Rogers Communications Inc Q4 FY2020 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications, Inc. Fourth Quarter and Full Year 2020 Results Conference Call. The conference is being recorded. I would now like to turn the conference over to Paul Carpino, Vice President of Investor Relations with Rogers Communications. Please go ahead.

Great. Thanks, Ariel. Good morning, everyone, and thank you for joining us. Today, I'm here with our President and Chief Executive Officer, Joe Natale; and our Chief Financial Officer, Tony Staffieri. Today's discussion will include estimates and other forward-looking information from which our actual results could differ. Please review the cautionary language in today's earnings report and in our 2019 annual report regarding the various factors, assumptions and risks that could cause our actual results to differ. With that, let me turn it over to Joe to begin.

Thank you, Paul, and good morning, everyone. It's been almost a full year that our country and our world have been living through a health crisis, unlike anything we have seen in many generations. The impacts to society and to the economy as a whole have brought many new challenges, new perspectives, but also opportunities to all of us. It's encouraging to see vaccines starting to roll out across the country. And although early days, we can see light at the end of the tunnel. But we know the effects of the pandemic will be with us for some time. We recognize more fully than ever the role that our networks play in underpinning every aspect of our society and our economy. And I'm incredibly proud of the role that our teams continue to play in supporting Canadians and Canadian businesses, large and small, through every phase of this pandemic. Today, I'll take you through some highlights of the quarter, followed by a discussion of our continued success in adapting to meet the needs of our customers while streamlining costs. Finally, I'll provide some thoughts on what we can expect heading into 2021 before turning it over to Tony to provide more detailed commentary. Despite the spike in the second wave across the country, and a new series of restrictions that have been rolled out and expanded in December in certain provinces, we saw continued improvement in many areas of our business. Our team executed strongly in Q4, delivering a number of sequential improvements, including margin expansion across the businesses driven by continued operational efficiency gains, solid customer additions, excellent performance from our cable business, solid adjusted EBITDA improvements, and strong free cash flow. In wireless, we saw strong loading in postpaid with net additions of 114,000. Though the pandemic continues to impact roaming revenue with most travel still paused and no immigration growth as borders are essentially closed, our disciplined approach to digitization and cost management led to an adjusted EBITDA service margin up 370 basis points from the same time last year. Over the last quarter, we performed effectively across both traditional and digital sales channels. The preparation and collaboration across our teams ahead of our critical selling periods resulted in our most successful Black Friday ever. Over Boxing Week, however, the extended COVID-19 lockdowns in Ontario and Québec in December did have some impact on service revenue, ARPU, and additional loading. Despite the competitive environment, our teams have managed churn well, and our monthly postpaid churn improved 7 basis points, the lowest it's been in over a decade. Consumer adoption of Rogers Infinite unlimited data plans has continued to grow, increasing by approximately 300,000. We now have 2.5 million subscribers, and growth in our unlimited plans is up almost 80% this year. We continue to see positive ARPU, churn improvement, and lower cost to serve performance in this important base of customers. In terms of wireless network excellence, a year ago this month, Rogers was the first provider to launch a 5G network in Canada. Today, through the hard and disciplined effort from our team, we've delivered 5G to more than 160 communities across the country. From Fredericton to Fernie, from Laval to Lethbridge, Rogers operates Canada's largest 5G network. And proudly, for 2 quarters in a row, Q3 and Q4, Ookla awarded Rogers the most consistent national wireless network in Canada. In addition, umlaut recently scored our 5G network in the Greater Toronto area, Canada's most populated center and a hotbed for technology and innovation, with top marks for reliability, responsiveness, and download-upload speed. In 2020, umlaut also ranked Rogers as the best wireless network in Canada for the second year in a row. And in J.D. Power's 2020 Canada wireless network quality study, Rogers ranked #1 in the West in Ontario. Our technology leadership continued in December as we launched the first stand-alone 5G core in Canada, powered by Ericsson, beginning with Montreal, Ottawa, Toronto, and Vancouver. The stand-alone core, which is the brain of a network, will propel us forward in bringing the full potential of 5G to Canadians. This positions the business and our customers well as we move into a 5G world, which, as evident in more advanced 5G countries, will significantly increase data use and lead to new applications and use cases. Switching to cable, we saw healthy increases in both service revenue and adjusted EBITDA despite the traditionally quieter period in Q4. As customers and their families continue to work and learn from home, they benefit from what recent Ookla results have recognized. Ookla ranked Rogers as the most consistent national provider in Q4, fastest in our cable footprint in Q3, offering 1 gigabit speeds across our entire footprint. The number of Ignite TV subscribers is up 67% year-over-year as we continue to provide customers with more of the compelling content they want and make it easier for them to enjoy their entertainment needs. In 2020, we introduced Ignite SmartStream, which offers customers their favorite streaming service all in one place. We launched 14 new applications and subscription video-on-demand, added Amazon music with thousands of playlists and stations, and we'll continue to grow our content library and make Ignite TV and Ignite SmartStream a destination of choice for our customers. With an upcoming roadmap of new apps that is very compelling from both a customer and a business opportunity point of view. Finally, in sports and media, our revenues continue to feel the impacts of the limited live sports and truncated seasons as the second wave continues. We manage our operational costs effectively and expanded margins. We're very excited that the NHL hockey season has now started. The creation of a unique Canadian division is important for both fans and our performance. And the first half of the NBA season is underway with Sportsnet broadcasting half the scheduled Raptors game. We generated solid free cash flow in the quarter, up 14% from a year ago, even as we continue to build out our digital capabilities and launch Canada's first and largest 5G network. Given our strong balance sheet with $5.7 billion in liquidity and exceptional wireless, cable, and sports and media assets, we feel well positioned in both the current environment and in the long-term when the economy fully recovers. As we move through 2021, we will continue to build on the accelerated changes we have made in the past 10 months to meet the evolving needs of our customers. We see that consumer habits are changing. Some are in the short-term due to pandemic restrictions, others are far more permanent changes that assume a deeper role with digital and online channel support. Our teams have come together with incredible focus in the past year to rethink and reinvent how we serve our customers, and I'm proud of how they rose to the occasion and embraced this incredible opportunity. Let me provide a few examples of our leadership in this area. We accelerated our digital-first plan and added self-serve options, offering a better experience for customers while streamlining costs. At the end of the year, overall digital adoption stood at 84%. We are unique in offering the convenience of seamlessly ordering online and picking up in-store often on the same day with our new Rogers Express Pickup service. Customers can shop when and where they want while still having the opportunity to work with one of our in-store experts using all the necessary health precautions. Those staying in home entirely can take advantage of our industry-leading Pro On-the-Go service, now available in the Greater Toronto area, Greater Vancouver, Ottawa, Calgary, Edmonton, and parts of Southwestern Ontario. Customers can get their new device quickly and safely with free contactless delivery and one-on-one support on a video call. Our field technicians also no longer need to always travel to a home. Through our virtual assistance app and capability, our technical support agents are now able to resolve customer issues right away more often, reducing the need to roll a truck. And our Ignite self-installation program provides a safe, easy, no-contact way for customers to install our Ignite Internet and Ignite TV services, with over 93% of customers choosing to easily install our products themselves. Since launching our customer virtual assistant at the end of 2018, we've managed more than 7.2 million conversations, up 39% since last quarter, and nearly 133% since last year. With continued developments in AI, we expect more calls will be redirected, reducing costs and leaving our agents to spend time with customers who have the most important and complex needs. As we've enhanced our digital capabilities and customers shift to online options and self-install, we know the calls we do get are even more important. We're proud that our teams are now all based in Canada, and we've invested to ensure they have the tools and training they need to continue to deliver capabilities to our customers. Their level of engagement is best-in-class. Their expertise in our products and services and their ability to relate to the needs of our customers as part of their community all provide us with a competitive advantage, directly impacting lifetime value, ARPU, churn, and supporting the future of our business. This past year has underscored the importance of connectivity like never before. As we invest in improving customer experience, we continue to invest in expanding and upgrading our networks. As we work to rebuild our economy, strong digital infrastructure and investments in 5G are incredibly critical. We need them to fuel productivity and innovation across the country, both in the coming months and in the longer term as Canada resets its competitive landscape. What will this all mean for our company as we move forward into 2021? While we will continue to experience uncertainty due to COVID-19, our long-term vision has not wavered. We are focused on investing in core assets to generate long-term value for our shareholders, and in fact, we will be driving further network investment this year. Our priorities are centered on expanding our world-class networks, delivering a best-in-class customer experience, and building a high-performing inclusive culture, all underpinned by our long-standing commitment to be a strong, socially and environmentally responsible leader in our communities. While Q1 is traditionally the slowest quarter for subscriber loading, intensified this year by lockdowns in some provinces, we have some critical advantages heading into 2021. We have far better capabilities and a deeper understanding of how each of our markets are likely to react to a pandemic than we did a year ago. And importantly, we've honed our ability to be agile and pivot our services to where our customers need us to be. This will continue to serve us well as we recover from the pandemic and, frankly, far beyond. In wireless, we're heading into a 5G world with the most wireless subscribers in Canada, the largest 5G network, the largest iPhone base, and the largest number of customers on unlimited plans. This puts us in a very strong position. Since launching our unlimited plans 18 months ago, we've completed the majority of our overage revenue transition versus our peers. We are well positioned for future growth as we complete the overage transition, which we anticipate will take place by the end of the second quarter of this year. Additionally, with the largest roaming operation, we expect to be the major beneficiary when travel returns, further supporting wireless service revenues and ARPU growth in the future. In cable, we're anticipating both revenue and adjusted EBITDA growth in the coming year. This continues to be a stable business. We will further benefit from the comprehensive Comcast product roadmap, including the benefits of self-install capabilities I just mentioned. Our Internet business already delivers 1 gigabit speeds across the entirety of our footprint, still a long runway ahead of us since our hybrid fiber-coax network is not expected to require massive investment to generate the speeds customers need now or in the future. Finally, in media, we have an unparalleled mix of Canadian sports assets. We anticipate continuing to manage the business efficiently in the near term, and we are confident consumer and advertising demand will be strong when schedules and live audiences return to normal. All of these assets are supported by our healthy balance sheet. The company remains financially strong and is well positioned to increase investment and capitalize on future recovery and long-term growth opportunities. In short, while 2021 will still be a year marked by some uncertainties because of the pandemic, we believe the combination of our long-term vision, our second-to-none set of assets, the improvements and efficiencies we've applied in 2020, and our strong capable resilient teams will enable us to meet the needs of our customers and our country now and into the future. And with that, let me turn the call over to Tony. Tony, over to you.

Thank you, Joe, and good morning, everyone. Our fourth quarter results reflected healthy sequential gains in margins across all our businesses, excellent free cash flow growth, and strong revenue growth in cable. The expanded late quarter lockdowns during the key Boxing Day selling period did affect wireless revenue late in Q4, but margins were very strong. Let me break down results in each of the businesses a bit more and then provide some commentary on our outlook for the first quarter. In wireless, margins were strong despite the pressures on service revenue and adjusted EBITDA associated with the extended and expanded lockdown and the ongoing impact of limited roaming revenue. Service revenue declined 8% year-on-year, driven by roaming revenue declines of $75 million or 67% from one year ago. Additionally, as we continue the transition to Rogers Infinite unlimited data plans, overage revenue was down $40 million or 54% year-on-year. Importantly, overage revenue is now only about 1.5% of service revenue, and we continue to anticipate overage melt to continue to impact our year-on-year growth rates until the end of the second quarter. Notably, this timeline is in line with our original expectation of the launch of unlimited plans back in 2019, where we estimated the impact on our financial growth rates would take 6 to 8 quarters to overcome. The extended and expanded shutdown in late December further impacted service revenue versus Q3 as well as on a year-over-year basis. In addition to the reductions in roaming and usage revenue, there was an additional $30 million decline from the fourth quarter last year, which relates to the impact of one-time fees for activations and related items. We attribute the decline in these fees to the COVID environment in the fourth quarter, particularly in the final weeks. We expect these fees to resume as consumer activity increases in the future. On a year-over-year basis, the blended ARPU decline of just under 10% was most notably impacted by reductions in the roaming and overage revenues as well as the decline in one-time fees, as I mentioned. To provide some additional transparency on this, our normal annual inbound and outbound roaming revenue, prior to the pandemic, was approximately $500 million or about $4 of blended ARPU. So we should see a decent improvement in blended ARPU as roaming and the economy recover. While the late quarter shutdown also affected subscriber activity, including during the Boxing Week period, Rogers still delivered solid loading and had a strong Black Friday. Postpaid net additions were a healthy 114,000, and our unlimited customer base grew sequentially again by another 300,000. This base now stands at an impressive 2.5 million subscribers and continues to position us well as 5G networks and capabilities develop. Postpaid churn improved to 1.19% compared to 1.26% last year. The improvement reflects strong execution by our teams in the COVID environment during a very competitive quarter. Although we can't control the revenue impacts driven by the pandemic, we continue to control our cost and overall efficiency. Despite revenue being down 8%, wireless adjusted EBITDA only declined 3%. This resulted in continued improvement in adjusted EBITDA service margin to 63.2%, reflecting an improvement of 370 basis points from last year. Clearly, our efficiency initiatives are gaining traction, which should further underpin strong revenue flow-through and profitability growth rates when revenue recovers. Overall, we're pleased with how our teams continue to navigate our wireless business in this unprecedented environment. While we currently remain in lockdown in both Ontario and Québec, we built out our competencies since the pandemic impact started accelerating 10 months ago. We are now very well prepared to support customers with advanced digital capabilities, have all our call agents working from home, online ordering with same-day pickup, and are providing home delivery options that are being well received by our customers. Moving to cable. Revenue increased 3%, driven by an increase in ARPA as well as more customers transitioning to our Ignite Internet and TV offerings and modest service pricing adjustments. Homes passed and customer relationships each grew year-over-year and sequentially. While Internet and Ignite TV net additions were down year-over-year, sequentially, Internet net additions increased to 20,000, and Ignite TV net additions almost doubled to 71,000. Adjusted EBITDA grew nicely, up 5% year-over-year as a result of the increased revenue as well as continued improvement in cost efficiencies. This gave rise to a margin of 51% this quarter, up 60 basis points from last year. We continue to see improvements in capital spending efficiency as well, with self-install now representing over 93% of all installations and ongoing improvements in hardware costs. CapEx intensity for cable remained at 22% for the second straight quarter. And as a result, cash margins for cable were at 29%. For the full year, cable capital intensity was 24%, down from 29% in 2019 and 36% in 2018. We believe that these improvements are sustainable, and we continue to expect to operate in the low 20% capital intensity range for the foreseeable future. In our media business, revenue decreased by 23% year-over-year as a result of reduced live sports programming, primarily from delays to the start of the NHL and NBA seasons and softness in the advertising market due to COVID-19. Media adjusted EBITDA increased by $60 million from last year, primarily due to the delayed start of major sports leagues and lower general operating costs as a result of reduced operating activity. On a consolidated basis, total service revenue was down 7%, and adjusted EBITDA was up 4%. If you exclude the impacts of roaming and overage, we would have been down 3% in revenue and up 11% in adjusted EBITDA. COVID-19 impacts in Q4 were notable, with estimated impacts of $285 million in revenue and $60 million in adjusted EBITDA. On a full-year basis, you can see how meaningful the effects of COVID were to our business. We estimate revenue for the year was down $1.4 billion in 2020, and adjusted EBITDA was down $500 million. These are meaningful disruptions to our business and our customers, but our teams have managed these impacts well. In dealing with these significant declines, we established a $90 million provision for bad debt in the second quarter last year. While it continues to be difficult to predict how consumers and businesses will be affected by the extended lockdown, I'm pleased that the performance to date within our bad debt allowance is currently running better than anticipated, and our provision continues to offer appropriate and sufficient coverage as the economy continues to work its way through the COVID environment. Capital expenditures in Q4 were $656 million, up 30% sequentially as we play catch-up on some projects that were deferred due to the pandemic. With this increase, capital intensity was also up sequentially to 17.8%. We expect to increase our CapEx in 2021 from the $2.3 billion spent in 2020 as we accelerate investments in our 5G and broadband networks, and I'll provide a bit of color on that shortly. Cash income taxes increased this quarter as a result of the timing of installment payments as our base quickly moves to installment plans for their handsets. This results in an expected earlier taxable event, which is onetime in nature. As a result, our cash tax rate as a percentage of adjusted EBITDA was 11% in the quarter, up sequentially from 5% in Q3. We will see our cash taxes temporarily increase in 2021 as we continue to transition to a device financing business model, and I will comment on our outlook momentarily. Free cash flow for Q4 was $568 million, up 14% from a year ago, but down 35% sequentially as a result of the higher CapEx and cash taxes. In terms of financial strength, we ended the year with $5.7 billion of available liquidity. We also returned $253 million in dividends this quarter and $1 billion for 2020. Our weighted average cost of borrowing was 4.09% as of December 31, 2020, and our weighted average term to maturity was 12.8 years. In our focus to maintain a strong balance sheet, we prudently managed our borrowings to balance term and cost of borrowing to what we believe is an optimal mix. Turning to 2021. We continue to hold off on providing annual guidance at this time. The COVID conditions that led to our withdrawal of our guidance back in April of 2020 continue today, and there is little, if any, further clarity of the impact of the pandemic on our business and its recovery. That said, we will continue our approach of providing the quarterly transparency we have provided since the pandemic commenced in Q1 last year, until such time as a useful, credible guidance range can be estimated. While we have reasonably good insights as to how our business may perform on a quarterly basis, we will need better visibility on the progress of lockdowns and the resumption of growth drivers in order to have a reliable full-year outlook. These drivers include roaming, economic recovery, and resumption of immigration to Canada, to name a few. As you saw in Q4, the need by provincial governments to quickly implement additional safety measures even late in the quarter can impact results. However, I think it's important to reiterate that while we can't control near-term events such as additional lockdowns or the timing of vaccinations, our teams have adjusted significantly in terms of how to operate in this volatile environment. Unlike Q1 of 2020, Q1 this year will reflect a full COVID quarter in which there are broader and extended lockdowns. In our wireless business, as you have seen in the past years, the first quarter has become a very quiet loading period for the industry, even when stores are operating under normal conditions. With the additional lockdowns in effect in both Ontario and Québec continuing into February, we anticipate that Q1 will likely be quieter than normal in wireless loading and service revenue opportunities. Over the past 2 years, you have seen us approach the Q1 environment with less promotional activity, given the moderate demand environment, and that is always our approach. Regardless of the demand environment, we are in a strong position to provide first-rate service to our customers through our significantly expanded digital capabilities and services such as Express pickup and Pro On-the-Go. We believe ARPU will improve its year-on-year profile so that the percentage decline will be less than what we saw in Q4. Although we may likely see a slight sequential decline due to the seasonality of ARPU variables. With overage revenues, we are approaching the end of the impacts of the overage melt associated with our shift to unlimited plans. We believe we are well ahead of our peers in completing this transition, and we anticipate Q1 overage to be down $25 million on a year-over-year basis. We expect to be through the majority of this transition by the end of Q2. And as we have highlighted in the past, underpinning these plans are better ARPU opportunities, lower churn, and improved customer satisfaction by driving the simplicity dividend for them. Lower roaming revenue will continue to impact revenue and ARPU, and we expect it to be down approximately $75 million year-on-year in the first quarter. In our cable business, we expect additional year-over-year growth in revenue, adjusted EBITDA, and adjusted EBITDA margins as we benefit from efficiency gains and modest price increases. While this business is not completely immune to the economic pressures related to the COVID lockdowns, it is more stable as customers continue to rely on their home connectivity and are moving to higher speeds to support their business and family needs. Additionally, CapEx intensity is expected to be approximately 22%, down from 26% in Q1 last year as benefits from self-install and the Ignite TV platform continue. In our sports and media business, after a quiet Q4, sports programming is ramping up for the NHL and NBA in Q1, and fans and advertisers alike will welcome their return. As a result of the increased live sports broadcast, programming fees will increase in Q1, but advertising revenue should also start to make a modest recovery from Q4 levels. Our best estimate at this point is that revenue and adjusted EBITDA for our media business will be in the same absolute dollar range as Q1 last year. Of all 3 leagues, MLB is expected to have a full 162-game schedule starting in April. At this point, we do not know if the Blue Jays will be playing at the Rogers Centre or if any games will benefit from in-stadium attendance and revenues. This could result in additional losses for the Jays for the full year, but we will continue to monitor how the season unfolds and provide updates as appropriate. In terms of CapEx, we are planning to increase our investment in 2021 from the 2020 levels as we continue to enhance our cable and 5G networks. Although we’re not providing full-year guidance at this time, we anticipate CapEx in the first quarter will be at about the same spending level as Q1 last year, and then we'll ramp up from that level in the following quarters. By the time we report our Q1 results in April, we could have additional clarity on the impacts of lockdowns on our CapEx activities, and we may be in a position to provide additional guidance on our 2021 CapEx expectations at that time. On cash taxes, as seen in Q4, we will continue to reflect our transition to a device financing business model that results in earlier recognition of equipment revenue for income tax purposes. As a result, we expect a final $325 million cash tax installment in the first quarter. As mentioned earlier, these advanced tax payments are onetime in nature, and by the end of this year, we expect our ongoing cash tax rate to be back to a range of 8% to 10% of adjusted EBITDA. Finally, free cash flow in Q1 will reflect the impacts of higher taxes, and we expect this will be the only major reason it will be down on a year-over-year basis. In summary, I hope this extensive quarterly transparency gives you some good insight on the business until the time we return to annual guidance. As we head into 2021, we're very proud of how the Rogers team is navigating the current environment. While there continues to be uncertainty in the near-term as to how the ongoing impacts of COVID will influence the Canadian economy, we have implemented significant changes throughout the company over the past 10 months, and we believe we are positioned very well to manage through the short-term volatility and as the economy recovers. Let me now turn the call back to the operator to commence with our Q&A.

Our first question comes from Vince Valentini of TD Securities.

Tony, can you elaborate on the $30 million impact from lower consumer activity? You've mentioned activation fees, but if we assume an average fee of $40, that would suggest we need 750,000 gross adds to account for a year-over-year decline of $30 million. There must be more factors at play than just activation fees. Additionally, regarding the ARPU trends, it seems like aggressive promotions in August and September, as lockdowns ended, may have had an impact. Could that be contributing to the lower ARPU in Q4 compared to Q3? If so, could you or Joe share insights on the recent trend where some of those aggressive promotions are being reduced by competitors and certain wireless carriers have begun announcing selective price increases? There are several dynamics at play concerning ARPU that I'm curious about.

Great. Thanks for the question, Vince. A couple of things. In terms of the $30 million, it comprises a couple of things. I mentioned the activation fees, our price plan change fees, our reconnection fees. But the other item that is rather significant or what we call the one-time promotional credits, such as gift cards. And so it's that volume that we sort of saw down year-on-year. Second part of your question relates to whether or not we saw pressure on underlying ARPU as a result of the promotional activity. And the short answer is yes, but at the margin. Those types of promotional activities played out in the flanker brands. And so while we saw good ARPU growth with moves from our customers and new customers to unlimited, we saw a bit of an erosion on ARPU as a result of those promotions. Net-net, it had a very slight, I would say, minor impact to our underlying ARPU and service revenue trends in the quarter. Those were to continue, and continue to have a growing impact. But what we saw in the marketplace is a pullback of those promotions after year-end. And so we continue to be confident with the underlying ARPU growth profile for this year. But of course, it will depend on market competitive intensity and how it plays out later in this quarter or into next quarter.

I can add a couple of comments, Vince. We observed significant pricing aggression during Q4. Tony accurately pointed out its impact. However, this level of aggression tends to create fluctuations in the marketplace. The team effectively added customers, but we also experienced some churn. Churn decreased by 7 basis points, but it requires retention efforts. When customers notice those prices, we receive inquiries asking if they can access them. This creates a price plan impact across the industry whenever such aggressive promotions occur. The aggressive wireless price bundling with cable that originated in Western Canada is, in our view, a bit of a zero-sum game. We have not observed this before in other regions like Ontario or in different countries. It is not sustainable, as it does not structurally change share dynamics. Historically, it leads to ARPU pressure and economic impacts for everyone involved. We are pleased to see a return to discipline in Q1 regarding pricing. Aggression in pricing is typical for Q4; it has always been this way. We believe that the market size in Q4 was likely flat or down a few points. Increased competition tends to arise when there is no immigration or growth in the wireless market. As penetration and immigration growth generate new net customers, we have found that pricing aggression typically lessens as a result.

Our next question comes from Jeff Fan of Scotiabank.

I have a question about the competitive outlook in the wireless market and another about 5G. Regarding the competitive landscape, last year we observed a surge in promotional activities once the market opened up in 2020, as Vince mentioned. As we look to this year, we hope to emerge from lockdown in the first quarter, possibly the second quarter. How do you view the competitive dynamics as we approach the middle of the year? Could we see a repeat of last year's scenario with a limited pool of customers and operators aggressively competing for them? Or do you think the market will behave more rationally, waiting for volumes to increase, as Joe suggested? Regarding 5G, with Rogers leading as the first and largest provider in this space, when do you believe customers will start recognizing 5G as a significant upgrade over 4G? What indicators are you monitoring that could signal this shift?

I think to your question, will this summer be like last summer? And I would say, last summer was our first real understanding of what it felt like to come out of a pandemic. I mean, Jeff, there’s no playbook for it, right? We just said, okay, the game on. People are out and about, restrictions have been softened, lifted in many parts of the country. We saw data growth spike tremendously almost overnight. We saw 30% to 50% data growth. So there's sort of a muscle reaction that says, okay, game on, let's go. And therefore, it creates a sense of froth growth and let's go make up for whatever didn't happen in the previous few months. I think we'd all look back at that period, and now we have a much more sanguine understanding of the real economic outcome, a lifetime value and economic outcome of that froth in that intense period. So I think our second time through it as an industry, will be a mix. I'm sure there'll be some level of aggression, but I think there'll be a much more kind of rational sanguine look at it and say, where are the value economics in this? What are the value drivers in this? So that's my view. And my hope is that there's not a third crack at it. And that everything points to the fact that we'll come out. I think the biggest thing that you should take comfort in Rogers is that the capabilities we have now are vastly different than the capabilities we had a year ago. I mean, our ability to transact online was, I would say, not terrific a year ago. Right now, I think it's very good, very strong. And the ability to order online, pick up in store, have it delivered to your doorstep. These are all things that the team worked hard to make happen through last year. And part of the reason you see some of the margin improvement is that we've been able to impact some channel mix that has a far more attractive COA as a result. We have the ability to approach the game differently and achieve better economics due to the channel and cost of acquisition characteristics that are favoring us, thanks to the hard work of our team. Regarding 5G, we are currently in the investment cycle, similar to 4G and other projects. The capabilities we gained from our investment in Ericsson are now available, and we need to implement the stand-alone core at some point. So we did it. We'll keep expanding it, etc. As I've said to you, I think in the past, 5G will come in tranches. Unlike 4G and 3G, which would be sort of big turn on the lights, and now we have a brand-new capability. 5G will come in tranches. The first tranche is already happening as 5G iPhones and 5G Samsung phones hit the market. We'll see more of those in our base. And given some of the capabilities of 5G architecture, we have a better ability to deliver a gig of data at a better unit cost. And when Canada sits at 3 gigs a month on average and the U.S. is closer to 10, and Korea is closer to 30 gigs a month, we're on that path. And the ability to do so in a way that's far more cost-effective is important to the economics of this industry. So that's sort of the first prize. The first prize is really kind of the economics of bandwidth. The second prize around 5G, I think, will be a series of applications that come to light along the way. One of them will certainly be fixed wireless access. I mean, you've seen the beginnings of what I would call 4G fixed wireless access in the industry. 5G will make those economics and that capability and population density enablement even better around that front. How far away is that? That's in the next, call it, 1 to 2 years away. The applications that attract significant media attention are related to low latency IoT. I can confirm that these are currently being developed, and we have already seen some in the market, such as the automation initiatives in Kelowna that have been highlighted. Additionally, we are collaborating with mining companies to utilize 5G capabilities to enhance automation on mine sites. These are B2B applications that will evolve as various B2B sectors grow, with some sectors progressing faster than others. If you are looking for a substantial profit and loss impact from 5G, I believe we are about 3 to 5 years away from seeing real material results. But we've got to invest now because these things take time and effort. The 70% of the work in network investment is civil engineering work. 70% is people digging trenches, acquiring sites, building towers, stringing fiber. And you can't turn those things on in a dime. You've got to do them years ahead of time, and that's what you're seeing coming from us as an organization. And along the way, what you're hearing us say as well is we've got a great network. We've got the best network, and we continue to get accolades for it all around. It was on this call a few years ago that people were asking, how's the Rogers network doing? They had a lot of questions around capability and performance. I would tell you that we have best-in-class networks, and we lead the industry. And it's more of a reinforcement that that's a crown that we're never letting go of. And 5G is also a sense of pride for this organization and being first and driving the largest opportunity. And I think a sense of pride innovation in the hearts and minds of engineers is important to the culture of a telecom company. I believe those are the genuine reasons behind it. We are fortunate in Canada to have excellent 4G LTE networks. When you look at countries with weaker 4G networks, 5G becomes much more significant. The differences between 4G and 5G will become clearer over time, as I mentioned. One step we have taken to prepare for 5G is to introduce unlimited data plans. We couldn't maintain an overage-based model for customers who want to use a lot of data, which was typical of the 3G and 4G era, and still hope to fully leverage 5G. And you look at some of the early gaming apps, you can burn up 10 gigabytes in a few minutes, right? So my point is this is all the orchestration towards the 5G future. And I would say that later on this year, we'll probably, once again, have a bit of a 5G, where is it all going for Rogers discussion. Once we come out of the quiet period around the spectrum launch, I think that would be a great thing to do. Paul will set it up for the investment community.

Our next question comes from Simon Flannery of Morgan Stanley.

Tony, I wanted to follow-up on the operating leverage. It's great to see the margin improvement despite the top line pressures here. And you've talked a lot about digital transformation and things like that. How should we think about as the economy reopens, as travel rate recovers, how much of this improvement is permanent? And how much will be kind of given back in terms of increased roaming costs and other things that you're not spending on currently? And on that roaming piece specifically, how much of it is attached to business travel returning, which might take a little bit longer than tourism?

Thanks for the question, Simon. I think with respect to leverage on costs, if I understood the question, what we should see as roaming returns and some of the other items is a very high flow-through rate to our margins. And so we currently have, even in a very low growth environment, plans to continue to expand margins. And so what we should see as roaming returns net of roaming costs is a good healthy flow-through rate in excess of 50% and probably as high as 60% to put a rough estimate on it.

Great. Are there any other costs that you were able to save this year which might increase again related to activities, advertising, travel and expenses, or similar areas that we should know about?

There are variable costs that will arise as the market grows and our volumes increase. These costs, related to operations, are variable in nature. However, it’s important to note that their overall amount has decreased, especially as we shift to more efficient channels like digital. So, in the context of my broader comments on margin expansion, we've factored those in. If I were to detail each specific item, I would emphasize the margin improvement we've observed from transitioning to installment plans. And as volumes go up, we don't think that's going to erode. Obviously, that's going to depend on the economy. And then there are improvements that we're seeing throughout our businesses in back office. Again, as we move to more and more AI and automation in those areas. On our cable business, some of the areas that we're seeing cost improvements, Joe mentioned, self-installation. Number of service truck rolls has come way down, and that really gets at the operating efficiency of having completed some of the service calls the first time. We've had good progress on our content costs. And you see that in our P&L in terms of managing what was previously continually escalating costs for us. And we've been much more creative and better executing in terms of those costs.

Aravinda, I hope that helps because Tony pointed out that most of the cost changes are structural and sustainable, which is where we have focused our efforts instead of on more temporary costs. We're pleased that a third of the 370 basis points in margin is related to equipment margins. This relates to your second question about whether we are seeing that subsidy improve and if we are achieving better cost of acquisition. When you combine this with the channel mix we've observed, particularly the increased reliance on digital and Express Pickup delivery to the home with Pro On-the-Go, each of these channels performs much better in terms of sales than some others. Our customers seem to be enjoying this approach. Our satisfaction scores are super high in each of those customer journeys. I think that they will persist far beyond COVID in terms of how we do business. So they're also structural in nature. In terms of ISAT, one of the opportunities that COVID provided to us was the ability to create a far more productive, collaborative relationship with government, both at the ministerial level and the departmental level. We've seen that cooperation all through the last year overall. I believe that this will continue. The common goal is to support the needs of rural Canadians and work collaboratively between industry and government to close the digital divide for the 10% to 15% of Canadians who lack access to the best internet due to primarily economic reasons. The return on investment in those areas has been challenging since the telecommunications industry's inception. Being united on rural connectivity issues will foster collaboration and cooperation. I appreciate the support from Minister Bains during his time in office, as we had valuable discussions about the industry’s future. I am also pleased with my discussions with Minister Champagne, who has an impressive background and a good understanding of the technology sector and business environment. We have had meaningful conversations about what is important moving forward. Strong collaboration between industry and government is essential at the core of all regulatory environments, and that is where it begins. These are all positive developments.

Ariel, we have time for 2 more questions.

Our next question comes from Jerome Dubreuil of Desjardins.

Trying to look a bit ahead to a potential recovery. First in cable, we've seen a nice improvement in ARPA. How would you segment the impact from price increase versus maybe other factors like your customers moving up in terms of download speeds? And then in media, last year, you said that it could be difficult to achieve positive EBITDA without Game Day revenue.

Thank you for your question, Jerome. Regarding the first point about cable and the sustainability of ARPA increases, I would highlight a couple of things. The price increase contributed about one-third to the ARPA increase we observed. The other two factors that have positively influenced this, both this quarter and in previous ones, include a reduction in promotional activity. We've been working on improving our approach to end of promotion periods and ensuring that we transition customers to a sustainable new rate plan instead of simply renewing promotions. We've focused on reducing total promotions as a percentage of revenue, and we are beginning to see positive results in the marketplace from this effort. The second piece of it relates to upgrades, not only in migrating to our Ignite TV but also to higher speed tiers, as you would expect. And so both of those are contributing nicely to the growth in ARPA. And so it's the latter 2 that we're really focused on as being very much sustainable and continuing to drive ARPA growth throughout the year. Your second question related to media. I'm not sure I got it, but let me try to help. In terms of the Jays, ideally, we're looking at, and as I talked about before, a breakeven type of scenario for our media business. The Jays is really the big swing factor. And so if they play in Toronto, there are more advertising revenues, as you would expect, that we can garner from that. And if there are audiences, then that's a huge potential for additional revenues, even if it's 1/4 or 1/3 of ticket sales. So to the extent that they end up playing not in Toronto and back in Buffalo or somewhere else, then what we're going to see is a significant drag on our media business. I don't want to provide too much direction in terms of what that could be just given the unknown variables. But it's a very material swing either way and contributed part of the reason we held back on giving guidance. That was one of the big 3 or 4 items that is still just a big unknown.

Great. Thanks, Jerome, and thanks, everyone, for attending the call. If you have any questions, please feel free to give us a shout. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.