Rogers Communications Q3 2007 Earnings Call Transcript

Rogers Communications, Inc. (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 COO of the Communications Division

Edward Rogers - SVP of Communications Group

Tony Viner - SVP of Media

Rob Bruce - VP of Communication Group

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 Weisel Partners

Greg MacDonald - National Bank Financial

Rick Prentiss - Raymond James

Dvai Ghose - Genuity Capital Markets

Peter MacDonald - GMP Securities

Marianne Godwin - Octagon Capital

Rob Goff - Haywood Securities

Presentation

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Rogers Communications' Third Quarter 2007 Results Conference Call. (Operator Instruction). I would like 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 the conference over to Mr. Bruce Mann of the Rogers management team. Mr. Mann, please go ahead.

Bruce Mann

Thanks. Hi, everybody. Good afternoon. Welcome to Rogers' third quarter earnings teleconference. We know it's a busy day for everybody on the street. So, we'll crank through this as crisp as we can.

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

Just quickly, you should have a copy of the earnings release that we put on the Wire before the market opened this morning, along with our full year 2006 MD&A, and have reviewed them because the cautionary language and risks discussed in those documents will apply equally to the dialogue we'll have on the call today.

So with that, let me turn it over to Ted Rogers and I believe Ted wanted to have a couple of other folks on the management 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, and then we will hear from the people on the team who delivered the results, Nadir and Rob and Edward and Tony and Bill. I'll start by saying that frankly, our results were excellent. Overall, this was a quarter that some of you might consider to be a bit on the borrowing side. It's generally more of exactly what we'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 add subscribers, and while driving good financial results, in fact, double-digit growth in revenue, operating profit and free cash flow. So, a good balance of profitable growth, and I believe also a reflection of the benefits of how we are increasingly operating as a single company. My congratulations to the operating team.

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

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

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

I'll just say that you've seen what we've done with our dividend over the past several years and I would like to see us continue down this path or up this path. So, hopefully, on our next call, we'll have more to speak about all of these fronts. And I'm going to stop here 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 our growth really right across the board with consolidated revenue of $2.6 billion which was up 13%. Our adjusted operating profit was up 23%. Consolidated margin is up almost 300 basis points and our free cash flow up 91%. And that's essentially all organic growth driven by double-digit top line and operating profit growth at both wireless and cable. So, very good growth financially, with continued positive operating leverage and importantly, with continued strong subscriber results at the same time.

Now a couple of administrative items, first, in the MD&A this quarter, we've more clearly separated out stock comp related costs. So, you have more visibility into exactly the impacts that 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 reversed approximately $18 million, the majority of that at cable and a smaller amount at media, of previously accruals relating to regulatory fees, which the courts have ruled are not payable.

We've separated this out from adjusted operating profit and have stopped accruing these amounts going forward, effective with this quarter.

Thirdly, as we said in the release, 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 can expect in round numbers, a revenue contribution of approximately $25 million with 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 are feeling good about achieving our full year guidance and may exceed the higher ends 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 to leave the high end of the ranges intact for now. But I think you can get a good sense of where we are given the positive bias we laid out for you in the release.

I will end it there and I will turn 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 delivering profitable growth. I will quickly share a couple of my own perspectives, starting with the wireless side. I congratulate Rob and his team for another strong 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 the back-to-school push and generally see the overall market continuing to grow at a healthy pace. From a subscriber mix perspective, we also had good success in both attracting and retaining high value postpaid subscribers with our postpaid/prepaid mix coming in at 80% postpaid and our postpaid churn coming down to 1.12%.

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

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

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

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

Going forward, we have some opportunities on content and programming cost, on delivery more efficient support of our Home Phone business and in insuring we have the more integrated marketing approach, so we have a more effective spend across all of the cable products.

Comparatively, we are at/or near the top end of the range of our North American peers in terms of RGUs per homes passed and revenues per RGU. And we realize that we need to translate more of this top line success through to the bottom line. Our margins are diluted somewhat relative to the Canadian cable companies by the base of switch circuit local and LD business that we acquired in 2005 and that are included in cable's results.

Having said that, most importantly, we are focused on improvement, and on that note, I want to compliment Edward and his team on the new Yahoo deal.

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

Edward Rogers

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

In case you weren't aware, we utilize our email functionality including their hosting and storage for our Internet service as well as many of their tools, such as popup blocking, content, photos, music and gaming. The economics of the Internet portal and services evolved differently than when we have signed our original agreement in 2004 and this new agreement reflects the future business for both Rogers and Yahoo to continue working as a team under a mutual beneficial model.

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

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

Tony Viner

Thanks, Edward. First, media drove solid growth in operating leverage in Q3 with revenue up 6% and EBITDA up 12%. So, good results year-over-year and good results sequentially from what was a soft second quarter for us. We are pleased to report that our acquisition of the Five City television stations from CTV was approved during the quarter and as Bill said, we closed the transaction yesterday.

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

In fact, we already have plans which you may have heard underway to co-locate our City and OMNI television operations in the Toronto market, which are broadcast across on Ontario and we intend to co-locate another markets where we have Citytv and OMNI stations as well.

It will take some investment and time to reinvigorate the Citytv business and we believe this is going to be a terrific business for us. On the Rogers Sportsnet side during the quarter, we signed an 8 year deal to become the official broadcaster of the Toronto Maple Leafs, giving Sportsnet Ontario primary broadcast rights, televising more than 20 games annually. Sportsnet also acquired broadcast rights for the 4 pm Sunday NFL games and along with our local rights for NHL hockey in every Canadian market except Montreal. Sportsnet is on a solid footing for the year ahead, and will be moved into our new state-of-the-art HD studios in Toronto before the year end as well, so, good momentum there. With that I will pass it over to the operator 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 go ahead.

John Henderson - Scotia Capital

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

Ted Rogers

We want to finish the job here in Canada, we want to finish the job of fixing up what we have, and maximizing our strength or fixing up areas where, with increased competition, and in the future it could be very wise now to increase our defenses and make the company stronger. So, we are not looking at this point, to be part of the country and frankly we are not looking at acquisitions may be a tuck-in or something like that, 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 from Jeffrey Fan of UBS Securities. Please go ahead.

Jeffrey Fan - UBS Securities

Thanks very much and good afternoon, everyone. My question is on the wireless side. Great quarter in terms of subscriber adds and when we look on the cost front, retention spend continues to go up as one would expect, and also costs of acquisition per sub is up, as well. But I am just wondering, as you go into the second half of this year, it looks like there has been some increase, if we look at that as a percentage of the revenue. It looks like the spending wasn't as strong in the first half, but looks like things have picked up in Q3. So, I am just wondering, if you can just comment a little bit on, maybe the current competitive 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. Is that what was driving what we saw this quarter? And then, how do you look at, I know the rules aren't out, but as you look into next year as you do your planning. What if the rules are favorable for new entrance, does this preempt some a little bit more action on your part, even before the spectrum auction takes place.

Bill Linton

Yeah. Thanks, Jeffrey. Maybe I should start with just commenting on the numbers. I believe a year ago, we hit an all time high -- an all time low rather in the last 10 or 12 quarters in terms of our cost of retention as a percentage of revenue, I believe we are down 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, then the obvious question is, so why was last year so low, we'd revised our handset upgrade program pretty significantly and ground things down to a level that we didn't feel it was the right level. As time has gone on, we will find the programs more targeted, more focused and we feel very good at where we are at sort of 7.5, 6 or rather 7 to 8 range, 7.5 in kind of where we are now. So, the other thing that we have changed and that has been a bit of a change, as we've really put a focus on Fido, specifically, the Fido Rewards Program. We stepped-up our efforts on retention on the Fido brand and we think there is significant leverage there. So, I don't know, I think I've got most of your question, did I get it all?

Jeffrey Fan - UBS Securities

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

Bill Linton

Yeah. I think those are probably the 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 Bob Bek of CIBC World Markets. Please go ahead.

Bob Bek - CIBC World Markets

Hi, thanks. Just some media questions for Tony. You've given us some background on the City, since now that you've closed, since you got approvals, I'm sure you'd be now talking to advertisers. What sense do you have or what kind of sense you feel out there from the advertising community as far as supporting the acquisition? And what you say reinvigoration of City at some point, are you surprised at all by the response?

Tony Viner

Bob, the advertising community was 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 very positively inclined towards us and so that's been most positive. I think they also like the array of media assets that we can bring the bear for their clients. I'm sorry, what's the second part of your question?

Bob Bek - CIBC World Markets

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

Tony Viner

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

Bob Bek - CIBC World Markets

Okay. And related media question if I may. There has been a lot of speculation in the press regarding the pursuits of an NFL franchise. Still, my understating that a corporation can own an NFL team but can you elaborate at all where Rogers and its sports properties are as far as NFL participation?

Ted Rogers

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

Tony Viner

So, I didn't look, Ted. Bob, you are 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 this was, we have the Rogers and we would very much like to have it with some NFL games here and has been the great leader in this and reserves all the credit. Buffalo is a declining market somewhat relatively economically across North America and it's questionable whether an NFL franchise just in Buffalo would survive and so the owner there has agreed to a program where I believe we'll have two games a year up here in Toronto in the Rogers Center and that's pretty well, all that we've agreed 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, I think it's very exciting for our company and for media in particular. If there is any follow through from that and there is nothing at all now. But, if there is ever any follow through on an ownership basis, and then Larry Tanenbaum and myself 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 to make it more viable.

Bob Bek - CIBC World Markets

Thanks for that. I will leave it there. Thank you.

Operator

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

Simon Flannery - Morgan Stanley

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

Bill Linton

Well. I will do the first part and 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 the debt, we will loose on the hedge. On the CapEx side, we do buy boxes in US dollar especially on the cable side.

Probably, we are talking less that 10 million a year based on our '07 volumes and we might get a couple of million dollars out of roaming fees for every penny movement. So, it's not significant to our quarterly numbers.

Simon Flannery-Morgan Stanley

Okay.

Rob Bruce

I'm just picking up on the iPhone part of the question. I think my comments would be almost identical to the ones I 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 when we 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 Vince Valentini of TD Newcrest. Please go ahead.

Vince Valentini - TD Newcrest

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

Bill Linton

Vince, its Bill. I'll take the first part. The $52 million charge is going to be expensed in the fourth quarter. We are not disclosing an amount of savings and you'll have to wait and see 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 a non-recurring charge?

Bill Linton

Yes.

Ted Rogers

And Vince, on the second part, no interest really in commenting on that right now.

Vince Valentini - TD Newcrest

Okay, thanks.

Operator

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

James Breen - Thomas Weisel Partners

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

Ted Rogers

Good management.

Tony Viner

Thank you, Ted. Listen, we continue 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. Both of those things are propping up the numbers. But again, we are happy with the revenue, happy with the margin and just for us a quarter that we are delighted with overall.

James Breen - Thomas Weisel Partners

And then just one follow-up on the cable side. Can you talk about any traction that you are gaining into the small 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 product expense in small business. And so, it kind of means increasing the number of adjustable homes passed if you think of it. I think we've done okay over the last three or four years on the data side and we're trying to put more of a push on the telephony side and on the television side. We're still making some investments on to offer cable as part of the package. Our cable business phone product, which will rollout through the first part of 2008 and the numbers will be embedded in the numbers that we have put out.

James Breen - Thomas Weisel Partners

Great. Thank you very much.

Operator

Your next question comes from Greg 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 whether it 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 operating cost and the sale cost. On the operating side, 8% growth, very nice, relative to the 11% average for the year. Other than good management, I wonder if you might comment on what's going on there and the sustainability of operating cost improvements. Because I know that was one of the areas that you wanted to focus on this year.

And then secondly, on the sales and marketing side again, good control on sales and marketing I guess, there is a 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 stronger quarter 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 on promotional activity, is that a decision that's going to be recurring or should we expect something in the future closer to what you are doing in the first half of the year? Thanks.

Nadir Mohamed

Sure. I think I wrote down all your 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 gains to the profit line. Couple of things that are impacting, one, in our markets we are able to still put through fairly decent rate increases on television. We've moved up ultra-light for new customers in 2007. And in some markets, we have moved up a quarter to SAP on Rogers Home Phone. So, I think there's some good price metrics that help us. Rogers Home Phone is now 2.5 years old and obviously, you've got some startup costs that you incur as you are starting that 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 have managed to do a pretty good job. So, you don't see the difference of those two line items. But I think we're seeing some of the improvements are actually in the cost of sales line on both TV and on data.

And when we look at our sales and marketing cost, I would say, it’s definitely not a pull back in terms of trying to acquire new customers. The overall net growth of our RGUs in the close circuit, was just over 200,000. So, comparatively, in Canada, I think that's on the 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 gets bigger, with a normalized churn in there, you got to get more customers.

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

Greg MacDonald - National Bank Financial

Okay. That's helpful. Thanks a lot.

Operator

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

Rick Prentiss - Raymond James

Yes. Good afternoon, guys. Couple of questions for you. One I guess, we put it down as a no for buying Sprint based on that first answer. But this morning on the Sprint call, they talked about the cable joint venture down here in the United States and the pivot going very slow. And they mentioned complex provisioning difficult to kind of talk through the sale process, unique position of having wireless and cable. Talk to us a little bit about where you guys are seeing success and how are guys might be able to experience a difference trend and what Sprint and the cable guys in the US are seeing?

Ted Rogers

Well, in essence. We are consolidated. We are trying to operate as one. And down there they have really got a resale agreement with all of these different cable companies. As I understand it, they all call their product --- if you move from one city to another, they cancel the Comcast when they move out to Cox and then they have to 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 think from an operational perspective, we are definitely seen and have seen it empirically over a period of time that the churn results are better where we have multi products. The combination of the factors, I am sure the brand weight that's given in market through the relationship with customers. We have a specific program call Better Choice Bundles, which is an up-sell, cross-sell program that essentially says the more you buy from Rogers, the better the package looks like for you. And that's been a relatively, I'll say easy understanding point about systems behind. But, it's an easy thing for distribution to get behind, it's an easy proposition for customers to understand and we've seen great traction from that. So, I think, there are definite benefits.

To the extent of packaging, no question, our focus right now is on triple play, because that's a purchase around a home as opposed to an individual. So, those are learnings we've had. But I'd say that, we've definitely seen traction in terms of being able to get more of the wallet share of our customer.

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

Rick Prentiss - Raymond James

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

Nadir Mohamed

Yeah, I think AirCard is one area that's going to be profoundly effected by the kind of speed that we can provide, because I think it will create an experience that is very parallel to the 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, what are your thoughts as far as the pricing umbrella for those kind of plans?

Nadir Mohamed

Clearly, as people have the capability and the utility to use more, like we see price moving down I think there have been some early indications of that already in the market, and I think we'll probably see a lot more of that. And ideally, not taking at all the way to flat rate but making sure that we provide packages that are large enough and 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 than CDMA. CDMA has reached their peak, they can't go any higher and so this gives us an advantage until and finally learn the lesson from their past and convert over to GSM, they will not be able to match the speeds that we have. And that gives us a tremendous competitive advantage, that plus the fact that our wireless network is undisputedly the finest in this country.

Rick Prentiss - Raymond James

Great, sounds exciting. Good luck guys.

Operator

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

Dvai Ghose - Genuity Capital Markets

Yeah. Thanks very much. If I can come back to Greg's question about the home phone. Edward, I accept that obviously the growth gets more difficult as a base improves, but the net ads were down 23.5% year-over-year when you refer to churn and your answer to his question as perhaps being a contributory factor. Has the win back changes or deregulation's at Bell etcetera had an impact here or was there a conscious decision to throttle growth?

Edward Rogers

Definitely was a conscious, want to lower our numbers of home phones that we are adding or let say you see obviously the net numbers versus the gross numbers, the number of people choosing 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 year in the third quarter their bundles and recently in the last few weeks we've seen a lot of marketing spend on the home phone cards which I say traditionally they wouldn't have done much of and we've converted a bit less from a circuit platform and a cable platform in this quarter versus a year ago, which would had an impact on the results on cable.

Dvai Ghose - Genuity Capital Markets

Okay.

Edward Rogers

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

Dvai Ghose - Genuity Capital Markets

Okay. If I could also come back on a wireless side the comment Mr. Roger has made about GSM, I'm not quite sure why people are afraid of the competitive front in the moment. I'm not sure whether it's a surging ARPU your great subscribing numbers or your record low churn but my issues on the GSM side where fully ups and built in advantages and perhaps your competitor sellers in Bell are considering conversion. Would you see that as being a significant threat or do you think your embedded GSM advantages having been on the technology for many years as a sustainable one?

Edward Rogers

I like to think and Ted is very generous on the benefits of GSM. But I think more broadly we have sort of a broad base competitive advantage. Some elements are rooted in GSM, I think some of 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 competitors on the same technology, we'll change the landscape somewhat we like to think as Ted pointed out that beyond the technology itself the way we've deployed the network, the kind of speeds that we have, the tower density, and all of those things combined kind of roll up to a broader competitive advantage that we will work hard to sustain as the situation with our competitors changes overtime and potentially 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 States as Sprint and the Verizon also converted to GSM, would you do that? That's just a question? I guess that's a question for Darren Entwistle and George Cope. Thanks very much.

Operator

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

Peter MacDonald - GMP Securities

Thank you. Just I want to ask clarification on free cash flow and then I have a question on media. On free cash flow is it fair to say that lack of return of additional cash to shareholder is simply the fact that you want to complete your budgeting and we should not contemplate or consider that you are going to deploy cash out elsewhere and you are waiting for that?

Ted Rogers

I think what -- say Bill. Over to you.

Bill Linton

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

Peter MacDonald - GMP Securities

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

Bill Linton

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

Peter MacDonald - GMP Securities

Okay. On the media side, would it be possible if you provide us the breakdown -- the segmented breakdown that you use to do and then offline is fine so that obviously and basically reason looking forward is the changes with Citytv and the more material liability of the business just make it a little bit easier for me to forecast it. And can you also refresh for me the acquisition price plus all the additional cost around it like buying a building, etcetera and any other integration cost associated with it?

Tony Viner

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

Bill Linton

It's going to be disclosed in the fourth quarter; we have to do valuations about intangibles and tangibles. There is a bunch of different things that's go in that, so it will be disclosed next quarter.

Tony Viner

Yes. And we haven't closed down any buildings yet. We haven't completed the integration plan yet, and as soon as we do, we will certainly give you the information you need to you can understand the television part of our business and how CTV is, acting at. All right?

Peter MacDonald - GMP Securities

Okay. Thank you.

Operator

Ladies and gentlemen, at this time we have time for two last questions. Your next question comes from Marianne 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 developments on the wireless front. Any thoughts in terms of what you've heard or seen out there that could affect what you do on your platform going forward?

Ted Rogers

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

Marianne Godwin - Octagon Capital

Well, with the developments on WiMAX and where it's going in Europe and just the --

Ted Rogers

I think we have some -- sorry, go ahead.

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 kind of a unique position because we have all four products of the quad play and I think, Nadir touched on this earlier. So I think, one of the things that effects us positively, is that interaction and being able to create a deeper relationship with customers that cuts across products. Beyond that, I think the opportunity to go from what Nadir talked about is our success with BCB to creating products where we have true integration between some of what would be considered cable products today and wireless products today, create hybrid products tomorrow. I think the other advantage in difference from a platform perspective as well we have the advantages that Ted articulated in terms of the speed 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 and mobile Internet, also give us some significant advantages and opportunities that probably not too many other people have.

Marianne Godwin - Octagon Capital

Great. Thank you.

Operator

Last question comes from Rob Goff of Haywood Securities. Please go ahead.

Rob Goff - Haywood Securities

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

Ted Rogers

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

Bill Linton

Yes, Ted. Youth and young adults is 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 the question of the profitability to Tony, that's critical. But it’s also in the overall company, with the one company viewpoint, it will be a magnificent help to wireless and helping build the wireless brand for young people, young adults and so on. That's one of the main factors why we bought it.

Tony Viner

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

Rob Goff - Haywood Securities

All right. Thank you very much.

Bruce Mann

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

Operator

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

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