BCE Inc (BCE) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to BCE's third-quarter 2016 results conference call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos.

Thank you, Valerie, and good morning to everyone on the call. Welcome to our third-quarter earnings conference call. With me here today, as usual, are George Cope, BCE's President and CEO, as well as our CFO, Glen LeBlanc.

As a reminder, our Q3 results package and other disclosure documents, including today's slide presentation, are available on BCE's Investor Relations web page. An audio replay and transcript of this call will also be made available on our website.

However, before we get started, I want to draw your attention to our Safe Harbor notice 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. Results may differ materially.

We disclaim any obligation to update forward-looking statements except as required by law. Factors that may affect future results are contained in BCE's filings with both the Canadian Securities Commission and the SEC, and are also available on our corporate website. And with that, I will turn the call over to George to begin the Q3 review.

Great. Thank you, Thane. Good morning, and thank you for joining us. Let me begin by sharing a few highlights of this past quarter. BCE produced another quarter of consistent financial execution, as total service revenue growth of 1.8% and continued cost control drove an increase in EBITDA of 2.2%, and an expansion in the margin to 41.4%. Year to date, the Company's free cash flow has grown 10.6%.

Once again, the Bell Team produced outstanding wireless subscriber and financial performance, with strong net add momentum and ARPU growth resulting in 5.7% service revenue growth and 5% EBITDA growth. Our broadband share of TV and Internet subscribers continued to grow as we added 76,000 net adds in the quarter. We concluded our ninth consecutive quarter of positive wireline and EBITDA growth, while adding to our industry-leading wireline margin of 41.7%.

The media division continued its consistent performance and revenue growth of 3.5%, producing EBITDA growth of 2.2%, and an increasing contribution to BCE's cash flow of 3.8% in the quarter. The wireless network and fibre Internet networks once again were confirmed as the fastest in Canada. Bell's network leadership is clearly beginning to resonate with Canadians in our results.

I am proud today also to announce that Bell has become the first major TV provider to offer its TV service on Apple TV. The Apple TV 4-gen product will be offered as a secondary set-top box in the home beginning next week. Our Bell stores will be distributing the product beginning next week. This exciting development with Apple ensures Bell's Fibe TV continues its innovation and leadership position in Canada.

Our IPTV platform and development leadership has clearly been recognized by one of the world's leading technology companies. And we continue to stay ahead of our competitors with our TV service offering as second-to-none in the country.

BCE's track record of year-over-year EBITDA growth continues. We have now completed 44 quarters of uninterrupted EBITDA growth. Our shareholders are clearly seeing the benefit of a consistent and reliable execution. These results, combined with our outlook in Q4, should position us well to continue our dividend growth framework in 2017.

Turning to wireless results on page 5, as I indicated, we had a very strong quarter: gross adds up, postpaid net adds up 38%. Our network message, as two times faster than our largest competitor, is really resonating in the marketplace. We see that particularly in the type of customers we are attracting, a high-usage customers.

We saw an increase in usage year over year on the LTE network of 35% from our subscribers, driving incremental ARPU at 3.7% year over year. Cost of acquisition was up slightly, driven principally by the weaker Canadian dollar and some advertising in the Olympics. The higher retention spend reflects increased mix of high-end devices. But importantly, our churn rate was down year over year, and part of that, of course, a reflection of our investment.

Turn to wireline, we added 39,000 Internet subs in the quarter. That would be important to call out. We actually added 54,000 in our FTTX footprint, either FTTN or FTTH. And we saw a decline in that number of about 8,000 wholesale customers. So overall, fine results in the footprint that we are investing in.

IPTV was 36,000 in the quarter. We clearly had a less mature footprint, or new footprints this year, and some of our promotions in the market were not as aggressive as they were last year in Q3. On the satellite side, I think we can do better outside our urban footprint with results, and we will be working on that as we go forward to try to mitigate that pace of decline in satellite.

I already mentioned the announcement, the Apple TV to continue the positioning of Fibe TV. On the local axis line, was up slightly, most of that driven on the business side. And particularly, the election last year, we lapped. And we put a number of lines on when there's a federal election that clearly are not available in this quarter.

Turning to Bell Media, continued consistent execution, as I indicated at the outset. Strong leadership again from a ratings perspective. CTV continues to be the number one network for the 12th consecutive summer. Three of the top-five programs leading in Premiere Week in September, five of the top-10 English entertainment and specialty services, five of the top French specialty and pay services.

Contrary to some reports in other markets, NFL ratings are up in Canada for the first months of the season, and up actually 8% year to date. We surpassed a milestone on CraveTV of 1 million subscribers. And our outdoor advertising business continues to grow, with a 30,000 advertising faces, and with real focus on the airports now that we're in six major Canadian airports.

Couple comments on corporate development before I turn it over to Glenn. The MTS transaction continues to track towards a closing either at the end of this year or into early 2017. We continue to work through the regulatory process on that file. We also closed the Q9 transaction, bought out their remaining position and closed that transaction on October 3. The Q9 business would be roughly equal to the size of our own hosting business that we had. So combined, it gives us a strong position in that space.

The real opportunity for us on the hosting business is, we have about a 70% connectivity attach rate to our data hosting centers, and it was about 20% of our connectivity attach rate on Q9. Our goal there, of course, will be to migrate that attach rate higher, and not only drive the data hosting revenue, but drive connectivity for our B2B business in the marketplace. With that, let me now turn the presentation over to Glen. Thank you.

Thank you, George, and good morning, everyone. I'll start with some high-level comments on our key financial highlights for Q3 on slide 10. Service revenue was up 1.8%, our strongest quarterly performance of the past year, and this was driven by continued solid growth across our wireless, wireline residential and media operations. Low-margin product revenues decreased 7% year over year. Once again, this was a result of the competitively driven wireless handset discounting and lower wireline business data equipment sales due to the soft economy, and lower overall telecom spending by large enterprise customers.

Adjusted EBITDA increased a very solid 2.2% on a third consecutive quarter of positive year-over-year growth across all three Bell operating segments. Consistent with this EBITDA growth, as George mentioned, margin also improved, increasing 0.5% to an impressive 41.4%. Adjusted EPS of CAD0.91 was in line with our plan, but down from the CAD0.93 last year, mainly as a result of the CAD0.03 mark-to-market gain on equity derivatives due to a sharp increase in BCE's share price in the same quarter of 2015. Higher EBITDA was the main factor supporting free cash flow growth of 3.3% in the quarter, and this was achieved despite a CAD41 million in higher year-over-year capital spending.

So all in all, another very good quarter of consolidated financial performance, consistent with our full-year guidance targets, demonstrating yet again our clear focus on subscriber profitability and price discipline in the face of sustained market competition across all our customer and product segments.

Turning to slide 11, our wireless segment, another excellent quarter of financial results, with service revenues up 5.7%, driven by higher postpaid subscriber mix, data usage growth and a greater percentage of customers on two-year contracts. Which collectively, drove blended ARPU growth up 3.7%. Similar to the previous couple of quarters, product revenue decreased year over year as a result of lower average handset prices, as I referenced earlier, combined with fewer handset upgrades compared to last year.

Wireless adjusted EBITDA was another financial highlight of the quarter, growing 5% year over year, which yielded a strong service revenue margin of 46.5%. More impressively, this was achieved even with a CAD47 million year-over-year increase in combined total spending on customer attention and COA, which resulted in a 38% increase in postpaid net adds. Our wireless segment also continued to contribute significantly to overall BCE free cash flow generation in Q3, with growth in adjusted EBITDA less CapEx of 4.7% as we maintained a low and very capital-efficient capital intensity ratio of 10.6%.

Moving to Bell wireline on slide 12, Q3 service revenue was essentially flat year over year, decreasing a modest 0.3%, as we benefited from improved performance trajectory across our three key wireline units: residential, business and, of course, wholesale. This represents our best quarterly result of the year, significantly outpacing the 1.8% year-over-year decline we reported last quarter.

Overall revenue growth was impacted by the sale of a call center subsidiary in September of 2015, richer acquisition and retention discounts driven by competitors' aggressive back-to-school promotional offers, as well as reduced business data product sales to large enterprise customers.

As a result, total wireline revenue declined 0.8% year over year. Excluding the CAD10 million revenue loss from the call center sale that I just mentioned, residential service revenue increased approximately 1% over last year. This was due largely to the strong growth in total combined Internet and TV revenues of approximately 6% in the quarter.

In business wireline, the rate of revenue and EBITDA decline improved year over year, supported by stronger IP connectivity and solutions growth, as well as ongoing cost-management actions. Wireline adjusted EBITDA increased 0.6% on a 1.7% reduction in operating costs, representing our ninth consecutive quarter of year-over-year growth. That drove a 0.6 percentage point improvement to margin to an industry-best 41.7%, maintaining the lead over our closest North American peer by a wide margin. And providing us with ample operating leverage to self-fund continued significant investment in our strategic broadband fibre programs going forward.

Turning to slide 13, Bell Media, overall another solid set of in-line results, with positive revenue, adjusted EBITDA and cash flow growth generated for the third consecutive quarter. Total revenue for Q3 was up a healthy 3.5% on the strength of higher year-over-year subscriber and outdoor advertising revenues. Subscriber revenues grew 14.6%, driven by the expansion of the Movie Network into Western Canada, as well as ongoing customer growth for CraveTV and our TV Everywhere on-demand GO products.

Consistent with our expectations, advertising revenue was down 3.7% in the quarter as a result of year-over-year declines in conventional and specialty TV. The advertising market remained soft across the industry. And more specific to Bell, advertising demand in Q3 was impacted by a shift in spending to the main broadcaster of the Rio Summer Olympics, and the non-recurrence of advertising dollars generated last year from the federal election. This was partly offset by strong year-over-year growth in our outdoor advertising.

From a profitability perspective, higher revenue and labor savings from workforce reductions that took place in Q4 of 2015 drove adjusted EBITDA growth up 2.2%. This was achieved despite a 3.9% increase in operating cost that reflected higher costs for sports broadcasting rights, new programming and the continued ramp-up in CraveTV content. And most importantly, Bell Media generated simple free cash flow of CAD475 million year to date, or 2.8% higher than last year, an impressive result when you take into account the operating losses we've absorbed in EBITDA from scaling up CraveTV, which surpassed 1 million customers this past quarter.

Slide 14 provides the key components of adjusted EPS, which was in line with our plan for Q3 at CAD0.91 per share, and as I mentioned, down about CAD0.02 compared to last year. Higher EBITDA accounted for CAD0.04 year-over-year increase in EPS. Other items that contributed positively to EPS this quarter included lower net pension financing costs, as well as higher year-over-year tax adjustment, which amounted to CAD0.02 of EPS versus CAD0.01 last year, bringing total year-to-date tax adjustments of CAD0.04 per share. No further material tax recoveries are expected for the remainder of 2016.

Despite these positive factors, as I referenced at the outset, EPS was negatively impacted this quarter by CAD0.03 per share non-cash, mark-to-market gain on the equity derivative contracts recognized in Q3 of last year. Additionally, total depreciation and amortization expense increased on a net basis over last year, due mainly to more assets in service. This was expected, given our higher planned capital spending this year. And lastly, year-over-year decrease in adjusted EPS also reflected the dilution of around CAD0.02 per share, due to the higher number of outstanding common shares following our CAD863 million equity issuance last December.

Free cash flow, moving to slide 15. Q3 free cash flow was CAD951 million or 3.3% higher compared to last year, driven by higher EBITDA, an improvement in our working capital position, lower cash dividends paid to Bell Media's non-controlling interest due to the timing of the payment this year versus last, and a year-over-year decrease in net interest paid. We've taken advantage of favorable market conditions in a sustained low-interest rate environment this past quarter to further bring down our weighted average cost of debt and achieve additional preferred share dividend savings.

On August 12, we completed a CAD1.5 billion dual-tranche public debt offering at a blended average coupon rate of 2.4%. Both new series of debentures represented the lowest coupon rates we ever achieved, reducing our after-tax cost of debt to 3.33%, while maintaining an average term-to-maturity of just over nine years. This has not only helped to drive our strongest interest rate coverage ratio of the past five years which, at 9.21 times adjusted EBITDA, is significantly above our 7.5 times target policy, but also provides good predictability in our debt service costs, as well as the protection from interest rate volatility going forward.

With respect to our preferred shares, we have reset the fixed dividend rate on four different series so far this year, with one additional reset coming on December 1. These five share resets, which have total face value of CAD1.8 billion in aggregate, are expected to bring the average dividend rate down from 4.1% to approximately 2.7%, resulting in an annualized savings of approximately CAD25 million.

This quarter's free cash flow result also reflects higher planned CapEx investment, as I mentioned earlier, and a year-over-year step-up in cash taxes, consistent with our guidance assumptions for the year. With strong year-to-date free cash flow growth of 10.6%, we remain comfortably on track to achieve our full-year guidance target of 4% to 12%.

In closing, with three quarters of strong operational execution and healthy growth and consolidated financial results that demonstrate a clear focus on subscriber profitability and price discipline, we are well-positioned to deliver on the guidance targets that we provided at the beginning of this year.

Finally, we expect no impact on the 2016 financial guidance from our acquisition of Q9 Networks that was completed in early October. Given Q9's relative size in terms of revenue and EBITDA, it's not financially material to our overall wireline and consolidated results, nor does it impact BCE's leverage ratio meaningfully. On that note, I will turn the call back over to Thane and the operator to begin the Q&A portion of this morning's call.

Thanks, Glen. So before we get started with the Q&A period, given the number of questions in the queue, and to keep the call as efficient as possible, please limit yourselves to one question and a brief follow-up. To the extent we have time, we will circle back at the end of the call. So Valerie, with that, we're ready to take our first question.

Thank you, Mr. Fotopoulos. We will now take questions from the telephone line.

(Operator Instructions)

Richard Choe, JPMorgan.

Great, thank you.

Just wanted to get a little bit more color on the service revenue growth. Can we continue to see ARPU move up at this rate? And what is driving that?

So on the wireless ARPU specifically, I think that's what you're asking on, service revenue growth, it's clearly twofold. One is the growth in subscribers, which has been stronger, I think, than we had even expected at the beginning of the year. And secondly, clearly, it's, to your point, and the average revenue per customer. And what we saw in the summer again, and I would think we were also surprised, given how strong ARPU growth was last year, as people might recall, in this quarter. Again, as the growth, as people moved to our LTE Advanced network and the speeds that they are able to access, we saw in increase in usage of 35% year over year. And so it's really the incremental usage that's driving some of the incremental average revenue that we are seeing. It's hard to know what will continue going forward. But certainly, based on what we are seeing, the demand to use the network is growing. As a result, that's giving us this significant top-line revenue growth.

And in terms of [better than] environment, has anything changed since the end of the quarter? Or is it still heavily promotional on the [handsets]?

It's aggressive. I don't know if it's more aggressive, but we're coming into what is traditionally the most aggressive season. And as we enter into November/December, we would expect it to be as intense competitively as it always is, given how important that quarter is from a sales perspective.

Okay, thank you.

Phillip Huang, Barclays.

Hi, thanks, good morning.

A question on the [posting] net add side. Quite nice to see the strong performance this quarter, particularly given the strong financials as well. Was wondering if you could provide some regional color on the strong performance? Where you are seeing the strongest momentum? Is it Western Canada gaining momentum, or pretty balanced overall?

Actually, it was balanced overall. I actually took a specific look at that over the last couple of weeks to see if there was one specific geography that we saw strength. And I would say it was across the board. We clearly saw net adds in really every one of the markets. It was a very strong quarter, clearly for -- it looks like for the industry, although there is one still to report. And so we are able to, through our execution -- we think, in our specific case, the focus on the network speed and that advantage we've now are generating in the market is really driving incremental ARPU for us, and a good market share of the net adds

That's very helpful. And just --

It was across the board, though.

Right. And very similar question on the fixed line side as well. Certainly your subscribers continue to reflect free continued intense competition in the market, particularly for Fibre TV, this quarter. Was wondering if you could similarly provide us some regional color? Are you seeing a bigger delta in competition, whether it's in Ontario or Quebec or Atlantic Canada? Thanks.

Yes, I would think specifically in Southern Ontario was most aggressive on the pricing side, as we've seen; we saw pretty aggressive pricing from one of our competitors there. And that's, in one sense, reflecting on our results. And we are sticking to our discipline of growing the EBITDA and making sure we are driving through our IPTV products to pull the broadband subscribers through. And that continues to be the strategy. It's probably one of reasons on this call -- we would not normally -- we shared also the growth we saw, where we had FTTN and FTTH, from an Internet perspective, so that people can see that there's some pretty strong underlying growth there where we are making those investments. But it was a particularly aggressive quarter in Southern Ontario.

Thanks, George.

Maher Yaghi, Desjardins Capital Markets.

Yes, thank you.

So I wanted to ask you about your go-to-market strategy. As you mentioned, you have so far resisted the view of matching, or going out and being aggressive and gaining market share. But when you look at the investments that you're making in fibre to the home, how long -- or, let's say, in order to deliver financial results on those investments that you're making on fibre to the home, traditionally we would assume that you need to gain market share at a faster pace than what you're seeing right now. So how long can a company continue to resist in order to protect profitability when the competition doesn't seem to be constrained in its promotional activity?

That's a long question. Let me try to answer the best I can.

I think this Management's track record of finding the balance for our shareholders between subscriber growth, cash flow growth, and EBITDA growth, maybe is best shown this quarter with our wireless results relative to our number-one peer, where we are generating both financial strength and subscriber strength. So that probably speaks to our approach to the marketplace. I think also, when I talk about our broadband net, Internet adds in the footprint that I've identified. Part of that is, it tended to make sure investors understand just how well that strategy is executing for us. And I think if people were to look at our IPTV net adds on TV against our competitors, we took significant share on the TV side in that footprint. So I think we're on track. It's aggressive. And of course, we always have to balance the question you ask. We hope we have that balance correct, and we will continue every quarter to have to make those decisions. But with EBITDA growth and wireline cash flow growth of 10% year to year, and those strong overall subscribers also, we are pleased with the quarter on balance, given the competitive dynamics.

And just the follow-up -- thank you for that.

And just in terms of, in the territory that you have, the footprint where you have fibre deployed, how much of the satellite pluses are switching to your own Fibe TV? Or is it mainly going to other ISPs -- or, I mean, in terms of resellers?

Yes, I think we talked about it in the past being anywhere from 10% or so, but I think in the last quarter, it was more about 6% in our footprint. And so on the satellite side, one of the reasons I mentioned earlier, we think outside of our IPTV footprint, we can probably compete a little more aggressively on the satellite side in the markets where there's not the IPTV conversion market going on. So we will look to do that going forward in the marketplace. But there's not a lot of conversion now from our satellite to IPTV, because we don't have as many subs left in that particular footprint.

Thank you, George.

Jeff Fan, Scotiabank.

Thanks, good morning. One quick clarification, and then a question about the TV market.

On the clarification, George, you mentioned you broke down your adds on Internet related to FTTX and outside FTTX. Wondering if there was any distinguished difference between what's going on inside your FTTH footprint versus just the FTTN footprint in terms of Internet adds?

Yes, it is better. It is, where we have the -- it's one of the reasons we continue to accelerate fibre. Overall, wanted to give the FTTX number so people could understand the difference between the two. Because clearly [there are four], in the footprint without FTTX. Meaning, for investors on the line, FTTN or FTTH when I do that. That's clearly where we don't have either of those footprints, where we see the, in essence, the decline in Internet subs. But yes, clearly where we have FTTH is where we see the strongest results. And that's why we continue to make the investment, and why we're going to do that over the next decade.

And then a question on TV. Bell is obviously the leader in technology platform functionality, user interface, et cetera. You guys continue to integrate with other platforms like Apple TV, you just announced today. But as you look ahead, is it -- do you think customers -- or, the market is shifting to a point where functionality and technology platform really makes the difference to drive better TV adds? Or do you think it requires a change in packaging and pricing of channels? Or whether offering to the core-cutter market -- I don't know if that's big enough right now for you to go after. Wondering if you can give us your thoughts on that?

Yes, well, first, I don't want to be too dismissive of the question, because the question is an important one. It is a mix of all of those. And we are having to, as the industry is so competitive, clearly we have to repackage, based on the consumer preference. And we've got to do that to drive the market share. The technology differentiation is our leader with IPTV, but sometimes it stands up and gets the subscriber, other times, it doesn't. So sometimes you even have to obviously do price packaging that might be more aggressive.

And then, in terms of the OTT world, I think where we are most focused on at the moment, is learning through our launch of the Crave product, where really, customers who want to subscribe to service over-the-top can do that now with Crave. And we think with a fairly competitive product, we think the Canadian development recently probably positions that product a little stronger in the marketplace. And with some of the announcements you'll see on Crave coming up, some of them referred to in our press release, with some first-run content on Crave, we think we are putting our foot into that marketplace, and make sure we're trying to meet the demand there as we go forward. And we are, quite frankly, learning as we go through the demands that the consumer wants to see from a product perspective.

Okay, thanks, George.

Drew McReynolds, RBC Capital Markets.

Thanks very much, good morning. George, two questions from me, and I won't have a follow-up, I'm sure.

Can you comment, just two quarters into this uptick in wireless gross additions across the industry, can you just comment again on what you think the source of that is? Just because it's benefiting everyone. It looks like the market has expanded somehow. And then second one, just a big picture, when we look down in the US, we're obviously seeing Verizon and AT&T branch out into content, and in some instances expand geographically. And that's perceived to be due to just slowing core revenue growth in their core business. Can you just talk about what you're seeing here in Canada in terms of that growth outlook? And where you see new revenue opportunities? Thanks.

Yes, so on the wireless subscriber side, I think it is fair to say the industry, including the [Alice] community, we've all been pleasantly surprised by the strength in the industry. And we're, as we go forward here, also learning this as to why has this demand accelerated so quickly. And I think there are some things we're seeing. Clearly the expansion of these networks and our LTE Advanced network brings product and broadband solutions that, quite frankly, you couldn't imagine were going to be available on wireless. I think that's increasing demand for our services. I think if we look at the new-entrant market, they are doing fine. But the rapid growth they were seeing the last few years is clearly not in their results. That seems to have leveled off. So I think that there's probably some market share change there.

I think the second line addition in the marketplace that's happening in Canada, possibly behind where the US was a couple of years ago, where the separation of people from their business line into consumer line continues to grow in Canada. And I think that probably started in the US earlier than it has happened in Canada. And then I also think, just generally across the population, this product has become so important that there is probably some demographic that we are probably moving down the age curve on this product. And seeing that growth as we enter the fall every year, as people return to school almost at younger and younger ages. That's probably part of it.

And then, overall, the immigration in the country. When we talk about 300,000 New Canadians a year, clearly they are going to be subscribers to wireless services, and that allows for some incremental growth as well. I mean, that's where we would generally frame it. And then I think probably a little stronger economy people have talked about in some of the provinces, where there's a lot of population. That can't hurt the overall industry, it can only help it. That's our view.

That's great. And just on the big-picture revenue growth outlook?

Well, we had a stronger quarter in the third quarter. We would hope it's an outlook that we will have a stronger fourth quarter on our revenue across. I was pleased with the wireline revenue being a little bit up, and I think Glen talked about that. So our guidance isn't changing this morning. But certainly we feel better in this second half than we did in the first half, on the overall revenue for the Company, and particularly with this underlying wireless growth that we're seeing here on the revenue side.

Okay, thank you.

Thanks

Aravinda Galappatthige, Canaccord Genuity.

Good morning, thanks for taking my question.

George, I was wondering if you can expand a bit on the improvement that you alluded to on the B2B front? Obviously it's been in decline mode, albeit relatively steady for a while now. Is there any sign of a sustained improvement there? Or is that just the smaller segments that are going in your favor?

No, we did have a little better quarter, year over year. And, one, we will take it. And two, we hope it turns into a trend. I would also say on the calling out, our small business group is doing a little better year over year. We are probably competing there a little more aggressively, but it's helping us maintain customers. And on the B2B side, there have been some large wins and win-backs that we have which will help us actually into next year. So overall, for investors, we're not positive yet on the revenue side, on the B2B side, but that decline was better quarter over quarter. And of course, if that stabilizes, that helps the overall wireline story. But still lots of work there to do.

And just as a follow-up to that, the declines on the business, the NAS losses, that should not be seen as any kind of a lead indicator, would it?

No, I would not. When there's federal elections, there's a lot of lines that go in and out, and we tried to call that out here. And Thane is happy to take some other folks through detail on that. But basically, that's really what happened on the B2B side.

Awesome, thank you.

Batya Levi, UBS.

Great, thank you.

On the wireless side, you mentioned that the upgrade activity was low in the quarter. Can you provide a bit of color into the 4Q? Do you anticipate that to pick up? And should we assume that the COA and retention was up year over year, and that continues into fourth quarter as well?

Yes, I think on both, COA and retention will be up a little bit year over year, as it was in this quarter. The volume was down. Remember, last year we were into the first full quarter of the double cohort. So volume was a little different, but costs are up. Costs are really up in Canada on COA. One, the mix of customers who want the high-end smartphones. And secondly, the dollar working against us year over year, starting to impact as that goes through the financials, and will have obviously an impact where the dollar is versus a year ago. So I would expect both COA and our cost retention to be slightly up. But we'll have to see. Frankly, it can change so dramatically, depending on the competitive intensity. And you could end up as much as CAD10 a unit higher, or you end up CAD10 a unit lower, depending what's happening in the market from an intensity perspective.

Got it, thanks. And one follow-up on the wireline side, if I could.

Can you provide a little bit more color in terms of the specifics you're seeing on KPIs when you compare your fibre to the home footprint or versus fibre to the node? Maybe in terms of ARPU or churn, I'm assuming fibre to the home is better. But any numbers that you could put around that?

Sure; a couple I'll just comment on. The churn rate is better. Our market share is better in markets that we have it. And importantly for us, the operating costs. And so the call-backs, when we call truck rolls visiting customers because of issues, are about a third less. And so those are the numbers we have. And a lot of those come from the number of years we've operated in the Aliant footprint, as we've begun to build out now in Ontario and Quebec. And Quebec has actually got a fairly significant fibre footprint. Ontario, now with the focus in Toronto. So all the metrics that I have described drive [is still] want to continue with that investment, knowing that ultimately, the speed requirements in the home will only grow, and the number of devices attached to the home are only going to grow. So that is why we continue that investment.

Okay, thank you.

Simon Flannery, Morgan Stanley.

Great, thank you very much.

George, I wonder if you could just give us a little bit more of an uptake on the build plans for Fibe provided to the home? Where are you currently, and how is the pacing and the costing going versus your plans? And we've seen Verizon and Google and others look a lot more closely at fixed wireless for that sort of last drop from the street to the home. How are you thinking about this wireless 5G in this context? Thanks.

So FTTN and our FTTH in total is about CAD8.5 million. We are at about CAD2.8 million on fibre, and that continues on the track that we've outlined. Our big focus this year and next year is in the 416 of Toronto, and some other markets that we'll be investing. So we'll talk about guidance in February, but somewhere between 500,000, 650,000 households a year is probably going to turn out to be our targeted rollout. And as I said, we think that will run through for quite a period of time.

And then on the 5G, I think that was the second part of your question, yes, we're doing some trials. We think it's quite a ways away, from a investment perspective and deployment, particularly what we are seeing with the roadmap we are on now. And ultimately, possibly, our fibre roadmap, in that we talk about getting to 80% to 85% of our footprint over time. Maybe at the end, it's not that expensive, because some of those secondary markets can be supported by 5G. But at the end of the day, you're building the fibre literally to the premise with that structure anyway. And so it will be an interesting decision we will have to make at that point in time. But for our investors, we are perfectly positioned to move at the pace that requires, and if it turns out going right to that last premise in some of those secondary markets is more cost-effective, with a technology that's not in the market today, at that time, then we could look at it then. But right now our core focus is, we think fibre will still be the best avenue, and 5G will be a overlay for wireless as the next evolution of speed for wireless.

Great, thank you.

Michael Rollins, Citigroup.

Hi, thanks for taking the question.

I was wondering if we can get an update on some of the key regulatory initiatives around the mobile side, the fibre wholesale side, and any other key issues that you're watching the development of? Thanks.

I think maybe the fibre wholesale, where there are submissions going on now. And then we will wait into next year as to what the pricing for that access to the fibre resale will be. So that's probably one file that we are watching carefully. On the wireless side, there are always ongoing files. I think the major one for us would be this particular resale of what fibre will be. And clearly we were disappointed in the recent decision on the FTTN pricing, on a wholesale perspective. We don't think that was -- well, it was certainly not positive for BCE. And we will have to manage through that as we go forward into next year.

So just to follow up on that real quick: what would be your expectations for the outcome of the fibre wholesale proceeding?

Well, the outcome of it will be, what is the resale price. And we will be hopeful that, that resale price is set at a way that ensures that Canadians can continue to see broadband investment by large companies, given infrastructure projects like ours and the cable operators'. And that will have to be reflected in the wholesale pricing. Otherwise, those type of investments can be curtailed. And particularly in the secondary markets, which isn't something we want to see happen, nor would anyone in Canada want to see happen. So we just have to see how that process unfolds and what those pricings are. And we will have to obviously course-adjust, depending on the outcome of that process.

Thanks very much.

Greg MacDonald, Macquarie.

Thanks, good morning, guys.

George, quick question on the descriptors that you gave for the gross adds in the industry. Those were quite interesting, actually. And all of the ones you indicated seemed to me to be sustainable trends. Would you agree with that? And have you seen evidence in the 4Q, and are your expectations for 2017, are they all that, you'll continue to see a positive impact on gross adds for the industry next year? That would be helpful. And then I have a quick follow-up. Thanks.

You know, Greg, I think it's too early to make that call. I think as all the analysts on the call will know, and you will know, there's two quarters of strong numbers. But I think all of us, until we get underneath completely what's driving it, it's hard to turn this into an outlook for the next 15 months. What we are really pleased with, though, is, from an investor perspective, is the underlying use of our product by our entire base, arguably is driving as much revenue growth as the net adds. The continual focus on net adds is important, but the real focus and where the significant money in the industry is coming from is the increased usage of these products because of our networks. Which are, I've talked about it a lot, I know, but being rated as the fastest in the world, almost in terms of our wireless service, certainly in North America. And what we will be doing next year with carrier aggregation, taking it to another level, again, with speed. We think that's what's going to continue to drive the revenue growth in the industry. And then net adds are secondary part of that. But, boy, it's early to make a call on next year, at least certainly too early for us to.

Okay, I can appreciate that. So the follow-on is related to what your descriptor just was. So we've seen some evidence from Rogers that they're looking to advertise a product that allows small business customers to drop their land line and go more for a business line. And I'm getting the sense that, that's at least part of what we are seeing on the gross add front on wireless. Are the economics attractive enough for the industry, and for you in particular, to take that type of approach as well? Because we are seeing systemic declines on the access line for business as well. If you can't beat them, join them, I guess, is the question. Are the economics attractive enough to do that?

Well, I would say the amount of wireless substitution for small business is actually fairly small. We'll see how our competitor does in the marketplace. But we believe our wireline products are vastly superior to anything the wireless industry is offering for small business on the wireline side, and that's our focus. And there are those that have total mobile businesses. Those are clearly wireless, and we're in that space. But we don't think that's had literally any impact on us at all, in our Company.

Okay. All right, thanks, guys.

Tim Casey, BMO.

Thanks. George, could you flesh out a bit more what you're seeing on the competitive side on wireline, in terms of the nature of the customers you're getting? You stress that obviously wherever you deploy fibre, you're seeing better share. I'm just wondering -- your primary wireline competitors have responded with aggressive Internet offers. And I'm just wondering what you're seeing in terms of your ability to compete with that? Is it still the functionality on the video side? Or are you having to match on pricing on Internet? Thanks.

Yes, it's a good question.

I want to be a little careful on the competitive questions on a conference call, obviously, Tim. But I would say our focus continues to be for us that we know we have a vastly superior video product in the marketplace, and that is our lead product. And the pull-through from our broadband shows up in our numbers. Where we secondarily have FTTH built out, clearly there have the superior Internet product, second to none in the world. In that case, we can push both those products, and we can even lead with FTTH. And that will, of course, evolve as we add more footprint.

So it is a combined solution, all right. For the consumer, it's an aggressive market; it has been. And everyone is trying to get their fair share of the growth in the industry. And we think we're achieving that balance. And we will continue to have to make sure that we're competitive, though. And it changes market by market, province by province, and city by city, it seems, every quarter. And as I mentioned, I think it's been particularly aggressive in Southern Ontario.

Thank you.

Vince Valentini, TD Securities.

Yes, thanks very much.

George, you mentioned that the FTTN Internet resale decision would be negative for you. I assume it hasn't been your focus in the last 15 hours. But COGECO didn't lower their guidance by CAD20 million, partly due to that decision. Is there any way you can quantify it? I would about imagine BC's exposure is quantums of what COGECO's is on an absolute basis.

Yes, what I would say is, our guidance hasn't changed for this year. And the impact of that will be in our guidance for 2017 in total. But also, I think, very important overall for BCE's scale for our shareholders, we believe our fourth-quarter execution position is well to continue our capital market strategy. Having said that, on that very specific file, yes, it's not a positive decision. We think it has the risks of mitigating investment in broadband, and so obviously we are following that. It's interesting -- I wasn't aware of that change from one of our competitors. But I can imagine, because overall, for everyone, it is a re-price on wholesale on the FTTN side.

Thank you.

Okay, Valerie, seeing as how we're headed towards the end of our hour, this will be our last question.

Rob Peters, Credit Suisse.

Thanks for squeezing me in.

Just a question on data, and looking at the IPTV side, with the five apps being available on Apple TV. Is that going to count against the household's data cap, if they use that as their second cable box? And then, any kind of -- or, sorry, IPTV box? And then any color around how that might be considered, given the current differentiated pricing practices here and going on at the CRTC right now?

We would anticipate the customers will subscribe to unlimited Internet packages, which we offer in the marketplace, to leverage that product. Which of course, for us, drives incremental revenue for our investors on the line; for our customers, a pretty unique experience. It's the only one in the marketplace that has the Apple TV capability, with our five apps. So we're really excited about that positioning. And I think most exciting is getting that recognition from, I think as clearly everyone would know, one of the world's leading technology companies recognizing our leadership in TV. That's probably one of the real proud moments for us this morning. So with that, maybe thank you.

That's it? Okay, great.

So thank you to everybody on the call this morning who participated. As usual, I will be available throughout the day for clarifications and follow-ups. So on that, thanks to everybody again, and have a great day.

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