Shaw Communications Inc (SJR) Q1 2021 Earnings Call Transcript

Shaw Communications Inc  (NYSE: SJR) Q1 2021 earnings call dated Jan. 13, 2021.

Corporate Participants:

Bradley Shaw — Executive Chair & Chief Executive Officer

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Paul McAleese — President

Analysts:

Jeff Fan — Scotiabank — Analyst

Vince Valentini — TD Securities — Analyst

Drew McReynolds — RBC Capital Markets — Analyst

Aravinda Galappatthige — Canaccord Genuity — Analyst

Tim Casey — BMO Capital Markets — Analyst

David McFadgen — Cormark Securities — Analyst

Simon Flannery — Morgan Stanley — Analyst

Kannan Venkateshwar — Barclays — Analyst

Presentation:

Operator

Thank you for standing by. Welcome to Shaw Communications’ First Quarter 2021 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.

Bradley Shaw — Executive Chair & Chief Executive Officer

Thank you, operator. Good morning, everyone. Happy New Year, and thanks for joining us to discuss our Q1 results.

With me today are members of our senior management team, including our President, Paul McAleese; our Chief Financial & Corporate Development Officer, Trevor English.

Considering the environment and ongoing impacts from COVID-19, we continue to have most of our employees work from the safety of their homes. Our networks continue to deliver exceptional service for our customers as data usage and voice traffic on our wireline and wireless networks remain significantly above pre-COVID levels. Our retail locations have remained open, albeit at a reduced capacity. And we have ensured that we meet or exceed the safety requirements in the various provinces that we operate in. To better serve our customers, we have also made significant progress with respect to our wireless digital fulfillment capabilities, and we continue to encourage and support self-install and self-help service options for our wireline customers.

Despite the ongoing impacts from the pandemic, fiscal 2021 is off to a great start as our strategy to scale our Wireless business and deliver profitable wireline results set new records in this quarter. Consumers are embracing the launch of Shaw Mobile and the value proposition of our offerings. Demand for our bundled wireless service has significantly exceeded our expectations, resulting in over 100,000 new Wireless customers in the quarter. And our broadband service just keeps getting better. In November, we launched our fastest Internet tier yet with Fiber+ Gig 1.5 gigabits, more than doubling the top of the Elbow speed less than a year ago.

Our focus with Shaw Mobile is to bundle affordable wireless services with our high-quality, high lifetime value Fiber+ Internet relationships in this environment as existing Internet customers realize tremendous value by adding Shaw Mobile through their connectivity services, often with multiple lines in the household. While the Q1 net loss of 15,000 Internet customers is not yet where we need to be, new customers are increasingly choosing faster Internet tiers, and base migrations to our Fiber+ Gig Internet plans are accelerating as customers embrace our connectivity bundle, which of course includes Shaw Mobile. This activity reinforces our status as the leader in gig speed Internet across our footprint and is driving overall improved customer profitability, including higher Internet ARPU and reduced churn.

I am confident that our bundling initiatives provides a great value proposition for new customers and over time will drive Internet subscriber growth. But I’m equally pleased with the trends in improved profitability that we have seen in the early days of bundling mobility with our existing wireline customers. This positive momentum within our operations and stable business performance combined with efficient cost management across the entire organization led to strong financial results, including our wireline operating margin exceeding 50% and free cash flow growth of 23% in the quarter.

For almost a year, we have been successfully managing through the impacts of COVID, including slower wireless subscriber activity in the second half of fiscal 2020. However, our focus on the execution has remained strong, and there was a tremendous amount of work in the background to launch Shaw Mobile and expand our retail network and distribution capabilities in this challenging environment. As our first quarter results have highlighted, the success of our connectivity bundle has us firmly on track to continue scaling our Wireless business and delivering consolidated growth.

I will now turn it over to Trevor to review the financials in more detail. Trevor?

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Thank you, Brad, and Happy New Year, everyone, and good morning.

Our consolidated financial performance in the quarter includes adjusted EBITDA growth of 3.2% over the prior year and reflects our strategy and focus on profitable customer interactions. Touching briefly on segmented results, wireline revenue declined approximately 1%. However, adjusted EBITDA increased almost 3%, resulting in a strong operating margin that exceeded 50% in the quarter. As we continue to enhance our Internet product, whether that is through the introduction of faster speeds or broader distribution and focus on bundling Internet with Shaw Mobile, customer profitability has improved. In addition to this positive momentum, we continue to closely manage our costs. The reduction in opex is primarily — primarily due to lower volume related and employee costs as we’re benefiting from the full run rate savings from VDP and reduced headcount, and overall sales activity remains muted within our wireline division. The quarter also includes less advertising and sponsorship costs as events such as the Shaw Charity Classic were unfortunately canceled this year as well as lower travel and other discretionary costs.

In wireless, service revenue grew approximately 10% to CAD215 million and adjusted EBITDA increased approximately 6% over the prior year as we continue to scale and make the appropriate growth-orientated investments within our wireline — Wireless business. Q1 included additional investments to support our record wireless growth such as expanded retail, improved digital capabilities, including direct fulfillment for new customers and other volume-related costs. The overwhelming success we have seen with Shaw Mobile is impacted — is impacting reported wireless results, including ARPU, which declined 1.3% in the quarter due to lower Wireless revenue from Shaw Mobile additions. However, our strategy to bundle Shaw Mobile with our Internet service is working, benefiting our Consumer division and contributing to strong consolidated results.

Q1 adjusted EBITDA growth, combined with lower planned capital investments within our wireline segment, resulted in — in free cash flow of CAD225 million, and we are on track to deliver our free cash flow commitment of approximately CAD800 million in F ’21.

With the underlying strength of our business, significant cash balance through expected growth in free cash flow this year, we’ve been active with our NCIB program since November 2 following the approval by our Board and the TSX to repurchase up to 5% of our outstanding Class B shares. In two months since commencement of the program, we have repurchased and canceled approximately 6.5 million shares at a cost of approximately CAD150 million.

Considering our solid Q1 operating and financial performance, including record Wireless additions, free cash flow growth, ample liquidity and a strong balance sheet, we are on track to meet our commitments for fiscal 2021, including returning substantial capital to our shareholders through our dividend payments and our NCIB program.

I will now turn it back to Brad for closing remarks.

Bradley Shaw — Executive Chair & Chief Executive Officer

Thank you, Trevor.

Since our entry into the Wireless business, our strategy has been focused on scaling our wireless subscriber base and improving the overall customer experience. Throughout this period, we have made significant investments that have enabled us to be innovative and disruptive while providing tremendous value for Canadians, particularly as we continue to face uncertainties from the ongoing COVID-19 pandemic. We have demonstrated our flexible and nimble approach with our go-to-market strategies and strong execution. Connectivity matters more than ever, and our Shaw Mobile bundling strategy is a powerful combination of high quality, affordable wireless services with our robust Fiber+ Internet offering, which is clearly resonating with western Canadians.

Thank you, operator. We’ll now take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Jeff Fan of Scotiabank. Please go ahead.

Jeff Fan — Scotiabank — Analyst

Thanks. Good morning, everybody, and Happy New Year. I’ll start with a couple of questions for Paul and then a more strategic question for Brad. Paul, regarding the Shaw Mobile wireless subscriber strong results, I wonder if you can talk a little bit about the profile of some of these customers, whether these are new lines that you’re getting from households adding new wireless lines or are they ports, if you can just give us a little bit of context here. And then regarding the ability of Shaw Mobile to lift the Internet business or the wireline cable business, wondering if you can give us a little bit of timing on — sorry, a little bit of timing on [Technical Issues]

Paul McAleese — President

Sorry, Jeff. We lost you. Operator, you there?

Operator

I am. Jeff has disconnected. Our next question comes from Vince Valentini of TD Securities.

Vince Valentini — TD Securities — Analyst

Hey, guys, you want to — Jeff had asked one and a half questions. Do you want to answer those first before I go?

Paul McAleese — President

Sure. Yeah. We want to — we will take — we will take Jeff’s first question. So just a reminder. The question is about the profile of Shaw Mobile customers. Yeah, we’re seeing very, very positive metrics as it was clear in our reporting this morning on Shaw Mobile’s overall performance. And the composition of those customers has changed over the course of the last number of months since launch. Early on, we were seeing a higher bias towards the CAD0 unlimited talk and text plan I think with probably a lot of customers testing our network and making sure that it was right for them. I’ll remind everybody that all Shaw Mobile customers need to be Shaw Internet customers. And then, in late October, we launched the CAD25 unlimited plan, which is tied directly to CAD115 Gig. So we are very pleased that over the course of the last number of months, we’ve seen a considerable shift away from that CAD0 plan and towards the CAD25 and CAD45 unlimited plans as confidence in our network has improved and perhaps a better understanding of the overall value mix as relative to market.

From a mix standpoint, most of these customers are ports from other carriers. There is a degree of organic growth in the market. So I think consistent with some of the speculation early this morning in the reporting, there is a degree of market expansion here, but well more than half of what we’re seeing is coming in from other carriers.

I’ll let him finish the other part of that question when Jeff comes back in. Vince, do you want to go ahead with yours?

Vince Valentini — TD Securities — Analyst

I do. Thanks, Paul. I have a couple for you, but one for Trevor just as well. Our first. Working capital look like almost CAD190 million of outflow. Is there anything unusual there, just timing issues? If you can help us with that. And then Paul, to follow up with you on the Internet side first, the — we’ve talked in the past about Internet ARPU and the revenue per household relative to these subscriber losses that you’re incurring. I don’t know if there’s anything more you can flush out on that topic today. And I think this may have been what Jeff was getting up, but if I can just ask it as well as the timing in terms of when these new Shaw Mobile marketing efforts that are now seem to be more linked to winning new customers as opposed to just migrating existing subscribers given the CAD500 bill credit you started in December, which I mean that you expect should we see a pretty immediate turnaround in your Internet and overall cable subscriber numbers or is this going to be a gradual process? Thank you.

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Thanks, Vince. I’ll start with the working capital question. It’s mainly timing, Vince, where we’ve got some lumpiness with some of our interest payments just when we make those and then of course some of our cash tax payments around instalments. And then the other big factor this quarter from a working capital perspective, not surprising, in the quarter was about CAD75 million related to the NCIB. So that really certainly helps you bridge and explain the movement of working capital. You can see from our contract asset balances on — on our balance sheet. Those haven’t moved in a significant way. So that really has an impact at working capital in a material amount in the quarter.

Vince Valentini — TD Securities — Analyst

Thank you.

Paul McAleese — President

Great. And — thought I’m going to give you a slightly longer answer to a short question — excuse me, Vince, I’m going to give you a slightly longer answer to your short question, so if you’ll indulge me for a minute. I think it’s just worth revisiting the strategy for our Internet business. As Brad said in the opening remarks, that business is very much a work in progress. And without even a hint of defensiveness, I want to be clear that our team, led by me, needs to deliver a more appropriate share of what modest subscriber gains I think remain available in the markets that we have facilities.

So when we’re analyzing what that appropriate share will be, a number of things go into establishing a baseline. The first is — and we’ve discussed in the last call — we need to strip away some of the noise associated with fixed wireless which is, as you all know, a largely rural product that we know comprises a sizable portion of TELUS’ net growth. I don’t disclose it but we, through third-party sources, have a good sense of the contribution that makes there. And as you know [Indecipherable] currently offer fixed wireless due to the urban focus of our wireless coverage. So this is a structural advantage really of TELUS’ decades long development of their wireless footprint and also their long-held spectrum advantages, so not something that we’re competing on today. It’s, also, while a smaller component of the growth, we also shouldn’t remove the kind of the CAD10 Internet for good subscribers., an admirable initiative, but one that doesn’t really generate any lifetime value and that we don’t have a comparable product for. So we believe that when you combine those two programs and remove them, that takes about half or more of TELUS’ reported net adds out of play, which then gives us our properly grounded baseline, and that’s really what informs our growth plans.

With a weakened economy in Western Canada and then kind of the practical impacts of COVID, things like students returning home, not having additional lines, most industry predictions right now suggest kind of little to no organic Internet subscriber growth in the west this year. Again, and least in those markets where we operate with facilities. And then, honestly from there, the math is pretty straightforward. The 15,000 subs that we lost last quarter didn’t abandon the Internet. They likely went across the street to TELUS. And some of this surely could come from our customer retention metrics that are, as we understand them, weaker than TELUS, and this is an area that frankly all acknowledge our competitor excels. We operate against a very well-run competitor in TELUS with a strong legacy of customer service and delivery, and we are likewise investing considerable energy across all of Shaw to improve our performance there. But some of those market share — or excuse me, losses are attributable to the spread in retention, the better — the better churn rate that TELUS enjoys. But our focus here is rapidly changing for the better.

It’s important to know we were pulling all this apart that in analyzing the data we’ve learned a number of other things. One is that the customers that are leaving us are inherently more transient. They carry a profile that is one that sort of optimizes and leverages available promotional pricing and accordingly have a lower lifetime value than our average customer. These are kind of classic promotional hoppers, and there is a lot of opportunity to do that still in this country where you can run between carriers and kind of optimize your pricing. It’s also clear then in recent quarters TELUS’ gains have been more reliant on discounted Internet pricing relative to the market both on their standard rate card as well as on in the form of additional service credits or gifts and very heavily discounted 2P and 3P bundles. And I’ve spoken before about the wisdom of that in a mature market. I won’t belabor it further, but I do think it is an important distinction to drive what we are doing on our rate card versus what TELUS is doing on our rate card. And that distinction is never more clear than when you look at the operating margins of our respective wireline businesses. So, you saw it in our reported numbers this morning, Vince. We are — we had a nice beat on — on the consumer wireline EBITDA. We’ve seen pretty significant improvements on Internet ARPU, which we can speak to I think, Trevor, 5% up on the last quarter, right?

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Yeah. We’re up 5% up year-over-year, right.

Paul McAleese — President

So, when you dig more deeply into these numbers, I’d encourage the analysts on this call to consider this. Not all the customers are created equally, right? So we have made great strides in the last year to pursue higher value customer relationships and perhaps forego some of this lower value, lower — lower margin stuff that is out there in the marketplace. So I want to give you a little bit of color around how well we’ve done on that front and some of the things that are underpinning our numbers.

First — and this is kind of perhaps a new level of disclosure for us, so bear with me for a moment. First off, we are on-boarding new Internet customers at a much higher revenue rate than we ever have in the Company’s history. Right now, fully more than 20% of our customers are activating — that are coming on board are activating on 1 Gig and 1.5 Gig plans. So the run rate of that which has been improving over the last number of months continue to demonstrate that the great work that our technical teams have done to deliver these new speed tiers is being really embraced by customers.

Base migrations, the second point I’ll raise, which for years were a relatively dilutive event — so when customers talked to us about changing the rate plan, they usually went backwards — are now consistently positive. 30% of our total migrations — 30% of the time someone calls us to improve — to change the rate card, they are similarly going to Gig or Gig 1.5 speed tiers. And the combination of those factors now means that we now have nearly 100,000 customers on the high quality, high speed tiers that didn’t exist this time last year, so it’ll be 750 Gig and Gig 1.5. That customer embrace of our higher-speed tiers is clearly creating financial benefit for our shareholders. And like I said, you saw that our EBITDA — EBITDA performance we published this morning. So we’ve made it clear in the past that our focus is growing higher value household relationships anchored in broadband, complemented by wireless through Shaw Mobile bundle, and the success of that you will of course have seen in our high net growth today.

Let me kind of put a bow around this. We have become — rapidly become the preferred provider for higher value Internet customers in Western Canada. We see it in the key metrics, we see it in our research, and our customers are seeing it reinforced in our products, our advertising, our retail stores, our service delivery; across the board, we are getting the higher value customers that is currently choosing Internet in the western marketplace.

So our balanced scorecard, as Brad indicated at the onset, is always going to be high-quality products delivered for the appropriate financial return. I don’t want to confuse or conflate some of the low-value, lower revenue and lower lifetime subscribers that are being onboarded by our competitors with that — that we are onboarding. I think they’re chalk and cheese, and that’s really something we’re going to continue to focus on. So on your — now that I’ve answered the question you didn’t ask, when is that going to bring on new Internet growth?

Slowly. It’s a slow moving target, principally because I think Internet — overall Internet gross add activity is off considerably year-on-year. It’s difficult to get customers to change their Internet provider during the pandemic, with everybody home doing the things they’re doing. Our churn is down considerably year-on-year, our gross is down considerably year-on-year and our economic return is up considerably over year-on-year. So for now that’s a trade that we’re comfortable with. You were not going to see us doing anything other than using the bundle to chase more market share on Internet growth.

So we think we have the right strategy, we’re confident in it on. I’ve said before, it’s something that’s going to take time for that numerator to shift to denominator. But I would encourage everyone on this call to look kind of past just the Internet losses and think about the quality of what we’re gaining relative to the quality of what we’re losing. We are comfortable with that trade today. While I’d certainly love that number to be in the black. Understand that we are happy to make the trade for higher quality and higher return.

Vince Valentini — TD Securities — Analyst

Paul, that was comprehensive an excellent. Let me just follow up with one thing, maybe more for Trevor.

Paul McAleese — President

Yeah.

Vince Valentini — TD Securities — Analyst

If this is the case, in terms of transparency, I mean, anecdotal disclosure of ARPU growth is nice, but if this is such a key focus for you, is there any chance we can start to get Internet ARPU or Internet revenue whichever one you want to disclose on a kind of consistent quarterly basis? And given what you said about 5% up year-over-year, just to level set everybody, does that mean you’re somewhere in the CAD75 range, is what your Internet ARPU would be in Q1 of ’21?

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Yeah. I can tell you it’s just over CAD73 in terms of our ARPU for Internet, Vince, and I will say our broadband business from a revenue perspective now contributes about 45% of our consumer wireline revenue amount. So I think those are two numbers to help bridge it. And frankly, that mix, also what Paul was talking about, just leads into our wireline [Phonetic] performance. It’s just a different mix of customers that are higher margin, and like Paul said, it’s a very deliberate strategy and we’ll continue to look at our disclosure, Vince, and provide data points to help investors and the Street bridge the financial results married with — and partnered with our strategy.

Vince Valentini — TD Securities — Analyst

Excellent. Thank you.

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Thanks. Thanks, Vince.

Bradley Shaw — Executive Chair & Chief Executive Officer

Thanks, Vince.

Paul McAleese — President

Thanks, Vince.

Operator

Our next question comes from Jeff Fan of Scotiabank. Please go ahead.

Jeff Fan — Scotiabank — Analyst

Thank you, and sorry for cutting off earlier. My question was actually for Brad. Again, a more strategic question. You talked about the focus on scaling wireless and providing great services for the customers. I’m wondering if you can talk about just your level of confidence in the ability to do that as an independent company in light of the scale in investments that the industry is talking about related to 5G, etc. and I guess balance that with your growth opportunity, again your confidence in delivering all of that as an independent company. Thank you.

Bradley Shaw — Executive Chair & Chief Executive Officer

Yeah. Thanks, Jeff. I’m — I was surprised to get that question, but. I know — it’s been — as I look back and — when we got rid of media and data centers, made the pivot to wireless and we’ve done a lot of work that I think it’s just reflective of Q1 performance and I really feel we’re on the — it’s early days, when you look at where we are from a bundling point of view, where we’re looking at from a management point of view because I would say, when I look at this, I don’t think we’ve ever had a better focus and a better execution from a management level, at all levels.

And as you know, I’ve been here a few years and have seen a lot of different things, but I really think with the team, we’re on the right trajectory. I think it’s early days. When I see things and see the opportunities, I get excited when I see Paul talk here and talk about where we’re at in the cycle. And I think we’re on the right path. We have — the family is very comfortable with — with the trajectory, with the strategy, with the execution. And we’re going to continue to pursue the opportunities we see in front of us. And I think there is more to come, and I think we’re on the right path.

But that being said, I think you always — we always want to make sure we’re delivering as we said. And we wish — as Paul said, we wish the Internet number was higher, and there’s a few other things. But we have to be patient and we have to keep delivering on those key things that we said we want to do, and I think it’s all going to be –be very beneficial for shareholders. And time will tell. And we’re continuing to make sure we focus day-to-day, hour-to-hour, and that’s what it’s going to take from our team to be successful. And so we’re very committed to that, and we want to play that story well.

Jeff Fan — Scotiabank — Analyst

Thanks, Brad.

Operator

Our next question comes from Drew McReynolds of RBC. Please go ahead.

Drew McReynolds — RBC Capital Markets — Analyst

Yeah, thanks. Thanks very much. Happy New Year and good morning. A couple of follow-ups for you, Paul. Thanks for the detail on the Internet questions. Comment if you can on just again competing against fiber to the home versus the non-fiber footprints, the dynamics there. And also on the higher value customers — we hear that everyone’s going after higher value customers. Still looking at your base, how far are you away with kind of gaining a degree of comfort that these promotional hoppers or perhaps subscribers that are less worth to you have been flushed out. I’ve got a couple more. Why don’t I stop there first?

Paul McAleese — President

Okay. Hey, Drew, good to speak to you. We’re starting to see the pace of fiber to the home slow after three, four years of pretty frenetic growth from TELUS. They I think have now reached about 80% of the footprint. And we’ve talked in the past calls about our use — relatively new use of data. We have built a much more sophisticated data team over the course of the last nine months or so, and they have started to provide real insight into where our opportunities lie. We’ve spent the last three or four years — has been on the receiving end of TELUS being able to use their data to better deploy, more profitably deploy fiber to the home, and then quickly follow that on with door-to-door marketing and better targeted activity against our base where we had perhaps speeds that didn’t equal theirs.

I’m so grateful to Zoran and the technical teams for launching really in rapid succession 750 Gig and then Gig 1.5 and then vastly improving our upload speeds over the course of the last six to nine months. So we’ve got frankly a much better product offering now than we have ever had. And now we were able to use the data that our teams have put together to go into those hundreds of thousands of DSL households that remain for TELUS and provide them not only with our product offer that is unavailable to them.

A reminder that — for everyone that we made the decision some years ago to provide Gig level service to all of our covered homes whereas TELUS of course have their own strategy but only provide Gig level speed to a percentage of their covered footprint. So our opportunity now is to be more sophisticated in the pursuit of those higher value customers, better sense of where to go get them and where those opportunities lie against DSL and then where we can use wireless, taking advantage of that asymmetry that I spoke about on the prior call to really drive that point home. A customer choosing Gig speed today that perhaps is converting from TELUS, and we’re seeing a number of those. It also has the ability to add CAD25 unlimited lines to their — to their proposition and I can tell you that that’s happening in decent quantities right now.

So, when you’re adding new revenue of CAD115 [Phonetic] for Internet and then typically when people buy Shaw Mobile, they buy them in pairs, two at a time. So adding another 50 in wireless service revenue all of a sudden, you’ve got CAD165 plus household, add some video, one of the things is that you get up around a couple of hundred dollars of ARPU. That’s all new money to us, Drew. So that is — that’s the strategy that you’re just starting to see employed. Reminder for everyone, we didn’t launch our CAD25 unlimited plan until the end of October. So we’re only a couple of months into that, but the results so far as you would kind of would expect, they’ve been very, very strong.

In terms of the promotional customers, and as Brad said, I’d love to keep every customer that we have. But if you’re going to choose to lose some, lose the ones that have the high operating cost. And you won’t be surprised to know that when people have that profile of kind of running between carriers, they also tend to incur higher operating costs associated with things like customer care and retail interactions. And they’re I guess what you would call kind of high maintenance customers. And while we embrace all customers, losing those in favor of gaining higher value subs coming from — from other places is certainly something we’re comfortable with right now. I don’t know just how big that bucket is, Drew, but I would suggest there’s always going to be an element of that running kind of back and forth. It certainly exists in the wireless business, which I am a little more familiar with. We see people that have — still carry multiple SIMs and will go back and forth depending on what their rate card is. That’s been something that’s been in existence for 30 years.

So we are — we’re comfortable now that we have a better understanding of who they are and what their profile is. And in a sense, we are looking to acquire less of them, and we will be more thoughtful about keeping them. One of the things I talked about I think on the last call was making sure that our better customers get higher quality treatment, better access to things like customer care. So we now have priority queues that we didn’t have before. If you’re a high revenue household, you’ll get your phone call answered much more quickly than if you are a low revenue or low margin household. We’re starting to align our investments better there than we ever have before. So while it’s always going to be a feature, it’s going to be one that we watch very closely over the coming quarters.

Drew McReynolds — RBC Capital Markets — Analyst

Okay. Super. Two — two quick ones here. Maybe, Paul, just describe kind of the wireless competitive dynamics if you can through the quarter and maybe what you saw through December, to put some context around that. And then, not to get into great detail here, but I think we’re all still trying to figure out what 5G means for everyone, but particularly the regional players and integrated players like Shaw relative to the national players. Any initial thoughts on that? Thank you.

Paul McAleese — President

Yeah. Thank you. Well, I’m pleased to report that I’m way less animated about the competitive dynamic in wireless than I was last time we all got together. So, it remained fairly chippy really through Christmas, including some kind of silly one-off bounty things and stuff, and you know how I feel about those. And so we saw — you’ll see this in our — in our Freedom churn number, our overall wireless churn number which is largely reflective of the Freedom churn ticking up in the quarter. Again, disappointed in that, but I know recognizing that there are simply less available subscribers right now for all of us to pursue, again, with limited organic growth, same dynamic that affects Internet growth, limited migration, things like that. We are seeing very little organic growth on the wireless side as well.

So that means people get more aggressive and chase things, particularly toward the end of the Big 3’s fiscal quarter, which of course was December. But we saw — we started to see a moderation really around Boxing Day, Drew, and that has continued through into the first part of January. I was encouraged by some of the recent announcements from Bell around changes in their price structure. I made comments — unintendedly controversial comments on the last call around monetization of 5G, point being — being able to secure a return on those investments, so sizable investments on network and spectrum was something that I was expressing caution on. And what we’re seeing, at least from Bell in the early days are some of the rate changes they are looking to make in March probably are their path to monetizing 5G, and I would encourage everyone to sort of look closely at that where you certainly will be in terms of our pricing over that period of time.

So, encouraged by competitive comm [Phonetic] I would say in January so far, and hope to be able to see that continue through the rest of the year. And it sets up I think nicely with many of you were reporting on calendar ’21 for the Big 3 and perhaps a return to some ARPU growth. As I said last time, you don’t get out of an ARPU deficit by cutting price generally. So, nice to see some movement there.

On 5G, I’ve said previously we’re so excited about the opportunity this is going to bring, and it is really a long-term thing. I think our peers have signaled as well that they see most of the gains really beyond F ’21. As we start to bring on IoT — excuse me — and other similar applications, for the regional players — I’ll kind of try and get into the subject of your question. For the regional players — I’ll go back to the use case for consumers, right? I’ve been speaking on this extensively within the business. And our aspiration on 5G is to bring it to market as quickly as we can and to quickly be able to put that badge on our phones, in our stores, in our merchandising, on our website and make sure customers know that we have a very high quality 5G network available to them where they work and where they play.

Our LTE network frankly was never as fast or as wide as the big 3. And as you all know, we’ve been more than capable of generating significant market share gains despite what I’ll call deficits, but, in practical terms, for consumers, really aren’t that much of a deficit. There’s not a whole lot you can do on a 150 megabit a second that you can’t do on [Indecipherable] 250 megabits a second that you can’t do on a 150 megabit a second or frankly on 80 [Phonetic]. So the 5G speed and latency benefits that we’re going to see have, practically speaking, little benefit in the short term for consumer applications.

There is certainly — our enterprise level will require some of those benefits over time, but we’re very comfortable that being in the 5G business prominently and proudly is very similar to our being in the LTE or the iPhone business prominently and proudly. Even if there may be some speed differences related to some of our deficiencies in historical spectrum holdings, those are all things that we will work to remedy over time. But we are confident that our 5G product is going to deliver exactly what customers are looking for and we’re still on track to start delivering that in the calendar — later in this calendar quarter. So I don’t think we’ve missed much of the party, and we’re looking to join it later — later in March.

Drew McReynolds — RBC Capital Markets — Analyst

Thanks for all that. I appreciate it. Thank you.

Paul McAleese — President

Thank you.

Operator

Our next question comes from Aravinda Galappatthige of Canaccord Genuity. Please go ahead.

Aravinda Galappatthige — Canaccord Genuity — Analyst

Good morning. Thanks for taking my questions and Happy New Year. A few from me. I’ll just switch gears a little bit to the — to the B2B side. Maybe, Paul or Trevor, do you want to sort of maybe discuss how that area has trended in terms of — not just in terms of sales, but also in terms of receivables and bad debt. And I don’t see anything meaningful there but I just wanted to get your thoughts there. And secondly, perhaps to Paul, with respect to the distribution side in wireless, I mean, during the lockdown periods, obviously the digital channels become more relevant, and you’re up against sort of incumbents in a different way. How satisfied are you with sort of the development of your digital channels in terms of distribution? And lastly for Trevor, very active on the NCIB, as you’ve indicated. I know that, on the other side, on the dividend front, you’re obviously — the payouts continues to improve as well based on the guidance you’ve given. How do you think about balancing those two elements as — as you look ahead? Thanks.

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Okay. Thanks, Aravinda. Maybe I’ll start with number one, just on B2B. Just generally on bad debt, I would say some of that we’re watching closely across the entire business, all of our segments, whether it’s consumer, wireless or wireline and business. And frankly, our collections has been extremely strong throughout the entire pandemic, including Q1. We did take an incremental charge in Q1 related to business bad debt, but it was very, very small and immaterial, so we’re very happy with the collections history. Really you would see in the quarter from a revenue perspective, we are quite happy with the way things bounce back. We are actually up almost 4% Q1 versus Q4, and 1.4% growth this quarter versus a year ago.

That being said, we’re cautious. Clearly, some of the restrictions, the additional restrictions that have been put in place across some of the provinces post Q1 into December, into January, it’s going to have some — cause some volatility within our B2B operation. So it’s something that we’re — we’re really managing closely. We’re happy with the performance. It’s quite stable, but there clearly are some headwinds coming, specifically within the hospitality sector.

Our Internet business within B2B has been strong, but within the video segment and the hospitality segment, it’s been a bit weak there and it’s something we’ll watch. But again, so far, so good, and our teams are working very, very closely with all of our business customers, making sure that we’re there for them during these uncertain and volatile times, and I think it’s going to serve us well over the long term.

Paul McAleese — President

Very good. Hi Aravinda, it’s Paul. And thanks for the question on wireless distribution and digital capability. When we last met, I characterized our digital capabilities on acquisition as a gap for us relative to our peers, and I couldn’t be happier than to tell you that we have materially closed that gap over the last 90 days and just made enormous progress. Our tactical and delivery teams and our sales teams have worked incredibly closely together and we have made enormous strides on behalf of our customers’ flexibility.

Without getting too deep into Q2 disclosure, I’ll tell you that in December, more than 20% of our gross wireless adds came through a digital channel. That number was close to zero in the prior quarter. So it gives you a sense of how quickly we were able to bring on board not inconceivable — not inconsiderable number of wireless gross adds that we did in the last quarter and change that mix. So we’re encouraged by that.

A reminder that even when 20% of it comes from digital, it means that 80% of it is still coming from retail. So I’m still happy with the investments we’ve made over the last number of years and still believe that retail has a long and important life with us in the wireless space. You’ve heard us talk about that before. But just enormous credit to the teams for so quickly remedying and closing the gap between us and our peers.

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Just on returning capital to shareholders, Aravinda, I think we have talked a little bit about this in Q4. Certainly, we’re very happy with the free cash flow growth last year and this year that were forecasted. Our dividend payout ratio is roughly 75%. We certainly have the ability to look at our dividend on a go-forward basis, but I think this year, we really felt like a more flexible method and frankly considering where our share price was in terms of the valuation, a more appropriate return of additional capital to shareholders was through an NCIB program, and you’ve seen us to be active in the first two months. And considering the performance of the business and again our conviction in the free cash flow growth rate of our Company, our balance sheet, a whole bunch of factors, you can — you can count on us to be continue to be active I think with our NCIB in the coming months and quarters, considering the performance of the business. The dividend is something that we obviously constantly look at with our Board. We just felt like, for this year and at this moment in time, a more appropriate return of capital was through an NCIB as opposed to additional dividend — or adjustments to our dividend rate.

Aravinda Galappatthige — Canaccord Genuity — Analyst

Great. Thank you.

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Thanks, Aravinda.

Operator

Our next question comes from Tim Casey of BMO. Please go ahead.

Tim Casey — BMO Capital Markets — Analyst

Thanks. Good morning. Two for me: one for Paul and one for Trevor. Trevor, can you tell a little bit about the EBITDA margin performance on the wireline side? You — in your comments that Internet value add subs are contributing to that, I’m just wondering, given all the pluses and minuses with COVID extra costs and COVID costs are not incurring, just wondering if you could maybe help us understand the sustainability of a 50% margin or anything you think that will flow through the year in terms of timing.

And for Paul, just a little more on your digital onboarding for wireless. I mean, it seems like there is a permanent shift in terms of distribution and that the industry is going to pursue more of an omnichannel strategy for distribution. Just wondering if you think what you’ve done so far prepares you for that or if you’re going to have to kind of double-down on those efforts over the next few years. And related to that, are you still planning to expand your retail footprint in light of that? Just maybe a little more color on that. Thanks.

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Good morning, Tim. Thanks for the question. Just on the EBITDA margin and the performance and sustainability, clearly, the business mix that Paul talked about and I talked about earlier in terms of higher value broadband customers, bundled with a mobile product that frankly from a churn perspective is very attractive. It’s early days. We only have clearly four months of that bundling initiative, but it’s very strong from a profitability standpoint. You’re starting to see that in the numbers and just the overall business mix. On some of the costs that you mentioned, it’s a bit lumpy, obviously with COVID. There are some pluses and minuses, like you say.

Overall, I would say we’ve been able to take out more discretionary cost in this COVID environment versus some of the additional costs that we’re incurring because of COVID, whether it’s PPE, investments into our retail stores across wireless and wireline to ensure that they’re safe. But there is a little bit of lumpiness in our quarterly cost structure, Tim, and of course, this quarter, versus a year ago, we did benefit from roughly CAD5 million of lower spend and that’s related to some of our sponsorship initiatives with Shaw Charity Classic that unfortunately we had to cancel, and of course, our CFO partnership that ended last year. So we didn’t incur some of those costs. So a little bit of lumpiness but I would say we have strong conviction in the profitability of our wireline business. We continue to post extremely strong margins going forward. There will be, though, some variability quarter-over-quarter because of the lumpiness of some of the costs. So hopefully that gives you a bit of color to think about in future quarters.

Paul McAleese — President

Hey, Tim, it’s Paul. Thanks for the question on digital versus traditional retail. I think you’re right. There is going to be a degree of permanent shift here. It’s hard to tell kind of where that settles over time, but we are certainly seeing that and hearing that from customers as well. And the comfort from — from them sort of taking these digital capabilities is something we think so a nice addition for the business certainly from a cost standpoint. I’d really though kind of just a few things to fill in some gaps.

First, back in March, we reorganized all of our consumer sales teams under one leadership team reporting in to me. So we — we do have kind of a holistic view of how we — we go to market on these things, so we’re able to use channels kind of interchangeably, and the leadership in that group [Indecipherable] is fantastic, and we have just a really thoughtful approach to go to market now with that in mind. A reminder as well that a very significant portion of Shaw Mobile acquisitions — I’ll focus on the west for a minute — is BYOD, and we’re seeing ever larger quantities of that shift, which means that we can satisfy a customer frankly just by shipping a SIM card, and that’s a very, very efficient, low-cost acquisition for us.

So you’re starting to — you’ll start to see that kind of come through more — more in time, but we expect that to be a permanent capability of the business going forward. We had avoided much of that kind of SIM related activity, Tim, because we need a larger ecosystem of phones [Indecipherable] them. So while we could have done this operationally a couple of years ago, we chose to hold off until we were confident that the phones that customers were bringing to us were able to operate on our highest-speed LTE band so that they have the right and optimal customer experience. So, again an area where we really didn’t pursue kind of digital direct capability because we wanted to make sure we could curate the device in a way that we were comfortable with and that typically required a store visit.

We still love retail on a bunch of fronts, not the least of which is helping with the bundle, which typically is a conversation. So we’re doing that either in our call centers today or in our — in our retail stores. Obviously, the pandemic is restricting some of that traffic. But we’re still open for business as an essential service, and right across Ontario and into the west, our stores remain open along with the other carriers. Under agreed rules, we have a small working consortium with the other operators to make sure that we have kind of harmonized approach to how we go at that, and I think we’ve been a kind of a very good corporate citizen on managing through that.

So long term, definitely a structural change. I don’t know that digital gets to 50% of our volume in any time soon, Tim, but certainly if it remains in the 20s, there is a role for continuing to invest in that. I would say a lot of that lift is behind us financially. So if you’re — if a subtext here is, do we have a lot of additional expense ahead of us, most of that already is consumed in the prior quarter and the one before that. So our — there is no big lift to be able to do this beyond what we’ve already accomplished. And then, we’ll just leave it in the hands of the consumer, and they’ll have the ability to choose what’s best for them and we will be able to meet it in a way that we never have before. So, again, credit to the team for having done it so quickly.

Tim Casey — BMO Capital Markets — Analyst

Thank you.

Paul McAleese — President

Thank you.

Operator

Our next question comes from David McFadgen of Cormark Securities. Please go ahead.

David McFadgen — Cormark Securities — Analyst

Okay. Great. Thank you. A couple of questions on Shaw Mobile. So, as you noted in your release, the majority of your Shaw Mobile customers, new customers, are existing Shaw Internet customers. So I’m just wondering how important do you think it is to have third-party distribution of Shaw Internet because obviously if you’re a new customer to Shaw and you want to come for Shaw Mobile, you have to get Shaw Internet as well. And so obviously — retail points of presence matter for wireless. So I’m just wondering what are your thoughts around that and can you give us an update on exactly how many retail points of presence exist for Shaw Internet, including any third-party distribution. And then secondly on Freedom, on the churn, I’m just wondering is that driven more by on what’s happening in Ontario, like the environment there or BC and Alberta and Shaw Mobile is having a bit of a negative impact on Freedom causing higher churn. Thank you.

Paul McAleese — President

Okay. Thanks very much, David. So, in order, on the Shaw Mobile, in relationship to Shaw Internet, we are really fortunate that if a customer chooses to kind of come to us, net new, net new on both Internet and wireless, we actually have a really good solve that doesn’t require retail for both of those things. As we’ve disclosed previously, more — well more than half of our Internet connections are done by self-connect. That number has been in the 70s of late and that may moderate up and down over time as we — as we kind of better curate some of those interactions. But certainly, the vast majority of our — of our new activations for Internet come with a self-connect. And thanks to the great work of our operations and logistics teams, we can do some of that self-connect as quickly as same day and certainly within next day for the vast majority of our geography. So a customer wanting to get that pre-qualifying event of, I need to be an Shaw Internet customer, can do it very quickly now much more quickly than they could have done six to nine months ago.

Then, recognizing that, again, the vast majority of those customers coming on to Shaw Mobile are BYOD. That can be accomplished with the delivery of a SIM card right to their home, again, in a similar timing kind of next day. So net new, net new typically wouldn’t have to wait more than a day or two to make the whole thing happen and wouldn’t require a truck roll or a retail store visit. So I think we’ve got a good solution there. We are great partners with people like Loblaws herein in Western Canada. For Internet, we love having that distribution available. But we are not reliant on third-party distribution for either Internet or wireless, in that context. Did that answer the first part of that okay for you?

David McFadgen — Cormark Securities — Analyst

Yeah. Thank you.

Paul McAleese — President

Okay. Great. And then on the Freedom side, you know, it’s a tough quarter on churn, higher than we’ve been in quite some time, but kind of I think characterized some of the reasons for that earlier on the call. There is not really a specific geographic element, sort of bias one way or the other on where those — that incremental churn is coming from.

If you put this all kind of in the mix, it’s not hard to understand why the Freedom brand came under a little bit more salt than it has historically done. When you’re reporting over 100,000 net adds and you’re seeing the kind of porting activity coming to Shaw Mobile that you’ve seen in the last 90 days, it has probably stirred the pot up a little bit on the — on the other side. And Freedom unfortunately is a target of some of that. So we’re okay with that mix. We obviously are working hard to try and bring — bring that number down. But for the first and most part of this last quarter, Freedom was under pretty heavy attack kind of in response to Shaw Mobile’s people were looking to keep their numbers — keep their numbers up.

David McFadgen — Cormark Securities — Analyst

Okay. All right. Thank you.

Paul McAleese — President

Thanks, David.

Operator

Our next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

Simon Flannery — Morgan Stanley — Analyst

All right. Thank you very much. Just following up on Shaw Mobile, I know it’s early days, but can you talk a little bit about the demographics of the customer versus the Freedom Mobile in terms of credit quality and how that might flow through to churn over time? And then, of new customers on the broadband product, what percentage of those are taking Shaw Mobile? Thanks.

Paul McAleese — President

Hi, Simon, Paul. Yeah, the demographics — we’re very pleased with the demographics on Shaw Mobile so far. And on credit quality, one of the things we have been able to do over the last 90 days that didn’t exist previous to that was be able to better curate existing Shaw relationships and existing Shaw longstanding sort of kind of credit histories with acquisition. So I was — I characterize the last time as a gap. Our finance team, Trevor and Linda Thomas and the team have been — done a great job of bringing that customer, that longstanding albeit a Shaw customer for 10 years, why do I need to go through all this just to get a — to get a wireless line. We’ve now got much more of that history loaded into our systems.

As you know, we kind of brought Shaw Mobile to market very, very quickly, and this is one of the follow-up areas. So we now have very good insight into people that are applying to — to bring Shaw — to get Shaw Mobile service. So I think I’d characterize this as probably a premium or a higher value customer than Freedom would typically pursue or acquire. I won’t go much broader than other than to say that the early days of Shaw Mobile success have been largely against our existing base. And I know for many of you that’s probably a little frustrating that we have been able to grow more new relationships than we have. I’ll just say that things like the CAD25 unlimited plan are certainly changing that dynamic, but certainly the history since the July launch has been largely against our existing base.

But know that we are also skimming the better parts of our base in doing so and certainly being able to have that credit qualifying now is a big improvement there. Not to disappoint you, Simon, but we’re not going to disclose at this time the number of Shaw Mobile customers that are also Shaw Internet customers or vice versa, but that will become more clear over the coming quarters as we — as we start to give a little more disclosure on that front.

Simon Flannery — Morgan Stanley — Analyst

All right. Thank you.

Paul McAleese — President

Thank you.

Trevor English — Executive Vice President, Chief Financial & Corporate Development Officer

Thank you.

Operator

Our next question comes from Kannan Venkateshwar of Barclays. Please go ahead.

Kannan Venkateshwar — Barclays — Analyst

Thank you. Just one broad question if I could. Broadly, the new — right now, you seem to be optimizing your profitability in wireline and it makes sense. But in the midst of a highly competitive environment, doesn’t this also increase the cost in the future of potentially higher SAC and also retention over the — over the entire cycle of a customer’s lifetime? And, also when you lose these subs on the wireline side, it indirectly likely also increases the cost of your wireless entry. And so how do you balance this math between the lifetime value and subscriber acquisition cost? Thanks.

Paul McAleese — President

So, we’re having just a little trouble hearing on some of that, so, my apologies. It’s Paul. I’ll take a stab at this. The pursuit of higher value, higher speed tier Internet customers really doesn’t come at any incremental cost to acquiring anybody on lower speed tiers with lower value. So we’re encouraged by the fact that that’s a relatively flat acquisition expense. Of course, they’re all on existing facilities. So that — there is a considerable margin gain on that sort of next dollar service revenue that we’re able to — to pull through, and that’s what — what you’re seeing drive through to EBITDA.

I don’t think, likewise, it’s driving any further challenges or incremental challenges on being able to convert those customers to a wireless customer. Certainly no indication we have on that front so far. So we — we think the strategy is sound, and it hasn’t had any — any evident challenges as we kind of go up into those speed tiers. We’re not seeing different characteristics from someone on Gig with Shaw Mobile than we are with someone on a lower speed tier on Shaw Mobile. It’s pretty — pretty uniform.

Bradley Shaw — Executive Chair & Chief Executive Officer

Yeah. And I would just say that we don’t feel like we are starving the business from investments, and investment into scaling our business appropriately. I mean, I think Paul mentioned it, but just a little bit more color. I mean, our overall gross sales activity volume on wireline is down about 40% year-over-year, and that’s not because we’re not investing in our — in our initiatives. It’s just that customers are less likely to change their wireline provider in this environment. So I don’t think we’re — we’re holding back investments with the — with the goal of maximizing near-term profitability and that we’re going to have significant investments going forward.

I think we’ve got a right — the right balance in place and the strategy — we we’re very comfortable with the strategy and you can see it in our consolidated numbers. And that’s where I would encourage investors to continue to focus on as opposed to just segmented results, but we’re really looking at consolidated EBITDA growth. Some of the things we’re doing in wireless with Shaw Mobile are benefiting wireline and vice versa. So we — consolidated EBIT growth of 3.2% and again free cash flow growth of 23% this quarter, we’re really pleased with the strategy and the financial results that we’re delivering.

Kannan Venkateshwar — Barclays — Analyst

Got it. Thank you so much.

Bradley Shaw — Executive Chair & Chief Executive Officer

Thank you.

Operator

This concludes the question-and-answer session. I would like to hand the call back over to Mr. Shaw for any closing remarks.

Bradley Shaw — Executive Chair & Chief Executive Officer

Thank you, operator, and again, Happy New Year to everyone. Stay safe, and we’ll talk to you next quarter. Thank you.

Operator

[Operator Closing Remarks]