All right, so next up, BCE, and we have with us Mirko. Thank you, Mirko, for coming.
Hey, Maher, thank you.
I'll leave the difficult questions till the end, so we'll start with the easy ones.
Okay, so I'll talk for 30 minutes on the easy one.
So we'll start maybe with, just big picture, some of the key, important, drivers that, in your mind, will be important to, you know, attain the objectives that you set for 2024. Maybe if you can give us a run-through of some of the key variables on pricing, you know, in terms of regulation. What should be achieved in 2024 to hit your Free Cash Flow guidance in general?
Okay, so, well, I mean, our guidance in general, you've got our revenue guidance and our EBITDA guidance and our free cash flow guidance, and you've also got our CapEx guidance, which factors into that. And the puts and takes that we built into the guidance that we announced, about, you know, a little less than a month ago. So key drivers for that were the macroeconomic, you know, the economic environment in Canada, basically, the macro environment, and what we have, you know, generally speaking I'm not talking about telecom here for a second, but generally speaking, we have a pretty sluggish economy. We've seen the numbers. Like, we have, in terms of GDP growth, one of the poorest performances in the industrialized world. And if you eliminate Q1 of 2023, we actually had decline.
And business spending has been in decline as well. So that's the environment within which we operate generally, and that's factored into the guidance that we gave. And in, you know, as well on the economic environment, you've got high interest rates and inflation that's coming down, but it's still not at the target rates. The good news are however, on the other side, is there continues to be demand growth and population growth, which is allowing us to continue to kinda grow the top line in the context of that sluggish economy, generally speaking. Then you've got the competitive environment. You know, we're in an environment now with four truly national wireless players. Everybody's seeking to stake their ground. Pricing is coming down quite significantly, as Stats Can show each and every time. The issue our report.
So there, you know, we've also factored that into thinking into our guidance. The key there is execution, number one, and continuing to push on having the best quality services for customers. Then there's the regulatory environment. You know, in the pressures in the latter part of 2023 and into 2024 are pronounced, particularly on the wireline side. So, you know, we've made some judgment calls on regulatory outcomes, which went into our guidance. Then if you kinda take a step back from those picture big picture items in terms of what we expect our performance to be, on the wireline side, fiber continues to be on a roll. We are gaining share 'cause we have a superior product.
On the wireless side, we're going to continue to focus on balancing market share gains at the premium end of the market with our financial performance in the wireless business unit and/or product segment, rather, not business unit. On the enterprise side, we're seeing nice growth in kinda the growth vectors I've been talking about, in more pronounced fashion recently. There's a cloudification, security, and managed automation. And the media side will continue to be a story about, you know, getting growth, our fair share of growth, on the digital targeted ad side of the market while, you know, continuing to maintain our outperformance on more traditional media spend, which admittedly is in a bit of a decline, but we continue to outperform there. And we're gonna take our share of growth in digital. Advertisers are still spending.
It's the mix of shift between digital and mass advertising. Mass advertising's not gone away. It's just declining, and the other one's growing. And together, you know, put those you know, our market share gains in both of those maintain our market share position on traditional, gain market share on digital. And I think there's a growth story there as advertising recovers.
The regulatory consistency, I think, is primarily for running a business in Canada, especially the size of BCE. Is it fair to say that you're running currently your dividend model business, you know, dividend model, your growth model, assuming that there will be continuing to be consistency in terms of regulatory decisions on fixed, you know, high-speed internet access, i.e., only reserved for small ISPs and not opened up for everybody to compete on everybody's network? Is that how you're running the business right now or how you're setting the goals of the business?
Yeah, so I like, we're running the business like, right now, we're running the business based on the rules we have, which is, you know, the rules are about to change on May 7th with the interim decision from last year coming into place in terms of the new tariffs. But looking forward, what we've planned for in terms of 2024 and beyond, is that there will be access to our fibre networks. I think it would be foolish to think that, you know, there will be an outcome that says there will be no fibre access. The key questions, though, are who gets access, where, if there will be any form of grace period before access is granted in a new fibre community, and then price. So those are the key variables.
If the decisions are negative or decidedly negative on all of those questions, so, you know, only access in the east versus access nationally or everybody gets access to everyone's networks, you know, then you'd have to ask yourself, why would we build more and more fiber aggressively if we can ride on cable networks where we don't have fiber? And if the price is, you know, lower than what we've seen today, then we're gonna run our business differently. We will make further difficult choices along the lines of the difficult choices we announced in February.
Unannounced.
And difficult decisions we made right after that November interim decision from the CRTC where we pulled quietly, just invested CAD 105 million less in CapEx than we had planned for Q4. And then a month ago, we made all the announcements that we made in terms of the kinda restructuring internally, the sale of radio assets, the capping of internet speeds, etc. Regulatory decisions have consequences.
Right.
If they didn't, then we wouldn't have a regulator, right?
For the longest of time, Bell and TELUS approached regulation in a very similar fashion, the way you think about regulation, how it should be implemented. And we saw a very divergent TELUS at the last hearing where they are proposing to open access to everybody everywhere, well, mostly in Eastern Canada, basically. How, how did you think about that approach? And, is the market basically every decision we're seeing is, and I don't wanna, you know, in Q4, we saw an impact on churn where everybody's churn went up, and your competitors' new, you know, the new entrant's churn supposedly went down. So, you know, how are we evolving as an industry going forward, do you think?
So Bell's position on access have been.
Consistent.
Consistent year after year after year, and I actually say decade after decade, number one. Two, let's look at the facts. Pricing for internet is lower in the east than in the west. There is more competition in the east than in the west by the mere fact that you have resellers in eastern or central and eastern Canada, and yet don't in the west. And the cost to build fiber is the same. And there is more at risk from negative regulatory decisions in central Canada because there is less fiber built in terms of percentage of footprint. So, I'll just leave it at that. I, you know, the regulatory structure or the competitive or the market structure as a function of the market structure outcomes coming out of the regulatory decisions, I can't tell you until we see the decision.
Okay. When we think about, you know, last five years, 10 years in terms of how the market operated in Canada in telecom versus how it is today, can you make certain distinctions on how you change you had to evolve, how you had to change as an organization to continue to grow within a changing environment and changing regulatory environment?
Yeah, that's okay. It's an interesting question. So if you take, you know, five years ago, we hadn't experienced the impacts of COVID across the board, right? Employment, investment, pricing, social, etc. So that's different. That's clearly different. High interest rates, significantly higher interest rates is different. You know, the persistent inflation is different. And, you know, kinda technological disruption. And when I say disruption, I don't necessarily mean in a negative way, but kinda the impacts of technology, although the impacts of technology have always been there. I think we've taken a step function. You know, it's a different step function in terms of progress on technology compared to five years ago. So, I mean, those are obvious distinctions in terms of operating today compared to five or 10 years ago. But what else is different?
Competitive and.
Competitively, well, because of the rollout of the more ubiquitous rollout of fiber across the country in the west and in the east, what's different compared to 10 years ago is, you know, we finally broken through, to an appreciable degree, the cable internet dominance. Cable companies have been clearly dominant in Canada for decades in terms of internet compared to telcos, and that has changed. So with the fiber rollouts, we have brought a better product to market, for the benefit of consumers and lower pricing. And that's created an obligation on cable companies to either lower price or improve their product. So that's significantly better for the consumer. Both on wireline and wireless, prices have come down, and quite dramatically.
We've, compared to five or 10 years ago, have also made massive progress, certainly at Bell, on the customer experience and continuing to lower the cost to serve by digitizing and automating as much as we can, as fast as we can. Those are kinda some of the key differences compared to five, even five years ago when I first took the job.
So on an organizational level, how are you thinking that Bell will look like, let's say, in five years as an organization? Do you have to bring together different groups? Should we think that restructuring is gonna be a continuous event that we can track every year?
Yeah, so I've started to talk about trying to—well, not trying. I'm starting to talk about how we are moving away from being kind of a traditional communications provider to starting to think of ourselves as a tech services company. And on the media side, kinda set apart to the side, like, put away forever this notion that we're a traditional broadcaster. We've gotta be a digital media leader. And so if you look at it through that lens, what does that mean actually, kinda on the ground and practically? Continue to do the things that are, you know, continue to push on our growth vectors but do it better. So continue to leverage the fiber that we've got and grow our market share but at the same time, lower our cost to serve on that growth vector.
And what do I mean by that? Just, you know, sell online, self-install, copper decommissioning. So, if you're going to view yourself if you were a communications company but if we wanna also think of ourselves as a tech services company, we would sell our fiber services through bell.ca or through the MyBell Mobile app and do ubiquitous self-install and continue to engage with customer, in the app at all times, whether or not it's for service, billing, cross-sell, loyalty, etc. So that's, that's how that's how we gotta think about how to do things going forward. On the enterprise side, it's, it's understanding that, you know, our core value proposition is connectivity and trust in our networks. So that's gonna continue to be, be the case.
We're gonna continue to offer high-bandwidth services to enterprises through our fiber but dramatically lower the cost to serve 'cause that's what we need to tackle on the enterprise side in terms of the cost to serve, need to tackle that just like we've been doing on the consumer side but at the same time, push into, you know, the growth verticals that I've started to talk about publicly, which is security, cloudification, and managed automation. The managed automation strategy is taking shape quite nicely, and there's nice growth there. It started with, didn't start but, it's been accelerated with our acquisition of FX Innovation in Montreal. You can just see the results in Q4 that we talked about.
We grew our, you know, those growth verticals at Bell Business Markets. We grew those organically 8% year-over-year in Q4 and a 26% growth if you factor in the impacts of the acquisition of FX. And we're not gonna stop there. We've got a clear strategy that we're gonna continue to lean on in that space. And on the media side, you know what? It's all about targeted ad delivery and taking our fair share of the digital ad spend.
In terms of asset mix within this new organization's outlook that you have, are there any sacred cows? Are there any assets that you would never think about selling but some could be up for sale down the line?
Yeah, I mean, I understand the nature of the question. It's hard to answer. I'll maybe give you a picture of how we look at things. So if it's strategically core, let's take our Fibre assets. You know, if they're strategically core, they're strategically core. But we do have to take a hard look and say, "All right, is it going to be core in five to 10 years and therefore, what do you do with it? or is it on a perpetual decline? or is the regulatory, you know, are regulators and policymakers going to make it very difficult to continue to drive growth out of what was once a growth asset?" So those are questions we always ask ourselves. Then there are, you know, assets that, you know, while they may be strategic, there may be opportunities to monetize.
So we'll always look at that. So that's, I mean, I'm giving you a very general answer 'cause you can't get kinda competitively specific in a conversation like this, but, but it is top of mind. And then, you know, how do we allocate our capital? You know, you know the answer. You know, dividend, I, you know, sustaining the dividend is clearly, you know, top of the list. We're gonna continue to fund growth. So growth CapEx is important, whether or not it's continued fiber rollout, albeit unfortunately at a lower pace than we would have liked given the regulatory decision. Transformation CapEx I've started to talk about transformation CapEx.
We're allocating a significant portion of CapEx to changing how we operate internally, whether or not it's, you know, driving, you know, improving our MyBell Mobile app or more self-install or collapsing ordering and billing, you know, infrastructure at the company. You know, there's a whole number of things that we're doing, building, you know, leveraging AI and GenAI more, converting manual work into, you know, automating what was, you know, in the past manual work. So there's dividend, growth CapEx, transformation CapEx. And then if there's some, you know, strategic tuck-in acquisitions like the FX Innovation one as an example, we're gonna do those.
In terms of having the capabilities to deliver on this technology-oriented view of BCE, do you see there's also need to do additional acquisitions, or can it be done mostly organically? That, you know, building that know-how and capability in-house?
It'll be a combination of both. We've had, you know, particularly strong skill set internally in some of these areas, like security has been strong. On the managed automation side, it really needed the FX acquisition to kickstart it. And then the combination of having that skill set there with, you know, it's a bunch of 800 people, an extremely talented management team combined with our Bell Business Markets sales team and their sales team. You know, there are synergies there, not in terms of cost reduction but synergies in terms of go-to-market capabilities. We're gonna continue to bring, you know, convert some of our, in you know, certify more and more of our internal people to be certified to operate, sell, and manage, you know, several of these cloud environments or digital environments.
And then there'll be, you know, potentially more tuck-in acquisitions 'cause, you know, once you're in their lane and it's something else becomes an option and you can combine, you know, combine more skill sets, we'll continue to look at it.
Okay. I mean, BCE has always done internally cost-cutting all the time to remain competitive and to keep the margins high. But this year, especially, you made a significant restructuring announcement. Can you tell us a little bit the early signals that you're getting from that? How has it been communicated internally? How has been the mood inside the company? Are we, you know, our business as usual? Maybe just, to help us understand how it's been, you know, running through the operation.
Yeah, these are these are very difficult.
Very difficult.
Things to go through, right? It is the largest restructuring we've done at Bell in over 30 years. You know, you have no choice. Now, we were, you know, we did 1,300 job reductions last year. You know, it's difficult when you're managing through this to have what was perceived to be a big one last year and then a significantly bigger one this year and then, you know, questions we've been asked of, "Why not just do them all at the same time?" We weren't ready to take, you know, to do it all in one shot last year. Part of the reason, you know, reason we're more ready now is we've progressed even further on our journey towards kinda automating a lot of a lot of things that we used to do manually.
So we're in a better position this year than we were last year to do it. So that's the reason why we did two in fairly short order. Yeah, we have no choice, right? It's back to the very first question you asked me. You look at the economic environment, you look at the, you know, technological advancement, you look at the regulatory pressures and the competitive environment, we have to manage our business responsibly. And that means making very difficult decisions. And in terms of internally how it's been perceived, you know, we've been very transparent in our communication as to where we wanna go. We wanna go from here to there.
Some of the items I've shared, you know, some of the things we're doing, I've shared with you, you know, understanding that we should no longer think of ourselves as a traditional telco 'cause we're not. We're a communications and tech services company, a digital media leader. And with that means, seizing opportunities that are in front of us. So there's a lot of opportunities, lots of opportunities, internally for people. There's been transparent communication as to where we're, you know, what we're trying to do and where we're trying to go. So once you go through the shock of the initial announcement and just grinding through getting it done, I think folks feel I can sense that folks are really focused and know where we wanna go.
And that comes from transparent communications and comes from that's why we've been very clear with our folks when we make these announcements. Here's what we're doing. Here's when we're doing it. Here's why we're doing it, treating the folks that, you know, our teammates that are unfortunately leaving us with the proper respect, and the proper compensation packages and support and then driving forward. We're still hiring people, right? In our growth vectors, and there's attrition, etc. So it's a constant cycle.
So post this restructuring initiative, how should we think about BCE in terms of EBITDA growth, capital intensity? Again, after that big CapEx investment that you're making in fiber, long-term, how should we think about BCE's growth and.
Yeah.
Capital Intensity and Free Cash Flow? I and that ties into the dividend coverage because.
Right.
Everybody's asking that question, you know. You know, when should we expect the dividend coverage to be coming back into a more, you know, supported and sustainable level?
Yeah, well, that's a multifaceted question.
Yeah.
It's very so number one is, I, you know, we don't give guidance multiple years out, right? We gave guidance to investors for 2024. The second thing I'd say is, yeah, clearly, we are operating right now, or we're operating at an elevated free cash flow payout ratio. We know this. But we did say in 2021 that we were going to operate at an elevated payout ratio until 2025. We had announced at that time our accelerated 5G and fiber build program, saying as a consequence of that, we'll operate at an elevated payout ratio, and then, you know, it'll come down after 2025. That has not changed. There's nothing new. What's different is some of the puts and takes. Back when we announced it, interest rates weren't at 5%. Back when we announced it, we didn't have inflation where it is.
But we're, you know, and back when we announced it, I did not anticipate that we would have in 2024 a 4,800 job reduction. But, you know, that's what you manage through these unanticipated things or, or, or, you know, the world changes. But what hasn't changed is we're gonna operate at an elevated payout ratio, and we're gonna continue to invest that CapEx in, you know, the growth areas that we identified. So that hasn't changed. How do we get our payout ratio down? It's the three obvious levers: focus on growth. We've talked a lot about, even in the last 20 minutes, on where we're pushing on growth. You know, fiber continues to be on roll, etc. I'm not gonna repeat them. There's, you know, you have in there fiber, wireless, the enterprise growth vectors, and digital media spend or advertising. So that's one.
Continue to focus on lowering our cost structure and the cost to serve, hence all the transformation work we're doing and things like self-install. And, you know, we've talked about several of the elements that are gonna allow us to reduce our cost to serve in this chat. And then CapEx. CapEx was CAD 4.6 billion last year. It was over CAD 5 billion the year before. It was I think CAD 4.8 billion the year before that. We'll be at 16.5% capital intensity ratio in 2024 or lower. You can do the math, but it's clearly significantly less CapEx than last year's CAD 4.6 billion. Next year, we'll be lower than that. I expect to be running Bell, BCE, in fairly short order at 14%-15% consolidated capital intensity ratio.
So, you know, we get going on some of these growth areas, continue to lower the cost to serve, which we will do. We will do. We've continued. We've managed to keep margins stable in a difficult operating environment, which is a testament to the team's discipline on cost. And CapEx is the one thing I can fairly control, despite all the exogenous effects. So we will have CapEx lower, just like I said. So those three things, you know, will be what drive our payout ratio lower. Payout ratio will be lower next year than it will be this year.
Wireless has continued to be a positive picture for the overall environment here in Canada. Early on this year and into Q1, how would you characterize that business? Is it still continuing to be running solid like Q4 and Q all of last year?
Yeah. So you see, you know, the pressures that I talked about in a general sense are there, right? You know, a more difficult economy and for truly national players, which is causing some price pressures on the acquisition side. Those factors are there. But we continue to have significant population growth. We have significant 5G adoption. And we're now slightly above 50% of our customer base is on 5G. That means there's 50% more to go, and a 5G customer uses their service more and spend more. So there's continued growth there. There's continued general, you know, penetration growth to come in the U.S., significantly more penetration of wireless services per customer than there is here.
You know, those are the factors that are going to continue to generate market growth, subscriber growth. In our case, you know, we see steady RPU. That comes from our very strong discipline on the balance between the right market share gains at the right cost. You saw that in our Q4 performance in terms of generating the same amount of service revenue in Q4 2023 as compared to Q4 2022, you know, being right in the sweet spot in terms of our competitors, in terms of overall wireless, you know, postpaid nets and or overall nets, if you want, mobile phone nets, but doing it at a significantly lower cost in Q4 2023 than we did in Q4 2022.
All right. Maybe one last question to end.
Yeah.
When you think about the dividend yield on the stock at 8%, what do you think investors are missing here? Because when you think about the stock trade, you know, with a at 8% yield, the reaction you would have is some, you know, there's a sustainability issue. People are worried about sustainability. What can you maybe finish off today's presentation?
Well, rather than look in the rearview mirror as to what investors are missing, I'd just say simply, "What a time to buy.
Right. It's if you have that path to go below 100%, like you seem to indicate, 2026 could be a year where we can see that ratio drop below 100%.
That's a great time to buy it at close to 8% yield. Like, this is Bell Canada, right? Why Bell Canada with a long-life fiber infrastructure, an amazing brand, improving customer experience, an incredibly disciplined management team, and it's close to 8% dividend yield is an amazing time to buy.
Great. Thank you. Thank you, Mr.