Q3 2019 Earnings Call
Please standby your meeting is about to begin good morning, ladies and gentlemen, welcome to the <unk> Q3, 2019 results conference call I'd like to turn the meeting all worked Mr., saying Fotopoulos. Please go ahead Mr. fotopoulos. Thank you Donna and good morning, everyone. Joining me for the call today or George Cobiz, These president and CEO Mark.
Bill Chief operating officer nurse.
Most of you know this is George as well.
He retires at the beginning of next year as a reminder, or 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 on slide two 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 time Jordan, Greg. Good morning thing a good morning, everyone. Thank you for joining us this morning.
We turn to the highlights of the quarter and they're going to turn it over to Morocco, and Glenn and wrap up with a couple of comments before we go to Q1 day.
We clearly had a very very strong third quarter from a wireless perspective.
Our strongest third quarter on record with net adds up 204000 in the quarter or approximately 15%.
Also importantly in the competitor marker we had 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 a net adds drove.
7.9% EBITDAR growth.
And I also found it interesting that our service revenue in the traditional way.
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.
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 their growing demands.
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's 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 through.
The results and Glenn and then I will wrap up with a few comments before we go to acuity. Thank you.
Thank you George and good morning, everyone I'm going to 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 is a strong results given that includes significantly fewer year over year customer additions from our long term contract with the federal government.
And 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 new.
Device financing financing options that we of course matched to remain competitive.
Important takeaway here for investors is that with our harmonization and simplification of rate plans across all carriers that key point of differentiation that customers are now focusing on his network performance and on that front, we clearly come out ahead.
For prepaid and with the ongoing success of Lucky mobile and our national retail distribution agreement with dollar AMA. We continue 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 have hit the Canadian wireless industry in a number of years, so I'll turn over to pay.
Page or slide seven on wireline.
An excellent quarter for Internet with more than 58000 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 you'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 in EBITDA margin as highs has 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, the 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 radius.
And on the TV front, all our customers can I'll pause and rewind live TV on any device with the Fibe TV app.
This new feature Joe joins download and go restart in wireless TV in a growing list of innovations that have helped make bell the number one television provider in Canada.
And I wanted to also call out what was really a good NAS result, this quarter residential local line losses improved 10% over the 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, a really strong quarter overall from an RG perspective with positive total retail net adds including NAS and satellite TV delivered in our wireline footprint for the first time in nearly four years. Clearly this is a testament to our broadband network investments in broadband leadership that continue to pay dividends for us.
I'll move to slide eight now and 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 us 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 tenants 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 a 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 HBIO Max 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 fell operating segments.
Total 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 BC 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 repeat simply put.
Another quarter of excellent results.
Despite 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 in vcs 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, and 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 in business service solutions revenues up 7% and 3% respectively.
However, total wireline revenue growth moderated this quarter. This was a result of steeper year over year voice revenue decline.
Of 7.1 competitor 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 of 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 the 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 in what is seasonally low quarter in the media industry in general subscriber revenue increased 7% year over year result.
Out 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 at specialty TV, New services, CP 24, Abstral auto home.
Lastly, similar to previous quarters, adjusted EBITDA growth was exceptional increasing 24.2%. This was driven by a flow through of higher revenue and a 4.4% year over year reduction in operating costs that 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 EBIDTA 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 IRS 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 and then Mobilicity, which similar last year totaled three cents per share. This arises from the fact that Q3 is seasonally a low quarter at MLS fee 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 reversal of working capital from Q2 attributable to higher.
Customer receivable collections.
This quarter's results also reflect higher into space due to the imputed interest on the lease liabilities under I have 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 operated offering in September .
2.9% coupon. This was the lowest financing rate we have ever achieved on a 10 year MTN issuance.
Maintained our after tax cost of debt at a historic low of 3.1%.
This ensures good protect predictability in 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 at a solvency ratio of 102%.
This has 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 I was looking yesterday.
Less than eight years ago, our solvency ratio was sub 80% at 79%.
Over those eight years, we've had to put $3.5 billion in special deficit funding into the pension plan.
When I look owed 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 that $3.5 billion is in the rearview mirror and certainly not something we face in the future.
To 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 and wireline broadband businesses and market, leading media assets that generate substantial cash flow for reinvestment in this business.
As we look as we begin to look out to 2020 Bcf cash flow remains strong and reliable.
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 while 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.
Closing comments right. Thanks, Glenn will open up for questions in a moment.
Just a few final comments from me before we go to today.
We believe 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 clarinet 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 is in a tremendous hands going forward unknown under Merck was leadership.
And a stable executive team.
Second to none in the world on Telecom experience.
And 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 of broadband Fiveg wireless.
And a fiber world combined with an extraordinary and appropriately sized media asset going forward.
Clearly BCD is uniquely positioned.
The leverage the broadband digital ecosystem.
Going forward for years to come.
With that thank you all over the thing okay. Thanks, George and I, just wanted to seek opportunities and say, what an honor and pleasure its into use while over the past 14 years.
So before we start Accuen a period Donna just keep the call mission as possible I'd ask.
Yourselves to one question every follow up so we can get too many even acumen platform. The time, we have left so with that Donna we're ready to take our first question.
Thank you.
If you have a question and using a speakerphone please pick their handsets before making your selection.
Now the question. Please press star one on your telephone keypad.
If you wish to cancel the questions. Please press the pound.
Please press star one at this time, if you have a question there will be a brief pause for participants register thanks for your patience.
And the first question is from Richard killed from JP Morgan. 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 own 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're going to be finished.
Hughes.
Well actually first of all Richard Thanks to the question and been 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.
Were more than 50% through the journey, we've 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.
But 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 to 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.
So very positive on both and then of course I know investors know this but I think the uniquely.
Okay and unique part of our asset and I would have to say it wasnt really quite foreshadows as its turned out so positively as everywhere. We're building our wireless network, we have a fiber network.
So our overall transition costs. The Fiveg I think investors are going to be very pleasantly surprised how tight we can keep capital intensity going forward and make those happen. So I think we're positioned with both and then I think that 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.
Thank you.
And a quick follow for 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're going to manage that over the next few quarters.
So first thanks Richard.
We're always going to be competitive so that's the first principle. So what we're doing as you see from the results is.
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 of 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 for your subscribers.
Difference between that and force migrating everyone to those plans as rapidly as possible. So key thing effective base management, putting people on 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 positioned competitively with those we've gone through that work and you'll have seen in that as we start Q4 that.
We are 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 a great career at Bell and it's been an order covering you all these years.
I wanted just some.
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 PS, 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 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.
Yes, one question for Overages.
Without.
Having this forced migration faster decline on overage.
Do have a higher mix I guess.
Relative to some of your peers.
Is there a risk that that we could see that.
Fall faster for any reason or do you do 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 merritt 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 and our consumers and customers out of the best choice will be that focus and that's what merkel driving and on the overage I find it. It's one of the strangest questions I've got is less accelerate the pace.
One is accelerating the faster some of Thats a less risk approach. We've managed our base as we think regarding our wireline maybe is where you ought to look to everyone and looked 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.
It's true it May Canada, one of the very few countries with that.
Back kind of regulatory regime.
When you kind of think about said if the.
The cost.
Comments coming from the regulator as well as on the political front, how do you see that this playing out and perhaps and this might be a little bit premature howdy. What is that what are the options available to an incumbent as you look to manage through.
Scenario like that.
Thanks, Okay. 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.
That's 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 version that the data prices per gig have dropped dramatically over the last three four years and that without even fab.
Factoring 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.
Fork in the road here, we can sacrifice coverage and quality by making the wrong regulatory decision, especially as we're on the cost both of 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 regulatory decisions have affected their investments and the bureaus warned about this and if you go too far in the 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.
Well in addition to it is the Canadian government and the CRT sees falsely directors have have.
The 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 cost of Fiveg bills and providing other than one country in the world. The best Fourg networks on the planet the 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.
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 that free cash flow growth here at 15% year to date the guidance range is 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 you 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. Thanks.
Hi, This is Glenn I'll jump in on the first.
As I said out 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.
And we're Reconfirming, where we think Capex will land in it'll it'll pick up 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 cell deployment for Fiveg readiness, so sticking to the guidance.
We're very very pleased with the performance year to date, and and the 7% to 12% outlook for the year.
And on now we are Vince We Arts America, we are seeing.
Data usage growing.
Including of course for those subscribers, who are on unlimited plans.
Next question please.
Thank you next question is from their Yaghi from Deutsche Bank. Please go ahead.
Thanks for taking my question George Im sure Youll be missing not being on the next conference call come February .
Good morning, 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 I wanted to maybe just ask you.
Big picture question and.
As you as you are leaving the company.
Hi, I'm hearing you guys talking about 2020, preemptively about the dividend and and so forth, but I wanted to ask you a maybe a little bit longer timeframe here.
As you see some of the.
The industry changing.
Metrics and this in the wireless industry changing with the ARPU.
Under pressure.
Maturity in this sector and also.
Maybe increased regulatory environment headwind.
How confident are you that.
When you like DC can sustain it's 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.
You think if you just step back for a minute and think of the last 10 years on what under Merck was leadership, we're going to see X 10 years.
And when I look at it first of all when talked about.
He gave the 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 with a 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.
And so when you think about the industry structure going forward.
At some point, we hit an inflection point theres always 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.
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.
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, the day. 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.
Yeah.
Short term nature type question. So when you are looking at this transition to unlimited.
You.
You're not seeing any them 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 Lauren morefield customers to unlimited I know you're working on.
Based management Dan.
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 will revert.
Well first of all ARPU is irrelevant right. It's ARPU the matters as the first point because thats the real real generation of that that's the first point Secondly, I think we think we are we in a merkel obviously take all this over and drive everyone going forward. After this but are very simple view on this is what we said on the last call whatever growth in 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 Thats. 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 the 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 recall.
Quarterly reports on only gets its 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 cashel dividend and 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 the certainty we are seeing clients migrate to on limited.
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 as become a much less complicated sale and we think our distribution strength give us that positioning so the market will make its called we're not going to ARPU forecasts on a call I think we tried to be as transparent as we can and I think I would look at our history of managing ARPU, maybe as an indicator how maybe we'll manage it going forward hopefully thats all.
Phone, let's move on to that 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.
No it's not sitting in for Dave Thanks for taking another 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 the 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 just separately on the broadband side. The net adds were strong this quarter helped by the wireless to the home. 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. It's America so on the.
On the device financing versus subsidy, we do.
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 no untapped demand there you've got this is these are areas that either have no service at all or have up.
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 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.
Hi, 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 the 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 India indication of what you think that cadence will be like going forward and second one on the fixed side, we've seen an acceleration of cord cutting in the U.S. and you're obviously will position for the given the 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 the streaming options coming online over the next little while thanks.
The first answer is no.
We don't share competitive intelligence on pricing into 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 one dot five into the home.
That that move into Wi Fi in the home is going to continue because those 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 theres clearly a more cable dominance on one side in fiveg as a strategy on the other think five.
We will be complementary to 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.
And 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.
With Merck was teams going to lead out as to you know from one and a half to 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 Clint 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 did per.
Perhaps.
Improve the growth rate or improve efficiencies in a more rapid fashion.
I'll jump in first on the first question Adam on 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.
But our historic low rates no one's 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.
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 in wireless to the home look we're always the always looking constantly to surface value. So we're going to continue to do that on corporate development, but I'm really happy with the asset base and that's where I data that's how it answer your question right now.
Yes, thanks, so much.
Thank you.
Thank you. The next question is from June the credits from RBC. Please go ahead.
Thanks, very much good morning.
And 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, where the soft Q1, but certainly looks like.
The market has has come back from that perspective, and then secondly, either for you George 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.
I know George you've talked about Capex efficiency that may surprise people.
Just would love that Big picture perspective at this point. Thank you.
Mark I spent 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 and inorganic 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.
Labour 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 that acceleration in growth and of course, we.
And and all the segments of the prepaid one that Merck will talked about gives us another space, where we were late to the party and you know now obviously, that's that's that's truly truly paying off and then on the fiber leverage it's interesting I think we're seeing at I mean open investors think theres. We're seeing it I mean were 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 clearly the most superior technology in the world at 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 a improve market share and in every market. We've done fiber our market share has improved over time, and I think thats leveraging that asset at us on homes 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 and available for follow up and clarification today. Thank you very much can offset.
Thanks, everyone.
Thank you.
Thanks.
Thank you.
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