BCE Inc (BCE) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to BCE's third-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 everybody. With me here as usual are BCE's President and CEO George Cope as well as our CFO Glen LeBlanc.

As a reminder our Q3 disclosure documents including today's slide presentation are available on BCE's Investor Relations website. However before we get started, as usual, I want to draw your attention to our Safe Harbor Statement on slide 2. Information in this presentation and remarks made by the speakers today will contain statements about expected future events and financial results that are forward-looking and therefore subject to risks and uncertainties. These forward-looking statements represent our expectations as of today, and accordingly are subject to change.

Results may differ materially. 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 the Canadian Securities Commission and with the SEC as well as available on our corporate website.

So with that, over to George to begin a review of our Q3 results.

Thanks Thane, good morning, everyone. Thank you for joining us today. Just on to the slide called overview.

The third quarter was an excellent quarter for BCE and our shareholders. The results reported today are ahead of our own internal expectations and the street's expectations on revenue, EBITDA and EPS. A rare hat trick, if you will, for a Company the size of BCE.

Bell enjoyed healthy, organic consolidated EBITDA growth of 3.4% which drove 12% higher adjusted EPS and a 10.4% year-over-year increase in free cash flow. Excellent wireless financial results with revenue up 9.3% and EBITDA up 8.3% resulted in double digit cash flow growth. This is our fifth consecutive quarter of positive wireline EBITDA growth, supported by our increase in our industry-leading margin to 41.1%.

The Company continued to take the larger share of new broadband growth in Q3 with 126,000 Internet and IPTV net additions. This growth was driven by our focus on IPTV differentiation which resulted in Bell this quarter surpassing Shaw Communications as the largest TV provider in Canada with over 2.7 million subscribers. In addition, our world leading Gigabit Fibe product is now available to more than 2 million homes across Quebec, Ontario, and Atlantic regions.

BCE has been able to cover approximately 20% of our footprint with Fiber-to-the Home while maintaining our wireline CapEx intensity about 4% below our cable competition over the past three years. We anticipate that BCE's overall CapEx intensity in 2016 will again be in the range of 16% to 17% as we continue our fiber buildout throughout Ontario, Quebec and Atlantic Canada. The strong operational execution delivered positive EBITDA and cash flow contributions from all three Bell operating segments in the quarter.

Turning now to wireless, we had a very strong quarter, as I indicated. Gross adds were up, postpaid net adds of 78,000 based on all reporting this morning would put us achieving our goal of proportionate share in the industry. We had a very strong quarter from an ARPU perspective at 6.1% growth driven by the migration of customers off of three-year onto two-year contracts. Our base of LTE subscribers growing from 57% to 63%, and as customers are migrating from HSPA to LTE, we are seeing about a 50% increase in usage.

On top of that, the summer season continues to seem to drive higher usage and in particular with the extensive footprint across the Bell mobility network. Costs of acquisition was up as our post-paid focus continues in the market and we did have higher retention spending as a result of the double cohort, but I would say a fairly reasonable increase on balance giving the dynamics in the industry.

Overall the Company lead the wireless industry in revenue, EBITDA cash flow, and subscriber growth this quarter. The CAD125 million service revenue growth is the largest absolute year-over-year growth in service revenue ever reported by Bell Mobility. The expanding base of LTE customers using more data continues to drive strong ARPU and wireless profitability. We, of course, wouldn't expect to see this type of ARPU growth to continue, we would expect positive ARPU growth going forward but it certainly was an exceptional quarter and we think driven a lot by seasonality as well.

Our real focus is to continue in the wireless market through network differentiation. We will end the year -- I'm on the next slide for the folks on the line, we will end the next year with 98% of the population covered with 4G LTE. In terms of LTE Advanced, we now have 44% of the Canadian population covered enabling theoretical speeds of 260 megabytes of practical speeds for people of 18 to 74.

We also are leading the way in carrier aggregation of spectrum, which is well on its way at Bell Mobility. We were the first in North America a few months ago to roll out a tri-band LTE advanced unit. That combines our PCS AWS1 and 700 band 29 spectrum, enabling us to achieve speeds up to 335 practically for our customer, 25 to 100 which is really quite astounding given this wireless technology.

Importantly, our spectrum aggregation strategy and fiber backhaul provide deployment speed advantages we believe over our competitors and sustainable industry low capital intensity as 95% of our network capacity now is already served by fiber versus microwave to the sell sites. This leadership has been recognized externally now as PC Magazine just ranked Bell as the fastest wireless network in the country. We also anticipate the ability to continue to execute this strategy on a technology leadership perspective while maintaining our wireless capital intensity into 2016 at approximately 10% C to I and we believe that will be less than our number one competitor in the wireless space.

Turning to wireline subscribers. Strong quarter again in growth in IPTV adding 68,000 subscribers. Importantly providing pull-through of Internet subscribers [up] 58,000 in the quarter and our customers continue to migrate to higher speeds generating an increase in our ARPU of 8% year-over-year.

Our satellite business continues to lose customers to IPTV. As I mentioned in the past, about 15% of the losses in our own footprint are to our IPTV. We anticipate over time the satellite business for us will be principally a rural TV offering complemented by our IPTV strategy in the urban and suburban markets.

Overall [NAS] lines were flat year-over-year. We saw a slight improvement in business lines at a slight acceleration of losses in consumer local access. One, I think there is competitive intensity and, two, is the never-ending journey of wireless substitutions. Overall total RGU net adds were positive in the quarter, and importantly 63% of our new residential IPTV customers took a triple service and that would be a NAS and Internet service that excludes wireless metrics.

Our true differentiation on TV continues. Our IPTV products had a number of unique launches over the last 18 months, which is on the slide, but this morning and last night we announced a number of new features for our IPTV services going forward. Our restart feature, which is unique, now goes from one hour of restart to 30 hours of lookback and combining that with this really, really unique feature we just launched quietly a few weeks ago, which is a trending feature for our viewers of IPTV.

So you literally hit a button and what pops up is the top five trending shows across the entire TV network and customers can see what is most popular. And we've seen already in just a few weeks hundreds of thousands of people using it but more interesting is 20% of them then went to that channel. You go to that channel and you hit our restart button and you can move back to the beginning of that show. Quite a lot of differentiation in that service relative to our competitor and we expect that to continue in 2016. And also again just in September our TV service was ranked as the most recommended TV service in the country.

Turning to broadband. Clearly our IPTV strategy is core to pulling through our Internet strategy in the marketplace. We continue to lead in our footprint in market share now for six consecutive quarters. We have 7.9 million locations covered with FTTN and FTTH product.

Our rollout of Gigabit Fibe continues. As I mentioned, our buildout next year of FTTH will be done within our consolidated capital intensity of 17 and, of course, as you've seen, our wireline capital intensity ratio has been lowered than our cable peers' over the past few years as we've rolled out FTTH. Of course, it would depend on their capital but their intensity, as is certainly ours, has certainly supported given our margins of 40% to 41%. Importantly for us FTTH technology also provides a clear path to significantly support other speeds beyond 1 gig over time.

By way of example, when we're in the market with it we'll see, but by 2017 we would have the ability to do 10 gig speeds. That would be available without requiring any upgrade to our network and, unlike our competitor, we would not require any segmentation capital.

Importantly to us too is because we now have four to five years experience on Fiber-to-the Home, yes, it's capital intensive, but on the operating side we're seeing a requirement for about 40% less truck rolls in Fiber-to-the Home areas versus FTTN areas, a 50% reduction in preventive maintenance. And most importantly, our term rate is lower in markets that we have FTTH over anything else we provide, and that's simply because there's no technology better in the world than that technology.

Turning to media. We actually had quite a strong quarter, delivered 4% revenue growth and positive adjusted EBITDA growth. And I'd also, for the analysts, want to make sure everyone is clear. That is while we are absorbing the operating costs for Crave. Our two largest competitors on the media side, of course, don't have their OTT service in their EBITDA, their media business, it's below the line through a consolidation and equity accounting. So there is a difference, so we're really pleased to have positive EBITDA well absorbing the cost of the Crave service.

Our audience, as you can see here, continue to be very strong, off to a great start in the fall. Three of the top four shows were actually Bell Media shows early in September. At our home business, although we don't talk about it a lot, continues to grow nicely, and is a great addition to our portfolio for companies wanting access to all platforms of media, whether or not it be radio, TV or at a home, we could put quite a package together for national brands.

Mary Ann Turcke has stepped in as President of Bell Media. She is in the midst of a restructuring at Bell Media and that restructuring is really the result of the CRTC rules, so we will be changing our cost structure to reflect that going into 2016. And I will address those cost changes on our call when we talk about the fourth quarter results in early February. I won't be addressing those cost changes on the call this morning.

With that let me turn it over to Glenn.

Thanks, George, and good morning, everyone. Let me start with a high level review of our consolidated results for the third quarter on slide 12. Our financial performance was strong across-the-board this quarter with all key metrics comfortably on track with guidance for the full year. Total revenue grew 2.9%, led by excellent top line wireless and media performance as well as the continued healthy wireline residential growth. Consolidated adjusted EBITDA up 3.4% and, like last quarter, reflected positive year-over-year contributions from all three Bell segments.

Consistent with this EBITDA growth, margin also improved, increasing to 40.9% on strong year-over-year revenue growth and disciplined cost management, which has become something of a core competency for us. Adjusted EPS increased a very healthy CAD0.10 or 12% over last year to CAD0.93, mainly on the back of higher EBITDA and higher other income. Also we had a good quarter of cash generation with positive and higher year-over-year contributions again from all three segments.

Free cash flow was up 10.4% year-over-year increasing to CAD921 million. This provided strong support for the strategic capital spending programs in broadband networks and infrastructure that George referenced that will help drive sustainable long term growth in our wireline and wireless businesses going forward. And it's worth reiterating to shareholders that these strategic investments are being executed within a capital intensity ratio envelope of no more than 17% of revenue.

So, overall, extremely pleased with the quarter we delivered with a set of financial results that puts us in great position as we approach the end of the year.

Turning to the financial results of our wireless segment on slide 13. Total revenues were up a strong 9.3% on exceptional blended ARPU growth of 6.1% representing our 23rd consecutive quarter of year-over-year improvement. Our growing postpaid mix combined with more subscribers on two-year contracts using SmartPhones on our leading national 4G LTE network contributed to data revenue growth of 23.5% this quarter.

Wireless product revenues were 22.2% higher this quarter reflecting the greater number of device upgrades in postpaid gross additions that we saw year-over-year. This is all very consistent with the increased level of market activity we have experienced since the start of the double cohort in June.

Wireless EBITDA growth of 8.3% was another key highlight this quarter as our service revenue margin, which remained stable at 46.8%, even with CAD44 million in higher spending on postpaid acquisition and customer retention costs compared to last year. Definitely a good reflection of our ongoing focus on disciplined and profitable postpaid customer growth where value is not being sacrificed for the sake of volume.

Lastly, wireless EBITDA less CapEx provided a continued strong contribution to BCE's overall free cash flow increasing 10.8% year-over-year. And as we head into the seasonally strong fourth quarter, our [markup] momentum remains strong with growth opportunities from our industry-leading LTE network and distribution, as well as a great device lineup.

Moving to Bell Wireline on slide 14. Bell's residential services unit had another good quarter delivering revenue growth of 1.9%, our eighth consecutive quarter of year-over-year growth. Internet and TV combined generated 6.3% higher revenue reflecting continued steady market share gains against the cable competitors and growth in household ARPU.

In our business markets unit, we saw sequential improvement in financial results compared to Q2 as a result of fewer access line losses and higher demand for connectivity services attributable to [Pan An] gains and the federal election. However, overall performance continued to be impacted by ongoing economic and sectoral challenges which moderated consolidated Bell Wireline revenue growth this quarter.

From a profitability perspective, with the improved mix of wireline growth services, as well as ongoing cost control measures, operational efficiencies driven by integration synergies with Bell Aliant, ongoing service improvements and fiber-related savings, wireline EBITDA increased a solid 1.1% this quarter, yielding a 60-point improvement in Bell's industry-leading wireline margins to 41.1%.

With a lean cost structure, growing Internet and TV scale and a wireline capital intensity ratio that remains consistently below that of our cable peers, our wireline cash flow grew 11.1% year-over-year in Q3 to CAD530 million. For Q4 we expect our wireline segment to continue to deliver results in line with guidance keeping us on track to report our first full year of positive EBITDA and cash flow growth since the launch of cable telephony in 2005.

Turning to slide 15. Overall a strong quarter for our media segment which delivered positive revenue, EBITDA and cash flow growth. Revenues were up a healthy 4.1%, mainly on the strength of conventional and specialty TV advertising, as well as growth in our [astro lot] of home as George previously mentioned.

Collectively, advertising revenues increased 5.3% in Q3. Conventional TV growth was driven by our new fall season lineup, live event programming led by year-over-year audience growth for the Emmy Awards and advertising related to the federal election. Specialty TV performance improved over last year on the recapture of advertising dollars from the broadcaster of the men's World Cup soccer in 2014, our record breaking live broadcast of women's World Cup soccer which ended in early July, and year-over-year growth at Bell Media Space and Discovery TV properties.

We also enjoyed relatively stable growth in subscriber fee revenues which increased 1% this quarter reflecting steady growth in CraveTV and our growing suite of TV Everywhere go products. And despite higher sports broadcast rights costs and CraveTV content investments, which drove a 5.4% increase in operating costs this quarter, Bell Media generated positive EBITDA growth up 0.5%.

Slide 16 provides the key components of adjusted EPS which was CAD0.93 per share this quarter. As I said before, up 12% year-over-year. Higher EBITDA from all Bell operating segments drove seven of the total CAD0.10 increase in EPS.

We also recorded mark-to-market gains on our equity derivative contracts resulting from the increase in BCE share price in the quarter, as well as gains recognized from a number of our minority interest equity investments. Collectively, these items contributed to CAD0.06 of EPS this quarter.

Similar to the previous few quarters, non-controlling interest or NCI in Q3 was lower year-over-year, due to BCE now owning 100% of Bell Aliant. This was offset by the dilutive impact of the issuance of BCE common shares on the Bell Aliant privatization.

Lastly tax recoveries were favorable -- from favorable audit settlements from [CRA] amounted to about CAD0.01 of EPS this quarter, down from CAD0.02 last year bringing year-to-date tax adjustments to CAD0.05 per share. No further material tax adjustments are currently anticipated in Q4.

Moving to slide 17, we generated free cash flow of CAD921 million in the quarter or 10.4% higher compared to last year. This was driven by higher EBITDA and incremental contribution from the privatization of Bell Aliant in Q4 of last year. A decrease in our working capital position moderated growth in overall free cash flow this quarter and this was mainly related to the timing of supplier payments and a buildup of accounts receivable attributed a strong revenue growth in the quarter, particularly for Bell Media advertising. The increase in cash pension funding was in line with our full year 2015 guidance assumption and while interest paid in Q3 increased year-over-year due to the higher level of outstanding long term debt as a result of the Bell Aliant transaction.

We also took advantage of the favorable market conditions and a sustained low interest rate environment to bring down further our overall average cost of debt. On October 1 we issued a 7-year CAD1 billion medium-term note carrying an after-tax coupon of approximately 2.2% which, by the way, represents the lowest financing rate ever achieved by Bell Canada.

That brings our overall average after-tax cost of debt to 3.38%. The net proceeds of this debt issuance were used on November 2 to fund the early redemption of higher-cost debt that would have matured in early December, saving BCE CAD6 million in annualized interest. With year-to-date free cash flow totaling some CAD2.1 billion, we remain firmly on track to meet our guidance for the full year, free cash flow growth in the range of 8% to 15%.

In closing, with three quarters of good growth and consolidated financial performance in 2015, we are well-positioned to deliver on all the guidance targets that we provided you back in February. We've seen no fundamental changes in outlook and we remain competitively well-positioned in all our markets as we enter the fourth quarter with strong wireless operating momentum, a wireline segment that is on track to deliver its sixth consecutive quarter of positive year-over-year EBITDA growth, and leading media assets that generate substantial cash flow for reinvestment in other strategic areas of our business.

Lastly, on slide 19 I've provided you with an updated summary of some of our key financial assumptions that underpin our guidance targets. As you'll see, interest expense is now expected to be approximately CAD20 million lower for the full year, reflecting favorable impact of lower interest rates on our various debt instruments and tax adjustments for the year will be slightly higher at CAD0.05 per share compared to previous expectations of CAD0.04.

These favorable impacts are being effectively offset by our revised assumption for current service pension costs which is now projected to be CAD20 million higher in 2015, the increase being attributable to a number of factors, including the mix of DC and DB members across all BCE plans and the timing of restructuring initiatives. Therefore, notwithstanding the gains recognized in Q3, our equity hedges and minority interest equity investments, our full year 2015 adjusted EBITDA guidance range continues to be appropriate.

And on that, I'll turn the call back over to Thane and the operator to begin the Q&A period.

Thanks, Glen. So before we start, just very quickly to keep the call as efficient as possible, I ask on behalf of the team to keep your questions limited to one and one brief follow-up so we can get to as many folks on the lines as possible. So with that, Wayne, we're ready to take our first question.

Thank you.

(Operator Instructions)

Our first question is from Richard Choe from JPMorgan.

Great, thank you. I was wondering if you could talk a little bit about the quality events coming in and how much that is contributing to the ARPU growth and how much longer do you think there's a runway for ARPU growth in terms of moving from three-year to two-year contracts?

Richard, the first part of your question we didn't quite hear?

Sorry. Asking about the quality of adds coming in versus those potentially leaving?

Oh, quality of subscribers coming in versus going out? In terms of ARPU?

Yes.

Okay, yes, well, first of all, what we're seeing is across our base as people migrate, more importantly from ASPA to LTE, they are using more of the data services because the video speeds are incredible and that's clearly what's driving our overall base increase in ARPU is the usage. That's one key.

Secondly, as we migrate our customer base from three to two years because we have to recover the subsidy quicker, there's been pricing in the market for that. And on the absolute vintage of customers in and out, I don't have it at my fingertips but given how strong our quarter was, my instincts would be we were stable, maybe up, maybe not, but it certainly wouldn't have been a dramatic reduction. But I don't have the specific number for you. We do monitor it on a pretty regular basis, but it's not one top that I have here.

Great, thank you.

Thank you. The following question is from Philip Huang from Barclays.

Thanks, good morning. Congrats on the solid results. Just a quick question on the churn side and also on the retention spending. Some of your peers appear to be spending quite a bit more heavily on retention and feeling quite a bit bigger impact on the bottom line as well.

Was wondering what your philosophy is on churn? Do you think there's an optimal point on churn and where do you think that the returns on attention spending begins to diminish, especially as we go through this double cohort period?

Yes, I mean, it's a call we have to make every quarter. It's based on, obviously, value of subs, managing reprice of base and managing what that investment is. And then, of course, the proportionate of our subs in some markets with four carriers versus other markets of some of the larger players, whether it be more three than for four, for us particularly in the Province of Quebec. Some of those things drive some structural issues for sure in our churn rate. And I think that's one of the reasons we watch, we don't push too hard on some of those numbers.

Having said, our attention spend is up and our focus has always been proportionate share of EBITDA growth. So it is a never-ending balance. We think we have it right for where we want it to be right now. We certainly wouldn't expect retention spending to drop over the next nine months, given the double cohort that we're in. But clearly there are some differences and it all shows up in metrics, both good and bad, between us and our competitors.

That's very helpful. And then just a quick follow-up on the wireline side. Your primary competitor in Ontario is certainly moving very quickly on upgrading the Doc SYS 3.1 with emphasis on their cost advantages on the upgrade. Your gigabit footprint currently, I think, is largely in Quebec. I was wondering if you could talk a little bit about your plans in Ontario over the next couple years? Thanks.

Yes, we'll stay competitive with our competitor. We've clearly seen the reaction from all cable operators to our leadership on broadband investment, probably good for the country and interesting for the marketplace to assess. I think Ontario, we probably couldn't be louder on our investment there because of the CAD1.1 billion program in Toronto that we're in the midst of. And that will be a 2016 and 2017 upgrade that's taking place.

And we've had lots of experience on Fiber-to-the Home, and I talked about the metric advantages. Just to put it in perspective, I think the most -- because there has been a lot of conversation around this. Our capital intensity next year will be in that 16% to 17% range.

Our capital intensity in wireline has continued to be lower than our cable peers. So when our cable peers get their capital intensity down to our level, then maybe we can start the conversation about whose return on capital is where. So we should just maybe play that out.

And thirdly, look at the size of even the program in Toronto that we announced at CAD1.1 billion over two years. Over that same period, we'll spend over CAD7.4 billion of capital. So, yes, it's an important capital program, but it's not all of our capital program. And so it's -- I think it's important for everyone to keep that in perspective.

And long term, we're going where the market is going to go. And at the moment our leadership at TV is driving our broadband leadership. Over time we want to make sure our broadband products also pull our leaders in position in the market and that's what we're setting up for for tomorrow.

Thanks very much.

Thank you. The following question is from Greg MacDonald from Macquarie Capital.

Thank you. Good morning, guys. Thank you for the guidance on CapEx for 2017. I note that with interest. So I'm going to ask the question on CapEx again in a slightly different way. TELUS -- we're hearing a lot around the world of telephone companies spending money on Fiber-to-the Home. TELUS is talking about that as well as small cell technology spend for data offload.

We know all of this is in response to pretty dramatic growth in data demand. And I'm getting the sense that with the 17% cap on capital intensity -- and it feels like you're suggesting that that's sustainable past 2016 -- that I'm getting the sense you've just done things better in other areas because, George, I note that you indicate it's not all of your CapEx.

For those of us that are a little more cautious on this whole issue, what have you done better? What other areas have you been ahead of the curve on on spending that's allowed you possibly to have more flexibility here?

Well, part of that I think is the mix of our assets, right? I think, in fairness, our media business requires a very low capital intensity and we take that capital intensity benefit and clearly execute that additional capital on the wireline and wireless side. I think on the wireless side, it's not just us to enjoy that benefit, in fairness, but clearly our network sharing agreement that is unique on a global basis.

We think when we look out to 2016 -- I want to make sure I didn't say 2017's capital intensity, I said 2016, just to make sure we're clear. But certainly when we look out next year, wouldn't normally talk ahead of time. We thought we would because some people have raised this issue. We're pretty comfortable the wireless intensity next year will run around approximately 10% C to I, which gives us some space, we think, also to drive the Fiber-to-the Home investment but keep our overall capital intensity at 17%.

The other part of that for our investors is to make sure that clearly our wireline margins are important to offset that. And, of course, obviously we will be targeting to drive wireline EBITDA positive next year again. And that cash, of course, we will invest it on there.

And the last thing, maybe we're -- and this is maybe a credit to Glen and Karen Sheriff, their leadership on Fiber-to-the Home in Canada and maybe really, in one sense, in North America, given how much of the footprint they covered, we have financial evidence of the return on that capital that's quite compelling. And so it's just pace of investment. And it is important to recognize that we were doing that within the BCE intensity of that 17% number.

And having [2 million] footprint covered, we have metrics and stats and everything else to try to use to know how to invest against that. And clearly it will be a competitive marketplace. As I said, investors, I think, will win on that, as our track record of eight years shows we know how to provide returns on capital. And the country will win because you'll have two competitors in every market providing these great service to Canadians.

Quick follow-on on that. Is 10% the low end of the cycle in wireless and does it contemplate --

I would personally think so. In fact, some of you who have known me for years said I didn't think we would ever get down below 12%, but with the work our crew has done on enhanced LTE and some of those services, we see a process to carry 10% through 16%. I don't want to go beyond 16% on guidance because I've always felt it was tough to get down to that number, but we can clearly see that next year when we look forward. Approximately 10%, I should say, for folks.

Does the 10% include any small cell spending?

In fairness to the next guy on the line I should move forward but, of course, it would, yes.

Thank you.

Thank you. The following question is from Jeff Fan from Scotiabank.

Thanks, good morning. I wanted to just touch on wireless for a second. If we look at the postpaid gross adds that went on in the industry, there's some very different trends we're seeing from the three national operators. You guys have been very steady; Rogers saw a huge increase; and it looks like TELUS with the results this morning is down.

Looks like the industry is actually growing gross adds faster than we've seen as well. Just wondering, George, if you have any perspective on that? What's going on that you're seeing maybe in your gross adds and your channels? What is it that's driving and keeping you guys in line as slightly ahead of the market? Is it distribution? Is it the plans you're seeing in the market? Is it pricing? Is it double cohort? Just wanted to get your perspective. Thanks.

We, as investors are, we are now just assessing what happened because there was a lot of reporting this morning in the industry. Our gross adds were up 6%. Clearly there was some gross add market share shift in the quarter, so we're going to have to assess that ourselves. We're obviously really pleased that we think we've got the balance right and that's always the trick.

I think one of the things for us has been I think the Glentel acquisition has actually been quite a positive for us adding some retail distribution strength for the Company in a space that I think we had one of the major retailers leave the market last year or close some stores. And we weren't necessarily counting on that channel because of the Glentel, so I think that's probably helped.

But clearly it's competitive. And then it's hard to -- because we don't have the reporting of the gross adds of the fourth carrier in Toronto, it's hard to know whether or not some share came out of there, but that would be over for them to comment.

Okay. And I just wanted to --

(Multiple speakers) We have noted the gross adds. Of course, gross add volumes will probably be up in the country because of the double cohort as well. Remember, there's no doubt there's some movement when you have that. And across the entire industry -- I don't have all of the numbers in front of me, but something tells me we might have seen an overall increase in movement in the industry in the quarter. (Multiple speakers)

That's fair. And just very quick follow-up on usage. You talked about having LTE bringing a lot more usage. Do you have a number in terms of average usage growth that you're seeing on your SmartPhone users at this point in terms of just data usage?

I think it's from 1 gig to 1.5 is roughly what we're seeing from HSPA to LTE. And then, of course, you get this -- we clearly have, and people who have followed the industry for years know we have a summer effect in Canada on ARPU. We always have. I think more dramatic this year than we've seen in other years. And I think given how expansive BCE's footprint is in the rural markets, and it was an amazing summer for weather, as people know. We think that drove some higher usage than we normally would see and I think that's partly reflective of the strong ARPU.

Okay, thank you.

Thank you. The following question is from Batia Levy from UBS securities.

Hi, this is Chris for Batia. Broadband adds were very strong in the quarter. Would you expect this sort of pace to continue with the gigabit expansion? And what are the initial penetration rates you're seeing as you build?

And just the follow-up, can you talk about how you think about broadband pricing as this increasingly becomes the most important part of the service offering? Thanks.

Sure, well, it was clearly a competitive quarter, given the results of our peers this morning as well as on broadband. We're pleased -- if you looked historically Telco was a distant second in market share. We've had six quarters of positive market share growth.

The long term investment we're making is to try to make sure we're positioned to compete head-to-head against the cable operators. So it's hard to forecast that leadership position going forward. But clearly, we lead right now with our IPTV product because it's vastly the superior TV product in the market and we sell IPTV with our Internet solution. That is our strategy; both products are sold at once. That's our pull-through broadband strategy.

In some of our Fiber-to-the Home markets, we are seeing penetration greater than 50% market share in some of the more mature Bell Aliant markets, so that's giving us some confidence where we're overall, I think, sitting at 36% to 37%. But we have to keep executing. In the structure the way it is in Canada, we, over time, with these type of investments, shareholders should expect us to grow some reasonable market share against our competitors.

Great, thank you.

Thank you. The following question is from Maher Yaghi from Desjardins Capital Markets.

Good morning. Thank you for taking my question. Congratulations on the results, especially on wireless. Wanted to -- I was looking at the ARPU and had to double-check twice to see if the number is correct, but the growth -- the 6% growth on ARPU, how much is that was helped by the double cohort switch from three year to two year? Because there was some price increases when contracts were repriced on two years.

So I was wondering how long -- what percentage of the 6% growth came from that switch and how long you anticipate that you can keep that proportion of growth? I would think it's going to be another two or three quarters before it dissipates. But I wanted to take your view on that.

And my second question is on the residential NAS losses, we've seen you guys report steadily improving residential net losses over the last couple of quarters. However, we saw an increase in this quarter. I was wondering if you saw a elevated amount of wireless substitution taking place and what drove that result?

Yes, so okay, on the first one, I think I'll need maybe to give you a call after if there's anymore detail we have around it. But I did address in the call, really, the three or four things driving it: the migration, HSPA to LTE, 6% of the base in a quarter. That's a big number that's moved. I think that's important, the migration from three to two, the percentage I don't have. The summer season for sure, Pan Am Games, people traveling into Toronto that we hadn't seen, like a lot of things. So I think it was a number that -- the likelihood of someone lapsed that type of number is pretty low, quite frankly.

Going forward, we would expect to see an improvement in our ARPU year-over-year as we exit in 2015, but not at that type of rate. And we'll have to see next summer whether or not we see this incredible increase in usage again or not.

On the NAS, I agree with you. It was definitely a reversal in the consumer side. I think there's really two or three things going on. One from our end is there's no doubt the back-to-school is literally no NAS ends anymore. So that -- a NAS end would be a local access line addition and that, of course, continues every year to be more and more affecting us into the September time frame or should we see the benefit on the Internet side always every year on the quarter.

That's one. Wireless substitution in our math was up a little bit. And I think, thirdly, one of our competitors reported this morning, so there was some pretty strong competitive dynamics, us taking TV and someone else pulling local access lines, so I think that's reflective a little bit maybe in this morning's results as well.

Thank you.

Thank you. The following question is from Vince Vialentini from TD Securities.

Thanks very much. Great quarter overall, guys. Just want to talk about the video subscriber numbers, though, that I didn't find overly impressive. As you talked about, you have these tremendous innovations and a great video product, you're investing to push out the fiber to the node and home footprint and you lead with video to try to pull in broadband subscribers, but yet your IPTV subs adds are lower this quarter versus Q3 last year.

So is there something else going on there? Are you not expanding the footprint as much anymore or was there some overly aggressive counter promotions from the cable companies that are holding back that number? I fully understand the satellite declines, but the IPTV being down year-over-year was a bit of a surprise.

Well, first of all, on IPTV at 68,000 subs growth in the TV space, we're actually a little different, other than we would agree with you for sure, and we say it in our note on page 7, we did have less footprint expansion. And clearly that is part of the reason for the growth moderating a little bit on that portfolio.

That's really the key point; you've just hit it. But in terms of 68,000 TV customers. And if you look at are -- where we were taking the market share against our competitors, this product's a lead differentiated product in the marketplace. And there's pace and all that too. So we're maybe just slight a little different. We're really, really pleased with the IPTV adds and think overall the analysts will be. And certainly based on the numbers they had in mind, but clearly the footprint expansion is not as much.

Just one quick follow-up, George. Is the footprint expansion basically done then or is this just a temporary lapse? Because I think there's still --

No, no, the footprint expansion is continuing, but the pace of the footprint expansion is clearly less given how far we are and also given now we're taking some of our capital for Fiber-to-the Home and overlaying some of our FTTN footprint. So you've got a little bit -- there's mix always in that and how much new footprint we push out on a quarterly basis.

The footprint pushout for IPTV will never, quite frankly, end. Probably it will be going for a long time, but not at the pace we've seen in the past because we covered a lot of the urban, there's still more to go and we've got to get that done over time.

Great, thank you.

Thank you.

Thank you. The following question is from Aravinda Galappatthige from Canaccord Genuity.

Good morning, thanks for taking my question. George, maybe just update for us what's happening on the business side in the wireline segment? Are you still seeing the same type of pressures that exacerbated? Maybe just some commentary on both the SME side and the larger enterprise side. Thank you.

Yes, first of all, the pressure's continue. And I guess, in one sense, folks can see it in the results on the wireline top line, as Glenn talked to. The mass business and the mid market, probably we're doing a little better year-over-year and feeling actually there's some corrective stuff we can do there.

The large enterprise is tough. Quite frankly, we're just not seeing the job growth in our large customers and if they are not adding resources, it's hard for us to add revenue to that top area. And I know it's been a consistent story for the street, but, unfortunately, that's the same story this quarter as the other.

We are going to address some of the costs around that business between now and year-end. We'll talk more about that on the call -- in the fourth quarter call in February when we address both what we've done at Bell Media. And we're going to do a little bit there, just trying to, again, put in plus a cost structure to help us recognizing that it's hard to forecast strong [drog] growth on the enterprise side into 2016, based on what we're hearing from economists.

Great, thank you.

Thank you. The following question is from Rob Goff from Euro Pacific.

Thank you very much for taking my question. Could you talk within the wireless in terms of the trending and the leverage to increase the number of devises per account?

Yes, that's actually a growing area. There's no doubt certainly on the consumer side, family plans or what have you, where people are taking large buckets shared across a number of customers.

More and more we are seeing that, as we would almost be certain our competitors are, and that's a pretty powerful tool for everyone because, ultimately, that should be a helpful on churn and a stickiness in the industry. And we certainly see a large, large share of our consumer buying going on on that basis.

Okay, thank you.

Thank you.

(Operator Instructions)

The following question is from Drew McReynolds from RBC Capital Markets.

Thanks very much. George, just two for me. Just on the double cohort, obviously, after all the noise in Q3, we had equal share across the three of you. Just wondering midway into Q4, are you seeing different tactics or approach out there in the market?

And then secondly, just on Bell Media, I know you'll talk about this next quarter. Just wondering as we head into 2016, just a very high level, just how the timing or how these new carriage deals are going to work? And are you still confident on maintaining stable free cash flow next year? Thanks.

Yes, so maybe I'll add we're confident on maintaining, to your end there, the steady free cash flow next year in that business unit, but we'll get more granularity obviously when we get into February. We are setting up our cost structure in recognition of the new rules which allow, in one sense, the carriage of all of the channels [as] becomes more flexible and we've got to put in place a cost structure to recognize that ahead of time, not as it happens.

And then how that unfolds in the marketplace is going to be so driven by pricing and consumer preferences. And we're really going to have to experience that and see how it unfolds, but we're not going to sit back and have a cost structure that's, frankly, not reflective of the rules that the CRTC has put in place. And I think people, as I say, will get more of that from us when we talk on the call in February.

And really, that's just out of respect for our Bell Media team and what they are doing at that business right now getting set up. And when they are finished that work, (inaudible) let that work, then we'll come out and talk to folks about it on that front. And what was the other?

The double cohort?

And on the double cohort, it's hard to talk on a quarter. We'll see. Obviously we're heading towards the busy season which starts in a few weeks in November. And it will be as competitive, as I'm sure as it always is, in the marketplace. But at the same time, I think double cohort has some impact on gross in the industry. People have seen it. Some impact on overall churn in the industry. But by and large, seems to be being managed reasonably certainly in our financial results this morning.

Thank you.

Thank you. The following question is from Robert Peters from Credit Suisse.

All right, thank you very much for taking my call. Just, George, wondering if you could provide an update on CraveTV? You've obviously seen, I think, strong or at least, I would say, solid growth in media in the quarter despite the cost ramp-up from the platform. But I was wondering how is it going on the subscriber side? And maybe could you talk about any color on to how we should think about the demand as a service goes over the top in 2016?

Yes, we're really quite excited about Crave. We have a number of announcements that will come out over the coming months on that product. I talked last quarter -- we just gave a total of subs so people get a sense of the scale of the business and so if you go back to last quarter's number, we had some regional growth in there. But I don't want to get into the quarterly reporting of one division product in our portfolio.

We are excited about the ability to go over the top with the product in January. It will be fairly well-pushed from a marketing perspective in our Bell Media assets and we'll see how that unfolds. Of course, it will also be distributed through a number of our key TV distributors who currently carry the product. And, of course, a lead product for us on our IPTV. Content enhancements will take place and we'll talk more about that over the coming months and look forward to updating everyone in the call in early February.

Thank you very much.

Thank you.

Thank you. There are no following questions registered at this time. I would like to return the meeting to Mr. Fotopoulos.

Great, thank you, Wayne. I appreciate your participation this morning, given everybody who did report this morning. So as usual, I'm available throughout the day for follow-ups and clarifications. So on that, thanks, and have a great day.

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