Good morning, everyone. I'm Sebastiano Petti, and I cover the telecom, cable, and satellite space for J.P. Morgan. I wanna welcome BCE CFO Curtis Millen. Curtis, thanks for being with us today.
Thanks for having me. Good morning, everyone.
Great. Just to kick us off, you know, BCE has undergone significant transformation over the past year. You've reset the dividend, you've acquired Ziply Fiber, you know, launched Bell AI Fabric, you know, which has a lot of momentum and I'm sure you'll touch on. You also laid out a clear three-year framework at the Investor Day. Now you're one quarter into that plan, and the growth vectors are becoming more visible. You know, how should you frame, I guess, the strategic opportunity from here for investors who still may think of BCE as a traditional cable telecom? I guess, where's the management team spending most of their time?
You know, ultimately, we're executing a plan that we laid out at our Investor Day in October. As you say, we're three months into a 36-month plan. You know, you raised the AI Fabric, ultimately AI Fabric, you know, might be a faster timeline than we expected. We're about 40% of the way there. At Investor Day, we talked about 73 MW. We've monetized 300 on the side, plus 28.7 out of the 73. That opportunity seems to be coming faster than certainly we baked in in October at our Investor Day. Again, being fairly conservative in what we wanted to bake into the model, knowing that we were having conversations in terms of securing power, where we secured up to 800 MW.
Obviously, we're trying to secure even more than that. That, that market, that industry is moving pretty quickly. Ultimately, we're executing the plan. As we can, as we can rip costs and spend away from legacy product, legacy network, legacy processes and pivot into more and more, kinda next gen products and services, whether it's digital media, whether it's AI Fabric, whether it's fiber investments, I mean, that's the plan. Again, we're allocating capital to where the best value is and the best returns are.
All right. Well, sticking with Bell AI Fabric and just Bell Business for a minute. Just wanna touch on the comments around, you know, just the line of sight into the 800 MW. On the call, you talked about, you know, monetizing the 800 over time. You just touched on, you know, already having 40% of the way through that. Maybe, I guess, I think also Mirko kinda expressed a, quote, "Very, very high degree of confidence," underscored by the conversations you were having with, you know, significant potential customers. Help us understand the demand funnel. You know, what types of customers are driving that interest, and how do you think about the mix between hyperscalers, you know, sovereign or government workloads, and maybe enterprise customers?
Yeah, interesting. Look, I think the most important thing is securing access to power and time to power. If you look around, you know, North America, for sure, there's not that much available power. Canada winds up being a fairly interesting market because there is a lot of power generation that's not already sold, not already taken up by the enterprise demand. Access to power, very important. Our role in the Canadian ecosystem for nearly 150 years really positions us well, especially in a world where the sovereign AI use cases are still ramping up, but the sovereign nature of assets winds up being important and important for decisions as to allocation of power. Power in Canada, largely owned and controlled by governments or quasi-government organizations.
You know, we are, we are kind of right place, right time in terms of that. We don't love it during the winter, but it's a pretty cool place to go. As a market for power generation, Canada's is a pretty interesting place to be. Given our relationship and ability to build out an AI ecosystem as we've done in, frankly, 11 months since we let folks know we're working on AI Fabric is pretty good spot to be.
In on Saskatchewan, you described it as a fully contracted take or pay 300 MW facility with an IRR of approximately 20% and with additional upside as you think about the sovereign workloads. Construction's underway, equipment's ordered. I guess, you know, can you walk us through, I guess, the key execution milestones between now and the first revenue? What are the gating factors, and how should we think about, I guess, perhaps the CAD 400 million in prepayments, set up fees, et cetera?
Yeah. You're right. The revenue side of this, the EBITDA side of this is contractual. You know, we just need to deliver the facility. As you said, 96% of the equipment has purchase orders, you know, on budget, penalties if the equipment is late in being delivered, feel pretty good about that. You start looking at just regular construction milestones. We're prefabricating walls off-site. We'll move those on-site. Think of this as, you know, get walls up, connect power, and ultimately what we're doing is, it's shell, right? I mean, we're building a shell and a flat floor, connecting the HVAC chillers, coolers, and the gensets. Our tenants are doing the more detailed electrical work, connecting their servers and racks.
Then you had talked about earlier, sorry, I didn't answer your question, about who the other tenants would be. Tenants like what we have. Cerebras, CoreWeave, and then ultimately hyperscalers. The sovereign AI of it that you asked about, we do have the ability to claw back use cases for sovereign purposes. It would still be in the facility. It would just be in, you know, offtake, or it would have to move to a different facility. We're not taking the sovereign AI risk, but certainly when the upside is there, we'll be in the right place to capitalize on it. Not quite the direct offtaker yet. But that's why we sold all 300 MW to Cerebras and CoreWeave from day one.
Maybe for some of the folks in the audience and for myself, at least, you know, having covered the Canadian ecosystem, but just to try to understand the nuance in the market.
-coming out of a recent, you know, another session here that's, you know, a gating factor for a lot of the AI data center builds and what have you. Because a lot of the power is government or quasi-government controlled in Canada, do you think this is a model that probably is replicable as you go forward of there's probably going You know, if we think about U.S. or non-Canadian AI, you know, platforms moving, you know, Neocloud moving, you know, maybe taking advantage of some of the power in Canada. Do you see this model of, like, hey, you know, this is, you know, your megawatt capacity, but perhaps leaving some for sovereign workloads or being able to perhaps claw back some of that, you know, some of that power, some of those MW.
Is that probably something like a model that probably gets replicated in the future as you think about some, you know, eating into or, you know, some of this demand?
I mean, ultimately the demand is there, I certainly think the model is scalable. You know, look, again, we have line of sight into 800 MW of power. There's more than that in Canada. Obviously we're having conversations to get more access to that. You know, I think the demand is scalable, the business model is scalable. TBD a little bit on how fast the sovereign AI use cases drives demand. Whether or not you have to reserve some infrastructure to kind of change the chicken and egg problem historically of the infrastructure requirement to drive use cases and then back around. Again, I know that sovereign AI use cases for government entities and heavily regulated entities will be there.
I can't really underwrite is that two months, six months, one year, two years. It's certainly gonna happen. We're in the right place, but until then, we'll keep scaling the other side of the business and driving infrastructure investment in Canada.
Got it. I think Mirko touched on the possibility of securing additional power beyond the 800 MW. Can you give us a sense of where those incremental opportunities might come from, you know, geographically? How are you thinking about the capital commitment required relative to, you know, your leverage targets?
Yeah. Each province generates their own power. You know, not to say we're talking to everyone across the map, but we're gonna talk to everyone across the map ultimately. Capital requirements, you know, ultimately, we're not gonna do anything to jeopardize our 3.5 times target by 2027. Saskatchewan is leverage neutral once it's up and running, so the economics are quite strong. If we're in a scenario where there's just too much demand that we can't afford it all ourselves, then we'll manage that with third parties. I mean, we were obviously aware of, A, partnerships that we've already signed in other business lines, and B, what's happening in the U.S. and in Europe especially.
The ability to fund and come up with partners is not a gating factor for us ultimately. A gating factor is making sure that we land power and the revenue contracts at the same time, 'cause we're in the business of deploying capital, but de-risking the timeline as we deploy capital. Like in Saskatchewan, we're announcing construction plans and a contract when we already have the contracted revenue and EBITDA. We're just overall in this environment, looking to de-risk the overall CapEx spend.
Got it. Just thinking about the remaining, you know, MW, the remaining 427 MW that isn't yet contracted, should we think that this, you know, IRR threshold of 20% similar to Saskatchewan, is that what you're targeting? I guess, how do you think about the risk-return kind of trade-off?
It's a yes. That is what we're targeting. Look, there's a dislocation between the risk reward where we're getting a risk-adjusted return and at the same time, we already have contracts signed, so it's not a build it and they will come. We'll build it after we've already signed revenue contracts. We're not spending money, as you know, on the actual chipset. It is a very contractual business for us. Increasingly, as we build fiber and AI data centers, our business starts looking a lot more infrastructure-heavy versus competitors in Canada and the U.S.
How should we think about the ancillary revenue opportunities, you know, from Bell AI Fabric? I think Mirko described it as, you know, full stack Canadian controlled AI platform. How do you think about that revenue opportunity above and beyond some of the, you know, the core data center economics we've been discussing so far?
I think you described it exactly accurately. It's all upside for us. Whether it's fiber connectivity, which again is important in an AI world, obviously, lowest latency, makes sense. We are a fiber builder. We own fiber in Canada, that's upside for us. Cybersecurity, again, wildly important in an AI world. Bell Cyber is leading provider of cybersecurity in Canada. We'll wrap that around sales as well. Our Ateko business is a managed service, professional service, think consulting business for cloud migration, workflow management. Again, important for us to secure power and make things easy for the ultimate clients as we develop the full AI stack. Some of it we own and control with our expertise.
Of course, we're gonna partner with, you know, a Canadian LLM champion, Cohere, Coveo, hyperscalers, which is what we've done for 150 years. We bring our own specific expertise product by product, and then the overlap expertise is the fact that we can provide end-to-end solutions for our customers. Technology is different, but what we bring to the table with our 150 years of relationships and trust is exactly what's helping us secure power and deliver AI in whether sovereign or normal use cases in Canada.
I think zooming out for a second here, as we think about Bell Business Markets, stripping out AI Fabric, I think Ateko and Bell Cyber collectively grew north of 30%. I mean, how durable is that organic growth rate? I guess what's the pipeline or visibility like for those two businesses?
Yeah. Look, I expect it to continue to grow quite healthily. If you strip out the AI Fabric revenue in Q1, you know, it was enterprise business was still flat year-over-year, which on a relative basis is still quite strong. Fundamentally, that's because we're managing our core business, but we're also driving growth in Cyber and in Ateko. If you look at the macro trends, I don't think that cybersecurity is becoming any less important. I think, if anything, the complicated nature of our systems and the kind of ability and desire for companies like Bell and other bigger companies in Canada and U.S. as well to drive efficiencies off of platforms like Salesforce, ServiceNow, and hyperscalers is doing nothing but getting more important.
I mean, let's face it, we're all spending money on these platforms, and we need to drive the value out of those contracts, and Ateko helps you do that.
How should we think about the margin profile of Bell Business Markets as the mix shift, you know, mix shifts towards some of these higher growth solutions?
Yeah. I'm expecting it to be relatively flat. I mean, Bell AI Fabric comes in at pretty high margins. You know, Bell Cyber is solid margins. Ultimately, on the MSP side of the world, they offset each other. Ultimately, overall enterprise business, I expect to keep delivering margins.
Got it. Now shifting to the wireless business for a minute here. I think after, you know, after three consecutive quarters of year-on-year improvements in churn, postpaid churn reversed in the first quarter, which I think you guys attributed to just higher number, you know, higher switching, kinda given some of the aggressive competitive offers that were out there. You've also talked about optimizing your offer strategy for customer lifetime value rather than just chasing volume. Help walk us through the competitive dynamics that maybe you're seeing today, and I guess what gives you confidence the improving trend will resume over time?
Yeah. I do think I am still confident. We're still confident that our churn profile improves over time. You know, we all operate in the same market. If you look at our churn impact relative to our competitor churn impact, year-over-year, our churn performance was much better year-over-year than theirs. Look, that's a factor of lots and lots of blocking and tackling and to just overall drive customer experience, right? I mean, number of billing systems from 18 down to 2. Just making it right with the customer the first time. Like making sure that the truck well has the install and everything is working from day one. You know, overall blocking and tackling, customer experiences has just improved over time. Customer complaints have gone down. Our share of customer complaints has gone down.
Overall, you know, just a focus on driving a better experience for our customers. I mean, driving, you know, more and more bundled households keeps improving churn. Ultimately, you know, if you're selling fiber, we're selling other products also, but you're selling fiber, it is just a better technology. It's a better product. Over time, to be able to reduce our churn relative to cable operators, I mean, absolutely, I expect that.
Then on the fiber side, have you changed anything in your offer strategy, to kind of help reduce the churn as well, whether it be, I think, you know, contracts or something along those lines?
Thanks for the prompt. It is the first time we actually offered wireline contracts. You know, if we're 40% bundled, all wireline contracts are gonna help us on the wireless churn side as well. The other thing that helps us, you know, we used to sell mobility and internet separately. Now it's mobility and internet bundle, but content is also part of the bundle in Canada. A little less important in the U.S., I understand. In Canada, especially on the streaming service side, and we own Crave, you know, which has our own content, but HBO Starz Showtime content. The we call it MNIC, the Mobility, Internet, and Content bundle, also helps reduce churn on internet and cell phones.
For us, we have a cost advantage because we're the owner-operator of Bell Media, so the streaming service itself.
Now, shifting to mobile phone ARPU, you know, down 0.8% in the first quarter, an improvement relative to fourth quarter's decline. On the call, I think, you know, you know, Mirko Touched on in the fourth quarter that he thought it would be possible to show some, you know, moderation in ARPU growth, or show moderate ARPU growth rather by the time you exited 2026. Obviously, you know, recent pricing environment, probably makes that a little bit more difficult. I guess, you know, is that a 2027 story at this point in terms of, you know, ARPU inflecting back to positivity?
Yeah, I think that's right. Again, you know, April looks pretty good. It looks like Q3, Q4 of last year, but one month doesn't yet make a trend. You know, so we sat on the sidelines for part of the activity, but you can't sit out for the entire quarter. Ultimately, you just get pushed out by an extra two quarters and when you see total ARPU growth depends on what the industry does over the next few months. It's hard to pinpoint a specific month, but I'd call it 2027. Ultimately I'd say on the contracts that were signed in Q1, kind of fine.
There was a bit more bring your own device activity than contracted activity. There's a bit of an impact on your ARPU obviously, 'cause that's just the math of it.
Yeah.
The more BYOD you have, you don't actually spend the COA and our wireless margins actually went up. There's a little bit of a disconnect between your ARPU performance and your margins. Again, long-term health of the industry, BYOD should remain relatively flat to what it had been second half of last year.
Is it a similar timeline as we think about wireless service revenue inflecting back to positivity?
Yeah, probably in around the same timeline. You know, overage and usage, tough to know if it's flattened out year-over-year. The trend is better. We'll see. I mean, the biggest impact obviously is the what you're signing folks up to on a monthly rate.
Got it. Makes sense. As we think about industry growth, I think you and your peers have described a maturing market, right? Maturing Canadian wireless market growing at low single-digit rate, obviously driven by lower population growth, but still steady penetration increases. How do you think the industry's volume, you know, how do you think about the industry's volume growth from here? Do we need to see policy changes out of Ottawa before seeing improvements in subscriber growth?
No, I think you'll continue to see subscriber growth. I don't think it's gonna be what it was fiveyears ago when immigration, new to category, new to Canada were at all-time highs. You know, our handset penetration has lagged the U.S. and Europe for the last 30 years. There's no real good explanation for it, but we've just been behind on the curve. The increased penetration will continue to happen over time. Again, Canada in the medium term is gonna be a net immigration positive country. You know, if you look at our history, that's certainly driven a lot of population growth. It's just not over the next 2 years, so we're not baking that into the model. Over the medium term for sure it's gonna be a driver.
Okay. Lots of focus on direct-to-device these days. You mentioned excitement about the AST SpaceMobile partnership from a direct-to-device connectivity perspective. I guess, how do we think about the timeline for commercial launch? Could this be a meaningful churn reduction tool as well over time?
Yeah, I think it's all the above type benefits. I mean, I do think it's churn reduction and I think it's overall just a positive for consumers. I mean, I appreciate that in Canada it's a little bit different than what telcos in the U.S. are thinking about when they're confronting LEO. For us, it's a positive in terms of, as you say, churn reduction and just an added value service, right. Whether you live in a bit more remote area, whether you live in urban and you have a cottage that's outside of wireless coverage, I mean, we look at it as retention, acquisition and ARPU increase as well.
Ultimately it is just a good product and longer term, we'll have to see how that actually shapes our ability to reduce some of our legacy copper footprint along the way. For the shorter term, I think it's just a benefit for consumers, which benefits us.
Got it. Shifting gears to the broadband business, you added close to 43,000 residential fiber to the home subscribers in Canada in Q1. Combined with Ziply, you know, we're close to 50,000 net adds. At the same time, the Canadian fiber build is slowing, but how should we think about the trajectory of internet loadings from here? I mean, how do you balance the strong penetration economics of your existing footprint against the slower industry growth backdrop?
Yeah. Our fiber footprint continues to drive net adds, right? I mean, there's 43 in Q1, there was 45 the quarter before, 48 the quarter before that. Fiber continues to win market share. Wherever we have fiber, we, you know, we capture 50% plus of the market. You know, over the last three, four years, there are a couple million new homes that aren't fully penetrated. I think you see just natural continued ramp up. And ultimately we have 75% of the wireline footprint in Canada, it'll pull forward wireless for us. You know, it certainly isn't fully penetrated and frankly, I don't really see much of a ceiling. It's just a better technology.
How would you describe or what's the latest in terms of the competitive environment in your wireline footprint? Any change?
I'd say fairly stable, right? I mean, our competitors came out with internet revenue growth that seemed pretty good for them. Our internet growth in Q1 was over 2%, 2.2%. It's a pretty good market.
Great. Shifting gears to the U.S. fiber market, I think the expectation is that subscriber momentum will accelerate as the construction ramps from here. You're focused more on the 2027 and 2028 financials. Maybe help us bridge the gap between the slower near-term subscriber trajectory and your confidence or your conviction in the 2027, 2028 ramp. I guess, what specifically changes in the back half of this year? I guess, how should we think about the cadence of passings and penetration from here?
No, look, you're spot on. Build engine is the biggest driver of value for us at this point. 1.4 million fiber locations passed. Looking to get to 3 million by the end of 2028. The biggest driver of value for us in the U.S. is actually building out the fiber footprint. I mean, it's yearly consistent in terms of being able to drive penetration of new fiber footprint. The biggest driver for us is literally ramping up that build engine. As you say, that'll continue to ramp up through 2026, especially as we leverage the partnership with PSE, continue to ramp up in 2027 and hit our 3 million homes by the end of 2028. Again, as soon as you build out fiber, the data and internet subscribers follow from there.
Yeah, again, reiterating what you just did, the 3 million by 2028, 8 million longer term. From a supply chain or logistics or, you know, obviously permitting is always a big issue in the U.S. Any snags there or if things are progressing as anticipated?
No, as you say, permitting. I mean, it's blocking and tackling, and it's permit community by community by community. If you look at the permits they have, I mean, they're kinda double what they had last year. They've added headcount on the construction side. It's just ramping up the build side of it. I mean, we help bring them some scale in terms of access to suppliers and equipment, so no real issues on that side. It's just how do you ramp up even faster.
Now shifting gears to the 2026 guide on financial guide. You guided to consolidated revenue growth of 1%-5%, EBITDA growth of 0%-4%, and your CapEx was increased to take to contemplate the Saskatchewan build. You know, after one quarter, reiterated all your guidance. I guess, where do you see the most, though, variability within the guidance range? Is it the wireless pricing environment, the pace of AI Fabric, revenue recognition, something else?
Yeah, look, we're confident in our ranges and our guidance at this point. I don't really see a big impact either way. I do think Bell AI Fabric is probably accelerated a little bit faster than when we talked about it at our Investor Day. That's a good news story. Frankly, the more that we can rip out spend on legacy networks, legacy product, legacy processes, and reallocate capital towards fiber or Bell AI Fabric or more digital transformation, I mean, we're going to take advantage of that opportunity. That's what we're looking to do in 2026. Now, obviously, that's has a bigger revenue, EBITDA, free cash flow impact 2027, 2028. Again, if you can drive value now and capture some more, absolutely, I'm looking to drive that value.
You know, sensitivity of the model, wireless prices, obviously not a surprise in market pricing, would be a variable. There's nothing that makes us back away from our current guide.
As we think out to the 2028 financial targets, I mean, does the upsized AI-powered solutions target of You know, CAD 2 billion relative to CAD 1.5 billion just from Saskatchewan. I mean, does that incremental growth change how you're thinking about the multi-year EBITDA range? Or are there other kind of offsetting factors that have availed, that have emerged since?
Yeah. Look, Saskatchewan alone, we upped our guide after announcing one contract. Our free cash flow 3-year CAGR, we upped it from 15 to 16.5% on the back of one contract. Look, as we continue to drive capture of demand that's already out there and sign contracts within the 73 MW that we've already talked about, that's just within our plan. We'll fund that. Look, if we can grow it above that within the CapEx envelope, we'll do that. If there are other, you know, 100, 150 MW opportunities out there, we're certainly chasing them down. Let's face it, we'll be transparent when it happens. We'll announce it, and if we change the guidance from there, we will. We'll certainly be transparent about the impact.
All right. Well, we'll be keep an eye out. At the Investor Day, you outlined CAD 1.5 billion cost savings target by 2028 with incremental efficiency beyond that, driven in part, I think, by, you know, higher self-installs, the 3G network shutdown, IT platform simplification. Can you give us a sense of, I guess, where you are on that journey toward the CAD 1.5 billion and how much has been realized to date, You know, some of the bigger buckets yet to come, and then just maybe help, you know, in terms of phasing over the three-year period?
Yeah. I'd say we're just over halfway, right? We have pretty good line of sight into this, and it's the laundry list that you talked about, and you know, it's a list of 100 other things, ultimately all within the how do we just rip out manual work, simplify our processes. It's more cost efficient for us, it's better for the consumer, right? As we think about how do you provide better customer experience, better customer service. Yes, it reduces return, in this world, actually leveraging technology means it's more cost effective and cost efficient to deliver a better service to the customer. It's kind of a win on all fronts there.
Largely, it's leveraging technology, ripping out manual work and meeting the customer where they actually wanna meet with you. Just as you say, self-installed digital capabilities.
With, you know, thinking about overall capital allocation, you guys have been pretty consistent in terms of your framework, which is to strengthen the balance sheet, fund strategic priorities, and return capital through a sustainable dividend. We just talked about some of the simplification you're doing from a cost effort, but you also, you know, sold MLSE more recently, right to Land Mobile Radio divestiture. At the same time, you have, you know, growth initiatives in terms of, you know, CAD 5 billion of CapEx this year because of Saskatchewan, but also Ziply.
Maybe help us think about, you know, from your seat specifically as the CFO, how do you think about the tensions between, you know, accelerating investment and high return growth opportunities while, you know, maintaining that pace of deleveraging towards 3.5 by the end of 2027?
The good news is that there actually is tension here because we do have significant growth opportunities. If there was no growth opportunity, it'd be very different, the discussion. Ultimately, look, we drew a line in the sand. We should be deleveraging. We will be deleveraging. 3.5 by 2027, we're gonna hit that target.
On the growth side, we still have the ability within our CapEx envelope to fund growth, whether it's fiber, digital transformation, digital media, or AI fabric. As you saw with the Saskatchewan announcement, it's net leverage neutral very quickly, and we increase the proportion of our revenue and EBITDA that's infra-based and driven by contracts. There is an ability to fund more AI fabric and still manage the balance sheet.
Fundamentally, we'll hit the CAD 3.5 and there are plenty of structures out there to fund incremental growth if the demand and contracts are right.
Are there any other non-core assets you've considered divesting to accelerate the path to three and a half by 2027?
Look, the capital allocation is a tougher game, but it's a simpler game in a world where you have attractive opportunities, right? The capital allocation, as we talk about it, tends to be CapEx focused, but really it's OpEx as well as assets. Like what we've seen, we announced CAD 7 billion of asset sales not that long ago. We're CAD 6.6 billion of the way there. There are a couple other assets that we think we might not be the best owner of, and that we can redeploy that capital, pay down debt and fund our growth opportunities.
Well, Curtis, I think that's a great place to end it. Thank you so much for joining us today, and thanks everyone.
Great. Thanks for your time.