Rogers Communications Q4 2007 Earnings Call Transcript

Feb.22.08 | About: Rogers Communications (RCI)

Rogers Communications Inc. (NYSE:RCI)

Q4 2007 Earnings Call

February 22, 2008 11:00 am ET

Executives

Bruce Mann - VP of IR

Ted Rogers - CEO

Bill Linton - CFO

Nadir Mohamed - President and COO of the Communications Group

Edward Rogers - SVP of Cable

Tony Viner - SVP of Media

Rob Bruce - SVP of Wireless

Bob Berner - CTO

Analysts

Phil Cusick - Bear Stearns

Jonathan Allen - RBC Capital Markets

Rick Prentiss - Raymond James

Dvai Ghose - Genuity Capital Markets

Jeffrey Fan - UBS Securities

Greg MacDonald - National Bank Financial

Simon Flannery - Morgan Stanley

Tim Casey - BMO Capital Markets

Glen Campbell - Merrill Lynch

John Henderson - Scotia Capital

Operator

Good morning ladies and gentlemen. Welcome to the Rogers Communications' fourth quarter 2007 results conference call. (Operator Instructions). I would like to remind everyone that this conference is being recorded, Friday, February 22, 2008 at 11:00 am Eastern Time.

I would now like to turn the conference over to Mr. Bruce Mann of the Rogers management team. Please go ahead, sir.

Bruce Mann

Thank you very much, operator. Good morning everyone, and welcome to Rogers' fourth quarter '07 earnings teleconference.

On the line with us today here in Toronto are Ted Rogers, our Chief Executive Officer as well as Bill Linton, our CFO, and Nadir Mohamed, who's the President and Chief Operating Officer of the Communications Group, and also we've got the three divisional Presidents, Rob Bruce from Wireless, Edward Rogers from Cable, and Tony Viner from Media, along with some members of their respective team.

We put our detailed fourth quarter release out on the wires before the markets opened. If you don't have a copy, you can find it on rogers.com or on any of the major wires. But please have a chance to fully review that along with our '06 annual MD&A and the release we put out on January 7th with respect to our guidance, including all the cautionary language in those documents that will apply equally to the dialogue on our call today.

So with that, let me turn it over to Ted Rogers, and then Bill Linton, Nadir, and Tony, are each going to make some very brief remarks, and then the management team will have plenty of time to take your questions. So thanks very much. Over to you, Ted.

Ted Rogers

Hello everyone and thanks for joining us. I've got a few brief remarks, and then Bill, Nadir and Tony will each say a couple of words as well. Let me start by saying that, I am very grateful on the results of the Rogers management team and employees delivered for the fourth quarter and for 2007 as a whole. We did what we said we would do and that is, I think, critically important. We did what we said we would do, which was execution, integration, a balance mix of subscriber and financial growth, and we delivered on or exceeded the financial and operating targets we laid out for you at the start of the year.

We added subscribers across the business at continued healthy rates. We grew revenues, operating profit and free cash flow all at double digit rates.

Now, did we do everything perfectly? No. Have we got improvements still that we can make? Yes. I feel that we could do a better job with Home Phone, which is improving all the time, but it's important to really move it and I think in the customer service as you know we are working on reviewing all of our practices and procedures and we've got a long way to go there with [Don Moffet] and Nadir, and the whole group.

You know our credit ratings were upgraded to investment grade, years after they should have been increased to investment grade, and then in turn provided us with the opportunity to significantly simplify our corporate structure.

Three weeks ago, we announced the doubling of our dividend from $0.50 to a $1 per share, and remember this was just not too much later than we doubled the number of shares. So this works out to $2 per share with the old ones, and we are guiding for continued double-digit revenue and operating profit growth for 2008.

That said, [with announced] results overall, we can do better and we are working very hard to do better and I believe it's a also a reflection of the benefits of how we are increasingly operating as a single group or single company helping each other, working together on all the different projects we have.

I am also pleased with some of the tuck-in acquisitions we've had opportunity to take advantage of deals like Aurora Cable and Citytv are going to be, without question, add strongly to the franchise in our future growth, and I congratulate Bill Linton and Tony Viner for doing those deals. They took a long time and are really worthwhile to us.

We have a history of taking these acquisitions and implementing them to our main business with very successful results. We've also embarked upon several important initiatives including our systems, our networks and capabilities. And we have a long way to go. Making these investments today to develop and reinforce our platforms will help tremendously the secure our continued growth well into the future. If we don't tell them and in my opinion guarantees that we will slip behind and we will not be competitive in two, three, five years. We have to do this.

I think that our plans for 2008, which were recently laid out, strikes a healthy balance between; first, the continued delivery of both subscriber and financial growth as the key issue here. Second, the return of increasing amounts of our growing free cash flow to shareholders. We have listened to our shareholders and to you on this call, advisors and the necessary investments for the future.

On the investment side, we continue to spend to assure that we have the absolute highest quality networks in Canada at each of our businesses. And we were able to advertise that we have the finest wireless network in this country, and not to be questioned on that by our competitors, shows you the results of careful, prudent, but significant financial investments over the years.

We know have to make sure that we have at least six months of capacity in place at and when we will actually need it. This is important to me because with the movement in the market place, you could get yourself in the real trouble if you don't have capacity estimated of what you would need six months from now. And then you will get into trouble and you will have poor service to your customers, and it's just something that we just don't want.

On the worry side, do I lose sleep? Yes, about our ongoing regulatory risks. While we are fortunate to have a robust economy here in Canada, and the service we provide continues to be strongly in demand. I don't think it will be prudent to not take a degree of caution from some of the economic issues occurring south of the border. These are troubling times. You can't pick up the paper, which you don't read of billions more lost by very knowledgeable financial people.

Why we aren't seeing slowing in out markets, I have asked our team to be extremely diligent about our controlling costs and exercising restrain around spending, so that we can react quickly if softness does spread across the border in the meaningful way. And that ties in a little bit with our work on improving our systems and procedures, so that we don't need as many people doing manual things.

So, I'll stop here by just saying that I'm very grateful with the results we've delivered and with the progress that we are making. We still have a tremendous amount of hard work in front of us. We mustn’t minimize that at all. These are not glory days, they are satisfying days, but we have a lot of do, and I think we are exceptionally well positioned to continue our success.

So thanks, everybody and I'll turn it over to our Chief Financial Officer, Bill Linton.

Bill Linton

Thanks, Ted and good morning everyone. I think it's clear from the results that we are continuing to maintain our growth, really right across the board. Consolidated revenues of $2.7 billion, were up 13%; adjusted operating profit was up 25%; consolidated margin is up over 320 basis points; free cash flow was up 210% over the same quarter last year.

So good growth financially with continued positive operating leverage and importantly, with continued healthy subscriber results at the same time.

A couple of quick comments I'd like to share. First, as Ted mentioned, we announced in January that we were doubling the dividend, effective immediately to a $1 per share. At the same time, we announced the dividend increase and our 2008 guidance, which was just a few weeks ago. We also announced that our Board had authorized the buyback of up to $300 million of our shares in the open market during 2008. We obviously haven't been able to buy any shares back under the program as of yet. In the week, since the announcement we've been in a trading blackout pending today's release of our results.

However on a related note, it's important to point out that during 2007, we also put in place a stock option repurchase program. Under that program, during the fourth quarter we were able to buy back approximately 1.2 million options in cash instead of issuing shares. This is roughly equivalent to a $50 million tax deductible share buyback. This stock option buyback program will continue in place during 2008 in addition to the new $300 million buyback program.

These programs combined with the doubling of our dividend represent a very significant increase in the return of our growing cash flow to our shareholders. Terms of our operating profit growth in Q4 I also wanted to point out and some of you may recall this that the year-ago period of 2006 included one-time items, which increased our operating profit at wireless by about $20 million. The year-over-year growth at wireless and on a consolidated basis is actually even stronger than it looks on the surface when you factor in those changes from last year.

I also wanted to note a couple of items like CapEx in Q4. First is that you will notice a $36 million increase from last year in CapEx at the corporate level. This reflects the purchase during the fourth quarter of a new building to house our Citytv and all the television operations in downtown Toronto. At the start of 2007, we centralized our various real estate holdings at the RCI level and thus the acquisition costs of properties like this reside at the RCI level versus the operating companies.

Second item on CapEx for Q4 was at wireless, where CapEx was up year-over-year by approximately $50 million. We pointed out at the end of Q3 that we had expected our wireless CapEx to track above the high end of the guidance range and it did as we undertook multiple initiatives around network redundancy, density and expansion in support of our claim as Canada's most reliable wireless network as well as beginning the further expansion of our HSPA network.

I'm pleased to report that with wireless CapEx being the only exception we met or surpassed every 2007 financial and operating metric target, which we set out at the start of the year. 2007 was a solid year financially for Rogers. As we laid down in January, we are targeting to deliver double-digit growth in revenues, operating profits and free cash flow again in 2008.

I will end there and turn it over to our Chief Operating Officer, Nadir Mohamed.

Nadir Mohamed

Thank you, Bill, and hello everyone. Q4 was another quarter of being buttoned down and successfully focusing on execution. Starting with the wireless side, my congratulations to Rob Bruce and his whole team, putting a strong quarter with network revenue up 17% and operating profit up 26% year-over-year.

Our focus has continued to be on a balance mix of subscriber and financial growth and our Q4 results demonstrate our commitment to that strategy. We continue to target high-value postpaid subscribers and driving increased wireless data penetration.

On the subscriber front, we finished the year by delivering 118% of our wireless net add guidance and we had good success in attracting and retaining high-value postpaid subscribers. In fact, our postpaid and prepaid mix came in at 86% postpaid, at the top of our industry for Q4 and our postpaid churn ticked down year-over-year to 1.17%.

So very successful focus on very high-value customers in the quarter, and that bodes well for future ARPU and churn results.

Something to note, the Q4 subscriber numbers for our industry and ourselves reflect the turn we've been seeing in the last few years where there has been a continued shift in the seasonality of subscriber loadings from the Q4 Holiday season forward into the Q3 back to school season reflecting the strong growth in the US market.

On the revenue side, wireless data is significant, and continues to be a significant growth driver for us, and by far the largest contributor to our 6% ARPU growth this quarter. In Q4, wireless data growth was very growth at 48% year-over-year, and now represents 14% of network revenue, compared to 11% a year ago. So, clearly Rogers continues as the Canadian leader in wireless data.

During the quarter, we announced that our High Speed Packet Access Network or HSPA is now available in 25 markets, covering just under 60% of the Canadian population. We see this as a key platform for driving wireless data usage and ARPU even further. During 2008, we will continue to expand our HSPA footprint where the economics makes sense, and we will continue to increase the data throughput speeds of the network and our backlog capabilities at the same time.

We are feeling very good about our network position generally and specifically in the larger markets where our HSPA deployments further solidify Rogers's position as Canada's most advanced and reliable wireless network.

On the cable side; kudos to Edward Rogers and his team, who also had a solid quarter with good RGU growth and pricing discipline combining to push the cable operations revenue up 13%, helped by the traction we've gained with several of our new triple play offerings.

We also made good progress this quarter in expanding the cable operations margin which are up 115 basis points year-over-year and as suggested by our guidance we expect us to further expand in 2008. We are at or near the top end of the range of our North American peers in terms of RG use per homes passed and revenues per RGU reflecting our strong product and service offerings leveraging our superior cable network. The cable team is very focused on margin improvement and we are making progress on delivering more efficient support for our home phone business and ensuring we have a more integrated and cost effective marketing approach across all of our cable offerings.

In 2008 we will also see the benefits of our restructured yahoo agreements. So all in all a good Q4 at Cable and a commitment to continue to focus on capturing more operating leverage. With that I'll turn it over to Tony Viner.

Tony Viner

Thanks Nadir, hello everyone. First media drove solid growth in operating leverage in Q4 with revenue up 15% and EBITDA up 31%; so great year-over-year with margins expanding by well over 200 basis points. We had solid organic revenue growth across most of our divisions and additional acquired growth coming from the five new Alberta radio stations we brought on Board in January of last year which by the way have performed terrifically and from Citytv which we closed October 31.

Really good performances specially radio and Sportsnet but with good results as well at Shopping channel and Publishing. The Citytv acquisition is progressing as we planned with no major surprises or hiccups. That business contributed approximately $30 million of revenues for the two months of the quarter in which we owned it and was just shy of break even on an operating profit basis.

Implicit in media's guidance for 2008 is the assumption that Citytv delivers revenues at around a $160 million level and we expect to drive the EBITDA losses to be well less than $10 million and hopefully get the business very close to breakeven in this first transition year.

Many of you saw a few weeks ago, the arrangement for the Buffalo Bills to play games at the Rogers Center over the next five years. We are very excited about this at Rogers Media as it gives us additional opportunities to monetize our Rogers Center asset while at the same time giving us some extremely valuable sports content for our radio and television businesses.

We also cleaned up some of the ownership positions in our Specialty Channel assets during the quarter. We applied to the Commission for full ownership of Outdoor Life Network Canada buying the 66% interest, we didn't already owned from CTVglobemedia and Comcast. And we completed the Bio to Comcast 33% in G4techTV. The G4 deal has already closed and I expect our lane will close sometime in May or June after CRTC approval.

With that I will pass it over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Phil Cusick of Bear Stearns. Please go ahead.

Phil Cusick - Bear Stearns

Hi, guys, thanks for taking my question. I was going to ask a little specific technology questions, but since I'm the first; Ted, maybe you can give us some overview of any changes you are seeing in how you are viewing the auction, from this point versus where we were a few months ago, and maybe if you can just give us an update on the timing that you expect, and how long you expect it to take?

Ted Rogers

Our policy is to have no comment on the subject of the action or any related matter. This is a highly confidential matter and we do not wish to comment at all before the auction.

Phil Cusick - Bear Stearns

My apologies.

Ted Rogers

No, not your apologies; my apologies.

Phil Cusick - Bear Stearns

May be you could talk a little bit more instead on the competitive level of the industry. We saw some of your competitors very aggressive in the fourth quarter and then drop away pretty quickly in January. What are you looking at from these guys as they go through or at least one of them goes through some structure changes?

Ted Rogers

Nadir?

Nadir Mohamed

Sorry, Phil, and I'm not sure whether you are relating to the general comments on our auction. But suddenly you have not changed for the market and what we saw in the market?

Phil Cusick - Bear Stearns

Yes, more to the markets.

Nadir Mohamed

Sure. When you look at overall, not just on the wireless side, but the cable and wireless market; frankly the market remains very competitive. We've seen it on the cable side with the Winback activity from our largest competitor Bell and we see it on the wireless side and I'm going to ask Rob in a minute to talk about the specifics of the wireless market, but it remains as competitive as ever and the thing that I want to make sure that people understand; our approach to the market has been very consistent. We've talked about our strategy in terms of going after postpaid, going after high quality customers, pushing and really driving data penetration and focusing on the youth and small business market. And from that perspective I'm very pleased to say that we remain focused on those things and I think our numbers are starting to show that quarter in and quarter out, but let me get Rob to talk specifically about the wireless market.

Rob Bruce

Phil, Rob Bruce here. Just before I go there, back to your question on the auction, obviously there has been a fair bit of dialogue back and forth between Industry Canada and all the carriers; that's on Industry Canada's website and I think it captures the essence of much of the dialogue and background that has gone on, may be that will be helpful.

In terms of competitive activity in Q4 in wireless, it was a much more competitive quarter from a rate plan prospective and I say that because it was different and distinct from the typical handset or promotional offer oriented quarter. These were rate plans being more heavily discounted and as many of you noticed in your remarks, we didn't respond to much of it. So we were pretty quite but there was a lot of competitive rate plan centric activity in the quarter.

Phil Cusick - Bear Stearns

Okay, thank you.

Operator

Your next question comes from Jonathan Allen of RBC Capital Markets. Please go ahead.

Jonathan Allen - RBC Capital Markets

Thanks very much. As much as I would love to ask a Six Sigma efficiency question, I am going to ask more about the phone side of the business and specifically revenue and subscriber growth has been pretty good the last few year's, but we still see on a consolidated basis; if I look at the implied phone ARPU that you are generating, it still seems to be declining about 14% year-over-year and I understand that the circuits switched call make customers may be at a higher ARPU level and that the new cable voice over IP customers may be at a lower level. But I am curious if you could speak a little bit about the trends that you are seeing in ARPU, both side, the circuit switch base and for the new Rogers Home Phone customers and whether or not we should expect that ARPU trend to turn up, some time in the near future, whether it’s the function of promotional discounts et cetera.

On a related question, I am curious if you could talk a little bit of about some of the recent price changes that you may have implemented on the cable side, whether it would be cable or on the phone as well. Thank you very much.

Ted Rogers

Okay thank you for that I think on the RPU on the Rogers Home Phone you answered a bit of the question, at the start of the initial ARPU on the Sprint side was a bit higher, and that was due to, initially they were the only alternative choice in the market. They had some very high LD rates because Sprint was originally a Long-Distance company.

We've been aggressive on trying to acquire customers and so you have some of the upfront offer pricing that works it way into the average revenue for price or customer. And as Ted, and others mentioned, we're fighting a little bit harder with Bell to keep our customers into locker, customers up into terms through Better Choice Bundles and some of the Triple Play pricing.

Bill Linton

Maybe just to add a little bit to that is when you look at simple average that you are trying to calculate, it also includes some LD only customers that are in the Sprint Canada base. And if you take out the LD only and you take out the promotional activity that Edward is talking about and you look just at our local customer that we have with their features in LD. We are pretty steady year-over-year in that $45 to $48 range. So, we are not seeing a precipitous drop in ARPU at all on the phone side.

Jonathan Allen - RBC Capital Markets

Thanks for that. If you look at just the standalone LD that is declining, how much more of a decline should we see or can you give us a sense of what the total revenue base is of that Long-Distance revenue stream?

Bill Linton

It's becoming less and less significant over the time.

Jonathan Allen - RBC Capital Markets

By less significant we are talking less than sort of $50 million a year?

Bill Linton

Let’s leave it at it, it’s not a significant number.

Jonathan Allen - RBC Capital Markets

Fair enough. The other question was just on some recent pricing changes that might have happened on the cable or phone side, if any?

Ted Rogers

On the rate increases in March?

Jonathan Allen - RBC Capital Markets

Correct, and for 2008 that is, if there's any?

Ted Rogers

Yes and we've communicated that with customers, where we put some increases on TV (Inaudible). We've changed some of our data packages and for new customers repaying higher rates on up Ultra-Lite and Lite, and the Extreme and we've matched and moved our staff up on Rogers Home Phone, a $1.45.

Those all go into effect in March, but we stagger depending on when customers get their bills and if they are pre-paying they start those higher rates up in next billing cycle. So you start seeing those coming on through Q2.

Jonathan Allen - RBC Capital Markets

And that will be applicable to the majority of the subscriber base?

Ted Rogers

Yes.

Jonathan Allen - RBC Capital Markets

Okay. Thank you.

Operator

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

Rick Prentiss - Raymond James

Yes. Thanks for taking my question. Good morning, gentlemen. A couple of questions for you, John, you are south of the border, quite weak with a lot of discussions on unlimited rate plans and increasing MOUs. Talk to us a little bit about what you viewed from your side of the border on what was happening down in the U.S.? And given the penetration rate and MOU levels up in Canada, what you think the future might hold?

Rob Bruce

Rick, it's Rob Bruce. Listen, we've always made it a practice not to be armchair quarterbacks and comment on other people's specific pricing. I mean I think you hit the nail on the head, the U.S. market is a very, very different market in many, many ways from Canada. And what we would say is we've great success with our Canadian focused pricing and our focus on high value customers that Nadir made referenced to in his opening remarks and we are going to stick with that.

Rick Prentiss - Raymond James

Okay. And then on the data front maybe, further there, obviously a nice improvement on the data year-over-year growth on the wireless side, now it's 14% of your net revenue. Can you update a little bit about where those revenues are coming from currently as far as what makes up that 14%. Is it games, rings, short messaging, kind of how that breaks down and as you look for it to grow next year or this year '08, how much are you relying on aircards or stuff to kind of really move that forward?

Rob Bruce

Yes, basically it comes from what I think of it as four large categories. Couple of really big ones are at the PDA category and SMS being kind of the two largest, then there's basically services that whether it's downloading ring tones or games or what have you rides on a wireless internet that's an another category. And then, lastly, are really customized applications that that we do for corporations and semi-customized applications. Those are really the four big buckets where we see the growth coming from as well we are starting to see significant growth of mobile broadband, which will grow more and more over time driven by USB cards and the like that will enable laptops and with the higher speeds our HSPA network can now provide, we think that will be a very, very significant stream of revenue in the future.

Our focus, as Nadir said, is we're strong, strong believers in data. We think that's where there is a lot of growth. Our focus on building out the best HSPA network we possibly can and building out the reliability is all anchored in our future ambitions that continue to be the best of wireless data company in Canada.

Rick Prentiss - Raymond James

Great. Good luck. Thanks, 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. Rob, I understand why you don't want to comment about AT&T and Verizon's plans, but you have potential new entrants in Canada such as MTS and [Videotran] threatening to unleash unlimited plans in Canada, what do you think would happen specially given that you have the high-end customer basis proportionately in particular in terms of network CapEx, and you did overrun your CapEx guidance for '07 what is the rest of your overrun in 08?

Ted Rogers

You managed to squeeze in a lot of questions, Dvai and I wondered --

Dvai Ghose - Genuity Capital Markets

But it was pretty short questions though.

Ted Rogers

I have never heard that the potential buyers in the spectrum have decided of any particular price plan. I've never heard that before.

Dvai Ghose - Genuity Capital Markets

Just in meetings including peer call, speaking yesterday talked about things like your relationship restricts them from using unlimited price plans perhaps alluding to the fact that he may pursue such pricing?

Ted Rogers

You should have talked to his treasurer.

Dvai Ghose - Genuity Capital Markets

Yeah, fair enough.

Rob Bruce

Listen Dvai, you've given me a great opportunity to talk about our focus and how we're going to continue to create differentiation going forward. And you saw how we spent, and continue to spend money on our network both the reliability and rolling out HSPA across the country.

We're deeply committed to that and we're deeply committed to the wireless data that will ultimately carry. I think we've seen many price players come and go over time. We believe and we've seen great success from being the premium player in terms of delivering great service and delivering data and invasion ahead of our competitors, we're going to continue to do that.

And what you saw in terms of some of our capital spending that became more evident in Q4 but of course we were spending on that HSPA network across the whole year to continue to build those capabilities at a faster rate. So, we're even more ready as time goes forward.

Dvai Ghose - Genuity Capital Markets

But what about your CapEx budget for the year, do you think there is a risk that you'll be above it?

Bill Linton

We can give in our guidance. And unless we change that, that will our guidance.

Dvai Ghose - Genuity Capital Markets

Okay, thanks.

Operator

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

Jeffrey Fan - UBS Securities

Thanks very much and good morning. My question again is on the wireless CapEx and maybe more specifically in your PP&E disclosure, the other network category was the one area that jumped pretty significantly while HSPA spending, you know that was expected to increase and was a big bucket but the biggest jump in the quarter was the other category. So I'm wondering if you can explain a little bit there. And just as a follow-on, may be tying it back to some of the unlimited plan questions that’s being asked. As you roll out HSPA, can you maybe talk a little bit qualitatively on the efficiency that you expect to gain on voice traffic going forward, because that’s one of the things that we see a lot of global carriers taking advantage of. And maybe, Rob you can explain a little bit on that? Thanks.

Rob Bruce

Jeff, let me touch on capital. I think, whenever you look at a capital, particularly for a wireless company, you really need to look at it on almost a full year basis. So, why don't I tackle the full year, and on a full year basis we are over by roughly $100 million over what we'd initially talked about. And as you know in Q3, we tried to highlight that we planned to go beyond that. And Bill made reference to that earlier.

Our spend, when you look at that $97 million, we spent about 42, 43 of it on continuing to push ahead with HSPA. You saw our announcements on 7.2 broader footprint and the like, as well, continuing to build out cell sites, accounting for about another $55 million. And you know, some of those things were offset by some savings. There was a little bit of IT, in general, and the mix as well. Those were the things that we did. Again, it's part of our vision about continuing to own the leadership space from a network reliability and from a future data capability perspective.

With respect to unlimited plans, I think you've heard us say on the call before -- two things; number one, we are not fans of unlimited plans. And secondly, that we want to make sure that as data continues to be more and more effective we create plans that are helpful and don't become barriers to adoption. So, we will continue to be committed to straddle that balance and try to do the best job we can of making sure that customers have enough data and have affordable data, so that they can actually use the devices and applications that they.

Bob, do you want to talk a little bit about how the future iterations of technology will help us in terms of efficiency on voice, because I know you are much more well versed than I am.

Bob Berner

In my guess, Bob Berner here. Now, there are two aspects to the technology we are rolling out. The first is what we can do with data and there's no comparison to the second generation technology because you can achieve data rates with we are rolling out that are completely beyond the levels we could achieve on 2 or 2.5G technology that they would call. So we can't really compare those. There's completely different level of performance.

And as far as voice goes, there's a lot being talked about in terms of voice efficiency, but what we can tell you is clearly at this point there is a significant improvement in both radio spectrum and efficiency relative to dollars spent on UMTS-HSPA compared to our previous technologies and our investment strategy is focused on that, that we are putting over go-forward investment in the next generation of technology. But there's no doubt that our cost per subscriber declines on voice as we move forward through this technology.

What we've deployed currently takes us up to 14.4 megabits with the hardware we've deployed ultimately going to about 21 megabits per second on data with software upgrades and back haul investments. So, we think we are really well positioned from the standpoint of meeting our subscriber demand on a very cost efficient basis.

Jeffrey Fan - UBS Securities

Okay, great. That's very helpful. Thanks.

Operator

(Operator Instructions). Your next question comes from Greg MacDonald of National Bank Financial. Please go ahead.

Greg MacDonald - National Bank Financial

Good morning, guys. The question is on the core cable segment. You saw some recent decent revenue growth there at 13%. I like to think that sort of plus 10% is sustainable for a couple of years. And when I'm thinking about that relationship I'm thinking mostly about telephony. Ted mentioned that the company could do better there. Subscriber growth a little bit later then I expected in the quarter, penetration rate is around sort of 20%. I think one can assume that there's considerable upside there so. The question is in reference to the marketing spend in the quarter, we saw just about a 20% increase in sales and marketing. And I'm one that has faith that there is a really strong relationship between marketing and sub-growth. Could you comment, number one, where the focus was on the cable marketing side this quarter? Or are you happy with the returns that you got on that marketing?

And then secondly, as per the company's expectations going forward, should we expect that marketing spend will continue to reflect sort of a double-digit revenue growth in the cable segment? Thanks.

Bill Linton

I will thank you for that one question and I'll try to write them all down. I think you're right that Ted would always like more and that he's a good CEO and that he pushes us all to always bring more. I think I will try to step through them, but if I miss some of them then just let me know. Revenue growth when we look at our business obviously we give guidance one year at a time, but I think that we'll be able to keep revenue growth strong past the end of 2008, but as I said we only give guidance one year at a time.

The sales of RHP when we look at the quarter, I think we were pretty satisfied with the total growth of revenue generating units, basic was quite strong for us on the quarter. And Internet, and digital, I think we're, kind of, where we expected. In RPH, we would have liked to have seen a bit more in net adds. If you look at it, we do have strong expectations for '08 internally, so we are going to continue to work towards strong growth in Roger's Home Phone. Bell is, obviously, fighting a little bit harder, and with some of the changes in the rights in '07 that that did have an affect. And we've got a few internal issues that we are trying to workout a bit better to be a bit more effective when we get customers. And so we think we’ve got an opportunity to improve there.

In marketing and sales spend, definitely, there is a trend internally to move towards more of a multi-products spend, meaning that we are going to try and increase the number of revenue generating units sold per sale and increase the number of units that we install when to go the home. And there is a positive impact if we do that well and effectively on the total marketing and sales costs, which we hope to see in 2008.

And some of the margin expansion is, was earlier indicated in terms of the guidance for cable being more effective than marketing and sales is partly what should help us achieve that higher EBITDA and higher margins.

Greg MacDonald - National Bank Financial

That’s helpful. Thanks.

Operator

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

Simon Flannery - Morgan Stanley

Hi. It's a question on the churn. Could you talk about, I think you mentioned the continued strong churn trends. Verizon's under 1% on post paid churn. They have two year contracts. Is that achievable you think? And related to the economy, is there anything you are doing on credit checks to maybe tighten credit standards to ensure the quality of the base, given, maybe a risk of a slowdown? Thanks.

Bill Linton

Listen, I mean, I think, we believe that churn is one of the biggest leverages in the wireless business. So, we wake up every morning trying to figure out how to cost effectively and efficiently drive down churn. I am not going to speculate whether we can get the 0.97, but you can guarantee that we are absolutely focused on trying to drive that number down everyday because we realize how much leverage there is.

In terms of the second half of your question, I am not sure I understand completely what you're driving at. But [John Goglanse] got a smile on his face, and I think, he is going to answer the question.

Unidentified Company Representative

Simon, I think, you're asking whether we are tightening our credit because of potential economic concerns.

Simon Flannery - Morgan Stanley

Exactly.

Unidentified Company Representative

The earlier comments that Ted made would indicate that we're not seeing that right now. We are not seeing any real impact of the economy. The Canadian economy is strong. We do watch it carefully. We have a pretty good risk strategy for the lower end credit customers anyway. They’re restricted in terms of how much they can spend and how far they can go. So I think we are in good shape there for now. And we do watch it though. So, obviously, looking for anything that's coming from economic facts.

Simon Flannery - Morgan Stanley

Thank you.

Operator

Your next question comes from Tim Casey of BMO Capital Markets. Please go ahead.

Tim Casey - BMO Capital Markets

Thanks. I was wondering if you could talk a little bit about your capacity management on the core cable plant. Could you just update us on what you're doing with regard to switched digital and DOCSIS 3 and so on? And, bluntly, I wonder if you could characterize what you foresee as a risk that you'll have to do the network rebuild to 1 gig in some foreseeable time frame? Thanks.

Unidentified Company Representative

It’s Mike. Tim, maybe I'll start with the last part first, which is the 1 gig rebuild, I think that with a number of different tools that we have whether that be switched digital, advanced codecs, and technologies like DOCSIS 3.0 and also analog repatriation. 1 gig rebuild really isn’t even contemplated as part of our future plan.

With respect to an update on switched digital and DOCSIS 3.0, DOCSIS 3.0 is still on schedule from a industry perspective. I think we've seen a couple of pre-announcements where some operators are using pre-standard technology. But DOCSIS 3.0 standard technology is still on schedule from our perspective for 2009, which is well within our timelines for looking at this type of technology and those type of services.

And with switched digital, as we've said in the past, we are focused on switched digital in 2008, sort of, a later 2008 launch timeframe. And when you take a look at how the switched digital technology works, it leverages a lot of expertise that we have from [PAC with our VoD] deployment. And from a costing perspective, very cost effective way to reclaim some of the spectrum that we've allocated to relatively under used digital services both high def and standard def.

Tim Casey - BMO Capital Markets

And what's the timing on analog repatriation, Mike?

Unidentified Company Representative

Well, analog repatriation is one of those things you only do when you have a direct need to free up spectrum for new revenue generating services. And so it's not something we've assigned a specific date to. We will use the switched digital qualities with spectrum in the near term. And then we'll just watch how new services evolve and at which point in time, where we need to look at more fast expansion that switch doesn’t provide for us. Then we will take a look at analog repatriation. But if you look at switched and with the efficiency of switched, it’s going to take us a fair way.

Tim Casey - BMO Capital Markets

Thank you.

Operator

Your next question comes from Glen Campbell of Merrill Lynch. Please go ahead.

Glen Campbell - Merrill Lynch

Yes. Thanks very much. My question is on the network investment on the wireless side. You are making good, and what seem like very sensible investment in data capability and in coverage. But this is happening at a time when the regulator is making you share your towers and provide your network service on a wholesale basis. So, how do you expect to be able to retain a competitive advantage against the new entrants who can roam under your network and share your towers?

Bill Linton

Yeah. I think Glen by answering the question I would be presupposing the outcome of the auction on the auction rules. So it's going to be very hard for me to answer that question.

Glen Campbell - Merrill Lynch

I mean, if we assume that there will be somebody there who's going to launch service and presumably want to roam onto your network, which I think we are all taking this as a pretty safe assumption?

Bill Linton

I think if you look on the website, our comments with respect to what we think roaming is, are quite clear. And it doesn’t include many of the things that will drive the differentiation that you are referring to. And we believe that, as we've done in the past with both marketing and with network and our data capabilities, we can continue to differentiate ourselves from our competitors.

Glen Campbell - Merrill Lynch

Okay.

Bill Linton

At the end, of the day roaming doesn’t equal unbundling period.

Glen Campbell - Merrill Lynch

Got you. And then as far as the new towers and the coverage you are investing in, I mean, a lot of us see the benefits of that very directly. But there doesn’t seem to be any provision to kind of grandfather you from having new entrants or the existing players for that matter demand to co-locate on your new rural towers. Do you see any opportunity for getting to carve out there?

Bill Linton

Again, I would just be speculating on that outcome of the final rules. And I don’t think that that’s sensible to do at this point. I think, we are weeks away from the specifics of the rulings. And that we should probably just wait and see what they say.

Glen Campbell - Merrill Lynch

Okay.

Ted Rogers

I will give a bit of a history lesson. This issue of access to docks or access to towers and so on, over the years it is going on for a long time. And the telcos under the obligation to make space available. If it's available, then of course they say well, the docks is full.

And I once sent a guy down with a flashlight and camera and he took a picture and showed it was half empty. So I took the picture over to meet my friends as well. And he said, well, Ted, it is constructively full. And, I said I don't know what that means. And he said, well, I can show you here as we are planning to put this equipment in. When we built it, we planned to put equipment in, in 1980 and 1982, and 1894, and it would be full, and we invested our money. If I put you in, I won't be able to put my own stuff in.

And so, that's a same on towers. If we built the strength on tower to take our Nutchuck and our high-speed and all the rest of it, and that’s it, then we can't obviously share it unless the new guy comes in and pays for strengthening, and it's a huge subject. It’s not new. It's gone on for decades in telecommunications. So we should not think its light. In the cities, it's easier because we're talking about the roof of apartment buildings. We have exclusive contracts there. I think they will require us not to be exclusive and then the other people can go and put up there own tower. These are just short towers on apartment buildings and so on. Nadir, would you add in?

Nadir Mohamed

Yes. I would just say, there are two parts to your question. One was more specifically around access rights, but I think the other side is probably the one from our perspective that's very critical and has been playing out in terms of numbers that we have been posting. And that is we really see the market as a place where we can differentiate based on our service and product offerings.

Time and time again, if you do research around what the customers want from a carrier, it’s great service, great quality and product and features that demonstrate that they are on the leading edge. And a while back we were asked about churn. One of the reasons why we would have the churn improvements is actually our investments in the network. And that quality differentiation will be important in short term; will be important in long term.

Now, frankly, mo matter what the rule is, we're convinced that network differentiation will be huge for us. What you are seeing now is not only the differentiation based on the reliability claim, but frankly on our product offering because the speeds and the throughput from our network and the data features and services that we'll get, I think, will allow us to play a game that's very different from where others might be, which might be price. We see the market as one we can win in on product and service differentiation. So the investments we're marking now they are key going forward, not just with the current competitors, but whoever else might come into the market.

Glen Campbell - Merrill Lynch

Thanks very much.

Bill Linton

So Glen, just to pick up and take one more stab at this because I think it's an important topic is, whether you're talking about Rogers brand and our focus on reliability and network leadership, and the innovation on products and services. Secondly on Fido brand our focus has been around customer efficacy. And you may have noticed, we won JD Power Award for being the number one postpaid carrier in the country and the number one postpaid retailer. So, there are many different ways to skin this cap in terms of how we differentiate ourselves on both of these brands. And we plan to continue to do that vigorously going forward.

Ted Rogers

Okay. It is Ted. Nadir has answered it, but roaming is a big issue that they have and so on. And we want to cooperate. But obviously, at market rates and with suitable protection, when they talk roaming, they don't mean roaming on the three, Telus, Bell and Rogers, they don’t mean that. They mean roaming on Rogers, period, end of story. Nobody is going to roam on an old CDMA network that’s about to crash. Nobody's going to do that. So they are all going to come in ours and isn’t that wonderful. We'll get some revenue for a while. But we build out capacity for the next five years and then these guys put in there own, and I've got empty wires all over the place. And I'm owed couple of hundred million bucks in building this stuff that now nobody is using. So these are real problems for us, real economic hardships for us.

And I must say one final thing, you must not forget that our position is, some of these changes are a change in terms of our licenses that we now have. And our licenses are licenses that do not provide a side of, acts of god or some amazing thing, do not provide for being amended. You can't give a guy a license for 10 years and ask him to invest $5 billion, and then say; we are going to change the terms of your license after three or four years. So, under all this is our position that we cannot tolerate to have our licenses amended and that’s the bottom line.

Glen Campbell - Merrill Lynch

Okay. Thanks very much.

Operator

Ladies and gentlemen we only have time for one more question. Your next question comes from John Henderson of Scotia Capital. Please go ahead

John Henderson - Scotia Capital

Thank you and just a quick question on your roaming revenue with certainly International, I am wondering if you could comment on how much of that, your $500 million revenue roughly, is Canada-US and already subject to competitive forces?

Bill Linton

John, we've made it kind of a policy overtime not could be too definitive about what the sources of roaming revenue are within but, if you have another question I'll be glad to answer it.

John Henderson - Scotia Capital

I thought that might be the case, would it be fair to say that it is the majority?

Bill Linton

It wouldn’t be fair to ask, because I just said I wasn’t going to answer it, but is there another question because I would be glad to answer that?

John Henderson - Scotia Capital

Just pressure's on churn; I noticed that churn has been ticking up at your competitors. Q4 your post paid churn did pickup a little bit. And I was just wondering how much of that may be influenced as contracts come up for renewal, more and more of your customers coming off contracts, post L&P. Should we expect churn may tick up a little bit post paid in 2008?

Edward Rogers

With the exception of last year, Q4 would typically be a little seasonal spike in churn. We didn't see at last year, funny enough, but it was a weird year because we were leading in to L&P and people weren't behaving in the traditional fashion. So I would say, there was nothing out of the ordinary in the little minor uptick we saw. We've got more people historically because Q4 has been a bigger quarter coming off contracts as we lead in to Q4, so nothing atypical. Obviously with L&P there and people able to leave without as aggressive retentions activities as we might have been able to use in the past, we're keeping even tighter reign on what's going on with churn, but I don't think there's any thing to be concerned about in the short term, John. So, thanks for your question.

John Henderson - Scotia Capital

Thank you very much.

Bruce Mann

Very well operator, first of all thanks for conducting the call, but more importantly we wanted to thank all the participants this afternoon and this morning, for your ownership and for your coverage and waiting on the call. We had questions that weren’t answered. I don't know if some one was left in the queue or not. So, please feel free to give my self or Dan Coombes a call, either of us, through our contact information in the release. Thank you again. Have a nice afternoon. That concludes today's call.

Operator

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

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