Executives: Thane Fotopoulos - Vice President of Investor Relations George Cope - President, Chief Executive Officer & Director Glen LeBlanc - Chief Financial Officer & Executive Vice

President
Analysts: Richard Choe - JPMorgan Securities Simon Flannery - Morgan Stanley & Co. Aravinda Galappatthige - Canaccord Genuity Corp. Greg MacDonald - Macquarie Capital Markets Jeff Fan - Scotia Capital, Inc. Drew McReynolds - RBC Dominion Securities Maher Yaghi - Desjardins Securities Timothy Casey - BMO Capital Markets Robert Peters - Credit Suisse

Securities
Operator: Good morning, ladies and gentlemen. Welcome to BCE Q2 2016 Results Conference Call.

I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos.

Thane Fotopoulos: Thank you, Valerie, and good morning to all.

As usual, joining me here today are George Cope, BCE's President and CEO; as well as Glen LeBlanc, our CFO. As a reminder, our Q2 results package and other disclosure documents, including today's slide presentation, are available on BCE's Investor Relations webpage. An audio with replay and transcript of the call will also be made available on our website later today or tomorrow. However, before we get started, I'd like to draw your attention to our Safe Harbor statement on slide 2. Information in this presentation and remarks made by the speakers today will contain statements about expected future events and financial results that are forward-looking and, therefore, subject to risks and uncertainties.

These forward-looking statements represent our expectations as of today and, accordingly, are subject to change. Results may differ materially. We disclaim any obligation to update forward-looking statements except as required by law. A discussion of factors that may affect future results is contained in BCE's filings with both the Canadian Securities Commission and the SEC and are also available on our corporate website. So with that, over to George for a review of the results.

George Cope: Great. Thanks, Thane. Good morning, everyone. Thank you for joining us. I'm on slide 4 of the presentation.

In terms of the quarter, 113,000 wireless and wireline broadband net customer additions, obviously, consistent with this type of quarter where you traditionally see softer on the Internet side with the school out at the end of the quarter but, overall, at 113,000, we know we would've taken market share in the broadband space. We had exceptional wireless financial performance with 7.7% growth in EBITDA, strong revenue flow-through driving a 1.4% increase in service margin to 48%. Importantly, with the eight consecutive quarter of positive Wireline, adjusted EBITDA growth was a 1.1% increase in our margin to 42.7%, giving us ample room to make the necessary capital investments in fiber going forward. We had a strong overall contribution from Bell Media, with revenue up 5.3% driving EBITDA growth of 3.7%, so all three groups, again, delivering positive EBITDA growth. Independent surveys continue to highlight our network leadership both from a wireless perspective and our Fibe TV both in the surveys identifying Bell as the leader in network on both of those products.

Overall, service revenue increased 1.3%, and that, combined with our focus on profitable subscriber growth and cost management, delivered 3.2% higher EBITDA and an increase on our margin to 42.5%. Our steady execution of the company continues. That is the 41st consecutive quarter of year-over-year EBITDA growth for our investors. Turning to Wireless results, very, very strong results both financially and from a net add perspective. 70,000 postpaid net adds, up 14.4% year-over-year; a reduction in our churn across the base; a continual increase in our average revenue per unit, as customers migrate to the LTE Advanced network and use their handsets more.

We did see a tick-up in the cost of acquisition, principally driven by, again, the higher mix of smartphones and also a weaker Canadian dollar. Retention spending was down to 11.9% of service revenue, and that's quite positive given churn was reduced as well and, of course, we lapped the double cohort. Overall, as I said, excellent performance driving increasing market share with postpaid net adds growing, lower churn, 7.7% increase in EBITDA. And I think notable in the quarter is our ability to grow both subscribers and EBITDA growth, which has been quite different than some of our peers in recent quarters. On the Wireline side, 43,000 IPTV and Internet adds in the quarter, 35,000 IPTV net adds.

Certainly was not a strong promotional quarter in Quebec as it was last year, and with the minimal footprint expansion, 35,300 net adds would be consistent with the footprint that we now have today. Satellite loss has improved slightly. Importantly, in our footprint itself, we added 10,200 overall TV net adds. So, clearly, the losses of satellite continue to be more outside our traditional wireline footprint. 7,500 Internet net adds in the quarter.

Really two issues, we saw a decline in our wholesale net adds of about 10,000 year-over-year and, of course, the revenue off of that sub-base is about 45% or 40% of our retail revenue, so not significant from a financial perspective. And also, we chose not to match some of the aggressive pricing we saw in the market in Toronto from one of our competitors and continue our focus on profitable subscriber growth. And as you can see, we're leading in broadband share between our Internet and TV net adds. Remarkably, significant improvement in our NAS losses of 24,000 year-over-year, so heading in the right direction there. Of course, that will continue to see a decline in NAS, though, as we go forward.

Strategically, we just launched the Virgin Home Internet product on July 5 in Ontario, and that will be focused on a discount Internet market on the Wireline side. Also, I'll announce a couple of new products this morning that we're really quite proud of that will launch in August. First of all, we are launching, to our knowledge, the first fully wireless IPTV service. So, we have had one set-top box, if you will, the PVR that was not wireless. It now is and, to our knowledge, the only all-wireless IPTV service globally available.

It will be launched this month and also clearly reduce this number, install time provides remarkable flexibility for our customers. It also will integrate the 4K Netflix app into this 4K PVR, making it available on all five TV receivers that we now have in the marketplace. So, we continue to maintain our leadership position with IPTV with these unique products in the marketplace. Just importantly on the broadband side on the next page is the launch of a Home Hub 3000 modem. It's by far the strongest modem we have ever launched.

It'll last three times the Wi-Fi power that we currently have in the marketplace. It will be compatible with both FTTN and FTTH. It launches in August. Importantly, reduces for our fiber install, what is currently five different pieces of hardware down to one, all integrated into this one modem. That will reduce our install time at least 30 minutes and also reducing the devices from five to one.

Overall, we expect our demand capital requirements for fiber to drop anywhere from 10% to 12% as a result of this new modem. And also, we believe that it will be, for sure, the strongest modem and improve access in the home for all of our customers. We're also going to move forward with installing a fiber jack when we install fiber into all condominiums and homes now as we go forward, so that that fiber service remains there for the life of the actual premise as opposed to the life of the customer. And so, it will simply be a self-install after that as the second owner of that property would move in as we go forward, setting up for a really quite remarkable cost structure when we go forward over the years. Turning to Bell Media, as I mentioned, the strong quarter, both revenue and EBITDA finished the year CTV again as the number one in Canada with 14 of the top 20 programs and seven of the top 10 series.

We have a very strong lineup leading into the fall season. And we also, just on our Out of Home business, we're recently awarded the Toronto Pearson Airport Contract, which basically puts the company as the - now we believe the largest outdoor advertising company in the country. So, really, takes us to six different airports across the country, driving our ability to self-consolidated advertising to our clients across all of our platforms, radio, TV and outdoor. Turning to MTS, just a quick update for everyone. The shareholder approval took place on June 23 with literally almost 100% of votes cast in favor.

Court approval was received June 29. We're in the midst of the regulatory process, and we anticipate expect closing in either late this year or early 2017. And with that, let me turn over to Glen. Thank you.

Glen LeBlanc: Thanks, George, and good morning, everyone.

I'll begin with a quick summary of Q2 financials on slide 12. Our consolidated results for the quarter demonstrate a clear focus on subscriber profitability and price discipline, as highlighted by our continued steady service revenue and adjusted EBITDA growth, margin expansion and higher earnings and free cash flow, all of which are consistent with the guidance targets we provided at the beginning of this year. Total service revenue increased 1.3% led by the strong top-line performance at Bell Wireless and Bell Media, as well as higher Internet and TV revenues. Product revenue was down CAD 49 million or 12.3% year-over-year due to fewer wireless customer upgrades as the double cohort was lapped at the beginning of June, lower mobile device pricing and reduced sales of wireline business data equipment. Adjusted EBITDA increased a very solid 3.2%, reflecting positive year-over-year growth, as George mentioned, in all three operating segments.

This drove a 1.2-percentage-point improvement in overall margins to 42.5% on the back of a tremendous service revenue flow-through to EBITDA of 113%. That was driven by solid Wireless ARPU growth, higher revenue per household and a 1.8% reduction in total consolidated operating cost. Given our highly competitive markets, we continue to exercise good spending and pricing discipline across all of our customer and product segments. Higher EBITDA drove 8% growth in adjusted EPS to CAD 0.94 from CAD 0.87 last year and was also a key contributor to the free cash flow generation of CAD 934 million this quarter, even with the seasonal step up in CapEx, typical of the busy Q2 summer construction period. Consistent with our plan for the year, CapEx spending this quarter increased year-over-year as we continue to expand both our broadband fiber footprint, as well as our Internet and wireless network capacity to support customer and usage growth.

With that overview, let's turn to the detailed results of Wireless segment you'll find on slide 13. Not much in the way of extension commentary from me required for Bell Wireless as our strong financial performance truly speaks for itself. Service revenue increased 4.6%, driven by higher LTE daily usage and a greater percentage of customers on two-year contracts, while product revenue was down 23.5% primarily on the lower volume of handset upgrades, as I mentioned previously, which contributed to a 1.7% reduction in Wireless operating cost this quarter. From a profitability perspective, Wireless adjusted EBITDA grew an exceptional 7.7%, yielding a revenue flow-through to EBITDA of 77% and an impressive 1.4-percentage-point improvement in margin to 48%. And lastly, Wireless adjusted EBITDA less CapEx, or what is referred to in the industry as simple free cash flow, provided a very strong contribution to BCE's overall cash generation in Q2, increasing 11.3% year-over-year to CAD 589 million.

So, overall, another great set of financial results in what's now been a long line of excellent quarters for Bell Wireless. Moving to Bell Wireline on slide 14. The pace of Wireline revenue decline was directionally similar to Q1, decreasing 2.1% this quarter. Overall top-line performance was impacted by the sale of a contact center subsidiary in September of 2015, reduced spending on service solutions and data products by our large enterprise customers, as well as softer wholesale revenues attributed to competitive pricing pressure and a higher volume of off-net traffic compared to last year. Excluding the CAD 15 million revenue loss from the call center sale I just referenced, we generated positive Residential Service revenue growth of 0.5% in Q2.

This was driven by continued solid Internet and TV growth which, combined, delivered 5.2% year-over-year increase in revenue. In our Business Markets unit, although the rate of EBITDA decline improved as a result of cost management initiatives, overall revenue performance continue to be impact by customer re-pricing demands and a slower pace of new business investment. Wireline adjusted EBITDA was up 0.6% or, as George said earlier, our eighth consecutive quarter of positive year-over-year growth where our margin expanded 1.1 points to 42.7%. Certainly worth repeating. This reflected a 4% decline in operating costs from ongoing spending controls and service improvement efficiencies, including workforce reductions undertaken in the fourth quarter of last year.

Turning to slide 15, Bell Media contributed positively to the overall consolidated BCE adjusted EBITDA and cash flow growth this quarter with a strong set of financial results that were underpinned by industry-leading TV audience ratings and viewership levels. Total revenue grew 5.3% year-over-year mainly on the strength of subscriber revenues and year-over-year growth at Astral Out of Home. Subscriber revenues were up 13%, driven much like they were in Q1 by the expansion of The Movie Network into Western Canada, as well as the continued steady CraveTV and TV Everywhere growth. Although advertising demand for conventional TV and radio remains soft across most sectors, total advertising revenue was up 0.3% in Q2. This growth was driven by the higher audience levels for TSN and RDS, given the Toronto Raptors' deep playoff run, Euro Cup Soccer, and some shift in spending to Bell Media's specialty sports properties with no Canadian NHL teams advancing to post-season play.

Adjusted EBITDA increased 3.7% on the flow-through of the higher revenue, as well as the workforce restructuring labor savings that effectively offset year-over-year increases in sports broadcast rights and CraveTV content costs. Overall, Bell Media's performance in 2016 is meeting all of our expectations, both in terms of financial performance with two consecutive quarters of positive revenue, adjusted EBITDA and free cash flow, and in terms of the strategic opportunities to improve the growth profile of Bell. Slide 16 summarizes our adjusted EPS for Q2, which was CAD 0.94 per share or 8% higher year-over-year. EBITDA accounted for CAD 0.06 of the EPS growth in the quarter. Lower net interest expense due to lower average cost of debt and mark-to-market gains on our equity derivative contracts, driven by BCE share price appreciation in the quarter, also contributed to higher adjusted EBITDA.

This was partly offset by our year-over-year depreciation expense consistent with a higher capital asset base, as well as no favorable tax provision adjustments compared to the CAD 0.01 per share we recorded last year. Additionally, overall EPS growth in Q2 was moderated by a higher share count due to the CAD 863 million equity issuance we did last December, which just like last quarter resulted in a dilution of approximately CAD 0.03 per share. With our strong Q2 performance, year-to-date adjusted EPS is up 4.7% over last year, keeping us on track to achieve our full-year 2016 guidance objective for growth of approximately 3% to 6%. Turning to free cash flow on slide 17. Consistent with our plan for Q2, we generated CAD 934 million of total cash, driven primarily by growth in adjusted EBITDA.

Free cash flow this quarter also reflected the benefits of lower interest paid, lower cash pension and lower cash taxes. The low cash pension and cash taxes decreased year-over-year. This was due primarily to the timing of payments and, therefore, continue to track in line with our full-year guidance assumptions. CapEx was 3.9% higher year-over-year, reflecting higher planned spending, as I discussed earlier. But even with the step up in spending in the quarter, we continue to track comfortably towards our 17% capital intensity target for 2016.

And lastly, a decrease in our working capital position related mainly to the timing of supplier payments also moderated overall free cash flow growth in the quarter. To wrap up on slide 18, looking ahead, with the financial performance we reported in the first half of 2016, all of our operating segments are tracking well to deliver on the guidance targets that we provided back in February. We see good operating momentum taking us forward in the second half of the year, and we remain confident in our ability to execute and grow the overall business, with the continued expectation for positive Wireless, Wireline and Media adjusted EBITDA growth for the full year of 2016, as well as the accelerating free cash flow trajectory in the back half of the year that fully supports higher planned capital spending within the capital intensity level I mentioned of around 17%, all of this providing a solid, strong foundation for continued execution of our dividend growth objective in 2017. With that, thanks to everyone for joining us today on the call, and I will turn the call back over to Thane and the operator to begin the Q&A period.

Thane Fotopoulos: Thanks, Glen.

So, before we start the Q&A period, just keep the call as efficient as possible, I ask that you limit yourselves to one question and a brief follow-up. To the extent we have time, we'll circle back at the end of the queue and take more questions. So with that, Valerie, we're ready to take our first question.

Operator: Thank you, Mr. Fotopoulos.

We will now take questions from the phone line. [Operator Instructions] Our first question is from Richard Choe with JPMorgan. Please go ahead.

Richard Choe: Great. Thank you.

Another strong churn performance in the quarter of 1.15%. Can you give us a sense of what is driving the low churn rate? Is it that customers are just not as active or is it something you're doing on your side then?

George Cope: No, our belief is it's really a number of core things. First of all, again, it's the third I think survey in the last 12 months by independent agencies saying that our network is the superior network in Canada. And so, obviously, a superior network drives a lower churn rate. That's clearly what we're seeing.

I think secondly, our customer service metrics continue to improve fairly significantly, so that is clearly driving it. And I think, thirdly, structurally in the industry, the fact that we've now lapped a double cohort, there's some math that clearly would help us drive that churn to be lower as well. And I think those are really the three drivers.

Richard Choe: And then, in the areas where you have LTE Advanced coverage, are you seeing a pickup in usage versus LTE or is it relatively the same?

George Cope: No, we're seeing an increase in usage when folks move to LTE Advanced. And if I don't have it, Thane will certainly share it with you after the call.

But we definitely have seen usage in - about 40% higher is what Thane just told me the difference as people are moving to...

Richard Choe: Okay.

George Cope: Thank you.

Operator: Thank you. Our next question is from Simon Flannery with Morgan Stanley.

Please go ahead.

Simon Flannery: Thank you very much. Good morning. George, I wonder if you could just give us an update on the fiber rollout. Where are you in terms of your projections? And what are you seeing from customers in terms of your take rates? There's a lot more talk about the need for speed and 100 megs being sort of table stakes here.

So, any color you could give about what people are really responding to you? How your new adds are - what sort of speeds they're taking and how you see that evolving? Thank you.

George Cope: Yeah. So, we're at 2.6 million premises that have access to fiber today in our total footprint. That will end at around 3 million at the end of the year. The significant part of the particular project in Toronto 416 will have an enormous amount of household additions clearly in 2017 as we've laid the foundation in 2016 in the marketplace.

We've heard different commentaries about 100 megs, which is funny, we see huge demand at 50 megs still on our base. Obviously, at the 1-gig service, we see demand there. A lot of very positive results where we have the fiber in terms of net adds. One of the things we think we saw some migration to some of the other speeds and one of our competitors talking about is that is where they were offering unlimited Internet without billing for access, so that would drive customers to that particular tier, not necessarily driven by the speed. And so, that's one of the competitive differences as you see off and on in different promotions in the marketplace.

But there's no doubt where we have IPTV and where we have fiber is where we see the best market share growth for us.

Simon Flannery: Great. Thank you.

Operator: Thank you. Our next question is from Aravinda Galappatthige with Canaccord Genuity.

Please go ahead.

Aravinda Galappatthige: Good morning. Thanks for taking my question. George, I just want to focus a little bit on the Ontario market in Wireline, obviously, elevated levels of competitive intensity. Can you just talk about what's going on in terms of Internet and TV? Is it that you're seeing - are you seeing an uptick in churn there, or is it simply that the growth adds are kind of a little bit tougher to come by, particularly in Internet, given sort of the promotional offers that are out there?

George Cope: Yeah.

Sure. And it would probably - it wouldn't even be specifically Ontario. It would probably be fair to say in the core market with one of our competitors where we saw some aggressive pricing in the marketplace and, ultimately, that probably caused us some switching between the two carriers, and we think we saw some of that in the quarter. Having said that, we continue to drive product differentiations instead of pricing in our approach. We have vastly superior TV products.

That's why we saw the 35,000 or so net adds on the IPTV. And where we have IPTV combined with our Internet is where we are positive RGUs quarter-over-quarter. So, we continue to be pleased there. And I think it's important for investors to understand that 10,000 of the reduction in the Internet was wholesale. And the wholesale, obviously, revenue stream is much less for us.

And clearly, that's not a focus of ours, as our focus is on bringing IPTV and then, at the same time, pulling the Internet through. But clearly, we saw some aggressive pricing in the Toronto market.

Aravinda Galappatthige: Great. Thank you.

Operator: Thank you.

Our next question is from the line of Greg MacDonald with Macquarie. Please go ahead.

Greg MacDonald: Thank you and good morning, guys. Wanted to ask a question on the wholesale side of Internet. George, you mentioned about 10,000 of the impact was on wholesale.

Was that an unusual number? Are you losing wholesale customers in previous quarters? And would that suggest that we should see a bounce back in the 3Q? And then I have a kind of a follow-on satellite, just trends there.

George Cope: Yeah. Wholesale is kind of a hard one, to be honest with you. It is fairly volatile. It does seem to move because wholesalers can move between carriers, and we have seen some volatility on that.

And our core focus is obviously on the retail business. We also, as you would've noticed, just launched the Virgin brand in the Ontario marketplace to focus on the discount market of Internet. That will be a brand that we'll carry into the marketplace there like we did in the wireless world. I think you saw one of our competitors well do that with one of their brands. So, I think you'll see us focusing, and then that would become retail for us.

So, we will compete in that space as well. It's a hard one to know from quarter to quarter what's going to happen there.

Greg MacDonald: But from your overall planning perspective, a sub-10,000-a-quarter number is not a usual number. We should be thinking higher than that.

George Cope: Actually, I didn't give that actual number.

I just said the reduction was 10,000. So, it's a hard one to give you complete guidance on because it is volatile in the numbers. In terms of our revenue streams, our core revenue streams obviously come from our retail Internet and our retail TV, which is really what, ultimately, is driving the company.

Greg MacDonald: Okay. Got it.

And on the TV side, I think we have a decent understanding of IPTV and the trends that are based on the build outs. What I'm trying to figure out if you still have a little over 1.4 million satellite customers. I'm trying to figure out mix of the customers that are in urban-type markets that might rather take a digital product from the Wireline side, i.e., your Fibe product relative to those that are in more rural markets that don't have the option. 33,000 net losses is kind of the number that most people expected. Is there a support level that we can expect at some point where that number might decline soon relative to the mix that we're probably seeing go away from urban and...

George Cope: Yeah, we would think that - intuitively, we would think so. I can't give you a guidance on it. But as this product matures out and the IPTV footprints mature out, clearly, the satellite business and a lot of our footprint will be competing against the other satellite operator. And we are working our way through. You're right exactly in that issue, the urban versus rural footprint on satellite in terms of our net add reduction.

But it's not just our urban markets where we see the reductions. It's also in other urban markets across the country where we've had satellite before there was IPTV, so that's still working us through. Probably best is when you look at our numbers, you can see we're 10,000 in our Wireline footprint net adds. You can do the math to say how many satellite we obviously would've lost outside of our own footprint. And you're right, the split's the same, and I would say that a percent of our basis in our IPTV footprint obviously just continues to decline.

And so, at some point, they'll be stabilizing, but it's a very hard one for us to make a call on where that will be.

Greg MacDonald: At some point, it suggests then there's still a relatively large urban satellite.

Glen LeBlanc: I didn't say that. You did.

Greg MacDonald: Okay.

All right. Thanks a lot.

Operator: Thank you. Our next question is from Jeff Fan with Scotiabank. Please go ahead.

Jeff Fan: Thank you. Two quick ones, one, just a clarification first on the subscribers on the Wireline side. I think, George, you alluded to customer moving in the second quarter. Just wondering on the accounting, maybe for Glen. When a customer moves in Q2 and then reconnects in Q3, does the customer count? Is it churn in Q2 and then net adds in Q3? Just maybe a clarification on that one.

And then, secondly...

George Cope: Well, that's - on that very specific one, that's something I think that one of our competitors in Québec over the years has talked about that they take the loss in the one month and the addition - we don't. But they have something deactivates and activates to earn their numbers. So, there's no bridge between quarters for us.

Jeff Fan: So, if they deactivate and reactivate, they're not a churn in Q2?

George Cope: Correct.

Jeff Fan: Correct, okay.

George Cope: Yeah.

Jeff Fan: And then just a follow-up on the - a question on pension. We heard on the MTS call, and they gave us some disclosure around their pension deficit. It looks like due to the lower rates, their deficit increased by about three times since the beginning of the year.

I'm wondering if you can give us a bit of an update for Bell and whether your free cash flow guidance includes any of the voluntary or special contribution that you may have to make.

Glen LeBlanc: Well, good morning, Jeff. Yeah, you're absolutely right that we've seen volatility in the interest rate environment. And when you look at it from a solvency deficit, we've seen probably about 11-basis-point decline in the discount rate used on our largest plan, the Bell plan. So, we're inside the 3% now and, of course, you know that has sizable impacts on their liability.

But on the asset side, we generated a 3.6% return in the quarter and 4.7% year-to-date. So net-net, where we find ourselves is with the solvency ratio approximately at the same place, about 91% funded. We've stayed around that number, as you know, for some time, north of 90%. As far as future funding of the pension goes, it's a decision we make every year with our excess free cash flow is what's the best usage of it. And as we approach the year-end that will be one of the options for us is to consider using our excess free cash flow to fund the pension.

We know it's tax-deductible, but it's a decision that's in front of us that we'll make when the time is right.

Jeff Fan: Great. Thank you.

George Cope: You're welcome, Jeff.

Operator: Thank you.

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

Drew McReynolds: Thanks very much. George, just want to focus on just the Wireline revenue performance in the quarter, and I think it was a little worse than what we were expecting, obviously, not significantly worse. More big picture, just can you comment on just your visibility on Wireline revenues going forward? Obviously, a lot of moving parts in the segment.

And then my actual question is, over time, are you confident that your cash flow growth from other segments can offset any emerging pressure in Wireline cash flow should that happen due to some revenue pressure? Thank you.

George Cope: Yeah. The end of the question is completely confident in our ability to execute, as we've shown over the years, EBITDA growth on Wireline the last couple of years and the free cash flow generation, particularly if you look forward on Telco cost models and what we're seeing on the service side and fiber, which is our continual strategy that we shared with our investors and is seen by the fact that even with those local access line declines, our margins have stayed stable over the last seven years and, in fact, improved to give us a free cash flow room. In terms of revenue, I mean, Glen talked about it, there was definitely some noise in the quarter because of the onetime call center stuff not there, wholesale, not exactly revenue we're dying to have that we - that was impacted as well. And, of course, the product side, you can see the decline on the Wireline number.

I don't want to say irrelevant. That's a little harsh, but literally it is on the product side. So overall on Wireline service revenue, it's always about Internet and TV being enough to offset NAS and any decline we see in business. And that's the work - it's the same work the last few years, and we're confident that we'll continue to balance that. The one math equation for us is over time, as everyone knows, local access line revenue becomes less of a share of our overall weighting in Wireline, and that lets us see our way forward to not just see it through cost but also see some of it through revenue.

Drew McReynolds: Okay. No, that's helpful. And just a follow-up, George, just on the NAS improvement in the quarter. I know there's bumps around quarter-to-quarter. Just any additional granularity you want to provide on that.

George Cope: No, the only reason - no. I would - the only thing I would say is there's no doubt when we launched fiber in a market and we add the IPTV pull-through in the Internet, we see a slowing of NAS losses simply because households that were triple households versus maybe going into one of our competitor space. So, there's a little more stickiness there, but that's not a prediction that local access lines are not going to continue to decline.

Drew McReynolds: Thanks very much.

Operator: Thank you.

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

Maher Yaghi: Yes, thank you for taking my question. George, I wanted to ask you maybe, I'm not trying to get a guidance on a quarterly basis. But with the negative revenue growth in Wireline, do you see it going back to positive? And if you do, when should we expect it to turn positive? I mean, you've done a great job on reducing cost and EBITDA is growing on the Wireline side, but I'm just wondering what your investments you're doing on fiber.

When should we expect to have Wireline revenue growing on a sustainable basis?

George Cope: Yeah. Well, first of all, residential wireline revenue growth is positive. We've been reporting that on a quarterly basis, and it's a mix issue against the wholesale on BBM whereas I'm not going to give guidance on. We don't buy any of our BUs, we never have on the revenue. We have a consolidated guidance number, and I think the most important revenue number for our investors is our service revenue growth investment that's quarter-over-quarter of 1.3%.

And, obviously, it's a mix of all three of our businesses and that's how we view the company. But clearly, residential positive. That has to be enough to offset the BBM side of it, the business side, and we're close quarter-to-quarter and we just keep working at it. And, of course, ultimately for us, it's the EBITDA flow-through that we're seeing because the cost to deliver these wireline services is coming down through technology, and that's allowing us to provide margins that are giving us capital coverage for fiber investments that, quite frankly, at margins that are superior to any of our peers, be it wireline or cable.

Maher Yaghi: Okay.

And just on Wireless margins, how much of these margins that we're seeing right now are sustainable, or some of it is maybe some gains related to the costs that were incurred last year for the double cohort? Can you maybe talk a little bit of both margin sustainability on Wireless, which was very strong in the quarter?

George Cope: Yeah. Margins are a hard one to predict. At the end of the day, our strategy continues to be the same. We want more than a third the net adds of postpaid. We want more than a disproportionate share of the EBITDA growth, and we're seeing that.

We clearly have an execution formula that's finding the right balance, which is customers use our phones more because the network is superior. That drives the usage, which drives the EBITDA flow-through. The margins, where they are now, would I be predicting higher margins? No, because it's a very competitive marketplace. So, really, it's about managing the revenue and cost structures that we've done in the past. I think for investors, the free cash flow we're generating is clearly excellent growth on a free cash flow perspective, but it's a consolidated business.

It's a little bit like the wireline answer. I mean, it's one consolidated P&L. It's taking that free cash flow and reinvesting in the fiber, so that our Wireline business continues to be in a position to be a leader going forward.

Maher Yaghi: Thank you.

Operator: Thank you.

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

Timothy Casey: Thank you. Good morning, George. Can we go back to those two new product launches? You mentioned the wireless PVR and then the new Wi-Fi modem.

You made a comment that you thought it could have some positive implications for spending. I'm just wondering if you could provide a little more color on those products, and then put that comment in context. I'm assuming you'll find other places to spend the money, but just if you could just sort of flush those out a bit. Thank you.

George Cope: Yeah, I'm smiling.

That's a good point. We always do find places to spend the money. The capital intensity number won't come down because of it. But what is important particularly on both devices, when you take the Home Hub 3000, it really is you can just - everyone I think can imagine why the install time now will drop anywhere from 30 minutes to 45 minutes because you go from - can be four or five devices in the home to one. So that, combined with the cost of this unit relative to five separate units, we think sees anywhere from a 10% to 12% reduction versus our current demand capital cost or versus, say, what Bell Aliant would've been paying to install fiber the last four years or five years, three years or four years they've been in the market and we've seen in Québec.

So, that will just help us on demand capital going forward. And we get a little bit of help also in the wireless PVR as well because, again, we don't have to deal with the install through the wall. We simply have to put the device and then connect it onto the modem. So, I think both will take some install cost out. Demand capital at CAD 700 to CAD 900 a home, you can take the math on that and assume a 10% to 12% reduction on that going forward with this change.

And then the thing I'm really excited about it is also putting this Bell Fibe jack in the premise, sets us up for the life of the household, not the life of the customer, which I think is sometimes in the investment models, it should be expect the life of the home, not expect the life of the customer. And then the other - one about - great thing about the modem, it's for FTTH and FTTN and it has speed capabilities well beyond 1-gig speed. So, as speeds go beyond 1 gig, we will not have to change that modem out again until we go to another whole other level of speeds, which obviously isn't in this particular model. So, I hope that gives you a little more color on it. We're quite, and you can tell, very excited about it.

We think the modem and the Wi-Fi in the home is going to be real battleground. We've gone from three devices to 12 now connected in the home, and this will dramatically improve that service in the home for everyone and we think it's a world leader.

Timothy Casey: Thank you.

Operator: Thank you. Our next question is from Rob Peters with Credit Suisse.

Please go ahead.

Robert Peters: Hi. Thanks very much for taking my question. George, just on the strong postpaid net additions, I was wondering if you saw any particular region driving that growth and if there was any kind of difference inside your Wireline footprint versus outside in the quarter?

George Cope: I'd actually say no. It was pretty consistent across the board.

I think it's fair to say we saw a little softer year-over-year in Alberta, and that's for two quarters in a row now we've seen that. So, I think that would be the one call that I would make. Not maybe as dramatic as some people might think, but clearly it was not a strong quarter Alberta relative to other places in the country.

Robert Peters: Perfect. Thank you.

And maybe to follow up on the Wireless and maybe focus a bit more on the margin side. I know you highlight they're pretty difficult to predict, but in terms of the retention spend declining in the quarter, you highlighted, I believe, a double cohort being lapped. Was there anything else driving that or was it all really - should we really all attribute that all to the DC?

George Cope: Glen, go ahead.

Glen LeBlanc: Yeah, I'll take that question. When you look at the retention spending decrease about 1% as we mentioned in the quarter down to 11.9%, device upgrades are down 64,000 in the quarter.

And the primary driver here that you're seeing, less promotional intensity in the quarter, it was a little less aggressive compared to what we saw in previous quarters but, ultimately, 64,000 less device upgrades.

Robert Peters: Perfect. Thank you very much.

George Cope: You're welcome.

Thane Fotopoulos: I don't believe, Valerie, there are any further questions at this time.

So with that, we'd like to thank everybody who participated this morning. And, of course, I'll be available throughout the day for any follow-up questions and clarifications. So with that, thank you and have a great day, everyone.

George Cope: Thank you all for joining us.

Operator: Thank you, gentlemen.

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