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Edited Transcript of SJR.B.TO earnings conference call or presentation 27-Jun-19 1:30pm GMT

Q3 2019 Shaw Communications Inc Earnings Call

Calgary Jul 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Shaw Communications Inc earnings conference call or presentation Thursday, June 27, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bradley S. Shaw

Shaw Communications Inc. - CEO & Non-Independent Director

* Jay Mehr

Shaw Communications Inc. - President

* Paul McAleese

Shaw Communications Inc. - President of Wireless

* Trevor English

Shaw Communications Inc. - Executive VP and Chief Financial & Corporate Development Officer

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Conference Call Participants

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* Adam Todd Ilkowitz

Citigroup Inc, Research Division - Senior Associate

* Drew McReynolds

RBC Capital Markets, LLC, Research Division - Analyst

* Jeffrey Fan

Scotiabank Global Banking and Markets, Research Division - Director of Telecommunication Services & Canadian & U.S. Telecom and Cable Equity Research Analyst

* Maher Yaghi

Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst

* Siddhant Dilawari

Cormark Securities Inc., Research Division - Associate of Institutional Equity Research

* Vince Valentini

TD Securities Equity Research - Analyst

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Presentation

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Operator [1]

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Thank you for standing by. Welcome to Shaw Communications Third Quarter 2019 Conference Call and Webcast. Today's call will be hosted by Mr. Brad Shaw, CEO 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 company's publicly filed documents for more details on assumptions and risks.

Mr. Shaw, I would now like to turn the call over to you.

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Bradley S. Shaw, Shaw Communications Inc. - CEO & Non-Independent Director [2]

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

Earlier this morning, we released our third quarter operating and financial results for fiscal 2019, reflecting our continued focus on wireline execution and strong growth in our wireless business. While the quarter included a $15 million payment related to IP matters that impacted the reported results, the underlying performance of our business remains solid and Trevor will walk us through this in more detail.

In wireless, we had another terrific quarter with a total net additions of approximately 62,000 compared to 47,000 a year ago. Included in the result is a 61,000 postpaid subscriber additions and record low postpaid churn of 1.18%. Clearly, our strategy to grow this customer segment through an improved network experience, the latest devices and affordable data-centric plans is delivering great results.

We also added approximately 800 prepaid customers in the quarter, a significant change in trajectory from the recent quarters, due to the success of our new plans launched on April 4. 18 months ago, Freedom Mobile permanently changed the Canadian wireless industry with our Big Gig data plans, which feature large buckets of fast LTE data and no overage charges.

In recent weeks, each of the incumbents was finally forced to respond to our success by launching their own more expensive versions of our Big Gig plans. It's now absolutely clear that Canadian wireless prices are coming down and that Freedom Mobile is the catalyst for this change.

For the big 3, these new rate plans offer a dramatic about-face from the expensive data overages that their customers have been paying for years. It's just too bad they haven't gone far enough. If you are a customer of one of the incumbents, chances are you are still struggling with your current data plan and its toxic overage fees. Meanwhile, all Freedom Mobile postpaid customers can use their phones and devices with no limits, just as they always have been able to.

We have worked hard to reset Canadians expectations of their wireless providers and the competition is learning to follow our lead. And while their recent pricing moves have attracted lot of attention, they have yet to have any meaningful impact on our customer acquisition initiatives, and we remain confident that the value of our Big Gig plans continue to resonate with Canadians.

In our wireline business, we added approximately 7,000 broadband customers. This is a significant improvement from a year ago in a seasonally challenged quarter due to student disconnects that happened in May.

Our year-to-date broadband net additions reflect a more consistent and improving trend compared to the previous year and is a direct result of our focus on execution. While it is still early days with our BlueCurve platform, we are pleased with its progress, which has met all of our targets. And it's the technology that lends itself well to our digital strategy, including a robust self-install experience. During the quarter, self-install increased again to 41% of total consumer activity, and we expect this improving trend to continue.

We also recently launched IPTV in Calgary and expect to roll this service to additional key markets over the next several months. The main benefits related to the introduction of IPTV include lower success base capital as well as a lower service delivery cost as video becomes much easier to self-install. As we launch IPTV in additional markets, our overall video strategy has not changed and remains focused on profitability.

During the quarter, we closed 2 significant transactions that align with our overall connectivity strategy. The acquisition of the 600 megahertz spectrum across our entire wireless footprint was critical for us and will significantly improve our LTE network and enable us to participate in the 5G landscape as it unfolds.

We also completed the sale of our 39% equity stake in Corus on May 31. The sale of the Corus investment is consistent with our strategy that we embarked on over 3 years ago. This included the divestiture of our media and data center assets and a pivot into wireless. Since that time, we have made significant investments in the wireless network, which have materially improved Freedom's quality and customer experience. We continue to believe we have tremendous growth opportunities ahead as we start to bring wireless and wireline together in F '20.

Now, I will turn the call over to Trevor to go through the Q3 results in more detail.

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Trevor English, Shaw Communications Inc. - Executive VP and Chief Financial & Corporate Development Officer [3]

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Thank you, Brad, and good morning, everyone. Our third quarter results that we released this morning include some items that impacted our reported figures and do not accurately reflect the underlying performance of our business. On a consolidated basis, Q3 revenue of $1.3 billion increased 2.7% driven by continued growth in our wireless and business divisions. Reported EBITDA decreased 1.5% to $530 million. However, this quarter included a $15 million payment to address certain matters with a large IP licensing company. The comparable period of Q3 F '18 to be more specific also included a CRTC retroactive roaming benefit of approximately $13 million. Excluding both, the underlying EBITDA performance in the quarter was up almost 4% to $545 million.

In our wireless business, which delivered another solid quarter of subscriber and financial growth, servicing revenue increased 22% to $178 million, as we continue to grow our subbase and ABPU. Wireless equipment revenue declined by approximately 9% year-over-year to $73 million, as a larger portion of subscribers in the quarter were BYOD. Our churn metrics continued to improve and our mix of prepaid and postpaid customers is more balanced, consistent with what we disclosed on the last conference call.

Wireless EBITDA was $55 million in the quarter, an increase of 38% when adjusting for the $13 million roaming benefit in Q3 F '18. In wireline, Q3 consumer revenue was essentially flat at $925 million compared to the prior year, while business revenue of $150 million increased over 6%. Reported wireline EBITDA of $530 million declined 1.5% year-over-year. However, when considering the $15 million IP licensing payment, EBITDA actually grew 1% and our wireline margin was in line with previous quarters.

Capital expenditures of $280 million in the quarter was approximately 9% lower than last year with continued reductions in wireline partially offset by increased wireless spending. We expect substantial capital investment for wireless in Q4 as we continue the deployment of the 700 spectrum and launch our wireless network in 10 additional communities by the end of August. We still expect total CapEx within our wireless business to be approximately $400 million this year.

In the quarter, approximately 350 employees exited as part of our VDP program. On a year-to-date basis, we have achieved $73 million in net operating cost savings and $25 million in net capital cost savings. As we expressed last quarter, the operating savings continued to run slightly ahead of schedule, while capital is a bit behind.

In Q3, we reinvested approximately $5 million of operating costs in a variety of projects related to enabling our VDP program. We are still expecting to reinvest a total of $10 million to $15 million in the second half of fiscal '19 with approximately 60% of this spend reoccurring. Therefore, Q4 reinvestment will be at least the same as Q3 or likely a bit higher.

As we continue to make our way through the VDP program, there have been some minor shifts compared to our original plan, and we wanted to be as transparent as possible with investors. In fiscal '19, we now expect net operating savings to be approximately $95 million and $40 million in net capital savings, for a total of $135 million, which is materially in line with our original plan of $140 million.

Considering our year-to-date results, we're refining over fiscal 2019 guidance, which excludes the $15 million IP licensing payment. We expect EBITDA growth of 6%, capital investment of approximately $1.2 billion and free cash flow is expected to be approximately $550 million.

As Brad mentioned earlier, we completed the acquisition of 600 megahertz spectrum for $492 million as well as the sale of Corus shares this quarter that generated approximately $525 million.

Considering both transactions, we continue to have significant balance sheet flexibility and liquidity with leverage at approximately 1.8x. And we have significant cash on hand of approximately $1.4 billion to fund the remaining VDP payments, which is around $175 million over the next 12 months, and our 5.65% $1.25 billion notes that mature in October.

Brad, back to you for closing remarks.

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Bradley S. Shaw, Shaw Communications Inc. - CEO & Non-Independent Director [4]

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Thank you, Trevor. Our year-to-date performance in fiscal 2019 is very much on plan as we continue to grow wireless and broadband. We are making smart investments in our business to streamline operations and transition to a more efficient organization.

We are successfully managing through change while delivering net savings to the bottom line. As we confirm through our refined guidance, we expect a solid close to fiscal 2019 and look forward discussing our F '20 strategic priorities and targets with you in October.

Thank you, and we'll now turn the call back to operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Vince Valentini of TD Securities.

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Vince Valentini, TD Securities Equity Research - Analyst [2]

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Let me start with the guidance and just make sure we're all on the same page, Trevor. So if -- correct me if I am doing my math wrong, but to do 6% without the $15 million IP item this quarter, you need to do about minus 3% EBITDA year-over-year in the fourth quarter. Is there anything else in terms of a onetime in nature that we may have missed from last year or that you expect this year that drives that number to be sort of negative? Or is that just the pacing of the sort of transition cost to VDP that you've been sort of telegraphing?

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Trevor English, Shaw Communications Inc. - Executive VP and Chief Financial & Corporate Development Officer [3]

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Yes. Sure, Vince. Thanks for the question. I think we've been very transparent with the street that we as a management team are very focused on delivering stable and consistent results and we are refining that we're at the top end of our guidance which has been consistent since October when we first released our original guidance. We're delivering VDP net operating savings specific to the program. However, we've got some additional cost -- OpEx in the business as we progress through the year related to higher syndication cost with higher marketing. We've got some higher reinvestments in Q4. I think, the street really needs to look at their Q4 wireline EBITDAs specifically and sort of look at more of considering the run rate over the last 3 quarters as opposed to the Q4 F '18 results. I'll just remind you from a revenue perspective in Q4 F '18, if you recall, we had a full quarter benefit of rate adjustments in the quarter, which was about $20 million. Whereas this year, we did have a rate adjustment during the year in April of this year, for 2 months in Q3. However, the rate adjustment wasn't as significant and I would say that there is a lot more proportion of our customers on contracts. So this annual rate adjustment is having its bit of effect as it previously did. So -- I think, factoring, I think your math is fairly accurate, Vince. But hopefully that gives you enough color in terms of the way that we are thinking about the business quarter-over-quarter. And not necessarily, I think the street maybe was making some assumptions on the Q4 F '18 run rate, which was $516 million of EBITDA last year and it's going to be tough. We do expect negative growth rate off of that number.

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Vince Valentini, TD Securities Equity Research - Analyst [4]

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And one more, maybe for Jay. The shift going on in the wireline business. So the subscriber numbers, other than Internet, I mean if you look at video and phone and the satellite were all down somewhat materially versus Q3 last year. But the revenue growth ticked up, total wireline revenue growth up to 1% year-over-year growth, a little better than sort of 0.5% growth you've been doing in the first 2 quarters of the year. So the strategy seems to be working, but can you give us any more data points and color on what you're seeing? I mean, obviously, the customers you keep seem to have higher ARPU than the customers you're losing. But maybe you can talk about more detail on how you're managing through that process.

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Jay Mehr, Shaw Communications Inc. - President [5]

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Yes. Sure. Thank you for the question, Vince. And we're pleased with our wireline subscriber results in Q3. The 6,600 Internet gains a nice step forward and everyone recognizes the usual student disconnects we saw in this quarter, and they were around normal level. The plan is working. Our focus on video profitability is delivering exactly what we wanted to deliver. Video churn has improved year-over-year. And so what you're seeing in numbers alters us being very segmented in terms of adding high-quality video subs. To be fair, in terms of subscriber numbers the one that was a little disappointing for us was the phone number for the quarter and, quite frankly, we would have a little pick up on churn in phone which is not something that we've seen in previous quarters and not something that we've seen in June, and so we'll put a little bit more focus into that area. But very happy with where the rest of the numbers are. Internet revenue growth continues to be strong, up 6% year-over-year in Q3. And the mix that we're seeing in the business we like a lot. You'll recall this year, we tried to build strategies on strategy, when it drives your behavior. We tried to focus the business entirely on monthly recurring revenue churn and growing Internet customers. And so it really is account level MRR and profitability that's driving the consumer activity. I think as you get into F '20, you'll see subscriber numbers and some of the other categories rebound a little bit just from the natural adjustment that we've gone through our strategy. But we're excited with where our monthly recurring revenue is headed and like where the consumer wireline business is going.

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Operator [6]

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Our next question comes from Drew McReynolds of RBC.

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Drew McReynolds, RBC Capital Markets, LLC, Research Division - Analyst [7]

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Maybe I'll shift to you, Paul, on wireless. Obviously, Brad, in your opening comments, you addressed some of this. I think the big question here is just -- I guess, the playbook from incumbents probably wanting to push you back down market perhaps in response to the success you're having. Maybe just comment to your value proposition in the marketplace now versus 3 weeks ago to the extent you can. And the extent to which you're comfortable with the amount of "oxygen" that you have, in order to achieve your wireless growth objective. So, obviously, a big picture question. And then maybe, the opposite, for you, Trevor. Just can you comment on the cash tax situation for Shaw just as we look at over the next couple of years?

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Paul McAleese, Shaw Communications Inc. - President of Wireless [8]

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Drew, it's Paul. I think Brad's comments off the top are worth reiterating on a couple of fronts. And maybe first and foremost, it's nice to take a moment and probably acknowledge the sort of indisputable impact that we're having on wireless affordability in this country. It wasn't clear before, it certainly is clear now. So it's nice to see the incumbents coming down and sort of chasing us in that regard.

So we've had a couple of years of continued market share gains, and that's really driven off the back to providing Canadian consumers with the value that they have been looking for. In the last few weeks, we watched the incumbents kind of cobble together these expenses, and frankly, fairly poorly architected imitations of our now 2-year old Big Gig plans. So it's nice to see them kind of having showing up.

And to a certain length, it kind of appears that every new initiative of the big 3 is designed to just charge customers more. Honestly, sort of like the incumbencies where pricing innovation goes to die these days. We still have millions of Canadians that are going to be attracted to our value proposition because millions of Canadians are still getting charged excess overage fees up to $100 a gig. And there is still a $1 billion-plus in toxic revenue floating around impacting Canadians' everyday lives.

So we look at these new unlimited plans from the incumbents. They really require the vast, vast majority of the customers to spend more than they were spending previously in order to make sure that they don't get the certain -- they have the certainty of no punishing fees. Frankly, it's kind of off-footing and Freedom has long been providing a better alternative. We'll continue to do that. We are very confident in our current run rate. As Brad said, we've seen no meaningful impact to our growth. So the oxygen that you referred to is more than adequate for us to continue to achieve our growth objectives, and we are very confident in our position.

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Trevor English, Shaw Communications Inc. - Executive VP and Chief Financial & Corporate Development Officer [9]

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Sure. And on the tax question, Drew, I appreciate it. Clearly, there were a number of tax items in this quarter related to a few events that impact both the cash tax and also net income. Effective tax rate, first of all, during the third quarter, we did take -- realized a free cash flow benefit of approximately $20 million related to the resolution of a matter with the CRA regarding the timing of certain tax deductions we took in prior years. And when that matter with the CRA was resolved, we reclassified $20 million of tax expense from current to deferred. In net income, excuse me, this quarter, we did recognize roughly $100 million decrease in our deferred tax liability due to the recent reduction in Alberta tax rates from 12% to 8% being phased in over 3 years. Frankly, Drew, the impact on our F '19 current taxes is nominal as the first reduction is effective July 1. And then finally, just to be complete, there was a significant item impacting net income this quarter is the loss related to the Corus sale. However, I would say that, that was roughly $100 million and that's the capital loss. No impact on free cash flow. Just to help you out from a modeling purpose, Drew, I think, we're expecting cash taxes with all the movements this year to be around $165 million in and around that snack bracket. And then going forward, I think if you wanted to use an effective tax rate of about 26% from a cash tax perspective is probably the right number. So hopefully that helps you.

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Operator [10]

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Our next question comes from Jeff Fan of Scotiabank.

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Jeffrey Fan, Scotiabank Global Banking and Markets, Research Division - Director of Telecommunication Services & Canadian & U.S. Telecom and Cable Equity Research Analyst [11]

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Maybe just to follow up on wireless. So questions for Paul to start off with. The ARPU or ABPU growth, ARPU, I guess, more specifically, decelerated a little bit this quarter. Wondering how you see that growth going forward. And what do you think you need -- you guys need to do? Or what the industry -- would you need to see from the industry to see that growth reaccelerate? And then the question on the IP licensing of $15 million. Can you give us a little bit more color on what this was related to within cable? Was this related to anything to do with the X1 video platform? Or was it something else? Is this truly onetime or there could be more related? So just wanted to get a little bit more color there.

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Paul McAleese, Shaw Communications Inc. - President of Wireless [12]

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Jeff, it's Paul. ARPU and ABPU, we still like our ABPU growth story. I know these are in metrics this quarter. Probably we're a little bit behind what consensus was. Bear in mind that this was a quarter in which we did see the need to discount some of our incoming class of subscribers because of a fairly hot competitive environment. I'm still confident that there is a great story on ARPU growth over the course of the next number of quarters. In terms of accelerating it, some of what we've seen from the incumbents in the recent weeks, may create an opportunity. They're presuming in their math that they're going to be able to take customers up closer to that $75 price point. So as we formulate our response over the coming weeks, there may be some opportunity for us to similarly pick up some of that momentum. But we still like our story there. It's a positive one. We still got market-leading growth on ABPU. So I'd say, continue to watch this space as we formulate our response.

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Jay Mehr, Shaw Communications Inc. - President [13]

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Awesome. And Jeff, it's Jay. On the IP licensing deal. I think, you can appreciate in our disclosure that these kinds of deals are complex and have confidentiality elements to it. And I'm sure you can understand the nature of it. To your specific question, this is not a commercial transaction with one of the partner-led strategic partners that we've identified in the past. So it's not related to a transaction with Comcast or with Meraki or with Nokia. It's a IP licensing deal. And you can see our disclosure on it, and we've got covered, so we're pleased with this. This was my deal. We concluded this deal. We're happy with the outcome. We're happy with what it sets forward for the future. And can't really disclose much more than that just because of the nature of the transaction. But it's not related to any of our ongoing partner-led strategic main partners that we've talked about in the past.

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Operator [14]

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Our next question comes from Maher Yaghi of Desjardins.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [15]

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I wanted to maybe just get your views on how you see margins behaving going forward after the -- most of the VDP savings are behind you now? Beyond, let's say, Q4, now we have a pretty good idea where you are sitting. But are there additional margin areas you can work on and to get some lift in your business, either wireless or wireline? And as you rollout -- continue to rollout wireless into 2020, can you talk a little bit about your CapEx plans, in general? Without -- no need to put out a number if you don't have to, but just trying to figure out your views on 5G deployment and your spectrum position for that.

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Trevor English, Shaw Communications Inc. - Executive VP and Chief Financial & Corporate Development Officer [16]

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Sure. Thanks for the questions. It's Trevor. Maybe I'll start. There's a lot there. In terms of the wireline margin question, maybe we'll breakup the margin question into wireline and wireless. From a wireline perspective, listen, we're really happy with the performance of the business. You can see we're delivering roughly $95 million of VDP savings. We're still on track. Like we always said about $215 million of total VDP savings, we only have $20 million and that's sort of 50-50 split between OpEx and CapEx. So maybe it's a little higher 60-40, we'll update that, but it's in that snack bracket. We've got some other top opportunities on the cost side of things. We talked about the rollout of IPTV, just beginning here in May in Calgary in Brad's remarks. We're rolling out that service throughout the majority of our footprint by the end of this year. We think that obviously supports a very robust self-install experience so there's some cost from that perspective. We're focused on digital, which again limits -- lowers call volumes into our call centers. There's other costs here that we think that there is some opportunities to get some more efficiencies. However, that being said, there's also some other costs within the business that are going up as our partnership, as Jay mentioned with some of our key suppliers like Comcast and others, as we were successful, we're rolling out BlueCurve. There is obviously an element of variable cost with the success there. So we continue to see the margin within the wireline business, continue to see some opportunity, but clearly, there's been substantial growth this year from previous years, and that was probably the easy work behind this. We've got some chopping to do, but we're exciting about what we can do.

On the wireless side, I would say, this quarter, I think, it was about 22% margin. And I think, Paul on the last quarter talked a little bit about where that -- we're clearly generating a little bit more margin from the scale of the operations, and we continue to expect that. But I think you're going to see a gradual increase in margins over the F '20. We don't want to get too far ahead of ourselves, but it's probably continued margin expansion from here, but not in a significant material manner. And then on your wireless CapEx question, I think, that was the last one?

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Jay Mehr, Shaw Communications Inc. - President [17]

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CapEx going forward.

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Trevor English, Shaw Communications Inc. - Executive VP and Chief Financial & Corporate Development Officer [18]

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Yes. Listen, I think, we've -- the last couple of years, or this year, we've talked about around $400 million of CapEx. We continue to think that, that's the bulk of the approximate number in F '20. We'll crisp that up obviously in October, but we don't see significant increases to the overall amount of wireless capital over the coming years to live into a world of improved LTE service and foundation for 5G as well.

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Operator [19]

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Our next question comes from Sid Dilawari of Cormark Securities.

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Siddhant Dilawari, Cormark Securities Inc., Research Division - Associate of Institutional Equity Research [20]

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I think at this point most of the questions have already been addressed. But just a quick one on wireless for Paul. I think this was the second quarter of decline in equipment revenue. How do you see that impacting the ABPU going forward? And then -- overall, like, how do you see this impacting the wireless business overall margin? I think for margins, it should be positive given that you already has -- do have better margins. So just maybe a question on future commentary on that.

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Paul McAleese, Shaw Communications Inc. - President of Wireless [21]

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Yes. Thank you. You're spot on. We have seen some of the reflection that kind of moderating of ARPU and ABPU is related to some inbound success on prepay, but the larger driver of it is a fairly significant pick-up in BYOD as a percentage of our overall volume in the last couple of quarters. That is very much accretive to margins, so we're pleased with that. We also love that as it sets up as we move into the autumn, where the initial cohort of iPhone 8 and iPhone X subscribers on competitive networks start to roll off their 2-year financing plans. So we really like what that's doing for us. So you're absolutely right to pick that up. That does, of course, sort of have a negative impact on equipment revenue, but given that that's a generally a note of negative margin aligned for us anyway that's something we're not overly concerned about. So we like where that's heading, and we'll continue to press on that opportunity as it presents itself.

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Siddhant Dilawari, Cormark Securities Inc., Research Division - Associate of Institutional Equity Research [22]

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Okay. And then just another quick one on 5G rollout. Is there any plans on acquiring high-band spectrum or we're going to be where we are with the low-band acquisition you've made recently?

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Paul McAleese, Shaw Communications Inc. - President of Wireless [23]

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I'm sorry. You just left on the -- acquire what spectrum?

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Siddhant Dilawari, Cormark Securities Inc., Research Division - Associate of Institutional Equity Research [24]

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High-band spectrum. Yes, sorry.

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Paul McAleese, Shaw Communications Inc. - President of Wireless [25]

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Yes. We're just following the road map that [ICT] and the CRTC are putting into place for the spectrum auctions, and we're not committing further beyond the 3.5.

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Operator [26]

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(Operator Instructions) Our next question comes from Adam Ilkowitz of Citi.

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Adam Todd Ilkowitz, Citigroup Inc, Research Division - Senior Associate [27]

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I wanted to dig into free cash flow for a moment. The $176 million in the quarter and the raised guidance for the year. There seemed to a pretty big property sale during the quarter which helped the quarter as well as the $20 million tax item that you had mentioned in the Q&A. Can you talk -- just kind of explain to us how investors should think about the -- about $550 million? And how it is impacted by any onetime or something not be recurring?

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Trevor English, Shaw Communications Inc. - Executive VP and Chief Financial & Corporate Development Officer [28]

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Yes. On the tax piece of it, we did, I think, I answered it earlier. We did realize about $20 million related to a resolution of a matter with the CRA. However, I would say that we have previously incurred higher cash taxes due to that. So I think it's sort of a true up in timing and we wouldn't call that onetime. I would say it's more about timing. On the sale of the building, I guess, that -- it netted off. It's within our overall capital budget, which still remains at $1.2 billion. So I wouldn't say that we were trying to treat the sale of the building that impacts free cash flow. And again, I know it's a little messy on the cash taxes. It looks a little light this year, and it's because of that $20 million.

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Adam Todd Ilkowitz, Citigroup Inc, Research Division - Senior Associate [29]

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I guess, the sale of the building during the quarter, was that included in your previous $500 million free cash flow guidance?

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Trevor English, Shaw Communications Inc. - Executive VP and Chief Financial & Corporate Development Officer [30]

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No. It was never part of free cash flow.

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Adam Todd Ilkowitz, Citigroup Inc, Research Division - Senior Associate [31]

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Okay. I can probably take that off-line. And then my second question is on the wireline side. I'm kind of intrigued as to the margins, which have been roughly stable. With the amount of people coming off from the VDP program, can you guys talk about the size that what may be causing margins to be perhaps negatively impacted that would leave them flat rather than seeing an upward trajectory to margins?

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Trevor English, Shaw Communications Inc. - Executive VP and Chief Financial & Corporate Development Officer [32]

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Yes. We've talked about it a little bit out and we have -- we do have some other costs within the business that ticked up. And they're not just cost related to the VDP enablement program. There is regular merit increases in the business for the employees. There is the syndication costs that are becoming a more important line item or a bigger line item within the business considering our partner-led solution. So there's a few other costs that have increased obviously to offset some of the VDP savings. But clearly, I mean, we're very happy with the way the VDP program is going, and we're realizing the savings. The headcount is staying out of the business. But there is just some other costs within that have ticked up just a little bit, network, programming costs, things like that.

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Jay Mehr, Shaw Communications Inc. - President [33]

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And you can see all that in the (inaudible), Adam. We are quite confident at the direction of wireline profitability in our strategy. We're quite confident in the free cash flow profile of our company and where we're headed in subsequent years. The work that the team has done on VDP and the entire transformation has been extraordinary. We -- this quarter alone we have truck rolls down 30% year-over-year, this is the good start to a modern Shaw. All of our fundamentals are in place. And while -- I mean, coaches take losses and teams take wins. VDP and the work to transform our wireline business is working and the team is doing extraordinary. So we're excited about the future. So I understand the math you are doing. The free cash flow characteristics and the characteristics that the wireline business going forward, it's something we're very excited about.

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Operator [34]

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Mr. Shaw, there are no more questions at this time. This concludes the time allocated to today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.