BCE Inc.

Good morning, ladies and gentlemen. Welcome to the BCE Q1 2019 results conference call. I would now like to turn the meeting over to Mr. Thayne Fotopoulos. Please go ahead, Mr. Fotopoulos.

Thank you, Laurie. Good morning, everyone. With me here this morning, as usual, are George Cope, BC's President and CEO, and Glenn LeBlanc, our CFO. As a reminder, our first quarter results package and other disclosure documents, including today's slide presentation, are available on BCE's Investor Relations webpage. Exceptionally this quarter, because our annual general shareholder meeting is taking place starting at 9.30 this morning, we'll be ending the call earlier than usual at 8.45. However, before we get started, I want to draw your attention to the safe harbor statement on slide two. Information in this presentation and remarks made by the speakers today will contain statements about expected future events and financial results that are forward-looking and therefore subject to risks and uncertainties. These forward-looking statements represent our expectations as of today and accordingly are subject to change. We disclaim any obligation to update forward-looking statements except as required by law. Factors that may affect future results are contained in BCE's filings with both the Canadian Securities Commission and the SEC and are also available on our corporate website. With that, I'll turn the call over to George.

Great. Thanks, Nate. Good morning, everyone, and thank you for joining us. I'll just begin with a quick overview. Our revenue momentum did continue in the quarter with 2.6% growth. and Bell, as you've seen, reported strong EBITDA results of 6.9%, driven by our revenue growth and the IFRS 16 accounting changes. Importantly, though, we had positive EBITDA growth for all Bell operating units, excluding the impact of IFRS 16. The company enjoyed strong financial results from wireless and excellent wireline broadband retail subscriber growth, with 44,000 combined retail internet and IPTV net ads up 37% year over year. We had positive top line growth across all wireline units producing 1.8% year over year growth. Bell had another strong quarter and second quarter of positive TV advertising revenue growth and cost savings which drove material EBITDA growth year over year. the strong organic results in the quarter and the declining capital intensity drove 20% year-over-year increase in free cash flow. Given it's our annual shareholders meeting this morning, it's notable that overall the company enjoyed its 54th consecutive quarter of year-over-year EBITDA growth, or 13 and a half years of uninterrupted consistent EBITDA growth. Turning to wireless, On the growth, total growth activations for us were slightly up year over year. Postpaid net ads were 50,000 in the quarter, and the reduction year over year mostly impacted as the federal government contract starts to mature out in our net ads. We had our best quarter postpaid churn in 15 years, and in fact, the Bell branded churn was under 1% at 0.98% in the first quarter. and certainly I don't ever recall that happening on the wireless side for us. The blended ARPU increased 1.2% year-over-year to 6735, although I think it's important I call out if you exclude the government contract and the shutdown of our CDMA network early on in the quarter, the blended ARPU for the animals was actually up 0.8% year-over-year. Prepaid gross ads continue to grow, lucky successfully growing in the market. Gross ads up 56% year over year and an improvement of 50% year over year in our net customer losses on the prepaid side. We also harmonized our prepaid deactivation policy to 90 days across all brands, a much more conservative approach to our churn and consistent with our other brands across mobility. Really excited this morning to also announce the Dollarama has been appointed as a distributor of our Virgin and Lucky Mobile prepaid services. That's a key retailer in Canada with over 1,200 locations who's entering the wireless business for the first time and is an exclusive distribution agreement for Bell's prepaid products of Virgin and Lucky Mobile. Just turning to the wireless network, we continue our journey of providing network leadership, not just in Canada, but from a global perspective. Our wireless network generally now is recognized to be roughly twice as fast as the speeds available in the United States. We actually will exit the year with 60% of Canadians have accessing speeds of up to 750 megabit speeds with LTE advanced technology. And some of our markets are actually going to have download speeds that can exceed one gig. I want to remind investors again that our fiber investment and wireline will continue to pay dividends for years for us on the wireless side as we now have completed much of the build for the fiber to cell sites as we begin the journey towards 5G. Approximately 90% of our capacity today utilizes fiber backhaul and that will be obviously core to providing the type of speeds we're all talking about and services and latency reductions and all those things we'll see with 5G in the coming years. Our capital intensity continues to be low. We continue to believe we'll be approximately 7% this year, even with this network leadership that we have in the marketplace. Turn to Wireline. It was a really positive quarter for us. Our strategic investments are beginning to certainly pay dividends for us. Our retail internet net ads were up approximately 25% year over year. We added 18%. saw 18% growth in our fiber additions in the quarter with 51,000 new fiber additions. And all of our fiber footprint today includes an offering of 1.5 gig for our clients, which I don't think you would find in any markets in the world, quite frankly. And so this footprint advantage that we're building over the long-term positions is very well for both business and consumer. IPTV was certainly quite positive up 54% year-over-year with 21,000 ads, and that reflects our strategy with our IPTV product and our Alt TV product, and also is helping us pull through internet clients. Retail satellite ads were lower, net ads losses were better year-over-year, which of course has helped from a revenue and cash flow perspective. Overall, I would say that our investments are truly beginning to provide us some product leadership in the marketplace, and when you start to see some double-digit growth for us year-over-year in net ads, that's obviously a very positive sign for our company. Turning to media, really nice to see a second quarter in a row of strong results there. We saw viewership of our English specialty TV properties up 27% year-over-year. Although not in the quarter, we just could not call out the incredible viewership we're seeing on Game of Thrones and the benefit that's having to our Crave product in the marketplace with the largest specialty audience ever in Canada at 3.3 million viewers one of the evenings, and who knows, maybe we'll surpass that as that incredible series comes to its conclusion. TSN's had a very positive year and a positive first quarter. And as you can see, one of the things we called out is ratings, for instance, on the Raptors for the entire year were up 50%. And, of course, this quarter, if we get a good playoff run, we're a beneficiary of that as ratings are up dramatically over previous seasons. I think a really important call-up for investors is our top 20 advertisers spent about 14% more in the quarter than they did a year ago. And we, as one of our other peers mentioned, are seeing some underperforming. some strong revenue growth from clients moving back into some of our media properties. It's our third consecutive quarter of year-over-year advertising growth and I will tell you that this funnel for Q2 looks very strong indeed in terms of media. With that, let me turn it over to Glenn.

Thanks, George, and good morning everyone. Before I begin, I would like to remind everyone that starting this quarter, We are reporting financial results in accordance with IFRS 16 accounting standards for leases. Prior periods were not adjusted. In addition, we made another reporting change with our operating results of the source, which are now fully included within our Bell Wireless segment as we primarily manage the source as a distribution channel for our wireless business. For comparability, we have restated our 2018 quarterly Bell Wireless and Wireline segment results to reflect this change. With that, let's move to the summary highlights of Q1 on slide 10. We delivered a strong quarter consistent with plan, reflecting continued healthy wireless financial results, further broadband market share growth, improved wireline business performance, as well as higher year-over-year TV advertising revenue. This all contributed to total revenue growth of 2.6%, which together with the favorable impact from IFRS 16 drove 6.9% increase in adjusted EBITDA. Normalizing for IFRS 16 consolidated adjusted EBITDA was in line with our historical average growth rate of 2% to 4% reflecting year-over-year increases in all three Bell operating segments. Consistent with the growth in EBITDA and our net mark-to-market gain on equity derivative contracts resulting from an increase in BCE share price, in the quarter, net earnings increased 11.6%. However, adjusted EBITDA was down 3 cents versus last year, mainly due to lower year-over-year tax adjustments and incremental depreciation in interest expense recognized because of IFRS 16 accounting. Lastly, free cash flow, as George mentioned, grew 19.6% on the flow through a strong EBITDA growth and lower capital intensity ratio of 14.8% that reflected slower construction activity this winter compared to last year, as well as lower overall planned spending for 2019. Let's turn to the Bell Wireless results on slide 11. Total revenue was up 4.5% and this was a result of improving service revenue trajectory that benefited from continued strong year-over-year subscriber base expansion and a higher sales mix of premium handset devices that drove a 7.7% increase in product revenue. In terms of operating profitability, wireless EBITDA increased 11.6% in Q1 on the flow-through of healthy revenue growth and lower year-over-year operating costs, resulting from the adoption of IFRS 16, which drove a 2.8% increase point margin increase to 42.9%. Another highlight in the quarter that George mentioned was the capital spending front. Our wireline fiber investments continue to benefit our wireless business. That is why you're seeing a historical low industry best wireless capital intensity level of approximately 7% for Bell Wireless, which is contributing to a year-over-year reduction in BC's overall consolidated capital intensity ratio. Let's move over to wireline segment on slide 12. Total operating revenue up 1.8% reflecting positive top line growth across all main wireline units for the third consecutive quarter. Wireline residential revenue increased year-over-year on the combined impact of industry-leading retail broadband subscriber growth and the flow-through of annual rate increases that together contributed to growth in total internet and TV revenue of 4%. Bell Business Markets also delivered positive revenue growth in the quarter, driven by higher year-over-year spending on IP broadband connectivity and business service solutions by large enterprise customers, as well as strong year-over-year data product sales to the government sector, all of which was reflective of a growing economy and increasing customer demand for fiber and bandwidth. With the steadily growing broadband scale driven by our fiber investments and TV product innovations, improved business market results, and the impacts of IFRS 16, wireline adjusted EBITDA was up 2% year over year. This maintained our industry-leading margin at a very strong 43.7%, providing ample operating leverage to support our approximately $2 billion in planned broadband capital spending this year. Moving over to slide 13, Bell Media's financial results were consistent with industry trends this quarter, reflecting continued momentum in TV advertising and disciplined execution on cost control. Although overall advertising was down 1.3%, this was due to continued market softness in radio as TV advertising increased 1% in aggregate, reflecting stronger conventional entertainment specialty and news specialty performance. In fact, specialty TV excluding sports was up 11% year-over-year, a strong result driven by higher advertising demand following a shift in spending last year to a main broadcaster of the Winter Olympics, leading content in rating as well as improved pricing flexibility. Subscriber revenue was essentially flat year-over-year, increasing 0.1% as growth in our direct-to-consumer crave video streaming service was largely offset by ongoing pay and specially TV subscriber declines. And with respect to operating profitability, Bell Media led the industry in Q1 with a very strong adjusted EBITDA growth of 26.9%. This was driven by a 6.3% reduction in operating costs that reflected the positive benefit of IFRS 16 as well as the programming and production cost containment initiatives. which more than offset the higher costs related to ongoing Crave content expansion. Let's move over to slide 14, details the components of adjusted EPS for Q1, which was in line with plan at $0.77 per share, down $0.03 compared to last year. Higher adjusted EBITDA growth drove $0.12 of growth, but was effectively offset by the year-over-year step-up in depreciation and interest expense from the adoption of IFRS 16. Overall, IFRS 16 had approximately one cent of unfavorable net impact on EPS in the quarter. Also negatively affecting adjusted EPS in this quarter was the lower year-over-year tax adjustments and a reduction in the equity income that we pick up from our various minority interest investments. Let's turn to free cash flow on slide 15. We generated $642 million of free cash flow in Q1, up 19.6% over last year, driven by strong EBITDA growth and lower year-over-year capital spending. This result included a favorable non-cash impact from IFRS 16, net of the incremental imputed interest component on the newly designated IFRS leases as a portion of the lease payments relating to the principal is now recorded below free cash flow in financing activities. Overall growth in free cash flow this quarter was moderated by a decrease in cash from working capital driven by the timing of AR collections as well as higher severance paid resulting from payments related to management workforce reductions undertaken the end of 18. Pension funding and cash taxes remain relatively unchanged year over year in line with our guidance assumptions for the full year of 19. To wrap up on slide 16 BCE's fundamentals and competitive position remains strong as evidenced by our Q1 financial results with positive momentum across all our wireless, wireline and media operations. So with a strong start to the year and no changes in operating outlook I am reconfirming all of our financial guidance targets for 19. On that, I'd like to turn the call back over to Thayne and the operator to begin the Q&A.

Thanks, Glenn. So before we start the Q&A, I want to remind participants our time constraints this morning, so please limit yourself to one question and a very brief follow-up if you need to, so we can get to as many of you in the queue as possible. So with that, Laurie, we're ready to take our first question. Hello?

Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your hands up before making your selection. If you have a question, please press star 1 on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star 1 at this time if you have a question. There will be a brief pause while participants register for questions. Thank you for your patience. The first question is from Richard Coe from JP Morgan. Please go ahead.

Hi. Given the lack of spectrum purchase in the most recent auction, do you feel comfortable with your capex spend both on the wireless and I guess wireline side to support the networks and the migration to 5G?

Yeah, we're very comfortable. It actually doesn't change our capital program really in any way that investors would say would change our capital intensity. We had actually modeled in a high likelihood that we wouldn't participate in the auction consistent with two of our peers in the U.S. based on the fact that doing some cell splitting that we know we need to do in anticipation of 5G gives us the incremental capacity and we ran that math against this particular spectrum band. It wasn't for us a cost effect of the purchases versus doing cell splitting that we knew we were going to have to do. And of course, we probably beat a dead horse on this, but with the fiber piece in the position in the marketplace already, that helps us as well from an intensity perspective. So feel really quite positive about it. Obviously, the 3.5 spectrum auction is much more strategic for us. As I think all of our peers have mentioned, that's a core band to the rollout of 5G. We expect that auction in Canada next year. And, of course, that deployment of 5G in terms of the real evolution path of 5G will begin at that point. And if the auction happens next year, we'll probably see it in the marketplace pretty quickly after that.

Great. Thank you.

Thank you. The next question is from Mayor Yeagy from Desjardins. Please go ahead.

Thank you for taking my question. So, nice improvement in wireless pricing. First, I just wanted to, if you can provide us a level of detail on the adjustments, first on the government contract adjustment impact and the reclassification of your subscriber base in prepaid and postpaid that you did in the first quarter. and how those affected your results. But apart from that, again, improvement in the year-on-year growth net of those, what are the main reasons for this improvement, and is this sustainable in your view?

Yeah, so in terms of the adjustments, I did call out the overall impact is we still had underlying 0.8% ARPU revenue growth. The changes were obviously by taking a more aggressive stance on turning prepaid subs off in 90 days. We took some zero-based prepaid subs out, which obviously gives actually investors a much more transparent way to see what our true ARPU is. And then we had, there's a note in there, we had some subs that came off the network because of the shutdown of CDMA. They weren't really generating any revenue there. at all either so in one sense you could say it's a cleaner outlook on in terms of the our approval we'll get the real run rates year over year now going forward we'll make sure we keep everybody informed but as we did in this quarter it was really 0.8 underneath it all uh and then in terms of overall i think one of the things probably we are definitely seeing a better mix of the bell branded uh post page uh versus the version traditionally that mixes you know it swung a little bit in our favor uh the bell churn rate being as low as we talked about And that tends to be our heavier users, a clientele with a lower term profile. I think that's it. We continue to grow on the business side. And I think probably the pace of acceleration of uses that we'd seen a few years ago, when that obviously stalled out somewhat last year, there was an impact on the year-over-year growth. Now we haven't really seen the buckets increasing yet another significant amount. from that period. So that's really what's underlying the results. You know, we're really pleased with the prepaid gross ads, really happy with this new distribution and feel generally fairly positive to the start on the wireless side.

George, also on the wireline, why did you decide to remove the wholesale subscribers from your subscriber base? It's still 15% of the subscriber base total. What drove this decision at this point in time?

Yeah, it's interesting. It's one of the things we did the last year, if you watch. I was very, very transparent with the investing community in talking to our retail subscriber base. The revenue will always be in our revenue. Wholesale subscribers are not strategic for us. It's not a market we approach. It's not a market that we have, frankly, any interest in pursuing other than regulatory requirements. The ARPU from that base is literally 33% of what it is for retail. And so to compare that net ad to any of our actual performance from our perspective in the whole industry creates bad behavior in terms of creating subs that aren't of value for investors. And so from our perspective, we'll be always reporting retail net ads consistently. going forward. Of course, it's always in our revenue numbers in Wireline, so it's there, but the subscriber information. And finally, given so immaterial from a revenue perspective, we quite frankly don't want our competitors to know what's happening in the wholesale sector through us.

Okay, thank you.

Thank you. The next question is from Philip Lang from Barclays Capital. Please go ahead.

Hi, good morning. Good quarter. I just wanted to ask you a little bit more on the overall wireless market. You know, both BCE and your peers have reported so far, you know, all the peers who have reported so far, a bigger seasonal slowdown in the wireless activity. So just wanted to get your thoughts on, you know, the reasons behind that. We certainly did observe fewer promotions relative to the spillover that we saw last year. But your policy turn is also lowest in 15 years and seems like consumers are holding onto their smartphones longer. So I was wondering if you do see an overall less active wireless market in general for 2019 as the industry appears to be focusing more on retention relative to gross ads and as consumers are less excited by release of new handsets.

Yeah, I mean, there's a few things and it's hard. It's one quarter into the year. I mean, we all know first quarter is seasonally low, but of course what you're asking is on a relative year-over-year basis, which is the right way to go at the question. A lot of our impact is the federal government contract in terms of some of our net add reductions that you've seen year over year. And I think there is some commentary for sure that the life of the handset is being extended. And as the life of the handset extends, of course, that helps us from a term perspective. And also, we fundamentally believe there is no network like ours other than maybe one other country in the world. And we think when you shop for a network, There isn't something that's faster or better in Canada, so we think is why we're seeing some of the churn results. But we'll have to see how the entire year unfolds going forward. I think what I liked about the quarter, the underlying metrics for value creation of churn and ARPU, granted normalized out at 0.8. moved the right direction and in the old accounting world, which we, you know, which is three years ago now, uh, you know, and the true pure service revenue growth side, you know, it felt pause stronger than it's felt in a while as well. So let's hope that's an underlying trend. We'll find out as the quarters evolve.

No, that's very helpful. Um, on the, on your, our two points, um, you know, certainly, uh, we were positively surprised by the turn excluding the CMA and government contracts, but, um, Should we assume that growth for the remainder of the year from this point on? And also, how many government subs are left to be migrated for Q2? Thanks.

Well, the second answer, all I'll say is not a lot. That's not very material, but I won't give you the number. But there's not a lot left to go. We've got one more quarter, and then it really almost normalizes out for the investing community. And then in terms of, you know, we'd had an objective a couple years ago wanting, we thought we might see at least CPI ARPU improvements. We didn't see that last year. I think it's a reasonable expectation we might get to that this year. That's what we're hoping on. We'll see how it feels out. If you look at our first quarter on our reported ARPU, that's almost roughly where we were, I think. And so let's see what happens the next three quarters. You normalize that or to 0.8, so obviously anything that gets us 0.8 to 1% would be positive. So I don't want to give a forecast, but it felt just a little better than it felt last year. That's all I'll say.

Great. Thanks very much. Thank you. The next question is from Simon Flannery from Morgan Stanley. Please go ahead.

Thank you. Good morning. George, some good Internet numbers, 51,000 fiber to the home. Could you just give us a little bit more color on what's going on in the five markets that Where is penetration in some of the markets you've had open for a little while, and what's the opportunity as you continue to build out those markets, and anything you're seeing on usage on those customers? Thanks.

Yeah, I think the positive thing we're seeing on fiber is the longer we're in these markets and the word of mouth, and frankly, if you're in some of our markets on the Canadian side, we're so consistently advertising the benefits of fiber. I think we are always now in the buying decisions. and I think that's what we're starting to see the benefit of. I think our alt TV strategy, which is a non-set top box TV strategy with two streams, as I've said on the call, significant discount to traditional TV, but helps us pull through the internet, are two things that we're seeing. When we get underneath our results, say in southern Ontario, we think we captured literally 60 to 70% of incremental household revenue in the quarter year over year. And we think that's overall on the wireline side. And we think that really comes from slowly but surely seeing some momentum on the fiber side that gets us into that objective of trying to get to that one out of two customers moving to our internet service. And then we'll drive it from there going forward. The other side I should mention, which I haven't, because you're asking the question on fibers. On the business side, I think one of the reasons we continue to see some of the results from our business markets team and they were handing me some notes yesterday on this as well that the client base, the corporate client base is really now much more interested in fiber for their businesses. National retailers in Canada, not just in urban markets, we're doing some rural builds for fiber for very specific clients. The competitive dynamics in retail today, in banking as well, though there are structural changes going on in banking, many of the branches are upgrading themselves for technology-friendly solutions for clients. And so we're starting to see some underlying demand for fiber on the wireline business side that I will tell you two or three years ago would have been us trying to convince the client. Now it's us trying to manage some of that demand with the client. So We think that may be giving us some of the reasons for the stronger growth that we've seen on wireline business. The first time we've seen it, as many of you on the call know, for years and years and years. And anytime that's positive, that's a big positive for our wireline business.

Great. Thank you.

Thank you. The next question is from Vince Valentini from TD Securities. Please go ahead.

Yeah, thanks. Let me see if I can give Glenn a bit of air time here. Two sort of questions for you, Glenn. The source impact. It looks like Q1 last year, wireless was restated down 11 million when you include the source. So can we assume there is a normal seasonal loss that would be buried in your wireless EBTA reported for Q1 of 19 as well? And then on top of that, can you give us any more granularity on how much IFRS 16 impacted the wireless division? How much of that growth was just from the accounting change versus core?

Good morning, Vince. On your first question, the answer is yes, you have that approximately right on the decline that would have been resulted from the source. Just to remind everyone, as I think you picked up, we restated last year, so comparability for each of our segments is there. On your second question, IFRS 16, when we provided the guidance on the last call, I reminded everyone, and I did it again today, that the 5% to 7% guidance we provided on EBITDA normalized for IFRS 16 is more like 2 to 4, so there's a 3% year-over-year value to what IFRS 16 is driving into EBITDA. If I look at it by segment, about a third of it relates to our media segment, a little less than half, 45% to our wireless segment, and then 20 to 25% of that is in your wireline. So in any given quarter, But that 3% is going to move around a little, Vince, but across the year it's at 3%, and that's how it relates to each segment. Thank you. You're welcome.

Thank you. The next question is from Jeff Van from Scotiabank. Please go ahead.

Thanks, and good morning. I'm going to focus on wireless. The nice acceleration in the service revenue for wireless, this quarter. I know there's a lot of factors that drive it, APU, ARPU, subscribers, but if we just focus on service revenue, grew 3.6% this quarter. Last quarter was 2.2%, and so a really good start. And I'm just wondering if you can just provide some color on what you think is really driving this inflection point from last quarter to this quarter.

So, Glenn, why don't you talk about the one item? There is the one item year-over-year on the wholesale adjustment on the wireless side.

Yeah, so last year, that's an item that occurred in 2014, Jeff. So it's in the results. Excuse me, 2018. So it's around $14 million that we lapped. So, you know, obviously that results in some improvement there, George.

Yeah, so just to remind everyone, there was that decision a year ago where we had to go back. So there's about $14 million there. But even underlying that, the ARPU growth that I talked about, we saw, and now it's just a function of the competitive marketplace. The other one for us overall on service revenue growth, we had always had this, if you've heard me talk about it, we've had this negative prepaid revenue growth. And that turned for us at the back half of last year, and of course it's turning for us now. Even with the negative growth in the quarter, of course we're seeing better ARPU on prepaid because the product's a little different and much more focused for us. So If we can take for our business what's been a negative story and have it positive like it was the last half of last year, that just overall, you know, is an overall contribution to service revenue growth. And so we have seen, you know, some, for me, some confidence building around a little bit of underlying strength there on the overall service revenue. Look, it's the first quarter. We have a lot of work to do on the year, and it's a pretty competitive market, but we'll take the first 90 days and put it in the bank.

Okay, great. Thanks.

Thank you. The next question is from from UBS. Please go ahead.

Great. Thank you. Can you talk a little bit more about the competitive environment you're seeing in broadband and video? And you mentioned your all-TV product, but how that's differentiating you from the others? And also, as some of the competitors expand the rollout of these new services, are you anticipating a change going forward this year?

Yeah, I think there's a lot of things we are doing on the media side and on the TV side to adjust to the consumer buying behavior being different and the demand for the products being different, right? I mean, if you look on the Bell Media side, Crave, you know, in Canada, it's quite frankly become quite a success story. We're seeing top-line revenue growth. We've got the business EBITDA positive, and we're seeing positive EBITDA growth and some really nice subscriber growth on it. given that we've combined it with all the original series of HBO, etc. So that's one of the strategic tenets of what we're doing on the change of viewer behavior. All TV is exactly recognizing that there's a client base that's interested in some of the content, not the full TV packages we've seen in the past. Don't require the set-top box. We don't have to do the truck roll. It's two streams, so really it's a TV... streaming services meeting all the TV license requirements in the marketplace significantly less expensive than traditional TV, but of course restricted by the number of streams. And of course, you need a broadband connection for that. And we really are seeing that. And when we talk about the type of subscriber growth on IPTV, a lot of that is also being driven by the strategy around all. So those are the two key things I would say we're doing in trying to address the change in consumer consumption of media content.

Thank you. Thank you. The next question is from David Barton from Bank of America. Please go ahead.

Hey, guys. Thanks for taking the question. Just as you lap the government contract from a subscriber standpoint, could you talk about what the potential lift to the ARPU comparisons would be as that kind of cycles through the base?

Well, I think as George mentioned in the previous remarks that we think that after we lap the government contract, CPI is probably a good indicator of where we'll be. the government contract is playing less and less a role as the number of subscribers are dwindling now, so less of a role of a normalization of the APU. So 1.2% reported this quarter, 0.8% if you normalize for the subscriber and government adjustments. I think as we look forward, somewhere in that CPI, 0.8% to 1% number seems reasonable.

The analysts will know this. One, of course, you've got to watch in our case, too, is because prepaid... becoming a more successful part of our business, it's a weighted average issue on the blended ARPU. Of course, what everyone on the phone really cares about is the absolute service revenue growth. So, you know, if obviously prepaid does better, it can have an impact on that blended number. But we'll be obviously going forward transparent on that so that you really can see the pure service revenue growth number. To me, the biggest strategic issue for us on the wireless side was getting a negative growth story to be positive on prepaid. And secondly, see some stabilization on the post paid our food side and those two things seem to be just, you know, holding on. As I said, it's the first quarter got three to go and Thank you so much.

And if I can just follow up the I think part of the strategy of getting into pre pay was to try to, you know, Take those subscribers and groom them into the post paid basis there. If there's some part of that strategy that we saw kind of support the post-paid subscriber growth in the quarter?

Yeah, we saw a little bit, actually. It's true. We did see some little pickup over the previous year, and of course, we've got a long way to go to get our base at the size and scale one of our larger peers. But hopefully, if we do that, we'll see some of that migration as well.

Thanks so much.

Thank you. The next question is from Kim Casey from BMO. Please go ahead.

Thanks, George. Just wanted to return to the Spectrum auction topic for a moment, and obviously you've set expectations that 3.5G is core and strategic. What are your expectations, if you're allowed to share them, on how the ICID will approach the induction spectrum and the use that will be available to you of that going forward? Thanks.

Yeah, so the induction spectrum, just for the investors who aren't aware of that, is 3.5 spectrum that we have a significant holding of, as does our partner at Inuksuk Rogers has a significant holdings. The ISAT folks, we're going to say Industry Canada, the ISAT folks will come back shortly and tell us how much of that we are able to hold and how much of that we need to return for the purposes of the auction. The amount that we're Allowed to hold of course will then use for our mobility business combined with what we acquire in the auction So we need clarification on what they're asking us to return and that should be Obviously has to come ahead of the auction and we don't actually have that answer yet And when we do we'll share it with the street right away But we've obviously filed because we are a user of that 3.5 spectrum for some of our fixed business we have filed and obviously asked that we're able to maintain a a significant share of that. You can imagine some of our peers have a different view, and so we'll let ICED as they do lay down the rules, and then we'll act accordingly. Thank you.

Thank you. The next question is from Aravinda Gallipat from Canaccord. Please go ahead.

Good morning. Thanks for taking my question. Joe, just to follow up on your comments on enterprise. You know, you talked about some of the elements that you think are driving that strength that we've seen for a couple of quarters now. Could you give us a sense of how much visibility do you have? I mean, is it just a couple of quarters at this point, or is it longer than that? Trying to get a sense of the sustainability. And a really quick follow-up for Glenn, on the IFRS 16 impact, we have a sense of what the annual number is. Was Q1 sort of overall under-indexed? You know, what would be sort of 25% of that? Or I just wanted to get a little bit more clarity on the underlying growth rate. Thank you.

I'll answer the no. 25% is reasonable for the quarter. As I said, 3% for the year. And the quarters, although they'll be, you know, one side or the other at 3%, it's not material. First quarter was not over-indexed or under-indexed.

I can't help myself because it's just me, but free cash flow tells the whole story anyway for everyone, as you all know. It's all there. On the enterprise side, I think we've had, I want to make sure I've got it right, three quarters of feeling pretty good about that business, some strength. But I have to be honest with the investors, it's a little bit, it's very hard for us to say we now see a trend. If my team from business markets were on the call today, They're feeling more positive about the business. You know even this quarter as we get in the second quarter I think they're feeling like they've got some momentum But it's really really hard to say we have something we can trend into the business yet And so and that's being as transparent as I possibly could be on the file. There's definitely some underlying strength I would say our teams been together now this group that's running that for a number of years and we think they're executing very well competitively in the marketplace and We like to think they're maybe taking some share, which is a challenge given our share, but we think that that's also benefiting the company overall in terms of what they've been doing. Sorry, I don't have any more on that. I apologize, but that's really as far as I can go because we're like you waiting to see if it continues.

Okay, great. Lori, in the interest of time, this will be our last question.

Thank you. The last question is from Drew Reynolds from RBC. Please go ahead.

Yeah, thanks very much. Thanks for fitting me in here. Just on maybe a question for you, George, we've talked a lot about the ABPU growth and growth expectation for the year. On post-paid market expansion, just for the industry, relative to the 1.5 or 1.6 that we did last year, and frankly, after two years of pretty good growth and two years of not so good growth prior to that, just wanted to get an update on your expectation for 19 and 20 and kind of changes in the moving parts underpinning that. Thank you.

Yeah, that's a tough one. You know, in one sense, I want to almost turn it back to everyone on the line or the analysts and say what you guys are using is your penetration gain. So the year is probably what we're probably using consistently as well in our own outlook. I mean, I think some of the questions people have asked about the life cycle of customers, you know, it's, you know, and we're in it every day. And I can't give you a much more transparent. Maybe we see improved churn on the year. and less activity of flipping, and that adds some pretty significant profit for the space. At the same time, last time we saw that dramatic acceleration, we had to be honest on the call and say we didn't see it coming. But certainly, I think people have guidance on the street on our subs. They work with all the industry and with Thane, and certainly we're not calling off any of what the analysts have been saying that generate diva dog growth for us. But it's hard for me to go beyond that because, frankly, we've got to live these quarters by quarters to see.

Okay, thank you.

That's good. Great. So on that, thank you for your participation this morning. As always, I'll be available for follow-ups and verifications later today after our annual general meeting. So on that, have a great day. Thanks. Thanks, everyone. Thank you. Go Raps.

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