Shaw Communications (SJR) Q1 2021 Earnings Call Transcript

Shaw Communications (SJR)
Q1 2021 Earnings Call
Jan 13, 2021, 9:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. Welcome to Shaw Communications first-quarter 2021 conference call and webcast. Today's call will be hosted by Mr. Brad Shaw, executive chair and chief executive officer of Shaw Communications.

[Operator instructions] Before we begin, management would like to remind listeners that comments made during today's call will include forward-looking information and there are risks that actual results could differ materially. Please refer to the companies publicly filed documents for more details on assumptions and risks. Mr. Shaw, I will now turn the call over to you.

Brad Shaw -- Executive Chairman and Chief Executive Officer

Thank you, operator. Good morning, everyone. Happy New Year and thanks for joining us to discuss our Q1 results. With me today are members of our senior management team including our president, Paul McAleese; our chief financial corporate development officer, Trevor English.

Considering the environment and ongoing impacts on COVID-19, we continue to have most of our employees work from the safety of their homes. Our networks continue to deliver exceptional service for our customers as data usage and voice traffic on our Wireline and Wireless networks remains significantly above pre-COVID levels. Our retail locations have remained all -- open, albeit at a reduced capacity. And we have ensured that we meet or exceed the safety requirements in the various provinces that we operate in.

To better serve our customers, we have also made significant progress with respect to our Wireless' digital fulfillment capabilities. And we continue to encourage and support self-install and self-help service options for our Wireline customers. Despite the ongoing impacts from the pandemic, fiscal 2021 is off to a great start as our strategy to scale our Wireless business and deliver profitable Wireline results set new records in this quarter. Consumers are embracing the launch of Shaw Mobile and the value proposition of our offerings.

Demand for our bundled Wireless service has significantly exceeded our expectations resulting in over 100,000 new Wireless customers in the quarter. And our broadband service just keeps getting better. In November, we launched our fastest Internet tier yet with Fibre+ Gig 1.5 gigabits, more than doubling the top available speed less than a year ago. Our focus with Shaw Mobile is to bundle affordable wireless services with our high-quality, high-lifetime-value Fibre+ Internet relationships.

In this environment, existing Internet customers realize tremendous value by adding Shaw Mobile to their connectivity services, often with multiple lines in the household. While the Q1 net loss of 15,000 Internet customers is not yet where we need to be, new customers are increasingly choosing faster Internet tiers and base migrations to our Fibre+ Gig Internet plans are accelerating as customers embrace our connectivity bundle which, of course, includes Shaw Mobile. This activity reinforces our status as the leader in Gig Suite Internet across our footprint and is driving overall improved customer profitability including higher Internet ARPU and reduced churn. I am confident that our bundling initiatives provides a great value proposition for new customers and over time, will drive and subscriber growth.

But I am equally pleased with the trends and improved profitability that we have seen in the early days of bundling mobility with our existing Wireline customers. This positive momentum within our operations and stable business performance, combined with efficient cost management across the entire organization, lead to strong financial results including our Wireline operating margin exceeding 50% and free cash flow growth of 23% in the quarter. For almost a year, we have been successfully managing through the impacts of COVID including slower Wireless subscriber activity in the second half of fiscal 2020. However, our focus on execution has remained strong and there was a tremendous amount of work in the background to launch our Mobile and expand our retail network and distribution capabilities in this challenging environment.

As our first-quarter results have highlighted, the success of our connectivity bundle has us firmly on track to continue scaling our Wireless business and delivering consolidated growth. I will now turn it over to Trevor to review the financials in more detail. Trevor?

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Thank you, Brad, and happy New Year everyone, and good morning. Our consolidated financial performance in the quarter includes adjusted EBITDA growth of 3.2% over the prior year and reflects our strategy and focus on profitable customer interactions. Touching briefly on segmented results, Wireline revenue declined approximately 1%. However, adjusted EBITDA increased almost 3%, resulting in a strong operating margin that exceeded 50% in the quarter.

As we continue enhance our Internet products whether that is through the introduction of faster speeds or broader distribution and focus on bundling Internet with Shaw Mobile, customer profitability has improved. In addition to this positive momentum, we continue to closely manage our costs, and reduction in opex is primarily -- primarily due to lower relates -- volume-related and employee costs that we're benefiting from the full run-rate savings from [Inaudible] and reduced headcount. And overall, sales activity remains muted within our Wireline division. The quarter also includes less advertising and sponsorship costs as events such as the Shaw Charity Classic were unfortunately canceled this year, as well as lower travel and other discretionary costs.

In Wireless, service revenue grew approximately 10% to $215 million and adjusted EBITDA increased approximately 6% over the prior year. As we continue to scale and make the appropriate growth-orientated investments within our Wireline -- Wireless business. Q1 included additional investments to support our record-Wireless growth such as expanded retail, improved digital capabilities including direct fulfillment for new customers, and other volume-related costs. The overwhelming success we have seen with Shaw Mobile is impacted -- is impacting reported Wireless results including ARPU which declined 1.3% in the quarter due to lower Wireless revenue from Shaw Mobile additions.

However, our strategy to bundle Shaw Mobile with our Internet service is working, benefiting our consumer divisions -- division and contributing to strong consolidated results. Q1 adjusted EBITDA growth, combined with lower planned-capital investments within our Wireline segment resulted in keep -- in free cash flow of $225 million and we're on track to deliver our free cash flow commitment of approximately $800 million in F '21. With the underlying strength of our business, significant cash balance with expected growth, and free cash flow this year, we've been active with our NCIB program since November 2 following the approval by our board and the TSX to repurchase up to 5% of the outstanding Class B shares. In two months since commencement of the program, we have repurchased and canceled approximately 6.5 million shares at a cost of approximately $150 million.

Considering our solid Q1 operating and financial performance including record Wireless additions, free cash flow growth, ample liquidity, and a strong balance sheet, we are on track to meet our commitments for fiscal 2021 including returning substantial capital to our shareholders through our dividend payments and our NCIB program. I'll now turn it back to Brad for closing remarks.

Brad Shaw -- Executive Chairman and Chief Executive Officer

Thank you, Trevor. Since our entry into the Wireless business, our strategy has been focused on scaling our Wireless subscriber base and improving the overall customer experience. Throughout this period, we have made significant investments that have enabled us to be innovative and disruptive, while providing tremendous value for Canadians, particularly as we continue to face uncertainties from the ongoing COVID-19 pandemic. We have demonstrated our flexible and nimble approach with our go-to-market strategies and strong execution.

Connectivity matters more than ever. And our Shaw Mobile bundling strategy is a powerful combination of high-quality, affordable Wireless services with our robust Fibre+ Internet offering which is clearly resonating with Western Canadians. Thank you, operator. We'll now take your questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Jeff Fan of Scotiabank. Please go ahead.

Jeff Fan -- Scotiabank -- Analyst

Great. Good morning, everybody, and happy New Year. I'll start with a couple of questions for Paul and then a more strategic question for Brad. Paul, regarding the Shaw Mobile Wireless subscriber strong results, I wonder if you can talk a little bit about the profile of some of these customers, whether these are a new lines that you're getting from households adding new wireless lines or are they ports.

If you can give -- just give us a little bit of context there. And then regarding the ability of Shaw Mobile to -- to lift the -- the Internet business or the -- the Wireline cable business, I wonder if you can give us a -- a little bit of timing on -- sorry, a little bit of timing on --

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Sorry, Jeff. We lost you. Operator, are you there?

Operator

I am. Jeff has disconnected. Our next question comes from Vince Valentini of TD Securities.

Vince Valentini -- TD Securities -- Analyst

Hey, guys. You want to -- Jeff had asked one and a half questions. Do you want to answer those first before I go?

Paul McAleese -- President, Wireless

Sure. Yeah. Do you want to -- we'll -- we'll take -- yeah. We'll take -- we'll take Jeff's first question.

So, just a reminder, the question is about the profile of your Shaw Mobile customers. Yeah, we're seeing a very, very positive metrics as -- as it was clear in our reporting this morning on Shaw Mobile's overall performance. And -- and the composition of those customers has changed over the course of the last number of months since launch. Early on, we were seeing a higher bias toward the $0 unlimited talk and text plan.

I think with -- probably a lot of customers testing our network and making sure that it was right for them. I'll remind for everybody that all Shaw Mobile customers need to be Shaw Internet customers. And then in late October, we launched the $25 unlimited plan which was tied directly to $115 Gig. So, we're very pleased that over the course of the last number of months, we've seen a considerable shift away from that $0 plan and toward the $25 and $45 unlimited plans as constants in our network has improved and perhaps a better understanding of the -- of the overall value make its way to the market.

From a mix standpoint, most of these customers are ports from other carriers. There is a degree of organic growth in the markets. I think consistent with some of the speculation early this morning in the reporting, there is a degree of market expansion here. But well more than half of what we're seeing is coming in from -- from other carriers.

I'll let him finish the other part of that question when Jeff comes back in. Vince, do you want to go ahead with yours?

Vince Valentini -- TD Securities -- Analyst

I do. Thanks, Paul. I have a couple for you and one for Trevor. Just for Trevor first.

Working capital look like almost $190 million of -- of outflow. Is there anything unusual there, or just timing issues? If you can help us with that. And then Paul, to follow up with you on the Internet side first. The, you know, we've talked in the past about Internet ARPU and the revenue per household relative to these subscriber losses that you're incurring.

I don't know if there's anything more you can flush out on that topic today. And I think this may have been what Jeff was getting but if -- if I can just ask it as well as the timing in terms of when these new Shaw Mobile marketing efforts that are now seem to be more linked to winning new customers as opposed to just migrating existing subscribers given the $500 bill credit you started in December. Which -- I mean, that you expect should? Should we see a pretty immediate turnaround in your -- your Internet and overall cable subscriber numbers, or is this going to be a gradual process? Thank you.

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Thanks, Vince. So, start with the working capital question. It's mainly timing, Vince, where we've got some lumpiness with some of our interest payments just when we make those and the, of course, some of our cash tax payments around installments. And then the other big factor this quarter from a working capital perspective, not surprising in the quarter was about $75 million related to the NCIB.

So, that -- that really -- certainly helps you up bridge and explain the movement of working capital. And you can see from our contract asset balances on -- on our -- our balance sheet. Those haven't moved in a significant way. So, that really hasn't impacted working capital in a material amount in the quarter.

Vince Valentini -- TD Securities -- Analyst

Thank you.

Paul McAleese -- President, Wireless

Great. And Brad, I'm going to give you a slightly longer answer to a short question. Excuse me, Vince, I will I give you a slightly longer answer to your short question. So, if you'll indulge me for a minute, I think it's just worth revisiting the strategy for our Internet business.

You know, as Brad said in the opening remarks, that business is very much a work in progress. And without even a hint of defensiveness, I want to be clear that our team, led by me, needs to deliver a more appropriate share of what modest subscriber gains, I think, remain available in the markets that we have facilities. So, when we're analyzing what that appropriate share will be, a number things go into establishing of baseline. First, as -- and we've discussed in Moscow, we need to strip away some of the noise associated with fixed Wireless which is, as you all know, a -- a largely rural product that we know comprises a sizable portion and TELUS' net growth and I'll disclose it.

But we, through third-party services, have a -- a good sense of the contribution that makes there. And as you know, Shaw doesn't currently offer fixed Wireless due to the urban focus of our Wireless coverage. So, this is a structural advantage, you know, really if TELUS' decade-long development of their Wireless footprint. And also, their long-held spectrum advantages.

So, not something that we're competing on today. It's also well a smaller component of their growth. We all should -- should remove the -- kind of the $10 NAF for good subscribers. An admiral initiative, but one that doesn't really generate any lifetime value and that we don't have a comparable product for.

So, we believe that when you combine those two programs and remove them, that takes about half or more TELUS' reported net adds out of play which then gives us our properly grounded baseline. And that's really what informs our growth plans. With a weakened economy in Western Canada and then kind of the practical impacts of COVID, things like students returning home, not having additional lines. Most industry predictions right now suggest can have little to no organic Internet subscriber growth in the West this year.

Again, at least in those markets where we -- we operate with facilities. And then honestly from there, the math is pretty straightforward. The 15,000 subs that we lost last quarter didn't abandon the Internet. They likely went across the street to TELUS.

And some of this charity come -- comes from our customer retention metrics that are, as we understand them, weaker than -- than TELUS. And this is an area that, frankly I'll acknowledge, our competitor excels. You know, we operate against a -- a -- a very well-run competitor in TELUS. We have a strong legacy of customer service and delivery.

And we are likewise investing considerable energy across all of Shaw to -- to improve our performance there. But some of those markets are gain -- or excuse me, losses are attributable to this spread in -- in retention. The -- the better -- the better churn rate that -- that they TELUS enjoys. But our focus here is rapidly changing for the better.

It's important that we were pulling all this apart that in analyzing the data, we've learned a number of other things. One is that the customers that are leaving us are inherently more transient. They carry a profile that is one that sort of optimizes and leverages available promotional pricing. And accordingly, have a lower lifetime value than our average customer.

These are kind of classic promotional hoppers and there is a lot of opportunity to do that still in this country where you can run between carriers and kind of optimize your pricing. It's also clearer than in recent quarters, TELUS' gains have been more reliant on discounted Internet pricing relative to the market, both on their standard rate card as well as on -- in the form of additional service credits or gifts and very heavily discounted 2P and 3P bundles. And I've -- I've spoken before about the wisdom of that in a mature market. I want to label it further but I do think it is an important distinction to drive what we're doing on our rate card versus what TELUS is doing on our rate card.

And that distinction is never more clear than when you look at the operating margins of our respective Wireline businesses. So, you know, you saw it in our reported numbers this morning, Vince, where, you know, we had a nice beat on -- on consumer Wireline EBITDA. We've seen pretty significant improvements in Internet ARPU which we can speak to, I think Trevor, 5% up on the -- the last quarter, right?

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Yeah. We're 5% -- 5% up year over year.

Paul McAleese -- President, Wireless

Right, yeah. So, when you dig more deeply into the numbers, I'd encourage, you know, the -- the analysts on this call to -- to -- to consider this. Not all the customers are created equally, right? So, we have made great strides in the last year to pursue higher-value customer relationships. And perhaps forego some of this lower-value, lower -- lower-margin stuff that is out there in the marketplace.

So, I want to give you a little bit of color around how well we've done on that front and some of the things that are underpinning our numbers. First, and this is kind of an -- perhaps a new level of disclosure for us. So, bear with me for a moment. First off, we are onboarding new Internet customers at a much higher revenue rate than we ever have in the company's history.

Right now, fully more than 20% of our customers are activating, they're coming on board or activating on 1 and 1.5 Gig plans. So, the run rate of that, which has been improving over the last number of months continues, to demonstrate that the great work that our technical teams have done to deliver these -- these new speed tiers is being, you know, really embraced by -- by customers. Base migrations, the second point I'll raise, which for years were a relatively dilutive event. So, when customers, you know, talked to us about changing the rate plan, they usually went backwards are now consistently positive.

Thirty percent of our total migrations, 30% of the time, someone calls us to improve -- to change the rate card. They're similarly going to Gig or Gig and a half-speed tiers. And the combination of those factors now means that we now have nearly 100,000 customers on the high-quality, high-speed tiers that didn't exist this time last year. So, that'd be $7.50 Gig and Gig and a half.

On that customer embrace of our higher speed tiers is clearly creating financial benefit for our shareholders. And just like I said you saw that our EBITDA -- EBITDA performance we published this morning. So, we've made it clear in the past that our focus is growing on higher-value household relationships. Anchored in broadband, complemented by Wireless to Shaw Mobile bundle.

And the success of that goal, of course, have seen in our high net growth today. Let me kind of put a bow around this. We have become -- rapidly become the preferred provider for higher-value Internet customers in Western Canada. We see it in the key metrics, we see it in our research and our customers are seeing it reinforced in our products, our advertising, our retail stores, our service delivery.

Across the board, we are getting the higher-value customers that are currently choosing Internet in the Western marketplace. So, our balanced scorecard, as Brad indicated at the onset, is always going to be high-quality products delivered to the appropriate financial return. I don't want to confuse or conflate some of the low-value, lower-revenue, and lower-lifetime subscribers that are being onboarded by our competitors we -- that -- that we were onboarding. I think they are chalk and cheese.

And that's really something we're going to be focused on. So, on your -- now that I've answered the question you didn't ask, when is that going to bring on new Internet growth? You know, slowly. It's a -- it's a slow-moving target. Principally because I think Internet overall in a net growth ad, activity is off considerably year on year.

It's difficult to get customers to change their Internet provider during the pandemic with everybody home doing the things they're doing. Our churn is down considerably year on year, our gross is down considerably year on year, and our economic return is up considerably over -- year on year. So, for now, that's a trade that we're comfortable with. You are not going to see us doing anything other than using the bundle to chase more market share on Internet growth.

We think we have the right strategy. We're confident in it. I've said before it's something that's going to take time to -- for that numerator to shift the denominator. But I would encourage everyone on this call to look kind of past just the Internet losses and think about the quality of what we're gaining relative to the quality of what we're losing.

We are comfortable with that trade today. While I'd certainly love that number to be in the black, understand that we're -- we're -- we're happy to make the trade for higher quality and higher return.

Vince Valentini -- TD Securities -- Analyst

Paul, that was comprehensive and excellent. Let me just follow up with one thing. Maybe more for Trevor.

Paul McAleese -- President, Wireless

Yeah.

Vince Valentini -- TD Securities -- Analyst

If -- if this is the case in terms of transparency, I mean, anecdotal disclosure of ARPU growth is nice but if this is such a key focus for you, if, you know, is there -- is there any chance we can start to get Internet ARPU or Internet revenue whichever one you want to disclose on a, you know, on a consistent quarterly basis? And given what you said about 5% up year over year, just to the levels of everybody. Does that mean you're somewhere in the $75 range is what your Internet ARPU would be in Q1 of '21?

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Yeah, I -- I can tell you it's -- it's just over $73 in terms of our -- our -- our ARPU for Internet, Vince. And I will say in our broadband business from a revenue perspective now contributes about 45% of our -- of our consumer Wireline revenue amount. So, I think those are two numbers that help bridge. And -- and frankly, that mix also what -- what Paul is talking about just leads into our -- our Wireline setup performance.

It's just a different mix of customers at a higher margin. And like Paul said, it's a very deliberate strategy and we'll continue to look at our disclosure, Vince, and provide data points to help investors in the street bridge the financial results mirrored with and partnered with our strategy.

Vince Valentini -- TD Securities -- Analyst

Excellent. Thank you.

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Thanks, Vince.

Paul McAleese -- President, Wireless

Thanks, Vince.

Operator

Our next question comes from Jeff Fan of Scotiabank. Please go ahead.

Jeff Fan -- Scotiabank -- Analyst

Thank you and sorry for cutting off earlier. My question was actually for Brad. Again, a more strategic question. You talked about the focus on scaling Wireless and providing great services for the customers.

I'm wondering if you can talk about just your level of confidence in -- in the ability to do that as an independent company, in light of, you know, the scale of investments that, you know, the industry is talking about related to 5G, et cetera. And I guess, balance that with your growth opportunity again, your confidence in delivering all of that as an independent company. Thank you.

Brad Shaw -- Executive Chairman and Chief Executive Officer

Well, thanks, Jeff. I'm -- I was surprised to get that question. But, you know, I -- you know, I, you know, it's been, you know, as I look back and, you know, when we, you know, got rid of media and data centers and made the pivot to Wireless and, you know, we've done a lot of work that I think is just reflective of Q1 performance. And, you know, I really feel we're on the -- its early days when you look at where we are from a bundling point of view when we're looking at from a management point of view because I would say when I look at this, I don't think we've ever had a better focus and a better execution from a management level at all levels.

And, you know, I -- as you know, I've been here a few years and I've seen a lot of different things. But I really think with the team, we're on the right trajectory. I think it's early days when I see things and -- and see the opportunities. I get excited when I see Paul talk here and talk about where we're at in the cycle and, you know, I think we're -- we're on the right path.

We have, you know, the family's very comfortable with -- with the trajectory, with the strategy, with the execution. And, you know, we're going to continue to pursue the -- the opportunities we see in front of us. And I -- I think is -- there's more to come and I think we're -- we're on the right path. But that being said I think you always -- you know, you always want to make sure we're delivering as we said.

And -- and, you know, we wish -- as Paul said, we wish the Internet number was higher and there's a few other things but, you know, we -- we have to be patient and we have to keep delivering on those key things that we said we want to do. And I think it's all going to be -- be very beneficial for shareholders. And, you know, time will tell. And we're continuing to make sure we -- we're focused day to day, hour to hour and, you know, that's what it's going to take from -- from our team to be successful.

And so, we're very committed to that and we want to play that story on.

Jeff Fan -- Scotiabank -- Analyst

Thanks, Brad.

Operator

Our next question comes from Drew McReynolds of RBC. Please go ahead.

Drew McReynolds -- RBC Capital Markets -- Analyst

Thanks. Thanks very much. Happy New Year and good morning. A couple of follow-ups for you, Paul.

Thanks for the -- the detail on -- on the Internet questions. Comment if you can on just, again, competing against Fibre-to-the-home versus the non-Fibre footprints the -- the dynamics there. And also, on the higher-value customers, you know, we -- we hear that everyone's going after higher-value customers. If you look at your base, you know, how far are you away with kind of gaining a degree of comfort that, you know, these promotional hoppers or -- or perhaps the subscribers that are less worth to you have -- have been flushed out.

I've got a couple more and I will just stop there first.

Paul McAleese -- President, Wireless

OK. Hey, Drew how good to speak with you. You know, we're starting to see the pace of Fibre-to-the-home slow or after three or four years of pretty frenetic growth from TELUS. As I -- I think on average about 80% of their -- of their footprint.

And, you know, we've talked in the past calls about our use -- relatively new use of data. We've -- we've built a much more sophisticated data team over the course of the last nine months or so and they have started to provide real insights into where our opportunities lie. We've spent the last three or four years been on the receiving end of TELUS being able to use their data to better deploy more thoughtfully deploy Fibre-to-the-home. And then quickly follow that on with door-to-door marketing and, you know, better-targeted activity against our base where we had perhaps speeds that didn't equal theirs.

I'm so grateful to Zoran and the technical teams for launching, really, in rapid succession 750 Gig and then Gig and a half and then vastly improving our upload speeds over the course of the last six to nine months. So, we've got, frankly, a much better product offering now than we have ever had. And now, we're able to use the data that our teams have put together to go into those hundreds of thousands of, you know, DSL households that remain for TELUS. And provide them not only with a product offer that is unavailable to them.

Reminder that -- for everyone that we made the decision some years ago, to provide Gig-level service to all of our covered homes. Whereas TELUS, of course, have their own strategy but only provide Gig-level speed to a percentage of their coverage footprint. So, our opportunity now is to be more sophisticated in the pursuit of those higher-value customers, better sense of where to go get them and where those opportunities lie against DSL, and then where we can use Wireless taking advantage of the asymmetry that I spoke about on the prior call, to really drive that point home. You know, a customer choosing Gig speed today that perhaps is converting from TELUS and we're seeing a number of those also has the ability to add $25 unlimited lines to their -- to their proposition.

And I can tell you that that's happening in decent quantities right now. So, you know, when you're adding new revenue of $115 for Internet and then typically when people buy Shaw Mobile, they buy -- buy them in pairs two at a time or adding another $50 in Wireline -- Wireless service revenue, all of a sudden, you got $165-plus household. Add some video and other things like that, you get up around a couple of hundred dollars of ARPU. That's all new money to us, Drew.

So, that is -- that's a strategy that you're just starting to see employed. Reminder for everyone, we didn't launch our $25 unlimited plan until the end of October. So, we're only a couple months into that but the results so far, as you kind of would expect, have been -- have been very, very strong. In terms of the promotional customers, -- And I, you know, as Brad said, I -- I'd love to keep every customer that we have but if you're going to choose to lose some, lose the ones that have the higher operating cost.

And you won't be surprised to know that when people have that profile of kind of running between carriers, they also tend to incur higher operating costs associated with things like customer care and retail interactions. And they're -- they're I -- I guess what you call kind of high-maintenance customers. And while we embrace all customers, losing those in favor of gaining higher-value subs coming from -- from other places is certainly something we're comfortable with right now. You know, I don't know just how big that bucket is, Drew, but I would suggest there's always going to be an element of that running kind of back and forth.

It certainly exists in the Wireless business which I am a little more familiar with. We see people that have, you know, still carry multiple SIMs and will go back and forth depending on what their rate card is. That's been something that's been in existence for 30 years. So, you know, we're -- we're comfortable now that we have a better understanding who they are and what their profile is.

And, you know, in a sense, we're looking to acquire less of them and we'll -- we'll be more thoughtful about keeping them, you know? One of the things I talked about I think on the last call was making sure that our better customers get to get higher-quality treatment, better access to things like customer care. So, we now have priority queues that we didn't have before. If you're a high-revenue household, you'll get your phone call answered much more quickly than if you were a low-revenue or low-margin household. We're starting to align our investments better there than we ever had before.

So, while it's always going to be a feature, it's going to be one that we watch very closely over the -- the coming quarters.

Drew McReynolds -- RBC Capital Markets -- Analyst

I guess my super two -- two quick ones here. Maybe Paul, just describe kind of the Wireless competitive dynamics if you can through the quarter and maybe what you -- you saw through December, put some context around that. And then not to get into great detail here, but I think we're all still trying to figure out what 5G means for everyone. But particularly the regional players and integrated players like Shaw relative to the national players, any -- any initial thoughts on -- on that? Thank you.

Paul McAleese -- President, Wireless

Yeah. Thank you. Well, I'm -- I'm pleased to report that I'm way less animated about the competitive dynamic in Wireless than it was last time we all got together. So, you know, it -- it remained fairly chippy, really, on -- through Christmas including some kind of silly one-off bounty things and stuff when you know how I feel about those.

And so, we saw, you know, you'll see this in our -- in what-- in our Freedom churn number, our overall Wireless churn number which has been largely reflective of the Freedom churn ticking up in the quarter. Again, disappointed in that but I know recognizing that there are simply less available subscribers right now for all of us to pursue. Again, with limited organic growth, same dynamic that affects Internet growth, limited migration, things like that. We're seeing very little organic growth on the Wireless side as well.

So, that means people get more aggressive and chase things, you know, particularly toward the end of the Big Three's fiscal quarter which of course was -- was December. But we saw -- we started to see a moderation, really, around boxing day, Drew. And -- and that -- that has continued through into the first part of January. I was encouraged by some of the recent announcements from Bell around changes in their price structure.

You know, I -- I made comments, unintended controversial comments on the last call around monetization of 5G. Point being, you know, being able to secure a return on those investments or sizable investments on network and spectrum was something that I was expressing caution on. And what we're seeing at least from Bell in the early days is some of the rate changes are looking to make in March probably are their path to monetizing 5G. And I -- I would encourage everyone to sort of look closely at that.

We certainly will be in terms of our pricing over that period of time. So, encouraged by competitive calm, I would say, in January so far. And I hope to -- to be able to see that, you know, continue to do the -- the rest of the year. And it sets up, I think, nicely with many of you who were reporting on -- on calendar '21 for the Big Three and perhaps a return to some ARPU growth as I said last time.

You know [Audio gap] you don't get out of a -- an ARPU deficit by cutting price, generally. So, nice to see some movement there. On 5G, you know, I said previously we're so excited about the opportunity this is going to bring. And it is really a long-term thing.

I -- I -- I think our peers have signaled as well that they see most of the gains really beyond F '20 -- F '21 as we start to bring on IoT -- excuse me, and other similar applications. For the regional players, I'll kind -- try and get at the subtext of your question. For the regional players, I'll go back to the use case for consumers, right? I -- I've been speaking on this extensively within the business and in our -- our aspiration on 5G is to bring it to market as quickly as we can and to quickly be able to put that badge on our phones, in our stores, in our merchandising, on our website and make sure customers know that we have a very high quality 5G network available to them where they work and where they play. Our LTE network, frankly, it was never as fast or as wide as the Big Three.

And as you all know, we've been more than capable of generating significant market share gains despite what I'll call a deficit but in practical terms for consumers, really aren't that much of a deficit. There's not a whole lot you can do on 150 megabits a second that you can't do or done 250 megabits a second that you can't do on 150, or frankly on 80. So, the 5G speed and latency benefits that we're going to see have, practically speaking, little benefit in the short term for consumer applications. There certainly are enterprise-level that will require -- require some of those benefits over time.

But we're very comfortable that being in the 5G business, prominently and proudly, is very similar to our being in the LTE or the iPhone business prominently and proudly. Even if the -- there may be some speed differences related to some of our, you know, deficiencies in -- in historical spectrum holdings. Those are all things that will work to remedy over time. But we are confident that our 5G product is going to deliver exactly what customers are looking for and we're still on track to start delivering that in the calendar -- later in this calendar quarter.

So, I don't think we've missed much at the party and we're looking to join it later on -- later in March.

Drew McReynolds -- RBC Capital Markets -- Analyst

Thanks for all that. Appreciate it. Thank you.

Paul McAleese -- President, Wireless

Thank you.

Operator

Our next question comes from Aravinda Galappatthige of Canaccord Genuity. Please go ahead.

Aravinda Galappatthige -- Canaccord Genuity -- Analyst

Good morning. Thanks for taking my question and happy New Year. I feel for me, I'll just switch gears a little bit to the -- to the B2B side. Maybe, Paul, I'll try to -- do you want to sit and maybe discuss how that area has trended in terms of -- not just in terms of SaaS but also in terms of receivables and bad debts.

And I don't see anything meaningful there, but I just wanted to get your thoughts there. And secondly, perhaps for Paul, with respect to the distribution side in Wireless. I mean, during the lockdown periods, obviously, the digital channels become more relevant and you're up against sort of incumbents in a different way. How satisfied are you with the sort of the development of your digital channels and service distribution? And lastly, for Trevor, you know, very active on the NCIB as you've indicated.

I know that on the other side, on the dividend front, you're obviously, you know, the payouts continues to improve as well based on the guidance you've given. How do you think about balancing those two elements as -- as you look ahead? Thanks.

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

OK. Thanks, Aravinda. Maybe I'll start with number one just on B2B. Just -- just generally on bad debt, I would say, you know, some of that we're watching closely across the entire business all of our segments whether it's Consumer Wireless or, you know, Wireline and -- and business.

And frankly, our collections has been extremely strong throughout the entire pandemic including Q1. We did take an incremental charge in Q1 related to business. Bad debt, but it was very, very small and immaterial. So, we're very happy with the collections history.

Aravinda, you would see in the quarter from a revenue perspective, we were quite happy with the way things bounce back. We were actually up almost 4%, you know, Q1 versus Q4. And 1.4%, you know, growth this quarter versus a year ago. That being said, we're -- we're -- we're cautious.

Clearly, some of the restrictions -- the additional restrictions have been put in place across some of the provinces. You know, post-Q1 into December -- into January, you know, it's going to have some -- cause some volatility within our B2B operations. So, it's something that we're -- we're really managing closely. We're happy with the performance, it's quite stable.

But there clearly are some headwinds coming specifically within the hospitality sector. Our Internet business within B2B has been strong but within the video segment in the hospitality. So, I mean, it's been a bit weak there and it's something we'll watch. But -- but again, so far so good and our teams are working very, very closely with all of our business customers making sure that we're there for them during these uncertain and volatile times.

And I think it's going to serve us well over the long term.

Paul McAleese -- President, Wireless

So, good. Hi -- hi, Aravinda. It's Paul, and thanks for the question on Wireless distribution and digital capability. You know, when we -- we last met, I characterized our digital capabilities on acquisition as a gap for us relative to our peers.

And I couldn't be happier than to tell you that we have materially closed that gap over the last 90 days and just made enormous progress. Our tactical and delivery teams and our sales teams have worked incredibly closely together and we have made enormous strides on behalf of our customers' flexibility. Without getting too deep into Q2 disclosure, I'll tell you that in December, more than 20% of our gross Wireless ads came to a digital channel. That number was close to zero in the prior quarter.

So, it gives you a sense of how quickly we were able to bring on board the not inconsiderable -- not inconsiderable number of Wireless gross adds that we did in the last quarter and change that mix. So, we're encouraged by that. A reminder that even when 20% of it comes from digital, it means that 80% of it is still coming from retail, so I'm still happy with the investments we've made over the last number of years and still believe that retail has a long and important life with us in the Wireless space. You've heard us talk about that before.

But just enormous credit to the teams for so quickly remedying and closing the gap between us and our peers.

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Yeah. Just on returning capital to shareholders, even though I think we talked a -- talked a little bit about this in Q4. And certainly, we're -- we're very happy with the free cash flow growth last year and this year that we forecast our dividend payout ratio is roughly 75%. And we certainly have the ability to look at our dividend on a go-forward basis.

But I think this year, we really felt like a more flexible method and -- and frankly, considering where our share price was in terms of the valuation, a more appropriate return of additional capital to shareholders was through an NCIB program. And you've seen us be active in the first two months. And considering the performance of the business and again our conviction in the free cash flow growth rate of our company, you know, our balance sheet, a whole bunch of factors, you can -- you know, you can count us to be -- continue to be active, I think, with our NCIB in the coming months and quarters considering the performance of the business. The dividend is something that we obviously constantly look at with our board.

We just felt like for this year and at this moment in time, a more appropriate return of capital was through an NCIB as opposed to additional dividend -- or adjustments to our dividend rate.

Aravinda Galappatthige -- Canaccord Genuity -- Analyst

Great. Thank you.

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Thanks, Aravinda.

Operator

Our next question comes from Tim Casey of BMO. Please go ahead.

Tim Casey -- BMO Capital Markets -- Analyst

Thanks. Good morning. Two for me. One for Paul and one for Trevor.

Trevor, can you talk a little bit about the EBITDA margin performance on the Wireline side? You said in your comments that Internet value add subs are contributing that. I'm just wondering, given all the pluses and minuses with COVID extra costs and COVID costs are not incurring, just wondering if you could maybe help us understand the sustainability of a 50% margin or--

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Yeah.

Tim Casey -- BMO Capital Markets -- Analyst

Anything you think that will flow through the year in terms of timing. And for Paul, just a little more on your digital onboarding for Wireless. I mean it seems like there is a permanent shift in terms of distribution and that, you know, the industry is going to pursue more of an omni-channel strategy for it -- for distribution. Just wondering if you think what you've done so far prepares you for that or if you're going to have to kind of double down on those efforts over the next few -- few years.

And related to that, are you still hope -- planning to expand your retail footprint in light of that, like -- you know, just maybe a little more color on that. Thanks.

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Good morning, Tim. Thanks for the question. Just on the EBITDA margin and the performance in sustainability. Clearly, the business mix that Paul talked about and I talked about earlier in terms of higher value broadband customers, you know, bundled with a multiple product that -- that frankly from a churn perspective is very attractive.

It's early days. We only have clearly four months of a bundle -- that bundling initiative, but it's very strong from a profitability standpoint and you're starting to see that in the numbers and just the overall business mix. On some of the costs that you mentioned, you know, it's a bit lumpy obviously with COVID. There's some pluses and minuses like you say.

Overall, I would say, we've been able to take out more discretionary cost in this COVID environment versus some of the additional costs that we're incurring because of COVID whether it's PPE investments into our retail store up stores across Wireless and Wireline to ensure that they're safe. But there is a little bit of lumpiness in our -- in our -- in our, you know, quarterly cost structure, Tim. And of course, this quarter, you know, versus a year ago, you know, we did benefit from roughly $5 million of lower spend and that's related to, you know, some of our sponsorship initiatives with Shaw Charity Classic, though unfortunately, we had to cancel. And of course, our CFO partnership that -- that ended last year, so we didn't incur some of those costs.

So, a little bit of lumpiness, but I -- I would say, we have strong conviction in the profitability of our Wireline business and continue this -- to post extremely strong margins going forward. There will be, though, some variability quarter over quarter because of the lumpiness of some of the costs. So hopefully, that gives you a bit of color to think about in future quarters.

Paul McAleese -- President, Wireless

Hey, Tim. It's Paul. Thanks for the question on digital versus traditional retail. I think you're right, there is going to be a degree of permanent shift here, it's hard to tell kind of where that settles over time.

But we're certainly seeing that and hearing that from customers as well and then the comfort from -- from them, like, sort of taking these digital capabilities is something we think a nice addition for the business, certainly, from a cost standpoint. I agree the -- kind of just a few things to fill in some gaps. First, back in March, we reorganized all of our consumer sales teams under one leadership team reporting in to me. So, we -- we do have kind of a holistic view of how we -- we go to market on these things that we're able to use channels kind of interchangeably.

And the leadership in that group under Pat Button is fantastic and we have just a really thoughtful approach to go to market now and -- with that in mind. You know, a reminder as well that a very significant portion of Shaw Mobile acquisitions, I'll focus on the West for a minute, is BYOD and we're seeing ever-larger quantities of that shift which means that we can satisfy a customer, frankly, just by shipping them SIM card. And that's a very, very efficient low-cost acquisition for us. So, you're starting to -- you'll start to see that kind of come through more -- more in time.

But we expect that to be a permanent capability of the business going forward. We had avoided much of that kind of SIM-related activity, Tim, because we need a larger ecosystem of phones that had Band 66 in them. So, while we could have done this operationally a couple years ago, we chose to hold off until we were confident that the phones the customers were bringing to us were able to operate on our highest speed LTE band so that we then had the right and optimal customer experience. So again, an area where we really didn't pursue kind of digital direct capability because we wanted to make sure we could curate the device in a way that we were comfortable with and that typically required a store visit.

We still love retail on a bunch of fronts not the least of which is helping with the bundle which typically is a conversation. So, we're doing that either in our call centers today or in our -- in our retail stores. Obviously, the pandemic is restricting some of that traffic but we're still open for business as an essential service. And right across Ontario and into the West, our stores remain open along with the other carriers under agreed rules.

We have a small working consortium with the -- with the other operators to make sure that we have kind of harmonized approach to how we go at that. And I think we've been a kind of a very good corporate citizen on -- on managing through that. So, long term, definitely a structural change. I don't know that digital gets the 50% of our volume in anytime soon, Tim.

But certainly, if it -- if it remains in the 20s, there's a role for continuing to invest in that. I would say a lot of that lift is behind us financially. So, if you're -- if a subtext here is do we have a lot of additional expense ahead of us. Most of that already is consumed in the prior quarter and the -- the one before that.

So, our -- our -- our -- there's no big lift to be able to do this beyond what we've already accomplished. And then we'll just leave it in the hands of the consumer and they'll have the ability to choose what's best for them and we'll be able to meet it in a way that we never have before. So, again credit to the team for having done it so quickly.

Tim Casey -- BMO Capital Markets -- Analyst

Thank you.

Paul McAleese -- President, Wireless

Thank you.

Operator

Our next question comes from David McFadgen of Cormark Securities. Please go ahead.

David McFadgen -- Cormark Securities -- Analyst

OK. Thank you. A couple of questions on Shaw Mobile. So, as you noted in your release, the majority of your Shaw Mobile customers -- new customers are existing Shaw Internet customers.

So, I'm just wondering how important do you think it is to have third-party distribution in Shaw Internet? Because obviously, if you're a new customer to Shaw and you want to come to Shaw Mobile, you have to get Shaw Internet as well. And so, obviously, you know, retail point to presence matter for Wireless. So, I'm just wondering what your thoughts are on that. And can you give us an update on exactly how many retail points of presence exist for Shaw Internet including any third-party distribution? And then secondly, on Freedom.

On the churn, I'm just wondering is it driven more by what's happening in Ontario and the competitive environment there, or is that B.C. and Alberta and Shaw Mobile is having a bit of a negative impact on -- on Freedom having higher churn? Thank you.

Paul McAleese -- President, Wireless

OK. Thanks very much, David. So, in -- in a word are on the Shaw Mobile and relationship to Shaw Internet, we're really fortunate that if a customer chooses to kind of come to us net new -- net new on both the Internet and Wireless, we actually have a really good solve that doesn't require retail for both of those things. As we've disclosed previously, more -- well more than half of our Internet connections are done via self-connect.

That number's been in the 70s of late and now may moderate up and down over time as we -- as we kind of better curate some of those interactions. But certainly, the vast majority of our -- of our new activations for Internet come with a self-connect. And thanks to the great work of our operations and logistics teams, we can do some of that self-connect as quickly as same day and certainly within -- within next day for the vast majority of our geography. So, a customer wanting to get that pre-qualifying event of I need to be an -- a Shaw Internet customer can do it very quickly now much more quicker than they could have done six or nine months ago.

Then recognizing that again, the vast majority of those customers coming onto Shaw Mobile are BYOD, that can be accomplished with the delivery of a SIM card right to their home again in a similar timing kind of next day. So, net new -- net new, typically wouldn't have to wait more than a day or two to make the whole thing happen and wouldn't require a truck roll or a retail store visit. So, I think we've got a good solution there. We -- we are great partners with people like Loblaws here in -- in Western Canada for Internet.

We love having that distribution available, but we are not reliant on third-party distribution for either Internet or -- or Wireless in that context. Did that answer the first part of that OK for you?

David McFadgen -- Cormark Securities -- Analyst

Yeah. Thank you.

Paul McAleese -- President, Wireless

OK. Great. And then on the Freedom side, you know, it's a tough quarter on churn. Higher than we've been in quite some time but I kind of characterized some of the reasons for that earlier on the call.

There's not really a specific geographic element to sort of bias one way or the other on where those -- that incremental churn is coming from. You know, if you -- if you put this all kind of in the mix, it's not hard to understand why the freedom brand came under a little more salt than it has historically done. You know, when you're reporting over 100,000 net adds and you're seeing the kind of porting activity coming to Shaw Mobile that you've seen in the last 90 days, it has probably stirred the pot up a little bit on the -- on the other side. And, you know, Freedom unfortunately is a target of some of that.

So, we're -- we're OK with that mix. We obviously are working hard to try and -- and, you know, bring the -- bring that number down. But for the first and most part of this last quarter, Freedom was under pretty heavy attack kind of in response to Shaw Mobile as people were looking to keep their numbers -- and keep the numbers up.

David McFadgen -- Cormark Securities -- Analyst

OK. All right. Thank you.

Paul McAleese -- President, Wireless

Thanks, David.

Operator

Our next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

Simon Flannery -- Morgan Stanley -- Analyst

Great. Thank you very much. I'm just following up on Shaw Mobile. I know it's early days, but can you talk a little bit about the demographics of the customer versus the Freedom Mobile in terms of credit quality and how that might flow through to churn over time.

And then of new customers on the -- the broadband product, what percentage of those are taking Shaw Mobile? Thanks.

Paul McAleese -- President, Wireless

Oh, hey, Simon. It's Paul. Yeah. The demographics, we're very pleased with the demographics on -- on -- on -- Shaw Mobile so far.

And on credit quality, one of things we have been able to do over the last 90 days that didn't exist previous to that is be able to better curate existing Shaw relationships and existing Shaw long-standing sort of -- kind of credit histories with acquisition. So, I was -- I can -- I characterize the last time as a -- as a -- as a gap. Our -- our finance team, Trevor, Linda, Thomas, and the team have been -- done a great job of bringing that customer, that long-standing "I've been Shaw customer for 10 years why do I need to go through all this just to get a wire -- you know, to get a Wireless line?" We've now got much more of that history loaded into our systems. As you know, we kind of brought Shaw Mobile to market very, very quickly and this is one of the follow-up areas.

So, we now have very good insight into people that are, you know, applying to -- to bring Shaw to get -- get Shaw Mobile service. So, I think I'd characterize this as probably a premium or a higher-value customer than Freedom would typically pursue or acquire. I won't go much broader than other than to say that the -- the early days of Shaw Mobile's success had been largely against our existing base. And I know for many of you, that's probably a little frustrating that we haven't been able to grow more new relationships than we have.

I'll just say that things like the $25 unlimited plan are certainly changing that dynamic. But certainly, the history since the July launch has been largely against our existing base. But note that we are also skimming the better parts of our base in doing so. And -- and certainly, being able to have that credit qualifying now is a -- is -- is a big improvement there.

Not to disappoint you Simon, but we're not going to disclose at this time the number of Shaw Mobile customers that are also Shaw Internet customers or vice versa. But that will become more clear over the coming quarters as we -- as we start to give a little more disclosure on that front right.

Simon Flannery -- Morgan Stanley -- Analyst

Great. Thank you.

Paul McAleese -- President, Wireless

Thank you.

Operator

Our next question comes from Kannan Venkateshwar of Barclays. Please go ahead.

Kannan Venkateshwar -- Barclays -- Analyst

Thank you. Just one broad question if I could. Brad, even you -- you know, right now you seem to be optimizing your profit -- profitability in -- in Wireline and it makes sense. But in the midst of a highly competitive environment, doesn't this also increase the cost in the future of potentially higher SAC and also retention over the -- over the entire cycle of a customer's lifetime.

And also, when you lose these subs on the Wireline side, it indirectly likely also increases the cost of your Wireless entry. And so, how do you balance this math between the lifetime value and subscriber acquisition cost? Thanks.

Paul McAleese -- President, Wireless

So, we're having just a little trouble hearing on some of that. So, my apologies, it's Paul. I'll take a stab at this. The -- the pursuit of higher-value, higher-speed tier Internet customers really doesn't come at any incremental cost to acquiring anybody on lower speed tiers with lower value.

So, we're encouraged by the fact that that's a relatively flat acquisition expense. Of course, they're all on existing facilities, so that, you know, there's a considerable margin gain on that, sort of next dollar of service revenue that we're able to -- to pull through. And that's -- that's what we -- what you're seeing drive through to EBITDA. I -- I don't think likewise it's driving any further challenges or incremental challenges on being able to convert those customers to a Wireless customer.

Certainly, we have no indication we have on that front so far. So, we -- we think the strategy is sound and it hasn't had any -- any evident challenges as we kind of go up into those speed tiers. We're not seeing different characteristics from someone on Gig with Shaw Mobile than we are with someone on a lower speed tier on Shaw Mobile. It's pretty -- pretty -- pretty uniform.

Brad Shaw -- Executive Chairman and Chief Executive Officer

Yeah. I would just say that we don't feel like we're starting the business from investments and -- investments into scaling our business appropriately, I mean. I think Paul mentioned it but just a little bit more color. I mean, our overall gross sales activity volume on Wireline is down about 40% year over year and that's not because we're not investing in our -- in our initiatives, it's just that customers are less likely to change their Wireline provider in this environment.

So, I don't think we're -- we're holding back investments with the -- with the goal of maximizing near-term profitability. And then we're going to have significant investments going forward. I think we've got to right -- the right balance in place and the strategy. Well, we're very comfortable with the strategy and you can see it in our consolidated numbers.

And that's where I would encourage investors to continue to focus on as opposed to just segmented results. But we're really looking at consolidated EBITDA growth. You know, some of the things we're doing in Wireless with Shaw Mobile are benefiting Wireline and vice versa. So, you know, consolidated EBITDA growth to 3.2%.

And again, free cash flow growth of 23% this quarter. We're really pleased with the strategy and the financial results that we're delivering.

Kannan Venkateshwar -- Barclays -- Analyst

Good. Thank you so much.

Paul McAleese -- President, Wireless

Thank you.

Operator

This concludes the question-and-answer session. I would like to hand the call back over to Mr. Shaw for any closing remarks.

Brad Shaw -- Executive Chairman and Chief Executive Officer

Thank you, operator. And again, Happy New Year to everyone. Stay safe and we'll talk to you next quarter. Thank you.

Operator

[Operator signoff]

Duration: 70 minutes

Call participants:

Brad Shaw -- Executive Chairman and Chief Executive Officer

Trevor English -- Executive Vice President, Chief Financial and Corporate Development Officer

Jeff Fan -- Scotiabank -- Analyst

Vince Valentini -- TD Securities -- Analyst

Paul McAleese -- President, Wireless

Drew McReynolds -- RBC Capital Markets -- Analyst

Aravinda Galappatthige -- Canaccord Genuity -- Analyst

Tim Casey -- BMO Capital Markets -- Analyst

David McFadgen -- Cormark Securities -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Kannan Venkateshwar -- Barclays -- Analyst

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