Conference Transcript - RCI 2025-03-04

Speaker 1

Good morning, everyone. So first off, we'll start with Rogers. And as you know, we have Tony and Glenn here. Thank you for joining us for our conference again this year.

Tony Staffieri, CEO

Thanks for having us. And good morning, everyone.

Speaker 1

Let's dig in because unfortunately, we only have 30 minutes and we're going to have to cover a lot of topics. We're going to try to cover wireless, cable, balance sheet, M&A. So maybe we'll start with wireless. It's a topic that has affected investor attention, attracted a lot of investor attention last year. It has caused a lot of headaches for investors as well because of the pricing over the last two years has been difficult in the industry. So maybe we'll talk about first on the quantity side. how do you view 2025 in terms of loading in a period where immigration is slowing down in Canada? A lot of investors think that when loading slows down, companies try to become more aggressive. But actually, this is not what happened in the U.S. We saw growth in loading come down, but pricing went up at the same time. So it doesn't have to be negative all the time. How do you feel about the wireless market right now in terms of loading compared to last year and within your guidance approach for 25?

Tony Staffieri, CEO

Well, as you said, Mayor, we look at both the volume as well as the ARPU. And they're very much both that we're trying to tackle at the same time. And they don't have to necessarily be exclusive of each other, as you said. when you look at long-term cycles, and we look to the U.S., and we saw them come out with very moderate volumes, you know, a market that's growing 2.5% or so, with good ARPU performance. And, you know, we've seen as we came into the beginning of this year, you know, as we look to the industry and what our competitors are doing in terms of pricing, coming off the back of last year with a lot of pressure on their ARPU, we're seeing good positive signs in that direction but before I get there if I bring it back to the size of the market when we look to 2024 the market grew by about 4% in total so it was still healthy growth rate overall but in the back half of the year we did see a contraction in the rate of growth but it's still a market that's growing against that backdrop we still loaded Rogers 500,000 mobile customers so there continues to be good growth and we balanced it with stable ARPU and so as we move into this year our estimate is we'll probably see growth at about 3% plus or minus a few basis points which is really driven by penetration gains which is about two and a half to two point seven percent is our estimate and then the rest is is organic or new to Canada which is much smaller we'll sort of see what happens towards the back half of the year in terms of government policy but we can talk about that later on but that's how we see sort of the volume right now as we look to this first quarter it is down significantly year on year because last year we still had strong immigration and new to canada in the first quarter and it slowed down in the subsequent quarter so on a year-on-year basis we are seeing what we expected in terms of lower net volume in the market but as i said it was expected as a result of that but still healthy growth and then the other piece of it is arpu as we've talked about and you know that one will continue to react to our competitors we look to be very price disciplined and you saw most players come out of the fourth quarter season with some pretty good discipline in various categories we continue to focus on the rogers brand and that's really you know 50 60 and above in terms of price points almost all our net ads are in that category and that's a combination of gross but also the work we do in upselling both chatter and Fido customers to the Rogers brand a lot of attention around flanker pricing and over the last few weeks we saw a bit of a you know competitive promotional period those have all left the market this morning as of this morning and so but I always emphasize it's a portion of the market it's not the total market we've effectively competed in that space with the prepaid brand and that's allowed us to not only compete effectively in terms of gross ads and net ads in that segment but it also allowed us to not reprice the Fido base and continue to focus on upselling Fido

Speaker 1

customers to the Rogers brand okay so on loading our forecast here at Scotiabank is that we're gonna see growth and subscribers at 3% so in line with your views. But just on the ARPU side, what are you hoping to see as we move throughout the year? Are you expecting prices to go up on a planned basis or you would be happy if prices

Tony Staffieri, CEO

stayed where they are right now? Well, I think we're focused on pricing constructs that really present a simple value proposition put more value so far it's been predominantly based on data or tonnage is what we call it and those buckets have gotten bigger and bigger what we're seeing is a trend on cap plans to reduce those because they've effectively become unlimited when you're talking 50 plus gigs you know the average usage still sits at around 10 to 12 gigs per month and so these large data buckets become equivalent to unlimited. Now, mind you, on FIDO, it is on the 4G network, and our competitors pretty much do the same. So what you should expect us to see is effectively improving the pricing through better managing the data caps, and we'd like to see how the market responds to that and how the competition responds to that but continue to look to the Rogers value proposition that'll evolve more to what you see in the U.S. in terms of functionality video quality ability to toggle whether or not roaming is included or not and so expect our value proposition to evolve that way which we think will be contributors to ARPU growth on balance for the year we continue it's tough to predict because you don't know what the market does and we have to respond to it but you should expect us to be very disciplined in our pricing approach in our value proposition but on balance if we you know our models and the guidance we provided were based on stable ARPU for this year so we'll have to see what happens and transpires predominantly in the summer months as we head into back

Speaker 1

to school okay let's look at maybe inter you know broadband and cable you made a big bet on shop and we've seen the decline that you started the year with in 24 slowly improve and you exited the year on flat on revenue growth how should we think about 2025 in terms of your cable business can you continue to improve the rate of growth or we should expect it to be mostly flat like you exited 24 yeah on the cable side there's a few dynamics

Tony Staffieri, CEO

you know as you said we're pleased with the progress we made throughout 2024 to return that business back to growth and we exited the fourth quarter with growth albeit very modest but you know the objective was to get on the right side of zero and have a business that is growing top line and we did that through two main things one improving our market share on internet and the second piece of it is just coming back to price discipline and some price adjustments that were put through and a few other things that I'll talk about in a moment but it was good to see that while at the same time continuing to improve efficiency and end the year with very strong margins in that business so as we look to this year you know there's a couple of things we look to one is where we have our wire line footprint how we're doing in gross ad share but also in churn and it's different between the East and the West and we've talked about it before our focus in the West is predominantly on gross ads that's been relatively weak compared to the competition and in the east it's been about churn and the churn drivers a bit of price but more so network capacity and so we've been you hear us talk about implementing what we call mid split which is sort of the precursor to DOCSIS 4 that improves not only network capacity but the stability the internet and you're seeing that in the awards we're getting from umla and ukla in terms of most reliable internet and that's been our focus and so we like what we see in terms of subscriber gains where we have our wireline footprint we also embarked in 2024 in competing for internet in the markets where we don't have wireline notably southwest ontario places like oak oakville and also Quebec and that's been a very good opportunity for us and has contributed to subscriber gains as well as revenue gains and you've seen us the strength of the product exceeded our expectations in the marketplace and you saw us adjust the pricing on that as well as we increase the speeds and consumers love the simplicity of it as did small businesses and so we're gonna to look to that to continue to be a net revenue growth driver for us the technology with creating lanes or network slicing is what you might hear now is all going to allow us to put our Xfinity video platform on the 5g modem as well and so a customer doesn't matter where you are in Canada isn't really going to care about what network they're on if they're on the wireless or a wireline network it'll be the complete Rogers suite of products that they can get in their home and so we're really excited about that opportunity that will continue to push on included in our cable results is also business and our emphasis there has been on small business where we were under penetrated and we like what we're seeing there approaching double-digit growth rates and that's in the both in both the West and the East so very good performance there as well. So those are some of the components. The offset is the cord cutting and the video declines that we continue to see in the 3% to 4% range. And it's always important to highlight that while we're gaining on internet, it's 100% margin product. The video piece, while we lose the revenue, it's at a 40% to 50% gross margin product. And so it's trying to get that balance and make sure we index properly on volume and pricing for internet that is going to fuel the growth of that business. We'll continue to focus on efficiency but the natural mix shift will also continue to give us strong margins in that cable business. So as we look for the rest of this year throughout 2025 expect to see a business that in our guidance modeling we had as stable relatively flat with some growth but very modest for the year now some things you know work in terms of the bull case that we have for it then you'll see more and you'll see most of that fall to the bottom line but we want it to be balanced in the way

Speaker 1

we thought about it for guidance all right it's hard to break mlc from the balance sheet from you know your decision to you know think about selling a portion of your backhaul but i'm going to try and and see how we can manage that discussion first so maybe on the mlc side first you made that transaction I think about two years ahead of what you thought you might do it so that put some pressure on your balance sheet why did you feel that you needed to do that transaction and when do you think you can monetize that asset over time and how so two things one I think it's

Tony Staffieri, CEO

important to stress that some of the things we are doing have been doing and working on the balance sheet side were independent of the MLSC transaction we had things in the work we had made commitments that we intend to fulfill in terms of where we want to be on delivering and Glen will speak to that in a moment and so you can't always pick the timing but we had the opportunity to buy out our competitors share of MLSC and our strategy for sports and entertainment was which we don't get any value in our share price today but they're significant assets that we already had in terms of ownership of the Blue Jays and Sportsnet which is the leading sports broadcaster and and then we had our thirty seven and a half cent stake in MLSC and team values continue to grow at a very healthy rate and we saw some more recent transactions in terms of an NBA team as well as an NFL team and so they're attracting significant value growth and so when the opportunity presented itself our strategy has been the way we thought about sports was to consolidate bring out the synergies in the near term but importantly surface that value for our shareholders so that is still the guiding principle for us it's going to take a bit of time it isn't something that'll happen quickly but that's the direction of travel that we have and surfacing value as we've talked about with some of you could be a number of different alternatives including bringing in private investors for it and so we'll continue to work that through through right now we're focused on getting the transaction closed but the objective and the end goal for us is to really surface that value and have the right ownership structure for those assets that benefit the synergies we get today with Rogers Telecom but importantly surface the value for Rogers

Speaker 1

shareholders so with that on your Q4 call you mentioned that you're still still working on the structured deal and but you do not provide any additional commentary about where you know what what more has to be done to get the deal closed can you share anything with our audience today about or it's you know an

Anthony Staffieri, CFO

update on that sure so the transaction itself is is these are intricate and complex transactions that I've come to appreciate simply take more time than I had estimated back back when we first announced in October but we we continue to make progress we're working with with the investor the the steps in the transaction are making sure we have the structure right making sure we have the credit rating agencies aligned with the appropriate equity treatment if we don't have equity treatment the transaction doesn't happen and so we focused on that from day one and that continues to be to be aligning and then it's rolling the assets themselves and the assets consist of microwave and fiber backhaul from our cell towers to our core so it goes from the edge of the cell tower to the edge of the core in a region of the country so it's not all of our infrastructure it's a portion of it a regional portion of it and then the investor will come in and buy a half interest and so the steps really are getting the transaction structure correct making progress on that and then rolling those assets into the entity and then closing and so I don't have I'm not going to give you a date or a time as to when we will complete all of that But I'm pleased with the progress we're making, and I'll leave those comments at that. I'll restate. They're complex transactions, and there's a lot of interdependencies. And we also have to keep in mind that we've got to make sure that the day-to-day business is able to carry on, whether it's with respect to the impact on the cash flow, but also just the day-to-day operation. And so that's really what we've been focused on to make sure that the structure is helpful to the balance sheet and not in any way restricting on our operations. And then in the meantime, since year end, we've closed our $4 billion hybrid securities issue. That gets 50% equity treatment. So that had the impact of raising $2 billion of equity support for the balance sheet. That, coupled with the $7 billion transaction, presuming that we're successful in bringing that to a close, that will have the effect of bringing $9 billion of equity onto our balance sheet. Our year-end leverage of 4.5 times then reduces to somewhere in the range of 3.5, 3.6 times before closing on the MLSC purchase. and then that coupled with our organic delivering through the year, free cash flow. We still have abundant free cash flow after our dividends that supports paying down debt. Every billion dollars of debt we can pay down is a .1 improvement in our leverage. Every $200 million of EBITDA we create organically. We'll also bring EBITDA in with closing on the consolidation of MLSC. Every $200 million that we bring in on EBITDA is another 0.1 reduction in leverage. And so we're making steady progress on lowering debt, bringing equity in, but also on the organic side of paying down debt. And so I'm pleased with the progress. We're a little bit ahead of schedule. From where we had first indicated three years from the acquisition, we'd be back to where we were pre-Shaw. We're getting within that range. You're right, MLSC was a little bit accelerated, but it was always on the roadmap for us to ingest, look after it on the balance sheet, and surface the value that we think those assets have a value of about $15 billion, and they're nowhere on the share price valuation right now. And so part of the exercise, a critical part of the exercise, is surfacing that value.

Speaker 1

So if I hear you properly, your advice is to keep the structured deal in any forecast investors would have for you in 2025 as still very possible to close. It's moving forward, not backward.

Anthony Staffieri, CFO

We continue to work with our investor on it. And as I say, we continue to make progress. I'm not rushing it because it's got to be done right. But, you know, it's never fast enough, but I'm pleased with the progress we're making.

Speaker 1

So we moved forward since Q4's conference, his call, and work is still? Work is still progressing. It's good to hear. Maybe I'll go back to the balance, the leverage. Because when you signed up and bought SHA, you made a guidance that you were going to go back to the same leverage that you had prior to the acquisition in three years. We're two years into the acquisition now. Does that now include MLSC? Are we thinking that we can return to pre-SHA leverage even with the MLSC transaction within three years of the acquisition?

Anthony Staffieri, CFO

Yes, I think that's going to entail, as Tony and I both refer to, surfacing the value however we choose to do that. I think MLSC, we're not looking to ingest MLSC, own 100% of that, 100% of our sports and media assets and be done. That doesn't surface the value. And so the complete exercise of working through bringing in the, acquiring the 75% stake, combining it with our sports and media assets, including the Jays, and surfacing that value, that provides another opportunity for bringing capital, equity capital, into the balance sheet. So, yes, that remains the plan.

Speaker 1

just you know today tariff news and election also on the horizon when you set the guidance I'm sure you have pluses and minuses and you try to manage all the potential scenarios but can you tell us about your views about how tariffs if for example are hurting the economy could potentially affect how you view the business environment for you in 2025 and also any views on federal election impact on your business?

Tony Staffieri, CEO

Yeah, I'll start with a tariff piece. The tariffs don't directly impact us in terms of our business. Our suppliers are predominantly Canadian-based or non-U.S. source in terms of hardware and things like that. So in terms of direct impact to us, it's marginal, extremely small. But we do have the broader concerns of what it means for the economy. Now, our business has always shown resiliency to economic downturns. But we do worry in the sense that when they're prolonged, consumer behavior, and in particular business and small business, demand reprice will filter in to the market. So we think about it in that context. In putting out our guidance, we certainly thought about those potential impacts, and you see that in the guidance we put out there. But they're always difficult to predict in terms of where that goes. The second piece of it relates to the federal government. We are heavily regulated, and so direction of government policy matters a lot to us. And so as we look to how things play out in the next little while, our view is when we did guidance, not a lot changes, which is probably realistic in a very short period of time as you think about it. But we look to a potential election to give us the things that are important to us. One is population growth and how does a government, and hopefully it's a majority government, so they can take a long-term public policy view with respect to our industry. We think that's important because our investment cycles are 20, 30, 40-year cycles. And so we need a government that has the confidence to put in place policies that are going to provide the right type of competition over the long term. Population growth is one, and the policy on that. And how do we grow as a country? We do have organic, but immigration and all the other categories are important as well in the long-term policy on that. But the second piece really relates to how the government thinks about and continues to support facilities-based competition. You know, this industry has the best networks in the world, including the U.S., in terms of performance. What you have seen over the last little while is prices effectively coming down, and we've talked about that earlier. And so you see the impact of competition, but what's important is to continue to encourage all the telecom players to invest in policies in terms of access to networks like TPIA are important, how they think about it. But the second piece of it is, if there is access, how much and what's the cost of that in terms of prescribed rates? And I would say for the most part, the government continues to support facilities based on the pricing side. They don't always get it right. And you see, we have a dispute right now to CRTC in terms of MB&O pricing and a decision they did on that. So they don't always get it right. But it's important as long as that pricing is based on a full costing so that the entity that makes the investment is recouping that investment. then that's healthy competition in our view. And so we'll look to the government and any new government continuing to have that philosophy and, in fact, reinforce it as we move forward.

Speaker 1

Maybe the last question I wanted to ask you, how important is the seven-year window that the CRTC allows MVNOs to access and piggyback on your network to remain unchanged when we get to the end of the seven-year window. Because we've seen in the past some instances where the CRTC does push out the timeline for some regulation if they see the new entrants or the smaller guys get into a bad position. How important is that seven-year window for you when you think about the next set of investment in 6G in wireless?

Tony Staffieri, CEO

Yeah, it's a really good question, Mayor. It's extremely important for the reasons I talked about. You know, the construct of having a seven-year cliff is probably not the best structure. I think the government should look to a program where there's an escalating and progressive level of investment. over the seven-year term because to expect something to happen in year eight it's just not realistic and so i think the government could probably do a better job of forcing the investment obligations that come with spectrum acquisitions on the smaller players so that's one but two to the extent it is the seven years then they have to get the pricing right in terms of the rates and that'll balance itself out and so while ideally you want to see the investments for a number of reasons you know just to put it bluntly players have to have at risk capital that's what creates healthy competition and a variable rate model while does some things in the short term it really isn't a long-term fix but as i said to the extent the rates are appropriately set they sort of balance themselves out okay right that

Speaker 1

at the last minute last second so thank you very much for your presence here today hope hope to see you next year thank you thank you thank you thank you