Rogers Communications Inc (RCI) 2009 Q1 法說會逐字稿

Welcome to the Rogers Communications first quarter 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. (Operator instructions). I would like to remind everyone that this conference call is being recorded on Wednesday, April 29th, 2009, at 8:00 am Eastern time. I will now turn the conference over to Bruce Mann of the Rogers Communication Management Team. Please go ahead, sir.

Thank you, operator. Good morning, everyone. Thanks for joining us for Rogers' first quarter 2009 investment community teleconference. This is Bruce Mann. Joining me on the call in Toronto are Nadir Mohamed, our President and CEO, Bill Linton, our Chief Financial Officer and also three divisional Presidents, Rob Bruce from Rogers Wireless, Edward Rogers from Rogers Cable, and Tony Viner from Rogers Media. We released our first quarter 2009 results earlier this morning. The purpose of this call is to provide you can additional background and answer any questions you may have given the amount of time we've got available. If we can't get to all of your questions, we'll take them after the call. My contact information is on the release.

As these calls almost always involve estimates, and other forward looking types of discussion, the actuals could obviously be different. So please fully review today's earnings release and importantly our full-year 2008 MD&A, the risks and uncertainties and cautions included in each applied to our dialogue on this mornings call. If you don't have copies of our release from this morning or our 2008 annual report to accompany the call, they are both on the investor relations page of Rogers.com or they are on our website. With that, I am going to turn it over to Nadir Mohamed and then Bill Linton will each make some brief introductory remarks and then the broader management team will be glad to take some questions. Nadir.

Thanks, Bruce. Good morning, everyone and thank you for joining us. Before I touch on the quarter, as this is my first call since taking on my new role, I wanted to start with a few overriding comments. As I said in the release this morning, we clearly are operating in extremely challenging times and have much hard work to do in front of us to drive the performance of the business going forward. . And we definitely will.

Our results very much reflect the sense of our franchises, our asset mix and strategy are set, and we're in solid financial shape. This is the platform that we have been involved in helping build and shape, and we're not looking to radically shift the asset mix nor are we looking to shift where we are going with it. What we are going to do is build upon that solid foundation by sharpening our focus and accelerating our execution with four clear priorities.

First is driving continuous enhancements to our customer experience that means processes, systems, measurements, and flexibility to do the right thing. Second is on improving the efficiency of our operations and capital deployment, that means both OpEx and CapEx. Not just cutting costs which I believe we have substantial opportunity to do, but streamlining our operations for both customers and employees. Third is on continuing to deliver the innovative services and leading-edge network technologies that frankly customers have come to expect from Rogers over the years. We have the best wireless and the best broadband networks, period, and that is not going to change. Fourth, it's about driving center-leading growth over time that ranks at the top of our sector.

These are the overriding priorities, and those of you who have followed us over the years know that I'm not a big fan of spending a lot of time talking about what we are going to do or should do or would like to do. The way I look at the world is very simply, and there is no substitute for delivering results. We are just going to get on with it.

Turning to the quarter, on the wireless side, we activated 360,000 Smart Phones in Q1, primarily BlackBerries and iPhones, which is not surprising, down a little bit sequentially from Q4. Somewhat less COA COR to absorb compared to Q4. The activations, though, are more than double the number we had in the first quarter last year. So year-over-year operating profit growth is somewhat muted as a result. But you really are starting to see the results of these devices becoming more predominant on our base on the top line, which is up 8% with wireless data growth starting to really shine through up 43% year-over-year to 300 million in the quarter and now represents a full 20% of network revenue. You can also see the impact when you look at the quality of our subs we continue to add with almost three-quarters of our growth ads, and 100% of our net ads being post phased subs. And you it in our churn results, where post phase churn is down again year over year to 1.09%.

Roughly 40% on Smart Phone activations were to subscribers that were new to Rogers and the vast majority signed up for both voice and monthly data plans and multi-year contracts. These are high-value subscribers that drive monthly ARPU of over 150% of our blended average wireless customers. At the same time, we're not immune to the impact of the economic recession and continue to see a deceleration in discretionary types of usage, especially roaming and out of time usage. Both of which were down more than 10% consistent with what we see as curtailment of business and personal travel and general cost control.

So netting it all out, Rogers has delivered a solid quarter with ARPU steady and 8% growth in revenue driven by accelerated wireless data, coupled that with cost containment on COA, COR, and our selling, general admin costs taking a hold. We pushed wireless margins back up above 48%, a sequential improvement of over 500 basis points.

Turning to the cable operations results, Edward and his team delivered 7% top-line growth with adjusted operating profit up almost 9%. Combined with disciplined CapEx management, unlevered free cash flow at cable operations was up 25% year-over-year, so good cash flow growth performance. On the RGU front, the results were clearly soft. The Ontario economy, where most of our cable business and most of Canada's manufactured its centered, is challenging at best. We continue to see significant slowdown in new home formation and considerably less residential movement. Two important sales touch points for us and we clearly see that manifested in our subscriber results.

In addition, the Rogers penetration levels of internet and home phone services are some of the highest in the cable industry. So at the margin, it is more difficult to continue to deliver the same growth rate as we could earlier along the curve. Having said that, we need to do better, and in the coming days we're going to diffuse some additional plans and tweak some of our bundling propositions and to start to drive incremental penetration. With a tight focus on cost and help by the lower RGU activity, we did see continued operating leverage driving margin expansion by approximately 80 basis points year over year. The results included some $7 million of additional subsidy costs associated with a HD digital box sale. That was a campaign that carried on to the early part of Q1, versus normal rental models in a depressed margins by over 100 basis points in the quarter. Summing up, some good traction on cost control that the cable team has been focused on. Coupled with lower CapEx resulting in solid growth in cash flow.

On the media side, continuation of what we saw last quarter with significant headwinds in terms of both advertising and consumer discretionary spending. It is definitely not getting any better, but not much has changed. With pacing still running well behind last year at this time, as advertising buyers are being delayed and shorter in duration. Our visibility in terms of ad sales pipeline is limited for the most part, but we have seen some trends in terms of the shorter-term buys. Tony and his team at Media have since last year been aggressively implementing cost-reduction initiatives across all of its divisions.

At the same time, media is investing and laying the ground work growth share so that when the economy's economic cycle turns and we can build on that foundation, and we have seen some good success in terms of radio and TV rating lifts, some strong results from sports net and a great start at the (Inaudible). So on balance, the quarter reflects the strength of our franchises, and whereas we're clearly negotiating through challenging times, we will continue to build on our operating and financial strength by staying focused on execution and delivering sector-leading performance. Let me now turn it over to Bill, and then we'll take your

Thank you, Nadir. Couple of which comments on the financial results of the quarter. Let me begin by highlighting our continued revenue growth of 5% in this very challenging economic environment and during what is generally seasonally slow quarter for us as well. We recorded an adjusted operating profit of just over $1 billion, which is up 2% year-over-year, and which was held back somewhat by the softness we're seeing in advertising sales at media, combined with a moderated but still significant cost associated with the very successful Smart Phone campaign at wireless we carried on in to Q1.

That said, it's a important to point out that the operating profit impact of both of these items declined sequentially from the fourth quarter of 2008 to the first quarter of 2009. And combined with cost-control initiatives, we expanded consolidated operating profit margins by 370 basis points to 36.6% with wireless margins up 550 basis points sequentially to about 48%. The focus on cost has been across all of our units. In addition to the OpEx and CapEx cuts, media has already made to adjust to the economic recession, wireless, cable, and our shared-service operations, also made workforce adjustments during the quarter to adjust to the extremely challenging economic environment. These were done as part of the $41 million restructuring provision you recall we recorded in the fourth quarter of 2008. We have also frozen all executive and management salaries across the board for 2009, and have cut back meaningfully on third-party and contract labor as well. We're generally scrubbing all discretionary costs of both OpEx and CapEx.

As you work your way down the income statement, there are a few noncash items which impacted our earnings per share in the quarter that I should quickly highlight. First is the $81 million in stock comp related recovery, and this reflects the change in the potential liability given the decline in the RCI stock price over the course of Q1. This is about $35 million less than the non-cash benefit we recorded in Q1 of 2008. So somewhat of a negative impact when you look from a year-over-year comparison perspective. The next two items are somewhat related, and those are the $29 million foreign exchange loss and the $10 million change in the value of derivative instruments. The two partially net against each other, with the net $19 million negative impact to earnings, essentially relating to the $0.03 decrease in the Canadian dollar against the US dollar during the first quarter and the accounting impact on the 13% of our debt which is unhedged for accounting purposes.

On CapEx, you saw an increase year-over-year at the corporate level. This for the most part reflects work on our consolidated billing system project. This IT project spending was included in our 2009 guidance, and you will see it continue at the corporate level as the year goes on, although the level of spending may fluctuate somewhat from quarter-to-quarter. So free cash flow for the quarter, measured as adjusted operating profit, less CapEx, and interest expense was $494 million. This was a 6% decline from Q1 2008, but much of the decline is due to the timing of spending, where we're focused on improving the pacing of our capital deployment, more ratably over the course of the year.

Consistent with the expected growth of free cash flow this year, in February, we announced our Board approved a 16% increase to our annual dividend to $1.16 per share, and also a refreshing of our $300 million share buyback program for 2009. In terms of our balance sheet, we continue to be in a very strong position. We have investment-grade ratings, relatively low leverage at approximately two times debt to EBITDA. We have very strong liquidity of $1.8 billion. This is a fully committed, multi-year bank line. We have no material debt maturity until mid 2011. Whether you look at leverage, liquidity or refinancing requirements, we're in a solid position from a balance sheet and financial flexibility perspective.

In terms of the outlook, as we said in our release this morning, at this early point in the year, we have no specific revisions to our full year 2009 guidance ranges, which we provided on February 18th. With that, I'll pass it back to Bruce, so we can take your questions.

Thanks, Bill. Operator, we'll be ready to take questions in a moment, but I want to quickly, before we begin, request as we do on each of these quarters, is that those participants who are going to be asking questions would be courteous, if I might, to the other participants to limit their questions to one topic and one part. And that way, as many people as possible have a chance to participate. Then to the extent we have time, we'll circle back and take additional questions but we will get them answered separately after the call. We have a Board meeting at 9 o'clock so the call will go at least until ten of. Operator, with that would you please explain to the participants how you would like to organize the Q&A process and we will dive in.

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. (Operator instructions). One moment for our first question. Our first question comes from Greg McDonald. of National Bank Financial. Please, go ahead.

Thanks. Good morning, guys. Nadir, you mentioned that number four of your priorities is driving industry-leading growth. I'm hoping that is not in descending order, because I put that number one. But the question I have is, look, 5% right now is industry-leading growth on revenue, at least. Should we use that as a benchmark? I mean, what is normalized growth for this Company? Is it higher than 5%. I wouldnt mind some indications on that. And just as a related question -- I know I'm stretching at it bit here -- but free cash flow is going really well for this Company right now, while the economy is doing poorly. Maybe us an indication on where your stance is on dividends. Lots of good growth potential in this Company. I suspect on dividends. And/or you have a lot of free cash. Why not buy back some more stock this year. Bill just mentioned your balance sheet is strong. Two times debt to EBITDA. You have lots of liquidity, I expect your target range is two times. You have no debt coming due until 2011. I think investors would like to hear on that.

Thanks, Greg. First all, congratulations to I think the highest number of multi-part questions --

It's really two.

I'll give you an equally multi-parted answer, if you will. Let's start with clearly -- the four priorities are key priorities and and not intended to be in any kind of descending order. At the end of the day free cash flow is very much the game, and that's what the teams focus on.

It's interesting, you actually in some ways were leading the witness, because I was going to take your comment on revenue growth and build on the fact that I think the most important thing is to recognize that over time. This team is very, very focused on driving free cash flow, and free cash flow growth, and we see the -- you know, when you look at the balance sheet, you -- people start talking about what do you want to do with free cash flow growth or the free cash flow that we're generating? And I always start with reinforcing the teams first and foremost focus is generating even more than that by delivering superior results.

And having said that, let me take the option and just go through the use of free cash flow, and give you, you know, a sense of perspective, having been on this job for a few weeks now. So four areas to look at from free cash flow perspective in terms of, you know, what do you do? First one would be CapEx. And I think frankly as you have seen from our first quarter results with CapEx intensity down, as you have seen from our guidance for the year is lower capital intensity. The direction we're going is spending less of it, and more effectively than more of it.

So if you take CapEx out of it, it gives you -- I think most people would say, and you made reference to dividends, buybacks, and acquisitions. From a dividend perspective. I think it's pretty good and speaks for itself. We doubled it last year, and increased dividends just a few weeks ago by 16%. Very much in line with 2009 expectations for free cash flow growth.

So we're already, I think, paying out roughly speaking 45% of our untaxed free cash flow in 2009, and that's good level at the moment. Particularly, when you think about the fact that we're likely becoming taxable in 2011, that kind of time frame. Can you expect us to grow the dividend more overtime? Yes, but not in to a sway where the payout is so high that it materially detracts our flexibility. We have got to be opportunistic when required and be comfortable in a time when there's economic crisis. But growing it in line with our free cash flow growth, I don't think is an unreasonable proposition, and I should have started with the fact that we always want to maintain flexibility around these things.

In terms of buy back, should start with something that people don't necessarily think about, but it's important that until last year, Rogers had not bought back a share in more than 20 years. But the last between our normal course issuer bid and our employee options repurchase program, we bought about $0.25 billion worth of shares. So not a bad start.

For 2009, we have refreshed our $300 million NCIB. So, yes, we will continue to buy back shares and we'll be opportunistic over time to shrinking the number of shares outstanding to grow share value. When you asked about the leverage ratios, and we speak to the Board fairly often. Our thoughts would be that with our business today, and in today's market, something in the order of 2 or 2.5 times net debt to EBITDA levels. Feels about right. But don't get me wrong, that's not a formal policy. I am not giving you guidance by any stretch. Would we consider going above it temporarily if something opportunistic came up? Absolutely we would look at it.

In many ways that's how Rogers has created a lot of shareholder value over the years, but only if we saw a quick and clear path to de-leveraging. Long answer to the question but I can tell you neither Bill nor I, nor our Board is interested in inefficient balance sheet or under leverage for any meaningful period of time that doesnt optimize the long-term returns to shareholders. So that's pretty much where my thinking is a few weeks into the job, and I know Bill and Al and I are in synch on this. I expect that in time, we'll normalize things further with our Board, rating agencies, and then have something more specific to share with you. So I thought your question deserved a full answer.

Well, that was great. And on the hurdle rate for growth is 5% kind of standard now?

You know, Greg, I think first thing is you need to look at the revenue by sector

Yes.

And the fact where it is 5% in total, you look at the wireless number, it's a growth rate higher than that. About 9%, 8% growth. If you look at the cable growth itself, ex-circuit it is under 10%. That's why you have to look at it by sector, it's actually a bigger growth rate than what you see in the 5%. And the key is always leading in terms of the sector. The other thing I should point out that is implicit in your question, is that I think over time, what we have to look at is an industry that is changing. Whereas maybe in the last three to five years, we talked a lot and focused more on the top line. I think a great opportunity to get costs out, both on the operating side and CapEx side and so margin and most importantly, free cash flow growth is going to be the dominant factor going forward. And that's where -- you know, when I talk about growth and being leading, it will be on dimensions that are relevant, and I think the cash flow metric will be the relevant one going forward.

Thanks very much.

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

Thank you very much. My question had to do on the wireless side as you look at this margin you saw pretty good rebound this quarter. As you look outgoing forward, you know, we have sort of seen the initial impact from the iPhone sales from second half of last year. The margin is now at 46%. Do you think it stays at the current level, even if there was a new iPhone come out in the Summer? Or it can trend back up towards the high 40s where it had been previously? Thanks.

Hi, it's Rob, James. Listen, I think in the near term for sure, in spite of recessionary pressures, we still see a very smart mix of Smart Phones, and for the upcoming quarters they will continue to suppress our margins, and beyond that, and Nadir made reference to it in his opening remarks, seen significant pressure on the top line. Particularly, the discretionary lines, like out-of-bucket minutes, LD, and roaming, and as long as those are suppressed we'll continue to see challenges on margin.

With respect to the Smart Phones, obviously the upside there is generally if someone is buying a Blackberry and iPhone, they are taking a higher-level data plan. When do you start to see that feed through in terms of positive impacts on ARPU.

Well, frankly we're delighted. We think we are starting to see it shine through in spades if you compare us to Verizon or AT&T this quarter, our year-over-year revenue growth -- theres is in the high 30s, we're up around 42%. So I think it's starting to shine through. We talked about our voice ARPU being down around $3.73 on the quarter. The great news -- and this is postpaid to that I'm referring to is that from a data perspective, data ARPU is up $3.33. So virtually offsetting what we're seeing on voice. So I think we're starting to see it shine through. On the last call, James, we talked about the reprice we're taking about a year ago. We're actually -- you know, August time frame last year, and we'll start to work our way through that reprice, and I think the data growth will shine even more going forward.

Great. Thank you very much.

And our next question comes from Jonathan Alan of RBC Capital Markets. Go ahead.

Thanks very much. A question, Rob, on the wireless ARPU, it seems to me just discussing with some of your peers throughout that there may have been a slowdown in -- sequentially through the quarter, that January and February ARPU numbers were still quite good and maybe a little bit of a slowdown in the overage and roaming that we saw in March. And I was wondering if you can confirm that. And second of all, just curious whether you are seeing sort of stabilization in the voice numbers, and in the roaming and in your out of bucket usage and whether or not the sequential of decline that we have seen from Q3 to Q4 and Q1 now, whether or not we see ARPU numbers still sort of trending around this level or whether we see more pressure to it?

Yes. I mean, Jonathan, we're seeing, you know, relevant consistency across the quarter. You know, there's a typical bounce around from month to month that I think at this point is small enough that we shouldn't read anything to it to. So I -- sorry the first part of your question was --

You sort of answered the first one, which was, was there anything surprising that you saw the quarter but a big decline in March or whether we are exiting the first quarter at a pretty good run rate. Perhaps you can talk about the trends that you are seeing now in roaming and out of bucket usage and whether or not we are seeing a sequential decline going in to the next quarter?

Yes, again, I think I probably said all I could to within quarter trends, nothing huge to report there.

Perhaps just as a follow on for that. Are you seeing any sort of stabilization in some of those trends that we have seen in the last couple of quarters on the voice side. Is it at the point where data is starting to finally offset some of the voice declines? Should we see that stabilization continue and maybe see ARPU going up for the rest of the year.

Jonathan, this is Nadir and I will hand it to Rob in a sec but just to give you the big picture. I frankly, looking out, and what I see of the economy and what is happening in the market generally, I don't see anything that would suggest that the recession is behind us or the toughest part of the challenge is behind us. The macro trends don't look any better at this stage. From what perspective, whether it's roamer or out of bucket, these things tended to go with the macro picture. So I expect that to flow through.

On the competitive side for brands versus what is happening based on the economy, that's a tougher thing to kind of split out, but maybe you can ask Rob to just talk about the markets and how things are going.

Perhaps that's a good way to look at it. Rob, perhaps you can discuss the macro environment? What are you seeing on a competitive front? Are you seeing heavy repricing?

I think there's a bounce. No question that discount brands are commanding more volume in the marketplace by a long shot than they were twelve months ago. But generally speaking, I think the level of competitiveness in the market is roughly steady from quarter-to-quarter. I think -- you know, typically in Q3, and Q4, we see a little bit of pop up in terms of pricing and aggressiveness, and as always, we have seen things settle down a little bit in Q1. Saw some prices go back up on some key devices. Some of the Smart Phones, we took Smart Phone pricing up on -- particularly on BlackBerry and some other selected devices, and we have made other changes in that -- in that regard. So I would say steady -- steady as she goes in terms of competition. Intense, but consistent.

And our next question comes from Simon Flannery or Morgan Stanley Telecom.

Thanks so much. Good morning. I wondered if you could update us on your thoughts of new entrants coming in later this year into the wireless industry. Where do you stand in terms of negotiations with them for interconnection and so forth. And you mentioned the Smart Phone number, really strong. What are Smart Phones as a percent of your base today? Thank you.

Why don't I start with the last part of the question, Simon. They are running about 22, 23% of our base right now, Smart Phones, and as Nadir mentioned, we added that 360,000 new Smart Phones on the quarter. I think the important thing for you to know is not everybody uses the same terms for Smart Phones. When I'm talking about Smart Phones, I'm not talk about slider phones, which will largely SMS devices which typically pull much lower ARPU and have much lower subsidy than the phones I'm referring to which are really Apple iPhones, the BlackBerry family, and the other devices like the Samsung and Black Jack, and things in that realm. The second part of your question, with respect to new entrant discussion, all of these are actually confidential discussions and they are not -- it's not appropriate for us to be disclosing the state of negotiations with new entrants at that point. As we enter into these discussions, we sign NDAs to that effect. Apologies, but, you know, I can't really talk about those things on the call.

Okay. Thank you.

And our next question comes from Jeffrey Fan of UBS Securities. Please go ahead.

Thanks very much. I'm going to follow through on some of the Smart Phone issues. Can you provide us with the number of iPhones that you guys sold in the quarter? And the reason I'm asking is the difference in subsidy so much greater versus other Smart Phones so I just want to try to keep track. And if you can't give us the exact number maybe just a general mix change from last quarter to this quarter. And another related question is when we look at your -- your mix of gross ads coming in on Smart Phones, they are now around 50%, and it looks like it has been around 50% for the last couple of quarters. When we look forward, should we expect for that mix to remain there at around 50?

Or should we expect it to go up or maybe even come down as we look out the next few quarters? Thanks.

Hi, Jeff. It's Rob. Listen, on iPhones, we learned our lesson last quarter from releasing the iPhone numbers and breaking everything out in excruciating detail. To be honest with you, we're really happy with the 360,000 Smart Phones we have got out there. No plans to actually break it out in to the specifics of Rim, and Apple, and other things going forward.

That of course, as you know would be atypical, because we wouldn't break out handsets, and I think given the novelty of the explosion in Smart Phones, and the launch of iPhone, we wanted to signal that we thought they were fantastic devices and we are now seeing great success. We are now through that phase so don't expect us to be releasing the breakdown by device going forward.

In terms of the mix, Smart Phones changing over time. Very tough question. We have had two quarters back to back roughly 50% of our mix on Smart Phones. I think there are a bunch of things that will affect it. The appetite of the customer to be able to absorb the higher ARPU, and I think that will be attenuated by what is going on in the economy. To the extent that the economy starts to recover over time. I think we'll see an acceleration of Smart Phones, but if things slow down, it is possible it could slow down a little bit as well.

Maybe just a couple of quick follow-ones. On the iPhone versus Blackberry, maybe another way of getting at it is last quarter you told us that I think the incremental cost is about $85 million, is this quarter higher or lower than that number? And then on the mix, should we look at your actions in March with respect to increasing the BlackBerry pricing, and also making the upgrades policy a little bit tighter a signal that maybe the appetite wasn't quite there later in March? Should we read in to that?

So let me answer the last part first. No, we have a great appetite, we think the Smart Phone business is a great business. We will continue to do things to try to optimize the Smart Phone business. In terms of handset pricing, as most of you know when we do a dry period and we're heavily promoting something, we tend to take handset prices down a little bit. That's been a very typical action through Q3 and Q4, promotional period. We did that through the fall and as a matter of course we moved prices back up in Q1.

To reinforce that, I think this is the key point that perhaps has been lost in some of the coverage. This wasn't a case of actually increasing prices. The prices today are for the record much better than they were a year ago, as in cheaper.

Yes. Just adding on the second part, Jeff, the -- the change to our handset upgrade policy was a change that we thought was completely appropriate. The policy -- the original policy which was one that most people weren't taking advantage of any way, was one where we upgraded BlackBerries and the like on a 12-month basis. We moved to 24. We thought that was sound and consistent with the basis. The old policy was made when 2% of our base was Smart Phones. Now are I told you, 22 to 23% of our base are Smart Phones. We just thought it was sound economics. And frankly, most people with Smart Phones have no need to upgrade any more often than that. The durability of the devices are significant.

In terms of the first part of your question, did the incremental cost of having Smart Phones and driving the Smart Phone volume. We did it with a number of less than more, it was less -- roughly around $60 million compared to the number that we gave you last quarter.

And our next question comes from Peter McDonald of JMP Securities. Please, go ahead.

Thank you, and first congratulations to Nadir for the promotion and a pretty good first quarter in a touch environment.

My question is really what we are seeing a difference in results from this morning and the previous results at the beginning of the month. Just wondering, are there geographic or customer segmentation differences that you might point to that account for the diverging results? Or is there something else that you can point to.

And then given the different results, is there risk that -- like maybe more aggressive pricing initiatives that might negatively affect your results for the remainder of the year.

Peter. Thank you. And thank you for your support. I think, what we would like to see first to really get to answer your question is the full results being released. So I think it would be premature to base my comments where the market is at without giving that data. I don't want to speak to -- I can tell you what you saw in our numbers really reflect, what we have been talking consistently quarter in quarter out strategy was set a few years back, saying we're focused on wireless data.

We're going to grow this business, focusing on the high-value customers. And Rob and his team have been, like, absolutely laser focused on those priorities, and I think the results reflect that. The ARPU, yes, voices come up and trends in data shining through as we talked. And we shouldn't lose sight. And the combination of ARPU churn and you look at the margin numbers, even with the amount of Smart Phones that we sold we delivered 48% operating margins.

I think our view is -- our results just like what we have been about for sometime, and to the extent, that, you know, the market changes quarter in and quarter out, we have lived in that, so we see that as the an extra competitive market. People will react to what they see, and we'll take action as required as well.

Peter, the other thing we would highlight, is there's no big changes in the profile of our receivables, and we're working very hard to proactively cut costs to offset any -- any declines in revenue. So, again, business looks very healthy in all perspectives.

Okay. Thank you.

And our next question comes from Tim Casey of BMO Capital Markets. Please go ahead.

Thanks. Can we talk a little bit about cable. I mean, I appreciate that Ontario is going through some tough times but other cable companies with exposure to Ontario haven't shown the -- the degradation in sub ads that you have, nor have, you know, Shaw, which no one would confuse Alberta for a strong economy right now.

So can you remind us what mix of your core base is GTA, and perhaps what is NDU? Can you just flush out what exactly is going on in cable? I appreciate the economy is weak, but it's not showing through in your wireless numbers. It just seems a bit odd that you are blaming the economy on your cable business. Suggesting that your wireless business is much more resilient when we would expect wireless to be more exposed to the economy. Thanks.

Thank you. Thank you for asking a question. I was beginning to feel like my friend Tony Viner. But I -- listen, when you look at the results, I think I would be safe to say, you know, and Rob will correct me if I'm wrong, but including in wireless, which is a national company, the greater Toronto area has been more challenging for them than other parts of the country, and you obviously get the rolled up numbers. Listen, the economy is in effect on cable. I can't speak to other companies, and it's definitely not the only thing that is, you know, driving some of the numbers, but if for us when we look at it.

First new housing starts is down from what we had expected in some run rates, and there are some issues on hesitation to move on some of the -- some of the -- what we look and talk to customers. But also, I think when you look at our numbers and when you look at penetration rates, today, we basically number one or number two in every product in penetration rates in Canada.

And we're basically the highest revenue per customer in the business, and I think that -- you know, you have got to look at where you started from, and some of the others are doing a great job today, and some of them are catching up to some of those numbers that are there. That is definitely our markets and I can't speak for others. But Bell is definitely in our markets fighting much harder than they were a year ago. And they are doing a good job. We have definitely got to refocus on our home phone business, and when we launched in July of 2005, we had just closed a merge with Sprint Canada, and we took the traction which was working then, but we're looking to rejuvenate that and freshen that, which we really haven't done since we launched in 2005, and you'll see more on that as we go forward.

You know, our -- our market shares when we look against our direct competitors isn't bad, and I'm not pleased about that. I would almost rather than we were having tougher quarters and losing more share in a sense. But definitely there are some growth issues on -- and we're going to address those and work hard on those.

We're going to continue to invest in our product to differentiate ourselves, to show customers that our television choice and internet choice is better value for the customer, and I think you'll see more from us through the balance of the year.

The numbers -- obviously the sales -- you know, leads up to a big portion of our revenue growth in your future, but we have done a better job, too, on focusing on costs, and manage the rate of growth of cost relative to revenue growth, and seen some good -- better EBITDA and expansion in the margin, and expansion in unlevered free cash flow, and just the cable portion of the cable business as we mention at 25 points. Thank you.

And our next question comes from Glenn Campbell of Merrill Lynch. Please go ahead.

Yes, thanks very much. In the risk factor section you talk about the pending ban on cell phone use while driving in Ontario. I'm wondering if you have taken a look at your Quebec numbers over the years, to be able to have some sense of what the ban there did there do wireless usage in revenues in that market?

Yes, Glenn. It is Rob. As you mentioned similar legislation has been introduced in Quebec, Nova Scotia and New Foundland and we have taken a look at the day that we have. We haven't really seen any material impact in terms of the our usage from our customers in those provinces. Sometimes you see a little slide at 1 or 2%, but it seems to bounce back pretty quickly afterwards.

So, you know, I think -- you know, that said, we have always put the safety of customers first in terms of encouraging them to use wireless headsets or handsets or voice-command systems to try to make sure that their eyes are on the road when they are driving.

Do you have any sense of what proportion of usage is driving from any survey that you have done?

I don't have anything current in front of me, Glenn, at this point.

Okay. Thanks very much.

We have time for two more questions, and our next question comes from Rob Goff.

Thanks very much. My question would be on the plans for increased operating efficiency. When we look at that from an OpEx basis, should we look at savings on -- against incremental growth in costs, or are there actual reductions that we should be looking for? A bit more context if you could.

Rob, clearly a combination of both over times, because there are pockets that we'll to invest in, there's pockets that actually get some costs out. There's a few things that we're looking at in terms of the approach to getting cost out of the business. Some of them are -- you know, start from the stuff that Bill already referred to in terms of compensation and salaries being frozen that kind of technical thing. But the more substantive work is around improving our service and getting our costs out. A lot of our costs are based on people having to deal with problems that we have caused. If we get rid of those problems, those costs get out of the Company. How we handle issues that we have caused can be substantially improved. Things like self service. How we handle issues with people calling in. A metric that we're absolutely focused on. And then we have opportunity to look in the areas that, you know, frankly segments of the business that don't make as much sense for us. And do we need to continue? So these will be subsets of products. Just being sharper on what areas we want to focus. Lots of initiatives underway. It is a clear focus for the management team.

Bill and I have made this one of our top priorities and without getting in to specific that might help others, as in competitors, hopefully what you really see this the results in the numbers as we go forward.

Thank you.

Our last question comes from Vince Valentini of TD Newcrest. Please, go ahead.

Thanks very much, and apologies to Edward and Tony, but I'm going to stick with wireless for the last question. Rob, can you just clarify. When you said 60 million, did you say 60 million as the total Smart Phone hit in the quarter or are you saying 60 million less than the 85 last quarter?

60 was the total, and that was the number that was comparable to the 85 that we give you last quarter.

Good. That's what I thought. Thanks. Second few. Can you give us any sense of what happened to your roaming issues during the SARs issue a couple years ago maybe as a leading indicator of what we may see if this Swine flu continues.

It is a great question. It's funny, in preparing for the call we went back and looked at that. There was no question as travel bans happened around SARS. We saw some impact on roaming. It was -- it was -- it was definitely a noticeable impact. So to the extent that we see the Swine flu accelerate, I think we can expect to see some softening in roaming revenues.

Okay. And lastly, if you could. Coming up next year are two big issues for you. With Bell and Tell getting HSPA. With some sort of new AWS players entering the market. You have given guidance for the year, you are sticking with that guidance, can we take comfort in that you guys won't be launching the mother of all promotions in the third and fourth quarter this year to try to lock up as many customers as you can before those two increases in competition hit you.

It sounds like promotional guidance to me. Listen, I think you have seen us perform over time, and I hope you have looked at us as an intelligent and reasonable competitor in the marketplace doing the right things for our business in the long run, and not doing incredibly crazy short-term things. I think you can see that pattern of behavior as we go forward. We will obviously do what we need to do to be successful. I think we'll do it in an intelligent, reasonable sort of a way.

Thanks, Rob. Thanks, operator. And we wanted to thank everybody for participating this morning, and I know it's a busy day, we have a lot of other calls going on at the same time, but to the extent we couldn't get through to everybody that was in the queue to get your questions answered. Please feel free to call either Dan or myself. Our contact info is in the earnings release. Thank you for your coverage and your ownership and support. This concludes this mornings call. Goodbye for now.

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