Rogers Communications' Management Presents at CIBC Whistler Institutional Investor Conference (Transcript)

| About: Rogers Communications (RCI)

Rogers Communications Inc. (NYSE:RCI)

CIBC Whistler Institutional Investor Conference

January 23, 2014 1:00 PM ET


Edward S. Rogers – Deputy Chairman and Executive Vice President Emerging Business, Corporate Development


Bob Bek – CIBC

Bob Bek – CIBC

Hey, good morning. Good morning everyone. Welcome back from the break. My name is Bob Bek and I’m the media, cable and telecom analyst here at CIBC. It is my pleasure to host the next two sessions, first up today we have Rogers Communications. Joining us today is Edward Rogers, Deputy Chairman and Executive Vice President of Emerging Business and Corporate Development.

Welcome Edward, and thank you for joining us.

Edward S. Rogers

Thank you Bob.

Bob Bek – CIBC

Before we jump into some of the emerging business elements and some of your hired level views on the business, perhaps some update on – in Rogers you’ve got a new CEO starting December and Guy Laurence. Any quick thoughts as far as what you and the Board perhaps for looking for in this hire and what we can look to as investors for some of the early priorities that you may have.

Edward S. Rogers

Sure, well again thank you Bob and thank you to CIBC for having Rogers here. It’s always a pleasure to be here. Guy started he is in second full month. He is an industry veteran from the wireless business, the enterprise business and some pieces on the media business. He is truly a world person and he is lived in several countries around the world and been exposed to quite a bit.

It was a thorough process from we hired a new CEO and we were lucky to have a lot of – lot of folks out there that wanted to chat with us. And Guy really stood out for the experience he had, the enthusiasm and energy he had, the ability to bring to build talent, which were a big fan at Rogers as we go forward.

Vodafone in 17 countries, 5 of the other countries for size one he ran were chief executives like he had got upto the Vodafone ranks. He is a very operationally focused person, who gets into the weeds and I think that’s good. I think that’s good for our company, where we got to focus on the business we have, making sure we’re doing the good job we need to try to win the share we can, get the type and quality of customer that we want. Always try to improve our business to reduce churn on all of our business especially in the wireless business, rollout some of the new businesses.

And for us really invest and try to continue to improve the experience for customers. Really it’s a great some easy words to say, but I think Guy can bring some practical things that he is actually done to make an easier place to do business with Rogers for customer.

So, I think you are going to see a lot more of them through the yearend; I’m just thrilled that he is here.

Bob Bek – CIBC

Okay, great. Thank you. Maybe just still some high level thoughts on the core businesses before we kind of touch on some of the emerging ones. But wireless is always the key, the largest segment within Rogers and obviously strategically quite material.

Can you talk a bit from high levels as far as your thoughts on where the evolution of the business is. We start to see some material in penetration and some competitive intensity over the last number of years and a lot going on in that front. Any high level thoughts on where you see it going and the importance within Rogers over the wireless platform.

Edward S. Rogers

Well, I will tell you some trends that are encouraging to us, is one that people rely more and more on wireless every single year. And their wireless smartphones to become the centerpiece of how they conduct themselves. Generally the average person in Canada uses that more than the user desktop computer.

Secondly, we are using our phones or tablets for more and more things and you think in our case sitting in the Smart Home Monitoring business then in the financial services the plethora of different apps and things that they are doing using data on the smartphones. And that’s a great trend.

In wireless connectivity it’s a more and more thing. It something that I think we will continue from themes you hear about verbal tech to smart card, smart card is one of the biggest theme of the CES show this year.

To everything in your home where your small business being connected in some form, if it’s not back through wire or Wi-Fi network or has specifically a SIM in it. And I think that trend will continue and obviously the Canadians are using wireless and more things. So we have a smartphone, you might have a tablet, your kids might each have a tablet.

And so today a family will think more about the number of SIM cards they have and devices that they have out there. And we think that trend will continue and machine to machine for us and wireless has been some that we focused on the last couple of years and since traction on in that space as well. So I think there is always it’s a very competitive business out there is always great noise from the government on the wireless business out there.

And there is threats in terms of people can do things sometimes different ways. I think the basis I come back to is that more people are using wireless more often for more things is, it’s a good thing in a good business for us.

Bob Bek – CIBC

So, we had the wireless auction underway I don’t want to ask you questions and therefore obvious reasons. But just you mentioned on the regulatory side any thoughts as far as the noise that is there in the wireless space and how you think about it from a Rogers perspective as far as big picture of those.

Edward S. Rogers

Well I think our public line is always been the same and Nadir talked about it and I did a bit and fill in that. We always had a spirit of trying to work with the government. We know we are not perfect by any means in the business as we are in and these businesses can improve. But having a spirit where you can work in a cooperative fashion with any level of government, but obviously the federal government in the wireless case. We think is better to instant investment, instant job creation, instant new product development.

Now let’s come back to Canada, again we can do things better for our customers and we are, but it’s in my opinion the wireless business in Canada is second to none. The networks here grow faster way at almost 80% of the Canadians getting healthier more versus 25% to 30% Europe. Quality of networks of its drop cost but U.S. is better get a LTE phone from any of the care who do a speed test in any of the major cities and go to the U.S. and I think you find three or four times faster.

We are trying to roll wireless out to more Canadians and more places and in our case we trying to catch up a bit on that. But Canada as a country I think is excellent in getting those services out to as many Canadians in rural areas as possible. So, I think our wireless business is nothing to apologies about. We can do better and we will do better, but we think working with the government will be a more productive model.

Bob Bek – CIBC

Okay just turning to cable again from higher level another maturing product line there. I think it took a lot longer to mature than many people thought. I know you been a proponent of it taking longer than people thought so I think you were correct there. But we are starting to see now on the RGU a little more slowing and some negative on the subscriber side.

What are your thoughts on the maturity of that business and how you can manage that going forward?

Edward S. Rogers

Well I think the cable business is at an important point, but in my opinion I still going to call it a mature business and I do that because we still in an enormous amount of potential for Rogers and all the cable companies. That is out there and I think there is some pricing power in the products we have especially on high speed internet.

In our case on the business side and small business there's still an awful a lot of business that we can do far better job at selling our products in to. There is getting new products and services I mean Smart Home Monitoring. We Canada is the fourth product to your home, the fifth Rogers product a lot of cable cos in the U.S. talk about a quad play now with I think the fourth RGU.

And I think the cable companies are going to start more thing in to we can connect other things in the home and really the expert into the home and when you look at a mindset like that continues to be other avenues of revenue and growth of the cable companies can get in to. So, I think it still a very healthy business when you think of the television business and today we are losing subs a lot more than I would like, but I would say more people are buying more content and spending more time watching content than they did a year ago, two years and five years ago. And that’s a fabulous place to be. So, our current mousetrap isn’t winning all of them and we have got to continue to innovate and build and make sure that the 24-year-old is excited to buy content from us maybe in my case the 44-year-old or the 64-year-old.

And so we have a lot of work that we needed to do. But I do think we have got the ability to be able to do anything that new emerging competitors if its Netflix type services or selling content directly like iTunes or whatever that we have a great hand of cards to be able to compete well or still driving a live television, the best HD, morphing in to 4K HD available in best quality to your television or any other devices out there.

And I think we can be very strong competitors and that can return to being a growth business for us if we do that right.

Bob Bek – CIBC

We have some regulatory noise on that front as well the long discussed a la carte review from the government. Your thoughts on where that potentially could go and obviously you are talking about 40, 45-year-old model here that could potentially change a fair bit. What’s your thoughts on that?

Edward S. Rogers

I think both sides of that array. In that when the government says Canadians should have more choice, guess what everyone of us trying to do for a customers today. And if you look beyond the historical model basic and tiers, you generally could buy all the cable companies and Rogers can buy any channel one at the time or in different packages You get obviously when you move to an on-demand world, you can even buy television shows and movies and different stuff one at a time.

So, I think that’s a trend that we very much believe and as I said, if you move beyond being the cable company who sells live television to TV set to company that sells all sorts of content to any screen, anywhere, anytime you got to move well beyond that model if you are going to compete with the customer who just wants to buy a season of lost or buy particular show or something like that.

So, I think it’s very much in the industries interest to figure out how we build into that model. But at the same time, I think Canada has been very proud of, of the production that we have done in this country, what we have created in this country and we don’t want to lose that. And so the model was built historically on taking over the year originally. I mean cable started about 10 years or 12 years put out in the U.S. because they wanted same NBC, ABC and CBS fees in a clean sense if they couldn’t have got especially if they lived farther from the border.

And then bundling those up with great new Canadian services and that’s how the tiers were built, our basic was built and I think it’s got a very healthy model. And so the BDUs and the satellite companies are out there, we got to figure out how to do that well.

For the media companies and the channels and the jobs and the taxes that we pay as Canadians I think we want to figure out that model. So, I think you don’t want to move with haste and you don’t want to do something that is hurts more than it helps. But I do think we have got to figure out this model for customers in the medium and long-term.

Bob Bek – CIBC

Before kind of dig into more of the emerging areas any questions from the audience on the core cable wireless at this point here.

Okay you touched on few of them already, but maybe just a kind of circle back on the growth side of the things the business enterprise segment. It’s been a focus of Rogers for a numbers of years a lot of your cable peers as well focused on it. Still fairly small how material can this get and just you know how much growth can we look forward in that segment.

Edward S. Rogers

Well, hopefully, a lot. What I like about the opportunity in business is Rogers is a smaller player and so it’s easier to grow. Then if you’re in one of these businesses and one of the largest shares. Business of Rogers is a bit different in some of the other cable cos in that the small up to the medium size business for us is you’ll see that in the cable numbers itself. And what we talk about is our RBS for us is more at the enterprise side. And I think from small business up to enterprise is an enormous amount of opportunity for us I think that when you think of what businesses are looking for, faster and faster connectivity which we’re all building fiber networks and to a more homes and businesses and buildings past and driving that fiber closer and closer to those homes on new homes, new small businesses we’re trying to build fibers close or right up to the prem as we can as we grow out the next few years.

They also want wireless connectivity is the second the big theme we hear that we want be able to do our business when we’re not tethered to the wall and we’re moving and how does Rogers help us in that and I think we’re working hard from and M&M group to how we work with customers to take a wireless handset and have all the great things that you can get with that but also tailor it for what they need for their businesses, a very small business if they're a small business right up to an enterprise. And obviously datacenter and we got into that business I think that for us complements our enterprise business is something even small business is asking for and think that complements our businesses. So, I think we’re small, we don’t have and we’re still one of the smaller players out there but I’m encouraged by what the teams doing I think it can be one of our strong approach of our growth as we go forward.

Bob Back

You talked, as well that the opportunities in the Home Monitoring and Automation perhaps gives us a sense as to how that’s gone, it’s still fairly early days but how the acceptance has been and how big you think that can get and you mentioned obviously there is a good wireless tie-in there for the future of the internet, internet things in the home, I see Google buying Nest, I mean there’s just a lot of activity on that front that you could play a part and just how big you think this thing can get?

Edward S. Rogers

Well, I think it’s still fairly early days but like most of the new businesses we got into it’s original wireless data or it was the some of the enterprise pieces or home phone, et cetera. They always take longer than you’d hope and you work hard to make sure that you get the execution right as you launch. You’re new in a business so you want to make sure you don’t fall down for customers. And I think we’ve done a great job, but unlike other products of the business I think this can be clearly the fourth product into the home for Rogers and may be a fifth product here including wireless it’s, for us it’s mainly in our cable licensed area today it is a little bit more in southern Ontario pass where we just had a cable.

It utilizes both the wireless and cable networks which is great. It’s a product that we’re unique that in terms of how we built in and worked with our platform vendor which is iControl to bring their product to life. I think the connectivity is something that people obviously historically the Home Security business has about a 20% to 21% number of customers that’s growing, but at a fairly small pace. We think as you add on the number of things customers can do that it will find valued up to half of homes in small businesses.

Because you got your energy management which in the early days is turning the lights on and off, heat up and down and all that stuff but building and working with energy companies to build the stuff that help you really manage your energy costs. And everyone wants to be greener and they want their energy bills to come down.

So, if we can build and work with those as a solution we think that's good. They want to soft monitor themselves understand when the kids come in, understand all those other people are, when they are watching a little video clip they want to have control and there is a what we found is a higher percentage of customers don't actually take the traditional security stack, they just take monitor and part of it.

So, I think it can be a good business. It still more and more things will be connected and I think customer want control. And the overall stack is doing all the pieces for the customer. You can itemize and some of these things do want to one by one by yourself and that platform is constantly innovating itself. So, what we have to available right today is actually quite a bit different than when we launched. And what we've got in the pipeline for the next year to three years is going to make it very interesting.

Bob Bek – CIBC

Just to go back to your comment on reach, so you are looking at, as you already have already, at rolling this out beyond your cable platform. So, just a wireless connection to the home for all these services that something you obviously built quite far on that if you chose to, right.

Edward S. Rogers

Yes, we tended to want to concentrate and do a good job and getting some penetration before you go too far. And there is an awful lot of homes passed we're working to get a small business product launch and I think it can be something that we've got an awful lot of traction with the homes passed we have today. But it’s got the ability to reach being on just the cable homes passed.

Bob Bek – CIBC

So another of the large deals from Rogers in the past year or quite recently, was an NHL rights deal. There was quite a large bit of press about it, obviously in Canada it's an important thing. You talked bit about the significance of that dealt through Rogers to our cable asset to your media channels and just your thoughts on aggressively getting the content.

Edward S. Rogers

Well, as we said it’s a content rights deal. Its hockey so gets a lot of focus and it was a 12 year agreement. So the total size that was bigger than average. But it is basically the same as the different rights deals we have done if you look at with the Oilers, the Flames, or the Canucks, with the Leafs, and so it's similar. It's EBITDA accretive and we think an excellent deal.

We think sports is something in our media company. That’s our media company is one of the smaller ones, if you talk about Shaw, Corus and Bell Media and all out there. We thought we have gone some traction on trying to build the sports, that name in the sports, that brand that we want continue doing that. I think that we have area there that we can do grow our company.

So, it’s a good deal for us. We think it will bring, we want to innovate for fans and customers over time not just change the logo from one broadcast to another, but how do we truly work to make that a better fan experience. And we don’t have all the answers yet, but I think that’s our hope and our intend to just work with the NHL and with the teams to figure out how we can do that.

Bob Bek – CIBC

So tied to that is your ownership, direct ownership, in MLSE. Again, it's going to a little over a year since that transaction. Early thoughts, I guess you answered a bit on that on the broadcast side, but your thoughts on that ownership and the importance of sports.

And in the long-term ownership position with BC as a partner is that something that’s tenable over the long-term.

Edward S. Rogers

Well, we achieved what we set out to achieve when we did that deal and secured, we thought were fabulous rights with the Leafs, with Raptors, with Toronto FC. MLSE is putting a lot of actual time and effort into Toronto FC I think that can be a much bigger sports entity and much more appealing for fans and viewers than it is today. And so I think we are achieving what we want and for us every situation is different and special when you’re trying to secure those rights. And if you do direct deals if we have done with some other teams out there. If in that case we put some money into the team, if we look at the national package, if we look at other ways, everything will be special. And there is no formula that we have that we are looking to expand on in that sense. But it’s doing what it needs to do and we work well with Larry Tanenbaum and with Bell.

Bob Bek – CIBC

Okay. Another area of focus for Rogers has been a new loyalty program. Can you talk about how we are going to see that rollout get up and running in what you think ultimately it can be.

Edward S. Rogers

Sure. It's something that surprises but I'm quite excited about it. And what surprises is we subsidize phones when we would sign up to a term, we thought and we'd say aren't you happy with us, you got the $700 phone for $299 or $199. And the customer said, well sure, but I’m paying in fact because I’m signing the term or you are saving a percentage because it taking more than one cable product and they said, that’s nice everybody again I bought that I’m buying more than just one thing from you. So, I have earned that you haven’t really given it to us in that us.

So, we didn’t get a lot of credit that we rewarded customers for their 10 year they spend number of products. To the degree we honestly thought we did. So the loyalty program is that we're lucky to have big customer base because we want to preserve those customer bases. The easiest place to sell the next product is to expand with the existing customer. So, a lot in the cable company, a lot of the new RGUs comes from the existing customers.

In the wireless business a lot of the ads for all of us are coming back expanding the number of smartphones and tablets etcetera with the same customer, not always but that’s important. So, that’s where we focus and from investing in our network investing, in this royalty program investing in, the upgrade program whatever it is, is to try to give our customers, we are going to investing a lot more in tools to make it easier to do business with Rogers and all that’s about for our own customers making it a better experience, driving the churn down, which will drive the EBITDA per sub up and these sorts of things.

So, the loyalty program is a piece of that. I think we are in early days, but it’s fairly basic like most of them. You get points. Every customer will get points whether they ask for it, or do not know, you don’t lose anything if you get, if you don’t carry or want them nothing happens. But if you like to redeem them and use them you can get your next smartphone faster or highest speed of internet for the same price free VOD movie. And we got about hundred of things in the catalogue and we are going to constantly work on that to extent that catalogue and bring more and more exciting things.

And then our financial services focuses on two things. One is brining a mobile wallet to customers, which we’re working with every bank and every payment network out there to make sure that it just easy an experience for them to talk to their customers and use financial services.

The Canadians have been very open and keen on that when you move to debit a lot of faster and in the U.S. we have Chip and Pin here like the rest of the planet, our friends south of the border have another 20 or about 12 or 18 months before they’re there. So, Canadians if you can make that something that’s easy to use I think we think to adopt it.

So, as far part of that launch a credit card, which is I call it more of an extension of the loyalty campaign. Let say like anything you'll get Aeroplan points for flying, use the AMEX Aeroplan and get a lot more of them, you get flight so or it’s a similar. If you use our points and you get points and you want to get two smartphones as Christmas for your kids. And may be if you have a credit card you can get a lot more points a lot faster. So, fairly simple and hopefully easy. And builds one a bit of a profit center with some of the new banks I’ll call it are found from PC bank and Wal-Mart rolled out and Canadian Tire. But as important and more important cements that loyalty and that turn focus for us on our core businesses.

Bob Bek – CIBC

Just come back to the mobile wallet I bet we had here Alexander brought here few years ago and he showed us that this is, this product’s time and finally come, is it something we do think would it be material a year from now for sitting here you think a number of people in the room would be actively using a mobile out or are we still too early?

Edward S. Rogers

I think a year from now a bunch of us will be using in time, but then I think it’s on the cost where there is some various kind of mobile apps available like Tim, Korten’s has one and Starbucks. And our version you can put all those cards in that same wallet and use it. So it will be available to use and in certain banks we’ll also have some apps that hopefully working with us as well. Our value prop that we’re trying to give is as I say with every new smartphone that rolls out and every new upgrade to an operating said some that the mobile wallet will work versus you don’t want to be having a lot of people writing apps for every new phone and every new thing that comes out, it is difficult. And so I think yes, a year from now we will be using it.

Bob Bek – CIBC

Got a couple of questions remaining and still we got about two minutes to go. Any from the audience at this point before I, yes.

Edward S. Rogers

Can you talk about capital allocation? And your checking plan and return of the cash to shareholders.

Bob Bek – CIBC

The question is about capital allocation and return of cash to shareholders.

Edward S. Rogers

Well I think we try to do have a good balance of prioritizing that capital from continuing investing in our business, expand our business and make sure we also have a good business 5 and 10 years from now.

And I think we over the years have a good dividend we tried to mix that with buying back stock over the years. And our trend will be to continue to reward our shareholders, but we do want to, but making sure we have a strong enough balance sheet that the company has the flexibility to participate in spectrum auctions and capital builds or tuck-ins if it needs or whatever that may be that our company has the balance sheet is trying to do that. Yes?

Edward S. Rogers

In Canada given what's going on in the US cable market..

Bob Bek – CIBC

Thoughts on consolidation in Canada given what's going on in the US cable market.

Edward S. Rogers

I think I mean, first we run our company to the best we can. And if one day there is opportunities where you would always look at that, we want to make sure our core businesses it’s always a good deal for the business we have. But I’ll be honest in Canada we’re not focused that right now we’re focused on the businesses that we have.

Bob Bek – CIBC

Would you be focused on anything else outside of Canada and in other areas or beyond cable or else you’re pretty focused on the opportunity in Canada?

Edward S. Rogers

I think for now Bob there is, I’d say it for the next five years at least I mean that worth no longer but there is more that enough opportunity here. One day may be but nothing that we’re thinking about.

Bob Bek – CIBC

What are your thoughts on foreign ownership restrictions, would that be something we’re going to see from the government at some point being lifted or is that again nothing approximate in the next 5, 10 years?

Edward S. Rogers

It’s a complex topic but I think our view is as Canadians we better really study and understand what that is before we do it, because the model we have now I believe allows Canadians to have the best wireless industry the best cable industry and some fantastic media assets in Canada.

And I personally don’t want to just sell that. So, the shareholders maybe the richest executives enjoy that. But we have the hollowing out of Canada after that. I don’t think there's any formula where any of these companies are own outside of Canada and they do better for customer.

I think there is a lot you could argue that if we were a branch plant that Canada would be last. When we get, if you look at HSDPA we have three networks here at 21 megs, the U.S. had one with AT&T at 2.7. Is Canada going to continue to innovate? And are we going to have wireless coverage in rural areas if we're owned outside of Canada? My belief is we are not. You do the lower 48 and Alaska and Maui and Puerto Rico and Canada would be phase II.

But I think I just think we got to be careful because people jump to conclusions and when you sit and chat with them, they may not have all big data that they need to have to really make an informed choice.

Bob Bek – CIBC

It’s great, thank you. And we are out of time. So please join me in thanking Edward from Rogers.

Question-and-Answer Session

[No Q&A session for this event]

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