BCE Q3 2024 Earnings Report

BCE EPS Results

• Actual EPS: -$1.36
• Consensus EPS: $0.57
• Beat/Miss: Missed by -$1.93
• One Year Ago EPS: $0.60

BCE Revenue Results

• Actual Revenue: $5.97 billion
• Expected Revenue: $4.41 billion
• Beat/Miss: Beat by +$1.56 billion
• YoY Revenue Growth: -2.00%

BCE Announcement Details

• Quarter: Q3 2024
• Date: 11/7/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, November 7, 2024
• Conference Call Time: 8:30AM ET

BCE (NYSE:BCE) Inc. (NYSE: BCE) is a Canadian communications, media and entertainment company that operates through its primary subsidiaries, including Bell Canada and Bell Media. As a large integrated telecommunications provider, BCE delivers a broad range of connectivity services and content to residential, business and wholesale customers across Canada. The company combines network infrastructure with media assets to offer bundled communications and entertainment solutions.

On the services side, BCE provides fixed-line and wireless voice services, mobile data, high-speed internet, fibre and broadband access, and television services through platforms such as Bell Fibe and Bell TV. For business and public sector customers, the company offers enterprise networking, cloud and data centre services, managed IT and cybersecurity solutions, IoT and wholesale connectivity. Bell Media operates a portfolio of television and radio properties, streaming services and production capabilities, including well-known brands and channels that supply national content and advertising inventory.

BCE is headquartered in Montreal and serves customers across Canada through a nationwide network of wireline and wireless infrastructure and regional operations. The company has a long-standing presence in the Canadian communications market and has evolved from traditional telephony into converged digital and media offerings. BCE is led by an executive team and board of directors responsible for strategy, network investment and content distribution, and it continues to invest in next-generation networks and consumer-facing media platforms to support its integrated communications and entertainment business.

BCE Q3 2024 Earnings Call Transcript

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.

Presentation

[Analyst]

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.

[Mirko Bibic, CEO at BCE]

Okay. So I'll start first on the TPI resale business, and then Curtis will cover the wireless question. Vince, good morning. Look, on the resale business, the reseller business, 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, Distributel, etc. The 106,000 customers that are ours today under those various brands that operate on 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.

[Mirko Bibic, CEO at BCE]

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. 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 or our customers. So that's the answer on that one, Vince. And I'll turn it over to Curtis for wireless.

[Curtis Millen, CFO at BCE]

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.

[Curtis Millen, CFO at BCE]

Thank you.

[Operator]

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

[David Barden, Analyst at BofA]

Oh, good morning. Thanks for taking the question. It's Matt sitting in for David 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. 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.

[Mirko Bibic, CEO at BCE]

So 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 the wireline side, 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. 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.

[Mirko Bibic, CEO at BCE]

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. 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.

[Mirko Bibic, CEO at BCE]

So I said it probably five times in my opening remarks. It's that you 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. And 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.

[David Barden, Analyst at BofA]

Thanks. And maybe a quick follow-up. Your views on convergence, I mean, there's some who view it as 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?

[Mirko Bibic, CEO at BCE]

Well, we're doing both. And it's just kind of managing the entire kind of portfolio across the board. Now, our mix of customers who buy both, either 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.

[David Barden, Analyst at BofA]

All right. Thank you so much.

[Operator]

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

[Drew McReynolds, Analyst at RBC Capital Markets]

Yeah, thanks very much. Good morning. For you, Mirko, 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, and within that, just trying to kind of gauge an EBITDA growth profile for BCE. You had 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 are, 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?

[Mirko Bibic, CEO at BCE]

Okay. Good question. Thank you. Look, if you break down the revenue to two 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, 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. So that's 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.

[Mirko Bibic, CEO at BCE]

We've had to, 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 two brands in postpaid. I think everyone lost its way in that regard in the early part of this year. That's why I 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. Part of that is kind of that proper stratification across prepaid, flanker postpaid, and premium postpaid. Is there going to be growth going forward? Yeah, I think so. I think pricing is going to need to stabilize, number one. Then we'll get through some of the other impacts that we're seeing. In our case, data overage decline.

[Mirko Bibic, CEO at BCE]

We've managed our data overage very, very tightly over the last four or five 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. The areas of growth are the key things. That's what you've got to do, so in our case, it's fiber. 5G wireless is going to grow. It's just the pricing environment's got to stabilize. Business solutions revenue, which is another growth factor 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.

[Mirko Bibic, CEO at BCE]

And I've talked about this throughout the entire year. You've got to align your cost structure in those segments that are declining to align the cost of the revenues. And 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.

[Drew McReynolds, Analyst at RBC Capital Markets]

Thanks. That's great context.

[Operator]

Thank you. Our next question is from Maher Yaghi from Scotiabank. Please go ahead.

[Maher Yaghi, Analyst at Scotiabank]

Great. Thank you for taking my question. I believe that stepping back from loading low-profit wireless subs is the right strategy. It is hard to extricate yourself from this long term because you are a national incumbent player. If you do not stay competitive, it could lead to a material market share loss. How should we think about the strategy going into 2025 as we look at these issues? How can you solve these issues if we are not seeing a clear sign that the competition, which is pressuring those prices, is looking to change their approach to the marketplace? When we headed into 2024, you were seeing decent wireless pricing and strong subscriber loading. As we head into 2025, we are seeing negative pricing and declining momentum in subscriber loading, very low subscriber growth at all.

[Maher Yaghi, Analyst at Scotiabank]

How can we generate revenue growth in 2025 in that approach, the strategy that you're taking? Thank you.

[Mirko Bibic, CEO at BCE]

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, 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 on the Lucky brand for us, means you bring the customers in, and then we're going to have to focus on lifecycle management and get the customers to migrate them from the prepaid, their entry point, over to the premium brand over time.

[Mirko Bibic, CEO at BCE]

So that's going to sustain kind of growth and market share stability. And the third element to that is lower the cost to serve. And you do those things, we'll be okay. But 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 six, nine, and 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.

[Maher Yaghi, Analyst at Scotiabank]

Great. Yeah. 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 KPI? 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 bring down?

[Mirko Bibic, CEO at BCE]

I think it's a bit of both, yeah. 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 two sides of that coin. 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, but some of the things we're doing are taking hold, and you're seeing the improving trajectory, which I've now said a couple of times.

[Mirko Bibic, CEO at BCE]

And we're going to continue to focus on that to make sure that improving trajectory continues to improve. But yeah, I mean, churn is where it's at. And we got to get it lower.

[Maher Yaghi, Analyst at Scotiabank]

Thank you.

[Operator]

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

[Simon Flannery, Analyst at Morgan Stanley]

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? 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.

[Curtis Millen, CFO at BCE]

Yeah. Hi, Simon. Thanks for the question, so a couple of things there. One, you're right. We announced the acquisition of Ziply Fiber 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, 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?

[Curtis Millen, CFO at BCE]

Does it drive EBITDA and free cash flow growth for our shareholders?

[Simon Flannery, Analyst at Morgan Stanley]

Thank you.

[Operator]

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

[Aravinda Galappatthige, Analyst at Canaccord Genuity]

Good morning. Thanks for taking my question. On the CapEx outlook, Mirko, I think that you'd sort of indicated that at some of the public conference calls that there's perhaps even more downside as we kind of look to 2025 and beyond. Given the U.S. venture and obviously the incremental CapEx that comes with that, do you think that there's 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 sort of manage the balance sheet and free cash flow payout ratio factors? That was my first time I have a follow-up.

[Mirko Bibic, CEO at BCE]

Thank you for that, Aravinda. So on CapEx, a 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'd 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. And we're doing that through a number of things. First of all, modernizing our operations, getting more efficient on delivery, moving workloads to the cloud. And it's things like implementing self-install capabilities, virtual repair, contact centers in the 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 with a lower CapEx budget. Then we're going to get to the end of our 2025 fiber buildout target, essentially in 12 months or so.

[Mirko Bibic, CEO at BCE]

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. But all of that, that CapEx efficiency and allowing us to run in Canada at less than 15% is going to give us the room to accelerate the Ziply Fiber build program and still operate BCE pro forma in the U.S. at probably around 16.5% consolidated CapEx. And when we embarked on our accelerated CapEx build in Canada over the last four years, in some years, we were over 20%. We'll be able to do the accelerated build and expand the fiber footprint and maintain BCE at consolidated 16.5%. So I think that's very good news, both for growth and the efficiency of the investment.

[Aravinda Galappatthige, Analyst at Canaccord Genuity]

Yeah. Thanks, Mirko. Maybe I'll just use my follow-up differently with respect to the comments you just made about the 16.5% pro forma 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?

[Mirko Bibic, CEO at BCE]

Nope. No, no, so in terms of the information we shared on Monday, which is that we plan to go from Ziply Fiber currently has 1.3 million households passed, and we'd like to get to over 3 million by 2028. That would be done with the consolidated 16.5% is my expectation. I mean, more 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.

[Aravinda Galappatthige, Analyst at Canaccord Genuity]

Thank you.

[Operator]

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

[Jérôme Dubreuil, Analyst at Desjardins Securities]

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

[Mirko Bibic, CEO at BCE]

Oh, well, we're okay, so thank you, Jérôme. So let me break that up into two 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, we're in the process of doing that in Ontario and Quebec, 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 was just one example.

[Mirko Bibic, CEO at BCE]

The digital platforms and the self-serve apps and virtual agents and contact centers in the cloud and all the benefits we'll get therefrom: churn reduction, sales increase, and the cost to serve. That's in the early days, so that's going to ramp. Customer self-install has been quite successful, but again, early days, the more fiber homes we have 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.

[Mirko Bibic, CEO at BCE]

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

[Jérôme Dubreuil, Analyst at Desjardins Securities]

Thank you.

[Operator]

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

[Batya Levi, Analyst at UBS]

Hi. Great. Thank you. A couple of follow-ups. First, you mentioned that in October, you saw a bit of pricing stability. Do you think that we've seen the worst in terms of the output declines? And for Q, 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 fourth quarter? Thank you.

[Mirko Bibic, CEO at BCE]

Yeah. I mean, on churn, like I said in response to Maher, 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.

[Batya Levi, Analyst at UBS]

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

[Mirko Bibic, CEO at BCE]

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

[Batya Levi, Analyst at UBS]

Right. Continuation of service revenue points.

[Mirko Bibic, CEO at BCE]

Correct.

[Batya Levi, Analyst at UBS]

Got it. Thank you.

[Operator]

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

[Lauren Bonham, Analyst at Barclays]

Hi. Thanks for taking the question. I wanted to just ask about immigration impact on wireless NetAdd and how much of the change in trends that we've seen this quarter. Usually, we have the sequential NetAdd 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?

[Curtis Millen, CFO at BCE]

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

[Mirko Bibic, CEO at BCE]

You can see it in the prepaid results.

[Lauren Bonham, Analyst at Barclays]

Thank you.

[Mirko Bibic, CEO at BCE]

Thank you.

[Operator]

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

[Mirko Bibic, CEO at BCE]

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

[Curtis Millen, CFO at BCE]

Thanks, everyone.

[Mirko Bibic, CEO at BCE]

Thank you.

[Operator]

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

Participants

Executives

• Curtis Millen, CFO
• Mirko Bibic, CEO

Analysts

• Lauren Bonham, Analyst at Barclays
• Jérôme Dubreuil, Analyst at Desjardins Securities
• Analyst
• Aravinda Galappatthige, Analyst at Canaccord Genuity
• Simon Flannery, Analyst at Morgan Stanley
• Maher Yaghi, Analyst at Scotiabank
• David Barden, Analyst at BofA
• Drew McReynolds, Analyst at RBC Capital Markets
• Batya Levi, Analyst at UBS