Cogeco Communications Inc
TSX:CCA
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
51.18
71.96
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Cogeco Communications Inc
You don't have any saved screeners yet
Good day and welcome to the Cogeco Inc. and Cogeco Communications Inc. Third Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrice Ouimet. Senior Vice President and Chief Financial Officer of Cogeco Inc. and Cogeco Communications Inc. Please go ahead, Mr. Ouimet.
Thank you. So good morning, everybody, and welcome to our third quarter conference call, which Philippe Jette and I will present. So as usual, before we begin this call, I'd like to remind listeners that the call is subject to forward-looking statements, which can be found in our press releases issued yesterday. I will turn the call over now to Philippe Jette.
Merci, Patrice. Good morning all, and thank you for joining us to discuss the financial results of Cogeco Communications and Cogeco Inc. Let me first note that we're satisfied with Cogeco Communications' overall performance for the third quarter of fiscal 2021, which is in line with expectations at both our Canadian and American broadband segments. On the media side, for the first time since the start of the pandemic, our radio business has grown with a 23.6% increase in revenue and a significant improvement in our EBITDA margin. With the gradual loosening of restrictions and the economy opening up again in Quebec, we are optimistic about the future. So all in all, these results position us well to start our fiscal 2022 on a strong footing. Before going with the specifics in our segments, I'm excited to discuss our most recent announcement from our U.S. broadband subsidiary, Atlantic Broadband, that entered into a definitive agreement 2 weeks ago with WideOpenWest, known as WOW!, to purchase all of its broadband systems located in Ohio. The WOW! Ohio systems has approximately 688,000 homes and businesses in Cleveland and Columbus, and serve approximately 196,000 Internet, 61,000 video, 35,000 telephony customers. For the 12 months ended March 31, 2021, revenue was USD 244 million and pro forma adjusted EBITDA would have been USD 103 million, including adjustments to reflect the expected cost structure of ABB and the run rate synergies. This acquisition allows to add significant scale to our growing and profitable U.S. broadband business. It is a strong strategic fit for the company as it is complementary to ABB's existing footprint and capitalize on existing platforms. Under the guidance of Atlantic Broadband's experienced management team, we are in a unique position to grow our customer base, revenues and EBITDA to pursue our market expansion strategy. In Canada, the Canadian Radio-television and Telecommunications Commission, the CRTC, rendered 2 important decisions during the quarter. These decisions were balanced, demonstrating a regulatory approach that takes into account the importance of investment to the expansion of communication services and competition. They provide more certainty for both our wireline broadband network expansion investments and our plan to enter the wireless market in Canada under the right conditions. Regarding wholesale rates for Internet services, the CRTC's May decision to maintain the 2016 wholesale rates provides a more stable regulatory framework. This decision helps ensure continuity in our current and planned investments to increase access to high-speed Internet in underserved and unserved communities while we wait for the CRTC's decision following their review on the methodology to establish fair rates. Separately, Cogeco also welcomed the CRTC's decision on mobile wireless to allow regional players investing in telecommunication infrastructure and spectrum to access the wireless networks of Canada's dominant providers. This new regulatory framework is very similar to the one Cogeco advocated for years where investments can be gradually deployed as a new entrant gain market share. Very shortly, a couple of key milestones will be reached as the incumbents file their wholesale terms and conditions and the results of the 3,500 megahertz spectrum auctions are known. Fiscal 2022 should be a landmark year with the integration of the recent Ohio acquisition, the continued expansion of our network in Canada and in the United States and a possible entry into the wireless business. In Canada, we have a rare opportunity to expand our network in underserved and unserved areas with the support of governments at various levels. The areas we are building could not be done economically on our own and will help close the digital divide. In the United States, there is an opportunity at the moment to accelerate network expansions in areas with good demographics and growth potential. The areas we plan to build in the U.S. can be done economically on our own and will also contribute to close the digital divide. Let's now look at Cogeco Connexion. The integration of DERYtelecom, acquired in December 2020, is progressing as planned. All employees have now been integrated into our Quebec operations, and primary network interconnections have been completed. The overall EBITDA performance is slightly above our initial expectations, driven by favorable Internet revenue and the identified cost synergies are being gradually realized. Over the course of the third quarter, Cogeco Connexion announced several network expansion projects. First, we announced on March 22 that we will carry out 13 fiber-to-the-home network expansion projects to connect more than 54,000 homes and businesses in Quebec. We also recently announced that we would connect 3,500 homes in Ontario. Our expansion into rural areas with financial contribution from the federal and provincial governments represents a unique opportunity over the next few years to connect households in more rural and remote areas. So far, we have secured government funding for more than 80,000 homes passed, which we plan to build over the next 3-year period. We expect to increase homes passed by approximately 3% in fiscal 2022. And since we expect to be awarded government funding for further network expansion projects in Ontario over the next year, homes passed additions for fiscal 2023 could be as large as in 2022. Cogeco's deep roots in regions and rural communities should continue to contribute to our success in securing grants to help close the gap in high-speed digital access. And true to our commitment to offer the best Internet experience to our customers, Cogeco Connexion has launched an enhanced WiFi solution. This solution includes pods, which improve WiFi propagation to further optimize the customer WiFi experience inside homes and businesses. In the coming months, we will further enhance this WiFi experience. Looking ahead, some of our key priorities at Cogeco Connexion for fiscal 2022, we are committed to continue delivering the most reliable connection at all times; committed to save our customers' time by answering we answer their needs right from the start; to expand the distribution of EPICO, our IPTV solution; to expand our network, bringing the Internet to more unserved and underserved areas; and to increase our marketing efforts to become the #1 brand choices. Now turning to Atlantic Broadband. We are also very pleased with the strong financial performance in the quarter, where EBITDA has grown by 8% in constant currency if you exclude the nonrecurring gain on disposal of assets disclosed last year. This strong performance was achieved despite a higher level of marketing and advertising investment as these expense were deferred to the second half of fiscal '21 in the context of the pandemic. Similar to Cogeco Connexion, ABB is also planning to be more active with network expansions. Some of those expansions will be network builds in underserved or unserved areas supported by government grants. However, we expect the bulk of expansions to be in the form of fiber-to-the-home edge-outs in adjacent cities with solid demographic and economic growth. As we have been successful with our network expansions in Florida for some time, we intend to replicate such a model in other states which generally have less competition. We expect to increase homes passed by close to 7% in fiscal '22, a pace which could be realistically pursued in fiscal '23 as well. We continue to be very pleased with the progress of our broadband first offer strategy, which has contributed to continued improvement in the gross margin. The speed mix we are selling with a high proportion of speeds of 400 megabit per second to 1 gig shows that today's customers see the value of high-speed Internet. The modular design of our offer resonates with customers because of its transparency and flexibility so customer can select the product they prefer. Priorities for fiscal 2022 with Atlantic Broadband. We will focus on the integration of the Ohio acquisition by welcoming our new colleagues into the ABB and Cogeco families and by quickly integrating the integration of technical and operational systems. We will also be active in network edge-outs. We will continue to implement and refine our new broadband first offer strategy. And we will accomplish all this with focus -- with our focus to remain on putting customers first with a highly engaged and committed workforce. As for Cogeco Media, we are optimistic about the radio outlook as the Quebec economy is recovering and we see the continued commitment of our listeners as many of our stations were at the top of the spring Numeris ranking. For our Montreal talk station 985, for example, it was ranked once again the most listened to radio station in the country. We are also pleased to welcome our new President of Cogeco Media, Caroline Paquet, who joined our team on July 5. Caroline's successful track record has spanned over 25 years and has earned her a high degree of credibility in the field of media and marketing. I will now turn to Patrice to present our financial results.
Thank you, Philippe. So revenue at Cogeco Communications is up 8.8% and EBITDA, 5.8% in constant currency when we compare to the same quarter last year. This was driven by EBITDA growth of 6.4% at Cogeco Connexion and 5.9% at Atlantic Broadband. Free cash flow increased by 14% in constant currency. The increase is mainly due to higher EBITDA, the decrease in financial expense and a onetime adjustment to the current income taxes in Quebec, which harmonized with the federal legislation on accelerated tax depreciation. Capital intensity in the quarter was essentially stable at 20.3% when compared to last year. We are confirming our fiscal 2021 financial guidelines. On a constant currency basis, we continue to expect mid- to high single-digit percentage growth in revenue and EBITDA, and low double-digit percentage growth in free cash flow. As mentioned, we purposely deferred some sales and marketing activities to the second half of the year as we gradually return to more normal operations and exit the pandemic. These expenses have impacted the EBITDA growth in the third quarter, and we will -- and will continue to impact the fourth quarter as well. We expect low single-digit growth at Atlantic Broadband in the fourth quarter due to these additional expenses and also last year's political advertising, which was high and is not expected this year. At Cogeco Connexion, we expect the fourth quarter to have similar EBITDA as last year, which means that we expect a decline in EBITDA when excluding the DERYtelecom acquisition, as we recorded $4 million in last year which related to some programming costs and also some pandemic-related costs that we were not incurring last year. In addition, we will be delaying some rate increases until the fall this year, so that will make a difference comparing the 2 quarters. We are maintaining our CapEx intensity guideline at 20% for the full year. And as per share buybacks, Cogeco Communication purchased 414,000 shares in the quarter for $49 million. Now let's look at the individual components. So Cogeco Connexion revenue increased by 10.2% in constant currency relative to the same quarter last year, while EBITDA increased by 6.4%. Excluding the impact of DERYtelecom and also the impact of a $4.6 million retroactive charge related to the CRTC's decision on wholesale Internet rates, revenue in constant currency would have grown by 3% and EBITDA by 1.6%. Organic revenue growth was attributable to the cumulative effect of the sustained demand for residential high-speed Internet since the beginning of the pandemic, resulting in higher customer additions and customers transition to higher-value offerings as well as rate increases implemented for certain services. The organic EBITDA growth was lower than last quarter but was expected due to the higher marketing and advertising expenses, which I mentioned before. The broadband customer additions were modestly lower compared to last year, but ARPUs were higher due to more sales of higher tiered products. The video product losses were lower than last year, partly due to our IPTV launch. And finally, the phone losses were in line with historical trends. Now turning to Atlantic Broadband. Revenue in constant currency increased by 7.2% in the third quarter compared to last year, while EBITDA increased by 5.9%. Excluding the disclosed nonrecurring gain we had last year of $1.7 million, the EBITDA would have grown by 8% in this quarter if you exclude that gain. Organic revenue comes mainly from higher residential Internet service customer additions, rate increases implemented for certain services and also strong growth in our business sector. Similar to Cogeco Connexion, Atlantic Broadband incurred some higher marketing and advertising expenses in the quarter as these expenses were deferred to the second half of the year in the context of the pandemic. Broadband customer additions were higher than last year due to continued strong demand for the product and the successful launch of our broadband-first new offer strategy. The video customer decline is mainly related to the new approach, the broadband-first approach, and the fact that we don't offer video-only services anymore, except for bulk units. And the phone product decline was relatively modest. Now let's take a look at Cogeco Inc. In the third quarter, consolidated revenue increased by 9.3% and EBITDA by 6.2% in constant currency. The broadband and media businesses both contributed to strong results. Even though the media business continue to be impacted by the pandemic, we are noticing an encouraging recovery. Revenue related to the radio operations increased by 23.6% in the third quarter compared to last year, which has been significantly impacted last year by the pandemic. I will now discuss the Cogeco Communications preliminary financial guidelines for the upcoming fiscal 2022 fiscal year, which exclude the impact of the recently announced acquisition of the Ohio cable systems from WOW! as the acquisition is expected to close only in the first quarter. We will be only in a position to update the guidelines for that acquisition once we know the closing date. On a constant currency and consolidated basis, Cogeco Communication expects to grow both revenue and EBITDA in the range of 3.5% to 4.5%. The DERYtelecom acquisition, which was completed in December 2020, should contribute about 1% of this growth as next year will include a full year of operation. At Cogeco Connexion, we expect mid-single-digit growth in revenue and EBITDA, resulting from low single-digit organic growth and the impact of the DERYtelecom acquisition. The organic growth should stem primarily from strong demand for residential Internet and the upselling of customers to higher tiers as well as the recent launch of the IPTV product. At Atlantic Broadband, we expect mid-single-digit organic growth stemming from an expected continued demand for the residential and Internet product, helped by our broadband-first strategy and the post-pandemic business growth opportunities. We expect quarterly comparisons to be somewhat the inverse of this year, and we will be comparing a more normal year post pandemic with a year where we concentrated our sales and marketing expenses in the second half of the year. For that reason, next year, we expect the first half comparisons to be weaker than usual and the second half to be stronger. Organic revenue comparisons in the first quarter of fiscal 2022 are expected to be the lowest since Cogeco Connexion is delaying some of its rate increases, and Atlantic Broadband expects lower revenue from political advertising. And as I mentioned, we intend to invest more in normalized sales and marketing expenses next year in both countries. And let's remember that the first 2 quarters of fiscal 2021 in both countries had exceptionally strong year-over-year growth. Now turning to capital expenditures. We are planning for capital expenditures in the $690 million to $720 million range, which includes $230 million to $240 million in network projects. And these numbers are net of government subsidies, which are primarily related to the expansions in Canada. This will result in a capital intensity of approximately 27%. And excluding these expansion projects, it would be about 18%. The network expansions will result in higher capital intensity in both countries, but are necessary to see a unique window of growth opportunity. This expansion should add approximately 3% to our homes passed in Canada and 7% in the U.S. during the year. Now since these projects will take most of the years -- the year to build, both business segments expect the growth in homes passed to be towards the end of the year. Our free cash flow on a constant currency basis should decrease between 30% and 35%, mainly due to the growth in network expansions next year. Excluding these expansion projects, the free cash flow on a constant currency basis would increase by about 13% to 18%. The recently announced Ohio acquisition will increase our estimated pro forma leverage to 3.1 turns of EBITDA at closing, which is a level we're comfortable with and should allow us to pursue our dividend strategy as well as our share buyback program. Now at Cogeco Inc., we also expect to 3.5% to 4.5% revenue and EBITDA growth next year and a decline of 30% to 35% in free cash flow. Excluding the network expansion projects, free cash flow on a constant currency basis would otherwise increase by 13% to 18%. Now I will let Philippe provide his concluding remarks.
Thank you, Patrice. As you can see, fiscal 2022 looks very promising. Our businesses are on very solid footing. We are particularly excited by the network expansion opportunities, which should accelerate growth in fiscal 2023 when we are done with the first wave of construction at the end of fiscal 2022. Finally, I would like to give an update on Cogeco's commitments with regards to environmental, social and corporate governance. We recently unveiled on our website and through social media our company's commitment on diversity and inclusion. While Cogeco's action have long added social inclusion at their core, we are now making public our stance on the importance of diversity and inclusion and committing to continued actions on this front. In addition, we were honored to be recognized by Corporate Knights as one of Canada's top 50 Corporate Citizens for the fourth consecutive year with a new high, a 22nd ranking position. For a second year also, Cogeco received a Caring Company Certification from Imagine Canada, which recognizes outstanding leadership and community investment and social responsibility in Canada. We are proud of these recognitions and acknowledgments as we continue to strengthen and invest in our corporate social responsibility practices ensuring the company operates responsibly and sustainably. Now we will be happy to answer your questions.
[Operator Instructions] Our first question comes from Aravinda Galappatthige with Canaccord Genuity.
I'll start with a couple of clarifications for Patrice on the guidance. First of all, for 2022, Patrice, can you just confirm that given there are obviously fairly different exchange rates, 1 34 for 2021 and 1 27 for 2022. I just want to make sure that the 3.5% to 5.5% revenue growth you are projecting does not have any sort of FX component to it, given it's sort of constant currency? And also you mentioned Q4 low single-digit growth in ABB. I just wanted to make sure that's in Canadian dollars, that's not constant currency.
Yes. Aravinda. So yes, the way have to look at FX because obviously, it's changed a lot since last year, is you have to look at this year. We always provide guidance in constant currency. And then once, obviously, we will report the fourth quarter on the next quarter, but you already have 9 months in the year. We expect the full year FX in 2021 to be about 1 27. Obviously, there's still 1.5 months left. And we are using the same rate to provide our guidance next year. So if the rate stayed at 1 27, then you would end up with the same numbers basically. I don't know if that answers your question.
Yes, it does. And on Q4?
Yes. So in terms of the Q4, my comment is actually in constant currency for ABB. So it's a U.S. dollar comments. And again, primarily due to -- so due to the fact that we're going to increase significantly the sales and marketing expenses in Q4 versus last year. And last year, there was an election, obviously, during the quarter. And when this happens in the U.S., we do end up with special advertising during this period, which will not happen this year -- next year, sorry.
That's perfect. And then a bigger picture question. When I listened to the call and I just think about all the initiatives you have going, there's a lot of growth programs that's operating in parallel. You've got the M&A in the U.S. You've got network edge-outs that you've talked about. And I know that Canadian Wireless is also a prospect. So in that backdrop, any comments around how we should think about sort of balance sheet management there? How are you thinking about -- are you open to other options? I mean you have a structure under ABB that includes the case, I mean, clean equity. I don't know if that's something you consider. Can you just give us a sense of how you think of sort of managing all these initiatives?
Yes. So as we disclosed when we announced the WOW! transaction, we announced that pro forma, the transaction, we would be at 3.1 turns of debt to EBITDA. Our long-term target has always been 3 turns. So it's not too far from that. And before the WOW! transaction and what you're seeing in this -- these reported results, we're actually quite below our target. So we do feel actually that we're able to fund all these projects within our guidance. And as we make acquisitions, typically, we're able to lever up higher than what our long-term target is. And we've done so in the past. We've levered up all the way to close to 4x. And our goal generally is to keep our ratings on our debentures. And as we stay within this band, sub-4x, we are normally fine managing it. So that's why we don't foresee a need at this time to make something different in terms of what you're referring to equity infusion.
And last question on the Canadian cable -- Can you just give us a sense of -- and I know that the sector has been enjoying has sort of been into that upgrade cycle because of the lock -- of the work-from-home conditions. Is that still spilling over? Are you still seeing that cycle play out even as we sort of come out of these lockdowns? And on the promotional side, at least our surveillance suggests that things are still quite not within a band, certainly not out of control between Rogers and [ Dow ] as well. Is that sort of your observation as well?
Yes. So obviously, there was a period of time in the early part of the pandemic where our -- let's say, our additions to subscribers was higher than usual. That had to do with some people connecting their house. Some people did not have a connection in their house. And some people moving from slow DSL to our high-speed Internet. I would say, obviously, that we've been in this for a while now. So I would say we're more back to normal at this point. But the business is doing well. So it's -- I wouldn't say there's a reduction foreseen. But I would say we're more back to normal and more normal growth from that standpoint. In terms of promotions, I would say it's always been a competitive industry. I think your question was on Canada. It's always been a competitive industry. It's been throughout the pandemic as well. That being said, because of the pandemic, some of our sales channels, and it was true for other players as well, could not be used, including door-to-door agents. This is restarting now. But I would say -- I would not say that there would be a much different pattern than what we've seen in the past few months.
Next question comes from Vince Valentini with TD Securities.
I want to try to clarify some of these edge-out and rural expansion numbers because there was a lot of them. So I think if I take a 3% increase in Canadian homes, that would be about 59,000. And a 7% increase in U.S. homes would be about 65,000. So can we add those 2 together and it would be about 124,000 new homes passed by the end of fiscal 2022. Is that correct?
Yes, that's right. On a combined basis, that would be right.
And the 80,000 figure that is basically just a different metric of how many homes in Canada have been won so far, but you won't build out those entire 80,000 by the end of fiscal '22. Is that correct, Patrice?
That's also right. Most -- I would say a good portion of it will be done in 2022, but some will spill over in the next year, in the following year.
Okay. And then in terms of the CapEx, the $230 million to $240 million, that is just your portion of the CapEx for those 124,000 homes. It doesn't include any of the government subsidy money. Is that correct?
That's also correct. It's on a net basis, and that's how we're going to report it as well for accounting purposes. The subsidies go against the CapEx. So it's always presented in that. So that's why we showed it this way.
So it seems a bit high compared to some of the other wins I've seen from other carriers. I mean, if you're spending $1,800 to $1,900 per home passed. And then the government is kicking in a big chunk on top of that, some of the figures from other carriers seem to be more well below $1,000 per home is what they have to spend. So I just want to make sure it's right. You're spending $1,800 to $1,900 per home passed to get these new homes?
Yes. So we -- obviously, every project is different. There are some in Canada, some in the U.S. as well. In the U.S., there's less government subsidies. Whereas in Canada, most of them are with the government subsidies. We do include, though, some additional costs. So there's some cost to connect houses from the street. We have some CPEs in there as well because this is what we're planning to spend next year in these new areas. So it's not always very comparable. If a distributor will use only the network costs without the connection and the success-based CapEx. So we did include some success-based CapEx in these numbers, which explains part of the difference.
Okay. That's helpful. And last one is just to be clear, your 3.5% to 5.5% revenue and EBITDA growth guidance, you're assuming 0 contribution from these new homes, like none of them will be connected by May, June of next year so you may get a quarter of the year with some subscribers hooked up? You're assuming that 0 within the guidance?
Yes, that's right. It's -- we've assumed 0 because most of it will come at the end of the year, and then you need to start connecting people. And when we look into the following year in F '23, then obviously, we're going to start seeing some revenues because we have plans to -- it takes a couple of years to attain your run rate -- The first year, typically, you'll have some ramp-up during the year, obviously. And on the EBITDA front, you have some costs also, you do some marketing as well. So I would say the major impact of these builds will be in F '24. But we'll see some of it in F '23 to a limited extent and none in F '22.
Our next question comes from Jeff Fan with Scotiabank.
Maybe just to follow up on a couple of questions on CapEx. Is it fair to say that this capital increment here, or any capital investment, does it include any wireless investment at this point for F '22? And then also regarding the subscriber take-up and penetration. I mean, I think most of you understand that these areas that you're expanding into both in the U.S. and Canada are pretty underserved or unserved and going in with fiber. So what should we assume for penetration going forward? I know it's going to take a year or 2 before you get to that full run rate. But I mean should we assume something very high, like well above 50% penetration once you're into these footprints? And then lastly, just from a pricing perspective, how did the rural broadband rates compare to urban? Our understanding is rural tends to be a bit higher just because of the higher cost, but you've got some subsidies. So how does that all balance in terms of the rates at the end?
Jeff, yes, on the CapEx, it's -- no, it's -- these are the expansion of wireline CapEx, so the [ $200 million ] and $240 million I referred to. So it's more traditional expansion with fiber to the home, as you pointed out. In terms of take rates, we are planning and we've added some information in the IR presentation to that effect as well. So we're planning in Canada to get to a 50% penetration rate. Our target is 3 years to get there. Hopefully, we can do better than this, but that's what we assume for now with unlevered returns in the mid-teens. So it's again, unlevered is an important word here, so mid-teens. In the U.S., there will be a mix of projects. Some are in areas that have very little competition, so underserved. And some come with government subsidies. But I would say the majority is not that case where it will be more competitive areas like we're doing in Florida, and we've been doing for many years as well. So for that reason, the target in the U.S. is 36% over 3 years as opposed to 50%. In terms of the -- and it would be a similar return as well. In terms of pricing, I would say we don't have major differences in pricing in Canada. In the U.S., it would be true as well, except in Florida when we get into bulk units, then usually there's more discounts because you're -- it's a quite different market and a lot of efficiencies on the capital front. But otherwise, I would say it's -- you should not assume a major change in our ARPUs.
Okay. And then just finally on capital allocation. You're now committed to the expansion in the U.S. with WOW! assets. You're committing to network footprint expansion both in Canada and the U.S. So that's a lot of capital to be deployed. In terms of what's next on opportunity, can you talk about the next set of priorities regarding capital allocation?
Yes. I would say our capital allocation is similar to usual. And it's basically to invest in our business. So grow our business, introduce new products, add capacity as well so we can sell higher tiers of services, and there's the IPTV product. So that's one area. Acquisitions has always been the case. I would say, obviously, with the Ohio acquisition, we should expect smaller transactions if they present themselves in the short term because this one is obviously a larger one. The network expansion is something we find is unique right now as these government subsidies are available to grow in areas where we could not economically do it in Canada before. We have to seize that opportunity. So that will probably last -- it will last more than 1 year. And we think F '22 will be probably the larger amount and then declining a little bit in terms of investments afterwards. But it depends on how many additional homes passed we win in the next few quarters as we're applying to a number of these additional projects. And in the U.S., we'll see, but we see an opportunity right now to go in areas where we are confident we can get good share and good returns. As for other projects, we'll have to see how they -- what comes. And -- but I would say that's what we're focused on right now.
And maybe just to clarify, are you not mentioning wireless because it's pretty low in terms of priority, because it's trending more in terms of return? Is there a reason why wireless is not mentioned?
Yes. For wireless, actually -- sorry, I forgot to mention it. It's one of our capital allocation priorities if we decide to get into it. I will not comment on spectrum auctions. As you know, I can't comment on this. But in terms of capital and fixed asset capital deployment, if we do get into it, we've always said and it's still true today, that we would like to invest as we grow and benefit initially from the MVNO regime and then invest in networks as we grow as opposed to day 1 for fixed assets.
[Operator Instructions] Our next question comes from the line of Jerome Dubreuil with Desjardins.
First question on your guidance. Again, the MD&A says that you expect benefits from work from home will continue after the pandemic. Does that mean you expect customers will stay on the plans they chose? Or do you rather mean that the pace of increased adoption and ARPU growth could be higher for longer?
Yes. So while it's difficult to tell, we don't expect major changes. I think the bigger change will be that we initially were able to add more subscribers than normal for the reasons I explained earlier to another question. But in terms of tiering and ARPUs, we do expect that people who have upgraded their speeds for doing video calls or whatever it is, we don't necessarily see a scale back afterwards. And it will probably be more of the -- was back to normal pre-pandemic in terms of future growth.
Okay. And then on the Biden executive order from last week regarding potential restrictions to maybe bulk units and contracts with landlords, what percentage of your U.S. business is based on that type of contract? And how do you anticipate this decision could impact the business?
Yes, Jerome. It's Philippe. Well, we do not anticipate material impact from the direction the Biden administration is actually guiding the FCC and other regulatory and policy bodies. We -- on the Canadian side, we've experienced many of these in the past. It's highly competitive and the regulatory structure in Canada is already more complex. So we're used to operate under these conditions, shall they come. But from what we have seen so far, we do not expect material impact.
[Operator Instructions] Our next question is from the line of Matthew Griffiths with Bank of America.
And sorry to stick on CapEx. But I wanted to ask if you could give us some indication about the split between -- the expansion CapEx between the 2 countries. And particularly, you mentioned that the 7% homes passed growth in the U.S. may continue the following year into 2023. So just curious if the level of elevated CapEx on the investment would continue at the same rate in that following year and what that level could be.
Yes. So the split for fiscal '22 is close to half and half. It's a little more in Canada, a little less in the U.S. with close to half and half. And that's why you're seeing -- obviously, we have a smaller base of homes passed in the U.S., so that's why you're seeing a bigger increase. As to future years, we'll have to see. It will depend on how the year goes and what we want to do. So we'll have to have that discussion a bit later on. As we see success in building and attracting customers, we'll adjust our level and interest in adding capital to it. But we do expect to invest some capital in F '23 as well. Is it going to be at the same level is still the question mark.
Matthew, maybe just to add a little bit to this. When we look at the demographic in some high-growth potential areas that are not very far from our existing footprint, we see a lot of options. But as Patrice just mentioned, we will go on a success base. We will certainly leverage a lot our financial discipline, but our very strong field operations, we are very optimist in our ability to operate at the field level and actually win market share and then grow from there.
Okay. Good. And maybe just one more. The U.S. seems to be ahead of Canada on the progress of reopening the economy. I think you alluded to in both markets, the sales and marketing expense picking up as you progress into the year and into the beginning of next. And should we see what's reported on your EBITDA margins for the U.S. as indicative of how the opening additional cost for sales and marketing will impact Canada as well? Or is it -- can you -- is there distinctions that you'd like to draw?
Well, there's not a major customer behavior between the 2 countries. It's more in relation to the market demographic and the competition level at the market level. So we have excellent products, really good customer service, and this is what really is making a difference. This customer during the pandemic has adopted higher speed in our services. We're expecting that, first, they will retain high-speed access. And second, the application space continue to deliver more and more application hungry, and the sweet spot now of the speed for -- in terms of tiering is between 100 and 500 megabits. So we can continue to support the high demand and keep people connected.
And Matthew, if I can add also on the margins, if I got your question correctly as well, in terms of margins in Canada, we are seeing next year to be in a similar place as this year. That's EBITDA margins. And in the U.S., we'll probably see an increase as we have introduced broadband-first. And it emphasizes Internet, a bit less video. Although we're going to introduce an IPTV product, so we're still believing in the video product. But still, we do expect more skewing towards Internet. That should benefit the margins. And when you compare the 2 countries, then it's a little different because the consumption of video is different in the U.S. versus Canada and the packages are typically bigger, more expensive. And that's why the EBITDA margins, naturally, are lower in the U.S. The dollars can be there, but the percentage is naturally lower in the U.S. than in Canada.
We have a question from the line of Drew McReynolds with RBC.
Yes. Just one real quick one for me. Just on the margin question. I know you related to some higher programming cost in the U.S. that cycled in this quarter. We don't talk about programming costs too often up here in Canada. But can you just update us on the dynamic of those costs? And obviously, your ability to absorb any inflation there?
Yes. I would -- just to be clear, my comment was more year-over-year or country-to-country, but this quarter did not have anything special in terms of programming. That being said, the programming costs are usually increasing every year. Obviously, we signed multiyear deals. So some years can be -- can have more renewals than others. We've seen years in the past where the cost on a subscriber basis was double digit, but I would say single digit now. So that's something we can manage. We do pass through those cost increases to customers as well. But at the same time, we try to offer flexibility to customers. And again, through our broadband-first approach and IPTV product, if customers want to allocate dollars between video and Internet, the idea is to provide that capacity to the extent we can control it within the guidelines of the content contracts we have.
I'm not showing any further questions at this time.
Okay. Great. Well, thanks, everyone, for being in today's call. So we look forward to disclosing our fourth quarter results in November and feel free to call us if you have any questions in the meantime. Thank you. Bye now.
This concludes today's conference call. Thank you for participating. You may now disconnect.