Shaw Communications Inc
TSX:SJR.B
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Shaw Communications Inc
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Thank you for standing by. Welcome to Shaw Communications Fourth Quarter 2019 Conference Call and Webcast. Today's call will be hosted by Mr. Brad Shaw, CEO of Shaw Communications. [Operator Instructions] And the conference is being recorded. [Operator Instructions]Before we begin, management would like to remind listeners that comments made during today's call will include forward-looking information, and there are risks that actual results could differ materially. Please refer to the company's publicly filed documents for more details on assumptions and risks. Mr. Shaw, I will now turn the call over to you.
Thank you, operator, and good morning, everyone. With me today are members of our senior management team including Jay Mehr, Trevor English and Paul McAleese. Our strategy in 2019 was clear: we were focused on growing Wireless and Broadband customers, improving execution and delivering stable Wireline results as well as managing through a critical year in respect to VDP departures. The industry shift to unlimited plans did not impede our ability to grow our Wireless customer base. During the all-important back-to-school season, we delivered the best quarterly subscriber results in the company history with approximately 91,000 customers added in the fourth quarter. Our success in attracting and growing the subscriber base is a product of our innovation, our improving and expanding network and our effective advertising and messaging to consumers. In July, we continued to expand our service offering with the launch of the Big Gig Unlimited and Absolute Zero plans anchored around device pricing as our advantage. The results of this strategy have been positive as not only did we achieve our new subscriber record in the quarter, approximately 30% of all postpaid activations in the month of August were on a $75 or higher service plan. Due to the success in our subscriber growth, which included postpaid additions of 280,000 in the year, our Wireless business surpassed $1 billion in annual revenues in fiscal 2019. We delivered strong service revenue growth of 24% and our Wireless operating margin improved to approximately 20%, both of which supported significant EBIT growth of 45% to over $200 million. The Wireless network team has done an incredible job as we continue to strengthen and expand the network. An enhanced network experience is a key driver of the material trend reduction that Freedom delivered in F '19. We are approximately 70% complete with our 700-megahertz spectrum deployment in the Western markets and this will continue to roll out as part of our F '20 plan. In addition, we launched Freedom Mobile in 19 new communities, the majority of which happened in Q4, and we now have wireless service available to over 18 million Canadians. In Wireline, we grew Broadband subscribers throughout F '19 including over 11,000 in the fourth quarter. We exceeded our targets with respect to self-install, which was above 45% of total activations in the quarter, and launched Shaw BlueCurve, regaining our position as a technology leader. Beginning in March, we launched our IPTV service, which is now available to approximately 70% of our video footprint. This is a key transition of our legacy video platform that supports our digital transformation and lowers our cost to serve customers. Our Business division delivered another year of strong revenue growth, fueled by additional product launches, including gigabyte Internet speeds and the continued success of our SmartSuite products with small and medium business customers. In F '19, Shaw Business was also successful in winning some key enterprise accounts, which is attributable to the strength of our product offerings, network and our focus on this segment. Our strong operational and financial results were accomplished whilst also managing through the significant change in our business via our digital transformation where we ended the year with approximately 70% of our VDP program complete. As a result of our focus on improving execution and delivering VDP savings, our Wireline margin improved 90 basis points to over 45% in F '19. We believe we are taking the right steps to grow and transform our business, to enhance our customer experience and improve our day-to-day operation for employees. This focus is driving significant operating capital efficiencies, and in F '19, we delivered adjusted free cash flow of $570 million. This is a remarkable 9% increase over F '18 when removing the impact of the Corus dividends. Both the asset realignment and the internal transformation in our business over the last several years has positioned us well, and we're entering a key inflection point with respect to our free cash flow generation. This is evident in our F '20 free cash flow expectation of approximately $700 million, enabling us to implement some enhanced capital return initiatives, which I will now turn it over to Trevor to discuss along with our F '19 results and F '20 guidance.
Thank you, Brad, and good morning, everyone. As Brad articulated, we've had a busy and successful year while making significant progress on several fronts. Full year consolidated revenue increased 3% to $5.35 billion and EBITDA of $2.16 billion grew 5% year-over-year. However, adjusting for both $15 million onetime IP licensing payment in Q3 as well as a $10 million charge related to CRTC regulatory matters in the quarter, our adjusted F '19 EBITDA increased 6.3% over F '18, which met our commitments and guidance. Growth in F '19 is driven by combination of continued strength in the Wireless business, stable Wireline results and the delivery of $135 million of total operating and capital savings under our VDP program. With lower capital requirements, particularly in our Wireline business, we delivered free cash flow of $545 million or approximately $570 million when considering the onetime impacts previously mentioned. This is a significant improvement over recent years, which saw us invest substantial capital to improve the wireless experience for our customers and to support the wireline networks to deliver faster speeds and new technologies. Our wireline network is stronger than ever with record-low congestion and is supplemented by state-of-the-art customer premise equipment that both improve the customer experience and reduces overall cost to serve. As we enter our F '20, our strategy remains centered around Wireless, Broadband and Business as the growth drivers and a relentless focus on delivering efficiencies through a more agile operating model. We're pleased to introduce F '20 guidance including EBITDA growth that is expected to range between 11% and 12% versus F '19 reported results. Our guidance reflects the adoption of IFRS 16, which, for us, commenced on September 1. We will apply the new accounting standard on a prospective basis, and therefore, we will not be restating F '19 results. However, we estimate the impacts from IFRS 16 on fiscal '19 is approximately $155 million, of which 55% is attributable to Wireline and 45% to Wireless. Removing these accounting impacts, EBITDA growth in F '20 is expected to range between 4% and 5%, capital investments are expected to be $1.1 billion and free cash flow is expected to approximate $700 million. Please note that both CapEx and free cash flow are not impacted by the IFRS 16 accounting policy change.Through the VDP program, we expect to deliver a total of $200 million in savings or an incremental $65 million over F '19 with the majority of the incremental savings this year arising from reduced capital expenditures. All VDP-related efficiencies are embedded within our F '20 guidance, and we remain confident in our ability to manage through the remaining departures of approximately 850 employees. We believe that F '20 marks a significant inflection point, and the strengthening free cash flow profile is concrete evidence that our asset realignment and evolution of our operating model are both yielding positive and meaningful results that are flowing to the bottom line. As we've gone through our significant transformation over the last several years, we've maintained financial strength and flexibility throughout. At the end of F '19, our leverage ratio stood at 1.9x and is the lowest among North American peers. On October 1, we repaid $1.25 billion of maturing notes through balance sheet cash, which, of course, had no impact on our leverage metrics.Considering our sound business fundamentals, strategy and focus on execution going forward, current leverage and strengthening free cash flow profile, we're pleased to announce some enhancements with respect to our capital return initiatives. Subject to TSX approvals, we will implement an NCIB program to purchase up to approximately $25 million Class B shares, which represents 5% of all issued and outstanding Class B shares. Through recent years where we made significant investments to drive our growth -- our long-term growth strategy, we maintained a healthy dividend, and we believe that an NCIB program is a flexible and efficient alternative to return additional capital to shareholders. With [ F' 23 ] cash flow expected to be in excess of our total dividend, we also plan to satisfy our share delivery obligations under our DRIP program by purchasing Class B shares in the open market, thus avoiding additional future equity dilution and creating synergies with the contemplated NCIB program. In addition to this change, we've also announced that we're eliminating the DRIP discount, which is currently at 2%, and we expect this will lead to a significant reduction in DRIP participation. We remain committed to the long-term dividend growth and are confident in our ability to generate sustainable free cash flow. However, we believe that the enhanced capital allocation initiatives announced this morning provide us with a more balanced and flexible approach to return additional capital to shareholders. I'll now turn it back to Brad before we open the line for questions.
Thank you, Trevor. I am very proud to say that we have built our company on the foundation of being a strong facilities-based service provider. Just earlier this week, Ookla released their latest Canadian speed test report where Shaw ranks as fastest ISP in all the cities listed within our footprint. In a separate monthly index compiled by Ookla, Canada ranks as 11th in the world for download speeds. Results like this speak to Canada's position as a technology leader creating consumer choice and effective sustainable competition while providing employment and advancing infrastructure and possibilities in our communities. Facilities-based competition from Shaw and Freedom is working and will continue to work for Canada. As an industry, we are all expanding and improving our networks. Consumers want more from their providers, not less. We can offer these services and introduce new ones because we have invested significantly in the breadth and quality of our networks on which these services so heavily rely upon. The recent regulatory environment creates unnecessary uncertainty that has the potential to do more harm over the long term. If companies can no longer have the opportunity to earn an appropriate return, they will change their investment profile, and therefore, innovation, services and technologies such as 5G, Internet of Things and the fundamentals of artificial intelligence will diminish, along with the service levels that Canadians have been accustomed to. Canada requires strong facilities-based investment to compete on the global stage. Since the announcement of the wireless MVNO hearings and the reduced TPIA rates, we have already altered our plans with respect to launching new higher-speed Internet tiers and additional wireless expansion beyond our current footprint. Throughout the regulatory process, we are hopeful that the government will recognize the critical role that facilities-based companies play in the ability to usher in new technologies and deliver better and faster services for all Canadians. Despite the recent regulatory uncertainty, we couldn't be more pleased with our strategy and execution. To the entire Shaw team, the progress we have made over the past number of years is absolutely remarkable, and it could not have been done without you. We have challenged each and every one of you in your day-to-day roles, and response has been overwhelmingly positive. Let's continue to build on our success and carry this great momentum in F '20. Thank you, operator. We're now opening up for questions.
[Operator Instructions] Our first question comes from Vince Valentini of TD Securities.
First off, can you just clarify, Trevor, the $10 million charge for the CRTC decision, that should be a hit to revenue, I believe, in your Consumer division? Or did you just book it as an expense?
No, it's an impact to revenue as well. It's actually split between Consumer and Business a bit. And just to be clear, Vince, it's about $6.5 million or so on revenue. In EBITDA, there was also another regulatory provision that we took as well to aggregate to $10 million. But it does impact revenue as well.
On the free cash flow, guys, congrats, $700 million is a great target to go for. Can you just clarify a couple of things for us? So you'll save about $70 million in interest costs from that bond you just paid off with cash. Did your guidance embed that you will refinance with some longer-term debt and incur other interest costs to replace some of that $70 million? Or is it full $70 million you expected to flow through? Second, can you just level-set us on restructuring costs and contract assets? Is there anything that we should expect to be materially different in those 2 lines in 2020 versus 2019?
Yes. Vince, I'm not sure if it's the full $70 million. We do expect some financing in here, so I don't -- there's not a $70 million decline in interest to get to -- that's driving the free cash flow growth. I think the driver of the free cash flow growth really is EBITDA growth of 4% to 5%, which is roughly $85 million to $110 million, and then of course, on capital. And the capital moderation, frankly, is about $100 million lower than reported F '19 results. That moderation is sort of split equally between Wireline and Wireless. On the Wireline side, some VDP-related savings and efficiency there. And our partnership with Comcast, I think, historically, maybe we haven't articulated the strategy well as we could have, but there's been some OpEx trade-off for significant CapEx efficiency through the technology road map and partnership that we've embarked on with Comcast and other global scale providers. Self-install is really working for us. It's about 45%, as Brad mentioned in his remarks, and we continue to see it accelerate. So there's real Wireline moderation. On the Wireless side, Brad mentioned in his opening remarks, it was a busy year on the Wireless side of things, expansion into 19 new communities, expansion into retail -- significant retail and that's sort of behind us. We're going to continue to plow through the $700 million, where about 70% is in Western Canada that will be done by the end of calendar year. And then in the East, it will be substantially complete or fundamentally complete by the end of F '20 as well. So there really is a moderation of capital, like Brad said. Maybe some of the capital within Wireless is a little bit -- holding a bit back considering some of the regulatory uncertainty that's in the market right now. But the free cash flow profile we're very proud of, and we continue to see that strengthen going forward.
And if I could throw one in for Paul, I'm sure there'll be lots of questions on Wireless, but I just want to ask you how are you thinking about competitive intensity right now. It certainly seems from the Rogers results earlier this week that they're hurting a little bit. If you look at your blended sort of lifetime value of customers over the past 3 months, let's say, I mean, if you factor in the ARPU you're getting, the likely increase in equipment subsidies given the Absolute Zero program and then the superior volume of subs you're adding, are you happy with where all those vectors line up? Or do you think yourself and the industry could be doing a little bit better if somebody got more disciplined and others followed?
Well, it's hard not to argue with you -- or not to agree with the last point. So I think by any objective measures, it's fair to describe Q4 as one of the most competitively intense periods the Canadian wireless industry has ever seen. You've got all of the incumbents launching unlimited, 2 of those guys being the largest media owners in the country. So we certainly saw some significant pressure over the course of the 90-day period. I would argue and I think you saw earlier this week that there is something on the lack of pricing discipline in the market really across-the-board. My perspective is unlimited [ gave out ] below the rate that they probably should have done, and certainly, the results you saw here this week probably support that. So overall, just in broad summary of your question, we still love what we're getting here. Absolute Zero for us was an absolute home run. We've been able to move 30% of our postpaid adds to a rate plan of $75 and above. We're including moving into the neighborhood of the premium brands and we saw that in our quarterly numbers. It was certainly an expensive quarter from a subsidy standpoint. But what we got in exchange for that trade was something we would take again and we'll do again. So we like where we are. There's probably 10 to 15 basis points of churn that I would put in the seasonal category and attributable to that intensity, but we expect that to moderate over the course of the next year and still see the churn for us is somewhere in that range of 1.3% to 1.35% over the course of the next 12 months.
Our next question comes from Drew McReynolds of RBC.
Starting with -- back to the Wireline side, maybe for you, Jay or Trevor. When you look at the trajectory of that business in fiscal 2020, obviously, a lot of recalibration and focus on base management over the past couple of years. Can you refresh us on what your assumptions are for the top line and the extent to which potentially you can get EBITDA margin improvement over the medium term? And then, secondly, a couple of housekeeping items. Just to confirm, Trevor, the growth guidance excluding IFRS 16 for fiscal 2020, that's off the $2.161 billion number? And then, secondly, just comment on the cash tax rate year-over-year, if there's any really major move there.
Okay. So there's lots there, Drew. I'll take the easy ones first. Yes, it is off. Just to be clear, the growth guidance that we gave is off reported results. And cash taxes, we expected -- sort of the last couple of years, it's approximated at around $160 million, we expect that to be about the same for F '20 as well. Maybe I'll start then on the Wireline, the first question on Wireline trends. I think F '20 is really going to be a continuation of our overall strategy to deliver growth through Wireless, but then also Broadband business while managing through the VDP exits in F '20. On Wireline, in F '19, we certainly delivered improved Broadband growth of around 35,000 subscribers. We expect this trend to continue, offset by clients in some other categories, in more maturing products like TV and the Home Phone. Overall, Drew, on the top line, if you look at Consumer revenue, it has been decreasing over the last 7 years at a rate of about 50 basis points. And frankly, we expect that trend to continue and maybe modestly accelerate a little bit as we -- there's additional OTT competition with Disney coming into the fall. Does that accelerate cord cutting or cord shaving a little bit? We're cautious on the Video business and then what it does from a revenue perspective. Traditional Home Phone is going to continue at its current pace of decline just due to Wireless substitution. And then on Internet revenue side, continued growth there. There's no doubt about it. But perhaps we're just going to really monitor the competitive dynamics that's happening out there specifically within the TPIA space as well considering a lot of the uncertainty there. That's all going to be offset by continued growth obviously in Business as well. We're targeting 5% again. And combining those two, really, F '20 looks a lot like F '19, which is sort of flat to maybe down a little bit on Consumer revenue is the way that we're running the business. And then from an EBITDA perspective, there's some VDP savings incremental $25 million of OpEx that we're going to deliver to the bottom line, but there are some incremental costs coming with our strategy, which is significant capital efficiencies. Again, just want to highlight the free cash flow and the simple free cash flow that's been generated out of the Wireline business, it's very impressive. But from a margin perspective, we continue to see opportunities, but there is going to be some offsets through VDP, through higher syndication costs with our partners, some of the outsourcing costs as we move to the cloud. That being said, if you look at sort of reported EBITDA growth rates at 2.1% on Wireline, 3.3% for the year, adjusted when you take out some of those onetimes, we continue to see Wireline growth this year and maybe a bit of Wireline margin expansion, but we do think that it's fairly modest. And it really is about stability and profitability again of the Wireline business is really the focus. And hopefully, everyone saw last year quarter-over-quarter, it was sort of anywhere between $490 million and $500 million, it was, really, in a quarter very consistent, stable Wireline EBITDA results and that's what we're focused as a management team again to deliver this year.
It's Jay, Drew, building on Trevor's remarks kind of qualitatively [ with some of the improvements of the ] F '19 process about focus on the monthly recurring revenue, focus on churn, growing our customers every quarter and some part of the team that did all through the things we set out to do. I think as we stand on that foundation F '20, it's all about customer data segmentation and selling the right product to the right customer. Our systems, our teams have become so much more advanced in this area. And you can see it in our strategy and in our CapEx, and you can see it in everything we do. And really driving that in of pursuit of customer value in F '20 and tremendous opportunity there makes matters a lot. So more of the same base management focus that you talked about, and we're going to continue to work hard on that point.
Our next question comes from Jeff Fan of Scotiabank.
Just a quick housekeeping before we get into the questions. On the CRTC $10 million charge, the revenue impact sounded like it was 6.5. What was the split between Business and Consumers? Can you just help us with that because it looks like Business revenue...
It's about -- sorry, Jeff, it's about $2 million in Business and the rest in Consumer.
$2 million?
Yes.
Okay. Got it. And then my question is one for Paul on the Wireless side. I think given what we saw with some of the incumbents' move in the quarter, you guys did a great job in attacking the handset pricing and you continued to leverage subsidies to get your old customers in. Sounds like you're quite happy with the results that you've got. And am I my right in reading that subsidies will continue to be an important part of your customer loading and retention? And then the second wireless question is around ARPU. 0.5% growth, that's great that it's still positive considering what we're seeing in the industry. But can you talk a little bit about the mix impact because of your strong prepaid and maybe even the loading in Absolute Zero and how subsidies may have impacted your service revenue? And how do we think about ARPU growth in 2020? And then my last question is for Trevor on the CapEx, $1.1 billion for next year. Do you think this is sustainable both on the Wireless and the Wireline side? Just want to make sure that this is not a 1-year kind of dip before we go back up.
All right. Jeff, it's Paul. Thank you. I'll take the first couple. On your question about the subsidy in EIPs, we have a very different view of the EIPs than some of our peers. I think it's worth spending a minute on kind of highlighting these extensions. First, I think other operators have described EIPs like they sort of magically removed hundreds of dollars of subsidy investment without any customer impact, and that's a remarkable oversimplification from our perspective. Simply put, EIPs, the way that they've been characterized in the Canadian market of late are really just a massive price increase wrapped up in a fancy financing bow. We, Canadians, are smart enough to do the math on that. It's painful. And when the incumbents launched their unlimited plans over the summer, they [ collapsed ] much of the rate plan umbrella that we saw. But their ambition to coincidently introduce EIP is to pay for those rate reductions has clearly not come to fruition. You saw it [ Exo and ASH data ] earlier this week. And I want to be clear about our strategy on subsidy. We're going to continue to use the best pricing to distinguish Freedom from our competition and we don't take direction from the competition on phone pricing. So the promise of the $75 unlimited plan and the subsidy-free EIP isn't the one that we plan on adhering to. We didn't make that promise, we're not going to keep it. Secondly, on point of ARPU, there's been a lot of interest and I understand that over the course of the last number of days. However, I want to be clear that for us, we continue to see ARPU as a growth metric in F '20. Our expectations are meet or exceed F '19 performance of this 3.2%. This is, of course, subject to continued rational competitive activity. But we're confident in that outlook because we don't really share the same ARPU risk profile that some of our peers do and specifically in 2 key areas: one is we don't have the exposure of overage revenue to lose that you see in kind of glaring terms this week, how gravity ultimately affects talks of revenue. And then early in 2020, we finally begin to reap the ARPU-accretive impacts of the 2-year iPhone cohort rollout of the subsidy amortization schedule. So it means that our ARPU gains for this year are very much second half F '20 story, Jeff, but we feel confident we can deliver that one through the course of the year.
And on the sustainability of the CapEx, Jeff, let me break into the 2 components. On Wireline, you saw we went from 24% CapEx intensity in F '18 to around 19% this year. And we continue to see that moderating, hence, sustainable moderation going forward. We don't see a step-down as much as we did obviously from F '18 to F '19, but we continue to see that more in that 18%. And some of the drivers there, Jeff, again is just our network is in fabulous shape to handle the loads in the traffic on our Wireline network. We've got IPTV now rolled out to 70% of our footprint, and that will continue throughout the year. There's significant capital savings related to that, not just on CPE, but more so, frankly, on our cost to serve and just our self-install. We weren't able to self-install the TV customer last year with the technology that we have out there. With IPTV, we can. And that's just, again, the benefit of -- the holistic benefit of the partnership with our technology providers being Comcast, so that's very sustainable. On the Wireless side, just in moderation this year as well. I think I talked about it with my previous response to Drew just on the overall free cash flow guidance. It's coming down a little bit this year. Some of that is because the activity we've done. Some of it is because we're a bit concerned with the regulatory environment. When Brad mentioned in his remarks we have some plans maybe on some corridors between some of the cities in light of some of the hearings kicking off in January, we just want to make sure that when we're spending capital within all of our businesses including Wireless, that we're going to get an appropriate return on that capital. So we have dialed that back a little bit and that's something that may, depending on the outcome and the environment, that may be something that there is some additional capital that goes into Wireless versus -- if we think about F '21 versus F '20 looking forward, but we don't see it being materially higher than probably the F '19 total capital that we spend of $385 million.
Great. If I could just ask one quick follow-up, Paul, on the ARPU. On the Absolute Zero customers that are coming in or migrating, what kind of ARPU are you getting, if you can share that?
Yes. I mean Absolute Zero is a little bit of a tricky way to keep track of because it has pretty significant accounting implications the way that we've got it structured, but the quick math on it, Jeff, is that just we bring those customers in on the $75 rate plan or above. Something around 40% of that gets booked in the month, so we hit consensus of EBITDA in the quarter, but that means we've done about 40% of the cost of that subsidy already in the books and behind us. Prospectively, it means that we'll then amortize the remaining 60-odd percent over the course of the next 24 months. So the ARPU coming in on those plans today is kind of in the high 40s. But important to remember that, that's over the first 24 months. When we roll into the 25th month and beyond for those subscribers, that ARPU reverts back to $75. So a lot of the benefit that we're seeing in our growth story really doesn't start to work into our math until a couple of years out. But we really like what we're getting on those subscribers, and that's the story we're going to continue to press into.
Our next question comes from Aravinda Galappatthige of Canaccord Genuity.
First question is on obviously your expansion on the Wireless side to a lot of the communities in the West, I think the total population is sort of close to 1.5 million. I wanted to get a sense of the different dynamics within those territories versus the areas you've been competing in. I mean would you characterize that as -- I know it's always competitive, but would you, relatively speaking, characterize that as more sort of a low-hanging fruit that could help sort of potentially ramp-up your net adds going forward? And then, secondly, with respect to the capital efficiencies that you talked about. Obviously, the 45% self-install numbers sort of jumps out as a key positive. I was wondering if you could give a little bit more color on that. Are you talking about all installs whether it's Internet TV or on a bundled basis, 45% being self-installed? And the proportion of savings that actually emulating from that?
Yes. 45% is of our total number of installs, and it's a fantastic result ahead of our target. We had a terrific back-to-school period. We were busy with back-to-school this week -- this year. And I got a text every single day from our VP of Operations wondering when the installs are going to come through, and I've not seen that in 23 years of back-to-school here. Self-install changes and everything. I think if you look at our success in terms of truck rolls and operational savings, it's easy for you to figure out the math. Important to note with IPTV, there's no in-home wiring as well and so there's real simplicity that comes with getting rid -- not using the cable in your house the whole [ plan has bought]. The promise that we talked about through the transformation is absolutely being delivered. And we're going to build off 45% this year and look at a much bigger number for that in FY '20. So you're seeing that in the free cash flow characteristics of our company now.
Aravinda, it's Paul. On the first question regarding the new markets in the West, just 1 million of the 1.4 million subscribers we added this year in terms of coverage were in the West. Great work from the engineering network team to build that out in such rapid fashion. I don't know if I'd characterize it as low-hanging fruit. You've sort of got 2 dynamics occurring at the same time. There's certainly pent-up demand and a lot of customer anticipation as we go into those markets. So we're met with open arms and we see some good early volume there. But the other side of it is that those -- the network and the brand are new in those markets, so they are subject to probably to some bedding in and we have to build each of those out in a way that makes them familiar in those markets. So I think that's probably about to push over the course of the first year that they're in the market. We love growth in the West in Wireless because it ultimately set us up when we bring the 2 businesses closer together, Wireline and Wireless, we love the opportunity that those markets bring us. So I think that story gets written a little more over time, but we're still happy with the initial results in those new markets.
And just a quick follow-up to that point. Are you still sort of in that, roughly speaking, 60-40 split with respect to east-west in terms of gross add?
So it's 70-30, Aravinda, which is in its historical level.
Our next question comes from Tim Casey of BMO.
A couple for me. But Paul, just on the subsidies again. I clearly get where you're coming from, but one of the pushbacks or the thrust the other operators are making that with the high cost of handsets is the subsidy model is punitive over the long term. I'm just wondering how you think about balance sheet management in that as high-end handsets are obviously quite expensive? And just one spectrum question. Any chance you could talk about how your plans are coming to deploy the 600-megahertz spectrum?
Thanks, Tim. We've used subsidy not in isolation. So if our perspective from reading from the customer outwards is more of total cost of ownership structure, so I understand the commentary around the price increases that we've seen in the market on devices, although that has moderated significantly with the launch of the iPhone 11 over in September. We've seen a pretty significant reduction in those entry-level prices, so there has been a bit of shift in the other direction. I'd perhaps provocatively argue that the significant decline we saw in the price of unlimited from the big 3 might have been prejudged to be perhaps a little too aggressive and a bit too early. That's going to be one of the things that factors into their overall cost of ownership as well. So we just don't look at devices in isolation. So from our perspective, we are very comfortable with the level of subsidy we're putting in the market. It has been coming down. It will continue to decline over the course of the year. And in the overall mix, we're happy with the blend that we're getting here. So I don't think there's much of a story there. EIPs that we discussed earlier on are not a magic cure to anything. It just all it has go into the math. And what we saw in August and continue to see is very strong consumer response. So we like our model and we're going to continue to press into it. On 600, I think it's early for that. As I think we mentioned on the last call, we'll continue to make sure that our infrastructure is ready for 600 when it gets unpacked from the broadcasters. So we'll be reporting more on that in subsequent calls as we get closer to the date.
Our next question comes from Maher Yaghi of Desjardin.
My first question is on the guidance. Looking at your 4% to 5% growth organic here, well, apples-to-apples, the range is quite tight, $20 million buffers on a total base of 2.2 approximately. What gives you this kind of level of granularity in terms of giving this outlook with such a small bracket? And I have a question on the initial cohort -- or I'll wait for your answer before I ask the question on...
Thanks, Maher. I mean hopefully, you saw it last year, live within our commitments. Even last October when we came up 2019 guidance of 4% to 6%, there was a lot of questions about that and whether that range was too tight or too conservative. And clearly, we had some onetime impacts that impacted the guidance, but we really delivered it. The management team here is laser-focused on execution and running the business on a daily basis looking at key metrics and KPIs and feel very, very comfortable about the budgeting process and the planning process that we went through in excruciating detail this year. So you're right, it's a fairly narrow range when you look at a company of our size, but we're very comfortable with the range. And we're going to go and deliver this year just like we did last year.
I'll pick up another way. It seems like you're so confident that you're giving this small range. So I'm trying to figure out what made you, let's say, not go to 6% if you had this kind of confidence in giving this range like not quite...
Yes. I think that's sort of the competitive environment. I mean we know where consensus estimates were at, they were above 5%, [indiscernible] didn't want consensus to stay where they're at. I think I walked through and articulated the realities of the Wireline business. But listen, we're very comfortable with the Wireline business and the free cash flow generation of the business. So I think -- I hope investors are really not just looking at EBITDA and EBITDA guidance range, but really focusing on free cash flow generation of the business. And yes, competitive dynamics in the Wireless business are intense. We just went through probably one of the more intense back-to-school periods, and so we do want to get over too much on Wireless as well whether it's growth in service revenue and flow through to EBITDA margins and margin expansion. So we're very comfortable, Maher, with the guidance range that we have out.
Okay. That gets me into free cash flow because I wanted to ask you a question on that, $700 million, and you said in your prepared remarks that you're embarking on a improving trend in free cash flow. And because of that, you started with NCIB and the DRIP change. What do we have -- if we look further out, what are the things that you like to see the company perform in terms of free cash flow growth rate beyond the $700 million in 2020? How should we look at 2021, 2022? Is that a continuous improvement in free cash flow that you're expecting longer term? Or is there something in 2020 with the CapEx being reduced like that, that is a onetime in nature?
No, I think I talked about it early on the Wireline capital side, again specifically with the strategy that we embarked on a number of years ago in the transformation. The CapEx savings are real, sustainable and we continue to focus on other efficiency opportunities in front of us well and a lot of those are on the capital side of things, so we feel very, very comfortable about the right level of investment in the Wireline business. And it's moderating, and we continue to see opportunities going forward. So we don't foresee any big CapEx spike. We did talk a little bit already about Wireless. Maybe we're holding a little bit back this year, but it's not that much. And we don't see any significant spikes in Wireless capital from, for example, the run rate that we delivered in F '19 of $385 million. So we continue to see EBITDA growth rates beyond F '20 and we continue to see all of that flowing to the bottom line in that combination of things that continue to generate strong free cash flow above our $700 million in future years.
Is it fair to say that you're holding back a little bit on Wireless because of what the upcoming hearing is going to bring out in terms of change or not in terms of policy in Canada?
Yes, a little bit. If i wasn't clear with my previous remarks, that's what we're trying to imply.
Okay. And my last question is on iPhone and I'm trying to figure out what you kind of implied in your guidance when it comes to the cohort of iPhone customers that you loaded closing in on 2 years now in end of November, early December? What kind of churn rate implied in that cohort versus the churn rate you're currently having in your base and the type of subsidy that you are implying to repaying those customers?
Thanks, Maher. It's Paul. I looked into the specific levels of that, but I will just give you a couple of guiding principles. First, anytime we have a customer in a 2-year device financing plan, we see a significant improvement in their churn profile, looking more in the sort of 1% range than in the 1.3% range. So when we report postpaid churn that, of course, includes BYOD, which has a higher churn profile. So you can always assume that we're looking up on people into a device financing plan because it has great characteristics on all fronts. When we launched the iPhone in December of 2017, of course, every month, we've been taking essentially another cohort of finance subscribers into our amortization schedule and have not had the benefit of customers rolling off that 24-month schedule. And if you just think about the life -- the average life of an iOS subscriber in Canada, it's 2.9 years according to Apple, which means that once they roll off the amortization schedule month 25 through, say, 35 -- 34, 35, they pop back up to their complete ARPU, so there's no longer an accounting impact to that. So it means that in December, January of this coming year, you'll start to see that first cohort roll off, that will be accretive to ARPU. It's not a big pop right out of the block because, of course, we're also adding people then behind it. But it means that our ARPU story starts to get incrementally better over the course of the last half of the year. And that's a benefit that we have that we're looking forward to. The other operators, of course, have already had that 24-month rule and we've still been filling up that bucket. So we have 3 or 4 more months left of filling it up and then we get to sort of start to take withdrawals from it, which is positive to our story.
Our next question comes from David McFadgen of Cormark Securities.
Yes. A couple of questions. Maybe I'll start the first one on clarification. Just on the 700-megahertz spectrum, did you say that as far as Western Canada goes, you'll be deploying that in calendar 2020? But Eastern Canada, you'll be done fiscal 2020? Can you clarify that?
I told you, David, with that -- Paul, just correct me, we meant calendar 2020 it'll be done by in Western Canada. And substantially complete in Eastern Canada by the end of F '20.
Okay. Okay. So calendar 2020 first one, F 2020 after. So just a question on Wireless. Post -- now we're in the Q1, have you seen any impact on your loading from the incumbent's unlimited plans?
Thanks, David. It's Paul. Probably the most significant impact we saw would have been in the early days of it as you had kind of an initial rush in that, that certainly impacted us as I indicated from a churn basis 10 to 15 basis points. So we saw an initial bit of activity there. We continue to like what we see for loading, both the quality and quantity. We've been very clear in kind of telegraphing that we look to have a balanced scorecard the way we manage the Wireless business, which means we're looking to do something in the area of 250,000 net adds over the course of each year and continue to have a strong revenue and EBITDA growth story, and we continue to be tracking nicely on that front. So I think for all the energy and initiatives that we face from the victory, we weathered that storm brilliantly through the course of the summer and continue to do so now.
Okay. And then a question just on the Wireline side of the business. When you look at the Video, the cable video losses, they seem to just kind of be hanging in at this rate. Is there anything in your mind coming on the horizon that could actually potentially lower them?
Yes. This is Jay again. I mean first of all, we were very pleased with our Internet loads and the right-on strategy for the quarter. We took a significant -- and we're very comfortable with what's happening in the satellite video space, and there's the natural seasonality, which you'll see in Q1. We've got ARPU of $84 in that right now and our business is very profitable, and that'll be a continuation of trend. But I think your question specifically about the broadband and cable video of significant loss 32,000 in the quarter and that really reflects when we launched our IPTV platform in 70% of our customers in the last 5 weeks of the quarter with some of them being launched with 2 weeks left in the quarter. So we're in a little bit of a technology change that we're holding our powder a little dry and also a little bit more focused on [ student ]. You probably have seen this week that we've launched our next-generation packaging called BlueCurve Total that really brings all of the advantages of the Comcast program, the very best of the Comcast road map to consumers. And so we're already seeing a significant uptake in that percentage of double-play installs this quarter as opposed to Q4. So we won't get ahead of ourselves. I mean the Video business is the Video business steady and we're steady as she goes in terms of how we're pursuing it. But we'd certainly be disappointed if we haven't another number like Q4 and Q1.
Great. Thanks, everyone, and we're really looking forward to FY '20, and we'll see you at the next call or talk to you in the next call.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.