Rogers Communications, Inc. Q1 2008 Earnings Call Transcript

Apr.30.08 | About: Rogers Communications (RCI)

Rogers Communications, Inc. (NYSE:RCI)

Q1 FY08 Earnings Call

April 29, 2008, 12:00 PM ET

Executives

Bruce M. Mann - VP, IR

Edward S. Rogers, O.C. - President and CEO

Nadir Mohamed, CA - President and COO, Communications Group

Anthony P. Viner - President and CEO, Rogers Media Inc.

Robert W. (Rob) Bruce - EVP and CTO

Analysts

Vince Valentini - TD Newcrest

Rob Goff - Haywood Securities

John Henderson - Scotia Capital

James Breen - Thomas Weisel Partners

Tim Casey - BMO Capital Markets

Glen Campbell - Merrill Lynch

Greg MacDonald - National Bank Financial

Jeff Fan - UBS Securities

Dvai Ghose - Genuity Capital Markets

Simon Flannery - Morgan Stanley

Operator

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Rogers Communications First Quarter 2008 Results Conference Call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded today Tuesday, April 29, 2008 at 12:00 PM Eastern Time.

And we'd now like to turn the conference over to Mr. Bruce Mann with the Rogers management team. Please go ahead.

Bruce M. Mann - Vice President, Investor Relations

Thank you very much, and hello everybody and welcome to Rogers' first quarter '08 earnings teleconference. On the line with us here today in Toronto is Ted Rogers, our Chief Executive Officer and Nadir Mohamed, the President and Chief Operating Officer of our Communications division. Also are our Divisional President, Rob Bruce from Roger Wireless and Edward Rogers from Rogers Cable as well as Tony Viner from Rogers Media. And we have some members of their respective management teams with us as well. Unfortunately, our Chief Financial Officer, who most of you know Bill Linton had a sudden loss of a family member. He is in Nova Scotia today with relatives and won't be on the call with us. But all of our thoughts here are with Bill and his family.

We put our first quarter earnings release out on the wires before the market opened this morning. If you don't already have a copy you can find it on rogers.com website or on the major news wires. Importantly we put a separate release out earlier this morning, a few minutes before the earnings release which I know many of you saw announcing that Rogers Wireless will be bringing the iPhone to Canada later this year. We are not at all able to provide any additional information at this point regarding availability, pricing or any other aspects of this product or agreement. So as such we are not going to discuss the topic on the call today or answer any questions which either directly or indirectly touch on that matter. So thank you in advance for your understanding and cooperation.

If you don't already have a copy of whole news release I would ask you to please get one either up to rogers.com website or on Canada newswire. The cautionary language that it contains with respect to forward-looking statements applies equally to as the dialogue that we will have on the call today. So with that let me turn it over to Ted Rogers and then Nadir Mohamed and Tony Viner for some very brief introductory remarks and then the team here will be pleased to take any questions. Over to you sir.

Edward S. Rogers, O.C. - President and Chief Executive Officer

You are going to understand that I am very proud of the results of the Rogers management team and employees delivered for the first quarter. We focused on what we said we would do which was execution, integration, a balanced mix of subscriber and financial growth we now have in place a very solid start to 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. A good set of balance results overall. I think it's also a reflection of the benefits of how we are increasingly operating as a single company. But we do have challenges as well and fortunately, we have the resources to meet those challenges. We must defend ourselves on multiple fronts in the regulatory and competitive areas. We face threats in terms of potential new wireless entrants and threats from regulators who might further subsidize over the air programmers at the expense of cable customers. Instead of finally recognizing and fixing the inefficient, out of date regulatory burdens that the industry already faces today.

We were expecting and continue to expect less regulations as a result of the hearings not more. We have got much to do and invest and continuing to reinforce our systems, IT systems, billing customers systems, all the different systems that make a business operate in our networks. There's a tremendous amount to be done in the integrating networks. These are the large expensive, complicated projects. Strengthening our existing businesses rather than large acquisitions is my very strong priority. We must continue to demonstrate restraint on the cost side and to protect ourselves from the economic downturn which seems to be spreading outside the U.S.

We will begin to feel at some point in our largest market which is Ontario, the effects of this. We are already feeling it in the area of collections. Overall I'm confident that we are exceptionally well positioned to carry our growth with more and more innovative communications products and services and that is the key. Rogers has always been innovative and we have always been technically oriented. And we give more value to our customers rather then rock bottom pricing. We give value, we give new innovations, new ideas and come to Rogers and you get the very best.

We're trilled to have announced a deal with Apple to bring the iPhone to Canada later this year. We can't tell you any more about it hat right now but stay tuned. This is just one of the many exciting wireless, cable, and internet innovations that you're hearing more about from Rogers over the coming months.

I'll stop here by just saying that I am really pleased with the results we've delivered and with the progress we are making. We still have a lot of work in front of us. We are committed, and we're well positioned to continue with our success.

Over to Bruce.

Bruce M. Mann - Vice President, Investor Relations

Thank you very much Ted. In Bill Linton's absence and before Nadir and Tony touch on the operations, let me make a couple of quick comments on financial results of the quarter. The numbers in the release speak for themselves so I will just highlight a couple of the items that I would consider unusual.

First, for the quarter the swing in stock compensation expense was relatively material, which is principally the non-cash accounting adjustments we recorded to reflect the changes in the stock prices each quarter as all of our stock options are now accounted for at intrinsic value. So we mark them to market. Today a $1 change in our share price has about $15 million impact on this line item. So as such you see a benefit we recorded in Q1 of about $150 million, which represented by $0.12 of earnings per share.

Q1 was also the first full quarter of results, which includes the Citytv acquisition at Rogers Media which was done in mid November and that contributed approximately $34 million to revenue growth at Media and also to the majority of the margin dilution you saw there.

We also expensed about $9 million at Rogers Media associated with the termination of a large concession vender agreement at the Rogers Center. We took also a $5 million charge at Rogers retail to close about a dozen and a half of the underperforming video stores. But still consolidated revenues were up 14%, adjusted operating profit up 21%, so excellent operating leverage for about 230 basis points of margin expansion, and that's after you consider the fact we absorbed the impacts of both the vendor and termination costs at media and the margin dilution from Citytv integrating that business post the acquisition and Nadir will touch more on the margins at wireless and cable in just a moment.

On CapEx, I know that at $320 million for the quarter it was somewhat lower than many of you were forecasting. But much of the sequential changes seasonal following the generally very heavy Q4. So there is intra-year timing associated with the CapEx spend and Q1 is a number you should... not extrapolate for the full year.

Also on the balance sheet don't take the fact that we didn't buy back any RCI shares during the window we had between February 22nd, and our Q4... when we did our Q4 release and then March 31 the quarter end. Don't take that as a lack of any commitment by Rogers to buy back shares generally. It was frankly a very unsettling few weeks during which the credit markets were virtually seized up, and as well we were in discussions with Apple, which were not yet public.

We did however during the quarter effectively buy back somewhat over 600,000 shares as we settled north of $20 million worth of stock options for cash to employees that weren't blacked out due to the negotiation. So instead of issuing shares we cashed those employees out equivalent to $20 million plus tax deductible share buyback and we will continue with that program as the year goes on.

As Ted said overall a solid start to the year. It's still very early in the year, and so we are not going to make any specific revisions at this point to our full year guidance ranges that we laid out just a few weeks ago. Let me end it there and turn it over to our Chief Operating Officer, Nadir Mohamed.

Nadir Mohamed, CA - President and Chief Operating Officer, Communications Group

Thanks, Bruce, and hello everyone. Q1 was another quarter where we successfully executed on our game plan, which continues to be a balanced mix of subscriber and financial growth. I will quickly share a couple of my own perspectives.

First on the wireless side kudos, no pun intended, to Rob Bruce and his team for another strong quarter with network revenues up 17% and adjusted operating profit up 21% year-over-year. We had good success attracting and retaining higher value postpaid subscribers with churn down to 1.1% and strong ARPU growth driven by increased wireless data penetration.

On the prepaid side the combination of modestly lower gross adds due to competitive offerings in the market and the pattern of seasonally higher first quarter prepaid churn drove the increased level of prepaid net subscriber losses. We continue to target higher revenue customers in the prepaid segment as well as demonstrated by prepaid ARPU growing 6.3% in Q1. Having said that and putting it into context prepaid revenues represent less than 5% of wireless revenue. So it's not by any stretch our primary focus.

Our focus remains on high value postpaid customers, driving data adoption, targeting the youth and small business markets. Frankly, this strategy is paying off with lifetime value per sub increasing by over 50% in the last two years. Wireless data is a significant growth driver for us and is up 47% year-over-year, and it's by far the largest contributor to our ARPU growth.

Wireless data now represents 15% of network revenue compared to 12% a year ago. As the Canadian leader in wireless data we remain very bullish about the growth prospects for mobile broadband. And on the cable side Edward and his team also had a solid quarter for the most part, good continued REGU growth with particularly strong performance again in internet helped push the cable operations revenue up by 12%.

Net subscriber additions on the home phone side were a bit softer than we'd hoped, we’re putting a sharper focus on that for the coming months.

Our cable operations adjusted operating profit was up 21%. Importantly, we made good progress this quarter on expanding the cable operating margins which were up 300 basis points year-over-year. Even excluding the benefits from the renegotiated Yahoo! deal from the elimination of the type 2 regulatory fees, cable operations still delivered 16% operating profit growth and a 132 basis point of margin expansion. So good quarter at cable in Q1 and commitment to continued focus on greater operating leverage.

And with that I'll turn it to Tony Viner.

Anthony P. Viner - President and Chief Executive Officer, Rogers Media Inc.

Thanks Nadir and again hi everyone. First Media's results for the most... for the first time reflect a full of quarter of the inclusion of the Citytv, which we acquired in November of last year. If you normalize this City acquisition, the organic revenue growth would be about 3% year-over-year; somewhat softer than we planned although Q1 is generally our weakest of the year on any event. We definitely started to feel some softening of our advertising sales in the later part of Q1. A bit more so in the Ontario market but we are starting to see some pressure from economic softness on the top line and you see that in the revenue results of Media.

You will also see the impact of the Citytv acquisition on expenses and margins. As Citytv had about $2 million of operating losses in the quarter which is actually tracking a little better than we planned and we are making excellent progress on the integration of that business into Rogers Media. Apart from City, most of the year-over-year decline in operating profit was driven by a contract termination charge of $9 million that Bruce mentioned to basically change out the concessions provider at the Rogers Centre which won't recur in future quarters.

We also had some increased production costs at Sportsnet due to the number of high definition hockey telecast in the quarter, which pressured the cost line a bit. I am excited to say that we have now received nearly 180,000 indications of the interest for tickets to the eight-game NFL series that the Buffalo Bills will play at the Rogers Centre starting this summer. The Rogers Centre seeks about 54,000 for football. So we will be holding a lottery shortly and I think this will turn out to be a terrific series for Toronto and a great business for the Rogers Centre and for Rogers’ various sports broadcasting properties as well.

With that I will pass it over to Bruce for questions.

Bruce M. Mann - Vice President, Investor Relations

Thank you very much. Operator, would you please just take a couple of seconds and explain to the participants who are interested in asking question or you want to poll for questions and then we would be happy to take them.

Question And Answer

Operator

[Operator Instructions]. The first question comes from Vince Valentini of TD Newcrest. Please proceed.

Vince Valentini - TD Newcrest

Yes thanks very much. Question on wireless maybe for Rob if he is there. On the G&A expenses were up 20% year-over-year, which is actually a little bit more than network revenue growth. Normally that's because of retention spending which seems to be trending up for the whole industry. For this quarter that wasn't the case retention was actually down about 5 million year-over-year. Can you just talk about what the drivers are of those expense increases? Is it all data related for new applications there? And I am thinking forward here to what the, I guess leverage is as those revenues and usage lines change in the future? Is there a direct correlation if the usage growth slows down should we see that expense line slowdown as well?

Robert W. (Rob) Bruce - Executive Vice President and Chief Technology Officer

Yes thanks Vince. As you would expect there are actually a number of things driving that line. Some of them will go away over time. Firstly, we had higher call minutes from our base, combination of AHT and slightly higher percentage of people calling us. Focusing on the AHT, some of that AHT was from implementing new systems, new systems to help us handle our customers calls into us and solving their problems better than ever before. So, as reps get using these new systems, it's slightly more time consuming as they work their way through them but ultimately we think there will be a huge benefit to our customers, so, both systems and processes.

Secondly, in there also is buried some significant amounts of training for a variety of different people using these new systems and systems to better support both our technical and business customer care operations. There is a slightly higher mix of tech support as you will gather those are slightly more expensive calls but as our base increases and our focus on data continues to be successful those are costs that will grow with time.

You touched on one of the others; data, cost of goods sold. Some of the services as you know our rep share services. So, as we become ever more successful with data as Nadir pointed out, those costs will too come along. We also have roaming COGS in there as well and as our roaming business continues to grow and I'd emphasize for everybody on the line, I think there is a misconception that the 10% or 11% of our business that comes from roaming is often attributed very highly to people who roam in, the vast, vast majority as people our customers is roaming in other places.

The cost of having our customers roam in other places is a growing part of the business and the costs we pay other carriers are reflected in those costs that are driving up the G&A number. And lastly as we continue to innovate which is our focus and driving value into the business, our IT costs have grown somewhat as well. So, those will be the categories Vince.

Vince Valentini - TD Newcrest

That's great Rob. Just a follow-up, the AHT and training costs, can you give us any idea of how long it will take to cycle through, how many quarters we will see the impact?

Robert W. (Rob) Bruce - Executive Vice President and Chief Technology Officer

Yes, listen I am glad you brought that up, we rolled this through the wireless business and ultimately we will be rolling it through the cable business. I think it will cycle through over this quarter and next in the wireless business and you will see it subsequently in the cable business.

Operator

Your next question comes from Rob Goff of Haywood Securities. Please proceed.

Rob Goff - Haywood Securities

Thank you very much. My question would be on the wireless. Two years ago we used to talk about wireless data being 20% of revenues as a target. Would it be fair to say we have now recalibrated using 40% as a target?

Nadir Mohamed, CA - President and Chief Operating Officer, Communications Group

By the way I love the setup. Over to you Rob?

Robert W. (Rob) Bruce - Executive Vice President and Chief Technology Officer

Some quick ad-hoc guidance. Nadir said, we are excited about the future of data we think it's got a lot of potential and I think as we move into a world of mobile broadband as I think HSPA at 7.2 and beyond is giving us the capability of doing. We are excited about the prospects, I think it's premature to give specific guidance, but we will let know if we think it's going to be 40.

Rob Goff - Haywood Securities

Okay. Thank you.

Operator

Your next question comes from Jason Armstrong of Goldman Sachs. Please proceed.

Unidentified Analyst

Hi, this is Scott Mallet [ph] sitting in for Jason. Just my question in on wireless as well just on the ARPU. I know most of that is data, it was up 7% year-over-year, good portion of that data and obviously you have some more room to run on that, but if we just look at your wireless plans, and I know some of your competitors as well. You still charge for things like voicemail, caller ID, call waiting and long distance, so just on overall basis if you can just look down the road and over the long-term do you anticipate plans offering maybe larger minute buckets that what you have you now and also included some extra features that are now a la carte. And basically do you just expect us to be an offset to or somewhat of an offset to the continued data growth?

Robert W. (Rob) Bruce - Executive Vice President and Chief Technology Officer

Yes, I mean there is awful lot based on that question Jason, so I will try to pick away and contribute to the pieces. We, I think, spent a fair bit of time trying to target our customers with the right kinds of features that sort of augment their experience. And we sell those in a bundled fashion and we found that the uptake has been pretty significant as we continue to come up with skillful bundles of some of these enhanced services features. We have talked before about moving to big bucket American style rate plans. I guess, what I point back to as I would say if you look at the usage patterns of the Canadians, a very small percentage of them, their usage is suited to those types of plans. In the U.S. where the usage pattern is completely different, those plans make more sense and I think it's easy to forget that unlike the U.S we have unlimited evenings and weekends on most of the plans, again which are well received by Canadians. So, going forward we will be doing what we have always done and that is trying to design plans that enable customers to use wireless voice or wireless data freely and not with too many worries, but at the same time target at specific customers that exists in our markets.

Unidentified Analyst

Thanks. Just one other question on Internet revenues, I know you mentioned that there is a shift in the proportion of total subscribers on lower price service tiers. Is this just customers opting for lower speeds and then maybe you can provide some more detail on how recent upgrades to Internet speed and maybe price increases could affect this shift going forward?

Robert W. (Rob) Bruce - Executive Vice President and Chief Technology Officer

I am assuming you are directing that at Edward?

Unidentified Analyst

Yeah.

Edward S. Rogers, O.C. - President and Chief Executive Officer

Sure on the cable type high speed data we have been trying to sell a lot more of the higher tiered services and has seen some good news there. We don't spilt that out but you will see that and I think the overall revenue of the company and when I think there is.., when you look at some other pricing changes and some of the introduction of caps and usage-based filling, I think that will further extend customers to move to higher tiers of service. But you know that’s offset by as it continue to go rather penetrated, you're bringing a lot of dialup customers and have to educate them to the value if you’re spending a bit more money.

Unidentified Analyst

Yes, thanks

Operator

Your next question comes from John Henderson of Scotia Capital. Please proceed.

John Henderson - Scotia Capital

I guess separate question as to whether or not you’ve seen any signs of the VCE TELUS Billing and HSPA overlay, or would you expect them to wait for LTE.

Robert W. (Rob) Bruce - Executive Vice President and Chief Technology Officer

So, I mean, the rumor mill abounds on this things. I think we’ve all heard different rumors every time; nothing substantive at this point to report and, I think is a better for me not to speculate on what is Bell and TELUS are likely to do and may be better, I have the question directed at them.

Unidentified Company Representative

Can you give last phone number.

John Henderson - Scotia Capital

I kind of expect that, I just thought you might see it in the market before others in terms of upgrades and that sort of things, but I’ll leave that, just a follow up then on HSPA and what your footprint looks like now as percentage of total home population and what your plans would be for 7.2 timing in terms of rolling that to a greater percentage population?

Robert W. (Rob) Bruce - Executive Vice President and Chief Technology Officer

Get them john I think we may have said before but we are at 60% of pops right now, so I think top 25 cities, recently we rolled out Moncton and Halifax at 7.2, and our plans across over time is to continue to roll across the county. We haven't been specific by market or anything like that because of for obvious competitive reasons but I think, you know, we are enthusiastic about mobile broadband and the potential for data. So, expect more from us in terms of investment on HSPA.

2

John Henderson - Scotia Capital

Thanks.

Operator

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

James Breen - Thomas Weisel Partners

Thanks. Just a couple of questions, one on the wireless side, can you talk a little bit about your voice ARPUs and sort of the trend you are seeing there and then on cable, you talked about margins coming up, they certainly have this quarter year-over-year basis. Would you see as a more mature margin in cable and then secondly in the cable space, what are you seeing from the competitive standpoint from BCE in terms of went backs in the voice side. Thanks?

Bruce M. Mann - Vice President, Investor Relations

I'll lead off, if that's all right, Edward. In terms of voice APRUs, voice ARPUs continue to remain strong overtime and they have been in the kind of 3%, 4% range and we are working hard to keep them there.

Edward S. Rogers, O.C. - President and Chief Executive Officer

I'll move to second part of your one question. The nature of the margins in the cable business is a hard thing to think of when you go, the farther out you go but there is two... I mean there is couple of trends that we are focused on: one, is the cost of sales of data and voice is obviously less than television and a lot of the customer ads are in those two lines of businesses. The second thing we are focused is, improving service for our customer which means taking out activity that we don't need. So, the number of phone calls, the number of service trial accruals and we saw a bit of that in the first quarter that helped our numbers and we hope to continue to build on that through the balance of '08 and as you go forward.

So we are focused on continue to improve, but we give guidance one year at a time and that's how we look at the business. And then in terms how aggressive Bell is we are definitely aggressive on winning back home phone customers.

And they have certainly had some very rich offers in market and so were focused to try to sharp our base more of our customers into bundled terms and hope to be able to better blend some of their activities for the balance of 2008.

James Breen - Thomas Weisel Partners

And the number that Bruce was talking about the 3% to 4% declines year-over-year.

Edward S. Rogers, O.C. - President and Chief Executive Officer

Sorry what was that. So we saw an increase in the quarter of 3.6%, in Q4 it was 3.1, in the previous quarter it was 3.6. So, its been relatively steady in terms of voice ARPU growth.

James Breen - Thomas Weisel Partners

Okay great thank you very much.

Operator

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

Tim Casey - BMO Capital Markets

Thanks. Couple of questions. I'm just wondering if you can review for us what the implications of the BDU hearing will be, I think you’ve made comments that if there is fee for carriage, you will oppose. I'm just wondering if you could flush out for us what your options are there and what sort of timing to resolution that would entail. And then secondly unrelated, Ted you mentioned that you had seen some impact to the economy on the collection side already, could you expand on that a bit? Is it focused in any certain areas or is it strictly on the low-end customers and the like? Thanks.

Edward S. Rogers, O.C. - President and Chief Executive Officer

I'm just dealing with the second question first. It’s just starting to be shown and we will report more probably in the next quarter but we sense something, I think we are all nervous in Ontario. I have long forecast that we were in danger, one of the three auto plants being closed here in Ontario, which would be a real kick in the pants and I worry a lot about Ontario in these days. Your first question was on the hearings, well look you can't guess what the commission with do but I suspect that I had to make a guess, they will not approve fee for carriage.

They will discontinue distant signals which the broadcasters want discontinued or pay the huge amount of money for it. They will review and monetize some of the more complicated rules and then for us they will emphasize, what is the transition requirements to transfer from basically a cable being an analog phenomenon to most of the customers to a digital one. I didn't necessarily say all digital but the primary digital one and there we need to have the rules well in advance. As you know in 2009, the American analog stations come off the air by the U.S. government. In 2011, the Canadian stations are reported to be coming off and in 2010 some of the CRTC rules change. So, we need to sit down over the spring and summer and fall and try to get all the facts we can with Edward and his people and come up with what is our strategy over the next three years in order to provide maximum benefit to our customers. We need to free up spectrum; we need to free up spectrum because we are going to need a lot more high definition signals that's coming. Specialty channels where, what 5% have high definition services will be 30% by the end of the 3 years in my judgment the high speed internet on cable will be 3, 4, 5 channels bundled together to provide very-very high speed service that the phone company will not be able to match so these are very exciting times. I enjoy this kind of work and Rogers hopefully will continue to be in the lead in innovations the new services simplifying life for our customers.

Nadir Mohamed, CA - President and Chief Operating Officer, Communications Group

Yeah just to add going back to your first question to the comments Ted made with respect to the economy. What's interesting is we are obviously aware of all of the macro issues and looking out for the on the demand side so far we have not seen what would reflect an economic issue in a consumer market sense. I will tell you what we are doing though and its important our earlier this year recognizing the potentials for a slowdown we did take on a restraint theme within the company so we are looking at to Edward’s point drying out activities that might be adding cost and also being prudent in terms of new investments looking at them hard before adding cost to our base so I think one of the advantages if you will looking into the macro trends they have been kind of evident for some time its that we have programs in place that should lets turn hopefully position as well in terms of addressing the impact.

Unidentified Company Representative

Next question operator.

Operator

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

Glen Campbell - Merrill Lynch

Yeah thanks very much. I have two question the first one is on cable, your homes past continued to grow at quiet a good clip and I am guessing some of those homes are actually businesses, so I was wondering if you could give us some update on how your small business deployment is going on the cable side. And then on the wireless your voice revenues were quiet strong clearly and your revenue per minutes declined at a softer rate than we have we seen before. So, I am wondering if there is some thing going on and mix there that would explain why your realized revenue per minutes are so high when, you know, competition is still pretty tough in the market thanks.

Edward S. Rogers, O.C. - President and Chief Executive Officer

I'll start with the first part. I think your question was what’s making us some of the growth in homes past and the usual is new homes and buildings being built at and new dwellings for customers and it sometimes get a split in the house, and becomes a basement apartment, some of these things. And there is a bit of a push, when we do build out new areas to also includes, better include some of the small businesses are that are there, and on terms of small business, small business for as is going well, we started to kind of uptick it last year and I'll say it's a good opportunity for us. We are doing, I think, quiet well in data and I think we have got a good opportunity in front of us but we have got some work to do there as well.

Anthony P. Viner - President and Chief Executive Officer, Rogers Media Inc.

Okay, on the other front let me restate the question to make sure I understand that exactly what it is you're asking. Our ARPM is relatively flat year-over-year at if memory serves; that is $12.3 or $12.7 per minute, so relatively flat. How could that be, I think, is your question. And I think the simple answer is we continue to have success selling essential services to customers like, we’re better at targeting them, we are reaching out to them with bundles and other things.

We are also seeing growth in some other lines like LD and Roaming that continue to be areas where the majority of customers are not particularly price sensitive. When I am talking about LD and in roaming our customers continue to travel and enjoy the benefits of being able to take their phone with them wherever they go and that continues to help us strengthen our voice revenue stream and our growth. If that is not to be said at over time we won't see pressure on that voice line, I think if we look to the US and elsewhere and even some of our competitors in Canada because of some of their aggressive low in pricing are starting to see a erosion of that voice ARPU. So, its nothing we take for granted, we work very hard at it and we do think that over time it will slow.

Glen Campbell - Merrill Lynch

Okay. Thanks very much.

Operator

Your next question comes from Greg MacDonald with National Bank Financial, please proceed.

Greg MacDonald - National Bank Financial

Thanks, good afternoon, guys. It’s a strategic high level question on the cable side. Looking at the cable telephony and I think by extension by digital on the bundle side loads, they look well below what I would consider the company is capable of given its superior networks certainly relative to what we have seen in some of the other quarters. What's the main reason the company doesn't take a more aggressive approach to marketing that telephony bundle whether that be discounts or whatever because there is evidence form other cable companies out there that there is lots of upside particularly, I guess the way I look at it on a net present value prospective for cash flow. Am I looking at this too simplistically are the other competitive issues that you take into consideration here. Why not just get more aggressive on that bundle and push more subscriber account.

Edward S. Rogers, O.C. - President and Chief Executive Officer

Its Ted here for a minute, I have to say that we can do a better job. Price discounting is not one of my favorite techniques, and number three we have just passed 1 million homes served by Rogers home phone; 1 million homes. And so what we can do better, I think we ain’t done bad for a old cable company.

Robert W. (Rob) Bruce - Executive Vice President and Chief Technology Officer

Just to add to that, I think with U.S I mean as Ted had alluded it means we want to be a credible second choice in home phone and it's a long-term game. So you look at both penetration to your point, but we also look at the average revenue and the profitability of the product. And yes you can drive penetration a little faster by lowering the revenue per line. We are trying to have a strategy of driving penetration as fast we can. We were the last of the big four in Canada to launch, we are second highest penetration today on cable home phone. And we did in the quarter announce an increase in sizable buck 45. LA is finding it a bit harder and as we earlier talked. Our connects are pretty good, we got to do a better job at keeping the customers we have and bundle these customers up. And so we will be quite aggressive through the end of 2008, we are still maintaining our targets that we have had for 2008. On digital, I think, we closed just over 61 points of penetration at the end of the quarter first quarter, which I think again is the highest in Canada, amongst the highest on a North American basis. And Canadian companies, as you know, have launched after their counterparts south of the border.

So, we are very bullish on digital and we are going to continue to push that, and of course what you don't see there is some of the boxes per home and some of the revenue per home which we have done quite well in those numbers too. And lastly, we are introducing some new packages or triple play; we have got more triple play pricing out there and we are announcing 60 more packages in the next few weeks which we hope will allow us to do even better to a year point and to capture more 2 and 3 product sales as we make it there

Edward S. Rogers, O.C. - President and Chief Executive Officer

So essentially I’m being to simplistic. Edward, can I ask you a quick follow on that? Are there opportunities in your mind to drive cable telephony subscriber a lot higher than what we had seen by focusing on things other than price?

Unidentified Company Representative

Yes I mean one is obviously the value to buying 2, 3, 4 services from Rogers and we think we have got good value in triple play cable pricing and good value through better choice bundles of buying all our products. We are trying to do a better job at some of the… and offering customers a bit more value. We have got an early indication is a voice, a voicemail you can get as both a wireline home phone customer and as a wireless customer who just have one share and as we go out in the future we hope to invest in further products along those lines.

Nadir Mohamed, CA - President and Chief Operating Officer, Communications Group

Greg, it’s Nadir. Just to help because I am sure you are looking at year-over-year quarter numbers, but one thing that I should make note in terms of migrations, Q1 2007 had the much more aggressive number for migrations from circuit to cable and so when you look at the cable net numbers, this quarter the number of migrations are down year-over-year by about 14,000 so you do need to factor that in.

Greg MacDonald - National Bank Financial

Okay. Thanks guys.

Operator

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

Jeff Fan - UBS Securities

Thanks very much. Just a quick one on the cables in telecom segment, it’s regarding RBS, a good turnaround this quarter and it's great to see and also on the margin side. So, my question is, is the operating margin that you guys show this quarter, is that sustainable. Are you guys comfortable with the kind of revenue mix you have in terms of what's on net versus off net and kind a talk about that I guess the lowering of the carrier payments going forward because even though it's a small number it was a pretty significant portion of the swing on a year-over-year basis in terms of improvement? So, just want a bit more color on that. Thanks?

Bruce M. Mann - Vice President, Investor Relations

Sure. I'll start to say, I think the plan we had was to in order to maintain the business we have, keep the customers we have and as we look at pricing to look to... take pricing to better show the value that we are giving our customers on these products and that strategy seems to showing some benefits. Obviously, not growing and pushing growth as much especially out of territory and not on cable net. Meaning that we are dropping away some costs associated with that. The quarter just have a couple of million of kind a one time gains in there that won’t show up as you go forward. So, the margin of about 12.7 is probably a little bit higher than you will see on a normalized basis. But, we are going to continue to try to push the improvements that we are seeing through the balance of 2008.

Jeff Fan - UBS Securities

What's your general mix of the business right now? I know you don't want to disclose too much but on that off-net LD versus local. Is there anything you can provide there?

Unidentified Company Representative

Well, we tend to not disclose as you kind of mentioned, but I’d say there is more, the telephony would be and the voice would be doing stronger than the long distance and some of the data parts, but again we are trying to maintain all the business of all the parts we have and steady the ship and then figure out where we from there, but we going to continue in 2008 with that have strategy.

Jeff Fan - UBS Securities

Okay, thanks.

Operator

Ladies and gentlemen we currently have time for two more questions. Your next question comes from Dvai Ghose of Genuity Capital Markets. Please proceed.

Dvai Ghose - Genuity Capital Markets

Thanks very much. So, RCI have clearly the of the peer group is shown by the fact that all the major cable Cos in Canada ex Cogeco have spectrum albeit 23 year after you did and shown by the fact that your wireless competitors Bell and TELUS are both emulating your flank-a-brand strategy and may pursue a GSM based technology upgrade . So, my question is to you is, number 1, how serious do you see the threat of other cables bundles are include wireless from Shaw, Videotron etcetera. Number 2, how successful has Kudo been to date and solo for that matter do you see any delta there given Kudo was only recently launched and number 3 how much of Rogers wireless’ success in your opinion Is based on its GSM advantage.

Edward S. Rogers, O.C. - President and Chief Executive Officer

Let me start, it is Ted. First of all, we’re basically an engineering oriented company and in fact, we have meetings with the engineers, Bob Burner and others and we were always accused the third volume of red wine each, that’s where the major decisions were made in the company. But the decision to go, GSM was one that was taken by a lot of people after in our company after agonizing over we wondered how we could possibly be right when so many people of much larger companies were going CDMA. But it has worked out because it’s a world standard, the radio, the phones comes six months early. It’s just a better technology and you can grow with it. You can't grow with CDMA. So we are very fortunate with that.

What's happening now is very interesting the existing operators… they are increasing the options that the customers have to choose, they are starring other brands, flanker brands. And they specialize in certain areas. And that makes it harder and harder with the new entrance to find a home. To find something that's a niche that they can be attached to, such as Fido was originally. But there is no more.... we got Fido and the other people have got their areas. And so if I was in new entrant starting today, I think it would be very hard to build any distinctive reason for purchase. I mean, low rates -- you just can’t just last long in a high capital intensive business. So, I don't… in my lifetime, I have never known that to really work in the long-term. And so what we have today is that the market getting tougher and tougher for the new entrants. Plus when you think about it the thought of the Bell and TELUS converting over to GSM or HSDPA in the short-term much talked about much rumored. But without being able to roam on Rogers I ask you, is that a practical alternative, or is that just a reality to spend billions of dollars and get themselves in the hell over mess.

Ted, if I can, I just going to divide build on points [inaudible] because obviously lot of people looking at the rumors that you have alluded to and kind of asking about GSM. To me there is a few key things that today would define I think why with being that showing some success in the market over the last few years. I think, first and foremost, our brand has never been in a better position than it is today, we've seen as the innovator; the term that you often get when we do our research with customers in a market, is chances are there if there is something new, Rogers will have it. Classic example today of the iPhone announcement that we just made. So, I think that has big piece in terms of innovation. Network, our products and services rest on the quality of the networks that you have. and on the wireless side Rob and his team have done a fabulous job to take the high ground of being seen clearly as the most reliable wireless network in Canada and now with the investments we’re making in the HSPA, both the roll out and the speed up to 7.2, I think you can see the quality claim now being enhanced with speed and the products that will come from that.

Frankly, we don't talk about it often but I take coax fiber plan and cable over the copper wire any day and I think we've got a tremendous position to the earlier points in driving the kind of shares we have been getting on the internet and showing the benefits of digital as we move forward. Operating execution I think is the big piece of the game, it's easy to loose track and we've been fortunate, we've been buttoned down and disciplined, haven't wavered from our strategy. I think, Dvai, you know that I take senses and notions that we have a discount brand, we have a brand called Fido that is built over many years and has a very differentiated position in the market so I don't see that as just a something to be replaced by a price point. Last point I will make is on distribution. Most people on wireless will know that one of the key things in actually allowing to win in the wireless market is strong distribution and we have got distribution we have built up over many-many years with third party dealers are exclusive with us, we have got a Rogers plus chain that brings in an increasing amount of traffic and loads into our network and complimented with our call centers where we have the advantage of up selling and cross selling using bundles. So, I hate to take as long as I did, but I think its very important to make those points because quite often we get caught up on the GSM or specific technology. Rob, you want to add anything?

Edward S. Rogers, O.C. - President and Chief Executive Officer

No I was just going to wrap up and say the same thing that it's a really multifaceted focus that I think has brought us success overtime if I wanted to pullout one other comment about the cable cogs and their potential to be successful with the multi product bundle I guess I would point to go back where we have actually had our friends at Videotron as a competitor for about 24 months now we have fared very well on that market over that period of time so if that's any indication I think we will be fine going forward.

Unidentified Company Representative

Next question operator.

Operator

Your last question comes from Simon Flannery of Morgan Stanley. Please proceed.

Simon Flannery - Morgan Stanley

Thanks a lot. Good morning thanks for taking the call. Can we talk about 4G for a second? You have talked a lot about HSPA and the improvements there. We had Verizon and AT&T really commit to LTE very strongly in the last several weeks I notice your spend and Inukshuk continues, so where are you in thinking of the next steps in terms of WiMAX versus LTE timing and what are the quick key criteria making that decision. Thanks?

Nadir Mohamed, CA - President and Chief Operating Officer, Communications Group

So, I think on past calls Simon, I think we have been clear that our... overarching bet is a bet on HSPA and ultimately LTE when the time comes. We think there is also a future for WiMAX, we think that's a smaller future and then we think that that will unfold overtime but we also believe that there is a great strategic advantage to having our toe in both camps and we will continue to execute in that way and we will let you know more as it unfolds.

Unidentified Company Representative

I think definitely there is market for WiMAX, there is a numbers of operators around the world that are committed to roll out. As Rob said I think the future will unfold over the next two or three years as we see perhaps some conversions of these standards and as LTE developed, it may very well and there has been recent calls to harmonize the two standards so that there would be sort of a transmit received FDD frequency division, duplex version and then TDD version on unpaired spectrum which does lots a bit around, which could be WiMAX but that's all something that's going to be sorted out overtime between these invested interest groups that are driving these technologies.

Nadir Mohamed, CA - President and Chief Operating Officer, Communications Group

But in the mean time it's great to have the flexibility to have both options and getting experience with mobile broadband through WiMAX today and to be in a position where we can be the beneficiary of however it unfolds.

Simon Flannery - Morgan Stanley

Great. Thanks a lot.

Unidentified Company Representative

Operator, first of all thank you for conducting the call but more importantly we want to thank everybody for participating and for your interest and support for Rogers. If you are in Toronto today, we hope to see at our Annual Shareholder Meeting in just a couple of hours. Ted has procured a very bright suit which I think you all will find interesting. If you have questions that weren't answered on the call, please give Dan or myself a call on our contact info on the press release. And this concludes today's call. Thank you very much.

Operator

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

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