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Shaw Communications Inc. (NYSE:SJR)
Q2 2018 Earnings Conference Call
April 12, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by. Welcome to the Shaw Communications' Second Quarter Fiscal 2018 Conference Call and webcast. Today's call will be hosted by Mr. Brad Shaw, CEO of Shaw Communications. At this time, all participants are in listen-only mode. And the conference is being recorded. Following the presentation, there'll be a question and answer session. To join the question queue, simply press * and 1 on your touchtone phone at any time during the call. Should anyone need assistance during the conference call, you may signal an operator by pressing * and 0 on your telephone. Before we begin, management would like to remind listeners that comments made on today's call will include forward looking information. And there are risks that actual results could differ materially. Please refer to the company's publicly filed documents for more details on assumptions and risks. Mr. Shaw, I will now turn the call over to you.

Brad Shaw -- Chief Executive Officer

Great. Thank you, Operator. And good morning everyone. With me today are members of our senior management team including Jay Mehr, President, Vito Culmone, Executive Vice President, Chief Financial Officer, Trevor English, Executive Vice President, Chief Strategy and Business Development Officer, and Paul McAleese, President Wireless. This morning, we released our second quarter fiscal 2018 operating and financial results, which includes a record quarter for wireless with post-paid net additions of over 93,000. This strong subscriber performance reflects a number of key strategic priorities delivered by our team over the recent months including the introduction of the iPhone in the quarter, the enthusiasm surrounding our data-centered plans and the favorable customer response to our continued network and service improvements. Besides record subscriber additions, we also realized a 5.5% improvement in blended RPU compared to a year ago.

We remain committed to improving the wireless experience for our customers. Our investments have included an upgrade to an LTE advance network, acquisition and initial deployment of additional spectrum, expansion of our handset lineup, and providing customers more data for less through our Big Gig data plans. I am pleased to confirm additional enhancements that have just been finalized, including agreement Loblaws' 'The Mobile Shop' to expand our wireless distribution to approximately 100 of their locations across Canada. And just a few weeks ago, we completed the refarm of our 10 megahertz AWS-1 spectrum in the east. Looking forward, we remain on track to have the VoLTE launched in fiscal 2018, and we continue deployment of our 700-megahertz spectrum which will roll out in fiscal 2019. We also commend the federal government on its support for strong and sustainable competition as reflected in the recent announcement of the set aside for the upcoming 600-megahertz auction.

This decision will ensure a future for wireless competition in Canada and is a significant win for all Canadians who deserve more from their wireless services. Moving to wireline, which really is the foundation of this company and has been built through decades of hard work by thousands of Shaw employees, I'm proud of what we have accomplished. Together we have built a company with our customers at the center and over the years, delivered a high touch customer service model with a professional install approach supported with a manual fulfillment, anchored through a powerful and ubiquitous network. It was the right thing to do. And we built our business on this foundation. It is with this same day-to-day operational focus that we will evolve our delivery of products and services that is a digital by default, primarily self-install, and continue network investments targeted to customer value. Total business transformation is at its core about our focus on the basics: customer experience, truck rolls, and our network.

Said another way, the three key elements of our focus going forward include a shift of customer interactions to a digital platforms, drive more self-installs, and streamline the organization that builds and services our network. Through this process, we have realigned the senior management structure to better support our key areas of focus which includes consumer, business, and wireless. While this does not change any of our external reporting, the realignment provides the leaders of each unit additional scope, oversight, and accountability for driving the respective businesses. A significant initiative under our transformation road map is the voluntary departure program. While approximately 3,300 employees elected to participate, the program was designed whereby executing the three key elements outlined earlier addresses the vast majority of the staff departures.

We remain confident that through the next 18 months -- and which has been extended to 24 months in some circumstances -- we can manage the transition with limited disruption to our day-to-day business operations. When I look at the Shaw we have built, I remain so excited about our strategic direction and the opportunities ahead. We have a wireless business with tremendous growth opportunity and a step-by-step strategic operating plan that is delivering results in a meaningful way. We have invested in a strong wireline network that supports the products and services that we provide to both residential and business customers. And we have a strong management team and dedicated employees that will lead us through our focus on the fundamentals of our business. We will be an organization that is leaner, more agile, and in the strongest possible position to capitalize on opportunities that we have in front of us. I will now turn the call over to Vito to review the Q2 fiscal 2018 results.

Vito Culmone -- Executive Vice President and Chief Financial Officer

Thank you, Brad. And good morning everyone. On a consolidated basis, second quarter revenue of $1.36 billion increased 12.4% led by significantly higher wireless revenue and continued growth in business and internet. Consolidated EBITDA of $501 million was essentially flat over the comparable period. Let's review each segment in more detail. Starting with wireless, the second quarter results mark a significant departure from historical results, and the culmination of all the investments we have made in our wireless business are beginning to have a material impact on our subscriber numbers and our financial results. Total wireless revenue of $290 million in the quarter increased by $149 million or 106% as equipment revenue went from $24 million in the second quarter of fiscal 2017 to $148 million in the current quarter. Service revenue also increased by 21% to $142 million as more customers are on Big Gig plans resulting in year-over-year wireless RPU growth of 5.5% to $38.43.

Second quarter wireless EBITDA of $36 million increased 24% over the same period in fiscal 2017. The reported wireless margin was 12.4% in this quarter compared to 20.6% in the previous year due to the significant increase in equipment revenue as a percentage of overall wireless revenue. While the success of our device pricing and packaging plans increase our level of subsidy relative to previous quarters, we view this as an attractive investment to profitably grow our subscriber base. And we clearly have a healthy balance sheet to support this with approximately $275 million of cash on hand and Net Debt to EBITDA of 2.0x as at the end of February 2018. Moving to wireline, year-over-year consumer revenue declined by 0.8% to $926 million while business revenue increased 5.3% to $140 million. Wireline EBITDA of $465 million declined 1.9% compared to Q2 fiscal 2017 but improved by $19 million or 4.2% from Q1 fiscal 2018, reflecting our focus on costs.

Consumer results reflect positive internet growth offset by declines in both video and phone. During the second quarter, we added approximately 5,500 internet RGUs, and we increased internet pricing for new customers, as we remain focused on balancing RGU growth and profitability. Video revenue and RGUs declined in the quarter as customers generally continue to shift into lower-priced packages. With the launch of Blue Sky on the X1 platform, we focused on executing a renewal in subscriber growth similar to the results of our US partners when they launched the program a number of years ago. The consumer context has changed. Our competitive environment is very different. And we did not achieve the same outcomes. Blue Sky and the X1 platform are a best-in-class platform that our customers overwhelmingly recommend. And we are pivoting our focus to optimize our video offerings for profitability.

Business results, which include revenue up by 5.3% and RGU growth of approximately 5,700 were led again by continued success with our smart suite of products as well as traditional internet, video, and data services. With the success we have experienced with our smart products in the S&E market, we've recently expanded e-services to make the available to Enterprise customers. Capital spending in the quarter increased by 7% to $288 million driven by increases in both wireline and wireless investment. Current quarter wireless capital of $56 million reflects continued investment in spectrum refarming and deployment as well as back office system upgrades. Wireline capital spending of $233 million reflect increases in new housing development and success-based capital. Free cash flow in the second quarter of $135 million compares to $147 million in the prior year. The decline in the current quarter is due to $19 million of higher planned capital expenditures.

As it relates to TBT and the pending departure of approximately 3,300 employees, we recognize the $417 million restructuring charge in the current quarter. Although the actual timing of the payments will occur over a 24-month period. The run rate annualized savings net of reinvestment specifically related to the voluntary departure program is expected to be approximately $215 million comprised of 60% operating expenses and 40% capital expenditures to be fully realized in fiscal 2020. The F18 impact of the VDP expected savings is approximately $48 million from the exit of roughly 1,200 employees before the end of this fiscal year. Net loss for the quarter of $164 million compared to net income of $147 million in the second quarter of fiscal 2017. The decrease substantially reflects the restructure and related costs recorded during the current quarter in respect of TBT and the related voluntary departure packages.

In summary, the first half of fiscal 2018 was in line with our expectations. And throughout the rest of the year, we remain committed to our balanced approach, focusing our efforts and spend on high-quality subscribers and growth opportunities. With that, I'm pleased to confirm that we remain on track to meet F18 guidance whereby we expect consolidated operating income before restructuring costs and amortization to grow to approximately $2.1 billion, a year-over-year projected increase of approximately 5%, capital investments of approximately $1.83 billion, and free cash flow of approximately $375 million. Our guidance includes certain assumptions related to cost reductions that will be achieved through TBT initiatives, specifically the VDP, roaming cost reductions associated with the CRTC finalized wholesale wireless roaming rates of $12 million expected to be realized in the third quarter, and short-term incremental costs associated with growth in wireless handset sales.

Finally, before handing the call back to Brad, I'd like to make a few closing remarks. It's been an incredible, fulfilling, and enjoyable three years for me at Shaw. To our investor community and external stakeholders, I wanna share the confidence I have in Trevor as he takes on his new role as CFO. It's been an absolute pleasure working alongside him during my tenure, and I have immense respect for his deep understanding of Shaw's business, the industry, and our stakeholder's expectations. To Brad, JR, and the entire Shaw family, thank you for giving me the opportunity to be part of such a special team during what I truly believe has been a transformative time for our organization. I'm so proud of the work we've undertaken.

And as today's results and those still to come will demonstrate, we're emerging from it stronger and with a very promising growth story, one that is rooted in providing great value and service to hardworking Canadians and one that no doubt in my mind will reward shareholders in the years to come. There's so many people to thank: our board of directors, my colleagues on the executive team, and the talented and deeply committed finance team that I've had the privilege of leading. But above all, a special shout out to the thousands of Shaw employees across the country. The work that you do day in and day out will continue to be the foundation of the organization's success. Your attention and care for our customers, for our work, and for each other does not go unnoticed. Thanks, Brad. And back to you.

Brad Shaw -- Chief Executive Officer

Thank you, Vito for this significant contribution to our business. It's been an absolute pleasure to work alongside you for the last three years. You've led a talented finance team and transformed a financial management approach to partnering with the business. On behalf of everyone at Shaw, we wish you only the best going forward. Today, as we look to the future of Shaw, we have made the strategic choices that will define our future. We are executing a step-by-step wireless roadmap that we delivered in the quarter and continues to deliver in the market today. Our focus on customer experience, truck rolls, and our network in the consumer business provides us with significant upside as well. And on business, we will continue to disrupt with our products, product suite, and opportunities to move up market. All of our business units will always put the customer at the center. Taken together, Shaw is well positioned for growth in revenue, EBITDA, and free cash flow.

Finally, before we turn the call over, we'd like to take this opportunity to send our love to the players' families and communities close to the sad events that hit Humboldt -- sorry -- Saskatchewan this week. So many of our employees, our shareholders, and our customers have joined together with other Canadians to support those impacted by this tragic event. And this morning, around our offices and across this country, thousands of our employees will be participating in the Jersey Day campaign to recognize the support of Humboldt Broncos family. Thank you, Operator. We'll turn it back over to questions.

Questions and Answers:

Operator

Thank you. We will now begin the question and answer session. To join the question queue, press * then 1 on your touchtone telephone. You'll hear a tone acknowledging your requests. If you are using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, please press * then 2. Anyone who has a question may press * and 1 at this time. Our first question comes from Tim Casey from BMO...

Tim Casey -- BMO Capital Markets -- Analyst

-- of how they occurred through the quarter. That's a pretty impressive number you put up with 90,000 ads.

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

Sorry. Sorry, Tim. It's Trevor. We missed the front of your question. Can you repeat?

Tim Casey -- BMO Capital Markets -- Analyst

I'm just wondering if you could provide a little more detail on the wireless metrics in the quarter, specifically how the timing went on the -- because that 90,000 ads you put up is a pretty impressive number. You cited that it was a pretty busy holiday season. Could you give us some color on how much occurred through the quarter in terms of the holiday season versus January and February? And then maybe some outlook on trends post-quarter. And as well, could you talk a little bit about the RPU of the new subscribers you're loading and how we should think about how RPU will trend going forward? Thanks.

Paul McAleese -- President, Wireless

Hi, Tim. It's Paul McAleese. Thank you for the question. We saw positive momentum right through the quarter. And that's continued into the third quarter. Within the quarter itself, the second quarter, December was very, very strong, of course helped by the December 8th launch of the iPhone. But as you know, on that, we also had a number of bad days that contributed to December results.

So, overall, December was strong. But that momentum continued nicely into the post-Christmas period in January and February. And as I say, we're continuing to be very pleased with what we're seeing from consumers heading into this quarter. On RPU of new subscribers, we've focused our investments, Tim. And I classify those as subsidy and distribution commission as well as financing on plans above $50.00. So, we are continuing to see the average new cohort of subscribers come in above the $50.00 level, which of course is helping pull through the denominator of our historical RPU. So, this is not a $37.00 RPU class that we're seeing any longer like we used to.

Tim Casey -- BMO Capital Markets -- Analyst

Would the 90,000, would that be fair to say it's spread evenly over the three months? Or would be more of the loads have occurred in December?

Paul McAleese -- President, Wireless

Yeah. A good percentage of the loads, as you'd expect due to the seasonality of Christmas happened in December. But we saw strong growth both in January and February as well.

Tim Casey -- BMO Capital Markets -- Analyst

Thank you.

Operator

Our next question comes from Vince Valentini of TD Securities.

Vince Valentini -- TD Securities -- Managing Director

Yeah, thanks very much. Let's deal with wireless first for a second. Paul, are you worried that these numbers are almost too good in terms of shocking the incumbents? We saw them retaliate for four or five days in December. And as you've admitted, you lost subs during that period of time. Are you worried that if you keep adding at this pace -- I mean, 360,000 on an annualized basis is pretty dramatic. Do you want to maintain this type of pace? And if so, are you prepared for retaliation from the incumbents?

Paul McAleese -- President, Wireless

Yeah. Thanks, Vince. A few points on that. And I think first off, we believe we're on a new and sustainable trajectory. So, we're confident in our growth potential. And we'd also agree with many of the analysts on this call that there's ample category growth for the industry to maintain good price rationality. So, if you look at what happened over the last quarter, the industry reported strong growth. We're pleased to join those numbers in that group. But a couple of points on the key drivers for Q2. Clearly, there's some positive effect related to both seasonality and the iPhone launch effect. So, I would be cautious in multiplying 93,000 times four. Although, I'm grateful for the confidence. We saw some moderate gains in gross market share. And that's I think a fair expectation going forward that we'll continue to take some there. We're now selling a series of devices that constitute about 40% of gross ads in the Canadian market. We weren't previously offering that. So, we'd expect to see some pickup on that.

And then finally -- and this is really important as we narrate the story -- we've seen significant improvements in our customer experience related to the great work that our network team has done on our overall product quality. So, it wasn't simply about going out and getting a bunch of more gross ads. We had record levels of customer retention during the quarter. And that really helped contribute to the 90,000 as well. So, it's not just a go out and get them story.

I think we have done a great job of maintaining existing customer relationships. And the great work that the team has done in advancing the refarming and allowing what had previously been hundreds of thousands of customers that were on a 3G experience with us to experience our LTE network and get large buckets of data on the new rate plans really contributed overall. So, I would be cautious on the board other than to say that we like the trajectory we're on. We think there's room for everybody to grow here. And we're satisfied with the quarter.

Vince Valentini -- TD Securities -- Managing Director

Okay. And you mentioned the churn. Do you happen to what to give us what your churn number is yet? Or are you guys still keeping that under wraps?

Paul McAleese -- President, Wireless

I think we're gonna start bringing those metrics to the market perhaps early in the next fiscal --

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

Yeah. I think Vince, as we get a bit more maturity and normalization in the business, we'll start to disclose some of the churn metrics, probably in fiscal 2019.

Vince Valentini -- TD Securities -- Managing Director

Okay. I got one more wireless question and then a cable or a bigger picture question. So, given that you're seeing these gross ads now, given that your churn is at record levels as you said, does that give you confidence that the initial wave of network investment is succeeding and is largely done? I mean, you guys have owned Wind for just about two years. And this is the first quarter you've finally seen a breakout in your subs. So, it was two years of network construction and now starting to reap the benefits of that. Do you still think you're years away and potentially billions of dollars away in terms of capex to get your network to a credible point? Or do you feel this is an endorsement that you're already there?

Jay Mehr -- President

Vince, It's Jay. This is not a single quarter result. It's obviously helped by the holiday season and a very strong seasonal period in January. This is a new wireless business that we're building at Shaw. And it's exactly the business that we told you we'd be building on a step-by-step plan. And the results are proceeding exactly as we wanted them to proceed. The LTE network is performing well. I know a number of people were surprised with the smaller number in terms of the roaming rebate that we got.

And it's simply because our network's better than people think it is. We're not relying on roaming as much as people think we are. By the same token, we love the roaming decision, the opportunities on the MVNO, the opportunities that we have with the 600 auction. Everything is proceeding beautifully. To be clear, there is no forklift capital in our wireless plan. This is step-by-step. We're continuing to roll out the 700 where we have great momentum. And we're just gonna stick to the plan on wireless and keep doing what we've been doing.

Vince Valentini -- TD Securities -- Managing Director

Thanks. And last question, just on the total business transformation. Maybe clarifications in some ways but also questions. The $48 million in 2018, that must be a run rate as of exiting the year. Or do you actually think you'll get $48 million of in-period savings in Q3 and Q4?

Brad Shaw -- Chief Executive Officer

Hey, Vince. Thanks for that. I'm gonna jump in here a little bit to talk about TBT a bit, and then I'll let Trevor or one of the guys answer that. Total business transformation is absolutely necessary for Shaw to meet customer expectations, to compete more effectively, ensure that we capitalize on opportunities to deliver long-term growth. We're approaching TBT from a position of strength, strong wireline network where we made significant investments to be ready to capitalize on emerging technology, gigabyte speeds, IPTV, home gateways, 5G, thriving wireless business with strategic step-by-step plans to grow in a profitable manner. We have a detailed plan to ensure minimal disruptions to our business. And a vast majority of the roles which we talked about can be addressed to modern digital service and automation. I have extremely high confidence in the ability of our leadership team to successfully execute on the plan. And I can tell you that employee morale remains high as change creates opportunities.

First of all, fair treatment of employees fosters loyalty among both those who are leaving and those who are staying. Employees that choose to stay are totally excited about the contribution they're gonna make to change and wanna be a part of this great story we have. And ultimately, I think -- when we look at the business and how we've run it for so many years and corporate leading, I really think the opportunity for us to make decisions closer to the customer -- excuse me -- works. And it's absolutely needed as we go forward. And I love the idea of full accountability in each business unit, I think is absolutely fundamental. So, I know there's been a lot of concern about TBT and the voluntary program, but we take things. We plan for this. This is what we do as leaders, and you adjust as plans and as things happen. And I'm very confident that we have all the pieces in place to make this very successful for all our shareholders.

So, in F20 and beyond, the increase of free cash flow to shareholders I think is gonna be significant. And we really wanna make sure as we go forward we're supporting our long-term initiatives and plan to deliver free cash flow and dividend growth. So, sorry for taking your question away, but I thought it was very important to address some of the things here. And we take things very seriously. And I think with us, we may be a little ahead of the curve. I'm not sure, when you look at traditional businesses and disruption and what companies are going through. I think we certainly see the opportunity to be a more lean and streamlined company and are taking the steps and are absolutely focused on the growth business, just absolutely making sure we make the proper investments as we go forward for the long-term profitability of this company. So, thank you for that, Vince. And I'll throw it over to you, Trev.

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

Yeah, Vince. It's Trevor. Maybe I'll try helping you with the modeling and the financials aspect of it. So, in F18, there's about $48 million of savings as we quoted in the press release. And that relates to the exit of about 1,200 people between now and the end of August. And I can tell you as of March 29th when the exit started, it was about 400 on that day. So, the $48 -- and the early exits I'd say are more leaders, management, corporate folks. As we roll out throughout the really 18 months but in some unique circumstances, we've pushed that out, some of the exits. There's about 500 people now into the 24-month period. The savings go from $48 in F18, the $215 we quoted in 2020. Then to help bridge you, that's about $150 million in F19 as well. And that's when you get into the 60% roughly opex, 40% capex. And just maybe a little bit of additional granularity to help you. VDP was really focused on areas within our wireline business. And those savings are really more -- it's about 90% within wireline versus wireless.

And in fact, in F18, it's about 95% that's within wireline versus wireless. So, hopefully that helps you with the modeling. In terms of timing of exits and cash flow, we did book a provision this quarter on the balance sheet. About $18 million have already been spent as of the end of Q2. We've got about $200 million going out the door related to the exits within the next 12 months and then another $200 million for months 12-24. And that's disclosed in the financials, in the provision that we took this morning.

Vince Valentini -- TD Securities -- Managing Director

Excellent, thank you.

Operator

Our next question comes from Drew McReynolds of RBC Capital Markets.

Drew McReynolds -- RBC Capital Markets -- Managing Director

Yeah, thanks. Thanks very much. Just a couple of follow-ups on the wireless side. I'm wondering -- I guess, Paul -- if can you just talk to -- I think you launched the online sales channel, but more broadly just from a loading perspective and your distribution footprint, can you just provide a little more granularity where some of this is coming from? And I think in previous quarters, you've commented on the relative loading between the Ontario market and BC and Alberta. So, just wondering if you could add some granularity there. And I'll have one follow-up if that's OK. Thanks.

Paul McAleese -- President, Wireless

Yeah. Thanks, Drew. We're very, very pleased with our performance of the distribution over the course of the last quarter. As you know, we split broadly evenly between distributors and our corporate stores in terms of their gross activations over the course of a quarter. We continued to see that split through the second quarter. And we continue to see a historical split between the east and the west. The east is about 70% of our gross ads and the west is about 30%. And again, possibly some opportunity there in due course. So, we're very pleased to have brought on our first national retailer in Loblaws, which will be starting to activate as early as this week in those stores. And that'll be the first time, Drew, that we sit on a shelf with our competition. So, we're eager to see how that plays out over the next little while but very confident.

Drew McReynolds -- RBC Capital Markets -- Managing Director

Okay, that's great. And Paul, just a follow-up. I think last quarter, you were asked a question just on a wireless wireline bundle potentially within 12 months in a Shaw branded wireless service. Just is there any update there that you can provide us just given what's happened with your deployment roadmap across all the wireless initiatives? Thanks.

Jay Mehr -- President

Yeah. It's Jay. Maybe I'll take that, Drew. More to come on that file. I think we've been very clear that we have a crisp and clear plan on wireless that we're executing on a step-by-step basis. And we're gonna let wireless run. As you can appreciate on the wireline side of the business, we're going through some pretty major structural transformation, and we've got lots of work to do on that side. So, things will come in the future, but I don't have anything to add today except that we're gonna continue to lean into the wireless momentum that we have today.

Drew McReynolds -- RBC Capital Markets -- Managing Director

That's great. Thank you very much.

Operator

Our next question comes from Jeff Fan of Scotiabank.

Jeff Fan -- Scotiabank -- Equity Research Analyst

Hi. Good morning, everyone. Just a couple of quick follow-ups on wireless if I can. And then a question on the cable business. With respect to the ads, Paul, is it fair to say the contribution to your improvement in net is pretty balanced between contribution from gross as well as lower churn? And then also, in terms of contribution to your gross, how would you describe where you're getting from BYOD versus those subscribers that come with an equipment sale?

Paul McAleese -- President, Wireless

Hi, Jeff. Yeah, thank you. Excuse me. Yeah. I'll work in reverse order here. So, BYOD continues to be an important part of our business. In the second quarter, we actually saw a historically low percentage of our gross ads coming from BYOD. So, sub-50%. So, again, we're focusing on those longer-term relationships that we can acquire through putting higher-value customers on better devices on Big Gig rate plans, many of them financing their device over a couple of years. A good, solid anchor relationship that we can build on for years to come. We still love BYOD customers, and we love the value that we can bring them. But that has, in the second quarter, been a smaller part of the overall business. On gross ads -- sorry, the first part of the question, if I could -- this was a split.

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

It was ads versus churn.

Paul McAleese -- President, Wireless

Yeah. Ads versus churn. I'd say that's an even split in terms of their relative waiting to the overall piece. We're really pleased with the retention story that we're building over the last couple of quarters. And I can't overstate the fact that when you take hundreds of thousands of customers from a 3G to an LTE experience as we've been able to do, we're really starting to reap the dividend of that in terms of the customer experience. So, yeah. About an even split I would say between those two.

Jeff Fan -- Scotiabank -- Equity Research Analyst

Okay, thanks. And then a question on cable. More specifically, did the consumer revenue, as we look out to the second half of the year -- there's a lot of moving parts. You put through some price increases. You've made some changes to your promos. Yet at the same time, you do have some subscribers who are coming off of promo plans. Can you help us think through all those moving parts and how the second half consumer revenue will track? How's it gonna look with all those moving parts? And then I guess a bigger question is you've had some management changes recently. I guess, one of the things that I guess I wanna get my head around is with respect to pricing and packaging decisions and how that responsibility may or may not have changed within your organization in terms of where that decision rests.

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

Sure, Jeff. It's Trevor. Maybe I'll help with the bridge on the second half in terms of the consumer revenue side. Clearly, there's been lots of movement with reduction of promos, some rate adjustments in Q2 that have been made that'll flow through into Q3 and Q4. We've also announced, and I think it's been talked about -- our annual rate adjustment comes in on Q4 or June 1st. And that is forecasted to contribute about $7.5 million of revenue on consumer as well. So, clearly this is all of the moves that we've made in Q2, Q1, and even in the back half of '17 will flow into a Q4 consumer revenue where there's a fairly significant ramp, which is what we're expecting. And that's all embedded in the guidance that we confirmed as well this morning.

Jeff Fan -- Scotiabank -- Equity Research Analyst

Okay.

Jay Mehr -- President

And building on that, Jeff -- it's Jay. The $7.5 million on the rate adjustment is on monthly.

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

On a monthly basis. Pardon me.

Jay Mehr -- President

It's a monthly number, just to be clear. And results on wireline revenue, we've seen the start of this quarter already, are performing exactly like we thought they were performing. So, we're seeing the nice steps back in terms of the ramp that goes through in Q4. Jeff, in terms of leadership changes, we've got a of crisp organizational structure to declare pricing and packaging and marketing is now within each of our three business units of wireless, consumer, and business. We have great confidence in the teams that are driving each of those business units. And we think we've got a great level of focus on what each of our jobs are ahead. There's opportunities on all three of those bases. The opportunities are not the same as each other. So, I think the dedication and focus on those functions will be really important for us going forward.

Jeff Fan -- Scotiabank -- Equity Research Analyst

And Just one specification. Is the cable or the wireline segment I guess between consumer and business -- how are those segments now, or managers being evaluated? Are they all evaluated on a more P&L basis now?

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

Yes. On all three of our segments, everyone is very crisply measured on metrics. And we've got a job to do. Clearly, consumers got a profitability plan that we're supportive of. And to be clear, the consumer business is on its EBITDA budget for six months of this year and will continue to be. We're focused on this, and we always planned a strong second half of business. Absolutely, there's a focus on P&L. There's also a focus on growth. We saw a little bit of moderating in our growth curve. And it might take us a quarter or two to get back north of that 7% instead of the 5.3% we're at at this quarter. But to be clear, we continue to believe there's lots of growth on the business side, and we're asking our leadership team to deliver that.

Jeff Fan -- Scotiabank -- Equity Research Analyst

Okay. Thanks, guys.

Operator

Our next question comes from Philip Wong of Barclays.

Philip Wong -- Barclays Investment Bank -- Quantitative Analysis

Hi. Good morning, guys. I wanna go back to RPU. Obviously, it's a bit of a light-handed hitter [inaudible] just given the big base that you have. So, it's pretty impressive for us to see such a nice jump. Now that you mention that that RPU new subs are all coming in about $50.00 level, should we expect pretty strong acceleration in terms of growth here? Or are there any offsetting factors that we should also take into consideration as the year progresses? And then I also have a follow-up question on the wholesale roaming rate. Now that it's finalized, I see that reverse expenses of $12 million in fiscal Q3. I'm assuming that's related to the retroactive application of that. Just wondering if you could comment on the savings going forward, given that that's presumably for two years. And we assume that you're gonna get $6 million of benefit per year going forward. Or do you expect a bigger number? Because obviously, you've got a bigger [inaudible] now. Thanks.

Paul McAleese -- President, Wireless

Hi, Philip. It's Paul. I'll take the first one on RPU. We think is just a great consumer satisfaction story for our wireless business. And in a lot of respects, I think the RPU story was quite predictable. There were two key drivers over the course of the quarter to bring your focus to. One is those investments I spoke about that really were focused on $50.00 plus rate plans. So, everything from how we commission our distribution through to how we induce and incent customers, whether it's through financing or for subsidy, we're really focused and will continue to be focused on that higher value subscriber relationship. So, we're dragging a significant number of new subscribers into the equation that are helping build that $37.00 historical number up to a much better figure, like you've seen in the second quarter here at 38.5. Another thing that I wanna focus on, and it's not as obvious from the outside, is that we've been actively upgrading our existing subscribers to our Big Gig rate plans.

So, we have historically had a relatively low migration history with our customers that that's always been a net zero for us as customers come in and out of rate plans often related to their travel needs. Over the course of the last number of months though, as we've developed this great value equation for our customers, we're seeing tens of thousands of subscribers move on a regular basis from a historical lower-value rate plan into a new $50.00 plus rate plan. So, there are things happening above and below the line here that are contributing to that growth. And we think you'll continue to see from us those investments focused on that RPU growth. So, I think that story will hopefully continue.

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

And Philip, it's Trevor. Just on the accounting, it's about $12 million in Q3 that we'll be booking for the retroactive impact of the lower roaming rates. And to Jay's comment, maybe it's not as big as people thought. It's about an annual impact of about $5 million in terms of what we'll see as the run rate going forward.

Philip Wong -- Barclays Investment Bank -- Quantitative Analysis

Okay. Got it. No, that's very helpful for those. I wanna ask a follow-up on the cable side. Obviously, you guys have shifted away from the promotions for the past quarter. Recognizing that the bigger growth opportunity obviously lies in wireless, should we assume that this is the type of approach going forward? Should we assume the level of subscriber trends to be similar into future quarters? Or it just ebbs and flows a little bit depending on the market conditions? I just want to get your take on where subscriber retention and growth -- where that land in terms of your priority as it relates to the promotions that you're thinking through as the year progresses. Thanks.

Jay Mehr -- President

Great. Thanks for that, Philip. It's Jay. We'll give you some color there. Clearly, our growth opportunities exist on wireless as you've seen. And we're gonna continue to lean into the wireless opportunity. We continue to have a growth opportunity in business as an opportunity to come off market and business. And so, despite the fact there was some slight moderating in our growth result this quarter and maybe next, you'll see us continue to drive business as a growth opportunity. There's lots of noise on the consumer side of the business as you adjust pricing and promotional periods and competitive environment, and we continue to exist in a very competitive environment. So, it's a little bit tricky to map out specific subscriber numbers in an area of very moving pieces. And I think it's clear that Vito's comments that when we originally launched Blue Sky, we wanted to duplicate the success that our American counterparts achieved a few years ago with the launch of the X1 platform and drive market share growth.

And you've heard us communicate clearly to the team a year ago that winning looked like plus one in terms of video subscribers. It's clear as we executed that strategy that we got a different outcome and that that was a strategy in the current environment both with our competitive environment in western Canada where people have already moved to smaller packages and just everything that's happening in video today, which I think is global, not just a western Canadian thing. But that approach wasn't gonna achieve the same outcome. So, you've seen us shift video to more of a profitability approach. And you'll see us do that going forward. Whether or not you'll see a moderating of video RGU losses over the next coming quarters, it certainly would be our intention to do that. But we would do that within the context of profitability.

The dynamics of our broadband business is good. What's fantastic about the Comcast roadmap is it's a total home solution, and the industrial design of that relationship with Comcast is terrific for us. And you'll see those benefits shift even more to the broadband solution and our broadband revenues going forward.

Philip Wong -- Barclays Investment Bank -- Quantitative Analysis

That's super helpful. Thanks very much.

Operator

Our next question comes from Greg MacDonald of Macquarie Capital Markets...

Operator

Mr. MacDonald. Your line is live.

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

To the operator, we're not hearing the question come through. We didn't hear the -- yeah.

Operator

Our next questioner in the queue is Aravinda Galappatthige of Canaccord Genuity.

Aravinda Galappatthige -- Canaccord Genuity -- Managing Director

Good morning. Thanks for taking my question. Just a single question remains. Just wanted to revisit the comments you made about BYOD, obviously recognizing that it's not been a major drive in the last couple of quarters. But with the refarming done and some of the cons we hear from a few players, that appears to be a meaningful opportunity, particularly for the regional wireless players. So, should we expect you to apply more energy in that area as we look to the second half for an additional wave of growth on the wireless side?

Jay Mehr -- President

Let me start, and I'll let Paul finish. Look, we hit a market scene where consumers felt mistreated by the way data was being offered by our competitors. And the combination of that with the launch of the iPhone and energy in the marketplace, we hit a scene, and we focused on that scene. And so, you can only do so many things at once. The refarming actually helped us benefit our existing customers by moving them from 3G to LTE. And that helped us with churn benefits and other things. To say that our BYOD powder is still dry, it absolutely is. Although, to be clear, you know the majority of our customers are in Ontario. And we just completed that refarming in the last few weeks. So, there's certainly more opportunity on BYOD. By the same token, recognize that we love the characteristics of the cohort that's onboarding today. And we're not gonna leave that alone in order to chase BYOD. We've got some levers going forward that you haven't even seen us use yet. I don't know if you wanna add to that, Paul.

Paul McAleese -- President, Wireless

No, that's perfect.

Jay Mehr -- President

Good.

Aravinda Galappatthige -- Canaccord Genuity -- Managing Director

Okay. That's great. Thank you.

Operator

Our next question comes from Maher Yaghi of Desjardins Securities

Maher Yaghi -- Desjardins Securities -- Media and Tech Analyst

Thank you for taking my question and congratulations on the nice wireless results. I wanted to first ask you a question on -- you mentioned in your prepared remarks that Q3 is still looking good in terms of wireless loading. If I look back at the last year, we saw a slight decrease, 10 to 15,000 decrease in that ads. Is that what we should look at in terms of quota over quota type movement in ads? Or is there something special in Q2 that took place that Q3, we should expect a more normalized level of loading? And I have a second question too to just follow up on that.

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

Yeah. We've got great momentum. And we've had a nice start to the quarter. And things continue to go well. There is seasonality in the business. I mean, you do have to look through the ads in the business. Last year, we did 19.8, basically 20,000. And in Paul's first quarter, he always rounds up to 20. But I joke it's 19.8. I mean, look. At the pace that we're going, you can absolutely hold us accountable to double that. Could we do better than doubling that? We might do a little bit better than doubling that.

But I mean, if you think about something in the fours, I would consider that to be the current trajectory given the level of activity that we have in the marketplace. If you follow that seasonality curve, you should expect more from us in Q4 than that because that's how the business unfolds. But I really don't wanna get too speculative on guiding the specific numbers in a very competitive and floating environment. We're gonna do the right thing. Just wanted to give you some context of where our head's at based on what we're seeing today.

Maher Yaghi -- Desjardins Securities -- Media and Tech Analyst

No, you actually did more than I had expected. So, thank you for that. In terms of your guidance, now when I look at your opex and capex savings from the VDP, which add up to $48, I add up the $12 million from the CRTC netback. You get about $60 million. But you're sticking with your previous guidance of $375 on free cash flow. Can you just try and explain what are the other things happening behind that is not helping in guiding up the numbers?

Jay Mehr -- President

Yeah. I think one thing, Maher, is obviously the success of the wireless business has put a near-term pressure on margins that frankly, we didn't initially forecast. And we talked a little bit about the impact of the additional wireless equipment sales. And there's actually a negative margin on that. So, that is one of the things that's keeping us on the original guidance along with some of the other favorable items including the $12.5 million or the $12 million related to the one-time CRTC benefit. So, there's a few things positive. But one of the things holding us back obviously is the success in the near-term margin impact of some of our wireless activities, which we're very happy with. But that's why we're sticking with the original guidance that we have in place.

Paul McAleese -- President, Wireless

The only other thing I'd add there, Maher is as you've heard in our prepared remarks, how video's performing, perhaps vis a vis our original guidance is a bit of a headwind compared to that. But where we expect to come out of Q4 presents a very favorable picture going forward in 2019 and thereafter.

Maher Yaghi -- Desjardins Securities -- Media and Tech Analyst

Okay. Yeah. That's what I had implied because if you locate all the improvement versus your previous guidance, it comes out to maybe $150,000.00, $100,000.00 of higher than expected loading, which seems quite large. But yeah. On the cable side, just one last question. When you look at your network, what are the additional investments that you feel you need to do in 2019? I know you don't want to provide actual dollar forecasts on capex, but maybe can you just tell us what are your big projects for 2019 on wireless in terms of stores, additions, network expansion, implementing new spectrums and new network? Things like that. Just qualitatively, maybe.

Jay Mehr -- President

Yeah. Thanks for the question. Our plan has not changed. We're gonna continue to execute the plan. I think there was some surprise maybe that in terms of executing the Videotron spectrum, that we prioritized 2500 before 700. I think that was maybe counterintuitive to people. I hope you can see today the importance of that in terms of what it does for our base in terms of being able to move them from 3G to LTE and the opportunity for them to come off market. I recognize people will have other views that we should have done 700 first. We started 700, and we're moving down that path as planned. And that'll be the chunk of next year's wireless spend. Throughout our segments, again, there is no forklift capital. We've got some VDP savings in capital. And so, I don't think you'll see anything scary in our capital trend over the next couple of years. And when Brad talks about increasing free cash flow with or without Corus dividends, that's all part of our future as we move forward over the next few years.

Maher Yaghi -- Desjardins Securities -- Media and Tech Analyst

Oh. Okay. Thank you very much.

Operator

Our next question comes from Rob Goff of Echelon Wealth Partners... Mr. Goff, your line is live... Our next question comes from David McFadgen of Cormark Securities.

David McFadgen -- Cormark Securities -- Analyst

Hi. Great. Thanks for squeezing me in. A couple of questions. So, first of all, just on the wireline RGUs, I was wondering if you thought that there's a path to get those to be stable. And I would think that if you actually had a Shaw mobile product, and you bundled it with the existing wireline services, that that would go a long way to stabilizing those RGUs. Just wondering what your comments are on that. And then secondly, just on Loblaws, is the hundred locations a starting point? And could it grow to be something more significant than that? And are there other organizations that you're talking to that are similar to a Loblaws?

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

Yeah. Let me start on RGUs, and we'll let Paul talk more about Loblaws. Look, there's lots of noise as we shift our approach to the consumer market. And we've got lots of work to do. Do we aspire to better RGU results than we got? Absolutely. And we're continuing to balance that. But when you think about wireless, wireless is the single base against growth opportunity at Shaw. We don't think of it as a vehicle to stabilize wireline results.

We think of it as a fundamental creator of shareholder value for our future. And so, we're gonna drive that as an absolute business with the level of focus and commitment that you've seen. Is there an opportunity to bundle? Of course, there is. Are there opportunities for us to do things in the future? For sure. Would we like to get a greater share of broadband ads than we've got this quarter? Yes. But we've in a very challenging environment, and we need to -- we're not gonna do it at all costs. We're gonna perform in a disciplined way and make choices in terms of where we invest. Paul, do you wanna talk a little bit about Loblaws?

Paul McAleese -- President, Wireless

Yeah. Thanks, David. It's Paul. The 100 Loblaws locations, mobile shop locations, that's the total within our coverage. But we'll have those in service fairly quickly and within this quarter. So, that'll be the cap of it. On other retailers, we were really fortunate over the last number of quarters. We demonstrated strong credibility. As you know, a good percentage of Canadian wireless retail is controlled by our competition. So, we'll continue to be excluded from that, I would surmise. But there are certainly retailers of mobile in this country that are I think starting to recognize that we represent an important opportunity for them to provide value to their customers that otherwise doesn't exist today with the carriers that they're listing. So, we're always open to the conversation for a place on their shelf and happy to take those phone calls as we have been in recent months.

David McFadgen -- Cormark Securities -- Analyst

Okay. Thank you.

Operator

Our next question comes from Rob Goff of Echelon Wealth Partners

Rob Goff -- Echelon Wealth Partners -- Managing Director and Head of Research

Good morning. And thank you for circling back. My question goes back to a comment that was made on the impact of migrating wireless subscribers. Could you perhaps dive a bit more into that and weight off the benefit to RPU of migration versus the new subs coming on the $50.00 plus programs?

Paul McAleese -- President, Wireless

Yeah. Hi, Rob. It's Paul. I'll maybe go back to the historical. We used to do a very small percentage of our subscriber base every month that would migrate. And the typical behavior would be I'm on a $50.00 plan. I'm going to Florida. I'm gonna go down to a $30.00 plan. And then when I get back, I'll jump back to the $50.00. So, the net over the course of the year for us was basically a null event. What we've seen of late is a significantly larger percentage of our base every month migrate. And where it used to be zero economic impact, our average migration right now is a positive nearly $6.00. So, you can imagine the consequence of that. I don't have the number at hand in terms of the waiting between that and new, but we continue to recognize and see that our existing subscriber base sees incremental value, particularly after the refarming in moving to the Big Gig rate plans. So, I would speculate at this point that over the coming quarters, we'll continue to see favorable migrations that'll positively influence RPU

Rob Goff -- Echelon Wealth Partners -- Managing Director and Head of Research

Thank you very much.

Operator

Mr. Shaw, there are no more questions at this time.

Brad Shaw -- Chief Executive Officer

Great.

Operator

This concludes the time allocated to today's conference call. You may disconnect your lines. Thank you for --

Brad Shaw -- Chief Executive Officer

Thank you, Operator. Thanks, everyone. Have a great day.

Operator

Thank you for participating and have a pleasant day.

Duration: 61 minutes

Call participants:

Brad Shaw -- Chief Executive Officer

Vito Culmone -- Executive Vice President and Chief Financial Officer

Trevor English -- Executive Vice President, Chief Strategy and Business Development Officer

Paul McAleese -- President, Wireless

Jay Mehr -- President

Tim Casey -- BMO Capital Markets -- Analyst

Vince Valentini -- TD Securities -- Managing Director

Drew McReynolds -- RBC Capital Markets -- Managing Director

Jeff Fan -- Scotiabank -- Equity Research Analyst

Philip Wong -- Barclays Investment Bank -- Quantitative Analysis

Aravinda Galappatthige -- Canaccord Genuity -- Managing Director

Maher Yaghi -- Desjardins Securities -- Media and Tech Analyst

David McFadgen -- Cormark Securities -- Analyst

Rob Goff -- Echelon Wealth Partners -- Managing Director and Head of Research

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