BCE Inc (BCE) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to BCE Q4 2016 results and 2017 guidance conference call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead Mr. Fotopoulos.

Thank you Valerie. Good morning everybody. With me here today as usual are George Cope, BCE's President and CEO, as well as Glen LeBlanc, our CFO. As a reminder, our Q4 results package 2017 guidance targets, and other disclosure documents including today's slide presentation are available on BCE's Investor Relations webpage. An audio replay and transcript of this call will be made available on our website later. However before we get started, I want to draw your attention to our Safe Harbor notice on slide two. 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. 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. With that out of the way, George. Over to you.

Great. Good morning everyone. Thank you for joining us. Very pleased with our year-end fourth quarter financial results. The Company obtained, met all of our financial targets for 2016, and put us in a very strong position going into 2017. And allowing us to provide the incremental dividend this morning that we'll talk about in a moment. In the fourth quarter service revenue growth accelerated to 2.3%, either service revenue or consolidated revenue was our best topline performance since the third quarter of 2015. Very pleased that we not only achieved positive EBITDA growth of 2.3 for the Company, but across-the-board all three business segments as we had planned were positive EBITDA for the entire year in 2016. We had excellent financial results 7.2% service revenue growth, continued growth in ARPU, EBITDA growth, even with the incremental net adds, up 23% year-over-year. We continue to have steady performance with our IPTV business, and that is clearly pulling through the internet in that footprint, and we'll turn to that in a moment.

On the wireline side we saw positive EBITDA growth of 0.9% for the quarter, and for the year wireline was positive and we saw an increase in margin in the fourth quarter in our wireline business to 40.1%. Media had a very strong fourth quarter. I think we will see the financials are industry-leading, with strong revenue and EBITDA growth and contributing to cash flow of BCE. We now expect the MTS acquisition to close by the end of the first quarter of 2017. That continues to be subject to regulatory approval specifically Competition Bureau and ISAT. It is our belief that we will get those regulatory approvals. Still subject to those approvals, but with an expected close at the end of Q1.

Turning to our wireless results, as I indicated post paid net adds were very strong, up 23% year-over-year, and that was despite the loss we thought we would call it of one particular corporate client of 18,500 units, a very low ARPU customer of CAD30 did have an impact on our churn, but clearly the client that we want to lose at those type of ARPUs, and so as a result churn is up slightly, but you can see the net adds are still extremely positive, even with the loss of that account. The ARPU growth of 4.7% driven again by our mix of postpaid subs and the LTD data usage we were looking at that yesterday, and for the entire year our data usage on the Company across our subscribers is up 41% year-over-year. Cost of acquisition up slightly year-over-year. Again, mix of richer handset line-ups, as well as some impact of the weaker Canadian dollars. Retention spend was also up year-over-year, and again, that's principally driven by the activity in the fourth quarter, and also again movement to the LTE hand sets.

Turning to our wireless network, plans for 2017 and our position to continue to lead, at the end of 2017 we would expect 99% of the Canadian population will have access to 4G LTE. 83% of the population will have access to LTE Advanced, and we continue to roll out a carrier aggregation technology to provide additional speeds in the industry, in fact in 2017 we will launch four carrier aggregation in a number of markets, which will give customers effective speeds of 41 to 166 Megabits per second.

We have already rolled out over 500 of our cell sites with that technology. We are awaiting handsets, and we expect handsets in the second quarter to give of us that capability, and we believe it will certainly be, if not the only carrier in the world, one of the first carriers in the world to be in the marketplace with 4 carrier aggregation, which just improves the continual speed that we are giving to our customers. Our capital intensity for the year, even with these investments for wireless will be consistent, as it has been the last number of years at around 10% of our revenue.

Turning to the wireline, we added 18,400 internet subscribers in the quarter. Importantly, 30,000 internet subscribers where we have IPTV. Clearly in the footprint the DSL footprint is where we had negative internet net adds. So our strategy, continuing to roll out FTTE and in fiber is clearly the right strategy, and that will over time of course, extend our footprint and help mitigate some of the negative net adds in the DSL footprints. Service revenue up 7% are on internet, so strong quarter financially from an internet perspective. Approximately 36,000 IPTV net adds, and you can see within that 30,000 internet adds. You can see the pull through and the strategy working, and of course the average revenue per customer with internet and IPTV for us would run around CAD120. Net in our footprint when you include the losses of satellite was about approximately 6,000 TV net adds in our wireline footprint, and we saw slight improvement in NAS losses year-over-year, particularly in the small business area, where we have seen our performance continue to improve throughout the year.

Turning to Slide 8 and some of our capital wireline programs for 2017, for our investors our strategy really remains the same going into 2017 on the wireline side. We will continue to add fiber to the premises footprint. We expect that to end 2017 at about 3.5 million of our 8.4 million fiber locations, the remaining being FTTN. We expect the Toronto overlay, majority of Toronto to be completed by the end of 2017, so we will be in the marketplace obviously aggressively in Toronto, when we are through that important number.

And from a TV perspective we have many more advanced features coming on you are IPTV product in 2017 positioning us well in the competitive marketplace in the evolving competitive marketplace we would expect in 2018, and we will be working aggressively to maintain that technology leadership, and set ourselves up very well going into 2018 with a number of key announcements in the marketplace in 2017. Capital intensity for wireline will be similar to this year somewhere in the 24%-ish number to revenue, and we continue to do that well. We execute the fiber build-out and that continues I believe to give us about 5% capital in teens below our largest cable competitor.

Turning to Bell Media as I mentioned strong financial results. I think in the industry maybe leading financial results from a media persistence. CTV continues to be the number one network in the country. Discovery Channel was the number one specialty entertainment channel. We also had a fairly strong quarter for TSN and RDS, with prime time audiences up 11%. We had the strongest TV audience that has, the strongest hockey audience that has watched any hockey game in the last two years with the World Juniors at 5.2 million viewers. Contrary to some other markets around the world, the NFL viewership is up actually 18% for us year-over-year, and Crave had one of its best months ever in December of 2016. So right across-the-board I think a fairly good quarter for the media operations.

Turning to page 10, happy this morning, and very pleased to announce the dividend increase of 5.1% to CAD2.87 per share. This dividend increase is consistent with what we have executed on over the last eight years. Our free cash flow dividend payout will be maintained between 65% and 75% with this dividend increase, and that will happen whether or not we close or do not close the MTS transaction. As I indicated, we expect it subject to regulatory to close at the end of the first quarter, but for our investors it's important to understand, that if something were to change there, our free cash flow guidance keeps us in our payout ratio, and allows us to provide this dividend increase. Really that's driven off the 7.6% free cash flow growth in 2016, just a very, very solid year for the Company, and allows us to provide the dividend increase for the eighth consecutive year. With that, let me turn it over to Glen.

Thanks George. And good morning everyone, and thank you for joining us.

I'll begin on Slide 12 with our first quarter financials. These results round off another very solid year of consistent performance, which has become something of a hallmark for BCE, clearly showing the strength of our business model built around a disciplined focus, on profitable subscriber growth, and cost control. A highlight to the quarter was the service revenue growth George mentioned, which accelerated to 2.3% on the back of our wireless, broadband wireline, and media growth services, that collectively increased 4.7% year-over-year. This represented our best top-line results since Q3 of 2015. Adjusted EBITDA was also up a healthy 2.3%, and like the first three quarters of 2016, reflect positive year-over-year contributions from all three of the Bell operating segments.

Consistent with this EBITDA growth margin also improved, increasing to 37.2% on the flow through of continued strong wireless ARPU growth, increasing broadband internet, and IPTV scale, fewer NAS line losses, and lower year-over-year wireline operating costs. Adjusted EPS increased CAD0.04, or 5.6% over last year to CAD0.76 per share, on higher adjusted EBITDA, and lower year-over-year impairment charges related to the Bell Media properties. This was partially offset by the mark-to-market losses realized on our equity derivative hedge contracts, as a result of the decline in the BCE share price in Q4, and higher amortization expense.

Additionally, lower severance, acquisition, and other costs due mainly to workforce restructuring initiatives undertaken in Q4 of 2015, contributed to the 29.3% increase in statutory EPS this quarter. And lastly free cash flow. Adjusted EBITDA growth and lower cash taxes were the principal factors supporting free cash flow generation of CAD923 million this quarter. However, this was largely offset by the higher planned capital spending on our broadband network infrastructure, and decreased working capital from an increase in customer receivables, that reflected our strong wireless post paid growth in the quarter, and the inventory build-up mobile devices for the busy Q4 holiday sales period.

And with that overview let's turn to the detailed results of our wireless segment on slide 13. Q4 was another in a long line of exceptional quarters for Bell Wireless. Service revenues continued to accelerate increasing 7.2% year-over-year. This was a result of our postpaid mix, which now represents 91% of our subscriber base, and data usage growth driven by the faster speeds of our leading LTE networks. Wireless adjusted EBITDA grew a strong 5.1%, yielding a service revenue margin of 39.6%.

This result is even more impressive, given that it was achieved while absorbing CAD67 million in higher costs year-over-year, from 46,000 more postpaid gross additions, and a 16% increase in the absolute dollar customer retention spending, which was a direct result of the Richard competitor acquisition offers, and consistently more aggressive promotional activity throughout the quarter compared to the same period last year. Lastly in terms of cash flow, which at the end of the day is what matters most to a dividend growth company like BCE.

Bell Wireless provided strong contribution to the consolidated BCE cash flow, in both Q4 and for the full year of 2016, delivering an impressive year-over-year growth in adjusted EBITDA less CapEx of 7.4 and 7.5 respectively. If we look at Bell Wireline's Q4 financial results on Slide 14, you will see similar performance trends to the previous quarter. 0.8% decline in total revenues was a result of softer wholesale results, driven by significantly lower rates set by the CRTC for aggregated high speed internet access services, as well as a lower sales of international long distance minutes. Reduced business customer spending on core connectivity service and data products also contributed to lower year-over-year revenue, which continues to reflect slow economic growth and repricing pressures rather than competitive market share losses.

In residential wireline revenues increased a solid 1% in Q4 reflecting combined internet and TV revenue growth of 5.8%. And the financial contributor from the acquisition of the data center operator Q9 Networks on October 3rd, also contributed to moderating the overall decline in total wireline revenue this quarter. In terms of operating profitability, wireline adjusted EBITDA increased 0.9% in Q4, and that represents our 10th consecutive quarter of positive year-over-year growth. This drove a strong 0.6 percentage point improvement in margins to 40.1%, reflecting a 1.8% reduction in operating costs, driven both by ongoing spending controls, as well as customer service and fiber related operating efficiencies and productivity improvements.

Moving over to media results on Slide 15, overall another strong quarter of contribution to BCE's overall consolidated financial results, capping off a great year, Bell Media delivered positive revenue, adjusted EBITDA, and cash flow growth. Revenue growth of 3.6% in Q4 mainly on the strength of subscriber revenues and year-over-year growth in Astral autophone. Subscriber revenues were up 9.6%, driven much like they were in the first three quarters of 2016, by the national expansion of the movie network, and the further growth in CraveTV, and our broad suite of TV everywhere go streaming products.

Advertising revenues were essentially unchanged in Q4, down a modest 0.3%. The become in conventional TV due to the non-recurrence of advertising dollars from last year's federal election, as well as a soft radio advertising market, were effectively offset by growth in outdoor advertising and higher year-over-year specialty entertainment and news channel revenues. Adjusted EBITDA grew a solid 2.2% in the quarter on the flow through of the higher revenues. This was achieved despite operating cost growth of 4%, driven mainly by the higher year-over-year programming in CraveTV content costs. And with that I'll stop there on results for the quarter.

On Slide 16 I have summarized BCE's overall financial performance for 2016, at 1% we achieved our full year revenue guidance even with a 7.2% decline in low margin product sales that continued to cause topline variability. And if we look just at service revenues, which is recurring in nature, and therefore the key driver of adjusted EBITDA, we delivered solid growth of 1.7 for the year. We saw increased contributions across our growth services, as we maintained a sharp focus on subscriber profitability, price discipline and cost control to deliver adjusted EBITDA growth of 2.8%. But more impressively this drove an 80 basis points increase in consolidated margin to an impressive 40.5%.

We also finished the year with 3.0% higher adjusted EPS of CAD3.46 per share, and a strong 7.6% increase in free cash flow, which grew to over CAD3.2 billion. With strong operating cash generation, we had the headroom to move up our capital intensity increasing investment on our major strategic network priorities, while still generating more than CAD900 million of excess free cash flow, after the payment of a higher year-over-year common share dividend in 2016. So all-in-all our financial foundation remains strong, and our operations well-positioned as we begin 2017.

I'll turn now to our financial outlook for 2017 summarized on Slide 17. Our 2017 guidance targets build on the favorable financial results, significant broadband infrastructure investments, and operating momentum we delivered last year, with the expectations for continued strong wireless profitability and postpaid subscriber growth. A third consecutive year of higher year-over-year wireline adjusted EBITDA, and stable contributions from our Bell Media division. Our revenue and EBITDA guidance is consistent with current analyst consensus.

We are also looking to manage our capital spending in 2017 at around 17% of revenues, allowing for increased spending to expand our fiber-to-the-home footprint, extend our LTE advanced network build-out, and meet rapid growth in data demand. All of which is expected to translate into another year of very healthy free cash flow growth, providing a strong and stable foundation for the 5.1% increase in BCE's common share dividend for 2017. As well as the capital investments that further enhance our broadband market competitiveness. Lastly, I want to be clear that the financial guidance we are presenting today does not include the impact from our pending acquisition of MTS. We'll come back and refresh our 2017 guidance targets, and provide a financial assumptions underpinning for those targets following the completion of that transaction.

Moving to cash pension funding on Slide 18, the CAD400 million voluntary contribution we made in December maintained BCE's consolidated pension plan solvency position stable year-over-year at approximately 94%. We believe this is an efficient use of cash on hand at the end of 2016 as the contributions tax deductibility favorably impacts BCE's cash generation in 2015, while accelerating the move to a surplus position if interest rates rise. With our solvency position being 94% funded, a modest increase in interest rates would reduce our ongoing funding requirements significantly. As a result of the CAD400 million prefunding, together with the year-end solvency discount rate that got back to the level with the previous year, owing to a sharp increase in government bonds yields in the latter of 2016, BCE's regular cash pension funding for 2017 will remain essentially unchanged at around CAD400 million to CAD450 million.

Turning over to Slide 19, the statutory tax rate for 2017 remains unchanged at 27.1%. Our projected effective tax rate for accounting purposes is also around 27%, up from the 26.4% in 2016, due to lower year-over-year tax adjustments. We also expect that the step-up in cash taxes for 2017 increasing to the range of CAD700 million to CAD750 million from CAD565 million in 2016. This mainly reflects the higher taxable income for 2017 consistent with the growth in our earnings. However, it does not reflect the benefit of the MTS tax loss carry forwards that we intend to utilize post the close of that transaction. Which I expect to be in the range of CAD100 million in 2017 alone.

Adjusted EPS, slide 20 calculates our adjusted EPS old book for 2017, which we expect to be between CAD3.42 and CAD3.52 per share. Overall growth this year has been negatively impacted by the projected CAD0.04 per share decrease in tax adjustments, as well as the financial impact of the CRTC rulings from 2016 regarding wholesale internet tariffs, customer refunds for canceled services, and SuperBowl SIM supp. In aggregation these items are estimated to represent approximately 1 full percentage point of adjusted EBITDA growth, or CAD0.07 of EPS in 2017.

Accordingly, before the tax adjustments and the regulatory impacts, adjusted EPS is expected to grow by approximately 2% to 5% in 2017. Lastly, I would like to note that BCE's close to CAD1 billion of US denominated spending in 2017, has been economically hedged at a blended rate of CAD1.33. As a result we have effectively insulated our P&L and free cash flow exposure from US dollars purchases for this coming year.

Moving to Slide 21, our free cash flow generation in 2017 is expected to be strong. Increasing to a range of CAD3.325 billion to CAD3.45 billion, even without the incremental contributions of MTS. That growth of approximately 3% to 7%, which obviously has a mid-point of 5%, fully supports today's announcement of 5.1% dividend increase for 2017, and sets us up well for our continued dividend model as we head into 2018. This increase represents our ninth consecutive year of 5% or better dividend growth, while keeping within our targeted free cash flow payout range of 65% to 75%. As a result excess cash is projected to remain relatively stable at around CAD900 million.

Finally, turning to Slide 22 for a quick update on our balance sheet and our cash resources heading into 2017. Our capital structure continues to provide a very solid foundation, and high level of overall financial flexibility to execute our 2017 business plan and capital markets objectives. Our strong BBB+ investment-grade credit rating all have stable outlooks, and we expect our leverage ratio to improve to within target range over the next few years through growth and adjusted EBITDA, and applying some of the excess free cash flow toward debt reduction. I would also like to highlight BCE's attractive long-term debt maturity schedule, that has an average term of more than nine years, and only CAD350 million of MTMs to refinance in 2017.

Moreover, with a very attractive after-tax cost of debt of 3.33%, owing to consistently low interest rates over the past eight years, our interest coverage ratio has risen to its best level since 2010 at 9.31 times adjusted EBITDA. This is significantly above our 7.5 times target policy, providing great predictability in our debt service costs, as well as protection from interest rate volatility going forward. And as you have heard me say before, even if interest rate rise, the favorable impact on the pending plan deficit and resulting future cash funding requirements, would outweigh the higher costs of refinancing any long-term MTM debt.

Lastly, as we enter 2017 we have access to more than CAD2.2 billion of liquidity. This reflects a combination of multi-year committed credit facilities totaling CAD3.5 billion, unused capacity under our three year Accounts Receivable securitization program, and a healthy year-end 2016 cash balance of CAD853 million. All of that providing a solid financial underpinning of our 2017 business plan, and increased common share dividend. And as you know BCE's history of financial management has always been a prudent one, and that will not change. To conclude 2016 was a very good year for BCE on all levels operationally, financially, and strategically. And our 2017 financial guidance reflects the confidence we have in our business prospects for the coming year. And with that, I'll turn the call back over to Thane and the operator to begin the Q&A period.

Thanks Glen. Before we start the Q&A period, please to keep the call as efficient as possible, I would ask that you limit yourself to one question and re-follow up if you need to. So with that, Valerie, can you please tell the listeners about how to queue up.

Thank you, Mr. Fotopoulos. (Operator Instructions). Our first question is from Richard Choy from JPMorgan. Please go ahead.

Great. Thank you. 2017 guidance seems like it's a little bit lower than the 2016 numbers. How much of this is law of large numbers, or is this more something competitive that we should be looking for either in wireless or wireline going forward?

Well, good morning. Thanks for the question. First of all, I think from the free cash flow guidance I'm assuming that's consistent with what people expected to see. Revenue and EBITDA guidance we understand was within the analyst expectations. I would say this though. Glen did call this out so everyone gets it, that range of EBITDA, Glen mentioned was about a 1% impact on the year's EBITDA, and that's the regulatory decision. So of course, that flows through in one year and then you have lapped it the following year. So for investors the standalone organic growth if you will, would be consistent with what you would expect to see from the Company. That is why we normalized that in. Of course, guidance will change with the MTS acquisition, but the important thing is even within that regulatory impact the free cash flow comfortable that it's in the range we need, but clearly it was as Glen called out, an impact on some of the regulatory decisions. The underlying organic business is as you have seen in the past. Hopefully that's helpful.

Okay. Thank you.

Thank you. Our next question is from Aravinda Galappatthige with Canaccord Genuity. Please go ahead.

Good morning. Thanks for taking my question. George, obviously, we have seen a little bit of pressure on the internet net adds front as your competitor ramps up their marketing on the high speed products, and obviously with the resellers also sort of lowering their prices in response to the new tariffs. I just wanted to get your thoughts on sort of the latter end of 2017. Do you see an outlook to maybe stabilize the internet trends, particularly given that you still have the superior TV product?

Yes. It's interesting. We're very bullish on the internet business. We saw tremendous topline revenue growth there, and that is one of the reasons I called out for the analysts the net adds in the footprint versus not in the footprint. So you see the 30,000 in the IPTV footprint. Clearly that is executing and we will continue to do that in 2017, I have to admit we're quite excited though about the fiber build-out that will start to have more of an impact for us in 2017 across all of our footprint, and we will continue to market that, so I think the for that particular investment is continuing to be consistent with what we have said, so that the 30,000 that we did within the IPTV footprint, I am actually quite pleased with. Complete transparency, clearly what we don't have in the DSL footprint, that's where we're seeing some negative growth. The only way to offset that is to continue the fiber investment, which would pull some share through over time.

Great. Thank you.

Thanks for the question.

Thank you. Our next question is from Simon Flannery with Morgan Stanley. Please go ahead.

Great. Thank you very much. Good morning. George, just following on the fiber point, I think you want to get Toronto pretty much done this year, and have about 3.5 million fiber to the prem. What happens after that? Is it economic for you to cover most of the fiber to the node with fiber to the prem over time, or does that start to slow down, and how are you thinking about 5G playing into that, and some of these fixed broadband trials suggest that it might be a good way to kind of cover the last few hundred meters. Thanks.

Well, I mean I think investors would expect from us 600,000 to 700,000 premises covered with fiber almost every year over the next seven to eight years. We don't see a slowing down in the other markets at all. We think we can do it within our capital intensity ratio that you have seen, as we pace it out, I think it is clear where the demand is going to be. One of the great benefits to us from a wireless perspective when we see 5G in the marketplace in a number of years out of course, because we will have done every neighborhood with fiber, we will have that backhaul in place, if we were to leverage 5G to add additional capacity or speeds in that marketplace. We don't see 5G for us as a substitution in the urban markets for our fiber strategy. We certainly see, continue to see where we have fiber, strong market share, much stronger market share than anywhere else we have the product. And also as we have mention a number of times the operating cost of it. So I think it's fair to say as we have said, investors should expect to see that roll out 600,000, 700,000, 800,000 premises over a period of time. You will see that year-over-year certainly over the next five years. And that would take almost every major market we cover.

Okay. Thank you. On the speed point can you just give us a little bit of color, what kind of speeds are resonating? We have heard some others talk about the percent taking a 100 Megs-plus. Have you got any stats around that?

I'm not going to disclose a competitive but clearly from our perspective the 1 gig capability on fiber put us, and we have to, as everyone knows, the ability to take that speed up further as required. We think we're setting ourselves up for where we need to be tomorrow, and all I can tell you is every one of our customers keeps migrating to higher speeds.

Right. Thanks so much.

There's no doubt of the demand for the speed and we see it on wireless as well. If you look at the usage on wireless where we have LTE advanced, you just see the incredible demand for video services on wireless growing not just on the wireline side.

Thank you.

Thank you. Our next question is from Greg MacDonald with Macquarie. Please go ahead.

Thanks, and good morning guys. George, I asked a derivative of this question last quarter, and I am going to ask it again. The gross add numbers we haven't seen TELUS yet, but continue to be very good, Rogers, yourself, I suspect this is a sustained industry trend. Also, ARPU. I wonder if you might comment quantify the extent that you can on what assumptions of sustainability on the gross add trends in particular you're assuming for your guidance? Can we assume sustainability of certain trends of these types of trends are base case, or are they best case scenarios when you're thinking about the wireless guidance in particular?

A couple of things. We don't give as you know gross add guidance.

Yes.

And also the model you can tell from the EBITDA growth, you will be able to do the blended, and get pretty close to each of the divisions what we would expect to happen. Obviously very, very strong net add results from our reporting this morning. I think it is a little bit consistent what we said the last while, in terms of seeing the growth. If you look at the results of maybe some of the newer entrants not as strong as they had been in the past. We think there's some maturity of their base so you get an opportunity to have some of that base churn back our direction. We're clearly seeing that, immigration policies in this country driving significant immigration, and that of course adds a growing marketplace for us, and this demand as we have talked about in wireless in Canada, a number of people having two products now. One for business, one for personal. I think that's another driver that's going on across-the-board. The maintaining of that of course that's a hard one. That's what the analysts do, and what we try to do is make that happen. We will have to see how that unfolds as we go forward. I think it's fair to say everybody has been pleased with the results again this quarter, to see this acceleration in growth. Of course you have one more competitor to report, so it's hard to know everything until we get the complete picture.

Right. You have been reasonably conservative in the past. Can we assume that if we see sustainability of these gross add trends in particular, is it safe to assume that you have got some buffer in the guidance number for that?

Well, what I probably would say is we pride ourselves on not missing guidance in the nine years, eight years that we have been executing on this, so that will clearly be our goal, and I think it's fair to say for the investor community, the growth in ARPU has been I think the surprise piece on top of the growth, and that's just because people use the product more and more. It's not about pricing. It's about use. Think about it, use is up 41% year-over-year and ARPUs are up 4%. So clearly it's not about pricing. It's about the marginal use of the product. I think that lends well for shareholders in the wireless space.

All right. Thanks, George.

Thank you. Our next question is from Vince Valentini with TD Securities. Please go ahead.

Yes. Thanks very much. Hopefully, I can just have one quick clarification and then a question. Clarification, Glen, is can you give us the exact number on Q9 for the fourth quarter, in terms of revenue and EBITDA? And the question probably for more George, you clearly articulate you're doing better on internet subs in the areas where you have IPTV versus just DSL, but you still have something like 2.7 million homes where you haven't upgraded to fiber to the node. Is there any change in your thinking given these internet trends you're seeing, that maybe devote a little bit more capital to footprint expansion over the next couple of years versus just solely focused on 600,000 to 700,000 new fiber to premises?

That's a good question. First of all, very specific to Q9, no, we're not releasing the specific guidance on that, but it's fair to say, some of the regulatory impacts seem to roughly wash out with what we will benefit from Q9 quite frankly, so analysts can kind of assume that's been a bit of a wash, unfortunately, because some of the impacts on the repricing on the internet for the regulatory process. On the footprint expansion versus no, I can tell you we know that the Street doesn't know the number of subs that we have in that outer footprint versus the footprint where we have FTTN, we continue to believe the overlay of the FTTN is the better accretive piece for our shareholders. Having said that, there's a slight increase in our footprint year-over-year from 8.3 to 8.4, so there's a little bit of expansion there, but at this moment it doesn't look like what you're suggesting, or maybe asking would you do 500,000 more with something to extend the footprint, versus overlaying and we don't think that given where we see our market shares is necessarily the right place to go.

Thank you.

Thanks for the question. It's a good question.

Thank you. Our next question is from Maher Yaghi with Desjardins Capital. Please go ahead.

Thank you for taking my question. I wanted to ask on taxes and impact on regulatory changes on the EPS. So when I look at your special contributions for 2016 it looked like, I mean I think you guys did 250, this year you did 400 of special contribution, yet you're expecting cash taxes to go from 565 in 2016, to 700 to 750. I'm trying to understand why your taxes are going up this much, and is it fair to say that the impact of the CRTC rulings on wholesale, the SIM sub and the taxes, the higher taxes in 2017 is about CAD0.10 on EPS from your CAD3.42 to CAD3.52 EPS outlook for 2017?

Good morning. As I mentioned on my opening remarks, the impact of the regulatory decisions and the one-time tax adjustments that we enjoyed in 2016 that don't repeat themselves in 2017, those together have about an CAD0.11 impact, based on the guidance that we provided. If you add that back, you get to a number that looks more like 2% to 5% EPS growth, normalizing for those two. Look, when you look at the 2017 tax and the guidance number that we provided, obviously the higher earnings profile that we are going to enjoy in 2017 drives higher taxes, there is a slightly higher increase, a modest increase in the effective cash tax rate, so that's driving it. Naturally we do get an offset from the CAD400 million tax, the pension injection we made, which we enjoy the tax benefit in the following year, but it's really just a reflection of timing of tax installments, and how much we made in tax installments at the end of 2016, versus how much we make in 2017, and so really nothing to read into that.

Thank you. Next question.

Thank you. Our next question is from Jeff Fan with Scotiabank, please go ahead.

Thanks. Just a question on the fiber-to-the-home. When you look at your footprint with respect to ARPU, what kind of lift are you getting now roughly? I know you can't give us an exact number, but maybe relatively between fiber-to-the-home versus fiber to the node. I'm just wondering, given all the spending you're doing, how much I guess internet revenue are you getting from these similar customers who are subscribing to internet?

I don't have it top of hand. We are certainly maybe we will have Thane follow up with you a little bit, I don't think, and we'll come back with it. It's clear though, because subscribers that are taking fiber are buying the higher speed packages, and so they're clearly generating a higher average revenue per unit than we're getting on those that have not. The fact that our service revenue is up year-over-year 7%, and obviously, our additions on the year are not up 7%, you can do a little bit of implication, clearly customers are migrating to the higher speed packages. As we have said before, everywhere we have fiber churn is better, ARPU is better, and market share is better, and we know that and so it really is, as investors know, it's the pace that we can go at to make this happen, and we of course are really excited about getting Toronto done, because of just how important this market is, and the window that we have got to execute on that, and to leverage our TV product over this coming year.

Okay. Thanks, George.

Yes. Thanks for the question.

Thank you. Our next question is from Batya Levi with UBS Securities. Please go ahead.

Great. Thank you. In the video you may have a year of advantage versus cable, as they shift to another video platform. Can you talk about maybe how you plan to balance sub growth versus profitability this year?

Well, I want to be sure I am clear. I would say consistent with the way we have done it in the past in the marketplace. Our continued leadership on TV of course continues. We think it will continue actually when our competitor launches, given what we're planning to do but certainly having this window that we hadn't expected is something we want to make sure that we strategically leverage in our results, and we'll do that, and have to balance that against the financial targets that we have provided to the Street, and so I think that's probably our practice in the past is probably a best practice I think, of how we will probably behave in the future. But clearly we are going to be pushing our product, and the advantages of this product and rolling out other features on the product, and leveraging that in 2017, because we hadn't expected that window, and also of course, accelerating that Toronto build as quickly as we can, to accelerate that window to our advantage as well.

Okay. Thank you.

Thank you.

Thank you. Our next question is from Tim Casey with BMO. Please go ahead.

Thanks. George, just to follow up on that, can you provide a little more color and what happened in the quarter in terms of TV adds? I mean obviously there would be disconnects on the satellite side, but you did go negative in sort of net adds, and just wondering how you think about that, and what we should by this trends in 2017, as you highlight you have got a window here before your major competitor in Toronto launches a new product? Thanks.

Yes. I think that's a good question, I think if you go to page 7 on the deck, we were positive TV adds actually in our wireline footprint, it's clearly what we focused the most on given the history of what the satellite was versus where we're focused, so we're positive TV adds in our footprint, and you can expect even with that footprint, we obviously don't have a lot of base left of satellite customers in our IPTV footprint, and so again, that's where we're seeing the net add strong TV growth, and I think it's clear we are very bullish on our TV business as we go into 2017, with the product features we have, and now it is just executing as we have done in the past to continue to see IPTV growth gains. I still would like to see satellite a little better. Keep working on that, and we'll hope that in 2017 those results on satellite are a little better than they were last year. For sure that's one of the goals we have.

Thank you. Next question.

Thank you, our next question is from Drew McReynolds with RBC Capital Markets. Please go ahead.

Yes. Thanks very much. My question was just answered, but another one for George. Just in terms of the promotional environment both on wireless and wireline, we see a couple of quarters where it's really intense and then a little easing off. But big picture, how do you see the promotional activity playing out, I guess from an investor perspective, Canada has always been a very kind of disciplined market, promotionally intense, but overall disciplined, and just wondering kind of what you're thoughts are on that type of equilibrium, particularly as you see some maturity in the overall industry play out?

Well, I would say this, I think it was and Glen called it out. Imean it was an extremely competitive fourth quarter in the wireless marketplace. There were a lot of promotions, and investors can see that in the higher cost of acquisition, but clearly those investments are significantly net present value positive for investors, because you see the topline revenue growth we're getting, and I think what's really exciting about that, it is coming on the back of customers using our products more, not through industry-wide on wireless price increases being overlaid into that market in any significant way, other than what you have seen some of it to offset some of the dollar impacts that we have seen in the market. It is a highly competitive market by different segments and different people, aren't in the market with their TV products, so they'll leverage some other products on pricing. We have to just be competitive with that. We're trying to always find that balance between the two. We think we are within our results, and we think our competitors, their public companies as well, will have that continual pressure between competitive marketplace and performing financially. I don't expect a dramatic change in the marketplace in Canada in 2017.

Thank you.

Valerie, this will be our last question.

Thank you. Our last question is from David McFadgen with Cormark Securities. Please go ahead.

Great. Thanks for squeezing me in. So just a question on the pension contribution. So now that the solvency ratio is up to 94%, do you think that you're done with these one-time contributions going forward?

Hi David. It's Glen. Well, thanks for your question. Look, you tell me what interest rates look like into the future. We're very pleased that our solvency funding ratio remains consistent what you have seen in the past, about 94%. As I mentioned in my opening remarks, a modest increase in interest rates gets us to the ultimate objective, which is a fully funded position and sizable cash flow savings when that occurs. I'm not going to attempt to be an interest, to be a crystal ball on interest rates and what that does between now and the end of the year. Our hope is that we start to see a modest pickup in interest rates, which is going to migrate us up to that fully funded position, and obviously if that happens, then further injections wouldn't be required, but hard for me to speculate on that. Our objective, keep the pension in a healthy funded position, and I think we've done that nicely over the last number of years.

Yes. The only thing I would end on, because we're wrapping up the call, as to Glen's comment, it is what is unique about our cash flow profile for our Company, investors will have a view on interest rates, so they'll use those to look at our Company, but clearly an increase in interest rates for us is an odd thing for our capital structure, but it will actually end up generating cash flow for us, not the other way around, because of the significant pension divestitures we have had to make, and investors know we have had to do this over a number of years. So I think that we are in an excellent position at the 94% position we put ourselves in, and if interest rates are up, we're in a much stronger position, if not we're very well funded. With that, I want to thank everyone for taking the time this morning. We're very pleased with the results, and let's hope this wireless momentum in the country continue.

Absolutely. Thank you George, and I will be available throughout the day for any further questions or clarifications. Thank you for your participation, 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.