BCE - Q1 2023

Transcript

Operator (participant)

Good morning, ladies and gentlemen, welcome to the BCE first quarter 2023 results conference call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, sir.

Thane Fotopoulos (Head of Investor Relations)

Thank you, Mode. Good morning, everyone, thank you for joining our call. Today, I'm here with Mirko Bibic, President and CEO of BCE, our current CFO, Glen LeBlanc, and our future incoming CFO and current Treasurer and SVP of Corporate Strategy, Curtis Millen. You can find all our first quarter disclosure documents on the investor relations page of the bce.ca website, which we posted earlier this morning.

Before we begin, I wanna draw your attention to our safe harbor statement on slide two, reminding you that today's slide presentation and remarks made during the call will include forward-looking information and therefore are subject to risks and uncertainty. Results could differ materially. We disclaim any obligation to update forward-looking statements except as required by law. Please refer to BCE's publicly filed documents for more details on our assumptions and risks. With that, I'll turn the call over to Mirko.

Mirko Bibic (President and CEO)

All right. Thank you, Thane. Good morning, everyone. The Bell team delivered operating results for first quarter that were in line with our planned performance for the quarter. We've been making some significant investments in the past three years, and they are bearing fruit. You could see in our continued operational momentum, and particularly this quarter, you can see it in our strong 3.5% consolidated revenue growth.

As expected, and as we profiled internally in our quarterly budget for 2023, adjusted EBITDA decreased year-over-year due to a $67 million favorable onetime retroactive revenue adjustment at Bell Media in first quarter of last year, and near-term cost pressures from inflation, strategic initiatives, and the normalization of our cost structure to pre-pandemic levels.

In line with our accelerated CapEx program for 2023, we spent close to $1.1 billion in new capital in first quarter. That keeps us on pace to deliver another 650,000 new direct fiber connections and to grow our 5G service footprints to 85% of the country. It will also enable standalone 5G+ service for almost half of Canadians by the end of the year. The generational investments we're making to build the best networks are consistently being recognized by third parties for superior network quality and speed, for our low latency and the best overall experience.

We're leveraging our world-leading broadband infrastructure, our focus on service excellence and customer value proposition to offer the best networks at affordable prices, and to deliver economically accretive subscriber additions across all our products, and you can see that in our first quarter operating results. In wireless, we grew our base of high-value postpaid subscribers. We increased our cross-sell penetration of wireless and internet households, and we managed customer churn.

Total mobile phone and connected device net adds were up 20% over last year to 97,377, and that drove healthy service revenue growth of 5.4%. Going forward, we're seeing very good growth catalysts from accelerating, excuse me, immigration levels, penetration headroom, the ongoing transition to 5G.

We're bundling wireless with internet service as well as retail channel expansion with partners including Staples, which we've talked about before, and most recently, Air Canada, which we announced just a couple of days ago, earlier this week rather. Against this backdrop, we're expecting to use our proven execution and operating momentum to drive our fair share of customer growth in a competitive market.

On the fixed side of the business, fueled by a growing fiber footprint, we continue to gain a significant share of new internet subscriber growth. We added 47,757 new net fiber to the home customers in first quarter, that's up 24% over last year. This brings the total number of fiber subscribers to approximately 2.5 million or 57% of our total retail internet customer base.

Of these, close to 1.1 million are taking speeds of a gigabit or better, which contributed to Bell's industry-leading consumer internet revenue growth of 10% this quarter. These results are a testament to the power of fiber-based internet service that provides the fastest dedicated symmetrical speeds that cable just cannot match.

Bell has the broadest multi-gig footprint with 3GB per second or higher speeds now available to more than 5 million locations. At the end of this year, 4 million of those will have access to symmetrical speeds of 8GB per second. It's a major competitive differentiator, and this will keep us sustainably ahead of any of our peers.

We also continue to advance our cloud capabilities through an expanded partnership with Palo Alto Networks for cloud security solutions and the acquisition of FX Innovation, which is a leading Quebec-based IT services and consulting company, which has a specific expertise in digital workflow automation. That'll further accelerate our growing team of cloud-certified professional services employees. These developments are the latest building blocks in strengthening Bell's position as a tech services leader for enterprise customers.

Let me turn to media now. Despite an advertising market that continues to face near-term headwinds across the continent, digital ad revenue was up 4% over last year, that's a positive result, certainly, when you think about the current market backdrop generally. On the customer experience front, we continue to focus on serving customers on their terms.

We've introduced a self-serve Wi-Fi optimization tool, and we've improved self-serve guides with step-by-step processes for same-day service activations, and we expanded our manage your appointment application. Our customer-first approach is clearly making a difference, and you can see that in the latest results from the CCTS. That CCTS report that I'm referring to shows Bell as the only national service provider to experience a decrease in complaints with a 6% reduction, even as complaints were up 12% across the industry.

In fact, Bell's share of complaints has decreased 16% over the past year and impressively 55% over the past five years. Really proud of the team on this and of our progress generally. We've achieved our financial and operating results against the backdrop of wireless prices that have remained essentially stable, even as the Canadian economy continues to face sustained inflation.

If you refer to the latest Stats Can data, the price of all goods and services in aggregate has increased 4.3% over the past year. If you look at the cost of cellular services, they've risen only 0.3%. I want to highlight for you a few notable ESG accomplishments as well. You'll see that this was the first year that Bell issued an integrated annual report. It's a first for a major communications company in North America. We also ranked third among global telecom companies in Corporate Knights 2023 Global 100 ranking of the most sustainable corporations in the world.

We were rated highly in the sustainable investment category, and that was driven by our investments in fleet electrification, electric vehicle charging stations, renewable energy alternatives, and energy savings.

Reflecting our ongoing efforts to engage and invest in our people, Bell was named by Mediacorp as a top family-friendly employer in Canada for an eleventh consecutive year, as well as one of the best workplaces for young people and young professionals in recognition of our graduate leadership and internship programs. I'll turn now, if you're following the slides, I'm gonna turn now to slide six. Take a look at some of the operating metrics for first quarter.

I'm gonna start with wireless. We added 43,289 new net postpaid mobile phone subscribers. That's up 26.5% from last year. Pretty strong result in what is typically a seasonally slower quarter for acquisitions. This was a function of an 18% increase in gross activations.

That was driven by higher retail traffic as pandemic-related restrictions were still in place in the early stages of first quarter of 2022, population growth, continued 5G momentum, and healthy business customer demand. Although customer churn increased year-over-year, which reflected greater overall market activity, it was still well below pre-pandemic levels at 0.9%. Our ARPU was up 0.9%. That's our eighth consecutive quarter of growth. This was supported by further roaming revenue improvement that now sits at 129% of pre-COVID levels. Our continued focus on higher value subscriber loadings.

With only 44% of postpaid customers currently on 5G capable devices, the vast majority of which are subscribing to premium unlimited data plans, we're seeing good ARPU support going forward despite competitive pressures on base rate plan pricing and the financial impact of the ongoing shift to installment plans. As for mobile connected devices, net adds were up 45% over last year to 70,742, and that was driven by continued strong customer demand for Bell's IoT solutions.

Let's turn to wireline now. We added 27,274 total new net retail internet customers. That's up 5% versus last year. That number includes the competitive loss of DSL subscribers in our non-fiber footprint. As I already mentioned, fiber net subscriber additions were much stronger at 47,757.

We also added around 11,000 net new IPTV subscribers. That's down slightly versus last year, we expected this due primarily to higher customer deactivations on our Fibe TV app streaming service after last year's FIFA World Cup. Satellite TV and home phone net losses both increased modestly compared to first quarter of last year due to a step-up in promotional offer intensity with a full return to pre-COVID levels of competition. Over at Bell Media now. Our advertising demand held up reasonably well under the current circumstances and comparatively better than our peers.

This was the result of our TV broadcast of World Junior Hockey and the Super Bowl, and it shows if you've got strong content that viewers flock to, it's going to deliver value to advertisers, and advertisers are placing value on premium sporting events.

That also helped TSN and RDS maintain the number one rankings in first quarter and allowed us to continue to grow in digital advertising, which I mentioned before, but really does bear repeating. Outlook. In terms of our outlook for the balance of 2023 for media, the ad recession should begin to stabilize and improve gradually later in the year. Over at Crave, we continue to deliver with total subscribers up 6% over last year, and we're now more than 3.2 million subscribers. This was underpinned by a 24% increase in direct-to-consumer streaming subscribers.

We also recently launched our TSN+ streaming product, which allows sports fans to access augmented feeds, multicasts, and other featured content that's incremental to the premium sports content that we're delivering across the flagship TSN platform.

On the French language TV front, we once again led all competitors in first quarter in the specialty market, including news and sports, while continuing to grow viewership with buzz-worthy programming such as Survivor Québec, which premiered in early April on Bell Media's conventional TV channel, Noovo. You will have seen a press release from us the other day announcing a landmark long-term and exclusive licensing deal with Warner Bros. Discovery that builds on our previous agreement from 2019. The deal ranges across many parts of their vast portfolio of content.

It includes HBO and Max originals, the DC Universe, The Wizarding World of Harry Potter, new cable series, library TV series, pay and post-pay window rights for Warner Bros. films and library films, as well as French language rights across a wide range of content.

Our valuable long-term HBO deal basically just got longer and broader, that is gonna provide further compelling content supporting our made in Canada Crave TV service, streaming TV service, of course. In summary, a solid start to the year with results directly on plan for first quarter, results that again reflect the Bell team's consistently strong execution.

I'm confident that we'll further extend this proven track record throughout the remainder of 2023. I'm gonna hand it over to Glen in just a moment. First, obviously, I wanna acknowledge the news we issued this morning that Glen will retire as CFO effective September first.

Under Glen's leadership, as you all certainly know, Bell has attained a solid financial position with a robust balance sheet, substantial cash flow and pension solvency, all of that's helped us accelerate Bell's capital expenditures to expand our fiber and wireless networks and position us competitively and strategically for years and years to come. On behalf of everyone, I personally wanna thank you, Glen, for your exemplary leadership and your invaluable contributions to the company and to the executive team and to me personally. Thank you.

Curtis, currently SVP Corporate Strategy and Treasurer, will be promoted to CFO effective September first. He's well-positioned to take on the CFO role and work closely with Glen and with me during the remainder of 2023 and beyond to ensure a successful transition. Glen, again, huge thank you to you. Of course, you're not going very far. You'll be right back here with me in August and Curtis for our second quarter results. Curtis, congrats. With that, over to you, Glen.

Glen LeBlanc (CFO)

Thank you, Mirko, good morning, everyone. Before I get started, I want to express my gratitude to Mirko and the entire Bell team for 30 incredible years. As Mirko mentioned, and I want to reinforce, Curtis is well-positioned to take on the CFO role and is a strong leader who will guide Bell through the next generation. He and I will work closely together through the remainder of 2023 to ensure a smooth transition.

Now on to results. We had a positive start to the year with strong 3.5% consolidated revenue growth that was achieved despite lapping a one-time CAD 67 million retroactive revenue adjustment at Bell Media and coping with the economic conditions that continue to impact media advertising and the B2B sector.

Normalizing for this one-time revenue adjustment from first quarter 2022, revenue was up nearly 5% this quarter, a very strong result driven by continued robust wireless and internet growth and a notable recovery in the business data equipment sales.

While this revenue strength did not flow to the bottom line this quarter, our EBITDA results are very much expected and fully reflected in our internal forecast given the aforementioned one-time revenue adjustment at Bell Media last year, as well as the known near-time incremental cost pressures from inflation or strategic initiatives, higher TV content and programming costs, and normalization of cost structure to pre-COVID levels. Adjusting for just the media one-timer and normalizing for the TV hockey schedules this year, underlying consolidated EBITDA growth in first quarter was close to 2%.

Net earnings and adjusted EPS were also down year-over-year, mainly the result of the lower expected EBITDA, increased interest expense due to higher rates, higher depreciation and amortization expense as more capital assets are being put into service consistent with our accelerated broadband network build-out plan. Our net earnings results this quarter also included an asset impairment charge related to the consolidation of real estate space due to Bell's hybrid work policy.

As for free cash flow, our first quarter result was anticipated and right in line with our quarterly budget, reflecting the timing of working capital, which will largely reverse out by the end of the year, higher interest paid, and the timing of tax installment payments, as well as higher CapEx.

On CapEx, the year-over-year increase was just timing related to the continued related as we continue to project a $300 million plus step down in 2023. Turning to our new Bell CTS segment on slide nine that amalgamates our former wireless and wireline operations. Service revenue grew 2.1%, fueled mainly by continued strong mobile phone and retail internet subscriber growth, further roaming improvement, and an improved B2B performance trajectory. In fact, first quarter was Bell Business Markets' best quarterly service revenue performance since third quarter of 2020.

The financial contribution from our acquisitions of Distributel and EBOX were largely offset in the quarter by lower sales of international wholesale long-distance minutes, which can be quite lumpy, and the sale of Createch in March of last year. On the product side, very strong growth with revenue up 24% year-over-year.

This was attributable to higher business data equipment sales and improved product availability compared to the shortages we experienced last year, as well as a greater sales mix to higher value mobile phones and more overall contracted device transactions. Notwithstanding the close to 5% increase in total CTS revenues, first quarter EBITDA growth was more modest at 1.3%. This was the result of some near-term expected cost pressures that I described earlier, which contributed to an 8.1% increase in operating costs this quarter.

As we cycle through some of these added costs, we expect a stronger EBITDA growth trajectory for the balance of 2023, as was contemplated in our quarterly budget that we profiled for the year. Over to Bell Media on slide 10.

As projected and in line with our budget, total revenue was down in first quarter, decreasing 5.5% year-over-year. Despite the ongoing ad recession that's affecting global advertising markets, excuse me. Advertising revenue for first quarter held up better than we expected going into the quarter and much better than our peers. This can be attributed to a diverse asset mix and focused execution on our digital-first transformation strategy.

Subscriber revenue declined 4% due to the aforementioned one-time retroactive revenue adjustment that we lapped from last year, which was also a major contributor to the 36.5% decline in Bell Media's EBITDA this quarter. Normalizing for this one-timer from first quarter 2022, EBITDA was down only 6%.

That's pretty good performance given the macroeconomic context and the very much anticipated given the normalization of hockey schedules this year and the content cost inflation for premium sports and entertaining programming. Turning to the balance sheet on slide 11. Our consistently strong operational and financial performance supports our robust balance sheet and liquidity position, which totaled CAD 3.7 billion at the end of first quarter. A debt maturity schedule remains very well structured, with an average debt to maturity of around 13 years and a low after-tax cost of debt of just 2.9%.

Our balance sheet strength is further enhanced by a sizable pension solvency surplus amounting to CAD 3.7 billion and substantial recurring free cash flow generation that is reliable and well protected from macro uncertainty. Let's turn to slide 12.

BC's fundamentals and competitive position remain as strong as ever. With the financial results we delivered in first quarter, we are right on our internal plan, which may not have been obvious to The Street as we don't provide quarterly guidance. Together with continued operating momentum across the business and our consistent proven execution in a competitive marketplace, I am reconfirming all of our guidance targets for 2023. On that note, Glen LeBlanc, I'll turn it back over to you.

Thane Fotopoulos (Head of Investor Relations)

Okay. Great. Thanks, Glen. Before we start the Q&A, I wanna remind everyone that due to some time constraints this morning because of our AGM that's taking place right after this call, to please limit yourselves and ask your questions in the most efficient way possible so we can get to everybody in the queue. On that note, we are ready to take our first question.

Operator (participant)

Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Drew McReynolds from RBC. Please go ahead.

Drew McReynolds (Managing Director)

Yeah. Thanks very much, and good morning. Glen, congratulations. It's been great working with you, and I'm sure everyone will share the same sentiments. You've been fantastic.

Glen LeBlanc (CFO)

Thank you, Drew.

Drew McReynolds (Managing Director)

Couple of questions from me, sorry, I missed some of the opening remarks. Just I think The Street, you know, was well aware of the slower start to the year just given the tough comp on the EBITDA side. You know, when you see it improving year-over-year for the remainder of the year, is that more or less a straight line improvement? Just trying to kind of make sure expectations are set.

Second question, you know, I normally don't kind of ask the performance of any company directly relative to competitors, but certainly the mobile post-paid net adds were notably in line with expectations, but notably below, you know, what Rogers was able to put up in the quarter. Just wondering from your perspective, you know, what you thought the market dynamics were in the quarter and, with respect to second quarter, just the overall strength of the wireless market, as it continue? Thank you.

Glen LeBlanc (CFO)

Thank you, Drew. I'll jump in on the first before Mirko gives his remarks. I made it 30 years without giving quarterly guidance. I guess I won't start now. What I would say is, as I look out to the back half of the year or the back three quarters, we remain very confident of the guidance we've given for EBITDA. As I said in my opening remarks, we were lapping a pretty tough comp for first quarter due to that one-time retroactive adjustment and the normalization of hockey schedules.

I normalize for those, we're just sub 2%. I expect that to ramp each quarter go forward and quite confident or very confident on the ability to deliver on the guidance provided. Thank you for your comments, Drew.

Mirko Bibic (President and CEO)

On the second, Drew, look really quite happy actually with our wireless results, completely on plan and what we set out to achieve for the beginning part of the year. first quarter's for us, and generally speaking, but for us is a seasonally slower quarter. We were, you know, closely watching promotional activity in first quarter. In fact, pulled back on hardware pricing in first quarter quite deliberately.

We're glad to see handset discounting come down in January generally and remain, you know, pretty manageable. Again, you know, I've talked about this over and over, again since becoming CEO over three years ago, where we watch closely our mix across the brand, the family of brands.

We had record Bell mix on gross adds and on net adds, and that's the right way to go 'cause it drives organic revenue growth going forward. Again, just to point out, first quarter's always seasonally light, but really strong if you compare to our own prior first quarters. We're up 26.5%. You know, really happy with where we are. Eighth consecutive quarter of ARPU growth, which I pointed out in the opening remarks. You probably saw it in our release, but certainly pointed that out in the opening remarks. Thank you.

Drew McReynolds (Managing Director)

Great color. Thank you.

Operator (participant)

Thank you. Following question is from Maher Yaghi from Scotiabank. Please go ahead.

Maher Yaghi (Managing Director and Telecom, Cable, and Media Analyst)

Yes, good morning. Thank you for taking my questions. Glen, it was great working with you. Always very easy and meticulous on the financials, so you'll be missed.

Glen LeBlanc (CFO)

Thank you.

Maher Yaghi (Managing Director and Telecom, Cable, and Media Analyst)

I wanted to ask you a question. Now that the Rogers merger is complete, Mirko, what does the presence of a fourth player in the versus three previously mean for the long-term market structure and health of the Canadian wireless industry in your view, as well as implications for regulatory policy? Maybe I just wanted to ask you know, when I look at your internet subs, they're up 8% year-over-year, but your wireline data revenue is only up 2.5%.

It's a big divergence, and I'm trying to figure out what's going on because it's surprising since you know, a lot of the net adds that you're adding here are on new technology that, you know, was costly to implement. I'm trying to figure out what's the pricing on new customers versus old customers, should we see that data revenue growth improve in the back half of the year? Thank you.

Mirko Bibic (President and CEO)

Okay. Thank you, Maher. On the first one, if you take a step back and you look at the industry in our country, we now have four well-capitalized significant players with very strong wireline footprints and that national or near national wireless footprints. You know, that is very rare across, you know, the global footprint. I think if you're sitting there from a public policy position, I mean, having four players like that is quite significant and will enhance competition and consumer value.

On the wireless side specifically, we are one of the very few countries with four players and probably the only with the convergence between wireline and wireless that I just mentioned. We have four wireless players.

I think the job ought to be considered as being having been done now on the wireless front from a public policy and regulatory perspective. We're continuing to deliver value. In my opening remarks, I, you know, did take the time to point out how wireless pricing compares to broader inflation across the industry. It shows you that pricing is going down and value is going up. Let's not forget, we have the lowest population density of pretty much any industrialized country. The G7, excluding Canada, has over 200 people per square kilometer. In Canada, we have four.

It's not like inflation gives us a pass 'cause we only have four people per square kilometer, so we still have to pay for all the input costs to build these incredible networks to 99% of the Canadian population. I'm not making a Bell point here, I'm making an industry point. Increased value, improved networks. We're generating growth. We're delivering what consumers want. You know, the US doesn't have four, Australia doesn't have four, Germany doesn't have four, Finland doesn't have four, South Korea doesn't have four, and I could go on and on and on.

As far as the regulatory, you know, developments go, you asked me about that too. Like, I'll just say we're closely watching regulatory developments, and we're gonna see how that's going to affect our investment decisions going forward. For the rest, turn over to Glen.

Glen LeBlanc (CFO)

Thanks, Maher. Your question on data. Let me remind you that consumer internet is up 10%. obviously data is more than just consumer internet. It's really a product of legacy data and business service solutions that haven't recovered yet, satellite. Let me remind, consumer internet up 10% and total internet up 8%. We're extremely pleased with the growth we're seeing in those products.

Maher Yaghi (Managing Director and Telecom, Cable, and Media Analyst)

Okay, thank you.

Glen LeBlanc (CFO)

Thank you.

Operator (participant)

Thank you. Our following question is from Aravinda Galappatthige. Please go ahead from Canaccord Genuity.

Aravinda Galappatthige (Managing Director of Institutional Equity Research)

Good morning. Thanks for taking my question. Glen, let me just add my congratulations as well on a tremendous run at Bell. I just wanted to maybe, Mirko Bibic, sort of go back to the enterprise side of the business, Bell business. You know, maybe just touch on, you know, the backdrop of your FX acquisition, which you announced, I think last quarter with respect to Bell Business Markets.

You know, your sort of plan to maybe get that back towards neutrality or some sort of growth. Is that really a case of sort of, maybe waiting for the IoT side of 5G to kind of develop to a certain level where you can see those tailwinds? How do you see the shape of recovery in that, in that business over the next couple of years? Just wanted to get a high-level sense of that.

Mirko Bibic (President and CEO)

Yeah. Thank you, Aravinda Galappatthige. Just maybe a couple of sentences on the quarter and then, and then looking forward on the strategy. You know, bears repeating what Glen LeBlanc said in his opening remarks, that on the enterprise side, we had our best quarterly service revenue performance since the third quarter of 2020.

You know, I've been saying on these calls, you know, for the last few quarters that we haven't been seeing cancellation of projects, just pauses on new orders and pauses on our, on our ability to complete projects given supply chain constraints. We're seeing signs of improvement in supply chains, and we saw that, of course, in the product sales in first quarter of this year. All of that is quite positive.

I see some small tailwinds in the second half of 2023 as well. Now in terms of the strategy, talked a lot over the last couple of years about how we're gonna focus on IoT, private network security, cloud, and MEC. Quickly unpacking those, I think our IoT business continues to be strong. That'll, that will grow over the years. Private networks. We're seeing now the beginnings of some interest in that.

I would've thought that would be slower than MEC, for example, but it's turning out that private networks may hunt first. On MEC, it still continues to be. You know, we're gonna have to be more patient on MEC. That brings us to security and cloud.

We are quite a meaningful player in the security space, and I think that part, we're gonna continue to grow and lean into. On cloud, we announced, I guess it was over probably 18 months ago, the deals with AWS and Google Cloud. Now you're seeing the focus we're going to put on in the cloud space. The FX Innovation deal shows that we are going to have a focus in cloud, particularly with FX on digital workflow automation.

So, enterprises who need assistance for, you know, professionally managed services as they digitize their workflows and their journeys to the cloud, we're gonna go hunting there. FX is very strong in that space.

Basically, Aravinda, that's kind of the, in a nutshell, the main areas that we're gonna go hunting for growth in BBM. Now you're starting to see a sharper focus in some of those areas. Of course, on the legacy side, I'll just complete the full answer. On the legacy side of our business or the more traditional side of our enterprise business, probably a better way to put it, you know, although we're, you know, we're starting to see some improvement there, we're always going to be very, very diligent on the cost structure.

We just have to make sure that the underlying cost structure across the entirety of Bell that supports the enterprise business is in line with the revenue profile of that more traditional business, while of course we go hunting for the growth I mentioned.

Aravinda Galappatthige (Managing Director of Institutional Equity Research)

That's helpful. Thank you, Mirko. I'll pass the line.

Operator (participant)

Thank you. Following question is from Vince Valentini, from TD Cowen. Please go ahead.

Vince Valentini (Managing Director of Equity Research)

Sure. Thanks very much. Two quick things. One, the recent Air Canada deal looks very impressive and interesting. I'm wondering if you can add any more color on how much impact do you think that could have on your market share of the new immigration market to Canada, and maybe any comment on whether you think you haven't been punching, you know, to your proper weight in that space in the past few months.

Second, on the regulatory front, again, great comments, Mirko, and I couldn't agree more that the policy objective should be met here on wireless. Just to reinforce that even further, a lot of the pricing studies seem to focus on sort of advertised pricing as opposed to what the industry actually realizes in ARPU.

We've seen a move this morning by one of your competitors to just lower the advertised rate to CAD 65 from CAD 85 for a 25 GB plan. I'm wondering what your thoughts are on that, I guess both from a competitive perspective, but also, you know, does it make more sense to have everyday pricing advertised at lower levels so the government sees that as opposed to just discounting off those rates every time we get to back to school and Black Friday period and end up at the same net point anyway?

Mirko Bibic (President and CEO)

Yeah. Look, on the. Thank you, Vince. It's Mirco. On the our peers' announcement this morning, I guess it just further supports the point that I made and that you agree with. It's a competitive industry, isn't it? We'll always be ready. It shows, that announcement this morning also shows that the bundling value proposition it really does matter in the marketplace to consumers, and it's gonna continue to be an important differentiator. The players with the largest wireline bases, in my view, will do very well.

On that, we cover 75% of the country with wireline infrastructure and increasingly fiber. As you know. On the pricing studies and the pricing discourse, let me say this, it's like, it's sadly unsophisticated, the discourse that we have on pricing.

You know, comparing, you know, rack rates on a website and saying and comparing those to prices around the world and saying that Canada is therefore significantly more expensive is so unsophisticated. It ignores so many things. It ignores really what the consumer is actually paying.

Points in time matter, right? If you look at, if you look at rack rate pricing in first quarter, it tells you nothing about what customers are actually paying because everybody who operates in the industry know that the majority of sales are in the back half of the year, third quarter and fourth quarter, back to school, Black Friday, the holiday season. That's where the promotional intensity actually happens. That's when the majority of sales happen, and that's what most consumers in Canada are playing, are paying.

You gotta pay attention to typical buying patterns and typical competitive intensity patterns. Then you can't pretend that handsets don't cost over CAD 1,000 and ignore that either. Again, yeah, the pricing dialogue is unsophisticated. Maybe, maybe the move this morning by the competitor to kind of bring what was otherwise perhaps below the line pricing above the line will help that regulatory dialogue. On Air Canada, we're so excited. Like, these are two great brands.

The Aeroplan platform is extremely powerful. Our family of brands, Bell, Virgin, Lucky as well, and putting those two together is, I think, going to be a very powerful proposition for both companies, but first and foremost for consumers.

Yeah, like 5G growth, a lot of wireless growth is going to come from, is coming and will continue to come from newcomers to Canada. This allows us to speak directly to newcomers before they even enter the country on the airline that most newcomers use to make their new home in our country. It's gonna be powerful for both companies and for consumers.

Vince Valentini (Managing Director of Equity Research)

Nothing on whether you can do better, and do you think the company should be doing better in that, in that square than it has been, Mirko? Or are you still. This is just incremental, but you've already been satisfied with.

Mirko Bibic (President and CEO)

We need to do better, and this is gonna be a big initiative to make sure we deliver on doing better.

Vince Valentini (Managing Director of Equity Research)

Great. Thank you.

Operator (participant)

Thank you. Our following question is from Tim Casey from BMO. Please go ahead.

Tim Casey (Managing Director and Senior Equity Analyst)

Thanks. Good morning. Mirko, could you talk a little bit about how you're thinking about wireless and wireline and bundling given, you know, you continue to roll out the fiber footprint and, you know, just as speeds with 5G converge or get closer to wireline, how you're thinking about addressing go-to-market strategies that may include a, you know, a more holistic bundle rather than just, you know, retention efforts and things like that at the call centers? Thanks.

Mirko Bibic (President and CEO)

We'll have to continue to monitor closely kind of developments in wireless speeds and wireline speeds and holistic bundles rather than kind of a, you know, necessarily a discounted price bundle if you buy two services. Like this, it may be where the world evolves. I don't think we're there yet. Look, fundamentally, wireless will never catch up to wireline speeds, certainly not the wireline speeds that we're delivering today and will continue to deliver.

The fiber advantage is profound, it's structural, and it's fairly long term. We're going to continue to lean heavily on that advantage to drive continued consumer internet service revenue growth. I mean, these are still healthy revenue growth at 10%. It's quite sizable.

Look, if you look at those numbers and unpack them, the 47,700 fiber internet net adds, up 24%, that's a big number. You see that we are losing, continue to lose customers where we don't have fiber. The strategy therefore speaks for itself. It kind of also shows you, doesn't it, that kind of our competitors who have cable infrastructure realize that they just can't compete where we have fiber, so they're gonna go hunting where we don't. Makes total sense. The bigger point is just basically shows you fiber wins.

We're gonna use the fiber pipe, and then we have, you know, 5G or our 5G networks are leading networks, and we're going to continue to push on the areas of wireless growth. We have, like I said in my, in an earlier response, we have 75% of the country where we have wireline infrastructure where we can do what I just said. That's an advantage.

Tim Casey (Managing Director and Senior Equity Analyst)

Thank you.

Mirko Bibic (President and CEO)

Great question.

Operator (participant)

Thank you. Our following question is from Jérome Dubreuil from Desjardins. Please go ahead.

Jérome Dubreuil (Director and Research Analyst covering Telecom, Media, and Technology)

Good morning. Thanks for taking my questions too for me. First one, I think it's fair to say that last quarter, you made sure that investors understood your medium-term CapEx plans. Now there's a different messaging from Ottawa. Is it possible that these kind of couple of years CapEx plan might be changed depending on the outcome of the reviews by Ottawa on the TPIA side?

Second question would be, on the cost in the quarter, it might have been a bit higher than usual or you might have expected. You mentioned some tough comps, but are there actual costs in the quarter that you anticipate won't be as present in the coming quarters? Thank you.

Mirko Bibic (President and CEO)

Okay. I'm gonna keep my answer to your first question short, just so that, the proper emphasis is placed on it. You asked me, can decisions from Ottawa affect our accelerated CapEx plans? I'm gonna answer very succinctly, yes. Over to Glen.

Glen LeBlanc (CFO)

Yeah. There is some costs, as I mentioned in my opening remarks in first quarter, that we don't see repeating. You know, the first one is the amortization of TV broadcast hockey schedules. That was fairly sizable in the first quarter, obviously that's normalized now. Labor inflation, we think we're starting to lap that as well as fuel inflation. We feel that the, you know, the worst is behind us. You'll see a more normalized cost structure in, into the future.

We're, you know, as always I think we've proven time and time again that it's a core competency of BCE to take the necessary steps we need to rightsize our cost structure. I can assure you we're doing that. Matter of fact, you saw it in the impairment charge we took in first quarter as we continue to really push hard on real estate rationalization, and that's an opportunity for us. The final thing, again, said in my opening remarks, TV content. All in all we're in line with where we thought we'd be. Yes, Jérome, we'll have better quarter-over-quarter comps on costs in the coming three quarters.

Stephanie Price (Executive Director)

Great. Thank you. Congrats, Glen, on the career, and also congrats to Curtis.

Glen LeBlanc (CFO)

Thank you, Jérome.

Operator (participant)

Thank you. Following question is from David Barden from Bank of America. Please go ahead.

Speaker 12

Hi, good morning. Thanks for taking the question. It's Matt sitting in for Dave. Glen, congratulations on the announcement and best of luck going forward. Just two quick ones for me focusing on really just the net adds. You know, for wireless, is there any way to provide some color on, you know, the strength coming from consumers versus business?

Business providing, you know, a second line to workers and so on, and whether, you know, that has legs? 'Cause I think on the consumer side, with population growth, I think everyone sees that as having the legs to continue being fairly strong. On the broadband side, mostly focusing on, like, the DSL footprint that you still have, you know, I think you alluded to higher intensity from cable in those areas.

Also I wanted to see if you could provide any color on if you're seeing these subsidized builds that the government is focusing on to extend networks, you know, further out where the service is generally limited for high-speed connections, whether that's having an impact or if you anticipate that'll have an impact on subscriber losses in the DSL footprint going forward? Thanks.

Glen LeBlanc (CFO)

On the second one, we are also a significant player in securing subsidies. Actually that allows us to accelerate our fiber footprint in a way that we otherwise wouldn't be able to do commercially in those areas. I think it ends up being fairly kind of neutral if you consider the share of subsidy we get compared to what others get. And in some geographies we actually get more of the subsidy and therefore cover more of the subsidized footprint than our competitors.

I wouldn't say that's gonna be a driving factor in this, Matt. On wireless postpaid, quite happy with the strength in all the segments, whether or not it's consumer, and we talk a lot about consumer or enterprise or small and medium business.

Mirko Bibic (President and CEO)

Like I said in probably answering the first question, we're really happy with the strength of the Bell mix for both gross sales and the mix in the 43,000 net adds. You know, high preponderance of Bell brand mix on both those sales and nets.

Speaker 12

Thank you so much, guys.

Glen LeBlanc (CFO)

Thanks, Matt.

Operator (participant)

Thank you. Following question is from Stephanie Price from CIBC. Please go ahead.

Stephanie Price (Executive Director)

Good morning congrats, Glen.

Glen LeBlanc (CFO)

Thank you.

Stephanie Price (Executive Director)

Curtis. Just wanted to circle back on the free cash flow in the quarter. Just curious if you could give some more color on what's driving the working capital changes and if you've seen any changes to bad debts and how we should kind of think about that working capital reversal through the year.

Glen LeBlanc (CFO)

First, the latter bad debts, no change. We're not seeing any increase in, you know, day sales outstanding or anything like that. Fingers crossed that that will continue through the calendar year. If you look at free cash flow, fourth quarter was one of the highest spending capital quarters in the history of BCE. Obviously, the payables of that would've been recorded in first quarter.

Secondly, if you look at where we are for capital spending in first quarter, we are actually up over CAD 100 million, I think CAD 127 million, if memory serves correct year-over-year in first quarter, which when you consider that for the full year, we've given guidance that will be CAD 300 million under.

What really happened in the quarter is you make hay when the sun shines, and the weather allowed us to get out and do fiber construction earlier than we envisioned and planned. The earlier you build it, the more customers we can load. We've done that. Of course, that affects working capital.

Then we had some timing of tax installments I was completely planning on, but they can be lumpy from year to year and that we've incurred them early this year. Stephanie, that's the kind of unpacking of why the consensus on free cash flow versus what we delivered is so different, yet I remain so confident in the delivery of the annual free cash flow guidance.

Stephanie Price (Executive Director)

That's helpful color. Thank you. Just one more from me. Just curious on the integration of Distributel, whether you've migrated the subs to Bell network, where that's possible, and how we should kind of think about the potential for margin improvement from that tuck-in.

Glen LeBlanc (CFO)

Yeah. Strategically, you know, in terms of Distributel and Ebox, where we have fiber network and a Distributel subscriber is currently on the, you know, the cable platform, we will migrate them over to fiber over time. And note here, that Distributel is a brand of Bell Canada. There is no separate legal entity, Distributel any longer. It's part of Bell Canada, and it remains a brand. We're gonna move Distributel-branded Bell subscribers to Bell fiber footprint where we can over time.

Stephanie Price (Executive Director)

Thanks so much.

Vince Valentini (Managing Director of Equity Research)

Thank you. Our following question is from Sebastiano Petti from JPMorgan. Please go ahead.

Sebastiano Petti (Senior Research Analyst)

Hi. Thank you for taking the question. Just wanted to see if you could update us on the competitive environment in, you know, wireless and wireline, you know, thus far in the second quarter. Obviously, you talked about a little bit more of a, I think, normalization in one, two trends. What are you seeing thus far? Secondly, looking across your perhaps maybe sports asset holdings, you know, obviously, you know, headlines about the Ottawa Senators perhaps, you know, setting a record for NHL sale.

You know, it's not as though leverage is maybe a major concern or, you know, access to the capital markets, but how are you evaluating perhaps, you know, monetization or, you know, the long-term strategic value of some of your sports holdings? Thank you.

Glen LeBlanc (CFO)

Good morning, Sebastiano. It's Glen. On the second question, Mirko will handle the first one. The sports assets, we are very comfortable with the assets we have. We feel that the value they deliver continues. We have no intention of doing anything with the sports assets in the near term.

Mirko Bibic (President and CEO)

Yeah. On the early signs for second quarter, I would say generally in line with what we saw in first quarter, where you know, there was a typically you know, a typical seasonal slowdown compared to fourth quarter of last year. Generally speaking, I think at the flanker brand level, you see higher competitive intensity generally, but nothing out of the ordinary or nothing that we didn't expect. Like as always, we have to carefully watch to see how the dynamic's going to evolve. We're gonna have to assess this morning's announcements by one of our competitors and watching these kinds of things is definitely top of mind in everything we do.

bottom line is this: There is a lot of growth in the wireless industry still, a lot of growth for all industry participants, whether or not it's immigration, newcomers to Canada, which we've talked about, or people moving from LTE to 5G or greater store traffic, return of business activity, et cetera, et cetera. I think that growth will float all boats, and we're ready to compete.

Sebastiano Petti (Senior Research Analyst)

Great.

Glen LeBlanc (CFO)

As we're approaching. Yeah, as we're approaching the 9:00AM end time, this will be our last question though.

Operator (participant)

Perfect. Thank you. I would now like to turn the meeting back over to you.

Glen LeBlanc (CFO)

Great. Thank you all for your participation this morning. As per usual, I will be available along with Richard to answer any questions and clarification that you may have as a result of our announcements this morning. On that, thank you very much and have a great day.

Mirko Bibic (President and CEO)

Thank you, everyone.

Thane Fotopoulos (Head of Investor Relations)

Thank you.

Vince Valentini (Managing Director of Equity Research)

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation. Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.