BCE Inc (BCE) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to BCE's Fourth Quarter Results and 2012 Guidance Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Mr. Fotopoulos, please go ahead.

Thank you and good morning, everybody. As Katherine mentioned, this is Thane Fotopoulos, the head of Investor Relations for Bell Canada. And joining me as usual this morning are George Cope, our CEO, and Siim Vanaselja, the Company's CFO. Earlier this morning, we issued our news release announcing our fourth quarter and full year 2011 results. The released supplementary financial information package, as well as the slide presentation for this call, are available on the investor relations page of our BCE corporate website. Siim will begin with a quick overview of the Q4 results before he moves to 2012 financial guidance and George will make a few brief comments on our key 2012 priorities, before we take your questions, as time permits.

However, before we begin, I want to remind you that today's remarks will contain certain forward-looking statements with respect to items such 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 to differ materially from those contemplated by our forward-looking statements. For additional information on such risks and assumptions, please consult BCE's Safe Harbor notice concerning forward-looking statements, dated February 9, 2012, filed with both the Canadian Securities Commissions and with the SEC, and which is also available on our corporate website. These forward-looking statements represent BCE's expectations as of today and accordingly, are subject to change after such time. 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'm making this cautionary statement on behalf of both George and Siim, whose remarks today will certainly contain forward-looking statements. So with that over and done with, Siim, over to you.

Thanks, Thane, and hello, everyone. I'll start with a quick review of our fourth quarter and full year 2011 financial highlights. Those are summarized on slide 7. With the fourth quarter, we've completed what I'd say is a solid year of earnings growth and free cash flow generation. It was supported by increased revenue and EBITDA contribution from our growth services and meaningful wireline cost reductions. Total revenue growth at Bell was 12.6% and that reflects the revenue contribution from our acquisition of CTV, which as you know, is reported in the Bell Media segment, that's of the second quarter of 2011. Excluding Media, service revenues were essentially unchanged year over year in the quarter.

This quarter saw stronger Wireless revenue growth and double-digit residential Internet revenue growth. TV Service revenue growth of 1.6% reflects higher upfront promotional discounts and activation credits provided to new Fibe TV customers. As we've seen throughout the year, Bell's overall revenue performance this quarter continued to be impacted by lower year over year data product sales and the repricing of connectivity services in our Business Markets unit. EBITDA was up 10.3% for the quarter. Excluding Bell Media, EBITDA increased 1% and that was driven by strong wireless EBITDA growth of 9.6% and wireline cost reductions. And for the year, EBITDA, excluding Media, was up a healthy 2.9%. Capital expenditures for the quarter and the year reflect continued investment in our IPTV footprint and broadband fiber expansion, spending on our wireless LTE network buildout, and the inclusion of CapEx at Bell Media.

Our capital intensity ratio was in line with guidance at just under 16% of revenues. BCE statutory EPS in the fourth quarter was CAD0.62 per share, up from CAD0.42 per share last year. In addition to higher EBITDA, the increase also reflects lower year over year severance acquisition and other costs and a fair value loss of CAD0.08 per share in the fourth quarter of 2010. And that's on the publicly held units of Bell Aliant Income Fund, which you may recall, was treated as debt under IFRS, prior to Bell Aliant's conversion back to a corporation. Adjusted EPS in the quarter was also CAD0.62 per share, which is an increase of 5.1%. That improvement is on higher EBITDA on lower net pension financing costs and mark-to-market gains from economic hedge contracts. Depreciation and net interest expense increased year over year due to the acquisition of CTV, which on a net basis, was accretive overall to earnings for 2011.

Adjusted EPS for the fourth quarter also reflects an effective tax rate of 30.1% and that was driven by higher future income taxes. For the full-year, adjusted EPS growth of 12.2% or CAD3.13 per share exceeding our original EPS guidance and reflecting higher tax recoveries year over year. Free cash flow in the fourth quarter reflects the voluntary pension contribution of CAD750 million we made last December and for the full year 2011, our free cash flow was over CAD1.5 billion, representing growth of 5.1% over the 2010 year. We achieved all of our increased guidance targets for 2011 and we made good progress operationally on our strategic imperatives, providing good revenue and EBITDA momentum as we enter 2012.

With that, let me turn to each of our segments, beginning with Wireless on slide 8. In Wireless, we're pleased with the level of postpaid subscriber acquisitions we achieved in the quarter. We added 132,000 new net postpaid subs, in line with expectations. That compares to a record in the fourth quarter of 2010 where we captured a 50% market share of incumbent postpaid net adds. Postpaid wireless performance was supported by a stable year over year churn rate of 1.5% and I'd say while not at the level we want it to be, it is a reasonable result given the level of market competition, and improving customer retention certainly continues to be a key focus of ours in 2012.

Blended ARPU was up a strong 4.1% in the quarter. That is our best quarter of ARPU growth this year and reflects higher smartphone adoption and usage, as well as an improved penetration of the higher ARPU Western Canada market and enterprise market. Data ARPU comprised 30% of total ARPU, an increase of close to 6% year over year, driven by significant growth in smartphone users, which now make up 48% of our total postpaid customer base. Our improving smartphone mix provides a good opportunity to continue growing blended ARPU. And as well, those customers tend to have better than average churn rates.

Retention spending in the quarter increased to 11.4% of service revenues, reflecting richer handset upgrade offers and a higher mix of iPhones. Cost of acquisition also increased year over year, reflecting higher smartphone activations and higher handset subsidies, which I think are consistent with the market. Strong overall wireless metrics for the quarter, on track with our objectives to drive higher value postpaid acquisitions and to improve ARPU.

On the next slide, Wireless financial performance improved in the quarter with service revenues up 6.4% year over year on postpaid revenue growth of 8.7%. The stronger smartphone mix and higher ARPU drove a 32% increase in data revenues year over year in the quarter. Average handset prices were lower across the market, with heavy seasonal offers. Consequently, wireless product revenues decreased 3.7% despite higher year over year smartphone sales.

Our Wireless EBITDA performance improved this quarter with growth of 9.6% and a year over year margin expansion of 1.1 points. This was achieved even with CAD24 million of incremental acquisition and retention spending year over year. Our higher EBITDA growth rate, compared to previous quarters, reflects the revenue flow through of postpaid subscriber gains throughout 2011. Wireless EBITDA minus CapEx provided a healthy contribution to free cash flow in the quarter generating CAD233 million, that's a 47% year over year increase and even while investing significant capital on the buildout of our 4G LTE network, which George will speak to.

Let me now turn to our Wireline segment, Fibe TV gained traction in the fourth quarter driving pretty good Three TV subscriber growth with 28,000 new net additions. Bell Satellite TV saw aggressive pricing and offers by competitors in response to the Bell Fibe TV product in Toronto and Montreal and we also saw the expansion of competitors' IPTV footprint in Western Canada. With promotional discounts and activation credits offered to new Fibe TV customers, TV ARPU declined 1.5% in the quarter, but I have to say that investment is going to support stronger revenue and EBITDA growth trajectories going forward, particularly with Fibe TV growth hoping to drive the three-product households and better customer retention. And in fact, there was an 11% overall increase in three-product households in 2011.

Our net Internet subscriber additions were modestly positive in the quarter. Our objective there is to improve Internet churn, which would benefit from bundling with an accelerated Fibe TV base. With a growing mix of customers on premium Internet service tiers and higher bandwidth usage, we saw residential Internet ARPU increase 8.6% in the quarter. Residential NAS losses increased in the quarter with steeper price discounting on home service bundles by competitors and increasing wireless substitution. Additionally, the wholesale NAS gains, which began in the fourth quarter of 2010, that was from the migration of residential customers to Bell from a third-party reseller, those were completed in the second quarter and therefore, we didn't see any upside to NAS in the second half of 2011 from that. We did see fewer back business NAS losses in the quarter, driven by targeted retention initiatives for our mass and mid-size customers.

On slide 11, our Wireline financial performance has benefited from an improving mix throughout the course of 2011, with TV and residential Internet becoming a larger percentage of our Wireline base and voice revenue erosion slowing year over year from improved residential LD performance. However, business LD revenue erosion increased in the quarter, contributing to the higher sequential rate of overall voice revenue decline compared to the third quarter this year. EBITDA margin improved by close to 1% of the Wireline segment, reflecting continued cost and labor reductions. For the full 2011 year, Wireline EBITDA grew 1.5% and margins expanded by 1.7 percentage points to 39.1%. That reflects approximately CAD290 million in operating expense reductions year over year, which helped absorb costs related to our IPTV rollout and lower contribution from our business markets.

Turning to Media, another overall good quarter of performance for Bell Media, with subscriber revenues growing 35% year over year. That was driven by rate increases implemented on contract renewals with BDUs for our specialty sports channels TSN and RDS and we also saw good growth in mobile TV. Advertising revenues in the fourth quarter were down 4% year over year on national ad markets that were softer. At the local market level, though, advertising demand remained fairly steady and Bell Media maintained strong audience levels at CTV and higher viewership across non-sports specialty channels. Bell Media generated CAD130 million of EBITDA in the fourth quarter. That included CAD33 million in non-cash charge which was to amortize the fair value increment of CTV's programming inventory that, as you know, was revalued as part of the purchase price accounting for CTV.

Overall, our Media division has performed significantly ahead of our expectations compared to the business plan that we had in place at the time of the acquisition. In fact, in the last nine months of 2011, Bell Media has generated CAD397 million of cash EBITDA versus our guidance of CAD350 million, which excluded the purchase price amortization. And clearly, we see the fit of Media and its overall strategic contribution to Bell as being validated.

Let me now turn to slide 14, and a quick update on where we stand with our capital structure. We entered 2012 in a strong financial position. After the CAD280 million preferred share issue that closed on January 4, we have a cash balance of CAD420 million. In addition, we have access to about CAD2 billion of liquidity under our committed bank credit facilities and our accounts receivable securitization facilities. In 2011, we repaid CAD250 million of long-term debt and about CAD375 million of capital lease obligations. We repurchased 3.5 million common shares for CAD143 million under our new CAD250 million NCIB program. We contributed CAD750 million in voluntary funding to Bell's defined benefit pension plan.

Under favorable market conditions last year, we raised CAD2 billion in proceeds from the issuance of Bell Canada long-term debt, which completed the permanent financing for CTV and it also completed all of our 2012 debt refinancing requirements. Bell's overall average after-tax cost of debt improved 3.75% and approximately 80% of our overall debt is now fixed, which puts us into very low risk position on interest rate escalations. We also opportunistically issued 625 million of preferred shares in total and that benefits from 50% equity treatment by the rating agencies, reflecting the equity nature of those perpetual preferred shares in our capital structure. We continue to maintain a strong investment grade credit profile, consistent with all of our financial policies. On slide 15, I'll highlight that Bell is well-positioned with an attractive long-term debt maturity schedule and minimal near- medium-term debt repayments. At the same time, we're going to continue to monitor markets for opportunities where we can further reduce our cost of debt, just as we've done in the past. We also continue to proactively manage financial risk in terms of currency exposure to the US dollar purchases we make and equity exposure is under BCE's various long-term incentive plans.

Our credit ratings have been confirmed at A low and BBB plus, all with stable outlooks. With our strong balance sheet, our stable free cash flow generation and positive business outlook, I'd say we have significant incremental debt capacity within our current ratings category. With seven dividend increases in the past three years, totaling 49%, as you see on the next slide, we've set a strong track record as a dividend growth company. Our 5% dividend increase for 2012 that we announced in December, maintains our payout ratio below the midpoint of our target range of adjusted EPS. Our dividend coverage of close to 1.5 times on both earnings and operating cash flow offers pretty strong support for our dividend, which currently yields over 5%. We've also repurchased 61 million BCE common shares over the last three years at a total cost of close to CAD1.7 billion. The average price of those repurchases was CAD27 and 54%, representing increased value for our shareholders. Our most recent CAD250 million NCIB program that I spoke to, it is now about 77% completed.

With that, let me turn to the third part of what I'll speak to, which is our 2012 outlook and financial guidance and that's summarized on slide 18. The guidance reflects a full year of Bell Media results versus three quarters of Media results for 2011. With the incremental Bell Media contribution, as well as projected steady wireless growth in an improving wireline revenue trajectory, we are targeting total Bell revenue growth of 3% to 5% for 2012. We expect data product revenues in our business markets to stabilize during the course of the year. With consensus expectations of reasonably modest GDP growth of about 2% for 2012, we expect telecom spending by business customers to recover at a slow pace. Similarly, we project demand in media advertising to strengthen as the year progresses.

Our EBITDA expectation for Bell in 2012 is growth in the range of 2% to 4% and driving that EBITDA growth will be higher revenue from all our growth services, including Media, and cost reductions to counter the impacts of growing our Fibe TV customer base and ongoing voice erosion. We expect to increase capital spending in absolute dollars year over year, but to maintain Bell's capital intensity ratio at or below 16% of revenues. Our 2012 program will focus on continued fiber investment, continued expansion of our IPTV footprint to 3.3 million homes, and further, the buildout of our LTE program in urban centers, and as well, meeting growth and demand, obviously. At the BCE consolidated level, our guidance is adjusted EPS of CAD3.13 to CAD3.18 per share and free cash flow in the range of CAD2.35 billion to CAD2.5 billion. I will mention here that our pending investment in MLSE will be accounted for using the equity method so our proportionate share of MLSE's earnings will be reported in other income. But there will be no revenue or EBITDA contribution from MLSE and that acquisition is expected to close mid-year.

On slide 19, a bit more on our revenue outlook for 2012. Wireless revenue growth will benefit from the flow-through of strong postpaid subscriber growth in 2011 and a higher base of smartphone users. We expect continuing wireless voice ARPU erosion to be more than offset by data growth, as continued smartphone activations and an increased share of higher value postpaid customers in the West and in the enterprise markets drive overall blended ARPU growth. For Bell Wireline, our revenue plan for 2012 assumes stabilizing residential NAS erosion as we leverage Fibe TV to drive three-product household penetration and increase our MDU of market share. Stronger TV and Internet revenue growth in 2012 will help offset the expected year over year decline in wireline voice revenues. We see economic and market challenges impacting business markets beginning to moderate through the course of 2012. Finally, we project Bell Media year over year upside coming from the rate increases on our sport specialty channels. Just on that, I would say that we've concluded new agreements with many of the major players and plan to have additional contract renewals in place later this year.

Turning to slide 20, Wireless and Media are the key EBITDA growth drivers this year. Wireless EBITDA growth will be influenced by the pace of postpaid subscriber growth, ARPU, and churn performance. The guidance on EBITDA also takes into account increased spending on wireless customer retention, aligned with industry average, as well as COA that achieves our objective of capturing one-third market share of incumbent postpaid additions. Also driving EBITDA improvement is further cost savings, particularly from the management workforce reductions that we undertook in the third quarter last year, which should deliver approximately CAD100 million in annualized savings. That, together with expected productivity gains in procurement, client care, field service operations, and from the Bell Media integration, should preserve a relatively stable year over year EBITDA margin in 2012.

I'll cover pension next on slide 21. In 2012, Bell's overall pension expense is expected to decrease approximately CAD30 million year over year from CAD123 million in 2011 to CAD90 million in 2012. This improvement is attributable primarily to the CAD750 million voluntary contribution made in December to Bell's defined benefit plan that lowers our pension expense in 2012, contributing approximately CAD0.03 to adjusted EPS and as well to the benefit from a lower accounting discount rate in 2012 that reduces net pension financing costs. But I would say that at the EBITDA level, the lower discount rate, in fact, results in about a CAD10 million higher current service cost in 2012 compared to 1011. As you see on the slide, Bell Aliant adds an additional CAD60 million in total consolidated BCE pension expense. In terms of cash pension funding, the pre-funding of the pension plan that we made in December maintains Bell's solvency ratio at a strong level and generates healthy cash flow in 2012 through cash tax savings of CAD170 million or so. For 2012, we expect our overall pension funding for Bell to decline by about CAD50 million to the CAD375 million level.

On slide 22, we expect an increase in cash taxes for 2012 to approximately CAD300 million from CAD128 million in 2011. The 2011 cash taxes benefited from quite a high level of severance expenses and as well from the deductibility of the CRTC benefits that we incurred on the CTV acquisition. The statutory tax rate in 2012 is being reduced to 26.4% from 28.2% in 2011 and that's owing to rate reductions at both the Federal and Ontario level. Our projected effective accounting tax rate for 2012 is about 23%, which is slightly higher than our effective tax rate for 2011, which was 21.9%. That increase is due to the higher level of tax recoveries that we saw in 2011 of CAD0.26 per share versus our estimate today of about 10% to 15% for 2012 and we'll just have to monitor how we are doing with our settlements with tax authorities as the year progresses.

We expect adjusted EPS to be in the range of CAD3.13 to CAD3.18 per share for 2012, so that represents modest growth over 2011 due to the higher level of favorable tax settlements realized last year. Adjusted EPS for 2012, though, is supported by a strong underlying contribution from operations driven by higher year over year EBITDA from our growth services, cost savings, and the reduced net pension financing costs. Depreciation and amortization expense, however, moderates EPS growth in 2012, having a year over year impact of about CAD125 million pretax and this increase in depreciation is due to the incremental wireless capital spending on LTE, some accelerated depreciation rates on elements of our HSPA plus network, significant depreciation increased on the new IPTV set top box rollout, and generally shorter lifecycles on investment in new technology assets versus past years.

And then, on free cash flow, I've provided the details on slide 24. Our guidance for free cash flow before common share dividends in the range of CAD2.35 billion to CAD2.5 billion. The year over year growth reflects higher EBITDA and a similar level of capital intensity in 2012 at around 16%. Normal course pension funding and cash severance costs are expected to be lower in 2012. However, net interest payments will be higher, due to the higher average level of debt outstanding from the CTV acquisition. We also expect an improvement in our working capital position, given the approximate CAD200 million in CRTC-mandated rebates that we paid last year, offset partly by the mark-to-market gains realized in 2011 on our derivative contracts, as well as the higher cash taxes that I mentioned. Overall, our 2012 free cash flow growth is solid support for the 5% dividend increase that we announced for this year.

Just moving quickly, you'll see on slide 25 for further clarity, a breakdown of the key reconciling items between projected EBITDA and free cash flow. Those all line up pretty good. In the appendix, slide 26 and slide 27, are summarized the key economic market and operational assumptions that underlie our guidance and those are for your reference. That's it for me. To conclude, I'd say that 2011 was a good year for BCE. In 2012, we would expect to build on Bell's financial and operating momentum, consistent with the guidance targets that we've provided you today. Thank you and with that, I will turn it over to George.

Great. Thanks, Siim. Good morning, everyone. Just turning to slide 29 and just a few quick comments before we open up for questions. The first point here is that, as people will know, we embarked on the path of a focus on strategic imperatives, of five strategic imperatives. 2012 will be the same strategy, the same focus. We have added six strategic imperatives, which is expanding our media leadership, specifically focused there on moving our media leadership to all four screens, from the traditional business that CTV would've operated. I would also echo that I think in 2011, we made significant progress on all six of these imperatives and particularly pleased with Q4 in the wireless side where we've been able to absorb the incremental cost of very strong postpaid net adds consistent with our strategy and see EBITDA growth and margin expansion in a tricky quarter in terms of smartphone upgrades in the market with the new products in the market.

Turning to slide 30 this morning, we're pleased to announce the continuation of our LTE network rollout in Canada. We're expanding, as of tomorrow, to seven more urban centers, bringing 14 cities up and operating with LTE; more to come this year. Also, rural Canada to come as quickly as we can, once we have concluded the 700 auction, assuming that Bell is successful and the rules are put in place to allow for that type of great rural coverage in Canada, which we want to do as quickly as we possibly can.

Turning to slide 31, just a comment on a few of our priorities. In one sense, Siim's covered some of these off. But on the Wireless side, we want to continue, quite frankly, executing on the strategy we've been pursuing the last three years, particularly a focus for us in Western Canada, where there is a stronger ARPU market. We had very positive year there in 2011 and we will probably open up to an additional 100 new points of retail presence between Bell and the source in 2012, focused specifically in the West. I'm pleased in the quarter that we were able to get our cost of retention more in line with our competitors, absorb that cost, and grow our EBITDA and margin. As Siim said, we expect to be more in line with our competitors this year and hope that benefit will flow through with some improvement in postpaid churn. We continued to focus on closing that ARPU gap with our competitors. We've seen that in this quarter in terms of our growth, but it remains to be seen how our competitors have done. We look for that to continue to improve in 2012 as we focus most of our efforts, or literally all of our efforts, in the postpaid market.

On the Wireline side, I'm probably more optimistic than I've been in a number of years in terms of our ability to have a much stronger year from an RGU perspective. I believe it'll be our best RGU year that we've had in at least over five years and that specifically will be driven as we begin to see the momentum through scaling Fibe TV. As Siim mentioned, we will end 2012 with about 3.3 million homes passed and we are now at approximately 2 million homes passed today. Particularly what we're seeing and I think will be really important is we need to step up in our Internet market share and we think we will see that. We are seeing it on the consumer side from the pull through of Fibe TV new subscribers. We also think it's important that part of our Fibe TV rollout will take place in some of the [Kojiko] territories, which should help us also insulate some of the Internet issues we have had there and that will continue to grow after '12 going forward.

Important in the second quarter of 2012, we will have a significant amount of Quebec city cover with the full fiber and that will obviously improve our competitive position there significantly and continue to deploy fiber to the basement and MDUs and fiber to all new Greenfields. We're doing all that NLTE while maintaining our capital intensity at or below 16%. But quite frankly, taking the significant additional cash flow that we're generating off of Bell media and having the luxury to invest that in the broadband strategies that we're trying to execute on, which was part of the financial investment in benefits of that acquisition for our shareholders. Improvement in business markets, as Siim said, is important. One of the challenges in that segment for us, given our position and leadership position in Canada, GDP growth of anything less than 2% makes it tough on significant job growth and obviously, significant job growth drives our business market revenue growth. We're more optimistic going into 2012, but we think that will continue to be one of the softer areas for the organization.

Turning to page 32, looking to continue to expand the success of our media strategy with a real focus on the four screen execution. And now with the rollout of LTE, mobile TV is just going to continue to grow to the higher and better levels. And obviously with the products starting to be integrated into the home, we expect content on many different screens generating many different revenues for our media assets. The MLSE acquisition obviously strategically aligning with our media strategy.

In terms of our focus on cost and customer service, that journey continues. We continue to find that as our service improves, our costs drop and we've had significant improvement in customer service over the last 24 months. Very optimistic about the investments we're making in 2012 and of course we have done some significant cost reductions near the end of 2011. One of the other items for us that we'll be pursuing aggressively is to try to get a regulatory agenda that's more market-based with new CRTC leadership expected this year. Particularly trying to get the regulator away from being a price regulator and letting the markets set commercial rates in the area of the Internet and the broadcast industry.

We'll be working on that as the new agenda unfolds at the CRTC. Finally, I think most importantly for investors, the business plan in 2012 has a strategy of a midpoint of cash flow growth of 7% which supports our ongoing strategy of a 5% dividend growth strategy for BCE, allowing us to provide the cash we need to our shareholders, yet at the same time, make all the key strategic investments we need to make, while maintaining a North American aligned capital intensity of 16%, which is consistent with literally all other major telecom carriers in North America and at the same time, keep our payout dividend payout ratio midpoint of our guidance, just below 70%. With that, I think a successful year for 2011, challenges in front of us for 2012. But personally, I don't think the Company has ever been better positioned. Thank you.

With the time we have remaining, and respect the time we have remaining please limit your questions to one and one brief follow up. So with that Catherine we are ready to proceed.

(Operator Instructions) Simon Flannery, Morgan Stanley.

If I could just focus on the Internet ads for a minute. You did talk about the plans to improve the trends there with Fibe, but the ARPU trend was very impressive, I think you said it was up 8.6%. Can you just give us more color on what is going on at there? Is that people buying a fatter pipe? Is that overage and is that something you expect to continue in '12? Thanks.

First of all, strategically, our Internet ads, of course, include both business and consumers. Consumer was a little stronger than the total number. But, quite frankly, we have work there to do and I think we will see that improvement as we're seeing it with Fibe TV already early this year. In terms of the ARPU, what's really driving that is actually, in one sense, almost the questions you've asked. The migration of customers to our FTTN rates, if you will, and the network where the speed is so much improved and therefore, people are using more and the rates are different and the expansion in usage. Both those keys have been important to driving increased ARPU and we continue to see migrations up to FTTN and we expect that to continue in 2012.

Okay, thank you.

Jeff Fan, Scotia Bank.

I just want to follow-up on the Internet question with respect to the subscriber trends. George, you did mention that there is good pull-through coming in through the Fibe TV. Maybe digging down a little bit further, given the net adds of only 1,000. I'm just wondering where are you seeing some migration out of your base, meaning losses? Are you seeing cable competitors going after areas where you don't have fiber? Is that where the losses are coming from?

Good questions. A number of things, be careful because of the competitive part of this answer. But I would say definitely some softening on the wholesale side, clearly, as the markets moved more and more to FTTN. That's been one. Secondly, it would be fair to say where we don't have FTTN, we think one of our competitors has seen more success there than what we're seeing necessarily in the markets where we do. Thirdly, quite frankly, there was a very, very aggressive four or five months of Internet by one of our cable competitors in one of our core markets that I think did have an impact on that.

We have to up our game there. I think the revenues, everyone has mentioned as been to this positive, but now it's the churn levels on the FTTN are actually down. We can see the churn coming down. We see the pull-through of Fibe TV, but we've got to improve that. I'm quite confident with what we're doing on Fibe TV, we're going to be where we need to be.

Just a quick follow-up, as you look out to 2012, then, you mentioned that the pull-throughs going to be better. Is that going to be the driver to get your overall net numbers to increase while keeping the churn on the non-fiber areas stable?

Yes, that's exactly what we're planning to do. I do want to mention, because it's a consolidated number, I've mentioned the business market is soft. It is soft in that area as well and also, people migrate up from traditional Internet services to more advanced technologies on the business side that aren't necessarily in our Internet numbers. We don't break out the consumer numbers versus the business, but it would be fair to say the consumer numbers weren't -- it wasn't just 1,000 on the consumer side.

Okay, thanks.

Maher Yaghi, Desjardins Securities.

I just want to maybe talk a little bit about the Wireline margin. When you look at the EBITDA in that business, it was increasing year-on-year up until this quarter and it's declining now 2%. You're continuing to do cost cutting there, but can you talk a little bit about what you're hoping to achieve in 2012 in terms of EBITDA? Is there any growth you can get from that business in 2012? How much cost cutting you can pull out of that business to keep holding steady the EBITDA in the face of continued pressure on the legacy business?

Let me go back to a comment I make on every call. Sometimes it's more of a wireless and Wireline, but I'll make it again. We run the business on a consolidated Wireline view. Cost management in one can be used to benefit another for market share. That's the first point to investors. You'll notice we had a very strong wireless EBITDA, so obviously, we were a little less on the levers side of the Wireline. So, we can make investments there in the quarter. As Siim had said, we expect the Wireline margins to be stable year-over-year, but we're not giving either wireless or Wireline EBITDA guidance.

I think it's fair to say, I think Siim talked about a CAD100 million cost benefit flowing through to Wireline this year from the work we did at the end of 2011. That's really to give us the head room for the ramp-up we're beginning and have begun to see in the fourth quarter in our Fibe TV investment as well. Hopefully, that is helpful. I may not be as open as you wanted me to be, but that's as much as I'm prepared to go into.

Peter Rhamey, BMO.

With regards to your free cash guidance and you're talking on dividend, you seem to have disconnected the EPS from your payout ratio. You're now focusing more on free cash flow. I was hoping that you might be able to comment on that. Thank you.

Yes. Well, if I did, Peter, I didn't mean to do that, so thank you for asking the question, if I did not clarify. We talked about our payout ratio being below -- if you take our guidance and the midpoint of our guidance with the proposed dividend payout that we now have, that would be just under a 70% payout of EPS. That's what we're talking about. Both are important, obviously cash payout and EPS guidance pay out. Siim, anything that you want to add to that?

No, no. Our dividend payout ratio is based off of an adjusted EPS metric, as George said. We think the free cash flow payout is equally relevant. We've just shown both metrics, given their relevance. But there's certainly no change in our policy or how we think about dividend increases relative to earnings and free cash flow generation.

That being said, EPS is not expected to grow that much this year, according to your guidance. Free cash flow is going to be up 7% according to your commentary. When we're thinking about dividends, should we be looking at the EPS growth or should we be looking at the free cash flow growth?

Let me answer as best we can, our policy is 65% to 75%. Our proposed midpoint of our guidance and our quarterly payout would be 69% of EPS. There's no change there, Peter, but I think, also for people to know, what is the cash flow position of the Company and the cash flow growth is just as important. That's why both have always been there. There's really no change here. As Siim has mentioned, some of the tax benefits, the one-time tax benefits in Q3, which had our EPS at the year-end higher than we had anticipated this year, had some flow-through impacts on next year. You, and all the other folks online, will make those adjustments because the underlying cash, as you know, is what ultimately generates our ability to payout.

Great. Thank you very much, George and Siim.

Dvai Ghose, Canaccord Genuity.

Can I go back to the question of lack of Fibe flow through so far? Both in terms of DSL, which people have really touched upon, but also NAS loss which was pretty significant in 2011. As you know, you lost 9.2% of your residential lines, which I think was the worst in North America. If I do the inevitable comparison with TELUS, in June 2010, they launched Optik and immediately they saw the positive impact on ADSL as well as reduced line loss.

You launched Fibe in September 2010 and your numbers deteriorated significantly in 2011 on both those counts. What is the difference there? Is it your footprint which is too small, in which case, shouldn't you accelerate it? Is it an execution issue? Is a competitive issue?

I think the biggest issue year-over-year for, Dvai, as Siim talked about, was the wholesale subscriber additions that came through that migration. That's one. None of the other of your comments do I agree with. The second point is probably more importantly, I think it would be fair to say that Toronto and Montreal, particularly Toronto, I think most people would agree that the new entrants on wireless have been much more aggressive and impactful in Toronto than anywhere else. If there's anything we have seen different that possibly other carriers in Canada haven't seen is the acceleration in wireless substitution on the NAS side. I think, has been more significant than maybe we've seen other markets. Having said that, I'm actually quite optimistic about 2012, with the pull-through we're seeing in some of our products. I do remind, because of the implication of the TV never seems to go away, we do have a CAD2 billion revenue-generating TV business. We were out in front of every telco in the world in TV with satellite. Now we're leveraging the maturity of the Fibe TV platform with the strategy in the cities that we're, quite frankly, really excited about it and that puts a great growth prospect in front of us with our shareholders.

That makes sense. Can I ask Siim a quick follow up? In terms of your guidance, you're talking 3% to 5% Bell Canada revenue and 2% to 4% EBITDA growth. If I pro forma for CTV for all of last year, I'm calculating about zero to 2% revenue and zero to 2.5% EBITDA. Could you just confirm that?

Yes, I saw those comments. Were you talking about 2011, sorry?

I'm just saying if I add CTV back to Q1 and I think if even if we keep pro forma numbers for '11, it looks like 2012 guidance implies pro forma growth of zero to 2% growth?

Right. I'm not going to comment on 2012, because CTV is now fully integrated into Bell Media and Bell. But I would comment on 2011, because our revenue growth and EBITDA growth, excluding Bell Media, in fact, was not flat. We generated 1% revenue growth and 2.9% EBITDA growth for 2011, excluding all of media, including the portal which was transferred from Bell.

Okay. Maybe we can take that off line. Thanks.

Phillip Huang, UBS

My question is on LTE. As adoption of at LTE increases, given more coverage in handsets, do you think the industry can price LTE plans at a premium to 3G services? Also, what's your assumption in terms of LTE's help to wireless ARPU in your guidance for 2012? Thanks.

Yes. The competitive marketplace will ultimately determine the LTE pricing in the marketplace. I think LTE will drive the acceleration of services and ultimately, therefore, that'll be a positive for industry growth on revenue. LTE takes mobile TV to a new level, takes accessing the Internet to a new level from a wireless perspective. Those generate revenue growth for investors because the products are just, quite frankly, out of this world on that network, in terms of would have seen even as we launched HSPA and HSPA plus. I think the migration of the smartphones will continue at a rapid pace of the revenue trajectory from LTE should be positive. How it's priced in the market will be subject to how all competitors approach of LTE, not just how Bell does it.

Now given your ownership of sports content and you obviously, have strong media assets that you can leverage. You mentioned mobile TV -- is there any way that you can price mobile TV as an incremental service, as opposed to just another app on your existing data plan?

Yes, we're doing that actually. It's a very unique model in Canada and we've seen subscribers subscribing every month to it. What we've done is said for television, a mobile TV is outside your data bucket. It is CAD5 for 10 hours or X number of hours of viewing. Our view is that those type of -- or CAD10 -- those type of access fee pricing outside the data bucket gives the user comfort that there's not a surprise video data bill coming.

We actually have a third focus with the customer base and revenue stream. So, people know exactly what they're going to pay for mobile TV and they're not worried about a data bill that they can't control. That's how we've launched in Canada. That's how we're continuing to see traction on that and we think it lends itself to a significant growth opportunity, not just for Bell, but for the wireless industry. Then we also think from our content perspective, it gives us the opportunity to sell our content to the other wireless carriers in Canada as they grow that business, particularly through the technology benefits of LTE.

Great, thanks very much.

Glen Campbell, Merrill Lynch.

George, the wireless margins were better than we thought and you alluded to the smartphone pressure that you seem to have done very well in spite of. Can you give us a little bit of granularity on what happened there? I know you're pushing the superphones, my assumption would have been high subsidies there. iPhones sales globally more than doubled quarter-to-quarter. Can you give us a bit of a sense of what happened at Bell and why you did as well as you did?

Yes, I think a couple things. Glenn, you'll know your own numbers. I think the ARPU was maybe -- our service revenue might have been a little better than expectations of the streets for the ARPU was a little better and that would, of course, everyone would know it would flow through. Secondly, our cost management on the distribution channel side and on our operations has really started -- we think it paid out well in the fourth quarter. We've got to continue that. The ownership of things like The Source really, really paid off in the fourth quarter, whereas everyone knows that's the quarter that retail matters and our costs in running The Source don't go up.

Some of those things, I think, really helped. Also, when we did our cost restructuring in the fourth quarter, it wasn't just the Wireline business that had to do a little bit work around its cost. It's how do we get our wireless business in this environment with the new entrance at such low prices to get our cost structure in line. I think some of that benefited us in Q4 as well.

Thank you.

Drew McReynolds, RBC Capital Markets.

For you, George, just on wireless again. Can you comment on the new wireless entering competition? Whether you're seeing any change thus far in Q1 with some upward revision in price? I know a lot of that's at the lower end. Also, just in terms of COA pressure, just relative to Q4, are you seeing that continue?

Yes, I think the COA issue is clearly the upgrade and the strength we're seeing on smartphones and particular brands that are really strong. It's hard to say if -- there was a note put out by one of the analysts and I might agree with him on '12, but it's hard to say that we're going to see a reduction in COA. The actual cost of units are coming down, but the volume of smartphones as a percent of our sales just continues to go up. So, that'll be the challenge. In terms of pricing in the marketplace, it's a competitive marketplace. The new entrants are one side. We, obviously, also pay a lot of attention to what's happening on the incumbent side and I would probably have to say it's been, as usual, it's aggressive. I certainly haven't seen a reduction in the competitive intensity in the market in the first quarter that I've noticed or that we've noted at Bell.

Thank you.

Greg MacDonald, Macquarie Capital.

Quick follow-on actually relative to the last two questions on COA. George, wonder if you might comment on mix of Android versus iPhone? This is a very big iPhone quarter and I'm assuming that it was a higher load quarter relative to previous. Could you give us a little sense of Android versus iPhone mix? Maybe an understanding of the impact of Android ASP coming down relative to stable iPhone subsidy? Thanks.

I've got to be careful, because these are supplier answers. I simply would say that those companies report publicly, so people can see the strong quarters they had that have been reported. Proportionally, our sales of those of Android and iPhone were clearly up in Q4 over other smartphone suppliers and we continue to see that. I would say we're obviously, as a distributor of hardware, we're really quite pleased to see the head-to-head battle between Android and Apple because it helps us on choice of handsets. We continue to see amazing handsets on the Android side to compete with Apple side and that gives our customers great choice. Hopefully, it will, over time, drives some cost for us.

Can just ask a quick follow-on? If you assume stable mix between iPhone and Android phone, are you looking at stable margin this year on the COA side? Or are you assuming that there's a potential for uptick? Because on the margin, with ASPs coming down for most phones, they should be a bit of an opportunity there, should there not?

I don't want to go specifically. It's so driven by competitive intensity and mix and who has a great phone one quarter and the timing of the next product. It's really tricky one. I can simply say, and I don't mean to be so high level, but clearly, the COA we're investing in and the ARPU growth we're seeing is absolutely the right investment for our investors. Seeing our ability to improve that margin in a very strong fourth quarter, we're doing some really tough things on the cost side to try to keep, in this competitive intensity, try to maintain these as best we can.

All right. Thanks a lot.

Rob Goff, NCP.

My question, George, would turn over to the business side of things. Can you address the pricing pressures and your leverage there versus your leverage to job growth as demands?

Yes, that is a good question. Pricing, it's a very competitive segment, for sure, so pricing power there. I think, is implied in your question, is really best to take into the customer when you're adding new services. Our business challenge is to expand the share of wall we have of the customer base and as people would know on the call, we have a very, very strong business there and the challenge is that those companies are not growing significantly.

As I use the number 2%, because most economists will say employment growth really accelerates significantly once you get over 2% and we've not had that. Therefore, we think that's one of the structural challenges we have in that business and where we're optimistic is, at some point, as GDP growth accelerates. We think that business will see those benefits. Secondly, we do need to make and improve our focus on the SMB side where it's a very strong and profitable business for us. We need to step our game up there a little bit on the product portfolio side and we'll be doing something this year there that our new management team there has been focused on since they stepped in place three or four months ago.

Thanks, George.

Great. Before we sign off, I want to thank everybody for their participation and I'm available throughout the day for follow-ups and for questions. George has another comment.

Yes, one last thing I hope you all sent your text messages yesterday for Bell Let's Talk Day. I know it's money out, but it's money well spent. Take care.

Thank you.