Earnings Call Transcript - BCE Q2 2020

Operator, Operator

Good morning, ladies and gentlemen. Welcome to the BCE Q2 2020 Results Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos. Thank you, Louis, and good morning everyone. Thank you for joining this morning. Participants on the call today will be Mirko Bibic, BCE’s President and CEO and Glen LeBlanc, our CFO. Our second quarter results package and other disclosure documents, including today’s news release, slide presentation as well as other documents issued earlier are available on BCE’s Investor Relations webpage. However, before we get started, I want to draw your attention to Slide 2 our safe harbor statement. Information in this presentation and remarks made by the speakers today will contain statements about expected future events and financial results that are forward-looking and therefore, subject to risks and uncertainties. These forward-looking statements represent our expectations as of today and accordingly are subject to change. We disclaim any obligation to update forward-looking statements except as required by law. Factors that may affect future results are contained in BCE’s filings with both the Canadian Securities Commissions and the SEC and are also available on our corporate website. With that, I’ll turn it over to Mirko.

Mirko Bibic, CEO

Good morning everyone. Thanks, Thane. We're still in the midst of what continues to be a long journey for all of us and the Bell team stepped up in Q2 by focusing on the operating principles that have guided our crisis response from the very start, keeping Canadians connected and informed, prioritizing the health and safety of the public, our customers and of course our team and supporting our customers and communities. I'm proud of the thousands of team members who have been serving our customers at Bell workplaces and in the field since the crisis began. Against this backdrop we delivered operating results for Q2 that underscore Bell's broadband network leadership, to reinforce the critical nature of our services and demonstrate our ability to execute effectively under very difficult circumstances. Despite ongoing heavy demand for all our services we have maintained internet speeds and reliability while continuing to operate our networks at a near perfect 99.99% overall availability. We enabled work from home for about 90% of our employees which included some 12,000 call center agents. By mid-April service levels were back to what they were pre-COVID and our call centers resumed full hours of operation at the beginning of June. In short, in a matter of a few weeks we pivoted from full crisis mode to the stabilization phase and now with Q2 behind us we are focused on building momentum back into the business. As Canada gradually reopens our focus has been on ensuring customer access to our retail locations wherever possible and as of now 99% of our Bell the source and authorized dealer stores and kiosks are back in full operation. In Q2 we continue to grow broadband market share with more than 50,000 total net new wireless retail internet and IPTV customer additions. We also achieved a noteworthy milestone during the quarter surpassing 10 million wireless subscribers. More impressively despite significant COVID impacts absorbed in the quarter, we maintained our consolidated EBITDA margin essentially stable at 43.5%. In addition, we generated 50% higher year-over-year free cash flow. This contributed to our very strong liquidity position of $5.4 billion at the end of Q2 which provides ample financial flexibility to execute on our capital investment priorities and comfortably sustain BCE's common share dividend for the foreseeable future. In fact just this morning, we declared as scheduled our common share dividend for Q3 that will be paid on October 15. I'll now turn to slide 4 in our presentation, in the midst of COVID we've made meaningful progress in advancing our strategic priorities so as to generate continued operating momentum in the near term and ultimately emerge from the crisis in an even stronger competitive position. 55% of our broadband footprint is now fiberized with 5.4 million homes and businesses able to access the fastest internet speeds in the market today of 1.5 gigabits per second. We also fast-tracked our wireless home internet service footprint with 137,000 additional homes passed in April alone bringing the total number of rural locations equipped with fixed wireless technology to about 400,000. We're taking this unique technology even further by doubling internet download speeds from 25 to 50 megabits per second to the first 300,000 households starting this fall while also expanding to rural communities throughout Atlantic Canada. And on June 11, we launched Canada's largest first generation 5G network with service available in five of the country's largest cities which will be rolled out to more urban centers later this year. Championing the customer experience is a core strategic imperative for us at Bell. To this end, given that our retail stores were closed for an extended period we accelerated investments on digital platforms and self-serve tools. More and more these are the channels many customers prefer to use to interact with us. We are encouraging customers to take advantage of online and mobile self-serve options. The My Bell and Virgin Mobile my account self-serve apps are the clear leaders in their space in terms of app ratings and provide customers best in class integrated access to their Bell and Virgin products and services. Since the start of COVID approximately half of all customer transactions have been executed online. I'm also pleased to report that Virgin Mobile topped every wireless carrier in Canada from a JD Power ranking perspective for a fourth consecutive year as number one in overall customer service in the eyes of consumers. A very strong result for our Virgin Mobile brand. Bell's strategic focus on customer experience was also reflected in the latest report from the CCTS for Q2 which showed a 26% drop in the number of CCTS complaints by Bell customers. Again the best performance among national carriers. And as part of our ongoing efforts to safeguard the health and safety of the public we introduced appointment-based selling in retail stores and ramped up our assisted self-installation and repair program. In fact, one-third of all new installs and repairs in Q2 were completed without entering the customer's home. In short, strong progress has been made on our imperative to champion customer experience and all these measures position us well in the short and the long term. Underscoring our ongoing leadership and service innovation we launched Virgin TV a few weeks ago in Ontario and Quebec. Virgin TV is an app-based TV service that does not require a traditional set-top box or installation and works on virtually all streaming devices. This new TV platform enhances our multi-brand strategy by offering TV services to Virgin customers who we know are clearly consuming vast amounts of content but who are not subscribed to one of Bell's other TV brands currently. Our latest TV innovation just announced on Tuesday is the Bell Streamer. This is a compact 4k HDR streaming device powered by Android TV that offers customers all-in-one access to live TV and on-demand content from Bell Alt-TV support for the top streaming services and access to apps on Google Play. As you know, we also announced on June 1 the sale of most of our data centers to global data center operator Equinix in an all-cash transaction valued at just over $1 billion. We will maintain a strategic partnership with the acquirer to provide our enterprise clients with full access to Equinix's advanced hosting and cloud solutions. The transaction is expected to close before the end of this year. As I've said before and I think it's important to reiterate here again today this is not the time to pull back on investment in critical network infrastructure and customer service improvements. They are necessary to keep us competitive in the short term and will definitely benefit our company, our customers and our economy in so many ways over the medium and long term. And the COVID crisis has underscored in a very real way, the benefits of Canada's global network leadership whether that's wireless or wireline. All of which has been made possible because of our significant capital spending supported by long-standing facilities-based regulatory policies. It has never been more important for governments and regulators to support policies that encourage continued deployment of high-speed fiber networks, wireless home internet in Canada's underserved rural communities and next generation mobile 5G. And also as I've said numerous times in the past but again which merits emphasizing with key regulatory decisions on the horizon. We just can't risk losing our global network leadership. Canada cannot afford to fall behind in the construction of digital infrastructure which we all know will power so many segments of our economy as we recover and heal from the impacts of COVID-19. Over to slide 5 now for a quick overview of some key operating metrics and I'm going to start with Bell wireless. COVID did have a significant impact on subscriber and promotional activity due to temporary store closures and stay-at-home requirements that were in place for much of the quarter. This led to a 35% year-over-year decline in post-paid gross ads in Q2. Consistent with this reduction in wireless sales activity we also saw a corresponding decline in customer churn this quarter. In fact, postpaid churn was 0.82%, our lowest rate ever which helped drive positive postpaid net additions of 22,000 for Q2. Notably this result is net of a provision we took estimating the number of customer deactivations that would have otherwise occurred in the quarter for delayed or non-payment if not for the financial support actions we put in place because of COVID. So if you normalize for this non-payment churn provision totaling 39,000 subscribers, our post-paid churn rate would have been 0.68% or 14 basis points lower than our reported result. And with the introduction of device financing plans on Virgin Mobile in mid-May, Bell wireless is now 100% EIP-based across all our brands. In prepaid, 13,000 new customers were added in the quarter. It's a good result given the COVID-driven market slowdown and the lapping of our Dollarama distribution agreement in May. With 99% of our wireless retail points of sale now reopened for business we are beginning to see some pickup in demand, although it is still too early to predict when consumers' typical shopping activity will resume. However, when it does and it will, we'll be ready to leverage our industry-leading distribution strength, our wireless network leadership, our fastest speeds and the improvements we are making right now to our digital platforms. So to finish up on wireless blended ABPU was down 8.8% over last year not an unexpected result given the material impact of COVID on roaming revenue, the ongoing decline in data overage, our increasing prepaid customer mix as well as the customer accommodations that we put in place during COVID. Okay, I'm going to move to Bell wireline. Our subscriber results continue to reflect the importance and quality of our connectivity services, although fewer residential and business customers are installing new services, fewer are also switching service providers. This drove 19,000 retail internet net ads in Q2 which is unchanged versus last year in what is traditionally a slower quarter for broadband. We also added another 46,000 FTTH subscribers this quarter bringing the total number of direct fiber customers to more than 1.5 million up 18% over last year. The broadband footprint advantage that we are building with the fastest fiber network and WHI, wireless home internet speeds in the market today positions us extremely well in both our consumer and business segments over the long term to grow internet revenue which increased a strong 7.5% in Q2. On the TV side of things we lost 4,000 net IPTV subscribers in Q2. This was the direct result of reduced sales activity and promotional offers as well as overall TV market maturity and we also experienced good results in satellite TV and home phone with customer losses improving 17% in satellite and 34% in home phone as consumers continue to shelter and work from home. While we have not yet experienced any significant changes in customer behaviors or trends to date some customers have delayed payment as they deal with the economic impacts of COVID. As a result, consistent with the incremental bad debt provision we took in the quarter we recorded an involuntary customer churn provision for non-payment as we did for Bell wireless so as not to overstate our net subscriber additions and overall churn in Q2 for wireline. The provision for Bell wireline amounted to roughly 45,000 customers that's 19,000 in internet, 14,000 in TV and 12,000 in home phone. I am going to move now to Bell Media. Although total advertising revenue was down, we have started to see signs of improvement. Some industries like automotive, retail, and food are beginning to spend again. Also the return of some key sporting events including PGA Tour Golf, UFC, Nascar, F1, and MLS Soccer have shown promising results. Most of these events have seen higher-than-usual audiences and this improvement is expected to continue into Q3 and will be further positively influenced by the return of even more live sports including of course the NBA which is on right now, Golf's major championships which start today and the U.S. Open Tennis. Impressively even with the absence of live sports broadcasts TSN and RDS subscriber deactivations remained minimal in Q2. Crave also continued to deliver with strong direct-to-consumer growth as total subscribers increased to 2.8 million at the end of June which is up from 2.7 million in Q1 and earlier this summer in keeping with our imperative to deliver compelling content we expanded Crave and added HBO Max program. So while it's still too early to predict what the recovery holds we believe that BCE's Q2 consolidated results represent a low watermark and although we don't expect to return to pre-COVID operating performance in the near term Q3 is anticipated to show a marked improvement. We remain very confident in the underlying long-term fundamentals and performance of BCE. We're competitively well positioned to succeed with a healthy balance sheet and substantial ongoing free cash flow generation that provides us with considerable financial flexibility to navigate through the COVID-19 crisis and to more than meet all our cash requirements for the balance of 2020. And with that I thank you all and I'll turn it over to Glen.

Glen LeBlanc, CFO

Thank you Mirko and good morning everyone. I hope everyone is keeping well and staying safe this summer. Let's turn to slide 7. The financial impact of COVID-19 obviously accelerated in Q2 reflecting a full quarter impact of widespread retail store closures and reduced consumer activity as Canadians sheltered at home. This drove a 9.1% year-over-year decline in consolidated revenues. Due to the flow-through impact of lower revenue adjusted EBITDA was down 9.4%. This result reflects approximately $85 million of costs incurred directly because of COVID including the relocation of call center agents, employee redeployment expenses, the purchase of personal protective equipment, increased sanitation and cleaning and incremental provision for bad debt exposure totaling $36 million as well as donation of masks to healthcare and other frontline workers throughout Canada. Net earnings were down 64% over last year as a result of lower year-over-year EBITDA, lower equity income from MLSE due to COVID and a $452 million non-cash impairment charge to Bell media TV to reflect the current market value of its TV and radio assets. Despite the steep earnings decline this quarter, free cash flow grew 50% to 1.6 billion. One of the reasons for the increase was a slowdown in capital spending during the initial stages of COVID as our primary focus was on stabilizing the organization and ensuring continuity of critical services. Construction activity has now ramped up considerably. Lastly, I want to bring to your attention and reporting change we made this quarter. As Mirko mentioned, as a result of our agreement to sell substantially all of Bell's data centers those operating results are now being classified as discontinued operations this quarter with prior periods restated for consistency. Let's move to slide 8 and discuss wireless financials. COVID-19 had a material impact on Bell wireless financial results in Q2 due to significant decrease in retail sales activity, reduced travel and an accelerated decline in data overage revenue driven by optimizing of data packages with increased working from home and greater Wi-Fi offloading. And customer accommodations introduced to help those facing financial difficulties because of COVID. As a result, service and product revenue decreased 6.2% and 24.5% respectively in the quarter. A low revenue pressure stemming from COVID-19 should begin to moderate as commercial activity picks up, roaming and data overage in particular are expected to remain headwinds for the balance of this year. Consistent with year-over-year decline in revenue EBITDA decreased 9.2%. However, our wireless margins improved nearly 100 basis points to 45.7%. This was a result of a 12.5% reduction in operating costs attributable to the slowdown in sales activity, decreased acquisition-related expenses including device subsidy and other marketing and distribution costs. Let's turn to slide 9 wireline financials. Although we experience lower demand of new residential service installations, waived internet overage fees provided pricing concession to our customers and saw further weakness in SMB space due to economic follow to the crisis. The 1% revenue decline in the quarter was similar to Q1 even with a full quarter of COVID impacts. This speaks to the resiliency of our high-quality connectivity services. Combined internet and TV revenue was up approximately 2% year-over-year while the rate of voice decline - voice revenue decline improved 3.8% driven by increased use of conferencing, higher LD usage and fewer home phone customer deactivations. However, the business customer spending slowed down in Q2 because of COVID which drove an 8% year-over-year decline in product revenue and a 4% reduction in business service solutions sales. Despite more near-term financial risk from the after effects of COVID in the business sector compared to residential the impact to date on Bell business markets has continued to be relatively moderate. Wireline EBITDA which was down 5.3% included $41 million and higher year-over-year OpEx driven by the COVID-related cost impacts I detailed earlier. And an incremental debt provision expense to reflect the current economic environment marked by higher levels of unemployment and continued uncertainty in the SME sector. This contributed to an approximately 200 basis point decrease in margin this quarter. Excluding these COVID-specific costs wireline margin was relatively stable at around 44%. Over to slide 10 and media financials: Q2 was a tough quarter for Bell media. On a relative basis it was our most significantly impacted operating segment but it also represented the smallest part of BCE's revenue and EBITDA mix. As witnessed by other broadcasters worldwide we experienced a steep decline in advertising demand this quarter due to the impact of COVID on ad spending across all platforms as commercial activity was significantly curtailed, major sports league suspended and other live events and TV productions canceled because of this crisis. We also faced a tough comparable from last year's strong growth that included incremental advertising revenue from our Toronto Raptors NBA Championship run, the Big Bang Theory series finale and a surge in Crave customer subscriptions driven by the final season of Game of Thrones on HBO. As a result of these factors, total Bell media revenue is down 31.2% in Q2 yielding a 31.9% decline in EBITDA. However, we maintain Bell media's margin stable year-over-year at approximately 30% due to expense reductions driven by programming, production cost savings, the elimination of discretionary costs and amounts received under the federal government's employment wage subsidy program as we met eligible criteria for parts of our media operation during the initial April/ May measurement period. Over to EPS on slide 11. Slide 11 summarizes at a high level the main components of adjusted EPS for Q2 which was $0.63 per share down $0.30 versus last year. Lower EBITDA drove two-thirds of this decline while the other third was attributed to lower year-over-year tax adjustments and higher other income expenses. The increase in other expense reflected a reduction in equity income received from MLSE due to the effects of COVID and a loss recorded on a write down of certain TV platform assets in the quarter. Over to the slide 12. Despite the COVID-driven decline in consolidated EBITDA this quarter we grew free cash flow 50% versus last year to just over $1.6 billion. Year-over-year increase was due to substantial improvement in working capital that can be attributed to the decrease in sales activity because of COVID, higher bad debt provision that drove reduction in accounts receivable, a decrease in contract assets reflecting a higher mix of customers on installment plans fewer new subscriber activations and the amortization of deferred acquisition costs from prior quarters and a lower wireless device inventory. Now it's important to note that a large portion of this favorable change in working capital is temporary in nature and we will reverse as accounts receivable and inventory levels grow with a pickup in sales activity we're expecting. This quarter strong free cash flow result also reflected an upside from a number of timing-related factors that will reverse in the second half of the year. Notably CapEx which I referenced earlier in cash taxes which benefited from the government relief measures allowing for the deferral of tax installment payments until later this year. I'm going to wrap up on slide 13 and as Mirko said but it's worth repeating we ended the quarter with $5.4 billion of liquidity which positions us well given the financial challenges being faced by so many other companies and industries and this does not even take into account the close to $1 billion in cash proceeds that we will receive from the sale of our data centers at the end of the year. We have successfully accessed the debt capital markets once again in May with a $1.5 billion MTN offering at a very attractive rate to shore up our already strong liquidity position. Our net debt leverage ratio remains very manageable at 2.86 times adjusted EBITDA. More importantly, we have no near-term refinancing requirements as our next public debt maturity does not occur until the end of Q3, 2021. And Bell Canada's defined benefit pension plan continues to remain virtually fully funded despite a modest decline in the estimated funded position this quarter due to the impacts of lower interest rates in Q2. And with that I'll turn the call back over to Thane and the operator to begin Q&A.

Operator, Operator

Hey thanks, Glen. So before we start the Q&A period to keep the call as efficient as possible I'd ask you to limit yourselves to one question and a brief follow-up so we can get to everybody in the queue with the time we have left. So with that Louise we're ready to take our first question.

Jeff Fan, Analyst

Thanks and good morning to everyone. First question is just on the wireless, Glen wondering if you can help quantify for us some of the roaming and overage and weight fees impact just so that we can start to make some assumptions about the ABPU service revenue or ABPU recovery as we go through the second half and into ‘21 as the economy starts to open up. And then a quick follow-up perhaps for Mirko on the customer experience, I recall that was clearly one of your strategic imperatives coming into your new role. It sounds like there was quite a bit of accelerated efforts related to that maybe things that would have been done later in the year or later on in your tenure perhaps pull them all into Q2. Wondering if you can just identify some of those and maybe even if you can quantify for us how much was pulled into this year or this quarter versus what could have been done later in later years? Thanks.

Mirko Bibic, CEO

Good. Thanks Jeff. Glen, I will start first and then I'll hand it over to you to unpack the ABPU a bit for Jeff. Thanks for the question Jeff. So I'll start first on wireless. Your question on that I will just give you some high-level comments on the ABPU or the service revenue impacts from COVID. So I break it down into three-four categories. So there was a roaming decline clearly with a halt in travel and you can kind of quantify that in the range of 60 million and then there were COVID-related overage decline impacts as customers were staying at home and were offloading data usage to Wi-Fi. Then of course there was data overage declined due to the migration to unlimited plans but on that one I have to say the team I've said this every single quarter that I have been on these calls the team has continued to manage that migration really well and we've been doing that since the launch of unlimited plans last summer. And there has been the impact of customer accommodations that we offer to help our customers during the COVID crisis. So you put all those together Jeff and they are more than the overall service revenue decline. I will answer the customer experience question now and then Glen you can unpack ABPU a little bit more if you think necessary. So on customer experience you're right, I mean it has been a focus since I have come on board as CEO on January 6 and it's a journey on the improvements to our online platforms like it's clear that customers, our mission is going to be to serve customers the way they want to be served and the vast majority of transactions especially in wireless continue to be in traditional retail stores and as I mentioned my opening remarks as the economy reopens and we're 99% open on the stores that advantage swings back our way. So we will continue to be best in class on that but other customers want to be served in the call centers and we need to be best in class there and online as well and we're upping our game each and every day. It's a journey. It's things like allowing customers to change their TV programming online, make online payments, change their rate plans online, upgrading their smartphones online. It's those kinds of things Jeff that we continually work on the buy flows and I'm not going to quantify how much we pulled into Q2 but it will be a core category of CapEx spend this year and that's going to continue. Over to you Glen.

Glen LeBlanc, CFO

Thanks Mirko. And good morning, Jeff. Yes, I will give you a little more color here on the ABPU decline as Mirko said and explained. The biggest bucket is roaming and data overage that accounts for 60% at the ABPU decline that you see. Customer accommodations that we put in place temporarily help those facing financial challenges that accounted for about 10% of that ABPU decline. The remaining 30% year-over-year decline was mainly due to the higher prepaid customer mix that is in our subscriber base. Hope that's helpful Jeff.

Richard Choe, Analyst

Just wanted to ask about broadband is doing well but video the IPTV was lower and just wanted to get a little more color on those trends there. What are you seeing in broadband? And why is TV lower?

Mirko Bibic, CEO

Thanks Richard. So on TV, I will start there; I think sales were clearly disrupted because of COVID and there was an impact on the commercial side obviously. So think small businesses, bars, hotels that kind of thing and we are seeing the effects of high penetration of TV in our current five markets. We're lapping strong all TV growth and certainly in Q2 anyway because of initially the impacts of COVID we did have slower new service footprint growth which I think will pick up in the back half of the year in terms of service footprint growth. Now on internet you're right. I mean performance was quite resilient during what we all know is a pretty difficult period of time and that speaks to the importance and the quality of our internet. We have the fastest download and the fastest upload. Upload is pretty important right now and we have the best Wi-Fi in the marketplace and that too is very important. So on that, I mean I think those would be the primary reasons why internet is so resilient. We've had the acceleration of footprint on wireless home internet. Of course as we enter a community particularly rural community that hasn't had high-speed broadband with wireless home internet we accelerated that footprint that just, is a boon for the community and of course leads to the subscriber growth and we expect the resilience in the internet to continue over the rest of the year.

Aravinda Galappatthige, Analyst

Good morning, thanks for taking my question. My question is on B2B. I believe it was Glen mentioned that Bell business markets have held up fairly well thus far considering the conditions. I wanted to get your sense Mirko and Glen in terms of what you're seeing in terms of feedback from the larger enterprise customers. Conceivably the pressure on that end would come later in the year as set up some of those contracts kind of come up for renewal and reprice. I wanted to get some color around that, do you expect incremental pressure as that plays out and then secondly as my follow-up with respect to free cash flow, I hear your point about a lot of the factors that help free cash flow in Q2 sort of reversing potentially later in the year but I was wondering if you can size up the potential saving, cash saving from the handset cost this year that should obviously help the full year free cash flow number. I'll leave it there. Thank you.

Mirko Bibic, CEO

Okay thanks Aravinda. I will take the enterprise question. Glen why don't you take the free cash flow question. So on the business side the puts and takes are the following. So customer spending did slow down things like product revenues and service solutions. On the other hand there was traction in connectivity, remote collaboration, conferencing services those types of things it kind of intuitively makes sense given what we were going through in Q2. So those are the broad categories of puts and takes but I have to say I mean as I look forward to the rest of the year, I think it's still too early to predict how all that's going to shake out for the rest of the year on the enterprise side and a little bit the same answer on SMB small business again really too early to predict what's going to happen but on the SMB as it's a very small part of our overall business markets exposure. Glen?

Glen LeBlanc, CFO

Thank you, Mirko. Yes, the strength of free cash flow is something you've partially explained, and I share the caution regarding future performance. As I mentioned earlier, capital expenditures were lower in March, April, and May as we prioritized organizational stability and ensuring that our critical services were maintained. Now, we're shifting our focus back to construction and expanding our footprint, which will lead to an increase in capital spending during the second half of the year. The working capital I've previously mentioned will revert. Regarding handsets, it’s difficult to predict outcomes. I'm not going to attempt to forecast second or third waves and whether we will experience store disruptions again due to a slowdown in sales activity. Sales will undoubtedly decline given that, as Mirko stated, we are now fully in an Equipment Installment Plan. Looking at the quarter alone, due to EIP and reduced sales activity, handset costs decreased by 25% or $140 million. I truly hope that sales activity picks up in the second half of the year, so it wouldn't be wise to simply extend current trends into the future, but it’s challenging to determine how this will unfold. Let's remain optimistic that sales activity stays strong in the latter half of the year.

Vince Valentini, Analyst

Yes. Thanks very much. First, a clarification if I can. The 39,000 and 45,000 subscriber provisions, can you just clarify if that would have been zero in the second quarter last year or is this something you always do but it just got elevated this quarter? The second one a bigger picture question, I see a huge arbitrage opportunity and strategic opportunity for BCE emerging here. I mean your cost of debt has never been lower. You're flush with cash. You've got another billion coming from the data center sale soon and we're looking at a media industry that's just imploding and seeing revenues around 60%. Yesterday in radio, I think Corus radio was down 52%. I mean there's a big need here for the government to step in and allow some consolidation or regulatory relief and it seems to me that BCE should be the leading candidate here to arbitrage your incredibly strong scale in media and cost of capital to try to sort of save the industry and help yourself and your shareholders at the same time. So I'm just wondering if you have any comments on thoughts about strategic growth opportunities in media Mirko. Thanks.

Glen LeBlanc, CFO

Good morning, Vince. In a typical quarter, when customers fall behind on payments, we initiate what we call an involuntary churn or disconnect. However, we agreed during this challenging period not to disconnect customers, allowing them to maintain their internet and wireless services, which have become essential. We recognize that eventually, we will need to return to normal operations, leading to an increase in involuntary disconnects. To that end, I ensured that the provisions for customers, which you mentioned as 39,000 in wireless and 45,000 to 46,000 in wireline, accurately reflect historical disconnect trends. As we analyze the aging of accounts over 30, 60, 90, and 120 days, we made sure the provisions align with historical performance. It's crucial to remember, Vince, that when considering revenue credits and the rise in bad debt provisions, it's important to align net figures and churn, which the customer provisions help achieve without inflating any single metric.

Mirko Bibic, CEO

Okay thanks Vince. Why don't you go first Glen on the first question on provisions. Okay, thanks Vince. Why don't you go first Glen on the first question on provisions. So I'm always open to good ideas. Let me tell you that. I think we've shown a strong track record over the years at being opportunistic and very strategic on the M&A side. So we'll always keep looking. I'm not going to comment specifically on the precise example you put forward but always looking to be opportunistic. I mean whether or not it's in media or in telecom, I mean you do raise a point about scale and it's pretty obvious that we ought to be encouraging scale in the country look who you just take media which is the example you brought forward, just look who are we competing against. It's a rather silly notion to still think of the media industry as a domestic media industry with three players competing with each other and we're competing with global internet giants really at this stage in the game. And I'm happy with our asset mix right now. I think it positions us well strategically and always looking to be opportunistic and it's hard for me to comment on this call on the specific idea but it was a good question.

Drew McReynolds, Analyst

Yes. Thanks. Thanks very much. A couple of housekeeping questions for Glen and then one bigger one for you Mirko. Glen on the pension exposure, doing a great job keeping the solvency fully funded essentially. Are there kind of any scenarios here where that changes kind of going forward maybe just remind us on sensitivities and on the bad debt expense can you break that down between wireless, wireline, and media and then over to you Mirko just bigger picture satellite broadband services around the world are getting a lot of attention. Love to hear your thoughts on at least in Canada sizing up either that opportunity or threats for your broadband strategy over the longer term. Thank you.

Mirko Bibic, CEO

Okay. I'll go first Glen on the second question. So Drew on the satellite broadband services and the competitive implications, I'll put up our fiber internet network up against anything. I mean, the fastest speeds in North America and we got customers want; what do they want? They want download speeds. We can't be beat and certainly satellite can't beat that. Upload speeds that's what they want that's more and more important as I said in my opening remarks. Can't beat fiber and certainly satellite broadband cannot and the in-home Wi-Fi the services that we have, the time to market advantage weather and then on fiber generally as compared to satellite but if you think about our wireless home internet expansion 25 download, one mega up that's going to 50/10 soon that's going to be hard for satellite to beat. We've already got 400,000 homes that have the ability to purchase that product. So I think we're in a very good position. I think we're in a great position if you even compare us to your traditional cable competitors let alone satellite broadband that hasn't launched yet and like obviously it will be well received, I think in some very-very deep rural areas at some point but I think that's kind of my reflection on that question Drew. Over to you Glen.

Glen LeBlanc, CFO

Thanks Mirko. Good morning Drew. Pension exposure, great question. It's hard to believe that discount rates continue to drop at a time when we were looking at discount rates at the end of 2019 between our plans that were running around on average 2.8% and now at the end of the quarter we were bouncing around 2.23 to 2.37 between our multiple plans, so significant decrease in the discount rate but all of that said we remained at 99 we're bouncing 99 to 100 on any given day from a solvency ratio perspective which is just remarkable. And I am incredibly proud of what our team has done to put us in this position. We didn't get here by accident. We got here by following a very prescriptive glide path ensuring that over 70% of our assets are now invested in fixed income. So that gives us a natural hedge against this declining discount rate. So a remarkable job. On a sensitivity if you saw a discount rate drop another 25 basis points and reach two or sub two it's around $125 million to $150 million and when you consider a pension plan of over $20.5 billion in total that's pretty manageable. So I feel like we have positioned ourselves incredibly well to mitigate this risk and never in my wildest dreams did I think we'd be looking at discount rates at this and still have a fully funded plan. Over to bad debt exposure. As I mentioned in my remarks, I think there is, I will unpack this a little further. I took an extra provision of $36 million as a bad debt expense but I also took a provision of $28 million through revenue. So a total of $64 million additional provision related to COVID. Through revenue, a provision of revenue that's really accommodations we gave customers. Customer credits we gave waiving late paid charges and making arrangements for folks who were struggling during this difficult time. So in total if you look at the P&L impact of COVID, bad debt and revenue impacts it's about 464 million. If I broke that down by BU 45% wireless, 45% wireline, about 10% media.

Maher Yaghi, Analyst

Yes. Thank you for taking.

Simon Flannery, Analyst

Thank you. Good morning. Mirko, could we discuss 5G for a moment? You've launched the service in several major cities. What preliminary insights or observations do you have, and where do you see the greatest opportunities for the company? Is it primarily within B2B use cases? What types of discussions are you engaging in regarding future prospects? Thank you.

Mirko Bibic, CEO

Thanks, Simon. Yes, so we did launch on June 11. You know that. So the cities were Montreal, the GTA, Calgary, Edmonton, Vancouver and we will be expanding to about 28 additional markets in 2020. So all that's going according to plan. I'm really pleased that our competitive positioning here on 5G because our speeds are 1.7 gigabits per second which is fastest in the industry and we're going to be even faster next year when 3.5 gigahertz spectrum becomes available for mobile. I'm also quite pleased that we have a 3.5 gigahertz spectrum advantage going into the auction given our Inukshuk Holdings. And just generally on that network side with so many advantages including our network-sharing arrangement with Telus as you know and the number of cell sites that we have which are fiberized which will be so important for the service attributes customers will be looking for 5G. So far look it's early days. I'm quite pleased with how well it's going in the context of having just launched, having launched kind of still with stores having not been completely fully opened at the time that we did. I'm really pleased with how well-positioned we're going to be to capture growth in 5G and to that question which is the last part that you asked me about Simon. I mean, I see growth potential in the consumer space just kind of like on the consumer side when we upgraded from 2G to 3G, 3G to 4G etc. there's always a spike in penetration, smartphone adoption especially usage and that drives revenue and you're right there are going to be a multitude of used cases on the enterprise side, and on the IoT side which will be in a great position to capitalize on especially when you think about our distribution advantage with BBM Bell business markets and our enterprise strength.

Maher Yaghi, Analyst

Thank you very much.

Batya Levi, Analyst

Great. Thank you. Can you provide some color on how the $85 million COVID related expenses were allocated in each segment and how do you think about wireless margins in the second half with activity picking up and one follow-up in media, does adding HBO Max change your profitability over segments in any way? Thank you.

Mirko Bibic, CEO

Why don't you go ahead Glen?

Glen LeBlanc, CFO

Okay. I will start on the first part on the $85 million. Look, I gave of that $85 million I said that operating expense of $36 million of that was bad debt and I gave you a breakdown of how that affected the BUs and I'm not going to unpack the rest of the details the $36 million represents the substantive portion of the $85 million. I gave you the color on what it was with PP&E and the donation, the increased sanitization cost, the donation of PP&E that we gave to our frontline workers, the cost we incurred trying to ensure that we were able to move our contact center employees home to work in a safe environment. As far as the split of that, the 45, 45, 10 is pretty accurate on the whole envelope and Mirko over to you.

Mirko Bibic, CEO

Yes. Look on the media question the HBO Max content, I mean that that's over a longer-term horizon over which we'll be monetizing that content. What it really does is it makes the crave that much more compelling in terms of a spot service to subscribe to and will allow us to scale the service even more and we saw some good progress in Q2 going from 2.7 million to 2.8 million subscribers and just making adding more compelling content just makes it that much more attractive which allows us to increase our sub base and basically leverage that contract over the longer term.

Glen LeBlanc, CFO

I think you had another question on margin, looking forward and frankly as Mirko said in his opening remarks, it is our belief that that Q2 was the low watermark and that we will continue to see consecutive quarter improvement Q3 over Q2 and let's hope Q4 over Q3 as we get control of this pandemic. It's difficult for me to predict margins because I can't predict how this pandemic is going to affect us. As I said earlier wave two, is there additional waves beyond that, is there shutdown of commercial activity and heaven forbid closure of stores, etc. So our focus right now is to serve the customers with the stores we have open now to ramp up our sales activity and fingers crossed that that continues well into the fall and we have this under control.

Mirko Bibic, CEO

Look sales are growing week after week, month after month and while traffic is clearly down in our stores, we're seeing strong conversion from the traffic that is in stores. I mentioned this last time we were on a call like this together and we're seeing that trend continue. So it all points towards positive momentum half of Q2.

Operator, Operator

Thanks Mirko on that, unfortunately we have timed out. So I do thank you for your participation on the call this morning. I will be available for the balance of the day for any questions follow-up questions and clarification. So with that take care and stay safe.

Operator, Operator

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