Rogers Communications Inc (RCI) 2005 Q3 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Rogers Communication, Inc. third quarter 2005 results conference call. At this time all participants are in a listen-only mode. [OPERATOR INSTRUCTIONS]

I will now turn the conference over to Bruce Mann, Vice President of Investor Relations. Please go ahead, Mr. Mann.

Thanks very much. Thanks, everybody for joining us on Rogers 3Q05 earnings teleconference, sorry to get started a couple minutes late. The operator informed us there were quite a few people still trying to get onto the call bridges.

Here with me this morning in Toronto, are Ted Rogers, obviously Rogers Founder and CEO; as well as Alan Horn, our Chief Financial Officer; also is Nadir Mohamed, the President and COO of our communications division; Edward Rogers, President of Rogers Cable; and Rob Bruce, the President of Rogers Wireless; as well as Tony Viner, the President of our media group; and each of them have some selected members of their respective senior management teams with them.

Our detailed 69 page earnings release was made available this morning on most all the major financial wires. If you don't have a copy already, you can find it on Rogers.com or PR newswire or Firstcall. We ask that you review it carefully, especially the safe harbor language as those risks and uncertainties and that language contained in the release applies by reference equally to the call this morning.

So, just briefly, we'll do just one integrated call where Ted will make a couple of brief introductory remarks and then we'll take your questions pertaining to wireless, cable, media, telecom, and Rogers Corporate in whatever order you have them.

So with that, Mr. Rogers, please go ahead.

Thank you for joining us, everyone. I'm pleased with the overall quarter financial and operating results for the quarter especially in light of the multiple initiatives we were concurrently executing on. Successfully executing on, I might add.

Apparently we started off on a strong note on July 1st as we officially launched our cable telephony service and also closed on the acquisition of Call-Net on the same day.

On the voice-over cable telephony side while we added more than 18,000 subscribers in the quarter, we have significantly ramped up our installation run rates since the initial launch and have hardened many of our systems and processes, such that I believe that this business is not set to scale and to become another leg of growth for Rogers as we go forward.

Between Rogers wireless, our cable business and now, Rogers telecom business, which we closed on and began integrating during the third quarter, we are now poised for significant growth. And with enormous concentration in the most desirable areas of the industry, wireless and broadband.

During the quarter we made very positive progress on the integration of Microcell --

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During the quarter we made very positive progress on the integration of Microcell, completing the integration of the two networks resulting in a substantial increase in density, coverage, and reliability.

Not only do we now have the finest wireless network in Canada, but also the only network in Canada using the global standard GSM technology. As we speak, we're, for the most part, in the final stages of this integration project having started the post-paid subscriber billing system conversion this past weekend. Not that there aren't still risks, but we're feeling good about the progress we've made on this front. I'd like to congratulate Rob Bruce and all of the teams of people who have been working to make that possible.

In fact I believe that the lower turn rates and higher ARPUs that we're seeing this and last quarter, are benefiting from the network integration and customer reascension initiatives associated with that integration. Certainly the wireless team has done a terrific job in this regard, and the IT team and others that are involved.

Many of you are aware that as part of our acquisition of Microcell in addition to the fixed wireless spectrum that Rogers already had, we also became of owner of nearly 100 megahertz of fixed wireless spectrum covering most of Canada. That spectrum was in the process of being contributed to a venture that included Craig McCaw and others but was being complicated by various build out requirements and by BCE having purchased a stake in one of the McCaw's companies.

In September we reached an agreement with Bell Canada to pool our respective wireless broadband spectrum holdings into a 50/50 joint venture that will build and magazine a Canada-wide wireless broadband network which will, in turn, serve as the wholesale provider to both Bell and Rogers guaranteeing low costs. By pooling our respective spectrum holdings, leveraging both companies existing wireless tower and back all facilities will minimize costs and maximize wireless broadband network coverage.

I think this is a good conclusion to what was a potentially litigious situation, it solidifies our stake in an asset that was somewhat in jeopardy when we picked it up as part of the Microcell acquisition. We're pleased with the resolution of this file and the ventures going forward as we speak. And with Bell and Rogers together committed to this project it will get done and I think it will represent the foundation of a very valuable asset for the future.

To enable our continued growth and attention in addition to solid execution, I also said that we needed to quickly leverage and reduce the incidents of debt. We have successfully and significantly done so for the past ten months.

Early this year following the three wireless M&A transactions, I mentioned to you that my goal was to take our debt to EBITDA ratio down from approximately five times to 4.5 times of the end of this year, four times in 2006 and in 2007 down to a number that started with a three. Well, due to a combination of solid EBITDA growth, and the conversion of the two outstanding preferred securities, we've made great progress.

If you factor in the conversion just yesterday of the Microsoft preferreds, I am pleased to report to you that the net debt to EBITDA ratio is already down in the 3's. I believe that all of our stake holders should feel good about how quickly we have been able to drive that metric for more a balanced level to more comfortably support future growth.

Along the same lines as we move into 2006 in future years, producing earnings to utilize our $3.5 billion of accumulated tax losses, many of which accrued to us as part of our recent acquisitions is one of my highest priorities.

Looking at the results for wireless it was clearly another extremely strong quarter. Hitting $1 billion of quarterly revenue for the first time with solid growth in post-paid net ads, ARPUs, and continued low churn. With OpEx well controlled, and the Microcell integration continuing to gain traction, wireless drove pro forma EBITDA up 27% year-over-year and their margins to 40%.

Cable, high speed internet net additions remain strong in the quarter. At the same time digital cable net occasions in the quarter also continued the strong pace we had set for earlier in the year. These are the foundations for future revenue increases. Basic cable subscriber levels, these are the basic subscriber levels, not only held their own, but grew somewhat beginning to reflect, what I believe will be, an important retentive benefit you will see associated with adding telephony to our offerings.

Media delivered solid financial results pretty much across the board. I am a keen supporter of our media business for many reasons not the least of which this is where we -- where Rogers started in radio 45 years ago. Together these results are reflected in our strong consolidated financial performance for the quarter 13% pro forma revenue growth, 13% operating profit growth, it's pretty encouraging.

But I am not satisfied that we are capturing many of the executional opportunities that we have available to us. I mentioned previously that we're serious about focusing more closely on our spending and margins across the business. Business is an important part of Rogers strategy to profitable growth. To this end the reductions to our bundle discounts that we announced earlier this quarter will come into effect on November 1st. We will continue to monitor the competitive landscape as we move forward in order to keep up to date in pricing, packaging and bundle discounts.

The cable division this quarter we were effective in beginning to turn the tide in terms of margin erosion with margins, excluding cable telephony, back to the 40% level in Q3. But there is still much work to be done here especially in terms of getting more focused around making sure that we better capture top line revenue growth per unit of product we are selling. This has a very high priority.

As I said last quarter, I think that you will find as we go forward that Edward and Nadir with the support of Alan and myself are going to be diligent in this respect. I'm very thankful for Nadir's terrific work in moving along the various integration projects we have in progress. The leadership that he is showing is bringing the Company together for the single focus of serving the customer and delivering profitable growth.

I think this will mean more positive changes in the business, and it means that more of my time is being freed up to concentrate more strategically at around future issues as well as to spend additional time cultivating Rogers relationships at the CEO level with many of our customers, suppliers, and peers. Very, very important in the world we live today.

I will wrap up by saying that I have every reason to be optimistic that we'll close out 2005 with a strong showing much like we've delivered for the first three quarters of the year. I am comfortable that we'll enter 2006 exceptionally well positioned both strategically for the future and in terms of operating momentum for another solid year. Thank you for your support.

With that I will turn it back to Bruce so that we can get to answer any questions that you might have.

Thanks, Ted, and Operator, we're ready to take questions from the participants, but before we begin, just quickly, if we could ask everybody as we do each quarter, to be courteous enough to limit your questions to one particular topic so that as many people on the call as possible have a chance to participate. That will be to the benefit of everybody on the call. We appreciate that.

Then to the extent we if we have time and we haven't gotten everyone's question we'll circle back either individually or otherwise and get your questions answered.

With that, Operator, go ahead.

Thank you. One moment, please. [OPERATOR INSTRUCTIONS] Your first question is from Vance Edleson [ph] from Morgan Stanley. Please go ahead.

Thanks a lot. Good quarter, guys. Just a quick question on the -- on top of the equipment revenues and the equipment expense going up on the wireless side, the gross margin for equipment went down a bit indicating maybe you're picking up a slightly bigger percentage of the handset expense as you mention the handsets get more sophisticated. Can you just give us an idea of where that might go going forward or are handsets going to continue to get more expensive and maybe what that looks like as we move into a 3G world next year? Thanks.

Let me started off, it's Rob Bruce, and highlight that we did a significant volume of handsets, and from time-to-time, depending on the quarter, Vance, there is a shift between and we continue to try to put the higher valued handsets in the hands of customers. We work hard not to subsidize them, there was a fair amount of tactical activity in the quarter, so as you saw we drove some pretty significant volumes, a slightly higher mix of that was on higher value devices. That may be accounting for some of the numbers you're seeing.

Just to build on that, the other thing that you don't refer to but does impact the cost of acquisition line is we've been driving pretty hard on three year contracts and as you know that's been a contributed or in terms of our churn improvement. It does also lead to somewhat higher costs as this likely higher on three year contracts.

Okay. Great. To clarify, you said three year contracts?

Correct.

Okay. That will put you in presumably right through number portability which is probably part of your strategic thinking; right.

We definitely look at three year contracts as a way to improve our retention. They will figure out the timing looks like once we hear back from the CRTC.

Thanks a lot.

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

Good morning. Get all the Morgan Stanley questions out of the way early. I want to ask Ted a question. You made some very interesting comments last quarter about the need to move your video subscriber base over to an all digital platform over time. Getting back to analog spectrum, giving your customers access to all the digital interactive services.

And I am wondering looking at the margin trends on the cable business, your operating costs were up about 8% if you pull the voice-over IT expenses out, and revenue growth was sort of in the 6% range. Does the margin trend you're seeing from the cable business, excluding voice, change your view of how quickly you can roll out all digital? You cite in the text here that adding digital customers is one of the reasons the operating costs were up as much as they were.

I am glad that have Edward join me on this. The desire that I have is to have as many on digital as possible is that it is a far more competitive service against the satellite and against the future next year and the year after of over wiring from phone companies.

Having a digital service is like a huge tent. It is like the Rogers Skydome in Toronto. Analog is sort of a very limited service, and it is been quite satisfactory for 50 years, but in the new world it is not satisfactory, so if a person goes into a store to buy something and he sees all of these wonderful services from the phone company, and he is used to just analog, I think that's a problem for the future.

Now, where we haven't done a very good job, I think, Nadir, Edward and I agree on this, is I've been sort of pushing to get the boxes out. What we should be doing is also, not giving free services and should buy all of the services when they have the box and we should do a far better job on selling the program services for added revenue, and I think David Purdie and his team are really doing a job on that. I think you will see great progress as we go forward. Edward.

Ted, I only add that the digital strategy is not something that you only see at Rogers first and was not only done for spectrum management clearly that digital is -- does produce lower customer turn over time and is the gateway to enhance customer revenue through the purchase of new services.

Today we, as Ted had said, we'd like to see a higher uptake on attach of incremental programming services, but as we simulcast our analog product, digital is now available for any tier of service.

We do today see an incremental ARPU in the mid-20's per digital customer, so it is far more than spectrum management and over time there will be other alternatives for spectrum management and Mpeg force, which video and just looking at some of the services and how we package them. I would say it is the growth is about 164 for year-to-date, which is getting to the low end of our range, and it is an escalation from our trending down where we would have done 140,000 households for the year and definitely when you increase sales there is an initial investment to get those customers, but we do expect that they will be good customers for Rogers.

Thank you.

Next question comes from Vince Valentini from TD. Please go ahead.

Thanks very much. Back to wireless if I could. Seems roaming revenue keeps going up for you guys. It is a fantastic achievement. Can we dig into that in any more detail given that it seems to be coming more significant, how much of your revenue is either outbound or inbound roaming? Can you also talk about what is really changing?

If I look at a year ago, operators in Canada, yourself and Microcell. You now own both of those, but have the actual number of international travelers in Canada increased? It seems to me that 100% of the GSM users in Canada last year would have been on either Rogers or Microcell and now they're with you. Talk to where the volume increase is really coming from. I can't see is being more business travelers going overseas. Is it really just prices going up?

Yes, Vince, it is always the answer is it is a combination of a number of things. In terms of pure revenue, you know, we continue to be strong on visitors, probably more strong frankly on international visitors right now than U.S. visitors from a revenue perspective.

As well we're seeing a lot more Canadians versus a year ago roaming out both in the U.S. and internationally. In terms of size, roaming in to Canada and our customers roaming out are about equal in size. To give you some context.

In terms of how big roaming is as a percentage revenue, can you put numbers on that?

About 10 to 12%. It varies by quarter and certainly the third quarter is typically highest with visitor traffic and it is usually in that range and has been growing a little bit from below 10% figure going and closer to 11 or 12 now.

Thanks.

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

Yes, thanks very much. I wanted to talk about operating expenses of wireless. The margins are good but the sequential increase in expenses from Q2 to Q3 was pretty substantial, some of that was retention, but I was wondering if you can talk about whether there is anything unusual in there, some of the drivers there and how you see the Microcell OpEx synergies progressing?

Again, I think you hit the nail on the head. There is a real continuous focus on retention and that accounts for -- are you looking from an OpEx per sub perspective?

No, just total OpEx dollars and excluding the market sales and marketing.

Frankly, the preeminent amount is just the continued focus on retention, so the answer is an easy one, I think.

And could you follow up on the Microcell integration.

Yes, yes, you're right. The Microcell integration is going very well and in fact, Ted made reference to it, so from an operational perspective, we cut overall the back end systems including the post paid conversion. I can tell you that all of that is on track, and we had our first day operating yesterday and had a fairly normal routine in the call centers across the country. Still early days to declare victory as these things are fairly big.

In terms of synergies, getting back to the core of your question, we made faster progress on synergies than we anticipated. The number that we declared I think was $100 million of OpEx synergies for 2006. We've actually realized more of those synergies faster so some of them are recognized in our run rate this year, more than we in fact thought. So we're very pleased with our progress to date.

Could you quantify what's in already?

I don't think we're going to get to quantifying the 2005 numbers again we said we'd hit 100 million in 2006, and we've got a lot of that in the run rate already.

Thanks very much.

Operator, do we have any more questions?

Your next question is from Greg MacDonald from National Bank Financial. Please go ahead.

Thanks, good morning, guys. The question is for Ted Rogers. The Companies made a number of strategic moves in the last year. You indicated that debt is now in your comfort zone and some people might start to wonder, is there anything in the product profile that's lacking that might require further acquisitions and I wonder if you can give us an update on what the major focus is for Rogers Communications, the holding company level over the next two to three years. Thanks.

It is always hard to tell in our country because it is a small country, and they're mostly family businesses, and so it is not so much what we might want to do, but it is what others may wish to do. All we can do is try and do the three things that we promised to do and one is improve our execution.

Secondly, is to show that we know how to integrate acquisitions and integrate them properly and efficiently, and third, that we know how to reduce the instance of debt and reduce the debt to EBITDA. If we do those three things, if the phone rings one day, we're in a position to answer it. If we're incompetent in those things, we're not in a position to answer the call.

Ted, if I can add two more follow on's, is it safe to say that future acquisitions are primarily focused on the cable side now? And then secondly, as it relates to capital structure, do you think that the new competitive environment is more conducive to a two times debt to EBITDA ratio focus or three times?

I wouldn't just on the latter, I wouldn't want to differentiate between 3 and 2. I think 3.5 is a very safe area that I am totally comfortable with, and I think our Board is. Obviously if you get too low, your shareholders start to scream and say there isn't proper balance there.

The first part of your question was which industry would we be interested in, and I think that the acquisitions that we've just done, the three indicate flexibility on our part, opportunism is the calling card, and what makes the greatest sense to someone who is calling up with an interest to merge or something like that, and what is in our interests would be determined at that time.

I don't think we could have forecast a year ago the acquisitions that we made in the latter part of 2004. I don't think I should try to guess what if any because there may well be none and we will carry on and we're doing very well and we're not looking to burden ourselves with a huge amount of debt. We're not looking for that at all.

We're looking to use up the tax laws of $3.5 million. If we can do that, it is a fabulous thing for this Company.

Thanks very much.

Your next question is from Jonathan Allen from RBC. Please go ahead.

Thanks very much and congratulations on the results. Question for Nadir. As we look at the cable business this morning, obviously there's still some drag from the telephony business, and Ted outlined some of the pricing changes which should certainly help. In your new role as you look at what the cable, telecom, and the wireless businesses, I'm curious if you see any scope for opportunity to cut costs between those businesses by further integrating them.

And on that same subject, I'm curious about the announcement this morning to buy Nortel's office over in Brampton and what first of all, what employees you would expect would actually go over there, and second of all, should we see some sort of an operating cost benefit through perhaps lower lease payments going forward?

Jonathan, first of all I give you full marks for a triple part question.

All on the same topic.

All on the same topic. I think as Ted pointed out in the opening remarks when you look at the business and have the advantage and some ways of looking at the cable business now with fresh eyes, what I see is probably the same thing that you see, is a business that is doing well, but a business that's characterized historically with higher CapEx in the industry but at the same time better revenue streams than the industry.

The trick for us, I think, is to better translate that revenue into operating margins. We've got it get the leverage working in our favor, and I think some of the changes that were already made and referred to whether it is related to pricing or how we execute on a digital strategy all tie in to a very strong focus on how do we actually get operating margins to improve in the business, and that's where I think we can help as a collective between cable, wireless and telecom to bring that focus into leverage each other into the market.

So whether it is common infrastructure in the back end, some of the channel work in the front end, I think theres opportunities to actually drive a better cost proposition.

But also Jonathan, I wouldn't want to -- honestly I think the biggest opportunity lies within the respective businesses and in their own right and I think the focus on driving revenue into operating margin improvement is where I'll be spending a lot of time.

With respect to the Nortel building, if you look back over the last year, we've made a lot of acquisitions, and we picked up a lot of access buildings and leases that we can now in turn, turn into something that works in our favor through the acquisition an of the Nortel buildings.

In terms of OpEx impact I think it is too early to be specific on that, but clearly part of the equation in looking at that transaction was to look although OpEx leased costs versus owning a building.

Just a follow up on the building cost, would you say that most of the time buildings and properties you picked up through the recent acquisitions would more or less be leased spaces as oppose to do purchased?

That would be correct.

The leases are expiring next year.

Oh, that's great. Thank you very much. Congratulations again.

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

Thank you very much. My questioned would be on telephony. Could you address the run rate, the backlog, and perhaps your capacity for the digital telephony? Thank you.

Yes, Mike Adams. I think we first reported that ending quarter at about 18,000 lines and currently we're looking at a run rate, this is on the cable telephony, at approximately 10,000 ads a month. And as we announced kind of at the start of this quarter, we were in kind of a soft launch as we try to integrate with the recent Call-Net acquisition, so we're working kind of with that premise and we're continuing at that rate continuing to work through some of the integration of the systems training our troops and working through the execution of new business. Let me know if I missed anything from your question?

The only question there would be actually the capacity for ads, but you did say it was you're still working through.

Yes, right now we are running in the 500 spots a day kind of run rate, so we'll continue to kind of work that and we're not quoting any projections on a going forward basis on that.

We don't anticipate that the installations will be a bottleneck to growth and focused on getting the business up and running, making sure that the quality of service is there and we're scaling the business as we -- and we're learning a lot as we go from the Sprint team that's come in and looking at these businesses across more than actually and across both platforms and we're pleased with the growth we're seeing.

Very good. Thank you.

Ted here. I just like to add something on the Nortel building. We're very sensitive not to have more space than we need and people going to fill it up and hire a lot of people. If we have more space, Nadir and I are going to board it off, and I want to make that clear.

But we're proposing to do is not just in the examples given but in other examples close down individual operations that are all over the place and move them to this building. We have found here in the campus on Bloor, that having a 1,100,000 square feet we brought together the different companies and it has worked magic in the sense of getting to know one another in a much more intimate fashion of working together, having lunch together and the Company is being much easier to benefit each other of the operations.

The other thing we're a family company, we have here a wonderful food service for our employees that is subsidized. We have physical fitness facilities, we have medical facilities. That is my opinion is very important.

We can't afford to have that type of operation in these splinter groups all over the place, so by moving them into the Nortel building which is almost a million feet, we are going to be able to provide fitness facilities, excellent food facilities, and medical facilities, and look after our employees in the way that we would like to as a family company and can't if it is spread out all over the place.

So I think that this acquisition was just fortuitous for us. We continue to work with Nortel to continue the traditions they have built. They have done great, great number of things for Canada and certainly in Brampton we hope to work with them and continue the traditions that they have so well established.

Your next question is from Jeff Fan from UBS. Please go ahead.

Thank you very much. My question is on the wireless margins. Looking beyond just, the last -- this quarter or even last quarter in terms of trends, maybe even looking out further, how do you see that progressing and I guess I know you don't provide guidance in the future, but given the structure of the industry, I would imagine that there would be some catch up here to both your competitors, telephony mobility and Bell mobility.

And the second part to that question is assuming that we do see margins grow dramatically, the bottom line is what is your goal in terms of use of free cash over the next couple of years? Thanks.

Reduce debt.

I don't know if you caught that. The answer the second part is straight forward. Reduce debt.

All right. Just wanted to hear that again.

Reduce debt. Jeff, on the first part in terms of margin on wireless, first off, just to set the stage, the focus has been on restoring margin after the acquisition on Microsoft. I think early on in the transaction we said we want to get back to the preacquisition Rogers margin levels by '06, and as you know on the base off the first three quarters we're at that stage today and depressed margins is with loads.

I think going forward clearly we see the synergies kicking in and then with the scale that was acquired through the Microsoft customer base, I think we really well position to do build on the margin improvement story. As far as what's the number obviously we don't give guidance but I think the thing that somewhat turns the margin question is what is the expectation on penetration growth as you know, our loads need to depress margin.

The higher the loads in a given quarter based on expensing QOA but there is definitely potential to go higher given by the time we hit '06 we'll have integration behind us and then scale working in our favor, but at this stage I think it is premature for us to give a specific number.

Thanks.

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

Yes, thanks very much. Question for Mr. Rogers if I may. I think we're all surprised by George Cope's recent move from Telus to Bell. In the context of that move, I'm wondering, Mr. Rogers, if you can tell us what your strategy is for retaining your top executives and particularly Nadir Mohamed who I think commands a lot of respect from the street and others as well --

Thanks for the question, Dvai.

It was not for you, Nadir. (laughter).

I am speechless.

It happens once every year.

I know that NTS is looking for a CEO by the way.

Do you know the terms?

Not quite.

I do. I would say that you have to most important thing for anybody for -- because we have a lot of important people around, people that we just would not want to lose at all. Nadir obviously is a top one and very visible, but there are I would say probably a couple of dozen people that Nadir and I would put in that category.

I think most important thing is they feel comfortable working here, that they're treated with respect, that they have an opportunity to have their opinions heard and considered, and that they feel that they're achieving something, they like to come to work in the morning. These are the things that I think Rogers is uniquely able to provide because of the just the type of company we are.

If we were a company making doors, making doors, then a new thing every two years might be a new handle. Where as we have new things almost every week, and so it is very stimulating and very exciting, and if that turns you on, and I think it does to most of our people, then there is no other place like Rogers honestly in this country.

Obviously the financial arrangements have to be satisfactory and all of those sorts of things, but in my judgment they will come second to the feeling of satisfaction when a person goes home at night.

Nadir, over to you.

Couldn't agree more. I think I just want to pick up on your point about George obviously many of us actually know him as a key player in the wireless industry as being a leader along with others, and I think one of the things we look forward to is the discipline that he brought to the wireless sector of being expended in his new roll at Bell and I think that will speak well to the industry going forward. Look forward to competing with them and frankly beating him.

Maybe the key ingredient here for your attention is that we're just guessing, George maybe thought his boss was a little young, and Nadir doesn't have to worry about that. (laughter)

I am very glad to hear that. I am sure Rogers will want Nadir to be around for a long period of time. Thank you very much.

Thank you, sir.

Your next question is from Peter MacDonald from GMP Securities. Please go ahead.

Can you just quantify the revenue that you get that's directly related to RIM and if they're subject to injunction in the U.S. or a large settlement what impact might that have on your business, and last what steps are you taking to diversify the risk associated with RIM? Thanks.

It is Rob Bruce, Peter, we don't disclose the specifics of the individual line items within our data portfolio. Over time I have given some really broad guidelines about the size of the business and the RIM business continues to be a robust business as do a number of the other businesses as you can tell by the percentage of our revenue they now represent.

Spent a fair bit of time with RIM trying to understand what the impacts are from the lawsuits and other things that are going on to the best of our ability right now, there will be no impact, no significant impact to our businesses based on what we can deduce from the things the RIM folks are telling us now.

This is Ted here. I would like to add we're a loyal company, and these people have brought great things to Canada from their initiatives, their inventions, their energy. They've been very good for our company over the years, we are loyal to them. We'll do whatever we can to be helpful. I should on a personal note say that the founders are known in the in our community as being extraordinarily generous in charity to Universities and to other charities, and I think all of these things are important. We have no intention of walking away from our friends.

Okay. Thank you.

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

I wonder if you can help me with your ARPU is very very strong, up 7% year-over-year in post paid particularly from a quarter where you add more subscribers than any other quarter in your history. I am wondering what would be the major driver, I know it is a number of things, but what would be the biggest driving force of that ARPU increase, is it the 28% increase in minutes of use, is it data adoption, is it roaming, and maybe you could kind of rank them.

Well, there are three or four that stand out from the crowd, John, and obviously first and foremost sub growth trends used to power along the revenue numbers. That becomes sort of the flat form off which the ARPU kicks in.

Our data ARPU and total data revenue continues to grow in the high double digits, low triple digits range as it has for the past number of quarters. Followed by and we referenced it on the call already strong growth in roaming.

Also a contributor that may not be as obvious is our continued success on selling optional services both individually and in bundles, things like voice mail, calling line ID and other things in bundles to customers is also a significant contributor, so those would be the big ones.

Okay. I guess I am not allowed a follow up, but if I were it would be on CapEx and cable.

A completely related one.

40% of revenue? What can we expect going forward?

I just say it is when we look at the CapEx spend, John, one it is related to the increase in digital sales and internet customers and some continued spending on getting tough in the up and running. We've always said we will continue to innovate for the future, make sure that our platforms are competitive, but there is spending in the 2005 that won't repeat itself such as getting teel fin I up and ready. Some of the activities we're doing on the platform side.

I think we built platforms on cable television, high speed internet, and local phone that will sustain ourselves for the next few years. We have never been shortsighted in our spend. If you even look at telephony, it was always built as a national roll out in all markets and based on getting the first couple of hundred thousand customers up and running.

I think we're going to work hard to continue our growth but work hard to look at how we can be more do more with less on capital spending and some of the programs that are just in this year won't be just in next year. We'll give formal guidance on '06 until the fourth quarter we put out the fourth quarter fourth quarter results in January.

I think it should be added that in both wireless and in certain areas in cable, as a number of customers increase, you need for additional capacity in wireless and the internet for example requires significant capital expenditures to make up for the increases in the number of customers. I believe we will end the year in internet with 1,100,000 customers. One of the highest penetrations in North America. If that continues, then obviously the capital continues. If that doesn't continue, the capital drops off. We call that success based capital.

The same with the digital boxes. As we go forward and we show increased revenue from the digital platform, if we attract another 300,000 customers in a year or 400,000, whatever, then obviously there are significant capital expenditures for that, particularly when you get into the gross of high definition, which is growing rapidly because those boxes are more expensive.

The personal video recorders, people and I believe this will be a great growth area. You will see significant capital expenditures for those, but these are all success based. These are all things we should celebrate. Things that are of concern are those where you have to invest like on rebuilds hundreds of millions of dollars before you get pennies additional revenue, and I think you're seeing over the past three years and you will see next year continuation of the trend the success based capital rather than fixed costs capital.

There will always be certain amount of painting the bridges and so on and so forth that you must have. We're fortunate that we have areas where there is significant subdivision growth, and obviously that would account for I am going to guess 50 million or some such number. We have forced rebuilds where Bell is changing out facilities and we have to at the same time, and that is substantial, so we're very mindful of this. We're not trying to throw money around, but we don't want to crimp the growth of our subscriber base, and we don't want to lose customers to the other guy who is making huge investments in IP t.v. that will come on next year and the year after. We have to be competitive with that.

Thank you.

Your next question comes from Phillip Olsen from UBS. Please go ahead.

Just a couple of questions with respect to the balance sheet. First, historically you have been fairly opportunistic in terms of raising funds in the debt market. Just trying to get a sense of what your plans may be over the next three to six months to take advantage of what are still fairly attractive call in rates.

And secondly, given the out performance in terms of your deleveraging post of transactions, what are the what is the current guidance you're getting from the agencies that you guys need to deliver before are looking for potential rating upgrades?

This is Alan Horn. Just on the first one, I think it is emphasized two or three times around here the main focus currently is on debt reduction and obviously as we scaled in the financing last year our leered in the financing last year we left ourselves with a flexibility in terms of callable debt and re payable debt both in terms of bank facilities first of all and then as you move into the FRN in order to wireless and some of the other items of wireless that come in over the next couple of years, so from that perspective I wouldn't see us looking to the debt capital markets in the next -- in the next few months.

On the second one in terms of the rating agencies, probably a question better address to do them. I think we'll just stay focused on the things that we can control which is the execution in terms of integration that would be focused on, and obviously we've done our bit in terms of overall deleveraging, as the know the rating agencies look at a whole host of other issues. I think our position is strategic way has soundly improved over the last number of years and I think our execution has as well in all of those hopefully will be taken into account, but rating agencies and looking at the ratings.

I guess then in terms of the ratings, what are the desires that you as a management team have expressed to the agencies, is getting into investment grade something that you would view as a priority or would you rather kind of stay solid high yield credit and retain the flexibility take advantage of opportunities when they may come?

I think that's indicated that financial flexibility is our -- is the key at present and that's the main focus. In terms of a given as a practical matter that we won't be looking to the debt markets, the rating which is the actual rating, is just one factor at present, but I think in terms of financial flexibilities is where we will be focused on.

Thank you.

We have time for one last question. Your last question comes from Tim Casey from Nesbitt Burns. Please go ahead.

Thanks. Good morning. I was wondering if you could talk a little bit about how you're approaching your wireless resale agreements. You just announced the arrangement with Videotron. Could you talk about the nature of discussions with other cable companies and how do you approach these deals both from an economic and a commercial perspective?

Rob Bruce again. Let me talk a little at a high level about Videotron and move onto a more general case. The deal with Videotron allows us to reach into a market that we're under developed in and be able to compete on bundles if the bundles only agreement with Videotron. They will bill and provide customer care, and I think publicly we've already said both companies that sometime mid-to late '06 will be the time frame for launch.

The way by approach these things frankly is independent on who it is we're having discussions on. The most important single things for us are keeping a very close eye on things that will have an impact on cannibalization. So can we reach into markets where we're under develop and had talk to customers we otherwise would not be able to talk to efficiently and effectively?

And secondly, keeping a very close eye on re sale rates because we know that there is the potential there if we put people into the resale business and they take prices cheaply, take prices down aggressively that it can upset what I think is a reasonable sense of pricing discipline in the wireless market. Clearly there is lots of discussions going on in the industry. I think Canada has fallen in the trend of the U.S. and I think lots of people are talking about it, we don't have any other announcements at this time.

Thank you.

Operator, first of all thanks for conducting the call. More importantly, thanks everybody for joining us this morning. We appreciate your ownership and coverage. Others rebroadcast the call if people got on late. Either on the Rogers.com website or there is a call in number on our press release of a couple weeks ago announcing the call.

If you have questions that didn't get answered, please feel to call Eric or I directly. Our phone numbers are on the release. We will get your questions answered, in short order. With that please enjoy the rest of your day. This concludes our call. Thank you very much for joining us.

Ladies and gentlemen thank you for participating. You may now disconnected your lines.