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Rogers Communications, Inc. (NYSE:RCI)

Q1 2010 Earnings Call

April 28, 2010 8:30 am ET

Executives

Bruce Mann - VP of IR

Dan Coombes - Director of IR

Nadir Mohamed - President and COO of the Communications Division

Bill Linton - CFO

Rob Bruce - President of Communication Group

Tony Viner - President of Media division

Bob Berner - CTO

Analysts

Greg MacDonald - National Bank Financial

Glen Campbell - Bank of America/Merrill Lynch

Jonathan Allen - RBC Capital Markets

Peter MacDonald - GMP Securities

Phillip Huang - UBS

Maher Yaghi with Desjardins Securities

Jeff Fan - Scotia Capital

Dvai Ghose - Genuity Capital Markets

Vince Valentini - TD Newcrest

Randal Rudniski - Credit Suisse

Rick Prentiss - Raymond James

Tim Casey - BMO Capital Markets

Operator

Welcome to the Rogers Communications, Inc., First Quarter Earnings Conference Call. (Operator Instruction). I would like to remind everyone that this conference call is being recorded today, Wednesday, April 28, 2010 at 8:30 am Eastern Time.

I'll now turn the conference over to Mr. Bruce Mann of the Rogers Communication management team. Please go ahead.

Bruce Mann

Thanks, operator. Good morning, everyone and we appreciate you joining us for Rogers Communications' first quarter investment community conference call and webcast.

Joining myself and Dan Coombes here this morning in Toronto are Nadir Mohamed Rogers President and Chief Executive Officer, Bill Linton, our Chief Financial Officer, Rob Bruce the President of our Communications division and Tony Viner who is the President of our Media division and also Bob Berner our Chief Technology Officer, plus we got a couple of members of their respective team.

So, we released our first quarter 2010 results earlier this morning. The purpose of the call this morning is to crisply provide you with a bit of additional background upfront and then answer as many of your questions as time permits.

As today's discussion will undoubtedly touch on estimates and other forward-looking information, our results could be different from that forward looking information and you should review the cautionary language in our earnings release of this morning and also in our full year 2009 MD&A and our annual report, especially the various factors and assumptions and risks about how our actual results could differ. Those cautions apply equally to our dialogue on the call this morning. If you don’t already have copies of this morning's quarterly release or 2009 annual report to accompany this call, they are both available on the IR section at rogers.com or on EDGAR or SEDAR.

With that, let me turn it over to Nadir Mohamed and then Bill Linton for some brief introductory remarks and then the management team will take your questions. Over to you, Nadir.

Nadir Mohamed

Thanks, Bruce, good morning, everyone and thank you for joining us. As you can see from this morning's release, we delivered another solid quarter of results, despite what is an increasingly competitive environment in Q1. We generated double-digit adjusted operating profit growth. Our Wireless data revenue grew a strong 40%. We're delivering meaningful cost efficiencies that helped drive margin expansion across all three of our major business units.

We added a healthy mix of high value customers while holding churn down to a very respectable level and importantly, we delivered another strong quarter of free cash flow growth and returns to shareholders. So overall, a strong start to 2010.

Let me quickly cover up a few of the highlights for the quarter and then Bill will walk you through some of the financial nuances.

On the revenue line we delivered high single digit revenue growth in our Wireless network, cable operations and media businesses with consolidated top line growth up 5%. The most significant driver of top line growth is again the continued strong growth in our Wireless data revenues.

In Q1 Wireless data revenues were up 40% and now represent 26% of Wireless network revenue. Our 3G and Smartphone investments, combined with our innovative products offering, the quality of our networks and our focus on customer experience are continuing to pay off.

In Q1 we focused on the high end of the Wireless market and we are relatively quite on the mass marketing advertising front. Our expectations quite frankly was that during the Vancouver 20 Olympic periods, BCE was their major sponsorship with a very [healthy] advertising spend and so it would not be an effective use of our marketing to put weight on more advertising and promotion in to that environment.

We kept focused on Wireless data on our Wireless data strategy and we are successful in activating and upgrading an additional 348,000 Smartphone devices predominately Blackberry, iPhone and Android devices, and in fact we are activated more iPhones in Q1 than we did in Q1 of last year.

On average these are generating almost double the ARPU for our voice only subscribers, so a continued high quality mix of subscribers in what we expect was a relatively slow quarter dominated by the Olympics. Importantly even in the face of full quarter of new competitors in HSPA networks our postpaid churn has continue to hold down at a very respectable 1.10%.

Today, approximately 33% of our postpaid bases on high-end Smartphones up from the 23% level we were at same time last year. These are higher ARPU, lower churn, higher lifetime value sub and the impact is clear in our financial and operating metrics.

On the ARPU front, voice ARPU continue to decline albeit at the moderated rate, roaming in a particular continue to be down year-over-year in the 18% range, despite we would estimate $8 million benefit from the Vancouver Olympics.

Most of this continued decline in roaming revenues is attributable to outbound roaming by our customers. Volume or minutes were basically flat on a year-over-year basis, but the rates on these minutes were somewhat lower as a result of voice and data roaming travel packs that we put in place over the past year.

These more affordable packages will stimulate more roaming usage as we go forward and as the economy improves. We've also experienced a modest reduction in inbound roaming revenues as a result of some recent reciprocal rate renegotiations with other carriers. With our success in generating strong Wireless data growth, overall blended ARPU was actually up just under 1%.

We continue to make significant Smartphone investments during the quarter successfully attracting a very high quality mix of higher ARPU lower churn customers. Even with these continued investments, as a result of aggressively managing costs side and our marketing spend being down a bit, we delivered strong Wireless margin expansion. In the first quarter, our Wireless EBITDA margin on network revenues was 52.6%.

In our cable operations, high single-digit top-line growth combined with success and continuing to capture efficiency gain enabled double-digit EBITDA growth and continued margin expansion. In the quarter, our cable EBITDA margin was 43.1%.

Importantly, we also continue to see improvements in the basic cable, Internet and cable telephony subscriber results. So good continued improvements in the cable operations business.

On the media side, for the first time in two years, we saw the top-line begin to grow again with most of it attributed to acceleration in our broadcast and specialty TV as well as shopping channel businesses.

Media 6% revenue growth, combined with the cost efficiency we put in place over the past year created significant operating leverage and led to more than 600 basis points of margin expansion and strong operating profit gains.

Across the businesses, our heightened focus on cost, both operating expense and CapEx stands out again this quarter. Anticipating moderating top-line growth, we've been vigilant on the cost side driving up inefficiencies to maintain strong margins and grow earnings and cash flow.

On a consolidated basis with operating profit growth and well-controlled capital investments, we delivered 27% increase in quarterly free cash flow to $629 million.

On the back of our financial strength and performance, we repurchased 9 million RCI shares for $302 million and paid out dividends during the quarter of another $175 million, so north of $475 million of cash returned to shareholders in the quarter, reflecting a 10% dividend increase and ongoing execution of our share buyback program. Overall, we have a solid start for 2010, and we are on track to deliver on our commitments.

Let me now turn it over to Bill and then we'll take your questions.

Bill Linton

Thank you, Nadir. I will provide a bit of additional color on the financial results for the quarter. In the top-line, our consolidated revenue growth was a solid 5% for the quarter, that’s up full percentage points sequentially from last quarter. This reflects a solid top-line growth of 7% for our Wireless network revenue and 6% growth for both Cable Operations and Media, respectively, partially offset by some weakness in Retail.

So we had respectable top-line growth to be sure, but the operating leverage in free cash flow generation are the real highlights. Adjusted operating profit of $1.16 billion on a consolidated basis is up a very strong 16% year-over-year and represents 370 basis points of operating profit margin expansion. In fact, we delivered strong margin expansion at all three of our major business units.

We have made significant progress around cost control. In addition to measured capital expenditures, we delivered excellent consolidated free cash flow which was up 27% and that number is 37% on a per share basis, which reflects the accretive benefit of our share repurchases over the past year. We had good controls around spending, while concurrently continuing to make healthy investment in growth platforms including HSPA+, DOCSIS 3 and our online video product.

Let me turn to a couple of items of note below the operating line on the income statement that impacted both net income and earnings per share growth. $152 million or 59% improvement in adjusted net income was the result of $158 million increase in the adjusted operating profit, coupled with a $36 million drop in depreciation and amortization which principally reflects lower amortization of intangible assets and an $18 million net gain in foreign exchange, net of the related change in the derivative instruments.

These improvements were particularly offset by an increase in interest expenses of $16 million and finally the year-over-year increase in income taxes largely just relates to the growth in pre-tax income.

If you take these items together, combined with the lower numbers of shares outstanding as a result of our share buyback program that loan accounted for $0.05 of the improvement. This resulted in adjusted earning per share growing strongly by 73% to $0.69 per share for the quarter.

Finally, the $71 million or 23% increase in the GAAP net income was a result of the $152 million increase in adjusted net income offset by a $105 million swing in expenses related to stock-based compensation net of related tax impacts. The increase in the stock-based comp expense reflects the 19% appreciation of RCI shares during the first quarter of 2010 versus the decline during the first quarter of 2009.

Nadir said during the first quarter we bought back 9 million RCI shares for $302 million under our share buyback program and we paid $175 million in dividends. So, we returned $477 million of cash to shareholders in the first quarter, which is up 200% from the same period last year.

As mentioned on the last call in early February we acquired a small new telco business called Blink Communications, with revenues of about $20 million on an annualized basis Blink provides on-net data communications services to businesses, the majority of which are within or adjacent to our Rogers Cable footprint. So, a good tuck-in acquisition for our business services division.

In the quarter that business contributed $2.7 million in revenue and $1.5 million in EBITDA to RBS.

Turn to the outlook, as we said in our release this morning, at this point in a year we have no specific provisions to our full year 2010 guidance ranges, which we provided on February 17. Although, we have had an excellent quarter there are unique dynamic to play this year including new competitors, regulatory uncertainty, and the timing of our marketing spend that add some uncertainty to our effort.

We finish by saying that we continue to be in a very strong position financially. We have an investment grade ratings and relatively low leverage at two times debt to EBITDA. We have $2.4 billion of liquidity of available under our fully committed multi year bank facilitate and $126 million of cash on the balance sheet. We have no material debt maturities until mid 2011. So whether you look at leverage, liquidity, or refinancing requirements, we continue to be in a very strong position from the balance sheet and financial flexibility perspective.

This strong financial position combined with our strategic position and cash flow generation enable us to continue growth and returns of capital to shareholders, including the 10% dividend increase this quarter and the renewal of our $1.5 billion share buyback from that.

With that I will pass it back to Bruce and the operator, so we can take any questions you have.

Bruce Mann

Thank you very much, Bill. Before we begin, operator taking questions from the participants, I want to particularly request as we do on each of these calls that participants on the call who are asking questions that they be courteous to their colleagues and contemporaries and limit the questions to one topic or one part, so there that as many people as possible have a chance to participate. Then to the extent we have time we’ll circle back and take additional questions. We will get them answered for you separately after the call if necessary.

Would you please go ahead, operator, and explain how you'd like people to organize the Q&A polling?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question today comes from Greg MacDonald with National Bank Financial.

Greg MacDonald - National Bank Financial

The question I want to ask is that you addressed the market conjecture on the Allstream issue, so let me ask you this way. You think that the company is exposed on the enterprise Wireless side with respect to the customers that you have to the extent that it's necessary or you would like to have wireline structure overall, so I'm not asking question on Allstream, I am just saying is there an asset limitation to this company where you feel like your Wireless enterprise customers are exposed, and overall does the company feel that growth beyond the cable and the Wireless franchise that you have is necessary to keep this company with the growth projection that you want to have?.

Nadir Mohamed

Greg it is Nadir. Why don't I start with what our focus is for the business market and then I'll Rob to address where we stand on Wireless vis-à-vis the enterprise segment, but one of the things that we wanted to make clear and want to make sure we articulate it very specifically, we've been repositioning our RBS entity and division and we have a very clear focus in terms of what we want to go after and there are three specific criteria that we use in shaping our approach to the market. First is that we want to go after business that's on net and if you think about the network, obviously we have a Wireless network across the country but our cable franchise is predominantly Ontario and the Atlantic, so you can read into that as the focus on the business market, in terms of the wireline side would certainly be a reflection of our cable franchises.

The second thing is when we bought Call-Net, we inherited some legacy circuit-switched business and our focus has been to move to an IP based business that, as you know, doesn’t happen overnight and you have seen that reflected in the results where we got to work through a declining legacy base as we grow new IP based services.

The third is the segment of the market that we think we are best positioned to win in small and medium sized market and that has been a focus. If you look at the segment view, that’s very much where our focus is and why don’t I pass over to Rob to talk about the Wireless perspective.

Rob Bruce

Again, with respect to Wireless, let me echo that our focus has been strongly on the small and medium segment. That’s where the highest ARPU customers are and we've experienced a fair bit of success there, and that success is not only limited to Wireless, but in fact, we are starting to make some significant inroads on cable with strong double-digit growth in [Connexion] cable and some double-digit revenue growth on the business segment there as well.

With respect to enterprise Wireless, clearly, we are full participants in that category as well. We have been very successful overtime and we are happy with our performance, but again, it is a more price competitive sector than small and medium and therefore, we have stronger focus on the small and medium where the higher value customers are.

Operator

Your next question comes from Glen Campbell with Bank of America/Merrill Lynch.

Glen Campbell - Bank of America/Merrill Lynch

As you look at ARPU, could you talk a little bit about the trends you are seeing first on ARPU within customers in the base as you say somewhat re-priced, but also transition at the Smartphones and also the ARPU you are seeing on new customers that you are adding, not sort of way that the numbers were broken out, but it would be help for us to get a sense, what trends you are seeing there?

Rob Bruce

The one that I looked at the most obviously are the Smartphone numbers because obviously we all keep an eye on the Smartphone numbers to make sure that the investment in the extra COA in the devices actually makes lots of economic sense and I’m please to tell you that the Smartphone customers that we batted over the past couple of years, we are seeing no significant deterioration in the ARPUs of those customers. Again around $100 range, $95 to $100 nearly, nearly double what we see out of the typical ordinary phone customer and the new customers that we are actually taking in, and Glen I’m pleased to say are coming in at very similar levels and so everything looks very healthy there.

Glen Campbell - Bank of America/Merrill Lynch

I know it would apply even post November launch by your competitors, is that fair?

Rob Bruce

That’s correct.

Operator

Your next question comes from Jonathan Allen with RBC Capital Markets.

Jonathan Allen - RBC Capital Markets

Very good results. Question for you is, how much of the improving results that we saw this quarter would you attribute to improving economic conditions versus something more company specific that you have been working on and perhaps if you could give a few data points that would support either way?

Nadir Mohamed

I will just address the economy generally then we'll specifically turn to Rob for some of the improvements Wireless vis-à-vis our performance on customer loading. I think, our general view is we are definitely seeing some signs of recovery in the economy. The leading indicator for us tends to be the Media division and I think may be Tony you can add some color, but we are definitely seeing signs of recovery there. Having said that, I would put caution, this isn’t a full-bore recovery that we are seeing. We are starting to see stabilization and I think it points to better second half in the year, but when we talk about minutes and roaming you’ll our caution vis-à-vis saying that the recovery is well underway. I think you’ve seen early signs, but maybe Tony add a little color and then we’ll pass it on to Rob.

Tony Viner

I agree that this is a very stabilization absolutely in the economic trends, but its still very early days to say that for us at least that the recession is over, our results have been led by some excellent results in television which is due to both substantially improved prime-time schedule with City and increased subscriber revenue at Sportsnet. The results on the retail side for Shopping Channel are very good and that does prove to some improved consumer confidence, but radio is pretty flat and we think that we have still some distance to go before we're on a significant upturn.

Nadir Mohamed

Obviously we’ve got some pretty easy comps over the last year as well and to some degree as well in the Media space it's a bit of a leading indicator as well. So we don’t see that type of improvement could walk across the street where our customers are out there looking for appointment and trying to make those [stays healthy]. We are not all the way there yet.

Rob Bruce

Let me had a couple of things that I think are relevant because you ask the broader question what’s driving our result. It's the thing that tends not to get mentioned but I think are relevant because you asked the broader question, what's driving our result, and the thing that lets not forget to mention in a growth company like Rogers is the work we are doing on cost control. If you look at both, cable and Wireless, our cost only grew 3% against revenues of 7% in Wireless and 6% in cable and subscriber growth in Wireless at 7.7%.

We spent significant energy and time through the later part of last year merging the divisions. We've reduced their workforce significantly as you will recall. We've done a lot of process engineering work, we've focused on taking calls out of our call centers and truck rolls away. Renegotiated significant numbers of vendor contracts and really continued to put our focus on churn reductions as well as widespread departmental spend and controls and that’s been a key contributor.

Nadir touched on in this in his opening remarks our data success plus 40% year-over-year. Driven frankly, largely by the work that we led the market with on Smartphones, Some of that had the success there, with now 33% of our subscribers using Smartphones and lots of growth in the SMS part of the business.

When we look at the general bounce back in terms of the economy and we look in the sub-numbers of ARPU, really as Nadir said, it's very much early days. We've seen some stabilization that is no more deterioration in [LD] rates. So the ARPUs are flat year-over-year. In MSF and air, we are seeing still some continued softening on a year-over-year basis. Part of that is economically-driven, some of it's driven from the competition in the marketplace and we've seen some very minor flattening out as well in essential services purchases, but really even as we look at roaming, if you take out the effect of the Olympics, those numbers are essentially flat year-over-year.

Again, Nadir referenced the rate changes that we have made that have driven down some of the roaming revenue but no huge emergence from recessionary pressure in the two operating businesses for now.

Operator

Your next question comes from Peter MacDonald with GMP Securities.

Peter MacDonald - GMP Securities

Thank you, and a good quarter. I guess, my main focus this quarter is trying to determine your margin improvements in Wireless and segmenting that between your general cost savings initiatives that you put in place and then your conscious decision to reduce marketing spend. So, I don’t know if there is a way that you can quantify that for us and then maybe provide us some insight into what you are thinking about for the rest of the year, specifically if you plan to reverse that marketing spend that you saved in the first quarter? Thanks.

Bill Linton

Why don’t I go straight, Peter, to the marketing spend part of it? if you look in the release, you will see that marketing and sales went down about $27 million in the quarter and roughly $13 million of that equates to the COA and subsidy and commission to associate with the, well not the commissions, but the subsidy associated with those loads.

In terms of media and promotional spending, probably off about $8 million in the quarter and the rest is productivity and channel comp changes and other things of that nature. For sure, going forward, we plan to be active in the market place. We obviously, well, if you look back to the times when we had 50 plus share on the market, we expect to see a rebalancing of that share going forward, but for sure, we are going to be out there fighting for a fair share in the market. I think a very unusual quarter, as Nadir talked about. Not only, Bell's ownership of the Olympics, the incredible traffic reductions that were implicit in the incredible viewership we had across the country and I think the numbers again probable looks softer than they should against the backdrop of the $0.55 share a year ago. So, we plan to be back in full speed going forward, but again I think the real thought that we have all got to keep in mind is with competitors with very similar networks and devices and new entrants in the market, we can expect the longer term rebalancing of share.

Nadir Mohamed

Peter, its Nadir, the other thing I add is that we have been very consistent with our Rogers brand and a big believer of staying on plan and on strategy and our strategy has been very clear. We are heavily focused on the Wireless data, higher value customers and we are heavily focused on churn, as a metric that drives value and you have seen the results. So, one of the things that we want to ensure that the brand stays true to itself and is focused on our game plan, which I think should frame the comment in terms of how we see subscribers share going forward.

Peter MacDonald - GMP Securities

Can I just follow-up on that. Is it fair to say that, you won’t use the savings from Q1 to be more aggressive to gain more share, you will maintain your focus on cost control and we shouldn’t see a major reversal on margin going forward.

Bill Linton

So, Peter I think part of market game is always try to figure out when and what to spend your money on to get the best possible return and we continue to apply that strategy to the things what we do.

Operator

Your next question comes from Phillip Huang with UBS.

Phillip Huang - UBS

Good quarter. I want to go back to ARPU I know you have given some good color already, but if I do my rough math I know there was about $8 million of roaming benefit from the Olympics. Even if I exclude that I still get a pretty strong postpaid ARPU of about 71, 76 which is only down 0.5% year-over-year.

My question is first is my math roughly correct, and second how do you think ARPU will trend for the rest of the year given that you’ll have easier year-over-year comps as you enter Q2 that you’re also be seeing increasing competition on the lower end, so we assume nearly flat ARPU given the stabilization in roaming and other sort of economy related buckets, or do you think that we would potentially see some growth?

Rob Bruce

Firstly, in terms of your math, I think your math sounds roughly right to me. In terms of the [last piece] it sounds a lot like you'd like to me to give you guidance on it. Generally, we don’t give guidance on. If they were every year that it's hard to predict exactly how it's going to unfold. I think this would be the year. I think not only the timing, but the magnitude in the effort that we’ll see behind the new entrances is uncertain at this time. I think most of us would have thought that the new entrance would have been in market in a much bigger way with much bigger subscriber counts than they already have been.

I think there is no time when it's more difficult to predict the ARPU. What I can tell you was what Nadir said in that as we we’ll continue to be very focus on going after high-value customers will be very focused on data and very true to our strategy and that has been very great ARPU and good results going forward, so we are optimistic with that will continue.

Operator

Your next question comes from Maher Yaghi with Desjardins Securities.

Maher Yaghi with Desjardins Securities

I just wanted to ask on the cable side, you talked about cost control. The margins were very strong this quarter, how much of that strength should we expect to be sustainable in future quarters? Was there something in the quarter that had a positive impact on margins that we should not look for it to be repeatable.

Rob Bruce

Yes. It's Rob again. There were no one-time activities in the quarter. We continue to be very focused. As I said, we continue to be very vigilant on managing our costs on both, the Cable and Wireless business against the backdrop of 6% revenue growth, cost only grew 3%. We continue to be systematic on process and trying to take out costs, taking out customer experience issues that drive cost to the call center and create truck rolls, reengineering processes to try to take out some of those costs. We'll continue to do that, and again nothing one-time in this quarter.

Maher Yaghi with Desjardins Securities

Just to follow-up on the Wireless. If you look on a broadest scheme of things, I know you just mentioned you don't want to give any forecast on ARPU, but are you feeling any pressure to change your pricing structure given the new competition coming in or you will wait for, because some people might look at your postpaid ad and feel that you have to defend it by lowering your pricing. Are you feeling that pressure right now or you think this is as you mentioned more an Olympic issue and you won't react to it too quickly?

Rob Bruce

I think you'll learn in this business never to say no, but I think the thing that you should take away is we spend much less significantly in terms of media spending, promotional spending in the quarter and we will work to time our spending to bring the efficiency and effectiveness of delivering the loads that we need going forward. We've been successful on that in the past, and again our focus is going to be ongoing after the higher value customers.

Operator

Your next question comes from Jeff Fan with Scotia Capital.

Jeff Fan - Scotia Capital

I want to ask the question about network usage on your data products and your Smartphones, wondering, if you can give us some stats on average usage and how that is coming together? Then just a follow on to that, we have seen in the industry, a little bit more momentum now on the pursuit of LTE in terms of deployment. I know the handset ecosystem is not quite there, but from a network infrastructure perspective, wondering if you can comment a little bit about the efficiency that perhaps LTE provides from a spectrum standpoint and from a financial perspective more on lowering the cost a bit going forward, given the expectation that the traffic on data is just going to continue to explode?

Nadir Mohamed

Jeff, there is lots of questions packed in there, so why don’t I try to work backwards and tackle the LTE one, just in terms of where we sit on LTE. I will get Bob Berner to pipe in and talk about the efficiency on LTE and then, we can deal with the last part of your question. Firstly, our take is that, HSPA has a lot of life left in it. Right now, as you know we are at 21. There will be devices available in 2010 on 42 and from 42, we go to 84, so significant speed. There is a full ecosystem whereas with LTE that ecosystem is a significant time away. Bob, why don’t I turn it over to you and so we have no plans to move to LTE anytime soon. Bob, do you want to talk about the efficiency differences?

Bob Berner

Sure. Jeff, as you know, LTE is a bit of a work in progress, and we are monitoring closely, but I guess we would call them the bleeding edge deployers of the technology. In the same amount of spectrum, HSPA+ is as efficient as LTE is I guess the one advantage throughout either operate in larger blocks of spectrum ergo, if you have that spectrum if regulators make larger contiguous blocks of spectrum in the right frequencies available it can be more spectrally envisioned over time in each are being much what I described the amount of runway we have ahead on HSPA plus going its well beyond 84 megabits per second with the same tricks and things you can do on infrastructure unless you have more spectrum to aggregate in to that technology it doesn’t become more efficient.

As LTE currently is the data only technology that’s being deployed, it will be some time before it appears in handsets with the managed voice service, but it will appear and as I said we are watching closely what’s going on, but we are in a excellent radio spectrum position and some operators are declaring LTE is necessary because they have insufficient spectrum in the bands that support HSPA plus. We are not in that position. We have an excellent set of spectrum assets that will take us forward for quite some time to [club] with HSPA plus.

Bill Linton

So, Jeff just a follow-up on the last part of your question, really not much has changed in terms of the magnitude of consumption of our Wireless network, Smartphones, iPhones, Blackberrys and the like are still consuming well below half a gig on average, actually probably closer to quarter of a gig. Blackberry has been significantly lower because of their browsing capabilities than iPhones and our Stick consumption is still way, way below our smallest landline internet packages. So, no big explosion in terms of the per device utilization of our network.

Operator

Your next question comes from Dvai Ghose with Genuity Capital Markets.

Dvai Ghose - Genuity Capital Markets

I just wanted to pursue the LTE and spectrum question if I may. I guess you to just agree the Shaw's timetable about deploying LTE next year and I think probably others do. So my question is eventually you are going to go to LTE, eventually you are going to need more spectrum 700 megahertz and 2.5 gigahertz will be released at some point by industry to Canada. So to what extend do you see yourself as a competitive disadvantage and how do you overcome it given that Bell and TELUS already have contracts to go up to LTE and are sharing those contracts, with Huawei, and Nokia Siemens and indeed they're sharing spectrum as well. How do you overcome this seeming disadvantage?

Nadir Mohamed

Dvai, I’m not sure when you said that they have contracts going to LTE, I think each one of the carriers would say that we are all LTE ready. I think one of the things that you have to look at is the fact that we have a lot of spectrum, our spectrum position is far, far better than just about any operator. We’ve also been as you know through an upshot acquired spectrum with our acquisition of this Look and Looks Spectrum and Craig.

I also think it's important that in context of what you see as new players and incumbent cable companies as you know we've been having agreements signed where we've got exclusive multi year agreements with many of these new carriers. So all that will also help in terms of the traffic and support for our networks. So we feel pretty good. We’ve been investing for many, many years. We’re competing on the basis.

By the way before HSPA deployment on the part of TELUS and Bell, they were sharing networks as well. So I think we feel pretty good about our position and particularly confident in terms of moving forward. I think one of the advantages we have is the fact that we have had HSPA deployed for some number of years now and we got the depth, the quality, the speed and the ability to upgrade I suspect a lot faster than the other guys who just now have been deploying, so tons of people wanting to leverage them. That when I suspect, we're in a much better position to move forward faster than the other guys, but I can't speak to their specific plan.

Operator

Your next question comes from Vince Valentini with TD Newcrest.

Vince Valentini - TD Newcrest

Two quick things. One, cable rate increases. Can you give us any comments now the CRTC has come out with their fee for carriage. Should we see what your rate increase in those terms will be shortly, and back to the guidance. I appreciate the lack of visibility on ARPU, but when you are talking about EBITDA, I think there are a lot more levers there you have you play with, especially the cost cutting that you've been doing.

So do we read into your unchanged guidance here that the low end of the range for the year is still possible, because by my math you'll have to do a decline of 2% in EBITDA for the next three quarters in order to hit the low end of your annual guidance range. Is it just a situation, we don't want to change things yet, and you don't want to change the high end of the range or is that low end of 2% EBITDA growth for the year still something that's remotely possible.

Rob Bruce

It's Rob. Let me comment on the rate increase, and the comment would be we don't comment on rate increases before we do them, so there won't be any comment on rate increases today, and I'll turn it over to Bill to talk about a little bit more of the guidance.

Bill Linton

Vince, you shouldn't read in anything about us not changing guidance other than the fact that we just gave in the middle of February as we looked forward. On the one hand, we've had an excellent quarter. On the other hand, there are a lot of dynamics around new entrants, around timing of market spend, around regulatory issues and we just don't want to get ourselves in a position, where we are changing guidance on a quarterly basis and I think this is very consistent with how we felt with guidance in the past.

Nadir Mohamed

Vince, it's Nadir, and just to clarify I think your questions vis-à-vis, cable TV as in the video side. Just for people on the call, we have had price increases on the Internet and Rogers Home Phone which have gone out literally in the last few weeks or so.

Operator

Your next question comes from Randal Rudniski with Credit Suisse.

Randal Rudniski - Credit Suisse

A question, just doubling back on the Wireless sales and marketing activity in the quarter and the expense down 21% year-over-year, and you mentioned various factors in the press release, but this is the third consecutive quarter which you are seeing your marketing spend in Wireless has been down to double digits in percentage terms. Do you think that in doing so, you are passing the initiative to your competitors in terms of marketing? Could this mean that your market share now falls below the one third level for the year?

Rob Bruce

Randal, it's Rob. We are in this game for the long run. No plans to let our share scribble on the volume. We would like to get our fair share going forward. As I said previously, I think we can expect some re-bouncing of shares with new entrants and competitors with right network and devices, but I would say that we spend what we think we need to in quarter and there are some quarters like Q1 where you make some decisions about the timing of your spending and I wouldn’t join the [doubts] on this one. I think that you are making a trend out of something that really isn’t a trend and Rogers is here to stay on that share side of the equation.

Operator

Your next question comes from Rick Prentiss with Raymond James.

Rick Prentiss - Raymond James

On the ads, you talked about also the perception of a generally soft marketing during portion of the quarter. Did it improve throughout the quarter after you got past the Olympics? What you have seen so far in the April as far as the economy and kind of the gross ad market?

Rob Bruce

Yes, it probably not prudent for me to comment on how Q2 loads are going at this point, but let me say for sure, January is typically one of the softest month of the year and February this year the malls were a little bit like ghost towns as I think Rick the Canadian population probably watch the Olympics more intensively because it was here than they ever watched it in the past and I think that drove significant traffic at in the malls. Our major competitors had a sponsorship stake in the Olympics, did a terrific job of leveraging that, and I think those things combined with the comparison to a ridiculous 55% share of the market a year ago that makes the [low] to look a little pale, but really that’s the story in a nutshell.

As I said to Randal we expect to see some long-term rebalancing with new entrants and others, but we are here to stay on the share net ads front, particularly on postpaid and specifically on higher value customers.

Rick Prentiss - Raymond James

Is it safe to say that March, you did see somewhat of…?

Rob Bruce

Yes, thank you for reminding me. Yes, March was the strong month.

Rick Prentiss - Raymond James

Then the final question, lot of discussions really around the world about data and tiered pricing, what your thoughts as far as you go up from 21 to 42, 84 and then eventually over the long-term LTE also? What do you think as far as tiered pricing plans go?

Rob Bruce

Rick, you and I've had this conversation before, but for everybody else on the call. At Rogers, we remain committed not to elaborating on pricing. We believe the value of data is just beginning to be realized and we have made great strides already in Canada and on the cable side in terms of starting to recognize the value of bandwidth and charge appropriately for it and we’ll certainly continue to do that on a Wireless side.

Operator

Your next question comes from Tim Casey with BMO Capital Markets.

Tim Casey - BMO Capital Markets

Just a big picture questions for Nadir and Rob, convergence is topical again Comcast and BCU, Shell looking at Canwest, how were your thoughts evolving on that? You won’t media longer than any one but you don’t really talk about convergence. Are your thoughts changing at all in terms of how you can differentiate your products with your media properties?

Nadir Mohamed

I think Tim one of the things that we spend a lot of time on is actually leveraging our assets, both Cable and Wireless coming together and increasingly how content can be leveraged across the platforms. We think obviously we are uniquely position in terms of strength that we are bringing to the table for the media organization, offering up 10 million if you will connections that we can distribute our content over. Convergence is on the multiple levels, we thought wireless and broadband coming together and as you know both from a tactical point of view, organizational perspective we have been putting that too together.

Rob now leads an organization that’s an integrated organization. We take products and services and price our products and service to market on the basis of customers that find multiple products increasing on a converged platform and right through to investments. When we look at building network, we approach it from the basis that the world is moving to our converged view where for example we are building one IP network, not two IP networks and so on.

Vis-à-vis the content side, one of the advantages we have is in many ways what people are doing reflects what we have already, where we've got cable and wireless that I talked about. Within the media organization, we've got City, OMNI, which are broadcast assets. We've got specialties, including a very powerful Sportsnet division. So in a lot of ways for us it's not so much about not having the assets, it's more just taking the assets we have and leveraging them and optimizing them. That's been something that we are spending more time on in the last few months.

Tim Casey - BMO Capital Markets

There's no evidence that you're doing anything different, yet, is that fair comment?

Nadir Mohamed

I think if you look backwards, it would be fair to say that we've leveraged. Let me start with need of the good business is [on way], we shouldn't forget that but we've leveraged media and the distribution for each other in terms of marketing branding and promotion, so that's very much evident.

I think in many ways you look at Sportsnet and cable and see it as a symbiotic relationship, but for sure if you were to look back, would you say that we had X number of customers and point to that on the wireless cable side, which is a media assets, I think then the answer would have to be no in a very specific way. The world is in fact changing, so I think it will be a mistake just to look backwards and the key is to look forward and say in the digital world, what do we do differently to leverage on the platforms we're having.

There are many people looking at Wireless platforms for things like advertising is to create opportunities. I think we're in a good position to capitalize on those. So it's more of a prospective view to be fair to use than looking backwards, but we certainly liked the idea that was with assets to leverage…

Operator

Ladies and gentlemen, this concludes today's call. Mr. Mann. Please continue.

Bruce Mann

I just wanted to, on behalf of the Rogers management team, thank everybody for participating this morning. If any of you got on the call late because you were listening to another call, that someone decided the schedule this morning after we announced ours, just give Dan or I a call. Our contact information is on the release and we will get your questions answered, if there is anything you didn’t get. So we appreciate your interest and support and this concludes today's call. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.

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Source: Rogers Communications, Inc Q1 2010 Earnings Call Transcript
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