Earnings Call Transcript
BCE INC (BCE)
Earnings Call Transcript - BCE Q4 2023
Operator, Operator
Good morning, ladies and gentlemen. Welcome to the BCE Q4 2023 Results and 2024 Guidance Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos. Thank you, Matthew, and good morning, everyone, and thank you for joining our call. With me here today are Mirko Bibic, BCE's President and CEO, and our CFO, Curtis Millen. You can find all of our Q4 disclosure documents including our safe harbor notice concerning forward-looking statements for 2024 on the Investor Relations page of the bce.ca website, which we posted earlier this morning. We have a lot of material to get through on the call. However, 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 our publicly filed documents for more details on assumptions and risks. With that, Mirko, over to you.
Mirko Bibic, CEO
Thank you, Thane, and good morning, everyone. Our quarterly and full year financial performance demonstrate the stability of our business and our proven ability to execute under any circumstances. The Bell team takes pride in delivering what we promised, taking the necessary near-term actions, including driving costs out of the business and balancing growth with profitability to meet our commitments to our customers and to our investors, while at the same time, putting in place the technology, product, customer service and cultural foundation that we know will drive growth in the medium to long term. Our results for 2023 validate this fact as we achieved all our financial guidance targets and maintained a stable EBITDA margin even while facing significant media advertising headwinds, unsupportive government and regulatory decisions, and a macroeconomic environment, marked by higher interest rates and sustained inflation. We also made tangible progress on our key strategic imperatives in 2023, showing that the investments we've been making across every part of our business since the onset of COVID are working, and these priorities remain the foundation for Bell's future success. We met our broadband fibre buildout target, and we surpassed our mobile 5G and 5G+ coverage objectives. In fact, we now offer multi-gig symmetrical Internet speeds of 3 gigabits in 6.5 million locations. That's a big competitive advantage that our cable competitors cannot match across their entire footprints. And our performance and quality gap over cable is reflected in our Internet subscriber metrics. We also secured new 5G+ spectrum licenses in the recently completed 3,800 megahertz auction. We now have the most 5G+ spectrum in Canada, acquired at a total cost that was the lowest among national wireless carriers. In wireless, we delivered a great result in an increasingly competitive environment. We delivered a healthy step-up in sales, strong net adds focused on high-quality premium brand customer loadings, positive organic ARPU growth in Q4 and throughout the year, and importantly, we managed our promotional offers in a disciplined way to balance growth with profitability with a sizable improvement in product margin in Q4. Fueled by our fibre footprint, we also grew broadband Internet market share, contributing to strong residential Internet revenue growth of 7.1% in 2023. In particular, we stepped up share gains and our competitiveness in the province of Quebec given our fibre advantage and bundling capabilities. Turning to media, digital revenue was up 19% and represented 35% of total media revenue versus 29% last year, and that's a notable result given current challenging advertising market conditions. This is also notable given our strategic shift to digital and investments to sustain this strategy are continuing with long-term access to premier content from core partners, including Warner Bros. Discovery and the NFL, the recent introduction of ad-supported subscription tiers on Crave, and upcoming distribution on Amazon Prime Video, which we announced this week, as well as the launch of addressable advertising that will enable advertisers to target ads to specific households or devices. We're well positioned to capture an even higher share of industry digital ad market revenue going forward. On the customer experience front, our investments in building the best broadband networks, which are consistently recognized by third parties as being the fastest, together with online digital support tools and innovative apps, continue to deliver better customer experiences. These efforts are a big reason why we've increased our share of digital online service transactions through self-serve tools to nearly 70% of all digital transactions and why Bell customer satisfaction scores continue to improve as reflected in the latest report from the CCTS, which showed, as you know, a 6% drop in Bell's share of overall complaints. Again, the best performance among national service providers for an eight consecutive year. Now, on Slide 5 of our presentation, it's clear from all the data points I just provided that we made good progress against our strategic imperatives in 2023. And we fully appreciate that our shareholders look to Bell for the safety and growth of our cash flows. However, we must address a number of factors in our operating environment, and that includes unsupportive federal government policies, higher interest rates and inflation, changing consumer preferences regarding service experience and delivery, and managing through a fundamental technology transformation. Competition and customer expectations are also putting downward pressure on ARPUs, requiring a more agile and scaled-down cost structure. Media companies are facing increasing competition from global tech players, an ongoing advertising recession and a declining legacy distribution business. And the Canadian regulatory environment is marked by policies on fibre resale that are negative, specifically target Bell, and a broadcasting framework that curiously still does very little to assist Canadian media companies. Because of the CRTC's targeted action, we are halting the elevated CapEx spending program that we've been operating under since 2021. As a result, we are notably slowing the pace of our fibre footprint expansion and we're capping fibre speeds at 3-gigabits per second. This also led to $105 million less capital being invested than planned for in Q4 of 2023. And we intend to reduce CapEx by at least an additional $1 billion over the next two years, including a minimum $500 million year-over-year decrease in 2024 alone. Given the lack of government and regulatory support for the historic capital investments Bell has made since the onset of COVID in 2020 and an unwillingness or inability to level the playing field between domestic competitors and global tech giants, we're also shifting our focus away from overly regulated parts of our business towards key growth areas where we plan to accelerate investment, such as cloud and security services, advanced advertising and digital transformation, just to name a few. And consistent with this refocusing, we're today announcing the sale of 45 radio stations and the closure of 107 Source stores. To succeed in a landscape that's being reshaped, it's more important than ever to continue to align our operating model and cost structure to customer expectations and the revenue profile of our business segments. And for these reasons, we're undertaking a significant workforce restructuring initiative, our largest in nearly 30 years, that will eliminate approximately 4,800 positions, including 750 contractors or 9% of all BCE employees. This restructuring initiative will yield in-year cost savings in the range of $150 million to $200 million for 2024 or $250 million on an annualized basis. Now, restructuring the business is never an easy decision, but it's what we need to do to simplify our organization and accelerate our transformation. Where possible, we are leveraging vacant positions and natural attrition in order to minimize the impact on our team. We'll remove overlaps and consolidate certain functions across different teams, reducing corporate functions by 20% and over-indexing reductions in non-customer facing roles. While we're eliminating positions in areas where demand and revenue are declining, we are continuing to hire in growth areas. And this restructuring program is enabled in part by our accelerated investments in automation, digitization and AI, strategic acquisitions, new partnerships and service launches to improve our competitiveness and innovation agenda. Given the transformation investments we've made since 2020, we're in a better position now to drive costs out of the business. These transformation investments will continue in 2024 and beyond, and they'll drive more OpEx savings in the medium to long term than those being realized as a result of today's announcement. Now, moving to Slide 6, I want to provide some color for you on how we're driving our operational transformation from a traditional telco to a tech services and digital media leader with a number of examples of investments, partnerships, and initiatives we've been undertaking. In wireless, as we've already announced, we've entered into a long-term strategic partnership with Best Buy Canada to rebrand, excuse me, 165 Source stores to Best Buy Express. Bell will remain responsible for store operations while Best Buy assumes responsibility for consumer electronics merchandising, procurement, marketing, inventory ownership and management, logistics and supply chain, as well as other support functions. Importantly, Bell will continue to control all mobility and Internet sales. At Bell Business Markets, we've advanced our capabilities in cloud computing solutions and digital workflow automation with the acquisition of FX Innovation last year and our partnership with ServiceNow, the global leader in digital workflow solutions. Our collaboration with ServiceNow creates unique value for the Canadian business market and will elevate the end-to-end experience for our customers. And on the media side, it's about reducing our dependence on overly-regulated businesses like radio and pushing even more aggressively into digital-targeted ad platforms through scaling ad-supported subscription tiers on Crave, expanding addressable advertising across more media properties and acquiring OUTFRONT Media's Canadian out-of-home business. And as I've mentioned, we'll distribute Crave on Amazon Prime Video channels, which will enable even better Crave growth looking forward. Against the backdrop of accelerating investments in key growth areas, we're also laser-focused on transforming our existing core business. And we're looking at things like how to build better and more resilient networks, providing better service through enhanced distribution channels and sales coverage, speeding up innovation and time to market, modernizing and rationalizing our suite of products, and embracing digital solutions and automation. And a key piece of our product modernization program is leveraging our existing all fibre network to provide better service to customers, saving money on maintenance costs, and, of course, reducing our environmental footprint. We've made progress migrating customers and equipment to our fibre network, as well as consolidating and removing copper cables and equipment no longer required in the field. We've launched fibre migration now to 105 central offices, transitioning 110,000 residential customers in 2023. And in 2024, copper customers in Manitoba and Atlantic Canada who need a repair will be transitioned over to fibre where we have fibre as we already do in Ontario and Quebec. We introduced a new next-generation Fibe TV service powered by Bell's in-house software on an Android TV set-top box, and that importantly sets the stage for a move to a single IPTV platform and addressable TV capabilities at scale everywhere we operate. This new service is currently available to residential customers in Atlantic Canada, and that will be rolled out, as I said, to other regions across our footprint in the coming quarters. We're also consolidating real estate, reducing the number of vendors we deal with, and very importantly, simplifying our ordering and billing technology platforms by moving all core consumer products to a single billing architecture. This has now been launched at scale to 1.3 million customers in Ontario and Quebec, and we'll continue to migrate more customers on the new billing platform as the year progresses. Each of these programs, and I've given you several examples, each of them will drive growth, better serve customers, and take costs out of the business. Importantly, they'll support a stronger EBITDA growth trajectory, margin accretion and free cash flow expansion in the years ahead, and that's going to help support our dividend growth objective. And that brings me to Slide 7 and our dividend announcement for this morning. We're increasing the BCE common share dividend by 3.1% for 2024. It's our 16th year of uninterrupted growth, demonstrating our unwavering commitment to dividend growth. Dividend growth remains central to our value proposition and we'll continue to prioritize it in our capital allocation. And it is apparent from our dividend yield that, at this time, BCE share price is not being rewarded for the higher 5% dividend growth profile. We appreciate that our shareholders want a stable and a growing dividend, and we're delivering on that expectation. The 3.1% increase for this year, 2024, will allow us to better balance capital allocation priorities with the ultimate objective of getting our payout ratio below 100%, and that provides us additional financial flexibility at the same time, given the higher interest rate environment, significant workforce restructuring we're undertaking and the acceleration of our Techco transformation that will serve as the future catalyst to growth and deliver the financial results that we continue to deliver for our investors and that you can continue to expect from us. And on that, I'll turn it over to Curtis.
Curtis Millen, CFO
Thank you, Mirko, and good morning, everyone. I'll begin on Slide 9 with BCE's consolidated financial results. We had a strong quarter to end the year with 5.3% higher adjusted EBITDA that drove a 1.9 point increase in margin to 39.7%, and 7% adjusted EPS growth. This EBITDA result was achieved despite ongoing media advertising headwinds and a step-up in consumer promotional offer intensity and moderated service revenue growth this quarter. Regarding CapEx, due to the deceleration of our fibre network buildout in the back half of the year, CapEx was down $609 million in full year 2023. As Mirko pointed out, we reduced planned capital investment by an additional $105 million in Q4 as a direct result of the CRTC's fibre resale decision. Our strong EBITDA growth, substantial CapEx reduction, lower cash taxes and the positive change in working capital, that we had signaled to the Street throughout the year, drove a $913 million year-over-year positive swing in Q4 free cash flow. Turning to Bell CTS on Slide 10, starting with a high-level summary of Q4 subscriber metrics. Overall, I would say that we're doing a very good job in wireless, striking a healthy balance between volume growth, acquisition cost, and ARPU. We delivered a record quarter for postpaid mobile phone gross activations that drove 128,715 new net subscribers. This result, which comprises our second highest Q4 for consumer postpaid net adds after last year, was achieved even with a higher number of switchers, reflecting aggressive offers from our competitors that we chose to match selectively. This disciplined approach was reflected in our promotional offers where handset subsidies were on average 32% lower than they were in '22, driving a significant improvement in wireless product margin. Wireless ARPU was up 0.4% this quarter, driven by our focus on premium 5G subscriber loadings and further growth in outbound roaming, a great result in light of the more aggressive rate plan offers during the Black Friday and December holiday sales period, demonstrating our reliance on network quality and distribution strength rather than promotional discounting to drive profitable subscriber growth. Switching to our industry-leading broadband segment. Bell Internet added 55,591 total new net retail subscribers, our second-best Q4 result in nearly two decades. And on the TV side of things, we added 23,537 net IPTV subs, which is approximately 17,000 lower versus Q4 of 2022. This was an expected result as our result last year benefited from a significant number of customer activations, driven by the World Cup. Moving to Bell CTS financials. This is a very good set of results to end the year. Top-line revenue grew a respectable 1.7% in Q4. This was achieved despite ongoing legacy declines, a tough year-over-year comp for business product sales, and a richer residential service bundle discounts, reflecting a more intense promotions market compared to last year. Total consumer wireless revenue increased 5.5%, profiting from a higher sales mix of premium mobile phones on the product side and positive ARPU growth on the service side. Residential Internet revenue was up 5.4%. CTS revenue also benefited from higher sales of security and cloud-focused managed and professional service solutions to businesses, as well as the financial contribution from our acquisition of FX Innovation in June. The combined impact of continued consumer strength across our wireless residential home services, together with improved business wireline results, better wireless promotional offer discipline and lower weather-related cost pressures drove strong EBITDA growth of 4.8%. Clearly, this is a financial highlight for Q4. On to Slide 11. Bell Media continued its digital revenue growth, and in aggregate, performed better than we expected during the quarter. Digital revenues were up 27% over last year. Underpinning this result was Crave, which grew direct streaming subscribers by 14% on the back of market-leading content, as well as continued strong growth of our SAM TV sales tool, which saw a 70% increase in sales in Q4. Despite strong digital ad growth in the quarter, total ad revenue was down 13.7%, as advertiser spending, particularly for TV, continued to be impacted by the economy and now resolved Hollywood strikes. Furthermore, revenue generated in Q4 2022 from the World Cup contributed to the year-over-year decline. Normalizing for the World Cup, ad revenue net of displacements was down 9%. That performance is better than our peers, which is a testament to Bell Media's programming strength, diversified mix of assets and focused execution of our digital-first strategy. Despite the unfavorable revenue backdrop, EBITDA increased 14.7% in Q4. This result was supported by the favorable impact of various restructuring initiatives undertaken in '23 to help right-size our cost structure and asset portfolio, along with lower TV programming costs due to the Hollywood strikes and last year's World Cup broadcasts. I'll now turn to our 2024 financial outlook, starting with revenue and EBITDA on Slide 13. Based on the latest economic forecasts and industry outlooks, our revenue and adjusted EBITDA growth ranges for '24 take into consideration potential recessionary risks, competitive pricing pressures and business product sales lumpiness. Additionally, our strategic distribution partnership with Best Buy Canada will see the elimination of approximately $300 million in largely consumer electronics revenue from our consolidated results in 2024. The impact on EBITDA will not be material given relatively low margin for consumer electronics. As a result, we're setting our guidance growth ranges for 2024 at 0% to 4% for total revenue and 1.5% to 4.5% for adjusted EBITDA. Given this outlook and benefiting from the cost savings we expect to realize from the transformation initiatives that Mirko outlined earlier, including a 9% reduction in our workforce, we predict BCE's margin for 2024 to remain, at a minimum, stable year-over-year. And notably, if you exclude the financial impact of the Best Buy transaction, our target guided ranges are consistent with last year, showing the relative stability of our business and the confidence we have in our proven ability to execute under any circumstance. Underpinning this steady growth is our continued focus on premium mobile phone subs with increased emphasis on market growth, as we capitalize on our wireless network leadership, ongoing 5G upgrade cycle and strong immigration efforts. We also plan to continue winning the home by leveraging our industry-leading symmetrical Internet speed advantage over cable, delivering the best customer experience with our products and driving greater cross-sell penetration of higher value mobility and Internet households. In our B2B sector, our objective is to build on our momentum from 2023 by accelerating growth in cloud, security and workflow automation solutions in the large enterprise space, while also expanding key channels and leveraging our fibre footprint in SMB. At Bell Media, although the timing of an advertising recovery remains uncertain, we'll continue to drive advanced advertising, digital products like Crave, as well as new distribution initiatives such as Crave's partnership with Amazon to further grow our market share of digital ad spend. These digital opportunities, together with the financial contribution from our pending acquisition of OUTFRONT Media and restructuring cost savings, should drive improved Media financial performance in 2024. Moving to Slide 14, despite growth in EBITDA, we project adjusted EPS to be in the range of $2.98 to $3.13 per share in 2024, or 2% to 7% lower versus last year. This year-over-year decline can be attributed largely to an approximate $200 million step-up in interest expense due to higher rates and more debt outstanding from investments in our growth strategy, an estimated $100 million increase in depreciation and amortization expense, consistent with the growth in our broadband network capital asset base, higher pension financing cost and gains on the sale of real estate realized in 2023 related to our multiyear consolidation and conversion program that totaled $67 million or $0.05 per share. Turning to Slide 15, we expect to generate $2.8 billion to $3.05 billion of free cash flow in 2024. This is 3% to 11% lower compared to 2023 and reflects around $400 million in one-time severance payments related to the 4,800 employee reductions that Mirko detailed. Normalizing for the severance payments associated with our announced workforce restructuring initiatives in 2023 and 2024, free cash flow growth is in the range of 0% to 7% this year, providing support for the 3.1% dividend increase we declared this morning. This underlying growth in free cash flow is the result of higher year-over-year EBITDA and a $500 million decrease in CapEx that will drive our capital intensity ratio of 16.5% or less in 2024. Although we have currently budgeted approximately $4.1 billion in CapEx spending for 2024, this amount can possibly be even lower depending on government policy decisions during the course of the year that may further disincentivize investment. 2024 free cash flow also reflects higher interest paid, stable to higher cash taxes, as the federal government's accelerated CCA program is phasing out beginning this year, and lower projected cash from working capital. This working capital drag is attributable mainly to the significant improvements in AR and inventory levels realized in '23, which normalize following substantial COVID and supply chain impacts in 2022, as well as potential recessionary impacts on customer collections that may materialize with a harder economic landing. Moving to Slide 16, as we begin the year, we are in a very strong financial position. We have access to $5.8 billion of liquidity and a balance sheet with a sizable pension solvency surplus totaling $3.6 billion, which provides good overall financial flexibility to execute on our business plan and strategic priorities for 2024. Our net debt leverage ratio at just under 3.5 times adjusted EBITDA, due to several years of generational CapEx spending and critical spectrum investments, is projected to remain more or less stable this year. Our debt capital structure also remains very well structured with an average term to maturity of approximately 12 years, an after-tax cost of borrowing that is below prevailing interest rates at around 3%, and a floating interest rate exposure that is below our historical target range of 20% to 30%. At these levels, together with no material debt refinancing requirements until Q1 2025, interest rates that are expected to ease and access to lower-cost short-term financing options, we can be opportunistic in accessing the debt capital markets this year if market conditions are favorable to pre-fund upcoming maturities and mitigate interest rate pressures. Lastly, I wanted to note that capital leases are expected to begin declining this year, having reached a peak in 2023, which will drive lower principal repayments beginning in 2025. To conclude on Slide 17, 2024 is an important transformation year for Bell. It's a year where we look to maintain operational momentum while balancing growth with financial performance as we continue our transition to a tech services and digital media leader. Within that context, the guidance targets we're providing today are appropriate given the current economic, competitive and regulatory backdrops, while also reflecting the impacts of our workforce restructuring and other transformation initiatives that will better position the company for future growth and financial success.
Operator, Operator
Thanks, Curtis. So given the volume of information we presented this morning, I'm sensitive to the time we have left for Q&A, so I would please ask that you limit yourself to one question, so we can get to everybody in the queue. With that, Matthew, we're ready to take our first question.
Operator, Operator
Thank you. The first question is from Maher Yaghi from Scotiabank. Please go ahead.
Maher Yaghi, Analyst
Thank you for taking my question. Believe it or not, I won't ask you about Q4 or 2024. I think we need to discuss the elephant in the room here. One can't satisfy the regulatory environment when looking at pricing pressure hitting Canadian telcos on both wireless and wireline. I mean, we have seen similar issues in the Canadian broadcasting industry due to slow evolution on regulation. Mirko, I wanted to ask you, is your telecom service in Canada at risk of seeing similar long-term profitability issues if regulation continues to lag technological advancements? Underlying my question is this question, beyond 2024, should we expect future years to see additional material cost reductions to continue to stay ahead of these regulatory pressures? Thank you.
Mirko Bibic, CEO
Thank you for the question, Maher. I want to emphasize what I mentioned earlier. We consistently achieve strong results each quarter because we are always planning ahead. We made investments in 2020 and 2021 that positioned us to deliver strong results in 2023. We continue to plan for the current environment and future expectations. This encompasses technology, macroeconomic factors, customer expectations, the competitive landscape, and important regulatory concerns. Looking at our free cash flow guidance, for 2024, we anticipate less than a 16.5% capital intensity ratio. We are also planning to reduce capital expenditures by at least $1 billion over the next two years. The phrase "at least" indicates that if regulatory conditions worsen regarding certain known rules, particularly related to fibre access, we may need to cut investments in these areas and reallocate funds toward growth and transformation capital expenditures, which may include additional restructuring. The 16.5% capital intensity ratio corresponds to about $4.1 billion in planned capital expenditures for this year. I initially expected to reach $4.1 billion by 2026, not in 2024 or 2025, as we aimed to build up to 9 million fibre locations by the end of 2025. We have adjusted our spending timeline earlier than anticipated due to regulatory rules and federal policies. In the midterm, we can operate below that capital intensity level, given the ongoing efforts on our growth and transformation strategy. I won't list those again, as I already covered them in my opening remarks. Now, regarding fibre, we must ask ourselves why we should keep investing at the pace of 2020 through 2023 if our investments primarily benefit our major competitors. At some point, we could consider relying on their networks, but that would lead to poor outcomes for resilience, competition, and pricing. So, the short answer is there might be further developments depending on how things unfold. You didn't focus much on media in your question, aside from noting the slow regulatory evolution in broadcasting. We've been advocating for equal rules in broadcasting for years, both for domestic and international competitors, yet progress has been stagnant. Our TV licenses were renewed until 2026 with minimal consultation, despite the challenging advertising landscape and a significant crisis in the media industry. The CBC has more flexibility regarding their news obligations than we do, even though we publicly state that we incur a $40 million loss annually on news. We want to provide news but need to find a feasible solution. There are many points I could mention, but I'll pause there.
Maher Yaghi, Analyst
Thank you.
Operator, Operator
Thank you. The next question is from David Barden from Bank of America. Please go ahead.
David Barden, Analyst
Thank you for taking my question. Curtis, I believe the free cash flow guidance was quite surprising. I want to ensure I have this right. If we look at the free cash flow from 2023, starting with $3.14 billion, and add a $500 million reduction in CapEx, a $300 million increase from midpoint EBITDA guidance, subtract $400 million for severance, and $300 million for higher interest expenses, we arrive at approximately $3.25 billion. This implies there may be an additional $250 million due to taxes and working capital. Can you clarify this discrepancy? Also, I apologize for asking another related question, but with free cash flow at $3 billion and your common dividend at $3.5 billion along with $200 million for preferred dividends, we are facing a significant gap. When do we expect to bridge that gap? Thank you.
Curtis Millen, CFO
Thanks for the question, David. We are focused on driving growth in free cash flow while also investing in significant improvements to our network. We are funding several growth initiatives in cloud and security services, as well as various digital transformation projects. While we anticipated spending over $4.1 billion, that amount still represents a considerable investment. The year 2024 will be transformative for us, especially with a major reduction in our workforce, which includes $400 million in severance, marking a significant one-time impact on free cash flow. Additionally, there are some one-time timing challenges regarding working capital that will create pressure in 2024. For instance, we are expanding our fibre and broadband areas, which involves upfront costs that will eventually be reimbursed by the government, but there is a timing delay in that process. We also expect an increase in interest payments this year due to rising interest rates and a larger balance sheet. There are several factors at play, but we are confident in our ability to enhance free cash flow. Our dividend at this level is well-supported by the free cash flow growth we aim to achieve this year.
David Barden, Analyst
Thanks.
Operator, Operator
Thank you. The next question is from Stephanie Price from CIBC World Markets. Please go ahead.
Stephanie Price, Analyst
Good morning. Thank you. Just following up on the last question, I was hoping you could talk a little bit about the longer-term outlook for dividend growth. Do you see 3% as the new normal here, or is it more of a near-term impact from the restructuring? How should we think about dividend growth going forward?
Mirko Bibic, CEO
We’ll assess that, Stephanie. Hi, it’s Mirko. We’ll assess that year by year, of course. Look, we’re always going to use funds available to us in a balanced manner in line with the priorities I outlined in my opening remarks. So, dividend growth remains number one this year. For this year, the 3% is absolutely appropriate, particularly given where our dividend yield sits at right now. And then, we’ll always balance that against the growth CapEx that I’ve talked about, the transformation CapEx I’ve talked about. There might be some smaller-scale M&A opportunities that come up. They often do. So that’ll be how we line up our priorities and we’ll reassess it again next year. But I’d say 3% is a solid bump in this environment and it’s still competitive with our peer group.
Stephanie Price, Analyst
Thank you very much.
Operator, Operator
Thank you. The next question is from Drew McReynolds from RBC Capital Markets. Please go ahead.
Drew McReynolds, Analyst
Thank you. Good morning. Mirko, regarding the uncertainties affecting the top line, many factors are outside your control, including regulatory issues. From our viewpoint, reducing the cost to serve is a significant factor in enhancing EBITDA and free cash flow growth, as you mentioned in your opening comments. Could you elaborate on how you plan to reduce the cost to serve beyond 2024? Also, where do you currently stand on copper decommissioning for this year, and what should we anticipate in the coming years? Thank you.
Mirko Bibic, CEO
Thank you for the question. As we consider how to spend our capital efficiently, we look at dividends on one side and network expansion on the other, though that expansion is currently occurring at a slower pace. We are also focused on balancing our investments between growth capital expenditures and transformation capital expenditures. By investing in the transformation of Bell, we anticipate increasing efficiency with our capital over time, which will help reduce costs and promote growth. For example, moving core consumer products to a single ordering and billing system offers numerous advantages, including a clearer bill, improved customer experience, simplified management with fewer systems, reduced manual interventions, and faster time to market for changes. This has been a priority for us over the last several years, and we began migrating customers to this system mid-last year, with plans to continue investing in our digital apps, which have shown consistent improvements. Customer self-install is also scaling up, particularly in our fiber areas. We see significant potential in AI and generative AI, which we plan to leverage more effectively in 2024 and beyond. Regarding copper decommissioning, we are working on this in up to 105 central offices, and we intend to increase this over time. We are streamlining legacy products, especially in our enterprise division, to enhance efficiency. I mentioned the move to a single IPTV platform that will benefit us in various ways: a superior product, enhanced customer experience, and cost savings, eliminating the need for multiple Fibe TV services. Additionally, the addressable TV capabilities will support digital advertising revenue growth for Bell Media. We are consistently evaluating real estate, consolidating vendors, managing supply relationships carefully, standardizing contractor rates, in-sourcing when possible, and ending some long-term partnerships to reduce costs and foster better growth.
Drew McReynolds, Analyst
Comprehensive list. Thanks for that.
Operator, Operator
Thank you. The next question is from Simon Flannery from Morgan Stanley. Please go ahead.
Simon Flannery, Analyst
Great. Thank you very much. Good morning. I wanted to just talk about the macro if I could for a minute. You talked a few times about potential recession being included in your guidance. And I want to really see what you were seeing on the ground today. I think you talked about higher business disconnects, as well as some lengthening of payable cycles and so forth. So, to what extent are you being cautious here, or you're actually starting to see some signs? Obviously, you've talked a lot about media, but more in the communication side of the business? Thanks.
Mirko Bibic, CEO
Our revenue and EBITDA guidance aligns closely with previous years, despite the impact of the Best Buy transaction on product revenues. We're assessing the macro environment while recognizing our strengths in areas such as Internet and wireless services. On the enterprise side, we’re experiencing robust service revenue growth, particularly in our key verticals like cloud services, security, automation, and digitization. We noted strong organic solutions revenue growth at Bell Business Markets, not accounting for the effects of foreign exchange, which will also continue to grow. Our focus on the enterprise side is to maintain our core business while reducing costs, leveraging the growth in new solutions, and enhancing customer experiences. In the small business segment, we haven’t observed significant downsizing or an increase in closures, but we are carefully monitoring the situation. For the wireless market, customer payment patterns have remained stable, with no significant changes noted, but it’s something we will watch closely, especially given the competitive landscape. I was pleased with our Q4 performance in managing this competitiveness; we successfully utilized our premium brand strategy to attract customers to our superior network at higher average revenue per users, which is reflected in our organic ARPU growth. We've also utilized the Virgin brand to better serve the value segment without compromising pricing on our premium brand. I believe there’s still potential for growth in both the wireless and Internet sectors.
Simon Flannery, Analyst
Great. Thanks a lot.
Operator, Operator
Thank you. The next question is from Tim Casey from BMO Capital Markets. Please go ahead.
Tim Casey, Analyst
Thanks. Curtis, can we go back to your walkdown on free cash flow and your comment on working capital? Are you implying there's a relief coming in 2025? Because you're talking about those working capital items being one time in nature. I mean, I just think people are struggling with the walkdown on this and how you end up with free cash flow guiding below $3 billion. Thanks.
Curtis Millen, CFO
Yeah. Thanks for the question, Tim. I think there are a couple of things, and some of these things, unfortunately, will take more than one year to normalize out. I mean, if you’re looking at the one that I mentioned in terms of government subsidy build, so we’ll be building out over the next couple of years, and then the two years after that, it swings in our favor. Another one I’d mention, so in '23, as supply chain normalize, our AR, excuse me, so receivables and inventory levels came down quite substantially, but that creates a year-over-year pressure where there’s no incremental or limited incremental improvement year-over-year. So, it was a win in '23, but it’s already normal in '23, so there’s no incremental win in '24.
Tim Casey, Analyst
Thank you.
Operator, Operator
Thank you. The next question is from Jerome Dubreuil from Desjardins Securities. Please go ahead.
Jerome Dubreuil, Analyst
Hi, thanks. Good morning. One on network convergence. You do have a high level of overlap between your wireless and wireline networks, but you're not 100%. We're seeing competitors making strides and putting more focus on fixed wireless, even in urban areas. Is this something you are increasingly considering, or are you happy with your current addressable market? And maybe, also, is this possible in the context of network sharing agreement? Thank you.
Mirko Bibic, CEO
We've had a fixed wireless product available since 2018, and we initially set ambitious build targets, which we had to adjust due to some regulatory issues. However, we were able to move forward again when regulations improved in 2019 and 2020. This highlights the significance of regulatory decisions. Our addressable market for fixed wireless is substantial, and we've been consistently selling our products since 2018. We continue to enhance it, and it performs well in rural areas where fibre or DOCSIS cable are not available. In my opinion, fixed wireless access will struggle to compete where fibre and top-tier cable exist. Additionally, it's important to note that since 2018, Starlink has become an option for customers in rural areas. Overall, I'm pleased with our position in the fixed wireless access market and how the product has performed, particularly when we first launched it.
Jerome Dubreuil, Analyst
Thank you.
Operator, Operator
Thank you. The next question is from Aravinda Galappatthige from Canaccord Genuity. Please go ahead.
Aravinda Galappatthige, Analyst
Good morning. Thanks for taking my question. It's on the adjusted EBITDA guide, 1.5% to 4.5%. Just wanted to understand sort of the lower end there. I mean, there's obviously the benefit of the acquisition in media and then the $150 million to $200 million translates to somewhere between 1.5% to 2% roughly. Is it that perhaps you because of the ad conditions you're assuming a steeper decline in media, is that what sort of dragging down that low end? I wanted to understand the low end of that range a little bit better. Thanks.
Curtis Millen, CFO
Yeah. Hi, Aravinda. Thanks for your question. I mean, the simple answer is it's the same guidance as last year, but for the adjustment on the low end, which takes into account the range of $150 million to $200 million of cost savings. So that $50 million range there driven by our workforce reduction. So, in-line with last year's guidance range.
Aravinda Galappatthige, Analyst
Okay. But the acquisition clearly adds about half a turn, right? 0.5%?
Curtis Millen, CFO
Yeah. So, you're talking about OUTFRONT. Yeah, OUTFRONT hasn't closed yet. So, you're right, there's a bit of a balance here between ad market recovery and potential closing of the acquisition.
Operator, Operator
Thank you. The next question is from Batya Levi from UBS. Please go ahead.
Unidentified Analyst, Analyst
Good morning. This is Chris for Batya. Just digging into the postpaid phone churn result, any color you can give on the performance you're seeing by geography and whether the level of competition has been consistent across regions? And any early color you might be able to provide on 1Q? Has the level of switching intensity eased so far in January? Thanks.
Mirko Bibic, CEO
Yeah. So, look on churn, we're not sitting idly by. Like, we've got to watch this very carefully. It has gone up. It feels a lot more obviously like pre-COVID than it has in the last several years. So, what we're going to do is continue to leverage our household bundling strategy where we've been pretty effective over the last couple of years, including in 2023, focus on the premium loadings in the way I suggested a couple of questions ago, continue to improve customer experience. I think that common billing platform I've talked about is going to help. We're going to use Crave quite strategically. And these are the things that we're going to do to make sure that churn stays under control, but it has to be looked at quite seriously, and that's what we're going to be looking for. Now, if we look back at Q4, you can see how diligent we were, right? We managed to deliver record sales, strong service growth, solid nets, organic ARPU growth, significantly better product margin, and basically, we didn't have to overspend to deliver kind of the solid results we did. So again, it's always about balancing the spend on the share you gain while making sure that you're doing all the right things tactically to keep churn in check.
Unidentified Analyst, Analyst
Okay. Thank you.
Operator, Operator
Yeah. Matthew, we're starting to time out. So, this will be our last question.
Operator, Operator
Perfect. Thank you. The next question is from David McFadgen from Cormark Securities. Please go ahead.
David McFadgen, Analyst
Okay. Thanks for squeezing me in. Just a question on the CapEx. I know like the regulatory decisions that have been made, but don't the financial metrics just force you to cut CapEx anyways? If you want to get down to 100% payout ratio and you have to pay $400 million in severance, $300 million in higher interest expense, doesn't that just kind of force your hand to lower the CapEx anyways? And now with the lower CapEx, when would you expect to reach the 9 million homes?
Mirko Bibic, CEO
We indicated two years ago in 2021 that our objective was to reach 9 million fibre locations. We made it clear to our shareholders that this would require us to maintain an elevated payout ratio for the long-term benefit, considering the regulatory conditions at that time. Due to the current regulatory environment, we are reducing our capital expenditures. We had previously stated our intent to operate at an elevated payout ratio, and while we manage short-term needs, we are also focused on long-term goals. With our capital expenditures now at $4.1 billion, down from $4.6 billion, we have the flexibility to decide how to allocate that budget. We have opted to shift focus away from fibre and prioritize other growth opportunities and transformation initiatives. Even with a reduced capital budget for 2024, we retain control over these allocation decisions.
David McFadgen, Analyst
Okay. All right. Thank you.
Operator, Operator
Thank you. There are no further questions at this time. I would now like to turn the meeting over to Mr. Fotopoulos.
Operator, Operator
Thank you, Matthew. So, thank you again for your participation this morning. As usual, Richard and I will be available throughout the day for follow-up questions and clarifications. On that, have a great day. Thank you.
Operator, Operator
The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.