Rogers Communications Inc (RCI) 2003 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Rogers Wireless and Rogers Communications third quarter earnings conference call. (OPERATOR INSTRUCTIONS)

As a reminder this conference is being recorded Friday, October 17, 2003.

I would now like to turn your conference over to Bruce Mann. Please go ahead, sir.

Good morning, everybody. Thanks for joining us on Rogers' third quarter conference call. As we do each quarter, we will spend the first portion of the call discussing and taking questions on wireless, and then the second portion focusing on the remainder of Rogers Communications, which is Rogers Cable, Rogers Media and Rogers Communications Corporate.

The detailed earnings releases for Rogers Wireless and Rogers Communications were made available this morning. If you don't have a copy, you can find them on our rogers.com web site, on PR Newswire, on First Call and other sources. But you should review them fully in the context of this call, including the cautionary Safe Harbor language.

With me this morning for the first part of the call is Nadir Mohamed, the CEO of Rogers Wireless, along with John Gossling, Tom Turner and Rob Bruce from the wireless senior team, as well as Ted Rogers, Alan Horn and a couple of other folks from Rogers Communications.

Ted and Nadir wanted to make a couple of very brief remarks, and then we will take your questions on Rogers Wireless for the first portion of the call, so please go ahead Mr. Rogers.

This was an excellent quarter at Rogers. We had good results from each of the operating companies with combined revenue growth of 11%, operating profit growth of 29% and capital expenditures were again reduced from last year. This represents a year-over-year improvement in our quarterly free cash flow before working capital of $160 million. At the same time, we expanded our operating profit margin by more than 450 basis points. I think the operating teams with Nadir and Edward and Tony are doing a terrific job.

I won't go into the results of each of the businesses; we issued two extensive earnings releases this morning and we have our management teams here to speak to them and take your questions.

I did want to say a few words on industry pricing, which seems to have gathered quite a bit of attention in the past few weeks.

On product bundling, Rogers pioneered the beginning of this in Canada almost six years ago with our VIP program that now totals more than 600,000 customers. These people get discounts in Radio Shack branded merchandise, as well as selected Rogers products, as well as renting videos in the video stores. It is to create the feeling with our important customers that they are very personal and important to us. And these customers consistently demonstrate lower churn, higher ARPU and higher satisfaction than the base in general.

For taking the VIP package of our services these customers receive an effective discount of approximately 10%. We thought that 10% was fair as a way of sharing with these customers a portion of the benefits in terms of the larger share wallop (ph) and the greater retention benefits that occur to Rogers.

For those companies that can offer them, bundles are a more creative and beneficial way to compete in the growing segment of the market versus the discounting of individual products you're seeing to some degree in the United States. Not only do bundles offer lower acquisition costs, higher ARPU and better retention to the Company, they offer better convenience and service and billing for the customer.

A few weeks ago a key competitor introduced a set of bundles, and while there isn't a perfect apples-to-apples comparison, the discounts on certain of those bundles -- targeted, by the way, at the middle or the lower end of the market, in other words on Internet -- not high-speed but Internet line -- they seem to point at being in the 13% to 17% range. Rogers will precisely match these competitors' bundles, with the same product components and the same discounts; not escalate, match. These bundles will also be aimed at the lower end of the market. Our VIP discounts for the higher end of the market will continue unchanged at a 10% discount.

I should also point out that in 2002 Rogers Cable introduced some cable Internet premium services -- Pay TV and so on -- bundles which in certain cases provided discounts in excess of 20%. Since then we have somewhat reduced these discounts. With the new series of bundles that we will introduce, we will cease offering our existing cable bundles within the coming months. Also, we plan to phaseout availability of these higher discount cable bundles to existing customers who have signed up for them over the following 12 months.

Our competitive posture is to compete on product innovation and on customer service. In the long run, purely price driven competition harms consumers; providers suffer and pioneering and innovation suffer, robbing our country of productivity gains, resulting in a lower standard of living.

On the wireless side in particular, I think the industry in Canada has done a tremendous job of driving pricing stability and most recently in defending pricing stability in the face of an ill-conceived offer made by a smaller, financially-challenged competitor that recently emerged from bankruptcy.

It is financially unsustainable for a wireless company to offer unlimited anytime usage at Wireline local service prices with any success. The capital costs would be gigantic and bankruptcy inevitable again. The competitive moves made by the wireless industry leaders in response are a pretty clear indication that the industry will strongly defend pricing stability. And I should point out that the prices in Canada are among the lowest in the free world.

Looking across our businesses, my message would be that we fully appreciate that in the final analysis irrational pricing doesn't help anyone, including the consumer. What we have been doing and will continue to do is to be a good, solid competitor, competing on service, functionality, selection, marketing and innovation.

The structure of the Canadian communications industry is conducive to having healthy, vigorous competition, while at the same time having rising ARPUs, declining churn and reasonable growth.

We're a small country. I believe all of the large players have the maturity, the rationality and the incentive to stay this course. And that is fully our intention here at Rogers.

Let me conclude by saying that I'm really proud of the operating teams here at Rogers for a great set of results in the quarter.

I would now ask Nadir Mohamed to highlight the results at Rogers Wireless.

Thank you, Ted. Good morning, everyone. Through the third quarter we kept our consistent and disciplined focus on our stated core objective of profitable growth. The outcome of this focus was once again very positive -- network revenue up 17%; data revenue up 127%; postpaid ARPU up 5%; postpaid monthly churn down to 1.85%; operating income up 39%; and CapEx down 8%. Together these results drove an expansion in our operating margin from 34% to almost 41% of network revenue, definitely our best results in the last five years.

Postpaid customer net loads of 97,000 were up 29% over last year, to us a clear sign that there are still plenty of quality growth ahead in the Canadian market.

Our strong network revenue growth of almost 17% resulted from our greater postpaid mix throughout the last year, and the significant increases in data and optional services revenues.

We're also continuing to see solid growth in our roaming revenues as we capture roam share revenue from international travelers.

Postpaid ARPU was strong in the quarter, up 5% over last year.

Now as Ted mentioned, one of the underpinnings of our possible growth strategies is pricing discipline in the market. We remain firmly committed to rational pricing and profitable growth in the Canadian wireless industry. Our response to the recent actions by Microcell reaffirms our commitment to rational pricing. As experience in Canada and the US clearly indicates, attracting customers at any price is not a sustainable strategy.

On the cost side, we were able to reduce operating costs per subscriber by 4.2% as we leveraged scale economies.

Sales and marketing costs for gross addition decreased 1.4% year-over-year, largely due to the increased number of loads.

Net-net we produced a year-over-year improvement of over $70 million in free cash flow before working capital changes. We generated positive net income of over $40 million, excluding any benefit from foreign exchange gains.

Looking at the rest of 2003, on the back of these strong results we have revised components of our annual guidance, raising our revenue guidance and increasing our profit guidance by $70 million.

With that, I will turn it back to Bruce so we can get to your questions.

Thanks very much, Nadir. Operator, we will be ready to take questions on Rogers Wireless from the participants in just a couple of seconds.

Before we do, we just want to quickly remind folks that we will cover Cable, Media and Rogers Corporate on the second portion of the call, so we would appreciate if we could focus the questions during this first portion on Rogers Wireless. And also if you could limit your question to a particular topic so that as many people as possible could have a chance to participate. Operator, I think we're ready to take questions from the participants.

(OPERATOR INSTRUCTIONS) Rob Goff, of Haywood Partners.

Great results in the quarter. Nadir, could you give your view of the demand for Wireline displacement or big buckets in the Canadian marketplace and how you may see that unfolding?

Clearly when you look at the market and the growth that we posted this quarter, what it says is that we're seeing penetration grow in Canada. There's lots of room for a good quality customers. One of the segments that is growing is really the -- you might frame it as Wireline replacement, but I think that's too broad the term.

The pocket that we're seeing are -- one, the student market or the youth market, there's lots of university kids and the youth that actually see wireless as the primary service. It's their life phone, it fits their lifestyle. So that segment is growing. The other piece is if you look at the wired world, certainly second line growth has been diminished. In fact, they are seeing some erosion. And one of the drivers is people switching to wireless rather than getting a second line.

I think those two will drive the market. Over time it will get bigger. My sense would be that that set of customer segment today would represent somewhere in the low single digit in terms of Wireline displacement.

Richard Talbot, RBC Capital Markets.

Congratulations again on the results. Picking up on the last point, I was wondering, are you sensing a re-acceleration in the market growth? Or would you say this is more of a shift in share? Or is it just driven to the improvement in churn? And related to the churn part of the question, you have made some excellent progress there on the postpaid side in particular, as well as on prepaid. Could you comment on how much further room for reductions you think there could be? And are we likely to see the typical Q4 re-acceleration in churn?

Wonderful way to get a couple of questions in. I'll try and do justice to both.

First, in terms of growth we're definitely pleased. We've seen robust growth over the three quarters now and Q2 was definitely very good. And the first point I would like to make is that I think the key is in the quality of growth. We're getting higher ARPU postpaid, higher value customers, and so we're pleased about that.

If you looked at the industry up to Q2 -- which is the only, obviously, official results that we've got for the industry -- it was (technical difficulty) up at 39% in Canada roughly 3.5, 3.4% increase year-over-year. And I think most people are looking at the balance of the year to pick up from there. And sort of somewhere in the 3.5 to 4% range for next year what we read as the industry consensus.

I think we will have to wait to see how the others do to really get a sense of pick up. But our general sense, just being in the market day-to-day would be that we saw a strong take rate in back-to-school campaigns and generally feel positive about the growth in the back half of the quarter. So that speaks well to I think the potential growth going forward.

In terms of your second part on retention, again good progress from a couple of years ago; we were running at Rogers about 2.25% churn and it is down to in the high 1.85% range on the postpaid side, some improvement on prepaid. We will continue to drive that down as we get sharper in our retention focus.

Having said we've made the improvement, there's no question I would have to acknowledge the ILECs or the guys (indiscernible) benchmarked. Last quarter particularly was good for the two of them.

So when you look at the longer-term, how do we actually drive churn to the best in class kind of level, we would look at continuing to drive a greater share of the business market. We've been fairly successful in the last 18 months, particularly in the last year. And I think that will help going forward. As we get into more products and services, bundling references that Ted made, but also driving data services, you'll see some stickiness come out of that. And so I think there are opportunities to do it better as we go forward. Some of these things don't happen though in a very short time period; they're more of a building in the highest sense our brand.

And just on that note, just to be aware, Q4 does tend to be a higher churn quarters, so just to be sensitive to that.

Vance Edelson, Morgan Stanley.

Congratulations on a strong quarter. I just wanted to talk about the incoming roaming, specifically in how it relates to AWE. You're both rolling out the GSM platform. How is that progress coming along? How do you see roaming picking up going forward? Maybe if you could also comment the same thing with the T-Mobile relationship.

I will lead off, and maybe John can add some comments as well. We're very pleased in terms of our roll of both the GSM and GPRS roaming agreements south of the border, as well as internationally.

Just to make sure that everybody knows where we stand, we have now roaming agreements -- always had them -- with AT&T Wireless and their footprint has been growing significantly over the last little while. We have agreements with Cingular and T-Mobile. T-Mobile, the roaming agreement is now operational and we're seeing good traffic since August, when we got it up and running and September was a good month for that. So we got the three largest GSM operators now on board in terms of roaming agreements and working and lots of traffic.

I think the other piece that's been very good, and really demonstrates the power of getting off to the GSM platform is the fact that we've now got 93 countries, over 197 operators up and running. And we're really seeing the benefit of travelers coming into Canada. That was roaming revenue, obviously, that went to the smallest GSM operator in Canada. With our presence we're starting to see a lot of that revenue float to us. We're going to get aggressive to actually leverage that, both incoming and as our customers visit Europe and other parts of the world. So that is the general thing.

John, you might want to add some numbers.

There's a host of statistics on roaming that I could quote, but I guess the first place to point you would be in the notes to the press release we actually do disclose the amount of roaming revenue and expense with AWE. And you can see it is quite balanced. So there's no question, as Nadir mentioned, that we're driving more traffic onto their network at the expanded rollout of GSM and as well with some of the acquisitions they have done in the last little while, that has helped as well.

In terms of the US visitors, that revenue is quite stable and the traffic is quite stable as well. I think in Canada we suffered a little bit from some recent events earlier in the spring.

Where the real uptake is on roaming is the with international GSM visitors to Canada. That revenue is more than tripling year-over-year. And that's where we're driving quite a bit of traffic.

So that's really the story on roaming, as well as our customers roaming both internationally and the US there's good revenue growth there for us as well, in excess of 30% year-over-year.

Dvai Ghose, CIBC World Markets.

Congratulations on another good quarter and your very quick response to your competitors' discount pricing out west. My question is, I can understand entirely why yourselves and your other larger competitor responded in the way that you have, but what do you think the near-term impact could be on cash flows and churn from these offers? I know there's a lot of variables there, but how disruptive do you think it can be? Obviously you have raised your guidance so you don't think too disruptive in the very near-term. But going into 2004, do you see an impact on margins?

I think the first thing to note is that if we step back, we're absolutely committed to rational pricing. We know where our focus has been; we know where our goal is; we know where success is. And that's targeting higher value postpaid customers. We're not going to shift from that.

To your point in terms of our response to Microcell, it is a very surgical response to the unique pricing scenario in one market from the smallest competitors. So we have to put it in context.

Having said that, this is a competitive business and when somebody does something that we think is irrational, we're going to defend and we're going to not only defend our customer base but also be aggressive. We know that the smaller competitor has had high churn. We think that as they promote the offering in Vancouver there is going to be more churn because in our view there's going to be dissatisfaction from the network. And we're going to be aggressive to getting those customers that want to come to a better network. So that's the context that we see our response.

In terms of going forward, what we're trying to get to is, hey look, we've got to differentiate based on product, service offerings. To me going after customers simply based on price and any price seems like it is just not a sustainable proposition. So you've got to believe that what I said makes sense for the industry, and as such we will see that the stability will stay going forward.

So that being said, you don't see it as being particularly disruptive though in cash flows at this time? Would that be fair to say?

It's hard to say. Clearly, we know they have just launched in Vancouver, and we will see what kind of response we get from our positioning. At this point I think it's too early to tell. There's no question in my mind that they will be aggressive in promoting the offer in Vancouver, but we're also feeling pretty confident about our response.

Thanks again.

Glen Campbell, Merrill Lynch.

My question was on capital expenditure. Microcell contends that they can basically double the capacity of their GSM cell sites for software upgrades at very, very modest costs. I'm wondering if you would agree with that and if, therefore, we should expect to see your capital expenditures stay roughly flat at this year's levels, despite the growth you're seeing?

The general comment is we tend not to agree with too many things from that side, but I'm not sure that we want to comment on what their capital assertions are.

Bob, you want to add anything?

Certainly the good thing about being a member of the world community of GSM is that the features and capabilities that are available to one are available to all. Of course, as we go forward we have built into our plan all the capabilities that GSM offers us to add capacity for software enhancements, etc., and capabilities within a handset.

Of note also is the fact that our competitor has shown substantial losses of customers and have probably had some spare capacity sitting there at this point.

I would just like to add that without going into all the details, the competitor has the original GSM equipment installed, and w have had what's called the fifth-generation installed -- the very latest -- which has a great deal more flexibility in many different respects. So that I'm glad we're in the situation we're in, and I'm glad our competitor is in the situation they're in.

The specifics would be -- just a little bit more would be helpful here just in the sense that it would seem the economics of the business are getting a whole lot better if you can use software upgrades to achieve these kinds of increases of capacity. I'm just wondering if you could confirm whether or not that line of thinking is right or simply wrong.

Certainly, there is a whole pack of capabilities in GSM community that are well-defined and are available on the GSM association of websites for all to view. And we're all implementing those in the GSM community. The current thing is adaptive multi-read coders, which allow you to put more customers on this similar infrastructure. And there are all sorts of things like that going forward.

David Lambert, TD Securities.

First, the pricing pressure seems to be -- everybody's coming out with their company-specific promotions. Can you tell us what's happening in the stores, the non-Rogers stores? Are you guys changing the promotions there? And how are those stores reacting to your more aggressive promotions?

Obviously as we get into Q4, it is our heaviest promotion year in terms of generally that's when we attract the greatest number of customers. And so we will be launching our Q4 promotions.

I think one of the things that we're committed to is rational pricing and what you will generally see us do in market is go heavy on the upfront inducement to promote, as opposed to look at any fundamental changes to rate card or rate pricing. And on any given week, on any given day, in any given channel, we've got lots of promotions so I'm not sure I can make any general comment, because it really does change day-to-day.

If you guys argue that Microcell promotions are only temporary because of network capacity issues, why is the industry being so aggressive with earning those promotions?

Just to be clear, I wouldn't want to suggest what Fido is doing or Microcell is doing is temporary; that is up to them to make that call. Our response is certainly out in the market and we think that there will be a lot of folks that will want to take advantage of the better network and the larger network. And we're going to make it very easy for them to take advantage of the service that we offer.

Thank you.

Peter Rhamey, BMO Nesbitt Burns.

Thanks very much. Pricing integrity is key to the success of the industry. I was just wondering, when you look at your promotion -- I just want to have clarity here -- I assume that you're not offering any change to permanent billing; you're not offering to move back the evening and windows promotion on this particular deal. I was wondering, if you look forward and if Microcell continues on its course and has reasonable success, what's your view on what you can do here?

Just to confirm, you're right -- those are not the elements we're changing; our core rate plans are actually the same. We do have promotions -- by the way, we have promotions all the time for different segments of the market. So this one is specifically addressing, obviously, the Fido customers that are ready to leave and making it easy for them. But no, that does not include in any sense backing off the changes we made to the clock or to the mode to per second. So that's not what's out in the market.

In terms of going forward, we just -- one of the things about this business is -- what we need to make sure we understand is our discipline and focus will continue. We react to things that happen in the market every day and every week. So to the extent that they continue the offers, we will keep working to our strengths.

One of the things that I want to make sure is we've got a game plan. We know what we want to do -- we're going to stick to our game plan. And the response to the Microcell situation is very specific and very surgical. And it doesn't take us off our game plan and it won't.

I think it's important to understand the basic difference between Microcell and Rogers Wireless. I've always believed in coverage, whether it's in broadcasting power of the transmitter, covering more people. And in round terms, we have about 50% more Canadians covered by our wireless facilities than Microcell has. They have roughly two-thirds and we have about 93%.

So it's fine if you're just in one city; but if you're going between cities, or to a cottage, or driving in your car the whole point of wireless is mobility and being able to go almost anywhere and the phone still works. So if you want a limited service then you choose a competitor; if you want the full-service, if you're visiting your relatives and friends and others and the service is always on, you choose Rogers Wireless. We don't need to get into price wars with people. It's people who have a fundamental disadvantage that are trying to do these things to make up for their limited facilities.

Thank you very much.

John Grandy, Orion Securities.

It's hard to find anything negative to say here, but we will try. The one thing I did notice on the prepaid, ARPU continuing to slide. Despite that you had a fairly significant increase to the number of prepaid additions. And I know you have now re-launched a new prepaid-postpaid product, but I wonder why you would want to continue to invest in this segment of the business, which seems so unattractive compared to your postpaid business.

I will just get Rob Bruce to address the question.

It a lot of fun getting to address the only negative part of the release, but I want to emphasize something Nadir said early in the call, and that is our primary focus is postpaid, not prepaid. And we put a lot of energy into our postpaid offerings.

As you referenced, our ARPU was lower this quarter at 946. And frankly that is due to a number of things and we commented on them before. As you know, some of our competitors have launched an extremely aggressive prepaid pricing to a segment that is relatively unprofitable, targeting prices as low as 15 cents a minute versus our price of about 33 cents a minute. That caused us in the early days to lose a few of the high-end users that we had. We put in a retention bridge and launched a new product called TotalPhone. And again, an important piece of context here is that prepaid is only 5% of our revenues.

The question I'd like to answer is why TotalPhone; why is it important? TotalPhone is about going after the most profitable sub-segment of prepaid, completely consistent with our strategy of profitable growth -- it's got very low COA; an ARPU in the $30 range; better yields than postpaid; and no residuals on an ongoing basis.

So we're thrilled about the product. We think it's going to make a significant contribution to serving the youth and young adult segment of the market, some of which don't have the opportunity to have credit yet; give parents the ability to give their children phones and control the spending a little bit. And it has many of the benefits that prepaid offers, but it provides us with a guaranteed revenue stream. We're excited. The early progress on the product is good and we think very consistent with our strategy of profitable growth.

I'm assuming you're going to try to upsell some of your existing prepaid customers to TotalPhone?

Yes. And continue to upsell the TotalPhone customers to postpaid in the longer term.

Thank you.

Operator, we're going to have to cut the Q&A on the wireless section at this point and continue on to the second portion of the call. If there was anyone left in queue that we didn't get to, Eric Wright or I will (technical difficulty) after the call or with the management team as necessary.

So if you would be so kind -- the participants and the operator -- to give us just a few seconds, we're going to go on mute, shift a few people around in the room and then we will proceed with the second portion of the call and discuss cable, media and Rogers Communications Corporate. Hang on just a moment, thank you.

Operator?

Yes.

We're ready to start the second portion of the call. Do you have the participants online?

Yes I do. Our first question comes from Michael Urlocker, UBS.

Good morning. Thank you. Could you talk a little bit about the high-speed Internet business, what you're seeing in terms of the trends on that net adds and whether there's any pricing changes there?

Secondly, our read is Voice over IP by '05, if the Telcos get a little bit more aggressive, would you accelerate that?

It's Edward, and I'll answer both. On the first, on the high-speed Internet, we're very proud of the third quarter at a net of 39,000. The traction is good on the high-speed business. And as important as total net growth, we're focused on the mix, while using the late product to save high-end customers that want to use the product but not spend as much and grow the overall base. We're still very focused on the high-speed product. And over 85% of our gross in the third quarter was on the high-speed and about two-thirds of our net was on the high-speed product, which is up from the first and second quarters, which were just over 50%.

We believe there's some very good growth left in the high-speed product, and we're concentrating on that as we go into 2004. We think we're very competitively lined up against Bell to offer customers a better high-speed experience. And we think we should see good and improving market share.

On the Voice over IP question, we're continuing to look at Voice over IP and other ways to get into the telephone business; some in a smaller fashion, some perhaps in a bigger fashion. We are part of a bigger company with Rogers AT&T, which gives us flexibility to look at a few more options. And I would say that what Bell does in the market will not impact what our decisions are on the telephony side.

Vince Valentini, TD Newcrest.

Two questions; one your guidance. Your EBITDA, I guess if you had exactly flat EBITDA on the cable side in Q4 versus Q3 you would hit pretty much the high-end of your range of 655. So I wonder if that is what you're trying to signal to the Street, that you think Q4 could be flat or even down versus Q3, or whether that's just a conservative guidance.

And similarly on CapEx, you would need to see a pretty substantial ramp up in cable spending from sort of 120 million in Q3 to the 170 to 195 range in Q4 in order to hit that guidance of 500 to 525. I wonder if you could comment on that as well.

I'll answer and then I will pass it over to Don Huff (ph) to add. I would say when we look at Q4, during the year there are certain times of year where activities kick in. And in the fourth quarter we do tend to ramp up spending a little bit on the sales side, especially on the high-speed Internet side of the business. And on the capital expenditures side, there are some things that occur at different times of the year. So we are maintaining our guidance, but we're confident that we will achieve the high-end of that guidance.

Further that what Edward just stated, I think we would definitely feel that we will be able to get to the high end, if not over-achieve, on the OpEx and get to the low end, if not get a little lower than that, on the CapEx.

And I will just reiterate what Edward said; we do have some incremental spend in Q4. That will be good quality spend to attract a good customer. And on the CapEx side we have somewhat I call nonlinear spending where we're going to invest some additional money on the capital side that is capacity related. And it's what I would call kind of a non-recurring or infrequently recurring type spend.

Rob Goff, Haywood Partners.

Ted had indicated that you would compete on service capabilities as opposed to pricing. So I think -- Michael Lee, if you are there, could you discuss the technical merits of ADSL for data and VDSL for video relative to the cable plant? I'm also asking because we're starting to hear more about VDSL from Bell, including this deal with Microsoft. I think you started working with Microsoft back in the '80s on the Tiger initiative.

We've had a lot of press lately with regards to Bell's sales activity with VDSL technology and I think it's really important to sort of take a step back and really just take a look at what it is that they potentially could offer and decide whether or not that's a competitive offering relative to what cable is delivering today.

So if you take a look from an ADSL perspective in video, they started off in the early days delivering -- the big celebration was that they were able to deliver one video signal to the home. And then they found out -- NLI found this out -- that customers need more than one video signal to a home because they have more than one TV on at the same time.

So the engineers then put forth an effort to get to more video signals and out came VDSL. So while they were congratulating themselves for delivering three video signals at the same time to a home, which is what they are (indiscernible), they forgot that basically the television market has moved since then.

So if you just take look at the simple math right now, a video signal to the home is probably -- to make the math easy -- 3 Mbps. So three video signals at the same time from VDSL and 3 times 3, which is 9 Mbps. Right now, if you take look at the TV market, HD is coming on and coming on fairly strong. And an HD signal is anywhere from 12 to 19.2 Mbps. So not only can they not deliver HD, but they can't even deliver one video signal if the customer has an HD television set.

So to put in context, if you take look at what's going on in retail today as we're going into the Christmas season, most new television sets above about 36 in. now are HD television sets; people are not selectively deciding to buy HD, they're just buying a new TV set and it happens to be HD compatible. Our run rate on HD set-top boxes right now on a daily basis range is anywhere from 5 to 8% of our volume on a daily basis. So while it is a small percentage of overall customers, it is a growing percentage, and its customers who want premier television. And VDSL cannot deliver premier television.

With regards to Microsoft, you're right; we've been working with Microsoft for a long time on new television technologies. Basically that doesn't preclude the fact that it still runs on some sort of a DSL technology to get to the home. I thought I saw in the press that the current offering right now is in technology trials, and that there are expecting that the delivery for a real product was some time out beyond a year. And as we all know, with a lot of these new technologies out beyond a year is a fairly long time and a lot can happen.

I guess the challenge -- when we take look at what's going on with VDSL, without the US operators and US RBOCs basically focusing on VDSL as an opportunity, it's not fair to me how they're going to get their equipment costs down far enough to make the economics work for the business.

We're all working on new technologies, and we see a fair amount of new technology and some of them actually come to market and some of them die on the vine.

I think it's important to recognize that for those new technologies what they mean to cable is an improvement in our existing offerings from an economics perspective or from an offer perspective. What it means for DSL providers is that it's a prerequisite; if they don't get those new technologies, they can't actually even deliver those new products. So that very important. And I think you'll see that cable will be as a pure distribution platform for voice, data and video services, and most importantly the low-cost provider for those.

Greg MacDonald, National Bank Financial. Mr. MacDonald, please proceed with your question.

Richard Talbot, RBC Capital Markets.

-- the potential for increasing friction between yourselves and Bell Canada going forward here, I'm wondering how that impacts your appetite for rolling out and incensing perhaps people to take more digital set-top boxes. And secondly, I wondered if you could update us on how the Video on Demand -- demand for Video on Demand is going. And if you could give us an update on what the buy rates and the availability level is today, that would be great.

I will do the first part of that and then maybe pass it over to Mike for the VoD part.

I didn't catch, I think, the beginning of your question, but I think you're talking about us and Bell and our ability to launch new things if we are in a tougher competitor market. And as I said earlier on the telephony question, our product plans don't change as a result how aggressive or not aggressive Bell is against us. We're still going to do what we need to do.

And I would also reiterate, as Ted had earlier on call, that we're still very committed at Rogers and at Rogers Cable to rational pricing in the market. And we are confident that as we go forward rational pricing will keep in the cable television and high-speed marketplaces.

The bundles are a set of pricing that is in market and that's the way to sell our product. But they are often tactics to sell the core product. And they will come in market and they will come out of market. We're committed to match Bell, but we're also committed to moving the overall pricing of our bundles up.

And we're committed to competing against Bell on the products' functionality. And we're confident that on the high-speed and on the cable offers, the ability to offer our customers a better product against a satellite competitor, against a VDSL competitor and against a DSL competitor. And we will be focused on that side of the business to win share, while continuing to have rational pricing in the market.

Mike, do you want to touch on the VoD?

I can give you an update on where we are from a deployment perspective. We're at just over -- we're at 1.2 million home stock at this point that have availability for our VoD product. Buy rates have continued to remain high on a proactive subscriber basis. And ARPU continues to be basically at the same levels when we reported last time on buy rates and revenue increase per VoD active home.

If I could just follow up on the first part of the question, it was really with respect to whether you're likely to accelerate the rollout and incentives for digital set-top box adoption as a competitive means to address VDSL.

I would say that we're equally as aggressive to increase our customer base. And as I mentioned, Bell will have various products in market and various offers in market, but that won't change our focus to grow our business.

Greg MacDonald, National Bank Financial.

The question has to do with Voice over IP. And I guess just jumping back to Edward's comments, it was interesting to me to note that he said that various strategies -- and I don't know if that's exact wording -- but you might look at various products or strategies. I'm wondering what exactly that might mean. I'm thinking a VoIP strategy could mean a full powered, therefore a higher quality, product; it could also mean a lack of power back up or more of a pure Internet telephony play. You have also commented in the pass on a wireless hybrid product, and I wonder if you might just comment, is that still in your thinking? Is that what you're referring to when you're thinking that various strategies might still be in the making?

We generally don't comment on what we may do in the future. I think what I tried to highlight is that Rogers is more than a cable company. But even when you look at the various telephony offerings south of the border, various cable MSOs have chosen to get in the market in different fashions and some rely more on powering than others. And so I think we've got the flexibility to look at the experience south of the border. In creation we work together through cable labs. And we have the benefit of being in the phone business -- it's a wireless phone business with over 3.5 million customers -- to look at taking advantage of some investments, especially on the back-office we've already made, and of the ultimate product offer to the customer. But we're still in the planning process.

It should be added that as we've emphasized before, that it would not be possible for us to enter telephony until there are three conditions met.

One is regulatory, the same sort of regulatory relief for new entrants against the monopolies (ph) who has -- or not a monopolies, but the one who has the dominant market share with 99.6 or what have you. There has to be opportunities for the new entrant to have some advantages, just as Bell was given those when they entered into the video business. We need to have that relief from the regulator. We need to insure that it is technically feasible, whatever we do. We need to insure that it is economically viable. We're continuing to do our research. We have not reached any conclusions at this point.

Glen Campbell, Merrill Lynch.

I had two hopefully quick ones. The first, could you tell us what proportion of your digital set-top boxes now are rented as opposed to being owned and whether the new bundles might change that?

Well over 90% of our boxes are rented. In terms of your bundling question, I don't foresee any major changes in that percentage.

My follow up was again on Voice over IP. The US operators seem to be taking different stances on whether they might consider blocking a service like Vanage who continue to maintain that they will be in Canada by year-end. Philosophically, are you happy to have them serve free riding on your network? Is there anything you might do to block them?

Overall, I think we gave you a good answer on telephony. We're still in the planning phase, so it's tough to comment on what we may do in the future at this point.

I guess it's more not so much what you might do in terms of your own service, but they're saying they're going to be in the market in a couple of months. Is that something that is problematic from your point of view? Or are you happy to let them do what they can do?

There's various quality of voice products over the Internet now. But that is different from a telephony grade product that a cable company could put in the market. So no, we don't look at Vantage as a serious competitor. And what we may or may not do with folks that ride our pipe in the future, it's tough to comment on now.

I would just say that it's pretty basic that if you're going to offer a communications service to the public, quality of service is something that is absolutely essential to be able to guarantee to a person you're charging an amount of money for it per service. And somebody just coming and sneaking in the back door and trying to get a free ride would have no ability to have quality of service. And there are tests going on in the United States on this particular issue by VT and AT&T Wireless and others. And I doubt that you'll see a bonafide competitor who has no control over quality of service over his service.

Very helpful, thank you.

Tim Casey, Nesbitt Burns.

I think Motorola is going to be introducing a box shortly that will be sub-$100. I'm just wondering what you're seeing from SA and when you hope to be able to launch a -- I guess if you have any plans and what time they would be to launch I guess a stripped down box and move towards rolling out an all-digital system cluster-by-cluster.

The box you're referring is a box that is an all-digital box, which does not have at this point an equivalent offering from SA, though SA has had sort of initial planning and discussions around potentially offering a box like that. We just continue to see gradual price decreases in the set-top box category, and I think to contemplate going through an all-digital offering largely will be driven by the economics of the set-top box market. We're not close enough at this point to be able to project when and where something like that would happen.

What are the price points now, Mike? And could you give us an order of magnitude on what sort of declines you're expecting in near-term?

We generally don't give guidance with regards to price declines and set-top boxes. But our current set-top box pricing generally is in the US$200 range right now.

Dvai Ghose, CIBC World Markets.

Back to the question of bundling, which we started with, Ted you went through some of the differences between your bundles and Bell's bundles and what some of your new bundles may offer. But one of the glaring differences as well is that while you include wireless and VIP you don't include it in your bundles. I'm wondering if that's because of the ownership structure of Rogers Wireless and whether you see that as an impediment to bundling in the future.

No, the bundles that will now be issued will match precisely what Bell's bundles are, and they include wireless in some of the cases and with the same percent discount exactly. And the bundles that will be phased out are cable only bundles that were from last year. Cable may well introduce additional bundles to replace those that are being phased out.

So there's no significant reason why you haven't had wireless in the bundles in the past then?

We have had wireless in the bundle through VIP.

Right, but not through your bundle one-price offerings.

If I could just add, as Ted indicated, wireless was a core part of the VIP package from day one. And while it may not be called a formal bundle at a certain price point that's because we wanted the flexibility of bundling any Rogers AT&T price plan. So at 10%, we were able to attract a much greater audience on to what I will call a cable-wireless VIP bundle. And today we have well north of 100,000 customers on that sort of product, billed on one bill. And that's still a very attractive offer for customers and it is growing.

Let me reassure you that the ownership issues are not a factor whatsoever in the area of bundling. Any other corporate activities, sharing and so on is approved by the respective audit committees. And we've never had an issue or a problem in that regard.

That makes sense. As a quick follow up though yourselves and Bell have seemed to have chosen that 15 to 17% range on your bundles as opposed to the VIP as being the sweet spot. Is that something you're comfortable with? Or do you think it may be too high relative to the benefits?

Our position is that the 10% area, which we pioneered six years ago, is an appropriate sharing of the benefits of bundling with our customers. If you're asking for my opinion, I would hope over time that bundles would be in that area. But we ourselves have not followed that in the cable-only bundles. And so we're going to do reduce the discounts on those bundles, and move into the area of the 13 to 17%, which hopefully over time will be reduced rather than increased. But we can't say that because we have competitors, and if they choose to increase, we will match; if they choose to decrease, we will match.

Makes sense. Thank you very much.

Operator, thank you very much for conducting the call. And thanks, everybody, for participating. As always, we appreciate your ownership and your coverage.

There's a rebroadcast of the call that will be on the rogers.com web site, if anybody joined late. So enjoy the rest of your day. This concludes our call. Thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.