Rogers Communications Inc (RCI) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Rogers Communications Inc. first quarter 2006 conference call. At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties during the conference, please press star zero for operating assistance at any time. I would like to remind everyone that this conference call is being recorded on Tuesday, April 25th, 2006, at 12 p.m. eastern time.

I will now turn the call over to Mr. Bruce Mann, Vice President, Investor Relations, please go ahead, Mr. Mann.

Thank you very much, operator. Good morning, everyone, thanks for joining us on our first quarter teleconference with the investment community. With me here in Toronto are Ted Rogers, our CEO, and Bill Linton, our Chief Financial Officer, also Nadir Mohamed, who is President and COO of our Communications Division. Edward Rogers, President, Rogers Cable, Rob Bruce, President of Rogers Wireless, and Tony Viner, the President of Rogers Media, along with a few members of their representative teams.

Our detailed first quarter release was out this morning on all of the major wires, if you don't have a copy, you can find one on Rogers.com or First Call, please review it fully. Especially the cautionary language, with respect to any of the forward-looking information, the risks, uncertainties and assumptions that are in the release. Also the release put out on February 9th, those same sections and our full year 2005 MD&A, the risk and uncertainties section, as well. Because that same language applies to the teleconference this morning.

So, let me turn it over to Ted Rogers who would like to say a few introductory words. And then Bill Linton and Nadir Mohamed to each do the same, and then the management team will have plenty of time to take your questions. With that, Mr. Rogers, please go ahead.

Good afternoon, and thank you all for joining us. I'm going to keep the remarks as brief as I can. I know that it's most important to have plenty of time for questions and open dialogue. We would like to invite you to attend our Annual Shareholders Meeting followed by our reception later this afternoon, the meeting is at 3:30. Well, [inaudible-microphone inaccessible] today for the first quarter, Bill and Nadir will go into in more detail.

But the bottom line is that Rogers delivered very strong double-digit topline and operating profit growth. At the same time, we also delivered strong subscriber growth across the business. So a good balance between subscriber growth and financial performance, or as my friend Nadir likes so say, profitable growth. These results represent a solid start for the year. They trend very well upwards, achieving the targets we set up for you at the start of the year.

I believe that they also very much reflect one of the things that I said on the last quarterly call, which is that if 2005 was about the integration of acquisitions, and organizing ourselves around customers, then 2006 is about execution. And we still got a lot of work to do. And we still got a lot of progress to make. And we still got a lot of increased earnings to show. And these first quarter results show that we are very serious in this respect. Just to comment on a few broader issues.

To start with, we have two regulatory items come out in recent weeks, that I know many of you were awaiting. First, the recommendations of the Telecom Policy Review Board, a panel, and second, the CRTC's decision for deregulation of the incumbent telco's local telephone service. You remember last year, the Voice-over-IP decision in May, which also could be appealed within, the decision could be dealt with within a year.

As far as the telecom policy review, we're not in 100% agreement with all of the recommendations, overall the panel did a comprehensive job of laying out a long-term vision for telecom regulation in Canada. An awful lot of good ideas in their work. While just recommendations at this point, I would hope that as the panel's work is reviewed by the Industry Minister and his team, there are opportunities to lay out road maps, as to how some of the panel's suggestions may eventually be enacted. The secret, of course, is always in the details.

Amongst other things, the panel recommended that local telephone service should begin to be deregulated at a point when the telco's no longer exhibit significant market power. Now, we agree with this, but our concern that such a path must be constructed in a way that assures truly sustainable competition has taken hold, just as it has in cable. Otherwise new competitors will be wiped out by the monopoly telcos as has happened time and time again in the past, including to me at Unitel some years ago.

Two weeks later, the CRTC issued its decision on local forbearance, where it addressed the neccessary structure to protect against abusive behavior, anti-competitive activity by the telcos, once local service starts to be deregulated. This decision, like all of the CRTC decisions, followed extensive public participation over many months. The input and arguments of all participants were widely aired. The decisions, in other words, were made after maximum public input by an independent tribunal retained by the government, to avoid the Cabinet Meeting to be overwhelmed by behind the scenes lobbying on matters of intense complexity would be extraordinarily hard to deal with, except under the procedures that the CRTC followed.

This decision by the CRTC is comprehensive and very detailed. It essentially puts the necessary controls in place, to enable the transition to deregulation to happen. Importantly, it seeks to assure that such a transition can only happen if truly sustainable competition has taken hold. You can think of a garden or something, it's got to take hold. And the decision is by no means everything we wanted, but it may at least give competition a chance to take hold.

Of course, if telcos don't like it, they're monopolists at heart, they're losing customers in the market to competitors, and what they won't tell you is that the CRTC's regulation does not prevent them from competing vigorously. The only thing they can't do is behave like a monopolist. The telcos want the ability to target price decreases only in the areas where competition starts to blossom. So that if we start at Rogers in certain areas or communities, they would go and lower the prices there, but they keep them high everywhere else. They want to be able to price services below their cost. Well, if the incumbent with 97% of the market, prices the services below their cost, of course there can be no competitor taking root.

I understand their frustration, we've lost a third of our cable customers to the telcos, satellite, and VDSL TV services for years. But we exist and compete within the regulatory framework, and are a larger, stronger, and more profitable company at Rogers as a result. At the same time consumers have more choice.

As we speak, the telcos roaming the halls of Ottawa. Shopping for a decision that would be better for them than the CRTC's. Now the CRTC was a decision that was unanimous by all 11 Commissioners, which is quite an extraordinary feat. Now these people reviewed the detailed submissions for months. Telcos have talked of appealing the decision, going around the very regulatory framework our government has created, and empowered and staffed with the appropriate expertise and resources, to make complicated decisions like these.

Even the telecom Policy Review Panel recommended no longer allowing such Cabinet appeals. The government says it wants to concentrate on 5 priorities. Getting involved in the debris of such complex rulings such as this, would really be like a fish net over the whole Cabinet. We say it's high time for the telcos to stop their attacks against the regulator. It's doing a balanced job, and instead the telcos should get on with competing in the market, and that's enough about regulatory.

Generally, and as many of you have heard me say, I'm very bullish on our prospects in the telephony market, assuming the regulatory playing field is set fairly. When you consider our footprint, and ability to bundle home phone with cable, internet, and wireless, it's a powerful combination. It's a unique combination in North America, there is no other company like Rogers Communications, in having the big pipe and having wireless in all 4 products. We're still learning and scaling on the operational side, but the service is really fantastic. The platform is stable and I am pleased with the sales programs. And we'll continue to push aggressively in this area.

Another item I wanted to touch on as we announced in December, Bill Linton has stepped into the CFO position, at the same time Alan Horn has stepped up as Chairman of the Board at Rogers. And Alan has also assumed the role of President of the Rogers private companies. We're fortunate to have Bill back at Rogers, as he knows the business well, has a strong track record of success since he left Rogers. With Alan and Bill in their new roles, I sincerely believe that we've added depth and strength to both our leadership team and our Board of Directors, as we have operationally in past quarters.

I'd like to stop here and turn it over to my friend Bill.

Thank you Ted. And hello, everyone. This morning I would like to review the change we've made to our segment reporting and to provide you the highlights of our first quarter results. As you can see from this morning's release, we have transferred ownership of Rogers Telecom, which as most of you know is the Call-Net business Rogers acquired in July of 2005 into the cable segment, and have renamed that segment Cable and Telecom.

We have further broken the cable and telecom segment down along the lines of how Nadir and Edward and their teams are now managing it. With core cable and internet in one bucket, our residential cable and telephony and circuit switch telephony services together in another bucket. Our business telecom services in a third, and finally, the video stores.

The Cable and Internet portion of the segment holds our core cable operations, and obviously represents the majority of the segment and carries margins of 40% plus. Margins, which by the way are up nicely year-over-year. While the home phone division is a relatively new business, and is one we are investing in, and expect to be a very important source of growth for us in the future.

The Business Solutions division represents a relatively new, but important sales and service channel for Rogers, where we bring together all of our various communications services from across the Rogers group, into a single point of contact that is focused exclusively on the needs of the business segment.

Now, let me just quickly hit on a few major highlights in the quarter. First, as Ted said, double digit top line growth, best ever quarter. Above $2 billion. Which is 28% above the same quarter last year. It was driven by wireless, which was up 20%, and the acquisition of Call-Net, even on a proforma basis, revenue was up 13 %.

Second, continued strong subscriber growth. Our wireless post-paid net adds were up almost 90,000, digital cable net adds, up 50,000, high speed internet adds up 40,000, and the new product, Rogers home phone service, up 60,000 net gain in the quarter.

EBITDA at $596 million is up 26% over Q1 of 2005, or up 17% on a pro forma basis. Capital expenditures in the quarter totalled $340 million. That included $100 million for the acquisition of the Nortel campus. Excluding this, capital was $240 million, or $20 million below Q1 2005. Capital programs to support subscriber growth are on-track, and our future capital will depend to a great extent on our success in the marketplace.

Operating cash flow, which we calculate as EBITDA less Capital Expenditures and interest, was $95 million in the quarter, and that includes the $100 million worth of capital expenditure to acquire the Nortel campus. In the first Quarter, the company repaid Rogers' Telecom $23 million U.S. senior secured notes, and we also repaid on maturity the holding company $75 million senior notes. Debt to EBITDA stood below 3.5:1 at the end of the quarter. As Ted said, it was a very good start to the year, maintaining our growth while improving our results in almost all areas.

I'll now turn it over to Nadir for his insights on the operating results.

Thanks very much, Bill, and hello everyone. As Ted mentioned a good quarter to start the year with results that were very well balanced in terms of growth, profitability, and customers. At Wireless, we delivered strong results driven by our strategy of focusing on postpaid and data services growth, as well as seeing the benefits flowing from essentially having completed the Microcell integration.

The combination of solid postpaid ARPU growth and continued reduction in postpaid churn, along with the synergies from the Microcell integration, drove excellent growth on both the topline which was up about 20%, and operating profit line, which was up 36%. And as a result, we drove the operating profit margin north of 42%, which is a 520 basis point improvement over the previous year. And clearly above the levels that we were achieving prior to the Microcell acquisition.

Touching on a couple of the highlights besides the excellent growth and margin improvement. First, data revenues breaking through 10% of network revenues for the first time, up actually 10.3%, and what's really good, a great range of services, Blackberry, mobile internet, SMS, and the download services that we've got.

Another significant highlight is the continued postpaid churn reduction, down to just under 1.5% for the quarter. And many of you know, that's been a thrust of ours for quite some time. This reflects the combination of a few factors, including the excellent network coverage and quality we're seeing post integration on the Microcell network. A shift of subscriber base to longer term contracts, and the focused retention programs. The investment we're making in COA and retention spending to attract keep and grow the right kind of customer, is paying off in ARPU growth and churn reduction.

I'd also like to point out the continued strong postpaid growth that we're driving. The postpaid numbers are up modestly from last year's first quarter, but the key point is this is despite the inclusion last year of Microcell [city] Fido programs being in place in the market, and being promoted by all of the players in the market.

So net/net at Wireless, a strong quarter with solid performance on all of the key metrics, and a great trajectory and run rate to start the year, in terms of tracking towards the full year target. And on the Cable side, also very solid results to start the year with good growth and subscriber levels, revenues, and most importantly, in operating margins. Especially in the core Cable and Internet portion, which represents by far and away, the biggest piece of the segments.

Let me now touch on a few of the key highlights of the quarter at Cable, beyond the continued strong growth. First, importantly, the margin improvement in core Cable and Internet, where we're up year-over-year at 20 basis points to 42.1%. We're please to be able to show the turn in trajectory, and it reflects our focus on efficient subscriber growth, changes in pricing and our marketing approach, as well as holding the line on our cost equation. Solid margin delivery at Cable will continue to be a focus for us.

Another highlight is the solid acceleration in residential telephony. We've had a lot of hard work at the end of Q4, early part of Q1, both in terms of ramping up our provisioning, and also expanding our cable telephony footprint, so that today we're able to offer the service to 85% of our cable customers. So a good ramp up in this product, and we're well-positioned for growth.

Finally, a quick update on the integration on Call-Net into the Communications Division. We have made good progress on combining many of the channels, both on the residential and business side. In fact, we're starting to see some of the progress reflected in the residential growth, and also some meaningful wins that are being recorded in the Business Solutions Group.

We've also transitioned portions of the long distance and data circuit traffic, the needs of Rogers onto our network. Both the Wireless and Cable traffic, as well as internal operations like the call center facilities. And these are being transitioned on to the Call-Net facilities. So a lot of work to be done on the systems integration side, but we have a clear plan and we're making good progress.

So to summarize, a strong operating quarter for us, and we're well-positioned to execute on our plans for the rest of the year. You will have an opportunity to hear more later this afternoon at our Annual Shareholders Meeting.

Let me stop here so that he with can take your questions, and over to Bruce.

All right. Thanks Nadir. Operator, in just a couple of seconds, we'll be ready to take questions from the participants.

Before we begin, we request as we do each quarter, by asking that people be courteous enough to limit questions to one topic, so that as many people as possible have a chance to participate. For the benefit of everybody on the cal,l and to the extent we have time we'll circle back and take additional questions, or we'll get them answered separately for you after the call.

Just take a couple of seconds and explain how you want to poll for questions, and we're ready to go.

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. [OPERATOR INSTRUCTIONS] One moment please for your first question. Your first question comes from Jonathan Allen, RBC Capital Markets. please go ahead with your question.

Thanks very much. Very good quarter. I guess one area where I was a little surprised was on the prepaid net adds, and the losses of 41,000 in the quarter, and churn going up. I'm curious if this is just a hangover from some aggressive prepaid offers that were around last fall and through the holiday season, or if you continue to see some aggressive plans and offers in the first quarter that drove the higher churn?

Yes, Jonathan, it's Rob Bruce, good morning. In response to your question, you know I should come back with something that Nadir has said for a long time, and that is, that as you know postpaid is our primary focus, and it continues to be that way in our channels, in fact we work very hard to get our customers on our high-quality postpaid plans, like family plan.

As a consequence for the people who remain as our prepaid customers, tend to be lower value customers, who are less committed to the service, than some others. And our churn, frankly was a little bit higher this quarter, what we're noting is that because of the nature of the business, and pass down phones that are passed from one customer to a son or daughter, in some cases the commitment is light to the service, currently there are a number of offers out in the marketplace that allow customers to move onto a service for only $5 a month.

So services like Virgin allow you to be on a $5 a month service. Our minimum that we take from a customer is $10. So we have seen an efflux of some of those customers, those lower value customers off our service, but we continue to retain the higher value customers. As well other competitors are giving away data for free on some of their plans, those two tend to pull away some customers. But given our focus on profitability on our prepaid business, we've chosen not to pursue those.

The other thing that I think is context that's useful to answer the question is, we have very little subsidy in prepaid, and pay very little commission on prepaid, as you know. So almost instantly when these customers come on service, we're making profit, and I think we look at churn on prepaid and postpaid as being the same. They're actually quite different because of the commitment, and the amount of money we spent to get the customers. So --

So if postpaid remains your primary focus, should we expect prepaid churn rates to perhaps remain around this level for the next year or two?

I think we can move the prepaid rates from where they are, and improve them. And I think in the long run we'll continue to put a focus on, a sharp focus on postpaid, and we'll continue to try to grow our prepaid business profitably in parallel.

On the same topic, in the past, you've given us some indication on the high-quality mix on contracts on postpaid, percentage on 3 years and 2 years, and I was hoping you could share that with us again?

Again, on the existing quarter 96% of our customers went on contracts. Just off the top of my head, it was north of 66% on 3 years, and most of the rest were on 2 years, very small percentage, less than 5, I believe, on the 1-year contracts. So we continue to be very focused on contracts, and we've made a significant uptick, as you'll know, many vital customers when they, when we bought the Company were not on contracts, and we have moved those vital numbers, as well.

Jonathan, it's Nadir. I can pick up on what Rob was saying and just reemphasize to the people on the call. Our focus is very clear. It is on postpaid, it's on quality of subs, it's on ARPU growth and churn reduction. And if you look at our numbers, we're delivering 20% revenue growth year-over-year, our ARPU is growing 5% on postpaid, 7% blended.

And clearly, our plans are designed to attract the right kind of customer. Prepaid today is less than 5% of our revenue. Wouldn't suggest that we're happy with the churn rates, we're going to improve those, but nobody should get confused as to what our focus is. Our focus is getting the right kind of customer that will deliver the revenue growth that we are, and the margins this quarter 42%, but that's our focus, and we're not going to be distracted from that, having said that, rest assured that we'll improve our churn rates.

Thank you, both.

Your next question comes from Greg MacDonald, please go ahead with you question.

Thanks, good afternoon, guys. Thanks for the update on the Call-Net integration. I'm hoping we that might get a little more detail on that. Specifically, in the press release you mentioned that network customer billing and administrative integration is still to be completed, can you indicate to us whether the whole integration process is on schedule, or if it's behind, and if you might just remind us what you've indicated in the past as per operating synergies, are we still on-target, or is there a typing issue there?

Let me lead off, first off, just on numbers, we haven't given explicit guidance on the synergies that come off of the transaction. But let me set context, unlike the Microcell integration, just to be clear, this wasn't about taking two operations that were already up and running, in many ways, Colin was about adding capabilities to Rogers on the business side, and obviously getting a head start on the home phone side.

Having said that, let me give you some update, some color on the areas that we've make progress and what remains to be done. We have obviously moved off the Sprint brand, in that sense we're seeing the benefits of not having to pay the royalties, there was some offset for some services that we continue to use with Sprint, until we migrate off that.

We have moved a lot of the traffic, the long distance traffic on to our Call-Net network. That's both, by the way the wireless long distance traffic, and also now the call center traffic has also been moved. We're a long ways down the path of moving the data circuits over, and obviously in terms of the corporate type services, the G&A type services, we've integrated all of the corporate functions into the Rogers functions. Whether that's Finance, HR, Corporate services, so in that sense, a lot of the work that was planned for Q4 and Q1 is behind us.

What remains in kind of a substantive way, is the billing system, we've got a schedule that we're working on, and we're on-track. There's two pieces to this. The first one is building the billing capabilities on our billing platform, the [decision 21]. That's the first piece of the schedule, and then second is actually migrating the customers on to the Rogers billing platform.

We've got a lot of teams on board, we meet every two weeks to make sure that we're on schedule, and so far, we're on-track to meeting on our internal commitments, and in that sense, not to suggest the work is done, but it's on-track.

And just as a quick follow-on, and thanks for that. Is it safe to say I'm thinking specifically of the 13% increase in [offbacks] in Business Solution, I'm assuming a lot of that is carrier charges, is it safe to assume that by and large the migration of LD traffic was reflected for the full quarter? Is that part quarter? Should we assume margin improvement going forward on that in the second quarter, as well?

Yes, that traffic move will actually be reflected throughout the year. Just on the quarter, I don't know if you picked it up in the notes, but there was a prior period credit in the expenses for last year, that makes the comparison look like it's a stronger or worse growth in expense, but if you adjust for that, the growth for year over year is actually much smaller.

Okay. Thank you.

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

Hi, good afternoon, everybody. I wanted to talk about the digital business in cable. I looked back, I think you launched this at the end of '99. And this was the best first Quarter household growth that you've ever posted in Digital, you talked about PVRs and HD in the release, could you talk about what digital does for your business on the revenue side today, versus maybe a year ago or two years ago? What kind of lift do you get from digital programming, if you talk about Video On Demand, and what that's contributing if anything meaningful on the revenue side. And what is the, if you could talk about High Definition, and maybe the percentage of your growth digital customer adds that are coming through on HD, so we can understand how much that is impacting the demand side, as well. Thank you.

Okay, I'll take a shot at that. You asked a lot of questions, I wrote most of them down, but I may have missed one or two of them. Let me know at the end. I think what we've been successful at on digital overall is repositioning the product as not really just Rogers digital cable, but Rogers Cable, and using the brand personal television. We are trying to bring everyone when the come on service, or they upgrade on service, to attach to higher levels of spend that was associated with the set top box.

We're pushing a lot of set tops through on attached sort of offers, and where that makes sense as opposed to just going upgrading a customer to a set top, when the customer is installing cable our attach rates are over twice what they were just a year ago. So it's a much more profitable approach to do that.

That's where I think you see some of the stronger financials in there, last subsidies to put boxes out, because we're doing it at the time of attach. And some good growth, in terms of some of the incremental services that go along with that. And as I say, less subsidy associated with that. It's a better quality customer that our churn overall has calmed down, and our competitive disconnects, are more favorably than they were a year ago.

VOD and other things obviously helps drive new revenue streams, VOD overall is still a small revenue stream in comparison to cable television, but it's growth is, is very good, and we're seeing continued ramp up in purchased VOD usage, and in customers knowing what it is, and usage of all of the On-Demand services.

You asked about the High Def, set top boxes, and PVRs, and they continue to be a greater percent of our net adds come on at the higher end boxes, I'll call it, not quite 50%, but close to 50% will be a higher-end box. Now we do sell them. When we sell them, they are being sold at a rate that does not incur a subsidy for the higher-end boxes, and the rental charge associated with that is up to $24.95 for a High Def PVR box. So while they do cost more, we are getting more revenue per box as well.

So, thanks, Edward, you actually got them all. But the HD, you're actually charges $25 a month, and selling them at cost? Is that what you said?

Yes, that was the $24.95 was the HD PVR, the HD by itself is $14.95, and the PVR is $19.95.

Great. Thank you very much for the color.

Your next question comes from Dvai Ghose, Genuity Capital Markets, please go ahead with your question.

Thanks very much. Good morning. Despite your very strong results, your stock has underperformed over the last 3 months. I think in part because the Street is worried about two things in Wireless. I wonder if you could address them. One of them is the entrance of a fourth player, either through winning spectrum, WiFi, WiMax, you know, a nefarious reseller, or so on. I'm wondering if you can address how realistic you think that risk is? The other issue is the rise in COA, you saw an 8% increase year-over-year this quarter, I think you'll say it's justified because of the ARPU and the churn going the right way, and the mix obviously improving, but has COA sort of maxed at these levels, you did subsidize the Razor phone quite aggressively in the quarter albeit for a longer term contract, but is this the sort of the levels of COA we should expect, or do you think they can even decline from here, or will they increase?

I might start with, Ted here, with the subject of the fourth player. There's always a risk that somebody would like to invest in, I guess it's in the billions to build out across the country. There's always a risk of that. The government is always hungry for revenue from selling, or spectrum. So that's something that we cannot ignore.

I think you'll find that market forces certainly in the United States, and in Canada, have actually shown a reduction in the number of separate wireless providers. Facilities-based providers. And I think that just illustrates a point that a fourth, a fourth player would be an extremely risky event. The trend that we have in our business now, is bundling as you know.

And for somebody to come in and try and compete against TELUS and Bell and Rogers in this area, without the ability to bundle, it would be marketing-wise, they would not have the same, they would have a lot of blanks in their guns, and it would be almost a fool-hardy economic activity. However, there are people from time to time who, who are willing to undertake risks and it can happen.

Rogers has more spectrum than any other wireless company in North America. It's quite a statement. We have more spectrum than any other company. And you also should remember our sort of, I won't say secret weapon, but Rogers has always tried to be dreaming up products to come in in the next couple of years. And we were the first to introduce Internet on Cable in North America, back in 1995.

And with Inukshuk today, we are dealing with a proprietary technology, and we will be moderately successful over the next year or so. But that in my judgment will move to being a standards-based situation. based on WiMax. And at that point, the equipment cost will come way down, the modem cost for people to handle it will get much smaller, more manufacturers making it at lower costs, and in a sense, in a sense, the fourth carrier, if you will, facilities-based. We and Bell already share 50/50 that fourth carrier.

This is Nadir. Let me just add a couple quick points to what Ted mentioned, and we'll pass it to Rob. Just to remind everybody of recent history, how soon we forget. We just did the Microcell acquisition, and it was interesting when you look at the bidder list, TELUS was the one that put it in to play, but we didn't actually see anybody else other than the incumbents actually get involved with that. Like wise on spectrum auctions, just the last couple of rounds, same thing, there weren't people outside looking to come into the business. Most of the spectrum purchased was by the incumbents.

The other thing, I think from a timing point of view, if you look at, you know, logically even the next spectrum option is probably is not going to be until past '07, to factor in the build time and the [spot to] build, which is enormous at this stage. You're looking at a time where penetration is going to be substantially higher than the 50s that we're into. It makes it doubly difficult to get in the market.

I think from a customer market point of view, competition is robust, and I think you'll see more envy in those, as you have in just the early phase of Virgin, [Presidents Joy], 7-11, and so on. So from a customer point of view, you see a lot of brands in market, which helps in terms of the competitive marketplace. Just with that, I'll pass it on to Rob to cover the COA aspect.

Hi Dvai.

Hi, Rob.

On COA, in absolute dollars, on a per customer basis, it goes from $380 to $410 as the results show in absolute terms, COA is up to only $4 million. That's magnified slightly because we had fewer gross adds this quarter as a consequence of the prepaid discussion that we've already had, but secondarily as Nadir referenced in his opening remarks, particularly January and February last year, were amongst the most aggressive in the marketplace on gross adds, and I think you'll recall we had a 55 or 54% net adds share and north of 45% gross add share. So we were really really going great guns last quarter.

So we feel that right now, that we continue to spend smartly on COA, focused on investing in contracts as we go into LNP, making sure that our media spends are right, we're getting the right messages out there, investing in the key segments we want to reach and continuing to invest into the business segment as we said before, and our subsidy is focused on the devices that suit high-value customers like Blackberry, and like devices with more functionality that drive data, and those have a cost associated with them.

But, and I think it's reasonable to expect that we're in about the zone where COA is going to continue, to the extent the battle heats up for higher value customers, I think from time to time. You'll see it spike up against key segments, but again, $4 million was the increase magnified by a decline in gross adds this quarter.

Thanks very much.

Your next question comes from Phil Cusick, Bear, Stearns. Please go ahead with your question.

Hi, guys, I wondered if we could followup and talk about CapEx a little bit. It seems like both on the Cable and Wireless side, it was a little lighter than I would have expected. For CapEx, for Cable what is success based, or what percentage is success-based on the quarter? And on Wireless, should we look at it at a fairly low level, until the HSDPA build starts, and when might that be?

All right. This is Ted here. Just a comment generally, try as we might to balance the capital expenditures, more or less equally between the four quarters, it's always very, very difficult, the first quarter is always one where the capital expenditures are less than the other quarters. And sometimes even less than budget.

Thanks for your question, Phil. I think if you were following things closely at the end of last year, there was a lot of fairly aggressive MOU driving activity by our competitors. A movement of 6 months of freedom of speech and a variety of other things. So we had been reasonably aggressive on provisioning our capacity, and ensuring we were in good shape to be fully competitive as we needed to going forward. We also said that Q1 would be about Inukshuk and our HSDPA pilot, and the back three quarters of the year would be on the rollout of HSDPA. So to kind of echo what Ted said, there is certainly a strong element of timing in the Wireless capital spend.

Sure, CapEx for cable, I think it is split between what is, you know to split these terms, you end up spending all of your capital to maintain and grow your business, but if you look at the direct cost related to the equipment we deployed for the three products, and the installation CapEx around that, it would be approximately half of the total CapEx, but obviously all of the Cap Ex is about maintaining and growing the business.

And in terms of the spending, there is some seasonality to it in our business, and it's been consistent over the years. At the same time, we continue to scrub the, get better pricing, but I think we're not, at least on the cable side looking to change our current guidance on CapEx.

Okay. Could we get a quick comment on the HSDPA trial, and then is it right to assume that's going to start to ramp out in the second Quarter?

Certainly, Phillip. It's Bob Berner here.

Hi, Bob.

The trial is actually complete in terms of any work we actually had to do to verify performance. And we're quite enthusiastic about the outcome. So we are now in the process of rolling out our system for commercial deployment later on this year.

And when do you expect to launch the first markets with that?

We'll be launching, we'll be making announcements about the timing of the launch a little bit later, Phil.

Thanks, guys.

But you got to, that's the first stage. The second stage is to have sets, phones, and equipment that works on these new standards. In sizable quantities, and different makes.

And then, the final thing you need is applications. If you just build the high-speed without having enough customer equipment and applications, you will not bring much revenue, added revenue to the situation.

Absolutely, Ted. And just to pick up on your point, I think we said previously that as we get toward the balance of the year, we expect to have between 5 and 7 devices available for HSDPA. And would like to roll out with a bit of a bang as we start to kick off the launch.

Great, thanks guys.

Your next question comes from Peter MacDonald, GMP Securities, please go ahead with you question.

Thanks, can you just describe the changes in the corporate and elimination lines. What's in there, how much relates to services previously provided by All Stream. And then is all of the previous All Stream traffic now carried by Call-Net?

On the traffic question, certainly go back to what I said. We haven't moved all of the traffic, but we've moved substantial amounts of traffic.

We've been very successful in moving the wireless traffic over, we're in the 80-90% region complete on moving the wireless traffic.

Peter, it's Bill, with respect to corporate costs and that's pretty well the only thing that gets of any substance that's reflected on our results that we put out. Our corporate costs are up over the prior year because of putting together the Communications Group under Nadir, so we have some increased staffing in that area, we also have the Nortel building, which we have costs in '06, which we didn't in '05. We've got the financial systems which we implemented, which are in '06 and not '05 and although we expect corporate costs to decline over the next couple of quarters because of a few one-time items, it's still going to be above '05 for those reasons.

So if I just annualized the quarter and take maybe 5% off, that should get me to a reasonable number.

Well, as you know, we don'tbuild your models, but we think there's 4 or $5 million of one-time items that aren't going to be repeated in the first quarter.

Okay. Thank you.

Your next question comes from Glen Campbell, Merrill Lynch Canada. Please, go ahead with your question.

Yes, thanks very much. A couple of numbers questions. First, you're now booking tax, I wondered if you could give us any sort of guidance on what sort of tax rates to use for the year and going forward.

And secondly, the video store closures, a new thing, should we expect to see the number of video stores, the revenues or profits sort of look flat to down going ahead? Can you give us a bit of color on what's going on there, please?

Sure, let me start with the tax situation. Taxes at Rogers are very complicated because the Company's in a transition period at the subsidiary level, which is where you pay taxes, between loss and profit. So we've got this odd situation in the first quarter where we have certain subsidiaries that have accounting profit, and certain subsidiaries that have accounting losses.

Unfortunately when you add up all of the subsidiary statements you come up with a tax effect that is a very high percentage. So number one, you can't take what happened in the first quarter and set any sort of tax number for the future.

Secondly, and most importantly, this Company does not pay cash tax. It will pay its capital tax just like everybody else, we will not pay cash income tax for a very long time, and we have structured the Company such that we have losses in the right places to ensure that. So I think you're going to have to wait maybe a couple more quarters, before you see any sort of normalization in that tax as a percentage of income before tax.

I just think the question on the video stores, last year the video stores did get hit by the downturn in rental, which is something we saw on a North American basis, it has started to stabilize itself. And I would say it remains a profitable overall business, but our retail business for us is not just, you know, an isolated investment.

And if you look at Rogers' video, Rogers Plus, and all Fido stores, they offer a very strong method to sell our products, and to service our customers. And they also give us the ability to take cost out of the business. And if you look at cable, we have a huge number of digital set top boxes and modems where customers go right to the video stores and that takes out the necessity of a truck roll.

And being our employees on the service side, it adds an element to help us fight at our cost, and battle against customers leaving us, and you see positive churn numbers across all of our products. So that's harder to see in an isolated number just in video, but we remain confident of the overall fit of our retail.

If I could just followup on the tax rate Bill, you talked about a more normal rate in a couple of quarters, but also the gains offsetting losses, should we think of the rate normalizing in sort of the 50 to 60% range, and then tapering down over a couple of years, or anything more specific you can give us there?

I can tell you that the Company will not pay cash taxes for the foreseeable future, and that until we get a few more quarters behind us, you're not going to see a normalized tax accounting rate. So for the purposes of, you know, modeling, or whatever you're trying to get at, you're not going to come up with a number in the next short period of time.

It's Ted here, and I must say that this is a great source of frustration to me. We have had consistent, excellent management ability over many years, to create and repurchase some 4.5 billion total worth of tax losses, that's what we have. And so the profits that we make this year will be applied against the tax losses. We will never, ever pay that tax, we already have the tax loss.

So to charge anything for income tax to me is just nonsense, but we are the prisoners of our culture, our accounting culture, and they have unbelievable number of ways to make everything so complicated, that it's unbelievably difficult to understand. Now I'll be serious for a minute because I think that's a danger.

The more you move away from cash accounting into all sorts of high-falutin theoretical accounting, the less the number of financially savvy Board members will understand it or management. It's a great danger, and I hope that that movement will be arrested, and we can move back to a more normal same type of accounting thinking, and not make it the preserve of elitists.

Okay, thank you.

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

Thank you very much. I'm looking for a bit more color on the gross postpaid marketplace in terms of the 7.9% year-over-year decline. Can you comment on what would have been contributed to the market versus market share and [city] Fido's activities?

Again, I'd highlight last year was a very, very hot Q1, just given all of the competitive activities out there. We, as I mentioned had about a 45 share. The market felt reasonably bland, we felt like we got approximately what we'd expected in terms of share, we're extremely pleased of our net add results and, you know, continue to feel that our retention spent is extremely well sprent. We have invested an extra $18 million this quarter.

So let me address that while I've got the floor. We've used it to drive 40 basis points of churn, and we feel that going into LNP, it's an incredibly good spend of the money. While we continue to be interested in gross, we focus on net, and continue to be very committed to driving our churn down and delivering profit will grow.

Thank you.

We have time for one more question. That comes from Jeff Fan, UBS Warburg. Please go ahead with your question.

Thanks very much. Questions on cash flow and specifically on the working capital. Looks like there's a nice reversal on a year-over-year basis. And just wondering, Bill, whether there's any timing impact with respect to receivables and payables. And how we should look at the working capital for the year, because it does have a pretty significant impact on your overall free cash flow, thanks.

There's no major items, there's a few seasonality things like bonus payments and things like that that happen every year. But that's not going to have a huge impact. It's obviously an area of focus for us because the more we can do in that area, the less money we'll have to borrow and pay interest on. We were also benefited a small bit in the first quarter by the implementation of our financial systems, and then we had a few delays in paying a few things. But we don't see any trend that's much different than what you see in the first quarter.

Okay, thanks.

All right. Operator, let me thank you for conducting the call, and before I close, let me just mention this to everybody on the call. When I was doing the intros at the opening, I went right past Randy Reynolds, who is here with us without introducing him. He's the President of the Rogers Business Solutions. Many of you know he joined us late last year. He's doing an absolutely terrific job of leading our business channel. And I know many of you will have a chance to meet and speak with Randy in the future.

With that, I want to thank everybody for joining us today, we appreciate your ownership and your coverage. There will be a rebroadcast up both on the website, and there's a dial-in number on the release, as well. If you joined the call late, if you have questions that weren't answered on the call, or you couldn't get through the queue, we apologize, please give Eric or myself a call. Our numbers are in this morning's release. Thanks for your participation, and that concludes today's call, thanks.

Ladies and gentlemen, this concludes the conference call for today, thank you for your participation, you may now disconnect your lines.