Q2 2020 BCE Inc Earnings Call
All participants she'll conference is now ready to began.
Good morning, ladies and gentlemen, welcome to defeat Q2, Twentytwenty results conference call I wouldn't like to turn the meeting over to Mr. insane Fotopoulos. Please go ahead.
Thank you ladies and good morning, everyone. Thank you for joining us this morning participating on the call today will be Merck <unk>.
And Glen Leblanc, our CFO, our second quarter results package other disclosure documents, including today's news release.
Isn't station as well as other documents issued earlier.
Well I'd be sees Investor Relations web page. However, before we get started I want to draw your attention to slightly fewer safe Harbor statement information in 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.
Looking statements represent or expectations as of today and accordingly are subject to change we disclaim any obligation to update forward looking statements, except as required by law factors that may affect future results are contained nbcs filings with both the Canadian Securities commissions and the FCC and are also available on our corporate website with that over Demarco.
Good morning, everyone. Thanks.
We're still in the midst what continues to be a long journey for all of us and the Bell team stepped up in Q2 by focusing on the operating principles that have guided our crisis response from the very start.
Keep in Canadians connected informed.
Were causing the health and safety in the public our customers and of course, our team and supporting our customers and communities.
How did the thousands of team members, who have been serving our customers at bell workplaces and in the field since the crisis began.
Against this backdrop backdrop, we delivered operating results for Q2 that underscore bells broadband network leadership.
Reinforce the critical nature of our services and demonstrate our ability to execute effectively under very difficult circumstances.
Despite ongoing heavy demand for all our services, we have maintained internet speeds and reliability, while continuing to operate our networks had a near perfect 99.99% overall availability.
We enabled work from home for about 90% of our employees, which included some 12000 call Center agents.
Mid April service levels were back to what they were pre covance and our call centers resume full hours of operation at the beginning of June.
In short in a matter of a few weeks, we pivoted from full crisis mode for the stabilization phase and now with Q2 behind US we are focused on building momentum back into the bid.
As Canada gradually reopens, our focus has been on ensuring customer access to our retail locations wherever possible and as of now 99% of our bell the source and authorized dealer stores and kiosks are back in full operation.
In Q2, we continued to grow broadband market share with more than 50000 total net new wireless retail internet, an IP TV customer additions.
We also achieved a noteworthy milestones during the quarter, surpassing 10 million wireless subscribers more.
More impressively.
Despite significant cobot impacts absorbed in the quarter, we maintained our consolidated EBITDA margin essentially stable at 43% to 5%.
In addition, we generated 50% higher year over year free cash flow. This contributed to our very strong liquidity position of $5.4 billion at the end of Q2, which provides ample financial flexibility to execute on our capital investment priorities and comfortably subs sustain.
He is common share dividend for the foreseeable future. In fact, just this morning, we declared a schedule our common share dividend for Q3 that will be paid on October 15.
I'll now turn to slide four in our presentation.
In the midst of cobot, we've made meaningful progress in advancing our strategic priorities was to generate continued operating momentum in the near term and ultimately emerge from the crisis in an even stronger competitive position.
55% of our broadband footprint as now fiber eyes, with 5.4 million homes and businesses able to access the fastest internet speeds in the market today of 1.5 Gigabits per second.
We also fast track, our wireless home Internet service footprint.
137000 additional homes passed in April alone.
Bringing the total number of rural locations equipped with fixed wireless technology to about 400000.
We're taking this unique technology, even further by doubling internet download speeds from 25 to 50 Megabits per second to the first 300000 households, starting this fall while also expanding to rural communities throughout Atlantic Canada.
And on June 11, we launched Canada's largest first generation Fiveg network with service available in five of the country's largest cities, which will be rolled out to more urban centers later this year.
Championing the customer experience is a core strategic imperative for us it's up.
To this end given that our retail stores were closed for an extended period, we accelerated investments on digital platforms and self serve tools.
More and more these are the channels many customers prefer to use to interact with us.
We are encouraging customers to take advantage of online and mobile self serve options. The my Bell and Virgin Mobile My account self serve apps are the clear leaders and their space in terms of App ratings and provide customers best in class integrated access to their bell and Virgin products and services.
Since the start of cobot approximately half of all customer transactions have been executed online.
I'm also pleased to report that Virgin mobile top every wireless carrier in Canada from a JD power ranking perspective for a fourth consecutive year as number one and overall customer service in the eyes of consumers a very strong result for our Virgin mobile brand.
Bell strategic focus on customer experience was also reflected in the latest report from the CCTS for Q2, which showed a 26% drop in a number of CCTS complaints by Bell customers again, the best performance among national carriers.
And as part of our ongoing efforts to say safeguard the health and safety in the public we introduced appointment based selling in retail stores and ramped up our assisted self installation and repair program. In fact, one third of all new installs and repairs in Q2.
Completed without entering the customers.
In short strong progress has been made on our imperative to champion customer experience and all of these measures position us well in the short and the long term.
Underscoring our ongoing leadership and service innovation, we launched Virgin TV, a few weeks ago in Ontario, and Quebec.
Virgin TV as an App based TV service that does not require a traditional set top box or install and works on virtually all streaming devices.
This new TV platform enhances our multi brand strategy by offering TV service should services divergent customers, who we know our clearly consuming vast amounts of content, but who are not subscribed to one of bells. Other TV brands currently.
Our latest TV innovation, just announced on Tuesday is the Bell streamer. This is a compact for K HDR streaming device powered by Android TV that offers customers all in one access to live TV and on demand content from Bell all to TV support for the top streaming services and access to apps on Google play.
Right.
As you know, we also announced on June 1st the sale of most of our Datacenters to global data Center operators Equinix in an all cash transaction valued at just over $1 billion.
We will maintain a strategic partnership with the acquirer to provide our enterprise enterprise clients with full access to economics as advanced hosting and cloud solutions.
The transaction is expected to close before the end of this year.
As I've said before and I think it's important to reiterate here again today. This is not the time to pull back on investment in critical network infrastructure and customer service improvements they are necessary to keep us competitive in the short term and we'll definitely benefit our company our customers and our economy in so many ways.
Over the medium and long term.
And the CRO bid crisis has underscored in a very real way the benefits of candidates global network leadership, whether thats wireless or wireline.
All of which has been made possible because of our significant capital spending supported by long standing facilities based regulatory policies. It has never been more important for governments and regulators to support policies that encourage continued deployment of high speed fiber networks wireless home Internet and candidates underserved.
Rural communities and next generation mobile Fiveg.
And also as I've said numerous times in the past, but again, which merits emphasizing with key regulatory decisions on the horizon, We just can't risk, losing our global network leadership.
Canada cannot afford to fall behind in the construction of digital infrastructure, which we all know will power. So many segments of our economy as we recover and he'll from the impacts of Cobot 19.
Over to slide five now for a quick overview of some key operating metrics and I'm going to start with Bell wireless.
Covert did have a significant impact on subscriber and promotional activity due to temporary store closures and stay at home requirements that were in place for much of the quarter.
This led to a 35% year over year decline in postpaid gross adds in Q2.
Consistent with this reduction in wireless sales activity. We also saw a corresponding decline in customer churn. This quarter in fact postpaid churn was pointing 2% our lowest rate ever which helped drive positive postpaid net additions of 22000 for Q2.
Notably.
This result is net of a provision we took estimating the number of customer deactivations that would have otherwise occurred in the quarter were delayed or non payment if not for the financial support actions, we put in place because of cobot.
So if you normalize for this non payment churn provision totaling 39000 subscribers, our postpaid churn rate would have been 0.68% or 14 basis points lower than our reported results.
And with the introduction of device mining financing plans on Virgin mobile in mid May Bell wireless is now 100% VIP based across all our brands.
In prepaid 13000, new customers were added in the quarter.
It's a good result, given the cobot driven market slowdown and the lapping of our dollar AMA distribution agreement in May.
With 99% of our wireless retail points of sale now reopen for business. We are beginning to see some pickup in demand. Although it is still too early to predict when consumers typical shopping activity will resume.
However, when it does and it will will be ready to leverage our industry, leading distribution strength, our wireless network leadership, our fastest speed and the improvements we are making right now to our digital platforms.
So to finish up on wireless blended ARPU was down 8.8% over last year not an unexpected result, given the material impact of Cove it on roaming revenue.
The ongoing decline and data overage.
Our increasing prepaid customer mix as well as the customer accommodations that we put in place during cold, but to help those facing financial change challenging sorry.
Okay, and then move to Bell wireline.
Slower quarter for broadband.
We also added another 46000, FTT H subscribers this quarter, bringing the total number of direct fiber customers to more than 1.5 million up 18% over last year.
The broadband footprint advantage that we are building with the fastest fiber network and whr wireless home internet speeds in the market today.
Positions us extremely well in both our consumer and business segments over the long term to grow Internet revenue, which one which increased a strong 7.5% in Q2.
On the TV side of things, we lost 4000 net IP TV subscribers. In Q2. This was the direct result of reduced sales activity and promotional offers as well as overall TV market maturity.
And we also experienced good results in satellite TV in home phone with customer losses, improving 17% in satellite and 34% in home phone as consumers continue to shelter and work from home.
While we have not yet experienced any significant changes in customer behaviors or trends to date, some customers have delayed payment as they deal with the economic impacts of coal.
As a result, consistent with the incremental bad debt provision we took in the quarter. We recorded an involuntary customer churn provision for non payment as we did for bell wireless so as not to overstate, our net subscriber additions and overall churn in Q2 for wireline.
The provision for Bell wireline amounted to roughly 45000 customers.
Thats 19000 Internet.
14000, TV and 12000 home phone.
Going to move now to Bell media.
Although total advertising revenue was down we have started to see signs of improvement some industries like automotive retail and food are beginning to spend again.
Also the return of some key sporting events, including PJ Tour golf UFCF NASCAR F. One and MLS soccer have shown promising results.
Most most of these events have seen higher than usual audiences and this improvement is expected to continue into Q3 and will be further positively influenced by the return of even more live sports including of course, the NB Iot, which is on right now Gulf's Major championships, which start today and the US opened tennis impressed.
Lovely, even with the absence of live sports broadcast TSN and Rds subscriber Deactivations remained minimal in Q2.
Crave also continued to deliver with strong direct to consumer growth as total subscribers increased to 2.8 million at the end of June which is up from 2.7 million in Q1.
And earlier this summer in keeping with our imperative to deliver compelling content, we expanded crave and added HBIO Max program.
So while it's still too early to predict what the recovery holes. We believe that Dcs Q2 consolidated results represent a low watermark and although we don't expect to returned to pre cobot operating performance in the near term Q3 is anticipated to show a marked improvement.
We remain very confident in the underlying long term fundamentals and performance of BCD.
We are competitively well positioned to succeed with a healthy balance sheet and substantial ongoing free cash flow generation that provides us with considerable financial flexibility to navigate through the coven 19 crisis and two more than meet all our cash requirements for the balance of 2020.
And with that I. Thank you, all and I'll turn it over to Glenn.
Thank you May go and good morning, everyone.
I hope everyone is keeping well and staying safe this summer, let's turn to slide seven.
Financial impact of covert 19, obviously accelerated in Q2, reflecting a full quarter.
The impact of widespread retail store closures and reduced consumer activity as Canadian sheltered at home. This drove a 9.1% year over year decline in consolidated revenues.
Due to the flow through impact of lower revenue adjusted EBITDA was down 9.4%.
This result reflects approximately $85 million of costs incurred directly because of coal that including the relocation of call Center agents employee reduction redeployment expenses the purchase of personal protective equipment.
Increase sanitation and cleaning and incremental provision for bad debt exposure totaling 36 million.
As well as donation of masks to healthcare and other frontline workers throughout Canada.
Net earnings were down 64% over last year as result of lower year over year EBITDA lower equity income from MLS seed due to coded and a $452 million noncash impairment charge to bell media TV to reflect.
The current market value of its TV and radio assets.
Despite the steep earnings decline this quarter free cash flow grew 50% to 1.6 billion.
One of the reasons for the increase was a slowdown in capital spending during the initial stages of cobot as our primary focus was on stabilizing the organization and ensuring continuity of critical services.
Construction activity has now ramped up considerably.
Lastly, I want to bring to your attention reporting change we made this quarter as Michael mentioned as a result of our agreement to sell substantially all of bells Datacenters. Those operating results are now being classified as discontinued operations this quarter with prior periods restated for consistency.
Let's move to slide eight and discuss wireless financials covert 19 had a material impact on bell wireless financial results in Q2 due to significant decrease in retail sales activity reduced travel and an accelerated decline in data overage revenue driven by optimizing of data packages.
With increased working from home and greater Wi Fi offload engine.
And customer accommodations introduced to help those facing financial difficulties because of coven.
As a result service and product revenue decreased 6.2, and 24.5% respectively in the quarter.
Although revenue pressures stemming from covert 19 should begin to moderate as commercial activity picks up roaming and data overage in particular are expected to remain headwinds for the balance of this year.
Consistent with year over year decline in revenue EBITDA decreased 9.2%.
However, our wireless margins improved nearly 100 basis points to 45.7%.
This was a result of a 12.5% reduction in operating costs attributable to slowdown in sales activity.
Decreased acquisition related expenses, including device subsidy and other marketing and distribution costs.
Let's turn to slide nine wireline financials.
Although we experienced lower demand of new residential service installations waived internet overage fees, providing provided pricing concession to our customers.
And saw further weakness in SMB space due to economic followed the crisis, the 1% revenue decline in the quarter was similar to Q1, even with a full quarter of cobot impacts.
This speaks to the resiliency of our high quality connectivity services.
Combined Internet and TV revenue was up approximately 2% year over year, while the rate of voice decline right voice revenue decline improved 3.8% driven by increased use of conferencing higher LD usage and fewer home phone customer deactivations.
However, the business customer spending slowed down in Q2, because of cobot, which drove an 8% year over year decline in product revenue and a 4% reduction in business service solution sales.
Despite more near term financial risk from the after effects of coven in the business sector compared to residential the impact to date on Bell business markets has continued to be relatively moderate.
Wireline EBITDA, which was down 5.3% included $41 million and higher year over year Opex driven by the coded related cost impacts by detailed earlier.
And and an incremental bad debt provision expense to reflect the current economic environment marked by higher levels of unemployment and continued uncertainty in the SMB sector.
This contributed to an approximately 200 basis point decrease in margin this quarter.
Excluding these cobot specific cost wireline margin was relatively stable at around 44%.
Over to slide 10, and media financials, Q2 was a tough quarter for Bell media on a relative basis. It was our most significant impacted operating SEC segment, but I'd also represented the smallest part of BCS revenue and EBITDA mix.
As witnessed by other broadcasters worldwide, we experienced a steep decline in advertising demand this quarter due to the impact of cobot on AD spending across all platforms as commercial activity with significantly curtailed major sports League suspended and other live events in TV productions canceled because of.
This crisis.
We also faced a tough comparable from last year's strong growth that included incremental advertising revenue.
From our Toronto Raptors MBJ Championship Ron.
The Big Bang theory series finale, and a surgeon crave customers subscriptions driven by the final season of game of Thrones on HBIO.
As a result of these factors total Bell media revenue was down 31.2% in Q2, yielding a 31.9% decline in EBITDA.
However, we maintain bell Merit Bell Media's margin stable year over year at approximately 30% due to expense reductions driven by programming production cost savings the elimination of discretionary costs and amounts received under the federal governments employment weighed subsidy program as we met eligible criteria for parts.
Of our media operation during the initial April may measurement period.
Over to EPS on slide 11.
Slide 11 summarizes a at a high level. The main components of adjusted EPS for Q2, which was 63 cents per share down 30 cents versus last year.
Lower EBITDA drove two thirds of this decline while the other third was attributable to lower year over year tax adjustments in higher other income and expense the increase in other expense reflected a reduction in equity income received from LSC due to the effects of covet and a loss recorded on a write down of certain TV platform assets in the quarter.
Over to slide 12.
Despite the KOVA driven decline in consolidated EBITDA. This quarter, we grew fique free cash flow, 50% versus last year to just over 1.6 billion.
Year over year increase was due to substantial improvement in working capital that can be attributed to the decrease in sales activity because of cobot higher bad debt provision that drove reduction in counts receivable a decrease in contract assets, reflecting a higher mix of customers on installment plans fewer newer new subscriber activations in the.
The amortization of deferred acquisition costs from prior quarters, and a lower wireless device inventory.
Now it's important to note that a large portion of this favorable change in working capital was temporary in nature and will reverse as accounts receivable and inventory levels growth with a pickup in sales activity we're expecting.
This quarter strong free cash flow result, also reflected an upside from a number of timing related factors that will reverse in the second half the year.
Notably Capex, which I referenced earlier and cash taxes, which benefited from the government relief measures, allowing for the deferral of tax installment payments.
Until later this year.
I want to wrap up on slide 13.
And as Marco said, but it's worth repeating we ended the quarter with 5.4 billion of liquidity.
Which positions us well given the financial challenges being faced by so many other companies and industries.
And this does not even take into account to close to $1 billion in cash proceeds that we will receive from the sale of our datacenters at the end of the year.
We have successfully accessed.
The debt capital markets. Once again in May with a 1.5 billion MTN offering at a very attractive rate to shore up our already strong liquidity position.
Our net debt debt leverage ratio remains very manageable at 2.86 times adjusted EBITDA more importantly, we have no near term refinancing requirements as our next public debt maturity does not occur until the end of Q3 2021.
In Canada is different and Bell, Canada has defined benefit pension plan continues to remain virtually fully funded despite a modest decline in the estimated funded position this quarter due to the impacts of lower interest rates in Q2.
And with that I'll turn the call back over to pain in the operator to begin QNX hey, thanks, Glenn So before we start Accuen a period to keep the competition as possible I'd ask you does limit yourself to one question into brief follow ups. So he can get to everybody in the queue with the time, we have left so with that Louise we're ready to take our first question.
Thank you, we'll now take questions from the telephone line secure the question you Speakerphone. Please lift your handset performing Kenyan selection you had a question. Please press star one on your telephone keypad.
At any time you wish to cancel the question. Please press the topline. Please press star one at this time if you have a question there would be I believe Boswell participants digestion. Thank you for your patience.
Our first question if some jen.
From Scotiabank. Please go ahead.
Thanks, and good morning, everyone.
Yeah.
First question is just on the wireless Glenn wondering if we can help quantify for us.
Some of the roaming and old bridge from wake fees impact just so that we can start to make some assumptions about the ARPU service revenue or ARPU recovery as we go through.
The second half and into 21 as the economy starts will open up.
And then a quick follow up perhaps or more coal on the customer experience.
Recall that was clearly one of your strategic imperatives coming into your new role.
It sounds like there was quite a bit of accelerated efforts.
Related to that maybe things that would have been done later in the year or later on in Europe in your tenure or perhaps pulled in all into Q2 wondering if you can just identified some of those or maybe even if you can quantify for us how much was pulled into this year this quarter versus what could have been.
Later in later years thanks.
Thanks, Jeff Glen I'll I'll I'll start first.
And now handed over to you to unpack the the ABPU a bit for us for Jeff.
Thanks for the question, Jeff So I'll start first on on wireless your question on that I'll, just give you some.
Hi level comments on the core though are the service revenue impacts from cobot, So I'd break it down into three four categories. So there was a roaming decline clearly with a halt in travel and you can kind of quantify that in the range of $60 million.
And then there were cobot related overage decline impacts as customers or staying at home and we're offloading data usage to Wi Fi and of course, there was data overs declined due to.
The migration to unlimited plans, but on that one have to say that team I've said. This every single quarter that I've been on these calls the team has continued to manage that migration really really well and we've been doing that since the launch of unlimited plans last summer.
And there has been the impact of customer accommodations that we we offered to help our customers during the cobot crisis or you put all those together Jeff and.
They are more than the overall service revenue.
Decline.
I'll answer the customer experience question now in England you can.
Unpack upward a little bit more if you do you think necessary. So on on customer experience you're right. I mean has been a focus since I've come on board as CEO on.
On January six and.
It's a journey on the improvements to our online platforms like it's clear that you know.
Customers.
Our mission is going to be to serve customers. They way to win the way they want to be served and the vast majority of transaction specialty in wireless continue to be in traditional retail stores and as I mentioned my opening remarks as as the economy reopens in were nine.
Open on the stores you about that advantage swings back our way. So we'll continue to be best in class on that but other customers want to be certain call centers and we need to be best in class there and.
Online as well and we're upping our game each and every day, it's a it's a journey it's.
Things like allowing customers to change or TV programming online make online payments changed their rate plans online upgrading their smartphones online.
It's those kinds of things Jeff that we we continually work on the buy flows.
And I'm not going to quantify how much we pulled into Q2, but it will be a core category of capex spend this year.
And that's going to to continue.
Now over to you got.
Thanks, Virgo and good morning, Jeff.
I'll give you a little more color here on the on the ARPU decline.
As Marco.
Said and explained the biggest bucket is roaming and data over is that accounts for 60% of the ARPU decline that you see customer accommodations that we put in place temporary help those facing financial challenge that accounted for about 10% of that ARPU decline the remaining 30% year over the here decline was mainly due to the higher.
Prepaid customer mix that is in our subscriber base hope thats helpful. Jeff.
Okay. Thank you both.
Thank you Sir our next question is fun Richard CLO from JP Morgan. Please go ahead.
Just wanted to ask about broadband is doing well, but video.
And that IP TV was some lower and just wanted to just get a little more color on those trends there what are you seeing broadband.
And why.
TV this is lower.
Thanks, Richard So on TV ill start there.
Sales were clearly disrupted because of cobot.
And there was an impact on the commercial side, obviously, so think small businesses bars hotels that kind of thing.
And.
And we are seeing the effects of high penetration of TV in our current five markets. We're lapping strong all TV growth and certainly in the in Q2 anyway because of initially in the impacts of Cobot. We did have slower new service footprint growth I think we'll pick up in in the back half of the.
Here in terms of service footprint growth now on Internet.
You're right I mean performance was quite resilient during what we all know is pretty difficult period of time and that speaks to the importance and the quality of our internet we have the fastest download in the fastest uploaded.
Upload upload is pretty important right now.
And we have the best Wi Fi in the marketplace and that too is very important.
So on that that meeting those would be the primary reasons why internet is is so resilient we've had the acceleration of footprint on on wireless home Internet of course, as we enter a community particular rural community that hasn't had high speed broadband with wireless home Internet, we accelerated that footprint.
That just is a boon for the community and of course leads to.
The subscriber growth and we expect the resilience in Internet to continue over the rest of the year.
Great. Thank you.
Thank you on next question is from as I've been Dan that that came from Canaccord Genuity. Please go ahead.
Good morning, Thanks for taking my question my questions on B to B, I believe and as Glenn mentioned that Bell is marketed held up fairly well, thus far considering the conditions.
I wanted to get you sense.
Morocco, and Glenn in terms of what you're seeing in terms of feedback from the large enterprise customers conceivably the pressure on that end would come later in the year as head of some of those contracts kind of come up for renewal and reprice.
Wanted to get some color around that do you expect incremental pressure as Phil as that plays out and then secondly, as my follow up with respect to free cash flow I hear your point about a lot of the fact is that help free cash flow in Q2, it of reversing potentially later in the but tab I was wondering if again size up the ad.
10 show saving cash savings from the handset cost this year.
That should obviously helped the full year free cash flow number I think it there. Thank you. Okay. Thanks, Arvind I'll take the enterprise question, Glenn why don't you take the free cash flow question. So on.
On the business side, the puts and takes so the following so customer spending did slow down and things like product revenues and and service solutions.
On the other half and there was traction.
In connectivity remote collaboration conferencing services those types of things are gonna intuitively makes sense right given what we were going through in Q2.
So those are the broad categories of puts and takes but I have to say I mean as I look forward to the rest of the year I think it's still too early to predict how all that's going to shake out for the rest of the year on the enterprise side and a little bit the same answer on on SNB small business again really to.
Too early to predict what's going to to happen, but on the SMB you as you know, it's a very small part of our overall business markets exposure.
Glenn.
Thanks Marco.
Yes, free cash flow strength, I think you kind of unpack that a little bit and.
And touched on on the caution that I was giving going forward.
As as I said in my opening remarks.
Opex was lower certainly in the in the early months of margin in April and May as we focused on an organization that stability and ensuring that we propped up or.
Any secured our critical services and now we're moving back to more construction and and footprint expansion. So we will see capital increase in the second half of the year working capital I mentioned earlier will reverse now want to.
On the handsets and it's hard to say, how this will shake out I, certainly im not going to try to predict second waves and third waves do we have potential store restored disruption again it was slowdown in sales activity, obviously, it's going to be down because we as Michael mentioned in his opening remarks that we had.
Were 100% IP now when I look at the quarter alone VIP plus the reduced sales activity mean handset costs were down 25% 140 million.
I certainly hope sales activity is stronger in the in the second half of the year, So I wouldn't.
I wouldn't think you can just extrapolate that but hard to see how it's going to shake out, let's just keep our fingers crossed that we we see sales activity remain strong in the second half.
Thank you.
Thank you our next question Mr. Vincent Valentini from TD Securities. Please go ahead.
Thanks, very much first a clarification if I can need the 39000 in 45000 subscriber provisions can you just clarify if that would have been zeroing in the second quarter last year or is this something you always do but it just got elevated this quarter.
The second one bigger picture question I see a huge arbitrage opportunity in and strategic opportunity for BC emerging here I mean, your cost of debt has never been lower year flush with cash you've got another billion coming from the datacenter sale soon and we're looking at a media industry that you just in floating on Sting radius revenues were down six.
The percent yesterday in radio enforce radio was down 52% I mean, there's a big need here for the government to step in and allow.
Some consolidation or regulatory relief and it seems to me that BC should be that the leading candidate here to arbitrage your incredibly strong scale in media and cost of capital to try to try to save the industry and help your yourself in your shareholders at the same time. So I'm. Just wondering if you have any comments on thoughts about strategic growth opportunities in media.
Oh thanks.
Thanks, Vince why don't you go first the Glenn on the on the per first question on provisions.
Of course morning, Vince look to customer provisions and this is what transpired in any normal quarter, what would happen is.
When customers reach certain points of of non payment that we we.
Activate what we refer to as a as an involuntary churn are involved in voluntary disconnect.
What we had agreed to do during this difficult time as we would not.
The activate customers and we would ensure that they had their their internet and their their wireless connectivity that became so critical at this difficult time.
That said, we know that we will have to one day returned to normal and we are going to see an escalation or a requirement for involuntary disconnects. So what I did has ensured that the provision that we took from the customers 39000, you alluded to in wireless 45, 46000, wireline mirrors exactly what the historical experience.
Would have been on disconnects. So as you see an aging into 30 60, 90 120 days, we ensured that the provision is it mirrors historical.
And that's what a customer provision does doesn't overstate one metric.
Okay, Thanks, and and Vince on the second question. So I'm always opened a good ideas, let me tell you that.
We think we shown a track restaurant track record over the years it being opportunistic.
And very strategic on the on the M&A side, So we'll always keep looking.
I'm not going to common specifically on on.
On the precise example, you put forward, but always looking to be opportunistic menu or whether or not it's in media or in telecom I mean, you do raise appointed about scale.
And.
It's pretty obvious that.
We ought to be encouraging scale in the country look.
Just take media, which is the example, you block forward just look where we competing against it's a rather silly notion that still think of of the media industry is a domestic media industry with three players competing with each other I mean, we're competing with global Internet joins really.
At this stage in the game.
And.
Hi, I'm happy with our asset mix right now I think it positions as well strategically and always looking to be opportunistic and it's a hard for me to comment on this call on the specific idea but.
But it was good question fair enough. Thank you.
Thank you for next question is fun do make Reno Olsen.
RBC capital markets. Please go ahead.
Yeah. Thanks, Thanks very much.
A couple of housekeeping questions for Glen and then one bigger one for you Marco Glen on the pension exposure doing a great job keeping solvency.
Fully fully funded essentially.
Kind of any scenarios here where that changes.
Kind of going forward, maybe just remind us on sensitivities and on the bad that expense can you break that down between wireless wireline and media and then overdue Murko just bigger picture satellite broadband services around the world are getting a lot of attention.
Take care of your thoughts on at least in Canada, sizing up either that opportunity or a threat for your broadband strategy over the over the longer term. Thank you.
Okay I'll go I'll go first Glen on the second question so through on.
The satellite broadband services and.
<unk> implications.
I'll put up our fiber.
Internet network up against anything fastest speeds in North America.
We got.
What did they want the.
Download speeds.
Can't be beat certainly satellite can't beat that.
Upload speeds as what they want that's more and more important as I said my opening remarks can't be fiber certainly satellite broadband cannot.
And.
<unk> Wi Fi.
The services that we have the time to market advantage weather.
On fiber generally as compared to satellite, but if you think about our wireless home Internet expansion.
25.
Download one one mega up that's going to 550 10.
Soon that's going to be hard for for satellite to beat we've already got 400000 homes.
That have.
The ability to purchase that that product. So I think we're in a very good.
Physician I think we're in a great position, if you even compare us to.
Your traditional cable competitors, let alone satellite broadband.
Launched yet and.
And.
Like <unk>.
<unk> will be it will be willing received I think in some very very deep rural areas.
At some point, but.
I think that's kind of my.
Reflection on that question drew.
Okay.
Thanks for going good morning drew pension exposure great question.
It's hard to believe that discount rates continue to draft.
At a time when we were looking at discount rates at the end of 2019 between our plans that we're running around on average two eight.
Sent and now at the end of the quarter, we were bouncing around.
23237 between or multiple plan so.
And a significant.
Decrease in in.
And the discount rate, but all of that said we remained at 99, we're bouncing no 99% of 100 on any given day from a solvency ratio perspective, which is just remarkable in an incredibly proud of what our team has done to put us in this position we didn't get here by accident. We got here by following a very prescriptive glidepath.
Ensuring that over 70% of our assets are now invest vested in fixed income so that gives us a natural hedge against this declining discount rate.
So remarkable job on a sensitivity if you saw it.
Okay.
Discount rate drop another twenty-five basis points.
Reach tour sub too.
125% of $150 million on when you consider.
A pension plan over 20.
5 billion and total that's pretty manageable, so I feel like.
We propositioned ourselves incredibly well to mitigate this risk and never in my Wildest dreams that I think we'd be looking at discount rates at this and still have a fully funded plant.
Over to bad that exposure.
As I mentioned in my remarks, I think there's all impact us a little further.
I took an extra provision of $36 million as a bad that expense.
But I also took provision of $28 million through revenue. So a total of 64 million additional provision related to cove it through revenue <unk>.
Provision of revenue, that's really accommodations, we gave customers customer credits we gave.
Waving late pay charges.
And making arrangements for folks who are struggling joining this this difficult time. So in total if you look at the P&L impact of Covid.
Bad debt and revenue impacts, it's about $64 million, if I broke that down by by B U a 45% wireless 45% wireline about 10% media.
Okay. That's that's perfect. Thank you both.
Okay.
Thank you.
Next question is Tamir Yagi fun.
Please go ahead.
Yes, thank you for taking.
Are we can't hear you alright.
Cut out.
Hello can you.
Thank you dropped off these lines.
The next person.
Assignment <unk> from.
Morgan Stanley. Please go ahead.
Good morning Mirror Coke I Wonder if if we could talk about five G for a minute.
Hold out the service to some of the key cities here.
Any early learnings any early observations and where do you see the biggest opportunity for the company is it really around the <unk> to be type use cases, what sort of conversations that you're having.
Sure.
Should be thinking back for the future. Thanks.
Thanks, Simon so.
We did launch on June 11th you know that so the cities, where Montreal, the GTA Calgary, Edmonton, Vancouver, and we will be expanding to about 28 additional markets and 2020. So all that's going according according to plan.
Okay, I'm really pleased that are competitive positioning here on file G. Because.
Speeds are one seven gigabits per second which is fastest.
In the in the industry and we're going to be even faster than that next year 135 gigahertz spectrum becomes available for mobile also.
Quite.
Pleased that.
We have a three five gigahertz spectrum advantage going into the.
To the auction given.
Our Milkshake holdings.
And.
Just generally on that network side with so many advantages, including our network sharing arrangement with tell us as you know in the number of cell sites that we have which are fiberize, which will be so so important for the service attributes customers will be looking for for five G. So far look it's early days I'm quite pleased.
How well.
It's going.
And the context of having just launched having launch kind of still which stores having not been completely for an fully opened at the time that we did.
I'm really pleased with how well positioned we're going to be to capture growth in <unk> in to that.
That question, which is the last part that you asked me about Simon I mean, I see icy growth potential in the consumer space.
Just kind of like on the consumer side, when we upgraded from <unk> et cetera, there's always a spike in.
In penetration.
Smartphone adoption, especially usage and that drives revenue and you're right. There are going to be a multitude of use cases on the enterprise side and on the Iot side, which will be in a great position to capitalize on especially when you think about our our distribution advantage with with B.
<unk> business markets and our enterprise strength.
Okay. Thank you.
Thank you next question.
Yankee from Deshawn. Please go ahead.
Thank you for taking my question and getting me back in the cute.
I wanted to Hey, convinced this question and flip it.
Other side with.
Capex.
Expected to increase I guess with Y G spectrum auctions coming up next year.
You also have.
Increased volatility in the market.
Breathing and.
Do you think.
You have other assets that could be divested often.
I'm thinking here real estate, essentially and you'll always in the past talked about the importance of owning.
Cell towers and.
In the World of Fry G do you think.
Dependency and importance is.
Jim extent or you could get capital out of the market out of your assets.
And from from that portion of pure.
It makes and we deploy it somewhere else. Thank you.
Okay. Thanks for nice to to hear you come back on the line I.
I'm going to in some respects reiterate some of the things I said in response to Vince This question, which is.
Quite happy with.
Asset mix, but will always be looking out to optimize that.
Things develop.
On.
Specific question you ask in terms of divesting.
Sell site or tower.
Portfolio.
I.
I am of the view that that is.
A.
Very competitively important.
Asset.
I think it's especially important in the world of five G. So owning that infrastructure remains an important part of our core business and I don't see that changing in the near term that's for sure.
And in terms of just more general.
Pointed boat cost savings with respect to real estate it'd take that real estate question a bit more broadly clearly with.
On through and the last few months and we were we are going to put a sharp focus on real estate optimization in particularly from an office space point of view.
And that's something that we're going to going to be looking at.
As others across the Canadian economy surely are.
Thank you very much.
Thank you.
Next question is splenda Glaz from UBS. Please go ahead.
Great. Thank you.
Can you also provide some color on the holiday $85 million Covid related expenses.
Allocated Denise segments, and how do you think about wireless margins and the second half.
Activities picking up and what follow up in the media, adding HBO back senior profitability segment anyway. Thank you.
Once you go ahead Glen.
Okay I'll start on the first part on the $85 million look I gave.
$85 million I said that operating expensive to 30.
$36 million, a that was bad debt and I gave you a breakdown of how that affected to be used.
I'm not going to impact the rest of the details of the 36 million represents a substantive portion of the 85 I.
I gave you the color on what it was with <unk> and and the donation.
Increased standardization cost the donation of PP&E that we gave to our frontline workers.
The cost we incurred trying to ensure that are we.
We were able to move our contact center employees home to work in a safe environment.
Far as the split of that.
45, 45, 10 is pretty accurate on the whole envelope.
And <unk>.
Merkle over to you on.
Yeah, I'll look on the media on the media question, the H B O Max.
Content.
That's over a longer term horizon over which will be monetizing that content. We're really does is it makes the crave that much more compelling in terms of asphalt service to subscribe to.
Allow us to the scale the service even more and we saw some good progress in Q2 going from two seven to two 8 million subscribers and just making.
Adding more compelling content just makes it that much more attractive which allows us to increase a sub base.
And.
Basically.
Leverage that contract over the longer term.
I think you've had another question on margin looking forward.
Frankly is merkle said and is opening remarks. It is our belief that that cute too was below watermark and that we will continue to see consecutive quarter improvement Q3 over Q2, and let's hope Q4.
Q3, as we get control of this pandemic, it's difficult for me to predict margins because I can't predict how this has this pandemic is going to affect us as I said earlier wave too is there additional waves beyond that is there shut down <unk>.
Commercial activity in Heaven forbid closure of stores et cetera, et cetera. So our focus right now is.
Is to serve the customers with the the stores we have open now.
To ramp up our sales activity and fingers crossed that that continues.
Well into the fall and we have this under control book sales are growing week after week month after month and while traffic is clearly down in our stores.
We're seeing strong conversion from the traffic that is in stores I mentioned. This last time, we were on a call like this together and we're seeing that trend.
Continue so at all points towards positive momentum.
Half of Q too.
Alright, thank you.
Thank you. Our next question is from David Barden from the Bank of America. Please go ahead.
Hi, Matthew sitting in figured I'd, David Thanks for taking the question I just had to.
Marco and you're prepared remarks, you mentioned.
Do you expect.
Sequential improvement in Q3, and I was just wondering if you're going to elaborate on what you see is named drivers is that expectation and secondly, if I could.
With the celebration in Selsor than online channel is that.
Leading to any change and how you see.
Physical distribution network, whether it's size or <unk>.
Reach and knees and cost savings that you could extract in there.
Anything would be helpful. Okay. Good questions. Thanks, Matthew so on Q3.
Kind of all pull from from different comments, we've made over the last hour so on wireless.
Previously mentioned, what we're seeing in terms of continued strength week after week, so what repeat that but we will reiterate it on internet.
As I mentioned earlier performance is quite resilient and we expect that to continue over the rest of the year on a home phone.
No significant sales, but really strong churn I called up the results in my opening remarks, and you've seen the material improvement in the pace of decline and we expect continued improvement in the pace of declined throughout 2020 T V I called out a little bit earlier and the enterprise side.
On media not talked about what we're seeing and media, we're seeing gradual improvement and momentum.
Slowly building cancellations of stabilized some segments of advertising again, and we're seeing bookings month over month accelerating we're seeing strong demand for the fall season.
And.
I mentioned F. One just take F. One for example, just to point out pent up demand for sports were up over 20% over the first three races, and we're on pace for new audience records for for that property UFC NASCAR very strong viewership year over year and I think the rafters are going to be very strong.
Long in terms of viewership in fact, the U S versus the U S versus U S team match ups that we've had on TSN since the NBA has come back have been triple are normal audiences for matchups featuring U S teams, so all of that bodes towards.
Progressively improving.
Loadings are bookings on media.
And self serve.
Look like I said earlier I still think that the predominant way Canadians are going to want to shop for telecom services, particularly wireless over the over the near term.
As in store and so that natural advantage, we have sworn it's back our way, yes, we're going to need to scale self serve and kind of seat in our results and when we when we direct <unk>.
[noise] activity online it does lead to a lower Coa, which is a lot of goodness and then the footprint will be optimizing that as we go and that's that's a function of consumer behavior consumer patterns are readiness on online and will continually being b evolving that much that mix.
I mean online and traditional.
Retail store footprint alright, so thanks murko on that unfortunately, we have timed out so I do thank you for your participation on call. This morning, I won't be available for the balance of today for any questions follow up questions and clarifications that with that take care and stay safe.
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Okay.
The Tommy see for pick a question about spending.
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She was opinion.
Hi, gentlemen.
Okay, and our consumer spending.
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Okay.
For Tommy Superior Cushy with funding.
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Okay from the University Medical Center for Tommy.
My question was feeling.
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Okay opinion, that's because at that.
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