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Good morning, ladies and gentlemen. Welcome to the BCE Q1 2019 Results Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos.
Thank you, Laurie. Good morning, everyone. With me here this morning as usual are George Cope, BCE's President and CEO, and Glen LeBlanc, our CFO. As a reminder, our first quarter results package and other disclosure documents including today's slide presentation are available on BCE's Investor Relations webpage. Exceptionally in this quarter, because our Annual General Shareholder Meeting is taking place starting at 9:30 this morning, we'll be ending the call earlier than usual at 8:45.However, before we get started, I want to draw your attention to the Safe Harbor statement on slide 2. Information in this presentation remarks made by the speakers today will contain statements about expected future events and financial results that are forward-looking, and therefore, subject to risks and uncertainties. These forward-looking statements represent our expectations as of today, and accordingly, are subject to change. We disclaim any obligation to update forward-looking statements except as required by law. Factors that make such future results are contained in BCE's filings with both the Canadian Securities Commission and the SEC and are also available on our corporate website.With that, I'll turn the call over to George.
Great. Thanks, Thane. Good morning everyone and thank you for joining us. I'll just begin with a quick overview. Our revenue momentum did continue in the quarter with 2.6% growth, and Bell, as you've seen, reported strong EBITDA results of 6.9% driven by our revenue growth and the IFRS 16 accounting changes. Importantly though, we have positive EBITDA growth for all Bell operating units excluding the impact of IFRS 16.The Company enjoyed strong financial results from wireless and excellent wireline broadband retail subscriber growth with 44,000 combined retail Internet and IPTV net adds up 37% year-over-year. We have positive top line growth across all wireline units producing 1.8% year-over-year growth. Bell had a second -- another, sorry, another strong quarter and second quarter of positive TV advertising revenue growth and cost savings, which drove material EBITDA growth year-over-year.The strong organic results in the quarter and the declining capital intensity drove 20% year-over-year increase in free cash flow. Given it's our Annual Shareholders Meeting this morning, it's notable that overall the Company enjoyed its 54th consecutive quarter of year-over-year EBITDA growth or 13.5 years of uninterrupted consistent EBITDA growth.Turning to wireless, on the growth, total gross activations for us were slightly up year-over-year. Postpaid net adds were 50,000 in the quarter and the reduction year-over-year mostly impacted as the federal government contract starts to mature out in our net adds. We had our best quarter of postpaid churn in 15 years, and in fact, the Bell branded churn was under 1% at 0.98% in the first quarter, and certainly I don't ever recall that happening on the -- in the wireless side for us.The blended ABPU increased 1.2% year-over-year to $67.35, although I think it's important I call out, if you exclude the government contract and the shutdown of our CDMA network early on in the quarter, the blended ABPU for the analysts was actually up 0.8% year-over-year.Prepaid gross adds continue to grow; Lucky successfully growing in the market. Gross adds up 56% year-over-year and an improvement of 50% year-over-year in our net customer losses on the prepaid side. We also harmonized our prepaid deactivation policy to 90 days across all brands, a much more conservative approach to our churn and consistent with our other brands across Mobility.Really excited this morning to also announce that Dollarama has been appointed as the distributor of our Virgin and Lucky Mobile prepaid services. That's a key retailer in Canada with over 1,200 locations who is entering the wireless business for the first time and it is an exclusive distribution agreement for our -- for Bell's prepaid products of Virgin and Lucky Mobile.Just turning to the wireless network, we continue our journey of providing network leadership, not just in Canada, but from a global perspective. Our wireless network generally now is recognized to be roughly twice as fast as the speeds available in the United States. We actually -- we'll exit the year with 60% of Canadians have -- accessing speeds of up to 750 megabit speeds with LTE-advanced technology. And in some of our markets, we are actually going to have download speeds that can exceed 1 gig.I want to remind investors again that our fiber investment in wireline will continue to pay dividends for years for us on the wireless side as we now have completed much of the build for the fiber to cell sites as we begin the journey towards 5G. Approximately 90% of our capacity today utilizes fiber backhaul and that will be obviously core to providing the type of speeds we're all talking about and services and latency reductions and all those things we'll see with 5G in the coming years.Our capital intensity continues to be low. We had -- we continue to believe we'll be approximately 7% this year even with this network leadership that we have in the marketplace.Turning to wireline, it's a really positive quarter for us. Our strategic investments are beginning to certainly pay dividends for us. Our retail Internet net adds were up approximately 25% year-over-year. We had an -- saw an 18% growth in our fiber additions in the quarter with 51,000 new fiber additions. And all of our fiber footprint today includes an offering of 1.5 gig for our clients, which I don't think you would find in any markets in the world, quite frankly. And so this footprint advantage that we're building over the long term positions us very well for both business and consumer.On IPTV, it was certainly quite positive, up 54% year-over-year with 21,000 adds and that reflects our strategy with our IPTV product and our Alt TV product and also is helping us pull through Internet clients. Our retail satellite adds were lower; net adds -- losses were better year-over-year, which of course is helpful from a revenue and cash flow perspective. Overall, I would say that our investments are truly beginning to provide us some product leadership in the marketplace. And when you start to see some double-digit growth for us year-over-year in net adds, that's obviously a very positive sign for our Company.Turning to media, really nice to see a second quarter in a row of strong results there. We saw viewership of our English specialty TV properties up 27% year-over-year. Although not in the quarter, we just couldn't not call out the incredible viewership we're seeing on Game of Thrones and the benefit that's having to our Crave product in the marketplace with the largest specialty audience ever in Canada, 3.3 million viewers one of the evenings, and who knows, maybe we'll surpass that as that incredible series comes through its conclusion.TSN has had a very positive year and a positive first quarter. And as you can see, one of the things we called out is ratings, for instance, on the Raptors. For the entire year, we're up 50%, and of course, this quarter, if we get a good playoff run, we're a beneficiary of that as our ratings are up dramatically over previous seasons.I think a really important call-up for investors is our top 20 advertiser spend, about 14% more in the quarter than they did a year ago, and we, as one of our other peers mentioned, are seeing some under -- some strong revenue growth from clients moving back into some of our media properties. It's our third consecutive quarter of year-over-year advertising growth, and I will tell you that the funnel for Q2 looks very strong indeed in terms of media.With that, let me turn it over to Glen.
Thanks, George, and good morning, everyone. Before I begin, I would like to remind everyone that starting this quarter, we are reporting financial results in accordance with IFRS 16 accounting standards for leases. Prior periods were not adjusted. In addition, we made another reporting change with our operating results of The Source, which are now fully included within our Bell Wireless segment as we primarily managed The Source as a distribution channel for our wireless business. For comparability, we have restated our 2018 quarterly Bell Wireless and Wireline segment results to reflect this change.With that, let's move to the summary highlights of Q1 on slide 10. We delivered a strong quarter consistent with plan, reflecting continued healthy wireless financial results, further broadband market share growth, improved wireline business performance as well as higher year-over-year TV advertising revenue. This all contributed to total revenue growth of 2.6%, which, together with the favorable impact from IFRS 16, drove 6.9% increase in adjusted EBITDA.Normalizing for IFRS 16, consolidated adjusted EBITDA was in line with our historical average growth rate of 2% to 4%, reflecting year-over-year increases in all 3 Bell operating segments. Consistent with the growth in EBITDA and our net mark-to-market gain on equity derivative contracts resulting from an increase in BCE share price in the quarter, net earnings increased 11.6%. However, adjusted EBITDA was down $0.03 versus last year mainly due to lower year-over-year tax adjustments and incremental depreciation and interest expense recognized because of IFRS 16 accounting.Lastly, free cash flow, as George mentioned, grew 19.6% on the flow-through of strong EBITDA growth and lower capital intensity ratio of 14.8%. That reflected slower construction activity this winter compared to last year as well as lower overall planned spending for 2019.Let's turn to the Bell Wireless results on slide 11. Total revenue was up 4.5%, and this was a result of improving service revenue trajectory that benefited from continued strong year-over-year subscriber base expansion and a higher sales mix of premium handset devices that drove a 7.7% increase in product revenue. In terms of operating profitability, wireless EBITDA increased 11.6% in Q1 on the flow-through of healthy revenue growth and lower year-over-year operating costs resulting from the adoption of IFRS 16, which drove a 2.8% -- 2.8 point margin increase to 42.9%.Another highlight in the quarter George mentioned was the capital spending front. Our wireline fiber investments continue to benefit our wireless business. That is why you are seeing a historical low, industry-best wireless capital intensity level of approximately 7% for Bell Wireless, which is contributing to a year-over-year reduction in BCE's overall consolidated capital intensity ratio.Let's move over to wireline segment on slide 12. Total operating revenue, up 1.8%, reflecting positive top line growth across all main wireline units for the third consecutive quarter. Wireline residential revenue increased year-over-year on the combined impact of industry-leading retail broadband subscriber growth and the flow-through of annual rate increases that together contributed to growth in total Internet and TV revenue of 4%.Bell Business Markets also delivered positive revenue growth in the quarter, driven by higher year-over-year spending on IP broadband connectivity and business service solutions by large enterprise customers, as well as strong year-over-year data product sales to the government sector, all of which was reflective of a growing economy and increasing customer demand for fiber and bandwidth.With steadily growing broadband scale driven by our fiber investments and TV product innovations, improved Business Market results and the impacts of IFRS 16, wireline adjusted EBITDA was up 2% year-over-year. This maintained our industry-leading margin at a very strong 43.7%, providing ample operating leverage to support our approximately $2 billion in planned broadband capital spending this year.Moving over to slide 13, Bell Media's financial results were consistent with industry trends this quarter, reflecting continued momentum in TV advertising and disciplined execution on cost control. Although overall advertising was down 1.3%, this was due to continued market softness in radio as TV advertising increased 1% in aggregate, reflecting stronger conventional entertainment specialty and new specialty performance. In fact, specialty TV excluding sports was up 11% year-over-year, a strong result, driven by higher advertising demand following a shift in spending last year to a main broadcaster of the Winter Olympics, leading content in rating as well as improved pricing flexibility. Subscriber revenue was essentially flat year-over-year, increasing 0.1%, as growth in our direct-to-consumer Crave video streaming service was largely offset by ongoing pay and specialty TV subscriber declines.And with respect to operating profitability, Bell Media led the industry in Q1 with a very strong adjusted EBITDA growth of 26.9%. This was driven by a 6.3% reduction in operating cost that reflected the positive benefit of IFRS 16 as well as the programming and production cost containment initiatives, which more than offset the higher costs related to the -- to ongoing Crave content expansion.Let's move over to slide 14, details -- the components of adjusted EPS for Q1, which was in line with plan at $0.77 per share, down $0.03 compared to last year, higher adjusted EBITDA growth -- drove $0.12 of growth, but was effectively offset by the year-over-year step-up in depreciation and interest expense from the adoption of IFRS 16. Overall, IFRS 16 had approximately $0.01 of unfavorable net impact on EPS in the quarter. Also negatively affecting adjusted EPS in this quarter was the lower year-over-year tax adjustments and a reduction in the equity income that we pick up from our various minority interest investments.Let's turn to free cash flow on slide 15. We generated $642 million of free cash flow in Q1, up 19.6% over last year, driven by strong EBITDA growth and lower year-over-year capital spending. This result included a favorable noncash impact from IFRS 16. Net of the incremental imputed interest component on the newly designated IFRS leases as a portion of the lease payments relating to the principal is now recorded below free cash flow in financing activities.Overall growth in free cash flow this quarter was moderated by a decrease in cash from working capital driven by the timing of A/R collections as well as higher severance paid resulting from payments related to management workforce reductions undertaken the end of '18. Pension funding and cash taxes remained relatively unchanged year-over-year, in line with our guidance assumptions for the full year of '19.To wrap up, on slide 16, BCE's fundamentals and competitive position remains strong, as evidenced by our Q1 financial results with positive momentum across all our wireless, wireline and media operations. So with the strong start to the year and no changes in operating outlook, I am reconfirming all of our financial guidance targets for '19.On that, I'd like to turn the call back over to Thane and the operator to begin the Q&A.
Thanks, Glen. So before we start the Q&A, I want to remind participants our time constraints this morning. So please limit yourselves to one question and a very brief follow-up, if you need to, so we can get to as many of you in the queue as possible. So with that, Laurie, we're ready to take our first question.
[Operator Instructions] The first question is from Richard Choe from J.P. Morgan.
Given the lack of spectrum purchase in the most recent auction, do you feel comfortable with your CapEx spend both on the wireless and, I guess, wireline side to support the networks and the migration to 5G?
Yeah, yeah. We're very comfortable. It actually doesn't change our capital program really in any way that the investors would say we change our capital intensity. We had actually modeled in a high likelihood that we would participate in the auction, consistent with 2 of our peers in the U.S. based on the fact that doing some cell splitting that we know we need to do in anticipation of 5G gives us the incremental capacity and we ran that math against this particular spectrum band, it wasn't for us cost-effective to purchase it versus doing cell splitting that we knew we were going to have to do. And of course, that we probably beat a dead horse on this, but with the fiber piece, in the position in the marketplace already, that helps us a little more from an intensity perspective. So I feel really quite positive about it. Obviously the 3.5 spectrum auction is much more strategic for us. As I think all of our peers have mentioned, that's a core band to the rollout of 5G. We expect that auction in Canada next year, and of course, that deployment of 5G in terms of the real evolution path of 5G will begin at that point, and if the auction happens next year, we'll probably see it in the marketplace pretty quickly after that.
The next question is from Maher Yaghi from Desjardins.
So nice improvement in wireless pricing. First, I just wanted to, if you can provide us a level of detail on the adjustments, first, on the government contract adjustment impact and the reclassification of your subscriber base in prepaid and postpaid that you did in the first quarter and how those affected your results. But apart from that, again, improvement in the year-on-year growth net of those, what do you say -- what are the main reasons for this improvement and is this sustainable in your view?
Yeah. So in terms of the adjustments, I did call out, the overall impact is we still had underlying 0.8% ABPU revenue growth. The changes were obviously by taking a more aggressive stance on churning prepaid subs off in 90 days. We took some zero base prepaid subs out, which is -- obviously gives actually investors a much more transparent way to see what our true ABPU is. And then we had -- as I noted in there, we had some subs that came off the network because of the shutdown of CDMA, and of course they weren't really generating any revenue at all either. So in one sense you could say it's a cleaner outlook in terms of the ABPU, but we'll get the real run rate year-over-year now going forward. We'll make sure we keep everybody informed, but as we did in this quarter, it was really 0.8% underneath it all. And then in terms of overall, I think one of the things probably, we are definitely seeing a better mix of the Bell branded postpaid versus the version. Traditionally that mix has -- it's swung a little bit in our favor, the Bell churn rate being as low as we talked about and that tends to be our heavier users, clientele with a lower churn profile. I think that's it. We continue to grow on the business side, and I think probably the pace of acceleration of users that we've seen a few years ago and that obviously stalled out somewhat last year. There was an impact on the year-over-year growth. Now we haven't really seen the buckets increasing yet another significant amount from that period. So that's really what's underlying the results. We're really pleased with the prepaid gross adds, really happy with this new distribution and feel generally fairly positive to the start on the wireless side.
George, also on the wireline, why did you decide to remove the wholesale subscribers from your subscriber base? It's still 15% of the subscriber base total. What drove this decision at this point in time?
Yeah, it's interesting. It was one of the things we did, but last year, if you watch, I was very, very transparent with the investment community, in talking to our retail subscriber base. The revenue will always be in our revenue. Wholesale subscribers are not strategic for us. It's not a market we approach, it's not a market that we have frankly interest in pursuing other than regulatory requirements. The ABPU from that base is literally 33% of what it is for retail. And so to compare that net add to any of our actual performance from our perspective in the whole industry creates bad behavior in terms of creating subs that aren't of value for investors. And so from our perspective, we'll be always reporting retail net adds consistently going forward. Of course, it's always in our revenue numbers in wireline, so it's there, but the subscriber information, and finally given so immaterial from a revenue perspective, we quite frankly don't want our competitors to know what's happening in the wholesale sector through us.
The next question is from Phillip Huang from Barclays Capital.
Good quarter. Just wanted to ask you a little bit more on the overall wireless market. Both BCE and your peers have reported so far -- all the peers have reported so far a bigger seasonal slowdown in the wireless activity. So just wanted to get your thoughts on the reasons behind that. We certainly did observe fewer promotions relative to the spillover that we saw last year, but your postpaid churn is also lowest in 15 years and it seems like consumers are holding onto their smartphones longer. So I was wondering if you're -- if you do see a overall less active wireless market in general for 2019 as the industry appears to be focusing more on retention relative to gross adds and as consumers are less excited by release of new handsets.
Yeah. I mean I would -- there is a few things and it's hard -- it's one quarter end of the year. I mean, we all know first quarter is seasonally low, but of course, what you're asking is on a relative year-over-year basis, which is the right way to go at the question. I mean, a lot of our impact is the federal government contract in terms of some of our net add reductions that you've seen year-over-year. And I think there is some commentary for sure that the life of the handset is being extended and as the life of the handset extends, of course, that helps us from a churn perspective. And also, we fundamentally believe there is no network like ours other than maybe one other country in the world, and we think when you shop for a network, there isn't something that's faster or better in Canada. So we think it's why we are seeing some of the churn results. But once you have the entire year unfolds going forward, I think what I liked about the quarter, the underlying metrics for value creation of churn and ABPU, granted normalized out of 0.8%, move the right direction, and in the old accounting world, which we -- which is 3 years ago now, in the true pure service revenue growth side, it felt stronger than it's felt in a while as well. So let's hope that's an underlying trend. We'll find out as the quarters evolve.
Yeah. That's very helpful. On your ABPU point, certainly we were positively surprised by the turn excluding the CDMA and government contracts, but should we assume that growth for the remainder of the year from this point on? And also how many government subs are left to be migrated for Q2?
Well, the second answer, all I'll say is not a lot. That's not really material, but -- I won't give you the number, but there's not a lot left to go. We have one more quarter and then it really almost normalizes out for the investment community. And then in terms of, we'd had an objective a couple of years ago, one of the things -- we thought we might see lease CPI ABPU improvements. We didn't see that last year. I think it's a reasonable expectation we might get to that this year. That's what we're -- and that's what we're hoping on. We'll see. How it feels though, If you look at our first quarter, on a reported ABPU, that's almost roughly where we were, I think. And so let's see what happens in the next 3 quarters. You normalize that at the 0.8%. So obviously anything gets us 0.8% to 1% would be positive. So I'd only give a forecast, but it felt just a little better than it's felt last year. That's all I'll say.
The next question is from Simon Flannery from Morgan Stanley.
George, some good Internet numbers, 51,000 fiber-to-the-home. Could you just give us a little bit more color on what's going on in the 5 markets? Where is penetration in some of the markets you've had opened for a little while? And what's the opportunity as you continue to build out those markets, and then I think you're seeing on usage on those customers? Thanks.
Yeah. I think the positive thing we're seeing on fiber is the longer in these markets and the word of mouth, and frankly, if you're in some of our markets on the Canadian side, we're so consistently advertising the benefits of fiber. I think we are always now in the buying decision for it, and I think that's what we're starting to see the benefit of. I think our Alt TV strategy, which is a non-set-top box TV strategy with 2 streams, as I've said on the call, significant discount to traditional TV, but helps us pull through the Internet are 2 things that we're seeing. When we get underneath our results, say, in Southern Ontario, we think we captured literally 60% to 70% of incremental household revenue in the quarter year-over-year and we think that's overall on the wireline side. And I think that really comes from slowly but surely seeing some momentum on the fiber side that gets us into that objective of trying to get to that one out of 2 customers moving to our Internet service and then we'll drive it from there going forward. The other side, I should mention, which I haven't, because you're asking the question on fiber. So on the business side, I think one of the reasons we continue to see some of the results from our Business Markets team and they were handing me some notes yesterday on this as well that the client base, the corporate client base is really now much more interested in fiber for their businesses. National retailers in Canada, not just in urban markets, are doing some rural builds for fiber for very specific clients. The competitive dynamics in retail today, and banking as well, there are structural changes going on in banking. Many of the branches are upgrading themselves for technology-friendly solutions for clients. And so we're starting to see some underlying demand for fiber on the wireline business side that, I would tell you, 2 or 3 years ago would have been us trying to convince the client. Now it's us trying to manage some of that demand with the client. So we think that may be giving us some of the reasons for the under -- the stronger growth that we've seen on wireline business. It's the first time we've seen it, as many of you on the call know, for years and years and years. So at any time that's positive. That's a big positive for our wireline business.
The next question is from Vince Valentini from TD Securities.
Let me see if I can get quite a bit of your time here. 2 sort of questions for you, Glen. The Source impact, it looks like Q1 last year, wireless was restated down $11 million when you include The Source. So is that -- can we assume there is a normal seasonal loss that would be buried in your wireless EBITDA you reported for Q1 of '19 as well? And then on top of that, can you give us any more granularity on how much IFRS 16 impacted the wireless division? How much of that growth was just from the accounting change versus core?
Good morning, Vince. Yeah. On your first question, the answer is yes, you have that approximately right on the decline that would have been resulted from The Source. Just to remind everyone, as I think you picked up, we restated last year, so comparability for each of our segments is there. On your second question, IFRS 16, when we provided the guidance on the last call, I reminded everyone and I did it again today that the 5% to 7% guidance we provided on EBITDA normalized for IFRS 16 is more like 2% to 4%. So there is a 3% year-over-year value to what IFRS 16 is driving into EBITDA. If I look at it by segment, about a third of it is -- relates to our media segment. A little less than half, 45% to our wireless segment, and then 20% to 25% of that is in your wireline, so in any given quarter, but that 3% is going to move around a little, Vince, but cross the year, it's a 3% and that's how it relates to each segment.
The next question is from Jeff Fan from Scotiabank.
I'm going to focus on wireless. The nice acceleration in the service revenue for wireless this quarter, I know there is a lot of factors that drive it, ABPU, subscribers, but if we just focus on service revenue, grew 3.6% this quarter. Last quarter it was 2.2%, and so a really good start. And I'm just wondering if you can just provide some color on what you think is really driving this inflection point from last quarter to this quarter.
So Glen, why don't talk about the one item? There is the one item year-over-year on the wholesale adjustment on the wireless side.
Yeah. So last year, that's an item that occurred in 2014, Jeff. So it's in the results -- excuse me, 2018. So the -- it's around $14 million that we lapped. So obviously that results in some improvement there. And George?
Yeah. So just to remind everyone, there was that decision a year ago where we had to go back, so there is about $14 million in there. But even underlying that, the ABPU growth that I talked about, we saw, and now it's just a function of the competitive marketplace. The other one for us overall in service revenue growth, we had always had this -- as you've heard me talk about, we had this negative prepaid revenue growth and that turn for us at the back half of last year, and of course, it's turning for us now, I think, with the negative growth in the quarter, but we are seeing better ABPU on prepaid because the product is a little different and much more focused for us. So if we can take for our business what's been a negative story and have it positive like it was the last half of last year, that just overall -- it was an overall contribution to service revenue growth. And so we had seen some -- for me, some confidence building around a little bit on underlying strength there on the overall service revenue. Look, it's the first quarter, we had a lot of work to do on the year and it's a pretty competitive market, but it will take the first 90 days and put it in the bank.
The next question is from Batya Levi from UBS.
Can you talk a little bit more about the competitive environment you're seeing in broadband and video? And you mentioned your Alt TV product, but that -- how that's differentiating you from the others? And also, as some of the competitors expand the rollout of the new services, do you -- are you anticipating a change going forward in this year?
Yeah. I think there is a lot of things we are doing on the media side and on the TV side to adjust to the consumer buying behavior being different and the demand for the products being different, right? I mean, if you look on the Bell Media side, Crave in Canada is quite frankly for us has now become quite a success story. We're seeing top line revenue growth. We've got the business EBITDA positive and we are seeing positive EBITDA growth and some really nice subscriber growth on it, given that we've combined it with all the original series of HBO et cetera. So that's one of the strategic tenets what we're doing on the change of your behavior. Alt TV is exactly recognizing that there is a client base that's interested in some of the content, not the full TV package as we've seen in the past, don't require the set-top box. We don't have to do the truck roll. It's 2 streams, so really it's a TV streaming services meeting all the TV license requirements in the marketplace. It's significantly less expensive than traditional TV, but of course restricted by the number of streams, and of course, you need a broadband connection for that. And we really are seeing that. And when you -- we talk about the type of subscriber growth in IPTV, a lot of that is also being driven by the strategy around Alt. So those are the 2 key things, I would say, we're doing in trying to address the change of consumer -- consumption of media content.
The next question is from David Barden from Bank of America.
Just as you lap the government contract from a subscriber sampling, could you talk about what the potential lift to the ABPU comparisons would be as that kind of cycles through the base?
I think, as George mentioned in the previous remarks, that we think that after we lap the government contract, CPI is probably a good indicator of where we'll be. And this -- the government contract is playing less and less of a role as we're -- the number of subscribers are dwindling now. So less and less of a role of a normalization of the ABPU. So 1.2% reported this quarter, 0.8% if you normalize for the subscriber and government adjustments. I think as we look forward, somewhere in that CPI 0.8% to 1% number seems reasonable.
The analysts will know this. One of the things, of course, you've got to watch in our case too is because prepaid becoming a more successful part of our business, it's a weighted average issue on the blended ABPU. Of course what everyone on the phone really cares about is the absolute service revenue growth. So if obviously prepaid does better, it can have an impact on that blended number, but we'll be, obviously going forward, transparent on that so that you really can see the pure service revenue growth number. To me, the biggest strategic issue for us on the wireless side was getting a negative growth story to be positive on prepaid, and secondly, to see some stabilization on the postpaid ABPU side, and those 2 things seem to be just holding on. As I said, it's the first quarter. We've got 3 to go.
And -- thank you so much. And if I could just follow up, the -- I think part of the strategy of getting into prepaid was to try to take those subscribers and groom them into the postpaid base. Is there some part of that strategy that we saw kind of support the postpaid subscriber growth in the quarter?
Yeah. We saw a little bit actually. It's true. We did see some little pickup over the previous year, and of course, we've got a long way to go to get our base at the size and scale of one of our larger peers, but hopefully, if we do that, we'll see some of that migration as well.
The next question is from Tim Casey from BMO.
Thanks, George. Just wanted to return to the spectrum auction topic for a moment. And obviously you've set expectations that 3.5G is core and strategic. What are your expectations, if you're allowed to share them, on how the ISED will approach the Inukshuk spectrum and the use you'll be -- that will be availed to you of that going forward? Thanks.
Yeah. So the Inukshuk spectrum, just for the investors that aren't aware, that is 3.5 spectrum that we have a significant holding of as does our partner to Inukshuk. Rogers has a significant holdings. Industry -- the ISED folks, we are going to say Industry Canada, the ISED folks will come back shortly and tell us how much of that we are able to hold and how much of that we need to return for the purposes of the auction. The amount that we're allowed to hold, of course, we'll then use for our mobility business combined with what we acquire in the auction. So we need clarification on what they're asking us to return and that should be -- obviously have to come ahead of the auction. And we don't actually have that answer yet, and when we do, we'll share it with the Street right away. And we've obviously filed -- because we are a user of that 3.5 spectrum for some of our fixed business. We have filed and obviously asked if we're able to maintain a significant share of that. You can imagine some of our peers have a different view, and so we'll let ISED as they do lay down the rules and then we'll act accordingly.
The next question is from Aravinda Galappatthige from Canaccord.
George, just a follow-up on your comments on enterprise. You talked about some of the elements that you think are driving that trend that we've seen for a couple of quarters now. Could you give us a sense of how much visibility do you have? I mean, is it just a couple of quarters at this point or is it longer than that? Trying to get a sense of the sustainability. And a really quick follow-up for Glen. On the IFRS 16 impact, we have a sense of what the annual number is. Was Q1 -- Q1 sort of over or under-indexed, what would be sort of 25% of that, or -- just wanted to get a little bit more clarity on the underlying growth rates.
I'll answer the -- no, 25% is reasonable for the quarter. As I said, 3% for the year and the quarters, although there will be one side or the other at 3%, it's not material. First quarter was not over-indexed or under-indexed.
I can't hope myself it is just me, but free cash flow tells the whole story anyway for everyone, as you all know. It's all there, right? So that's the -- on the enterprise side, I think we've had, I want to make sure if I've got it right, 3 quarters of feeling pretty good about that business, some strength. But I have to be honest with the investors, it's a little bit -- it's very hard for us to say we now see a trend. If my team from Business Markets were on the call, they're feeling more positive about the business. Even this quarter, as we get into the second quarter, I think they're feeling like they've got some momentum. But it's really, really hard to say we have something we can trend into the business yet. And so -- and that's being as transparent as I possibly could be on the file. There's definitely some underlying strength. I would say our team's been together -- now, this group that's running that for a number of years, and we think they're executing very well competitively in the marketplace. We like to think there may be taking some share, which is a challenge given our share, but we think that that's also benefiting the Company overall in terms of what they've been doing. Sorry, I don't have any more on that. I apologize, but that's really as far as I can go because we're like you wait and see if it continues.
Okay, great. Laurie, in the interest of time, this will be our last question.
The last question is from Drew Reynolds from RBC.
Thanks for fitting me in here. Just on -- maybe a question for you, George. We've talked a lot about the ABPU growth and growth expectation for the year. On postpaid market expansion just for the industry, relative to the 1.5% or 1.6% that we did last year and frankly after 2 years of pretty good growth and 2 years of not so good growth prior to that, just wanted to get an update on your expectation for '19 and '20 and kind of changes in the moving parts underpinning that.
Yeah. That's a tough one. In one sense, I want to almost turn it back to everyone on the line or the analysts and say what you guys using as your penetration gains for the year is probably what we're probably using consistently as well in our own outlook. I mean, I think some of the questions people have asked about the life cycle of the customers, it's -- we're in it every day and I can't give you much more transparent. Maybe we see improved churn on the year and less activity of flipping and that adds some pretty significant profit for the space. At the same time, last time we saw that dramatic acceleration. We had to be honest on the call and say we didn't see it coming, so -- but certainly, I think people have guidance on the Street on our subs, they work with all the industry and with Thane. And certainly we're not calling off any of what the analysts have been saying that generates EBITDA growth for us. But it's hard for me to go beyond that because frankly it will [indiscernible] quarters by quarters to see.
Great. So on that, thank you for your participation this morning. As always, I'll be available for follow-ups and clarifications later today after our Annual General Meeting. So on that, have a great day. Thanks.
Thanks, everyone.
Thank you.Thank you.
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