BCE Inc (BCE) 2007 Q4 法說會逐字稿

Welcome to the MTS AllStream fourth quarter 2007 results conference call. At this time, all participants are in listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (OPERATOR INSTRUCTIONS) I would like to remind everyone that this call is being recorded today Wednesday, February 5, 2008, at 4:00 p.m. Eastern time. I would now like to turn the conference over to Mr. Ian Chadsey, Vice President, Investor Relations of MTS AllStream. Mr. Chadsey, please go ahead.

Thank you. Good afternoon, everyone, and welcome to the call. Earlier today we issued a news release with our year-end business results for 2007 and featuring our fourth quarter performance. That release along with our MD&A and other supplemental information are now available on our website at MTSallstream.com.

I should mention that today along with releasing our results our Board of Directors approved the fourth quarter dividend which has been set at $0.65 per share. That said, today's comments may contain forward-looking information relating to the finances, operations, and strategies of the Company including comments on revenue, EBITDA, earnings, cash flow, CapEx and sales and marketing activities. These statements are based on assumptions made by the Company and run the risk that our actual results or actions may differ from those anticipated.

The statements made today reflect the assumptions of MTS as of February 5, 2008, and accordingly are subject to change 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 for whose remarks remain forward-looking information. So on today's call we have Pierre Blouin, Chief Executive Officer; Wayne Demkey, Chief Financial Officer; John MacDonald, President of the Enterprise Solutions Division; Kelvin Shepherd, President of the Consumers Market Division. With that I'll turn the call over to Pierre.

Thank you, Ian. Good afternoon, everybody and thank you for joining our fourth quarter and year-end 2007 conference call. Today I want to emphasize some key points from our press release that we issued earlier today. I will discuss our results for the fourth quarter and for the full year.

I can tell you that we are pretty happy with our results and how the Company is performing. We're indeed pleased that the Company has achieved or exceeded all our targets for the past eight quarters. During the call I will also touch on our potential participation in the 2008 AWS Spectrum Auction where we're working very hard on the business case analysis and on negotiations with potential partners. But first let me elaborate on our 2007 results. As I mentioned, we're pleased by our results for the quarter and the year as a whole. As we see it, our performance underlines our 2007 marked a turning point for MTS AllStream. The Company has proven that it can meet the competitive challenges of our industry. We're now looking at the future with a positive view of a growing business. The strategy of discipline and focused execution we developed in 2006 is working and delivering improved results for our Company.

Let me repeat some of the key facts of 2007. We achieved our revenue target range and the upper end of our range for EBITDA and free cash flow. We exceeded our target range for EPS which we increased twice during the year. Overall EPS grew by 16%. We delivered annual cost savings totaling approximately $42 million in 2007, in line with our target and demonstrating our ability to improve our cost structure year after year. Total revenues from continuing operations were up 2.1% in the fourth quarter, growing for the first time in nine quarters and up slightly by only 0.5% for the year. And these results include the impact of the Rogers and AT&T contracts.

When we exclude the impact of the reductions by Rogers and AT&T, the fourth quarter and full year-over-year revenue show a growth of 4.8% and 2.1% respectively. Our growth services, which include wireless, high-speed Internet, digital television, converged IP services, and unified communications are driving our growth. The strong growth from these services hit 12.6% in 2007, and they now account for 40% of our total revenues compared to 35% for the previous year. We expect this type of performance from our growth product to continue in 2008.

Let's look at our results from a divisional perspective. In the consumer markets division, we had a very strong performance in 2007. In wireless, we achieved strong results with revenues increasing by 12.4% and customers by 11% in the quarter. Our Q4 wireless ARPU increased 2.3% and for the year ARPU increased by 4.2% or $2.36, driven by a strong increase in wireless data services. Also delivering strong performance in 2007 is our high-speed Internet customer base, which increased by 12.1%, contributing to a year-over-year revenue increase of 14.1%.

Our digital television business continued its strong and steady growth, increasing our customer base by 16.1% and revenues by 32%. At the end of 2007, we had over 76,000 TV customers in greater Winnipeg reflecting a 32% market share and representing the highest market share achieved by a Canadian telecom company on a TV systems. We also continued to solidly perform in the residential telephony marketplace. Residential access lines again remained stable for the quarter. This continues a trend of significantly fewer line losses over the last five quarters. This good performance against cable started well before forbearance was announced for Winnipeg and (inaudible). And now being foreborn provides more flexibility to strengthen our consumer franchise in Manitoba.

Our win back strategy continues to be effective, and we continue to focus on offering customers a full bundle of voice, broadband, home security, and wireless services. It's also interesting to note that over 80% of win back customers bring at least two additional growth products with them when they return to our Company. Our disciplined bundling strategy allows us to continue to gain new customers for our growth products, stabilize our local losses, and compete in the marketplace more on a value basis.

Total ARPU for bundled customers was up 3% in the fourth quarter, and our churn rate was lower by 53% when compared to nonbundled customers. Overall, these results in the consumer division represent the best performance by a telco in North America facing a cable competitors in its incumbent territory. As well and part of our broadband investments we announced a few weeks ago an initiative to evolve our Internet and television capabilities working with Microsoft's new media platform and Alcatel Lucent. The advanced services from this partnership will be tested on a pilot basis in a smaller community in Manitoba to be announced shortly. This is an evolution of our existing Internet and television services, and leverages the broadband network and investments we have made over the past several years. This will provide the basis for not only advanced television services but improvements to our high-speed Internet service and it will enable new services and features that cross different platforms we offer. This will support our bundling strategy and reinforce the competitive strength of our business without impacting our capital spending in 2008.

Now turning to our national enterprise division, which the performance of the division keeps improving, and this is good news on multiple fronts. For the first time in two years total revenues for the quarter were up 2.1% year-over-year including all revenues. This is a noteworthy achievement which builds on the gain that we are making quarter after quarter in getting deeper traction in our national enterprise markets. For three consecutive quarters we achieved growth, excluding the impact of the reduction by Rogers and AT&T, as they migrate their business onto their own networks. And in the fourth quarter, we achieved this incremental milestone overall revenue growth for the enterprise division.

There are several reasons for the improvement in our enterprise division performance. Our 2006 and 2007 investments in a new sales force with a more focused sales and marketing strategy are paying off. In 2007, we started aggressively targeting the mid-market business segment in specific urban markets while continuing to deliver IP solutions to some of Canada's largest companies. This strategy generated 243 million of contracts last year. The enterprise growth is also supported by the strong performance of our growth services. Notably, unified communication and converged IP services which grew 16.4% in the fourth quarter compared to 2006.

Finally, there are a lot of things that we are redesigning and doing better internally across the organization. We are strengthening our operational capabilities, hiring skills, and rebuilding platforms and customer facing processes to increase the overall effectiveness of the business and we are very diligently strengthening our partnerships with world class players helping us to deliver more value to customers, as for example, our national enterprise work with Microsoft. As well, we're moving ahead with acquisitions where it makes sense. This year, following the purchase of Multinet Communications late last fall, we recently acquired ICU technologies, which adds to our skills, scope, and market coverage in unified communication.

Now turning to our guidance for 2008, our Q4 performance gives us confidence that we are on track to achieve our guidance for 2008. As we announced in December 2007 we expect 2008 to mark a milestone as we expect a return to growth in revenues for both our divisions, driven by our strong performance in growth services which should represent about 45% of our total business. We also expect to deliver 1 to 3% overall revenue growth for the Company and in each of our divisions. This is the first time since 2004 that we can say that growth in our enterprise division is expected to be realized, including the impact of the Rogers and AT&T reductions.

In 2008, we also expect EBITDA to be in the range of 660 million to $680 million, and EPS in the range of $2.95 to $3.15, both forecasted to grow solidly for the year. This is a fitting year for our return to growth as it also marks our 100th anniversary, which we celebrated on January 15. It's a great opportunity to recognize our Company's leadership in the communities we serve and to build on our reputation for superior customer service. It's also a chance to promote the MTS AllStream story at a time when we are optimistic that we are entering a new era of growth in both of our divisions.

Speaking of growth potential, let's spend a moment on our potential participation in the upcoming AWS Spectrum Auction. We are working diligently at finalizing potential scenarios, business cases, and discussions with partners to have a better view of the opportunity presented by the auction in time for March 10, the deposit date. We are using a team of about 30 people with advisors and bankers to review this opportunity, and our Board is also very closely involved.

As for discussions with partners, we have seen increased interest since the beginning of 2008 by large strategic and by multiple financial sponsors on our potential role and value add in a new entrant scenario. As you can assume, this is a complex piece of work with multiple streams addressing both a Manitoba strategy and how and if a larger wireless strategy could increase and leverage the value of our regional and national assets, and create more value for our shareholders. We are very disciplined in our work, and we will proceed only if management and the Board conclude that the larger wireless strategy can create meaningful value for our shareholders and for the Company.

As we said previously, we do recognize our Company's profile and the value that the dividend has for many of our shareholders. It is our preference to design plans for our potential participation in the auction around the principle of maintaining our dividend. We are exploring scenarios that would enable that outcome. But as you will understand, I will not be in a position to answer specific questions about our plans and strategy since we are still reviewing scenarios with our Board and potential partners and have not come to a decision yet. One important area which will be clarified over the coming weeks will be the results from Industry Canada of the roaming and arbitration process consultation, both key elements on a new entrance strategy.

In summary, MTS AllStream has achieved over the past eight quarters solid and improving financial and operating performance. We will continue executing on our disciplined operating strategy launched in 2006, which is now delivering a growth outlook for our two divisions in 2008. We will be as disciplined in evaluating the potential wireless initiative with the focus on creating more value for our shareholders. I'm now going to turn the call to Wayne. Wayne.

Thank you, Pierre, and good afternoon, everyone. We are pleased to report the eighth consecutive quarter of solid financial results. And for the second second year in a row that we have met or exceeded all of our performance targets for the year.

I'll review first our consolidated results from continuing operations and then look more closely at our growth services and legacy businesses for both our enterprise solutions and consumer markets divisions. Those who have been on these calls before know that we discuss results from continuing operations because we believe they assist investors in assessing the performance of our Company. Our reported results include a number of items which are not from continuing operations, such as the cost of our restructuring over the last 24 months. These items are outlined in our fourth quarter news release and MDA.

Earnings per share from continuing operations were strong in the fourth quarter, contributing to an impressive 15.6% increase for the year to $2.89. This increase resulted from higher EBITDA, lower amortization and lower debt charges. EBITDA year to date at 655.1 million was at the time high end of our guidance range, representing a 0.8 increase for the year. This solid performance reflects the strong gains by our growth services and the continued success of our cost reduction initiatives.

Total revenue was up by 4.8% for the fourth quarter and also up for the year by 2.3% when we exclude the migrations of Rogers and AT&T to their own networks. A process which began two years ago. The decline in Rogers and AT&T revenues amounted to $11 million for the fourth quarter and $49.4 million for the year. Even when you include these two customers, fourth quarter revenues increased by 2.1%, representing a significant milestone along the road towards the overall growth in revenues that we expect to achieve in 2008. These results were driven by double-digit increases in all growth services, resulting in an overall increase in growth services of 15% for the fourth quarter and 12.6% for the year.

More specifically, beginning with the Enterprise Solutions division, our next-generation data services revenues, which include converged IP and unified communication services together achieved double digit year over year growth of 27% in the fourth quarter and 17.2% for the year. Breaking it down further, converged IP services were up 11.3% for the quarter as well as for the year. Unified communication services revenues increased by 67.4% this quarter because of seasonally higher sales volumes and fun issued with a 31.5% increase compared to 2006.

In the consumer markets division, we continue to deliver exceptional results. Wireless revenue for the year grew 15.3% on the strength of an 11% increase in cellular customers and a 4.2% increase in average revenue per unit to $59.01. Driving this ARPU growth is a significant increase in data usage reflecting demand for the Blackberry and similar devices. And we see room for further growth in Manitoba where penetration is still relatively low. High-speed Internet revenues also showed significant growth with consumer Internet revenues up 14.2% year to date on the strength of customer growth which was 12.1% for 2007. Digital television services continued to show strong growth with revenues up 25.3% in the fourth quarter and 31.7% for the year driven by a 16.1% increase in our customer base and a $1.31 increase in ARPU.

Our investment in fiber to the node continues to support our growth strategy in digital TV and high-speed Internet services. It's integral to our multiservice and bundling strategies to provide customers with an expanded value proposition enabling us to offer a full range of consumer services while minimizing legacy revenue losses to the competition.

As for our legacy services, they declined by 5.5% in the fourth quarter as expected. Included in these declines are lower revenues associated with Rogers and AT&T, customer migration to our newer IP based services, and the impact of competition and reprice, primarily in our long-distance business. The decrease in our long-distance revenues is a little higher compared to other telcos, but if you exclude the impact of Rogers and AT&T this decrease continues to be well in line with industry trends in Canada. Importantly we've made significant progress stabilizing our legacy business in our consumer markets division with a decrease in the number of customer losses to 50% compared to last year. Additionally, as our proportion of total revenues attributable to growth services hit 40% in 2007, and are expected to increase to 45% in 2008, the legacy services are having a decreasing impact on our business.

Overall our perspective is that today MTS AllStream is operating with a growth outlook, and indeed, momentum. When you look at total customer connections which include network access, high-speed Internet, wireless and digital TV services they increased almost 3.6% in 2007 as compared to 2006. To us, when you put this together with double-digit increases in all our growth services it represents meaningful growth momentum.

Turning to the cost side, operations expense for the year was 1.8% lower than a year ago at $1.2 billion demonstrating our strong performance in realigning our cost structure. This reflects an annualized cost savings of $41.6 million, in line with our target of 40 million to $50 million, achieved by gaining new efficiencies organizationally and decreasing our usage of competitor networks. In the fourth quarter operations expense were 3.7% higher as a result of year-end timing issues. Capital expenditures totaled $287 million for the year representing a 15.1% of total revenue. This capital intensity is in line with the higher end of our target range as a result of year-end timing, where we took delivery of certain equipment a little earlier than anticipated at the end of 2007 while the opposite occurred in 2006. This is still below the levels that you're seeing in other telcos as we continue to benefit from our significant investment in state of the art networks that we have made in recent years in both our divisions.

Free cash flow from continuing operations for 2007 remained strong at $258.5 million which more than covers all cash requirements. This is slightly below what we were anticipating due to the capital expenditures as discussed, but still fell within the top of our guidance range. For 2008 we are expecting free cash flow of between 250 million and $280 million, which more than covers all of our cash requirements, including non reoccurring items like restructuring costs and pension solvency payments. Additionally, we have unused and available tax deductions that will shelter us from paying cash tax until 2014, which will have a continuing positive impact on cash flow.

With our continuing strong results and positive outlook, the Board of Directors has declared a first quarter 2008 cash dividend of $0.65, which is payable on April 15, to shareholders of record on March 17. On an annualized basis, our dividend ranks us as one of the highest yielding stocks on the Toronto Stock Exchange. Thank you. We will be pleased to answer any questions you may have.

Ladies and gentlemen, we will now conduct the question-and-answer session. (OPERATOR INSTRUCTIONS) Your first question comes from Jonathan Allen of RBC Capital Markets. Please proceed.

Thanks very much. Good afternoon. Two questions. First, one for John. You mentioned the impact -- we had heard the impact about the Rogers and the AT&T contract being a $49 million pressure in 2007. I'm curious if you could disclose for us roughly what the base of remaining revenue, at least the revenue that's at risk going into 2008. Is it something substantially less than $49 million? Second one, for John as well, actually, is the few small acquisitions that you had made in the last few months, and the last few quarters, how material is the revenue? Are we talking 10 million, $20 million contribution? And, sorry, apologize for the peppering of questions, but one for Kelvin. We had seen an improvement in the last few quarters in residential line losses. Seasonally adjusted it was just under 3,000 this quarter which seemed to be on track with Q4 last year, but we just haven't seen as much of an improvement in the last -- this quarter compared to in the last few. And I'm wondering, is 3,000 seasonally adjusted is that sort of the run rate that you find acceptable for losses, or do you expect that to actually improve from here?

Okay.

Again, I apologize for the slew of questions. They were just sort of coming to me one after another.

Let me start maybe in terms of Rogers and AT&T. We are expecting to see a little bit less of an impact from those customers in 2008. But still probably in the $40 million range in terms of decreases. And at that point, our revenue at risk, I guess, because we still do anticipate significant revenues from those customers, but the amount at risk is probably reduces to about half of that.

Sorry, you said for 2008 it was going to be roughly another 40 million, then in 2009 roughly half of that?

Yes.

Perfect.

On the acquisitions, in terms of ICU and Multinet, we're in the vicinity of $20 million or so in that snack bracket. What's interesting, though, that's not -- if you look at the individual companies, that's not the existing top line, but we're able to is utilize our existing channels and relationships we have with existing customers to actually leverage that total revenue performance to the division upwards but it's in that stack bracket.

Perfect. And, Jonathan, the on the residential loss question, the loss in Q4 pretty much in line with what we saw in Q3, actually a little bit lower. We may have had a little bit of an uptick in Q4 as there was some expansion of cable serving area that contributed a little bit in the quarter. But I think going forward we will see them in that range or pretty stable at that range or perhaps slightly below.

Perfect. And I guess that's a challenge for Dvai to question me on this one, thanks very much, guys.

Your next question comes from Glen Campbell of Merrill Lynch.

Thanks very much. First just a clarification on the $20 million from the acquisitions. Is that the expected impact in 2008 from the two acquisitions or in Q4?

No that will be the total year impact. It's a little bit north of that, but if you were to add up both in terms of their total top lines it would put you in roughly that area but we expect to realize some additional benefits by using existing account relationships to leverage that number up even more so.

Okay. Thanks. I had two questions. The first was on Microsoft IP TV. Could you talk about where you sort of aim to go with this generally? Are you hoping to swap out your existing next level Motorola platform, or is this going to be done in parallel? What benefits are you hoping to get from introducing the Microsoft platform? Is it just TV, or is it more than that? Could you just give us some more detail, please?

Sure, Glen, I'll try to answer a couple of key elements of your questions there. So first it definitely is not a swap-out strategy in any sense of the imagination, I guess. We have a very strong platform with the existing Motorola platform. We continue to see that working well for us, and certainly for solid digital TV product, it's got some good life left in it. But we've, certainly are looking for it, and I guess a couple of things we expect to do with this investment. One is that we are going to have a bunch of stronger broadband platform going forward, not just in terms of TV, but it provides us some capability in terms of higher Internet speeds as we introduce things like VDSL 2 into our network. So we certainly see this as a capability that's important in our high-speed Internet business. Plus, looking ahead, as you look toward converged solutions and some of the demand we see in the marketplace going forward in the TV market, we think the Microsoft platform has got a lot of interesting capabilities there that will supplement our existing TV platform as well as offering some possibility for expansion. So to make a long story short, I guess, we would certainly see some high-end customers that are on the existing platform move to a new platform over a period of time, but we think when we look at the base of customers we have there and the capability it's got, we're not expecting any sort of large sale swap out of customers or set tops, or those sorts of things.

And just to be clear, this platform would be broadly similar to what AT&T is offering?

Yes, it would be very similar and certainly would have the same kind of evolution path, obviously since it's based on the Microsoft standard IP TV platform.

Okay, thanks. My follow-up was on wireless. I was struck by how strong your wireless net adds were in a quarter when your competitors have been hammering away with $10 offers. How are you doing it? Can you talk about promotions that you're offering? I an imagining it's fairly tough to meet the competition on price. Is it retention offers, is it special bundled offers or family plans? Can you give us a bit of help there?

Well, we did have a strong quarter, and I think it just reflects that competitively speaking, if customers are given a competitive offer they will choose our service for a number of reasons. The coverage, the channel, and the other things. So we did respond, obviously, to their pricing, Glen, with pretty competitive pricing in response, but obviously you see some stimulation in demand as a result of that. We're actually have sort of removed the promotional pricing that we had in the market through the end of the year, and are back to an offer that's, I think more consistent with where we like to be, and I guess we'll see competitively where people like Rogers in particular go.

Super. Thanks very much.

And in fact, it shows you that, as Kelvin is saying, that a lot of promotion around specific type of aggressive pricing does generate a little bit of attention around wireless, and also, and you may have noticed also, it did slow down some of our other products because we just couldn't meet the demands overall around wireless, and it did impact some of the other products indeed for that quarter.

Your next question comes from Jeffrey Fan of UBS Securities. Please proceed.

Thanks. Just a quick follow-up on the AT&T and Rogers revenue. Can you just refresh us and give us an idea what is the revenue base going into this fiscal year going to 2008? And also, from my notes, it looks like the AT&T revenue piece was certainly the bigger of the two. Can you just verify that it is mostly AT&T revenue that's left and most of the Rogers revenue is pretty much gone? And then the second question is on the enterprise business. When we take a look at the enterprise and strip out what is really national, it looks like the Manitoba enterprise business was very strong in this quarter. I know it's been strong through this year but particularly strong in Q4. Was there a big main driver that's causing that? Could you just elaborate a little bit on that? Thanks.

Okay, Jeff. In terms of the Rogers and AT&T, we have somewhere in the neighborhood just over 100 million in terms of overall revenues that we're getting from those and I don't have the specific breakdown of which is for which customer, but I would say that Rogers does continue to be a significant customer of ours, and we expect that to continue and into the future. There are certain things that we are supplying them that they aren't able to presently replace with their own services, and so we do expect that to continue. When you look at the ESD, your, I guess, question is how does the Manitoba enterprise piece fit in, but what you may be missing as well, though, is that in the difference between the -- what we call our enterprise division and the national division that is also quoted there, there's two pieces. One would be the Manitoba enterprise customers that would go into the enterprise division, and the other would be our small -- our base of small business customers, that is managed by Kelvin and the consumer markets division. So we do have a solid base of customers, enterprise customers in Manitoba. It would probably be a bit is a stretch to say that it's significantly growing, though.

And in the fourth quarter, there was nothing unusual aside from we had a really strong month in December in UC sales in Manitoba as well, but there was nothing unusual in terms of any significant new contract wins or -- that would make a significant change there. We are actually through the quarter actually experiencing a successful implementation of a fairly extensive network for Western Canada Lottery, which was heroic efforts to get the network in according -- in accordance with the customer's expectations. So we're quite pleased with that, which is a major renewal for us. But nothing unusual I can think of aside from the very strong UC performance in December.

So is the strength in the difference in that number, if I compared period over period, quarter over quarter, is that driven largely by the small medium business then?

Jeff, I would caution you to try and not do any kind of reconciliation. You also have things that are exiting. We talk about Rogers and AT&T revenue. One of the -- you're seeing a reduction on the national side that's causing pressure on the margins there, so, I mean, I don't think that we can really answer specifically how it's going to -- the difference between the two numbers we're showing there.

All right, thanks.

Your next question comes from Dvai Ghose of Genuity Capital Markets.

Thanks very much. Don't want to disappoint Jonathan so a couple of questions. First of all, you addressed the question of acquisitions and the impact on revenue. I'm wondering if you could give us your potential or your perceived impact on EBITDA in 2008, because some may accuse you of just padding your revenues without any real value, so I was hoping to get some sort of margin view. I'm still a little unclear as to the potential revenue versus the actual revenue generated by these acquisitions in Q4.

Maybe one thing though to talk about our philosophy, though, and I would tell you that, again, the overall strategy is to build a solid telecom service provider for the long term. So we are not on the strategy of just trying to improve our top line. In fact, as you've seen in the past, we're ready to compromise on the top line if we have to, if we're not competitive or profitable in certain segments we will exit. So on that side, you can be sure that we're not doing the acquisition to improve our top line. We're doing them -- if you look at them, each of them now are small companies, but they are in markets that we have some issues, or that we weren't as strong as we wanted. An example of that is Multinet. That's Quebec based, and we needed additional capabilities in unified communication in that market. It's a small company but very well-known and appreciated by its customers. We believe we can leverage this into much more and more profitability at the same time.

Same thing for ICU, which is a very specific segment that is growing in terms of video conferencing but the future video conferencing, that company is close to the Ontario government, and there, too, we were strong in the rest of the country, not as strong in the East, so we're doing it for that, and we're -- they have to be profitable, and we have to be able to leverage these acquisitions or make them even more profitable. So that's how we go at it on that side. I will let John--.

Both basically bulk up our portfolio in the unified communications arena. And both of them on a stand-alone basis, you were talking gross margin in the range of about 45 to 50% for the kinds of services that they would deliver, but they were basically equipment sales with some service components associated with maintenance of PBX and customer prem equipment. The one thing that they didn't do is basically have any network that they could sell and offer their customers as well. They tended to be, as a matter of fact, fairly agnostic in that regard. Now we see the opportunity to actually bundle not only the CPE but also with SIP trunking, as well as some of the core network services, MPLS and the whole alphabet soup that goes along with that as well which will actually help improve our margin. Increasingly when we provide capability in any one of our portfolios we look for the cross-sell opportunities between the various portfolios. As we're making a unified communication sale that we're looking at opportunities to sell professional services as well as converged IP services to those customers, and increasingly we're seeing a focus, particularly in 2000 in actually doing just that, where we have single product customers doing the -- tearing a page out of Kelvin's playbook for the most part and looking at ways to actually bundle for enterprise customers.

Again, sorry to come back to the specifics, ICU was only acquired in Q1 '08. Was there any EBITDA contribution from MCS in Q4 '07? I'm sorry, I don't think I understood fully what the revenue contribution in Q4 '07 versus going forward was.

We bought Multinet in the fourth quarter, so there would have been some revenue and EBITDA contribution. It's relatively small. I don't have the number offhand. And ICU was acquired in Q1, so there wouldn't have been any.

On that issue though, and I am encouraged with some of the margin numbers John just spoke about, and the acquired assets and the potential as well. But that being said I think I've talked about this before but it seems to be reinforced with this quarter, your'e doing much better on the revenue side but you're doing pretty badly on margin side. For example, AllStream's EBITDA was down 10% in 2007, and 13% in the fourth quarter. I'm still really confused as to how this develops into 1 to 3% growth in '08?

Dvai, if you look at the quarter specifically, we have the regular effects associated with the Rogers and AT&T, of course, but in addition we had some one-time non reoccurring events occurring in the quarter. We invested, for example, in some consultant fees to improve our processes, our back office processes and in terms of provisioning the growth services which will actually start to pay dividends in reducing our operating cost in 2008. So there were some one-time items in addition, as we mentioned earlier, the Rogers and AT&T effect is going to become a diminishing effect over time as well.

Our focus on the mid market that Pierre alluded to earlier on also will improve margins because, quite frankly, we don't see the same kinds of price pressures in the mid market as we do in the very large enterprise accounts. We wrote 500 new contracts associated with our customer acquisition strategy, which basically mid market focused last year, north of $30 million of total contract value, and that's adding -- that momentum continues. We're actually adding more sales of course in that particular area. The other thing that we're doing is focusing on the direct costs, and we've done a fair bit in 2007 in terms of positioning ourselves for this year, specifically you may recall that deal with Persona, now Eastlink, in terms of providing access to Newfoundland. None of those savings are included in the 2007 numbers. We're talking both significant direct cost savings associated with that. We've also been improving our direct cost performance by focusing on what we refer to as cost-effective access. That is making sure we're maximizing the utilization of our network footprint as well as ensuring that we use other sources of supply, competitive access providers where possible, companies such as Eastlink and Videotron, for example to improve our cost performance in the direct cost line. So we've made some great gains in that area.

Go ahead.

And in the OpEx side, just focusing on back office automation, process improvements, because a lot of these -- the next-generation services, we want to ensure that the factory is -- doesn't become an impediment to growth. So in 2007 in general, and specifically in Q4 there was a lot of effort spent in making sure that we had a factory that was going to be running like a well oiled machine in terms of provisioning these growth services.

Appreciate it. Last one, and this is the last one, it's for Wayne. In terms of potential cash flow pressures in '08 I'm wondering if you can readdress the pension question because obviously rates are falling and markets are behaving badly with potential negative impacts on your pension as well as the whole issue of getting into wireless without cutting your dividend. I'm a little confused as to how you do that unless you have really small exposure in a JV? If the dividend is the holy grail aren't you perhaps forgetting about the wireless opportunity by taking such a small position to protect your dividend?

Well, I can start, Dvai, with the pension and I'll turn it over to Pierre for the wireless questions, but in terms of the pension the -- our actuarial evaluation is done as of or effective January 1, of each year. So any changes in the market since then really don't impact us any more. So we have -- while we have just started to get the actuaries working on those numbers, so we don't have perfect visibility on that, may take a couple of months to do it, but we have a reasonably good idea that we're not that far off in terms of our estimate, which is about a solvency funding of about $25 million in 2008.

Okay.

And Dvai, on the wireless side, it's unfortunately hard to talk about it until we land on a final plan and a decision on participation. But there are, and we are looking at scenarios that would enable retaining the dividend, and indeed it really brings other things through to this potential opportunity at that point whatever it's a reduce or is a participation in consortium, with some larger player or group or smaller new entrant, but we also have to consider what our Company can bring to the table in terms of national presence, back haul network, access to customer, on the business side, and operating know how on the consumer side, which has a value and can be leveraged as well, as well as some of the innovative model that are put on the table by today suppliers of networks and things like that, I would tell you that the cost right now is probably 50% of what it used to be 10 years ago.

Great. I look forward to your plans as they evolve. Thank you very much.

Your next question comes from David Lambert of Canaccord Adams. Please proceed.

Thank you. A couple questions. First of all, you typically used to take a restructuring charge in Q4 that was larger than the other quarters. To account for the cost cutting that you were going to do in the future year. And even though you were talking about 20 million to $30 million of cost cutting in 2008, you did not take a restructuring charge this quarter. I was wondering if there's going to be more of a real-time restructuring charge every quarter next year, or are those cost cutting initiatives just operational?

Yes, David, the restructuring charges that you've noted in prior years were typically around B-tip programs that we've had in one division or the other, and so the accounting process there does -- basically requires you to make an accrual, typically in the fourth quarter for the headcount that you're looking at at reducing over the first part of the year, and naturally we would try to do those things in the early part of the year in order to -- or late in the prior year in order to get the full benefit in the following year. So a little bit different this year in terms of our cost reduction programs. They are probably less focused on headcounts. In the past we've probably been a third coming from headcount, a third coming from direct costs, and then a third coming from other efficiencies, or supplier cost reductions or real estate cost reductions, and those types of things. In this coming year, probably less focused on headcount and more on direct costs and other reductions that we would expect to achieve.

Okay. Great. Just one more question. With the advent of the sale of Toronto Hydro Telecom I was wondering if you can comment on a potential impact it could have on your national division? And I'm wondering if you have an interest in actually purchasing the assets?

Well, let me try, and I'm sure John can complement. First, we're not forecasting from what we know, I guess, right now, any material impact. Toronto Telecom is the partner, customer, supplier, so it's something to be considered. Now we have to realize that we do have facilities that seem to be similar, at least from part of what they have, so I guess we'll see as we learn more about it if there's an interest or not. I know, John if you want to--?

I think that's actually it.

Okay, great, thank you.

Your next question comes from Vince Valentini of TD Newcrest.

A couple things. First to tie some loose ends, on Dvai's question on the pension Wayne would you happen to know what the sensitivity is these days to changes in the discount rate say if there was a 100 basis point reduction what that would do to the 25 million of funding requirement?

Yes, not at this time, Vince. I think I should probably wait until we get the results of our next actuarial valuation before talking about that more specifically. So that will be probably sometime in the April time frame when we know more about that. But with respect to any changes that have occurred since the January 1, effective date there's no impact because, those rates are effectively set, and the only thing left is the actuaries to do their financial modeling on the plan and the updating all of the assumptions therein.

Second one on your CapEx commentary, in your opening remarks. You said there was early delivery of equipment. Does that imply that Q1 CapEx should be a bit on the light side because you won't be paying for that equipment when you did pay fort in Q1 last year?

I wouldn't want to speculate specifically on any individual quarter, but I would say that we do expect CapEx in '08 to be a little lower than '07.

Okay. And switching to wireless, I guess first off, Pierre, can you confirm, you said the March 10, date in your comments does that imply that you should have a decision and all your partnerships and funding and everything sorted out by then and we could actually see a press release and know what your intentions are at that point?

Well, we -- we are working very diligently to try to get to a view as soon as possible. Clearly the deposit is an important event, even if you know the deposit amount is often smoke and mirrors, not to reveal the strategy. It is still an important event, and a public one. So we are trying very hard to get to a view. Once we get to a view on our participation or not, I would tell you that we will try as much as possible to inform shareholders and yourself on what we have in mind, if anything, and try to give you as much information as possible without disclosing what could be our strategy at that time.

So is it possible or even probable that this will remain a secret to us and the public until after the auction at the end of May and into June?

Well, let me try to answer that. We haven't taken a decision, so I don't -- it's hard for me to speculate, but a few things. First, a deposit does require to reveal partners, and if partners are not finalized by the deposit time, even if you put forward a deposit alone, as you reach agreement with partners, you have to disclose them to Industry Canada, which I understand would disclose them publicly. So there's pieces of that, that would get known at that time if that is the scenario. And again, our goal is not to prolong all of this as long as we can. It is really to make a call and an educated view with all the information, and unfortunately, some piece of information is coming in only at the end of February from Industry Canada, and it's an important piece. And we're trying to, as quickly as possible after, finalize our review, and then try to inform as much as we can our shareholders and yourself at the same time.

Okay, that's helpful. And the last one for you is on the CapEx requirements, you've mentioned it a couple of times in the past, the costs today are well below what they were the last time new networks were built, and today you've now cited a 50% lower figure. I just want to make sure I fully understand that to make sure we're making apples to apples comparisons here. The last networks that were built were primarily voice networks. Nowadays data is becoming a bigger and bigger part of the network usage. We see companies like Rogers spending about $900 million on CapEx this year just to enhance their data capability not to build a new network from scratch. When you say 50% lower are you factoring in that you will be needing to build data capacity from scratch today and not just a voice network like Microcell and Clearnet built?

I'm not exactly sure what was spent by who and why and what was included in there, so I'm not sure it's apples to apples. But I think what we're mentioning is that if you go back in time to the last networks that were built in Canada, which were in the, I guess, late '90s, I would assume, the last big ones, from what we see from the network vendors, and the requirements by Industry Canada in terms of built, both of these things seem to indicate, that from what we know of the cost at that point to the cost today of building the network that we need, or would need to succeed on some of the scenarios we've been looking at, it looks like it's about 50% cheaper indeed.

Thanks, Pierre.

Your next question comes from [Bob Beck] of CIBC World Markets. Please proceed.

Actually my questions have been answered. Thank you.

Thank you, Bob.

Your next question comes from John Henderson of Scotia Capital. Please proceed.

Yes, thank you. Just back to the wireless pricing in your local market, I just wondered if you would care to share any assessment of impact that you think the price competition in the quarter might have had on churn and ARPU. I guess just EBITDA in general.

Sure. We've had a pretty good look at the sub adds and kind of what we think the impact will be. Certainly in '08 we're not expecting really much of an impact given that we're back in the market now with pricing that's kind of more in the range of what we had prior to some of that competition. In addition to that, we're actually -- have implemented some fairly targeted pricing increases on features and some other elements of our wireless services that will help mitigate that. We also find that many of the customers that would have bought a lower end plan we do expect that over time they will actually subscribe to features and additional usage charges which will help offset some of that lower plan pricing. So it will probably have a little bit of an impact, but I don't think anything too significant in '08.

Now the pricing -- curious -- or the reverting back to the previous levels I gather just went through today, as I saw your old plan still was there yesterday, has that something that -- it's led by you. It hasn't yet been responded to by competitors?

Yes, I'm not sure what the competitors are doing. I expect in some cases, for example, I know they've had some limited time promotion up and other ones haven't really put a timing on their promotional plans, but certainly we think February is a good time to go back to a plan that's -- our new plan is in about the $20 range, kind of where we were at before, and we'll see what happens in the market.

Okay. Just switching horses to -- I'm not sure if this question was asked earlier, but your business access lines kind of jumped up 9,000 this quarter versus the drop last quarter in the fourth quarter last year of a similar amount. Can you help explain that?

Yes, business lines are up, and basically there's a couple of things there. We have an increase in the mid market customers, and there are some offsetting decreases, primarily in the small business lines where we've shed some customers, but I don't think there's anything overly dramatic happening there, other than we are starting to see traction in the market, and continuing success in sales of local product.

Okay. And just one last one. I guess it just occurred to me if you've raised prices on wireless features a little bit here and there, I just wonder if there have been any other recent price changes in TV, Internet, phone, kind of other areas?

Nothing new that we haven't talked about before. Certainly were some increases in both Internet and TV that sort of later in the end of last year and TV prices coming in this year.

Right. Okay. That's great. Thanks very much.

Mr. Chadsey, that was your last question.

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

Ladies and gentlemen, this concludes our conference call for today. Thank you for participating. You may now disconnect your lines.