Good morning. Welcome to the 51st annual J.P. Morgan Global Technology Media and Communications Conference. I am Sebastiano Petti. I cover the media and communications, media and communication space here at J.P. Morgan. I want to introduce Glen LeBlanc, CFO of Bell Canada. Glen, thanks for joining us this morning.
Well, thank you for having us.
Glen, in conjunction with 1Q results, you announced that you will be retiring as CFO of Bell Canada, effective September 1st. What are you most proud of to have achieved during your tenure?
Yeah. Thank you, Sebastian. I announced that this fall I will step down as CFO, although I'm going to remain with BCE in an advisory capacity till the end of the year and stay on a numerous, board-like positions. I'll stay on as Chair of our asset in the north, Northwestel. I'll stay on as Vice Chair of Atlantic Canada, more of an advocate for the employee and the customer and government relations role, and I'll stay on our MLSE board. After 30 years, and 18 of those as CFO, it's time to pass the torch. First and foremost, I wanna congratulate Curtis Millen, who will be taking over for me. You say, "What is your...
you're most proud of?" I think the first, being able to build talent internally so that you can have a successor ready to step in to your place is something that I'm extremely proud of. I was blessed with an incredible organization and finance team, and Curtis is more than capable to step in, and probably just needs me to get out of the way now.
Hmm.
When I look back at the decisions that we had to make over my career, particularly in my last 18 as CFO of Bell Aliant or Bell, the fiber decision was probably the one I'm most proud of. You know, I can remember in 2006 and 2008 when I would come to conferences like this, we were constantly challenged about the return on investment to Fiber to the Home. Could you really justify fiber that last mile? Was Fiber to the Node a better investment? When you look today and we're, you know, anywhere Fiber to the Node is, there's an overbuild taking place.
I think at Bell Aliant and Bell, we made a bold decision to go to the board and convince the board that we had to take the leap of faith and rebuild our 130-year-old copper network with fiber directly to the home. Although many struggled to understand how you would ever need that type of bandwidth in the home, I think we look today and say, "You know, we made the right decision." We had network inferiority to cable. We were losing market share at a torrid, rapid pace. Fast-forward to today, I can see fiber completion on the horizon where we will finish our fiber footprint for all intents and purposes in 2026. We now have the network advantage and the superiority.
frankly, I'm incredibly proud of that decision and how bold we were in Canada to be one of the first countries to take such an aggressive fiber build campaign on.
What are you most excited about? Is that just continued execution of that fiber strategy as you know, depart the maybe CFO role and, you know, stay in some of your...
Yeah. When I look at the future and I think about the asset pool we'll have here in the coming three years, where we have Fiber, we win. Where we fail to have Fiber, or we have DSL or Fiber to the Node, we have lost substantive share to the cable companies. As I think about, you know, in the next number of years, having completed 9 million homes with Fiber by the end of 2026 and another 1 million with Fixed Wireless of our 12 million homes, we're in a position to win, for the vast majority of our footprint is gonna be covered with Fiber. You know, I see an incredible opportunity to take share back where we have Fiber.
In the mature footprints like Atlantic Canada, we're over 50% market share. Where we don't have fiber in some of the, you know, where we're just built fiber in the last number of years, I mean, market share was in the 35%-40% range. A tremendous opportunity to take share back, and then ultimately that leads to the bundling opportunity for us. Really excited that, you know, that the organization is going to have fiber construction in the rearview mirror, and it's all gonna be about loading the network.
Great segue there. The BCE... From a wireless perspective, loadings have been pretty strong. Momentum has benefited from these more aggressive converged bundle strategy that you're taking. Can you update us maybe on, you know, has that momentum carried into the second quarter? What are you seeing from a, you know, wireless competitive intensity perspective?
Well, as you know, competitive intensity kind of comes in ebbs and flows in any given time. Particularly in the back half of the year, there's a lot of competitive intensity around back-to-school campaigns, around Black Friday and Boxing Week. Right now, I would say the competitive intensity remains reasonable, although, as I say, that can change at any time. You know, we were really pleased with our Q1 results. It was completely on plan with net loadings up, I think, 26.5% for the quarter. We were where we wanted to be. Most importantly, though, it's getting the right loadings. Anybody can win the loading game in any given quarter by being incredibly aggressive, as you're alluding to, Sebastian, on price.
What we're trying to do is find a balance to load customers but load high-value customers, and we refer to that as our premium brand or our Bell customers. As you know, we have a prepaid brand, Lucky, and we have a value segment brand called Virgin. I think what you witnessed from BCE throughout 2022 and into calendar 2023 in the first quarter is a focus on high value or premium net adds. I think the industry-leading ARPU growth of 2.8% in 2022 is indicative of that strategy working. As well in Q1, we had a 1% growth in ARPU while our largest wireless competitor was flat. I think that speaks to where are you chasing your loads.
I think it has to be a balance. We spend a lot of time internally trying to be disciplined on offers, that we don't drive everybody down into the value segment, and we continue to get healthy and vibrant ARPU growth.
Thinking about just the loading environment, obviously immigration remains a huge opportunity, and population growth in Canada. You know, there were some comments on the call, just the new to Canada segment seems like a great opportunity and a strategic focus for the team. Maybe historically, I mean, how would you describe... Has BCE lagged? Would you describe it like that? Or is it just maybe, you know, more of a, you know, keeping a greater eye on that opportunity or greater execution? How do you... What's the strategy perhaps from here in that segment?
I believe, Sebastian, it's a fair criticism to say we lagged. First of all, let's step back and look at what's transpiring in Canada. You know, although we're one-tenth the size of the United States, the population growth is really coming from immigration. Pre the pandemic, approximately 300,000 people, maybe we had a year or so of 400,000 new Canadians were arriving. That number now is north of 500,000. It is by far our biggest population growth to our country. It's an area that I would have to say our competitors, particularly our largest wireless competitor, performed better. I think they locked up some of the airports, major airports, where new Canadians were arriving and were able to establish that relationship early on.
I think they did a better job with their physical distribution or their stores in communities where immigrants were moving into and creating their own communities. I think we were out-executed in that area. In the last 12, 24 months, we've really put a focus on saying: How do we improve our distribution in these communities that are building up with new Canadians? How do we reach Canadians first? The most exciting thing we've done in the last few months, you might have noticed an announcement where we're partnering with Air Canada.
Yeah
... where we will sell services onboard for Air Canada. Maybe, our competitor has the airport where they land, so we'll get to them first and we'll get them in the air. I'm really excited about what this opportunity is going to mean to us. You can vision having a, you know, a QR code on the, on the screen on the, on the back of the seat where in time our new, our new customers are going to be able to take a picture of that and get a, an eSIM before they even land. We think this is a tremendous opportunity, and it's an area that, as I said, we probably stumbled a little and it's time to focus.
Has that Air Canada partnership, is that launched? Is that in market?
It is. It's launched. naturally, it's gonna take us some time to get the program where we want it to be. Last night I flew Air Canada in here, and I noticed on the back of the screen it said, "Messaging sponsored by Bell." It said, "Surf the internet sponsored by Bell." Even the flight attendant was quick to mention the partnership with Bell. I was like, "Oh, this is coming around pretty fast.
Great. Wanted to touch on, you know, you brought up the blended ARPU growth. You know, Bell grew ARPU for the eighth consecutive quarter wireless, blended phone ARPU for the eighth consecutive quarter here. I mean, given the competitive backdrop, you know, how is the team thinking about ARPU? Obviously, you continue to focus on premium loadings, and that's been a, you know, a successful strategy over the last several years. How are you thinking? How should we think about or unpack the core growth, you know, these high value loadings, continued migration on Limited, against the backdrop of, you know, further roaming recovery or further upside in roaming?
Yeah. It's an excellent point you make about roaming. You know, it's been a heck of a tailwind post-pandemic, and I think we're at 129% of pre-pandemic roaming revenues right now. I would say the tailwind that we've enjoyed is for the most part behind us. It won't be as big of a contributor to ARPU growth going forward. There'll be some there, not as much. Biggest opportunity we have for ARPU growth is the continued evolution to next generation handsets. 5G. Right now we only have about 44% of our customers that are on 5G handsets. As they move up through the life cycle, those naturally tend to be customers who consume more data and ultimately drive higher ARPU for us.
I think that's the biggest opportunity in front of us. Focus on the premium brand, as you alluded to, focus on the Bell brand and ensuring the high value customers and continue to move customers on to, you know, our 5G network.
Lots of concerns coming out of the final closure of the Rogers/Quebecor transactions with Shaw as well. You know, with those deals now closed, obviously right now maybe loading environment is, you know, still maybe more quiet or not as robust as what we'll see in the third quarter and into the fourth quarter. You know, do you expect a change in the near-term dynamics from, you know, near-term competitive dynamics given the change to the industry structure? You know, how could this potentially impact BCE's share of, you know, gross adds loadings? How's the team thinking about it?
Well, first and foremost, I guess we had a lot of time to prepare. 3 years, I think it took that transaction to finally close. When I think about where we were then to where we are today, how much better BCE is positioned to compete. First of all, we embarked upon a very aggressive fiber play and fiber build over that period of time. As I said, we'll, you know, we're getting to the point that we'll be at 80% of our fiber footprint of our footprint being fiberized. You add to that we're at 83% of the population now covered with 5G, and we have the network to give the customers what they want and ultimately to bundle services.
Bell Canada covers 75% of the, you know, wired infrastructure or the internet infrastructure of the country. When you think about what customers want, and that is the ability to bundle their wireless and their wireline, nobody's better positioned than we are to do that. Now we have the networks built out to give them a superior network experience. I think we're in a great place. Look, this isn't new to us competing, whether it be the Shaw, Rogers together or whether it be Quebec or Videotron. You know, we've had a four-player wireless market in our country you know, for a decade or more, and Freedom was very aggressive with price, and yet we were able to compete there. I'm...
You know, the way I look at it is one competitor was replaced by another. There'll be times of aggressive pricing and aggressive competition. I look back and I think, "How is that different than the last 18 years of my career?" It's, it's always been aggressive, and we're there to, we're there to win, and we're there to fight. Most importantly, I think we've tooled our organization with the networks we need to compete, and that's going to be our advantage.
Great. Thinking about, you know, 5G. In the U.S., the best use case of 5G is, you know, seems to be or currently is fixed wireless access. Given the scale of fiber deployments in Canada, this seems like less of an opportunity there.
Mm-hmm.
When you think about MEC, you think about private networks, you think about, I think, you know, Mirko touched on the call, I mean, a lot of investments in cloud, right? Bell has positioned yourself well there. As these opportunities in IoT, you know, start to matter more, I mean, Is BCE, because of your enterprise share and your enterprise, you know, relationships, I mean, should you be, you know, better positioned than, you know, your competitors to really lean in and take advantage as these, you know, longer term opportunities, you know, evolve or emerge?
Yeah. A lot to unpack there, Sebastian. Let's start with the differences, as you alluded to Canada and particularly the U.S., is that, you know, fixed wireless has a place in Canada, and as I said, we have the largest fixed wireless footprint with about 1 million homes covered. The big issue in Canada or the difference of Canada is that we are so fiberized and that urban and suburban centers all have fiber. Frankly, fixed wireless is not a competitive offering against fiber or for that matter, even tier 1 cable. Where you see fixed wireless really working is on the fringe. It's on the areas where we refer to it as tier 2 cable or they're still so remote that, you know, there are...
They have low-speed DSL or a low-speed internet offering or tier two cable offering. That's where it's working. You know, to think that, you know, building out wireless in the urban or suburban centers where frankly fiber is.
Right
... is so prevalent right now, it's just not a competitive offering. When we think about, as you said, where does the opportunities come from to monetize your 5G network in the future? It is the those next gen services. It is IoT and it is MEC , it's cloud, it's security. I would say not in Canada. Globally, we're probably slower realizing those revenues than any of us envisioned. I think if I was sitting here 24 months ago, I would've thought we would've been further along the continuum than we are today. That's true globally. What I do know is if you build the networks, those revenue streams will come. As you said, we are the largest enterprise provider in the country. We have huge market share, deep long-standing relationships, complicated network relations and complicated offerings.
I think as those new revenues come on, we are the trusted service provider, and we have a tremendous opportunity to capture those. I think we're in, you know, we're just on the precipice of something great there. I don't know if it's 12 months out or 24 months out, but what I do know is that the revenues are there and we're going to have the network infrastructure in place to deliver it.
Which makes sense given that. I think and we've seen some of your cable competitors react to your, you know, try to react to your fixed, you know, their fiber initiative and some of the share that you're winning in new markets. Are you still seeing more competitive cable offers in these, you know, call it, you know, DSL or, you know, Fiber to the Node market areas?
I would say the cable companies have come to a realization that where we have fiber, they have product inferiority, and I know how it feels, 'cause as I said in my earlier remarks, I spent 10 years of my career wondering how the heck we were going to compete with a cable company who had a superior network offering. The tables have turned. We have superior offering with fiber. I think, as I said, we'd gotten to a point in areas of Ontario and Quebec, our largest operating markets, that we were at 35% market share. We were no longer the incumbent. The cable company was. Now the cable company's realizing that we're taking share. We're migrating back towards a market share equilibrium, if not north of that. Where do you fight?
I think where the cable companies are turning their attention is they're trying to take share from us in our in our markets where, frankly, we're disadvantaged, those markets we haven't reached yet with fiber. If they wanna compete there, and they wanna fight there, that's fine. We'll eventually reach those market with fiber, and I guess it'll just be a bigger opportunity to take share back. I think it speaks volumes to how successful the fiber strategy is that they're turning their attention to these non-fibered markets.
You're, as you said, 2026 will probably be when you're largely fully fiberized, right? At that point, 90% of the footprint or so will be, you know, Fiber to the Home. You've been more aggressive or, you know, leaned into this into the converged, you know, fixed plus mobile bundling strategy. As you think about the next several years, as you march towards that 90%, does your bundle strategy need to evolve? Is there other areas or other, you know, products and services that you can perhaps attach? You know, how's the, you know, BCE team thinking about the evolution of the bundling strategy?
I think first and foremost, to repeat what I said, is the more fibered footprint we have, the better we're capable of bundling. To go into a non-fibered community now and attempt to sell a bundle, I really think you're going to a gunfight with a knife. Frankly, that is difficult to convince customers to move their wireless product with us with their internet product, if it's an inferior internet bundle. The more and more we get to that 9 million homes covered with fiber and another 1 million with fiber to the home, or excuse me, wireless to the home in fixed wireless in the more rural areas, then we end up having a network advantage to bundle. I think it really is that simple.
We now have the territory covered to start taking share back, and that will pull through wireless. Look, do I see new products and services? Certainly. If we build the 5G network that I alluded to, and we continue to have 83% of the population covered now, if we get to the point that we have 10 million homes covered with fiber, we continue to deploy the 3.5 and the C-band spectrum that we're about to purchase at the, you know, end of this calendar, then we're going to have the network infrastructure that makes us leaders in this country. If you have that, then your bundling strategy is gonna be pretty self-explanatory.
It's just that steady drumbeat of continued.
Steady drum, drumbeat.
... penetration further and deeper.
Literally, we look at every single community we have, and it's without exception. You have fiber, you take share, and that is our strategy and continues to be and will be. You know, as you said, we're gonna hope to complete the fiber build, for all intents and purposes, at the end of 2026. 2022 was the high watermark on spend. You'll see a gradual decline on our capital spend through 2023, 2024, 2025, ultimately culminating in the completion of the fiber footprint, which is gonna give us a great cash flow opportunity in the future. You know, that's a $1 billion of capital that we don't have to spend on an annual basis, which ultimately gives our manager, senior management team and the board choice. Where do you deploy that capital now? What's the best deployment?
A great handoff to Curtis, you know.
Exactly. I've set it all up for him.
Yeah.
It's pretty easy from here.
Just thinking about not only as CapEx falls off, but as you evolve the network to be fully fiberized. I mean, obviously, the customer lifetime value economics of those bundled subs, the fiber subs over time should be a nice tailwind to margins. As you're thinking about, you know, the customer lifetime value of the bundled versus non-bundled subs, I mean, how do the two compare? Is it not even like a comparison? Just longer term, you know, have these returns that you're seeing from the fiber build, I mean, Just think about, I guess, is that a self-fulfilling prophecy or a vicious cycle that drives higher CLV maybe has driven the strategy to drive Fiber to the Home, you know, more aggressively.
It's a great point. Let me answer it this way. Fiber does 2 things for you. The bundling strategy does 2 things for you. First and foremost, what we know is if you bundle customers, they have a relationship with 1 provider versus multiple providers, the likelihood of churn goes down substantively. We're experiencing a 35 to 50 point difference in churn where we have a bundled strategy. That speaks volumes to the lifetime value of a customer. Don't lose sight of when you say margin protection and the opportunity that bundling and Fiber gives us.
Where we have fiber and where we're operating with fiber, even today, which I would say we're still in the, in the middle of the fiber journey or towards the tail end of the fiber journey, we see a 40% improvement in the service and support costs in fiber communities versus non-fiber communities. It is just cheaper to operate. The copper network has extended itself well beyond its useful life. Let's be honest. It was never intended to be doing what it's doing. If you can reduce the cost, and that means truck rolls, that means calls to your contact center, that means repairs because copper network doesn't behave well in humidity and wet weather and all of that that gets eliminated with fiber, you reduce your costs.
We move to where we are now, which is on, you know, in the infancy of the journey of what we call the Smart Home. That means installing all of the electronics to the side of your home on a fiber home, so that when you move and I buy your home, it doesn't require a truck roll. It is literally a Smart Home that we can turn on remotely. We can mail you your in-home equipment, self-install, and you see the opportunities that over time that means for reducing the manner in which you support and service the customer, the costs of repairs on your network, ultimately, where you started the question is the customer loyalty and the ultimate reduced churn that creates.
You have a happier customer with less challenges, with a higher performing network, with a bundled and, you know, multiple home, maybe it's a 4-home, 4-product home. That is the gift that kinda keeps on giving, and it's the win-win. Reduced costs, happier customer, reduced churn.
I want to come back to some of that, in terms of margins and how to think about that longer term in a second here. Finishing up on wireline, in the first quarter, enterprise service revenue, I think you said, was the best since the third quarter of 2020. Can enterprise... Do you expect it to return to growth? Is it just a function of, you know, still working our way through the product and equipment, you know, headwinds or, you know, availability? Is that how to think about it?
I'm gonna I would say yes, but. I would say very pleased with our enterprise segment right now and the results we're enjoying there. A little bit of it is the pent-up demand for product and for projects to be completed. We went through that period during COVID where there was so much supply chain disruption that many of our enterprise customers had to delay projects. The good news is they didn't cancel. We're seeing a ramp-up for those projects now, which is exciting. I think that's giving us a little bit of short-term tailwind and growth. When I think about the enterprise segment, though.
In the longer term, there is a rationalization to telecom services within an enterprise from, you know, from high revenue, high margin services to simplified internet connection. That's gonna be lower revenues for us. We have to manage that. We are taking costs out of the way we service that customer. As we talked about earlier, I think the next opportunity in enterprise, which BCE is so well-positioned for, is that next revenue stream. Maintain the relationship that we have today. Then you're ready to give the, you know, next generation of services, the IoT, the cloud, the security. You know, we signed agreements with AWS and Google to provide cloud service partnership.
we're, you know, we're expanding our offering of advanced products and services, and I think we'll be well-positioned when that revenue stream. As I said, it's been a bit elusive yet, a little longer in the tail than we expected, but we'll be prepared.
Yeah. Coming out of the, you know, the merger, the long-awaited merger and divestitures, a lot of concern, a lot of focus on the regulatory environment. Do you expect to see change in the CRTC or I said policies, you know, across the communication sectors as you know, given, you know, maybe some of the different, you know, some of the different headlines that we're seeing out there?
If I can successfully predict how the CRTC will behave, I'll probably have a second career. In all seriousness, I think when I look at the landscape, it's been fairly benign over the last number of years, and we're starting to feel, you know, a little bit more heat right now. First and foremost, I would have to say that I said, and Canadian government has to look at whether their policy has worked, and I think they really can say it has. If you look at Canada, we've had 4 wireless players. The U.S. doesn't have 4 wireless players. Australia doesn't. France, Germany, South Korea. I could go on and on.
Yet Canada, which is such a large geographical mass, I mean, to put it in perspective, if you looked at G7 countries and you looked at population density, there's 200 customers per square kilometer. Well, in Canada, there's 4. The government has to recognize that we have a large geographical mass to build. If you want connectivity, if you want world-class wireless networks, and you want a connected Canada on the internet front, then you have to support the infrastructure players that are building in a very difficult landscape. I think we're proving that we've done that. Canada is one of the most connected countries in the world when I talk about fiberizing the country, when we talk about the quality of our 5G networks and where we're at.
The government has succeeded in a fourth wireless player, with the transaction that just occurred, I'd say very well-capitalized four wireless players now. I don't know what more the government needs to do, but I would caution that, you know, their policies gonna run against one another if you're going to open access, for example, TPIA to fiber access and allow others to ride our rails. At the same time, when the government is saying we need a connected Canada, and that means all Canadians have access to world-class internet, and those fly in the face of each other, don't they?
Yeah. Certainly do. Thinking about the algorithm over the long term from consolidated margin growth. You have some of these legacy revenue lines that we talked about, enterprise, maybe a little challenged, but, other wireline, other, video products. Wireless is becoming a more meaningful contributor to the overall, you know, consolidated Bell enterprise. With fiber becoming a larger portion of the base, the copper not only just the customer lifetime value improvements, but the copper decommissioning that will come down the road here as well over the next several years. You know, how should investors think about the long-term margin growth algorithm for BCE?
Well, when you look at our assets, and you use the word legacy, it's recognizing that how much of our historical revenues were dependent upon legacy services and not next generation growth services. You fast-forward to today, and those legacy services represent such a small portion of the pie. Now we are going to have fiber done with a tremendous opportunity to grow. We are going to complete the 5G footprint with all of those new services that we talked about and the opportunities in 5G. We are going to a digital-first strategy in our Bell Media. That's interesting when you consider that digital advertising in Canada represents CAD 12 billion, and that's an area that we have not historically played in. You know, just taking a small piece of that pie gives us great growth.
I think most important for us is that the legacy declines that were such a headwind to us over the last decade are starting to represent such a materially less headwind. While the growth services... You know, if I explain it no different than this, if 30% of your network was covered in fiber and 70% wasn't, how difficult a challenge every year that was to grow. But if you flip that on its head, and 80%-90% of your network is completed with fiber, and you only are dealing with small rural areas, 10%-20% that aren't fiberized, and even those, we're trying to work with government to get subsidies to complete the network build there.
You end up with quite a different pie for how much your growth services represent of your revenue opportunity and how much legacy decline remains a headwind. I think, you know, the future's bright. The completion of the network and going through this with a strong investment-grade balance sheet. You know, the final thing I'll say is, in order to make these investments, we have to have the adequate balance sheet and the adequate cash flow. One thing that's often forgotten about us is the pension position we have ourselves in now. Kinda conclude with a victory lap on that. I spent my whole career dealing with a pension deficit and having to make special funding, which ultimately ended up being CAD 6 billion-CAD 8 billion.
Now we find ourselves in a place of three and a half billion dollar surplus. The pension plan about 118% funded, which allows us to take contribution holidays, which this year alone will be a CAD 230 million improvement to free cash flow because we will not have to make defined contribution payments. I mean, what a great place to be to have that cash flow when we're on the end of the fiber journey to complete it.
Yeah. Another, you know, you know, helping Curtis out again.
Yeah. Exactly.
Last question, obviously wouldn't be a Bell presentation without the dividend. As you think about the margin profile or, you know, all the stuff you just laid out in terms of how we should think about margins, can dividend growth re-accelerate or can dividend growth accelerate beyond 5% on the other side of at least the completion of the fiber build?
As I said in my earlier remarks, I think the best thing we can do for our board is give them options, capital deployment options. If you have a CAD 200+ million reduction in pension contributions that arguably looks like it will, you know, be there for us for the foreseeable future, if not longer. If you have a reduction in your capital program of over CAD 1 billion, you get to a point that you start to say, "What is the best deployment of capital?" We know who we are. We're a dividend-oriented investors look to us. It's the dividend growth that investors come to expect from us. That's who we are.
If you fast-forward to the end of 2025 and into 2026, you're done your fiber journey, which is essentially rebuilding a 130-year-old copper network, you have your pension contribution behind you. Boy, I think the opportunity. Do you do debt reduction? Do you do share buybacks? Do you increase your dividend? Do you look at strategic acquisitions? What I like about all of those is they're available to us if you have the cash flow.
Great place to end it. Glen, thank you again for joining us here. Thank you, everybody.
Thank you.