Quebecor Inc. (QBRA) Earnings Call Transcript & Summary

Good day, everyone, and thank you for standing by. Welcome to Quebecor Inc.'s financial results for the Second Quarter 2023 Conference Call. I would like to introduce Hugues Simard, Chief Financial Officer of Quebecor Inc. Please go ahead.

Ladies and gentlemen, welcome to this Quebecor conference call. My name as was said earlier is Hugues Simard, I'm the CFO, and joining me to discuss our financial and operating results for the second quarter of this year is Pierre Karl Peladeau, our President and Chief Executive Officer. Anyone unable to attend the conference call will be able to listen as usual to recording by telephone or webcast. Access details are available on our website at www.quebecor.com. The recording will be available until November 11. As usual, I also want to inform you that certain statements maintain 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 the regulatory authorities. I will now turn the floor to Pierre Karl.

Again, good afternoon, everyone, or good morning. Completely far away. So I am happy to report today the financial and operational results of our first quarter of operations, consolidating the activity of Freedom Mobile. As you know, we closed this very important transaction on April 3 and have been our network to put in place the numerous key milestones and realignment needed to execute our carefully planned crucial back-to-school season. We are in the midst of it right now. And I have to say that I'm very pleased with the engagement and performance of our teams to further enhance Freedom market's position and to reinvigorate the competitive dynamics in Canada. As we have said many times before, for us to succeed in our new endeavor and for true wireless competition to succeed and last in Canada, we need fair, reasonable roaming and MVNO rates that are in line with the government and CRTC objectives in that context. We are pleased with the July 24 decision by the CRTC and the final offer arbitration process between Quebecor and Rogers, which chose our position in setting the rates for access to Rogers wireless network. The decision indicates that the CRTC and its new leadership are committed to increase competition in Canada telecom industry, while encouraging network investments. The rates selected by the CRTC, which are in line with international rates, will enable Quebecor in its subsidiary to offer plans that are more affordable, accessible and competitive across Canada to the benefit of consumers. We could not be more encouraged and positive with the new gold competition leadership at the CRTC, especially compared with the previous one with whom we sometimes had to wait 2 years or even more to have a decision. Quick, effective decision-making is clearly to the benefit of all Canadians. That being said, our negotiated -- sorry, our negotiations with the 2 other incumbents, no surprise there, remain difficult and a lower agreement has been reached yet despite our repeated good fate at that. We had no other choices then to submit another request for final offer arbitration for the CRTC. We have just recently started the FOA process with Bell. In addition, it is essential that incumbent carriers, we require to offer TPI services through aggregated FTTH facilities for us to become a truly fourth national player in wireless and wireline services and the rest of Canada. There are no justifiable reason to slow down access procedures, other than dilatory gains being played by the telcos. In comparison, we and other cable operators have always diligently provide access to our coax network to TPIAs, even the ones wired at very empty prices by Bell. Quite simply, we need to gain swift access to Bell and other incumbents FTTH to compete directly with them and offer greater speed access at lower prices. The only reason why Bell offered the same 1.5 gig on FTTH at $90 a month compared to $60 a month in Montreal. Well, you have guessed it, is that TPIAs and others don't have access to a competitive price on FTTH. Actually, going by the regulated FTTH access rate of $129.79 Bell is selling its game at a loss, also... While on the regulatory front, I would like to add that with respect to the new broadcasting act, Bill-C 11. The CRTC and the government must introduce more regulatory flexibility and lightening the regulatory framework that it's too burdensome for us from the enadistrative and financial standpoint. The investment posed on foreign platforms, our contribution obligations dedicated to Canadian content rather than an obligation to have Canadian programming expenditures to preserve the competitiveness of Canada, of Canadian companies and not accelerate the decline of our Canadian broadcasting system. And to quickly remedy the precarious situation of private television, it is imperative to immediately withdraw advertising from all CBC/Radio Canada platforms to put an end on fair competition and race for ratings. Finally, we welcome the adoption of Bill-C 18 on June 22. As you know, following this passage, Meta announced that it would block Canadian media content on its Facebook and Instagram platforms, and has just recently started doing so. And Google announced that by December of this year, it will no longer offer news link in Canada. In response, Quebecor withdrew all advertising investments from its subsidiary and business unit on Facebook and Instagram. And in solidarity with the Canadian media, the Quebec government, the federal government, numerous municipalities and organizations have suspended their advertising at Meta and several organizations have announced that they are redirecting their advertising investments towards the news media to the detriment of websites. Iveco has long argued that to preserve the industry sustainability and vitality, original content from the various platform to be included in this bill. Creation of a payment system is necessary in view of the website market dominance. These platforms use the content produced by Canadian news organization to generate a significant portion of the interaction of their network and must pay a fair price for it. Before turning to our operational results, I would like to highlight that Quebecor on a consolidated basis have generated $455 million in cash flow from operations in the second quarter of 2023 and an increase of 26% over the same quarter of 2022. Quebecor with the addition of Freedom, improved its cash flow from operations by 25% to $462 million and its EBITDA also by 25% to $608 million in the quarter while maintaining the best margin in the industry. Cash flow performance is better than Bell and Telus and allow us to start paying down debt as opposed to following to service our dividend policy. I will now review our operational results, starting with our Telecom segment. In telecom, this is our first quarter at the Freedom Mobile, where our teams are focused on delivering on our promises of more competition and lower prices for Canadians. Despite insiduous efforts by Telus to block the transaction, as we all learn in front of the competition tribunal. Remember the code name project FOX, where Quebecor was described as a danger. Well, we succeeded with the support of pro competition policies of the government of Canada with determine to offer Canadians truly competitive price. Quite simply, we have been doing what we said we would with the addition of 10% more domestic data to all existing Freedom subscribers and a price freeze on existing plans for all current and future customers. We have also launched our 5G services on July 27 and have significantly improved the network connectivity through nationwide coverage, seamless roaming and affordable international mobile plans. Consolidation of Freedom added over 1.8 million subscribers to our wireless customer base, in essence, doubling it at 3.6 million RGUs. Despite a second quarter characterized by intense competition and quick activity, we managed to record 29,000 wireless net adds in that period. Churn rate on postpaid customers increased 0.2% this quarter, mostly due to the addition of Freedom, where we were -- where we are determined to reduce churn with our 5G network deployment, improve reliability and connectivity and new affordable plans. Seamless handoff from one network to another without interruption or drop calls, which is now functional between Freedom and Rogers as it had been between Videotron and Rogers in Quebec as part of our joint network agreement, now gives all carriers access to essentially the same network. So it is ironic to see Bell flanker brands, Virgin, boosting that runs on a network that is larger and faster than Freedom. Certainly not the first or the last that we see ID disputable ads from Bell. While we focus on reinvigorating our newly-acquired Freedom brand outside of Quebec, we did not take our eyes off of our own market as shown by our 34% combined share of growth adds in Quebec for 2 brands, Videotron and Fizz combined, according to our Leger survey. By far, the largest combined share of gross ads of all operators in Quebec in the quarter. This clearly demonstrates the strength and complementary of our brands and without a doubt, confirms Videotron as the leader in wireless services in Quebec. Our wireless EBITDA more than doubled to $251 million in the quarter due to the addition of Freedom force as well as increases in service revenues and handset sales. Wireless ARPU decreased slightly following the acquisition of Freedom Mobile as expected. In broadband, we posted 5,300 net adds. This quarter, excluding third-party resellers despite the increasingly competitive market environment. Internet ARPU improved by $0.76 or 1.4% over the last year, again, resulting from pricing optimization and brand positioning, allowing us to overcome the diluted effect of SIs and lower plan over plan mix. Two, price optimization, improved brand positioning and churn management with continued mitigation of customer decline in traditional services. We continued to generate growth in wireline revenues and market. The market again characterized by ongoing cord shaving and cord cutting. We managed to slow this trend down in television for a sixth consecutive quarter by optimizing the positioning of our brands and the pricing of our [indiscernible] platforms, thereby improving ARPU. This quarter, we reduced television decline in subscribers by 15% compared to last year. Finally, we are reaching the end of the project of [indiscernible] high speed and Quebec remote areas, which has now reached 96% of the total planned kilometers. We expect to see a continued increase in connected loans over the next few months. Moreover our 5G deployment and the province of Quebec continued to stay on track in terms of operational sites deployed. Turning to our Media segment despite advertising market conditions that remain challenging, especially in television, we have continued to invest significantly in the production of unique, differentiated and highly popular content to ensure continued leading ratings and maintain our position of Quebecor undisputed destination or broadcasting information and entertainment. Our strategy was successful as TV still dominates its market, increasing its consolidated market share by 0.45% to 42.7% in the quarter compared to [ LAT ] Canada 18.3%, and [ NovoPen Media ], 19.4%, respective market shares. There is also the broadcasting 4 of the 5 most watched TV shows in Quebec, including the Daily Show and [indiscernible] with an average audience of over 1.5 million. [indiscernible] the local version of The Voice. And the new reality TV shows [indiscernible], which is the local adaptation of I Am Celebrity, Get Me Out of Here. That being said, as the economic and technological environments are profoundly transforming the very foundation of the broadcasting industry in Quebec and around the world, will continue to generate losses in its second quarter as nothing unfortunately point out to an improvement in these conditions, we must act and rethink how we operate these businesses. Finally, our Sports and Entertainment division maintained its Q1 momentum to the settling array of major shows in the quarter, including the [indiscernible], the Stir, Nickelback and Shania Twain. Second addition of our popular Segal festival is already fully booked and the premier of our new musical, The Bodyguard, is a great success, which bodes very well for the upcoming 54 shows until November. Finally, the Quebec Remparts, Remparts de Quebec where [indiscernible] flare played in 1969, on a Memorial Cup, leading the Seattle Thunderbirds and the Grand Final in [indiscernible] and capping a very successful year of hockey in Quebec City. I will now let Hugues review our deal detailed financial results.

So turning to our financial results. Our telecom segment generated $462 million in cash flow from operations, a 25% increase. And EBITDA also increased, as Pierre Karl mentioned earlier, 25% in the quarter and EBITDA margin stood at 51%. Revenues reached $1.2 billion, up 32% compared to the same quarter last year. And while the addition of Freedom Mobile accounts for most of the revenue growth, the Videotron and Fizz brands continue to deliver growth in wireless and Internet service revenues. On the OpEx side, the increase of 42% in the quarter compared to last year is due to the consolidation, of course, of Freedom Mobile as the cost containment initiatives on the Videotron and Fizz continue to pay off, translating into our increasing and industry-leading EBITDA margin on those brands. [indiscernible] CapEx spending, excluding the acquisition of spectrum licenses was up $28 million in the quarter as compared to last year, solely due to our investments in Freedom Mobile. In the quarter, we continued to increase our investment levels on key initiatives such as LTE Advanced, 5G, network extensions and geographic expansion in all markets. On a consolidated basis in the second quarter, Quebecor's revenues reached $1.4 billion, up 25%. Revenues from our Telecom segment were up 32% to $1.2 billion, mainly due to Freedom. Revenues in the Media segment decreased 4% to $180 million in the quarter, while our Sports & Entertainment segment grew 8% to $49 million. Our adjusted cash flows from operations increased $94 million in the quarter, 26%, to $455 million, once again demonstrating our continued operational and financial discipline. Adjusted cash flows from operations for telecom also grew $92 million or 25% to $462 million. Quebecor's EBITDA was up 23% to $605 million in the quarter, mainly due to the impact of the Freedom Mobile acquisition. Telecom segment generated $608 million of EBITDA, up $120 million or 25%. Quebecor reported a net income attributable to shareholders of $174 million in the quarter or $0.75 per share compared to a net income of $157 million or $0.66 per share 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 $182 million or $0.79 per share compared to $162 million or $0.68 per share last year. For the first 6 months of the year, Quebecor's revenues were up 14%, $2.5 billion, and EBITDA was up 12% to $1.05 billion. EBITDA from our telecom segment grew 14% to $1.08 billion for the period, an improvement of $134 million. As of the end of the quarter, our net debt-to-EBITDA ratio was 3.52x, up from 3.27x reported at the end of the second quarter last year and has improved since the closing of the transaction. On April 3, 2023, Videotron entered into a new $2.1 billion secured term credit facility with a syndicate of financial institutions to finance the acquisition of Freedom. The term credit facility consists of 3 tranches of equal size, maturing in October 2024, April 2026 and April 2027, bearing interest at Bankers Acceptance rate, secured overnight financing rate, Canadian prime rate or U.S. prime rate, plus the premium determined by Videotron's leverage ratio. Available liquidity of $1.6 billion at the end of the second quarter and our growing free cash flows will be more than sufficient to fulfill our commitments and maintain a very strong balance sheet. During the first 6 months of the year, we didn't purchase any Class B shares. And please note that the Board on that topic upon termination of the August 2022 program has approved the renewal of the program for 1 additional year. We thank you for your attention, and we'll now open the lines for your questions.

All right. First question comes from Maher Yaghi from Scotiabank.

I wanted to ask you, as you indicated, it looks like Videotron and sales continue to have strong results on gross loading in Quebec. But I was wondering if you can share with us your initial views on the performance of Freedom in Ontario and Western Canada since you acquired the business. What are the key highlights that you found so far in terms of the relaunch? And maybe how is the loading behaved since you acquired the business? And just a follow-up on that. During the acquisition review, you indicated that offering a bundled wireless Internet service is essential to reduce churn on the Freedom brand. I assume that you don't need access to fiber to the home to launch Internet because you have access to the Rogers network. So should we expect the service to be launched shortly or this is -- it will take some time to see you guys offer a bundled product in the marketplace?

Thank you, Maher. So glad to answer as efficiently as possible. We all saw that the market became suddenly more competitive in Ontario. Well, yes, that we should not be surprised. We're looking to move ahead. We were looking, obviously, also to respect the conditions that we agreed upon with the government as the capacity to take over Freedom, and prices reduction was announced. We were not even there that flanker brands of our competitors of incumbents, we're in a market with much lower pricing. Will this continue? Well, I guess, the landscape is changing dramatically. And yes, this is probably why not doing any politics here, but if I would certainly consider this possibility that having a fourth national player will certainly have this result. And this is basically what we -- what took place since the closing of the transaction. So -- and completely anticipate what will take place in the future, but this is certainly where we are today, a different world and a different landscape. So we will continue to offer. And as you probably saw, we're moving one step to the other. We announced new pricing. We announced nationwide, 10% more data, 5G. We can -- and obviously, you will easily understand that I will not give you details for competition reasons, but you can anticipate that there's other things to come. And it will be known in the marketplace and due time. But this is certainly not the end of the competitive environment. I would say it's probably the opposite. It's the beginning of a more interesting thing. All the regulations and thinking of legislative or government and administrative and already administration are to get this activity more competitive. It's not only a wireless activity. It's a telecom activity. So you need to include other things, which is certainly something that we've been doing in Quebec, and we'll have the capacity of doing so elsewhere. The acquisition of media was in the anticipation of getting in the wireless business outside of Quebec, and it fits with our marketing strategy moving forward. I don't know, Hugues, if you have anything to add.

No. I mean just in terms of loading, as Pierre said, this was in our first quarter. So certainly, we haven't fully rolled out the plan that I was referring to in the various steps that we had referred to earlier. So we'll see now we're in the midst of back-to-school. And let's see how the Autumn comes around. But a, we won't give you guidance on the -- certainly on loading. But I think it's to be expected that Q3 will be a little more just as competitive as Q2 was with probably more activity.

I was writing to our employees thanking them on a group different achievement that we've been able to realize since the inception of the transaction, it was -- and it's finished by, stay tuned.

As to your second question, in terms of bundling. This is something that is part of the various steps that we talked about. That's another one that's coming. It will be, as we've said, it will be -- we're staging these things as we go along. And it is to be expected over the next weeks and months, but we won't give you a specific timing as of this morning.

Next question comes from Jerome Dubreuil from Desjardins.

The first 1 is on wireless. I just want to make sure that I understood right that the wireless EBITDA in the quarter was $251 million. And is this coming with some sort of higher spend that we should expect in the third quarter, given the launch of 5G and maybe a step-up in advertising? How should we basically model these margins going forward?

Jerome, yes. So first of all, yes, $251 million is the wireless is the consolidated wireless EBITDA. And I think it's fair, what you said is a fair for trading of the coming quarter with -- as we said, it will be -- the fall is seasonally more active and more promotional. So I think it is to be expected that we will invest a little bit more in advertising and in branding. So I think -- yes, I think your expectation is fair.

It still looks like a very strong margin. And the second one is I'd just like you to expand a bit on your position on the TPI review. Obviously, you're targeting more bundling in the rest of the country outside of Quebec. However, the bulk of your EBITDA is still coming from your our broadband business in Quebec, and that could potentially be affected by a lower TPI rates. So I just want you to expand a bit more on the -- on your positioning on that front.

Maybe so I could mention again that we've been always offer -- offering TPIs. In fact, we were the biggest provider of outside connection to most of the TPI is in Quebec. If historically, we were to restore a little bit the landscape in Canada, Quebec was the area where you would get the highest penetration of TPIAs compared to whatever Ontario on the Western side. And naturally, they were considering a cable or the coax, hybrid would be the best network to deliver either broadband or television. This is technically on top of which that go FTTH. Just don't think about it. It was not acceptable. First, Bell will give any source of reason to forbid access. And if you were to achieve after efforts and efforts and efforts and efforts, you will have a price, which made no sense to offer a broadband pricing offer below $120, where the retail price was, let's say, between $50 and $70. So this is the environment that we've been living. So we are used to compete with TPIAs. We are used to offer different kind of marketing approach. And we are used also to generate revenues from our network on different sources. We hope that we will be able also as TPIAs, as we were, and this is interesting, Jerome, I would like to repeat that for some of you forgot it. But Bell had a monopoly in the [indiscernible] area where they own the telecom business in Quebec and the cable business, Cable Vision. And we decided to offer services there as a TPIA. You can imagine, in fact, we're in front of the tribunal because it took so long to get access to their network. And now it's an issue of having access to the polls, and we're not the same -- the only ones that are having problems to have access to the pole. But we started as a TPIA, and we succeeded pretty quickly of adding a significant market share. So then we are or we decided that we will build our own network after our customer base is justifying it. So all those things is of our experience and proposals, certainly a learning curve of what we will do in the future. So we look forward to have access as quickly as possible. And we feel that, again, the CRTC and with this to competitive policy will accelerate our capacity to have the FTTA access and then being able to offer a bundle of services.

Next question comes from Vince Valentini from TD Securities.

Let me start with a couple of balance sheet and cash flow questions just to make sure we're all on the same page. Your debt seemed to come in lower than I thought, and I think many people thought post paying for Freedom. Hugues, are there any significant restructuring or transaction costs that were not incurred in the second quarter that may the cash may go out in the third or fourth quarters instead?

No, no, no. We are -- there is -- our transaction fees are all in this -- there were a few actually in the previous quarter, but the rest of it is in this quarter, about $12 million. So that's all in there.

Okay. And how about CapEx related, especially related to 5G. We've all seen that you launched the 5G network in several cities. So I assume that money got spent in the second quarter? Or is there somehow a working capital thing where you got the equipment from vendors and didn't have to pay for it until later? Is there any cash impact or potentially timing issues there?

No, no, no. There are no timing issues. I mean, if anything, Vince, it is a little bit the conversation. I think we had in the past saying one of the positive surprises, I think when we got to -- when we finally got our hands on Freedom with how advanced they were in terms of almost being ready to turn the 5G on in many markets. So a lot of that investment has already been made. So we made the rest of this quarter, and we're in a position to launch in the main markets. But no, to answer your question specifically, there are no there's no mountain coming in front of us. There are no surprises coming in front of us.

Okay. Yes. I appreciate the answer. Just when we see such a big variance versus our estimates. I just want to make sure we're not missing something. The last piece of this line of questioning is just on the lease liabilities that we see in your statements that it's gone up about $220 million from the end of Q1 to the end of Q2. That doesn't -- there's not as much as we expected. Is there any risk that the rating agencies in S&P would have a different way of valuing the lease liabilities so that they may come up with a different leverage ratio than 3.52?

Slightly. Yes, there always is, and you know that and you see that in their reports. There's always a little bit of a tweaking. We're hardly ever exactly, certainly not to the second decimal equal to the leverage between the various calculations of S&P or Moody's are actually even between themselves, they're slightly different. So there's probably a little bit of tweaking there, but nothing major. And we've already been through that with them, and it's not going to be major. I mean the main difference that you're referring to is, obviously, the way Shaw used to value leases as opposed to how we value leases at Videotron and that explains the difference from what you were expecting to what we ended up putting on the balance sheet. But as you know, Vince, this is all accounting, right? I mean at the end of the month, we're still paying these leases and going on with life.

Okay. And changing topics to operating costs. Just to follow on Jerome's question a little bit. The marketing and advertising costs probably go up in the third quarter and the fourth quarter as you ramp up in the busier promotional seasons, that seems clear. I'm wondering on the other operating costs, there were certain deal benefits that you negotiated with Rogers, things like roaming and backhaul. Did you achieve a full 3 months run rate of all of those savings in the second quarter? Or is there any potential improvement in the pace in Q3?

I think the answer to that, Vince, is that there's going to be some puts and takes. I don't think we've -- we certainly haven't really experienced all of the various synergies or positive OpEx savings that we will get from the various deals that we've made or the various changes that we're putting in place. At the same time, there will be probably on the other side, a few other investments that will be needed. So you know what, it will be -- I think there's more positive ahead of us the negative, certainly, but there will be puts and takes on the OpEx side.

And I think that we can say that we will we were really at the beginning of the integration process. There will certainly other savings that will show up in the future.

Okay. And the last question I have, hopefully, for you, Pierre, but Hugues, feel free to jump in if you want. The pace of customer adds at Freedom. You've already been asked about it a couple of times. I want to ask just in a different way. You seem pretty happy with how things are going and maybe it's a bit more of a marathon than a sprint, and you're gradually rolling out all of your new tactics. We obviously haven't -- the bundling isn't there yet. We haven't seen the Fizz brand yet. So there's obviously more things to come in the future. So given where you're at in evolution, are you satisfied with the number of customers you're adding on a weekly or a monthly basis? Or are you looking at the team and saying, "Hey, this is not good enough. We need to be doing a lot more sub ads than this in the Freedom territory?

I would say, Vince, that we are and I am very satisfied with what we've been able to achieve in a sort of short period of time. RTU are certainly something, net adds is certainly something that we watch on a daily basis. But also financial results and free cash flow, we were just buying a company and you generate significant free cash flow after paying the interest that you need to pay on that you load for financing this transaction. This is the equation right now. And there is no real reason to think that it will change in the future. So when we see our competitors being -- buying companies, buying TPIA at crazy prices, buying customers and buying revenues not being able to achieve EBITDA increase, where their debt is increasing and their leverage is deteriorating, we basically accomplished the complete opposite. So in terms of RGUs, we will continue to work very hard. We think that we have many other tools in our basket, which we will use in the future. We do not have a specific target because we don't know how the market will react, but we will certainly react according to the market. So we see the future as very positive.

Next question comes from Matthew Griffiths from Bank of America.

Just on the 5G deployment, I was wondering if you could talk about how much -- what the time line is to complete it obviously, you've listed the cities where you've already launched, but what do you think the time line is to get through that. And on the radios that are being deployed, they also accommodate the C-band spectrum.

Sorry that we add your second...

Yea, your second question wasn't very clear. Can you repeat it, Matt?

Yes, sure. On the radios that you're deploying for -- does it do they also operate in the 3.8 gigahertz spectrum band? -- or with the acquisition of additional spectrum down the road necessitate a revisiting of sites?

Yes. Bob, maybe we will give you also additional thing. But what we think it's worth to mention, Matthew, is we not go, again, we mentioned it earlier, but we were not completely surprised that the company was well advanced with their 5G deployment. As you can imagine, we're in this business. So we work with all the suppliers and is give us the capacity to understand where they are on top of -- this is also public information. There are some maps concerning -- well, which is managed by the government, which is also available. So deploying it was something that was easy to do. And therefore, we did it -- 5G is of importance, but you certainly is what you're doing in your job following the industry. And you've been seeing Ericsson, Nokia, Samsung slowing down in terms of revenue of 5G. There was a lot of people 2 years ago or 3 years ago thought that the 5G will be the end of the world, a paramount of success, and I would see the possibility to monetize and the Mexico rush. We were prudent regarding this kind of inflation semantic. And then we certainly consider that 5G is important. This is why we invested in the business and where to already in a good position. This is also why we bought spectrum in the 3,500. And what we're having now for freedom and under Quebec or with the 3,500 and the spectrum that Freedom already had. A piece of it was spectrum in that previously was sold from [indiscernible] telecom to Shaw. We have a very interesting range of spectrum. We're moving ahead in new auction shortly. And our relationship with our suppliers give us many alternatives in dual ban in equipment, where is quite interesting also what we're seeing is equipment moving in the right pricing direction for us. It's not something that is going sky to the roof. I think it's still seriously reasonable. And then therefore, for us, maintaining a normal curve in terms of investment, nothing that we need to rush. I mentioned in my speech that we believe that we share completely the perspective of the authorities where MVNO is available only for the companies that participate in the auction and for the auction. If you buy spectrum, you need to build in 7 years down the road. So you have access to MVNO, you have access to roaming, but you have an obligation to bid. So we have in front of us those years, which we will use to make sure that our network will sit with the way that we will service our customers as a [indiscernible] as I described earlier regarding the [indiscernible] area, the region where at one point, it's certainly more profitable for you investing and then avoid paying roaming that you need to pay when you're on another operation network, another operation competitive network.

I'll follow up, and see if I can get some more detail after the call. But maybe I can just ask 1 other question. Just you mentioned how you're staging these initiatives as you launch -- as you kind of take over the brand and enter the market or reenter the market as Freedom. I was just curious, I'm not asking about the timing or what the initiatives are -- but what is the work that's being done? Is it -- are you still working on the systems side? Are you working on the sales and distribution side? Like what is -- like what are the kind of new hurdles before certain things get launched, thinking about Fizz, and you've mentioned a little bit already about bundling Internet. So just if you could give any details on what the work is behind the scenes, that would be helpful.

We'll try to give you the detail that you're looking for, Matthew. But we have a different BSS system than the one that we're using in [indiscernible]. But there are also things that are common. So it's -- if I was to try to answer your question, I guess that we're going to be there for the rest of the day because obviously, as you can imagine, this is a complicated environment. So a specific question, we'll try to do our best with the question that you can write for us.

All right. Next question comes from David McFadgen from Cormark Securities.

A couple of questions. So you talk about the 49,000 wireless net adds. I was wondering if you can give us a breakdown, I don't know if you're going to do this but any longer, but the breakdown between Videotron and then Freedom. And then can you give us the breakdown of the sub date, how many of those subscribers on the wireless side are prepaid?

No. I mean, David, we've decided not to split obviously for competitive reasons as our competitors do not -- between the various regions where if we did that, obviously, Videotron and Freedom being on mutually exclusive regions, that would be fairly easy to derive certain information on Quebec versus the rest of the country. So we're not going to do that. In terms of prepaid and postpaid, Freedom had, perhaps, a heavier proportion of prepaid than we would have expected or liked, to be quite honest, with a lower ARPU, as you know, and that is partly the impact on ARPU that we're living through. But our focus really for us is to grow both. As you know, for us, I mean, prepaid and postpaid are of interest. And we'll continue to work very hard at building both. But that being said, we don't intend at this time to split them out any further than that. Sorry, David.

Okay. Can you give us an update for the CapEx in the year in sort of a range as to what you're expecting now that you've owned Freedom for a little bit? And then secondly, I was wondering if you could comment on how Freedom's plans are resonating with consumers, particularly the one that offers roaming across Canada and into the U.S.

How they're performing? I'm not sure I understood your question to your second question you're asking how the plans are performing with respect to roaming in the U.S. I'm not sure. Can you repeat?

I'm just wondering if you're getting a lot of consumer interest, consumer uptake on those plans that include the roaming across the U.S. and Canada because as we all know, when we travel to the U.S., the roaming bill to be quite expensive. So I'm just wondering what kind of uptake you're getting on that. Well, on that, we're seeing very favorable market reactions on this. So that was clearly -- that's something we felt was a bless for us, and it's working out well. So certainly in line with our expectations there. and this is the season. So I think it was timely, it was a timely introduction for us. And it's -- actually, the interest is quite significant. So I have to say that, that's performing very well and at the right price, of course, making sure that this is something they didn't have before and certainly enhances the brand value for us, and I think it's working out quite nicely. In terms of CapEx, your first question, no change in terms of CapEx expectancy or guidance. Obviously, this quarter was -- I think it's fair to say probably lower on the Freedom side, but that will certainly change or increase over the next few quarters. So that should get back in line with the guidance that we gave about the 200-ish yearly guidance that we talked about last time. So no expect to change there. Okay. No, okay. Sorry, I didn't need catch you up.

Next question comes from Stephanie Price from CIBC.

I wanted to touch on the strategy for regions, not currently covered by the Freedom network. So it sounds like the MVNO under that agreement, you're able to start rolling out the offers for these regions today. But as you think about building up the national network, would you initially focus on improving the coverage area or the network quality and capacity there.

Well, I mean, MVNO is for us, I mean, it's important at this point for us to continue to grow and to expand our network, of course. And so that certainly is the way we're going. I mean at some point, as Pierre Karl mentioned, this is this is obviously linked with an undertaking of construction and deployment at some point. So at the right time, we will have to make the right economic decision as to whether certain areas are worth pursuing from an MVNO standpoint or not. So -- but we're not quite there. I mean, at this point, I mean, we're going in both directions that you mentioned at this point to expand our network coverage. And we'll see -- we'll see how the business goes in the various regions and make that decision when the time comes.

Okay. And then just circling back on the FTTH wholesale access. Just curious around how important that access is for you just given the preferred rate you have with Rogers. Is there a significant percentage of your wireless subs that maybe wouldn't overlap with that Roger's cable footprint here?

Well, it's important because, obviously, we know that this is certainly a -- some competitors will say that we're the owner of FTTH. Cable companies already also have some fiber, and this is not something unique. So we all know that this is a technological, powerful way to move forward. That doesn't mean that it's -- the historical networks are not good. And don't worry, the cable industry also is moving forward with technology. But then to answer you specifically, the question is because the wire are there and the density is something of importance. There's a CO in central office, as we call in the telecom industry located in Toronto at the -- we call it [indiscernible] I'm sorry, which is the more tense in Canada. So we would like to have access to this CO to be able to have access to the largest amount of people to a CO. So is this important? Yes, it is, is this -- that what will change dramatically, the things that if we were not to have access? No, but I would say that it's not fair for any alternative carrier to do not have access to this specific network where the cable industry had been always force and obliged. And we did it also as a revenue source opening it to other carriers. So it's a question of fairness. Yes, fairness.

And the last question comes from Drew McReynolds from RBC.

Yes. Thanks very much, and good afternoon. Hugues, just back to Vince's question. I think a little confused on the price tag that was public through the process for Freedom. And I can't really reconcile that with what's either going through your financial statements or what's being assigned to capitalize leases. So I mean, we can certainly take this offline, but can you, at a high level, explain kind of how you could value capitalized leases perhaps so different than how Shaw was doing it? Just some clarification there would be helpful.

Yes. I mean, Drew, it's basic -- I mean, leases are valued in different ways by different operators from an accounting standpoint. Now we're talking about accounting, right? Let's be clear on this. I mean, leases are basically we continue to pay leases, obviously, every month. And we are paying what we were expecting to pay with respect to these leases that are both network leases or retail-related leases. From an accounting standpoint, though, Shaw, we were expecting -- the number we had in mind when we referred earlier to at the time of the transaction to a $2.8 billion transaction, with roughly $700 million of leases for a net $2.1 billion purchase price. That $700 million was basically valued according to Shaw's methods of valuation leases, which I'll give you an example, included renewals for most of them. And we -- value the same leases according to Videotron is our historical way of valuing them, which has turned out to be quite different, and that explains the difference between the 2. But at the end of the day, this is the accounting valuation that goes on the balance sheet, and due to the new IFRS regulations, as you know. But at the end of the day, this is an operating cost that keeps going through the P&L and that will continue to show up obviously as we go along and restructure and streamline and optimize these leases as we go along.

Andrew. And for all -- I'm sorry, I cannot just ignore what I had on my desk earlier today. It's not from the equity side, it's from the debt side comes from the analyst at BMO, Nicolas Kim, it's 6 lines. And I'll go shortly with that. We continue to view Quebecor as the most underrated Canadian telco credit, offering investment-grade quality, credit exposure at high-yield spreads with a small near-term an investment-grade crossover potential and upside potential spread of gas significantly tighter with IT. For perspective, Quebecor has rated high mid BB with 3.5 leverage, while Rogers is rated low BBB with 5.1 leverage. Ellis is rated mid BBB with 3.7 leverage. BCE is rated high BBB with 3.5 leverage. So I would be that just not mentioning it. I would sleep badly tonight. So thank you all being with us this morning and look forward to talk to you at our next conference call. Have a nice day.

Everyone, this concludes the Quebecor Inc.'s financial results for the 2023 second quarter conference call. Thank you for your participation, and have a nice day.