Rogers Communications Q3 2007 Earnings Call Transcript

Nov. 1.07 | About: Rogers Communications (RCI)

Rogers Communications, Inc. (NYSE:RCI)

Q3 2007 Earnings Call

November 1, 2007 12:00 pm ET

Executives

Bruce Mann - VP of IR

Ted Rogers - CEO

Bill Linton - CFO

Nadir Mohamed - President and COOof the Communications Division

Edward Rogers - SVP of CommunicationsGroup

Tony Viner - SVP of Media

Rob Bruce - VP of CommunicationGroup

Analysts

John Henderson - Scotia Capital

Jeffrey Fan - UBS Securities

Bob Bek - CIBC World Markets

Simon Flannery - Morgan Stanley

Vince Valentini - TD Newcrest

James Breen - Thomas WeiselPartners

Greg MacDonald - National BankFinancial

Rick Prentiss - Raymond James

Dvai Ghose - GenuityCapital Markets

Peter MacDonald - GMP Securities

Marianne Godwin - Octagon Capital

Rob Goff - Haywood Securities

Operator

Good morning, ladies andgentlemen, and thank you for standing by. Welcome to the Rogers Communications'Third Quarter 2007 Results Conference Call. (Operator Instruction). I wouldlike to remind everyone that this conference call is being recorded today,Thursday, November 1, 2007 at 12:00 pm Eastern time.

I would now like to turn theconference over to Mr. Bruce Mann of the Rogers management team. Mr. Mann,please go ahead.

Bruce Mann

Thanks. Hi, everybody. Goodafternoon. Welcome to Rogers' third quarter earnings teleconference. We knowit's a busy day for everybody on the street. So, we'll crank through this ascrisp as we can.

On the call today are Ted Rogers,our Chief Executive Officer, and Bill Linton, our Chief Financial Officer andNadir Mohamed, the President and COO of the Communications Division, also someof our divisional Presidents, specifically, Rob Bruce from Wireless, EdwardRogers from Cable, and Tony Viner from Media, along with a couple of folks fromthe respective teams.

Just quickly, you should have acopy of the earnings release that we put on the Wire before the market openedthis morning, along with our full year 2006 MD&A, and have reviewed thembecause the cautionary language and risks discussed in those documents willapply equally to the dialogue we'll have on the call today.

So with that, let me turn it overto Ted Rogers and I believe Ted wanted to have a couple of other folks on themanagement team also say a few words this quarter and advance to the questions,and then the team will take your questions. So, over to you, Ted.

Ted Rogers

So, just a few brief remarks, andthen we will hear from the people on the team who delivered the results, Nadirand Rob and Edward and Tony and Bill. I'll start by saying that frankly, ourresults were excellent. Overall, this was a quarter that some of you mightconsider to be a bit on the borrowing side. It's generally more of exactly whatwe've said: our core focus for this year would be execution, integration,profitable growth, nothing fancy, just roll up our sleeves and get it done.

We're continuing to addsubscribers, and while driving good financial results, in fact, double-digitgrowth in revenue, operating profit and free cash flow. So, a good balance ofprofitable growth, and I believe also a reflection of the benefits of how weare increasingly operating as a single company. My congratulations to theoperating team.

It's also a quarter wherefrankly, there wasn't a lot of news flow for me to comment on today. And thatincludes that there haven't been updates yet on two of the items. I know youare interested there; the AWS spectrum auction, and what that might look likeon the wireless side. And secondly, we don't have any updates for you aroundthe capital structure. That will come later at our Board Meeting in December.

On the Spectrum auctions, I wishI had more to report to you, but I don't. And what we know, is industrycandidates have said they hope to have the auctions ruled out this year andthey are still targeting an auction for 2008 probably in the first half.

In terms of our own financialplanning, here at Rogers, we're in the midst of our budgeting and three-yearplanning cycle right now, strategic planning. My own objectives are that wecome out of that process with a balance of three things. First a plan thatincludes continued double-digit increases in subscribers and operatingrevenues, operating profits and cash flow. Second, that we are well positionedto continue many of the important initiatives around strengthening our systems,networks and capabilities. Third, to have a view of the capital structure thatis appropriate for Rogers as we go forward.

I'll just say that you've seenwhat we've done with our dividend over the past several years and I would liketo see us continue down this path or up this path. So, hopefully, on our nextcall, we'll have more to speak about all of these fronts. And I'm going to stophere and ask for our Chief Financial Officer, Bill Linton to take over.

Bill Linton

Thanks, Ted and hello, everyone.I think it's clear from the results that we are continuing to maintain ourgrowth really right across the board with consolidated revenue of $2.6 billionwhich was up 13%. Our adjusted operating profit was up 23%. Consolidated marginis up almost 300 basis points and our free cash flow up 91%. And that'sessentially all organic growth driven by double-digit top line and operatingprofit growth at both wireless and cable. So, very good growth financially,with continued positive operating leverage and importantly, with continuedstrong subscriber results at the same time.

Now a couple of administrativeitems, first, in the MD&A this quarter, we've more clearly separated outstock comp related costs. So, you have more visibility into exactly the impactsthat changes in the stock price might drive in terms of our operating profits.Secondly, as you can see on page four of the release, we've reversedapproximately $18 million, the majority of that at cable and a smaller amountat media, of previously accruals relating to regulatory fees, which the courtshave ruled are not payable.

We've separated this out fromadjusted operating profit and have stopped accruing these amounts goingforward, effective with this quarter.

Thirdly, as we said in therelease, we were able to close the acquisition of Citytv network yesterday. So,we will be including their results for the last two months of Q4 and you canexpect in round numbers, a revenue contribution of approximately $25 millionwith no meaningful impact on operating profit for that portion of the quarter.Lastly and looking forward, as we said in the release this morning, we arefeeling good about achieving our full year guidance and may exceed the higherends of certain of the guidance major metrics. But given that we are at Q4,which is generally the most unpredictable of the year for us, we are going toleave the high end of the ranges intact for now. But I think you can get a goodsense of where we are given the positive bias we laid out for you in therelease.

I will end it there and I willturn it over to Nadir Mohamed.

Nadir Mohamed

Thanks, Bill and hello everyone.As Ted said, this is a quarter focused on bread and butter execution deliveringprofitable growth. I will quickly share a couple of my own perspectives,starting with the wireless side. I congratulate Rob and his team for anotherstrong quarter. On the subscriber front, net additions were up 20%year-over-year and we surpassed the 7 million subscriber milestone during this quarter,so, an important number that we have now crossed.

We had good success in theback-to-school push and generally see the overall market continuing to grow ata healthy pace. From a subscriber mix perspective, we also had good success inboth attracting and retaining high value postpaid subscribers with ourpostpaid/prepaid mix coming in at 80% postpaid and our postpaid churn comingdown to 1.12%.

On the innovation front, twoweeks ago, we successfully rolled out the second phase of our HSPA third generationwireless network to 22 more Canadian markets. This significantly expands ourservice from the southern Ontario market to now covering about 60% of theCanadian population.

Rogers is the Canadian leader andwireless data at 13.6% of network revenue and growing at a 50% clip in thisquarter. So, a significant growth driver already in the largest contributor toour 7% ARPU growth this quarter. And our new HSPA 3G network enables evenricher and more intensive data application. So, we are very bullish on wirelessdata continuing to be a powerful driver for us going forward.

As we move forward, we lookopportunistically at where the economics indicate. We should expand our currentHSPA footprint. And we are already trailing the next evolution of HSPA, whichdoubles the download speeds from 3.6 megabits per second to 7.2 megabits persecond. We are feeling good about our network position generally and even moreso in the larger markets with the HSPA launch, which very much solidifies theRogers' position as Canada's most advanced and most reliable wireless network.

On the cable side, Edward and histeam also had a solid quarter. Good RGU growth with particularly strongperformance in Internet helped pushed the cable operations revenue up 13%. Wealso made progress this quarter on expanding cable operating margins which areup 300 basis point year-over-year, a trend I know Edward and his team isfocused on continuing to improve.

Going forward, we have someopportunities on content and programming cost, on delivery more efficientsupport of our Home Phone business and in insuring we have the more integratedmarketing approach, so we have a more effective spend across all of the cableproducts.

Comparatively, we are at/or nearthe top end of the range of our North American peers in terms of RGUs per homespassed and revenues per RGU. And we realize that we need to translate more ofthis top line success through to the bottom line. Our margins are dilutedsomewhat relative to the Canadian cable companies by the base of switch circuitlocal and LD business that we acquired in 2005 and that are included in cable'sresults.

Having said that, mostimportantly, we are focused on improvement, and on that note, I want tocompliment Edward and his team on the new Yahoo deal.

Edward, if you want to quicklycomment on the changes on the deal that we announced this morning.

Edward Rogers

Sure. Thank you very much. You'llsee in the cable section, that today we've entered into a new agreement withYahoo around our email platforms and Internet portal. And this should help onthe margin side of the business as we go into 2008. So, we had a greatpartnership with Yahoo for four years and as a result, have been able to offerour customers a better broadband product.

In case you weren't aware, weutilize our email functionality including their hosting and storage for ourInternet service as well as many of their tools, such as popup blocking,content, photos, music and gaming. The economics of the Internet portal andservices evolved differently than when we have signed our original agreement in2004 and this new agreement reflects the future business for both Rogers andYahoo to continue working as a team under a mutual beneficial model.

So, we are making a one-timepayment to terminate our old agreements and we move-off a model of paying on aper-sub basis and onto a model of sharing advertising based on revenue model.

And the numbers as I mentionedthis will help our margins for 2008, I think you'll get a better sense of thoseexact numbers as we release our Q1, 2008 numbers later next year. With that, Iwould like to turn it over to Mr. Viner.

Tony Viner

Thanks, Edward. First, mediadrove solid growth in operating leverage in Q3 with revenue up 6% and EBITDA up12%. So, good results year-over-year and good results sequentially from whatwas a soft second quarter for us. We are pleased to report that our acquisitionof the Five City television stations from CTV was approved during the quarterand as Bill said, we closed the transaction yesterday.

Combined with our existingtelevision properties, we've created a strong TV platform with the scale neededto succeed and also to solidly complement our radio, specialty, publishing andother media assets. I know, we can find a number of ways to make our entire TVbusiness at Rogers operate more efficiently, given that we'll have both OMNIand City stations and all of the markets will be in and except Winnipeg.

In fact, we already have planswhich you may have heard underway to co-locate our City and OMNI televisionoperations in the Toronto market, which are broadcast across on Ontario and weintend to co-locate another markets where we have Citytv and OMNI stations aswell.

It will take some investment andtime to reinvigorate the Citytv business and we believe this is going to be aterrific business for us. On the Rogers Sportsnet side during the quarter, wesigned an 8 year deal to become the official broadcaster of the Toronto MapleLeafs, giving Sportsnet Ontario primary broadcast rights, televising more than20 games annually. Sportsnet also acquired broadcast rights for the 4 pm SundayNFL games and along with our local rights for NHL hockey in every Canadianmarket except Montreal. Sportsnet is on a solid footing for the year ahead, andwill be moved into our new state-of-the-art HD studios in Toronto before theyear end as well, so, good momentum there. With that I will pass it over to theoperator for questions. Operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen,we will now conduct the question-and-answer session. (Operator Instructions).Your first question comes from John Henderson of Scotia Capital. Please goahead.

John Henderson - Scotia Capital

Thanks guys. Great quarter. Ihave a question on use of free cash. I know you are going to talk about it inDecember. I just wondered if there is any potential interest in expandingoutside Canada.

Ted Rogers

We want to finish the job here inCanada, we want to finish the job of fixing up what we have, and maximizing ourstrength or fixing up areas where, with increased competition, and in thefuture it could be very wise now to increase our defenses and make the companystronger. So, we are not looking at this point, to be part of the country andfrankly we are not looking at acquisitions may be a tuck-in or something likethat, but we are not interested in big acquisitions at this point, certainly.We're over our heads and work to improve what we have.

John Henderson - Scotia Capital

That's great. Thanks very much.I'll let others ask?

Operator

Your next question comes fromJeffrey Fan of UBS Securities. Please go ahead.

Jeffrey Fan - UBS Securities

Thanks very much and goodafternoon, everyone. My question is on the wireless side. Great quarter interms of subscriber adds and when we look on the cost front, retention spendcontinues to go up as one would expect, and also costs of acquisition per subis up, as well. But I am just wondering, as you go into the second half of thisyear, it looks like there has been some increase, if we look at that as apercentage of the revenue. It looks like the spending wasn't as strong in thefirst half, but looks like things have picked up in Q3. So, I am justwondering, if you can just comment a little bit on, maybe the currentcompetitive behavior of your other competitors in the market, Telus started to,I guess, spend a little bit more in Q2 and probably continue through Q3. Isthat what was driving what we saw this quarter? And then, how do you look at, Iknow the rules aren't out, but as you look into next year as you do yourplanning. What if the rules are favorable for new entrance, does this preemptsome a little bit more action on your part, even before the spectrum auctiontakes place.

Bill Linton

Yeah. Thanks, Jeffrey. Maybe Ishould start with just commenting on the numbers. I believe a year ago, we hitan all time high -- an all time low rather in the last 10 or 12 quarters interms of our cost of retention as a percentage of revenue, I believe we aredown at about 6.3. In the quarter, if memory serves, we are around 7.5 or 7.6.If you took the average of the last 10, 12 quarters, we would be about 7.5. So,I would say, this quarter our view was we are in kind of a normal place. So, thenthe obvious question is, so why was last year so low, we'd revised our handsetupgrade program pretty significantly and ground things down to a level that wedidn't feel it was the right level. As time has gone on, we will find theprograms more targeted, more focused and we feel very good at where we are atsort of 7.5, 6 or rather 7 to 8 range, 7.5 in kind of where we are now. So, the otherthing that we have changed and that has been a bit of a change, as we've reallyput a focus on Fido, specifically, the Fido Rewards Program. We stepped-up ourefforts on retention on the Fido brand and we think there is significantleverage there. So, I don't know, I think I've got most of your question, did Iget it all?

Jeffrey Fan - UBS Securities

Yeah. And just maybe, I know therules are now for the Spectrum auction and it's hypothetical but how would youreact to favorable rules for duo entrance. Would you try to get as manysubscribers logged up as you go through the next year that sort of things?

Bill Linton

Yeah. I think those are probablythe kind of things that I don't really want to comment on right now, Jeffrey.

Jeffrey Fan - UBS Securities

Okay, fair enough.

Operator

Your next question comes from BobBek of CIBC World Markets. Please go ahead.

Bob Bek - CIBC World Markets

Hi, thanks. Just some mediaquestions for Tony. You've given us some background on the City, since now thatyou've closed, since you got approvals, I'm sure you'd be now talking toadvertisers. What sense do you have or what kind of sense you feel out therefrom the advertising community as far as supporting the acquisition? And whatyou say reinvigoration of City at some point, are you surprised at all by theresponse?

Tony Viner

Bob, the advertising communitywas hugely supportive of our acquisition, as you may or may not know. Clearly,they want a strong third competitor in the market. So, the advertisers are verypositively inclined towards us and so that's been most positive. I think theyalso like the array of media assets that we can bring the bear for theirclients. I'm sorry, what's the second part of your question?

Bob Bek - CIBC World Markets

No. Related to that, though, doyou think it's too aggressive to assume that you can start to put together someof the benefits of your platform by next fall into the TVCs or is thatexpecting too much?

Tony Viner

I think we can begin by next fallbut you are quite right, this fall is locked in. We didn't buy the programmingor do the schedules this year. So, it's going to take us in there, theirscreenings in LA in May. And we'll see what we can acquire then. So, we canstart in September of '08 but it will take us a couple of years I think for usto really for this to make a significant positive impact.

Bob Bek - CIBC World Markets

Okay. And related media questionif I may. There has been a lot ofspeculation in the press regarding the pursuits of an NFL franchise. Still, myunderstating that a corporation can own an NFL team but can you elaborate atall where Rogersand its sports properties are as far as NFL participation?

Ted Rogers

Well. It's Ted, and I'm going tolet Tony start the answer.

Tony Viner

So, I didn't look, Ted. Bob, youare right a corporation can't own it and so this corporation wouldn't, Ted.It's up to you?

Ted Rogers

Well, what standard with thiswas, we have the Rogersand we would very much like to have it with some NFL games here and has beenthe great leader in this and reserves all the credit. Buffalo is a decliningmarket somewhat relatively economically across North America and it'squestionable whether an NFL franchise just in Buffalo would survive and so theowner there has agreed to a program where I believe we'll have two games a yearup here in Toronto in the Rogers Center and that's pretty well, all that we'veagreed at this point. But, when you start to figure out how to implement that,you are selling boxes and you are selling seats and so on.

And if you want a season's group,how does it work between Toronto and Buffalo et cetera. So, Ithink it's very exciting for our company and for media in particular. If thereis any follow through from that and there is nothing at all now. But, if thereis ever any follow through on an ownership basis, and then Larry Tanenbaum andmyself have agreed to work together to pursue that.

But that is not the act to file,the act to file is to try and have some shared games and to work together tomake it more viable.

Bob Bek - CIBC World Markets

Thanks for that. I will leave itthere. Thank you.

Operator

Your next question comes fromSimon Flannery of Morgan Stanley. Please go ahead.

Simon Flannery - Morgan Stanley

Okay. Thank you very much, goodafternoon. I guess, this is for Bill probably, strong appreciation of theCanadian dollar. How does that help you in terms of lowering your say yourhandset cost or general CapEx and then the impact on the balance sheet in termsof unhedged borrowings or whatever and if you can comment on Apple and theiPhone that will be great as well? Thanks.

Bill Linton

Well. I will do the first partand Rob will do the second part. The dollar doesn't have a huge impact on us.Unfortunately, we are 100% hedged on the debt, so anything, we went on thedebt, we will loose on the hedge. On the CapEx side, we do buy boxes in USdollar especially on the cable side.

Probably, we are talking lessthat 10 million a year based on our '07 volumes and we might get a couple ofmillion dollars out of roaming fees for every penny movement. So, it's notsignificant to our quarterly numbers.

Simon Flannery-Morgan Stanley

Okay.

Rob Bruce

I'm just picking up on the iPhonepart of the question. I think my comments would be almost identical to the onesI made on the last call. We think iPhone is an unique and appealing product.Apple clearly has a schedule and a plan for their rollout on a worldwide basis.And clearly, some customers and others have hacked versions of the phone.Neither, Apple or Rogers endorse this kind of behavior on the phones and whenwe have any more news, specifically on the Apple front, we will let you know.

Simon Flannery-Morgan Stanley

Thank you.

Operator

Your next question comes from VinceValentini of TD Newcrest. Please go ahead.

Vince Valentini - TD Newcrest

Yeah. Thanks very much. Onecable, one wireless. On the Yahoo, would you be able to tell us any moreballpark terms of how much margin benefit you could be seeing there and can youtell us how you would be accounting for that $52 million charge? And on thewireless side, would you be able to comment at all on your willingness to offermore aggressive wholesale terms to some of your partners like Videotrondepending on what the rules for this spectrum come out as?

Bill Linton

Vince, its Bill. I'll take thefirst part. The $52 million charge is going to be expensed in the fourthquarter. We are not disclosing an amount of savings and you'll have to wait andsee what it is in the first quarter when the new agreement takes affect.

Vince Valentini - TD Newcrest

Bill, just to follow on that,sorry, your guidance, I am assuming you would adjust for that $52 as anon-recurring charge?

Bill Linton

Yes.

Ted Rogers

And Vince, on the second part, nointerest really in commenting on that right now.

Vince Valentini - TD Newcrest

Okay, thanks.

Operator

Your next comes from James Breenof Thomas Weisel Partners. Please go ahead.

James Breen - Thomas Weisel Partners

Thank you very much. My questionis regarding the wireless segment. Your net adds went up considerably from thesecond quarter to the third quarter of this year and margins were down a littlebit, but not a lot. And I was just wondering, I would have expected a largermargin drop given the incremental net adds. Can you talk about what's holdingthe margins up there? Thanks.

Ted Rogers

Good management.

Tony Viner

Thank you, Ted. Listen, wecontinue to add higher mix of higher value customers giving us a stronger ARPU.There's a certain amount of seasonality of revenue that's also involved. Bothof those things are propping up the numbers. But again, we are happy with therevenue, happy with the margin and just for us a quarter that we are delightedwith overall.

James Breen - Thomas Weisel Partners

And then just one follow-up onthe cable side. Can you talk about any traction that you are gaining into thesmall and medium business space on the voice side?

Edward Rogers

Sure. I'll take that. I mean,small business, our strategy is basically to replicate the consumer productexpense in small business. And so, it kind of means increasing the number ofadjustable homes passed if you think of it. I think we've done okay over thelast three or four years on the data side and we're trying to put more of apush on the telephony side and on the television side. We're still making someinvestments on to offer cable as part of the package. Our cable business phoneproduct, which will rollout through the first part of 2008 and the numbers willbe embedded in the numbers that we have put out.

James Breen - Thomas Weisel Partners

Great. Thank you very much.

Operator

Your next question comes fromGreg MacDonald at National Bank Financial. Please go ahead.

Greg MacDonald - National Bank Financial

Thanks. Good afternoon guys.Another question on cable, if I may, on the cable margin improvement. I forgot whetherit was Nadir or Edward talked about the 300 basis point improvement in margin.Very good. If I can just ask two questions breaking down between the operatingcost and the sale cost. On the operating side, 8% growth, very nice, relativeto the 11% average for the year. Other than good management, I wonder if youmight comment on what's going on there and the sustainability of operating costimprovements. Because I know that was one of the areas that you wanted to focuson this year.

And then secondly, on the salesand marketing side again, good control on sales and marketing I guess, there isa bit of mixed message there since some of the subscriber stats underperformed.I know telephony in particular in what I would have thought would have been a strongerquarter with back-to-school was a lot lower than what I was estimating. So,should I comment on the message there. There's a decision to pull back onpromotional activity, is that a decision that's going to be recurring or shouldwe expect something in the future closer to what you are doing in the firsthalf of the year? Thanks.

Nadir Mohamed

Sure. I think I wrote down allyour questions but let me know if I missed some.

Greg MacDonald - National Bank Financial

Okay.

Nadir Mohamed

Just on the general cost side,obviously we are trying to do a better job to drop more of the revenues gainsto the profit line. Couple of things that are impacting, one, in our markets weare able to still put through fairly decent rate increases on television. We'vemoved up ultra-light for new customers in 2007. And in some markets, we havemoved up a quarter to SAP on Rogers Home Phone. So, I think there's some goodprice metrics that help us. Rogers Home Phone is now 2.5 years old andobviously, you've got some startup costs that you incur as you are startingthat business and we are seeing some scale as we ramp up the customer base.That's having an improvement to the overall bottom line.

And on our cost to sales, we havemanaged to do a pretty good job. So, you don't see the difference of those twoline items. But I think we're seeing some of the improvements are actually inthe cost of sales line on both TV and on data.

And when we look at our sales andmarketing cost, I would say, it’s definitely not a pull back in terms of tryingto acquire new customers. The overall net growth of our RGUs in the closecircuit, was just over 200,000. So, comparatively, in Canada, I think that's onthe higher end against other cable companies. We always love to do much better.We are pushing Home Phones as fast as we can, obviously as the base getsbigger, with a normalized churn in there, you got to get more customers.

And lastly, we are trying to do abetter job at selling multiple products at the same time. And so, that allowsus to have some synergy in the marketing and sales costs, because we are tryingto add two to three products, not just one product at the same time.

Greg MacDonald - National Bank Financial

Okay. That's helpful. Thanks alot.

Operator

Your next question comes from theRick Prentiss of Raymond James. Please go ahead.

Rick Prentiss - Raymond James

Yes. Good afternoon, guys. Coupleof questions for you. One I guess, we put it down as a no for buying Sprintbased on that first answer. But this morning on the Sprint call, they talkedabout the cable joint venture down here in the United States and the pivot goingvery slow. And they mentioned complex provisioning difficult to kind of talkthrough the sale process, unique position of having wireless and cable. Talk tous a little bit about where you guys are seeing success and how are guys mightbe able to experience a difference trend and what Sprint and the cable guys inthe US are seeing?

Ted Rogers

Well, in essence. We areconsolidated. We are trying to operate as one. And down there they have reallygot a resale agreement with all of these different cable companies. As Iunderstand it, they all call their product --- if you move from one city toanother, they cancel the Comcast when they move out to Cox and then they haveto resell Cox. But, I don't know and Nadir, if you got anything to add on that.

Nadir Mohamed

Just a couple of points. I thinkfrom an operational perspective, we are definitely seen and have seen itempirically over a period of time that the churn results are better where wehave multi products. The combination of the factors, I am sure the brand weightthat's given in market through the relationship with customers. We have aspecific program call Better Choice Bundles, which is an up-sell, cross-sellprogram that essentially says the more you buy from Rogers, the better thepackage looks like for you. And that's been a relatively, I'll say easyunderstanding point about systems behind. But, it's an easy thing fordistribution to get behind, it's an easy proposition for customers tounderstand and we've seen great traction from that. So, I think, there aredefinite benefits.

To the extent of packaging, noquestion, our focus right now is on triple play, because that's a purchase arounda home as opposed to an individual. So, those are learnings we've had. But I'dsay that, we've definitely seen traction in terms of being able to get more ofthe wallet share of our customer.

Just one last thing, just as anaside, because it is about customer relationships, when we launch our HomePhone, it was incredibly valuable to have a base for 7 million customerssomewhat less at the time to go after in terms of up selling Home Phone to awireless base.

Rick Prentiss - Raymond James

Okay. And the second question,with you guys now having 60% of the Canadian population with 3G, what are yourthoughts as far as the demand prospects for AirCard and where do you see thepricing plans going in the nearly stages of 3G up there?

Nadir Mohamed

Yeah, I think AirCard is one areathat's going to be profoundly effected by the kind of speed that we canprovide, because I think it will create an experience that is very parallel tothe experience that customers are having at home with the utility of being mobile.So, we see it as potentially one of the growth areas of data going forward.

Rick Prentiss - Raymond James

And kind of pricing plans, whatare your thoughts as far as the pricing umbrella for those kind of plans?

Nadir Mohamed

Clearly, as people have thecapability and the utility to use more, like we see price moving down I thinkthere have been some early indications of that already in the market, and Ithink we'll probably see a lot more of that. And ideally, not taking at all theway to flat rate but making sure that we provide packages that are large enoughand not become barriers to customers using the product.

Ted Rogers

I'd like to just add one thing,so we are clear. GSM has an advantage that it can go to higher speeds thanCDMA. CDMA has reached their peak, they can't go any higher and so this givesus an advantage until and finally learn the lesson from their past and convertover to GSM, they will not be able to match the speeds that we have. And thatgives us a tremendous competitive advantage, that plus the fact that ourwireless network is undisputedly the finest in this country.

Rick Prentiss - Raymond James

Great, sounds exciting. Good luckguys.

Operator

Your next question comes from DvaiGhose of Genuity Capital Markets. Please go ahead.

Dvai Ghose - Genuity Capital Markets

Yeah. Thanks very much. If I cancome back to Greg's question about the home phone. Edward, I accept thatobviously the growth gets more difficult as a base improves, but the net adswere down 23.5% year-over-year when you refer to churn and your answer to hisquestion as perhaps being a contributory factor. Has the win back changes orderegulation's at Belletcetera had an impact here or was there a conscious decision to throttlegrowth?

Edward Rogers

Definitely was a conscious, wantto lower our numbers of home phones that we are adding or let say you seeobviously the net numbers versus the gross numbers, the number of peoplechoosing Rogers Home Phone in the markets lift up quarter-over-quarter and year-over-year.Bell is definitely pushing harder in the market, they launched since last yearin the third quarter their bundles and recently in the last few weeks we'veseen a lot of marketing spend on the home phone cards which I say traditionallythey wouldn't have done much of and we've converted a bit less from a circuitplatform and a cable platform in this quarter versus a year ago, which wouldhad an impact on the results on cable.

Dvai Ghose - Genuity Capital Markets

Okay.

Edward Rogers

So, why we are still planning toforce as hard as we can, and be as effective as we can.

Dvai Ghose - Genuity Capital Markets

Okay. If I could also come backon a wireless side the comment Mr. Roger has made about GSM, I'm not quite surewhy people are afraid of the competitive front in the moment. I'm not surewhether it's a surging ARPU your great subscribing numbers or your record lowchurn but my issues on the GSM side where fully ups and built in advantages andperhaps your competitor sellers in Bellare considering conversion. Would you see that as being a significant threat ordo you think your embedded GSM advantages having been on the technology formany years as a sustainable one?

Edward Rogers

I like to think and Ted is verygenerous on the benefits of GSM. But I think more broadly we have sort of abroad base competitive advantage. Some elements are rooted in GSM, I think someof it is in our segment focus and some of it is in the way we go to markets,some of it is inherent in our distribution. So, clearly having our competitorson the same technology, we'll change the landscape somewhat we like to think asTed pointed out that beyond the technology itself the way we've deployed thenetwork, the kind of speeds that we have, the tower density, and all of thosethings combined kind of roll up to a broader competitive advantage that we willwork hard to sustain as the situation with our competitors changes overtime andpotentially we have new entrance in other things so.

Ted Rogers

And of course CDMA in Canada would you convert to GSM unless in the United Statesas Sprint and the Verizon also converted to GSM, would you do that? That's justa question? I guess that's a question for Darren Entwistle and George Cope.Thanks very much.

Operator

Your next question comes fromPeter MacDonald of GMP Securities. Please go ahead.

Peter MacDonald - GMP Securities

Thank you. Just I want to askclarification on free cash flow and then I have a question on media. On freecash flow is it fair to say that lack of return of additional cash toshareholder is simply the fact that you want to complete your budgeting and weshould not contemplate or consider that you are going to deploy cash outelsewhere and you are waiting for that?

Ted Rogers

I think what -- say Bill. Over toyou.

Bill Linton

I think you should conclude thatwe are in the middle of our planning process and that we are going to provideyou some more guidance on that, when we complete that planning process. And asyou know there are a whole variety of issues in front of us, things like thespectrum auction and the variability of that, so it is a complex subject andit's just taking up some time.

Peter MacDonald - GMP Securities

And should we expect that inJanuary with the subs or February with financials?

Bill Linton

I think you should expect it whenwe tell you to expect it and we haven't made that decision yet.

Peter MacDonald - GMP Securities

Okay. On the media side, would itbe possible if you provide us the breakdown -- the segmented breakdown that youuse to do and then offline is fine so that obviously and basically reasonlooking forward is the changes with Citytv and the more material liability ofthe business just make it a little bit easier for me to forecast it. And canyou also refresh for me the acquisition price plus all the additional costaround it like buying a building, etcetera and any other integration costassociated with it?

Tony Viner

Well as to the first. We start byproviding the detailed information because our competitors were enjoying iteven more than you did, Peter. But, we'll always take it under advice that thetotal cost of the transaction --

Bill Linton

It's going to be disclosed in thefourth quarter; we have to do valuations about intangibles and tangibles. Thereis a bunch of different things that's go in that, so it will be disclosed nextquarter.

Tony Viner

Yes. And we haven't closed downany buildings yet. We haven't completed the integration plan yet, and as soonas we do, we will certainly give you the information you need to you canunderstand the television part of our business and how CTV is, acting at. Allright?

Peter MacDonald - GMP Securities

Okay. Thank you.

Operator

Ladies and gentlemen, at thistime we have time for two last questions. Your next question comes fromMarianne Godwin of Octagon Capital. Please go ahead.

Marianne Godwin - Octagon Capital

Hi gentlemen. I just was curious,because I get a lot of questions comparing Canada and worldwide developmentson the wireless front. Any thoughts in terms of what you've heard or seen outthere that could affect what you do on your platform going forward?

Ted Rogers

I am not 100% sure what you aredriving at, Marianne. Can you be a little more specific?

Marianne Godwin - Octagon Capital

Well, with the developments onWiMAX and where it's going in Europe and justthe --

Ted Rogers

I think we have some -- sorry, goahead.

Marianne Godwin - Octagon Capital

Yeah, just from that perspective.What do you think there is or that we could do --?

Ted Rogers

I think we find ourselves in kindof a unique position because we have all four products of the quad play and Ithink, Nadir touched on this earlier. So I think, one of the things thateffects us positively, is that interaction and being able to create a deeperrelationship with customers that cuts across products. Beyond that, I think theopportunity to go from what Nadir talked about is our success with BCB tocreating products where we have true integration between some of what would beconsidered cable products today and wireless products today, create hybridproducts tomorrow. I think the other advantage in difference from a platformperspective as well we have the advantages that Ted articulated in terms of thespeed and the pervasiveness of HSDPA. We also, as you know, have a WiMAX play,as well. And the ability to be able to leverage both portable Internet andmobile Internet, also give us some significant advantages and opportunitiesthat probably not too many other people have.

Marianne Godwin - Octagon Capital

Great. Thank you.

Operator

Last question comes from Rob Goffof Haywood Securities. Please go ahead.

Rob Goff - Haywood Securities

Thank you very much. Could yougive us bit of a profile on the new gross post-paid subscriber in terms of istheir ARPU accretive or dilutive, is your mix shifting towards business orconsumer and in terms of the length of contracts taken?

Ted Rogers

Yeah. So, we continue to befocused on our target market and I think we stated it a lot publicly, its youthand young adult, they tend to be heavy users of data, early adopters, theirARPUs continue to be strong. We've had some significant success over the pastnumber of years of driving up our business mix with more focus on the small andmedium end of the continuum. So, from a mix perspective, we've seen mixes inboth of those directions and we continue to work hard to be successful in thoseareas and have programs lined up against it.

Bill Linton

Yes, Ted. Youth and young adultsis what we mentioned as far as focused on in wireless youths and young adults.And so, when we buy the Citytv stations, we are not -- it's not just thequestion of the profitability to Tony, that's critical. But it’s also in theoverall company, with the one company viewpoint, it will be a magnificent helpto wireless and helping build the wireless brand for young people, young adultsand so on. That's one of the main factors why we bought it.

Tony Viner

The other thing is just comingback what Rob and giving you specifics. The new customers that we are seeing inconsumer are not dilutive nor are they in business.

Rob Goff - Haywood Securities

All right. Thank you very much.

Bruce Mann

First of all, Operator, thanksfor conducting the call and more importantly, thanks everybody forparticipating. We know it's a very busy day for you and we appreciate yourownership and your support and coverage and folks thank you for that. And ifyou have any questions that weren't asked or if you were in the queue and wedidn't get all the way through it, if you call Dan Coombes and myself, both ofour numbers are on the release, this afternoon we would be happy to help youout. That concludes today's call. Thanks very much.

Operator

Ladies and gentlemen this concludesour conference call for today. Thank you for participating. You may nowdisconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!