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Welcome to the Shaw Communications Fourth Quarter Fiscal 2018 Conference Call and Webcast. Today's call will be hosted by Mr. Bradshaw, CEO of Shaw Communications. [Operator Instructions] The conference is being recorded. [Operator Instructions]Before we begin, management would like to remind listeners that comments made during today's call will include forward-looking information and there are risks that actual results could differ materially. Please refer to the company's publicly filed documents for more details on assumptions and risks. Mr. Shaw, I will now turn the conference over to you.
Thank you, operator, and good morning, everyone. With me today are members of our senior management team, including Jay, Trevor and Paul. I am pleased with the progress we have made throughout 2018 towards our overarching goal of delivering long-term and sustainable growth. Wireless had an exceptional year, with all of our key performance metrics moving in the right direction, including postpaid additions of 85,000 customers in Q4. In 2018, we grew our subscriber base by over 255,000, or 22% compared to F '17, to end the year at just over 1.4 million customers. Our big data plans, combined with our latest devices available in the market, continue to drive higher quality and higher lifetime value customers to Freedom Mobile. Our wireless service is now even more accessible to Canadians through the addition of 240 locations launched with our national retail partners, Loblaws and Walmart. As we grow our subscriber base in F '18, we also increased ARPU, particularly in the last half of the year as our Big Gig plan gained momentum, leading to strong ARPU growth of 9% in Q4. Through these results, it is evident that we are delivering a differentiated and sustainable value proposition, and we expect to gain additional wireless market share and continue to grow ARPU throughout F '19. Supporting our wireless strategy is the significant ongoing network improvements that are quickly creating a strong, high-quality network and clearly benefiting our customers. The team has done a terrific job of managing and deploying spectrum in the most efficient way, including the initial launch of our extended-range LTE in Calgary, Edmonton, Vancouver and Southern Ontario. The extended-range LTE utilizes the 700 spectrum that we acquired last year, and we will further deploy this spectrum throughout our network over the course of F '19. We also launched VoLTE over a wide range of devices, and we'll continue to roll this out to all eligible phones and customers over the coming months, including the iPhone, bringing the total customer base to approximately 800,000 that will be using VoLTE by the end of 2018. Wireless investments remain a priority as we head into F '19 and continue to grow our subscriber base. In addition to the spectrum deployment, we will also expand our wireless network into new markets this year, with a focus on Western Canada. By the end of fiscal '19, our network will cover an additional population of approximately 1.3 million, and we will start to explore cross-selling opportunities with Freedom Mobile and Shaw wireline customers, using our various touch points to discuss their wireless products and needs. While we are excited to develop this opportunity, we will focus this year on learning from small-scale trials and taking a thoughtful end-to-end approach. In our Wireline business, we delivered F '18 results that are consistent with our strategy to focus on profitable growth and stabilize results, and I'm pleased with the significant cost savings that we have achieved during the year. However, I believe we can execute better, particularly with the Internet results for the last 2 quarters have not been representative of the subscriber opportunity through our differentiated broadband experience. Significant investments and best-in-class technology partners have created a strong and ubiquitous wireline network. DOCSIS 3.1 has been clearly deployed throughout our network, and we are capable of delivering gigabyte Internet speeds. As we anchor the home with the XB6 modems, we will enable additional IP services such as xFi and the extenders that will differentiate our broadband service from the competition. In F '19, we will begin deploying a full IPTV experience to our customers, starting in the second half of the year. With this service, we will simplify the installation process, reduce the amount of equipment needed in the home and enhance the ability for customers to self-install. All these initiatives lead to a lower capital intensity in our Wireline business that we believe is sustainable going forward. And our Wireline capital provide -- plan provides the necessary resources to make investments to future-proof our network in the coming years. Our Business division contributed solid results in F '18, via the growth of our smart products and recent success in the enterprise and wholesale markets. We expect this momentum to continue as we focus on delivering our managed services and targeted strategic verticals. As I stated earlier, I'm pleased with our fiscal 2018 results, and looking forward, we are focused on the key areas of our business that will drive growth as well as areas that need improvement. We expect that in F '19, our wireless momentum will continue as we execute on our step-by-step operating initiatives. In Wireline, we will have an internal focus that enables us to transition into a digital-first company and modernize how we work and connect with our customers. Now, I'll turn the call over to Trevor to go through the Q4 and F '18 results and review our fiscal 2019 guidance in more detail. Trevor?
Thank you, Brad, and good morning, everyone. We finished fiscal 2018 on a strong note from a financial perspective, with all business units contributing to Q4 consolidated revenue growth of 7.4% to $1.3 billion and EBITDA growth of almost 17% to $560 million compared to the prior year. Q4 Wireless revenue grew 45% year-over-year, to $250 million. On a run rate basis, this represents a Wireless business generating $1 billion in revenue, a significant achievement considering our starting point 2.5 years ago since we -- since the acquisition of WIND closed. Strong Wireless service revenue growth of 32% to $167 million in Q4 was driven by ARPU increasing by 9% to $41, compared to a year ago. For the year, Wireless revenue and EBITDA increased 57% and 32% to $951 million and $176 million, respectively, as we continue to attract and retain customers with our data-centered plans and continuous improving network. In Wireline, Q4 Consumer revenue was essentially flat at $942 million compared to the prior year, while Business revenue increased over 6%, to $145 million. Consolidated Wireline EBITDA growth of 16%, to $516 million, was a significant improvement compared to Q4 fiscal '17 and includes approximately $23 million in VDP-related cost reductions as well as lower marketing and other corporate costs. These results reflect our focus and discipline regarding expenditures throughout the entire organization. For the full year, Wireline revenue was essentially flat, as the marginal decline in Consumer revenue was offset by Business growth. However, year-over-year Wireline EBITDA did increase 2.6% during the year, to $1.9 billion. As it relates to our total business transformation initiatives, the fourth quarter includes an additional restructuring charge of $16 million, bringing the total provision to $446 million, of which approximately $170 million has been paid to date. While the employee exits will continue throughout F '19 and into F '20, the restructuring program is substantially done. And in fiscal 2018, we realized combined operating capital savings of $47 million, which was as expected and communicated earlier this year. In summary, our fiscal 2018 results were largely in line with our expectations and reflect our focus on Wireless growth and profitability and stable financial results within our Wireline business. Consolidated EBITDA growth of 4.6% and capital spending of approximately $1.37 billion materially met our guidance, while we delivered free cash flow of $411 million that was slightly ahead of expectations. As we carry this momentum into next year, we're introducing our fiscal 2019 guidance, which includes EBITDA growth to range between 4% to 6% versus F '18, capital spending of approximately $1.2 billion and free cash flow in excess of $500 million. Our guidance in growth range includes the expected impact of IFRS 15, which we'll adopt on a retrospective basis beginning in Q1 F '19. The fiscal 2018 and expected fiscal 2019 results under IFRS do not have any material impact on the guidance we released this morning. However, for the benefit of the investors comparing our F '18 reported results and adjusting for the change in accounting policy, our reported 2018 Wireless revenue will decrease under IFRS due to the fact that we'll be allocating a portion of the subsidy to service revenue, which is amortized over the term of the contract, and we'll also be allocating a portion of the subsidy against equipment revenue, which has an impact at the time of sale, as opposed to today, where we actually amortize the entire subsidy over the term of the contract against only equipment revenue. The decrease in Wireless revenue will flow through to EBITDA. However, we do gain the benefit of capitalizing and amortizing the commission expense related to Wireless sales under IFRS 15, versus today, where we expense commissions on the date of sale. Despite the changes in accounting, it's important to remind everyone that there's no change to overall revenue and cash -- cash flow under the new accounting policy. We will provide additional details with respect to the impact of IFRS on 2018 reported results when we file our 2018 annual in November and with the release of our first quarter results in January. Our guidance includes assumptions related to cost reductions that we'll achieve through TVt initiatives, specifically the Voluntary Departure Program. Total savings are expected to amount to $140 million of OpEx and CapEx in fiscal 2019. As Brad discussed in his earlier remarks, we have a strong wireline network that has the capacity to meet the increasing demands of our customers, combined with lower equipment requirements and higher self-install, we can moderate our wireline capital intensity. However, we will increase investments in Wireless compared to F '18 as we continue to deploy the 700 spectrum and expand our network into new communities, as Brad mentioned. We expect Wireless CapEx to be approximately $400 million in F '19, or up approximately 15% versus F '18. Considering our EBITDA and capital expenditure guidance, we expect to drive material free cash flow in F '19 in excess of $500 million. Note, we will continue to include the Corus dividend in our free cash flow metric, which is expected to be approximately $20 million in F '19 versus the $92 million that we received in F '18. However, it's clear that we are growing our operating free cash flow in fiscal '19 regardless of the treatment of Corus' dividend contribution. Our balance sheet remains strong, and our leverage of approximately 2x is at the low end of our target range, providing us additional flexibility as we continue to make the appropriate investments to grow our business. Brad, I'll now turn the call back over to you for closing remarks.
Thank you, Trevor. We have a strong operating plan in place and expect to deliver continued Wireless growth and stable, consistent Wireline results. This is the year that we turn a very significant corner in terms of our free cash flow profile for F '19 and beyond, and our focus remains on successfully executing our strategy. Recently, there's been speculation regarding our investment in Corus, and we want to clarify that we remain supportive of Corus and their management team. While it remains a challenging structural environment, we think their stock is undervalued and not reflective of the EBITDA and free cash flow profile of the company. We will not look to sell our stake at this current levels, and we do not need additional liquidity from Corus to fund any of our operating or strategic initiatives, now or in the future. Before we turn over to questions, I wanted to acknowledge the tremendous dedication and hard work by all of the Shaw employees over the last year. We have been through a lot of change, which is exciting but not always easy. It is through your passion to continuously improve and collaborate across the organization that drives great results. Thank you for everything that you do, and I look forward to an exciting and successful year ahead. Thank you, everyone, and we'll turn it back to you, operator, for questions.
[Operator Instructions] The first question is from Vince Valentini of TD Securities.
Two questions, or 2 lines of questions. The first, just on market conditions and competition versus Telus. It sounds like Telus was pretty effective, or maybe you want to use the word aggressive, with their back-to-school promotions, and that may have impacted some of your cable subscriber numbers this quarter. Can you give us any sense of how that looks through September and October? Or do you see any stabilization there in promotional activity? Or is it still a pretty heated battle? And, given last quarter's communication, I'm not sure you want to answer this, but do you have any thoughts about what your subs may look like in Q1? So that's question one. I'll let you think about that for a second. On the second one, maybe for Trevor. I'm not sure I understand the composition of the EBITDA guidance and what you're saying about IFRS 15. So if I can try to characterize it this way, you did 32% EBITDA growth in Wireless in 2018. If you were to just do that again in 2019, that would contribute 3% consolidated EBITDA growth, and then you'd have a very small amount of growth necessary on the cable side to get into that 4% to 6% guidance range. Is that how we should think about it? Or is this IFRS 15 stuff or perhaps some extra marketing and distribution costs going to make it a bit more of a J-curve on Wireless, so that you'll see much less than 32% growth, and perhaps a bit more contribution from the cable side in order to get into that guidance range? If you can give any color there, because I really don't understand what the mix is of Wireless versus Wireline in that guidance.
Thanks, Vince. And maybe I'll start. I think -- I don't think we're going to get into too much granularity on the breakdown of EBITDA growth within Wireless versus Wireline, but directionally, you're sort of in the ballpark, I would say.
I'm sorry, I'm in the ballpark thinking another 30% -- so you're -- on wireless? Or is -- the whole thing will slow down because of marketing costs and IFRS 15.
There'll be a little bit of a slowdown due to IFRS 15 when we look at the reported results in F '18 and, later on, the impact of IFRS 15 in '19, but it sort of doesn't have that big of an impact, whether it's pre-IFRS or post-IFRS.
I think if you look at the Wireline results, we've got, obviously, some really nice moves on the cost structures and really nice moves on the capital cost structure. I think what teams have probably missed is a bunch of our automation, both recurring and one-time investment, with Software-as-a-Service and a partner model, bunch of that hits OpEx in this fiscal year. So where you see a mitigation of CapEx to 19% Wireline CapEx intensity, you're probably seeing a little more OpEx onetime and ongoing investments in automation in this year than you were maybe suspecting, so that might be something that trends forward.
It's a good point. I mean, just on the VDP savings too, Vince, we always articulate VDP savings as net savings. Frankly, in F '18, the VDP savings, there wasn't a lot of net investments in those numbers. It was really sort of gross savings, where in F '19, we are starting to make some of those net investments to deliver the business with roughly 25% less people in the future.
And then to the first part of your question, Vince, I don't mind you characterizing our primary competitor's back-to-school efforts as effective. I think it's clear, in the competitive marketplace, when you win a cycle and when you don't win a cycle, and they absolutely won a cycle, so no excuses from our end. I mean, we have the benefit that, when we talked last time, we were still at the end of June, in the first month of the quarter. Obviously, we're a couple of months into a quarter now. We have tremendous confidence about our F '19 plan in Consumer, our F '19 team -- our team is in great shape going into F '19, we certainly hit all of our September numbers, we're doing fine in October. The business changes in F '19 for us; it becomes much more about monthly recurring revenue times our number of accounts times our average revenue per account. Obviously, broadband and satellite are what drives our Consumer account numbers, so primarily broadband. So we're focused on that, lots of focus on churn and customer lifetime value and segmentation. So some of the yardsticks move a little bit, but we're very excited, and, to Brad's comments, we couldn't be more pleased with how our team is coming out of this cycle and tackling F '19 in Consumer with a commitment for us to be effective.
The next question is from Drew McReynolds with RBC.
Maybe a follow up here, just to Vince's questions on the Wireline net losses. Appreciate your comments, Jay, on that. Can we just maybe drill down a little bit more? You obviously had some price increases in the quarter, you're staying price disciplined. Brad, you talked about kind of the execution, kind of challenges here. Was it solely competition? Or are there these other things here that are well in your control that you can certainly sequentially improve going forward? And just secondly, on the free cash flow guidance here, maybe for you, Trevor, just what kind of cash tax assumption we should be assuming?
Drew, we very much feel in control of our destiny and that we can improve sequentially going forward. We -- there's no question, we just did not get our share of gross adds. We had lots of capacity, we had the capacity to install, we had the capacity to answer our phone, we have the capacity to digitally serve our customers -- we're doing 28% of our installs on a self-installed basis now -- so we've opened up a tremendous amount of capacity. So the engine's ready to go, and I think we control the levers. In hindsight, obviously, if I had it to do over, we did our mass marketing spend around the 300 launch in September, which I think was effective. It's pretty clear, based on the results we got, we probably should have -- if I had that to do over, I'd have spent a couple million dollars more on marketing in August. And we would would've been -- we would've gone at different outcomes. Our whole plan is around growing monthly recurring revenue, and you can't do that without growing Internet subs. You know, if you think about our Consumer business, we had a little over $300 million rounding the bases September 1st, the monthly recurring revenue. We're going to use that number, the entire team, every single day, and the path to success in F '19 includes growing broadband customers every quarter. In the medium term, we're about 2 quarters behind Comcast's roadmap, and we think they're cutting a nice path for us to follow, and we love the work that they're doing on their strategy and excited to bring those innovations to the Canadian market place.
And Drew, it's Trevor. Just on the cash tax assumption. Yes, I know it’s difficult this year. Obviously, our effective tax rate showed quite high because of some things that weren't tax deductible, like the Corus write-down. But our statutory tax rate is about 27%, and for cash tax purposes, it's roughly 300 basis points, around 24%, that you can model for going forward.
The next question is from Jeffrey Fan with Scotiabank.
Going to ask a question about Wireless and, more specifically, in terms of the contribution to your nets this quarter, whether you're seeing an equal distribution from churn reduction and gross adds? Or was there any kind of skew towards one over the other? And then, the second part to the wireless is just whether you guys are happy with the pace of loading that you guys are seeing on gross. And maybe comment a little bit about -- I know you don't disclose churn yet, but wondering if you can comment a little bit on churn and the outlook there. And then the second question is on cable. And I guess if we sit back, right now, you're getting pretty decent financial performance in cable, but the RGUs are obviously not coming through. If we look back a little over a year ago, you were kind of the opposite. When do you think we could get to a point where we've got some balance between those 2? Because I think, really, what the market is truly looking for is just some balance, and to avoid sort of going back and forth between RGUs and financial performance, which we've kind of done over the last couple of years. Wondering if you can kind of comment on the timing, when we can get back to that kind of level place.
It's Paul, I'll take the first series of questions on wireless. On the contribution to the nets, I think I characterized this, the figure, as -- about as a split a couple of calls ago. I think in Q4, we saw probably slightly higher bias towards contribution from gross, where we were very strong. But as I'll come on to in a minute, we did continue to see a very, very positive churn profile for our base. So I would have the contribution slightly higher on gross than on net in terms of the lift over last year. Pace of loading, we're very pleased with, and a couple of observations there. For the entire quarter, for all working purposes, the flanker brands all had a double data promo, which is really thoughtfully designed to sort of camp into our space of data-centric subscriber acquisition. And we competed very strongly against that through the course of the quarter. As you can see from the metrics, we're very, very pleased with where we got to on gross. We also had an opportunity for the first time in Q4, to look in earnest at how we competed in a multi-carrier retail environment, with Loblaws having been in play for most of the quarter, and then, just as we've rounded in Q1, with Walmart. And while we'll get into the detail more, probably on the next call, we were very pleased with our share of gross in that multicarrier setting. So we think, sitting side-by-side on a shelf with all of the other brands in the wireless market place in the markets we compete, we performed very strongly. We will disclose churn on the January call, but I'm pleased to say that we continue to see record levels of retention performance across our wireless business, largely fueled by the fantastic work we're seeing from our network team. Can't say enough about the improvements I've seen in my 18 months here. This is a completely different product experience than it was even a year ago, and it just goes from strength to strength. In recent weeks, as you know, Jeff, we've introduced the 700 spectrum across most of our Western markets and part of the Southern Ontario market, and the consumer response to that was immediate and strong, so we're continuing to invest in that customer experience, and it is flowing through to our churn results. So not specific guidance, but I expect to see that metric come in on a good plane in January.
And then, Jeff, to your comments -- and thank you for your comments on the wireline side of the business. I don't disagree with your characterization of the past couple of years. I -- we're feeling great about how we have entered F '19. We're really -- it might sound funny to say, we really feel like a new company as we round the bases in September 1. We've got a new super lean structure. It's just me and 4 executives in the Consumer business, one who leads growth sales, one who leads base management retention, one who leads marketing, and pricing and packaging, and one does the important job of managing all of our programming costs. Super flat organization, almost no other leaders in Calgary, everybody's embedded with every channel, doing their job, making a lot of headway on base management and segmentation. I think -- I believe our objective on the Consumer side of the business is deliver a boring and financially strong year that is also strong in terms of our long-term number of customers, but -- think you'll see that from us starting in Q1. When you talk about RGUs, we don't really think of the business that way anymore. We think about the business in terms of how many customers we have, what they pay us on a monthly basis, what's happening to our subscription revenue base of monthly recurring revenue, what's happening to the churn, how do we manage our base on a daily basis, a lot more segmentation. So I think, certainly, in terms of broadband customers, you'll see a much more balanced approach to our result. And look, our path here isn't that hard. We don't need to shoot the lights out on revenue growth. There's things happening in the Home Phone business, there's things happening in the television business. The small revenue growth on the Consumer side, steady, works with improving margins and the opportunity to realize all the cost structure that we've got, a much, much tighter and more effective capital structure, and we've got a real nice business here that's a lot simpler than it used to be, and we're very proud of what the team is executing.
If I could just follow up quickly. I don't know if you have this number handy or if you track it, but some of your peers, particularly in the U.S., tracks the customer relationship number, which kind of, as you alluded to, kind of takes away from the RGU. I don't know if you have that kind of, directionally, whether you're seeing stable in customer relationship growth or decline. I'm wondering if you can share, I don't know, if you track that at this point?
Yes, we do. Our Consumer business was up slightly in terms of customer relationships, F '18 over F '17. We have just over 2.8 million customer relationships, and our average number of accounts over the year was 10,000 higher in '19 than it was in '18. And I think on the cable side, when I say cable and broadband, that's very much our plan going forward. And if you think about customer relationships, we have a seasonality to our satellite business, you'll see that in Q1. We were seasonal as ever in Q1, so you'll see that in the numbers. And satellite customer relationships might drop, say, 35,000 for the year. But our satellite business is fine and stable and profitable, actually. ARPU was great, so I wouldn't -- I don't think that's a big issue. On the broadband cable side of the house, we maintained our customer relationships this year and certainly plan to do the same in F '19.
The next question is from Phillip Huang with Barclays.
Also a couple of questions on the wireless side. I was wondering if you could give us some color on your, perhaps, performances in different regions. I suspect Ontario is still generating most of your volumes, given the market size, but could you call some comment on the pace of the growth in Alberta and B.C. relative to Ontario? And then, another question I had was on the demographics of customers you guys have been able to attract. Have you noticed any sort of change or expansion in the types of customers been able to kind of reach, just given the network improvements. Any sort of addition of business customers, et cetera, that you have noticed?
Phillip, Paul. So starting on the regional performance, we've seen a relatively static sort of split between the East and the West, which is characterized, about 70% of our volume coming from the East and 30% from the West. I will say, having spent some time over the last sort of while, improving a number of things in the West. We've turned on, as you know, the 700 spectrum most pointedly in the West. That's the vast majority of the investment we've made in network on 700 is coming in the Western part of the country. We've also got a significant advantage in our WiFi footprint in the West. So while the bias hasn't changed very much over the course of the last year, expect to see additional strength in the West as we look to deploy and leverage some of those assets into our proposition. It has been -- we've been waiting for 700 to roll out, but you'll start to see some changes in that split over the course of the next couple of quarters. On the characteristic of our base, I think a couple of data points are worth pointing out here as we look across the changing nature of our base. So, probably the first thing I'd point to is the average selling price of our devices. So, if you go back a year, we have doubled the average selling price of a phone, so we're a little north of $800 now. A year ago that number was about $400. Just a dramatic change in the characteristics of that. As you can imagine, that is largely driven by the iPhone influence, but these are customers that a year ago, we simply weren't appealing to, and now find the appeal in Freedom significantly greater than they did 12 months ago. I'd also point out that, while it's not in the release, our porting ratios, while they have long been in our favor, really changed significantly. When I look at -- I'll pick on the fourth quarter of F '18. In F '17, we did about 7,000 net ports, so -- the people porting to us in excess of those porting out. In F '18, we did 36,000 net ports, so a 500% increase on the behavior we're seeing, and that's reflective of 2 important things: one is, the confidence of competitive customers to make a change and bring their number to Freedom, a huge change in the business; and the other is -- again, that, too, is the work our base management team and our network team are doing -- a greater confidence of people to stay. So we love -- we watch our porting ratio very closely, it's widely available industry data, and we love where that's taking us, but it broadly suggests that we're seeing a different characteristic of customer. And again, I'd just point to the -- as a final thing, the onboarding value. In the fourth quarter of this past year, we set yet another record for the value of the recurring MRC that customers were committing to, and that figure was up about $1.50 over the prior quarter. So, we're doing all the right things on directing our investments in subsidy and in commissioning and in effort to rate plans and structures that provide us with better economic result.
That's very helpful. If I could, just one more follow-up. I mean it seems like the natural question to ask at this point, given your -- you also mentioned WiFi in your response. When is the right time to launch a premium brand? It seems like all the ingredients are kind of in place and your network is rapidly improving. Just wondering if -- I know you don't want to dilute Freedom's momentum that's been sort of gaining over the past year. I'm just wondering if you could comment on when would be the right time to start introducing a brand that you could -- that you feel comfortable bundling with your fixed line base.
Yes, Phillip, I think I'd characterize this still -- and I'll use the same line I've used for a part of the last 2 calls -- it's dry powder for us. We love what we're seeing from the Freedom brand and how we're penetrating across all of our points of distribution today. We clearly understand that there's an opportunity for us to introduce, perhaps, some new branding into the marketplace at a time that suits us, but at this point, nothing to disclose on that.
The next question is from Sanford Lee with Macquarie Capital.
I had a question for you guys just on the sustainability of the ARPU growth. Obviously, a lot of stuff is coming in at the $50 and above. Is there any of the ARPU benefits coming from the customers that are migrating up from lower-tier plans?
They are indeed. We -- I think we announced previously that our migrations were coming in at around the $7 mark. Over the last quarter, that number has moved up favorably to about $8 and change, so it takes, obviously, a lot to move that base significantly, but we love what we're seeing on that front. So the -- both the number and the value of migrations are increasing. And as many of you may have noted, in July, we had the opportunity to make some changes in our Big Gig rate plans. We introduced a $5 charge, incremental charge, to the rate plan levels that were set back in October. We then gave customers the opportunity to discount that back by taking advantage of our digital discount and moving to pre-authorized payment. We love the characteristics of customers that are on PAP, and we'll continue to incent that. But that series of rate plan changes has produced a number of favorable impacts for us in terms of -- really, it's both wins. Whether a customer takes it or they choose not to take it is kind of a win. So where you're seeing a slight rate increase, we're seeing a longer-term digital relationship with us that we think has other benefits. So overall, migrations are a very positive part of our story.
Right, and then kind of related to that, I know you recently launched a lower-cost -- $25 and $15 -- ARPU plans. Can you give us a sense of the uptake of that, and, again, looking to potentially migrate them up the chain at some point as well?
Yes, and thank you for bringing that up. One of the things that's important that isn't lost in our very strong Q4 results, the 9% ARPU lift that we were able to present to the market included the launch -- although it's a relatively small numerator, but it included the launch of rate plans that were significantly below our base average, so in some sense, pushing in the opposite direction. But we have a very, very clear direction from leadership here that we want to make wireless available to all Canadians and to do so in a way that is consistent with both our objectives of reaching lower-income Canadians and, certainly, with what I believe to be the government's view of trying to make wireless and data-only plans available on a more broad basis. You'll have seen that we launched those plans directly into a time when the big 3 were less enthusiastic about that market. We are enthusiastic about bringing all Canadians to Freedom, so we took the opportunity to do that. I think we helped maybe change that, the view of that marketplace. And, while the loads are relatively a small percentage, a sort of a single-digit effective gross for us on the quarter, they are an important part of telling our story across the broader segment of the population.
The next question is from Aravinda Galappatthige with Canaccord Genuity.
Two for me. Number one, just wondering if you can just touch on sort of the operational sort of impact of the VDP plan. Obviously, you're sort of getting to that midpoint in terms of employee exits and sort of transition. Can you just talk about how you've been able to sort of manage the operational disruption? And should we think as though -- that the higher-risk component of it being behind us? Is there sort of more to go? And I'm trying to sort of connect that with, maybe, some of the, I guess, the relative underperformance on the cable gross adds side. To what extent did the size of the program perhaps affect the sales aspect of -- on the cable side?
Yes, great. Thank you. Brad talked about, in his comments, just how amazing our people are and the work that's been done in changing the company. Where we are today -- not to minimize what the organization's been through over the last 6 months, our people are amazing, they're the source of everything good at Shaw, I love where our team's at. I can't remember a time, certainly in the last 10 years, where our team has been in better shape. The team's embraced this troupe of 10,000 call to action. We're a smaller organization now. And when we talk about a troupe, we're not talking about a military troop, we're talking about it like a traveling performing troupe where one week you're on lights, and another week you're the star, and crates lift themselves because everybody helps. It's right consistent with the Shaw culture and how we were built. Our organization is doing tremendous work. In the process that has been so energizing for our team because decision-making has all moved to cross-functional squads with agile 2-week sprints. And I spent a few days in Edmonton last week -- the turnaround with our teams in Edmonton -- about our ability to just get things done effectively because our teams that are doing the work are changing the way we work. So I couldn't be more happy with how we're coming out of the, as you described, the higher-risk area. The plan's going forward. We've still got some work to do, but I would actually characterize us as being slightly ahead of where I thought we would be at this moment; self-installs of 28%, headed to 50%, all of our digital initiatives are going well. I think if you look at our underperformance over the last couple of quarters, some of that may well have been all of this adjustment. I suspect more of it was all of the changes in management and leadership and restructuring and streamlining. I'm sure some of that had an impact. Most of the heavy lifting is behind us. We've certainly got some automation investments this year, and as you -- we've got a clear line of sight to our VDP exits, certainly for, at least, the first 9 or 10 months of this year. We've got a little bit of work to do as we do the final sort of departures into 2020. But we're super pleased, and we will -- as difficult as this process has been, it has not only enabled a fundamentally new cost structure for our Wireline business but it really has enabled a new Shaw in the way -- in the modernization of how we do business.
And just a quick follow-up or second question for me. I think I may have not heard correctly, but I think you, in your prepared remarks, you talked about, I think, about 28% of your installs now being self-installs, which sounded like -- which, certainly, to me appears to be a good number. Can you just talk about sort of the potential to sort of increase that over the near term? And is there a component -- is there a prospect of maybe the X1 installs also becoming self-installs in the near term?
Yes, for sure. I mean, the whole spirit of the Voluntary Departure Program was because of this fundamental change in the business where the only thing plugged into the wall will be an XB6, and everybody -- everything else is IP-based experiences connected wirelessly. And you can start to see the beginnings of that in Comcast's results and what they're doing. And that's actually behind the whole direction that we're going as the company. That 28% is the right number in terms of self-install. In May, it was 17%, so we're directionally headed in the right direction. That probably looks like 50% at the end of the 2020 program. The number of truck rolls that are being avoided by that are -- will be in the hundreds of thousands. It's super material of a plan, and it just gets easier as we launch our IP-based experiences, and you've certainly seen, I mean, the road map is clear. You can see Comcast doing it. You can see Rogers doing it. You can see Cox doing it. We're on the right track here.
The next question is from Tim Casey with BMO.
A couple for me. Just -- you mentioned, Brad, in your opening comments about how you're going to start doing cross promotion. Just wondering if you'd comment on how you're going to approach that, given your other comments with respect to recurring monthly revenues because, obviously, cross promotion can often include bundling discounts. And second, just a comment on your spectrum road map. I know you can't comment on 600, but how are you thinking about mid and higher bands, given that's clearly where the focus of the incumbents are? Just how are you thinking about that going forward?
Tim, I'll start here, and I'll take your last question on the 600. We're extremely excited about the 600 and the auction coming up, and we really applaud the government for stepping up with a pro-competitive spectrum plan and policy. So we're excited about what that brings, and as you know from our spectrum holdings, low, medium, high, very important as we go forward. And hopefully, as we step into the next couple of years, that the government still has that pro competition, and then we really believe that spectrum is critical as we compete with the big 3, and we're going to be very focused on that going forward.
Great. It's Jay. In terms of the cross promotion side, I think, as you heard in Brad's comments and you can see with the increasing wireless capital that we're investing this year, we've got some really interesting things happening in Alberta and B.C. One is significant network improvements. And so we're really getting there with the launch of our additional spectrum. We're also launching a significant number of new markets in this fiscal year, which really will cover our footprint much more dramatically. I think the West is going to matter more to Freedom in this fiscal year than it has in the last number of fiscal years. We're going to step into this. I don't know that -- to Paul's comments about dry powder, I don't think you'll see massive bundling opportunities in F '19. I think you'll see us try and have conversations with customers about what they're spending on a monthly basis and how they can bring Freedom and Shaw together to help them save money. I don't think you'll find anything scary in that, and really excited about what happens this year for us, Wireless, in the West.
Just a follow-up if I could on another road map, that being your all-IP experience. I think in your opening comments you talked about it in the second half. Can you give a little bit more color on how that's going to roll in?
I think I previously said we're about 2 quarters behind Comcast on their technology road map. And in general terms, if you think of it that way, you'll -- you're in pretty good shape. Just -- it's actually quite easy to see what's coming in terms of our product offering. I think it's fair to say in terms of the -- both the operational and market impact, that the bulk of our all-IP experience will impact the second half of F '19, but we certainly are very pleased with how things are developing and are in testing. And we're certainly technologically ready. Speaking plainly, we've been helped by the aggressiveness of Rogers and their rollout in driving IP, that just makes it easier for us. And it's nice on some of these things to be quick second. The first go-around, we were leading into Canada and having to sort all that stuff out ourselves. So we benefit from this expanded syndication in Canada from Comcast and are excited about what the second half brings.
The next question is from Maher Yaghi with Desjardins.
Jay, I wanted to just -- can you -- you were talking about your marketing spend in the quarter that you could have pushed up a bit more in order to alleviate some of the losses you had on Wireline. How much did you say you could've spent more in order to prevent these losses?
Thank you for the question. I was -- clearly, we believe that we had a go-to-market that would enable us to get our share of gross adds and not to have a decrease in broadband customers. And so what I did say is our mass sort of campaign -- and mass isn't as important as it used to be -- our mass launch of Internet 300 we did in September, because it's a great opportunity to sell and set up things for F '19. My comment of -- and that campaign was about $2 million that we spent in September -- my comment was: you learn from your mistakes. Clearly, we should've put more in market in August. We lost August. And so if I had it to do over, would I had moved that $2 million into August? Yes, I think that's self-evident now. In the medium term, it's timing, and we're pleased with our mix of 300, and we think both the pricing parity that we've got through Internet pricing and the launch of 300 and the mix of the buy-in of 300 is all going well. So I think it, in the long term, will come out in the wash. But it's clear we had a light marketing spend in Q4, and you'll see some of that, timing-wise, impact Q1.
And so why didn't you spend the money? Is it because you were trying to meet some object -- financial objective for the year?
Yes. No, we didn't spend the money because we think the best time to launch 300 and our new way of being is in September, and we've got good market impact from that. We certainly had room, in terms of spending the money, it wasn't that we were up against a particular number. We're delighted with the financial result that we've taken. We believe, as you heard from our comments in June, and this is the nature of a very competitive environment, we believe we had a plan to deliver our share of gross adds, and it didn't turn out that way. So we're committed to achieving better results in the future, Maher.
Okay, so that's on Internet. How about TV, because I guess both go hand in hand? But there's an abnormal decline in TV that happened in the quarter, and it's hard to call it just on back to school, because a lot of these subs that go in and out on the back-to-school period are mainly Internet and not heavy on TV, from what I understand, if it's -- we're talking about students and universities. So how -- what's the strategy to turn around the TV portion?
Yes, and thank you for question. And actually, I agree with where you're heading as a hypothesis. I don't see the change in TV -- in video RGUs. And I think we're talking about cable here, so let's...
Yes.
...as opposed to satellite. I think you're right that, that's not a change in back to school. I think you and I may have different expectations for where we're heading with video RGUs. Obviously, the biggest challenge that we had in F '18 financially was a degradation of our video gross margin, primarily on the cable side. We've said, clearly, we're going to manage video for profitability. We've got a cost structure that, the way channels are packaged, suggests a certain way to market video. We're going to have a much healthier margin story in video in F '19, and that will be part of our total customer story. I would hesitate to -- if you're trying to work a model -- to suggest that we're going to have a major bounce back on how we characterize video RGUs, because I think if you follow the map of managing video for profitability, total number of customer relationships or accounts, our monthly recurring revenue model, it doesn't necessarily take you to quickly improving RGU numbers in video.
Okay. And you know the general expectation was that X1 was going to help you in some way improve your video situation, and that's not happening. So that -- I guess you're saying that the market misunderstood where RGUs were going on the TV side. Can you maybe help us understand what your view is for 2019 on that, because I think the general understanding is that you were not going to lose more than what you lost in the past?
Yes, I wouldn't use all the same words that you just used there, but the way we think about the business as we move into F '19 is, our Wireline business, we're looking in that 1% to 2% revenue growth. We got 1% revenue growth in Q4. This is what winning looks like. We do that by managing our monthly recurring revenue. So our monthly recurring revenue is just, when we entered the year, just a hair over $300 million. And monthly recurring revenue, every single day, we're looking to grow monthly recurring revenue by $1. And we do that by growing our broadband customers, becoming more profitable, reducing our churn, a much more sophisticated base management and segmentation. That strategy will work. It will deliver the long-term revenue of the company. The monthly recurring subscription revenue is what the Wireline business is. Is that a shift in our management approach from sort of the historical cable RGU approach to the business? Of course it's a shift. It's part of how we've reengineered the whole company in the next 6 months -- I mean in the last 6 months, and so you'll see that throughout F '19. To my comments to Jeff, I think you'll see a very balanced approach to the marketplace. I think you'll see us grow revenue by small amounts at a steady basis with decent improvement in gross margin and significant improvement in overall Consumer profitability, and I think that bodes well for the future of our company.
Okay, and one last question on this topic, and I'll move on. What's the marginal contribution? Can you help us understand how much is TV RGU losses affecting EBITDA in marginal -- the marginal impact? Because when you're looking at the mix, so with a minus 30,000-something TV, it's hard to see how that can be made up with mid-single-digit Internet growth unless the mix is really lopsided on the margin side.
Yes. And I mean, I think it's a helpful question. And you can see we're making lots of changes in mix to the marketplace. We, in F '18, saw a material degradation of our cable video margin, and we saw a significant increase, obviously, in our Internet revenue, all of which drives the margin in F '18. That ended up being a degradation of overall gross margin, and the offset in F '19, we plan on improving gross margin. I think you can do the math. I'm not sure it's totally helpful for you -- me to give you the actual gross margin numbers, but they are significant. We saw a slight decline in satellite video margin, but it really wasn't the problem. The problem was, overwhelmingly, cable margins. There's no question, we didn't help ourselves. We drove to choice packaging in the world where our cost structure really doesn't facilitate gross -- choice packaging with penetration base-rate parts and so forth. So I mean we got squeezed badly F '18 in video, both on loss of customers and loss of margin. And when...
And loss of ARPU.
And loss of ARPU. And when all those are headed in the same direction, you can appreciate the magnitude. And as you can see, Internet didn't fully offset it -- offset that.
Okay, that's -- and sorry, just one last question. On your guidance for '19, how should we look at the growth year-on-year, the 4% to 6%? How is it split, let's say, first half versus second half. Is? Is it early? Is it back-end loaded, front-end loaded? How can -- just helpful on that. That would be good.
There's -- it's a little bit more back-end loaded, Maher, but not to the extent like it was in F '18. We do have some of the investments -- timing related to those investments of both the VDP, sort of net investments in technology and automation and things that Jay said. A lot of those are coming in, in the first half of '19, so you will see a little bit of additional operating costs in the Wireline business in Q1 versus the run rate in Q4, but not to the extent that's -- that this year was, in terms of '18, in that volatility in the quarterly split.
Okay. And this guidance of 4% to 6% is based on the current accounting standard, or on IFRS 15?
It's the same under both.
Okay, so no change. Even though subsidies on handsets is quite high on -- in your current situation, it won't affect the growth percentages?
Correct.
The next question is from Rob Goff with Echelon Partners.
It would be on the recurring revenue side of things. Could you give us a bit more perspective in terms of the Consumer rate increases? I think you noted that it added an incremental $4 million during the quarter. What was the timing of that perhaps and the component mix of that? Second question would be on the Business revenues. Ahead 6.6% on the quarter, you attributed that to the SmartSuite. Could we look forward to greater momentum behind that product suite?
Yes, Rob. It's Trevor. Just on the rate adjustments that were implemented June 1, they were about $21 million in the quarter, sort of Q4 versus Q3. And just for benefit, it was about $12 million on Internet, $6.5 million on video and roughly $2.5 million on Home Phone. So that was the rate adjustments, and you saw that really flow through the quarterly Q4 revenue versus Q3 revenue. Most of that was driven by those rate adjustments. I think we delivered $19 million in total, but it was $21 million offset with a little bit of migration from customers.
And Rob, this is -- we've got real nice momentum, Rob. We've got a SmartSuite of services and greater opportunities in enterprise. In our maths, though, it's a little offset by our one legacy business, Shaw Broadcast Services, that relays satellite services for broadcasters. That is obviously in structural decline. So if you look at the rest of the business, we're looking much more like high single-digit increases. I can't tell you how I love the energy of the Shaw business teams, and we had a record sales month in August. Of course, that leads us a couple months down the road on revenue, but we've got rate momentum on Business. And when we talk about our lowering Wireline to 19% capital intensity, we're certainly still continuing to increase our success-based spend on Business, so that mitigation is on the -- becoming way more effective in our capital intensity on the Consumer side. Super excited about the story in Business. I mean, things are going so well on Wireless. We don't talk about Business very much, but we are committed in F '19 to have all 3 business units contribute positively to our operating plan and have all 3 business units be very successful.
The next question is from David McFadgen with Cormark Securities.
So first of all, just on Wireless, when you talk about expanding into new markets in Western Canada to capture an additional 1.3 million customers, are you moving into rural areas? And what is the ultimate ambition here in terms of your footprint in Western Canada? And then secondly, on Wireless, could you tell us about what are the gross adds ARPU is? Just wondering where that's tracking because, obviously, it has implications for Wireless ARPU growth.
Dave, it's Paul. Thank you. Your -- I wouldn't characterize our ambitions as rural in Western Canada. The markets that you'll see us move into this -- in this coming year are places like Victoria and Red Deer and Lethbridge, some major markets that we're not currently covered. So we're very excited to be able to bring Freedom service to those markets and think that we'll very quickly achieve a good share of gross adds in each of those places. On gross adds RPU, yes, our inbound subscriber cohort is coming in -- as I said, in the last couple months, it's come up by about $1.50, so it's in the low 50s, and that's on MRC, so I'll be careful on characterizing that between -- in ARPU. There are some discounts that sometimes apply, and then there's also things like roaming and other charges that will -- could kind of push in the other direction, so characterize that as probably MRC equating to about ARPU. But we're very pleased with the numbers we've seen, particularly since the July rate changes.
Okay, and if I just have a follow-up, just on the cable video ARPU. Like if you look at Comcast, they've characterized their video sub losses as traditionally lower ARPU. Would you say that as well for you, that any cable video losses you're experiencing are more on the lower end of the ARPU range?
There lots of moving pieces in terms of our video ARPU. I'm not I would say it in exactly that way. I think there is no question that the future of our business and our whole F '19 strategy is that we're going to lower our cable video churn and add a lower number of gross sales but much higher value customers in video. So I would certainly say it that way. Maybe that's a little bit of a spin of what you just said, David, but I wouldn't characterize it quite the way you said it out loud.
Mr. Shaw, there are no questions at this time. This concludes the time allocated for today's conference call.
Great. Thank you, operator. Thanks, everyone, and we'll talk to you in January.
Ladies and gentlemen, you may disconnect your lines. Thank you for participating, and have a pleasant day.