BCE Inc (BCE) 2010 Q4 法說會逐字稿

Good morning. My name is Alicia and I will be your conference operator today. At this time I would like to welcome everyone to the MTS Allstream fourth quarter 2010 results conference call. All lines have been placed on mute to prevent any background noise.After the speakers remarks, there will be a question and answer session. (Operator Instructions)Thank you, Mr. Paul Peters, VIce President Tax and Investor Relations for MTS, you may begin your conference.

Thanks Alicia. Good morning everyone and thank you for joining us on our fourth quarter results conference call. Earlier this morning, we issued a news release for our fourth quarter 2010 financial results. The news release, MD&A and additional supplementary information are available on our website at www.mtsallstream.com. Yesterday, MTS's Board of Directors approved the first quarter dividend which has been set at CAD0.425 per share. On today's call are Pierre Blouin, Chief Executive Officer; Wayne Demkey, Chief Financial Officer; Kelvin Shepherd, President of MTS; Dean Prevost, President of Allstream and Chris Peirce, Chief Corporate Officer. Today's call will consist of remarks by Wayne and Pierre, followed by a question and answer session.

Today's comments may contain forward-looking information related to the finances, operations and strategies of the Company, including comments on revenue, EBITDA, earnings cash flow, capital expenditures, sales and marketing activities. These statements are based on assumptions made by the Company and run with the risk that our actual results and actions may differ than those anticipated. Statements made today reflect the assumptions made by MTS Allstream, and accordingly, are subject to change after that date. MTS Allstream disclaims any intention or obligation to update or revise the statements, whether as a result of change in circumstances, a change in events, or otherwise, except as required by law. These cautionary statements are made on behalf of each speaker whose remarks contain forward-looking information.

I'll now turn the call over to Wayne.

Thanks Paul. Good morning everyone.

I'm pleased to report that MTS Allstreams' results from continuing operations in the fourth quarter of 2010 were in line with our guidance for the year, and consistent sequentially compared to the previous quarters this year, with positive signs in certain growth metrics. EBITDA from continuing operations was up CAD1.8 million from the same quarter last year, and up CAD6 million or 4%, if we exclude CAD4.2 million increase in non-cash pension expense. Excluding pension expense, both divisions EBITDA grew compared to Q4, 2009, with Allstream EBITDA up CAD3.9 million, or almost 15% compared to the prior year, and MTS up CAD1.8 million or 1.5%.

At MTS, key revenue lines like wireless, TV and internet were up 9.7%, 14.7% and 2.1% over the same quarter last year. In all cases, the growth was due to both higher subscribe numbers and an increase in revenue per subscriber.This demonstrates the disciplined approach to how we compete in Manitoba, and the success we are having against our competitors with our bundling strategies. Our goal is to grow customers in a profitable manner, rather than just for the sake of increasing market share.

In total for the fourth quarter, MTS revenues increased 1.6% over Q4 last year, making Q4 the second consecutive quarter where MTS has achieved overall revenue growth, driven by strong performance and growth products which now account for 60% of total MTS revenues. At Allstream, IP revenues grew by 9.7%, or CAD5 million, compared to the same quarter last year. It is no accident that as this high margin service becomes a higher proportion of our business portfolio, that we are also seeing a return to growth in Allstream's EBITDA.

IP revenue now accounts for more than 27% of total revenue. Total Allstream revenue for the fourth quarter decreased by CAD13 million or 6%, primarily due to declines in long distance and legacy data. Where customer migrations to IP, reprice and our decision to discontinue or discourage the sale of certain low margin products, has resulted in a CAD15 million decrease in these revenues. Free cash flow for continuing operations for Q4 was CAD19.5 million lower -- CAD19.5 million, down CAD23.9 million from Q4 last year, primarily due to the timing of our capital expenditures and deferred wireless cost, which were more heavily weighted toward Q4 this year than last year.

For the full year, CapEx increased by approximately 3%, while COA increased by 7%. Which together with the decline in EBITDA and an increase in debt charges, led to the year-over-year decrease in free cash flow from continuing operations to CAD193.2 million. We met our revised guidance for 2010 on all performance indicators. We did better than expected in the second half of the year. For example, as already noted, in the fourth quarter Allstream converged IP revenues returned to near double-digit growth. At the same time, certain legacy declines slowed down compared to trends we had seen during the recession.

At MTS, strong second-half revenues in wireless and broadband allowed us to finish the year with solid growth, particularly in wireless and digital TV. With these improvements in the second half, we also met our original guidance for all performance indicators with the exception of revenues. Part of the reason revenues were below our original expectations was because we made a decision during the year to drive margin growth, and dropped certain lower margin revenues at Allstream . Stop sales were issued on products like Frame Relay and low margin equipment sales. The focus on high margin revenues is one of the reasons for the return to EBITDA growth that we saw at Allstream in the fourth quarter. In 2011 these efforts will continue, as Allstream will continue to see reductions in low margin revenues as part of our product lifecycle management plan. And we'll focus all our efforts and resources on the growth in IP line of business.

I mention this again, as we have seen revenue expectations from some of you for 2011 that did not align with what we said in our 2011 outlook this past December. As we announced in December, we will be reporting our results on a consolidated all-in IFRS basis beginning in the first quarter of 2011. This means that all items, including those previously classified as one-time or not from continuing operations, will be reported as part of our overall consolidated results. To avoid any confusion, all comparative references we will make in the future quarters will be on an IFRS consolidated basis only. After today, you'll not hear me speak about Canadian GAAP or results from continuing operations again.

For comparative purposes, we have provided detailed 2010 results by quarter as they would have been reported on a consolidated IFRS basis. They can be found on the fourth quarter supplementary package. When comparing our 2010 results in Canadian GAAP to IFRS, you will note that IFRS on its own has little or no impact on most key metrics.

EBITDA is nominally lower due to the inclusion of certain expenditures capitalized under Canadian GAAP that are no longer being included in capital expenditures under IFRS. Under IFRS, you see a higher earnings per share in 2010 because an IFRS compliant depreciation policy, which is consistent with our peers, results in lower 2010 depreciation expense. The adjustments that we made to get from continuing operations to all-in accounting, such as restructuring charges, generally have a bigger impact than the IFRS changes. We have provided the impact on EBITDA for both IFRS and all- in accounting by division. You'll see at the bottom of the last page of our supplementary package, we have also provided a comparison of our 2010 IFRS results, to our 2011 outlook.

The most dramatic change over the prior year is in free cash flow. In 2011 we are expecting a significant increase over 2010. Approximately CAD95 million, if you use the midpoint of the guidance range. This is due to lower CapEx, as the funding to complete our new HSPA network was largely incurred in 2010, lower pension solvency payments and lower restructuring costs, along with higher expected earnings.

I should note, the free cash flow target does include the cost of our fiber-to-the-home initiative in Manitoba. The free cash flow range is therefore achievable, and at CAD110 million to CAD150 million, is sufficient to pay the dividends and all foreseen cash flow requirements. At the midpoint of our outlook range, we expect revenues to drop 3% to 4% over 2010. As we did this year, much of this drop is intentional, as we exit low-margin lines of business. EBITDA and earnings per share are expected to rise in 2011, due to lower restructuring charges and improved margins at Allstream.

Since December, when we provided our 2011 outlook, there have been two developments to note. First, in January we made a CAD15 million pension solvency payment, as proposed regulations that allow the use of letters of credit to fund a portion of our solvency deficit had not yet come into force. This payment was anticipated in our 2011 outlook. While the consultation period on the regulations ended last month, and we expect them to be implemented quickly, we will be required to fund a further CAD5 million each month until the regulations are implemented. Second, interest in our dividend reinvestment plan remained strong, with 25% of our shareholder base participating in January, up from 23% in the prior quarter. This provides CAD7 million in additional capital for the business, but more importantly, it demonstrates the renewed confidence that some investors have in our company. I'll now turn it over to Pierre.

Thank you, Wayne, and good and morning everyone. We gave you our outlook less than two months ago, but I want to point out some interesting things to look for in 2011. And while MTS Allstream has been affected by the recession and the irrational pricing competition, it looks like most of it is behind us. So I'm more confident today than I was a year ago, and believe that we've turned the corner, in particular for Allstream. I think we're striking the right balance between growing and maintaining share, delivering improved customer experience, and transforming our cost structure to continue to adapt to our new market realities.

Several of the investments we're making address these three points. For example, the Allstream fiber build program we started last year. Our model is that the investment required to connect the new building is funded by the first IP customer contract in the building we connect. Because the services are on net, we have better control over the customer experience, much better reliability and about three times the margin compared to leasing networks. Any follow-on contracts we win in these buildings have a very low cost to connect, as the building is already connected to our network. And in addition to this investment program, we've also made significant improvements to our operations in Allstream, enabling our strong increase in IP sales. For example, we brought in new experienced leadership to marketing, sales and customer operations. We've invested in tools that allow us to measure gross margin at the customer level. We've established hurdle rates to ensure that we're discipline on pricing, and focus on customers that are on-net and providing a solid margin. We've invested in marketing plans to identify a long list of customers that meet our [hurdle] rates. And, we've invested in business process improvements to improve our provisioning intervals and customer service levels. And the results began to show in Q2 2010 with stronger IP sales, and now are beginning to show in our revenues as demonstrated by the 9.7% growth in Q4 IP revenue.

And over the course of the next few years, you should expect to see an average of an additional 40 to 50 multi-tenant buildings connected every quarter. Our 2010 IP sales demonstrate that we can successfully build our IP portfolio, which now represents 27% of Allstream total revenues. By rolling out this build program at a very reasonable capital cost, Allstream should sustain double-digit IP growth for years to come. This is not a stretch, as the Canadian IP business market is expected to grow by 10% to 15% over the same period. And in Manitoba, we've also made strategic investment decisions that will go a long way to protect our leading market position. We're not complacent in the face of increased competition, and we believe we must invest in new technologies and services throughout our footprint to ensure our long-term success. We're the home services provider of choice for Manitobans . We want to continue to build on this leadership position, and are on solid footing with multi-product bundles that no competitors can match.

MTS early deployment of VDSL is an example of finding success by making the right investment at the right time. Some we're critical of MTS when we started investing in VDSL almost a decade ago. And we've been able to recoup these investments with one of the strongest TV market shares of any telecom provider in North America at close to 35%. And more importantly, this investment was critical to MTS maintaining one of the highest market shares, 78%, of local lines, in the face of cable competition.

And now with our announced fiber-to-the-home build. We expect to continue to provide the most compelling service offerings in the province for years to come. Fiber has become the more economical alternative for the replacement of copper in cases where copper has reached end-of-life or in greenfield situations. So our initial investments will be outside our current VDSL footprint, giving MTS new revenue and growth opportunities in smaller communities where we already have strong customer relationships. And as a result, Manitobans will enjoy the highest percentage of very high speed broadband coverage in the country. This year we expect to roll out fiber-to-the-home in four new communities in Manitoba.

Our investments in HSPA Plus also present growth opportunities. And we're excited about watching our new HSPA Plus wireless data network on March 31. HSPA will allow us to deliver up to seven times higher speed than our current EVDO network. It will give us a wireless high-speed data footprint that covers 97% of Manitobans, and a footprint that is 33% larger than the high-speed coverage we have with EVDO today. We saw an increase of over 45% in wireless data revenues in 2010, and we expect to increase data revenue growth with our HSPA Plus network and its expanded footprint. And you may also have seen our announcement this morning. MTS will announce the iPhone 4 in the coming months, and we're very excited about it.

We do not expect any significant changes to the competitive environment for wireless in Manitoba. Rogers and us had very similar geographic footprints prior to the launch of HSPA, and this will continue post launch. And while we would be on solid footing to face wireless new entrants, I should note that we have not seen construction activity that would indicate we will see new entrants in our market this year.

So in the coming years, we're looking for continuous improvement in our operations, with a strong focus on lowering our cost structure. And we've been very successful at reducing costs, and have taken out over CAD300 million of costs since 2005. 2011 will see cost reductions achieved through the efficiencies gained from our new billing platform, from our on-net focus at Allstream, and the related reduction in network leases from incumbents.

A few words on foreign ownership. We have long been the proponent of relaxing the foreign ownership rules in telecom, and I think that the recent decision regarding global life demonstrates that it's now time for the federal government to clarify the rules for everyone, to open up ownership restrictions, and to provide Canadians with the resulting increase in competition.

So, in closing, let me leave you with a few thoughts. Consumer and business demand for broadband services, IP and wireless is increasing. We're making investments in each of our divisions to capitalize on the opportunities presented by these trends. For Allstream, we believe are turning the corner and beginning to demonstrate this in our consecutive quarters of improving EBITDA. With our fiber network expansion, our focus on IP, and our continuing efforts to reduce legacy costs, and convert our base of legacy customers to IP. We believe we're on the right track towards a better and sustainable performance going forward. For MTS, we've demonstrated resiliency and strong cash flows in the face of stiff competition in 2010. And with our unique bundles, customer loyalty, and new investments in HSPA Plus and fiber-to-the-home, we believe we're putting in place the tools to continue to lead the market in Manitoba. And as I said on the outlook call, we believe that MTS Allstream is on the right path towards a stronger future.

Thank you and we will now be happy to take your questions.

(Operator Instructions)We'll pause for just a moment to compile the Q&A roster.Our first question comes from the line of Glen Campbell with Merrill Lynch. Your line is open.

Yes, thanks very much. Two questions. First, as we look at the subscriber numbers in TV and broadband, and the new competitive balance with cable, do you expect this is the pattern we will see over the next year or two, or do you think we can realistically expect to see more significant growth? And then -- okay I was wondering if you can give us an update on the billing platform, what the costs are likely to be this year and next year, and what the benefits and implementation schedule look like? Thank you.

So maybe -- good morning Glen. Maybe going to just ask Wayne -- your question on the billing platform was the cost?

Yes, how much CapEx is in there for this, what is still left to be done on it and what benefits are you getting?

Well, the billing platform that we're talking about is part of the -- what we called the HSPA capital spending, so we had originally announced that the HSPA network, as well as the related billing upgrades. So that was all included in that amount. And we're tracking fairly close to what our original plan was in terms of spending. And just to remind you, that was about CAD70 million to CAD80 million on the network side, and around CAD40 million on the platforms. That platform is intended, as you may recall, to be foundational so that it would be not only just for billing wireless, but also we're building a platform that we can eventually add all of our billing services to, to create ongoing synergies over the next number of years.

So that there would be additional costs, but additional benefits beyond 2011 as you extend it from wireless to [wirelined], is that how we should think about it?

That's right.

Okay, thank you.

And Kelvin, do you want to take the sub number?

Yes, Glenn, on the question about broadband, Internet and TV subscribers and what we see going forward. I think when we talked about our outlook for this year, we certainly talked on the Internet side about subscriber growth being fairly consistent with what we saw in 2010, but it is certainly not at the double-digit level that you would've seen a few years ago. We aren't adding a significant new footprint of high-speed internet. We're already past 85% of homes in Manitoba, so we've got a very extensive footprint. So whatever growth is coming in there, is really from a limited amount of remaining space. So, we're going to see modest growth in there. On the TV front, we are expanding our TV footprint. So in some markets, for example, Brandon, which is a newer market, we say essentially 200% growth last year. We are going to see good growth going ahead. We saw very strong growth in Winnipeg in our ultimate TV product, which is our new Microsoft media room based product. I think subscribers were up something like 170% in the year, with a large number of those migrating from our legacy products. But still, I think over 40% coming from new customers. So, the dynamic in there is still going to be moderate growth, but strong growth in our ultimate TV product. And the benefit we get there of course, is significantly higher RPU on that on that product and a lower churn rate. I think it's 30% lower than churn we would see on our legacy products.

And then as we roll out fiber-to-the-home in new communities, we can expect stronger growth there from those communities because we don't offer television service in those communities today. So, over the next few years we're expecting new subscribers from the fiber-to-the-home rollout.

OKay. That's very helpful, thank you.

Our next question comes from the line of Jeff Fan, with Scotia Capital.Your line is open.

Thanks very much and good morning. A couple of questions. One, first on the wireless. Now that you're launching your HSPA, you're launching the iPhone. As we've seen with Bell and TELUS, there's a step up in terms of cost related to handsets and upgrades. Wondering if you can remind us what you factored into your guidance with respect to cost of acquisitions or cost of retention for 2011 in your guidance?And then the second question is, just touching back on pensions. You did assume that the letters of credit legislation, or regulation, would go through. You guys have obviously looked into this in a lot of details, and it will affect your cash flow this year. So, I'm just wondering, what would a spring election do to the timing of how that regulation -- whether it comes into effect, or the timing of when it comes into effect? Thanks.

Yes Jeff, maybe I can help you there. First off, the COA -- we were up year-over-year this year about 7%, and I think that our budget is probably similar in terms of the increase this year, and that includes whatever we may be seeing in terms of handsets. So there is some offset, we have replaced one handset with another. But, I don't expect that that is going to be anything more than what we saw this year. Secondly, on the pensions, I'll turn over to Chris.

Jeff, in terms of what the election would mean. There's no substantive delay that an election would represent to the regulations coming into force. There could be a practical difficulty of getting Ministers together at Treasury Board to sign off on the finalized regulations, but that would be the extent of it.

Are we talking about months? Can you put that into some context?

An election campaign only last about a month, so --.

Okay, so we expect maybe a month of delay.

No, I wouldn't expect any delay particularly. It's just that if there was one, it would just be a practical issue of getting Ministers off of the campaign trail to sign a Treasury Board document.

Okay, got it. And back to the response on COA for Wayne. Are you expecting a meaningful pickup in gross additions in 2011, or just kind of similar to what you saw in 2010 as a result of the new network.

What we've included in our plan is really similar performance to what we saw in 2010. We do expect to see a solid growth in data, data devices and smartphones. And it's going to continue, but in terms of overall activation level, we expect to see similar levels to what we saw in 2010. That's what we've included in our guidance.

What about cost of retention. Has that -- what is that as a percentage of your revenue at this point on wireless.

Jeff, it's all included in the cost of acquisition. I don't really know that we have that number separately for the retention versus new customer acquisitions. It would probably be similar to what others are seeing.

And do you have a figure on what percentage of your subscriber base are on smartphones today? Just to give us a sense of where you are relative to the rest of the industry.

I don't have a precise number, Jeff. What we have seen is, for example, a continuation where probably 50% of our activations are really smartphones. But I don't have a number off the top of my head in terms of the base. It's -- I believe it is on the order of 20% of the base today. It's not -- it's somewhat lower than some of the other players.

Jeff, as you look at all of our metrics I think you can see that in Manitoba what we're experiencing is about a one to two year delay in terms of how our customers behave and move to new technologies and in the case of wireless more data and new incept. So, I think that's a good way to look at us on that side, so we have more runways for growth over time because we're behind.

Okay, thank you. Thanks, that's helpful.

Our next question comes from the line of Peter Rhamey with BMO Capital Markets. Your line is open

More on competitive dynamics, so with competitive dynamics, just wanted to get an update, Kelvin or Pierre, on competitive activity in the quarter. Shaw was out with some aggressive bundling. I think for the most part that it's been suspended. I'm just wondering if there's been any new competitive rivalry out there. And as well, on the wireless side within the competitive dynamics, you talked a little bit about Rogers. I'd like you to expand on your commentary on why, with the HSPA launch, that they're not in a better position than they were. And, I'm just wondering, with the formalization of the breakup within the Bell camp, whether there's been increased competitive activity either from Bell or TELUS within wireless, all ahead of your launch here? And then I'll ask the numerical question after that. Thank you.

Okay, Peter. Really nothing new on the Shaw front. I think we've seen in the market offers that are certainly still aggressive offers, but they're more in line with the types of offers we would have in the market for our own win-back offers. They're competitive, but they're not at the level they would have been a year ago. In terms of the wireless front and the HSPA launch. Rogers is going to be out and we know that they have plans to be more competitive in a few locations in a province where they wouldn't have been before. These are generally smaller real towns where they haven't had a presence, and their network improvement now allows them to offer some services. But on average, overall, we're well positioned. We've got a strong value proposition both for wireless out there, but also bringing our bundle into the equation we believe it works very well in all of our markets.

But Bell and TELUS, what are they doing? I would imagine now that they know when you're launching, that they might be promoting a bit more.

Well, I know TELUS, in particular, is likely going to start selling HSPA devices. Obviously they've been selling and competing here for many years on CDMA. but they have only just started to do that, they posted on their Internet site coverage maps which are pretty minimal coverage. Really just coverage in Winnipeg and really no ability for coverage outside of Winnipeg. So, I don't really think over to see an increased impact from TELUS. And they'll -- they have been here with the Virgin mobile brand, and they continue along that route, and that's what we're seeing at this point in time.

And then a numerical question. I think there was comments made with regards to cost savings coming form the platform, the new building platform, bringing more customers on-net, and reduced network leases. So, I was just hoping we could get some granularity within the cost savings expectations for 2011. If you could give us some sort of split between those three major initiatives that were mentioned in Pierre's opening comments.

Just before we go to your questions and numbers. Back on your question on the wireless and all this, Bell is not really present is in this market. Virgin is there to a small degree, and TELUS, as Kelvin said, is a small footprint. So, the strong, or the competition we have is Rogers today. But back to the -- one of my comments, I just want to make sure you understood, which is when we launch HSBA Plus, the footprint that we will have is substantially larger for high-speed internet services compared what we had on EVDO. So it is giving us a substantially larger footprint on the data side. Now, we had a very large voice footprint before with CDMA EVDO, but now with HSPA and with our arrangement with Rogers, this has enabled us to expand to the old footprint basically, the data coverage as will as high-speed. So, that's quite an improvement for us, and a benefit.

Great, thank you.

I'm sorry Peter, what was -- can you repeat the question?

Well, I think in the opening remarks Pierre commented on where you thought you could get a lot of productivity improvements in 2011. I believe he mentioned the building platform, moving traffic on-net, and I guess it's related in network lease. I was just wondering, I think you're forecasting CAD30 million to CAD40 million in savings for 2011, or somewhere in that order. [Will] you give us some sense of the breakdown between those three components.

Yes, I guess that you're right. I think our number that we provided was CAD25 million to CAD35 million in cost reductions for the year. We continue to see that and the -- have success there. Part of that would be on the billing platform side with MTS, but probably the bigger portion, in 2011 anyway, will be from replacing leased facilities with our own facilities on the Allstream side. That's probably between a third and a half of the savings, and we have some headcount reduction that we announced in the fourth quarter in Allstream that also accounts for probably a quarter of that amount. And then we have various programs in MTS to create efficiencies to fund growth, and that -- it would be where the billing platform savings would come in.

Yes, and Glenn, I think, as you know, we still have about CAD200 million of leased network in Allstream, that as we roll out fiber, it can, if we're successful, seriously reduce that CAD200 million bill that we have as an expense today in the business. That's why this IP and this targeted fiber rollout program is so beneficial to us. And not only does it give us growth on IP, it also -- and better customer experience and much better reliability because it's on a fiber on our network. It's also enabling Allstream to become much more profitable as we take out that important cost that goes straight to the bottom line today. So a lot of advantages there if we are successful in this program, and I think you're seeing the results both in Q4 and in our outlook for 2011 in terms of what type of improvements it can create in Allstream.

Would it be unreasonable to expect that 25% decrease net CAD200 million number over the next three years.

Over the next three years?

Yes.

I don't think we've provided that type of numbers today, or in the outlook. But, it is no doubt bringing a substantial reduction into that overall bill, so more to come there. I think part of it in the current cost reduction numbers that we've given you in terms of a range for this year. And it is surely something that we can continue over time.

Great, thank you very much.

Our next question comes from the line of Dvai Ghose with Canaccord Genuity.Your line is open.

Thanks very much. Hello. Wayne, I just want to revisit the letter of credit question. I'm sorry, I didn't quite understand what you said in the prepared remarks. So, it hasn't been introduced yet. What was your deadline in terms of having to pay the CAD5 million a month for February.

That would be starting at the end of February, we would be paying the CAD5 million a month. Basically, they implemented some changes to those rules, and one of which was to change from quarterly paying to monthly. So we were paying roughly CAD15 million a quarter last year and now we'd be paying that as a monthly basis instead.

Okay, so it's basically the end of each month if it hasn't been passed then you have to pay for that month.

That's right.

Okay, that make sense. So, given -- I understand why you haven't changed your free cash flow guidance yet, because we're not at the end of this month yet. But, given the fact that you may have to reduce your guidance, at least for February, by CAD5 million, even that's a nominal amount, maybe March by another CAD5 million. You expressed confidence in generating more than enough cash to cover your dividend this year. That's including this risk, in other words, are you hoping to be at the higher end of the free cash flow guidance? Because the low end is obviously in line with the dividend, right?

Yes, well our internal targets wouldn't be at the bottom end of the guidance range, it would be higher than that, so we do have some ability to manage things that are unexpected. We have -- within that surplus, but that is included in our plan, and also we have some things that happen typically on the positive side of the equation that offset. To a certain extent, we can also juggle our business priorities with respect to capital expenditures and so on, to manage cash flows as well. If required, we can take costs out at the low end of our priority list and manage accordingly.

Dvai, Dvai, just to be clear, it's Pierre.

Hello.

We -- if in February the new legislation on pension is not finalized, by the way it's been commented on, circulated through everybody. So, we're moving through all the different steps that have to be taken. But if it's not done by the end of February and we have to pay CAD5 million more, we're not expecting to change our guidance for that. As Wayne said, there's multiple elements in the annual outlook for cash flow, and I don't think you would expect us to react for a CAD5 million payment nor a CAD10 million payment. Lots of plus and minuses through the year, no sign right now that we have issues with the outlook that has been put forward. And, as we said when we delivered our outlook, we believe that the company can produce the cash flow in 2011 to support the dividend policy that we have. So, we haven't changed our views on that, and the current expectation around pension solvency payment has not changed our position on the overall outlook for cash.

I completely understand that CAD5 million is non-material, but obviously 11 months at CAD55 million would be material. But you're obviously not expecting it to drag on that long.

Correct

Yes, that's fair enough.On the -- just on the -- related to the pension side, all three of your incumbent telco, publicly listed peers have put in voluntary funding into their pension plans in order to the de-risk the situation and obviously to get some tax savings as will. I guess tax saving issues is somewhat irrelevant to you because of your large tax shield, but is your decision not to do a similar act really based on your view that interest rates are going to go up, or the lack of need for tax savings?

Well, it's hard for me to comment on what might be motivating the others, but you probably have noted most of their reasons there. You do have to be somewhat careful in terms of funding a defined benefit plan that you don't over fund as well. So, if you're looking at interest rate, or discount rates increasing by about 2% would put us back in the surplus position. Once the -- If you've over funded then it's very difficult or impossible to take the capital back out. So you've got to be careful that you don't get trapped capital. And from our perspective, as you mentioned, since we don't have the incentive of a tax deduction to fund early, there really isn't an incentive to be in a hurry to fund this plan. It is a long term obligation and our intention would be to fund it over the long term.

Fair enough. Last one, I will keep it brief. For Kelvin, if I may. So you were asked about the -- I'm sorry -- high-speed Internet as well as TV growth which was fairly modest in the quarter. I guess I'm a little surprised, if you look at the introduction of Mediaroom for TELUS, it's had a great acceleration in their TV growth and has helped in terms ADSL flow through. I know you've had a more established TV product for a lot longer and much higher penetration. But why is there no obvious signs that Mediaroom has had any benefit?

Well I think -- I don't really want to comment on behalf of TELUS, but I think it's a totally different situation. We've had TV in the market for seven years. Maybe TELUS has had it for that long, but certainly didn't have as many customers.

Right.

And so for us, Mediaroom has brought good benefits. I've talked about the growth, we're seeing a strong growth. It's helping us maintain our TV base by allowing us to migrate our legacy customers to a product that has more features. more advantages to them, and allows us to generate more revenue. We are acquiring new customers. I think the slow growth, the slower growth in Q4 in particular, is reflective of the competitive environment in our main market. Plus the fact that when we focus on migrating existing customers, while we improve our RPU, we obviously don't add new subscribers. So, I think going forward, certainly what we've seen in a new market like Brandon for example, where we didn't have an existing TV product, tremendous growth.

Yes.

I still believe that over the long run, the Mediaroom product we have, which we're going to strengthen this year, we're investing in some new features and capabilities, so it's going to continue to be the most advanced out there. It's going to help us add more bundled customers with internet, and I think it's going to continue to be a strong part of our offerings.

Yes Dvai, just to add that, or maybe take exception to the growth challenge you were talking about. We had 10% growth in TV revenues for the year, 14% in Q4. So I think that we have seen strong growth in that line, and it is, in part, being driven by our Mediaroom platform. We're not looking for market share there, we're looking to grow profitably and I think that's exactly what Kelvin's strategy is doing.

Yes, that makes sense. Thank you.

Thank you ladies and gentlemen. We have time for one further question. Our question comes from the line of Maher Yaghi from Desjardins Securities.

I wanted to ask you about your cost reductions, substantial cost reductions, in percent terms on the Allstream side. Can you give us a split of how much of this lower cost is coming from better product mix towards IP services and how much is coming from fixed cost reductions?

Yes, I don't have the split. But I think you're hitting on the big components. So we would have overall reduction in our direct costs, which is partly driven by product mix and our focus on-net. So, in Allstream we're driving a lot more on-net revenues than we have in the past, and Dean went through that in a fair amount of detail at our outlook call. So, we are seeing -- we're adding revenues were we have less cost than we have, so that's providing a benefit.We're also moving facilities that we lease onto our own network, as we build that out, so that is a big component of our savings. Then efficiencies and headcount reductions is probably the second biggest area where we're seeing good results on our cost reduction side. But I don't have the exact proportions.

Is it fair to assume that the revenue mix is having a higher contribution to the lower cost on the margin side?

I think it would be -- the bigger piece of our cost reductions would be on making better use of leased facilities, or moving them to our own facilities that we've either built, or in some cases moving to competitive suppliers who have lower cost through.

I think, Wayne, we can -- just back to your question, Maher, if you're asking if our move and focus in Allstream to on-net IP sales is really contributing to our cost reduction, I think the answer there is yes. Because it does reduce our network lease cost, and at that point brings quite an interesting margin to the business. So indeed, if I understand your question, yes that move to on-net IP sales is contributing substantially.

Thank you. Just a follow-up question on the UVD issue. Shaw has mentioned that they are looking to remove their caps. Can you maybe -- on Internet usage as a possibility -- can you maybe quantify for us how much of your revenue from internet comes from higher billing on extra usage for customers.

Yes, it's Kelvin here. So, we don't actually have caps. What we have is maximum usage guidelines that are intended to provide guidance to customers on the amount of data that would be included in the different plans that they have. So we don't go for overage. We had not previously done that. Clearly, quite interested in all the discussion over the last few weeks on the issue. But we didn't have plans in place this year to implement any sort of cap or usage charging. So, really no impact on our revenue in the near-term, and I guess we'll continue to monitor what happens there. We certainly look at the data growth on our network, and look at that in the competitive environment. And any decisions around charging would have to be made in that context looking forward.

Okay, thank you.

That concludes the question and answer session. Mr. Peters, please continue.

Ladies and gentlemen, we've reached the end of our fourth quarter 2010 conference call. Once again, thank you for joining us today.

Thank you, this concludes today's conference call. You may disconnect your lines.