BCE Inc.

Good morning, ladies and gentlemen. Welcome to the BCE Q4 2019 results and 2020 guidance conference call. I would now like to turn the meeting over to Mr. Zane Sotopoulos. Please go ahead, Mr. Sotopoulos.

Thank you, Alana, and good morning to everyone on the call. Joining me this morning for the first time officially as president and CEO of BCE is Mirko Bibic, and also here with me as usual is our CFO, Glenn LeBlanc. As a reminder, our Q4 results package 2020 financial guidance targets and other disclosure documents, including today's slide presentation, are available on BC's Investor Relations webpage. However, before we get started, I want to draw your attention to our 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. For additional information on such risks and assumptions, please consult BC's Safe Harbor Notice concerning forward-looking statements dated February 6, 2020, filed with both the Canadian Securities Commission and with the SEC, which is also available on our website. These forward-looking statements represent our expectations as of today and therefore are subject to change. We disclaim any obligation to update forward-looking statements except as required by law. So with that, I hand it over to Marco.

Thanks, Zane, and good morning, everyone. I'm very honored to be on the call with you all today in my new role as president and CEO of this amazing company. And I want to thank my predecessor, George Koch, for his leadership since 2008 and for putting in place such a foundation for Bell's future success. We have the right assets to lead the next wave of communications innovation in Canada. And as the world moves to increasingly rapid connections and the unlimited service potential of 5G, IoT, and artificial intelligence, Bell is well positioned to stay out front. As you know, we've updated our six strategic imperatives to frame every action we take to capture future growth opportunities in a converging wireless, wireline world. In many ways, these imperatives are consistent with our winning strategy over the past 10 years, overseen by a seasoned leadership team, but with an even stronger focus on the customer experience and recognizing the importance of all Bell team members in delivering our future success. It all begins with building the best networks. With significant capital investment over the past decade, networks have again become Bell's critical competitive advantage. In 2020, we will continue to expand our all-fibre connections, we'll open up wireless home internet to even more small communities, and we'll build on our 4G LTE lead by launching the next generation of wireless with mobile 5G. These next generation networks will be the launch pad to drive market share and revenue growth with new, innovative, integrated services, including IoT, smart home products, as well as business solutions like virtual network services, all delivered over the fastest internet, the best Wi-Fi, and the highest quality mobile networks. And we will continue to deliver the content consumers want on the platforms of their choice. We will support our network advantage, innovation services, and compelling content by simplifying, personalizing, and improving the end-to-end customer journey. Our mission, to make it easier for customers to do business with Bell. As you know, cost discipline has become a core competency at Bell. We'll take it to the next level, enabled by the continued deployment of fiber, utilization of new technologies, and incremental service improvements. which will deliver meaningful operational efficiencies and productivity gains across the organization. But none of what I just outlined can be accomplished without people. This is why we now have a new imperative to recognize how important our team is to Bell's success. Our company is recognized as a leading workplace and we're focused on making it even better going forward. Before diving into our detailed Q4 review, I did want to take a step back to comment on our overall operational execution and how well positioned we are to win. I can confidently say that we are managing the shift to unlimited wireless data plans better than our peers, while still maintaining our competitiveness. This is evidenced by our subscriber and ABPU performance that reflects our distribution and brand strength, sharp focus on customer-based management, and a strong growth in operating profitability. We grew wireless EBITDA 9.1% in 2019 while delivering a record number of gross activations. This combined with improved postpaid customer churn drove a 7.4% increase in total net subscriber additions to 515,000, our best annual result in 14 years. With respect to fiber, the strategy is working. we delivered strong retail internet and IPTV subscriber growth of 5% in 2019. Our 136,000 new net internet subscribers of 16.5% over last year are due to steady expansion of our direct fiber and wireless home internet footprints. Our fiber bill program is now 53% complete with over 5.1 million homes and businesses. able to access the fastest internet speeds in the market today of 1.5 gigabits per second. With technology evolution like 10GPON, those speeds will just get faster over time. We also have 250,000 locations equipped with fixed wireless technology that is bringing high speed internet speed to Canada's underserved communities that are two times faster than before. This positions us very well to keep growing broadband market share and internet revenue, which you all know yields very attractive EBITDA and cashflow margins. For 2020, we're targeting broadband CapEx spending, including demand capital, which is comparable to 2019 at around $2 billion. At Bell Media, our market leading brands, content and streaming services, together with a sharp focus on cost control, delivered strong financial performance in 2019 with cash flow growth that we redirected to capital investment in our broadband networks. And the landmark ruling by the Supreme Court this past December overturned the unfortunate CRTC decision banning simultaneous substitution during Super Bowl broadcasts. We're very happy that advertisers once again had exclusive access to Canadian viewers this past weekend during one of the most watched sports events of the year. I'd like to take you back to wireless for a moment because we're laser focused on being Canada's 5G leader. With wireline infrastructure that includes high-speed fiber already deployed to 88% of our cell sites, central offices that become data centers for mobile edge computing in a 5G world, a rapidly growing small cell footprint in urban markets, a network sharing arrangement, and 30 megahertz of 3.5 gig flexible use spectrum, No one is structurally better positioned than Bell to deliver true 5G in the most timely and capital-efficient manner possible, and to capitalize on the revenue growth opportunities that await. With the right regulatory environment supporting all facilities-based operators, there is no reason why Canada cannot have the best, most advanced 5G networks in the world like we do today with LTE networks. As you read in our press release this morning, Bell is ready to deliver initial 5G service in urban centers across Canada as next generation smartphones become available. And we will continue to be ready to launch true 5G service once flexible use 3.5 gigahertz spectrum becomes available after the federal government's auction later this year. Partnering with us for 5G is Nokia, whom we have chosen as Bell's first 5G network equipment supplier. Nokia has quickly become a leading international vendor of 5G network solutions with more than 60 commercial 5G contracts with wireless carriers worldwide. I think it's important to highlight that our wireless capital intensity during the 5G build cycle is only expected to increase to a range of 9% to 10% and can be comfortably accommodated within a stable, consolidated capital intensity ratio of approximately 16.5. It bears emphasizing, however, how important it will be to have public policies and a regulatory framework that support continued investment and focus on value, speed, access, and coverage. An environment that focuses instead on access to our mobile networks and grants below-cost access to our wireline networks will inevitably lead to significant cuts in investments. by Bell and by others in the industry. And this will harm Canadians and the Canadian economy going forward. Now I'll turn to slide five for some quick highlights on Q4. Overall, we're quite pleased with our operating results. We grew our market share of wireless, internet, and IPTV subscribers with 181,000 total net new customer additions in a seasonally busy and intensely competitive quarter. More impressively, this was achieved without sacrificing our consolidated EBITDA margin, which increased 1.2 percentage points to approximately 40%. We also generated wireless EBITDA growth of 7.4%, the best reported result among peers, while also delivering our highest ever wireless gross ad in a fourth quarter. For Bell Media, another great quarter to cap off an excellent year with strong revenue, adjusted EBITDA, and cash flow growth. Turning to slide 6 and some operating metrics by segment. I'll start with Bell Wireless. Continued healthy post-paid growth with 122,000 net ads, which were up 21% over Q4 of last year when excluding the federal government contract. This strong result was achieved despite a higher number of switchers driven by aggressive holiday offers from our competitors that we chose to match selectively. On the prepaid front, gross ads were up 43% on the strength of Lucky Mobile and our Dollarama distribution agreement, which drove 2,000 net ads. A good result in an exceptionally strong year of subscriber growth, while some of our competitors are seeing substantive declines in that segment. And blended ABPU declined only 0.4% compared to last year, despite the impact of unlimited plans on data over its revenue and a growing mix of customers on installment plans. So really effective reprice management by the Bell Mobility team. Moving to Bell Wireline. Continued good momentum on internet with 36,000 retail net ads, which were 10% higher than last year. And we added another 60,000 FTTH subscribers this quarter, bringing the total number of direct fiber customers at the end of 2019 to more than 1.4 million. That's up 20% over the previous year. On the TV side of things, we added 22,000 net new IPTV subscribers, a solid result given the already high rate of customer penetration in our current five markets, increasing maturity of alt TV, steady rate of over-the-top substitution, and persistently aggressive cable offers. We also continue to see nice year-over-year improvement in retail satellite TV and retail mass customer losses, which were down 7% and 3.2% respectively. And certainly, any time the rates have declined slow, that is important to us from a cash flow perspective. And last but not least, Bell Media. We maintain ratings and audience leadership in Q4, and we're also really excited about Crave. the strategy continues to work with the number of subscribers up 14% year over year. We think it is, quite frankly, one of the best SVOD services anywhere in terms of what's available from a content perspective. And just last week, we were proud to expand Crave to include French language content, and we made our Super Écran service available direct to consumers. So great operational execution of financial results delivered by the Bell team, Not just in Q4, but throughout the year, which sets us up nicely going into 2020. Finally, before turning it over to Glen, I'll turn to slide seven and our dividend announcement this morning. Obviously, we are very pleased and proud to announce for the, and I'm proud to announce this for the first time as BCE CEO, a dividend increase for our shareholders of 5% to $3.33 per share for 2020. It's our 12th consecutive year of a 5% or higher dividend increase done within a targeted payout ratio of 65% to 75%. This is being supported by strong free cash flow growth underpinned by stable absolute dollar capital spending in 2020, a pension plan that is fully funded, as well as a continued focus on subscriber profitability and cost disciplines. Our unmatched collection of assets, including the best networks and the most innovative products, will serve as the springboard for continuing to deliver the kind of operating metrics and financial results that shareholders have come to expect from our team, as you see reflected in our 2020 guidance targets that Glenn will now take you through. Over to you, Glenn.

Thank you, Mirko, and good morning, everyone. I'm going to begin on slide nine with a review of our consolidated financial results. The fourth quarter capped off a successful year with revenue up 1.6%, this together with the favorable impact of IFRS 16, which we have now lapped, and good overall cost management drove 4.8% higher adjusted EBITDA and a 1.2% increase in margins. Net earnings were up 12.6%, benefiting from the flow-through of this strong EBITDA growth, as well as the lower year-over-year non-cash impairment charges at Bell Media. Nevertheless, adjusted EPS was down one cent compared to last year, due to the pickup of less equity income from our minority interest investments and the delusion from the higher number of common shares outstanding. In terms of free cash flow, we generated close to $900 million of cash in Q4 2020, bringing the total for 2019 to just over 3.8 billion or 7% higher compared to last year. Although Q4 free cash flow was down year over year, this result was expected given step up in CapEx spending consistent with our plan for the year and higher cash taxes due to the timing of installment payments. Let's turn over to slide 10, Bell Wireless. Continued strong financial performance despite the dilutive impact of unlimited data plans, and what I would characterize as a relatively more competitive and active market this year. Revenue was up a solid 3.6%, and it continued strong post-paid subscriber growth, a higher year-over-year prepaid revenue contribution, and increased sales of higher-valued smartphones. Despite the sequential step-down in service revenue growth, quite pleased with our overall performance, demonstrating that we are managing the decline in data overage at a more measured pace, as Mirko mentioned earlier. And as well, and Mirko also pointed out, but it definitely bears repeating, adjusted EBITDA grew a strong 7.4%, yielding a 1.4 point increase in margin that reflected responsible spending during the promotionally intense Black Friday And of course, boxing the sales period. So truly another set of standout financial results that we expect will lead the Canadian industry this quarter. Let's move on to our wireline segment on slide 11. Similar performance trends to Q3. Combined internet and TV revenue were up a solid 2.4% year over year. However, growth was impacted by lower pay-per-view revenue due to a number of high-profile UFC events last year, as well as growing OTT competition. We also had to absorb some acceleration in residential service bundling discount and retention credits to match aggressive competitor promotions in the quarter. We also saw a steep year-over-year decline in the rate of voice revenue erosion this quarter, as last year's results benefited from higher sales of international wholesale long-distance minutes which tend to be variable and have no real impact on wireline margin or EBITDA. In business wireline, a softer quarter as we lap the revenue growth acceleration we've enjoyed in the second half of 2018, which also included the acquisition of Axia, a decline in low margin data equipment that can be rather lumpy on a quarterly basis, also moderated overall wireline revenue growth in Q4. Regarding adjusted EBITDA, steady and consistent performance with year-over-year growth of 1.5%. And in terms of cash generation, Bell Wireline provided a strong contribution to consolidate a VCE free cash flow in 2019, delivering growth in adjusted EBITDA, less capex of 5%. Over to media on slide 12, another strong quarter capping off a great year. that saw Bell Media deliver positive revenue, adjusted EBITDA, and cash flow growth. Revenue up 3.4%. This was driven by crazed subscriber growth over the past year, contract renewals with TV distributors, stronger year-over-year entertainment supports, and new specialty TV advertising sales, as well as higher revenue at Astral Out-of-Home. Adjusted EBITDA increased 16.5% while operating costs were stable year-over-year. higher costs for sports broadcast rights and creative content expansion were offset by the favorable impacts of IFRS 16. And with that, I'll move on to 2020 financial targets. So let's turn to slide 13. I believe the guidance we are providing builds on the favorable financial results, significant broadband investments, and operating momentum we delivered in calendar 19. Our targets for 2020 are underpinned by a positive financial profile for all three bell operating segments that reflects our consistent and disciplined execution in a competitive marketplace. With healthy projected adjusted EBITDA growth contributing significantly to higher year-over-year free cash flow generation, our financial foundation remains stable and strong, supporting a steady consolidated capital intensity ratio of around 16.5% for 2020, as well as the 5% dividend increase we announced this morning. Let's turn to slide 14. We are targeting consolidated revenue growth of 1 to 3%. This range is consistent with previous years, reflecting healthy wireless subscriber growth, further internet and TV market share gains, and a favorable media outlook as we continue to responsibly manage the shift. to unlimited wireless data plans and last significant TV advertising revenue growth from 2019. From a consolidated adjusted EBITDA, we are targeting growth of two to 4%, which again is similar to our 2019 guidance range when normalizing for the favorable non-cash impact of Bio4S16. This also reflects about a 25 million and higher year over year non-cash pension expense That's due to the unfavorable impact of the lower accounting discount rate at the end of 2019. Underpinning this steady growth is a strong contribution from Bell Wireless, where we would continue to balance subscriber growth with profitability, a positive residential wireline financial profile, an improving year-over-year rate of EBITDA decline in our Bell Business Markets unit, and ongoing focus on cost reduction. Given this outlook, We expect VCEs consolidated adjusted EBITDA margin to remain stable year over year. Let's turn to pension funding on slide 15. The funded status of our defined benefit pension plan remains strong and continues to move in the right direction. Despite the decline in discount rates in 19 and supported by a strong 16% return on plan assets, the average solvency ratio across the aggregate of all BCE plans was over 100% at the end of last year. Given the strong valuation position, BCE's regular cash funding for 2020 remains unchanged at $350 to $375. To put this into perspective from a free cash flow point of view, we have contributed close to $3 billion to our registered pension plans over the last five years. With a favorable plan funded status, which has continued to strengthen in January, together with an attractive fixed income asset mix that serves as a natural hedge to lower interest rates, we can expect that the cumulative cash requirements to drop by more than $1 billion over the next five years, even with no material increase in interest rates. Let's move on to our tax outlook on slide 16. Statutory tax rate for 2020 remains unchanged. at 27%. Our effective tax rate for accounting purposes is also projected to be approximately 27% as no tax adjustments are currently anticipated for 2020 compared to 7 cents per share in 19. We also expect cash taxes this year to be stable to 100 million lower than 2019 at around 625 to 725 million. This reflects the favorable year-over-year impact of MPS tax allowances that are now fully utilized, as well as cash tax savings enabled by the federal government's investment incentive program that allows for accelerated expensing of capital. Over on slide 17, summarizing our adjusted EPS outlook for 2020, which we project to be 350 to 360 per share, or 0 to 3% higher year-over-year. This reflects the strong underlying contributions from operations driven by EBITDA growth across all bell segments, together with a modest decrease in interest expense that reflects a lower cost of debt partially offset by higher depreciation expense as more capital assets are put into service. Excluding tax adjustments, adjusted EPS is expected to grow a healthy 2% to 5% in 2020. Over to slide 18, free cash flow is expected to grow 3% to 7%, which is similar to our 2019 guidance range when you exclude the impact of IFRS 16. This growth reflects the strong flow through of higher EBITDA and modest step down in cash taxes while capex spending and pension funding are expected to remain largely unchanged year over year. This cash flow generation provides strong support for executing our business plan and our capital market objectives for 2020 that should deliver over $1 billion of excess cash after the dividend payments which will be deployed in a balanced manner on uses that include repayment of short-term debt and financing of strategic investments such as wireless spectrum auction purchases. And lastly, a few brief comments on our balance sheet and liquidity. As we begin the year, we have access to $2.6 billion of liquidity together with a capital structure that provides good financial flexibility. Our investment grade credit ratings all have stable outlooks and our net debt leverage ratio is projected to remain relatively stable year over year, notwithstanding the impact of any potential wireless spectrum auction purchases later this year. This ratio should begin to improve gradually towards the high end of our target range over the next several years with steady growth in EBITDA and applying excess free cash flow to net debt reduction. Also highlighted on the slide is BC's favorable public debt maturity schedule that has an average term of 11.5 years and a historical low after tax cost of public debt of just 3.1%. and no maturities until the second quarter of 21. Finally, I'd like to add that BZ's approximate $1 billion annual US dollar expenditure has been fully hedged well into 21, effectively insulating our free cash flow exposure until that time. To wrap up, industry fundamentals remain sound, and BZ's financial strength and competitive position are as good as they've ever been, if not better. In 2020, We intend to build on that progress and consistent with the financial guidance targets announced today. And with that, Zane, I'll turn the call back over to you.

Great. Thanks, Glenn. So before we start the Q&A period, just to keep the call as efficient as possible given the time we have left, please limit yourselves to one question and a brief follow-up if you must so we can get to everybody in the queue in the time we have left. Alana, we're ready to take our first question.

Thank you. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press star 1 on your telephone keypad. You may cancel your question by pressing the pound sign. Please press star 1 at this time if you have a question. The first question is from Jeff Fan with Social Bank. Please go ahead.

Thanks and good morning. First question is just on wireless. There's a lot of moving pieces going on in the industry and Wanted to get your comments, Mirko. Regarding just, I understand you're managing better when it comes to the transition, but wondering if you can just comment a little bit on how, what the level of unlimited client migration has happened within the base, maybe a little bit on overage exposure, and as well, as you look out to the rest of the year, how service revenue growth might look compared to what we saw last year. And then I have a quick follow-up on a broader picture question.

Okay. So thanks, Jeff. I'll pick up where you started, which is we've shown another quarter where we've managed the base rather well, and it's one of our core competencies. As you know, we're showing that it's possible to deliver more service options to customers, and in this case, particularly unlimited plans while remaining competitive, as you can see from our best ever Q4 gross ads, and at the same time delivering financial results that investors have come to expect. And that's because how we're managing the transition over to unlimited, not forced migrating every single customer over to Unlimited plan, we have various landing spots where they can land. So ultimately what that results in, Jeff, is a lower, significantly fewer subscribers on Unlimited than some of our peers because of how we're managing that base.

And in terms of percentage of revenue, which is overage, we're not sharing that specifically for competitive reasons.

Okay. And then a follow-up just regarding your media. I know it's a relatively smaller segment, but with you in, I guess, at the leadership post, just wondering, because some of the U.S. peers have been using SVOD services in a way to differentiate their wireless or broadband offerings. Given your position today, in Canada with media and particularly with Crave. What are your thoughts on that progressing as a potential tactic or even a strategy?

I like our assets and I like our integrated strategy and right now, I'll leave it at this, being vertically integrated does allow us to segment customers and target each segment of the customer base with the right products. So whether

that's Crate, which you refer to, which caters, obviously, as you know, to over-the-top viewers and linear viewers as well, whether it's Alt, which gives customers who might otherwise cut the cord a nice landing spot, or whether or not it's Five, which is still the large majority of our TV subscriber base. You know, having that breadth of product mix allows us to target customers with the right product.

So that's why being vertically integrated gives us that flexibility. Now, in terms of how we're going to package various services with wireless and broadband, that's for the future. But right now, we're going to keep on our plan of using the vertically integrated strategies to continue to segment the base.

Okay. Thanks, Marco. Thank you. The next question is from Richard Cho with J.P. Morgan. Please go ahead.

Great, thank you. With the pressure from service revenue and wireless competition, should we still expect wireless margin growth and how will you manage the margin versus the ads? And then as a follow-up to that, should we still expect growth in wireline EBITDA or maybe more of a contribution as wireless gets a little bit tougher?

Good morning, Richard. It's Glenn. I think our... 2020 guidance today is indicative of our performance in 2019 and actually 2018, and you're looking at complete stability. 1% to 3% revenue, 2% to 4% EBITDA, and 3% to 7% on cash flow is in line, normalizing for IFRS 16 to what was experienced this year. Though given a specific guidance by our BUs, which we don't do, what I can tell you is, as I said in my opening remarks, we expect positive contribution from all three bell segments, on revenue, EBITDA, and cash flow ultimately feeding that guidance, that consolidated guidance. Margin, I said in my opening remarks, I expect margin to remain stable. So, you know, in conclusion, yes, we expect wireline to continue to drive positive EBITDA growth and margins and performance in wireless to be consistent to what you've seen this year.

Great. Thank you.

Thank you. The next question is from Aravinda Dalipatig with Canaccord Genuity. Please go ahead.

Good morning. Thanks for taking my question. I wanted to ask a question on the enterprise side of the business. You've alluded to strong business market profitability in Q4. Mirko, can you just talk a little bit about how you see 2020 playing out and some of the dynamics both up and down in that sector? And a quick follow-up on the wireless side. We saw, did see APU declines in Q4. Considering sort of the competitive environment in the market as well as the overage factor, do you see some sort of price stability as we get to that middle to latter part of the year?

Thanks. I'll jump in on the second part of the question and Mark will handle the BBM part. But wireless APU declines, as you mentioned, in Q4, approximately 0.4%. Really, the two factors driving that decline are the absorption of the unlimited plans, which ultimately results in lower data overage. And of course, we expect that will continue through calendar 2020. And remember, the success we're having on prepaid, it's been phenomenal, and we expect that similar success will continue through 2020. And obviously that mix is going to impact your APU. Final part to remind you is that the APU calculation doesn't include the equipment financing fees. So if I normalize for that in a quarter, we're very close to zero.

And just a final point on APU to what Glen has said as well is, you know, taking everything into consideration. I think it's really important for investors to focus on total wireless revenue growth and just look at our performance in that regard. As it relates to the enterprise segment, overall, we're quite pleased. We've had a strong 18-month run now, and we're laughing strong results from the back end of 2020. and we're continuing to see improvement in the rate of EBITDA declines, all very positive. And the fiber investment really is benefiting this segment as well. So that bodes well. And look, the transparency, the reprice continues to be a challenge, but we're managing it quite well.

Thank you.

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

Yeah, thanks very much, and welcome aboard. We're all congratulations on the new role. Two questions for you, if I could. Sorry, Thane, you can beat me up later. But one, just on this ARPU and ABPU thing, and I know your regulatory history, and I know there's a big hearing coming up soon. Do you not agree with what was written in the Golden Mail recently, that some of the inflation that the policymakers seem to be worried about for consumers is driven by smartphone prices, as opposed to actually what you and other carriers charge for service? And if that's the case, should we not focus on ARPU versus ABPU? And I'm still not sure why you guys don't disclose that because it makes it difficult for the regulators and politicians to see the figure if you're not even giving it to us every quarter. So I'd like your thoughts around that. And the second one is just your big picture thoughts on M&A. It's been a big portion of Bell's Grill story during George Cope's tenure and Curious if you still think that is possible or likely in the future. I'm not talking about small tuck-ins, but is there any sort of transformative stuff that you think could happen over the next two or three years, or is it more just an organic story? Thank you.

Thanks, Vince. So I'll answer – I'll address your question in a general sense and then turn it over to Glenn for some more precise comments. But, you know, at the highest level, I 100% agree with you that you cannot ignore – the increases in the cost of handsets and the impact that that has on the consumer's pocketbook. I mean, you just can't because that is a big, big component of what the customer ultimately pays for wireless service. By the same token, I'm shifting gears a little bit, but you also can't ignore when you're looking at what consumers are paying, you can't ignore the fact that when you walk into a store, whether or not it's at Back to School or at Black Friday or, you know, Boxing week or at other times during the year, you're being offered $400 gift cards or free Sonos players or free tablets. Those add tremendous value to the customer, but they're not calculated in all the analyses that you read about when it comes to pricing. So you've got to factor in the complete and total value that the customer gets, both in terms of promotions, in terms of the handset pricing that gets absorbed, and also speed, access, coverage, latency. It's all part of the mix. I'm glad if you want to comment on ARPU versus APU.

Sure. Vince, as I know you would appreciate, my focus is always on cash generation, and I think one thing you have to focus on looking at APU is APU is your closest metric for cash, and we can't lose sight of that. All that said, I can assure you that government officials and regulatory bodies are well aware of our ARPU, and we disclose that and have discussions completely in line with what you laid out here today. Over time, as EIP becomes the majority of our loadings, we'll start to see a convergence of ARPU and APU. So I think it fixes itself with time. But never lose sight of the flow of cash, I'd like to say, Vince.

And on the M&A, Michael? Yeah, M&A. Oh, Vince, on M&A, I'm not going to comment on M&A until there's something to comment on. Thank you.

Thank you. The next question is from Mayor Iaghi with Cesar Dan. Please go ahead.

Thanks for taking my question. I wanted to ask you, in terms of strategically positioning yourself in terms of CapEx for 5G, you're starting the rollout, you're starting the investment, and you've invested a lot in the backbone, but now you're getting ready to get onto your last connections, and the regulatory environment is still fluid, and I wanted to ask you, how do you manage such a large investment when the regulatory environment is in flux like that? When you talk about the reduction in capex that could be a solution to overcome a potential negative outcome in a possible regulatory decision, What are we talking about? Can you quantify how much you can pull on your CapEx to offset possible negative outcome in regulation?

Thanks for that question. So how we manage the investment given the uncertainty. So we take a step back and I have faith that the CRTC will base its decisions on the evidence on the record. and the evidence that's on the public record is rather compelling that deciding in favour of mandating NBNOs would be the wrong thing to do. That's the first thing. Two is the way you manage the risk is you actually, you make judgment calls. So the first build-outs will be in urban areas. So what that means is you wait and see what the decision is going to be before you make any concrete plans to build out in the less dense areas. And that has an impact on rural areas and it has an impact on suburban areas as well. I mean, these are all the consequences of regulatory overhang. That's how you manage it. And I'm not going to quantify the potential impacts on cuts in investments from regulatory decisions because I need to see what the regulatory decision is going to be. But I can tell you that negative regulatory decisions will result in cuts in investment. We already saw it last summer. And I hope we don't have to see it again, but that's just the way it works.

okay and uh just my follow-up question um when uh when you look at i mean you're you're you're you're in charge now and you're looking at the company you have your new sets of priorities uh when you look at the five percent dividend growth model that uh george had and you know positioned the company to deliver on uh what's your view on that five percent dividend growth model and how sustainable it is going forward.

I'm supportive and yes.

Okay, thank you.

Thank you. The next question is from Simon Flannery with Morgan Stanley. Please go ahead.

Thank you. Good morning. Just staying on 5G, perhaps you could just talk a little bit about the Nokia deal today and are you planning to use multiple suppliers and Tie that in perhaps to the Huawei review and I think a lot of investors are just trying to understand what the timing of any decision from the government might be and we saw a decision in the UK, perhaps you could just reflect on that and see if there was a similar decision in Canada, what the implications would be. Thank you.

Okay, so my announcement today is that Nokia will be the first provider of 5G LAN equipment in our network and I stress the word first when I'm trying to signal here is that we need to be able to work with many equipment suppliers today and in the future, and today that includes Nokia, it includes Huawei, it includes Ericsson, it includes Cisco, and it's always prudent to have multiple supply sources, and we're always looking for that flexibility. We're still waiting for the government's decision on the security review, as you know, but as we've shown this morning, we're ready to deploy initial 5G service because we will always be competitive. And we're going to be doing this within our normal overall CapEx envelope and normal capital intensity ratio. I don't know when the government's going to decide. A couple of things, and we do want clarity on that. And we also are eagerly awaiting the 3.5 spectrum option so that Canada, frankly, can get going on launching real 5G in 2021.

Okay. Any comments on the UK decision?

No, I mean, it's no comment on the UK decision. What we're focused on is what Canada's decision is going to be. Okay. Thank you.

Thank you. The next question is from Drew McReynolds with RBC. Please go ahead.

Yeah, thanks very much. Good morning. On the growth guidance of 2% to 4%, Glenn, you were alluding to obviously that being pretty consistent with prior years. Marco, you point to next-level cost efficiencies, and certainly investors are used to a decade of some pretty impressive cost efficiency and cost reductions at BC. So could you just flush out a little bit of what changes or what kind of incremental cost reductions and efficiencies are expected to flow through? And then a follow-up completely different here. Could you just comment on the wireless competitive environment here through Q1, through the early part of February here? Thank you.

Good morning, Drew. It's Glenn. As you alluded to, our EBITDA growth guidance consisted of that before. And, of course, underpinning the EBITDA growth guidance is our success and our track record around cost efficiencies and I believe you'll see that continue certainly under Merco's leadership much as it has in the past. When we look at the investments we're making and the opportunities to reduce the way we serve the customer, the cost and the manner in which we serve the customer, as you heard me say before, good customer service is cheaper. As we roll out fiber, we see cost efficiencies and as we look at serving our customer better, challenges we have in our bill, eliminating troubles we have in our network, reduced calls to the contact center, all of that delivers efficiencies. And as we look at the investments we're making and we're ramping up to essentially rebuilding a 140-year-old copper network and we're more than 50% done, as we look at more self-serve, more opportunities, I think the future's bright in cost efficiency. And actually, over time, as we fix platforms, and we fix billing stacks, you get to a point where I think we can see an acceleration in cost efficiency.

Yes, I agree with Glenn. Cost efficiency remains one of our core strategic imperatives, so that's a very, very important signal. And it comes down to, repeating a little bit what Glenn says, but I'm going to either way because it's important. More fiber means fewer truck rolls, means fewer calls. Things like unlimited plans means fewer calls. We're going to be leveraging technology like artificial intelligence. We're going to be leveraging self-serve platforms. We're modernizing the core of our network. We're making services more on-demand, more one-touch. All those things result in cost goodness. So that's just to punctuate the point that Glenn was making. And on the competitiveness in wireless, I think one of the things worth mentioning in early days of 2020, and particularly early days of February, I think we like the early results of installment plans that we've seen on the Bell brand with our SmartPay program. That's ensuring upfront affordability for our customer, and it helps us manage what were ever-increasing subsidy costs. So that's a win-win all around, actually, for the customer and for ourselves. We followed quite closely what one of our peers has recently done with its Flanker brand and installments. And I got two comments on that. One is, you've heard us say this before, we will always remain competitive. And you'll see something soon on that. And two, much like I said in Q3 of last year, I think, when we had to do some IT work to enable the Bell brand to be competitive on installments, we're going to be doing the same thing to enable the Virgin brand to be competitive on installments soon.

Okay.

Thanks, Marco. Thank you. The next question is from David Varden with Bank of America. Please go ahead.

Hey, guys. Thanks so much for taking the questions and welcome and congrats, Marco. I guess my questions, I guess, would be related to the handset side of things. Could you kind of talk about the subsidy expense profile that you absorbed in 2019 versus 18 and Glenn, how you see that evolving in 20 from a competitive versus kind of an EIP standpoint. And then a related question, if I could, which would be just there's a debate in the lower 48 about the potential for a handset super cycle and phones are getting older and customers are ready to make this big upgrade to the 5G iPhone, if that's what turns out to be What have you kind of assumed in your 2020 outlook for the handset upgrade rate and the velocity that comes with this next upgrade cycle? Thanks.

All right, David. I'll start off, and then I'll leave the handset super cycle comments for Mirko. But, look, on the handset side of things, it's not news to anyone that we've watched more and more costly handsets enter the marketplace that we've seen continued cost pressure in the ever-increasing subsidy expense of our business. And I think that 2019 was no different in that in the first half of 19, we watched frothy promotions, which ultimately at certain periods throughout the year, you see zero price handsets. Once again, despite the landed costs for them, they still find their way to zero. I think what gives me some confidence looking into 2020 and managing of that ever-increasing subsidy cycle is EIT and the installment plans. I think managed correctly and what we're seeing is early days, but managed correctly, I think we have an opportunity here to provide customer's choice, to separate the airtime packages from the equipment packages and give customers the opportunity to choose the handset that meets their needs and with $0 upfront, finance it over a 24-month period. And the win-win in that is while giving customers what they want, I think we have an opportunity to mitigate that ever-increasing subsidy cost to our business and see a significant earnings and cash flow opportunity. Albeit it will slow transactions, which we, you know, Mirko said earlier we have to focus on total revenue because I think you will see the potential in EIP of transactions slowing, but that could lead to a significant opportunity in earnings and cash flow generation.

And on the handset cycle, look, I think the initial 5G handsets are likely to cater more to early adopters. And we've managed this before. We've managed the cycle from 2G to 3G, from 3G to 4G, from 4G to LTE, advanced. And I expect much the same here, certainly in the early days.

Okay, great, guys. Thanks for the comments.

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

Thank you. Two questions quickly. As you think about the competitive environment, do you think we can expect to see churn going back to year-over-year improvement this year? And a clarification on the wireless capital intensity. Do you expect to reach 9% to 10% after the 3.5 auctions, or is there enough spending right now as you prepare for the 5G network that we will see that level early on in the year? Thank you.

Well, the 9% to 10% on wireless CDIs throughout for the entirety of the 5G build cycle.

And then on your question on churn improvement, it goes to the comments I just made about EIP, and I believe In a world where we see the installment plans starting to become a big portion, a significant portion of our loadings, I believe you'll start to see a decline in churn. I mentioned that you'll see a slowing of transactions, which ultimately can slow service revenues and slows transactions, but managed properly can improve even to improve cash flow. Final point I'll make on churn improvement is that Don't lose sight of the fact that it did, for BCE, term did improve in 2019. So three basis points.

Thank you. Thank you. Last question in the time we have left.

Thank you. The last question will be from Tim Casey with BMO. Please go ahead.

Thanks, Glenn. Could you tie your comments on subsidies and – your measured rollout of unlimited plans or balanced rollout, I guess is the better way, into the assumptions you've made for guidance? In other words, have you assumed that you'll ramp up the intensity of uptake of unlimited plans in your guidance? And do you expect some material relief in expenses on the subsidy side from EIPs in your guidance. Can you help us sort of square up some of the assumptions you're making for us?

I would say the short answer to your question, Tim, in the short term, calendar year 20, is no. We're not expecting a substantive shift in the subsidy reductions. Do I think that in the longer run this creates a great opportunity for the industry? Yes. Highly dependent upon that to deliver on the guidance in 20? No. Do I think unlimited will ramp? Mirko has made numerous comments here today that our job and what we've proven for a number of quarters here is that we will take a balanced and managed approach to the data overage decline or the shift to unlimited while giving customers what they want. So I think a lot more of the same in 2020 of what you saw from us in second half of 19.

Thank you.

Thank you, Tim. Okay, so on that, I want to thank everybody for their participation today on the call, and I'll be available throughout the day as I usually am for any follow-ups and clarifications. So with that, have a good rest of the day.

Thank you, everyone.

Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.