Shaw Communications, Inc. (NYSE:SJR) Q3 2020 Earnings Conference Call July 10, 2020 5:30 PM ET
Bradley Shaw – Executive Chair & CEO
Trevor English – EVP and Chief Financial & Corporate Development Officer
Paul McAleese – President
Conference Call Participants
Vince Valentini – TD Securities
Drew McReynolds – RBC Capital Markets
Jeffrey Fan – Scotiabank
Aravinda Galappatthige – Canaccord Genuity
Maher Yaghi – Desjardins Securities Inc.
Welcome to Shaw Communications Third Quarter 2020 Conference Call and Webcast. Today’s call will be hosted by Mr. Brad Shaw, Executive Chair and Chief Executive Officer of Shaw Communications. [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. Good afternoon, everyone, and thank you for taking the time to join us a little later than usual on a Friday afternoon. We apologize for the timing of this call, which is clearly not ideal for those in the eastern time zone as we’ve had some scheduling conflicts we had to work around. However, we are very pleased with the performance of our business over the last 3 months and look forward to our discussion this afternoon.
With me today are members of the senior management team, including President, Paul McAleese; and our Chief Financial and Corporate Development Officer, Trevor English. With the threat of COVID-19 still present, I hope everyone and their families are keeping safe and healthy. It is hard to believe that just 3 months ago, we conducted our first virtual board meeting and investor conference call.
Fast forward to today, and we just wrapped up another virtual board session and the majority of our employees and Canadians are still working from home, navigating through an unprecedented environment. During this rapidly evolving and uncertain period, we delivered solid third quarter results that were better than our initial expectations. I am so proud of the exceptional performance of the network and our people during the last few months. The pandemic has been a critical lesson regarding the importance of our facilities-based infrastructure and the role that is played to keep Canadians connected in our economy running.
Approximately 75% of our staff continue to work from home and are doing so productivity. During the quarter, we introduced new products such as our fiber plus Gig Internet service, and we relaunched retail locations with increased safety standards. Shaw Business moved quickly to accommodate businesses who had to close their doors due to COVID, and we have rehired approximately 50% of the staff that were temporally laid off in mid-April.
In addition, we successfully assessed the debt capital markets at a very attractive rate to shore up our already strong liquidity position. I wanted to reflect on this tremendous work and take a moment to recognize all Shaw and Freedom employees that contributed to this performance. Your commitment to your colleagues, the company and to our customers are driving great results, and I’m so proud of our accomplishments during this time.
While we are working towards having employees return to the office and perhaps different or more flexible work arrangements on a go-forward basis, we are taking a slow and cautious approach with their continued safety at the forefront of our decision-making. As you have seen from our Q3 operating and financial results, COVID had an impact on subscriber activity in both our Wireline and Wireless businesses. However, the financial performance in the quarter was very strong, as Trevor will discuss in a moment.
Wireline performance was reflective of the critical nature of our connectivity services. While subscriber net losses increased in the quarter due primarily to lower sales activity and promotions, churn improved across all product categories, and our self-install performance continued to exceed our expectations, reaching 72% in the quarter.
Canadians stayed home, but they stayed connected thanks to our strong and extremely capable facilities-based infrastructure, such as our fiber plus network, the demands on the network have been extraordinary with traffic that increased as much as 50%. Throughout the surge in demand, our network formats was and continues to be exceptional.
We had no increase in congestion or material outages as a result of the billions of dollars of investment that we spend into building and improving our network over many years. These facilities-based investments have benefited Canadians immensely throughout this unforeseen crisis. We continue to improve our broadband infrastructure and services. And in the midst of COVID, we launched an even faster in Internet speed with the introduction of our new fiber plus Gig Internet plan. Available to over 99% of our footprint, this faster speed tier has already demonstrated its appeal to both new and existing customers, supporting the critical needs of Canadians during this difficult time.
In the early days of the pandemic and as a consequence of widespread business closures, some of our Shaw Business customers requested a temporary suspension of their business service. These accounts, which were primarily in the hospitality and resource sectors are slowly coming back on billing in the recent weeks. We are optimistic that as the economy continues to reopen, we are well positioned to accelerate Shaw Business growth as we have a relatively low market share and a robust portfolio of products and services that can support businesses as they look to manage costs in a post COVID environment.
Temporary store closures, which included approximately 90% of our corporate Freedom locations, combined with the stay at home requirements that were present throughout the quarter, significantly reduced wireless sales activity and lower postpaid churn to a record 0.96%. While the majority of our wireless retail network is now open for business, customer activity and store traffic has not yet returned to pre COVID levels, and it’s difficult to determine when customers’ typically shopping habits will reemerge.
Although our wireless financial performance was enhanced by our lower subscriber activity in the quarter, our strategy remains to scale the business. While COVID temporarily slowed sales activity, we remain confident in our strategy and believe that as Canadians emerge from the crisis, we are providing compelling value to wireless customers across our footprint.
Overall, we delivered Q3 results that were ahead of our expectations, reinforcing the essential nature of connectivity services and our ability to manage costs quickly and effectively in our business. That having been said, COVID and its related challenges will be a part of our story for the foreseeable future.
Accordingly, we continue to monitor the health of our business on a daily basis and remain agile in our decision-making and approach to serving our customers. Now I’ll turn it over to Trevor to discuss the financial results in more detail.
Thank you, Brad, and good afternoon, everyone. I hope everyone has been keeping well and enjoy your summer so far. However, I’m sure it’s a bit normal — a bit different than normal. As Brad highlighted, we are very pleased with the financial performance of the business this quarter during an uncertain and an unpredictable environment. At a consolidated level, revenue of $1.3 billion was approximately $10 million lower than the prior year. This was primarily due to lower wireless equipment sales. In fact, removing wireless equipment revenue from the equation, our consolidated revenue was up approximately 1.4% versus a year ago. Consolidated adjusted EBITDA increased over 15% to $609 million, which includes $38 million related to IFRS 16. Excluding the accounting impact, we delivered EBITDA growth of over 8%.
As we discussed on our last earnings call, our wireless business benefits financially in the near-term from lower customer activity. Despite some softness on roaming revenue during the quarter, we still delivered service revenue growth of 17% to $206 million, driven by continued strong wireless ABPU and ARPU growth of 5.7% and 2.6%, respectively.
Wireless delivered substantial adjusted EBITDA of $101 million in the quarter, which included approximately $18 million related to IFRS 16. The removing the accounting impact, Wireless adjusted EBITDA growth was a remarkable 57% increase compared to the prior year. Decreased acquisition-related costs, including subsidies, advertising and other sales and distribution costs contributed to this performance. The strong wireless adjusted EBITDA result is tangible evidence of the significant operating leverage in the business. In our Wireline segment, consumer revenue decreased 1.3% to $923 million, and Business held steady at $140 million in the quarter.
Wireline adjusted EBITDA increased almost 7% to $508 million, which includes approximately $20 million related to IFRS 16. And as a reminder, in Q3 last year, we had a $15 million payment related to IP licensing matters. And when adjusting for the onetime charge in IFRS 16 in the quarter, the year-over-year performance is comparable. While we have not experienced any material changes in consumer behaviors or trends to date, we did have some business customers temporary suspend or canceled some of their services throughout the quarter as they were dealing with COVID related impacts on their business.
Not all of which has been fully reflected in the Q3 results, considering the timing of the suspensions. While our Q3 business results are better than our initial views, revenue growth stalled from its historical run rate of approximately 5% year-over-year growth to roughly flat in the quarter and down approximately 3% versus Q2.
In the third quarter, we recorded a modest $5 million increase in our bad debt provision associated with the increasing levels of unemployment and continued uncertainty in the small and medium business sector. Although to date, we have not experienced a material change in customer payments in either of our Wireline or Wireless segments.
Capital investments were largely as per our original budget and flat in the quarter compared to the prior year, as the business performance remains stable and projects that we thought would have been delayed such as new building development, were actually accelerated in some instances. However, we did experience a decrease in success based capital, including CPE and capitalized labor due to lower activity and a higher percentage of customers electing to self-install.
In Q3, we generated free cash flow of over $220 million and $595 million on a year-to-date basis, which is 20% higher than the prior year and in line with our outlook and commentary regarding fiscal 2020. Our balance sheet remains strong with Q3 leverage of 2.4x and a substantially undrawn $1.5 billion credit facility and approximately $650 million of cash on hand.
As Brad mentioned, in April, we issued $500 million of 10-year senior notes at an attractive rate of 2.9% to further enhance our liquidity position. In summary, we are very pleased with our financial performance in the quarter. As we look forward to Q4, we do expect some spending that was delayed in the quarter to return particularly around marketing and base management support costs as well as the potential for any further adjustments to bad debt provisions as we continue to monitor the payment trends of customers.
However, we are very confident in the underlying performance of the business. Connectivity remains an essential service for residential and business customers, and we believe we’re well positioned to meet and exceed the demands of our customers. With this strong foundation, we are pleased to confirm that we continue to expect to deliver adjusted EBITDA growth in fiscal 2020, both obviously on a pre and post-IFRS 16 basis, and substantial free cash flow in line with our previous guidance of approximately $700 million. Brad, back to you.
Thank you, Trevor. While it is still too early to predict with a high degree of accuracy, the magnitude of the COVID related impacts on our business. We continue to believe that the telecom sector is fundamentally strong and resilient. Under the most difficult and challenging set of circumstances, our network performance was exceptional, and we delivered better-than-expected results. We know that additional investments will be required in the future to keep ahead of usage trends while connecting more Canadians.
Canada is one of the best connected countries in the world by design, and we are hopeful that the regulatory framework will continue to support innovation and long-term capital investment. As the economy begins to reopen, we are confident that our robust broadband and Wireless infrastructure will continue to play a vital role and drive our economic recovery. Thank you, operator. We’ll now take questions.
[Operator Instructions]. The first question is from Vince Valentini with TD Securities.
Yes. I echo I don’t really like the timing of this call, but I appreciate the fact that it wasn’t because you were going to miss consensus numbers with the results you put up, congrats on that. Maybe a couple for Paul, but one quick one for Trevor first is, this $5 million increase in bad debt expense, it seems pretty low to me. Is this like a realized amount? Or are you making estimates of what future results could be like basically taking provisions for the future based on economic activity?
It’s based on — the analysis that we did was really based on the future, Vince. Obviously, unemployment rates, we did — we looked at other periods when there is high levels of unemployment in Western Canada and even in Eastern Canada and the wireless segment. We’re still — we haven’t noticed — we’re watching the receivables closely on a daily basis, and it’s holding up really well, Vince. But we still have some concerns going forward, specifically as some of the stimulus programs come unwound through the government, what does that mean for bad debt and customers’ ability to pay their bills. I will just say Vince, I think it was disclosed in our ’19 annual. There’s roughly about $40 million of bad debt in our EBITDA on an annual basis.
So an incremental $5 million, it’s about a 12% increase on that current run rate. So but it is really more about looking forward in the provision that we’ve made going forward.
Okay. One Wireless and one Wireline question. Wireless, I think you pushed back at me in the past, when I’ve said can Wireless margins eventually get to 40% when the business matures and growth slows down? And I think you’ve kind of talked me down to — the industry down to the mid-30s. This quarter, you did 40%. I mean, it would have been of an unintended experiment to shut down all sales activity, but doing 40%. Obviously, there’s some boost from IFRS 16 that you may have not have thought of a couple of years ago, but is 40% a realistic goal a few years down the road once the business matures?
Vince, yes, thanks for the reminder of our history together. We’re loving what the last quarter demonstrated in terms of the leverage that our wireless business already has in it. But I would still be cautious given the downward pressure that we’re seeing on retail pricing and some of the activity that you’re seeing out of the big 3, particularly on unlimited, it is increasingly difficult to get the ARPU boost that we might have forecasted about 4 years ago. Obviously, we had a very strong quarter, but it was against the climate that is very challenging with the degree. So I’d still be cautious there, but it certainly was — I’d be more confident now than it would have been two years ago on that mid-30s target. But yes. I’d still be wary of 40% at this point.
Yes. I think, Vince, I’ll just add, when we looked at the sort of the quarterly expense reductions in Wireless, about $10 million of that was related to sort of commercial costs related to growth that really, frankly, ground to a halt. There’s some G&A discretionary costs. Advertising spend was at an all-time low, I would say, during the quarter. So while the 40% margin — I don’t want us to sort of any of us get too far over [indiscernible] that that’s something in the near term. We really do hope that we can come back to sort of scaling and growing this business with subscriber activity and putting the subsidy dollars to work where it makes sense and have a very balanced scorecard on customer growth and profitability.
It was a lovely test of your thesis though events in terms of just what this thing can produce when we get to a degree of maturity. And I think we demonstrated nicely that as you pull back on the engines, it can vary strongly throw off a lot of free cash flow and EBITDA.
Okay. And sorry, one last one on Wireline. You mentioned the downward trend on ARPU in Wireless. I want to know about the upward ARPU trend in broadband. Now that you’ve put these new prices in place as of the end of May, do you have any initial data on what new sub adds and maybe anybody renewing what the ARPU on those customers looks like versus the legacy base of customers?
Yes. I’ll pull those into two pieces. So on the new subscribers, and a reminder that the pricing that we launched on May 27 was for new subscribers in the vast majority of instances. We’ve seen a nice lift, not surprisingly. The — we’re seeing as much volume, for example, our former highest rate plan was 600 speeds here. And that percentage of volume that came from that tier is now the same percentage of volume that we’re getting from our 750 and Gig speeds tiers. So we’ve seen the market shift nicely to the right on that front. And not surprisingly, when you put it on the mix seeing the kind of changes we saw in rate that we are producing a much stronger cohort now, which I think, frankly, Vince, is reflective of the investments we’ve made. I mean we spend hundreds of millions of dollars in the last number of years on improving the reliability and speed of that plant.
And this is an appropriate price for that. I think we’ve seen that when you start to look East or East to west here. So new subscribers definitely coming in on a meaningful lift. And maybe the thing that will produce more value over time as we speak with current customers who are either renewing or migrating, we’ve managed in one quarter to turn that from something that has historically been a dilutive conversation to one that’s now accretive. So in the old days, when we spoke with the customer, it costs us money, and now because of the availability of higher speeds. And frankly, the demand related to COVID and the pressures on residential Internet speeds and just the greater utility we’re demonstrating, we’ve managed to turn that into something that’s a positive for us. So it’s been a very favorable last 6 weeks.
Our next question comes from Drew McReynolds with RBC.
Yes, back on this for you, Paul, just to broaden the conversation over the past 6 weeks. Interested, I know in the opening remarks, Brad and Trevor provided some commentary around kind of how the business is evolving here as we go forward. Can you just flush more of that out? What are — what kind of sequential improvement are you seeing across the business, particularly as we’ve gone into the June and July period? And then secondly, and maybe related to that, Shaw has been through a couple of recessions before. Have you really seen the recessionary behavior kind of rear its head here, whether that’s folks kind of tiering down, cord cutting, cord shaving. You’ve talked a little bit on the business side, but there does appear to probably be a little lag here once we get through fiscal support through the unusual 3 or 4 months here. I would just love to hear your thoughts if we’re still kind of not out of the woods, particularly on the broader kind of recessionary impacts on the business?
Yes. I’ll start with — in reverse order, if I could, maybe Trevor will pipe in as well. It is early on this because we’re still seeing so much federal support, for the folks that have been impacted by the pandemic. It is difficult to tell where this is all going to flush out in when that stops when the music stops, there’s definitely going to be a degree of pressure on this household. So far, to Brad’s opening comments, we’ve weathered it very well, right, up until even today, we haven’t seen any dramatic changes in customer behavior. So nice stable franchise as we like to discuss internally here. Nothing really to kind of flag at this point.
Yes. Maybe I’ll just add, Drew. I mean, part of the analysis we did do as an accounting team, we went back and looked at sort of the periods of unemployment levels and things. I mean, frankly, on the wireless side, we didn’t see any correlation. People just kept paying their bills just for that service. And again, I think it goes back to the ARPU from that perspective that it’s fairly good value for less than $40. So people tended to pay their bills. On the Wireline side of things, not all recessions are the same. And I think that’s why we’re a little bit cautious on this one to sort of declare any sense of that we’re out of the woods. We’re still a bit nervous.
That being said in ’14 and other periods when there are some oil price challenges, I’d say our business held in fairly well. There was a bit more cord cutting and cord shaving on the Video category during that time period, but it was fairly modest in immaterial, but it is one thing that we’re just watching very, very closely, no material changes to date. But it is something that we’re still concerned about going forward.
And then, Drew, on the first part of your question, I’ll speak a little bit to June, but I don’t want to get too far ahead of kind of guidance on this thing. We spent, from May 27 until July 8, materially above the retail price points of our primary competitor in the West, and still manage to have a strong month and not see a major competitive shift, which is encouraging. So prospectively, I think that’s something that we’re confident we’ll get back to kind of a normal 50-50 share of net is a way that I view our objective here.
Frankly, for the last three years or so, we have underperformed on that. Some of that is attributable to the improvements that our competitors have seen on fiber to the home. But as that sort of starts to hit a wall, our expectation to be plain, is that we will get a 50% share of net broadband activations going forward very soon. And I’m pleased now that we have retail pricing that is more reflective of the investments that we’ve made so that we’re getting the appropriate return on that. And then we’re ensuring that our customer experience, you asked about kind of what else happened in the last number of weeks and months. And we’ve done a number of things. We started to see pretty significant changes in the way we’re able to service customers.
So Brad talked about that 72% self-install. We’ve even seen that number increase in recent weeks. We have moved a huge amount of customer contact into platforms that more efficient for us and more efficient for customers, things like messaging, improved and ramped up materially over the course of the initial months of the pandemic and have stayed there. We’ve taken a lot of steps to improve our call center activity. So early on, frankly, we were a little bit overwhelmed by some of the surges in demand for contact. That’s flattened out, and we’ve done a better job of meeting it. We are also now getting our arms around more of our sort of value-based service model. So where in the past, we had a sort of peanut-butter approach and spread our care around equally. In the future and really just kind of starting now, Drew, you’ll start to see us segment our care to higher-value models.
So again, looking to take our best tenured higher-value customers and have a slightly different treatment for them than for customers with lower economic value for us. So we’re kind of marrying up those 2 investments. So we’ve used this opportunity, I think, quite thoughtfully in the last 90 days. We’ve tightened up some things that needed tightening up. Everything from how long it takes a stance of the phone to how long it takes us to ship a modem have improved over the course of the last 90 days and will continue to improve. And customers are responding. And I suspect now because we’ve got closer to parity with our competitor on the cost of Internet. We love where we are positioned right now. So it’s been a good 90 days.
The next question comes from Jeff Fan with Scotiabank.
Got a couple of questions. One for Trevor and then another for Paul. For Trevor, it’s regarding the guidance, you guys posted a very good quarter financially. You kept your guidance for the year as adjusted EBITDA growth it sort of implies that Q4 is going to be down that something is going to happen. So I’m wondering if — is there something that you’re forecasting regarding the fourth quarter? Or this is just about being a bit more on the conservative side, and that would pertain, I guess, to both EBITDA and free cash flow?
Thanks, Jeff. I guess at this stage, it’s probably more conservatism. We’re feeling really good about the business. Obviously, really happy with the financial performance of the that being said, there’s still volatility in the business. I talked a little bit about that debt. We talked a little bit about just deferring some of the payments and costs in Q3 versus Q4 on Wireline as well. On Wireless, you’ve seen what happens to EBITDA with volume and when the gross sales activity is down so much. It’s still difficult, I think, for us to sit here on July to say what is the back-to-school environment look like. And obviously, that’s an important point in time for the category of Wireless but also Wireline.
So I think we’re being probably overly cautious. Clearly, we don’t see anything scary as we sit here on July 10, the June numbers are in. We’re feeling really good about the business.
We withdrew our formal guidance of 4% to 5% EBITDA growth last quarter. We know consensus is right around 2% in terms of what that is after we threw that last quarter. We’re feeling comfortable with the business, Jeff, but we just didn’t see a lot of benefit putting in a new range at this time for the last few months of the year. And hopefully, we’ll be back in October, talking about F ’21 and talking about guidance in an environment that has a little bit more — is a little bit more stable and a little bit more predictable going forward-looking into the next fiscal year. In free cash flow, I think we still have the levers. You can see that we didn’t pull back on capital. We didn’t need to. In fact, some of the capital projects that we thought were going to go a bit slower, actually accelerating, and we think that’s good capital to spend in the business. So we’re happy with that. And clearly, our free cash flow profile of the company is extremely strong.
Maybe just a couple of very quick follow-ups, Trevor. You mentioned some trends regarding the business revenue and some of the suspensions. And you quoted some numbers. Those trends, if you look at it on a month-to-month basis, do they get worse? Or do things actually stabilize as businesses reopen? And I guess that question may be applying to your $5 million bad debt as well if you think about it from a month-to-month basis?
Yes. And some of the bad debt is for business customers as well. That’s a good question, Jeff. We’re seeing sort of slowly businesses coming back. I would say they may not be coming back at the same level they were. The video category, for example, in hospitality, we’re seeing them come back with their broadband service, but video, just in light of what’s happening still with the sports environment and things. So we’re feeling good about the business trends, but the growth profile of new customers, the funnel, while it’s looking, okay, we’re just a bit nervous in terms of what does that environment actually look like when some of these stimulus programs get pulled back from the government, and we’re not sure on the timing of that. We probably expect a little bit of sequential quarter-over-quarter when you look at what happened from Q2 to Q3, similar trend, not getting any worse,
I think, in Q3 to Q4 when you look at what happened with the business revenue side, probably is still a little bit of downward pressure on Q4 business revenue versus what we posted for Q3 just because of timing of the suspension of the accounts and then when they’re actually coming back and then, frankly, some not coming back because of the troubles that they’re facing. There’s a lot of moving parts in that.
I understand. But it sounds like things are going up. Question for Paul. So you talked a little bit about how — since the plan changes that you made, how things are going. It sounds like you’re quite happy with what’s going on there. I guess this week, TELUS also made some planned changes. Just wondering if you still feel comfortable, I guess, since July 8, with the changes. Not to put on the spot about what’s happened in the last two days on [indiscernible], but just in terms of where you sit right now, do you feel that you can get to that 50-50 share of [indiscernible] with the construct that’s in place right now?
Yes. Jeff, I won’t speak too much about the TELUS moves. I think there were sensible opportunity for them to recapture some of their significant investment in recent years as well in their plant. So we’re pleased and positive with the way that the market is priced currently. I don’t think we need to be right on top of each other dollar for dollar. There’s a reasonably close proximity, and we’re comfortable that we’ll be able to meet our objectives kind of as things currently stand. We’re making a number of other changes that we think will support the business and our objective there as well. So I spoke about some of them earlier in terms of just the marrow, which we’re going to improve the customer experience. But the team — the engineering and it teams have done just a spectacular job in making sure that we have the speed and reliability. I think we caught some people off guard with how little we were impacted on the network side with the surge of COVID. And our customer experience has never been better. We are borrowing some tricks from the old wireless playbook over the coming weeks. So you’ll see a number of additional retail stores, Shaw retail stores open in the west. And those are just, frankly, long overdue, where we’ve had —
We’ve been underrepresented in terms of the way that we go to market. So if you were to do a quick tour, you’ll see a number of locations ready to open over the coming weeks, and we’re excited about having greater retail penetration for our consumer products as well. So think there’s lots of things that contribute to net growth, and we know how to do that. So you’ll see a number of things come into play that will help contribute to it.
Our next question comes from Aravinda Galappatthige.
One Wireless and one Wireline question for me. On the Wireless side, not surprisingly, the industry has seen lower volumes, and you see that in your Q3 as well. But as this sort of period extends, naturally, you’re going to see sort of a bigger share of free agents in the market, some pent-up demand as some of these contract have go past there expiry. I wanted to get your thoughts on how you see that as an opportunity for freedom, given sort of where the economic conditions are and sort of, obviously, your pricing differentials would be incumbents, not trying to get sort of near-term views on wireless volumes for you guys, but how do you sort of approach that opportunity? That was my sort of Wireless question. And then on the Wireline side, with respect to the price changes in the West, obviously, encouraged by what you said earlier. I think it was Paul, you mentioned you’re seeing the same mix in terms of the subs coming into the higher tiered plans?
But given sort of the sticker shock there, it’s a significant change, obviously, that we’ve seen in the last 6 weeks in terms of pricing there. Is there a risk that you get some subscribers that start to move down speed in terms of maybe towards 75 or the 150 in because of the sticker shock there? Wanted to get your thoughts on that as well.
Aravinda, it’s Paul. I’ll take those in reverse order as well. It’s worth noting that one of the things that May missed when we launched our rate card on May 27 was we also launched a new entry-level rate speed here for Canadian households. We speak to customers all the time and get their feedback on where we are on kind of meeting their needs. One of the things that emerged very quickly into the pandemic was households that were under economic pressure in duress needed something different than what was on our card. So we introduced what is, to my knowledge, the lowest priced non-government supported Internet rate tier in Western Canada, a $50 plan that is — should provide a lot of people the opportunity they need to sort of rationalize their savings. And we’ve seen good movement into that.
So when I talked about the kind of a net of all of those things still being positive, that includes the dilutive effect of a fairly significant number of people that have had the opportunity to move down in terms of their obligation. And we’re happy to support that. And we think that that’s just part of our obligation. And so we built kind of opportunities for people who wanted to harden their internet and increase their speed tier up to 750 or gig. We’ve equally allowed people to go in the other direction, and the net of all that is positive. So I’m quite confident that we have the market kind of well positioned there.
On the free agent cohort for Wireless, on paper, you’re absolutely right. This is a group that’s sort of been dragging the puck, if you will, for 4 or 5 months waiting to get their upgrades or their new Phone or deal with it. It’s a little bit difficult for us right now to predict where that’s all going to go to Trevor’s point, given some of the economic things that may happen toward the end of the summer, early in the fall of support programs may cease. The other thing to be mindful of is we’ve got 2 other things kind of pushing in there the direction for Wireless. One is a, surprising for me, competitive dynamic that is really quite aggressive.
I’ve seen 20 gig plans from some — one of the big 3 as low as $54. Regularly priced at $65. We’ve had a good part of the last month where the big 3 had their unlimited plans priced below freedom. So probably better asking them why they’re doing that. But I think that’s probably going to be reflected in fairly painful ARPU numbers for them in the coming next little while. So some of you have already reported on what appear to be lowering expectations out of our competition.
At a point in time, I don’t know where the end of the runway is there, but I’d be starting to get pretty uncomfortable if I were piloting that plane. So we are able to continue to grow as long as we have a rational pricing environment. We tried to demonstrate that on the Wireline side. On the Wireless side, I think we have the exact opposite thing happening with our competition. So that is a negative, if it were to continue proceeding. And then a smaller thing, just to kind of make sure everyone’s on the same page, our retail stores, while we’ve opened, I believe, now 90% of our store doors, our best locations, our highest volume locations tend to be locations in molds that are not yet thriving.
Or kiosks in malls that are not yet necessarily active. So by no means has traffic returned to Yorkdale and Chinook and Eaton Center in Pacific, these are all places that are open, but kind of barely. And for us, we need to see that traffic return to its former glory. We thrive as a wireless business when customers can go to the mall and shop for carriers and demonstrate our value. When it’s quiet this way, this is not on strategy, as Trevor always likes to say. So we do need that to come back. So it’s a long answer to short question about that cohort. In theory, they’re there, we believe that we will be able to meet them when they are, but there are some things that still have to kind of work their way through. The competitiveness being the primary driver.
There’s — when you look at where unlimited launched last June and where it has tumbled to precipitously, is the pricing discipline or lack thereof that some of our competition is astonishing to me.
Our next question comes from Maher Yaghi with Desjardins.
Yes. I just want to follow-up on your answer regarding that cohort. Does that include the iPhone cohort a few years ago that started to roll off and can you discuss maybe some of the churn numbers on that — on the iPhone cohort. I know it’s slow motion right now with the market being down. But have you drawn some conclusions when it comes to churn for the iPhone cohort? I have a few questions after.
Yes. I want to make sure I just understood it. So our iPhone 8 cohort, which started in December, January, 2.5 years ago now, is largely through and has been completely managed by our base management team. We started that, as you’ll recall, I heard back in sort of late summer, early autumn of last year as they tended toward renewal. But the vast majority of those people have either left us or renewed and moved on to another device or simply renew their rate plan with us. So that’s kind of behind us now. And you’ll have seen, by the way, in our ARPU numbers, which I suspect will be category leading. That we were able to move them successfully. That’s a big part of our base, and we were able to manage that very successfully.
Okay. Great. I wanted to ask you some of your large competitors in the East seem to have some — had some material cost in the second quarter to adjust the operations to react to cover specifically like customer service and work from home, et cetera. I don’t see any material such costs in your results. Can you talk about how you manage this transition and not to have incurred some large cost to make the change in your operation?
Yes, Maher, Trevor. So there wasn’t — there — we had some cost savings, frankly, from some temporary layoffs, and you don’t see that in the numbers as well. They were somewhat offset by some of the COVID related costs. We’re doing other things like topping up and pay to some folks. We were doing some other things where we made people hold on their pay, which include commissions that can’t be deferred over a period of time related to customer acquisition activity. So we had the expense set in Q3. So there was a lot of moving parts and — but other than the bad debt expense that we wanted to call out, they kind of all were a bit of a wash at relatively immaterial. So we didn’t have any significant huge onetime cost items related to COVID-19. And that being said, on a significant amount of cost savings related to temporary layoffs and people-related costs. So it’s sort of fall in the numbers, frankly, in our current run rate.
Okay. And that 10% of your workforce that you temporarily laid off, how much of those have come back? And are you hoping [indiscernible] of getting most of them?
So 50% have already being recalled, and we’ve had no issues bringing those folks back.
Okay. So they’re not going somewhere else. You’re not noticing…
No, quite the opposite, actually. We’re — They’re thrilled to come back. I think they were — frankly, we’ve — Brad empowered us to treat that group of people very, very well over the course of the last number of months. And I think it’s paying a dividend right now. We’ve seen fundamentally all of them come back on request.
Okay. One last question is on your normal price increase on Wireline. I noticed in my neck of the wood, we have not had an increase in our base entering that TV, et cetera. I think it’s the same in Ontario from BCE. Are you able to pass a price increase these days on your existing customer base? I noticed you mentioned that you passed the price increase on your new customers, but how about the base?
I think in an industry, you saw a really empathetic approach to this. And again, we had a conversation earlier on with Brad around how we wanted to handle this in terms of — I think we had one scheduled for April and May, and we’ve held off on that. We have signaled to customers. But again, we won’t be doing anything on that until at least the autumn. And we’ll kind of reserve the right to do that. So we’ll be well behind our typical timing on that. But we’re comfortable that, that’s the right move in light of the economic pressure that a lot of households are facing. So we’ve held off. And I do think that, that’s been mirrored margin across the industry, which is, again, credit to the way the facilities-based players have managed themselves through the course of this pandemic.
And the only thing I would also add, Maher, we talked about this, I think, last year, that the annual rate adjustment for Shaw is not as pronounced as it once was. We have so many customers that are on your contracts and at different times of that contract. So the idea of this sort of onetime big bang of a rate adjustment and what it does to you financially and how you see it in the numbers. I think we’re pricing and packaging for customers every day. So that annual event isn’t as pronounced as it used to be.
Okay. And my last question is on trend in general, in the Wireless market. In June, have you started to see that churn increase overall for the industry? And if that’s the case, it should be good, right for you guys?
Yes. I think it’s fair to say that June, more toward the end of it, but kind of normal services restore kind of getting back to its regular rhythm, which would instructed, we’re not going to see a 0.96 churn rate in the fourth quarter. I don’t mind giving guidance on that. The — I think the industry is just starting to kind of come out of its lumber and will be we’ll be back to kind of normal levels, hopefully, of growth and in turn pretty quickly.
Okay. And can you remind us on your 5G plans, time wise? I mean you’ve seen announcement by TELUS, Rogers and BCE. What’s your expectations when it comes to 5G and deployment and rollout?
Yes. We haven’t signaled too much. I’ll just remind people, I think what we have disclosed is we’ve been making live calls. We have 5G ready core. We have been testing here in the Calgary market on a number of sites for a number of months now. Clearly, for us, the implementation of 600 is a critical bedrock band for 5G, and we’ll be rolling out as quickly as we can unpack it from the broadcast side. And get access to it. So for us, it’s a — you’ll start to see that more toward or rather calendar ’21. But a lot of — I said a number of calls ago that we weren’t going to conduct our 5G launch by press release. I know there’s some opportunity out there, and there’s some great working product, but it’s early. We are narrowing the gap more increasingly in terms of our time to market behind the big 3 who, of course, have considerable spectrum advantages over us based on their history. But we’re loving our position here, and the network team is well ready for it. So more on that probably on the next call on October that we’ll give you considerably more detail then.
This concludes the question-and-answer session. I would like to hand the call back over to Mr. Shaw for his closing remarks.
Great. Thank you, Operator. Thanks, everyone, and stay safe with yourself and your families, and we’ll speak to you in October.
This concludes the time allocated to today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.