Q2 2021 BCE Inc Earnings Call
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[music]. This conference is being recorded so it's close to the homes that don't have as you see.
All participants your meeting is ready to begin.
Good morning, ladies and gentlemen, welcome to the BCE Q2, 2021 results conference call I would now like to turn the meeting over to Mr. Fotopoulos. Please go ahead. Mr. Fotopoulos. Thank you Justine on good morning to everyone. Joining me today as usual are Marco.
He is president and CEO and our CFO Glen Leblanc, you can find all of our Q2 disclosure documents on the Investor Relations page on BBC Dot web site, which we posted this morning.
However, before we begin I'll draw your attention to our safe Harbor statement reminding you that todays slide presentation and remarks made during the call 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 our assumptions and risks on that I'll hand, it over to Marco.
Thank you. Thank you just Dana and good morning, everyone Q2 marked another quarter of great operational execution by the Bell team as we continue to deliver with sequential improvement in our consolidated operating results with strong mobile phone subscriber loadings and further acceleration of capital spending to forge ahead, even more aggressively on out.
Our successful broadband strategy strategy that drove 80% higher fiber internet net customer adds this quarter.
A year after Covid significant initial impacts in early 2020, total BCE revenue and adjusted EBITDA growth accelerated this quarter, increasing by more than 6% over last year as we let all national wireless carriers in reported service revenue adjusted EBITDA and <unk> growth.
We've recovered 99% of our pre pandemic wireless service revenues and our wireless adjusted EBITDA has fully recovered despite the lack of a recovery in high margin roaming revenue. It is an impressive result by the bell mobility team.
Our results for Q2 included a $44 million regulatory charge related to the CRT <unk> recent decision to lower wholesale internet rates, even further to the benefit of resellers were it not for this 1 time retroactive impact total revenue and adjusted EBITDA would have increased 7.2% and 8.1% per.
Respectively.
We leveraged our broadband networks and improved customer service tools to deliver 115916 total mobile phone mobile connected device retail internet and IP TV net subscriber additions in Q2, an increase of 75% over last year.
The backdrop of continued government support for an investment to drive the country's COVID-19 recovery and propel Canada's global leadership in next generation digital infrastructure, we stepped up capital spending in Q2 investing over $1.2 billion on new fiber and wireless home Internet connections further expanding mobile <unk> coverage and on.
Mentoring network capacity to manage core IP traffic volume.
Which grew another 20% compared to last year when demand surged during the early stages of Covid.
And our strong financial position with $5.3 billion in available liquidity at the end of Q2 bolstered by more than $1.2 billion of free cash flow generation. This quarter puts us in a leading position to execute on our Upsized capital acceleration plan wireless spectrum purchases and BCE is higher common share.
Dividends for 2021 eye on.
Also want to highlight the recent launch of Bell for better and initiative that encapsulates our ESG strategy and provides a framework for all actions, we are taking to create better outcomes for all stakeholders, including Canadian communities employees customers as well as BCE shareholders and bondholders with our broadband connectivity commitment.
From the smallest rural communities to the largest cities investments in mental health initiatives, environmental sustainability, and an engaged and diverse workplace, we're looking to create a thriving prosperous and more connected world for Canadians across the country.
In terms of notable ESG developments. This past quarter, we are adopting science based targets to reduce greenhouse gas emissions by 2030 in line with the Paris climate agreement and we successfully completed on inaugural $500 million sustainability bond offering the first ever for North American Telecom company, we will be using the pro.
Seeds to finance Green and social investments with a focus on energy efficiency and affordable infrastructure projects. The offering was very popular with investors receiving total orders for more than 6 times, the amount issued which enabled us to price the issue at a lower cost of debt and for regular loans.
Let's turn to slide 4 of our presentation for an update on our strategic priorities for 2021.
We secured 30% of the $3.5 gigahertz spectrum available to national wireless carriers at the recently concluded auction for a price of $2.07 billion.
This included an additional 30 megahertz in each of the top 3 markets and an incremental 22 megahertz in our rural wireless to the home markets.
Together with existing holdings Bell now possesses 37% or a weighted average of approximately 50 megahertz of the total spectrum that was available to the incumbent national wireless carriers.
Wired at an industry low average blended cost of $1.25 per megahertz pop.
That said given how the government designed the auction it was the most expensive auction in Canadian history.
Key factor that requires careful consideration in future assessments on.
Our auction frameworks and on future assessments of wireless pricing by the government.
With significant high capacity 3.5 gigahertz spectrum at our disposal, we have the mid band spectrum necessary to drive the rollout of 5 day across Canada and extend our leadership position.
Since the beginning of the year, we've launched service in more than 80, new markets nationally, including the first <unk> service in Newfoundland and Labrador introduce Canada's first <unk> roaming for the U S and entered into new <unk> strategic partnerships. Our <unk> footprint coverage is now above 40% and remains on track to reach 70% of the Canadian part.
<unk> by year end.
Success in 5 G and Iot depends on a number of factors beyond just coverage.
It's about delivering the fastest speeds and lowest latency leveraging network points of presence presence such as central offices for multi access edge computing that support product development and establishing deep relationships with the biggest Canadian companies.
And whichever element you look at Bell as the industry leader, we lead in speed on.
Offering the fastest data speeds of up to $1.7 gigabits per second and consistently win third party speed Test awards, including most recently from E Club.
<unk> is canada's fastest.
We lead in latency, owing to our deep fiber deployment now at 94% of on more bell mobility cell sites fiberize as well as our ability to bring computing power processing and storage to the edge of the network closer to the customer.
We lead in network points of presence with over 2700 locations across our wireline footprint.
Our partnership with Amazon Web services, and our strategic technology partnership with Google Cloud will integrate their technology with Bell <unk> to move data processing to the network's edge, thereby minimizing latency and powering 5 G use cases, such as immersive gaming Ultra HD video streaming.
Smart manufacturing AI and distance learning.
By combining all of those ingredients, we can deliver the superior functionality that will allow developers to design apps and next generation solutions and Iot services that leverage the best <unk> network in Canada, and that's how we intend to take a leading share in <unk> services and capture the sizable revenue growth opportunities beyond <unk>.
Net where connectivity.
And we're already beginning to do that as you saw by innovative with innovative applications, such as TSN and Rds 5 G view.
Now over to wireline.
In the first 6 months of the year, we have equipped 347000 homes and businesses with either direct fiber or fixed wireless Internet technology and also launch wireless home Internet service in Manitoba. This past June.
This progress together with another 257000 locations that are currently under construction keep us on track to deliver between 850000 and 900000, new premises by year end.
And at a time when network connectivity is more important than ever as we all know bell. Once again was recognized by PC magazine annual study as the fastest ISP in 4 provinces.
It is a testament to the significant investments in the hard work significant investment we're making in the hard work we have in the field in a world that works.
Moving to slide 5 for an overview of some key operating metrics for Q2, let's start again with wireless the clear highlight of the quarter was <unk> 5.8% service revenue growth, which led all national peers, delivering an industry best 3.3% increase in that group.
Again, an excellent result, representing our first quarter of growth since Q3 of 2019 when unlimited data plans were first introduced in Canada.
This strong rebound reflects our focus on higher value smartphone loadings, including a growing base of customers on device financing plans and the lapping of Covid related pressures from roaming data overage and the waiving of certain fees to support customers during the crisis.
Although retail traffic in store capacities were impacted by the third wave of Covid overall customer activity ramped up.
We added more than 44000, new net mobile postpaid phone subs this quarter up 45000 compared to last year.
This result was driven by 35% increase in gross activations, reflecting higher direct and digital channel sales volumes have balanced ongoing retail store restrictions as well as pent up customer demand.
And our mobile phone churn remained well below 1% at.
83% for postpaid a strong performance that reflects our improving digital capabilities and leading networks for.
For connected devices, we realized 47000 net adds a year over year increase of 22% driven by continuing strong demand for Bell's Iot solutions. In fact, we added 74000, new Iot subscriptions up 2.5 times over last year.
And similar to the previous few quarters prepaid net adds of 2000 were impacted by lower market activity attributable to reduced retail store traffic and a slowdown in immigration and international travel of course because of Covid.
Let's move to wireline.
We're showing again that our fiber strategy is working.
We added more than 27000, new net retail fiber customers, which is an increase of 80% versus last year.
At approximately $1.9 million residential fiber customers now represent over 50% of on.
Our total retail internet customer base.
Taking into account the competitive loss of legacy DSL subscribers and bells non fiber footprint. We delivered 18000 total retail internet net adds this quarter. This compares well to last year, when we experienced a surge in demand as COVID-19 restrictions were put in place.
Our growing base of 5 customers combined with higher revenue per user driven by speed upgrades and an improving tier mix given fiber superior experience drove a majority of the 12% year over year increase in residential Internet revenue. This quarter. This consistently strong revenue growth quarter after quarter together with the benefits we see in <unk>.
And market share gains customer lifetime value and lower operating costs are the reasons why we're pushing hard on the accelerated expansion of our broadband footprint.
In TV, we continue to leverage our multiple brand strategy to drive 5000, IP TV net additions this quarter and that's up 8000 from Q2 of last year.
Satellite net customer losses improved 21% to 9000 and that represents the seventh consecutive quarter of year over year improvement.
And home phone customer net losses remained essentially stable adjust around 50000.
So all in all a very solid quarter of wireline subscriber results in what is typically a seasonally slow quarter.
I'll now turn to Bell media.
The first notable highlights for Bell media as advertiser demand, which rebounded across our media platforms. This quarter.
However, a more robust recovery, particularly for radio and out of home was muted by the pandemic third wave.
TV advertising was up 70%, reflecting stronger bookings due to the return of live sports and TV Productions. This helped TSN and Rds maintained their number 1 sports channel rankings for the current broadcast year to date and for CTV to achieve a milestone 20th year as Canada's most watched network.
In Quebec Nouvel also make further gains in viewership versus its French language competitors with year to date audience is up 10% that drove a 2 point increase in market share.
More notably at our virtual upfront presentation in June we unveiled our fall programming lineup with the most programming inventory in 5 years for CTV and more than 70 original productions planned. This was our most successful upfront upfront season ever.
With bookings, 19% ahead of our previous forward sales record in 2019 and more than double last year, a very encouraging result that bodes well for the upcoming broadcast year.
The second highlight of the quarter for Bell media was the strong growth in our digital platforms, demonstrating that our strategic pivot to a digital first media company is bearing fruit.
Digital revenue has increased an impressive 57% and now represent 19% of total Bell media revenue and Thats up from 16% last year.
Underpinning the standout performance was growth in crave and TSN direct streaming subscribers.
Craves subs increased 6% over last year and is now approaching the 3 million Mark while TSN direct more than doubled its subscriber base. Thanks in part to the Euro Cup, where the final game was 1 of the most watched broadcast of the year and TSMC biggest live streaming audience ever.
We also continue to scale CTV dossier, our all in 1 digital video streaming App, which has now become the top Avon platform in the country.
And Bell media innovative Sam television sales tool that connects advertisers and other marketers with the right audiences on the right media platforms is more has more than tripled. Its 2020 sales revenue in the first 6 months of 2021.
And on that I'll hand, the call over to Glenn for a more detailed review of our financials.
Thank you Marco and good morning, everyone.
I'll begin on slide 7.
As Marco said exceptional financial performance this quarter with strong consolidated revenue and EBITDA growth acceleration as we lapped the significant COVID-19 impacts from Q2 of last year normalizing for the $44 million regulatory impact referenced.
Referenced earlier total revenue was up 7.2%, while EBITDA increased 8.1% standout results driven by year over year increases at all Bell operating segments, even though wireless roaming media advertising and business wireline revenues have yet to return to pre.
Covid levels.
Net earnings were up significantly increasing 150% year over year on strong flow through of higher EBITDA lower noncash media asset impairment charges as well as higher other income largely from net mark to market gains on our equity derivative hedge contracts.
Despite the sharp increase in earnings free cash flow was down 23% compared to last year. The decline was expected and the result of higher planned spending under our 2 year capital investment acceleration program. That's a further step up in Capex this quarter from more than $1.2 billion, let's turn to.
Slide 8.
Bell Wireless service revenue was up a very healthy 5.8%, representing the first quarter of year over year growth since the start of the pandemic.
This strong result reflects our strategic focus on high value smartphone activations and the associated economic benefits in terms of lifetime value and EBITDA growth as well as the non recurrence of certain COVID-19 related impacts from last year.
Although the recovery in roaming was marginal this quarter as travel restrictions remain in place and borders closed it is no longer causing per year over year drag on financial results product revenue was up 27, 7%, reflecting increased customer transaction volumes, a greater mix of premium mobile phones.
<unk> and improved year over year consumer electronics sales at the source driven by the reopening.
Retail stores.
Due to the flow through of significantly higher year over year revenues wireless EBITDA returned to positive growth this year, increasing our V.
Very impressive 10, 1%.
Moving to slide 9 our wireline financial results. This quarter included a $44 million regulatory charge, excluding for the 1 time impact we delivered service revenue growth of <unk> 6.
And 4.5% higher EBITDA, which drove a 1.9 point margin increase to $43.9.
This margin improvement.
Is essentially equal in magnitude to the decline we experienced in Q2 of last year, when we absorbed significant incremental costs because of Covid.
Residential led the way growing revenue by a healthy 3.2 to 3.6% on the back of continued strong fiber customer and <unk> growth that contributed another 12% quarterly increase in Internet revenue.
However business wireline was softer given the surge in customer demand we experienced at the start of Covid crisis last year for things like conferencing services voice connectivity as Canadian businesses enacted on work from home policy for their employees.
Product revenue, which can be lumpy.
Also decreased year over year due to the timing of data equipment sales to the government sector.
Although overall telecom spending by large enterprise customers continues to be impacted by Covid business services solutions revenue grew approximately 3% year over year.
Positive indicator for when economic recovery.
It takes hold more fully.
Over to Bell media on slide 10 strong year over year rebound marked by higher customer spending across all advertising flat platforms and continued excellent digital growth that generated revenue growth of 34% and 23, 7% higher EBITDA.
Advertising revenue grew 65% year over year, reflecting stronger advertiser bookings driven by the reopening of the economy. The return of live sports and more original television programming compared to last year subscriber.
<unk> revenue was up 6.2% on strong crave and TSN direct streaming growth as Murko detailed earlier consistent with the year over year increase in revenue operating costs were up 33%. This was due to higher programming and production costs, reflecting the return to live sports and airing of original TV.
Productions as well as the non recurrence of CDW adds funding received in Q2 of last year.
Slide 11 provides you with a high level walk down of the main components of adjusted EPS, which was <unk> 83 per share this quarter up 20 compared to last year.
Even with a <unk> <unk> per share hit from the wholesale Internet regulatory decision EBITDA growth drove 60% of the year over year increase in adjusted EPS, while decreased financing costs higher tax adjustments and lower other expense essentially accounted for the balance.
Let's turn to slide 12 on free cash flow as I mentioned earlier, we generated $1.2.5 billion of free cash flow in the quarter, a very respectable result, even with $300 million year over year step up in Capex are reduced and reduce cash from working capital due mainly to higher accounts receivable from <unk>.
Stronger sales activity as the Covid recovery strengthens.
This quarter's results also reflected higher severance paid due to a work force reduction undertaken earlier this year.
And higher cash taxes due to the delayed tax installment payments last year because of the government Covid relief measures.
As for our balance sheet, we ended the quarter with $5.3 billion of available liquidity, which provides us ample cash resources to execute on our Upsized capital acceleration plan and to fund. The recent acquisition of highly valued 3.5 gigahertz wireless spectrum.
Pro forma the spectrum of investment.
Our net debt leverage ratio remains manageable and the lowest among Canadian direct peers at approximately 3.1 times adjusted EBITDA.
To conclude on slide 13 industry fundamentals remain sound.
Commercial activity is improving as the economy rebounds from this pandemic and bce's competitive competitive position is as good as ever if not better strengthened by our rapidly growing broadband fiber footprint substantial mid band wireless spectrum holdings that reinforce valves <unk> industry leader.
Chip and market, leading media assets that are poised to capture significant opportunity emerging in digital advertising.
With 2 quarters of strong consolidated growth already reported we remain firmly on track to deliver on the financial guidance targets that we provided in February for the full year 2021.
On that I will turn the call back over to thin and the operator to begin the Q&A portion of the call. Thanks, Glen So before we start the Q&A period I'm sensitive to the time, we have left so I'll. Please ask that you limit yourselves to 1 question and 1 brief follow up so we can get to everybody in the key with the time, we have left so with that just now we are ready to take our first question.
Thank you.
First question is from Vince Valentini from TD Securities.
Please go ahead.
Thanks very much.
I guess I should ask about RFP went from first.
On a tremendous result on wireless service revenue growth can you help us unpack it a bit more I mean, you said roaming was not a year over year drag I assume it wasn't a tailwind either and then the other component of it is there a bit of overage coming back temporarily is there some benefit from lower equipment subsidies.
Or just sort on a solid improvement in the mix of your subscribers over the past year flowing through if you can help us out with that would be great.
Thank you Vince I'll kick it off on that 1 I'll start with the first principle is really and when you have a clearly defined strategy and each product segment. Obviously in this case, we're talking about wireless and you're kind of discipline with you execute with them.
A lot of discipline against that strategy youre going to get the results. So if you kind of let's now with that context on what had been what have we been doing for the past 2 years or year and a half we focused on quality mobile phone loadings.
So the numbers that we share with you in terms of net adds theyre, all mobile phones and all high quality.
We've benefited from our strong brand mix.
We're managing the data overage just like we have from the moment that.
Unlimited plans were launched in the marketplace in 2019, so we're managing the base like we always have and that overage decline is at the same levels as we shared with you in the past our prepaid <unk> been quite strong, particularly for for Lucky.
And that's why you see those impressive results that you mentioned Vince is basically we're not we're not chasing loadings for the sake of chasing loadings and we're not after low churn for the sake of low churn, we really want to hit that sweet spot between <unk> and the financial results, we deliver for shareholders.
Just add too to Marco on on roaming Vince you asked you said, it's no longer a headwind no.
It's a it's not we actually saw modest improvement in the roaming I told you previous quarters that since the pandemic roaming is down roughly $60 million a quarter and we saw approximately $5 million improvement on that so very modest but.
Like all of US we remain hopeful and optimistic that the second half of the year is going to see borders opening and Canadians moving and we expect that to start a steady improvement.
And Glenn just on the equipment installment plans.
The delayed impact of that drive for adds 15 accounting is that something is starting to be meaningful within these service revenue numbers are still not.
I'm not sure I, 100% understood the question Vince.
Sure.
If you have if you lower equipment subsidy by $200 on average some of that gets booked upfront under our first 15 and some of it gets amortized over the 24 months. So effectively flows through as higher service revenue overtime. So as that's been building in the pipeline from the past year and a half as it is it starting to become a tailwind to our free.
At this point, it's a modest tailwind I would not say that it's it's something that's having significant impact on I guess that speaks to itself. When you see 3.3% growth in the quarter and so.
I apologize for not understanding the first part of your question, but small tailwind not overly problematic is at this point.
Thank you Vince.
Thank you.
Question is from Ravi <unk> from Canaccord Genuity. Please go ahead.
Good morning, Thanks for taking my questions.
Wanted to focus on free to be obviously, you're having good numbers on the wireline residential front so.
The trajectory on the <unk> would have to tell us a bit about the <unk>.
But for wireline moving.
Can you just talk.
Also about the various components of it and b to be that.
For lack of a better what could.
Could have the potential for structural growth as you would think that instead of a post pandemic.
Post pandemic backdrop, and how you sort of see the next couple of quarters shape out when you consider the movements in equipment.
Equipment sales as well thank you.
Thank you Irvin day, so look on the enterprise side is I'll start with with.
Indicating.
A little bit obvious but.
The enterprise segment is lapping a very tough.
Comp for Q2.2020, when there was very high demand at the beginning of the pandemic for voice video and bandwidth services. So we are lapping a very good Q2 of 2020 in that regard what we're seeing.
In the next couple of quarters.
3234 quarters based on on what we're seeing right now with some enterprise solution revenue is coming back it's improving so that's a good sign for us as the economy reopens, because we are well positioned to capture the rebound in solutions revenue in our professional and managed services.
Revenue on top of connectivity revenue.
Yes.
Like I said as the economy reopens and if you look further out.
I think you said kind of structural opportunities or structural revenue opportunities going forward.
As you look to.
A world of.
Converged fiber and 5 G. I mean, I'm going to repeat what I said in my opening comments, but in a world of converged fiber and <unk>, where we lead in terms of the best networks and we have the distribution strength I think theres a lot of structural growth opportunity in <unk>, and Iot and multi access edge.
<unk> net revenues.
And we're positioning ourselves now to capture that growth.
Thank you.
Really quick follow up perhaps for Glenn.
On the positive kind of given what the residential growth number was not sure. If you can disclose at this time just wanted to just wanted to check. Thank you.
So yes, the residential growth is 12% net revenue I had said that on my opening remarks, so yes very pleased.
Net interest Internet net.
No I meant the whole of the residential wireline.
Right.
I I think I said that in my opening remarks, just checking my notes here I think it's 3.6% I said was the was the growth from <unk>.
Total residential.
Okay, sorry, I missed that sat on the internet.
It was also what we mentioned thanks Arvind Thank you.
Thank you.
Our next question is from Jeff fan from Scotia Bank. Please go ahead.
Thank you good morning.
First as a clarification just on the wireless service revenue on RP.
In your opening remarks, more quiet and you highlighted Iot unit growth being very strong I'm. Just wondering is that contributing revenue to the service revenue line. Because there is no we're not really counting dots for op, who on all through in our calculation just wondering if theres a service revenue component.
That's starting to starting to pick up on the Iot front that we should start to talk about or pay attention to.
And then more strategically I think.
We all know like you're accelerating your investment which is obviously the right thing to do given the environment that we're in.
And then.
Thank you.
Yeah.
Thank you.
Our next question is from drew Mcreynolds from RBC. Please go ahead.
Yes, thanks very much good morning, thanks for taking the question.
Marco just following up on the bunch of questions on <unk> Iot.
Can you just speak to the demand side of this and obviously BCE is the biggest enterprise player by a wide margin in Canada. So presumably it gives you a.
Little bit of a leg up in terms of seeing how your enterprise customers.
Want to evolve in terms of use cases.
The specific question is.
How fast are.
Accelerating or are these conversations in terms of <unk>.
Moving real B to B Iot Iot use cases forward.
And then second question just on Bell media.
Just fabulous.
On the strategic and tactical execution.
Execution I think at Bell media not just obviously this quarter, but last few years.
What what kind of long longer term growth and margin profile should.
You know investors expect from from this segment, obviously not looking for specific guidance just more a goalpost. Thank you.
Okay.
I'll take the second 1 first drew and thanks for the 2 questions.
On the Bell media side, I mean, as you look forward in terms of growth and margin expansion.
TV TV I'll start first with kind of the near term in Canada.
The traditional business, we've been in which on television advertising is starting to come back you saw it reflected in our results and in my comments.
As as businesses get back to the office in some manner shape or form in the months to come that's going to bode well for radio advertising in out of home advertising coming back so.
I feel good about that in the quarters ahead.
And then pick up kind of a wider lens to the question I think our digital first pivot is where the real growth is going to come and that's really exciting and the team is really executing on that as well.
Because just grabbing a bigger share of digital advertising spend.
Speaks to a lot of potential growth in the quarters and the years to come from Bell media, because we're well positioned with the content and with the digital assets and we're building the platforms for advertisers for 1 stop shopping so really excited about that on the first question drew I think in terms of win win.
Customer demand and win win revenue streams will come so to speak.
It depends on the segment, you're talking about is hard to predict when that when the growth will really hit and you kind of have to on packet so subject to subject to glenn's caveat in his answer to Jeffs question on Iot revenues Iot, we are generating revenues today and thats going to scale on anything that's going to scale. The most the most most quickly.
And potentially most rapidly in the near term on Mac revenue I mean, we're just in the early very early innings of that were getting ourselves set up.
And then you kind of have to go hunt for the revenue once you're set up for that on on 5 G broadband and fixed sorry in fiber broadband needs of our customers in a converged world of course, we've been we've been doing that free.
For decades for a century.
Our networks are being revolutionized in terms of the step up in the technology. So we're obviously hunting.
That revenue in a meaningful way today and as we have more <unk> has we have deeper fiber penetration into enterprise market. That's just going to continue to grow.
Thanks very much.
Okay.
Thank you.
Our next question is from Simon Flannery from Morgan Stanley. Please go ahead.
Thank you good morning, Glenn.
I noted your comments about the balance sheet with leverage being the lowest of the peer group I was just wondering how you're thinking about the leverage over the cycle of the Capex plans. We've got C band auctions in 18 months, how are you thinking about.
And where that's going to go over the next few quarters and how that plays into the dividend model on the payout ratio for the debit on just call them. If you've had any discussions with the rating agencies since the auction. Thanks.
Good morning, Simon and thanks for your question.
Firstly over the last year, we've been very opportunistically refinancing our debt.
<unk>.
We've actually increased our average majority of tenure from from 11.8 years, a year ago to $12..7 now we've also reduced our after tax cost of debt from 299 to $2.89, So managing our our outstanding debt extremely well by taking advantage of this low interest.
Rate environment low.
The low interest rate environment.
My comfort of where we sit with leverage our balance sheet is strong and our leverage as I said earlier. This morning was below our peers.
We no longer have free cash flow a headwind from our pension plans.
And frankly, we feel there is no better use of excess free cash flow and investing in fiber and <unk> infrastructure, including spectrum.
These investments will deliver the free cash flow growth on the future that will support our dividend growth model. So I remain comfortable with where we're at we believe we're doing the right thing with our with our excess free cash flow.
As you know.
And I've said many times before we have regular and frequent contact with the rating agencies, we have open dialogue and.
I remain confident in the AR and the investment grade credit rating that we hold today and the actions that we're taking to support the future dividend growth model.
Great. Thanks, a lot. Thank you Simon.
Thank you.
Our next question is from Jerome Dubai from Deutsche Bank. Please go ahead.
Yes. Good morning, Thanks for taking my question.
Since some of the some areas are are back to almost normal and with the reopening.
They're happening what are the top learnings about the reopening you've made so far you are especially on the <unk> front are reopened on areas like restaurants.
Taking plans that are similar to what they used to take pre Covid and then.
Quick follow up 1 of your peers discussed on the fiber rollout provided.
Opportunities for real estate optimization.
Would that also be the case for from B C.
Good morning, Jerome on I'll, just make a couple of comments before mercury jumps in the small business side of it.
Of our of our business has been.
Impacted quite substantially as you can appreciate this.
Pandemic has probably heard small business owners more than anyone in Merkle said something on our last call. You said it was better than we feared not as good as we hoped I guess, that's where it kind of remains we've seen disconnects.
Small business is unfortunately, many small businesses didn't survive this but.
As we start to come out of this we're starting to see new formations of business. Although it's limited at this time, we're excited to see an acceleration of of businesses that are I guess, new formations of businesses and the services that they are taking or.
Many of the small business is cut back on the services. They had they're ramping up to do the same type of service offerings. They had historically so.
It's a segment of the business that we really we really feel for but frankly.
There is a light at the end of the tunnel and we're starting to see the activations pick up on that segment for us and Merkel.
Thank you Glenn so as your home on.
On the fiber part of the question.
So.
I'll start with is for us our the real estate that we own and that we have that's inextricably tied to our networks is very strategic.
So I mean, it's a way of saying that when I when I.
Consider our fiber strategy and kind of the top things that I want to make sure we deliver with our fiber strategy.
But what I'm seeing and what I'm focused on.
Is penetration growing.
<unk> growing its lifetime value improving its churn being significantly lower and it's 40% lower annual service and support costs for our customers per customer per fiber versus copper because those are the things, where we're looking and of course you on deliver there.
The revenue and EBITDA growth, so kind of real estate savings linked directly to fiber penetration or fiber expansion isn't kind of on our top list of things. We're looking to do now of course, we have kind of a cost reduction program in place that we look at very carefully.
But it's not in respect of real estate, that's fundamentally tied to our network.
Thank you.
Thank you.
Next question is from Sebastian <unk> from J P. Morgan. Please go ahead.
Hi, Thanks for taking the question I think just some clarification on follow up questions I think on the prepared remarks about you'd noted that 50% on your residential customer base is now on fiber to the home.
Would you be possible to get a view on maybe where that was 1 year and 2 years ago, and then just sticking with fiber if you could provide us.
Maybe just.
What youre seeing in the market in the not only the new expansion territories.
Well in some of the older perhaps cohorts for lack of a better tariff in terms of just overall fiber penetration.
And how you see the competitive environment progressing today.
Yeah. So on on the first part of the question in terms of where we were at on our total fiber.
A year ago on 2 years ago, I think sustain we'll have to follow up with you I don't have that on my fingertips.
What we're seeing.
Tremendous growth in net adds where we have fiber footprint and you saw that the outstanding growth in Q2 of this year year over year I think 80%.
And then you also I called out the total retail Internet net adds of 18000 and so.
There there is some competitive pressure there.
There is some consumer and competitive pressure, where we don't have fiber and its customers.
Wanting to get the highest quality network wherever they are and if there happens to be a competitor that has gigabit speeds and we have legacy copper DSL and thats going to have a competitive impact for us, which which speaks to the importance of us continuing to accelerate the fiber build out the importance.
Of participating in government subsidy programs.
Across the country and our operating footprint I mean, it's good for those communities.
And it's good for us too and therefore, it's good for our shareholders. So I think that's what you're kind of seeing on the competitive puts and takes fibre versus DSL footprint now I've answered in that context is also our wireless home Internet footprints, where we continue to grow the network and are continuing to grow share in those markets as well I shouldn't I shouldn't.
I have to mention it.
Great and just to follow up on wireless loadings.
Any update you could perhaps give us here on <unk>, obviously huge retail presence among peers in terms of your wireless wireless.
Retail locations. So what are you seeing if anything in terms of the pickup in activity there as well obviously you've been quite successful in digital and direct channels of late so any update on loading and particularly as it pertains to perhaps the retail.
Well thanks, Thanks for that thanks for asking that 1.
We've we've improved our digital and direct capabilities massively over the last year and we're going to continue to maintain our momentum in that regard. So you know where that kind of accept that and then as our stores have fully reopened for Q3 I think our natural.
<unk> advantage in that regard is going to swing back our way and it's going to allow us to scale loadings.
So and then you've got.
Are there other factors to play that we can take advantage of like back to school back to office pent up demand.
And we're also expecting.
Some some prepaid improvement so I think things bode well for Q3.
Thanks Scott.
Thank you.
The next question is from David Barden from Bank of America. Please go ahead.
Hey, guys. Thanks for taking my question so.
Yes.
Look back a year ago, you know the big worry was regulatory.
Obviously, the first half we've kind of gotten some clarity on wholesale broadband on <unk> you know it was.
And we've had a little time to see where those.
Conclusions are leading if you could kind of give us a little color on how your relationship with the wholesalers.
Is evolving in light of the ruling regarding CRT seeds resetting and then.
You've been approached or to the degree you're being approached on facility centric company you know that'll be an interesting data point and then the second question would be.
Just now that you know you were unable to coordinate around $3.5 auction now that its done and you can kind of look at the lay of the land.
With respect to the to the network sharing relationship that would tell us like what is your.
Happiness level with how things shook out like on a scale of zero to 10, there'll be kind of interesting to know thank you.
Now all of us.
We're very we're very very pleased with the network sharing agreement and how it's delivered.
Over over the years, which is more than 12 years now and I.
I'm I'm I'm hopeful that our partner feels the same way I'm not going to speak for them. So I'll leave the network sharing.
Issue, they're quite happy with it and I think it allows us to build higher quality networks faster and more with more capital efficiency. So that's really good on the regulatory environment like we've.
I've been saying for years and years and years.
Pretty simple right you get you get positive regulatory decisions or not only positive to bell I mean positive conducive to investment Youll get more investment you get regulatory and public policy decisions that create disincentives for investment that's what's going to happen and so we were really pleased to be able to upsize even more.
For our capital acceleration program in the face of the following the 2 regulatory decisions you speak of and I think in terms of just general relationship with government. If you think of what their objectives are quality, we are delivering on it access we're delivering on it in terms of can talk about access in terms of price prices prices on.
Are going down.
And coverage well, we are certainly delivering on it and they're stepping up as well with subsidy programs and we are a strong partner of theirs in that regard. So I think we're in the right space, they're in and the competitive relationship the competitive relationships and the relationships in terms of supplier customer with with resellers or potential <unk>.
I'm not going to comment on on that here.
David I hope for reasons you can appreciate.
Understood. Thank you guys.
Thank you.
And the next question is from Jeff Fan from Scotia Bank. Please go ahead.
Thank you for squeezing me in for a quick follow up on the ARP, who.
Performance I, just wanted to maybe take it a little bit into that because of the differences between you and your peers.
Were there any geographical differences in trends that you saw in our pool, particularly what you saw in Quebec.
Ontario versus Western Canada, where Shaw has been participating in maybe Manitoba, just wanted to get a sense as to where there might be some more strength and where there may be some more weakness was wondering if mix is factoring into the the performance between you and your peers. Thanks a lot.
Good morning, Vince I'll make a couple of countries or excuse me, Jeff I'll make a couple comments here.
Yes mix does play a role on this and you know theres always geographical.
Differences that occur in any different quarter as competitive intensity can ebb and flow on 1 thing that that Marco mentioned, Jeff was that our focus on on on high value broadband adds and as you know we're not focusing on on low <unk> things like tablets that that really drove drag.
You're absolutely on our put down and we've really moved away from that and I think that that is having impact on on some others and their implications and their impact on on the ability to grow off of.
The other thing that Jeff outside of just Abu that I'll draw your attention to and just as the quality of earnings and it's difficult then I said, a very impressive 10, 2% growth on our earnings this quarter.
And it is impressive but it's hard to really.
To look at comparable and growth rates. When you are coming off 2020 that was so.
So impacted by this pandemic, particularly Q2, so 1 thing that we spend a lot of energy on focusing here is is looking at pre COVID-19.
Earnings and where are we in the fact that in Q2 of 2021, we're now back to 99% of the service revenue. We had in Q2 of 2019, we're at 100% of the EBITDA. We're at 2019, yet we're still roughly 60 million down in roaming.
I mean, I think that speaks to how well our wireless team has executed over the past 24 months.
And it comes from focusing on the right loads and in the high value smartphones and I think if you looked at the industry you would see that those numbers I just quoted for how well we've performed.
Over the last 24 months or pre Covid would be industry, leading a couple of quick things just just to add to that so on mix. So theres. The geographic mix in there. There are of course as you know pricing differences by geography, but we maintained the same strategy.
In all the regions.
Our execution make may differ slightly in some regions, but the strategy remains the same it's basically building off of Glenn's answer and then the other aspect of mix is our brand mix and.
And we've put a sharp focus on that too and its paying its paying dividends.
Great. Thank you. Thank you Jeff.
Thank you.
There are no further questions registered at this time I would now like to turn the meeting back to Mr. Fotopoulos think you're just seeing that so I want to thank everybody today for their participation on the call as usual I'll be available throughout the day for any follow ups on clarification. So on that have a good rest of the day and take care.
Thank you everyone.
The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Yeah.