BCE Inc (BCE) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the BCE third quarter results conference call. I would now like to turn the meeting over to Mr. Bernard le Duc. Please go ahead, Mr. Le Duc.

Thank you, Operator. Good morning, everybody. Thank you for joining us.

We will be discussing our third quarter results on this call this morning. I'm here today with Michael Sabia, our CEO, and Siim Vanaselja, our CFO, as well as Stephen Wetmore, our Corporate Performance, National Markets; Robert Odendaal from Wireless; Kevin Crull from Residential Services; Isabel Courville from Enterprise; and Karen Sheriff from SMB.

As usual, we would like to take you through the presentation of our results, using a presentation that you can find on our website, after which we will move into Q&A.

Before we start, I would like to remind you that today's call is being webcast and the archive will be available on our website. I would also remind you that today's remarks contain forward-looking statements with respect to items such as revenues, earnings, free cash flow, capital intensity and Galileo Savings.

There are risks that the actual results will differ materially from those contemplated by the forward-looking statements. For additional information on such risks, please consult BCE's 2004 AIF, dated March 2, 2005, as updated in BCE's 2005 first, second, and third quarter MDNAs, dated May 3, August 2, and November 1, 2005 respectively, all filed with the Canadian Securities Commissions and with the SEC. These forward-looking statements represent the expectations of BCE and its subsidiaries as of today, November the 2nd, 2005 and accordingly is 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 would now like to turn the call over to Michael.

Thanks, Bernard, and thanks, everyone, for joining us this morning.

With respect to the third quarter I think we are reporting a quarter today that does have a fair bit of good news in it but clearly tempered by one area where I do think we came up short. The good news is that really across the business, across both business and -- our business markets and in consumer, the growth engines continue to make I think some very steady progress and you see that reflected in our revenues.

But in the quarter, we did also take, I think, some very important tactical decisions to put the Entourage strike that we had behind us and to do so quickly and to step up the work that we have been doing on customer service. So, in other words, if I were characterizing things, in the quarter we did try to put a very clear priority on managing service issues and on building some positive momentum in what is a very important area for us. As a result of that, no doubt our EBITDA performance suffered. We'll get that behind us, we'll put that behind us as we work our way through Q4, particularly as we go into the first part of next year.

So just let me elaborate a little bit on the positive side. Revenue growth, almost 3% at Bell; 3.6% at BCE. At Bell it's the best growth quarter in the last couple of years. Really, across-the-board solid double digit subscriber growth and I think really strong and good traction of our ICT strategies in the business markets.

Galileo continued to progress and obviously in the quarter, or I guess just after, I was very pleased to be able to have convinced George Cope to join us, and along with Stephen's new and important role I think that puts us in a stronger place, as I have said, to drive revenues, to improve service, to deliver on our cost objectives, and those three things are obviously our top priorities. In a couple of minutes I'll come back and talk a little bit about where we are in our work on the asset portfolio company.

So, if those are a couple of points on the positive side, as I mentioned and just let me elaborate, the quarter did present us with some challenges in terms of operating profitability. I want to be quite clear on this. That's fundamentally for three reasons: First, the Entourage strike, as you know, ended in late July and the techs were coming back to work over the first few weeks of August. To manage that demand during the strike, we had hired about 1,000 additional people. Now, we decided to retain all of those people through to the end of September to clean up the backlog of what was almost about 50,000 orders, and to do that very fast, to get it behind us, so all of that cost us in the quarter something on the order of about $25 million or roughly the same amount that we talked to you about in the second quarter for the costs of that labor disruption.

Now, second, we also decided to invest in service with a particular focus on the operation of our call centers by putting in and dedicating more resources there, at least in the short-term. Why? To help get our customers, to get their issues escalated and solved more quickly and also to improve our performance on due dates and appointments met and important things like that. We also had significantly larger volumes of calls, particularly in residential services and certainly in Express. Roll all that investment and service together and that is about another $20 million.

Now, third, and finally, as a result of the focus that we decided to place on moving aggressively on the backlog and the related service issues, we wanted to keep a clear focus on that service priority that I have mentioned. So we decided in a few places to delay the launch of some of our Galileo programs, especially those in some of our call centers and with some -- in some areas that affect the process efficiencies that we are trying to improve in the operation of the network.

Now, as many of you know, these programs are fairly large and a bit lumpy. You either get them initiated or you don't. In the interest of keeping focused on what we wanted to accomplish in the quarter with respect to service, we did decide, as I said, to delay that and that temporarily cost about us about $34 million in the quarter.

Now, I believe, given the importance of service issues in the future of this industry and for the future of our business, that those were certainly the right decisions to make but, no doubt, they weren't ideal in terms of the short-term profitability of the Company.

Now, final point on this, and again, I want to be very clear here. I'm offering these three reasons, these three decisions that we took, I offer them as explanations, not as excuses, because there aren't excuses and there won't be any. EBITDA in the quarter, our performance there is certainly not at a level that I'm satisfied with and that is one of the reasons why we continue to find opportunities to expand our cost reduction efforts so that we are able to better absorb this kind of situation than we have been in the past, and being able to do that is a very important goal for us going forward.

So, overall, just to wrap up my introductory comments, overall I would say that the basic plans and directions of the Company continue to move forward. We got a little bit of catchup to do, given the decisions we made in the quarter, which we will do in the current quarter and into next year, where we continue to be very confident about our savings target for the year of 5 to $600 million and next year's target of 1 billion to 1.5 billion.

Let me just quickly now touch on some of the operating areas of the business. On Wireless, I think we continued to see some progress there. I think solid growth in our gross adds that were up about 27%. Balance shifted there, about 68% of those gross adds in post paid, down a little bit from second quarter, so we've got a little bit of work to continue to do there. Our net adds are up about 13%, driven largely -- and Rob can elaborate on this in the Q&A -- difference -- that difference driven, between the gross and the net, driven by a slight uptick in churn from Q2.

Now, I mention the gross adds number because we continue to be increasingly focused on that because it is one of the best routes we have to achieving a fundamental goal that we have for the Wireless business, and that is finding ways to strengthen the ARPU performance of our Wireless company and as a result, therefore, accelerate its overall financial performance. And that is a center piece of what we are trying to accomplish.

Now, you see in this quarter a dollar increase on a year-over-year basis. Sequentially, if you go back to the first quarter we're up about $5. So progress there. But we need to continue to improve the mix of our customer base and that is why the focus on gross adds, to improve that -- the mix of our customer base, particularly those under the Bell brand, to move to higher ARPU subscribers. And as you know, we have a great many initiatives underway to deliver that goal.

First, different kinds of hand sets. Changes in rate plans to attract heavier users. A lot more emphasis on business users. Our SMB Wireless revenues were up I think about 15%, Enterprise up over 20%. Good progress on RIM. 10-4 continues to perform very well for us overall. Our data revenues were up 62%. And you saw yesterday the launch of -- or the day before, excuse me -- of EVDO, which, again, is an important platform for us in ramping up data growth and ramping up ARPU. And we continue to perform very well in terms of expansion in the West and western subscribers do carry meaningfully higher ARPU, about $8 higher.

So, all of those initiative contribute to achieving that goal, which is quite important for us. I might say that within the quarter on a month over month basis, we have seen a very good trend, particularly with respect to post-paid ARPU ,which was at around $62 in July but up over $64.50 in September. So, we have got more work to do but we do see signs of pretty reasonable -- pretty reasonable progress that will help us build some more solid foundations for the -- for our Wireless business.

Now, that being said, those valuable customers do come and do attract somewhat higher COA and it is up in the quarter about 13%. That cost us a couple of points of margin, came in at around 44%. That is about a 1.4 points below Q3 of last year but it is up 1.6 points sequentially. Nonetheless, despite all of that, overall our EBITDA was up 9% and that despite the 27% increase in gross adds. So not bad on that side.

Quickly turning to Video and our ISPs. Video: not a great deal to say here other than it was a very good quarter. In fact, I think the best Q3 in the last four years, with our net adds up very strongly. So far this year we've added about 174,000 video subscribers, so quite good performance there, against -- just by way of comparison -- against our NAS losses to cable of about 104,000. So good performance there.

Revenues up 18% reflecting both the growth itself and the steady improvement in ARPU that we are trying to accomplish there as well. COA down 34%. That is a very important contributing element to the operating profitability of the quarter -- of the Video business, excuse me. So overall, again, I think on Video, pretty much a textbook quarter.

On the ISP, I think a reasonably solid quarter in the ISP but a very, very competitive environment. A lot of competitive intensity out there. Not withstanding that, our net adds were up about 26% or 106,000 for a total number of about 2.1 million subscribers. As I say, that continues to be a very competitive pricing environment. Certainly we are facing a number of very low priced bundles in the Quebec market and we did see in the Ontario market, around back-to-school, our competitor, Rogers, in that market being quite aggressive with respect to back-to-school promotions.

But I should say, on a related point, that we were very pleased to see Rogers move in October to bring their 256 product up to 384 kilobytes and to increase prices $5 on that. We will match that along with some other changes that we are planning to make on some of our entry level products in Ontario.

So those lower end offers, I think they are having meaningful impact in stimulating the market, albeit at the low end, and coming out of that we are working hard on our mix and I think, again, having some pretty good progress where this quarter, 57% of our gross adds were at [inaudible] and that is good and augers well for ARPU performance going forward. And we've also had in our call centers a lot of success in upgrading customers from lower end products to higher speed products. I think we increased upgrades in the quarter about 42%.

So all of that's similar, the same focus that we have in Wireless on ARPU, it's also the same kind of idea we have on Video and the ISP, that driving ARPU is very central to what we are trying to accomplish and we think we are making some pretty reasonable progress in doing that, but clearly, we've got more to do and we think there is more opportunity to continue to improve that.

A little more broadly on Residential or Consumer and our multiproduct plan. No surprise here, with NAS erosion stepping up in the third quarter in our Residential business about 3.5%. That is pretty much in line with our expectation and I think no surprise here, in terms of how we are attempting to manage and meet this development in the marketplace. First, we continue to focus on ramping up our 2-plus and 3-plus households. 2-plus a quarter I think is now about 59% of the base and we expect that it should reach 60% or so in the fourth quarter and we are continuing to find that households with either Simpatico or Expressview continue to account for a quite small portion of our losses.

Second, we continue to ramp up our efforts to retain high value customers, because remember, the issue here is not avoiding all losses of customers. There is going to be NAS erosion. That's an inevitability. The challenge for us is to retain the right customers and we are doing that through a variety of different ways and Kevin can elaborate on this, but certainly our focus is on more and more specialized level of services for higher value customers. New products like Bell Digital Voice that we think are exciting and interesting products in bringing the reliability of the PSTN and combining it with the functionality of IP, we think that can be a very important retention tool for us going forward.

And third, in terms of our overall response to this, and obviously quite fundamentally, we have to continue to work hard and remake the cost structure of our Residential business and in particular our legacy wire line business, which continues to be a big priority and a center piece of what Galileo is about.

That being said, now that some of those issues that I talked about in the third quarter with respect to service issues and backlog et cetera are behind us, we are ramping up and have ramped up the Galileo initiatives that we'd held back on a little bit in the third quarter. Just a few examples, we'll be ramping up and accelerating the rollout of one bill today -- I think we've got 1.4 million customers on it, by the end of the year it'll be over 2 million. By the end of next year, about 8 million. Significant savings there potentially available to us of about 100 million. All our work on a completely redesigned Bell.ca is done and we will be rolling that out in the month of November. Potentially significant savings there, in terms of what it costs us to activate either a Mobility customer, an ISP customer, or an Expressview customer. So that, too, is an important new and I think very attractive channel to market.

And some final ones, we have done a lot of work on the IT side for the tools that we need to really get to a more effective restructuring of our call centers to simplify service to our customers and to reduce costs. That has the potential of another couple hundred million dollars of savings there on an annual basis.

I throw those out, just as a few examples of the potential we have and the opportunity we have to continue to reduce costs and therefore better adapt to the overall profitability challenges associated with NAS erosion.

Now, all that being said, clearly our savings performance in the third quarter, no matter how legitimate the reasons are with respect to service and the other priorities that I touched on, is not everything that it could or perhaps should have been and hence, you see about a 7% reduction in EBITDA in that segment in the quarter.

Just move quickly to our business markets. Revenue performance continues to improve. I think it is the fifth consecutive quarter. The very largest majority of that is organic growth. Biggest drivers of that growth, Wireless, up about 18% or so. And our ICT product offerings up about 40% in the quarter. So good progress there.

Enterprise continues to be a very challenging market, but Isabel and her team continue to be pretty successful in holding share in what is a declining and very competitive connectivity market for just that side of the Enterprise business. But again, very solid progress on the ICT product offerings that Isabel has developed, all of which -- or were up generally about 22% and an increasing penetration among our largest customers, so that is a good sign as well. Our IPVPN migrations continue to ramp up. Some significant wins, which Isabel can elaborate on, in the quarter.

Good progress on the service side there, as we expand what we call our service promise to over 400 of our sort of middle sized Enterprise customers. A couple hundred more will be brought into that in the coming months. Again, I think good solid improvement on our service level. There's more to do, but good solid improvement.

Small and medium business, I think very good performance. One of the best quarters yet. Very good performance in Wireless and Data. More -- far more than offsets declines in LD and Local. I think overall our revenue growth in SMB was something on the order of 7%, so quite good.

I might say, too, that in all of the new areas of small and medium business, the non-legacy services, we do appear to be growing faster than the market in virtually every case, which is positive and important for us. Continued good discipline on the cost side in SMB and therefore you see quite solid EBITDA growth of something over 4% in the quarter. Overall I think Karen's strategy, and she can elaborate, is getting pretty good traction.

Overall across Business markets in general, both Enterprise and SMB, EBITDA was up, positive for the -- for the quarter, although clearly Enterprise was a bit softer. Largely due to some timing issues and again, Isabel can touch on that.

But on a year-to-date basis, Business EBITDA is up a little over 3.5% so pretty good and the operating income decline that you see there was really driven exclusively by amortization and especially pension expense issues, which maybe Siim can talk about.

Very briefly, on BGM and Telesat, again, I'll be very quick here, very good quarter as the story remains much the same for both. BGM, strong. Strong advertising performance because of the strength of schedule. Good expense discipline. So a nice step up in operating income. Telesat, again, pretty good revenue performance. Yes, quite good revenue performance. Especially if they ramp up some of their new products, some of the focus that they're putting on end-to-end data services continues to grow. So all of that I think, very sound and very positive performance from those two companies.

Just before I turn this over to Siim, let me just make a few comments on the work that we are doing with respect to the asset portfolio of the Company. Now, the fact is, we were just at the point of launching a significant income trust for a relatively large number of our rural lines when the government announced an apparent change in its tax policy with respect to trusts. Since then we have been working and having discussions with Ottawa and reassessing our options. I should say, as a company we very much respect the government's right to set rules with respect to tax policy. I mean, that's what they to. But in this case we do believe that they need to get on it -- to get on with it and to set the rules. The kind of uncertainty that exists today I think is in no one's interest.

So we'll continue to monitor this situation a bit with the hope that either later this year or perhaps more likely in the January time frame, the approach that is going to be taken here will start becoming much clearer. That being said, no one can wait forever and we're not going to. We're going to continue to work on this initiative and in doing so and in terms of the actions that we take we will ensure that we keep the flexibility we need to deliver the maximum benefit to our shareholders, whatever the government's rules ends up being. So this continues to be a priority and we continue to work hard on it.

In addition to that, we are also continuing to advance and I think make solid progress on some other initiatives that can also help bring some more focus to the overall BCE portfolio. So this whole area remains a very high priority for action for us and we will continue to work on that and get to a place where we will be able to talk about that with our shareholders.

So let me leave it there and Siim, turn it over to you.

Thank you, Michael, and good morning, everyone.

Starting on a financial review, I think we achieved pretty solid revenue performance this quarter, with BCE growth at 3.6% and Bell's revenue growth at 2.9%. Wireless, Data, and Video all contributed significantly to our topline growth and Video performance I would say was particularly strong, posting 18% revenue growth this quarter.

The growth services represented 44% of the total revenue base of Bell at the end of the third quarter and that keeps us well on track to meet our target for the year of 45% as the revenue mix of the Company continues to be transformed.

Revenues declined in Local, LD, and legacy Data services, with that reflecting NAS erosion and competitive pricing. I would say that overall the NAS erosion of 2.5% in the quarter for the Company as a whole is very much in line with our expectations.

As Michael mentioned, the increased spending in the quarter due to the Entourage strike and to address customer service issues, with that our overall revenue growth did not translate to growth at either the EBITDA or the earnings level.

Statutory EPS of $0.48 this quarter included an impact of about $0.02 from restructuring charges for employee departures and the rationalization of real estate facilities. Therefore, EPS before gains and losses on investments and restructurings, which is what we track for guidance comparison, was $0.50 this quarter and that is about $0.02 lower than for the third quarter of last year with that cline being attributable to the lower EBITDA coupled with the increased pension and amortization expense and somewhat offset by tax savings from the various loss monetization programs that we have in place.

Clearly, we're not satisfied with that level of EBITDA in earnings performance. However, I think the investments that we have made in service was important. We have substantially resolved our backlog of orders following the Entourage strike. We have redesigned our capacity planning model for field work to improve efficiency. And we have built a faster call center escalation process to ensure customer issues are dealt with more promptly. So with the strike behind us and these improvement initiatives well underway, cost reductions will accelerate.

Let me define more exactly why our operating costs were higher this quarter and why I said our efficiency initiatives will now accelerate, and I will just detail a little bit to what Michael added earlier. As you can see on Slide 11, the Galileo initiatives delivered $111 million in cost reduction this quarter bringing total year-to-date cost savings to 353 million. The Galileo program is overall progressing well, with the main drivers of savings still being labor reductions from the 5,000 head count departures at the end of last year. Other initiatives such as the one bill program and Bell.ca are now beginning to be deployed. Similarly, the call center consolidation initiative in the consumer segment which had been delayed during the strike has fully resumed. So with all of these and other initiatives geared up, we will see a good ramp up in efficiency savings going forward.

Now, Michael said that the EBITDA pressures this quarter related to three key decisions that we took to ensure future labor flexibility and to improve overall customer service levels. Let me just detail those a touch more.

First, the 25 million impact in the quarter related to the Entourage strike included both the maintenance of service during the strike period as well as the cost to reduce the backlog once the technicians started to return to work. The strike did increase our provisioning repair times and impacted consumer wire line and DSL business this quarter and that spilled over a bit into the SMB segment as well. After the strike we also maintained high levels of staffing to help work through the backlog, which we were able to address within about six weeks of the union starting to return to work.

Secondly we incurred the $20 million in costs this quarter to improve customer service, quite independent of any labor disruption. So for example, we implemented special teams in wireline and Sympatico to proactively call customers or confirm or reschedule appointments.

Thirdly, while dealing with the strike and investing in service we had to defer some of the cost savings initiatives which caused an estimated $34 million of delays in cash cost savings this quarter relative to our plan, and that included a delay in the consumer Galileo initiative to drive efficiencies through call center consolidation. As well, we planned on reducing back fill relating to the employee reduction program from last year in the third quarter, and other improvements in spans of control. These also were delayed. And finally, part of the cost savings targeted in business Galileo from COGS and network optimization, also had to be pushed out temporarily.

I should say that we are also currently moving forward in a number of new opportunities to evaluate further cost saving programs. As some of you are aware, we've launched a significant procurement initiative in Bell, and that is targeted at the 8.5 billion of annual external spend and combined Op Ex and Cap Ex. This initiative is being led by Tim Houghton, Bell's chief sourcing executive, who recently joined us from BellSouth, where he spearheaded a similar initiative. And our focus here is going to be to drive down the cost base through purchase price improvements, consumption controls, redesigning our end-to-end supply chain, centralizing it and minimizing our materials inventory by -- and by reducing costs associated with the 20 million or so square feet of real estate that Bell has across Canada.

So overall, I would say that with the strike behind us, Galileo initiatives ramping up as we move into Q4 and certainly more so, even, in 2006, and with the opportunities we see in procurement, we continue to remain very much on track to achieve our target run rate savings.

Now, as I've said in previous quarters, we also saw further erosion of our high margin legacy services. That was offset in part by EBITDA gains from our growth businesses. The net EBITDA impact from the change in revenue mix was about $43 million this quarter. We also incurred a further $47 million this quarter in higher cost of acquisition relating to the increased subscriber additions year-over-year, and then there was the $14 million impact in the quarter from the CDN decision.

Let me turn to free cash flow, which was 344 million for the quarter and $320 million on a year-to-date basis.

To date, EBITDA growth in working capital improvements contributed 155 million or so of the year-to-date free cash flow growth over last year. This is offset, however, by about $300 million year-to-date higher Cap Ex spending and over $500 million of other items I think you are aware of, including Telesat insurance proceeds and MTS settlement proceeds received in 2004, and from a cash point of view the restructuring payments that we made early in the first quarter this year.

Capital investment for the quarter continued at a high pace. Capital intensity at Bell was 20% for the quarter and 18.7% on a year-to-date basis, reflecting the pretty good progress that we are making on bandwidth expansion and other strategic priorities.

As I said last quarter, though, we are investing a more significant portion of our capital spending earlier in the year relative to last year, where we spent approximately one third of our total capital in the fourth quarter. This year we've already completed approximately 80% of our spend by the end of the third quarter, so we will be well within our capital intensity guidance of 18 to 19% of revenues, most likely toward the lower end of that range.

We expect free cash flow in the fourth quarter to benefit from improved EBITDA growth, significantly reduce capital expense, as I've mentioned, and as well, some seasonal adjustments in working capital.

So looking forward for the remainder of the year, I would say that we are focused on three key areas: First, to deliver our financial targets and create the appropriate runway for 2006. And that entails accelerating reductions in both operating expenses and Cap Ex. Second, a continued focus on operational priorities at the business unit level. Wireless to continue to improve its key metrics, especially ARPU; Residential to continue to drive its multiproduct household strategy in the most efficient and cost-friendly way; and Business to continue to drive penetration levels of IP and VAS services. Thirdly we will continue to pursue the various initiatives in our asset review program, with the goal of being able to report progress in the near- term.

Lastly, in terms of our financial outlook for 2005, as I mentioned, we expect capital spending to be significantly lower in the fourth quarter and therefore capital intensity for the year to be at the lower end of our guidance range. At the same time, given the decisions that we have made on service restoration and improvement this quarter, we expect EPS and free cash flow for the year to also come in towards the lower end of that financial guidance. That said, we are confirming our guidance for the full 2005 year.

And with that, I'll hand the call back to Bernard.

Thanks, Siim. We'd like to now move into Q and A. So, as always, I'd ask you to try to restrict yourselves to just one question. We'll try to answer rapidly and make sure that we cover everybody off. So, Operator, could you please remind us of the logistics for placing a question and then move to the first person in the queue.

Thank you. [OPERATOR INSTRUCTIONS] The first question is from Vince Valentini of TD Newcrest. Please go ahead.

Thanks very much. First of all, let me just say I am glad to hear you not call these things excuses for this quarter, but more just things you need to address.

The question's on the dividend policy and rate going forward. Given that you seem pretty confident there is a lot of timing issues and you should see a nice bounce back in cost savings as well as free cash flow in the fourth quarter, Michael, can you comment at all on the outlook for the dividend? A lot of us were surprised you increased it as much as 10% last year. The indication at that time was it wasn't a one-time event, you wanted to make this a steady state thing with the increases pretty much every year. Doesn't look like the current earnings based on your free cash flow or your payout ratio, I should say, would allow for a dividend increase again this year. Can you comment on what you are thinking right now?

And as a follow-up to that, if the government does lower dividend tax rates as part of their review of income trusts, would the Board give any consideration to bumping up the dividend payout ratio in your opinion? Thanks.

Thanks, Vince. That is probably 10-12 questions in there, so let me just try to knock some of them off. Because I just want to be clear about some things.

First, yes, we have confidence with respect to the fourth quarter, but let me be clear: I said I think on a couple of occasions that in terms of the decisions that we had taken through the third quarter, that our quote unquote catchup there would be across the fourth quarter and as we move into next year. So it's not -- I don't want to leave you with the impression that there is an immediate snapback on a dollar for dollar basis in the fourth quarter. We do see improvement there. But I think you will also see that flowing into the first part of next year. That wasn't one of your questions, but it was sort of a premise and I thought I should clarify.

With respect to the dividend itself, yes, we did increase the dividend, obviously, as we announced it last December. I think, as I recall, that was the first dividend increase in ten years. I don't think that we implied that that was going to be an annual event, but I think we did convey that once a decade was not our view of what a dividend program for the Company would look like. So, again, I just want to clarify, I don't think we implied that it would be something like an annual event, but we will continue to look at opportunities, not just with respect to the dividend, but other ways of returning value to shareholders and clearly that is a high priority for us and one of the things that we are -- one of the reasons, in addition to just the inherent value of focus, one of the reasons why we are working as hard as we are with respect to some of the portfolio issues that we have.

So we are always thinking about ways in which we can further the interests of shareholders, either by dividend route or other things that we can do and we are certainly focused on some of those other things right now and it seems that we hope to be in a position in the not too distant future to be able to do something about that.

And then with respect to overall government policy, it is a very hypothetical question about what is going to happen and what is going to happen to the dividend tax credit and the overall tax treatment of dividends. I think there is still a fair bit of work being done by my former colleagues in the Department of Finance on that issue.

So, we'll have to wait and see, Vince, where they come down and what implications that will have. Other than that, and I don't want to comment on it.

Okay. Thanks.

Thank you.

Thank you. The following question is from Greg MacDonald of National Bank Financial. Please go ahead.

Thanks. Good morning, guys.

My question is on the Galileo project as it relates the potential to IP migration. And I wonder, or I'm assuming that you saw the Dow Jones article focusing on this issue, suggesting that perhaps the 1 to 1.5 billion is maybe only really achievable at the low end, and that is related to delays in IT migration, particularly on the Enterprise side of the business. Can you confirm or deny, can you talk a little bit about that, what the challenges are there and what you are seeing.

And if you could comment also, if things don't go your way, exactly as you want them on the cost initiatives that you are looking at, i.e., if you do end up coming in more at the low end and things get worse on access line erosion than what you are currently experiencing, can you comment on whether there is an opportunity to pull further costs out of the business through a lowering of the employee base. Thanks.

So, what I'm going to do, Greg, just in answering that, I'm going to first turn to Isabel to talk a little bit more generally about IP migration and the progress we are making there, and then to Siim with respect to the cost implications of all of that and the cost opportunity that we think we have. Isabel?

Greg, this is Isabel speaking. On IP migration we are having a lot of traction in the marketplace. I think the majority of our high end customers are either migrating to IP or planning to do so in the near future. We added 20 customers a quarter, we're at 133 of our high end customer on IPVPN and we announced it in the quarter. But the financial institution share group Megatrade that is now moving IP in CIBC for their ADM network.

So in terms of the number of lines being on the voice side or on the data side, we are extremely satisfied by the success that we have on IP migration. It is going at the speed we have planned for, so there is no delay there. And I'll let Siim comment on the cost impact of all of that.

Yes. Greg, the first thing to point out is that our Galileo cost savings initiatives are certainly much broader than just IP migration. When we look at the immediate term opportunities in the fourth quarter, for example, one of the most significant opportunities is to reduce the back fill of contractors that we have and to improve the spans of control in the work force across the country. But when you look -- at I'll start with Business Galileo and then talk about Consumer Galileo -- Business Galileo, a lot of work being done to rationalize some of the product suites in the business side. Improved efficiencies in the order management functions. There are net optimization opportunities in COGS initiatives and in the network, where we are introducing much simpler internal provisioning that should lower repair times.

Settlements is a big area within our Galileo initiatives. How we manage with other carriers to minimize our settlements costs. In the West, it is about moving more of our traffic on to Bell's own platforms. So that is a little bit on the Business side.

On the Consumer side, we have talked about these and they are as significant if not more significant than the opportunities on the business side, but billing, there is 3 to 4 million billings per month that we produce and by being able to move to a one bill structure we should be able to save something in the order of $2 per bill and we will begin to see some of that savings next quarter.

On contact centers, a whole transformation initiative going on there, where we are consolidating call centers, restructuring the way operations are set up there. I think when you look at the entire Galileo program there is probably over $200 million of opportunity in call center transformation and that would include work load reduction as we are able to eliminate calls. And some of these initiatives are tied together. So as we reduce the number of billings through the one bill platform, that is going enable us to take calls out of the contact centers.

And then the last one I'll just mention, on Bell.ca, increasing our activations, which I think at the end of last year were about 1% of channels through the Bell.ca call center. We are targeting to bring that up to the 3 to 5% level in 2005 and the type of savings there for mobility customers is probably $40. Sympatico about the same. At Expressview, could be closer to double that amount in savings.

So we've got very good visibility into this and as I said on the call, notwithstanding the decisions we made to spend on customer service in the quarter, we will deliver the Galileo initiatives.

And then to your last question, I guess, opportunity to pull -- or further streamlining in the Company. Certainly, as we move forward we will evaluate those opportunities as well.

Siim, just a very, very quick follow-on.

Yes.

It might help us if you could just indicate, if you assume 1.5 at the top end of your range, 1.5 billion, could you help us with what the mix would be on that between Network versus operating process rationalization, because I think that is something that is confusing to a lot of people.

The network, I'm referring to Voice, IP, everything, IP migration, and then the other stuff that you were talking about in terms of operating processes.

Yes, it is not, Greg, the way we have looked at it. But what I will do is try to reconfigure the way we look at Galileo and be able to report at the next call on that, because I think it is a valid question.

Okay. Thanks very much.

Thank you. The following question is from Jonathan Allen of RBC Capital Markets. Please go ahead.

Thanks very much. Good morning.

Michael, you mentioned trust rules and you mentioned that your asset strategy may become a little bit more clear either later this year or early into next year. In your view, do we need to wait until the new trust rules come out of the government and go into legislature, i.e., maybe waiting as long as next fall? Or do you feel confident announcing something earlier?

But more importantly, given the size of BCE and the low growth wireline asset mix, it would take a fairly significant restructuring of the mix to significantly impact the asset of the Company and become a real catalyst. In your view, would the scope of the proposed strategy that you are looking at be significant enough to materially impact that asset mix? Or is this more of an incremental noncore asset sale?

Well, that is a question to which there is no simple answer. Jonathan, I would say, first, by way of clarification, I think that the only area where we are very focused on what the Federal Government will do with respect to tax policy on trusts and dividends is with respect to this lower density lines initiative that we have developed. The other things are quite in dependent. So I don't want you to link those things because they ought not to be linked. The other initiatives are separate and we are -- we are working away on those.

The -- point number two, no, I don't believe that legislative action is what is necessary here. I think some indication of the architecture of what the government is going to do here and the -- whether or not they intend to fully equalize between trusts and corporations or not.

There are some very high level issues that I think need to be clarified and to provide our Company and many other companies with a little bit more solid ground upon which to make these decisions. And I think there is a growing awareness, at least -- let me put it this way -- I hope there is a growing awareness within the Federal Government that the kind of uncertainty that has been created here is not -- is not constructive for anyone. So my hope is that there is some greater clarity and that that greater clarity would allow us to move one way or the other, sooner rather than later, because there are other options that we can go to.

And then with respect to your final point, Jonathan, I'm not -- what you are really probing for is the scale of what we were thinking about doing or what we are thinking about doing. And I guess I -- Jonathan, for reasons you will understand, I don't think I want to go there other than to say that this initiative had a variety of dimensions to it and depending upon how the world unfolds, I do think it has the potential to create a very interesting vehicle and one that could have an interesting impact in terms of creating something new that is different from just addressing, I think as you put it, sort of a noncore asset perspective. That is not really how we were thinking about it.

Great. Thank you very much.

Thank you. The following question is from Rob Goff of Haywood Securities. Please go ahead.

Thank you very much and good morning.

Hi, Rob.

My question would be on Galileo and if you could give us an idea of the increment and run rate savings, where they'd go: between the income statement or between the cash flow statement, i.e., Cap Ex, and what sort of pressures you might be feeling given the increased investment that the cable guys are making in their own customer service initiatives and whether that may actually be putting pressure on Galileo?

Well, Rob, I can answer the first part of your question when -- in terms of our guidance of 1 billion to 1.5 billion of run rate cost savings, that is entirely savings that would be reflected in the P&L.

Now, with regard to the Galileo initiatives, IT migration in particular, there are Cap Ex components of those investments and notwithstanding I think the progress that the cable companies are making, we continue to be within our spending limits and have the visibility to complete our IT initiatives, our broadband initiatives, both on the wireline side and the wireless side within sort of the current CapEx envelopes.

Yes, the only thing I would add to that very briefly is, when you think about the design of what we are trying to do in terms of simplifying processes inside the Company and the impact that that has on service over the longer term, let's draw some distinctions here.

First, we decided in the very short-term through this quarter to invest, in effect. additional Op Ex in dealing with some direct issues coming out of the Entourage strike and to deal with call center operations and volumes and to get that situation regularized, turn it around and begin to build some positive momentum. That is, we think, a prudent set of things to have done, but in a sense it's a separate set of tactics from the fundamental strategy of what we are trying to do with respect to service, which has to do with creating a higher level of service by simplifying the way the Company operates and by simplifying the service delivery models that we use. And if you want to get into it, Isabel can talk about it and Karen can talk certainly talk about what she is doing from a service point of view. Similarly, Kevin. And that those things have the benefit of both over time shedding costs because of a more focused one and done approach with the removal of waste, all of which saves us money but also improves the customer experience.

So, when you talk about the cable companies and investing in service, be that as it may, we are going to continue to strengthen our service levels and we're doing it fundamentally by rewiring the way the Company works and by rewiring the way we touch customers. And that that -- on that longer term approach there is not really a tradeoff between Op Ex and service but in fact the process of simplifying takes money out and generates a less -- one of the reasons why service is always a challenge is that when you get into exceptions, exceptions are expensive and they are bad service. So we are trying to get to a much simpler operating model for the Company, which should save us both Op Ex and improve service and that is our best response to the kind of other service offerings that our competitors may have.

Okay. Thank you.

Thank you. The follow question is from Simon Flannery of Morgan Stanley. Please go ahead.

Okay. Thank you very much.

Good morning.

It was very helpful to see the breakout into some of the deltas this quarter versus expectations. If you add them up it is sort of close to $80 million. What I wanted to understand was, sequentially as we go into Q4, how much of that will sort of drop away from the comparisons or how much is still sort of transitioning across? And maybe another way to look at it is where are your quality of service statistics now, in terms of repair times and install times versus where they were, say, a year ago. Are you fully back to where you were before the strike or is there still a little bit left in queue? Thanks.

Simon, its Siim.

Good morning.

Yes, so there was close to $80 million -- just under $80 million of one-time sort of impacts relating to the strike and customer service. I'd say that the -- sort of the 25 million pertaining to the strike is behind us. The 20 million that we spent on service improvement should not be repeated in the fourth quarter. Then we said the $34 million of savings that we were unable to realize relative to plan, we should be able to make back a good portion of that in the fourth quarter, but it will move -- it will stretch a little bit into the first quarter next year.

And when I -- when you look at sort of free cash flow, which is probably the most relevant measure here, if you look at the $344 million that we've delivered this quarter, there will, because of seasonality, be a little bit of a decline in EBITDA in the fourth quarter in absolute dollar terms, although we will have positive growth in EBITDA in the fourth quarter. But EBITDA will come down a touch. But that will be more than offset by the decrease in capital spending in the fourth quarter.

And then there is probably about a -- a 50 to $100 million improvement that we can effect in working capital. One of the most significant elements of that is certainly the opportunity that we are looking at to rationalize our inventory of materials and supplies which could be as much as $50 million for the fourth quarter.

But -- so all of that would clearly bring us certainly to the low end and hopefully above the low end of our free cash flow guidance for the year.

And Simon, just quickly on the service issues. I guess I'd -- rather than going through a whole bunch of statistics because time is short, I guess what I'd say is, we think we have done a lot of the heavy lifting in terms of returning to service levels of before the Entourage issue arose, but I think we have still got some progress yet to be made that we are continuing to work on. That is particularly true in Karen's business unit, where we need to continue to improve. But we have seen a lot of improvement in mean time and repair and first order resolution and first call resolution.

We have seen significant improvements in our one-on-one customer surveys in the large enterprise market, executive -- what we call executive escalations on service issues are down 50% from where they were in July. So we do think we have got significant positive momentum here, but there is still some work to do.

Thank you.

Thank you. The following question is from Marie Silva of Goldman Sachs. Please go ahead.

Good morning.

Good morning.

My question is around net addition performance going forward and first on the wireline side, given the accelerating --

Can you just say that again. I think we all just missed what you were saying.

I'm sorry. My question is around net addition performance going forward.

Net adds. Okay. Net adds.

Yes, on the wireline side, looking at the accelerating wireline erosion. How do you see the need for being potentially more aggressive again on bundles and how do you think about balancing the costs and benefits associated with bundles?

And then on the wireless side, you have previously talked about wireless growth accelerating in Canada and wireless net additions this quarter actually took a step back from last quarter's levels. Was there anything unusual in the quarter and how do you think about your guidance range going forward and wireless growth in range in [inaudible]?

Hi, Marie. This is Kevin Crull. I'll take the first part of that and then pass it over to Rob.

On the wireline side, I think that what we are experiencing in the competitive activity is consistent with our expectations and I guess I would reiterate what we started talking about on the last call, about a really heavy emphasis on multi product household improvement and not just through the exercise of bundled discounts but more importantly through sophisticated targeting and segmentation of where we are selling our growth products. I would just reiterate, the progress that we made on our what we call our 2-plus and our 3-plus households that Michael referenced and the impact that they are having on the profile of customers that we are losing in our wireline base is very positive.

One thing that I would -- that I would mention is that household revenue per household is up 7% percent year-to-date. And this reflects the success actually of this multi product strategy. We are in fact losing customers that are a lit bit lower value on the long distance side and overall have much, much less spending in our portfolio than our base does at the average. When we look at sort of insulating those high value households, Expressview and Sympatico were very powerful there. In fact, when we look at the number of customers who have left us that have one of those, it's under 10% an in fact, it's miniscule, the number of customers that have left us that have both of those.

So not only -- we talked about a great quarter on Video and that net addition strength was positive, but where we sold it is very important as well. So I guess I would just close by saying I think our multi product household strategy is on track and it is a shift from bundled annuity discounts to much more targeted acquisition incentives and one-time investments in growing relationships with the right customers. Rob?

Thank you. One aside, there were a few questions that you asked. First of all, on growth in Canada, and we still believe exactly as we've said in the past, which is lots of [inaudible], I think we are now next to Turkey in terms of penetration in OECD countries in the world, which [inaudible] about 27th, 28th. We are in fact fairly underpenetrated and there is lots of scope.

In terms of looking at Q3 compared to Q2, we need to put some context around that. Bear in mind that our second quarter was the best second quarter in the history of the Company and predictably, following that we expected our competitors to come back real hard and that is exactly what they did. And while we were expecting it, we were also very, very careful not to over react to some of the fairly radical moves that happened, the highly competitive moves in the marketplace, which I'm happy to talk about in a second.

Nonetheless, we still turned in a good set of numbers with our gross acquisitions up, as you have heard, on a year-over-year basis by 25-26%.

In terms of net additions, I think what is skewing the mix -- the two stories, the one is about the actual post paid and we had a solid post paid quarter from an acquisition stand point, and the the quality of the customers more importantly that we are putting into our base is profoundly different from the quality of the customers we are taking out. We did have a 1.5% churn rate, admittedly, but in part that was as a consequence of some residual issues that we've had around billing when customers have come to the end of their contract. But also, as a consequence of all the ready collections we've taken on pricing and the typing up of lots of policies that we've had around hardware upgrades and credit policies, et cetera.

On the prepaid side, we had a solid quarter. We didn't actually promote prepaid. We haven't for many years, other than our involvement that we have in both solar and virgin. However, we did benefit in terms of our ability to do some retention on prepaid, with all of the challenges that we have had coming out of the fourth quarter and the first quarter, we hadn't been particularly active in our change in activities around prepaid and with everything having stabilized and well under control, it was incumbent on us to turn our attention to prepaid, and as a consequence, we benefited somewhat on that and we've had a peculiarly low 1.6% prepay churn, and the consequence of that, the benefit that we had on the retention strategies, was to skew the NEC number.

One of the other questions you also asked was around guidance and I think certainly we are within our guidance in terms of 2005 and it is premature at this stage to make any comments with respect to 2006 because we have yet to give any guidance with respect to that.

And just talking about the marketplace generally for a second. I mentioned that there were some very, very competitive activities and contrary to urban myths that one or two people would wish to proliferate, the fact of the matter is we saw really competitive activity in the marketplace. We have seen -- on August the 2nd we saw Tellus launched a very, very rich package which is the Talk To Me 25 plan that we had worked real hard to get out by the end of the second quarter, and obviously they launched that in response to Fido. And to top this off, they then went to 6 months unlimited calling on the Talk To Me 25 plan at the end of September. We clearly tried to pull back our offer and in fact it's now carrying on through to the end of the year, which we consider to be somewhat aggressive under the circumstances.

And Rogers was even more aggressive and we were really surprised to see on August 3rd them waiving connection fees on family plans and adding 500 minutes of long distance to every single family plan they have in the marketplace. And they then proceeded, rather interestingly enough, on -- somewhere around about the 25th of October to say that we would benefit -- they had the tenacity to say we would benefit from all this [inaudible] pricing and follow that the next day with nine months unlimited calling. And we have just seen an announcement today that they're back with the Razor at $99 and the Rocker at $99.

So, just to say, we are after the right types of customers and we're just making sure that in so doing we -- having the impacts on the overall mix that we are doing and we're doing it in a responsible way. So we are happy with the numbers.

This is very helpful, thank you.

Thank you. The following question is from Peter Rhamey of BMO Nesbitt Burns. Please go ahead.

Two questions. The first is short but important and the second one is more of a -- Michael, perhaps how you view the performance in the quarter.

In terms of, Michael, on the dividend, you answered a question earlier on and I just want greater clarity. You referenced your dividend comments with the reference to the 10% increase last year not necessarily being an annual event. Do you mean a dividend increase or a dividend increase of that magnitude?

No, I mean a dividend increase, Pete.

Okay. Great. And on the operations side, Michael, when I take a look across your company, this quarter in particular, Video, High Speed Internet Access, and Wireless all did well in terms of subscriber growth. Is this a new high water mark or high level plateau where you see your Company going forward on a more sustained basis as you need to -- more of an emphasis on transitioning basis? Certainly you hear their RBOCs talking about, you know, we just have to get the connections out there with the customers at an accelerated pace.

Well, I don't think in concepts like plateaus. We'll keep going and continuing to add net subscribers. That is an important part of what we are trying to do, I think, in the quarter. About 245,000 across those three consumer platforms that you talk about , or a little over 600,000 on a year-to-date basis. So that continues to be a priority for us because therein lies the path to changing the fundamentals of the mix of the revenue base of the Company between legacy and growth, and that challenge of revenue mix for our Company is just -- is just absolutely fundamental. And in terms of the architecture of how we think about it, we are trying to accomplish two things and they are -- and one reinforces the other.

We are in the process of undergoing, [inaudible] as we go through next year, what is a radical transformation of the cost structure of the Company. That is accelerating this year, a lot in '06. We'll have for sure and have more to do in '07, and we are trying to get costs out of this business in a compressed time frame and in a reasonably radical way.

Why? Because we want to enable the acceleration of the growth parts -- of the growth elements of the Company, which have margins that are designed for a different -- that are -- that require a different cost structure than we've had in the past. So we are trying to move with urgency on the cost side of the business to reposition that and by doing that to enable us to continue to ramp up the growth side of the business.

The issue in our business, I believe, is not, is their growth or are there opportunities to grow the business, the issue is, can you build a company that has a cost structure and that can move nimbly enough to seize the growth opportunities that are there and not just on Wireless, Internet, and Video, but on the whole other generation of services that will come up and that we are trying to move on now with respect to overall information management and application integration.

There is no shortage of opportunities to grow the business. It is true that we are going to go through, and we are now, through '05 and '06 and into '07, a transition period as cable companies ramp up their presence in telephony. But our focus is building a business where we have built a really solid, durable cost structure for this business, 18 months, two years down the road. And as we come out and exit that transition of NAS erosion and we've ramped up our growth platforms, this business looks entirely different than it it today.

So the overall perspective or picture that we have is to move on that cost front and the growth front simultaneously, because the cost front enables the growth front.

So you need to really, subject to, obviously, getting the cost out, ramp subscriber additions across your portfolio, you know, when I take a look at '06, '07, ideally you would like to see higher subscriber additions than you have today.

Well, I think we are progressing at reasonable rates today and if there's more, we can do great. But we've got to focus on cost, we've got to focus on subscriber addition, we'll keep moving on both those fronts, and as we exit the transition that we are in now, I think you'll see a company with very different characteristics than the one we have today. But that's our challenge, is to get through the transition and set the foundations now.

Very good. Thank you, Michael.

Thank you. The following question is from Glen Campbell of Merrill Lynch. Please go ahead.

Hi, Glen.

Yes, thanks. Two very quick ones. One, there was a dark fiber cell, I believe, in the quarter. I was wondering if you could quantify that. And secondly, there's about a 95,000 line swing on residential access lines from the third quarter of '04 when you added 37 to this quarter, and it would seem that a large chunk of those was, obviously, cable competition. We know about that. I'm wondering if you could comment about the rate of wireless substitution and whether that has picked up. Thanks.

First, with respect to the dark fiber sale, that was a sale in western Canada, I believe, but -- while we are looking at the second question why don't just we try to find the amount of that. I think it was some dark fiber relating to GT Telecom that was redundant for our needs and I'll get you the amount of that.

Hey, Glen, this is Kevin. While he is doing that, wireless substitution we did not see accelerate. I would not attribute the change year-over-year to any dramatic acceleration in wireless substitution. It comes from the anticipated sources of -- the cable telephony launches.

What we saw relative to sort of the traditional CLECs was consistent. We continue to see losses to the -- what we call the over the top, the Vonage-type VoIP providers, we continue to see those very minimal, and wireless displacement of entire lines continues to be pretty small.

Minute erosion, so, long distance migration of minutes, is occurring but, again, it is not the primary factor that I discussed in that transition.

So there does seem to be a gap between the known cable providers and your line losses year-over-year and some of them may just be -- maybe not explicable. Is there another factor having deserve second line disconnections that's also contributing?

I can't reconcile immediately to year '95, but I can reconcile to what I see in the quarter of losses, and it is -- there is not a gap. I actually see a little bit of a deceleration in what I attribute to Wireless and it is entirely explained by the primary entry of our cable telephony entrance. So we can take that further down the road, but I don't see a gap in that.

And Glen, just to follow up on your question, so that -- the dark fiber sale was excess capacity from the GT Telecom acquisition and the proceeds that we received in the quarter was about $4 million.

Okay. Thanks very much.

Thank you. The following question is from Jeff Fan of UBS Securities. Please go ahead.

Thank you very much and good morning.

Just wanted to go back on the Business Galileo side and drill down a little bit further. In the past you have given us some numbers with respect to Enterprise customers that are currently migrating. I think the last quarter it was 111. Just want to get an update on the because I'm trying trying to get visibility into the billion, billion and a half, and the Business Galileo savings going through '06. So the number of customers there, if can and if you have that handy, the number of legacy data circuits that you've migrated at the end of Q3.

And then lastly, I know you've talked about the procurements initiative in the past but I guess this is the first time we have kind of seen it and seen some details on it. And what it looks like now, it may be part of the Galileo savings in '05 and '06, just wanted to verify that and maybe get some numbers as to how much to procurement cost savings is it going to contribute to the overall numbers. Thanks.

Okay. I'll start on the numbers. We are at 131 customer on IPVPN, so up 20 customers. Large customer I mentioned CIBC, the ABM Network, and Megatrade Association, as examples. So that is progressing towards our 150 customer target at the end of the year. That was your first question.

Another data point I can give you is that we are tracking the service that are rationalized -- or not tracking -- well, we are tracking but we are not disclosing the circuits that are disconnected because we don't think it is meaningful. But what is extremely meaningful for us, because it is directly related to cost savings, is the number of services that are rationalized. So in the third quarter, we rationalized a further 23 data services and 87 gateway services for a total of over 100, and our target for the year was 70.

And for each of those services, and this gets to your third question, for each of those services is a stop sale and after that a migration to an IP service and after that, you can get the platform costs and maintenance costs out of the business and that is the way we achieve some of our Galileo savings. So that is tracking very well as well.

Bernard, do you want to continue the answer on the rest of Galileo?

I think Siim.

Whatever Siim wants.

Jeff, I would say that the procurement initiatives, certainly with regard to real estate and fleet and a couple of other areas, have always been factored in to our billion to billion-five of Galileo cost reductions. I think with Tim Houghton underway with his work and looking at the end to end supply chain and additional procurement opportunities, there is probably some more there. But we're not changing our guidance and I think we'll be able to speak more specifically about the kinds of additional opportunities we see in procurement at our annual investor day and when we give our guidance for 2006.

Thank you. And just to clarify with Isabel's answers there. You talked about the service [RAS] being rationalized. Just want to make sure I'm clear in my thinking here. The services being rationalized, can you talk about the penetration of usage of these services by customers? The reason I'm asking about the legacy circuits is because these are actually being used so require some migration on the customer side, whereas stop sell on services that are not used is, I guess, relatively easy.

You're right. You're right. There is a mix in all of that. It is why it is one data point and it's not the end of the analysis. I agree with you. So a lot of these services were at the end of their life so the focus is to really get them out and get the cost saving.

But I think the key, key point is something we've talked about before, is to sub sell on APM and frame that was announced a year ago. That was a big platform still and with a lot of customer on it and when we talk about 130 customers already migrating to IPVPN, those customers are out of this APM frame platform and that is substantial migration activity.

So, on the product being terminated, I agree with you. Some of them were at the end of their useful life for sure. But the ADM -- ATM and frame platform, that is substantial displacement of CapEx from legacy to IP and substantial OpEX reduction when you get customer out.

Okay, great. Thanks for that.

Thank you. The following question is from John Henderson of Scotia Capital. Please go ahead.

Hi, John.

Good morning. I have a question on the 47 million of Wireless costs of acquisition increase, and I just wanted to understand a little better, because prepaid subscribers are up substantially. Post paid is up just 14% year-over-year. How much of the prepaid base is wholesale and why would -- I guess, do you have a prepaid cost of acquisition number that you could give us? It seems like a pretty big subsidy for prepaid there.

I think the key issue that you need to understand -- Rob speaking -- is that the type of customers we are selling to are different customers. We don't wish to sell scooters. We wish to sell higher quality vehicles, from what we've previously done. So therefore, we have a higher cost of acquisition as we acquire better quality customers. That is the first key point. [Laughter].

The second point is that we have had a third more customers moving on to three year contracts and we've seen a marked increase in adoption of three year contracts, which obviously has a lot of benefits for us to do.

And then I think it's just the general competitiveness. I mentioned earlier, we're having to be competitive and match offers that in the marketplace. It's a general statement. But it really gets down to the heart of the types of customers that we are adding. A lot of the 10-4 customers, a lot of the data customers, the double ARPU type of customers, and being able to profoundly change the mix, not just post paid to prepaid, but the mix within postpaid. That's going to be kernel to us being able to drive overall top line revenue growth going forward.

And in fairness, we haven't really seen the benefits just coming through because most of the customers that have been inquiring, certainly this last quarter and even the last quarter, are just coming out of their promotional periods. So a lot of the benefits of the strategies that we've adopted or the tactics will start coming through in Q4 and onwards.

I thought most of the customers that you acquired this quarter were prepaid and that wouldn't be higher end customers, it would be lower end.

Are you talking about net additions? The net additions, I think that you're talking specifically is as a consequence of that adjustment that we mentioned, where we had an opportunity to do retention tactics around our prepay, which we hadn't done for several months. But our gross additions were up materially year-over-year. 25%.

And gross is driving COA.

Absolutely.

Gross and post paid were up 14%, prepaid was up 69%.

John, gross additions constituted 70% post paid.

Right. Okay. Just a follow up then. I also wonder about your minutes. If you're just comparing your average customer, the minutes of use on post paid I think is about half of what Rogers' is. And I just wonder does that -- do you think that is hurting your ARPU growth?

You are absolutely right. We have long maintained that our average revenue per minutes is in fact the highest that exists within Canada and we have had a challenge in terms of the minutes of usage and that gets down to the types of customers that we have been attracting over an extended period of time and retaining, which is precisely the reason why we are going off the bigger power user type of packages and data and double ARPUs and all the other things, and that is precisely why we adopted the strategy I just mentioned.

Great. Okay. Thank you.

Thank you, the following question is from Dvai Ghose of CIBC World Markets. Please go ahead.

Yes, thanks very much. Michael, thanks very much for your update on the rural lines. I was wondering if you could give us a similar update on Bell Globemedia and your views on CGI, given that they're not impacted by the government's trust decisions, as you mentioned.

And on a related point, when it comes to investments, congratulations on the hiring of George Cope. I think you have hired a really strong individual. But he has clearly been quite a vocal critic of the MBNO structure in Canada. I'm wondering what that means for your future relationship with Virgin Canada.

And also, I do have to ask: Robert Odendaal, you have strongly criticized Tellus Mobility and Rogers Wireless on the call and yet they provide much better financial performance than you do. I know part of it is your usage story, but is there anything else you can do to try and actually capture their sort of performance rather than simply criticize?

I'll take the first two, Dvai. [Inaudible] Look, I'm not -- and I think, Dvai, you probably don't expect me to -- I'm not going to comment specifically on some of the other things that we are working on. We will just continue working on some -- focus on the -- a little bit more focus in the BCE portfolio and when we have things to announce we will get to that and we will be trying to do so in a relatively near term time frame.

Yes, thank you on our ability to attract and bring George into the Company. I think he is going to be an important addition to what we are as a company and along with Stephen, you know, really help broaden out and expand the overall leadership of the Company. And clearly it -- too early and I don't want to speculate publicly on what actions we will be taking or not taking. I'll just say that we have an interesting and useful relationship with Virgin which continues to ramp up and we regard them as a good partner and I believe and I hope that they regard us similarly.

Rob, do you want to talk about --

Yes, certainly. In terms of the Virgin relationship, we are very, very happy with our Virgin relationship and the progress that we've made from there. We clearly can't talk more about it for obvious reasons, legal and otherwise, other than to say that we don't see that changing as a consequence of George's hire. In terms of --

Let me just jump in on that point, Rob. And also Dvai, let's be clear on it: George's arrival in the Company is, you know, he will be overseeing a significant part of the customer facing operations of the Company but not our wireless business.

That's right. He has a noncompete.

Right.

In terms of your last question, which really -- you mentioned about criticisms. My criticisms weren't of my competitors' financial performance, and I think that they have made very, very solid progress in a number of respects over a period of time. So it certainly wasn't leveled at the financial performance they're achieving.

My observations that I made was about the continuing comments around pricing and the fundmental question being whether or not we have been price leading and on any factual based analysis of the situation, certainly in the past two quarters, one can easily demonstrate that that hasn't been the case. And that is precisely the reason why I made the observations that I did.

With respect to comparative type analysis, I think there is two key things. First of all, let us not diminish the fact that we have just undertaken a major billing implementation and I've previously stated it is like performing open heart surgery on yourself in a Formula One race. It was a very, very challenging thing for the Company, but it was the right thing to do and we're really starting to see the benefits, as a consequence of some of the type 2 markets strategies that we can now adopt which we wouldn't have been able to do in the past. So that was the first thing.

And then the second thing, which is just a huge differentiator between the different comparative financial performances are the mark -- the segments of the market that have been served over an extended period of time and therefore the base that we have of customers that we deal with. So for us to be able to change our performance we need to effectively do two things: Drive as much performance out of our base as we can and ensure that we change the mix of our base as much as we can. And we are doing both of those things with the strategies that we've previously talked about.

Okay. As a quick follow-up, though, Robert, can I just ask you that, look: the billing system issue was at the second half of 2004. Can you commit that by 2006, early 2006, you no longer refer to billing as being an issue? I mean that seriously. Is that a problem that is going to be behind us by the end of this year, because the lingering impact seemed to be going on and on and on the Q2 call it was mentioned that it was mainly behind us.

I think that we've had a very, very minimal lingering effect at the moment. To give you and example, we did our third major billing upgrade on Sunday night. Now, you will appreciate that we wouldn't have undertaken that three days before an analyst call if we thought we were going to have problems with the execution of it. So we have substantially sorted out the vast majority by far of any of the issues that we have around the billing. But let us not diminish the fact that it has had some impacts which we previously mentioned in the past. And as I say, I'm very, very confident.

The story around Wireless is not a year-over-year discussion for this quarter. I think it's organic growth that we are seeing. We are seeing a material organic improvement inside the business that is coming and we are very encouraged by that.

Thank you very much.

Thank you, Dvai.

I think due to the time that it is now, I'm afraid we will have to stop taking questions, I think, Michael.

Yes. Just let me make one quick comment before we sign off. And I do this in a superabundance of caution. I think all of you will have seen the notice that Bernard sent out, where we're going to move our investor conference to, I think it is February the 1st. And I just -- I want to address this clearly because I know sometimes people are inclined in the capital markets to want to read the tea leaves about everything and I just really want to say to you in the most straightforward way, there are no tea leaves to read here.

What we are trying to do is, when we put out an initial thing about -- just before Christmas we were going to do it, we did get some feedback from some people about the proximity to Christmas, and then second, with George's arrival we thought it is better to just have the whole management team there and available for that session and it also winds up nicely with our fourth quarter results, et cetera. So, this is a very simple, straightforward thing, done for logistical simplicity and giving you access to the whole management team of the Company.

So please, I know everybody wants to read tea leaves, but don't. Because this just is what it is. It's one of those things in life that is what it appears to be, it is just dead simple.

Okay. And with that I'm afraid we will have to sign off. But look, I appreciate your time and appreciate your interest.

Thank you. Your conference has now ended. Please disconnect your lines at this time. We thank you for your participation and have a great day.