Rogers Communications Inc. (

RCI

)

Q1 2011 Earnings Call

April 26, 2011 5:00 PM ET

Executives

Bruce Mann – IR

Nadir Mohamed – President and CEO

Bill Linton – EVP, Finance and CFO

Robert Bruce – President, Communications

Robert Berner – EVP and Chief Technology Officer

Analysts

Jeffrey Fan – Scotia Capital

Phillip Huang – UBS Securities

Maher Yaghi – Desjardins Securities

Simon Flannery – Morgan Stanley

Bob Bek – CIBC

Greg MacDonald – Macquarie Capital

Jonathan Allen – RBC Capital Markets

Vince Valentini – TD Securities

Glen Campbell – Merrill Lynch

TheStreet Recommends

Colin Moore – Credit Suisse

Presentation

Operator

I will now turn the call over to Bruce Mann from the Rogers Communications’ management team. Please go ahead.

Bruce Mann

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Thanks very much, operator. Good afternoon, everyone. Thanks for joining us for Rogers’ first quarter 2011 investment community conference call and webcast. It’s Bruce Mann here. Joining me on the line this afternoon, Nadir Mohamed, our President and Chief Executive Officer; Bill Linton, our Chief Financial Officer; Rob Bruce, who heads up our Communications division; Keith Pelley, who is the President of Rogers Media; and Bob Berner, our Chief Technology Officer. We’ve also got Ken Engelhart, our Regulatory VP on the line, hopefully, remotely.

We released our first quarter results after the market closed a little while ago this afternoon. The purpose of the call is to as crisply as possible provide you with a bit of additional background upfront, and then answer as many of your questions as time permits.

As many of you that have followed us for some time would be aware, we generally have done our earnings releases and these calls before the markets opened. This quarter, as a result of the timing of our board meetings and our annual shareholder meeting tomorrow morning, the aftermarket timing ended up being more appropriate. So we apologize if this quarter’s timing is less convenient, and we do appreciate that there is a particular hockey game later this evening, which many of you have an interest in. So we’ll be brief.

As today’s remarks and discussions will undoubtedly touch on some estimates and forward-looking types of information, our actual results could be different from that. You should review the cautionary language in our earnings filing of this afternoon. It’s also in our full year 2010 MD&A. It includes all the factors and assumptions and risks about how and why our results could differ from these types of statements. And those cautions apply equally to our dialogue on this afternoon’s call.

If you don’t already have copies of our full Q1 MD&A and our financial statements, also our 2010 annual report to accompany the call, they are all available on rogers.com/investor relations or /IR.

So with that, I’ll turn it over to Nadir Mohamed and then Bill Linton for some brief introductory remarks; and then the management team here will be pleased to take your questions, so over to you, Nadir.

Nadir Mohamed

Great. Thanks, Bruce. Welcome everyone, and thank you for joining us. As you can see from this afternoon’s earnings release, we delivered another quarter of growth in revenues and new subscribers, while at the same time gaining traction on the customer retention front, maintaining excellent margins and continuing to generate significant free cash flow.

In fact, Q1 represented the second highest quarter of free cash flow generation at Rogers ever. And we returned almost 0.5 billion of cash to shareholders in the way of dividends and buybacks, so in an intensely competitive environment a solid quarter to start 2011.

On the Wireless side, we sold the highest number, 190,000 of smartphones to new customers in a single quarter ever. And we activated the second highest number of smartphones ever, those being a combination of new subscribers as well as subscribers that we were upgrading. So we are seeing continued if not accelerating success in the high-value smartphone category. And the smartphone metrics, ARPU, churn, upgrade, all remain intact and represent, as I have said consistently, an excellent net present value positive investment as we bring in and retain our highest lifetime value customers.

The most significant driver of our top line growth was the continued strong growth in Wireless data revenues. In Q1 Wireless data revenues were up 30% and now represent 34% of Wireless network revenue. To put that in context, in Q1 our Wireless data revenues alone were well over $0.5 million for the quarter.

As you can see by gross additions and smartphone sales, Wireless sales in the quarter were healthy and concentrated in the higher end of the market. And arguably more importantly, we successfully managed postpaid churn, which sequentially improved from Q4.

As expected, the results also reflect the continued impact of increased competition and the impact of lower roaming revenues or prices on voice ARPU, but the strength of Wireless data offset much of this pressure and the rate of overall ARPU dilution declined sequentially from Q4, albeit modestly.

At the same time, we are driving meaningful cost efficiencies. And you can see this pretty clearly when you consider that we added 50% or 50% plus more smartphone subscribers in Q1 of this year than Q1 of last year, and yet, we were able to put up a very strong 49% Wireless service margin.

Strong cost control on the Cable side as well. The results of that focus are pretty clear with Cable Operations EBITDA margins of 47% in Q1, which is the highest frankly, that they’ve been in quite some time. This led to good operating leverage, helping to drive the Cable Operations EBITDA up 12% from the same quarter last year. No question in retrospect though, looking at the cable sub numbers; we could have indexed up our marketing sales efforts earlier in the quarter and we’re definitely intensifying our efforts in this area as we go forward.

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