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Shaw Communications, Inc. (NYSE:SJR)
Q3 2018 Earnings Conference Call
June 28, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by. Welcome to Shaw Communications' Third 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 a listen only mode and the conference is being recorded. Following the presentation, there will be a question-and-answer session. [Operator Instructions]

Before we begin, management would like to remind listeners that comments during 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.

Bradley S. Shaw -- Chief Executive Officer

Thank you, operator, and good morning, everyone. With me today are members of our senior management team including Jay, Trevor, and Paul.

This morning we released our third quarter fiscal 2018 operating and financial results, which demonstrate continued momentum in our wireless business as we added over 54,000 post paid subscribers in the quarter. Notably, we also grew blended ARPU by almost 8% compared to a year ago as Freedom customers continue to recognize the value of our Big Gig Data plans and significant network enhancements.

We continue to improve the wireless experience for our customers, whether it's through an improvement network, our spectrum is deployed, innovative data plans, the latest smartphone devices, or more distribution points of presence to expand our reach in customer awareness. Today, we are pleased to announce another national retail partner, Walmart, that will result in an additional 140 locations throughout Ontario, Alberta, and BC, carrying our products and services. The combination of Walmart, along with Loblaws, that we announced last quarter, and our existing corporate stores and third-party dealers, results in approximately 600 total distribution locations that will be operational by early 2019. This represents a material improvement in our reach compared to our footprint at the time of the Wind acquisition.

In May, we completed some initial 5G technical trials and it's clear that this new technology will transform the industry through faster wireless speeds that will enable future technologies. Both wireline infrastructure and spectrum allocation will play a critical role in 5G deployment Our hybrid fiber coax network has extensive fiber assets to support 5G as well as next generation Doxis infrastructure, which will be capable of multigigabit speeds required for 5G services.

In addition, as we build our small cell network, we have the advantage of approximately 100,000 Shaw Go Wi-Fi access points. Recent announcements from the government further support deployment of 5G by providing a view into the spectrum roadmap and auction timing as we look forward to participating throughout the competition process.

In our wireline business, we committed to being more focused on profitability, profitable subscriber growth, and I believe we have a compelling product lineup and value proposition what a clear roadmap that offers innovation and exceptional customer service through our digital transformation that supports this focus.

There are a number of items that impacted our results this quarter, particularly Internet, including seasonal student disconnect activity that typically reverses in Q1, a shift in some bulk accounts from consumer to business, and continued market dynamics including attractive promotions by the competition and our pricing discipline, all of which contributed to a lower sales activity in Q3. Even after considering these factors, we're not pleased with the overall execution within our wireline business. Over recent years, investments in our infrastructure has our network in fantastic shape and we have never been more excited about our product roadmap now and in the future.

However, we need to be more effective in the way we price and package our services and improve our ability to target customers with more effective offers through better segmentation and spending of promotional dollars with a data driven approach. This focus will significantly enhance the way in which we interact with customers and improve results going forward.

Over the last several months, our management team has focused on the transition through the Voluntary Departure Program and have also designed and implemented a new comprehensive organizational structure. This optimized structure will hold our business leaders accountable for driving results and executing better than ever before.

Our focus has not changed. I firmly believe that we have significant growth opportunities ahead, which includes wireless, business, and broadband as the primary drivers for Shaw. Specifically, within our consumer business, we will continue to optimize our pricing and packaging and introduce innovative products and services, underpinned by our partnership with Comcast and our strong network.

I will now turn the call over to Trevor to review the Q3 financial 2018 results.

Trevor English -- Executive Vice President & Chief Financial Officer & Corporate Development Officer

Thank you, Brad, and good morning, everyone. In Q3, we delivered revenue of $1.3 billion, which represents approximately 7% year-over-year growth led by strong wireless performance. Consolidated EBITDA of $547 million also increased 7%, primarily due to improvements in wireless and lower wireline expenses through cost efficiencies as we began our transition through the Voluntary Departure Program exits that started at the end of March.

In the quarter, total wireless revenue increased 54% to $237 million. Revenue growth is primarily due to the increase in our subscriber base, equipment sales, and the ongoing success of our Big Gig Data plans that helped drive a 7.5% increase in blended ARPU to $39.84 compared to a year ago.

The combination of strong ARPU growth and over 200,000 additional wireless customers over the last 12 months drove service revenue up 27%. Q3 wireless EBITDA of $62 million increased 48% over the same period in Fiscal 2017. However, the results this quarter do include a one-time recovery of approximately $13 million related to the retroactive roaming rate decision which was previously discussed and disclosed in our Q2 results.

In wireline, year-over-year consumer revenue was essentially flat at $923 million, while business revenue increased 6% to $141 million. Wireline EBITDA of $485 million, which includes $16 million in VDP related cost reductions in the quarter, increased 2.4% compared to Q3 Fiscal '17.

Capital spending this quarter of $293 million was roughly the same compared to the prior year with declines in wireline offset by increased spending in our wireless segment. While overall spending in Q3 was below consensus, we do expect capital investments to increase in Q4 as we continue to invest in both our wireline and wireless infrastructure. This includes 700 deployment, which is just beginning to accelerate, and continued foundational investments in alignment with the Comcast roadmap for IPTV, which includes capital related to cloud DVR capabilities. We continue to expect overall CapEx will be in line with our Fiscal 2008 (sic) guidance.

As it relates to total business transformation, the third quarter includes an additional restructuring charge of $13 million, bringing the total provision to $430 million, of which $110 million has been paid to date as of the end of the quarter. As employees were given the option of deferring payments over two calendar years for tax purposes, the extra timing of employee related payments now extends to a 32-month period, compared to actual exits, which are still predominantly our original 18- to 24-month timing.

Approximately 850 employees have departed the company between March 29th and May 31st, resulting in total savings in $19 million in operating and capital costs in the quarter. The program remains on track to deliver Fiscal 2018 operating savings of approximately $40 million as a result of the departure of approximately 1,200 employees by August 31st.

Besides the additional restructuring charges this quarter, we also incurred a $284 million impairment related to our investment in Corus. As you know, we account for this investment using the equity method whereby the carrying value was recorded at the time of the transaction on April 1, 2016. We report our share of our Corus net income and dividends each quarter. Like other investments, we evaluate the carrying value of each on a quarterly basis and in Q3 we considered a number of recent developments with respect to Corus. Our updated carrying value reflects an impairment in the amount of $284 million, and this rate down was the main driver of reported net loss for the quarter of $91 million.

As Fiscal 2018 concludes, we expect continued growth in momentum in wireless, particularly during the back-to-school period, along with wireline growth that includes recent rate adjustments that became effective June 1st, and continued cost discipline throughout the organization. Considering year-to-date results in our Q4 plan, we also confirm this morning 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 $1.38 billion, and free cash flow of approximately $375 million.

As a reminder, our guidance includes certain assumptions related to cost reductions that will be achieved through TBT initiatives, specifically the VDP, roaming cost reductions of $13 million that was realized in the quarter, and short-term incremental costs associated growth in wireless handset sales.

Brad, with that, I'll turn the call back over to you for closing remarks.

Bradley S. Shaw -- Chief Executive Officer

Thank you, Trevor. We have a lot to be excited about. The opportunities are right in front of us and the entire team is focused on execution. We'll be finalizing our Fiscal '19 plans over the coming months, and we look forward to speaking to everyone in October, where we'll be providing additional details regarding our strategic and operating focus for 2019.

...

Thank you, everyone, and we'll turn it back to you, operator, for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Vince Valentini with TD Securities. Please go ahead.

Vince Valentini -- TD Securities, Inc.-Analyst

Thanks very much. I have three questions. I'll throw them out and let you guys choose the order you want to answer them in. First, on wireless, the ARPU jumped $1.41 from Q2 to Q3. That was more than we expected based on what you telegraphed before of the ARPU for new customers signing up and the pretty small percentage of subs migrating from old plans to new ones. Can you give me a bit of color there? Do you think this is sustainable in terms of a run rate increase sequentially as you're seeing more migrations from the older plans to the new Big Gig Plan?

Number two, your free cash flow guidance, Trevor. You've done $378 million year-to-date, so I just want to confirm. You actually expect negative free cash flow in Q4 to get down to the guidance of $375 million? I heard you comment on CapEx trending up a little bit, but I would still expect EBITDA to overwhelm that. But, maybe not.

Third, on Internet, last year was a real anomaly because of the big promotions around the BlueSky launch. When you added 20,000 Internet subs -- if I go back to the third quarter of 2016, you actually lost 8,000 Internet subs, which makes the 3,000 [audio cuts] this year look a little bit more normal. Can you give a little more color there of exactly what's going on with seasonality and this bulk contract and give people some comfort here that negative Internet sub adds is not what you'd expect going forward? Thank you.

Paul McAleese -- President, Wireless

I'll take the first one regarding wireless ARPU. Very pleased with the quarter's results. A few key drivers -- we just continue to see very, very positive inflow from higher value subscribers. I think a few highlights to point out there -- we're not approaching 25% of our base on a Big Gig plan. Remember, those plans didn't launch until October of last year, so those are all $50.00-plus plans. We like the inbound quality that we continue to drive. Our distribution partners have been fantastic in their support of helping us move up that value chain.

Secondly, we continue to see improvements in quality on the device inflow as well. Now, more than a third of our subscriber base is on an Apple device and iOS device. We believe there's a strong correlation between those devices and the higher end Samsung devices we're seeing brought on board as well -- the S9 most recently. So, the level we're seeing on the inflow of new subscribers. And the trend that we articulated last quarter around positive customer migrations up to higher value plans continues at the same level. I think we'll continue to see momentum consistent with the last quarter.

Trevor English -- Executive Vice President & Chief Financial Officer & Corporate Development Officer

On the CapEx and the free cash flow guidance, in Q3 our capital spending was a little lighter than we originally planned. That was just due to some slowdown in some delivery of some equipment. We do expect in Q4 capital to ramp up fairly significantly, specifically within the wireless segment, as we really accelerate the deployment of 700. We kept the guidance language at approximately $375 million. No, we don't expect free cash flow to be negative in Q4, but we still do believe that free cash flow -- maybe it's a bit higher than $375 million. Maybe it's closer to $400 million because of that additional capital that we're spending in Q4 on wireless, but also on wireline with some of the IPTV foundational investments.

Jay Mehr -- President, Shaw Communications

It's Jay. If you want to talk about the Internet R2 question, Vince, you're right. Our approach to launching BlueSky last year, and the impacts are well understood, was the tide that raised all boats, including Internet. If you look at Fiscal '16, at Fiscal '15, our Internet was also not all that different. Shaw broadband is a brand that always does well with Millennials. We do very well with students. It's a big part of our business. You get to Q1 and Q3 activity, which I think is well understood. As we disclosed, there were 2,800 Internet subscribers who were just moving from the way we deliver the service to fiber-based services and different cloud-based services in universities. Our revenue is actually good on those accounts and our profitability is good there. But, that's not a bad story. It's just moving from one way of delivering Internet to another.

For sure, there were some market dynamics, including attractive promotions from our competitors -- gift with purchase. We maintained our pricing and promotion discipline, which we're going to do as we go forward. We need to focus on our execution and bounce these numbers back. I think Brad was very clear that we're driving change in consumer in everything we do. We need to get better at our flexible pricing and packing. You'll see much more emphasis on customer segmentation, much more targeted, and better bang for our buck on promotional spending and more on digital.

But, everything we're doing in wireline is on strategy and our focus is on wireline margin. You'll see internet results bounce back to positive in the next quarter. But, we're going to stay the course.

Vince Valentini -- TD Securities, Inc.-Analyst

Thank you.

Operator

Our next question is from Jeff Fan with Scotia Bank. Please go ahead.

Jeff Fan -- Scotia Bank -- Analyst

Thanks. Good morning. On wireless, I was wondering if on the subscriber side you could give us some color on the contribution on your adds and improvements coming from gross adds versus churn, particularly on churn. Given you guys have refarmed some of your spectrum on 4G from 3G, I'm wondering what stats, if anything, you can share on churn and the network quality changes that you've seen in the last number of months and how you think that's going to trend going forward.

And then, more long-term, given all of the talks around 600 MHz spectrum auction next year, given the US deployment on 600 by T-Mobile, is there an opportunity here to deploy 700 along with 600, and whether there's enough of a timing there to allow you to take advantage of that spectrum even for 4G, 5G, as you look out the next one to two years. Is that an opportunity to make a more efficient deployment as you continue to upgrade the network capacity?

Paul McAleese -- President, Wireless

Yeah, we continue to be pleased with the contributions of both sides of house, both in terms of contributions from momentum in the market on gross adds as well as continued improvements in retention. Last quarter, we characterized it as about a 50/50 split. I would put it in the same ballpark right now. We do continue to see sequential improvements in our church rate, which we'll get more into that in the coming quarters. But, certainly the ban for refarm has helped us retain and improve the customer experience for a large percentage of our customers, and that's helped bring the churn rate down across both the pre and post pay bases. That's a very strong positive from our network team.

We continue to have good momentum in the marketplace. I characterized it last quarter as not an all out battle in the market. We're winning our fair share of gross adds. We're keeping customers at record rates for the company. Overall, that's what's driving this sort of blending contribution. Going forward, I suspect that will continue to improve. Our new distribution partnerships will bear fruit in time. I would caution everyone to be mindful that it takes a long time to standup these partnerships. We're nearly doubling the number of retail stores we have across the country. That's likely to have a modest impact in the coming quarter. But, we're really encouraged by the key long-term support that'll bring the wireless division.

Trevor English -- Executive Vice President & Chief Financial Officer & Corporate Development Officer

Just building on your capital plan, we're very pleased with our step-by-step plan and we're continuing on that plan as we invest. As we complete the refarm, we'll see a significant 700 spend in Q4 which is all going to expand and drive into next year. You have correctly identified that there are some capital efficiencies that are decently significant in deploying potentially some 700 and 600 together, and the network teams have made their plans for our build and have incorporated the right way to do that. That having been said, the 700 deployment we're doing is a value-based rollout that will improve our network as well. We have good visibility into what's possible and I think the teams have a great plan to integrate it.

Jeff Fan -- Scotia Bank -- Analyst

Great. Thanks a lot.

Operator

Our next question is from Phillip Huang with Barclays. Please go ahead.

Phillip Huang -- Barclays Investment Bank -- Analyst

Hi. Good morning. Question on the Walmart distribution. I think Walmart has about 260 locations. Is it fair to assume that the 140 stores you guys have in the partnership are mostly urban locations? Could we see the partnership expand toward 260 in the future as you expand your network?

Paul McAleese -- President, Wireless

Yeah, we have worked closely with the Walmart team, as we did with the Loblaws team, to ensure that coverage for Freedom is consistent with the levels we'd expect for their customers relative to the store footprint. I don't know that you'll see a material expansion beyond 140. I would characterize that as the likely near-term threshold. We'll get there in a fairly quick order once we execute and it'll likely stay at that level for a number of years.

Phillip Huang -- Barclays Investment Bank -- Analyst

Got it. That's helpful. Any plans that you can talk to regarding expanding corporate stores?

Paul McAleese -- President, Wireless

We've done a very thorough analysis of markets in which we feel that we have strong coverage for wireless, but perhaps inadequate corporate store coverage. We always characterize corporate stores as the backbone of our wireless distribution. They perform a fantastic array of services and we've got a wonderful group today that over perform relative to their peer group. You'll see modest increases in those stores, probably something in the order of 20-30 over the course of the next year, mostly just in filling light space where we believe we have opportunity.

Phillip Huang -- Barclays Investment Bank -- Analyst

Got it. That's helpful. One clarification on the churn. You said roughly 50/50 contribution from improvement in gross adds as well as retention. Do you expect that mix to change going forward or, just because of the expansion of distribution and also at the same time you're improving your network, you expect that 50/50 split to be maintained?

Paul McAleese -- President, Wireless

Probably, it's a little hard to predict going forward. There are a couple of observations on either side of that. We're spending a tremendous amount of time and energy right now behind our retention and base management efforts. Not just the work that the network has done -- a fantastic effort in terms of the refarm and improving our quality, which has just been a marked improvement over the course of the last year. But also, just with the physical support and the team in terms of base management, we've rebuilt that team over the last number of months and we've hardened our capabilities there. We've improved our infrastructure and the capability to monitor, track, and support these customers through their lifetime. It's frankly much easier now as we've brought on these higher value customers to track them through their life cycle than it was when it was predominantly a BYOD inflow.

That will be a big contributor. The wild card in predicting the future percentages is probably around what happens with the expansion of our distribution. So, there is the potential that that could buy us more in favor of new gross adds. But, I would still characterize it as in the ballpark of 50/50 over the coming next year.

Phillip Huang -- Barclays Investment Bank -- Analyst

Got it. On the VDT side, just because most of that program impacts the wireline segment, are the departures related to the VDT was a factor at all in the wireline's recent less consistent performance.

Jay Mehr -- President, Shaw Communications

Yeah. Management has certainly been focused on our wireline market and VDT. In the quarter, we did a new organizational structure. As you can appreciate, VDT results were announced on February 15th, and in March and April we did our detailed planning of the employee exits. Most upfront -- and exits were in our leadership roles, and we focused on leadership and some corporate areas to start with. We've redesigned our complete leadership team with clear business unit leaders and accountability. We're all focused on operational execution. We're in a period of change for sure. The most important thing is the most important thing, and I don't think we've ever been closer to our business and working with all of our teams and working through our operational execution.

I certainly wouldn't characterize any of this as distraction. I've never seen the organization more focused on what we're building and creating. But, to be clear, we're managing an awful lot of change and it's probably part of the story. If you think about our Internet business overall, it's healthy. We're 6.3% year-over-year revenue growth in the quarter. We're at $66.00 ARPU before we enter the rate increase. There are lots of good things happening in the Internet business. Would we feel better if we were plus 4,000 subs for the quarter as opposed to minus 4,000? Yeah, we would. But, we're not going to change our path just based on that single quarter result.

Phillip Huang -- Barclays Investment Bank -- Analyst

That's helpful color. Thanks very much, guys.

Operator

The next question is from Greg MacDonald with Macquarie. Please go ahead.

Greg MacDonald -- Macquarie Capital Markets Canada Ltd. -- Analyst

Thanks. Good morning. Jay, to ask a few more question on the Internet side of the business, can you talk about specifically what the promo activity was with Telus and whether that's sustained into June?

Jay Mehr -- President, Shaw Communications

Yeah. We're not disappointed with our June results to date and I think we're on track as you would expect due to the kinds of bounce back we would expect for Q4. Brad was clear that we need to get better in our execution. We need to get better on being targeted. I would say our competitor is best in class at targeting and segmentation, and you saw that in the quarter. We were in maybe a slightly more premium pricing position on Internet in the quarter than would've been optimal. That was just where we were in our step-by-plan as we work our way through our adjustments. You'll see us in a very disciplined way adjust in Q4. I think we just have to take our medicine on a quarter that wasn't a good a result from an RTU basis as we'd want and go from there. I don't know that I would characterize it as super aggressive competitive action that changed that. We need to get better and playing the same targeted segmented game and that's our effort and we're gonna.

Greg MacDonald -- Macquarie Capital Markets Canada Ltd. -- Analyst

Can you say whether Doxis3.1 deployment was a factor in the quarter? Maybe you could remind us where you are on that?

Jay Mehr -- President, Shaw Communications

Doxis3.1 deployment is going great. We are deploying Doxis3.1 modems in the majority of our installs. The work that's been done on our network is fantastic because we've segmented a portion of the network for Doxis3.1. It just improves network performance. We're entering a period not unlike we did with the new LTE network, where the Doxis3.1 network is an open highway that we can load customers and great experiences on. We're delighted with the approach to that. Our supply chain's done a terrific job. We have a couple hundred thousand Doxis3 (sic) modems in the warehouse ready to go and we're exciting about what that phase makes possible.

Greg MacDonald -- Macquarie Capital Markets Canada Ltd. -- Analyst

Thanks, Jay. Lastly, it sounds to me like you're saying the TVT had some impact in the quarter in terms of the church element. Am I correctly concluding that's the case? It sounds to me like you have started to at least successfully address this by your commentary that you've seen a bounce back in June. I don't want to put you on the spot-on details on that, but --

Jay Mehr -- President, Shaw Communications

Except that you do.

Greg MacDonald -- Macquarie Capital Markets Canada Ltd. -- Analyst

Except it's my job to do that.

Jay Mehr -- President, Shaw Communications

I get it.

Greg MacDonald -- Macquarie Capital Markets Canada Ltd. -- Analyst

Am I accurately describing that?

Jay Mehr -- President, Shaw Communications

You have elements of it. If you look generally at the voluntary department program and the transformation efforts, I could not be more pleased with where we are today. That having been said, it has complexity to it and we're trying to do a whole bunch of things at once that sequence a very exciting future for Shaw that is a wireless and digital broadband future with a wireless in-home experience connected to a Doxis3.1 XP6, IP video, cloud DVR -- all of the things that we're creating in our consumer wireline business is super exciting. I'm so proud of our amazing team and the work that they're doing. Lots of time with all of our customer service people. You would be proud of the work that our teams are doing.

So, I feel really good about all of that. That having been said, there is a lot of activity in the business, as you can well expect, as we're focused on doing the right things. In fact, church was down significantly on a year-over-year basis and continued its downward trend on Internet. The miss was entirely to our plan on growth sales. I think there was -- could you say that some of that focus for our gross sales activity? You probably could. That would probably be fair. In addition to that, we've been moving a bunch of levers all at once in a time of change and we didn't deliver the sales we needed to deliver. That's the easier lever to manage and we're going to do it in a very responsible way.

So, I have great confidence it will bounce back to positive in Q4, earning Q2 type levels, but we're going to work our way through that. That having been said, a single quarter's Internet result is really not the focus of our strategy. We want to take everything back up to our strategy. Broadband remains our key growth driver. We've got the ability to increase speeds as consumer demands. We're going to continue to build on the XP6 and that digital broadband home with a stack of new services on top of that. So, nothing in this is going to be a change of direction. Just a little bit more focus.

Greg MacDonald -- Macquarie Capital Markets Canada Ltd. -- Analyst

That's helpful. To clarify, the issue that you're talking about is a sales issue and not a technician install issue. Am I correct in making that assumption?

Jay Mehr -- President, Shaw Communications

Absolutely. We didn't make as many gross sales. We actually have significant technician install capacity today that is available to us. If there is any concern, actually, on the VDP conversations and the timing of technicians, the feedback I'm getting from our teams, including our technicians, is we've got too much working notice and flux into the system and we have a little access capacity on the technician side. That's what people are telling us. So, there is no restriction there at all. In fact, we can load that up nicely.

Greg MacDonald -- Macquarie Capital Markets Canada Ltd. -- Analyst

That's very helpful. Thanks, Jay.

Operator

The next question is from Tim Casey with BMO. Please go ahead.

Tim Casey -- BMO Capital Markets -- Analyst

Thanks. Could you talk a little bit about what you're seeing on the enterprise side, both wireless and wireline? Are you pleased with your progress there? With respect to wireline, the issues you talked about Internet sales, is that factored into that or is that a separate unit? And then, the other question would be relating to your position in Corus. There has been some media speculation about potential sales there. I know you don't comment on rumors, but the narrative has been that you might be motivated to do that given your balance sheet yet. From our perspective, your balance sheet and cash flow profile doesn't seem to jive with that. Would you comment on that or set the record?

Bradley S. Shaw -- Chief Executive Officer

Sure, Tim. As you said, we can't really comment on speculation in the media. But, I always look at it from a Shaw point of view. As for Corus dividend, we've never included that in our free cash flow growth profile, and never have planned to. When I look at our balance sheet and leverage we're in great shape to fund our business plan, fund the strategic planning going forward, so we're very comfortable. And, with Doug and team, it's very challenging over there in that business. We certainly wish them the best in continuing with that management.

Jay Mehr -- President, Shaw Communications

To talk a little bit about our business enterprise space and SMB, you have very different dynamics going on there. From consumer, we've separated those business unit and this business unit's in great shape under the leadership of Katherine Emberly and Ron McKenzie. Our sales funnel in business is looking terrific. There is a sales cycle here for sure, but we're putting up big numbers in terms of the entries into the sale funnel, including in May and June, and execution of the sales team in business is going great. So, you'll see that as that begins to ramp up again as we go.

When you're looking at the revenue, we have a couple of things still going on. We have continued growth in our smart voice revenue. We have continued growth in smart Wi-Fi. And it gets offset against some repricing in some of our legacy products, legacy phone products, and legacy fiber products. The fundamentals of our business revenue are strong. Our market services are contracted at an average length of 45 months. They just continue to grow as a percentage of our revenues. Things like Shaw Broadcast satellite services continue to decline as a portion of our revenue. So, if you look at this, at 6% year-over-year growth, you can look at that and maybe a bit beyond as we move forward.

As we think about wireless in business, there's an opportunity for us to bundle wireless services with business in the future. And there is some work being done toward that. Today, we don't offer business wireless services. It's possible a small business owner is buying Freedom Consumer Services and using it because it provides great value, but that's upside for us and something you'll see probably in the not too distant future.

Tim Casey -- BMO Capital Markets -- Analyst

Thank you.

Operator

The next question is from David McFadgen with Cormark Securities. Please go ahead.

David McFadgen -- Cormark Securities, Inc. -- Analyst

Hi. I have three questions. First of all, we saw the Corus dividend was cut yesterday. Does this have any implications for your dividend? Secondly, any idea when you would actually transition to an all IP solution for BlueSky? Lastly, when do you expect to complete the 700 MHz buildout?

Trevor English -- Executive Vice President & Chief Financial Officer & Corporate Development Officer

I'll talk about the Corus dividend. Brad's comments were -- going forward, we never considered the Corus dividend as a meaningful driver of free cash flow growth over the long-term for our company. Sure, the 80% dividend cut results in, instead of roughly $90 million of Corus dividends coming to Shaw, we're down to around $20 million. But, we weren't including that to fund our strategic plans, growth profile, or the Shaw dividend profile going forward. So, it really doesn't have an impact on Shaw's dividend, the way that we think about or dividend over the long-term.

Jay Mehr -- President, Shaw Communications

I'll take the all IP. We're very pleased with what's possible for our wireline business. I think Trevor alluded to taking a major step in Q4, standing up the could DVR infrastructure, which is what's behind some of the capital investments in Q4. That would be great to get that built up and running. It really makes a lot of things possible. All of this we're trying to create in our consumer wireline business -- and that the team is committed to creating -- is not really just about IP video. It's about creating this wireless and digital broadband company. It's about a gateway in the home, which is the XP6 Doxis3.1 modem.

It's about everything else in a home being connected wirelessly, without wires in the home. That requires IP video. That requires cloud DVR. That requires us to make some evolution in our in-home Wi-Fi. It requires probably to launch some of the XY services that you've seen from Comcast. All of those things come together really nicely as you get through the fulsome of time in F19. As you can appreciate, all of our efforts are in support of creating that new service delivery model. So, we're going step by step to make sure we get it right. We have to change the model in order to make sure the inflation model works, the support model works, and we're working with all of our teams creating that roadmap.

So, I don't see that as a race. I see it as a fundamental step-by-step plan, where we create a new definition of winning. I think you'll see all of that come together into a new way for the house to connect with Shaw.

Paul McAleese -- President, Wireless

On the 700 timing, we will be making a meaningful start on that rollout this summer. We expect that the work will be complete within 12-18 months.

David McFadgen -- Cormark Securities, Inc. -- Analyst

You said one-third of your subs are on Apple devices. Can you tell us what the average ARPU of all those Apple devices is?

Paul McAleese -- President, Wireless

It would be characteristically slightly higher than the average, and that's as far as I'd go on that today.

David McFadgen -- Cormark Securities, Inc. -- Analyst

Okay. Thank you.

Operator

Our next question is from Adam Ilkowitz with Citi. Please go ahead.

Adam Ilkowitz -- Citigroup Global Markets, Inc. -- Analyst

Thank you. Starting on the wireless side, can you talk about the prepaid business and if your shifting some of your scarce promotional dollars toward the post-paid side? Are you seeing more of a competitive environment prepaid, or is that just more of a strategic shift? Secondly, when you look at the 600 stores you will have in your footprint, how does that compare to the incumbents? Obviously, predicting in direct versus indirect is probably different. Are you comfortable with the mix on that and productivity you're going to get on the store channels you'll have? Thanks.

Paul McAleese -- President, Wireless

I think it's worth an observation here on prepay versus post pay. This is an area where investors may want to view us slightly differently than other carriers. We strongly believe our growth can include all Canadians, regardless of their economic status. While you'll continue to see our primary focus be on the growth on these higher value lower trend post pay subscribers, as we've been so effectively doing over the last number of quarters, we're going to continue to take steps to ensure that customers who have credit challenges still feel welcome at Freedom. The key in that strategy is to make sure that our investments in subsidy and financing and commissioning are aligned to customer value. We think there are thoughtful ways to make that work, particularly using BYOD and not changing our risk or growth profile.

So, we like prepay. I would prefer to see us continue to always be positive on prepay growth, which is a bit of a departure from where some of our competitors are. We think it's an important part of the mix and it's an important area for customers to graduate from. So, prospectively, you'll see a mandate from us that likes to see a positive on both fronts as often as we can be. There is some seasonality that affects that detrimentally typically in one quarter. But, if we could dream, that would be positive on all fronts going forward.

On your second question, on the growth of the stores, you're right to identify that there's a productivity delta between our corporate stores and some of our dealer stores and third-party retail, largely because of their focus. If you were to identify -- first with Loblaws since we're launched there in 15 stores now, you can buy any product there. The entire range of the big three -- from the premium brands to the flankers. So, we're one of perhaps ten SKUs in those scenarios and we're holding our own very, very well there. But, from a practical standpoint, you would expect us to get a ratable share or better slightly in that retail footprint as opposed to 100 percent of what goes through our corporate stores.

So, we love the confidence that we have from the management teams of those two retailers. We love what our initial trial has taught us from the Loblaws experience, and we've worked closely with that management team to learn from it. I won't try and contrast our retail footprint to that of the incumbents other than to say, if you look at our results over the last couple of quarters, they have been driven by the fantastic work done by distribution.

So, I get asked a lot about a perceived distribution gap. I would characterize that differently and say we have opportunity to fill some white space, but we have really been impressed with the work that our distribution have come along with us on the journey, up toward higher value customers to improve the experience in store and to serve our customers our better. Those numbers are showing in our quarterly results. We're very pleased with our distribution at this point and we'll continue to grow it thoughtfully over the next number of quarters.

Adam Ilkowitz -- Citigroup Global Markets, Inc. -- Analyst

Thanks. For Trevor, on the free cash flow, I saw that cash taxes were quite low this quarter and deferred taxes were a pos on the cash flow statement. Is there any seasonality or timing to that? Looking into the spectrum, as you think about your balance sheet, the leverage is quite low right now. What kinds of leverage are you willing to go to for normal business for the spectrum? Is it up to two and a half times? Is there any type of way to think about what you're willing to take the balance sheet up to?

Trevor English -- Executive Vice President & Chief Financial Officer & Corporate Development Officer

Our leverage targets haven't really changed from what we have as a -- what we stated in the past of two to two and a half times. We're certainly more comfortable at two. We think it gives us the flexibility to run the business. But, taking on some additional debt to fund the spectrum is something we're very, very comfortable as a management team with. Nothing really out of the ordinary on cash taxes in terms of seasonality. We'll true that up with year-end and give you the appropriate rates going forward when we talk about F19 guidance.

Adam Ilkowitz -- Citigroup Global Markets, Inc. -- Analyst

Thank you guys very much.

Operator

The next question is from David Barton with Bank of America Merrill Lynch. Please go ahead.

David Barton -- Bank of America Merrill Lynch -- Analyst

Hey, guys. Could you elaborate a little bit on the price hike you guys instituted on the wireline side starting June 1? I went to the FAQ page on the website, but it says it's going to notify me in my monthly bill. I'm not going to get that soon, so I'd love a little more color on that. And how you square what you're doing on the pricing side with what you hope will be improved broadband connections in the next quarter. Secondly, on the Walmart distribution expansion, could you compare and contrast the economics of selling through the corporate store versus a third-party store, like a Walmart facility? And, as we see a greater percentage of the distribution going on that direction, how does that impact the margins? Thanks.

Bradley S. Shaw -- Chief Executive Officer

Great. We'll start, David, with your questions about the rate increase. We did our annual rate adjustment on the consumer wireline side of the business effective June 1st with the majority of our customers being billed in advance, and even with our consumption billing customers. You get notified well in advance of that, so all of that has found its way through the system, about 3.1 million customers in consumer are eligible for the rate increase. And about 1.1 million on those customers are on value plans or in some form of rate guarantee, meaning they're not impacted. The general terms video is an increase of $2.00. The Internet is kind of in the $4.00-5.00 range. A couple of adjustments in phone. Think of that in terms of revenue impact of the business as being around $20 million, or maybe $21 million, in Q4. So --

Trevor English -- Executive Vice President & Chief Financial Officer & Corporate Development Officer

 [Crosstalk] Yeah, and I think we gave that color in the last call. I think it's around $21-23 million is what we're expecting in Q4 in terms of the financial impact of the rate adjustments.

Bradley S. Shaw -- Chief Executive Officer

Yeah. And that implementation has done well and everything appears to be on track. If you look at an annual rate adjustment, certainly we see increases in our network fees and other things that are happening in the business. This is our normal course.

Paul McAleese -- President, Wireless

On the question regarding long arm economics versus corporate stores, there is a fairly simple way to view this. Our cost of acquisition expectations for volume going through Walmart are consistent with our current run rate across the board. So, they are certainly going to be on a door-to-door basis less efficient than our corporate stores who do so many other things for us in terms of servicing our customers. But, if you're working out your model, I'd suggest you not expect it to have a material change one way or another in terms of our average cost to acquire a customer.

David Barton -- Bank of America Merrill Lynch -- Analyst

Great. Okay. Thanks.

Operator

Mrs. Shaw, there are no more questions registered at this time.

Bradley S. Shaw -- Chief Executive Officer

Thank you, operator. Thanks, everyone.

...

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a blessed --

Duration: 52 minutes

Call participants:

Bradley S. Shaw -- Chief Executive Officer

Trevor English -- Executive Vice President & Chief Financial Officer & Corporate Development Officer

Paul McAleese -- President, Wireless

Jay Mehr -- President, Shaw Communications

Tim Casey -- BMO Capital Markets -- Analyst

Vince Valentini -- TD Securities, Inc. -- Analyst

Jeff Fan -- Scotia Bank -- Analyst

Phillip Huang -- Barclays Investment Bank -- Analyst

David McFadgen -- Cormark Securities, Inc. -- Analyst

Greg MacDonald -- Macquarie Capital Markets Canada Ltd. -- Analyst

Adam Ilkowitz -- Citigroup Global Markets, Inc. -- Analyst

David Barton -- Bank of America Merrill Lynch -- Analyst

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