© 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 Q4 2018 Results and 2019 Guidance Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos.
Thank you, Valerie. Good morning to everyone. With me here this morning are George Cope, BCE's President and CEO; as well as Glen LeBlanc, our CFO. As a reminder, our Q4 results package, 2019 financial guidance targets and other disclosure documents, including today's slide presentation are available on BCE's Investor Relations web page. However, before we get started, I want to draw your attention to the 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. For information -- additional information on such risks and assumptions, please consult BCE's safe harbor notice concerning forward-looking statements dated February 7, 2019, that is filed with both the Canadian Securities Commission and with the SEC, and which is also available on our website. These forward-looking statements represent our expectations as of today and therefore are subject to change. We disclaim any obligation to update forward-looking statements, except as required by law.So with that done, over to George.
Great. Good morning, everyone. Thank you for joining us. I'll just start on the presentation, give you a quick overview and then turn it over to Glen.Certainly, we ended the year on a positive note with all 3 of our operating segments reporting revenue growth and importantly, EBITDA growth across the 3 groups.From the wireline perspective, the 2.4% revenue growth being our strongest organic revenue growth in over 10 years, they're driving the 1.3% wireline EBITDA growth, and our growth in market share of Internet and IPTV combined with net adds of 11% year-over-year.On the wireless side, I thought it was a balanced quarter with 143,000 total postpaid and prepaid net adds, generating the revenue and EBITDA growth we've reported this morning. I think one of the highlights of the quarter on top of the wireline revenue growth was the media's financial performance, up 1.9% revenue and adjusted EBITDA growth of 2.9% and generating free cash flow growth in the quarter.Turning to the next page, just stepping back and looking at the year. I think it was a very positive year from a broadband perspective for the company. Approximately 700,000 subscribers added during the year, up 32% year-over-year; excellent wireless growth with 480,000 net adds, up 44% year-over-year. Of course, a large part of that driven through the change in direction or trajectory of our prepaid business from negative to positive with the launch of the Lucky brand. And the fiber rollout continues to benefit us with 219,000 Internet and IPTV net adds in the year, up approximately 12% and about 233,000 additional customers now on our fiber footprint, up 40%. So some, obviously, strong growth numbers for the year in our investment thesis that we put in place a number of years ago starting to pay off with some broadband growth across all segments.We turn to the wireless business, good quarter, 122,000 postpaid net adds. Just for investors, it is worth noting that we did lap the federal government in the fourth quarter. So there were some net adds last year in the fourth quarter as there were this year where the other quarters would have had no federal government net adds from a year-over-year comparison. So pleased with that relative to our largest peer. Postpaid churn coming down 9 points, obviously, a valuable metric for us. Prepaid having its second positive quarter in a row and clearly, we took market share in that segment, and importantly, for us, as I mentioned, just taking what's been a negative revenue growth story for us for a number of years and turning that into something that's positive and adding a little bit of subscriber growth and giving us the ability to migrate over time some of those customers to postpaid.We continue to maintain the highest ABPU in the industry. Worth noting, if we take out the federal government, we were up slightly 0.3% in the fourth quarter on our average revenue, I guess, ABPU now the term that we use for the quarter.Overall, for the year, the EBITDA growth and the margin of 42.3% combined with the capital intensity ratio of under 8% is obviously driving significant free cash flow margin and quite healthy free cash flow margin for the company, enabling it to invest as it is in the fiber network and our LTE-Advanced network.Take a look at our network for next year, 2019, on the wireless side. We'd expect to end 2019 at around 94% of the country covered with LTE-Advanced, providing Canadians and 60% of the population speeds of up to 750 Mbps, but enjoying typical speeds of 222 megabits, which is really, as everyone know on the call, incredible from a wireless perspective by any global standard.On the 5G side, we continue to do trials and continue to prepare ultimately for the launch of 5G mobility. So make a couple of comments from a supplier perspective. There's a lot being talked about these days. Huawei has been a supplier in radio access layer for 3G and 4G mobile networks for a number of years with, of course, Canadian government's support. We do not use Huawei's network in our core. As everyone knows, the government is conducting cybersecurity review on whether to permit the continued use of Huawei equipment for 5G. We clearly recognize the issues at play, and we'll manage those appropriately going forward and, of course, follow the law.For investors, important to note, we've made no selection yet of our 5G vendor. And if there was a ban or we chose a different supplier than Huawei for 5G, we're quite comfortable all those developments would be addressed within our traditional capital intensity envelope and therefore, no impact from a capital expenditure program outlook. And nor do we think whatever the outcome is, wouldn't in any way impact our timing in the market for 5G.The other point I want to draw out is our wireline fiber investment continues to truly benefit our wireless business, that's why you're seeing capital intensity levels at historically low levels for us now and our expectation for 2019 at approximately 7%.At the end of '19, 85% of our combined urban and now rural cell sites will also have fiber backhaul in place, nearly 90% of our capacity will have fiber backhaul, and we think that positions us well against any competitor in the Canadian market perspective in terms of network, quality and speed. Turning to wireline. We added about 65,000 new fiber customers in the fourth quarter, 1.2 million at the end of the year in total. Pleased with the Internet adds of 33,000, retail up 15% year-over-year. I mentioned in the last quarter and I'll mention again this quarter, we're not focused on the hotel segment. The revenue stream and the profitability of that stream is really not worth pursuing strategically. It's a regulatory obligation we will meet, but it's not a strategy of the company.On the TV side, 36,000 net adds, up 12%. Clearly, Alt TV, our streaming TV service, that is -- does not require a set-top box is available and a maximum of 2 streams is clearly helping us drive some additional TV and Internet pull-through growth with 14,000 overall TV net adds up in our wireline footprint. So up 27% year-over-year.And there's a number of highlights from our product perspective we'll pursue this year that you can see on the page, which makes us quite excited going in the next year that our leadership in broadband in the marketplace and our investments will continue to help grow the company.If you take a look at our wireline footprint, on the next slide, really pleased with 2018. Many investors will recall that we had a target to add 800,000 to our footprint from a fiber perspective, in fact, we got closer to 900,000, still within the same capital envelope we'd had, so really pleased with that outcome. For this year going forward, we were targeting 700,000, that includes our fiber and our Wireless to the Home program. Again we'll hope we do better than that, but that's what our current plan would show and over to our engineering team to try to exceed that and do within the same cost envelopes.We will surpass our fiber milestone this year, and we'll go over 50% of our fiber footprint completed, which, of course, is a part of our long-term strategy, which is to continue to grow our broadband share. And I want to announce also this morning that we've decided to take our Wireless to the Home program up from 800,000 homes, was the plan, to 1.2 million and that is really a 50% increase and that is particularly driven by the recently announced Canadian government program, which allows for an acceleration of our capital cost allowance, helping us out from a tax perspective, which Glen will talk about, and us then reinvesting that capital in rural markets where we one, that we're underserved and secondly, we think represented a significant market share opportunity for Bell, wherein those markets, we'd be anywhere maybe as high as 15% shares and sometimes as low as 5%.So that rollout will continue. It'll be much more significant as I mentioned. For next year, for the analysts, it will continue to be the 200,000 households with 28 communities getting an access to that new service.On the media side, I mentioned, best quarter for us in a number of quarters. Fourth quarter of '16 was the last time we saw these numbers, driven by a great growth in the last year. And a bit on our sports network side, we returned to being the #1 sports network in the country. So really nice growth metrics. Our investment in the Raptors are certainly paying off, not just in winning, but in ratings, where the ratings are up 71% year-over-year.We're also really excited about the relaunch of Crave with 2.3 million now linear and direct customers on that service. For our American friends, our investors on the phone, it's really a quite unique product at CAD 20, you have access to HBO, Showtime. You can stream Game of Thrones or any other product, or you can get it through a traditional TV provider. At CAD 20, we think it's quite frankly the best -- one of the best, if not the best, SVOD service in the world in terms of what's available from a content perspective, and we're seeing some nice early growth on that as well.Just want to call out, not talk about much, our out of home business that we also own just had a strong quarter, mid-single digit growth from a revenue perspective. We are now the second largest outdoor advertising company in the country with over 31,000 advertising faces, and we are growing our digital footprint. And digital advertising outdoor, of course, is excellent for us from an integration perspective because all that backhaul required for that, of course, runs on our own infrastructure.Turning to the dividend announcement this morning. Obviously, really pleased. Management is very pleased, again, to announce a 5% dividend increase to $3.17 per share. It's our 11th consecutive year of a 5% or higher dividend increase. And again, that will be done within our payout ratio -- targeted payout ratio of 65% to 75%.Glen will comment on this, but I just want to call it out that we got all these changes in accounting rules. If you were to ignore those changes in accounting rules, we're probably close to the high end of that payout ratio. And if you take the new IFRS 16, we're kind of in the midpoint of that payout ratio, either way we're within the bounds of the payout ratio. It's a 53rd consecutive quarter of EBITDA growth, and of course, that's given us the ability to announce this dividend increase this morning and the financial results that we've just reported on.Let me turn it over to Glen.
Thank you, George, and good morning, everyone. I'm going to begin on Slide 13, with a review of the consolidated results. The fourth quarter capped off another successful year financially with growth in revenue, EBITDA, adjusted EPS and free cash flow in line with our guidance targets for calendar '18.Revenue was up 3% in Q4, reflecting strong year-over-year organic growth across all segments. This drove a 2.8% increase in adjusted EBITDA with a relatively stable year-over-year revenue margin as we balance subscriber growth with pricing discipline in an intensely competitive marketplace.Adjusted EPS increased $0.07 over last year to $0.89 per share, mainly the result of higher EBITDA and a pickup of some equity income. However, Q4 statutory EPS was down year-over-year due to a $190 million of noncash impairment charges of Bell Media related mainly to its French language specialty and its pay-TV properties. This was to reflect revenue pressures from ongoing audiences and subscriber declines. Lastly, we generated over $1 billion of free cash flow this quarter, bringing total cash generation for 2018 to approximately $3.6 billion or 4.4% higher year-over-year.This exceptionally strong growth we saw in Q4 was the result of a planned decrease in capital spending, lower cash taxes paid due to the timing of some income tax installments as well as a favorable reversal of working capital from Q3, driven primarily by the timing of customer receivable collections.Let's turn to Slide 14 and Bell Wireless. Overall, a good set of financial results once again this quarter reflecting our consistent disciplined focus on subscriber profitability and cash flow generation.Total revenue was up 4.6%, driven by continued healthy subscriber base, growth in a higher proportion of postpaid customers choosing plans with larger data allotments as well as an increased sales of more expensive smartphones compared to last year. In terms of operating profitability, wireless adjusted EBITDA increased a very solid 5.1%, while margin was up 10 basis points to 39.5%. This was driven by a combined impact of the high revenue flow through to EBITDA and spending discipline on both new postpaid subscriber acquisitions and customer upgrades during the seasonally busy holiday period.Turning to Slide 15, revenue growth accelerated to 2.4% in our wireline unit, driven by a positive top line growth across all of our wireline units.This result represents our best organic quarterly performance in more than a decade. Residential revenue was up approximately 2% year-over-year and combined top line -- on combined top line Internet and TV growth of around 4%.In business wireline, Bell Business Markets reported a second consecutive quarter of positive revenue growth on the back of higher IP broadband connectivity and professional service solutions revenue as well as a higher year-over-year data product sales to large enterprise customers, all of which was indicative of a better economic growth trends in the quarter.With steadily increasing broadband scale, improved business financial performance and the flow through of cost savings realized from workforce reductions and other productivity improvements, wireline adjusted EBITDA increased a healthy 1.3% in Q4, however, due partly to stronger year-over-year growth and lower margin product revenue this quarter, our wireline margin decreased by 50 basis points to 40.3%.In terms of cash generation, Bell Wireline provided a strong contribution to consolidated free cash flow in 2018, delivering growth in adjusted EBITDA less CapEx of 2.9% with $2.1 billion of simple free cash flow generated, our higher year-over-year fiber capital spending was fully supported.Turning now to Slide 16. As George mentioned, Bell Media had its best financial results in 2 years, delivering positive revenue, adjusted EBITDA and simple free cash flow growth in Q4.Total revenue up 1.9%, driven by 2.8% growth in advertising. Advertising revenue increased year-over-year on stronger specialty TV entertainment and sports performance that reflected audience growth and higher advertising rates, improved conventional TV ad sales from a strong programming line up as well as higher year-over-year Out of Home advertising and digital growth.Subscriber revenue was essentially flat year-over-year as pay-TV subscriber declines were offset by growth in our direct-to-consumer Crave and sports streaming services.Adjusted EBITDA grew an impressive 2.9%. This was achieved despite operating cost growth of 1.7%, driven mainly by sports broadcast rights and ongoing Crave programming expansion.With that, I'll leave my comments on 2018 and move on to 2019.Our 2019 financial guidance targets are summarized on Slide 17. These targets have been prepared in accordance with IFRS 16 accounting standards and take into consideration our current outlook as well as our 2018 consolidated financial results, which will not be restated to reflect the application of IFRS 16.For those of you who are not familiar with IFRS 16, it is the new accounting standard for operating leases that became effective January 1 of this year. Going forward, many operating leases will now be recognized on the balance sheet as right-of-use assets and debt similar to capital leases with related expenses recorded as depreciation and interest expense, rather than operating costs in the P&L. As a result, adjusted EBITDA is positively impacted, revenue is not affected.Over the term of the lease, the total expense recognized under IFRS 16 will be equal to the previous accounting standard, of course, however, the timing of the expense recognition will change. Under IFRS 16, interest expense will be higher at the beginning of the lease term and decrease over time as the liability decreases. Accordingly, the per lease expense is now more front-end loaded, resulting in a negative year-over-year impact on net earnings and adjusted EPS in calendar '19.Regarding the impact on reported free cash flow, the portion of the operating lease payments relating to the principal will now be recorded as a finance activity below free cash flow. However, the imputed interest component remains in free cash flow. As a result, the absolute dollar impact of IFRS 16 on free cash flow is lower than the noncash benefit to adjusted EBITDA.On consolidated 2019 financial guidance, our consolidated 2019 financial guidance targets are underpinned by a favorable financial profile for all 3 operating segments building on the operational progress we've made in 2018 and reflecting our consistent and disciplined financial execution in a competitive marketplace. With healthy projected adjusted EBITDA growth contributing to higher year-over-year free cash flow generation, our financial foundation remains stable and strong, amply supporting a consolidated capital intensity ratio of approximately 16.5% for '19 as well as the 5% increase in BCE's common share that was announced this morning.Slide 18 provides some perspectives on our revenue and adjusted EBITDA outlook for '19. We are targeting consolidated revenue growth of 1% to 3%, which is consistent to our 2018 financial guidance, when normalizing for MTS one quarter of incremental financial contribution last year.This is predicated on our expectation for continued healthy wireless subscriber base growth further Internet and TV market share gains, driven by our ongoing expansion of our FTTP and rural fixed wireless broadband footprints and higher residential household ARPU.We also anticipate a narrowing of the wireline business revenue declines on the back of higher telecom spending by large enterprise customers as GDP growth strengthens.On the media front, we expect revenue trends to stabilize despite the nonrecurrence of the revenue from the 2018 FIFA World Cup and no simsub for this year's Super Bowl broadcast. We also expect to benefit from the continued growth in Crave and our Out of Home advertising as well as the recalibration of media spending allocations by advertising towards linear TV, given its broader and more targeted customer reach.With respect to adjusted EBITDA, because of the continued strong wireless and wireline operating profitability together with savings from a number of cost-containment initiatives, we have outlined our Q3 results call -- as we outlined in our Q3 results call in November, we are projecting adjusted EBITDA growth of 5% to 7% for calendar '19.As I referenced earlier, this growth range reflects the favorable noncash impact from the application of IFRS 16.Excluding IFRS 16, consolidated adjusted EBITDA growth for 2019 is projected to be in line with BCE's historical average growth rate of 2% to 4%.Turning to pension funding on Slide 19. We made a $240 million voluntary contribution in December, mainly to align the funded status of several of BCE's subsidiary to provide benefit pension plans with the strong solvency position of Bell Canada plan and to substantially reduce the use of letters of credit for funding purposes.With this contribution, together with the higher solvency discount rate at the end of '18, reflecting an increase in government bond yields, the average solvency ratio across the aggregate of all BCE plans is now essentially in a fully funded position right around the 100% mark. Given the strong valuation position and the market's expectation for higher interest rates going forward, no additional voluntary pension cash funding is currently anticipated for 2019.As for BCE's total normal course pension -- cash pension funding for '19, that is expected to remain stable year-over-year at around $375 million.As for the Bell Canada plan, continues moving -- it continues moving closer to a surplus position of over 105%, at which point, a contribution holiday can be taken on the annual current service cost. That opportunity to reduce BCE's annual cash pension funding of up to $200 million is becoming more and more tangible.Moving to our tax outlook on Slide 20. The statutory tax rate for '19 remains unchanged at 27% while our projected P&L effective tax rate of approximately 25% reflects lower year-over-year tax adjustments totaling around $0.02 per share. We also expect cash taxes in 2019 to be maintained at roughly the same level as '18 at around $650 million to $700 million.This stable year-over-year outlook reflects the benefit of $100 million in additional MTS-related tax losses this year as well as the tax savings of approximately $75 million enabled by the new federal government investment incentive program that allows for accelerated expensing in capital expenditures.As a result of that program, we anticipate to generate savings in the range of $100 million to $200 million annually for the 4 years following '19, which should help to significantly moderate the expected increase in cash taxes during that period.Slide 21 summarizes our adjusted EPS outlook for 2019, which we project to be $3.48 to $3.58 per share. This includes a negative noncash impact on earnings totaling approximately $0.05 per share due to the difference between previously recorded operating lease expense and the timing of depreciation interest expense under the new IFRS accounting standard for operating leases as I mentioned before. Excluding the financial impact of IFRS, adjusted EPS is expected to grow approximately 1% to 3% in '19.BCE's free cash flow for 2019 is projected to be in the range of $3.8 billion to $4 billion. That represents year-over-year growth of 7% to 12%, reflecting a flow through of higher EBITDA as overall capital expenditures, pension funding and cash taxes remain relatively unchanged year-over-year.As I stated earlier, this growth range reflects a favorable noncash impact from the application of IFRS 16 net of the incremental interest component related to the newly designed capital leases as the portion of the lease payments relating to the principal are being recorded below free cash flow and finance activities.Excluding IFRS 16, free cash flow growth is expected to be consistent with our 2018 guidance range of 3% to 7%, which fully supports the 5% common dividend increase for 2019 at the high-end of our target payout ratio of 65% to 75%.Lastly, on Slide 23, a quick update on our balance sheet and cash resources heading into '19. As we begin the year, we have access to $1.8 billion of liquidity together with a capital structure that provides good overall financial flexibility to execute on our 2019 business plan and our capital market objectives.Our strong investment-grade credit ratings all have stable outlooks and our debt -- our net debt leverage ratio is projected to improve gradually over the next several years with steady growth in EBITDA and applying excess free cash flow to net debt reduction.Our leverage ratio in 2019 will reflect a onetime negative impact of approximately 15 basis points due to the adoption of IFRS 16 as we added approximately $2.3 billion of capital leases to net debt on the balance sheet on January 1.As a result of this IFRS 16 impact, we are increasing our target net debt leverage ratio policy from the previous 1.75 to 2.25x adjusted EBITDA to now 2.0 to 2.5x adjusted EBITDA. This range better aligns with our BBB-plus credit rating and is consistent with the target ratios of our direct peers. Our interest coverage ratio is unaffected by the adoption of IFRS 16 and therefore remains unchanged.Also highlighted on the slide is BCE's favorable long-term debt maturity schedule that now has an average term of 11 years and a historically low average tax cost of public debt of just 3.1% and no debt refinancing requirements in 2019.Finally, I would like to add that BCE's approximately $1 billion in annual U.S. dollar expenditures have been fully hedged into 2020 effectively insulating our free cash flow exposure until that time.To conclude, BCE's fundamentals and competitive position are strong as evidenced by our 2018 operating results. In 2019, we intend to build on that progress consistent with our financial guidance targets we announced today.And with that, I'll turn the call back over to Thane and the operator to begin the questions period.
Thanks, Glen. So before we start the Q&A, to keep the call as efficient as possible, given the time we have left, I ask that you ask one question and one very brief follow-up to ensure we get to as many people as possible. So with that, Valerie, we're ready to take our first question.
[Operator Instructions] Our first question is from David Barden with Bank of America.
Maybe just on the fiber buildout, George, I guess, now you've gotten to 50% coverage. Kind of what is the cadence of the incremental expansion that you see and kind of the capital that you're willing to put to work on the fiber side of that build? And then just as a follow-up, kind of have you seen any kind of effect from the Ignite TV rollout in the marketplace? And how it's affected your kind of go-to-market approach?
Okay. Sure. So on the fiber side, our overall program for '19 is pretty much consistent with '18. I think we called out on, I think, it's Slide 9, I forgot the right slide there, Thane. At about $2 billion a year that does include part of the wireless to the prem buildout as well, although on a cost per home not as significant as fiber in terms of the build. The cadence, we obviously don't give guidance out for the year after year after year, but the fact you look we're doing 500,000, hopefully little better on fiber the next year and a couple hundred thousand on wires. I mean, it would be probably a safe thing to moderate that into some type of model. We're just -- now they're over the 50% number. Everybody can do the math on what 0.5 million means. We get further and further into that footprint being -- to starting to touch some of the rural market ultimately and that will have the Wireless to the Home. If you take our total chart there, it shows our FTTN or FTTH in our wireless footprint at 9.8% as of the end of '19, and if you were to roll out on top of that another 800,000 -- sorry, another 1 million wireless to the home premises, you start to get our footprint being fully competitive as we overlay the FTTN with FTTH. So hopefully that gives people a sense of where we are. And we don't think you're going to see acceleration in that program. We think it'll be consistent over the next while and that's why when we mentioned on the call last quarter, the mix issue of wireless being more of our business and the stable wireline has allowed Glen to give some guidance a little more precise on capital intensity and roughly 16.5% this year, which The Street will know slightly different than where we've been historically.
And George, just on the Ignite TV?
Oh, yes, sorry. On Ignite TV, in the marketplace, competing with us, we would say, it's a competitive market there. Clearly, that product had some success in the U.S., so it's going to keep us on our toes. But we're pleased with our TV results and we're just going to have to compete with that in the market. We're really confident. We think the one place where we maybe slightly different on that approach is our Alt TV product being also product without a set-top box saving us the cost there, so we can sell it at different price, focused particularly in the condominium markets where we now have fiber and 2 streams and that's probably a little more of our competitive focus as well as our IPTV traditional business competing against Ignite. So in the marketplace, what clearly the results show maybe not as a dramatic impact yet, but I'm sure they're competing with us every quarter.
Our next question is from Phillip Huang with Barclays.
I wanted to ask about your wireline growth outlook, just given the best organic growth in 10 years in Q4. Obviously, your ongoing expansion in fiber and fixed wireless footprint is going to be very supportive of that growth. There is also contribution from the strength in Bell Business Market and product revenues, which I assume to be potentially lumpy, so just trying to assess if the strong growth in Q4 is an indication that business is entering a period of faster growth? Or should we still assume that the growth would be more consistent with the prior couple of years for now?
Yes, it's a great question. And giving a very precise answer, we'd love to give you exactly. Obviously, we are very pleased with seeing a couple of quarters on the wireline side of this type of revenue growth and flowing through to little better EBITDA growth than we would've told you a few quarters ago on the wireline side. And so the guidance is the overall guidance, so I don't want to go down that range other than to say, BBM is clearly doing better in the marketplace, whether -- it can be economics and market share, we're not sure which of the 2 completely, but certainly, it's a more positive view. And if that were to continue, then the wireline business does end up, obviously, in a stronger position. But 2 quarters doesn't make for a long-term model. So we just got to keep executing, and I hate to do this to you, but frankly, it's just all within our overall guidance. But to be complete -- finally, to be transparent, we're very pleased to have that type of top line wireline growth and it was above our expectations for a couple of quarters.
Right, I appreciate that. And just a follow-up on the fixed wireless broadband expansion. I was wondering if you could talk a little bit about some of the areas that you've deployed the technology already, and if there are any early indicators of customer adoption or feedback to the product itself?
Yes, it's very early. We've done a few markets and in those markets, one was to make sure we really understood the cost of the technology, the line of site, that it was going to do we wanted it to do, that we could use our mobility sites and also get the backhaul in place to the fiber because you got to have the fiber backhaul, but in those markets we launched, it was enough to convince us to have this type of a dramatic change in our approach to take it from nothing to 800,000 and now with the accelerated capital cost allowance to 1.2 million. And in those markets, as I mentioned, some of those markets we had 5% Internet share and some markets we'll be 15% and we saw not huge absolute numbers, but we saw households move to Bell we haven't had in a while, you combine that with our satellite and if someone has local phones still, then it gives us a packet we've not had because suddenly people are getting speeds that frankly they -- was just not available on those markets. And so it's got us making this investment. We think it's a great way to grow our competitive footprint. And if we're in markets where we're under 15% share, if we can take that number up, obviously, that's going to be good for everyone here on the line who is an investor.
Our next question is from Jeff Fan with Scotiabank.
First question is on wireline. So the revenue number was definitely stronger than expected. I was wondering if you can comment a little bit on the margins with respect to wireline, as we look a little bit forward and how or whether cost cutting, if any, I think, you're going to start to, should we start to think about that as a key contributor to 2019? And then the second question is on the wireless side. Great churn numbers, but I think we're seeing some moving parts compared to last year given the competitive activities that happened in Q4 '17 with the promos. I'm wondering if you can talk a little bit about some outlook with respect to how churn and ARPU and adds may look for 2019 because I think we are, at least it seems like based on the results that we've seen so far and I know Telus is going to report next week, but it just feels like there is a little bit of moving activity in wireless more so than what we seen maybe in the last couple of years?
Okay. Great. On the margin side, I think Glen called that out that...
Yes, wireless margins, look -- excuse me, wireline margins, if you look at the calendar year, Jeff, was very stable. They move around in this quarter, it was down a little bit, you have -- we had higher volume of product sales and as was mentioned earlier in the call, they can be lumpy. As we look forward, we see stability in margins, and I think 2018 is quite indicative of what we see go forward. Cost initiatives and cost efficiency, that's just part of what we do and execute on every year.
Yes. So not really a subtle change there. And then on the wireless side, I think it's an overall question, I mean, for the company. Certainly, this year's fourth quarter, we're happy with the net adds, happy in terms of the swing on the prepaid and overall. Clearly, last year's fourth quarter had a bit of a unique happening in the marketplace and some of that share moved our way against one of our largest competitors in a pretty dramatic way. But to us, like as I said, a little more normal quarter, I guess, is what I would say in terms of that. And that's in our results. From a churn perspective, we saw a decline year-over-year, and we'll see how that unfolds as we go forward. And the issue on the ARPU, as we mentioned, I think people have seen the flattening of our ARPU here versus ARPU growth and that is frankly reflective of the competitive intensity that we've seen in the marketplace. And then on the wireless free cash flow, obviously, the fact that our capital intensity is significantly below, certainly, a few of our -- one of our peers gives us, I guess, we think, the investment horizons that we need to keep generating the free cash flow growth for shareholders on the wireless side. But clearly, the 4 players are building out, the more competitive and that's why we're going into other segments as well to try to pick up revenue and obviously making significant investments in IoT opportunities, that will be, as I've mentioned before on calls large volumes of units and very small incremental dollars, but all adding up to something that help us on the cumulative front over time. Don't know if that helps to answer or not, Jeff.
Our next question is from Simon Flannery with Morgan Stanley.
This is Landon Park on for Simon. Just wanted to quickly touch on the ARPU outlook on both the wireless and broadband sides. And if maybe you can also just talk about how we can think about Crave profitability and penetration as well?
Okay. So on wireline ARPU, as people migrate to higher speeds on the broadband side, we would continue to anticipate to see ARPU growth in that space because it's the mix of clients moving to 1 gig, 1.5 gig generates for us some incremental ARPU growth on that product portfolio. On the wireless side, as I've said, we've seen -- we saw flat really on a year-over-year basis, and so now for us, one of the -- Thane will get into this later on with the analyst community, but, of course, as prepaid grows as a mix of ours, there's a denominator-numerator math there, but we're just -- we're not going to forecast ARPU, we're basically giving you our guidance on the consolidated basis, and we're just going to have to see because it was pretty hard to predict last year up and down in terms of what was happening competitively. And we do -- as Thane just handed me a note, so this wasn't my idea [indiscernible], but we are lapping the government of Canada contract this year as we get into the -- later into the year, which will...
When should you start fully -- when should that start rolling off in the year?
Probably as we get into second quarter -- second half, second half, I was just told, second half of the year. And so the other question was?
Crave TV profitability?
Right. Yes. So on Crave, the consolidated Crave is profitable because we've obviously combined it with our - we've now combined with our linear business and OTT business, repackaged for our traditional linear TV subscribers and this OTT product and the OTT product at $20, whether are you on a TV subscription or over the top provides us a profitable business model going forward and obviously, our goal here is putting these -- some of this content that traditionally was only available through linear and not over-the-top, we think will also help us improve our mix of over-the-top subscribers, which for us, of course, add more profitability to BCE overall because the margin stays within the house that are 100% on that side. So now it's just about subscriber growth. But it's been well received in Canada at CAD 20. It's quite a product and an amazing content having obviously the HBO and Showtime content in it. So -- and now it's about growing subs there.
Our next question is from Aravinda Galappatthige with Canaccord Genuity.
George, I wanted to ask you about sort of your early experience following the GTA fiber-to-the-premise rollout. Obviously, you started sort of with more active marketing around it around April, May last year. Can you just talk a little bit about the market share shifts that you were seeing there and the competitive counteractivity. I suspect it's fair to say that much of the gains from that -- from the enhanced product is still ahead of us. But I was wondering how you kind of saw the initial months in terms of market share shifts following that rollout?
Well, overall, as we mentioned, retail wise, the back half of the year we had growth in overall net adds. We think that is -- we know it's 100% driven by our total fiber footprint. In fair, it is not just Toronto, it's our total fiber footprint that's getting us that growth. There's no doubt about that. Toronto itself is highly competitive also from the wholesale market perspective, it's one of the reasons we have the Virgin brand as well in the marketplace selling there. When we step back and look at revenue growth, the share of revenue growth in the last 6 months of the year, we saw ourselves in some cases exceeding more than 50% of the net revenue growth in the industry, in segments where we had fiber and that is -- that starts to bode well for we really want this investment pieces to go. We'd like it to be both subscriber and revenue growth, but clearly there has been some price activity in the wholesale side that works against that, but we're -- we got to have the fiber footprint. We see it in the last half of the year and now it's just over time executing in that with the 1.5 Mbps speed that we have in the market.
And just quickly to follow-up on sort of the comments you made earlier about media and the improvements in the advertising front. I Just wanted to get your thoughts high level as to sort of your view on how material advanced solutions on the advertising front, what you call ad tech, would be down the road to sort of help maintain that stabilization and any initiatives you can kind of talk about right now?
Yes. We have initiatives, we are actually executing now in the marketplace with our clients of Bell Media. There's some other technology work to take that to another level because we know that's where we need to take that product portfolio to, and it's early days there. If I had Randy on the line with us, he would be telling you some early wins that we're seeing, but we've got some technology evolutions there to do as well to help it. I would in fairness not say that really had the impact on the fourth quarter results, it was just overall strength in the overall business as one, I guess, businesses are feeling better about their own organization, so advertising. And secondly, I think, Glen's correct, we certainly saw movement back into the space, even by companies who sell a lot of their products only in the OTT world, advertising a lot on the linear world and Canadians up here watching would have picked that up as well. And the other thing is I thought it was positive as one of our peers reported as well, who is just in the media business, a good quarter as well. So clearly, it was something across the market, which usually for investors is better than just market share moves for the obvious reason. So let's hope that it holds going forward, but it's early days into the New Year, so we'll have to see.
Our next question is from Richard Choe with JPMorgan.
On the wireless metrics, the subscriber and top line were a little light, but it seems like profitability was significantly better. Is there a focus on not worrying about customer accounts and more profitable customers. And as a follow up, it might be too early days, but are you seeing the prepaid to postpaid migrations from the new prepaid product?
Yes. So let me start with the end and then go back to the beginning. Prepaid is very, very small for us so far. I mean, all -- literally all of our net adds are coming off of the back of our traditional gross postpaid sales, which as we know, is different than one of our peers, who we think has done a great job of that and one of the reasons we're in that prepaid market as we are to ultimately get some of that conversion opportunity. In terms of the market, it's kind of interesting. If you look at our results versus so far only one of our larger peers has reported, we're happy with our relative share, our relative results, a pretty normal quarter. If you take away last year's fourth quarter that had all that unique promo, one of our competitors has been quite public about having some execution issues. So we've had a relatively good quarter. We're really pleased to see the prepaid market share swing our way, and that's where the revenue growth comes. On the cost side, you're right and that we did execute that cost restructure in the company and that was across the entire organization in the fourth quarter. But I don't want anyone in the call to think that somehow we backed off in the fourth quarter, that's just the market that took place, sets us up well, and I think, maybe a couple of the analysts wouldn't fail to take people through it a little bit offline, but there were some government net adds last year in the fourth quarter, most of it came in the first quarter, they were some. So if you do a year-over-year, I think the Street will say it's awfully -- it all kind of washes out what some people had in mind. Hopefully, that's helpful.
Our next question is from Drew McReynolds with RBC.
George, just back on CraveTV, as far as a Canadian OTT service goes, you guys have done a great job, locking down the premium programming. Just wondering, given the success to date, now that you've added enhanced as a platform, any thoughts on do you have enough scale to really grow that sub base as you're targeting, which you consider bringing in partners strategic or financial to take it to the next level? And a follow-up just on home security. If you can provide an update just on what -- how that business is performing and how it's contributing?
Sure. So on the Crave, first of all, I got to be careful. This quarter development is always something you don't want to comment on, but I would say, we're happy with the structure we have on that. We're really happy with our strategic supply relationships with HBO, with Showtime, with those relationships and the long-term nature of those agreements like HBO. So that's probably where we are there. It doesn't mean we're not going to do other -- I think we announced something this morning with Starz on the content side, that's not ownership, but that's another relationship, and we do think at CAD 20, that amount of SVOD product and I know for sure, pretty sure on the line the U.S. investors will know the U.S. marketplace CAD 20 for Showtime, HBO, OTT product is a very competitive product in the market and is profitable for us combined with our linear TV. So now it is truly about pursuing those relationships that are with those other global SVOD players and leveraging that through our strong distribution and our BDU partners. I mean, one of the things we didn't mention, but you may be aware of if you're in Toronto is our #1 competitor here in Toronto, has now launched Crave and they're now distributing it. Our understanding is they like the product and that's going to help drive Crave subscribers for us and they make a great margin on that product. So it's good for them as well. So we're feeling that we're in the right space there to offer competitive compelling products to Canadians. And then on Home security, yes, actually it was working as we wanted it to. It is helping us with some stickiness on the Internet side, that product gets -- there's some little better integration that goes on next year on that product side. So we'll continue to see some steady growth there. It's not in our RGU metrics anywhere. It's -- so we don't have it in our Internet sells like some of our peers do, it's just a stand-alone business unit. So I think, we're happy with the first year. Product rollouts become a little more competitive in terms of integrating into Bell next year, and I think we're pretty optimistic that it's given us the right platform. That's what I would say, but it's really just -- it's either I don't see sub metrics on it because otherwise you have to roll into another number frankly, I don't think it's going to help you get a clarity on these other products we've got.
Our next question is from Vince Valentini with TD Securities.
Can I just get a clarification and then a question. From the midpoints of your guidance and your adjustment, Glen, is it fair to say the EBITDA in fact from IFRS 16 is around $196 million and the free cash flow impact is around $160 million?
Vince, no, the actual impact from the changes of IFRS 16 are about $275 million on revenues and $175 million approximately on free cash flow and then of course, the differential of $100 million is interest expense that would be an interest.
$275 million you said revenue, but there is no...
Excuse me, EBITDA, $275 million EBITDA with $175 million flowing to free cash flow and a $100 million of that is interest. My apologies, Vince.
The other [ very strict ] question. I mean, that announcement yesterday, I think it was on the city of Markham and the smart city. It seems very interesting. I mean, we're all chomping at the bit to try to figure out what the revenue upside could be from 5G in the future and how these deals work between the connectivity provider like you and it seems like IBM is the IT provider. George, can you give us any sense as to what kind of revenue you see here and what pathway this gives to maybe more low latency 5G and IoT services in the future with these kind of city partners?
Yes. I would say that it's more like you were chopping on the bit to try to figure out what the revenue opportunity is going to be. So it's a great way to describe it. I would say this, we have 4 now. I think that's our fourth smart city project we have going, each one of them is the result of having our fiber and our wireless networks as integrated as they are and some of this is partnership with IBM. And so people will start to see some application rollouts in those communities and start with the managed service contracts, and ultimately hopefully for us recurring revenue streams. It is so early for us to start putting quantified dollars against it, but most importantly, we get the lower subscriber revenue or low unit revenue up the IoT at some point we get managed service agreements and of course, it's important for us because these are large wireline clients of ours as well. So we think we're really well positioned to be in that space, particularly in those markets that have the fiber, but you're right it's really early for us to put any number against it other than we're pleased we've got 4 communities we're working with.
In the interest of time, Valerie, this will be our last question.
The last question is from Maher Yaghi with Desjardins.
I wanted to ask you, just -- so I have a question on the wireless ARPU and just a follow-up on IFRS 16. So on the wireless ARPU, is it fair to say that the peak or we should start to see less pressure on year-on-year numbers in Q1, as we start to lap the government contract. and you talk about the impact on ARPU coming from pressure on overage and the fact that the data buckets are getting larger. How much overage is there still in the ARPU number or -- I mean, if you don't want to give a number, how much more pressure are we to expect, let's say, if we suppose that the data buckets stay around these levels, are there still more pressure -- downside pressure on ARPU just from the change in overage year-on-year? And on IFRS 16, what is the discount rates you're using internally to calculate your interest cost portion of the operating lease cost?
Okay. I'm definitely not going to answer question two, so I'll answer question one. In terms of the -- it's the second quarter -- Thane just handed me the note in terms of launch [indiscernible] frosting the government contract and then we'll start to see what "normalized" ARPU is without the impact of the government. So it will be Q2 before we know that answer. On your second point, frankly, you're on the track of what is driving, I think, some of the stabilization, if that's the right term in ARPU versus the traditional ARPU growth we'd all seen, and that the buckets are absolutely getting larger. And so our out-of-bucket revenue is less than it was the previous year and that's where some of that mix change is for sure. And we've mentioned every quarter trying to normalize out for the government contract. And then for us the other issue and the analysts of course will all know this, if we do more prepaid, even a postpaid were exactly the same net adds than more prepaid. The math of numerator-denominator trades that off a little bit, but that doesn't impact. That's a positive because that's an accretion to cash flow. So I think at the end of Q2 we can maybe reask the questions here with regards to -- it's -- Q1's going to be little because it hasn't got the government stuff won't flow through until we get to Q2.
Maher, it's Glen. On your second question, on IFRS 16, I think we did a real good job today laying out all the components and how they impact our results. I mentioned $2.3 billion of leases would be added to our balance sheet approximately $100 million, that results in $100 million of imputed interest expense, so 4.5% approximately is what your rate is. So I think from our remarks today you get a real good handle on how IFRS 16 changes have impacted results.
And have you changed the -- how you account for year-on-year change in capital deployment on handset subsidies in your free cash flow calculation?
No changes to our free cash flow definition at all.
Thanks, everyone.
Great. So on that note, thank you, again, for your participation this morning on the call. I will be available throughout the day for any follow-up questions and clarifications. So have a good rest of the day, and thanks for participating.
Thank you, gentlemen. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.