Earnings Call Transcript
BCE INC (BCE)
Earnings Call Transcript - BCE Q1 2023
Operator, Operator
Good morning ladies and gentlemen and welcome to the BCE Q1 2023 Results Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, sir.
Thane Fotopoulos, Executive
Thank you, Mode. Good morning, everyone and thank you for joining our call. Today, I'm here with Mirko Bibic, President and CEO of BCE; our current CFO, Glen LeBlanc; and our future incoming CFO and current Treasurer and SVP of Corporate Strategy, Curtis Millen. You can find all our Q1 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, reminding you that today's slide 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'll turn the call over to Mirko.
Mirko Bibic, President and CEO
All right. Thank you, Thane. Good morning, everyone. The Bell team delivered operating results for Q1 that were in line with our planned performance for the quarter. We've been making significant investments in the past 3 years and they are bearing fruit. You could see in our continued operational momentum and particularly this quarter, you can see it in our strong 3.5% consolidated revenue growth. And as expected and as we profiled internally in our quarterly budget for 2023, adjusted EBITDA decreased year-over-year due to a $67 million favorable one-time retroactive revenue adjustment at Bell Media in Q1 of last year and near-term cost pressures from inflation, strategic initiatives, and the normalization of our cost structure to pre-pandemic levels. In line with our accelerated CapEx program for 2023, we spent close to $1.1 billion in new capital in Q1 and that keeps us on pace to deliver another 650,000 new direct fiber connections and to grow our 5G service footprint to 85% of the country and will also enable stand-alone 5G plus service for almost half of Canadians by the end of the year. The generational investments we're making to build the best networks are consistently being recognized by third parties for superior network quality and speed, low latency, and the best overall experience. We're leveraging our world-leading broadband infrastructure, our focus on service excellence, and customer value proposition to offer the best networks at affordable prices and to deliver economically accretive subscriber additions across all our products and you can see that in our Q1 operating results. In wireless, we grew our base of high-value postpaid subscribers. We increased our cross-sell penetration of wireless and internet households and managed customer churn. Total mobile phone and connected device net adds were up 20% over last year to 97,377 and that drove healthy service revenue growth of 5.4%. Going forward, we're seeing very good growth catalysts from accelerating immigration levels, penetration headroom, and the ongoing transition to 5G. We're bundling wireless with Internet service as well as retail channel expansion with partners, including Staples, which we've talked about before and most recently, Air Canada, which we announced just a couple of days ago earlier this week. Against this backdrop, we're expecting to use our proven execution and operating momentum to drive our fair share of customer growth in a competitive market. On the fixed side of the business, fueled by a growing fiber footprint, we continue to gain a significant share of new Internet subscriber growth. We added 47,757 new net fiber-to-the-home customers in Q1 and that's up 24% over last year. This brings the total number of fiber subscribers to approximately $2.5 million or 57% of our total retail Internet customer base. Close to 1.1 million are taking speeds of 1 gigabit or better, which contributed to Bell's industry-leading consumer Internet revenue growth of 10% this quarter. These results are a testament to the power of fiber-based Internet service that provides the fastest dedicated symmetrical speeds that cable just cannot match. Bell has the broadest multi-gig footprint with 3 gigabits per second or higher speeds now available to more than 5 million locations. And at the end of this year, 4 million of those will have access to symmetrical speeds of 8 gigabits per second. It's a major competitive differentiator and this will keep us sustainably ahead of any of our peers. We also continue to advance our cloud capabilities through an expanded partnership with Palo Alto Networks for cloud security solutions and the acquisition of FX Innovations, which is a leading Quebec-based IT services and consulting company with specific expertise in digital workflow automation. We announced that today and that will further accelerate our growing team of cloud-certified professional services employees. These developments are the latest building blocks in strengthening Bell's position as a tech services leader for enterprise customers. Let me turn to media now. Despite an advertising market that continues to face near-term headwinds across the continent, digital ad revenue was up 4% over last year and that's a positive result, certainly when you think about the current market backdrop generally. On the customer experience front, we continue to focus on serving customers on their terms. We've introduced a self-serve WiFi optimization tool and we've improved the self-serve guides with step-by-step processes for same-day service activations and we expanded our manager appointment application. Our customer-first approach is clearly making a difference and you can see that in the latest results from the CCTS. The CCTS report that I'm referring to shows Bell as the only national service provider to experience a decrease in complaints with a 6% reduction even as complaints were up 12% across the industry. In fact, Bell's share of complaints has decreased 16% over the past year and impressively 55% over the past 5 years; I'm really proud of the team on this and of our progress generally. We've achieved our financial and operating results against the backdrop of wireless prices that have remained essentially stable even as the Canadian economy continues to face sustained inflation. If you refer to the latest stats, the price of all goods and services in aggregate has increased 4.3% over the past year. But if you look at the cost of cellular services, they've risen only 0.3%. I want to highlight a few notable ESG accomplishments as well. You'll see that this was the first year that Bell issued an integrated annual report. It's a first for a major communications company in North America. We also ran third among global telecom companies in Corporate Knights 2023 Global 100 ranking of the most sustainable corporations in the world. We were rated highly in the sustainable investment category and that was driven by our investments in fleet electrification, electric vehicle charging stations, renewable energy alternatives, and energy savings. Reflecting our ongoing efforts to engage and invest in our people, Bell was named by MediaCorp as a top family-friendly employer in Canada for the 11th consecutive year as well as one of the best workplaces for young people and young professionals in recognition of our graduate leadership and internship programs. I'll turn now to the slides. I'm going to turn to Slide 6, to take a look at some of the operating metrics for Q1. Starting with wireless, we added 43,289 new net postpaid mobile phone subscribers. That's up 26.5% from last year; a pretty strong result in what is typically a seasonally slower quarter for acquisitions. This was a function of an 18% increase in gross activations, driven by higher retail traffic as pandemic-related restrictions were still in place in the early stages of Q1 2022, population growth, continued 5G momentum, and healthy business customer demand. Although customer churn increased year-over-year, reflecting greater overall market activity, it was still well below pre-pandemic levels at 0.9%. Our ARPU was up 0.9%, and this was our eighth consecutive quarter of growth. This was supported by further roaming revenue improvement and now sits at 129% of pre-COVID levels and our continued focus on higher-value subscriber loadings. As for mobile connected devices, net adds were up 45% over last year to 70,742, driven by continued strong customer demand for Bell's IoT solutions. Now let's turn to wireline. We added 27,274 new net retail Internet customers and that's up 5% versus last year but that number includes the competitive loss of DSL subscribers in our non-fiber footprint. As I mentioned, fiber net subscriber additions were much stronger at 47,757. We also added around 11,000 net new IPTV subscribers, which is slightly down versus last year but we expected this primarily due to higher customer deactivations on our 5 TV app streaming service after last year's FIFA World Cup. Satellite TV and home phone net losses both increased modestly compared to Q1 last year due to a step-up in promotional offer intensity with a full return to pre-COVID levels of competition. Over at Bell Media, our advertising demand held up reasonably well under the current circumstances and comparatively better than our peers. This was the result of our TV broadcast of World Junior Hockey and the Super Bowl and it shows that if you've got strong content that viewers flock to, it's going to deliver value to advertisers who are placing value on premium sporting events. That also helped TSN and RDS maintain the #1 rankings in Q1 and allowed us to continue to grow in digital advertising as I mentioned before. In terms of our outlook for the balance of 2023 for media, the ad recession should begin to stabilize and improve gradually later in the year. Over at Crave, we continue to deliver with total subscribers up 6% over last year and we're now more than 3.2 million subscribers. This was underpinned by a 24% increase in direct-to-consumer streaming subscribers. We recently launched our TSN+ streaming product that allows sports fans to access augmented feeds, multicast, and other feature content that's incremental to the premium sports content that we're delivering across the flagship TSN platform. On the French language TV front, we once again led all competitors in Q1 in the specialty market, including news and sports, while continuing to grow viewership with buzzworthy programming such as Survivor Quebec, which premiered in early April on Bell Media's conventional TV channel, Nuvo. Lastly, you will have seen a press release from us the other day announcing a landmark long-term and exclusive licensing deal with Warner Bros. Discovery that builds on our previous agreement from 2019. The deal ranges across many parts of their vast portfolio of content. It includes HBO and MAX Originals, the DC Universe, the Wizarding World of Harry Potter, new cable series, library table TV series, pay, and postpaid window rights for Warner Bros. films and library films, as well as French language rights across a wide range of content. Our valuable long-term HBO deal just got longer and broader and is going to provide further compelling content supporting our Made in Canada Crave TV service and streaming TV service, of course. In summary, a solid start to the year with results directly on plan for Q1 and results that again reflect the Bell team's consistently strong execution. I'm confident that we'll further extend this proven track record throughout the remainder of 2023. I'm going to hand it over to Glen in just a moment. But first, I obviously want to acknowledge the news we issued this morning that Glen will retire as CFO effective September 1. Under Glen's leadership, as you all certainly know, Bell has attained a solid financial position with a robust balance sheet, substantial cash flow, and pension solvency and all of that helped us accelerate Bell's capital expenditures to expand our fiber and wireless networks and position us competitively and strategically for years to come. On behalf of everyone, I personally want to thank you, Glen, for your exemplary leadership and your valuable contributions to the company and to the executive team and to me personally. Thank you. Curtis, currently SVP, Corporate Strategy and Treasurer, will be promoted to CFO effective September 1. Curtis has a deep background in the financial industry and strategic leadership here at Bell and he's well positioned to take on the CFO role and work closely with Glen and with me during the remainder of 2023 and beyond to ensure a successful transition. Glen, again, a huge thank you to you. And of course, you're not going very far. You'll be right back here with me in August and Curtis for our Q2 results and Curtis, congrats. With that, over to you, Glen.
Glen LeBlanc, CFO
Thank you, Mirko and good morning, everyone. Before I get started, I want to express my gratitude to Mirko and the entire Bell team for 30 incredible years. As Mirko mentioned, I want to reinforce that Curtis is well positioned to take on the CFO role and is a strong leader who will guide Bell through the next generation. He and I will work closely together through the remainder of 2023 to ensure a smooth transition. Now on to results; we had a positive start to the year with strong 3.5% consolidated revenue growth that was achieved despite lapping a one-time $67 million retroactive revenue adjustment at Bell Media and coping with the economic conditions that continue to impact media advertising and the B2B sector. Normalizing for this one-time revenue adjustment from Q1 2022, revenue was up nearly 5% this quarter, a very strong result driven by continued robust wireless and Internet growth and a notable recovery in business data equipment sales. While this revenue strength did not flow to the bottom line this quarter, our EBITDA results are very much expected and fully reflected in our internal forecast, given the aforementioned one-time revenue adjustment at Bell Media last year, as well as the known near-term incremental cost pressures from inflation or strategic initiatives, higher TV content, programming costs, and normalization of cost structure to pre-COVID levels. Adjusting for just the media one-timer and normalizing for the TV hockey schedules this year, underlying consolidated EBITDA growth in Q1 was close to 2%. Net earnings and adjusted EPS were also down year-over-year, mainly the result of the lower expected EBITDA, increased interest expense due to higher rates, and higher depreciation and amortization expense as more capital assets are being put into service, consistent with our accelerated broadband network build-out plan. Our net earnings results this quarter also included an asset impairment charge related to the consolidation of real estate space due to Bell's hybrid work policy. As for free cash flow, our Q1 result was anticipated and right in line with our quarterly budget, reflecting the timing of working capital which will largely reverse by the end of the year, higher interest paid, and the timing of tax installment payments as well as higher CapEx. On CapEx, the year-over-year increase was just timing related to the continued step down in 2023. Turning to our new Bell CTS segment on Slide 9 that amalgamates our former wireless and wireline operations. Service revenue grew 2.1%, fueled mainly by continued strong mobile phone and retail Internet subscriber growth, further roaming improvement, and an improved B2B performance trajectory. In fact, Q1 was Bell Business Markets' best quarterly service revenue performance since Q3 of 2020. The financial contribution from our acquisitions of Distributal and eBox were largely offset in the quarter by lower sales of international wholesale long distance minutes, which can be quite lumpy and the sale of Createch in March last year. On the product side, very strong growth, with revenue up 24% year-over-year. This was attributable to higher business data equipment sales and improved product availability compared to the shortages we experienced last year, as well as a greater sales mix to higher-value mobile phones and more overall contracted device transactions. Notwithstanding the close to 5% increase in total CTS revenues, Q1 EBITDA growth was more modest at 1.3%. This was the result of some near-term expected cost pressures that I described earlier, which contributed to an 8.1% increase in operating costs this quarter. As we cycle through some of these added costs, we expect a stronger EBITDA growth trajectory for the balance of 2023 as was contemplated in our quarterly budget that we profiled for the year. Moving to Bell Media. As projected and in line with our budget, total revenue was down in Q1, decreasing 5.5% year-over-year despite the ongoing ad recession that's affecting global advertising markets. Advertising revenue for Q1 held up better than we expected going into the quarter and much better than our peers. This can be attributed to a diverse asset mix and focused execution on our digital-first transformation strategy. Subscriber revenue declined 4% due to the aforementioned one-time retroactive revenue adjustment that we lapped from last year, which was also a major contributor to the 36.5% decline in Bell Media's EBITDA this quarter. Normalizing for this one-timer from Q1 '22, EBITDA was down only 6%. That's pretty good performance given the macroeconomic context and anticipated given the normalization of hockey schedules this year and the content cost inflation for premium sports and entertaining programming. Turning to the balance sheet; our consistently strong operational and financial performance supports our robust balance sheet and liquidity position, which totaled $3.7 billion at the end of Q1. A debt maturity schedule remains very well structured with an average debt maturity of around 13 years and a low after-tax cost of debt of just 2.9%. Additionally, our balance sheet strength is further enhanced by a sizable pension solvency surplus amounting to $3.7 billion and substantial recurring free cash flow generation that is reliable and well protected from macro uncertainty. BCE's fundamentals and competitive position remain as strong as ever. With the financial results we delivered in Q1, we are right on our internal plan, which may not have been obvious to the Street as we don't provide quarterly guidance. Together with continued operating momentum across the business and our consistent proven execution in a competitive marketplace, I am reconfirming all of our guidance targets for 2023. On that note, Thane, I'll turn it back over to you.
Thane Fotopoulos, Executive
Okay, great. Thanks, Glen. So before we start the Q&A, I want to remind everyone that due to some time constraints this morning because of our AGM that's taking place right after this call to keep limit yourselves and ask your questions as efficiently as possible so we can get to everybody in the queue. With that, we're ready to take our first question.
Operator, Operator
Our first question is from Drew McReynolds from RBC.
Drew McReynolds, Analyst
Yes. And Glen, congratulations. It's been great working with you and I’m sure everyone feels the same; you've been fantastic. I have a couple of questions. I'm sorry if I missed some of the opening remarks. Regarding the slower start to the year, which the Street was aware of due to the tough comparisons on EBITDA, when you anticipate improvements year-over-year for the rest of the year, should we expect that to be a consistent improvement? I'm trying to ensure that expectations are set properly. For my second question, I typically don’t inquire about any company's performance relative to its competitors. However, the mobile postpaid net additions were in line with expectations but below what Rogers achieved this quarter. I’m curious about your thoughts on the market dynamics during this quarter. Additionally, regarding Q2, is the overall strength of the wireless market holding up?
Glen LeBlanc, CFO
Thank you, Drew. I'll address the first point before Mirko shares his thoughts. I have managed 30 years without providing quarterly guidance, so I believe I won't start now. However, I want to express that as I look ahead to the latter half of the year or the next three quarters, we remain very confident in the guidance we've given. As I mentioned earlier, we faced a challenging comparison for Q1 due to a one-time retroactive adjustment and the typical hockey schedules. Adjusting for those, it comes to just under 2%. I anticipate that to increase each quarter moving forward, and we are very confident in our ability to meet the provided guidance. Thank you for your comments, Drew.
Mirko Bibic, President and CEO
On the second, Drew, I am quite happy with our wireless results; they are completely on plan and what we set out to achieve for the early part of the year. Q1 is, for us, typically a seasonally slower quarter, and we were closely watching promotional activity; in fact, we pulled back on hardware pricing in Q1 quite deliberately. We're glad to see handset discounting come down in January, generally, and remain pretty manageable. As I mentioned before, we watch our mix across the brand, the family of brands, and we had record Bell mix on gross adds and net adds. That's the right way to go because it drives organic revenue growth going forward. Just to point out, Q1 is always seasonally light but really strong; if you compare to our own prior Q1, we're up 26.5%. So I'm really happy with where we are, eighth consecutive quarter of ARPU growth which I pointed out in the opening remarks.
Maher Yaghi, Analyst
And Glen, it was great working with you; always very easy and meticulous on the financials. So you'll be missed. I wanted to ask you a question. Now that the Rogers merger is complete, Mirko, what does the presence of a fourth player versus 3 previously mean for the long-term market structure and health of the Canadian wireless industry in your view, as well as implications for regulatory policy? And maybe you could elaborate on how your Internet subs are up 8% year-on-year, but your wireline data revenue is only up 2.5%. It's a big divergence and I'm trying to figure out what's going on because it's surprising, given a lot of the net adds that you're adding are on new technology that is costly to implement, what's the pricing on new customers versus old customers? Should we expect to see data revenue growth improve in the back half of the year?
Mirko Bibic, President and CEO
Okay. Thank you, Maher. Look, on the first one, take a step back and look at the industry in our country. We now have 4 well-capitalized significant players with very strong wireline and national wireless footprints. So that is very rare across the global footprint. From a public policy position, having 4 players like that is quite significant and will enhance competition and consumer value. We are one of the very few countries with 4 players and probably the only one with the convergence between wireline and wireless that I just mentioned. So we have 4 wireless players. I think the job ought to be considered as being done now on the wireless front from a public policy and regulatory perspective. We continue to deliver value. In my opening remarks, I pointed out how wireless pricing compares to broader inflation across the industry. It shows you that pricing is going down and value is going up. And let's not forget, we have the lowest population density of pretty much any industrialized country. The G7 excluding Canada has over 200 people per square kilometer. In Canada, we have 4 and it's not like inflation gives us a pass because we only have 4 people per square kilometer. We still have to pay for all the input costs to build these incredible networks to 99% of the Canadian population. I'm not making a Bell point here; I'm making an industry point.
Glen LeBlanc, CFO
As for your question on data, let me remind you that consumer Internet is up 10%. Obviously, data is more than just consumer Internet. It's really a product of legacy data and business service solutions that haven't recovered yet, particularly for satellite. But let me remind you, consumer Internet is up 10% and total Internet is up 8%. We're extremely pleased with the growth we're seeing in those products.
Aravinda Galappatthige, Analyst
And Glen, let me just add my congratulations on a tremendous run at Bell. I just wanted to maybe, Mirko, sort of go back to the enterprise side of the business, Bell Business. Maybe just touch on the backdrop of your FX acquisition, what you announced last quarter with respect to Bell Ventures. Your plan to get that back towards neutrality or some sort of growth; is that really a case of waiting for the IoT side of 5G to develop to a certain level where you can see those tailwinds? How do you see the shape of recovery in that business over the next couple of years? Just wanted to get a high-level sense of that.
Mirko Bibic, President and CEO
Thank you, Aravinda. Just a couple of sentences on the quarter and then looking forward on the strategy. Repeating what Glen said in his opening remarks that on the enterprise side, we had our best quarterly service revenue performance since the third quarter of 2020. I've been saying on these calls for the last few quarters that we haven't been seeing cancellations of projects, just pauses on new orders and pauses on our ability to complete projects given supply chain constraints. We're seeing signs of improvement in supply chains; we saw that, of course, in product sales in Q1 of this year. So all of that is quite positive. I see some small tailwinds in the second half of 2023 as well. Now in terms of the strategy, I've talked a lot over the last couple of years about how we're going to focus on IoT, private network, security, cloud, and MEC. Our IoT business continues to be strong and that will grow over the years. Private networks; we're now seeing the beginnings of some interest there. I would have thought that would be slower than MEC, but it's turning out that private networks are gaining traction first. On MEC, it's still going to take some more patience. We're a meaningful player in the security space and that part is going to continue to grow. We announced the deal with AWS and Google Cloud 18 months ago, and now you're seeing a focus on the cloud space. The FX Innovation deal shows we are going to focus on cloud, particularly with FX on digital workflow automation. We’re going to go hunting there, and FX is very strong in that space. On the traditional enterprise business, while we see some improvement, we need to ensure that the underlying cost structure aligns with the revenue profile of that traditional business.
Vince Valentini, Analyst
Sure, thanks very much. Two quick things. One, the recent Air Canada deal looks very impressive and interesting. I'm wondering if you can add any more color on how much impact you think that could have on your market share of the new immigration market to Canada? Also, any comment on whether you think you haven't been punching to your proper weight in that space in the past few months? Secondly, on the regulatory front, again, great comments, Mirko and I couldn't agree more that the policy objective should be met here on wireless. But just to reinforce that even further, a lot of the pricing studies seem to focus on advertised pricing as opposed to what the industry actually realizes in ARPU. We've seen a move this morning by one of your competitors to just lower the advertised rate to 65 from 85 for a 25-gig plan. I'm wondering your thoughts on that, both from a competitive perspective but also does it make more sense to have everyday pricing advertised at lower levels so the government sees that as opposed to just discounting off those rates whenever we get to back to school, Black Friday period, and end up at the same net point anyway?
Mirko Bibic, President and CEO
Yes. On the Air Canada deal, we're very excited. These are two great brands, the Aeroplan platform is extremely powerful. Our family of brands—Bell, Virgin, Lucky—putting those two together is going to be a powerful proposition for both companies and for consumers. A lot of wireless growth is coming from newcomers to Canada, and this allows us to speak directly to newcomers before they even enter the country on the airline that most newcomers use to make their new home in our country. Regarding my peers' announcement this morning, I think it just further supports the point that this is a competitive industry, and we'll always be ready. It shows that the bundling value proposition matters in the marketplace to consumers and will continue to be an important differentiator. As for pricing studies on advertised pricing versus what customers are paying, the discourse on pricing is sadly unsophisticated. Comparing rack rates on a website and comparing those to prices around the world is not a fair assessment. It ignores many factors. It ignores what consumers are actually paying at different times. If you look at rack pricing in Q1, it tells you nothing about what customers are actually paying. Most sales occur in Q3 and Q4 during promotional intensity. Everyone in this industry knows that. And it also ignores that handsets cost over $1,000. The pricing dialogue is unsophisticated. The move this morning by a competitor to bring pricing above the line may help that regulatory dialogue. Regarding the Air Canada deal, we're very enthusiastic about the opportunity to engage newcomers before they arrive in Canada, which is going to be powerful for both companies and for consumers.
Tim Casey, Analyst
Mirko, could you talk a little bit about how you're thinking about wireless and wireline and bundling, given your continued rollout of the fiber footprint? As speeds with 5G converge with wireline, how are you addressing go-to-market strategies that may include more holistic bundles rather than just retention efforts?
Mirko Bibic, President and CEO
We will continue to monitor developments in wireless and wireline speeds and holistic bundles. I don’t believe we’re there yet. Fundamentally, wireless will never catch up to wireline speed, especially the speeds we are delivering today. The fiber advantage is profound and it’s a long-term advantage. We will continue to lean heavily on that advantage to drive continued consumer Internet service revenue growth. Our numbers show that we are adding significant fiber Internet net adds. We see that we continue to lose customers where we don't have fiber, so our strategy speaks for itself. Our competitors realize they cannot compete where we have fiber, and they are seeking growth where we don’t.
Jerome Dubreuil, Analyst
Two for me. First one, I think it’s fair to say that last quarter, you made sure that investors understood your medium-term CapEx plans. Now there’s a different messaging from Ottawa. Is it possible that these next couple of years of CapEx plans might be changed depending on the outcome of the reviews by Ottawa and the TPIA side? My second question would be on costs in the quarter; they might have been higher than usual or what you expected. You mentioned some tough comps, but are there actual costs in the quarter that you anticipate won’t be as present in future quarters?
Mirko Bibic, President and CEO
Your first question: can decisions from Ottawa affect our accelerated CapEx plans? Yes. Now, Glen.
Glen LeBlanc, CFO
Yes, there were costs in Q1 that we don’t see repeating. First is the amortization of TV broadcast hockey schedules, which was sizable in Q1. Obviously, that's normalized now. Labor inflation is starting to lap, as well as fuel and inflation. We feel that the worst is behind us and you'll see a more normalized cost structure in the next quarters. As always, BCE has proven time and time again that we take the necessary steps to rightsize our cost structure. We’re doing that. You also saw it in the impairment charge we took in Q1 as we continue to push hard on real estate rationalization. That’s an opportunity for us. We will have better cost structure in the next 3 quarters.
David Barden, Analyst
It's Matt sitting in for Dave. And Glen, congratulations on the announcement and best of luck going forward. Just 2 quick ones for me, focusing on net adds. For wireless, is there any way to provide color on the strength coming from consumers versus business, and whether that has legs? I think on the consumer side with population growth, everyone sees that as having the legs to continue being fairly strong. On the broadband side, if you could provide any color on the DSL footprint that you still have. I think you alluded to higher intensity from cable in those areas. Also, if you're seeing subsidized builds that the government is focusing on to extend networks further out where service is generally limited for high-speed connections, is that having an impact?
Mirko Bibic, President and CEO
On the second question, as a significant player in securing subsidies, this allows us to accelerate our fiber footprint in ways we wouldn't be able to do commercially. I think that's fairly neutral, considering the share of subsidy we get compared to what others get. In terms of wireless postpaid, I’m quite happy with the strength across all segments, whether consumer, enterprise, or small and medium business. We’re really happy with the strength of the Bell mix for both gross sales and net adds.
Stephanie Price, Analyst
Congrats, Glen. Just wanted to circle back on the free cash flow in the quarter. Curious if you could give us more color on what's driving the working capital changes and if you've seen any changes to bad debts? How should we think about working capital reversal through the year?
Glen LeBlanc, CFO
First, on bad debts—there’s no change. We're not seeing any increase in days sales outstanding. As for free cash flow, the fourth quarter was one of the highest spending capital quarters in BCE's history. The payables would have been recorded in Q1. Capital spending in Q1 was up over $100 million, and the weather enabled us to start fiber construction earlier than we envisioned. The earlier we build it, the more customers we can load. So we've done that, but that affects working capital. Also, we had timing of tax installments that were lumpier this year. That’s the unpacking of why the consensus on free cash flow and the delivered result differ. I remain confident in delivering the annual free cash flow guidance.
Mirko Bibic, President and CEO
Strategically, with Distributal and eBox, where we have a fiber network, customers currently on the cable platform will be migrated over to fiber over time. Also, Distributal is a brand of Bell Canada. There is no separate legal entity for Distributal any longer, it’s part of Bell Canada and remains a brand. We will move those subscribers to our Bell Fiber footprint where possible over time.
Sebastiano Petti, Analyst
Just wanted to see if you can update us on the competitive environment in wireless and wireline thus far in the second quarter. You talked about more normalization in Q1 trends. What are you seeing thus far? Secondly, looking across your sports asset holdings, headlines about the NHL sale not as the leverage is perhaps a major concern but how are you evaluating monetization or the long-term strategic value of some of your sports holdings?
Glen LeBlanc, CFO
The sports assets; I'm very comfortable with the assets we have. We feel that the value they deliver continues, and we have no intention of doing anything with the sports assets in the near term.
Mirko Bibic, President and CEO
Regarding early signs for Q2, I would say generally in line with what we saw in Q1, with a typical seasonal slowdown compared to Q4 last year. There’s generally higher competitive intensity at the flanker brand level, but nothing out of the ordinary or unexpected. There is still growth in the wireless industry for all participants, whether due to immigration newcomers to Canada, moving from LTE to 5G, or the return of business activity.
Thane Fotopoulos, Executive
As we're approaching 9 a.m., this will be our last question.
Operator, Operator
I would now like to turn the meeting back over to you.
Thane Fotopoulos, Executive
Great. Thank you all for your participation this morning. As usual, I will be available, along with the team, for any questions and clarifications that you may have as a result of our announcements this morning. Thank you very much and have a great day.
Glen LeBlanc, CFO
Thank you, everyone.
Mirko Bibic, President and CEO
Thank you.
Operator, Operator
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.