Earnings Call Transcript
BCE INC (BCE)
Earnings Call Transcript - BCE Q2 2024
Operator, Operator
Good morning, ladies and gentlemen. Welcome to the BCE Q2 2024 Results Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos.
Thane Fotopoulos, Executive
Thank you, Matthew, and good morning, everyone, and thank you for joining our call. With me here today are Mirko Bibic, President and CEO of BCE; and our CFO, Curtis Millen. You can find all of our Q2 disclosure documents on the Investor Relations page of the bce.ca website, which we posted earlier this morning. Before we begin, I want to draw your attention to our Safe Harbor statement on Slide 2 of the analyst presentation reminding you that today’s presentation and remarks made during the call will include forward-looking information, and therefore, are subject to risks and uncertainties. Results could differ materially. We disclaim any obligation to update forward-looking statements, except as required by law. Please refer to BCE’s publicly filed documents for more details on our assumptions and risks. With that, I turn the call over to Mirko.
Mirko Bibic, CEO
Thank you, Thane, and good morning, everyone. So looking at our overall second quarter operating results, the Bell team managed well and we executed with financial discipline against the backdrop of a highly competitive marketplace. We have a clear vision for how we're competing now and into the future, combined with our proven trademark consistent execution. While consolidated top line growth continued to be impacted by sustained competitive pricing pressures and expected revenue loss from the source, we remain laser-focused on profitable margin-accretive subscriber growth and driving costs out of the organization, as you can see by 2% EBITDA growth in Q2 and a 1.3 point increase in BCE's margin to 44.9%. Both of these results were higher than forecasted, demonstrating our success in driving efficiencies and reducing costs to offset near-term competitive and economic pressures. This contributed to $1.1 billion of free cash flow being delivered in Q2, which represents an increase of 8% over last year and aligns with the expectations we shared with you on our Q1 conference call in May for higher free cash flow generation as profiled in our quarterly budget at the start of the year. As for operating results, our CTS segment subscriber metrics continue to be underpinned by a leading broadband fiber network that is consistently recognized by third parties for its best-in-class performance and customer experience, by mobile 5G speeds that are being further enhanced with the deployment of 3800 megahertz spectrum, as well as increased customer bundling of mobility and Internet that serves as an important churn management and value driver tool. In wireless, we were arguably the most disciplined in striking the right balance between volume growth and economics in a heightened competitive pricing environment. We managed our promotional offers prudently to deliver a healthy step up in new subscriber activations that focused on higher quality main brand loadings. In fact, Bell has led the charge on more rational pricing behavior, increasing the rates on a number of Bell Mobility and Virgin Plus plans at the beginning of July, while continuing to deliver exceptional value to our customers. Collectively, total postpaid and prepaid mobile phone net ads in Q2 were up 4.4% to 131,043. And with robust Canadian population growth projections and even greater focus on bundling wireless and consumer Internet service, we see good runway for continued growth. Mobile subscriber growth also included connected device net ads of approximately 88,000. That's up 10.5% over the prior year and reflects continued strong momentum for our 5G and IoT B2B solutions. In residential wireline, we continue to gain a significant share of new Internet subscriber growth and that's fueled by our fiber network's superior symmetrical speeds and overall customer experience, which drove our highest Q2 consumer retail Internet net ads in 17 years and an 18% increase in households subscribing to mobility and Internet service bundles where we have fiber. Notably, 41% of our new Internet customers this quarter subscribe to a service bundle with wireless, which should help drive better subscriber lifetime value and improve retention longer term. Turning now to media, Bell Media continues to transform from a traditional broadcaster to a digital media and content leader and a prime example of that is the advanced advertising solutions for clients powered by Bell first-party data, including Bell Analytics, the SAM TV sales tool, Bell DSP, addressable TV, and Crave with ads, which collectively drove a 35% increase in digital advertising revenues this quarter. And investments to sustain the strategic shift to digital will continue. We announced a number of new partnerships and additions to our ad offerings at our upfront presentation in June. These included a new self-serve buying platform for advertisers looking to reach local audiences, strategic sales partnerships with TikTok's premium advertising product, Pulse Premiere, as well as Dotdash Meredith, the largest digital and print publisher in the U.S., and expanded distribution for our 10 new fast channels, which we launched in April. Our momentum also continues to build in the business enterprise space as our expanding capabilities in cloudification, security, and managed automation have led to increasing customer wins and the expansion of existing relationships, all of which drove strong business solution services revenue growth of 22% this quarter. Building on this growth strategy, we recently acquired leading technical services companies Stratejm and CloudKettle. These acquisitions complement our acquisition of FX Innovation last year by immediately strengthening Bell's cybersecurity and Salesforce workflow automation knowledge for enterprises and enriching the range of capabilities available to manage customers' public and hybrid cloud environments with the world's leading cloud providers. We can now deliver customer solutions across the two leading platform software companies, ServiceNow and Salesforce, in addition to our new advanced managed security solution. And regarding ServiceNow, we recently entered into an expanded partnership with them to accelerate Bell's digital transformation and importantly, the digital transformation of our enterprise customers. ServiceNow's applications will streamline several areas of our business, including network, customer, and field service operations resulting in a more efficient experience for technicians leveraging AI-driven insights to automate scheduling, improve customer service, and reduce drive time, also to enhance customer support with powerful automation capabilities to streamline case handling and drive faster service deliveries using solutions that ensure customers get the services they want and require in a matter of hours or days. While these investments in partnerships and technology and automation will enable us to unlock even greater operational efficiencies. Going forward, we're already benefiting from advanced AI and machine learning capabilities to improve the Bell customer experience and, importantly, take costs out of our business, which contributed to $20 million in labor cost savings across our customer operations this quarter. Here are some examples of how our AI leadership is setting us apart. We pioneered a self-serve virtual repair tool for technical troubleshooting of Internet and TV issues, which eliminated call wait times and technician visits. We launched the first Google AI powered Infobot in Canada, offering instant answers to customer questions and directing them to self-serve options and links. Our implementation of the full Google call center AI platform is a world first for a contact center of this scale. The virtual assistant we've implemented first for Lucky Mobile Chat, and now for our Bell and Virgin brands, has resulted in over 1.1 million virtual assistant interactions year-to-date across the three brands. We've also implemented AI powered agent support models that leverage real-time transcription. We analyze calls in our contact centers through our speech AI solution, enabling us to identify cross-sell opportunities where appropriate. We also use AI-enabled dynamic call routing to pair incoming customer calls with the agent who has the right skill set to optimize that customer's experience. We're also using generative AI for call quality assurance, monitoring aspects like time on hold and manager escalations, and to automatically generate retention offers in real-time, all of which is designed to vastly improve the customer experience, drive operating efficiencies, lower churn, and generate higher customer lifetime value. And against the backdrop of these accelerating investments in key growth areas, we entered into a transaction to sell Northwestel to a consortium of indigenous communities for up to $1 billion in cash. This was a unique opportunity that emerged to surface good value for a standalone BCE asset at a fair valuation and to use those proceeds to proactively manage our balance sheet and to pay down debt. Consistent with our strategy to reduce focus on non-core businesses, we took the next step in the transition of 167 source stores to Best Buy Express with the opening of our first store in June. That marks the beginning of a phased rollout with all stores expected to be opened by the end of this year. All remaining 107 source stores are now closed and they're no longer in operation. I'm going to turn now to Slide 5 for a brief review of some of the operating metrics by segment, starting with wireless. We added 131,043 new net mobile phone subscribers in Q2, up 4.4% from last year, and that was a function of a 14.4% increase in gross activations, which outpaced peers who have already reported by a wide margin and a second consecutive quarter of deceleration in the year-over-year rate of churn increase. Now the churn does remain elevated and it's clearly not at a level that I'm satisfied with, but it stands sequentially from Q1 both in absolute terms and in the magnitude of increase when compared to the prior year. Although postpaid net ads of 78,500 were down versus Q2 of last year on what was a relatively strong prior year, importantly and quite deliberately, the vast majority of our new customers continue to be on our main premium brand, which is fundamental to our operating strategy. This result reflects our focus on better quality, profitable and margin-accretive subscriber acquisition. We plan to continue with this consistent and disciplined approach, which balances subscriber growth with financial performance rather than just buying loads as we progress through the balance of 2024 and beyond. Prepaid net additions were up meaningfully over last year, growing to 52,543 as we benefited from the launch of No Name Mobile and Lucky Mobile marketing initiatives. This represents our best quarterly prepaid result in almost two years. Having led the market in prepaid growth this quarter, it shows that we've made significant strides in breaking into the Canadian newcomer market in a relatively short period of time. To close off on wireless, ARPU was down 1.9% year-over-year. This result doesn't come as a surprise, given that we've been facing the lowest pricing environment in the history of wireless in Canada for much of the past year. However, we did see an improvement in June. And although this is encouraging, given the current dynamic pricing environment that's in flux as we enter the back-to-school period, it's still too early to make a call on the direction of ARPU for the balance of this year. I'm going to turn over to wireline now. We had 23,841 new retail Internet additions. We delivered our second-best Q2 results since 2007 after Q2 2023, which was an exceptional year. Moreover, where we have fiber, our bundle sales continue to grow. In Q2 alone, new customers subscribing to mobility and Internet service bundles increased 23% compared to last year and now comprise 48% of our total residential households. We had another solid quarter for our Bell-branded IPTV service, which added 3% more new net subscribers in Q2 2023. However, gross activations on our 5 TV app streaming service were down considerably this quarter, which was due to a $5 rate increase in May for new subscribers, resulting in a 12,800 year-over-year decrease in total IPTV net additions. Lastly, I'm going to turn over to media. Total advertising revenue was up on the strength of digital and live sports, and although this result represents our second consecutive quarter of growth, the ad market improvement is expected to be uneven for the balance of this year. Digital and direct-to-consumer continue to grow strongly, helping to offset the secular pressures from traditional media platforms. Digital revenues were up 23% over last year and now comprise 41% of media revenue compared to 33% last year. Driving this performance was Crave, which grew direct streaming subscribers by 21% in Q2 on the back of market-leading content, as well as strong growth in usage of our programmatic ad marketplace, including our SAM TV advertising tool, which increased sales revenue by 43% this quarter. TSN and RDS direct-to-consumer streaming subscribers more than doubled over last year, on the back of Euro Cup Soccer and record-breaking audiences for the Copa América tournament. For the current broadcast season to date, CTV remains Canada's most-watched network for a 23rd consecutive year. On the French-language side, Bell Media led all competitors in the entertainment and pay specialty market, and Noovo was the conventional TV network with the largest growth in full day audiences, increasing 8% over Q2 of last year. In summary, our performance for Q2 reflects the team's consistent execution in a highly competitive and evolving marketplace with financial results that demonstrated a prudent balancing of subscriber growth with profitability and a continued sharp focus on cost efficiency and effectiveness. I'll now turn the call over to Curtis, who's going to provide more details on our financial results.
Curtis Millen, CFO
Thanks, Mirko, and good morning, everyone. As you can see on Slide 7, our consolidated financial results for Q2 demonstrate the Bell team's consistent and responsible execution in an intensely competitive marketplace. We returned to positive service revenue growth in Q2 following declines in the two previous quarters. This is the direct result of our successful fiber strategy, our ability to attract premium wireless subscribers, and drive greater cross-sell penetration of mobility and Internet households, our expanded business tech services capabilities, and continued strong digital media growth. Total revenue was down 1%. This can be attributed to an 8.7% decrease in low-margin wireless and wireline product sales, which included the loss of revenue from the source store closures. Adjusted EBITDA grew 2%, delivering a notable margin improvement of 1.3 points on the back of a 3.3% reduction in operating costs. Net earnings were up 52% in Q2; while helped by EBITDA, the increase was due mainly to a large non-cash loss recorded in Q2 of 2023 on BCE share of an obligation to repurchase the minority interest in a joint venture equity investment at fair value. Nothing notable on adjusted EPS, consistent with our 2024 guidance assumptions for interest and depreciation expense, it was down $0.01 compared to last year. As for free cash flow, it grew a strong 8% this quarter benefiting from the flow-through of higher EBITDA and lower CapEx. In line with our plan to reduce capital spending by at least $500 million in 2024, CapEx was down $329 in Q2. This brought year-to-date CapEx savings to $413 million. So we're well on track to achieve our plan reduction for the year. Turning to Bell CTS financial results on Slide 8, the top line story here is all about low-margin product revenue, which was down $66 million in Q2, accounting for 93% of the 1.3% decline in total revenue. The decrease was the result of lower mobile phone sales as 70% of new customer activations in Q2 were BYOD subs. The source store closures that I referenced earlier and reduced wireline telecom equipment sales as levels normalize following an exceptional year in 2023 due to the global supply chain recovery. Importantly, the EBITDA impact was negligible as these product revenues are very low margin. Internet revenue was up approximately 3%, while wireless service revenue grew by 1.2%. Although both are solid results, they continue to be impacted by overly aggressive rate plan pricing and bundle discounting, reflecting a more intense competitive market environment compared to last year. This together with ongoing legacy erosion moderated service revenue growth this quarter. We also continue to see good business solution strength, a key growth factor going forward, where revenue grew 22% over last year. This was driven by higher sales of cloud-based computing, managed automation and security services, as well as our acquisition of FX Innovation that we lapped in June. However, the financial highlight of the quarter was EBITDA, which strengthened over Q1, growing by 2% to yield a strong margin of 46.9%. That's a 150 point increase over last year and the direct results of our focus on cost management, as evidenced by a 4.1% reduction in Q2 operating costs and margin-accretive subscriber growth. Turning over to Bell Media on Slide 9, we had good overall financial performance in Q2. In fact, this marks Bell Media's first quarter of revenue and EBITDA growth in two years. A positive result under the circumstances, which is a testament to the team's strong execution, our diversified asset mix, premium content, and the success of our digital-first media strategy. Total Q2 revenue is up approximately 1%. This result was driven by a 1.9% increase in advertising revenue on the back of our strong TV sports specialty performance, continued robust digital advertising growth, and the acquisition of OUTFRONT Media that was completed in June. The F1 Canadian Grand Prix and higher international sales of Bell Media programming also contributed to higher revenue this quarter. The media team also did a great job managing costs, which is a recurring theme, increasing only marginally despite higher TV programming costs, as much of this pressure was effectively offset by cost-saving initiatives. This, combined with the benefit of higher revenue, enabled us to deliver EBITDA growth of nearly 2% this quarter. Turning to the balance sheet on Slide 10, we ended Q2 with $5 billion of available liquidity, which includes the proceeds of a $1.5 billion public debt issuance we completed in May. Our debt maturity schedule is also prudently structured with an average term to maturity of approximately 13 years and an after-tax cost of debt below prevailing interest rates at 3.2%. This, along with no outstanding refinancing requirements for the balance of the year, maturities in 2025 totaling $2.1 billion that have already been largely pre-funded, easing interest rates, and a sizable pension solvency surplus have us remain in a good financial position. We made a final payment of $414 million in Q2 for 3800 megahertz spectrum that we won in auction late last year. This led to a slight increase in our leverage ratio from Q1 to 3.7x adjusted EBITDA. We're mindful of our elevated debt position and remain highly focused on reducing our leverage ratio over time. This will be achieved through positive free cash flow generation after debt payments and using the proceeds from asset sales, such as Northwestel to pay down debt. In fact, the announced billion-dollar Northwestel transaction is expected to improve our leverage ratio by up to approximately 5 basis points. To finish off on Slide 11, you can see from our performance in the first half of 2024 that we are effectively navigating a dynamic competitive and economic environment to achieve financial results largely in line with our expectations. Going forward, we'll continue to execute in the same consistent and disciplined manner, focusing on cost efficiencies and balanced growth. Accordingly, we remain confident in our ability to deliver on all of our financial guidance targets for 2024. I'll now hand the call back to Thane and the operator to begin Q&A.
Thane Fotopoulos, Executive
Thanks, Curtis. So before we start, to keep the call as efficient as possible, please limit yourselves to one question and a brief follow-up if you must, so that we can get to as many questions in the queue as possible with the time we have left. With that, Matthew, we're ready to take our first question.
Operator, Operator
Thank you. The first question is from Maher Yaghi from Scotiabank.
Maher Yaghi, Analyst
Great. Thank you for taking my question. Good morning, everyone. So I wanted to ask you, I won't ask you about wireless. I'll ask you about wireline, actually. So we are seeing significant promotional and retention activities in the market with some, like, lifetime price locks, guarantees by Videotron, which the Canadian market hasn't seen before, but also aggressive signing promotions by Bell with prices as low as $55 for 1.5 gigs. We are waiting for the decision by the CRTC, but I would say the market is quite competitive. But that's just me. We'll see what they have in mind. But my question on this topic is the following: When BCE first embarked on its fiber to the home deployment, I remember quite clearly, quite, like, 10 years ago, the expectation was that broadband ARPU was going to be in the $90 to $100 range, and now we're sitting at $55 to $60 range. Are we still seeing positive NPVs on fiber to the home when you look at your models and you look at the pricing currently in the marketplace? What's your view on that investment and its potential positive return for shareholders?
Mirko Bibic, CEO
Thank you, Maher. That's for the question. Look, fiber continues to be the growth engine of Bell on the wireline side. And frankly, if you look at the communication segments pretty much everywhere, the area of growth in wireline is actually fiber. So still quite positive on the fiber strategy. Obviously, it remains the bedrock of our wireline strategy and the investments were much needed, critical, and will serve us well for years to come. I'm quite pleased with our Internet performance over time, but including Q2 of this year. It was our second-best Q2 since 2007 after last year, which was a standout quarter a year ago. So I already said that in my opening remarks. We're seeing very good, very good bundling success, and that's adding to the lifetime value of customers, Maher. Now there is room for ARPU growth. In some markets, though, I'd say we've seen promotional intensity stabilize as bill credits lower. You're giving an example of a particular offer that’s maybe in market in particular areas, but they really cater to higher value customers, which remains part of our overall strategy. We are in an intense pricing environment in wireless and wireline. Everybody knows this, but we're going to continue to focus on generating lifetime value for customers who choose the very best and who want premium products, and that's Bell 5. We're doing a very good job standing out in the marketplace. I would say, to end the answer to your question, as you see, we're going to adjust to circumstances as they arise, right, whether it's pricing environment, macroeconomic pressures, regulatory pressures. We're just going to adjust, and you’ve seen a major adjustment over the last 12 months in terms of the pace of our fiber build as we get closer and closer to reaching our near-term build-out target and we'll continue to adjust very quickly in the face of pressures. That's one of the hallmarks of how Bell operates.
Operator, Operator
Our next question is from Stephanie Price from CIBC World Markets.
Stephanie Price, Analyst
Good morning. I was hoping to understand more about the opportunities with ServiceNow and AI and automation. Are these initiatives included in your original cost savings initiatives, or should we think about them as additive? If so, how do we think about the magnitude and timing around automation and digitization?
Mirko Bibic, CEO
Thanks for the question. On ServiceNow, we are embedding ServiceNow into our own environment in order to increase efficiency both in how we operate and, of course, drive costs out of the business, but I'm particularly energized in terms of that partnership with our ability to go-to-market in conjunction with ServiceNow and to serve our enterprise customers in their own digital transformation journeys and that's across cloud security and managed automation by integrating ServiceNow into the environments of our customers and co-creating with ServiceNow so that we can jointly go to market. So that's where for me it's an equally positive initiative on the go-to-market side, including embedding it into our own environment. So that's going to continue to drive costs out of our business combined with more robotic process automation and more use of AI, Stephanie. I gave a list of examples in my opening remarks of how we're going to use AI to improve the customer experience, attract more customers, and importantly, drive costs out of the business, and I shared the $20 million figure. So I can't give you a precise figure as to how we're going to continue or the quantum of cost efficiencies quarter-to-quarter that are going to come from deploying AI in ServiceNow, but we're going to continue to do that in the business, and you can count on us to do it.
Curtis Millen, CFO
And Stephanie, the only thing I'll add just to the second part of your question, we've been looking at those types of opportunities for years and we do see the results day-in, day-out; these are part of them. But to answer the other part of your question, we would look at this as incremental to the workforce restructuring benefits that we talked about in February, and just on that item, we do remain on track in terms of hitting those targets. We continue to see a path to $150 million to $200 million of in-year savings. As you can appreciate, it's a pretty big workforce restructuring, so it will continue to scale throughout the year, but we see those as two different opportunities.
Operator, Operator
Our next question is from Sebastiano Petti from JP Morgan.
Sebastiano Petti, Analyst
Thank you. Just a quick follow-up there, Curtis. On the $150 million to $200 million of cost savings, can you maybe tell us where we're at in terms of the run rate exiting the second quarter? And I think how should we anticipate that perhaps tracking and phasing over the balance of the year would be helpful? And then I think we talked about to Mirko, I guess or to Curtis as well, in terms of just thinking about prepaid and the new to Canada market, strong results there, part of that obviously driven by the No Name Mobile, Lucky initiative you talked about, but this has been building for some time. Can you help us think about how the team is evaluating maybe the prepaid versus postpaid mix given the emphasis and the focus on premium loadings on the Bell brand? Should we think about above and beyond perhaps some of your initiatives, with No Name Mobile and Lucky, do you and the newcomers market continue to be robust? Should we think about maybe a higher mix towards the prepaid loadings over the coming quarters and maybe over the next or the foreseeable future rather as a way to perhaps combat flanker brand competition? Just maybe your thoughts on that would be great.
Curtis Millen, CFO
Hi, Sebastiano. Thanks for the question. I'll answer the first question I had and then hand it over to Mirko. So we don't report that information on a quarterly basis, but I would say as we reiterate our confidence in capturing those savings in year that we expect and continue to expect to reach our run rate benefit by the end of Q4. So it will continue to ramp up through the year and we'll hit our in-year target and we'll be at full run rate by the end of the calendar year.
Mirko Bibic, CEO
Thanks, Curtis. So, I'm glad you asked the question on prepaid because, I would allow me to emphasize that this very strong growth you see in prepaid is actually, in my mind, very well aligned with the premium loading strategy, actually. So if you think through how we're trying to segment customers, we need to better align base pricing with in-market pricing or better align in-market pricing with base pricing, number 1. We need to better align the pricing differential between bring-your-own-device and contract pricing. At the same time, we need to differentiate between prepaid and value-based postpaid plans. We did a much better job in Q2 making prepaid the true entry point for those looking to enter wireless at the lower price point, and that includes a portion of newcomers and other customers. What you do is you work on migrating your prepaid customers, those who were seeking an entry price point. You seek to migrate them up to a postpaid plan. So if you do that properly, what you're going to do is you're going to attract a bigger portion of those newcomers in Canada or those newcomers into the segment to the prepaid rather than into postpaid, which was a problem with how we were pricing as an industry, let's say, a year ago. So I think what we did there is we saw, as we better align that pricing and as we better segmented customers, we saw very strong growth in premium postpaid loadings and strong growth in prepaid, particularly adept at attracting newcomers to Canada in that segment. The success you see there is completely aligned with premium postpaid, better growth on newcomers, which continues a category that continues to grow. That's because we did a better job at differentiating the pricing across the various brands.
Operator, Operator
Our next question is from David Barden from Bank of America.
David Barden, Analyst
Hey, guys. Thank you for taking the questions. Good morning. I guess my first question would be, Mirko, at the very beginning of the year, there was a hope that we might see decelerating ARPU growth last quarter. There was a change in expectations that we would maybe see declining ARPU for the year. Your comments just now seem to express some cautious optimism that the second half is yet to be written. Could you maybe map out for us the good base and bad case scenarios and how you see those unfolding in the back part of the year for Bell Canada in the wireless ARPU front? And then as a follow-up, could you share with us any traction that you think Bell Canada has achieved through your decisions to cut CapEx, cut employment in response to some of the regulatory decisions that have been made? Do you think that that's borne any fruit or may bear fruit, yet?
Mirko Bibic, CEO
Thank you. I would say that we are experiencing the most intense competitive pressure ever in the Canadian wireless industry. While I won’t repeat the detailed explanation I provided earlier, I will add that in early July, we took steps to adjust pricing to a level we believe is more sustainable while still delivering great value to our customers. It’s too early to predict the impact of these changes for the rest of the year, but this aligns with the customer segmentation strategy I mentioned before. Regarding your second question, our perspective on the overall environment is well-known, so I won’t reiterate that. However, we will continue to concentrate on our strategy, which is to leverage our growth in fiber, as it’s the preferred option for customers. We will maintain our focus on premium offerings in wireless and on mobility and Internet bundles. Our expertise in AI will be used to enhance customer experience and reduce costs. Additionally, we are focusing on investments in our core operations and growth areas, such as the acquisition of OUTFRONT, our partnership with ServiceNow, the acquisitions of Stratejm, the transition from the source to Best Buy, and No Name Mobile. These are essential investments in growth segments, and they form key aspects of our strategy.
Operator, Operator
Our next question is from Vince Valentini from TD Securities.
Vince Valentini, Analyst
Hi, thanks very much. First, can I just clarify the 70% BYOD, Curtis? Would that be on total activations or just postpaid? And then just a follow-up question on a different topic. Any, a couple of your peers use dividend sort of drip discount programs to help alleviate the increase in their debt as they pay their dividends. I'm wondering, is that not something that BCE has considered? It seems to be very eloquent to match the interests of equity shareholders plus credit rating agencies and bondholders.
Curtis Millen, CFO
Yeah. Hi, Vince. Thanks for the questions. On the first one, just a clarification, the 70% BYOD is on postpaid and gross. Yeah, postpaid gross. In terms of the discounted DRIP, we've certainly considered it. It's not in our plan at this point. We believe we have a path to getting our payout ratio below 100%, driving free cash flow through all of the levers that Mirko and I have mentioned. Obviously, going forward, it is a tactic that we would have, but it's not in the cards right now.
Operator, Operator
Our next question is from Simon Flannery from Morgan Stanley.
Simon Flannery, Analyst
Great. Thank you very much. So thank you for the data on convergence and bundles. Very interesting. A number of, the U.S. companies and also Rogers are looking at fixed wireless to help provide essentially a national bundle. How are you thinking about whether you address maybe areas where you don't have fiber either in footprint or out of footprint with, either a fixed wireless or a resale type bundle?
Mirko Bibic, CEO
Our strategy remains primarily focused on generating growth through our fiber superiority. And that's where the focus is. In other areas, we have the ability to combine, TV product with, or content rather with wireless. But, in 75% of the country where we have network overlap between fixed and wireless, really the emphasis is on fiber. We're seeing, as you mentioned, we're seeing very good results on bundling wireless and Internet in fiber territory.
Operator, Operator
With that, our next question is from Jerome Dubreuil from Desjardins Securities.
Jerome Dubreuil, Analyst
It appears we are seeing a shift toward a higher percentage of our wireless subscribers moving to prepaid plans. Could you discuss the dollar margin profile for prepaid compared to postpaid, and is there a similarity in margins between these service types? Additionally, regarding capital allocation in wireless, we face challenges from a government environment that complicates achieving returns on necessary wireless investments. While we have discussed operational expenses, what is your perspective on wireless capital expenditures? Excluding new generation and new spectrum, how do you anticipate wireless capital expenditures evolving in the future compared to the last decade?
Mirko Bibic, CEO
Regarding the CapEx question, whether it's for wireless or wireline, you've already noticed a decrease in our CapEx year-over-year, and we plan to continue reducing our overall CapEx spending. Next year, it will be lower than this year. I believe we can operate this company with a capital intensity of below 15%, a level that Bell has maintained historically for a long time. We can achieve this while still investing in key strategic areas. This applies to the short to medium term. I'll stop there on CapEx.
Curtis Millen, CFO
And then, on your first question. Ultimately, we manage EBITDA margins on a consolidated basis and we don't provide prepaid only reporting. I'd say ultimately, we manage, as you've seen in our results, quarter-after-quarter, we manage costs diligently, whether it's prepaid or postpaid. And we're looking to lower our cost to serve while providing the same break service to customers again, whether they're prepaid customers or postpaid customers.
Operator, Operator
Our next question is from Batya Levy from UBS.
Batya Levy, Analyst
Thank you. On the revenue guidance, you're tracking below your guidance so far. I think it's mostly due to lower margin equipment revenues. But what are some drivers to get back to growth in the second half of the year? And also, if you could remind us of the revenue and EBITDA contribution from OUTFRONT Media, that would be helpful.
Curtis Millen, CFO
Yes. Hi, Batya. Thanks for the question. So as we said in our preparation remarks, we are reconfirming all of our guidance targets for 2024. I won't go through the laundry list of our revenue-generating tactics, but I would remind everyone that the majority of the revenue declines here have been driven by a decrease in very low-margin product sales, which is consistent with our strategy of not chasing low-value subscriber loadings.
Batya Levy, Analyst
And on OUTFRONT Media?
Curtis Millen, CFO
Yes, and OUTFRONT Media closed midway through June. So the contribution to revenue is single digits. I mean, it's an immaterial number given the timeline of when that transaction closed.
Operator, Operator
Thank you. There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Fotopoulos.
Thane Fotopoulos, Executive
Okay. Great. Thank you, Matthew. And thanks again to everybody who participated on the call this morning. I'll give you back your 15 minutes to enjoy the nice summer day. As usual, the IR team will be available throughout the day for any follow-ups and clarifications on that. Have a good day, everybody. Thank you.
Mirko Bibic, CEO
Thanks, everyone.