Rogers Communications Inc (RCI) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Rogers Communications Inc. first-quarter 2004 results conference call. At this time, all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. (Operator Instructions). I would like to remind everyone that this conference call is being recorded on Tuesday April 20, 2004, at 12 PM Eastern time. I will now turn the conference over to Mr. Bruce Mann, VP, Investor Relations. Please go ahead, sir.

Thanks very much, operator, and thanks everybody for joining us on Rogers' first-quarter call. Spring is in the air here in Toronto, as we hope it is wherever you are.

As we do each quarter, we will spend the first portion of the call talking about and taking questions around Rogers wireless, and then the second portion of focusing on Rogers Communications. The two detailed earnings releases -- even longer than usual, if you can believe that -- for both Companies were made available earlier this morning. If you don't have a copy, you can find them on the Rogers.com Web site or on PR Newswire or on First Call. And you should review them fully in the context of the call this morning, especially the cautionary Safe Harbor language.

So, let's get started here -- with me this morning for the first part of the call is Nadir Mohamed, the CEO of Rogers Wireless, along with the following folks from his senior management team -- John Gossling, Bob Berner, and Rob Bruce; as well as Ted Rogers and Alan Horine (ph) and a couple other folks from Rogers Communications. Ted and Nadir wanted to make some brief comments, and then we will take your questions on Rogers Wireless for the first portion of the call. Then we will take a couple second break just to switch some people around in the room, and then we'll go into the Cable, Media and corporate section for the second half of the call. So with that, why don't you go ahead, Mr. Rogers?

I think you'll all agree that this quarter was a solid start to 2004 for Rogers, with continued strong growth in revenues, continued healthy subscriber acquisition and retention results.

(indiscernible) let me say we're competing well. Revenues are up 13.4 percent -- operating profit up 22.5 (ph) percent. The strength on our senior management bench here at Rogers, we recently announced the addition of Mike Adams, as CEO of Cable, reporting to Edward, who I think it will be a terrific edition to the Rogers team, and who brings some incredible wealth of experience on both the telephony and cable fronts.

We continue to build and strengthen the Rogers brand -- this quarter, Wireless began the transition from Rogers AT&T to Rogers Wireless brand. This is tremendously beneficial and exciting from an overall Rogers branding perspective. And I think the resulting clarity is already proving to be well-received in our markets.

To continue along the path of increasingly prudent financial management, we executed several significant debt refinancings in the quarter, raising U.S. 750 million of Rogers Wireless and U.S. 350 million in Cable at very attractive rates and terms. These refinancings, combined with the U.S. 750 million self registration -- shelf registration -- was filed during the quarter -- serve to reduce our cost of capital, extend maturities and provide significant financial flexibility going forward.

Still in front of us, amongst other things, is to continue to evolve the culture and operations of Rogers from a holding Company-centric view of the world, with several disparate operating Companies, to a unified, customer-focused operating Company (indiscernible) is more highly coordinated operating divisions and continue significant enhancements to customer service through common systems and processes.

I believe firmly that this will result in lower overall costs, continued reductions in product turn, and overall, in significant operating results over time. This is my long-term priority, and now I would like to turn it over to Nadir Mohamed to highlight the results of Rogers wireless

Thank you, Ted. And good afternoon, everyone.

Let me quickly touch on some of the highlights of what was a strong first quarter. In fact, our 8th consecutive quarter of greater than 30 percent growth in operating profit.

Before we get into the operating and financial results of the quarter, let me take you through some key first quarter initiatives. As Ted mentioned, in the capital markets, we completed a $750 million U.S. refinancing that opportunistically took advantage of favorable interest rates and market conditions, and will serve to both reduce our cost of capital and improve our financial flexibility.

Perhaps most visibly, we transitioned our brand to Rogers Wireless. We did this in conjunction with what has been a high-profile and well-received national advertising campaign, promoting our network leadership position.

And on the network site, there were a couple of highlights I would like to touch upon. First, we completed the deployment of GSM GPRS at the 850 MHz frequency across our entire network footprint. Which has been significant in improving coverage both in building as well as fringe areas.

Second, we made significant progress in the deployment of our Edge (ph) data capabilities. We will have full coverage in our top markets in the next few weeks, and coverage in our entire footprint by the end of the second quarter.

On the distribution side, we struck a very beneficial agreement with InterTAN, RadioShack Canada, which is in the process of being acquired by Circuit City. Subject to the completion of that transaction, we will extend our exclusive distribution agreement with 550 RadioShack stores. In addition, we will get exclusive distribution at any future big block (ph) Circuit City stores in Canada.

Most importantly in the quarter, we remained focused on our strategy of profitable growth, and this focus is clearly reflected in the solid results for this quarter. Network revenues up 18 percent, operating profits up 42 percent, and a 660 basis point expansion in our margin on network revenue. Driving our network revenue success are three key factors -- quality subscribers growth, churn management and ARPU improvement. Let me take you through the highlights of each one.

Firstly on subscriber additions, this is our best first quarter ever for both postpaid (ph) growth additions and net additions, with over 80 percent of our ads being on higher value postpaid customers. We added over 83,000 net postpaid subscribers in the quarter -- a 36 percent year-over-year increase.

With respect to postpaid churn, we achieved another decline to 1.73 percent for the quarter. This improvement came as we continue to gain traction on some of our customers facing (ph) initiatives.

Thirdly, we drove a 2.6 percent growth in postpaid ARPU, leveraging our continued success in wireless data and improvements in roaming and essential services. Clearly, excellent topline growth.

On the customer acquisition front, we managed to blend the cost of acquisition down over 10 percent from last year. This, combined with continued focus on cost containment, drove our 42 percent operating profit growth improvement.

With respect to capital spending, we added 68 percent year-over-year increase in Q1. This was the result of step function investments and network platforms to support GSM capacity.

Our CapEx is front-end loaded this year. To be clear, we are not changing our full year CapEx guidance of 400 to 425 million.

Net net, we are pleased with our strategic positioning and our operating and financial results for the quarter as they gave us a strong base and good momentum for the balance of the year.

With that, I will turn it back over to Bruce for your questions.

Alright. Well thanks, 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 wanted to quickly remind people we will cover Cable, Media, and RCI corporate on the second portion of call. So we would appreciate it if you could focus questions during this first portion on Rogers Wireless, and also, if you could limit your question to a particular topic so that as many participants as possible can have a chance to participate. We think that would be courteous. Operator, we're ready to take questions from the participants.

Thank you sir. John Henderson, Scotia Capital.

A question on your, actually, your EBITDA guidance -- your Q1 run rate is already well through the high end of your guidance for the year (indiscernible) any thoughts on increasing that?

That's clearly a strong start (indiscernible) the quarter. But why don't I get John to answer the question.

Sure. It's John Gossling. You are right. Obviously, we are quite happy with the quarter and the margin expansion. I think at this point we have not seen our competitors and what the market has done in terms of subscribers. So it is very hard for us to look at overall financial guidance when we don't have a clear view of subscribers.

But having said that, we understand your point, and we will be looking at it. I think that's probably all now until we see a bit more from the (inaudible) other two big guys.

Alright. Congratulations, great results.

Dvai Ghose, CIBC World Markets Corporation.

If I could follow on on the guidance question, please. I'm wondering -- last year, you were pretty conservative -- I think you raised your guidance twice after Q2 and after Q3 results, and obviously we're hoping that is the case. But the biggest risk seems to be microsell (ph) rather than the big PU (ph). I am wondering to what extent -- your conservative guidance, as it looks today, is because of microsell, and the extent to which you think that they had an impact on the quarter?

And also, finally, on the CapEx side -- if you could give us some greater clarity here -- traditionally Q1 has been a light, quick, CapEx quarter. Are you saying it's going to be seasonally heavy this year? Can you just explain why -- is it to do with Edge rollout, the 850 Overlay or what?

Dvai, let me start off with some remarks on your question on guidance and microcell, then I will ask Bob to give some more color on the CapEx being front-end loaded this quarter, this year.

So, on the guidance -- there is no question. We give guidance at the early part of this year, and it's based on our view of this year, really, being finalized at the end of last year. And we had put in expectations on what we think the competitive environment would look like.

Clearly, one of the items all of us are focused on is when will and what cities will (indiscernible) will be expanding into. And we have not seen them in the first quarter. I'm not sure at this point. I'll just say it's not public as to what, when and if they will launch. Our expectation, by the way, is that they will get into central Canada and launch -- (indiscernible) obviously not at liberty to give my view of when that might be.

That will have some impact but I will tell you -- clearly, when you look at the first quarter, we are pleased, -- the industry growth seems to be there. We're very excited about what we have been able to deliver.

And most importantly, deliver on a postpaid high-value side. So, we see strength there. We have seen strength in the data revenues. And all this with City Fido (ph) being in Vancouver.

Our extent (ph) in Vancouver was that there was a hit early on in terms of -- you could see the spike clearly coming from Fido taking loads. But it stabilized fairly quickly. And just to be clear, we have good growth in British Columbia -- not as good as the rest of the country, but positive growth in the province.

Having said that, one of the factors that will influence that our guidance will be our view of how aggressive and how many cities we think City Fido will launch. But that is only one of the factors to John's point. We would like to see the results from the other guys. But there's no question. At this point, we see the same numbers and have pretty good insight on the year, and the guidance is clearly conservative.

Bob, on the CapEx side maybe you can give some more color?

Sure, Dvai. We spent about 35 percent of our planned capital for network in the first quarter. And of that amount, about two-thirds was for switching and base station controller and softwares for capacity upgrades to prepare for the remainder of the year.

So, the dollars -- two-thirds of the spending in the quarter were in fact -- if you look at the hierarchy of spending in network capital, you would start at radio channels, followed by base stations, followed by base station controller's switches, and then software to support all of the above. Two-thirds of it was for the switching infrastructure that will support all the other capacity expansions for the remainder of the year.

Makes sense. Thanks very much and congratulations. A good quarter.

Richard Talbot, RBC Capital Markets.

Very nice numbers. When I look at the revenue momentum, it is among the highest that we have seen over the last two years, I believe. And the big part of that is the wireless data service. So I wondered, Nadir, if you could comment on -- (indiscernible) now represents 5 percent of your ARPU. Can you give us a sense as to where you think this can go in terms of percentage of ARPU over the next two years? And what kind of margins are driving off at (multiple speakers) --?

Sure. Obviously, Richard, we are very pleased. And the good news is it has been consistent -- almost every quarter we have been doubling year-over-year. And this is no exception. In terms of looking out, I have been on record as saying, about 10 percent growth or 10 percent of revenue coming from data would be what we would expect in two to three years. Frankly, that is starting to look conservative. So, probably on the front-end rather than the back-end of that statement.

You know, what really excites us is the balance of revenue and the data portfolio -- it is coming equally from the consumer segment as well as the business segment. You know, business segment really being driven by Blackberry. We had one of our best quarters on Blackberry in Q1. But that is being balanced with vertical applications that we have been focused on.

The business market looks good. On the humorous consumer side, SMS, Ring Tones (ph), gaming are all contributing SMS over $6 million this quarter, if memory serves me.

So, pretty good traction across the board.

And when we look at Europe being close to 20 percent, depending on the country, coming mostly from the backs of the consumer side, we feel pretty good about that 10 percent number.

With respect to margin, it's a hard one to answer, only because, frankly, the margins for the different products or segments that I described are quite different. SMS for example, there are some marketing dollars but uses control channels on a network side, is pretty good margin. On Blackberry, you would have to factor in a piece of the COA (ph), whereas with some of the other services you don't, because they come on existing customers. It's hard to give you a number, given our current mix, I would say, it's not very different from the voice side the business. But really, you would have to look at subcomponent growth to figure out what the margin would look like overtime.

And, Nadir, you feel comfortable you can continue to grow that overall ARPU, even as there let's say there is further pressure on the traditional voice business?

Richard, I think part of it also depends on stability in the market and to the pricing -- when I look at ARPU, I mean, there's a few factors that drive it -- pricing stability, how far and the penetration curve are we going to the consumer segment. And then, what's the growth in data and optional services, including things like roaming. Optional services this quarter were up 35 percent year-over-year, roaming was up 33 percent.

Clearly, we're having success as we drive the penetration to keeping ARPU levels up. And it's been on the backs of a relatively stable pricing environment. So, part of it will depend on being able to maintain stability in that market. But we're definitely encouraged with a 2.6 percent growth in the first quarter.

Thanks very much.

Simon Flannery, Morgan Stanley.

Could you give us some update on your relationship with AT&T Wireless and with Singular? As they move forward with their potential merger transaction? You have obviously started the rebranding campaign to move away from the AT&T brand. But how are the negotiations going and what do you expect might happen as regards -- one, that the state that AT&T has; and secondly, roaming relationships -- might they change materially over the course of the next year or so?

Simon, on the rebranding, obviously we launched and announced a rebrand before any changes that have been announced on the Singular front. So that was based on a command of the market, and knowing what's good for our customers and our market. So in that sense, not directly related, other than our view of the industry.

With respect to Singular, when you look at it today, our relationship has not changed. AT&T Wireless is our significant shareholder, remains so until there is a deal that is consummated, there is no change in our relationship for me to address at this point.

So, with respect to commercial agreements like roaming, it has always been our view that these are actually good for both parties. When you look at our roaming revenues and expenses, North America-wide, they are fairly balanced. So, we feel pretty good about those expanding along in their own right in terms of commercial arrangements. And I think, in terms of what might happen it's not for us to speculate at this point.

Thank you.

Rob Goff (ph), Heyward Securities (ph).

Could you give a bit color into the business marketplace in terms of subscriber growth and pricing environment?

Rob, on the business side, our priority has been twofold. One is the use (ph) market and the second one is the general business part. What we're seeing -- if you look at the spectrum of the business market -- it's pretty aggressive pricing on the corporate side. On the general business market, it seems fairly stable, which has been where our focus -- interestingly enough, one of the reasons we did not focus on the enterprise voice side is for exactly that reason. We think that's being pretty much turned into a commodity business.

Our approach to the corporate side has been really (indiscernible) centered into the data side. And we're having some really good success, winning accounts on the data front and then leveraging that to get in the voice side.

So, I will turn in a minute to Rob to give some color on the products that we have, that are working for us. But, generally pleased with the business market results for us.

I will tell you, though, it is a journey. It's not something that you look at quarter-to-quarter and go dramatic improvement. We have got a lot of work to do on the support and service side, whether it is the customer service queues for the business side, some of the Web-based billing and so on.

So we have got some work to do to really make, kind of, sustaining improvements in our share there. But maybe Rob can talk about some of the products.

No. I would just add that -- to Nadir's comments by saying that we're very happy with the pace of growth. Particularly in the GBM (ph) segment. As Nadir touched on earlier in the call, we have had -- continue to have terrific success with Blackberry. Blackberry being a critical and helpful tool in terms of finding our way both into the GBM as well as the corporate accounts.

And also delighted to have recently launched the Trio 600, which is probably one of the hottest devices out there right now. Heavily sought-after by the GBM space. That is giving us a lot to talk about with our GBM customers and our prospective GBM customers.

We continue to feel that we have a device advantage, generally, on handsets as well. And some really exciting ones coming in the next days and weeks, which we will continue to leverage. And we continue to focus on innovating around (indiscernible) and we will have some more news on that shortly, on the business space. So, very happy overall with the results, though.

Would you say that your business subscriber growth would be on par with your overall postpaid subscriber growth or stronger than?

Rob, (indiscernible) careful. As you notice throughout our answer, is that we don't give a specific number on it. And I think that would be disclosing of some competitive stuff. We shouldn't lose sight, by the way, we have had great growth on the overall numbers. So a large part of that is being driven, obviously, with consumer plans for consumer segment.

Okay. Thank you.

Paul Pew, GMP Securities.

Just on the postpaid base, you described a little bit of success -- was on the churn, was attributable to the amount of contracts that you've been able to get your base on. Can you just tell us what percentage of your postpaid base is now on contracts? And what would be the blended average length of time of these subscriber base under contract, compared to last year's Q1 results?

Let me take the first part of the question, it's Rob Bruce. 76 percent of our postpaid base is on contract. Of that, in the high 80 -- I believe it's 87 percent would be on two-year contracts. The remainder would be on one year contracts. John, you want to grab the second part?

Yeah, Paul, I don't have a specific number. But clearly from the numbers that Rob just gave you, it would be quite -- training quite closely to 2 years, based on that 87 percent mix of the contracts being on two years.

Yes, the other thing we should highlight is we will be aggressively rolling out three year contracts nationally. Which we had great success in a couple of test markets. So we will move the needle on that over time.

But it's important that you take away that customers are ready, willing and desiring contracts, and that is what we're finding in the channels. But our focus on managing churn is much more than -- much more than focused on people getting people on contracts. And we continue to make significant inroads on a whole bunch of other fronts in terms of recognizing different values of customers, and what they are looking for, and making sure that we're delivering against that. So, a lot more to it than contracts.

And just a related churn question on prepaid -- any of the increase in the churn Company initiated? I.e., did you tighten credit policies or did you do anything specifically that would have caused that prepaid churn number to snap up as much as it did in the quarter?

(inaudible) It's Rob Bruce -- let me take the prepaid question. Our prepaid churn for sure is higher in the quarter. As you know, postpaid has been our primary focus.

Several of our competitors continue to persist with really aggressive activity on prepaid, both low per minute pricing, and what we think are excess handset subsidies.

We're seeing some result in churn in our low value prepaid customers. We are committed to managing the lifetime value on prepaid and not subsidizing handsets and not responding too aggressively, because we believe it upsets the delicate balance that we run between prepaid and postpaid. We have had a lot of success there and we do not to cannibalize those profitable postpaid customers.

However, we have made some changes that are already starting to bear fruit. We have launched an off-peak rate plan, that has a 39 cents peak minute, and a 5 cent off-peak minute that is starting to get some good traction. And on our new GSM devices on prepaid, we're starting to see significantly better ARPUs. We will continue to kind of refine our offerings, try to slow churn, particularly of the attractive prepaid customers, and stay on a trajectory of profitability on prepaid.

Okay. Thank you very much.

John Grandy, Orion Securities.

Just a follow-on question on the capital expenditures. Is it part of the plan to spend any money on CapEx that might complement the parent Company's investment in voiceover IP? And if so, would any of the spending in this quarter relate in any way to that planned product launch?

No, John. The quarter spending is really the variance that we talk to is really addressing the GSM capacity, and really is related to (indiscernible) functional investment.

If you sort of followed Bob's logic, you end up adding channels until you get to a point where you have to add -- without getting too technical, BFCs and MFCs, and that's what we ended up doing in this quarter, which is the real reason. Frankly it was planned. And it just so happens, this year, we've actually (indiscernible) the capital based on where we were in the network cycle. But that spending is not related to the local (indiscernible) initiative.

But then, looking forward, are you going to be working hand-in-hand with RCI in terms of rolling out voiceover IP and letting them use portions of your network equipment and so forth?

Well, John, we are clearly looking to work with our group of Companies in terms of making Rogers successful on local telephony (indiscernible) -- local telephony (indiscernible). The side that we are more involved with is tracking on the billing front, where we're using our billing systems to help support that initiative.

With respect to capital, you're actually addressing a question that I will respond not directly but around the view that even on the wireless side, clearly, as we look out on the horizon over the next couple of years, we see the ability to go after the wireline local business, as much as some of the other players are. And frankly, we see that as something that we can offer on a differentiated basis. There are people today starting a trial wireless wireline types of technology to actually address that market. And we're not going to let that one just go by us.

So, that's where I think -- as we spend more time on that kind of (indiscernible) you'll see some investments that will help position for that market. But there's nothing today that we're doing that is explicitly related to the cable initiative for local telephony.

Okay, thanks, Nadir.

David Lambert, TD Newcrest.

On your performance in BC, (indiscernible) started offering some larger bucket (ph) plans at $45 for 700 minutes, plus free evening and weekends. But I couldn't find such a plan for you guys. Did you guys offer a plan to counter Fido in Vancouver?

David, we did not offer that specific plan in the market on the acquisition (indiscernible) and my understanding by the way is that Telles (ph) is no longer offering that, subject to your own checks. But that is (indiscernible) that's what our checks would indicate.

So, despite not offering these kinds of plans, you guys still had positive performance in B.C. Using that experience, as Fido gets rolled across Canada, would you look to adopt a similar strategy?

David, first to be clear, my reference to positive growth -- it's true that it was positive, but -- the growth wasn't near as much as what we experienced in the rest of the country. So put that in context.

And the other thing is -- I think those of us that have been around in this business a long time will know from, not only the wireless experience, but also the wireline side with the old $20 plan from Sprint on long distance, that, boy, if you're offering that kind of plan where you have a fixed amount of revenue with minutes going through the roof, you could get yourself into serious trouble. And we have seen Fido changed their plan somewhat, from the $40 plan to 45. Seen them go to contract.

I think there is some recognition there -- nowhere near what I think they need to do. Having said that, I would not want anybody to walk away with (indiscernible) other than, hey, there was an impact -- particularly in the first period. Don't forget, the references were (ph) to this quarter, and their plan was actually introduced in October, if I remember rightly.

So, you sort of have different phases of a plan's success in market. There is an early phase where there's more significant impact. It then stabilizes.

But I would say that that is not the end of a planned cycle. And one of the things we're always looking at is -- as that plan stays longer in market, you have it understood more broadly in the consumer segment, particularly.

So, I think it's too early to sort of say that Vancouver is behind us. Is not, but we're still growing. So, beyond that, I'm not going to speculate on how we would respond should they expand beyond Vancouver -- which we expect them to.

Okay. And just a follow-on. Did you -- is the seasonality of AARPU still the same as it was before? Even though you have got layers of AARPU coming from data and other services, and you have a higher postpaid mix?

David, it's John Gossling. Certainly, it's hard to forecast exactly for the balance of year (ph) what it is going to be. But, more or less, I would say, yes. Particularly in the (indiscernible) base of customers that we have.

But you're right -- things like data and (indiscernible) GSM roaming will potentially be in a little different this year than (indiscernible) in the past, just because those are newer revenue streams for us.

But, again, on the GFM issue, that tends to follow traffic patterns which are quite similar to our own customers. What I'm saying there is that the summer will be high watermark for that type of revenue. Which is similar to our airtime revenue for our customers. So, I think the answer is, yes, but it may not be exact, obviously.

Okay, great, thanks you very much.

We only have time for one last question -- Greg McDonald (ph), National Bank Financial.

If I can jump back just quickly to the churn discrepancy between the prepaid and postpaid plans. I wonder if you just might mention, and I apologize if you have already, whether you are seeing migration out of prepaid into postpaid, does that account for some of the very strong numbers in post?

And then secondly, if you could just give us a little bit more insight as to what your pricing plans are for the prepaid segment? It is clear that you continue to push pricing up. That's most likely having an impact on some of the churn.

But is your plan to continue in pricing strategy on an average basis to push pricing up on the prepaid plans? And do you think that is going to continue to be, or are you planning that to continue to have sort of 3 percent plus churn impacts on that segment?

Greg, why don't we get John to answer your question around the migration, and then maybe, Rob, you can talk about the pricing?

Yes sir.

Greg, it's John. On the net migration between pre and post, it's a very, very small number. I think less than 500 in the quarter (ph). And that actually does not count to churn anyway. So, no, that does not have an impact at all.

So, in terms of pricing, I guess our general commitment, as we said, is to profitable growth of all products. Do I think we're going to take prepaid pricing up in the long run? No, frankly, we will make the appropriate adjustments to stay competitive in the market, keeping a close eye on the profitability of the plans and not subsidizing phones (ph).

So then your bias is that at some point the churn numbers should be coming down in prepaid -- those are pretty big churn numbers.

Agreed.

Okay. Thanks.

Operator, thank you very much for conducting the first half of a call. If you would -- you and the audience as well, obviously, please just give us a few seconds. We will shift some people around in the room here. I will start the second portion of call. I appreciate your patience in advance.

Alright operator, we are ready to go back on.

Thank you, sir.

Again, thank you for your patience. We will focus the second part of the call on Rogers Communications excluding Wireless, which we obviously just covered.

With me today in that vein are Ted Rogers and Alan Horne (ph); as well as Edward Rogers, the CEO of Rogers Cable; and from his team, Donn Huff (ph), Mike Lee (ph) and Germano Carroll (ph); as well as Tony Viner and Roy Nixon (ph), the CEO and CFO respectively of Rogers Media; as well as a couple of other folks from RCI as well.

So, with that, operator, we will dive right in. We are ready to take questions for the second part of call. As with the first part, we would appreciate if the participants could limit the topics to one, so that we have time for as many questions as possible. Please go ahead.

Your first question for the second portion -- Vince Valentini, TD Newcrest.

I would like to focus on the competitive environment and prices. Maybe specifically, you could talk about the NDU (ph) segment with bells (ph) for the DSL? Can you give us an update on whether they're having any success, and you're losing any customers there? And (indiscernible) I guess the broader question of rate increases. Would you feel comfortable enough given how strong your basic subs have been to raise rates later this year?

Vince, thank you very much. Edward taking the question. First, on Bells (indiscernible) to (indiscernible). As we have mentioned in the past, Bell has been a competitor to our cable business for over five years now and DSL represents another way for them to get at those customers. But it is not a new competitor to us.

They were always a formal competitor. But we have been, through the agreements we have and the excellent team we have in that area, and the compelling products that we offer, we have held up very well against them.

DSL is limited in its ability to carry high-definition PBR (ph), and the BoD (ph) products which are growing and are going to be of increasing importance to customers.

And so I think we have held our own well, and we will continue to compete against Bell, I'm sure, for the next five years -- we have the last five.

On our plans for rate increases, I think it's fair to say, as we have mentioned prior, that this year and going forward it may not have an appetite to have the same amount of rate increases on the Internet business and cable business, but we are forecasting a rate increase on some of the bundles, and our basic cable customer, depending on which region of the country they're in, and what rates they currently have. We don't generally go into specifics, Vince, until we have talked to our customers at the time as to what those rate increases are.

Okay, thank you.

Ben Flinburn (ph), Morgan Stanley.

I wanted to ask on the IP telephony plans if you could give us an update on the regulatory process? If you feel the changes have come according to where you were hoping they were going to be in terms of a mid '05 launch -- are there still things out there that are needing some modification from your perspective versus -- related to Bell -- and how they're pricing and how they are bundling?

And if you could, I think Bruce, you said Mike Adams is not on the call, but if there has been any change in the plan, or any insights (indiscernible) going along, I realize it's early on the voice side -- but whose experience in other markets that may have (indiscernible) your analysis one way or another in terms of cost or deployment or pricing or anything along those lines? Thank you.

Thank you very much. I'll start with Mike Adams. It is his first day on the job. We are confident that he is going to add a tremendous amount to the team and allow us to meet our expectations and contribute a great deal, especially on the telephony side.

As I said, being his first day on the job, he will be on the call in the next quarter, and people I'm sure will meet him in between then.

On the regulatory side, that has been one of the conditions that we have looked to to pave our way into local telephony. There has been some progress on some of the issues, and we're still waiting on others. The main ones we focus on are one that an incumbent should not be able to bundle a monopoly service such as local, telephony with its competitive products.

There was a recent decision to limit the combined percentage off out of those -- of a combined -- competitive product you (indiscernible) per percent. We remain adamant that we think that a monopoly product should not be able to be bundled in.

Second, a single point of interconnection between the cable Company and the incumbent local phone Company for traffic as opposed to interconnecting at every central office. I think we still have some work to do there and a decision will be coming.

We would like to extend the windows around the incumbent winning back customers when they do lose customers. And we have seen some traction there. Extending those rules from three months to 12 months, and we're very pleased with that. No targeted price reductions on the monopoly services. And so, if a phone Company does raise their rates, they cannot target to where they are seeing competitive pressure. But they would have to do so to all of their customers. And a continued relaxation of the win back efforts for the local cable Companies. So as we have had a lot of competition in our business gives us better the ability to compete as we enter into the local space.

So that is a nice list of -- a nice wish list there. Do you think your chances are pretty strong to get all those? And if not, which ones of them are sort of walk away, or if any, from your perspective on deployment?

As I say, we have gotten some traction and the ability to see them bundle their competitive products and their monopoly products. There has been action around the extended win back side. We're committed to our launch in 2005, but I think we will measure the scale of (indiscernible) deployment and continue to work with the federal government on providing a better traction as we go forward.

That's helpful. Thanks a lot.

Tim Casey, BMO Nesbitt Burns.

To items. One, there is some discussion in the release that you will be consolidating the Blue Jays beginning in '05. Can you give us a run rate on revenues and EBITDA for '03, and what your expectations are on '04 for the impact of the Blue Jays when it's put into -- consolidating your financial statements?

And second, I guess a question for Mr. Rodgers. There is continued endless speculation regarding media consolidation -- I guess straightforward. Do you have any appetite for Toronto One (ph) and where are you with respect to the potential to spin out the media Company if that is even on the table. Thank you.

Just on the latter, no comment on speculation -- whether it is in wireless or cable or media or the fast food business.

Tim, on the first one, just so that we're clear, of course, the bottom-line impact of the Blue Jays is already on our income statement through the equity pickup.

In terms of the consolidation -- from a consolidation perspective, it will have no impact on the bottom-line earnings. In terms of the EBITDA impact, I think our guidance in this year, in terms of (indiscernible) the funding requirement, was in the $20 million range, which would be roughly equal to -- it's a equity loss as well. EBITDA loss would be roughly 50 percent of that.

In terms of revenue, I think we again, we disclosed the revenue for the Blue Jays in our annual financial statements. And again, I think in terms of '03 and likely '04, it will still be in the same type of range of around 120 to $130 million.

Thank you.

Randal Rudniski, Credit Suisse First Boston Corporation.

Can you discuss the factors that are driving the increase in selling and marketing expense in the quarter? And can you comment on whether you expect these higher spending levels to persist throughout the year? Thanks.

It's Edward, thanks the question. In the first quarter, on a sales and marketing, there was a number of things. First, we have been aggressive in trying to sell and pickup customers in the first quarter. We started learning in first quarter of 2002.

This year, I think some of the differences is Bell was in market this year -- not as much last year. And our offers were more aligned and more competitive.

We continued with our, I'll call it our tactical advertising to get and achieve customers. We have also started on a program to do some more product-based advertising to educate customers to the difference and to the reasons why to buy Rogers, and keep our products. And you may have seen some of the things we have done -- some of the deployment of DoD.

And lastly, we have continued to invest in our distribution, especially for cable on the retail side. Working through our partners on the wireless side, but to increase our distribution on the retail side of the business, which is, I'm confident, going to show benefits to us as we go through 2004.

I think as we look forward to the rest of the year we're going to continue a strong focus on the sales and the marketing side of the house, but do so in a capacity to preserve the margins that we have and always build on those as we go forward.

Perfect. Thank you.

Glen Campbell, Merrill Lynch.

My question was on CapEx. It was fairly light for cable in the first quarter. We know the number for the year is bigger. Could you give us a sense of what the distribution, if the span (ph) is likely to be through the year?

Sure, Glen. It's John Hoff. I will start off, and then (indiscernible) might want to expand on it.

As you know, what we indicated in the information release is we have not really started the ramp up spend on telephony deployment yet. So that will be the most significant contributor in the back half of the year.

As well, we have -- as our subscribers grow on internet and digital products, we have some expansion spending that we will be carrying out in the next three quarters. And we will be completing the 860 upgrades in the rural (ph) rebuilds that we mentioned last year. And then, just as you answered (indiscernible) normal increase in new development. I don't know if there is anything else that Dermot (ph) wants to add to that?

Just with respect to the telephony -- in the beginning of the year, we have been completing our planning for telephony and the vendor selection. So, we would expect to see the spending on telephony to begin to kick-in in the second half of the year, and ramp up through the year. And therefore we'd expect higher spending, both on the latter half of the year.

So, sort of a steady upward ramp, in other words, through the year -- through the quarters. And related to that, are you thinking at this point about migrating all analog channels over to digital at some point? And could you give us your thoughts on timing and pros and cons?

I think -- this is Mike Leigh (ph). I think in terms of a complete migration, where you actually have a turning off of the analog services, I think that is, in terms of the timing of that, that is well, well (indiscernible) the future. But we're taking a look at different things we can do with regards to offering improved service on digital. But at this point we have nothing to talk about right now.

Okay. Thank you.

Paul Pew, JMP Securities.

Just a question on voice over IP -- and I appreciate, obviously, that you're still working on finalizing the strategy. But, firstly, on the operating costs in preparation of launch in mid '05, would you expect to differ that and amortize? Or will you expense as incurred?

And just from a better understanding -- why the formation of Rodgers Telecom as a wholly-owned sub of RCI? Can you just talk about the advantages of that structure versus an operating unit of Rodgers cable, which would appear to be the unit that is going to most benefits from voice over IP selling through to their subscriber base? Thanks.

Let me just answer the second one first. You can always put the Telecom Company and merge it with the cable at anytime. That's not a problem. I think we got into it because we were working a lot with the wireless Company as well on this. It's already in the telephone business. We think we have a rare resource that no one else has in the cable business in North America. And, for the first part of the question, (indiscernible) answered.

Just on the initial costs, Paul, as you know, they (indiscernible) start up costs are becoming tighter. We will be reviewing these in time, and with our auditors in terms of their (indiscernible). It's likely that some of them will be deterred.

Thanks very much.

Richard Talbot, RBC Capital Markets.

My question is a bit of a hybrid one because it relates to Rodgers Wireless. But given the controlling position -- clearly, we've seen a very sharp improvement in the free cash flow. And I wondered if you could comment on how you would like to see that free cash flow deployed? And are there any prospects for initiation of a dividend?

Well, it's Ted, I'm a great believer in dividends. But, we are just concentrating on trotting the business and working at it. And we have not really thought of what we might do, apart from paying down debt. Which we have been doing under our group (indiscernible). So you caught me by surprise a bit, because I think we should just keep working away and sticking at it.

(indiscernible) Q1 results were excellent. But they were still not an environment where the impact of microcell (ph) and other (indiscernible). So, I think it was still in (indiscernible) gates.

And to clarify, there is nothing in your lending agreements, though, that would prohibit an initiation of a dividend?

It's Lauren Daly (ph) -- no, there is not. The limitations on dividends in our public indentures are loose, to say the least. We have lots of room. And under our bank loan, we can go up to four times debt to cash flow in wireless. Under that, we can distribute all we want.

Thank you.

Dvai Ghose, CIBC World Markets Corporation.

A quick question on the cable margins which fell slightly, especially if you don't include the video stores. You saw from 42.1 percent to 41.6. Despite pricing increases in the year -- over last year. I am wondering why? And to what extent do think those margins will be further pressured by telephony? Or will you be reporting them as a completely stand-alone item as part of Rogers Telecom?

Dvai, it's Edward here. Thanks for the question. I think as we had indicated, we had forecasted an investment in 2004 in the sales and marketing area of our business. And on the network operations side of our business.

We do continue to see some very positive cost trends in some of the operating metrics, that we see in terms of the percentage of basis calling on the various call center types percentage of customers that are needing a truck role. So what I call is the recurring cost trends of the business. There is a lot of positive trends that are coming in.

Some of the spend that we're doing, I guess, on the ramping up of the sales and marketing, is a more permanent (indiscernible), as we are establishing a better presence on the retail site. But others, where you're going in and trying to make a splash on DoD and educate customers to what a new product is -- isn't.

I think we look at our margins and will look to preserve our margins and always build on those. (indiscernible) the results of the first quarter, I mean, we're still in line to meet the guidance that have given. And, we continue to be very focused on the bottom line and on the costs that drive our business and we will continue to do so as we go forward.

And will the margins going forward reflect telephony, or will they be a stand-alone business unit -- both financially as well as on a reporting basis?

I think there will be a telephony component which will impact the Company, but there will be the ability to split that out -- so you can see how, I'd say, the existing cable Company is doing, and what the overlay of telephony does on a cost basis initially, and does for us on an opportunity basis as we go out.

Thanks very much.

Rob Goff, Heyward securities (inaudible)

My question would be on the cable where you added 50 people -- full-time equivalents. Should we extrapolate that trend or is that, once again, once again, just a front-end loading to increase the sales marketing expense?

That is a trend. I do not have it broken out and (indiscernible) but I think that is a trend on the sales and marketing side.

We're also making investments in our -- which I guess is technically part of the sales area -- but our business segment as well. And there are continued rollouts on the video stores side. I don't think that anticipates that.

I think, as Edward said, between the business, sales and marketing, that covers good 60 (ph) percent. Part of the growth is just due to some vacancies last year-end. We were short in some of our areas, such as credit functions. And some of the other growth just relates to the growth in subscribers or call center support staff goes up, as the subscribers go up -- that pretty much explains it. And I think the answer is, no, you will not see (indiscernible) grown (ph) per quarter.

Okay. Thank you very much.

Your last question comes from Greg McDonald, National Bank Financial.

Just a quick one on programming costs. You saw the G&A expenses up about 8 percent in the release implies that a good portion of that was programming. I can anticipate that a lot of that is volume-driven through your digital sub-growth. I wonder if you might comment over and above the volume side -- or, first, acknowledge that if that's the case? And then secondly, on the pricing side, were there any major renegotiations of programming content in the quarter? And going forward for the remainder of '04, are there major renegotiations coming up that could impact numbers?

It's (indiscernible) once again, I will start off on this one. The first part is absolutely volume driven. We have more and more digital subs, and that is driving a good chunk of our increase in the cost of services.

There were certain CRTC decisions made last year that increased some costs -- some regulated costs to us. As well as there is some ongoing contrasted increase -- normal course of business, I would call them -- for a handful of our suppliers.

So, I think it's fairly steady-state. There is nothing big and unusual that has jumped up in our programming services. And I don't see anything on the horizon to indicate cost for (indiscernible) would be something large (indiscernible).

Okay, so we're still thinking mid single digit increases in rates for content? That's your --?

Right.

Great. Thanks, guys.

Operator, thanks very much for conducting the call today. And tell the participants we appreciate your interest and your coverage and your ownership. And on behalf of the management teams across Rogers group, we hope you found today's call valuable. And if you joined the call late, there is a rebroadcast on the Rogers.com Web site.

If anyone has additional questions, or there were people in queue that did not get a chance to ask a question, as always, feel free to give myself or Eric Wright (ph) a call. We will be available for the rest of the day. Thank you very much. This concludes our call.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating and please disconnect your lines.