Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Rogers Communications Q3 2017 Results Analyst Teleconference. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today on Thursday, October 19, 2017,

at 8:00 a.m., Eastern time.
I will now turn the conference over to Ms.

Amy Schwalm with the Rogers Communications management team. Please go ahead.

Amy Schwalm: Good morning, and thanks for joining us. I'm here with our President and Chief Executive Officer, Joe Natale; and our Chief Financial Officer, Tony Staffieri.
Today's discussion will include estimates and other forward-looking information from which our actual results could differ.

Please review the cautionary language in today's earnings report and in our 2016 annual report regarding the various factors, assumptions and risks that could cause our actual results to differ.
With that, let me turn it over to Joe to begin.

Joseph Natale: Thank you, Amy, and good morning, everyone. It is a pleasure to speak with all of you today. First of all, I'm pleased to report a solid third quarter, reflecting good momentum in our business.

In a moment, I will go through the highlights. But before I do that, let me comment on the fundamentals underpinning our business and our success.
Last quarter I shared my thoughts on our strategic priorities. And over the last 6 months, I've dug deeper into our operations, streamlined our team and organizational structure, and set a clear focus path for our future. Overall, I continue to be bullish about our industry and the underlying growth potential.

Consumer and business appetite for both fixed and wireless broadband services is strong. This is bolstered by healthy macroeconomic conditions in the markets we serve. Our primary focus remains on growing our core business. This is where our greatest opportunities lie in driving value, sustained growth and resulting share appreciation. Our key focus is delivering on the fundamentals.

Delivering sustainable growth in revenue, profit, margins and free cash flow. It is about delivering strong return on investment. To do this, we are focusing on our strategic priorities, our customers, our people, along with the investments in our network, innovation and growth. These strategic priorities will guide our actions and our decision-making as a management team.
We are driving deeper end-to-end accountability where it matters most, our customer experience, our cost management efforts and our overall financial performance.

I firmly believe, what gets measured gets done. So we're tracking progress with expend metrics, and we're trying to move directly to our performance measurement and compensation system. We are firing up our execution engine, systematically blocking and tackling a multitude of core issues and opportunities to deliver on our priorities and goals. There is no silver bullet. Cost efficiency will be a natural outcome as we drive out customer friction and complexity.

To me, customer service improvement and margin expansion go hand-in-hand. We are investing capital in our core business with discipline. Our networks are the lifeblood of our business and world-class performance is critical to our future. So we're upgrading our wireless network to continue to deliver worry-free reliable performance, while ensuring capital efficiency and strong returns on investment. Our spending is well-timed.

We're seeing great unit cost opportunities and increased spectral efficiency that is available with the latest generation of equipment. I truly believe that if we keep a relentless focus on our priorities and execute with discipline, we will drive sustainable growth in our core business. We remain focused on translating this top line growth, into greater operating profit, free cash flow, return on investment, and ultimately, returns to shareholders.
Now turning to the quarter. Overall, our third quarter results reflect continued solid momentum.

Here are a few highlights. We reported strong service revenue growth of 4% and AOP growth of 6%. We've raised our guidance to reflect strong growth in AOP that will -- we will reinvest in our networks. Tony will discuss this further in a moment. But overall, you will see we're tracking -- sorry, we're taking a balanced approach to our financials.

Once again this quarter, we delivered on all of our key Wireless financial and subscriber metrics. We reported growth in Cable revenue and adjusted operating profit, thanks to the strength of our Internet products. We expanded our margins in both Wireless and Cable, driven much better operating leverage and cost efficiencies. As previously stated, we intend to improve margin in 2018 from 2016 by 100, 200 basis points in each of Wireless and Cable. I'm pleased to report that we're on track to achieve this.

We also substantially reduced our debt leverage ratio from 3.0 to 2.8 year-over-year.
Turning to Wireless. We delivered excellent results again this quarter. Postpaid ARPA increased 6% and blended ARPU grew 2%. This was driven by the ongoing adoption of our Share Everything plans, where churn is well below 1%.

The penetration of these plans continues to ramp well with substantial room for more growth. Postpaid net additions of 129,000, were up 15,000. This is the highest we have seen in 8 years. Postpaid churn also improved 10 basis points to 1.16%, representing the lowest Q3 churn rate in 8 years.
In Cable, Internet net additions of 27,000 were down 12,000, given the hyper-competitive environment.

As a result, total service unit net adds decreased 20,000. We saw very aggressive offers escalating in September and decided to only selectively match balancing pricing discipline with subscriber share performance.
Our Internet speed advantage continues to track well. 52% of our residential Internet customers are now on speeds of 100 megabits per second or higher compared to 42% a year ago.
On the video front, we continue to make good progress on the integration of our X1 IPTV platform.

Key elements of the platform, including linear channels, VOD and cloud DVR are up and running in the production environment. We're gearing up for the launch of our employee trial next month. We see great growth potential in Cable with our strong broadband product and the capabilities that will come with the X1 platform. Bolstered by the exciting X1 roadmap, we look forward to bringing our customers a truly connected digital home experience.
In Media, sports-related revenue was strong.

We continue to believe in the value of true rights ownership of content, the content that audience wants -- that audiences want most. In our world that's sports, where roughly 60% of our Media revenue is sports related. The other strategic plank is what I would describe as fiercely local content. I believe this content is a competitive advantage and fills an important gap for audiences that other media outlets don't always offer.
Before I turn it over to Tony, I'd like to thank our entire team of 26,000 for delivering a strong quarter.

Thank you for your hard work and commitment to our customers and our future.
Tony, over to you.

Anthony Staffieri: Thank you, Joe. Our financial results were very strong again this quarter. We had continued momentum in growing revenue, posting overall service revenue growth of 4% this quarter.

We're doing a good job of translating this top line growth to increase profit and margins with AOP growth of 6% and consolidated margins expanding by over 1 full point to 41%.
In Wireless, we reported strong service revenue growth of 7%, driven by excellent subscriber performance and meaningful growth in ARPA and ARPU. Once again, this quarter, we saw a very healthy flow-through rate of 60% of revenue to adjusted operating profit. AOP increased 9% and Wireless margins expanded 80 basis points, notwithstanding our significant customer investments.
Turning to Cable.

We grew Cable revenue 1% with substantial increases in Cable AOP and margins. Internet revenue was up 6% this quarter. Excluding the impact of the CRTC's decision a year ago to reduce wholesale access rates, Cable and Internet revenue would have increased 2% and 9%, respectively. Cable AOP was up 2% in the quarter, and again, excluding the impact of the CRTC's decision to reduce rates, Cable AOP would have increased 5% this quarter. Margins expanded 80 basis points here as well.

Higher AOP and margins were primarily driven by cost efficiencies and the ongoing product mix shift for higher-margin Internet services. Internet revenue comprised 46% of total Cable revenue this quarter. So on the Cable front, financials were strong driven by our Internet business. We expect further momentum in Cable fundamentals with the X1 IPTV launch next year. We believe X1 and its roadmap of innovation will offer the best experience and create great customer loyalty.

In Media, revenue was down year-on-year due to the success of the World Cup of Hockey held in 2016 and from lower publishing revenue following our restructuring from print to digital last year. AOP was largely impact by lower print revenue and higher player salaries at the Blue Jays.
I'll now go through some additional details in our financial results. The timing of CapEx spend impacted free cash flow and capital intensity in the third quarter, in line with our previous messaging that CapEx would grow in the second half of the year. Overall, capital intensity was 18%.

As we mentioned last quarter, we expect wireless CapEx intensity to come more in line with industry norms. We anticipate Cable CapEx intensity to decline over time. The X1 licensing model is a variable OpEx structure and the average customer investment per home falls considerably with significantly lower equipment cost, high functionality and self-install capabilities. As we look ahead, we're assessing best approach to maximize capital efficiency related to node segmentation. We're finding it makes sense to do more segmentation in adjacent neighborhoods if we can better leverage permits, scope and scale in order to lower unit costs.

As such, the decline in Cable CapEx intensity may be more of a step-down change to a lower resting heart rate rather than a gradual decline beginning next year. We'll lay this out further as we disclose our 2018 guidance, but as Joe mentioned, expect us to be balanced in our cash flow allocation.
Moving to our overall performance below the operating line, adjusted net income was up 22%, primarily due to higher AOP and lower depreciation and amortization. Net income increased 112% due to these items and certain write-downs in the prior year.
With respect to our financial flexibility, strong AOP helped generate operating cash flow of about $1.4 billion, which supported dividend payments of $207 -- $247 million this quarter.

We ended Q3 with a debt leverage ratio of 2.8 compared to 3.0 a year ago. The improvement is due to both higher AOP and about $400 million of debt repayment this quarter. Over time, we expect ongoing AOP and free cash flow growth to fund debt repayments and generate further improvement in the ratio. Our balance sheet remains healthy with our solid investment grade credit ratings with stable outlooks and attractive rates on our outstanding debt.
For the year, we're raising our outlook for 2017 AOP growth to a range of 5% to 6% from our original range of 2% to 4%.

We plan to spend the incremental AOP on network investment, and so are raising our CapEx guidance range to $2.35 billion to $2.45 billion from the previous range of $2.25 billion to $2.35 billion. Our free cash flow and revenue guidance for the year remain unchanged.
To close, we're very pleased with our performance and trending. It's excellent to see the team so engaged and squarely focused on the key priorities to drive further enhancement on our fundamentals and a better experience for our customers.
With that, I'll ask the operator to open the line for questions.

Operator: [Operator Instructions] Your first question will come from Jeff Fan with Scotiabank.

Jeffrey Fan: Joe or Tony, I guess, this question is related to some of the new pricing moves by one of your competitors that's been talked about in the market, I guess, it'll become more official today. I guess, my question is really towards you guys as to what do you think your exposure to overage -- data overage revenue is at this point? And it looks like as the market moves to more bigger data buckets, that's one area where and it might be prudent to start to move people into the right plan, so that there is no reliance on top-ups and ARPU growth and it's more natural usage growth rather than overage. Wonder if you can discuss a little about that?

Joseph Natale: Sure Jeff. Why don't I spend a minute on the competitive dynamic and then Tony will talk about data overage and our reliance on it in relative terms.

So first of all, we have always competed with Freedom on price. This appears to be an extension of that strategy with a lot of marketing bravado behind it. We believe that our distribution strength, our network capability and our customer care strength are still, remain to be clear competitive points of advantage, and part of the full package when customers chose Rogers. Just look at our customers, Jeff, in that 10-gig space, a lot of them are -- in fact, the vast majority of them are high-value Share Everything customers with multiple lines. They're looking for network quality where a [ Charleston ] has a lot of work to do on the network quality side.

Listen, long ago, they had an 8-gig offer in the market for about $60. It was rather kind of benign in terms of its impact. So I would look at it as a business as usual kind of situation. And, one that we're well prepared to take advantage of our strengths in distribution, customer care and network to really combat.

Anthony Staffieri: In terms of looking at our overage revenue, we're seeing the trends you would expect, Jeff, instead of place pricing plans that encourage a customer to look to larger data buckets that give them better certainty in terms of bills, but also better value for money.

And so as you would expect as the adoption of higher data bucket plans increases, particularly, in the Share Everything category, what you see is less overage revenue being translated into better recurring subscription revenue for us. And so that trend continues in the right direction for us. And it is a conscious strategy for us in the pricing strategy of our Wireless plans.

Jeffrey Fan: Maybe just a quick couple follow up.

Joseph Natale: A couple of quick follow-ups on that.

Just bear in mind, Jeff, that the vast majority of customers don't get charged data overage overall. And we've really worked hard to be customer-friendly in notifying our customers when they hit 90% of the data limit, where it will kind of help them get into the right plans as Tony described. So we're not really kind of so materially reliant on overage and top-ups. We're really trying to get people into the right plan. And that not just -- it's good business, but it really helps drive great customer experience.

Jeffrey Fan: Maybe just a quick follow-up. It doesn't sound like you want to give us any numbers. But if we look ahead to, say, the next 12 to 18 months, assuming Freedom [ Charles ] network is going to be improved at a quality that might be more competitive, would you expect -- would you plan or is your objective to get that whatever overage is today down to a level where it's really not that material that could impact ARPU, I guess, down the road. Is that the goals?

Joseph Natale: The goal would be to continue to leverage our ability to get customers in the right data plan. We had worked hard on creating our data manager type toolsets that help customers manage their account, not just for them, but for their entire household, entire family, and that's driving a great experience.

And the tool itself is actually creating a lot of stickiness. And as I mentioned in the beginning, we're seeing sub-1% churn rates for people that are on our Share Everything plans. So that construct is fundamentally important to us. The key is customers' data appetites are growing, 40%, 50% per year. And we rather have them in the place where they're in the right data plan or they can occasionally have a top-up that they see fit.

Consistent data overage month-over-month is not a great customer experience, and we're trying to help manage customers into the right place.

Operator: We'll take the next question in queue from the line of Vince Valentini with TD Securities.

Vince Valentini: Two things. The guidance range for the year, obviously, impressive 5% to 6%. Can you give us any thoughts on iPhone X and how you thought about that in the guidance? Is it -- if we get an unusually large supply of the devices and they're very popular, which I don't think is the base expectation.

But if that were to happen, is that buffered in the low-end of the new guidance? And then checking, just the dividend, I mean everything is trending right. Your debt's coming down, your EBITDA is better than expected. I mean, we can run the math on the payout ratio. Is there any beyond the math that we need to think about in terms of dividend growth resuming? Is there anything strategically or big picture that would perhaps stop the dividend from going up in January when you report Q4?

Joseph Natale: Let me start with the iPhone and Tony can pick up on dividend. On the iPhone side, to your comment, Vince, analysts have said, it's more incremental in terms of product evolution rather than transformational.

And what we're seeing is sort of, I would say, more anemic appetite for the iPhone 8 right now. There's lots of anticipation around the iPhone X and what it has to offer. The thing -- the feature that people are most excited about seems to be the augmented reality feature, that's available in both the 8 and the X. It's something that will drive network traffic, so it has some potential interesting upside for us if that comes to materialize overall. Our timing is aligned with the U.S.

In terms of timing, we expect to take pre-orders on October 27 and launch on November 3. A couple things to bear in mind is that the iPhone X price point is about 75% higher than the iPhone 7, so it's a very expensive device. Inventory is a question mark in terms of what we look at. We do have reflected in our guidance what we believe is the right balancing factor around how much inventory we'll get, the appetite for the device and the price point, et cetera. So we feel comfortable that we reflected that in our guidance.

The question will be is, how much of the iPhone X activity happens in Q4 versus Q1 of next year? And we will kind of be prepared for either overall.

Anthony Staffieri: Second part of your question, Vince, relating to any dividend assumptions, we're still in the process of going through our plans for 2018, and with respect to dividends and capital allocation more generally. Nothing's changed from what we said in the past. We continue to focus on revenue, AOP growth with a healthy reinvestment into our network and CapEx. We're going through as you would expect our capital plans and capital allocation for next year.

And so there is nothing more we can say at this point as we continue to work through that.

Operator: We'll now take our next question from the line of Simon Flannery with Morgan Stanley.

Simon Flannery: I wonder if you could just touch, Joe, on your -- thoughts about the portfolio, and in particular, the potential for some asset divestiture. So where is your thinking on that right now? And I think you did touch on the X1 for 2018. Can you just update us on what the latest thoughts are on when that arrives and when you start to deploy that commercially?

Joseph Natale: Okay.

Simon, the first question, again, part of it partly came off a bit garbled...

Simon Flannery: On the -- potential assets layout. The Cogeco and the Blue Jays assets.

Joseph Natale: The sports portfolio of assets?

Simon Flannery: Yes.

Joseph Natale: Yes, thank you.

Well, first of all, as you've heard Tony and I say in the past, we're committed to looking at ways of surfacing value from our portfolio assets, whether it be the Jays or whether it be some of our other investments across our business. Our plan is to look at each of those along the way as we kind of look for opportunities to surface that value. We don't have any plans, and at this moment that we are announcing or even kind of giving a nod to. Our focus very much is on our core business. Our focus is on driving the key priorities that I've talked about in the last call and we put forward in the press release around our core business is to very much the biggest part of the value that we create for shareholders.

And to be honest, our 120% focus has been on that right now. In the fullness of time, we will address each of the portfolio assets and figure out what is the best way to surface value.

Simon Flannery: Right. And on the X1 side?

Joseph Natale: Yes. X1, we have it running now on the production environment.

What does that mean? That means that a number of us are using it at home and in the office as our primary source of video entertainment. And we are getting ready now with all the preparatory work to do a full-scale employee trial, that is scheduled to start in November. And that will see a thousand-plus Rogers employees leveraging the product in their homes through the normal course of activity in terms of placing orders, truck rolls, installation. So there is no sort of unique process for our employees. We're using the exact same process that we plan to use with our customers around commercial launch.

We are going to really work hard to iron out what I believe at this point, will largely be process issues, order issues, et cetera, plus anything else on the platform side through the course of that trial. And then we'll have, in late Q1, right now, is the plan, a soft commercial launch. A soft commercial launch meaning, we'll kind of open up the universe of customers to a broader set of employees and also a portion of our in-store customer base, with really the goal of hardening our capabilities even further. I really believe that you have to go slow to go fast. We do know judging by the experience at Comcast, judging by the experience at Cox.

Cox just revealed that they have 1 million customers up and running on the X1 platform, and they've gotten to about quarter of their base already. They're seeing a 20% improvement in churn for customers on this product. So we believe that the prize is really worth making sure that we have a great execution capability and a great experience for our customers. So what that will mean is, at some point later in 2018, we will do a full commercial launch, I call it the loud and proud face, where you will see advertising in all forms announcing the arrival of our X1 platform. But between the soft launch and that point, we'll be doing it more tactically.

And then at some point in 2019, we will stop selling our legacy platform and continue a focused thoughtful migration of our entire base over time to X1. So that's the kind of -- general kind of milestones around what's happening with X1. I'll tell you that the product is a great product. We've been enjoying being the -- Tony and I've been enjoying being the people on the first part of the trial audience. They're getting a lot more feedback from us than they probably would like, but that's a good thing.

But it's the team sport and entire organization couldn't be more focused and more excited about the advent of X1 and what it means to our business.

Operator: We'll now take the next question from the line of Aravinda Galappatthige with Canaccord Genuity.

Aravinda Galappatthige: I was wondering if you can expand a little bit on the Cable CapEx side from the comments you made in the prepared remarks. Should we be sort of expecting a bit of an uptick in Cable CapEx as we go into '18 before kind of the step downs that Tony talked about? Or is it more of a kind of a flatter trajectory through '18? And connected to that, should I sort of translate the commentary that you're looking to sort of accelerate node splitting going forward and the fiber deployment, is that how we should be looking at it?

Joseph Natale: Congrats, Aravinda. Let me just kind of frame it up and then I'll ask Tony to comment on me as well.

There is no question that in the -- in the medium to long run, our Cable CapEx intensity is coming down. We believe that we have all the right ingredients to reduce as we've been calling it the resting heart rate to materially lower point in terms of Cable CapEx intensity. It's important to understand in the Cable side, 2 things. One is that, in the X1 world and in the DOCSIS 3.1 and beyond world, our Cable CapEx is really success based. We truly do have 1-gigabit services enabled through our entire footprint.

It comes down to adding capacity as is required, as there's take up on those features as we get more connected devices in the home. So that can truly be done on a neighborhood-by-neighborhood basis, as we have been doing it. I have been pushing the team to look more closely at how we're doing that, to see if there is a more efficient way of rolling that out. You can imagine that doing one neighborhood at a time is sometimes inefficient. Look at it and say, what about the neighborhood right next to the neighborhood? Maybe there is no need for node segmentation right now.

But while we're at the middle of getting work permits and lining up construction teams and buying equipment, et cetera, we can get economies of scope and economies of scale in doing things in a more contiguous fashion and handing out some longer-term contracts to our contractors and getting as a result a better unit cost. I've been pushing the team to answer the question, can we get $1.20 or $1.30 worth of work done for $1 of investment, if we leverage economies of scope and economies of scale? I believe that we can. So the focus is there. And what it means is that, Cable CapEx will come down in more of a step-wise fashion rather than a roll-off to this resting heart rate that we've been talking about. In the short term, it's fair to say that you will see a flatter Cable CapEx [ overall].

We are not intended to take it up or just to take it down in a more step-wise fashion. Now if you want to add to that, Tony as [indiscernible].

Anthony Staffieri: Yes. Just to reiterate on some of the key points with some numbers, we've talked about the 2 ingredients that are going to bring Cable CapEx down. The biggest one being the unit cost related to our customer base.

With the X1 platform, there is significant cost opportunities in terms of CPE, in terms of cloud DVR capabilities and also has a real potential for self-install. And so we see our average cost per home going from what today is over $1,000 to something that's less than $400 per home. That's going to be a big driver. And as Joe said, in terms of node segmentation, we continue to have a very efficient ROI model, where we can invest where it's needed. And it's really about, is there an opportunity to pull together certain contracts and allow us to bring that down.

And it's in the context of not bringing Cable capital -- CapEx intensity up, but rather the pace at which it comes down. And so for the near-term what we're thinking about is, whether there is the opportunity to hold it flat or down slightly from what would otherwise be the case.

Joseph Natale: And what's underpinning all this, Aravinda, is, we're probably excited about our outlook for the Cable business. We already have a great superior Internet product. With the arrival of X1, we'll be able to, as I said in the past, fight with both hands.

And we believe that, that excitement, that capability, that marketplace of opportunity fully supports our investment and what we're talking about. And this is an investment that we will be making anyways over the fullness of time, and we're trying to get bang for our buck by doing it in more of a contiguous and step-wise fashion.

Operator: We'll now take the next question from David McFadgen with Cormark Securities.

David McFadgen: Just following along on that. So you raised your AOP guidance and then you raised your CapEx guidance.

Is most of the CapEx increase going to the Cable plant or some of that going to Wireless? And then Joe, can you just comment on your assessment of the quality of the Wireless and the Cable network? And do you really see big reason to step up the investment there? Or are you quite happy with the performance of those networks?

Joseph Natale: Sure, David. Why don't I start with the last question first. I'll say to you, we're very happy with the strength and the capability of our networks, both Wireless and Cable. Canadians enjoy some of the best wireless networks in the world. The recent OECD study is once again underlying the fact that, Canadian wireless networks are considered to be amongst the strongest across the 34 OECD network countries and #4 in terms of investment.

And the capability of the Rogers network is certainly a shining example of what that investment can deliver overall. And on the Cable side, we have worked very hard to create a Cable Internet capability that supports a 1-gig profile across our entire business. The team has been on it in terms of managing the capability and the performance of that network as a whole. The DOCSIS road map for the future is very exciting. If you look at what's beyond DOCSIS 3.1 with n-gig capability and symmetrical capability, the road map is very rich and vibrant.

So we believe that we've got a great situation already. If you look forward, the appetite for data continues to grow. I talked about it in the beginning. Our customers are consuming 40% to 50% more data each year. The average Canadian household has 12 connected devices on the road to 50.

The average consumer spend is about 3 hours a day on their mobile device, up from 1 hour a day. So there's a huge data appetite. The onus on us is to continue investing in the capability and maintaining discipline around pricing and capability in the market, so we make sure we extract fair economic rent for the investments that we're making overall in our Cable infrastructure, and our Wireless infrastructure for that matter. I think the key to all this is to really stay focused on some elements that are important. One is, you'll see us really stay close to our proven global roadmaps.

The excitement you hear around XFINITY is certainly around the product feature set or more importantly, the fact that we're drafting behind an organization that has 10,000 software engineers devoted to the roadmap, and creating a proven capability that is shared across many organizations. So you continue to see us not go at it alone but drafting behind the large players globally that are doing good and proven things. Next, we're committed to sledding the investments that we already have in our networks. We have a lot of underutilized fiber. We have fiber stretching across vast parts of our footprint.

That could be better utilized for our wireless and cable networks, but also for our enterprise customers. And before we put new fiber in the ground, we're going to make sure we sweat and utilize the fiber we have already to a greater extent. So it's not just about the CapEx as a whole, but it's making sure that we have better efficiency in what we have and the money we spend going forward. In terms of us taking up guidance in CapEx this year, if you look at it year-to-date, we're slightly below where we were last year after 3 quarters in terms of CapEx expenditure. Yes, we're going to be [ heading ] [ toward ] a higher CapEx investment into Q4.

It's really driven by a couple of things. Number one, like a lot of capital plans in our industry, they tend to be more back-end loaded, that's the nature of it. On top of that something happened in April, the new CEO showed up on the scene that said to people, "Let's just everybody take a breath for a minute and really understand our priorities really up the refactor where we are taking the business, and then we'll come back at it with zeal." Those priorities are now set and locked in and we're coming after it with zeal as a result of that as a whole. And the last thing, the team has done a great job at running different procurement exercises in the last few months to get us great unit cost performance on some of the critical equipment that is fundamental to 4.5G. So you've heard me talk about in the past 4 carrier aggregation, 4x4 MIMO, 256 QAM.

These are all technologies that we are busy installing right now as we speak, and we've lit up in the last little while. And we're getting, not just better spectral efficiency given that we're using the latest versions of the technology, we're getting very strong unit cost outcomes as a result. So to your question, more specifically, David, yes, the big preponderance of that will be invested in our Wireless network to take advantage of 4.5G. And by the way, the technology we're putting in place will all be 5G ready, which is important to the future overall. And I'll make the comment I made just a few minutes ago to Aravinda and that is that, these investments are underpinned by our excitement around the growth potential in both our Cable and Wireless business.

Otherwise, we wouldn't be considering making these investments and doing them in the manner I just described.

Operator: We'll now move on to the next question from the line of Phillip Huang with Barclays.

Phillip Huang: Couple of questions. First one is, I wanted to ask about the full duplex DOCSIS 3.1. CableLabs has recently talked more about that as a solution for providing symmetrical download, upload speeds.

I was wondering if maybe you guys could help provide some context around that in terms of what phase we are in, in that technology, any thoughts on timing of its availability, and of course, the cost to implement it? And then my second question is on the 2% decrease in device upgrades. I think you've already answered part of it when Vince asked the question earlier. But wanted to get a bit more color behind what you think is driving that? You mentioned the demand for iPhone 8 appears soft. Are you also getting the sense that the decrease is -- this quarter is just delayed because consumers are waiting for the iPhone X?

Joseph Natale: Okay. Why don't I comment on DOCSIS full duplex.

Tony, you can talk about device upgrade roadmap and strategy around that. So on DOCSIS, the technology is real and capable, but realistically, the specs are just out and it's early. It will be, I think, 2019-plus before we see it truly commercially available in the full sense. I think that's fine given the upload desire of our customers, we can fully support their capabilities. For our business customers, they may have more significant upload needs right now.

We have other products and solutions that fully meet that capability. The important thing to understand is that, DOCSIS 3.1 is backwards compatible overall. And full duplex DOCSIS will be timely in its arrival. And we'll be ready for it in terms of commercial installation and commercial implementation.

Anthony Staffieri: With respect to the second part of your question, Phillip, yes, as you saw in the quarter, spend on device upgrades was about flat just down -- up slightly 2%, and that's really driven by volume.

Of our postpaid base, we had 5.1% upgrade in the quarter and that compares to the prior year at about 5.4%. So still relatively soft in terms of iPhone 8 demand from the hardware upgrade perspective. And as Joe talked about earlier, we expect some of that volume to flow into the fourth quarter and possibly even first quarter depending on supply.

Operator: We'll now take the next question from the line of Drew McReynolds with RBC.

Drew McReynolds: Two questions from me.

Just first, I guess, maybe for you, Joe. On the churn side, curious just to get your big picture thoughts, not so much on specifically what Rogers is doing, but more the structural decline in churn that we're seeing across the industry. Can you kind of comment as to how low it can structurally go relative to certainly what investors have been seeing in the rearview mirror over, let's say, the last kind of 5 or 10 years? And then secondly, just on the regulatory environment, we obviously always have some files underway, we have a new CRTC Chairman. Just wanted to get your latest thoughts, just characterizing the regulatory environment as you see it going forward?

Joseph Natale: Sure. So Drew, on the churn side, I think there are few factors that are driving overall industry churn.

And certainly Rogers is both driving and benefiting from those factors. One overall is that there's an industry-wide effort around driving the customer experience. It wasn't long ago that there wasn't much discussion on calls like this around the customer experience. And now it's my steadfast belief that, what are we really doing as a business where we are a service provider and therefore, we must focus on the service experience as being a key differentiator. Truly underpinned by the fact that the days of having technology exclusivity in some way shape or form are gone; we're really at the technology parity level.

And, the days of having GSM versus CDMA or having certain device exclusivity just isn't the dynamic right now in the marketplace as we are in a more mature wireless market and the result, we've harmonized a lot of technologies across the globe for that matter. So there's an overall uptick in the focus on the customer experience. And therefore, it's important to drive a much better experience to really drive the power of the brand behind it. Second thing I would say is, that share constructs have changed the nature of how household behaves with respect to the churn as a whole. No longer is an individual decision one by one in the household, there is still elements of that, but usually the household decides together.

And we worked very hard to create strong Share Everything construct. That's why I said earlier, our Share Everything churn rate is already below 1%. Our ARPA, or average revenue per account which is a reflection of that, is up 6% this quarter. So those economics are very strong, and we think that's a place to continue to focus on. And when I look at loading each and every week, I don't just look at loading, Tony and I are actually scrutinizing -- are scrutinizing the quality of that loading and how much of it is in the Share Everything constructs versus [ out of line ], versus tablets versus BYOD, et cetera.

And we're very much focused on adding households to help enrich in that mix. Third thing I would say is, that the life of devices is growing. We now have the equivalent of a used car market for devices. The iPhone 6 that I referred a little while ago, I gave to my daughter. She really wanted an iPhone 7, but she got the iPhone 6 instead.

So families are having -- are handing down devices, it wasn't long ago that you would never consider doing that. These devices were just -- kept getting trumped with iteration after iteration. And now we're seeing sort of more incremental evolution in devices as a whole. The key is to put the pressure on all of us to execute. So the focus at Rogers is very much on execution, execution around the customer experience and execution around taking cost out of the environment.

The two go hand-in-hand because the path to the better world is one where we're not just driving churn down, but we're improving margin at the same time and therefore, have a better ability to invest in new ideas to serve the customer and new ideas to drive better churn performance and new ideas to leverage the power of our distribution. We have the best distribution network in the country, and we will have opportunity to actually leverage that better if we're not as vulnerable to the overall churn impacts. So that's sort of my philosophy overall on the churn and customer service world as a whole. On the regulatory front, I believe that our government is squarely focused on the importance of investment. I had a very good discussion with Minister Bains just a few weeks ago in Ottawa, and we talked quite a bit about how we enjoy some of the best networks in the world and how Canadian operators done a good job of creating high-quality networks and extending reach to the vast majority of Canadians.

99% plus of the Canadian population can avail themselves of high-speed wireless networks. We talked about finding better ways of connecting rural Canadians with fixed line broadband services. We talked about affordability for lower-income Canadians. We talked about circumstances to create better value for Canadians as a whole, more for more kind of focus in terms of better availability. We talked about just really forming a stronger partnership between government and the industry, and I gave my commitment to look for better ways to doing that.

So it was a very good conversation as a whole. And when the new Chair of the CRTC is ready to speak to me, and other industry leaders. Right now, he is getting settled. Love to continue the dialogue with Ian Scott as well. But the important thing here is to form a strong partnership with government and go after the social and economic development issues that underpin our country and the issues that are important to the future of our industry.

I will always advocate for our industry. You've seen our advocacy very clearly around the 600 megahertz spectrum auction. Spectrum is the lifeblood of our business and very important. And I understand the government's thinking around set asides, but I believe that large players like Rogers who have a big customer base, we have the largest number of customers in Canada. We need to make sure we have an opportunity to gain a relative share of that spectrum that will help to support our customers' needs and demands, especially, in this fast-growing world of data appetites.

So that's a general kind of thought, Drew, around the regulatory environment. We'll continue to kind of work our way through some of the open files. We're very anxious to get the third-party Internet access rights kind of finalized. Right now, we've been living with kind of preliminary rates for well over a year. So Tony, I think is even longer than that potentially, I can't remember the exact date, but it's time to kind of get on with nailing down specific rates that will help us make the right decisions around investment in the future more clearly.

But that's a general tone of the relationship with Ottawa, and I'm pleased that it's going in a good direction.

Operator: We'll now take the next question from the line of Greg MacDonald from Macquarie.

Greg MacDonald: A question on the cable subscriber trends. It looks to me like, Joe, you're talking a little bit about broadband competitive pricing in the market. And I'm going to make an assumption that, the double-play impact had some impacts on the cable side as well.

One of the big trends the U.S. MSOs talked about this quarter was -- on the subscriber side was the impact of online services and cord cutting. Seems we have a little more insulation in Canada. But I wonder if you might comment on whether that had an impact in the quarter, whether you're seeing a change in that overall? And then thoughts going into 2018 as we get more U.S. carriers or more U.S.

players coming up to Canada with OTT product?

Joseph Natale: Okay. A couple things, I would say, is that, I think it's important to understand that the U.S. market in cable is very different than the Canadian market on a few different dimensions. One, first and foremost, the degree of vertical integration in the media market is fundamentally different North and South of the border. So as a result, secondly, there -- it's a different construct around OTT players between the U.S.

and Canada. The U.S. has many more OTT players, many more splinter capabilities in that vein. The one interesting part about that, Greg, is that with our X1 platform, we have the opportunity to not just aggregate, but merchandise those OTT capabilities. So as some of that splintering or fragmentation comes to Canada, we view X1 as not just a video entertainment platform, we view it as a merchandising platform to layout the best of content from Netflix, from other studios, YouTube, et cetera, and therefore, present that to our customers and be the curator, unlike the letter description overall.

The U.S. is taking the approach to bundling these services to try and differentiate their wired services as a whole. We don't see that dynamic in the marketplace in Canada. And we think that we're doing very well with the current strength of distribution capabilities that we have in our wireless business. We don't see the need to bundle some of those services in overall.

If you look at ARPU in the U.S. in video, it's much higher, it's more or like USD 80 to USD 90. So I think that they're more vulnerable to cord cutting as a result. In Canada, we have a skinnier base of capabilities. We have a lot more optionality in terms of adding and subtracting channels and [ feedbacks ], et cetera.

So I believe it's a bit different construct as a whole.

Anthony Staffieri: Yes, I'll pick it up. In terms of the subscriber performance that you saw in the third quarter, had more to do with our strategy on focusing on double and triple plays. We talked about that last quarter, and we started in earnest to pick up the pace on that in the second quarter. And so what we're seeing is a good healthy trend of 2 and 3 product households in the third quarter.

At the same time competitive intensity in the third quarter really picked up around single product Internet. And we decided -- we made the conscious decision to pause on some of the pricing that was going on in the marketplace, but didn't make economic sense for us. And so again, the focus in our cable business, overriding focus continues to be on household penetration and ARPA. And so we continue to see the trends in line with the plans we have for that business.

Greg MacDonald: And one just -- one quick follow-on.

Well, some of -- part of the appeal in the U.S. has been the ability to price skinny and then sports on top of that because a bunch of the customers out there don't want sports. So as you get the opportunity to drop that out, that's what's created some of the churn. Do you think that, in Canada, you've reached a spot on pricing overall that, that is not a risk that you'll face as more à la carte pricing comes out?

Joseph Natale: I think the pricing dynamic in Canada will evolve in the coming year or 2. I do believe that customers want more choice overall.

But to my experience, if you give customers like absolute à la carte choice, it's actually overwhelming. And all of our focus group studies have shown that, they really don't want to start from a blank sheet of paper and pick and choose individual channels, they rather have some base options that are leaner in nature and then have the opportunity to kind of add on top, but as they see fit. We think sports content is a very important part of our anchoring in the home. So it's something that we're going to make sure that we leverage that unique competitive advantage that we have Sportsnet, now has the largest sports audience in Canada, full stop. So for us, it's a very important weapon in the marketplace, a very important competitive advantage.

I think the important part of all that, Greg, is that the platform has to be able to support the ability to really help customers find the content they love. But that's at the heart of it, right? And what I like most about the X1 platform that now I've been enjoying the last number of weeks is the search and discovery capability, the voice search capability is actually stunning and you say, what's the big deal about voice search, we all have it on Siri and all the other places. But it's a very clever voice search capability that works hard to be intuitive as to what you're looking for. It's very good at understanding accents, I mean, I've had some fun with it in pretending to be some of my older uncles in their heavy Italian accents and manage to get them to find the right programming and content as a result, regardless of whatever accent I might chose. But most importantly, it's very natural language search and that doesn't force you down some sort of construct, where you have to say things a certain way, you just speak.

And what that means is that, you could easily navigate your way through all the content. And it's not like Netflix is an app sitting on its own, it's deeply integrated into the platform. So as you search, you have access to the latest in sports, whatever is on Netflix, whatever is on any of the overall capabilities that are out there. And as we strike the right arrangements, we'll be adding more streaming services to the platform. I really want to be Switzerland when it comes to inviting and integrating streaming and platforms into our X1 capability.

I think that's the future of video where we have to be the purveyor of choice for customers and the destination for all their video consumption needs. You've heard me say in the past, it's a battle for HDMI one source button on your TV, the minute we relinquish that source input and someone else gets it then we relegate it to being #2 and #3 in terms of video entertainment. I want us to be the destination for all that they might want, sports, Netflix, other streaming services, the latest movies, and discovery and search is an important part of that. And that's why we're putting so much emphasis on it.

Operator: We will now take the next question from the line of Maher Yaghi with Desjardins.

Maher Yaghi: Certainly, a strong quarter in Wireless. Can you talk a little bit about the pause or the change in momentum in gross addition on postpaid? Do you see this as a pause or have we reached a new plateau, let's say, a higher plateau, but -- going forward? And certainly, churn has helped on the net adds in the quarter. Can you discuss, also, as we switch, let's say, from focusing less on gross adds versus more on reducing churn, what's the implication of the cost in terms of retention versus cost of gaining a customer would impact your margins going forward?

Anthony Staffieri: All right, I'll start and Joe pick will it up. So a couple of things, just to ground us. Certainly saw postpaid gross adds were flat year-on-year.

And we saw that really more reflective of the demand for device and some of the pausing that Joe talked about earlier, with the latest iteration of iPhone. It's down sequentially from the second quarter by about 5%. But overall, in terms of what it means for the size of the market, don't know. We'll see when everyone else reports what that looks like. But from our perspective, it's always a balance and as we look to net share of subscribers between churn and gross adds.

And so the flip side was much better churn performance in the quarter from a year-on-year perspective, down 10 basis points. In terms of go forward, we'll continue to look to lead and have healthy share on gross adds and translate that to an appropriate share on a net add basis. So I wouldn't necessarily suggest that we are taking our eyes off gross adds. We'll continue to focus on both in a balanced way.

Joseph Natale: If I could just add.

I think, Maher, with the benefit that better churn performance gives us is the opportunity to be more disciplined, more sanguine on the gross adds front. We still will continue to focus on gross adds. But there is a level of activity that happens usually at the end of every quarter that goes from sometimes competitive intensity to crazy pricing and promotion structures. If you head into that period with strong churn performance, then you could be much more sanguine about how we might approach that crazy period and that's the real benefit, I think, above all the very simplistic way of better churn performance is to make sure that we're spending the COA and COR dollars in a manner that is driving accretion in terms of our overall economics. When you approach the end of the quarter and you have to have a good churn performance, sometimes you tend to lead more with promotional plans around rate.

And that tends to wash back into your base and cause re-rate in the base and that could be destructive at times. So it's a question of having the ability to really kind of moderate as appropriate to get the best of gross adds and net adds as a result.

Greg MacDonald: And just a follow up on this, when we look at your current market position and your focus on churn. When we look -- going -- when we look into the future, in 2018, we've seen good margin improvement in Wireless. Should we expect additional improvements in the line with what you guys discussed in terms of 100 to 120 basis points improvement potentially? Is that a step-wise function increase or it's a intermediate increase? And that could be followed by additional improvement longer term?

Joseph Natale: Well, we said that our plan is to improve margin by 100 to 200 basis points in 2018 when you compare it to 2016 overall, we're not done.

We're going to continue to focus on finding more cost opportunities and continue to look for opportunities to take out cost in the environment. And we even focused on that already as customer experience improvement happens, so does margin improvement. There are some cyclical quarters or seasonality involved in the business, that will always be there. But the relentless focus on margins will not abate and that's really the kind of -- the important thing to understand. We, living in a world, where customers are expecting more capability, more data, more functionality and expecting to see reductions in unit prices for that capability over time, and therefore, the onus is on us as a business to look at what are ways of changing the cost profile, what are ways of taking cost out of the organization in its various forms.

I mean, if you look at the amount we spend on procurement alone, we spend $5 billion plus on procurement. And Tony and I are going through systematically every category with our suppliers and saying, can we take things down 10%, 20% depending on the category, rationalize our supplier base. I mean, there's big opportunity there as a whole. You've heard me talk about calls -- in our call center, we take 47 million phone calls a year in our call center, at roughly $10 a call. By improving the customer experience, we will decrease the propensity of our customers that call by definition have a better cost profile.

The key is to build a culture, that levers the great culture we have already at Rogers. Or build a culture that's much more tuned into customer service and margin improvement going hand-in-hand. And that's where we're up to right now. The key is to simplify processes along that route and make things clear, simple and fair for customers, but take out the complexity. If you look at the average amount of information we send to our [ top ] line, it's a law.

If I were sitting in one of our stores or in our call center or as a field technician, I look at the information coming their way because of the complexity in our environment, I'm not sure I can fully absorb what's happening in the business. So I'm on a mission to actually simplify a lot of that. By simplification, we'll improve communication and take out costs and really develop some tools for both ourselves and tools for our customers. I'm not talking about large systems, implementation programs to be very, very clear. I'm talking about incremental capability that drives greater web adoption, drives better app adoption, helps customers manage their capabilities and self-serve in a better way and also helps our agents do a better job of serving our customers because they have the screens at their disposal and the capabilities at their disposal to make real-time decisions in support of our customers.

So those are the things that we're focused on, and they will continue to drive benefit for our customers and for our organization as a whole.

Operator: Ladies and gentlemen, this does conclude the Q&A session for today. Thanks for participating. And you may now disconnect your lines.