Rogers Communications' CEO Discusses Q4 2010 Results - Earnings Call Transcript

Feb.16.11 | About: Rogers Communications (RCI)

Rogers Communications (NYSE:RCI)

Q4 2010 Earnings Call

February 16, 2011 8:00 am ET

Executives

Robert Berner - Chief Technology Officer and Executive Vice President of Network

Nadir Mohamed - Chief Executive Officer, President, Director of Communications Division and Director

William Linton - Chief Financial Officer and Executive Vice President of Finance

Robert Bruce - President of Communications

Bruce Mann - Vice President of Investor Relations

Analysts

Robert Goff - NCP Northland Capital Partners Inc.

Peter MacDonald - GMP Securities L.P.

Dvaipayan Ghose - Canaccord Genuity

Robert Bek - CIBC World Markets Inc.

Jonathan Allen - RBC Capital Markets, LLC

Phillip Huang - UBS Investment Bank

Glen Campbell - BofA Merrill Lynch

Richard Prentiss - Raymond James & Associates, Inc.

Simon Flannery - Morgan Stanley

Matthew Niknam - Goldman Sachs Group Inc.

Jeffrey Fan - Scotia Capital Inc.

Tim Casey - BMO Capital Markets Canada

Vince Valentini - TD Newcrest Capital Inc.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Rogers Communications Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] And I will now turn the conference over to Mr. Bruce Mann from Rogers Communications management team. Please go ahead.

Bruce Mann

Thanks, operator. Good morning, everybody. We appreciate you joining us for Rogers' Fourth Quarter 2010 Investment Community Conference Call and Webcast. It's Bruce Mann here. Joining me on the line in Toronto this morning are Nadir Mohamed, Rogers' President and CEO; Bill Linton, our Chief Financial Officer; Rob Bruce, the President of our Communications Division; Keith Pelley, who is the President of Rogers Media; and then Bob Berner, our Chief Technology Officer.

We released our fourth quarter results earlier this morning. And the purpose of this morning's call is to quickly provide you with a bit of additional background and color upfront and then answer as many of your questions as time permits. Today's remarks and discussions will undoubtedly touch on estimates and other forward-looking types of information, from which our actual results could differ. And so you should review the cautionary language in the release of this morning and in our full year MD&A. This includes all of the factors and assumptions and risks and how the results could in fact differ from them. So those cautions apply equally to our dialogue on this morning's call.

If you don't already have copies of this morning's release for our 2009 Annual Report to accompany this call, they’re both available on the Investor Relations section of rogers.com. We'll be filing our 2010 full year MD&A financial statements and notes within the next two weeks. But they are not current available, they will be shortly.

With that, let me turn it over to Nadir Mohamed and then Bill Linton for some brief introductory remarks, and then the management team here would be pleased to take any questions. So over to you, Nadir.

Nadir Mohamed

Thanks, Bruce, and good morning, everyone. And thank you for joining us. As you can see from this morning's earnings release, we delivered another quarter of growth in new subscribers and revenues while continue to generate significant free cash flow.

In what was clearly an intensive competitive environment, we sold and activated a record 635,000 smartphones, well exceeding the previous mark we set in Q3 of this year. And so, accordingly, the most significant driver of our top line growth was the continued strong growth in our Wireless data revenues.

In Q4, Wireless data revenues were up 32%, accelerating sequentially from the 28% growth we delivered in Q3. These now represent 31% of Wireless network revenue. Let me put that in context. In Q4, our Wireless data revenues exceeded $500 million, and for the full year, it totaled CAD $1.8 billion. And our success executing our Wireless data strategy is reflected in what continues to be our sector-leading ARPU.

Now our Q4 financial results were consistent with our commentary each of the last couple of quarters. First and foremost, they reflect the heavy Q4 focus on and success we've had in the high end of the Wireless market. Between our sales and new Wireless subscribers and upgrades by existing subscribers, we activated more smartphones in Q4 than at any single quarter ever. And importantly, on the gross additions front, Q4 was the highest quarter ever for smartphone sales to new customers. We're obviously committed to the strategy of leveraging our proven strength in Wireless data to drive this smartphone adoption.

The smartphone metrics ARPU churn, upgrade rates remain intact and represent an excellent NPV positive investment as we bring in and retain our highest lifetime value of customers. This reflects the consistent focus in investments we’ve made, not just over the last few quarters, but frankly, over the past number of years as we've executed our Wireless data strategy.

It’s also worth noting that the strength we saw this quarter was across the board through the smartphone categories, including record -activations for each of BlackBerry, iPhone and the Android devices. This balance of devices over time should further improve our customer acquisition and retention economics.

Clearly, in quarter, the strong smartphone acquisition retention level has a dampening effect on EBITDA margins. Comparing Q4 over last year, our hardware costs increased by almost CAD $100 million. Despite this significant increase with solid cost control, we had costs virtually flat in every other category. We were able to deliver what I believe is a very respectable 42% EBITDA margin. As expected, the results also reflect the impact of increased competition on voice ARPU and churn.

The continued decline in Wireless voice ARPU reflects the increased majority of the voice market; clearly, the level of competitive offers that are in market; and the impact of our lower roaming rates. Our postpaid churn did tick up incrementally both year-over-year and sequentially. And recognized in the competitive environment, we put a sharp focus on retention to help ensure that we minimize churn in the most valuable segments of our base. And we've been successful in this regard as our churn rates on our smartphone base are measurably lower than our average postpaid or blended churn rates.

We've also been increasingly successful applying more of the same focus on retention and value into segmentation on the Cable side of the business. Again this quarter, our churn levels across the Cable products are down, including on basic Internet, Digital and Home Phone, which is obviously critically important in a maturing product category.

We successfully focused not just on churn in the quarter but on cost control at Cable as well. The results of that focus are clear, with Cable operations EBITDA margins of 46% in Q4, which is the highest it has been in quite some time and with double-digit EBITDA growth as well.

Also, as noted, that during Q4, we installed our millionth Cable telephony subscriber, and the penetration of that product is now 44% of our basic Cable subscribers. Just something to keep in mind is the divestiture of the circuit-switched portion of the Telephony business, which we announced at the end of Q3 and which began in Q4. And during the quarter, we transferred just under 30,000 of these circuit-switched lines under this arrangement. And we would expect to complete the migration literally [ph] (23:24) about 46,000 lines remaining during the first half of 2011.

It's important to appreciate that if you were to exclude these circuit-switched business that we're in the process of divesting, the year-over-year revenue growth for Cable ops would have been measurably higher. And in a few minutes, Bill will provide a bit more color on this issue.

Now turning to Rogers Media, a very good quarter in terms of top line growth with the strong acceleration from Q3. This reflected solid ratings, subscriber fees and the John [ph] (23:58) improving ad markets driving growth of the television, Sportsnet, radio and publishing groups but albeit somewhat softer at sports entertainment.

As well, a big part of the Q4 story for Media was the new Sportsnet ONE, national televised sports network, which we launched in the second half of 2010. We said last quarter that the start-up costs would ramp and peak in Q4, and you can see that is the case in the Media EBITDA results. Bill will share a bit more granularity on this in a moment. But I'll state for now that if you were to exclude these Sportsnet ONE start-up costs, Media's EBITDA would have been up double digits versus the reported decline.

This investment in expanding our televised sports platform leverages Sportsnet’s proven model and franchise, and I’m confident will deliver solid growth. This complements what is already a very solid breadth and depth of Media platforms at Rogers.

So to close out on the year, let me point out that we delivered on our commitments, meeting or exceeding all of our 2010 guidance metrics. We grew subscribers, revenue, EBITDA and cash flow at respectable rates. We continue to invest at a healthy pace for the future. And importantly, we increased the dividend at a double-digit rate, and in total, returned more than $2 billion of cash to shareholders.

Our guidance for 2011, which is included in this morning's release, is the continued but moderated growth with continued solid margins, Wireless data growth and strong cost control. It is also reflective of what we expect will be a continuation of the intensely competitive environment we saw in the second half of 2010.

You also see a modest increase in our CapEx for 2011. This primarily reflects incremental spending directed towards our multi-year deployment of LTE Wireless technology, which, as you know, we began trialing during the second half of 2010. We'll have more details in the coming months. But for now, the incremental spending for LTE deployment is principally to lay the foundation in the areas of network densification and transport augmentation. It's clear to us that a robust LTE deployment will require a multi-band approach to leverage the full promise of this powerful true 4G technology.

Rogers has always invested to secure our position at first to market with the latest technologies and is Canada's network leader. And that is not going to change as we go forward. Also for 2011, we announced this morning that the Rogers Board has approved a healthy 11% increase in our quarterly dividend to an annualized CAD $1.42 per share and also authorized a share buyback program for 2011 of up to CAD $1.5 billion. This underlines our Board's continued confidence in the Rogers franchise, strategic position and cash flow generation capabilities.

To conclude, despite an increase in the competitive market, we continue to deliver growth with very respectable margins, strong free cash flow, enabling us to return significant cash to shareholders while, at the same time, reinvesting for growth at a healthy rate. I'm confident that we're well positioned going forward clearly in terms of asset mix and financial strength, but also with a robust product portfolio, great brands, distribution and networks and a seasoned management team that is absolutely focused on execution. Let me now turn it over to Bill, and then we'll take your questions.

William Linton

Thank you, Nadir. I will provide a little more detail on the financial results and the metrics for the quarter. On the top line, our consolidated revenue growth was 3% for the quarter. This reflects top line growth of 3% at Wireless network, 2% at Cable Operations and 9% at Media.

At Wireless, we now have 41% of our postpaid base on higher-end smartphones, that's up from 31% level we were at the same time last year. These are higher ARPU, lower churn and higher lifetime value subs. As you can see in terms of our postpaid Wireless results, overall, the 3% increase in network revenue is a bit of a sequential deceleration from Q3 of '10. This reflects continued softness on the voice ARPU side, consistent with Q3 of this year, and with the level of competitive intensity in Wireless during the heavily promotional Q4 holiday shopping season.

But as Nadir pointed out, and as you can see from our gross additions, sales remained strong. And as you can tell from the record sales of smartphones to new customers, that success was concentrated in the higher end of the markets. On the prepaid side, the year-over-year increase in subscriber additions reflects a combination of continued additions under our new chatr brand, as well as continued activations of iPad tablets, the majority of which are activated on prepaid plans. We categorized both of these in prepaid as both have prepayment features and don't require term contracts.

I'd point out that, to date, both of these products have ARPU and churn characteristics that are accretive to our historical prepaid metrics. However, because of the early stage of both of these offerings and for obvious competitive reasons, we're not going to get any more specific in terms of providing metrics for you at this point.

In terms of Wireless network margins, I'd point out a couple of factors to consider. First, as Nadir mentioned, we had a significant number of smartphone sales during the quarter, the highest level ever actually. Combined with an unusually large number of upgrades for existing smartphone subscribers, and both happened at the same time.

Together, these had the effect of increasing the cost of equipment sales by almost CAD $100 million year-over-year. Offsetting this, and as a result of very solid cost controls, we were still able to put up respectable 40% Wireless service margins for the quarter.

Turning to our Cable operations, the revenue growth rate reflects a couple of items worth mentioning. First is the declining Circuit-switched Telephony business, of which we are halfway through divesting, was dilutive to the rest of the Cable Ops business, not just in terms of margin but in terms of top line growth as well. Normalizing for the year-over-year decline in that part of the business, our top line growth would have been about 120 basis points higher in the quarter.

Secondly, we had about a 50% lower volume of subsidized digital box sales in Q4 of this year versus last year as our focus was more heavily on the box rental model. So this had the impact of bringing down the revenue growth by another 100 or so basis points. Adjusting for these items together, I'd say a normalized level of revenue growth rate for Cable Operations would have been 4% versus the 2% that we reported. Now what I think is impressive at Cable Operations for the quarter is the excellent cost controls, which helped drive EBITDA up 16% and margin expansion to 46.2%.

An important note on Media is the continued free launch period, which started late in Q3 at the new Sportsnet ONE televised sports network, that Nadir mentioned. Media's costs and margins were heavily impacted by the Sportsnet ONE network start-up investments.

In Q4, we acquired incremental new programming to launch the network with and there was a seasonally large number of professional hockey games. But at the same time, we were just starting to ramp-up revenue.

Excluding the start-up period losses, Media's EBITDA would have been up 10% year-over-year versus the decline that's reported. However, Sportsnet ONE has now crossed the 5 million subscriber mark. We expect that Q4 was the peak period of losses relating to the creation and launch of this network, and we should be EBITDA positive in Q1 for this network.

Stepping back to a consolidated view, still respectable top line growth despite increased competitive pressures, combined with good progress around OpEx and CapEx containment. But as we had suggested last quarter, the operating profit lines was pressured by the record number of Wireless smartphone sales and activations, along with the Sportsnet ONE start-up costs.

During the fourth quarter, we generated CAD $318 million of free cash flow, which among other things, we used to buy back 10.1 million Rogers shares for CAD $347 million under our share buyback program, and we paid out CAD $184 million in dividend. That's over CAD $500 million of cash returned to shareholders in the fourth quarter alone.

For the full year, free cash flow was CAD $2.1 billion, which among other things, we repurchased 44 million shares for CAD $1.3 billion and paid out over CAD $700 million in dividends during the year. In total, CAD $2.1 billion of cash returned to shareholders in 2010, reflecting a 10% dividend increase and the execution of one of the largest share buybacks the company has ever done.

I'd also note that over the course of the year, we have reduced the average cost of our outstanding borrowings from 7.3% to 6.7% or by 60 basis points as a direct result of debt financings we executed over the course of 2010. These financings serve to extend our maturity schedules as well.

Looking to 2011, we laid out our full year financial guidance in our release this morning, which you should all have. As you can see from the supplemental detail that we provided, we're expecting continued top line growth across all three of our main business segments albeit with a somewhat moderated rate of growth at Wireless, both on the revenue and EBITDA lines, reflecting the assumption of a continuation of the trends we've seen in the second half of 2010.

You can also see there is a modest increase in CapEx, which Nadir referenced a moment ago. With the net result being that we currently expect free cash flow to be flat at just under CAD $2 billion to potentially down by up to 6%. You'll note that for fiscal year 2011 guidance, it is provided on an IFRS basis to match with how we will be reporting our results starting in Q1 of this year. And we presented the same metrics for fiscal year 2010 actuals on both a GAAP basis and restated under IFRS so you can have an apples-to-apples comparison.

As we discussed last quarter, based on the IFRS standards as they exist today, we don't believe that this is going to have a material impact on what we report as revenue, operating income or earnings versus under Canadian GAAP, which we use today. You'll see in this morning's release that we’ve provided some condensed Q4 and full year 2010 income statements and balance sheets prepared under the current IFRS standards and compared them to how we report today under Canadian GAAP. Then we've noted where and why items differ between the two.

I'll finish by saying, overall, on a consolidated basis, we put up healthy but somewhat moderated growth for 2010, reflecting a combination of successes on the sales side, investments in high-value customer acquisition and retention and a very competitive environment. We continue to be in a very strong financial position. Exceptionally solid balance sheet. We have investment grade ratings and relatively low balance sheet leverage at 2x debt to EBITDA. And we have approximately $2.4 billion of liquidity available under our fully committed multi-year bank facilities.

So in terms of the balance sheet; from the perspective of leverage, liquidity and maturities; we continue to be in a very strong position. With that, I'll pass it back to Bruce and the operator so we can take any questions you have.

Bruce Mann

Thanks, Bill. Operator, we'll be ready to take questions from the participants in just a couple of seconds. [Operator Instructions] So with that, operator, if you could quickly explain to the participants how you'd like to organize the Q&A polling process.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question today comes from Jonathan Allen of RBC Capital Markets.

Jonathan Allen - RBC Capital Markets, LLC

You characterized the record number of smartphone sales and upgrades in the quarter as being sort of unusual relative to past years. But when I look at your Wireless guidance for the year down, sort of Wireless EBITDA down 3% to up 1%, suggests that it wasn't really a onetime about rather you're expecting some of those continued pressures going forward. Is it mainly the retention spending remaining high that's putting pressure on the margins? And I'm just wondering whether you could elaborate on that a little?

Nadir Mohamed

Jonathan, my reference to the 635,000 obviously was for the quarter. And specifically, to highlight that we have the highest number of sales from the growth [ph] (38:35) side, as well as activations in terms of retention. As you know, Q3, we had a pretty strong number of smartphones, both acquisition and upgrades. And what it reflects is the fact that the two years ago, we had introduced the iPhone. And so in the back half of 2010, you have the impact of this two year renewal rate for the iPhone customers. So when you look forward in terms of upgrades, we carried on, obviously, with the iPhone. So that base continued to grow. So I think you will continue to see us have strong retention upgrades around smartphones, not just with iPhones but BlackBerry, Android and the rest of the category.

Jonathan Allen - RBC Capital Markets, LLC

Well, how much was the iPhone impact in the quarter? Because if you think about it, you’ve had a large incoming [ph] (39:24) base of iPhone customers in the last few years. And finally now, Bell and Telus came out with the iPhone 4, and a lot of your customers coming off contract could switch. Was that one of the main reasons for the pressure that you saw in the quarter? And on that basis, we should probably see things stabilize in the next year?

Nadir Mohamed

Jonathan, I'd say, it was across the board, to be fair. So I wouldn't -- the only reason I'd [indiscernible] (39:46) on the iPhone was that if you look at back half of '10, you did start to see the renewals from two years ago. But the renewal rates are across the board. So when you look forward, think of it as the smartphone base. We now have 41% of our base on smartphones, different vintages, obviously. So that will be a part of our business going forward, not just with iPhone but across the board.

Operator

Your next question comes from the line of Phillip Huang of UBS.

Phillip Huang - UBS Investment Bank

My question is on churn. Can you please elaborate a bit on postpaid churn? On the surface, despite the increase in your retention spending, your churn is still up 14 basis points sequentially. But given your focus on higher value customers, I suspect, on average, the customers leaving you have ARPUs are notably lower than the average for your postpaid base. So first, is that a fair assumption? And second, I was wondering if you would be able to give us an update on where most of those postpaid customers are going? Is it to chatr or other incumbents or new entrants?

Robert Bruce

It's Rob, Phillip. Yes, your assumption is exactly right. The focus of the our churn or the focus of our retention efforts were largely against our highest valued customers, smartphone customers and high-value customers, and our churn was on the low end of the market as you appropriately identified. There were no unusual onetime items in the quarter, other than to say we had service-level challenges through the quarter, which characteristically rises to slightly higher levels of churn. And I think those are in the numbers and that might be relevant to your modeling going forward.

Operator

And your next question comes from the line of Bob Bek of CIBC.

Robert Bek - CIBC World Markets Inc.

Just back to Jonathan's question on the cost side for Wireless. Nadir, Rob, can you update us on your thoughts on the smartphone economics? Obviously, these usually higher upgrade cycles are likely to continue to squeeze as we get more and more devices sort of coming faster. And how do you feel about data-pricing control and your ability to kind of push these into your base economics that you find attractive?

Robert Bruce

Bob, it's Rob. Listen, we're completely committed to the smartphone and the high-value customer. The economics of smartphones with ARPUs 1.9x our non-smartphone customers. They have the highest LPV, continues to be very healthy characterized by very low churn. And of course, you know we're working to drive down costs both of devices by driving down the price of the individual devices and by working to a mix that favors a lower overall subsidy and working on hammering down the cost of service to continue to improve or sustain that LPV. We had a leading share for a long time. So as Nadir identified, we continue to upgrade these customers. We shouldn't be confused, I think, generally between the impact it has in the quarter because of the expenditure on devices for acquisition and retention and the underlying economics of each of these individual customers, which are terrific. So again, committed to the economics remain very disciplined in terms of our pricing both for devices and for rate plans and committed to the smartphone story as it's one of the backbones of our data strategy.

Nadir Mohamed

Bob, it's Nadir. I'm just going to add to it because I think it's a very important point. And one of the things that we always look at is what's the lifetime value of a particular offer or product. And as Rob said, we were very pleased. We started with certain assumptions around what the ARPU churn and an update rates would be. What's really good to note is that those assumptions have held up consistently. The reference to 1.9x, that's a very, very strong consistent ARPU level. The churn levels that we talked about, no question in Q4. With the increased competition, they ticked up to 1.35x. But I'd say that the majority of the uptick was related to non-smartphone. The smartphone churn levels are very much what we expected, if not better, actually through time and have held up reasonably well. The uptick rate, which obviously affects in-quarter financials, because you get the head on EBITDA, also are fairly intact. So it's very much along the assumptions we have made. And none of metrics that drive lifetime value have changed. Obviously, we'll continue to monitor each one of them. But it's important to note that they’ve actually held intact.

Operator

Your next question comes from the line of Simon Flannery of Morgan Stanley.

Simon Flannery - Morgan Stanley

I wanted to come back to the CapEx and the commentary around LTE. On the transport side, I think you've historically used microwave, are you're looking more at fiber? And then on the multi-band side, would you consider launching LTE before you got 700 megahertz spectrum or do you think you're going to wait? Because clearly, we're seeing from Verizon, a lot of new devices coming out as early as this month. So clearly, the products are starting to get ready -- the sort of the results from the network performance look pretty good. So it seems like it's sort of ready for prime time. So I'm interested in your thoughts there.

Nadir Mohamed

Yes, Simon, I'll get Bob to answer the question around microwave. But as far as the bands and the spectrum, let me say that we're convinced that the deployment of LTE will be a multi-band deployment consistent with what we see and expect happening in other parts of the world, and more to come in the fullness of time. At this stage, what we're saying is we're committed to LTE, we're committed in deploying it and it's going to be a multi-year deployment. Bob?

Robert Berner

Simon, our transport strategy really hasn't changed over the last several years. There is no specific rule that we follow. We use microwave or the most appropriate economic approach of supplying the backhaul capacity in fiber [indiscernible] (46:31). So we continue to deploy a combination of high capacity microwave systems up to 500 megabits per second and fiber systems as required.

Operator

Your next question comes from Vince Valentini of TD Newcrest.

Vince Valentini - TD Newcrest Capital Inc.

Back on the Wireless churn, I'm wondering if you can talk about two segments? Specifically one, geographically being Québec and one by segment being the corporate market. If you're seeing any pressure from Bell and Telus in that space.

Robert Bruce

Yes, Vince, it's Rob. Really nothing pops out as, obviously, major cities across the country. Lots of new action, both from the new entrants and lots of things coming from Bell and Telus and Videotron. But nothing pops out in terms of trends by market.

Operator

Your next question comes from Glen Campbell of Merrill Lynch.

Glen Campbell - BofA Merrill Lynch

I'm looking at your guidance for Wireless. It looks to me using the midpoints, you're forecasting a drop in margins by about one point. And yet when I look at your retention spending, you're 12.4% of revenues for the year, 16.3% for the quarter. All your competitors were up about three points for the quarter and your gross add share dropped below at third. So how do you hit those numbers in 2011?

Nadir Mohamed

Glen, obviously, one of the sensitive numbers in terms of the range that we offer that will drive the outcome is the amount of upgrades that we have. We've got some programs in terms of how we streamline our upgrade processes but without getting into the specifics of our assumptions around the different metrics that drive the EBITDA. I think it's hard to comment, beyond saying that we looked at the numbers. These reflect what we believe is a continued competitive environment. So we're not seeing that the environment changed, it's just how we execute within the environment then it leads to the numbers. There is a range that's set out. And one of the reasons that you look at that range going down in the EBITDA margin is really a reflection of the level of upgrades. That's the primary driver.

Glen Campbell - BofA Merrill Lynch

Would it be fair to assume that this retention spend in Q4 is a bit of a peak and you expect some reduction through next year on average?

Nadir Mohamed

Glen, it's probably not something that I really want to comment on, other than to say it was a record quarter obviously.

Operator

Your next question comes from Jeff Fan of Scotia Capital.

Jeffrey Fan - Scotia Capital Inc.

I just wanted to follow up on the LTE question. When you look at the multi-year deployment, I wanted to ask you guys about the key steps that are required, specifically on the sell side front. Is there going to be a greater density that's required as you roll out LTE? And then on the backhaul, with respect to microwave and fiber, I'm just wondering if you can characterize across the country, is there a way to characterize where we would see more fiber backhaul versus microwave? Does it have any relation to your Cable versus non-Cable territory?

Robert Berner

Jeff, it's Bob. Clearly, economics drive the fiber deployment. And it would make sense that in rural areas or in suburban areas microwave can be a much more cost-effective solution. In terms of density of fiber systems, urban areas are the target. Logistics will drive where to put these things. In terms of cell site density, we think that as the capabilities of these systems increase that usage falls. That has been the history of broadband altogether, and that will continue as we move into that real digital fast lane and provides the same capabilities in mobile Wireless that we have in environment systems. So all operators will be requiring additional cell sites to provide a better capacity, and more importantly, consistency of data feed. So the expectation, as part of our program going forward, not inconsistent with what's happening around the world. And I think going back to fiber thing, all our on-sites [ph] (51:11) are already on fiber systems, tight capacity and insights are really where the decision point is on microwave versus fiber.

Jeffrey Fan - Scotia Capital Inc.

And can you quantify what kind of increase in density what we could expect over time, maybe just generally?

Robert Berner

We announced the trial in Ottawa that’s reverting a lot from in terms of dual band operation of these networks. And we'll have more to say on these into the future.

Operator

Your next question comes from Matt Niknam of Goldman Sachs.

Matthew Niknam - Goldman Sachs Group Inc.

My question is on postpaid ARPU. This quarter, the rate of decline remained relatively stable sequentially. Wonder if you can provide some more color on how customer reprice activity, that started in third quarter, how that trended in 4Q? And then, maybe if you can sort of size up just an estimate of how much of your base you think could still be at risk of requesting some sort of reprice in 2011?

Robert Bruce

Matt, it's Rob Bruce. Listen, let me make sure that I cover both sides of the story. Obviously, the side of the story that we're most excited about is of the data revenue side of the story, with 31% of our total revenue coming from data and strong sequential growth to 32% year-over-year, driven off the smartphone’s growth in SMS and other parts of the Data portfolio. From a Voice perspective, clearly, it's a mature business. And as a consequence, people are making adjustments to plans, and we're working hard to retain high-value customers. That requires that from time to time, there is price trade down on some of the customers. And as well, and I think it's not as evident in the day-to-day discussions that we have. But remember that voice is impacted by roaming, and we've been saying for a number of years that we were the only players in the roaming game. Today, our two primary incumbent competitors are factored in the roaming business. They now provide international roaming outbound for their customers and for potentially all customers in the market. But moreover, we share that inbound roaming revenue with them now. So their Voice results are void by that increase in that inbound roaming revenue, and ours are diminished as we start to share that inbound roaming revenue with them. So those are some of the key vectors that are working on the voice side. There are vectors, of course, that we've expected as this business matures. And we're even more committed than ever to continue to drive the data side of the business, which is the core of our strategy to continue to sustain ARPU levels at the highest levels we possibly can.

Operator

Your next question comes from the line of Dvai Ghose of Canaccord Genuity.

Dvaipayan Ghose - Canaccord Genuity

Looking back at 2010, I'm really wondering what the justification was for chatr, given the fact that, one, you’ve just announced new Fido plans, which is essentially the same as the chatr plans; two, you clearly loaded up on prepaid in the second half of the year, and I think you must be disappointed by the 16% share of postpaid of national net additions in the fourth quarter; three, it forced the reprice of the whole industry, which would seem odd from the guy who’s an ARPU leader, traditionally; and four, it may have led to some regulatory concerns. So could you help me understand why you did chatr?

Robert Bruce

So I think, Dvai, buried in that question is a question about our postpaid nets for the quarter. And I think maybe what I'll do is I'll start by talking a little bit about that. Listen, I think it's important for everybody to take away that we were fully competitive at [indiscernible] (55:26). We got 32% with our incumbent partners. We got 32% of the share of gross ads as detailed. Q4, for us, was a unique and challenging quarter for inventory. The key devices, iPhone 4 and Torch, were in a very short supply for much of the quarter. And given our large smartphone base, we wanted to retain our strategy, the most high-valued customers. We mandated our channels to protect 70% of inventories for our existing customers. And as a consequence, frankly, we starved a little bit of our acquisition efforts. I think, under different circumstances, we could had seen quite a different outcome. The other thing is given that device supply was so short, we remained very disciplined on device retail prices versus our more aggressive incumbent competitors who were very share focused in the quarter with fewer existing customers to assist and upgrade. Our bigger base device, we're almost 2 million more customers than Bell, I think 1.8 million to be exact, [indiscernible] (56:33) about 75,000 more deacs in the quarter. So if you took our 48,000 and you added 75,000 to it, all of a sudden, we're in the range of 125,000 net as opposed to the 40,000, 48,000 we put on the table. And lastly, we continue to remain disciplined in our price plans on all three brands, commanding a premium at every category that we compete. In the long run, we think that although a small space, the all-you-can-eat space will continue to be a factor in the marketplace. Chatr has been very successful at competing in that space. And I think as the leading carrier in the country, you can't turn your back on growing parts of the market. So we continue to be focused there with the chatr brand and we continue to do things on the Fido brand to ensure it's healthy and vibrant going forward.

Operator

Your next question comes from the line of Rick Prentiss of Raymond James.

Richard Prentiss - Raymond James & Associates, Inc.

I'd like to follow on that same line. Rob, can you talk a little bit about what your thoughts are in 2011 as far as market share on the postpaid on a net basis? And the related questions, I think earlier, somebody asked was chatr cannibalizing postpaid, maybe a full answer on that? And then Videotron, as they rollout, are their wholesale customers accounted in your postpaid base, so if they move off onto their own network, is that going to affect churn?

Robert Bruce

I think I got two of those. I'll have to come back to you for the third one. In terms of postpaid share. Listen, on apps [ph], we would liked to see a slightly higher share this quarter. So no debate there. I talked about some of the circumstances that led to that. Your second part was on chatr, Rick?

Richard Prentiss - Raymond James & Associates, Inc.

Yes, any cannibalization on postpaid?

Robert Bruce

We've done some significant work to understand the cannibalization. Obviously, we have fourth data. We've also have done some research. About 35% of the customers in the chatr base actually come from our other franchises. And when we do research with those customers, 50% of those customers that move to the chatr brand would have left us for someplace else in the Wireless category in Canada, had we not had the chatr brand. So we continue to believe that it was an important move that we made on chatr, and that this, while it's still a niche category it's an important part of the business going forward.

Richard Prentiss - Raymond James & Associates, Inc.

And then, the final question was Videotron wholesale customers, I think there was like 70,000 or so. Are those in your postpaid base? What happens when they move those over to their own networks?

Robert Bruce

A lot of them have already been moved over, Rick. The ones that remain are revenues within postpaids, it’s not material to subscribers, [ph] are not counted for their postpaid base. So you don't see that in the base. You don't see that as a churn.

Richard Prentiss - Raymond James & Associates, Inc.

And are you guys still thinking, Rob, I missed the answer for 2011, are you thinking it's kind of a third share of postpaid or should we…?

Robert Bruce

Everything is baked into our guidance and, really, we don't give guidance on that net loads.

Nadir Mohamed

Rick, it's Nadir. The only thing that, maybe I'll just reinforce, is we see retention as the primary thing that we're focused on. We've got a great base of customers with strong ARPUs, high-value of smartphone customers. And when you look at net, obviously it's a function of what happened on the growth side and churn. And I think you should get a message from us that we are absolutely focused on churn and protecting our base, and making sure, to the extent, you've seen an uptick in churn that what we end up losing aren't the customers that are high-value but customers may be that are voice only or are attracted the lower end, some of whom, by the way, obviously will end up being on our other brands.

Operator

Your next question comes from Peter MacDonald of GMP Securities.

Peter MacDonald - GMP Securities L.P.

Not really a Rogers-only issue, but I'm trying to understand the success that everybody is having with smartphones. The fact that your life value of a customer is meeting your expectations and churn is focused on the low-value customers comparing that against where your financial results are and where guidance are. So maybe just trying to get an understanding? Is it because the new entrants are having a bigger impact than what you thought in your sub-base? Are the incumbents really just not accepting enough value for their high-value subs? Or is this just something that has to work itself through and we'll see the value maybe a year out or so?

Nadir Mohamed

Peter, I think when you look at the impacts on margin, what you see is our ARPU coming down albeit at somewhat of a moderate rate, just slightly better than Q3. And it's really driven on the backs of voice. Data continues to be very strong. But you do see that flow-through in terms of revenue, where the growth to revenue has been moderated. Churn has an impact on terms of your cost structure to get at the same net. You obviously, if you're churning more, you've got to get more loads in. And the big factor that drives margin and drove margin in Q4 is clearly the cost of acquisition and upgrade around smartphones. And that's where, because of the way we account for these things, it depresses the earnings in the quarter. But obviously, it's a great investment in the future. So when you look at the next year and you look at -- and the question that came up earlier about the implied at midpoint 1%, I think was the question. The churn really is the big number is smartphones. In Q4, we made reference to $100 million of extra costs. Well, if you take that $100 million off and if you were to account for it differently, you would have a much stronger margin in terms of what we’d report. So I think those are the things that drive it. The one thing that we haven't talked about, are these people [indiscernible] (1:02:58) but we feel very good about, is that we've had very strong cost management across the board. We talk about the smartphone category, but we see that as an investment. But every other cost category has been held flat. And we've got lots of initiatives to continue driving costs out of our business in 2011. And to a certain extent, that probably answers a bit of the earlier question as well.

Peter MacDonald - GMP Securities L.P.

I guess what I'm trying to figure out, I mean, the churn question is an important one because of the size of your base and the amount of investment that has to be made on smartphone. If I look at the difference that you can offer in the space or to retain value, the incumbents really is at the high end of the market, and we've seen the investments since the early launch of iPhone. And I guess what I'm trying to find out is where is the inflection point where the impact of the new entrants offset against the value that you have, that you continue to invest in on the higher value part of the subs? And I'm trying to understand, are the incumbents just not accepting enough value for those higher value subs. Are you trying to get market share against each other too aggressively, just where that kind at all stands?

Nadir Mohamed

Now, Peter, one of the things that you have to factor in the current period, what we have is offset the leading position with smart devices. Others are going to get smart devices in their base over time. So these things will play out. And one of the issues obviously we have, and it's just a reality that when you look at comparatives, we've been growing at an incredible clip in terms of smartphones. So it makes the comparatives difficult because you have, in this quarter, for example, under [indiscernible] (1:04:48) costs. Obviously, when you get to the next year, this time, you have a different set of comparables. So I think these things will play out.

Operator

[Operator Instructions] The first of which is Rob Goff of Northland Capital Partners.

Robert Goff - NCP Northland Capital Partners Inc.

You talked about the smartphone versus non-smartphone ARPU being roughly 1.9:1. Could you directionally address the lifetime value equation considering the lower churn on smartphone and the higher COA?

Robert Bruce

Rob, just to make sure I get what you're asking for precisely. What is the lifetime value of the smartphone?

Robert Goff - NCP Northland Capital Partners Inc.

No, I'm just going directionally. So would the lifetime value of the smartphone sub would be 1.9x non-smartphone? Or would it be a higher ratio or a lower ratio?

Robert Bruce

So the lifetime value of a smartphone customer is 1.9x a non-smartphone customer. So in terms of the lifetime value, think about 3x, 2x to 3x the lifetime value. And it depends. There’s some gradations in there too to add granularity to it. At the very high end, you have smartphones. Then you have the QMV devices, which are somewhere in the middle. And what we didn’t highlight on the call is we're proud that we've driven our QMV mix up to 23%, very low COA devices with very high ARPU, which we think are suitable for many people who might otherwise have considered going on a smartphone and not given us the data to create the payback we wanted. And then voice customers, again, probably at 1/3 roughly of what the smartphone LTE. Is that helpful?

Operator

And your next question comes from Tim Casey of BMO Capital Markets.

Tim Casey - BMO Capital Markets Canada

Can you talk a good bit about what churn management initiatives you have and what the impact is on your guidance in the Cable side, given Bell is going to be building out Toronto with IPTV. What should we expect there?

Robert Bruce

Listen, we’ve had quite a successful push on. And I would say, as a team, we leveraged a lot of the things that we've learned over the years in wireless and really put them into play in Cable, trying to understand what customers are most assessable, particularly high-value customers to migrating to a competitive service like fiber IPTV. And then proactively ensuring that those customers are locked down and completely happy with our services. And that's an ongoing effort. It's been aided by the fact that the roll out pattern of IPTV has been relatively predictable. So we've been working away on that quite systematically. As we look at the competitive results, we noticed a year-over-year down tick in our competitors' television net loads. In fact, they're almost half in Q4 of this year of what they were last year, which leaves me to believe that our churn efforts have been quite successful.

Tim Casey - BMO Capital Markets Canada

I guess the principal driver on your churn mitigation effort, so price, is it just a matter of discounting?

Robert Bruce

Again, it's a variety of different activities. I don't want to telecast them on the call. So why don't I just leave it there.

Operator

And Mr. Mann, this concludes the question-and-answer session. Please continue.

Bruce Mann

Thank you very much, everybody, for participating this morning. We do appreciate everyone's interest and support. If you have questions that weren't answered on the call, you can give either myself, Nadir, or any of my colleague a call. All of our contact information is on today's release. And this concludes this morning's call. Have a nice day.

Operator

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

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