BCE Inc (BCE) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to BCE's first quarter results conference call. I would now like to turn the meeting over to Mr. Fotopoulos, please go ahead.

Thank you, Wayne, and good morning to everybody. Welcome to our call. With me here today are George Cope, our CEO, and Siim Vanaselja, our CFO. So today we're going to take you through our first quarter results. We'll use a slide presentation that's available on our website and after that we'll move to Q&A. Because of our annual general meeting that will begin at 9 a.m.,this morning, we will have an abbreviated question-and-answer session. So as a result, we will end the call sharply at 8:45, so I please ask that you keep your questions short, to the point, and limited to just one so that we may get to everybody on the call. .

As usual, before we begin, I would like to remind you that today's remarks will contain forward-looking statements with respect to items such as revenue, EBITDA, capital intensity, free cash flow and EPS. Several assumptions were made by us in preparing those forward-looking statements, and there are risks that our actual results may differ materially from those contemplated by those forward-looking statements. For additional information on such assumptions and risks, please consult, BCE's MD&A for the year ended December 31st, 2008 as updated in our first quarter MD&A, all of which are filed with the Canadian Securities Commission and with the SEC and which are also available on our website. These forward-looking statements represent the expectations of BCE and its subsidiaries as of today and accordingly are subject to change after such date. Except as may be required by Canadian Securities laws, we do not undertake any obligation to update any forward-looking statements whether as the result of new information, future events or otherwise. I would like to note before we start I'm making these cautionary statements on behalf of each speaker today. And that's it. So with that behind us, I will hand it over to

Thanks, Thane. Good morning everyone, and thanks for taking the time to join us this morning. I'll start with financial review slide on slide four. Overall I would say that Bell had quite a reasonable start to the year, our residential services business is showing good resiliency to the economic downturn, I would say given the importance of those services to our customers, and that together with wireless growth enabled us to maintain a stable level of overall recurring service revenues and healthy free cash flow and earnings generation for the first quarter. The economy has lead to more cautious spending and reduced business investment? In that context, Bell's total revenues were down slightly by about a half of percentage point due to lower product sales which declined 8.2%. We are seeing reduced network and data equipment sales to business customers who are deferring buying decisions and cutting back on spending in the short term.

The Bell service revenue growth of 0.2% was in line with our expectations, and we are particularly pleased with the continued performance of home phone, video, residential internet, IP connectivity and ICT services. EBITDA for Bell was up 0.3% in the first quarter, or that's 1.5% before the year-over-year increase pension expense. With growth and contribution from our wireless segment, a continued improvement in the rate and (inaudible) erosion and the benefits of our cost-reduction programs, Bell's EBITDA margin expanded slightly to 39.4%. Capital expenditures were higher year-over-year in the first quarter, due to investment in the build-out of our HSPA wireless network and as well the accelerated rollout of high speed fiber access to residential neighborhoods and MDU's. Bell's capital intensity ratio also increased to 13.3%, and I would say we should see this continue to ramp up through the remainder of the year to reach our guidance level of 15 to 16%. Adjusted EPS was stable year-over-year at C$0.57 for the quarter, higher year-over-year EBITDA and the impact of fewer outstanding BCE common shares were offset by increased depreciation that was from the [Nimic] Four satellite which, you'll recall, was commissioned last fall and the new Bell campuses. And as well, we had slightly lower interest income on our temporary cash deposits.

Our statutory EPS for the first quarter was C$0.48 compared to C$0.32 last year, and that year-over-year improvement was due to the charge that we took in the first quarter of 2008 to accrue obligations under the CRTC's deferral account. Lastly on this slide, despite the year-over-year increase in capital spending and higher cash pension as well as higher restructuring payments, we generated solid free cash flow of C$272 million for the quarter.

So let me turn to the segmented results, starting with wireless. Wireless service revenue growth was more modest compared to previous quarters, increasing by a little over 3%. The growth in wireless service revenues came from strong data usage, and an improving post-paid mix, but continuing pricing pressures with discount brands and the weaker economy contributed to lower voice ARPU. Wireless product revenues were up 12.2%, and that reflected both increased handset sales and higher average handset prices as we penetrated more smart phone activations and those represented approximately half of our total gross additions, so I would say good traction on the data side in wireless.

EBITDA in wireless grew 6%, benefiting from lower retention cost and pretty disciplined handset pricing, and that yielded a revenue flow through to EBITDA of 80%, and a margin improvement of 1.1% to 44%, so reasonable wireless financial performance. In the wire line segment, as I said, we maintained good momentum in video, internet, and local voice, and all of that lead to about a 10% year-over-year increase in average revenue per residential household. The pace of local voice erosion continued to slow owing to fewer NAS line losses and we saw good traction from home phone offers and smart touch services. Despite the solid performance in residential, overall wire line revenues decreased 2.4% year-over-year, and that reflects the more challenging business markets. In particular, I would say our SMB unit has been the hardest hit by increased bankruptcies and reduced employment levels, and we have seen those impacts, which had lead to increased access line disconnections and relatedly, the reduction in toll revenues. Our enterprise performance was better, but also impacted by softness in equipment sales and volume declines in connectivity. Those pressures were partly offset by good growth in IP broadband and managed and professional ICT services.

And with labor savings from our 100-day workforce reductions and our focus on reducing discretionary spending and G&A expenses, wire line EBITDA margin actually increased a touch year-over-year, to 38.3%. On slide seven, I have provided a break down of the components of BCE's free cash flow for the quarter. As you know, there is seasonality associated with our cash flow, particularly in the first quarter. In the first quarter, we incur payments for income taxes, public utility taxes, property taxes, variable compensation plan payments, and a number of other license and insurance payments are all made in the first quarter, so I think if you go back historically, in BCE and Bell Canada, the first quarter has always been a slow quarter in terms of free cash flow generation, but this is very much in fact exceeding our targets for the first quarter. So free cash flow before common dividends was C$272 million, as I said that's ahead of our plan. Compared to the first quarter last year, the cash flow is down C$32 million. I mentioned our increased capital spending. That used up C$26 million more in cash year-over-year, and in addition, as I outlined at our analyst's day meeting last February, our cash pension funding is up. In the quarter pension funding was up C$46 million year-over-year.

First quarter cash flow also reflected higher cash restructuring payments related to our work force and real estate reduction initiatives. As you can see on the waterfall chart, offsetting those pressures was increased underlying EBITDA and some favorability in working capital compared to the first quarter last year, and that was from increased payables and tighter inventory management. All in all, we're on track to deliver our free cash flow target of 1.75 to C$1.9 billion for the full year.

So before I turn it to George, I do want to circle back to the principles that we outlined last February in regards to our capital structure model, where I certainly think we're delivering good execution. Our common share dividend increase of 5% became effective with our first quarter dividend payment on April 15th. We've also, now completed our targeted repurchase of 40 million common shares of BCE under our NCIB program, at an average repurchase price of about C$24.65, we believe that represents good value, and is accretive to our EPS. With regard to our objective of maintaining high levels of liquidity, we have just completed the renewal of our C$1.4 billion revolving credit facilities. That is now fully committed for a new three-year term. And this together with the C$2.3 billion of cash on hand at the Bell BCE level at the end of the quarter as well as the substantial ongoing operating cash flow, we expect to generate through the balance of the year. I think all of that provides us with more than sufficient resources to meet the C$1.5 billion of debt maturities this year. And in fact today you'll see in our announcement that we'll early redeem BCE's series C debentures in the amount of C$650 million prior to their maturity later this year. And we think there's good financial return for us in doing that.

So with that, I'll hand it over to George.

Thanks, Siim. Good morning, everyone. Thank you for joining us this morning. I am on to my slide deck now, which would be slide number 10, and let me first of all start by making a few quick comments on our strategic imperatives. On all five imperatives I believe we made progress this quarter. Two here I'll quickly comment on. Quarter we think the success of the company in the marketplace. One is the improvement in customer service. We continue to see with now 95% completion of our same day/next day service on all three of our consumer household products, and that is driving a savings in cost, not driving costs up. In fact, we have seen a 14% year over year reductions into our call centers because of the performance that we are bringing to the marketplace now in terms of service.. And again, more work to do in that area.

And then on the cost side, Strategic Imperative Five, our wireline labor costs are down 7.4%, year over year, and our G&A in the wire line business down about 12.5%.. Approximately C$80 million reduction year-over-year in our costs in the first quarter, in those two lines, in the wireline operation enabling us to have our overall margin, as you see, increase in wireless as well and on the wire line side slightly. Turning to the next slide, slide 11, we just announced this morning, consistent with our strategic impairment to accelerate wireless, a decision we made, obviously, in agreement with Virgin Mobile, and Virg and to acquire the other 50% of Virgin Mobile we did not own. We've entered into a long term brand arrangement with Virgin. The Virgin fee -- the fee we are paying Virgin for the brand remains the same as it was in the partnership, so that does not change. We will not be disclosing that amount for competitive reasons. We think it maximizes our flexibility for flanker brand management going forward, with overtime the ability to consider moving to one flanker brand versus two in the marketplace.

We also believe it allows us to leverage our acquisition of the source by bringing Virgin to the source on top of the Bell brand in early January of next year. The acquisition price, net of taxes is approximately C$102 million, and Siim will be happy after the call to take the analysts through this in a little more detail, if required. In terms of the valuation, we have in essence acquired the position for the investment that our partner had made in the company, and also it is well south of what we would pay on a cost of acquisition basis for the net ads that we add through the additional 50% ownership. It doesn't change our overall sub count, because, as you know, our total subcount included the Virgin 100% subs. We will not be disclosing the subs we have acquired or that COA for competitive reasons, but I'm sure the analyst community can see at that price and with the acknowledgement from me that it is equal to the investment that our partners put in, that it moves us in the right direction and gives us the right flexibility. In terms of the timing, why now? One I mentioned was with the pending closing of the source, the ability to take the Virgin brand and the Bell brand to 750 new distribution points with the pending role of our new technology HSPA in early 2010, with the introduction of a forth carrier, with the work we're seeing taking place in the marketplace by our competitor on the Flanker brand side, and with Virgin beginning to build momentum in the post pay market, we thought it was timely to move forward with moving the organization to 100% owned asset for us.

Next slide, slide 12, just a quick update on the source. We are on track to close in the third quarter as we had indicated before. Two things to remind people, we really will not be in the stores with Bell wireless products or now Virgin wireless products until the first quarter of 2010 because of an exclusive contract that The Source has with our competitor, Rogers. One interesting new point of information as we got closer to the asset this the amount of TV business that it does, and about 90% of the TV business that it does is not Bell's today, and we think that also represents a significant distribution opportunity for us, for Bell TV satellite services and for future TV services we might bring to the market over time. Turning to slide 13, Siim already commented on the financials in wireless. I'll just make a few quick comments here. I think in terms of the net ads having post paid increase year-over-year is obviously a positive for us. I hope you would agree the strategic things we're doing this morning and in January with The Source continues to drive us to put ourselves in the position to gain the market share we're targeting over time. I think the important thing for investors is the ARPU conversation for the industry. ARPU is down as well this quarter. What really took place as Siim mentioned, we have seen a growth 36% in data revenue. What we saw was out-of-bucket usage on voice plans were down. We think driven principally by the economy. Not as much yet the a Flanker brand issues, because, frankly, that's hard to impact the entire base. So we believe it is more economic.. Having said that, obviously pleased that we held COA constant, our churn rate constant, and more importantly with real tight cost management, we're able to have an 80% flow through and see our margin expand there. But it is obviously in this economy the wireless industry is singing in Canada, and we're not immune to that.

Turning to the next slide, as Siim mentioned, we continue to track as we had hoped in terms of our consumer NAS performance. You can see year-over-year a reduction in our residential NAS losses from 106 last year to 78,000, so clearly moving in the right direction.. Where we have seen softness is in the SMB market. You'll see 119 to 104, so reduction overall, but where we saw in acceleration was in SMB, and as Siim said, we believe it is clearly driven by the economy and we obviously, as the economy stays soft, we would expect to continue to see that type of impact. Also in the long distance area, where we saw some impact again was on the SMB side. So on the consumer side, meeting our expectations, frankly ahead of our expectations and strong, and on the small business side clearly an impact from the economy.

Overall though, our sixth consecutive quarter of improving NAS results, a reduction in actual NAS losses year-over-year consistent with our goals this year that we outlined at the investor conference. Turning to slide 15, we had a strong quarter, with our TV product, video performance. Excellent revenue growth again at 8.7%, ARPU up C$4 year-over-year, and starting to move in the right direction on net ads at 12,000 net ads in the quarter, obviously much stronger than last year while maintaining a low churn and strong EBITDA growth. Our continued positioning on HD and PVR in the marketplace is benefiting us, and then in addition this morning consistent with our strategy of accelerating wire line and as I mentioned at our investor conference, needing to accelerate our distribution arrangements, we have done that with the source, we have done it this morning we believe with Virgin, and this morning we are also announcing as TELUS will be announcing, we are entering in to a agreement with TELUS in Western Canada where they will begin to resell Bell TV under their brand in their Western territories. We will continue to compete with them in Western Canada, and market in Western Canada, and obviously launch the Bell brand through The Source stores nationally, but, in addition, we're excited about with this relationship with TELUS. We've had an excellent relationship with them even though our competitor on the wireless network billed. In this area we think they will be an excellent distribution channel for us going forward in Western Canada and I'll leave more TELUS to talk about because early this quarter some of the things they may be doing in their market in Western Canada. So I think strong momentum on the TV side for the company and stronger, we believe, going forward with that announcement this morning.

In terms of our overall data business. A reasonable revenue growth on the service side at 3.6%. But as Siim mentioned soft hardware sales doesn't necessarily fall through to EBITDA, but is indicative of the economy, and I would also say consistent with our strategy to try to stay away from low margin hardware sales.. Overall our consumer high-speed business saw an increase in ARPU year-over-year of 10%. And actually reasonable net ads in consumer, but the net ads of 6,000 overall again, were driven by softness in SMB, we would probably continue to say we would like to see more growth on the broadband net ad side, but on the residential side we would have actually said there was a reasonable quarter and impacted by SMB. FTN continues to be on track in terms of our buildout and on schedule as we talked about at the last investor conference.

So in summary, on page 17, making progress on all of our strategic fronts, as we laid out in the service level improving in the marketplace and actually driving costs out of the company, enhancing our wireless distribution, accelerating our wireless businesses with the type of announcements we have made this morning, NAS continuing to decline despite some of the SNB pressures. HSPA on track for launch in early 2010, and overall keeping a very disciplined eye on our cost, such that we are able to maintain margins year over year. With that, let me turn it over to Thane and we'll take questions.

Okay, Wayne, we'll take questions now.

Thank you. (Operator Instructions). The first question is from Vince Valentini from TD Newcrest. Please go ahead.

Thanks very much. George, on the wireless side, I understand the voice ARPU pressures, everybody has seen that, but the deceleration in our data revenue growth was a bit concerning to me about 36% versus 54% you did in the fourth quarter. Is there anything specific there, or is that something you would hope to be able to drive back up, is there some sort of sensitivity to the economy in that number as well? Or is it not getting as many smart phones as you maybe would like?

Good question, Vince. I think we just have to keep doing better at it. I have to admit I wasn't on the management side sitting with the guys saying why was it 50 versus 36. But to be clear, you're right, we have got to just continue to drive our share of the data. We think we'll that v an opportunity on the HSPA side when we roll that out next year. But continuing to see really strong data growth in the organization. So I'm not, frankly concerned with it.

I think we're through the distribution channel working handsets we're launching in the marketplace, and I feel real quite positive about that. My real concern on wireless is really twofold, one I think we have all talked about , you have mentioned the economy issue, and secondly is the Flanker brand pricing that we have seen in the marketplace, and overtime that obviously has some impact on ARPU. And hopefully will be offset by data, but at this point it's

Okay. Thanks.

Thanks.

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

Thanks very much. Good morning, George, you mentioned the excellent relationship you have be TELUS, and it seems pretty clear between the wireless and the satellite side that the businesses can complement and strengthen one another. What are your current thoughts on a merger between the two companies? Is this the right time to be looking at it again?

No. We're focused on execution and hopefully people have seen it in our results, execution this quarter consistent with our strategy. We have an excellent relationship we also compete like them in the marketplace like there is no tomorrow in terms of getting customers. But where there is things that we can do to drive value for our shareholders, such as we think this resale arrangement today on TV or something like a network share agreement we're going to do. We believe those are shareholder friendly things to do. And from a competitive standpoint, drives competitive intensity now for TV in Western Canada. So the consumer actually ends up with more choice and our benefit here is that we have an extra channel of distribution selling in the marketplace.

Well, you mentioned execution in the near term as being a clear priority, and I agree with that. Longer term, though, do you see the benefits of the merger between the two of them clearly benefiting the cost structure and is it an eventuality that we see further consolidation in the industry?

We're focused on executing value for our shareholders for the dividend growth strategy we talked about and the capital market strategy, so really I have no comments on the idea of a merger with TELUS.

Thank you very much.

(inaudible) question, I think

Thank you.

The next question is from Dvai Ghose, from Genuity Capital Markets, please go ahead.

Thanks. Good morning, George and Siim. Question on the NAV performance. Very good on the rez side as you've pointed out.. I'm wondering to what extent you think that will be compromised by Rogers new pricing which is just being unveiled. Simpler lower-end pricing. We saw the impact when Shaw (inaudible) lower-end pricing. Secondly on the business side, again, you contribute the softness-to-the economy, which is very understandable, especially in the SNB side, but to what extent is it a market share issue with cable, and is there a risk, especially with (inaudible) 3.0 that cable stops taking some enterprise market share along with some SNB market share.

Thanks Dvai. On the Roger's new pricing. We'll have to see the impact of that. Obviously it's a competitive marketplace, so we'll have to react accordingly in the market. I would say that our improvement in service levels, we think is really responsible for what we are beginning to see in driving a reduction in NAZ, improvement in internet service that frankly our customers have told us the best service level we have given them in four to five years on the internet side, is what we're going to rely upon to a large extent to compete with. And, quite frankly stay away from fall out price competition. So we'll obviously monitor those developments.

On SMB, it appears, Dvai, to be less market share and much more economic. We saw it in the first quarter where inbound calls for new businesses-- I don't want to overstate it, but let's just were very soft in Ontario and Quebec as there weren't a lot of new businesses being created. And so that (inaudible) saw.. We didn't actually see an acceleration overall in our churn, it was the inbound from the economy that hit it. And then obviously we have some customers who are getting into financial issues, where they ultimately go out of business.

Thanks, George.

Yeah, thanks.

Thank you. The next question is from [Simon Flannery] from Morgan Stanley. Please go ahead.

Thank you very much. Good morning. George, we have heard Rupert Murdock, John Chambers, talk about stabilization, perhaps signs of improvement at the margin. What are you seeing in your business trends in the last coup of months? Are things stabilizing and any signs of hope for the second quarter and beyond or it is still significant pressure as you go through the quarter?

We think it's too early to make that call. We continue on the enterprise side, although we had a stable EBITDA quarter. There's no doubt with the contraction in employment on the enterprise side that new projects are slower in developing, so we think it's too early to make that type of call, and so we're planning through our cost structures in terms of implementation to stay ahead of that possible issues on the demand side.

Great. Thank you.

Thank you. The next question is from Scott Malat from Goldman Sachs . Please go

Thanks for taking the call. Wanted to ask questions on Solo, and then Virgin Mobile and how you're branding that. Is there a point where you have too many brands and you kind of don't differentiate well, and then just on the Solo brand, are you focusing more marketing dollars on that brand in a tough macro? Thanks.

Yeah, I would say the strategy this morning of acquiring the remaining 50% of the Virgin Mobile brand is long term we believe an indication that we -- I would agree with your point, that at the end of the day the requirement for three brands in the marketplace, we will consider that once we have done the closing, executed through this year and into next year and then make a decision on, the multiple-brand approach. We think being able to put all of our resources behind the one ultimately may be the best thing to do in the marketplace on the discount brand side. I will say very clearly that Virgin will be taken to The Source stores and Solo will not go to the Source stores so that we absolutely maximize the value of this acquisition this morning.

Thank you. The next question is from Greg MacDonald from National Bank Financial.

Thanks. Good morning. The question is on the credit side, actually as it relates to the equity side spreads on your medium term debt about 100 basis points since February. That's about 40 to 50 basis points tighter than average at least from the calculations I have done. You have a new credit facility, you've got tons of cash to be able to facilitate the remainder of the debt buyback for the remainder of the year, is it possible that you increase the share buyback at least later this year, once you know what 2010 debt costs are looking like? Thanks.

Thanks, Greg. It's Siim, I'll answer that question. We do believe that there's encouraging signs in the debt capital markets with the return of liquidity, as you say, credit spreads are narrowing. I indicated at our investor day that our clear intention is to repay the $1.5 billion of debt that matures in 2009. We will do that. In light of the -- the strengthening of the debt markets, I would say that we will look at the opportunity to access those markets in the second half of 2009, and that refinancing activity would be directed towards our 2010 debt maturities. So if we're successful in pursuing that, we will have available a continued strong cash position for the company.

Thanks very much.

Thank you. The next question is from Jeffrey Fan from UBS Securities. Please go ahead.

Thanks very much, and good morning. I just want to focus a little bit on the cost side, especially on the Bell wire line. Looks like really good performance on the sequential basis on your operating cost down about 10% sequentially and down about 3% year-over-year. Can you guys talk about like how much of your labor cost reductions have been flowing through the numbers, and how much should we expect for the rest of the year and maybe help us quantify that a little bit? Thanks.

Yeah, I'll make a few comments. Our guidance of stable EBITDA and the stable revenue, you may remember on the -- at the investor conference, I mentioned that if not for the economy in fairness, I don't think our EBITDA guidance would be in the term stable because of the costs we have removed in the organization and all areas of reduction of cost, so we'll continue as we go forward looking for those opportunities. As you may recall at the investor day we announced we had a retirement program that we had launched just in January.

We had 1200 people accept those offers, and they will over a course of 18 months leave the organization. We would anticipate ending this year through that program and others, just not replacing people who leave the company, but another 1,000 people will not be in the organization by year end, and that , in one sense is already announced at investor day, but confirmed through a successful program that we have had on the retirement program, so that will flow through, and then also continuing work on the buy side. On the vendor side particularly in the area of IT where we are looking to lower our costs there, and operations and, as you acknowledged and we appreciate it, in the first quarter, you can see that in your numbers, where i mentioned our G&A line and our labor line combine on the wire line-- were down a little over $80 million year-over-year, which is what we're looking for, real absolute dollar reduction

Great. Thanks.

Thank you.

Thank you. The next question is from [Bob Beck from CIBC.]

Thanks, good morning. Just on the satellite, this is the second very strong quarter on that ad for the satellite service. Can you talk a bit about what is driving some of that in this environment? And related to that, I realize you want to leave details of the agreement with TELUS to TELUS. But think currently your Bell pays only a sales commission to Alliance on that resale agreement. Just wondered if you could talk on whether that detail, as far as Bell is concerned is the same for TELUS? Thanks.

Okay. Okay. First of all the TV results we think are being driven one by, we think from an HD perspective, it's the best product in Canada, and if you haven't got our service, if you use it, I think you'll agree. And I think that's why we're seeing the customer acceptance and we have been marketing that very clear message all the time. Bell TV and HD. And so we see that in our results. The real important thing is the low, low churn rate we get in that business allowing some of the net ads to flow through. And I would say in the last few years, we obviously weren't seeing that.

So, starting to see momentum there, and then the work we're doing on the service distribution side I think are all helping to drive it. To turn to the TELUS arrangement, it's a very unique arrangement with TELUS. They have a unique distribution position in Western Canada, and it's a rebranding, so TELUS will have -- and I want to leave this to them, but they are going to rebrand it under the TELUS brand, which is different than anything we do with anyone else in Canada. It's a different arrangement because they're actually going to be-- If it's TELUS brand, you can imagine they will be sending the bills out, et cetera.

But again, I want to leave this-- in fairness to them to talk about because it's really their distribution strategy. For us, it's a strategy of how to access more customers, more revenue for our satellite that frankly if it has capacity, we should be looking for ways to leverage that. I want to make sure to the analyst community they are very clear that we are not in any way leaving Western Canada in terms of selling of the product in the west.. So it's an add-on distribution channel.

Thank you.

Thank you. The next question from [Glenn Campbell from Merrill Lynch]. Please go ahead.

Thank you very much. George, I wonder if you would talk about wire line replacement trends in your market. In the US we have seen a much higher number of homes having wireless only. In Canada it's been creeping up and we've all be expecting that to start to accelerate. Can you talk about what you're seeing and what you expect.

Glenn, we talk about it every month, and to be quite frank we have not seen an acceleration this year over last year in that area. So we have not seen an acceleration and there's a couple things I'll just bring to people's attention. In Canada, literally every consumer rate plan now includes unlimited evenings and weekends. So people already have unlimited calling for wireless if they choose to use it in the home.

And so people often talk about, well, but if there's unlimited rate plans that come to the market Like Metro PCS through a fourth carrier, that would drive substitution. It may. But it is important to understand we have had unlimited evening and weekend calling in most cases I think it starts now around six for the consumer and so they can use that. We have not seen a real acceleration there. Obviously a difference between us and the US market, and we're going to do everything we can to bring value through that product and through our internet services to make sure we have that contact in the home. So no acceleration yet.

Do you have an estimate of what proportion of homes in your market are wireless only at this point.

We would estimate somewhere between 7 and 9%.

Super thanks very much.

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

Thank you. Just back on the TELUS TV, and the Bell TV. I'm wondering if you can talk about how many MDU homes past Bell now reaches and how that might have been last year and if that's maybe the angle that TELUS will be able to take advantage of. Would they be doing the same sort of thing?

Again -- it's John, isn't it?

Yes

John, I want to leave that to Darren to talk about their strategy. Because, frankly, I'm not aware of what their strategy will be, other than we believe they will be successful in selling their product in the market, or we wouldn't have appointed them as a distributor . So we think they'll do fine. So, I'll leave that to them. In terms of in our market, we do have a focus on MDUs with our Bell TV product and are seeing, as we get access to those facilities, an increase in penetration, and at the same time, as you know, one of our strategies was to begin to take fiber to the basement of multiple dwelling units so that we're set up for the future for the best broadband performance we can have and to complement that, if required, to other TV products over time. But, I'll leave that question for you to ask -- ask our -- our competitor in the

Can you give us a sense of how many homes past you would be in MDUs in Bell territory?

We can get that for you if we decide to (inaudible) I just haven't got on the top of my head. So we'll make a call and if we're going to (inaudible) we'll get back to you.

Okay. Can I ask a follow-up.

Very quickly.

Depreciation and interest dropped considerably from Q4 levels, and I just -- I expected to see a continuation of capitalized lease charges in the [NIMX] for billings and stuff, and I just wondered what I maybe missed there.

Okay.

We're just looking it up.

You are saying from Q4?

From Q4. Yes .

Just give us a second, John.

Yes, give us a second.

Shall we get back --

Well, I have depreciation was C$0.43 a share at the Bell level this year compared to C$0.42 a share -- so it has actually increased $0.01.

Is that fourth quarter or year-over-year.

I'm talking fourth quarter. So if depreciation and amortization was C$870 million in Q4 and it's 8-19 million in this quarter

You know what I think we'd better do, John, we'd better get back to you. It's a great question, we just don't have the answer. So we'll get back to you after the call. Thanks.

Thank you. The next question is from Peter Rhamey from BMO Capital Markets. Please go ahead.

Thanks very much. I'd like to ask a question on Broadband, if I could. You noted that fiber to the nodes subscriberswere up for Broadband service to customers, That would imply with 6,000 overall broadband adds if I recall right, that your DSL was down. I wondered if you could put some color on what is happening and perhaps strategies you might use on the non FTTN markets In the interest of some of the US players who are obviously trying to reverse that negative trend on DSL. And, if you could talk about some of the regional differences and I know the cable companies obviously have different degrees of success, whether it's Quebec or Ontario? Thanks.

Yes, well a few things. One of the strategies on DSL is that part of the answer to that is the acceleration of our our built deliver FTTN. Because we clearly see a significant turn difference on FTTN clients relative to DSL, and we continue to see that. So we're accelerating our FTTN subscribers, obviously not just through net ads which you raised, but also through conversion to DSL to FTTN, because we see the churn rate drop, and the ARPU goes up and obviously the customer satisfaction changes, and in our world that client is or becomes a (inaudible) client.

And as you know, in our world, that client ultimately is or becomes a NAZ client. So it's important we do both. So part of the strategy is accelerating the FTTN footprint is really the work to deal with those issues. Then also a lot of grooming we have done on the DSL side to improve that service in markets where we're not bringing FTTN, but obviously those markets are more challenged than where we are building FTTN.. In terms of cable results-- really the cable companies reports, so I'll leave it to them to report on their operation. Suffice it to say we still have more work to do in Quebec and we're working hard at that. Seeing some progress I think particularly on TV this quarter, but more work to do, and we're looking forward to, as I said, expanding our distribution through the source outlets (inaudible) problems of Quebec to help us even further in the next year.

Other than improving the DSL performance itself, which is probably the right thing to do, is there other things you need to do on DSL either price or promotion wise to stem the tide for the time being until (inaudible) We're focused on FTTN, but if (inaudible) were on the call, he would tell you there are clearly tactics that we're undertaking the market every quarter, every day to try to hold on to clients no matter which of the services they are on, but clearly we have acceleration of FTTN for the reason you're getting to which is to move as quickly as we can to it.

Hi, we'll take the last question, now, Wayne. We apologize for being so short this morning.

Thank you. The last question is from Peter MacDonald from GMP Securities.

Thanks.

Good morning, Peter.

Good morning. On Virgin any valuation information you can give us would be helpful, but just on the questions-- when you say that you purchase it for less than COA, does that average COA or the COA of a similar quality customer, and now that you control two of the Flanker brands are you hoping that more rational pricing from that segment is achievable? Thanks.

Well, there are two ways to look at it. On a net cost per add, it is so significantly below what we would pais to add those subscribers, so to get those 50 (inaudible) subscribers, as you know how the market works, you have to add so many gross to get to that so it is way under what it would cost us per net add. And on a gross add side it is certainly below our weighted COA average, and significant below that, and consistent with the type of COA we should be spending for this revenue stream.

And at the same time, the right relationship with our partner going forward, and if you think about us returning to them, their capital investment, think about the amount of investment, we, therefore, made the same investment to get it to this level, to then be able to acquire the strategic benefit of having 100% of this going forward, the prices we were very comfortable with. I do apologize a little bit for seeming so mysterious on it, but we really think it's in our shareholder's interest not to disclose the subscriber base in this area because of our competitor interest in this, and given the price and our revealing that it really is equivalent to the cost that obviously we put in, because it's the same as what our partner put in, but that would get everybody comfortable. And the benefit of the tax loss carry forward flows to us because we can use this (inaudible) away in 2010 we'll use the tax loss carried forward..

Okay. And then on the opportunity for more rational pricing at that segment?

Well, I think we'll just -- it's a competitive marketplace, and we'll see how it unfolds. I think it is fair to say people know we have been the responder to that market, and part of the strategy today is we think Virgin is going to be a very great brand for us to have in the Flanker brand, marketplace as developed in Canada and quite frankly stronger than the Flanker brand that we have today. Thank you. Thanks everyone.

Okay. Thank you.

Thank you. That completes today's conference call. Please disconnect your lines at this time. We thank you for your participation, and have a nice day.