Q3 2019 Earnings Call
Please standby your meeting it's supposed to be Ken good morning, Ladies and gentlemen, welcome to the <unk> Q3, 2019 results conference call I'd like to turn the meeting all worked Mr. same fotopoulos. Please go ahead Mr. fotopoulos. Thank you Donna and good morning, everyone. Joining me for the call today, our George Cobiz, President and CEO Merkel vintage.
Bill Chief operating officer nurses.
As most of you know this is George as well.
Before he retires at the beginning of next year as a reminder, our Q3 results package. Another disclosure documents, including today's slide presentation are available on Pcs Investor Relations Web page over before we get started I want to draw your attention to our safe Harbor statement I'd like to information. This presentation remarks made by the speakers today will contain statements about expected future events.
And financial results that are forward looking and therefore subject to risks and uncertainties. These forward looking statements represent a record.
As of today, and therefore [noise].
[noise] same any obligation to update.
Forward looking statements, except as required by law on that money handover the call for the last thing.
Good morning thing a good morning, everyone. Thank your for joining US this morning I.
Let me turn to the pilots or the quarter and they're going to turn it over to Mirko and Glenn and wrap up with a couple of comments before we go to acuity.
We clearly had a very very strong third quarter from a wireless perspective.
Our strongest third quarter on record would net adds up 204000 in the quarter were approximately 15%.
Also importantly in the competitor marker we had a we saw a 1% increase in our average revenue per subscriber and we saw a decline in postpaid churn to 1.12% delivered strong revenue growth of three and a half and with.
Even with those strong gross adds and net adds drove.
7.9% EBITDAR growth.
And I also found it interesting that our service revenue in the traditional way a quarter over quarter last year was about 70 and this time about 91 million. So really nice strong underlying core service revenue growth.
So.
From a broadband perspective overall growth of 294000 subscribers up 8.4% year over year.
Our fiber strategy continues to pay dividends for all our investors, where we saw 50000 total internet net adds.
Up approximately 10% on the year.
Also important in a seasonally soft positive RG you net adds delivery on the wireline footprint.
I think we'd all agree media had very strong quarter with higher revenue and adjusted EBITDA and cash flow, which Glenn will talk to.
Quite proud on my last call. It was our 56 consecutive quarter of year over year consolidated.
EBITDA growth with 5.6% in the quarter.
Our product leadership.
Differentiation is truly paying off.
Enabling us to leverage the growing demand.
Of the digital ecosystem.
Our wireless networks to be leadership is enabling us to take market share.
Not become a price shop.
Our focus execution across all bail Bell segments, you get together with a declining capital intensity ratio.
Drove a strong 17.3% cash flow growth in the quarter.
With that let me turn it over to Merkel to take you to the results and Glenn that I will wrap up with a few comments before we go to <unk>. Thank you.
Thank you George and good morning, everyone I'm Gonna start on slide six and as George mentioned, we had another excellent quarter of subscriber results for Bell wireless total net adds of 204000 that was up 15% over last year and as George mentioned, a record number of new customer additions for Q3 and best overall subscriber for.
Formats, and almost 13 years.
And although all our peers have not yet reported we believe we let the Canadian industry in terms of market share of net customer additions.
So a great results for the Bell wireless team that continues to execute at a high level quarter after quarter.
Our postpaid net adds totaled 127000, which has a strong result, given that includes significantly fewer year over year customer additions from our long term contract with the federal government.
If you normalize for that government contract postpaid net ups were up nicely over last year as George mentioned this reflects our bell mobility network speed leadership superior sales channel execution, and lower postpaid churn even in the face of greater market activity driven by the introduction of unlimited data plans and you did.
Vice financing financing options that we of course matched to remain competitive.
The important takeaway here for investors is that with our harmonization and simplification of rate plans across all carriers. They keep point of differentiation that customers are now focusing on his network performance and on that front, we clearly come out ahead.
For prepaid with the ongoing success of Lucky mobile and our national retail distribution agreement with all around we continued to deliver excellent results. Our total prepaid net adds were 77000 in the quarter, 81% higher than last year.
Undoubtedly we're taking market share in this segment.
And over time, it will serve as a good source of postpaid subscriber growth as we convert customers over to postpaid service.
Lastly, again as George mentioned blended ARPU grew around 1% this quarter, even with the dilutive impact of the unlimited data plans. So rather noteworthy achievements that we maintain positive ABPU growth in the face of some of the most significant structural changes to have hit the K wireless industry and the number of years.
So I'll turn over to page or slide seven on wireline.
An excellent quarter for Internet with more than 15000 retail net ads and what is typically a seasonally more active quarter for the industry that number is 9% higher than last year, reflecting a record number of gross customer activations and lower churn.
And as a direct result of our steadily growing fiber footprint, we added 78000, new subscribers to our FTT h. customer base.
Our direct fiber footprint, which now encompasses more than 5 million homes and businesses offer speeds of 1.5 gigs as you know I think it'd be hard pressed to find any other market anywhere that comes close to this.
So the footprint advantage that we're building positions us very well in our consumer and business segments over the long term to significantly grow broadband market share and internet revenue.
Which you all know yields an EBITDA margin as high as high as voice.
On the IP TV front, we added 32000 net new subscribers, which is a very solid result, given the already high rate of customer penetration in our current five markets.
Relatively minimal new service footprint growth for TV, increasing maturity of all TV and continued over the top substitution.
Notwithstanding these healthy Internet and TV sub results, we continue to work aggressively to maintain product leadership in the home with more advanced features that keep US ahead of our competitors in the marketplace.
For example, and most recently, we launched the second generation of our whole home Wi Fi pods that enable two times the speed of the previous model, while allowing for more devices to run simultaneously on a larger coverage rate yes.
And on the TV front, all our customers can I'll pause and we wanted live TV on any device with the five TV app.
This new feature Jones joins download and go restart and wireless TV in a growing list of innovations that have helped make bell the number one television provider in Canada.
And I wanted to touch also called out what was really a good and as a result this quarter residential local line losses improved 10% over last year as we cycled through the market shift from three product to two product service bundles that began mid last year.
So to conclude on wireline are really strong quarter overall from an RG perspective with positive total retail net adds including that in satellite TV deliberate in our wireline footprint for the first time and nearly four years. Clearly this is a testament to our broadband network investments in broadband leadership that continue to pay dividends for us.
Well move to slide eight now on media.
Another stellar quarter for Bell media, where our market, leading ratings and programming together with a sharp focus on cost control delivered improved operating profitability and more importantly, strong cash flow generation.
We had continued leadership in terms of viewership for CTV with the most top 10 shows nationally, including the Amazing race, Canada. The number one program of the summer and the top Canadian series of the 2018 19 broadcast year.
And CTV is also off to a strong start for the important fall season with the highest audience levels of any network during premier week.
Turning to specialty and TSN in particular it was once again the country's top specialty network not just in the sports category, but also among all specialty channels overall for Q3.
That speaks to the breadth and quality of our premium sports programming.
Which this past quarter included U.S. open tennis with average audiences, which were 71% higher than last year.
Thanks to the history, making performance of Bianca Andreski.
In fact, the women's final was the most watched tennis broadcast ever on TSN, averaging more than 2.6 million viewers, which was even higher than the 2019 Stanley Cup final.
And then equally strong performance in the quarter for our top rated French language sports network, Rds, where viewership among total viewers was up 16% over last year.
And for Bell Media's English entertainment specialty channels overall, they posted record audience growth in the latest broadcast year with a 21% increase in viewership among adults aged 18 to 49.
And most notably when we talked about English entertainment specialty the comedy network became Canada's most watched specialty service, finishing with a record 61% growth.
Bravo grew its core audience by 26%, making it the most watched year on record for that channel and gusto had its best year on record as well reporting a 49% increase.
Lastly, you will see from our you're seeing from our press release yesterday that we announced that we partnered with Warner Brothers International television to bring H.B. Euromax programming to crave and CTV.
This new long term exclusive deal, which extends our longstanding partnership with HBIO is the first agreement to distribute the highly anticipated new content outside of the U.S. and on that I'll hand, it over to Glenn for a review of our financial results.
Thanks, Marco and good morning, everyone I'll begin on slide 10, with consolidated financial results for Q3, we posted another strong quarter results consistent with our guidance targets for 2019, reflecting positive topline growth and higher year over year operating profitability at all.
Well operating segments.
It will be CE revenue was up 1.8% year over year, which together with the favorable impact of IRS 16, accounting and cost savings delivered a healthy 5.6% increase and adjusted EBITDA and 1.5%.
Increase in margin.
Consistent with this EBITDA growth as well as the net mark to market gain on equity derivative contracts attributable to the increase in BC share price in Q3 net earnings increased to 6.3%.
Adjusted EPS was down five cents compared to last year due to lower year over year tax adjustments, which I will detail later in my presentation.
Lastly, and perhaps most importantly for a dividend stock like <unk> free cash flow grew a strong 17.3% this quarter to approximately 1.2 billion on positive and higher year over year contributions from all three bell operating segments.
This fully supported our more than 1 billion of capital spending in the quarter.
Let's now turn to Bell wireless financials on slide 11.
Although Georgia Mirko have said this I can't help but would be simply put.
Another quarter of excellent results.
By the dilutive impact of unlimited data plans, we enjoyed strong sequential quarterly revenue growth.
Total revenue was up 3.5%.
The result of industry, leading subscriber growth higher year over year prepaid contribution effective reprice management as well as greater sales mix of higher valued smartphones and rate plans that drove 6% increase in product revenue.
In terms of operating profitability adjusted EBITDA grew 7.9%, even while bell mobility delivered its highest number of quarterly gross activations ever.
This was driven by a high revenue flow through to EBITDA disciplined spending on promotional back to school offers and the favorable cost benefit of Ibrance 16.
On the capital spending front, although our capital intensity ratio remains low we continue to invest in the employment.
Small cells and fiber backhaul in preparation for Fiveg because of our significant wireline fiber investments as well as our network sharing arrangement with tell US we were able to maintain and industry low.
Wireless capital intensity of around 7%.
Which is contributing to a reduction mbcs overall consolidated.
Hi level.
Moving to wireline on slide 12, consistent with previous quarters data service revenue grew 3.3% in the quarter. This was as a result continued healthy residential internet and TV revenue growth of around 3%.
As well as increasing business customer demand for fiber and bandwidth that drove IP broadband connectivity and business service solutions revenues up 7% and 3% respectively.
However, total wireline revenue growth moderated this quarter. This was the result of steeper year over year voice revenue decline.
Up 7.1 computer around 5%.
In first half of the year a year over year decrease in low margin business data equipment sales that can be rather lumpy from quarter to quarter and the lapping of the Akcea acquisition beginning.
Beginning in September with growing broadband Internet subscriber scale improved operating profitability that bill business markets and lower year over year operating cost wireline EBITDA increased a healthy 1.4% driving a 50 basis point increase in margin to 44.2.
And more impressively. This was achieved despite an acceleration in voice revenue erosion in the quarter and storm related costs, we incurred because of hurricane Dorian in Atlantic Canada.
Turning to Bell media on Slide 13 continued strong financial performance was once again this quarter as Michael mentioned total revenue up 2.7% year over year is what it did what is seasonally low quarter in the media industry in general subscriber revenue increased 7% year over year reserve.
Sales of significant growth in crave customer subscriptions.
Over the past year in the flow through of higher rates for our enhanced crave streaming service launch last November .
Advertising revenue up 1.9% year over year, when you exclude the $10 million and nonrecurring revenue generated in Q3 of 18 from FIFA World Cup soccer.
This increase reflected stronger year over year conventional TV performance, which benefited from the federal election, as well as higher year over year revenues and specialty TV, New services C. B 24, and natural bottom hole.
Lastly, similar to previous quarters, adjusted EBITDA growth was exceptional increasing 24.2%.
Is driven by a flow through of higher revenue and a 4.4% year over year reduction in operating costs.
Benefited from both the positive impact of I ever a 16.
And programming cost savings as last year's results included the broadcast the sports broadcast.
As I mentioned of the FIFA World Cup.
Let's turn to adjusted EPS Slide 14.
Summarizes the main components of adjusted EPS for Q3, which was 91 cents per share down five cents compared to last year.
Higher adjusted EBITDA drove 11 cents of year over year growth, but was largely offset by higher depreciation and net interest expense due mainly to the adoption of virus 16 accounting.
In aggregation IRS 16 had an approximate one cent unfavorable impact on EPS in the quarter also negatively impacting adjusted earnings this quarter was lower year over year tax adjustments as last year's results included 88 cents EPS from favorable resolution of uncertain tax positions.
Related to our acquisition of MTS.
Lastly, as is typical.
Typically the case in Q3, we picked up our share of operating losses from our minority interest equity position in them unless the which similar last year totaled three cents per share. This arises from the fact that Q3 is seasonally low quarter. It MLS see as there were no gain or other game related revenues generated during the summer off.
Season for hockey Investable.
Let's turn to free cash flow on slide 15.
We generated close to $1.2 billion of free cash flow this quarter, bringing year to date cash generation to more than 2.9 billion or 15% higher than last year.
Thats very strong growth was the result of higher adjusted EBITDA lower cash taxes that reflects the timing of installment payments versus last year as well as a favorable Ursula working capital from Q2 attributable to higher.
Customer receivable collections.
This quarter's results also reflect that higher into space due to the imputed interest on the lease liabilities under item for Us 16.
Regarding financial activities in the quarter, we took advantage of a low interest rate environment to complete a 10 year $550 million Canadian public debt operating offer in September .
At 2.9% coupons to this was the lowest financing rate we have ever achieved on the tenure MTN issuance.
This maintained our after tax cost of debt at a historic low of 3.1%.
This ensures good from predictability and debt service costs, while helping to insulate against future interest rate volatility.
And more notably we have no near term financing requirements as our next maturity only occurs in April of 21.
Lastly, despite the unfavorable impact of the lower discount rate due to declining treasury bond yields the Bell Canada.
Defined benefit pension plan remains fully funded under solvency ratio of 102%.
Thats been enabled by a relatively high proportion of fixed income investments in the pension plan, which now represents 71% of our asset mix and as a result, no special voluntary pension top up contributions are expected to be made at the end of this year.
This is quite a shift right and I was looking yesterday.
Less than eight years ago, our solvency ratio was sub 80% at 79%.
Over those eight years, we have had to put $3.5 billion in special deficit funding into the pension plan.
And when I look out to the future that is an incredible burdened behind us on on free cash flow. So when I think about the future and the state of our pension plan I'd like to think that 3.5 billion is in the rearview mirror and certainly not something we face in the future.
Wrap up on slide 16, with three quarters of strong consolidated growth already reported we remain firmly on track to deliver on the financial guidance targets that we provided at the beginning of the year.
Entering Q4, we remain competitively well positioned with strong operating momentum across our wireless.
Wireline broadband businesses and market, leading media assets that generate substantial cash flow for reinvestment in this business.
We look as we begin to look out to 2020 Bcf cash flow remains strong and reliable with growth opportunities had from fundamental business performance continued capital spending and cost efficiency gains.
Cash tax benefits from accelerated depreciation and a stronger pension solvency position all of this well positioning us to deliver ongoing expansion of our leading broadband networks and continued dividend growth next year.
That concludes my remarks, and I'd like to turn the call back over to George to make a few for closing comments, Greg. Thanks, Glenn will open up for questions in a moment.
A few final comments from me before we go to Una.
Actually believed this morning is actually my 100th Investor call.
And it will be my last as a public company CEO . My first was actually in 1994 for clear to 25 years ago. This month.
I'd like to thank all the investors and analysts from around the world.
Who have supported the Companys I've been CEO of.
And in particular.
You are unwavering support.
For the BC turnaround in Canada.
Your company BCD isn't a tremendous has going forward unknown under Merck was leadership.
And a stable executive team.
Second to none in the world on Telecom experience.
Expertise.
I plan to remain keenly interested as a large shareholder going forward.
I believe there is no other telco in the world with an asset base better ready.
To deliver on all the promises broadband fiveg wireless.
And a fiber world combined with an extraordinary and appropriately size media asset going forward.
Clearly BCEI is uniquely positioned.
The leverage the broadband digital ecosystem.
Going forward for years to come.
With that thank you all over the thing.
Thanks, George and I, just wanted to see opportunities and say, what an honor and pleasure its into relevant 14 years.
Before we start the Q in a period Donna just keep the competition as possible ita.
Yourselves to one question every follow what's that we can get too many even in Q.
So with that Donna we're ready to take our first question.
Thank you.
If you have a question and using a speakerphone. Please mr. handsets before making your selection. It you have a question. Please press star one on your telephone keypad.
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Please press star one at this time, if you have a question.
A brief pause will participants register thanks for your patience.
And the first question is from Richard Choe from Jpmorgan. Please go ahead.
Hi, George I, just wanted to ask a big picture question for your last call and you kind of mentioned is a little bit in your final remarks, there, but as you look out going forward in terms of the next few years do you see more of an opportunity with fiveg in the wireless business or with the fiber build.
No that a lot of it has kind of come to fruition and.
You finish.
Yes.
First of all Richard Thanks to the question and tremendous working with you over the years my own my view on that as I don't know, whether thats, one or the other I think I get equally excited on both I mean on the fiber side.
More than 50% through the journey, we probably found it has a clear strategic advantage.
The speeds that Merkel talked about today, just sets us up for the evolution of that growth and of course with Fiveg.
As a whole other level of wireless every 10 years I've been in the industry people talked about the maturing of the wireless industry and then there would be an evolution for the next level of technology and we saw another acceleration in growth and so that opportunity going forward is probably the piece and I'm going to regret the most not being a part of that journey.
Very positive on both and then of course.
No investors know this but I think the uniquely.
Pardon unique part of our asset and I would have to say wasn't really quite foreshadows as its turned out so positively as everywhere. We're building our wireless network, we have a fiber network and so our overall transition costs. The fiveg I think investors are going to be very pleasantly surprised how tight capital intensity going forward and make those.
As happened so I think we're positioned with both and then I think they will actually come together more than ever before and the integration of wireless and wireline at the network level and the customer area will be quite different than it is today five years from now.
And a quick follow from America, how do you look at the transition in terms of the.
Transition to unlimited plans and device financing kind of what's your view on how you measure over the next few quarters.
So first thanks Richard.
We're always going to be competitive so thats. The first principle. So what we're doing as you see from the results is a there is a really strong focus on execution here on on repricing base management. So of course, we have unlimited price plans competitively matched for those who want them, but we also have a whole host other.
Types of plans share plans or otherwise.
Unlimited and not on limited so that we can land customers.
On the right price point for them, but also for for ourselves and our metrics. So there's a difference between having unlimited plans to be competitively match and have that four year or your subscribers.
Difference between that and force migrating everyone to those plans as rapidly as possible. So key thing effective base management, putting people in the right on the rate plans for them and and for us and on a device financing.
We mentioned in Q2 that we had semi ti work to do to be to be in a better position competitively with those we've gone through that work and you'll have seen in that as we start Q4 that.
We're more competitively better competitively matched on that device financing and we're seeing a sales mix shift to those plans as we go alone.
Great. Thank you.
Yes.
Thank you.
Next question is from Jeff Stein from Scotia Bank. Please go ahead.
Thanks, Good morning, and let me just congrats George on agree career.
Well and it's been an order covering you all these years.
I wanted just.
We continue that line of question around the device subsidies I.
I think there is the debate going on in the market I think some carriers want to just only offer.
Installment plans and peas, whereas some carriers might be looking to either keep that option open or just maybe not shift to know subsidies as quickly.
Can you talk about the the the choice that you want to continue to maintain in the market for consumers are you thinking more about going.
All in on the piece or will you continue to lead that option open and then just a related follow up to the to the unlimited.
I guess one question for Overages.
Without.
Hadnt this forced migration faster decline on overage you do have a higher mix I guess relative to some of your peers.
Is there a risk that that we could see that.
Will fall faster for any reason or do you do you see your ability to kind of manage that continue in the foreseeable future. Thanks.
Two comments I'll make one on the device financing versus subsidy will meet the demands of the consumer.
And be competitive.
On whatever front, we don't we were not passionate about either we're passionate about with the customer wants so that'll be our focus is there some real merit on both approaches and we will stay in the market as Merkel said, we're making sure we're competitive across all of it and we think there's a lot of.
Intelligent to some of the comp some of the concepts that are in the markets. So we'll follow those will always stay competitive and don't have a passion on either to be quite frankly, where we make the most money at our consumers and customers had the best choice will be that focus and that's what merkel is driving and on the overage I find it. It's one of the strangest questions I've got is less accelerate.
Person is accelerating the faster some of Thats a less risky approach we managed our base as we think like I think our wireline maybe is where you ought to look to everyone and look at our management of our NAS and those things over the years. We know we have to meet the customer demand Merkel said, we've got to be competitive and we'll make sure consumers have maximum choice. So there are some plans it may be.
Different so we're just manage our business and Merkel wells, we always happen.
And we'll leave competitors do what they think is right.
Thank you.
Thank you. The next question is from.
Aravinda Galappatthige from Canaccord Genuity. Please go ahead.
Good morning, Thanks for taking my question and my best wishes to Chile.
As well.
I wanted to touch on the regulatory side, obviously, we have a couple of items.
Still very much alive.
On the wireless front, the prospect of NVNO mandated access.
That's true make Canada, one of the very few countries with that.
Back kind of regulatory regime, when you kind of think about said if the.
The caused.
It's coming from the regulator as well as on the political front, how do you see that this playing out and perhaps in mid may be a little bit premature Heidi what is that what are the options available to an incumbent as you look to manage through.
Scenario like that.
Thanks.
Thanks for the question our focus is going to be.
On the regulatory hearings coming up in the early part of of next year and really the approach going in is tough to focus on the fact.
And we just had to see RTC report a couple of months ago, which found significant declines in mobile prices.
Thats on top of a recent stats can report that also found that prices had decreased quite significantly by more than 50%. We all know just from our price plans ourselves whether its bell or Virgin the data prices per gig have dropped dramatically over the last three four years and that without even fact.
During in the price impacts of unlimited plans, so on pricing huge movement being delivered by facilities based competitors across the country. That's a fact and that's a compelling fact and from a policy point of view, we just got to it's not just about price right. It's got to be about coverage and quality of networks and we are at an important.
Mark in the road here, we can sacrifice coverage and quality by making the wrong regulatory decision, especially as we're on the cost both.
Fiveg and its unfortunate we've seen some some regulatory decisions over over the summer that I've gone too far and they've actually had direct impacts on capital investment by ourselves and but not just ourselves by our peers as well and we've heard some of the commentary from a couple of our peers just in the last week about how right.
Inventory decisions have affected their investments and the bureaus warned about this and if you go to foreign regulatory decision it will impact investment and that's not good for the country. So going into next year and those are the key points shoot positive movement for consumers on prices and let's let's always be mindful about investment because we want to lead and.
Coverage and quality as well.
My own in addition to it is the Canadian government and the CRM Ccs falls through directors have have.
Concept that network infrastructure is critical to the country, we have for wireless infrastructure providers, possibly the end of this year more than United States has theres a merger and we're all in the customer Fiveg bills and providing other than one country in the world The best Fourg networks on the planet.
Balances correct that will be the position and I'm highly confident the government, we'll see that appropriately given the competitive outcomes in the marketplace and we're seeing.
Well that next question.
Thank you thanks.
Thank you.
The next question is from Vince Valentini from TD Securities. Please go ahead.
Yes, thanks very much.
Two things one Glenn Theyve free cash flow growth here at 15% year to date, the guidance ranges still only 7% to 12% growth for the year.
Is it possible you're trending a bit ahead of your original plans or is there something to be expected in Q4 in terms of.
Lumpiness in working capital or Capex or something and the second question for whoever watch it can give us any update on data usage trends on wireless.
Overall basis, and if you care to.
For customers, who are migrating to unlimited plans, if you're if you're seeing some benefits of people using the phones more thanks.
Hi, Vince its ground I'll jump in on the first.
As I said I'll reiterate guidance for all of our metrics, 712% on free cash flow remember in my opening remarks, I told you that there was a decrease in cash taxes paid in that we enjoyed in Q3 that was due to a timing of an installment that's going to reverse itself out in Q4, and capex will pick up notably.
Again, we're reconfirming, where we think capex will land in the middle pickup in Q4, as we continue to expand our fiber to the home and we continue to make investments in wireless at home and our small cells deployment for Fiveg readiness, so sticking to the guidance and we're very very pleased with the performance year to date and and the seven to 12 per se.
So look for the year.
And on now we are Vince we are its mirka we are seeing.
Data usage growing.
Including of course.
Those subscribers who are on unlimited plans.
Next question.
Thank you next question is from their Yaghi from Deutsche Bank. Please go ahead.
Thanks for taking my question George I'm sure you'll be missing not being on the next conference call come February .
Let me just really warm listening and go ahead.
I'm sure, but more seriously we will miss your insight and vision for an industry, but talking about vision and site.
Wanted to maybe just ask you a big picture question and.
As you as you are leaving the company.
I am hearing you guys talking about 2020 preemptively about the dividend.
And so forth, but I wanted to ask you, a maybe a little bit longer timeframe here.
As you see some of the.
And the C changing.
Metrics and this in the wireless industry changing with the ARPU under pressure.
Maturity in this sector and also some maybe increased regulatory environment.
Headwind.
How confident are you that a company like DC can sustain.
5% dividend growth model longer term and I have another question to come.
More detailed question on the quarter.
Okay. Thanks for the light question appreciate that.
But seriously.
I think if you just step back for a minute and think of the last 10 years or what under Merck was leadership, we're going to see the next 10 years.
And when I look at it first of all when talked about.
He gave you incremental money goes 4 billion that we.
Four or five incremental dollars over the 10 years into the pension that's not going to happen. So we free up where the business as much larger than before 5 billion of cash flow over the next 10 years, we had to incur the last 10 years.
We're halfway through the fiber journey.
The costs for Fiveg for us will be remarkably lower than most because of our fiber infrastructure.
So when you think about the industry structure going forward.
At some point, we hit an inflection point theres always the on the Capex issue and Merkel will take us through how that we'll see you saw creep down this year in our capital intensity.
And under Glenn and Merck was leadership, we'll see how that evolves, but if you really marlow, though it is clear that a lot of these significant investment on the fiber are behind this and the pensions behind us.
And then your other comments about the maturing business.
And what have you know as I said before every 10 years of wireless since I started and.
Most people on the call, but anyway 1985 today. It started in Canada people have talked about the evolution in the maturity of the industry and then what happens as we move to the next level of technology.
And now we're seeing 30% growth and usage again and you get into.
Thomas vehicles, and what Fiveg is going to do I, I'm, frankly, really optimistic as I said I'm going to be a really long term shareholder on this story.
Good day.
Okay and my my more.
Short term nature type question. So when you are looking at this transition to unlimited.
You.
You're not seeing Hayden the same tremendous negative impact that other companies are seeing right now.
But can you talk a little bit about what.
Might occur during the next couple of quarters as you transition more and more of your customers to unlimited I know youre working on.
Based management and.
And trying to.
Bring in this transition slowly into your into your base, but.
We are at let's say minus 1% ARPU right now and third quarter.
What is the outlook for ARPU growth and the next two to three quarters and when do you think this decline we'll reserve.
Well first of all ARPU is irrelevant right, it's up through the matters as the first point because that's the real real generation of that that's the first point Secondly, I think we think where we know Merkel obviously take all this over and drive everyone going forward. After this whatever simple view on this is what we said on the last call whatever growth and ARPU, we were going to see is always going to be moderated by.
This price change that we've seen in the market and so you've seen a positive cord from us on on the ARPU, but not maybe at the rate we'd seen the previous quarters. That's what the team will work very very hard at doing going forward and that's what we're going to try to to manage through we're also going to see increased usage and opportunities in the market from that but increased usage.
It can bring about capex not revenue growth so.
Our real focus for us is to stay competitive manage it appropriately and I think our results for today speak for themselves against our relative performance in a market Thats now had unlimited pricing through that period, and we're obviously managing it differently. We don't know what are other major competitors reported reports I don't think it's correct to say we've seen.
People with these declines we've seen ones.
On that front, so that it was going to manage the business like we always have with the focus on the casual dividend in margins and stay competitive.
That's true and but the question I'm trying to get too and this is what the.
The companies who are seeing this shift happening very quickly are saying that or.
Some investors are implying that if you're not seeing the right now this negative impact you're going to see anyway. In the next couple of quarters is that certainty what I would say with uncertainty we're seeing clients migrate to unlimited.
And so as a result, the moderation of ARPU you are seeing it in the results.
But our cost management expertise and our ability to focus very carefully discipline Lee and our network leadership of course makes clients move to us in this market if you're going to go to unlimited data you want to be on the network. That's the fastest and has become a much less complicated sale and we think our distribution strength to give us that positioning so the market will make us.
While we're not going to ARPU forecasts on a call I think we've tried to be as transparent as we can and I think I haven't looked at our history of managing ARPU, maybe as an indicator how maybe we'll manage it going forward hopefully thats helpful and let's move onto the next question. Thanks for the questions and thanks for the kind comments. Thank you George.
Thank you. The next question is from David Barden from Bank of America. Please go ahead.
It's not sitting in for Dave Thanks for taking the question.
I just wanted to ask about subsidies in the wireless side one of the benefits. Some hope for in this transition that we're going through is the ability to lower device subsidy and I was wondering if you guys see the same kind of opportunity on that front in the way that you're managing the transition.
And to separately on the broadband side. The net adds were strong this quarter I helped by the wireless to the whole when I was just wondering if you could add some color to maybe the contribution between the wireless to the home footprint versus the fiber to the home and what those customers maybe look like versus between the two footprints.
Okay Thats America, so on the.
On the device financing versus subsidy, we do a we do see as we see the sales mix shift migrate towards device financing.
Across the industry I think there will be success, there and reducing handset subsidies and that will be accretive to team had done and cash flow of course and on.
On wireless to the home I'm not going to get into breaking down all the component parts here for competitive reasons, but we're happy with the progress there are our footprint continues to expand and where we're very pleased with the penetration rates were seeing when we open up a market because of course there is a.
No untapped demand there you've got this is these are areas that either had no service at all or have you know low speed DSL. So when you come up with a service like this that can offer next generation speeds of 25 Megabits per second or more you can imagine that to the customer Takeup is quite strong. So we're pleased with the progress on.
On wireless.
So the home so far we should be a passing close to 200000 households by the end of the year and that trajectory is going to continue into next year.
Okay. Thanks.
Thank you.
Your next question is from Tim Casey from BMO. Please go ahead.
Thanks.
George just curious to get one of those big fancy rings. The other night.
Well as I was handing them out I put one in my pocket on their way through yet [laughter] couple from me just one on.
On the progression of an unlimited are you willing to share how much your base has.
Transferred over already in Andy indication of what you think that cadence will be like going forward and second one on the fixed side. We've seen it gets an acceleration of cord cutting in the U.S. and you're obviously will position for the given a variety of products you have but I'm just wondering how your.
Just thinking and expectations on cord cutting are evolving as we get a number of streaming auctions coming online over the next let alone.
The first answer is no.
We don't share competitive intelligence on pricing in the marketplace. Our results speak for themselves we won't be sharing that mixes is changing and then on the on the broadband side wireless versus wireline substitution and the evolving ecosystem that we got between the two.
If you look at the Canadian marketplace, and our fiber at $1 five into the home.
That.
Move into Wi Fi in the home is going to continue because this although speeds are still dramatically ahead of where we are in wireless and as we evolve even the fiveg very different than our neighbors, so where there's clearly a more cable dominance on one side in fiveg as a strategy on the other think fiveg will be complementary.
Two broadband not a substitute in the marketplace to what's going on in the home simply because of what our pure tell us is done in the west.
What we're doing here to kind of put candidate at the forefront from a fiber perspective, so although obviously some cannibalization at some extent over time simply as we move to these programs, but turns a superior speed and access to the digital video content that people want in physical locations, it's hard to imagine people not accessing.
You know with Merck was teams going to lead out as to you know from one and a half the five to 10 gig services.
Thank you.
Thank you.
Next question is from Adam Elkowitz from Citi. Please go ahead.
Hi, good morning, Thanks for taking the questions and George it's been a pleasure to to get to know the Canadian market with you over the years.
Two questions one is as Colin financing becomes more popular.
How do you plan Glenn on managing the costs of financing those handsets for your customers and then secondly from Mexico as you look at the asset base you have they hear inheriting from George It's obviously quite complete within the market is there any chance to monetize any noncore assets or look at the wireline business in a different way that's in Peru.
Perhaps.
Improve the growth rate or improve efficiencies in a more rapid fashion.
I'll jump in first on the first question Adam on a on managing the cost of moving to the installments look I spoke earlier about what we've done and how opportunistic we approach the market how we continue to do.
Long term financing at what our historic low rates knowns balance sheet.
In this industry is any larger and stronger than ours. So we do not see this as a challenge we will absolutely move with the market and ensure that we have offers in place that are competitive and as far as.
The ability to manage the cost as I say look at our balance sheet and track record on being opportunistic.
And.
In terms of the assets I think back to answer your question I think back to Georgia is.
Previous answer I think it was in response Amar Meyer.
Looking forward.
And.
When you when you think about what the opportunities and tremendous opportunity. This company has it looking ahead, it's because of the asset base that we have that were so well position to capitalize on those in the future. So I'm quite happy with the asset base, we have and we're going to continue on some of the things that you already know about including the fiber footprint.
And wireless to the home look we're always looking always looking constantly the surface value. So we're going to continue to do that in corporate development, but I'm really happy with the asset base and that's where I know that's how I would answer your question right now.
Thanks, so much.
Thank you.
Thank you. The next question is from June the credits from RBC. Please go ahead.
Hi, Thanks, very much good morning.
For the second consecutive quarter, George just congrats on just a phenomenal Ron.
Two questions for me first maybe can you provide an update on wireless market expansion in Canada.
Perspective, obviously out of the gate with a soft Q1, but certainly looks like.
The market has has come back from that perspective, and then secondly, either for you, Georgia or Mirko Big picture.
When when does it become more obvious to most folks that the wireline asset that you have.
It is really.
A big asset here relative to your peers is it.
Is it an application or use case of Fiveg. He did change up the commercialized offers out there.
No George you've talked about Capex efficiency that may surprise people.
Just would love that Big picture perspective at this point. Thank you.
Market.
So on the market and so our guys on the market expansion.
I thought one of the real interest things for international investors or maybe not as seen in just the population growth we saw in the country as the fastest I think the G. Seven energy 20 between our immigration policies in an organic population growth and you see for 50 500000 in our country and as we all know that's all from a wireless perspective additional subscribe.
Ever opportunities that I think absolutely what makes us country. So unique from a telecom perspective, one of the advantages and then of course in our world. The housing starts are just as important and now that our wireline footprint, 75% of the country, we see that benefit from a broadband side. So across the board. We continue to see the you know that acceleration in growth and of course, we.
Good and all the segments. So the prepaid one than vertical talked about gives us another space, where we were late to the party and you know obviously, that's that's that's truly truly paying off and then on the fiber leverage. It's interesting you know I think we're seeing at I mean opening investors think theres, we're seeing it I mean, where we were we were not leading from a broadband perspective in market share.
You know we had a cumulative market share that was well under 40 I think 35, we just have a fundamental belief and this isn't a new theory, everyone. In the line knows that because it's clear the most superior technology in the world and over time as people move and on average they move about every seven years.
People are going to make those purchases and know that they want glass to their premises and ultimately we should see ourselves at an improved market share and in every market. We've done fiber our market share as improved overtime and I think thats leveraging that asset.
I'm not thinking we're not and then of course on Fiveg, we've talked about way more to come on that a number because leadership than mine.
Okay Thats helpful.
Yes. Thank you.
Thank you.
No further questions at this time I'd like to turn the call back over to Mr. fotopoulos. Okay. Great. Thank you everybody for your participation today as usual available for follow ups and indications today.
Okay.
Ill.
Thanks, everyone.
Q.
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