BCE Inc (BCE) 2006 Q4 法說會逐字稿

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

Thanks, operator, and good morning, everyone. Welcome to the call. Here with me today are Michael Sabia, our CEO, George Cope, our COO, and Siim Vanaselja, our CFO. So as usual, we will review the results using the presentation that is available on our Web site, and after that, we will move into Q&A.

Before we begin, I would remind you that today's remarks will contain forward-looking statements with respect to items such as revenue, EBITDA, capital intensity, free cash flow and EPS. Several assumptions were made by us in preparing these forward-looking statements, and there are risks that the actual results will differ materially from those contemplated by the forward-looking statements. For additional information on such assumptions and risks, I would refer you to BCE's Safe Harbor notice concerning forward-looking statements dated December 12, 2006 filed with the Canadian Securities Commissions and with the SEC, and which is also available on our Web site. These forward-looking statements represent the expectations of BCE and its subsidiaries as of February 7, 2007 and accordingly are subject to change after such date. However, we disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. I am making this cautionary statement on behalf of each speaker whose remarks today will contain forward-looking statements.

So with that behind us, I would know like to turn the call over to Michael Sabia.

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

This morning, we're going to talk a bit about the quarter and also in addition to that the positioning that we have that as we leave 2006 and move into 2007, and our positioning to achieve our goals for that year, for 2007, that we talked with you about on December 12.

So, first, on the quarter and in particular the quarter at Bell, from a financial perspective, I would certainly characterize this as I think another steady quarter of good, step-by-step progress. There's one area that we will talk about where I think we have a bit more work to do, and that's in postpaid Wireless. But staying with the financials for a moment, on revenues, I think we continue to make some good progress there in growing our recurring or our service revenues, which were up just around 1%. That is, as we've said many times, the heart of the business and the focus we have on building the business.

During the quarter, during the fourth quarter, we continued, in a pretty disciplined way, in terms of our management of hardware sales. They were down about 5.7% as we continue to weed out low-margin, one-time parts of the business, so pretty good underlying progress in terms of recurring and service revenues. In the same vein of recurring revenues, our enterprise business had really a good string of successes in the quarter, signing about $850 million of contracts, clearly bolstering their performance going forward.

I think we continue to make good progress on ARPU. Especially, it continues to be a strong story on video, up I think about $3 and really on an across-the-board basis all year, from a total-year perspective, I think you've seen step-by-step improvement really across all of the various platforms that we have. Indeed, average household ARPU was up in the quarter I think almost about $4, so good progress there.

Shifting to EBITDA--2.7% EBITDA growth that Bell, that's including Bell Aliant; that continues to step up, bolstered by continuing solid performance on improving productivity. If you exclude Bell Aliant, our EBITDA is up about 3.5%, that driven very much by very strong performance and productivity savings of 223 million. That's the strongest quarter that we've ever had, and it has led, in the quarter, to an absolute reduction in total operating expense on a quarter-over-quarter basis.

So all of those things I think are very positive. There are other things I could mention in the quarter that are as well. But that being said, also in the quarter, I think our net adds were a bit soft. Clearly, our Wireless postpaid net adds were not where they ought to be, not where they should be.

Now, on Wireless, I think there's a lot that's positive there in terms of our revenue growth, our flow-through, our churn, our ARPU, all of that I think quite solid and all very important. But our net adds did suffer from a few things, a general softness we think in the customer markets around Christmas, some policy changes and some execution issues on our part. Now, George is going to elaborate on this, so I won't take any more time to address it. I will just say that we are determined that net add performance will step up and we are confident that it will as we go through the year in 2007.

So with that said on the quarter, a couple comments on the year of 2006--I do think the year that we got a lot done, notwithstanding some pretty intense cable competition. We held or EBITDA margins; as you know, that's always been a basic element of our plan. We were successful in that. In fact, in the fourth quarter, it actually stepped--EBITDA margin actually stepped up a bit and that's even after you adjust for some differences in COA. We had good performance through the course of the year on cost management, on CapEx management, and as a result of that, we were able to deliver our free cash flow targets. We feel pretty good about where we are from a cash flow performance point of view as we look ahead to 2007. As you know and as we discussed with you on the 12th, that free cash flow performance is really a very fundamental part of the financial model that we're building in the business.

Through the year, we strengthened the management team. I think, through the year, we've also weathered a pretty tough year on pension expense. We talked to you a lot about that. I think we've taken a lot of the right actions in that area. Now, Siim will take you through this in a little bit more detail, but the fund now is in quite-good shape and certainly no longer represents anything like as significant a claim on our cash flow, so I think very important progress there. Consistent with what we said on December the 12, we expect to seize real benefits from that progress in terms of cash flow and earnings this year.

Similarly, in terms of other important accomplishments in the year, I think, after a lot of work, forbearance, it really looks like it's upon us now. We're looking forward to the government taking the final step here and enacting it sometime this winter. On that basis, our goal is to work hard to be forborne sometime this summer, preferably in the early part of the summer.

Now a quick word on Telesat--obviously, we were pleased to get that done and get that done shortly after the session we had with you on the 12th. I won't take a lot of time on this. Clearly, we were pleased with the valuation. We are also pleased because we think it's a good transaction in terms of Telesat's future as well, and it is, in many ways, the final chapter in all of the work that we've been doing to bring the Company back to its roots.

In terms of an update on the process there, the sale process and the approval process is progressing very much as expected. We did receive Department of Justice approval from--in the United States. We are still waiting on approvals from the FCC in the U.S. and from Canada from Industry Canada and from the Competition Bureau. So if that proceeds over the coming period, and as I say we are comfortable that it is on track, but as that proceeds over the coming period, we will be able to be more specific and say more on the use of proceeds. I will just say, though, on that point, that our actions in that area will be consistent with a couple of basic principles--first, our commitment to a balanced capital structure for the Company very much along the lines that we discussed on December 12; and second, the continuing and very strong commitment we have to act in ways that create sustainable value for our shareholders. I think you've seen that in a number of actions that we've taken over the last number of months and years.

So I will just move over to the next slide now and try to focus a little bit on some of the trends coming out of 2006 that we believe set the stage for our performance in 2007. First, on residential NAS, over the last couple of years or last eight quarters, we saw, as expected initially, an accelerating trend in rates of NAS erosion, but more recently, and this is what's important, we are seeing a significant slowing in the rate of increase and in effect we think the beginnings of a stabilizing trend. Now, given the implications that has for the level of absolute NAS losses, this is clearly an important piece of stage setting, both in terms of revenue and EBITDA for the Company going forward. So that's trend number one.

Number two, recognizing the challenges that we were going to have in 2006 pm NAS, we did set, as I think you all know, an unprecedented productivity target for the year. I think we delivered very well against it. We've seen, on a year-over-year basis, absolute reductions in the cost of labor, the cost of revenue, etc., so good progress there. That's going to be an area where we continue to put a lot of focus on in 2007 and we will be looking for every incremental opportunity we have to take cost out of the business, but a lot of very positive momentum in the organization on that. It's clearly helpful to us in continuing to deliver our EBITDA performance and cash flow.

Now, third, and relatedly, as a result of those kinds of things, a result of driving ARPU, better EBITDA flow-through, we have seen, I think, some quite-positive sequential increases in EBITDA performance, and that notwithstanding the operating profitability (indiscernible) associated with the NAS losses that we experienced through the year. So I think we are demonstrating an ability to deliver improving operating profitability in what are challenging circumstances on the NAS side. All of that, too, a very important element of the financial model that we talked to you about in December.

Now, fourth and very importantly, through the course of the year, our mix has passed a very important milestone; our revenue mix has passed a very important milestone. The majority, in fact about 51% of our revenues--you take Bell Aliant out of that, it's actually 56% of Bell's revenues are now drawn from our growth services. They are generally growing at around 11%, while our legacy base is declining at around 7%. So, that begins to create a different sort of equation and a different basis for us to grow revenue and EBITDA as we move through 2007. By the end of this year, just to reiterate that, 56% that I talked about, excluding Bell Aliant, that will be around 60% of our revenues coming from growth services.

Then just finally, one other important trend, something that we're very focused on--it's a centerpiece priority for us and that's customer service. Again, I think good progress in 2006, good progress on technician performance in meeting commitments to customers, on first-call resolution, on timely repair. Variant (indiscernible) for instance, very significant improvements in our ISP. The multiproduct service centers that we've developed over 2005 and 2006 to support more and more multiproduct customers that we had are proving very successful in meeting the needs of those very important customers, first (indiscernible) just by way of example first-call resolutions running at around 95% in those centers.

So all of that, pretty good foundations for improving service and that will be a major operational focus for us this year. Why? Because we believe it delivers significant financial benefits to us in terms of our ability to sell more to the customers we have, to upsell, to cross-sell, to win back, to retain customers and to do that more economically.

So, obviously, we've got a lot to do in 2007, a busy year, very focused on delivering against the targets that we set out. We've got some work to do, certainly on net adds and wireless, but I think pretty good foundations in place as we move into the new year.

So with that, I will turn it over to George for a review of operations. George?

Thank you, Michael. Good morning, everyone.

I'm on Slide 7. I'll begin with a discussion on our revenues. Our local revenue was down 4.5% year-over-year, but that is versus a 5.8% decline in the third quarter. We are actually beginning to benefit from our winbacks. As we mentioned the quarter before, clients returning are coming back at a higher ARPU and are seeing some pricing stability in the SMB market, which helped that rate of decline improve quarter-over-quarter in terms of revenue.

Our NAS losses of 181,000 were in line with our business plan. However, it is worth noting that our NAS decline was impacted on a slowdown in wholesale NAS sales with our arrangement with Shaw. Our LD decline of 12.7% is versus 14.1% last year; it continues to steadily improve in terms of rate of decline. In particular, our residential decline was 12% versus 18% in Q4 last year, and business was actually 9% versus 16% in Q4 2005. So on both portfolios, we continue to work hard to reduce that decline, if you will, over time, in LD revenue.

Wireless and video revenues were strong again, primarily driven by increases in ARPU.

Our strategy to move away from lower-margin hardware sales continues to impact total revenue. As Michael mentioned, hardware sales were down approximately 6% year-over-year in the quarter, while recurrent revenues were up 1%, resulting in a flat year-over-year revenue in Q4.

Turning to wireless, while we are pleased with the improved financial performance of Bell Mobility, in particular the revenue growth of 14.5%, EBITDA growth of 29%, and the improving ARPU situation, our postpaid sales in Q4 were not as strong, clearly, as we wanted to see.

Now, we saw a decline in postpaid sales year-over-year for a few reasons. First of all, the overall postpaid market appears to have been down in Q4 over last year, although obviously one of our major competitors has not yet reported. Based on the two reporting, that would seem to be the case.

On reflection, possibly the lack of heavy family plan marketing in the industry drove prepaid sales. Secondly, prepaid per-minute rate plans continue to move closer to postpaid rates in the marketplace. Specifically to us, in the fourth quarter, we tightened our credit acquisition policy in October, resulting in approximately 20,000 less postpaid subs added year-over-year. Looking at that policy, it was clear to us that the clients we were bringing in were not net present value-positive so we made a decision early in the fourth quarter to tighten that policy. I also believe the depth of our handset lineup was not a strong as our competitors' in some segments of the market. Finally, I believe that our distribution channels are truly adjusting slower than I would have liked to see in terms of our move away from a sales strategy based on price to a strategy based on product benefit selling.

So going forward to the next slide, it's clear that we must be in a position to consistently capture 30 to 33% of the market subscriber growth while at the same time narrowing the gap in ARPU between us and our competition. So as I discussed at our investor day in December, our strategy in 2007 to improve gross sales is driven by a number of things. First of all, I again remind investors a significant expansion in the amount of distribution we have with 100 new points of presence being built out. We will also be refreshing the look and feel of our own stores and looking to continue to improve our relationship with third-party national retailers.

From a customer perspective, we continue to make significant investments in our network, particularly in the urban markets and the continual rollout of our EV-DO broadband services. We also will address aggressively some of the handset issues we had in the fourth quarter by making sure we expand our handset lineup such that we have a fully competitive offering in the marketplace.

In terms of the discount market, primarily at this point, driven by the Fido brand of Rogers, we have begun repositioning the solo brand to compete head-to-head with Fido. We will make a number of investments, both from the distribution, product and branding standpoint going forward, to make sure we are in a position to also capture our fair share of that discount segment but by not utilizing the Bell brand, utilizing the Solo brand.

Finally, our pricing actions that we implemented in 2006 will clearly pull through in 2007 and help us from an ARPU perspective, but clearly, we will make sure that we react competitively in the marketplace to work ourselves into a position where we are obtaining that 30 to 33% share of the market we need to achieve.

Turning to the next slide, I just want to bring to the attention of investors that, effective January 1, we have changed our prepaid deactivation policy. It will be much more in line now with the norm of the wireless industry in North America, where the termination time for unused prepaid--clients not using their phone--will go to 120 days from 240 days. Now, this will result in the removal of 146,000 prepaid clients who are currently not generating revenue. This has no impact on our revenue in 2007 and will have no impact on our EBITDA in 2007. It just aligns our churn policy more consistently with the competitive marketplace.

Turning to video, Bell ExpressVu continued to enjoy steady growth as ARPU improved $3 across the base year-over-year. EBITDA growth was 30%, while churn continues to remain excellent at 1%.

From a subscriber growth perspective, our direct channels were very strong, while our retail channel sales were softer than we would have liked. We look forward to improve our retail sales of video as we expand, again as I mentioned, with wireless, the number of locations we have and a refresh of the Bell world stores through 2007.

Overall, video had excellent year from our perspective.

Our high-speed Internet business had reasonable net adds of 59,000 in the quarter. Revenue growth of 15% for this year was aided by an approximately $1 increase in ARPU in 2006. We are particularly pleased that our churn rate continues to improve, as our investment in Fibre-to-the-Node and DSL hardening is beginning to pay dividends with our customers. We anticipate steady sub growth and improved ARPU and EBITDA margins for our video and DSL business in 2007.

Turning to our Business segment, our SMB segment continues to execute well in the market. We continue to see steady revenue and EBITDA growth in this segment, and as I mentioned at our investor day, we will be investing in expanding our channels in 2007 to ensure we have the market covered entirely.

Our enterprise group actually had its best year-over-year EBITDA quarter by comparison to the other quarters during the year. So we are beginning to see some signs, although early, of some pricing discipline in that group, in particular a little bit of help in some of our historical access revenue.

We were successful in signing contracts valued at over $850 million in the fourth quarter.

Overall, the Business segment focus on recurring revenue, versus hardware sales, combined with the productivity improvements, resulted in an EBITDA improvement of 11.5% in the quarter, while total revenue was flat year-over-year.

So, in summary, as again we chatted about at the investor day in December, our focus continues on profitable revenue growth within our business segments, a focus on recurring revenue versus one-time hardware sales at low margin. Clearly, to drive that profitable revenue growth, we have to achieve our fair share of gross adds of the growth portfolio, and particularly on the wireless side, as we need to do that and at the same time improve our ARPU in comparison to our competitors.

Our growth portfolios have to continue to provide improved EBITDA flow-through north of 50 and 60%, and we are seeing some of that now but obviously can't be at the expense of lower gross adds. It has to be at the expense of expanding margins through ARPU and cost controls.

On NAS stability, in 2007, we believe execution improvement in our winback programs, our ability with forbearance in the second half of the year to improve upon that process as we will be much more flexible in the marketplace, our ability to react to competitors and our ability to do even further segmentation post-forbearance we believe puts us in the position to make the comment that we believe, in 2007, we will see some stability in terms of NAS losses over 2006.

Repriced management of our traditional services continues to be critical to maintaining the margins that we are targeting for the year. We've begun to see that improvement in our LD portfolio. We look to continue to see that improvement in 2007. Having said that, our focus on our productivity continues in 2007, as we chatted at the investor day, over $400 million of productivity improvements targeted to make sure that we are in a position to maintain the margins as we migrate towards our growth portfolios.

Finally, our CapEx investments probably best described as investing in broadband markets, be it on the wireline or wireless side, with specific investments in Fibre-to-the-Node and continued investments in EV-DO.

So the strategy continues the same--execution focus in 2007. Also, as we are doing that, making sure that we're capturing our fair share clearly of the growth portfolio subscriber growth.

With that, let me turn it over to Siim.

Okay, thank you, George, and good morning, everyone.

I will start on Slide 15 with a quick financial review of how we finished the year. While Bell's total revenue growth was flat this quarter, the underlying growth in service revenue streams and the improving contract funnel that we are seeing in the enterprise business continues to shape our expectations for an accelerating topline growth trajectory in 2007.

You've heard that hardware revenues did decline in the quarter. That's a low-margin part of our business. Therefore, it did not affect EBITDA performance.

I will add that, in the fourth quarter, revenue growth was also impacted by the one-time contract that we secured in 2005 to provide network restoration provisioning in parts of the U.S. that were hit by Hurricane Katrina. That contract delivered $17 million of non-recurring revenue in the fourth quarter of 2005.

Bell's EBITDA growth of 2.7% was the strongest quarter of EBITDA performance in 2006, reflecting the profitable growth in service revenues and a step-up in our cost-reduction programs. While lower subscriber activations in the quarter did benefit EBITDA somewhat, this was offset by higher spending on marketing and sales initiatives and a more conservative overall level of bad debt provisioning across the Company.

With the level of EBITDA performance in the quarter, Bell's margin improved by 1 full percentage point to 40%. On a full-year basis, that brought Bell's margin to 42%, delivering on our performance objective of maintaining a constant margin as our business mix transitions.

EPS before gains and restructuring costs was $0.44 this quarter. That reflects about $0.05 of higher year-over-year pension and benefit expense. That's very much consistent with what I've discussed for past quarters this year. At our investor day in mid-December, I outlined our expectations for an improved valuation position in our defined benefit plan as a contributor to improved EPS in 2007. Asset returns for the pension plan in fact remained strong through the end of the year, and consequently, the plan's position at the end of 2006 has improved further to a solvency surplus now of about $100 million. With that improvement, we now expect to see lower pension expense in 2007 over 2006 of approximately $0.04 per share. I think I spoke of $0.03 per share at the investor day; we now see $0.04.

Our reported statutory EPS in the fourth quarter was $0.84 per share, compared to $0.44 in the fourth quarter of 2005. Included in that $0.84 is a net gain of $0.48. With the execution of a definitive agreement in December for the sale of Telesat, we recognized a gain in the fourth quarter to set up a tax asset on our books. That tax asset is equal to the value of the previously unrecognized capital loss carryforwards which will be applied against the gain when the Telesat sale closes. The gain that we recognized here was booked as a recovery in our income tax expense line. That resulted in a low effective tax rate in the quarter. Excluding that benefit, our effective tax rate for the year came in at approximately 25%, which is in line with the guidance I've previously provided.

Also in the quarter, we incurred restructuring costs relating mainly to the closure of real estate facilities and severance costs.

Let me provide a bit more color on the next slide on our EBITDA performance and how we delivered against our cost targets. As we've said this morning, our focus in the quarter has been on driving our base of recurring service revenues and improving our business mix and profitability. Over the course of 2006, we've demonstrated our ability to deliver sequential improvement in EBITDA, despite ongoing declines in the higher-margin legacy side of the business.

The contribution from our growth businesses continues to improve, as does our control over operating costs. Together, these are exceeding the year-over-year EBITDA declines in local access, long distance and legacy data, and doing so at an accelerating pace. That's what's driving our improving rate of EBITDA growth, quarter-to-quarter.

Importantly, when we look at the fourth quarter, as a result of the pricing actions we've taken, local access revenues were essentially flat over the third quarter despite continuing NAS erosion and despite an $18 million hit in the quarter from CRTC-mandated local rate reductions under the price caps regime.

In the quarter, efficiency gains of $223 million contributed to offset the impacts of product mix changes, resulting in an overall reduction in Bell's total operating expenses of close to $50 million in the quarter. We achieved savings of 125 million relating to procurement initiatives, as we continue to reduce costs paid to our suppliers for handsets and other equipment, as well as savings in IT and billing spend.

Process improvements contributed a further $98 million of savings in the quarter. These were achieved mainly through efficiencies at the business-unit level and in our call-center operations, as well as in the corporate center, and I would say through general disciplining discretionary spending across the Company. The process improvement savings were driven in large part by ongoing headcount reductions in the workforce. In the fourth quarter, despite the addition of over 200 temporary staff to help deal with some higher seasonal workloads, we were still able to reduce the overall workforce by a further 100 positions. So all-told, in 2006, we effected 3300 employee departures across our wireline business while adding about 500 positions in the growth segments and in service-improvement delivery. So, the net resulting workforce reduction was close to 2800 positions.

I will now turn to Slide 17 on free cash flow and CapEx. On a full-year basis, free cash flow grew 24% over 2005 to reach $708 million. This captures the benefits of a $224 million reduction in CapEx with capital intensity decreasing year-over-year from 18.1% in 2005 to 16.8% in 2006. Bell's EBITDA growth contributed over 100 million of the free cash flow growth for the year, while increased dividend distributions, restructuring payments and pension funding cost $160 million more in 2006 over 2005.

Now, you'll see, on our balance sheet, that our Accounts Receivable increased by about 300 million at the end of 2006 over last year. The majority of this increase reflects the accelerated investment tax credits that we expect to utilize in 2007 that I spoke of on December 12, rather than anything to do with collections. Those ITCs will reduce our cash taxes in 2007 and therefore they are being accounted for as a current receivable.

In 2006, our CapEx spending was lower in the first half of the year and accelerated through the second half. That's in contrast to 2005, when a large part of our capital spending programs were in fact undertaken in the first three quarters, and then we saw an easing in the spend level in Q4. The higher level of spending in the fourth quarter of 2006 was on wireless growth and expansion, wireless number portability, Fibre-to-the-Node and DSL footprint expansion and investment in customer service and network quality, all positioning our business for 2007. So capital spending on growth and strategic initiatives increased to 73% of our total CapEx in the fourth quarter.

In wrapping up now, I would say that the pace of our execution throughout the year has shown steady progress, positioning us as a stronger company entering into 2007. We have continued to focus the business on profitability through growth and recurring service revenues. We are improving the ARPU of our growth services. We are managing through the impacts from local line losses to competition as our business mix continues to strengthen. As local competition becomes more advanced, we are also gaining ground with winbacks and other measures helping to shape expectations for an improvement in the trajectory of line losses going forward. We've maintained margins through careful cost management, and all of that has led to steady improvement in EBITDA growth, quarter-to-quarter. As we've outlined today, we believe we've also taken action with clear initiatives in place to make sure that we capture our fair share of the wireless postpaid market. Finally, our reduced pension expense in 2007 should also help yield meaningfully higher operating income. All of this is consistent with the guidance for stronger performance in 2007 that we laid out at our December investor day.

So with that, I will turn the call back to Bernard to begin our question-and-answer period.

Okay, thanks, Siim. We will now move to Q&A. I see there's quite a few people queued up to ask questions, so I would ask you to restrict yourself to just one question. So, operator, could you just remind people how to place a question? Then we will move right into the first person in the queue.

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

Good morning. A question I have is on capital allocation. I can appreciate that this is probably one of the most difficult things that you guys face in terms of decisions. Let me phrase it this way. If I'm looking at your strategic priorities, the top two being enhancing customer experience and delivering abundant and reliable bandwidth for next-gen services, and I put that up against what seems to me as an increase in usage over the last year in terms of things like high-definition, but what I'm more worried about increasingly is video downloading on the Web. I'm thinking of Videotron's potential 100 meg products when I'm noting that. It seems to me that--or I'm wondering if your current broadband strategy is enough to remain competitive. So, I wonder if you might address a couple of things. Number one, do you share that view that the necessary bandwidth has materially changed in the last year? Number two, is BCE a leader or a follower in broadband service? I guess from asking is, for example, if AT&T were to announce greater Fibre-to-the-Home investment, would that have a big influence on your strategy?

Well, I will make a couple of comments. George, you may want to comment on some of this as well.

In direct answer to the questions that you posed, Greg, as our perception of bandwidth requirements change, I think the short answer to that question is no. We continue to have a lot of success in the rollout of the Fibre-to-the-Node plan that we have. We continue to be of the belief that that's the right way to go. I think the issue here is bandwidth has--that has real value to the customer, not just raw bandwidth capability, and we believe that with the bandwidth potential that Fibre-to-the-Node delivers for us and with step-by-step improvement in compression technology, that they roll out now and in the coming period--we are very comfortable with our ability to deliver utilizable valuable bandwidth to our customers and, on that basis, to also deliver by monetizing the value of that bandwidth to deliver value to our shareholders as well.

Second, on your question about whether or not somebody else changed their mind on this, what impact that would have, a couple of points. You know, two or three years ago I guess, we were doing a lot of work on Fibre-to-the-Node at that point. I'm pleased to say--and I don't think this is a secret--that we were working on that and brought (indiscernible) SBC into that work. I think it's fair to say that the work that we were able to do collaboratively there had a significant impact on their strategy. So, I'm not sure that it would be appropriate to characterize what we're doing here as following, per say. I think we think that we've done some pretty innovative and creative things here that are actually being followed elsewhere in the industry.

I would just also remind you, Greg, to state the obvious, that there are others. Verizon is one example of people pursuing another strategy. That hasn't influenced our thinking really one way or another. We are comfortable with where we are.

Now, the world--we continue to monitor this all the time, continue to be very much aware of what's going on in other--not just in the United States but elsewhere in the world. We continue to look at that situation very carefully. But today, we feel very good about what we're doing and the bandwidth that we're going to be able to look to deliver.

George, anything you want to add?

Well, other than to say that we clearly see the requirements for the video and as you mentioned, the HD development in the video market, and so the strategies we are pursuing, for instance in IPTV, clearly reflect that requirement for demand. That's why the investment in Fibre-to-the-Node (indiscernible) we are completely comfortable with our position in the marketplace to execute on that strategy.

Okay, just as a quick follow on, I didn't mean to imply that I thought you were a follower, but things change over time, right? So, you know, AT&T is a different company now than when it was just SBC. So we're just trying to understand, as technology evolves, and more importantly, as usage evolves, is your thinking changing in terms of the requirement for bandwidth?

Well, I think--let me answer the question if I can. We've talked about IPTV a number of times. We absolutely believe that there is some sense to following the scale that you see developed in the U.S. and that one we think is really prudent for our shareholders and for the Company to do so. We are not offended by your comment one way at all.

Peter MacDonald, GMP Securities.

Can you elaborate on these proceeds from the Telesat sale? You've announced a Normal Course Issuer Bid, which is about 1.2 billion. Your own estimates are 700 to 900 million in free cash flow, which will pay for the majority of that buyback. Now, I know that you haven't received any proceeds yet, but other than a major acquisition, I don't see why you can't give us a use of proceeds, pending receipt. If you are unwilling to give us that, I think the expectation in the market will continue to be that it's an acquisition as the main use of proceeds.

Look, as I said, the Telesat process is moving forward as expected. There are, though, at least three other approvals that need to be received here. It is a major transaction. I don't want to be misinterpreted here. We are confident about that and we don't see any flashing orange lights or anything with respect to that. But there is simply a matter of prudence here in terms of getting a little bit further down that path before we start making commitments, commitments that obviously we take seriously with respect to use of those proceeds. I think the two principles that I mentioned earlier do provide some structure around--let me put it that way--some structure around our thinking.

I guess I would also point you to the track record of the past period, in terms of how we think about things. The dividend increases announced, I think the increase in dividend was more than 20% I think now over the last couple of years, the distributions from Bell Aliant, the two Normal Course Issuer Bid, etc., a lot of activity there. So I think we've established, I hope we've established our (technical difficulty) in this kind of area. So, we will see how, step-by-step how the Telesat process proceeds, and then I think, at the appropriate time, we will be able to clarify it.

So I just want to caution everyone because I read all of your reports as well and I see all sorts of speculation about what we may or may not do. I just want to caution you about that and just encourage you to think about this more, about more--as our thinking driven by prudence than it is by anything else.

Given your past performance and the statements that you just made, would it be fair to assume, then, that an acquisition or major acquisition is not part of the essential use of proceeds?

You know I'm not going to answer that, but good try anyway!

Jonathan Allen, RBC Capital Markets.

George, we've talked about some of the weakness in the wireless net adds, but I'm curious about some of the staff increases that you put through, both on the postpaid and prepaid side, most notably looking at your postpaid gross adds being down, from out my estimate, down about 25% year-over-year. I agree that there must have been some softness in the overall market but I wonder, in talking with some of the third-party dealers, that it does seem to be that pricing increases have hurt you competitively in this last quarter. Looking back on those price increases, are you now in hindsight questioning whether or not you should be going forward with some of those rate increases?

Not at all. The execution in the quarter, we had to be very, very careful, Jonathan, in our analysis of what happened, so we understood the issue, particularly because of our move to try to narrow the gap between us and our competitors in ARPU. A number of data points come through, one by way of example in the Aliant territory, we didn't introduce the change in staff in the fourth quarter, and so we have benchmarked against that impact on postpaid versus the impact on postpaid in the Ontario-Quebec market. It wouldn't support the fact that the staff was the issue.

Secondly, we introduced it on prepaid as the only player in the country and saw prepaid volume increase across the board and did not do that in the Aliant territory and saw the same increase. Not to say that, on the edge, clearly, you have to be price-competitive, and some of that pricing can have some of the impact. But as I took the--said on the call, about 20,000 of that is clearly the change in our credit policy. Clearly, some softness in postpaid, an also from an execution perspective, the change in our distribution approach to more product-based selling and price-based selling, which is different than the staff issue, clearly is taking longer than I want to see it happen. So no, quite happy we put that through and fairly comfortable that there would have been some change for sure in subs but not to the type of number we're talking about that we know we need to make up.

Okay, if I can ask you a clarification question, George? You mentioned that the Shaw wholesale lines are slowing in contribution this quarter. Is this just a result of Shaw putting more of their lines on net themselves without your assistance?

Yes, yes. I don't want in anyway to have that infer anything about Shaw's results. That's because of what they are doing, nothing to do with their business, so make sure that is really clear to people on the call.

So going forward, though, I think you have something in the order of 300,000 wholesale lines. Should we start to see the business lines or business wholesale lines declining in future quarters?

You will see the impact of that. I know Bernard will be happy to talk to you after the call with a little more detail on that, but definitely some of that positive that we had seen from that, we're not going to see going forward.

Okay. Just before Bernard cuts me off, Siim, can I ask you one clarification, a very quick one?

This is the longest one question I've ever heard.

It's one question with two clarifications, which I don't really count as a question but maybe Bernard does. (multiple speakers) In your previous guidance talking about capital structure, you mentioned 1.5 times or less target net debt to EBITDA. Is that just including the Bell Canada-only debt without the corporate debt?

Well, at this point, with the simplification exercise that we've completed, we would be looking at Bell Canada and BCE debt on a consolidated basis. In the fourth quarter, in fact, we retired early just a little over $1 billion of BCE-level debt, so that in fact, there's very little BCE-level debt outstanding still. So those targets would apply to the company that we will be going forward with in our reporting, which is the combined BCE/Bell Canada, excluding the Bell Aliant trust and excluding Telesat.

Simon Flannery, Morgan Stanley.

I wanted to talk about the data segment if I could for a second. You've highlighted this as part of your growth revenue stream. However, the revenue dipped negatively this quarter. If I look at Verizon, they reported 9.5% data revenue growth in the fourth quarter. So can you give us a sense of what your hopes are? Can you start to get into these sort of back into--at least low single but certainly with the potential to get mid single/high single growth rates over the next few years and reverse some of the sort of slowdown we've seen in the last couple of quarters?

Yes, it's George. Let me answer that. You know, the data obviously--on the recurring revenue side on the data, investors should be comfortable, particularly when I talked about the 15% growth that we saw in our broadband year-over-year. The issue in data for us has really been impacted on the hardware sales side where CPE equipment on the data side that has been sold historically at very low margins, we are moving as much as we possibly can and as fast as we can to manage service arrangements. That has clearly had an impact on our overall data revenue. Not specific--so you really have to get underneath the data between new services and recurring revenue and hardware. That's why we made the point on this call that our hardware revenues in total are down 6%. That is primarily found actually in our terminals and other end in our data line. Hopefully that's helpful. Clearly, we have an objective to move that data line forward. We will see that through our broadband investments that we're making.

Is that going to start to turn in the first half of the year or it will take a little bit longer?

I don't want to get into a detailed specific guidance on a line-by-line revenue here on the call, but clearly, we know that's where the growth opportunity for the organization is going forward.

Vince Valentini, TD Newcrest.

Yes, thanks very much. Just to clarify on that last point first, when you say 51% of your revenue is from growth services, correct me if I'm wrong, but you wouldn't include all of data revenue in that because there's a legacy component of data at all?

Yes, that's right, Vince.

Okay, great. Just on the timing of the use of the proceeds from Telesat, it had been indicated that you would say something during Q1. Michael, you seem to be indicating now that you want to wait for all regulatory approvals first, which I think could take you well into Q2. So are you telling us that we won't hear anything from you definitively on the use of proceeds for--until Q2 now?

No, Vince, what I'm saying is we will monitor progress and as that progress is made and as we get to a point where we think it's prudent for us to clarify this and to outline what our plans are, that we will do so. If that moves along as we certainly hope it does, then we will move as quickly as we can. Hopefully, that's in the first quarter or certainly before we report our first-quarter results, etc. So we're going to try to move as prudently and as quickly as prudence permits us to move to address this issue. We understand that there is an understandably high degree of interest on the part of our investors with respect to this issue.

Lastly, Siim, I think I know the answer to this, but just to clarify, all your guidance continues to make the theoretical assumption that you still own Telesat, your '07 guidance, that is?

Well, if you look at the cash flow guidance that we provided at our investor day in December, we actually showed a bit of a chart building up the total BCE consolidated free cash flow. That broke out what the cash flow would be before Telesat and after Telesat. On the EPS guidance, it is on the basis of Telesat being sold partly through the year.

Glen Campbell, Merrill Lynch.

Yes, thanks very much. I wanted to drill down a little bit on winback activity. Could you talk about how much benefit you got from the acceleration on the winback growth from 12 months to 3 months? Was that (technical difficulty) only or have you fired it up in Ontario, too?

Then in the long distance area, could you maybe give us a sense of what proportion of the customers you're living, [where] Bell long distance customers? This seems to be one of the bullish points here as you're probably winning them back on your long distance and the ones aren't losing aren't necessarily yours?

Well, on winbacks, I won't give specific numbers. Glen, I'm sure you would understand that. But quarter-over-quarter, we are seeing an improvement in our winback rate and obviously up significantly over last year because we virtually weren't allowed to be in that business, you know, I mean significant percentages. So what we really trying to monitor is that every month, in absolute clients, we grow our rate of winbacks, and that is happening.

We are also seeing that winbacks are actually coming in, as we mentioned before, at a higher ARPU than clients that we lost, so that is really the focus.

With forbearance, as Michael said, hopefully mid this year, our ability to win back and frankly retained clients is going to, we think, change again. That will be another core competency we will build into the organization and work towards to try to even slow the rate of erosion in the organization. So I think the best I can give without giving details--and I don't want to do that--is that, every month, we are seeing an improvement in that area and also seeing we are winning back at a higher ARPU, and although there is an acquisition offer obviously when you do that.

In terms of the LD, you know, we are just trying to work very, very hard at making sure that if we lose a client who takes LD with them, that that's what we are seeing an erosion and trying very hard to defend pricing erosion in our LD base across the residential side, and also a lot of discipline being brought to bear by our leaders on our business unit side. I think the rate of decline in LD year-over-year is a remarkable achievement, given a year ago we didn't have the NAS erosion that we had this year. I think we can continue to improve upon that, and that's important because it's great margin for us.

Just to clarify on that last point of view, I guess what I was trying to get at is the customers you're losing to cable, are they typically your long distance customers or are the disproportionately heavy users who might be on a third-party long distance service anyway when they go to cable?

They clearly start off disproportionately in those that have their LD somewhere else. If you think about the likelihood of migration, it would be the client that has multiservices from us is clearly the stickiest client that we have, and that's why our strategy towards multiservice households.

Okay, thanks.

Glen, the only other thing I would say is you mentioned about Ontario versus Quebec on winbacks. Just very quickly, I would say that our successes there span both markets and we feel comfortable about the progress being made in both. You kind of suggested that it might be more in one market than another, and that wouldn't be right.

Marje Soova, Goldman Sachs.

I wanted to go back to the Wireless segment for a minute. If you could give us a little bit more color on the strength in the prepaid segment, how much was it solo versus the MVNOs and how do you see that number versus also just overall marketing and campaigns, where do you see the strength?

Then on the postpaid side, you gave good color in terms of what happened in 4Q. If you could help us also understand what would actually help accelerate the growth in postpaid going forward and what could be the potential impact on margin. Thank you.

Sure. Well, on the prepaid side, Virgin definitely contributed to our prepaid growth, which is our MVNO. The solo strategy of course is a move towards programs similar to those of Fido, so much more as it rolls out will be more postpaid than particularly prepaid (technical difficulty). But we definitely saw a move to prepaid. I think the move to prepaid, as I mentioned, not solely driven by but driven by two things. There was probably the lowest amount of family plan marketing by the industry that I've seen in a number of years, and that tends to--family plans tend to drive clients to postpaid plans because of the advantages of family plans.

Secondly, the gap between prepaid and postpaid air time rates has narrowed, so in terms of gift-giving, prepaid actually fits because of the obligation the client gets when they receive the gift and if the air time rates are similar, you see that. So those two things we believe, on top of other things, generally led to that swing.

Going forward, I actually think--and I apologize if it's not clear to people on the call. I tried to address what we're trying to do going forward quite clearly this year to grow and make sure we capture the appropriate growth share of the market, including our fair share of postpaid. Rather than go through them again, it is Slide 9 I refer you to, to look at, in terms of what we're going to be doing.

In terms of margins, I think I don't see an impact on our margins by the growth strategy we have, other than improving our ARPU, which helps grow wireless margins. Hopefully, I've answered your question.

So for example, you mentioned the handset selection is one of the issues, so I was just wondering if you have any sort of specific plans to improve the handset selection, maybe to higher (indiscernible) subsidies on the postpaid side. I think the Slide 9 is very helpful but I guess what I was looking for is maybe that kind of top three that you expect to accelerate immediately or have a more near-term impact.

Well, I think the problem with that is I would be saying good morning on the call to Rogers and Telus as well, so I'm just not going to go that granular, other than to acknowledge the fact that a broader handset line-up, a very disciplined execution strategy in the discount market with solo and an aggressive expansion distribution are three important parts of our strategy to be able to increase ARPU and at the same time grow market share, which is a challenge in itself and one that we've got to step up to here as an organization.

Jeffrey Fan, UBS Securities.

Thanks very much. My question is on the NAS erosion and to your expectation that it's going to stabilize. Can you just clarify once again for us what you exactly mean by that? Is it the rate of decline on residential is stabilizing? Are you referring to both residential and business, or are you referring to the total number of lines declining on a year-over-year basis being stabilizing?

Yes, to be clear, it's the absolute number of residential decline is our focus to get that stabilized. We clearly understand if it's the same absolute number year-over-year, their percentage is different and therefore higher. But the goal is to get that absolute number stabilized so the dollar revenue decline we're seeing of that stabilizes in the organization. That primarily comes from us having the ability to begin to win back clients. If that growth in winbacks to help us offset the decline, even if the market machines we are competing with improve on their gross, they for the first time are going to have to churn. So our goal obviously is to make sure, as those clients churn, they return to Bell Canada. So absolute unit of residential is what we are talking about.

Just a quick follow-up on wireless, this is the last call before we get into number portability. George, I just wanted to maybe get your perspective on how you see the market developing through this period?

Well, I think it's a good question and we talked about it at the investor day. I think, first of all, as I've said over and over again, churn in the industry will not go down with the bringing of LNP. So whatever churn is, it will be higher than it would have been without it. When that goes up in absolute, it remains to be seen, because we continue to see remarkable churn on our postpaid side, not just by us but also by our competitors. So, I think you won't see churn decline, and there may be different channel strategies, retail strategies that we will see unfold, that people have seen in different markets around the world executed on. So you could see different results in the marketplace depending on competitive dynamics. It's hard to predict here, other than what I've said before. There is no way churn goes down in the industry in 2007 as a result of LNP.

Dvai Ghose, Genuity Capital Markets.

Thanks very much, George. On the wireless side, apart from the prepaid surprise, two things which I found a little inexplicable--your postpaid ARPU is up $2; your SAF is up $2, suggesting that there was no other real driver of postpaid ARPU growth. Now, I understand you didn't introduce the SAF in Aliant territory, but that's relatively small. So, was there no growth in data ARPU to offset any voice declines? What does the overall organic ARPU environment look like? Because it looks like you were only driven by SAF.

Also, on the COA side, it seems that there was less marketing on the postpaid side for the whole industry, including yourself, in the quarter. You had the worst prepaid/postpaid mix. Prepaid customers generate generally much lower COA than postpaid, and your total COA was up 8%.

The last question is on retention. Industry spending a lot of retention ahead of number portability to Jeff's question--do you see any easy of that if in fact churn is relatively benign, post-number portability?

Okay, let me try to answer the one question you asked me. Okay, on SAF, Dvai, what's important there is not the entire base (indiscernible) the SAF increase because people on contract don't see it right away, so it's not $2 on the entire base. So, that's the first point.

The second point is, yes, we saw the increase in data revenue year-over-year, so that plus the SAF and other changes had the impact on the postpaid ARPU, so not the entire base; never mind the Aliant base, not the entire postpaid based of Bell Mobility saw the SAF increase because of the contract. The contracts come due people renew, then you see that. So that would be the SAF answer.

On the COA, you're absolutely right. The COA increase really is driven by an expectation for higher gross adds than we had on postpaid, so the marketing spend, from a Marcom perspective, takes place and it gets divided by a lower number of gross than we wanted, so we saw the COA increase. Having said that, if you took our COA costs over the lifetime value of the revenue now versus a year ago, divided, there would be no debate as to whether or not we created more value even with that increase.

Then the last one was on retention. Retention spend, you know, in the industry tends to be 5 to 7% of revenue. We are in that zone as well. Do I see a reduction in retention, post-LNP? No, not at all. If anything, you might find more pressure on it because of the--what would be argued an easier movement for clients than in the past.

The only thing I would say is, in our case, more than 90% of our clients on postpaid are signing up to three-year agreements and have been for a long period of time now over the last year or so.

Amy Glading, CIBC World Markets.

Thanks for taking my question. Just one on the video business. Now, we saw a step-up in margins across the first half of 2006, but it seems to have fallen off a little bit in the last two quarters. I'm just wondering if you're able to provide some more color and expectations for the pace in 2007.

Yes, let me give you a little bit on that. I'm not going to give you a specific number. We are looking to continue with the ARPU improvements we are expecting in that business, the steady subscriber growth, to continue to see some margin expansion in that business. We're pushing very hard, as we mentioned, all the leaders of our growth businesses to provide higher EBITDA flow-throughs up ultimately that drives those margins up.

I'm not going to give you a specific number, other than to say, clearly, in our outlook for next year, as we talked about the investor day, is implementing pricing where we can in the marketplace and remaining competitive with what we've seen. But we have seen some of our competitors have moved pricing in January, which we think gives us some opportunity for some margin expansion in the video business for next year.

Okay, perfect. Thanks. Great.

Operator, we just have time for one last question.

John Henderson, Scotia Capital.

Thanks for getting me in. A question on--well, I might have a multi-part. (LAUGHTER)

You and everybody else!

Exactly. Anyway, on IPTV, I just wonder if BCE is absolutely committed to Microsoft, given what we are seeing in terms of timing and delays there, and if you have any update on readiness or timing of that product.

John, the answer is, you know, we have a very, very strong and broad relationship with Microsoft that extends, as you know, well beyond IPTV itself. In the context of that relationship, certainly our intention is to continue working with Microsoft as they roll out not just the current version of IPTV that they have rolled out with some other carriers but also the next iteration of that product that they will be rolling out relatively soon. That's the so-called 1.2 version of MSTV is the one that we have greatest interest in, given the richness of its functionality, which we think is significantly differentiated from cable companies. So we are continuing to work on that very closely with them, have a lot of work underway in our labs with respect to that, have some very limited trialing going on with respect to that. So we continue to work on that. We're going to continue to work with them. We will roll that out, as we said, in December when we are persuaded that it delivers the kind of customer experience that we want to deliver, bearing in mind that the early adopters of our wireline video product, our IPTV, will be customers we expect who have a substantial volume of services with Bell. Hence, we want to ensure that the experience that they have with that video product is something that is of an extremely high quality, which we think is the right way to get into the wireline delivery of video, given the presence of satellite. But we are very satisfied with the working relationship with Microsoft and we see that going forward.

Great, thanks. A follow-up on Forbearance and the Forbearance order--just it appears to be hitting some resistance with the Standing Committee, and I wonder if that is sort of standard issue for you or do you have some concerns there?

No, we are very confident in the Minister of Industry's commitment and the government's in general commitment to move forward with this, so we continue to have a steady-as-she-goes perspective on the final enactment of Forbearance and the policy directive and all the other very important changes that are made in the regulatory framework.

Certainly, we are possibly aware of the parliamentary process around it and obviously respectful of it, but notwithstanding that, we have a very high level of confidence that this will move forward and move forward in the kind of timeframes that I talked about in the earlier comment.

Lastly, maybe for Siim, cost savings or productivity improvements improved each quarter this year in '06 quite nicely, a little better than previous quarters. Is this a trend that will continue or should we see--you know, what should we expect for subsequent quarters or sort of the trend throughout '07?

Well, you are right. The pace of efficiency gains has picked up quarter-by-quarter over the last couple of years, in fact. The guidance that we provided for 2007 is $450 million of cost reductions for 2007. So, we will continue to get all of the cumulative flow-through benefits of the past cost reduction initiatives, but as we look at the business going forward, there's a lesser amount of cost that is necessary to take out in order to generate the type of EBITDA guidance that we've put forward, recognizing that the business mix changes are beginning to have a lesser impact on us.

Thanks very much.

Thank you. This concludes today's question-and-answer session. I would now like to turn the meeting back over to Mr. le Duc.

Okay, thank you. Thanks, everyone, for joining us on the call. We apologize for the people who we didn't get to in the Q&A, but the Investor Relations group would be certainly happy to answer any questions you would have and any other follow-up items. So thanks again and good-bye.

Thanks.

Thanks for joining us.

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