Earnings Call Transcript - BCE Q1 2022

Operator, Operator

All participants, please stand by. Your conference is ready to begin. Good morning, ladies and gentlemen. Welcome to the BCE Q1 2022 Results Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos. Thank you, Elena, and good morning to everybody. It's good to be back with all of you this quarter hosting today's conference call. As usual, here with me today are Mirko Bibic, BCE's President and CEO; and our CFO, Glen LeBlanc. You can find all of the relevant Q1 documents on the Investor Relations page of the bce.ca website, which we posted earlier this morning. However, before we begin, I'd like to draw your attention to our safe harbor statement reminding you that today's slide presentation and remarks made during the call will include forward-looking statements and 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 out of the way, I will hand it over to Mirko.

Mirko Bibic, President and CEO

Thank you, Thane, and good morning, everyone. We've had a very positive start to the year. Our dedicated Bell team once again delivered strong operational and financial results, driven by consistent and disciplined execution leading broadband networks and services and a focus on service excellence, all underpinned by a set of strategic initiatives that have guided us over the past two years, as you know, and that will continue to guide us in 2022 and beyond. Although Omicron undoubtedly is causing some near-term disruption, notably for Bell Business Markets and media advertising, we achieved robust total revenue and adjusted EBITDA growth of 2.5% and 6.4%, respectively, in Q1. This represents the first quarter in which our consolidated financial results surpassed pre-COVID levels. The second year of our historic CapEx acceleration program is in full swing with close to $1 billion in new capital spent in the quarter. We remain on pace to deliver approximately 900,000 new direct fiber connections and further expand our 5G service footprint to more Canadians while also launching a stand-alone 5G core, notably on 3.5 gigahertz spectrum. With our midterm broadband Internet build-out plan, 80% completed and 5G network service available to more than 80% of Canadians by year-end, we expect CapEx to begin decreasing starting in 2023. Bell's wireless performance in Q1 was a highlight as we continue to balance market share growth with operating profitability. We led the industry once again this quarter in service revenue, ARPU, and EBITDA growth. In fact, at 8.7%, we delivered our best quarterly wireless service revenue growth rate in 11 years. This is reflective of our consistent focus on high-value postpaid growth and effective subscriber base management. And our new unlimited ultimate plans introduced in February truly demonstrate the value proposition of 5G and highlight Bell Mobility's differentiated offerings serving as a catalyst for the consumer upgrade cycle from 4G to 5G handsets and service. On the enterprise side of things, our accelerated broadband investments mean that innovative applications, solutions, and platforms that rely on converged fiber and 5G networks are becoming more widely available, and our partnerships with leading hyperscalers will expand the use of multi-access edge computing and other next-gen technologies. Building on these partnerships and our unmatched network capabilities, Bell was the first telco in the world to deploy Google distributed Cloud Edge for core network functions, an important milestone that gives Bell the flexibility to deploy 5G network functionality in a variety of different architectures. And just last week, we launched the first public MEC in Canada powered by AWS Wavelength. The inaugural AWS Wavelength zone has been launched in the Toronto region with customers, including apparel retailer Rudsak, robot food delivery service Tiny Mile, and drone operator Drone Delivery Canada, among the first to leverage this new 5G infrastructure. As I've stated before, the demands of 5G-enabled network services and applications will require the fastest data speeds and the quickest response times to provide the very best user experience. And in that regard, our network capabilities and footprint breadth are unmatched. But we're not standing still. In fact, just this past April, we raised the bar with a widespread commercial introduction of a 3 gigabit symmetrical Internet service in most areas of Toronto. These are speeds that cable networks just cannot match. And in February, we acquired Internet provider EBOX to strengthen our competitive position and accelerate our market share gains in the value-seeking consumer segment of the Quebec market. Even as we continue to build globally leading broadband infrastructure, telecom services also remain affordable. If you compare the cost, for example, of a telecom service bundle, let's say, pure fiber Internet, IPTV, and unlimited mobile 5G data plans to the price of gasoline, an average-sized car would require a monthly minimum of probably around $400 in gas. This is approximately 2x higher than the cost of a starter package from Bell, which would give you unlimited usage 24/7 every day of any given month. According to the most recent StatCan data, the price of all goods and services in aggregate across the Canadian economy over the past two years has increased about 9% versus a decline of 26% for telecom services. Turning to Media. We continue to experience good momentum across our streaming distribution platforms and digital advertising markets. Total Crave subscriptions increased 3.4% over last year, while customers on direct streaming service grew a strong 19%. This, together with our Canadian leading CTV AVOD app continued rapid scaling of the SAM TV advertising sales tool, where year-to-date bookings are already 45% ahead of full-year 2021 levels, and our recently launched Noovo.info digital platform contributed to exceptional digital revenue growth of 84% this quarter. And lastly, on media, FanDuel, North America's premier online gaming company struck a multiyear agreement with TSN to become its official sportsbook partner beginning in Ontario. Let me now turn to our strategic imperative to champion the customer experience. Our customer experience-focused culture enabled by the strong performance of our teams and investments in AI and machine learning capabilities continues to drive improved satisfaction, loyalty, and retention as you see in lower year-over-year churn rates across all our wireless and wireline retail residential services. With innovations like enhanced self-serve and self-install, award-winning apps, Move Valet, and Virtual Repair, Bell had the largest reduction in customer complaints among national providers in the latest report from the CCTS with a 36% reduction over the previous year. The share of Bell's overall complaints also decreased by 13%, reducing our share for a seventh consecutive year. So really, if you take a step back and take a view of the full picture, we're aggressively building out next-gen digital networks. We're aggressively executing on our digital-first media strategy. We're gaining subscribers, share, revenue and earnings growth is coming along with it, and that's on the back of our digital networks and platforms. We're digitizing our customer experience tools, both those we use to serve customers and those that our customers are using themselves. And all of this is allowing us to stop using and to, in fact, decommission legacy networks, products, and tools from copper to satellite technologies where appropriate and beneficial. I also wanted to highlight now a couple of developments on the ESG front. Following the formalization of our commitment in 2021 to hold Bell to the highest ESG standards with the launch of Bell for Better, we've broadened our strategic imperatives to include sustainability directly in our corporate strategy. Consistently ranked as one of Canada's greenest employers, we've set increasingly ambitious environmental targets with our commitments for GHG emissions and waste reduction. These include a 57% reduction of our absolute Scope 1 and Scope 2 emissions by 2030, the recovery of 7 million used TV receivers, modems, WiFi pods, and mobile phones over the next two years, and reaching and maintaining a 15% total waste-to-landfill reduction ratio by 2025. Reflecting our continued efforts to engage and invest in our people, we were recently named as a top family-friendly employer, one of the best workplaces for young people and young professionals, as well as a top diversity employer for a sixth consecutive year in 2022. Just for those following along, I'm going to turn now to Slide 6 to provide an overview of some key operating metrics for the quarter. I'll start first with wireless. As I mentioned, definitely a highlight this quarter. We added 34,230 new net postpaid mobile phone subscribers. That's up 4% from last year, really a great result underpinned by our best-ever Q1 postpaid churn result which improved 10 basis points over last year and now sits at 0.79% for the quarter. We also were even more targeted in our competitive approach as our objective is to get the right market share, as I've mentioned several times in past quarters. We're really focusing on high-value smartphone subscribers to grow service revenue and ARPU. It's a disciplined approach for sure and it's paying dividends. As you can see by our industry-leading ARPU growth and that was up an impressive 5.1% in Q1. This was supported by increased travel, which drove higher roaming volumes and higher monthly recurring charges due to a greater mix of customers on premium rate plans. For mobile connected devices, the strategic focus remains on IoT subscriptions as innovative new business and consumer applications begin to emerge with 5G, and these increased 6.5% over last year to approximately 94,000. So that's wireless, and let's move now to the wireline. The fiber acceleration strategy is really working. We added more than 26,000 net new retail Internet customers and that represents a 23% increase over last year. And if you look specifically at our fiber-to-the-home footprint, we delivered an even stronger result with 38,049 new customer additions and that once again drove strong residential Internet revenue growth sitting at around 8% in Q1. We also added 12,260 net new IPTV subscribers, that's up 14.6% versus Q1 last year, and that's on the back of our customer segmentation approach and lower customer churn. And satellite TV net customer losses were for all intents and purposes, stable year-over-year at just over 20,000, while home phone net losses improved 17% to 42,345. So if you put it all together, accelerated fiber expansion, customer experience improvement, lower customer churn, and the best product offerings are continuing to drive more and more customers onto Bell Fibe. At the end of Q1, 91% of Bell residential households with Internet and TV were on our fiber network. At Bell Media, in addition to continued strong digital momentum, TV advertising demand in Q1 strengthened versus last year despite some advertiser pullback in some sectors due to the Omicron lockdowns and some supply chain disruptions. This was the result of a fuller live sports programming schedule with more NFL playoff games, our Super Bowl broadcast which was the most-watched program in the quarter and that helped to keep TSN and RDS top of the rankings again. Continued strong specialty news performance and Noovo which continue to outpace all other French-language conventional TV competitors in viewership growth with prime time audiences that were up 13% this winter. Taken all together, these factors drove a 7% year-over-year increase in total TV ad revenue. This was above pre-pandemic levels for a third consecutive quarter and 11% higher than Q1 of 2019. I'm going to hand it over to Glen in a second. But before I do, I'd like to acknowledge the Bell team as we began our return to a new more flexible hybrid workplace in early April after a long two-year hiatus. And I want to thank them for their outstanding support for one another and for our customers under very difficult circumstances. What they've done in keeping Canadians connected and informed every single day has been nothing short of impressive. I truly believe that our company has come out of COVID stronger. We're still in COVID but we're coming out of this stronger. We have an ambitious customer-first agenda. We have an ambitious network build agenda and we have a corporate purpose that's clearer and more important than ever.

Glen LeBlanc, CFO

Thank you, Mirko, and good morning, everyone. Another quarter of great execution by the Bell team to deliver a strong set of consolidated financial results in Q1. Adjusted EBITDA was a highlight, growing 6.4% on year-over-year increases across all operating segments despite some COVID-related headwinds at Bell Business Markets, which affected data product sales in the quarter. Service revenue growth accelerated to 4.2% on strong wireless, residential Internet, and media results which drove a notable 1.6-point increase in margin to 44.2%. For transparency, our results this quarter included a one-time retroactive adjustment to Bell Media subscriber revenue. Normalizing for this one-time retroactive adjustment, consolidated EBITDA growth for Q1 would have remained quite healthy at 3.5%. Net earnings increased 35% on the flow-through of strong EBITDA growth as well as higher other income driven by a one-time gain from the sale of Createch in March and a non-cash mark-to-market equity derivative gain as a result of BCE share price appreciation in the quarter. Similarly, adjusted EPS was up 14.1% year-over-year to $0.89, reflecting a high EBITDA contribution from operations and lower year-over-year pension financing costs reflecting the strong net surplus position of our post-employment benefit plans; I never get tired of saying that surplus position. CapEx this quarter was down slightly year-over-year due to the timing of spend. We remain firmly on pace to invest around $5 billion in total this year. As free cash flow, as for free cash flow, our Q1 result was in line with plan and reflected lower cash from working capital due mainly to timing of supplier payments, which should reverse out next quarter as well as an increase in interest paid on the higher level of outstanding long-term debt. Let's turn to Wireless on Slide 9. Another set of exceptional financial results that led national peers once again for the fourth consecutive quarter. Service revenue growth improved sequentially, increasing to 8.7% from 6.3% in Q4. This strong acceleration reflects our even sharper focus compared to last year on high-value postpaid and prepaid subscriber growth, as well as continued recovery in roaming as international travel activity increases. In fact, roaming revenues exited the quarter at just below 80% of pre-pandemic levels. Product revenue was down 3.8% as total transaction volumes continued to trend lower year-over-year, reflecting a sustained high proportion of new subscribers activating services with pre-owned devices and longer handset life cycles which is financially attractive from both the working capital and a customer lifetime value perspective. Finally, wireless EBITDA also accelerated significantly growing 9.3% on the high flow-through of strong service revenue growth and our disciplined and targeted responses to competitors' promotional offers, which drove a 1.7-point year-over-year increase in margin to 45.7%. Turning over to wireline on Slide 10. Residential grew solidly year-over-year, led by Internet revenue which increased 8% on a combined impact of higher ARPU and continued market share gains. However, total wireline revenue was down 2.2% this quarter, reflecting a 28.6% decline in product revenue as our business markets unit continues to experience near-term headwinds from ongoing global supply chain shortages that are impacting equipment availability. This is not only temporarily deferring product sales but also delaying product spend on follow-on business service solutions. We anticipate these pressures will continue to persist for the remainder of calendar '22. Also weighing on results this quarter was an exceptionally strong demand for telecom data equipment in Q1 of '21 from public sector customers, as well as the sale of Createch that I mentioned earlier in March. Despite lower year-over-year revenue, wireline EBITDA growth was positive, increasing 0.3%, reflecting a 4.2% reduction in operating costs, which also supported margin expansion of 1.2 percentage points to 45.4%. Let's turn to Media on Slide 11. Another quarter of industry-leading financial performance in Q1 as growth across all Bell Media platforms, including digital, which increased, as Mirko said, an outstanding 84% year-over-year, and that all drove a 15.7% increase in total revenue. Advertising revenue was up 8.5%, reflecting continued strong TV advertising demand, while the COVID recovery in radio and out-of-home is progressing. It is slower than expected in Q1 due to Omicron. Subscriber revenue was 22% higher versus last year, reflecting continued strong Crave streaming growth and the aforementioned one-time retroactive revenue adjustment. Consistent with the year-over-year increase in revenue, media EBITDA was up 45.5%. However, normalizing for the retroactive adjustment, media EBITDA was down slightly year-over-year due to higher operating costs from the increase in live sports programming this year and higher broadcast license fees as the CRTC temporarily waived these fees in Q1 of '21 due to the pandemic. Finally, a quick update on our balance sheet and liquidity position on Slide 12. Our investment-grade balance sheet is very healthy with available liquidity of more than $2.8 billion and a leverage ratio that remained stable at 3.2x adjusted EBITDA. During the quarter, we executed a highly successful public debt offering in the U.S. totaling USD 750 million, which was used to fund the early redemption of MTN notes maturing in early '23. Over the past two years, we raised a record $10 billion of long-term public debt, locking in low rates before interest rates began rising while extending the average term to approximately 14 years and lowering the average after-tax cost of debt to around 2.8%. With no near-term refinancing requirements for the next 18 months, all major DB pension plans have a surplus position that will enable cash flow contribution holidays to begin later this year and substantial free cash flow generation that is growing organically year-over-year. We have the financial strength to execute on all strategic and capital market priorities for calendar '22. So with this positive start to the year, together with combined operating momentum across the business and our consistent proven execution in a competitive marketplace, I am reconfirming all of our guidance targets for '22. And on that, I will now turn the call back over to Thane and the operator to begin Q&A.

Operator, Operator

Great. Thanks, Glen. So before we begin, I want to remind everyone that due to some time constraints this morning because of our AGM that's taking place shortly after this call to please limit yourselves to one question and a brief follow-up, if you must, so we can get to as many of you as possible in the queue. With that said, Elena, we're ready to take our first question.

Drew McReynolds, Analyst

Just a great set of results, and Glen, I'll say surplus position just because you want to say it a little bit more frequently, so congratulations on that. A quick one for me. Just it's a data consumption question. Maybe starting with you, Mirko, can you just give us an update on Internet data consumption, household consumption and where you see demand for those bigger, high-speed gig plans going? And then just an equivalent question on what you're observing with 5G handsets and data consumption there as obviously, you want to migrate folks up to the larger data unlimited plans.

Mirko Bibic, President and CEO

Thanks, Drew. Look, I'll start with 5G. We're definitely at the beginning of the upgrade cycle from 4G to 5G, and it's going well. Customers using 5G handsets with 5G plans are definitely consuming significantly more data and therefore, the monthly recurring revenue is higher from that base of customers. So that's quite encouraging. And also especially encouraging, to my mind anyway, it's a pretty obvious point I'm going to make, so it's not just in my mind. It's particularly encouraging that steps are being taken in the marketplace to really monetize 5G because we're making some massive investments here to cover the entirety of the country with 5G. It's capital intensive. We've also spent $9 billion as an industry for that spectrum. So we obviously have to monetize it. And you've seen steps being taken particularly by us but by some of the others. So you've got the unlimited ultimate plans which are trying to encourage customers to subscribe to the higher, higher-value unlimited plans in early days but working, and you see some moves like speed tiers along that unlimited package set of plans. So that's very positive. On Wireline, look, I don't have the exact amount of household data that's being consumed at my fingertips, but I have quite a bit of confidence that there will be significant demand for the higher speed tiers as we launch those more ubiquitously, 3 gigabits per second upload and download frankly from us on fiber is just the beginning. We're going to continue to be aggressive on that because we really do want to continue to lead on network superiority. It works for us. And we, as I said before, I mean cable technologies just can't match what we'll be able to offer on speed. So as those become more ubiquitous, as applications and usage becomes more prevalent, usage grows even more in the home, those plans are going to have ever more value for customers. And as I've been talking here, Drew, the average household usage per month is around over 400 gigs.

David Barden, Analyst

It's sitting in for Dave. I wanted to follow up on the one-time item in the media segment. Could you elaborate on the amount for the quarter and what it was related to? Also, there was a mention of CapEx decreasing in 2023, which is the year you're finishing the accelerated program. Are you also indicating that the base rate capital intensity of 2017 might decrease as well? I want to ensure I'm accurately accounting for the decrease.

Glen LeBlanc, CFO

It's Glen. I'll handle the first part. I think Mirko will make some comments on your questions regarding capital intensity. In the quarter, we recorded approximately a $70 million retroactive BDU adjustment, which related to content that Bell Media sells to another BDU. And if I normalize for that on a consolidated basis, the service revenue that we reported at 4.2% would be 2.9%. I mentioned in my opening remarks, consolidated EBITDA growth for Q1 would have remained quite healthy at 3.5%. Now this affects our media segment. So if I look at media, 15.7% revenue growth in the quarter, normalizing for this it would be about $6 million. And again, as I mentioned in my opening remarks, although the EBITDA is a staggering 45%, if I normalize for this $70 million, it would be slightly negative which is what we would have mentioned in Q1. We expected recovery with radio and out-of-home. It's been a little slower due to Omicron than we would have liked. So all in all, a tremendous quarter across the board despite this retroactive BDU adjustment.

Mirko Bibic, President and CEO

On the topic of capital expenditures, I won't provide guidance for future years regarding total spending or capital intensity, but I can offer some directional insight. In the near term, our goal is to reach 10 million locations within our operating footprint for next-generation broadband. This will ideally consist of around 9 million fiber homes and 1 million homes with wireless home Internet, which we have already made our service available to. By the end of this year, with our accelerated capital expenditure program, we expect to have approximately 7.1 million fiber locations, meaning there are about 1.8 to 1.9 million additional fiber locations to complete, which we aim to finish by the end of 2025. This gives you an idea of our plan. The capital expenditure of around $5 billion this year represents our peak spending level, and we anticipate that this will decrease moving forward. We will provide more details on that as next year progresses. You can see our progress and the effectiveness of our strategy; within a relatively short time, we're investing in long-lasting fiber infrastructure with 9 million fiber locations and 1 million wireless home Internet locations. Investors should be pleased with this clear strategy and the investments we are making. I have already highlighted the advantages of fiber over cable technology, so I won't reiterate those points. Additionally, we have a significant structural advantage over cable companies and are well ahead of U.S. telecommunications companies in this endeavor. Once we complete the build-out to 10 million locations, we anticipate strong growth in free cash flow.

Stephanie Price, Analyst

Just following up on the last question. Just curious, U.S. telecom companies basically highlighted the fact that they're seeing more growth from fixed wireless. And I was hoping to get your updated cost on fixed wireless and whether Bell considering a broader rollout of the technology beyond the 1 million you've already talked about.

Mirko Bibic, President and CEO

I think the 1 million locations for us is kind of the right footprint. Can it go up on the margins or down on the margins as we do some fiber overlying some communities? Sure. But kind of 1 million is the right one. It's a service that's really, in our minds, directed to better use or better utilized for rural and remote locations that otherwise would have access to fiber broadband in the near to medium term. So that's where it really does hunt. I would not put wireless home Internet up against fiber. I certainly wouldn't. So fiber is the long, short, and medium- and long-term goal here for us, and again, reemphasize the benefit to investors over the very long term for Bell to have built long-life fiber infrastructure. I can't underestimate the value of that for the long term. Look, we're not immune to the supply chain challenges, that's for sure. I mean we've managed the handset supply on the consumer side fairly well, so that hasn't been an issue. But on business data equipment, it has had an impact. There are some long delivery cycles that we're having to contend with. And Glen mentioned that in his opening remarks. So we're expecting that to continue for the balance of the year. The current delays on order fulfillment probably aren't going to subside in the near term. The good news is that's also having an impact on follow-on service revenue that will be associated with business equipment that we'd otherwise be supplying. But it's not a competitive issue which is the really good news. I mean it's not like business is going through competitors; it certainly is not. We're just going to have to tough it out through the delays on fulfillment and then the revenues will come both on the product and the follow-on service revenue side.

Vince Valentini, Analyst

Question on wireline revenue. So in your commentary, you said higher acquisition retention and bundled discounts on residential services was one of the factors for the service revenue decline. Can we flesh that out a bit more? Are we just sort of pendulum bouncing back to close to the middle after the pandemic when there wasn't much customer activity and therefore, not as much sort of promotional cost within your revenue? Or are we actually talking about elevated levels of competition starting to creep back into the battle between you and the cable companies? And if so, or if not, is there any major difference by region or by province in that competitive battle.

Glen LeBlanc, CFO

Vince, it's Glen. I'll make a few comments here. I know Mirko wants to add anything but your information is perfect. This isn't a significant step-up in promotional activity. It's more of a return to historical norms after we went through such a quiet period of promotional activity during the pandemic. So I would say there's nothing alarming in our eyes. It's more of a return to historical norm.

Vince Valentini, Analyst

That's great, Glen. Maybe a quick follow-up since that was a quick answer. I'm still a bit unclear about the 91% figure. Does it mean that 91% of your customers who have Internet and TV are on fiber-to-the-home? Is that only in areas where fiber is available, or does it apply to your entire footprint, even though 35% to 40% of your homes still don’t have access to fiber?

Mirko Bibic, President and CEO

No, it's the former, Vince. So 91% of TV and Internet customers in the fiber footprint are fully on a fiber network. This suggests that there is a need to transition some services, possibly home phones, from copper to fiber. We're closely examining the process of decommissioning copper, which I mentioned last quarter, and this year is significant for planning. Our goal is to pursue copper decommissioning on a larger scale starting in 2023 and beyond.

Vince Valentini, Analyst

And the 91% was the same as last quarter, but I assume that's just because the fiber footprint is growing. You're still migrating people, but the denominator is changing.

Jerome Dubreuil, Analyst

First one is on the ARPU trend. During the quarter, obviously, we have the data for the whole quarter, but I'm trying to assess the impact of January with Omicron here. Was there a material difference between the period during which there were restrictions and when the economy was more reopened? And then second, in terms of your guidance, you had a broader range than usual. The pandemic is now better understood. We've seen a competitor increasing its guidance. Would it be fair to assume you maybe now expect EBITDA to land toward the higher end of your guided range now?

Glen LeBlanc, CFO

Jerome, it's Glen. I'll handle the last first, and the guidance ranges that we provided, I reconfirmed this morning. We remain very comfortable with those ranges, an accurate depiction of where we'll end up and I'm not going to guide with more specificity on where we fit into that guidance.

Mirko Bibic, President and CEO

Regarding ARPU growth from January to March, there's not much variation among those months. However, since you brought up ARPU, I can elaborate on its growth. The rebound in roaming contributed to this growth, accounting for just over half of it. This is encouraging because it shows a healthy mix in our business. While roaming was a factor, it did not represent the entirety of the growth. This indicates strong organic growth and confirms that our strategy is effective.

David Joyce, Analyst

Just a question on the EBOX acquisition. What should we expect from a product and subscriber roadmap from this? And what is the leverageability of this asset into other geographies? If you could please provide some more color on that.

Mirko Bibic, President and CEO

Yes, you raised some important strategic questions that I cannot disclose for competitive reasons. I will reiterate what I mentioned in my opening remarks: this acquisition is a significant strategic move for us as it will enhance our competitiveness, particularly in the value-conscious segment of the Quebec market. We will maintain our competitive edge and increase our efforts in Quebec through our aggressive fiber expansion and the continuation of the EBOX service and brand.

Simon Flannery, Analyst

The churn was very impressive, down about 10 basis points year-over-year. If we looked at the U.S. guys, they were up a couple of basis points year-over-year. So it'd be great to just unpack that a little bit in terms of what you're seeing involuntary, voluntary churn, and how we should think about your ability to sustain or even improve from here?

Mirko Bibic, President and CEO

I’ll address the last part of your question. Glen, feel free to add your thoughts. Regarding sustainability, I hope it is indeed sustainable. We've implemented several strategic initiatives to reduce churn, and it's evident that our customer-first approach is effective, leading to an improved overall customer experience. We are providing significant value, whether through pricing, quality, or 5G services, and we definitely lead in that area. The industry is performing well, especially with the introduction of installment plans a couple of years ago, which I believe have contributed positively to churn, along with devices that have a longer lifespan. Currently, involuntary churn remains stable while voluntary churn has decreased.

Glen LeBlanc, CFO

Exactly. Simon, just as Mirko said, we're seeing lower transactions in the industry, and that obviously benefits all in churn. And to your point, incredibly pleased with our postpaid churn in the quarter at 0.79% and the improvements quarter-over-quarter and year-over-year.

Sebastiano Petti, Analyst

Just following up on the wireline segment. I think, Glen, you talked about OpEx down 4% there on a year-on-year basis. Outside of perhaps the lower margin kind of product sales that perhaps didn't come through, anything else that unpack there? What you're seeing perhaps related to Vince's question on the network commissioning? Any underlying drivers we should be thinking about there as it pertains to the rest of the year outside of perhaps the product sales impact?

Glen LeBlanc, CFO

No, when we have low product sales in both our wireless and wireline segments, that begins to show in margin expansion since low-margin product sales aren't present. Naturally, this leads to an improvement in the consolidated margin. Additionally, in our Wireless segment, we experienced a significant increase in roaming, which brings in a very high margin. This also contributes to margin expansion across the consolidated business. Regarding copper decommissioning, it's still early, and we are just beginning that process. However, as we continue to expand fiber, we are noticing fewer truck rolls and improved operations. I mentioned earlier that we have a net improvement of 4%, considering we are dealing with inflationary pressures that impact wages and benefits. This year, we expect fuel costs to be $15 million to $20 million higher than last year due to rising prices. The 4% improvement is notable despite these challenges. We're focusing on being cost-conscious, reducing calls to our contact centers, enhancing self-service options, and the consistent cost benefits from fiber expansion. I am optimistic about what our aggressive fiber program moving forward will bring in terms of cost advantages.

Mirko Bibic, President and CEO

Yes. To be clear, the copper decommissioning process has not really begun yet. So the benefits seen this quarter are not due to copper decommissioning, even though it will be an important and significant advantage in the future.

Sebastiano Petti, Analyst

Great. And so maybe we're getting some of the lower customer service costs as the business migrates to fiber customers, but the decommissioning is still later, longer-dated kind of benefit. Anything on the wireless postpaid loading environment? Obviously, the trends seem to be pretty solid across the industry. Any update perhaps on Q2 and how you're thinking on a full-year basis?

Mirko Bibic, President and CEO

I’m pleased with the performance in Q1 for postpaid loading. The team did an excellent job. As I’ve mentioned before, we are focusing specifically on the high-value smartphone segment, and we are becoming even more targeted within that area. This focus is reflected in our financial results. Looking ahead, the operating momentum has been strong over the past few quarters, including the one we’re reporting on now, and it appears that good growth is continuing throughout the industry. We have advantages like integration improvements, the easing of score constraints, early 5G progress, and recovery in roaming, and it seems that competitive pressure among emerging players has lessened, which is likely benefiting the industry as a whole. These factors will be important as I assess how things are likely to develop in future quarters, and the outlook looks positive.

David McFadgen, Analyst

Just a question on the retail Internet. So when I look at your presentation, you had 38,000 fiber-to-the-home net adds, but the total retail Internet net adds are 26,000; you lost 12,000 in DSL. Just wondering how would that compare to the prior year, like in terms of DSL subscriber losses? And then quickly, just on EBOX. Can you just confirm that most of their subs are around Videotron, and I guess it would be logical that over time, you try and move those subs from Videotron to your network?

Mirko Bibic, President and CEO

I don't have the exact ratio of this quarter's DSL versus fiber performance compared to previous quarters, but it's been a consistent trend for several quarters that our fiber additions are outperforming the net additions overall. We're expanding our fiber footprint while losing subscribers in the copper footprint, and this trend continues. Regarding EBOX, while I won't provide specific numbers, it's accurate to say that EBOX subscribers on a competitor's network will gradually transition to our network over time.

Aravinda Galappatthige, Analyst

I want to start off with a follow-up. Mirko, you talked about sort of which you've described as the beginning of the upgrade cycle from 4G to 5G. Thinking about the consumer side, you've already launched TSN 5G. But I wanted to get a sense of what your visibility is around the sophistication of sort of consumer-level applications that are in the horizon because it's sort of more, I guess, advanced applications that would sort of really push that migration along. I wanted to get your thoughts on that. And then, on a more general level than wireless, I mean some of the U.S. telecoms have kind of talked about some impact from the economic clouds that we started to see, including in-store traffic and maybe some other items as well. I just wanted to get a sense of looking at April, maybe are you seeing any hints of that at all in Canada.

Glen LeBlanc, CFO

Aravinda, I'll handle the last part before Mirko discusses the migration from 4G to 5G. But no is the short answer. We're not seeing any economic impacts even in April. The challenges of inflation or the strong economy is not impacting. And I think we're still, in many regards, coming out of COVID, albeit it feels at times, it's two steps forward and one step back, store traffic and I think consumer confidence to start moving around again is I think driving more of an impact than any economic headwind is. So the short answer is, not feeling any impacts, and that would be true with April as well. I think most importantly, as Canadians get more and more confident, we're excited that we'll see more foot traffic back in our stores to more pre-pandemic levels.

Mirko Bibic, President and CEO

On the 4G to 5G upgrade cycle, what's primarily driving it in the early stages is likely just a better network experience with faster speeds, lower latency, and more powerful handsets. We're doing our part to raise consumer awareness and generate excitement about the advantages of 5G, and our initiatives have effectively elevated the recognition of Bell as a premium 5G network. Looking ahead, the possibilities are boundless. It’s reminiscent of 10 or 15 years ago when we transitioned to 4G; no one could have predicted the vast array of applications that would emerge for consumers to enjoy on their devices. I expect to see a similar trend with 5G, particularly on the enterprise side in a completely different manner, leveraging low latency, converged fiber, and technologies like MEC and cloud. There is significant potential on both the consumer and business fronts.

Operator, Operator

There are no further questions registered at this time. I will now turn the meeting back over to Mr. Fotopoulos. Thank you, Elena. So I want to thank everybody for their participation on the call this morning. That said, I will be available throughout the day for any follow-up questions or clarification. So have a great rest of the day, everybody.

Mirko Bibic, President and CEO

Thank you, everyone.

Glen LeBlanc, CFO

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.