Rogers Communications Inc (RCI) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Rogers Communications fourth-quarter 2010 earnings conference call.

At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. (Operator Instructions) I would like to remind everyone that this conference is being recorded today, Wednesday, February 16, 2011.

I will now turn the conference over to Mr. Bruce Mann from Rogers Communications management team. Please go ahead.

Thanks, operator. Good morning, everybody. Appreciate you joining us for Rogers fourth-quarter 2010 investment community conference call and webcast. It's Bruce Mann here.

Joining me on the line in Toronto this morning are Nadir Mohamed, Rogers' President and CEO; Bill Linton, our Chief Financial Officer; Rob Bruce, President of our Communications division; Keith Pelley who is the President of Rogers Media; and then Bob Berner, our Chief Technology Officer.

We released our fourth-quarter results earlier this morning and the purpose of this morning's call is to crisply provide you with a bit of additional background and color up front, and then answer as many of your questions as time permits.

Today's remarks and discussions will undoubtedly touch on estimates and other forward-looking types of information from which our actual results could differ, and so you should review the cautionary language in the release of this morning and in our full-year MD&A. This includes all the factors and assumptions and risks and how the results could in fact differ from those, so those cautions apply equally to our dialogue on this morning's call.

If you don't already have copies of this morning's release or our 2009 annual report to accompany this call, they are both available on the Investor Relations section of Rogers.com. We will be filing our 2010 full-year MD&A financial statements and notes within the next two weeks, but they are not currently available. They will be shortly.

With that let me turn it over to Nadir Mohamed and then Bill Linton for some brief introductory remarks. And then the management team here would be pleased to take any questions. Over to you, Nadir.

Thanks, Bruce, and good morning, everyone. Thank you for joining us. As you can see from this morning's earnings release, we delivered another quarter of growth in new subscribers and revenues, while continuing to generate significant free cash flow.

In what was clearly an intensive competitive environment we sold and activated a record 635,000 smartphones, well exceeding the previous mark we set in Q3 of this year. So accordingly, the most significant driver of our top-line growth was the continued strong growth in our Wireless data revenues. In Q4 Wireless data revenues were up 32%, accelerating sequentially from the 28% growth we delivered in Q3. These now represent 31% of Wireless network revenue.

Let me put that in context. In Q4 our Wireless data revenues exceeded CAD500 million and for the full year totaled CAD1.8 billion. Our success executing our Wireless data strategy is reflected in what continues to be our sector-leading ARPU.

Now our Q4 financial results were consistent with our commentary each of the last couple of quarters. First and foremost, they reflect a heavy Q4 focus on and success we have had in the high-end of the Wireless market. Between our sales to new wireless subscribers and upgrades by existing subscribers we activated more smartphones in Q4 than any single quarter ever.

Importantly, on the gross additions front Q4 was the highest quarter ever for smartphone sales to new customers. We are obviously committed to the strategy of leveraging our proven strength in Wireless data to drive this smartphone adoption.

The smartphone metrics -- ARPU, churn, upgrade rates -- remain intact and represent an excellent MPV positive investment as we bring in and retain our highest lifetime value customers. This reflects the consistent focus and investments we have made, not just over the last few quarters but, frankly, over the past number of years as we have executed our Wireless data strategy.

It's also worth noting that the strength we saw this quarter was across the board through the smartphone categories, including record activations for each of Blackberry, iPhone, and the Android devices. This balance of devices over time should further improve our customer acquisition and retention economics.

Clearly end-quarter the strong smartphone acquisition retention level has a dampening effect on EBITDA margins. Comparing Q4 over last year, our hardware costs increased by almost CAD100 million. Despite this significant increase, with solid cost control we had costs virtually flat in every other category we were able to deliver what I believe is a very respectable 42% EBITDA margin.

As expected, the results also reflect the impact of increased competition on voice, ARPU, and churn. The continued decline in Wireless voice ARPU reflects the increased maturity of the voice market, clearly the level of competitive offers that are in-market and the impact of our lower roaming rates.

Our postpaid churn did tick up incrementally both year-over-year and sequentially, and recognizing the competitive environment we put a sharp focus on retention to help ensure that we minimize churn in the most valuable segments of our base. We have been successful in this regard as our churn rates on our smartphone base are measurably lower than our average postpaid or blended churn rates.

We have also been increasingly successful at applying more of this same focus on retention and value-oriented segmentation on the Cable side of the business. Again this quarter our churn levels across the Cable products are down including on basic, Internet, digital, and home phone, which is obviously critically important in a maturing product category.

We successfully focused not just on churn in the quarter but on cost control at Cable as well. The results of that focus are clear with Cable Operations EBITDA margins of 46% in Q4, which is the highest they have been in quite some time, and with double-digit EBITDA growth as well.

Also of note is that during Q4 we installed our millionth cable telephony subscriber and the penetration of that product is now 44% of our basic cable subscribers.

Just something to keep in mind is the divestiture of the circuit-switched portion of the telephony business which we announced at the end of Q3 and which began in Q4. During the quarter we transferred just under 30,000 of these circuit-switched lines under this arrangement and we would expect to complete the migration, literally about 46,000 lines remaining, during the first half of 2011.

It's important to appreciate that if you were to exclude these circuit-switched business that we are in the process of divesting the year-over-year revenue growth for Cable Ops would have been measurably higher. And in a few minutes Bill will provide a bit more color on this issue.

Now turning to Rogers Media a very good quarter in terms of top-line growth with a strong acceleration from Q3. This reflected solid ratings, subscriber fees, and the generally improving ad market driving good growth to the television, sports net, radio, and publishing groups, but albeit somewhat softer at sports entertainment.

As well a big part of the Q4 story for Media was the new Sportsnet ONE national televised sports network which we launched in the second half of 2010. We said last quarter that the startup costs would ramp and peak in Q4, and you can see that is the case in the Media EBITDA results. Bill will share a bit more granularity on this in a moment, but I will say for now that if you were to exclude these Sportsnet ONE startup costs Media's EBITDA would have been up double digits versus the reported decline.

This investment in expanding our televised sports platform leverages Sportsnet's proven model and franchise and I am confident will deliver solid growth. This complements what is already a very solid breadth and depth of Media platforms at Rogers.

So to close out on the year let me point out that we delivered on our commitments, meeting or exceeding all of our 2010 guidance metrics. We grew subscribers, revenue, EBITDA, and cash flow at respectable rates. We continue to invest at a healthy pace for the future, and importantly we increased the dividend at a double-digit rate and in total returned more than CAD2 billion of cash to shareholders.

Our guidance for 2011, which is included in this morning's release, is for continued but moderated growth with continued solid margins, Wireless data growth, and strong cost control. It is also reflective of what we expect will be a continuation of the intensely competitive environment we saw in the second half of 2010.

You also see a modest increase in our CapEx for 2011. This primarily reflects incremental spending directed towards our multi-year deployment of LTE wireless technology, which, as you know, we began trialing during the second half of 2010.

We will have more details in the coming months, but for now the incremental spending for LTE deployment is principally to lay the foundation in the areas of network densification and transport augmentation. It's clear to us that a robust LTE the appointment will require a multiband approach to leverage the full promise of this powerful true 4G technology.

Rogers has always invested to secure our position as first to market with the latest technologies and as Canada's network leader, and that is not going to change as we go forward. Also for 2011, we announced this morning that the Rogers Board has approved a healthy 11% increase in our quarterly dividend to an annualized CAD1.42 per share and also authorized a share buyback program for 2011 of up to CAD1.5 billion. This underlines our Board's continued confidence in the Rogers franchise, strategic position, and cash flow generation capabilities.

To conclude, despite an increasingly competitive in-market we continue to deliver growth with very respectable margins, strong free cash flow enabling us to returned significant cash to shareholders while at the same time reinvesting for growth at a healthy rate. I am confident that we are well-positioned going forward, clearly in terms of asset mix, financial strength, but also with a robust product portfolio, great brands, distribution, and networks, and a seasoned management team that is absolutely focused on execution.

Let me now turn it over to Bill and then we will take your questions.

Thank you, Nadir. I will provide a little more detail on the financial results and the metrics for the quarter.

On the top line our consolidated revenue growth was 3% for the quarter. This reflects top-line growth of 3% at Wireless network, 2% at Cable Operations, and 9% at Media. At Wireless we now have 41% of our postpaid base on higher-end smartphones. That is up from 31% level we were at the same time last year. These are higher ARPU, lower churn, and higher lifetime value subs.

As you can see in terms of our postpaid Wireless results overall, the 3% increase in network revenue is a bit of a sequential deceleration from Q3 of 2010. This reflects continued softness on the voice ARPU side consistent with Q3 of this year and with the level of competitive intensity in Wireless during the heavily promotional Q4 holiday shopping season. But as Nadir pointed out and as you can see from our gross additions, sales remained strong and, as you can tell from the record sales of smartphones to new customers, that success was concentrated in the higher end of the market.

On the prepaid side the year-over-year increase in subscriber additions reflects a combination of continued additions under our new Chatr brand as well as continued activations of iPad tablets, the majority of which are activated on prepaid plans. We categorize both of these in prepaid as both have prepayment features and don't require term contracts. I would point out that to date both of these products have ARPU and churn characteristics that are accretive to our historical prepaid metrics. However, because of the early stage of both of these offerings and for obvious competitive reasons, we are not going to get any more specific in terms of providing metrics for you at this point.

In terms of Wireless network margins, I would point out a couple of factors to consider. First, as Nadir mentioned, we had a significant number of smartphone sales during the quarter, the highest level ever actually combined with an unusually large number of upgrades for existing smartphone subscribers. And both happened at the same time. Together these had the effect of increasing the cost of equipment sales by almost CAD100 million year-over-year.

Offsetting this, and as a result of very solid cost controls, we were still able to put up respectable 42% Wireless service margins for the quarter.

Turning to our Cable Operations, the revenue growth rate reflects a couple of items worth mentioning. First is the declining circuit-switched telephony business, of which we are halfway through divesting, was dilutive to the rest of the cable Ops Business. Not just in terms of margin but in terms of top-line growth as well. Normalizing for the year-over-year decline in that part of the business, our top-line growth would have been about 120 basis points higher in the quarter.

Secondly, we had about a 50% lower volume of subsidized digital box sales in Q4 of this year versus last year as our focus was more heavily on the box rental model. So this had the impact of bringing down the revenue growth by another 100 or so basis points. Adjusting for these items together, I would say a normalized level of revenue growth rate for cable operations would have been 4% versus the 2% that we reported.

And what I think is impressive at cable operations for the quarter is the excellent cost controls which helped drive EBITDA up 16% and margin expansion to 46.2%.

An important note on Media is the continued free launch period which started late in Q3 of the new Sportsnet ONE televised sports network that Nadir mentioned. Media's costs and margins were heavily impacted by these Sportsnet ONE network startup investments. In Q4 we acquired incremental new programming to launch the network with and there was a seasonally large number of professional hockey games, but at the same time we were just starting to ramp up revenue.

Excluding the startup period losses, Media's EBITDA would have been up 10% year-over-year versus the decline that is reported. However Sportsnet ONE has now crossed the 5 million subscriber mark. We expect that Q4 was the peak period of losses relating to the creation and launch of this network, and we should be EBITDA positive in Q1 for this network.

Stepping back to a consolidated view, still respectable top-line growth despite increased competitive pressures combined with good progress around OpEx and CapEx containment. But as we had suggested last quarter, the operating profit line was pressured by the record number of Wireless smartphone sales and activations along with the Sportsnet ONE startup costs.

During the fourth quarter we generated CAD318 million of free cash flow which, among other things, we used to buy back 10.1 million Rogers shares for CAD347 million under our share buyback program and we paid out CAD184 million in dividends. That is over CAD500 million of cash returned to shareholders in the fourth quarter alone. For the full year free cash flow was CAD2.1 billion which, among other things, we repurchased 44 million shares for CAD1.3 billion and paid out over CAD700 million in dividends during the year. In total CAD2.1 billion of cash returned to shareholders in 2010, reflecting a 10% dividend increase and the execution of one of the largest share buybacks the Company has ever done.

I would also note that over the course of the year we have reduced the average cost of our outstanding borrowings from 7.3% to 6.7%, or by 60 basis points, as a direct result of debt financings we executed over the course of 2010. These financings served to extend our maturity schedules as well.

Looking to 2011 we laid out our full-year financial guidance in our release this morning which you should all have. As you can see from the supplemental detail that we provided, we are expecting continued top-line growth across all three of our main business segments, albeit with a somewhat moderated rate of growth at Wireless, both on the revenue and EBITDA lines, reflecting the assumption of a continuation of the trends we have seen in the second half of 2010.

You can also see there is a modest increase in CapEx, which Nadir referenced a moment ago, with the net result being that we currently expect free cash flow to be flat at just under CAD2 billion to potentially down by up to 6%. You will note that for fiscal year 2011 guidance it is provided on an IFRS basis to match with how we will be reporting our results starting in Q1 of this year. And we presented the same metrics for fiscal year 2010 actuals on both a GAAP basis and reinstated under IFRS so you can have an apples-to-apples comparison.

As we discussed last quarter, based on the IFRS standards as they exist today, we don't believe that this is going to have a material impact on what we report as revenue, operating income, or earnings versus under Canadian GAAP which we use today. You will see in this morning's release that we have provided some condensed Q4 and full-year 2010 income statements and balance sheets prepared under the current IFRS standards and compared them to how we report today under Canadian GAAP. Then we have noted where and why items differ between the two.

I will finish by saying overall on a consolidated basis we put up healthy, but somewhat moderated, growth for 2010 reflecting a combination of successes on the sales side, investments in high-value customer acquisition and retention, and a very competitive environment. We continue to be in a very strong financial position, exceptionally solid balance sheet.

We have investment-grade ratings and relatively low balance sheet leverage at 2 times debt to EBITDA, and we have approximately CAD2.4 billion of liquidity available under our fully committed multi-year bank facilities. So in terms of the balance sheet, from the perspective of leverage, liquidity, and maturities we continue to be in a very strong position.

With that I will pass it back to Bruce and the operator so we can take any questions you have.

Thanks, Bill. Operator, we will be ready to take questions from the participants in just a couple of seconds.

Quickly before we begin that we will request, as we do on each of these calls, that those participants, and there is many, that would like to ask questions be courteous to the others on the call and limit the questions to one topic and one part so that as many people as possible have a chance to participate. And then to the extent we have time we will circle back and take additional questions, or we will get them answered for you separately after the call.

So with that, operator, if you could quickly explain to the participants how you would like to organize the Q&A polling process, we are ready to go on this end.

(Operator Instructions) Jonathon Allen, RBC Capital Markets.

Thanks very much. You characterized the record number of smartphones sales and upgrades in the quarter as being sort of unusual relative to past years. But when I look at your Wireless guidance for the year, down -- sort of Wireless EBITDA down 3% to up 1%, it suggests that it wasn't really a one-time but rather you are expecting some of those continued pressures going forward.

Is it mainly the retention spending remaining high that is putting pressure on the margins? And just wondering whether you could elaborate on that a little.

Jonathan, my reference to the 635,000 obviously was for the quarter and specifically to highlight that we had the highest number of sales on the growth side as well as activations in terms of retention.

As you know, Q3 we had a pretty strong number of smartphones, both acquisition and upgrades, and what it reflects is the fact that two years ago we had introduced the iPhone. So in the back half of 2010 you have the impact of the two year's renewal rate for the iPhone customers. So when you look forward in terms of upgrades we carried on, obviously, with the iPhone so that base continued to grow.

So I think you will continue to see us have strong retention upgrades around smartphones, not just with the iPhone but Blackberry, Android, and the rest of the category.

How much was the iPhone impact in the quarter? Because if you think about you have had a large incumbent base of iPhone customers in the last few years and finally now Bell and Telus came out with the iPhone 4 and a lot of your customers coming off contract could switch. Was that one of the main reasons for the pressure that you saw in the quarter and on that basis we should probably see things stabilize in the next year?

Jonathan, I would say it was across the board to be fair so I wouldn't -- the only reason I zeroed in on the iPhone was that if you look at back half of 2010 you did start seeing the renewals from two years ago. But the renewal rates are across the board, so when you look forward think of it as the smartphone base. We now have 41% of our base on smartphones, different vintages obviously. So that will be a part of our business going forward, not just with iPhone but across the board.

Okay. Thanks, Nadir.

Phillip Huang, UBS.

My question is on churn. Can you, I guess, please elaborate a bit on postpaid churn? On the surface, despite the increase in your retention spending, your churn is still up 14 basis points sequentially, but given your focus on higher value customers I suspect on average the customers leaving you have -- ARPUs are notably lower than the average for your postpaid base. So first, is that a fair assumption?

And second, wondering if you would be able to give us an update on where most of those postpaid customers are going. Is it to Chatr or other incumbents or new entrants? Thanks.

Yes, it's Rob, Philip. Yes, your assumption is exactly right. The focus of the churn or the focus of our retention efforts were largely against our highest valued customers, smartphones customers and high-value customers, and our churn was on the low end of the market as you appropriately identified.

There were no unusual one-time items in the quarter, other than to say we had service level challenges through the quarter which characteristically drives us to slightly higher levels of churn. And I think those are in the numbers. And that might be relevant to your modeling going forward.

Great, thank you.

Bob Bek, CIBC.

Thanks, good morning. Just back to Jonathan's question on the cost side for Wireless. Nadir or Rob, can you update us on your thoughts on the smartphone economics? Obviously these unusually higher upgrade cycles are likely to continue to squeeze as we get more and more devices sort of coming faster. How do you feel about data pricing control and your ability to kind of push these into your base at economics that you find attractive?

Bob, it's Rob. Listen, we are completely committed to the smartphone and the high-value customer. The economics of smartphones with ARPUs 1.9 times our non-smartphone customers, they have the highest LPV, continues to be very healthy. Very low churn -- characterized by very low churn.

And of course you know we are working to drive down costs, both of devices by driving down the price of the individual devices and by working to a mix that favors a lower overall subsidy and working on hammering down the costs of service that continue to improve or sustain that LPV.

We have had a leading share for a long time, so as Nadir identified, we continue to upgrade these customers. We shouldn't be confused, I think generally, between the impact it has in quarter because of the expenditure on devices for acquisition and retention and the underlying economics of each of these individual customers, which are terrific.

So, again, committed to the economics, remain very disciplined in terms of our pricing, both for devices and for rate plans, and committed to the smartphone story as it's one of the backbones of our data strategy.

Bob, it's Nadir. I am just going to add to it because I think it's a very important point. One of things that we always look at what is the lifetime value of a particular offer or product. And, as Rob said, we are very pleased that we started with some certain assumptions around what the ARPU, churn, and uptake rates would be.

What is really good to note is that those assumptions have held up consistently. The reference to 1.9 times that is a very, very strong consistent ARPU level. The churn levels that we talked about, no question in Q4 with the increased competition they have ticked up to 1.35 but I would say the majority of the uptick was related to the non-smartphone. The smartphone churn levels are very much what we expected, if not better actually, through time and have held up reasonably well.

The uptake rate, which obviously affects in-quarter financials because you get the hit on EBITDA, also are fairly intact. So it's very much along the assumptions we have made and none of the metrics that drive lifetime value have changed. Obviously, we will continue to monitor each one of them but it's important to note that they have actually held intact.

That is helpful. Thanks very much.

Simon Flannery, Morgan Stanley.

Thanks very much. Good morning. I wanted to come back to the CapEx and the commentary around LTE. On the transport side I think you have historically used microwave. Are you looking more at fiber?

And then on the multi-band side would you consider launching LTE before you got 700 MHz spectrum or do you make you are going to wait? Because clearly we are seeing from Verizon a lot of new devices coming out as early as this month, so clearly the product is starting to get ready. The sort of results from the network performance look pretty good, so seems like it's ready for primetime. So interested in your thoughts there.

Yes, Simon, I will get Bob to answer the question around microwave. But as far as the bands and spectrum let me say that we are convinced that the deployment of LTE will be a multi-band deployment consistent with what we see and expect happening in other parts of the world. And more to come in the fullness of time.

At this stage what we are saying is we are committed to LTE, we are committed in the deploying it, and it's going to be a multi-year deployment. Bob?

Thanks, Nadir. Simon, our transport strategy really hasn't changed over the last several years. There is no specific rule that we follow. We use microwave where it's the most appropriate and economic approach to supplying the backhaul capacity and fiber where that is the right answer. So we continue to deploy a combination of high-capacity microwave systems up to 500 Mb per second and fiber systems as required.

Okay. Thank you very much.

Vince Valentini, TD Newcrest.

Thanks very much. Back on the Wireless churn, I am wondering if you can talk about two segments specifically -- one geographically being Quebec and one by segment being the corporate market, if you are seeing any pressure from Bell and Telus in that space? Thanks.

Vince, it's Rob. Really nothing pops out as obviously major cities across the country -- lots of new action, both from new entrants and lots of things coming from Bell and Telus and Videotron. But nothing pops out in terms of trends by market.

Glen Campbell, Merrill Lynch.

Yes, thanks very much. I am looking at your guidance for Wireless. It looks to me, using the midpoints you are forecasting, a drop in margins by about 1 point, and yet when a look at your retention spending you were 12.4% of revenues for the year, 16.3% for the quarter. All your competitors were up about 3 points for the quarter.

And your gross adds share dropped below a third. So how do you hit those numbers in 2011?

Glen, obviously one of the sensitive numbers in terms of the range that we offer that will drive the outcome is the amount of upgrades that we have. We have got some programs in terms of how we streamline our upgrade processes, but without getting into the specifics of our assumptions around the different metrics that drive EBITDA I think it's hard to comment beyond saying that we have looked at the numbers.

These reflect what we believe is a continuous competitive environment. So we are not seeing that the environment changed, it's just how we execute within the environment that leads to those numbers. There is a range that is set out.

And one of the reasons that you look at the range going down in EBITDA margin is really a reflection of the level of upgrades, that is the primary driver.

Okay. Would it be fair to assume that this retention spend in Q4 is a bit of a peak and you expect some reduction through next year on average?

Glen, it's probably not something that I really want to comment on other than to say it was a record quarter obviously.

Okay, fair enough. Thank you.

Jeff Fan, Scotia Capital.

Thanks very much. Just wanted to follow up on the LTE question. When you look at the multi-year deployment wanted to ask you guys about the key steps that are required, specifically on the cell site front. Is there going to be a greater density that is required as you roll out LTE?

And then on the backhaul, or with respect to microwave and fiber, I am just wondering if you can characterize across the country is there a way to characterize where we would see more fiber backhaul versus microwave? Does it have any relation to your cable versus noncable territory? Thanks.

Sure. Hi, Jeff; it's Bob. Clearly, economics drive the fiber deployment and it would make sense that in rural areas or in suburban areas that microwave can be a much more cost effective solution. In terms of density of fiber systems, urban areas are the target. Logistics will drive where we put these things.

In terms of cell site density, we think that as the capabilities of these systems increase that usage falls. That has been the history of broadband altogether and that will continue as we move into that real digital fast lane and provide the same capabilities in mobile wireless that we have in wireline systems. So all operators will be requiring additional cell sites to provide for that capacity and, more importantly, the consistency of data speed.

So, yes, densification is part of our program going forward, not inconsistent with what is happening around the world. And again going back to the fiber thing, all our hub sites are already on fiber systems for high capacity and [end sites] are really where the decision point is on microwave versus fiber.

And can you quantify what kind of increase in density we could expect over time, maybe just generally?

We announced a trial in Ottawa that we are learning a lot from in terms of dual-band operation of these networks. And we will have more to say on these things in the future.

Okay, thanks.

Matt Niknam, Goldman Sachs.

Thanks for taking my question. My question is on postpaid ARPU. This quarter the rate of decline remained relatively stable sequentially. Wondering if you can provide some more color on how customer reprice activity that started in third quarter how that trended in 4Q.

And then maybe if you can sort of size up just an estimate of how much of your base do you think could still be at risk of requesting some sort of reprice in 2011. Thanks.

Hi, Matt. It's Rob Bruce. Listen, let me make sure that I tell both sides of the story.

Obviously, the side of the story that we are most excited about is the data revenue side of the story with 31% of our total revenue coming from data and strong sequential growth to 32% year-over-year driven off the smartphones growth in SMS and other parts of the data portfolio. From a voice perspective, clearly there is -- it's a mature business, and as a consequence people are making adjustments to plans and we are working hard to retain high-value customers. That requires that from time-to-time there is price trade down on some of the customers.

And as well, and I think it's not as evident in the day-to-day discussions that we have, but remember that voice is impacted by roaming. We have been saying for a number of years that we were the only players in the roaming game. Today our two primary incumbent competitors are a factor in the roaming business. They can now provide international roaming outbound for their customers and for potentially all customers in the market.

But moreover we share that inbound roaming revenue with them now. So their voice results are buoyed by that increase in that inbound roaming revenue and ours are diminished as we start to share that inbound roaming revenue with them.

So those are some of the key vectors that are working on the voice side. They are vectors, of course, that we have expected as this business matures and we are more committed than ever to continuing to drive the data side of the business, which is the core of our strategy, to continue to sustain ARPU levels at the highest levels we possibly can.

Dvai Ghose, Canaccord Genuity.

Thanks very much, good morning. Looking back at 2010 I am really wondering what the justification was for Chatr given the fact that, one, you have just announced new Fido plans which essentially are the same as the Chatr plans. Two, you have clearly loaded up on prepaid in the second half of the year and I think you must be disappointed by the 16% share of postpaid of national net additions in the fourth quarter.

Three, it forced a reprice of the whole industry which would seem odd from the guy who is the ARPU leader traditionally. And four, it may have led to some regulatory concerns. So could you help me understand why you did Chatr?

So I, Dvai, buried in that question is a question about our postpaid nets for the quarter and I think maybe what I will do is I will start by talking a little bit about that.

Listen, I think it's important for everybody to take away that we were fully competitive at [this sale]. We got 32% with our incumbent partners, we got 32% of the share of gross adds at the till.

Q4 for us was a unique and challenging quarter for inventory. The key devices, iPhone 4 and Torch, were in very short supply for much of the quarter and given our largest smartphone base that we wanted to retain, our strategy the most high-valued customers, we mandated our channels to protect 70% of the inventory for our existing customers. And as a consequence, frankly, we starved a little bit of our acquisition efforts. I think under different circumstances we could have seen quite a different outcome.

The other thing is, given the device supply was so short, we remained very disciplined on device retail prices versus our more aggressive incumbent competitors who were very share focused in the quarter with fewer existing customers to assist in upgrade.

Our bigger base -- Dvai, as you know, we are almost 2 million more customers than Bell, I think 1.8 to be exact -- drives about 75,000 more deacts in quarter. So if we took our 48,000 and you added 75,000 to it all of a sudden we are up in the range of 125,000 [nats] as opposed to the 40,000, 48,000 we put on the table.

And lastly, we continued to remain disciplined in our price plans on all three brands commanding a premium in every category that we compete. In the long run we think that although a small space, the all-you-can-eat space will continue to be a factor in the marketplace. Chatr has been very successful at competing in that space and I think as the leading carrier in the country I think you can't turn your back on growing parts of the market. So we continue to be focused there with the Chatr brand and we continue to do things on the Fido brand to ensure it's healthy and vibrant going forward.

Ric Prentiss, Raymond James.

Thanks, good morning. I would like to follow on that same line. Rob, can you talk a lot about what your thoughts are in 2011 as far as market share on the postpaid on a net basis? And the related question is I think earlier somebody asked was Chatr cannibalizing postpaid, maybe a full answer on that.

And then Videotron, as they roll out are there wholesale customers counted in your postpaid base so if they move off onto their own network is that going to affect churn?

I think I got two of those. I will have to come back to you for the third one.

In terms of postpaid share, listen, on [nats] we would like to have seen a slightly higher share this quarter so no debate there. I talked about some of the circumstances that led to that.

Your second part was on Chatr, Ric?

Yes. Yes, any cannibalization on postpaid?

We have done some significant work to understand the cannibalization. Obviously we have [core] data, we have also done some research. About 35% of the customers in the Chatr base actually come from our other franchises. And when we do research with those customers 50% of those customers that moved to the Chatr brand would have left us for someplace else in the wireless category in Canada had we not had the Chatr brand.

So we continue to believe that it was an important move that we made on Chatr. And that this, while it's still a niche category, it's an important part of the business going forward.

And then the final question was Videotron wholesale customers, I think there was like 70,000 or so. Are those in your postpaid base and what happens when they move those over to their own networks?

A lot of them have already been moved over, Ric. The ones that remain are -- the revenues are within postpaid. It's not material; the subscribers are not counted in our postpaid basis. So you don't do that in the base, you don't see that in the churn.

Great. Are you guys still thinking -- Rob, I missed the answer -- for 2011 are you thinking it's kind of a third share of postpaid or should we leave it alone?

Listen, we did -- everything is baked into our guidance and really we don't give guidance on net loads.

Ric, it's Nadir. The only thing that maybe I will just reinforce is we see retention as a primary thing that we are focused on. We have got a great base of customers with strong ARPUs, high-value smartphone customers, and when you look at nets obviously it's a function of what happens on the growth side.

Churn, I think you should get a message from us that we are absolutely focused on churn and protecting our base and making sure to the extent you have seen an uptick in churn that what we end up losing aren't the customers that are high-value but the customers maybe that are a voice-only or attracted to the lower end. Some of whom, by the way, obviously will end up being on our other brands.

Sure, makes sense. Thanks, Nadir.

Peter MacDonald, GMP Securities.

Thanks. It's not really a Rogers-only issue but I am trying to understand the success that everybody is having with smartphones. The fact that your life value of a customer is meeting your expectations and churn is focus on a low values of customers comparing that against where your financial results are and where guidance are.

So maybe if we could just I get an understanding, is it because the new entrants are having a bigger impact than what you thought on your sub-base? Are the incumbents really just not accepting enough value for their high-value subs? Or is this just something that has to work itself through and we will see the value maybe a year out or so? Thanks.

Peter, I will try and do justice to your question, feel free to jump back in. But I think when you look at the impacts on margin what you see is our ARPU coming down, albeit at somewhat of a moderated rate, just slightly better than Q3. And it's really driven on the backs of voice. Data continues to be very strong, but you do see that flow-through in terms of revenue where the growth of revenue has been moderated.

Churn as an impact in terms of your cost structure to get the same nets, obviously if you are churning more you got to get more loads in. The big factor that drives margin and drove margin in Q4 is clearly the cost of acquisition and upgrade around smartphones. That is where, because of the way we account for these things it depresses the earnings in the quarter, but obviously it's a great investment in the future.

So when you luck at the next year and you look at -- the question that came up earlier about the implied at midpoint 1% I think was the question -- the turn really is -- the big number is smartphones. In Q4 we made reference to CAD100 million of extra costs. Well, if you take that CAD100 million off and if you were to account for it differently you would have a much stronger margin in terms of what we would report.

So I think those are the things that drive it. The one thing that we haven't talked about, or at least people haven't asked, but we feel very good about is that we have had very strong cross management across the board. We talk about the smartphone category but we see that as an investment. But every other cost category has been held flat.

We have got lots of initiatives to continue driving costs out of our business in 2011, and to a certain extent that probably answers a bit of the earlier question as well.

Right. I guess what I am trying to figure out is the churn question is an important one because of the size of your base and the amount of investment that has to be made on smartphones. If I look at the difference that you can offer in the space to retain value, the incumbents really is at the high end of the market and we have seen the investment since the early launch of iPhone.

I guess what I am trying to find out is where is the inflection point where the impact of the new entrants offset against the value that you have that you continue to invest in on the higher value part of the subs? I am trying to understand are the incumbents just not accepting enough value for those higher values subs, are you trying to get market share against each other too aggressively? Just where that kind of all stands.

Peter, one of the things that you have to factor in that in the current period what we have is offset at the leading position with smart devices. Others are going to get smart devices in their base over time, so these things will play out.

One of the issues obviously we have and it's just a reality that when you look at comparatives we have been growing at an incredible clip in terms of smartphones. So it makes the comparatives difficult because you have this quarter the example CAD100 million more of costs. Obviously when we get to next year at this time you have a different set of comparables, so I think these things will play out.

Ladies and gentlemen, we have time for two more callers, the first of which is Rob Goff of Northland Capital Partners.

Thank you very much and good morning, guys. You talked about the smartphone versus non-smartphone ARPU being roughly 1.9 to 1. Could do directionally address the lifetime value equation, considering the lower churn on smartphone and the higher COA?

Sorry, Rob, just to make sure I understand what you are asking for precisely, what is the lifetime value of a smartphone --?

No, no, no. I was just going directionally. So would the lifetime value of a smartphone sub be 1.9 times non-smartphone or would it be a higher ratio or a lower ratio?

So lifetime value of a smartphone customer is 1.9 times a non-smartphone customer.

No, that its revenues.

Oh, yes, right. So in terms of lifetime value think about three times -- yes, two to three times the lifetime value. And it depends, there is some gradations in there too to add granularity to it.

At the very high end you have smartphones. Then you have the QMD devices, which are somewhere in the middle. And what we didn't highlight on the call is we are proud that we have driven our QMD mix up to 23%. Very low COA devices with very high ARPU, which we think we are suitable for many people who might otherwise have considered going on a smartphone and not given us the data to create the payback we wanted.

Then voice customers again probably at one-third roughly of what the smartphone LTVs would be. Is that helpful?

That is helpful. Thank you.

Tim Casey, BMO Capital Markets.

Thanks. Could you talk a little bit about what churn management initiatives you have and what the impact is on your guidance in the Cable side given Bell is going to be building out Toronto with IPTV? What should we expect there?

Tim, I am glad you asked a Cable question. Listen, we have had quite a successful push on -- and I would say as a team we have leveraged a lot of things that we learned over the years in Wireless and really put them into play in Cable. Trying to understand what customers are most susceptible, particularly high-value customers, to migrating to a competitive service like fiber, IPTV, and then proactively ensuring that those customers are locked down and completely happy with our services. And that is an ongoing effort.

It has been aided by the fact that the rollout pattern of IPTV has been relatively predictable, so we have been working away on that quite systematically. As we looked at the competitive results, we noticed a year-over-year downtick in our competitors' television net loads. In fact, they are almost half in Q4 this year of what they were last year, which leads me to believe that our churn efforts have been quite successful.

I guess the principal driver on your churn mitigation efforts still price? Is it just a matter of discounting?

Again, it's a variety of different activities. I don't want to telegraph them on the call, so why don't I just leave it there?

Mr. Mann, this concludes the question-and-answer session. Please continue.

Thank you very much everybody for participating this morning. Do appreciate everyone's interest and support. If you have questions that weren't answered on the call, you can give either myself or Dan Coombes, my colleague, a call. All of our contact information is on today's release.

This concludes this morning's call. Have a nice day.

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