BCE Inc (BCE) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the BCE's first-quarter 2011 results conference call. I would like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead.

Thank you, Donna and good morning to everyone on the call. Our call today, as you all know, will focus on BCE's Q1 results that were just issued earlier this morning. And as usual, I am joined here today by our CEO, George Cope and our CFO, Siim Vanaselja.

The release, along with our Q1 supplementary financial information package and slide presentation are all available on BCE's website. Following the review of the slide presentation by George and Siim, we will move to Q&A and answer as many of your questions as time permits. Because we are holding our annual general shareholders meeting this morning, which begins at around 9.30, we are going to end this call earlier than usual just before 9 a.m. So please be aware of that.

However, before we begin, I would like to remind you that today's remarks will contain forward-looking statements with respect to such items as revenue, EBITDA, adjusted EPS, free cash flow and capital intensity. Several assumptions were made by us in preparing these forward-looking statements and there are risks that our actual results will differ materially from those contained or contemplated rather by our forward-looking statements. For additional information on such assumptions and risks, please consult BCE's 2010 annual MD&A as updated in BCE's Q1 2011 MD&A and BCE's press release dated May 12, 2011 announcing its financial results for the first quarter of 2011. All of these are filed with the Canadian Securities Commission and with the SEC and are also available on our website.

Any forward-looking statements made by BCE represent our expectations as of May 12, 2011 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 statement whether as a result of new information, future events or otherwise. And I am making this cautionary statement on behalf of both George and Siim whose remarks today will contain forward-looking statements. So with that behind us, George, I will hand it over to you.

Great, thanks, Thane. Good morning, everyone and thank you for joining us this morning. I am going to start with slide 4 and [mine would be] continued progress. And let me start there and say that we had, we believe from management's perspective, an excellent first quarter driving towards all of our five strategic imperatives. I think the highlights of the quarter being the early completion of the CTV acquisition and very strong first quarter for wireless consistent with last year's postpaid net adds, the continual rollout of the Fibe TV footprint and the continual imperative on cost management helping to drive our EBITDA growth to 6.4% EBITDA growth year-over-year and our best EBITDA results in over eight years.

Turning to page 5, wireless had another strong quarter. We continue to grow the business and meet our expectations in terms of marketshare with our focus, as I said on the call last quarter, continuing to be in the postpaid market where clearly the profits are, the ARPU are and the EBITDA growth is, 81,000 postpaid net adds, continuing to achieve our target of marketshare that is representative of the position we believe we should have in the marketplace, considering the acceleration of smartphone penetration, enabling us to drive ARPU growth year-over-year of 3.2% and growth in our data revenue of 38%.

You will, of course, note that our COA has increased year-over-year and that is really driven by the mix of postpaid customers taking more and more smartphones. You will note also we have aligned our method of calculating COA with our competitors in the industry and COM to make it easier for the analyst community to compare those numbers.

So our focus continues on postpaid and moving in the right direction and particularly Siim will talk about the financial performance, which we are very pleased with on wireless.

Turning to the next slide, as everyone knows, one of the important parts of driving the turnaround of Bell Mobility over the last couple years has been the investment we made in HSPA+ and the leadership there that we have pursued with the new network. This morning, we are announcing that we will have LTE available in certain markets in 2011. It is also worth noting that the rural footprint expansion of LTE will be contingent on 700 megahertz availability. And again, all of this buildout in '11 and as we go forward into '12 will be accommodated within our capital budget this year and within our 16% capital intensity as we go forward also into 2012. So look for us to launch certain markets for LTE this year.

Turning to slide 7, continual improvement in our NAS loss line trajectory. I think that has been one of the continual discussions we have had with the analyst community -- can we continue to see that benefit and we have again with the NAS losses coming in at 59,000 in the first quarter this year versus 100,000 in the first quarter last year. So again, continuing to see the benefits of the other services in the home we are offering. Competitive attention on the business side is always there, but it was nice to see a positive growth there. Part of that helped by wholesale net adds and most importantly, it is the best wireline voice performance we have had in more than six years with a decline in voice revenue of just 3.5% in the first quarter.

Turning to Bell TV, strong quarter on revenue growth of 7.5%, ARPU growth of 4.4%. We continue to ramp up Bell Fibe TV. Interesting for us early on that 30% of the customers taking Fibe TV are bringing all three products with them to Bell. The footprint is now at just over 800,000 households and we are on track for our targeted number at the end of the year of 2 million households.

In terms of the growth in net adds, we have clearly seen increased competition for the satellite business in Western Canada and in the Atlantic territory with the growth of IPTV that we have seen in the competitive intensity in those markets. And so what we thought we would do here is also make sure the street understands that, in Ontario and Quebec, we had net adds of 12,000 in the first quarter driven principally by the early growth we are seeing at Fibe TV.

Wholesale net adds were flat year-over-year. We continue to benefit though from the, we think, execution of TELUS in the TV business in the West and that is clearly important that it was flat for us year-over-year. And so the intensity on the competitive side in the West on Aliant is really what drove the 8,000 net where the Ontario and Quebec 12,000 represents some of the early growth we are seeing in Fibe TV. Obviously, the financials on TV were excellent and continued to drive significant revenue growth for the organization.

Turning to the next slide, on the wireline data side, residential wireline data, we had a very strong quarter. Internet ARPU up 2.3%, net adds up year-over-year, principally driven by Fibe Internet and the pull-through of Fibe TV. So we are continuing to see a reduction in churn on the Internet side. Really happy with that part of the business from a residential side.

On the business market side, not the same results. Business data product revenues -- so in product revenue, we have that in part of our data numbers as well -- was much lower year-over-year, principally due to the xwave acquisition, which we have in last year's number, but there was a soft quarter in terms of hardware sales there and also CAD17 million less revenue year-over-year on the business side that was one-time for us in the Olympics last year. So overall, the business side continues to be softer than we would like and on a consolidated basis, we are pleased with the data growth on the consumer side.

Turning to slide 10, as everyone knows, we did close the transaction a quarter earlier. We have rebranded it Bell Media. We have introduced a number of new services. Most importantly, when we announced the acquisition, we said it would be financially accretive this year and you can see here that we are expecting an adjusted EPS of CAD0.07 per share for the first nine months of ownership of the asset this year. And I think most important from a value perspective for our shareholders is the acquisition price, which was announced at 9.6 times. Latest 12-month EBITDA at the time now of closing, it has actually moved into 8.2 times trailing EBITDA and that is because of the strong performance that we continue to see in the new Bell Media assets.

Also, for our shareholders, we are in the midst at the moment of renegotiating new rates for TSN and RDS from our customers being obviously the distributors of our product. And this is the first rate increase that has been done in 10 years and at the moment, our product is priced below that of our competitors in that space. So we think that also, over time, will be potential upside (technical difficulty).

Turning to slide 11, early on, we have launched some new mobile TV services. We continue to believe and are really excited particularly with the size of the screens now and with the tablets that this area of the growth is going to continue to be important. Bell Media is offering packages on commercial terms to all Canadian wireless providers now and it has access to TSN. You can see BNN, CTV News and it is over to those companies to decide if they want to distribute those packages or not.

We have launched them at Bell Wireless and we think it is a really unique method of pricing because it ensures the consumer that they know how much they are using. In other words, data is a really tough thing for a consumer to understand how many hours of TV they are watching. It is not intuitive, so we have priced video as a separate product in our portfolio -- Mobile Sports for CAD5 a month for 10 hours, Mobile TV and the Variety/News and you can see here, you can do the combined at different prices. We are seeing great growth early on in this. We are adding over 2000 customers to Mobile TV on a weekly basis and we are really excited about this as we go forward as a differentiator in the market or great value offer for Bell Media to the other wireless competitors.

So in summary, strong wireless quarter for the Company, certainly in the competitive environment we are in and most importantly achieving that 40% margin and EBITDA growth, which Siim will talk about. Wireline trends, the right direction on NAS erosion and some positive numbers on Internet and revenue and TV and Fibe TV growing out and really obviously excited about that opportunity given the numbers we are seeing in Western Canada. And so the faster we get that footprint out, the happier we will be quite frankly.

Cost management, continue to drive EBITDA growth. Investment in broadband everyone continues to see and the CTV acquisition allows us to continue to execute our four-screen strategy in the marketplace. And as everyone knows, provides us access to content to compete with our other competitors in the marketplace who we buy all of our content from today or would have without the acquisition CTV.

And then just to summarize, obviously, we are very optimistic about the outlook for the Company with the increase today in the EBITDA and EPS guidance as a result of the CTV acquisition. So we have announced an increase in our dividend earlier than we had anticipated and really the reasons are the early close of the CTV acquisition, the acquisition price maybe is the best way to show how positive we are at 8.2 times earnings EBITDA versus 9.6. We have just completed our strongest quarter in eight years on the back of, we believe, excellent wireless growth and ILEC cost reductions. We have increased EBITDA and EPS guidance today and the increase, we believe, is absolutely important that we remain consistent with our capital market strategy and this new dividend as a payout is expected to stay below the midpoint of our payout ratio and ensures that BCE does not go below our payout ratio if we hit the high end of our guidance. So we are really pleased to announce this increase to our shareholders. It couldn't be a better day given that it is our annual meeting. With that, let me turn it over to Siim. Thanks, everyone.

Thanks, George and good morning, everyone. So we began the year with all our business segments well structured and well positioned for growth and I'd say our first-quarter results show that we are off to a good strong start in 2011. As George said, Bell's operating performance was highlighted by industry-leading wireless postpaid subscriber acquisitions, growing market traction for Bell Fibe Internet and Fibe TV, continued improvements in NAS line losses and higher ARPU across all our consumer productlines.

As you see on slide 15, all of this contributed to good service revenue growth, significantly higher EBITDA growth, year-over-year margin improvement and pretty attractive growth in adjusted EPS. Service revenue growth at Bell this quarter was 1.8%. That was driven largely by strong wireless and TV revenue growth of 9.2% and 7.5% respectively. Higher residential Internet revenues also contributed to the year-over-year improvement.

Overall top-line growth was moderated a bit by softer business revenues in the first quarter. Our EBITDA grew 6.4% and margins improved 2 percentage points year-over-year, really representing our best performance in eight years and this was driven by standout wireless EBITDA growth of 12.2%, even with higher smartphone activations and customer upgrades, as well as the realization of meaningful wireline cost savings.

CapEx accelerated this quarter on broadband fiber deployment and network conditioning in support of IPTV. We also increased investment in client care support systems and self-serve tools, as well as network capacity to accommodate increasing wireline and wireless data consumption. Adjusted EPS, which is before severance and acquisition costs, and net of gains on investments, increased CAD0.11 per share versus last year and that mainly reflects the benefit of higher year-over-year EBITDA.

We generated free cash flow of CAD265 million for the quarter, which was on track with our plan, but CAD295 million lower year-over-year and that is essentially as a result of the mandated customer rebate payments this quarter from Bell's CRTC deferral account balance.

And lastly, as anticipated, the changeover to IFRS has had little impact on our P&L or our key operating metrics for 2011.

So with that overview, let me turn to each of our segments beginning with wireless on page 16. Wireless revenues grew 9.2%, reflecting the positive flow-through of postpaid acquisitions last year, as well as continued strong data revenue growth of 38%. Smartphones represented 55% of postpaid gross activations this quarter and that contributed to wireless ARPU growth of 3.2%, representing a fifth consecutive quarter of improved ARPU. This was achieved even as voice ARPU continues to be affected by competitive pricing pressures.

Wireless product revenues were also higher in the quarter, up 15.1%, reflecting higher year-over-year smartphone sales and upgrades. Wireless EBITDA was a highlight in the quarter growing 12.2% and yielding a revenue flow-through to EBITDA of 54%. This improved flow-through resulted in margin improvement of 1.3 percentage points, bringing our margin to 40.3% and after spending CAD28 million more in the quarter on customer retention. So I would say a good strong start for wireless.

Turning to Wireline, our residential services unit maintained good performance trends with higher year-over-year TV and Internet revenue driving top-line growth of 0.5%. That mainly reflects customer upgrades to higher-priced TV programming packages, growth in Fibe Internet customers and the impact of price increases.

We delivered our best wireline voice performance in more than six years as our local voice and long-distance revenue erosion improved to 3.5% from an average quarterly rate of 7% in 2010. This reflects 41% fewer NAS line losses year-over-year, more winbacks and increased home phone bundled penetration. Also higher revenues from increased global long-distance minutes contributed to the improvement.

Our business markets unit reported lower revenues this quarter given last year's upside from the Olympics, as well as lower customer spending on hardware and connectivity. Business NAS net additions, however, were positive in the quarter and that is hopefully a good sign going forward.

Wireline EBITDA grew a healthy 4% and margins expanded to 39.1%, benefiting from strong TV and Internet performance, slowing voice erosion and CAD90 million of reductions in operating expenses. Those cost savings were realized from the year-over-year decline in Olympic-related expenses, as well as lower labor costs, the elimination of capital taxes and productivity initiatives in field operations and call centers.

Moving to slide 18, adjusted EPS increased 18% to CAD0.72 per share. That strong growth came primarily from three areas. First, mostly from higher EBITDA; second, from lower net pension financing costs; and third, from some tax upside as a result of a 2% reduction in the statutory tax rate that came into effect for 2011, as well as the earlier-than-expected resolution of one uncertain tax position this quarter. So in terms of where we are on tax recoveries, we had CAD0.03 of recoveries per share this quarter compared to CAD0.02 per share in the first quarter of 2010.

Our effective tax rate of 25.5% this quarter is in line with the guidance that we provided to you for the full year. I would say though that given the uneven timing of tax recoveries, the effective rate will no doubt vary from quarter to quarter through the balance of the year.

Higher year-over-year depreciation expense reflected increased asset base and a shift in asset mix to slightly higher depreciation rates and that, together with higher interest expense, did moderate adjusted EPS growth a little bit in the quarter.

On slide 19, you have the details of our free cash flow generation, which amounted to CAD265 million. This is in line with our plan and reflects CAD226 million paid to customers in the quarter in satisfaction of our deferral account balance with the CRTC. I can say that that obligation is now fully met.

Capital spending in the quarter was CAD74 million higher year-over-year reflecting accelerated fiber investments and network conditioning to expand our IPTV footprint, as well as increased investment in customer service and network capacity. We do expect CapEx spending to continue ramping up during the course of the year, but remaining within our 16% capital intensity guidance for the full year.

Our use of working capital increased this quarter due to the timing of supplier payables and the buildup of inventory and that is normal for the first quarter. During the quarter, our investment-grade credit ratings were reconfirmed by all the rating agencies and we took advantage of good market conditions to raise CAD1 billion of seven-year medium-term notes. That increased our cash balance to CAD2.1 billion at the end of March in anticipation of the financing for the closing of the CTV acquisition on April 1. So our balance sheet and liquidity position remain very strong.

Looking ahead, the financial performance of both Bell wireless and Bell wireline are tracking to the guidance targets that we provided back in February. Now with the completion of the CTV acquisition, which will be consolidated in our financial results beginning in the second quarter, under the new segment, Bell Media, we are revising upward our 2011 financial guidance for revenues, EBITDA and adjusted EPS.

We are also pleased to report that, at closing, the transaction purchase price represented an even more attractive standalone valuation of 8.2 times proportion at LTM EBITDA as compared to the 9.6 times multiple that we announced last September.

Our increased revenue guidance to the 9% to 11% growth range reflects the inclusion of CTV for Q2 through Q4. CTV is benefiting from a strengthening TV and digital advertising market this year and higher subscription revenues. Consequently, we are increasing our EBITDA guidance to the 8% to 10% growth range and consistent with this increased EBITDA for 2011, we are now expecting adjusted EPS to be in the range of CAD2.95 to CAD3.05 per share, representing year-over-year growth of 6% to 9%.

As George said, CTV is expected to contribute approximately CAD0.07 of earnings accretion per share for the nine-month period April 1 to December 31 and that supports today's announced CAD0.10 dividend increase.

Our free cash flow guidance remains at CAD2.2 billion to CAD2.3 billion for 2011 as it takes into account the seasonality of working capital and capital spending at CTV, as well as acquisition and integration costs that we will be absorbing this year. So accordingly, we are also maintaining the projected year-end cash balance of CAD400 million to CAD500 million.

With respect to capital expenditures, while CTV operates at a lower level of capital intensity relative to Bell, our overall capital intensity guidance of around 16% of revenues continues to be appropriate. And lastly before we move to the Q&A, for your reference on slides 21 and 22, I have provided a summary of Bell Media's financial contributions to Bell for 2011, as well as our updated key financial assumptions that underpin our 2011 guidance targets. So with that, I will turn it back to Thane and we will move to the Q&A session.

Thanks, Siim. So before we start the Q&A period, I would ask, given our time constraints, that you limit yourself to one short question and no follow-up so we can get to as many people as possible. So Donna, with that, please explain the polling instructions.

(Operator Instructions). Phillip Huang, UBS.

Good morning. Thanks for taking my question. It is good to see both your wireless margin and postpaid net adds above expectations. I was wondering if you could provide us with an update on your strategy from wireless. I believe you previously mentioned that your focus this year will increasingly shift from acquisition to retention, but you still got the highest share of postpaid gain amongst the three national players in Q1. So I was wondering if -- can we expect to see more balanced share in terms of subscribers for the rest of the year and correspondingly, are we at the inflection point for margins and can we expect to see year-over-year improvement in your wireless margin going forward? Thanks.

In terms of the market and the marketshare, clearly, our focus is on postpaid. That is where the value is. That is where all of our distribution channels are focused. That is where we converted when we acquired Virgin. We converted their focus from a prepaid organization to a postpaid organization. And with the upgrades obviously to smartphones, we think that lends itself to a fairly positive ARPU outlook going forward, particularly as our mix of postpaid clients converting to smartphones continues to grow. So that is the positive. The acquisition of the source we think has been very important in the branding of the Company and the HSPA all driving the marketshare position we have and have benefited from.

It is impossible on a call to forecast marketshares other than to say, as you know, our target and our goal was to make sure we were taking ourselves from a couple years ago in the low 20s to under 20 to make sure we are capturing over 33% of the postpaid market and we continue to achieve that goal and that is our strategy and we will continue to execute on that basis.

In terms of -- you are right, we have increased our expenditures on retention. We will continue to do that as we have the room to make that investment. There is a payback on that clearly because as we migrate people to smartphones, we see an increase in ARPU. We have talked about that in other quarters and so we are obviously doing that and the margins on wireless really are reflected in our consolidated numbers for the year on our guidance and that is as far as I will go there, other than to say one thing.

Obviously, we are pleased in this quarter to get the margin back to the 40%, which we had talked about in the fourth quarter that the investment we believed we were making in subscribers would show some benefits this year and hopefully the investment community would agree with us. And we saw that benefit with quarterly growth of 12%. Yet the same net adds postpaid as we had last year when most people credited last year's postpaid net adds to the Olympics and there was no Olympics this year.

Thank you.

Maher Yaghi, Desjardins Securities.

Yes, thanks for taking my questions. Just wanted to -- just some of your assumptions for your revenue growth and EBITDA. When I look at your previous guidance and your new guidance on EBITDA, it seems that you have not really materially changed your view on the rest of the year for Bell Canada. But there seems to be just a slight implicit lower revenue assumption for Bell Canada on the revenue side for the rest of the year. My math right is right or is this due to IFRS or have you really slightly reduced your Bell Canada revenue assumption for Q2 to Q4?

No, I can clearly state that the business plan that we put in place for Bell wireline and wireless continues to be our business plan. The guidance that we provided in February with respect to Bell is still the numbers that we are tracking to. There has been absolutely no change in our expectation for any sort of reduction in revenues or deterioration in Bell wireless or Bell wireline. I would say, if anything, we are performing through the first quarter at least on track if not slightly ahead. And all that we have done in updating our guidance has taken the Bell Media numbers for the period April 1 to December 31 and included those in our numbers. There are a couple of IFRS adjustments that are going through and if you like, we can take you through some of those offline if you are getting confused with some year-over-year numbers.

The other thing I will just mention, this is George, and this would obviously be in Siim's area, remember, it is not just adding Bell Media. You have to do, if you go to page 21, and the analysts will obviously do this, the intersegment eliminations are important to do because if you just add one number to the other and don't to the eliminations, it would look like one of the two divisions. So maybe that is part of it, but clearly our Bell revenue numbers and guidance are exactly what they were last time we had the call.

Right. And so all those details of intersegment revenue eliminations are included in the slides. I think it is the last page.

Okay, thank you very much.

Matt Niknam, Goldman Sachs.

Hey, guys, thanks for taking the question. My question is on wireline margins and obviously cost-cutting activity continues to remain a tailwind, but as we think about the mix shift towards more data and TV, which are lower margin and a greater commercial push with IPTV through the remainder of the year, how do we think about the wireline margin trajectory for the next couple quarters in 2011? Thanks.

Well, what I would say -- the analysts, all of you, have our outlook on EBITDA and revenue and so the margin mix obviously is the balance of the two. The focus in the wireline businesses are two things. It is clearly to make the investment into Fibe TV and our imperatives, yet continue to drive costs out of the business to protect those margins. And it is also important to remember that we are a positive EBITDA business in our TV business because of the revenue growth we continue to see in our satellite TV business.

So I am not going to give a specific guidance on that, but there is not a concern we have a significant margin erosion in our outlook. But I think it is better reflected in just taking the models that the folks on the phone have on wireless and wireline and comparing that to what our annual guidance would be.

Yes, I would just add that I think, in February, we talked about the visibility we had in the wireline business to cost reductions of about CAD200 million. As we sit today, in the first quarter, we have delivered on CAD90 million of those. That included a good reduction in employee headcount in our customer operations as we became more efficient in those operations.

Clearly, we still have visibility into at least the balance of that CAD200 million by way of reduced support group costs across the IP network, field services groups and in corporate. We have consolidated a number of the operations between Bell Mobility and Bell Residential on the customer support side and we are generating savings from that. And then on the corporate side, we are going to benefit from the Ontario sales tax harmonization, a reduction in public utility tax rates in Quebec, the capital tax abolishment. We are benefiting from a stronger Canadian dollar on our US purchases. So on the wireline side, I think we are very much on track to deliver on our targets.

Got it. Thank you very much for that color.

Glen Campbell, Merrill Lynch.

Yes, thanks very much. My question was on wireline growth and CapEx. Your residential wireline growth went positive this quarter and as we look West, we see the potential to increase that even further as IPTV rolls out. So given that, do you think it still will make sense beyond this year to try to manage Bell to within 16% CapEx to sales or is there an opportunity here to accelerate growth by stepping up the spending a bit?

Glen, it's George. I did make some reference to '12 on the call and I want to obviously watch we are not giving guidance for 2012, but the capital markets model and the business model we have outlined for the Company we don't think changes as we go forward and we tend to benchmark ourselves, Glen, also against everyone else on the globe in terms of what their capital intensity is, and we are still a little higher than other places around the world. And they are also executing IPTV and so we are going to push ourselves to try to keep it within the model range we have and we will clarify that obviously as we get into next year.

Terrific. Thanks very much.

Peter MacDonald, GMP Securities.

Thanks, just a couple questions on the CTV guidance. First, could you give us the historical results offline so that, on a quarterly basis, so that we can build the seasonality into our model and then maybe give us Q1 as well? Then on the question itself, the EBITDA I assume is consolidated. Can you tell us what the minority interest position is on CTV?

Yes. The minority interest --.

There is no CTV in our (multiple speakers).

Oh sorry. Yes, so we will begin reporting CTV in the second quarter and we will provide you what the minority interest is at that time.

Yes, I am just trying to figure out in your guidance what did you include for minority interest just so we can get an idea of the valuation.

If you go to the second to last slide, there is an EPS lockdown for the CTV contribution. You'll see the minority interest there. It is CAD0.03 of EPS.

George referenced acquisition and integration costs. Can you tell me what those will be?

We will be reporting those in the second-quarter results once they are all finalized.

Is that in the --?

The big element of it will be approximately CAD200 million of CRTC or benefits tax with the CRTC.

Okay, and just one question --.

That is on page 22 just so you can see the total number and that includes -- we have tried to show the benefits, the CAD200 million there.

The CAD200 million is in the total guidance, but not in the CTV section of the guidance that you provided. And George, you said there was a definitional change on the COA. Can you tell us what the COA would have been under the old definition?

We will take -- I will turn that over to Siim to take it and Thane to take it with you offline. What we've basically done, just so everyone understands, the industry -- two of our major competitors moved the residual payments that were paid to distribution channels into retention dollars a number of years ago in their disclosure. We kept those residual payments in our COA and it created I think for the analysts' confusion every quarter. So we have moved our residual payments into our retention line item to be consistent with the other two competitors to make it a complete apples-to-apples on COA and retention dollars for everyone. But really nothing has changed internally. That is why we did it. And I guess I will have last year's COA numbers you can compare. So we will help you offline with that.

We can give you that offline.

Yes, we will help you with that offline.

All right. Thank you.

The numbers have been restated, Peter.

Adam Shine, National Bank Financial.

Thanks a lot. Two quick ones. Just following up on Peter's question, I guess in the context of the CAD0.07 of accretion from CTV, but the bands on the guidance only go up by about CAD0.05. The context being that it is acquisition and integration costs that caused the differential, correct?

There is interest expense at the BCE level that goes up a bit and then slightly higher depreciation, which I mentioned on the call on Bell assets from a shift mix in depreciable assets to slightly higher depreciation rates. So that offsets some of that CAD0.07 accretion.

Okay, great. Thanks for that, Siim. And obviously 8.2 times is a great multiple for these CTV assets. We presumed, that besides top-line gains, you would add trends. Like cost controls on programming spend was a key factor. Can you talk to the key drivers of this improved performance in recent months?

Yes, I mean the performance has been, as Siim had mentioned, the top-line revenue growth we are seeing in the advertising, increased subscription revenue from our specialty and the cost management that frankly the management team had put in place before the acquisition to reflect some of the economic challenges that that business would have seen 24 months ago. Those are some of the drivers. And as we go forward, obviously this isn't a focused synergy transaction, but there are some synergies that we will be able to execute on as we go forward into 2012.

So we are, as you said, we are really pleased with the exit multiple and we are really obviously very pleased as we look forward to not just the financial performance this gives us, but the access it has already given us to we think have significant differentiation in the mobile market and the mobile TV space. And again, we are obviously open for business to sell those services to who compete with us in wireless, but our customers for us on the media side.

Great. I will leave it there. Thanks.

Peter Rhamey, BMO Capital Markets.

Great, good morning. Thanks for taking the question. I have got just one larger bigger picture question and it has to do with return of capital to shareholders. You had solid free cash flow in the quarter. You have got CTV closed. It is a better deal than you originally thought from what I hear. How does that change, George, the Board's perspective with regard to dividend policy in terms of being opportunistic? I remember you increased the dividend midyear a couple years ago and said that was a one-time event. I am wondering whether there is a view to formalizing that policy like one of your peers did.

And second of all, maybe this is more for Siim, is where do you stand with regards to share buybacks and timing? CTV is coming in better than expected. You have got spectrum auctions coming up. Will you be prepared to lever up in order to prepare for spectrum auctions or do you really want to get that leverage down well below the targeted range in view that spectrum auctions could prove expensive? Thank you.

Just to go back, and not comment on any of our competitors, sticking to what our strategy is, we have a capital market strategy that we hope couldn't be more transparent for the investment community. The increase in the dividends that we have seen and the good fortune we are in today for our shareholders to increase the dividend is driven simply through that payout ratio. And if you look back over the last two years, these dividend increases have always come on the support of an increase in our EPS outlook. And so once again, we are increasing our outlook and therefore, we will be below the midpoint of our payout ratio and that is why we are seeing the dividend increase. So we do have a very clear capital markets policy.

The timing, which I said, even in January, we didn't anticipate. Of course, we didn't anticipate the transaction closing a quarter earlier. The financials, as you can see in CTV, are clearly better than we anticipated given what we announced the multiple acquisition of and what it has come in at and those I think are as we reflected. And I think that is consistent with what we have done the last 2.5 years. It has really been results that have allowed us, on the earnings results, have allowed us to stay in the ratio. So I think, Peter, look for that to continue.

On the buyback, there is a capital market strategy there. We are going to stay within our debt ratios and we will come back at the end of the year to talk about next year and our strategy is return capital to shareholders first and foremost through dividends, maintain our debt to EBITDA numbers and then use excess cash whether or not it is for tuck-in acquisitions or for buybacks or for pension depending on what the requirements are.

Great, thanks very much.

Jeff Fan, Scotia Capital.

Thanks, good morning, George. Good morning, Siim. A question on the Bell Media and the wireless content packages that you have set up here. I am just curious, wondering if any of your other wireless competitors have approached you to get access to some of the mobile content that you have created. And just wondering, over time, do you see that being a meaningful contributor to the Media segment's revenue on wireless going forward?

I hope so. I mean the answer is we are open for business and we are, if Kevin were on the line from Bell Media, he would tell you he is hoping he enters into arrangements where other people who distribute wireless services will carry the Bell Media packages. At the same time, Bell Mobility's offering it in the marketplace and we are seeing traction and we think it is going to be important.

Our model is really straightforward for Bell Media. We think it is a better -- a new financial model for the asset. We believe all four screens will be valuable. We believe that the CTV Bell Media asset is the best aggregator of content in Canada and we will be planning to distribute those contents to all four screens, but we plan on monetizing each of those screens. So we are selling our content, then looking to distribute it on a pay model on the wireless side similar to what we have seen on other screens.

And that is really -- there is no logic why that wouldn't be the same model and that is the model we are pursuing. So we think, over time, it should lend itself to upside for the Media business because, over time, I am a fundamental believer, especially with LTE, that mobile video is going to be a huge service on a worldwide basis.

Do you see the structure of these terms being on the paper used, is it going to be a monthly access to the content, how do you foresee these structures?

Well, from the Bell Mobility side, they have taken the packages and we think, and we have seen this also somewhere else in Canada, a very intuitive way to do it where the consumer knows they are paying CAD5 a month for 10 hours. I don't think they would do it where they don't know what is happening on the data metering and they won't have a way to assess the usage. So we actually see a third stream of revenue. One is the voice; the second is data usage; and the third is a number of hours of watching video. So that is how the model and then we are selling -- offering obviously to sell it from Bell Media to the customers of Bell Media in a way that is based pretty similar to what we see in the specialty TV model where there is a fee paid to Bell Media for access to that content from the other wireless carriers. Hopefully that's helpful.

Bob Bek, CIBC.

Thanks, good morning. My question is on Bell TV. George, you talked about the 12,000 net adds in Ontario and Quebec, principally from Fibe. As your rollout continues towards the 2 million homes, should we look at that as a linear sort of opportunity to add on the Fibe or do you think that some of the marketing and sort of bigger additions will come perhaps backended as you have a larger area or footprint to sell to? And related to that, obviously very strong flow-through from Fibe customers bringing other products with them. Do you think that 30% number can hold or perhaps even improve as you market to a bigger footprint?

Well, we think the three products in the household will be really important for us. It is where we have always had a hole in our portfolio in the core urban markets. We believe and certainly we see that. We have to give credit in the West to the execution we are seeing on IPTV and what we are seeing in the US. And it looks to us that as the footprint gets more ubiquitous, you will obviously see some penetration increases because of the marketing reasons. So one of our goals we talked about is we plan to have all of, for instance, take the area code 416, completed this year, so we can market Fibe TV to all of 416 and that is an intuitive marketing announcement that the customer knows exactly where they live and if you are in 416, you have it. So we, over time, think our execution and ubiquitous footprint will make the marketing of this product and the evidence is, I think, in front of us in the US and in Western Canada.

Thanks very much.

Okay, Donna, we will take our last two questions and please ask that you keep these last two questions short given the time.

We apologize. We have got the annual meeting in a few minutes.

Dvai Ghose, Canaccord Genuity.

Thanks very much for taking my question. George, it's great to see the sixth dividend increase since you became CEO in 2008, but you point to this dividend increase reflecting CTV. You have increased your EPS guidance by a little less than 2%, your dividend by 5%. You are at about a 70% payout ratio now on your guidance versus about 50% to 55% for peers like TELUS and Rogers who have much greater wireless exposure. You have also got a really unusually low tax rate this year again. You are very early when it comes to IPTV dilution and you have to issue about CAD1 billion of stock to Woodbridge. So I am just wondering whether you are thinking that this dividend payout ratio is a little high compared to your peers. And if so, if you can give an explanation as to why.

Dvai, it's Siim. So we are very, very comfortable with where the dividend payout ratio stands. Obviously we would not increase the dividend without having complete comfort on that. The reality is that, with the acquisition of CTV and the CAD0.07 of accretion that that brings, it still maintains our payout ratio below the midpoint of our payout guidance. And if we were to achieve the higher end of our adjusted EPS guidance, there is the possibility that our dividend payout could fall below its policy range.

In terms of the free cash flow coverage on our dividend, it is one of the highest in North America at over 160%. So we have always said that if there is a risk that our payout is going to fall below the range, that we would take action to increase the dividend and maintain it within the payout range. The shares that you mentioned being issued to Woodbridge have been issued. Those are 21 million shares and they have been taken into consideration in this dividend increase.

Okay, that makes sense. As a quick factual follow-up, Siim, does the wholesale gains help your business lines this quarter, the shutting down of Rogers' Call-Net business?

Yes, there is a modest pickup that we get from that.

Okay, can you quantify it or not?

I can't. It is included in our residential and wholesale results.

Okay, thank you.

Vince Valentini, TD Securities.

Yes, thanks very much. Long-distance revenues barely declined this quarter and actually the last two quarters in a row, you have seen a sequential increase. Just wondering is this a new trend or are long-distance revenues going to start growing again somehow or is there something unusual in those numbers? And hopefully I can sneak in one last follow-up, any reason why you haven't done an LTE network sharing deal with TELUS yet? Is it just a matter of time?

On the first question, no, we don't forecast an increase in LD revenue. We continue to, we think through the packaging in our residential business, through all the bundling work and very, very careful reprice management, see some of those benefits we continue to see on the business side. Business is more active internationally, so we are seeing some benefits and winbacks in traffic and what have you and on the wholesale side winning, doing more and more work globally compared to what we used to do all helping us on the LD side. But no, Vince, I think you are being tongue-in-cheek. We don't expect to see LD revenue grow, but we are obviously -- since it is important when it doesn't decline for all the reasons you are commenting on. And LTE, you know, we are not prepared -- this morning, our announcement is we are launching LTE, a market, but I have really no comment on your question today.

Okay, thanks.

All right, very good. So on that, thank you very much for joining us this morning. I will be available as usual throughout the day for questions, but only following our annual general meeting. Thank you very much and have a great day.

Thanks, everyone, for taking the time. We appreciate you taking the time out of your schedules.

Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.