Executives: Thane Fotopoulos - Investor Relations George Cope - President and Chief Executive Officer Glen LeBlanc - Chief Financial

Officer
Analysts: Phillip Huang - Barclays Simon Flannery - Morgan Stanley Vince Valentini - TD Securities Aravinda Galappatthige - Canaccord Genuity Batya Levi - UBS Jeff Fan - Scotiabank Richard Choe - JPMorgan Greg MacDonald - Macquarie Maher Yaghi - Desjardins Capital Markets Drew McReynolds -

RBC
Operator: Good morning, ladies and gentlemen. Welcome to the BCE Third Quarter 2017 Results Conference Call. I would like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr.

Fotopoulos.

Thane Fotopoulos: Thank you, Donna. Good morning to all and thanks for joining us. I am here with BCE’s President and CEO, George Cope and our CFO, Glen LeBlanc. As a reminder, our third quarter results package and other disclosure documents, including today’s slide presentation, are available on BCE’s Investor Relations webpage.

An audio replay and transcript of the call will also be made available on our website later today or tomorrow. As usual, before we get started, I would 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 could differ materially.

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

George Cope: Great. Thanks, Thane.

Good morning, everyone. Clearly, we are very pleased this morning with the financial growth and the subscriber growth in the quarter driven by the 5.9% service revenue growth, producing 5.8% higher EBITDA in the quarter and also seeing a margin increase across all BCE consolidated to 41.7%. Of interest, on $270 million of approximate revenue growth, we saw $130 million pull-through of EBITDA, so about a 48% pull-through across the entire company on incremental revenue. Wireless again had an excellent quarter and we believe will, as the quarter unfolds, end up being the leader from an adjusted EBITDA growth perspective and cash flow perspective in the quarter. We had strong Internet and IPTV net adds up 6.9% and 81,000 in the quarter and one of our strongest quarters in a number of years.

Our wireline EBITDA growth of 4.4%, of course part of that, contributing from the MTS acquisition, but also seeing the margin expansion there to 42.3%, giving us the headroom for our continued capital program. And as I mentioned in the past, I would believe over the next 12 months, the consolidated MTS results with the synergies within that particular division will have – see about a 10% margin improvement as a result of our synergies. We had steady media financial performance with 1% revenue growth and stable adjusted EBITDA. And overall, 198,000 postpaid wireless, Internet and IPTV net customer additions, up 8.3% year-over-year clearly a very strong RGU quarter. Turning to wireless, it was our best postpaid performance in the past 5 years with 117,000 postpaid net adds.

We continue to see our churn reduce as a result of our network quality and the continued focus from a service perspective with our customers. We also, again, saw an increase in average revenue per customer this quarter, up 3% year-over-year to a blended $69.78 and we also saw an increase in usage as we continue to see as people use our broadband network more and more with our overall base increase of usage of 26% on a year-over-year basis. One highlight of the quarter, I think, already reported in a number of different areas, was our win of the federal government wireless contract. That should add an additional 200,000 postpaid subscribers to our customer base over the next 18 months. That’s about a 1% market share swing in our favor with our largest competitor.

It provides a 6-year agreement with some extension possibilities for 10 years, also some of the other benefits. It provides us the opportunity for the mobile push-to-talk business there and other IoT solutions. It’s an interesting account for us strategically. Clearly, a lower ARPU account, but also clearly an account with literally no churn. And as a public sector growth of employment takes place in Canada, of course that subscriber growth that we would expect to be great than these number of subs over the term of the contract.

Turning to our wireless network, we do like to call this out on a quarterly basis because we think it’s making quite a difference and will over time. We think we specifically see it in our industry leading ARPU. A significant milestone for Canada, this quarter we have 99% of the country covered with speeds of up to 150 megabits on LTE. The industry has never been beyond 97% even with traditional technologies before. So, we almost have this entire country now covered from a broadband perspective with those speeds.

Recent reports have come out to show that our wireless network is approximately now 2 times faster than our largest incumbent provider. And this is of course a utilization of the 4CCA Quad-band technologies that has allowed us now to have an approximately 8 provinces and 21% of the population has access now to speeds of up to 750 megabits. We would expect in 2018 over 50% of Canadians will actually have access to speeds of over 900 megabits and will on a normal basis those customers would see a practical speed of about 250 megabits on their handset, clearly, world class, probably world leading in terms of wireless speeds and we think a great differentiator over our number one competitor. And of course, you have to have the fiber back-haul to those cell sites to see the benefit of these speeds. And as everyone on the call knows we have made those investments and that assures us as we make this evolution, we will see that speed continue.

We have also very quickly accelerated growth in Manitoba. We have now completed the overlay of LTE Advanced in Manitoba, the 85% of the province, so that’s in our capital already. And that puts – starts to put that network at the level of quality that we have across the rest of the country on the Bell network. We are particularly proud from a leadership perspective to be the only wireless carrier in Canada who enabled and supported the Apple Watch Series 3 launch, enabling you actually use the Apple Watch when you are away from your smartphone. And to our knowledge, at this point we are the only wireless carrier in Canada with that capability which is some nice differentiation going into the holiday season.

We have been able to do these network investments while maintaining our capital intensity at 9%. We will talk more about guidance in ‘18, but as revolving the business plan, we are pretty comfortable now with the Street to let you know that we would expect our capital intensity in ‘18 on wireless should be approximately around 9% as well, particularly because we made these investments to give us the speed advantages and we think that’s going to give us quite a great position going forward in terms of the capital intensity of wireless for 2018. Turning to wireline, really I think an excellent quarter from an RGU perspective, really nice to see the growth acceleration, 44,000 Internet net adds, up almost 13% year-over-year, so our fiber footprint obviously beginning to provide the returns we want to see, really positive quarter from a TV perspective. 10,000 positive net adds in our wireline footprint, which of course, as everyone know now runs from Manitoba to the East Coast. So that’s a very positive outcome for us.

Strong IPTV net adds, also assisted with the launch of our Alt TV product which continues to do early on what we hope it would do in the marketplace. And the other thing I just wanted to call out was really the very strong local access line results. Dramatic improvement from residential perspective, down 23,000 in terms of the losses year-over-year and 10,000 less losses on a business perspective where we saw small business performance continue to improve. And one interesting milestone I looked again just a few days ago, but in the quarter we are actually positive NAS in our fiber footprint. So there’s clearly some bundling benefits there.

And across the board, all 3 of these products saw an ARPU lift year-over-year of approximately 4%. So it’s clearly doing the right things we want and know it’s about keeping that up going forward. In terms of Bell Media, excellent from a ratings perspective off to a strong start in the quarter, 7 of the top 10 shows for the important fall season, excellent specialty programming as you can see here with some of the names on the page. Also a great start to the NFL in Canada this year with the average audiences on Sunday up 53%, Monday up 18% and new to TSN was carrying the NFL on Thursday night and up 12% year-over-year. We did just recently announce the attended acquisition of two specialty services in the province of Quebec.

Those are subject to regulatory approval, but would, of course, improve our overall position in the province against our competitor there. And there is no doubt our continued ownership of the Canadians, Maple Leafs, Raptors and TFC, although not driving cash flow that comes back to the shareholders, is driving significant value for us as we’ve seen these assets grow in value and also continue to secure some really, really important Canadian content for us. With that, let me turn it over to Glen.

Glen LeBlanc: Thank you, George and good morning everyone. Let me begin with a quick high level summary of our Q3 financial results, which as George said, we are very pleased with.

Service revenue is up a very healthy 5.9% this quarter, reflecting year-over-year increases at Bell Wireless, Bell Wireline, which benefited from another full quarter of contribution from Bell MTS, as well as top line growth at Bell Media. However, lower margin product revenues decreased $26 million compared to last year, the result of lower wireline business data equipment sales, which as you know, tend to be variable quarter-to-quarter. Adjusted EBITDA growth accelerated, increasing to 5.8%, once again benefiting from the inclusion of Bell MTS and our consolidated results. Consistent with growth in EBITDA, margin also improved, expanding 30 basis points to 41.7% on a flow through of strong wireless service revenue growth, increasing broadband Internet scale, pure NAS volume losses that George mentioned earlier, and the Bell MTS integration synergies, as well as some other operating cost efficiencies driven by ongoing service improvements from our growing fiber footprint. Notably, this was all achieved even with the $26 million and year-over-year regulatory impacts absorbed in the quarter from the wholesale Internet tariff revisions and the customer cancellation refunds, which are now expected to total $100 million for the full year, up from the preliminary projection of $85 million.

With respect to EPS, although absolute dollar net earnings increased year-over-year, statutory and adjusted earnings per share declined $0.01 and $0.03 respectively to $0.86 and $0.88 per share as a result of the share dilution from the issuance of BCE common shares for our MTS acquisition. And lastly, free cash flow grew a strong 24.4% to approximately $1.2 billion more than fully supporting higher planned capital spending in the quarter. Let’s turn to wireless financials on Slide 11. Slide 11 details our Q3 Wireless financial results which exceeded expectations once again this quarter. Service revenue increased 11.2%.

This was driven by higher year-over-year postpaid subscriber mix together with continued strong ARPU growth and a favorable impact of Bell MTS. Product revenue was unchanged year-over-year despite a higher volume of customer transactions due to competitive pricing on higher-end smartphone sold with subscriptions to premium rate plans, which should help support ARPU and churn performance going forward. Wireless EBITDA was up a strong 9.4%, which I believe will lead all incumbent peers this quarter based on reported results and analyst’s consensus estimates. This result was achieved even with $74 million in incremental customer retention and acquisitions spending, driven by contract expirations in the quarter and a higher sales mix of premium mobile devices. As a result, service revenue margin declined year-over-year in Q3 but remained a very healthy 45.5%.

Lastly in terms of cash generation, Bell Wireless contributed meaningfully to BCE’s consolidated free cash flow, delivering 14% growth in adjusted EBITDA less CapEx of $685 million even as we continue to spend significantly on carrier aggregation to further enhance our industry leading LTE network speeds and small-cell the points to optimize coverage, signal quality and data back-haul capacity. Let’s move to Slide 12, wireline’s financials. Service revenue in Q3 was up 4.1% year-over-year reflecting stronger Fibe, Internet and TV growth, 4.5% higher household ARPU, improved year-over-year business results reflecting the favorable impact of our Q9 acquisition, and another quarter of Bell MTS financial contribution. Similar to the previous quarters this year, wireline revenue growth in Q3 was moderated by the regulatory impacts I mentioned earlier totaling $21 million in this segment, competitive pricing pressure across our residential business and wholesale markets as well as $25 million year-over-year decline in the business data product sales. Wireline adjusted EBITDA growth accelerated in the quarter increasing to 4.4%, driving a 60 basis point improvement in margin to 42.3% which more than fully supports the continuation of significant broadband fiber investments going forward.

Excluding the regulatory impacts, wireline EBITDA was up 6.1%. Turning to Media, Slide 13. Total revenue was up 1% in what is seasonally a low quarter for the Media sector. Despite an overall reduction in spending by advertisers and the ongoing shift to online services, advertising revenue increased 1.4% in Q3 on continued growth in outdoor advertising at Astral Out of Home. Conventional and specialty TV revenues were down year-over-year, reflecting continued market softness and a steady decline in audience levels, consistent with broader industry trends.

Bell Media also saw a steady growth in subscriber revenue which increased 1.6% in Q3 driven by our CraveTV and TV Everywhere GO streaming products. Adjusted EBITDA remained unchanged year-over-year as revenue growth was offset by a 1.3% increase in operating costs attributable mainly to CraveTV and pay TV content expansion, deal renewals for special TV programming and higher cost at Astral Out of Home from the acquisitions and outdoor advertising contract wins over the past year. Let’s turn to Slide 14. Slide 14 provides the key components of adjusting EPS, which as I’ve mentioned was $0.88 per share this quarter, down $0.03 compared to last year. Higher adjusted EBITDA, including Bell MTS contribution, drove $0.11 of EPS growth.

This included a non-cash charge against EBITDA totaling $0.01 per share to amortize the fair value increment of the MTS assets required. Tax adjustments also contributed positively to EPS this quarter. Tax recoveries from favorable audit settlements with CRA totaled $0.07 per share compared to $0.02 last year. And this related to a tax provision reversal regarding allowable depreciation on Inukshuk spectrum transferred to Bell in 2012. With the year-to-date tax adjustment of $0.08 per share, up from an earlier assumption of $0.01 per share, we now expect an effective tax rate of approximately 26% for the full year ‘17, down from our previous expectation of 27%.

No material tax adjustments are anticipated in Q4. However, we expect, despite the favorable factors, EPS was negatively impacted in the quarter by MTS’ incremental below EBITDA expense contributions, and as I mentioned earlier, $0.03 of dilution from the shares issued for the common equity component of the acquisition. Also contributing to the year-over-year decrease in adjusted EPS was minor losses realized on the retirement of disposal of the end of life fixed assets as well as the currency hedge gains from Q3 of 2016 related to our U.S. dollar denominated expenditures that did not occur this year due to a new hedge accounting process that we implemented on July 1 whereby the P&L was no longer impacted by mark-to-market changes in FX. Due to the positive tax adjustments in this quarter and with the $2.63 of EPS generated in the first 9 months of the year, we are tracking to the higher end of our guidance range of $3.30 to $3.40 per share.

Moving to Slide 15. As I already mentioned, we generated close to $1.2 billion of free cash flow this quarter, up 24.4% over the last year. This was a result of higher EBITDA, a positive change in working capital, driven mainly by the timing of supplier payments which will largely reverse out in Q4 and lower cash taxes due to the timing of installment payments and partial utilization of the MTS tax losses. $70 million of the total $300 MTS tax loss carry-forwards will be monetized in 2017. Higher year-over-year capital spending, which is expected to repeat in Q4, as well as higher cash interest paid to the MTS debenture debt, assumed in short-term borrowing to finance the acquisition, moderated the strong increase in free cash flow this quarter.

We ended Q3 with $2 billion of cash on the balance sheet, which included the proceeds from the completion of the $1.5 billion dual-tranche public debt offering on September 29 at a blended coupon rate of 3.3%. The net proceeds were used in October to fund the early redemption of $1.3 million of MTN debentures that would have normally matured in 2018, saving BCE approximately $16 million in annualized interest payments. This also lowered our weighted average after-tax cost of debt to 3.2%, while maintaining an average term to maturity of more than 9 years. And lastly, a quick update on the funded position of our defined benefit pension plan. The Bell Canada DB plan is in the best shape it’s been in over 10 years.

With the solvency ratio that now stands at over 97%, it would only take a modest 50 basis point increase in rates to see that plan in a fully funded position. I would like to remind investors that over the last decade we have put more than $4 billion in voluntary contributions into the plan. So sufficed to say that the cash burden is essentially behind us with no further material voluntary pension funding anticipated going forward. To wrap up, on Slide 16, with 3 quarters of growth and consolidated financial statements, we see no fundamental changes for the balance of the year. We remain competitively well positioned and our operating momentum is positive across our wireless and residential wireline businesses as we enter the fourth quarter.

Bell MTS is meeting our expectations in terms of overall performance in contribution to BCE consolidated results and our focus continues to be on execution excellence to capture incremental growth and cost opportunities across the company. Given this outlook, I am reconfirming all of our 2017 guidance targets. And with that, I will turn the call back to Thane and the operator to begin the Q&A portion of the call.

Thane Fotopoulos: Thanks, Glen. So before we do get started to keep the call efficient as possible, please I would ask you that you limit yourself to one question and a brief follow-up, so we can get to everybody in the queue.

So with that, Donna, we’re ready to take our first question.

Operator: [Operator Instructions] And the first question is from Phillip Huang from Barclays. Please go ahead.

Phillip Huang: Yes, thanks. Good morning.

First question on the fixed line business, obviously, a very strong set of subscriber numbers, improves across the board. Wanted to better understand the drivers behind this beat and the sustainability of the strength, are you seeing the greatest improvement in Toronto where obviously your fiber investment has been focused and do you see this as sort of a new normal for the fixed line business?

George Cope: Yes, thanks for the good morning and thank you. It was a very strong quarter. We all the metrics that we produced were consistent with being extremely strong where we have fiber deployed and of course that goes beyond Toronto. But the Toronto footprint is starting to have an impact in our results because we are trying to get to a material number of homes and businesses covered.

I think that’s been positive. I also think our creative approach of the TV market, having a product as Alt TV and our IPTV product is clearly helping us from an Internet perspective and TV perspective as it allows us to focus in the specifically the condo marketplace where there may have been cord-cutters and that’s a market we are now focused on. I think that adds to the results as well. And, of course, results going forward will really answer your longer term question but clearly we are very encouraged by the quarter and the results we want to see and it’s nice to be in a position to report them.

Phillip Huang: Thanks for that.

In Toronto in particular, when you are rolling out fiber in a particular neighborhood, obviously the result came as a surprise for us but in terms of the result and response to the consumers that you are getting, is that sort of in line with plan or do you see that as sort of better than what you were expecting in terms of market’s response? And if I could squeeze in a second one, regarding on the Wireless side, the discount segment, Rogers has Chatr and Telus has Public Mobile. Is there a third brand to address the value segment? I was wondering what your views are of the discount wireless segment? Could we see maybe BCE address that segment perhaps more fully going forward? Thanks.

George Cope: On the second point, there’s clearly some growth in the prepaid segment that is in the midst of going on and as you the words you used in terms of that segment we are looking at that segment. I think I mentioned that last quarter as well. And I think to investors, stay tuned in terms of what we do in the marketplace there to make sure if there’s any space that we are not participating in proportionally, we have to look at that and although it’s a very low revenue space, it’s one we want to make sure distribution-wise we are maintaining our right share.

So I think you’ll see something from us in the future in that space. Stay tuned on that. And then in terms of the results, I would say there’s no doubt we’re adding as we add the fiber footprint, the product is undoubted. There is no other broadband service like it. And frankly, we see the lower churn in our cost happening as we would have expected them to be.

But I do think, we get pull-through from our TV product and Alt TV product, and both those products were very strong in the quarter, and so it’s the combination of the two and as I said, and it is a hard one I think for our analysts and even for us to give guidance on this morning. The one area we were probably taken back for as well, it’s just how strong the NAS numbers were and the decline in losses we saw year-over-year. And of course, if any of that type of momentum continued, that would be a bonus for sure going forward because certainly it’s beyond our expectations and obviously investment community’s as well this morning.

Phillip Huang: Thanks, George.

Operator: Thank you.

The next question is from Simon Flannery from Morgan Stanley. Please go ahead.

Simon Flannery: Great, thank you very much. Good morning. George, any perspective on this iPhone cycle? I think there is a lot of expectation that given that’s the big news first form factor change in 3 years.

The preorders I think Apple said were off the charts. So what are you seeing in terms of the 8, in terms of interest in the 10 and inventory? And any comments on the watch take up so far? It would be great thank you.

George Cope: Yes. I think from our perspective, it’s really early. The product has just as you know, we are just entering the marketplace and so will it’s always a highly competitive market in Q4 in Canada and having a new product in the market quite frankly couldn’t be more exciting for us.

But we are going to have to stay tuned and see those results unfold. And obviously, we will have a lot more to say and I apologize, a lot more to say around that on the next call.

Simon Flannery: Anything on the watch?

George Cope: On the watch, it’s great differentiation for us. And clearly, customers who want their smartphone paired with the watch in Canada and be able to use it when they are away from the smartphone, there only is one carrier you can utilize today because of our technology differentiation and we are definitely taking advantage of that in the marketplace and leveraging that in the market right now. And so it would be up to Apple to talk about watch sales in Canada, not us.

But whatever is being sold, you can assume that we are doing pretty well from a subscriber perspective on what that share would be. But let them comment on the sales, that’s only fair to them.

Simon Flannery: Thank you.

Operator: Thank you. The next question is from Vince Valentini from TD Securities.

Please go ahead.

Vince Valentini: Yes, thanks very much. Let’s go back to the wireline, given the strength you are seeing in the fiber to the home footprint, George. Any updated thoughts on where you go next after the GTA is done? I know you have said Montreal. But is Montreal it or should does it make sense to accelerate into some of the suburbs around Toronto as well given how well you are doing? And can I just tag on, Alt TV I mean, you are including that as normal IPTV subscribers, even though they are clearly lower ARPU.

Can you give us any sense was that a big portion of your sub adds this quarter or is a relatively small? Thanks.

George Cope: Yes. On the first one, the answer is yes it will be accelerating our broadband investments beyond Montreal and into the, as you the words you used suburban communities. We will come very clear on that in the first quarter of 2018. But I think any of our announcements should not be any surprise to investors as we have been pretty clear on trying to get to a run rate that, hopefully, gets us into this 650 to 750 maybe in that range of fiber additions every year and just keep on that.

So clearly, as Toronto now winds down, but certainly is not as much next year, we will take that to other footprints and we will talk about that then. In terms of the Alt TV, it had actually good start for us. Is it like a majority of our net adds? No, of course not, but just to remind investors, yes, you are right. It is like packaging the products and it is at a different price. It can be anywhere from $10, $15 lower than our traditional TV product and of course but there’s no set-top box and there’s no truck roll.

And so our focus on this is to make ourselves as close to margin neutral, yet pass the entire savings on to the consumer. And I think what that is particularly interesting for us in Canada, it does make be bring it up. I mean, we have got TV bills in Canada running around CAD60. That would be, I think, versus the U.S. in U.S.

dollars we see reports of anywhere to $80 or $90. And we now have a product that not set-top box driven, that puts you in a CAD45 to CAD55 price point, and we think that positions us extremely well against anyone who would model streaming services in Canada from a price competitive perspective. Yes, we think we can be margin neutral on it. And of course, we think it can also help drive broadband investment return for fiber for our shareholders.

Vince Valentini: Thank you.

Operator: Thank you. The next question is from Aravinda Galappatthige from Canaccord Genuity. Please go ahead.

Aravinda Galappatthige: Hi good morning. Thanks for taking my question.

Just going back to the wireline side a little bit, obviously the last six months there seems to be, at least, a relative step down in terms of sort of the level of promotional activity, including from your competitors. I was just wondering what your outlook is from that perspective and how that could potentially translate to sort of improved margins on the wireline side? Thanks.

George Cope: Well, I think our margin improvement is truly coming from our cost synergies that we have our cost management, which I think has become a bit of hallmark of us over the last decade in terms of being able to integrate organizations in and put the same cost structure across the entire company and therefore see some margin expansion. In terms of competitive intensity, I mean, our focus is on the product differentiation that we have. There is some pretty unique stuff from us in the last six months.

Alt TV being branded to the Canadian marketplace. Virgin Internet being new to the Canadian marketplace from us and now an extended fiber footprint. And so packaging probably with better products from our perspective than we have ever had against our peers, we think that’s helping to drive some of the results and also there are there were promotions in the marketplace. A 1.5 years ago, I would say arguably were longer periods of discounts on signups than we may be seeing today and ultimately that and we didn’t match all those, as people may recall a year ago, so that may be part of the reason for some of our results as well. I think it would be but nothing to say nothing on that would be not really being clear to your question.

Aravinda Galappatthige: Awesome. Thank you.

Operator: Thank you. The next question is from Batya Levi from UBS. Please go ahead.

Batya Levi: Great, thank you. On wireless side, I think you had mentioned that capital intensity would have been around 10% for the year, looking a bit lower. Can you talk about what’s driving that? Is it mostly timing? And over the next few years as you think about 5G, where do you think that capital intensity could go and will it make sense to expand your network sharing agreement to fiber connectivity as well to improve profitability? Thank you.

George Cope: Let me take each one of them. The first one, just capital intensity, you’re right.

I think I did mention this year we are probably closer to 9%. That’s actually just driven by the fact that I think our revenue on Wireless has exceeded our own industry’s expectation overall. So that’s given us some headroom there. But I did mention, I want to make sure I am clear, that we also would expect in 2018 a pretty comfortable now with analysts running our Wireless business next year around 9% capital intensity as well. And I think that that’s significant because I think everyone knows, who follow us closely, the math is Wireless has a bigger share of our business.

So if the intensity there comes down, it allows us to even accelerate fiber further, let’s say within our capital intensity envelope that people come to know in the 17, 17.5ish type of C to I. The second question was on 5G. Remember again, just to go back to 5G, very distinct marketplaces there. So we would consider fixed wireless 5G, which we think is a lot of what is being early on rolled out in the United States and then there’s Mobile 5G which we think is a 2021-22, true development, and that’s when you would see us making those investments. What happens to capital intensity? We would have to, of course, see them.

But remember, we have already done fiber backhaul to our cell site. We’re underlying fiber in every major city we compete in with our wireless footprint that we are responsible for on our network share agreement. And so all of those locations will have fiber already there and how you amortize that against our two business units, I think it’s one of the benefits of our vertical integration of wireless and wireline. And of course, our network sharing agreement, it doesn’t address what you are talking about. But of course, in our network sharing agreement, we utilize the other carrier’s network.

And so if they put fiber to those cell sites, by definition we see a benefit of that. And I think that’s been the strategy of that competitor in their markets because they are in the midst of a very aggressive wireline fiber deployment as well, quite consistent with what Bell’s doing in its footprint. So in essence you get that benefit.

Batya Levi: Right. Thank you.

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

Jeff Fan: Thanks. Good morning.

Just back to the fiber question. George, you mentioned ARPU lift of 4%. Just wondering if you can give us a little bit of context as to whether you are referring to 4% over the entire base, over your non-fiber footprint. Just wondering if you can give us some context there?

George Cope: Yes, it’s over the entire base. And really its customers migrating and forced to fiber rate plans and that’s really across the board that we are seeing and there’s no doubt, I mean I think we have been pretty transparent that in our fiber footprint it’s very positive net adds overall RGUs.

I mean, we are flat now as in the fiber footprint, we are clearly pretty positive RGU there. In the fiber to the home footprint, it’s a battle every quarter, but we are competing well and using bonding and where we clearly have the pressure is in the footprint that last 25% and that’s clearly the area where we are probably not seeing the accretion in ARPU, but the overall mix is growing.

Jeff Fan: And have you seen that ARPU lift of 4%? Has that improved from, say, if you benchmark it to 6 months, 12 months just on a historical period, so that we can?

George Cope: No, I don’t think that’s been a very significant change. Just we’re trying to draw out just drawing out for investors that our quarter I think was driven on product differentiation that we now have in the marketplace and not something we did in any way to, as people would use the term, buy market share and that’s not really, as people followed us over last 2 years, not really a strategy of ours. And so I think we are just seeing that the investment we are making is so significant, we can’t actually play in that other type of arena.

Jeff Fan: Right. If I can just keep squeeze in a quick one on the media side, your announcement a few weeks ago of announcing 2 channels in the French market. I guess if you can just lay out the case for buying something that, I guess, the regulators had forced you to sell in the Astral deal. Wondering if we should be looking at this a little bit differently? If there’s anything change in the industry that you think can support that deal?

George Cope: Well, I think we have made the acquisition because we do and I think, I know you would agree too. That I think everyone agree.

The media business from what we were doing 4 or 5 years ago, maybe the most dramatically changed industry that we have all seen in our space. So the amount of change in that space I think in the market share calculations now would clearly support our position to be able to acquire this asset. And if we had been at these market shares from a consolidated basis with these other services that are out there, then I think the transaction would have not caused the divestiture. So we think we meet those requirements, but of course that will be up to our regulator and we will unfold that strategy with them in the coming months. But based on where we are and what we understand, the current rules would be we are pretty comfortable and hopefully this will move forward and close.

So it’s quite a change from a few years ago.

Jeff Fan: Thanks, George.

Operator: Thank you. The next question is from Richard Choe from JPMorgan. Please go ahead.

Richard Choe: Great, thank you. Do you feel like you are at or past the tipping point on the wireline side in terms of the fiber build? And it’s a little earlier than you had expected and you could press your advantage as the build kind of continues going forward.

George Cope: I think we are going have to see as we unfold. Our competitor has as we know some of their products coming next year and our goal has been to make sure our fiber position in Toronto is established with a significant enough footprint to mass advertise that footprint. That’s the one thing we have not yet been able to do in core Toronto and we would expect to be in a position to do that early in first quarter next year and hopefully that will give us some of these true benefits up in that particular market and then of course, we are adding 150,000 new households and businesses every quarter to our footprint from fiber and we know when we launch it helps us.

So and then, of course, there’s always seasonality, back-to-school helps us, especially when you have a product like Alt TV and that’s historically true. This quarter has been strong across the entire industry and I think we saw that in these results.

Glen LeBlanc: I mean we are reaching critical mass now, Richard, with the 3.7 million homes now covered with our fiber to the prem product and that’s 40% of our ultimate objective, and as George said earlier, 650, 750 a year. It’s starting to become a substantial piece of our footprint.

Richard Choe: And a quick follow up on the wireline side, the EBITDA is accelerating in terms of growth and ex the CRTC would be even higher than the 4.4% at 6%.

Where should we expect that to go going forward?

George Cope: I think we are going to give you that answer in the first quarter obviously when we give our guidance for next year. We will lap, as everyone knows, after the first quarter MTS. But the positive thing is, and I think in fairness, that we are lapping the regulatory issues well. So now it’s about us performing on that asset going forward as well. So we are going to give you guys that guidance I think in the first quarter but at this point, obviously that’s pretty strong underpinning wireline growth when you take that particular regulatory issue into account, which quite frankly I had wasn’t even focused until Glen had mentioned in his call this morning.

Richard Choe: Great, thank you.

Operator: Thank you. The next question is from Greg MacDonald from Macquarie. Please go ahead.

Greg MacDonald: Thanks.

Good morning, guys. Other carriers, George, you are talking about relatively tepid demand for the iPhone 8 and talking about demand being spread over 4Q and 1Q. Wonder if you can just give us your thoughts on demand for the 8 and then early thoughts on the 10 or the X, I guess, as the non-roman numeral enthusiast amongst us refer to it as? Thanks.

George Cope: Yes, I look, I think, as I said fourth quarter, we love having new products for fourth quarter, we love to have the differentiation of the watch. I’m going to frustrate with my answer.

But obviously, I’m going to leave suppliers of handsets to talk about their handset volumes, not us. And so we’ll see how that unfolds and we’re just happy to have their products for the fourth quarter. It should create a lot of excitement and lot of traffic in a very important selling season with a lot of advertising support and I think that bodes well for the Canadian wireless industry and let’s see what happens.

Greg MacDonald: Okay. If I can then just follow with another one.

George Cope: Sure.

Greg MacDonald: But FTE, fiber-to-the-home has been discussed in terms of CapEx benefits and cost benefits and not a lot has been said about the timing. Glen just mentioned that you have some critical mass you’ve got 40% built now. Can you talk a little bit about whether we should expect either CapEx or OpEx or both benefits to start creeping in, probably not something that can be quantified relatively near term? But is that something you see in the next couple of years given what you’ve built so far? Is that something that only takes place over time?

George Cope: CapEx, not a lot of benefit because we’re continue to build out the footprint, right? So, I mean, I think they’ll consistent and there will be more on the wireline side, but investors again can count on us coming to the street with guidance consistent with previous CapEx intensity next year and of course, held by the fact that as I’ve said this morning, we think, wireless closer to 9 gives us even a little more headroom on the wireline which is positive. On the cost side, there’s no doubt we’re starting to see the benefits.

We’ve seen it really most dramatically in the Bell Aliant footprint. We just – we know that as you get a mature fiber footprint, it’s less peripherals, less issues, churns improve and so our margin expansion this morning and I think over the last while, helps support that a lot. I think underpinning that, fairness to this quarter it probably got more to do with MTS synergies.

Greg MacDonald: So is it too aggressive then to think of continuous margin improvement? Or should we be thinking of somewhat flat line given the competitive outlook?

George Cope: Yes. I mean, I think if you look at our margins on a global basis, I think it’s up to us to just perform and then we’ll see as we give guidance next year.

I think what I would be doing again is taking the capital intensity we’ve set on the wireless and start to create the models off of that. But that’s – this is pretty strong EBITDA margin we’re reporting this morning.

Greg MacDonald: Okay. Thanks a lot.

George Cope: Thank you.

Operator: Thank you. The next question is from Maher Yaghi from Desjardins Capital Markets. Please go ahead.

Maher Yaghi: Thank you for taking my question. I know, George, you like to manage the business as a whole and your guidance shows that you give guidance on a consolidated basis.

But when I look at just the wireline and we’re looking into 2018, so if I strip out that Q9 acquisition, the CRTC impact and MBT acquisition, I’m getting revenues of approximately minus 2% year-on-year and EBITDA up 1%, which shows about – shows the strong management in terms of cost control and you talked about the improved margins of the operations. As an entity when you look at wireline, are we still aiming for wireline revenues to grow or are you looking at wireline to manage the EBITDA line and keep growing that line?

George Cope: Well, look, it is – first of all and I’ll say in the all sincerity, absolutely, we’re obviously trying to drive service revenue growth on the wireline perspective. It’s all about mix, right, it’s all about mix of the amount of local access lines we have in our percent of revenue against the Internet and TV and business growth or not. And I think as you can see in our results what I’ve drawn out of the NAS number is that, I don’t know if that’s a trend or not, but it also can have some impact from us meaningfully on the wireline perspective. And then the other piece as we’ve said for 4 or 5 years, cost keep coming out of this business because of fiber, right.

And our margin expansion is clearly two things – well three. One, obviously, synergies of transactions, we know we do that. Two, consumer behavior has changed. They want the solutions online, on their smartphone and we’ve made significant investment there under John Watson’s leadership and seen benefits. Our call volumes would be stable or down year-on-year even as the number of customers grow.

And then thirdly, when we put fiber in, it’s less truck rolls and that is one of our most expensive parts of being a wireline carrier. All three of those trends, if you think about, it should continue as the mix continues to improve and then you have a really competitive marketplace, which will be the offset to that. No one – in our markets no one is handing anyone market share back and our peers who are the line they would be telling you, why we’re not going be able to do what we’re saying. So that’s the competitive market at its best.

Maher Yaghi: Thank you.

And just a follow up question on the wireless ARPU. It’s always continuing to surprise us on the up side, can you talk about the drivers there and how sustainable that number could be?

George Cope: Well, we’ve been asked this question a lot. When I think, what we try to drive every single quarter is the amount of usage increase. It’s not about pricing, this is obviously stable pricing in terms of what we’re trying to do with the marketplace. But when you see 26% increase in usage year-over-year, it just proves when you build up speeds like this that I know and know everyone on the call knows, from a global perspective, there really is no carriers faster.

I think one other – one other country might be faster than us in the world, people use it for video. And as the explosion of video takes place, that’s what’s creating the financials that you’re seeing and the great benefit then we get the capital to reinvest in these speed networks, which of course is great for the consumer market. What we’ve told, when we get asked this question, modeling it versus what we’re seeing, you’d expect this industry to mature out at a CPI type of number? You would think that’s what happened? And we’ll just have to see how that unfolds the surprise of that, of course, is this incredible demand of usage we’re seeing from the broadband speeds for video on the handsets.

Maher Yaghi: Great. Thank you.

Good job.

Operator: Thank you. The next question is from Drew McReynolds from RBC. Please go ahead.

Drew McReynolds: Yes, thanks for taking my questions.

George, just on the Internet market can you just comment on the impact of Internet resellers in the marketplace and some of the dynamics underneath the hood. And just secondly, maybe for you Glen, just with respect to anticipated voluntary pension contributions, you do have certainly significant excess free cash flow after the dividend. Can you just update us on whether that goes to debt repayment, whether you’re interested in a buyback et cetera? Thank you.

Glen LeBlanc: First the resellers.

George Cope: Yes.

So, on the reseller market, what I would say is, it’s a market – it’s a competitive market. I would call it a – generally has been a price driven market and one of our strategy is – there was clearly a consumer market for differentiated brand, consumer program, some of what we did in the wireless industry and so we launched the Virgin brand and that is having the proper effect we would want in that space for us and so that we’re probably swinging a little more of our net adds coming from our own discount brand, which is a strategy we wanted. It’s addressing the market and we think that customer in the end will be stickier for us than if it was simply through the wholesale structure. Second, I’ll leave that to you Glen.

Glen LeBlanc: Yes, good morning, Drew.

Thanks for your question. The great news you have heard me talk about pensions for too many years now and to see us coming out the other side of it, what I believe to be materially – these voluntary contributions being behind us, it does give us an advantage to look at how we deploy our capital. I’ve said it many times, it’s all about a balanced approach to managing our capital. Great news, the pension is behind us. It gives us the ability to look at strategic investment, strategic acquisitions to manage paying down our debt and getting back inside of that leverage objective in the next couple 3 years.

As far as share buybacks, I mean, it’s not something that we’re actively pursuing with our leverage where it’s at and I mean, as I said the pension gives us a great opportunity to deploy the capital and will be a different approach to future versus having to constantly make these contributions.

George Cope: Yes. And then I would add to Glen’s point is, I think, you’ll see our approach in 2018 would be very consistent, again, which is a strong weighting to a consistent dividend growth, free cash flow story. And the other balance point that Glen said, largely a way from the concept of buybacks, much more towards making sure investors just see the broadband. I think our investors would want us to see quicker fiber deployment and dividend growth over that next point you’ve just raised and not that it’s not always a good healthy debate to have.

Drew McReynolds: Okay, that’s helpful. If I can just squeeze one quick one in here. Just on Bell Media, we’ve heard Corus talk about ad technology in Canada, whether it’s addressable advertising, local advertising. George, can you just update from Bell Media’s standpoint how you view this technology? We’re obviously seeing development in the U.S. where does Bell Media stand on that front?

George Cope: Yes, we have to play in that space.

I think we do fairly well there, we need to do better. There’s better targeting opportunities for us, if you look at so many of our different products that we have out there, I mean, how we can monetize more advertising dollars through placement with our – those that are generous enough to buy the advertising through our organization is some work for us to do and lends itself to an opportunity. Of course, the other thing we’re doing to the benefit of Bell Media and I’d also say to the benefit of Corus and the other content providers, Alt TV of course, drive subscribers in a different way, but provides additional eyeballs for advertising for their models and that’s part of what we hope will ultimately benefit all the content providers in Canada not just Bell Media.

Drew McReynolds: Thank you.

Glen LeBlanc: Donna, I don’t believe that any further questions.

Operator: There are no further questions.

Glen LeBlanc: Okay, great. So, with that, thank you all for your participation this morning. As usual, I will be available throughout the day for clarifications and follow-ups. So thanks again and have a great one.

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