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Rogers Communications, Inc. (NYSE: RCI)
Q1 2018 Earnings Conference Call
Apr. 19, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Rogers Communications Q1 2018 Results Analyst Teleconference. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time for you to queue up for questions. To ask a question, please press * and 1. I would like to remind everyone that this conference call is being recorded.

 I will now turn the conference over to Mr. Glenn Brandt with the Rogers Communications management team. Please go ahead.

Glenn Brandt -- Senior Vice President, Corporate Development, Investor Relations & Treasury

Good afternoon, everyone. Thank you for joining us. I'm here with our President and Chief Executive Officer, Joe Natale and our Chief Financial Officer, Anthony 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 2017 Annual Report regarding the various factors, assumptions and risks that could cause our actual results to differ.

And with that, let me turn it over to Joe to begin.

Joseph Natale -- President, Chief Executive Officer & Director

Thank you, Glenn. Good afternoon, everyone, and I'm pleased to share our first quarter results with you.

Let me start with our financials, which reflects our results before the new IFRS standard. Anthony will then walk through our results using the new standard. In Q1, we delivered another strong quarter with total service revenue growth of 6% and adjusted EBITDA growth of 11%. These results were bolstered by strong performance in both wireless and cable.

In wireless, we delivered exceptional financial and operating results. In Q1, we attracted the highest number of postpaid net additions since 2009 and we delivered the best Q1 postpaid churn in 15 years. We also delivered strong growth in ARPU. In cable, we reported solid financial and operating results. We grew total service unit net additions by 12,000 and our world-class internet service continue to fuel our growth as data demand grows in a healthy pace each year. In media, we saw strong growth in revenue and profit driven primarily by higher sports-related revenue. Overall, a rock-solid start to the year.

As a management team, it is our goal to deliver consistent and sustained performance across both financial and operating metrics. We are steadfastly focused on our core business and driving the fundamentals that deliver shareholder value. Execution discipline and well-timed investments are key to our success.

On this front, we continue to make great headway on our 4.5G and 5G network plans. Earlier this week, we announced plans to test 5G across multiple cities and frequencies. We also announced Ericsson as our 5G partner, the partner of choice for North America's largest carriers. Day-to-day we are densifying our national network adding more backhaul, macro and small cells. We're upgrading our 4.5G network to be 5G-ready across the country. We've always invested to be at the forefront of commercially-ready technology and we're investing again.

In cable, our internet service continues to deliver well ahead of consumer demand. We already offer 1-gigabit speeds to all of our customers today. And our DOCSIS roadmap will support upload and download speeds up to 10 gigabits per second across our entire cable footprint. This is an evolutionary transition and a success-based investment. Long-term, we see terrific growth in internet given the proliferation of devices in the home.

We continue to make steady progress with Ignite TV, our IPTV service license from Comcast. Last month, we completed our employee trial and launched Ignite TV to all employees in our Ontario cable footprint. 3,000 frontline team members are now trained to support the service as we roll it out. We continue to pressure test the platform and the end to end customer experience. We remain on track for our full customer launch later this year.

The Ignite TV will deliver a truly premium service with the most advanced features, including a constantly evolving product roadmap. At launch, the core of the service is the voice remote that integrates linear and over-the-top streaming services such as Netflix and YouTube into one viewing experience. And its IP platform will integrate real-time data such as sports scores, delivering immersive experience all on one screen.

 Behind the X1 platform are thousands of software developers and software updates, updates that can be rapidly deployed on a daily basis for continuous innovation. It would be economically impossible to replicate this rich product roadmap and set of services here in Canada. I believe this will be the best service for cable subscribers in Canada and we're excited to bring it to our customers. But Ignite TV is just the beginning -- X1 will deliver a roadmap that connects monitors and secures everything in the home. We truly have a competitive advantage in cable with our world-leading internet and our connected home service.

 Underlying all this is our relentless focus on the customer. We are quietly chipping away at root cause issues, knocking them off our list one by one. We're doing this in a very methodical and prioritized manner. This is foundational work that will have a transformative impact over time. To-date, we're making some good progress. For example, we continue to reduce wireless churn. We've seen a double-digit reduction in customer calls, while growing digital adoption has steady pace. I fundamentally believe that customer experience improvements and margin expansion go hand-in-hand.

 Before I turn it over to Anthony, I'd like to thank our entire team for their incredible dedication and commitment in delivering a strong Q1. Anthony, over to you.

Anthony Staffieri -- Chief Financial Officer

Thank you, Joe, and good afternoon, everyone. We're truly pleased with our performance this quarter. Our financial results reflect the continued momentum we exhibited throughout 2017, while also delivering solid key operational metrics.

For this first quarter ended, you'll see the implementation of a few changes to our accounting policies and disclosures, all as we had previously communicated to you. Firstly, we commenced reporting our financials with the adoption of the IFRS 15 accounting standard and have provided comparative growth rates for the relevant figures by restating the 2017 figures on a like-for-like basis. And to ease the transition to this new accounting standard, we've also disclosed our figures under the previous accounting standards again with consistent year-on-year comparisons. The new IFRS 15 accounting standard only impacts our wireless and consolidated results.

And as previously communicated, we now report adjusted EBITDA, which now includes stock-based compensation expense instead of adjusted operating profit, and you will recall our guidance for 2018 was based on adjusted EBITDA. Finally, our cable segment is now inclusive of Rogers Business Solutions and our Smart Home Monitoring business and prior period comparisons were adjusted accordingly.

Turning now to our consolidated results, we posted overall service revenue growth of 6% and adjusted EBITDA growth of 11% using our previous accounting standard. Under IFRS 15 accounting, this translated to service revenue growth of 5% and adjusted EBITDA growth of 14%. These differences in growth rates relate to our wireless business, which I'll explain more fully in a moment.

Our consolidated adjusted EBITDA growth rates reflect continued meaningful margin expansion, as well, 170 basis points of expansion when measured under the previous accounting standard despite increased investments in key areas such as customer handsets. Our cost playbook delivered meaningful offset in cost reductions. Under IFRS 15 accounting, our margin expansion is 200 basis points in the first quarter.

A year ago, we said we would deliver cumulative margin expansion of 100 basis points to 200 basis points in 2018 over 2016 in both wireless and cable. We made great progress on this front in 2017 and we will continue to do so this year. You may see some lumpiness during the 2018 quarters, but we remain committed to our targets for the full year.

Turning now to our wireless business, utilizing our prior accounting standards, we reported service revenue growth of 7% and adjusted EBITDA growth of 9%. Here, our revenue increase reflected solid growth in our subscriber base but importantly continued strong growth in blended ARPU, which was 5% this quarter. Our adjusted EBITDA growth in wireless reflected margin expansion of 80 basis points under the previous accounting standards. Despite increasing spending on handset subsidies by $85 million year-over-year, other operating costs were reduced by 5% to deliver a healthy flow through rate of 57%.

In applying IFRS 15 to our wireless business, service revenue grew 5% in the quarter. This compares to the 7% I just mentioned using the previous accounting standard, slightly lower growth rate as the recovery of the handset subsidy piece of our monthly bill, is in essence, removed from our service revenue. As a result of this change to service revenue, ARPU is otherwise less than whatIt would have been under the previous standard and not reflective of the amount to be paid by the customer each month.

To assist in understanding the underlying economics, we're now disclosing average billings per user, or APU, which approximates ARPU under the previous accounting standard and reflects the same growth rate year-on-year. On adjusted EBITDA using IFRS15 our wireless business grew 13%, higher than the 9% under the previous accounting rules, as now embedded equipment revenue for the full contract term is accrued upfront on signing of the contract, thereby increasing total revenues and adjusted EBITDA. Operating expenses under IFRS15 are higher than under the prior accounting basis as we recognize more back debt expense up front associated with a higher upfront revenue. Slightly offsetting this, though, commission expenses are now deferred and advertised over the contract term rather than expenses incurred under the prior accounting basis.

Finally, in addition to these strong revenues and profitability metrics under both accounting standards, we delivered $95,000 post big net subscriber additions in the quarter, reflecting both the highest level of first quarter postpaid gross additions and the low post big churn rates in 15 years. Turning to cable, we grew cable revenue by 1% and adjust EBITDA by 4%. Driving these results is internet revenue growth of 7%, reflecting the expanding size of the internet market but also continued demand for increased speed and, as a result, increase data usage by our customers. Percentage of our residential internet based on speeds of at least 100 megabits per second has reached 56%, compared with 48% last year. The corresponding ARPU growth we see with this demand has been supported by our ability to offer Ignite gigabit internet to our entire footprint, supporting real time, healthy economics for continued network investments.

Despite a heightened level of competition this quarter, we attracted 26,000 internet net additions. We're focused on the long-term economics of our business and look to balance subscriber growth while remaining profitable. And, in cable, I’m pleased to report that the numbers are the same under both old accounting and IFRS15. In media, we delivered excellent results across both revenue and adjusted EBITDA. Revenue grew across our entire portfolio, with the exception of publishing and sports continues to lead this growth. Our revenue, including another distribution for major league baseball in respect of the sale of certain digital access.

Even without this distribution, though, our media division delivered healthy revenue and adjusted EBITDA growth of 4% and 47%, respectively. In Year 2, I’m pleased to tell you the media results are the same under IFRS15 and the previous accounting policy.

I’ll now go through some additional details our financial results. Free cash flow grew 18% this quarter despite the impact of increased CapEx. We previously communicated that we would increase the investments in our wireless and cable networks and this was reflected in our capital spending this quarter. We continue to prepare for the 5G in wireless and further increase speed and capacity of our fibre-coax networking cable. All the milestones we've set for ourselves in 2018 on the network investment front will be accomplished within the CapEx guidance we previously provided for the year.

With respect to our financial flexibility, strong adjusted EBITDA helped generate operating cash flow of $885 million dollars in the quarter which supported dividend payments of $247 million this quarter. Significantly, we ended the quarter with a debt leverage ratio of 2.7 compared to 3.0 a year ago, which was driven by higher adjusted EBITDA and lower net debt.

As well, you may have noticed that we announced today that the Toronto Stock Exchange has accepted our notice of intention to commence a normal course of issue of bid. To be clear, we will remain focused on investing in the fundamentals of our business to continue to drive long term sustainable growth. However, we've initiated this normal course issue or bid application to provide us with the capability to be opportunistic, to broad equity market conditions and/or share price volatility warrants.

Finally, thank you for your patience as I crawl through the impact of IFRS15 on our wireless and consolidated figures but we thought it important that you fully understand the changes and its implications. Further, our guidance ranges as we previously communicated were named the same under both IFRS15 and the previous accounting standards.

It's worth highlighting that IFRS15 hasn't changed the underlying economics of our business. You’ll note that free cash flow doesn't change and the fundamental drivers of customer longtime values don't change and neither will our focus. This quarter was an excellent start to the year and set the right tone for us to meet our strong growth targets. We're focused on sustainable growth for the right mix of customers in our business and are continually refining our cost structure while improving the customer experience.

With that, I’ll ask the operator over the lines for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentleman, we’ll now conduct a question answer session. If you have a question please press * followed by the 1 in your touch tone phone. You'll hear a tone acknowledging your request. Your questions will be pulled in the order they're received. Please ensure you lift the hands if you’re using a speakerphone before pressing any key.

We'll take the first question from the line of Vince Valentini with TD Securities. Please go ahead.

Vince Valentini -- TD Securities -- Managing Director

Yes, thanks very much. Great quarter, guys. Congratulations. Can I just try to understand your guidance for the year -- you've obviously been trending well ahead of 5 to 7% e EBITDA growth here in the first quarter and I'm not sure if you had contemplated such a big payment from major league baseball when you gave us your guidance for the year. Do you think that you've been conservative and it’s too early in the year to change things or should we really be adjusting our models to get down to no higher than 7% EBITDA growth for the full year?

Anthony Staffieri -- Chief Financial Officer

Vince, this is Anthony. I'll reiterate our guidance for the full year, it's still our guidance. In our plans as we thought about the seasonality in the quarters, delivery of Q1 is in line with our expectations. To be specific on the Major League Baseball distribution, we were aware of it at the time we came up with full-year guidance and that was always contemplated within that.

Vince Valentini -- TD Securities -- Managing Director

Okay. Thanks, guys.

Operator

We’ll now take the next question from the line of Jeff Fan with Scotiabank. Go ahead.

Jeff Fan -- Scotiabank -- Equity Research Analyst

Thanks. Good afternoon and great quarter. What a big difference in terms of the wireless metrics we saw this quarter versus last quarter. I mean, even with the seasonality, $95,000 wasn't very impressive and, when we break it down, I guess, can you talk a little bit about what you saw in the quarter in terms of what changed? Maybe some comparison and contrasting versus what you saw last quarter, specifically, around gross additions -- looks like gross apps was up about 10% this quarter and also all the improvement all the initiatives you expect to churn and what do you think can be sustainable through the rest of the year? Thanks.

Joe Natale -- President & Chief Executive Officer

Jeff, it’s Joe. I’ll take that question. So, first of all, I would say that we continue see healthy growth of the marketplace -- good clip -- in fact, overall, Q4 having won 5% growth in the market, we'll see in the fullness of all the results being released what it looks like in Q1. And, from our perspective, it looks like another quarter of good healthy growth to the marketplace.

But you're right around gross -- we’ve done well on gross. It's a record first quarter since 15 years ago, about 10% -- and also a good mix within that gross, a good mix of premium smartphone additions, even where we have tablet additions, a lot of them were part of an overall Share Everything plan, which actually helps it bolster our cut and at the same time that lifetime creates some lifetime value and better churn improvement. The ARPU we saw coming in for the quarter was accretive to the overall pace of the business so that’s another healthy indicator that we like to look at.

But, to your comment, churn is a real story in Q1, but we’re really pleased with continuous trajectory on churn improvement that we’ve posted on a sustainable basis. I do think it is sustainable. If you look at what we've been focused on with focusing on doing a better job of managing our base of customers and really looking through our base and looking at that retention, proactive retention opportunities, that’s one.

The second thing is really working hard to invest in improving our call center with respect to capabilities or resources to do a better job of supporting our customers through our call center. We've invested in digital adoption and we're seeing a better return on that front as a whole.

So, these are all systemic investments in churn management that I think will continue to pay dividends for us. There’s nothing that’s episodic or unique to Q1, but a muscle that we continue to build for the organization.

Jeff Fan -- Scotiabank -- Equity Research Analyst

Thank you and maybe just a very quick follow up. The government contract with respect to the revenue contribution from that contract, how should we think about the timing of when some about is going to come out?

Joe Natale -- President & Chief Executive Officer

Jeff, the timing of that contract hasn't changed from what we communicated last quarter. It’ll over several quarters we expect this year and so it’ll continue to come out. You saw subscribers come out in Q4 and continued into Q1 so it'll continue to to be an event for we expect much of 2018.

Jeff Fan -- Scotiabank -- Equity Research Analyst

Okay, thank you.

Operator

We’ll now take her next question off the line of David Barden with Bank of America. Please go ahead.

David Barden -- Bank of America Merrill Lynch -- Managing Director

Hey, guys, thanks for taking the questions. Yeah, congrats on a really good quarter. I guess, just first, Joe, on the kind of the strength in postpaid and maybe the relative weakness in prepaid. I was just wondering if there's any initiative -- you talked about managing the mix -if you guys were doing anything internally to the business to try to realign customers within their prepaid/postpaid buckets or that's more of an organic change in the business?

And then the second was that it looks like in the middle of February we saw a fairly uniform price hike in some of postpaid plan across the market which is kind of the reverse of the promotions we saw last quarter. Could you talk about how you see the 2Q period with Easter and Mother's Day and Father's Day evolving from a competitive front? Do you think we hold these prices or is there going to be another competitive wave? What should we expect the cadence of the competitive climate will be quarter? Thanks.

Joe Natale -- President & Chief Executive Officer

Hey, David. On your first question on postpaid versus prepaid, like I said, we’re very pleased with our postpaid result in the quarter. If you look to prepaid, Q1 is a seasonally slow period for prepaid additions historically. We’re at minus 60 this year and minus 42 last year. Please bear in mind that prepaid for us is a very small part of our business -- roughly about 4% of our wireless revenue goal. We did proactively convert prepaid customer to postpaid customers. It's part of our with respect to base management.

There many cons to prepaid customers. Some of them are people that are devoted to prepaid for some of its features. Some of them are more transient people that come visit the country on vacation, holiday season, etc., then they come and go. Then there’s the group that cost control or credit scoring issues commit to prepay and over time are great candidates for graduation to postpaid and that's something we've done a better job of focusing on for a little while and, yes, part of our postpaid metrics in Q1 reflect a better job. It’s not the most material piece of the postpaid results but it certainly is a new increasing part of the story in the pre to post conversion.

With respect to the competitive tendency of the quarters coming ahead of us, it's very hard to predict. We just… if we had a crystal ball what's going to happen in the quarter ahead, I would try to reflect it. I don't. I do think that there is this an error or pricing rationality in the marketplace that were seeing. Certainly, we have tried to maintain a disciplined focus with respect to pricing in the market to make sure we continue to manage margins and manage the economic return from our investments. And therefore, we believe it's important part of the difference that we will take, but in terms of what will happen specifically right on Mother’s Day or Father’s Day on the event, we'll have to wait and see. Traditionally, Q2 has not been the promotionally optic quarter -- it’s more relegated to, I would say, Q4 first and back to school second -- so we’ll see. Time will tell. Hope that answers your question, David.

David Barden -- Bank of America Merrill Lynch -- Managing Director

Yeah, no, as much as you can. That's great. I appreciate it. And, if I could, just one last follow-up. Just your perspective on some of the regulatory conclusions we saw coming out of NCIB and CRTC relatively recently -- we had the 600-megahertz auction, not surprising, at wholesale rates and then we had this affordability initiatives on the broadband plan. Can you just give us your sense of the impact of this, in general?

Joe Natale -- President & Chief Executive Officer

Sure. Let me just take them one at a time quickly. On the 600-megahertz auction, as I said publicly, we're disappointed with the amount of satisfied with 30 megahertz of Sony megahertz going to the new entrants or well-funded new entrants if you want to call them that. But, at the end of the day, we're not going to comment on our auction strategy. It’s something that is sensitive to us and confidential, if you will, so that's one.

With respect to the Wi-Fi first, a decision made by the CRTC, we’re supporting that decision because it reinforces the focus on investment-based competition, investment based infrastructure and it's what has created a great, vibrant, strong network capability in Canada, historically, and allows us to commit long term investment for the future in 4.5 and 5G so that underscores the importance of that investment overall and, as it relates to the wholesale roaming rates, I think they’ll be fine. It just reflects the economic conditions and full-capital return in terms of those rates.

So, generally, I would say overall, we're pleased with the level of partnership and support that we're seeing with respect to the government and working together on some of these files and some of these different efforts. It's much more productive environment than we have seen historically.

David Barden -- Bank of America Merrill Lynch -- Managing Director

Okay. Thank you, guys.

Operator

We’ll now take the next question from the line of Tim Casey with BMO. Please ahead.

Tim Casey -- BMO Capital Markets -- Analyst

Thanks. Just switching over the wire line for a moment, if we could, can you talk a little bit about what you're seeing in the broadband market? Obviously, you've highlighted that was a growth driver there. And then can you flesh it a little more, your rollout of the Comcast platform? You did provide some color on the employee deployment but just anything else you could add there would be helpful. Thanks.

Joe Natale -- President & Chief Executive Officer

Sure. Tim, first of all, we're pleased with our results with respect the broadband market. Just to remind everybody, we do have one gigabit capability across our entire footprint -- about 4.3 million homes -- and we've been marking actively to that competitive edge now for the last few years and it's going well for us. To put a parting point on it, this is our in 11th consecutive quarter of positive internet penetration growth for a wireless organization. I think that speaks to both the competitive advantage and our ability to leverage it for continued growth in customer additions and overall economics of the business

We’ve also been focusing more on the three-product household and you’ll see some of that reflected in the numbers this quarter. If you look at our television results, they’re about twice as good or half the number of losses that we had a year ago, minus 12,000 this quarter versus 24,000 a year ago. On the phone side, we're positive 9,000 this quarter versus positive 3,000 a year ago. So, we also like the mix of what we're focusing on.

We’ve had quite a bit of discussion on this phone call the last few quarters around the level of promotional activity in the marketplace and that will come and go from time to time. We’ve been quite sanguine about that. We don’t really want to jump into that hole on a regular basis. It's a real balance between attracting subscribers and managing the long term and economic financial health of this business and, when you jump into that on a regular basis, you end up getting a set of customers that we like to refer to promotional hoppers -- these customers that will just come for one promotional period and then hop back out to the next promotional along the way. So, a lot of COA spent to attract those customers with not a long lifetime value, I would say, overall, there’s a very low or even negative lifetime value in those customers. So, it happens time to time because of competitive intensity led by our largest competitors but it's something we think about in a very sane and calculated way as whole. Generally speaking, we’re pleased with that.

To your question on Direct TV, we’ve done, I think, very well with one plank of competitive advantage. As we add the second plank with Ignite TV, I think we'll be able to really drive an even better set of metrics overall in our residential business. We’re pleased with the employee trial well and now we've launched to Ontario base of employees -- or we’ve offered it up to our Ontario base employees. About 5,000 employees requested service and we’re up to 11,400 employee homes that are running the service. And the good thing for us an even greater set of real homes with very focused attentive team members putting service through its paces.

As I’ve said to you before on this call, our goal is to exhaustively pressure test every aspect of the service both from a platform capability point of view but also from an ordinary delivery point of view, digital adoption capabilities, etc., the Netflix integration around it, the cloud DVR that’s up and running -- all of the different features so that, when we make our way to full commercial launch later this year, we do come out of the game was not just a premium product, but a premium capability all around it. We’re very excited about what follows on the heels of it that is, you know, we are excited about the Ignite smart home, which will leverage the capabilities of Comcast X5 and X1 and that's really the prize here -- the prize here is the smart home of the future where video entertainment is a piece of it, but all the other capabilities around it will lead to longevity in terms of roadmap for us and in terms of overall integration in the home for the future because it's already a one integrated platform and supported by what we're calling the next generation Wi-Fi -- home Wi-Fi -- capability.

So, I know we talk about tv a lot, but it's really Step 1 of many in terms of smart phone strategy that we’re on and we're excited about it. And just stay tuned thing for exactly more specifics about launch, but we’re going to do it carefully and do it when we’re ready to do it.

Operator

We’ll now take the next question from the line of Aravinda Gallappatthige with Canaccord Genuity. Please go ahead.

Aravinda Galappatthige -- Canaccord Genuity -- Managing Director

Thanks for taking my question and congrats on the quarter. Two questions for me. First of all, on the upgrade the wireless upgrade rates, I was wondering if you can give us a little bit more color on that, given the materiality and the high handset costs and how do you see that kind of playing out through the rest of the year? And secondly, maybe a bit more inside into the distribution piece from MLB. Is that with respect to sort of a multi-year license? Or is that something that could you put more on either a bigger annual or biannual basis? Thanks.

Joe Natale -- President & Chief Executive Officer

[Gap at 00:33:00] Thanks for the call. We don't disclose the specifics of the upgraded activity for competitive reasons, but it clearly continues to be heightened focus for us and, certainly, when we look at lifetime values, we continue to see strong values there on a year-on-year basis. We see the investment on a per-customer is up, but up slightly and somewhat commensurate with Ignite pricing overall. What you see is our subsidies haven’t changed materially on a year-on-year basis so that's what you would see on a per sub basis.

The second part of the question, the MLB distribution related to, as you may recall, awhile back they had a sale of some of the digital rights and this was a partial distribution in respective of that sale. We had a distribution in the first quarter of last year -- a small one and a slightly bigger one in the first quarter of this year. In terms of future distributions, that’ll be up to Major League Baseball to decide, but it's not a recurring revenue but rather a distribution of that partial sale.

Aravinda Galappatthige -- Canaccord Genuity -- Managing Director

Okay. Great. Thank you. I’ll pass the line.

Operator

We'll take the next question of Maher Yaghi with Desjardins Capital Markets Please go ahead.

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

Yes, thank you for taking my question. I wanted to just go back to the wireline fight and can you discuss if there are any price defenses in the timing of the implementation of some price increases that impacted your revenue, or the bottom line, or the number that we're seeing in number in these statements and reported results are clean or because they're one-time items in there?

Anthony Staffieri -- Chief Financial Officer

Maher, it’s Anthony. I think I understand your question correctly. A couple of things: in the first quarter, we announced and implemented a price increase on internet -- depending on the speed tier the customer was on, it varied just to what that pricing increase was. That, in terms of actual billing and flow through revenue, it really didn't happen in Q1. We picked up about two weeks’ worth of billing in the quarter so it was very small. So, that will start to come through in the second quarter in terms of seeing that.

With respect to our wireline business and internet, specifically, we talked about including things like RBS that was previously disclosed separately as well as smart home monitoring. Both of those had no material impact on the growth rates that you see for internet and had no impact on the internet subscribers that you saw in the quarter on a year-on-year basis. So, it really does reflect what you previously would have been accustomed to as being included in the internet.

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

Okay, great. And on wireless, I wanted to… just two-pronged questions here, first, quickly. The first one is, when you look at your porting on the wireless, has there been any change in who your customers are porting to, the ones are leaving? We've seen the results come out last week from one of your competitors, some people thought there would be an impact on incumbents. Can you talk about just the general dynamic of the wireless industry with a fourth player now in the market more actively? And the second one is on 5G. Can you maybe, Joe, tell us some of your initiatives in 5G and some of the timelines on when CapEx and implementation of the network is going to happen?

Joe Natale -- President & Chief Executive Officer

Sure, Maher. I’ll start with the overall reporting dynamic. I would say, overall, right now, the dynamic has not changed dramatically in Q1. I would say, with respect to Freedom Mobile and the fourth carrier, that if that’s part of your question, I think January and February and March are more muted with respect to Freedom reporting than it was in December but no real shortage of material. And please remember that this is all against the backdrop of a growing market. A growing market, if you take a base of roughly 30 million customers in Canada, a 4% to 5% growth amounts to 1.2, 1.5 million available new net customers up there so there's opportunity for growth to exist in the marketplace and room for a player to participate in that crowd. So, no real material shift in reporting of that mix overall.

With respect to 5G, 5G, we’re just building a plan right now, we’re doing some trials, we’re developing business cases and use cases overall. We really expect 5G commercially ready equipment in about 2020 timeframe. Overall, it’s difficult for us to comment specifically on what exactly it means for as a goal. I will tell you that two things are important: one is the 4.5G investment that we’re making that’s built into our CapEx guidance for this year is to upgrade our network to be 5G ready. So, our radio equipment and the capabilities we’re masting on the towers right now will all be software upgradeable and ready for 5G, which is an important investment happening right now. With respect to the rest of it, please recall our thoughts or comments from the past that 5G for us would be more of an evolutionary investment that will sit on top of our already strong and capable 4, 4.5G capability. And it will evolve as the various business cases come to life, whether it’s around IoT or around low-latency devices for occasions, etc. And, as we embark upon these plans that we have to share we think is appropriate in the non-competitive sense.

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

Thank you and congratulations on the quarter.

Operator

We’ll now take the next question from the line of Drew McReynolds with RBC. Please go ahead.

Drew McReynolds -- RBC Capital Markets -- Managing Director

Yeah, thanks very much. Good afternoon. Just a follow up for you, Anthony, on the upgrade in the quarter, the postpaid, that base. I think, in the past, you probably commented just on the volume of upgrade as a percentage of your base. Is that something you can provide for this quarter?

Anthony Staffieri -- Chief Financial Officer

Drew, yeah, no, it's something we no longer provide -- again, for competitive reasons so we stopped doing that.

Drew McReynolds -- RBC Capital Markets -- Managing Director

Okay. Okay. And maybe still for you, Anthony, on the cable margins, as we go through the year and when X1 begins commercial deployment, is that ramp up a period where you see greater margin volatility in the cable business? How should we be thinking about that kind of quarter-to-quarter volatility?

Anthony Staffieri -- Chief Financial Officer

Yeah, probably helpful in context, as some of you are aware, the pricing constructs for licensing model with Comcast are variable-cost basis and we pay them on a per-active subscriber basis. And so, it isn't going to have… it’ll ramp as the product itself ramps and so it isn’t going to have a material impact to our margins through each of the quarters this year. And, as the product itself starts to ramp, the numbers we provide in terms of margin expansion forward cable are inclusive of the licensing fees and so don't expect any material shift in in margins for the full-year.

Drew McReynolds -- RBC Capital Markets -- Managing Director

Okay, that's great. And maybe one for you, Joe. Clearly making some progress on the postpaid churn side -- we’ve heard in the past some aspirational targets on postpaid churn can shake out for Rogers, where you think your optimal level is relative to COA/COR. Can you just provide us an update now that you've been there for a while, you’re seeing the competitive market unfold with Shaw getting into the segment -- just provide us an update on your thoughts there? Thanks.

Joe Natale -- President & Chief Executive Officer

With respect to churn overall, I would say that there is still opportunity of headroom for the churn improvement. It is a process of working through a number of operational improvements, building a capability around base management, driving better digital adoption, a higher value mix of customers, investing in customer service support resources, knocking down chronic customer service issues and conditions that have existed for a long time. We’re making our way through all that. We’ve got a team that’s passionate and dedicated to making that happen across various parts of the organizations and we think there’s still room on that front to consider that trajectory. I’m loathe to give you a number overall, but I do think that we’ll continue to chip away at it over the quarters in years to come. I don't see anything around me standing our way of even greater improvement.

Drew McReynolds -- RBC Capital Markets -- Managing Director

Okay, appreciate it and good quarter. Thank you.

Operator

We'll now take the next question for a lot of Simon Flannery with Morgan Stanley. Please go ahead.

Simon Flannery -- Morgan Stanley -- Managing Director

Great. Thank you very much. Anthony, just going back to the buyback, can you just talk a little bit about what we should look for? I think you talked about being opportunistic -- is that to say at this sort of price level you wouldn't use it, but you might consider it if it dropped further or might you be active at these levels? What are the use case and how does that play into your deleveraging and your dividend decisions? What’s the overall capital allocation, given you're not yet quite at your leverage target? And then maybe, Joe, on the cable commercial FM side of things, what's the latest on the progress there to take advantage of that opportunity? Thanks.

Anthony Staffieri -- Chief Financial Officer

 Okay. So, Simon, I’ll start with the first part of it. In terms of the NCIB filing, as I said, it is intended to be opportunistic. I’m not going to get specific into the price floor, but it's what you would expect -- if the difference between where we see our full value being relative to the current trading price is significant then we wanted the opportunity to be able to repurchase our shares. So, I don't want to get into more than that. I will say that you may recall, several years ago, we had a standard buyback program and continue to file on an annual basis and I think what you see here is us now getting back into the process of filing this on a recurring basis so it does leave the window open for us to the extent that there's the opportunity to leverage the difference in values, as I said.

Joe Natale -- President & Chief Executive Officer

 Simon, can you just elaborate on your question about cable or commercial? I’m not sure I understand?

Simon Flannery -- Morgan Stanley -- Managing Director

Yeah, on the business side of things, you've talked before about you see a lot of opportunities to grow your market share?

Joe Natale -- President & Chief Executive Officer

 Yes. So, we are busily working to develop a set of offerings, go-to-market capability that will help to further bolster our resulting cable coming from the business enterprise table. They are doing a great job of building up the capability and it’s meant to address both small business and medium-sized business. More to come on that front, but we think the opportunity’s there. We’ve got a very small percentage of the market as a whole and it fits very nicely with the ambitions that we have around IoT and around other sort of IT-related opportunities for that part of the marketplace.

Simon Flannery -- Morgan Stanley -- Managing Director

So, what's the timing on that, do you think?

Joe Natale -- President & Chief Executive Officer

Well, it’ll be something that evolves four to six quarters. It’s been improving already, but still early days in terms of any ramp or particular position. Our results did not reflect any material impact from these improvements. I think, later this year, we'll see more materiality around those impacts.

Simon Flannery -- Morgan Stanley -- Managing Director

Great. Thank you.

Operator

We’ll now take the next question from the line of Philip Huang with Barclays. Please go ahead.

Philip Huang -- Barclays Investment Bank -- Quantitative Analysis

Hi, thanks. Good afternoon. Great quarter. Question on the wireless side: and the government was calling for lower cost data only funds. I think it was by April 23rd if memory serves me correctly. I just was wondering what can we expect from Rogers and, I guess, from the industry overall in the coming weeks to address that demand from the government?

Joe Natale -- President & Chief Executive Officer

Phil, we are busily working on our submission which, you're right, is due April 23rd. For a number of reasons around our confidentiality, etc., I can't comment on what exactly we're doing -- what we’re up to -- but something we’re taking very seriously and working very closely with our team to figure out what is our best foot forward.

Philip Huang -- Barclays Investment Bank -- Quantitative Analysis

Okay. Just so I understand, do they expect a basic expected proposal by April 23rd without its specific timeline on when these plans are coming? Or is there no definitive timeline on when these plans are supposed to become available on the market in terms of details from what the CRTC’s required?

Joe Natale -- President & Chief Executive Officer

It's a process where we submit our rate plans and then there is a period of feedback and consultation then there's potential for a discussion on it's pretty hard to say exactly when the expectation that these go live way. It’s really up to due process and it’s really controlled by the CRTC and its process that is well understood, well-articulated, but that requires the public consultation and commentary.

Philip Huang -- Barclays Investment Bank -- Quantitative Analysis

Got it. No, that’s helpful. And then maybe a longer-term question -- just as we start to think about the next cycle of wireless investments, 5G, how do you see your network partnerships evolve? Specifically, I was wondering if you could comment on how you look at your partnership with Compact Core and as you think a long-term potential partnership with Shaw, what are some of the similarities and differences between as you look to these two different entities as partners? What are some of the thing that you take into consideration and, obviously, the bigger question being when you think of timing would be right so that you could also reap the scale benefits that you currently have in comeback and expand that to other markets? Thanks.

Joe Natale -- President & Chief Executive Officer

I think, broadly speaking, if you look at any sort of sharing arrangement or agreement, whether it's 4G or 5G, the fundamentals are the same. We'll look at the overall economics for our business, we'll look at the strategic value of that partnership, and we’ll make the appropriate tradeoffs. We're open to all ideas, but there's no sort of automatic template or formula. It's also very difficult for us to comment on any existing agreements -- it’s not something that we're prepared to do, they’re confidential in nature -- and, honestly, we're just not going to comment on what agreements as a whole.

Philip Huang -- Barclays Investment Bank -- Quantitative Analysis

Alright. One final one for me. In terms of a margin expansion, obviously, you guys are tracking well ahead of plan. Was wondering if you could comment on -- you mentioned some lumpiness through the year -- was wondering if you could provide a color on the type of lumpiness or what's driving the lumpiness? And then, also, as we look to beyond ’18 -- I know we’re early in Q1 -- but just was wondering if you see further opportunities for efficiency? Thanks.

Joe Natale -- President & Chief Executive Officer

Well, on the lumpiness of the margin, it’s really two-fold. One is good marketing expansion in the third quarter and just want to be careful that you all didn't start to factor in a margin expansion of similar magnitude for every quarter. We are pacing ourselves, and as you would expect, some of the cost programs that we have coming into effect -- sometimes mid-quarter, sometimes in the quarter, and sometimes beginning of quarter -- and so that’ll have a bit of an impact on margin expansion in that particular quarter and so we're alerting you to that. So, there isn't anything ominous that's out there that we're worried about as far as the timing of those programs and how it impacts a ninety-day cycle in the quarter.

So, that’s the first part of the question -- I’m not sure I got the second part of your question?

Philip Huang -- Barclays Investment Bank -- Quantitative Analysis

Oh, just looking beyond ’18, whether there are further opportunities for the type of margin expansion we’ve been able to see over the last couple of years?

Joe Natale -- President & Chief Executive Officer

Yeah, not going to provide guidance on margin beyond the current year, but what we can say is our cost program is multiyear and we’ll continue to weigh that against our revenue outlooks to give you the more full-scope market expansion at the right time. But cost discipline, cost efficiency, both are industry-wide phenomenons that are occurring and, of course, we're participating in that. It’s becoming part of the culture here in terms of how do we do better so we can invest in in the growth areas and things that give us a bigger bang for the buck? So, all those are things that will continue, but don't want to get into specifics of what it means for margins beyond this year.

Philip Huang -- Barclays Investment Bank -- Quantitative Analysis

Thanks very much, guys.

Operator

Ladies and gentlemen, we have time for two additional questions today, the first of which will come from the line of Richard Charl with JP Morgan. Please go ahead.

Richard Charl -- JP Morgan -- Analyst

Great. Thank you. You mentioned part of this earlier on some your [inaudible] but wanted to circle back on it. It seems like you had churn under control and that could improve with a little more fine tuning but, in terms of a three-player market essentially increasing to a four-player market, it still seems like your growth has been very good. How much of this is your efforts, and Rogers, and how much is this is the industry growth, and do you think that can continue in terms of color for the industry?

Joe Natale -- President & Chief Executive Officer

Well, I think, Richard, first of all, recognize that we have a number of sources of competitive advantage that have been very helpful to our performance as an organization. One is just the overall quality and capability of our network, that it is not just expensive in terms of coverage but has performed in capability as best in class on the global basis. Second is around distribution -- we’ve incredibly strong distribution across corporate-owned, channels, dealer channels, third party retailers, etc. All told, there are roughly 2,500 points of distribution for the route of this organization. You compare that to some of the new metrics, their core distributions are much in the low hundreds as an example. Distribution matters in this business. That’s how we can post 10% year-over-year gross additions as a whole.

And then it also plays into the whole of the index -- not all customer additions are created equal. We focus, we talk a lot about ARPU and now APU -- the one thing that we talked a lot about behind the scenes is AMPU, or average margin per unit, so we're looking at a lifetime value and the cost to acquire and the cost of service of retaining a particular segment of customer and that’s an important part of the consideration, making sure that we just don't get LE for LE’s sake -- we get the right set of LEs as a whole. So, in terms of four-player dynamics, look, we've been competing of some of these four players for the better part of a ten years in some shape or form and it’s not something that is intimidating whatsoever -- it's something that we're comfortable doing and just play our game the way we've always played it.

The key is to continue to invest a little next generation of capability and networks. This is an industry -- this is a gang of capital allocation -- and this industry has always required us not just to invest capital in the next generation of technologies and networks, but also extract strong economic return from those investments. We have a history of doing both and thirty five years into the wireless industry now, it's proven these investments come in cycles and you’ve got to be able to invest in the beginning of the cycle and invest during the cycle. We’re prepared to do both -- every part of the battleship is set to do so. So, we’re on just a really good path but, overall, focus in the marketplace.

Richard Charl -- JP Morgan -- Analyst

Great. And now on the cable side, I guess you mentioned 1,400 employees have this Ignite service and 5,000 have requested it out of 15,000, what level do you think you need to get to where you feel comfortable enough to start doing the broader rollout if you can give me any color on that?

Joe Natale -- President & Chief Executive Officer

Yeah, I don't think it’s a level in terms of numbers -- I think it's more a sense of satisfaction that we have way have exhausted all the possible use cases, customer order management, fulfillment processes, type and diversity of homes with respect to Wi-Fi installation capability. I really tie everything to the basis. The platform’s operating very well. This is really more, right now, putting the processes through the paces and making sure that all the orders to delivery processes are up to snuff. Because we are launching a premium product -- we're reinventing how we got to market around this product, we’re going to reinvent cable business surrounding Ignite TV. And, therefore, we want to make sure when we come out with white glover service, we come out with premium installation in the home, we come out with strong additional support for the product that we’re offering, etc. And it's important that what we have isn’t just a rip and replacement entertainment solution, but it is actually really a strong first step towards a smart home that includes video entertainment, includes the best Wi-Fi, it includes all the things that will come after it with respect to leveraging both X1 for the future. And it’s that sort of capability that we’re really, really focused on.

So, we’ll know when we’re there because while we were doing this, we’re sitting with employees on regular basis in town hall and Sprungs and listening to what they have to say and then that being recycled back into process redesign and then we’re rinsing and repeating, for lack of a better metaphor. And we’ll know when we are at a point where we feel we’re in a good steady state and we can then take the next step. The next step after this will likely be some sort of contained commercial launch and then a full commercial launch thereafter. So, as we feel comfortable, both from a capability point of view and a competitivity point of view, more than happy to let you know what our plans are.

Richard Charl -- JP Morgan -- Analyst

Great. Thank you.

Operator

And your final question will come from the line of David McFadgen with Cormark Securities. Please go ahead.

David McFadgen -- Cormark Securities -- Analyst

Oh, great. Thanks for squeezing me in. Just a couple questions -- so, when I look at your wireless and your cable results, if I look at the other operating expense line, it’s down in both segments and I was just wondering does this reflect the reduction in the call center costs? I know that you are open to these for about a year or this is just a reduction of other expenses and a reduction in the call centers’ additional upside to come? And then, secondly, I thought I’d just comment on what’s driving in the lower TV net losses this year versus last year?

Anthony Staffieri -- Chief Financial Officer

David, it’s Anthony, I’ll start with the other expenses. It’s all of the above and, in particular, in the quarter, I would say it’s the non-call center costs that we made great progress in in the quarter. And so, a number of things that we’ve, in the past, talked about are the key items in the cost playbook and you see those programs coming through so I wouldn’t point to one item as being the item or the majority of it -- it really is a combination of a number of programs that are running simultaneously on the cost front.

And then the second part of your question, on the TV losses, obviously, it’s off but it really comes back to what Joe talked about at the beginning of this call: we’ve made really good progress on looking at a three-product hole and it’s been led with our internet competitor’s advantage. As we continue to improve service across the boards on all three products, it’s helping on that front and you see TV coming along with it so it’s part of that broader strategy.

Joe Natale -- President & Chief Executive Officer

Yeah, I think I would add, to the Sony project is we’re quite excited about the DOCSIS roadmap and how it will continue to bolster our capability. Part of the team will deliver 10 gigabit full-two-plus capability coming from DOCSIS and the roadmap thereafter will include up to a 40-gig capability over fibre-axis overall. And the point I’m making is that we’ve got an opportunity to continue on this roadmap, invest in an evolutionary way rather than rip and replace in terms of infrastructure as a whole, and, on top of that, I think it’s more than enough headroom for what customers are demanding right now. [Inaudible] 1 gigabit capability is that we’re well ahead of customer needs and expectations. As we turn around the corner and we’ll continue to make that statement.

David McFadgen -- Cormark Securities -- Analyst

Okay. Do you expect to be in the marketplace in 2019 offering a 10-gig internet service?

Joe Natale -- President & Chief Executive Officer

I’m sorry, I didn’t hear the question.

David McFadgen -- Cormark Securities -- Analyst

Just a clarification: in 2019, will you be in the marketplace offering customers a 10-gig internet service? Is that what you said?

Joe Natale -- President & Chief Executive Officer

We’re not going to comment on what our go-to-market strategy is. We’re more commenting on the availability of the technology and the road mapping with DOCSIS.

David McFadgen -- Cormark Securities -- Analyst

Okay. Okay. And then just one other final clarification. On the MLB distribution, I was calculating it was around $39 million -- does that make sense?

Joe Natale -- President & Chief Executive Officer

One more time, David -- we’re having trouble hearing you -- on which distribution?

David McFadgen -- Cormark Securities -- Analyst

The MLB distribution -- I was calculating $39 million. Is that accurate or…?

Joe Natale -- President & Chief Executive Officer

David, we’re prevented from disclosing the amount. We tried to give you what our fixed value growth rates are and I gave you what the adjusted growth rates would be and, if you work backwards, you come close to what the year-on-year incremental amount is and so I won’t say more than that.

David McFadgen -- Cormark Securities -- Analyst

Okay. Alright. Thank you.

Operator

Ladies and gentlemen, this does conclude the Q and A session for today. Thank you for participating and you may now disconnect your line.

Duration: 64 minutes

Call participants:

Glenn Brandt -- Senior Vice President, Corporate Development, Investor Relations & Treasury

Joe Natale -- President & Chief Executive Officer

Anthony Staffieri -- Chief Financial Officer

David Barden -- Bank of America Merrill Lynch -- Managing Director

Tim Casey -- BMO Capital Markets -- Analyst

Aravinda Galappatthige -- Canaccord Genuity -- Managing Director

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

Drew McReynolds -- RBC Capital Markets -- Managing Director

Simon Flannery -- Morgan Stanley -- Managing Director

Philip Huang -- Barclays Investment Bank -- Quantitative Analysis

Richard Charl -- JP Morgan -- Analyst

David McFadgen -- Cormark Securities -- Analyst

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