Rogers Communications Inc (RCI) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Rogers Communication and Rogers Wireless Communication second quarter 2003 earnings release conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct the 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 recorded. Today's Thursday, July the 17th, 2003. I would like now to turn the conference over to Mr. Bruce Mann, Vice President, Investor Relations. Please go ahead, sir.

Thanks, operator. Good morning, everybody. Thanks for joining us on Rogers second quarter investor analysis call. As we've done in previous quarters, we'll spend the first portion of the call discussing and taking questions around Rogers Wireless and then the second portion of the call focusing on Rogers Communications. I'm here in Toronto with Ted Rogers and Nadir Muhammad along with John Tori, Bob Burner, and Rob Bruce of the Rogers Wireless senior management team. Also with me from Rogers Communications are Alan Horn, our CFO, and Lorraine Daly, our treasurer. Nadir wanted to make some very brief remarks, and then we'll open up the call for questions. We have a noon board meeting today, so we'll need to keep today's call as close to an hour as we can. The detailed first quarter earnings releases for Boeing Rogers Wireless and Rogers Communications were made available this morning. If you don't have a copy, you can find them on the Rogers communication Website, on PR Newswire, on First Call. The releases all include important cautionary language, safe harbor information that will apply equally to any forward-looking states in our discussion on the call. We've got some other people from Rogers Cable and Rogers Media that will join us for the second half of the call. So we'll take a very brief break after the wireless Q & A to move a couple people round. With that I'll turn the call over to Ted and then Nadir for some brief comments. Go ahead, Ted.

Well, this was an excellent quarter from Rogers. Good results from each of the operating companies as well. Executed initiatives in the capital markets continued in the company overall. The combination in the quarter of 10% revenue growth, 28% operating profit growth and a 32% reduction in capital spending drove the year-over-year improvement in our quarterly pre-cash flow before working capital profile year over year by almost $175 million.

While improving our operating profit margin by more than 400 basis points. That's significant. It reflects what we undertook at the beginning of the year. We said that 2003 would be a year in which Rogers is very much focused on enhanced operational efficiency, productivity, disciplined capital spending, responsible growth in all of our products and enhancing financial flexibility to drive continued success. I think we've stayed very much focused on these basics. We're making steady and balanced progress. Cable was successful in delivering 10% revenue growth with a 19% operating profit increase on solid new product growth. The benefit of pricing changes last year and good cost control. And doing a great job. Sales results at cable are solid in the first half of 2003, with improvement year to date versus last year in essentially all of their key subscriber metrics. With the cable network rebuilds well on track, prices of cable modems and digital terminals continuing to come down, capital expenditures were down 31% year over year.

Wireless, of course, is just quite a superstar. It's again achieved record financial results in the quarter with 14% revenue and 37% operating profit growth driven by very successful post-paid subscriber acquisition levels, continued below 2% churn and the growing adoption of wireless data services. At the same time, count-backs (ph) went down significantly at wireless, running 34% below the second quarter of the previous year. At Rogers Media we are seeing very good traction in the results from the television side specifically with the Sportsnet business and the omni stations. I've said before I think they're two very unique and powerful value creation engines for us at Rogers Media with great futures. And yes, we saw a tough radio advertising market in some of our key areas in the quarter.

The radio team launched some additional reformatting initiatives that showed position in our stations even more powerfully as the radio advertising market burned by itself. While the shopping channel obviously felt the impact of viewer distraction from the war in Iraq and SARS coverage, our televised shopping business is extremely well positioned. Overall, Media is going to have a good second half of 2003.

On the financing and capital markets side, very important in this climate we're in. We're opportunistic during the quarter, with Lorraine and Alan (ph) significantly paying down holding company borrowings, while also refinancing a portion of cable borrowings at historically low rates. And with the $250 million equity issue that we did in the quarter we continue to de-lever the company while at the same time putting in place a modest dividend policy to which I am committed. I'll conclude by saying that each of the Rogers operating divisions is extremely well positioned for a continued strong second half of 2003. Each have excellent leadership teams in place, in which I have great confidence. And I am proud of these businesses and as excited about the future as I could be. And again, we appreciate your support and interest. And I'll stop here to turn it over to Nadir to say a few words about the tremendous results at Rogers wireless.

Thank you, Ted. And good morning, everyone. Rogers AT&T Wireless remains absolutely committed to profitable growth. Strong results in the second quarter demonstrate consistent discipline and focus around this very important core objective. Once again, all of our key drivers were going in the right direction. Network revenue up 14.3%. Post-paid arcu (ph)up 1.7%. Data revenues up 103%. Post-paid sharing down to 1.48%. Operating income up 38%. And CAPEX down 34%. Combined, these results drove a greater than 600 basis point expansion in our operating margin from 30% to over 36% off network revenue.

We continued our success in shifting the mix of our loads toward higher revenue post-paid customers with Q2 post-paid net loads of almost 76,000, up slightly from last year. Our strong network revenue growth of over 14% resulted from our greater post-paid from last year. The significant increases in data and optional services, and importantly, our commitment to pricing discipline. The success we've had in managing our customer base through targeted service and retention efforts has helped us reduce our post-paid sharing to 1.84%. Our increased prepaid churn we feel is primarily a result of competitive pricing. Clearly, prepaid is something that we have yet to crack the code on.

Our focused management of expenses has enabled us to reduce operating costs per subscriber by 7.1%. In absolute terms this means that our operating costs were flat year over year. On the more variable sales and marketing costs we held our costs flat year over year as well. Our capital spending of $99 million for the quarter is down 34% from the same quarter last year, primarily reflecting the completion during 2002 of our GSM/GPRS network overlay as well as the completion of the Rogers Capa (ph)and some other infrastructure projects. Net net we had a $100 million year over year improvement in free cash flow before working capital changes. And as you can see from our release, we have revised components of our annual 2003 guidance.

The guidance for our 2003 operating profit range has been revised upwards by $65 million, reflecting the continued success of our profitable growth strategy. We have also revised downwards our expectations for net subscriber additions, reflecting the lower than expected net prepaid additions. Let me conclude by saying that we're encouraged with our results so far in 2003 and have good momentum for a solid second half of the year with continued double-digit top-line growth and EBIDTA growth as well, along with reductions in CAPEX. With that I'll turn back to Bruce so we can take your questions.

Thank you, Nadir. The operator will take questions on Rogers Wireless from the participants in just a moment. I first wanted to quickly remind people we'll cover Rogers Cable, Media, and Rogers Communications corporate on the second part of the call. So I'd appreciate if we could focus the first session on Rogers wireless. If you want to quickly explain how you want to poll for questions, we're ready to proceed.

Thank you, sir. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You'll hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. If you're using a speaker phone, please lift the handset before making your request. One moment, please, for the first question. Stand by for the first question. Our first question comes from the line of Greg McDonald, National Bank Financial. Please proceed with your question.

Thanks. Good morning, guys. Nadir, the question on the sub count, the outlook for subs. Tell us revised guidance for subs in the year over year. You're taking the opportunity to revise down slightly. I appreciate your comments on the mix issue and the fact that your anticipation is for lower prepaid customers. I wonder if you might comment on that issue relative to the potential, I'll admit slow, but industry maturity on the wireless side. Is that an issue that you're facing?

And then secondly, MicroCell, is MicroCell showing up in the marketplace? Is it just on the prepaid side that you anticipate some issues there, or do you anticipate further competition on the post-paid side and perhaps is that part of the reason why you're taking the opportunity to bring down guidance?

Greg, thanks. I'll try and address it from two perspectives. One is to make sure that we're clear from a Rogers perspective in terms of our performance and guidance, and then maybe make some comments for your question generally about the industry. Specifically in terms of our guidance, the revision downwards is very much related to prepaid. We've certainly seen in the first two quarters we're actually feeling very good about the post-paid loads. They've been Steady and in fact a slight increase or over last year. So feeling good about first quarter share. Obviously, haven't seen the results for the second quarter from the other players, but have seen good strength and good performance on the most valuable part of the business, which is post-paid.

Our prepaid we challenged pricing. On the pricing front we know MicroCell has price points that are substantially lower than ours. And frankly, we would need to sort of put this in context. Prepaid is probably 5% or thereabouts of our business. And our focus has been consistent over the last two years around post-paid. So had in our case in terms of year over year it would be solid from a post-paid perspective. Generally looking at the industry, I think no question, when you look back, a few years ago we were running in Canada at about 6% penetration point gain, consistently for a couple of years there. In the last year or so and certainly Q1 last year the penetration gain for the industry would have been somewhere in the range of 4%. For me the important thing is, you know, let's come back to the basics and make sure that we're all set with the same context. And I make this point with the view that people looking at it from multiple markets. The Canadian market, still very much under-penetrated. You know, when we look out at roughly 40% penetration today in Canada, there's lots of room for growth, growth at 4% to 5% is something that's certainly not out of the question, around 4% this year is the consensus view. We think that's solid, steady growth. And most importantly, it's growth in the right segment. The kind of quality customer we're picking up is exactly the kind we want. So from that perspective I think it's a healthy market, it's a strong market, and to the extent that MicroCell is -- the question on MicroCell, they seem to be impacted. The pricing strategy seems to be fundamentally different. You need to talk to them in terms of their view of the market. Our view is we're exactly on the path we want, focus on the high-value customers and discipline on pricing.

Just as a quick add-on to that, Nadir, aside from wireless data, which can be a bit of a bump for wireless ARPUs, is it the case that you have to at some point soon have to start focusing a lot more from the marketing perspective on the cannibalization of wire line, products that can be viewed as wire line cannibalization?

Let me comment from two sides of the question. I think if you look at ARPU and, again, quite a turn, right? If you look at a couple of years back, as late as last year, ARPU generally on the decline for the industry. If you look at our performance in the last two quarters, ARPU's actually been creeping up, which is exactly where we want to go with our strategy. You referred to wireless data, important people have asked, you know, when is this real. When you look at growth and revenue, wireless data is becoming a really significant piece of it, and arguably, you know, one view would be 70% of our growth and revenue could be attributed to data. But the other pieces that are important are optional services. Wove had a great focus on what we would call wireless essentials.

These are features beyond the core MSF, and that's contributing to our ARPU. The third one is discipline around pricing generally and getting the right kind of mix of customers. So I think there's just generally stability and opportunities to grow around the monthly core offering of revenue. To the extent we're looking at different segments of the market no question, if you look at the phenomenon of, say, the youth market, which is our focus in market, there's a lot of people now that use their wireless phone as their lifestyle choice for primary service. And in terms of our view of this this will be an increasing phenomenon. If you look at the kinds of price plans that are attractive to that market, we're certainly seeing an increase taken in programs that have lots of offbeat minutes.

And as you know, some of the changes we've made in the last quarter actually help us in attracting those minutes from a billable perspective as opposed to free minutes. So that is a segment that will continue to become more important, and I think from a wireless carrier perspective it'll be the marriage of the opportunity with some pricing that allows us to make it a good one from a shareholder perspective as well.

Thank you.

The next question comes from the line of Vance Edelson of Morgan Stanley. Please proceed with your question.

Hi. Thanks a lot, and congratulations on the quarter. It seems that in the U.S. the national carriers are now at last embracing prepaid products and they're meeting with some success. If you haven't yet cracked the code, I assume you're not throwing in the towel. I was just wondering what you're doing, if anything, to improve the prepaid offering and then where do you see prepaid fitting into your long-term strategy? Do you see it as ever being a profitable way to drive more penetration? Thanks.

I'll just lead off with a quick response, but then I'll get Robb to talk about our view on prepaid. But let me assure you that not having our -- there was a subtle term used that we haven't yet cracked the code of prepaid, but you can rest assured that we will be in terms of addressing that. And I want to clarify that our view frankly is about revenue and value from different segments. So we tend to look at it from that perspective as opposed to very product-oriented because the key is to get the customer and get value from that customer different products, but Rob, you --

Yeah, I think we need to go back to the pricing in the marketplace and really the shift in the dynamics around prepaid have been driven by extremely aggressive pricing. And Nadir referenced the 15-cent minutes offered in the marketplace by FIDO. Again, it's a balancing act in terms of how we as a carrier plan in the prepaid market so that we don't move potentially valuable customers to a cheaper alternative, specifically prepaid. That said, we want to maximize the value that we get out of prepaid. We believe there's incremental revenue to be had. And with a variety of initiatives over the next several quarters, you'll see us taking a more dominant role in the prepaid game but not to the exclusion of the most valuable customers, which are post-paid. At this time we're not going to disclose the specifics of those things because we think it would disadvantage us going forward, but we're committed to getting our share of the revenue in those categories.

That's great. Thanks a lot.

The next question comes from the line of Glen Campbell with Merrill Lynch. Please proceed with your question.

Yes. Thanks. I had a question on ARPU and a question on roaming. On ARPU I was impressed with the increase, given especially the drag you have with the roaming contract between Tellus and bell and I wonder if you could talk about, you know, how much of a drag that is creating on ARPU and how much more it might cause before the customers are fully migrated onto Tellus.

Just generally, I've already spoken to some of the reasons why we believe the ARPU has been strong for us. In terms of roaming, a general response first in terms of what we're seeing in the market, and then I'll address the Tellus issue on roaming. What we've seen is clearly as the roaming revenue gets softer in the quarter for us and two pieces of roaming, two big pieces, one is inbound roaming, So these are people roaming onto our network in Canada. These where we've seen a slight decrease in revenue. And it reflects what's happening in terms of the SARS and the impacts generally of the economy and other issues like the war. So these are all showing up in terms of roaming on the inbound side.

On the outbound -- so this will be our customers roaming into other folks' networks, primarily U.S., revenue is up slightly. But frankly the minutes are lower, reflecting lower traffic which would intuitively make sense, but we've made some pricing changes last year that have helped us shore up the revenues even though the traffic has been going down. On the point of -- I assume you were referring to our roaming relationship with Tellus, and maybe Johnny can speak to the specifics.

Sure. There's no question that some of the analog traffic has moved off of our network and onto either Tellus's network or Bell's network. The revenues are quite small on that. We're talking an ARPU on post-paid of going from 40 cents a year ago to maybe 20 cents this year. So it's really not a significant impact to us at all.

Okay. Terrific. And maybe just a quick follow-up. Do you see the potential perhaps to pull in roaming revenues from T-Mobile?

Glen, greet question in the sense that one of the things we're feeling pretty good about is the fact that we have now got an agreement with them and we're in the process maybe -- Bob can talk about timing.

Certainly. Bob burner here. We're just in the process of our interoperability on billing. All I can say is that it’s eminent.

Would that give you exclusive roaming or shared with MicroCell or preferred? How would you characterize that?

It's not an exclusive roaming agreement. From a preferred standpoint, of course, recognizing that -- footprint-twise that we have a vastly larger footprint than MicroCell, that we would expect visitors to wind up where the footprint is.

So the roamer would just go to whichever cell sight site's near?

More or less. There's an algorithm in GSM which establishes where you set up. It's generally based on best signal strength.

Okay. Can it be based on pricing, too?

There can be preferred roaming arrangements put in place. At this time there isn't one with T-Mobile.

That's very helpful. Thank you.

The next question comes from the line of John Henderson with Scotia Capital. Please proceed with your question.

Yes. Thanks. I just wonder if you could comment more on -- you kind of talked about pricing opportunities, I think. Do you see room for taking prices of certain post-paid and prepaid services higher?

John, my reference primarily is over some of the initiatives we've taken over the last I'd say 18 months, with Rogers specifically and the industry. The plot change obviously has an impact in terms of capturing minutes that otherwise would have been free minutes and make them, if you will, billable or revenue minutes. We made the change obviously from the per second, per minute, and we've also made some changes in roaming and other service revenues. That's the kind of thing that I think going forward we're constantly looking for opportunities, and one of the recent ones has been unbundling some optional features. So that's something that -- nothing big that we would put forward today, but it's the kind of thing we look at on a day-to-day basis.

And would you say that MicroCell's emergence from bankruptcy has affected your ability or, you know -- to implement some of these changes since they've come out?

I'll reference what's happened in the market as opposed to what may happen. Can't speak to their programs. But certainly at this point when they when -- or whether they've moved out of bankruptcy or not has no change either on our focus or impact on us as far as we can tell.

Thank you.

The next question comes from the line of Goff (ph) with CIBC World Markets.

Good morning, Nadir. I wanted to ask you about the wireless data as it is becoming more meaningful on a going forward basis. On the non-voice revenue, let's call it, in the quarter, could you tell us what percentage was SMS and what the non-SMS revenues would be and to what extent you think your implementation of edge would enhance your data revenue streams? Would you give us some color as to how that would take place?

Just at the highest level in terms of the data revenues, probably want to look at it, it would be useful to talk about three buckets. SMS being one category. I'll get Rob to give you some flavor on numbers in a second. Second would be what we would consider wireless NNS services. In my case it's my mobile home page. And the third would be data access plans. These are monthly plans, whether it's a blackberry or a Treo or a wireless data device like a CR card. And Rob can give you data on performance.

The total revenues for the quarter for data just slightly under 3%, as noted in some of the materials. $4.1 million of that is made up of the combination of SMS and mobile Internet services. The balance, as Nadir indicated, are connectivety for business devices of one sort or another, whether it's Blackberry or enabling things like palm Tungsten or enabling things like Vertical Solutions such as the kind we provide for Purelater(ph) in terms of dispatched services. That's how they would be made up.

And presumably the implementation of edge would have the greatest impact on that particular segment?

That's right. The market for edge we would be seeing as the first market, definitely business connectivety solutions where our bandwidth becomes a factor. You're right. It clearly is not something that's relevant for SMS as an example.

Right. And sorry, Nadir, could you just tell us when you plan to deploy Edge as a commercial tool?

Our plan is the latter part of this year to do a trial for Edge and then deployment next year. And it's obviously something that we'll continue to monitor based on factors like availability of handsets and appliances as well as where we see the market. But today that's our view in terms of implementation time frame.

The only thing I would add, Dvai, it's Rob Bruce again, that SMS, while still a small portion of the total data because of the large number of Blackberry and business devices we have out there, it is the fastest-growing on a year-over-year basis, growing almost 350%. And we continue to see the strong growth of SMS as being something that continues to come and lots of the things we're doing with respect to things like Canadian idol, Star Academy in Quebec are bringing SMS more and more into the mainstream, which we think will continue to propagate the growth.

Thank you very much.

The next question comes from the line of David Lambert with TD Securities. Please proceed with your question.

Good morning. I'd like to look at your CAPEX decline a little closer. You had of the $99 million of CAPEX, can you break down how much was dedicated to increased capacity and sort of give us a trend on your CAPEX dedicated to capacity sort of year over year, that sort of thing? And I have a follow-up on that.

What I'll do, David, is maybe get Rob to talk just generally about your net network deployment, where we're at on GSM, and then John can give some more specific numbers if they're needed.

About 90% of our total CAPEX are directly to provide additional capacity and increase quality. The two are often difficult to separate because when you do one you get the other. But the vast majority of expenditures are capacity slash quality-based and they're success-based in the sense that when load appears we spend the money, when it doesn't we don't.

That's 90% of the network spending?

Network spending. I'm sorry. That's correct.

Network spending is about 90% of the CAPEX.

Okay. So is it pretty highly correlated with minutes of use, or are you seeing some efficiencies there? Like for a dollar of CAPEX can you sort of give us an idea of what kind of efficiencies you're seeing on the CAPEX side?

Efficiencies certainly occur because as load builds the plant becomes more efficient, able to handle more traffic per dollar of capacity deployed up to a point. Does that answer your question?

Let me give you an example. In the U.S. we're seeing some huge increases in minutes of use. In Canada the average is still 300. If you saw the average go to 400 or 500 minutes, if you saw over the next year, year and a half, what would happen to your CAPEX?

It's not linear, first of all because you do have efficiencies relative to gear deployed. And secondly, if all that usage, if all those MOU’s were to appear in the busiest hour of the day, then that would drive capacity at a much faster rate than if that usage were distributed throughout the day. In fact, for certain customers it may have no impact on capacity capital requirements. It's based on the time of usage and simultaneity of usage across the customer base.

That's why we moved the evening starting later, just exactly for that reason in order to save capital.

Okay. So is it possible to give us a sort of a number on, you know, a 20% increase in minutes of use per sub would equal to sort of what impact on your CAPEX going forward?

I think the reality is there's many factors in this, as Bob alluded to. I think it would be misleading because it depends on where you are in the step curve. Not to appear to be difficult, but that's essentially the way we look at it.

It's not something that can be modeled easily. It needs to be designed by individual cell site up.

Okay. Great. Thank you.

The next question comes from the line of Peter Rhamey with BMO Nesbitt Burns. Please proceed with your question.

Hi and good morning. Nadir or John, if you could comment on the free cash flow trend. You reported before working capital, a good number. There was a working capital negative adjustment. I was just wondering for the remainder of the year would you expect that free cash flow after working capital would show a Steady improvement and remain positive even in Q4? And as well on the CAPEX question, just to break it down, you're at 18% CAPEX to revenue. Do you see this as a peak and going forward in the medium term that CAPEX to revenue should decline steadily well into 2004, 2005? Thank you.

Peter, it's John. On the free cash flow keep in mind that a couple things happened in the fourth quarter. One is EBIDTA tends to be depressed because of the acquisition costs, with the volume of acquisition going on around Christmas. That will push our EBIDTA down. The second is if we have semi-annual coupon payments on the bulk of our debt in the fourth quarter. About $100 million. Not quite that much. But that's a fourth quarter item as well. And our CAPEX tends to be a little back end loaded in terms of especially the new site, part of the plan. I think that probably answers part of your second question on CAPEX as well. We'd expect CAPEX to be fairly consistent through the year, but then a slight ramp in Q4. Certainly if you look at our annual guidance we need to ramp up a little bit to get there and we're still comfortable with that.

What is your CAPEX guidance?

400 to 425 for the year.

I would think that you're really trending somewhere below that. Is that a fair comment?

No, I don't think so. I mean, the trend in the first quarter is certainly below that, but our view, it's still at that range is good.

Thank you very much.

No leading the witness.

Ladies and gentlemen, we will take one more question before the break, and it comes from the line of Rob Goff with Haywood Securities. Please proceed with your question.

Good morning. My questions would be on the gross post-paid ads. Do you expect the market adds would be ahead, say, 5% on the year, or for the quarter, and could you discuss the areas of strength? Is it the consumer? Is it the business market? Or is it prepaid migration?

Rob, it's Nadir. Of course I can answer that a lot better probably in the second week of August when the others have reported their numbers. But generally in terms of strength in market and our view of gross additions on the post-paid side, if you look at our numbers, they've been fairly consistent quarter over quarter. So my expectation would be that that would be reflective of the market as a well. And so the numbers wouldn't be -- 5% is not a bad number in terms of what happened in Q1. So I hope that answers in a general sense your question. In terms of loads for Rogers, I think over the last year we've actually -- if you remember going back two years ago, when we embarked on the program of trying to load more business customers, I talked about the challenges in the early quarter or two. Since then we've actually been consistently ramping up and feeling good about the success we've had in the business market. Particularly in the medium general business market. And in the quarter, frankly we've seen that trend continue. So we're feeling quite good about that.

Thank you. And are you seeing migration from prepaid to post-paid?

Within our base there's some migration frankly both ways, to be completely up front. There's a little bit of migration post-paid to prepaid and vice versa. The net number is pretty minimal.

Thank you.

Thank you.

Operator, as you mentioned at the start of the call, we're going to go on mute for just a moment to shift some people around, and we'll start the second portion of the call and go into Cable media, Rogers Communications Corporate or whatever other questions folks might have. Please pardon us for just a moment.

Thank you, sir. Ladies and gentlemen, thanks again for standing by. I will now turn the call back to Mr. Bruce Mann. We will proceed with the second portion of the conference. Sir, please go ahead.

Thanks very much, everybody, for giving us just a moment to shift some folks around. So we'll focus the second portion of the call on Rogers Communications results excluding Rogers wireless, which we just covered. Just briefly, with me today in addition to Alan Horn and Ted are Ted Rogers, the CEO of Rogers Cable, Don Huff, VP of Finance of Cable, Mike Lee, Marketing and Products at Cable, as well as Tony Viner and Laura Nixon, the CEO and CFO of Rogers Media. Also have Greg Henderson and Ken Engelhart with us from RCI. And Deane McDonald, the COO of Rogers Cable, who's down in the states right now is joining us on the call remotely. So operator, at this point we'd like to open the call back up for questions. Please go ahead.

Thank you. Once again, ladies and gentlemen if you'd like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press a 1 followed by a 3. If you're using a speaker phone, please lift the handset before entering your request. One moment, please, for the first question. Our first question comes from the line of Vince Valentini with TD Newcrest. Please proceed with your question.

Thanks very much. I wonder if you could expand on the basic subscriber performance this quarter. We seem to have hit a bit of a wall after several quarters of improving year-over-year performance. I know you mentioned marketing initiatives and university deactivations. But still, you lost three times as many subs as you did in the same quarter last year. I wonder if you could flesh that out in a little more detail and maybe tell us what the trend looks like into Q3.

Sure, Vince. It's Edward. And on a year-to-date basis we have reported a loss of 15,000 basic subs versus a loss last year of 23,000 basic subs. So on a year-over-year basis we think we're seeing some good improvements on the basic side of the business. We concentrated, I'd say, more in the first quarter this year to get us out to a quick start in 2003. From some of the challenges we had in the first quarter of 2002.

And last year we had, I'd say, a slightly higher amount of sales and marketing push in the second quarter of 2002. So we can keep a view on a year-over-year basis and a year-to-date basis. We are maintaining our guidance for the year on the basic side of the business. Despite the fact that we had higher rate increased than we did originally have planned. And we're seeing some good traction in the first half of this month with an improvement on a month to date basis versus 2002.

Thanks.

The next question comes from the line of Benjamin Swinburne with Morgan Stanley. Please proceed with your question.

Thanks. Good morning, guys. First question for Alan on the balance sheet. You've done a nice job taking advantage of the market and some refinancing opportunities and some more equity. Are you continuing to look at that this year? Are you kind of happy where you are? Are there any restrictions on some of the issues associated with Rogers Cable which would prohibit you from doing that? And I'm actually here with Rich Bilotti, who's got a follow-up as well.

And the follow-up question I had was if you chose to implement packet cable voice services, what regulatory changes you would need, if any, to be able to offer those because based on the cable show it now appears that implementation of voice-over over IP at least in the cable environment is a practical strategic choice.

Rich, I presume that question wasn't for me. I'll deal with the first one. I think we have a -- we basically have no restrictions in any of our instruments in terms of doing anything from a balance sheet perspective. Clearly, this year with -- we have focused on holding company debt. I think we -- with the repayments that will happen, you know, this month and next month we'll essentially be at the holding company into the convertibles, which are due in June of 2005 along way small Canadian dollar note that's due in 2006. So it will be under $400 million of holding company debt. And that clearly has been the focus.

Obviously, the interest rate environment, you know, we will be looking at whether there are any opportunistic NPV positives, refinancing that we can do, especially in terms of some of the instruments that will be coming into that period. Maybe I can pass over the second part over to Ken Engelhart.

Yeah. Hi, Rich., Rich. To become a local exchange carrier in Canada, you have to apply to the CRTC. It's a fairly standard established process of interconnection and various regulatory requirements like 911 and number portability. It takes about eight months to do. So that's the only formal requirements that we'd have to go through to offer the service. We've also found an application and are looking at some others that we think would assist our entry by, you know, restricting the incumbent scope for anti-competitive pricing responses. So those are really the regulatory issues that we're looking at.

It's Ted here. I'd have to be very clear on this, however, that while we continue to be committed to one day including a local telephony product in our Rogers offering, we continue to study various alternatives. And we're doing that. But it's important to have facilities-based competition and telephony in this country. However, Rogers will not enter into this market until three things occur. When the first is significant regulatory changes, that Kent has referred to, basically to stop Bell bundling their monopoly local telephone service with competitive products because others can't meet such a bundle. So regulatory changes must be made, or my judgment, there will not be competition, facilities-based competition of any significance in this country.

And secondly, it has to become technically feasible, and I agree with you that in the United States progress has been made and probably next year there will be more rollouts, even commercial rollouts, but it has to be, third, economically viable in the Canadian context. The Canadian context is that the rates in Canada are lower than the rates in the United States. We don't have the -- Interlata (ph) activities that would facilitate competition. We buy our equipment in U.S. dollars and Canadian dollars. So there are economic issues that adversely affect us more so than the American cable companies. Having said all that, I am committed to doing the best we can to solving those three preconditions, and I am working aggressively on that. It's just that we're not ordering any equipment.

Thanks a lot.

The next question comes from the line of Tim Casey from Nesbitt Burns. Please proceed with your question.

Thanks. Good morning. Two items. Just following up on Mr. Rogers' comments, Ted, couldn't one say, though, that you have the ability to bundle just as well as Bell given you have a video and data offering and you can now roll in almost two type of telephony products?

And second, I'm wondering if you could just comment on your view of the data market. You know, based on your guidance you're going to have one in three of your basic subscribers on the data product. Could you just sort of look out a couple of years and where you think -- what kind of penetration rate should get to before you would start to consider it -- the market mature. Thank you.

I'm going to let Edward respond to the second one, which is I believe cable high-speed and Internet light. As to the first, we must be clear here that Rogers bundles competitive products where Bell and others compete against us. And that's fine. They do that. We don't complain. But if -- but when they say -- when they add service like local telephony where they absolutely have a total monopoly on the service in this country, when they add that that no one else can match, all right? Then obviously, we'll be cleaned out and the CEO of Bell likes to brag every quarter of how many new customers they've got buying all their products, local telephony, wireless, video, and so on.

So it's unfair competition. It's an outrage. And it should be stopped. And not just a bundle, do I say a bundle for $99, or something like that, but these rather devious gimmicks of saying, well you can have a special rate on competitive products if you have our phone service. So they don't actually include the phone in the bundle, but you've got to have the phone in the bundle to get the lower rate.

So these -- I give these people great marks in creativity, but if we're going to have sustained competition, facilities-based in this country, which is in the public interest to have that, then we have to have changes in the rules. And in all fairness, Bell when they came into video were given all sorts of advantages that allowed them to offer services that Rogers Cable was not allowed to offer, including up until today they can offer services we can't offer. It's an outrage. So we are little guys compared to them, but we're getting girded for the big battle.

Thank you. And I would just add to that comment that I think when there is a local-based -- when there is a local-based competitor to bell at some point they'll lose a certain penetration. At some point I think the government -- and we would see that you could then go more head to head. It's simply to get in the business when you have no market share, it's the type of thing to do.

On the Internet side I'd say that we think we have strong growth left in our high-speed product. We think there's good growth left in a larger number of Internet products, both at the pro level and at the light level there are still hundreds of thousands of dial-up Internet customers in our license areas and the homes that we pass, and we think that the light product that we have in the market is a good offer for those customers and that we can take a lot of growth on that side. We think there's rational pricing in the marketplace for Internet, and that will help drive the growth of the business.

We think that there's some opportunity around cost to look at taking costs out of the business. We today bundle the modem in with the service price as well, and over time we are working to un-bundle that price but keep the service fee at a decent and at a competitive rate, yet take the cost of the modem out of the mix. And there's other parts of the business where we see costs falling and we'll continue to focus. And lastly, there's -- while incremental services are still very young, I'd say, in the Internet business, a lot of the cable companies including Rogers are working hard on this to be able to sell to this base, new Internet-based products and services, almost like envisioning that our Internet base is almost like a cable base and we'll move to up-sell services over the years to come.

Thank you.

The next question comes from the line of Jennifer Dainty with RBC Capital Markets. Please proceed with your question.

Hi. Good morning. In terms of the CAPEX, you've done a great job at upgrading the cable network. You reported 81% of the network now upgraded to 750, 860 megahertz or higher, yet the CAPEX is still well under budget, especially on the wireless side. I was wondering if you can just update us on your view for CAPEX during Q3 and Q4 if we can possibly expect to see a pickup in the spending. And then just one other question on the CRTC decision that came out on Monday. I guess it was mandated that not only traditional high-speed but also the light high-speed should be applied a 25% discount for interconnection by ISPs. I was wondering if you can tell us a little bit about what price that lowest retail price is that they were referring to in the decision. Thanks very much.

Yes. Just on the latter, the price of Internet light I believe is $29.95 and $7.50 off of that brings it down to roughly, say, $22.50. And we're already mandated to offer at $21, I believe, Ken, for the high-speed. So why anybody would want to buy low-speed and pay more than they can get for high-speed is quite beyond me. But the world is fascinating as it unfolds. It's just nonsense.

In terms of the CAPEX, now, the CAPEX, John, as you know, within the Rogers company stands to be somewhat back end loaded in terms of the balance of the year, and we have maintained our guidance for both a wireless and cable at the figures we'd given previously, we are below that on a pro rated trend basis for the first half of the year, but we're maintaining our guidance for the balance of the year. As cable continues its completion of its 750 to 860 fiber theater network, starts a decline, video on demand in the greater area as well, and obviously on the wireless side, as you heard before, it's in connection with capacity and also the 850 megahertz, a GSM.

Thanks very much. Thank you.

The next question comes from the line of Paul Pew with GMP. Please proceed with your question.

Thanks very much. Firstly, on the cable side, could you just talk about the prospects for increasing pricing? I think you mentioned on your last conference call that you put a price increase in back in August of '02 and you would look to do possibly similar to that in August of '03. I'm wondering, Edward, could you update us in that regard?

And then secondly I just wanted out of the NCTA show in Chicago there seemed to be a lot of discussion in developments on the DCT-700 box out of Motorola coming out this fall, around U.S. 75. I know you're on the SA platform. the question, though, could you just talk a little bit about what the prospects for an all digital network looks like for Rogers and the benefits that that could bring to both your capital budget and your operating expense of actually managing the cable network? Thanks.

sure, Paul. Thank you. I'm going to take you through the pricing and then pass you over to Michael Lee on the box side. On February we increased our light pricing for new light customers from $24.95 to $29.95, and through June we're bringing the base of light customers up from the $24.95 to the $29.95 price point. In the August time frame we'll be increasing bundles which have the light product $5 and increasing the other bundles approximately $2.

In the August time frame we'll also be increasing just over 2 million of our subs on average about $1.80, which should -- which includes mainly on the basic side, some on the tier, and that should generate an incremental approximately $3 million a month for Rogers Cable. It won't hit all on the first month since a portion of our customers are billed on a every second month, every three months every six months, and every year which is the beneficial force since we locked those customers up, but we don't get all that rate increase right at the start.

Thank you.

Paul, there was a lot of active data with regards to all digital set top boxes, and I think there's probably two factors as you look forward that will influence the pricing of set top boxes at this point. The first one won't have an immediate impact, but over the probably three to five-year time frame we'll start to see some level of benefit, which is the open cable pod initiative coming out of cable where we'll have digital tuner intelligence with access delivered over a card. So probably is isn't a 2003-2004 issue but over in 2005 and beyond I think that has some impact.

The second one is this low-end set top box is at 700 for Motorola or the pace box we saw there. At this point we think providing analog services is a competitive advantage for our subscribers. A big percentage of our subscribers have multiple TV sets. And they do want to be able to get access to their services on the traditional television set. So as you start to see migration to digital we may see some change in that. But there's that issue. The second issue is that with some of these low-end boxes they don't yet support all of our key services, particularly things like B.O.D. And as we go forward, B.O.D. becomes a more critical component of our digital offering. As we take a look at where we are from a capacity perspective, the digital migration will continue to be probably a natural migration based on consumer demand in the early years, and then we'll probably see some demand from customers for more aggressive migration to more digital are services in the network but not in the foreseeable future.

Thank you.

Ladies and gentlemen, we will take one more question, and it comes from the line of Michael Yrlacher (ph) with UBS.

I have a question on the cable high-speed modem side. The subscriber net adds was a little bit below our forecast, and I wonder if you sense either of these two factors being a part of it, one, whether you've seen increased efforts by Bell in terms of price pressure and more successful marketing by them and, two, we had heard anecdotal reports of some network disruptions on the Rogers network regarding cable modems. Was that something that somehow impeded any of the subscriber net adds? Thank you.

Okay. Thank you. I would start by saying, again, we look at most of our products on a year-to-date basis, and on a year-to-date basis on that we're up about 23% year over year. With a stronger first quarter, as I mentioned previously, along the basic lines, we put more emphasis on our first quarter versus 2002.

In our second quarter I think that Bell is an aggressive competitor but I think that we still have the best product out there and a slightly richer offer in the marketplace, about two weeks, which we matched, and our policy is to if there's a rich offer out there to match that and not leave that on the table but fight for our customer based on the strength of the product, not a quick and better price point out there.

I also mentioned that we've been concentrating on the mix of our customers, and for the second quarter just over half of our customers on a net basis were taking the high-speed product and over 85% of our gross choosing the high-speed product. So -- but I think we'll continue to have a competitive position as we move into the third quarter and the rest of the year.

And in terms of network disruptions, any problems there?

It's something we always look at and focus on. But no, we did not see any network issues. I mean, that would have affected a large number of our customers for a long period of time. Again, on a year-over-year basis our KVI’s will be -- will improve and the service we give our customers will have improved.

Okay. Thank you.

Mr. Mann, I'll turn the call back over to you, sir.

Well, thank you very much for conducting the call, and on behalf of the management teams of all the Rogers companies we want to thank everybody for participating and for listening. We appreciate your ownership and your coverage as well. If there were people in the queue that the operator didn't have a chance to get to, Eric and I, Eric Wright and I are here all day. Feel free to call us. Our contact information is on the release.

If you joined the call late, there's a rebroadcast that should be loaded already on our Website, Rogers.com. There's also a dialing number on the release we put out June 25th announcing the call. And we hope that everyone enjoys the rest of the day. Thank you very much for joining us. This concludes our call.

Ladies and gentlemen, that does conclude today's conference call. We thank you all for your participation and ask that you please disconnect your line. Have a good day.--- 0