Executives: Thane Fotopoulos - Investor Relations George Cope - President & Chief Executive Officer BCE and Bell Canada Glen LeBlanc - Executive Vice President and Chief Financial

Officer
Analysts: Richard Choe - JPMorgan Greg MacDonald - Macquarie Capital Markets Phillip Huang - Barclays Capital Aravinda Galappatthige - Canaccord Genuity Landon Park - Morgan Stanley Drew McReynolds - RBC Capital Markets Vince Valentini - TD Securities David Barden - Bank of America Merrill Lynch Maher Yaghi - Desjardins Capital Markets Jeff Fan -

Scotiabank
Operator: Good morning, ladies and gentlemen. Welcome to BCE Q4 2017 Results and 2018 Guidance 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 everybody on the call today. Joining me here in the room as usual are BCE’s President and CEO, George Cope; and our CFO, Glen LeBlanc. As a reminder, our Q4 results package 2018 financial guidance target and other disclosure documents, including today’s slide presentation, are available on BCE’s Investor Relations webpage. An audio replay and transcript of this call will also be made available on our website.

However, before we get started, I want to draw your attention to our Safe Harbor statement on Slide 2. Information in this presentation and remarks made by George and Glen today will contain certain forward-looking statements. Several assumptions were made by us in preparing these forward-looking statements and/or risks that actual results will differ materially. For additional information on such risks and assumptions, please consult BCE Safe Harbor notice concerning forward-looking statements dated February 8, 2018, which is filed with both the Canadian Securities Commission and the SEC and which is also available on our website. These forward-looking statements represent our expectations as of today and accordingly, they are subject to change.

We do not undertake any obligation to update these forward-looking statements except as required by law. So with that said, George, over to you?

George Cope: Thank you, Thane. Good morning, everyone. I’m actually going to turn to the slide for you to call Q4 overview. BCE had an excellent end to the year.

Importantly, we added 235,000 broadband additions, up 68,000, or approximately 41% year-over-year. The company achieved strong service revenue growth of 5.1%, driving 4.5% EBITDA growth, even with the significant marketing dollars invested to drive such strong year-over-year growth in net adds. As you all know now, we had an outstanding wireless quarter from a financial and net add perspective. It was our strongest postpaid results in over 15 years, with net adds up – net adds of 175,000, up approximately 56% year-over-year. Despite the strong net add growth, we were able to achieve 9.2% increase in EBITDA.

I have reported wireless financial results for a public company since 1994, or 96 times. And I cannot recall reporting results with this – that were this strong from a growth and market share and financial perspective, all combined in one quarter. Importantly, we are looking for this momentum to continue into 2018. In early December, we launched Lucky Mobile, a new prepaid low-cost service, designed to improve our share of that market segment in 2018. We had a strong wireline quarter with IPTV and Internet net adds up 9.6% year-over-year to 60,000.

Wireline margins increased to 40.7, providing us ample room to continue the acceleration of our rapidly expanding fiber footprint. We ended the year with $3.7 million direct fiber premises served and expect to grow that now to 4.5 million premises by year-end 2018. We completed the acquisition of AlarmForce early January, positioning us to execute on a Bell Connected Home strategy in the future. Bell Media’s Q4 results were impacted by the soft advertising market and higher content costs. But on balance, the results would appear to have outperformed all our peers in a challenging market.

Overall, turning to the 5th Slide. In 2017, we had an excellent year in terms of broadband subscriber growth, adding 1.26 million new subscribers to our base. 612,000 in the year reporting organic growth of 10.2% year-over-year, and of course, 648,000 subscribers added through the acquisition of MTS. The overall increase in the base of 10% in 2017 generates an additional $1 billion in service revenue on an annualized basis. Turning to wireless, as I just indicated, the 175,000 net adds is our best quarterly performance since Q4 2002.

In the quarter, we had our strongest gross add quarter ever, and we believe the strongest ever in the industry by anyone. There were 9,000 customers that did port on that new federal government contract was in our net adds in the quarter of the 175. Although, there are still about 200,000 to migrate over the next 24 months, and we do expect to see anywhere from 25,000 to 30,000 those on a quarterly basis. And of course, at this point, that revenue and EBITDA is not with our company, is with our competitor. It was our third consecutive quarter of lower postpaid churn, and I think, in particular achieving given the widely reported promotions that took place in Q4.

Our average revenue was up 2.4% year-over-year, driven specifically through the increased usage we continue to see on our broadband LTE network, where usually it was up 22% year-over-year in Q4. Overall, 417,000 net adds were up 32% year-over-year, providing us also some excellent EBITDA growth in our highly competitive marketplace. We did launch the new wireless prepaid service, Lucky Mobile, early in Q4. The strategic reason for launching that product is, quite frankly, we were not capturing an acceptable share of the prepaid market. And also over time, one of the things we’ve clearly seen in the market is a number of subscribers or customers will migrate from postpaid to prepaid over time.

So if you don’t have those postpaid customers, of course, you don’t get that opportunity for migration, so that is also part of our strategy here. And also allowed us to address the affordability segment in the marketplace with a rate plan of $20 to make sure we’re serving all segments of the market in Canada and allowing us to address some of the government concerns recently to make sure that our service provided price points across all possible price points in the market addressing all segments. Of course, we have to deliver this with a low service model and we will use technology and of course, very little handset subsidization going forward. From a network perspective, in 2018, we expect to have our LTE Advanced footprint to reach 92% of Canadians by the end of 2018, and of course, 99% of Canadians now have accessed to LTE. Particularly, with our continued work on spectrum aggregation, fiber backhaul and the technologies that are available, we expect during the year as we exit about 60% of Canadians will have access to speeds, up to 750 in theory, but practically 25 to 220 megabits and 40% of the population, so many of the urban markets will see speeds of 950 megabits, this incredible broadband speeds from a wireless perspective.

And as you may have seen last week in one of our markets, we’re actually launching speeds that hit the 1 gig level. We expect to invest and grow – add about 4,000 small cell sites in the year, taking our total small cell sites to over 10,000, setting us up for the speeds of providing on LTE and positioning us for 5G going forward. Of course, all 4,000 small cell sites will have fiber backhaul in place, and we expect to do all this, while maintaining our capital intensive level at around 8% to 9%. So if we continue with the outlook, we believe we’ll see from an EBITDA perspective and a capital intensive ratio of less than 9, it does position the company to possibly become the cash flow leader in the wireless industry in 2018. Turn to wireline, again, I think a very strong quarter from a net add perspective.

So nice momentum on the Internet, where year-over-year we were up 46% to 27,000 in the quarter. We also have now surpassed 1 million premises – 1 million subscribers, sorry, on our fiber footprint and we added 53,000 in the fourth quarter. So IPTV, I think, was also – I think, we’ve reviewed a strong with 32,000 net adds and was our best quarter for satellite TV since Q2 2014, where we saw an improvement this year in losses of 30%. Overall, we added 11,000 new TV subscribers in our wireline footprint, and we also continue to see an acceleration in the rates of decline of NAS losses. So 34% less customers on last year left us, and in fact, for another quarter, I think, that’s four quarters in a row, in our fiber footprint, we’ve actually had positive NAS growth.

Now, again, we wouldn’t expect that to continue. But certainly, anytime that rate of decline slows, that’s very important for us, obviously, from a cash flow perspective. And I think, the economy has clearly started to help on the business side, where NAS losses were also improved versus last year about 10%. Turning to our footprint plans for 2018, we would expect to expand our fiber footprint about 800,000 homes and businesses to 4.5 million locations by the end of the year. 60% of Toronto is now complete and, of course, we’re adding additional premises every week.

Montreal, we’ve began that build 14% of it complete, and we expect that by the end of the year outside of Montreal all of our Province in Quebec that we’re covering will be over 56%. We’re also this morning announcing the expansion of our fiber program in Ontario with a plan to roll fiber to the prem for businesses and consumer in the 905 GTA geographic footprint with a plan for about 1.3 million additional locations going forward and that is where our capital program will principally go on the Southern Ontario market for fiber over the next couple of years. We expect to maintain our capital intensity similar to what it was in 2017 for 2018, and we expect this 50% of all of our fiber footprint builds will be completed by the end of 2018. Turning to Bell Media, continuing leadership in terms of viewership in the fourth quarter seven of the top 10 programs with CTV, very proud to see TSN returned as the number one specialty network this fall, not just in the sports category, but in all specialty and particularly helped by some big events such as the Grey Cup and the MLS Cup and didn’t hurt the shareholders of Bell either, because of course, they have ownership of both of those organizations. Crave strategy continues to work for us number of customers up 22% year-over-year, allowing us to have a product that you can view through traditional linear TV or and over-the-top environment.

Also couple of important strategic relationships going forward, we announced a BNN Bloomberg, who will be launched in September of 2018, leveraging our leadership with BNN in Canada and Bloomberg’s global leadership as a provider of business information and news, we think that strengthens BNN’s position, giving us access of some global – excellent global company and obviously strengthens Bloomberg’s position here in Canada, and also entered into a long-term agreement with Lionsgate to bring Starz to Canada. You can buy Starz with HBO on show time, it’s quite an incredible portfolio, our media assets has. And of course, this business in 2018 will continue to generate cash flow for us, but there’s no doubt the higher sports contents and some of the structural issues will have some impact we go into 2018. Importantly, this morning, as you would have seen, we’re very pleased to announce once again a dividend increase this year of 5.2%. This is our 14th common share dividend increase since we began executing our dividend growth strategy.

Also, as we go forward, we’d expect to stay within that 65% to 75% payout ratio again going forward with a capital intensity at approximately 17% and with our strategy to continue on this dividend story that we’ve been so effective delivering to the market for now for a decade. With that, let me turn it over to Glen. Thank you.

Glen LeBlanc: Thank you, George, and good morning, everyone. I’ll begin on Slide 14 with a review of our consolidated results.

The fourth quarter capped off a great finish to 2017, reflecting the Bell team’s strong operational execution and financial discipline in a highly competitive marketplace. Service revenues up 5.1%, led by another quarter of strong wireless and wireline top line growth, which included the financial contribution of Bell MTS. This drove a very healthy 4.5% increase in adjusted EBITDA and stable year-over-year margin of 37.2%. Adjusted EPS remained unchanged at $0.76 per share as the incremental below EBITDA expense contribution and BCE share dilution resulting from the MTS acquisition was positively offset by the flow-through of higher EBITDA and the mark-to-market gain realized on our equity derivative hedge contracts in the quarter. However, Q4 statutory EPS was down a $0.11 year-over-year to $0.64 per share.

The decrease was due to an $82 million non-cash impairment charges at Bell Media related to our specialty music TV properties and certain radio stations to reflect revenue pressures from ongoing audience declines and the soft advertising market. Lastly, we generated $652 million of free cash flow this quarter, bringing the total for 2017 to just over $3.4 billion, or 6% higher compared to the previous year. Although Q4 free cash was down year-over-year, this was a result – this result was expected, given our higher planned capital spending on accelerating broadband fiber deployment and further boosting wireless LTE network speeds, as well as a reversal in working capital between Q3 and Q4, driven by some timing of supplier payout payments. Let’s turn to Slide 15. Bell Wireless reported another outstanding quarter of financial results.

Q4 was a record for absolute dollar growth in service revenue, which increased $181 million, or as George said, 10.6%. EBITDA was up a strong 9.2, leading all incumbent periods in Q4. This resulted even more impressive, given $73 million in higher year-over-year costs absorbed, driven by the best quarterly postpaid gross additions ever in the Canadian industry and greater attention spending to upgrade more customers to premium smartphone devices. And wireless EBITDA less CapEx provided a strong contribution to BCE’s consolidated free cash flow delivering impressive year-over-year growth of 12.1% in 2017. This result is a direct reflection of our disciplined focus on postpaid subscriber profitability and capital efficiency.

Moving to Bell Wireline financials, you’ll find that on Slide 16. Similar performance trends to the previous quarter even without the incremental benefits of Q9 that we locked beginning in October. Service revenue up 3.6% on strong broadband Internet and IPTV growth, 3.3% higher household ARPU and another full quarter of financial contribution from Bell MTS. Product revenue decreased $16 million year-over-year due to a continued soft telecom-related spending by business customers, which moderated the overall top line growth in the quarter. In terms of operating profitability, wireline EBITDA increased a very healthy 4.1% this quarter, yielding a 60 basis point improvement in margin to 40.7%.

This North American industry-leading margin provides us with ample room for accelerated fiber investment to continue going forward. Turning to Bell Media on Slide 17, revenue results were consistent with industry trends this quarter, reflecting an overall reduction in spending and a shift to online services by advertisers, as well as continued audience decline for traditional linear TV. Total revenue was down 1.3 on a 4.6% year-over-year decline in advertising. This was partially offset by continued strong out of home growth at Astral and a 4.7% increase in subscriber revenue, driven by our CraveTV and our TV Everywhere GO products, contract renewals with TV distributors and pay TV subscriber growth. Because of the lower year-over-year revenue, as well as the higher programming and content cost, Bell Media fell 9% in the quarter.

That does it for quarterly results. So let’s let’s turn on to Slide 18 and where I’d s summarize BCE’s overall financial performance for 2017. Revenue and adjusted EBITDA growth of 4.6% and 4.4%, respectively, were solidly in line with our guidance targets, while our consolidated margin remained stable year-over-year at 40.4%. These are results were achieved despite approximately $103 million in unfavorable regulatory impacts absorbed in calendar 2017, higher year-over-year wireless and residential wireline customer acquisitions and retention expenses and the content cost pressures I mentioned at Bell Media. Excluding the regulatory impacts, BCE’s EBITDA was up 5.5% in 2017.

We also finished the year with an adjusted EPS of 3.39 per share, which was at the high-end of guidance and a very healthy 6% increase in free cash flow. With strong operating cash generation, we had ample headroom to move our capital intensity above our 17% target to 17.8%, as we accelerated our fiber-to-the-prem build out by more than 100,000 more locations in 2017, compared to our original plan. This was the right strategic decision given the tangible operating benefits we see in terms of improved Internet and TV market share, lower customer churn, higher ARPU and lower OpEx in the areas where direct fiber has been deployed. Our financial guidance targets for 2018 are summarized on Slide 19. These targets are flat to full-year of Bell MTS results compared to approximately nine months last year and are being presented in accordance with the 2017 accounting standards, which do not reflect the financial impacts of IFRS 15.

We intend to provide those preliminary high-level financial impacts in our 2017 Annual Report that will be published in March. Moreover, we will restate the 2017 financials to make them comparable with 2018 results that will be prepared on an IFRS 15 basis. As a result, there will be no impact on the guidance – on any of the guidance growth percentage ranges we are presenting today. The only change required will be to adjust – will be to our adjusted EPS dollar range, which will – we will update in our Q1 2018 results call in early May. Of course, free cash flow is not affected.

Our 2018 outlook builds on strong operational progress made in 2017 and is underpinned by continued strong wireless profitability and postpaid subscriber growth, a 4th consecutive year, a positive wireline EBITDA growth and further Bell MTS integration synergies. All of this providing a strong and stable foundation for the 5.2% increase in BCE’s common share dividend for 2018 and the significant network infrastructure investments we’re making within a responsible capital intensity envelope of around 17% of revenue. Turning to Slide 20, we are targeting consolidated revenues and EBITDA growth of 2% to 4% for 2018. This reflects one final quarter of incremental Bell MTS contribution and continued healthy wireless and wireline growth, partially offset by advertising revenue and content cost pressures at Bell Media, as well as $30 million to $40 million in higher pension expense compared to 2017. With this outlook, we expect BCE’s consolidated adjustment EBITDA margin to remain stable year-over-year.

At Bell Wireless, we expect ARPU to rise, but at a slower pace compared to 2017, as the market further matures and as more postpaid customer subscribed to rate plans with larger data buckets. We also anticipate higher year-over-year net additions, driven by continued strong postpaid market momentum, reflecting Bell’s network speed and technology leadership, the onboarding of customers from our recently won government of Canada wireless contract and a renewed focus on prepaid with a launch of Lucky Mobile, and incremental growth opportunities in Manitoba with the full integration of Bell MTS. For our Wireline segment, we expect positive full-year revenue and EBITDA growth even without the favorable impact of MTS. This reflects a stronger broadband subscriber trajectory, supported by our upcoming mass-market Fibe the advertising launch in Toronto and TV leadership with our service offering, such as Alt TV and innovative features enabled by our new media first IPTV platform. With respect to the acquisition of AlarmForce, while helpful in advancing Bell’s expansion in the fast-growing Connected Home marketplace, it is too small financially to have any material impact on overall results in growth rates.

In the Wireline business, the outlook is for improving year-over-year organic performance. However, with consensus expectations for modest GDP growth of around 2% in 2018, we expect telecom spending by business customers to be variable and improve at a slow pace. Lastly, Bell Media although revenue results in 2018 will continue to reflect the shift in media consumption towards OTT and digital platforms, as well as the effects of further TV cord shaving, we expect revenue trends to stabilize, owing to our broadcast of the FIFA World Cup Soccer and the continued CraveTV and outdoor advertising growth we’re enjoying. And although we have significantly tightened our cost structure going into 2018 to align with revenues, higher content costs for sports and broadcast rights and the premium content will continue to weigh on Bell Media’s EBITDA this year. Let’s move over to Slide 21 on pensions.

The funded status of Bell Canada’s defined benefit pension plan remains strong and continues to move in the right direction. With the return on planned assets of more than 8% in 2017 and a relatively stable year-over-year solvency discount rate, the average aggregate solvency ratio across all of BCE plans was 97% at the end of the year. Because of this strong position, BCE’s regular cash funding for 2018 remains largely unchanged at around $400 million. The Bell pension plan had significantly benefited from the rise in interest rates and is now essentially in a fully funded position on a solvency basis. Just in the last two weeks, we’ve seen our funding ratios bounced between 99% and a 100%.

Should we achieve a surplus position above 105, there would be an opportunity to reduce our annual cash pension funding by around $200 million, as we would be not be obligated – we would not be obligated to pay the annual current service cost of our plan. That would be – add a meaningful upside to our free cash flow. The $100 million voluntary contribution we made in December was completely unrelated to what we have done historically to manage the pension deficit. Rather, we did so to take advantage of a new Ontario-led pension legislation that eliminates solvency funding requirements for provincially regulated plans that are over 85% solvent. We believe this was an efficient use of cash, as the contributions tax deductibility generates a cash tax benefit of approximately $50 million in calendar 2018.

With respect to BCE’s total above and below EBITDA pension expense for 2018, that is expected to increase by around $20 million to $40 million year-over-year. The increase is due to a one-time gain realized in 2017 from the realignment of certain Bell aligned subsidiary plan OPEB features with those of Bell Canada and the lower year-over-year accounting discount rate. Therefore, although the pension funds performance was exceptional last year, the accounting discount rate lagged resulting in a non-cash EBITDA drag in 2018, but this should reverse in 2019. Tax outlook on Slide 22. The statutory tax rate for 2018 remains essentially unchanged at 27%.

Our effective tax rate for accounting purposes is also projected to be stable in 2018 at approximately 25%, expecting a similar level of year-over-year tax adjustments of 0.7 per share. Cash taxes for 2018 are projected to increase to a range of $700 million to $750 million, up from the $675 million in 2017. This is being driven by higher taxable income for 2018 and a lower year-over-year benefit from voluntary pension contributions, as only $100 million was contributed in 2017, compared to the $400 million we did in the year previous. We’ll also intend on monetizing the remaining $230 million of MTS tax losses, which will help moderate the tax – the increase in cash taxes this year. Slide 23 summarizes our adjusted EPS outlook for 2018, which we project to be between 342 million and 352 million per share, or 1% to 4% higher year-over-year.

And just to remind everyone, the dollar guidance range is based on 2017 GAAP rather than IFRS 15. IFRS 15 will have a positive non-cash impact on earnings due to the higher EBITDA, as this new accounting standard requires the amortization of direct and incremental subscriber costs over the contract term rather than when incurred, all – while also recognizing higher upfront product revenue. EPS growth in 2018 reflects a strong underlying EBITDA contribution from operations, despite a 2% to 3% per share drag from the higher year-over-year non-cash pension expense, partially offset by increased depreciation due to a greater capital asset base, driven by our accelerated fiber network construction and a full-year of MTS. EPS also reflects approximately $0.03 of delusion from the issuance of shares for the MTS acquisition, which we will lap in March. Turning to Slide 24, BCE’s free cash flow for 2018 is projected to be in the range of $3.525 billion and $3.65 billion.

That represents year-over-year growth of 3% to 7%, reflecting the flow-through of higher EBITDA and then modest improvements in our working capital position. Our free cash flow generation provides us a strong foundation for the $0.15 per share increase in BCE’s common dividend, while maintaining our payout ratio within our target policy range of 65% to 75% for the 10th consecutive year. However, we do expect the payout ratio to be towards the high-end of the range due to the continued acceleration of our fiber build out plan. Taking all the various puts and takes into account, BCE should generate over $900 million in excess cash flow after the payment of dividends in 2018. The cash will be deployed in a balanced manner directed towards repayment of short-term debt, financing recently announced strategic acquisition such as AlarmForce, and funding $170 million – $175 million share buyback program to offset share dilution from the exercise of stock options.

Lastly, a few brief comments regarding BCE’s balance sheet and liquidity position on Slide 25. As we entered 2018, we have access to more than $1.5 billion of liquidity with a capital structure that remains well aligned with our investment grade credit ratings, all of which have stable overlooks. Moreover, our leverage ratio is projected to improve modestly during the course of 2018 with further deleveraging towards our target ratio over the next several years achieved through growth in EBITDA and using excess free cash flow to reduce debt. Also highlighted on the slide in BCE’s favorable long-term debt maturity schedule, that is an average term of more than nine years and a low after-tax cost of debt of 3.2%, a very manageable near to medium-term debt refinancing. Additionally, BCE’s interest coverage ratio remains significantly above target policy, providing good predictability in our debt service costs, as well as protection from interest rate volatility going forward.

And as a reminder, should interest rates rise going forward, a favorable impact on our pension plan position and the resulting reduction in future cash funding requirements would outweigh the higher cost of refinancing in any maturing long-term MTN debt. Finally, I would like to add that, BCE is more than $1 billion in annual U.S. dollar. Expenditures has now been substantially hedged through the end of 2018 effectively insulating our free cash flow exposure until that time. To conclude, BCE’s operating fundamentals, financial position and competitive position are a strong as they’ve ever been if not stronger.

In 2018, we intend to build on that progress consistent with the financial guidance targets announced here today. And with that, I’ll turn the call over to Thane and the operator to begin the Q&A period.

Thane Fotopoulos: Thanks, Glen. So before we start Q&A periods, keep the calls sufficient as possible, limit yourself to one question and a brief follow-up with the time we have left, given the longer than usual nature of the prepared remarks this morning. So with that, Valerie, we’re prepared to take our first question.

Operator: Thank you. We will now take questions from the telephone lines. [Operator Instructions] Our first question is from Richard Choe with JPMorgan. Please go ahead.

Richard Choe: Great.

Thank you. In terms of – can we get a little bit more color on the wireless competitive environment from the fourth quarter and how that has rolled into the first quarter? And then as a follow-up, it seems like, given all the positive trends you’re seeing in terms of loadings and ARPU in wireless and some of the fiber build, the midpoint of 3% revenue growth seems more than – why is that low or is the offset of the media and some of the other telecom spend make that too hard?

George Cope: So let me first of all target on the competitive environment. The real answer is, obviously, very competitive fourth quarter as we’ve historically seen clearly some pretty aggressive promotions in the marketplace. Our view is very clearly, our network advantage over our largest competitor at about two times the speed of our wireless network, compared to our largest competitor and where that’s been widely acknowledged through independent research. We think it’s just making a significant difference for us in growth.

And we’re looking – Q1 is always, as everyone knows, is a quieter quarter, but it will be competitive as well. And as I mentioned, with a position we have in the marketplace, we’re quite optimistic going forward on the wireless side in terms of our position because of the broadband investments you’ve made for LTE, I mean, the speeds we’re providing as people know our second to none in the world. And Canadians clearly are accessing and utilizing the speed, because we see that in continued usage. In terms of our guidance, I mean, obviously, there’s no one on the phone more than us on this side of management that wants to have things like revenue and EBITDA higher than the mid rate of our – mid-range of our guidance. And the only thing I would say for anyone on the dividend model for the company, people have known historically, we need approximately about that 3% EBITDA growth and continue the free cash flow, a dividend growth story of an expectation of the street of around 5% a year, and our capital intensity roughly in the range we are.

And I think, that’s – that is what I would say what the guidance reflects. As you do – I think, you made a point. I mean, the media business will have some impact on that, that’s probably more EBITDA than revenue during the year. And of course, we’ve got a different competitive market places. So if the street views the guidance as conservative, let’s hope they’re right.

And our goal, of course, is to make sure, it’s on the positive side of that. So thank you for the question.

Richard Choe: Thank you.

Operator: Thank you. Our next question is from Greg MacDonald with Macquarie.

Please go ahead.

Greg MacDonald: Thanks. Good morning, guys. George, I wonder if you just might comment on the one top one or two key issues that could affect the difference between the top end the bottom end of revenue and EBITDA guidance? What are the like the key things that you guys are thinking about? It’s probably competition, but one of your view on that?

George Cope: I think, it would be, as we’ve said before, if you look at ARPU growth in the industry that we’ve seen historically of 3%, we’ve been very clear with the investment community, you probably would have expectations similar to the CPI, it would seem to us to be reasonable. So that’s always been a variable and I think the last number of years more positive, and so on we’ll have to see as we go forward on the revenue side.

And then on the EBITDA, as Glen drawed, it is just important to recognize just the way it works. I take calendar picture on December 31, interest rates, hard to imagine actually hurt us at that time at that measure and given what’s happened in the last 60 days. And so there is a – what is the number, about 30 or…

Glen LeBlanc: 30, 40 basis points.

George Cope: So 40 basis points down on the discount rate from 4% at the end of 2016 to 3.6% accounting discount rate.

Glen LeBlanc: And the EBITDA impact.

George Cope: And that resulted about $30 million to $40 million hit on EBITDA.

Glen LeBlanc: So for the – that’s a non-cash number, but it’s just we had to take the picture December 31, once you took it, the day would be a different outcome completely. So that affects a little bit that 2 to 4 number might even a little different when we had not that impact.

Greg MacDonald: Great. Thanks, Glen.

And the quick follow-on Glen would be, what interest rate change would we need to see for you to be able to get to 105% on your coverage for pension?

Glen LeBlanc: Sure. Greg, it’s obviously, it’s a product of the return on the investment.

Greg MacDonald: Yes.

Glen LeBlanc: But if we were able to enjoy the fiber returns like we had the last number of years, 50 basis points to 75 basis points change in rates would put us over that number. And the fact that, we found ourselves move so quickly from a 90% funded only a number of years ago to being in a virtually a fully funded position today gives us confidence that what – that could happen on our – in relatively short order.

Greg MacDonald: Right. And so just to double check that gives you another – more breathing room of around $200 million on cash?

Glen LeBlanc: That’s right, Greg. You would take contribution holidays on your current service cost to the tune of about $200 million.

George Cope: We don’t want to as a company forecast interest rates. But obviously, the buy side will do that.

And if there’s cess on interest rates or acts, then we should take that into account with our pension over time.

Greg MacDonald: Great. That’s all very helpful. Thanks, guys.

George Cope: Thanks, Richard.

Operator: Thank you. Our next question is from Phillip Huang with Barclays. Please go ahead.

Phillip Huang: Hi, thanks. Good morning.

Question on the broadband growth. I was wondering if you could provide some color on which regions of your footprint are driving the broadband growth? I suspect it’s is coming from Toronto just given the correlation between the net adds acceleration in Q3 and when the fiber footprint in trial began to reach scale, but you’re really at the mass market here, so I was just wondering if you could provide some color on that? Thanks.

George Cope: I think, first of all, I don’t want to be – I don’t want to simplify too much in respect to the question. But clearly, where we have the fibers where we see the strong growth. We see it in the land territory still even these many years later where we have it in any of our new markets that we launched particularly helpful.

And you’re right, I mean, Toronto is where we put a lot of money and that’s a large footprint expansion, a new footprint of fibers where we see growth and clearly that we’ve got to see this year as well. So I think, you’re on the track to where it is. But for investors, where we have the fiber, we just – we see some pretty positive traction and pace of that investment, we’re going as quick as we possibly can. There’s no doubt customers want to access to that. And this unique issue that those customers tend to keep the three services with us, also that slows the decline of NAS, there is some reprice on that NAS, but they stay with us that’s a pretty powerful cash number and it’s hard to forecast, that would continue to happen, we will take it as it happens and we did noticed in the west, we saw a similar announcement by one of our peers this morning where they some of that improvement as well, so maybe that is a sign of the benefits of fibre across the country.

Phillip Huang: Right, that’s very helpful. And a quick follow-on on the wireless side, I mean it’s obviously a very strong quarter, I think I guess I wanted to dig a little deeper on what your assumptions are on wireless competition behind your 2018 guidance. You know on the one hand we do see risk of heightened competition, you know catalyzed by Shaw’s growth ambitions, but on the other hand it seems like ironically this quarter Shaw has been a bit of a catalyst with you know performance, so I was just wondering what your thoughts are behind your assumptions for 2018? Thanks.

George Cope: Yeah, well, you know we’ve – you know as I said before, we hope to continue to see the type of momentum we’ve seen, we’ve been successful on the consumer and clearly on the enterprise side with some growth that we know will help us into this year. And frankly we have been on a mission on wireline and wireless to have the best broadband networks on the planet and we do now and we are going to continue to market that and we think that makes a difference with customers and their ultimate decision against the largest buyer we compete with and if that continues to make a difference with customers and you know we should have a fairly positive outlook.

It’s a highly competitive market place, one of the reasons we’ve entered, you know we have been out of that prepaid segment in a significant way as most investors will know for 10 years, we are entering that segment because there has been some growth there, it’s not huge and we’ve not been in that segment so we can take some share there, you know that just helps contribute and most importantly in that segment historically we have seen upgrades from pre-to-post and that they – our base is not very large there, so we got to grow that base and maybe that will give us some additional revenue as well as we go forward, so anyway it’s a competitive market, it was in the fourth quarter and clearly highly competitive market, we did very well.

Thane Fotopoulos: Thank you. Next question.

Phillip Huang: It’s helpful. Thanks, George.

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. Just wanted to touch on competitive intensity in wireline, obviously there is still some fairly aggressive targeted promotions in the higher end of the tiers in terms of speeds, but generally speaking, smaller promotional periods, as well as you know we saw a recent price increase a couple of days ago from you competitor, so just wanted to get your sense of where things stand in terms of wireless competitive intensity and how you see that kind of playing out through the given sort of your progress in GTA on the fibre front and obviously the new television platform rollouts from Rogers?

George Cope: Yeah, I mean our focus on wireline from a perspective is clearly product differentiation, you know on two fronts, one the fastest Internet you can possibly get, I mean if you put fibre in, in the upgrades paths we have for speed and we’ve done on Wi-Fi some recent technology announcements on Wi-Fi that encourage investors to take a look and talk the same with us about after the call, so that’s all about product differentiation on IPTV.

It’s very clear we have the superior product in the marketplace, it sounds like we have a number of months for some additional services we are going to bring to the market before we see some of the new competition from the cable operators. So that’s – those two are our differentiation as well as our Alt TV strategy, which is non-set-top box television service virtually identical to our linear, but available without a set-top box passing that cost-benefit on to the consumer so that anything we save in not doing a truck roll and putting in place the equipment, we’re taking that price off the TV service if you will, that combination with our broadband fibre, we think positions us with a very differentiated product in the marketplace, some of the success in the U.S. we’ve seen on these products make us want to focus even further on that and of course it’s a benefit to our media assets over time and other media assets as I’ve said, of course then we are distributing our content in the OTT world as well through that application. So we’re – we’ve done so many new things on the product front with Alt TV, with IPTV, with the Virgin Internet product in the marketplace was the lucky brand. We have a lot of new products in the market in 2018, and now the fibre footprint starting to build to make us feel that we will be able to compete from a product differentiation standpoint in the marketplace.

Thane Fotopoulos: Great, thank you, next question.

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

Landon Park: Good morning, yes this is Landon Park on for Simon.

Just wanted to touch base on the wireless ARPU trends and how you expect to balance that versus net adds in 2018 and maybe if you could also just tease out what potential negative impact there might be from the federal government as those come through?

Glen LeBlanc: Yeah, I mean, you know it’s a large enterprise client, but it’s largely immaterial given our size and scale. And the thing about that customer that people have to understand it’s also a client that you get zero churn off of so it’s obviously the economics of the client are quite different and very, very little subsidy on the handset perspective, so it has some impact, but frankly the call material would be the wrong thing to do. We were started in the middle of 2017 as we would talk to investors and I think on some of these calls that you know modeling reasonably as CPI seems to be something you might want to look at in terms of ARPU growth in the marketplace and then frankly we think we find it so driven by this increased usage, you know the video usage and consumption we’re seeing on wireless so maybe there is upside that beyond that CPI, but I think that’s a safe way to model the industry and I’ll leave that to the analyst, but that, you know these type of numbers we have seen in the last few years it’s been a function of this upgrade and people using more and if they continue to use more of course we’ll do better than that and within the context of the competitive environment obviously.

Landon Park: And then just on I guess on the wireline side for Internet, how you are thinking about ARPU growth there as well?

Glen LeBlanc: Well, you know our ARPU growth there of course is less driven by the usage that it is to client upgrading to the higher speeds, and so as customers move towards the 1 gig speeds, 500, 300 different meg speeds and they migrate up to higher priced packages that’s where we see the ARPU growth there, and that will be reflected in our wireline results this year.

Landon Park: Thank you.

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

Drew McReynolds: Thanks very much. Two questions, George, just can you comment on the business market obviously in your prepared remarks talking about maybe a little bit of a stronger demand there, just what’s the delta on this business if you look out over the next couple years if the economy continues to improve? And then second question, just on cord cutting, cord shaving trends overall, you are obviously doing quite well on Crave and Alt TV, wondering if you’re seeing in the TV market a real structural acceleration, let’s say over the last 6 to 12 months or is it more of a steady acceleration or steady kind of rate of cord cutting, cord shaving? Thank you.

George Cope: It seems steady to be – clearly we have not seen some acceleration, but we notice a growing share and we got to be in, you know we absolutely have to be in that space in the market place, so we actually saw some growth and you know from a pay sub perspective, but we haven’t seen a sudden acceleration and you can – the industry will now take the total TV net adds and be able to see that you know the decline in, and I don’t think that rate has accelerated, but the analysts will have to take a look at that, and I apologize, the first part of the question?

Drew McReynolds: Yeah, just the sales on the business market?

George Cope: Yeah, so there – you know there is two segments there for us, obviously on the small business I think I mentioned on the last call we are definitely beginning to see some pass-through of the improvement in the economy, our RGU growth if you will TV and Internet in some cases now we are seeing that positive against our NAS losses and so we – that’s been a little better over the last 6 to 9 months. On the large enterprise side probably not – we haven’t seen a significant change there, we have technology substitution and obviously the productivity through technology organized large corporates are implementing without significant additional job growth there you know has some impact on that, so not quite a change there that we maybe started to see some benefit in small and of course small is most important for us because of our strong position in the marketplace, and any of that that helps contribute against the negative EBITDA growth in wireline, you know it’s obviously net contribution for us is pretty significant, so a little better on the small side.

Thane Fotopoulos: Thank you, next question,

Drew McReynolds: Thank you.

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

Please go ahead.

Vince Valentini: Yeah, thanks very much. Just incredible quarter on postpaid adds guys congratulations. Can you just clarify on that and one other thing, the numbers we seem to get from Rogers suggested only maybe 10,000 of the government subs migrated during Q4, so it wasn’t really that much of an impact on your gross or net adds, can you confirm that’s approximately correct?

George Cope: Yeah, we have, on my slide, first of all thank you for your comment, but our slide actually calls out 9.

Vince Valentini: Okay.

George Cope: You can probably clarify that, because there seem to be a lot of discussion going on about, we’re not obviously going to report a particular customer every quarter. But we thought for this quarter important for the analysts and the Street to understand the 175, there was 9, but there were porting on that and the rest was clearly – while all of it’s organic growth, but the point is there’s the difference.

Vince Valentini: Excellent. The only – on the guidance, perfect, Glen. Did I hear you correct that your the 342 to 352 range that includes $0.07 of expected tax benefits in 2018?

Glen LeBlanc: Yes, that’s correct.

The same as the previous year. No change, Vince.

Vince Valentini: Okay. So the – and I can just look at the low-end of your guidance range on EBITDA, if I adjust for that $30 million to $40 million of pension and if I adjust for the extra quarter of MTS, correct me, if I’m wrong, but I’m getting somewhere in the range of 1% to 1.5% organic underline EBITDA growth. And you’ve said in your prepared remarks that the Wireline segment will be positive growth, media will be negative, but media is obviously smaller segment.

And wireless, given the sub adds and the flow-through of the profits from those, I have got to imagine, you’re going to be at least mid-single digit growth there. How do you get as low 1% to 1.5%? Is there something we’re missing in terms of unusual cost, or you’re just putting in some sort of a huge buffer for equipment subsidiary cost later in the year or something like that?

George Cope: Yes, I don’t think you’re missing anything. First of all, I would say, we know we need the three for the story that we’ve been off the street, that’s one. Two, one of the trick for us – one of the things we’re trying to make sure we are aware of, if we see accelerated growth on something like broadband and Internet and wireless, like we’ve seen, we just want to be obviously cautious that if that growth happens and the nets, as Glenn indicated, we think will be strong. We all know net costs some EBITDA short-term rate for investors.

So that’s really what I think the guidance frankly reflects. And let’s say, as I’ve said, there is no one on this call more than this side of the form that obviously want to see that number at the high-end of that EBITDA number within our mix. So let’s just see as operated is what I would say, see what happens.

Vince Valentini: Okay. Thanks, George.

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

David Barden: Hey, guys, thanks for taking the question. I guess, two, if I could.

Just first, George, you talked about the Lucky Mobile was a launch was in react – response to unacceptable share gain in the prepaid market. I was wondering if you could kind of size what you think the opportunity is and what that means to the run rate of the business in 2018? And then just on the kind of “mass market” launch of fiber in Toronto, could you kind of tell us like what that’s going to look like expense-wise? What your goals are in terms of increased rate of broadband and TV pay things? Just kind of what we’re supposed to expect out of that exercise? Thank you.

George Cope: Sure. So on the prepaid side, the analyst can take, I think, the net adds and the modeling the last number of years and see frankly, some significant growth from one of our peers in that space. And we obviously want to capture share that would be proportionate to our size and scale in this industry or even better.

So we’ve got to pick that up. So let the analysts run that and they’ll be able to probably quantify that. It’s not material for us as a result, but something that’s a negative revenue growth for us are not growing turning a positive can just help. And also as I mentioned, I think, it is upgrade from pre to post is what we’re missing. And so we’ve got to do that.

On the second question, in terms of how the campaign is going to look and what it will look like people and people will just have to wait, because we’re going to launch it fairly soon. The costs reflected in the guidance, the one expense we have in Q1 but it will be in our guidance is, of course, this is an Olympic year and we are one of the official brands and very proud to be that. But obviously, that means some extra marketing expense in Q1 that we typically have to absorb. But also we think that drives us forward and we get an opportunity to leverage that position and maybe drive our broadband story further. I don’t think I’m not going to give specific guidance on our broadband net other than to know that we’re going to obviously have to focus on this marketplace with our long-term goal.

As we’ve said is to grow our share in the market that we’re in, we’re not at 50% today of that market and we’ve got to work ourselves to get there. And we’re the largest broadband provider in the country, but in some of our markets, we’re not at 50%. And if it works out anything like it has on the East Coast was fiber where this investment is going to hunt for our investors.

David Barden: Great. And George, if I could follow-up real quick, we’ve heard from some other fiber deployers that once you get to 50% penetration, the CapEx intensity starts to come down.

is that something that you guys are looking at as well?

George Cope: No, not – well, not for a while in our case. If you think about the 2017 – approximately 2017 capital intensity – is a street can model that in, the help we’re getting is our wireless is a bigger proportion of our business and that cap intensity of 9 allows us, quite frankly, to pull a little more into wireline and let’s just accelerate this fiber footprint. So I would, again, as we have the last three or four years, I think, the community safe and that approximately 2017 number certainly over some type of modeling assurance although I don’t want to give guidance beyond one year, because we’re on a public call.

David Barden: All right, guys. Thank you so much.

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

Maher Yaghi: Thank you for taking my question. Good morning.

And just so I – and congratulation on the wireless, numbers are very, very strong. I wanted to, if I step back and I look at your guidance last year around this time. And if I look and I exclude Internet wholesale some stuff, et cetera, et cetera, your guiding going into 2017 for EBITDA growth of 2.5% to 3.5%. And now if I look at your guidance for 2018 and I take out the Manitoba acquisition, your guidance is actually slightly lower in terms of growth in EBITDA for 2018 versus 2017 and the brackets are larger. So are you including any kind of buffer here for some type of price competition in wireless that could impact results or, because frankly, I mean, when you look at your FTTH rollout, you’ve been adding subs throughout the period.

So it’s not necessarily going to change significantly year-on-year to impact EBITDA that much. So I’m trying to figure out why the slightly lower EBITDA growth, especially seeing the growth in the wireless continuing like this?

George Cope: Great. Well, we’ll go at it a second time, I guess, for everyone. There is the impact on the pension we said. It’s a mix in our portfolio.

We’ve consistently guided the investing community that 3% EBITDA growth is the dividend growth story we want. And all the other points you just raised are absolutely on in terms of market dynamics. We saw significant growth in the fourth quarter. We saw growth anywhere close to that in RGU growth in the coming year. That has a drag on EBITDA, which is so accretive for our investors, right? So our guidance really reflects that.

Do we wanted to be four to five? Sure, absolutely like it to have that happen, but the size and scale of organization, the guidance of two to four, I think, reflects the position. And if you look at our results over the last few quarters, I mean, look at the growth we were able to absorb in EBITDA. So hopefully, as people brought on the call, we end up doing more than what we’re saying. But we have new footprint from new competitors in wireless. We have a new TV products, so we’re just trying to moderate that within our overall expectations.

And we also know for the investment profile for our company, we know what the target EBITDA needs to be to drive the cash flow for the dividend and that’s just reflected in the guidance.

Maher Yaghi: And what is your assumed ARPU growth in the wireless inside those guidance that’s provided?

George Cope: We’re not going to go to the level of our ARPU forecasting other than. I think, I have given some pretty strong guidance around rather think about the industry, which I did a few minutes ago.

Maher Yaghi: Thank you.

Thane Fotopoulos: Thank you.

The next question, I think, we can squeeze one more in, Valerie.

Operator: Certainly. Our last question is from Jeff Fan with Scotiabank. Please go ahead.

Jeff Fan: Good morning.

Thanks for squeezing me in. My question is on the fiber expansion and the acceleration. When I hear companies accelerating their investment, obviously, it’s a good sign it shows that there’s probably a good return. So I know there was a question earlier about competitive pricing. But George, I wanted to see if you want to – if you can allude to the thinking behind the acceleration, I guess, from a cost perspective, whether you’re seeing some efficiencies in deployment? And also the pricing environment, I guess, the ARPU in places, where you’ve got fiber, or are you getting more optimistic about how the kind of ARPU that you’re generating from these household to kind of get the return that you need on these investments? And then, I guess, the second part to that, if that is case that you’re getting better return, why not use some of that excess free cash flow that you have this year, especially with potentially a pension holiday to accelerate that spend?

George Cope: Yes.

Well, I – first of all, the end on that, we are going within now 800,000 actually we’re going aggressively as we possibly go. We end 50% of all our fiber footprint done. And as we’ve indicated on the call, it’s – one it’s clear fiber moves market share, that’s the first check in the box. There’s no doubt, where we have fiber. We know we’re taking a lead market share.

And secondly we’re doing that with additional speeds not with having the lower price in the market. And then of course, as we said before, when we get someone on fiber and they take IPTV or Alt TV, that’s a subscriber that goes well beyond $60, because when you get the TVs you’re in the 120, 130 and, of course, within that, we purchase our content. But we buy a third of that content cost from ourselves and that is really our vertically integrated strategy in the marketplace. From a cost perspective, there’s no doubt, where we have fiber the cost of providing the service is less over time, because the amount of truck rolls we need to do for home drops and that’s where the cost benefit will be. And I think we’ve talked in the past about that was all the thing take you through again in terms of what we’re seeing we don’t pop ahead high, but there are some operating cost benefits as well.

And clearly, if we saw interest rates go up and there was additional cash flow within our targeted structure and we see an acceleration success of fiber, that’s why I think we did 100,000 more last year than we said we would do and 800,000, 100,000 of everything we get done. So that is a pretty significant acceleration from our perspective. And we love when the investment community wants us to go faster on that. I mean, everybody is seeing the benefits. So thank you for your question.

Jeff Fan: Okay. Thank you.

George Cope: All right.

Thane Fotopoulos: So on that thank you very much, everybody, who participated this morning. Apologies to those who couldn’t get to in the queue, but I’m available throughout the day for follow-ups and clarifications.

So on that, thank you, again. Have a great day.

George Cope: Thanks, everyone.

Operator: Thank you, gentlemen. The conference has now ended.

Please disconnect your lines at this time, and we thank you for your participation.