Rogers Communications Inc (RCI) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Rogers Communications Inc. 2008 fourth quarter and year-end results conference call. At this time all participants are in a listen only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions) I'd like to remind everyone that this conference call is being recorded today, Wednesday, February 18, 2009, at 8:00 a.m. Eastern time.

I would now like to turn the conference over to Mr. Bruce Mann, Rogers Communication management team. Please go ahead.

Good morning everyone. Thank you all for joining us for Rogers fourth quarter '08 investment community teleconference. It's Bruce Mann. Joining me here today on the call from Toronto are Alan Horn, the Chairman of Rogers Board of Directors and also our acting Chief Executive Officer; Bill Linton, who you all know is our Chief Financial Officer; Nadir Mohamed, who is President and Chief Operating Officer of our Communications Division; and then our three Divisional Presidents, Rob Bruce, from Rogers Wireless; Edward Rogers from Rogers Cable; and Tony Viner, from Rogers Media; and then we have Bob Berner who is our Chief Technology Officer joining us from Barcelona actually, dialing in.

So as you know Rogers released our fourth quarter results and our 2009 outlook earlier this morning. The purpose of the call this morning is to provide you with additional background and answer as many questions as you might have that time permits. So as these calls almost always involve estimates and other forward-looking discussion that we will either have in our remarks or that we may discuss when you have your questions, the actual results could be very different and the fullness of time so please review today's earnings release and our full year 2007 MD&A for the risks and uncertainties and cautions included in each apply equally to our dialogue on the call today. So if you don't already have a copy of the fourth quarter release or annual report, they are both available in the investor relations section of Rogers.com or you can find them on Edgar or SEDAR and with that I'll turn the call over to Alan Horn, and then Bill Linton, Nadir, and Tony each for brief introductory remarks and then the management team will take your questions. Over to you, Alan.

Thanks, Bruce. Good morning everyone and thank you for joining us. I'll make a couple of brief remarks and then Nadir Mohamed and Bill Linton can take you through the highlights of the quarter. I'm sure all of you are aware that the companies Founder and CEO, Ted Rogers passed away in December. It's obviously been a couple of difficult months for his family, his many friends and colleagues including those of us in this room. Many of you on the call shared your thoughts and condolences with the Rogers family and Company management and for that we are very grateful. Ted was a one of a kind individual and we were all wonderfully fortunate to have worked alongside him and he will be sadly missed.

You heard from Ted on several of these calls over the past few years that one of his most urgent priorities had been to ensure that Rogers Communications became what he liked to call, industrial strength. He wanted to make sure that the time was taken and the investments were made to put in place the infrastructure, management, processes, and balance sheet to secure the Company and support additional growth for many more years into the future. He was successful in that. Today, Rogers Communications is in the strongest position it has ever had financially, organizationally, structurally and operationally so we go forward very much from positions of strength with terrific assets and franchises and great businesses.

Before Ted passed away, he had set out a very specific process for the Rogers Board to follow in selecting a CEO to succeed him. The process is all about ensuring that the Company is led by the most qualified candidate that exists anywhere, internally and externally. A special committee of the Rogers Board was constituted and began work on this in the weeks after Ted's passing and is working thoughtfully and diligently through the process. This is the top priority of the Board. We're working through the process in accordance with Ted's wishes and expeditiously. We are looking to conclude the process as soon as possible but it would be inappropriate to make any further comment on this at this time.

In the meantime, the day-to-day operations of the Company continue to be managed by the Office of the President, myself, Nadir Mohamed, and Bill Linton, together with the operating Company Presidents, much as we did in the months before Ted's death. I'll let Nadir and Bill speak to the specific results of Q4 which for several reasons were somewhat more complicated than generally from Rogers but I will say that overall, 2008 was another year of solid growth and subscribers, revenue, operating profit and free cash flow. We continued with the appropriate investments to expand and reinforce our networks, and made investments to grow our customer bases with high value subscribers. At the same time we distributed a meaningful amount of our growing free cash flow to shareholders. As you can see from the guidance in our release this morning, we see a continuance of this in 2009 but with a modest slowing of growth reflecting the difficult economy and also the deepening penetration of our products. At the same time we are also shifting an increasing amount of management attention to controlling our OpEx and CapEx, and we believe as I know many of you do as well, that we have significant opportunities in this area.

Consistent with the growth in free cash flow we're expecting in 2009, we also announced this morning that our Board of Directors has authorized a 16% increase in the dividend effective immediately, and also a renewal of our 300 million share repurchase program for 2009 as well. So overall, a balanced set of results and a healthy outlook that we think is respectable especially in this current environment. Thank you again for your support and I'll now turn it over to Nadir Mohamed.

Thanks, Allen. Let me quickly give you some perspective on the operations. First on the wireless side, three important things that I want to touch on. I'll start with the one with the biggest impact and that's our successful Q4 smartphone campaign. As you can see from the release we activated more than 400,000 smartphones in the quarter predominantly BlackBerry and iPhone devices. That's a huge number of smartphones given our base of 6.5 million post-paid subscribers and by the way well more than we did in Q3. 49% of our post-paid loads were on smart phones versus just 13% in Q4 of last year. That's almost four times as many.

The number of iPhones activated in Q4 were lower than in Q3 when we had pent-up demand in advance of our July launch but importantly in Q4 we activated almost twice as many BlackBerries than we've ever done in a single quarter. 40% of the smartphone activations were subscribers that are new to Rogers and the vast majority signed up for both post-paid voice and monthly data plan on multi-year contracts. These are high value subscribers that drive monthly ARPU of more than 150% of our blended average wireless customers. And for the 60% who are existing Rogers subscribers, the majority were voice only customers so we added incremental recurring ARPU in the form of new monthly data plans and each customer also represents a contract renewal for multi-year term, generally, in most cases three years.

If you can isolate and peel away the impact of the smartphone campaign here is what you'd see. Adjusting for a certain level of incremental cost from the higher device custody and the incremental commissions from more data plan sales which together add up to at least $85 millions, the wireless operating profit would have grown by approximately 10% versus the reported negative 3% and wireless service margins would have been 48% versus the reported 43%.

Turning now to TOA, key factors that impacted TOA, was the launch of the new Fido brand and our smartphone campaign which added approximately $60 to Q4 TOA year-over-year. I should also point out that we also continue to have a very strong mix of post-paid acquisitions. Secondly, on the revenue side we have healthy double digit top line growth and continued success in holding on churn levels for both post-paid and pre-paid. Post-paid ARPU is up 2%, reflecting the strength of our data product portfolio offset by a modest decline in voice ARPU as we were impacted by the economic downturn.

US Canada roaming revenues were down year-over-year versus flat from Q3 and we also saw meaningful slowdown and user sensitive items like (inaudible). As a result, our voice ARPU growth was modestly negative for the first time in quite a while.

The third item I wanted to touch on is wireless data revenue growth. I mentioned last quarter that we had simplified and added significant value to our wireless data packages early in the year to drive much deeper customer adoption and we did that to take advantage of the deployment of HSPA with the process fees in Canada and now at the launch of the iPhone and devices like the Bolt and the Rocket that would drive the adoption of mobile Internet. We are moving from data as a niche e-mail SMS service to max adoption of the mobile Internet. While our wireless data revenue growth is up a respectable 36% year-over-year in Q4, it's important to note that this reflects the impact of the reductions that I just referred to and that as we lack these, we should reaccelerate the wireless data growth going forward.

So turning now to our cable division, Edward and his team delivered a healthy 9% top line growth with adjusted operating profit of 15%, a solid financial performance. On the RGU front, the results were softer than we hoped to deliver. The economy in Ontario where most of our cable business and most of Canada in the manufacturing centers is challenging and consumers generally are much more cautious. People are moving residences less and those are important sales touch points for us. In addition the penetration level of committment in Canada is one of the highest and our largest cell phone penetration is now at 36% of basic customers, so at the margin, it is more difficult to continue to deliver the same growth rates as we could earlier along the curve.

We've also seen aggressive home phone win back offers from our competition in the last couple of quarters but frankly, I also think we need and can deliver better home phone numbers. These net activation numbers aren't acceptable to us and we clearly have some work to do to change the trajectory in the coming quarters. Having said that, helped by the lower RGU activity and a tight focus on cost, we did see some good operating leverage driving margin expansion up above 200 basis points year-over-year. The results were $8 million of additional subsidy costs associated with an HD digital box sale campaign we did in Q4 versus our normal rent to own which depressed margins by 100 basis points. So steady progress and a good reflection of the operating cost control that the cable team has been focused on in the last several quarters.

To conclude, a busy quarter for our group, positioning us well for 2009. With that let me turn it over to Bill.

Thank you, Nadir. A couple of quick comments on the financial results of the quarter. Let me begin by highlighting our continued strong revenue growth which was up 9%. We recorded an adjusted operating profit of $968 million which is relatively flat year-over-year. It's up 1% or so. As Nadir mentioned we incurred incremental costs associated with the successful smartphone campaign in Q4 of at least $85 million versus what our costs would have been on the same volume and mix of devices we had in the fourth quarter of '07. These incremental costs diluted the wireless margins by about 560 basis points and took the EBITDA growth rate down from what would have been 10% to negative 3% due to the significant amount of incremental customer acquisition and retention costs. If you normalized just for the incremental $85 million of cost at the consolidated RCI level, adjusted operating profit would have grown by 10% versus the reported 1%. Adjusted EPS would have been $0.13 higher or $0.39 per share versus $0.26 that we reported. So there's no question that when you look behind the immediate impact on the income statement of this successful investment initiative which frankly is low risk, you'd see some very healthy results.

On the cable operation side, continued strong, top line growth although slowed modestly given the circuit switch deemphasis and softness in RGU growth versus what we had forecasted; however, good margin expansion which combined with the top line growth generated 15% adjusted operating profit growth. At Media, versus the reported 8% increase in revenue on an organic basis, revenues would have been flat if you adjusted for the City TV acquisition in November 20007, and revenues from the NFL series that started in 2008. The overall softness at Media is for the most part a reflection of the weakness in advertising related revenues, principally at our over-the-air television business. Publishing and radio have both essentially held flat to slightly down from last year, while strength at our Sportsnet properties has been offset by weakness of the Shopping Channel reflecting general retail sales declines.

As you work your way down the income statement there are a few cash and non-cash items which impacted our EPS in the quarter that I should quickly highlight. First, is the $25 million in stock related expense and this is simply the reflection of the change in the potential liability given the increase in the RCI stock price over the course of Q4. Next is the $41 million of restructuring expenses which primarily reflects severance costs associated with employees who left the Company during this quarter and the fourth quarter, as we adjusted to the declining economic conditions.

Another item is the $294 million writedown of a portion of the goodwill and other intangibles, associated with our over-the-air broadcast division. Importantly, this does not reflect any lack of confidence in or committment to this business going forward. In fact, we've made some very significant strides in the year since we acquired City TV in terms of ratings, integration, cost structure, et cetera. This is strictly an accounting entry that results from the requirement that we test the value of these intangibles each year against the current business environment and in the current environment, media advertising revenues are obviously very depressed. Tony can talk to you in more detail during the Q&A but we're actually feeling extremely confident about how we are positioned with our media business portfolio for when the economic cycle turns back around.

The next two items are somewhat related, and those are the $77 million foreign exchange loss and the $43 million change in the value of derivative instruments. The two net against each other with the $34 million impact to earnings essentially relating to the large decline in the canadian dollar against the US dollar during the fourth quarter and the coincident accounting impact on the 7% of our U.S. debt which is unhedged.

The last item is the $87 million income tax charge. The vast majority of which relates to non-cash tax accounting adjustments to the valuation allowance associated with realized and mostly unrealized capital losses. A general comment on CapEx, for both cable and wireless for the quarters is that while we did come in at the top end of our annual guidance for the full year, a lot was spent in Q4 and that did significantly impact our free cash flow for the quarter versus Q4 last year. In addition to the fact that we're going to take the overall capital intensity down for full year 2009, we're also going to be more focused on establishing better pacing around how we deploy capital and this will be part and parcel with some of the efficiency initiatives we are looking at going forward.

Free cash flow for the quarter measured as adjusted operating profit less CapEx and interest expense was $28 million compared to $195 million in Q4 '07 with essentially the entire difference being the result of the increased CapEx in Q4 '08 versus Q4 '07.

Finally, I wanted to hit quickly on pension cost for Rogers, compared to many of the large incumbent telcos these costs are relatively modest at Rogers but I know it's an item of topical interest generally given the performance of the equity markets over the past year. Implicit in our guidance for 2009 is pension expense of approximately 25 million to $30 million which is roughly consistent with 2008 pension expense. That's the accounting side. On the cash side, our pension funding in 2008 totaled just under $40 million and we're expecting the cash funding will increase to 55 million to $65 million in 2009, so not big numbers but several of you had asked so we wanted to lay it out for the broader group.

In terms of the outlook as we said in our release this morning for 2009, we're expecting continued growth pretty much across-the-board in terms of revenues, operating profit, which combined with an up to 10% reduction in CapEx drives double digit increase in free cash flow in 2009. Consistent with the expected growth in free cash flow we announced this morning that our Board has approved a 16% increase in our annual dividend to $1.16 per share and also a refresh of our $300 million share buyback program for 2009. So very good growth in the business in free cash flow and in returns to shareholders especially in this extremely challenging economic climate. In terms of our balance sheet we're in a very strong position as we go into 2009. We have investment grade ratings and relatively low leverage at approximately 2 times debt to EBITDA. Our free cash flow is growing. We have very strong liquidity of about $1.8 billion and this is fully committed multi-year bank lines and we have no material debt maturity until mid 2011. Whether you look at leverage, liquidity, or refinancing requirements, Rogers is in a very strong position in terms of its balance sheet. With that I'm going to pass it over to Tony.

Thanks, Bill, and hi, everyone. Media's overall results finished the year within our revenue guidance and just shy of a revised EBITDA guidance. As I did last quarter I'll review Media's operations in three sections.

First, our network of regional sports stations, Sportsnet continued to do very well and continues to show growth with both subscribers and advertisers. It is also well positioned for 2009 as we finalize our contracts with the distributors. Second would be radio, which generally tends to hold its own when the economy is tough, and although it experienced a 5% decline in sales in the quarter versus prior year, it's well positioned in the market with strong brands and market positions. Based on the latest industry report, we actually grew our share in Toronto where we were already number one. A third layer would be our broadcast TV and publishing businesses where we have larger exposure to national advertising and our Shopping Channel business where we have direct exposure to consumer discretionary spending. These are the areas where we're feeling the economic impacts the hardest but we're positioning ourselves pretty strongly across these businesses for recovery and have made some strong improvements in our market positions in both the broadcast TV and publishing segments.

So far, things aren't getting any better in Q1 '09, and I don't expect we'll see any positive inflection until at best the latter parts of the year. Accordingly, we've been aggressively managing our expenses including a restructuring that we instituted in December. As I mentioned in previous calls, I think we're a lot better situated than some other media businesses out there as our properties are holding, are growing audience share in their respective genres so they fare better when advertisers have to make choices, and we probably have less direct exposure to advertising overall with only about 50% of our revenues coming from that channel. But we've got a solid and stable team here that's been through more of these cycles than I care to remember, and we know how these play out and what we need to do in terms of cost structure to adapt and that's what we're doing. I'll turn it back over to Bruce.

Thanks, Tony. Operator? Before we take questions which we'll do in just a couple seconds we want to quickly remind people as we do on each of these calls that if those of you asking questions would be courteous to the other participants by limiting questions to one topic on one part so that as many people as possible have a chance to participate and then to the extent we have time and I hope we do we'll circle back and take additional questions or we'll get them answered for you separately after the call. So with that, why don't you just explain to the participants how you want to organize the Q&A polling process and then we'll jump right in.

Thank you. (Operator Instructions) Your first question comes from Jonathan Allen of RBC Capital Markets.

Thanks very much. Allen, a question for you about the dividends and the buyback announcement this morning. It looks like as you pointed out that free cash flow at the mid point you're looking at about 16% growth so it looks like your free cash flow at the mid point is something around $1.7 billion. Your dividends will be something around $700 million so it looks like you're still looking at somewhere around $900 million or $1 billion of free cash flow so even if you use the $300 million for the buyback there's still a large amount of free cash flow that's I guess left unaccounted for. I'm curious what uses you expect for that? Are you going to pay down short-term debt? Are you going to accrue a cash balance in advance of the debt maturities two years from now? And also curious if there was some sort of I guess if you were a little bit more conservative with the pay out in the capital structure until a new CEO is actually announced. Thanks.

Hi, Jonathan. I was just leaving some surplus there to make some further announcements. I think going back to the point, I think we are being conservative as we have been. These are fairly challenging economic times and I think we also see that there may be some opportunities here for other things but I think mainly it's I think continuing the approach that Rogers has had in terms of being conservative in terms of its use of cash and making sure that as Ted directed us to to have a balance sheet that is industrial strength. I think looking at the overall capital policy, we are, it's something that the Board and Bill and the Board are engaged in in terms of seeing what the appropriate capital policy would be to ensure that we have a continued access to the capital markets when required but ensuring that we're providing the appropriate returns to shareholders. And in that regard as well and we are rapidly moving towards a situation where cash taxes will become a bigger and bigger issue so the tax efficiency of our balance sheet has also been factored into that analysis.

Your next question comes from Glen Campbell of Merrill Lynch. Please proceed.

Yes. Thanks very much. You alluded to some of the drivers of the softness of wireless ARPU on the voice side. I wonder if you could give us a little bit more color on that and perhaps comment on whether the trends we saw in Q4 are going to continue or get worse into Q1?

Hi, Glen. It's Rob Bruce, how are you this morning?

Good, thanks.

The key things that sort of underpin the softness in voice ARPU that we referenced were number one, roaming which I guess frankly is not surprising, people just aren't traveling as much and we're seeing roaming account for probably more than a third of that softness and also as Nadir mentioned, peoples usage out of the bucket, a little bit of softening on LD, it would just seem that people are paring back on some of those areas that are a bit more discretionary and frankly when we look at it we think that probably accounts for, based on the trending maybe as much as $30 million in the quarter.

Your next question comes from Bob Beck of CIBC World Markets.

Just on the cable front you talked a bit about some of the issues on subscriber growth with the home phone and some of the maturity on the Internet. Your guidance for '09 looks fairly healthy on the EBITDA revenue side as well. Can you talk a bit about what are the challenges beyond maturity? I know you did mention on the home phone side not getting some buyback or sorry some win back pressures from some of your competitors but can you talk a bit, just a few quarters now that we've seen some weakness there. Can you talk a bit about some of the issues, whether how much of it is economy related, how much of it is not executing on marketing perhaps or some of the issues around that subscriber growth.

Bob, it's Nadir. I'll start and maybe turn it over to Ed as well to add color but just on your note vis-a-vis the guidance, we've given guidance on cable revenue and EBITDA and I think to confirm should give you a sense of our view which is fairly steady performance on the cable side, 6 to 8% growth on the revenue side and healthy EBITDA growth grows as well, so that's the reflection of obviously the growth in terms of the subscriber holdings we've had this year, continued expectations of growth going forward and the pricing power we've had in the last couple of years including what we already announced with this year, so from a contact point of view it is a healthy business and as you know been adding margins to the bottom line, a couple hundred basis points this year. On the subscriber front we've got some work to do as I alluded to and I'll ask Edward to talk about the drivers to what's affecting home phone and some of the other products.

Sure, thank you. I think when you look at home phones as we do, there's different strategies that are out there. You look at it on a penetration basis, CableVision and Videotron would be one and two and they came in with a bit sharper pricing than I think almost the rest of us and when you look at the rest of the cable companies out there, we have been the leading Company in terms of penetration and that group would have average revenues of $5 to $12 more per sub and you have to look at which cable Company. So I think we try to have a healthy mix between the quality and the penetration and trying to strive for both which is difficult, I think when you break down and look at the cable Company and let's say look at revenue per sub or EBITDA per sub, you see Rogers at number one and number two in Canada and very healthy even on a North American basis. I think we've also tried to do a better job and as penetrations get higher, as Bell is fighting a bit harder, as things are a bit softer is falling to wireless and trying to go for the better quality customers too and we found we've got some traction there as well, and a good job at aiming for hiring data customers as data net adds have been under pressure too, we've done a better job at targeting the higher tiers on the television side, good lifts in average revenue, a mix of rate increases and pushing people up in packages to our higher end packages at the digital VIP and upwards. And I think that's the continued challenge we have is that balance between getting that higher customer and that's why I think the math tends to look a little bit better than the subs and I think we will continue to push ourselves on both and I think we'll do fine in 2009.

Your next question comes from Jeff Fan of UBS. Please proceed.

Thanks very much. My question is on wireless costs and specifically covering both OpEx and CapEx. I guess what's interesting that I'm observing is that even though it looks like the operating profit margin, you're guiding at the mid range to be flat to slightly down, it looks like the cash flow margin if we take into account CapEx is still certainly flat to growing very healthy in 2009, and I guess one of the things I wanted to ask you guys is whether we are seeing carriers in general and maybe you guys shifting your spending from CapEx over to OpEx and with CapEx technology infrastructure spending coming down and obviously shifting over to more subsidies related to smartphones? And so the question on infrastructure is given the growth in traffic that you were seeing on the data products, over the next couple of years with further additions of HSPA, do you envision a need to go to LTE and what's your general timing on that and how that would impact your CapEx intensity on wireless? And then I guess second part to it, on OpEx is in Barcelona, we're seeing an unprecedented number of new smartphones coming through the market through 2009 and whether you guys would be in a position to maybe take advantage on the better pricing that you could see from the handset vendors? Thanks.

Thanks. Nadir, do you want to take the first part of that?

Jeff, let me start with kind of the capital and broad question and I'll turn it over to Rob, we should go through the smartphones because we believe that was a very successful campaign that we want to talk about, but starting with the guidance on CapEx, you see the guidance showing the CapEx intensity coming down, and I think that's a reflection of our position, that we've rolled out HSPA over the last few years, the next real upgrade is likely LTE and we feel we're in the drivers seat with Bell and Telus having gone to HSPA in terms of the announcement and in the very early stage of deployment, clearly, we're going to be in the lead position in terms of determining the timing on LTE. So we've got a chunk of that investment behind us and that will place favorably when you look at our capital numbers. All of this is subject to things that are success based, capacity requirements as we drive data and so on but I think you're seeing benefit of that in the '09 guidance.

To your point clearly in the quarter and the last couple quarters one of the key things we've been doing is investing in our future but really driving subscribers that we feel will add value going forward in terms of revenues and margins. I think just to set the context for Rob, want to make sure everybody understands, not every smartphone is graded equal, and when we talked about our 400,000 subscribers on smartphones that were predominantly BlackBerry and iPhones, predominantly BlackBerry and iPhones so I think it speaks to some of the things Rob is going to cover in terms of how we view that investment.

And along with that, Jeff, I think where Nadir is going is smart phones, particularly iPhones and RIMs and some of the higher end devices bring along with them a pretty satisfactory and a pretty strong ARPU and I think those are different than some of the QWERTY Sliders that people are actually referring to as smartphones and in our definition we actually don't refer to the QWERTY Sliders as smart phones and I think that's an important distinction.

Just to come back, we're excited. I was in Barcelona on the weekend. The proliferation of smartphones out there I think will set us up for what we all think is the future and that is sort of a bifurcation of the market towards the high end and the low end in Canada. We've been fortunate enough to be dominant in the high end of the market and we really like the economics of the smartphones. If we think about it at the simplest level we're seeing an incremental COA in the range of just north of $250, and we're seeing average ARPU lifts in the range of $20 to $25, so they are on three year contracts, very very low churn. This looks like a very very good business proposition going forward and we're really delighted not only to have a very strong market share of 42% this year but the predominant portion of it being in smartphones with great economics so the announcements made and the devices that we saw in Barcelona just add to our enthusiasm about the potential for future growth.

I did just want to pick up on the LTE HSPA thing and say while it's interesting that Verizon made their announcement today and I think it was widely expected given that they said similar things a year ago, HSPA we believe has a lot of legs, and the guys who are leading the world really are Telstra in Australia, they announced at the conference the day before that they are pushing not only to 21.1 but now to 42.2 with MYMO on HSPA which gives HSPA a lot of long term legs and may allow us to stretch that capital investment cycle moving to LTEs longer than most people think so we're enthusiastic about that and we're watching some of the leaders like Telstra and hopefully that will play out.

Your next question comes from John Henderson of Scotia Capital.

Thank you. Just on your HSPA footprint could you tell us what population coverage you've got now and at what time you expect to have a full population footprint covered?

Yes, John, I think we may have said it before but we're at about 75% of the pops as you well know our focus has been on rolling out where the population is the largest. May not have said we're 7.2 everywhere where we've actually rolled out and we'll continue our rollout through the balance of this year and generally we don't talk about what the target pops are until we've actually done them.

Your next question comes from Ric Prentiss of Raymond James.

Good morning guys. I'd like to ask you a question on your '09 guidance. Can you just update us as far as what is baked into it from a standpoint of the economy, in Canada, the competitive launching of possibly new services on wireless in '09, what kind of time frame and also to go back to that voice ARPU, what kind of pressure you think might still be there in '09 that's baked into your guidance please?

With respect to the economy, we're predicting relatively flat in Canada. We are predicting that there's going to be continued declines in new housing growth which impacts our cable business. We have some improvements looking into the fourth quarter in our media business but it's a pretty, our expectation is a flat economy in Canada. The second part was? You want me to take it, Bill? In terms of the expectations on competitors, we think late in the year, that we'll start to see possibly some of the early new entrant competitors like Quebec Core in the market but then the numbers and impacts will be relatively small in '09. In terms of voice ARPU, we believe that we're going to continue to see pressure on voice ARPU and depending on how things go in the economy that may get more intense over time.

Your next question comes from Dvai Ghose of Genuity Capital Markets.

Yes, hi. A question for Rob or Nadir regarding your smartphone investment strategy. You describe it as low risk but I guess there's three risks I potentially see and I'm interested in your opinion as to whether they are serious. The first is cannibalization. I'm not quite sure why you offer high end products like the iPhone and BlackBerries in the Fido channel but isn't there a risk that the ARPU being generated for those customers, on the voice side, with (inaudible) 911, will come in lower but the subsidies are in line with what we're seeing in the Rogers channel? The number two is the resubsidization risk, you talk about contracts and so on but in some ways device churn is becoming more important than subscriber churn. Are you comfortable in assuming you won't have to resubsidize the base for three years just because they are on a three year contract? And number three is especially with the iPhone you've capped ARPU somewhat because of the $40 I think for 6 gig and you could face some increased CapEx requirements as well as OpEx to service all of that but with limited, well within ARPU cap. Are these sort of key risks to your smartphone strategy?

Yes, Dvai, it's Rob. In terms of flanker brand cannibalization, listen we've only launched one RIM device on Fido. It's the low end Pearl device which is really a consumer device. It has very low appeal to our high ARPU RIM customers so we think the cannibalization is small. It's also an end of life device that we got on a special deal so we've got a cost structure going for it and we shouldn't be confused. The data prices aren't any different. There are slight discounts in the voice prices and just to be clear, stock is included in the price. We shouldn't be confused that there is no stock. In terms of resubsidization, lots of experience with RIM and in terms of the timing of handset upgrades and we're happy with that. As I said I was just in Barcelona, spent a bunch of time with some other carriers who are a little farther down the pipe than we are with iPhones, very satisfied from them that the durability of iPhones is there and that the necessity of resubsidization and that risk is low.

Lastly, to your iPhone question about capping iPhone at $40 per 6 gigs, as you know, that was a temporary promotional measure that we rolled out and for a very short period of time and then we went to a more normal rate card that has various sizes of buckets starting at $25 for half a gig up to $80 for 8 gigs and most people are finding their way around that rate card so we are getting variable revenue for the amount of dollars that is there. As well, we continue to see strong growth in data roaming, SMS usage, ring tones, music and other things that we think will continue to be robust in terms of building the ARPU on these customers.

Dvai, obviously those add-on to the data and acts as part of the rate card and the other thing I just want to make sure that people understand is when I gave my opening remarks we talked about the 400,000 load smart phone devices, 60% of which came from existing customers, the key thing is most of the customers went from voice to voice and data plans, so we definitely get less on the data side going forward along with the recontract.

Your next question comes from Scott Malat of Goldman Sachs.

Thanks, good morning. Just want to talk about cable margins. Just can you take us through the opportunity in cable and as we look at 2009 and beyond what are some of the areas you could see some of the greatest cost savings there?

I'll take that. I think our focus if you look at margins have been to try to generate a rate of growth on costs that is at or less than revenue and in 2008 we seem to have done a good job on that. What pushes that is obviously adding voice and data subs and less of a cost of sale associated with it taking out lots of operational things to take out voice calls and a number of trucks we send out and to try to drive some efficiencies and then continue, we've done modest to medium rate increases and we seem to be in an environment where we can still do that on television and somewhat on data and continuing to push usage on things like VOD and extra usage on high speed data. So I think there's an opportunity there but lots of work to make that and I think when you look at our guidance, I think we're pushing ourselves to continue to expand our margins in 2009.

Your next question comes from Tim Casey of BMO Capital Markets.

Thanks. Good morning. Can you talk a little bit about what are your expectations are within the cable group in terms of the risk of customers effectively trading down through as the economy tightens here? Are you expecting people to trade down from some of your high speed products and the lower price light products or trading down on some of the premium cable packages into more value base sets, how do you expect it to play out in this cycle compared to previous cycles given that you've increased the ARPU so much over the long term? Thanks.

Well, it's hard, of course, to guess these things but we do our best from looking at where we are and looking at the past but obviously people tend to stay home a bit more and go out and spend less eating out and going to movies and these sorts of things. Secondly, when you look at the hours spent, it tends to either on television to be going back up. It was flat to down a bit. High speed data they are using it much more and driving usage, so there's definitely some customers where that will, where you will see them move down and also we seen a hesitation in new customers where they just don't want to move and they want to wait until their household has a bit more money coming in. Even if you're going to save them some money. So it's definitely something that is out there but again, I think we are doing a rate increase this year, it's fairly common with what we've done the last few years. We continue to push usage and we continue to try to add a lot more value so what they are getting on the TV packages, it's not just a different rate but we're adding a lot more VOD, a lot more free as VOD, and trying to increase that value for money and try to increase the number of hours that they use the product. So it's something that's kind of built in and we made some assumptions and I think that they're safe enough that we can achieve them.

Your next question comes from Simon Flannery of Morgan Stanley. Please proceed.

Thanks very much. If I could keep on the smartphone topic, on the iPhone, I think there was some surprise with the drop you saw in Q4 versus Q3. You certainly talked about the pent-up demand and having the device for the first time in Q3 but there's been some countries where the iPhone has been a huge hit and other countries where it's not been as successful. Are you seeing some signs of say November-december, January, that demand is remaining strong and stable or is this something where it's just where people are looking for other devices and maybe the iPhone is just not going to be as -- hold up as robustly as we've seen it?

Yes, Simon. Listen, all of the looks I've had at the numbers both through Q4 and more recently suggest that there's sort of a steady demand for iPhone. It is without a doubt the best browsing device in the smartphone category bar none and there continues to be a segment of the market that likes that device so I can say without hesitation that I think it's going to continue on and it's going to be a strong device for us. In Q4, the 400,000 obviously a big number and as I said before, we like the economics but we had a dual focus. We had both an iPhone focus but a very very strong BlackBerry focus coming back after a very strong iPhone focus in Q3 so part of what we saw and there is a little bit of trade back and forth obviously on these devices was some fantastic success on BlackBerry in Q4 which I think might have slightly overshadowed what we saw in iPhone but everything looks strong on iPhone going forward and we're very very happy to have the Bold which I think is the best messaging device out in the marketplace, the 3G device and have the best browsing device in the iPhone, so very very happy about that.

Your next question comes from Vince Valentini of TD Newcrest. Please proceed.

Yes, thanks very much. Hate to stay on the iPhone, sorry on the smartphones but one follow-up is you look at your 2009 guidance and as noted earlier you're still expecting margins to be sort of flat to down at the mid point of the range. We would have thought that with the huge smartphone adds in the second half of 2008 some of the positive benefit of the higher ARPU and higher margins would have been flowing through the numbers but that doesn't seem to be the case yet, so two big questions there. Can you give us some sense of how many smartphone adds you're baking into your 2009 guidance? Would it be even higher than the level you sold in 2008? And secondly, when we look to 2010, without giving specific guidance, should there absolutely be a net lift in ARPU and margins from smartphones by that time as you'll have so many in the base?

Yes, obviously, we're not going to give guidance specifically on smartphones. I think what I would point to is I think we're going to see a general slowing in terms of overall penetration in the marketplace which will have an influence on everything. I think secondly, we've seen from the beginning of last year until Q4 a move from the smartphone loads as a percentage of the total mix in quarters going from kind of the low teens into the kind of the 50 range and you can roll forward I think and fairly assume that we're probably going to see a little bit more of that going forward so you can factor that in. I think overall there are a lot of forces at play next year, and probably the biggest one and the one that's most recent is we're going to see some suppression on voice ARPU for sure and we'll see some positive offset from what we see as smartphones and the growth of SMS and our data portfolio. Again, probably one of the tougher years to call guidance because of the volatility of the marketplace we're in and I think that's what you're seeing in the numbers that we put out in the release.

We currently have time for two more questions. The first one is from Peter McDonald of GMP Securities.

Thank you. When you look at the state of the media business in Canada, and especially the state of CanWest, do you anticipate that there's going to be some good opportunities available for you and are there any areas that where you would not be interested in looking at expanding through acquisition?

Well, first off, of course globals over-the-air, they put some five stations over-the-air stations up for sale. We don't comment usually on that but we've got our hands full on City. We would be unable by regulation to acquire any of the global branded stations if they became available . We are opportunistic there are some specialty services owned by Global that would be of interest to us. As you know, the former Alliance Atlantis specialty services are tied up with Goldman Sachs, so there's currently no indication that those might be available but it's a very very tough environment for television and I think it would be tough for us to do anything, our hands are

Your last question comes from Greg MacDonald of National Bank. Please proceed.

Hi, thanks, good morning guys. I wanted to jump back on to Vince's question on wireless data. I hear your message on smartphone loads and that's a pretty bullish message. I hear your message on economics, $250 COA for $20 to $25 ARPU lift, that's a pretty bullish message but when I look at wireless data revenues it doesn't seem to be playing out certainly relative to what I expected and in particular I'd note 36% wireless data revenue growth is a decrease in year-over-year revenue growth relative to the third quarter, when I would have expected with the loads that you have on smartphone to see an increase. Is there a delay factor going on in some way here that I'm not picking up that could be the case? I know you're not willing to give specific guidance on this stuff but I think when investors look on the wireless side this is a pretty important area and it really speaks to whether the iPhone itself is actually as good an ROI business as we all think. Thanks.

Yes, Greg, great question, and first Nadir touched on it very briefly in his opening remarks. We completely revolutionized our pricing as you know in the Summertime, and you'll recall and have the historical perspective of we have for a very very long time been the leader in BlackBerry and the leader in smartphones in Canada so we had a pretty significant base of customers already on smartphone devices and when we relaunched as we expected, there was going to be a reacceleration as people got excited about the great new pricing on data and at the same time, there was also significant reprice of that longstanding base of customers that we had and we knew that to reaccelerate the business, we needed to simplify and make the data rate card more both understandable and more within reach of more people, and I think that's a little bit of what you're seeing in the numbers. The other thing is if you're comparing us to the US carrier whose have been slightly higher, I would say kind of in the high 40s growth year-over-year, and Bell and Telus, they've made some fairly aggressive pricing moves on SMS to paying for message origination and message termination, that is something we have not done and I think that probably accounts for a little bit of the difference as well and I think that to touch on your supposition I think it's a good one. There is a certain amount of delay factor involved as well as the revenues ramp up and start to offset that reprice. Okay?

I'd now like to turn the conference back over to Mr. Bruce Mann for closing remarks. Mr. Mann?

Thanks, Operator. But more importantly thanks everybody for participating this morning. We appreciate your interest and everybody's support. If you have questions that weren't answered I can't tell if anyone is left in the queue or not but please feel free to give my colleague or myself a call. Our contact info is on today's earnings release. This concludes our call. Thank you again for joining.

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