Rogers Communications Inc Q3 FY2021 Earnings Call

Thank you for your patience. This is the conference operator. Welcome to the Rogers Communications, Inc. Third Quarter 2021 Results Conference Call. I would now like to turn the conference over to Paul Carpino, Vice President of Investor Relations with Rogers Communications. Please proceed.

Great. Thank you, Ariel. Good morning, everyone, and thank you for joining us. Today, I'm here with our President and Chief Executive Officer, Joe Natale; our Interim Chief Financial Officer, Paulina Molnar; and our President of Wireless, Dave Fuller. 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 2020 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. Today, I'll take you through the highlights of our third quarter. Then I'll provide more details on our priorities and how we are meeting the needs of our customers. I'll also talk about how we are well positioned to drive long-term growth before turning to Paulina Molnar, our interim CFO for more detailed commentary on our financials. As many of you are aware, Paulina assumed the interim CFO role with us late last month. She has been with Rogers for 16 years, most recently serving as Senior Vice President, Controller and Risk Management lead. Paulina brings 26 years of industry experience to the role, and we're very fortunate to have her leadership at our table. I'm very grateful for Paulina's contributions. Before we begin, I want to briefly touch on the recent reports in the media. As you know, Board discussions are confidential. So we will not be providing commentary on Board meetings, and we'll focus our discussion on our strong Q3 results and the improvements we are seeing across our business. As we move through the final few months of 2021, the economy is opening up, travel restrictions are easing with the planned reopening of the land border with the U.S., and we are all encouraged to see more of life return to pre-pandemic routines and experiences. As we recover from the pandemic, the improvements across our business are clear. My leadership team and I remain fully focused on continuing to build on this momentum and growth over the coming months and quarters. We delivered strong results in Q3 with continued improvements across all of our businesses, led by a very strong recovery in wireless. Our wireless postpaid net loading service revenue growth, blended ARPU and impressive wireless postpaid churn rates all improved during the quarter. Notably, our 175,000 wireless postpaid net additions were well above the levels seen prior to the pandemic in 2019. In fact, Q3 reflects our strongest quarterly wireless postpaid net loading since 2008. Multiple factors drove these improvements. First, as the economy continues to open up and people become more mobile, we are seeing pent-up demand for new phones and our services. Secondly, to meet this increased demand, we have been able to leverage our strong national distribution network as customers return for the in-store shopping experience. Additionally, the investments that we have made in our digital capabilities continue to pay strong dividends, enabling us to support the needs of our customers through convenient digital purchasing options, which have never been stronger for the Rogers organization. Finally, our ongoing efforts to lower churn and better manage our base continue to pay off. This is reflected in our 0.95% wireless postpaid churn rate, which was a record low for the third quarter despite the highly competitive back-to-school selling period. Importantly, these improvements are flowing to the bottom line. Wireless service revenues are continuing to recover and were up 3% year-over-year. Blended ARPU of $51.31 is also improving and was ahead of our previous expectation for the third quarter of $50. This was aided in part by some modest improvements in roaming revenue as people have begun traveling more. While our roaming revenues remained substantially below pre-pandemic levels during the quarter, this increase in travel extends to the land border with the U.S., which will reopen early next month to non-essential vaccinated travelers. Coupled with improving international travel, we expect to see sustained roaming revenue improvements in the coming quarters. Turning to our cable business, we delivered year-over-year revenue growth of a solid 3%, and adjusted EBITDA was up 2%, both of which were in line with our expectations. This was achieved despite our decision to postpone price increases. We continue with our capital spending to connect more communities and businesses and bridge the digital divide affecting underserved Canadians. On a product basis, our Internet net subscriber additions include 17,000 net new broadband subscribers. Our Ignite TV platform growth remains very strong, attracting an additional 64,000 subscribers in Q3. This now brings our total Ignite TV base to more than 730,000 subscribers, an impressive 55% increase compared to just a year ago. Our Ignite TV platform, combined with our Ignite Internet Gigabit 1.5 service continues to be well received by our customers. Finally, in our sports and media business, revenue was slightly below the prior year, and adjusted EBITDA was positive. Both of these were in line with our expectations. While we remain focused on delivering improvements as we move past the impacts of the pandemic, we also remain committed to making the right investments to deliver long-term value to our customers, to our shareholders and for Canada. Our consistent focus on investments in our networks delivers incredible value to our customers. A recent PwC report assessing the relative quality and cost to build telecommunication networks across the G20 nations found that while Canada faces the highest cost to build networks, we also continue to lead the group in the quality and capability of our networks. Rogers' network leadership has been recognized consistently throughout the year. We were named the Best in Test for the third year in a row by umlaut. Additionally, Opensignal ranked Rogers #1 for 5G reach, for 5G availability, for the 5G voice app experience, and for the 5G gaming experience and 5G upload speeds. Finally, Ookla, the global leader in fixed broadband and mobile network testing applications recognized Rogers as Canada's most consistent national wireless and broadband provider for the fifth quarter in a row. These awards aren't just awards. They reinforce that our investments in our world-class networks not only keep Canadians connected to what matters most today, but will also help bring them the very best service in the future and for years to come. An example of this network leadership is our accelerated rollout of Canada's largest and most reliable 5G network. We now connect more than 850 communities. By the end of the year, we will extend our 5G network to more than 1,000 communities, reaching 70% of the Canadian population with 5G. The strong performance of our networks is underpinned by the strategic investments we have made in spectrums. This includes our success at the most recent 3,500 megahertz auction, where we secured enough spectrum to cover 99.4% of the Canadian population. This spectrum builds on our foundational investments in low-band 600 MHz and makes Rogers the largest single investor in 5G spectrum in the country across rural, suburban and urban markets. As we continue to lead in 5G deployment, we also remain committed to expanding fast and reliable Internet connectivity to communities across Canada. In July, we announced a $140 million investment to deliver fiber technology to more than 20,000 homes and businesses in Quinte West Belleville and Prince Edward County. Last week, we announced that we would invest over $188 million to extend our fiber network to connect more than 24,000 homes and businesses in Ottawa, Clarence-Rockland, North Grenville and Carleton Place. By the end of 2021, we will reach more than 500,000 households in rural and underserved communities. This not only helps rural and underserved communities but will also help drive future growth. We continue to work hard to expand coverage and high-speed capability to rural Canadians. While I'm proud of our ongoing efforts to connect rural and underserved communities, we know more must be done. Fast and reliable connectivity not only enables people to learn and participate in the digital economy, but it's also a critical lifeline, providing vital access to health care, social services and emergency services. The scale of the generational investments needed to address our country's ongoing connectivity needs is significant, which is why our agreement to come together with Shaw is so important. Together, our two companies will deliver world-class connectivity to communities across Western Canada faster than either company could ever do alone. Not only will this give rural, remote and indigenous communities better and more comprehensive service, but it will also create jobs, attract investment, and drive greater competition for consumers and businesses. We continue our constructive engagement with our regulators as they review the transaction, and we expect the deal to close in the first half of next year. Before I hand over to Paulina to provide a more detailed overview of our financials, I would like to thank the entire Rogers team, 24,000 team members across the country. I'm incredibly proud to lead a team of people whose dedication and determination continues to deliver outstanding service to Canadians and Canadian businesses while continuing to improve our operations, manage costs and deliver improving performance from quarter to quarter. With that, let me now turn the call over to Paulina to share more details about the quarter. Paulina, over to you.

Thank you, Joe, and good morning, everyone. Our Q3 results reflect solid improvements across our businesses, led by our strong performance from our wireless operations. In wireless, we delivered postpaid net additions of 175,000, or a 27% increase from one year ago. Impressively, these net additions were all smartphones. This healthy recovery in loading reflects the impacts of our continued reopening of the economy, the effectiveness of our extensive physical distribution channels and digital capabilities, and a record low churn rate for Q3 of 0.95%. The strength of the wireless recovery can also be seen in our year-to-date performance, where wireless postpaid net additions of 318,000 were 57% higher than the 203,000 in the pre-pandemic first nine months of 2019. Service revenue improved 3% from last year, and ARPU was $51.31, up 4% sequentially from Q2. The sequential service revenue and ARPU improvement reflects the better loading environment and some additional roaming revenue. However, roaming revenue still remains at about 50% pre-pandemic level given lower travel. Finally, wireless adjusted EBITDA was up 2%, and adjusted EBITDA service margin was strong at 65% in Q3. Our cable business continued to deliver solid financial results. Total revenue grew 3% and adjusted EBITDA was up 2% year-over-year. Cable margin was a strong 51%, and capital intensity was 23%. Cash margins remained at a healthy 27% in Q3. We continue to see growth in our Internet and Ignite TV subscriber base. We added 17,000 broadband additions within our overall net Internet additions, and Ignite TV subscribers grew by 64,000, 68% more than Q3 last year. Impressively, our Ignite TV subscriber base now stands at 732,000, a 55% increase from one year ago. Overall, with these additions, we grew our net households by 8,000. Moving to our media business, we continue to see the volatility of the pandemic on broadcasting, advertising and Blue Jays game revenue, but underlying operational trends are improving as the economy opens up. Media revenue was $473 million, down 3% from a year ago. This was driven by lower advertising and broadcasting revenue associated with the NHL and NBA completing their seasons late in the third quarter last year. This decline was partially offset by the higher Toronto Blue Jays game day revenue that resumed this year but still remains well below typical pre-pandemic levels. While year-over-year comparisons of adjusted EBITDA are skewed by the pandemic impact of sports broadcasting schedules, adjusted EBITDA returned to a positive $33 million in Q3. At a consolidated level, total revenue for the third quarter was flat on a year-over-year basis, and adjusted EBITDA was down 2%. However, service revenue was up nicely, growing 2% year-over-year. COVID-19 impact in Q3 was still notable with estimated impacts of $112 million in revenue and $117 million in adjusted EBITDA. Capital expenditures in Q3 were $739 million, or 47% higher than last year. Year-to-date CapEx is just under $2 billion, or 17% higher than 2020, reflecting a capital intensity of 18%. As we have highlighted throughout the year, the increased capital spending is aligned with our continued commitment to investing across Canada. These investments are critical to building our 5G network and improving the digital divide to connect more Canadians. Cash income taxes of $175 million were up $100 million from Q3 last year, but consistent with levels reported in Q2 of this year. This represents a cash tax of 11% as a percentage of adjusted EBITDA, higher this year given our transition to divide financing. Free cash flow was $507 million, down 42% as a result of increases in cash income taxes and capital expenditures. As of September 30, we had over $6.4 billion of available liquidity. This includes $1.6 billion in cash and cash equivalents and a combined $4.9 billion available under our bank credit facilities and our receivable securitization program. Our weighted average cost of borrowings was 3.8%, and our weighted average term to maturity was 12.4 years. Leverage was 3x adjusted EBITDA at the end of the third quarter. Industry payments for the 3,500 MHz spectrum have been pushed further into the fourth quarter as the government works for clearing certain spectrum for wireless use in Canada. We anticipate that this will be completed in the fourth quarter, at which time we will pay for our spectrum and leverage will be approximately 3.5x adjusted EBITDA. Let me now turn to our Q4 outlook, which continues to reflect positive momentum in our business. In our wireless business, our traditional retail distributions are fully open. Our digital capabilities are strong, and the economy continues to improve. Against this backdrop, we anticipate the healthy loading environment to continue in Q4, particularly given the holiday selling period. We believe service revenue will show solid growth on a year-over-year basis of approximately 5%. Despite typical seasonality in Q4, ARPU should grow 2% year-over-year. We anticipate our strong wireless adjusted EBITDA service margin performance to continue at the 63% level, and we expect CapEx intensity for wireless to be approximately 16%. In our cable business, the company has not implemented any price increase in 2021. However, we still anticipate revenue to be consistent with Q4 last year or a 1% increase sequentially from Q3. Cable adjusted EBITDA margins are expected to remain in the 51% range, and we expect CapEx intensity to remain at 23% as we continue to enhance our cable infrastructure and provide connectivity to more communities. In our sports and media business, we expect revenue to grow on a year-over-year basis to just over $500 million as more professional sports programming ramps in Q4. With the resumption of normal NHL and NBA schedules, we will also incur some additional programming rights and broadcast costs. So adjusted EBITDA is expected to be negative by approximately $35 million. Finally, on cash taxes and free cash flow, we expect our cash taxes to be in the $25 million range in Q4 and as we have paid the majority of our taxes in the first three quarters of 2021. We anticipate free cash flow to be similar to Q3 with somewhat similar CapEx spending. Overall, we're very pleased with the improvements in our business as the economy continues to recover. Our team is executing well, and as we move past the pandemic, we expect our results should reflect the quality and potential of our wireless, cable, and sports and media assets.

Our first question comes from Drew McReynolds at RBC.

For you, Joe, just to be clear, for shareholders. We see this morning the Board formed an Executive oversight committee and is conducting a governance review. Obviously, you have the support of the Board. Just three sub-questions here. Have any strategic or operational priorities of the company changed in any way? Do you see any impact on the company's ability to close the transaction with Shaw? And then lastly, from your perspective, just any change in your ability or commitment to execute on what you intend to do looking forward?

Thanks, Drew, for the question. Let me be unequivocal in my commentary. I've got strong support from the Board to direct the strategy of the company that has been approved over the last many strategic sessions with the Board to keep driving the operational initiatives that we've been talking about over the last many quarters that continue to drive the improvements and momentum that you're seeing and to support the approach around the Shaw transaction. I'm feeling as comfortable as I have been in the past with the Shaw transaction, both in terms of our ability to get it approved and the synergies that stand behind it. So I feel supported and rest assured that the entire executive team is focused on two things: running the business to keep driving performance and landing the Shaw transaction and the synergies and integration efforts that stand behind it. I hope that answers your question, Drew.

And just a follow-up on wireless. Clearly, Q3 just hit the mark on almost every KPI. And it sounds like that momentum will continue into Q4. Maybe a question for Dave. Just on the lower churn in the quarter, still not necessarily a fully normalized Q3, but impressive to see the churn reduction. Just could you comment on whether that's a function of better base management? Is it a structural decline in churn? Are there other dynamics there on that drop?

Yes, sure, Drew. Happy to cover that. Yes, I think there are a number of things. We are pleased with what is really a record low churn number for us in what is normally a higher churn quarter given the promotional activities that are usually underway in Q3 with back-to-school. I think I'd point to four things. The first would be base management. The team has done a great job of effective base management that has helped with structural improvements in how we manage our base and our customers. The other key point to highlight would be unlimited plans. We are now at 2.9 million subscribers on Rogers wireless on unlimited plans, therefore, not being impacted by significant overage revenues. Secondly, for the vital base, which is a material component of our consumer base, roughly 85% of the vital base is on data overage protection plans, the Fido's version of Rogers unlimited plans. Again, they aren't subject to overage unless a customer chooses to buy a top-up. With both of those two numbers, you can see that the vast majority of our consumer base is on unlimited plans. We have seen somewhere in the range of about a 25 basis points improvement in churn on Rogers wireless. If you look at the vital base, we actually see almost twice that, in the range of about 45 basis points improvement from customers on data overage protection. I think that's a significant factor in the overall churn reduction. We've made numerous service improvements to enhance our likelihood to recommend on our promoter scores. The team has done a great job of removing friction for our customers and servicing and supporting them, both in retail and in our call centers. That has long-term benefits on churn for obvious reasons. The final point is the significant network investments we have made in improving the quality and capability and coverage of our 5G network. We now have the largest and most reliable 5G network available. All of that plays a significant role in the service and experience value proposition that we deliver to our customers. I think all four of those factors contributed to the record low churn numbers that you're seeing and hopefully will continue as we go into Q4 and next year.

Our next question comes from Vince Valentini, TD Securities.

My congratulations as well on those strong wireless KPIs. I had a different question, but I'm going to start with this, just to follow up on something you just said, Dave. Any chance you can give us anything more granular on the Net Promoter Scores or Likelihood to Recommend in terms of how much it improved versus where it was before or how Rogers might now stack up with industry peers?

Yes. My view on Likelihood to Recommend is you're never really done, right? It's an ongoing journey. Good enough for me is when 100% of our customer base is willing to recommend our services to others. So I'm not going to disclose the exact numbers. We have had significant improvements in that metric over the last three to four years. But it's nowhere near where it needs to be. I think we still have a lot of opportunities to improve, and the team is focused on doing that to do right by our customers.

The main question I was going to ask is regarding the churn being high, but your gross adds were significantly up year-over-year as well. Is there any concern that you might be doing too well? We haven't seen numbers from Bell or TELUS yet, but I suspect that 175,000 will likely lead the industry for the quarter. Do you think that too much success could provoke a price response from them that you would rather avoid? Also, is there anything you can share about the mix of flanker brand versus main brand in that 175,000, noting that there are no tablets included in that figure?

I'll take the first part, Vince, and then I'll ask Dave to comment on the mix side of it. What you saw from the Rogers team this quarter was the strength of our distribution come into full focus. Retail traffic is still not really where it was pre-pandemic, it is roughly 75% of what is was prior to the pandemic. The other thing you saw is that when we started in the pandemic, we had very limited digital capability to transact outside of our stores. The team has worked tirelessly since the beginning of the pandemic to shore up that capability, where we think it's a competitive strength and at the very least parity with the competition. So now we can fight with both hands. I can't predict the competitive reaction in any particular season, quarter or a particular set of results. I will say we're very pleased with the results. These are high-quality subscriber nets that will have a very strong EBITDA flow-through associated with them. With the other channel capabilities we've built, like Pro On-the-Go and other things that you're going to hear from us in the coming few quarters, you'll see that we continue to build distribution strength. Distribution strength, along with service friction reduction and improvement underpinned by Likelihood to Recommend, is the secret sauce of this business overall. Our network quality is there now. We're best-in-class. We understand that network quality is a parity discussion in Canada, given the quality of networks across Canada. You win by distribution capability and you win by customer service and Likelihood to Recommend, and both of those have very strong momentum. We are just not going to relent on them. Dave, over to you.

So I think, Vince, for the brand mix, the volume was, as Paulina has said, all on smartphones. In terms of the brand mix, we are exceptionally pleased in that we had strength in all three areas of our postpaid business. Looking at the numbers throughout the quarter, Fido had an outstanding quarter and was well ahead of its projected number. However, we also had strengths in Rogers' consumer wireless and on our B2B business. I'm not going to get into the exact splits between them, but I would say the biggest number would have been on Fido, which is typical for this business. I'm not concerned about the performance during the quarter as we weren't aggressive in securing these net additions through promotional activity. We matched up well against our competition but weren't overly promotional. When you look at the split between additions and gross adds that ported their number into us versus gross adds that did not, in other words, were new numbers. Most of our benefit on the port side actually came from our churn being much better. We were losing less port outs rather than seeing a huge win on port ins. What we had was strength in those non-port growth in our business as we grew accounts, families, and our existing account structure.

Vince, I’ve taken note, I’ve written down too good. I’ve known you for about a decade. We’ve had many calls together with investors in earnings calls and I have never heard you say the word 'too good'. So, I’ve marked this moment in time, 8:34 on this particular date.

So have I, Vince, because we’re in the midst of budget discussions for 2022. So I’ll also make sure I remember that.

Our next question comes from Jeff Fan, Scotiabank.

Just a quick clarification to start. I think I've heard that the 174,000 loading were all smartphones. Did I hear that correctly? Maybe I'll start there and then a couple of very quick follow-ups.

So yes, all of them were smartphones. In fact, our smartphone loading in the quarter was closer to 180 as we were slightly negative on capital loading.

My next two questions are related to governance and the Shaw deal. Just on the governance side, to follow up on Drew's question about the Executive Oversight Committee. That was just formed. Can you give us a bit more details on the mandate of this committee because there's no disclosure on your site? And is there any overlap, or how does it overlap with the Executive Committee?

Sure. Thanks, Jeff. I'll take the first comment on the governance question and then I'll ask Paulina to frame up the financing and our recent discussions with rating agencies, et cetera. As disclosed in our MD&A, the Executive Oversight Committee was created to advise and assist the chair and me, the CEO, in carrying out our respective duties and to establish clear protocols for interactions between the chair and members of management. The Board has also resolved to undertake a comprehensive corporate governance review, which Boards do from time to time, to take a corporate governance review. I think these initiatives will serve to continue to strengthen our governance practices, which has always been excellent in terms of the company. I continue to work very collaboratively with every member of the Board. We just had a board meeting yesterday. It was a good discussion on the future of the business, the Shaw deal, and the challenges ahead of us.

Yes. Thank you, Jeff. Regarding financing, through the spectrum that we need to pay for with our leverage, we have over $6 billion covering there. We have financing to pay off that spectrum coming up in the fourth quarter. Regarding the Shaw acquisition, we will be looking at the debt levels needed, about $20 billion. We've started planning for that based on some hedging we've put in place for interest rates during the quarter and a term loan we established the prior quarter. We are looking for those synergies of $1 billion, and we're feeling very comfortable around that over the first two years that will help us to bring down some of that debt level as well. Our debt leverage will be 3.5x, as I said, once we pay for the spectrum, which we believe will go to over 5x after the Shaw transaction, but will come down within 36 months back to about 3.5x. Our discussions with rating agencies are ongoing, and we are committed to working with them to retain our investment grade.

Our next question comes from Aravinda Galappatthige of Canaccord.

Two from me. First of all, with respect to the wireless side, the cost of equipment is obviously down 10%. I know there has been a trend toward BYOD a little bit in Q3. I was wondering if you can comment on that and whether you see that as more of a temporary movement. Obviously, if that does continue, there are positive implications for COA and COR. I wanted to get your thoughts on that.

I'm going to ask Dave to talk about what was driving the cost of equipment and whether it's temporal versus structural overall. Dave, over to you.

Yes, thanks for the question, Aravinda. I would say most of it is probably temporal. As many on the call know, OEMs and smartphones were constrained on inventory, both Samsung and Apple, which are the two largest in our mix, and our base struggled with chipset availability that is affecting the industry. Our team has done an excellent job in managing inventory and ensuring that we had the right phone available for our customers when they wanted it. However, I think that did dampen some upgrade activity and renewal activity within our base and skewed the mix toward bringing your own device while people waited for the availability on their preferred devices. The chipset constraints are likely to continue throughout Q4 and into Q1.

Thanks, Dave. On the cable question, Aravinda, a few thoughts overall. Bear in mind that the Bell's fiber-to-the-home overlap is just under 50% of our cable footprint. Also remember that we offer speeds of 1 gig across our entire footprint of roughly 4.5 million homes passed. We're in the process of upgrading to 1.5 gig profiles in specific areas. In areas where we believe it makes sense, we have split nodes and done substantial work splitting them. Our homes per node is now half compared to what it was four or five years ago. We continue down that path and, in some areas, it just makes sense to go to GPON, which we've implemented. For about eight years, our greenfield locations have all been fiber-fed straight to the home. We're committed to driving service expansion, not just leveraging funds in various programs, but also enhancing our fixed wireless capability.

I wanted to get your thoughts on sort of your own fiber initiatives. Can we expect that the CI on the cable front would remain where it is? Or would you need to kind of step that up a little bit?

Regarding setup and execution, we will see CI at around 20% to 22%. What will drive it to the upper end is the amount of service expansion in our pipeline. As I've said previously, we are committed to driving service expansion by utilizing some funds in various programs, including fixed wireless enhancements, where we believe we have great opportunities as part of the Shaw transaction. I think we have a compelling product formula to drive growth in the marketplace.

Our next question comes from Jerome Dubreuil, Desjardins.

The first question is on the drivers of ARPU, which was probably better than expected. How much roaming revenue has returned in the quarter? Are we starting to see some fees coming back like late payment fees? If you can comment on that, please?

Dave, would you take that?

Yes. Sure, Jerome. The drivers of ARPU this quarter were, first and foremost, strong subscription revenue growth from the net additions we enjoyed this quarter and last quarter. More critically, the mix of those net additions towards high-quality smartphone additions also contributed positively. We're through the bulk of the headwind caused by declines in overage revenue due to the shift to unlimited plans. Additionally, roaming revenue is up quarter-on-quarter and year-over-year but remains at approximately 50% of 2019 levels. There's significant upside and room to grow there as Canadians return to traveling.

And just also on the migrations to unlimited. I understand it's mostly completed. Where are we in terms of achieving, as you referred to as the Simplicity Dividend, where are we in terms of cost benefits of this migration to unlimited?

We actually went back to the business case for the Simplicity Dividend we launched in June 2019. I’m pleased to report we're in the target zone of what we anticipated with roughly 3 million Rogers customers. We are at 2.9 million customers. We are overachieving on the percentage of Fido customers on data protection, now at 85%. The churn benefits, as you heard, are in the range of 25 basis points on Rogers and 45 to 47 basis points on Fido, which is in the zone of our expectations. We have melted overage revenue numbers, which has now reached the bottom of the J curve. The major drivers of call minutes have decreased significantly over the last few years, reducing our cost to serve.

Along with this reduction in minutes comes a significant decrease in credits and fee waives. A large percentage of our overage revenue had been returned to customers as credits due to complaints. This has contributed to our margin improvements.

So the customers on data protection and unlimited, when people start traveling again, roaming is a different context.

Yes, they will buy a roaming pass. They're not worried about the minute or data bucket anymore. This creates a worry-free roaming experience.

Our next question comes from Sebastiano Petti, JPMorgan.

Just wanted to circle back on one of the comments that Dave made regarding the device supply chain. What are you seeing in terms of supply chain constraints as it pertains to the 5G network deployment? You mentioned your target for year-end coverage. Are there any supply chain issues in future 5G spectrum deployments? What about on the cable side?

We feel confident in our wireless network deployment. A lot of the heavy lifting is already done. When we implemented our 4G LTE advanced, we secured 5G ready radios from Ericsson, so much of the equipment is already in place. We also have stockpiled inventory for network coverage, capacity building, and cable upgrades. We feel confident in our positioning. The vulnerable supply chain issues primarily pertain to smartphones as we navigate these global constraints. We maintain strong relationships with major smartphone providers which assist in mitigating the effects of the supply chain issues.

Circling back, Joe, you've mentioned that by the end of 2021, you aim to reach about 500,000 households in rural and underserved communities. I have a couple of questions related to that. First, how do you plan to market these areas and target households, and when do you expect to see penetration gains on the Internet and broadband KPI line?

To clarify, that number is cumulative for our rural base, and we've been adding to it all year. There are approximately 2 million underserved homes across Canada. We're leveraging multiple government programs for funding in non-economic areas. The fixed wireless aspect is crucial in closing the connectivity gap. The time between construction and lighting up a particular neighborhood is typically measured in months. The timing also depends on the build schedule, and existing residents in a rural area may be onboarded immediately upon completion.

Thanks, Sebastiano. We're at the top of the hour, so that will conclude our call. Please feel free to reach out to the Investor Relations team with any follow-ups you may have. Thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Carpino for any closing remarks.

Thanks, Ariel. Please feel free to follow up if there are any additional questions.

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