Rogers Communications Inc (RCI) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Rogers Communications, Inc., second 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. If anyone has any difficulties during the conference, please press star-zero for operator assistance at any time.

I would like to everyone that this conference call is being recorded on Wednesday, July 21st, 2004, at 10 a.m. Eastern time and we'll now turn the conference over to Mr. Bruce Mann, VP, Investor Relations. Please go ahead, sir.

Thank you very much, operator, and good morning, everybody. Thank you for joining us on Rogers' second quarter 2004 earnings release call. As we do each quarter, we'll spend the first quarter of each call discussing and taking questions on Rogers Wireless and then the second portion of the call focusing on Rogers Communications ex the wireless division.

The detailed earnings releases for both companies were made available this morning. If you don't have a copy, please get one. You can find them on the rogers.com website or on PRNewswire or on FirstCall. Please review them fully in the context of the call because the cautionary safe harbor language contained in those also applies to our discussion on the call today.

So getting started with me here for the first part of the call is Nadir Mohamed, the CEO of Rogers Wireless, along with, from his senior management team, John Gossling, Bob Berner and Rob Bruce. Also Ted Rogers is conferenced on remotely with us this morning and Alan Horn and a couple of others from Rogers Communications are here in the room with us, as well.

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

Good morning and thank you for joining us. I think you'll agree we've delivered a solid first half to 2004 with continued strong growth in revenues and continued healthy subscriber acquisition and retention results.

Overall we're competing well, though I want us to do better. We're doing so with good financial performance. The quarter's revenues are up 15%. Operating profit is up 20%. Congratulations, in particular, to Nadir Mohamed and his team. We also continued to de-lever during the quarter and add to our financial flexibility with the $250m equity issue in June.

Operationally, the quarter stands out in my mind as the kind of quarter that really personifies Rogers from the perspective of product innovation and firsts in the market. Consider what we've introduced for Canadians in just the past couple of months.

First, the launch of our Rogers Yahoo! integrated broadband user experience, which Edward and Mike and their team did in six months, soup to nuts, from when we signed the agreement to when 100% of our Rogers hi-speed Internet customers were moved across and have access to the new platform and all of the new services. And for anybody who's seen it, it's an absolutely phenomenal service.

Second, the deployment nationally by Nadir and his team at Rogers Wireless of our 3G edge network, bringing the absolute fastest wireless data speeds in the country to Rogers subscribers.

Next, the first 5 megabit residential hi-speed Internet service, called our Extreme service, launched in Rogers Cable serving areas. And the launch of the first English-language subscription VOD offering in Canada with our-- the Movie Network on-demand service.

And the next is the introduction of the first HD DVRs, high-definition DVRs, in Rogers Cable territories where you can watch on one channel and record on another channel, which is quite unique.

At cable, on the content side, I think we've launched more new digital television channels this past quarter than we even had channels in total on Rogers' first cable television system.

And finally, at media we're seeing new format launches as we've invested in driving industry-leading growth rates such as Jack on the radio side we had a 22% top-line growth and new magazines are on the way.

These are just a few examples from a period of only a few months. When I think about why we've succeeded over the years and why we'll continue to succeed in the future, it's because we build great platforms that anticipate the future and then continually innovate on them and we've proved to our customers time and time again that you have to be with Rogers to get this type of material.

I'll just comment quickly on two other things that have come up. First is a very pro-competitive decision from the CRTC in resolution of their Network of Networks initiative, something we've asked for quite some time. It says that cable companies don't need to interconnect with the telcos at every single one of their central offices to change telephony traffic. This is going to be helpful for us, both operationally and financially, as we deploy our cable telephone initiative. It significantly reduces the number of locations where we need to physically interconnect with the public-switched telephone network. We're progressing on our cable telephony deployment with Mike Adams and are, at this point, very close to some of the key vendor selection and interconnect supplier decisions.

The second item is the announcement a week ago by some of the world's leading telecommunications operations where we were fortunate to be included, forming an alliance to accelerate the development of fixed mobile convergent standards, products and services. I think it's exciting that we now have some of the largest and most advanced telecom providers in the world putting their resources and focus behind converging the distinctions between fixed, broadband and wireless networks and going to the equipment community with a single voice and a set of standards, much like the cable industry does through CableLabs with DOCSIS. I don't think there's any company better situated to benefit from this trend than Rogers with its ownership of both wireless and cable assets.

Lastly, as we announced two days ago, AT&T Wireless has let the 81-day clock lapse as it pertains to their exploration of options to sell their 34% stake in Rogers Wireless. We don't have any comment on why they may have decided to initiate the process or why they subsequently decided to let it expire without taking action, but from our perspective it's business as usual unless or until they one day decide to start the process from scratch.

I'll stop there and turn it over to Nadir Mohamed to say a few words about the excellent quarter that he and his team have had at Rogers Wireless.

Great. Thank you, Ted, and good morning, everyone. Let me quickly review just a few of the highlights of this quarter, which marked our ninth consecutive quarter of greater than 30% growth in operating profit. Network revenues were up 20% and operating profit was up 36%, a 480 basis point expansion in our margin, year-over-year.

Our success on the top line continues to be driven by quality subscriber growth and ARPU improvement. Let me take you through the highlights of each one of them.

On subscriber additions, this was our best Q2 in more than five years for both postpaid growth and net additions, with over 80% of our gross loads being higher-value postpaid customers. We added over 88,000 net postpaid customers, a 17% year-over-year increase.

Our success in wireless data, coupled with the continuing growth in roaming has driven the 4.3% growth in postpaid ARPU.

So overall, we're really pleased with some excellent top-line growth.

On the sales and marketing front, we recently made several important enhancements to our end-market offerings. We added phone-to-phone capability to our picture messaging product and created a personal online album for our customers. And Ted made reference to this, the completion of our edge network rollout has enabled the launch of the most faster Sony Ericsson wireless data card and will underpin a new generation of applications like video and music streaming.

And reinforcing our commitment to retention, this month we added three-year contracts as an option for our customers nationally and while it's still, obviously, early, they-- we are approaching about 60% of postpaid gross additions on three-year contracts.

Finally, we remain committed and disciplined in our response to the City Fido launch in Toronto and continue to drive strong results through the end of the quarter.

On the cost side, the blended costs of acquisition or COA rose by less than 3% from last year and it's largely a result of the increased advertising related to the rebranding initiative for Rogers Wireless.

With operating expenses growing at less than half the top-line growth rate, we drove excellent margin expansion to achieve the highest quarterly margin level in more than five years at 41.2%. Net/net with cap ex down 14% year-over-year, we delivered nearly $80m of growth in free cash flow before working capital changes.

The solid first half of 2004 gives us a strong base going into the back half of the year and has led us, as you can see in the release, to increase our guidance for the full year on both revenue and operating profit.

With that, I'll turn it back to Bruce for your questions.

Thanks, Nadir. Operator, we'll be ready to take questions on Rogers Wireless from the participants in just a couple of seconds. Before we do, we want to remind folks that might not have been on our previous calls or on at the beginning of this call that we'll cover cable, media and Rogers Communications corporate on the second portion of the call. So we'd appreciate it if you could focus the questions during this first part of the session on Rogers Wireless specifically and also if you could limit your questions to a particular topic so as many people as possible have a chance to participate. I'm sure we'd all appreciate that.

So, operator, with that, why don't you kick off the Q&A for us, please?

Thank you, sir. One moment, please. Your first question comes from Jeff Fan from UBS. Please go ahead.

Thanks. Good morning. A quick question on your guidance. Can-- Nadir, can you talk a little bit about the-- your assumption regarding the industry structure that's behind the guidance increase?

Jeff, thank you, and obviously these are sensitive times given the fact that Microcell's in play, at least from Telus' formal offer. So I'll couch my words in a very general way to say that, you know, what we've seen in the last year is pretty strong growth. Postpaid loads for the industry and particularly for ourselves have been very good. Churn rates have been coming down and I think, most impressively, if you look at ARPU it has been growing steadily in our case and in this quarter actually was up on a blended basis about 7%.

So that's the context going into the back half of the year. Clearly, as we look ahead, we know City Fido was launched in Toronto latter part of May. It is our expectation that City Fido will launch next and, you know, certainly the rumor would say Montreal, but we expect other cities to be added over the course of the year. We know that on the pricing front, Bell's been aggressive on bundles.

So these are some of the things that we factored in, but generally our view is that, you know, subject to what we see being released by the other players that this will be a strong quarter for the industry and so that extent, you know, we're confident going into the year that this will be a pretty good for wireless generally and particularly, obviously, for ourselves.

OK, great. Thanks.

Your next question comes from Madhav Hari from Westwind Partners. Please go ahead.

Thank you, guys. First-- I've got two quick questions. The first one is with regards to the bad debt expense. There was some mention in the press release. Could you put some color to that? And I have a couple questions on cap ex?

I'll lead off and then maybe John can add. I think a couple of things on the bad debt or collections. It's one of the areas that we had an increase in cost and made reference in the release and I think there was a couple of things. One is, the-- what I would describe the blocking and tackling, we've got to do a better job of collections than we had in the last couple quarters and to that extent we've made some changes that will take a few months to work through, but I'm confident will lead to improvement.

The other thing is, at a more generic level, I think if we look at the kind of mix as we get deeper in the penetration and particularly in the youth market, we would see that churn could be slightly higher with the youth market. The important thing that we've learned and are feeling very good about, by the way, is that the ARPU profile of the youth segment is actually pretty good. So I think, you know, I would describe it as a few months before we get out of this but in terms of the slightly higher expenses.

Beyond that, John, anything else that you want to add?

No, I just-- on the churn side of it, the churn year-over-year for involuntary or non-pay reasons is up about 7 basis points. So it isn't a huge increase, but it's certainly a trend that we're seeing that we're concerned about and that's why it was mentioned in the press release.

Could you guys also talk about what proportion of your postpaid gross adds were in the family and the youth segment ballpark?

We don't give a specific number but clearly, you know, we are feeling very good and are being very successful with the family plan. So we see that as a great opportunity for us.

Fine. On the cap ex side, you guys are at $216m for the first half of the year. You guys had talked earlier that the cap ex was going to be front-loaded. Are you guys still looking at $400m to $425m cap ex for the year and if you are, then where is the cap ex going towards?

First off, hats off to you because you managed to roll in three questions and that's great, but just in order to make sure that we roll forward, I'll answer, obviously, this question, then we'll move on.

On the cap ex we didn't change the guidance and, obviously, that gives you comfort that that's where we see the numbers coming in. And I think in the first quarter we were higher year-over-year and we mentioned the fact that, you know, our view was that was a step function increment in the first quarter and, as you can see, in the second quarter that's exactly what we had talked about where it's actually lower, year-over-year, at $85m compared to somewhere in the $100m range the year before.

OK. Thanks, Nadir.

Thank you.

Your next question comes from John Henderson from Scotia Capital. Please go ahead.

Hi. Quickly on City Fido, I wonder what sort of comments you can make about impacts that you're seeing there on churn on any-- have you made any price response in the market, things of that nature?

Sure, John. I'll lead off and then ask Rob to add any specifics. Generally, you know, the Vancouver experience was useful for us because it gave us a sense of what to expect in Toronto and, obviously, you know at the most general level I'd have to say that, you know, the market impact -- and I'm not talking about Rogers, but my view of the market impact for the industry -- has been less in Toronto than in Vancouver just because in Vancouver it was the first launch and there was a lot more noise, seemingly.

In terms of what we've found, it's fairly early, but generally speaking parallels to what happened in Vancouver in the early phase. Some dropoff in loads and higher churn, but that seems to have tapered off. I think the thing that we've shown is that we can be disciplined, even in the face of City Fido. So, as an example, the $40 plan -- sorry, $45/700 -- is not something we put in market on the activation side. Our focus has been on retention and are feeling good about that.

Rob, anything?

Yeah, I'm certainly going to echo that our focus is on retention and we leveraged an awful lot of learning out of the B.C. market. On the acquisition side, our focus has been on focusing on the edge we have with GSM/GPRS on handsets, specifically camera phones, not focusing on zero dollar phones.

We have not responded in the low end of the market, the $20 space. We've avoided that space to date and we've avoided some of the aggressive spaces that our competitors have gone to, which is $45/700, which we think is way overly aggressive in this space and we've responded with some of our core plans, tweaked with a few extra minutes or we've added some features or Freedom of Speech.

So a modest response and, as Nadir said, the impacts have been minimal and they've tapered off since the onset.

John, just to close off, I mean, I wouldn't want to suggest that this is not an issue. First off, just to declare again, clearly in our view, this is not an economic plan and, you know, in terms of the impact, I think, you know, if it continues and assuming the current course that will be their plan, we will see an impact on the industry and ourselves.

So one of the things I find with the new rate plans is it actually takes a while to get-- to be seen as part of the fabric of the industry and whereas we live it day to day so we watch it and kind of track it on an obviously, daily basis, it's not how the customers view it. So I think-- you know, I wouldn't want to shortchange that this will have an impact if it carries on, particularly assuming that it rolls out to other cities. And so we'll have to watch it.

I think the other piece that's important is what P2 players, as in Bell and Telus, do in response and that tends to be something that probably has a broader impact on the industry than City Fido in its own-- on its own rate.

That's great. Thanks very much.

Your next question comes from David Lambert from TD Securities. Please go ahead.

Yes, hi. I'm looking at your guidance revision and I noticed that your subscriber numbers are up 40% over last year and your guidance on subscriber numbers is lower than your end result from last year. So I was wondering if there was consideration in increasing your sub numbers in your guidance and if you haven't, why?

Our guidance, just to refresh everybody, is 350,000 to 400,000 and clearly we did not change this. Built into that is what we expect in terms of the industry and what happens with City Fido and cell bundles and so on.

Probably the most important thing that I want to highlight is, frankly, you know, it's not about body count. It's about the quality of the subs and the thing that we're impressed with is the postpaid loads. As you know, prepaid we've been kind of close to net zero but are strong on the postpaid side and that's been our focus. It's not, you know, get the body count but get the right kind of quality and to me the biggest reflection is seeing that show up on the revenue side, which is where the guidance has gone up and on the margin side, implicit in the EBITDA growth that we're delivering and the guidance improvement in there.

Your next question comes from Simon Flannery from Morgan Stanley. Please go ahead.

Great. Thanks very much. Strong numbers on the MOU front, Nadir, you know, up over 400 minutes, but, you know, I'm struck with what we're seeing in the U.S. where I think it was 16 hours, 960 minutes, out of Spring this morning. Clearly, there's a lot of headroom for you to go here. Now you're moving on to GSM, you've got a lot more network efficiency. How do you think about, particularly at the higher end, putting out, you know, larger buckets, 800, 1200 minutes for, you know, a sort of lower per-minute price to try and capture potential elasticity of demand? Thanks.

Simon, thanks. And, obviously, it's different markets in terms of-- you know, the issue of MOU actually ties into the pricing fabric and if you go back a few years, the Canadian market always was seen as the most competitive or, in our minds, the lowest prices in the market just about anywhere. The change was, in the Canadian market we moved to unlimited evenings and weekends generally and what the U.S. did was to go to big, fat minute buckets. But it was entirely driven on kind of a pricing approach and I think, you know, as we look out, we will see more cheering, but our intent, clearly, is not to look at de-levering the progress we've made on pricing by putting in more buckets for the same pricing.

I think the issue that you get to is segmenting our base and actually providing value for the higher user customers that's unique to them. The thing that we've been avoiding is kind of generally reprice kind of rate card programs that effectively end up being a new benchmark for the industry and going to a place that we avoided a couple of years-- for the last couple of years, which is dropping our prices.

Thanks.

Your next question comes from Glen Campbell from Merrill Lynch. Please go ahead.

Yes. Thanks very much. Mr. Rogers touched on the topic at the beginning of the call, these fixed/wireless convergence standards. Nadir, could you elaborate on that a little bit and talk about, you know, what it might mean in terms of the technical evolution of what you're doing in wireless?

Glen, thanks. I'll lead off and then get Bob to give some specifics on it.

First off, clearly very exciting for us, just to reiterate what Ted said. Particularly in the Rogers family with the assets, I think, you know, one of the things that we see going forward as a big strategic advantage is big pipe plus wireless which we have both of within the Rogers group. And we're finally seeing, I think, in a generic sense, a move from wireless and mobility being seen as one and the same to, I would describe it, a world of personal communications services where, you know, from a wireless perspective we're actually going to be using wireless and wireline to deliver mobility and personal services.

That's the broad context. That's the shift we see and then, in terms of what we're doing specifically, because it's actually quite exciting. It's early but exciting. I'll get Bob to talk about some of the trials.

Certainly, Glen. What we've come to realize over the last couple of years is that the way people are using the devices has changed from one of purely mobile, which is where all the value was previously to one of portable and mobile use. In other words, portable -- using it when you get there -- and mobile -- using it while you're on the way. And that the technology choices for satisfying those two types of usage are quite different but it's important that they be fully integrated.

We made a recent announcement that we were involved in the fixed-to-mobile communications alliance, which is a consortium of international operators, many of which were announced and there's about 15 others which have applied to join and that group, under the leadership of Alexander Brock from our organization, is working on the product development and issues that will result in the standardization of how all this intraworks and there will be some announcement coming up on how all that's going to happen.

So we're putting a great deal of effort into recognizing the trend of how customers are using the products and ensuring that we have network capability in place that will leverage off the different technology platforms, as well as make it easy for customers to use and everything to be showing up on their bill, everything understandable.

Alexander?

Yeah, I think just to reinforce Bob's point that there's clearly been some developments in terms of wireless technologies for the local loop in terms of WiFi and Bluetooth that now are becoming available in mobile devices. And they basically solve the issue of how to get capacities from a mobile network into a broadband IP network in an efficient and cost-effective manner. And that's really the technology that we're going to leveraging on and where the standards are developing and the convergence of those technologies into GSM handsets, i.e., the worldwide standard, is basically where the focus of all the work that we've been doing.

And did-- maybe just a quick follow-up on that. Do you think it's more likely that we'll see sort of WiFi handsets that are, say, GSM-enabled or GSM handsets with, say, mini-base-stations that tie into the broadband network in building and the home?

Well, that's an excellent question. I think really where we're heading towards is the advantage of using the WiFi standards is that WiFi is already becoming pretty much pervasive and it's certainly very much a complement to broadband infrastructure. So the idea being that if you can use WiFi to tunnel through whatever infrastructure is available, in fact, the demands on CPE become increasingly less.

You know, a lot of work has been done, obviously, in the interim on Bluetooth standards, which are very popular in Europe and the CPE is already available. As you know, if you read in the press, BT announced that it's going to be doing some trials latter half of this year, beginning of next year, and that'll be using Bluetooth as the interim and you do require a piece of CPE for that, but that, obviously, disappears when you get to WiFi.

OK. Thanks very much.

Your next question comes from Dvai Ghose from CIBC World Markets. Please go ahead.

Yeah, thanks very much. A quick question on your wireless data strategy going forward. Obviously, the numbers are ramping up quite nicely from, admittedly, a small base. But I'm wondering, first of all, can you tell us what percentage is SMS versus non-SMS, including MMS and so on? And number two, to what extent do you think that the deployment of edge will drive new revenue streams and, if so, what do you think that they-- you know, what sort of revenue streams are we looking at?

Dvai, thank you, and I'll get Rob to get in on the specifics, but generally just to, again, throw out a context, we're at $30m of revenue from data, wireless data, over 100% growth, and it's been consistent and looks like a pretty good trajectory and one of the things that we always like to emphasize that it's a very balanced portfolio, both consumer and business, roughly even. And within that, you know, consumer side, SMS, email on the business side Rob can work through some numbers. But feeling good on both sides as a context for going in.

So, Dvai, SMS, to directly answer your question, is running just a little bit above $7m for the quarter, so roughly about 24% of the total mix of data. It continues to grow at a pretty remarkable rate and I think you probably have some of the numbers from our previous call. I think the evolution and you've probably seen it in some of our press releases is we've made some significant enhancements to our picture messaging service, working with a company called LightSurf in the U.S. We've enhanced both the simplicity-- we've added an online album so the customers can store their picture and we think this is going to be a continued area of strong growth for us.

We have the widest selection of handsets and devices capable of taking and sending pictures and we've got the capability of sending pictures to people who don't have the capability of actually taking pictures. And we're going to continue to evolve that capability and this all just gets better with edge, because transfer speeds improve.

The exciting early developments with edge, Dvai, as Nadir touched on, are the-- are the air cards that allow us to enable laptop users. But we've got some exciting new devices coming in the latter part of the year that will enable some of the other things that we're excited about, video clips being transferred and music and video streaming, which we think will continue to help grow the consumer side of the data business.

On the business side, we continue to see very strong growth out of both BlackBerrys, what we call DSPs, which are the data buckets that enable non-BlackBerry devices, and our vertical program building unique database capabilities for our customers.

So we expect to see continued strong growth and, as you can see from the numbers, we're about 115% year-over-year and expect that to keep going at a pretty strong clip.

Thanks very much. Nadir, I think Michael Sabia has the copyright use of ``blocking and tackling'' on conference calls, so I think you have pay him a royalty for the use of that phrase. Thanks very much.

Thank you.

Your next question comes from Rob Goff from Haywood Securities. Please go ahead.

Thank you very much. Your postpaid gross adds were ahead 12.9%. Could you discuss the growth within the enterprise, the SME and the consumer? Was it double-digit across all three segments?

Rob, we haven't actually given specific sub-segment numbers, but I will tell you that, you know, generally speaking we've focused on two markets, the youth market and the business market on postpaids and we've been pleased on the progress we're making. But to be fair, the growth-- the strongest growth area right now is the youth market and the family plan market, if you will. So that tends to, from a percentage perspective, be the big driver.

Having said that, the small and medium market is also doing well for us.

So you would characterize it--

If I can just add in, Rob, we continue to see-- our focus on the business segment is driven by our success on business data and our leadership in BlackBerry, now with the Treo 600 and the air card, is really propelling us into greater levels of success with business. So--

Very good. Thank you.

We only have time for one last question and that question comes from John Grandy from Orion Securities. Please go ahead.

Thanks very much. The only remaining question that I have relates to the retention costs, which you include in your general and administrative expense. You caution in your release that these costs are expected to continue to trend up. I wonder if you can give us any guidance in terms of what they look like on a per-subscriber basis and whether you think there's any chance, assuming that, you know, we do have consolidation in the industry and move to a three-player environment, that there's a chance those costs could stabilize or, indeed, start to decline again?

John, it's Nadir. In terms of the spend on retention, if you will, I think it ran about 7% of revenue. Last year we were running, if memory serves me, about 6%. And to me, it's something that we would see going forward, frankly, whether there was consolidation or not in the industry. We think it makes a ton of sense to actually invest more in our existing customers to deliver a better service.

Clearly, from a churn perspective, we're not best in class and one of the things that we want to make sure is that we're investing the right amount to actually create a better experience for the customer. And these-- you know, the kind of investments we're talking about go from hardware upgrades to offers that are unique to different segments around air time or features and services and include, for that matter, customer service being differentiated for different segments.

So those are things that I think are good spends, if you will, because what it will do is actually create a better experience that will lead to, ultimately, better churn. So, frankly, we don't actually see it as a negative. We see it as something that we have to do and, in fact, have to have the discipline to not get caught up with just short-term margins but actually invest the right amount for building loyalty with our customer base.

So, Nadir, should I interpret it that your focus-- or your target, as it were, for retention expenses is as a percentage of revenue? Is that the way that you'd like us to look at it?

No, I mean, in fairness, that's sort of the result as opposed to the leading indicator, if you will. We tend to approach it by segment and one of the things that we've done, just to give you, you know, an idea of the kinds of things we're working on, is target our high-value TDMA customers and target them by offering a handset at a compelling package, if you will, to move them on to GSM.

Now that's done for a very select segment of customers where we now what the churn profiles are, pre and post, and it makes a ton of sense for us to make that kind of investment. You end up with a customer that gets a really experience, ends up staying longer, and clearly is on the right network in terms of where our capital investments are going.

Great. Just as an aside, having just got back from vacation, I must tell you that your coverage in the cottage country has improved significantly from last year.

That's great. Thanks, John. You can take as many questions as you like, by the way.

Thanks, operator, for conducting this first half of the call. Give us just a few seconds. We're going to shift some people around here in the room and then we'll start the second portion of the call in just a minute where we can address any questions people might have around cable, media or RCI corporate parts of the business.

So we'll be right back with you. Thanks.

Operator?

Yes, sir?

All right. I think we're ready to start if everybody's back on line.

Thank you, sir. Your next question comes from Greg MacDonald from National Bank. Please go ahead.

Operator, could you just give us a second just to make one comment here.

Not a problem, sir.

Just to kind of set up the second half of the call, if you will, is that, as I said earlier in the call, the second portion will focus on Rogers Cable, Rogers Media and Rogers corporate, excluding wireless, which we just covered. So everyone knows who's in the room in that regard, with me today, in addition to Al and Ted, who I also believe is still joining us on the line remotely, are Edward Rogers, the CEO of Rogers Cable and, of his senior management team, Mike Adams, Don Huff and Mike Lee, and, as well, Tony Viner and Laura Nixon, the CEO and CFO, respectively, of Rogers Media are here, as well as a couple of other folks from RCI, including Alexander Brock and Lorraine Daly.

So with that context, I think we're ready to take the first question. Go ahead.

Mr. MacDonald, your line is open.

Thanks. Good morning, guys. The question is on digital services. Actually, three very quick questions. Thirty-three thousand net adds, that's a good number, or at least higher than I was looking for. If you could comment, please, on number one, whether that was largely driven by on-demand usage, what the patterns are there?

Secondly, you've commented in the past that $25 per month is kind of a number that users were spending on on-demand. I'm wondering if that's tailed off or is that still a good number?

And then, thirdly, if you could comment on the outlook for new products? The TMN subscription service I've used and liked that. I'm wondering if there are any other subscription deals in the works?

So, Greg, it's Mike. We definitely have seen a drive towards more usage on demand over the last quarter and it's a combination of two things. One is, I think the product itself is broadening and then, on top of that, we're obviously broadening the availability of the offering. So we're at about 2.1 million homes passed at this point, just to give you some stats on where we are with respect to performance on those subs.

We're still seeing roughly about, on the average-- on the average buy-rate per subscriber still at about 2.9, so those customers are continuing to buy at the consistent rate. We've seen a slight decline in the average revenue per user per month. It's at about $21.50 and I would attribute that to two things. One is, as you broaden the content availability the, you know, average revenue on a per-buy basis slightly declines. The second thing is, we do know that as we go into new service territories that the buy rates tend to be lower in the initial months as we ramp up awareness and availability within that area.

So the-- on the VOD side, we still continue to see good growth, healthy growth, and continued high repeat usage, which is always a good sign for us.

With respect to SVOD, we launched TMN SVOD as a premium service for our TMN subscribers so that existing TMN subscribers get the ability to access anywhere from 40-plus movies per month with continuing refresh rates. What it does is it, when we take a look at our research as to the attractiveness of a product like TMN, it addresses all the issues that are problematic for our customers.

So we see that there are going to be a couple new content areas where we'll be-- where we're already in negotiations for enhanced SVOD services. Some of them will be complements to existing programming services, some of them will be actual incremental programming services for an incremental charge. So that will be-- that will be a focus, as well.

The only other data point I would talk to you about, which is-- sort of reinforces this general trend we see towards high quality and high bandwidth is our HD numbers. Our HD numbers -- we left the first quarter roughly at around 10%. We ended up for second quarter at roughly about 20%. So even though it's a relatively soft quarter, generally, for TV sales, particularly high-end TV sales, we're continuing to see high growth in high definition as part of our digital offering.

So that just reinforces what we're seeing right now, which is just increasing demand for really high-quality television services.

Mike, as a quick add-on, I haven't seen a lot of advertising for these unique features. Is it-- this is somewhat special features that satellite doesn't offer. Is there a plan to increase advertising or promotional activity on the on-demand side?

Yeah. There certainly is and I think you see that in some of the sales and marketing numbers. It's always hard to talk to your customer base about all of the new things at one time. We did do a special ad insert, which you would have seen in all of the major newspapers about three weeks ago, and we'll continue to talk about these new features to our customers.

The other thing I'd add to the digital sales portion with the change in Direct television, we saw some basic additions but we also saw quite a few customers moving up the ladder that they basically kept basic television and added tiers and digital as their Direct TV service no longer worked.

Great. Thanks very much.

Thank you.

Your next question comes from Benjamin Swinburne from Morgan Stanley. Please go ahead.

Thanks a lot. Good morning, guys. A similar kind of question, but focusing on the Internet product. Edward, you mentioned the marketing costs up a little bit this quarter, pretty good growth, year-over-year and the ARPU is trending down a little bit. You commented in the note about the Lite tier becoming a bigger piece of the overall pie.

And what I'm wondering is if you look out to voice over IP in '05, you've got one in four homes passed taking your Internet service today, which it would seem to me is a pretty sell or easier sell for voice down the road. Are you-- are you, from a strategy perspective, making the conscientious move towards becoming more aggressive on volume on data, both marketing aggressively but also maybe pushing the Lite product a little bit harder to get ready for what will be a voice launch next year?

Well, may I start by saying that we continue to be aggressive with selling Internet because it's a great business and a great product. I think logically we would look at our data base as a good place to begin selling the voice product, but we obviously won't limit it just to our data customers. We'll sell it to our cable customers without data and we'll sell it to non-cable customers.

We continue to try to expand the breadth of our Internet offering to target a larger number of customers that use the Internet. There's still a large base of dial-up customers and they want a product that suits more their use and the amount of money that their family can spend.

We've also done-- had some good improvements on the hi-speed product. We launched our 5 megabits product in the quarter and we'll continue to try to educate our customers and future customers to the advantages of choosing Rogers for their Internet, both for speed and reliability and also some of the features we'll start to talk about in our new partnership when we-- as we launch the new Rogers Yahoo! hi-speed Internet product.

Great. And if I just could ask a clarification. Mike, did you say that the percent of digital gross adds that were represented by HD went from 10% to 20% through the quarter? I just wanted to confirm that I got that right.

Yes. No, sorry that's on a net basis and actually on-- in terms of actual digital set-top boxes, it would actually be higher than that.

That's from the beginning to the end of the quarter?

That's from the beginning to the end of the quarter.

Thanks a lot, guys.

Your next question comes from Richard Talbot from RBC Capital Markets. Please go ahead.

Thanks. One thing that comes out when we look at the results for the Internet business in the quarter is some slower growth. Obviously, seasonally it is slower, but can you comment to what extent you believe that the double cohort had a depressing effect this quarter and to what extent it should snap back in the third quarter.

Richard, thank you. I think I'll start with the double cohort question. It is in effect. It's tough to measure exactly, but I think we did some additional sales last fall and I think we saw some additional disconnects in some of our products this spring.

It's tough to measure. I think, as you know, Q2 is slightly-- is not the highest net adds for Internet in the quarter. There's a lot of competitive activity going on in the market, but I think, you know, we're not displeased with our net gain and I think we're continuing to focus and I think you'll see a seasonal lift as we move into Q3 and we'll continue to measure it as we go.

Maybe I could just add quickly for those of you that aren't in Ontario and aren't familiar with what the double cohort effect, if you will, that Richard was referring to, it relates to-- it's that in Ontario the university systems went from a-- pardon me, the college-- high school systems went from a five-year program to a four-year program and last year grades 12 and 13 graduated at the same time and hit the university. So we had a very, very strong quarter last year as far as additions, not only of basic but of hi-speed and this year what you're seeing is that as the universities let out is a higher disconnect rate due to the college and university let-out effect than you would normally because of the inflated size of the classes for the first time as this thing works its way through the university system.

Anyway, hopefully that's helpful.

Thank you.

Your next question comes from Randal Rudniski from Credit Suisse First Boston. Please go ahead.

Thanks. I have a question on the media group and in particular on the radio division. An impressive acceleration of revenues in the quarter. Can you describe how big a contributor the western Canadian stations were? And I'm trying to get to a more precise number for JACK FM, if possible.

And as a follow-on, now that you're going to monetize that JACK listenership out west, should we expect more strong quarters down the road?

Randal, I appreciate your tenacity in trying to find out exactly how much we're billing on the JACK station, but certainly the performance of our Vancouver and Calgary stations have led the way, although they are not the only stations to be enjoying a significant uptick. 680 News here in Toronto and other stations throughout our group also have had strong years.

The second-- the second question, follow-on question, as to, you know, continued growth, I think you'll-- the strongest growth will have been in this quarter, simply because this is the time last year where the format flips actually, although they occurred in the first quarter, really started to take. So we expect to see a continued solid growth in our radio group, but the year-over-year comparisons won't be as high.

Can I just ask you one follow-up?

Sure.

In the Toronto market, what needs to be done to improve JACK's 3 share in the Toronto market, which is below, you know, the 10 share in Vancouver and 20 in Calgary?

Well, the competitive set in Toronto is a little different. I think, you know, we have to improve the product, but I must tell you that, relatively speaking, versus KISS FM last year, our revenues are up almost 40% on JACK in Toronto. So although it's a 3 share, it's a much stronger offering 18 to 54, which is really where we're focusing. But we think there's lots of reasons to believe that we can improve it.

That's helpful. Thank you.

Your next question comes from Tim Casey from Nesbitt Burns. Please go ahead.

Thanks. Two questions. One on HD. Could you indicate for us, please, what the actual penetration of HD customers is? And is there any way you could articulate for us any plans you have to monetize that-- you know, obviously, what's a pretty good product offering?

And second, a question for Tony, Clear Channel made an interesting announcement this week that they believe there's too much inventory in the radio system. They're going to actually pull inventory out to try and manage clutter. Can you remind us of what the regulations are for air time sales on the bands up here and, in your opinion, is there a similar issue in the Canadian radio industry? Any comments you would have would be interesting?

Tim, it's Mike. I'll start off with the HD question. We don't break out the percentage of subscribers who are HD subscribers. We haven't in the past and continue to sort of give trending data, just because it's helpful, I think, for-- that everybody understand how significant or important HD is to the subscriber base as we go forward.

I can tell you that from a packaging perspective and from creating service offerings, we continue to look at opportunities to package these-- the premium offering of HD into a service tier and I think we're essentially, at this point, sort of looking to the quality and quantity that's available on these service-- on these programming services and trying to determine at what point is there sufficient quality and quantity to make it into a meaningful product for our customers. So it's something that's an ongoing issue for us and we continue to assess it on, basically, on a weekly basis.

Tim, with respect to your second question, there are no longer any regulations governing the commercial-- the amount of commercial time that you can play in radio. I noted with interest the announcement by Clear Channel, which begins, I think, in January '05. They current-- or many of their stations, especially, I'm told in New York City is where the real problem, run-- their FM stations run up to 16 minutes an hour of commercial inventory.

If you would compare that to CHFI, which would run about 10, and JACK, which would run about 8 and those-- most of our FM stations would be consistent with 10 minutes an hour. Our AM information stations can and do run a higher load level, but it's less intrusive.

I would applaud anything that makes inventory more scarce, but I really believe that's what Clear Channel are trying to do, feeling that, you know, it's become too much of a commodity buy. But the same situation does not exist here.

Thank you.

Your next question comes from Vince Valentini from TD Newcrest. Please go ahead.

Thanks very much. One specific question and then more general. The specific is you spent $5.9m on voice over IP cap ex this quarter. Would you still plan to spend $140m to $170m for the full year?

And the more general question is, if you strip out video stores, the EBITDA growth for cable this quarter was 6%. I'm just curious if you guys are happy with that and, if not, what plans there might be to address costs to improve that going forward?

This is Mike Adams. I'll take the first question. With respect to the capital spending, yeah, the amount reported for the quarter is what we had spent. There are significant initiatives underway that I think Mr. Rogers referenced in his opening remarks with respect to other investments in the infrastructure and in the systems required to support voice over IP that we're coming close to making a final decision and hopefully in this quarter we'll be in a position to make some announcement around that and maybe further clarify any impact on the plans previously announced with respect to capital spending.

I think the trend, if I could just give you an indication of where I think things might go, is that we're seeing better numbers with respect to the capital investment for things like SOTS [ph], which is a CMTS platform, and other components of the solution or enhancements to the existing cable infrastructure that are required to support voice like enhancements to powering, network status of monitoring, et cetera, that are coming in, I think, ahead of what we projected in terms of total dollars.

I think, as well, there has been some improvements in the cost structure for the delivery of voice in Canada from what I think was projected early in the year and was reflected in our previous announcements. But I think, you know, on the other side of that there may also be some impact, ultimately, you know, at launch in things like the revenue for the service that may also be impacted in the other direction.

So I think it's early for us to indicate, you know, any change from what we had previously reported and I think probably in this quarter or by the end of this quarter we might be in a better position to give you some better indications.

Vince, on the EBITDA for cable, I think we went into the year with a number of things we were trying to do to invest in our revenue growth, which we're pleased with, and to make sure we continue to invest for continued strong revenue growth. So I think that was a bit-- our overall EBITDA and margins for the year, was, therefore, implicit in the guidance we gave. Obviously, at 6%, we would rather have a stronger EBITDA growth than 6% and we're concentrated on continuing to grow our revenues and take costs out of the business where we can and I would-- I think that it's also a touch of a seasonal sort of thing, but we're not pleased of 6% and we're going to continue to work on the revenue side and on the cost side.

Thank you.

You have a follow-up question from Dvai Ghose from CIBC World Markets. Please go ahead.

Yes, thanks very much. If I can ask you about the competitive landscape in broadband, the-- sorry, the Internet net adds are clearly slowing, which is, I guess, part due to penetration factors but part due to competitive factors. Where do you think you stood against your primary competitor, Bell, during the quarter? And going forward, I mean, you've seen Verizon talking about launching fiber to the premise services. Admittedly, there are no such launches planned in Canada at this stage, but to what extent do you see FTTP as a competitive threat?

Well, I'll take the first part and then maybe hand off the last part to Mike Lee, but I think it's tough to assess every quarter when we look at us to Bell since our territories don't line up. We made some assumptions on where they sell their product and in what segment they're selling, and we determine from that what we perceive is our market share, but I think we feel that when we look at our market share, we would anticipate it to be fairly balanced, as it has been the last four to six quarters.

I think as we look forward we're very confident that we, one, continue to invest in speed, which is the number element to why people choose the hi-speed and why people keep with hi-speed. We continue to invest in making it a better and a more productive product, especially with the launch of our new features with our new Internet partner and so we're very-- and we continue to expand, I'd say, the addressable market for who could choose Rogers hi-speed as we've launched our Ultra-Lite service and, therefore, as we move into the future can tap into a bigger base than we've been tapping into in the past.

So I'd say I think our share is fairly balanced. I think there's-- there is still a lot of growth left. This is a question that has been asked in every quarter for two years, I think, and I think we are positioned well against Bell, who's a very competent competitor and-- but I think we're pleased with where we're at. Mike?

Yes. I think that the-- you know, you continue to see and hear about a lot of FTTP sort of discussions and proposals in the U.S. market place and I think it's probably because you're still seeing this, I guess, question in the industry about whether or not VDSL actually is at capacity.

So if you take a look from a service perspective, the reason why we continue to talk about where the trend is on high-def, the fact that it is trending higher and quite aggressively higher, is that the reason why I think there's a lot of discussion about fiber is because they're looking for a solution to deal with high-capacity video. I don't think that the-- it's so much a data-driven discussion as it is a shared bandwidth discussion with regards to high-capacity, high-quality video services.

And so I think if you take a look at where we are through the trending and the fact that we are already able with our 860 plants, to deliver all of the premium video services, whether that be high-def, high-def video on demand, video on demand, TVR services and with the robust road map that we have going forward and the benefits we get from being a strong participant in CableLabs with DOCSIS not only 1.1, 2.0 but also 2.5 and 3.0 where we actually start contemplating very high capacity symmetrical data services, I think that we are, at this point, in a position where we're leading. We have to focus on execution of all the services that we have planned at this point and, from a capacity perspective, unless someone invents something that's a higher capacity product than high-definition television at this point, that we have sufficient capacity to deal with any of the new services that are coming down the pike.

Thanks, Edward. Thanks, Mike.

Thank you.

Your last question is a follow-up from John Henderson from Scotia Capital. Please go ahead.

Thank you. It's a question that is for RCI relating to AWE and I know you don't want to talk about what their thinking is, but I was wondering what is sort of the thinking behind your $31 bid? Was it pricing? Context of a discount to the market or where you see value? And would you not think that in six or 12 months time if AWE comes back to the table that it's just going to be a more expensive transaction?

John, this is Alan Horn. I think the-- Obviously, I wouldn't try to speak for AWS on this, but they-- you know, our bid was done in the context of the market as it was then and in the context of the shareholders agreement under which they-- the process was governed. And I think that's the way that we looked at the situation at the-- back in April or May. I think in going forward we continue to look at the situation in the context of the shareholders agreement.

OK. Thank you very much.

Operator, we're going to conclude the Q&A session. I know it's a very busy day, in the telecom sector especially, with a lot of calls and earnings releases going on. So let me, first of all, thank everybody for participating. There will be a rebroadcast of the call on the rogers.com website in a few minutes if anyone joined late.

More importantly, if anyone had questions and weren't able to get in on the call or answered, as always, feel free to contact Eric Wright or myself. Our contact information is in the releases.

So with that, we appreciate your ownership and your coverage and that concludes our call.

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