Shaw Communications (SJR) Q2 2018 Earnings Conference Call Transcript

MarketsMotley Fool

Shaw Communications (NYSE: SJR) Q2 2018 Earnings Conference CallApril 12, 2018 9:00 a.m. ET

Contents:

Continue Reading Below

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by. Welcome to the Shaw Communications second-quarter fiscal 2018 conference call and webcast. Today's call will be hosted by Mr. Brad Shaw, CEO of Shaw Communications.

At this time, all participants are in a listen-only mode and the conference is being recorded. Following the presentation, there will be a question-and-answer session. [Operator instructions]. Before we begin, management would like to remind listeners that comments made on today's call will include forward-looking information and there are risks that actual results could differ materially.

Please refer to the company's publicly filed documents for more details on assumptions and risks. Mr. Shaw, I will now turn the call over to you.

Bradley Shaw -- Chief Executive Officer

Great. Thank you, Operator, and good morning, everyone. With me today are members of our senior management team, including Jay Mehr, president; Vito Culmone, executive vice president, chief financial officer; Trevor English, executive vice president, chief strategy and business development officer; and Paul McAleese, president, wireless. This morning we released our second-quarter fiscal 2018 operating and financial results, which includes a record quarter for wireless with postpaid net additions of over 93,000.

This strong subscriber performance reflects a number of key strategic priorities delivered by our team over the recent months, including the introduction of the iPhone in the quarter. The enthusiasm surrounding our data-centered plans and the favorable customer response to our continued network and service improvements. Besides record subscriber additions, we also realized a 5.5% improvement in blended ARPU compared to a year ago. We remain committed to improving the wireless experience for our customers.

10 stocks we like better than Shaw CommunicationsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Shaw Communications wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 2, 2018

Our investments have included an upgrade to an LTE advanced network acquisition, and initial deployment of additional spectrum, expansion of our handset lineup, and providing customers more data for less through our Big Gig data plans. I am pleased to confirm additional enhancements have just been finalized, including agreement with Loblaw's The Mobile Shop to expand our wireless distribution in approximately 100 of their locations across Canada. And just a few weeks ago, we completed the refarm of our 10 MHz of AWS-1 spectrum in the east. Looking forward, we remain on track to have the VoLTE launched in fiscal 2018 and we continue deployment our 700 MHz spectrum which will roll out in fiscal 2019.

We also commend the federal government on its support for strong sustainable competition as reflected in the recent announcement of the set-aside for the upcoming 600 MHz auction. This decision will ensure a future for wireless competition in Canada and is a significant win for all Canadians, who deserve more from their wireless services. Moving to wireline, which really is the foundation of this company and has been built through decades of hard work by thousands of Shaw employees, I am proud what we have accomplished. Together we have built a company with our customers at the center and over the years delivered a high-touch customer service model with a professional install approach supported with a manual fulfilment anchored through a powerful and ubiquitous network.

It was the right thing to do and we built our business on this foundation. It is with the same day-to-day operational focus that we will evolve our delivery of products and services, that is, a digital-by-default, primarily self-install and continue network investments targeted to customer value. Total business transformation is, at its core, about our focus on the basics: customer experience, truck rolls, and our network. Said another way, the three key elements of our focus going forward include a shift of customer interactions to our digital platforms, drive more self-installs, and streamline the organization that builds and services our network.

Through this process we have realigned the senior management structure to better support our key areas of focus, which includes consumer, business, and wireless. While this does not change any of our external reporting, the realignment provides the leaders of each unit additional scope, oversight, and accountability for driving their respective businesses. A significant initiative under our transformation road map is the voluntary departure program. While approximately 3,300 employees elected to participate, the program was designed whereby executing on the three key elements elements outlined earlier addresses the vast majority of the staff departures.

We remain confident that through the next 18 months, and which has been extended to 24 months in some circumstances, we can manage the transition with limited disruption to our day-to-day business operations. When I look at Shaw, at the Shaw we have built, I remain so excited about our strategic direction and the opportunity ahead. We have a wireless business with tremendous growth opportunity and a step-by-step strategic operating plan that is delivering results in a meaningful way. We have invested in a strong wireline network that supports the products and services that we provide to both residential and business customers, and we have a strong management team and dedicated employees that will lead us through our focus on the fundamentals of our business.

We will be an organization that is leaner, more agile, and in the strongest possible position to capitalize on opportunities that we have in front of us. I will now turn the call over to Vito to review the Q2 fiscal 2018 results.

Vito Culmone -- Chief Financial Officer

Thank you, Brad, good morning, everyone. On a consolidated basis, second-quarter revenue of $1.36 billion increased 12.4%, led by a significantly higher wireless revenue and continued growth in business internet. Consolidated EBITDA of $501 million was essentially flat over the comparable period. Let's review each segment in more detail.

Starting with wireless, the second-quarter results mark a significant departure from historical results. The combination of all the investments we have made in our wireless business are beginning to have a material impact on our subscriber numbers and our financial results. Total wireless revenue of $290 million in the quarter increased by $149 million, or 106%, as equipment revenue went from $24 million in the second quarter of fiscal 2017 to $148 million in the current quarter. Service revenue also increased by 21% to $142 million, as more customers are on Big Gig plans, resulting in year-over-year wireless ARPU growth of 5.5% to $38.43.

Second-quarter wireless EBITDA of $36 million increased 24% over the same period in fiscal 2017. The reported wireless margin was 12.4% in the quarter, compared to 20.6% in the previous year due to the significant increase in equipment revenues as a percentage of overall wireless revenues. While the success of our device pricing and packaging plans increased our level of subsidy relative to previous quarters, we view this as an attractive investment to profitably grow our subscriber base, and we clearly have a healthy balance sheet to support this, with approximately $275 million of cash on hand and net debt-to-EBITDA of 2.0 times as at the end of February 2018. Moving to wireline, year-over-year consumer revenue declined by 0.8% to $926 million while business revenue increased 5.3% to $149 million.

Wireline EBITDA of $465 million declined 1.9% compared to Q2 fiscal 2017 but improved by $19 million, or 4.2%, from Q1 fiscal 2018, reflecting our focus on cost. Consumer results reflect positive internet growth, offset by declines in both video and phone. During the second quarter, we added approximately 5,500 internet RGUs and we increased internet pricing for new customers as we remain focused on balancing RGU growth and profitability. Video revenue and RGUs declined in the quarter as customers generally continue to shift into lower-priced packages.

With the launch of BlueSky and the X1 platform, we focused on executing a renewal of subscriber growth similar to the results of our U. S. partners when they launched the program a number of years ago. The consumer context has changed.

Our competitive environment is very different, and we did not achieve the same outcomes. BlueSky and the X1 platform, our best-in-class platform that our customers overwhelmingly recommend, and we are pivoting our focus to optimize our video offerings for profitability. Business results, which include revenue up by 5.3% and RGU growth of approximately 5,700, were led again by continued success with our smart suite of products as well as traditional internet, video, and data services. With the success we have experienced with our smart products in the SME market, we've recently expanded these services to make them available to enterprise customers.

Capital spending in the quarter increased by 7% to $288 million, driven by increases in both wireline and wireless investment. Current-quarter wireless capital of $56 million reflects continued investment in spectrum refarming and deployment, as well as back-office system upgrades. Wireline capital spending of $233 million reflect increases in new housing development and success-based capital [ph]. Free cash flow in the second quarter of $135 million compares to $147 million in the prior year.

The decline in the current quarter is due to the $19 million of higher planned capital expenditures. As it relates to TBT and the pending departure of approximately 3,300 employees, we recognized a $417 million restructuring charge in the current quarter, although the actual timing of the payments will occur over a 24-month period. The run rate annualized savings net of reinvestment specifically related to the voluntary departure program is expected to be approximately $250 million, comprised of 60% operating expenses and 40% capital expenditures, to be fully realized in fiscal 2020. The F '18 impact of the VDP expected savings is approximately $48 million from the exit of roughly 1,200 employees before the end of this fiscal year.

Net loss for the quarter of $164 million compared to net income of $147 million in the second quarter of fiscal 2017. The decrease substantially reflects the restructuring-related costs recorded during the current quarter in respect of TBT and the related voluntary departure packages. In summary, the first half of fiscal 2018 was in line with our expectations and throughout the rest of the year we remain committed to our balanced approach focusing our efforts and spend on high-quality subscribers and growth opportunities. With that, I'm pleased to confirm that we remain on track to meet F '18 guidance, whereby we expect consolidated operating income before restructuring costs and amortization to grow to approximately $2.1 billion, a year-over-year projected increase of approximately 5%, capital investments of approximately $1.83 billion, and free cash flow approximately $375 million.

Our guidance includes certain assumptions related to cost reductions that will be achieved with TBT initiatives, specifically the VDP, roaming cost reductions associated with the CRTC finalized wholesale wireless roaming rates of $12 million expected to be realized in the third quarter, and short-term incremental costs associated with growth in wireless handset sales. Finally before I hand the call back to Brad, I'd like to make a few closing remarks. It's been an incredible, fulfilling, and enjoyable three years for me at Shaw. To our investor community and external stakeholders, I want to share the confidence I have in Trevor as he takes on his new role as CFO.

It's been an absolute pleasure working alongside him during my tenure, and I have immense respect for his deep understanding of Shaw's business, the industry, and our stakeholders' expectations. To Brad, J.R., and the entire Shaw family, thank you for giving me the opportunity to be part of such a special team during what I truly believe has been a transformative time for our organization. I'm so proud of the work we've undertaken and as today's results and those still to come will demonstrate, we're emerging from it stronger and with a very promising growth story, one that is rooted in providing great value and service to hard-working Canadians and one that no doubt in my mind will reward shareholders in the years to come. There's so many people to thank, our board of directors, my colleagues on the executive team, and the talented and deeply committed finance team that I have had the privilege of leading.

But above all, a special shout-out to the thousands of Shaw employees across the country. The work that you do day in and day out will continue to be the foundation of the organization's success. Your attention and care for our customers, for our work, and for each other does not go unnoticed. Thanks, Brad, and back to you.

Bradley Shaw -- Chief Executive Officer

Thank you, Vito, for this significant contribution to our business. It's been an absolute pleasure to work alongside you for the last three years. You've led a talented finance team and transformed a financial management approach to partnering with the business. On behalf of everyone at Shaw, we wish you only the best going forward.

Toda,y as we look to the future at Shaw, we have made the strategic choices that will define our future. We are executing a step-by-step wireless road map that we delivered in the quarter and continues to deliver in the market today. Our focus on customer experience, truck rolls, and our network in the consumer business provides us with significant upside as well. And on business, we will continue to disrupt with our products, products suite, and opportunities to move up-market.

All of our business units will always put the customer at the center. Taken together, Shaw is well-positioned for growth in revenue, EBITDA, and free cash flow. Finally, before we turn the call over, we'd like to take this opportunity, to send our love to the players' families and communities close to the sad events that hit Humboldt, Saskatchewan, this week. So many of our employees, our shareholders, and our customers have joined together with other Canadians to support those impacted by this tragic event.

And this morning around our offices and across this country, thousands of our employees are participating in the Jersey Day campaign to recognize and support the Humboldt Broncos family. Thank you all, I will turn the call back over to questions.

Questions and Answers:

Operator

Thank you, we will now begin the question-and-answer session. [Operator instructions] Our first question comes from Tim Casey from BMO.[Technical difficulty]

Tim Casey -- BMO Capital Markets -- Analyst

I just wondered if you could provide a little more detail on the wireless metrics in the quarter, specifically how the timing went on the -- cause that 90,000 adds you put up was an impressive number -- just wondering, you cited that it was a pretty busy holiday season. Could you give us some color on how much occurred through the quarter in terms of the holiday season versus January and February, and then maybe some outlook on trends post-quarter, as well could you talk a little bit about the ARPU of the new subscribers you're loading and how we should think about how ARPU will trend going forward? Thanks.

Paul McAleese -- Chief Operating Officer, Freedom Mobile

Hi Tim, it's Paul McAleese, thank you for the question. We saw positive momentum right through the quarter and that's continued into the third quarter. Within the quarter itself -- the second quarter -- December was very strong, of course, helped by the December 8 launch of the iPhone. But, as you know, on net, we also had a number of bad days that contributed to the December results.

So overall, December was strong, but that momentum continued nicely into the post-Christmas period in January, February. And, as I say, we're continuing to be very pleased with what we're seeing from consumers heading into this quarter. On ARPU of new subscribers, we focused our investments, Tim, and I kind of classify those as subsidy and distribution commission as well as financing, on plans above $50. So we're continuing to see the average new cohort of subscribers come in above the $50 level, which, of course, is helping pull through the denominator of our historical ARPU, so this not a $37 ARPU class that we're seeing any longer like we used to.

Tim Casey -- BMO Capital Markets -- Analyst

Would the 90,000, would that be fair to say it's spread evenly over the three months, or would be more of the loads have occurred in December?

Paul McAleese -- Chief Operating Officer, Freedom Mobile

Yes, a good percentage of the loads, as you'd expect due to the seasonality of Christmas, happened in December, but we saw strong growth both in January and February as well.

Operator

Our next question comes from Vince Valentini of TD Securities.

Vince Valentini -- TD Securities -- Managing Director

Yeah, thanks very much. Let's stay with wireless first for a second. Paul, are you worried that these numbers are almost too good, in terms of shocking the incumbents? We saw them retaliate for four or five days in December and as you've admitted you lost subs during that period of time. Are you worried if you keep adding at this pace -- I mean 360,000 on an annualized basis is pretty dramatic -- do you want to maintain this type of pace, and if so are you prepared for retaliation from incumbents?

Paul McAleese -- Chief Operating Officer, Freedom Mobile

Thanks, Vince. A few points on that, I think first off, we believe that we're on a new and sustainable trajectory, so we're confident in our growth potential and we'd also agree with many of the analysts on this call that there's ample category growth for the industry to maintain good price rationality, so, if you look at what happened over the last quarter, the industry reported strong growth. We're pleased to join those numbers and that group. A couple of points on the key drivers for Q2.

Clearly, there's some positive effect related to both seasonality and the iPhone launch effect, so I would be cautious in multiplying 93,000 times 4, though I'm grateful for the confidence. We saw some moderate gains in gross market share and that's I think a fair expectation going forward, that we'll continue to take some there. We're now selling a device that, or series of devices, that constitutes about 40% of gross adds in the Canadian market. We weren't previously offering that, so we'd expect to see some pickup on that.

And then finally, and this is really important as we kind of narrate the story, we've seen significant improvements in our customer experience related to the great work that our network team has done on our overall product quality. So it wasn't simply about going out and getting a bunch more gross adds. We had record levels of customer retention during the quarter and that really helped contribute to the 90,000 as well, so it's not just a go-out-and-get-'em story. I think we have done a great job of maintaining existing customer relationships and the great work that the team's done in advancing the refarming and allowing what had previously been hundreds of thousands of customers that were on a 3G experience with us to experience our LTE network and get large buckets of data on the new rate plans really contributed overall.

So I would be cautious going forward, other than to say that we like the trajectory we're on and we think there's room for everybody to grow here, and we're satisfied with the quarter.

Vince Valentini -- TD Securities -- Managing Director

OK and you mentioned the churn. Do you happen to want to give us what your churn number is yet or are you guys still keeping that under wraps?

Paul McAleese -- Chief Operating Officer, Freedom Mobile

I think we're going to start bringing those metrics to the market perhaps early in the next fiscal.

Bradley Shaw -- Chief Executive Officer

As we get a bit more maturity and normalization in the business, we'll start to disclose some of the churn metrics, probably in fiscal 2019.

Vince Valentini -- TD Securities -- Managing Director

I got one more wireless question and then a cable or bigger-picture question. So given that you're seeing these gross adds, given that your churn is at record levels, as you said, does that give you confidence that the initial wave of network investment is succeeding and is largely done? I mean, you guys have owned Wind for just about two years, and this is the first quarter you've finally seen a breakout in your subs, so it was two years of network construction and now starting to reap the benefits of that. Do you still think you're years away and potentially billions of dollars away in terms of capex to get your network to a credible point, or do you feel this is an endorsement that you're already there?

Jay Mehr -- President

Vince, it's Jay. This is not a single-quarter result. It's obviously helped by the holiday season and a very strong seasonal period in January, this is a new wireless-build business that we're building at Shaw, and it's exactly the business that we told you we'd be building on a step-by-step plan and the results are proceeding exactly as we wanted them to proceed. The LTE network is performing well -- I know a number of people were surprised with the smaller number in terms of the roaming rebate that we got, and simply because our network's better than people think it is.

We're not relying on roaming as much as people think we are. By the same token, we love the roaming decision, the opportunities on the [Inaudible] the opportunities that we have with the 600 option. Everything is proceeding beautifully. To be clear, there is no forklift capital in our wireless plan, this is step-by-step, we're continuing to roll out the 700.

We have great momentum, and we're just going to stick to the plan on wireless, keep doing what we've been doing.

Vince Valentini -- TD Securities -- Managing Director

Thanks, and last question just on the total business transformation, maybe clarifications in some ways but also questions. The $48 million in 2018, that must be a run rate as of exceeding the year or do you actually think you'll get $48 million of in-period savings in Q3 and Q4?

Paul McAleese -- Chief Operating Officer, Freedom Mobile

Hey Vince, thanks for that. I'm gonna jump in here a little bit to talk about TBT a bit, and then I'll let Trevor or one of the guys answer that. Total business transformation is absolutely necessary for Shaw to meet customer expectations, compete more effectively, ensure that we capitalize on our opportunities to deliver long-term growth. We're approaching TBT from a position of strength, strong wireline network, where we've made significant investments to be ready to capitalize on emerging technologies, gigabyte speeds, IPTV, home gateways, 5G, thriving wireless business in a strategic step-by-step plan to grow in a profitable manner.

We have a detailed plan to ensure minimal disruptions to our business, and a vast majority of the rolls, which we talked about, can be addressed through modern digital service and automation. I have extremely high confidence in the ability of our leadership team to successfully execute on the plan and I can tell you that employee morale remains high, as change creates opportunities. First of all, fair treatment of employees fosters loyalty among both those who are leaving and those who are staying. Employees that choose to stay are totally excited about the contribution they're gonna make to change and want to be a part of this great story that we have.

Ultimately, I think when we look at the business and how we've run it for so many years, and corporate leading, I really think the opportunity for us to make decisions closer to the customer works and is absolutely needed as we go forward. And I love the idea of full accountability in each business unit, is I think is absolutely fundamental. So I know there's been a lot of concern about TBT and the voluntary program, but we take things, we planned for this. This is what we do as leaders, and you adjust this plans as things happen, and I'm very confident that we have all the pieces in place to make this very successful for all our shareholders.

So in F '20 and beyond, the increase to free cash flow to shareholders I think is going to be significant and we really want to make sure as we go forward, we're supporting our long-term initiatives and plan to deliver free cash flow and dividend growth. So, sorry for taking your question away, but I thought it was very important to address some of the things here, and we take things very seriously and I think with us, we have, we may be a little ahead of the curve, I'm not sure, when you look at traditional businesses and disruptions, and what people and companies are going through. I think we certainly see the opportunity to be a more lean and streamlined company and are taking the steps and are absolutely focused on the growth businesses, absolutely making sure we make the proper investments as we go forward for the long-term profitability of this company. So thank you for that, Vince.

Trevor English -- Chief Strategy and Business Development Officer

Yeah, Vince, it's Trevor. Maybe I'll try helping you with the model and the financial aspect of it. So in F '18 there's about $48 million of savings, as reported in the press release, and that relates to the exits of about 1,200 people between now and the end of August, and I can tell you as of March 26 -- 29, when the exits started, it was about 400 on that day, and the early exits I say are more leaders, management, corporate folks. As we roll out throughout the really 18 months but in some unique circumstances we've pushed that out, some of the exits, about 500 people now into the 24-month period.

The savings sort of go from $48 million in F '18 to $215 million we quoted in 2020, then to help bridge you, that's about $150 million in F '19 as well, and that's when you get into the 60% roughly opex, 40% capex. And just maybe a little bit of additional granularity to help you, VDP was really focused on areas within our wireline business and those savings are really more, it's about 90% within wireline versus wireless, and in fact in F '18, it's about 95% that's within wireline versus wireless. So hopefully that helps you with the modeling. In terms of timings of exits and cash flow, we did book a provision this quarter on the balance sheet.

About $18 million have already been spent as of the end of Q2. We've got about $200 million going out the door related to the exits within the next 12 months and then another $200 million for months 12 to 24, and that's disclosed in the financials and provision that we took this morning.

Operator

Our next question comes from Drew McReynolds of RBC Capital Markets.

Drew McReynolds -- RBC Capital Markets -- Analyst

Yeah, thanks very much. Just a couple of follow-ups on the wireless side. Wondering I guess, Paul, if you could just talk to -- I think you launched the online sales channel, but more broadly just from a loading perspective and your distribution footprint, can you just provide a little bit more granularity where some of this is coming from? And I think in previous quarters you've commented on the relative loading between the Ontario market and B.C. and Alberta, so I was wondering if you could add some granularity there and I'll have one follow-up if that's OK.

Thanks.

Paul McAleese -- Chief Operating Officer, Freedom Mobile

Thanks, Drew, we're very, very pleased with our performance in the distribution over the course of last quarter. As you know, we split broadly evenly between distributors and our corporate stores in terms of their gross activations over the course of the quarter. We continue to see that split through the second quarter and we continue to see a consistent split between, or historical split between the east and west. The east is about 70% of our gross adds and the west is about 30%, and again possibly some opportunity there in due course, so we're very pleased to have brought on our first national retailer in Loblaws, which we'll be starting to activate as early as this week in those stores, and that'll be the first time, Drew, that we sit on a shelf with our competition, so we are eager to see how that plays out over the next little while, but very confident.

Drew McReynolds -- RBC Capital Markets -- Analyst

OK that's great, and Paul, just a follow-up. I think last quarter you were asked a question just on a wireless/wireline bundle potentially within 12 months and a Shaw-branded wireless service. Is there any update there that you can provide us, just given what's happened with your deployment road map across all the wireless initiatives? Thanks.

Jay Mehr -- President

Yeah, it's Jay. Maybe I'll take that, Drew. More to come on that file, I think we've been very clear that we have a crisp and clear plan on wireless that we're executing on a step-by-step basis, and we're gonna let wireless run. As you can appreciate on the wireline side of the business, we're going through some pretty major structural transformations, and we've got lots of work to do on that side.

So things will come in the future, but I don't have anything to add today except that we're gonna continue to lean into the wireless momentum that we have today.

Drew McReynolds -- RBC Capital Markets -- Analyst

That's great. Thank you very much

Operator

Our next question comes from Jeff Fan of Scotiabank.

Jeff Fan -- Scotiabank -- Analyst

Good morning, everyone. Just a couple of quick follow-ups on wireless, if I can, and then a question on the cable business. With respect to the adds, Paul, is it fair to say the contribution to your improvement in nets is pretty balanced between contributions from gross as well as lower churn? And then also, in terms of contribution to your gross, how would you describe where you're getting from BYOD versus the equipment, those subscribers that come within an equipment sale?

Paul McAleese -- Chief Operating Officer, Freedom Mobile

Hi Jeff. Yeah, thank you. Yes, I'll work in kind of reverse order here. So, BYOD continues to be an important part of our business.

In the second quarter, we actually saw a historically low percentage of our gross adds coming from BYOD, so sub-50%. So, again, we're focusing on those longer-term relationships that we can acquire through putting higher-value customers on better devices on Big Gig rate plans, many of them financing their device over a couple of years, a good solid anchor relationship that we can build on for years to come. We still love BYOD customers and we love the value that we can bring them, but that has in the second quarter been a smaller part of the overall business. On gross adds, sorry, the first part of the question if I could was [Inaudible] the split?

Background voice

Gross adds versus churn.

Paul McAleese -- Chief Operating Officer, Freedom Mobile

I'd say that's an even split in terms of their relative weighting to the overall piece. We're really pleased with the retention story that we're building over the last couple of quarters and I can't overstate the fact that when you take hundreds of thousands of customers from a 3G to an LTE experience, as we've been able to do, we're really starting to reap the dividend of that in terms of the customer experience, so about an even split I would say between those two.

Jeff Fan -- Scotiabank -- Analyst

OK, thanks. And then a question on cable; more specifically the consumer revenue as we look out to the second half of the year, there's a lot of moving parts. You put through some price increases, you've made some changes to your promos, yet at the same time, you do have some subscribers who are coming off of promo plans. Can you help us kind of think through all those moving parts and how the second-half consumer revenue will track? How's it going to look with all those moving parts and then, I guess a bigger question is you've had some management changes recently I guess one of the things that I want to get my head around is with respect to pricing and packaging decisions, and how that responsibility may or may not have changed within your organization in terms of where that decision rests.

Trevor English -- Chief Strategy and Business Development Officer

Jeff, it's Trevor. Maybe I'll help with the bridge on the second half in terms of the consumer revenue side. Clearly, there's been lots of movement with reduction of promos, some rate adjustments in Q2 that have been made that'll flow through into Q3 and Q4. We've also announced and I think it's been talked about, there's some, our annual rate adjustment comes in on Q4, June 1, and that is forecast to contribute about $7 million, $7.5 million of revenue on consumer as well, so, clearly, this is, all the moves that we've made in Q2/Q3 -- or pardon me, Q2/Q1 -- and even in the back half of '17 will flow through into Q4 consumer revenue where there's a fairly significant ramp, which is what we're expecting.

And that's all embedded in the guidance that we confirmed as well this morning.

Jay Mehr -- President

And in building on that, Jeff, it's Jay. The $7.5 million rate adjustments is monthly --

Trevor English -- Chief Strategy and Business Development Officer

On a monthly basis, pardon me.

Jay Mehr -- President

Just to be clear and results on wireline revenue, we've seen the start of this quarter is already are performing exactly like we thought they were performing, so we're seeing the nice steps back [ph] in terms of the ramp that goes through in Q4. Jeff, in terms of leadership changes we've got a crisp organizational structure. The current pricing and packaging and marketing is now within each of our three business units of wireless, consumer, and business. We have great confidence in the teams that are driving each of those business units, and we think they've got a great level of focus on what each of our jobs are ahead.

There's opportunities in all three of those cases. The opportunities are not the same as each other. So I think dedication and focus on those functions will be really important for us going forward.

Jeff Fan -- Scotiabank -- Analyst

And just one specification -- is the cable or the wireline segment I guess between consumer and business -- how are those segments now, or managers being evaluated? Are they all evaluated on a more P&L basis now?

Jay Mehr -- President

Yes, there's on all three of our segments where everyone is very crisply measured on metrics we've got a job to do, clearly, consumer's got a profitability plan that we're supportive of, and to be clear, the consumer business is on its EBITDA budget for the first six months of this year and will continue to be. We're focused on this and we always planned a strong second half of business. Absolutely there's a focus on P&L, there's also a focus on growth. We saw a little bit of moderating in our growth curve and may take us a quarter to get back north of that 7% instead of the 5.3% we're at this quarter, but we continue to believe there's lots of growth in the business side and we're asking our leadership team to deliver that.

Jeff Fan -- Scotiabank -- Analyst

OK. Thanks, guys.

Operator

Our next question comes from Phillip Huang of Barclays.

Phillip Huang -- Barclays Investment Bank -- Analyst

Hi. Good morning guys. Want to go back to ARPU. Obviously, it's a bit of a lag [ph] indicator just given the big base that you have, so it's pretty impressive for us to see such a nice jump.

Now that you mention that, the ARPU [ph] of these subs are all coming in sort of above the $50 level, should we expect pretty strong acceleration in terms of growth here or are there any offsetting factors that we should also take into consideration as the year progresses? And then I also have a follow-up question on the wholesale roaming rate. Now that it's finalized I see that you reversed expenses of $12 million in fiscal Q3. I'm assuming that's related to the retroactive application of that. Just wondering if you could comment on the savings going forward, given that that's presumably through two years and we assume that you're going to get $6 million of benefits per year going forward or do you expect a bigger number because obviously, you've got a bigger [Inaudible] now? Thanks.

Paul McAleese -- Chief Operating Officer, Freedom Mobile

Hi Philip, it's Paul, I'll take the first one on ARPU. We think this is just a kind of great consumer-satisfaction story for our wireless business and in a lot of respects I think the ARPU story was sort of quite predictable. There were two key drivers over the course of the quarter to kind of bring your focus to: one is those investments I spoke about that really were focused on $50-plus rate plans. So everything from how we commission our distribution through to how we induce and then thank customers, whether it's through financing or for a subsidy, we really focused and will continue to be focused on that higher-value subscriber relationship, so you know we're driving a significant number of new subscribers into the equation that are helping build that $37 historical level up to a much better figure, like you've seen in the second quarter here at 30 1/2.

Another thing that I want to focus on, and it's not as obvious from the outside, is that we've been actively upgrading our existing subscribers to our Big Gig rate plans, so we have historically had a relatively low migration history with our customers -- that's always been our sort of our net zero for us as customers come in other rate plans often related to their travel needs. Over the course of the last number of months, though, as we've developed this great value equation for our customers, we're seeing tens of thousands of subscribers move on a regular basis from a historical lower-value rate plan into a new $50-plus rate plans, so there's sort of things happening above and below the line here and contributing to that growth, and you'll continue to see from us those investments focused [Inaudible] on that ARPU growth, so that story will hopefully continue.

Trevor English -- Chief Strategy and Business Development Officer

And Phil,, it's Trevor. Just on the accounting, it's about $12 million in Q3 that we'll be looking for the retroactive impact of the lower roaming rates and to Jay's comment, maybe it's not as big as people thought, it's about an annual impact of $5 million in terms of what we'll see as the run rate going forward.

Phillip Huang -- Barclays Investment Bank -- Analyst

OK, got it. No, that's very helpful for both. I wanna ask a follow-up on the cable side. Obviously, you guys have shifted away from the promotions for the past quarter, recognizing that the bigger growth opportunity obviously lies in wireless.

Should we assume that this is the type of approach going forward? Should we assume the level of subscriber trends to be similar into future quarters or is this sort of like, it ebbs and flows a little bit depending on the market conditions? And I just want to get your take on what you, where sort of subscriber retention and growth, where that sort of lands in terms of your priorities as it relates to the promotions that you're you're thinking through as the year progresses. Thanks.

Jay Mehr -- President

Thanks for that. Phil, it's Jay. I'll give you some color there. Clearly, our growth opportunities exist on wireless, as you've seen, and we're going to continue to lean into the wireless opportunity.

We continue to have a growth opportunity in business, there's an opportunity to come up-market in business and so despite the fact that there was some slight moderating in our growth results this quarter and maybe next, you'll see us continue to drive business as a growth opportunity. There's lots of noise on the consumer side of the business as you adjust pricing and promotional periods and competitive environment, and we continue to exist in a very competitive environment. So it's a little bit tricky to map out the specific subscriber numbers in an area of very moving pieces. I think its clear from Vito's comments that when we originally launched BlueSky, we wanted to duplicate the success that our American counterparts achieved a few years ago with the launch of the X1 platform and drive market-share growth, and you've heard us communicate clearly to the team a year ago that winning looked like plus one in terms of video subscribers.

It's clear as we executed that strategy that we got a different outcome and that that was the wrong [ph] strategy in the current environment both with our competitors environment in western Canada where people have already moved to smaller packages and just everything that's happening in video today, which I think is global, not just a western Canadian thing, that that approach wasn't going to achieve the same outcome. So you've seen us shift video to more of a profitability approach and you'll see us do that going forward. Whether or not you'll see a moderating of video RGU losses over the next coming quarters, it certainly would be our intention to do that but we would do that within the context of profitability. The dynamics of our broadband business is good, looks fantastic, about Comcast road map, it's a total-home solution, and the industrial design and that relationship with Comcast is terrific for us, and you'll see those benefits shift even more to the broadband solution and our broadband revenues going forward.

Operator

Our next question comes from Greg McDonald of Macquarie Capital Markets. [Silence][Crosstalk]

Our next questioner in the queue is from Aravinda Galappatthige from Canaccord Genuity.

Aravinda Galappatthige -- Canaccord Genuity -- Director

Good morning, thanks for taking my question. Just a single question remains. Just want to revisit the comments you made about BYOD. Obviously, recognizing that it's not been a major drive in the last couple of quarters, but with the refarming done, and some of the comments we hear from a few players, that appears to be a meaningful opportunity, particularly for the regional wireless plans.

So should we kind of expect you to sort of apply more energy in that area as you we kind of look to the second half for an additional wave of sort of growth on the wireless side?

Jay Mehr -- President

Let me start, and I'll let Paul finish. Look, we hit a market seam where consumers felt mistreated by the way data was being offered by our competitors, and the combination of that with the launch of the iPhone and energy in the marketplace, we hit a seam and we focused on that seam. So we can only do so many things at once. The refarming actually helped us benefit our existing customers by moving them from 3G to LTE, and that helped us with churn benefits and other things.

To say that our BYOD powder is still dry, it is absolutely, although to be clear, you know the majority of our customers are in Ontarios and we just completed that refarming in the last few weeks. S there's certainly more opportunity on BYOD by the same token recognize that we love the characteristics of the cohort that's on-boarding today, and we're not going to leave that alone in order to chase BYOD. We've got some levers going that you haven't even seen us use yet. I don't know if you want to add to that, Paul?

Paul McAleese -- Chief Operating Officer, Freedom Mobile

No, that's perfect.

Aravinda Galappatthige -- Canaccord Genuity -- Director

OK, that's great. Thank you.

Operator

Our next question comes from Maher Yaghi of Desjardins Securities.

Maher Yaghi -- Desjardins Securities -- Managing Director

Thank you for taking my question and my congratulations on thos nice wireless results. I want to first ask you a question on, you mentioned in your prepared remarks that Q3 is still looking good in terms of wireless loading. If I look back at the last year, we saw a slight decrease, 10,000 to 15,000 decrease in net adss. If that's what you're, what we should look at in terms of quarter-over-quarter-type movement in net adds or is there something special in Q2 that took place that Q3, we should expect a more normalized level of loading? And I have a second question to just follow up on that.

Trevor English -- Chief Strategy and Business Development Officer

Yeah we've got great momentum and we've had a nice start to the quarter, and things continue to go well. We did, there's is seasonality in the business and you do have to look through sort of the adds in the business -- last year we did 19.8, basically 20,000 -- in Paul's first quarter, he always rounds up to 20. I mean, look at the pace that we're going, you can absolutely hold us accountable to double that. Could we do better than doubling? We might do a little bit better than doubling that, but I don't, I mean if you think about something in the 4s, I would consider that to be sort of the current trajectory given the level of activity that we have in the marketplace.

If you follow that seasonality curve, you should expect more from us in Q4 than that, because that's how the business unfolds, but I really don't want to get too speculative on guiding to specific numbers in a very tentative and floating environment. We're going to do the right thing, just wanted to give you some context on where our head's at based on what we're seeing today.

Maher Yaghi -- Desjardins Securities -- Managing Director

You actually did more than I had expected, so thank you for that. In terms of your guidance, now when I look at your opex and capex savings from the VDT, which add up to $48 million, I add up the $12 million from the CRTC net back, you get about $60 million, but you're sticking with your previous guidance of $375 million on free cash flow. Can you just explain what are the other things happening behind that is not helping and guiding up the numbers?

Trevor English -- Chief Strategy and Business Development Officer

Yeah, I'd say one thing, Maher, is obviously the success of the wireless business has [Inaudible] a near-term pressure on margins that frankly we didn't initially forecast, and we talked a little bit about the impact of the additional wireless equipment sales and there's actually a negative margin on that, so that is one of the things that's keeping us on the original guidance along with some of the other [Inaudible] items, including the $12.5 million to $12 million related to the one-time CRTC benefits. So there's a few things positive, but one of the things holding us back obviously is [Inaudible] success and the near-term margin impact of some of our wireless activities, which we're very happy with, but that's why we're sticking with the original guidance that we have in place.

Jay Mehr -- President

The other thing I'd add there, Maher, is the, as you've heard in our prepared remarks, how video's performing, perhaps vis-a-vis our original guidance is a bit of headwind compared to that, but where we expect to come out of Q4 presents a very favorable picture going forward into 2019 and thereafter.

Maher Yaghi -- Desjardins Securities -- Managing Director

OK, yeah, that's what I had kind of implied, because when you look at all the, if you locate all the improvements versus your previous guidance, it comes out to maybe $150,000, $100,000 of higher-than-expected loading, which seems quite large but yes, on the cable side that. Just one last question. When you look at your network, what are the additional investments that you feel you need to do in 2019? I know you don't want to provide actual dollar forecast on capex, but maybe can you just tell us what are your big projects for 2019 on wireless in terms of stores additions, network expansion, implementing new spectrums in your network and things like that, just qualitatively maybe?

Jay Mehr -- President

Thanks for the question. Our plan has not changed. We're going to continue to execute the plan [Inaudible]. The price may be that it, in terms of executing the Videotron spectrum, that we prioritize 2,500 before 700.

I think that was maybe counterintuitive to people. I hope you can see the importance of that in terms of what it does for our base, in terms of being able to move them from 3G. to LTE and the opportunity for them to come up-market. I recognize people will have other views that we should have done 700 first.

We've started 700 and we're moving down that path as planned and that'll be the chunk of next year's wireless spend. Throughout our segments, again, there is no forklift capital, we've got some VDP savings in capital, and so I don't think you'll see anything scary in our capital trend over the next couple of years and when Brad talks about increasing free cash flow with or without course dividends, that's all part of our future as we move forward over the next few years.

Maher Yaghi -- Desjardins Securities -- Managing Director

OK. Thank you very much

Operator

Our next question comes from Rob Goff of Echelon Wealth Partners. Mr. Goff, your line is live.[Silence]

Our next question comes from David McFadgen of Cormark Securities.

David McFadgen -- Cormark Securities -- Director

Hi, great, thanks for squeezing me in. A couple of questions. So first of all, just on wireline RGUs, I was wondering if you thought that there's a path to get those to be stable, and I would think that if you actually had a Shaw mobile product and you bundled it with the existing wireline services, that that would go a long way to stabilizing those RGUs. Just wondering what your comments are on that.

And then secondly just on Loblaws, is the 100 locations a starting point? Could it grow to be something more significant than that, and are there other organizations that you're talking to that are similar to a Loblaws?

Trevor English -- Chief Strategy and Business Development Officer

Yeah, let me start on RGUs and I'll let Paul talk more about Loblaws. There's lots of noise as we shift our approach to the consumer market, and we've got lots of work to do. Do we aspire to better RGU results than we've got? Absolutely. And we'll continue to balance that.

When you think about wireless, wireless is the single biggest growth opportunity at Shaw. We don't think of it as a vehicle to stabilize wireline results. We think of it as the fundamental creator of shareholder value for our future, and so we're gonna drive that as an absolute business with the level of focus and commitment that you've seen. Is there an opportunity to bundle? Of course there is.

Are there opportunities for us to do things in the future? For sure. Would we like to get a greater share of broadband adds than we got this quarter? Yes, but we're in a very challenging environment and we need to, we're not going to do it at all costs. We're going to perform in a disciplined way and make choices in terms of where we invest. Paul, do you want to talk a little bit about mobile?

Paul McAleese -- Chief Operating Officer, Freedom Mobile

Yeah, thanks. Dave, it's Paul. The 100 Loblaws locations, mobile shop locations, that's the total within our coverage, but we'll have those in service fairly quickly within this quarter, so that'll be the cap of it. On other retailers, we're really fortunate that over the last number of quarters we sort of demonstrated strong credibility.

As you know, most, there's a good percentage of Canadian wireless retail that's controlled by our competition, so we'll continue to be excluded from that, I would surmise. But there are certainly retailers of mobile in this country that are I think starting to recognize that we represent an important opportunity for them to provide value to their customers that otherwise doesn't exist today with the carriers that they're listing. So we're always open to the conversation for a place on their shelf and happy to take those phone calls as we have been in recent months.

Operator

Our next question comes from Rob Goff of Echelon Wealth Partners.

Robert Goff -- Echelon Wealth Partners -- Managing Director

Good morning, and thank you for circling back. My question goes back to a comment that was made on the impact of migrating wireless subscribers. Could you perhaps dive a bit more into that in sort of weigh off the benefits to ARPU of migration versus the new subs coming on the $50-plus programs.

Paul McAleese -- Chief Operating Officer, Freedom Mobile

Hey, Rob, it's Paul. Yeah I'll just -- maybe go back to the historical, we used to do a very small percentage of our subscriber base every month that would migrate, and the typical behavior would be, "I'm on a $50 plan, I'm going to Florida, I'm gonna go down to a $30 plan and when I get back I'll jump back to the 50," so the kind of net over the course of the year for us was basically null event. What we've seen of late is a significantly larger percentage of our base every month migrate and where used to be a zero economic impact, our average migration right now is a positive nearly $6, so you can imagine the sort of consequence of that. I don't have the number at hand in terms of the weighting between that and new, but we continue to recognize and see that our existing subscriber base sees incremental value, particularly after the refarming, in moving to the Big Gig rate plans, so I would speculate at this point that over the coming quarters we'll continue to see favorable migrations, that'll positively influence ARPU.

Operator

[Operator signoff]

Duration: 61 minutes

Call Participants:

Bradley Shaw -- Chief Executive Officer

Vito Culmone -- Chief Financial Officer

Tim Casey -- BMO Capital Markets -- Analyst

Paul McAleese -- Chief Operating Officer, Freedom Mobile

Vince Valentini -- TD Securities -- Managing Director

Jay Mehr -- President

Trevor English -- Chief Strategy and Business Development Officer

Drew McReynolds -- RBC Capital Markets -- Analyst

Jeff Fan -- Scotiabank -- Analyst

Phillip Huang -- Barclays Investment Bank -- Analyst

Aravinda Galappatthige -- Canaccord Genuity -- Director

Maher Yaghi -- Desjardins Securities -- Managing Director

David McFadgen -- Cormark Securities -- Director

Robert Goff -- Echelon Wealth Partners -- Managing Director

More SJR analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Shaw CommunicationsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Shaw Communications wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 2, 2018

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.