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Rogers Communications Inc. (NYSE:RCI)

Q1 2014 Results Earnings Conference Call

April 21, 2014 4:30 PM ET

Executives

Bruce Mann - Vice President, Investor Relations

Guy Laurence - Chief Executive Officer

Tony Staffieri - Chief Financial Officer

Keith Pelley - President, Media Group

Bob Berner - Chief Technology Officer

Ken Engelhart - Vice President of Regulatory

Rob Bruce - President, Communications Division

Analysts

Simon Flannery - Morgan Stanley

Drew McReynolds - RBC Capital Markets

Glen Campbell - Bank of America

Jeff Fan - Scotia Capital

Phillip Huang - Barclays Capital

Maher Yaghi - Desjardins Securities

Richard Choe - J.P. Morgan

Dvaipayan Ghose - Canaccord Genuity

Greg MacDonald - Macquarie Securities

Tim Casey - BMO Capital Markets

Rob Goff - Euro Pacific

David McFadgen - Cormark Securities

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Rogers Communications, Inc. Q1 2014 Results Analyst Conference. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Monday, April 21, 2014 at 4:30 pm Eastern Time.

I would now turn the conference over to Bruce Mann with the Rogers Communications management team. Please go ahead.

Bruce Mann

Thank you, Ron, and good afternoon, everyone. We appreciate you investing a bit of your time with us today for Rogers’ first quarter 2014 analyst teleconference. It's Bruce Mann here. Joining me in Toronto are Rogers’ CEO, Guy Laurence; our Chief Financial Officer, Tony Staffieri; Keith Pelley, who's the President of our Media Group; Bob Berner, our Chief Technology Officer; and Ken Engelhart from our regulatory team; and then joining us telephonically is Rob Bruce as well, President of our Communications Division.

Everyone should have our first quarter results which we put out over the wire, right upon the market close, shortly after 4 o’clock. Today, we want to just crisply provide you with a bit of additional background at the front and then answer as many of your question as time permits.

The remarks and discussion will undoubtedly touch on estimates and other forward-looking types of information, from which our actuals could openly be different. And as such, please review the cautionary language that’s in today’s earnings report, and in our 2013 annual report. It goes through all the factors, assumptions, risks et cetera that could cause our actual results to differ, and it also explains some of the non-GAAP measures that we use to discuss our results and they all apply equally to our dialogue on the call. So if you don’t already have copies of our first quarter release or our 2013 annual report to accompany the call, they're both available on rogers.com at the Investor Relations section.

With that, I’m going to turn it over to our CFO, Tony Staffieri and then to Guy Laurence, for some brief remarks on the quarter. And then the management team here would be pleased to take any or all of your questions. So over to you, Tony.

Tony Staffieri

Thank you, Bruce, and good afternoon, everyone. I’ll spend a few minutes providing you with some context and color around the results we just released a little while ago. Overall I described the quarter as a continuation of the trends you saw in the previous quarter. So we continue to make investments throughout our businesses.

These investments range from changes to our consumer pricing plans, upgrades to our call center experience as well as ramped-up deployment associated with our network and products. There are, however, certain trends we are not happy with and will continue to execute on the changes needed but at the same time we seek progress in some underlying fundamentals.

During the first quarter, we further expanded our strong operating margins at Wireless and Business Solutions on a year-over-year basis. We also continue to leverage our superior networks to deliver double-digit data revenue growth across both our Wireless and Broadband Cable platforms which were both up 10%.

In addition, we further reduced the rate of churn in our Wireless business and the rate of basic subscriber losses in our Cable businesses. And we put up some good revenue growth numbers at Rogers’ Media as well.

So we’ve continued to make investments in our core businesses. And while there were some solid achievements and areas of improvement, several of the operating trends we saw in the latter part of 2013 continued into the first quarter which had the effect of slowing growth, clearly reaccelerating top line revenue growth and continuing to enhance the customer experience, a very key focuses for us.

From a strategic and innovation perspective, we also made good progress in the quarter. Rogers secured 24 megahertz of contiguous, paired lower 700 megahertz band spectrum covering the vast majority of Canada. We introduced the suretap wallet, the first smartphone mobile wallet from a wireless carrier in Canada.

Rogers’ Business Solutions opened Alberta’s first tier three certified state-of-the-art data center further expanding its portfolio of datacenter locations. And we launched Rogers’ next early upgrade installment program, allowing customers to obtain a new premium device every 12 months.

We announced multiplatform partnership expansions with Major League Baseball and the Canadian Hockey League. And we issued $2.1 billion of debt securities this quarter at historically lower rates and retired US$1.1 billion of higher coupon notes, helping to lower average cost of debt by more than 65 basis points from the first quarter of last year down to 5.1%.

These are just a few examples of achievements we put up during the quarter. In terms of financial results, on the top line, our consolidated revenue was essentially flat for the quarter with revenue growth of 8% at Media, 1% at Business Solutions and relatively flat at Cable, offset by a decline of 2% at Wireless.

The results of the acquisitions of Mountain Cable, theScore and Blackiron from last year are included in the growth rates, I just quoted. Excluding the impact of these acquisitions, consolidated revenue growth would have been down a little over 1% year-on-year. The relatively flat overall revenue we saw was driven by continuation of several trends we saw coming out of 2013.

At Wireless, the 2% revenue decline reflects the impact of pricing changes associated with the near-term impact of our move to simplified customer friendly, all-in pricing plans in addition to the lower price, higher value roaming packages we put in place earlier in 2013. As we said last quarter, in Q2 of 2013 we began including features such as voice mail and caller ID into our simplified all-in data sharing plans which was required to remain competitive in the postpaid voice space.

So this and other end market pricing changes over the past few quarters such as the inclusion of domestic long distance continue to impact our ARPU as large portions of our customer base moved onto the simplified sharing plans. However, at the same time at Wireless, we were able to drive adjusted operating profit growth of 3% year-on-year, the solid margin expansion of 280 basis points to 48.3%.

In addition, we drove a 2 basis point improvement in postpaid churn which was down to 1.20% while at the same time managing retention costs down by 14%. On the Wireless subscriber front, we activated 579,000 smartphones, 30% of which were new subscribers to Rogers.

So smartphone demand continues to be healthy. Although there has been a bit of a continued slowing on the gross ad front as we saw across the industry last quarter following the industry transition from three to two-year contracts.

This trend clearly continued during the first quarter resulting in the 8% decline in gross additions, which even after the continued improvement in churn brought net postpaid additions down to 2000. 76% for our postpaid customer base now has a smartphone and Wireless data now accounts for 51% of our network revenues.

So we’re continuing to have success concentrated in the high end of the market as we continue to attract and retain our highest lifetime value customers in this segment. At the same time, we continue to be successful around our cost management and efficiency initiatives with operating cost of Wireless down year-on-year by 1%, excluding cost of the equipment.

Turning to Cable. Revenue growth of Cable was flat, led principally by the impact of basic subscriber losses over the past year. A couple of other areas are contributing to revenue softness in Cable, including the impact of promotional and retention pricing as well -- excuse me, as well as the timing of when we put price changes into effect last year and this year.

Well, last year, they went into effect in the middle of the quarter and this year they don’t come into effect until early second quarter. Significantly though, I’ll note the TV subscriber losses improved again this quarter both sequentially and year-on-year, an important data point in the trajectory of this segment.

Cable’s adjusted operating profit was down year-on-year to a 4% increase in operating increase in operating expenses. This was a result of a non-recurring positive $8 million adjustment in the first quarter of last year related to CRTC’s Part II fees. In addition, during the quarter, we made investments in customer care and incurred weather related network maintenance costs. Also impacting operating expenses were the incremental costs associated with the acquisition of Mountain Cable on May 1st of last year, while these increases were partially offset by cost efficiency and productivity initiatives.

At our Business Solution segment, the shift to and growth of on-net next generation revenues continues to drive improvements in the financial profile of this business. Next-gen revenue now represents 69% of total service revenues and grew 45% year-over-year helped by both organic growth and data center acquisitions. These were in turn partially offset by planned ongoing declines in the legacy of net lines of the business.

Turning to our Media segment, largest contributor to Media revenue growth of $26 million or 8% was our Sportsnet properties, which grew at double-digit rates as well as good continued growth at the shopping channel. Excluding the acquisition of theScore made in 2013 on an organic basis, Media’s revenue growth was still a healthy 6%.

We’ve seen a modest continued deterioration in the advertising markets, particularly on the broadcast, TV and print sides, underscoring the importance of a growing subscription revenues and continued investments in sports content and our digital platforms.

Looking at Media’s adjusted operating profit line, we reported a decline of $17 million year-on-year. This was a result of higher programming costs, start-up costs related to the Next Issue launch and a non-recurring positive adjustment in Q1 last year related to CRTC’s Part II fees.

Turning to consolidated results below the operating profit lines, you will see that the adjusted net income and adjusted diluted earnings per share declined by 18% or $0.14 year-on-year. This was driven primarily by three factors. First, higher depreciation and amortization expense contributed $0.14 to the decline.

As mentioned last quarter, this was a result of deliberate increased penetration of our new NextBox 3.0 digital set-top boxes at Cable, which are now amortized over three years, as well we reduced the cycle time implementation of our asset construction projects, which accelerated the commencement of depreciation but also assisted in reducing cash taxes payable. And finally, there was the amortization impact of increased intangible assets resulting from the acquisitions over the past year.

Second, modestly higher interest rates and lower adjusted operating profit contributed $0.05 of the adjusted earnings per share decline and reflects an increased in the amount of outstanding borrowings, partially offset by the previously mentioned improvement in our weighted average cost of debt. And finally, reduced income tax expense contributed an offsetting $0.06 improvement.

Looking at the balance sheet, we ended the quarter with $4.4 billion of available liquidity, consisting of $2.2 billion in cash and $2.2 billion of available capacity under our credit facilities. Subsequent to the end of the quarter, we paid the remaining 80% installment on our 700 megahertz spectrum purchase.

After taking the spectrum purchase payment into account and the expansion of our bank credit facility, available liquidity on a pro forma basis would have been $2.1 billion with leverage at three times debt to EBITDA, closer to 2.8 times if you give affect to the approximately $950 million of marketable equity securities we hold.

We plan to manage this ratio back down to within our 2 to 2.5 times target leverage range and as we go forward, utilizing portions of the significant free cash flow we generate even after the payment of income taxes and dividends.

We’ve been very transparent with the rating agencies on this approach and have had very productive discussions with each of them to understand the priorities and why we reiterated their investment grade ratings on our balance sheet.

Although, not factored into our leverage ratio, I should highlight that our pension liability was reduced down to only $150 million at quarter end, further reducing pension funding obligations within approximately $50 million per annum.

To sum up, I would say that overall from a financial perspective, it was a somewhat mixed quarter with a continuation of several of the operating trends we saw in the latter parts of 2013, offset with what were otherwise some solid achievements in areas of improvement. Clearly, reaccelerating topline revenue growth and continuing to enhance the customer experience are very key focuses for us as we progress into 2014.

And with that, I will pass it over to Guy.

Guy Laurence

Thanks, Tony and welcome everyone. We appreciate you joining us this afternoon. So moving on from what Tony said in a number of ways, the Q1 results reflect the continuation of what we saw in Q4 last year. Whilst there are areas of strength including continued strong margins, modest improvement in Wireless churn and reduced losses in basic cable subs. Overall, I still think that we can and will do better over time.

I also said that last quarter but now I can say with more confidence, given the experience I have garnered from being inside the business over the past three months. Just to give you an idea of what I spend my time doing. It included spending 24 days on the road traveling some 22,000 kilometers, visiting our 12 largest markets.

I have met every 11,000 from coast-to-coast in various different -- variety of different forms. I have held deep dives business reviews with every functional leader in the company and their respective teams. I have also met with a huge number of stakeholders including customers, regulators and other government officials as well as suppliers and the technology partners.

In addition, I have interviewed on a one-on-one basis all of our board and over 59 of our Senior Managers in total 77 people. That alone took over two working weeks. I have also asked the staff what they thought and nearly two and a half thousands of them have contributed their views on how we should take the company forward.

There is no question in my mind that we have meaningful opportunities to put our customer’s needs more front-end centered in everything we do to deliver a better and more consistent experience. We’ve also strengthened our value proposition and our brand differentiation and we have the opportunity to best rely and focus our investments in key areas to help reaccelerate our growth.

I don’t think there is any magic or rocket science needed. It’s not about massive M&A or expanding outside Canada. I think it’s about rigorous prioritization, disciplined execution, clear accountabilities and consistent operational excellence.

We have a Board Meeting in a few weeks time during which I will take the directors through my plan and future priorities, after which my team will move to operationalize and quickly cascade them throughout the organization. We have the assets to win. We just need to make them dance together better than we have done previously. We will update you on our plans for the future in a few weeks time.

I also want to touch quickly on the positive outcome of the recently concluded 700 megahertz spectrum in Canada. As you know, Rogers took home twice as much prime contiguous low band spectrum as almost anyone expected and did so across virtually all geographic markets in Canada. This was without doubt the breachfront property and first price in the auction.

We played prices in line with historical and recent 700 megahertz precedence in the U.S. and interestingly, what we paid was within 1% of the evaluation we had gone to our Board for approval to spend before the auction. We will earn a return on this investment over time through a combination of more spectrally efficient capital deployment as well as better churn ARPU of market share versus if we hadn’t acquired it.

We’ve already started rolling out the spectrum in Toronto, Calgary and Vancouver and this will continue as the weeks go by, further enhancing what is already the best performing LTE network in Canada.

So, thank you and with that, I will turn it back to Bruce.

Bruce Mann

All right. Well, thank you very much. Ron, quickly before we begin taking questions from the participant, we will just ask as we do on each of this, that those of the analysts or investors that want to ask questions on the call, please limit them to one topic and one part so that as many people as possible have a chance to participate and then to the extent, we have time we will circle back and take additional questions or we’ll get them answered for you separately after the call. So if you could just quickly explain how you would like to organize Q&A polling process then we can dive in, already in our effort.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Simon Flannery with Morgan Stanley. Please go ahead.

Simon Flannery - Morgan Stanley

Thank you very much. Good evening. Guy, you talked about having the assets danced together more effectively. And I think one of the big differences between Europe and the U.S. perhaps is this triple-play versus quad-play concept. Can you just talk a little bit more on that? Rogers has some unique assets, not too many cable companies have the Wireless assets or the Media assets together that Rogers has. Just talk about your perspective of, can that quad-play model be more effectively utilized in a Canadian context? Thanks.

Guy Laurence

Thanks for the question. The short answer is yes, I believe it’s -- it can and in fact, we started discussing a concept internally called One Rogers which is where we have to use the assets we’ve got to work together in an explicit way. I don’t want to give too much detail on that right now because it would preempt the board meeting I have got coming up in the next couple of week’s time. But I do think there is upside from that and I would say that it’s being received enthusiastically internally.

Simon Flannery - Morgan Stanley

Thank you.

Operator

Your next question comes from Drew McReynolds with RBC Capital Markets. Please go ahead.

Drew McReynolds - RBC Capital Markets

Yeah. Thanks for taking my question. Just on Wireless, I’m just wondering when we look at obviously the postpaid ARPU pressure, I believe, last quarter, you are able to kind of strip out for us the impact of kind of roaming and ex-roaming. I’m just wondering if you just give us little bit more clarity on, what is continuing to kind of drive the pressure on ARPU. And then just as I did appoint, just wondering if you could provide us with just the percentage of the postpaid base that was upgraded in the quarter? Thank you.

Tony Staffieri

Hi Drew. It’s Tony. I’ll start off and then pass it to Rob for additional comment. Your first question related to postpaid ARPU and splitting it out between roaming and the other impacts. So let me help on that. Of the 5% decline that you saw in ARPU in the quarter, in postpaid ARPU, half of that relates to the roaming impact and the other half relates to the simplified plans that we talked about mainly the inclusion of various features that we used to include. So that’s roughly the split between the two.

And then the second question you asked related to percentage -- actually, if you could repeat it Drew.

Drew McReynolds - RBC Capital Markets

Yeah, just percentage of the postpaid base that was upgraded in the quarter?

Guy Laurence

The hub volumes for the quarter, let me see it down right here, above 408,000 customers got upgrades in the quarter.

Tony Staffieri

Yeah.

Drew McReynolds - RBC Capital Markets

Okay.

Tony Staffieri

That represents 68% of our upgrades, of our base, I should say.

Drew McReynolds - RBC Capital Markets

Okay. Thanks very much.

Operator

Your next question comes from Glen Campbell with Bank of America. Please go ahead.

Glen Campbell - Bank of America

Yeah. Thanks very much. So my question is on Wireless subscriber trend. We’re seeing more pricing discipline in the market, both with respect to promotions and headline prices. Can you talk about the outlook for subscriber growth for the balance of the year? And I guess, there is a follow-up, with this more disciplined pricing, do you see an opportunity to, I guess, bring up ARPU for the base retention pricing? Thanks.

Rob Bruce

So with -- it’s Rob, Glen. The first thing I would say as I’d echo something both Tony said and Guy reiterated and that was that being focused on revenue is our -- one of our number one priorities. So very, very focused in translating the changes that we’re making into ARPU and doing all the operational things to ensure that that comes to fruition.

Just a comment on where we were in the quarter. I think postpaid gross adds, we believe remain strong. The market we believe is still soft, of course very hard to tell until the other is released. But our conversations with the device manufacturers and others call to point to gross ad slowing as a consequence of end-market pricing for both devices and plans. And we’ve seen that that through -- when we saw some of the retailers’ results in Q4 and I’m advised that that continues. It was good to see the incumbents and some of the price moves that happened in the quarter. Consistent with the past two quarters, we are also seeing a much smaller switcher market as each incumbent carrier continues to show improvements on churn.

The other thing that was a factor in the quarter, I think as there were really no iconic devices. The GS5 launch fell into Q2. I think it’s easy to forget as well that with our much bigger base, confluence adds don’t translate quite as quickly to net add as we continue to have a bigger base of customers deactivating. So, we were pleased to see the churn down in the quarter and we think that’s a promising trend going forward.

The other thing that we’ve chosen not to count in the numbers is we’ve sold about 15,000 wireless home phones and it’s a continuation of a trend we’ve seen in past quarters. It’s a very promising product, a real opportunity to bundle up our wireless customers out of footprint. We continue to do that quite successfully so. But I think it’s going to take a little while until customers adjust to the new pricing in market.

Glen Campbell - Bank of America

Just a quick follow-up on that, I mean, the pricing, in my sense was fairly aggressive through most of the quarter and now sort of late in the quarter and into Q2, it’s much, much more disciplined. So, would it be fair to say that you are making the trade-off for ARPU at the expense of sub growth for the balance of the year?

Guy Laurence

Glen, it is Guy. Let me answer. I think that is true to say. What I would say is that Rob and I have decided to change tactics slightly. I’m not saying it’s a structural change but we are experimenting with changing tactics, taking some of the noise out of the market. It wasn’t necessarily droves pass in the first place in a way but nevertheless, we have reduced the amount of promotional activity and we are continuing to monitor that how it plays in the marketplace more widely and how it obviously affects our own trajectory going forward.

Glen Campbell - Bank of America

Okay. That’s helpful. Thanks very much.

Operator

Your next question comes from Jeff Fan with Scotia Capital. Please go ahead.

Jeff Fan - Scotia Capital

Thanks. Good afternoon. My question is on spectrum and it’s probably a question for Guy. Given the amount of spectrum that you acquired in the 700 auction, can you talk a little bit about just the return? I think you touched on it a little bit. I guess specifically, how do you expect to gain the return from the amount that was spent and maybe help us think through whether the returns will come from revenue side or whether it’s more going to come from the cost side and whether you think there are changes that’s going on in the market where perhaps more comes from the cost and less from revenue?

I’m just wondering if you can talk a little bit about that. And then also part two of that is as you look forward, given the focus on spectrum, wondering if Rogers will continue to be very focused on acquiring more spectrum, as they become available to help you attain some of the return that you are looking for?

Guy Laurence

Okay. So, I think to the first question, it’s really a smorgasbord that works in Canadian, but the smorgasbord have different segments that actually deliver the return on investment because if you take -- let's take an urban news case. You’ve got better penetration in buildings now, deeper into buildings and things like elevators and so and so forth and therefore people will have more places that they can access the internet and their consumption we know is growing and therefore you get an upside there.

You also get the fill-in of not spot or areas in cities where particularly you've got areas with coverage difficulties, maybe based on the fact they can’t get another tower, that kind of thing. And then as you broaden out into more of the rural areas so you get considerably -- you get spectral efficiencies from deploying this spectrum because of its reach.

So as a consequence of all of that, you then get the ability to acquire or retain more customers because it’s available to you. On top of that, I would cite the importance of video which I fundamentally believe it will be one of the killer use cases going forward. So what we've seen, I saw in Europe was the clear role of media -- sorry, video increasingly becoming more important and going back to the very first question I had also the importance of having content put across the mobile internet in order to drive video usage.

So what we saw was European starting to pick up and use video in a significant way. And this spectrum is particularly well suited to that. So I think the combination of having the beachfront spectrum and NHL rights, and we shouldn’t forget that, the two things together produces a very attractive use case to either retain or acquire new customers. And therefore I think it would be quite difficult new models to break that down. I am sure you all have a go but I know from my past, it’s quite difficult to break it down. So we do fundamentally believe that it will give us an upside versus the others.

On the second thing -- on your second question about more spectrum, I think well maybe I should quote Ted Rogers. I think he said he never met a megahertz, he didn't like. It's quote I quite like as well but having said that we’ll buy spectrum where we think we needed for the future and obviously in the cases the 700 megahertz. So actually you are talking about 28 play. So if you miss out on it, you miss out on it for 20 years. So we'll continue to look at opportunities to buy spectrum if we think we need it and that will continuous as we see demand from customers either.

Operator

Your next question comes from the line of Phillip Huang with Barclays Capital. Please go ahead.

Phillip Huang - Barclays Capital

Thanks guys. Question for Guy. Just elaborate a little bit on the remarks that you made in the MD&A. I recognize I have yet to meet with the Board but I was wondering if you could give us some directional color on what some of the opportunities might be and whether some of those opportunity to improve the business are what you would consider lower hanging fruit that you could quickly show improvements or are you looking at more foundational changes that would have bigger payoffs but also take a little bit more time just directionally. What your thoughts are on that?

Guy Laurence

Yes, it’s a good question. I think it’s more of the latter than the former to be quite frank. There is always low hanging fruit when you come into a company but I think that it maybe relatively modest. So I think more of the upsides will come from things that may take longer periods to change if they want us to.

Phillip Huang - Barclays Capital

Great. Thank you.

Operator

Your next question comes from Maher Yaghi from Desjardins Securities. Please go ahead.

Maher Yaghi - Desjardins Securities

Yes. Thank you for taking my question. I was just -- maybe a follow-up to a previous question that was asked. In terms of the operating margin improvement in Wireless, it practically is equal to the lower retention spending you had in the quarter versus last year. And vice versa when you look at the cable business, the subscriber improvement is coming at the cost of the margins.

When you look at the business in general, you mentioned, Guy, you are trying to step away from some of the aggressive pricing. I believe you are talking about Wireless because in Cable you are so -- I mean you were looking at $99 in Atlantic Canada, you are still very spending a lot on retention in Ontario. How is your view on the cable business in terms of pricing versus Wireless?

Tony Staffieri

Maher, it's Tony. I'll lead up on this one. I think couple of things when you look at, couple of things you touched on. When you look at Cable performance, if we’re to look at the impact of the promotions that we put out there you see that in the ARPU, the margins were more impacted by specific investments we decided to make in a few areas. The biggest one is the call center piece of it and then the second piece of it related to improvements in the network that were caused by weather-related items. And so that's the bigger part of the cost aspect of it.

If you were to look at the subscriber performance, I would say we've been pleased with the way that's been coming along over the last several quarters as our competitors, Fiberbuilt, overlap with us approaches what we estimate to be 80% to 85% like we're seeing a pretty good progression downward, not just similar to the pattern that we saw in the U.S. several years ago.

The read back that we are getting is that many customers were finding or coming back on a win back without necessarily having to rely on promotional offers. And so that's a good trend as they come off what would have been the competitor’s promotions or two-year contracts or commitment. So those are some of the primary dynamics on the cable side there.

Guy Laurence

And then on to the points about my early comments, yes they were primarily on the Wireless because that’s where Rob and I focused over the last quarter. We're also looking at a number of opportunities in cable as well, slightly different dynamics in the cable business depending on the competitive set and so on and so forth. But there is a principal, we're looking at the possibility of where we take fluff out of the market on that side as well.

You always get the odd promotion that’s in the system, that works it’s way through. You will see on a flyer or whatever because some of them are in train and so on and so forth. So you shouldn’t see this as a wholesale abandonment of all promotions from now on both Wireless and Cable. This is more of an experimentation phase to see what can be accomplished.

Operator

Your next question comes from Richard Choe with J.P. Morgan. Please go ahead.

Richard Choe - J.P. Morgan

Hi, thank you. I wanted to get a sense of how big you think Rogers Next could be in terms of your customer add when it gets up to scale. I know it's early days there, but I wanted to get a sense of what you are looking for?

Tony Staffieri

Richard, if you could please repeat the question that you cut out on a couple of the opening comments?

Richard Choe - J.P. Morgan

Sorry, I was just trying to figure out what the amount of Rogers Next might be in the plan?

Tony Staffieri

Are you first to the next Wireless program that we have?

Richard Choe - J.P. Morgan

Correct. Yes.

Guy Laurence

Tony, do you want me to grab that.

Tony Staffieri

Sure. That’d be great.

Guy Laurence

Richard, the next program is a program that recognizes that areas of sub-segment and customers out there that would like to get a new phone every year. And they would be glad to pay a little bit for that privilege to have that accelerated update. As you so rightly put it, it's still early days. It's been met with some enthusiasm out there, but we'll continue to tweak and try to make it work for customers in the best possible way as we go forward.

So I think the other thing it's important to take away is it is a very different program than what the U.S. carriers are doing. The U.S. carriers are literally not financing the next phone, they're financing the current phone with an add-on on the build. And what it’s causing is a pretty significant reduction in their handset subsidy and as a consequence a real uptick in EBITDA.

The next program that we have and that we’ve launched is different from that. And I think it's just important to make that distinction.

Richard Choe - J.P. Morgan

Great. Thank you.

Operator

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

Dvaipayan Ghose - Canaccord Genuity

Yeah, thanks very much. Question for Guy or for Rob. Rob, it's good to see more rational pricing from Rogers and your other peers, you did lose 440,000 Wireless subscribers in the quarter. And while we haven't seen the results from Bell or Telus yet, last year you lost 661,000 more subscribers than Telus on the Wireless side and 392,000 than Bell. You claim to have the best network. You clearly have as good if not a better handset supply than your competitors. What are the main drivers of churn and what strategies are you pursuing to reduce churn further?

Rob Bruce

That great question Dvai and I think we probably talked about it before. We led off the call today talking about our investment in 700, beachfront real estate, the ability to be able to deliver superior video experience and that speed advantage that we have, I think we’ve got an opportunity to merchandise it and sell it a lot better to customers. We believe we got a very strong value proposition around share everything. And we’ve been working hard to improve all aspects of customer service and customer experience.

And we’ve been creating excitement by highlighting some of the great new devices and we’ve been continuing to try to innovate for customers with things like free hub and the next program and other things to continue, to show the value proposition for customers, Dvai and we’re pleased. We’re starting to move the numbers. They are modest still and we’d like them to be better and we continue to be very committed to putting a very strong focus on churn.

Operator

Your next question comes from Greg MacDonald with Macquarie Securities. Please go ahead.

Greg MacDonald - Macquarie Securities

Thanks. A variation of Dvai's question. I will go back to the postpaid subscriber declines, 8% in the quarter. And I think as Tony was pointing out, that is not unique to Rogers. We have seen that both with Telus and with Bell. One might speculate that you will continue to see that trend evolve further. I mean, what gives you, Guy and/or Rob, what gives you so much confidence that the market is actually willing to absorb the higher priced subsidy model? At what point does this market not have to move to equipment installment plans or something that strips out that subsidy in a greater way and runs the risk, of course, when you do that of highlighting exactly what they are paying for access and therefore a potential for greater competition on Wireless pricing?

Tony Staffieri

Greg, it is Tony. If I could just read up one of the -- and then I’ll pass it to Rob. But one of the significant proof points that we are seeing is within our base, the propensity of the customer to upgrade on their nickel before they are entitled to free upgrade. And so under our current flex program, they pay the unamortized portion. And so it’s remarkable how many are upgrading before the three or two year timeframe and their willingness to pay for the ability to get into the latest device. So that’s one significant proof point. Rob, you want to add to that?

Rob Bruce

Yeah. Listen, I think there is -- we will continue to do lots of things to stimulate the appetite for our customers. I think what we’re all saying is to make that a better business proposition for all concerned. It’s going to be less focused on price and dropping handset devices and more about amplifying the value proposition and making that resonate more for customers.

So, we look at Next as a step in that direction. Look at some other things that we can do with the NHL, with video and other things to kind of continue on to build on that value proposition and take us to a place where the customers see the value and it will be less about price.

Tony Staffieri

If I can just clarify as well and while we’re on the topic of upgrade. I wanted to come back to a question. Drew, you had asked and I don’t think I was very clear. Your question was what percentage of our upgrades were hubs. So the total activations of smartphones in the quarter, 68% were hubs. Of the total postpaid base that represents 5.1%. So, I want to make sure you got the right numbers on that.

Operator

And your next question comes from Tim Casey with BMO Capital Markets. Please go ahead.

Tim Casey - BMO Capital Markets

Thanks. Could you talk a little bit about trends in wireline on subs and pricing? You seem to infer that given the overlap with five, you thought it was 80%, 85%. You seem to be optimistic that competitive conditions on the wireline side are going to mitigate, yet your pricing was down significantly on the video side and on the voice side. I’m just wondering how we should think about those three metrics as we proceed through the year? Thanks.

Rob Bruce

Yeah, Tim. I’m just, I’m trying to make sure I answer the question that you want me to answer. Do you want me to talk a little bit about revenue trends on cable and then bounce to EBITDA and talk about where EBITDA landed and why Guy touch -- not Guy whether Tony touched on that briefly but I’d be glad to go through the revenue side?

Tim Casey - BMO Capital Markets

I’m more thinking about the future, Rob, then what came through in the quarter.

Rob Bruce

Yeah. So, I think the thing that we didn’t say in the earlier question because of the way the question was asked is we’re pleased because we’re out there and gap managing. We’re not chasing Bell’s pricing where they’re aggressively buying customers. We’re gap managing that. I think we're better executionally and we kind of figure out more effectively where the gap is that makes the customer indifferent. And we’re effectively, more effectively leveraging that on a going forward basis and just honing some of the tactics.

Again, we hit about 76% overlap of our footprint as Tony pointed out. We think that the numbers that we’ve heard on Bell calls and other things is 80 to 85 as we’re caps off. So, I think in the future that's a fairly good news story for us because they’ve been powering some of their acquisition on the expansion of footprint and as that acquisition -- that extension of footprint dries up. We think it will bode well for subscribers.

The other thing that I get to talk about on some of the calls is we continued to play the Internet card very aggressively, because just like we have leadership in Wireless, we have vastly superior Internet. And I would say the other thing that we’ve been really active in doing is dialing up our Internet message, talking about what makes us different. We’ve been making some very aggressive investments in our current platform.

We’ve moved an awful lot of customers on to our NextBox offering, which has an enhanced interactive guide, a better UI and search for remote controls, smartphones and tablets and just generally a much, much better experience. We continued to work hard on extending our video offerings to new platforms, probably as aggressive as anybody in the business. And even though that we’re truly focused on a long-term IP-based video platform and we’ve mentioned that on past calls.

And the last couple of things I would just touch on is our focus on, a strong focus on retention. And when back, Tony made reference to that early and significant tactical acquisition efforts and what I call hand-to-hand combat and the footprint has been even more successful so. Anyway, those are few data points. Tim, I hope some of that helped?

Tim Casey - BMO Capital Markets

Could you -- what do you mean by gap managing?

Rob Bruce

So gap managing means you don't exactly go after the competitors pricing. So if I went back to my Pepsi days, when private label was at $399 a case. Pepsi didn't chase private label by taking their price to $399 a case. We figured out that hitting it to $499 a case or some other number was loads good enough because at that point, the customer would choose us over choosing a private label. Again, not a telecom example but the same kind of mindset, don’t chase the competitors pricing, but find the price at which you are -- the customers actually indifferent between yours and your competitor.

Tim Casey - BMO Capital Markets

Thank you.

Operator

Your next question comes from Rob Goff with Euro Pacific. Please go ahead.

Rob Goff - Euro Pacific

Thank you very much for taking my question. On the Wireless side, could you give us perhaps your perspective on the Wireless revenues if you were looking at it, measuring it by ARPA and what plans you may have in order to push the adoption of the share plans?

Tony Staffieri

Rob, it’s Tony, and I will lead up. We don’t disclose ARPA today. Clearly, I don’t want to put up that is something we started to measure internally. And I would to say to be helpful given the number of proliferation of multiple SIM cards we are seeing per user. ARPA has much better or slightly better trending I should say than ARPU, but it doesn’t necessarily change some of the fundamental trends that we are seeing to be transparent with you. Bob, anything you would add to that?

Bob Berner

I would just -- honestly just add Rob we’re having great success with the Share Everything plans. I think they are very compelling for customers. Many of us are in similar situation where we have multiple members of the family that are looking for a plan where they can share a large bucket of data. The vast majority of customers we touch are going on those plans. And while we were disappointed when the competitors doing voicemail and calling land ID into the plans, we think the fundamental structure of the plans and the simplicity of the plans is a real positive, both for us and for customers.

Rob Goff - Euro Pacific

Okay. Thank you.

Operator

Ladies and gentlemen, we have the time for two additional questions today. The first of which will come from David McFadgen from Cormark Securities. Please go ahead.

David McFadgen - Cormark Securities

Yes. I have a question on ARPU both Wireless and Cable. So if you look at your Wireless ARPU, it looks like your voice revenue was down about 13%. Just wondering when do you think that that might materially improve because that would obviously have a very big benefit on your total ARPU? And then when you look at the cable ARPU on your telephony side that was down quite a bit in the quarter. And I was just wondering, is that a new level that you think you will be using going forward?

Tony Staffieri

Bob, do you want to take that one?

Bob Berner

Sure. So voice ARPU will continue to be under pressure over time as we migrate our existing customers to the Share Everything plans. I think what Tony keeps us honest with is more and more the distinction between voice and data become more difficult to tease apart. And we’re very committed and believe that we as an industry should start transitioning to just plain revenue, because a lot of these plans now, what’s in voice and what’s in data becomes a bit of an allocation effort as opposed to something that’s absolute science like it was 10 years ago. The second part of your question David was about Cable?

David McFadgen - Cormark Securities

The ARPU is down a fair bit in the quarter. I was just wondering, is this a new level that’s probably going to use going forward or did you think it could come back again in Q2?

Bob Berner

Again, I mean, I think the thing that’s going on in cable and I think we’ve talked about it a little bit before is that as we continue to move customers to new pricing in cable that continues to have some impact. The really drivers of revenue and ultimately ARPU in the quarter, I mean, TV revenue has decreased by about 6% year-over-year. Pay-per-use volumes continue to be light. We’ve seen as would be expected with the new competitors in the market, we’ve seen some contraction of our subscriber base, and that’s partially offset by the Mountain Cable acquisition as Tony pointed out earlier.

On Internet, we are delighted, that’s the great product that we have. We’ve seen Internet revenue increased about 10% year-over-year. Some of that is base expansion of about 4.8. Some of it is the third party Internet. Again, we are very happy because our retail Internet piece of the business is growing well. Peer migration and rate increases on Lite, Express, Extreme, Extreme Plus and the Ultimate tier.

And lastly telephony, home phone revenue decreased about 2%, higher acquisition and retention discounting offset by home phone base expansion of about 6.5%. We’ve got some Hamilton Mountain Cable in there as Tony identified earlier and some rate increases as well. And of course the timing of the rate increases being different this year than last year also has an effect on the revenue for cable.

Operator

And our last question in queue comes from Drew McReynolds with RBC Capital Markets. Please go ahead.

Drew McReynolds - RBC Capital Markets

Yes. Thanks very much for taking the second set of questions here. Just question on the media side, perhaps for Keith. Just two questions. First, obviously you and your competitor spent quite a bit on programming, particular Sportsnet. And just wondering, if you could give us the dynamics in terms of the timing of carriage renewal and to what extent you can -- there is a gap here between kind of programming costs going out and your ability to recoup that from a subscription standpoint?

And then just secondly the comment on advertising trends, obviously I think we are all on this call aware the structural headwinds in the ad market, and obviously there is an Olympic impact in the quarter. Just wondering if you could talk to just the underlying cyclicality of the ad market as we look into calendar Q2, and if you can provide a little bit of granularity on specialty versus conventional versus print that would be great?

Keith Pelley

Sure. I will start with the advertising. There is no question, it is not a cyclical change, it’s a structural change for sure. There is just a plethora of opportunities for marketers to spend their advertising dollars. And as a result which really need is the strongest, most compelling content that resonates with consumers across any device. And hence the reason that we were aggressive in our pursue of the coveted content which was the NHL. And as a result, we are in the market right now with the National Hockey League advertising, and it is having an effect on our entire business and really bodes well for us in Q3 and Q4. But there is no question that it is a structural, not a cyclical change.

In terms of publishing because you made reference to that, we believe that we are well positioned in the publishing business based on the launch of next issue. To-date, it has over 45,000 subscribers, paid subscribers, another 20,000 that are receiving it on a free trial right now, and it’s going at a real torrid pace. And from a digital perspective and a publishing perspective that’s where we believe the market is going. And although we have invested significant dollars in Q1, we’re thrilled that at the take on it already and believe that we are well positioned.

In terms of the Sportsnet renewals, they vary with different BDUs and we are in the market right now discussing them. Obviously, it has changed with the acquisition of NHL because it has changed the actual value of those properties. When you look at adding 500 plus games to the marketplace then we now have a stronger service. So over the next couple of months, we will be looking to renew those deals, obviously with the acquisitions of the Vancouver Canucks and a 10-year deal that we have there with the Oilers and the Flames, we are incredibly strong out West. And with the strong Blue Jay programming, we believe Sportsnet is well positioned to get fair market value for those services.

Drew McReynolds - RBC Capital Markets

Thank you.

Operator

Ladies and gentlemen, this does conclude the Q&A session for today. Now, I will now turn the call back to Bruce Mann for any closing remarks.

Bruce Mann

Well, thank you very much, Ron. We appreciate everybody spending bit of time with us during what we know is a very busy period. The team here appreciates your interest and your support and most importantly if you have questions that weren’t answered on the call, myself and my colleagues, Dan and Bruce Watson are here for the evening. And we’ll be happy to follow-up with you on anything that you might need. Our contact information is on the release. This concludes this afternoon’s call. We again appreciate your interest. Thank you very much.

Operator

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

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