Rogers Communications Inc Q2 FY2022 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications Inc. Second Quarter 2022 Results Conference Call. I would now like to turn the conference over to Paul Carpino, Vice President of Investor Relations with Rogers Communications. Please go ahead, Mr. Carpino.

Thanks, Ariel, and good morning, everyone, and thank you for joining us. Today, I'm here with our President and Chief Executive Officer, Tony Staffieri; and our Chief Financial Officer, Glenn Brandt. 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 2021 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 Tony to begin.

Thank you, Paul, and good morning, everyone. Our results for the second quarter demonstrated strong growing momentum across each of our businesses. As our economy and our markets continue to expand, our teams executed well in capturing an increasing share of this growth and converting it into meaningful financials for each of our Wireless, Cable, and Media businesses. Our drivers of top-line growth centered on a few main factors, namely the return of travel, market share gains in our Wireless business, the expansion of our footprint into new areas while capturing a growing penetration rate in our Cable business, and the return of fans to the Rogers Centre together with meaningful growth in advertising revenues for our Media business. Our network outage just after quarter-end was a major disappointment to all of us at Rogers. Network quality and reliability have been a core foundation of our company, and this isolated, albeit significant outage, had a major impact on our customers. Changes are already underway to address not only the root cause of the outage but more importantly, to ensure we emerge from the incident with more strength and resiliency that is truly industry-leading. As I've stated publicly in recent days, we can and will do better, and I am committed to ensuring we make the necessary changes to earn back the trust and confidence of our customers and Canadians. Our improvements will include changes to our network architecture that will separate our wireless and wireline networks for better redundancy; better partitioning of our network to reduce the risk of a national spread of an outage; changes to our internal processes on how we plan, control, and execute network upgrades; and importantly, a fail-safe method of ensuring communications for emergency and essential services work all the time, irrespective of any carrier’s outage. In terms of the financial impact of the outage, the estimated cost of the customer credits we will issue in the third quarter will be about $150 million and will be reflected in those results. As well, the investments in our network will mean a reprioritization of projects within our consolidated capital envelope to ensure the needed network improvements get done as quickly as possible. I am confident we are doing the right things for our customers to rebound from the outage, and we will need to step up our efforts as we head into the busy back-to-school and fall season. Our Q2 results emphasize the strength of our assets, which delivered with better execution by our teams. In Wireless, our renewed focused efforts are producing results, and this has allowed us to capitalize on growing share during the increased market activity we are seeing in Canada. Service revenue and adjusted EBITDA both increased by 11% this quarter, driven by higher roaming revenue and a larger mobile phone subscriber base as the economy continued to grow. Underpinning this recovery were strong KPIs across the board in the areas of quality smartphone loading, churn performance, and ARPU growth. Postpaid mobile phone net adds were 122,000, up 62,000 from last year. Our efforts to drive better execution, specifically in phone loading, were also reflected in our prepaid net addition gains where we saw 55,000 net new subscribers compared to a loss of 28,000 one year ago. Our strong distribution network, excellent churn performance, growth in immigration, and overall better execution have driven these disproportionate share gains. Additionally, with more people returning to the office, we are seeing greater demand for our unlimited plans, which provide the extensive data buckets and speeds needed to support video and other business applications being used in a hybrid work model. In fact, data usage is up 40% per subscriber compared to the same period last year. Q1 postpaid mobile phone churn improved by 8 basis points to an impressive 0.68%. This reflected the best customer loyalty performance in the company's history. Our teams have worked hard to earn this loyalty by delivering the service and value our customers expect. Everyone at Rogers recognizes that to maintain this performance, we will have to work very hard to earn back the trust and confidence of our customers following our network outage, but we're committed to do so. Finally, the mobile phone ARPU was a solid $58.83, up 6% from one year ago. Clearly, we are seeing Canadians embrace the return of travel. And our roaming revenue in Q2 has recovered to 130% of the roaming revenue we saw in Q2 of 2019. Additionally, our loading on the Rogers popular unlimited plans is also contributing to better ARPU dynamics. In Cable, we delivered another quarter of sequential improvements in our growth. Revenue grew 3% this quarter, and adjusted EBITDA increased by 6%, reflecting a 100% flow-through rate of incremental revenue. Of particular note, adjusted EBITDA has benefited from the significant improvements in efficiency we have prioritized in 2022 relative to the prior year. This includes better management of expenses and delivering improved operating efficiencies. Beyond improving our financials, our team has been focused on loading growth in our Cable and Internet products, and their progress is reflected in our results. For example, retail Internet loading was 26,000, almost double from the same period last year. And importantly, the gains have been driven by loading on the Rogers brand. Additionally, we delivered the fourth consecutive quarter of positive video loading as well. I'm very proud of the team's improved execution in our Cable results. This improvement was needed as we fell behind our peers over the past couple of years, but their hard work is starting to pay off. These better results also put us in a good position for when we come together with Shaw once regulatory approval has been received. In the meantime, we know we have more work to do, and we'll continue to make additional investment in our selling channels, improvements in our call center performance, and providing a better digital experience for our customers. Finally, in Media, I'm very happy to report our team has returned the business back to profitability, a full quarter ahead of schedule. Revenue grew 21%, primarily as a result of the return of home games for our Toronto Blue Jays at the Rogers Centre as well as higher advertising revenue at our Sportsnet channels. Our media business experienced severe and extended impacts to its operations during the pandemic period, but we believe the worst is over and expect continued profitability in the second half of the year. Finally, let me touch on the Shaw transaction. We have extended the outside date for completion with Shaw to the end of this year. We believe that the Rogers, Shaw, and Quebecor agreement addresses the concerns raised by the Commissioner of Competition and Minister Champagne. We will continue to engage with the Competition Bureau and ISED to highlight the significant benefits the merger will bring to Canadians and obtain the outstanding approvals. While we do this, we continue to work through the competition tribunal process. Rogers, Shaw, and Quebecor are committed to seeing this transaction through to completion. The three companies have put together a competitive and commercially sustainable remedy that will create a strong Canadian fourth carrier with proven operations in multiple provinces that will reach over 80% of the Canadian population. Rogers, Shaw, and Quebecor look forward to securing the outstanding regulatory approvals to deliver significant benefits to Canadian consumers, businesses, and the economy. In summary, our Q2 results reflect the quality of our asset base built over our 60-year history as well as the dedication by the Rogers team to improve execution and restore our performance after a few very difficult years. We have reinvigorated our organization with an experienced hands-on executive team who have given their teams the leadership, clarity, and accountability to do their jobs well, and we are excited about the opportunities ahead. Let me now turn the call over to Glenn, who will provide a few more details on the quarter.

Thank you, Tony, and good morning, everyone. I'm glad to be with you this morning. Rogers' second quarter results reflect the benefit of a recovering economy through the second quarter together with the continued commitment by our teams to drive better and more consistent operating and financial performance across each of our businesses. In Wireless, service revenue was up 11% year-over-year. We are seeing the benefits from higher roaming revenue as global travel recovers, a larger postpaid and prepaid subscriber base, and an overall increase in market activity as Canadians return to being more mobile. This has included domestic activity such as return to office and school as well as the resumption of travel, increased immigration, and an increase in foreign students. Our second quarter KPIs also reflect the hard work and investments our teams have made over the past year in improving customer service levels and driving sales and operating performance. We delivered postpaid mobile phone net customer additions of 122,000 in the quarter, roughly doubling the 60,000 from one year ago. This was driven by strong base management strategies benefiting from very low postpaid mobile phone churn and by providing customers with value and flexible plan offerings, all against the backdrop of a growing and competitive marketplace. These drivers also contributed to growth in our prepaid mobile phone base where we added 55,000 prepaid subs compared to negative loading one year ago. Our postpaid mobile phone churn through the quarter was very strong at 0.68%, an 8 basis point improvement year-over-year. With continued increases in travel activity by Canadians, ARPU is also recovering and was up 6% for the quarter to $58.83. Given the pent-up demand by Canadians to resume traveling, Q2 roaming revenue is now at 130% of the second-quarter pre-pandemic levels of 2019. Additionally, further customer migration towards the Rogers Infinite unlimited plans has also contributed to improvements in ARPU. And finally, Wireless adjusted EBITDA was also up 11% year-over-year, driven by the flow-through of service revenue growth and the adjusted EBITDA service margin remained a strong 62% in the second quarter. In our Cable business, total Cable revenue was up 3% year-over-year and adjusted EBITDA was up 6% in the second quarter. Cable service revenue benefited from a modest price increase across our Internet base announced last fall, while Cable adjusted EBITDA increased by 6%, primarily as a result of improved cost efficiencies along with the higher service revenue. This gave rise to a Cable adjusted EBITDA margin of 50%, which is up 140 basis points from the prior year. On a product basis, our teams are executing on more effective sales and marketing strategies in our Cable and Internet business. We delivered 26,000 retail Internet net customer additions in the second quarter compared to 14,000 last year, as customers have responded well to a more energized sales effort and have embraced the value of our Ignite platform. In video, we added 21,000 net customer additions across both our legacy and Ignite products, which compares to 4,000 video losses one year ago. Total customer relationships also increased in the quarter to just over 2.6 million, up 2% year-over-year. Moving to our Media business, we have seen solid improvements in both revenue and profitability. Revenue grew 21% due to higher Toronto Blue Jays revenue, primarily as a result of the return of home games to the Rogers Centre as well as higher advertising revenue at Sportsnet. Importantly, our Media business also returned to profitability with adjusted EBITDA of $2 million compared to negative $75 million in the second quarter of last year. At a consolidated level, total revenue for the second quarter was up 8%, and total service revenue was up 10%. Adjusted EBITDA increased 16% and adjusted EBITDA margin increased by 280 basis points to 41%. Capital expenditures in the second quarter were $778 million or 8% higher than last year, with capital intensity of 20%, which was flat to last year. Free cash flow was $344 million, reflecting a 14% year-over-year improvement despite the higher CapEx spending. Cash income taxes paid decreased this quarter by $30 million or 17%, which is really just due to the timing of installment payments. Turning to the balance sheet, we exited the quarter with a debt leverage ratio of 3.2x. That's down from 3.4x at our 2021 year-end and reflects the solid adjusted EBITDA performance. Our total weighted average cost of borrowings at June 30, 2022, now stands at 4.26%, and our weighted average term to maturity is 12.3 years compared to 3.95% and 11.6 years, respectively, at December 31, 2021. As a reminder, these averages include the bond financing we put in place in March 2022 to fund the Shaw transaction as we seek regulatory approval. Overall, our better results and financial stability reflect a Rogers team that has positioned the company well to deliver more consistent results. In terms of our outlook, you saw in our press release this morning that we are confirming our 2022 full-year outlook that was provided with our March quarter. This includes the one-time impact of the estimated $150 million in 5-day service credits and related customer costs associated with the network outage, which will flow through both our Wireless and Cable businesses in the third quarter. For the third quarter, our Wireless and Cable financials will be impacted by the network outage and by the related one-time customer service credit, but we expect customer additions will normalize through the third and fourth quarters and we'll recover more in line with our first half trending in the fourth quarter. For Wireless, on a year-over-year basis, we anticipate third-quarter service revenue growth will remain positive, moderating in the low to mid-single-digit range as a result of the impacts of the service credits. Adjusted EBITDA will be flat to slightly lower than the prior year due to the flow-through impact of the service credits. In Cable, we anticipate approximately mid-single-digit decline in revenue and EBITDA for the third quarter, again, as a result of the impact and flow-through of the 5-day service credits. In our Media business, we anticipate revenue will grow year-over-year in the high single-digit range, and that adjusted EBITDA will remain positive and show continued strong improvement. And finally, on cash taxes, we expect our cash taxes will be approximately $190 million, up 8% from the third quarter of 2021. In closing, our Q2 results reflect how hard the company has worked to improve its operational and financial performance. We have work to do to gain back customer confidence from our July outage, but we have a strong balance sheet, a very committed team, and sound fundamentals to achieve this objective. Thank you. Let me now turn this back over to Ariel to commence with the Q&A.

Our first question comes from Vince Valentini of TD Securities.

Yes. Congrats on the strong second quarter. Two questions, if I could. One on roaming. The 130% is a bit surprising. I don't think we're anywhere near back to 100% of travel volumes for people, especially on the business side. Can you give us any sense of where the new global should be? A lot of people were expecting more roaming revenue growth in 2023, and I don't want you to leave the impression that that won't happen anymore. Is 150% or 170% of where you were in 2019 a better end point now given higher subscribers and rate changes? And the second question, just on the Q3 guidance and the full-year guidance. I appreciate the color. But can you confirm that the unchanged guidance for the full year factors in what you're seeing on the customer side as well? I mean the $150 million is clear in terms of credits. But I assume there has to be some kind of impact to churn and sub adds at least temporarily that you've already seen. So can you talk about what you've seen in the past couple of weeks in terms of subs and just confirm that despite those headwinds, you're still confident in the guidance?

Thank you, Vince. It's Glenn. Let me start with the roaming question and then I'll let Tony take the second question around customers. On roaming, we've seen a strong recovery underway in the consumer segment, still recovery to come in the business segment. Many of us are still looking to return to office, let alone return to business travel. And so more to come in that. But on the consumer side, we're seeing roaming traffic roughly three-quarters of where we were pre-pandemic. So we haven't seen a full recovery yet on volumes and that's flowing through to the levels you see at 130%.

Vince, with respect to the second part of your question on our outlook for Q3 and the full year. Since the outage of July 8, we did see an impact on our subscriber results, but we're encouraged by the patience our customers have shown, and we're seeing very good trending on a daily basis. And so as we look to the back half of the quarter, and keep in mind, in back-to-school and as we close out the quarter, we still have, commencing in about mid-August, 80% of the quarter’s activity ahead of us. And so based on the trending we are seeing, as I said, we are encouraged with the trending that's there and have confidence in our ability to maintain the full-year guidance.

Our next question comes from Maher Yaghi of Scotiabank.

Congratulations on the results. There is strong momentum observed here. Can you discuss the Wireless market? Beyond the increased consumer activity and a recovering economy, how do you view the market share gains you achieved in Q2 for postpaid compared to the overall market activity? As we move into the second half, are you noticing any initial effects from a declining or slowing economy? We've heard early results from the U.S., such as AT&T mentioning some softness on the consumer side related to delayed payments. Are you experiencing any similar issues in Canada?

Thanks for the question, Maher. In terms of Wireless growth, I'll start with what's driving the market. One of the biggest drivers is certainly the immigration students returning, and that's all helpful to the growth in the marketplace. On a year-over-year basis, we expect the market will probably be, if not at 5%, over 5% growth for Q2. In addition to that, we're seeing good increases in penetration rates. Second phones and third phones continue to come along nicely. And so that's contributing to the increased size of the market as well. Our execution in terms of share has really been about focus. We've always had a very strong distribution network. And as things continue to open up fully in the second quarter, we're pleased with the way those distribution channels behaved and performed. In terms of the slowing economy, we believe that in large part because of what we're seeing as continued immigration and students to Canada, we haven't seen the impact of a slowing economy yet. And again, are optimistic that it's probably going to be moderated because of those immigration levels, but we'll have to see how that plays out. We are not, to date, seeing any deterioration in performance on our receivables and customer accounts.

And if I can, maybe have a follow-up on the outside date change that you did for the Shaw transaction. You were doing smaller increments when it comes to changing the outside date. Any read through from this significant increase in the outside date change on how we should, as investors, interpret your view on the timing of closing the transaction?

You should think about our extension of the outside date to the end of the year, which is after the tribunal process, as really reflecting the commitment that we and Shaw have to getting this transaction done. And now with the sale of Freedom Mobile to Quebecor, the commitment that Quebecor has to getting this transaction done. And so amongst all three parties, we're committed to seeing this through and wanted to set a date that made it clear that we have that commitment.

Our next question comes from David Barden of Bank of America.

It's Matt filling in for Dave. Congratulations on the strong quarter. I wanted to follow up on the economy question. It's good to hear that consumers haven't been impacted yet. However, it appears that costs haven't been affected either. Could you comment on the inflationary pressures you might be experiencing? Additionally, could you specify how much of your costs are exposed to inflation and how much are secured against it? On a separate note, regarding the Shaw transaction, since the outside date aligns with the financing redemption date, are there any contingencies that investors should be aware of concerning potential minor delays past the current expected outside date?

Thank you, Matt. Regarding inflation, we are experiencing some pressure while working with vendors, and we've been managing both price pressures from supply issues due to COVID and delivery delays for a couple of years. Currently, we are not seeing any additional pressure; in fact, some of those pressures are starting to ease. We have been preparing for the Shaw acquisition and focusing on our performance and efficiency measures throughout the organization. This preparation aims to include a buffer for potential inflation pressures, which is helping us manage the situation effectively. We do not see significant pressure from vendors, which is reflected in the expanding margins in both Wireless and Cable. In Media, we're seeing a revenue recovery from the Blue Jays, and the increase in advertising from sports-related advertisers has also helped. Regarding your question about extending the outside date and the year-end timeline for the special mandatory redemption on bonds issued in March, we have several strategies available and ample time to manage this. We are confident that we can close the transaction and use those bonds for the acquisition before the year-end. If that does not prove feasible, we have other options such as seeking alternate funding through a bank group, trying to extend the SMR, or accessing capital markets. Our primary goal is to close the transaction within 2022, and we believe we can achieve that.

Our next question comes from Drew McReynolds of RBC.

Great to see the results here. That question was my question. So I'll move on here. Two from me. Just first, just in terms of what you're learning on the outage and certainly the government's kind of scrutiny of the outage, is there any change in kind of general network approach here in terms of how you architect or where you network share? Has there been any thinking there versus your previous position? And then second question, just on fixed wireless. Where is Rogers in terms of expanding that footprint? Is there still some expansion to go and, presumably, there is a percentage of your Internet loading that comes from that? If you're willing to quantify that, that would be great. But yes, just wondering where you are in that expansion trajectory.

Thank you for your questions, Drew. Regarding the outage and its impact on our network, there are four key points I want to emphasize, which I mentioned earlier. We are concentrating on two main areas: the resiliency and redundancy of our network, and the procedures in place within the telecom industry for emergency calls. Let me first address our network. There are three main considerations. Currently, similar to all carriers globally, we operate with a unified IP core gateway for both wireless and wireline services. This strategy was implemented some time ago to take advantage of efficiencies. The necessity for redundancy has become increasingly clear following the outage on July 8. Therefore, we plan to physically separate the wireless and wireline networks for core gateways to avoid a situation where an outage affects our entire system. We estimate that this will cost approximately $250 million over several years. The Shaw transaction will partially help reduce this cost and importantly expedite the timeline. As we move towards closing that deal, it will significantly enhance our redundancy efforts. The second focus is on greater partitioning of our network, so that if an outage occurs in a specific area, it does not affect our entire national network. We had safeguards in place to prevent this, but they were unsuccessful. We will quickly implement more localized ring-fencing of our network. The third area concerns our internal procedures for creating, reviewing, and executing codes. Our filing with the CRTC clearly outlined the cause of the outage, starting with a coding error that led to a hardware failure due to data overload. We cannot afford any coding failures, and we are making adjustments to enhance the accuracy and reliability of our coding processes to prevent such errors, with better procedures for identifying them in future reviews. Furthermore, we are collaborating as an industry under the Memorandum of Understanding requested by Minister Champagne. A key component of this is establishing a fail-safe measure for emergency calls. While we had previously worked on a solution, we found that although many 911 calls were rerouted successfully, many were not, which is unacceptable. We are determined to create a more robust method that guarantees emergency calls will always switch to an alternate network, and we are confident we will achieve this. We expect to finalize the MOU within the 60-day timeframe specified by the minister. Regarding your second question about fixed wireless access, we have recently made more aggressive strides in that area. We see significant market potential for fixed wireless access, although it is still early in our execution. As you look at our subscriber figures, fixed wireless access currently contributes only a small number, which is not yet material. However, this remains a growth opportunity for us, and there will be more updates to come.

Our next question comes from Sebastiano Petti of JPMorgan.

Just want to follow up on the inflation that you're seeing here on our end. I think you called out in the press release that the Bank of Canada has talked about a potential recession in the next 6 to 12 months. While you're not necessarily seeing the inflationary pressures now, I mean can you update us perhaps on some of the conversations you're having with your business partners or some of your customers on the enterprise and SMB side? What, if any, impact are you seeing there? Are they also benefiting from the improvements in just overall market activity, immigration flows, etc.?

We're observing some positive momentum in the first half of the year as we recover from COVID. The return to office is progressing at different rates across the country, and I expect to see it pick up after Labor Day. We're all aware of media discussions regarding the effects of gas prices on consumer spending and how that influences business wage pressures. This trend may continue into the second half of the year and possibly into 2023, as many companies are likely to implement increases at the beginning of the year rather than throughout. Therefore, we might see a gradual impact across different businesses. We're not noticing anything particularly significant beyond these general trends in our conversations with customers. Everyone is closely monitoring overall costs, including those related to capital markets, wage pressures, and input costs. We've been managing input cost pressures for the past two and a half years, and there are indications that these pressures may be easing slightly as we move further away from COVID.

It's worth adding that what we have seen past slowdowns is, for our industry, more of an impact on the enterprise business side. That is still a growth opportunity for us and we are very much under-penetrated in that segment of the market relative to our competitors. And so structurally, from an exposure standpoint, we stand much less exposed to that impact of an economic downturn.

And then in the press release, I think you called out just that you continue to pursue the divestiture of the deal and the definitive agreement documents are progressing. Obviously, a key area of focus as it pertains to the broader overall transaction and, obviously, you announced today that you're committed to the deal. Any kind of update on that? Obviously, it's something that's topical for investors as it pertains to the deal, any color on time.

Sebastiano, in terms of the deal, there's not a lot more to say other than what we have disclosed. We've extended the outside date. We continue to work with Quebecor on the definitive agreements. As you would expect, it's a large deal. It's close to $3 billion and contains quite a few complexities as we work through that. We're committed to that deal, and we believe our partner is as well. We'll work through the bureau process. The next process is the key step, I would say, is the tribunal. But as I've said in the opening remarks, we'll continue to engage with them and see if there's an opportunity to meet their requirements and concerns sooner, but we'll just continue on with the process.

Our next question comes from Simon Flannery of Morgan Stanley.

This is Diego filling in. You've noted that you expect customer trends to normalize as we get to the back half of the quarter. I'm just wondering what are you doing, some of the specific actions that you're taking to retain customers given the network outage. Is there a proactive customer outreach, other offers or actions that you're taking besides the service credits and/or the competitors being aggressive on this front? And then maybe you can touch on the differences you're seeing on Wireless versus Cable, that would be helpful.

Thanks for the questions, Diego. Let me start with a couple of things. The activity we have seen is calling in to our call center on the customer credits. As we have publicly disclosed, those are going to be automatically applied to bills in the third quarter and we've disclosed the estimated cost of that. In terms of subscriber activity, both in terms of gross adds and churn, as I mentioned earlier, we certainly saw an impact in the early days following July 8, but we're very much encouraged by the improvements we're seeing each sequential day on those metrics that really get at the customer sentiment over our entire customer base. And I would say we're seeing it equally in terms of Cable and Wireless, both continue to improve well in that. In terms of what we're seeing in the marketplace in terms of offers, as we enter into the back-to-school period, what we are seeing is the usual pickup in competitive intensity that's not dissimilar to prior years. So we haven't seen anything that is noteworthy in terms of market dynamics other than what you would expect to see.

That's helpful. And then I had a separate question. We just heard Xplornet announced that Xplornet Mobile that they'll be shutting down their wireless service, noting how slow the MVNO regulatory framework has moved. Can you just provide what's the latest you've heard from regulators on that front? Obviously, you have your own agreement with Quebecor and them. But can you just touch on how that policy is moving along? And any opportunities that you see there?

The MVNO framework in Canada, which was recently introduced by the government, is now established and understood. However, the specifics on how Quebecor plans to take advantage of this regime is really a matter for them to explain. Based on their public statements, it appears they aim to be a formidable competitor in the wireless sector, particularly through their acquisition of Freedom, which provides coverage in at least four provinces and serves nearly 90% of the population. Thus, the competitive landscape in wireless will change following the completion of the Shaw transaction. We've thrived on competition over our 60-year history, and we welcome competition. Today, as we look to each of our markets, we have at least four Wireless competitors in each of those markets. In addition, on the Cable front, there's a wholesale regime that's referred to as TPIA, and we compete with resellers in the Cable markets, and there's competitive intensity there as well. We have operated with that competition over many years, and our performance in Q2 reflected that competitive environment. With the purchase of assets, we fully expect Quebecor to be fully engaged, and that's why we think they would be a terrific buyer of those assets. They get up every day thinking about Cable and Wireless. So are well suited to be the owners of those assets and continue to ensure the competitive intensity across all of the markets in Canada. In terms of what our value proposition will be, it won't change. We will focus in Wireless on our network, and we've talked about the things we will do there, combined with customer service. And then added to that, the strength of our distribution channels. Those are the fundamentals, and there are other items. But for brevity, those would be the three main ones. In our Cable business, it's going to revolve around product superiority. We have the Ignite platform that we, post Shaw, will launch nationally and that includes not only a terrific video platform but smart home monitoring that's about to be improved as well. And importantly, a very competitive and leading Internet product. You would have seen earlier in the quarter, we announced trials where we have symmetrical 8 gigabits of speed up and down in our network. We introduced a new product where we have already in market 2.5 gigs of speed symmetrical on an all-fiber network, and you'll continue to see more of that. It will be product superiority combined with continued improvements we have made and will continue to make with respect to our service, faster service, and more reliability on service. Those are the kind of things we're focused on there. I think the fundamentals aren't going to change, and we think those will be the right formula to continue to compete.

Our next question comes from Aravinda Galappatthige of Canaccord Genuity.

I wanted to revisit the impact of the outage on subscriber additions. I appreciate the comments made so far, but could you break down how the effects differ between gross additions and churn, as well as between wireless and wireline services? Additionally, I have a separate question regarding your network and 5G initiatives. Earlier this year, you mentioned being the first to establish a standalone commercial 5G network. What milestones are you aiming for in that area over the next 12 months?

Thank you, Aravinda, for the question. I'll start with the second part of it in terms of the 5G initiative. A few quarters ago, we talked about the heightened investment we would do in network and putting aside the investments we're going to put into the outage, we continue to aggressively expand on our 5G initiative. The key milestones what you recently saw was the deployment of the 3,500 spectrum as soon as it became available. We're looking forward to the 3,800 MHz spectrum auction so that we can quickly deploy that on a national basis. You should expect to see further penetration of that spectrum, which we would call midrange, mid-band spectrum of 3,500 more nationally. We did quite well in the last spectrum auction, and we're working aggressively to deploy that. You should look to a rate of deployment on that. Secondarily, the densification of our network, both in terms of macro and small cells. Over time, you'll continue to see a ramping up of the pacing of that densification.

Aravinda, on your question around the impact of the outage on gross adds, I'm not going to be able to give you maybe the granularity that you're asking on or looking for. What I would tell you is we have made sure that we've invested in our call center staff so that we have folks on hand to take the calls. We have seen those call volumes settle off some as we've moved through the ensuing weeks as we've dealt with the rush of calls in the early days, and also, frankly, as we've announced the 5-day service credit and the automatic nature of that has settled off some of the call volumes we saw in the very early days following the outage. In terms of day-to-day activity, we are finding that in stores and for our reps that they are seeing some wins as well as we obviously had seen some churn, again, more pronounced in the early days. We have seen that settle off some and are anticipating as we move through July and move in towards some of the campaigns around back-to-school that that will help move past the traffic that we saw in the earlier days and the churn that we saw in the earlier days. There are a couple of different things going on that we anticipate will help temper that. We've been quick to respond with customers on the 5-day service credit and on retention for our customers as they call in that is helping.

Ariel, we have time for two more questions.

Our next question comes from Stephanie Price of CIBC.

The first one on the cable side, margins were up 140 basis points year-over-year. I was hoping you could talk about the efficiencies that you're putting in place and how much of these efficiencies are Shaw related in the expectation of the close of the transaction. And then for my second question, post the outage, Rogers has talked about spending $10 billion over 3 years to build and strengthen the network. Hope you can comment on what that encompasses and how much of that's expected to be incremental?

Sure. Thank you, Stephanie. On the increase in the gross margins, it really is mixed. We still have some significant work to come and progress to come on driving some of the synergies that we've identified. But you're right in asking we have started that work in earnest identifying some of the cost areas, whether it's on content, on people costs, or just general administrative costs through all of our business units, but particularly within our Cable unit, as that's the one that is going to be most affected with the Shaw acquisition. Ribeiro coming in as a new head of the business unit has come in with an eye to driving a strong sales culture as well as a strong performance culture. You see that across the entire ELT. Some of these efforts would have been in place regardless of having the Shaw transaction. However, the Shaw transaction will certainly transform our Connected Home business by bringing it national, and some of these efficiencies are to drive better margins. Some of the efforts underway are to create some headroom or identify those opportunities for creating headroom for bringing in leadership and employees from the Shaw base. On the content side, that is another one of our large categories. Some of those efforts would have been underway regardless of Shaw, however, it's no secret as to the size that we will have once we come together with Shaw in terms of subscribers, and certainly, that will factor in for driving additional synergies going forward as we work with programmers and acquiring content. On the capital expenditures, the $10 billion estimate that we've made or forecast we've made for the improvements in our spend, that's a large envelope that every year we prioritize what we're going to work on. Job number one, really, is to ensure that we have resilience and redundancy across our networks. The outage has identified that we have some more work there to do around processes and investment, and we have already started looking at and implementing some of those changes. That $10 billion number is ample envelope with which we can direct our investing. Our networks are very strong, very well built, well-designed networks. It's not that they are in need of a wholesale change, they're not. They are leading-edge technology on the Wireless side. We have the largest individual portfolio of spectrum. We will continue to invest in spectrum. We will continue to invest in large and small cell sites. On the wireline side, we continue to expand our footprint with fiber. It's more determining our processes and the separation of our networks just to help build on the resilience. That will be within that $10 billion envelope. The $250 million to separate our wireless and wireline, again, we will find priorities around that to find the capital for it.

Ariel, last question, please.

Our final question comes from David McFadgen of Cormark Securities.

Great. So a couple of questions. When I look at the Wireless ARPU growth, 6%, obviously, quite strong. And you've called out roaming as the primary factor, but I was wondering if you could give us a breakdown between how much of that 6% is roaming and how much is just from people moving up to higher price data buckets or just increased sub growth? Because obviously, we're seeing a big resurgence in travel, and that's positively impacting roaming revenue. But sooner or later, we're going to get into an environment where the roaming revenue growth settles down. So I'm just wondering what the ARPU growth might look like then. And then the second question would be on the $150 million customer credits. How much of that will be flowing through Wireless and how much will flow through Cable because when I look at your results for the first half in Cable, obviously, quite strong. So I was just wondering, assuming or excluding the impact from the outage, would it be reasonable to think that Cable EBITDA growth could continue in the 5% range for the balance of the year.

Thank you, David, for the questions. The breakdown of the ARPU growth is roughly half and half across the roaming revenue impact and then broadly across customer impacts, whether it's trading up in plans, we also, as you saw in the quarter, we have added significantly to our customer base. Obviously, that provides revenue growth as well. It's subscriber growth, it's moving more of those subscribers to our premium plans to our Rogers brand. Travel is roughly half of the overall increase in ARPU. On the $150 million service credits, if you roughly use the proportion of revenues, that would give you a pretty good approximation as to how they will impact our Cable and Wireless business.

Okay. And then just lastly, I just wanted to reconfirm some comments made earlier on this call. So is it going to take a couple of years before you actually affect the separation of the wireless and wireline networks or can it be accomplished sooner than that?

David, we expect that would be in the 12- to 36-month time frame. As I said, the completion of the Shaw transaction would cut that time approximately in half. That will be an added benefit as we look to improve redundancy.

Great. Thanks, David, and thank you, everyone, for joining us. If you have any follow-up, please give us a call.

Thank you all.

Thanks.

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