We've looked at the price increases at that Bell has announced and we'll work them into what we do through the balance of 2003. We had a schedule to raise rates in August of last year, and that's the same time that we're looking at adjusting our rates for 2003. We are going to look to see what that means for us. We won't be announcing any on this call because we like to let our customers know if their prices are going to change first, but it obviously is a very good move and should help Rogers Cable through the balance of 2003. I think the pricing on the digital packages -- I'll turn it over to Dean, but I think Rogers pricing is competitive. It's tough to measure apples to apples because the packages do vary, but we have the greatest breadth of services available to our customers. We offer them the greatest choice on the digital side, and we think at a reasonable rate. Would you like to add to that?

I'd like to add to that in terms of the growth of digital price increases won't be -- or decreases won't be really what drives the growth of digital. What we feel and what we see in our research is that there's still enormous opportunity for digital just on the basis of people understanding what the product is and what the services we offer are. So the perception of the service in terms of whether it's price competitive, the value of the service, is something that we think we can improve upon significantly, and we'll work diligently to do that. So we think there's really good opportunity to grow that digital base just on the basis of promoting what the product is and what the features are. There's still some comprehension issues in the marketplace that we think we can overcome.

Thank you very much.

Our next question is from Vince Valentini, TD Newcrest. Please proceed with your question.

Thank you very much. Question on the guidance front. I'm not sure if you guys are aware, but your guidance for Cable EBITDA growth of [79%] for the year is a fair bit below most of your peers, Shaw and the other U.S. companies. It seems incredibly obvious on the basis of your first quarter results, almost no way you could not hit the bottom range of 605 to 615. You'd have to have about $149 million each quarter this point on. I'm just wondering what the logic is behind no increase in guidance at this point of the year? I know you want to be conservative, but is there not a credibility issue if you're over overly conservative?

Well, Vince, I'll start -- I'd say that, as Ted alluded to at the start of the call, it's not our policy to just look at the end quarters and to react either way every single quarter. Obviously we're working hard to capitalize on the gains that we've seen in the first quarter. There's some very good trends built into the business. And pricing is heading in the right way. So we're going back to see what that means for us. We're working hard to make sure that the trends we see will keep through the balance of 2003, and we'll keep you posted from that perspective. But it's not meant to indicate that there's any -- that there's anything coming up, but it's meant to indicate that we're conservative on our approach and we don't like to respond on a quarterly basis.

Bob, there was anything in the 157 million for cable EBITDA that you view as one-time. Secondly, I know it's early, but is there anything getting into the second quarter that leads you to believe you cannot do at least 157, stay at that rate, to that I can make you so conservative on your guidance?

Vince its Alan Horn here. I think it's [Inaudible] here. You can do the math as well as we can in terms of these numbers. Our position on guidance is with good manual guidance with a great first quarter that will be the foundation for what we hope will be a great year. I think if we're going to go out and change anything in terms of guidance, whether it's Cable or Media, we have to have an assurance of the ranges that we give. I think we'll be in a better position to look at that in the quarters to come and the latter part of the year. I think we should [Inaudible].

No one-timers in the first quarter.

No one-timers in the first quarter.

Okay. Thanks.

Our next question is from Tim Casey, BMO Nesbitt Burns. Please proceed with the question.

Thanks. I'm wondering if you could talk a little bit, as you look forward to the issue of [tiering], with a little over -- around a third of television homes in a digital package now and it looks like some decent growth going forward. Do you anticipate any type of change in [tiering] rules on certain channels that, you know, right now may benefit from being on a basic package? You know, to put it another way, as people get more flexibility with digital, do you think there will be any type of regulatory changes that may impact the landscape with respect to linkage rules or, you know, basic packages? Thanks.

It's John. I wouldn't guess you're going to see much change in the linkage rules because those are fairly fundamental to the structure of the Canadian broadcasting system, and I think that the bigger problem isn't so much what the CRTC might have to say about it but the broadcasters. If you said there were two -- three sort of things that would impact on the ability to do what you are alluding to, the first being regulatory, the second being technical in the context of the cost of going out and changing traps around, which is something that we've never, you know, really wanted to do, obviously; and the third being the contracts we have with the broadcasters who have built their businesses on the basis of being in these packages and so forth. And I would think that if there was any move made in Ottawa or if we went and started to have any talks with them, they would be the ones most likely to say, "It's fine you want to offer your customers more flexibility more choice and different kind of tier but I don't think that's such a good from the standpoint of our businesses. I think the single biggest thing that would stand in the way of that kind of a change would be the attitude of the broadcasters that would probably see in many cases that being a negative sell to them because some customers may not choose to take their service. It's a bit of a thing where you have conflicting ideas even though we're partners on many fronts.

Thank you.

Our next question is from Paul Pew of GNP. Please proceed with wore your question.

Thank you. I'd also like to wish John success in his post to go for the mayor and I eagerly await post his election to office the positive impact on my property taxes.(laughing). Just a quick question on Cable. Cable margin expansion in the first quarter it was up 270 basis points year over year and up about 80 basis points from Q4. I'm just wondering, as we look out over this year, are you expecting to see those same type of increases year over year from a margin expansion perspective. And another way of looking at it is 42.7 good enough for the year or is your objective and targets to continue to expand that and maybe narrow the gap with some other of your peers in the group?

I'll start. I think our plan is to focus on and make and try to exceed against our plan for this year. There's been a number of positive trends that have helped the margin expand. First is the revenue growth at 12.5% helps with both price increases and some solid quarters in fourth quarter and the first quarter in terms of sales, and we're working hard to continue that. We, as you know, Rogers Cable let some employees go in the fourth quarter of 2002, and we're seeing the effect of that now; and we're focusing on costs, which in Q1 only rose 6.5% on the operating cost basis. So we're going to work hard to try to make sure that all of those metrics can continue to move in the right way. We're focused on our plan first, and we're always trying to achieve what the rest of the players in the industry do. But right now I'd say we're focused on achieving what we put forward as our guidance for 2003.

Edward, just from your look at the division over the time that you've been posted there to co-CEO, do you see continuing employee reduction as an ongoing trend, where you continue to trim, similar to the Q4 levels, or do you think that substantial substantially that's been completed for Rogers Cable?

Well, I think we're concentrating on costs on the activity side, and some of the numbers that we saw in the first quarter was a reduction in churn, and that's because our products are working better. That means our customers are calling us less, and that percentage of base calling has gone down, which means that we might not need as many call center agents, it means we're not rolling as many trucks to fix problems because the plant is working, so we don't need as many techs. So I would say our concentration on costs is to look at the activity that is not generating revenue, I'll call it, and taking that out of the business, as best we can, and with that, you'll see a reduction of costs and with that will come FTE s.

Right. Thank you very much.

Thank you.

Our next question is from Rob Goff of Hay Wood Partners.

My question would be on the high-speed demand. Could you go over the demand within the section? Are you seeing greater traction within the small to medium size business?

We're trying to concentrate. It's still a smaller part of the business for us. I mean, the high speed is, we think in 2003, has a lot of growth, and we've been focusing it on it. We got off to a great start in the first quarter. I think the biggest market for Rogers Cable will be one that will help our growth strategy for this year and going forward, but today remains a smaller part of the business

Thank you very much.

Our next question is from John Grandy, Yorkton Securities.

Thank you. Following up on the last question. I guess one encouraging feature is the year-over-year increase in the average revenues for each high-speed Internet subscriber, and you mentioned price increases in your press release. I wonder if you could talk a little bit about the level of demand for the Internet light service and how many subscribers are in that package now?

We're still very much focused on the high-speed product at $45. We've used the light as really a retention tool for us, and I think that's been part of the reason that we've seen some good churn numbers in our high-speed product, as customers have maybe said that $45 was a little bit rich. We've got a second offer where they can enjoy a lot of the benefits of high-speed but not spend as much. So we haven't quite put it, you know, in the window, so to say. We're concentrating this year on continuing to concentrate on the high-speed part of the business. Well over half of the net customer growth in first quarter was on high-speed. But light's a part of our business and it's a segment of the Internet market that we'd like to serve. But right now we're concentrating on the high-speed part as the opposition tool for Rogers.

Do you see Bell pushing the cheaper lower-speed very aggressively, or are they also focusing on the higher speed?

Well, I think you'd have to ask them, but we find them to be a competitor in all the products.

We just see from their numbers, obviously, that they're growing significantly in the light product. So I assume that's a result of some of their targeted programs versus mass advertising programs.

Right. Okay. Thanks a lot.

Ladies and gentlemen, we have time for one more question. And our question comes from the line of Richard Talbot of RBC. Please proceed with your question.

Thank you very much. I know that the environment for programming costs is different in Canada versus in the U.S., but I wondered if you'd have any thoughts with this, if we are seeing increased rates for the cable service, whether there's any concern that the programming costs may start to escalate? Thanks.

It's John. We have the benefit of having a number of pretty, you know, good long-term contracts in place with, you know, with a number of the people that we've dealt with, and I think a lot of good work has been done in the company and those contracts, when they tend to be longer like that, you know, have relatively modest increases built in not even every year in cases. So I think a lot of those contracts have enough years to run which gives us some degree of stability there. I think a number of services have recently applied to the CRTC for increases, three or four of them, the Canadian services, and I think you'll find the CCTA, the cable association, will be registering its concerns with those increases which have been requested which we think are excessive in the circumstances in the context of, you know, those costs simply having to be passed through to our customers and, you know, the commission will make whatever decision it makes. But I think actually, you know, while we're seeing the pressures in the same areas in the United States, which is kind of in the sports-related area, the kinds of pressures are nowhere near the magnitude of what you're seeing in the United States. It's a different market. Regulatory regime is different. And the long-term contracts are in place in many cases. I think we'll see some upward pressure, as we always have, but it's nowhere near the kind of concern that I would see from my U.S. exposure. It's nowhere near that kind of pressure and nowhere near that size of issue to deal with.

John, can you give us a sense of what the duration would be on the long-term contracts? What sort of rate increases are we seeing on the programming side? Is it in the order of 5% or so?

Yeah -- well, the contracts vary, of course. We try to get contracts signed for five years, seven years. We rarely would try than less than say a five-year deal. It gives us some ability to plan and also some ability to negotiate a little better with these people to spread out whatever increases they want over a period of time. And the increases vary as well. Of the ones we have negotiated recently have been well below double digits and, of course, the ones that people talk about in the United States are way above double digit. So it is certainly in that kind of more reasonable range. Obviously we're trying to keep them down. In many cases we're saying there should be no increase at all. They've been in the well sort of below double continuity digit range.

Thanks very much. Thanks for your help in the past.

Erik, can you hear me?

Yes, we can hear you.

I'd like to add to the comment made about laying off of staff. We have a great many employees that are with third parties, contractors and so on. And I think before we lay off people who have been with us for many, many years, we would lay off the contract employees so that it would not affect our normal working relationship with our own employees.

Thank you very much for add adding that. Operator?

Yes, sir?

I wanted to just quickly thank you for conducting the call this morning, and if there were people that were in the queue that didn't have a chance to get their questions answered, I hope they'll feel free to give Eric or I a call and we will get you the answers that you're looking for, hopefully. But most importantly on behalf of all the management teams for the Rogers companies, we just wanted to thank everybody for participating because we appreciate your ownership and we appreciate your coverage. If you joined the call late, there's a rebroadcast that you can pick up of www.rogers.com site, there's a dial-in number on the release we put out on March 24th announcing the call. With that, we'll wish everybody a good rest of the day, and this concludes our call. Thank you.

Ladies and gentlemen, that concludes our Rogers Communications Incorporated and Rogers Wireless Incorporated first quarter earnings call? We thank you for your call and we'd ask that you please disconnect your line.