Quebecor Inc. (QBRA) Earnings Call Transcript & Summary

Welcome to the Quebecor Inc.'s financial results for the 2022 Fourth Quarter and Full Year Conference Call. I would like to introduce Hugues Simard, Chief Financial Officer of Quebecor Inc. Please go ahead.

Yes. Good morning, everyone, and welcome to this Quebecor conference call. Joining me to discuss our financial and operating results for the fourth quarter of 2022 and also the full year of 2022, of course, is Pierre Karl Peladeau, President and Chief Executive Officer. Anyone unable to attend the conference call will be able to listen to a recording by telephone or webcast. Access details are available on Quebecor's website at www.quebecor.com. The recording will be available until April 25 of this year. I also want, as usual, to inform you that certain statements made on the call today may be considered forward-looking, and we would refer you to the risk factors outlined in today's press release and reports filed by the corporation with regulatory authorities. Let me now turn the floor to Pierre Karl.

Merci, Hugues, and Hi, everyone. So I would like to start by reiterating our strong commitment to getting the Freedom Mobile acquisition done. As soon as I said, Canada, the industry departments completes its review and give us the authorization to proceed. Our plans are drawn and we are ready to go, ready to create real lasting competitive dynamics in Ontario and Western Canada, bringing the benefits of some technological innovation and investments, superior client experience, agile commercial strategy and lower prices for Canadian as we have done here for Quebecers for more than 12 years. This transaction represents a springboard to a new era of goal for Quebecor, recognizing that after an impressive run in telecom and wireless growth since our acquisition of Videotron in 2000, we are now reaching a natural point in the cycle of slowing penetration of a more mature market. We are also continuing our efforts to reach wholesale MVNO access agreements with Bell and Telus. But I have to be honest, our negotiation are difficult, to say the least, with little progress after nearly 2 years following the CRTC decision mandating MVNO despite our good faith attempts. That being said, we're not surprised by the situation, having fought Bell and Telus delaying tactics on many fronts over the years. With new leadership at the CRTC, however, we expect a quick resolution in line with the repeated public statements from the minister of industry, who have been very clear that he wants and intends to achieve real competition in the telecom market in Canada. On a related note and as a further proof of our commitment and belief in facility-based competition, we recently made another investment to acquire spectrum with 600 megahertz band in Manitoba and 3,500 megahertz band in Quebec, which will further enhance our 5G deployment. On the regulatory front, I feel compelled to repeat that we need the swift adoption of Bill C-18 to regulate negotiation between web giants and news outlets, quite simply, as we all know, as that's been repeated thousands of times now, these web platforms use the content produced by Canadian news organization to generate a significant portion of their interaction on their networks and should be required to pay for a fair price for it, period. Moreover, notwithstanding the adoptions of Bill C-11, the CRTC needs to lighten the regulatory burden of Canadian news companies, which are operating in an increasingly precarious environment and are, quite frankly, struggling to stay afloat and soon, if nothing is done, to survive. Local news and indeed all news, which is vital to a strong and healthy democracy, is suffering from the economic and final weakening of the television industry and of local production, whose survival down the road is at stake. And again, I repeat that the regulatory and financial burden on broadcasting company is no longer sustainable. We too need the same regulatory and commercial freedom as the foreign web giants. Speaking of the difficult broadcasting environment, we communicated TVA -- TVA Group fourth quarter results last week, which continued to be impacted by the well-established downward trend in television audiences due in part to multinational subscription video on-demand services such as Netflix, Amazon Prime, Disney+ and others, combined with unfair and disloyal competition from Societe Radio-Canada, who for -- which is engaged in a rating race that is not within its mandate, and it's taking a large share of advertising revenues over and above the fees it charged for its subscription -- it charged for subscription I repeat, to its streaming service, TOU.TV EXTRA. Therefore, undermining even more media outlets, their sustainability and our television industry ecosystem. A compelling example of how all accountability have been locked for the CBC/Radio-Canada, advertising is forbidden for the over-the-air radio, but allow and alive and kicking on Internet radio. It just doesn't make any sense. And we can offer and offer many other examples of them going off mandates to this public medium. Again, as we have said many times, all levels of government must act before it is too late. No other industry faces competitors that have no accountability. CRTC needs to address Radio-Canada unfair behavior and scooping up advertising dollars, which are conventional networks only source of revenue, whereas the public broadcaster is heavily government subsidized. This creates a blatantly uneven playing field for private broadcasters. In addition, there is the highly unfair treatment of all our specialty channels by the distributor Bell TV. Unlike, all other broadcasting distribution undertakings in Quebec, Bell TV continues to pay fees below the market value of our channels, while continuing to favor its own channels, creating a permanent conflict of interest between its role as a broadcaster and as a distributor of channels, which are competing channels. Faced with these circumstances and the lack of regulatory and government intervention, which has been long been evident and which we have repeatedly raised with public authorities, we were forced to take difficult but necessary measures to reduce our operating expenses in all our media segments, resulting unfortunately in the reduction of our workforce in order to restore our financial position and ensure our sustainability. Notwithstanding these challenging circumstances and market conditions, our continued investment in content threaten our fall schedule and protected the market share of both TVA network and our specialty channel, which grew their combined market share by 1.5 percentage points to 40.3%. Our major entertainment shows and original series continue to lead the rating, with shows such as Chanteurs masques, Revolution and our new daily program, Indefendable, growing more than 1 million viewers. On a consolidated basis, I am proud to report that Quebecor has generated more than $1.44 billion in cash flow from operation in 2022, an increase of 4% over 2021, with Videotron improving its cash flow from operations by 9% and its EBITDA by 2% over the year, while maintaining by far the best margin in the industry. I believe that this KPI is by far the most important compelling benchmark of a company's true performance compared to its competitors. Turning to the telecom sector. As you know, competition was very intense during the fourth quarter, both in wireline and wireless. Having long been a promoter of a main contributor to competition and promotional intensity, we dealt with this intense period wisely and with discipline, managing to find the optimal balance between short-term growth and long-term profitability as demonstrated in our increase in ARPU for all our products, a softer yet more profitable wireless RGU growth, as well as significantly reduced customer declines in traditional services, allowing us to return to growth in our wireline services gross margin. As we all know, telecom prices in Quebec are significantly lower than those charged by the incumbents to all other Canadians. Bell is probably the most striking example with its 1.5 gig package offered 2 weeks ago, $60, recently at $65 here in Quebec, but $80 in The Maritimes, $115 in Ontario and Toronto and up, believe it or not, to $135 in Winnipeg. On a more contemporary note, we have to point out that this approach is quite the opposite to that our competitors, who quite simply bother customers during the highly promotional Black Friday period here in Quebec, as demonstrated by our wireless EBITDA growth being triple or more than of our competitors. On that specific note, we were successful in mitigating TV declines, lowering churn rates and maximizing ARPU by better positioning our brands and optimizing the pricing of our illico and Helix platform. In a market characterized by ongoing card shaving and cord cutting, we managed to slow down this trend in both television and wireline telephony for our fourth consecutive quarter. For the year, we reduced the rate of television subscriber declines by more than 28%, in wireline telephony subscribers by nearly 25%, resulting in a much improved wireline service gross margin and our first quarterly growth over the last 1.5 years. In Internet Access, the year-over-year growth was 63,000 new Internet subscribers, which include the acquisition of 37,000 VMedia customers and 4 quarter net adds of 1,000 RGUs. Internet ARPU increased by $1.20 or 2.2% over the same quarter last year and by $0.32 sequentially, again, the result of pricing optimization and better brand positioning, allowing us to overcome the dilutive effect of Fizz and lower plan mix. In the wireless segment, we recorded 13,000 net adds during the quarter, which brings the last 12 months growth to 109,000 new lines and our total lines to more than 1.7 million as of December 31. Once again and for the fourth -- 14, sorry, consecutive quarter, we captured the largest combined share of growth adds in Quebec with 29% for our 2 brands, Videotron and Fizz combined, according to a latest survey. Consolidated wireless ARPU for the quarter improved by $0.11 or 0.3% over the same quarter last year. This increase is explained by higher plan mix, especially for Fizz, lower discount and higher roaming and data usage revenues, offsetting the diminishing dilutive effect of Fizz from a consolidated standpoint. Furthermore, our wireless EBITDA increased by 22% in the quarter and 18% year-over-year, our best performance in the last 2 years and almost triple that of our closest competitor. Clearly, we relentlessly continue to build market share and to successfully navigate an ever increasing promotional and competitive environment due to the strength and complementarity of our brands, as well as our disciplined, everyday low price approach that is daily confirming Videotron as the leader in wireless services in Quebec. OTT, video subscribers increased by 35,000 in this quarter for Vrai, the first French language video subscription platform dedicated to exclusive unscripted lifestyle, documentary and entertainment content. Since its launch in August 2021, we recorded almost 130,000 subscribers. We're pleased to get to the continued deployment by our project of Operation High Speed this quarter. Despite the well-known challenging context of this project, we now have 41% of the total kilometers completed, our best progress since the beginning of this project. We will keep the rhythm and expect to see a significant increase in connected homes in the next few months. And for our 5G deployment, we intensified our investment, putting us slightly ahead of our annual targets in terms of operational sites deployed. Turning to our financial results. Our telecom segment finished the year with $1.5 billion in cash flow from operation, a solid 9% increase compared to last year. Our cash flow from operation margin stood at 39.2%, improving 3.4% compared to the 35.8% of last year. EBITDA growth was 2% and EBITDA margin improved by 1.2% to 51.5%. Cash flow from operation for the first -- I'm sorry, for the fourth quarter reached $360 million, an increase of 0.5% over the same quarter last year, with EBITDA growing 2% and EBITDA margin improving by 0.7% to 49.6%. Annual revenues reached $3.7 billion, a 0.4% decrease compared to 2021. Revenue slightly increased by 0.7% in the fourth quarter as compared to last year, mostly due to higher wireless and Internet services revenues and wireless equipment sales, partially offset by lower equipment sales resulting from a slower Helix growth as we optimized our 2 brands pricing to improve margins. Our cost reduction initiatives are paying off with full year operating expenses down by 5%, translating into an ever-increasing industry-leading EBITDA margin of 51.5%. Telecom CapEx spending was down $80 million for the full year as compared to last year. We continue to focus on our strategic priorities as we operate more efficiently by continuing to lower our cost structure while increasing our investment levels on key initiatives such as LTE Advanced, 5G and network expansion, which explains the $8 million increase in the quarter as core CapEx investments are stabilizing as we complete a full cycle of more efficient spending. I will now let Hugues review our financial results.

On a consolidated basis, for the fourth quarter, Quebecor's revenues reached $1.19 billion, up 0.1% from last year. Revenues from our Telecom segment was up 0.7% to $960 million, mainly due to the increase from mobile services equipment and Internet access. Revenues from the Media segment increased 1.4% to $215 million in the fourth quarter, while our Sports & Entertainment segment grew 1.7% to $54 million in the quarter. Our adjusted cash flows from operations decreased by $11 million for the quarter or 3% to $359 million, mainly due to an EBITDA decrease and adjusted cash flows from operations from our Telecom segment grew $2 million or 0.5% to $360 million. Quebecor's EBITDA was down 3% to $483 million in the quarter, mainly due to the $14 million decrease in EBITDA from our Media segment, which is explained by increased spending on content at the TVA network and on TVA sports. Our Telecommunications segment, so Videotron posted EBITDA up $9 million or 2% to $476 million. Quebecor reported a net income attributable to shareholders of $143 million in the quarter or $0.62 per share compared to a net income of $161 million or $0.67 per share reported in the same quarter last year. Adjusted income from continuing operations, excluding unusual items and gains or losses on valuation of financial instruments, came in at $159 million or $0.69 per share compared to an adjusted income of $158 million or $0.66 per share in the same quarter last year. For the full year, Quebecor's revenues were down 0.5% to $4.53 billion, and EBITDA was down 2% to $1.93 billion. EBITDA from our Telecom segment grew 2% to $1.91 billion for the same period, an improvement of $37 million over last year. As of the end of the quarter, our net debt-to-EBITDA ratio was 3.20x compared to 3.19x, so fairly stable reported as of the end of the fourth quarter last year. Our balance sheet remains very strong with available liquidity of over $1.7 billion at the end of the fourth quarter. Pro forma, the redemption at maturity of Quebecor Media's 5.75% senior notes on January 15 and the increase of Videotron secured revolving credit facility from $1.5 billion to $2 billion in January of this year. Our available liquidities of $1.4 million are still more than sufficient to fulfill our commitments and to fuel our development plans. In anticipation of the acquisition of Freedom Mobile, Videotron has secured financing commitments from a syndicate of financial institutions for a new secured term credit facility of up to $2.40 billion comprised of 3 tranches maturing over 4 years. During the full year, we purchased and canceled 8.3 million Class B shares for a total investment of $237 million. And finally, the Board declared yesterday a quarterly dividend of $0.30 per Class A and B shares, which represents a payout of 34% of our free cash flows in line with our targets that we had communicated some time ago of staying between 30% and 50%. We thank you for your attention, and we'll now open the lines to answer your questions.

And we'll start with the first question we have in the queue, it comes from Maher Yaghi from Scotiabank.

I would like to maybe -- I have 2 questions, sorry. The first one is on what Pierre Karl mentioned in his prepared remarks regarding the competitive dynamic on Internet in Quebec versus Ontario? And second question on the deal with Shaw and Rogers. So first, Pierre Karl, when you were discussing about the competitive dynamic in Quebec versus Ontario. And when we saw yesterday, your filing on TekSavvy Part 1 application for the off-tariff deals. You mentioned in that filing the pricing dynamic in Quebec, which is very aggressive by BCE. And this morning, if you look at the pricing, it's practically half the price in Quebec versus Ontario. And they're offering Internet at double the speed that Videotron is offering at lower price than you guys have in the marketplace. How long can you sustain that kind of pressure on price before -- because so far, you have not competed aggressively on price? You accepted some market share losses. But can you continue long term, not be aggressive on price and accept to lose market share to BCE? And the second question on the deal with Rogers. Are you still satisfied with the deal that you struck with Rogers? And are you still confident that you have assembled the right elements through the deal to perform better than what we saw sharp perform on wireless?

First of all, I cannot give you too many things on the competitive environment other than everyone knows, which are -- and I guess that you went on the Bell side and find out what the different prices are throughout Canada for their Internet. I'm not saying that 1.5 gig is paramount for any type of service. We've been in this business for a very long time. I think that we did -- and we offer a great proposal and good deals to our customers. I think that we have a significant amount of loyal customers that will appreciate certainly prices, but you need also to incorporate all this within a kind of a bundle perspective. But certainly also of great importance. And this has been well known for the last 20 years, and it's still something that Bell is not able to the deal appropriately. And in fact, we're focusing our advertising on this, is customer service. Not everyone is digital savvy. Our customers are loyal are -- appreciate the way that we're supporting them. And if there's anything that could happen, we're going to be there. We are the ones that will help our customers and this carry what we consider a significant volume. So certainly, it's an intangible value, but it's certainly a value, and we intend to continue to position our customer service as of importance. The second thing, which is of importance also, the [ fiber ] or the FTTH rates are regulated as the coax prices are regulated to the TPIA. We've been servicing TPIA for a very long time in Quebec. In fact, most TPIA -- other -- today, obviously, from -- EBOX, which was bought by Bell, have been choosing Videotron as their network providers. Why? Because the prices was more interesting, and it was also regulated at a much lower level than the one that was regulated by the CRTC for the FTTH. In fact, the price regulated for FTTH is $128. So if you are a TPIA and you want to come on Bell network, this is the price that you would need to pay. While Bell is selling the same access at $60 2 weeks ago at 65, I think they increased their price about less than a week ago or roughly a week ago. So is this sustainable? I guess it's not sustainable on the other side of the equation. We hope that the CRTC, which is reviewing the FTTH and which was -- they established the price of the FTTH according to Bell arguments, that was their cost to deliver FTTH to customers. So according to this logic, each time a Bell is selling an FTTH at $60, they're losing $68, which is obviously doesn't make sense and for which the CRTC will be in a very good position, not to continue to do things that doesn't make sense. So we are and are ready to use VMedia products to be able to use FTTH at a month decent price in other territories, which are actually being serviced by VMedia. And I think, obviously, of importance, given the size of the market, the Toronto market and other big markets. So that goes for the first question. The second one, all the time that has been taken by the different circumstances that this transaction meant from conversation, Roger, is that with the Competition Bureau, I guess, we were not allowed or we didn't know what were those discussions. To the tribunal at the federal level -- at the first level at the Federal Court to the second level at the appeal of Federal Court. And then with the approval of - I said, all the time were used to make sure that we will be able to have what we consider the proper tools to compete efficiently and profitably. So I would say that at this stage, we're just waiting for the minister to approve, and we believe very strongly that we've been able to met, what I said earlier in my conference call, which is what the minister is looking for, which are a real competitive environment, lower pricing, and we think that we have -- I'm not going to say weapons, but certainly tools to be able to get there. So we're expecting the approval. And as I mentioned, we're ready to go, and we look forward to be able also to include the - to close the MVNO agreement with Bell and TELUS and kind of the CRTC team to cover the last element required for an optimized platform.

Next question comes from Stephanie Price from CIBC.

You mentioned in your prepared remarks that the fourth quarter saw some aggressive social intensity and wireless as well. Just curious if you could walk us through the current promotional environment there and how we should think about the mix of Videotron versus Bell? And maybe you could talk a little bit about wireless churn as well.

Hugues will answer your question.

Yes. So the wireless was, as we stated, the wireless competitive environment remains, but there's nothing necessarily new about this. It has been on the wireless side anyway, because I think that's your question. If not, we can certainly talk about wireline. But Stephanie, if you're more specifically asking about wireless, yes, this is not necessarily a general increase in competitive or promotional intensity other than the seasonal improvement or increase that is usual every year in Q4 with the Black Friday period, et cetera, et cetera. But certainly, on that front, all competitors with their numerous brands now have certainly continued to be competitive. But no, I wouldn't say -- not any -- not materially higher than in previous years and in previous quarters. You're asking about churn. Churn in wireless was indeed a little bit up. Certainly, as it usually is, again, there's a seasonal variation that you know of in Q4. But other than that, it certainly is -- I'll be honest, it certainly is an area where we are focusing because as you well know, it's a lot more efficient to retain the customers and to have to win them back or win her back. But I think the good news in all of this is that when I look at churn for wireless in Q1 so far, it's -- things are back to normal. If you would intended then, maybe I'll make a few remarks as we're talking about this on the wireline side. Wireline churn was stable actually. So yes, we referred and Pierre Karl answered very detailed -- gave a very detailed response to Maher's question on the wireline side and Bell's competitive stance, which has increased. It's true. But I think it's important to remind you that our churn is stable. And that as Pierre Karl mentioned, we're not only fighting on price. We're fighting on a number of fronts. And I think we've been rather successful in fighting off Bell. And I certainly wouldn't subscribe to the -- to I think the hypothesis that we're losing market share to Bell. I think there are obviously tos and fros on this as in any competitive environment. But at this point, I think we're on the winning side. And again, let me remind you that at the end of the day, our objective is margin and its profitability. And I think we've been successful. I think our margin in wireline is improving. And we have been honest with you guys, I think, and I talked over the past few quarters where we had said we weren't optimal in how we were positioning our products and we were selling Helix perhaps not at the right price compared to its premium status compared to [ Indigo ], our other Internet product, and TV distribution, of course. And now I think we've finally managed to crack that nut. And as demonstrated by our wireline margin that is finally coming back online and increasing. So I think at the end of the day, I think we've made the right decisions in that competitive environment. I mean it's -- I mean, come on, as we've said, as Pierre Karl said in his speech, this is something we -- there's the competitive environment in Quebec, I mean, we almost created it. So we're certainly comfortable in dealing with it. And I think we're showing by our improved profitability that we're successful in this. So sometimes, we're asking ourselves at the end of the day, our competitors would like to show RGUs increase. But look at the numbers. And I guess that’s all of that are certainly not being converted in additional EBITDA or improved margin to the opposite.

All right. That's helpful color. I just wanted to touch on CapEx as well. So Videotron 2022 CapEx decreased substantially year-over-year. Just curious how we should think about the run rate CapEx in Quebec? And if we should think about any additional investments in 5G and DOCSIS 4 prep here?

Yes. So our CapEx over the year, as we mentioned, were down $80 million. The run rate -- one way to look at it, and I think you'll see it from our Q4 CapEx, which creep back up a little bit as we increased our investments a little bit in LTE and in 5G and in network extensions. But all in all, at $450-ish million for telecom. And as we've said last time, and we're holding true on that. We see it as stable going forward for 2023. At this point, we're comfortable that we've managed to be more disciplined and to be more efficient in our investments. We've -- don't forget that CapEx is also -- the reduction in CapEx is also very directly linked to our various operating expense reductions, as a lot of our teams, I'm sure you understand whether it's -- they are the obvious ones like engineering and IT and all of this. But even some marketing and some other teams are also capitalized when we undertake projects. So we've just been a lot more disciplined as to what we invest in and how much we invest in each of these projects. And you know what, it's -- I think it's turning out very nicely, and we're able to show very, very good improvements in cash. At the end of the day, as Pierre Karl said, that's the important whether it's capitalized or not capitalized at the end of the day the money is coming out the door. So this is what we've been successful in slowing down.

How much money you have to pay -- to reduce your debt and to whatever repurchase share, if you want to repurchase share to pay dividends and reduce your leverage. I think this is the most important thing. Obviously, without being not at the proper level in terms of technology offered to your customers. And this is -- we'll always got to get focus, providing the best customer service, but also on top of that, products that fit customers' requirements.

And I think you mentioned -- sorry, just to add, I think you had mentioned DOCSIS 4.0, Stephanie, is that right?

Yes, yes.

So we're obviously on it, and we've been working with others and cable labs and others. We're certainly on top of that new initiative. It's a bit early for us to be able to comment more, I think more specifically. But it's certainly looking very interesting as the next steps, allowing coax to be even more performing. So we're certainly on it. It's just it's a bit early. I don't think it would make sense for us to make any specific comments other than we are certainly working with our peers on this initiative that looks very promising at this point.

Next question comes from Matthew Griffiths from Bank of America.

So just following up on the CapEx question, but on a different element maybe. In the MD&A, you referenced like a review of your strategic priorities. I was just wondering if you could touch on what was reviewed and what the outcome of that was and what we should think of as your strategic priorities going forward after reviewing them? And just on wireless, you've done a good job, obviously, growing your sub base, taking advantage of the cable base that you had and introducing Fizz, which is all digital. I'm wondering if maybe the next step to keep growth going might be to focus on increasing our retail distribution. Is that something you would consider? Or is that something you maybe see as where the competitors might have an advantage or maybe not, just if you could give me your thoughts that would be interesting.

Okay, Matthew. Well, on the CapEx side, I mentioned it, I mean, we will continue to spend on our wireless network, LTE Advanced and 5G. And our footprint is getting bigger every day, every week, every month. So despite the fact that -- and that was always the question, should we be able, but I guess it's not a question anymore, but the question was raised many times before, are we going to be able to monetize 5G? To me, 5G is the next of 4G, which was the next of 3G. And we've been seeing through the years, significant price reductions. Wireless is going lower, and it will continue to do so. And I guess that with the introduction of Quebecor with Freedom will help this trend taking even more in place. On the cable side, other than the DOCSIS, which is, as you know, an industrial issue for our -- all our colleagues in the industry. On the digital television, we're very well positioned. We made our investment and we changed certainly our commercial strategy regarding Helix. Maybe at the beginning, we were considering too much subsidizing. We changed our trend. So -- and I mentioned in my call, in my conference call, in my speech, we have a balance of platforms, which fits very well to the different kind of customers we have. One of -- a little bit more money that we're spending is in the network extension. We're certainly not -- in Toronto where we've been this week again. And when you -- when we're seeing -- when I see on the Gardiner Expressway how many buildings were built in the last 15 years, it was crazy to me, where I used to go on King Street at the Sun Media building. And that changed dramatically. Why I refer that because in Montreal, we have a lot of construction too, not as much as in Toronto. So this is why our network extension has been increasing. We just don't want to miss any new construction or a new household that will be available for our services to be offered to the next inhabitants or a customer there. So we've been seeing, and this is probably going to continue, despite the fact that, obviously, construction slowed down a little bit because of the economy, but we see this as an important factor. And the last spending element, which unfortunately we didn't really refer to and maybe it could give a little bit more detail. It's trying to make sure that we will continue to have a very efficient and respective billing system. One of our strength was to have one bill for all our services, cable, Internet and wireline telephony. When we introduced wireless, we were not able to do so as efficiently as we were previously. And we need to invest to get out of our legacy system, which was built 40 years ago, and we're migrating bit by bit, and especially the wireless or the different segments of wireless through this new platform. And we look obviously forward to get significant savings out of one platform that we will get rid of when the new platform will be entirely efficient. So we look forward to get this exercise done, and you can imagine IT is of importance, and it's expensive. So we're spending money there, but we think that we're well positioned with one partner, which were remotely from Canada and I think a very competitive platform for doing so. But do you have any other question…

Retail, I think -- the question on retail. I don't know if you want to take…

Yes, I can answer this with pleasure. We -- I think that historically, we've been using all the retail platforms, while all the commercial platforms available. Obviously, our cable business was pushing us very strongly in the call centers. We have been having people going selling door to door. We've been also strongly involved in retail. 30 years ago, [indiscernible], you were launching [indiscernible]. The [indiscernible] retail platform was there for a long time. I think that we've been -- we've been migrating because can you imagine they were selling video rental. So it was a previous blockbuster, and we migrate them as a commercial platform for selling wireless and other do it home services. And we've been doing it very efficiently. And as you know, that's a franchise platform, we own 50-50,50% corporate 50% franchise and our franchisees, and in fact, we had this big party 2 weeks ago, where once a year, we're all together, people come from Saguenay, from Rimouski, from Quebec, Sherbrooke [indiscernible] and elsewhere. And we continue to focus on this platform, which is -- and we need to compare the cost of those different platforms, and they're not equal to each other. But each of the platforms is on mission. And this is why we will continue to use all the platforms as efficiently as possible, and we look forward to get this as we've been successfully doing it as another very favorable positioning of our products and our sales force.

Perfect. If I could follow up just one quick question. You talked about the billing system, and we've seen other operators when they touch the billing system, it means touching clients and you generate a decision point on the side of the customer, which often results in lower net adds. You addressed churn being stable, but I just wanted to double check that is the billing system activity you're doing impacting the net add performance at all this quarter and maybe for some quarters to come as you work through it?

Well, obviously, this is not completely scientific, but we consider not this being any effect on our churn return, is related to very -- the intense or the intensity of competition, the Black Friday that we met. And again, we decided that we don't want to play in this game and then, therefore, continue to be disciplined on top of which, obviously, again, it's quite mature market. So…

Perfect…

We're introducing it bit by bit, and we cannot say that we have a new wireless billing system. We use the old one, and we are looking to migrate on the new platform, which is actually a better beta form.

Yes. Next question comes from Jerome Dubreuil from Desjardins Bank.

The first one is on Freedom. I wonder if you can talk a bit about the synergies you are seeing with the rest of your business. I know maybe not a ton of overlap, but if you can discuss maybe in qualitative terms what you're seeing in terms of synergies? That's the first question. And then the second one would be on the resellers. A lot of M&A activity there recently. I know the last mile connections change might not be easy to switch for the buyers. But should we expect any change in terms of the financial contributions the resellers are making that if we could see in your results going forward?

On the first question [indiscernible] -- I just found out that I forgot one portion of my answer about the Matthews earlier question. And what can we bring to Freedom or what we will bring? So the -- another important segment that we've been using for Videotron. It's even more true for fit because it's a complete digital platform, but the e-commerce side of commercial and distribution platform has been strongly used for the last few years. And this is certainly something that we think we will bring to Freedom opening their selling vehicles. You probably know it's not, I guess, that this is probably not a rocket science, secret, I would say, that most of the Freedom assets and services are sold to retail or sub-retail. We will continue to do so because this is a very performing vehicle. But they are certainly not reaching everyone, and we look forward to being able to enlarge our capacity to reach customers and then, therefore, using what we've been using into do it home again, with great success. Other than that, which is obviously of great important you can imagine, we're looking forward to increase our RGUs and increase the numbers of our customers. I would say it's a regular type of acquisition. I mean procurement, capacity to negotiate better pricing on handset, having better promotions, licenses, adding all those things together and cost-conscious management, I guess that, again, these are recipes for great possibility. And as you can imagine, also being bigger, give us more scale to negotiate better opening charges or rolling costs, and we look forward to get this done as quickly as possible that will improve our capacity to propose services or offers that will get even better customers' requirements. So we're really bullish and we hope this transaction will close as soon as possible for Canadians to enjoy a much better environment, but they've been forced to suffer for so long. On the - as to your second question, Jerome, on the resellers, well, as you know, Bell and some of the others as well as recently as last week have been quite active in acquiring these resellers. So obviously, it's -- there aren't that many left to compete against. But a couple of points on this. We -- prior to launching Fizz, some years ago, we have certainly looked at the opportunity to acquire and concluded, and I think it was the right conclusion that we would be able to win these customers with Fizz, which we actually did. And we gave them a run for their money. And we actually did better than a lot of the resellers that ended up being bought by our competitors that -- and if I -- if you allow me at very high prices. And they spend a lot of money for these resellers. So I still would think that our decision or strategy was the right one. So going forward, I think to answer your question, if that was your question, but you tell me if I'm answering the wrong question. But as to our performance, I think we still have all the tools to continue to compete with them even though the environment might evolve, that's true. The pricing environment, the regulatory environment might evolve over the next years on this. But I think we're very well positioned.

Next question comes from Aravinda Galappatthige from Canaccord Securities.

Two questions. Two from me. With respect to the broadband net adds, the year-over-year variance. I was wondering if you can talk a little bit about what component of that was sort of wholesale. I know that those are lower margins and obviously have a lesser impact. I was wondering if you can talk about that. And then secondly, maybe for Hugues, on the interest expenses. I was wondering if you can give us some color on what you expect going into '23. I know that you wanted the substantial senior -- one of the senior notes of over $1 billion matured in January. Any color around any kind of uptick in interest expenses would be helpful. And connected to that, with respect to the $2.4 billion facility, have you disclosed what the terms are in terms of the rates and fixed floating, et cetera?

On the broadband ads Aravinda, yes, a lot of the variation, I'll put it that way, over the past few quarters has to do with the wholesale. And the generally B2B, maybe I'll put it that way, the wholesale and B2B side of it, whereas on the residential, if I can call it that, on the individual side of the business, it's been a lot more stable and we were -- I was referring to the churn earlier on being quite stable and our market share against Bell and some of the others in broadband being quite stable as well. So yes, I think if that was your question, yes, I believe that on the broadband adds, a lot of the variation in the decrease in our net adds and our growth has to do with the wholesale and the commercial side of things.

Interest rates?

Yes. On the interest expense, we are going -- I think our interest expense is certainly, as you saw from the numbers, has come down as we retired over the years, some higher coupons and replaced it with variable or floating debt at a much lower -- and even through the various hikes in rates, at this point, we are still retiring debt, of course, and don't forget that we used to finance ourselves in the 10 years. Usually, we've been over the years, financing ourselves in 10 year increments. So we are retiring debt that was at a much higher coupon than what we're paying today even in floating. Now as -- obviously, as we're -- we've always believed in the right balance. And as the -- I'm not saying that high yield is no longer of interest to us on the contrary. It's just that markets right now aren't to our liking yet. But -- so at some point, we will -- when the time is right and the price is right, we'll certainly go back to it. As to the $2.4 billion facility, we have not given out the detail other than what I can tell you is that it is a -- it is bank debt. So it is floating. And -- but we've structured it in tranches, 3 different tranches, the longest being over 4 years to give ourselves more flexibility on that front. And at rates that are, honestly, still today much more favorable than any high yield that we would be able to get in the market at.

Great. Just a quick follow-up on wireless. I know that you can't talk too much about strategy here. But are you any closer to or any update you can provide on leadership, new leadership for the Freedom assets whenever the deal closes? Any progress that you can share?

I guess it's a little bit early to answer the question. I think that we're through -- our due diligence, we have the chance to met a lot of people. And what we've been seeing is certainly very positive and enthusiastic. In fact, we -- again, as I mentioned, we look forward to get the transaction closed and making sure that, as you just mentioned, your leadership to be confirmed. And we were there as of, in fact, Tuesday, and we met with senior management regarding the next step that we would like to move forward with. So we're, again, very positive of the upcoming weeks and months.

Next question comes from Vince Valentini from TD Securities.

I know there's a lot of interest in questions. First, maybe just to clarify, Hugues, if wireless EBITDA is up 22%, that would mean your cable or wireline EBITDA was down about 5% year-over-year. Is that fair?

That's fair, but including equipment, right? So services is actually up. But yes, including the -- in wireline, including both service and equipment, we are down 3%.

[Operator Instructions] Go ahead, Vince.

Vince, you're not lost volume.

I'm not must be ballast advertising the line on us here. Yes. Sorry, I didn't quite catch you Hugues there. EBITDA in wireline was only down 3%, not 5%?

3%, yes. From my – from the numbers I'm looking at, yes. Yes, 3%, including equipment, yes. Yes.

Okay. And back to the CapEx. I know we've talked a lot about it, but I mean your CapEx intensity was 12% of revenue. That's way below any of your peers. So I just want to make sure that there's no apples to oranges going on here. Was there -- have you done anything different in terms of outsourcing any network functions so that something is being counted as a lease or an OpEx item instead of CapEx? And does that CapEx number include anything you're doing with these rural projects that are with government subsidies? Is there anything you're hiding anywhere else? Or is that 12% and $457 million, actually what you're spending?

No, no, no. I can assure you we're not hiding anything or we're not being creative and accounting in any way shape or form, I can assure you that. That the 12% is really an apple-to-apple comparison to our -- or to what we know of our competitors' results in that. As I was -- as we were pointing out a little bit earlier, I think it really -- I mean, I know it sounds surprising to you guys, but you just have to think of the number of projects that people in telecom work on. And that when you put in more discipline in terms of really going through a very disciplined business case, it is actually quite amazing how many projects you can say, no, you know what, this is not a good use of time enough money and we're going to focus on something else or even on each project. Do you really need to invest this much in each step of the project? It's a little bit like losing weight, just by bringing down the -- each -- the volume eating a little bit less of everything, you get there. So it's -- I know it's a lot, but it is something that our 2 networks, both wireline and wireless, we've invested significantly on over the past years. We were in a position, don't forget, contrary to Bell and -- yes, more specifically contrary to Bell, where we didn't need to invest -- well, we've invested in fiber. I want to leave you with the impression that we don't invest in because we do invest in fiber significantly, but we did need to invest as much as Bell needed to because we were starting from a very different point and we can get comparable or very good performance at -- with lower investments. So all of that in the mix, discipline and more having an advantage on the fiber to the node as opposed to fiber to the home in many cases, leads us to significant decreases in CapEx. And as I mentioned earlier, our cost reduction, our team is the fact that we were -- that were a lot more that we're re-questioning everything as to how much time we spend on things, how much money we spend on things and how many projects we're looking at. And it just adds up.

Absolutely. It's…

I think that also what we've been doing is that we reduce or even clean up the amount of consultants that was working. So obviously, as you can imagine, consultants are there to make them important or making sure that they will remain consultants. So they're building projects and projects and projects. I mean do we always need all those projects. At the end of the day, it's management decisions to have a judgment call saying, yes or no. And we've been seeing a lot of things that took place, which to us was not necessary. Do you really need, as an example, 15 Gartner subscription or a treat will make it. But then if you're reducing because those expenses sometimes are also capitalized or -- you're capitalizing that? Or you're making them at an expense. At the end of the day, it's cash. And when you are reducing or you're just eliminating those kind of expenses at the end of the day, you're generating much more cash. So we will continue to work on this. And we certainly -- again, we have the best experience there out of the industry. We will continue to remain the same. I guess, our own work has been done, and we look forward now for growth in the wireless sector in Canada.

Okay. Last one on this, and I'll pass the line, if you're going to take any more. Is a skeptic might say you're being extremely efficient and diligent at reducing your CapEx in your Quebec-based business because you think there's a huge amount you'll have to spend outside of Quebec, and this $450 million will soon jump up to $800 million or $900 million when you have to support Freedom as well. Is that -- is there any truth to that? Or do you think you can be just as efficient in your new operations?

Well, there's no doubt, obviously, our CapEx will increase. We know the status of the Freedom network. But there are certainly many things that will make customer experience or Freedom down the road, much better than what it was before. So automatic seamless handoff is certainly something that we look forward to establish. We were earlier also talking about roaming. So adding the capacity to get one network to the other. We have the MVNO. We have the spectrum that we pay for the obligation to build. So every day, every week and every month, our network will improve, but we do not have a shortage of time for doing it. We were not rushed to do it in 6 months. We have in front of us a good period of time, which being disciplined will give us the opportunity to remain efficient. And we look forward to, again, establish ourselves in that kind of environment, which is certainly optimized for properly spending and good technology and proper places and appropriate systems.

Next question comes from David McFadgen from Cormark Securities.

I got cut off the call. So hopefully, this hasn't been asked already. But when we look at the wireless net adds, obviously down a fair bit this quarter, but yet your share of the gross adds in the market was still around 30%. So should we take it that maybe the market centers in the new paradigm where the net adds are just going to be lower going forward? Or this quarter was just an aberration?

No, I think you're right. Well, and don't forget that just almost mathematically, I'd say or naturally is when you have -- I don't know, when we used to be a 10% or 15% market share, and we were cruising at share of gross adds. And of course -- but now we're -- as we're close to 25% market share on -- in a 4-player market, obviously, things change a little bit. And in terms of -- I think one thing you have to say, we are the only ones giving out the net adds for Quebec in our market. And I think that's important because we don't -- it's hard to compare the net adds of our competitors in our market. And I think it would be fair to say what you said that I think going forward, we certainly do not necessarily expect net adds to be as high as they were for us in the other parts of -- or the earlier parts of our cycle of our development cycle, and I just -- it just makes natural sense that we would -- I don't know if I use the term plateau but that our growth would start diminishing a little bit. I think that's normal and natural.

Okay. And can you comment on the relative performance of the Videotron brand and the Fizz brand in the quarter?

Both we don't give out -- I'm not going to give you specific numbers. All I can say is that you know, Fizz, it hasn't flowed again. Don't forget that Fizz started from scratch. It really launched in a segment or segments of the market where we were performing less well with Videotron. When we were used to refer to the urban, the younger crowd, the more tech savvy, the more digital savvy crowd, and there was an opportunity there for us. So we were really successful and Fizz grew very, very well on that. Now it's normal after 2 or 3 years that we've -- that, that growth is getting increasingly a little bit slower, increasingly difficult. I think that's just normal. So I think it -- again, it -- both are growing to be sure. But Fizz, which we used to say maybe a few quarters ago or last year or a couple of years ago that Fizz was accounting for most of the growth or the net adds, now it's more balanced than I would think.

Okay. And then I don't know if you can answer this question, but can you comment at all about what ISED wants from you to be able to prove this deal? Like what assurance is the...

What's the question, David, I'm not sure I understood.

So why…

We've been asked by ISED to deliver right? Is that what you're asking?

Yes. I mean I think there -- I mean, when you read various articles, it seems like obviously, they want lower prices and you've said that you tend to do that. But what exactly do they want? And I think they want some way to force whatever they want. So I don't know if you could provide any commentary on that, but it would be helpful.

Well, I don't feel the right to talk for the minister. But in the meantime, I think that he went public on what he's looking for is you want to have prices that will be lower, you consider. And I guess that it's certainly not really tough to demonstrate that the prices in Canada are the eyes in the world. And he thinks that is his role to provide an environment that will make situation different than what it used to be. So here we are. And he certainly is in the driver seat that is the one that's going to approve the -- the transaction in the end because all of the previous steps have been over and positively answered. So I guess that you should ask the minister for that, David. So we thank you all, and thanks, David, for your question. And so we wish you a nice day. We'll talk to you in our next quarterly meeting. Thank you very much.

Everyone, this concludes the Quebecor Inc.'s financial results for the 2022 fourth quarter conference call and the full year. Thank you for your participation, and have a nice day.+