Rogers Communications Inc (RCI) 2006 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you, for standing by. WElcome to the Roger's Communication, Inc. Fourth Quarter Year End 2006 Results Conference Call. [OPERATOR INSTRUCTIONS] I will now turn the conference over to Bruce Mann, Rogers Communications Management Team. Mr. Mann, please go ahead.

Thanks operator and good morning everyone. Welcome to Rogers Communications fourth quarter '06 earnings teleconference. On the line with us today are Ted Rogers here in Toronto our CEO. Bill Linton our Chief Financial Officer and Nadir Mohamed who is President and Chief Operating Officer of our Communications Division.

Also with us are some of the divisional Presidents including Rob Bruce from Wireless, Edward Rogers from Cable, Randy Reynolds from our Business Solutions Team and Tony Viner from Rogers Media, along with a few members of their respective teams. Just quickly, we put out our fourth quarter '06 release and also our guidance for full year 2007 on the wires just after four o'clock this afternoon.

It's lengthy, only been an hour but it's important that you have a copy of that and you can find one on Rogers.com or on Canada or PR News Wire and also on First Call and you should be able to fully review that in the context of our discussion. For the call today including the cautionary language and our 2005 full year MD&A. They do contain forward-looking and cautions around that information and those cautions in references apply equally to our discussion and dialogue on the call.

With that let me turn it over to Ted Rogers and then to Bill Linton for some very brief introductory remarks and then the management team will take any questions that you might have this afternoon. Please go ahead Mr. Rogers.

Good evening and thanks to all for joining us. This quarter's excellent subscriber and financial results combine to represent, I think one of the best quarters that this company has ever had.

For 2006 overall, I hope you will agree that we delivered on our commitments fully and then some. It was a good management team. Revenues, EBITDA, net profits and subscribers to our various products almost significantly higher, more and more we organize and operate as a single company cooperating together.

On the subscriber front, obviously continued solid growth of wireless. With continued terrific performance on churn at wireless. Excellent subscriber results again at the cable business. One of their best years ever. Within especially good year-over-year performance on cable telephony and with continued healthy growth of both high speed internet, digital cable and basic.

Combined we added 29% more revenue generating units at cable in the fourth quarter of this year, and in the same quarter of last year. From a financial perspective, double-digit top line growth have both wireless and cable with healthy organic growth at media as well. And Bill will take you through the details in a moment.

If I could characterize last year, I say it was a year where we were unencumbered with big transactions. And we just plane stayed very focused on execution and integration and are making Rogers more stable and what I call industrial strength.

We believe that our 2006 results show that we are making progress in these respects. I think we delivered a good balance of growth, profitability and continued healthy investment in the many MPV positive growth opportunities that we have on our plate.

As you can see from the guidance were targeting more of the same for 2007. And our core focus that being execution, integration and profitable growth does not change. While I'm generally pleased with our prospects for continued growth, most of my management team would tell you that I'm pretty much dissatisfied with just about everything else. We still have a lot of work to do in just plain serving the customer better. And that's stepped up focus for us in 2007.

It's easy to say those words, but it's a lot harder to actually execute and achieve them. We also have some large changes and unknowns that we must manage flawlessly over the coming months. Now, wireless number portability is coming up. I think we were in good shape. Launching our high speed HSEPA3G wireless service across most of Canada, the highest speed wireless service in the country. Turning off our older analog and TDMA cellular networks so that we are 100% GSM. Integrating the GT-360, C-like assets that we just acquired and generally hammering out a more focussed and sustainable strategy for the business market.

Adapting to shifting regulatory tides and telecom cable and broadcasting seem to be moving with dangerous speed or in some cases just plain flip-flopping all together. Frankly, adding a lot of uncertainty around how we plan and build our business. Until recently, we had a successful history in Canada of balance evolution in our regulatory frameworks which we could feel comfortable building businesses around and making substantial investments. It seems that over the past few months that many of the very premises with our telecom and broadcasting regulatory structures that are built upon are being thrown out the window even though -- unilaterally like in some kind of revolution or something like that. The Bastille day. I find it very dangerous for the entire system to have this tinkering.

We support the broadcasting act. We support competition. I'm very much a nationalist. But there are right ways and there are wrong ways to effect change. Whether it's in how we regulate and transmonopolies or how we fund our cultural priorities and I'm concerned of the current path portends more uncertainty not less in the coming period.

The role of Rogers Communications is to be the honest broker in a lot of these matters between parties that have got up a lot of steam. As I said on this call last quarter, we are going to continue to invest for future growth. Further strengthening the infrastructure of our facilities where we believe we can build value for our shareholders and franchise.

In 2007 guidance, you will see that, but to give you a bit more color on some of the initiatives we are focusing on, they include the upgrade to most of our remaining cable systems in the meantime and remaining Ontario cable systems that are surrounding our larger markets per our extensions of our larger markets. And the economics of adding telephony to the bundle now makes us compelling.

Strengthening our wireless footprint in selected regions to give us better service and coverage and some of the rural areas and corridors. Strengthening our existing footprint so that it is beyond question absolutely solid. Investing in support of the rapid growth of our home phone service. Including accelerating the pace of migrations from our circuit switched unbundled loop platform on to our cable plan.

Integrating the assets we have in the business telecom side and generally developing a strategy to reposition the profile of our telecom business more unto our own cable facilities. It makes sense. Relocating our rapidly growing sports net business into a brand-new state of the art high definition production facility, Tony Viner is having constructed at the Rogers Campus and we were excited about that. We were consolidating the three elements of our retail operations.

Which are the Rogers Plus Mall stores, our video stores and our [Fido] stores, into a single integrated unit that will execute as a consistent integrated sales and service presence from Rogers for Rogers. Now there is no doubt that the video business is going through great change. But by integrating all of this into the Rogers needs for wireless and cable and business, these stores become invaluable to us.

We were deploying what we call our ICM system which is essentially the common front end between our cable and wireless systems to give our service reps and the reps in the stores an integrated multi-product customer view. Of course, we were continuing that the deployment is underway of the newer technologies, YMAX, digital cable, high definition which is a great winner and will be a fabulous winner over the next year or two.

As I said before, we intend to continue to replenish the growth platform to ensure that we drive solid growth not just this quarter or this year, but for years in the future. That's what Rogers is all about, long term sustainable growth. And while we have continued to invest we've also continued to delever during the past year. And in fourth quarter we were now solidly eligible for investment grade. And this is one of Bill Linton's and my objectives for 2007. We think the company deserves to be investment grade and we are working very hard towards that end. We are focusing on execution, not running all over the place buying things.

I will stop here by saying that we had an excellent year last year. I'm really grateful to our management team and all of our employees. We were optimistic about this year and we are making progress against many of our priorities. The same time we are in a fiercely competitive market and we have much hard work in front of us. I would like to turn it over to my friend and the Chief Financial Officer, Bill Linton, to highlight some the results.

Thank you, Ted and hello, everyone. I will quickly hit on a few of the more significant financial highlights in the quarter. First we recorded the highest revenue quarter ever with revenues above $2.4 billion. This represents 14% top line growth versus the same quarter last year. And that's all organic growth driven by wireless up 20% and strongly supported by double-digit top line growth in our cable and telecom business at 11% and solid growth in our media business as well.

Second, continued strong subscriber growth which we prereleased a few weeks ago and which reflect our continued focus on post paid wireless and cable telephony. A healthy wireless net ads combined with continued post paid in churn reduction and the ARPU growth created powerful operating leverage for this high growth segment. The wireless industry in Canada continues to demonstrate excellent fundamentals.

We expect around 5% growth in wireless penetration again in 2007, much as we have seen consistently in each of the past several years. Though I note that we are seeing a subtle leveling of activity between the third and fourth quarters. There is a bit less consumer activity during the holiday shopping season offset by a growing activity during the back to school period. Continued very strong growth in cable telephony with nearly 100,000 subs loaded on to our voice over cable network telephony network in our cable territories. That's more than three times what we added in Q4 of last year. Approximately 13,000 were subscribers we migrated off of our circuit switched telephony platform. These migrations onto our cable network take some additional capital up front that enable us to eliminate the [Ialex] for unbundled loops. As you see in our guidance we are going to invest in stepped up migration activity again in 2007. EBITDA or operating profit for the quarter was $752 million, and is up 46% over the fourth quarter last year.

It's important to note as we mentioned in the release that Q4 '06 including one time adjustments at increased wireless profit by approximately $20 million. And that in the fourth quarter of '05 it also included just under $20 million of one-time items but those were in the other direction. When you combine the two effects the year-over-year growth in wireless and on a consolidated basis it's actually about 35 million less than the reported. So I don't want everyone to extrapolate all of the fourth quarter growth rate or margin expansion you are seeing into future quarters. However, we still had great growth. And good continued operating leverage.

I also want to point out the reclassification where we recorded retention related hand set subsidies on the P&L which we discussed in the release. Just so everyone is clear, this is a matter of geography above the operating profit line. It has no impact on network revenues, on EBITDA, on network revenue margins, on ARPU or any of our other metrics. We provided a schedule of the last two years of quarterly results on this same basis in the release so that you can -- so we can be help in updating your models.

Capital expenditures in the quarter totalled 554 million which brings us to the high end of the guidance range for the year. As we said last quarter, for a lot of the spending mean back end loaded for the year old and for the majority of the year-over-year change at cable and telecom, tracking the significant increase in telephony net ads putting in place the capacity for 2007 and the purchase of the GT360 network aspect that was done at the end of December. Simple free cash flow which is EBITDA less capital and interest was $47 million in the quarter. Up from a negative precash flow of $83 million in Q4 of '06, '05, sorry. So we had continued growth in free cash flow and the normal pattern for Rogers of the seasonal dip in free cash flow driven by high Q4 customer acquisitions at wireless and this year the push into cable telephony.

Healthy year-over-year EBITDA growth combined with about $750 million reduction in our borrowings from last year drove our debt to the last 12 month EBITDA ratio down to 2.7 times including derivatives from 3.9 times at the end of last year. So we had excellent progress also in deleveraging. And that allowed us to increase our dividends by 113% which we implemented with the first payment in early January.

Just a couple of days ago, we repaid upon maturity a $450 million note issue which is in line with our intention to continue deleveraging during 2007. We will be working with our board and speaking with the rating agency sharing the first half of 2007 on our capital structure and balance sheet policies and would target having some additional guidance to share with you in this regard later in the year. On the 2007 guidance, we provided in the release, you can see that we were targeting another year of double-digit top line and operating profit growth. Continued investment to ensure continued long-term growth and almost doubling a free cash flow and continued healthy rates of subscriber editions across the business.

A couple of subtle but notable changes in how we are giving our 2007 guidance. First where we used to only provide guidance on each of the three OPCOs, this year we are providing guidance at a consolidated level. This is reflective of how we were increasingly managing Rogers as an integrated company versus three separate businesses.

We also provided guidance on free cash flow which we haven't done in the past and that's because we haven't had it in the past. But in all seriousness we generated half a billion dollars of free cash flow in 2006 and we will nearly double that in 2007 hopefully reaching $1 billion mark. Two other items I will note for 2007 are first, that we were folding our home phone sub segment into the core cable and internet segment effective with Q1 '07. With the majority of that business now in the cable plant and with the business now fairly well integrated, it's the right time to do this as it reflect how we were managing that part of the business today.

Secondly and lastly, as you can see we are providing our cable, Internet and home phone subscriber guidance in terms of total revenue generating unit versus separating each of the products out. This is for obvious competitive reasons. However, we will absolutely continue to report our actual sub results in each quarter in the same level of detail that we did in 2006.

Overall, this is a set of targets that is respectable and achievable but which also recognize has unique combination of the uncertainties a we need to get in 2007. Including wireless number affordability. Turning down our TDMA in analog wireless networks. Launching HSVPA and regulatory uncertainties in the telecom and broadcast space. I'll echo Ted's earlier comment and say that 2006 was a very good year for the company where we were buckled down and focussed on execution and that's exactly where we are focussed again as we go into 2007. I will end it there and we were happy to take your questions.

Operator, we will be ready to take questions from participants in a couple of seconds. I will quickly before we begin request as we do on each of these calls the participants that choose to ask questions be courteous enough as to limit them to one topic at a time so that as many people as possible have a chance to participate for the benefit of everyone on the call. And to the extent we have time, and I hope we will, we will circle back and take additional questions or Dan and I will get them answered for you separately after the call. So with that, operator, if you explain how you would like to pull up the questions. We were ready to take them.

[OPERATOR INSTRUCTIONS] First questions comes from Dvai Ghose of Genuity Capital Market.

Thanks very much. Fabulous wireless quarter indeed. If I could ask a question related to three points. Your gross post bait subscriber editions were down year-over-year. When we talked to Bill about it on the call they attributed to on lack of marketing on family plans as well as narrowing I'm wondering to what extent that was the issue. And secondly looks like we haven't seen Tellis's numbers yet but once again you got well in excess of 40% of the gross share of post paid additions in the industry. To what extent do you see [inaudible] -- as you spoken about in the past.

Hi, it's Rob. In terms of our gross -- gross post paids down year-over-year, Frankly we thought that the market seemed to us to grow robustly and was highly competitive in Q4 as it always is. And frankly we were pleased with our results. It's hard to tell right now to what extent the quarter was smaller in terms of size because of course Tellis hasn't released yelt. So be early -- I think there are some things that made the quarter feel a little bit smaller and Bill touched on a few of them. Industry churn continues to go down.

There is a leveling shift from Q4 to Q3 that does continue to go on for the past couple of years and I think a little bit of a shift of prepaid and a shift to wholesale going on at the same time all has made us feel during the quarter like it was a little bit softer. But I think it's really important and you have seen this over time as you can't just look at one quarter things continue to feel robust. We were thinking that next year the numbers as Bill said will be quite similar to where they are this year.

Rob, a quick follow-up, will the decline be similar of the Fido as well as the Rogers channel?

We don't break the numbers out separately to divide. A lot of the things we saw in Rogers were exactly identify on the Fido brand. Coming back to the share question that you asked, we continue to sort of sit back in Q4 and put our hands in our pockets and not respond to what I thought were some reasonable aggressive offers. I think the strength of our brand, the strength of our network is increasing and at times we are a little bit surprised at the end of the quarter with the share we took and I think that's probably the case in Q4.

Thanks very much and congratulations again. I think quite a challenge for Mr. Rogers to find anything wrong with the wireless results.

Thanks.

Next question comes from Greg MacDonald of National Bank Financial. Please go ahead.

Good afternoon, guys. And again I'll say nice margin on the wireless but I think that's an understatement. Quick question to you on that subject. Looks to me like you are looking at kind of low to mid single-digit increases in cost of acquisition per gross ad going into '07. Is that -- and we noted that's possibly a mix issue, possibly an absolute gross ad issue in terms what we are expecting for 2007. I wonder if you might confirm that I'm accurate in making that estimate. And as a second sort of follow on to that, is it -- is the assumption you are making predicated on an assumed increase of competitive activity after wireless number portability or are you assuming the competitive activity remains fairly stable?

Start off with we think COA is going to be relatively flat. It will continue to be lot of activity as we all continue to try to get decent shares of higher value customers. But going forward we think it's going to be relatively flat. And in terms of wireless number of portability or local number of affordable we think that will be a non-issue with respective to TOA.

And the very quickly after this, is it possible in your opinion that cost of acquisition per gross ad could actually decline in 2007?

I think it's doubtful honestly. I think particularly looking at next year it will be an unusual year. Local number affordability will make it an unusual year. But think it's reasonable to think it will stay flat.

Okay. Thanks very much.

Your next question comes from James Breen of Thomas Weisel Partners. Please go ahead.

Thank you. Can you hear me?

Yes.

With respect to the wireline part of the business and the transition you are making from some of the circuit switched over to voice over IP. Can you talk about the margin differences there either on the gross margin or EBITDA level as you switch those customers over because it seems it will have an impact on those cable margins going forward. Thanks.

Okay, thank you for the question. It's been a process we were doing since we launched in July of 2005 and it's an 8 to $10 a month improvement. And customer we moved them over to cable we also do find a general improvement in churn, there is obviously an offset in cost on the capital side to move them over.

Great. Thank you.

Your next question comes from Randall Rudniski of Credit Suisse. Please go ahead.

Thank you. Couple questions just related to the wireless EBITDA guidance. And hopefully I got my numbers right here. The guidance seems to suggest that revenues that wireless will rise 14 to 16% in '07 and margins will remain quite flat. But if we adjust for the 170 wireless stores transfer to retail revenues look like expected them to be more organically 15 to 19% which is obviously higher. But margins being flat to down. So first of all, am I interpreting that correctly and second of all why do you think with that kind of revenue growth that margin expansion would be so limited in '07?

Randall, it's Rob Bruce, again. Listen, the transfer of the stores really have no impact on revenues so there won't be any change there. I think that should sort of set the record straight. In terms of revenue period, the guidance range is swing from around 14% to 16% as we look into next year. I think the things that are important to say about where revenue will be and why it is in that range as opposed to higher in the 18 or 19 range where it's been this year subscriber growth we think we will be softer in general.

We have done an awful lot of alignment between some of the Fido pricing and some the Rogers pricing and narrowed that gap significantly and frankly took a number of one time price increases over the course of the year. We don't believe will be available to us going forward. And we get to the margin side, many ways it picks up on the thread that Bill discussed earlier. Much of the success in terms of margin expansion was driven off the integration of Fido. We now have been integrating that for two years. Largely done and we don't expect to be able to continue to grow on the backs of Fido integration. And as well, frankly on the LMP side and churn side, we think there will be some challenges to churn as there have been in other markets with LMP. We were optimistic that that's going to blow over in short order and we will get back to business as usual. All of those things are things that will impact the revenue and our EBITDA targets as we go forward.

Thanks. That all makes sense. Then I'm curious as to in the supplementary cable and telecom guidance for Rogers retail has 485 to 500 million in revenues projected for or guided for '07 relative for $310 million for '06. What is behind the big increase of Rogers retail?

Randall part of the difference is it's two things that happen on the retail side. One is the transfer of the Fido stores and the Fido retail present and into Rogers retail. And the second one is I will call it the repatriation of about 100 stores, 95 or so stores from stores that were run by Circuit City, the old Radio Shack agreement that we had. We were now taking those over as part of Roger's retail to that extent those revenues are part of Roger's retail.

So it's not going to affect the wireless reported revenues?

Correct.

And just quickly one more on the same subject. What do you think the potential costs as it affects EBITDA might be relating to the shut down of the TDMA and analog networks in '07?

Do you mean in terms of cost savings. We don't think there is material cost savings from shutting down the network. We are continuing to as you know hand set upgrade our customers. As we move toward the PDMA and analog turn down, there is a distinct bias toward those customer particularly the high cost customers on TDMA and analog but--- material effect and all the effects are baked into the guidance that we provided.

Will there be a COA effect as you give out [inaudible] GMS handsets?

No.

Thank you very much.

Next question comes from Jeffrey Fan of UBS. Please go ahead.

Thank you very much. I want to ask a question on Rogers home phone and tie that into your RGU guidance for 2007. First of all on the RGU side, it looks like what you are guiding is flat net ads for next year versus 2006. And I know you might not want to break down specifically some of the moving parts, but can you give us a sense as to what -- where do you see ads going up? Where do you see it trending down going into '07? And on the home phone side specifically, it looks like by our calculations by 2007 we should start to see the cable telephony side, the voice side start to break even given the scale you are starting to reach through '07. Can you comment on that a little bit? Thanks.

Sure. I think I will talk on the revenue units on home telephony. There are two parts to it. There is obviously the large it's home phone on cable which we are continuing to see strong growth on and Rogers home phone on circuit where we are seeing some good growth out of territory and we are moving the customers in territory over to cable. And I think we were planning to have another strong year in 2007. We did ramp up in '06 and that got good traction. And so I think we were pleased with the current guidance that we put forward.

Our revenue generating units across the board I think we are looking to have a good year in all products and pushing ourselves on all products. On the profitability of RHP, you are right that we have gone through an investment cycle to turn RHP cable up and to really drive the penetration quite fast which we hope to continue in 2007. And that scale will bring with it a profitable business for 2007 and as we go forward.

Is it reasonable to say that -- the home phone ads for 2007 should be higher than '06 given especially given the VoIP side and marketing that it started to ramp through the second half of '06 from a year-over-year comparison basis you have first half of '07 that we should see pretty significant ramp up from the first half of '06.

Jeff, and I know you won't like this answer very much, but the reason we have gone to revenue generating units is we don't want to provide in detail to our competitors in all of these products a lot of detail on where we are going to emphasize and where we aren't going to emphasize. I think it's best that we just leave it there. We will continue to provide you with our actual results and you and others will make your projections. But as management team we decided that that just wasn't doing us any good at all to provide that level of detail so we stopped.

Fair enough.

Your next question comes from Tim Casey of BMO. Please go ahead.

Thanks. Couple things on the cable side. Could you share with us what your expectations are on the fee for carriage decision in terms of your margin assumptions and also what should our expectations be regarding digital migration? Do you think you will start recapturing some spectrum this year or is that more of a 2008 and beyond story? Thank you.

I will start on the fee for carriage, it's still as yet to be ruled on. I think as we put out in previously it's [inaudible] a fee for carriage. We passed that through to our customers whatever that level is. And identify that. I think when you look at the recent action in the media industry today, there is a high multiples being paid for these companies so they are not -- it's hard to argue that they need these sorts of fees.

But I think we were confident and waiting to hear back. On the digital side we are always looking to repatriate more spectrum on the analog side to free up areas for high definition growth and for future deployment of [DOS 3] and other things. I think we were pushing the digital penetration well, but I would not look for any larger patrization of spectrum in 2007.

It's Ted here. I might just add that we have a little difference in the company. I think in probably 2009, when the Americans in February take over the air analogs off will be a good time for us to move Terra 3. But that's just a -- and I think the spectrum will be needed about that time. There are people who know more than I do in cable who think it would be 2010 or maybe 2011. But it's certainly not going to be in 2007 or 2008.

Next question.

Next question comes from Amy Gladding of CIBC World Markets. Please go ahead.

Thank you. Good evening. Question just you mentioned you would be focusing on execution in 2007. I'm just actually wondering if there are any areas that you are considering some smaller acquisitions. There is a lot of M&A going on in the media space as an example. I'm wondering what your view is on that?

Let's ask Tony Viner to comment.

It's our policy we don't comment on any M&A activity that is speculated or going on. We have a very small group and they might be a little under utilized this time because of our focus on execution.

Okay, then maybe quick follow-up. It's sort of on the regulatory changes you mentioned coming down the road. What are your plans to deal with them if they do come into effect mid year?

Specifically which ones were you referring to?

One of the local phone de-regulation.

I think on the local phone de-regulation we continued to put forward our reasons that while the government has to continue to foster healthy competitive environment. But if you do look at the market today, the local phone companies are fighting and fighting hard. And have had the ability to use windback offers on long distance and other parts. And I think we are going to continue to do very well and have a great offer. And I think that's still to see.

Thank you very much.

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

Thank you. Great numbers. Question on your Cap Ex outlook. I wondered if you could discuss some of the projects that you are entertaining in '07, sort of where the money is being spent, the SMB footprint and timing of that sort of rollout. And maybe just what kind of savings you respect to see from acquiring the 360 networks assets?

John, I'm not sure I caught the front part whether you were asking about Cap Ex generally or with respect to SMB.

Well, generally and then SMB for example.

If you looked at the wireless side first, no question the focus there is the deployment of HSVPA, and we started in '06. We are continuing along in '07 where we will extend through the course of the year just 25 markets. As you know, we launched in the golden horseshoe. I really little bit of quality, some technique reference to some improvements and we will have coverage. That is the dominant network site. On both wireless and cable telecom Cap Ex, the one thing we are doing more of in '07 is investment in what I would describe as customer's ICM systems. Reference to something called ICM, integrated customer management. We are absolutely convinced that we need to move as a company from product centric view to a customer centric view. Our billing systems are based on networks. We have a [inaudible] billing system for wireless and cable.

What we are doing is layering on a system called ICM that makes it easier for our front line to deal with our customers and it's a commitment to say over the 2007 and ongoing period we will really be focussed on moving the yardstick on customer experience. So there is a bit of investment in there. On a cable telecom site, we have investments around for the growth of the RGU growth that we have included in that is the migration for Rogers home phone and obviously through the set of customers that we see migrating in '07, Edward made reference to the margin saving. There is a Cap Ex involved in that migration.

We do also have investment in both on a cable side as well, with respect to upgrading some of the rural systems in Ontario as well as the Atlantic, so that's built in as one of the new initiatives if you will. And finally on the business side, clear commitment to say focus on net we have got some investments on enhancing our cable reach and finder that we have on that. We have some investments and new products including products for the business market on the IP data side and voice. And last thing is integration work with respect to the GT assets and the one thing I didn't mention on the CP side we have also got a penetration in digital that would have some Cap Ex related to boxes. That's pretty broad answer to the general question feel free to ask anything you might want on specifics.

That's a great answer. Ways looking for exactly something like that. And just I guess I wondered if you had some sense of the cost savings you might realize in the 360 or GT assets you acquired. I want a quick follow-up with Bill as well with the 19 million EBITDA pickup in wireless, is that a recurring number we should expect or per quarter or per year? Or a one timer?

It's just a one timer. Came out of the very detailed SOX work we were doing all year so you shouldn't expect that to continue.

Thanks.

And on the GT assets, [inaudible] just more detail on. But essentially when we took over the last assets in Q4 at the end of the year. One of the thing that we still have is as an ongoing relationship with Bell where we still pay them for a percentage for the work they continue to do in '07, so in that sense, yes we take the assets but there is a [inaudible] -- that continues and we see if they cut some the costs with the assets including rent and so on. So from that perspective '07 is in the year that we had the savings. They come through 08 and onwards.

Great. Thanks very much.

Next question comes from Vince Valentini of TD Newcrest.

Thank you very much. Question relates to the use of the free cash flow and thank you for giving us free cash flow guidance. If you do towards $1 billion and the dividend is $100 million. You identified some things you don't include in that guidance like [inaudible] investments and integration costs. I get those adding up to $85 million. But that leaves me 7 to $800 million at your disposal that you will need to spend. Can you give us some flavor as to what you are thinking about? Buying back shares, higher dividends. I think you basically said you don't want to make acquisitions because you like this focus on integration but maybe I read too much into that. If you could comment that would be great.

It's Ted here. I think we want a balance between the debt holders and the shareholders and the board discusses these matters regularly at their meetings. In the case of the shareholders, you can consider of course the share buy-backs or increased dividends our dividend is not 1% of share price it's 0.4% or some such number so you have your choice there. The question of debt holders we just bought $450 million. We would buy more next year. I think there are two issues, Bill that are coming up next year. Could you mention those, too.

Yes. We paid off the $450 million note last week. And then starting next year we have the ability at a premium to buy back some of the floating rate notes. So there is a 500 -- I think it's $550 million U.S. issue that we could start buying back and then a subsequent year there is another $400 million note that we could buy back.

If I could put that, Bill -- if you start buying back more debt, I mean, your debt leverage you said is already down to 2.7. Just purely through EBITDA growth I think that will get down into the low twos over the next year. If you use more free cash flow to get back debt and get under levered pretty quick and taxes are looming at some point in the future. I'm assume you don't want to take your debt down to one and a half times like Bell is.

What we said in the remarks earlier is that this is an active topic of discussion. In fact at our board meeting today it was brought up as well. We think we don't have free cash flow this quarter because we paid off a $450 million note. Over the next couple of quarters we will further discuss it and we think we will have a crisp consistent answer for you. Over the next few months.

Please be patience. Rogers isn't used to free cash flow much.

Thanks.

Next question comes from Peter McDonald of GMP securities. Please go ahead.

Just a clarification on the wireless EBITDA, the $16 million then is a recurring cost savings?

Which $16 million?

There was $19 million which you said was one time. The other adjustment was $16 million versus 2005. That's just a change versus 2005.

Yes, that was in 2005. There were two things going on that made the numbers that 70 plus% year-over-year look higher than we felt it should look. That was some changes in 2005 that took the 2005 numbers down and some positive changes in 2006 that took the numbers up.

So the normal --

Both one time.

The normalize is 498 then in the quarter?

I don't have the exact number in front of me.

35million less than the reported number.

That's right.

So 482.

And I guess the win other thing that's worth considering when you think about the numbers is the reduced number of gross ads meaning lower COA and I can't remember the number off the top of my head but it's around 15 or $16 million impact of lower COA year-over-year from 2006 to 2005.

And then if I could ask a question on wireless, too. I know some of this is addressed already. If I look at the net subscriber loading for the entire industry it looks like it will be down for the first time since 2002. If you look back over the year, is there anything specific that happened whether it be trends or events that you can point to account for that. And as it has been pointed already the loading mix between competitors wasn't uniform as it has been in the past. You have addressed local number portability a bit already.

But Bell has commitment to rebalancing that market share mix. I'm just wondering what you've included in your guidance with respect to potential price pressures that might come into the industry and where should we be looking with respect to both your revenue guidance on wireless because of the price pressures and as well on the loading side when you take all of that into consideration.

I think we feel very comfortable that the guidance recognizes the pressures that we will see next year. I'm not sure I will be able to elaborate much beyond that to be honest with you.

And then maybe you could just discuss a little bit more on local number portability. Are you looking at that as a nice advantage for you this year that other players might not necessarily have as potential migration from regular land line customers as well as on your business side?

I think clearly we are in a market where there is three very competitive and skilled companies. And we were going to implement as well as we can as an industry to make local number portability work for all of the customers out there. We think it's not going to be destabilizing factor in terms of share and we expect that in our market like the U.S. and Australia that things should return to business as usual pretty quickly after its implemented.

If I could ask one question on the Cap Ex side on cable, Mr. Rogers, you talked about not having to repatriate spectrum until maybe 2009 or 2010. But I think when I listen to Comcast speak, they talk about the demands on high definition TV both on the number of channels maybe on increasing the on demand side of it and they are talking about switched data or switch video story possibly coming down the next 12 months, 6 to 12 months. I'm wondering how that plays in with your comments on the spectrum recapture?

I think what you are hearing is that the good news is that there are different ways to get more spectrum and switched video is one that people are talking about possibly coming. But these things are still being worked on moving over time to MPEG 4 type boxes for high definition is another. And for small rural unbuilt areas, some cable companies are looking at that, too. There is a few choices out there for us. I think we were just not calling on Comcast but for us when we look at growth that we are seeing and the spectrum needs we will need and that's roughly the range.

Rogers is a leader in high definition. We are proud of that. We have the most high definition customers in Canada and we believe we were growing on that lead. And so we aren't going to be shy to invest in new products and having the best product out there and that's what our assumption is as we go forward. But we think we can still do that and we are going to evaluate, Switch and MPEG 4 and all of rest of them but these things aren't quite here yet.

No decision on that and that's not in your Cap Ex?

There is some Cap Ex to look at things. But nothing that is where we will implement on a large basis.

Okay, thank you.

It's Bruce Mann. Let me add quickly so you and anyone else on the call is clear and we put footnotes on both page for under the consolidated financial table I think it's note three and also on page 11 under the wireless financial table that there were-- as Rob said there were some one time items last year that had the effect of reducing earnings or operating profit at wireless. One time items this year in the fourth quarter that had the impact of increasing them. The total of those two which impacted the year-over-year change was $35 million. The amount of how much was in last year versus how much this year we detail in the footnote and it was 16 and $19 million respectively.

This quarter versus what should have been this quarter is only 19 then?

If you are looking at change year-over-year, it's almost double that.

I'm just saying on an ongoing basis the only adjustment I need to make in my Q4 number if I want to project that going forward is $19 million.

Obviously there is all kinds of trends in the business that go up and down at any particular point and time, from just the one time accounting kind of thought, yes, that's correct. We just didn't want you to confuse Rob and Bill's answers which were both correct.

Peter, the another thing I wanted to add back is I thought about your question more, Peter, was that the fact that our revenue is not as high in our guidance for next year as we saw an actual fact this year, doesn't in anyway, shape or form consider or is predicated on more aggressive pricing in the marketplace.

Okay, thanks for the clarification.

Particularly not led by us.

Ladies and gentlemen, we have time for one more question. Your last question will come from Rob Goff of Haywood Securities. Please go ahead.

My question is on the cable internet and home phone guidance. When you look at the guidance for revenue and EBITDA growth, the implied margins there would range between 30 and 35.5%. Do you feel there is a downward pressure on those margins more from repricing of existing services or underlying cost pressures. Are the margins on the new RGUs lower than your current margins?

My best answer, number one, I think when I was working to improve our margins as we go forward but we aren't trying to make the investments we need. First, as you can see in our RGU guidance, we are pushing to have strong sales of all products and continue that growth as we go forward. Secondly, we do continue to make investments. We were making an investment to relaunch our VIP on the television side where we are putting two very highly viewed movie channels on tier three, American Movie Classics and Turner Movie Classics, launching a tier 4 product that comes with the digital VIP product. While these will drag some costs on an initial basis we believe it will make its much more competitive, drive basic and net ads and allow us to continue to put through some rate changes over the next few years.

It's Ted here. Basic cable, basic cable just by itself, no tiers or anything else that's the most profitable thing we have. So you go downhill and the percentage after that, you go uphill in terms of your earnings and your EBITDA which is what it's all about. It's nice to look at margins but I like to look at the money.

Thank you very much.

Thank you, everybody for participating this afternoon. We appreciate your ownership and your coverage and if you have questions that weren't answered, operator, I'm not sure if people were left in the queue or not, on the call. Please feel free to give Dan or my self a call. Our contacts info is on the release we put out this afternoon. A rebroadcast up probably by now on the Rogers.com website and that concludes today's call. Thank you very much.

Thank you.

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