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Edited Transcript of SJR.B.TO earnings conference call or presentation 12-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 Shaw Communications Inc Earnings Call

Calgary Apr 12, 2017 (Thomson StreetEvents) -- Edited Transcript of Shaw Communications Inc earnings conference call or presentation Wednesday, April 12, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aleksander Krstajic

Shaw Communications Inc. - President of Wind and EVP of Wind

* Bradley S. Shaw

Shaw Communications Inc. - CEO and Non Independent Director

* Glen Campbell

* Jay Mehr

Shaw Communications Inc. - President

* Nancy Phillips

Shaw Communications Inc. - CEO of ViaWest and President of ViaWest

* Vito Culmone

Shaw Communications Inc. - CFO and EVP

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Conference Call Participants

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* Aravinda Suranimala Galappatthige

Canaccord Genuity Limited, Research Division - MD

* David McFadgen

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

* Drew McReynolds

RBC Capital Markets, LLC, Research Division - Analyst

* Gregory W. MacDonald

Macquarie Research - Head of Equity Research of Canada

* Jeffrey Fan

Scotiabank Global Banking and Markets, Research Division - Analyst

* Maher Yaghi

Desjardins Securities Inc., Research Division - Analyst

* Phillip Huang

Barclays PLC, Research Division - Senior Equity Research Analyst

* Tim Casey

BMO Capital Markets Equity Research - Equity Research Analyst

* 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' Second Quarter Fiscal 2017 Conference Call. Today's call will be hosted by Mr. Brad Shaw, CEO of Shaw Communications. (Operator Instructions) The conference is being recorded. (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 will now turn the call over to you.

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

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Thank you, operator. Good morning, everyone, and thank you for joining us today. With me today are members of our senior management team, including Jay, Vito, Nancy, and we're also joined this morning by Glen Campbell, Senior Vice President, Wireless Planning.

We are pleased this morning to report solid financial results for the second quarter. Our performance highlights our leadership team commitment to the execution of our long-term strategic plan and the historical and ongoing capital investments required to be a leading Canadian connectivity company, which is delivering exceptional products and services to our customers across the country.

We have never had more to do but remain disciplined at ensuring we prioritize flawless execution and deliver results for all of our stakeholders. Through our network investments including the rollout of DOCSIS 3.1 and development of best-in-class partnerships with global leaders such as Comcast, Cisco Meraki, BroadSoft and Nokia we have remained focused on providing our customers with more value, enhanced experiences and choices.

On April 5, we launched BlueSky TV to all Shaw markets in Western Canada, and this represents an important milestone for our company. With its voice-activated remote and easy-to-access content, BlueSky TV completely transforms how customers experience television. BlueSky TV is more than just a new set-top box but rather a flexible and innovative in-the-home platform that will adapt over time and enhance our customers' viewing experience and connected life.

In the second quarter, the execution of our strategic plan was generated -- has generated strong results, largely driven by our wireline competitive advantage. In Consumer, we have the best quarterly subscriber performance in 5 years, showing an improvement of 36,000 RGUs year-over-year. This quarter, we demonstrated that our 2-year value plans, flexible video packaging options and WideOpen Internet 150 are resonating with customers in the market.

Shaw WideOpen Internet 150 is now available in 99.2% of our footprint. This means that today, we are able to offer approximately 3x faster speeds to virtually all Western Canadians versus our direct competitors across our footprint.

Within our business segments, including BNS and BIS, we continue to see strong organic growth driven by sustained customer demand for our products and services.

In Wireless, we delivered solid results, adding 33,000 new customers in the quarter. However, competition remains intense. And as we look to build the business for the long-term benefit of our shareholders, we would expect to experience some periods of volatility. We remain committed to building a wireless offering that is an affordable option to more Canadians.

Before my closing remarks, I will now turn the call over to Vito to go through the financial results for the second quarter. Vito?

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Vito Culmone, Shaw Communications Inc. - CFO and EVP [3]

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Thanks, Brad, and good morning to all of you for joining us this morning. The reported consolidated results for the quarter include revenue of $1.3 billion, up 13.3%; and EBITDA of $540 million, up 7.6% on a year-over-year basis. Adjusting to exclude the Wireless results, revenue in the quarter for the combined Consumer, BNS and BIS divisions was up 1.1%, while EBITDA was up 1.8% compared to a year ago.

Looking at the divisional details. Consumer revenue of $933 million in the quarter was down 0.1%, while EBITDA of $403 million was flat compared to the prior year. In Consumer, our focus is on attracting customers into our ecosystem, providing them with the best experience through leading products such as WideOpen 150 and BlueSky TV and ensuring price certainty through multiyear value plans to deliver long-term growth and stability for our business.

BNS results for the quarter include revenue and EBITDA of $146 million and $73 million, up 6.6% and 10.6%, respectively, over the prior year. Excluding legacy satellite services, our core business revenue increased 8.6% in the current quarter.

Wireless results in the quarter include revenue of $140 million and EBITDA of $29 million. Compared to the first quarter of fiscal '17, revenue is up 1.5% and EBITDA is flat. Wireless financials reflect the results of RGUs gained in the quarter, partially offset by a slight decrease in blended ARPU and increased commercial costs associated with the branding transition to Freedom Mobile and other promotional-related costs.

BIS reported revenue and EBITDA for the quarter of $91 million and $35 million, up 2.2% and 6.1%, respectively, over the prior year. Excluding the effect of foreign exchange in U.S. dollars, revenue and EBITDA increased by 7.7% and 11.4%, respectively.

Consolidated CapEx in the quarter was $297 million. The increased CapEx in the current quarter compared to a year ago is due primarily to the addition of wireless investments of approximately $53 million, offset partially by reductions in each of the Consumer, BNS and BIS divisions.

Free cash flow of $147 million for the quarter increased from $119 million a year ago primarily as a result of the higher EBITDA, Corus dividends and lower cash taxes, partially offset by free cash flow from the former Media division and higher CapEx for Wireless.

We delivered net income in the quarter of $147 million or $0.30 per share, which is an increase over the prior year net income from continuing operations, primarily due to equity income from our investment in Corus and nonoperating losses incurred in the prior year.

On a full year basis, there is no change to our fiscal '17 guidance for CapEx, EBITDA or free cash flow. In the quarter, we also completed a $300 million 10-year senior note offering to capitalize on attractive market conditions. The net proceeds of this offering, together with cash on hand, were used to repay the $400 million principal amount of senior notes due March 2, 2017.

With that, I'll hand the call back to Brad for closing comments.

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

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Thanks, Vito. As noted in our second quarter news release this morning and as per our transition plans, Alek Krstajic is stepping down as CEO of Freedom Mobile. Over the past year, under Alek's leadership, Freedom Mobile has achieved significant milestones, including activating Freedom's LTE-Advanced network and establishing the Freedom Mobile brand for value-conscious Canadians. This morning, we are pleased to welcome Paul McAleese as Chief Operating Officer, Freedom Mobile. Paul will guide Freedom's operations and continued growth going forward and will be instrumental regarding the integration of our wireless operations within Shaw. Paul brings more than 2 decades of experience in mobile communications from the U.S., U.K. and Canada, and we are excited to welcome him to the Freedom Mobile and the Shaw leadership team.

On a personal note, Alek is a builder, a value creator and always brings an entrepreneurial spirit to everything he does. It is these qualities that we have always admired. We thank Alek for all of his contributions and his stewardship since we completed the acquisition and wish him all the best. Alek is with us this morning on the phone, and we'd like to invite him to say a few words before we provide closing comments. And both Jay and I will be able to address any questions regarding our wireless business during the Q&A session to follow. Alek?

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Aleksander Krstajic, Shaw Communications Inc. - President of Wind and EVP of Wind [5]

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Brad, thank you very much. Look, I want to -- a special thanks, Brad, to you and the entire executive team, Jim and Peter and Vito, Zoran, Trevor, Nancy and especially Jay. You guys have made this transition after purchasing the company and this last year really all about teamwork. I have never felt more welcome, and so I want to say thank you. I'm very proud of some of the things you mentioned, what the team did over this last year, creating the Freedom brand, the accelerated LTE network, and quite frankly, this last quarter of 33,000 net adds and building the momentum back in the business after launching both the new brand and LTE. So very proud of that.

It is time for me to move on, and I'm excited about that. Obviously, I'm going to remain a -- for me a significant shareholder. And I'm very excited about my old and good and close friend, Paul McAleese, coming in as COO. Paul and I knew each other from 20, 30 years ago from the Rogers days. He's a proven operator. But at his core, he's a marketer, and I think he's the best marketer in North America. So I think the business is left in really solid hands. And once again, I thank you for all the kindness and the way you've made us feel this past year. All the best.

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Bradley S. Shaw, Shaw Communications Inc. - CEO and Non Independent Director [6]

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Thanks, Alek. In closing, we look forward to carrying the momentum we are delivering throughout the remainder of fiscal '17. We are focused on delivering long-term growth to our shareholders and a best-in-class connectivity experience for our customers.

I would like to extend a sincere thank you to all Shaw employees for helping us execute and deliver on our strategic plan. In particular, I would like to highlight the mass launch of a new service like BlueSky TV is no easy undertaking. It's because of our committed employees that we were able to accomplish this very important milestone in Shaw's history.

Thank you for joining us this morning, and we would now turn it back to the operator to open for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from Jeff Fan with Scotiabank.

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Jeffrey Fan, Scotiabank Global Banking and Markets, Research Division - Analyst [2]

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Good quarter on cable, and I want to touch on that very quickly. On the consumer TV adds that you saw or TV improvement that you saw in the quarter, wonder if you can just help break down a little bit for us what is helping that achievement on a year-over-year basis. Is it the specific BlueSky? Or is it Internet driven? And if you can just shed some light on what's happening with gross adds versus churn within the consumer TV, that would be really helpful.

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Jay Mehr, Shaw Communications Inc. - President [3]

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Yes, great. Thanks, Jeff. It's Jay, and happy to share some color there. We had BlueSky in Calgary for the quarter, which was certainly helpful, and a month of BlueSky in Vancouver, and that absolutely is visible in our video results. To be clear, as you look at the cable business, and it's actually true of the satellite business as well, we've seen quite significant churn reduction year-over-year over the quarter. And that's just the implementation of our strategic plan, our focus on network congestion, network advantage, the way we're selling service premiums. Gross sales actually weren't up year-over-year, although we had some nice response to BlueSky in the markets that we launched. The story is really a story of churn reduction, which I think you'll like.

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Jeffrey Fan, Scotiabank Global Banking and Markets, Research Division - Analyst [4]

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And as we look over the next -- as you ramp up BlueSky now across all of your markets, how do you expect this dynamic to unfold either for the rest of the year or next year, however you want to sort of phrase it?

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

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Yes. Jeff, we're super excited that April 5, we launched BlueSky nationally and have paired it with 150. We've -- you've asked us some version of this question for the last couple of years, and we've responded with marbles in our mouth. We're completely excited about what's made possible about making BlueSky and 150 available to all of our footprint. This was the plan. To be clear, winning looks like positive video subs on cable, and we're headed in that direction. We'd be disappointed if we didn't have a positive video cable quarter in Q3.

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Jeffrey Fan, Scotiabank Global Banking and Markets, Research Division - Analyst [6]

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Well, you can spit out those marbles now. Just final question. Regarding your holdings in Corus, I know you've been receiving the DRIP in shares. Can you just -- it looks like you haven't sold any shares based on the numbers, but I just wanted to confirm that. And if you can just shed some light on, now that the lockup on those shares or 1/3 of it has come off, can you just shed some light on what your plans are with respect to that holdings going forward?

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Bradley S. Shaw, Shaw Communications Inc. - CEO and Non Independent Director [7]

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Sure, Jeff. It's Brad. Well, a couple of things. One is we continue to be very supportive of Doug and team over there. We love the strength of the portfolio, and we think they're just doing a top-notch job. We have right now no plans to sell any shares, either off the DRIP or in lockup as they come off. So that's pretty clear, and we're very supportive of where Corus is going right now.

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Operator [8]

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The next question is from Vince Valentini with TD Securities.

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Vince Valentini, TD Securities Equity Research - Analyst [9]

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Let me echo congrats on the strong sub numbers, and Alek, all the best in your future endeavors. A couple of questions. First, just to stick on the video and BlueSky for a second, first, can you clarify where you are with Netflix or any other OTT services in terms of integrating them? And second is, you say positive sub adds would be your goal, Jay. Should we think of you guys starting to actively migrate existing customers and be a little more forceful with BlueSky virtually immediately? Or is there some merit in maybe waiting for the new version of X1 with the wireless platform and all IP before you really start putting a lot of boxes into the field?

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Jay Mehr, Shaw Communications Inc. - President [10]

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Great. Thanks, Vince. This is -- what's great about where we are today is we're in market with all of our customers having access to BlueSky and 150, and we're in the position that we've been working to be able to deliver that to our customers. The reason that Brad and the direction was so clear to join Comcast was not for today, because there's lots of great video products out there. It was for the road map that comes with where we are today. So the beautiful thing about being on the Comcast road map is really every quarter and some quarters more often than that, we're bringing unique new value to consumers. And so if you look at what's been announced on the Comcast road map, all of that is planned for us. As you can appreciate, there's commercial negotiations involved in their aggregation. But remember, the platform at its core is an aggregation play. And so the philosophy of our partners is they'd like to bring all of these services, whether it's Netflix, whether it's YouTube, whether it's whatever else you would imagine, into an integrated search and into an integrated environment. So we don't want to get ahead of ourselves in terms of giving you specific dates, but we've got an exciting 2017 ahead in terms of all of our new launches and new applications that will be available to customers. In terms of migration, I think you've seen, on April 5, we launched new packaging with 150 and BlueSky. And we think that's terrific packaging for existing and new customers. Our initial response over the course of the first week has been great with both. We're running about half and half. About half of our sales are to new, and about half of our sales are to existing. And we love the pace of that, and we love the financials of what it means because people are paying more to get more and enjoying a terrific service. And we're just going to ride that wave.

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Vince Valentini, TD Securities Equity Research - Analyst [11]

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Okay. And maybe I can ask you a question on wireless as well before I hop off. So Paul McAleese is cited as Chief Operating Officer. I'm not sure if -- does that mean he's your senior executive in Wireless for the foreseeable future? Or does it imply that you may be looking for a CEO for that business as well? And also on Wireless, sub numbers certainly improved, but the ARPU did not versus Q1. Are you satisfied with the mix of pricing versus volume that you're getting? Or do you guys think there's some work to do there to try to move up closer to $40 on ARPU sometime soon?

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Jay Mehr, Shaw Communications Inc. - President [12]

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Sure. Let me talk about the leadership, and I'll let Glen answer the first ARPU question, and then we can talk about it as we go forward. We're so proud of the contribution of our Freedom team, and our -- the work that Alek and team has done has been terrific. This has always been -- the acquisition of WIND was never to operate a stand-alone wireless business. It was always a strategic acquisition, and we're taking the next step as planned and moving towards this. And so think about Freedom as a business unit just as Shaw Consumer is a business unit. And so Paul is the leader of that business unit, based in Toronto, will do an absolutely terrific job. Paul will report to me, as Alek did. And the -- no significant change there. And I think what you will see is we're becoming a wireless company a year into the transition, and you'll see us integrate all of our corporate functions and so that we'll have one finance team, and we'll have one HR team, and they'll serve both business units as clients. And that's absolutely our model going forward. I know Alek's excited about this next step. Alek was critical in bringing Paul on board, and we couldn't be more pleased with Paul's leadership. Paul is our Wireless business unit leader, and he's based in Toronto. So let me let Glen talk to you about the ARPU question.

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Glen Campbell, [13]

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So just to give you a little more color on ARPU, there's a couple of things that go into that number. There's the headline revenues we're getting, and then there are the promotional discounts that come off. And so you'll know that over the last several months, we've been making a lot of these promotional discounts as a way to upsell people to the higher ARPU plans. So the weight of that promotional spending is there in the ARPU. The good news is if you look at the -- let's say the average price point that people are coming on to Freedom, it has never been higher. That number continues to climb and was very strong in the February quarter. So the weakness you see in reported ARPU is a function of our making a lot of use of those service credits during the quarter and preceding months. I'll also add, and this won’t be apparent from the reported numbers, there's an element of seasonality as well. The February quarter is down from the November quarter. That's true this year, and it was true the year before. But on a year-on-year basis, we're still seeing a nice increase in reported ARPU despite the spending. So we're pretty happy about the trajectory on plan mix and the outlook for the future.

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Operator [14]

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The next question is from Phillip Huang with Barclays.

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Phillip Huang, Barclays PLC, Research Division - Senior Equity Research Analyst [15]

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First, congrats to Alek and Paul on the transition. Do -- I do have a clarification question, first, for BlueSky TV. Are you guys currently offering the hybrid version of the set-top box or the full IP version of the set-top box?

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Jay Mehr, Shaw Communications Inc. - President [16]

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Yes. To be clear, we're offering it as Comcast's offering. So it's -- we're on the road map, and we'll transition to IP over the course of the next 18 months. Today, all of our on-demand services and, of course, the interface itself is being offered on an IP basis along with all the applications that go there. We're using -- the interface tunes to the digital QAM feeds when tuning in to live TV.

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Phillip Huang, Barclays PLC, Research Division - Senior Equity Research Analyst [17]

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Got it. No, that's very, very helpful. So it sounds like there's a bit of an opportunity to -- is it -- am I right in assuming that the full IP version of the box will be quite a bit cheaper, and so there's some opportunity to even further -- to lower the cost going forward then?

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Jay Mehr, Shaw Communications Inc. - President [18]

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Yes, absolutely. The -- we moved onto the Comcast equipment road map a couple of years ago. And so the road map is compelling over the next couple of years as we move to a single gateway in the home, which becomes our DOCSIS 3.1 modem in the home, along with very sophisticated in-home applications. And ultimately, that gateway becomes the single gateway that also powers the video platform. So there's some nice cost savings over the course of the next 18 months, and we roll in that direction. To be clear, though, the cost structure that we have today is terrific, and I think you may recall we achieved tremendous cost savings over the previous gateway solutions just moving to the Comcast volume on the hardware that we're deploying today. And so I understand that others launch -- I think if you were starting today, you would probably launch and wait a year or whatever is involved in launching on an all IP basis. We're in a position where we're not same as Comcast, same as Cox. We're just going to ride that road map on an incremental basis.

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Phillip Huang, Barclays PLC, Research Division - Senior Equity Research Analyst [19]

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Right, I got it. That's very helpful. And then I had a quick question on the pricing environment for wireless. Certainly appreciate Glen's comments on -- the color on sort of the reported ARPU and the seasonality, very helpful. But was wondering if you guys could give us an update on the pricing environment for wireless just because it seems like there was quite a few flanker brand promotions in the quarter with Public Mobile and chatr. Was wondering if you could comment a bit on the pricing environment.

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Jay Mehr, Shaw Communications Inc. - President [20]

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Yes. Maybe I'll just start at a high level and then will let Glen fill in some of the details. This is an interesting environment. I mean, the flankers and fighters are being extremely aggressive. They like to get underneath of some price. Freedom is an affordability plan rather than an affordability brand, and we're committed to Canadians having affordable wireless. And that's our spot, and we're going to stay in that spot and not be moved from that spot. I think over the course of the quarter, we saw December was extremely active with the flanker and fighter brands as a continuation of November. January and February, you stopped a little bit, some more activity in March. It's an interesting environment. We do want to flag that we went from under 10,000 to 33,000. I think as you heard from our comments that 2017, you're going to see stability in our RGU numbers on wireline. You've seen a strategic plan that we're well into the implementation of, and that's where we are in our business plan in our cycle. Where we are with handsets and LTE and the new brand, we’re going to see some volatility in terms of wireless subs in 2017. I think you'll see stability as we get to 2018 and move further down our plan. But that's kind of the hand that we're playing today. I'll let Glen talk more specifically about the competitive environment.

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Glen Campbell, [21]

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Yes. Thanks, Jay. So as Jay mentioned in -- the Q1 weakness reflected the price wars that went on late October, November and continued to some degree in December. I mean, Boxing Week was extremely aggressive, and we've seen a much more disciplined and much more rational pricing environment through January and February. We left the service credits in place, which is the reason you see a nice subscriber result for February. If you look now, you'll see that we've got -- we've harmonized our LTE and non-LTE pricing for our smartphones starting at $40. We're not offering the service credits, so we've got a good line up there. We're seeing a -- see a more disciplined environment. But as Jay mentioned, all of this is happening as the background of evolution of our LTE capability. We started -- we launched with one handset and one rate plan. We've now got a full suite of rate plans, and we'll finish April with 5, and by the end of the calendar year...

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Jay Mehr, Shaw Communications Inc. - President [22]

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With 5 handsets.

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Glen Campbell, [23]

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Yes. Our whole -- we'll have LTE across our entire footprint and the full lineup of Android handsets. So that's the backdrop, and our view against that is the right amount of promotional intensity is -- it's hard to get it precisely right at every point in time, but we'll get to a good place.

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Phillip Huang, Barclays PLC, Research Division - Senior Equity Research Analyst [24]

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Right. You guys certainly have a pricing and market share advantage, particularly in Western Canada, where you certainly have a lot of upside. I was wondering if, of the volume that you saw in the quarter, are you able to maybe provide some color geographically? Are you seeing -- obviously lower churn risk in Western Canada. But where are you seeing the biggest upside momentum in the quarter?

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Glen Campbell, [25]

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So Phil, we're not going to give specific numbers, but we're really pleased by the trend we're seeing on churn. Churn is coming down steadily, very happy about that. And you know what our footprint is, the East-West mix. Our subscribers roughly reflect that. Historically, we'd been stronger in the East and weaker in the West, but since the acquisition, there has been a shift in favor of the West there. Not a dramatic one, but there's been a shift. And I think we'll leave it at that.

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Operator [26]

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The next question is from Drew McReynolds with RBC.

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Drew McReynolds, RBC Capital Markets, LLC, Research Division - Analyst [27]

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A couple of questions just on the consumer side maybe for you, Jay. Can you just speak to overall consumer ARPU hopes or expectations as you deploy BlueSky through the next few years? And as a follow-up to that, surprised this quarter just to see the consumer EBITDA margins flat year-over-year. You alluded to maybe some upfront pressure as BlueSky gets deployed, and as you come off promotional pricing in the second year, you kind of get a lift in ARPU and margin. So just what are the puts and takes around consumer EBITDA margins as you look out the rest of this year and into next? That would be great.

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Vito Culmone, Shaw Communications Inc. - CFO and EVP [28]

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It's Vito. I mean, a couple of things. First of all, on ARPU on the consumer side, you see quarter-over-quarter ARPU slightly down. Important to note that, that reflects a bit of the omission of shomi in our base numbers. So we're quite happy with how -- when we look at the total subscriber base and the revenue and the ARPU combinations, Internet is strong, video is -- obviously, the churn, significant improvement, a lot of moving pieces there. But as we look forward, they're very strong, and happy with where we're going. Working hard on the cost side of the business, obviously, to ensure that the margin side is as favorable as can be. We're really focused on value to our customers and ensuring that they stay in our system and are happy to be in our system and as our product set evolves. So I mean, that's where I'd leave it. Jay, anything from you?

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Jay Mehr, Shaw Communications Inc. - President [29]

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Yes. I mean, I think as you get to a bigger base in deployment, you start to see a little bit of cost associated in the margin. I don't think you're going to see anything that scares you, and I think you'll see lots of upside. We would like to flag with our national launch April 5 of the BlueSky, 150 combination that, without question, it's the largest advertising campaign in our company's history, so you will see that in our Q3 results, and we think that's an important investment for the future.

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Drew McReynolds, RBC Capital Markets, LLC, Research Division - Analyst [30]

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Okay. If I can squeeze just one more in, on the competitive environment in Western Canada, again, on the consumer side, just if you can provide an update. Obviously, you're gaining some success out there in the market and have a pretty good product suite that you're fully deploying and marketing. Have you seen aggressive responses from competitors? Is there any change kind of relative to last quarter or the last couple of quarters?

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Jay Mehr, Shaw Communications Inc. - President [31]

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Yes. I think Western Canadians benefit from a highly competitive environment, and we've certainly seen a extremely competitive environment in this fiscal year in Alberta and BC. And we think our primary competitor is also doing well, and everybody's trying to grow their business. And I suspect you'll see new video solutions from them in the days and weeks ahead, so we're ready for those discussions. I think it's fair to say that the competitive environment outside of Alberta and BC has been less vibrant, and we've certainly had lots of success in Manitoba throughout the transition, and we think we could have a couple of good years in Manitoba, and so we're going to continue to lean into that. So we've got some slightly different things. Our primary competitor is fierce and does a great job, and that's what this is going to continue to be.

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Operator [32]

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Next question is from Tim Casey with BMO.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [33]

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Just a clarification, Jay, did you say that you expect subs -- video subs to be positive in Q3?

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Jay Mehr, Shaw Communications Inc. - President [34]

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Yes.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [35]

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Okay. And that continuing from then on your expectation with respect to your comment about stability and trend on the wireline side?

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Jay Mehr, Shaw Communications Inc. - President [36]

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Yes. I would like to -- so to be clear on what we said, we also expect satellite video subs to be positive in Q3, but I wasn't referring to that. I was referring to cable video subs. Going forward, I think what I would say is, what does winning look like? And I'd say winning looks like positive video subs. We are going to be in a very intense competitive environment, so does that mean every quarter? Well, I think that depends on what happens in the environment. I think that depends on the next video offering that the competitor brings and how they market it and pricing and packaging, and so there'll be all those kinds of things. But we are signaling that there's a difference in what winning looks like, and that starts in Q3.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [37]

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Okay, excellent. The other question I had with -- is with respect to bigger-picture wireless issues, specifically spectrum. Do you have any thoughts on expectations on timing and rules for the next low-band auction? And can you comment at all on any discussions you might be having with Quebecor with respect to their assets?

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Jay Mehr, Shaw Communications Inc. - President [38]

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Yes. I'll talk in terms of the discussions around the rules and on the 600 auction. And 600 is important. We need low-band spectrum. We're committed to providing affordable wireless offering to Canadians, and I think Canadians want something different than what's been offered by the big 3. And low-band spectrum will help us do that. And so we think it's super important, and I think the government is consulting with all appropriate parties and following what's happening in the U.S. We should see some announcements on their auction in the next couple of weeks. It's super important for us and for Canadians that there's a spectrum that goes to folks besides the big 3. I don't know, Brad, if you want to talk about any other things. I think we'll just probably leave it there. We're...

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Bradley S. Shaw, Shaw Communications Inc. - CEO and Non Independent Director [39]

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No, no, we're good.

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Jay Mehr, Shaw Communications Inc. - President [40]

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We're good. I don't think there's any point in speculating on other things. We're focused on 600, and we think it's an opportunity to level the playing field.

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Bradley S. Shaw, Shaw Communications Inc. - CEO and Non Independent Director [41]

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Yes. And we bought a business plan that we're very comfortable with the spectrum position, and it fulfills that. So we're comfortable with the road map we have and where we're going, and we're going to drive to fulfill that.

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Operator [42]

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Next question is from Aravinda Galappatthige with Canaccord Genuity.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Limited, Research Division - MD [43]

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I just wanted to get an update on the LTE rollout. You've obviously indicated a goal of completing the rollout towards the end of fiscal '17 as well as your capital budget of $250 million. I just wanted to get an update as to how that's tracking, particularly in light of the sort of the management change. Are those goals still very much on track?

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Jay Mehr, Shaw Communications Inc. - President [44]

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Yes, absolutely on track and ahead of schedule. And so we're pleased with the LTE rollout, and Brian and Zoran and the team are doing a terrific job. And so we're ahead of -- as you know, we're a little bit ahead of the handset ecosystem, which we think is fine. We want to get ready and be prepared, so we launched Toronto and Vancouver proper. We've had great expansion of our Toronto LTE experience, Greater Toronto as we light up throughout the GTA, some other communities in Ontario. Edmonton and Calgary will come on as a big bang. We're not activating sites as we build them. We'll turn them on collectively, and that's going to be in this fiscal year for sure and I think earlier than we originally planned, along with a number of major communities in Ontario. To be clear, in keeping with our plans, there are some smaller communities in Ontario that'll get activated LTE in the next fiscal year, but that's not -- that's just how it was scheduled as a matter of prioritizing resources. So everything's on budget, ahead of schedule, and we're pleased with the LTE rollout.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Limited, Research Division - MD [45]

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Awesome. And just a quick one on business infrastructure of ViaWest. Healthy ex FX revenue growth, albeit sort of the recent quarter seemed to suggest that sort of the double-digit growth we've seen in the past has sort of eased towards the mid-single-digit range, particularly, I think, if you factor in the acquisition. I wanted to get a sense of the competitive environment there. I mean, has there been sort of a fundamental change there? And do you expect the possibility of sort of reverting back to high single-digit or double-digit revenue growth there?

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Nancy Phillips, Shaw Communications Inc. - CEO of ViaWest and President of ViaWest [46]

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Yes. Listen, I would say in general, the -- we live in a -- it's certainly a competitive field, there's no doubt about it. But I think that ViaWest has definitely distinguished itself in terms of the product suite that we've brought to market. Historically, we have certainly seen a very, very low churn rates. We had sort of a point in time single customer sort of noncore last year that certainly bumped our churn rate up a little bit. We've normalized back to our traditional churn rates. We've seen good sequential growth Q1 into Q2. And I'm very confident, if you normalize for that event, you would clearly see that double-digit growth profile. So very confident in terms of trending back to that, and we have very clear line of sight in terms of our churn in our fiscal '17. And again, really strong demand profile. We saw great Q2 bookings. And so feel good about where we're headed here in fiscal '17 on certainly both our revenue and EBITDA position.

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Operator [47]

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Next question is from Greg MacDonald with Macquarie.

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Gregory W. MacDonald, Macquarie Research - Head of Equity Research of Canada [48]

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Wanted to ask a question on overall promotional strategy. It's pretty clear that there was some in the quarter. And here's the question I have. Is it safe to assume that some of your promotional focus is on customers that are not yet upgrading to BlueSky? Seems like there would be some rationale for this. I mean, they are still customers that are broadband customers that's important to you, might be customers that could upgrade as time goes on. Is it a kind of a 2-part focus, focusing on customers that are upgrading but also customers that do not?

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Vito Culmone, Shaw Communications Inc. - CFO and EVP [49]

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Yes. I mean, maybe Jay can comment on the customer segments a bit, but there's no question that all customers are important to us from that perspective. And there's probably a segment of the market, frankly, that lower segment, Jay, that we've -- maybe haven't been as focused on, and they're important to us. And you're seeing some promotional activity, and -- going against that. And that's obviously helping our overall subscriber numbers, and it's, at the end of the day, revenue we probably didn't otherwise have. Anything else, Jay?

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Jay Mehr, Shaw Communications Inc. - President [50]

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Yes. I think that's fair. I mean, BlueSky, you're going to see us remain relatively disciplined on BlueSky pricing because it is our future, and we actually don't believe it's a moment in time to heavily discount the product. It's packaged with 150 and service agreements. And it's for people who love broadband and love TV and want a best-in-class experience. And so we're excited about that opportunity, and we're going to compete as our primary competitor does in all of the other spaces. And I think you'll see that going forward.

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Gregory W. MacDonald, Macquarie Research - Head of Equity Research of Canada [51]

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Okay. So I'm going to kind of wrap this into the cost question again then. I'm trying to get a sense of how big an impact on the margin the lower gross adds year-over-year was. I want to kind of get a sense of the sustainability of it -- of the margin. It was a high margin in the quarter, higher than I would have expected given the revenue miss that you had. Help me understand what's happening there. Was the lower gross adds a material impact on lower costs? And is there sustainability for that?

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Vito Culmone, Shaw Communications Inc. - CFO and EVP [52]

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Yes. That's a great question, Greg, and we're going to obviously watch that closely. A lot of moving pieces across the board on all of that. A bit of mix shift, like the Internet obviously improving and a bigger component of our revenue base quarter-over-quarter, year-over-year as we move forward, and we know that obviously, Internet has a higher-margin component than video does. So that's a positive. And obviously, we'll monitor going forward. You got to watch the -- there's some timing issues related to some corporate costs and some promotional programs. So I wouldn't get over-the-top excited about a particular margin in the quarter. But overall, I mean, I think stabilizing the Consumer business, moving to a base that we really feel good about continuing to operate as efficiently as possible and being humble in the way we go about things and moving forward on the margin piece is what we're going to be focused on, but a lot of moving pieces.

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Jay Mehr, Shaw Communications Inc. - President [53]

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And building on that, remember Q2 is really a story of churn reduction, and that's the primary driver. We have continued to see [ clients ] on 150, which is very margin friendly, and we saw some bounce from BlueSky in Calgary and Vancouver. But the Q2 story was primarily churn reduction. If you hear the repositioning of our business going forward, now that our strategy is in place and in market, we're looking for the combination of both churn reduction and additional improvement in sales, which is what I think you'll start to see in Q3. And so it'll be a slightly different margin story as you go forward in the second half of this year. With the growth, I don't think there's anything you won't like about it. But a big part of the Q2 story was churn reduction, and of course, that's very margin friendly.

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Gregory W. MacDonald, Macquarie Research - Head of Equity Research of Canada [54]

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That makes sense. And finally, guys, there was nothing unusual in the costs this quarter on a year-over-year basis comparable, was there? Outside of what we just discussed?

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Vito Culmone, Shaw Communications Inc. - CFO and EVP [55]

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No.

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Jay Mehr, Shaw Communications Inc. - President [56]

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No.

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Operator [57]

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(Operator Instructions) The next question is from Maher Yaghi with Desjardins.

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Maher Yaghi, Desjardins Securities Inc., Research Division - Analyst [58]

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I wanted to maybe just go back to your comment on wireless. And I mean, we've seen a lot of improvement in Q2 versus Q1 in terms of net adds. How much would you say this improvement due to the new branding that you're doing in the market? And you talked about volatility in wireless net adds. I'm trying to just understand how much of the improvement is due to this launch factor versus a more sustainable and a growth path that we should be looking for. And as a follow-up on the wireless as well, we've seen Quebecor, which is something I would say is very similar to how you would like maybe to undertake your wireless expansion, undertake network sharing agreement in the province of Quebec with Rogers. Can you talk about your view on potential network sharing agreements and if you need to have that for the long term in order to reduce your cost or you can go at it alone?

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Jay Mehr, Shaw Communications Inc. - President [59]

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Yes. So why don't we take that -- there's lots there, Maher, so we'll take it in sequence. In terms of the wireless brand launch, Freedom launch has gone great. It's got terrific recognition, and we wanted to get out in front of creating a brand that's affordability for Canadians. We think affordability matters to Canadians. Whether they live in Calgary with some of the things that are happening here in Alberta or whether they live in Toronto with housing costs or Vancouver with housing costs, there is a space for affordability in the long term. And Freedom is resonating with Canadians for sure. Does all of that sort of weight around a name change create traffic in our stores and [ flex them ]? I think it does. I think actually, there's an argument that the LTE conversion actually slows us down a little bit, that we might have had more success had we stayed simply on the 3G path, continuing to package it at the extremely low end. The conversion to band 66 handsets makes it difficult to bring your own device to our network, and that's just for a moment in time. All the new devices are coming out in band 66, and 2 years from now, it won't matter to people. It will just be table stakes. We're in that process of transition, along with, should I be on LTE? Should I be on 3G? So it's a complicated time, and I think to be clear, at various times, our competitors have taken advantage of this moment in time with their fighter brands primarily but also their flanker brands, and of course, they're all on the same network. And so it's a different game that they are playing. That's where the volatility comes from, is the short-term subscriber results until we get -- we're going to get that Samsung handset here in a couple of weeks. We're going to be in a good Android position by the summer, building on that throughout the fall. I think we'll be in a position where we're much more -- we can have the same confidence on wireless that we have on wireline in terms of month-in, month-out subscriber numbers. Today, there's a little bit more volatility. That having been said, Freedom launch has been a success. We're completely committed to affordability for Canadians, and you'll see that as we move forward. In terms of Quebecor network share, let me say this. The Quebecor model is a fantastic model in terms of the bundle or the quad play, and we've certainly paid attention to that. It's clear to us, you only -- folks that are still around from the original 2008 auction are the folks that were bundled. We understand the Quebecor story, and it's a terrific story. I mean, are we open to having network share conversations and other things? I guess we would be, but none of that is what the business plan is built on. We've got a plan going forward. We're investing, and we've got a significant cost advantage over our competitors as we enter into the market, and we're going to continue to exploit that. So always open, but it's not something that we're working aggressively on today.

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Bradley S. Shaw, Shaw Communications Inc. - CEO and Non Independent Director [60]

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It's probably more a Rogers question.

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Jay Mehr, Shaw Communications Inc. - President [61]

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There you go.

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Operator [62]

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The next question is from David McFadgen with Cormark Securities.

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David McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [63]

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I have 2 questions. One, can you tell us what the impact was to the Freedom EBITDA from the branding transition in Q2? I don't know if it was anything material. And then secondly, can you give us an update with respect to your intention regarding your initial Corus investment in terms of taking cash dividends or continuing with the DRIP?

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Vito Culmone, Shaw Communications Inc. - CFO and EVP [64]

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Yes. David, I think Brad addressed the first one. In regards to our Corus investment, very happy with what the plan there is and with our holdings and no intention to convert DRIP into cash at this time. In regards to your first question of Freedom EBITDA, there was an impact actually in the quarter in -- related to promotional costs. You heard me reference that in my script. I'd rather stay away from the number, obviously, but a few million dollars for sure. And so -- and I take it back to volatility, right? I mean, you heard us reference volatility as we move forward. Very happy with the business and where we're headed there. You'll see some choppiness obviously on EBITDA as we move forward on the Freedom quarter-to-quarter, but very happy with where it's positioned.

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Operator [65]

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This concludes the time allocated for questions and for today's conference call. You may disconnect your lines. Thank you for participating. Have a pleasant day.

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Bradley S. Shaw, Shaw Communications Inc. - CEO and Non Independent Director [66]

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Thanks, everyone. Have a great day and a great weekend.