BCE Inc (BCE) 2007 Q1 法說會逐字稿

Welcome to the MTS 2007 first quarter results conference call. (OPERATOR INSTRUCTIONS) I would like to remind everyone this conference call is being recorded on Tuesday, May 8, 2007, at 4:00 p.m. Eastern time.

I will now turn the conference over to Ian Chadsey, Vice President of Investor Relations for MTS.

Thank you. Good afternoon everyone, and welcome to the call. Early this morning we issued our first quarter news release, MD&A and our supplemental package which are available on our website at mtsallstream.com. Since the AGM was webcast earlier today, we will not spend time on this call repeating the comments made at that meeting. That said, today's comments may contain forward-looking information related to the finances and operations of the Company including comments on revenue, EBITDA, earnings, cash flow, and CapEx. These statements are based on assumptions made by the Company and run the risk that our actual results may differ from those anticipated.

Statements made today reflect the assumptions of MTS as of May 8, 2007, and accordingly are subject to changes after that date. MTS disclaims any intention or obligation to update or revise the statements whether as a result of changing circumstances, future events, or otherwise. These cautionary statements are made on behalf of each speaker whose remarks contain forward-looking information. The Board of Directors today approved the second quarter dividend which has been set at $0.65 per share. On today's call we have Pierre Blouin, Chief Executive Officer; Wayne Demkey, Chief Financial Officer; John MacDonald, President of the Enterprise Solutions Division; Calvin Shepherd, President of the Consumer Markets Division; Chris Peirce, Chief Regulatory Officer. And with that I will turn the call over to Pierre.

Thank you, Ian. Good afternoon, everyone. Thank you for joining our call. And first let me say that we're very pleased that Ian has joined MTS to head up our Investor Relations group. We're pleased to have someone on board that knows the industry as well as Ian does from his experience at Bell Alliant. Welcome, Ian.

Earlier today we held our annual meeting in Winnipeg. And I can report that it was a success on all counts. It gave us the opportunity to demonstrate to shareholders the progress we have made over the past 15 months and discuss our plan and strategy going forward. Also today we released our financial results for the first quarter of '07. These results marked our fifth consecutive quarter of solid performance, and we believe demonstrate that we have continued to build on the positive momentum we established in 2006.

Canadian telecom remains a challenging and competitive environment. We can all appreciate this from the past few weeks events. And I'm glad that we took the past year to go through a full review of our business which has prepared us to succeed in an industry which is being totally reshaped through new regulatory policies, a changing competitive landscape, and an ever increasing technological evolution.

At MTS Allstream we have been focused over the past 15 months at making progress in strengthening the fundamentals of our business and executing on our business plan. I think we are a very different company today than we were at the beginning of 2006. We're disciplined, more focused, have an improved cost structure, and a clear plan which is enabling us to be more competitive than we have been in some time. And with the exception of revenue, which, as we expected has remained flat to down in recent quarters, we're showing gains in nearly every important performance metric, ranging from EBITDA and free cash flow to total customer connections, which increased about 3% in the quarter.

Over the past 15 months, we've restructured our business to build a solid foundation for future growth. Our disciplined consumer bundle strategy in Manitoba is successful. Nationally, we're a more solid competitor and we continue to be the leading competitor to either Telus or Bell in major enterprise markets. We've regained traction among large enterprise customers and even if it's early days, our mid market national initiative is showing promising results. We also continue to bring our cost structure in line with the demands of our markets. All in all, we are steadily establishing a stronger presence as an integrated national communications provider across the country.

In terms of ongoing operations, we've made progress in a number of areas in the first quarter. Free cash flow from continuing operations was up 5.4% to 91.6 million. Earnings per share from continuing operations increased 17.5% as compared to the first quarter '06. Revenues from growth services were up close to 10% and represented 37% of revenues compared to 33% in the same period in '06. And, once again, we delivered double-digit growth in terms of customers and revenues for each of wireless, high-speed Internet, digital television, and converged IP services. And while unified communication revenues were about flat in the quarter, John's team has plans in place to achieve double-digit growth in 2007.

So we're pleased with our results for the quarter from all our key financial metrics from continuing operations. With revenues being slightly lower than expected but looking ahead, we remain on pace to meet our guidance for 2007. Revenues from our legacy services, which include local, long-distance, and business data, were 293 million, down 9% from Q1 2006. But only 3% below the 2006 fourth quarter. This better performance comes from our focus on slowing down our (inaudible) losses for customer win-backs and disciplined retention programs.

Our revenue performance is still masked by the Rogers and AT&T contracts decline as they continue to migrate their wholesale business with Allstream to their own network. Excluding this impact, the first quarter 2007 revenues would have been down 1% compared to the same period last year. Among other highlights from the quarter, we gained further traction with our disciplined bundle offering in Manitoba, 16% of our customers have a bundled service compared to 10% for the same period last year. We saw real progress in our recently launched mid-market initiative in our enterprise solutions division, as we realized promising sales with 137 new signed contracts. On the cost side, we remain on track to achieve an additional 40 to 50 million in cost savings in '07, having achieved in the first quarter 17 million of annualized reductions. And Wayne will talk in detail about the financial highlights for the quarter in a few minutes.

I'd like to spend a moment on some of the key operational highlights. I will begin with the enterprise solution division. In the first three months of '07, the enterprise solution division continued to improve its business fundamentals and build momentum in the national business market. This is evidenced by the fact that the division contributed about 66 million of EBITDA for the last quarter.

Revenue from growth services, which are combined converged IP and unified communication services, increased 11% over the quarter the first quarter of '06. IP VPN customers grew to 193 in the quarter as demand continues to grow for MTS Allstream's next-generation IP-based services for business customers, and this is on par with Bell Canada. We signed new and profitable contracts with a total value of about $76 million in the quarter. These accomplishments, together with our ongoing cost reduction initiatives, contributed to a slight improvement in enterprise solutions EBITDA margin for the first quarter, relative to the first quarter of '06.

We're continuing to exercise strict discipline in our pricing across our markets and are gaining traction in the marketplace with significant new contracts, such as an MPLS network and IP traunching solution for Royal and Sun Alliance, one of Canada's largest property and casualty insurance group. A three-year agreement with the government of Newfoundland in Labrador to supply IT and information management services. A contract to provide communication solutions to the Elkhorn Resort and Conference Center and their Edmonton and Winnipeg call centers. This is an example of how our MTS and Allstream integrated solution offerings can meet customer needs with leading edge IP solutions. We successfully won a three-year contract with Sleeman to provide converged IP services and completed the sale with Fidelity relating to unified communications. So the enterprise solution division is making solid progress. And we can now feel much better momentum with its customers.

Now turning to the consumer market division, where we had another solid quarter. Wireless customers were up 12%, and wireless revenues increased by 14%. To support our continued growth in wireless we announced an initiative in March to expand our wireless coverage in rural areas of Manitoba by 30 new digital sites, bringing our footprint to 98% of the province. In 2007, we will invest about 15 million to upgrade digital wireless and high-speed wireless data services for customers across Manitoba.

High-speed Internet customers increased by 18% and revenues by 12 over the same quarter last year. Digital television revenues were up 41.4% to 9.9 million as the number of customers grew 27% from the same period a year ago. Our market share in Winnipeg for TV services is now at about 28%. And we crossed a major milestone after installing our 70,000th digital TV customer. This represents an increase of 30,000, or over 30,000 customers in less than two years, and demonstrates the strong appeal and the leadership of this service.

Our performance has continued to improve in the residential telephony market in Winnipeg. MTS lost about 3,000 lines in the first quarter, which followed the trend we experienced in the fourth quarter of '06. The 3,000-line loss is less than half the losses experienced in the first quarter of 2006. And we continued to see steady improvements in customer win-backs in the first quarter of '07 as we achieve an average of 53% of win-backs of gross losses. These success rates were not achieved through major price discounts but instead through specific marketing program and through channel sales. When we win back a customer, 80% tend to purchase two additional product lines, such as Internet and TV, along with the voice product.

On the regulatory front, it's been, I think we can say, a very active beginning of the year. The recently announced rules for deregulation of the local phone service signals the government's intention to bring accelerated deregulation to the Canadian market. The government has recognized that deregulation must be accompanied by fair access for competitors to the public networks controlled by former monopolies. By linking deregulation to competitive quality of service the government has provided the incentives for customers to receive full benefits of innovation and to enable the choice that competition can offer.

The new forbearance rule announced on April 4, essentially eliminates all restrictions for talking to customers and bring flexibility to our win-back efforts. The new rules also provide for more flexibility by removing preexisting restrictions on promotional offers. We believe this will be positive for our consumer business while not having a major impact on our national enterprise business. In response to new forbearance rules, earlier today we filed our application to be deregulated in the local residential market in Winnipeg.

With our application, we included the clear evidence required by the new rules to demonstrate the presence of the requisite number of competitors, and indicated that we would shortly file the required evidence to demonstrate compliance with the quality of service requirements. In so doing, our application is unique from all of the applications filed by the other incumbents, few of which provide the evidence required by the government's order.

Recently the CRTC also issued a price cap framework for large incumbent local exchange carriers, and we're pleased to see a decision that recognizes that residential and business markets have different states of competition. It highlights that competition is emerging rapidly in residential markets like Winnipeg, while allowing competition to continue to develop in the business market. During the quarter, the CRTC also rendered another positive decision for our company. The decision confirmed that we have been double-billed for basic service extension feature charges assessed by the incumbents for the last five years. The ruling will provide cost savings going forward as well as the recovery of past excessive charges. This is a strong signal that the CRTC is focused on continuing to ensure fair competitor access to incumbent networks.

So in summary, we are on plan to achieve our 2007 objectives with solid growth in growth services, strong results from our bundling strategy in Manitoba, and early positive returns from our new mid-market initiative for business customers. The hard work and dedication of our employees across the country continues to be one of the key drivers for our success. And I'd like to acknowledge them for their contribution. In the first quarter, John, Calvin, and I recently toured the country to visit about 5,000 of our employees to talk about our plans for 2007. I can tell you that nothing has given me more confidence in our ability to compete than that trip. And with that, I'll turn the call over to Wayne.

Thank you, Pierre, and good afternoon, everyone. As Pierre has mentioned, we're pleased to report our fifth consecutive quarter of solid financial results that are in line with our outlook for 2007. Our results for the first quarter underline the progress we have made to improve the fundamentals of our business. Before I review the results for the quarter, I'd like to highlight back in 2006 we announced changes to our organizational structure.

Under this structure, we created a consumer markets division and an enterprise solutions division. The consumer markets division focused on the consumer and small business segments and the enterprise solution division is focused on the mid to large enterprise business market. Following the required system changes, effective this quarter we are now reporting in this segmented format with prior period comparisons. In addition, starting with the first quarter of 2007, we're providing our revenues split between growth and legacy. We believe this will highlight our success going forward in offering growth services and will also show the increasing importance of our growth services as a proportion of total revenues. You will find this information in both our interim MD&A and supplemental package.

Let's now turn to the results. Our first quarter results from continuing operations show that performance has been quite positive compared to the first quarter of last year. Earnings per share was $0.74, up 17.5% from $0.63. EBITDA was 165 million, up 1.1% from 163.2 million. Free cash flow was 91.6 million, up 5.4% from 86.9 million, and revenues of 467.4 million were down 2.7% from 480.4 million.

For the first quarter reported results, compared to the first quarter of last year, earnings per share was $0.80, up 23.1% from $0.65. EBITDA was 170.2 million up 6.3% from 160.1 million. Free cash flow was 100.5 million up from 63.9 million, and revenues of 466.6 million were down 2.9% from 480.4 million. Our reported results in the first quarter of 2007 reflect items that are not from continuing operations, including a positive one-time adjustment of $0.10 to earnings per share related to a regulatory decision as well as restructuring costs. For the first quarter of 2006, items not from continuing operations include discontinued operations and integration costs.

The decreased revenues are primarily due to decreased legacy services, largely offset by the strong performance from our growth services revenues. Included in the decline of legacy services are reduced revenues associated with AT&T and Rogers as they migrate more of their telecom activities to their own networks. As the percentage of total revenues which comes from our growth services continues to increase over the balance of the year, we expect total revenues that are flat year-over-year, and when you exclude AT&T and Rogers, we will see growth in revenues. The strong performance in our growth services was the major contributor to our first quarter results.

Collectively, our growth services revenues increased by 9.7% to 173.9 million in the first quarter of 2007. Growth services now represent 37% of our total revenues, up from 33% last year in the first quarter of 2006. And include wireless revenues which grew by 13.9% on the strength of an 11.6% increase in cellular customers and a 2.7% increase in average revenue per unit. High-speed Internet customers also showed significant growth increasing by 18.2% from a year earlier. Digital television continued to show strong growth with revenues up 41.4% driven by a 27% increase in our customer base and a 5.3% increase in ARPU.

The popularity of our TV product is clearly demonstrated by our increasing market share, which has now reached approximately 28% in Winnipeg. Our next-generation data revenues, which includes converged IP and unified communications, were up 11.1% in the quarter, and our IP VPN customer count increased to 193, reflecting the attractiveness and growing demand for our innovative products and services available to business customers.

Our unified communication services generated solid results which were flat as compared to the first quarter of 2006, and slightly below our expectations. However, a healthy backlog and sales funnel suggests that the shortfall in this quarter is largely due to timing. We believe that we remain on track to achieve the expected double-digit growth in 2007 in this line of business. As expected, our legacy revenues declined in the quarter by 8.8% to 293.5 million in the first quarter of 2007, compared to the first quarter of 2006. Included in this decline is reduced legacy revenues associated with AT&T and Rogers. Customer migration to newer IP based growth services and reprice all of which continued to impact our legacy services revenue this quarter. Importantly, we've made significant progress in reducing these trends.

Our residential line decrease was 5.7% over the past year. In the first quarter, this equates to approximately 3,000 lines which was less than half the amount we experienced in the same quarter last year, is at the same level as in the fourth quarter of 2006 on a seasonally adjusted basis. This reflects the continued success of our win-back and retention programs and strength of our customer value proposition through our bundle strategies. In addition, with the recent CRTC decision on forbearance and the elimination of the waiting period for contacting customers lost to competitors, we will be able to further capitalize on our already successful win-back program. Of note, total customer connections, which include network access service, high-speed Internet, wireless, and digital TV, have increased almost 3% in the first quarter of 2007 when compared to the first quarter of 2006.

Moving to the cost side, operations expense was 292.5 million representing a 7.8% decrease from 317.2 million in 2006, demonstrating the success we've had with our TP 2 cost reduction initiatives in 2006. In 2007, our strong execution in reducing costs continues with our 2007 efficiency program in which we have identified additional cost reductions opportunities that we expect will achieve cost savings of 40 to 50 million in 2007. As of March 31, 2007, we've achieved annualized cost savings of approximately 17 million associated with these opportunities. Of this we've realized in-quarter savings of approximately 8 million. The expected costs associated with this program are 30 to 40 million.

First quarter EBITDA from continuing operations of 165 million was 1.1% higher when compared to 163.2 million in 2006. This increased EBITDA and overall improvement in our consolidated EBITDA margin reflect the strong performance of our growth services and the success of our cost reduction programs. First quarter earnings per share from continuing operations was up 17.5% to $0.74 when compared to the same period a year earlier. This increase was due to improved EBITDA along with lower debt costs, higher other income, and fewer shares outstanding.

Free cash flow from continuing operations for the quarter totaled 91.6 million, up 5.4% from 86.9 million in the first quarter of 2006. This strong performance is driven by higher cash flows from operations. The significant cash flows that we continue to generate from our operations are a very positive indicator of the sustainability of our dividend which at current levels represents one of the highest dividend yields on the TSX. Capital expenditures from continuing operations during the first quarter were 48.4 million, which is slightly lower than last year due to timing differences on various capital projects. Our capital expenditure requirements for 2007 are similar to 2006 in the 14 to 15% of revenue range. At this level, we're slightly below what you're seeing at other telcos as we are benefiting from the significant investment in state of the art networks that were completed over the past number of years in each of our divisions. Additionally, we also continue to benefit from our substantial tax assets. As many of you know, the Company expects to make no payment of cash taxes any earlier than 2014.

As we have stated previously, there are two items that impact our cash flow results that are not from continuing operations. The first is restructuring costs associated with our cost reduction programs, which are on track with expected costs to be 30 to 40 million in 2007. Secondly, our pension solvency funding which was estimated to be in the 15 to 20 million range in 2007. We've almost completed our January 1, 2007 actuarial evaluation and we are now expecting pension solvency funding in 2007 to be approximately 4 million.

Additionally, on the strength of solid returns from our pension assets and a slight favorable increase in interest rates, we are now expecting annualized solvency funding beyond 2007 to be in the 20 to 25 million range, representing a significant decrease from the 40 to 45 million that was expected based on our 2006 valuation report. We've also made significant progress with the 320 million share buyback program we launched last year. And as at the end of May 7, 2007, we've completed approximately half of this share buyback program, repurchasing 3.7 million shares for cancellation at a cost of 172 million. This share buyback program is being funded from the sale of noncore assets last year.

In summary, we had a solid and productive first quarter. We're firmly focused on our business plan and we're making progress in many areas that we have identified as growth opportunities. We're confident in our ability to deliver our expected results for 2007 in part due to our success in 2006, including an aggressive cost reduction program resulting in more than 100 million in annualized savings along with double-digit growth in our growth services areas, solid free cash flow, and an increasing proportion of revenue from growth services. Thank you, and we'll now be pleased to answer any questions you may have.

Thank you. (OPERATOR INSTRUCTIONS) Your first question comes from Jonathan Allen of RBC Capital Markets. Please go ahead.

Thanks very much. Looking at the revenue, it seemed a little light. You mentioned the unified communications revenue being flat year-over-year despite the guidance of being up, I believe, 45 to 50% during the year. I'm just curious how material this segment is to the overall data revenue. Can you give us some sense of the size?

Well, first of all, in unified communications, you're right, we are expecting significant growth in that area. It's also an area where we see revenues being somewhat lumpy from quarter to quarter, and we did have an excellent quarter in Q4. Which has some impact on the first quarter. When we look at the funnel and the backlog that we have in that area, we still are expecting to see significant growth in line with what our expectations were for 2007.

But as far as magnitude, are we talking about a segment that's worth $2 million or $50 million here?

Well, we haven't given out the number specifically with respect to each of our growth segments.

Well, without giving us specific details, can you tell us if it is a material contributor?

Yes, it's a material contributor.

Okay. One other follow-up question for you. I was delighted to see the rate increases for IP TV that you put through in the quarter. Could you give us a sense of, I guess, first of all how much the rate increase was, how it was applied, and whether you see room for additional ARPU growth in the segment?

Jonathan, it's Kelvin here. The rate increase is $2 on our basic service, and we implemented that, I guess, midway through January. Good results. We didn't really see any significant impact from churn or slowdown acquisitions at all, so I think in terms of the increase itself, it went pretty much as we expected. In terms of additional ARPU, while we're still focusing on some additional ARPU generators, including things like our video-on-demand service, pay per view, which is introduced relatively recently in the latter part of last year, and we're just starting to really get some traction in that area, future rate increases, I would say probably not in the near term but certainly on an annual basis it's something that we would look at, and we certainly see the competitive environment out there tending to do those on fairly regular basis.

And actually on that note, did you see Shaw in the quarter doing a similar rate increase?

Before Kelvin answers, Jonathan, this is Pierre, I think we're still the most expensive service out there, and even with that, our performance is still quite strong. For most of these services. But in terms of Shaw's actions--.

Yes, Shaw had actually -- I'm not sure of the exact timing, Jonathan, but I think either in early Q4 or late Q3 had implemented a very similar rate increase. In our case this was the second rate increase we'd done in eight months. So doing it in January was about as early as we felt comfortable moving.

Thanks very much, Kelvin.

Thank you.

Your next question comes from Glen Campbell of Merrill Lynch. Please go ahead.

Yes, thanks very much. You gave us a little bit of -- kind of clarity on the impact of Rogers and AT&T looking at the year-over-year comparison. How important was it in the quarter over quarter comparison? And I had a couple of follow-ups. Thanks.

The reduction in revenues would be probably a little better than half of the reduction that we saw in the quarter, and I think Pierre talked about what our revenue would look like if not for that decrease, at approximately 1%.

Okay, that's very helpful, thanks. And can you comment just generally on the in-region wireline business? You got just excellent margins there. Should we look at this as being a clean quarter, or were there any one-time influences on either the revenue or the expense side that might distort the reported margins in region?

No, there weren't any one-time items other than the ones that we've disclosed in our MD&A.

Okay, thanks. And just one quick one. Amortization was significantly than lower than last quarter. Is the Q1 run rate a good one to use for this year or is it abnormally low? Thanks.

Yes, the Q1 run rate is about right. You might see that go up a little bit. Essentially the decrease is due to some year-end adjustments we did last year to the valuation of our income tax assets and that had an impact on goodwill that was originally recorded in the Allstream acquisition, and as a result, it impact -- or lowers our amortization.

Thanks very much.

Your next question comes from Peter Rhamey of BMO Capital Markets. Please go ahead.

Further to Glen's question, but I'm going take the enterprise side. 27% margins in the quarter I think that's record results for you in the last few years and I'm wondering on that side I'm trying to reconcile that good margin performance and what it might look like going forward and the cost savings where you talked about $8 million of run rate savings in the quarter but -- sorry, in the quarter realized, 17 million on an annualized basis which really implies that it's only 4 million. So I'm wondering if there's $4 million of one-time savings here that occurred in the quarter that you don't expect to be repeated.

Well, let me just give you some clarity. Our target that we talk about in terms of the 40 to 50 million in savings would be an annualized number. So as we, let's say, whether it's take people out or make the associated changes to underlying expenses, we would see that -- those expenses then become realized each quarter. So that causes the difference there. If you're trying to match that up, though, with the decrease in expenses year-over-year, there would also be carry-forward impact from cost savings that we've seen in the other programs that we've had last year, for example, and then that is all offset partially by growth in our growth services where we would see cost increases, in fact.

Yes, I guess Wayne I'm just trying to look at the $8 million realized in the quarter, cost savings. I think I'm quoting you correctly. That 8 million in the quarter would be -- isn't that $32 million annually? As opposed to 17. Where am I going wrong on this?

It wouldn't be 8 million necessarily this year. It would be -- yes, that's an in-quarter amount, so the annualized number would be based on the 17 million. Maybe I'm not understanding your question right.

Your 8 million, I think, depending when it happened in the quarter and -- there could be some one-time portions potentially in there, but I don't think you can equate the 8 becoming 32. I don't think you can do that. The 8 that we've reported becomes 17 annualized.

Right. Well, I guess I'm--?

Some are pure in-quarter, and some will continue through the year. That's why it's 17 and not more.

Okay, very good. Okay. And so getting back to the margin question, 27%, I was hoping that one of you could comment on how you -- is that a one-time spike in margins here, or do you expect that that's very sustainable? The long-haul business typically doesn't have that high type of margins given the CapEx intensity is so low.

With respect to the margin question, we have, as I mentioned, segmented our results according to the way that we manage our business now, and that's a change from prior quarters. We also provide the numbers the way they used to be in the supplemental package. So the increase in the margins that you're looking at is on the new segmentation, which includes our enterprise customers across the country, including those that are in Manitoba, where we would have a larger margin, because a higher percentage of those customers would be on net. In fact, 100% on net, where as nationally we would supply those customers services partially through others facilities.

John MacDonald here. The other thing that impacted our first quarter results would be the -- some improvements we saw from the impact of those regulatory decisions we spoke to. That one regulatory decision in particular, as well as we have this ongoing effort to actually move more and more of our facilities on-net to actually improve our margin performance.

Okay, very good. Thank you.

Your next question comes from Sanford Lee of Genuity Capital Markets.

My question is in regards to wireless. So is MTS truly interested in becoming a national wireless carrier and if so can MTS really sustain your current 2.60 annual dividend per share and still pursue wireless expansion and I guess if that is the case is MTS prepared to cut its dividend for national wireless expansion?

I think it's way too early to talk about any of that, in fact. As you know well, and what we've said publicly there is that wireless is an interesting business. We run the one that's very successful on a regional basis, and we're well positioned, we think, if we wanted to consider that now. There's a whole long way before we get there. We're participating in consultation right now, giving our position with many others much later this year we will understand better what will be the rules around the auction, and depending on these rules then we will make a decision if this is still interesting for us and how we would go about it.

I think I have said a few times on this call that indeed, as you're saying, if we were to consider a full buildout of the country in a national wireless play, this would change the profile of this company, and, there are as well multiple other scenarios on how to do this with partners, through a consortium of multiple interested party across the country where we would be only one of many, and there's all kinds of other ways or none at all. So I think it's way too early to think and talk about all of this, right now we're a participant in the consultation in Ottawa and we're going to keep it there for now.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS)

Go ahead.

Your next question comes from Vince Valentini of TD Newcrest. Please go ahead.

Thanks, guys. I have to ask about the leverage environment and what we're seeing at BCE these days and how it may apply to you guys and how you guys think about the world now. I guess the first part of the question is, would some sort of sale to a private equity interest through a levered buyout be something that you feel there could be interest in? Let me try to rephrase that and say there obviously was interest in those kind of parties to buy out BCE, but BCE for sometime rejected that interest then all of a sudden changed their mind. Would you be in a similar position where you would have people who have expressed interest but you decided at this point it's better to go the route that you're going to maximize value, or you think the interest was more just in the bigger telcos and maybe there hasn't been that same amount of interest in a company like yours?

Thank you, Vince. Well, first, I would have been disappointed if you didn't ask the question. I would tell you that there's been so much speculation for about two years on our company, that I would really -- and it's our policy to not really comment on this type of approach, but let me just tell you, though, a few facts and a few positions of the Company. First, really, we -- as any public company, we have I think a duty to our shareholders, so if anybody was to contact us with a meaningful offer, I think we would have a responsibility with our directors to consider it. Having said that, though, we've just gone through a year or 11 months last year of a business review and where we've done a whole lot of work in exploring scenarios with the Company, and right now, we're out of the business review, and we're really focused, as you can see through the results, in executing and delivering our plan. So I think I'll leave it at that.

Can I follow-up on just debt leverage in general? After the buyback, I believe at the end of the year you will be some written the 1.6 or 1.7 times debt leverage range. Given where interest rates are these days, and given what may be happening with some of your competitors in Canada are you rethinking that at all? Even somewhere in the 2 to 2.5 range something remotely possible, or do you guys think ultra conservative and low debt is still the right place to be?

Yes, I think in terms of increasing our debt and taking a more aggressive stance, I think this has been asked a few times now. It's potentially, over time, something to consider. But I think for us to consider that we have to understand better what would be happening in the market at that time and see if we would be really off side with our peers before taking that type of decision. And secondly, I think we would also need, before we were to proceed on that, I would say more support, I'll call it more support from the market in terms of strength in the business and trusting that we're delivering good results and solid results in the future. If not, I'm assuming that, many of the analysts covering our company would put a big negative on that. But anyhow, I think for now, we execute on our plan, we deliver our strategy and as we -- if we do a few -- not if, but as we do a few solid quarters again, maybe we'll be able to look at some of those more aggressive scenarios, assuming we're not too much off side our peers.

Thanks, Pierre.

Thank you.

Your next question is a follow-up question from Glen Campbell of Merrill Lynch. Please go ahead.

Two quick ones. First on wireless, you had nice ARPU growth. Could you talk about how much data contributed to the growth in ARPU and confirm as well when you, or if you put through any price hikes on the voice side in the past four or five quarters?

In terms of the pricing action, we did introduce a price increase a $2 staff increase in Q1 but it was in the latter part of Q1 so you won't have seen a huge impact in quarter. We expect that to generate some positive effects going forward. In terms of the -- in terms of the contribution of data, just let me have a peek here and give you a bit of a sense of it. I mean, we did see some growth, obviously, in our wireless data area, but not a real significant ARPU impact in quarter. The majority of the positive impact there is from general price increase and some, what I would just call more general air time types of activity.

Most of the industry moved from $0.25 to $0.30 on overage and long-distance last year. I can't recall, did you follow them in that or not?

I believe we also did increase our out of basket per-minute rate as well, Glen, and I think it was the $0.30 rate.

And that was last year was it?

No, I believe we did that I know quarter.

Great. Last one, you've obviously had great success on win-backs. Can you give us a little more color on the offers you're giving to customers to achieve those results?

Sure. Our standard win-back offer really, first of all, I mean, 80 to 90% of our win-backs are multiservice win-backs. I think over 80% bring back TV, Internet, and voice. So our standard win-back offer really you have to look at it in that context of a full-service offer. Generally we aren't offering anything different than really a packaging of our promotional pricing, combined with our bundles, so, if you look at -- the all-in price for a customer bringing all those services back, and as you can imagine, there's certain kind of mix and match, but what I would call basic basic, so basic high-speed, basic TV, with a limited number of feature packs and our voice feature and long-distance package, it's in the order of 90 to $100 a month is the total price offer that we're making.

And that's not discounted for a few months? That's their kind of level?

That would be the discounted price offer they would receive for between 6 and 12 months, depending on the mix of services they're taking. I mean, the retail price of that package is probably more in the $125 range, and would be typically priced pretty much in line with a competitor package of the same magnitude, perhaps slightly premium priced to a competitor package. Really, on the win-back side, we're not using, what I would calling agressive discounting as much as we are packaging our promotional offers and our bundling and tying that into a longer term promotional offer.

Okay. And the customer has to sign up just for the year, or are you locking in for two or three?

We haven't been locking them in longer term, although on some of the bundles customer do have a wireless contract or an alarm system contract that can be two to five years depending on what they're buying. So components of the offer can be locked in on a contract but not the overall package.

Okay, that's helpful. Thanks very much.

Your next question comes from John Henderson of Scotia Capital.

Have a question on -- back to the wireless issue of potentially expanding nationally, could you comment on what factors in the coming auction you would consider critical in making this decision? That's part one. Part two is, whether or not you have a preference for GSM versus CDMA.

Thank you, John. I think there are a few factors. The first one has to be fair gains, I think. I really believe that if industry Canada and the government are serious about bringing a fourth wireless player in this country, they have to ensure that, you know, there's some rules around the auction that will enable that. If not, it will not happen. I don't think it would have happened in the past, either, if those rules had not been there. I think spectrum for Microsoft had been provided really at that time, and not in competition with others. If the government wants to go into that direction, I think they have to do this again.

Considering also the market that we're in and the environment, I think, having some type of mandated tower sharing is probably a requirement. And at least an understanding that you will be able to reach an agreement with your competitors on roaming like there are today between the competitors. So I think those three things -- it's not that the spectrum should be free and all that stuff, but at least that type of framework that does enable, if the government wants to, a fourth wireless player.

And the GSM versus CDMA?

No real opinion for now. We're a CDMA player on our side. I think, we'll look at that if ever we progress in this and decide that there is indeed an opportunity to move forward.

Thank you.

Thank you.

Your next question comes from [Neal Simaverathmay] of National Bank Financial.

Just a quick modeling question. There was clearly an improvement in margin this quarter specifically at the ILEC division versus last quarter. Was wondering if you could remind us if there's any seasonality or lumpiness to the cost cutting program in that division over the next three-quarters, or can we assume similar stability for the rest of the year? Thanks.

With respect to margins, we are -- we have seen an increase in year-over-year in margin, about 130 basis points on a consolidated basis, so if you're going or looking at the quarter sequentially there would be some lumpiness, and mostly due to in the fourth quarter we typically see a ramp-up in costs. So the better comparison is versus the first quarter, or the corresponding quarter of the prior year. Still there we do see that increase about 130 basis points. We -- I would attribute that to really solid execution on our cost-cutting efforts, which continue, and as well as improving margins in our -- some of our growth businesses. We've had ARPU increases in both wireless and TV and cost reductions continue into '07. So we'll continue to look at that.

Offsetting those types of things, we would see increases in costs as our growth services grow we're going to have corresponding cost increases, and also we're having continuing some repricing on some of our legacy services. So we're -- believe that we can, in time, or over time, improve margins further, but in the shorter term, roughly similar over the prior year.

So there's nothing unusual in Q1 in the ILEC division that might have been attributed to this spike?

No.

Okay, thanks.

Your next question comes from Peter Rhamey of BMO.

Given the opportunity I'll ask a second follow-up question. When you look at the guidance, you haven't updated guidance, and I can recognize you don't want to get into updating guidance every quarter, but you take a look at any of your numbers and you annualize them, recognizing there's a seasonal downturn in earnings in the fourth quarter, you're tracking well ahead of the guidance. Is there something specific that you're aware of that you are cautious on and therefore you haven't taken the opportunity to revisit that, or is it more just you just don't want to get into that quarterly revenue to guidance.

No, nothing, no reservations other than it's the first quarter. Certainly if you do, multiply the first quarter results by four, you'd see that in terms of revenue and EBITDA were within our guidance and tracking very well there in terms of earnings per share. Might be a little ahead on that one. If you're looking, though, at free cash flow and CapEx, I think you have to look at those together, and in the first quarter, the -- being ahead on free cash flow is probably largely attributable to having lower CapEx in Q1 than you would see on an annualized basis.

So your capital spending annual number is still good and we'll see that reverse in the later quarters?

Yes, what we've said is, probably similar to the prior year. We've got -- where we had CapEx around 270. So if you kind of annualize that number it would be more than the 50 or 48 million that we had in Q1. And if you took the annualized number and took the effect on free cash flow, that would probably put your cash flow back in line with where our guidance is.

Perfect. Great. Thanks.

Your next question comes from Sanford Lee of Genuity Capital Markets.

Got out of the queue. Question has already been asked.

Mr. Chadsey, we have no further questions at this time. Please continue.

Thanks. Today's call will be archived and available on the investor section of the MTS website. That concludes our call. Once again, thanks for joining us.

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