Rogers Communications Inc (RCI) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Rogers Communications third-quarter 2011 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. (Operator Instructions). I would like to remind everyone that this conference is being recorded today, Wednesday, October 26, 2011 at 8 a.m. Eastern time.

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

Thanks very much, operator. Good morning, everyone. Thanks for investing some of your time this morning to join Rogers for our third-quarter 2011 investment community teleconference. It is Bruce Mann here. Joining me this morning in Toronto are Nadir Mohamed, Rogers' President and Chief Executive Officer; Bill Linton, our Chief Financial Officer; Rob Bruce, who is the President of our Communications Division; Keith Pelley, the President of our Rogers Media Division; and Bob Berner, our Chief Technology Officer, and a couple of folks from their respective teams as well.

We released our third-quarter 2011 results earlier this morning. The purpose of this call is to as crisply as possible provide you with a bit of additional background up front and then answer as many of your questions as time permits.

As today's remarks and discussion will undoubtedly touch on estimates and other forward-looking types of information from which our actual results could be different, would you please review the cautionary language that's in today's earnings release and also in our 2010 annual report. These include the various factors and assumptions and risks about how our actual results could differ and all those cautions apply equally to our dialogue on today's teleconference.

So if you don't have copies of our 3Q MD&A and financials or our 2010 annual report to accompany the call, they are both available on the investor relations section of rogers.com.

With that, I will turn it over to Nadir Mohamed and then Bill Linton for some brief introductory remarks and then the management team would be more than pleased to take your questions. Over to you, Nadir.

Thanks, Bruce. Welcome, everyone, and thank you for joining us. As you can see from this morning's earnings release, (inaudible) down instead of financial and subscriber results, the results clearly reflect the strength of our asset mix as well as the continuation of what I believe is an extremely competitive market. We have continued to demonstrate success both on a sales and retention front, have maintained strong margins, and generated both solid EPS growth and significant free cash flow.

We delivered this despite the planned increase in our capital spend as we continue to invest in maintaining our leading network position. Importantly, we returned CAD634 million of cash to shareholders in the third quarter through a combination of dividends and buybacks. That's up 21% from the third quarter of last year and the second highest quarterly return to shareholders ever.

Stepping back and looking at the quarter, the most notable observations that I would point out are that we delivered good customer growth with solid gross subscriber additions in both Wireless and Cable while continuing to maintain reasonable churn rates despite what is an intensely competitive environment in both of these businesses. In fact, this is our strongest quarter ever in terms of Wireless gross subscriber additions across our combined postpaid and prepaid categories.

We continue to demonstrate very solid cost controls across the businesses, which helped us maintain respectable margins in each of our divisions. We continue to drive rapid growth in our Wireless data business, growing Wireless data ARPU by 24%. We did however see continued pressure on voice ARPU resulting in postpaid ARPU coming down by 3% but it is noteworthy that the slope of the decline improved for the first time in a number of quarters.

And finally, we executed very strong in our Media business, delivering traffic growth both on the top and bottom line while at the same time investing smartly for continued growth going forward.

So across Rogers a solid performance as we continue to generate growth in a highly competitive environment. More specifically on the Wireless side, we continued to execute strongly in our Wireless data strategy, selling the highest number ever of smartphones to new customers in a single quarter. We also activated the second highest number of smartphones ever, those being a combination of new and upgraded subscribers together totaling over 600, 000.

So we are seeing continued very solid success in the high-value smartphone category. In fact, we passed a significant milestone during Q3 where we now have more than 50% of our postpaid subscriber base on smartphones. The smartphone metrics, ARPU churn, and upgrade rate remain healthy and at the same time, we are both attracting and retaining our highest lifetime value customers.

Accordingly, the most significant driver of our topline growth was the continued strong growth in Wireless data revenues. In Q3, Wireless data revenues were up 28% and now represent 36% of Wireless network revenue. As you can see by the number of gross Wireless subscriber additions and can infer by the fact that fully two-thirds of postpaid gross loads were on smartphone, that Wireless sales in the quarter were concentrated in the higher end of the market. And while churn did drift up modestly, we are seeing most of that occurring in the lower end of the market.

As expected, the results also reflect the continued impact of increased Wireless competition, particularly on the voice side. While the strength of Wireless data offset much of this pressure, we saw an overall decline in blended ARPU.

But as I mentioned a moment ago, the rate of the voice ARPU decline decelerated for the first time in some time and as we continue to be sharply focused on managing the rate of this decline frankly to the extent possible given the competitive environment.

At the same time, we're driving very meaningful cost efficiencies. You can see this when you consider that despite adding 45% more new subscriber adds Q3 of this year versus last year and the continued ARPU pressures we saw, we were able to post a very strong 48% Wireless service margin. So clearly very good continued traction on expense controls.

Frankly good expense control on the Cable side as well. Cable loss margins were down a bit on a couple of items which Bill will address in a moment, but this reflects primarily the fact that we were more aggressive on the marketing front to capitalize on the seasonally strong Q3 and the over the air analog-to-digital migration. Importantly, we executed successfully adding 19% more total Cable service units than we did in Q3 of last year.

An important factor to note on the Cable operations side is that we are now very close to completing the phased divestiture of the circuit-switch telephony business, which we began late last year. Excluding this, the organic year-over-year revenue growth would have been higher and Bill will provide a bit more color on this in a moment.

Also some new product and feature launches at Cable this quarter. These include the next gen Smart Home Monitoring service, which is another first in Canada for Rogers and a terrific leap forward in terms of real-time monitoring and importantly, the ability to remotely control and view all aspects of a home and receive real-time alerts. We also brought the Rogers Remote TV Manager to market this quarter. This is a new feature for Rogers Cable customers that offers the freedom and flexibility to search programming and manage PVR recording any time, any place using our Web portal or smartphone app. And you can expect to see more of these types of innovative features and offerings over the coming quarters.

At Rogers Business Solutions division, we made good progress in terms of growing margin and profitability. We continued to cull large portions of the legacy service business while growing on net and IP-based solutions.

Now turning to Rogers Media, a strong quarter across both the top and bottom line with good momentum continuing on several fronts. This is almost all organic growth and it reflects growth pretty much across the portfolio, with particularly strong results at Sportsnet and our television properties in general. Combined with good cost controls across the Media group in Q3, we drove margins up to levels we haven't seen in a number of years.

At the same time, we continue to invest in initiatives in Media that will drive that momentum further with ongoing investments in premium content. This includes the launch of the new CityNews Channel, the launch of Canada's Got Talent, FX Canada, Sportsnet World TV channel, and Sportsnet Magazine and I can assure you even more to follow.

Turning now to the capital investment side, you can see that our overall CapEx was up year-over-year. This is consistent with our guidance reflecting principally network investments and the timing of spending within the year. Most of that increase was on the Wireless side where we continued spending associated with the deployment of LTE once again leading the industry in Canada on Wireless networks.

Not only did we launch the first ever commercial LTE network in Canada earlier this quarter but by the end of the quarter, we had deployed the service broadly across major markets including Toronto, Vancouver, Montreal, and Ottawa.

Stepping back, I will say that overall we are tracking to plan for the year so far despite pretty turbulent market conditions and that is attributed the strength of asset mix. There's no doubt that we have a robust product portfolio, great brands, unmatched distribution, leading networks, and a solid financial position along with a seasoned management team. Together that's a pretty good platform for continued success.

In closing, I also wanted to speak briefly about the upcoming CFO transition that we announced earlier this morning. This is something that Bill and I planned for and is a transition that I fully expect will be seamless for the investment community. As we said in the release, Bill will retire from the CFO position at Rogers in the second quarter of 2012, after which he will continue to help bring a number of important internal projects we have underway to completion.

Tony Staffieri will join Rogers and take over as our new CFO in the second quarter. Tony will work together with Bill and I to affect this transition. We are fortunate to have attracted Tony to Rogers for this role and I am very confident that it will add significant value given what is an excellent match culturally and an experienced set that is frankly bang on in terms of where Rogers is going.

I also want to take the opportunity to thank Bill for the terrific job he and his team have done over the past almost six years during which he served as the Rogers CFO. Bill has a very successful history with Rogers and has helped create much value for the Company and our shareholders and on behalf of our management team and our Board, we extend our thanks. No doubt we will have a chance to more fully celebrate Bill's many achievements and contributions at a later date.

So with that, let me turn it over to the man himself and then we will take some questions.

Thank you, Nadir, and thanks for the kind remarks. I'm going to provide a little bit of additional color on the financial results and the metrics for the quarter. On the top line, our consolidated revenue growth was 1% for the quarter, which reflects revenue growth of 1% at Wireless, 4% at Cable operations, and 10% at Media. While the level of adjusted operating profit was consistent with Q3 of 2010, we have been able to hold overall margins at very healthy levels, reduce our share count, grow EPS, and return increasing amounts of cash to our shareholders.

In terms of some of the main drivers behind the results, you have seen an improvement in the year-over-year EBITDA trajectory at Wireless from the first half of the year and we have done this in the face of very solid subscriber gross adds and another record number of new smartphone additions. Very solid cost management and the growing Wireless data ARPU more than offset the incremental device subsidies from the much higher Wireless smartphone sales volumes and the pressure from the decline in voice ARPU.

In terms of our postpaid Wireless results overall, the 1% increase in Wireless network revenue is relatively consistent sequentially from where we were in Q2 of this year. It continues to reflect double-digit softness on the voice ARPU line consistent with the first parts of the year and with the level of competitive intensity we continue to see in the Canadian Wireless market.

On the prepaid side, we improved year-over-year on both the gross and net lines, reflecting a combination of continued additions under our chatr brand as well as continued activations of the iPad tablet.

In terms of Wireless network margin, I think it's significant to note the continued strong 48% level in Q3. This despite the record number of smartphone additions which Nadir mentioned as well as the continued competitive pressure on voice ARPUs. If you adjust for an approximate CAD14 million one-time accrual in the third quarter of last year, Wireless adjusted operating profit would have increased by 1% versus the 1% decline we reported, so obviously very solid OpEx controls and efficiency gains helping to offset the decline in voice ARPU.

Turning to Cable operations, the revenue growth rate reflects the impact of the circuit-switched telephony business, which we are essentially at the tail end of divesting, which was dilutive to the rest of the Cable ops business, not just in terms of margins but in terms of topline growth as well. Normalizing for the year-over-year decline due to the divestiture of that part of the business, topline growth at Cable operations would have been over 5% or 170 basis points higher.

The Cable ops margins were down modestly year-over-year and this reflects a couple of things. First is the fact that we added 19% more Cable service units in the quarter versus Q3 last year and you see a corresponding increase in the amount of variable marketing costs associated with that.

Second, there were approximately CAD11 million of one-time accrual adjustments in the third quarter of last year, which if you exclude would cause EBITDA to actually increase by 3% versus the essentially unchanged level that we reported. The higher customer growth and accrual adjustments frankly somewhat mask what are excellent cost controls at Cable again this quarter.

At Rogers Business Solutions, you see very strong operating profit growth and continued margin expansion. The results here reflect the successful confluence of a couple of things with the first being the integration of the Atria and Blink acquisitions of last year and a significant culling of lower margin legacy offnet business. Together these drove the drop-off in revenue but also the significant increase in operating profit and margins.

At Media, a solid combination of double-digit topline growth with excellent margin expansion at the same time, with the operating leverage driving adjusted operating profit up 38% year-over-year. Media topline growth of 10% is a modest slowing sequentially from Q2 but as we said in the release, this is partly a reflection of a slowdown in advertising market activity we've seen that has corresponded to the negative global economic news which heated up over the last couple of months.

Below the operating profit line on a consolidated basis, there really wasn't a lot of unusual items to talk about in this year's quarter. You will note in the comps that Q3 last year had an CAD87 million charge that was associated with early repayment of borrowings which occurred coincident with a very large debt financing we did at that time. The increase in income tax expense basically tracks the increase in pretax earnings and the bit of a step up you see in depreciation and amortization reflects a combination of IT systems that we put into production earlier in the year as well as the depreciation and amortization associated with the Atria acquisition, which closed in early 2011.

On an adjusted basis, net income grew in line with the growth in EBITDA but with the accretion from our share buyback activity over the past year, adjusted EPS was up a respectable 7%.

You will also note in the liquidity section of our MD&A that early in the third quarter given the strength of the Canadian dollar we put in place forward contracts on about $720 million of anticipated US dollar denominated OpEx and CapEx obligations to lock in what we believed was a favorable exchange rate. These forward contracts qualify as hedges for accounting purposes and run out for a period of about 36 months.

We've obviously hedged the exchange rate on our US dollar denominated debt for many years but this is the first time we have done so on a program basis for a portion of our US-denominated operating expenditures, so we wanted to call this to your attention.

From a cash perspective, during the third quarter we generated over CAD490 million of after-tax free cash flow, up 4% year-over-year. On a per-share basis, free cash flow was up 10%, again reflecting the accretion of our share buyback program.

When you look at the free cash flow increase, you've got a couple of things going on. First, the timing and magnitude of CapEx being concentrated a bit in Q3 and then also the timing of cash tax payments which we expect to be more healthy -- more heavily tilted to Q4. With this free cash flow amongst other things, we paid out CAD194 million in dividends and we bought back 11.9 million shares for CAD440 million, so well north of CAD600 million of cash returned to shareholders in the quarter.

It may be of interest to note that since we commenced our buyback program in 2008, we have bought back more than 100 million shares or more than 20% of the public float of Rogers Communications.

I will finish by saying on a consolidated basis we put up an overall balanced quarter of subscriber and financial results in the face of what is an intensely competitive environment and we're still tracking to our plan for the year. We continue to be in a very healthy position financially with an exceptionally solid balance sheet, CAD2.3 billion of liquidity available under our fully committed multi-year bank facility and no near-term maturities.

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

Thank you very much, Bill and Nadir, and then, operator, we will take questions from the participants in just a couple of seconds. But quickly before we begin, we would like to request as we do on each of these quarterly calls that those participants who are going 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 as we always do to the extent we have time, we will circle back and take additional questions or we will definitely get them answered for you separately after the call.

So with that, if you would just please go ahead and explain to the people on the call how you want to organize the polling process, we would be ready to start.

(Operator Instructions). Vince Valentini, TD Securities.

Thanks very much. I want to talk about the competitive environment in Wireless and how you are responding to it. It seems this quarter like you stabilized the ARPU declines a little bit but it may have come at the expense of letting churn on postpaid tick up a little bit and your postpaid gross adds declined a little bit. So I guess looking forward, are you more interested in stabilizing the ARPU or getting the churn down and the sub adds back up? I guess you have to make a decision given the harsh environment which envelope you want to push on, so I'm just curious where your mindset is.

Vince, it's Rob. Listen, the real answer is we will continue to do both. We are going to continue to be focused as we have been on ensuring the rate of decline in voice ARPU slows. And we talked about it slowing more dramatically as we get towards the end of the year and we expect to continue to see that and we will drive for it. As well, we will work hard to get our share of the net loads every quarter, but I think there's some important caveats and I think you can see them coming out in this quarter.

It is an interesting quarter because it is characterized by kind of different timing than half years on iPhone 4, which I think had a lot of people put their wireless purchases on hold. And at the same time, new entrants with CAD25 to CAD30 unlimited voice data SMS and other things out there that I think in a student-oriented quarter become very, very sharp offers.

The hallmark of the quarter for us was grate squarely on our strategy, focus on the highest value customers. Nadir talked about the 608,000 smartphones that we added this quarter, which we think is squarely in line with where our strategy takes us. And we didn't mention it, it was also our total highest gross add quarter ever at 638,000 gross adds. Again, all the over index to the high-value customers.

Secondly, our focus was on a disciplined focus. There were many things that went on the market including volumes back and forth by some of our competitors with free [LB], free Canada Wide LB on Flanker brand plans and as well, free iPhones. Those are things that we didn't respond to because in the long run we didn't believe that those were the right things to do for the business.

So again, our focus will continue to be on winning our share of the market with a strong focus on high-value customers and continuing to work on accelerating that ARPU decline. So --

Greg MacDonald, Macquarie Capital Markets.

Good morning, guys. Let me just say first congratulations to Bill. It's been great working with you, Bill. I know we will have you for another conference call, but congrats on the retirement.

Question, just a quick clarification on Vince's question, then I have a buyback question, share buyback question. Rob, you mentioned student oriented quarter. Makes me wonder whether you think that there's a greater impact for Wind's CAD29 plan in the 3Q than what you'd anticipate in the 4Q. Is that the case? Is that kind of what you are talking about or do you think this is a longer-term impact as long as this plan remains in place? I'm talking churn. Is there a longer-term churn?

First and foremost, again, in fairness, thank you, Greg. I didn't really talk about churn in my answer to Vince, and in fairness, Vince included some comments about churn. The churn was up as you can see about 15 basis points year-over-year. So some of that is seasonality and as we go into Q3 and Q4, we always see a seasonal bump up. They are big acquisition quarters and as people's contracts come due year-over-year it would be typical that we would see some seasonality.

Clearly, though, some of that uptick that we see is a consequence of a more competitive environment. I don't think frankly that we should be surprised and we are very focused and working very hard on churn because we think it's one of the key focuses and one of the key levers in the business. The important thing to say and again back to our strategy, none of that churn was on smartphones. That was all on lower value products and lower value plan. Again, the health of our smartphone base is terrific. We see very stable outages for the past three or four quarters and churns that are sensational, always sub 1 on an average basis. So healthy in terms of [focus].

Now, Greg, was there another part to your question.

No, that's helpful. Thanks for clarifying that. The question I really have is on the buyback going into 2012, it's pretty increasingly obvious that the spectrum auction is going to be in 2013, so that's not going to be a cash event until 2013. I think investors would be helped to find out what your thought is on the buyback going into 2012. I don't want you to give guidance but is it fair to say that buybacks are still an important use of free cash going into 2012?

Greg, its Nadir. Maybe I will answer this, so obviously it's the buyback, dividends, these are things that I work with with the Board and we are not about to give you any specific guidance. But I think it would be helpful to give you some framework for how we see these things.

Starting with obviously what you have seen in the quarter and fairly consistent throughout the year and our expectations going forward is that this is a very strong cash flow business. You've seen our free cash flow performance and you've got the guidance for that this year. I won't give you anything specific but I can assure you we expect a strong free cash flow going forward. So that's the basis that we start with.

I think if you go back at what we have done the last few years, you get a sense of how we will approach these things going forward. If you recall, one of the first calls that I had when I had taken over, we set out a leverage ratio that would frame some of our capital decisions and it was 2.5 times. So that as you know says that we are very much in the low end in that continuum. I think we've been hovering about 2.

If you also layer in the fact that if you go back the last couple of years, we have been fairly consistent with respect to dividends and last dividend growth was about 11%, my view has always been that we would like to be seen as a Company that delivers consistent dividend growth. We by definition -- and I'll speak for myself rather than we as the Board -- tends to be conservative, so we only want to touch dividends when we are growing them. So that frames our thinking but you can tell that that's something that we would like to continue.

We've been very strong on buybacks in the last couple of years. I look at that as something every year. You determine what you have starting with dividends and then you [accept] cash flow and we tended to use share buybacks. By the way, it goes without saying but none of this will ever be at the expense of doing the right thing for the business, be it network investments or M&A transactions. But I think fair to say that by that, I give you a picture of how we will deal with things.

To your point on spectrum, my best view today will be that if the spectrum auction happens say latter part of '12, in terms of cash flow, you'd really be seeing the granting of licenses in '13. So the cash flow impact would be in '13.

The only other thing that I want to make everybody aware of and I think most of you are is that our cash tax position changes next year where we start obviously this year, we will take advantage of all the loss carryforwards so you will see us getting to be fully cash tax payable in '12.

So that will have some impact but hopefully that gives you a framework for how to view these things.

Peter MacDonald, GMP Securities.

Thanks and also congratulations to Bill on your retirement.

Before I ask my question, just a clarification. So your comments, Nadir, on the buyback, the early stop of the buyback this quarter, we should assume that you are fully committed to completing the buybacks the remainder of the year.

Yes, I just want to make sure that we did get back and I don't remember there was a question last call about buybacks and I thought Bill was pretty firm that we are back in. As you have seen, remind me, Bill, of the numbers but we've got in the release in terms of how much we bought.

11.9.

Right. 11.9 million shares, so pretty significant in the quarter.

Thank you. Just maybe you can get a little bit more color on the Cable margins and the impact of the marketing increase in the quarter. So maybe you could just tell me what's the magnitude of the increases? What was the timing of the promotions? What should we be considering for promotional spending going forward with Bell's more aggressive rollout of IPTV?

Yes, it's Rob. Listen, the thing that I have learned about Cable over the past few years is this time of year is called Cable Christmas and it's called Cable Christmas because it's the time of year when there's the greatest opportunity to get loads. And quite simply, our spending in the quarter reflects the recognition of the combination of the reality of it being Cable Christmas; and secondly, the fact that the change in terms of over the air channels was freeing up a pool of potential subscribers who are going to become available between now and the end of the year.

Our expenditures were focused really to fully participate in that and we were successful in doing that and Nadir commented on the numbers, so I won't repeat them.

Secondly, to get out there with an Internet campaign and really demonstrate the superiority of our product to all our customers out there and continue to stand tall in terms of the marketplace.

The other thing that I think it's important to say about the quarter is -- and it was reinforced by the work that we did on Internet -- is to continue to produce the great churn numbers that we have and we've seen declining churn over the past number of quarters across the portfolio of Cable [PFUs] and our churn even on our television product with more competition in the market continues to be strong.

Jeff Fan, Scotia Capital.

Good morning, thanks very much and congrats to Bill as well. My question is more of a bigger picture question on smartphone and data revenue growth. You guys mentioned obviously a second-best quarter on smartphone activations but when I look at your data ARPU and data revenue growth, it looks like both metrics slowed.

So my question is are you guys at the level of smartphone adds that you think that's needed to help data revenue growth from slowing? Or whether there is another level of smartphone activations that's required, whether it's through upgrades or adds that would drive data revenue growth further?

Maybe you can comment a little bit on the smartphone economics as well. Rob, you mentioned that none of the churn is coming from smartphone but can you sort of confirm with us that the churn on smartphone is it stable or is it actually declining? Maybe a little bit of a comment on the smartphone ARPU metrics as well, thanks.

It's a lot squeezed into one question. I think there's a prize for that. Let me go back and spend a couple of seconds on smartphone. We are in a world now today, Jeff, where we are against big numbers so year ago, we put up on data about CAD135 million of increase year-over-year on data growth. Again this year, we put up a number right around CAD135 million and it becomes a game of large numbers. When we take that CAD135 million and we divide it into those bigger numbers, we continue to see tiny declines as we go forward.

I think our success in terms of tapping into the growth in the smartphone market is really illustrated by the numbers and I think going after that market more aggressively is something that we will do as it makes sense from an economic perspective.

Again, come back to your question specifically on smartphone churn, overall it has been flat. And we have seen it flat and healthy and no movement from a churn perspective. The same with ARPU, which I said back earlier in the call, if you look back three or four quarters, we moved down from the early days back a year and a half or two ago. There was some drift downward. That drift has been stable for about four quarters now and we think the economics continue to be very healthy on smartphone.

And of course, we are continuing to focus on improving those economics. Some of the things that we did with our handset upgrade program allowing people because the smartphone audience is very sensitive to wanting to get the next new greatest device, which is challenging from an economic perspective, so we put the pre-HUP program in. The pre-HUP program allows customers to actually pay a little bit of money and contribute but get the upgraded phone sooner. We think that's contributing to the positive churn that we have and to satisfying customers. So a big win-win.

And we continue to be very focused on trying to drive the handset subsidy down on smartphones and we see a universe of Androids coming out that we think will help us realize that possibility. So overall, we continue to be very, very bullish on smartphone economics both the churn, the ARPU, and the prospects to take even more costs out of the equation going forward than that. We think the winning formula and we're going to continue to go at it aggressively.

Glen Campbell, Merrill Lynch.

Yes, thanks very much. A question for Rob on retention discounting. Last quarter, Rob, you talked about the importance of managing that tightly and I'm wondering if in the new more competitive environment does that mean essentially holding the line on the kinds of discounts that you need to offer to keep customers? Or have you still been able to -- have you been able to maybe rein those in bit? I was hoping you could give us maybe some indication of directionally how the changes are going. Are you seeing a lower rate of retention discounts or the same? Are you seeing a lower ARPU impact per discount, let's say, or is that about the same? Thanks.

Thanks for your question, Glen. From the numbers, I know you guys follow it closely but in the quarter, our retention spending as a percent of network revenue dropped down to 10.1% which if you look back over the previous couple of quarters, the previous couple of quarters it's been more in the 11%, 11.5% range.

We have also continued to be focused on managing how aggressively we upgrade the base and recently I was combing through the AT&T and Verizon releases. They've typically been upgrading 9% of their base, more recently about 7%. We are upgrading about 6% of our base and our focus is always that the work we do to retain customers is proportional to the ARPU of the customer.

So a lot different in terms of retention offers if you are a CAD150 to CAD300 customer than if you are a CAD50 customer and we continue to stick with that and feel that we are doing the right things for our economics overall.

Dvai Ghose, Canaccord Genuity.

Thanks very much, Rob. If I can just follow up with your comments, are you saying that you are happy to keep retention at 10% of network revenue even though the impact on churn seems to have been fairly significant and isn't there a risk that churn starts creeping up towards 2% if you don't jack it back up to 12%, 13%?

On a related point, can you tell us how many postpaid subs you gained from the Government of Canada contract this quarter?

Sure, sure. Let me nail the first one and then go back a bit on the other part of the question. The number from a Government of Canada perspective and I would like to highlight that the ARPU from these Government of Canada customers both remain stable and is tracking well ahead of our business case and that it's a five-year deal. So we are in this for the long term and the key about these Government of Canada subscribers, it frankly gives us the opportunity to get all the government's business. And what I can tell you is that we have had a lot of inquiries from a lot of different departments about a lot of things including M2M and other exciting growth opportunities that we think will continue to make the Government of Canada a very interesting place to do business.

This quarter we got about 18,000 postpaid gross adds and about 2000 data only adds and that's by contrast to about 26,000 in Q2, as I think we said on the call.

Dvai, the other part of your question is -- was about churn and how much we're willing to spend on churn and I think it really comes back to not all churn is created equal. We continue in the market to look at churn in terms of unit churn and in fact the way we think about it is we think about it in terms of revenue churn. So the focus is not always to lose endless sleep over the few points. The question is who are you losing and are those the customers you want to lose?

As I said, our focus was on retaining the highest value customers. We have had great success there. We're going to continue to focus there and we'll let the amount of retention dollars float up and down to deliver against that strategy.

Matthew Niknam, Goldman Sachs.

Thanks for taking the question. My question is a little bit more general on the macro environment. Aside from the early ad market pressure you guys called out on the Media front, what is the latest you are seeing across consumer and enterprise indicators in Wireless and Cable? And how does this influence your approach to the business right now? Thanks.

Matthew, its Nadir and maybe it will get Keith, because this could be his opportunity to actually weigh in with a comment. But let me give you that macro and then Keith can speak to all the great work he's doing at Media and maybe he will throw in a comment on advertising.

But I think, fair to say, Matthew, if you go back to the recession we had in '08/'09, what was very clear through that period is that both the Wireless and Cable product portfolio are pretty resilient. We are now at a stage, frankly, where most of the consumers view us as kind of products that are essential and no longer discretionary.

At the depth of the recession we did see some of the discretionary spend come down a little bit, but for the most part, the businesses of Wireless and Cable continue to perform, frankly, with amazing resilience. And so, we haven't seen the impact of the concerns over the recession on the economy and what's happening in the US or Europe factoring in yet. Media, to be fair, is different in the sense that we are starting to see some changes in the advertising side. So let me let Keith speak to it.

Sure, thanks, Nadir. I think fear and caution would be -- these are words that a lot of advertisers are talking about with the harrowing recession. And it was really recent so it was fresh in the minds and (technical difficulty) [We are not at that level right now and so we are continuing to focus on] cost containment, while at the same time building the business and continuing with the momentum.

It's the momentum from Media in terms of the -- we are still in that growth mode as we continue to build assets that will not only build for Q4 and our strategic imperatives for Q4 but will lead us into 2012.

So yes, we are seeing a little bit of the softness certainly in the conventional side, but with such a diverse portfolio that we have and we have a luxury to have that portfolio, we are in really good shape for the future.

Bob Bek, CIBC.

Thanks, good morning. Just a bigger picture question the Cable side, Nadir or Rob perhaps. We are obviously seeing a lot of pressure on the Cable model conceptually US and Canada. Obviously your Cable stats in the quarter were quite good. Anything within the numbers that would suggest any pressure on the model? You had basic growth but anything in there?

I guess related to that, can you talk a bit about the broadband usage within the space? Are you seeing much take up to the higher speed plans and where you are seeing some of the usage perhaps moving to Internet from the core Cable model? Thanks.

Overall, Bob, no real signs of significant challenge. We continue to kind of keep a sharp eye out for core shaving or core cutting. All of those kind of at a minimum level right now. And in terms of usage from an Internet perspective, Internet usage obviously continues to grow I think in the range of kind of 35% growth year over year, so strong, strong focus on Internet. We continue to believe that the two key winning connections with the customer are the two Internet connections, the Wireless Internet connection and the Wireline Internet connection.

So no significant challenges in the business model for Cable right now and certainly the things that we're doing both to differentiate ourselves and recognize some of the more subtle evolution in the consumption of video over Internet, I should highlight that our (technical difficulty) our Rogers on demand online offering now as we've moved up to almost 410,000 registered users, so we are expanding the model to accommodate the way customers are using the products and we will continue to do that aggressively going forward. Nadir?

Bob, just maybe another moment or two on it because there's a lot of noise obviously about the issue of over the top and I think it is a phenomenon that obviously will become more important in our time. But don't forget and I think you guys all know that this actually all rides on our [pipes] and for me, I look at Cable as very much today as an Internet business and I think it's a terrific business. We are seeing pretty good cash flow and good solid margins.

The growth I think on the top line, you will see some of the cannibalization happening with people moving over the top but we will also offset that with usage-based revenues. I also think frankly in the Canadian market, the product portfolio is pretty robust and there is pricing power in that in terms of the value that we bring to customers.

So it's a pretty good business and we don't talk about it as much as we do Wireless because it's fairly solid and predictable, but just saying we view it as a very strong business.

Blair Abernathy, Stifel Nicolaus.

Thanks very much and congratulations to you again, Bill. Just a question following up on the Internet side. I wonder if you can give us a sense on your progression on high-grading the customer base? And in particular, what are you doing or how are you reacting to the increasing competition from Bell?

In the Internet space?

Yes.

I am delighted to tell you that we have a superior Internet product. We are excited by that. We have been out in the market screaming it from the rooftops and I think you will have seen our extensive advertising campaign, which points out pretty squarely the superiority of our Internet.

Along with that and just sort of raise the intensity, we have moved both the caps and the speeds for a lot of our popular packages and I can tell you that this is getting terrific traction. It really resonates with customers. They really both believe and have embraced in terms of their purchase behavior the superiority of our Internet products.

So Nadir highlighted how core Internet was to the Cable portfolio and how Internet is critical in general and I think squarely we are the player in Internet and we are letting the market know that. I think that's very good for the long-term health of the business.

Phillip Huang, UBS.

Thanks, guys, for taking my question. Congrats, Bill, on your retirement. My question is on the enterprise market for your Wireless business. I was wondering if you could give us an update on what you have seen in terms of competition from your HSPA competitors? And given -- I guess given your strong market share in the enterprise market, was wondering what your current strategy is in maintaining it?

And then I also wanted to ask about the other contributors to your Wireless ARPU such as data roaming and machine to machine. I was wondering if you could comment on how you expect those factors will influence postpaid ARPU over the coming months? Thanks.

Okay, so a couple of parts to that question, Phillip. So in terms of the enterprise market, the one thing I should set straight is we are probably more the up and comer in the enterprise market. Our incumbent competitors having long-standing leadership in those markets. We continue to be successful in those markets. We continue to take share from our competitors over time. We are obviously expanding our offerings to continue to bring things that are more interesting for our customers and to meet the expanding needs of our customers.

We see this market as getting more intensely competitive and not surprisingly as the consumer market gets more and more difficult, we see our incumbent competitors becoming even more and more aggressive in that enterprise market causing a lot of reprice for them in some areas. As we continue to be successful in that market, we're going to continue to be focused there going forward. And probably even more focused on the small and medium markets where there is higher ARPU and we've had even greater success in the past.

Let me come back to your other questions. You talked about some of the other factors and you pointed specifically to M2M. I think it's important to note that M2M is a really exciting and a huge future opportunity and we have been highly successful and we've been the early mover in the M2M space. And we have had lots of success in terms of telematics, alarm systems, including our own GPS payment and meter monitoring services, just to name a few, and characterized by deals like the Quebec Hydro that I think some of you made mention of on the past call.

But it's still early days in terms of the actual absolute dollars of these things and the absolute size of the total Wireless business at Rogers is so significant that it's hard to make a dent in these businesses.

So M2M specifically, think of it as in the CAD50 million range and growing extremely fast, so not going to have a huge impact on ARPU in the near term. You referenced one other I think that you wanted me to comment on other than M2M.

The roaming.

The roaming. Roaming, we have some significant growth areas in roaming. That would be the domestic roaming and obviously data roaming. Really strong growth coming out of both of those sides of the portfolio. Obviously voice roaming being under a little bit more pressure as we continue to try to move rates down to get more customers to use roaming so that we can get more revenue in the long run. So roamings of a much bigger scale and lots more opportunity to grow our data roaming and we have done some new offerings this quarter that show a lot of profit. So thanks for your questions, Phillip.

Tim Casey, BMO Capital Markets.

Thanks. Could you talk a little bit about CapEx? You mentioned timing and LTE a few times in your earlier comments, but that was a significant spike. How should we think about CapEx in the very near term? Then going forward, can you flesh out a little bit in terms of magnitude regarding LTE versus the rest of your capital demands? Thank you.

Tim, it's Nadir. The CapEx for Q3, I know it's higher year-over-year but very much consistent with our guidance and pretty much directly correlated with what we are doing with LTE. We staked out our ground in terms of leadership on networks earlier this year and followed through with the first commercial deployment ever in Canada in Ottawa. And then literally have pretty much broad coverage now in four cities that represent over 5 million Canadians. So it's a pretty significant rollout but it is very much consistent with what we gave as an annual guidance.

I think in the past calls I've made reference to the fact that when you look at year-over-year guidance this year versus last year, it was up by about let's say CAD150 million to CAD200 million and we would see LTE spend coming in roughly CAD200 million for the year. We haven't as you know, Tim, given guidance for next year but I think have been fairly open in terms of describing the LTE rollout as something that would have a I'll say about the same kind of an impact next year and to the extent that we put an envelope around the program and understand it's not 99% of the costs but the major markets and the rollout that we are contemplating, it's not unlike HSPA. We look at it as about CAD0.5 billion over the three years/

And so CAD200 million this year, and roughly the same next year. These are early numbers so obviously we've got a lot of work to finalize the rollout plans and so on. But directionally I think you can work with those.

Ladies and gentlemen, this concludes the Q&A session. Mr. Mann, please continue.

We just wanted to thank everybody for investing their time with us this morning. I know it is a busy time during our earnings season but we do appreciate your interest and your support. If you have questions that weren't answered on the call or you were in queue to ask a question, if you'd just please give myself or Dan Coombes a call, both of our names and numbers are on the release of this morning. We'll get back to you as quickly as possible and get your calls -- your questions answered.

So thank you very much. This concludes this morning's call.

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