BCE Inc (BCE) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the BCE fourth-quarter results conference call. I would now like to turn the meeting over to Mr. (indiscernible) Ludwig.

Thank you, operator, and good morning, everyone. Thank you for joining us. The purpose of the call is to discuss our fourth-quarter results, and I'm here today with Michael Sabia our CEO and Siim Vanaselja our CFO, as well as Pierre Blouin from Consumer, Isabelle Courville from Enterprise, Karen Sheriff from SMB and Patrick Pichette from Operations. As usual we would like to take you through the presentation that is available on the website and we will be happy to take any questions you have after that.

Today's call is being taped and it will be available in replay mode for a week. It is also being webcast and the archive will be available until the end of next quarter. Now before we get started it is my role to remind you that today's remarks contain forward-looking statements with respect to items such as revenues, earnings and free cash flow. There are risks that the actual results will differ materially from those contemplated by the forward-looking statements, and for additional information on such risks please consult BCE's 2004 fourth-quarter MD&A (ph) dated February 1, 2005 and filed with the Canadian Securities Commissions and with the SEC.

These forward-looking statements represent the expectations of BCE and its subsidiaries as of February 2, 2005 and accordingly are subject to change after such date. However, we assume no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. With that behind us I now like to turn the call over to Michael.

Thanks, Bernard. Good morning everyone. We spent quite a bit of time with all of you on December the 15, and during that discussion with respect to our outlook for '05 and '06 I think we reviewed pretty extensively the progress that we made in 2004, and our views about the foundation that we set for the future of the company. As you will recall we talked a lot about Galileo and the impact that it will have on reshaping the customer experience, on our investments in bandwidth through fiber to the node. The emphasis we are placing on the development of value added services and relatedly the new products that we are working on, and the impact that they can have on the growth rates across various units of the business. We talked about our financial progress, free cash flow, a great many other things. And the way we look at the fourth quarter is very much in that, very much in that context, very much about completing the work of the year and setting foundations for the future of the Company.

We continued our step-by-step improvement in our overall revenue performance, very importantly we completed the labor force restructuring with about 5,000 of our colleagues leaving the business and that as you know is so important to us in terms of strengthening our underlying operating profitability for 2005 and beyond. In all those respects this was an important quarter where we made some good and important progress in establishing and putting in place more building blocks for the future of the company. That being said no doubt in the quarter we did face some important challenges. I think most important among these has been the implementation of the Mobility filling system. Clearly that has had a meaningful impact on both our service levels and on our financial performance and to be direct about it, I think frankly more than we had anticipated.

In fact, I would say filling and some of the residual effects of labor disruption at Aliant that represents almost about $60 million of operating profitability EBITDA pressure on our performance in the quarter. And clearly from a quarterly perspective that is a very meaningful number. That being said, I want to underline this, that does not affect our confidence and the forward momentum that we have coming out of 2004, and as we set our sights on our objectives for 2005. And I think particularly, particularly so given the productivity runway that we have with the labor force changes that are already in place. So overall I would say that we are satisfied with the progress that we've made in the quarter and very satisfied with the progress that we made through the course of the year, and feel good about the strength of the foundations that we built for the Company going into 2005.

Just turn over now to consumer, I will just touch on a few points here. Overall I characterize it as a very solid year in the consumer segment of our business, and I think a reasonable quarter in the fourth quarter. Good progress on bundles, more and more of our customers purchasing at least one new service actually in December touched 51 percent which is good progress. And at 370,000 bundles we've obviously substantially exceeded the targets that we talked about. Our churn across virtually every productline remains very low in most cases, perhaps virtually every case, industry-leading performance and that is extremely important to us as we focus more and more on driving loyalty, which is one of our key strategic objectives, and we have obviously more work to do on that through the course of 2005, and we will continue to do so.

In terms of revenues for the year up 4.2 percent, I think pretty solid performance, a little more modest. In the fourth quarter at 2.3 percent but again, that number affected by billing end in (ph) and certainly also by some very aggressive promotions during the holiday period from our competitors that in that competitive environment we chose to match and think we had really no choice but to match.

In terms of light line losses, very stable and has been very stable through the course of the year. No surprises there, and certainly no surprises in LD as it continues to erode. In fact in the fourth quarter actually a little faster sequentially in the fourth quarter than it had been for instance in the third quarter. But again, no surprises there, and long-term trends are quite clear with respect to trends in LD, and I do not need to elaborate on any of that for this audience.

In terms of profitability in the consumer market, I think pretty good for the year at 5 percent. EBITDA in the quarter was up just a little under 2 percent, and again the onetime effects that I've talked about already and also some incremental COA associated with more aggressive net adds in the fourth quarter. I would point out, as you look at that slide, that the -1.5 percent operating income number is very largely the result of a decision on our part to significantly accelerate the depreciation of our prepaid analog platform. So that explains the disparity between the positive EBITDA performance and the reported negative operating income performance, which is that depreciation issue.

Let me turn over and talk about wireless. Well, I think its probably fair to say wireless has been quite a ride for us in the fourth quarter. On one hand, I think very solid performance revenues up 13 percent in the quarter, 14.5 for the year net adds. Up almost 15 percent in the quarter, ended the year with another half-million customers very much as we did last year in the fourth quarter about 217,000 of them. So I think pretty solid performance there, perhaps a little more prepaid than anticipated, but I think that is largely due to the attractiveness of the grab and go offer that we had in the Christmas period there which I think shifted the balance a little bit between prepaid and postpaid.

I think throughout the year pretty good work on profitability, now you have heard me say this before it can always be better, but given everything that we faced in the wireless business through the course of the year I think quite reasonable, margin up a little over 2 percentage points in the quarter to 36.2 percent for the year, 41.5 a 5.2 percentage point increase. So pretty good, and all of that both in terms of the adds performance profitability, all of that despite the very, very big challenges that the billing implementation that we were working our way through the fourth quarter and actually for a very good significant part of the year.

Now we touched on this during our call with you in the third quarter where we talked about the peaking of invoices and the mailing of invoices in October. That peaking in October not only triggered quite substantial increases in the volume of calls, but also required significant increases in average handle time to get our customers' concerns addressed, and again I think that to some degree the volume of calls but in particular the average handle time issued a little more than we had expected.

So overall the actions that we took to address that difficult situation and to put more resources into play to address that difficult situation, and I think the appropriate flexibility that we showed in trying to meet our customer requests and the customer concerns during the period, overall that cost us about $45 million in the quarter, or put it differently, roughly about 4 points of wireless EBITDA margin. So meaningful impacts there. That being said, though, again churn very good, essentially unchanged from the fourth quarter of last year. So again, I think quite good performance in light of the extent of the challenges that we faced there.

Today bills are being shipped on time today. Call volumes are down and down substantially. We're beginning to see improvements in average handle time; now again and I reiterate this, that is not to say that we fully returned to where we need to be on service. We haven't yet and we're going to continue to work hard at it to deliver the quality of services that our customers have a right to expect. But again, I think very significant improvement there. So given that progress that we've made, given some of the catch-up value-added service price increases that we've now put in place, we think we have the opportunity to build on the momentum that we began to see at the end of the fourth quarter as the restrictions and limitations that we had put on ourselves during the implementation of the new billing system begin to fall away that we will be able to utilize that to build some further momentum and as a result of that, we feel good about where we are with respect to our wireless business. We believe that we are well positioned for 2005, particularly as fewer and fewer of those constraints that we've had to impose as a result of the billing implementation fall away.

On DSL pretty steady progress throughout the year. We had at the outset of the year set the goal of matching our net adds the same level of net adds that we had in 2003, to all intents and purposes I think we accomplished that with 350,000, tiny bit short, I think 8,000 fewer than 2003 but to all intents and purposes achieved what we wanted to achieve. As a result of that work 20 percent increase on our ISP revenue, certainly respectable. In the quarter our net adds surpassed last year better, up relative to last year by just under 6 percent. And that performance certainly better on a quarter-over-quarter basis than we saw in Q3, and that certainly a welcome improvement in our performance there.

I must say, though, in Ontario there is no doubt we faced some very aggressive competition with Roger's decision to lower prices with their 1995 68 kilobit ultralight product. And I do think that that had some impact on limiting our net adds there. But overall I would say as I look back on both the fourth-quarter and the year reasonably good progress with respect to adds performance. But as we said before, DSL is not just about growing subscribers, although that is obviously a very important part of the puzzle, its also about growing the value that we deliver over that broadband connection, and I think on that score very good progress.

Sales of over 330,000 value-added services in '04, 171,000 of those in Q4 alone. I believe that is the biggest quarter that we've ever had with respect to sales of value-added services on DSL. Significant part of that we're pleased to see this significant part of that 80,000 sales of MSN premium as that product gets more and more traction in the consumer market. Sympatico MSN our joint portal with Microsoft continues to lead everyone else, reaching I think about 16 million unique visitors monthly and our portal revenues overall up 50 percent for the year. So again, pretty good progress there.

Overall, always room to improve, always room to be better. But I think a reasonable year in terms of our performance on DSL. On video, video I think quite strong. Reached important milestone of 1.5 million subscribers thanks to a 23 percent increase in net adds in Q4, and almost 40 percent for the year. Having said that, I am especially pleased here by the kind of step-by-step steady improvement that we're seeing in the fundamentals of the business in terms of ARPU, churn, COA, all improving all across the board. Q4 first quarter that we began to see the positive impact of the very important agreement, new agreement with EchoStar that will help us with respect to the cost of set-top boxes and all of that, I think augers well for 2005.

On VDSL similar story, surpassed our target of 300 buildings, hit 335. We're now beginning to see I think encouraging improvement, encouraging step up in our subscriber acquisitions. More than doubling our performance in the third quarter. So overall on video, overall I believe that business is building some very good momentum and real, real traction in the consumer marketplace. I think we're making good progress on service levels and have throughout the year where we've overcome some issues, and I think we're performing better and will continue to stay very focused on that.

So once again, consistent theme I think we're very well positioned as we head into 2005 with respect to video performance, and I might say all of that being accomplished before we even begin the rollout of IP VPN which I believe is a product that will have a substantial, substantial amount of traction and a substantial impact on the video distribution business in Canada overall.

Let me turn to the business markets now. Here I want to basically take this two pieces, make two, address two basic points here. First, the underlying performance of the business, the business fundamentals if I can put it that way where we believe we are making very solid progress and have throughout 2004, and it gives us a pretty clear line of sight to our goals for 2005, that is the first. And then second, the specific question of the reported operating income performance in Q4, let me deal with the second of those first, the specific Q4 issue. So what drove an 8 percent decline in operating income?

Basically three things. First, the termination of the Hydro Québec contract in 2003; now we've talked to you about this all year. But it's important and particularly important in this quarter because it had its biggest impact in Q4 relative to every other quarter. In fact, more impact in the fourth quarter than it had in all three previous quarters combined. But that is done now. That is behind us, and that will not affect our numbers in 2005.

Second, back to wireless billing, about a third of that 45 million shows up in our business market numbers, and therefore that, too, is a component of an explanation. And then number three we did through the course of the fourth quarter make a very concerted effort in terms of increased training, preparation time, etc. to ensure that a number of our people, a great many of our people were in a position to be able to get their job done in a different way, in a more efficient way after the labor force restructuring so that we can continue to perform at a high-level through the course of 2005, and that did drag some incremental cost with it as well. But that, too, is essentially completed and behind us.

Now, let me be clear about this. Numbers are numbers, period. So these items that I have talked about I think about them as speed bumps, but they're real speed bumps, and I don't diminish that. The point I am trying to make here though, is that I believe is they obscure more than they reveal about the underlying trajectory of the business. But just to illustrate here, if you take those three factors out our operating profitability would have improved more in the double-digit range. Now I say that only because that range, that double-digit range of improvement is a lot closer to the underlying trajectory of the business, and it is much more consistent with the kind of trendline that we've seen throughout the year. And I believe that trendline of our performance on operating profitability is much more consistent with what is really going on in this area of our business.

On that, with respect to underlying trajectory, again I think real progress, in enterprise value-added services were up I think about 30 percent. Now they represent roughly about 20 percent of our enterprise revenues, our IP connectivity continues to move very, very well, grew by 36 percent in the fourth quarter. If you take IP connectivity and value-added services together as part of the new business that we're trying to build that has grown as a percentage of revenues to 22 percent of revenues in the business market, in the enterprise market in 2003 to 43 percent. This year again reflective of the significant changes that we are trying to achieve in the overall revenue structure of the business. So good and solid progress there. I think very solid progress on the customer front, winning important new contracts. We have talked about Manulife in the past. We have now as you have seen recently agreed with the Bank of Montreal to convert 1100 branches to IP VPN. That, along with work at IBM, Desjardins, the University of Québec in (indiscernible), UCOM being an interesting case of moving to a fully converged IP network, all of that reflective of what we believe is more and more acceleration in the move of large enterprises and public institutions to IP. And I must say we believe we are winning in that space, and I think I am very comfortable in telling you I think we believe that we are winning decisively in that space.

Small and medium, again solid progress both in terms of revenue performance up over 5 percent in the quarter, EBITDA the same thing, up over 6 percent. Some of the small acquisitions we made performing very well, very good work underway on cross selling. VCIO (ph) revenues are up substantially, up about 30 percent, 20 percent for the year. If you add in Nexxlink to that story again I think we see real tangible momentum in that, in the small and medium business market heading into 2005.

Now just a word on Globemedia and Telesat both of whom I think had stroke quarters and very strong years. Globemedia revenues grew 8 percent, largely driven by the strength of advertising and a lot of that in conventional TV although we also saw a nice step up in print advertising activity. But on conventional TV the management team at Globemedia again has done a very outstanding job here through the fall season, 16 of 20 of the top programs the winter season, 18 of 20 so far. And that kind of ratings performance leadership at BGM (ph) I think has been very successful in converting that kind of ratings performance into advertising dollars and enhance the strength of the performance that you see there.

I might say overall, that if you stand back at Globemedia and think that in 2001 the EBITDA margin of that business was roughly around 9 or 10 percent and at the end of '04 it was around 22 percent, it is really a dramatic story of improvement in that area of the business and hats off to the leadership of Globemedia for that kind of performance.

Telesat similarly very strong year, very, very good job by the leadership there in getting Anik F2 launched; good progress there, good operating performance. You can see the numbers there, so once again I think delivered a good quarter and a very, very good year. So with that, Siim, over to you.

Thank you, Michael and good morning everyone. Let me begin with a quick financial review of how we finished the year and how our performance measured up relative to the 2004 guidance we provided. I'd say that for 2004 for the year our financial performance essentially lined up pretty solidly with the targets we conveyed to you. For revenue we told our growth rate would be similar to 2003's growth rate of 2 percent, and we came in at 2.4 percent. We achieved EBITDA growth of 2.1 percent at BCE and 1.6 percent at Bell. And we took the actions to lay the foundations for stronger levels of performance in 2005.

On EPS we said that we would grow in the mid to high single digits, and we grew EPS by 12 cents or 6.3 percent. For free cash flow we said that we would reach about $1 billion mainly from recurring sources, and in fact we achieved 1.1 billion of free cash flow before the restructuring payments made under the employee departure programs.

And finally on Bell's capital intensity we said we would be at 17 to 18 percent, and we came in at 18 percent. Overall we also delivered quite solid ROE, return on equity, of 15.2 percent for the 2004 year. Now turning to the fourth quarter we had good top line performance achieving a fourth consecutive quarter of sequential improvement in the rate of revenue growth, both for BCE and for Bell Canada. In the quarter we achieved 3.5 percent growth at BCE and 1.3 percent growth at Bell Canada, and that is our best quarter this year. The quarter's revenue growth was driven by ongoing consumer segment performance as well as another quarter of improved revenue growth in the business segment where we reached 1.3 percent business revenue growth in the quarter.

That resulted from growth in IP and (indiscernible) services in enterprise and ongoing growth in SMB. The business segment is expected to continue to add revenue growth momentum and will be a key contributor toward achieving our outlook for overall revenue growth of greater than or equal to GDP in 2005. Now these revenue gains in consumer and business, I should say more than offset the trailing impacts of the Aliant strike which led to a -4 percent revenue decline at Aliant in the quarter. EBITDA growth in the quarter of -0.9 percent at BCE and -3 percent at Bell was essentially the result of four significant impacts, which its important for me to explain to you and you can see that on slide 11.

First is the total cost associated with the wireless billing system migration that Michael referred to. This had an estimated total company EBITDA impact of 45 million in the fourth quarter and resulted from the cancellation of all Mobility late payment charges, increased customer credits, the postponement of wireless VAS price increases, lost call center efficiency and an increase in our levels of bad debt provisioning.

But as we move into 2005 we do expect that these effects will be largely behind us. Most of the customer issues are now resolved. Call volumes are coming down. Late payment charges have been reinstated and price increases have already been announced to the market this quarter. Second, a residual effect of the strike at Aliant reduced our EBITDA by about $13 million this quarter, and Aliant believes they have now addressed most of these issues and are regaining momentum in the market.

Third, from the strength of our activations in Mobility, that drove an additional $20 million of customer costs in the fourth quarter over the fourth quarter of 2003, and these activations will certainly help drive our revenue targets in 2005. Finally, EBITDA in the fourth quarter was also impacted in the business segment due to the completion of the Hydro Quebec contract which has impacted our results throughout the year and higher operating costs as Michael referred to, associated with the employee training and other preparations required to realign the organization to the workforce reductions which took effect at the end of the year. Now this is the last quarter that Hydro Quebec will affect our year-over-year growth rates and our workforce migration initiatives are now substantially completed.

It is worth noting on this slide before I leave it that our operations drove a positive EBITDA contribution of 3 percent growth for the quarter before all of those impacts which total about $100 million. For the quarter we achieved EPS growth of 3 cents or 7 percent, slide 11 summarizes the various factors making up that 3 cents of growth from 42 cents of EPS in the fourth quarter of 2003, to 45 cents of EPS this past quarter. Our EBITDA performance led to a 2 cent year-over-year decline in EPS, but that was partially offset by lower interest expense from lower debt levels and that contributed a 1 cent lift in EPS.

As well you may recall that in the fourth quarter of 2003 we were hit with a onetime 4 cent EPS impact from the adjustment to our future income tax balances that resulted on the increase in the Ontario tax rate. In the quarter there is also two onetime items, and let me explain each of these. The 360 Networks acquisition resulted in the recognition of an extraordinary gain of about $69 million. That occurs because the fair value of the assets that we acquired including the value of the tax losses exceeded the purchase price, and that's unusual in accounting. When that happens the accounting rules require us to eliminate that excess first by reducing the value of the tangible assets of the company to zero, and then recognizing the remaining balance as an extraordinary gain.

At Aliant last week as they announced they took a restructuring charge relating to their voluntary early retirement program, where I think 693 employees or about 8 percent of their total workforce has now accepted. On a net basis those two items had no impact on EPS as they essentially offset each other. We will now turn to free cash flow, which before restructuring payments for the year exceeded our target of $1 billion coming in at $1,092,000,000 with most of that now being generated from recurring cash flows. We did incur restructuring payments in the fourth quarter of $194 million. That represents the cash that we paid to employees leaving the company prior to year end under our departure programs.

Recurring free cash flow for the year was $838 million reflecting a $58 million increase over 2003. That increase was essentially driven by strong operating performance, which offset the increase in year-over-year capital spending. Our capital spending of 3.36 billion for the year was about 6 percent higher than in 2003. We talked about that on December 15th. It reflects the increased spending on the strategic initiatives that we reviewed, including capital spending on Galileo, growth initiatives and a number of cost efficiency opportunities. So with strong free cash flow generation we were able to significantly reduce our net debt by over $600 million in the year in reducing our net debt ratio to 42.8 percent, which is a 1.2 percentage point improvement over last year. \ Now on the last slide looking ahead for our business we certainly do believe 2005 will be a pivotal year where we will begin to see the benefits of all the groundwork that we put in place in 2004 for the strategic repositioning of Bell. In 2005 we will have stronger growth, a more efficient cost structure, expanded reach and spead in our broadband and wireless services and applications and an intense focus on customer innovation. BCE and Bell will be stronger in terms of competitive positioning, improved financial performance and continued growth in returns.

We provided our 2005 financial guidance to you on December 15th, and that outlook is unchanged. Now let me make a few more specific comments on what we see for the first quarter in particular. I think as we move into 2005 the outlook for our business unit is strengthening. Consumers growth will be supported by the price increases we announced this quarter in both video and wireless. The reintroduction of Mobility late payment charges, and I would say the ability of many of our call centers to focus more significantly now on sales again.

In business Hydro Quebec will be out of our limbers, and growth from new services and acquisitions will continue to support progress both in SMB and enterprise. So with that and with Aliant's operations returning to normal after the strike, we expect to deliver a quarter of meaningful sequential improvement in revenue growth for the first quarter of 2005.

And on EBITDA, many of the pressures I explained for the fourth quarter will be behind us. In addition, under our restructuring programs both the 5,000 employees have now left the company as of the end of December, and this will provide a strong boost to productivity beginning this first quarter. So we do expect BCE and Bell Canada to generate good positive EBITDA and operating income growth this first quarter, and our performance should be well aligned I say to the parameters of our overall financial guidance targets for the year. So with that I will turn the call back to you, Bernard.

Thanks, Siim. We would now like to move to Q&A. Please restrict yourself to one question so that we can answer rapidly and hopefully get to everybody. So operator, would you just remind everybody of the logistics of placing a question, and then we will move to the first question in the queue.

(OPERATOR INSTRUCTIONS) Vince Valentini of TD Newcrest.

Thanks very much. You guys have made a lot of adjustments with these numbers, I am wondering if you can make one more. The Bell Canada revenue growth for the quarter is staying at 1.3 percent. Can you tell us what the organic number would be if you strip out the 4, 5 acquisitions, 360, DownEast, Charon, Elix and Accutel?

Yes I can. For the fourth quarter with the 360 transaction closed and really taking in all of the acquisitions for the year that we've undertaken, that 1.3 percent revenue growth would be more or less flat growth for the year.

Okay. If I can sneak one more. The NASDAQ decline of 57,000 in Q4 was quite a bit above last year. Are there any notable items in there about a onetime nature, or anything in the market you can point to?

No, no in fact we look at that in terms of the mass performance across the year as having been reasonably steady; we don't see anything remarkable there or any significant changes in a pretty stable thing there, so nothing in particular, no.

Okay thanks.

Greg MacDonald National Bank Financial.

The question is on the video side, and it is in reference to the express (indiscernible) pricing increases. I am wondering if you might give us some more insight into what your thinking was there. Is this an issue of more balance between subscriber growth and pricing increases for overall growth, or is this an issue where you're using price as a strategy to drive bundles? If you could give us some insight there and very quickly if you could comment also on what the potential magnitude of the new relationship with EchoStar on set-top boxes, what magnitude is that to potential decrease in COA?

On the price increase no, it is not necessarily strategy to direct customers to more bundle, the bundle strategy is linked with the full offering, and indeed on this one customers (inaudible) are protected from it. But there will be differences in pricing as we go from unique product purchases to bundles, no doubt. Now on this one the strategy behind it is basically to recognize that we've invested more in the business and we are making more and more investments in terms of quality, new satellite and all this over the past few months and we are recouping the investment. And as well, this is all linked with our pricing strategy we introduced in the fall. We introduced new rates that may have seemed like they were price decreases to some of you, but they weren't. In fact, when you compare the packages. And basically that rate increase is for people that have not moved to those new rates. So people that have moved to the new packages, the new team packages are not impacted by this price increase. So we think that that should support customers moving to the new (indiscernible) plan that we put in place, which are more efficient for us.

In terms of EchoStar, well I think you're seeing the result of a much improved relationship with them in terms of joint work to reduce pricing and cost of set-top boxes. And trying to leverage so the maximum similarities between the two businesses in terms of products. And I can't give you the details of it, but it is meaningful in terms of seaway (ph) for that business.

Could you say if meaningful means double-digit cost declines?

No, in terms of the set-top boxes it is very, very, very comfortably double-digits. Very, very comfortably. So it is a substantial improvement for us, and it is a piece of very good work in building and strengthening that partnership with EchoStar that as Robert Odendal (ph) who leads our video business has done and we are pleased about it, and we believe it has a very useful impact on the overall economics of our satellite business.

Thanks, I think I can interpret very very as being more than 50 percent as opposed to very being maybe less than 50 percent.

Less than 50 percent, give me a break, Greg. I've been trying to get out of the teens here and you jump to 50 percent.

(multiple speakers) just trying to (multiple speakers).

-- that kind of aggressive, back off a little here.

Just trying to read the difference between the two. Thanks very much.

It also recognizes the growth in that business that we've had in '04. And the one we think we're going to have in '05.

I am concerned about how you interpreted my very verys here, so you work your models, you can be thinking about things in the -- your strategy has succeeded in extracting a number here. Let's say something sort of the 25 to 35 zone, say.

That is an analyst trick, Michael.

I fell for it, you won this round.

Thanks very much.

Richard Talbot of RBC.

Since we got together in December there has been an important price announcement on the voice side from Videotron with a fairly big discount relative to your price. You have been trying to reflate (ph) industry revenues on the video and the wireless side. I wonder if you can comment, do you believe that this is enough of a discount that you need to move in a preemptive fashion to limit potential line erosion, or is it more likely to take a wait-and-see approach and see what the market share erosion is like?

Well, Richard, Greg having drawn me out on the previous question I know, Richard, that you don't really expect us to engage too directly in that. Let me just say that we have a plan and I learned a long time ago that when you've got a good and powerful plan you stick to your plan, so we're sticking to our plan. We will take, and we will be taking actions to respond to Videotron's activities on the south shore in Montreal, and we will do it our timetable, our way, etc. And we will let our actions that we rolled out in the market do our talking for us. So Richard, I think there I am going to leave it. And we will be pursuing these things over the coming period and then think we can perhaps regroup and have a conversation with you or with the investment community in general as time proceeds with respect to the manner in which we are trying to respond to these things. That on the one hand very much protects our competitive position but two has always a clear eye to the economics of the overall business.

If I can just follow up on that, though, I mean when you look at your pricing typically it is uniform across the geography more or less. Do you think that you can use targeted efforts without that spilling over across the broader franchise base?

Well, again, Richard, I think there are a lot of very interesting things that we can do. I think the future of telecom has a lot to do with targeting, with being very specific about your customer segment, pricing with respect to that offering features with respect to that. We are already doing some of that in various places in different ways. I think that is a broader trend in the industry. One of the reasons why we believe that building marketing capability in the telecom companies is an important priority because that is what the future is going to be about. So I think you can conclude from the thrust of my comments, Richard, how we're thinking about this. But beyond that I don't want to go too much further other than to say I just want to say there are a lot of creative things that you can do to provide value to customers in a way that they will recognize what you are doing, and that will be very much the approach we take. And we will take this a step at a time and see how the world unfolds.

Thanks very much.

Simon Flannery of Morgan Stanley.

I wanted to talk about data growth if I could, some nice sequential improvement there. Your year-over-year is only just in positive territory .8 percent but turning around from negative. As we look at the baby Bell results we see a real acceleration, and you're seeing solid business demand. But they are talking in a 6 percent, even 10 percent if you include CPE in terms of year-over-year revenue growth rates. Strikes me as there is some good upsides here building on sort of the momentum you've had in the second half. Can you talk to where this could go, your DSLs obviously continuing strong despite price competition. But is there more you can hope that this can really start to get into the mid single digits at least?

Yes, good issue, Simon. Let's take it in two pieces. First the consumer side of DSL, and then I'll turn to Isabelle and Karen in the business markets. So, Pierre, go ahead.

Well, in terms of consumer, this is still a high growth area. It is also a very competitive area, but high growth area, and the products are multiplying in terms of various speeds and various offerings in the market. As you've heard Michael say, we have seen the competition intensifying over the past quarter, particularly in the low-end side of DSL. But you have also seen our numbers which are still solid, and the investment that we've announced in terms of beefing up our network and increasing speed to enable more delivery of application and tools up to IP TV. So we're very excited about this area.

You've seen the growth in VAS also, but clearly the business is still at double-digit business growth on the consumer side. And it is right at the center of the battle for the broadband (indiscernible).

Let me quote some yearly numbers and put a bit of color, because there's a lot of activities -- there's a lot of numbers within the data numbers. So in business, the revenue -- I'm talking about year-over-year here -- declined close to 5 percent in business. But that is the place where we have all these one-timers that we talked throughout the year (indiscernible). We've talked this morning and we'll repeat what Siim and Michael have said, but we had also announced that we were exiting our electrical cabling revenue and those revenues are there. So if you include all that, you're up 2.6 percent for business.

There is two phenomenon beyond that. There is the rapid decline of legacy around 10 percent, and we know that. It is all about migration to IP and, in fact, in a way it is part of our strategy. And we are almost at 20 percent for IP growth for the whole year. So that is very, very aggressive change of mix between legacy and IP. So we are quite comfortable with those numbers. Our strategy of moving customers to IP enables us to get to cost structure reduction and all of that. So we are quite pleased with where we are. We will see more growth in 2005 when all these one-timers are behind us.

In the small-business area, we saw a nice uptick in the fourth quarter of growth, a couple points increase from the third quarter. Michael talked before about the significant improvements in our VAS business cross-selling and the amount of pull-through we are getting from Charon and we expect to get from Nexxlink is really going to help us on the data side as well. So I think just like the rest of my colleagues, I'm optimistic that this thing is moving in exactly the right direction.

Great. Thank you.

Rob Goff of Haywood.

When you look at the possibility of the business adds, say 15.3 percent and the consumer add 28.2 percent, is the gap there a structural gap? Is it a matter of revenue yield one area versus the other or is it a cost issue, one area versus the other? And where do you see that gap moving?

I guess there are a lot of different factors here that explain those differences; just trying to think about how to organize an answer for you on that one. We do believe that in the consumer market with the -- put it in margin terms -- with the margin that exists in that business that so long as we are disciplined as we are being with respect to managing the cost side of the business, and as we continue to do so that that will continue to be a very good margin business going forward. Now we are certainly going to see in that business margin pressures as we move to a world where we are a lot more focused on the delivery of in the broadest sense value-added services and the integration of those value-added services in the delivery of, sort of a fully integrated communications solution for the home, etc. We are going to -- that will be from a margin point of view, a more challenging world than the world of traditional connectivity has been. And that's one of the reasons why, as I say we are so focused on the cost side of the business.

We don't see the necessity of very substantial overall margin erosion there, and we've been working very hard over the last while from an overall corporate point of view to work to try to hold margin with respect to the Company and by being disciplined on the cost side. So we are going to continue to do that but there is no question there is a big challenge there in the business market. I think some of the same trends are in place there. And certainly we've seen in the enterprise market a lot of pressure, for instance substantial repricing of LD, and that certainly has been a factor in the profitability of the business. No question as Isabel has mentioned and talked about on previous calls that as we migrate customers to IP there are pressures there as well.

But I think what is important there, one of the major priorities we have in the Company is and that's really the essence of what Galileo is about, is trying to redesign use the phrase reengineer the internal operations of the business to be much more streamlined, significantly lower cost to allow us to live successfully. In a world where the value-added services that we will deliver in the business market be it enterprise or small and medium business are services that we like from an overall profitability point of view because of the improvement that we've made with respect to the internal cost structure of the Company. So this is I think what you've touched on is one of the fundamental trends, one of the fundamental challenges facing the business, which is finding ways to substantially change the cost side of the business that from an overall profitability point of view you can protect it going forward. And that is one of the principal things that we have. Yes, I think I would probably leave it at that.

Thank you very much, Michael.

Glen Campbell of Merrill Lynch.

I wonder if you could comment on wireless data, the trends in the quarter in terms of ARPU, how you see it shaping up for 2005 and to what extent there might be a bit of a drag on 2005 wireless ARPU from some of the targeted promotions that you're running late in the year. Thanks.

In terms of a drag in '05 from the promotion we ran in Q4 no, I don't think there was anything special in the promotion in Q4 that was similar to what was done in previous years, so I would not expect a drag there. In fact the other way. I think that we have room here to grow and to grow faster. In terms of data, it is still a strong growth. In fact in Q4 we had another increase in terms of percentage of revenue still going up every single quarter. And we are still in the range of 4 percent, 4, 5 percent and growing. And this is going to be an area of fast growth in 2005 in particular as we launch eVideo (ph) and that we think is going to accelerate substantially that trend. But still an area of growth (inaudible) in double-digit no doubt.

Okay. Thanks very much.

Jeffrey Fan of UBS.

First question is for Siim. You made some comments regarding Q1. And I guess I will just try to dig maybe a little bit deeper. It looks like the run rate of growth on EBITDA that when you exit the Q4 is just under 3 percent if you exclude a lot of the onetime items. Are you trying to say that that is the kind of rate we should be looking for as we head into 2005? And can you also comment because you haven't changed your guidance for 2005 so I am just wondering should we expect a pretty balanced performance through 2005 or continued improvement through the year? And my second question is on the wireless side, just a quick one, on the prepaid mix -- on the mix prepaid and postpaid. Do you expect to see a similar mix going forward in '05 in terms of the focus on prepaid or the success of grab and go? And also how does this conflict with, I guess Virgin's plans to launch their brand and new joint venture there in Q1? Thanks.

I will take your first question and I want to be careful here because we do not provide specific financial guidance on a quarterly basis. What I did want to say with regard to the first quarter is that a lot of those impacts that brought Bell's EBITDA down to -3 percent are obviously not going to carry forward into the first quarter of 2005. And at the same time a lot of the Galileo initiatives, the workforce reduction initiatives will begin to contribute strongly to our EBITDA performance. So we will certainly be back in a good EBITDA position in the first quarter this year.

With regard to the timing, the balancing of our performance through the quarters, you know it is certainly not a plan that is backend loaded, although many of the Galileo efficiency opportunities that we are targeting will be realized as the year progresses. And indeed into 2006. But substantially balanced performance, particularly on the revenue line for 2005 per quarter.

I will address your question on prepaid. First as Michael said clearly in Q4 the success of our grab and go offer which is a postpaid prepaid offer in fact turns out much stronger result on the prepaid said than we expected. However, that is not necessarily negative, and you know customers are customers at the end of the day, and we are making money out of them on that side (indiscernible). But you should not expect a major shift in terms of prepaid postpaid for 2005.

But I think you all know that as we go further down in the penetration there will be a bit more prepaid. But that should not change the mix that we have in the business. There may be a bit more prepaid in Q1 as we have every single year because of the Q4 offers that spill over into January. But other than that shouldn't be huge impact in the year. Secondly in terms of Virgin I think as we have said before, Virgin is not our prepaid strategy. We have other products out there. We have our own offerings, Solo (ph) is still out there. Virgin at one point we will launch in the first part of the year, and we see that there is room and opportunity to grow even faster using all these vehicles, addressing different segments or sometimes the same. So now issues as well on Virgin, no impact.

Okay thanks.

Peter Rhamey of BMO Nesbitt Burns.

Looking at the ExpressVu Michael you've talked and Pierre, you to both talked pretty positively about that business, and you lost $16 (ph) million in EBITDA in Q3, improvement in Q4. Is it fair to say that Q3 represented the trough and we should see steady performance, financial perspective going forward into '05 and beyond?

I just want to make sure we got the numbers straight, in Q3 did you say 60 or 16?

Sorry, 16.

That would be right. I thought you said 60.

No, no.

Okay, look I think the short answer to that, Peter is yes, that we are continuing to work this business, find opportunities to improve, find opportunities to improve the overall profitability of the business. If I can put it this way from an ExpressVu or a satellite perspective as we move into VDSL where we are now, as we begin to get that to the beginnings of some kind of a scale operation, it is not a scale operation yet but 335 buildings we have not provisioned them all yet. I think we are around 175 or so of that provision; we are starting to see some very interesting take rates as we provision buildings.

The expansion of VDSL business is a counter pressure from a profitability point of view in our video business. So we spoke in the past a lot about ExpressVu, and ExpressVu we do think given all the work that Pierre and Robert Odendal and others are doing there is on a track to steady improvement from a financial, from an underlying or operating profitability perspective. As we ramp up VDSL as they say that is a bit of a counter pressure but we're going to continue to manage those things and we think we can manage those things without really meaningful drags on the overall profitability of the business. That is very much our perspective if we're in the business of video for strategic purposes that is not a reason to say well, we can live with substandards or natural performance, we can't and we won't.

At the risk of pushing you further IPTV that would be a completely separate issue in that reporting entity, but --.

It would be in that reporting entity, but I don't want you to be overcome by a sense of panic in terms of working your model to incorporate the impact of IPTV in 2005 because we will be, we are working on this, and we will be beginning the process of getting this is into the market late in the year, as we said on December 15th. But the rollout of IPTV is not something that we look at in the context of 2005 as a major financial issue for us.

Excellent thanks and if I might just ask more of a quantitative question to Siim, $194 million restructuring payment in Q4. How much do you plan on expending in '05, its the remainder of the charge, how does that play out, is it all in the first quarter?

Actually it will play out over 2005 and 2006. The employees that took up the voluntary plan had the option of getting a lump sum payment on departure or getting those payments spread out under different option plans. So it will impact our cash flows predominately in 2005 but with some carryover into 2006.

Great. And do you have a sense --.

Dollar wise that is about another $100 million.

Thanks very much to both of you.

Dvai Ghose of CIBC World Markets.

Quick question for yourself or for Pierre on the wireless side again. You've obviously had some challenges with the billing system through the latter part of 2004, and that has affected your ARPU. It was (indiscernible) nonetheless to see the postpaid ARPU decline. I am wondering if you can quantify how the billing system may have affected postpaid ARPU in the quarter. And given the issues you've talked about in 2005 plus if you could address the potential launch of push to talk, where you think ARPUs can go given data and push-to-talk on the positive side, as well as your price increases but perhaps increase prepaid exposure on the negative side?

Let me try to address all of the questions. First off talk about Q4 and the impact of billing. I think from Michael's earlier comments, you can appreciate that it has an impact potentially a bigger impact than we expected and that moved into the ARPU, as well. While had stronger performance in some of the components of the wireless ARPU like data, like usage, on the other side not charging late payment charges, having to make some credits to customers because of the changes we made on billing and all this. It had a substantial impact on the ARPU. And as well our inability because of the change in the billing system to increase pricing in the year also impacted our performance with our competitors. So all in all (inaudible) what I can say is that it had a substantial impact on the ARPU, and I would think that without that impact we would be in a much better performance on that side than what you see today on paper.

And as we move into '05 and go back to normal business I think you'll see our performance going back to what it was in the previous years in terms of strength and improvement. In terms of ARPU as well through the year as you move to data, push-to-talk or other things that we're going to do including the price increase, I think you can see that the ARPU is only one way, which is going only one way which is up. And it should follow market trend at that point and move closer to our competitors or better than our competitors depending on the situations.

If I can quickly follow-up on Peter Rhamey's last question -- sorry unconnected but you talked about IPTV launch at the end of '05 as you stated before, it sounds like it's very much predicated on ADSL2+ and Impact 4 (ph) being ready for primetime. Are you confident they will be ready by the end of this year or there seems to be some uncertainty in the market.

With new technologies there is always some uncertainty but we are working very closely with Microsoft on that. We are one of the lead Telcos, and as you see larger Telcos like the RBCS jumping in like SBC in a big way, well, that reinforces our level of confidence that the technology is going to be ready on time as more weight and volume gets into play here and we will see how it goes, but more confidence as larger Telcos jump in and get the interest of the manufacturers.

Thanks very much, Pierre. Appreciate it.

John Henderson of Scotia Capital.

Question on you talked a fair bit about the onetime or unusual cost that you incurred during the quarter. I wonder if you realized any benefits from the early return savings plan in the quarter, if that could be quantified.

No, no nothing -- in fact one of the challenges that we had in the year was at this time last year we had anticipated that that downsizing program, that those voluntary departures would occur a little earlier in the year and that there would be some productivity benefit from that timetable. As it turned out given the complexity of labor negotiations etc. that we were involved in for many, many months with our technician's union that influenced timing and therefore that whole exercise got pushed later in the year so that by the time we were done that essentially those of our colleagues who had chosen to step out of the company did so in effect right at the end of the year. And there is still a few actually that will be going in January and through the course of this quarter but the VAS, VAS bulk gone by the end of the fourth quarter. And therefore that was so late in the year that there is really no financial benefit from that reflected in our productivity performance in '04.

Great. Thanks. Just a quick follow-up on depreciation. It included accelerated wireless legacy prepaid platform replacement. Wondering if that is kind of onetime or is this a new level of -- is this shorten lives and a new level of depreciation rate that we should use for forecasting.

Yes, John that is onetime; relates to the analog prepaid platform at Mobility. We had accelerated depreciation on that I think about a year or two years ago. And we wrote off the balance this quarter, which was $11 million.

Okay, great. Thank you very much.

We have time for one more question.

John Grandy with Orion Securities.

I would have to assume that it is a little frustrating for you to see Videotron launching consumer voice over IP service while you're still waiting for the CRTC, to come out with its decision. I recall that at the hearings on voice over IP last year you took the position that you did not need additional regulatory relief to offer voice over IP service that was not backed up by a network. And I also understand that you have in fact developed such a service. So my question is at point do you think you will be ready to launch consumer services using voice over IP. And I know you obviously aren't going to talk about price or anything like that, but let's assume that the CRTC takes an excessive length of time to reach its final decision. Do you think that you would consider launching in advance of a decision?

John, we do have and we are trialing on a technical basis our Internet-based telephony product in Sherbrooke. We are pleased with the progress that we're making there. We are very pleased with the quality of what we have developed, which we believe is a best in class offering of called it digital voice in terms of the robustness of the product, the richness of the feature set, the potential it offers us to bring in a whole new range of IP-based features to the home. That is a substantially differentiated -- in terms of the breadth and richness of the features -- a very different, very different kind of product. Than for instance what Videotron is doing on the south shore in Montreal, which does not I believe have the same richness of choice that we will be able to offer our customers with the kind of things that we are trialing technically now in Sherbrooke.

So with respect to the CRTC process they have work to do I guess and a job to do in assessing this. We certainly know what the global trends are. And we certainly know where the leading regulators of the world are with respect to almost a uniform perspective that voice over IP is not a product that the regulators in the leading jurisdictions of the world are deciding to regulate, in fact quite the opposite. They are going in opposite directions from that in the interest of sparking innovation, creativity, more competition etc. We continue to hope and believe that that the tower of that global trend will be a significant factor in the thinking of the regulator here.

But with respect to the timing of when we choose to do something, that is a decision that we will take. We don't regard that as necessarily directly linked to the CRTC process itself. So we have a program, and we will be taking action with respect to that program at a time that we think is appropriate. When we are comfortable with the progress we've made with respect to the product and its reliability, robustness and our ability to deliver it with the kind of customer service that the Bell brand represents.

I think that might be a lot sooner than some people are expecting.

I am not going to comment on that other than to say we have a view and we will continue to execute against our view.

Thanks a lot.

Thank you again everybody for joining us. If you have any further questions please call the Investor Relations group and we will try to answer (technical difficulty). Thank you again.

Thank you all.

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