Rogers Communications Inc Q1 FY2023 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications First Quarter 2023 Results Conference Call. As a reminder, all participants are in listen-only mode and 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, 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 2022 annual report regarding the various factors, assumptions and risks that could cause our actual results to differ. As a reminder, we are holding our Annual General Meeting this morning, so we will be concluding this call just before 9:00 a.m. With that, let me turn it over to Tony to begin.

Thank you, Paul, and good morning, everyone. As you can see from our Q1 results, Rogers delivered another strong quarter with continued improvements across all our businesses, particularly highlighted by our national leadership in wireless customer growth. Since instituting changes to our management team five quarters ago, our performance has been strong as we gain traction on our growth agenda. We are achieving this through better execution and building upon our reinvigorated corporate culture of doing what we say we will do. Our Q1 results represent an important milestone for the Rogers team. These results represent the last standalone quarter for Rogers before integrating Shaw's business. As we move forward with the integration of these two iconic companies, the Rogers business is executing better today than when this transaction was announced over 2 years ago. Thus, we are ready and excited to move forward. It's been just over 3 weeks since we closed the transaction, and we remain very confident in our ability to deliver on our synergy opportunities, implement increasing capital investments in our networks, pursue new wireless and wireline growth opportunities, and drive more competition and choice for customers, particularly in the West. Let me provide a few highlights on the quarter as well as some early thoughts on our integration progress with Shaw before turning the call over to Glenn for more detail on Q1. Rogers Q1 financial and operating results were strong. Total service revenue grew by 4%, and adjusted EBITDA grew a solid 7%. Despite the highly competitive nature of Canada's growing telecom market, we’ve learned to become more targeted, disciplined, and efficient in operating the company. And this will serve us well as we integrate our business with Shaw. In Wireless, we continue to lead the industry in postpaid mobile phone growth as more customers choose Rogers. Postpaid mobile phone net additions were 95,000 in the first quarter, up 44% from last year. We are winning new customers based on the value and diversity of our wireless plans and expanding market led by immigration growth where Rogers has always done well, a strong distribution network, better execution, and our excellent unlimited plans operating on our robust 5G network. Importantly, with a healthy operation, financials were also strong. Wireless service revenue and adjusted EBITDA increased 7% and 9%, respectively, and postpaid mobile churn came in a healthy 0.79%. In Cable, our focus on better execution is starting to produce results. Despite an aggressive promotional Internet market, we are beginning to take back share with an 8% increase in Internet loading year-over-year. There is more to do on this front to return our top line revenue back to growth from the decline we reported this quarter. But nonetheless, with our efficiency work underway, we delivered positive adjusted EBITDA growth of 1%. I am confident that the changes we are making in the fundamentals of this business will serve us and our customers well in coming quarters and years as we come together with Shaw. In Media, we delivered 5% revenue growth and saw a $28 million improvement in year-over-year adjusted EBITDA. Impressively, in a difficult media market, the performance of our media and sports assets continues to shine in the industry, and we are particularly excited about the prospects of the Toronto Blue Jays and our new game viewing experiences for fans at the recently renovated Rogers Center. Finally, in Q1, we continued with our commitment to investing for growth. Capital spending for the quarter was a record $892 million with network specific investments up over 40% from last year. Our country is growing at unprecedented rates, and we are bullish on investing in Canada and bullish on investing more in the West. This is reflected in the guidance we provided following approval of the deal where we increased capital spending by more than 20% year-over-year for the combined company. With Rogers and Shaw now together, we will deploy more capital faster to build better networks that span even greater reach. Our Wireline network now covers 70% of households in Canada, and this builds on our leadership in wireless connectivity, where Rogers already owns and operates the only national coast-to-coast 5G wireless network. You should expect to see us continue with our strategy of key network investments, including some true industry firsts as we go forward. These significant investments in the West and in other markets in Canada are a central component of our growth strategy, which also has the added benefit of creating jobs. Whether these jobs come from network building, adding customer service personnel, or creating significant benefits for the hospitality industry by building a winning Toronto Blue Jays team in a renovated stadium, Rogers' growth plans revolve around making key investments in our communities. An example of this is our acquisition of BAI Canada that will accelerate the building of a robust 911 service and provide full 5G connectivity throughout Toronto's entire subway system. While this investment will increase safety for our communities and benefit millions of individuals that ride the TTC every week, we have no doubt that businesses, service industries, and entrepreneurs will find additional ways to leverage 5G technologies to benefit TTC riders and the economy as a whole. Turning to our coming together with Shaw. We are excited that the two organizations are finally together and that we can get on with the important business of serving Canadians. There's lots of work to do, but I am very encouraged by the energy and excitement that I have seen in both the East and West as we bring these two strong companies together. Over the past 3 weeks, I've spent most of my time in the West, meeting with our teams, customers, community builders, and local governments. I'm extremely grateful for the encouragement and reception we have received from the stakeholders, particularly with our shared view of what a new long-term oriented and stronger competitor will do for investment and competition going forward. Already, while only 4 weeks in since we closed the transaction, our integration work is well underway. One of my top priorities following the close of the transaction was to finalize my executive leadership team, and you saw the changes we announced last week. We have added Shaw leadership directly to my organization and added new experienced individuals to an already strong executive leadership team. These leaders and their energized teams will play a critical role in our growth agenda. Our teams have also already started the work associated with integrating day-to-day operations. This includes everything from frontline training, customer migrations to Rogers wireless, and rolling out email connectivity and collaboration tools to focusing on more extensive business development initiatives associated with branding plans, storefront initiatives, new bundling strategies, and network upgrades. For example, progress on customer service integration includes our announcement earlier this month that we would be repatriating hundreds of Shaw jobs back to Canada. This aligns with Rogers' commitment to have a 100% Canada-based customer service team, the only national carrier with its entire customer service team based here at home. Over the coming quarters, we will continue to provide updates on our progress, including how we are delivering on our $1 billion in operating synergies over the next 24 months, which have yet to be reflected in our financial performance. We are confident in the future of the Rogers organization. When I stepped into the CEO role a little over a year ago, our goal was to return to growth and consistently deliver disciplined execution. We are now achieving this, and I am incredibly proud and excited about the execution and commitment of our expanded and energized national team, the new opportunities ahead, and the accomplishments we will achieve together. With that, let me turn the call over to Glenn, who will provide more details on Q1.

Tony, and good morning, everyone, and thank you for joining us this morning. Before I begin, let me remind everyone that our Q1 results being discussed today cover the first quarter ending March 31, 2023. And a reminder that this morning's release reflects Rogers standalone results only. The Shaw transaction did not close until April 30. Rogers' first quarter results reflect continued strong execution with Rogers leading the Canadian telecom sector for the fifth consecutive quarter, particularly on wireless share and earnings growth. In Wireless, our first quarter service revenue was up a very healthy 7%. This increase was primarily driven by higher roaming revenue and a larger growing mobile phone subscriber base, reflecting our market-leading wireless subscriber growth seen throughout 2022 and now continuing into 2023. We added 95,000 postpaid net additions in the first quarter reflecting a 44% increase from 1 year ago. This was driven by improved customer service, continued strong execution, and growth in our unlimited plans each contributing to continued leading market share of a growing population in Canada. And in what has been a very robust and competitive wireless market, our postpaid mobile phone churn performance remained healthy, coming in at 0.79% for the quarter. Wireless ARPU for the quarter was $57.26, unchanged from 1 year ago. Overall consumer and business roaming volume remained slightly lower than pre-pandemic levels and are currently at approximately 85% for the similar period in 2019. As an aside, I'd like to highlight that in the first quarter of this year, Rogers did not follow on with a 14% increase in roaming charges that our two national peers launched. But instead, Rogers offered customers one free day of roaming for all customers traveling during the busy March break period. As consumer and business travel continues to recover and grow, we are well-positioned to take a continued leading share of roaming volumes. Wireless adjusted EBITDA was up a solid 9% reflecting excellent flow-through from our service revenue growth, and adjusted EBITDA service margin came in at 64.2%, an increase of 120 basis points from last year. Moving to our Internet and Cable business, total revenue was down 2% from 1 year ago, primarily due to continued competitive promotional activity from our primary wireline competitor. However, our ongoing emphasis on managing costs and improving operating efficiency more than offset the revenue decline, driving Wireline earnings growth with adjusted EBITDA margin coming in at 54.8% or a 160 basis point improvement from 1 year ago. We are well-positioned as we come together with Shaw from the start of the second quarter. We continue to try and strike an appropriate balance between loading and maintaining financial performance in our Internet and Cable business as we consider matching promotional offers where appropriate. That said, the team delivered stronger loading results in Q1 with retail Internet net customer additions of 14,000, up 8% from 1 year ago. In our Media business, we are starting the year with mid-single-digit revenue growth and improving adjusted EBITDA. Revenue was up 5%, driven by higher advertising revenue across all divisions and higher Toronto Blue Jays revenue from 11 additional spring training games being played. You'll recall, preseason play was interrupted by a lockout this time last year. We are particularly excited about the Blue Jays' new season in our newly renovated Rogers Center. Adjusted EBITDA improved by $28 million to a loss of $38 million. The seasonal Q1 loss reflects the higher programming costs and seasonally lower revenues that occur in the first quarter. However, our first quarter results reflect a notable improvement from the prior year loss of $66 million. At a consolidated level, Q1 service revenue grew by 4% and adjusted EBITDA grew by 7%. Capital expenditures were $892 million in the quarter, and free cash flow, excluding the Shaw financing costs, was $363 million. Each of these KPI measures reflect continued strong execution and sector-leading performance. We are growing revenue earnings and customers while reinvesting to expand services and drive further growth. Turning to the balance sheet. At March 31, we had $3.3 billion of available liquidity, including $553 million of cash and cash equivalents on hand. Our weighted average cost of all borrowings was 4.56% at March 31, and our weighted average term to maturity was 11.2 years. These figures reflect the 5-year interest rate term on our $3 billion of subordinated hybrid notes rather than the 60-year principal maturity. Our debt leverage ratio at quarter end, our final quarter in which we adjust to exclude the Shaw financing, was 3.2x, up marginally from 3.1x at December 31, 2022. Our balance sheet at March 31 also included $12.8 billion in restricted cash and cash equivalents that were fully used in early April to fund the cash consideration of the Shaw transaction. We will provide more color on our consolidated balance sheet with Shaw when we report our Q2 results in July. However, and consistent with our previous expectations and discussions Rogers leverage following the closing of the transaction comes in at approximately 5.3x on a combined 12 months trailing EBITDA basis based on our Q1 results. The credit rating agencies have all issued their updated credit ratings, reflecting the Shaw transaction. Of substantive importance, we have maintained an investment-grade rating on our senior bonds from each of the four credit rating agencies. In terms of our outlook, earlier in April, we updated our guidance for 2023 following the close of the Shaw transaction. With our post-close guidance, we anticipate total service revenue growth in the range of 26% to 30% and adjusted EBITDA growth in the range of 31% to 35%. These growth metrics are industry-leading versus our national peers for 2023. Our anticipated 2023 capital expenditures will be in the $3.7 billion to $3.9 billion range, and we anticipate free cash flow to grow between $2.0 billion and $2.2 billion for the year. This guidance is strong and reflects the confidence we have in our outlook for 2023 and beyond. In summary, we are very pleased with our Q1 results and the opportunities we have to drive growth going forward. We are in a strong operational and financial position as our integration with Shaw begins. We are thrilled and excited to bring these two iconic Canadian family companies together to drive growth and provide more choice and competition to the Canadian telecom landscape. Canada's telecom service sector is strong and competitive, with global leading networks. Now, more than at any other time, Rogers is well-positioned to continue to lead. Ted captured it well years ago. The best is yet to come. Thank you for your interest and attention this morning. And with that, Ariel, can you please commence with the Q&A.

Our first question comes from Vince Valentini of TD Cowen. Please go ahead.

Thank you very much. Congratulations on a strong quarter. I have one clarification and one question. Regarding the Shaw subscriber numbers mentioned in the release, it seems you are rounding to very general figures, but the rounding for Internet subscriptions appears to be significantly lower. They last reported 2.0996 million Internet subscribers at the end of November, and you're now stating it rounds to 2 million. Is this simply loose rounding, or have you reclassified some of their business Internet subscribers? That's my clarification. For my second question about Wireless, your numbers are impressive. This tends to open up your competitors to criticize the quality of the service. Perhaps you could address this upfront by explaining how you're achieving such strong subscriber additions. Are tablets included in these numbers? Are any home wireless Internet or home wireless phone customers counted as wireless subscribers, or is this really indicative of your strong performance?

Vince, I will start with the second part of the question, and then Glenn will come back to your question on the Shaw subs. In terms of wireless performance, just to state it plainly, it is what it is. They are postpaid and prepaid wireless phone subscribers. There aren't tablets in it. We disclosed that separately. In terms of the quality of loads, I'm pleased to tell you that when you look at the split between Rogers and Fido, the vast majority of those customer net adds are on the Rogers brand, and we are extremely proud of the migration that we've seen over the last 1.5 years from Fido centric loading to what we now see as on the Rogers brand. And so that's coming in nicely. In terms of the fundamentals that underpin it, it really goes back to the fundamentals that we've always talked about having the best network, strong distribution, and good and improving customer service to make sure that the customers' issues are resolved. And you see that in the churn numbers coming in better and better each quarter.

And then, Vince, your question on the Shaw numbers, there's no restatement. You'll see the Shaw filing for its final quarter ending February 28 coming up in the next few days. And so there will be more detail around Shaw's performance through that quarter. But I'll just reiterate, there's no restatement or undue rounding or noise going on with those numbers.

So Glenn, to be clear that, if you're rounding down to 2.0, they must be below 2.05 on an actual basis?

You're in the hundreds of thousands of rounding. I would say just succinctly, Vince, I've been very pleased with the quality to which they have held on to their customers. There are some differences in accounting for TPIA wholesale subs and the Freedom subs. And so that granularity will come out as we report in the quarter. But thematically, when we bought Shaw 2 years ago, I'm very pleased with the extent to which they have held on to both the EBITDA. In fact, I've got about $150 million more EBITDA today than I anticipated 2 years ago with the Shaw Mobile piece. And with the degree to which they've held on to customers through 2 years of difficult competition as we waited for regulatory approval. So there's no undue noise there. There was some adjustment for the TPIA wholesale, but it's small.

That's what I was looking for. Thank you, Glenn.

Yes.

Our next question comes from Maher Yaghi of Scotiabank. Please go ahead.

Thank you for taking my question. Good morning, everyone. I noticed that your press release following the Shaw transaction did not include the synergy number. Tony, you mentioned this morning that you reaffirmed your $1 billion cost synergies. Could you clarify the timeline for realizing those synergies and how much of them will contribute to free cash flow, including the split between operating expenses and capital expenditures? My second question is about Wireless. As Vince noted, you had very strong subscriber growth this quarter, aided by immigration, but it seems you are capturing a greater market share than your competitors. However, you mentioned in your press release the potential for a recession in Canada later this year. AT&T and Verizon in the U.S. have reported a slowdown in business wireless. Are you observing similar trends in Canada? Can you provide insight into your exposure to the business segment within wireless? Thank you.

Thanks, Maher. I will start with the second part and then lead into the $1 billion of synergies and Glenn will pick up on some of the details. In terms of the wireless loading that we are seeing, we continue as not only we come out of the first quarter, but into the second quarter. Our sense is the size and pace of the market continues to be strong. And it's based on the factors that you described, which includes predominantly the immigration to Canada, foreign students, foreign workers to Canada, as well as the under-penetration that generally we have in Canada and wireless relative to some other countries, particularly in the U.S. And so all of those bode well moving forward in terms of fundamentals. We have not seen any indication of recessionary pressures. How this plays out in the back half of the year, we will see relative to those factors that I just described. In terms of the $1 billion of synergies, we've been fairly clear and consistent on this. We aren't counting the efficiencies we've already executed on over the last year. The $1 billion of synergies are forward-looking. They're not in the results. We are committed to that number and we've said we would execute on that and deliver it in the next 24 months. So that's the plan, to be clear.

And just to add on to that, you will see starting to report on that when we file our second quarter report. We will include some granularity around the degree to which we’ve achieved through the second quarter and then that will be ongoing in the subsequent quarters. We will make sure that you don't have to look too hard to see how we are executing on those synergies there.

That’s great. Thank you everybody.

Thanks, Maher. Next question, Ariel.

Our next question comes from Sebastiano Petti of JPMorgan. Please go ahead.

Hi. Thank you for taking my question. I want to turn to the Cable results. Tony, you've clearly indicated that you are expecting better execution this year. Some of that was evident in the first quarter regarding key performance indicators, particularly in subscriber numbers. Could you provide an overview of the strategy aimed at enhancing the Cable trends? When can we expect to see some of these improvements reflected in the legacy shopper, especially in relation to integration efforts?

Sure, Sebastiano. Let me provide a little bit of color on this and maybe in doing that would be helpful to just clarify the facts of our Cable business. So a couple of things as we look at the performance of that. We are not satisfied with the decline in revenue. And so we are focused on turning that around. And every one of our businesses needs and will be a growth business within Cable, that really comes from regaining market share. Notwithstanding that, if we do look at how it's performed from a subscriber basis over the last year. So notwithstanding the changes we've been making, including migrating from a heavy Fido Internet discount to the Rogers premium as well as operational fundamental foundational issues that we've been fixing. Our Cable homes past grew by just over 100,000. If we were to look at Internet growth in subscriber it's 53,000. A little over half in terms of share performance, which is good, but we think we can do better because we ultimately have a better product to bring to market. And when you combine that with our improving service, we think we have the formula to continue to gain traction. You saw that to start to come through in the first quarter, and you'll see a continuation of that throughout the year. On the product side, we have the best Internet. If you look at some of the recent third-party analytics that came out in the last month or two, we have the best Internet in the East, and we have the best Internet in the West with the Shaw Network. We will continue to execute on that structural advantage. We continue to offer speeds across our entire footprint of at least 1.5 gigs and in some parts, at 2.5 gigs. And that continues to climb, and so that's well ahead of the market demand that continues to sit at about 300 megs. We are very confident in our ability to execute on that advantage. As we said before, we continue aggressively on the DOCSIS 4.0 roadmap for places where we don't otherwise have fiber to the home, which is not insignificant. In those cases, we are moving to passive optical and have moved to passive optical, so you see 8 gigs symmetrically on those. DOCSIS 4.0 is part of the 10G roadmap. We are already in practical trials. We have the equipment we've been going through. We have 8 gigs of download speeds and 6 gigs of upload speed. That's coming in nicely as we work with our cable peers south of the border. We are moving alongside them in terms of pacing on that and that's something you'll start to see in market into next year, but again, well ahead of where market demand exists today. We are comfortable with that product. And then when you combine it with the Comcast Xfinity UI for video, which we branded Rogers Ignite, you can expect us to deploy that brand nationally as well. That's coming in nicely and dovetails well with the shift we are seeing in the industry from linear to OTT alternatives. It's the perfect product to capitalize on that market trend.

If I could quickly follow up, you mentioned DOCSIS 4.0 and the potential for brownfield network expansion in the West. I'm not asking for any specific guidance or an increase in CapEx for 2023, but should we anticipate a significant increase in the implied pro forma run rate for 2023? In other words, will there be an increase or spike in CapEx as we look at the port upgrades and network expansion efforts? Thank you.

Sebastiano, I think about it this way. I'll start and then Glenn has a few comments on this one. But think about it as us focusing on the quality of the network and always continuing to upgrade that. And there, there is nothing unusual. I think our CapEx efficiency on that is solid. But what you do see and what you will see and what we are excited about is the opportunity to expand our network, particularly as you said, in some of those recent developments out west that haven't been fully serviced with the Shaw network. We intend to aggressively go back and fill those in. To the extent you see heightened CapEx on that, what you should see fast follow and what you will see is a commensurate increase in homes past. If we do our job right, which we expect to, then you should see a commensurate increase in subscriber penetration on that. We are going to be very transparent as we work through that in each of the quarters.

But just succinctly, Sebastiano, there's not a large bubble that's to come through, there's not a large expansion. This will be done in the context of similar levels of investment that you see in our guidance, factoring in the fact that we've got 9 months of results for the Shaw acquisition rolling through in 2023. Not going to get into '24 guidance today, but don't expect that you will see a substantially different theme in 2024 and beyond. It will be within our capital expenditure that you'd expect. We've got ample room in that envelope to invest in these networks.

Thanks again.

Great. Thanks for that, Sebastiano. Next question, Ariel.

Our next question comes from Drew McReynolds of RBC. Please go ahead.

Yes. Thanks very much. Good morning, and my question was just answered, but two additional ones for me. First, very impressed by the Cable EBITDA margin in Q1, particularly given what you were comped against last year. I think Cable OpEx was down 5%. Just can you just kind of unpack what's driving that year-over-year decline in Cable OpEx? And then on the Wireless ARPU side, I don't think any surprise to Q1 ARPU growth and all the dynamics around it. What's your best guess in terms of how ARPU growth trends for the remainder of the year and maybe talk to a few puts and takes around that outlook. Thank you.

Thank you, Drew. Regarding Cable operating expenses, our approach has been consistent with what we discussed last year. We have concentrated on streamlining our expenses, especially in the Cable sector. A year later, we have successfully maintained those improvements and made further progress. We have reduced some costs related to management roles and redirected those funds towards enhancing customer service. This shift involves additional resources and costs to increase staffing in customer service centers, which ultimately improves the customer experience. In summary, we have managed to sustain the gains we achieved in the first quarter of 2022 and have built upon them throughout 2023. This has been a continuous effort across all business units, with an emphasis on enhancing customer service in both Wireless and Wireline. Regarding ARPU, we continue to see the trends that emerged in 2022, especially in roaming traffic, where we are now at about 85% of pre-COVID roaming volume from 2019. The consumer market is fully recovering, while the business sector is progressing, still slightly below 2019 but improving quickly in terms of revenue. Our roaming volume is now about 1.5 times what it was in 2019, which is reflected in our ARPU. We expect these trends to continue, but we might be reaching a plateau in the coming quarters. Nonetheless, there is still potential for growth as we transition more customers to unlimited plans and increase tiering through that.

Yes, thank you very much.

Thank you, Drew.

Thanks, Drew. Next question, Ariel.

Our next question comes from Dave Barden of Bank of America. Please go ahead.

Hey, guys. Thanks so much for taking the questions. I guess, two, if I could. The first, maybe going back to the questions on Cable, Rogers, I think over the course of this pending merger review was pretty conservative if completely conservative on pricing. I was wondering if you could kind of talk about your thoughts on how you're going to, a, potentially move pricing up to reflect higher content costs on Cable, maybe some of the value accretion on broadband and how you align those things with Shaw and when all that might happen is it a 2023 event? Or does it kind of reset in 2024? And then the second question, obviously, one of the big concerns around the merger was what did Rogers have to give to Quebecor in order to get the government's blessing to let this deal happen? And is that give going to change the nature of the competitive balance of power in the industry on a go-forward basis? I think people are kind of sitting around wondering what that's going to look like and waiting to see what happens on that front. And no one would know better than you what could conceivably happen there based on your being at the table. So any kind of color/comfort that you might want to share with the market on that front would be super helpful. Thank you, guys.

Thanks, Dave. Let me touch on both of them. On the second part of your question, in selling the Freedom business to Quebecor. We work through what I would call transitional commercial terms. And that includes TPIA rates as well as roaming rates. Those commercial terms are not much different than agreements we have otherwise. The key principle in doing the Shaw transaction is to make sure we do not extract value from our wireless franchise. We've been very clear on that. We're confident in the deal we put together is not going to do that. We are going to compete, and we fully expect that Quebecor, in purchasing the Freedom asset, intends to vigorously compete, and we are prepared for that. That's what we're going to do. To put a very clear cap on this, there is no advantage in those commercial agreements that are structural advantages for Quebecor. So that's, I think, an important point to make clear because the question keeps coming up. The second part relates to the ability to grow Cable revenues. I would say it's slightly different. We are focused on growing Cable ARPA in the home. As we look together with the bundled Internet and Video, as well as smart home monitoring, it's the total revenue and margin that we are looking at, specifically on video. Our sense of what's playing out there is that there are things audiences want to watch and are willing to pay for; sports is a great example of that and some of the other stuff they're not. Rising content costs mean that some things that are in demand command a premium while others do not. We are managing our content costs in a much more tactical way. It means the way we present the value proposition to the customer will start to migrate. Cable packaging has been putting together a whole selection of linear channels and on-demand content that some are in big demand and some not. That idea of offering everything for one price probably needs some migration to more pricing packages that are based on the way consumers actually want to consume the content. When you throw in channels that aren't being watched, that's not an effective use of that spend all the time. So you should expect to see from us nationally something that's more effective vis-à-vis consumer demand. When you combine this simplicity and ease with best-in-class Internet, that's the formula. Smart home monitoring will be the add-on for that also on the Comcast platform. I hope that helps, Dave.

Yes, thanks, Tony. Appreciate it guys.

Okay. Thanks, Dave. Next question, Ariel.

Our next question comes from Stephanie Price of CIBC. Please go ahead.

Good morning. In your prepared remarks, you mentioned that initially, your expectation was that you wouldn't retain Shaw Mobile. Just curious how you're thinking about that business and whether you're planning on transitioning the Shaw Mobile customers to Rogers?

Stephanie, I'd clarify that. It wasn't that we weren't expecting it. When I set out to figure out how to fund this company, I worked in contingencies. We had embarked on this with the original intent of acquiring 100% of the company. I recognized that the wireless piece would have a question mark. My purpose for the comment was simply indicating that we've actually closed more than I had anticipated through that contingency planning; nothing more than that to read into it.

Stephanie, if I could add, you'll hear more about that when we release our second quarter results, but to pick up on Glenn's comments, we are extremely pleased with not only the subscriber count of Shaw Mobile, but also the quality of those customers bundled with the home product; they're extremely sticky, low churn customers. You can expect us to do all the right things to ensure those customers can take advantage of the Rogers 5G network, and we think that's going to be a big value add for those customers.

Great. Thanks. One more if I could. Internet subs were very solid in the quarter. Just in case if there’s any particular area you found success in the quarter, whether it's non-fiber overlap or newly built homes or upgraded homes.

I think it's a general improvement in the overall customer service levels in our promotional activity and competing for customers. We've had a good run rate for several quarters now in terms of gross adds across the Wireline business. The investment in customer service resources and improvements in those service levels is helping to bring down the churn, and that — you’re seeing that in the Internet adds. Thank you very much.

Thanks, Stephanie. Next question, Ariel.

Our next question comes from Tim Casey of BMO. Please go ahead.

Thanks. Good morning. Could you talk, Tony, a little about what you’re seeing on the competitive front? On Wireline you mentioned in prepared remarks that you did see some pressure from your telco competition. Could you just maybe flesh that out a bit and add a little more color on what you're seeing and how you're going to compete with that beyond the improved customer service you’ve talked about?

Sure. Thanks, Tim, for the question. In terms of what we are seeing and have been seeing on the cable front, as Glenn said, when you look at our gross adds, we actually over-index. What you've seen is sales execution come in nicely, and we see that growing at a very healthy clip year-on-year, week-on-week, month-on-month. But the issue has been churn. That's always related to two fundamental issues: customer experience. If they're having problems that we don't resolve quickly enough, then we have a customer that churns. What you've seen us do over the last year is consistently improve that. We continue to be focused on answering the phone and getting the customer service resolved quickly and as easily as possible. The second part of churn is price competitive offers that our competitors put out there. Specifically, I’m talking about the East, and it's not that different in the West as we get into that. It’s really about a door-to-door sales force that they've been utilizing to have offers that we generally call below the line. They're not mass marketed, but they're put in front of the customer. We've gotten a lot better at responding to that real-time with offers. We will not match offers that our competitor puts out there, and they're going to be very targeted in how we do that. As I said, it's all in the tactics of how we do it. The principle we stand by is that we need to maintain and grow our market share while growing the overall financials, particularly the margin.

Thank you.

Great. Thanks, Tim. Next question, Ariel.

Our next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

Great. Thank you very much. Good morning. I wonder if you could come back to the $1 billion synergy number. Could you help us with the sort of flow of that through the next 24 months? What happens now through this year? And is it sort of back-end loaded? Any color around how we should think about the various buckets as well? Any more clarity around what's headcount, what's content costs, etc.? And then, Glenn, on the balance sheet, you said 5.3x, thanks for that. What's the timeline here for getting back to the kind of the 4x and under? Is that kind of at the end of those 2 years? Any color on that would be great as well.

Sure. Thank you, Simon. I'll start with the first one first. On synergy, it's similar to what you've heard for some time now in terms of what makes up those three primary buckets. Headcount will be the largest portion of that, and then the other two buckets being media content and general vendor costs as we fill out the headcount and eliminate redundancies across departments to share duplicative positions. That's a little over half, approaching 60% of the total $1 billion. We will execute on that and are starting to execute on that immediately. You'll see our first reporting on that when we release the second quarter, by the time we close out calendar 2023. I anticipate that we will have about $200 million of realized cost in our 2023 results for the year. We will be at a run rate within the first year following the transaction. So this time next year, we will have had a run rate of about $600 million of identified and captured savings. That's on an annualized run rate or a 12-month run rate. We will cover off the balance through the next 12 months. The substantial portion of that I anticipate will be in calendar 2024 by the time we exit the year. By this time in early 2025, we will have completed that $1 billion target. It's not backend loaded. From my answer, you can see that 60% of that we will have in the first quarter in terms of a run rate.

Great, thanks for the color.

Thank you.

Okay. Thanks, Simon. And thanks, everyone, for joining our call. If there are any questions, please feel free to reach out to the IR team.

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