Rogers Communications Inc. (RCIB) Earnings Call Transcript & Summary

Welcome Rogers back to the conference. So with us, we have CEO of Rogers, Tony Staffieri; and the CFO, Glenn Brandt. Thank you so much for making the trip down. I really appreciate your attendance.

Thanks for having us, Matt.

Thank you.

Thank you. Right. I wanted to start with the wireless business. If I could, it seems the right one to start with, given where we are with back-to-school and what's been happening over the past, I mean, 18 months or so with pricing. So maybe just like focusing on pricing first. It seems like really, if you look back over the past 18 to 24 months, we experienced a real step down in the pricing environment in Canada. And since then, it's been a huge topic, but it hasn't really -- I don't think, from my perspective, changed all that much over that time despite some ups and downs along the way. But we've been living with like the repricing of customers who joined a plan at a higher level. So we get some repricing of the back book. Where are we in that journey? Is it nearing the end? Are you past the halfway point? Just to give a sense of if ARPU weakness can start to migrate higher in the kind of foreseeable future?

Yes, Matt, when you talk about repricing of the back book, you're really getting at how do we feel about the revenue outlook and the revenue profile? And is there a risk for the last long while, we've been posting leading service revenue growth on the wireless side. And as we look to our outlook, we continue to see opportunity for continued growth. And so at a very high level, we'll continue to balance loading and market share with ARPU. So that -- from a general standpoint, that's how we see our wireless business continuing to grow. And I know it sounds very general. But underneath that, what I would say is you're seeing good green shoots in the marketplace in terms of competitive dynamic. And I'll come back to sort of the back-to-school. But if you were to look at, we implemented new price plans that we thought were pretty robust, and we changed the value proposition in terms of good, better, best and moved away from data bucket sizes to other differentiating factors, and you'll continue to see more. And what we saw was the market follow that type of construct -- seeing more on out of line. In Canada, generally, we're underpenetrated in terms of lines per account. And so we saw an opportunity to, frankly, follow the U.S. lead in terms of increasing that penetration and share of the customer wallet. It's been several months since we've launched that, and we're having good success with that. So -- and then the last piece is roaming that's been impacted not just by the level of travel to the U.S., for example, but also the substitution of eSIMs and things like that. And so we've come up with new value proposition and constructs for roaming, and those are resonating in the marketplace. So those are all the things we're sort of focused on to continue to drive penetration, drive ARPU. And it's been playing out well in the marketplace. As we headed into back-to-school, we were very clear at the outset. We launched some promotions -- and I would say they were mild promotions relative to the prior year. And we made it clear, those were our promotions and back-to-school pricing on for a limited time. And what we saw was, I would say, in the marketplace, generally all of us being in line. There were, I would say, a few promotions here and there, some we match, some we didn't. But overall, we had a back-to-school season that was much more price disciplined than we would have saw in the past 2 years, for example. And so we see that as a pretty good barometer for how things might play out in the rest of the year.

Yes. Well, that's encouraging. Just to pick up on -- you were mentioning the out of line because I think -- more recently, we've seen at the lower end of the price plan continuum, some step-ups in price across the market, which is a good tailwind, kind of indicative of a general positive direction for ARPU at the margin. But at the same time, the add a line creates a discount for the additional lines. And it's more generous than it was -- the discount you can get is more generous than it was a year ago. So on balance, this may be very accretive for service revenue, which is obviously very important. The market also follows ARPU. How should people where should people set their expectations for how that balances out with the consumer like buying behavior? Do they offset? Is one more heavily weighted than the other? It'd just be interesting to get some color.

The way we think about it is we've always been focused on the Rogers premium brand. And while competitors like Freedom focused in the $35 to $40 price point, our sense was and the strategy proved out that if we stay focused on Rogers, that's what you get 5G on and now 5G plus and leave the flankers at 4G. We then pivoted and used our prepaid brand chatr more effectively in the $35 price point. And so most of those were single lines, and they were not the majority of the market. And so by going to and focusing on add a line, the actual pricing you get will depend on -- you have to come in on a Rogers premium price plan. And so when we look at the blended ARPU, we see it as accretive and a much better competitive tool in the $35 to $45 space. What we do know is most of the lines that are being sold in the marketplace are largely third and fourth lines, students or second handset, et cetera. And so it made a lot of sense for us in terms of not only the benefit of revenue, the incremental revenue, but the churn characteristics as well. Again, not unlike you have seen play out in the U.S. And so that's the model we're following.

Okay. And so yes, you've basically consolidating your -- those customers under the main brand, lowering the churn and maybe having a path to upselling them kind of in the future potentially.

And the other piece of it for us is consolidating the account is the bundle, given our position as wireless and cable home products provider, that's an opportunity for us to, again, to continue to solidify the customer relationship. And so you see not only the add a line construct, but you see us a bundling construct in terms of trying to create a value proposition that encourages customers to bundle all of it together, and it's resonating in the marketplace for us.

Yes. And so bundling is a real theme that we're hearing increasingly in the states a lot today, a lot of focus on like the churn benefits. We hear quantifications of it from others, mostly in the states where like this bundling is somewhat new. It's not new for you guys. You've been offering kind of wireless and wireline and the large parts of your footprint for a long time. But is there like -- like is there any -- can you frame it in any way for us about the benefits that you're seeing from bundling, whether it's new for you at West or whether it's just a continuation of things in the East? Is there any framework you can put around it?

Yes. If we were to look at sort of the profile of it, I would say it's largely -- the first instance of bundling is -- has really been about a bundled discount. But the next phase is really going to be about convergence and seamless 5G to in-home WiFi and that experience. And as frankly, you see more and more of the bundling happening in the U.S. than you see players bringing scale to the converged technology. CableLabs, for example, is now very focused on this, traditionally more of a wireline play, but their big initiatives now really center around convergence. And that's why we've sort of repivoted back into CableLabs because it's a very significant R&D tool for us in the industry that's focused on that. And so what we do see playing out and the West is a great example after coming together with Shaw, we then approach the market with one brand on a converged basis. Alberta and BC are our fastest-growing provinces in both wireless and wireline. And so we like what we see there. And it's a great proof point on what was already happening in the East for us, given we had both wireless and wireline. Having said that, we still only cover about 60% of the homes with our cable wireline footprint. And the other 40% is a big opportunity for us and namely Quebec and certain parts of Southwest Ontario. And for that, we've entered the market with our fixed wireless access product. So we're really pleased as a result of some of the technology to streamline capacity and not weigh down capacity for the cell phone users. We've had good success with that. And on that product, it started off as just Internet. We launched it just over a year ago, but it allows us to address on a bundled basis, another almost 7 million homes passed -- so it's a good market opportunity for us. We like what we're seeing. We continue to evolve the product. So it now also carries the Xfinity suite of products, including video on FWA.

Maybe just I'll pivot to the fixed wireless access because you bring it up. Is there -- like what is your aspiration for that business? So obviously, it addresses the kind of 40% of homes that you don't cover, but it can address -- and maybe you can address 10% of those homes or something like a small single-digit, low double-digit type of number. What is the -- are there any kind of benchmarks like in the near term where you want to reach a certain number of homes that you're selling to? Or how much of a contributor is it to the net adds that you report on a quarterly basis? Is there any kind of metrics you can put to it?

We think about it this way. We sell it nationally and the -- and it does sell nationally and does well nationally because there are use cases where the customer wants something that's mobile. But the second piece is just the ease of setup. And so it's not dissimilar to the success you've seen T-Mobile have with it, and it's the same product. And the slight difference, and it's an important one, given our wireline footprint, we priced it at market with wireline. And so we're not looking to buy share in using fixed wireless access, but rather it's an alternative. And now in cases of Quebec, there's a bit more in terms of promotional pricing, just given that marketplace, and we're not cannibalizing our own wireline footprint. But I would say -- we're being very careful in how it rolls out. We just recently increased the speeds and now we're increasing the number of tiers you can buy, much like you see here in the U.S. And so it is increasingly becoming more and more material to our net add positions in Internet. And you see that in the market share gains we've been making, and that's across the country.

Okay. And is it -- in the states, it's always a follow like capacity model. And if ever the use comes up that you need it for the wireless network, you can obviously just direct churn, not replace it with net adds. I mean is that the same type of model that you're looking at for the capacity you have in Canada, where it's like there's places where you have a lot of excess capacity. You'll fill it up in the meantime with this. But when wireless is required, when the wireless network requires that capacity, it will be used for the wireless subscribers? Or do you think it's a sustainable business that is being built on the fixed wireless side?

No, we see it as sustainable. One of the evolutions, and I refer to it is as really network slicing. And that allows us to create dedicated lanes so that the fixed wireless access users stay on a lane and not impact the cell phone users, for example, which was a problem here in the U.S. for some of the market participants that launched fixed wireless access. So it's a little different. The second is we talk about launching it in where we don't have a wireline footprint. The other piece besides Quebec is rural. And rural has just much less traffic just because of the population density. And so it's become a very cost-effective alternative to providing much better coverage in rural areas within the country. So we continue to see it having good demand and not straining our network in any way.

Good. And maybe just one other one like on the kind of these additional products that you guys can offer is the kind of the LEO direct-to-device service which I think it's Starlink is the one you're using right now to offer it, but you have -- I think it's Lynk Global as another partner. What can you tell us about your expectations for how much demand there is in the base to sign up for a plan? And it'd be interesting to learn how like the revenue sharing with the partner would work? Is it basically a 50-50 split? Or is it's more skewed in your favor? Just if you can share anything along those lines, it would be interesting to learn.

Yes. So for the group, a little over a month ago, we launched our satellite to mobile service. It is on Starlink. We do have agreements with Lynk Global and Telesat, but they're much further behind in terms of technology and satellite deployment. So we launched the product, again, not dissimilar to how it was deployed here by T-Mobile in beta mode. And the demand has been very good in terms of customers trying it. We took the approach that we're offering it to all Canadians. It doesn't matter who your provider is. And the thinking there was make it available during the beta period. And once it ends in -- at the end of October, then the product is $15 a month, unless you're on our ultimate plan, in which case, we're going to have it included as part of the plan. So that's sort of the pricing construct. One of the things in Canada, if you look at -- given we are heavily resource-based, there are a lot of forestry, mining and different industry applications, including IoT that really benefit from the satellite service. If you were to take all the cell phone operators and put all the networks together, it covers about 18% of the land mass. Now that's where most of the population is. But for some of these applications that I just mentioned, there is no coverage today. And so all of a sudden, we're going to -- what we're able to do is increase our coverage by 3x any other operator. And so the competitive advantage is clear and the consumer and business demand for the product seems to be there. Ultimately, we see how it works through. In terms of our economic construct with Starlink, we're not disclosing it. It's not a revenue share model, but think about it as buying a service. And it's something that we see will be incremental margin to us. Maybe I'll summarize it that way.

Okay. I mean it sounds like -- and maybe you can't say, but it sounds like maybe you're buying capacity and then you're -- for what you think you can sell and maybe it works more along these lines.

I'd put it more in terms of we have the capacity with the spectrum we have. We've -- this supplements, particularly in the rural areas, if you think of where the satellite coverage is added and the IoT aspect of it, we are on virtually every road now in Canada covered in 4G SIM with the satellite coverage. That's extremely important for enterprise business applications. The added benefit we have is we can now bundle in areas where we weren't otherwise able to bundle wireline service. It becomes a very convenient offering that can work in urban areas. Those urban areas benefit from the network slicing. We have the capacity to do that with 5G in the rural areas. We have the capacity already to carry that traffic because they're underused cell towers. We've got the largest portfolio of wireless spectrum amongst any of the competitors in Canada. This just allows us to make use of that spectrum for an additional service. We've got the capacity already.

You mentioned just spectrum. Like I think the government has a residual auction coming up, which is kind of left over bits from previous auctions, often in the far north, some of it in the southern area where lives. Do you see any opportunity in that upcoming auction to pick up anything that's meaningful? Or is it...

There will be small pockets where there might be opportunities where the value makes sense for the holdings. We don't have any areas where we are underserved on spectrum, but spectrum lasts decades. And so if there's an opportunity where the value makes sense, we'll approach it as we do every auction. We'll look at it and where the value makes sense in those areas, we'll buy. That one is -- I expect it to be a little bit less expensive than some of the other options we've seen in terms of just what's available.

Yes. So maybe switching to cable. I think the -- unlike a lot of the cable operators in the states, like you guys are set up with your -- you have a wireless product that you own to bundle with it. You're a fixed wireless provider. You don't compete against it necessarily. So you're in a very strong competitive position. But the goal it seems for cable is sort of stable to slightly growing revenue, EBITDA margin growth that kind of exceeds revenue growth. Can you maybe talk about how the growth in Internet is maybe offsetting some of the pressures you're getting from like satellite, legacy video, home phone and how that might -- how the trajectory on those might be changing more in favor of those shrinking assets becoming less meaningful detractors from growth and maybe Internet becoming a bigger contributor to growth and how that's playing out?

Yes. Maybe I'll start. When we came together with Shaw, we had a cable business, the top line was declining 4% year-on-year. And so job one for us was to get that business back to growth, organic growth. And so the focus -- our playbook on it was very simple in terms of making sure we had the best Internet. And we invested in mid-split. Shaw had already done that. We're doing it in the East. And so consistently with proof points from the -- like Ooma and other third-party rating agencies as the best Internet and capitalize on our ubiquitous 1.5 gig speeds. And in certain places where we have fiber, then we go higher and as much as 4 gigs that we're trialing in certain parts of Alberta, so that was one, was to have the best Internet while at the same time, driving price discipline in Internet pricing, East and Western Canada. The second piece was to launch the Rogers Xfinity, which is the Comcast product, and it's the next wave of it, including OS. And a number of products, including self-protect storm-ready backup internet, which switches to the wireless network if there's a line break. And so that was the second piece of it. And then the third was to really leverage our competitive advantage in terms of channel distributions. It's been very effective. Our outlets have been extremely effective in producing the wireless results that you see. And so what we did is leverage that same channel going back to the bundling in terms of the home services. And so that's been another success for us. So those are some of the basic building blocks. Included in there as well in our cable revenue is the business side of it. And so that's an area we were underpenetrated, largely because we didn't have enough scale of a national footprint. But post Shaw, there was a whole market that opened up to us in terms of solutions that we could offer that were all in-house. And so we're seeing very strong growth in our business segment. So those are the growth areas. And then I talked about FWA in some of the new territories we didn't otherwise serve. So those are the growth pieces to it. And they've been offsetting video losses and which have been stemming a bit of late as we repackaged some of our linear, more focused, again, not unlike what you see in the U.S., more focused on streaming services. It's early days in the marketplace, but seems to be resonating. And the other is satellite TV, which we acquired from Shaw. That has top line decline and more and more of those customers, we're going to them with an option like FWA and video over FWA is the better solution. And so those are the 2 headwinds that we continue to overcome. And as both of those migrate to what I would call the new video platforms and the new Internet technologies, we continue to see good opportunity for top line growth in the cable business. And then the second piece relates to margins. And when we came together with Shaw, we had margins combined to 50%. Today, we're up to 58%, 59% margins, and we continue to look for efficiencies in that. The next big wave for us that we have been working on is more and more buying content direct from studios. And that's been -- earlier in the year, you would have seen our Warner Bros. deal and some others. And that's been very instrumental in continuing to bring down content costs. And then the last opportunity is capital, which I'll let Glenn speak to, but we see a real opportunity to continue to improve efficiency in CI in the cable business to increase the cash flow there.

I think picking up on that, we've signaled coming out of the second quarter that we'll be at the low end of guidance. I do expect that we will invest at the very low end of guidance on our capital spend this year. There will be some ingestion with the MLSE acquisition through the second half. We're looking to see about including that in that window. So work still to do there, but we're making good progress. I think going forward, you'll see us -- we're largely through the heaviest lifting on the platform work from coming together with Shaw. That integration is largely complete. We're now -- it's more long-term planning and prep for our business platforms for the coming years and decades rather than trying to bolt everything together. We went through the ERP exercise. That's now complete. And so as we complete that, as we look to, frankly, alternative technologies like satellite to help us with covering larger land mass, that lightens up some of the capital investment we need to make to reach critical areas, whether it's with IoT or whether it's with -- as we add more services on that satellite backup where the economics just don't carry. And so going forward, I expect you're going to see our capital intensity decline for both wireless and wireline. I'm not going to start guiding for '26 or beyond. But we're just starting at that when I signaled $3.8 billion for capital spend this year. There will be more progress we make through the coming years.

Okay. So we're looking perhaps at a trajectory kind of gliding lower…

Smooth glide, but yes, you'll see a gradual smooth trajectory to lower intensity. Some of it coming from revenue growth, much of it coming from just reduced need to invest.

Great. So maybe moving to sports, which I think is...

Topical.

Very topical. And it has been for a long time really. I mean sports, it's not like a new topic, but it used to pop up occasionally. And now it's like it's -- you're acting on a certain path. And I think everyone is interested in knowing kind of what the endpoint is, which I know we don't know yet, and we won't know today. But -- so I'm just curious on kind of like the steps to start off with. You obviously have -- you're buying increased stakes in MLSC, and then you're mindful of leverage. And so this is all in conjunction with a path to surface value in very valuable assets. And so is the next step, is it buying like the remaining 25% stake, which will, I think, have to coincide with an injection of maybe some private capital to keep leverage low? Or how can this evolve as we move towards whatever that end state is, so in the near term?

Do you want me to start? Do you want to start on the overall strategy?

Yes. Why don't I -- in terms of the overall strategy, we've had, as you pointed out, ownership in sports and entertainment assets for a long time. We started in radio. And so what we saw was an opportunity to consolidate the MLSE assets and first and foremost, drive synergy upside in terms of revenue, EBITDA and cash flows. And we see significant opportunities there. That work is already underway, and we like what we see in terms of that. And so once we buy out the minority stake, and we've made clear that we intend to, we have the option to by next summer, and we'll finalize the consolidation. Glenn will talk to sort of the steps to pay for it, frankly, and how we see that evolving. But the end game is clear in terms of maximize that value and then surface that value for Rogers shareholders. And we have some options on how we do that. And we haven't committed to any one of the options, and we'll continue to look at them. In other forms, we've talked about what those options could be. But we'll continue to look at them and make the right choice at the right time that's going to maximize value.

I think picking up on that and turning to leverage, critical through all of this has been our progress in integrating Shaw and working leverage down with that transaction. And so through both EBITDA growth, application of free cash flow as well as just growing EBITDA and working through hitting our milestones with the credit rating agencies is critical and that was hitting 3.5x at midyear. We reported just shy of 3.6x. And then with a couple of transactions, we're actually before I get to the Bell acquisition, acquiring the Bell stake in MLSE, we had 2 transactions that actually would have brought us down to inside 3.5x. One was a bond tender that generated about $300 million of benefit from buying back bonds that were trading below par, long-dated bonds that we no longer needed in our capital structure as a result of closing the Blackstone-led financing in late June. That created a $300 million lift and then announcing the sale of our data centers. Those 2 elements will combine to lower our leverage by a further $500 million roughly. And so that was critical for the credit rating agencies that we got to 3.5x at midyear. We've now invested $4.7 billion to buy out the Bell stake in MLSE. We now own 75% of MLSE. That includes the lease, the Raptors Scotiabank Arena, Toronto Football Club as well as the Toronto CFL franchise, the Argonauts. We own 100% of Rogers Center and 100% of the Toronto Blue Jays. There is no other collection of sports and entertainment assets and holdings that I'm aware of globally that consolidates, combines and concentrates all of those holdings in one entity. It's a tremendously attractive property. I know that when I talk with prospective investors, how interested they are. The value of those holdings today, just our 75% interest in MLSE combined with the Jays and Rogers Center, we estimate is worth somewhere in the range of CAD 15 billion. That's along with Sportsnet and our media holdings. But the lion's share of that, obviously, is the sports properties. Unlevered, the cash in MLSE offsets -- more than offsets the debt that's in MLSE. So it's all completely unlevered, $15 billion in assets that right now are not reflected in the share price. That's the exercise of monetizing that value. For the credit rating agencies, getting to that 3.5x, we started at 5.3x when we levered to acquire Shaw. And in the course of just over 2 years, 1 quarter longer than 2 years, we got that down by almost 2 full turns to 3.5x. That was key for the agencies. They now will allow us time to ingest the minority interest in MLSE, properly capitalize it. And as Tony said, we'll find the right format for that working with prospective investors, and that will come in the coming months. We don't have to do anything in the next few months. We don't have to do anything in year in '25. We can figure out buying out the minority stake first and either do it all coincident with that or shortly on the heels of that. And we'll work with prospective investors to come to the right answer. So we have time.

So it sounds like you have the flexibility to acquire 100% [indiscernible] and then figure out the best way to monetize it post that or if the best way if you...

[ Do it at the same time. ] And I mean, there's a number of different possibilities. We could do it as a public entity. We could keep it private. There's pros and cons for both. And we will lead with our strategic preferences, but also allow the market to determine how best to structure that.

Because it seems -- so in my view for what it's worth, the simplest path, which maybe isn't always the best is you realize -- you can realize the value by divesting when you own 100% stake to the highest bidder who wants this -- what is -- I think everyone would agree is a fantastic collection of assets. Unless there's a strategic plan to maybe leverage this to benefit your existing wireless and cable business, which really hasn't been kind of fleshed out a lot. So I mean, is there -- is that what you're weighing is the kind of the obvious ease of monetizing it today versus the potential long-term benefits that you could gain some sort of advantage in your core businesses through this ownership, whether it be 80%, 40%, some -- maybe not 100%. Is that what you're weighing? Or is there other factors?

I think at a very high level in terms of strategy, I'd summarize it as we look at each of our assets as a pillar of growth. Wireless has to grow on its own. Cable has to grow on its own. And we're already in this business, and we see opportunity for sports and entertainment. We talked about sports. There's a big concert business that has material cash flows associated with it. And so we see this as an opportunity for growth. And so what Glenn talked about is how do we finance that? And then the second piece is the surfacing of value. But we absolutely -- part of what we see is when we think about synergies is how do we utilize each one of our 3 assets to help each other. And in the case of sports and entertainment, I'd summarize it this way. If you look at Cable & Wireless, we have a relationship with about 40% of Canadians. When you include sports and entertainment, concert specifically and subscriptions to Sportsnet, Sportsnet+, all of a sudden, we have relationships with 80% to 85% of the Canadian population. And so we'll have the ability to -- because all ticketing is electronic, we have the ability to know that Matt is a big leap fan. Matt has a phone with a competitor that's about 3 years old. Matt, I love to talk to you. And maybe we can do something for you in terms of access to your favorite event, your favorite sport in exchange for becoming a Rogers customer. So that's how we think about. If we execute this properly and are able to do it at scale with the use of AI technology that we're incorporating, then we think there are big opportunities for synergy plays. And I just use that one as a simple example. It's not the only reason to justify keeping an asset. But if we can continue to grow it, it provides synergy benefits to our other businesses and it's surfacing value for the shareholders, then we see that as a good path.

Okay. Maybe I'll just ask if there's any questions in the room, if anybody has one at this point. Otherwise, I'll just keep going. So maybe just to round it off here. The synergies -- is that -- are there -- have you -- are you sharing any kind of near-term expectations for what the synergies might be from -- because you've already started working on them. Is this kind of baked into the guide? Or is this some upside that maybe will be talked about on the 2026 guide?

There's more upside than what we've signaled so far. We said if we had owned MLSE from the start of the year, the combined RSM, MLSE, EBITDA would have been somewhere in the range of $0.25 billion. That's without running full synergies because we don't own 100% of MLSE. And so -- and part of the signaling for that is because we bought it in the second half of the year, you're not going to see that in the reported 2025 numbers. You will see it in '26. But depending upon when we buy out the minority stakeholder, there's a more substantial opportunity to run both revenue and cost synergies across those entities. When you've got an operation that is not fully controlled by any one person, there's just a different emphasis on operations and cost and investment than there is when a single party controls it. We've shown our ability to drive synergies and both revenue growth as well as cost containment with the Shaw transaction. We are absolutely laser-focused on that with MLSC. It is a property that will generate substantial EBITDA, substantial free cash flow, immediately accretive to prospective investors. I sound like I'm running a commercial, but it really is a unique opportunity in sports and entertainment.

Yes. That's’ all. That's probably a good place to leave it. Tony, Glenn, thank you again for joining us.

Thank you.

That was great.

Thank you again.

Thank you. Thanks for your time.