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spk02: Good day, ladies and gentlemen, and welcome to the Trilogy International Partners Q1 2021 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Anne Saxton. Ma'am, the floor is yours.
spk00: Thank you, Holly. Hello, everyone, and welcome to our conference call to discuss our first quarter 2021 results. This call is also being broadcast live over the web and can be accessed in the investor section of the Trilogy International Partners website. Joining me today are Trilogy's President and CEO, Brad Horowitz, and Trilogy's Senior Vice President and CFO, Eric Mickles. This call includes forward looking information from which our actual results may differ materially. For further information regarding the various factors, assumptions, and risks that could cause our actual results to differ, Please review the cautionary language in the About Forward Looking Information section of yesterday's press release, as well as the cautionary note regarding forward-looking statements and the risk factors in our 2020 Annual Report on Form 20F, available on both CDAR and EDGAR. This forward-looking information represents our expectations as of today and, accordingly, is subject to change. We disclaim any obligation to update forward-looking information, except as required by law. Please also refer to yesterday's press release for definitions and reconciliations of any non-GAAP measures that we used during today's call. The press release is posted on our website at trilogy-international.com under the Investors tab. I will now turn the call over to Brad Horwitz, President and CEO of Trilogy International Partners.
spk07: Thanks, Anne, and hello, everyone. Thanks for joining our call. Today, I'll provide you with an update on our businesses and their operating environments. And then Eric will take you through our first quarter performance and outlook. We're pleased with our results for the first quarter, particularly as our operating momentum in New Zealand drove year-over-year organic adjusted EBITDA growth at the consolidated trilogy level. This is particularly meaningful as a year ago our markets had yet to be impacted by COVID. We continue to execute on our long-term strategy to expand our postpaid customer base in New Zealand. Our sustained postpaid customer growth is complemented by solid gains in our B2B customer base. At the end of the first quarter, 35% of Two Degrees Mobile subscribers were on postpaid plans, up almost 300 basis points from a year ago. This is translated into solid financial performance. And in March, two degrees service revenues for the month reached 50 million New Zealand dollars for the first time. In Bolivia, there's been another wave of COVID cases with a spike in January and another rise in cases that started in April. Mobility restrictions have been applied by local governments in affected areas, which have impacted our results. Moving on to specifics by market, starting with New Zealand, retail foot traffic in New Zealand remains subdued at about 20-25% below pre-COVID levels due to a few lockdown-related closures during the first quarter, as well as continued consumer hesitance. While this has impacted consumer gross additions, our net activations have benefited from continued low churn as well as the solid momentum of our B2B business, which made up almost half of our postpaid net ads in the first quarter. Our B2B customer base has grown 20% in the last year, and corresponding service revenues are up 19% over the same period in local currency. Our Two Degrees B2B team has built a solid sales pipeline, and we remain very enthusiastic about our growth trajectory. In prepaid, our data monetization efforts continue to be positive with solid ARPU growth year over year and sequentially. This is driven by adjustments we made to prepaid pricing several quarters ago in tandem with increased LTE adoption and data usage. Our broadband base in New Zealand also continues to grow, though at a more modest pace when compared to last year. The local broadband market continues to be competitive with aggressive promotions and discounts offered by others. Our local team has done an excellent job in balancing customer growth with revenue and margin, as can be seen in our third consecutive quarter of increased ARPU. We soft-launched wireless broadband service through a few of our own distribution channels at the end of February and began promoting it more broadly in March. While still early days take up by new customers, as well as the migration of existing wireline customers, has significantly surpassed our expectations. In addition to enhancing our EBITDA as it scales up, as we do not have to pay access fees to a wireline provider, wireless broadband presents a significant 5G use case. On that note, After a rigorous process, Two Degrees recently announced that Ericsson will be our 5G network partner. In addition to providing world-class 5G technology, through working with Ericsson as we build out 5G, we will also double our 4G capacity. Our 5G build program is on track, the first sites being deployed in Auckland and Wellington, with our anticipated launch late this year. Much of our legacy Huawei core was actually approaching end of life, and we were in the process of swapping this out to a new Ericsson core. By combining Ericsson 5G, 4G, and 3G equipment, our network will be optimized for a seamless customer experience using entirely new infrastructure. A date has not been set yet for the 3.5 gig spectrum option, but we expect it will be in the first quarter of next year, with usage rights beginning in November of 2022. We anticipate securing limited-term spectrum next month to bridge our 5G launch until the long-term spectrum is available. As we've mentioned on previous calls, this is a very reasonably priced at $750,000 New Zealand dollars for 60 megs. With respect to the New Zealand operating environment, several COVID cases emerged in the country during the first quarter. The government effectively managed these with two short-term lockdowns, primarily in Auckland, and there have been no community cases since early March. The New Zealand government recently purchased enough vaccines for the entire population, with the rollout expected to be complete by the end of the year. In the meantime, the much anticipated quarantine-free travel bubble opened up with Australia on April 19th. While this has resulted in an increase in travel, it's far from pre-pandemic levels. As such, we do not anticipate a material impact to our financial results this year. Broader international travel to and from New Zealand is not expected until the second half of 2022. About six weeks ago, you'll recall that we announced that we were exploring a partial listing of 2 degrees. We have finished that exploration and can confirm that we are now preparing for an IPO on the New Zealand Stock Exchange and Australian Securities Exchange by the end of the year. Macro indicators remain very encouraging, and our operational momentum in New Zealand continues to be strong with an excellent growth trajectory. Our decision to ultimately list will, of course, depend on market conditions at that time. Turning now to Bolivia, the impacts of COVID, coupled with the competitive dynamics in the first quarter, have disrupted our recent positive mobile subscriber and service revenue trends. Promotional activity has increased in the first quarter for back to school in February, and in March as operators try to compensate for the impacts of COVID in 2020. We have continued to grow our fixed LTE business despite these challenges and have almost doubled the size of our customer base compared to a year ago. Our ARPU on this product has remained fairly stable, resulting in a 67% increase in corresponding service revenues in Q1 compared to the first quarter of 2020. We remain acutely focused on cash management, which, with the benefit of our workforce reorganization late last year, helped to more than double our adjusted EBITDA in the first quarter on a sequential basis. The resurgence in COVID cases in Bolivia has caused several cities to implement restrictions. In most cases, this is limited to social curfews in the evening and on weekends. Mobility in general has improved significantly from a year ago when strict lockdowns were in place, but remains about 20% below pre-COVID levels. The government has been distributing one-time grants of about $144 to unemployed citizens, as well as anyone who received a government grant last year. These are scheduled to continue through the end of May. On the vaccine front, the government has ordered supplies from a variety of manufacturers, adequate to cover about 50% of the population so far, but has yet to implement a distribution plan, however. In the last few months, we have seen increased political chaos and unrest in Bolivia, with the former president, Janine Añez, and a number of her administration being put in jail. We were somewhat hopeful that Arce, given his finance background, would be more moderate. However, it's clear that the more extreme part of the MAS party is causing disruption now that its official leader, Evo Morales, has returned to the country. This has a somewhat chilling impact on investment in the country. We continue to engage with a few parties that have expressed an interest, in acquiring our asset, but the current political climate could impact both timing as well as valuation. That being said, the business is self-funded, and our local team continues to optimize its operating structure to maintain profitability, albeit at significantly reduced levels compared to the pre-COVID period. With that, I'll now ask Eric to take you through the numbers. Eric?
spk03: Thanks, Brad, and hello, everyone. Before jumping into the details, a couple headlines for the quarter. First, another strong quarter in New Zealand as year-over-year service revenues increased 21% and segment-adjusted EBITDA increased 26% on an as-reported basis, with a strong New Zealand dollar providing a 13% tailwind. Secondly, while revenues continue to be under pressure in Bolivia, Effective cost management resulted in sequential growth of segment-adjusted EBITDA in Bolivia. And finally, last week we announced a debt transaction that will effectively extend the maturity dates of the $400 million holdco debt from May 2022 to May of 2023, providing increased strategic flexibility. Before providing specifics on financial results, Note that our reported results may be impacted by changes in U.S. GAAP, as well as foreign exchange fluctuations. Specifically, we implemented the new lease accounting standard in the first quarter of 2020 and the new revenue accounting standard, or NRS, in the first quarter of 2019. Please note that prior periods were not recast for the new standards. Regarding the new lease standard, as a reminder, under U.S. GAAP there is not the same EBITDA uplift as would be reported under IFRS. We estimate that New Zealand EBITDA for the quarter would be approximately $3 million U.S. or $4 million New Zealand dollars higher under IFRS due to the adoption of the new lease accounting standards. Further, the continued strength of the New Zealand dollar relative to the USD also impacted our reported results in the first quarter, providing a 13% year-over-year benefit. As such, where noted, we refer to results on an organic, like-for-like basis, which is excluding the impact of accounting changes as well as foreign currency. We believe an organic perspective enhances comparability between periods. Our consolidated business ended the first quarter with 3.2 million wireless subscribers, Our post-paid wireless customer base as a percent of total wireless subscribers was 24.1%. Our consolidated service revenues in the first quarter of 138.2 million decreased 1% year over year on an organic basis due to our reduced service revenues in Bolivia, which were partially offset by growth in our New Zealand subscriber revenues. Our consolidated operating expenses in Q1 excluding cost of equipment sales, were $131.9 million. This was a decrease of 4% versus the same period last year on an organic basis as a slight increase in operating expenses in New Zealand was more than offset by continued cost discipline in Bolivia. Our first quarter consolidated adjusted EBITDA was $32.9 million, a 7% increase on an organic basis versus last year as we achieved an inflection point in our portfolio where growth in the New Zealand business offset declines in the Bolivia operation. Our consolidated capital expenditures for Q1 were $11.2 million versus $16.1 million a year ago, with the decrease due to timing of spend in New Zealand. At the end of March, we had a total of 2,622 sites on air. This is a 6% increase compared to Q1 of 2020. Turning now to our results by market. In New Zealand, our post-paid mobile base grew 6% versus prior year, and now makes up 35.5% of our wireless customer base, compared to 32.7% a year ago. At the end of Q1, we had 516.4 thousand post-paid mobile customers, more than 108 thousand of which were B2B mobile customers. Our prepaid subscriber count at the end of the first quarter decreased 6% compared to prior year, due primarily to lack of international tourism. In addition, we removed approximately 28,000 aged and inactive prepaid subscribers. Our fixed broadband base grew 17% year over year to 134.2 thousand subscribers. Q1 service revenue in New Zealand increased 7% versus prior year, on an organic basis, which again excludes the impact of foreign exchange and new accounting standards, driven by solid postpaid and fixed broadband customer growth, as well as higher ARPU in prepaid. At the product level, our postpaid revenues in the first quarter were 49.3 million, an increase of 2% versus Q1 2020 on an organic basis. This resulted from the 6% growth in our postpaid base over the year, which was partially offset by ARPU compression of 4% on an organic basis due primarily to the lack of international roaming revenues. Our Q1 prepaid revenues of $26.3 million increased 6% versus Q1 2020 on an organic basis driven by a 10% increase in prepaid ARPU due to improved data monetization, increased LTE adoption, and higher data usage overall. Our New Zealand broadband revenues in the first quarter of $26.2 million grew 23% versus the same period last year on an organic basis due to our 17% larger broadband base and organic ARPU growth of 10% due to reduced promotional discounts and pricing adjustments. Equipment revenue in New Zealand increased 17% on an organic basis in the first quarter due primarily to the take up of higher priced devices by new and existing customers as we focus on retention. Our adjusted EBITDA for Q1 in New Zealand was $32.9 million, a 15% year-over-year increase on an organic basis versus despite the lack of international roaming. Our adjusted EBITDA margin in the first quarter was 31.8% versus 30.7% in Q1 of 2020. Our cost of service increased by 4.6 million, or 15%, primarily due to an increase in foreign currency exchange. Excluding the impact of FX, cost of service increased due to an increase in transmission expense associated with the growth of our broadband subscribers, coupled with other individually insignificant items. These increases were partially offset by a decrease in combined network sharing and national roaming costs due to a network sharing agreement which commenced in the second quarter of 2020. Our sales and marketing costs increased by 1.5 million, or 11%, primarily due to an increase in FX. Excluding the impact of foreign currency, our sales and marketing costs declined modestly, primarily due to a decrease in advertising promotion and event sponsorship costs as a result of higher campaign expenses in early 2020, as compared to 2021. These declines were partially offset by an increase in commission expense associated with higher amortization expense relating to certain contract acquisition costs capitalized beginning upon adoption of the new revenue standard in January of 2019. Our general and administrative expenses increased by 3.3 million, or 22%, primarily due to an increase in foreign currency exchange. Excluding the impact of FX, the increase was $1.3 million, or 8%. This increase was primarily due to an increase in credit and collection costs as a result of a $1.8 million one-time benefit in the first quarter of last year associated with Two Degrees improvements in collections of equipment installment plan receivables, which were previously sold. This increase was partially offset by a decrease in bad debt expense in the first quarter of 2021 due to improved credit management and collection processes. Our Q1 capital expenditures in New Zealand were 10.2 million versus 13.6 million a year ago due to timing of spend between quarters. Our capital intensity for the first quarter was 9.8% compared to 16% a year ago due to timing. We ended March with 1,264 LTE sites on air directly operated by Two Degrees, an increase of 39 sites year over year. Our total site count in New Zealand at the end of Q1 was 1,313. We also have an additional 229 rural sites providing coverage through the Rural Connectivity Group joint venture with the other two New Zealand wireless operators. as well as another 223 sites providing additional network coverage through a sharing capacity agreement. This brings the total Q1 site count to 1,765. Shifting to Bolivia, we ended Q1 with 1.7 million wireless subscribers. The continued impacts of COVID, including a resurgence of cases during the first quarter, led to a contraction of our prepaid and postpaid customer bases. We ended the quarter with 246.7 thousand post-paid mobile customers and 1.4 million prepaid customers. We added almost 2,800 fixed LTE customers in Q1, bringing our base to 22.3 thousand fixed LTE customers. This is a 76% increase compared to the same period last year and a 14% sequential increase. Our Q1 service revenues in Bolivia of $34.7 million declined 18% on an organic basis versus the first quarter of 2020 due primarily to decreases in mobile service revenues. Our postpaid service revenues decreased 22% year-over-year in Q1 on an organic basis due to a contraction in our postpaid customer base. Our first quarter postpaid ARPU in Bolivia declined 3% on an organic basis compared to prior year. Our prepaid service revenues declined 16% versus Q1 2020, primarily due to COVID impacts on mobility and continued pricing pressure in the market, as corresponding prepaid ARPU decreased 16% year over year. Our fixed LTE service revenues were $1.1 million in the quarter, up 67% versus a year ago. Our Q1 adjusted EBITDA in Bolivia declined significantly compared to last year as our reduced revenues were only partially offset by our cost reduction measures. Capital expenditures in Bolivia decreased year over year to $1 million in the first quarter as we continue our CapEx discipline. Moving to our consolidated cash and liquidity position. At the end of Q1, our consolidated cash balance was $93.3 million in cash and cash equivalents and restricted cash. This is almost double the cash balance from a year ago, primarily due to the $50 million of debt raised at the holdco level in October of last year. $30.4 million of cash was held by Two Degrees, $30.9 million was held by Nueva Tel, and the remaining balance held at corporate. With respect to our capital structure, consolidated debt at the end of Q1, including the $400 million of Trilogy's holdco notes, plus local debt and other, was $667.6 million. At the end of Q1, $285 million New Zealand dollars was outstanding on the senior finance facility in New Zealand. In Bolivia, our debt outstanding totaled $36.5 million, which includes $4.5 million related to prior tranches of the tower sale leaseback, which was closed in 2019. From a consolidated gearing standpoint, net debt to consolidated ALTM adjusted EBITDA was five times at March 31 versus 3.9 times a year ago. Both the New Zealand and Bolivia businesses have a reasonable margin of compliance on their local debt covenants. As previously mentioned, we recently announced the Trilogy Debt Transaction which extends maturity dates from May 2022 to May of 2023. On our call in March, we discussed that we were evaluating an optimal debt structure given the potential near-term IPO in New Zealand and the potential deleveraging opportunity. We are pleased with this debt transaction which ticks this box and provides the company with increased strategic flexibility in terms of additional runway. We are also pleased that each of the rating agencies recognized the strategic rationale of the transaction and commented on the exchange as a credit-positive event. As Brad noted earlier, we are advancing on our IPO plans in New Zealand and are preparing for a partial listing of 2 degrees by the end of the year. Of course, plans could change depending on market conditions. Consistent with our announcement in March, we expect this IPO to include primary proceeds to accelerate some growth initiatives and would also enable Trilogy via secondary proceeds to significantly reduce Trilogy's holdco debt. Lastly, earlier this year, we provided our 2021 growth outlook for New Zealand of 2 to 4% for both service revenue and segment-adjusted EBITDA. While certain COVID-related risks remain, financial results to date have exceeded our expectations. As such, we are revising upward our 2021 growth outlook in New Zealand to 4% to 6% for both service revenue and segment adjusted EBITDA, which again excludes the impact of the new revenue standards and foreign currency fluctuations. With that, let's go to questions. Holly?
spk02: Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Jeff Fan. Please announce your affiliation, then pose your question.
spk04: Hi, good morning, everyone. It's Jeff Fan from Scotiabank. My first question is just on New Zealand. The service revenue growth overall, when we look at mobile and broadband combined, looks like it's roughly 7% excluding any effects. And that number, I mean, I suspect you are gaining share on an overall basis, particularly in broadband. So wondering if you can just comment a little bit around the competitive environment in broadband and maybe even touch on mobile, the runway that you see in terms of share growth, revenue share, market subscriber share, and what this means for the long term margins for the New Zealand business. Thanks.
spk07: Great. Jeff, that's a seven-part question. I'll take some of it, and Eric can chime in. I think that from a competitive standpoint, no real change from the last quarter. Vodafone has been the most aggressive with its broadband offerings, which kind of suggests to us that our growth has probably come largely their expense. You know, growth in broadband in the B2B section is an opportunity that we think is going to take off. But probably most significantly, you know, recall that I'm an educated guess on the number of broadband customers in the country that are still on copper. or ADSL and VDSL service offerings, probably over 25% of the existing base across the board still utilizes that service. And we view that as one of the prime targets as we move more in a fixed wireless environment. I commented earlier that we had just tentatively launched A fixed wireless service offering. We're currently doing that today with 4G in areas and markets where we've got capacity. Spark pretty much led the way starting a couple of years ago and managed to put about 150,000 subs on that service. The response when we started doing some marketing on that has been strong. And recall that you know, over 50% of the ARPU in a typical broadband customer today is driven by the, is just basically recouping the cost that we are spending for access. You know, a $75 ARPU, a $75 Kiwi ARPU customer today on fiber or on copper, costs us about $40. In a fixed wireless service offering, whether it's 4G or at the end of the year and next year, the bulk of that will be on 5G, that $40 to $45 access cost disappears completely. So I think that the increased take-up from existing copper and ADSL customers will drive our growth, and then the elimination of the access charge is going to improve our margins overall. On the mobile side, I'd characterize it as business as usual from a competitive standpoint. We have noted that Vodafone has been more aggressive than Spark. in driving different initiatives and everything else. There seems to be a bit of a downward spiral in terms of where they're taking things, and we've stood pretty steadfast in not responding and continuing to drive our brand proposition, our fighting for fair, you know, mentality, which we communicate, you know, very aggressively, I think continues to resonate for us. So I think we're in great shape going forward.
spk03: And then, Jeff, it's Eric. A couple additional comments on your margin question. You know, just in terms of, you know, margin profile overall for the Two Degrees business, you know, go back to 2017. margins of 25%, and now looking at Q1, 32%, and that's without high margin roaming revenue. So continue to see the benefits of scale, benefits of cross-selling and bundling. As broadband continues to scale over 130,000 customers, there is some downward pressure on those margins given the lower margin profile of the broadband business, but then as Brad mentioned, Fixed wireless, you know, as that begins to scale with 5G, that will provide a meaningful margin uplift. So, you know, as we sit here today, we see, you know, opportunity for further margin expansion as the overall business continues to scale.
spk04: Thanks, both. Just moving on to the spectrum, the mid-band or 3.5 coming out of New Zealand in the next 12, 24 months. Do you have any expectation as to how much of these will likely be available for auction?
spk07: The yes is the short answer. The thing that is not determined yet, if you may recall, you know, the Maori market, have in the past, and I think going forward, have successfully claimed that they have rights to spectrum going forward as a kind of a logical extension of the treaty that was done long ago with that. So what's not known today is what that set-aside is going to be. Ideally, we have been lobbying And from an engineering perspective and everything else, that ideally, you know, we, first off, we want parity with the others. And we're anticipating that after the, that inclusive of the set-aside, that each operator will receive somewhere between 80 and 100 meg of spectrum.
spk04: Oh, that's great news. And just finally, as we kind of look past the IPO that you're planning for this year for the New Zealand business, I wonder if you have any thoughts on the current legal and holding company structure post that. Is that still something that you think is valid or do you contemplate potential changes down the road?
spk03: Thanks, Jeff. It's Eric. In terms of strategic roadmap, step one, getting the extension in place, gives us some strategic flexibility as we look forward. And as we mentioned, that's an efficient structure for us as we think about the IPO and the potential deleveraging that comes from that. Pro forma for the IPO with significantly reduced holdco debt, you know, at that time we would think about, you know, what is the right capital structure and holdingco structure, you know, at that time. So, you know, a few things to play out between now and then, but, you know, pro forma for that IPO we expect that we'll have, you know, be in a position to, you know, reduce overall cost of capital and have a more optimized organizational structure.
spk04: That's great. Okay, thanks, everyone.
spk02: Your next question is coming from Bentley Cross. Please announce your affiliation, then pose your question.
spk06: Hi, it's Bentley Cross with TD Securities. Hey, Bentley. I wanted to follow up. Hi, guys. I wanted to follow on Jeff's question on the broadband space. The way I calculate it, ARPU in local currency was up for the first time in a long time. I wonder if there's any anomalies there or if that is just an easing of the competitive market to some extent, or maybe better said, a less intense market than it once was, which I think historically has been pretty fierce.
spk07: You know, I wouldn't, let's see, I wouldn't characterize it as less, you know, I think that some of the promotional offers, you know, have been toned down a bit. You know, our growth in broadband, you know, in the last two quarters, you know, while still consistent and positive, was lower than it was before. But I think it's clear that the, you know, aggressive signing credits, I think at one point – I don't know, six months ago or so, Vodafone was offering a 600-meg signing credit for broadband customers, and I think that probably stimulated some customer churn. That was followed by the inclusion, if you will, of a, for lack of a better term, a Wi-Fi mesh solution. that if you were a new subscriber, you know, you would get, you know, this additional product set included with your subscription, which adds some significant cost to that. We basically now offer that same Wi-Fi mesh kit along with our new subscribers, and so I think that's helped stabilize the retention elements of it.
spk06: Maybe I can just follow on with that. After years of pressure, is it fair to say that you're hoping or expecting ARPU in the broadband space to be a little bit more flat than it has been?
spk07: No. And I'll caveat that as 5G rolls out, The different operators have all, you know, prognosticated, you know, their views on what percent of their base is going to be using that. Now, keep in mind, you know, the $40 to $45 access charge in all cases goes away with wireless broadband customers. But Spark, I believe, has said that they're expecting 30 to 40 percent of their base to be on fixed wireless. And what we have seen in the market today is that fixed wireless is being offered at a lesser charge than what fiber is today. There's been some aggressive activity, mostly in the rural space with wireless applications. Vodafone, for example, is charging $40. Spark is charging $45. These are for wireless broadband customers, but the fine print is that the speeds and the capacity are significantly reduced from what customers are used to. It's a classic, you're going to get what you pay for in that. In our case, for example, if you go to our website, you'll see a wireless broadband offering. You know, compared to fiber and wired, we're charging $55 for that service now. But like the others, that's limited to 300 gigabytes per customer. So I think the ARPUs, we have been less aggressive than Spark in forecasting, but we think our broadband services penetration is going to be as it relates to wireless, which will be a combination of, you know, upgrading or switching and migrating some of our existing customers, ideally taking more customers that are outside of the Two Degrees family already, you know, into that base. But I think that fixed wireless offerings are going to be priced below the current fiber offerings. And so while I think our growth in share will increase, and I think that our margins, you know, will increase. The actual ARPU as wireless penetration in our base, you know, goes from basically zero today, single digit maybe, you know, to, you know, 10%, 20%, you know, overall. Just the math suggests that... that'll put pressure on the overall ARPUs. So share will increase, margins will increase, ARPU should decrease.
spk06: I appreciate the candor. You bet. One for Eric, if I may. Eric, can you help level set expectations? You said 4% to 6% organic growth on EBITDA. Given where rates stand right now, can you give us a dollar figure just so we don't have to try to do the guesswork of the NRS impact?
spk03: Sure. On an organic local currency, excluding the benefits of NRS on the EBITDA line, it was roughly mid-160s million New Zealand dollars. And then for the range that we put out there, it would be low to mid-170s on the EBITDA line in a local currency.
spk06: Thank you.
spk02: Your next question is coming from Drew McReynolds. Please announce your affiliation, then pose your question.
spk05: Yeah, thanks very much, Drew McReynolds from RBC. Three for me. First, on New Zealand CapEx and CapEx intensity, Brad, you obviously alluded to the deal with Ericsson and swapping out of equipment, and then, of course, you know, the upcoming spectrum auction, you know, what kind of CapEx intensity looking beyond 2021? Are you kind of comfortable in penciling into a forecast? Secondly, just on the Bolivia side, maybe again for you, Brad, can you just update us on, you know, the sales process or any process? Has it been completely halted or, you know, are there kind of things still moving forward? And then Lastly, you know, you did say that there was 25% of, I guess, the New Zealand broadband subscribers that, you know, are kind of, I guess, not on fiber. In terms of your wireless coverage, do you cover that entire 25% footprint or something smaller than that? Thank you.
spk07: Yeah, let me, in reverse order to your questions, I'll take the first two, and then I'll let Eric talk about the capital intensity related to 5G. And some of this is a bit of a highly educated, you know, sort of estimate. As you'll recall, we are, in a partnership with Spark and Vodafone in what's called the Rural Connectivity Group, which is providing, by the time it's done, an additional 400 or 500 sites, which are predominantly covering roads and the rural aspects. In terms of the... number of additional households that will come under that footprint. It's pretty small. I believe it's about 20, 25, 28,000. There's a number of wireless rural internet service providers that are providing some of that service today, but those customers, you know, I think will represent some additional growth for us. However, they're already on some form of wireless solution today. On the customers that are not using fiber today that are on either, you know, legacy cable or VDSL and all of that, I would expect, you know, that the bulk of the focus on our marketing activities is And keep in mind, a fair amount of our acquisition on broadband customers comes from our care, you know, kind of a telesales group within our care organization. So it's not a broadly, you know, external advertised thing. We know, you know, we know who those customers are and we know what we've got, what, you know, what they're using. So we can be pretty targeted within our own base on the migration. And then I think you're going to see a lot of marketing activity above the line from everybody, with the primary target being the copper guys as targets for this. On the Bolivia sale, there were, at any given point, two to five different parties participating. that were in various stages of, you know, due diligence, you know, and exploration, a number of which had as partners, you know, very well, you know, high net worth Bolivian, you know, families that are very well integrated across different sections of the business in New Zealand. The external partners, you know, were predominantly U.S., They were predominantly financial, and they were relying heavily on the views of the locals. Two of those basically have declined to move forward without saying as much. This was completely at the same time the current administration had been starting to imprison the previous administration. There have been a number of elections within the states on mayors and everything else. There's been a lot of vocal opposition on that. And so I think it's just leading right now to a period of less stability that was in place before. And that's just had a chilling effect. Conversations are still going on. We have continued to indicate that You know, we do intend to exit the business. We're motivated to do so. That being said, you know, we do have, you know, well over a million and a half customers, a significant, you know, amount of annual revenue, a significant amount of infrastructure, you know, that's built in the country. So the foundation is there, you know, for somebody with some additional capital to invest, you know, a stomach to – withstand, if you will, the political machinations that seem to occur in the country. So I think the timing, you know, the biggest impact is going to be initially timing, getting things to settle down a bit, you know, politically. And then obviously, as we go, you know, quarter to quarter, you know, valuations are, you know, presumably going to be lower than they were in the past, you know, but from our perspective, you know, a clean exit is what we're looking for. And, you know, we're cognizant that by any metric that's absent consolidation, any metric that somebody looks at is going to be using traditional Latin American multiples on either trailing or going forward. But as we've indicated in the numbers, you know, ARRIVA has been severely impacted from COVID, you know, over the last year. And it's just going to be math after that.
spk03: And then, Drew, it's Eric. Coming back to your question around capital intensity in New Zealand, just to level set, as you know, your capital envelope in, you know, 19 and 20 was, you know, in the high teens, CapEx is a percent of service revenue. The outlook that we put out there indicated capital intensity of low 20s as a percent of service revenue in 2021. And then as we work through this 5G investment cycle, we do expect on an absolute dollar basis that the CapEx will remain elevated for the next couple of years, although with the service revenue growth that we expect, that capital intensity as a percentage could come down to some degree. The Two Degrees business today is fully funded for this build plan, although the IPO primary proceeds that we referenced, that could contribute something in terms of accelerating 5G deployment in New Zealand. We believe there's a strong business case for this elevated capital spend overall. As we think about 5G return on capital, and specifically the fixed wireless product and the margin profile that it brings, we believe, you know, a creative overall and supports a strong return on that elevated investment capital.
spk05: Okay. Thanks to you both for that. Thank you.
spk03: You bet. Great. Thanks.
spk02: You do have a follow-up question coming from Jeff Zahn. Your line is live.
spk04: Thank you. I just want to go back to the New Zealand broadband market structure for a second. There's course out there with a wholesale service. Based on your comments, Brad and Eric, about the wholesale or the access cost, obviously something's not working. That cost is probably too high for for service providers to even ride on, which gives you the opportunity for fixed wireless in offering a product that's better than what's out there and can generate better margins. But to have that runway continue for you to grow share, I guess that situation wouldn't get fixed. But is there some things on the horizon that could perhaps change that dynamic for Chorus and and what that might mean for the broadband market? I know it's a really open-ended question, I'm sorry, but something doesn't seem to be right with respect to that market structure on broadband.
spk07: No, you bet. It's a great question, and it's an interesting question, too. And, you know, without having any insight, you know, strategically into what Chorus is thinking about, you know, in the short term, My sense has been they've been enhancing, I forgot the brand name that they're using on it, but they've been enhancing their fiber offerings to even enhance the speed and its virtually unlimited capacity with that. And I think that they are of the view that their fiber product is going to compete very effectively against the wireless against the wireless broadband services. It is, and we've been always pounding the table in Wellington and everywhere else, that access charges are too high across the board in terms of what we are all having to pay for those services. I think the more interesting question and this will go out for years, you know, nothing in the short term. But, you know, Chorus today is restricted, you know, to being a pure wholesale provider. There's always been the thought in the back of all the operators' minds that if Chorus were to be able to change that status and to become a retail service provider, first of all, that will take legislative action, you know, and proposals and, you know, who knows, you know, who knows what the length of timing, you know, that that would be. But I think, you know, intuitively, I would think that, you know, any development of that thinking or trying to initiate anything along those lines would you know, would be driven by what the impact of the three operators today, all in effect having a serious, from our perspective, competitive fiber offering, you know, with 5G at a lower price. And I think to the extent that that, to the degree that that damages Chorus or starts to impact Chorus will probably influence their thinking on a regulatory perspective. I think that there is, and I would assume, you know, that within Corus, you know, they realize that the incumbent, that the fixed, you know, the copper base, you know, that's in place there, you know, is the most vulnerable, but with no ability to do anything, you know, on a retail perspective, it's still there. The other significant element, and I can't minimize the dramatic change that 5G wireless is going to provide. If you think about, and we've talked about in the past, the logistics of providing fiber today, of a customer upgrading to fiber today, while we'll be the one selling the service, Corus is still the one responsible for the installation. And whether that's tearing up a driveway, digging through you know, somebody's yard, you know, combine that with COVID and, you know, nobody wanting anybody, you know, any strangers or anybody tracing through, you know, their houses and all. That entire element of provisioning, which is a real pain to go through. In some cases, the actual interaction between a customer who is planning to upgrade and ourselves is you know, because Corus is still the middleman in that provisioning, there could be eight or nine different interactions, you know, actual communications, you know, between our care department and the customer in terms of trying to get clarity, you know, on timing and everything else. That's all going to disappear with a fixed wireless service offering, and I think that is going to be you know, a very, you know, a very attractive thing from a customer perspective, you know, but from an operator's perspective too. You know, if I can reduce nine phone calls, you know, down to one, you know, which is make sure the address is right for a plug and play modem, you know, to be sent and you're immediately on business, I think it's going to really help to our operating efficiencies as well. But you're right. I mean, there's a legacy, there's a legacy scenario in New Zealand with a single wholesale provider with basically no barrier to entry for anyone to become, in effect, an ISP. But, you know, technology is changing that dramatically, and that model, that historical model, isn't going to really work going forward, or it's certainly going to be impacted by the success of 5G. So long-term... You know, long-term, it'll be interesting to watch. You know, you may recall several years ago, VOCUS was trying to sell their New Zealand broadband business, and there were a lot of communications between ourselves and other parties in New Zealand. But the center of a lot of those conversations was really the targeting, if you will, of that existing copper base. you know, that was there. And then I think from a chorus perspective, you know, basically being an infrastructure provider, you know, is there, you know, is there an opportunity for them, you know, in a 5G world to expand, you know, their infrastructure footprint? To date, you know, there's been no material, you know, developments or discussions, you know, in regards to that. But, you know, strategically, they're in kind of a unique position right now. And it's going to have some tough strategy directional things to follow. But the net of it is any change from becoming a wholesale provider is going to be a very lengthy legislative process. And my guess, it would be years in the development, not in the short term.
spk04: Great. Thanks for the call, Brett.
spk07: You bet.
spk02: Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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