Q4 2020 BCE Inc Earnings Call
All participants please standby your conference is ready to begin.
Good morning, ladies and gentlemen, and welcome to the BCE Q4, 'twenty and 'twenty results Conference call I would now linked to turn the meeting over to Mr. Themed Fotopoulos. Please go ahead. Mr. Fotopoulos. Thank you Valerie and good morning, everybody on the call with me today are Merkle Vivek V six president and CEO, and our CFO and loves it.
We definitely have a lot of material to go through this morning. However, before we begin let me draw your attention to the Safe Harbor statement reminding all of that the slide presentation and remarks made during the call. Today will include forward looking information and therefore are subject to risks and uncertainties results could differ materially we disclaim any obligation to update forward looking statements, except as required by law.
Please refer to the company's publicly filed documents for more details on assumptions and risks with that and let me turn the call over to Marco.
Thanks, Dan Good morning, everyone.
'twenty and 'twenty marked <unk> 140, this year and it was unlike any other I could have imagined when I began as CEO of last January.
Our new goal of advancing how Canadians connect with each other and the world unveiled last January could not have been more appropriate and in a year that saw extraordinary change and challenges that have dramatically impacted the economy and of course, how we live and work.
Throughout it all bell has been on the frontline delivering the networks to keep canyons connected stepping up every day for our customers and communities as we all continue to navigate through the Covid situation.
'twenty 'twenty, one will be a reset year as we transition towards a return to pre pandemic levels of financial performance and operating momentum.
We can't accurately predict the path and pace of economic recovery, but we know that our business is solid and we expect to see progressive improvement through the year much as we did after coming out of Q2 2020 ex as a result, we remain cautiously optimistic about our business outlook as reflected in our financial guidance targets for 2020.
One.
Our success in 'twenty and 'twenty, one will continue to be anchor to the priorities, we set in 'twenty and 'twenty.
They center on increased investment on core network infrastructure that will lay the foundation for future broadband Internet and <unk> growth.
Improving the end to end customer experience.
The ongoing digital transformation of our operations.
And of continued sharp focus on our cost structure.
We will accelerate capital spending in 'twenty and 'twenty one to forge ahead, even more aggressively on our successful broadband strategy expanding our all fiber connections opening up wireless home internet to even more rural communities and building our wireless five G network faster.
To that and I'm very pleased to announce that we were putting in place of capital investment acceleration program totaling one to $1 $2 billion over the next two years.
This is the right strategic move at the right time for our customers and our company, allowing us to realize of substantial operational benefits of state of the art fiber and low latency mobile networks sooner.
This will put us and that advantageous competitive position, allowing us to keep growing broadband market share and internet revenue and to begin monetizing <unk> services, all of which yields very attractive EBITDA and cash flow margins.
And I'm equally pleased to announce this morning that our planned financial performance for 'twenty and 'twenty, one enables us to increase bce's common share dividend by five 1% for 2021 it's.
It's our 13th consecutive year of of 5% of higher dividend increase.
And this represents an emphatic commitment to our dividend growth approach and to our broadband expansion strategy.
Because of the accelerated capital investment, we're making this year and ongoing financial impacts during the Covid recovery period, our dividend payout ratio in 2021 will be above our historical free cash flow target range of 65% to 75% or.
Our strong liquidity position and substantial ongoing cash generation support the execution of this capital expansion program and our higher common share dividend for 2021.
So let me unpack the capital acceleration program on slide four.
As I said, we plan to invest and extra one to $1 2 billion over the next two years of which approximately $700 million will be spent in 2021.
To accelerate fiber wireless home Internet and <unk>.
And this is the right time for investments of this magnitude.
First off the $1 billion and net cash proceeds from the sale of our data centers and October will fund this two year incremental capital investment.
And secondly, because of the federal government's capital cost allowance program is in place for another two years, allowing for the accelerated expensing of capital expenditures every dollar of network investment that we make will drive significant cash tax savings that can be reinvested into the business and support future free cash flow growth.
Normalized for the capital advancement of $700 million and 2021, our consolidated capital intensity ratio is expected to be and the range of 15% to 17%.
Consistent with pre Covid levels.
Thirdly for the moment, we have of stable regulatory environment that makes this type of large scale of investment possible.
As Covid has shown us over the past year. This is more important than ever now.
And now isn't the time for policymakers and regulators to move away from encouraging network investments now is the time to collaborate and partner with.
With government to connect more and more Canadians, particularly in rural communities.
We're showing that with the right policies in place we are prepared to make significant investments for the long term benefit of our customers and the Canadian economy, which will benefit from $2 billion of new activity and 5300 of direct and indirect jobs as a result of this additional investment.
And I was also of the right time to make these investments because of the strategy is undeniably working we see it and our results.
Essentially what we're doing is advancing the wireline and wireless network builds that we have and our long range plan. However.
However by making these investments more quickly not only do we realize the operational benefits sooner, but we also reduce our future capex requirements supporting future free cash flow growth and dividend increases for BCE shareholders.
There is no longer any debate about the power and value of fiber once deployed we begin to see the favorable impact on both subscriber and financial growth as well as on the overall customer experience.
Internet penetration grows much faster as we deploy fiber and wireless home Internet, we can gain anywhere from five to 25 percentage points of penetration and the first 12 months of deploying of market, which has driven steady market share growth and internet revenue acceleration overtime and.
In fact, our Internet subscriber base has increased 33% since the start of our fiber build of 2010 and annual Internet revenue growth has tripled from 3% to 9% and 2020.
Churn is also lower when customers are and a better network. This is key because retention is such an important factor and the customer lifetime value equation on average the churn rate for fiber and wireless home Internet subscribers is 30 to 35 basis points lower than those on a FTE T N or ATM network.
This extends the duration of the customer relationship with bell by approximately two years, leading to an improvement and the overall lifetime value of of direct fiber and wireless home internet customer by approximately 50% and 35% respectively.
And of course, our cost to serve of fiber customers lower annual service and support costs per customer are approximately 40% lower on direct fiber links versus copper.
Overtime as a greater proportion of our footprint as fiber is we will see even more meaningful change and our overall cost structure.
Let me turn to slide five of our presentation.
The accelerated network build out plan and one that we have in store for 2021. It gives US 850000 to 900000 more homes and businesses across our wireline footprint that are equipped with either direct fiber or fixed wireless technology.
This represents an incremental increase of up to 400000, new locations covered with broadband service and would have been deployed in 2021 without the capital advancement at.
At the end of this year more than 62% of our planned broadband Buildout program will be completed representing up to $6 9 million total combined fiber and wireless home Internet locations. This is up from approximately 6 million homes and businesses at the end of 2020.
And for wireless our accelerated capital plan will double the reach of our National <unk> network to 50% and most.
So very pleased to announce that Nokia and Ericsson and have been selected as of suppliers for our standard of loan five G core of.
Our fiber and <unk> investments are working Symbiotically to drive sales continued leadership and next generation Communications technology paving the way for future service innovation.
With a wireline infrastructure that includes high speed fiber already deployed to more than 92% of our cell sites over 2700 central offices that are available for mobile edge computing and of <unk> world of wireline footprint, encompassing 76% of Canadian households, and the broadest retail and <unk> distribution and the country.
No one is structurally better positioned and bell for true wireless wireline convergence and the most capital efficient manner possible and to capitalize on the revenue growth opportunities that await.
I feel very positive about the power of our business and our ability to execute and 2021 and energized by the accelerated capital program as always we'll continue to stay true to our long term strategy and continue to focus on our strength, which include a vertically integrated business. The best networks distribution breadth of deep customer base.
Powerful brand.
Growing dividend and the very best people.
And can turn now to slide six for some operational highlights.
And every successive quarter since the pandemic began we've seen quarter over quarter improvement across all our segments.
Despite the challenges of Covid, we delivered 96% of 2019, EBITDA and maintained our consolidated margin stable at 42%.
We generated over $3 $3 billion of free cash flow the ability of BCE to generate this magnitude of free cash flow even during times of extreme uncertainty and economic difficulty is remarkable.
We are well on our way to returning to where we were pre COVID-19 and our results for both Q4 and full year 2020 represent further proof of the continued momentum we are generating from the lows of Q2.
And our consistently strong operational execution was and evidenced once again in Q4 as we delivered 147000 total new net wireless retail internet and IP TV customers.
We also grew broadband internet market share faster than any of our peers. This past year with a leading of 149000 retail internet net adds up 10% over 2019.
The broadband footprint advantage that we're building positions us extremely well and both our consumer and business segments over the long term to grow Internet revenue, which increased a strong 12% and Q4.
As for our mobile <unk> network is now operational and over 150 centers covering nearly a quarter of the Canadian population.
On the customer experience front, we've made real progress over the past year and received recognition for the quality of our network and services.
<unk> and <unk> networks were certified as Canada's fastest by PC Mac and its most recent annual study of network performance.
Virgin Mobile also topped every wireless carrier in Canada from of J D power ranking perspective, as number one and overall customer service and the eyes of consumers for 2020.
While it's account my account was named the best Telecom mobile App of the year.
We boosted our wireless home internet download speeds for more than 350000 rural rural homes.
<unk> enhanced 50, megabits download and 10 megabit upload speeds to candidates underserved communities that are two times faster than before.
Our strategic focus on customer experience was also reflected and the latest report from the Cts, which showed a 35% drop and a number of complaints by bell customers again, the best performance among national carriers for a fifth consecutive year.
We've also made it even easier for customers and Quebec, and Ontario to transfer the residential services when they move with our new move valet Concierge service. This is just one example of initiatives that put customers front and center.
Lastly, the strides, we're making and digital transformation of our evident directly because of investments to improve online functionality and the app based sales experience for consumers, 54% of all customer service transactions now are executed online.
Let's turn to slide seven.
For an overview of some key operating metrics for Q4, I'm going to start with wireless.
Despite reduced retail store traffic and transaction volumes due to the second wave of Covid, we experienced sequential improvement and postpaid net adds.
Low churn, which improved 17 basis points over last year to 111% and and Abu decline that continued to moderate.
We added 93000 total new net postpaid subscribers. This quarter of this total of 87000, and where mobile phone customers, 27% higher than last year.
It's an impressive result that speaks to our focus on driving service revenue and EBITDA growth through accretive smartphone transactions.
Disciplined approach to subscriber growth was also reflected and our promotional offers we're handset subsidies were on average 14% lower than they were and the previous year.
And prepaid because of lower overall market activity from reduced immigration and fewer visitors to Canada. During the pandemic combined with greater competitive intensity and discount and mobile market, we incurred a net loss of 12000 customers. This quarter. Nevertheless, prepaid service revenue was up an impressive 14% on the back of strong.
Growth over the past year, let alone led by Lucky mobile, which generate higher than average industry.
A couple of notable developments on the retail distribution front that are worthy of mention we recently renewed our exclusive national distribution agreement with dollar Rama for all belt prepaid products.
<unk> Tiger.
And new distribution channel for Us began carrying lucky mobile and its more than 250 locations across Canada and late last year and.
And we renewed our contract with PC mobile and a partnership that has been in place since 2005.
So great great prepaid growth potential ahead.
To finish up on wireless our blended <unk> decreased three 9%. This results and notable improvement over the 6% decline we saw in Q3, despite persistent headwinds from lower COVID-19 induced roaming volume and reduced data overage from ongoing customer adoption of unlimited plans.
Normalizing for these impacts output growth was slightly positive in the quarter.
Let's turn to Bell wireline.
And we saw another strong quarter and wireline, we added 45000, new internet customers, 25% higher than last year, reflecting broad based growth across all brands. We added another 73000 fiber customers this quarter, bringing the total number to.
To close to $1 7 million and that's $1 7 million direct fiber customers and that's up 17% over last year.
On the TV side of things very pleased with 21000, IP TV net adds and that's essentially unchanged versus last year. Despite the impacts of Covid.
Q4 was also of the first full quarter that Virgin TV was available and the market and early results are quite promising both from a customer demand and <unk> generation perspective.
Satellite net customer losses improved for a fifth consecutive quarter and.
Actually down 5% year over year.
And we continue to see improvement and home phone customer losses.
Seven 5% this quarter.
On Bell media advertisers advertiser demand picked up in Q4 with the start of the new fall TV season, and more live major League sports programming and that drove a meaningful sequential quarterly improvement and TV AD spending and in fact total TV advertising in Q4 was down only 2%, so thats down 2% compare.
To last year.
<unk> also continued to deliver with strong direct to consumer growth as total subscribers increased 8% over last year, and we're now of $2 8 million.
As for TSN and Rds, they were the top English and French language sports channels and Q4 and.
And both are having a very strong start to 2021, particularly with world Junior hockey and NFL playoffs.
Lastly, we continue to see great results from our Quebec media strategy with significant gains and primetime viewership for our conventional French language television network, Nouvel, which led all peers with a 6% increase and your audience levels of this quarter.
So to summarize and before turning it over to Glenn.
Great operational execution delivered by the team not just in Q4, but throughout the year with consistent steady improvement that is building momentum back into the business and that sets us up nicely as we enter into 2021, so over you know Glenn.
Thank you Marco and good morning, everyone I'm going to begin on slide nine.
Despite the ongoing COVID-19 impacts the year over year decreases in Q4 of service revenue and EBITDA continued to improve sequentially.
Adjusted EBIT was down three 2%. However, we maintained our consolidated margins essentially stable at 39, 4%, even with $10 million of Covid related expenses absorbed and the quarter.
Net earnings were up 29% year over year as a result, and Q4 of last year.
Reflected higher net mark to market losses on our equity derivatives and hedge contracts and a media asset impairment charge.
As we signaled on our results conference in November Capex ramped up considerably and this quarter increasing to nearly $1 5 billion.
This was a planned increase reflecting greater network construction activity of following a slower pace of spending earlier and the year because of the pandemic as well as continued investments to enhance our digital capabilities.
And as for free cash flow it was down $782 million and Q4. This was a result. This result was expected given this quarters increase capital spending.
Higher cash taxes due to the timing of installment payments and a reduction in working capital driven mainly by the growth and accounts receivable that reflected a higher volume of wireless installment sales and the timing of supplier payments.
Turning to Bell wireless on slide 10.
So the return of Covid restrictions effect of transaction volume and the quarter, our wireless financials improved sequentially.
Product revenue remained relatively stable year over year declining only <unk>, 7%, reflecting a mix shift away from tablets.
And to smartphones as expected roaming and data overage has remained a headwind to service revenues, which declined two 5% this quarter compared to $4 three and.
In Q3.
And if you normalize for the Covid impacts service revenue growth was in fact of positive increasing by approximately 1% in Q4.
As a result of the better service revenue trajectory and disciplined device discounting the year over year decline and EBITDA also continued to moderate improving to 3% from the four 4% we experienced in the previous quarter.
Let's turn to slide 11, now and Bell wireline revenue was down one, 3%, which drove a two 7% year over year decline in EBITDA.
Notwithstanding COVID-19, we faced tough year over year financial comps this quarter as last year, we benefited from a number of nonrecurring items, including the federal election, and bulk sales of international wholesale long distance minutes.
And if you normalize for these items Q4 represented bells best.
The Bell wireline and best quarterly revenue performance in 2020.
While the year over year decline and EBITDA was similar to that of Q3.
Clear highlight of the quarter was residential wireline where revenues increased a strong one 5% representing our best performance in two years.
And business wireline and wireless quarter's results continued to reflect soft customer demand and spending on business service solutions and data of equipment given the current economic environment overall results of held up reasonably well.
Let's turn to slide 12 on Bell media, another quarter of improvement with revenue down 10% year over year.
This result reflected increased advertising demand as <unk>.
<unk> described earlier and continued strong crave subscriber growth Bell.
Bell media EBITDA was down seven 8% this quarter the sequential improvement was even more pronounced than for revenue due to a 11% reduction and operating costs, which encompass lower sports broadcast rights due to the postponement of new major league seasons, as well as television production shutdown and delays.
Well that does it from my overview of quarter really results I'll turn now to our financial outlook for 2021.
Starting with revenue and EBITDA on slide 14.
We are targeting revenue and adjusted EBITDA growth of 2% to 5%, which should yield a relatively stable year over year consolidated margin.
These growth ranges reflect of recovery back to within 2019 financial performance levels and are wider than we typically provide and order to absorb additional COVID-19 turbulence that may arise during the year.
Underpinning this outlook is positive topline and EBITDA growth from all of Bell segments. We expect a strong financial contribution from Bell wireless in 'twenty, and 'twenty, one where and ongoing focus on higher quality smartphone subscriber loadings and disciplined device discounting will drive.
Healthy year over year improvement and operating profitability.
We also anticipate and improving Abu trajectory with a partial recovery and roaming volume is expected in the latter part of 'twenty one as.
And as well as the deceleration and the rate of data overage decline.
Our wireline financial growth profile is also expected to strengthen progressively as the year unfolds.
Broadband footprint advantage that we're building positions us extremely well and both our consumer and business segments. As we continue growing internet market share and revenue faster than our competitors. We will continue to focus on winning the home by delivering the fastest broadband speeds as well as the best.
Wifi and TV experience to drive higher Internet and TV net customer additions.
And business wireline, we anticipate improving year over year rates of revenue and EBITDA declined on the back of higher customer spending as the economy rebounds, and and ongoing focus on cost reduction.
As for Bell media, we see good television advertising momentum going into 'twenty, one, especially as we lap COVID-19 impacts beginning towards the end of Q1, we also expect to benefit from contract renewals with TV distributors and continued crave growth.
However, higher cost of sports rights and the resumption of a full broadcast schedule and the premium content for our crave streaming platforms will moderate bell media as EBIT growth in 2021.
Let's turn now to slide 15.
Despite a decline and discount rates and 2020.
And supported by a strong 14% return on plan assets. The solvency ratio of Bell, Canada DB plan, the largest of the BCE pension plans was 102% at year end.
Given the strong valuation position Bce's regular cash funding for 2021 remains unchanged year over year at $3 $50 million to $375 million.
With respect of total pension expense on the P&L that is expected to moderately lower and 21 at $300 million due to the favorable impact.
Of a lower discount rate on our below EBITDA pension financing costs.
Let's move over to slide 16 on tax outlook, the statutory tax rate for 'twenty, one remains unchanged at 27% our effective tax rate for accounting purposes is also projected to be around 27%, reflecting minimal tax adjustments this year compared to the nine cents per share.
In 2020.
We also expect cash taxes to remain relatively stable year over year at $800 million to $900 million as.
As the tax savings enabled by the federal government accelerated CCA program will be largely offset.
By other higher income taxes over to slide 17.
Slide 17 summarizes our adjusted EPS outlook for 2021, which we project to be $3 <unk> to $3 20 per share.
Or 1% to 6% higher year over year.
This reflects a strong underlying contribution from operations driven by positive EBITDA growth across all three bell segments.
Depreciation expense is expected to be $200 million to $250 million higher year over year due to our accelerated capital investment program that we'll be putting more capital assets into service sooner.
And as I, just mentioned higher income tax expense also will be moderate it will also moderate adjusted EPS growth. This year, excluding the tax adjustments adjusted EPS is projected to grow.
And 3% to 9% and 21.
Let's turn to slide 18.
As a result of the strong EBITDA growth, we expect to generate $2 85 to $3 2 billion of free cash flow and 2021.
This is this is substantial given approximately $400 million and additional capital spending that we are absorbing as well as working capital pressure from their growth and accounts receivable due to increasing sales activity as we continue to recover from Covid, which includes a higher expected volume of wireless installment plan transactions.
Bce's consolidated capital intensity ratio for 2021 is projected to be and the range of 18% to 20%.
But as Merkle quantified. This includes around 700 million debt, we're targeting and 21 as part of our two year capital expansion program.
Normalizing for this capital and advancement of our capital intensity ratio and 21 decreases to 15% to 17% free.
Free cash flow growth improves and the range of 6% to 16, and the payout ratio of falls within 80% to 90%.
I would also like to point out that our definition of free cash flow includes all elements of working capital.
While some others do not.
Now that the Canadian wireless industry has shifted to installment plans the receivable base on our balance sheet is growing rapidly.
If you normalize for the financing of VIP receivables, which over the course of two years will flatten out our dividend payout in 2021 normalized for both the incremental capital spend I, just mentioned and D var and device financing falls below 80%.
A few brief comments on our balance sheet and cash resources on slide 19, we have access to $3 8 billion of liquidity as we enter 2021 and of capital structure that is aligned with our investment grade ratings, our debt leverage ratio of remain.
Manageable at two nine times adjusted EBITDA and is expected to increase in 'twenty. One as a result of anticipated wireless spectrum purchases at the auction later this year and the accelerated capital spend.
Our balance sheet is well structured with an average term debt maturity on our long term debt of less than 12 years and.
And of historically low after tax cost of debt of just 3%.
More importantly, we have no near term refinancing requirements as our next material public debt maturity does not occur until Q4 of 22 and.
And in addition to all of our major DB plans being fully funded.
Our close to $1 billion of annual U S. Dollar spending has been economically hedged well into 2022 effectively insulating any free cash flow exposure until that time.
To conclude on slide 20 as.
As we said 2021.
As of recovery year, it is about maintaining operational momentum as we transition towards a return to pre COVID-19 levels of financial performance.
All of the path of the pandemic and the pace of economic recovery are expected to remain uneven potentially.
Constraining revenue and earnings growth and parts of our business and the near term.
The industry fundamentals are sound.
Our competitive position remains strong.
And the bell team's ability to execute is proven.
And on that I will turn the call back over to thin and the operator to begin the question and answer period. Thanks, Glenn So given the volume of information and we covered this morning I'm sensitive to the time, we have left so please limit yourselves to one question and a brief follow up a few months. Thanks for your cooperation Valerie we're ready to take our first question.
Thank you Mr. Fotopoulos. Please press star one at this time, if you have a question.
First question is from Jeff fan with Scotiabank. Please go ahead.
Hi, good morning, everybody.
So lots of could talk about I guess around the investment plans for 'twenty, one and 22.
My question is if you look beyond this accelerated of plan.
After the two years.
Do we get back to the capex intensity around that 15% to 17%.
Hi.
The level, where you would be without these accelerated plans or do.
And we need to think about kind of additional sources to help fund further expansion of like what you're getting from the data center.
And my quick follow up along again with the investment plan and these are very strong statement.
Statements imply and supporting network investment, but we do have a couple of regulatory decisions coming spectrum auctions.
How could those events.
And maybe they won't impact your investment plans from the next couple of years. Thanks.
Okay. Thanks, Thanks, Jeff so.
Look briefly what we're doing here with the one to $1 $2 billion over two years is advancing capital that we otherwise would have spent over a longer period of time range. If you think about our broadband footprint program we've got.
One of them.
Cover of roughly 10 million households, and our operating footprint with fiber or wireless home Internet and we are 60 per cent of the way there.
So that means there's 40% to go so.
That $10 million is the denominator. So by forging ahead more quickly that means on the back end of the journey of Theres a lot more flexibility for us sales in terms of of Capex in terms of this technology and who might want to deploy over time. So the answer of short answer to your question with that.
Preamble is yes expect us to get back to a normal capex capital intensity ratios.
On the and the data centers and we.
We did get those that $1 billion and proceeds last year. There is no better place to deploy that capital then and our footprint expansion strategy, because I mean, I'm not going to repeat what I said in my opening comments. The strategy is clearly working so for shareholders. This is the best place to put that that $1 billion on on regulatory.
Look I mean that that.
Still significant issues, we have the wholesale internet rates decision pending and the envy of no decision pending I think we've got some very.
Good signals from the.
And the federal government last year, particularly in August when and where that decision came out the order council came out regarding the wholesale internet rates and administer veins at the time had said that he was concerned that the rates of CRT and <unk> had put in place would undermine investment and high quality networks, particularly in rural and that we need Paul.
Of the CS that encourage investments I think that's a pretty important signal thinking 2020, we've all experienced its pretty tangible now the importance of these networks, we can't risk, making more investments. So I'm forging ahead with this bold investment program and I got bolt, it's the biggest one and our history.
Because I have confidence that policymakers and regulators right now are going to appreciate the importance of of stable regulatory environment, if the decisions come out and theyre materially negative and of course, it's our job as a management team to steer that down and adjusted as required.
And the only one.
Only thing I'll add to that Jeff is on your question regarding spectrum the capital investment decision we've made today.
And to fund the additional one to $1 2 million was funded by the datacenter divestiture and it plays no role and our intention around participation and spectrum auctions.
Thank you Paul.
Thanks, Jeff Thanks.
Thank you our net.
Question is from Vince Valentini with TD Securities. Please go ahead.
Yes, thanks, very much couple of and the same topic.
And then your slide shows $700 million of extra Capex for this accelerated program in 2021.
To make sure I didn't see that anywhere else. So I want to make sure I'm clear on that of the one to $1 2 billion. Most of it is actually 2021 and there would only be between 300 $500 million left in 2022, so called out of clarification faint and.
Picture question would be.
In terms of the fiber to the home incremental spending can you give us any color on geographies here, I mean, and I know Toronto and Montreal or are largely done and does this mean.
And a bit of and accelerated rollout into the 905 areas and then maybe some of the smaller cities you cover <unk>.
You all saw Glenn ill kick it off and you can.
And so.
And Vince just think about the $1 billion of the one to $1 2 billion like this.
Roughly two thirds in 'twenty, one and one third in 2022, roughly two thirds and wireline one third and wireless kind of I would say that we'd be up kind of high level.
And benchmarks for you.
On fiber it is going to be pretty much.
Across our operating footprint, we're going to get the job done finished and Montreal, Toronto is largely done and Montreal as of well well on its way, but we're going to finish that Winnipeg, which we announced Hamilton.
We're going to kind of extend and the suburban areas and on wireless home Internet as well, it's going to be continuing and Atlantic continuing and Quebec.
The launch and wireless home Internet and Manitoba and.
And of course, continuing the pace of Ontario, and rural areas, Glenn and I think there was a clarification you on yeah, just just to clarify Vince and good morning, and get you to turn to slide four of our deck and you'll notice that the one point.
1.0 to a $1 2 billion as we stayed there and as Merkle said about a third 60, 70% is our intention. So you are correct and approximately your number of 700, but that's over baseline as we note and the footnote so baseline normalized capital spending not the the higher spending.
Level at you and you've seen in 2020, so that's the clarity thanks.
Thank you thank you Vince.
Thank you.
Our next question is from David Barden with Bank of America. Please go ahead.
Hey, guys. Thanks, so much for taking my question I.
And I guess my question is related to the guidance Glenn.
A lot of companies are highlighting the kind of transformation and the cost structure around digital channel adoption.
Remote work et cetera.
And how the revenue leverage.
Might lead to higher margins and you also called out.
I think of 14% reduction and enhance its subsidies and the quarter and it looks like and your expectations on a go forward basis that theres going to be lower subsidies. So could you talk about kind of why we arent going to see.
Better margin improvement over the course of 'twenty one versus 'twenty.
Good morning, David well first of all many organizations, whether it be and our industry or any industry have chosen not to provide guidance due to the tumultuous environment, we're operating and we.
We have decided today to demonstrate the confidence we have looking forward that we believe the guidance. We show here today gives us that.
Our range that we can absolutely accomplishing and and it includes all of the things you alluded to yes, we're going to see digital transformation and ideally continue to focus on adding high value of wireless subscribers continue to focus on reduction on handset subsidies, but all of that is factored into the guidance.
We provide here today I think the.
The challenge we face is that we're not through this pandemic, yet and we continue to see.
<unk> and retail and curfews remaining and in many places and our market. So I think the guidance. We provide here today speaks to a two of healthy outlook and a healthy performance we have.
And expectations, we have for 2021, but they include all of that we are driving towards higher margin, but frankly.
<unk> is going to take time to recover and you know that sort of an extra extraordinarily high margin revenue and it's going to be the back half of 2020 before.
Okay.
And I'll leave it at that unless merkle wants to add anything.
Okay.
Thanks, guys. Thank you.
Thank you. Our next question is from and drew Mcreynolds with RBC. Please go ahead.
Yes, thanks, very much and good morning.
Mercury or Glenn just to elaborate a little bit longer term. When you talk about fiber I think the cost structure and Glenn you just alluded to.
Wanted to kind of push margin over that medium and long term.
Perhaps just update us on.
How do you see a lot of that cost structure of fiber rising of the cost structure unfolding through that medium term and.
And is there any updated timing on and ability to that the commission copper and.
And as a follow up.
Yes.
I guess merkle, let's start with you on a lot of kind of news flow on satellite broadband continues to.
You know to come into the narrative of global Telecom.
This increased investment.
And just what are your latest thoughts on.
Where that type of competitor kind of fits within the Canadian landscape. Thank you.
Thanks, George So we're always very mindful of the competitive dynamics and the industry and that's what we do every day of adjusting to to shifts in technology and the marketplace and and.
And pricing et cetera, So there's no different with.
Potential satellite launches, but I feel pretty good with regard to where we stand.
We had a 1 million household footprint plan for wireless home Internet, where pretty much halfway there now we're accelerating even more so we've got kind of the early lead in terms of.
In terms of product availability.
Our speeds are 50, 50, $10 50 download 10 of 10 up.
And that that those are very fast speeds and it's a robust service that we offer.
The customer is going to get those speeds and not to be not to be underestimated ever is when you subscribe to wireless home Internet with Bell you get of Bell technician, who drives to replace installs. It for you and if there's a problem. There is somebody to call and we will come and fix it and that's not the case with some of the early versions of Leo.
And that we've seen out and the marketplace and that.
It's not evident GAAP climbing up on your roof and installing the equipment and then if something goes wrong, what do you do.
So on continued continued focus on customer experience. So I feel really good about the competitive positioning of that product and it's only going to get better as we get $3 five more three five gigahertz of spectrum and are able to transform that service and to <unk>.
On.
On.
On the cost structure and look on fiber ization.
And it's tried to unpack and in my opening remarks, and remarks and drew I mean, there is the churn benefits are clearly there the topline benefits are there the churn benefits are there fewer truck rolls with fiber fewer calls I mean, there's a whole lot of goodness and as we push fiber out even more.
And those cost benefits are going to be particularly significant and then not to mention and we've talked about it already but just to reiterate the capex flexibility, we're going to be we're going to have and the outer of the year outer years of our expansion.
Graham. So so you mean the cost side is clearly there in the medium to longer term and it's there right now like in terms of back to Glenn.
Question and answer a little bit earlier on we're managing costs very tightly.
The fiber ization, and and WHI and wireless home Internet expansion strategy as part of that controlling handset costs and subsidies as a part of that of course always looking at our total cost of labor is part of that debt.
And the digital acceleration is as a part of that cost control as well and.
And margins are going to increase as adds broadband expansion continues.
Yes.
Thank you.
Yes.
Thank you. Our next question is from Sebastian No Petti with Jpmorgan. Please go ahead.
Hi, Thanks for taking the question.
And I'm just wondering if you could unpack, perhaps the fiber build out I think you talked about 5% to 25% penetration within the first 12 months of kind of new vintages.
New expansion, but just looking.
And $1 seven over.
And your current fiber passing of implies penetration of about 30%.
And so I'm not sure if I'm getting that incorrect, but just thinking about the.
The opportunities for additional penetration gains within your existing footprint above and beyond the new kind of whole builds and that acceleration.
And are you if you could perhaps comment on the level of competition within both of fiber markets as well as your some of your traditional broadband and fiber markets as well.
So I mean, if you.
If you take wireless start with wireless home Internet. So when we when we enter when we enter a market.
As a market. These are markets, where we either have not had any service at all to offer to customers.
Or it's been very low speed DSL and so.
Where we've either had no service or frankly and service not not competitive enough. So.
<unk> gains and those markets can be very high in fiber market. It's a combination of building in areas, where we have DSL, which is not at this stage in 2021 is and competitive with alternative services, So and five TV <unk> TV gigabit five is the most competitive internet <unk>.
Service in the country. So when we enter of DSL market with speeds of fibre speeds of one to $1 five gigabits per second it's an extremely competitive marketplace and that explain got product and that explains the growth and penetration and MTT and markets, where we're talking about here and we may have a customer we move that customer from FTE.
And over to FTE th Theres, a lot of goodness there too in terms of increased <unk> four that debt that same customer and then they and with lower cost of service. So across the board. It just leads to growth and as of as a percentage of retail internet the $1 seven.
<unk> subs that I referred to is actually 50% penetration not 30.
Yes.
Sebastian and how it goes without saying I've said it many many times before wherever we construct fiber to the home we take a disproportionate share of net adds and that ultimately is going to lead to.
And I was having.
A significant increase and our existing internet market share and and.
And that just bodes well for the future and speaks volumes to why we want to accelerate the investment today fiber works and the debates over the.
The value of that it brings to our customers and to our shareholders.
Okay. Thank you next question from here.
Thank you. Our next question and then from Betsy <unk> Levi with UBS. Please go ahead.
Great. Thank you.
Can you provide maybe some more color on wireless trends since the beginning of the year have the volume slowed more given the extended lockdowns and if there is any change in competitive intensity and one just quick follow up your comments about relatively stable margins for the year does that hold true for both segments assuming maybe.
Bill mean comes back and the.
Back half of the year for both wireline and wireless thank you okay.
I'll take the first one Glenn and then over to you for the second one.
And the Lockdowns and the.
And you Lockdowns that hit US in November December and are continuing today clearly they've had an impact on the volume of transactions that is that is certainly the case.
There is.
A lot of churn benefit just in terms of our improved customer service and just the nature of of buying.
Buying patterns given the lockdown so there's a there's been a benefit there as well of our approach.
As the following though.
We are.
Focusing on high quality high quality loading so I mean, you see it and the result, while the transaction volumes may be down. The fact that we're focusing on high quality loading is actually providing a lot of goodness in terms of service revenue growth or if you want kind of the improvement and the service revenue decline and <unk>.
As I mentioned at the beginning if you normalize for the overage impacts and the roaming impact are our op, who would've would've actually been positive so.
And we take the approach of we're always going to be competitive we're going to be very disciplined on discounting and on promotions again, while being competitive and responding and a competitive marketplace, but we're going to focus on those high quality smartphone loading and we're going to deemphasize.
Tablets, and other connected devices, except where they're accretive and and and it's paying off and you see it and the Q4 results.
Glenn Thanks, Mark I'll and I'll I'll tackle the question on margins and the short answer is yes. We believe we will have stable margins and both our wireline and wireless business headed into heading into 2021 here.
The cost discipline and the actions, we're taking will protect our margins what I can't predict is the pace of recovery on things of high margin things like roaming obviously like everyone. On this call I am optimistic and hopeful that coming through the back half of 2021, we're going to see that the vaccine, taking hold and allowing Canadians to travel once again.
And should that happen obviously, those roaming revenues are extremely high margin, but our focus in the meantime, we will be ensuring the cost that we take the necessary cost actions to protect and ensure stable margins and and both of those lines you alluded too. Thanks for your question. Thank you.
Thank you.
Our next question is from Tim Casey with BMO. Please go ahead.
A couple from me could.
Could you.
I guess Glenn for you what how should we think about.
Media for the year I know you gave some.
Some comments on the guide, but just how are you thinking about them.
The pace of media you didn't mention.
The program and cost Youre going to go up so just wondering if you can provide any more color there and.
And second free.
And you.
<unk>.
Could you talk a little bit about competitive intensity regionally.
Or if there's any differences between.
The important, Ontario, and Quebec markets on the wireless intensity competitive intensity.
Thanks.
Well I'll jump in first as a murko thinks about the second part Tim.
As I said in my opening remarks, and I expect all of our business units to provide positive contribution to both to both revenue and EBITDA and 2021.
Media is as part of that I expect it to return to positive what I said is that it could be moderated and will most likely be moderated because if the year plays out the way, we envision we will return to.
To all live major sports, returning which will increase programming costs.
We expect to see and increase in advertising revenue.
People start moving around and you think about our out of home business.
That's been so.
Heavily impacted as there's people not moving through airports and downtown foot and car traffic is down so much Billboard advertising is down and I expect all of that to recover.
But I also expect program and cost to increase so it will be a positive contribution to EBITDA.
It's one of our most volatile.
Business units when you think about how this pandemic effects it but I also want to remind you. It represents 8% of our EBITDA. So feeling confident we'll return positive and more.
And we will be a contributor to the overall guidance that we've provided today.
Yeah. Thanks, Bryan so thanks for the question, Tim and I've you've.
<unk> heard me say quarter after quarter of that.
As an industry, we really do need to keep a check on escalating what were escalating handset subsidies, particularly as I've mentioned before when you separate the rate plan from handset costs and you can kind of offer of handsets that catered all of affordability levels. There's really no reason to be subsidizing handsets to the same levels as in the past.
And that's one aspect of it of course on either of that or just general promotional intensity. It does ebb and flow depending on the time of year and I'd say the good news is that progress was made in Q4.
Discount handset discounting improved 14% year over year, we saw some.
We saw product margins that were positive and improving year over year again, thats, a focus or a byproduct of our focus on higher quality smartphone loads.
Q debt.
The holiday season, I think was was.
Encouraging in terms of the level of promotional intensity and <unk>.
Generally we did see it get pretty hot at times on the flanker brands in particular, so of that had an impact on the prepaid segment as I mentioned earlier, but I think all and all were.
Good progress on that front generally less intense year over year less intense than Q3 2020 the <unk>.
Exception being the flanker brands and I think we are.
We're kind of heading that headed in the right direction at starting to properly monetize the massive investments, we're making and wireless, particularly with the kind of the spike and investment were all going to make and our <unk> networks and spectrum, we're going to need to monetize that reflect in a way that's really reflective of the tremendous value we provide to consume.
<unk> while at the same time, we are being very mindful of affordability because prices are going down and even see the latest kind of.
Stats can.
Launched of digital portal and you can see that wireless prices have decreased quite significantly from 19% to 20, and we all know that.
And the important segments of <unk> also decreased in 2020, particularly the segment that the customer of that the Canadian government asked us to reduce prices and so I think we're doing a good job of theirs.
And the discipline seems to be there.
We're certainly intent on monetizing the investments and we are going to deliver on the commitment to the government and offering just generally more value at the right price to customers.
Thanks next question.
Thank you and our next question is from Ara, Linda and get it, particularly with Canaccord Genuity. Please go ahead.
Good morning, a couple of quick clarifications.
Number one perhaps of Glenn.
You talked about the service revenue growth of 1%, excluding the COVID-19 impact compared to the two 5% decline reported can you are you.
April to give us a little bit of a breakdown in terms of roaming.
Average and other and particular given some of the given the fact that really of that Roger has kind of talked about and most significant other impact I wanted to make sure that.
And is balancing that sort of.
In terms of activation fees et cetera, and then as a follow up on the on the handset costs.
And you referred to of 40% decline do.
Do you expect with VIP and Rolling out do you expect to see sort of of more.
And perhaps even a more material gain on that front as you step into 2021.
Okay and on service revenues, Yeah, I'll give you a little bit of insight, what we've experienced and roaming has been extremely consistent since Q2, I told you and Q2 that.
And the implications to the pandemic resulted in almost a 70% reduction in roaming and that quarter. It was around $60 million.
<unk> reported that same day.
Dollar value roughly identical continued through Q3 and into Q4. So that is the biggest driver on what's what's challenging service revenues I say challenging service revenues.
But I will take a victory lap that we're very pleased with the performance that we had on service revenues and the quarter.
<unk> to our peers short answer no I don't have anything to unpack on other because there isn't another and as <unk> said in his opening remarks.
There we continue to manage the data overage declines that's happening it's something that we've done a very good job you've heard us speak about historically managing that.
So the.
And the trend continues it is declining as overage and and people moved to unlimited plans, but our focus is ensuring that.
That's a managed approach and it's not a race to the bottom and I.
Don't recall the second part of the question.
With respect to the subsidies that you talked about Tencent discount to fall and <unk>.
Look we're extremely pleased with the with the handset discounting that we're seeing the move to installment is accomplishing exactly what we had hoped it would at times I think there are there is a lack of discipline and the market and we hope that that cleans up but we think about what what the installment program does it give it.
It gives customers the choice they can migrate to the handset that best meets their needs and they can finance it over over a term that allows it to be affordable and what it allows the industry to do is.
More cost conscious of cost conscious on how expensive. These handsets are becoming and manage the discount and the back pocket offers that go with them. So.
Early signs are encouraging and.
And I expect and hope it will continue and it's a big part of our strategy on managing margin and so.
We will focus on it and try to bring the discipline to that okay. We have time for one more quick question.
Thank you. Our next question is from Simon Flannery with Morgan Stanley. Please go ahead.
Great. Good morning, Thanks for taking the question Glenn a quick one for you could you just talk about how youre thinking medium term about the payout ratio and and the leverage target obviously nice to see the dividend increase here, but given the Capex guide it sounds like on the auctions and maybe C band and beyond the $3 five.
<unk> is going to probably not going to generate substantial free cash after dividends until maybe 2023 and beyond so how should we think about.
What are you comfortable going to say the low threes for a little while and then try and get it back to current levels and the.
And the three to five year view, so that the right way to think about it.
Yes, I think so Simon as I Unpacked for you today first of all we're in unprecedented times no one ever envisioned we would find yourself in a and a global pandemic of this nature so to expect.
US to force our organization and a short timeframe back into our historical targeted payout ratio would be detrimental and damage the business. When we know long term this industry is.
And stable and we will return to historical earning level. So right now we've decided and a low interest rate environment. The best thing. We should we could do is to use the use the proceeds of the datacenter to invest and the network by investing and the network. We know that's going to bring growth and internet and TV subscribers that growth is going to bring <unk>.
And future cash flow that future cash flow is going to manage the payout ratio and the ability to fund dividend go forward. So look and the short term, yes, we're outside of the payout ratio done eyes wide open and we know that in the medium term as you alluded to post 'twenty two when this investment is behind us and let's all hope the pandemic is behind US we will return to more.
Normalized levels.
And the case of leverage yes, we're above our stated objectives for leverage, but again and extraordinary low interest rate environment, We think the leverages manageable and the free cash flow generation of this company and.
And the medium to long term, we will absolutely allow us to manage leverage it's the right thing to do at the right time.
Great.
Thank you everybody for your participation. This morning, I am available throughout the day for any follow up questions and clarifications. So have a great rest of the day take care and stay safe.
Thank you.
Thank you everyone. The conference has now and.
Please disconnect your lines at this time and we thank you for your participation.
Yeah.
The conference.
Vince has now ended please disconnect your lines at this time and we thank you for your participation.
[music].
This is no longer being recorded no visits per month as it goofy homestead dump of heartbeat.
[music] from me.
Please note that this conference call has ended and please disconnect. Your line at this time, thank you see.
And you're not.
They tell me and me.
Okay.
And you see.
[music] okay.
Please note that this conference call has ended please.
Connect your line at this time thank you.
And you're not because of that person said tell me meat.
And of course, what's gaining let's see.
[music] massage on process people. Please.
Please note that this conference call has ended and please disconnect. Your line at this time. Thank you.
Silver Bay opinion, and not get set of pellicle and fan of let's say tell me and me seafood per cause she about finding nothing.
[music] and massage of office people.
Please note that this conference call has ended please disconnect. Your lines at this time I think you see from Pepsi and you're not because of the type of helical fan and I'll say tell me.
So you can pick up a question about willing let's see.
[music] and such.
From a fever. Please note that this conference call has ended please disk.
Connect your line of at this time thank you.
And and that's because of that pencils down and say tell me seafood.
A question about training.
[music].
And it sounds like part of fifth people.
Please note that this conference call has ended and please disconnect your lines at this time. Thank you.
And you're not because of the pellicle and fiance tell me knee seafood per cause she was tightening.
[music] from.
From a fifth of people.
Please note that this conference call has ended please disconnect your lines at this time I think you.
See from pet opinion, not kiss of type of vehicles and also tell me seafood pick up because she was failing let's see.
[music] and such.
And fifth fever, and please note that this conference call has ended and please disconnect. Your line at this time and thank you.
And you and that's because of that that helps them down and say tell me and the Super pit her because she was pending.
[music] MSR.
And it sounds like part of fifth FIFA. Please note that this conference call has ended and please disconnect your lines at this time. Thank you.