Ladies and gentlemen, thank you for standing by. Welcome to the Rogers Communications Third Quarter 2012 Analyst Conference Call. [Operator Instructions] Following today's presentation, there will be a question-and-answer session. [Operator Instructions] I would like to remind everyone, this conference is being recorded today, Wednesday, October 24, 2012 at 8:00 a.m., Eastern Time. And I would now like to turn the conference over to Mr. Bruce Mann of the Rogers Communications' management team. Please go ahead, sir.

Thank you, operator. Good morning, everyone. Thanks for investing some of your time with us this morning for Rogers Third Quarter 2012 Investment Community Teleconference. It's Bruce Mann here. And joining me on the line in Toronto this morning are Rogers' President and CEO, Nadir Mohamed; Tony Staffieri, our Chief Financial Officer; Rob Bruce, who's the President of our Communications Division, which includes our Wireless and Cable businesses; Keith Pelley, the President of our Media Division; and also Rob "Bob" Berner and Ken Engelhart, who's head up our Technology and Regulatory groups, respectively. We released our third quarter results earlier this morning. The purpose of this call is to crisply provide you with a bit of additional background upfront and then answer as many of your questions as time permits. Today's remarks and discussions will, undoubtedly, touch on estimates and other forward-looking information, from which our actual results could be very different. So you should review the cautionary language in today's earnings report, also in our 2011 Annual Report. They include all the factors and assumptions and risks that could cause the results to be different. So -- and all those apply equally to today's call. So if you don't already have copies of our third quarter earnings release or the Annual Report, they're both available on the Investor Relations section of rogers.com, as well as on the EDGAR and SEDAR websites shortly. So with that, I will turn it over to our CEO, Nadir Mohamed, and then our Chief Financial Officer, Tony Staffieri, for some brief introductory remarks. And then the management team will take your questions. Over to you, Nadir.

Thanks, Bruce. Welcome, everyone, and thank you for joining us. As you can see from this morning's earnings release, we delivered another balanced set of financial and subscriber results, which build on the several positive inflections we began to see in the second quarter of this year. The results overall clearly reflect the strength of our asset mix, which positions us uniquely as Canada's largest wireless provider, complemented by healthy broadband and media businesses. While the competitive challenges and advertising market softness have not abated, we had strong execution, which resulted in a further acceleration in the growth rates of both revenue and adjusted operating profit at both our Wireless and our Cable segments and also on a consolidated basis. Consolidated margins, earnings per share and free cash flow were all up versus Q3 of last year. In fact, our adjusted operating profit this quarter is the highest ever reported by Rogers. So beginning with Wireless. We again had very good postpaid subscriber growth additions at Wireless, the highest quarter in a couple of years, I might add. And importantly, it was the second strongest quarter ever of new higher-value smartphone subscribers that joined Rogers as customers. We, again, this quarter brought postpaid churn down from the prior year, which is significant in what is generally one of the most competitive quarters of the year. The rate of decline of postpaid voice ARPU is down again versus the third quarter of last year, which, obviously, is another key metric on the Wireless side. But it's still clearly under pressure given the competitive dynamics in the market and the migration to use SMS and email. We continue to manage this decline as best as we can, given the environment. We're very much staying in lockstep with our customers as their communications…

Thanks, Nadir, and good morning, everyone. Let me provide a little bit of additional context around the financial results and metrics for the quarter, and then we can get into the specific questions you may have. On the top line, our consolidated revenue was up 1.4% for the quarter, representing the second straight quarter of sequential improvement. At Wireless, network revenue grew at more than double the rate of last quarter and was up 2.2%. And we had continued growth in Cable service revenue, which was up 1.8% in the third quarter. Despite top line declines at Media, in the face of the continued ad market softness which Nadir spoke to, and the ongoing run-off of the off-net legacy business at RBS, the consolidated revenue growth rate was by still -- was still, by far, the fastest all year. In the third quarter, we also saw continued improvement in the consolidated adjusted operating profit growth trajectory to 5%, compared to growth of 3% last quarter and to a decline of 6% in Q1. So both the top line and adjusted operating profit lines grew year-over-year, as well as sequentially, and both grew at accelerating rates. In our Wireless business, EBITDA was up 3%, but importantly, we've done this at the same time that we put up healthy year-over-year increases in both postpaid subscriber, gross and net additions, and at the same time that we sold a near-record number of smartphone additions. I'm pleased that we demonstrated the ability to fund greater volume, while expanding margins at the same time. In fact, there were 16% more smartphone sales in the third quarter this year than last year and a significantly greater number of iPhones were included in that volume, so good execution on balance, with continued strong investment in customers. During…

All right, Thanks, Tony. And operator, we'll be ready to take questions from the participants in a couple of seconds, but pardon me, quickly before we begin. [Operator Instructions] So with that, operator, if you would explain to the participants how you want to organize the Q&A polling process, we're ready to answer some questions.

[Operator Instructions] And your first question today comes from the line of Mr. Bob Bek of CIBC.

Actually, I have a big-picture question, perhaps for Rob, on bundled, the bundling. You've recently adjusted your discounts on the -- the long-standing discounts on the bundling for your quad play, triple play and such. Can you talk a bit more about the rationale behind this in the face of some competition from IPTV and whether this is really about buying yourselves some flexibility to deal with that competition? Or is it a greater thought on your -- the value of bundling, perhaps, to your business going forward?

Bundling will continue to be a core part of the business. Frankly, we think that the discounts that we give out are more than ample going forward. I would say I look at this as just a bit of a fine-tuning of our business and probably nothing more than that. As you know, Bob, we're very focused on being the leaders in Internet, and we're doing a lot of really compelling things on the Internet side to drive our business and continue to reinforce the customers that we're the only choice to make. We're delivering faster speed, better consistency of speed. We're supporting it with our market claims and our investments in DOCSIS and our investments in the Internet network and in our Internet customer experience. So again, that, along with what we think are ample discounts, kind of -- we think sets us up well.

So it's fair to say then you haven't seen pushback from -- I know it's early days, but from the customer base?

None to speak of.

Your next question will come from the line of Mr. Phillip Huang.

Okay. A quick question on the $50 shipment discount for the iPhone. I know you guys provided a 14-day shipment guarantee on the iPhone 5 or you provide a $50 discount. I was just wondering if you might be able to provide a little bit of color on to what extent it was a driver of the costs in the quarter, or were you guys able to pretty much meet that 14-day shipment guarantee in the quarter at least?

Yes, Phillip, it's Rob. Listen, the discounts are modest, and we don't have a material impact on the quarter in any way. But way more important than that, I think it's important that you realize that these are real big things from a customer perspective to have the certainty that he can get his hands on, or her hands on the device that we want, and we've learned that over time. We've been the leaders at having a national reservation service for our customers. And we think the investment, both in terms of customer experience and churn reduction are the best dollars that we could ever spend. So again, not material, but we think very important for customers.

And your next question comes from the line of Mr. Adam Shine of National Bank Financial.

Another question for you, Rob. The Internet net adds were really quite strong, and I think beat myself and certainly, the Street, notwithstanding the fact that, obviously, yes, things were pretty competitive from those IPTV pressures. Can you speak to the dynamic there, weakness of the other products, but nevertheless, that strength on the Internet side?

Yes, thanks, Adam. It's a great question, and I think even your question recognizes the strength of what we think is really going to continue to be the anchor product, and is one of the things that makes Rogers stand apart from our competitors. And that is that with faster speed, better consistency of speeds that we're supporting with claims, with our network investments, our investments in things like Techxpert, premium technical support behind it, customers are just more and more realizing that we're the place of choice to go for Internet. I think it's helping us with our television business and it will continue to be our primary focus. I think we've looked at the U.S. MSOs and seen the success they've had driving Internet with the product superiority that they have. We're certainly emulating a lot of the things that they're doing, and I'm delighted that it's bringing us the success that you witness in the results.

Rob, can I push you just a little bit? Just in the context, would there have been anything related, for example, to sort of more SMB pick-up versus residential?

Yes, you know what, the SMB numbers are also strong. They're in the 20-plus percent revenue growth range on Internet, on Internet growth for SMB. So it's not unique to consumer. The business community is also seeing the value of the product. Adam, there's one other thing I'd draw your attention to from a business perspective. In The Globe and Mail today, you can see our ad for Rogers One Number for small business. Again, some of the value added things that we're doing up and -- above and beyond access on the Internet are things that are also very meaningful for our customers. And that's just another example of one.

And your next question will come from the line of Greg MacDonald of Macquarie.

One of the things I'm trying to get a handle on is where we are in the smartphone maturity curve. And so when I look at the smartphones, as a percentage of the postpaid bas, at 65% this quarter, that's an increase, a sequential increase that's declining as the quarters go on, suggesting that your smartphone net add numbers are declining. Wonder -- Nadir, I know you spoke about this in the past. Rob, I think you have as well, that you think that smartphones ultimately are going to be 100% of the base. Can you talk about whether you think that, that goal is farther out now than what you've seen before? And, in particular, you guys did a good job on data ARPU. You suggest that's usage based. Can I suggest that from that, that you're probably going to start focusing more on lower ARPU smartphone customers, given their potential to be upgrading to higher data plans?

Yes, maybe I'll lead off, and if there's anything you want to add. For sure that we think in the long run that smartphones will be what it's all about, and that the world will be 100% smartphones. People will choose different levels of capability within those phones. People will be looking for more data, more SMS, or a mix of video and other things that will unfold in front of us over the coming years. So I think where you're going, if I can is, is to say, does that ARPU decline over time for smartphones? I think without a doubt, as we bring on the later tranches of smartphones, I think we can expect to see people who are going to use those different ways, and along with that, probably some of the -- in the latter stages, some of them will actually have lower ARPUs. The thing that I'm excited about, about the smartphone business is that it's strong and growing. And Tony pointed out, highlighted plus 16% year-over-year in terms of our smartphone growth. So we don't see that slowing down. 36% of that is new customers, 63% are upgrades. You pointed out 65% of our base now, and that's up a full 13 percentage points year-over-year. Still seeing very, very strong churn. So the business model remains very strong, sub-1 churn with some devices down as low as 0.7 or below. And the ARPU is still strongly 1.9x the ARPU of our non-smartphone customers. So the lifetime value of the smartphone business and the smartphone customer continues to be highly attractive. And we continue to look for ways to improve it and take costs out of the business and work to reduce subsidies. So we continue to be enthusiastic about what we think is a really, really good business. And there's no doubt, though, over time, it will work towards 100% penetration of the base.

Greg, it's Nadir. The only thing I'd add is just to confirm my views. I still believe very much that when you look at wireline Internet penetration over 80%, there's no doubt that on Wireless, which is a personal service, we'll see much higher rates than that, so approximate -- everybody will have them. I think a data point that might be useful, to kind of give you comfort, is when you look at what's happening in smartphones, it's obviously a combination of both what's happening in-market at the till, but also, what's happening on the upgrade side. So on in-market, we've been running the high 60s. But if you look at our upgrade of existing customers to smartphones, that's north of 80%. So that alone is going to drive that penetration increase and should give you some comfort.

Your next question will come from the line of Jeff Fan of Scotiabank.

I wanted to ask you guys again on the smartphone activation. Despite only having 10 days of iPhone 5, your iPhone sales went up 70% year-over-year, which I think it's probably one of the highest growth year-on-year on iPhone volumes. There's been a lot of talk, obviously, about shortages, but wondering if you can just talk about that volume growth. And I guess despite that, your margins are still pretty good. So maybe talk a little bit about the iPhone volume trends, the shortages and how we look going into the fourth quarter? And how it may or may not impact margins as we go through the rest of the year?

Yes, Jeff, it's Rob. Listen, I think a really important thing to remember is the timing of the launch last year versus this year. Last year, iPhone launched on October 14. This year, on September 21. So Q3 last year would have been characterized by people waiting for iPhones and being very -- anticipating the launch of iPhone that would come in Q4, whereas this year, we got about 10 days of loans in Q4. So I think in many ways, that sort of amplified the 70% statistic that you quoted in your remarks. And I think that, that should be valuable context as you look at the numbers. In terms of where we are, the receipt of the iPhone 5 device by customers has been excellent and I think see it as a very, very good device. And many of us around here have had some experience with it and feel the same way. We can see the demand in our international reservation system and demand in the stores. At this point, predictably, we probably could use more devices than we have. And we're anxious to have more so that we could satisfy the needs of our customers. But like most terrific devices, they're in short supply right now. And I know over time, that will ramp up. We've also moved a lot of 4Ss in Q3. There continues to be an appetite amongst consumers for 4Ss and that continues to be a factor in the mix as well. So I would say, overall, a very successful iPhone launch. Again, Jeff, incredible response from our customers. I think we've had almost 100,000 people register on the website over time on an iPhone 5, so it's been terrific for us.

And your next question will come from the line of Simon Flannery of Morgan Stanley.

Tony, a question for you on the balance sheet. Can you just talk about, now that you've had a few months to get your arms around you've a new bank facility in place, how are you thinking about the appropriate leverage structure for this company, given the free cash flow generation, given the sort of cost of financing? And then just comment on your expectation for buybacks going forward.

Thanks for your question, Simon. A couple of things. In terms of our balance sheet leverage, we continue to think that a leverage ratio in the 2x to the 2.5x is the right mix for us. And we continue to be well within that range and, at the end of this quarter, very good leverage sitting at 2x. And we're extremely pleased with that leverage. In particular, when you look at our pension liability, which isn't included in the balance sheet liabilities, but nonetheless, we look at a full cash liability, look at it on a full cash liability basis. So from that perspective, we continue to be well within that range. And we continue to manage our cash flow on a balanced basis. To answer your buyback question, I'll put it in context. We're committed to a strategy of returning cash to shareholders. If you look at our dividend and buybacks over the last several years, you see very good track record in that respect. For the third quarter, we did not undertake to purchase any share buybacks. As you know, we purchased $350 million of our shares in the second quarter of this year. As we looked at our cash flows in the third quarter and trending into the fourth quarter, there were a few significant items that caused us to pause on the share buyback program. First, we had the MLSE closing in the third quarter. We undertook to purchase theScore cash outflow, which has happened in the fourth quarter. We also have increased cash taxes in the fourth quarter, which I referred to in my opening comments. And then as well, and significantly, we have the spectrum acquisition that we expect into 2013. So as we look to those cash outflows, we thought it prudent to hold back on share buybacks for the third quarter.

Your next question will come from the line of Glen Campbell of Merrill Lynch.

So my question is on Wireless churn, solid result, 1.34%. Can you give us a sense of what the trends are in the types of customers or in the ARPU characteristics of the customers who are churning? Is it working for you? Is it increasingly for you in terms of losing lower ARPU customers rather than higher ARPU customers? And can you talk about maybe chunks of that churn that might be addressable going forward?

Simon (sic) [Glen], it's Rob. Yes, we too are pleased with the improving churn results. We work very hard to make sure that when churn occurs, it occurs amongst lower-value customers, and we work extra specially hard to keep our highest-value customers. I would say we've been making progress on that over time, but that is a metric that we spend a lot of time on and pay a lot of attention to, and we'll continue to do that going forward. Some of the highlights, I mean we saw some significant improvement in our Fido churn. And I think that comes as a process of continuing to improve the value proposition on Fido and being ever crisper at articulating it, as well as making sure that we're doing the right kind of communications in the key periods and resolving customers' problems there. Again, I think the NRS system and the communications to customers about iconic devices and when they're coming and how they can get access to them has also been a critical component of some of the things that we've done to actually enhance our churn going forward. And lastly and as one of the core underpinnings of what we do, is we're all about smartphones. And we've led at the high end of the category. And as you all know, as we continue to shift our base to 65% smartphones, and smartphones are an aggregate below sub-1 churn, that continues to have a positive effect on our churn overall. So I'll leave it there.

Your next question comes from the line of Tim Casey of BMO.

Tom -- or a question for Ken and Nadir just based on the decision by the CRTC last week, I think, by all accounts, caught a lot of people by surprise. Do you think that it's going to be harder for vertically integrated players to continue to consolidate the business? So I guess what I'm asking do you think this is a real sea change in the regulatory environment as opposed to something that's specific to the decision itself?

Yes, Tim, it's Ken. Couple of points. First of all, the CRTC had said, several years ago, that there were certain numerical thresholds for audience share that were relevant; a 45% threshold beyond which they didn't want companies to grow; and a 35% threshold that would trigger closer scrutiny. Rogers is at 9%, and so we're very, very low in terms of audience share, in terms of where the CRTC is looking. And a lot of that 9% is over-the-air television. And a lot of the concern that was raised in the Bell-Astral hearing had to do with specialty, where our share is actually quite low. I do think the CRTC decision signals a greater concern for customers and viewers. And I don't think that is necessarily a new thing. It's more a return to the way they used to do things. So I don't anticipate any problems for Rogers in that framework.

Your next question comes from the line of Drew McReynolds of RBC Capital Markets.

Just a follow-up for you, Rob. Just on the theme of data consumption. Just want to get your kind of initial insights with data consumption with the iPhone 5 and LTE, and what you're seeing kind of incrementally there? And then just a tie-in to that, a follow-up to Adam's question earlier, just on your Internet performance, obviously, pretty impressive given the competitive environment. Just want you to make a comment on just where household data demand on the wireline side is and not necessarily from the context of the quarter, just how fast if you can give us any context? Is it ramping up in 2012 versus previous years, and, obviously, how you see that going forward?

Okay. Drew, thank you. Why don't I answer the second part and then maybe you can go back and just ask me the first part again. The Internet performance and the Internet demand is rising on an average basis by about 25% year-over-year from an Internet side. If you look at peak traffic, it's growing slightly faster, slightly faster than that. Returning to the first part of your question, we are seeing, across the board, increases in consumption of data by devices. So it's crept up in aggregate in the early days, so pushed back a couple of years. We were seeing sub 1/2 gig consumption by most smartphones. Clearly, most of the smartphones now have pushed up into the 0.6 to 0.7 of a gig range, and we see that gradually -- they're increasing over time. I think that is a very, very good thing. I think it's evidence of the utility of the device and the important role that we're playing in consumers' lives. I think it will help reinforce for consumers the value and will make them less reluctant to spend their money on wireless, which I think is very, very good for us. So was there anything else to that first part that I missed?

No, that's great.

Your next question comes from the line of Vince Valentini of TD Securities.

I just want to expand on Tim's question, to broaden it from just the Media segment. I mean it seems to be a more pro-consumer bench from all the regulators, especially the CRTC. And, obviously, there's this thing on wireless contracts that they're going to do in January, as well as the Astral decision. I'm wondering, in the context of the new wireless entrants and the impact the government probably thought they were going to have, that doesn't seem to have happened and they all seem to be floundering and running out of money. Do you think the industry needs to be worried not just yourselves, but Bell and Telus as well, about some sort of other form of reregulation in wireless if the new entrants all do just disappear? And does that play in the consolidation theories of whether they should be bought out if they run out of money versus you'd rather have weaker new competitors versus a strong-handed regulator, I guess is the main question.

It's Ken again. Well, in terms of the Wireless Code Of Conduct that the CRTC is looking at, we actually proposed that to them. So they're responding to a request that we made. And most of the things that are being discussed at that hearing are things that we already do. We support transparency, and we want to make it easy for our customers to do business with us, and that's why we proposed the Code. I would agree with you that we are entering into a new era of more concern for customers and more concern for viewers. But we think that it will be relatively easy for Rogers to manage, because we've already done a lot of the initiative that the government is looking at.

Ladies and gentlemen, we have time for 2 further questions during today's Q&A session. And the first of which will come from Dvai Ghose of Cannacord Genuity.

If I could follow-up on the iPhone subsidy and margin question. I guess if I look at your results and Verizon's, you both had a nice sequential, as well as year-over-year increase in margin; quite the opposite for AT&T, who just reported today a significant decline both sequentially and year-over-year. And if you look at Verizon, it looks like one of the reasons is they only sold 650,000 iPhone 5s of their 3.1 million. So I was wondering if you could give us an idea. There's a 70% increase in iPhone sales, which sounds really positive, especially given the margin, but to what extent was it iPhone 5 versus more legacy iPhones, which perhaps, carry less of a hit?

Firstly, legacy iPhones don't actually carry less of a hit, Dvai. The subsidy is approximately the same across all of the iPhones. And you're absolutely right. I mean given the shortness of the timing from September 21 to the end of the quarter, iPhones and other smartphones were more dominant in the quarter. And we expect that Q4 will be characterized by a much higher iPhone mix. So beyond that, I'm not sure I can add too much more.

No, that's there. Can I just sneak in a quick, a follow-up as well as the Internet versus the basic cable side. So clearly, there's a dichotomy here when you lose 16,000 basic cable subs and upside surprise of 29,000 Internet. Does that mean that more and more of your customers are taking Internet as a stand-alone product, or is this growth on the business side?

There are definitely some that are taking stand-alone Internet, although we work hard and encourage them to take all of our products and as you know. But certainly, yes, some are. And we are, as I mentioned earlier, seeing some strong growth on the business side there, with business revenues from an Internet perspective, up 20%, so feeling very good about that. And I think on the television side, there's some intensely competitive prices out there, our competitors out there with TV as low as 19.95, so clearly others are buying the business. So we continue to expect to see that push-on from our competitors on the television side. And I think it's just very difficult for them to overcome the strength of our Internet product and all that we offer on that front. So the Internet product continues to stand tall. We've got a very good defense plan on the television side, but the Internet is just such a superior product that it's hard for them to overcome that superiority.

And your final question today will come from the line of Blair Abernethy of Stifel, Nicolaus.

Just a quick one for you, Rob. In terms of the data increase year-over-year, can you just give us a sense of the proportion of that, that has really come from the roaming side of the adjustments that are roaming plans first? And secondly, it's obviously still a fairly new product, but on the tablet side of things, iPad 3 and now iPad 4 with LTE, are you seeing any change this year in terms of pickup of tablet subscriptions?

Yes, thanks, Blair. Listen, let me talk to the growth in our data revenue. Overall, we continue to see consistently strong growth in data plans and data attach, of course, driven by smartphones. I think consistently 20% year-over-year, continued very healthy growth of SMS and MMS, 10% year-over-year. But this quarter, we saw big sequential increase in data roaming, up 35% year-over-year and increased sequentially by about $27 million. It's driven by changes in our roaming plans and alerts. And at the same time, I think I'd be cautious to point out that we were lapping a lower-than-typical quarter a year ago when we first introduced some of these new plans and alerts. And maybe leave you with my belief, and that is that data roaming, in general, is going to be a very important piece of the data ecosystem for our customers. And I think all carriers have some work to do to figure out how to make data roaming pricing and alerts work for the customers over time. And I think it's going to require some head scratching and probably some change in how we charge and what we charge over time, so.

All right, well, operator, thank you very much for conducting the call. And thank you, everybody, for joining us this morning. We know it's a very busy one for all of you in the investment community, particularly in the communications and technology space. So we appreciate your interest and support. If anyone was in the queue or if you have questions that weren't answered on the call, please give myself or my colleague, Dan Coombes, a call. Both of our contact information is on the release, if you don't know it already. This concludes today's teleconference. Thank you very much.

Thank you. Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation, and you may now disconnect your lines.