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Rogers Communications, Inc. (NYSE:RCI)

Q2 FY08 Earnings Call

July 29, 2008, 9:30 AM ET

Executives

Bruce M. Mann - IR

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

William W. Linton, C.A. - Sr. VP, Finance and CFO

Nadir Mohamed, CA - President and COO, Communications Group

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

Robert (Rob) Bruce - President, Rogers Wireless Inc.

Edward S. Rogers - President, Rogers Cable Inc.

Analysts

John Henderson - Scotia Capital Markets

Jeff Fan - UBS (Canada)

Jonathan Allen - RBC Capital Markets

Glen Campbell - Merrill Lynch

Bob Bek - CIBC World Markets

Scott Mallet - Goldman, Sachs & Co.

Rob Goff - Haywood Securities

James Breen - Thomas Weisel Partners

Vince Valentini - TD Newcrest

Simon Flannery - Morgan Stanley

Tim Casey - BMO Capital Markets

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Rogers Communications' Second 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 your questions. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded, today, Tuesday, July 29, 2008 at 9:30 AM Eastern Time.

Now, I'd like to turn the conference over to Mr. Bruce Mann of the Rogers Management. Mr. Mann, please go ahead.

Bruce M. Mann - Investor Relations

Thank you, operator. Good morning, everyone. Welcome to Rogers second quarter '08 earnings teleconference. On the line with us today are Ted Rogers, our Chief Executive Officer; Bill Linton, our Chief Financial Officer; and Nadir Mohamed, President and Chief Operating Officer of our Communications division. Also with us are three divisional Presidents; Rob Bruce from Rogers Wireless and Edward Rogers from Rogers Cable, and Tony Viner from Rogers Media. They've got some of the few members of their respective management teams, and a couple of the members of management are actually dialed into the call remotely today, so hopefully, that will be seamless. But, pardon us in advance if we need to pause for a couple of seconds, at some point during the Q&A to un-mute a line.

We've put our detailed second quarter earnings release out on the wires before the markets opened this morning. If you don't already have a copy, please find one on the rogers.com website or around any of the major news wires in the U.S. or Canada, you should fully review the release, as well our 2007 annual MD&A, especially, the risk factors and the cautions regarding forward-looking information. These apply equally to our dialog on today's call.

So, with that, let me turn it over to Ted Rogers, and then Bill Linton and Nadir Mohamed and Tony Viner, they'll each make some brief introductory remarks, and then the management team will take any questions that you have.

So, over to you Ted.

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

So, good morning everyone and thanks to all for joining us. I've got a few very brief remarks, and then the senior operating management will speak.

I'm very proud of the results that the management team has... and employees have produced for the second quarter. We've added subscribers across the business. We grew revenues, operating profit and free cash flow, all at double-digit rates, while continuing to expand margins. We've been focused on execution. We've been focused on execution for some time, and we still got a long way to go.

Integration, a balanced mix of subscribers and financial growth, I'd say we've delivered generally well against that focus. We have some work to do on the cable subscriber acquisition side for the second half, which I am confident that we will do.

But overall, a balanced set of results. I believe, we also... it's also a reflection of the benefits of how we're increasingly operating as a single company. Last quarter, I said that we were concerned about the continued strength of the economy, particularly, in our largest market which is Ontario. While the Canadian economy overall continues to hold up, we're continuing to see softness in Ontario, with continued manufacturing job losses, titles, strong Canadian dollar, and U.S. economic softness.

Now, we see this in our media business, that Tony could respond to. And I think, to some degree, are seeing it in the sub numbers in the cable side in Ontario as well.

But frankly, I think Ontario has been surprisingly resilient, given the degree of manufacturing sector losses that we've seen to date. But, we must continue to demonstrate restraint on the cost side, that's essential.

No, I'm pleased that we're able to get the iPhone launched earlier this month, very complementary of Apple, as partners, leading up to the launch in the creation of, what I think is an incredible piece from industrial engineering and design. It's a natural product for Rogers, it's innovative, it's new, it appeals to young people, and I predict we'll do very, very well with it.

I'm pleased with our results in the spectrum auction, which ended just a week ago. Now, we acquired exactly what we had targeted going into the auction. At the end, we were the only company to acquire 20 megahertz of spectrum contiguously across the country. And, we did so as a lower cost per pop pub than Telus or Bell. Also encouraged by our Citytv business, which we acquired this past November. They began to achieve success sooner than we have expected.

As well, the Home Media business under Tony Viner provides a tremendous support for our communications business across Canada. There has obviously been heightened competitive concerns of late in terms of new entrants in the wireless market. From my own perspective, when I started Rogers nearly 50 years ago, it was the first and only FM radio station in Toronto, CHFI, just one.

Today, there are more than 20 FM stations in the Toronto Market and guess what CHFI not only remains the number one billing station in the market, but it also has grown to be on of the top growing radio stations in Canada.

Others; radio or cable or wireless, Rogers has seen a number of competitors in all our businesses ebb and flow over the years. We not only survived but thrived. And we will continue to do so. That's the DNA at Rogers.

You can rest assure that no one is going to deliver the breadth or quality of products, provide better customer service, have a more respected brand or deploy more advanced networks than Rogers. Together, these things just aren't replaceable. They can't be copied. And 25,000 partners here across Canada wake up every single morning all set on making sure it stays that way.

Now, some will likely just wait until things play themselves out and they can't be faulted. But don't be too quick to have your confidence shaken, because I assure you that history has a way of repeating itself.

Yes, we have challenges. But overall, I'm confident that we are exceptionally well positioned to carry on our growth with an excellent management team, excellent facilities and in great financial shape to meet all challenges.

Rogers has always been an underdog, fighting the powerful Telco dominant companies and other powerful interests. As long as I'm around, we will continue to act as the underdog with a passion, working full out never giving up. Truly, we think the best is yet to come.

Now over to Bill Linton.

William W. Linton, C.A. - Senior Vice President, Finance and Chief Financial Officer

Thank you, Ted.

Couple of quick comments on the financial results of the quarter. First, obviously continued strong growth from a financial perspective with the top line up 11% and strong double-digit operating profit growth of 17% with good operating leverage as well, which took consolidated margins up over 200 basis points for the quarter. The numbers in the release speak for themselves, so I'll just highlight a couple of the unusual line ups.

First, as we said in the release, we began accruing what I'd refer to as Part II Regulatory fees, following an appellate court decision which ruled in favor of the CRTC in April 2008.

Now there are a couple of pieces to this in our results. First is that piece actually relating to Q2 '08 in which we recorded in our operating expenses of $7 million; $5 million in cable and $2 million in the Media.

Then there is $31 million related to 2007 and $6 million related to Q1 of 2008, both of these amounts are reported below the operating profit line as adjustments in our quarterly numbers. As we say in the MD&A, along with the other parties to this matter, we are in the process of seeking leave for appeal to the Supreme Court.

But this isn't something likely to be decided quickly, so if you think about the remainder of 2008 you should assume that for each of Q3 and Q4, we'll continue to accrue the same approximate $5 million per quarter at cable and $2 million per quarter at Media for these Part II fees.

These costs weren't assumed in our 2008 operating profit guidance, but they are not material enough in enough in and of themselves to adjust for. We also had a full quarter of Citytv results included in Media's numbers. The Citytv acquisition was done in November of '07 and layering in that business in this year's quarter drove about $46 million of revenue change, and $5 million of operating profit growth in the Media segment. Tony will talk about in a moment that Citytv business is tracking much better than we expected at this point.

On CapEx, I know that at $800 million for the six months of 2008, is somewhat lower than many of you were forecasting. But, the spend pattern is generally seasonal, and we're heavily loaded towards the back half of the year. So, there is intra year timing associated with the capital spend. And, you should not extrapolate CapEx for the first half into the remainder of the year.

As Ted mentioned, the AWS spectrum auction which we successfully participated in ended last week. We acquired spectrum valued at approximately $1 billion. This is beach front property for our wireless business that will only appreciate over time. But while, we don't decide when it becomes available, we've always been opportunistic in acquiring spectrum, and look at it as a long-term asset, and to a large degree, it's fungible over time with CapEx.

We'll pay for this spectrum over the next 30 days. As you know, we have a $2.4 billion credit facility and an additional $500 million one year revolver in place. And at the end of 2000... at the end of the second quarter, we had about $1 billion drawn in total. So, we have good liquidity position, especially, considering our operating free cash flow, which is adjusted operating profit plus CapEx and interest, is up 20% in the quarter, and 50% for the first half over the prior year.

During the first half, we declared two dividends both at the $1 a share annualized rate, which is double the amount from last year's 50% rate. And also during the second quarter, we bought back 1 million RCI shares in the open market. This is the first for Rogers, and a data point that's not insignificant.

As we said in our release this morning, as of the end of the second quarter, we're tracking strongly ahead of the guidance range we set for, for operating profit back in January. At the same time, we hadn't assumed the iPhone would be launched under the subsidy model, which we recently agreed to with Apple, which will in turn put upward pressure on expenses in the second half as we sell more units.

Don't get me wrong, as this is a terrific opportunity, and each sale creates value in terms of accretion to both ARPU and churn going forward. It's just a front-loaded cost model for us, and we hadn't planned these amounts of incremental COA and COR. But, for now, we are going to hold the full year guidance unchanged assuming that these items offset one another, and see how actual sales progress in the second half.

I'll conclude by saying that overall, we've got a very solid first half of 2008 under our belts, and we're on a good trajectory for continued success in the second half of the year. I will now turn it over to our Chief Operating Officer, Nadir Mohamed.

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

Thanks, Bill. Let me quickly give you some perspective on the operations front. First, on the wireless side, it's been a busy quarter for Rob and his team. We delivered strong double-digit growth with good operating leverage, again driving margin expansion. Slightly lower growth rate on the top line reflecting on the voice side, poor usage based revenues including U.S. roaming.

On the subscriber side, continued healthy postpaid growth, though we believe there is some deferred purchases on our later April announcement of iPhone launch in July. Also, when comparing to prior year's very strong Q2 numbers, just wanted to recall that we had strong port [ph] in numbers, post the implementation of local number portability, which occurred in March of last year.

We had good success attracting and retaining our valued postpaid subscribers, with churn down again to 1.06%, and ARPU growth continuing, with strong growth particularly on the wireless data side, where wireless data revenue is up 34% to $224 million in the quarter, driven by both increased wireless data penetration and usage.

With the rollout of our high speed HSPA network, the fastest in Canada and in anticipation of a great selection of aspired devices, we revamped our data pricing to help drive the adoption of mobile internet.

On July 11, subsequent to the end of the quarter, we launched Apple's iPhone across Canada. At this point, two and half weeks into it, we're pleased with the early sales results. In fact, in the launch weekend we had the highest sales in the company's history. We've been getting great support from Apple with regular shipments more than weekly, but demand continues to outsource supply and we are working hard to replenish stock as fast as we can.

In our Cable Operations Division, Edward and his team delivered solid double-digit top line growth, with adjusted operating profit up 21%. Importantly, we made... we again made good progress this quarter in expanding the Cable operations margins, which were up over 300 basis points year-over-year.

Excluding the benefits from the renegotiated Yahoo! deal, cable operations delivered 17% operating growth... profit growth and 200 basis points of margin expansion.

On the Cable subscriber addition side, the results weren't where we wanted them to be. Our marketing shift to multi-product value bundles from individual product focus in hindsight was overly ambitious and we have now refocused our efforts for the coming quarters.

Our deficit [ph] on a cost side has been steady and has been a strong contributor to our margin expansion. So with good financial results serving as a platform, we intend to build on the momentum of what historically is a strong Q3 with universities going back into session to drive better performance on our sales in the back half of the year.

With that, I'll turn it over to Tony.

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

Thanks, Nadir and hello everyone. First, Media's results for the second quarter were on balance very good with strong double-digit top line and operating profit growth. The inclusion of Citytv has been accretive to both revenues and operating profit lines.

If you normalize for the acquisition of City, which we acquired in November of last year, the organic year-over-year revenue and operating profit growth would have been both in above 4%, which I think is a terrific performance by the Media team in the current market environment.

I mentioned on the last call that we had definitely started to see and feel some impacts on advertising sales in the latter part of Q1 in terms of economic softness. It's fair to say that trend continued across Q2 with mixed advertising results across the country.

Things are continuing strong in the west, but it softened in Ontario in both the radio and TV ad markets. We expected this on the top line, so we've managed well in terms of restrains on the cost side in order to protect our operating profit.

We are very pleased with the early results we are seeing from Citytv and the integration of that business with our OMNI stations. We feel a sense of reinvigoration of the City franchise and a degree of momentum with our employees and customers.

So we are on a good track with City, which was a large acquisition for Rogers Media and an important priority and focus for 2008.

We also closed the Channel M acquisition in Q2, which is the Vancouver multicultural over the air TV station, not a large acquisition but we will need a critical final link for our network of the OMNI multicultural TV stations in Toronto, Calgary, Edmonton and Vancouver.

Having these OMNI stations together in markets where we also have Citytv stations combined with a strong local radio presence, it's a tremendous opportunity for leveraging not only our programming assets, but also our sales resources and physical assets in all of these key markets.

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

Bruce M. Mann - Investor Relations

Thank you Tony. Operator will take questions from the participants in a couple of seconds. I just want to quickly say before we begin as we have each quarter if those of you participating in, want to ask questions please limit down to one topic, be courteous to the other participant so that as many people as possible have a chance to participate and then to the extent we have time, we'll circle back and take additional questions, or we'll get them answered for you separately after the call.

So operator, why don't you explain how you want to organize the Q&A polling process and we're ready on our end?

Question And Answer

Operator

Thank you. [Operator Instructions]. First question comes from John Henderson of Scotia Capital. Please proceed.

John Henderson - Scotia Capital Markets

Thank you. I'd like to focus on ARPU growth, and I know there is a slip to 4% growth on postpaid from 7% last quarter, data revenue kind of short of I'd say material slow down to 34% growth from 43%, but the U.S. carriers are showing very strong data revenue growth at 45% to 50%. Some levels that are already 20% higher than where Rogers' is on a sort of amount per subscriber per month. So, I'm just wondering, to what extent you would call this a temporary slowdown maybe caused by price action taken by Rogers to drive penetration? Or is it signs of economic slowdown or what would you point to?

Robert (Rob) Bruce - President, Rogers Wireless Inc.

Hi, it's Rob, John.

John Henderson - Scotia Capital Markets

Yes.

Robert (Rob) Bruce - President, Rogers Wireless Inc.

Listen, we continue to believe that data is going along at a robust pace. We've got a new generation of devices; we're pushing very hard on the mobile internet, driven by some of the new air cards and the steps. And, I think it will continue to be strong. I think Apple and the iPhone and the RIM Bold will continue to drive the very strong growth that we've seen.

And SMS continues to be robust. So, I think we're on a great path. We're investing heavily in data. We think data is our future we've led in it. And, I think, when you stand back and you look at the ARPUs of the Canadian market versus to the European markets, or the U.S., in terms of ARPU dollars, we're very strong. This quarter around $12, compares favorably to about $11 and change for the U.S. markets from the Q1. I haven't seen all the Q2 numbers, and an even lower number in Europe. So, and we'll continue to push hard in it.

Bruce M. Mann - Investor Relations

Operator, next question.

Operator

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

Jeff Fan - UBS (Canada)

Just want to ask, a little bit of a clarification on the guidance. The... you guys mentioned... I think Bill mentioned the higher costs related to subsidy. Obviously, it sounds like you guys haven't contemplated the subsidy model, and that makes total sense. But as you... when you set your guidance, did you guys contemplate the subscriber impact or ARPU impact of the iPhone launch, just on the top line itself, when you were setting that?

William W. Linton, C.A. - Senior Vice President, Finance and Chief Financial Officer

No, we didn't anticipate that we would be launching that device under any model this year.

Jeff Fan - UBS (Canada)

And, on the $150 million commitment, is there a set time for that? Is that just for 2008? Is that over the next 12 months since launch? Can you just give us some color on that?

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

Jeff, owing it's sensitive to our competitive piece of information, but it is more than one year.

Jeff Fan - UBS (Canada)

More than one year. Okay, great. Thanks.

Operator

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

Jonathan Allen - RBC Capital Markets

Thanks very much. Nadir, you'd mentioned some of the early success that you've had with the iPhone in the launch weekend. Few questions for you on that subject. One is, can you give us a sense... it's only been a few weeks, but the mix of existing customers that are just migrating or upgrading their devices compared to the mix of new customers that you are bringing in?

And second of all, Bill had mentioned that the higher COA and the potential for pushing down margins in the back half of the year. AT&T had provided some guidance on the margin dilution, or EPS dilution they were expecting from the launch. I was hoping that you could provide us a little bit of guidance on what you would expect that margin pressure to be in the back half?

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

I'll actually get Rob to turn in, but, a good question, it is very early. So, I don't want to suggest that we have anything that would give us a trend line.

Robert (Rob) Bruce - President, Rogers Wireless Inc.

Yes, I mean, I think, Jonathan again, as you know, we're bound by a lot of NDAs around, a lot of this stuff that is customary. This is probably the biggest subsidy on that device that we've ever had. The good news that goes along with that is we get a great ARPU, and our belief is very sticky customers that won't churn over time. So, the lifetime value is highly, highly attractive. Probably, as attractive as any device we've ever launched. The challenge is of course all the upfront costs are loaded when you make the initial activation. So, I think, you'll have to probably extrapolate from that. I am sorry, I'd like to give you more, but that's all I can.

Jonathan Allen - RBC Capital Markets

Perhaps, and on the question as far as the mix of new customers versus the existing customers upgrading?

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

Yes, it's just not something that we care to share at this point. In fact, it is probably too premature even if we were not tempted at the competitive answer.

Jonathan Allen - RBC Capital Markets

Okay. If you don't mind, I'll just switch to a different topic, since I wasn't getting too much there.

Bruce M. Mann - Investor Relations

Actually, operator we'll quite go on to the next question.

Jonathan Allen - RBC Capital Markets

Okay, thanks Bruce.

Operator

Okay. Next question comes from Glen Campbell of Merrill Lynch. Please proceed

Glen Campbell - Merrill Lynch

ARPU. Nadir, you had talked a little bit about some of the impacts on the voice ARPU in the second quarter. Could you give us a little bit more color, I mean is it lower, average, is that a bigger factor than the U.S. roaming, is it international roaming, is it inbound, outbound can you give us a bit of sense of why it slowed down.

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

I think I referred to it clearly on the usage based revenues on the voice side and U.S. roaming in particular was a contributor in terms of the flattening out of the ARPU curve in the voice. Some of the airtime in long distance were not as robust as we've had in the past, very high to go from one quarter but clearly, directionally we always talked about strength in the ARPU is going to be on the data side and voice will start flattening out whether it some of it reflects any softness, target rate, quick look at the U.S. numbers were you would argue they've had much more of an economic challenge would suggest that wireless side is pretty robust.

And so, when we look at our numbers that we think it's going to be strong going forward and are particularly bullish as Rob mentioned on the data side, and we have just been commercializing at 7.2 but a roll out at a HSPA network going and I think with the devices coming including air cards we should see continuous strength in ARPU on the data side.

Glen Campbell - Merrill Lynch

Okay. I mean I'm not sure you mentioned any change in your own pricing or any roll through say reductions you've given on air time rates to existing customer or anything like that. This is all essentially externally demand driven or is there a little piece of it that's re-pricing?

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

I'll get Rob to talk about voice in a second, and just on the data side, we had obviously announced new quite a revamp data pricing model and we should be running and that my view that is actually going to drive revenues and ARPU going forward.

So we think it... we will actually in many ways facilitate the adoption of mobile internet. So Glen, read we that as any factor that would contribute to lower ARPU. And Rob, can you talk about the quarter?

Robert (Rob) Bruce - President, Rogers Wireless Inc.

Come back and really say two things. One that Nadir touched on and that is we have been and continue to make significant investments on network, HSPA network, the fastest most reliable network in Canada and all of a sudden we are starting to get that wave of devices that come along with it. And I think the iPhone is one, the RIM Bold is another to all the air cards and in strips which I can cover and create a hockey stick in data revenue as we go forward.

In terms of us taking significant voice price increases that are contributing or not, we haven't been, I would say the changes in the pricing dynamics at Rogers in spite of the discounting zero dollar phones and other things that are occurring elsewhere have been kind of business as usual. We're focused on high valued customers, on PDAs and working hard against our key segments and not discounting where voice revenue.

Glen Campbell - Merrill Lynch

Okay, thanks.

Operator

Your next question comes from Bob Bek of CIBC World Markets. Please proceed.

Bob Bek - CIBC World Markets

Thanks, good morning. Just switch gears to cable perhaps for Edward. Can you talk a bit about the... what seems to be the slowing subscriber growth for some of these products?

Clearly, we've seen the internet start to slow down as penetration has bumped up, but the problem these been a bit late as well, how much of this is the economy? How much do you think is just penetration levels starting to push at limits? Thanks.

Edward S. Rogers - President, Rogers Cable Inc.

Thank you. I'll go through again one of the issues that touched each product are fairly similar. First, international that we think there are some things going quite well and some things that we need to do better.

In terms of the going well, I think one of the things we've done a poor job in the cable business is associating that all customers are the same and all revenue generating users are the same. And so we've done... we tried to concentrate on getting a higher value customer both in terms of average rev per unit and in multiple or a customer buying multiple products at the same time.

And those numbers are generally going quite well for us. I think you see that in some of the financials including efficiency in the operational costs.

As was pointed out earlier, one of the things that we did see was we probably went a little bit heavy on multi-product, which didn't help the overall gross adds and so we are going to see that mix in the back half of the year.

Now secondly, Bell is definitely fighting harder and I think that's been a something that they've been continuing to do over the last few quarters. We've been a little bit, I'd say slow of always match all the offers. And we're stepping up and being a bit more aggressive there. And we're also going to step up, and be a bit more aggressive in pointing out the differences in some of the products. Because we think our television and our high speed data platforms are a much stronger choice, and you'll see more of that messaging such as Rogers Wireless has done a great job last two quarters.

We are not pushing as hard out of territory, and that's reflected in some of the numbers. We do our rate increases in March, and we align it for all products, and are probably '08 was the biggest year for rate increases at Rogers Cable, including $1.45 on home phone subs [ph]. So, that probably didn't help sales in the quarter, I'll call it.

In terms of the internet, I think, the internet are moving, we've been watching for the last seven years in terms of how fast would that go, or how high would that go, but when you look at percentage of homes passed by cable, or high speed data, we think there actually is some room left to go, which... and some strong room left to go, but, it's hard to go out too many quarters and too many years.

On the economy side, I think generally, on Cable, we tend to see that more in ARPU, in terms of people not buying as many features and as many channels, a bit harder to tell what is, if you don't get a sale, where it's from. But, it's something we are again we're focused on and looking at.

And, in terms of the higher... one of the things we also are going to change a bit is, when I talked about higher ARPU you tend to have the packages and offers that are more attractive to remain at higher average revenue customers. Probably, we haven't focused enough on the mid and some of the lowers. So, we hope to do a better job there as well.

But, as I was... again mentioned on the call, I think, we've got some good plans for the back half of the year, and we're focused on making sure that comes through.

Bob Bek - CIBC World Markets

Thanks very much.

Operator

Your next question comes from Scott Mallet of Goldman Sachs. Please proceed.

Scott Mallet - Goldman, Sachs & Co.

Thank you. Just go back to wireless for a SEC, maybe, can you talk a little bit about COA was up 14% in the quarter. I just want to understand the increase, maybe, it's just a factor of lower than expected gross additions ahead of the iPhone and --

Robert (Rob) Bruce - President, Rogers Wireless Inc.

Yes, Scott. You're spot on. If you actually took our absolute COA dollars and divided by last year's subscribers, we'd only be up about $8 year-over-year. So, really, the absolute increase was small, it was really just a function of the smaller denominator. And, I think as I said earlier on the call, with iPhone looming with a 46 share last year and really, really strong growth, we weren't about to chase a whole bunch of zero dollar loads to pump up the denominator of that equation at the end of the quarter, so--

Scott Mallet - Goldman, Sachs & Co.

And just along with that, you talked about the iPhone, but maybe a little bit about the Bold, it sounds like, this is going to be available mid-August. Can you maybe talk about potential impacts of that, and I'd assume that as a higher subsidy level as well, that's right?

Robert (Rob) Bruce - President, Rogers Wireless Inc.

At this point, I can't confirm a launch date. We don't generally announce things in advance, or a specific subsidy. But, what I can tell you, it is too a fantastic device. The kind of device that's going to make people want to use more data, the screen resolution, the packaging of the device are fantastic, and we think our customers, both existing and new customers are going to be very excited about the device. It's also an HSPA device, so it has the speed and it leverages the great network that we've build. So, excited about the potential of the RIM Bold.

Bruce M. Mann - Investor Relations

Operator, next question.

Operator

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

Rob Goff - Haywood Securities

Thanks very much. You had noted the increased competitive activity. Could you give us a bit more perspective there in terms of it, is it COA based, pricing based, or is it brand based with respect to koodo?

Robert (Rob) Bruce - President, Rogers Wireless Inc.

Well, I guess, there is a, no question in the last quarter. We saw a re-launch of Virgin postpaid, with lots of activity there. Heavy launch weights and launch promotions around koodo. Again, focused at the very low-end and credit challenged end of the market, an area of the market where we haven't seen it being a really desirable place to collect. The other thing that I didn't mention is the quarter really slowed down when we announced the iPhone. It's what somebody slammed on the brakes; we just noticed a real marked decrease in demand, almost consistent with the day that we actually made the announcement. So, I think that was a very big factor.

You'll also remember a year ago we were at the height of our LNP [ph] success, and we had a very successful launch of LNP. And we had about 46 share, which frankly our perspective would be is an atypically high shares when we are looking year-over-year, I think it makes this year look a little bit smaller than it really is with that important context in mind.

Rob Goff - Haywood Securities

Thank you

Robert (Rob) Bruce - President, Rogers Wireless Inc.

Okay.

Operator

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

James Breen - Thomas Weisel Partners

Thanks. You sort of just answered part of my question about the potential impact or the impact from the iPhone this quarter post the announcement. Can you just also to talk about any impact that you may have had in ARPU this quarter because if some of these higher ARPU customers didn't want to transition over until you got the iPhone, did that potentially have an impact? And then also with respect to the types of customers you signed up, can you just give a little color on the contract lines in this overall quality of customer and the net adds this quarter? Thanks.

Robert (Rob) Bruce - President, Rogers Wireless Inc.

Hi. Yes, so I'll come back and just ask you to explain the first part a little bit more for I am not sure I understood the question. But in terms of intake of customers in quarter were in the 90s on contracts, three years being in the predominant amount of about 95% up and 90% plus people on contracts are on three years. I'm just giving a kind of approximate numbers, but they are probably good within 1% or 2%. So very, very high quality intake, we are pleased with the intake of our subscribers.

Much higher percentage of our loads coming on voice and data devices and that's the trend that we see going forward and much, much higher mix of voice and data devices. Which along with that will drive a higher COA, but it will be very positive because the life time value will be great of these customers.

You want to come back and just try that first part of the question, tell me again, I'm not sure I understood it.

James Breen - Thomas Weisel Partners

Basically trying to get our hands around the impact that the iPhone announcement had on your net adds this quarter. You said that it seemed as though someone put the brakes on when you announced the launch date. How far below your sort of normal average daily sale in terms of net adds did it drop post the announcement?

Robert (Rob) Bruce - President, Rogers Wireless Inc.

Yes that would be really hard to say, because to really get a true picture of your intake of new launch, you really need watch from for about 90 to 120 days, because there is always an initial honeymoon period with an inflated usage over the first couple of months.

So it will be pretty tough for me to comment right now on what the quality or whether there was any change in quality. Nothing that we saw though that would suggest that the back half of the quarter had a lower quality group of loads.

I can tell you that, we expected the loads going forward will be very, very high quality and very high ARPU and a much higher mix of PDAs and we think that's going to have a very positive effect on our data growth going forward.

James Breen - Thomas Weisel Partners

Great. Just for reference, what was the date that you guys started seeing that slow down, date of the announcement?

Robert (Rob) Bruce - President, Rogers Wireless Inc.

I think we announced at our annual general meeting, I don't remember the precise date. But--

Unidentified Company Representative

End of April.

Robert (Rob) Bruce - President, Rogers Wireless Inc.

End of April and it became evident nearly within a week.

James Breen - Thomas Weisel Partners

Great. Thank you.

Operator

Your next question comes from Vince Valentini of TD Newcrest. Please proceed.

Vince Valentini - TD Newcrest

Thanks very much. I want to try to understand your stance on your guidance a little bit better. You did on a consolidated basis 19% EBITDA growth in the first half of the year. If you just trend in that for the full year, you'd do just about $4.4 billion of EBITDA. But you are keeping your guidance of 4.0 to 4.2. Are you trying to tell us that the entire delta there of potentially $300 million to the mid point is because of higher COA on the iPhone? It seems a little crazy given you only have $150 million commitment in total to buy the phones?

William W. Linton, C.A. - Senior Vice President, Finance and Chief Financial Officer

Thanks for that question Vince. As you know over the last number of years, the company has been relatively conservative in its guidance and certainly in changing its guidance.

We did not want to make a projection on how many iPhones or Bulls we were going to sell in the second half, they are great products. But we would just be guessing and we can not do that with guidance because then you're in a constant change, every single quarter.

So in this case what we've simply done is we've assumed that there will be a great degree of offset between how wireless is doing and the impact of the subsidies on these phones.

After the next quarter, we'll have three months worth of sales and we'll be able to comment further. But this is very consistent with how we have done guidance over the last number of years.

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

And Vince this probably goes without saying, but $150 million is just a minimum commitment that we are required to disclose for accounting purpose, it's not the maximum we could spend depending on the degree of success that we might see over the coming remaining five months of the year at this point. As well we've as Bill mentioned earlier, we got the Part II fees which in fact have started accruing in with the second quarter which will continue to see most likely for the last couple quarters in the year.

And we've got softening economy in Ontario which is where frankly the critical mass of our cable businesses and a large part of our media businesses and our biggest wireless market. And if you take all those things together, and I think we're probably as Bill said, being our usual selves and leaving our guidance where it is for the moment.

Vince Valentini - TD Newcrest

okay. Thanks.

Operator

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

Simon Flannery - Morgan Stanley

Thank you. Good morning. I think it was Nadir who said that the... you did the million share buyback in the quarter and I think your phrase was the data points not insignificant. Perhaps you can just talk about return of cash to shareholders and how you are thinking of buybacks versus dividends particularly in context of this year of the cash required for the spectrum and to what extent that sort of, you want to delever and maybe Bill, talk about target leverage and how you plan to sort of finance longer term the spectrum versus giving the cash back to shareholders? Thanks.

William W. Linton, C.A. - Senior Vice President, Finance and Chief Financial Officer

Okay Simon, number one it's not insignificant because this is the first time we've done it. And I think it's like our dividend policy, it shows that the company is interested in returning money to shareholders where it has excess cash.

Obviously, the most important thing we have to do over the next short period of time is to think about terming out some of the debt that we have, and that's market dependent and now that we're investment grade, we will be going to the market as an investment grade company which is new for us.

So you can do the calculations, we'll have a couple of billion dollars of $2.9 billion line drawn after we pay for the auction.

So the number one priority is probably going to look at some different terms for that. After that, we are now going to continue to look at all of our options. The first priority as you know is investing in our business and where possible the small tuck-in acquisitions.

After that we've established that dividends are preferable, but we will do buybacks if they are very opportunistic. So I think there is more inflow to come in the future on those topics.

Simon Flannery - Morgan Stanley

Okay. Thank you very much.

Operator

We have time for one more question and it is from Tim Casey of BMO Capital Markets. Please proceed.

Tim Casey - BMO Capital Markets

Thanks. I am wondering if you could provide a little more color on what you saw on the quarter and what you expect for the back half of the year on your cable voice product. Your growth seemed to slow there. In the context of the other statements you've made regarding cable subscriber metrics, how should we approach the dynamics in cable and voice?

Edward S. Rogers - President, Rogers Cable Inc.

Well, I will take that one. I think lot of the issues that are raised, obviously, apply to home phone voice. I think we gave guidance on the revenue generating unit basis. But, I think there's a lot of growth left there. We did a... we added about 45 on SAF [ph] this quarter, and really gives a lot of... companies doing that now. I think, we believe it's going to a competitive business, and if the ARPUs couple of bucks more, a couple bucks less, it still will be.

But, I think with our bundling efforts, with the targeted marketing we're going to do, the second half is always a much stronger time of year for Rogers Cable and most cable companies. I think, we can continue to tick up our penetration.

Tim Casey - BMO Capital Markets

Is this an area where you're seeing more competition from Bell, you mentioned they step up... stepped up. Is this scenario where you're seeing them?

Edward S. Rogers - President, Rogers Cable Inc.

Yes, definitely I mean, since they got some of the regulations taken off for them. They fought harder, as I say home phones, is... today television, a high speed internet and wireless, I think it's easier for us to point out our differences, and why Rogers has a better product for customers. And we're building... we're spending some money to try to do that for home phone over time. And, glue some of those products to better stick as one. But, we got some work to do there. But, as I say, I think, we're going to have a much stronger second half than we've had the first half for Rogers Home Phone.

Tim Casey - BMO Capital Markets

Thank you.

Bruce M. Mann - Investor Relations

Great. We wanted to say thank you to everybody for participating this morning on our quarterly call. We appreciate your interest, and your support. If you do have questions, I understand from the operator we had a couple of people left in the queue. If you do have questions that weren't answered on the call, please give Dan Coombes or myself a call, and we'll be around all day. Our contact information's on the earnings release. So, feel free to give us a shout. This concludes today's call. Thank you again for participating.

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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Source: Rogers Communications, Inc. Q2 2008 Earnings Call
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