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Rogers Communications Reports Third Quarter 2019 Results

Rogers Communications Reports Third Quarter 2019 Results
  • Accelerated adoption of Rogers Infinite™ unlimited data plans
    • Attracted approximately 1 million wireless subscribers to Rogers Infinite™ unlimited data plans
    • Customers adopting these "no more overage" plans at three times the pace anticipated
    • Increased average data usage by over 50% for Rogers Infinite™ customers
    • Added 103,000 postpaid nets
    • Grew Wireless adjusted EBITDA by 4%, revenue in line with 2018
  • Delivered strong Cable results led by Internet growth and adoption of Ignite TV
    • Continued strong Internet revenue growth of 7%
    • Added 41,000 Internet nets, reflecting continued growth in Internet penetration
    • Increased Ignite TV subscriber base by over 40% sequentially
    • Grew adjusted EBITDA by 2%, revenue up 1%
  • Increased consolidated adjusted EBITDA by 6%, total revenue in line with 2018
  • Repurchased 4.3 million Class B Non-Voting shares for $298 million this year
    • Returned $1,058 million this year to shareholders through dividends and share repurchases, up $317 million or 43%
  • Updated 2019 financial outlook to reflect accelerated adoption of Rogers Infinite™ plans: total revenue decrease of 1% to increase of 1%, adjusted EBITDA growth of 3% to 5%, capital expenditures from $2,750 million to $2,850 million, and free cash flow increase of $100 million to $200 million

TORONTO, Oct. 23, 2019 (GLOBE NEWSWIRE) -- Rogers Communications Inc. today announced its unaudited financial and operating results for the third quarter ended September 30, 2019.

Consolidated Financial Highlights

  Three months ended September 30     Nine months ended September 30  
(In millions of Canadian dollars, except per share amounts, unaudited) 2019   2018 1   % Chg     2019   2018 1   % Chg  
               
Total revenue 3,754   3,769       11,121   11,158    
Total service revenue 2 3,233   3,271   (1 )   9,721   9,698    
Adjusted EBITDA 3 1,712   1,620   6     4,682   4,462   5  
Net income 593   594       1,575   1,557   1  
Adjusted net income 3 622   625       1,624   1,656   (2 )
               
Diluted earnings per share $1.14   $1.15   (1 )   $3.05   $3.01   1  
Adjusted diluted earnings per share 3 $1.19   $1.21   (2 )   $3.15   $3.21   (2 )
               
Cash provided by operating activities 1,305   1,304       3,360   3,237   4  
Free cash flow 3,4 767   627   22     1,781   1,663   7  

1 Effective January 1, 2019, we adopted IFRS 16, Leases (IFRS 16), with the ongoing impacts of this standard included in our results prospectively from that date. Our 2018 results have not been restated. See "Critical Accounting Policies and Estimates".
2 As defined. See "Key Performance Indicators".
3 As defined. See "Non-GAAP Measures". These measures should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies.
4 Effective January 1, 2019, we have redefined free cash flow such that we no longer adjust for the "net change in contract asset and deferred commission cost asset balances". We have redefined free cash flow to simplify this measure and believe removing it will make us more comparable within our industry.

"Last quarter, we led the market by introducing unlimited data and I am pleased to share that one million customers have already signed up for these very popular plans with no overage fees," said Joe Natale, President and CEO. "Customer adoption is three times higher than originally expected, reflecting pent-up demand for worry-free data. While the reduction in overage fees from these plans will impact our results in the next few quarters, the underlying economics of device financing and unlimited plans are favourable and position us for long-term growth."

Quarterly Financial Highlights

Revenue
Total revenue was stable this quarter and total service revenue decreased by 1%, largely driven by a 2% decrease in Wireless service revenue. The Wireless service revenue decrease was primarily a result of the faster-than-expected subscriber adoption of our new Rogers Infinite unlimited data plans and the related decrease in overage revenue and an elevated competitive market environment.

Cable revenue increased by 1% this quarter, as Internet revenue growth of 7% continued to drive this segment.

Media revenue decreased by 1% this quarter, primarily as a result of the sale of our publishing business earlier this year and lower Toronto Blue Jays revenue, partially offset by higher Today's Shopping Choice and Sportsnet revenue. Excluding the impact of the sale of our publishing business, Media revenue would have increased by 2% this quarter.

Adjusted EBITDA and margins
This quarter, consolidated adjusted EBITDA increased by 6% and our adjusted EBITDA margin expanded by 260 basis points. The adoption of IFRS 16 resulted in an increase in adjusted EBITDA compared to last year as we have not restated 2018 comparatives; this contributed 3 percentage points of the growth, the majority of which impacts Wireless.

Wireless adjusted EBITDA increased by 4%, leading to a margin of 49.0%, an expansion of 190 basis points from last year, primarily as a result of the impact of adopting IFRS 16.

Cable adjusted EBITDA increased by 2% this quarter, primarily as a result of higher Internet revenue, as discussed above. This gave rise to a margin of 50.2% this quarter, up 40 basis points from last year.

Media adjusted EBITDA increased by 78% this quarter, primarily as a result of lower player compensation at the Toronto Blue Jays. This increase led to a margin of 26.9%.

Net income and adjusted net income
Net income and adjusted net income were both stable this quarter. The increase in adjusted EBITDA was primarily offset by higher depreciation and amortization and higher finance costs.

Substantial cash flow affords financial flexibility and supports network evolution
We continued to generate substantial cash flow from operating activities of $1,305 million this quarter, in line with 2018, and free cash flow of $767 million this quarter, up 22%.

Our solid financial results enabled us to continue to make investments in our network and spectrum holdings, strengthen our balance sheet and liquidity, and still return substantial cash to shareholders through dividends and share repurchases. We paid $256 million in dividends this quarter, repurchased for cancellation 1.4 million Class B Non-Voting common shares (Class B Non-Voting Shares) for $93 million under our normal course issuer bid (NCIB) program, and ended the quarter with a debt leverage ratio of 2.8, up from 2.5 at the end of 2018, as a result of our acquisition of $1.7 billion of 600 MHz spectrum licences this year and our adoption of IFRS 16.

Financial Guidance

We are adjusting our guidance ranges for full-year 2019 consolidated revenue, adjusted EBITDA, capital expenditures, and free cash flow from the original ranges provided on January 24, 2019. The revised guidance ranges are presented below. The downward adjustment primarily reflects faster-than-expected adoption of our new Rogers Infinite™ unlimited data plans and the related reduction in overage revenue, lower Wireless equipment revenue resulting from the highly competitive environment, and certain efficiencies recognized this year on capital expenditures. Information about our guidance is forward-looking and should be read in conjunction with "About Forward-Looking Information" in this earnings release, including the various assumptions underlying it, and in our 2018 Annual MD&A and the related disclosure and information about various economic, competitive, legal, and regulatory assumptions, factors, and risks that may cause our actual future financial and operating results to differ from what we currently expect.

  2018 2019 Original 2019 Revised
(In millions of dollars, except percentages) Actual Guidance Ranges 1 Guidance Ranges 1,2,3
       
Consolidated Guidance      
Revenue 15,096 Increase of 3%  to  5% Decrease of 1%  to  increase of 1%
Adjusted EBITDA 4 5,983 Increase of 7%  to  9%   Increase of 3%  to  5%
Capital expenditures 5 2,790 2,850  to  3,050 2,750  to 2,850
Free cash flow 4,6 2,134 Increase of 200  to  300  Increase of 100  to  200

1 Guidance ranges presented as percentages reflect percentage increases over full-year 2018 results. 2019 amounts, most notably adjusted EBITDA and free cash flow, for purposes of assessing our performance against guidance have been calculated in accordance with accounting policies after adopting IFRS 16 on January 1, 2019. The ongoing impacts are addressed in our results prospectively from that date. Had we adopted IFRS 16 on a retrospective basis, 2018 adjusted EBITDA and free cash flow would each have been $174 million higher. See "Critical Accounting Policies and Estimates" for more information.
2 The revised guidance ranges above assume lower Wireless overage revenue as a result of the faster-than-expected adoption of our new Rogers Infinite™ unlimited data plans.
3 The revised guidance ranges above assume the proceedings related to the CRTC's order on the rates we can charge to resellers of high-speed Internet access services, including our third-party Internet access (TPIA) service, do not have an impact on our results this year. See "Regulatory Developments" and "Updates to Risks and Uncertainties" for more information.
4 Adjusted EBITDA and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See "Non-GAAP Measures" for information about these measures, including how we calculate them.
5 Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences or additions to right-of-use assets.
6 Effective January 1, 2019, we have redefined free cash flow such that we no longer adjust for the "net change in contract asset and deferred commission cost asset balances". We have redefined free cash flow to simplify this measure and believe removing it will make us more comparable within our industry. Free cash flow presented above reflects this change.

Rogers Infinite™ Highlights

Late in the second quarter of 2019, we launched our new Rogers Infinite™ unlimited data plans. Fido customers are also now benefitting from Data Overage Protection, which lets customers pause and purchase data from their phone when they reach their data usage limits. Some of the highlights of our Rogers Infinite™ plans include:

Subscribers

  • Approximately 1 million subscribers, or triple the number we had expected at this time, are currently benefitting from our Rogers Infinite™ unlimited data plans.
  • Approximately 60% of our existing customers that have migrated to these plans have upgraded to higher price plans, whereas about 40% of our customers have downgraded.
  • These migrated customers are, on average, using over 50% more data than they had previously used.

Overage revenue and blended ARPU

  • Overall, data overage fees represented approximately 5% of Wireless service revenue annually.
  • Compared to the third quarter of 2018, our overage revenue decreased by approximately $50 million this quarter due to the strong adoption of our unlimited data plans.
  • By this time next year, we expect approximately 80% of our overage revenue will have been eliminated and it will then represent only 1% of our Wireless service revenue.
  • Wireless blended ARPU declined 2% this quarter, primarily as a result of the decrease in overage revenue.
  • Excluding the short-term impacts of this decline in overage revenue, blended ARPU this quarter would have been stable relative to 2018.
  • Excluding the decline in overage revenue, blended ARPU growth for our Rogers Infinite™ subscriber base would have been approximately 1% to 2%.
  • Overage revenue declines and related blended ARPU impacts are expected to occur over the next four to five quarters compared to an initial expectation of six to eight quarters.
  • By the second half of 2020, we anticipate a return to overall blended ARPU growth.

Customer service

  • Customers on Rogers Infinite™ plans have an almost 30% higher “likelihood to recommend” score compared to customers on our other plans.
  • Calls related to billing and overages, our top call drivers, are down 50% for Rogers Infinite™ customers.
  • Online hardware upgrades for customers migrating to Rogers Infinite™ plans has increased by 30% per month since launch.

Strategic Highlights

Our six company priorities guide our work and decision-making as we further improve our operational execution and make well-timed investments to grow our core businesses and deliver increased shareholder value. Below are some highlights.

Create best-in-class customer experiences by putting our customers first in everything we do

  • Announced a new customer solutions centre in Kelowna, BC, adding 350 new customer solutions specialists to serve our customers.
  • Announced Pro On-the-Go™, a new, personalized retail service that delivers and sets up new wireless devices to the customer's location of choice.
  • Launched Fido Data Overage Protection, which pauses data when a customer's limit is reached so they can enjoy their services worry-free.
  • Grew customer digital adoption and reduced call volume by over one million calls.

Invest in our networks and technology to deliver leading performance and reliability

  • Awarded "Best in Test" for overall wireless customer experience nationally by P3, the international leader in benchmarking mobile networks, based on measurement testing conducted between May 6 and July 15, 2019.
  • Launched the Ignite Wi-Fi Hub app and introduced Wall-to-Wall Wi-Fi pods to manage home Wi-Fi networks and enhance Wi-Fi connectivity in homes.
  • Announced a reciprocal roaming arrangement with AT&T to extend LTE-M coverage for IoT customers throughout Canada and the United States.

Deliver innovative solutions and compelling content that our customers will love

  • Launched Ignite TV in New Brunswick and grew our subscriber base across our Cable footprint by over 40% sequentially.
  • Launched Sportsnet NOW on Ignite TV, with Amazon Prime launching by year-end.
  • Broke records with the most-watched Rogers Cup in Sportsnet history, including the most-watched women's final, reaching 1.4 million Canadians on Sportsnet.

Drive profitable growth in all the markets we serve

  • Grew adjusted EBITDA by 6%.
  • Attracted 103,000 net new wireless postpaid subscribers and 41,000 net new Internet subscribers.
  • Returned over $300 million to shareholders through dividend payments and share repurchases.

Develop our people and a high performance culture

  • Recognized, in July 2019, as one of the 50 Most Engaged Workplaces in North America by Achievers for our leadership and innovation in engaging our employees and workplaces.
  • Awarded the 2019 Brandon Hall Group Excellence in Learning Awards for Best Customer Training Program in August 2019.
  • Supported Pride parades across Canada with 1,000 team members participating.

Be a strong, socially responsible leader in our communities across Canada

  • Supported 1,000 Ted Rogers Scholarship Fund recipients, including those enrolled in post-secondary education institutions in the 2019-2020 academic year.
  • Increased download speeds for our Connected for Success and Connected Families participants to 25 Mbps.
  • Deployed a cooling optimization program across our network head-ends and data centres, which reduced annual electricity use by 2 gigawatt-hours.

About Rogers

Rogers is a proud Canadian company dedicated to making more possible for Canadians each and every day. Our founder, Ted Rogers, purchased his first radio station, CHFI, in 1960. We have grown to become a leading technology and media company that strives to provide the very best in wireless, residential, and media to Canadians and Canadian businesses. Our shares are publicly traded on the Toronto Stock Exchange (TSX:RCI.A and RCI.B) and on the New York Stock Exchange (RCI).

Investment community contact Media contact
   
Paul Carpino Terrie Tweddle
647.435.6470 647.501.8346
paul.carpino@rci.rogers.com terrie.tweddle@rci.rogers.com
   

Quarterly Investment Community Teleconference

Our third quarter 2019 results teleconference with the investment community will be held on:

  • October 23, 2019
  • 8:00 a.m. Eastern Time
  • webcast available at investors.rogers.com
  • media are welcome to participate on a listen-only basis

A rebroadcast will be available at investors.rogers.com for at least two weeks following the teleconference. Additionally, investors should note that from time to time, Rogers' management presents at brokerage-sponsored investor conferences. Most often, but not always, these conferences are webcast by the hosting brokerage firm, and when they are webcast, links are made available on Rogers' website at investors.rogers.com.

For More Information

You can find more information relating to us on our website (investors.rogers.com), on SEDAR (sedar.com), and on EDGAR (sec.gov), or you can e-mail us at investor.relations@rci.rogers.com. Information on or connected to these and any other websites referenced in this earnings release is not part of, or incorporated into, this earnings release.

You can also go to investors.rogers.com for information about our governance practices, corporate social responsibility reporting, a glossary of communications and media industry terms, and additional information about our business.

About this Earnings Release

This earnings release contains important information about our business and our performance for the three and nine months ended September 30, 2019, as well as forward-looking information about future periods. This earnings release should be read in conjunction with our Third Quarter 2019 MD&A; our Third Quarter 2019 Interim Condensed Consolidated Financial Statements and notes thereto, which have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB); our 2018 Annual MD&A; our 2018 Annual Audited Consolidated Financial Statements and notes thereto, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB; and our other recent filings with Canadian and US securities regulatory authorities, including our Annual Information Form, which are available on SEDAR at sedar.com or EDGAR at sec.gov, respectively.

Effective January 1, 2019, we adopted the new accounting standard, IFRS 16, Leases (IFRS 16), that is discussed in "Critical Accounting Policies and Estimates" in this earnings release and in our Third Quarter 2019 MD&A. The adoption of IFRS 16 had a significant effect on our reported results. Due to our selected transition method, we have not restated our prior year comparatives.

Effective January 1, 2019, we have redefined free cash flow, a non-GAAP measure, such that we no longer adjust for the "net change in contract asset and deferred commission cost asset balances". We have redefined free cash flow to simplify this measure and believe removing this adjustment will make us more comparable within our industry. We have restated prior period free cash flow for this change. See "Non-GAAP Measures" for more information.

For more information about Rogers, including product and service offerings, competitive market and industry trends, our overarching strategy, key performance drivers, and objectives, see "Understanding Our Business", "Our Strategy, Key Performance Drivers, and Strategic Highlights", and "Capability to Deliver Results" in our 2018 Annual MD&A. In April 2019, we sold our publishing division, including our print and digital magazine brands, to St. Joseph Communications.

We, us, our, Rogers, Rogers Communications, and the Company refer to Rogers Communications Inc. and its subsidiaries. RCI refers to the legal entity Rogers Communications Inc., not including its subsidiaries. Rogers also holds interests in various investments and ventures.

All dollar amounts are in Canadian dollars unless otherwise stated and are unaudited. All percentage changes are calculated using the rounded numbers as they appear in the tables. Information is current as at October 22, 2019 and was approved by RCI's Board of Directors (the Board) on that date. This earnings release includes forward-looking statements and assumptions. See "About Forward-Looking Information" for more information.

We are publicly traded on the Toronto Stock Exchange (TSX:RCI.A and RCI.B) and on the New York Stock Exchange (RCI).

In this earnings release, this quarter, the quarter, or third quarter refer to the three months ended September 30, 2019, first quarter refers to the three months ended March 31, 2019, second quarter refers to the three months ended June 30, 2019, and year to date refers to the nine months ended September 30, 2019, unless the context indicates otherwise. All results commentary is compared to the equivalent periods in 2018 or as at December 31, 2018, as applicable, unless otherwise indicated.

Reportable segments

We report our results of operations in three reportable segments. Each segment and the nature of its business is as follows:

Segment Principal activities
Wireless Wireless telecommunications operations for Canadian consumers and businesses.
Cable Cable telecommunications operations, including Internet, television, telephony (phone), and smart home monitoring services for Canadian consumers and businesses, and network connectivity through our fibre network and data centre assets to support a range of voice, data, networking, hosting, and cloud-based services for the business, public sector, and carrier wholesale markets.
Media A diversified portfolio of media properties, including sports media and entertainment, television and radio broadcasting, specialty channels, multi-platform shopping, and digital media.

Wireless and Cable are operated by our wholly-owned subsidiary, Rogers Communications Canada Inc. (RCCI), and certain of our other wholly-owned subsidiaries. Media is operated by our wholly-owned subsidiary, Rogers Media Inc., and its subsidiaries.

Summary of Consolidated Financial Results

  Three months ended September 30     Nine months ended September 30  
(In millions of dollars, except margins and per share amounts) 2019   2018 1   % Chg     2019   2018 1   % Chg  
               
Revenue              
Wireless 2,324   2,331       6,757   6,736    
Cable 994   983   1     2,967   2,943   1  
Media 483   488   (1 )   1,542   1,628   (5 )
Corporate items and intercompany eliminations (47 ) (33 ) 42     (145 ) (149 ) (3 )
Revenue 3,754   3,769       11,121   11,158    
Total service revenue 2 3,233   3,271   (1 )   9,721   9,698    
               
Adjusted EBITDA 3              
Wireless 1,138   1,099   4     3,281   3,062   7  
Cable 499   490   2     1,422   1,385   3  
Media 130   73   78     118   156   (24 )
Corporate items and intercompany eliminations (55 ) (42 ) 31     (139 ) (141 ) (1 )
Adjusted EBITDA 1,712   1,620   6     4,682   4,462   5  
               
Adjusted EBITDA margin 3 45.6 % 43.0 % 2.6 pts   42.1 % 40.0 % 2.1 pts
               
Net income 593   594       1,575   1,557   1  
Basic earnings per share $1.16   $1.15   1     $3.07   $3.02   2  
Diluted earnings per share $1.14   $1.15   (1 )   $3.05   $3.01   1  
               
Adjusted net income 3 622   625       1,624   1,656   (2 )
Adjusted basic earnings per share 3 $1.22   $1.21   1     $3.17   $3.22   (2 )
Adjusted diluted earnings per share 3 $1.19   $1.21   (2 )   $3.15   $3.21   (2 )
               
Capital expenditures 657   700   (6 )   2,016   1,962   3  
Cash provided by operating activities 1,305   1,304       3,360   3,237   4  
Free cash flow 3,4 767   627   22     1,781   1,663   7  

1 Effective January 1, 2019, we adopted IFRS 16, with the ongoing impacts of this standard included in our results prospectively from that date. Our 2018 results have not been restated for the effects of IFRS 16. See "Critical Accounting Policies and Estimates".
2 As defined. See "Key Performance Indicators".
3 Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted basic and diluted earnings per share, and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See "Non-GAAP Measures" for information about these measures, including how we calculate them.
4 2018 free cash flow has been restated. See "Non-GAAP Measures" for more information.

Results of our Reportable Segments

WIRELESS

Wireless Financial Results

  Three months ended September 30     Nine months ended September 30  
(In millions of dollars, except margins) 2019   2018   % Chg     2019   2018   % Chg  
               
Revenue              
Service revenue 1,808   1,837   (2 )   5,368   5,285   2  
Equipment revenue 516   494   4     1,389   1,451   (4 )
Revenue 2,324   2,331       6,757   6,736    
               
Operating expenses              
Cost of equipment 530   520   2     1,498   1,569   (5 )
Other operating expenses 656   712   (8 )   1,978   2,105   (6 )
Operating expenses 1,186   1,232   (4 )   3,476   3,674   (5 )
               
Adjusted EBITDA 1,138   1,099   4     3,281   3,062   7  
               
Adjusted EBITDA margin 49.0 % 47.1 % 1.9 pts   48.6 % 45.5 % 3.1 pts
Capital expenditures 288   277   4     960   777   24  

Wireless Subscriber Results 1

  Three months ended September 30     Nine months ended September 30  
(In thousands, except churn, blended ABPU, and blended ARPU) 2019   2018   Chg     2019   2018   Chg  
               
Postpaid              
Gross additions 437   418   19     1,083   1,184   (101 )
Net additions 103   124   (21 )   203   341   (138 )
Total postpaid subscribers 2 9,360   9,045   315     9,360   9,045   315  
Churn (monthly) 1.20 % 1.09 % 0.11 pts   1.06 % 1.06 % pts
Prepaid              
Gross additions 235   240   (5 )   605   594   11  
Net additions (losses) 27   60   (33 )   (21 ) (13 ) (8 )
Total prepaid subscribers 2,3 1,478   1,765   (287 )   1,478   1,765   (287 )
Churn (monthly) 4.74 % 3.48 % 1.26 pts   4.62 % 3.90 % 0.72 pts
Blended ABPU (monthly) $67.20   $66.20   $1.00     $66.25   $64.56   $1.69  
Blended ARPU (monthly) $56.01   $57.21   ($1.20 )   $55.56   $55.50   $0.06  

1 Subscriber counts, subscriber churn, blended ABPU, and blended ARPU are key performance indicators. See "Key Performance Indicators".
2 As at end of period.
3 Effective April 1, 2019, we adjusted our Wireless prepaid subscriber base to remove 127,000 subscribers as a result of a change to our deactivation policy from 180 days to 90 days to be more consistent within the industry.

Service revenue
The 2% decrease in service revenue this quarter was a result of:

  • a 2% decrease in blended ARPU this quarter, due to a decrease in overage revenue from the faster-than-expected adoption of our new Rogers Infinite™ unlimited data plans, and elevated competitive intensity in the marketplace; partially offset by
  • a larger postpaid subscriber base.

The year to date service revenue increase of 2% was a result of a larger postpaid subscriber base, partially offset by the decrease in overage revenue from the mid-year launch of our new Rogers Infinite™ unlimited data plans.

The 2% increase in blended ABPU this quarter and 3% increase year to date were primarily a result of the increased mix of subscribers on higher-rate plans from our various brands.

The increase in postpaid churn and corresponding decreased net additions this quarter was a result of heightened competitive intensity.

The decreases in gross and net postpaid subscriber additions year to date were primarily a result of our disciplined approach around subscriber base management and an overall softness in the market in the first half of the year. We believe the stable year to date churn was also affected by our strategic focus on enhancing the customer experience by improving our customer service (such as through the launch of our Rogers Infinite™ unlimited data plans) and continually increasing the quality of our network.

Equipment revenue
The 4% increase in equipment revenue this quarter was a result of:

  • a shift in the product mix of device sales towards higher-value devices; and
  • higher postpaid gross additions; partially offset by
  • a decrease in device upgrades by existing subscribers.

Year to date equipment revenue decreased 4% primarily as a result of a decrease in device upgrades by existing subscribers, partially offset by the aforementioned product mix shift towards higher-value devices.

Operating expenses
Cost of equipment
The 2% increase in the cost of equipment this quarter and 5% decrease year to date were a result of the same factors discussed in equipment revenue above.

Other operating expenses
The 8% decrease in other operating expenses this quarter and 6% decrease year to date were primarily a result of:

  • the impact of the adoption of IFRS 16; and
  • various cost efficiencies.

Adjusted EBITDA
The 4% increase in adjusted EBITDA this quarter and the 7% increase year to date were a result of the revenue and expense changes discussed above.

CABLE

Cable Financial Results

  Three months ended September 30     Nine months ended September 30  
(In millions of dollars, except margins) 2019   2018   % Chg     2019   2018   % Chg  
               
Revenue              
Internet 570   534   7     1,684   1,578   7  
Television 363   357   2     1,075   1,079    
Phone 56   88   (36 )   197   277   (29 )
Service revenue 989   979   1     2,956   2,934   1  
Equipment revenue 5   4   25     11   9   22  
Revenue 994   983   1     2,967   2,943   1  
               
Operating expenses              
Cost of equipment 7   6   17     18   15   20  
Other operating expenses 488   487       1,527   1,543   (1 )
Operating expenses 495   493       1,545   1,558   (1 )
               
Adjusted EBITDA 499   490   2     1,422   1,385   3  
               
Adjusted EBITDA margin 50.2 % 49.8 % 0.4 pts   47.9 % 47.1 % 0.8 pts
Capital expenditures 290   358   (19 )   864   1,007   (14 )

Cable Subscriber Results 1

  Three months ended September 30     Nine months ended September 30  
(In thousands) 2019   2018   Chg     2019   2018   Chg  
               
Internet              
Net additions 41   35   6     77   84   (7 )
Total Internet subscribers 2 2,507   2,405   102     2,507   2,405   102  
Television              
Net losses (35 ) (18 ) (17 )   (89 ) (39 ) (50 )
Total Television subscribers 2 1,596   1,701   (105 )   1,596   1,701   (105 )
Phone              
Net (losses) additions (13 )   (13 )   (33 ) 12   (45 )
Total Phone subscribers 2 1,083   1,120   (37 )   1,083   1,120   (37 )
               
Homes passed 2 4,434   4,354   80     4,434   4,354   80  
Total service units 3              
Net (losses) additions (7 ) 17   (24 )   (45 ) 57   (102 )
Total service units 2 5,186   5,226   (40 )   5,186   5,226   (40 )

1 Subscriber counts are key performance indicators. See "Key Performance Indicators".
2 As at end of period.
3 Includes Internet, Television, and Phone.

Revenue
The 1% increases in revenue this quarter and year to date were a result of:

  • the impact of Internet and Television service pricing changes;
  • a larger Internet subscriber base; and
  • the movement of Television customers to higher content tiers; partially offset by
  • new bundled pricing constructs that provide a larger Phone discount; and
  • a lower subscriber base for our Television and Phone products.

Internet revenue
The 7% increases in Internet revenue this quarter and year to date were a result of:

  • the impact of Internet service pricing changes; and
  • a larger Internet subscriber base; partially offset by
  • promotional pricing provided to subscribers.

Television revenue
The 2% increase in Television revenue this quarter was a result of:

  • the impact of Television service pricing changes;
  • lower promotional pricing provided to subscribers;
  • the migration of subscribers from our legacy TV product to Ignite TV; and
  • the movement of customers to higher content tiers; partially offset by
  • the decline in Television subscribers.

Year to date Television revenue was stable relative to 2018.

Phone revenue
The 36% decrease in Phone revenue this quarter and 29% decrease year to date were primarily a result of:

  • new bundled pricing constructs that provide a larger Phone discount; and
  • the general decline in Phone subscribers over the past year.

Operating expenses
Operating expenses this quarter were stable relative to 2018. The 1% decrease year to date was a result of the impact of the adoption of IFRS 16.

Adjusted EBITDA
The 2% increase in adjusted EBITDA this quarter and 3% increase year to date were a result of the revenue and expense changes discussed above.

MEDIA

Media Financial Results

  Three months ended September 30     Nine months ended September 30  
(In millions of dollars, except margins) 2019   2018   % Chg     2019   2018   % Chg  
               
Revenue 483   488   (1 )   1,542   1,628   (5 )
Operating expenses 353   415   (15 )   1,424   1,472   (3 )
               
Adjusted EBITDA 130   73   78     118   156   (24 )
               
Adjusted EBITDA margin 26.9 % 15.0 % 11.9 pts   7.7 % 9.6 % (1.9 pts)
Capital expenditures 17   18   (6 )   56   47   19  

Revenue
The 1% decrease in revenue this quarter and 5% decrease year to date were a result of:

  • the sale of our publishing business in the second quarter; and
  • lower Toronto Blue Jays revenue; partially offset by
  • higher revenue generated by Today's Shopping Choice and Sportsnet.

The year to date decrease was also affected by a Major League Baseball distribution to the Toronto Blue Jays in the first quarter of 2018.

Excluding the sale of our publishing business and the impact of the distribution from Major League Baseball last year, Media revenue would have increased by 2% this quarter and remained stable year to date.

Operating expenses
The 15% decrease in operating expenses this quarter and 3% decrease year to date were a result of:

  • lower Toronto Blue Jays player compensation, in part due to the salary timing impact of player trades in the first quarter of 2019; and
  • lower publishing-related costs due to the sale of the business; partially offset by
  • higher programming costs.

Adjusted EBITDA
The 78% increase in adjusted EBITDA this quarter and the 24% decrease year to date were each a result of the revenue and expense changes discussed above.

CAPITAL EXPENDITURES

  Three months ended September 30     Nine months ended September 30  
(In millions of dollars, except capital intensity) 2019   2018   % Chg     2019   2018   % Chg  
               
Capital expenditures 1              
               
Wireless 288   277   4     960   777   24  
Cable 290   358   (19 )   864   1,007   (14 )
Media 17   18   (6 )   56   47   19  
Corporate 62   47   32     136   131   4  
               
Capital expenditures 1 657   700   (6 )   2,016   1,962   3  
               
Capital intensity 2 17.5 % 18.6 % (1.1 pts)   18.1 % 17.6 % 0.5 pts

1 Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences or additions to right-of-use assets.
2 As defined. See "Key Performance Indicators".

Wireless
The increases in capital expenditures in Wireless this quarter and year to date were a result of investments made to upgrade our wireless network to continue delivering reliable performance for our customers. We have continued augmenting our existing LTE network with 4.5G technology investments that are also 5G-ready and we continue work on our 5G deployments in the new 600 MHz band as well as other bands.

Cable
The decreases in capital expenditures in Cable this quarter and year to date were a result of lower purchases of customer premise equipment and lower investments related to the initial setup and launch of Ignite TV, partially offset by greater investments in our network and in information technology.

Media
Capital expenditures in Media this quarter were stable relative to 2018. The year to date increase in Media capital expenditures was a result of higher investments in the Rogers Centre, partially offset by lower investments in our broadcast and IT infrastructure and the sale of our publishing business.

Corporate
The increases in capital expenditures in Corporate this quarter and year to date were a result of proceeds received on the sale of certain real estate assets last year and higher investments in our real estate facilities, partially offset by lower investments in information technology.

Capital intensity
Capital intensity decreased this quarter as a result of lower capital expenditures, as discussed above. The year to date increase in capital intensity was a result of higher capital expenditures.

Regulatory Developments

See our 2018 Annual MD&A for a discussion of the significant regulations that affected our operations as at March 6, 2019. The following are the significant regulatory developments since that date.

Wholesale Internet costing and pricing
On August 15, 2019, in Telecom Order CRTC 2019-288, Follow-up to Telecom Orders 2016-396 and 2016-448 - Final rates for aggregated wholesale high-speed access services (Order), the Canadian Radio-television and Telecommunications Commission (CRTC) set final rates for facilities-based carriers' wholesale high-speed access services, including Rogers' TPIA service. The Order set final rates for Rogers that are significantly lower than the interim rates that were previously billed and it further determined that these final rates will apply retroactively to March 31, 2016.

We do not believe the final rates set by the CRTC are just and reasonable as required by the Telecommunications Act as we believe they are below cost. On September 13, 2019, Rogers, in conjunction with the other large Canadian cable companies (Cable Carriers), filed a motion for Leave to Appeal pursuant to Section 64(1) of the Telecommunications Act with the Federal Court of Appeal (Court) and an associated motion for an interlocutory Stay of the CRTC Order. On September 27, 2019, the Court granted an Interim Stay suspending the Order until the Court rules on the Cable Carriers' motion for an interlocutory Stay of the CRTC's Order pending the Court's determination of the Cable Carriers' motion for Leave to Appeal. Final written reply submissions by the Cable Carriers regarding the motions will be filed with the Court by November 4, 2019. See "Updates to Risks and Uncertainties" for more information.

CRTC Internet Code
On July 31, 2019, the CRTC released Telecom Regulatory Policy CRTC 2019-269, The Internet Code, establishing a mandatory code of conduct (the Code) for large facilities-based Internet service providers (ISP) that applies to the companies' provision of fixed wireline Internet access services to individual customers. As is the case for the Wireless, Deposit and Disconnection, and Television Service Provider Codes already in place, the Commission for Complaints for Telecom-television Services Inc. (CCTS) will administer the Code.

Policy Direction to the CRTC on telecommunications
On June 17, 2019, the Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives to Promote Competition, Affordability, Consumer Interests and Innovation tabled by the Minister of Innovation, Science and Economic Development on February 26, 2019 came into effect after review and revision. It requires the CRTC to consider competition, affordability, consumer interests, and innovation in its telecommunications decisions and to demonstrate to Canadians in those decisions that it has done so.

3500 MHz spectrum licence band
On June 6, 2019, Innovation, Science and Economic Development Canada (ISED Canada) released its Decision on its Consultation on Revisions to the 3500 MHz Band to Accommodate Flexible Use and Preliminary Consultation on Changes to the 3800 MHz Band. The Decision determined that ISED Canada will issue flexible use licences in a 200 MHz frequency range from 3450-3650 MHz. Existing wireless licensees in this range that meet all of their conditions of licence will be eligible to be issued flexible use licences covering the same geographic area for the following spectrum amounts:

  • any licensee that holds 75 MHz of existing spectrum or more will be eligible to apply for 60 MHz;
  • any licensee that holds 50 MHz of existing spectrum will be eligible to apply for 50 MHz; and
  • all other licensees will be eligible to apply for 20 MHz.

Rogers and BCE Inc. currently hold 3500 MHz spectrum licences across the country in Inukshuk Wireless Partnership (Inukshuk), a partnership between the two companies. Because Inukshuk currently holds 75 or more MHz of 3500 MHz spectrum in each of the top 10 service areas in Canada by population, it will be able to apply to retain 60 MHz in those areas. As such, the Decision means that Rogers, in effect, will retain 30 MHz of 3500 MHz spectrum licences for re-designation to flexible use licences in each of the top 10 service areas in Canada by population.

ISED Canada anticipates that an auction of the 3500 MHz spectrum not retained by existing licensees will occur in the second half of 2020. ISED Canada will only begin issuing flexible use licences in the 3500 MHz band after the conclusion of the auction process. Also on June 6, 2019, ISED Canada released its Consultation on a Policy and Licensing Framework for Spectrum in the 3500 MHz Band that will ultimately lead to the design of the 3500 MHz spectrum auction to occur in 2020. We filed our comments in the Consultation on August 2, 2019 and we filed reply comments on September 20, 2019.

The Decision further announced that ISED Canada will launch a future consultation to address potential changes to the spectrum utilization policy, band plans, and the technical and policy considerations to optimize the use of the 3700-4200 MHz bands in support of a future spectrum release currently planned to take place in 2022 to support 5G wireless technologies deployment.

OMNI Regional licence
On May 23, 2019, in Broadcasting Decision 2019-172, Licensing of a national, multilingual multi-ethnic discretionary service, the CRTC granted Rogers Media a licence to operate a national, multilingual, and multi-ethnic television service in 20 languages pursuant to a section 9(1)(h) order, granting it mandatory carriage on the basic service with a regulated affiliation fee of $0.19/subscriber/month for a three-year term from September 1, 2020 to August 31, 2023. This follows a competitive process in which the CRTC determined that Rogers best met the criteria set out in its call for applications. The CRTC further stated that beginning on September 1, 2020, Canada's third-language communities will have improved access to news and programming relevant to them. The new service, which will succeed Rogers' existing OMNI Regional service, will be available on all digital basic television packages throughout Canada. The new OMNI Regional service will better reflect Canada's diverse ethnic and linguistic communities and offer more news and information programming from a Canadian perspective. Four losing applicants filed a number of appeals of the Decision with the Federal Cabinet and the Federal Court of Appeal.

On August 17, 2019, in Order in Council P.C. 2019-1227, the Federal Cabinet, through the Governor General in Council, declined to set aside or refer back to the CRTC for reconsideration the decision and on August 15, 2019, the Federal Court of Appeal dismissed the motions. On September 16, 2019, CorrCan Media Group, one of the four applicants that filed the losing appeal with the Federal Cabinet, filed a motion in the Federal Court of Appeal for a judicial review of the pronouncement by the Governor General in Council issued on August 17, 2019.

600 MHz spectrum licence band
ISED Canada's 600 MHz wireless spectrum licence auction began on March 12, 2019, and ended on April 4, 2019. The results were publicly released on April 10, 2019. Twelve companies participated in the auction and 104 of 112 licences were awarded to nine of those participants, with a total value of $3.5 billion. We acquired 52 licences at a cost of $1.7 billion. We took possession of these licences in May 2019, after making payment for the licences.

Updates to Risks and Uncertainties

See our 2018 Annual MD&A for a discussion of the principal risks and uncertainties that could have a material adverse effect on our business and financial results as at March 6, 2019, which should be reviewed in conjunction with this earnings release. The following litigation may contribute to those risks and uncertainties.

Wholesale Internet costing and pricing
In August 2019, the CRTC set final rates for the facilities-based carriers' wholesale high-speed access services, including Rogers' TPIA service. These rates for Rogers, which would apply retroactively to March 31, 2016, are significantly lower than the previous interim rates (see "Regulatory Developments" for more information). Due to the Court's granting of an Interim Stay and the significant uncertainty surrounding both the outcome and the amount, if any, we could ultimately have to repay to the resellers, we have not recorded a liability for this contingency at this time. The CRTC's order as drafted would have resulted in a refund of amounts previously billed to the resellers of approximately $140 million this quarter, representing the impact on a retroactive basis from March 31, 2016 to September 30, 2019. We estimate the ongoing impact will be approximately $11 million per quarter.

2019 federal election
The outcome of the Canadian federal election may result in the implementation of future government policies that could negatively impact wireless and Internet plan pricing. Any adverse decision in these areas, or other regulatory burdens implemented by a newly elected government, could have a material, adverse effect on our financial results and future investments.

System access fee - Saskatchewan
In 2004, a class action was commenced against providers of wireless communications in Canada under the Class Actions Act (Saskatchewan). The class action relates to the system access fee wireless carriers charge to some of their customers. The plaintiffs are seeking unspecified damages and punitive damages, which would effectively be a reimbursement of all system access fees collected.

In 2007, the Saskatchewan Court granted the plaintiffs' application to have the proceeding certified as a national, "opt-in" class action where affected customers outside Saskatchewan must take specific steps to participate in the proceeding. In 2008, our motion to stay the proceeding based on the arbitration clause in our wireless service agreements was granted. The Saskatchewan Court directed that its order, in respect of the certification of the action, would exclude customers who are bound by an arbitration clause from the class of plaintiffs.
In 2009, counsel for the plaintiffs began a second proceeding under the Class Actions Act (Saskatchewan) asserting the same claims as the original proceeding. If successful, this second class action would be an "opt-out" class proceeding. This second proceeding was ordered conditionally stayed on the basis that it was an abuse of process.

At the time the Saskatchewan class action was commenced, corresponding claims were filed in multiple jurisdictions across Canada. The claims in all provinces other than Saskatchewan have now been dismissed or discontinued. We have not recognized a liability for this contingency.

911 fee
In June 2008, a class action was launched in Saskatchewan against providers of wireless communications services in Canada. It involves allegations of breach of contract, misrepresentation, and false advertising, among other things, in relation to the 911 fee that had been charged by us and the other wireless telecommunication providers in Canada. The plaintiffs are seeking unspecified damages and restitution. The plaintiffs intend to seek an order certifying the proceeding as a national class action in Saskatchewan. We have not recognized a liability for this contingency.

Cellular devices
In July 2013, a class action was launched in British Columbia against providers of wireless communications in Canada and manufacturers of wireless devices. The class action relates to the alleged adverse health effects incurred by long-term users of cellular devices. The plaintiffs were seeking unspecified damages and punitive damages, effectively equal to the reimbursement of the portion of revenue the defendants have received that can reasonably be attributed to the sale of cellular phones in Canada. In March 2019, the plaintiffs discontinued the class action without any payment by Rogers.

Outcome of proceedings
The outcome of all the proceedings and claims against us, including the matters described above, is subject to future resolution that includes the uncertainties of litigation. It is not possible for us to predict the result or magnitude of the claims due to the various factors and uncertainties involved in the legal process. Based on information currently known to us, we believe it is not probable that the ultimate resolution of any of these proceedings and claims, individually or in total, will have a material adverse effect on our business, financial results, or financial condition. If it becomes probable that we will be held liable for claims against us, we will recognize a provision during the period in which the change in probability occurs, which could be material to our Consolidated Statements of Income or Consolidated Statements of Financial Position.

Critical Accounting Policies and Estimates

See our 2018 Annual MD&A and our 2018 Annual Audited Consolidated Financial Statements and notes thereto for a discussion of the accounting policies and estimates that are critical to the understanding of our business operations and the results of our operations.

New accounting pronouncements adopted in 2019
IFRS 16
Effective January 1, 2019, we adopted IFRS 16, which supersedes previous accounting standards for leases, including IAS 17, Leases (IAS 17) and IFRIC 4, Determining whether an arrangement contains a lease (IFRIC 4).

IFRS 16 introduced a single accounting model for lessees. A lessee is required to recognize, on its statement of financial position, a right-of-use asset, representing its right to use the underlying leased asset, and a lease liability, representing its obligation to make lease payments. As a result of adopting IFRS 16, we have recognized a significant increase to both assets and liabilities on our Consolidated Statements of Financial Position, as well as a decrease to operating costs (for the removal of rent expense for leases), an increase to depreciation and amortization (due to depreciation of the right-of-use asset), and an increase to finance costs (due to accretion of the lease liability). The accounting treatment for lessors remains largely the same as under IAS 17.

We adopted IFRS 16 with the cumulative effect of initial application recognized as an adjustment to retained earnings within shareholders' equity on January 1, 2019. We have not restated comparatives for 2018. At transition, we applied the practical expedient available to us as lessee that allows us to maintain our lease assessments made under IAS 17 and IFRIC 4 for existing contracts. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed after January 1, 2019.

For leases that were null