BCE Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 7, 2024

Key Takeaways

  • Positive Sentiment: Bell’s stop-sell of prepaid service is expected to deliver a small ARPU uplift in Q4 and Q1.
  • Negative Sentiment: The CRTC ruling shuts down Bell’s resale business for new cable-based subscribers, halting that growth channel.
  • Positive Sentiment: Bell continues to migrate cable customers into its higher-margin fiber network, driving Internet ARPU growth through premium tier adoption.
  • Neutral Sentiment: Wireless churn remains elevated from aggressive promotions, but Bell reports an improving trajectory via enhanced lifecycle management.
  • Positive Sentiment: Operational modernization and a target to reduce capital intensity below 15% will fund the Zipli Fibre acquisition and support EBITDA and free cash flow growth.
AI Generated. May Contain Errors.
Earnings Conference Call
BCE Q3 2024
00:00 / 00:00

There are 12 speakers on the call.

Operator

Q4, if you're going to shut down the Bell prepaid, can you just level set us on what that does to ARPU? I assume that should mean that ARPU mathematically will get a little bit better in Q4 and Q1? Thanks.

Speaker 1

Okay. So I'll start first on the TPI resale business and Curtis will cover the wireless question. Vince, good morning. Look, on the resale business, the reseller business, it's the ruling from the CRTC essentially puts a stop to that resale business. So the reason for the subscriber modification is that we can no longer add subscribers on TPIA as part of that collection of brands that we were operating, Distribitel, etcetera.

Speaker 1

The 106,000 customers that are ours today under those various brands that operate on the that are served off of the cable network. We can continue to serve them for as long as they choose to remain our subscribers on those networks because they are grandfathered, but we cannot add new subscribers on TPIA. So, that business is essentially shut down. Now, on the migration from cable to fiber, that was the business one of the significant elements of the business case of those acquisitions all along was migrating. Where we have fiber footprint, migrating those subscribers to fiber, and we've done quite a bit of that already.

Speaker 1

So I don't have off the top of my head how many of the 106,000 customers are also in fiber footprint, but for those that are, we'll continue to migrate them. And where we don't have fiber, we're going to keep them on TPIA for as long as they remain our subscribers. So we're our customers. So that's the answer on that one, Vince. And I'll turn it over to Curtis for wireless.

Speaker 2

Then Vince on the second one, you're right. So in terms of the prepaid stop sell on Bell, so we'll stop selling that service on Bell and you're right, it's a very small impact, but there will be a small benefit to ARPU.

Operator

Thank you.

Speaker 3

Thank you. Our next question is from David Barden from Bank of America. Please go ahead.

Speaker 4

Good morning. Thanks for taking the question. It's Matt fitting in for Dave this morning. I just wanted to ask about the broadband business. I think you referenced in your remarks or maybe it was just in the press release, higher deactivations due to promotions and competition and so on.

Speaker 4

But there's also reference to success in increasing the percentage of subscribers who are bundled, which usually would have, I would think, a churn benefit. So maybe if you can put those into context and maybe share what kind of churn reduction or other benefits you're getting from bundling these subscribers together, it'd be helpful. Thanks.

Speaker 1

No, so it's what you're seeing is the general market is generally slowing whether or not it's on the wireline or the wireless side, and there's a number of factors there. One is population growth, particularly newcomer growth is going to be more sustained than what we would have thought given new policies. That has an impact on housing starts. And as penetration increases in both segments, you'll just kind of see a slowing of market growth, although the markets are continuing to grow. In that environment, we're continuing on wireline side, we're continuing to take share away from our competitors or taking a larger share of new market growth and that's because of our product superiority with fiber.

Speaker 1

And we have a particularly strong mix of customers coming in on the high speed tiers. Now it is a highly competitive pricing environment right now, again both in wireless and wireline, so you're seeing when you're talking about deactivations, you're seeing the impact of some of our competitors choosing to protect market share at any and all costs and you're seeing that in some results of our peers where particularly since you asked me about wireline you're seeing serious compression on both revenues and ARPU on the wireline side. We're doing it differently as you can see our revenue growth is growing nicely. Our Internet ARPU has been growing and that's a factor of our go to market approach. Matt, we're loading customers in at the high speed tiers, which has higher ARPU.

Speaker 1

We are being very diligent in the customers we're bringing in on the premium brands. So always favoring Bell over Virgin and that applies both to Internet and wireless. And of course, there's the benefit of lower churn for customers who buy more than one product from us. So I said it probably 5 times in my opening remarks. It's that you've got to be really disciplined in an environment like this, getting the right loads on the right brands and not chasing every single load at all costs because that's not a winning formula.

Speaker 1

And you know, we made that call and I think you see it in the margin expansion. And I think in the long run, it's going to help us particularly as prices stabilize because they're going to have to.

Speaker 4

Thanks. And maybe a quick follow-up, your views on convergence, I mean, there's some who view it as a more of a defensive strategy, but you kind of referenced your share gains and so on. Like for Bell, are you looking at your converged offering as more of an offensive strategy or is it defensive to protect what you have?

Speaker 1

Well, we're doing both and it's just kind of imagining the entire kind of portfolio across the board. Now our mix of customers who buy both, either the an existing wireless adding Internet or an existing Internet adding wireless or a new to Bell buying both at the same time, that's increasing. So that mix is increasing. But if you look at our overall base, the bundled customer is still the minority of customers in terms of the overall mix.

Operator

Thank you so much.

Speaker 3

Thank you. Our next question is from Drew McReynolds from RBC Capital Markets. Please go ahead.

Speaker 5

Yes. Thanks very much. Good morning. For you, Marco, a big picture question and it just kind of ties, I think, a lot of the earlier questions together. And it's on the outlook for industry growth in Canada.

Speaker 5

And within that, just trying to kind of gauge an EBITDA growth profile for BCE. You have the revenue headwinds this year, which you characterize as transitory. You're holding the line on 2% consolidated EBITDA and doing great work on lowering the cost to serve. So the two questions is do you see industry revenue growth in Canada staying positive given all the kind of maturity, competitive substitution regulatory dynamics? And then second, are you able to within that environment sustain positive EBITDA growth on the core business here in Canada?

Speaker 1

Good question. Thank you. Look on the if you break down the revenue like to 2 chunks product and service on the product side we really have the impact of as Curtis said the shutdown and conversion of the source stores and there has been also lower phone sales generally as customers have shifted to bring your own device. And in our case, so on the wireline side, we've had some wireline equipment revenue declines. And there's been some timing issues on recognizing some of the revenue on the wireline side.

Speaker 1

So that's a product which it's understandable and of course it's low margin. So the flow through impacts are relatively small. On the service side, it really is a question of needing the pricing to more appropriately align to the value that we are delivering to customers and kind of give you some examples. Like we've had to we've been and I mentioned this I think at the last quarter, making sure that there's proper stratification across prepaid and postpaid and across the various brands therefore and also across the 2 brands in postpaid. And I think everyone lost its way in that regard in the early part of this year.

Speaker 1

And so that's why I've spent some time in my remarks talking about that. Now if you look at October, October pricing was lower year over year, but better than what we saw in Q1 and Q2. And part of that is kind of that proper stratification across prepaid flanker postpaid and premium postpaid. Is there going to be growth going forward? Yes, I think so.

Speaker 1

I think pricing is going to need to stabilize, number 1, and then we'll get through some of the other impacts that seeing in our case data overage decline. Like we've managed our data overage very, very tightly over the last 4 or 5 years. So our data overage decline has been over a much longer period of time than some of our competitors, and that was a good thing. And then we'll get through the outbound roaming pressures. But I think I would focus on the areas of growth.

Speaker 1

The areas of growth are the key things. That's what you've got to do. So in our case, it's fiber. 5 gs, wireless is going to grow. It's just the pricing environment's got to stabilize.

Speaker 1

Business solutions revenue, which is another growth vector for us, some impressive growth, as Curtis mentioned, and that hardcore pivot in media from traditional broadcasting to digital is paying off now and you can see it in the results. So it's continue to invest in those growth areas and I've talked about this throughout the entire year like you've got to align your cost structure in those segments that are declining to align the cost to the revenues. And if the declining if some assets are going to perpetually decline, we might shed those lines of business like some of the radio stations. So we're being pretty diligent in managing the declining segments in order to continue to kind of harvest those in an accretive fashion and we're continuing to invest aggressively in the growth areas and Monday was an example.

Speaker 3

Our next question is from Maher Yaghi from Scotiabank.

Speaker 6

I believe that stepping back from loading low profit wireless subs is the right strategy. But it's hard to extrapolate yourself from this long term because you are a national incumbent player and if you don't stay competitive, it could lead to a material market share loss. So how should we think about the strategy going into 2025? As you look at these issues and it and how can you take how can you solve these issues if we're not seeing a clear sign that the competition which is pressuring those prices is looking to change their approach to the marketplace. So I'm just because when we headed into 2024, you're seeing decent wireless pricing and strong subscriber loading.

Speaker 6

And as we head into 2025, we're seeing negative pricing and declining momentum in subscriber loading very, very low subscriber growth at all. So how can we generate revenue growth in 2025 in that approach that your the strategy that you're taking? Thank you.

Speaker 1

Thanks, Maher. Simple on fiber continues to grow. So our market share is growing, our revenue is growing, our ARPU is growing. So, continue to invest there. On wireless, on the Bell brand, the market share is strong and the market share is stable to growing.

Speaker 1

So we're going to continue to focus on the Bell brand. So I'm looking at the numbers behind the numbers, and like I said, all the loadings were on the premium Bell brand, and that's a good thing, and that sustains market share. The significant growth that we've had on prepaid, particularly in the Lucky brand for us, means you bring the customers in and then we're going to have to focus on life cycle management and get the customers from migrate them from the prepaid, their entry point over to the premium brand over time. So that's going to to sustain kind of growth and market share stability. And the 3rd element to that is lower the cost to serve.

Speaker 1

And you do those things, we'll be okay. But like to your point or maybe underlying kind of what you're saying in your question, there is no hiding from the fact, and this is an industry point that I'm going to make now, there is no hiding from the fact that the impacts of low pricing will be felt for quarters in the future, right? So you feel the impacts of a low pricing environment 6, 9 12 months later. There's a trailing effect on that. And some are going to feel that more dramatically than others based on chasing low accretive loads at all costs.

Speaker 6

Okay. Yes. And just following up on this point, when you look at the postpaid churn that you had in the quarter, what's your expectation about that API? Can you solve it through proactive measures that you can take to protect your own subscribers or it's more an industry wide phenomenon that it's hard to, you know, bring down?

Speaker 1

I think it's a bit of both, Maher. I'm not happy with where churn is. I don't think anyone would be given the numbers. However, look, I'm also pleased with the improving trajectory. So kind of 2 sides of that coin.

Speaker 1

It is a reality, a marketplace reality that consumers are continuing to shop for deals given the sustained aggressive promotional offers that are in the marketplace. So because of that, you're going to see a lot of switching activity. That said, there are a number of tools at our disposal to minimize that churn. That's why we've seen an improving trajectory. I'm not going to outline chapter and verse of all the things we're doing because it's competitive.

Speaker 1

But some of the things we're doing are taking hold and you're seeing the improving trajectory which Jack now said a couple of times. And we're going to continue to focus on that to make sure that that improving trajectory continues to improve. But yeah I mean churn is where it's at we got to get it lower.

Speaker 6

Thank you.

Speaker 3

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

Speaker 7

Thanks very much. Good morning. I wanted to just talk about the balance sheet again if I could. Obviously, MLSE brought in a lot of or will bring in a lot of liquidity and then you're reinvesting that and simply getting more production on the EBITDA line and the growth line. Could you just talk about other ways to enhance the balance sheet?

Speaker 7

What are your thoughts given these deals around tower monetization, additional real estate monetization and some of these structured equity deals that some of your peers are looking at? Thanks.

Speaker 2

Yes. Hi, Simon. Thanks for the question. So a couple of things there. One, you're right.

Speaker 2

We announced the acquisition of Zipli Fibre shortly on the heels of announcing MLSE. So ultimately, we're selling off a sports asset at a great value that didn't contribute to our financials and acquiring a fast growth fiber company that will expand our footprint and drive, as you say, EBITDA and free cash flow. So leverage neutral basically there, I think that's just good capital allocation. And then in terms of other asset sales, we're constantly reviewing opportunities to improve our asset portfolio. And if there's an opportunity to unlock value or capture a growth opportunity, then for sure we're going to look at it.

Speaker 2

And towers is one that you mentioned, asset securitizations, we'll look at it. It's all a matter of use of proceeds and fundamentally, is it a better allocation of capital and does it drive EBITDA and free cash flow growth for our shareholders.

Speaker 6

Thank you.

Speaker 3

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

Operator

Good morning. Thanks for taking my question. On the CapEx outlook, Marco, I think that you'd sort of indicated that sort of at public conference calls that there's perhaps even more downside as we kind of look to 2025 and beyond. Given the U. S.

Operator

Venture and obviously the incremental CapEx that comes with that, do you think that there is even more room to sort of readjust the capital spend in the Canadian market in light of sort of those commitments and try and perhaps manage the balance sheet and free cash flow payout ratio factors? That was my first and I have a follow-up.

Speaker 1

Thank you for that Aravinda. So on CapEx, couple of things. So for this year, we're trending to be within our guidance for CapEx, which is essentially around a 16.5% capital intensity ratio. And we've said in the past that Bell kind of as it is today, Bell capex can get to less than 15%. And that continues to be the plan.

Speaker 1

And we're doing that through a number of things. 1st of all, modernizing our operations, getting more efficient on delivery, moving workloads to the cloud. And it's things like implementing self installed capabilities, virtual repair, contact centers in cloud, all these things that we're doing to streamline and modernize our operations and become more efficient is allowing us to run our business at a lower with a lower CapEx budget. Then we're going to get to the end of our 2025 fiber build out target, essentially in 12 months or so. Of course, we hope to and we will continue to build in Canada, but we're going to determine where we can get a reasonable return on investment from those continued fiber investments going forward.

Speaker 1

But all of that, like that CapEx efficiency and allowing us to run-in Canada at less than 15% is going to give us the room to accelerate the Zible fiber build program and still operate BCE pro form a the U. S. At probably around 16.5% consolidated CapEx. And when we embarked on our accelerated CapEx build in Canada over the last 4 years, in some years we were over 20%. We'll be able to do the accelerated build in Sibley fiber footprint and maintain BC at consolidated 16.5%.

Speaker 1

So I think that's a very good news, both for growth and the efficiency of the investment.

Operator

Yes. Thanks, Marco. Maybe I'll just use my follow-up differently for your with respect to the comments you just made about the 16.5% pro form a number. Should we translate that 16.5 as sort of more of a steady state number or I'm trying to understand whether at the peak of the rollout in the U. S, I suspect it goes a lot higher than that or am I wrong?

Speaker 1

No, no. So in terms of the information we shared on Monday, which is that we plan to go from Zipli currently Zipli Fibre currently has 1,300,000 households passed and we'd like to get to over 3,000,000 by 20 28, that would be done with the consolidated 16.5% is my expectation. I mean, no information to come as we close, but that would be the expectation. That's what I was trying to convey in my longer answer at the beginning.

Operator

Thank you.

Speaker 3

Thank you. Our next question is from Jerome Dubreuil from Desjardins Securities. Please go ahead.

Speaker 8

Yes, thanks. Good morning. First, you mentioned in the prepared remarks that you continue to make investments in digitization, modernization of Bell. I'm wondering how much further operational improvement you are seeing in the Bell business as it stands right now. Can we maybe be expecting a program similar to what you announced earlier this year?

Speaker 8

Maybe this this could happen every 2nd year or something, if there's a magnitude that would make sense going forward?

Speaker 1

Well, we're okay. So thank you, Jerome. So let me break that up into 2 parts. The transformation work or journey continues, right, because we're in the early days of some of the programs to harness the benefits of technology. So moving all our core consumer products to a single ordering and billing architecture, and we're in the process of doing that in Ontario and Quebec.

Speaker 1

And then there's other regions to bring on board over time and other business segments beyond the consumer business over time. So that's going to bring benefits as we migrate more of our business lines and more of our regions onto a modernized ordering and billing architecture. So that would be just one example. You know, the digital platforms and the self serve apps and virtual agents and contact centers in the cloud and all the benefits we'll get there from churn reduction, sales increase and the cost to serve, that's in the early days. So that's going to ramp.

Speaker 1

Customer self install has been quite successful, but again, early days.

Speaker 7

The more fiber

Speaker 1

homes we have connected, the more connected, the more we can enable full self install in the future. Continuing to move the hundreds, the apps that we have on prem to the cloud, we're in the early innings of that journey as well. So I could go on. So on that part of it, we're in the early to mid innings, so more to come. That said, the one thing I didn't mention in my opening remarks, as we move more of our workloads to the cloud, there's going to be a shift from CapEx to OpEx.

Speaker 1

And so that's going to have some temporary impact on further margin expansion. And then on programs like the one we announced in February, we continue to recalibrate the workforce. So, we're going to continue to hire aggressive lean growth areas to the extent we shed lines of business either through closing them down or selling. That obviously has those positions move with the buyer. In other areas, we're going to continue to align our cost structure to revenue streams.

Speaker 1

We have to do that. So that's how we're going to approach it.

Speaker 6

Thank you.

Speaker 3

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

Speaker 9

Thanks. Great. Thank you. A couple of follow ups. First, you mentioned that in October, you saw a bit of, pricing stability.

Speaker 9

Do you think that we've seen the worst in terms of the ARPU declines? And 4Q, can we start to see maybe just better trends from here? And then same question on churn, still high, but you're lapping a much higher churn level from last year. So can we expect at least churn to improve annually in the Q4? Thank you.

Speaker 1

Yes, I mean, I'm sure, like I said to in response to Mayor, we'd like to get it lower and we're going to continue to work on getting it lower, but we're happy pleased with the improving trajectory. On ARPU, it's going to depend on Black Friday and the holiday period. I think rather than making a prediction on where it's going to go, I'll just highlight the obvious, which is if Black Friday and the holiday period is relatively stable, recognizing that those are heavier promotional periods by design, I suppose, then we'll be okay. And if to the extent promotions are more focused on hardware than rate plans, then that'll bode well for service revenue and margins and ARPU.

Speaker 9

And maybe can you maybe just touch on what the guidance assumes in terms of our expectations for ARPU?

Speaker 1

On revenues, it's in the revised guidance that Curtis highlighted earlier during his remarks.

Speaker 9

Right, continuation of service revenue declines? Correct. Got it. Thank you.

Speaker 3

Thank you. Our next question is from Lauren Bonham from Barclays. Please go ahead.

Speaker 10

Hi. Thanks for taking the question. I wanted to ask about immigration impact on wireless net add and how much of the change in trends that we've seen this quarter? Usually we have the sequential net ad uplift in 3Q. So how much of that changes just from being more targeted promotionally, as we've talked about versus from the decline in foreign students and how you sort of expect those lower immigration expectations to impact industry growth next year and beyond?

Speaker 2

Yeah. Thank you. Thank you for the question. I think I think there are a couple of trends here. 1, immigration levels are still positive, but they are going to slow down year over year.

Speaker 2

And I think we're continuing to see the benefit of our increased focus and distribution channels. So, we're doing quite well in this market on a relative basis. But you're right, the overall pie is shrinking. But for us, it's not as big an impact because we are increasing our share in that market on a historical basis.

Speaker 1

You can see it in the prepaid results.

Speaker 10

Thank you.

Speaker 1

Thank you.

Speaker 3

Thank you. There are no further registered questions at this time. I would now like to turn the meeting over to Mr. Fotopoulos.

Speaker 11

Thanks, Matthew. So thank you again to everybody for their participation on the call. As usual, VR team is available throughout the day for any follow ups, questions and clarifications. Have a good rest of the day. Thank you.

Speaker 1

Thanks, everyone.

Speaker 7

Thank you.

Speaker 3

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

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