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Rogers Communications (NYSE:RCI)

Q2 2012 Earnings Call

July 24, 2012 8:30 am ET

Executives

Bruce M. Mann - Vice President of Investor Relations

Nadir H. Mohamed - Chief Executive Officer, President and Director

Anthony Staffieri - Chief Financial Officer

Robert W. Bruce - President of Communications Division

Keith Pelley - President of Rogers Media Division

Analysts

Maher Yaghi - Desjardins Securities Inc., Research Division

Matthew Niknam - Goldman Sachs Group Inc., Research Division

Jeffrey Fan - Scotiabank Global Banking and Market, Research Division

Vince Valentini - TD Securities Equity Research

Glen Campbell - BofA Merrill Lynch, Research Division

Drew McReynolds - RBC Capital Markets, LLC, Research Division

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

Robert Bek - CIBC World Markets Inc., Research Division

Simon Flannery - Morgan Stanley, Research Division

Adam Shine - National Bank Financial, Inc., Research Division

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Robert Goff - Byron Capital Markets Ltd., Research Division

Gregory W. MacDonald - Macquarie Research

Operator

[Operator Instructions] I would like to remind everyone that today's conference is being recorded. I will now turn the conference over to Bruce Mann of the Rogers management team. Please go ahead, sir.

Bruce M. Mann

Well, thanks very much, operator. And good morning, everybody. Thanks for investing some of your time with us, from the Rogers management team, this morning for our second quarter 2012 investment community teleconference. Joining me on the line here in Toronto are our President and Chief Executive Officer, Nadir Mohamed; Tony Staffieri, our Chief Financial Officer; Rob Bruce, the President of our Communications Division; Keith Pelley, the President of our Media Division; and then also, Bob Berner, our Chief Technology Officer; and Kenneth Engelhart from our Regulatory team.

We released our second quarter 2012 results earlier this morning. The purpose of this call is to crisply provide you with a bit of additional background upfront, and then we'll answer as many of your questions as time permits.

As today's remarks and discussion will undoubtedly touch on estimates and other forward-looking information from which our actual results could be different, you should please review the cautionary language in our earnings release of this morning and our 2011 annual report. There's factors, assumptions, and risks there that -- as to why our results could differ ultimately, and all of those cautions apply equally to our dialogue on today's call.

If you don't already have copies of our release of this morning and/or our 2011 annual report to accompany the call, they're both available on the Investor Relations section of rogers.com. They're also on the EDGAR and SEDAR websites.

So with that, I'm going to turn it over to Nadir Mohamed and then Tony Staffieri, both for some brief introductory remarks, and then the management team here will take your questions. So over to you, Nadir.

Nadir H. Mohamed

Thanks, Bruce. Welcome, everyone, and thank you for joining us. As you can see from this morning's earnings release, we delivered a relatively balanced set of financial and subscriber results, which includes several positive inflections from the first quarter of this year. The results overall clearly reflected the strength of our asset mix, which positions us uniquely as Canada's largest wireless provider, complemented by a healthy and growing Broadband and Media businesses.

While the competitive challenges and the ad market softness have not abated during the second quarter, we had strong execution which resulted in growth in both revenue and adjusted operating profit in our Wireless and Cable divisions, as well as on a consolidated basis.

Margins, earnings per share, free cash flow and cash returns to shareholders were all up, both sequentially and against the prior year. In fact, our adjusted operating profit in Q2 this year, this quarter, is the highest ever reported by Rogers.

We had good postpaid subscriber results at Wireless in both the sales and retention fronts. And it was one of our stronger quarters in terms of the number of new higher value smartphone customers to join Rogers as new customers.

We, again this quarter, made solid improvement in the important postpaid churn metric, which we were successful in stabilizing earlier in the year. This quarter, we actually reduced postpaid churn on a year-over-year basis for the first time in over 2 years, and a sequential improvement from Q1 of this year as well.

It was also the fourth straight quarter in which we've been able to slow the year-over-year rate of decline of postpaid voice ARPU, which is another key metric as you know on the Wireless side. It's still clearly under pressure given the competitive dynamics in the market and the migration to use of SMS and e-mail, but we've continued to manage this decline as much as possible given the environment. While the strength of wireless data offset much of this pressure, we still saw a 2% overall decline in postpaid ARPU, which compares favorably to the 4% decline you would've seen in the first quarter. We continued to drive our wireless data strategy activating approximately 630,000 smartphones, putting the percentage of postpaid base now on these higher value devices and plans at 63%, up from 48% this time last year.

Our smartphone metrics, ARPU, churn and upgrade rates, remain healthy given the competitive backdrop, and at the same time, we're attracting and retaining our highest lifetime value customers, which is squarely on strategy. As a result, we continue to drive double-digit revenue growth in our wireless data business, which is the most significant driver of our top line.

Also on the wireless data front, we furthered our machine-to-machine, or M2M, opportunities with a significant announcement, which will enable us to drive even faster in that space where frankly, we are the forefront here in Canada. During the quarter, we joined with 6 other large international wireless carriers, forming a global alliance to cooperate on global M2M business initiatives. With this, we'll jointly support a single global platform that multinational customers can leverage to enable connected devices in multiple countries to better manage operations, reduce cost, and this includes a single SIM that works simultaneously, seamlessly across borders of member countries. And as some of you may have seen, we also announced, together with CIBC, the launch of Canada's first mobile payment solution that allows Rogers subscribers to pay wirelessly by credit card at the checkout counters of businesses across Canada using Rogers smartphones.

While wireless data growth overall did slow modestly from the first quarter, we've put in place a number of changes during the second quarter that should help to improve the trajectory of wireless data revenue growth in the second half of the year. At the same time, we're driving very meaningful cost efficiencies, not just at Wireless, but across all of our businesses. At Wireless, this helps drive EBITDA margin expansion both year-over-year and sequentially to 48.2%. Our Wireless EBITDA this quarter grew by 5%.

We have also continued to invest in the further expansion of our LTE network access across a number of our additional cities. Rogers, today, has Canada's first and largest LTE network. And today, we already cover approximately 35% of Canada's population, heading to 60% by the end of the year. We also have the biggest selection of LTE devices available in Canada.

In the Cable Operations portion of the business, we also delivered, not only solid, but increased margins and continued top line growth. While Q2 is always the seasonally slowest quarter in Cable, this is because of the start of university summer breaks during May and June timeframe and the related seasonal disconnects, we also faced continued IPTV competition in our territory during the quarter. In Q2, you saw more of the same from Q1 where we're clearly in a period of stepped-up competition, in which our primary telco competitor, who already has a broadly deployed satellite TV offering, is now pushing with extremely deep discounts on its more widely available IPTV product. You see the effect of this again in the quarter in the basic Cable subscriber nets, and also, the impact of retention and promotional offers that we've needed to utilize in the dampened rate of growth on the revenue line.

Now as in Wireless, we continued to have good cost management in Cable. Even with some additional costs associated with supporting the analog to digital tier migration, that's something we started during Q1, we were able to deliver a healthy 47.8% margin in Cable Operations, up both year-over-year and sequentially from Q1.

At the Rogers Business Solutions division, which is focused on the wireline enterprise segment, we've continued to successfully focus on driving the on-net and next gen portions of the business at strong double-digit rates. These gains were offset on the top line by continued planned exit of the lower margin legacy services in the off-net business. You can see the effect of this shift to on-net IP in the operating margin, which has improved 340 basis points year-over-year. This reflects our focus on growing our presence in that small and medium enterprise segments of the business market, in areas where we have our cable and fiber network facilities.

Now turning to Rogers Media. We achieved continued top line growth, an impressive performance versus several of our media brethren who have reported in Canada over the past couple of weeks. Clearly, the advertising markets have been very tough -- tougher, in fact -- than what we saw during Q1, I believe, reflecting the global macroeconomic challenges and concerns. Offsetting the effects of general ad market softness, however, was the strong growth at Rogers sports entertainment and increased subscription revenues and advertising sales at our Sportsnet property.

On the strategic front, Keith and his team were successful this past quarter, and in orchestrating a significant expansion of Rogers Media's Citytv platform. We have effected a take on this strong platform from a largely regional to an increasingly national broadcast TV footprint. With the additions of Montréal, Saskatchewan and large slopes of British Columbia and Alberta, Citytv's reach will increase by more than 20% to over 80% of Canadian households.

On the adjusted operating profit line of Media, what you're seeing is good cost management being offset by continued investments in new programming at Citytv, new properties that have been launched to generate additional growth going forward, as well as increased player salaries at the Blue Jays. Much of the new programming is coincident with the national expansion of Citytv's footprint, which, going forward, will enable us to monetize this programming over a much larger audience base in future periods.

So stepping back to the consolidated view, as we said on the call last quarter, we could see the revenue trajectory was lower than what we had anticipated, and we took immediate action. We accelerated a number of cost management initiatives aimed at offsetting the top line pressures and it worked on changes that will address the top line in the coming quarters.

The defective action we took late in Q1 and throughout Q2, on the cost side, are reflected on the solid early successes you can see in the results this quarter. To be clear, our definition of winning longer term is from top line growth. Whereas, we saw stable or modest growth in Wireless and Cable in Q2, we are committed to improving this trajectory. Our focus on smartphone activation, our solid postpaid churn performance, along with the growth initiatives we have underway, are designed to strengthen revenue growth. And while I expect it to continue to be a top market, I have no doubt whatsoever that the strength of our franchise and our superior active mix will remain a great platform for continued success.

To sum up, it was a quarter of growth on both the top and bottom line, with improvement of further stabilization in many of our key operating metrics and expansion of our margins. And while we continue to invest at a healthy rate, to deliver new and innovative products and services and to maintain our leading network positions, we also increased free cash flow and cash returns to shareholders.

With that, I'll turn it over to Tony for a few remarks on the numbers, and then we'll take your questions.

Anthony Staffieri

Thank you, Nadir, and good morning, everyone. It's great to be here. Let me provide a little bit of additional color on the financial results and metrics for the quarter, then we can dig in to the specific questions you may have.

On the top line, our consolidated revenue was up modestly for the quarter, which compares favorably to a 1% decline last quarter. As you can see, wireless network revenue was up 1% this quarter and we continued growth at both Cable Operations and Media, each also at 1% growth year-on-year. In the second quarter, we saw a significant improvement in the consolidated EBITDA growth trajectory to 3% year-on-year, compared to a decline of 6% last quarter.

In our Wireless business, EBITDA was up 5%, and we've done this in the face of very solid subscriber gross ads and near-record number of new smartphone additions. 63% of our postpaid customer base now has a smartphone, and during the second quarter, almost 70% of our gross adds came in on smartphones. So we're continuing to have success concentrated in the higher end of the market.

Our Cable and Business Solutions segments also posted adjusted operating profit improvements versus the first quarter of this year, growing at 2% and 5%, respectively. So overall, very healthy margins across Wireless and Cable Operations, with both posting margins of approximately 48%.

In Media, adjusted operating profit was down year-on-year. Notwithstanding focused cost efficiency improvements in that business, we continue to make investments for growth, as Nadir referred to earlier. On a consolidated basis, our EBITDA margin of 41% was up year-over-year by 90 basis points and up almost 400 basis points sequentially from the first quarter. In addition to the improvement and stabilization of some of the important operating metrics to which Nadir referred earlier and the inflection in revenue, the solid operational efficiency improvements clearly stands out this quarter. As Nadir said, we've taken some very decisive actions in the first half of the year on our cost structure, which allowed us to protect our margins, our cash flow and manage our profitabilities.

In the second quarter, our costs overall declined by 1% year-on-year, despite continued revenue growth at all 3 of our segments and subscriber base is larger than they were this time last year, as well as increased investments in our Media business. While a portion of this can be attributed to modestly lower gross adds, the cost management initiatives that have helped to shift the OpEx trajectory so far have been driven squarely through focused execution.

We're enhancing our processes to be more productive and efficient, not only to realize cost savings, but to improve the customer experience. We continue to invest in the customer-facing parts of our business. Also key has been the narrowing of the scope in a number of initiatives we have on a go, so that we can execute more sharply on those initiatives that have the most impact. We're also addressing the underlying costs associated with why customers call. All of these efforts have allowed us to reduce our labor cost trajectory, but we also spent quite a bit of time and focus around reviewing and more tightly managing the entire supply chain to drive savings through our spend with our suppliers. And we've significantly reduced discretionary spending in our general and admin categories, such as P&E. Going forward, we'll continue to seek further operating efficiencies while continuing to invest in growth in our customer experience.

Looking on a consolidated basis below the operating profit line, there really weren't any unusual recurring items that I need to highlight this quarter. You see the strong financial results for the quarter reflected in adjusted, diluted earnings per share, which was up year-over-year by $0.06, or 7%, growth driven by our step-up in EBITDA, which more than offset the slight increases and depreciation and amortization and recurring income tax expense.

There were a couple of nonrecurring items in the quarter worthy of mention: the first being a $54 million onetime tax charge, resulting from the revaluation of our deferred tax balances. This was caused by the recent enactment of the 2012 Ontario budget, where previously announced tax rate reductions were deferred and caused our effective tax rate used to evaluate our deferred tax balances to increase by approximately 1%. The second item was a $33 million charge for integration and restructuring costs incurred during the quarter. The majority of which relates to organizational changes and cost management initiatives that we implemented in the quarter.

One item that you no longer see in our operating results starting this quarter is the previous video subsegment of our Cable business. As many of you will recall, we began lining down the remaining portions of that business in the first quarter of this year. We've now completely exited that business, and as a result, it's now accounted for and reported as discontinued operations in our financial disclosures.

On our capital spend program, the $465 million incurred in the quarter was down 12% year-on-year, but the decline is in large part due to the timing of spend during the year.

At this point, we remain comfortable with the consolidated CapEx guidance range set out at the beginning of the year. We are also not making any changes to our consolidated adjusted operating profit and pre-tax free cash flow guidance ranges that we set out at the start of the year. We are focused on executing through our roadmap that we believe we'll achieve our financial targets.

There are, obviously, continued pressures facing our businesses, but we're making meaningful progress around a number of cost management initiatives that we believe, at this point, can offset the top line pressure we've seen to date. And at the same time, we have a number of initiatives underway to continue to improve our top line growth rate as well.

From a cash perspective, during the second quarter we generated over $656 million of pre-tax free cash flow. Excluding onetime items, that's up 16% year-over-year. On a per share basis, pre-tax free cash flow was up 22%, in part reflecting the accretion from our share buyback program.

With this free cash flow, amongst other things, we've paid out $207 million in dividends and bought back 9.6 million shares for $350 million. So north of $550 million of cash was returned to shareholders in the quarter. Year-over-year, the cash return to shareholders is up 186%, with a significant swing partially owing to the timing of our buyback activity in the first half of both last year and this year. We take the timing noise out and just look on a year-to-date basis, cash return to shareholders is up 13% year-over-year.

We were also very successful in the capital markets during the quarter, during which, we issued $1.1 billion of investment grade 5 and 10-year notes in Canada. The date of the pricing of these notes corresponded with the day the U.S. 10-year bond yields hit a 60-year low. And the rates we secured were some of the lowest rates ever attained in the Canadian fixed income market for similar terms. This issuance alone took the weighted average cost of our long-term borrowings down by more than 25 basis points to 6.06%. Amongst other things, we plan to use a portion of the proceeds to close on the MLSE investment transaction, which is pending CRTC approval and which we expect to close during the third quarter.

Shortly after our quarter end, we also completed the renewal of our fully committed bank credit facility for $2 billion, extending it to the end of 2017.

I'll finish by saying that we continue to be in a very strong position financially with an exceptionally solid balance sheet. We have investment grade ratings and relatively low balance sheet leverage, with no significant near-term debt maturities and very significant liquidity available under our multiyear bank facility. So in terms of the balance sheet, from the perspectives of leverage, liquidity and maturity, we continue to be in a very solid financial position.

With that, I'll pass it back to Bruce and the operator so we can take any questions you have.

Bruce M. Mann

Okay. Thanks, Tony. Operator, we'll be ready to take questions from the participants in just a couple of seconds, but quickly, before we will begin, I would just request, as we do on each of these calls, that those participants asking questions, be courteous to the other participants on the call and limit the questions to 1 topic and 1 part. In that way, as many people as possible have a chance to participate. And then, to the extent we have time, we'll circle back and take more questions. And then, if we don't have time to do that, we'll get them answered offline after the call.

So with that, would you please explain to the participants how you would like to organize polling for questions and then, we'll go from there.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question on the line today comes from Maher Yaghi with Desjardins Capital Markets.

Maher Yaghi - Desjardins Securities Inc., Research Division

On Wireless, we saw a very strong quarter on the margin side like you mentioned. Can we maybe -- if you look at the upgrade cycle in the first quarter, we had a lot of smartphone upgrades, which impacted margins. Can you talk a little bit about what you saw in the second quarter? And looking at the second half of 2012, aside from the fourth quarter, which we usually see some heavy promotional activities, can you talk a little bit about what you expect in the third quarter and in relation to potential promotional activities or smartphone upgrade cycle that could impact your margins?

Robert W. Bruce

Maher, it's Rob Bruce. Just to get directly to your question, the upgrades, we upgraded about 5.5% of our base in Q2, which compares favorably to past quarters, and I think you probably saw the Verizon results recently and they're typically more in the 7% range. So we're happy with where we landed on the quarter. I would say on the balance of the year, for sure we know that Q3 has historically, given the launch of some devices -- some high-end devices, typically is a higher quarter for handset upgrades, and we would expect that to continue through the balance of the year this year and have the effects on the P&L that are typical in that quarter.

Maher Yaghi - Desjardins Securities Inc., Research Division

Okay. So just to follow up on this one, you're looking at it from a larger point of view, bigger picture, we've seen in the recent years, many upgrade cycle happened. When you're looking at it from a long-term planning, do we still expect heavy smartphone upgrade cycles to pass in every year? Or when you're looking at the handsets that are coming, it's going to be manageable in terms of the impact on a quarterly basis? Are we going to see the swings that we saw last year going into next year or it will be less visible?

Robert W. Bruce

Yes. So our handset upgrade cycle has been relatively stable. We've hovered in the range most quarters of, call it, 5.5% to 6% range. Where it typically pops up, again, depends on where iPhone launches new devices. It typically blips up. In '11, that hit mostly in Q4 where we bumped up to about 7.7%. Again, we would expect this year, if there is an iPhone launch in the --- on the balance of the year or any banner device like the iPhone, that, that will actually drive more upgrades in that quarter. And if I was a betting man, I would say that's likely -- more likely to land in Q4 this year than Q3.

Nadir H. Mohamed

Maher, it's Nadir. I'm just going to add something. It's not directly related to your question. And there's a couple of things that we've done in the last little while -- Rob and his team. One would be, when you look at our pre half and half cycles, we've actually moved from 30 months to 36 months, and I think that's been helpful. The other thing that reflects that initiative, which really is very consumer friendly because it actually allows the customer to upgrade at any time and pay the difference that's left on his balance. So in some ways, it takes some of the pressure away, and I think those are the very positive from a customer point of view, but frankly, positive for us as a company from a cost management point of view.

Operator

Your next question on the line comes from Matthew Niknam with Goldman Sachs.

Matthew Niknam - Goldman Sachs Group Inc., Research Division

My question is more on top line growth. I'm wondering if improvement in the top line trajectory that you're talking about, whether that's achievable near-term when there's such a focus on cost containments. And if so, is the top line improvement more a function of pricing power you feel you may have in either Wireless or Cable at this point?

Nadir H. Mohamed

Why don't I start off. It's Nadir. And I think your points are good -- great one. Because on the one hand, you've got the issue of making sure in a very competitive environment that you've got the right marketing approaches, the pricing to be sensitive to what's happening in the market. So if you will, the core business, as you can see, has been, call it, very modest growth in both Cable and Wireless. But I think the important thing, and being around in this space for a long time, is to always be looking for opportunities for growth and picking your spots. And I see a few very key areas for us where we're zeroing in, in terms of driving growth. Our first one pulls us to what you would see in kind of the big numbers would be focused on wireless data and on the Wireless side, on the data side as well. And we've talked smartphones and we've talked about the rate of growth, wireless data continues to grow at double-digit. And on the wireline side, our focus has been squarely on Internet, which I believe is the platform of the future. So in many cases, you're looking at the strength in those 2 areas to offset some of the declines that we expect in legacy services like voice. In terms of segments that we think we've got opportunities, the small and medium-sized markets, particularly on the wireline or RBS and our Cable business have a focus, we've been growing at over 20% in the last year or so, and we continue to see that kind of growth going forward. So that's a pocket that we can exploit. And then 3 areas that -- on the Mobile side, reflecting what I would consider new growth areas, so they were always small, but remember, wireless data was small 10 years ago: machine-to-machine, we've been leaders in this space. I've made reference to couple of the announcements. We've been running, I would say, somewhere in the order of close to 800,000 connected devices now. Obviously, the ARPU of these are in the mid single-digits, but it's a great growth area for us. Mobile commerce, I see, is a growth opportunity going forward. You've seen some of the announcements, and I think that the stage is set with standards now being embraced in the Canadian market. And then, mobile video is an area that you've seen us go in front of markets with services like Sportsnet being available on your mobile devices for a fee on a monthly basis, very user-friendly. So those are the areas in Wireless. And then finally, on the Media side, we're really zeroing in on digital media and focusing on new applications to go forward. So obviously this quarter, you saw the performance, really, is reflecting the success of the cost initiatives, but it's not lost on me and we're investing in the areas that I believe will create revenue growth going forward. So thank you for asking that.

Operator

Your next question comes from Jeff Fan with Scotia Capital.

Jeffrey Fan - Scotiabank Global Banking and Market, Research Division

I wanted to ask a question regarding your wireless network revenue. The voice revenue declined since you're showing a really good improvement. I know it's still negative, but it's showing a good year-over-year trajectory. Wondering if there's anything specific that's going on there, or are we just lapping some of the tough voice correction that we've seen from a year ago? And then just a second part to that, I think, Nadir, you mentioned some of the initiatives that you're taking on the data side to try to change the trajectory on the data revenue growth on Wireless. Wondering if you can just elaborate a little bit on that.

Robert W. Bruce

Jeff, I think you get the prize today for packing the most into in 1 question.

Jeffrey Fan - Scotiabank Global Banking and Market, Research Division

No, it's 2 -- 2 related.

Robert W. Bruce

2 for the price of 1. Let me start off with voice and the things that we're doing on voice. And we're not sitting around, waiting to lap numbers. We're very active in how we're managing our voice revenue declines. Obviously, it focuses on making sure that we're retaining the most valuable customers, managing any rightsizing processes that occur, managing the value-added services and the selling process that goes on to upsell those customers as we go forward, and that's a very, very active file that we spend a lot of time on. So we are pleased with the progress that we're making, but not nearly satisfied, and we'll continue to kind of double-down our efforts in that area. Data continues to be a key growth factor for us, so carefully managing that data growth, as Nadir highlighted, will be critical to our success going forward. And when we talked last quarter, we talked a little bit about some of the things that we were doing to maximize the impact that we get out of our data growth, and we talked about data roaming. And data roaming hasn't yet recovered. It has been declining slightly, as we indicated last quarter. What we've done since then, and I referenced it last quarter, as we are going to make changes to plans and notifications to customers. Well, in fact, we implemented that in June. And at this point, it's early to project the impact, Jeff, that we'll get from that, but we're optimistic that there's going to be some goodness there for sure. I also highlighted that the SMS growth rate, while it's still robust at 12%, it's also declined from 15% in Q1, so we're seeing a downtick of about $4 million there. And that is fairly structural for what's going in the Canadian markets. Significant portions of our customer base now have SMS included in their plans, so we're ultimately seeing the impacts of pay-per-use revenues and some impact on premium SMS continuing to slow, and I think that will continue over time. The most important piece of the data revenue equation is data plan attached. It continues to grow robustly at 21% year-over-year, and that reflects our focus on high-value customers and smartphones and the data attached. And it's up $3 million quarter-over-quarter. We've made 3 key changes and are really pushing on using subsidy to really incent data attached on a smartphone. If you're not going to take data attached, don't count on getting any kind of significant subsidy from Rogers. We're also doing significant data attached performance management in all the channels where we sell. And lastly and importantly, we're going back into our base of customers that have smartphones without data attached and aggressively upselling those customers. So our focus on managing data revenue carefully will continue, but those are the things that are in place right now, Jeff.

Operator

Your next question comes from Vince Valentini with TD Securities.

Vince Valentini - TD Securities Equity Research

Let me try to package 2 cash flow questions in 1. First, on cash taxes, you only did $95 million in the first half, so trending well below the sort of $450 million guidance for the year. Is that just timing issue and expect to catch up most of that in the second half? And if you do, does that drain some of your resources for buybacks? I mean, you bought $350 million in the second quarter, so if you kept on that pace, you'd get up to the full $1 billion dollar program. But obviously, over the first half, if you annualize that, you'll be well below. So maybe some context on how aggressive you'll be on buybacks in the next half will be great.

Anthony Staffieri

Vince, it's Tony. 2 things: in terms of cash taxes, we continue to feel comfortable with the guidance we provided for the full year on cash taxes. And so, what you saw in the first half of the year is really related to the timing, and so, again, you should look to the full year guidance number for that. On share buybacks, our shelf filing was for $1 billion and we've completed $350 million in the first half. We're not going to provide guidance on the full year share buybacks. That will depend on a number of cash timing items. And so, that's all I'll say on that at this point.

Operator

Your next question on the line comes from Glen Campbell with Merill Lynch.

Glen Campbell - BofA Merrill Lynch, Research Division

A question for Tony. A lot of cost savings initiatives here. Could you give us a sense of what the timing of those was in the quarter, in other words, are they fully in the quarter or not? And what you see going into Q3?

Anthony Staffieri

Glen, in terms of timing, the cost efficiency improvements that we've been working on are really a continuation of things that you started to see commencing quite frankly at the beginning of the year and progressively continuing on as we execute it throughout the quarter. And so, there are a number of things that we have our hand on the lever on that we continue to try to manage as we look for improvements. And it's important to note that there are fundamental process improvements that we're focused on. We're trying to focus on the things that matter most. And so, that in and of itself is going to drive some cost efficiency improvements. We're also taking an end to end view of our delivery model. As necessary, we've consolidated groups, taken out necessary steps and ultimately, we've taken a hard look at the root cause of our cost drivers. In our call centers for example, we're looking at reducing the fundamental reasons for why customers call and not reducing our customer experience. Where it makes sense, we've gone back to suppliers and we continue to do so to ensure that we have a relationship that gives us, not only competitive unit cost, but also a relationship model that gets us to end of job with both of us having skin in the game for success. And then finally, of course, we're -- we continue to scrutinize our general and admin expenses and reduce nonessential expenditures, so that our dollars remain focused on what matters most. So that process continues to go on. We will always be looking for cost efficiency improvements and expect to continue to do that throughout the year.

Operator

Your next question comes from Drew McReynolds with RBC.

Drew McReynolds - RBC Capital Markets, LLC, Research Division

So my question, just want to focus in on postpaid churn, maybe for you, Rob. Obviously, nice to see the year-over-year improvement, certainly better than what we were expecting. Just wondering if there is anything in kind of Q2 that was unusual? And how do you hope or expect that trend to continue in the back half of 2012 when we, I guess, typically see a little bit more seasonally stronger promotional activity from competitors?

Robert W. Bruce

Drew, listen, we were pleased with the 1.15 churn rate in the quarter. We saw some significant improvements in renewal rates, and we really concentrated on the renewal window. We saw, also, a growth in customers' willingness to take longer-terms arrangements with Rogers and saw our contract rates going up about 2%. And also, the significant improvements in both Fido and mobile broadband churn were all baked into the numbers that we shared this morning. On the balance of the year as you know, Drew, there is seasonality throughout the year. And Q3 and Q4 are both bigger quarters for churn. We'll continue to work hard because we think churn is one of the most important levers in the business. But I -- you can expect the usual seasonality, I would think, in the balance of the year.

Nadir H. Mohamed

Drew, it's Nadir. Just one more thing, maybe at the macro level, that will be helpful for you just to kind of see what's happening with churn. We've talked about it on the calls before, our smartphone churn is significantly better than non-smartphone. And as you see that mix change and we drive our smartphone penetration is that it's obviously an effect on what you see as the churn rate improvements. So that's something that we're hoping to see continue, obviously. But I just want to reinforce that we should understand Q3 and Q4 tend to be much more competitive and that in itself drives some churn.

Operator

Your next question on the line comes from Blair Abernethy with Stifel, Nicolaus.

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

Perhaps, if we could just turn the conversation for a moment to the wireline side. And in particular, I'm just wondering if we can get more color on the Internet and Home Phone businesses and how they are faring in terms of pricing and churn. Obviously, we see the net adds but below the surface there, how is that base behaving? And in addition to that, the home automation initiative, you haven't talked much about that on this call, how is the progress there?

Robert W. Bruce

Sure. It's Rob. Let me start off a little bit with Internet, Blair, and talk a little bit -- I mean, we are leveraging Internet. We have network superiority -- significant network superiority over DSL. We deliver faster speeds and better consistency of speeds, and that's supported by our in-market claims and it's supported by our investment in building out DOCSIS network capacity. We've also made significant investments to improve our customer experience with the recent launch of TechXpert, premium technical support to help our customers with all their problems related to their IP products. And as you probably know, we've made significant and positive changes to our speed and capacity of our most popular tiers and remove traffic shaping. So I think in many ways, we're very, very well-positioned to continue our great success going forward on our Internet portfolio. And -- but moving to your second -- the second part of your question on Rogers Smart Home Monitoring. Of course, it's early days, having just launched last fall. We're still in the process of perfecting our sales and service execution and making sure that the quality of experience with our customers measures up to the high standards that we have for all of our other products. What I can tell you is that the customers really love to be able to interact with their alarm systems in real time over their wireless phone, and that gives us a significant advantage over many others in the market. And the other thing that we hear back constantly is that home automation is really resonating, and it's something that customers are looking for. And we're delivering a timely, dependable solution that's backed up by our 2 great networks. So very positive news in my mind, both on Internet and on smartphone monitoring.

Operator

Your next question comes from Bob Bek with CIBC.

Robert Bek - CIBC World Markets Inc., Research Division

I just want to follow up on that Cable question for Rob. Can you just give us some more -- step back a bit and give us a bit of a view as to the competitive balance in the market? Obviously, you've got a telco in there, a couple of quarters now, with aggressive offers. Do you think this run rate on the basic side is balanced at this point? And obviously, you've seen some moderating ARPU as you compete in this market, is that something we can expect for some time or do you think we're still waiting for some shoes to drop here on the marketing side? And built in to these numbers, do you think there's any -- I suspect there's no cord cutting, is there any cord shaving in here at all? Or is this really just a competitive balance with the telco?

Robert W. Bruce

That's a lot of questions jammed in there, Bob. We'll try to get to them all and maybe be honest if I missed a part of it. Listen, as Nadir said in his opening remarks, it's traditionally a pretty soft quarter. On the flip, for sure, our competitor is out there with ultra-low bundled offers, the most ultra-low bundled offers frankly, that we've ever seen and I think, maybe unprecedented in North America. What I can tell you is our NextBox 2.0 launch has put us in a position where we're very happy and we're competing well on functionality. I think in the heavy-duty pricing battles, we're trying not to chase all those prices down to the bottom. Our losses have been mostly on gross. We've seen some very, very minor declines in churn, I think, a couple hundred basis points -- 200 basis points or 0.02 of a basis point. And we continue to see great success over our competitor's satellite offering, and we continue to chip away there. In terms of the other TSUs, Internet numbers are solid, but they're impacted a little bit as a result of the bundled impacts that we're seeing on the video business. And Home Phone continues to chug along nicely, recognizing that Toronto's a bit of a different market with heavy MDU penetration, and landline displacement is more prominent in MDU. So I think that is a little bit of a flavor for how the loads come in. There is a little bit of cord shaving going on in the marketplace, and it is reflected in the numbers, again, very modest and at the very early stages. Hard for us to really connect that to over-the-top as the people just making discretionary decisions about how they spend their dollars.

Operator

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

Simon Flannery - Morgan Stanley, Research Division

You talked a lot about some of the wireless data initiatives. We've seen Verizon and AT&T announced these new “share everything” type plans with the goal of driving adoption of tablets, my 5 devices and so forth adding on to existing smartphone plans. How do you think about that sort of offer? Is that something that you think may have some relevance in the Canadian market?

Nadir H. Mohamed

Simon, it's Nadir. I think, as we've seen both Verizon and AT&T come out with their plans, what I really see is that the plans are trying to respond to a world that's moving to IT. And that's something we've talked about a fair bit up here. And I think it makes sense to look at voice and text really moving from what I would call a specific pricing elements to a pricing environment of prices and access. And I think, frankly, that just supports where the market is going, where the consumer is going in terms of how they use the devices. Now at Rogers, specifically, we've had sharing as a concept that we've embraced for some time. And we've been leaders here on the family plans, and Rob and his team I remember, many years ago, driving family plan adoption. So that's something we've had for some time. We've also had data sharing across -- for customers across devices. So the idea of sharing I think would be something that we can see evolve. But, Simon, the truth is, every market is different. You have to look at penetration rates, you have to look at market dynamics. So I would just end by saying that I mean, directionally, with CNM is very supportive of the world that we see, as far as timing and the specifics that is something, obviously, that will depend on the competitive market.

Operator

Your next question comes from Adam Shine with National Bank Financial.

Adam Shine - National Bank Financial, Inc., Research Division

With all these multi part questions, not many to ask left, but maybe one for you Bruce. Just in the -- Rob, that is. One question on LTE in terms of the early trends, in terms of the uptake that Nadir alluded to a few metrics at the start of the call, but anything there? And then just shifting gears over to Keith. We heard from some of the broadcasters a couple of weeks ago when asked for quarter's report that their Q3 was a seasonally light period but some better traction was being achieved in the summer months. Maybe you can perhaps talk to that in regards to any bounce back in add trends in your Q3?

Robert W. Bruce

So maybe I'll start off, Keith, with LTE and then turn over to you for the balance. Adam, again, delighted to have been the first delivering LTE to our customers across Canada. Our deployment continues to roll across the country. Just as a reminder, we're heading towards 60% of POPs, a little over 20 million people by year end, hitting the top 25 markets in the country. The -- our LTE offerings being embraced enthusiastically. We have a significant adoption from our customers and have launched a whole host of LTE devices including more than a half a dozen smartphones, a number of tablets, Rocket sticks and mobile hotspots to go along with that. It's interesting as always with a new network, we're seeing the early adopters who move over being higher data consumers than we would've seen previously on average in HSPA. So exciting prospects ahead, a terrific network that's working very well for us and more to follow on subsequent calls.

Keith Pelley

The -- I think the advertising revenue -- the market is going through a shift, and I think we are in good position to grow over the next couple of years based on what, I guess, the most diverse portfolio of any other media companies. And if you look at the predictions from the analysts, Internet advertising is to exceed TV advertising by mid-2013 and that sets up well for us as we have a robust digital ad network with over 1,000 websites, a strong publishing division that, with powerful brands that are starting to enjoy a digital shift with e-books and tablets, apps becoming a key way consumers are experiencing editorial content. And then, as Nadir spoke about, we are the only media company with a retail component in the shopping channel with a strong sophisticated e-commerce platform, which also sets us up as we are not as reliant on advertising going forward. Having said that, in terms of Q3, the Jays and the success that they are having is significantly helping Sportsnet. And the national footprint that Nadir alluded to has given us a very, very strong upfront for Q4. And the reason that is significant is, this is the very first time that we've been able to compete for national advertising dollars. We've not been able to compete with the likes of CTV and Global before this year. But with our expansion, that really sets us up well for Q4, and we're having the strongest upfront that we've had in the history of City Television.

Operator

Your next question comes from Rick Prentiss with Raymond James.

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

My question is on the Wireless and the upgrade cycle. So you mentioned the 5.5% upgrade within the second quarter. And yet, iPhone sales were up 30%. When we look at the U.S., there's been a bit of a pause in some of the iPhone sales as people expect maybe a refresh coming. Can you talk a little bit about the low upgrade cycle and yet what appears to be a pretty significant uptick in iPhone sales? And then, when you think about when iconic devices might come out, where should we think about that upgrade percent? The -- I think, you mentioned 7.7% was last year's quarter, is it something that could go 8%, 9%, 10%, just trying to gauge where it might head?

Robert W. Bruce

Yes. Rick, interesting to -- again, very hard to speculate. I think, last year was probably your best guidepost to what's going on. Some might argue but, again, it's all rumor these days as to what will be contained in iPhone 5 and what other iconic devices come out at that time of the year and how they concentrate in which quarter will really shape what's going on. So I probably don't have much more to add than that.

Operator

Your next question on the line comes from Rob Goff with Byron.

Robert Goff - Byron Capital Markets Ltd., Research Division

My question will go a little bit further than I think Simon's had previously on the Wireless pricing. Could you give both the -- your provider's perspective on the 6 gig $60 plan and the consumer perspective, the consumer traction on that plan?

Robert W. Bruce

Yes. It's Rob. Obviously, Q3, competitive quarter, out there with 6 gig plan because we know that it will have a significant traction in market. And -- I'm not really allowed to talk about the specifics of the results in quarter. But it's important for you to take away that it's an in-and-out promotion and not long-term rack rate pricing.

Operator

We have time for one more question on the line. Your next question comes from Greg MacDonald with Macquarie Capital Markets.

Gregory W. MacDonald - Macquarie Research

Wow, I just skirted in there. Question is on free cash usage, and, Tony or Nadir, whoever wants to answer it, in the past, you've talked about dividend growth, CapEx being kind of higher than buybacks when it comes to dividend usage. And Tony, I was intrigued by the answer to your question that buybacks, second half, more kind of cash availability related. Does that suggest therefore next year with the spectrum option that the company's not prepared to borrow for the buyback? Are you trying to send a message on that? And can you talk about, also, prospects for M&A? I mean, I'm not suggesting that you're looking to go the U.S. market like one of your competitors or not competitors, but other cable cos in the country are doing. But there are some potential tuck-in acquisitions that you might consider, how much does potential for M&A play into balance sheet management and the prospect for buybacks in '13?

Anthony Staffieri

Greg, I guess, a couple of things. First up, in terms of share buyback strategy, it will depend on a number of factors, not only in the second half of the year, but into next year as well. I'll say, when you look at our balance sheet, there's plenty of headroom in terms of our cash and leverage range. And we'll continue to be opportunistic on the way we look at share buybacks. So I didn't want -- I don't want you to take my comments as directional, one way or the other. It will depend on a number factors as we head into the second half and into next year. Notwithstanding the spectrum, I think we have the flexibility to continue to make decisions on share buybacks. In terms of any potential acquisitions, obviously, nothing that I can say. And we will always be opportunistic on things that make sense at good value and in which we can provide synergistic value. And as those arise, we'll continue to look at it.

Bruce M. Mann

It's Bruce Mann here. We wanted to -- or we need to actually conclude the call this morning. We know a lot of people are just getting ready to jump on another one. And so, we wanted to thank everybody for investing your time with us this morning. We do appreciate your interest and your support.

If you have questions that weren't answered on the call, or if you were in the queue and we didn't get through the queue, please give myself or my colleague, Dan Coombes, a call. Both of our contact info is on today's earnings release.

That concludes today's teleconference. Thank you very much.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect your lines.

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