BCE Inc (BCE) 2004 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Manitoba Telecom Services Inc.'s 2004 third-quarter conference call. At this time all participants are in a listen-only mode. Following the presentation we'll conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulty hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Thursday, November 4th, at 2 ET time. I will now turn the conference over to Mr. Brad Woods, Director of Investor Relations for MTS. Please go ahead, Mr. Wood.

Thanks, operator. Good afternoon, everyone, and thanks for joining us to discuss MTS's third-quarter 2004 results. MTS's news release was issued earlier today and includes notice of the third-quarter dividends, which has been set at $0.65 per share. On today's call are Bill Fraser, Chief Executive Officer, Wayne Demkey, Executive Vice President, Finance and CFO, Cheryl Barker, President of MTS Manitoba, and John MacDonald, President of our National Division, Allstream.

As a reminder, in addition to our prepared remarks, we do have a slide presentation that's available on the MTS website in the investor's section.

Today's call may contain forward-looking statements, and there are risks that actual results may differ materially from those contemplated by these forward-looking statements. Additional information on these risks is contained in MTS's filings with the Canadian Securities Commission. Bill?

Good afternoon, everyone. It's been another eventful quarter for us at MTS. We've continued to make solid progress with our transition plans to integrate the Allstream and MTS businesses. Through the third quarter we've delivered meaningful improvement in financial performance, performance that supports achievement of our 2004 financial targets. At the same time, and most importantly, we've steadfastly remain focused on our business and is positioning for long-term success.

Specific to the Allstream acquisition, I'm delighted to report that we've now completed all of the key components associated with the transaction. Consistent with our announced plans on March 18, the Board of Directors increased the quarterly cash dividend to $0.65 per share on August 12. Today, as Brad indicated, our next quarterly dividend at the new rate was announced. Based on our recent share price that translates into the highest dividend yield in Canada, and well ahead of any other Canadian Telco. It's a dividend, I would add, that is backed up by very solid cash flows.

During the quarter we completed the substantial issuer bid and concluded our remaining debt financing. On July 2, as previously discussed, we reached an agreement with Bell Canada that provides for the orderly transition of our commercial arrangements in a manner that is designed to be seamless and transparent for our customers. Also in the third quarter, Bell disposed of its MTS shares, participating in the substantial issuer bid and then selling the balance into the market following the completion of the bid. This was another positive development, removing any potential overhang that might have continued to exist on the stock pending the ultimate disposition of their remaining shares.

In terms of other transition, our teams are making tremendous progress. We have combined our 2E (ph) business operations, Qunara and Allstream's ITS into a national division; migrated MTS's Internet traffic onto the Allstream network; consolidated a large portion of the corporate office functionality; combined our network services, real estate and IT departments; and amalgamated our insurance policies. These activities, together with other actions we've already completed, represent over $12 million of annualized savings. With this solid start we expect to realize close to half of our synergy target in 2005.

Through the course of next year we will complete the remaining actions to realize our full 40 million in synergies in 2006. We are extremely confident in our ability to realize these savings. In addition to operating synergies, we've also saved approximately 20 million in cash taxes to the end of September.

Turning to ongoing operations, significant progress is being made in positioning the business for long-term success. Let's first take a look at the national division. An important element of our strategy rests in the opportunity offered by leveraging our national state-of-the-art IP infrastructure and our human capital to capture long-term profitable growth from the evolving industry. Opportunities, not only in conductivity, but also increasingly in terms of infrastructure management and professional services, areas where we believe we have a significant competitive advantage. To date in 2004 Allstream has launched eight new services in support of our drive for long-term growth.

At the recent IP World Canada 2004 conference, we announced network resident IP telephony, the first of its kind to be offered in Canada on a national basis. It is a turnkey solution that we manage on the national network, which enables service providers to quickly and cost effectively compete in the local residential space. Mountain Cable out of Hamilton has already signed up for the service.

Wholesaling our service to new alternative telephony service providers like Mountain Cable allows Allstream to tap into the national residential market. This service, as one of a number of network resident services, will be rolling out to capture growth. Still with the national division, and although it in early days, we are also seeing some good traction with some of our other new services, including Ethernet private line, transport LAN CBNA (ph) and business IP services. Year-to-date Allstream's bookings and sales force quotas remain on plan for year. The third quarter, once again, saw some noteworthy customer wins and extensions at the national level, including among others, Best Buy, Ford, and NEV (ph) Canada. Together these represent more than 14 million in annualized revenues.

Turning to Manitoba. Our wireless high-speed Internet and TV services all had a very positive third quarter. Wireless revenues and subscribers continued to deliver double-digit year-over-year growth, consistent with our expectations for all of 2004. Net additions were very strong in the quarter, increasing by 33% to 7400. The high-speed Internet segment also saw strong subscriber growth, increasing by 27% from a year earlier. Digital TV is also generating extremely good results. At September 30th, we had 25,000 customers. That number now sits at more than 28,000. So we will be pushing well through our original year end target of between 26 and 28,000 customers.

TV represents both a growth opportunity and a tremendous means to further strengthen our ties to the Manitoba customer base and our strong market position. We're taking another step in this regard with the launch out MTS Centre on Demand. Winnipeg's new entertainment complex, MTS Centre, officially opens this month and MTS TV customers will enjoy exclusive access through the MTS TV portal to all kinds of information related to the center. Some of these include coming events, ticket information, and data on our American Hockey League team, the Manitoba Moose. Down the road customers will also be able to view the games played away from home by the Moose. All of which will be available only to MTS TV customers. Whether it's naming rights, on demand services at the complex, our MTS's wireless services at the MTS Centre, these actions are all aimed at deepening the relationship with our customers and in so doing, hardening our competitive position in Manitoba.

And lastly, our less2talk residential long distance offering in Alberta and BC has posted some solid early results, delivering approximately a million in new revenues since launch. The customer response to this service has been very positive and we are anticipating continuing improvements in the quarters ahead.

In summary, our operations performed to plan in the third quarter, and we're confident we'll achieve our 2004 pro forma targets. Our national team is doing all the right things to position us for long-term profitable revenue growth. New product rollout is progressing right on plan. And our expectations for customers' evolving requirements and the translations of those requirements into long-term revenue growth remain unchanged. In advance of the revenue turn (ph) occurring, we've committed to working hard on the cost side to support EBITDA, and the third-quarter results from the national division are a good indication of our commitment.

In Manitoba we've seen consistent solid results. We are extremely confident in our ability to continue to succeed in the marketplace given the pervasiveness of MTS in Manitoba, the strength of our broadband network, the services and capabilities we have to offer customers, and the strength of our competitiveness in the business segment with the addition of Allstream.

To conclude, we are convinced that we are on the right course for achieving long-term success in the evolving telecommunications industry. We've got all the tools to provide winning solutions to the market. We have the technology, the network, the people, and the financial strength to carve out a solid position in the changing telecom world, to grow profitably and provide excellent returns for the long-term.

Thank you, and I'll now turn the call over to Wayne.

Thanks, Bill. We had a solid quarter financially. Results came in consistent with our expectations and we're very confident heading into the fourth quarter that we will achieve our 2004 pro forma financial targets. Let's take a closer look at the financial performance.

In terms of actual results, the year-over-year third quarter and year-to-date increases in revenue, EBITDA, cash flow, and earnings per share are largely attributable to the acquisition of Allstream. Briefly, the results are as follows -- total revenues were 495.9 million in the third quarter and 1.021 billion for the nine months ended September, representing increases of 131% and 59%, respectively. EBITDA increased by 54% to 176.5 million in the third quarter and to 427.7 million year-to-date.

Earnings per share increased by 56% to $0.61. Year-to-date earnings per share were $3.65 compared with $1.16 in 2003. The year-to-date increase reflects the gain on sale of our Bell West investment from the first quarter 2004, the acquisition of Allstream and the continuing success of the Manitoba operation, partially offset by the one-time Bell settlement payment.

The combined operations are generating strong cash flows. Free cash flow from continuing operations was 78.3 million in the third quarter and 147.9 million year-to-date. This number is after year-to-date funding of approximately 50 million to the pension plan, including both normal costs and special payments.

I would now like to discuss the performance of our combined business based on pro forma results as if we existed as a single entity on January 1st, 2004 using comparables from 2003. On this basis, consolidated revenues in the third quarter were 495.9 million, down 5% from the third quarter of 2003. Sequentially, third-quarter revenues decreased by only 1.4% from the second quarter. The year-over-year decrease reflects lower revenues for long distance, data, and local services, partly offset by growth in wireless, MTS TV, and DSL Internet.

Local voice services were 135.9 million in the quarter, down by 2.7% from a year earlier. Looking at sequential quarterly performance, local revenues have remained very stable through each of the quarters in 2004. The year-over-year decrease is primarily due to a 4.2% reduction in access lines at the national division, which reflects the continuing focus on selling higher-margin local lines on our own network, or via unbundled loop, and deemphasizing low margin resale lines. Sequentially, access lines increased marginally in the quarter, growing by 0.4%.

Data service revenues were 166.1 million in the quarter, down from 176.7 million in 2003. Pricing pressures on Legacy data connectivity at the national division was the main contributor to the negative variance. Partly offsetting this impact was continuing strong growth in revenues from DSL Internet with year-over-year subscriber growth at 27%, as well as growth in revenues from new national data product and additional customer wins.

Long distance revenues were 124.2 million in the quarter, down by 13% from the year earlier. Decreased year-over-year revenues are primarily due to industry pricing trends at the national level, partially offset by increased international volumes. Wireless revenues for the quarter increased by 11.6% to 48.1 million with subscribers up 10.8%. On a year-to-date basis, ARPU was $54.36, up from $52.32 in 2003, reflecting increased usage, in part driven by the popularity of data applications and positive pricing trends in the wireless markets, including the change to the peak-hour clock. Churn continues to be very positive at 1.08% for postpaid customers.

Other revenues also increased in the quarter with gains from MTS TV, AAA Alarms, and directory. As Bill indicated, the TV rollout is going extremely well. Revenues were 3.1 million for the quarter and 6.8 million for the year, up from 0.5 million for the first 9 months of last year.

Continuing with pro forma results, consolidated operations expense for the quarter was 319.4 million, down by 21.7 million or 6.4 percent from a year earlier. The decrease is primarily attributable to reductions at the national division, partly offset by higher funding for the growth operations.

At the national division, the decreases largely reflect lower cost of goods sold, decreased salaries and benefits expense, lower facilities and branding costs, and synergies (ph). In the third quarter, we recognized synergies of 2.6 million.

Taken together, these revenue and expense results translate into national division EBITDA of 61 million for the quarter. This compares favorably with our previously stated target for the back half of 2004, and is a significant increase from the 43 million in pro forma EBITDA in the second quarter.

Included in the second quarter were onetime costs of approximately 10 million principally related to workforce reduction initiatives. Excluding these, Allstream's EBITDA has increased by 8 million. This increase reflects revenue melt from certain costs that are seasonable in nature and lower in the second half of the year. Net of these items, EBITDA improved due to salaries and benefits savings and synergies realize.

The underlying cash flow of our expanded company is impressive. Year-to-date, pro forma free cash flow from continuing operations, which excludes special funding for the pension plan, was 225 million. Indeed, cash flows are more than sufficient to fund all of our internal needs, the dividend, and special pension payments.

In terms of financing activities, we completed our substantial issuer bid in the third quarter, purchasing 18.6 million shares at $43. Through this process, we returned $800 million to our shareholders.

We also completed our remaining debt financing, raising 220 million. This finalized the realignment of our capital structure following the Allstream transaction, and confirmed the strength of our Company's financial position with a debt ratio of 41 percent. We once again experienced excellent demand (ph) for our debt, reflecting the strength of our company and the solid credit ratings that have been issued by both CBRS and Standard & Poor's.

As I indicated at the beginning of my remarks, we've had a solid quarter, and we're on track to achieve all of our targets for 2004. Here's the summary of our progress.

Pro forma revenues for the first 9 months were 1.5 billion, putting us in good position to achieve annual revenues of 2 to 2.1 billion. After 9 months, pro forma EBITDA was 500 million. Excluding synergies, EBITDA was 497 million, and solidly on track in relation to our target of 670 to 680 million. Pro forma free cash flow from continuing operations at 225 million is well on its way to an annual target of between 265 and 295 million.

Our capital spending target for the year is approximately 315 million, with total spending at 202 million after 9 months. And with the seasonal fourth-quarter ramp-up, we expect spending for the full year to be consistent with our forecast of 315 million.

And finally, pro forma earnings per share and cash earnings per share were $2.02 and $3.20 after 9 months, in line with our requirements to deliver pro forma annual targets for earnings per share of greater than $2.75, and cash earnings per share of between $4.15 and $4.30.

In terms of 2005, we are currently in the process of completing our budget for next year. While it is still a work in progress, we're working to establish targets that will represent low single digit growth in EBITDA before synergies. We look forward to providing our formalized guidance together with the plan for delivering on our targets at our Investor's Forum in December.

In closing, our strengths include a leading-edge IP network of national scope supporting a growing suite of advanced services and representing a strong platform for long-term profitable growth; strong and growing cash flow, supporting the highest dividend yield of any publicly traded company in Canada; the best balance sheet strength in the industry; solid progress on achieving our synergy targets, reflecting our long tradition as a highly efficient telecom operator; the opportunity to increase our share of the national enterprise market, leveraging a well-established foundation of blue-chip customers; Our 7,000 employees, highly skilled people, with a strong customer service and marketing focus; and a very strong senior management team.

Thank you. We'll now take your questions.

(OPERATOR INSTRUCTIONS). Greg MacDonald, National Bank Financial.

Thanks -- question (technical difficulty) John MacDonald, if I could -- under the results of Bell and Telus, we saw indications of improvement in volumes, out of -- they comment both on enterprise and on wholesale. I suspect most of that is wholesale.

If you could please comment, John, are you seeing the same types of evidence, because it's not obvious in the revenue line. This could be a timing issue. If you could just give us some color on that, that would be helpful.

You're talking volumes in terms of minutes, or volumes in terms of bandwidth?

Minutes, bandwidth, customers, they're just seeing an overall better turnaround on demand, as opposed to pricing. They indicate pricing is still a concern.

I think pricing is still a concern in the marketplace. But we are seeing some encouraging changes relative to volume -- certainly relative to the data services. What I have been saying is that enterprise customers are buying data services the way they buy PCs -- it's 4 times the capacity, but roughly the same price. So you wouldn't necessarily see a big hit in the revenue line. There may be some changes in terms of capital required, as well as direct cost.

But we are seeing some very strong demands relative to customers moving to, in particular, MPLS networks and higher speed access networks.

On the LD side, relative to volume, I would say -- we've seen some modest increases domestically in terms of volume. But I would suggest probably most of the increase would be wholesale-related.

Just as a quick follow-on, would you feel comfortable then estimating sequential flatness in either your data or your LD line out of certain segments in, say, fourth quarter or first quarter '05?

That is still my objective.

John Henderson, Scotia Capital.

I wonder if Bill, I guess, could speak to the TV experience and sort of what penetration do you expect to achieve, giving your experience so far, in Winnipeg? And what has been Shaw's response to date? The take three text

John, maybe I can take that. (multiple speakers) Well, as you know, the service has been extremely well-received by the customers in Winnipeg. And the size of the market in total is about 260,000 households. We are currently at two-thirds of that being covered, and plan to be at 70 percent by the end of the year.

So based on our current footprint, our penetration level would be about 15 percent. And in terms of total market, we're at about 10 percent market share in the Winnipeg market. And as Bill noted, the number of customers already is currently at the level that we had thought we would be at by the end the year. So it's extremely promising for good numbers.

So you can do the math in terms of how many net adds you might see us having in each of the months leading up to the end the year. But we continue to see very strong growth. The customers, of course -- when we poll them, their major reason for choosing TV is the programming options and the ability to bundle and get a discount.

In terms of Shaw, they have been, I guess, as expected, responding competitively in the marketplace with win-back and retention offers. There is a limit. They are not to approach a customer for 90 days, I believe. And there was a CRTC decision because we had found that they were approaching customers with offers that weren't available to the general public. And CRTC has ruled that they were in fact breaking those rules, and now have to file within 30 days a plan to show how their business processes will have changed to stop that from happening. So we think that is going to be a significant aid to us going forward.

Okay, thanks. I might just, if I could, have a follow-up with Wayne on the increase sequentially in Allstream's EBITDA -- close to 40 percent. Part of it is related to timing differences of cost. I just wonder sort of what types of cost would be considered seasonal and what's included in that?

Well, the sequel (ph) costs are essentially related across two things primarily -- cross-border traffic is priced according to thresholds. And until you reach those thresholds, you are required to record it at the higher price rather than being able to smooth it throughout the year. So there's a higher expense in Q1 primarily, a little bit in Q2, and then it trails off to the lower rates at the back half of the year. And the other ones are primarily employee-expense-related -- things like vacations and payroll taxes and things like that, which are also higher in the first 2 quarters than they are in the second and the third and fourth quarter.

Dvai Ghose, CIBC World Markets.

Nice to see the margin improvement at Allstream. I'm wondering if you think you're pretty much done in terms of employee downsizing and perhaps the low-hanging fruit there, or whether you think there are further costs to be cut there? And on the Manitoba side, I see that the EBITDA was pretty flat year-over-year, so some sort of small decline of margins there. Traditionally in Q4 over the last couple of years, you've cut some costs at the Manitoba operations through headcount downsizing. I'm wondering if you are planning that again this year?

Maybe I can start, and if anyone wants to add in. In terms of the margin improvement at Allstream, that is very positive. We have looked at some downsizing in terms of our integration initiatives. And some of the costs of that are included in the restructuring accrual that's on the balance sheet currently. And so those people leaving will take place between now and sometime in 2005. So that's already -- the plans are in place and underway with respect to that in terms of what we're doing over the next several months.

On the Manitoba side, I think that what you're staying there is basically just timing differences. If you look at the year to date in the Manitoba side, we are seeing 2 to 3 percent growth in EBITDA. And I think that's basically reflective of the amount that we are going to achieve for the year.

So were there any special issues in the quarter which may have seasonally put pressure on margins on the Manitoba side?

No.

Okay. Next question if I may, really quickly, to John MacDonald, I may -- you talked about your wholesale backbone business of VoIP carriers, which could grow to be quite meaningful, especially if carriers like Rogers anticipated using you for backbone services. And they presumably are already using you for their $5 long distance program. How meaningful can these revenue streams be, do you think, John?

It remains to be seen, Dvai, because -- what's going to happen is I think you're going to see a lot of new entrants, not just from the cable standpoint, but also existing players that are in the market like Primus and Vonage, etc., because the barriers to entry are relatively low.

But at some point in time, I think the market is going to have to stabilize. And that's the 64,000 question in terms of how much share these players are going to be able to realize from Telus and Bell. But I would stay over the next three years it would be sub-$50 million. But we would think that there was -- it's in that snack bracket (ph) kind of thing.

And given your earlier point, John, to what extent is managing wholesale bad debt exposure -- obviously, you would carry like Rogers. We don't assume that the problem. But with some of these start-up operations, to what extent is bad debt an issue for you?

It's not an issue. We continue to manage that very carefully. And that wasn't always the case, but we've cleaned up an awful lot of that. And we are quite rigorous in terms of making sure we track the bad debt.

Congratulations on a good sequential improvement in margins.

Thank you, and by the way, Dvai, I didn't get a chance to comment on the -- you asked the question specifically, I think, relative to what future opportunities would exist in terms of cost reduction.

In addition to what Wayne indicated relative to synergies, I still believe that there are opportunities in a variety of areas, not just in people areas, in terms of reducing cost and becoming more efficient -- not just in the SG&A area, but also from a direct cost area, and we continue to fight the good fight with the regulator to ensure we get cost-effective access.

Glen Campbell, Merrill Lynch.

I had a couple questions. First for Cheryl on the TV product, could you give us an update on the likelihood of getting high-definition capability or DVR capability on the Motorola platform and likely timing?

The HDTV is definitely on the road map. Our first initiatives that we don't have currently is video-on-demand and pay-per-view. Subsequent to ,that HDTV will be rolled out, and Motorola has indicated that intention. So we're working with them. And we believe that two streams of HDTV is what's required in the average household so that you can watch one stream and tape another. So the premise equipment will be available at the same time. And that will be sometime after video-on-demand, so end of '05 timing, early '06 -- still to be determined.

Okay. And DVR capability?

That would be -- I'm not sure if that's sooner or later than that. But it's after video-on-demand and around the same timing as HDTV, because we think those 2 are needed coincidentally.

Okay, thanks. And with respect to the national business, questions on the numbers. I think, Wayne, you mentioned a 4 percent access line decline for Allstream. Could you confirm that? And can you talk about how that might have changed vis-a-vis the second quarter? And then I had a follow-up regarding digital network access, how much you're spending on that now.

Okay, with respect to the national business access line, it was down 4 percent year-over-year. Sequentially, that was basically flat at a 0.4 percent increase from Q2 '04 to Q3 '04.

Sorry -- an increase?

Yes, access lines went up a little bit from Q2 to Q3.

Did you say a 4 percent increase?

0.4.

0.4 -- thanks. And then could you give us a sense of how much Allstream is spending in total on digital network access -- the portions that haven't been repriced by the regulator?

Sorry, Glenn, I don't have that number off hand.

Peter Rhamey, BMO Nesbitt Burns.

2 questions -- 1 just a math question. I think you said in your presentation that in Q2, you took a $10 million charge at Allstream. So the $40 million, if I recall right, EBITDA was really closer to 50 on a normalized basis.

I'm just sort of looking at Q2 release, page 29, and I'm seeing 6 million. I'm just wondering -- did I misunderstand what was said? Or if you could explain the variance -- it's just important to look that from a perspective of the sequential improvement, which has been quite dramatic at Allstream.

The second question I have of a bit more general nature -- fixed wireless your (ph) -- through Allstream, has (ph) fixed wireless operations. And now, we have had another transaction out there that changes the partnership structure. Is there any implication to that? And what are your views on using fixed wireless in your own operations?

With respect to the EBITDA, I don't have that Q2 report in front of me. But let me just make some comments on the change from Q2 to Q3. That 43 million in the second quarter, and as we mentioned, I think roughly or approximate 10 million of that was onetime costs largely related to workforce reduction. So if you normalize for that, that would bring back up to around 53. There are also some seasonal expenses that are a little bit higher in the second quarter than they are in Q3. And I mentioned what those were earlier. So, of the 8 million increase from Q2 to Q3 in EBITDA, let's say roughly half of that is from seasonal implications, and about half of that is based on the impact of cost reductions and synergies.

Does that seasonal impact work against you in Q4, or is that it?

That's about it. Q3 and Q4 are roughly about the same in terms of seasonal impact, with the exception that expenses sometimes tend to ramp up a little bit in the fourth quarter. But I don't expect that to be a big factor this year.

And the second question?

I think I can take a stab at that. First of all, I think that wireless does represent an opportunity for the company. In particular, when you look at what people are doing relative to technologies that are being developed such as WiMax, I think it could going have quite a significant impact in terms of growth opportunities for the company, as well as reducing access costs that we are incurring today.

Relative to the JV, obviously with Rogers -- the pending acquisition of Microcell, the nature of the JV will probably have to be relooked at -- in particular what's Canada's (ph) view in terms of the spectrum. Certainly, all of the indications that I have seen so far would lead me to believe that they see this as a valuable asset. So for the time being, we continue to be active participants in the JV.

Do shareholders have any rights with the change in ownership to change the nature of that joint venture, or is it (multiple speakers) it survives the change?

No, it survives the change.

John Grandy, Orion Securities.

I have got 2 totally separate questions. First of all, for John MacDonald -- the improvement in your access lines is quite a turnaround from a trend that's gone on for a long time. And as I recall, you have quite consistently said that the decline in access lines was due to grooming the lines to migrate them on net and make sure you only had profitable business.

So my question for you is -- has this process now been completed? Are you now at a stage where you can move on and see growth for the foreseeable future in access lines?

Well, the process is never completed. We continue to make sure we are providing service, we are doing it profitably. But I believe that one of the major indicators in terms of the turnaround would be, we are now reselling local access to companies such as Primus. And so we would see that as -- to the extent that they're successful. And they incur the marketing costs, and they do all the promotion to the customers. We just fulfill that.

And we spent a fair bit of effort this year trying to get a flowthrough provisioning process in the back office so that we don't incur too much cost in that regard. So that's basically I would say probably the single biggest contributor to the growth of access lines -- it's the wholesale business.

So I guess if you're provisioning a reseller such as Primus, you would count those lines on your total line count.

If they terminate on our switch.

Okay, thank you. And my second question, which is unrelated, is I guess for Wayne. And it's on your pension funding. I'm trying to understand the accounting for it.

You had on balance sheet a liability of roughly $90 million for the pension fund at Allstream. Now you're saying that as a result of a revaluation of the plan, there's additional funding that's going to have to take place over the next few years. I'm trying to understand why that is not on balance sheet. Is there some distinction between the 2 liabilities?

They're not the same in terms of the way that the funding is according to rules that OSCI (ph) puts out. And the accounting is according to rules put out by the CICA. So they're not exactly the same. But in terms of the nature of the balance sheet item, the 90 million that was there, is the same in nature as the funding requirement. They wouldn't be exactly the same number. But the difference, I don't think, on the Allstream side, is that significant.

So then, when you talk about the 60 million requirement over each of the next 3 years, that's in addition to what you inherited from Allstream? Is that correct?

Yes, essentially there's the MTS pension plan, which is a more recent phenomenon, that it had been fully funded until I guess within the last 1.5 years. With the stock market decreases and the interest rates going down, there is a deficit in that plan, as well, so that the 60 million in addition to normal costs is combined total for both pension plans.

Vince Valentini, TD Newcrest.

I have another question, but Wayne, while you're on that topic, can you just update us on when the next actuarial study is and what the dynamics could be regarding the discount rate and the rate of return?

The next actuarial valuation will be done January 1, 2005. And with respect to the interest rate, again (ph), those aren't necessarily within our control. But interest rates have improved, and so we expect that the numbers that we are giving you now are likely in the nature of a worst case.

And can you put any parameters on that? If rates were to go up by 100 basis points, for example, in your discount rate, what that would do to the 60 million in funding?

Sure. The breakeven point, let's call it, for the pension plan -- and remember the interest rates that we're talking about aren't the short-term rates that you hear on the television every morning. These are the rates, the long-term rates that are used here. So just take that as a caution. But if we saw about a 125 to 150 basis point increase in those long-term rates, we would not have a deficit anymore.

Okay, great. And other questions on Allstream and EBITDA. I guess if you look at -- you haven't really explicitly said it this quarter, but last quarter, you had a guidance of 210 million for the national division for the full year. That would imply that, based on what you've done year-to-date, you'd need to do about 55.5 million in the fourth quarter, which would be a pretty good drop, about 10 percent from what you just reported for Q3. So why don't you just update that figure, and also maybe in the context of synergy -- because I guess the 61 million includes the synergies, whereas the guidance before of 210 maybe didn't? So maybe, with synergies, the 210 goes up is maybe what I'm getting at? I'm trying to get your color on that.

Yes, if I'm following you, Vince, I think you're right there. The 210 that we talked about was pre-synergies, and we hadn't made any promises with respect to synergies. But if you take the roughly 2.5 million in synergies out of the Q3 number, then you would be back to where we are saying we're right on track to hit the 210. So with synergies, we may exceed that 210 by a bit.

And the synergy figure of 2.6 million in Q3 -- how would you see that trending into Q4? Any reason why it wouldn't decrease?

No, I don't think so. I think it's probably going to be roughly the same next quarter.

Okay. And taking that one step further, if we look at I guess Allstream, since you have owned it in the past 4 months, or just (technical difficulty) look at it in this last quarter, annualized EBITDA is running in the 235, $240 million range. And I know there are some seasonal factors, so you're not going to do as well in the first quarter or second quarter as you are doing in the second half. But can you talk about where the business's run rate heading into 2005 before we factor in anything like further cost cuts or potential revenue changes?

With respect to the run rate, if you factor in the seasonal things, and we are -- roughly pre-synergy is that 210 number. If you add back the 10 million in roughly onetime costs that we talked about, that would put us at a sort of an annualized run rate of 220, which is the number that we're building on in terms of looking for low single digit growth going into next year. And in addition, we expect to achieve synergies.

Okay, that's great. And last question, just to clarify something earlier, on CDNA (ph) -- now Wayne, you didn't have a number on what total CDNA costs are. But maybe more for John, is there an expectation you have coming out of the CRTC, CDNA proceeding as to a range of potential savings that could be achieved?

First of all, we are still hopeful that we will get a decision by year end. In terms of guessing exactly what the magnitude of that is going to be, I wouldn't even want to hazard guess at this point in time.

Richard Talbot, RBC Capital Markets.

Bill, given the time that you have now had to look at Allstream, I wonder if you could comment on what has struck in terms of the biggest positive surprise, and perhaps the biggest challenge still to focus on going forward?

And secondly, a question for Wayne -- in the fourth quarter seasonally, Allstream had performance bonuses paid in that quarter. I'm wondering if you've been annualizing expected performance bonuses in the results, or whether you would expect that to be a lumpy item in the fourth quarter? Thanks?

Well, obviously, Richard, the biggest challenge has been the repricing and the magnitude of that in a long distance enterprise market.

In terms of pleasant (ph) surprises, I think it's certainly the culture of the people. We saw that as a strength going into this, and I think it's only been reinforced in terms of the innovative services that are being created, the network-based services. And I think that we have a lot of young, very talented, innovative people at Allstream. I think the business model that they've got in terms of connectivity and managed services and IP, as well as some of the network-based services that they've been very proactive in terms of developing put us ahead of the major players in this industry in terms of what we have to offer customers. I mean, I see those as being sort of the -- not surprises, but reinforcement of what we had hoped to achieve through this transaction.

And lastly, Richard, with respect to performance bonuses, we have taken those into account, based on our expected results. So if we hit the expected results, there won't be any anomalies with respect to performance bonuses in the fourth quarter.

So just to clarify, you have been accruing for those then, Wayne, have you?

Yes.

Okay, and just one very small point. I noticed in the financial disclosure in the operating results, you give a 9-month figure for wireless ARPU and churn. I was wondering if it would be possible to break that out on a quarterly basis, just so that we have the figures. Maybe we can follow up off-line. But going forward, that would be very helpful.

I kind of hesitate -- the third quarter is higher than the year-to-date amount. It's an aspect of seasonality that kind of corresponds to the weather in Manitoba with respect to ARPU. And I'm not sure that that's particularly meaningful. That's why we basically use the year-to-date one, because sort of on average, it's going to be lower than that year-to-date amount in the first quarter, and higher in the second and third quarters, and probably right around even in the fourth quarter.

Is there any way we could get the margin for wireless this quarter, please?

It would be in the -- I don't have that number in front of me. But there really has not been, I don't think, any change from sort of the mid 50 to 55 percent that we were looking at pre-acquisition, because the wireless business really hasn't been impacted substantially by the combination with Allstream.

Rob Goff, Haywood Securities.

Thank you very much. Could you address what you are finding on the video for COA (ph) trending? And can you discuss your plans looking beyond Winnipeg for video?

In terms of trending for the TV service, we continue to actually exceed the numbers that we had in our business case. We had expected to see year-over-year declines. And due to Motorola's acquisition or buy-out of Next Level float, they have brought a significant amount of I guess concentration of effort and their own manufacturing expertise to the set-top boxes.

So we've seen reductions ahead of where we expected them to be. And plus, of course, the Canadian dollar strengthening has been positive for the business case.

So we haven't given out the COA numbers in absolute values, but the trending is extremely positive. And there will be more and more focus on reducing those costs and sharing them with the providers, both the current providers and future providers of video service by the telcos.

And the second question was -- I'm sorry --

With respect to rolling (ph) video potential --

Oh, beyond Winnipeg. (multiple speakers) That's certainly possible. We could put the signals on fiber and send them out from Winnipeg. I have to admit that our first order of business is to complete the footprint spelled out in Winnipeg and to maximize the marketshare there. While we are doing that, we will be looking at other areas that we might consider. But Winnipeg is job one for us.

John Henderson, Scotia Capital.

Just a follow-up -- two of them. One, I noticed use the word "controllable churn," for digital TV. I just wonder what that means. And then I have a follow up on pension.

Controllable churn just refers to the fact that because we have limited footprint, currently two-thirds of the city, that when someone moves and moves out of the footprint, we have not considered that to be controllable churn, because we can't convince them to stay with us because they can't get the service.

Okay. And just as a comment, I think your marketshare would be higher than 10 percent if you consider that Shaw probably has an 80 percent penetration. I guess 10 percent of homes passed since your (ph) --

True enough -- 10 percent of homes passed, because some homes don't have any service, right.

Okay. And for Wayne, on the pension, the 60 million top-up (ph) that's required -- how much actually goes through the income statement now as a pension expense?

It isn't related to the 60 -- I think for pension expense is somewhere in the neighborhood of 5 to 10 million this year.

Okay. And is that a cash expense or --

Well, it isn't. It's basically just -- again, it's the difference between the funding rules and the accounting rules. So that is the non-cash portion. And then what you see on the funding side is basically just the cash number that I'm giving you.

Peter Rhamey, BMO Nesbitt Burns.

All my questions have been answered. Thank you.

Dvai Ghose, CIBC World Markets.

If I could just follow up on the expansion of the TV strategy outside Winnipeg. Given that obviously, the density outside Winnipeg is less than within Winnipeg in the province of Manitoba. I'm wondering if you are looking at video over ADSL2-plus as a potential solution, whether you see bandwidth pitfalls, whether you think MPEG-4 is a reliable software compression technology, and so on?

I know that Softel is offering ADSL2-plus, and we are on a different path. As you know, we have VDSL. And we're committed to that, because we think it provides a better service and a better quality of product to the end-customer.

With the MPEG-4 and the compression that's go to come down the line -- we will be utilizing that to be able to offer high-quality, HDTV, and additional mix (ph) of service for Internet.

So we have our roadmap. And although we continue to look at other offers, I think -- and I'm not sure if you have seen our product or not, Dvai, but I think it's top-notch. And I don't think we would want to confuse the customer even in market with an ADSL2-plus to, let's say, fill in some spots where we can't get. It's a market strategy that we're pretty committed to.

Yes, I know, I spent a very enjoyable 2 hours watching TV in Winnipeg. Thanks very much (multiple speakers)

What else is there to do? Just kidding.

Mr. Woods, please continue.

Thank you, operator. Just as a reminder, a taped rebroadcast of this call will be available until midnight, November 14th. As well, today's call will be archived and available on the Investors section of the MTS website.

In addition, as Wayne alluded to, I'd like to remind everyone that we will be holding our 2004 Investors Forum on December 10th in Toronto, at which time we'll be presenting our plans and outlook for 2005.

So that concludes our call today. And again, thank you for joining us.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.