Quebecor Inc.

Good day, everyone. Thank you for standing by. Welcome to Quebecor, Inc.' 's financial results for the third quarter conference call. I would like to introduce Hugues Simard, Chief Financial Officer of Quebecor, Inc. Please go ahead.

Ladies and gentlemen, welcome to this Quebecor conference call. My name is Hugues Simard. I'm the CFO. And joining me to discuss our financial and operating results for the third quarter of 2024 is Pierre-Claude Péladeau, our President and CEO. Anyone unable to attend the conference call will be able to listen to a recording by telephone or webcast. Access details are available on our website, and the recording is available, will be available until February the 5th, 2025. As usual, I want to inform you that certain statements made on the call today may be considered forward-looking, and we would refer you to the risk factors outlined in today's press release and reports filed by the corporation with the regulatory authorities. Let me now turn the floor to Pierre Campbell.

Merci, Hugues, and good morning, everyone. So more than 15 years ago, recognizing a huge opportunity in Quebec and across Canada, Quebec was set up on a growth strategy based on wireless. First launching as an MVNO, then building our own network and further acquiring Freedom Mobile, we have never wavered in our resolve or direction. We invested wisely, stayed the course, and established ourselves not only as a solid lasting fourth quarter in the Canadian telecom industry, but most importantly, as a lower price, better and faster alternative to the big three. As proof that our strategy is paying off, we continue to outperform our competitors, and I'm proud to report our best ever quarterly wireless loading performance of 132 net additions and a remarkable year-over-year performance of 352,000 new lines. Collectively, Luton, Prism, and Fizz now have 4,050,700 total mobile active lines, a significant milestone achieved in quite a short time. Each of our three brands continue to improve its performance quarter after quarter, resonating more and more with Canadians across the country with innovative and affordable products and services. We have created a healthy, competitive environment, giving Canadians more choice, lower prices, and better experience. We will spare no efforts as we press on with our strategy of sustainable, profitable wireless market sale share growth. Before turning to our operational results, I would like to comment on a few regulatory issues. First, we are happy with the CRTC decision on wholesale roaming rates and rate setting approach, which will support our continued expansion to better rates that finally reflect current market dynamics after years of being geared towards the sole benefit of the big three at the expense of the Canadian consumers. Given that the MVNO rates are already outdated and much higher than current market rates, it is crucial not only to obtain fair rates for all style roaming access, but also to ensure the decrease year over year following market trends. However, we were very disappointed with the CRTC October decision on access to fiber internet networks. Quite honestly, we don't understand how Bell was able to convince the CRTC and how The CRTC listened and ruled that these rates reflect their actual cost while their multiple brands offer the service directly to customers at a cost of about 50% of the FTP access rates. I repeat, the all various brands retail price is about 50% of what we would need to pay to offer STTP services. Never was there a TPIA rate ruling that made so little economic sense. We have hoped for a decision that reflects market reality and would have allowed us to offer much lower freedom internet prices as we have been doing with wireless services for more than 18 months. Unfortunately, the CRTC's decision will prevent us from launching our services on these networks, denying Canadians better service and lower prices, and we urge the CRTC to review and adjust the rates in their permanent decision.

I will now review our operational results, starting with the telecom segment.

As we navigate our busiest season of the year, we remain focused on the value of our brands delivered to consumers and committed to always providing the best possible experience. I would like to take this opportunity to thank all of our employees who are actively contributing to our growth and our success, as well as our ever more satisfied and loyal customers who recognize the true value of our products and services and appreciate our second-in-line customer experience. Speaking of customer experience, and I'm proud to report that according to a survey conducted by Léger between August 5th and August 15th, Quebecers, again, rated Bidot-Tron as a telecommunication company with the best customer service. Idoutron was chosen by almost twice as many respondents as its nearest rival, confirming its status as the undisputed leader in customer service. Our longstanding focus on customer experience throughout the company and all our brands explains in big part our once again stellar churn reduction this quarter for each of Vidotron, Freedom, and SIDS, clearly concentrating with our competitors' performance. Pursuing our expansion plan, we made two further announcements this quarter. First, SIDS widened its footprint with the addition of new service areas in British Columbia, Alberta, Manitoba, Ontario, and Quebec, bringing this 100% digital universe to an additional 2.2 million Canadians. Secondly, Dutron extended its wireless service area to the Gaspésie and Côte-Nord regions and enlarged its service area in the Bas-Saint-Laurent region. Residents of these regions can now subscribe to Vidéotron Wireless services. Always the innovative player, Vidéotron, who were first to offer international roaming plans in Quebec, has also added 45 new destinations to its Canada international plan this quarter, bringing that total to 66 destinations where customers will enjoy the same worry-free service when they travel. On the Freedom Mobile side, customers who choose a plan, including Roam Beyond, starting at $45 per month, can get access to 92 destinations at no extra cost. In terms of market trends this quarter, we noticed that the incumbents are now offering everyday low prices via their fighter brands. But we came out on the winning end of that battle, our performance proving that we are increasingly relying less on pricing alone and more on great customer service, an improved network, and quite frankly, a way more enjoyable experience overall. Despite the fighters' aggression, we did notice a decrease in promotional intensity in Q3 and at the beginning of Q4, which seems to point to more disciplined market conditions in the next quarters. With the growing success of Freedom & Fit, consolidated wireless ARPU decreased, as expected, by $2.29, at $35.31, largely attributable to the dilutive impact of Freedom's prepaid services and fees, including introductory prices, but also due to higher promotional discounts and lower overage revenues, as our plans are getting richer to the benefit of our customers. Realistically, we do not expect ARPU growth until we reach a better balance between our brands, but we anticipate that customers' growth would largely offset the pressure on ARPU. In addition, we are amongst providers with the highest proportion of BYOD activations, which also add pressure on ARPU, but else lower our overall cost and improved cash flows. As proof of our rigorous execution, wireless EBITDA increased by 17% this quarter, reaching $271 million. And our wireless EBITDA margin improved from 40.5% to 45% as compared to Q3 last year, despite higher branding and advertising spending to fuel the expansion of our brand Fizz, as well as increases in the domestic and international roaming fees attributable to our strategy of offering customers expanded roaming plans at affordable prices. We are, of course, continuing to be very tight on operating expenses, generating significant reduction from our ongoing cost reduction initiatives In addition, we are strategically using our low-cost brand Fizz to fight Bell's price war, which they are spreading across their multiple brands, selling below their own declared cost. Fizz's lower-cost structure helps us to fight on price, and its unique 100% digital experience is increasingly resonating with Canadian consumers boosting our performance in younger and urban target markets. Our wireless marketing strategies are geared towards making freedom credible, video content unmatched, and SIS successful. Our mobile growth speaks for itself, and we are extremely proud of the positive impact we are having on Canadian consumers by promoting healthy competition and lowering wireless prices without compromising our customer experience. These long-term strategies come with shortened sacrifices as we build a foundation of our continued success, of course, but we are confident that our business model of putting the customer first will always prevail, as proven by our momentum that keeps improving.

Moving now to the wireline segment.

We continue to see aggressive, well, I would say even extreme aggressiveness from Bell in Quebec, who is basically offering free TV in order to get Internet net ads. We are successful in holding our ground, as shown by our low and stable turn rates. But ultimately, these short-sight tactics result in a significant deterioration of revenues for all industry players. And unfortunately, it looks like Bell is now expanding these unhealthy behaviors to the entire, sorry, to the Ontario market with our Primus brand as we responded to Bell aggression more actively this quarter. We managed to grow our internet ads by 12,000, an improvement on the increase of 5,000 a year ago, and without significant impact yet from freedom on internet, which are only using as bundling strategy for our wireless customers at this time. We also launched a fifth TV in the quarter in dead-up mode, and for now excluded from our TV customers' numbers, but from which we expect a significant impact in 2025. Nonetheless, our TV customer variance improved versus last year's performance, as is the case for Waterline Telephony. With a resilient mindset, And in line with our commitment to deliver the best possible customer experience, Videotron launched Ilico Plus. It's a brand new unified video streaming service for French speakers across the country, created by the merger of Club Ilico and Vrain. Building on the success of Club Ilico over the past 10 years, Videotron is strengthening its leadership in French language entertainment. This new rebranded platform is offering an extensive catalog of more than 8,500 titles, with over 1,800 additions coming in 2025. The platform will combine scripted content, as well as the specialized unscripted content that make Club Rico and their reputation for years. Québec Art thus remains committed to investing in original Québec production, enhancing their discoverability, and offering the best international content in French. Éduque Plus will now be the go-to platform for showcasing Québec talent both on screen and behind the camera.

Turning to our media segment, Éduque Plus

hosted an EBITDA of $12 million in the third quarter, a $4 million unfavorable change due in good part to the broadcasting activities, which continued to suffer the repercussions of the decline in advertising revenues and to be confronted with the same major challenges that persist with the media industry. Mel Studios hosted an EBITDA improvement of $3 million in a busy quarter with local and international production. Despite this challenging situation, savings from our reorganization initiatives announced last year are materializing. Unfortunately, these savings in the last quarter were largely offset by the cost of applying the new federal digital service tax. While this 3% tax was originally intended to target large foreign digital companies to ensure that they contribute to our Canadian system. It is unacceptable and, above all, unfair that Canadian businesses have to bear the significant impact of this measure, which constitutes a double tax on domestic business. Faced with this situation, which runs counter to its objectives, the government must review the application of the digital services tax to exclude Canadian businesses who already paid their taxes in Canada and made a significant contribution to the broadcasting system. Furthermore, in the third quarter, CBO continued to hold the highest market share in Quebec at 39%, a testament to the loyalty of our audiences and the quality of our content. The news and public affairs channels, LCN, recorded a significant 0.8% growth for the period, doing part of its exceptional coverage of the U.S. election campaign. It does maintain its position as Quebec's most watched specialty channel, ahead even of the Over-the-Air Channel Novo from Bell Media. Since the start of fall programming, CDL has reached 5.4 million Quebecers every week, or 71% of the population.

CDL carried 15 of the top 30 shows in Quebec.

in the third quarter of 2024, including Chantal Masquet, which is the Quebec version of Masked Singer, which topped the list with an average audience of nearly 1.6 million viewers. Finally, our sports and entertainment division put on major shows in the quarter, including Billy Idol and the popular singer Billie Eilish, who launched her world tour at the , Quebec City on September 28th. With a total attendance of 19,000, this show was our most successful and profitable to date. I will now let Hugues review our detailed financial results.

On a consolidated basis in the third quarter of 2024, Quebecor reported revenues of $1.4 billion, down 1.8%, and EBITDA of $594 million, down 30 million, almost entirely attributable to a $26 million negative stock-based compensation variance. Adjusted cash flow from operations decreased $47 million to $435 million due to higher CapEx investments in our networks and our expansion. But free cash flow provided by operating activities increased $50 million, or 10.1%, to $546 million due to lower interest costs and a continued disciplined cash management. In our telecom segment, total revenues decreased by $26.9 million, or 2.2%, mainly due to the lower wireline services and equipment revenues as we made two significant decisions of first, switching our Helix boxes from a purchase to a rental model in the second quarter, and secondly, deciding to forego most of our annual price increases at the beginning of the year, knowing well that we would continue to face an undisciplined competitor in Quebec. Cost control and synergies from the integration of Freedom Mobile helped minimize the impact on our adjusted EBITDA, which decreased only slightly by $3.6 million, or 0.6%. Wireless revenues increased by 5% to $600 million in the quarter, and wireless EBITDA reached $271 million, a 17% increase. Wireless EBITDA margin improved from 40% to 45% compared to Q3 last year. Telecom CapEx, excluding the acquisition of Spectrum licenses, are up $13 million in the quarter, reflecting our increased investments in our networks. We now invest more in 5G network expansions, new revenue growth opportunities, as well as in the rental of wireline devices, as I mentioned earlier, with significant synergies between the companies, such as in Ottawa, for example, where we've dismantled one network and generated significant ongoing CapEx savings. Silicon adjusted cash flows from operations, thus decreased due to the CapEx increase, decreased by $16.7 million. Our media segment recorded revenues of $155 million, a 7% decrease, and in EBITDA, $15 million, a $6 million decrease compared to the same quarter last year. Sports and entertainment segment revenues increased by 7% to $64 million, and EBITDA was slightly down to $12 million in the quarter. Rebecca reported a net income attributable to shareholders of $189 million in the quarter, or 81 cents per share, compared to a net income of $209 million, or 91 cents per share, reported last year. Adjusted income from operating activities excluding, as usual, unusual items and losses on valuation of financial instruments came in at $192 million, or 82 cents per share, compared to $202 million, or 88 cents per share, in the same quarter last year. For the first nine months of the year, Quebecor's revenues were up 5% to $4.1 billion, and EBITDA is up 6% to $1.8 billion. EBITDA from our telecom segment grew 6% to $1.8 billion to the same period, an improvement of $98 million over last year. As at the end of the quarter, Quebecor's net debt to EBITDA ratio stood at 3.36 times, still the lowest of all telecom competitors with wireline and wireless services. I would also point out that we are the only telecom company in Canada to continue to regularly reduce our debt and strengthen our balance sheet thanks to our steady and disciplined cash flow generation capabilities. Quarter after quarter, even after purchasing and canceling this quarter, $1,260,000 Class B shares for an investment of $40 million. We intend to continue to delever over the next quarters and operate in the low threes as we have stated before. I would also like to highlight the success of our recent refinancing where Videotron issued $700 million U.S. dollars of senior notes in the U.S. investment grade market, yielding 5.1% on a fully hedged basis. The proceeds will be used to repay existing Videotron indebtedness, including the first tranche of the term loan drawings under Videotron's credit agreement, maturing on October 3rd of next year, and the redemption of Videotron's 5.75% senior notes that were maturing on January 15th, 2026. Available liquidity of more than $2.3 billion at the end of the third quarter and our growing free cash flows will allow us to continue to improve our very strong balance sheet. So far this year, so during the first nine months of the year, we purchased and canceled 2.2 million Class B shares for a total investment of $69 million. We thank you for your attention, and we'll now open the lines for your questions.

For people on the line, if you'd like to queue up to ask a question, please dial star 1 on your phone's keypad. The first question is from Jérôme Dubré from Desjardins. Please go ahead, Jérôme.

Thanks for taking my questions. Looking for your thoughts on the industry in general, it looks like some peers are maybe feeling the need to do something here in terms of change of strategy. Do you also feel that need to do something or maybe that something is already done with the freedom acquisition from last year?

Thank you, Jerome.

No, we do not intend to change the course, as I said in my speech. We are still in the same direction, making sure that the acquisition we made with Freedom and our enlarged footprint will continue. We look forward to trying to assemble as efficiently as possible bundling. We've been stopped and referred to the CRTC's decision on STTP access. We will continue to work hard to try to convince the CRTC that this decision doesn't make sense when we are able to see, and it's quite obvious, that prices offered by Bell in the marketplace, you know, when they're offering, what's the cost, the price for one gig in Ontario right now? It's $69 at the retail price, and the cost ruled by the CRTC, it's $69 without the CBB. So, you know, we, I guess that, you know, this seems to be so obvious that we look forward to be able, you know, to work for our bundle, and then, therefore, increasing our capacity to get more revenues out of our customers because they would have experienced the quality of our network and the quality of our customer experience.

Thank you. Second question for me is you spoke about potential stabilization of wireless ARPU in the future once once you get where you want to be in terms of share of your total wireless subscriber base across the different brands. Would you mind sharing what is the ARPU direction for the different brands that you have right now?

Well, you know, we would, again, repeat that Gideon Autron has been always, you know, our premium brand. And this is certainly, you know, we've been able to get our market share with that timeframe that we've been able to establish it. It didn't came, you know, in six months. It came, you know, on a 10-year basis. And this is why since, you know, the market create new brands at the beginning and, you know, it was flanker brands and now there are fighter brands. And therefore, we, I guess that, you know, we didn't have any other choices. to follow this trend other than, you know, being better in this trend by offering 100% digital universe, which fit very well in a certain segment of the population, on top of which, you know, the prices are quite competitive with what we're seeing in the marketplace with first with flankers and today is fighters.

Merci.

All right. Thank you. The next question is from Mayor Yagi from Scotiabank.

Please go ahead. So the first one I have is related to your prepared remarks, Pierre-Carles, and just your answer here to Jérôme's question. You're arguing that wireless roaming rates and also broadband rates should be linked, should decline and be linked to the declining market prices in the market. But the CRTC has for a long time linked tariffs and rates to the cost to serve and not necessarily to market prices, which in wireless are being driven down by yourself through freedom. Are you arguing that the CRTC should move away from its cost plus methodology and move to a retail minus approach? because that would be a big change that you're proposing. And second one I have is related to wireless. You had a great performance in terms of loading, definitely in the quarter, great success, and you're taking a lot of market share from incumbents, especially it looks like from BCE. You indicated that you will stand pat on your pricing strategy. The question I have is, how should we think about revenue growth in wireless in the coming quarters as you keep that pricing strategy in place? Because obviously we might see a peak in terms of subscriber growth, but so I'm kind of trying to figure out how we should think about ARPU growth in the coming quarters as you keep that pricing strategy. Thank you.

Thank you, Ma'am. Well, first of all, you know, obviously we're not the ones that will make rules at the CRTC, but, you know, something we know is certainly, you know, it depends the assumption that you're using, you know, when you refer to cost. You know, I'm not an accountant. I'm not a financial expert. But I've been listening to our colleagues and looking at the way that sometimes, you know, our competitors describe their cost. What do you include in your cost? This is, you know, the real question. And I guess that somewhere we should and probably, you know, as of today we're not good enough, you know, to convince the CRTC and their accounting perspective that, you know, those costs are not the one that reflects, you know, the reality. And the reality is that they're selling one gig at 49 or at 59 since they are asking us to pay 69. Again, you've been following the industry for many years. We've been looking also at what took place with the TPIA prices or regulated prices. by the CRTC. It went from north to south and then established in the middle of the road, which is the rates that are actually the one applicable. The funny thing is that, you know, those TPIAs were bought by our competitors. They bought all of them. And you know what? They're doing and using it now to sell one gig at a price of $59, which is quite surprising. So what was the logic behind all this? Will they be forced again, you know, to make a write-off in the near future? Because we don't see the value of buying a company when you don't have the value of it anymore. So, we're applying right now PPIA prices when we are offering bundles, and this is why, again, I refer to my prepared remarks, that is something that we're using to get some wireless customers. We would like to add additional services like TV. We see TV as also a growth segment, then therefore, While we are getting, you know, wireless customers, we have the capacity down the road to improve our revenue development and our market. So, I guess that I'm answering a little bit, you know, both of your questions, and maybe we'll have a few, maybe one or two things to add.

Yeah, just on your, you know, loading versus RPU second question, Maya, you know, I think one thing we're starting to resent here, to be quite honest. Obviously, we've been transparent with this, and since the acquisition of Freedom, we always said that there was an opportunity for us to disrupt a market that was inefficient and that was offering prices that were higher than the U.S. and higher than the industrialized world for telecom services. Now, that being said, I would point you and your colleagues as well to what the incumbents are doing. And they're not doing it through their main brands, as you know, but they're doing it through their fighter brands. So it's a little bit annoying to be called the aggressor. in English Canada, when you, and I really urge you, Matt, to go on their various websites, you know, and I'm going to throw a few numbers at you. If you go to Chatter, you know, you'll see that Chatter has 50 gigs for $34. This morning. With one month. Yeah, yeah, right now. That's last week. No, no, no, right now, right now. You know, for $34 with a month free, you know. We're at $35 for 50 gig at Freedom, okay? Lucky. Oh, let's look at lucky. Lucky, you get 15 gigs for $29 a month. Well, we have 10 gigs for $29 a month at Freedom. Okay, let's go see public. What's public doing? 20 gigs for $30. Same argument, right? And this is for wireless. For wireline, okay, so let's, you know, let's even look at what Bell's doing. If you look at Distributel or Primus, you know, you'll see that they have 500 megabits for $44.95 a month in Ontario. You know, so this is what we were saying in our prepared remarks, that this war, this aggression in Quebec, which, by the way, if I may be so bold, is that we did not launch the price war in Quebec. Um, we never, and you will remember mile that for a few quarters, you know, we, we didn't even respond and we lost market share and we lost net ads. We were negative net ads in internet for a few quarters. And yes, this quarter we, we responded more in kind. But we never launched this war, and we still believe that this is, at the level of maturity of the market in Quebec, it is not right, and it is not business. It's very tricky from a business standpoint to do what Bell is doing, because I think it's hurting the entire business in Quebec. And now that we see that they're going to Ontario, I think I'd be a little bit worried about the wireline business in Ontario and in the rest of Canada. As I said, if Primus is offering 500 megabits for $44 and Distributed is offering a gig for $69.

I think we can all agree that the industry would benefit from improved pricing, that's for sure. But maybe if we can just think about, you know, I'm trying to understand how your ARPU might look like in the coming quarters. If you can just help us understand where are you in that cycle on wireless ARPU.

Well, it all depends. I mean, I can't answer that. It depends, you know, it depends how, if this price war continues or not, or if people become a little bit more reasonable. We said in our remarks, you will remember, that we, you know, we were very, very disciplined, and I'm sure you will agree with that, for our back-to-school offers, and we have been so far, everything we've launched for, or that we've put out for Black Friday, is also, I'm sure you will agree, quite disciplined. Now, we can't speak for our competitors. I mean, if they go crazy again, or if they continue to go crazy in Quebec, then I'm not sure where our pew is going to end up. But, you know, I think we're doing our share. And now I think the ball is in the incumbent's court.

And back to your own question and you know, what you refer also, I guess that you should repeat that. We're staying the course. We said at the beginning, you know, when Freedom Acquisition took place that we intend, you know, to get market share. And it's true that, you know, since the assets that we require, especially the network, was not at the level that, you know, we would compare this network with Duotone because in Duotone we've been investing for the last 10 years. In fact, you know, we're doing what is necessary. And we're seeing as of today that our network is improving. Our customer experience is improving. But, you know, without, you know, having a competitive environment, you know, we don't think that, you know, we'll be able to get our market share growing. And so we intend to stay there. And we're not changing, you know, our direction. We're not, you know, we're not going to buy any telecom company in the U.S., it will continue to grow where we've been able to grow and successfully for the last few years.

Thank you. Thank you, Kurt, for your answers. All right.

Thank you.

Operator?

Yep. The next question is from Arivanda Gallipathage from Canaccord Genuity. Please go ahead.

Good morning. Thanks for taking my questions. Two main questions from me. First of all, maybe, Hugh, just on the swing due to the stock-based comp, I know that kind of created some variance to expectations. And I know in the past you've had, you know, meaningful variations because of stock-based comp. Is there anything unusual about this one, any set of changes in valuation and so forth? Just wanted to get some clarity on that. And secondly, I guess the more important question, on wireless loading, I just wanted to get some comments around the quality of loading here. I know we've seen with some of the incumbents that have reported a bigger swing to its prepaid. And also related to that, whether maybe you could comment on any changes to cost of acquisition on the wireless side that showed up in Q3. Thank you.

Thanks, Aravinda. On your first question, yeah, the stock-based compensation, the swing is due to a very simple, well, I mean to two things. Mostly to our stock price variation, which as we compare ourselves to the third quarter of last year. Our stock in the quarter had dropped by $3.50, and this quarter it actually increased by $6.50. So there's a $10 swing quarter to quarter, and that's the biggest swing that we've seen for, well, ever, I think, but at least for many years. And we also have, I have to point out, of course, we also had issued more option-based compensation. So the two make up the difference. As to the wireless loading and the quality of the loading, you know, at first, you know, we're also seeing some prepaid, of course, in the case of, you know, FIS is continuing to perform very well. So that, I suppose, it could be considered prepaid. But in our mind, you know, whether it's postpaid or prepaid that is, you know, a prepaid that is an, what do you call that, an authorized payment, for example. Sorry? Autopay. So if you have autopay on your prepaid, how different is it from a postpaid bring your own device, for example? And so I think I would point you more towards our churn that's coming down in all of our brands, which I think as to the quality, I think it does point to the quality of our loading as we are keeping these customers much longer. And we're improving every single brand on that front.

Thanks, Hugh. And just one small clarification on a previous comment. I think you've mentioned a $3.6 million decline in EBITDA or 0.6%. Were you referring to the – I'm not sure if I heard you correctly. Was that the cable component that you were giving a disclosure on?

No, that was the telecom segment.

Overall, okay, okay, okay, awesome. Great, thank you.

It's not, well, it's not Quebec or consolidated, but it's the telecom segment. So it's Videotron, Freedom, and Fizz, basically.

Okay, all right, thank you.

I'll pass the line. No, no, but where we're pointing out, it's an important point because we're pointing out, you know, we're pointing out to revenue declines in the wireline, but we were able to lower operating costs significantly and more synergies from Freedom. are continuing to come in, which basically allowed us to have a flat EBITDA. I mean, $3.6 billion, almost flat EBITDA for the quarter in the telecom side.

All right. The next question is from Matthew Griffiths from Bank of America.

Please go ahead, Matthew.

Okay. Thanks for taking the question. So I was obviously, you know, after the Freedom acquisition, you know, the market that, you know, Freedom kind of goes after and Fizz goes after is more of the value segment of the market. And, you know, since competition is obviously, you know, really escalated in that segment, you know, perhaps one could argue like the opportunity is going to be spread across more players. And so I wanted to get your thoughts on on the need for you guys perhaps to look at a premium offering, perhaps investing more in the network to kind of hit more in different segments to generate a greater long-term growth and greater profitability and perhaps give customers somewhere to migrate to. Obviously, the incumbents have the ability to load on a prepaid and then migrate them up when appropriate to a premium brand. And that's maybe not available. So just your thoughts on that and the CapEx implications.

Well, thank you, Matthew. I guess that this is a very interesting question. And as you can imagine, certainly a marketing perspective, I'm not sure it's going to be a good idea that we share this with the public and with our competitors. Again, I would say that we're coming from where we were, and Old Freedom was different than the premium brands. Old Freedom had not been there for 30 years, like Rogers, Bell, and Dulles. Old Freedom was there for 10 years or a little bit more. went through a different life cycle, I would say, you know, sick for a while, back healthy, and now certainly, you know, on solid ground to grow. So, but it's not only freedom. It's the network we acquired and the network we intend to continue to invest. And then, therefore, what we would be able to do with the network is certainly something that will open up opportunities in the future. I would say it's certainly, again, not a good idea that we share this with the public, but we can easily say that the assets that we're building on would certainly give us a springboard to the future.

So can I just follow up on that? It sounds like you know, you kind of recognize the need to invest more in the network. And, you know, there was a small increase year over year in CapEx, perhaps explained by, you know, kind of the Eastern Quebec kind of rural network expansion that was talked about and perhaps expanding, you know, Fizz's reach to, you know, new areas out West. But to what extent do you think it's sustainable to run at the very kind of low capital intensity levels that you're currently at. I mean, is there a fear that you end up in a situation where the network quality gap just widens and then the need to go and rely on lower and lower ARPU increases?

Well, Matthew, I would tell you, I don't think that we should conclude, you know, on

an equation between the efficiency of the network and the amount of capital expenditure that you're doing. You know, you have the right, and we consider that we have the obligation to spend wisely, to spend at the right place with the right technology, to make sure that, you know, there is no overlaps. that, you know, we're making the best out of our procurement department. We're running our operation tightly. And this is what we've been able to achieve forever. You know, I would say, never say never, but, you know, for the last 20 years when we started operating D'Autron, we did something very well in this position. And, you know, for us, there's no reason why we should change and start spoiling money. So we have the capacity of improving our network at a decent and reasonable cost. I don't think that we need to spend more money inefficiently, and we will stay the course. We know that nothing's going to take place in a quarter, but since we acquired the asset and the company, we have been improving it, and we know that. Because we have the capacity to supervise our network. We know where are the problems. We know what should be fixed. And there's opportunity in the future to reduce the cost of operating the business. Because when you're expanding, you know, your network, then you have, you run the possibility, well, not the possibility, you run the capacity to reduce your operating expenses. So this is what we did, and it's not something original. You know, we did it in Quebec, which is due at home, because obviously, as you can imagine, the network that we are now running on was not built in a weekend, in a month, or in a year. It was built, you know, in 10 to 15 years, and it still continues to be built, you know, with the new technologies that we're implementing, LTE Advanced, or 5G, 5G+, and all that stuff. And, you know, we were able to reach this level without spoiling our money, and our capital expenditures were reasonable. And if we have a better ratio than the incumbents, well, you know what?

We're proud of it. All right. Thank you for your answer. All right. Thank you.

The next question is from Drew McReynolds from RBC. Please go ahead, Drew.

Yeah, thanks very much. Good morning. Three for me. Hugh, just starting off, are you able to just give us what postpaid and prepaid churn was in Q3? You know, obviously, you continue to say it's down. Are we able to get that? Second, just in terms of internet ARPU, clearly, you know, shifting a little balance on the growth and profitability for Q3, more indicative of what you want to achieve going forward. And then lastly, obviously very good wireless loading, you know, 350,000 on a trailing 12 month basis. Is that actually, are you gaining market share when you look at, you know, the overall market? And I guess the real apples to apples would be, you know, within your footprint, which, you know, presumably is not as big as each of the national operators. Thank you.

On your first question on churn, you know, we haven't given out the churn, but we did say that it was lowered in all of our brands. And I can directionally tell you that we're, you know, on Videotron, we are just about, you know, on a monthly basis, we're just about slightly higher than the 1% mark. and with Freedom and Fizz being slightly higher, but certainly in the, you know, in the 1.5% kind of range. And that's also, you know, when I'm looking at, you know, that's going from very much higher than that last year when we were talking about, you know, Freedom being in the high twos and even Fizz being, you know, in the... The high ones are around 2%.

Yes. Thanks for that, Hugh.

Do you have a couple of questions?

Your second question was on Q3, right? Whether Q3 was reflective of how we see things going?

I'm not sure.

Can you repeat that?

yeah yeah more more on the cable in particular the internet side obviously you did much better on kind of loading and there's probably a seasonal kind of kickback post moving season uh but there's you know still you know some arpu pressure there just you know as you balance growth and profitability on that part of your business are you kind of pleased with q3 um

Well, please, no, we're not pleased because, again, as we've said very clearly, we think that Bell's aggression in cable or in wireline in Quebec is unwarranted and is, to be honest, blatantly stupid for everyone. But that being said, one thing in terms of revenues going forward is I'll point you to the fact that, as we said in our remarks, you know, part of the explanation, most of the explanation actually for the lower revenues has to do with us not making an annual increase for Internet and cable at the beginning of the year. And we have, I'm sure you're aware that we've changed our tune on this. And starting in December, there will be an annual increase being put in. So for 2025, most of that differential should be covered by that or should be made up by that.

Right. And then, yeah, the last one was just on within kind of your POPs covered, given kind of your loading of 350 on wireless over the last kind of 12 months. The data you have, are you gaining share within kind of what we've seen with the broader market?

As you know, our coverage area tends to be quite urban on the freedom side. And we are indeed, Mark, we're seeing very high. I'm not going to throw numbers at you because they haven't been vetted. But we're certainly looking at, you know, I mean, we're probably starting at the 10% kind of position. And we are now more than, you know, if not double that, not very far from that in certain areas like the greater Toronto area, for example. and the other big cities such as Calgary and Vancouver.

Okay. Thank you for that. I appreciate it. Thank you.

Thanks, Drew. All right. The next question is from David McFadgen from Cormac Security. Please go ahead, David.

Oh, great. Thank you. So a couple questions. I'll just go one by one. So when we look at the... total telecom EBITDA, and then when you factor in the wireless EBITDA growth that you talked about at 17%, it obviously implies a low double-digit decline on the wireline EBITDA. So I was just wondering what can be done to improve that decline, and is this purely or mainly a function of the pricing environment out there and the competitiveness in the market?

Well, David, It's an interesting question. On one side, obviously, if you were to reduce their prices, you will get more loading. On the other side, if you want to have less loading, you increase the prices. Again, this is something that we will not share with our competitors through this conference call, but I'm not going to say it's it's automatic or it's mathematical. But there is certainly a break relation between loading and prices that you're offering. So, and we said many times, and I guess that may be the additional information that we can have here, is a question of balance. I mean, so are we doing what is necessary to keep our absolute number of customers, or we would like to protect our margins by not following all those things that are taking place in the marketplace. So again, it's a matter of balance, and it will depend, you know, on a day-to-day basis, you know, what we're reading from the market. Something we know, and This is something that, you know, obviously we are emphasizing on through our call centers, through our marketing and advertising strategy, is that customer experience is not comparable to our competitors. And we try to enhance and, again, to emphasize as much as possible on it. Is this, you know, unfenetrable? say, you know, not completely, but it's certainly an asset that we've been building throughout all those decades for which we're very proud and for which, you know, we're doing not too bad. When we compare with the numbers that we saw in the U.S., you know, Comcast last week, I mean, we compare highly favorably. And again, it's a matter of making sure that we have a balance of loading and mark, and we will continue to be driven by those pieces of the equation.

Okay. So just on the wireless business, the incumbents are basically discontinuing the prepaid on their primary brands. They're just going to run it on their flankers. So just wondering what are your plans, if you can share them, for your prepaid business?

Yeah, I guess that answer to that, you know, we, maybe we should consider that, and you've been educated that way, that there's a big difference between prepaid and tolls paid from our competitor's perspective. But we're not seeing this, you know, the same way. Because again, you know, our digital 100%, Brent, which is the one that we've been driving with Fizz, and it's prepaid in all of the means. I mean, you have the money in your bank account, and if you want to desubscribe, you need to go on the website and do it yourself. Since our prices are competitive, but, I mean, you can easily understand that If we were to lower price, you know, our fifth customer will know right away, and then they'll come on the website because, quote, unquote, they're probably more educated customers than others. And then, you know, they will reprice their service. And obviously, as you can imagine, this is why we need to be prudent. Again, this is why, you know, we have a perspective of balance between loading and pricing.

Okay. And then just the last question is, can you give us an update on CapEx for this year and sort of an outlook for next year?

Yeah, we're still on track, David, for, you know, the guidance was, we had given you guidance for 2024, about 600, maybe a little bit higher than that. I think we're on track with that. uh for for um you know for next year we we haven't given any guidance yet but we did point out to the fact that in our view uh capex should be fairly stable uh other than you know we've mentioned uh wireline equipment right we've switched now from a from uh selling the uh the boxes to renting the boxes so as you know that creates uh that creates extra capex so there'll be there'll be the impact of that. But other than that, we're looking at stability for going in the next few quarters.

Okay. All right. Thank you.

Okay. Thank you. The next question is from Stephanie Price from CIBC. Please go ahead, Stephanie.

Hi. Thank you for fitting me in. I wanted to just touch on capital allocation. So leverage is now close to your target range, and you were active in the share buyback this quarter. and your payout ratio is also near the bottom of your targeted range. Just curious in terms of outside of investments in the business, how should we think about capital allocation here? Would you prioritize an increased return of capital to shareholders, or would the focus be on M&A?

Well, I guess that we need to figure out what's going to take place. I mean, if we consider that there's an opportunity for us that we'll build in the future, we'll consider it yet. That doesn't mean, you know, we're going to jump on it. And if we were, you know, considering it, certainly not at an inflated price. We will be guided by the accretion aspect, accretion on EBITDA, but accretion also on money invested, on the cash that, you know, will be required. I'd like to highlight, you know, something that maybe, you know, maybe you are not emphasizing on, sufficiently. Our definition of free cash flow, it's quite simple, but it's probably, you know, worth, you know, to mention it again. So it's EBITDA minus interest on debt minus interest on leases minus taxes minus share repurchase and minus dividends. We've been showing that this number is positive, and this number brings cash in the bank, which is used to reduce our debt and improve our ratio. Compared to our competitors, our debt is not growing. We've been seeing our debt competitors growing every quarter, for which purpose? This unit. So it worked to mention this. Back to the reallocation, as you know, I guess that you've been seeing that our payout ratio in terms of dividends is one of the lowest of the industry. Certainly, you know, at the low side of the bracket we mentioned publicly a few quarters ago, So I think it's worth also to mention this, since, you know, again, the free cash flow that we're generating is always positive. I don't know if, you know, answer completely your question. If not, maybe you, Zig, may have other answers. No, no, no, I think that's exactly what I would have said.

That's great. Thank you very much.

Okay, thank you. The final question for today is from Vince Valentini from TD Securities. Please go ahead, Vince.

Hey, thanks very much. Can I try to clarify a couple of accounting things and a couple of things you've said so far? First of all, on Drew's question on market share, when you say it used to be 10 and now more like 20 in some cities, I assume you're saying market share of gross ads for freedom as opposed to total share of all subs in the market?

Well, yeah, I'm referring to growth ads. Yes, I was referring to growth ads. Yes, absolutely.

No problem. Just want to make sure, Hugh.

No, actually, I was not referring to growth ads. Sorry. I said 10%. We started when we bought Freedom. We were probably at a 10% market share nationally and in some big cities, most notably the GTA. We've almost doubled that. So that's just the current market share. I'm not sure how to say it differently.

Okay. You think you're at a 20% share of the GTA market. Obviously, you have to be much lower than that in Vancouver and Calgary and other big cities or else your subs would be demonstrably higher.

First of all, I didn't say double that. I said it's lower than 20%, but it's way higher than 10%.

Okay. Second, Dave came up and answered his question about the capital treatment for Helix boxes now that you're renting. Can you help me with the revenue impact? Is that in some way impacting the Internet market? revenue decline this quarter of how you're treating the rental fees versus what used to be selling boxes?

Well, yes, because we used to take it up front, and now the revenue comes over the next periods, right? So it will get better. Obviously, the revenue will keep coming in over the next quarters. So, yeah, I mean, you know, basically we used to recognize the revenue up front, which we don't anymore, but net of discounts if there were discounts. And now we're recognizing over time, recognizing it over time. And capexing the box, of course.

Would that change in the quarter have had a big impact on Internet revenue being down 4.8%? Like would it have been minus 3% if not for that or something?

No, no, but it's very recent that we started that anyway. So no, I think it's immaterial, honestly, in the quarter. Okay. But it will be more material forward.

Okay, fair enough on that one. Another one to clarify is your leases, it's not huge dollars, but I mean, it's up 10% year over year, 33 million versus 30 million last year. Is that just simply like sites for sell sites and other things we'd think of as leases? Or is there any way that some of the wholesale fees are somehow being captured as a lease, like when your MVNO expands or as you pay domestic roaming fees to Rogers or others?

No, I think it, no, to your second point, no. It's, you know, more sites and higher rents or higher, you know, these sites cost more. The leases are just more expensive, basically.

Okay, getting to the end here. Working capital, Pretty big inflow. I know you're proud of the free cash flow and debt reduction, and you should be, but it seems to be getting a bit of a tailwind from working capital that can be lumpy. It was up $111 million in the third quarter and $72 million year-to-date. Is there anything sustainable in that, or is this just timing issues that could reverse?

No, on cash flow, no. Well, I mean, working capital, as you know, is is is hard to predict but uh we're certainly managing it and you will have seen the trend over the last quarters that it keeps uh it keeps improving so um i i wouldn't expect a uh uh you know a big change of uh direction over uh in q4 no there's no spectrum auction taking place thank you um and lack detailed one and i may have one big picture after um is

simply on the growth in wireless EBITDA of 17%, if I remember the number correctly, does that include any drag from higher stock-based comp, or do you give us that number on a gross basis and then the stock-based comp adjustment is more just at the telecom level in aggregate, or would 17% have been achieved despite absorbing higher stock-based comp?

No, the stock-based comp is spread. A good chunk of it is in the head office adjustment, well, not adjustment, the head office variance that you saw, but the rest is spread. And it's spread also between, you know, wireline and wireless, of course. So wireless will make its share of the stock comp increase, yes.

Okay. If that's the case, then the math should be pretty straightforward. If your wireless EBITDA is up 17%, your cable segment EBITDA is down 12% year over year. That is unusually bad for any cable company, especially for one that's managing its costs as aggressively as you guys. Can you talk through that at all? Is that something you find acceptable? I know you've talked a lot about the price war in Quebec. Is that just the reality of what it translates to in terms of EBITDA growth, or is there something temporary in there that you can make look better in the next few quarters?

Well, you know, it's either on the revenue side, Vince, as you know, or the cost side, right? And the cost side in wireline, as you know, these are long-term. I mean, there's efficiencies, and then we continue always to work on efficiencies. and we will continue to do so, especially since we're facing more pressure on the top line in the wireline. But it's mostly repeating what we've said before. It's mostly a revenue issue, most of which is due to the fact that we did not bring wireline prices up at the beginning of the year and that we will do now to help matters for 2025.

Thank you, sir, for the laundry list. Just need to clarify those things. Thanks.

Okay, thank you very much, Vince, and thank you to all of you. I would only like to add something because it was something that surprised me, but, you know, yeah, for sure, again, you know, we will say that it's a competitive environment, and certainly have, you know, some effects. But when we're calculating our ARPU, we don't exclude any customers, which we've been seeing our competitors doing. And funny is that they're excluding the one with the lowest ARPU, which mathematically increased their average ARPU. So we... recognize, you know, the competitive aspect of the market. But, you know, we will always kind of be transparent about it. And we will continue to focus on our capacity to generate money, to generate cash, to improve our balance sheet and to reduce our debt, which will give us even more leeway in the future. So on this, I'd like to thank you all and wish you success.

I'm early a little bit on the process, but Merry Christmas, and we'll talk to you at the next quarter.

Ladies and gentlemen, this concludes Quebecor Inc.' 's financial results for the third quarter conference call. Thank you for your participation, and have a nice day.