BCE Inc. (BCE) Earnings Call Transcript & Summary

Good morning. Welcome to the 51st Annual JPMorgan Global Technology Media and Communications Conference. I am Sebastiano Petti. I cover the media and communications space here at JPMorgan. I want to introduce Glen LeBlanc, CFO of Bell Canada. Glen, thanks for joining us.

Well, thank you for having us.

So Glen, in conjunction with 1Q results, you announced that you will be retiring as CFO of Bell Canada effective September 1. What are you most proud of to have achieved during your tenure?

Yes. Thank you, Sebastiano. I announced that this fall, I will step down as CFO, although I'm going to remain with BCE in advisory capacity until the end of the year and stay on, on numerous Board-like positions. I'll stay on as a chair of our asset in the North, Northwest [ tell ]. I'll stay on as Vice Chair of Atlantic Canada, more of an advocate for the employee and the customer and government relations role, and I'll stay on our MLSE Board. After 30 years and 18 of those as CFO, it's time to pass the torch. And first and foremost, I want to congratulate Curtis Millan, who will be taking over for me. You say, what is your most proud of. I think, the first, being able to build talent internally so that you can have a successor ready to step into your place is something that I'm extremely proud of. I was blessed with an incredible organization and finance team, and Curtis is more than capable to step in and probably just needs me to get out of the way now. So when I look back at the decisions that we had to make over my career, particularly in my last 18 as CFO of Bell Aliant or Bell. The fiber decision was probably the one I'm most proud of. And I can remember in 2006 and 2008, when I would come to conferences like this, we were constantly challenged about the return on investment to fiber to the home. Could you really justify fiber that last mile, was fiber-to-the-node, a better investment. And when you look today and anywhere fiber-to-the-node is, there's an overbuild taking place. And I think at Bell Aliant and Bell, we made a bold decision to go to the Board and convince the Board that we had to take the leap of faith and rebuild our 130-year-old copper network with fiber directly to the home. And although many struggle to understand how you would ever need that type of bandwidth in the home, I think we look today and say, we made the right decision. We had network inferiority to cable, we were losing market share at a [ toward ] rapid pace, and fast forward to today, I can see fiber completion on the horizon where we will finish our fiber footprint for all intents and purposes in '26, and we now have the network advantage and the superiority. So frankly, I'm incredibly proud of that decision and how bold we were in Canada to be one of the first countries to take such an aggressive fiber build campaign on.

And what are you most excited about? Is that just continued execution of that fiber strategy as you depart the maybe CFO role and stay in some of your...

Yes. When I look at the future and I think about the asset pool we'll have here in the coming 3 years. Where we have fiber, we win and where we fail to have fiber or we have DSL or fiber to the node, we have lost substantive share to the cable companies. And as I think about in the next number of years, having completed of 9 million homes with fiber by the end of '26 and another 1 million with fixed wireless of our 12 million homes. We're in a position to win for the vast majority of our footprint is going to be covered with fiber. And I see an incredible opportunity to take share back. Where we have fiber in the mature footprints like Atlantic Canada, we're over 50% in market share. And where we don't have fiber in some of -- or where we're just built fiber in the last number of years, I mean, market share was in the 35% to 40% range. So a tremendous opportunity to take share back and then ultimately, that leads to the bundling opportunity for us. So really excited that the organization is going to have fiber construction in the rearview mirror, and it's all going to be about loading the network.

Great segue there. And so the BCE, and from a wireless perspective, loadings have been pretty strong momentum has benefited from these more aggressive converged bundle strategy that you're taking. Can you update us maybe on what momentum -- has that momentum carried into the second quarter? What are you seeing from a wireless competitive intensity perspective?

Well, as you know, competitive intensity kind of comes in ebbs and flows in any given time, particularly in the back half of the year, there's a lot of competitive intensity around back-to-school campaigns, around Black Friday and Boxing week. Right now, I would say the competitive intensity remains reasonable, although as I say, that can change at any time. We were really pleased with our Q1 results. It was completely on plan with net loadings up, I think, 26.5% for the quarter. We were where we wanted to be. Most importantly, though, it's getting the right loadings. Anybody can win the loading game in any given quarter by being incredibly aggressive as you're alluding to, Sebastian, on price. What we're trying to do is find a balance to load customers, but load high-valued customers. And we refer to that as our premium brand or our Bell customers. As you know, we have a prepaid brand, Lucky, and we have a value segment brand called Virgin. And I think what you witnessed from BCE throughout 2022, and into calendar '23 in the first quarter is a focus on high valued or premium net adds. I think the industry-leading ARPU growth of 2.8% in 2022 is indicative of that strategy working. And as well in Q1, we had a 1% growth in ARPU, while our largest wireless competitor was flat. So I think that, that speaks to where are you chasing your loads. And I think it has to be a balance. We spend a lot of time internally trying to be disciplined on offers that we don't drive everybody down into the value segment, and we continue to get healthy and vibrant ARPU growth.

Thinking about just the loading environment, obviously, immigration remains a huge opportunity, population growth in Canada. But there came -- there were some comments on the call, just the new to Canada segment. It seems like a great opportunity and a strategic focus for the team. Maybe historically, I mean, how would you describe -- has BCE lagged? Would you describe it like that? Or is it just maybe more of a -- keeping a greater eye on that opportunity or greater execution? How do you -- what's the strategy perhaps from here in that segment?

Well, like -- I believe, Sebastian, it's a fair criticism to say we lagged. First of all, let's step back and look at what's transpiring in Canada. Although we're 1/10 the size of the United States, the population growth is really coming from immigration. Pre the pandemic, approximately 300,000 people, maybe we had a year or so of 400,000 new Canadians were arriving. That number now is north of 500,000. And it is a -- it is by far our biggest population growth to our country. But it's an area that I would have to say our competitors, particularly our largest wireless competitor performed better. I think they locked up some of the airports, major airports where new Canadians were arriving and we're able to establish that relationship early on. I think they did a better job with their physical distribution or their stores in communities where immigrants were moving into and creating their own communities. And I think we were [ OAT ] executed in that area. So in the last 12, 24 months, we've really put a focus on saying, how do we improve our distribution in these communities that are building up with new Canadians, how do we reach Canadians first. And the most exciting thing we've done in the last few months, you might have noticed an announcement, where we're partnering with Air Canada, where we will sell services on board for Air Canada. So maybe our competitor has the airport where they land. So we'll get to them first, we'll get them in the air. So I'm really excited about what this opportunity is going to mean to us. And you can envision having a QR code on the screen on the back of the seat where in time, our new customers are going to be able to take a picture of that and get an eSIM before they even land. So we think this is a tremendous opportunity. And it's an area that, as I said, we probably stumbled a little and it's time to focus.

And how's that Air Canada partnership? Is that launched? Is that in market?

It is. It's launched. Naturally, it's going to take us some time to get the program where we want it to be. But last night, I flew Air Canada in here, and I noticed on the back of the screen, it said messaging sponsored by Bell, it said surf the Internet sponsored by Bell. And even the flight attendant was quick to mention that partnership with Bell. So I was like, this is coming in around pretty fast.

Great. So I wanted to touch on -- you brought up the blended ARPU growth. Bell grew ARPU for the eighth consecutive quarter of wireless, blended phone ARPU for the eighth consecutive quarter here. I mean given the competitive backdrop, how is the team thinking about ARPU? Obviously, you continue to focus on premium loadings and that's been a successful strategy over the last several years. But how are you thinking perhaps -- how should we think about or unpack the core growth, these high-value loadings, continued migration unlimited against the backdrop of further roaming recovery or further upside in roaming.

Yes. It's an excellent point you make about roaming. It's been a heck of a tailwind post pandemic. And I think we're at 129% of pre-pandemic roaming revenues right now. So I would say the tailwind that we've enjoyed is, for the most part behind us. It won't be as big of a contributor to ARPU growth going forward. There'll be some there, but not as much. The biggest opportunity we have for ARPU growth is the continued evolution to next-generation handsets. So 5G. Right now, we only have about 44% of our customers that are on 5G handsets. And as they move up through the life cycle, those naturally tend to be customers who consume more data, and ultimately drive higher ARPU for us. So I think that's the biggest opportunity in front of us. Focus on the premium brand, as you alluded to, focus on the Bell brand and ensuring high-value customers and continue to move customers on to our 5G network.

So lots of concerns coming out of the final closure of the Rogers-Quebecor transactions with Shaw as well. But with those deals now closed, Obviously, right now, maybe loading environment is still -- maybe more quiet or not as robust as what we'll see in third quarter and into the fourth quarter. But do you expect a change in the near-term dynamics -- from near-term competitive dynamics given the change to the industry structure? And how could this potentially impact BCE's share of gross adds loadings? How is the team thinking about it?

Well, first and foremost, I guess we had a lot of time to prepare, 3 years, I think it took that transaction to finally close. And when I think about where we were then to where we are today, how much better BCE is positioned to compete. First of all, we embarked upon a very aggressive fiber play and fiber build over that period of time. And as I said, we'll -- we're getting to the point that we will be at 80% of our fiber footprint -- of our footprint being fiberized. You add to that, that we're at 83% of the population now covered with 5G, and we have the network to give the customers what they want and ultimately to bundle services. Bell Canada covers 75% of the wired infrastructure or the Internet infrastructure of the country. So when you think about what customers want and that is the ability to bundle their wireless and their wireline, nobody is better positioned than we are to do that. And now we have the networks built out to give them a superior network experience. So I think we're in a great place. Look, this isn't new to us competing, whether it be the Shaw-Rogers together or whether it be Quebecor-Videotron. We've had a 4-player wireless market in our country for a decade or more, and Freedom was very aggressive with price and yet we were able to compete there. So I'm -- the way I look at it is 1 competitor was replaced by another. There will be times of aggressive pricing and aggressive competition. And I look back and I think how is that different than the last 18 years in my career. It's always been aggressive, and we're there to win, and we're there to fight. And most importantly, I think we've tooled our organization with the networks we need to compete, and that's going to be our advantage.

Great. Thinking about 5G, in the U.S., the best use case of 5G seems to be -- or currently is fixed wireless access. But given the scale of fiber deployment in Canada, this seems less of an opportunity there. But when you think about [ Mac ], you think about private networks, you think about, I think, Mirko touched on the call, a lot of investments in cloud, right? Bell has positioned yourself well there. As these opportunities in IoT start to matter more? I mean, how is -- is BCE because of your enterprise share and your enterprise relationships, I mean, should you be better positioned than your competitors to really lean in and take advantage as these longer-term opportunities evolve or merge?

Yes. A lot to unpack there, Sebastian. So let's start with the differences, as you alluded to Canada and particularly the U.S., is that fixed wireless has a place in Canada. And as I said, we have the largest fix wireless footprint with about 1 million homes covered. But -- the big issue in Canada, or the difference of Canada is that we are so fiberized in that urban and suburban centers all have fiber. And frankly, fixed wireless is not a competitive offering against fiber or for that matter, even Tier 1 cable. So where you see fixed wireless really working is on the fringe. It's on the areas where we refer to it as Tier 2 cable or they're still so remote that the -- they have low-speed DSL or a low-speed Internet offering or Tier 2 cable offering. That's where it's working. But to think that building out wireless in the urban or suburban centers where, frankly, fiber is so prevalent right now, it's just not a competitive offering. So then when we think about, as you said, where does the opportunities come from to monetize your 5G network in the future. It is those next-gen services, it is IoT and it is [ MAC ], it's cloud, it's security. I would say not in Canada, globally, we're probably slower realizing those revenues than any of us envisioned. I think if I was sitting here 24 months ago, we would have -- I would have thought we would have been further along the continuum than we are today. But that's true globally. What I do know is if you build the networks, those revenue streams will come. And then as you said, we are the largest enterprise provider in the country. We have huge market share, deep, long-standing relationships, complicated network relations and complicated offerings. So I think as those new revenues come on, we are the trusted service provider, and we have a tremendous opportunity to capture those. And I think we're in -- we're just on the precipice of something great there. I don't know if it's 12 months out or 24 months out. But what I do know is that the revenues are there, and we're going to have the network infrastructure in place to deliver it.

Which makes sense given that -- so I think we've seen some of your cable competitors react to your -- try to react to your fixed -- the fiber initiative and some of the share that you're winning in new markets. Are you still seeing more competitive cable offers in these, call it, DSL or fiber-to-the-node market areas?

Yes. I would say the cable companies have come to a realization that where we have fiber, they have product inferiority, and I know how it feels because as I said in my earlier remarks, I spent 10 years of my career, wondering how the heck we were going to compete with a cable company who had a superior network offering. Well, the tables have turned, and we have superior offering with fiber. And I think as I said, we had -- we've gotten to a point in areas of Ontario and Quebec, our largest operating markets that we were at 35% market share, and we were no longer the incumbent, the cable company was. So now the cable company is realizing that we're taking share and we're migrating back towards market share equilibrium, if not north of that. So where do you fight? And I think where the cable companies are turning their attention is they're trying to take share from us in our markets where, frankly, we're disadvantaged. Those markets we haven't reached yet with fiber. So if they want to compete there and they want to fight there, that's fine, we will eventually reach those markets with fiber. And I guess it will just be a bigger opportunity to take share back. But I think it speaks volumes to how successful the [ fibro ] strategy is that they're turning their attention to these nonfibered markets, right?

And your -- as you said, '26 will probably be the -- when you're largely fully fiberized, right? And so at that point, 90% of the footprint or so will be fiber to the home. So you've been more aggressive or leaned into the converged fixed plus mobile bundling strategy. But as you think about the next several years as you march towards that 90%, does your bundle strategy need to evolve? Is there other areas or other products and services that you can perhaps attach? How is the BCE team thinking about the evolution of the bundling strategy?

Well, I think first and foremost, to repeat what I said is the more fibered footprint we have, the better we are capable of bundling. To go into a nonfibered community now and attempt to sell a bundle, I really think you're going to a gunfight with a knife. And frankly, that is difficult to convince customers to move their wireless product with us -- with their Internet product if it's an inferior Internet bundle. The more and more we get to that 9 million homes covered with fiber and another 1 million with fiber to the home and the more -- or excuse me, wireless to the home in fixed wireless in the more rural areas, then we end up having a network advantage to bundle. And I think it really is that simple. We now have the territory covered to start taking share back and that will pull through wireless. So look, do I see new products and services? Certainly, if we build the 5G network that I alluded to, and we continue to have 83% of the population covered now, if we get to the point that we have 10 million homes covered with fiber, we continue to deploy the 3.5 and the C-band spectrum that we're about to purchase at the end of this calendar, then we're going to have the network infrastructure that makes us leaders in this country. And if you have that, then your bundling strategy is going to be pretty self-explanatory.