Good morning, ladies and gentlemen. Welcome to the BCE Q3 2020 Results Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos.

Thank you, Donna. And good morning, everyone. As usual, participating on the call today are Mirko Bibic, BCE's President and CEO, and our CFO, Glen LeBlanc. Before we begin, I want to draw your attention to our Safe Harbor statement reminding listeners that the slide presentation and remarks made during the call today will include forward-looking information and therefore subject to risks and uncertainties. Results could differ materially. We disclaim any obligation to update forward-looking statements except as required by law. Please refer to the company's publicly filed documents for more details on assumptions and risks. And as always, our earnings materials are available on the Investor Relations webpage of the BCE website. So, with that, Mirko, over to you.

Thank you, Thane. And good morning, everyone. Our focus in Q3 was all about building momentum back into the business. And although the effects of COVID are still obviously present, I'm very pleased with our progress to date as we experienced a notable improvement in our operating performance this quarter due to the success of our broadband strategy, the reopening of retail stores, the step up in economic activity, the return of live sports programming, and overall disciplined execution in a competitive market. This contributed to stronger financial results across all Bell operating segments in Q3 compared to the previous quarter. We continued to grow broadband market share and delivered 210,000 total net wireless, retail Internet, and IPTV customer additions in Q3. And consistent with our focus on profitable wireless subscriber growth, we added 128,000 new net postpaid and prepaid customers this quarter comprised entirely of mobile smartphone subscriptions, and we delivered very strong wireline subscriber results with an industry-leading combined 82,000 retail internet and IPTV net adds. We also generated over CAD 1 billion of free cash flow this quarter, bringing year-to-date cash generation to more than CAD 3.25 billion, 14% higher than last year. We expect free cash flow to moderate in Q4 as we further step up capital spending and as accounts receivable and inventory levels grow with an increase in sales activity. This contributed to maintaining a very healthy liquidity position of CAD 5.2 billion at the end of Q3, which does not include the approximate CAD 940 million in net cash proceeds received from the recently concluded sale of Bell data centers to Equinix. I'll turn over to slide 4 of our presentation. Slide 4 provides a quick update on the continued progress we're making on advancing our strategic imperatives. In Q3, we equipped 140,000…

Thank you, Mirko. And good morning, everyone. With the easing of COVID restrictions beginning in the latter stages of Q2, consumer and commercial activity gradually picked up, gaining steady momentum throughout the summer. Despite the continued effects of COVID, all Bell operating segments delivered better performance trajectories with improved year-over-year revenue and EBITDA declines in Q3 that contributed to strong ongoing free cash flow generation. Consolidated revenue was down 2.6% year-over-year, which translated into a 4.4% decline in adjusted EBITDA. We estimate that the total incremental COVID-related costs in the quarter to have been approximately CAD 40 million, down from CAD 85 million last quarter. Excluding these direct COVID related costs, our consolidated EBITDA margin was stable year-over-year. Net earnings for Q3 were down 19.7%. This was a result of lower year-over-year EBITDA and a non-cash net mark-to-market equity derivative loss resulting from the decrease in BCE share price this quarter compared to a gain last year. We invested over CAD 1 billion in CapEx in Q3. This represents a notable step up in spending from last quarter, reflecting both the seasonal increase in construction activity during the summer months and the resumption of usual business operations following a slower pace of spending during the initial stages of COVID when certain projects could not be executed. We expect capital expenditures to ramp up further in Q4. Despite softer year-over-year earnings, we generated over CAD 1 billion of free cash flow this quarter even with lower EBITDA flowthrough and higher cash taxes which were expected. Let's turn over to slide 8 on wireless financials. Q3 marked the return to positive revenue growth for Bell Wireless. As the year-over-year decline in service revenue improved sequentially and product sales rebounded with a pickup in retail sales activity. Service revenue was down 4.3% year-over-year.…

Great. Thanks, Glen. So, before we start the Q&A, in an effort to make the call as efficient as possible, as always, please limit yourself to one question, one brief follow up, if you must, so we can get to everybody in the queue in the time we have left. So, thanks for your cooperation in advance. Donna, we are ready to begin with our first question.

[Operator Instructions]. And the first question is from Jeff Fan from Scotiabank.

I'll start with wireless. I'm wondering if you guys can help characterize the wireless competitive environment that you saw during the back-to-school period and maybe a little bit of a prediction or outlook going into the holidays and into 2021? I guess the reason for the question is, we've seen a lot more win back promos, lower rate plans. Wondering if that's just because of the reopening that we saw with a smaller pool of subscribers. Is the Shaw Mobile in the West triggering some reactions? Is it competitors trying to make up lost ground? Just wondering if you can share some thoughts there. Thanks.

Thanks, Jeff. It's Mirko here. On kind of pricing and promotions, kind of spirit of your question, I'm not entirely surprised by what we saw in Q3, especially after the close to absolute lockdown in in Q2. I'd say from our perspective, we didn't tend to lead promotional activity, and I think that's pretty obvious. You need to go back to even June when we launched our 5G network and our attempt to implement kind of an additional charge for 5G connectivity that reflects the real value we're delivering with a premium 5G network. I mean, that’s evolving, but we did try that. You can even see some of that early – just some price adjustments we made in early October, again, trying to better reflect the value we're delivering overall with unlimited plans on premium networks. There's a lot of other examples. But ultimately, it is an incredibly competitive market. And I'd say from the Bell perspective, here's the approach we take and here is what kind of customers and shareholders are going to get from us. Number one, we will always be competitive. Two. I emphasized this in my opening comments. We are focused on high-quality smartphone loadings because that's what drives service revenue growth, and you can see the very positive results of that strategy in our Q3 numbers. What we're doing is we're deemphasizing tablets. We're going to let others chase that segment. We'll obviously play in the tablet segment when it's accretive, but otherwise our focus is squarely on high-quality loadings. And then back to your question on some of the promotional intensity. We’ve got to take a step back a little bit. Now, with the move to installment plans, what was the vision? We were – part of the vision is to deliver ultimate…

Just a quick follow up on your comment about high-quality loading. It's nice to see you disclose 130,000 phone ads or smartphone ads. Is this a number that you expect to systematically report in your reporting to kind of exclude the tablets? And then, just a quick clarification on your wireless home internet ads, are those in your wireless ads or are those in your wireline internet ads?

On the last one, the wireless home internet are in the Internet numbers. Glen, over to you on the tablets versus smartphone loadings.

It's a logical approach, especially as we shift increasingly to 5G, and our focus, as Mirko said, is on high value subscriber loadings. I think it makes a lot of sense to look at this reporting. And I know another one of our competitors has switched to this reporting, and I'm seriously considering giving this – making the reporting change for next year, so stay tuned but it makes a lot of sense. It's a logical approach, Jeff.

The next question is from Drew McReynolds from RBC.

Mirko, you're clearly seeing the success of an expanded fiber-to-the-home footprint and you're keeping your foot on the gas here this year and really seeing some pretty good momentum. And that's whether it's RGUs or the 10% increase in internet revenues. I know you're not going to give guidance for 2021 or beyond. But thematically, just your updated thoughts on accelerating that fiber-to-the-home deployment as everyone's pretty eyes wide open at the momentum that I think the telcos are gaining on the cablecos with it. And just secondly, quickly on Bell Media, would like to get your updated thoughts on what was tabled or will be tabled as proposed amendments to the Broadcasting Act, and just your initial thoughts on the impact there for Bell Media. Thank you.

First on the on broadband. So, to reiterate what I also said in my – at the end of my opening comments. We've got our eyes fixed firmly on the long-term future, and the long-term future is underpinned by our six strategic imperatives. One of the key ones is building the best networks. We don't veer from the strategy. And we can see, as you pointed out, Drew, that it's having a positive impact on our financials for the wireline segment and clearly on our operating metrics. So, it's significant. And I want as much fiber as possible in urban and suburban markets. And frankly, I want to connect as many underserved homes in rural areas as we possibly can, as fast as possible. I'm not going to give forward-looking guidance, as you said, but when you look ahead, and right now, and I hope it continues, we have a favorable regulatory environment with positive signals having recently been sent by the federal government that facilities-based competition matters and investment in facilities matters. So, when you put that all together, I think there's clearly a case to be made for accelerating the pace of rollout. I certainly want to do it. It's why, in 2020, when COVID first hit us at the beginning of the year, we said we are not scaling back on these strategic investments, we have to continue going. So, not going to give guidance for 2021, but it's going to continue to be a very important point of emphasis for us. And on the regulatory side, with the announcement on Tuesday, I'd say this. I have to kind of tip of the hat to the Minister Guilbeault for putting forward the amendments that they did on Tuesday, I think it was. And two really important points…

The next question is from Vince Valentini from TD Securities.

If I could try a clarification and then a question. To clarify that you said 20% higher monthly recurring revenue for your 5G customers, not many carriers are reporting that they're getting much of a price lift. Can you just clarify that? Does that mean an existing customer moves from 4G to 5G and suddenly starts paying you 20% more? Or is there a little self-selection in there that people moving to 5G, on average, were paying more than the average based on 4G? So, it's really just higher value, higher usage customers? Moving to 5G initially is what drives that math? And the question, I'll leave it with you for after the clarification, Internet revenue up 10%. Very impressive. But your subscribers are up 4% year-over-year. So, it implies something going on with either the mix of your internet base or net pricing gains, perhaps. Can you try to break that down a little bit for us? Is it something to do with the movement to fiber to the home or fixed wireless access? Or is that actually just pricing increases net over the past year? Thanks.

Vince, on the first one on 5G and wireless, it's an MRC issue. Monthly recurring charges are driving that growth that you're seeing with the 5G customer base. And on internet, it's a function of a number of things. Kind of the COVID effect in terms of promotional intensity, really pricing reflecting the value that we are delivering to customers with fiber networks, its customers choosing higher plans with higher speeds, given the working from home and staying at home more. That's why you're seeing that impact on the wireline side, Vince.

The next question is from David Barden from Bank of America.

I guess my question is relating to the ABPU situation. Could you elaborate a little bit on how much or what percentage are you through the overage headwind on the business? And then at the same time, from an overage standpoint, you said it was down 70% year-over-year. At what rate is that improving? And when do you think that these two kind of headwinds start to abate? Thanks.

Well, I'll start and then, Glen, you can pick up. I'll start just first with a comment on the on the overage decline. The decline improved in Q3 compared to Q2. And again, I'm a bit of a broken record on this one since unlimited plans were launched. Our focus is to continue to do what I consider to be a very good job managing that decline. We don't try to force migrate customers, as you know. We obviously have unlimited plans, and they're being chosen by customers, but it's the customer's choice. Frankly, it's not optimal financially to force migrate customers, so we're not going to do it. It's all about good subscriber base management. And that's going to continue. So, yes, overage decline continues to be a headwind, and we continue to manage it and the rate of decline actually improved in Q3 over Q2. I'll stop there. And then, Glen, you can fill in the blanks.

I'll add a little more color. As Mirko said, we did have a 3% improvement in sequential quarters, albeit we continue to be down year-over-year. But if you look at the fact of the decline year-over-year, 80% of the decline year-over-year was driven by the roaming and data overage revenue that we've spoken about. The other 20% is mainly driven by higher prepaid mix. If I peel the onion a little further, as I mentioned in my previous remarks, roaming revenues still down virtually 70%. And to put that in absolute terms, we were down about CAD 60 million in Q2 and we're down CAD 58 million in Q3. So, virtually, no change. And Mirko just said and I've said it a few times, unfortunately, we believe that global travel restrictions are likely to remain in place for some time, and I don't see a complete rebound in global or domestic roaming to occur in the coming quarters. So, I think for the foreseeable future, this remains a remains a challenge.

The next question is from Richard Choe from JPMorgan.

Just wanted to get an update on your transition to unlimited. And what do you expect going into the holiday season with the transition there? Are you still looking for a measured pace? Or more, is this an opportunity to kind of maybe do a higher uptake rate on the unlimited plans?

Like, I think, in response to David, we're continuing to manage the overage decline and the pace of that decline and we're not going to force migrate customers, but unlimited plans are here to stay. They are delivering significant value to customers and customers are going to be choosing those plans. So, that's going to continue, but we're going to manage that decline and just like we have since the beginning since mid-summer 2019.

And as a follow up in terms of promotions for the fourth quarter, should we expect margins to be down year-over-year in wireless? Or is that something that you don't plan on being too aggressive about?

We're going to be competitive at all times. And we'll see how intense promotional activity is going to be for Black Friday and the holiday season. But like I also mentioned in response to my question to Jeff, going to be competitive, we're going to focus on high quality smartphone loadings. I think we all need to do a better job in the industry at keeping a check on subsidies, particularly as we've disaggregated the handset cost from the rate plan.

The next question is from Aravinda Galappatthige from Canaccord Genuity.

First on the enterprise side, and I guess B2B generally, thanks for the color on how Q3 was trending. Any sign of this movement as we kind of step into Q4 and look beyond that, or do you kind of expect it to be sort of a – maybe a period of flatness or maybe even further decline before recovery into 2021? And then, as a follow-up, with respect to the comments on free cash flow for Q4 and for full year, I was wondering if you can just talk to the tailwinds that you expect to see from lower handset costs when you look at it from full-year basis. I'll leave it there. Thank you.

I'll answer the first one. Glen, you'll take the second one. So, on looking ahead to Q4, just generally or whether it's in the enterprise segment, I'll start with a couple a comments. I think I'm expecting continued momentum in Q4, but whether we see the same pace of sequential improvement, Q4 compared to Q3 as we did Q3 compared to Q2 remains to be seen because we – just the environment we're in, right? We're clearly in the midst of a second wave across the country and winter months are soon upon us. So, it's hard to predict what the future holds. I already made a couple of comments about Black Friday and the holiday season. It's hard to know what's going to happen, particularly compared to prior years. But be that as it may, I think our competitiveness isn't in question. We have the best networks, we have the best products and services and we have consistent execution. So, the pace of improvements in Q4 is going to be a function of the COVID impacts on the economy generally. And those impacts will be industrywide. Now, you mentioned enterprise and the enterprise segment, that continues to be –my commentary on that is very similar to my Q2 commentary. In Q2, we had a bump in connectivity in the enterprise segment. That slowed, but it's been consistent, like connectivity has been consistent. Some projects, professional services, managed services projects have been delayed. That's what I also said in Q2, but I'm really pleased with the performance in wireline generally. And that includes being pleased with our performance in the enterprise segment. And we do serve the largest Canadian corporation, the most stable Canadian corporation. Our stability is also a function of the stability of our enterprise customer base. Glen?

Thanks, Mirko. Free cash flow and the comments I made earlier on the headwinds that we're facing with free cash flow in the coming quarter, we expect it to be an aggressive quarter on sales. So, obviously, that's going to impact AR. Now, just a reminder, our free cash flow includes everything. What I mean by that is it includes working capital. So, as we ramp up on purchases of inventory, it is going to have a negative effect on free cash flow. As we see sales accelerate, and therefore an increase in AR, it's going to have an impact. I also mentioned that I expect a ramp up in capital expenditure as we are very, very focused on our network builds, our network deployment. So, I see that as being a drag on cash flow. Income tax payments, we enjoyed a deferral on many of the tax payments that the government offered relief – a deferral relief. And those are all starting to boomerang as we look in the second half of the year to be catching up on those. As far as handsets go, you mentioned lower handsets. With the new devices launching, the cost of the handset is actually higher. So, from a free cash flow drag, as I said, it's many, many items. It's the cost of the handset, it's the sales activity, increased inventory, CapEx and tax, but all of it very, very manageable and I see no worries. Focus remains on liquidity, as I said.

Next question is from Simon Flannery from Morgan Stanley.

Just following up on the balance sheet, if I could. You've talked about refinancing, taking lower rates, terming out your maturities. How are you now thinking about your overall leverage targets over the medium term? You've obviously just monetized your data centers, but the spectrum auction is coming up next year. I think, in the past, you've talked 2 to 2.5 times. You're a little bit above that right now. What's the right way to think about longer-term goals in this environment?

As I said in my opening remarks that I do not see a material change in our leverage for the foreseeable future. We do have multiple spectrum auctions in front of us, absolutely paramount that we participate. And as you know, will participate. Incredibly important spectrum coming available. We did just divest off the data center. And that certainly gives us additional cash to invest in the business, including investment in spectrum. I do not see a material change. The public policy of 2.5 times, we're above that. Have been for some time. Very hard to see an aggressive repayment of debt in the interest rate environment that's at an all-time low. So, I think a prudent, responsible approach to our balance sheet is to stay generally in the leverage vicinity we are now, with respecting the current credit rating that we have. So, in other words, not taking actions that jeopardize that. But I'm not in a rush to reduce it either. I think the most important thing for us is to have the liquidity and the balance sheet strength to ensure that the spectrum options are very successful for BCE.

Just a quick follow-up on the iPhone cycle. We've seen some US carriers talk about a good start to the iPhone sales process. And there's some talk about it, maybe a super-cycle that people have been holding on to their handsets for longer than normal. How are you thinking irrespective of the competitive environment that – is there a pent-up demand to get a new phone here and we might see a bigger than normal cycle over the next six months?

It's hard to tell. So far, so good on 5G and on iPhone. And I think Black Friday, the holiday season will be more indicative. And we'll see what that brings. And then, as we look into next year and when we're – got the 3500 megahertz spectrum and we're into true 5G, I think there's going to be a pickup in activity at that point in time. And then we'll have new applications and services being delivered to consumers. But so far, so good. Glen, we're used to this. We've been through these cycles before 2G to 3G to 4G, et cetera. But we like where we sit today, both in terms of the competitiveness of our networks, how 5G is doing so far and iPhone sales have been just fine.

There are no further questions at this time. Back over to you, Mr. Fotopoulos.

Thanks, Donna. So thank you again to everybody for their participation on the call this morning. As always, I'm available for follow-up questions or clarifications throughout the day. So with that, have a great day and take care of yourselves and stay safe. Thank you.

Thank you.

Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time. And thank you for your participation.