BCE Inc (BCE) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the MTS 2008 third-quarter results conference call. At this time all participants are in a 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 conference call is being recorded on Thursday, November 6, 2008, at 4:00 PM Eastern time. We will now turn the conference over to Mr. Ian Chadsey, Vice President of Investor Relations for MTS. Please go ahead, sir.

Good afternoon, everyone, and welcome to the call. Earlier today we issued a news release on our third-quarter business results for 2008. The news release along with our MD&A and other supplemental information are now available on our website at MTSAllstream.com.

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, capital expenditures 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 made by MTS 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, changing events or otherwise.

These cautionary statements are made on behalf of each speaker, whose remarks contain forward-looking information.

With that, on today's call, we have Pierre Blouin, Chief Executive Officer; Wayne Demkey, Chief Financial Officer; John MacDonald, President of Enterprise Solutions Division; Kelvin Shepherd, President of the Consumer Markets Division. And that I'll turn the call over to Pierre.

Thank you, Ian, and good afternoon, everyone. As you all know, this will be John MacDonald's last quarterly call with us and I'd like to take this opportunity to thank John for his important and valued contribution to MTS Allstream and his role in revitalizing our national enterprise business. So, on behalf of the Company and the Board of Directors, I want to thank John and wish him continued success and happiness in all his future endeavors.

And as you know, the formal executive search is underway, and we expect a transition to a new President to replace John -- that should be accomplished without disruption to our business.

I would also like to acknowledge the Canadian Project Excellence Award won by the Enterprise division for best practices and partnership with the Ontario Association of Community Care Access Centres. This award recognized the performance and achievement for the implementation of voiceover IP to 14 community care access centres across Ontario. We are proud of this award, as it is a testimony of our success in the health vertical for our Enterprise division.

Turning to our results, once again this quarter we delivered growth in revenues, EBITDA, EPS and a strong performance for our growth services, all the in spite of some challenging market conditions. This was our fourth consecutive quarter of year-over-year revenue growth with positive contribution coming from both of our operating divisions. Importantly, we remain on track to meet our guidance for the year and expect that we can sustain our margins despite the current economic environment.

And we know that this won't be easy. In fact, the telecom industry has been and will continue to be challenging. But I must say that in the time that I've been here, MTS has consistently delivered on its promises and exceeded most of the expectations others have had for us. I think we have demonstrated that we are disciplined and have a solid management team that can deliver results. We're going to work hard to make sure that this continues to be the case.

As a result of our revenue growth and successful cost reduction initiatives, we have maintained our margins at 35% on a continuing operation basis for the first nine months of 2008 while, at the same time, shifting our revenue mix from legacy to growth services, which, at the end of Q3, represented about 44% of total revenues as compared to 35% two years ago. This growth has more than offset the expected reduction in our legacy services, and we see this trend continuing.

On the cost side, we have generated a total of CAD22 million in annualized cost savings year to date. This exceeds the low end of our guidance for the full year, and we are not done yet. In addition to the remaining work to be done in 2008, we have identified additional cost-saving initiatives for 2009, and I have already launched a detailed analysis of certain major operating processes with a focus on our Enterprise division.

Turning to our operating divisions, both our Enterprise and Consumer division delivered solid results in the quarter. Wayne will provide more detail shortly, but let me touch on a few highlights, starting with the Enterprise division.

The Enterprise division, or Allstream, continues to perform in line with our revenue expectations and build on the gains we've made over the last four quarters. With a divisional backlog for growth products of more than CAD 45 million of sold orders, strong new contract wins, a healthy sales funnel, a strong reputation for customer service and significantly more market share to gain than to lose, this business remains well-positioned for the future.

Even in a challenging economic environment, the past has shown us that companies will continue to use telecom services and invest in telecom to enhance productivity and reduce their costs.

Revenues from the Enterprise division were up slightly at 0.2% over the third quarter of '07 and are up 0.2% year to date. Revenues from growth services continued to grow fast, most notably from converged IP services and unified communications, which together increased 15% in the quarter. This growth reflects the continuing strong demand for our IP-based offerings that help our customers enhance their productivity and cost structure.

In terms of sales growth, our Enterprise sales team won new contracts totaling over CAD90 million during the quarter, including major wins at TD Waterhouse, WestJet and Statistics Canada, among others. This brings the total in 2008 to CAD247 million of contracts won. This exceeds the CAD243 million we signed for all of last year, and this pace of new contracts has continued into October.

Year-to-date margins in the Enterprise division are down slightly, from 23.6% last year to 22.9%. With additional cost reduction efforts underway and continued sales growth, we expect to sustain these margins going forward, as we have for the past three years. And looking ahead, we believe that our Enterprise division remains well-positioned to continue to win new customers as demand for our IP-based services remains strong.

Turning to the Consumer division, this division delivered another quarter of best-in-class performance with growth services revenues up by 10%. A key driver of this growth is our bundling strategy, which offers compelling value to our customers and sets us apart from our peer group. In the third quarter of '08, both the number of bundles and bundled ARPU are up as compared to last year and we are continuing to see a trend as a large majority of the customers we win back buy at least two additional products or more when they return to MTS.

In Wireless we maintained our leading position in Manitoba and delivered the strongest wireless subscriber growth in the country with a year-over-year increase in the third quarter of 11.4%. If we were to exclude the loss of some one-time Wireless wholesale revenues, our Wireless revenues would be ahead by 9.6% over Q3 of last year. With our Wireless ARPU already among the highest of our peers, our Wireless results remain strong. Looking ahead, we are confident that Manitoba offers an opportunity for years of further growth in our Wireless subscriber base as consumers continue to adopt wireless technologies. With the penetration rate now nearing 60%, Manitoba has more wireless growth potential as compared to our estimate of the national average, with a penetration of about 66%.

We do not underestimate the future challenge posed by new wireless entrants, but following recent public announcements, that threat seems to be years away. We have significant advantages over both new and existing competitors in Manitoba, such as an existing and loyal customer base, an unmatched network footprint, a compelling bundled offering and a management team with years of experience competing in one of the toughest wireless markets in Canada.

Our High-Speed Internet segment also continued its solid growth with year-over-year revenues up 19.7% in the third quarter. Our Television Services also demonstrated solid performance with revenue up 16.8% and subscriber up 10.5% from last year's third quarter.

Going forward, we expect to continue to grow our digital TV subscriber base while, at the same time, increasing our profitability in a balanced manner. We initiated price increases during the first half of 2008, which, along with increased usage of video-on-demand and pay-per-view products, has increased ARPU by almost 7% year-to-date. With the introduction of Microsoft IPTV beginning in the first quarter of '09, we expect to have an even stronger offering going forward, not just in terms of added premium services such as HD and DVR functionality, but also in terms of higher Internet speeds.

We also continued to fare well in the face of residential telephony competition from cable, with still the lowest rate of line losses among incumbents in Canada at 3.7%. All in all, we believe that these Manitoba results continue to represent one of the best performances by an incumbent telco in North America against competition from cable operators. And Manitoba indeed continues to be a great place to live, work and invest. In October, the Manitoba Department of Finance reported that surveys of major forecasters indicate that the province will generate real GDP growth of 2.4% for 2008, which is significantly above the national average of 0.8%.

Looking ahead, it's clear that the volatile capital markets we have been experiencing are an indicator that the entire Canadian economy is tightening. To date, however, we have not been unduly impacted by these issues, and we have not seen any major signs of deterioration in our marketplace. That said, we've continued to assess the current economic climate for signals of challenges to our financial performance and to our overall business environment. We're currently reviewing our expense and investment levels to reflect a more conservative economic outlook going forward.

Overall, our main objective and focus remains the same -- to increase shareholder value by building a growing and profitable company. We have a solid franchise that is growing and generates strong cash flow to cover our dividend, which continues to deliver one of the highest yields on the TSX. We believe our dividend policy is a key differentiator for MTS, is an important part of our value proposition for investors and one of the key reasons MTS has maintained its value in the current markets much better than our peers.

So in summary, we continued to our solid progress and performance so far in 2008. We delivered on our guidance for '07, and we expect to also achieve our financial outlook for 2008.

Thank you for your attention. I will now turn the call over to Wayne.

Thank you, Pierre, and good afternoon, everyone. As Pierre said, Q3 was another quarter of solid financial results. Revenue, EBITDA, free cash flow and earnings per share from continuing operations were all up in the quarter as compared to last year. Revenue from continuing operations for the third quarter was CAD479.9 million, up by about 1% compared to last year and up 2% on a year-to-date basis. Strong increases in our growth services revenues, which were up by 9.5% in the third quarter, continued to drive this solid performance.

Notably, revenues were higher on a year-over-year basis for the fourth consecutive quarter. Our continuing steady performance was demonstrated in the third quarter with EBITDA at CAD165.1 million contributing to year-to-date growth of 1% to CAD505.1 million for the first nine months of 2008. Our success is, in part, a reflection of our ongoing focus on aligning our cost structures to the realities of our market. We're continuing to actively identify and execute on potential efficiencies in both our divisions. We have already achieved CAD22 million in annualized cost savings year-to-date. We continue to see operational cost savings opportunities and are actively investigating several of these opportunities through the analysis of certain of our business processes across both divisions.

Turning to our divisional performance, our Enterprises Solutions division continued its steady improvement. While EBITDA was off by about 1% compared to the same quarter of last year, revenues for the division were up slightly. The division continues to experience strong demand for its growth products and services, as exemplified by next-generation data services revenues, which includes converged IP and unified communication services, which are up 14.6% compared to last year. On a year-over-year basis, converged IP services revenue is up by 13%, and unified communication services revenue increased by 17.9%.

New contract wins are CAD247 million year-to-date, and we have already surpassed the CAD243 million in the business for all of last year and the CAD230 million in new contracts in 2006. These wins represent new contracts signed with new customers as well as new business with existing customers and are being driven by the success of initiatives like our Rainmaker mid-market initiative and our target cross-selling initiatives with current customers.

Turning to our Consumer Markets division, in the third quarter we continued to deliver best-in-class results with the number-one market position in telecom services in Manitoba and the best in-region margins amongst Canadian incumbents telcos. The best performance in North America on [NAS] losses by an incumbent telco versus a cable competitor at about 3.7%, a growing bundled customer base now at over 73,000, up 7.9% from last year with bundled ARPU up 3.2% and bundled customer churn down at 1.24%.

Strong digital TV performance with 33% market share, 16.8% revenue growth and ARPU up 4.3% over the same quarter last year, a growing High-Speed Internet customer base up 7.3% since Q3 last year with average revenue per subscriber up 14% and revenues ahead 19.7% since the same quarter last year, and continued solid wireless performance with ARPU amongst the best in Canada and strong growth of 11.4% to over 420,000 subscribers.

Our third quarter Wireless revenue is ahead 5.3% compared to the same quarter last year. This growth was impacted by a CAD2.8 million spike in wholesale revenue that occurred in Q3 last year that has not reoccurred this year, likely as a result of network improvements made by TELUS. Q3 results revenue would be ahead 9.6% compared to the same quarter of 2007 if we adjust for this CAD2.8 million in wholesale revenues.

Wireless ARPU, which is down 2.9% year-to-date, is also impacted by the reduction in wholesale revenues as well as the impact of discounted pricing at the end of last year and earlier months of this year. Looking ahead, we expect the positive trends experienced in our Consumer Markets division will continue, given the strong Manitoba economy with solid subscriber results in Wireless, High-Speed Internet and Digital TV for the full 2008 year, along with the lowest local line loss rate amongst incumbents in Canada. We also expect the trend of rising ARPU to continue for both our High-Speed Internet and TV Services.

Revenue from our growth services should account for approximately 47% of total Consumer division revenues in 2008. For the Company as a whole, with the year-over-year increase of 14.1% in our growth revenues for the first nine months of the year, a portion of total revenues attributable to growth services is now at about 44%. Our annual objective for this metric is 45%.

As the percentage of revenues from our growth services continues to grow, the impact from the decrease in legacy services revenues will continue to diminish, strengthening our overall performance.

Before I move on, I'd like to provide a brief update on our wireless transition. To date, we have expended CAD17.8 million along with CAD2.4 million in capital on this transition. The new platform has been up and running for over a month now, and all new customers are being placed on the new platform. We're expecting costs of CAD40 million to CAD50 million in total over the next two years on this transition. And you know, the majority of these transition costs are being charged by Bell Mobility for services during the transition period. We are of the opinion that such costs are recoverable from Bell Mobility and are continuing with the formal process to recover these costs.

Free cash flow from continuing operations for the third quarter was CAD70.8 million as compared to CAD65.3 million in Q3 2007, and year-to-date CAD221.9 million compared to CAD248.4 million in 2007. The decrease in year-to-date free cash flow when compared to last year stems mainly from increased pension funding and the timing of our capital expenditures. We're continuing to generate strong cash flows to support our attractive high dividend and are well positioned to achieve our guidance for the year for free cash flow.

Additionally, we have unused and available tax deductions that will shelter us from paying cash taxes until 2014. This will have a continuing positive impact on cash flow.

Capital expenditures for the quarter totaled CAD120.1 million, including CAD48.6 million for Wireless spectrum and CAD2.4 million for Wireless transition. Excluding these items, capital expenditures would be down 5.6% from the same quarter last year, due to timing of these expenditures. For 2008, excluding our spectrum acquisition, we continue to target a capital intensity of 14% to 15% of continuing operating revenues, in line with our 2007 expenditures.

I know that many of you have questions regarding the implications of the recent announcement of an HSPA conversion by our Canadian roaming partners, Bell and TELUS. We have always said that we would not drive this type of technology evolution but monitor and follow at the appropriate time. This technology upgrade has been anticipated as part of our plans, and we are reviewing the implications for Manitoba Wireless business following this Bell/TELUS announcement. The time lines that they have indicated publicly provide us with time to complete our own evaluation and for discussions with other industry players regarding the network upgrade.

We anticipate the incremental costs would be approximately CAD30 million to CAD50 million spread over several years for the network conversion to HSPA, depending on the conversion scenario. We will make an announcement regarding our own plans at the appropriate time.

Another issue on the minds of many people is pension solvency funding. Our pension plan is invested in a well diversified investment portfolio which, over the long-term, has demonstrated the ability to provide returns that meet or exceed the levels used by our actuaries to value our pension plans. However, a short-term downturn in the financial markets like this one will have an impact. If the downturn persists until the end of the year, when actuarial valuations are done, it would result in an increase in solvency funding for 2009.

With the volatility in the market, the exact number is difficult to calculate. But, based on our analysis of the issues, we fully expect to have sufficient free cash flow from continuing operations to fund these obligations as well as our dividends without incremental borrowing in 2009.

Turning to our capital structure, in the first nine months of 2008, our debt level increased by approximately CAD85 million. This increase is due primarily to the costs we incurred related to our AWS spectrum purchase and a seasonally high working capital level. Our working capital level is expected to decrease in the fourth quarter, causing a corresponding reduction in debt levels by year end. At 39%, our debt-to-capitalization ratio is the lowest in our industry. With low leverage and a strong balance sheet along with strong and sustainable cash flows, we believe that we will continue to maintain sufficient access to capital markets for our business.

To quickly summarize our performance year to date against our 2008 guidance, for revenues we are at [one point four four five million] and on track to achieve our guidance of [CAD 1920 million] to [CAD1980 million] for the year. Our EBITDA we have achieved CAD505 million and are on track to achieve our guidance of between CAD660 million and CAD680 million. Earnings per share -- we are at CAD2.39 from continuing operations, on track for our guidance range of CAD2.95 to CAD3.15.

For CapEx we are at CAD194 million from continuing operations, or 13% of revenues, on track for our guidance of between 14% to 15% of revenues. And from a free cash flow perspective, we have generated CAD222 million to date, again on track for our guidance of between CAD250 million and CAD280 million. In terms of investing that free cash, we maintained our disciplined approach through the wireless auction, and we will continue with this approach as we evaluate future opportunities. We continue to believe that a number of the new wireless entrants may represent a meaningful opportunity for our Enterprise Solutions division to provide backhaul and other network services over the next few years as they begin their operations, likely in 2010.

Looking ahead across both our divisions, we will carefully evaluate any opportunities available to us with a focus on creating and delivering value for our shareholders. For now, given the current economic conditions, we will place greater emphasis on continuing to improve operational efficiencies and aligning our costs with the market.

Based on our continuing strong results and positive outlook, the Board of Directors has declared a fourth quarter 2008 cash dividend of CAD0.65 per share, which is payable on January 15, 2009 to shareholders of record on December 15, 2008.

Thank you for your time and attention today, and now we will be pleased to answer any questions you may have. Operator, please open up the line for questions.

(OPERATOR INSTRUCTIONS) Peter Rhamey, BMO Capital Markets.

Wayne, very interesting on the capital spending and the HSPA estimate of -- if you had to upgrade your network. But when you talked about free cash flow availability in 2009 and not needing to borrow to fund your pension, would you consider the upgrade CapEx required for wireless in that analysis, or would you exclude it when you give us that view?

Well, given that we haven't decided yet on our HSPA plans, we wouldn't have included capital spending for that in our forecasts. As you know, we typically do our outlook call for 2009 a little later in the year, after we've got our plan approved by our Board. So we would be able to talk in a little more detail about that a little later this year.

Yes, and Peter, as well, the amount or the range mentioned by Wayne would be over a few years as well. So I think probably better to wait until we've finalized the plan and make our announcement at the appropriate time.

Fair enough. Maybe I can ask then, on the Enterprise business you talked about being quite satisfied with the performance there. But I do note that in the third quarter the momentum in revenue was less strong than in the first half of the year, and similarly the margins were less strong than the first half of the year. I was wondering, is that a sign that the economy is impacting your results? Would you expect, with that backlog of orders that you have, that you would see some [equipment and] momentum in the near-term?

We still see strong opportunities in the Enterprise sector. Some portions of the portfolio are perhaps a less resilient than others in terms of being able to weather storms like this. Professional services tends to be one area that sometimes to be -- maybe the first where you might see some indicators there. But on the other hand, we tend to be somewhat countercyclical as well, and from the standpoint on the customers, to the extent that they don't have large capital outlays, can actually reduce their operating costs. The funnel still looks quite strong. As a matter of fact, over the next little while, with some of the issues we have to deal with has to do with actually implementing all of the services that we have actually sold.

And in fact, as I mentioned, the level of contract wins in October has maintained the same type of pace as we've seen since the beginning of the years. It was pretty solid.

Right, so is that more of an '09 impact of the success that you're having, or would we be able to see evidence of this in the fourth quarter?

Well, in most of these implementations, the large projects in particular span multiple months. They do take all -- actually, multiple months in terms of actually getting the sale. And once you actually get the sale, they add provisioning, and in many cases it has to do with customers' readiness to accept the services. But that would take things that we are producing right now, for example, not likely to see much of a revenue impact this year. It would be more '09.

Glen Campbell, Merrill Lynch.

Two questions, if I may, the first on pensions. You gave us a sort of general indication that funding could go up. Could you walk us through the math there? Should we assume, for example, that you've got your assumed rate of return? We would add that to any shortfall and spread that over ten years. Is that the way to think about it? And then I had a follow-up on the Enterprise segment as well.

Pension funding -- we are still looking at that. Given the volatility, it's difficult to calculate exactly what the impact is. So the point that I would make is that the evaluation that ultimately determines funding won't be done until January 1, 2009, and we are -- we will have to evaluate what the assets are at there. And as well, with respect to long-term interest rates, our discount rate will be determined at that time as well.

So there's some more time to go before we need to estimate that. But, given the various ranges that we've seen in October, we don't see a problem with funding that out of our expected free cash flow.

The other thing I would mention is that we are involved in lobbying for reformed rules. We are on the page that the volatility in the market as reflected through the pension solvency rules just doesn't make sense to fund pension plans, and we have expressed those thoughts to the government. I think that there's a better than average chance that, given what we've seen in the media and all of the things that are going on, that the funding issue may be a lot less than we think if the government reacts to those efforts.

And in the Enterprise segment, Pierre you, I think, expressed satisfaction with the revenue trajectory but didn't mention the expenses and margins and did highlight the fact that you see opportunities there. Could you elaborate a little bit on what's there and what that might do to margins for 2009?

I think, as Wayne said, for 2009 we are going to deal with that in our guidance call, which is going to be sometime in December. But when you look at the business, we've been on the Allstream side working for a few years now in making this business stable and now growing. We are pretty happy about where it is. There is no doubt that there is work that continues to be done in the division. The performance on winning new customers, it's pretty strong, as you can see. In some markets it feels like we are gaining some market share, which is good, in particular in an economy that at least globally seems to be pretty difficult.

And, secondly, when you look at the strength of the growth products, [in site] communication and suite of converged IP products, growing at 15% for the quarter and still being double-digit, very strong through the year, that too is another strong point.

Now, combined with that, though, and we're like any of the other telcos, we've got to watch costs all the time and work on costs. I think as I've said in a few other calls, believe that there are good opportunities to continue to take out costs for the years to come. And where we have embarked into quite a large one, in fact, for a few months now in terms of reviewing our major, or many of our major processes and making them more efficient, making ourselves more productive and also delivering an even better customer service than what we're doing today -- all of this together, when we look at it, gives us confidence that we are on the right track and that the division will continue to perform and will continue to grow.

Vince Valentini, TD Newcrest.

Question on Enterprise and a question on pension as well. In the Enterprise space, can you give us any sense of what the lag effect typically is when there is an economic downturn? You already mentioned it takes a long time to provision these new contracts. I suspect that a lot of your business is tied up in contracts as well as opposed to being like spot and month-to-month type work.

So if there was a downturn, would you expect to see something in the next six months or two, or perhaps not until 2010?

When you say downturn, in terms of -- you mean customers spending less with us, or us not winning as many new contracts?

Downturn of customers spending less.

Well, if the customers aren't going to be in business, you'd obviously see an impact there. But we -- when you look at our market share, it's pretty well evenly spread across all of our market verticals. I really don't see that. I do see it some portfolios. If there's going to be a big capital expenditure, for example, the customer may decide to sit on their wallets for a little bit. But for the most part, customers see networking and telecom as an opportunity to actually improved their costs. So it actually should help in a -- once again, if there's not a huge capital commitment that they have to incur in order to realize that kind of savings. And in many cases, where we're talking about things like our IPC portfolio, there's not that big incremental CapEx that would be involved like there might be in something -- like building a new factory, for example.

So we see it as an opportunity.

To follow-up on the pension, Wayne, if I could, you mentioned the discount rate. Can you give us any more clarity? Because there seems to be a real mixed bag out there with different companies of how the discount rate is calculated. Some lean more towards government of Canada treasury bonds, and some lead more towards AA corporates. What do you guys use as a benchmark, and can that be changed at the end of the year if you see a huge divergence between different types of bond yields?

Before you go there, did I hear you ask about what types of contracts we were signing in Enterprise?

Well, it was a tag onto the question, Pierre, is -- how long are the contracts that a lot of your big customers are in? Like, if they did want to cut back their spending, would they be able to immediately, or would that not phase in for a year or more?

Yes. I think first, and John can add to it for sure. But the contracts we sign in Enterprise mostly are relationship contracts, so they are a multi-year contract. And many of them are for the provision of service on an ongoing basis, and a large majority of them. So the people, unless they go bankrupt, the corporation continues to use their telecom service going forward, particularly as they move to an IP infrastructure. They have got to keep it on and going. It's hard to revert back to the legacy. I'll let John answer it.

That's exactly right, Pierre. And, in cases where there may be volume commitments, to the extent that we had to incur capital to set the infrastructure up to service that contract, there could in fact be penalties. But each contract tends to be different. But I certainly don't see a lot of customers are going to decrease volumes in the short-term under existing contracts.

And the discount rate, Wayne?

With respect to the discount rates, let me just clarify a couple things. First off, when you talk about pension solvency funding, the discount rate that is involved in that calculation or test, if you will, is a prescribed rate. So you don't have a choice on that. Now, it's a little complex to describe. But basically, it would be a weighted average of a few things. One would be the seven-year government of Canada and the 30-year government of Canada as the benchmark, plus a certain number of basis points as allowed by the guidelines that are put out by the Canadian Institute of Actuaries that the actuaries use to then tack onto those benchmark discount rates.

Then, on top of that, if you have any indexing in your plan, you would also use as benchmarks for the index portion, you would use the real return Government of Canada rates as your benchmark. So it's a little hard to describe, but basically if you take all of those rates together, depending on the ratios applicable, you get a weighted average that is basically what you are required to use.

Now, where you maybe thinking that there is more flexibility is on the accounting side, where those are different rules as to what you include in pension expense on your income statement. So I think our rates that we use to calculate our pension expense are documented in our annual report somewhere in the 5.5% range. So that might be the rate you are looking at. But when you talk about pension funding, there really isn't any discretion as to what your discount rate is. You just wait for the valuation date, and whatever your benchmarks are on that day, you go from there.

One last follow-up on that is, you mentioned this lobbying effort to the regulators in terms of how long you have to fund any deficits. But what about lobbying the actual actuarial association to say, hey, look at corporate spreads this year versus government bonds; it has gone nuts. Maybe you should use different benchmarks for that prescribed rate. Is there any organization to try to do that?

Yes. We have also been lobbying with OSPE as well as the Canadian Institute of Actuaries to come up with a better system, including one of the issues being discount rates and whether it's appropriate to use the risk-free Government of Canada type of a benchmark versus a AA corporate, which is what they use in the US. So you've probably noticed that, in the US, the pension issue is much less of an issue because these spreads, or the benchmark discount rate, has gone up, which basically then offsets the decline in asset values, and effectively they don't really have an issue down there due to the offset. So we would certainly like to see something that's more rational in the Canadian context, and so we're pushing for that.

Dvai Ghose, Genuity Capital Markets.

One operational and one balance sheet question. On the balance sheet I'm looking at your addressable liquidity at the end of the quarter. You have total credit facilities of CAD850 million, but I believe CAD350 million is just an empty and shelf prospectus. So it looks like you have liquidity of CAD500 million. And you have maturities of -- sorry, CAD500 million addressable, CAD195 million of actual liquidity. And, you have CAD325 million of maturities over the next 12 months, plus the HSPA, plus the Bell.

So are you in the market to issue notes both for refinancing, as well as to raise capital?

Well, let me go through those numbers again. You are right that we have CAD500 million in addressable liquidity, and -- though I would correct you on one thing. We do have maturities over the next 12 months are CAD220 million, and that's in 2009. There's a small issue in 2010, which I think is CAD12 million, and then nothing other than that out until you get to 2011. So we have those MTNs to renew over that time period.

So not in a big hurry to refinance that, but obviously something that needs to be done over that period of time. The available liquidity you indicated at about CAD200 million sounds about right.

Okay, great. So the maturity in 2009 is when?

I believe the biggest issue is in June.

The other comment I guess I would make is, when we talk about the HSP overlay, I don't really see a lot of that cost in 2009. This is over a number of years that we would be looking at doing something there. So I don't know that that's going to be a big impact. And the other issues, like the Bell transition -- that would be funded out of our ongoing operating cash flows. So I don't really see an increase in debt in 2009, which I think is where you were going with part of that.

So you are saying basically there's a refinancing that's required for the difference. I guess my question related to your answer is, there's no mention of a normal-course issuer bid resurrection in today's release that I've seen or in your comment. Why is that? Is that a liquidity issue? Is that a target leverage issue? Why haven't you resurrected that?

Well, with respect to share buybacks setting you've probably followed our comments on those through the past. So we are continuing to look at our opportunities. But notwithstanding that, I think considering the current state of the financial markets it's probably a bit premature to continue or to reinstate a share buyback program until we have a clearer understanding of where and when this volatility in the market is going to become more normalized and what is the economic climate when that stabilizes.

Okay, that makes sense. And then, the operational question, last one -- so your reported ARPU is down about 3% in wireless. I understand that was unusually high because of the loss of the wholesale traffic from TELUS. But it looks like the retail ARPU is probably about 2%, which is fairly stiff. If you look at all the announcements this week from your national competitors, I guess Fido has pulled their SAF, Solo just announced a pulling of their SAF, Koodo doesn't have a SAF, and I think both Koodo and Fido -- correct me if I'm wrong -- have operations in your market. And I think you're sitting on an 895 SAF, still. Is that's sustainable?

I think the same question could be asked about the incumbents in their own market because, clearly, they've positioned those as downmarket brands, and they have a more premium mainstream brand, whether that's Rogers or Bell's main brand. So I think they are targeting that at a particular segment, and we have our own offers that go after that segment, and clearly we'll monitor what happens in the market and make adjustments as required.

I like the way you answered it, because it is a greater context. But in your view, and I'll leave it with this, given the fact that none of the flanker brands now have SAF in Canada, can we maintain SAF at all in the premium brands? Why would anyone, unless they really want high-end data solutions, go to a premium brand as opposed to getting the same product from a flanker brand without any SAF?

Let me jump in and put two things first. Fido and Koodo -- I'm not even sure Koodo is in the market there, really, a little bit maybe. Fido has a pretty small market share in Manitoba, and little network coverage as well, so maybe less of a concern for us as a regional player, really, because nobody is matching the coverage we have, and not coming close to it.

But secondly, as the end of the day -- you are right to ask the question. But it's a total package cost at the end of the day, in terms of what service do we offer, what feature, what is the total cost. And, I think consumers and businesses are now looking at what is my total bill and comparing all of this and comparing what they get for it. And up to now, it looks like what we're offering the market is pretty competitive. I think you see a type of growth we are delivering to customers. So the industry will evolve over time, and we will see where that takes us. But for now, the total package we're offering seems to be pretty solid in this market.

That's great, Pierre. And just as a last thing here (inaudible) given the fact that new entrants are probably going to find it difficult to raise capital in this market, that may increase your leverage as an investor in new entrant businesses. Have you changed your mind at all about investing in one of the net entrants?

I'm not sure if I've changed my mind because I'm not sure if my mind was exactly. But at the end of the day I think what you can expect from us, and we've said before that we are talking to everybody to look at what are the opportunities. And in particular, talking about the services that we can offer from an Allstream point of view, which we believe are pretty meaningful for us in the medium run -- but the only thing I can tell you is that, as we look at those opportunities we will be as disciplined and as prudent as we've been in the past. And you can expect that this management team will act the same as it has acted as it looked at the spectrum auction.

John Henderson, Scotia Capital.

I'm just going to go back to the data revenue growth. The growth rate slowed from 10% in the most recent quarter to 2% this quarter. I just wonder if some of that might be seasonality of some of the acquisitions you acquired, or is it increased competition? What would you point to?

Well, I think that there is a little bit less growth in the third quarter than there was in the second quarter. So that -- but when you look at the acquisitions, I don't think that would be causing it because that was the same in both quarters, or the impact would be roughly the same in both quarters. So it really is more so on some of the other things that are in our data revenue. So we had, as you know, continued to see good growth in our High-Speed Internet, but probably a little more or less growth than we had seen earlier in our unified communications and in our security and professional services. So a little bit less growth than we had in the previous quarters coming from those two areas.

So the acquisitions was about CAD4 million impact?

Yes, per quarter. And it's basically -- well, between CAD3 million and CAD4 million, and it's the same each quarter.

Okay, so pretty steady. Just the last one, little detail thing, the AWS charge. How much would that have been, of the CAD7.5 million?

Sorry, I'm not sure I'm following you.

Not the restructuring charge, but the CAD7.5 million charge for the Bell transition plus AWS spectrum.

Oh, yes.

How much was for the spectrum?

That would have been primarily the Bell transition costs. I don't think there would be anything more left in there in the third-quarter amount that was related to the AWS auction. That would have been earlier that we would have had those costs.

Greg MacDonald, National Bank Financial.

On the 2009 guidance, I wonder if you have a date yet when you are planning to disclose that? Secondly, at that guidance, will you, in fact, be providing detail as to whether you will be moving forward with an HSPA overlay or not? And will you give us details at that point?

And then, lastly, and this is somewhat of a question that's pretty similar to what I think applies to TELUS in that they announced a CapEx target for wireless for 2009 which was, in my opinion, lower than what I would have thought, given what seems to be the consensus for an HSPA overlay total cost is out there. So the question I'm asking you is -- do you have flexibility in your existing CapEx budget such that if you were to do an HSPA overlay, that the cost wouldn't necessarily be as onerous in one given year, i.e., whether that's 2009 or 2010, as what we would have bought?

Let me try to answer the first part of your question. In terms of our guidance call for '09, we are currently looking at mid-December, not finalized but it should be around mid-December. Secondly, in terms of, will we announce the plan in terms of UMTS, HSPA conversion or anything we would do on wireless? The answer is, I don't know. We will announce it when we are ready.

Again, on that side, we believe that there is time for us to finalize the plan and finalize exactly where we were going and get these costs also more specific and more in line with the type of information that we're giving you normally. Wayne, I'll let you answer the other question.

I think you are right, that we do have an existing capital spend on our wireless platforms, and that we would have each year on our CDMA network. So naturally, if you were rolling out an HSPA network, or whatever transition technologically you would want to be doing, I think there would be a natural tendency to slow down or even stop that existing spending on the network that you are moving away from.

So I would say the answer is yes, there definitely is capital within the envelope that could be and would be redeployed towards any technology conversion.

Are you prepared to give us how much you spent on 3G upgrades for your CDMA network this year that won't be spent next year?

I don't have a number off-hand for that question.

Would CapEx go down, then, in '09, if there is no HSPA spending, in '09?

Yes. I would tell you that we look at it probably more in terms of an overall capital envelope. So if -- we are talking pretty hypothetically here, since we haven't made a choice on what we are going to do with respect to HSPA or any other issue there. But we tend to look at, in some areas you're going to have less spending one year, and in other areas maybe then you would redeploy that capital to other opportunities. Typical, we have enough opportunities for capital to find a space for all of the capital within that general range that we are doing, and it's really a matter of prioritizing it. So that's probably as detailed as I can get in terms of --

I think we had probably better wait until we get to that guidance call and give you our direction

Jonathan Allen, RBC Capital Markets.

Obviously all the big questions have been asked and answered, but just a couple of clarifications. First, the solvency deficit as of 2007, Wayne, where were you sitting at, at the time?

You mean 2008 would be our last valuation, January 1, 2008. And we would have been in the range of about CAD200 million, or thereabouts. Our funding was roughly CAD30 million a year at that time.

The CAD30 million is the special funding; is that right?

Yes, and that's what we're funding in 2008.

And then, the executive service funding, service cost?

The normal cost is just over CAD20 million.

Okay. One last clarification, on the capital structure you had mentioned about not being in any rush to necessarily term out any debt. It looks like, though, from a range, something you might be looking to raise somewhere between, what, about CAD200 million to CAD400 million. Does that sound about right, sometime in the next 12 months?

Well, I would say that our -- with basically, our debt to capital ratio or debt to EBITDA, however you would want to calculate that, we're pretty conservatively financed in terms of the amount of debt we have. So generally speaking, our plan would be to roll over that debt as it comes due and term it out to whatever year it might make sense in terms of the overall debt portfolio. So we've got about CAD200 million that comes due. Generally speaking, we would probably want to roll that over into a longer term.

As far as the short-term liquidity, you had mentioned that you've got about CAD200 million of capacity. The rating agencies, however, have been taking a little bit of a harder line looking at short-term liquidity for companies. Is that adequate from the rating agencies' perspective, or would they like to see that a little bit lower or put that rating at risk that you have right now?

They haven't mentioned or expressed any concerns to us in that regard, so I would have to assume that that's not an issue at this point.

Yes, and based on the cash flow we're also producing, I don't think there's a concern.

One last question about the securitization program that you have, CAD116 million outstanding. Is that down from the previous quarter?

No, it's about the same, roughly, in that CAD115 million range. I don't remember the exact number last quarter, but it's (multiple speakers) --

So you haven't been running into any problems with that, rolling it over?

No, no. That's a pretty secure facility, and we have -- you get lots of benefits from it, so we continue to use it.

We have no further questions at this time. Please continue.

Today's call will be archived and available on the investor section of the MTS web site, and that concludes our call for today. Thanks for coming.

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