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Executives

Bradley S. Shaw - Chief Executive Officer, Director and Member of Executive Committee

Jay Mehr

Steve Wilson - Chief Financial Officer and Senior Vice President

Paul Robertson

Peter J. Bissonnette - President and Director

Analysts

Vince Valentini - TD Securities Equity Research

Tim Casey - BMO Capital Markets Canada

Jeffrey Fan - Scotiabank Global Banking and Markets, Research Division

Glen Campbell - BofA Merrill Lynch, Research Division

Phillip Huang - UBS Investment Bank, Research Division

Robert Goff - NCP Northland Capital Partners Inc., Research Division

Drew McReynolds - RBC Capital Markets, LLC, Research Division

Gregory W. MacDonald - Macquarie Research

Peter MacDonald - GMP Securities L.P., Research Division

Maher Yaghi - Desjardins Securities Inc., Research Division

Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division

Dvaipayan Ghose - Canaccord Genuity, Research Division

Shaw Communications (SJR) Q1 2012 Earnings Call January 12, 2012 3:30 PM ET

Operator

.

Welcome to Shaw Communications Fiscal 2012 First Quarter Conference Call. Today's call will be hosted by Mr. Brad Shaw, CEO of Shaw Communications. [Operator Instructions]

Before we begin, management would like to remind listeners that comments made during today's call will include forward-looking information and there are risks that actual results could differ materially. Please refer to the company's publicly filed documents for more details on assumptions and risks.

Mr. Shaw, I will now turn the call over to you.

Bradley S. Shaw

Thank you, operator. Thanks to everyone for joining us today to discuss our first quarter results of fiscal 2012. With me today are members of the senior management team, including Peter Bissonnette, President; Steve Wilson, Chief Financial Officer; Jay Mehr, Senior Vice President of Operations; Jean Brazeau, Senior Vice President of Regulatory; Michael D'Avella, Senior Vice President of Planning; Paul Robertson, President of Shaw Media; and Jim Cummins, Group Vice President, Shaw Satellite Operations.

Another fiscal year is underway, and we are extremely proud of the fact that 2012 marks a significant milestone in Shaw's history. As we are celebrating 40 years of growth and success in Canada, we have a superb leadership team and a tradition of employee commitment engagement that resonates throughout our organization. The Shaw team of over 13,000 employees drives and delivers results for all of our stakeholders. Our goal this year is to continue our history and our track record of delivering exceptional products and service to our 3.1 million customers across the country and to create value for our shareholders.

Fiscal 2012 is off to a good start, as first quarter financial results were solid and we've generated almost $120 million in free cash flow. Recently, there's been some concern regarding our approach to the competitive environment. Promotional activity has been a reality in our business for a number of years and has been embedded in our financial results. In the past, a lot of our promotional activity has been tactical and not necessarily in the public or media spotlight. Beginning in the latter part of 2011, we embarked on a strategy that entailed more mass marketing of some of our offers. This does not represent a doubling down of the promotional activity, as we have simply shifted some of our tactics towards our promotional efforts. We remain focused on balancing subscriber results and profitability and continuing to maintain our industry-leading margin performance.

Over the years, we have made a number of strategic decisions that have positioned our company with a strong portfolio of assets. We are well-situated, both from a strategic and financial perspective, to compete and grow our business. Our assets continue to yield solid financial results and generate substantial amounts of free cash flow, and today, we confirmed our fiscal 2012 guidance. We expect continued growth in revenue and EBITDA across all of our divisions. And due to some strategic investments during the year, it is expected that capital will increase compared to 2011 levels. Considering this and other factors, including higher CRTC benefit obligations, free cash flow for the year is estimated to be approximately $550 million.

We've just concluded our board meeting and AGM, and we are pleased to announce a 5% dividend increase to an annual rate of $0.97 per share. The higher dividend rate becomes effective at the beginning of Q3 and total dividend payments for fiscal 2012 are expected to be approximately $415 million.

We continue to focus on the execution of our strategic initiatives that we announced last year. Our digital network upgrade is well underway with over 50% of our customers now converted. The reclamation of additional bandwidth will provide us with the ability to triple our Internet speeds and create capacity to offer substantial increases in HD and VOD services. We continue to evolve our products and service offerings with enhancements that are geared towards improving flexibility, transparency and value for our customers. This includes the Shaw Plan Personalizer, easy-own hardware options and our broadband leadership.

During the quarter, we also announced our partnership with Motorola regarding our new DreamGallery Guide. This improved interface is expected to be launched in the spring of 2012. We launched our Wi-Fi trial on December 6 in Calgary, Edmonton and Vancouver, and we continue to add sites. We continue to believe that Wi-Fi will extend the value proposition of our customers' Internet services beyond the home and will reinforce our broadband leadership position.

We remain bullish on our goal to expand Shaw products and services within the business market across Western Canada, and this will continue to be a priority and focus for our company going forward. Our recent announcement regarding the city of Calgary contract is an example of the substantial opportunities that exist within this market, and we look forward to winning some of the incumbent's market share.

In closing, I wanted to reaffirm that our entire organization is focused on execution of our strategic initiatives and our business plan for the upcoming year. We all recognize the challenges that we face with respect to the competitive environment, but we are also excited about the year ahead and the future of Shaw. Our innovation, spirit and drive will ensure that we capture the best of what the future has to offer for our customers, our employees and our shareholders.

Thanks to everyone for joining us today, and we'd now like to open the phones to answer any questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Vince Valentini from TD Securities.

Vince Valentini - TD Securities Equity Research

Question on subscribers. So I guess there was a pretty big uptick in the amount of basic cable subs you lost, especially versus first quarter of last year. But the new promotions and especially that Visa card offer obviously didn't start until the second quarter in December. So I'm wondering if you can give us any color on what kind of traction you've seen from your new mass marketing sort of strategy in that offer through December and into this year. Has there been a significant change in the trend line of subs versus what we saw in the first quarter?

Bradley S. Shaw

Vince, I'll just say a couple of things and maybe the guys will chime in. I think what you saw the first quarter is we had a couple of challenges in the customers here and it impacted -- had an impact our numbers. We're happy to say that we have made the moves to fix that and ensure, going forward, that, that won't happen again. So you had some impact in the quarter for that. And I think you know in regards to the Visa, it's early days and we've got some time here left, but we are pleased with the results.

Vince Valentini - TD Securities Equity Research

Is that Visa offer still in the market, Brad?

Bradley S. Shaw

No, it isn't.

Vince Valentini - TD Securities Equity Research

Okay. Nobody else wants to chime in. Just the second question will be on digital. Pretty strong growth there, almost 60,000 adds. Can you give us any color maybe Jay on what the sort of mix was there? Is it a lot of the new Gateway boxes or just the more basic boxes going out the door?

Jay Mehr

Yes, Vince, this is Jay. I think you'll see that it's both. We certainly had some very, very, very positive momentum on Gateway throughout the quarter and large gains in the Gateway space. As Brad mentioned, we're now also over 50% converted, the analog tier customers that we had in June when we started the DNU project. So certainly, a portion of that net adds goes to that. So, I would say it's about equal in the impact.

Operator

The next question comes from Tim Casey from BMO Capital Markets.

Tim Casey - BMO Capital Markets Canada

You mentioned you had some challenges in customer care in the quarter, that I guess the inferences that they were isolated. Can you talk a little bit about what happened there? And second, could you provide a roadmap of product launches that you anticipate? You talked about the new DreamGallery for Motorola. Will you have a series of product launches through the year relative to your various offerings? Or could you give us a little more color on that?

Jay Mehr

Tim, it's Jay again. We certainly experienced unprecedented call volumes in the late September through October period, and it's fair to say that we underestimated the amount of operational impact of, not only the increasing competitive environment, but some of the major initiatives that we've had underway. We've made a number of changes in terms of our customer service organization and have not only made some dramatic changes in terms of leadership, but have also much more aggressively reinforced our staffing in those areas. So it is absolutely clear, and Brad is so clear on this on a daily basis, that we're going to deliver an exceptional customer experience with all of our calls answered in our major centers in Canada. And we're well on our way in terms of delivering everything that we need to deliver there, and that commitment certainly won't change.

Tim Casey - BMO Capital Markets Canada

When sell side guys hear things like that, we automatically think that there's a cost component there. Should we expect a little bit higher cost and perhaps some impact on margin as we work through the year?

Jay Mehr

Yes, for sure, I mean people cost money. I think what you'll see is we're pretty much fully hired at this point and most of those costs will be reflected in the Q1 numbers, although to be fair some of them are reflected partially in the Q1 numbers. So I think you could see a -- you'll see a modest increase in terms of our cost structure. Important to note that with the digital network upgrade and some other initiatives, we've brought on a large number of temporary staff for that initiative. So as we get fully hired, we'll be drawing that down. So there's certainly an offset.

Tim Casey - BMO Capital Markets Canada

And last question for me, if you have any more color on product introductions, that would be helpful. And also can you remind us of when you're last price increases went through?

Jay Mehr

Sure. Certainly, in terms of product introductions, we've got lots of momentum happening in the marketplace, both from a product launch perspective and the end-pricing and packaging. You asked specifically about DreamGallery. Our DreamGallery guide looks great. It's in test with staff and friends and family right now, and we're very excited about the feedback we're getting from it. So we'll go with appropriate persons to be [ph] launch as we think it's ready. It's certainly not that far into the future.

Tim Casey - BMO Capital Markets Canada

And price increases?

Jay Mehr

Price increases. In our last price increase in legacy packaging, not in Personalizer, on November 1, which was $2 and $3. And if you're trying to model that out, we're generally looking about $5 million a month.

Operator

Next question comes from Jeff Fan from Scotia Capital.

Jeffrey Fan - Scotiabank Global Banking and Markets, Research Division

I wanted to just go back to the customer service issue, and wondering if you are able to at least quantify what you think the impact was in the quarter, with respect to subscribers, and whether this impacted across all 3 triple play services or whether there was any bigger impact in any one of those services. I'll start there and let you guys comment.

Jay Mehr

Jeff, there's no question, we had an impact -- no question that we had an impact across all 3 services. If you're not in a position to do business with your customers, it's going to impact the amount of business you do with your customers. And so to put an actual number on it, I don't think there's some science there. But I think -- it's certainly our view that the trend that we saw in Q1 subscribers had at least as much to do with our own internal gaps as it had to do with an intensifying competitive environment.

Jeffrey Fan - Scotiabank Global Banking and Markets, Research Division

Is it too early to say, though, whether the Q2 trends, at least, what you're seeing so far, showed an improvement from what the experience was in Q1?

Bradley S. Shaw

Jeff, I think that's -- I think we're a little early, as I said. I think we need to -- we're pleased with where it's at. But there's a little bit of time left here and lots can happen. So it is a little early.

Jeffrey Fan - Scotiabank Global Banking and Markets, Research Division

My second question is more on the strategic level. In the U.S. last month, we saw an interesting transaction between Verizon Wireless and a cable company. Just on a higher level, is that something that the Shaw organization can perhaps pursue some time down the road? Have you given that any thoughts?

Bradley S. Shaw

Well, it's certainly caught our interest and it really falls into our strategy in wireless and traditional network and really endorsing where we're going. But I think you always keep the door open, you're always looking at things that if you can do it differently, and we're always open for discussions.

Operator

Next question comes from Glen Campbell from Merrill Lynch.

Glen Campbell - BofA Merrill Lynch, Research Division

A couple of questions. First on the Wi-Fi deployment, if you could give us a sense of how much CapEx during the quarter went to that project if you have any visibility on what it might be for the year?

Steve Wilson

Well, for the year, Glen, we're looking at about $50 million of capital in the year.

Glen Campbell - BofA Merrill Lynch, Research Division

Okay. And so should I conclude that there wasn't too much then during the quarter?

Steve Wilson

We weren't fully on that run rate in the first quarter.

Glen Campbell - BofA Merrill Lynch, Research Division

Okay, a little bit behind. And the second question, on the Small-Medium business segment, could you talk about the trend on phone adds there? Has it been fairly steady or up or down? And as you're adding those subscribers, is there significant drag along in terms of the Internet and TV? In other words, is there a decent proportion of your TV and Internet adds that are in the Small Business segment?

Jay Mehr

We're very happy with the progress that we're making on the business team. We're excited that John Piercy has taken over all things business at Shaw as our Group Vice President starting at the end of November in that role. And we're really -- he really got all of the right things happening and that's been creating nice momentum in terms of the phone. I'm not sure that subscriber -- I think our view of business is we're driving to a long-term revenue number and we're driving to long-term market share. And I'm not sure you can necessarily translate that all the way through subscriber numbers. For example, the city of Calgary deal that we did enabled 8,000 individual lines. The way that counts for subscribers using our accounting for PRIs and stuff is 600 and some lines were included in Q1 out of that particular transaction. So I think the goal here is to drive meaningful, meaningful revenue. We're certainly driving subscriber adds in phone and Internet, less so in video in Q1. And it's the Internet that drives the space for Shaw, and not phone.

Glen Campbell - BofA Merrill Lynch, Research Division

Maybe one last one. Capital intensity, if we look out beyond the Wi-Fi deployment and the digital network upgrade, do you have any sort of more current thinking on where CapEx to sales might go in the Cable segment?

Bradley S. Shaw

I would say it's early for that Glen because we haven't decided what our priorities are in fiscal 2013. And it depends partly on how fast or how strategically and how we want to deploy that Wi-Fi strategy, and that's going to have a big impact on it. And other projects like DNU, which may stretch a little bit into next fiscal year, will also fall off. So you'll have some things coming off and other projects continuing.

Glen Campbell - BofA Merrill Lynch, Research Division

Okay. And maybe -- but once you get past that, maybe to a couple of years out, could we see significantly under 20%, closer to 15%?

Bradley S. Shaw

I'm not sure it will get down as low as 15%. I wouldn't commit to that now. But certainly below 20%, as we said in the last call as well, is very reasonable in terms of once we get through some of these major initiatives.

Operator

The next question comes from Phillip Huang from UBS.

Phillip Huang - UBS Investment Bank, Research Division

Also, on CapEx, on your success-based CapEx, it's up 43%. I think it's by far the highest it's ever been. I was wondering, was the level of activity on the boxes a little greater than you had expected? And I was wondering if -- to what extent are you guys actually proactively pushing the adoption of Gateway a little bit harder?

Jay Mehr

I think if you're looking at the success-based number, clearly we need to convert the analog to your households before we convert to the hub sites. So it's the customer portion of the DNU activity that all that's front-loaded. And so that's a significant component in terms of Q1. We had great success with Gateway in Q1. And so, certainly that's a portion of that. I think if you're trying to map out success-based run rate, it certainly comes down as you move through other elements of our plan through the fiscal year. And so, December's a pretty big month for us from a success-based point of view. Certainly nothing alarming in what we saw in there, and then you'll see success base come down as we go over to the next couple of months.

Phillip Huang - UBS Investment Bank, Research Division

Got it. That's helpful. And so should be start to look at Gateway increasingly not just as a retention product, I mean as a product that you will increasingly use to proactively gain customers going forward?

Jay Mehr

We've talked an awful lot about our good, better, best approach. And our good, better, best approach has not changed, and in fact, if anything, it's been reinforced. One of the things that you've seen us do is we've led with "best" over the course of the last 6 months for many instances, and it was really about us saying there was a portion of the customer base that believe we are actually behind our primary competitor, technologically. And so, certainly in terms of our market surveys today, that's no longer the perception, and part of that is that we put our best products forward in lots of our promotions and other things. I think what you'll see, and if you're watching what we've done in the month of January in terms of pricing and packaging, is we've moved the new simple bundles with everyday value, emphasis on our good price points. And I think as you look over this period of time, the offers that we have in the marketplace are all driving more to good as opposed to best, and we're seeing good success with that. So there's absolutely a role for Gateway in the best place and it gives us some wonderful opportunities for win backs with customers who are clearly unsatisfied, not being able to get multiple streams in the home, clearly unsatisfied with the Internet speeds that they're getting from our primary competitor. But I think our primary focus, certainly this month, is in the good space.

Operator

The next question comes from Rob Goff from Northland Capital Partners.

Robert Goff - NCP Northland Capital Partners Inc., Research Division

Can I ask a question on the Broadcasting side? Could you discuss how the advertising demand softened within the quarter, whether that has continued on that trajectory, so as going through the quarter or whether there's been a leveling of demand?

Paul Robertson

Paul Robertson here, happy to respond. It was a pretty broad-based industry downturn that happened that affected the months between September and December. And so we're got -- this quarter was highly affected and those who have more conventional TV tends to get hit more than those with a strong specialty. In fact, our specialty was up nicely the year end. So as we start the next quarter, starts soft in December but then goes back in the growth mode starting January, February and we really saw the whole market pick up over the last 4 weeks substantially to a year ago. And we feel we're really well-positioned to take advantage of it because our returning program has performed extremely well. At the start of the season, we're maybe a bit light on some of the premiers and some of our programming appeared a little later. So we're now in great shape. We also took a lot of cost out to balance out the known shortfall we were going to have on revenue. So you see, of course, those cost savings start to appear as the quarters progress. And our subrevenues should show a nice uptick as we go forward and as well because of the new deals that we're making with the BDUs leveraging a strong annual increase.

Robert Goff - NCP Northland Capital Partners Inc., Research Division

And perhaps still on the Broadcasting side or the content side, can you discuss your most recent announcement on the news front, and with the incremental cost maybe associated with that and perhaps if this move foreshadows a greater commitment to content.

Paul Robertson

Sure, it's Paul again. I'm sure everyone picked it up. We announced that we're planning to do a 24-hour all-news channel that would come into play some time during the summer. And it was focused on the B.C. market only. So it's significant, but a regional play. We -- the thing about these type of channels, if you go at them sensibly is that they have a high degree of automation and repurposing of the existing content. So we have adopted a very sophisticated control group planning software that allows us to move the content elements around in a compelling way without a lot of people having to touch the key. So that's one element of it. Of course, also, we'll use Chris Gailus' newscast and Dawna Friesen and our big stars, and some of the newscast will be the same but in different times a day. So we see this as a significant offering to extend our news, but not one that's highly cost-intensive. And in fact, we think it will be such -- we feel well-received by the advertising community, that we think on balance, it won't have a significant investment requirement in the early going.

Operator

The next question comes from Drew McReynolds from RBC Capital Markets.

Drew McReynolds - RBC Capital Markets, LLC, Research Division

Thanks very much for taking my questions. I have 3 of them, just 2 on Television. Just wondering if you can just discuss the timeline to an all IP type system. I know Gateway, you talked about last quarter as being more or less a stepping stone. Just wondering if we can get an update there. And then the second question on Television just pertains to what you're seeing within a mix, obviously, some good premium growth in terms of premium channels, PVRs, HDTV, VOD. I'm just wondering how that up sell gets offset by some of your subscribers taking smaller TV packages, obviously, in a more a la carte environment going forward?

Peter J. Bissonnette

Hey, Drew, it's Peter Bissonnette. On the all IP, really what I think we have a track record of providing infrastructure when it's necessary, and the Gateway certainly. First of all, we have about 1.8 million IP customers already on the Internet side. And on the Television side of the IP, by having the Gateway product, that provides us with the flexibility, if you will, because the real benefit for IP is in the establishment of guides and being able to do those in an efficient way. So with the Gateway product, with the Dream product with Motorola, we have the benefits of that IP in HTML5 look and feel. But we also have within that Gateway still the highest quality distribution for HD signals with our QAM devices. And so the hybrid Gateway device gives us the IP, continues to the give us the best quality in HD, as well as providing, in the future, some DLNA types of features. We don't believe that by tearing down what we already have, which is a phenomenal network, that there's actually any benefit to our customers. This provides the benefit without the cost. And picking up on the second part of your question, Drew, if you're talking about the à la carte blend and what's happening in terms of premium boxes, I think it's -- we launched Personalizer in the first week of March and we've seen an extraordinary uptake. We're very pleased with the results that we've had from Personalizer. And the beauty of it is that customers are able to customize the product offering and the savings that we achieve in network fees, in essence, get passed on to the customer as they move through that process. So Personalizer has been a very margin friendly program for us. So there is a little bit less revenue, but only marginally less revenue, and certainly our costs go down as well. I think our ARPU story is a great story. You know our ARPU, continues [ph], was up it was up in every product and so I don't think you're seeing a revenue decline. I think in many instances, with our new product offering, we're able to offer some more choices to our customers. And certainly, our HD leadership in the marketplace, having the most HD in the marketplace, is a core competitive advantage.

Drew McReynolds - RBC Capital Markets, LLC, Research Division

Just a final one on Internet. I think back in Q3, you alluded to, I think, 1,500 subscribers to your highest speeds of Internet. I'm just wondering if you can update us what the demand is on the very high-end, and whether the differentiation of that high-end within the marketplace is just how it's resonating more going forward.

Peter J. Bissonnette

Well we have more and more customers moving to higher and higher speeds by virtue of the type of video streaming that is becoming just a matter of course, the daily behaviors on Internet now with video streaming with iPads is putting, clearly, a differentiation on our product as opposed to our competitor's as being almost necessary in order to enjoy that experience. And so just as when we launched the 1.5 megabits 15 years ago, right now, the common denominator is in somewhere between 10 to 25 megabits per second which are unheard of speeds and customers are now taking advantage of those.

Operator

The next question comes from Greg MacDonald from Macquarie Securities.

Gregory W. MacDonald - Macquarie Research

Wanted to ask a question on the guidance and specifically, you make reference to assumptions going into guidance. You talk stable pricing environment on the cable side of the business and you talk stable advertising demand and rates on the advertising, around the media side of the business. Just trying to understand the definitions there. We have seen some changes, I'd say, in the cable side of things. You saw more promotional activity in the first few and then on the advertising side, you did see it dip down on demand for advertising, though Paul recognizes that there's a bit of a bounce back coming back. Would you say that your assumptions remain intact relative to when you first thought about where your guidance is going, generally speaking?

Steve Wilson

Greg, I would say that in terms of our initial guidance, so let's take Broadcasting first. So we have seen softness in the first quarter here, and as Paul indicated, there seems to be a turnaround. Irregardless of that, we've got cost control measures in place that we plan to activate to make sure the earnings are positive in that sector. In terms of the cable side, we saw 7% overall EBITDA growth from last year in the first quarter. Our margins were up 1% compared to last year and they were only down 1% compared to -- 1% up from last year's Q1. They were only down 1% from the overall average of last year. So and ARPU was up in the first quarter by 7%. So from $105 to $112. So there's a lot of good news in there when you look at ARPU and retention. In terms of subsidies, I think it's very important. A lot of analysts have kind of written that we've turned the switch back on in subsidies, and that is certainly not the case. In our results last year, there were hundreds of millions of dollars of subsidies, and all of those were baked into the 48.8% margin that we had on cable. So in the first part of this year, we've decided to change tactics. A lot of those subsidies you haven't seen in the market before because they've either been online or on offer with customers or direct marketed to customers. What we've done is we've shifted the blend of how we do subsidies but not necessarily the quantum. So I think people are alarmed about seeing the December mass market, as if that was a huge change in strategy and it's simply not. It's a change in tactics in terms of how we do it. And when you look at the price competition, yes, it continues. People have talked about our offer of $100 Visa card for 3 services is aggressive. But the competitor is giving away a tablet that has a wholesale value of $350 and an HD PVR. So we need to make sure that our tactics are able to keep up with that. And we're still confident that we'll be able to balance, both retention of customers, subscriber growth, particularly in the areas of phone and Internet which are very high margin areas for us. And that we, at this point, see ourselves delivering positive results in the cable operation and satellite continues to tick along well and we expect it to be positive as well.

Gregory W. MacDonald - Macquarie Research

Just a quick follow-on on it. As you move from direct marketing to more mass marketing, do you guys see a risk of customers that were kind of content before, but now seeing as kind of like what the wireless guys are going through, are you anticipating or do you think there's a risk of people calling in to customers service center and asking for things they might not have been asking for before?

Peter J. Bissonnette

Greg, It's Peter. The interesting -- the campaigns that we were actually running, those were open to our existing customers as well and many of those customers actually took advantage of it to move up from a single product to a dual and triple play. So I think they appreciated the fact that they were actually included in that and weren't excluded. We understand the phenomena you're describing and we're very sensitive to that.

Gregory W. MacDonald - Macquarie Research

Probably something that you're happy with.

Peter J. Bissonnette

Yes. And just building on that, the vast majority of Visa cards absolutely went to our existing customers in our December 1 to December 23 promotion and they were certainly delighted to receive them during the holiday season. Also, if you look in terms of our promotional offerings, we're at 6 months -- the Visa cards came out of the market December 23. We're at 6 months at $19.95 on each of our four products. So that's $19.95 phone product is a regular priced $24.95, the TV product is a regular priced $26, the regular price on the Internet product in the bundle is a bit more of a discount there, you're probably somewhere around $40. But these are not massive percentage reductions. In addition to that, important to note that the $100 Visa program in mass was accompanied with a 3-month offer. So while we invested some one-time only cost in December those customers are going to come into full retail in month 4. So there's a number of pieces of the thing and I certainly understand the change in tone. And I think there is a change in tone, which is we have an extraordinary competitive result. And within that change of tone though, I think the mistake is to equate that change of tone to a change in promotional activity. I think you need to look back at all parts of our business, including everyday value, including customer care leadership, in terms of technology leadership. But we have 13,000 very, very committed Shaw people who have extraordinary competitive results today.

Operator

Next question comes from Peter MacDonald from GMP Securities.

Peter MacDonald - GMP Securities L.P., Research Division

Hoping to dig into Paul's media comments a little bit. When where the subscription rate increases? And what do those equate to on a dollar basis?

Paul Robertson

First of all, they kind of phase out. As you imagine these contracts with the major players have all different end dates. So what we've done is kind of set a tone with one of the first deals that we made that set sort of an industry standard. And then, as others come due, then we look to kind of mimic a similar kind of approach with the rest. So as it unfolds, I'm going to say over the next 2 years, in terms of getting all the deals renewed. With respect to the nature of the improvement, we shouldn't get specific about exactly what we're asking and looking for with each one of these [ph], but just say that it is a significant increase. And we feel it's part of -- it will be part of our success over the next 5 years. But I'm going to say an annual single digit -- strong single-digit increase.

Peter MacDonald - GMP Securities L.P., Research Division

And if I look at that single-digit increase in subscription rates and you talked about the advertising pick up in Q2, is it too optimistic to assume flat revenue growth over the remainder of the year?

Paul Robertson

Well, I think that if you looked at it on a second quarter basis, you would see that the advertising uptick really didn't start to kick in until January. So we were still in the doldrums in December, so there's that to consider. But going forward, we're looking for a strong number on sub growth and we don't have a lot of visibility on the ad side for the past 6 months. I mean, this bounce back we're seeing could be real and could be lasting or it could be temporary based on a lot of queasiness coming from -- repeating queasiness that we felt from the European situation would seem to cause all the need [ph]. So I think it's hard for us to really be sure about what's going to happen in the back 6. But we sure know we're getting good lift early in the calendar year.

Peter MacDonald - GMP Securities L.P., Research Division

Is there a specific sector in the advertising that is down materially right now or since Q1, the beginning of Q2?

Paul Robertson

You know, it's funny because when we looked when it was down, it seemed to be broad-based, and when it came back it seemed to be broad-based. So I'm going to say, all the food and automotive and retail, the big pillars, we're all seem to move in sync. We just didn't see it as a bisector issue. It just seemed to be an overall advertiser confidence issue that everyone seemed to move in lockstep. And as it came back, same kind of thing.

Peter MacDonald - GMP Securities L.P., Research Division

Just a last question, you've done a lot of good work on the cost savings in the last year. Just maybe you can quantify where some of those cost savings can be over the remainder of this year that you're looking at. And I think Peter talked about being pretty confident that, that will help for your guidance numbers, but maybe just give us some insight there? And I'm talking on the media side.

Peter J. Bissonnette

Okay, that's a media question? Okay.

Paul Robertson

Paul, back in again. Well, we've been really prudent on the program spend side. And I think we probably kept a fair bit of powder dry as we went into the May screenings and the way we set ourselves up for the year. So we were quite careful there. But also, there's a company that recently came out, the CCAA. The company's very, very careful with expenditures and we've agreed that going forward we don't want to put all those costs straight back in. So we've just tried to maintain the same kind of diligence that the group had developed during those tough times and be prudent where we've put any additional investment.

Peter MacDonald - GMP Securities L.P., Research Division

You're not talking about large layoffs or anything that where we'd see on the income statement?

Paul Robertson

No, we're not referring to any major game plan like that, no.

Operator

The next question comes from Maher Yaghi from Desjardins Securities.

Maher Yaghi - Desjardins Securities Inc., Research Division

Just wanted to maybe touch base on your Wi-Fi network. You recently started trials of the Wi-Fi network in certain cities in Western Canada. Can you maybe remind us as to when, like Calgary, Edmonton, Vancouver, when are these cities are going to be fully up and running? And when should we start to expect some revenue from this deployment? And if you can also provide us level of CapEx that you have spent so far on Wi-Fi.

Peter J. Bissonnette

Certainly. So if you look -- the beauty of a Wi-Fi build that's authenticated to our Internet base is our customers can begin enjoying the Wi-Fi service as we build it. And so we've turned on all of the slots that we've built so far and all of the Wi-Fi zones, and we're going to continue to activate the zones as we add to them. So you'll see more marketing noise around Wi-Fi as we hit more of our critical mass. The initial trial that we've talked about is in Calgary, Edmonton and Vancouver. And we are offering wickedly fast Wi-Fi speeds in places people congregate, places to try. In the Calgary, for example, the Kensington retail neighborhood, 17th Avenue and the Red Mile is activated, Marda Loop which is a very popular area. We've had some tremendous success with multilocation franchises who want to jump on to our Wi-Fi network and we're getting some breakthrough in terms of commercial areas. So we've got deployment like that so far in Calgary, Edmonton and Vancouver. We continue to ramp up our activity, and I think as we build it, coverage will become certainly much broader, but the experience on the Red Mile and 17th Avenue today, or I apologize for the personal experience at the Kensington Pub, it's been very, very far strong. In terms of capital, we're about, I'm doing the math in my head, we're probably $12 million to $15 million in on a cumulative basis, and I think Steve talked about a $50 million annual number.

Maher Yaghi - Desjardins Securities Inc., Research Division

When do you expect to hit that milestone where you start actually publicizing and marketing this product more aggressively, across whole regions, which at the end of the day -- I mean you're hoping to get some revenue benefit from apart from the marketing of the product itself, can you give us some dates as to when that is expected?

Peter J. Bissonnette

This is going to become like knitting and we're going to continue -- this will be a daily activity of ours, which is building the network and making it more and more available to more and more of our customers. And remember, the first benefit of this is going to be reduction in churn and adding value to our current broadband services that we offer, which are already very, very compelling in terms of speed, and the speeds that we're experiencing right now on the Wi-Fi are 4x faster than what you'd see on a 4G LTE network. And so, to the extent that our customers are currently paying a lot of money for data services, using their 4G LTE services, they have now -- they will have an option to use our Wi-Fi and reduce their costs, which makes us more compelling in terms of reducing churn. So that is going to become a way of life for us, and spending $50 million this year gets us into a meaningful contour. And that's going to continue to grow and grow and grow. Where there's going to be other revenue opportunities, we're looking at all of those. One of them as you know is Wi-Fi offloading, spectrum offloading. And we think that that's going to become even more compelling as the 4G networks start to collide with each other.

Steve Wilson

And I think at the end of day, we're certainly very pleased with the response of the local municipalities, the interest they have, how they want to support us. And so there's logistically -- there's a few things we have to manage and continue to manage going forward for expectations. But certainly, the opportunity's there.

Paul Robertson

And just on a separate topic, since we're talking about mobility, I just wanted, for the benefit of investors listening on the call, who may not follow this as closely as the analysts and you're very familiar with this, but the sale of spectrum by all of the major U.S. MSOs and Verizon is a major event. Even Cox who had launched the wireless service has since suspended that and sold their spectrum to Verizon. And what that means is, and by the way, they sold the spectrum at a 50% profit. But what that means is that our decision not to enter wireless, and there is still some lone voices out there that feel that, that was a mistake. But this is certainly an indication of that in the sense that a lot of smart guys have looked at this and tried to put business plans together for cable companies to be new entrants into the wireless space and have determined as we determined that, that is a very difficult proposition. And so I just think that's something that maybe hasn't caught the attention of everybody in the call but it's something that people should be aware of.

Operator

The next question comes from Blair Abernethy from Stifel, Nicolaus.

Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division

Just one follow-up on the Wi-Fi and then and I've got an Internet question. Just following on the Wi-Fi discussion, beyond just the 4G network offloading, what -- are there other business opportunities on Wi-Fi that you think might give you an advantage?

Paul Robertson

Well, it will certainly help our ability to sell services in small and medium enterprises. Wi-Fi is something that they want and something that we can certainly provide at a lower cost. There's also the opportunity to do this, to make it available to others who are not necessarily Shaw customers. So there is a monetization opportunity, I think Cablevision is doing that in New York. There's clearly a market for it. So we'll play it out and see where we think the greatest value is. Right now, the greatest value is retention with our broadband base and that's really the primary focus.

Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division

Okay, great. And then, on the Internet side, just wondering if you could give us a little more color on what you see happening and the differences happening on the adding 10,000 core Internet customers, but you lost about 6,800 of the standalone. And so of that remaining 210,000 standalone customers, what kind of actions are you taking to try and retain that base?

Peter J. Bissonnette

Yes, I think if you look at the trends that are happening in the marketplace, it's clear that the customer's selecting more and more single provider for their entertainment and communication needs in the home. So we report standalone Internet customers. So you can see what's happening in terms of the single play Internet base. I think it's fair to say, single play everything is at more risk than the other parts of our business. And we're certainly seeing fairly dramatic moves from single play to double play, from double play to triple play. That having been said, we love those 210,000 customers. And it's not all about video. A customer who's got a 50 meg Internet service and a nice home phone service with us and is paying us $90 a month with lots of margin in it, that's an outstanding relationship, and we're happy to continue to grow that base as well.

Operator

The next question comes from Dvai Ghose from Canaccord Genuity.

Dvaipayan Ghose - Canaccord Genuity, Research Division

If I annualize your first quarter free cash flow, I get to about $476 million. Now Shaw Media has a seasonally strongest quarter normally in terms of cash flow in fiscal Q1. Your recent pricing promotions only started in fiscal Q2, and have seemed to have some impact on margins and cash flow. And as you suggested, your call center beefing up didn't full impact this particular quarter. So can you walk us through how you get to $550 million on an accelerated run rate during the next 3 quarters?

Steve Wilson

Well, first of all, there was an acceleration in Q1 on CapEx, which will moderate over the next 3 quarters. And so, I've got the numbers in front of me here, Dvai, and there's a clear line of sight to getting to the $550 million. I think you can't just take the Q1 and just sort of roll that out.

Dvaipayan Ghose - Canaccord Genuity, Research Division

Okay, fair enough. Quick question on the Wi-Fi as well, because I'm sure obviously you know the Cablevision experience a lot better than I. But if I look at the Q2 call last year, they suggested only 20% of their Internet base has ever used their Wi-Fi service, I don't think they've ever charged for their Wi-Fi. It's a 3-year-old strategy and as you know, their RGU growth has diminished significantly in spite of Wi-Fi during that 3-year period. So I'm just wondering what, from the Cablevision expense, gives you confidence and comfort that this kind of load strategy works?

Paul Robertson

Let me just start, and I'm sure everyone's going to have a comment on this one. First of all, they're probably in the most competitive FiOS-Verizon environment in the U.S. and they've done extremely well to retain broadband customer base. What we know, and what they've said publicly is that this has been a very, very compelling retention tool for them. They just sort of completed a full build out, if you will, of the Wi-Fi network. And it's a model that others are following as well. It's not just us and them. And you probably saw the article in the Wall Street Journal that referred to it as well. Every major cable operator in the U.S. has a Wi-Fi strategy. They're all different based on geographic coverage and whatever. But there's absolutely no question that Wi-Fi is a great retention tool for broadband customers, and it's a great offload. I mean every major carrier in the U.S. is going to use Wi-Fi for offload in one form or another. So this isn't a stranded asset in any way, shape or form. This is an integral part of providing both an extension of the broadband network and a means of providing wireless coverage for others as well. Peter?

Dvaipayan Ghose - Canaccord Genuity, Research Division

But I'm not sure if Cablevision has signed up any cellular carriers for Wi-Fi offload and you are a competitor of Telus, Bell is an ally of Telus; Rogers -- do they really have strategic interest in helping you?

Paul Robertson

It's not a question of strategic interest in helping. It's a question of how do you reduce your operating costs when you're building out 4G networks? And you probably don't have enough capacity, either in terms of cell phone -- either in terms of cell coverage, tower coverage or potentially spectrum assets. Look, I mean, I don't think the Canadian carriers have reached the point where a company like AT&T, and perhaps Verizon are at in terms of smartphone utilization. They're all going to need some form of Wi-Fi strategy. Now they could obviously do it themselves, but in some cases, they're going to look for the best provider, with the best network. And we think that with the kind of coverage that we're building and the kind of quality of services that we're providing, we're going to be in that position. And this is just a question of economics, it's not a question of the system. It's a question of how do I defer my cost and ensure that I still have excellent coverage as a carrier, by perhaps offloading or buying services from others.

Operator

There are no further questions at this time. Please continue.

Bradley S. Shaw

Operator, that's it for this call. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes the conference call for today. We thank you for your participation. You may now disconnect your line, and have a great day.

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