© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen. Welcome to the BCE's Second Quarter 2018 Results Conference Call. I would like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos.
Thank you, Donna. With me here this morning are George Cope, BCE's President and CEO; and Glen LeBlanc, our CFO. As a reminder, our second quarter results package and other disclosure document, including today's slide presentation, are available on BCE's Investor Relations web page. An audio replay and transcript of this call will also be made available on our website. However, as usual, before we get started, I want to draw your attention to our safe harbor statement on Slide 2. Information in this presentation and 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. Results may differ materially. We disclaim any obligation to update forward-looking statements except as required by law. Factors that may affect future results are contained in BCE's filings, both with the Canadian Securities Commission and the SEC, and are also available on our corporate website. With that, I'll turn it over to George.
Great. Thanks, Thane. Good morning, everyone. Thank you for joining us. I'll just begin with a quick overview, and then hand it over to Glen. First of all, clearly, we had an excellent quarter in terms of broadband growth from a year-over-year perspective: 154,000 subscribers being wireless postpaid, Internet and IPTV, up 44% on a year-over-year basis, and importantly, all 3 categories had some significant improvement on a year-over-year basis. The 2% EBITDA growth for the company also helped drive a slight margin improvement to the 42%. On the wireless side, we just continue to see strong financials and strong wireless net adds. Of the net adds of 122,000 postpaid are our highest in 18 years in terms of the growth that we saw. And of course, even within that, we achieved some reasonably strong EBITDA growth, and again, a slight margin improvement, albeit the accounting of the industry has changed year-over-year, as everyone knows.Our wireline, good quarter. EBITDA of 1.1%, driven by some strong residential revenue growth, and again, with tight management of costs, saw our margin increased slightly there. They continue to have a margin, at least from a North American perspective, and giving us the headroom for the CapEx program that we have focused on fiber. On the fiber side, the strategy continues to pay dividends for us. External testing from external organization validating that our product is now the fastest in the market. We added about 47,000 new customers through our FTTH footprint in the quarter. And this morning, we announced the next evolution of our fiber product, where, later this month, we'll have a 1.5 gig service available in Ontario, followed by Quebec, Atlantic Canada and then Manitoba. A positive about this is any client who has purchased our fiber product over the last couple of years will not require a change in their modem to be able to just naturally go through an upgrade and speed, and this is part of the evolution of this fiber technology, which really is quite remarkable in terms of the speed, we'll be able to bring to both business and the home. On track for free cash flow growth of 3% to 7% for the year. And with this type of RGU growth, should position us well for our dividend growth model in the 2019. Turning to wireless. I mentioned that wireless net adds, up -- approximately 38% year-over-year, driven by strong gross additions in the marketplace. On the prepaid side, continue to see some improvement there. The Lucky Mobile product is doing what we expected it to do strategically. We also, earlier -- late July, we rolled Lucky Mobile to the remaining provinces in the country. So we're now in all 10 provinces and we would expect our prepaid performance to continue to improve on a year-over-year basis, and as I mentioned before, that's important because we really want to be in this space and it just stops the decline of that revenue in that particular category for us. In the term ABPU, the new -- I guess, it used to be what we call ARPU, the real metric still for people in terms of our subscribers, we saw a 0.6% growth year-over-year. I just want to call out for the analysts that everyone knows we have this large federal contract that we're bringing on board. The contract 6 years has no churn. Excluding the subs in that contract base, our underlying ARPU growth was 1.7% on our traditional business. So basically, in line, excluding that large account, which has, obviously, a significantly different ARPU but a significantly different churn profile. On the network side, we continue to roll out LTE-Advanced services, now at 90%, expect to be at 92% at the end of the year. Turning on the wireline side. FTTH expansion and the TV leadership drove 31,000 Internet and TV net adds in the quarter, year-over-year up 76%. And importantly, on the Internet side, we saw approximately 11,000 Internet additions in the quarter, a seasonally light quarter with the outs from the universities, et cetera. But on the retail side, 13,000 net additions year-over-year, as our wholesale adds declined year-over-year and is not a focus of our business given the revenue profile of the wholesale segment. I mentioned the fiber, 47,000 additions in the quarter. That's up actually 45% year-over-year. So the strategy continues to unfold, as I mentioned, as expected. And we should be at about 4.5 million premises by the end of this year. And we had a really strong quarter from a TV perspective. In our wireline core footprint, we actually saw 7,000 net new TV subscribers. IPTV, up 25% year-over-year; and in our IPTV, of course, is our new product, Alt TV. And also a significant improvement in our satellite business, where our losses improved 33% year-over-year. And in fact, if we exclude our wholesale satellite relationships that we have with one of our telcos in Western Canada, we actually had a 43% improvement in our satellite losses year-over-year. So again, the losses on the satellite business continued to slow as a result of the IPTV footprints generally being completed by the telcos across Canada. We also had this -- we ran a unique wireless trial in some markets, leveraging our footprint in areas that we've not really been competitive in the rural footprint in the past. Had some very positive results, so we are rolling out now to 30 additional rural communities. The great thing here is the fiber that we're building for our wireless network to these towers, we, as a result, can offer a fixed wireless solution into the home as well. The speeds customers will see will be 25 to 50. And these will be markets for us that we might have anywhere from 5%, maybe 10%, 15% market share. And so these rural markets, it's a great solution for us. The test went very well, and so we're going to do 30 additional communities. And you'll hear more about that in additional communities over time, as we think it's a real way for us to get at the rural markets with a fixed wireless solution, leveraging the fiber backhaul that we've put in place that will also obviously help drive 5G in our mobile network going forward. On the media side, we'll continue to have very strong viewership results as CTV, again, continues to be the #1 conventional TV network. TSN is returned to be in the #1 sports network. Our news is leading the country. And overall, we had a very strong results as -- from the World Cup. We also did -- made a strategic call to allow TSN and RDS to be available direct, albeit at $25 direct with a product that is now available also in an over-the-top format, and overall, this business continued to generate significant cash flow for us, but clearly, is under some structural challenges for sure in the marketplace. With that, let me turn it over to Glen.
Well, thanks, George, and good morning to all, and thanks for joining us. I'll begin on Slide 9 with a quick overview of our consolidated Q2 financial results. We delivered another solid quarter, consistent with plan, led by continued strong wireless operating profitability, an improved organic wireline growth trajectory and a healthy contribution from Bell Media to overall consolidated free cash flow. This all contributed to total revenue growth of 1.7%, which drove a 2% year-over-year increase in adjusted EBITDA. Consistent with this growth in EBITDA, as George mentioned, margin also improved, expanding to 42% on a high revenue flow-through, increasing broadband Internet scale, improved wireline business market's performance and disciplined spending on subscriber acquisition and retention, even as the level of competitive intensity remained high throughout the quarter. Adjusted EPS of $0.86 was in line with plan, but down from the $0.89 last year due to the pickup of some operating losses from our minority interest equity investments, which can be variable and lumpy from one quarter to the next. As a result, net earnings were lower year-over-year despite good growth in adjusted EBITDA, which, frankly, is the key factor underpinning sustainable free cash flow generation going forward. Consolidated free cash flow of just under $1 billion was in line with plan for the quarter and reflected a timing-related decrease in working capital as well as the seasonal step-up in absolute dollar capital spending, characteristic of the busier Q2 summer construction period. So all in all, very well-balanced operating and financial results once again this quarter. Slide 10 details the results for Bell Wireless, which we are very pleased with overall. Total revenue increased 5%, driven by continued strong subscriber base growth and a greater proportion of postpaid users in the customer mix compared to last year, as well as an increased sales of higher-value smartphones. In terms of operating profitability, wireless EBITDA was up a healthy 6.2%, while margin increased 50 basis points to 44.2%, reflecting both the higher revenue flow-through with 55% and spending discipline on new subscriber acquisitions and upgrades. This was achieved despite a 4% increase in operating costs that reflected higher product cost of goods sold, driven by more customer transactions year-over-year as well as an increase network operating expense and customer support costs attributable to the strong postpaid subscriber and data usage growth. As we head into the seasonally busier Q3 back-to-school period, our postpaid momentum remained strong, with growth opportunities from our industry-leading LTE-Advanced network, which now covers over 90% of Canadians, a great device lineup and an expanding Canadian wireless market. Let's turn to Slide 11. Looking at Bell Wireline financial results for Q2, you will notice a better organic revenue growth trajectory compared to both the previous quarter and Q2 of last year. Our residential wireline unit is on improved performance trend this quarter, with revenue up 1.6% year-over-year and combined TV and Internet revenue growth of around 4%. In business wireline, the rates of revenue and EBITDA decline improved year-over-year, supported by the cost management actions as well as stronger IP broadband connectivity and professional service solutions growth that benefited from the contributions of the G7 Summit and Ontario election. With increasing broadband subscriber scale, more favorable business market results and relatively stable year-over-year operating costs, wireline EBITDA was up a very respectable 1.1%. This drove a 20 basis point increase in our North America-leading margins to 42.1%, which provides ample operating leverage to fully cover our $2 billion in planned broadband fiber spending in '18. More impressively, I'd like to add that this extensive fiber build-out, which is the largest program of its kind in North America, is being executed at a wireline capital intensity below that of our direct cable company peers. Moving to Bell Media on Slide 12. Overall performance was consistent with industry trends, reflecting a reduction in spending by advertisers on traditional linear TV and ongoing audience declines as viewership continues to move increasingly to online platforms. Total media revenue was down 0.6% on 1.7% year-over-year decline in advertising. This was moderated by revenue generated from the recently concluded 2018 FIFA World Cup and continued steady growth in outdoor advertising. We also enjoyed relatively stable growth in subscriber revenue, which increased 1.9% this quarter, driven by continued CraveTV and TV Everywhere GO growth as well as revenue generated from our new TSN Direct and RDS Direct sports streaming services, George alluded to earlier. Lastly, consistent with the expectations of the quarter, adjusted EBITDA decreased 8.5%, mainly as a result of higher costs for sports broadcast rights, including the World Cup and CraveTV programming expansion. So despite the structural pressures facing the industry, Bell Media remains well positioned to navigate this changing landscape with its powerful brands, market-leading content and consistently strong ratings while generating over $500 million of simple free cash flow annually, which we are redirecting in the strategic capital investments that will support the long-term growth of our business and capital markets objectives. EPS. Slide 13 provides the key components of the adjusted EPS, which was $0.86 per share for the quarter that, as I mentioned, down $0.03 year-over-year. The higher adjusted EBITDA drove $0.04 of EPS growth but was effectively offset by higher depreciation and amortization expense as well as an increased net interest expense. Depreciation and amortization increased $0.03 per share over last year, the result of higher capital asset base, while interest expense was up $0.01, reflecting the higher average level of outstanding debt. Also, negatively affecting adjusted EPS in the quarter, as I mentioned, was the higher year-over-year losses from our minority interest equity investments principally related to MLSE, which, in total, amounted to $0.03 per share. Year-to-date, adjusted EPS of $1.66 is in line with plan, keeping us comfortably on track to achieve our guidance target of $3.45 to $3.55 per share for calendar '18. Turning to Slide 14, on free cash flow. We generated free cash flow of $994 million in the quarter, driven by adjusted EBITDA growth and lower cash pension payments. This quarter's result also reflected higher planned capital expenditures, as I referenced earlier, and a decrease in cash from working capital, due mainly to the timing of payables that will largely reverse out in the back half of the year. With year-to-date free cash flow of more than $1.5 billion, on track to deliver full year growth target of 3% to 7%. We see accelerated free cash flow generation through to the end of the year, giving us significant financial flexibility to support the execution of our strategic capital investment programs within a consolidated capital intensity level of around 17% and higher dividend. To wrap up, on Slide 15. The financial performance we reported in the first half of '18 demonstrates a clear focus on subscriber profitability and price discipline. We continued strong wireless industry subscriber growth ahead -- with continued strong growth ahead and a wireline business that is competitively well-positioned and getting stronger with increasing broadband scale, we see good momentum to take us through to the end of '18 and into next year. Given this outlook, I am reconfirming all of our financial guidance targets for 2018. And with that, I'll turn the call back over to Thane and the operator to begin the Q&A portion.
Thanks, Glen. [Operator Instructions] With that, Donna, we're ready to take our first question.
[Operator Instructions] And the first question is from Phillip Huang from Barclays.
First, a clarification on wireless. George, thanks for the color on the ARPU growth excluding government contracts. I just was wondering how Lucky Mobile is doing and if you expect its growth to be a factor in ARPU growth going forward. And then my question is on the FTTP footprint expansion. You guys seem to be ahead of schedule, having already completed 500,000 of the targeted 800,000 households for the year. Do you think we could -- you could do more than 800,000 households this year?
Yes. Let me do the second one first. No, I don't think we'll be able to get beyond. There's really 2 things. One, the capital on; but two, also, the seasonality. We're really -- as you can imagine, when the spring hits into the summer that we're going pretty hard for, I guess, the U.S. to get to that ground and get pretty hard up here later in the year. So we end up not being able to do as much. So I think we're on track. I don't think we'll be -- referral were to be very small, almost immaterial for The Street to see it. On the Lucky side, yes, as you can see the prepaid is improving with all the provinces not having the product available. It's going to or should turn our prepaid business to not being a drain from a revenue perspective for us, which it has been for many, many years due to a real focus issue for us on postpaid. And over time, of course, as we build the prepaid base up, the strategy there is to do some of that migration to postpaid, which we do think one of our peers has done very well with that and an opportunity for us to do that with the Lucky brand as well. On an overall ARPU base, of course, our mix will change as prepaid would arguably become, at least, a stable portion of our mix. It wouldn't decline on a quarterly basis. And obviously, prepaid subs are a lower ARPU in total.
That's very helpful. Quick follow-up on the wireline side. There's still some neighborhoods in Toronto that are yet to be passed for FTTP. Just wondering if we should think about -- how we should think about the way you prioritize the build through the city?
Yes. So Toronto, I think we're going to end the year, I think, is it 88%? I think about 88% of Toronto 416 should be completed by the end of this year. And then the last 10% really is about getting right of ways approved or one particular condo that might be slow to respond to yes or some of those issues. But I mean, I think from an investor perspective, this whole Toronto completed -- fully completed basically at the end of this year with a little bit of add-on because there's new premises built in the city. The rest are, really, I think we call [ denials ] or areas we just can't get at and those who take 5 to 6 years to sort through. That's the same in every market we go into.
The next question is from David Barden from Bank of America.
Just following up on the Toronto builds for the fiber to the premise. Obviously, this is the quarter where the mass marketing began. Could you talk about how that might contribute to the better video/broadband performance in the quarter? And are we at run rate, you think, in terms of where we are in the Toronto market? And if I could just follow up on this media business. In terms of kind of outlook, can we see this flattening out? And how do we get the World Cup expenses behind this? Or is this kind of a slow trend downwards and is more about playing of defense in that business right now?
Okay. So on the first question, first of all, there's no doubt where we have the fiber footprint when you see almost a 50% addition to our fiber subs on a year-over-year basis. That's helping drive our broadband growth, but without a doubt, helping us drive up IPTV. I mean, for us, a lot of our products are sold that way through a bundle, and particularly now with Alt TV, where it's a basically a product with no set-top box, a different price point than traditional TV because we’re saving a $300 set-top box. We're passing all that savings over to the consumer and now offering those that would not want a set-top box service or something similar to streaming. Every conventional or specialty TV capabilities there in that product. And so you bundle that with the fiber. We think it's a very compelling offer in the 416 core for us. It will be in other markets as well. Particularly here, we have such a strong growth in the condo development area. So actually, it's pulling it through. And then in terms of steady -- in terms of broadband, I mean, there's seasonality in broadband always for all of us and our peers. I mean, the second quarter gets impacted by the outs from the schools, and the third quarter is always one of the stronger quarters. And we would expect that historically to continue, what's happened historically going forward. So it shouldn't be a run rate from this quarter. We should over time see the seasonality pick-up in our broadband numbers. Then on the media business. On the media business, there are -- definitely, we have worked to do on that. And I think we have our consolidated guidance, which is probably what we're going to stick to in terms of an overall comment to that. But we are doing some pretty creative things with Alt TV, which drives media revenue for all of our -- and also our peers because now we're pursuing the non-set-top box marketplace, or OTT, as people would use the term, with an opportunity for our media business than to see growth in subscribers there. You're seeing some of the direct stuff that we've done very carefully with both Crave and with now TSN and RDS. So it's all about readopting that model to that profile to try to turn that business to not be, as you said, in some type of decline on a perpetual basis. And that will be what we'll be working at this year and next year and going forward with that asset.
The next question is from Simon Flannery from Morgan Stanley.
George, you talked about the improvement at the satellite TV business. So is that business sort of rightsized now on a more -- focused on a more rural, is that how we should think about this stabilizing more over time? And then just a quick one for Glen. How should we be thinking about your leverage targets over -- at the next few years with spectrum auctions, et cetera, coming up?
Yes. On the satellite, we haven't agreed with your comment. I mean, there is still some growth in IPTV footprint from us and our peers, but not at the level it was. So clearly, when we have our own internal numbers, it shows how many satellite customers are still remaining in our IPTV footprint and it's obviously now down significant. And that's why you're seeing the stabilization. We're not stable yet, but you're seeing an improvement in the losses of satellite. And we would expect that hopefully to continue. Also, I have to, as I said before, the acquisition a few years ago of Aliant and the acquisition of MTS has helped that business because in those rural markets we were not as strong at selling our satellite services. We are now under the leadership of those teams. So that's helped it as well. And of course, Q2 always gets a little bit of help in seasonality because, up here again, the cottage country opens up and satellite business always gets a little bit of a help. But on the year-over-year basis, no doubt, there's some structural improvement.
And Simon, thanks to your question on leverage. As you've heard me say many, many times before, we're absolutely committed to the BBB high rating that we currently had and are not going to take on any actions that jeopardize that. But we see, over the next number of years, using our free cash flow, to be able to address the current leverage and migrate closer to the stated policy objective. One big thing to remember is the last decade has resulted in over $4 billion of pension injections that we've had to make. And certainly, with the healthy state of our Bell Canada pension plan now, I would see that being not the same type of burden that has been historically. So absolutely committed to the BBB rating -- BBB high rating.
The next question is from Aravinda Galappatthige from Canaccord Genuity.
In terms of wireline EBITDA growth, we see that you are back to sort of positive growth, even on an organic basis. I suspect the number is something close to 1%, even if you exclude AlarmForce. I wanted to explore, George, the possibility or the prospect of getting that growth number up to maybe 1.5% or a 2%. When you think about the sort of improvements you're talking about in enterprise, potentially better subscriber trends, and at least from our perspective, it looks like the promotional intensity in the market in the wireline front is a little less than it was maybe a year ago. And then on top of that, the cost reduction, do you think that, that's a realistic prospect as you look beyond '18? Or are there just 2 main headwinds that would kind of get in the way of that?
Yes. First, thanks for the question. I would not, on the modeling side, model more than the one right now and without giving guidance, but you are asking me about the 1.5% or 2%. There's really -- the challenge still for us is just the mix. We still have significant NAS business, although I do with the analysts and the investors [ tell you all ] at the beginning of the quarter, you want the revenue at the end of the quarter, you're glad you have less than the mix from a numerator, denominator math side. But so clearly, that's the challenge. Our growth profile of our growth portfolio is strong. And then on the other side, I mean, I think it's clear to say the great revenue growth we saw off the traditional linear TV is not at the same level that we would have seen 2 or 3 years ago. And we now have a new competitor in that or new products coming into that space. So our goal here is to be positive on the wireline side because that makes us -- the contribution to the company so significant because of our scale. And I think the fiber strategy should enable us to do that with some tight cost management. But I think it's a little too early to talk about things that happened too in front of it on the wireline side.
The next question is from Maher Yaghi.
George, you mentioned the ARPU looks better if you exclude the contract for the government. But I'm getting about 1% help. You don't provide the postpaid ARPU numbers, but the mix shift that I'm calculating is helping you by about 1% in the quarter. So postpaid ARPU growth is looking to be between 0 and 0.5%. Do you suspect that this should trend higher going forward? And what are the pressures that you're seeing on the business itself that is pushing down the growth in that number in the market? And my second question, on wireline. Can you maybe talk a little bit about your strategy for wireless [ TTP ]?
So on the ARPU, I mean, I think, the way I would describe it, as we said in the last number of calls is, we've said we anticipated about a CPI improvement in ARPU on a year-over-year basis. I think it's fair to say the federal government contract doesn't have that type of ARPU and so we just -- just for the purpose of The Street to give everybody color, we're probably roughly on that number, excluding that contract. That contract is so unique, 6 years of no churn, so very different ARPU profile and subsidy profile than the traditional type of account we would have. So I think that's the way I would answer that and all the mix as a pre-imposed and all that, that's a modeling thing you've been paying to work on. But from an investor perspective, we thought we would see CPI. I guess, I was trying to say underneath that one contract that's roughly what we're seeing. Clearly, the migration to the higher-speed devices and LTE-Advanced, a lot of that has happened in the country. So the type of growth we saw in the last couple of years on ARPU, 2% and 3%, I think we've been pretty clear on that, the last number of calls that, that's not what we anticipate seeing in the marketplace. That's kind of our view there. And so -- and the other question was about the fixed wireless. Yes, so the fixed wireless, as I mentioned, we did some trials in some small markets. The cost of this service now looks quite attractive. Part of it is because we're doing fiber backhaul to all of our wireless cell sites. We wouldn't -- couldn't really offer this fixed service of that fiber there. So now with the fiber there in these rural markets, we can leverage some of fixed product that we did a few trials, and frankly, we saw a pretty significant share in market with very, very small markets. And so we're just going to roll out in these rural markets where we quite frankly don't have an alternative that would be cost-effective, such as even FTTN or FTTH. And so we got a small number being done to 30 communities. We'll see how they go. And if that goes positive, we'll do more and more of those communities. And it gives people speeds of 25 to 50, which is way beyond what anyone's offering in those particular very rural communities now. So more to come on that file.
What's the addressable market in terms of size for that technology in your view?
Yes. I mean, we still haven't finalized it, but probably these people would be safe to think, we have 1 -- 1.25 million households possibly we could get out with this technology. But that's not what these 30 communities do. But we want to learn from the 30. And as we roll fiber out, because obviously we don't have fiber to every single rural site today, that also lends this opportunity for us on the fixed wireless perspective to offer a product that quite frankly is vastly superior than what's available in the market from anyone. And those are markets where we have high satellite share, obviously traditionally local access share, but very, very low Internet share. We, as I said, in some little markets, we were at 3% and 5%. And so we're just now trying to roll that out in these 30 markets, and then we'll come back to The Street with more information as it evolves, but not too much so our competitors don't know everything we're doing.
The next question is from Sanford Lee from Macquarie.
On the Internet and TV sub strength that you're seeing right now, that's good, but what I noticed is that the wireline data revenue is only up 3%, the Q1 '18 data revenue was up 6%. So it sort of seems to suggest that there’s ARPU pressure on Internet or TV or even possibly both. Now that you've got the Ignite TV products just launching out, can you -- and it's early days obviously, but can you give me an idea of what you're seeing as far as the pricing environment on Internet and TV?
Yes. Well, actually, I think you've got to look at last year's quarter, not the Q. We've got MTS in all of those numbers for the last 4 quarters. So that's -- that would be, not having the rate in front me, that would roughly be the [ 6%, 3% ] probably, organic versus not. So that's the first point. On the second, actually, we talked about in, I think, in one of the notes that we talked about 9% -- 4% revenue growth story between TV and Internet. And that would be in those numbers. So highly competitive marketplace. I wouldn't say -- someone had said on one call, "less competitive than other quarters." I wouldn't say that. We think it's pretty competitive because our product is clearly -- fiber is clearly superior than anything in the market and Alt TV is obviously a very creative product, meeting the demands of the consumers. And the upside to that, as you just said we now got some peers in the marketplace who are offering some new TV services, would be competitive. So highly competitive market. I certainly wouldn't say less competitive, but I haven't seen anything in our actual results that concerns us year-over-year, which is a little bit where you were going.
Great. And if I can ask one quick one on wireless. Of the 122 postpaid subs, can you say how many related to the shared services contract in connected devices?
No.
And is there more to come from the government?
Yes, there's actually many more of those customers still sit with our competitor, although I think they say they're not in the subscriber numbers, but they're sitting there not with us. And so this will take a fair amount of time for all these customers to move over. It's a very different type of client. It's a fantastic client to have. It's corporate. It sets us up for wireless solutions that go deeper into the federal government and the most important part of it is what's for us significant and why the pricings so different than other clients, that it really has no churn attached to it. But we're not going to give quarter-to-quarter results on any customer profile. I did call out the ARPU, in fairness to everyone, because I knew we'd get the question for all the analysts on the modeling issue.
The next question is from Jeff Fan from Scotiabank.
Just a quick clarification and then a bigger picture question on media and Internet. On the clarification, George, just on the government Canada contract. Did you say this was a 6-year no churn?
Yes. It should be 6 year, yes. Basically, it's a 6-year contract. Actually, it has renewals after that, but you'll never know if you get them.
Okay. Just on media and Internet-related question. So some of the U.S. operators are now starting to shift their focus to Internet-only services, trying to shift away from the bundle. Just given the vast amount of direct-to-consumer video OTT services that have popped up in the U.S. And I'm not saying that Canada has the same number of direct-to-consumer services, but you're now starting to do some of the direct services like TSN. I guess, my question is really wondering, in a world like that where the market may be going Internet-only, how does that -- how do you look at that from an ARPU per household or ARPA, however you want to define it, that you could get from the household where there is no traditional television services attached? And how that affects the revenue opportunity for the fiber investment?
Okay. So a couple of things. I think, first of all, the underlying strategy of Alt TV is exactly addressing the consumers change in how they want to view video. And the product, of course, is currently restricted to 2 simultaneous streams. So that focus is very, very much on the condominium market or as we -- traditionally people use the term core cutter market or core never market. That's a subscriber where, frankly, the TV product is, as I said, it's, to a customer, the present value savings is about $300 or more over any 24- or 30-month period because the TV product is anywhere from $10 to $20 cheaper. So you're adding Internet plus the video for that for much less cost overall. And that's what we're passing that savings through. So we are expecting a lot of bundled Alt-Internet fiber subs going forward. And so you end up arguably with a different or a lower overall ARPU. But as over -- you're also not providing set-top boxes in your capital program. And so that's really our strategy. And then, of course, we'll continue to be on the linear TV market, which is still significant for us, providing some growth and obviously there are still some additional features on the linear side that we can't fully provide in the OTT world that we don't today.And then on the direct for media, it's just -- it won't make sense. The more important thing for our media asset is to make sure that content and Corus' content and other content is in the successful Alt TV launch because that will drive subscribers to the media business.
So I guess, what you're saying is the Alt TV contribution is as good as the linear TV contribution?
It's -- well -- net-net, it should -- that would be the goal, right? Obviously, we absolutely want to get to that type of number, frankly. Early on, it's more cash flow accretive because we're not putting the cash flow for the set-top box. And frankly, one of the important things in Canada, the average ARPU for Canadian TV has been around CAD 60. That's a lot different than USD 90. And obviously Alt TV below that $60 within that mix, some of the OTT -- linear OTT offers you're seeing in the United States not look any more attractive than what we're offering in Canada with Alt TV. And we think that, combined with fiber, puts us in a great competitive position.
The next question is from Drew McReynolds from RBC.
George, just wanted to kind of touch on residential wireline. Clearly, the battle over time here moving beyond traditional telecom services to more of the smart home and owning the home. Just can you talk to kind of what the road map looks like for Mediaroom and MediaFirst, along those lines? And to what extent does your M&A focus shift here as you kind of look more broadly in terms of servicing the home?
Yes. Well, I think we made the -- as everyone knows, we did the first investment on the securities side, really to give us a platform. I think some people here in the market probably would've seen some of our rebranding there, we're starting to offer some that we call Connective Home services there and that's in early days. That product, combined with our fiber, is really about getting the overall household. In terms of acquisitions, frankly, I think we have our head down pretty focused on the organic assets that we have. I mean, there can be -- as we've said at their small things but nothing of the scale that we've done in the past. If you look at the geography in Canada and what we've been able to put together, we think we're really happy with the portfolio we have. And I don't mean to be -- hopefully, that has helped answers the question.
Yes, that's great, and maybe a follow-up for Glen. Can you just comment what the impact in the quarter was with respect to the G7 and the Ontario election and maybe a bigger picture just on the business market? We're clearly seeing a pretty robust U.S. economy overall, just wondering if that business market you're a little bit more optimistic in and around going forward here?
Yes. Look, we've seen as I said in my remarks, we've seen the turnaround in business and that we're not seeing the same level of decline we've had in the past. And look, as I said before, one quarter does not a trend make, but this has been a few in a row. So we are optimistic that we're starting to see some improvement in the economy. It's playing well. Our business market has done a remarkable job of maintaining the market share that we have. And that's -- despite the pressure on reprice, we're able to manage that reprice better than we have in the past while maintaining the market share. So optimistic that our business performance is going to start to hold. As far as the G7 and the Ontario election, I'm not going to call out specifics. It's obviously -- Drew, it's not overly material in the big scheme.
Well, they're also confidential contracts.
Yes. And we'd still be good -- we'd still be positive there regardless.
The next question is from Vince Valentini from TD Securities.
One clarification, one question. The fixed wireless service you talked about, George. Is that just using your traditional mobile spectrum or you contemplate using some of the higher-up spectrum in the 3.5-gig or millimeter wave bands. And then a bigger picture one, still wireless, would be 5G. Haven't heard you talk much about it. I mean, you obviously have the bigger scale of the business in Canada. You always seem to have a leadership position as you're doing right now with the biggest fiber build-out. Is -- can you talk a bit about their 5G plans? Or do you think of the 5G as just being a dumb hype in the future? Or given your scale, can you start to think about being a leader in generating some of these apps for connected cities and whatever other applications. Can you talk -- is there anything you're doing in the early stages on that?
So on the fixed wireless, we're using -- we suspect from the average, it's a 3.5 spectrum that we're using for that. And because cell sites have, frankly, shrunk so much. And even in these rural markets, it lends itself out with the fiber backhaul to give this an opportunity for us and that's why we're pursuing it. And so that's probably -- to probably cover that now in a couple of different ways, but that's -- it's early days. As we said, it's a way to get to 1 million-plus households with a service that we don't have a strong share on. On 5G, it's interesting. We have done 5G trials. We think we're going to be -- we are the best-positioned telco maybe in North America because every cell site were finished. All these fiber builds we're doing is going to serve as an underlay for our 5G mobile network. We don't think in urban markets 5G fixed will be the same as in the United States because of how deep fiber is going here in Canada between us and our peer in Western Canada who's following out pretty similar strategy. I mean, in the next 36 months, Canada will probably the most fiber-connected country in the world. And so the 5G fixed opportunity at 1 gig is incomparable to today's launch of 1.5 already into the home of fiber. On the mobile side, obviously, absolutely the next evolution of service for us will be 5G. That will be as the handsets and the protocols are set in a way that they're commercially readily available, and then we'll do an overlay of our network with that. And then on the whole area, you're going through is just the whole IoT area. Yes, we think it's a huge opportunity for us with our vertically integrated wireline and wireless business and that will be in our numbers going forward and we'll have more to say as that technology evolves. But we think we've just set our assets up appropriately for that because we think this fiber investment we're making in wireline in one sense is going to make our wireless business, which would have to bear the burden of this, really now it will just be obviously as cross-charged from one end to another.
That's good, George. Just one -- I mean, would you already have in your numbers some investment in not just the network we see what you're doing in fiber and your cell sites, but actually on the software and application side to think about some of those future IoT applications, is that just wait-and-see for standards? Or do you already invest in that today?
We're already investing today. I won't go much further because there's a lot of going on in the company in that space. Starting to see actually some early wins. They're not 5G versus the IoT wins. And probably just not going to go further than that other than when we talk a little bit about some smart city work we're doing, et cetera, in the marketplace. So yes, very, very excited about the opportunity. A lot of strategic work going in the company, all of which, at this point, the only one really interested in this is my competitors, so I'm not going to go any further.
The next question is from Batya Levi from UBS.
Great. One on wireless first. You mentioned that strong momentum continued after the quarter. Can you provide more color if most of those gross adds are coming on the phone side, or tablets and connected devices are very helping as well? And churn remains very well. Can we see any improvement in that? Or this is kind of like a good level to obtain? And maybe a little bit more strategically on the media business. How do you think about that longer term, given that there are some regulatory restrictions to add more scale? Do you think that you need more scale to perform better in that business?
Okay. And so on the mix, I'd say significant amount -- vast majority, almost all did significant postpaid smartphone addition. That would be driving a lot of that volume. The second question, sorry, was about. Yes -- no, the second question.
Churn improvements.
Oh yes, on the -- sorry, on the churn side, frankly, we just like to do better. We think we're working hard every single quarter to try to see those numbers improve. Having said that, as you said, I mean, at 1:1, we're pleased but we want to just keep obviously trying to drive that churn down with our retention programs, but Canada has a structure. That's lend itself to these type of churn numbers, but there are some U.S. carriers doing better than us on that space. We pay attention to it and we want to work to get to those type of numbers over time. And on the media side, yes, we were disappointed in the investment we were looking to make in Quebec to strengthen our position there. But overall, we're actually quiet -- we think our media asset investments give us the portfolio we need to execute there. Of course, also the ownership of our sports team has been nothing but a tremendous investment for us. I mean, our vertically integrated P&L on the sports side is pretty positive because we own the sports teams, we own the #1 sports broadcaster in both French and English. And of course, we're now offering that product as customers want it on even a direct basis. So we think we're well invested on the media side and there's nothing significant there that we need to do, other than now trying to monetize that asset as the market changes with products like Alt TV and Crave in the marketplace.
The next question is from Richard Choe from JPMorgan.
I wanted to ask, how should we think about wireline margins as you finish the Toronto goals? And then longer term, as the fiber build ramps down, where could we see margins go from this 42% level that you've been very consistently posting?
Thanks for the question, Richard. I -- we probably wouldn't change where we are now not only guidance on margins, but the challenge obviously on the margin side for us is the local access line decline. We still have a base there, and everyone on the line, the analysts and the investors would know the margins on those historically. The offset is when you put in broadband in, the margins are very high there, too. But of course, the CapEx is significant. So to do much better when we look at the global wireline margins, it's almost hard for us to assume a forecast. We'll obviously be working to try to improve it. On the cost side though, I think it's fair to say, as you are now indicating, when we roll out the fiber we will ultimately see savings because the truck roll cost will drop, simply because fiber requires less repair work than the traditional technologies that we leverage. But I'm not probably prepared to say the margins are going to get even better. I think we saw a little increase this year, also the synergies of the MTS deal and what we do with Bell line have clearly helped us overall to hold these margins as we've seen the local access decline.
And as a quick follow-up. In terms of the OpEx, in terms of the build-out costs, that will eventually go away, but it's going to probably take some time. But when it does...
A lot of the cost right now are in the capital cost, right? So much of this is the capital to connect to the home. There's no doubt on the -- even on the modems, like those type of devices, right, a lot of that is caught in our capital not as much in the OpEx. But there is clearly -- I think we've talked before. We are hoping over time to see a 5% operating cost savings versus our traditional broadband to fiber. But we need to continue to get the scale that we're now getting to really see that benefit. But there's no doubt, where we have fiber, there are less truck rolls, which is going to ultimately save us money. Frankly, the work becomes in the home, not out of the home now because some homes just don't have the capability for this type of speed based on what the wiring they may have in their house.
There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Fotopoulos.
Thank you, Donna. So before we sign off, I just want to thank everybody for their participation and interest in BCE this morning. I'll be available throughout the day for any follow-up questions and clarifications. And with that, thanks to all. Have a great day.
Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.