BCE Inc (BCE) 2015 Q2 法說會逐字稿

(Operator Instructions) Good morning, ladies and gentlemen. Welcome to BCE's second-quarter 2015 results conference call. I would now like to turn the meeting over to Mr. Thane Fotopoulos, please go ahead.

Thank you Wayne, and good morning to all on the call this morning. With me here today are George Cope, Bell's President and CEO; and Glen LeBlanc, who's participating in his inaugural call as CFO of BCE. So a very warm welcome to Glen.

As a reminder, our Q2 earnings release, supplementary financial information and slide presentation are available on our Corporate BCE website. A replay and transcript will also be available on our website later today or tomorrow.

However before we get started, I would like to draw your attention to our Safe Harbor statement on slide 2. Information in this presentation and remarks made by both Glen and George will contain statements about expected future events and financial results that are forward-looking and therefore subject to risks and uncertainties. The results may differ materially.

These forward-looking statements represent our expectations as of today and accordingly are subject to change. We disclaim any obligation to update forward-looking statements except as required by law. A discussion of these factors that may affect future results is contained in BCE's filings with both the Canadian Securities Commission and the SEC and are also available on our Corporate website. So with that, over to George.

Good morning everyone. Thank you for joining us this morning. I am on slide 4 to begin the presentation.

The Company produced a solid quarter across the board, with all three divisions driving positive-EBITDA growth for a combined-EBITDA growth of 2.5% in the quarter. The excellent Wireless execution continued with 10% revenue growth year over year and 5.3% EBITDA growth. We completed our fourth consecutive quarter of positive Wireline adjusted EBITDA growth and expect this will continue going forward.

Our Broadband market share grew for the sixth straight quarter with 69,000 Internet and IPTV net ads. Bell Media enjoyed excellent execution in what I would describe as a tricky environment, producing 2.4% EBITDA growth in the quarter.

As I think everyone knows, in late June we announced the buildout of Bell Gigabit Fibe to 1.1 million locations in Toronto. And today I am pleased to announce that Bell will launch Gigabit Fibe service to 1.3 million homes in Ontario and Quebec this coming Monday, in the Atlantic region by the end of September and will be available to 2.2 million homes by the end of 2015. More on that in the presentation.

Turning now to Wireless results, we had a strong quarter gross sales up in the quarter, driving 61,000 net adds. We again took market share from the largest wireless carrier in the country so really pleased with the results given it's the first part or first month we had a double cohort. Also we were able to do that and continue to be the value leader in the industry with an ARPU growth of 5.3% while growing market share in the segment.

Cost of acquisition was up year over year, really for two reasons: higher mix of postpaid gross adds versus prepaid, and there is no doubt it was an aggressive last few weeks of the quarter as some of the marketing that took place in the last few weeks drove up some cost of acquisitions. Retention spending increased to 12.9% as a result of investment in the double cohort, and we saw that near the last part of June.

And also just to highlight the quarter for us, recent survey by J.D. Power, Bell was cited as the most improved on the national carriers from a full-service perspective. I'm particularly proud of our flanker brand Virgin which was ranked as the number 1 service brand nationally in Canada ahead of both Telus, Koodo, Fido and Rogers. Great progress on our imperative of customer-service improvements.

Turning to Wireline, we added 19,000 Internet net adds, up 1,000 year over year. But importantly now that our competitors have reported about a 90% market share in the quarter, driven really through the continued growth of IPTV with 50,000 additional subs and to remind investors we sell IPTV with an Internet subscription as well.

Also importantly, we're seeing about 75% of our IPTV activations taking a triple, which of course is still significant given the amount of wireless substitution we see. The triple ARPU that we're seeing off of that base, I looked at it last night, just in the quarter was north of CAD150. So clearly when we get a triple customer base, that is a pretty significant customer for so us and really being pulled through our strategy on IPTV.

Turning to slide 7, a couple comments on the Toronto announcement on June 25. We announced a CAD1.14 billion capital program. It will be an overlay of our FTTN network in Toronto to provide a Gigabit Fibe service to 1.1 million homes and businesses.

That will be completed by the end of 2017, so it is a two- to three-year project. What we did I think quite strategically is entered into a long-term agreement with Toronto Hydro for access to their poles. And that took what would have been a 50/50 varied versus arial project to be 70% arial, probably saved us north of CAD200 million of capital and also increased the speed-to-market with the buildout.

Turning to slide 8, as I mentioned in my opening, we will actually launch Bell Gigabit Fibe service on next Monday, 1.3 million homes in Ontario and Quebec on August 10, in the Atlantic region by the end of September. You can see on the map where the footprint will be in terms of geographically by province, and of course the Ontario footprint will grow dramatically over the next couple of years as we begin that buildout.

Overall when we end the year, about 30% of our footprint will have FTTP services. The remaining as you can see on the 79 FTT, and of course we saw a footprint that we've not covered with either. And the footprint will continue to expand as well the overlay of our FTT and be FTT to the premises.

On the Bell Media side, I mentioned we delivered positive EBITDA in the quarter. CTV did complete certainly its best season ever, having 15 of the top 20 programs. TSN did we think quite well certainly given it's first time we have not had the hockey playoffs and did very well with the FIFA Women's World Cup.

I think the most strategic thing for us in the quarter is the announcement that we will be taking Crave direct to consumers on January 1. We currently market to about 3.5 million homes through ourselves and some other TV providers. After seven months, we have approximately 730,000 customers.

But by going over the top, of course we will be able to pursue 11 million households, and really that strategy follows a result of a recent CRTC decision allowing us to have CraveTV operate exclusively in our IPTV footprint to Bell Fibe customers and nationally launching the product OTT to everyone. So we get some product differentiation on Fibe TV and open up the CraveTV product on a national basis. And of course CraveTV has the content of both HBO and SHOWTIME and we think is going to be and has been given the subscribers we're seeing already a very competitive product and compelling for consumers.

Turning to slide 10, I think this quarter again just illustrates that our focus on our six strategic imperatives over the last eight years continues to pay off. Over 80% of our revenue now from gross services, we've been able to maintain our overall EBITDA margin even with the decline over the years of the NAS base and the customer base. It is our 39th consecutive quarter of uninterrupted year-over-year EBITDA growth.

Basically if you look at our year-to-date results and our outlook, we believe and I believe we're well positioned to continue executing our dividend growth model in 2016 within our conservative free cash flow payout ratio, about 65% to 75%. With that, let me turn it over to Glen.

Siim, I hope you're not listening. I hope you're out golfing somewhere. But if not, over to Glen.

Thanks George and good morning to everyone on the call. As Thane mentioned, this is my first BCE analyst call since taking over from Siim Vanaselja at the end of June, albeit I've worked with most of you before.

It is a real privilege and an exciting time to assume the role of CFO of this great Company. I definitely have big shoes to fill, but I look forward to living up to the high standards set by my predecessor and to continue working with all of you.

I will begin with a quick overview of Q2 consolidated financial results on slide 12. We continue to execute well across the business, posting another sound quarter of revenue, adjusted EBITDA growth and earnings profitability in line with our guidance targets for the year.

We generated top-line growth of 2% in Q2, driven by a healthy 2% year-over-year increase in service revenues. This performance was led by a strong double-digit increase at Bell Wireless and robust Wireline residential revenue growth. As expected, media revenues were lower year over year in line with industry trends.

BCE's adjusted EBITDA was up a solid 2.5% on positive, positive growth across all Bell operating segments, all of which was organic. This yielded a higher year-over-year margin of 41.3%, reflecting growing broadband scale in our Wireline business and continued good spending and price discipline across customer segments and operating efficiencies throughout the organization.

Higher EBITDA drove 6.1% growth in adjusted EPS to CAD0.87 per share from CAD0.82 last year and a strong 14.2% increase in free cash flow which grew to CAD931 million this quarter. Statutory EPS of CAD0.90 in Q2 which was up 15.4% year over year included a CAD94 million cash gain related to the sale of our 50% ownership interest in Glentel to Rogers.

Cash generated in the quarter supported significant capital expenditures of CAD914 million, which was in line with our plan. Spending was focused on connecting more homes and businesses directly to our fiber optic broadband network including the deployment of Bell Giga Fibe in the city of Toronto and the continued expansion of our 4G LTE wireless network and deployment of 700 megahertz spectrum.

I would like to add that all of this investment is being done while maintaining our capital intensity ratio outlook for the year below 17% of revenues. So overall, it was a very good financial quarter with solid results across the board.

As the new guy coming into Bell, when I take a step back, what impresses me greatly is the consistency of Bell's performance quarter after quarter. This shows the strength of the business model Bell has built focused around our six strategic imperatives. The telecom industry in Canada is marked by healthy competition and dynamic changes, and yet we have leveraged our business model to produce results consistently within our guidance targets, and this will be no different this year.

I will turn to the results for each of Bell's operating segments starting with Wireless on slide 13. Revenue growth continued to accelerate in the quarter with 10% year-over-year increase driven by higher proportion of postpaid subscribers in our customer base and strong data revenue growth of over 24%.

Increased data usage, higher rate plan pricing under two-year contracts and price discipline drove an exceptional 5.3% increase in ARPU, representing our 22nd consecutive quarter of year-over-year growth. This industry-leading ARPU growth continues to be driven by our strategic focus on high-quality subscriber loadings and data growth.

The quality and reliability of our network is essential in supporting this trend and in meeting the evolving needs our customers. And as you have seen, we continue to make significant investments in acquiring spectrum and expanding the coverage and speed of our LTE network to sustain this growth opportunity.

From a profitability perspective, Wireless EBITDA increased a solid 5.3% in Q2 generating a very healthy service revenue margin of 46.6%. This result is even more impressive given that it was achieved while absorbing CAD64 million in higher retention and acquisition costs driven by 20,000 more postpaid gross additions compared to last year and increased spending to deal with the start of the double cohort at the beginning of June.

Lastly, Wireless EBITDA less CapEx provided a healthy contribution to free cash flow, increasing 3.1% year over year. A solid result in the context of the higher retention in COA spending that drove operating cost growth of 13.7% in the quarter. As we head into the seasonally important third quarter, our wireless market momentum and financial flexibility to manage through the double cohort impact remains strong.

Turning to the Wireline segment on slide 14, service revenue growth accelerated in Q2, increasing 1.1%, up from 0.7% last quarter. This sequential improvement has -- was driven by the strong performance of our residential services division, which delivered excellent year-over-year revenue growth of 4%, reflecting continued steady growth in Fibe TV, and Internet scale together with higher revenue per household.

TV and Internet combined generated 8.4% higher year over year, and voice revenue erosion also continued to slow, reflecting fewer residential mass-line losses compared to last year. However, overall Wireline revenue growth in the quarter was moderated by our business markets results, which continue to be impacted by the repricing pressure and reduced customer spending on service solutions and data products, the latter of which declined 16% year over year. This performance is reflective of the sluggish economy and slow employment growth we're experiencing in both Central and Atlantic Canada.

While our business markets units continues to work through this tough economic cycle, it remains competitively well positioned and continues to invest in both growth and productivity measures to lower costs. Wireline adjusted EBITDA increased a solid 1% this quarter, and as George said earlier, that represented our fourth consecutive quarter of positive growth. And our Wireline margin was up 50 basis points year over year to an industry-best 41.6% supported by cost synergies from the Bell Aliant integration and ongoing customer service and operational efficiency improvements.

Lastly and perhaps most importantly, Bell Wireline delivered a strong contribution to the consolidated BCE free cash flow with a double-digit year-over-year growth of 10.3%. That provides good support to fund the continued investment in our strategic broadband fiber programs going forward.

Shifting to Bell Media on slide 15, consistent with the industry trends, media revenue decreased 2.8%. Advertising revenues were down 4.4% in Q2, impacted by general softness in the TV advertising markets, a shift in consumer spending to online services and the loss of the NHL playoff broadcast rights on our sports specialty channels TSM and RDS. This is partially offset by the revenue generated from our broadcast of the FIFA Women's World Cup soccer, which saw record audiences, and the growth in our non-sport specialty services driven by Space and Discovery TV.

Subscriber fee revenues increased 1.4% as a result of the growth in CraveTV and their expanding suite of TV Everywhere GO products. However, the financial highlight of the quarter for Bell Media was adjusted EBITDA, which increased 2.4% over last year. This was driven by a 4% -- 4.7% decrease in operating costs despite the higher cost for sports broadcast rights and our investment in CraveTV programming.

Slide 16 summarizes our adjusted EPS for Q2, which was CAD0.87 per share, or 6.1% higher than last year. A strong result reflecting healthy organic growth in adjusted EBITDA across all of our operating segments, which contributed CAD0.05 year-over-year increase to EPS. Consistent with our guidance assumptions for 2015, the depreciation and amortization expense was lower compared to last year due to an increase in the useful life of application software.

Tax recoveries amounted to CAD0.01 per share this quarter, the result of favorable settlements with CRA, which brings year-to-date tax adjustments to CAD0.04 per share. This compares to tax recoveries in 2014 of CAD0.02 in Q2 and CAD0.05 per share for the full year. At this time, we do not expect any further material tax adjustments in the second half of 2015.

Similar to the previous quarter, non-controlling interest or NCI was lower in Q2 due to BCE now owning 100% of Bell Aliant. This was offset of course by the dilutive impact from the issuance of BCE common shares on the Bell Aliant privatization. In the first half of 2015, adjusted EPS of CAD1.71 per share is 4.9% higher year over year, positioning us well to achieve our full-year 2015 guidance range of CAD3.28 to CAD3.38 per share.

Turning to slide 17, free cash flow in Q2 was CAD931 million or 14.2% higher compared to last year. This reflected higher adjusted EBITDA driven by solid organic growth across our core businesses and improvement in our working capital position and incremental contribution to free cash flow from the privatization of Bell Aliant. Cash interest payments in Q2 were higher year over year reflecting a higher level of outstanding long-term debt from Bell Aliant.

The year-over-year increases in BCE's current service pension funding and cash taxes were consistent with our full-year 2015 guidance assumptions. With year-to-date free cash flow of some CAD1.2 billion on track with plan, we see accelerated free cash flow generation in the second half of the year giving us substantial financial flexibility to support the execution of our strategic capital programs and higher dividend for 2015.

To wrap up on slide 18, we see good momentum to take us forward for the remainder of the year. With the strong set of financial results for Bell Wireless in the first half of 2015 and an outlook for continued wireless profitability, we have headroom to absorb a sustained high level of retention spend in the second half of this year without impacting overall guidance targets for the year. Our Wireline segment is expected to continue delivering positive year-over-year EBITDA growth in the back half of the year, benefiting from further TV and Internet customer expansion, ARPU flow-through and cost savings.

While we're pleased with Bell Media's overall performance in Q2, the second half of the year will continue to be challenging as a result of the higher sports rights in CraveTV content costs which have impacted results throughout the year. Given this outlook and a financial plan that is comfortably on track, I am reconfirming all of our 2015 guidance targets. On that, I will turn the call back over to Thane and the operator to begin the question and answer period.

Thanks Glenn, before we start the Q&A period, just keep the calls efficient as possible. I would ask on behalf of the Team here today that you limit yourself to one question and a brief follow up, and [to be fair] we have extra time, we will circle back and take more questions. With that Wayne, we're ready to take our first question.

(Operator Instructions)

Richard Choe, JPMorgan.

Just wanted to get an update on the double cohort, what you see in July and the start of August. Should we expect the higher level of churn and retention spend but still trying to focus on market share more than artificially benefiting margin, solid margin but more market share related?

I'm not going to comment on the next couple of months. That would be -- I'd get myself in some hot water on that, but I would simply say as the double cohort started, certainly our retention spend in the second half of the year will be higher than it was in the first half of the year just because of the math. But as Than said and Glen said, we're comfortable totally with the guidance. Our strategy continues to be to execute on a market share that we're getting higher than our proportion of postpaid, and most importantly leading on the revenue growth side in giving us the flexibility to compete in the marketplace. But we will definitely see I think a little lift in the retention spend the second half of the year, and we will be able to absorb that within the revenue growth we're seeing on wireless.

Greg MacDonald, Macquarie.

Hello to Glen. Nice to see you back in the saddle.

Thank you Greg.

Wanted to ask a question on the wireline side. We saw slight improvement in the year-over-year result for access for local and access, but a relatively large year-over-year decline in the long-distance trend. I am wondering -- I'm just assuming there's no recategorization of revenue buckets or anything going on there. Wonder if you might comment on A, what is driving the long-distance component of that, is that related to the data services comment that you made earlier and vis-a-vis the economy.

And then just an overall comment on the economic outlook. Are you seeing trends worsen, have they stabilized? We all know it is weak, but I think people are looking for some visuals on what is happening there. And if you can comment West Coast versus Ontario, Quebec, that would be helpful.

On the long-distance, there is no change in how we report. Secondly, no real change in that business. If there was anything in the quarter, our wholesale international minutes do tend to flow in and out on a quarterly basis, so that does once in a while Greg bump up and down the LD growth rates. So that is probably what took place in the quarter but nothing other than beyond that.

Turning to the economy, I think our consumer results would show -- we continue to be able to execute on that site, and we are seeing it nationally so on wireless and on the wireline side. I think we have been so transparent, probably investors are tired of hearing it from us, but where we see it the most clearly is on the B2B side. And certainly year over year the quarter was better than the quarter before in terms of that unit with us, but a lot of that is cost management as opposed to top line growth. It is very hard for me to make a comment on the economy, as it would be quite frankly not correct to say we saw impact in the quarter.

George, trends East versus West, are you seeing anything change? We all know the West is in some difficulty, but anything affecting the East Coast customers at all?

Not that we've seen, really have no -- there's something in our numbers to tell us it was economics. Clearly it will be impacted by what happens in the economy, but we certainly see no impact in these results.

Jeff Fan, Scotiabank.

My questions are on the Gigabit Fibe service. Obviously the return is important on this project. Just wondering if you can help us understand a bit about the return, and I guess more specifically on the potential incremental revenue opportunity going from fiber to the node to Gigabit Fibe and maybe the penetration longer term and maybe help us by, maybe Glen, talking a little bit about the Bell Aliant experience on penetration since those numbers are buried in the overall results now.

First of all, we're really excited about the launch of it in the marketplace on Monday and some of our footprint. It is very clear to us as we look out over the next 5, 10 years, the market is going to demand these types of speeds. So we have to start it now so that it's as broad a footprint as we possible have will be completed as those demands grow. So it is not a matter of market share. Frankly it's a matter of table stakes from our perspective, that will be the business for broadband. One of the differences certainly we're seeing in North America is Canadian telco market share gains, cable's different than other countries. And we think that is because of the hard investment we're making in our peer competitor in Western Canada to make sure Canada has the leading broadband services in the country.

In terms of what we expect and what do we see from Bell Aliant? We see lower churn and better market share in every single market where we have fiber versus where we have fiber to the node. That makes the investment for us quite frankly quite easy. I view it as a move from going from HSPA to LTE. To me, it is the next move in the wireline world. Clearly taking a long time to execute all this footprint, but there is no doubt in our mind it is the place we need to go.

We will provide a return to shareholders. Anyone that has invested with me for the last 25 years knows that is the focus of the executive team at BCE, so we will make sure that happens as we invest.

Aravinda Galappatthige, Canaccord Genuity.

George, I was wondering if you want to comment a little bit on the recent CRTC wireline decision, did that in any way affect your plans for the pacings around your FTTH rollout? Just want to get your thoughts on that.

People have seen the announcement this morning on our competitive launches in the marketplace, so I would say we clearly are disappointed in the decision. But there is much more work that still needs to be done before the decision comes into effect, and we understand all of the way the CRTC will view it.

I will say we will adjust our business model and investments as we have always done based on the incentives or the barriers put in place by the CRTC's regulatory framework. So we reflect on the decision, but we need to understand a lot further as we go forward. You've seen the announcement we made this morning to compete in the marketplace.

Thank you.

Maher Yaghi, Desjardins.

I want to follow up on the economics of the launch that you talked about this morning. In one of your recent CRTC hearings presentations, you mentioned that in Quebec City which is covered by fiber to the home, 80% of your subscribers are still taking speeds of 50 megabytes or lower, i.e. speed that you currently offer on fiber to the node. I am wondering, are these somewhat below or in line with your expectations in terms of the launch penetration rates? And what type of penetrations you need to have in terms of higher speeds for you to be able to get your money back and make the necessary return on that investment?

This is the second question, so I will try to make it clear. This investment will generate free cash flow and return for shareholders. It is undoubtable that Internet is where the Company has to go on a market share broadband basis. The consumer demand to utilize higher speeds with new technologies coming and with 12, 14 devices attached to the home through Wi-Fi as we look out makes it just so clear. And most importantly, the compelling metrics from Quebec City, from the Aliant footprint where the churn is lower, the ARPU is better, is clearly where to go.

There have been modem restrictions on speed capabilities, et cetera. In fact even when we launched the 1 gigabit service on Monday, it will say 940 because we have to wait for the next modem that takes it over 100, over the 1, so it is the exact same technology that Google has launched in the United States. We definitely are excited what it will do for us in the future from a competitive perspective, and that is why we're making the investment. There is no doubt the one thing I would say, depending on the geography in the country and subscriptions to OTT services, some markets are much heavier users of OTT services than other. So we've may have higher demands for speeds in some of the other geographies. So we will have to see that as we go out, but clearly the reason -- everywhere we have fiber, we will launch this product.

Just a follow-up in terms of the penetration rates from what we have seen so far in Canada, have you reached on average penetration rates in the 50%, 55%, which you said previously is needed to cover your returns?

I don't know when I previously said anything, so let's first of all on that. But in terms of our goal in a broadband market that has two methods of access into the home is with this type of investment, I think we should be held accountable to get to that 50% market share. And of course what we have seen in the last six quarters with the market share growth on broadband led by our IPTV strategy that is where we will continue to make that investment.

Just a quick question on wireless. We have seen an improvement somewhat in gross additions. Can you talk a little bit on what you're seeing in the marketplace in terms of wireless demand for products and where is it coming from? Which province or maybe just more color on what is driving this improved gross additions numbers.

I think we've seen it for quarter after quarter now, people have seen that our market share has been strong. It is the execution we think on the distribution side, the brand and continued improvement in our service metrics that is driving the market share. We clearly took additional share this quarter against our largest competitor on a year-over-year basis, and we're just going to continue to execute on that basis as long as we can in this highly competitive marketplace. But we're really pleased with our quarter in terms of our gross and our net additions on the postpaid side. And I think particularly because I think people can see we are doing it through assurance that our customers migrate to the LTE services and that migration is driving the incremental ARPU to underpin the investments we're making.

Drew McReynolds, RBC.

George, back to the wireline side, obviously a lot of moving parts on the revenue front. I want to focus in on the cost front, and can you provide us an update on, again, the customer service initiative efficiencies that you are seeing? And as you roll out fiber, obviously there is a huge potential cost saving opportunity with fiber. Just wondering to what extent are you already seeing those types of efficiencies and how should those ramp as you build fiber out?

It is a good question. We are in the quarter, we clearly are on track for the CAD100 million of CapEx and operating synergies for Bell Aliant this year. So that is tracking as we talked about. We're seeing because of the tools we're putting in the marketplace on our smart phones and the demographics of the marketplace, customers calling in much less to call centers and utilizing the tools we put into the market. So every quarter even as our customer base grows, we're seeing a drop in call volume into the call centers, which of course ultimately is a cost reduction for the Company. We think that will continue, we think it is core to our strategy. And it is fair to say where we have fiber, our truck rolls drop in terms of the number of what we call assurance load customer service, experiences improve, and over time, that will also we believe lower our cost of operating at the business. And we have all of those stats internally on our fiber investment of course, that is part of our rationale for the investment, but clearly on a call with our competitors we're not going to disclose those. The amount of truck rolls just drops significantly because of fiber rate when it's in the home.

Just a follow-up, George, in terms of the wireline business, when you look at those two or three big chunky moving parts to the cost structure, as opposed to just eliminating people, it sounds as if the overall business is moving to a more cost-efficient structure. Is that a fair comment, and thus is your confidence on maintaining wireline margins or growing wireline EBITDA, is that arguably getting greater with time or is it still a battle day to day?

It's both, but we would absolutely concur with your comment. We believe that the cost to delivering these services through the technology evolution to fiber and through the great work that John Watson's team is doing on the service metrics will over time take cost out of our business in the competitive market that we are in. And we clearly think that is where we had to go. And that is -- I don't want to make a forecast on margins, but our results over the last eight years is an example of our focus on margin. So we have the free cash flow to invest. We are unique in a wireline sense on North American basis that we can take the CapEx we've got and still generate the free cash flow in the wireline business to make the investment of broadband. And we think it gives us a very unique opportunity to be one of the broadband leaders in our markets, and that is where all the other plays across the world, telco versus cable. Doesn't mean we're not going to be head to head with the cable guys, but at least we know we will be playing head to head against them.

Philip Wong, Barclays.

Maybe longer term question for George. As mobile data usage continues to grow, how do you see BCE's network infrastructure evolving? Do you see greater reliance on Wi-Fi, and just given the scale of your wireline network and your investment in fiber, is there more you could do to leverage your wireline footprint to gain a competitive edge for your wireless business beyond what you are already doing?

I think first of all, there is no doubt and it is a competitive issue that we will be a little careful. But you see our competitor and us in the marketplace. Modems in the home are very important competitive element now because it is by Wi-Fi in the home and the amount of devices on the Wi-Fi services in the house. That is why we just find it so clear and obvious to us that we're going to need a larger broadband pipe to service that.

And then in terms of wireless, we think being vertically integrated into wireline and wireless business certainly helps us on our execution particularly now as the owners of Bell Aliant. The best example is we have built and -- I think at the end of this year or early next year, 95% of our cell sites will have fiber rate to the cell sites. And we need that so the bottleneck does not become the backhaul for the speed on enhanced LTE. Whether or not investors will have to view that as whether or not that is an advantage over those that don't have that vertical integration, but clearly it is making a difference on our ability to make sure our network continues to lead. And we've been doing that for a number of years to make sure we have fiber to literally every cell site.

I guess do you see any merits in like what MTS is doing with their total Internet offering? Do you think that is something that could also -- given your footprint on the fixed line side could potentially provide you a competitive edge on the wireless side?

I will not comment on products like that. We are seeing what Jay has done there, and we will follow the developments in the marketplace, but at the moment, I don't have anything on the product launch for sure.

Batya Levi, UBS Securities.

This is Chris for Batya. Could you talk a little bit about the sustainability of your ARPU growth? It has been over 5% for the past year. How should we think about this trajectory in the back half and what are the key puts and takes you are looking at?

Again, I apologize all the time, the guidance incorporates all of that. So I don't mean to -- I know you want more than that. I think the one thing we will continue to say is we're seeing customers as they migrate to LTE and every month more of our customer base migrates to LTE. Customers use the product more, and as a result we see an improvement and increase in ARPU. So that is clearly one of the pieces that is driving the increase in ARPU.

The second increase is simply because we moved to a two-year contract market versus three and the subsidy has to be recovered in 24 months, not 36 months. Airtime prices have generally moved up in concert with that a couple of years ago, so there are customers now who are migrating across the industry. And when they migrate from the three to two years, they may see a different rate than they had before. So it is really those two things, and I think both of those are still working through the system. So we would anticipate strength in our revenue continue through the year. And I don't want to give a specific forecast on ARPU because no matter what I tell you, I will be wrong.

In terms of roaming, the wireless carriers in the US have increasingly talked about creating a seamless network experience across North America where you can use your data allotments from double markets while traveling rather than purchasing add-on packages. Can you provide your opinion on this trend and what implications these programs might have for Bell?

The competitive market on roaming, we've lowered our US roaming rates by 50% over the last year and many other markets. We have lowered roaming rates and put them in packages, given notification to customers. So it is a competitive area, and we've got to make sure we're competitive in the marketplace and we believe we are. We have not repriced to the significant level some of our competitors have, and that is probably evident in our financial results. And given our market share results, clearly our customers think what we're doing now for roaming in the US is meeting the requirements.

David McFadgen, Cormark Securities.

Just a question on your free cash flow, if you look at slide 17, you've given updated or you've given the free cash flow for Q2. You continue to benefit from working capital inflows in 2014, you benefited from a fairly large working capital inflow, well over CAD300 million. I know you're looking for another large working capital inflow to make your free cash flow guidance. I was just wondering how sustainable is this? How much working capital can you keep pulling out of the business?

I would say and I will turn it over to Glen, our cash flow is -- the guidance is very transparent around that. Management of receivables and inventory continued to be a core piece of what we have done the last seven to eight years, we continue to see benefits. At some point obviously that runs its course and we have got to do it through the execution of EBITDA and cash flow growth, and you will see that when we get everyone our 2016 guidance coming up in four, five, six months from now. But clearly we're running out of some of that space because we have done so well in those management items.

As George said, you cannot do it forever, but we are very confident in the free cash flow targets we have out for 2015. The results of what we have done on AR in particular and consistently seeing our days sales outstanding come in has provided great opportunity on cash flow, and we're very confident with the targets that are out there. Your observation is a good one, you certainly cannot do that forever, but we are confident with the rest of 2015, that is for sure.

Just on wireless, I do not know if you can provide some color but just curious as to what percentage of your wireless postpaid base are free agents now?

We will not disclose that, a competitor would love to know. We will not disclose our base, but we will continue to manage the base and hopefully the track record in the wireless business the last number of years, people will feel comfortable to make the appropriate retention investment as required to deal with the issue in the market.

Just on wireless, what percentage of your postpaid base beyond would have a tablet on a postpaid plan? Is it anything material?

No, it's not material for us. It's very low. It is certainly quite different than the scale we've seen in the United States.

Rob Peters, Credit Suisse.

I'm sorry if I missed this, but I wanted to go back to when you guys look at the LTE subscribers, I think at last quarter they were roughly 52% of your subscriber base. I was wondering if there was an update on that number. And then how do you think about that penetration rate going forward given that it seems to be, you seem to be seeing a lot of increased data growth when people switch over from the HSPA to the LTE handsets?

We went from 52 last quarter to 57 this quarter. So if that were a trend that would continue, that is definitely as people migrate, we see an improvement in ARPU because they're using the product more and the speeds are incredible on the service. And as we widen the channel with aggregating our spectrum, the speeds improve and that adds the usage as well. So 5% this quarter, you don't have a forecast but it seems intuitively that is the pace we have been on. Where do I ultimately think we will end up? I would assume -- I can't think of why we wouldn't end up with 100% of our base migrated ultimately to that. And the prepaid base would be the slowest though it's not really in the numbers that we're talking about today anyway.

There are no following questions registered at this time.

Once again thanks to all for participating on the call this morning. As usual, I will be available throughout the day for any follow ups and clarification. Thanks and have a good rest of the day.

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