BCE Inc (BCE) 2014 Q3 法說會逐字稿

Welcome to BCE's Third-Quarter 2014 Results conference call. I would now like to turn the meeting over to Mr. Thane Fotopoulos.

Please, go ahead.

Thank you, Wayne.

Good morning to everyone on the call and the webcast.

With me here today, as usual, are George Cope, Bell's President and CEO, as well as Siim Vanaselja, our CFO.

We released our third-quarter results earlier this morning. All the usual information, including the news release as well as the slide presentation for this call, are available on the BCE website. However, before we begin, I'd like to mention that today's presentation remarks by both George and Siim will contain forward-looking statements that represent our expectations as of today and accordingly are subject to change. We do not undertake any obligation to update any forward-looking statements, except as may be required by Canadian Securities laws.

A number of assumptions were made by us in preparing these forward-looking statements, which are subject to risk. Results may differ materially. Except as may be required by Canadian Security's laws, we do not undertake any obligation to update or revise any forward-looking statement. For additional information on such risks and assumptions, please consult BCE's 2013 annual MD&A as updated and our Q1, Q2 and Q3 2014 MD&As, as well as in our news release dated November 6, 2014, announcing our results for the third quarter. All of these are filed with the Canadian Securities Commission and with the SEC and also available on our corporate website.

So with that, George, over to you.

Good morning, everyone.

Thanks, Thane.

Thanks, everyone, for joining us.

BCE had an excellent quarter. I'm pleased to report that Bell achieved the best combination of financial results and market share results in over a decade. Now, clearly, the long-term focus on our six strategic imperatives is driving results and paying dividends for our shareholders. Bell adjusted EBITDA growth of 3.4% and margin expansion to 39% drove 10.7% adjusted EPS growth. Accelerating wireless revenue growth and improving market share results versus our largest wireless competitor produced industry-leading double-digit EBITDA growth at Bell Mobility.

However, most importantly in the quarter was the strong broadband market share performance which, combined with cost management, produced positive wireline EBITDA one quarter ahead of our own internal expectations. Bell Media continued to grow market share, although financial results are clearly beginning to be impacted by the higher content cost. The strong overall financial results, combined with the Bell Aliant synergies, places the Company in an excellent position to continue our consistent dividend growth story in 2015.

Take a closer look at the wireless results on slide 5. I'm very pleased with the 91,000 postpaid net add additions, as I mentioned, versus our largest wireless competitor. A very strong quarter from an ARPU perspective, up an industry-leading 5.9%. Really what is driving that is the increased usage we are seeing on wireless devices that have converted from HSPA to LTE. We're in fact seeing a 52% increase in customer usage of data for those clients that have migrated from HSPA to LTE. The positive for investors is only 40% of our base to date have converted to LTE. So clearly, that migration will help revenue growth over time.

Also, we think adding to our performance was in the middle of August when we, through some spectrum aggregation, increased the LTE speeds on our network by up to 45% across the entire country. That increase in speed through the aggregation method that we pursued allowed for all current LTE devices to enjoy that additional speed versus our largest competitor, who launched something similar but only works on new LTE products. I think it positions us for increased usage across our current LTE base.

Also industry-wide, there was a recent report again confirming that the Canadian wireless industry beats both the US and UK in speed and reliability. Once again, from another source, confirming that Canadians do have access to the best wireless networks in the world.

Turning to slide 6, we had a very strong quarter on the residential side, with positive RGU growth in the quarter, driven by excellent Internet additions of 50,000; 62,000 Fibe TV additions; and a significant reduction in our loss of local access lines of 26.8% year over year. In fact, we continue to see a slowing in NAS losses on the consumer side from the pull-through of Fibe TV.

So the strategy continues: expand the Fibe TV footprint; move the network closer and closer to the home; and putting fibre to locations where it is cost-effective; and the expansion of that footprint. As I mention every quarter, any market we launch, we turn positive RGUs. As a result, we have enough footprint now that you can see in the quarter, we were positive in the quarter, and of course helped by the seasonality of the back-to-school marketplace.

Turning to slide 7, very pleased that the Bell Aliant transaction is closed. It increased our broadband growth, scale and operating efficiencies. That can be seen by the significant net add numbers when you take the two organizations in the quarter. 75,000 IPTV net adds and 64,000 Internet adds are big numbers in the Canadian marketplace. The scale of the broadband business, we think, will be important going forward.

Also for those that may not recall, Bell Aliant did have a small regional wireless operation. That will be rolled into Bell Mobility. It does add 123,000 postpaid customers. CAD80 million in service revenue on par ARPU with our business, but will again add to our EBITDA margins on the wireless side next year, although small.

The combination of Bell and Bell Aliant, by the end of this year, will have 6 million homes covered with IPTV footprint. Because of the leadership of Karen in Bell Aliant's territory with fibre, 2 million of the 6 million homes will have fibre already to them as we continue to market IPTV.

Another benefit to remind investors of the integration and acquisition is the improved efficiency of capital spend allocations. I mentioned it before, we won't be investing in duplicate billing systems going forward. Also, we will optimize where we direct our capital for fibre. In some markets, we have very strong satellite market share. In those markets, we won't be accelerating the fibre builds at the pace we would be in markets where the cable operator has strong market share.

Finally, we are well on track to exceed our CAD100 million in combined pretax annual OpEx and CapEx synergies in 2015. I think strategically, I just want to mention to investors that we now have over 3.25 million Internet customers. We think this will be strategically important in the OTT world, particularly if certain content providers make a decision to not distribute their content to all broadband customers, we think that model gets challenging. You don't have access to everyone in the country and, particularly, our broadband customer base.

Turning to our media assets, Bell Media continued to lead the market in market share and saw growth in the English to French audience share between the ages of 25 and 54. Obviously, very important from an advertiser perspective. In the important fall season, the top-five most-watched programs in the country were actually on CTV. It's the first time in ten years that we had all top five programs. They had over 3 million viewers. We also, in the quarter, rolled out the new TSN lineup expansion of five national feeds. You can see here on the visual, the advantage of having the capability, such as for the US Tennis Open -- five different matches at the same time.

We extended our distribution agreement with HBO to 2018. You've begun to hear, we will be launching a new streaming service with HBO content and other Bell Media content. It will be a streaming service, but with authentication to TV.

We think it is a fast and better way to monetize this investment by leveraging the excellent distributions the BDUs have in Canada, and is a very cost-effective way to get to all Canadians as quickly as possible. So as you hopefully saw yesterday, Telus has signed up and agreed to distribute this product. We anticipate, because of the strength of this product, every BDU in the country will have an interest in the distribution of this as we roll it out. It will be a streaming service, but with authentication, leveraging the strength of the BDUs in the country.

Also I want to remind investors, we did finish the divestiture of the Astral assets. We did well on the sale of the 10 times EBITDA multiple and CAD766 million in proceeds, including dividends.

Our revenue mix continues to improve, as growth services were up CAD163 million in the quarter or 4.1% year over year. As a result of our strong results in the first three quarters, we now expect for the third consecutive year double-digit wireless EBITDA growth. And that will lead the industry for the third consecutive year in EBITDA growth.

Finally, we expect the combined wireline business of Bell Aliant and Bell Canada to generate positive EBITDA growth going forward through into 2015.

With that, let me turn it over to Siim.

Thanks, George.

Good morning to everyone on the call.

I will begin on slide 11. The third quarter was a very strong quarter for us, with positive trends that I think position us well for the end of the year and for 2015. Service revenue growth at Bell was 2.2% this quarter. That was driven by growth services, which increased 3.7% year over year. This was led by our Wireless segment, which saw an acceleration in revenue growth. Wireline residential services also saw a fourth consecutive quarter of positive revenue growth. Bell Media revenues were stable year over year.

Bell's consolidated adjusted EBITDA increased 3.4% this quarter, with a 60-basis-point improvement in margin to 39%. Higher adjusted EBITDA drove 10.7% growth in adjusted EPS to CAD0.83 per share from CAD0.75 per share in the third quarter of 2013. And an 11.6% increase in free cash flow, which grew to CAD834 million this quarter. Our statutory EPS for the quarter was CAD0.77 per share, up CAD0.33 over last year. That year-over-year increase was due to the charge we recorded in the third quarter last year for CRTC benefits incurred on the Astral acquisition.

Lastly, and consistent with our plan for the second half of the year, capital spending accelerated this quarter as we rolled out fibre to more homes and businesses. We expanded our Fibe TV reach, increased our wireless LTE network speeds by up to 45%, and deployed 4G broadband's mobile services to more rural communities and small towns across Canada. Overall, we believe our performance this quarter puts us in a great position for the fourth quarter and provides a very strong foundation for sustained growth in 2015.

I will now turn to some of the financial highlights for each of our operating segments.

Starting in our Wireless segment, service revenue growth increased to 7%, driven by a greater mix of postpaid subscribers in our customer mix; strong data revenue growth; and pricing discipline. Data revenues grew 24% this quarter. This, combined with increased smartphone penetration and higher rate plans, resulted in 5.9% increase in our blended ARPU, which is our strongest ARPU growth rate in more than seven years. A key highlight of the quarter was Wireless adjusted EBITDA, which increased 10.9% yielding a revenue flow-through to adjusted EBITDA of 70%.

Wireless posted a strong 1.6 percentage point improvement in service margin to 46.6%. I think that underscores our disciplined focus on profitable postpaid subscriber acquisition and retention spending. With this performance, we have now led the industry in wireless adjusted EBITDA growth in 11 out of the past 12 quarters. Lastly, Wireless adjusted EBITDA less CapEx provided a strong contribution to overall free cash flow, increasing just under 10%. As we head into the seasonally important fourth quarter, our Wireless momentum remains very strong.

Moving to the Wireline segment on slide 13, we've seen steady improvement throughout the course of the year. This quarter, we achieved a bit of a milestone, I would say, in delivering positive overall Wireline service revenue growth; positive adjusted EBITDA growth; and, as George covered, positive residential RGU growth. Residential Wireline revenue growth of 3.4% was fueled by higher ARPU across our consumer services. TV and Internet combined delivered 7.5% higher revenues year over year, while the decline in voice revenues continues to slow with fewer residential NAS line losses over last year.

In Business Wireline, the rate of year-over-year revenue and EBITDA decline in the third quarter was stable compared to the previous quarters. With our improved mix of Wireline growth services, wireline adjusted EBITDA increased 1%. Adjusted EBITDA margin in wireline improved 60 basis points to bring our wireline margin to 37.8%. The margin improvement also reflects lower year-over-year product sales, which are low margin. For the fourth quarter, we expect our Wireline segment to continue to show year-over-year improvement, delivering positive overall revenue and adjusted EBITDA growth

Turning to slide 14, Bell Media revenues in the third quarter were largely flat year over year. Astral is now fully reflected in Bell Media year-over-year results. Subscriber revenues were down 4.4% on specialty TV rate increases and higher revenue generated -- sorry, subscriber revenues were up 4.4%. As I was about to say, that was on specialty TV rate increases and higher revenue generated from our new TV Everywhere GO products. As advertising revenues that were down 3.5% in the quarter as a result of declines in conventional and sports specialty TV.

The advertising market remains soft across the industry. Advertising demand in the third quarter was additionally impacted by spending directed to the broadcast of World Cup Soccer. I would note that the rate of Bell Media's advertising revenue declined did improve sequentially in the third quarter over the second quarter of 2014, reflecting the strength of CTV's programming lineup for the current season and higher average viewership levels.

Bell Media adjusted EBITDA was down 8.5% in the third quarter, due to the higher sports broadcast rights costs, again in line with our expectations. We expect that increased content costs for sports broadcasting and the continued soft advertising market will continue to pressure Bell Media's performance in the fourth quarter.

On adjusted EPS, on slide 17, we provided the key components of that. Adjusted EPS was CAD0.83 per share this quarter, up 10.7% year over year. Higher EBITDA drove CAD0.06 of EPS growth this quarter. Depreciation and amortization expense for the quarter increased CAD0.01 over last year on a higher depreciable capital asset base. Net interest expense decreased year over year, reflecting the early redemption of our Series M20 debentures and a lower overall average cost of debt for Bell.

I'm pleased to say that with the recent issuance of CAD1.25 billion in 7-year and 30-year Bell debentures, which we did in the quarter, our average after-tax cost of debt has now decreased to 3.4%, with an average term to maturity of about ten years.

We also recognized a mark-to-market loss, totaling CAD0.02 per share this quarter, on equity derivative contracts resulting from a decrease in BCE's public share price at the end of the quarter. This was offset by a CAD0.02 foreign exchange gain on currency hedges, which we entered into to manage the financial exposure on our US dollar capital expenditures.

Lastly, tax adjustments contributed CAD0.02 of the EPS in the quarter. That's the same amount as in the third quarter of 2013. It resulted in an effective tax rate of 25.5% versus our statutory tax rate of about 26.5% for 2014. I would say that there are no further tax adjustments that we are anticipating for the fourth quarter.

Let's turn to cash flow. Free cash flow generation of CAD834 million in the quarter was up 11.6% year over year, again, on track with our plan. This reflected adjusted EBITDA growth and an improvement in our working capital position, offset partly by higher planned capital spending, as I discussed, and increased cash taxes consistent with our guidance assumptions. Cash interest payments were lower due, as I mentioned, to the early debt retention and our lower cost of debt. We ended the quarter with over CAD1.4 billion of cash on the balance sheet, which included the proceeds of our recent debt offering. We continue to maintain significant financial flexibility with access to an additional CAD3 billion of committed lines of liquidity.

As George said, the Bell Aliant privatization was completed at the end of October. You will have seen that on October 20, we initiated a debt exchange offer to the holders of Bell Aliant notes for the exchange of those notes for an equivalent principal amount of new notes, which would be issued by Bell Canada. The proposed note exchange is part of BCE's objective to achieve a simplified capital structure and to enhance the administrative efficiencies by concentrating all our public debt into Bell as the single issuer. Bell Aliant bondholders meetings are scheduled for November 14 to vote on those note exchange offers.

In closing, we have now seen three quarters of good growth in consolidated financial performance. We are tracking to deliver on all the guidance targets that we provided for the full 2014 year. There are no fundamental changes in our outlook. We remain competitively well-positioned. Our performance momentum is growing in our Wireless and Wireline segments as we enter the fourth quarter.

We expect no impact to 2014 financial guidance from the Bell Aliant privatization. With the full ownership of Bell Aliant as of November 1, BCE's free cash flow will include 100% of Bell Aliant's free cash flow rather than the cash dividend that we would otherwise have received from Bell Aliant. That's difference is very nominal.

There will be no changes to our segmented reporting for the fourth quarter. But starting in the first quarter of 2015, we will begin to reflect Bell Aliant's operating results within our respective Wireline and Wireless segments. Accordingly, Bell Aliant will cease to be a standalone reporting segment of BCE. And we expect Bell Aliant to become accretive to our earnings and free cash flow in 2015, which will support BCE's strategic imperatives and our dividend growth model.

On slide 18, you should note that with the Bell Aliant privatization transaction now completed, the non-controlling interest of BCE is expected to be approximately CAD60 million lower for the full year, reflecting our 100% ownership of Bell Aliant. As well though, the average number of outstanding BCE common shares for 2014 will increase to approximately 794 million shares, due to the issuance of 61 million new BCE common shares as part of the consideration on the Bell Aliant privatization. Those are really offsetting impacts. As a result, our adjusted EPS guidance range for 2014 remains unchanged.

With that, I will turn the call back over to Thane and the operator to begin the Q&A part of the call.

Thanks, Siim.

We are ready to begin the Q&A session. Wayne, could you explain the polling instructions to the participants?

(Operator Instructions)

Phillip Huang, Barclays Capital.

Congrats on the solid results.

I have, first question on wireline. So with EBITDA turning the corner this quarter and margin expanding again, what would be a sustainable long-term assumption for wireline margins, particularly as we take the added scale from Bell Aliant into consideration now?

Then second question on wireless, was wondering if you guys could provide us any stats on the percentage of your postpaid subscribers that are now on LTE? Whether there are any stats that you might have on data usage for LTE versus non-LTE subscribers? I'm just trying to assess the average lift ARPU from the move towards LTE. Thanks.

Yes. Happy to do that.

Let me deal with the LTE first of all. About 40% of our postpaid base is currently on LTE. So that's the first.

In terms of usage, I mentioned, we're seeing about a 52% increase in customers who migrate from HSPA to LTE. I think we are seeing about 1.4 gigabits of data per month versus 923 megabits is what we were seeing on HSPA. But you can see the math there.

I think about roughly about 35% of the traffic is video, on our LTE data traffic. So what that is doing is it's driving increased usage. So it's not pricing in Canada that's moving ARPU, it's just -- it's obviously the products do more than they did before. That's what's driving the ARPU.

On the wireline side, our margin will expand next year because of the integration of Bell Aliant and Bell wireline business. But what would probably prefer to do is when we come back to guidance, there will probably be some implied margin in that for you to be able to take a look at.

But I don't want to quote a number in order to see this morning until we get the two companies together and come back next year with that. But other than to say that clearly with the synergies and some momentum, we are comfortable talking about having positive EBITDA in wireline next year. The range of that number, we'll come back to in February.

Got it. Yes.

Fair to say that the -- so it sounds like there is potential upside to the CAD100 million target in terms of synergies to Bell Aliant, is that fair?

There won't be downside to it.

Okay. Thanks very much.

Richard Choe, JPMorgan.

Just a follow-up on that question. Are you seeing any significant ARPU pull-through when you see the customers go from HSPA to LTE?

Then also, in terms of service revenue accelerating in the quarter, fourth quarter last year, it looks like it's an easy comp, could we say accelerate through this year? What could we expect going forward?

Yes, so I want to be careful on guidance. We are really obviously pleased with the quarter.

We are clearly seeing by those usage datas, assuming that the products are priced equivalent HSPA/LTE, we're clearly seeing a higher ARPU. Now, in fairness of that as the analysts would know, the early adopters of the newest technology can also sometimes be the heaviest users. So as the entire base migrates, you probably wouldn't see that pace of growth.

But having said that, with the enhanced speed on LTE and the quality of video, which quite frankly is almost unbelievable in terms of the quality you're seeing that people can get, I think we are going to see the increased usage. So we have seen ARPU improve year over year. We would expect an improvement again in Q4 over last year's Q4.

But we will wait for 2015, when we give guidance.

Great. Thank you.

Dvai Ghose, Canaccord Genuity.

George, lots of positives in the quarter. Let me talk about the one you highlighted, which is a really strong broadband growth. If you look across the board, your broadband net additions were up 39%. Quebecor's were up 31%. Telus is up 16%. Bell Aliant's are up 27%.

What is driving all this massive growth? Because I thought this was a relatively highly penetrated segment?

Yes. It's actually -- I'll comment on a couple things. Clearly, we're seeing when we pull customers through on Fibe TV, as is our Bell Aliant, when they get a customer on their fiber TV product, we get a pull-through of Internet. That's been the strategy. So from our perspective, I think you will see that we probably move the market share needle in our quarter in all of our regions.

I would say, the results this morning and the problems in Quebec between ourselves and Videotron, I think does show there must be clearly some strong growth overall. And in the TV business, something tells me we may see a segment -- where there is some cord shaving everywhere. There is some cord cutting, probably much less cord cutting in the Province of Quebec, maybe that's what's driving the combined RGU numbers for the companies.

But on the broadband, I think in our case, the numbers should show some market share, I think, Dvai.

Yes. I was wondering if you have an estimate because clearly, it would appear that you gained market share from Rogers the [gain by core] numbers were strong as you alluded to but then Rogers, I think they were quite flat in terms of their Internet additions. Do you have any market share estimate?

No other than to say that we are as pleased with Quebec's results as we are in Ontario. Of course, we compete with more than one carrier than those two carriers in footprint. There's a third one as well that we compete with.

This morning's numbers on the two make us feel better about the whole Province of Quebec quite frankly. Because we probably would've thought with our results, they might have been a little different so clearly there is some additive on household growth going on in the Province.

That's fair. One last one on the same topic, if I may. The CRTC is about to launch its third review of the fall, which is on broadband. Are you expecting anything meaningful there? I find it interesting that some of your cable competitors want cost-based access to your wireless networks. Do think they will have to offer cost-based access to their broadband network?

The hearing is coming up. It's a wholesale review on the wireline side. The position on that is in a number of other geographies around the world, when people have taken shareholders capholder risk and built fibre right to the home. That network of course has been proprietary for the network company that's invested the shareholders money in that.

So at the hearing, the discussion will be whether or not wholesale access to fibre to the home is on the agenda or not. Our position will be very clear that if other people want to build fibre to the home to go right ahead, but we're clearly building our network for our customers and our shareholders. That will be our position.

That's consistent with the regulatory regime in the US. We're going to look for, hopefully, to see that as a consistent regulatory regime in Canada when we build fibre to homes.

Thanks a lot. I appreciate it.

Jeff Fan, Scotiabank.

Again good quarter.

A couple of questions. One on the wireline and again follow through on the broadband.

George, you mentioned really good attach rates from Fibe TV on to the Internet. I'm just wondering, looking ahead, do you think Fibe TV is really fundamental to pulling through the Fibe Internet or is there a point in time, where you think the Fibe Internet service can standalone to still continue to show that kind of share gain?

Then the second question is on wireless CapEx intensity. You guys are doing a really good job of really just managing that at 10% CapEx intensity year to date. You partner is seeing a bit of a CapEx intensity increase. Part of it may be due to wireless.

I'm just wondering, is there anything that you can talk about structurally in the network sharing deal, why your partner is seeing an increase? Is it the relative spectrum contribution you bring to the sharing? Is there anything that you think you're doing differently that can help us understand why that may be different? Thanks.

Yes, okay. Let me answer the second one first. So I've got to go back a little bit more. The first one was on broadband.

So on the wireless side, I don't want to comment on our competitor's CapEx, other than that I would say, our footprint growth that we are building up nationally is -- got a proportionally higher rural component for 700 where as our -- the network we utilize has been ahead on that build because it's done more urban with some different spectrum in order to access for LTE aggregation.

So I would expect that to normalize out is what I expect. We've normally talked about 10% to 12% capital intensity. Our goal next year is to finish all the rural markets as we can with 700.

So I would anticipate you might see a bump in ours; although, we'll keep our overall comparable intensity in line with what the street expects. I can't comment on the other carrier other than that maybe the difference on that one. I'm sorry, the first question was?

Yes, on our strategy. Our strategy will be to continue to execute the IPTV footprint to as much of the geography as we can afford to do. Then continue to move closer and closer to the home with fibre with significant amount of fibre overlay where we have aerial plant and continue to execute on that basis.

We think the Internet product stands on its own. But it's very clear that our TV product is a leader in the marketplace differentiated. What customers expect from an IP application and with the products we're going to roll-out on the streaming side, combined with it, we're going to continue to compete aggressively for both the video and the broadband customer. But we think it continues to be attached.

Okay, thanks

Greg MacDonald, Macquarie Capital.

We've seen a number of players in the industry, some in the US, some in Canada, show weaker industry results for TV advertising on the media side. Your Media seems fine on the revenue line, flattish year over year.

I'm wondering if you could give us a little more detail on whether this is a tale of a stronger TSN relative to the CTV and specialty channels in terms of add trends. Or is it relatively evenly based? Are you bucking the trend or are you not, I guess is what I'm trying to get at?

We know we are taking share. We know -- I think we think part of it was clearly the strong fall lineup we've had on CTV, where for the first time in 10 years all top-five shows that Canadians are viewing are on our network. The viewership numbers were high.

So if Kevin were here with me, he would tell you that the add market is not an easy market. We are taking market share. The challenge for us in the media business into 2015, we think probably is driven more by the content costs that we've seen rise on the sports side. And also for our shareholders on the line and the investors, we've made a strategic decision to invest in the HBO library from a streaming perspective.

That is a conscious strategic investment we will make, which will have an impact on the immediate business' EBITDA next year. But absolutely it was the right thing to do strategically because it's what Canadians are telling us they want to view and how they want to view. We want to adjust to that model. So we are making an investment in that content side. That revenue will of course take a while to generate. It's one of the reasons we strategically have made the decision to distribute it through the BDUs because of their excellent access to customers and the speed at which we think they can roll out that product effectively, in Canada

Can I ask a quick follow-on, George?

There is a lot of debate right now on whether we are actually seeing a material shift of ad spending toward digital or not. I can appreciate the share gains that you've made but CTV in particular is a product where you get new product every year, right?

Are you seeing that shift in ad spend? Is that a risk for you or do not consider that a big risk yet?

No. We definitely -- digital spend or ad spend shift in our industry, even within Bell we have ad spend shift. But it was certainly not material in the quarter. But in a business that is trying to grow and highly competitive, a point or one point can clearly impact. So that will continue to be headwind.

Our job is to try to monetize digital revenue now in the ad space through our media assets. That's some of the key things that Kevin Crull, our President of Bell Media's focused on and across the multiple platforms and screens as we go forward.

Okay. Thanks a lot.

Maher Yaghi, Desjardins.

Very nice results guys.

I wanted to ask you, over the last two or three years, we've seen TV additions surpass those of Internet additions and that reverted this quarter. I was wondering if there were any one time -- you mentioned the wholesale additions happening, helping you in the quarter on the Internet side.

But can you quantify that and discuss a little bit what caused that change in trajectory? Because I always thought that TV was really where the selling point is with Fibe TV and Internet was an add-on.

Yes. You got to remember, we did 62,000 Fibe TV net adds and 50,000 Internet adds. So Fibe still pulled through. But our net TV numbers of course are impacted by the satellite reduction that we're seeing. The migrations to satellite to our IPTV continue to do about 15% to 18% of our net adds are coming off of our own satellite business.

We are seeing and will have more clarity on that when we put Bell and Bell Aliant together. How much of the 14,000 or so IPTV subs that Bell Aliant added in the quarter, were migrated from satellite? We'll be able to share some of that next year.

So that's why you've seen the difference in the two numbers. But if you just pull out satellite, Fibe TV did outgrew Internet net adds.

Just a follow-up on that, when you look at the success you are having on Internet side with Fibe, do you feel you could be well helped by maybe increasing the penetration or the deployment to fibre? Are there potential to, operationally I mean, not financially but operationally could you deploy fibre faster in your marketplace so that you can garner more of that market share gain that you are having right now in more areas of your territory?

Yes. Absolutely.

One of the reasons for the consolidation of Bell Aliant and Bell and Karen's -- in the results we've seen. We'll talk about it in 2015. But investors can expect us to accelerate fibre, the pace of fibre, in our Ontario Quebec, footprints particularly we have strong area plant. The economics are compelling.

We'll do that all within our CapEx window next year the same consistent [C to I] that you've seen us run on the last five, six years. So we'll get into guidance but I also want to make sure that I say that, we don't have people going, oh, there's a big capital number next year that isn't in our numbers and it is.

But part of that is -- Bell Aliant had finished its fibre build. So they are really doing a demand capital expenditures next year based on subscriber. So we can reallocate that capital and deploy it in Ontario and Quebec for fibre given that they have matured out on their fibre footprint.

So yes, we think accelerating that -- we see it in the recent report where even on the OTT side, the largest OTT provider in the world ranked our broadband network the best in the country. We think that's driving some market share.

That is helpful. Just one last question on the margins in wireline.

You said that beat your expectation on the quarter in terms of growth. Is there any again one-time items there that helped on the EBITDA line? How sustainable is that sequentially going into the fourth quarter?

Yes. So there's nothing in the quarter that was one-time at all. As we mentioned in the fourth quarter, we anticipate positive wireline EBITDA growth. But also caution investors, we've also guidance towards our guidance for the year. So that analysts will -- can take our guidance, know we'll be in that range, know that wireline will be positive.

We say we expect wireless for the year to be double digit and that media will be challenged with the content price increases.

Thank you.

Drew McReynolds, RBC Capital Markets

Again, congrats on a great quarter.

Two questions for me, George. First, just with respect to the issue of wireless industry activity, we've seen better net adds from you and Telus this quarter. Could be at the expense of Rogers of course, but now we've got the iPhone and a couple of iconic devices back into the market. Just wondering if you've seen any uptick in industry activity? Or is it too early just given where we are relative to Christmas?

The second question big picture with respect to TV Everywhere. We've seen obviously a couple of OTT standalone services be launched. It's great to see your new streaming service to be launched. But it sounds like that will be part of TV Everywhere.

I'm just wondering if the industry overall is still on the same page with respect to TV Everywhere and in protecting the current TV ecosystem? Or are we seeing a little bit of splintering in terms of strategy here?

Yes. I'll let people assess strategy and I'll come back to that.

On the wireless side, I think we do have new handsets for the quarter. I think gross adds for the industry, people on the line will know better than I do, but I think on postpaid, they were a little better than what we've seen in the previous quarters. I think part of that is the new handsets. I think we'll see some of that -- we'll have to see in the fourth quarter how it evolves.

It's too early yet on the fourth quarter at all to have a feel for that. Activities -- competitive intensity is always high, so that hasn't slowed at all in the marketplace. Hopefully, those new devices will help create some momentum in the fourth quarter, but it's too early to tell.

On our new streaming service, it will be available over the top, but it will be available with authentication. Because our plan at the moment is not go around our division partners. As I said, there are competitors on one side, but there are excellent distributors on another. We think it's a very quick way to get to the marketplace. The product will be unfolded shortly. People will see a content that we believe Canadians will really want.

What we're learning is, the way people view content is changing. Which pipe it's over, in the end, should be irrelevant. So we're going to leverage the assets that our BDU distributors have and put this product in the marketplace that way. You'll have to let other competitors respond to how they're going to pursue the marketplace. But we think it's core to what we still want to do.

We're seeing TV growth in our Company. Those are big TV numbers between ourselves and Bell Aliant in the quarter, at 75,000 TV customers. So across the country, with the right product, Canadians are buying TV services at numbers we have never seen before.

Okay. Thanks, George. Maybe just a very quick one for Siim.

Could you just update us whether you see any issue just on the pension solvency just for the backup and bond yields year to date? Just as you look into next year and maybe a better answer or better question for Glenn, but as you look at your priority uses of free cash flow, you'll clearly paydown some debt but just thoughts on an eventual return to a buyback? Any thoughts there? Thanks.

It's a timely question because we have continued to see interest rates, discount rates decline through the course of this year. I'd say that with regard to the Bell Canada defined benefit plans, we continue to be in a very healthy solvency position, over 90%.

With the acquisition of Bell Aliant, we also have to consider the valuation position of their plans. Bell Aliant has relied significantly on letters of credit for their funding. We do think that is inefficient, so we are giving some consideration to making a further voluntary advance contribution, before the end of the year. We haven't made any decision on that.

If we do, it would be principally directed, as I say, towards bolstering the valuation of Bell Aliant's plans. It certainly would not be of the magnitude of the special contributions that we've made in the past to the Bell Canada plans.

Then with respect to normal course issuer bid, that is not something that we are contemplating now. As you know, with the privatization of Bell Aliant, our leverage ratio is slightly above the top end of the range that we would like to be -- that we would like to see it in; therefore, our focus at least for the next little while is going to be towards seeing our leverage ratio come down. Once that happens, we will turn our attention to opportunities for issuer bids again.

Thanks very much. I appreciate it.

Tim Casey, BMO.

George, can you talk a little bit about what's going on in the wireless market? There's obviously been leadership changes at your competitors. I guess what I'm asking is, how much of the gains do think are market-driven? How much do you think is reflective of your outperformance?

On your imminent OTT product, do you think of that more as a growth initiative? Or more of as a defensive initiative to protect your core businesses, including the bundle and your media rights? Thanks.

On the OTT side, we think it's a customer demand issue. We think customers are asking to view media content in a different way. We're going to address that with a product that we're absolutely convinced will be, frankly, world leading in terms of the type of content that will be available and meet the requirements that Canadians have.

So at the first though, it's an investment in the beginning. If we're -- our instinct are right, it's going to be a product that people want from a consumption perspective. Ultimately, we're doing it to obviously drive the financials.

Strategically though, we think it will enhance the TV product of all of the BDUs in the country. Also for those who want to stream the products over the top, they will have the capability to do that. But with a subscription obviously to a TV overall service.

On the wireless side, from our perspective, it's really our focus on distribution and network. The significant improvements we've seen in our service metrics on the wireless side in the cost, so it's a competitive game. From our perspective, we just continue to drive our own execution and let other people's results speak for themselves.

Thank you.

Glen Campbell, Bank of America Merrill Lynch.

I wanted to revisit the two big positives on the quarter in terms of operating metrics; the strength in wireless particularly the data and then the broadband connection. So on the wireless, George, I'm thinking about customers who are getting LTE's handsets. They may be asked to step-up to a new plan with a bigger bucket.

They might be going on to shared plans, both of which would give them more data to use. They've now got a better network to use video.

As you look at your customer base, do think it's just demand driven in terms of, let's say, the ability is video? Or can we attribute some of this growth to the fact that these customers with LTE devices are probably on plans that make it essentially zero incremental costs beyond their bucket? Do you have a sense of what's driving it there?

Yes, use is number one, without a doubt. Because the stats are -- we just revealed them this morning in terms of the differences we're seeing. I'm assuming the other carriers in Canada are seeing that. Secondly, I don't want to dismiss the movement from the three to the two-year contract.

Of course, it had an impact and having to recover some of that impact of subsidizing the phone over two years instead of over three years. Because the subsidy amount stayed the same. So as a result, there has certainly been more pricing discipline in our organization around making sure as customers upgrade to shorter term contracts, we've got to recover that subsidy in 24 months instead of 36. So, clearly, that's part of it as well in the marketplace.

But when we look at it, the proportion of it is the usage. Then finally, if you look at our strategy the last six or seven years, there was a time not many years ago where we were not getting necessarily the leading customer base because our handset lineup and network wasn't where it is today. We think we are now competing head-to-head with the other competitors head-on and customers are choosing who are heavy users to migrate back to Bell. We think that's having an impact on our usage as well.

Okay, thanks.

Those very strong broadband net adds. Are you seeing a shift in terms of demand, so that you are now getting traction in the small business segment? In other words, is some of the strength here because of stronger net adds there? Or is this almost entirely coming on the residential side?

I would say, our SMB business has been stable this year. But this is clearly being driven by the Fibe TV pull-through.

Okay. Great. Thanks very much.

Thanks, Glen.

Vince Valentini, TD Securities.

Sticking with the wireless ARPU, which obviously is very impressive. Can you talk about how many of the customers have switched over to the two-year plans that may have seen a bit of a rate bump? Or alternatively, how many of your customers are still on three-year plans?

I just don't have it at our fingertips. It's probably somewhere between 35% and 45% would have converted to the two-year plan. But that is a really rough number. Thane's certainly happy to have a conversation with you after, it's not a -- it's just not a number that's at our fingertips.

No problem.

But clearly that is part of what's driving it as well.

I think geography focus for us. As you know, we were stronger historically in the Province of Quebec and also on the East Coast in Bell Aliant footprint. As people know, we've been trying to execute better in Western Canada. There are some economic -- strong economics there as people know. Probably, there's a little bit of share there, we're clearly moving the needle against one of our larger competitors. That's helping.

You just preempted by part b question there, George. Maybe I'll elaborate a little bit on it.

You've been talking about that indexing of your customer base for some time. Now, we can -- you had more prepaid a few years ago. You had maybe less exposure in the corporate market and certainly the regional disparity.

Your ARPU now is ahead of Rogers. The gap with Telus is pretty narrow now. Do think that reindexing is largely played out? Or do you still think there's more catch-up for your -- for Bell?

More catch-up to do.

We continue to work at -- particularly, as I said, outside of Quebec, we're finding a highly competitive marketplace. East Coast, we're fine. But that's where we've had strong market share. So our focus for us to move the market share needle has to be almost exactly the opposite of probably what some of our other competitors are trying to do against us.

It just happens to be proportionately -- the higher ARPU markets are the ones where we need to proportionately focus more. We continue to. It's not dramatic moves, but as the analysts would know, if you move that just slightly, it does help on the accretion of ARPU.

Okay. Thanks.

Rob Goff, Euro Pacific.

It would be a further question on the wireless. Could you talk to the adoption into your view of big bucket shared data plans on wireless? What that is doing for yourself in the marketplace?

Rob, I apologize. I don't really have something at my fingertips on that. I know in the marketplace, we've had to be competitive with that, particularly as people start to move towards some of the shared plans. But you know what? I apologize, I don't have a lot of color I can give you on that, top of head.

Okay. Thanks, George. Perhaps, if I may then, are tablets becoming a bit of a factor in Canada, catching up to the US?

Very small still. There are some small installment plans that you're seeing in Canada. I think we're all trying to figure out, okay, can we make that happen? Migrate some additional usage with the LTE pads? So there's a little bit in the marketplace. But clearly not at the scale of some of what we're seeing out of the US.

Okay, that's great. Thank you very much. Good color.

Thanks, Rob.

Great. Thank you so much this morning for your participation. I will be available for any follow-ups and clarifications throughout the day. So thanks again. Have a good weekend.

Thank you. That concludes today's conference call. Please disconnect your lines at this time. We thank you for your participation.