Thane Fotopoulos - VP, IR
Siim Vanaselja - EVP & CFO
George Cope - President & CEO
Mary Ann Turcke - EVP, Field Services
John Watson - EVP, Customer Operations
Wade Oosterman - President, Bell Mobility & Residential Services & Chief Brand Officer
Stephen Howe - EVP & Chief Technology Officer
Kevin Crull - President, Bell Media
BCE Inc. (BCE) Q4 2012 Earnings Results & 2013 Guidance & Investor Conference Call February 7, 2013 8:30 AM ET
Good morning everybody. I am Thane Fotopoulos, the Vice President of Investor Relations at BCE and on behalf of the entire Bell executive leadership team here today, I want to welcome you to our 2013 Investor Day Conference. Its been a few years since we met in this kind of forum, four years to be exact and a lot of progress has been made in those four years in growing the business and delivering value to BCE shareholders and we are here to tell you about that and more importantly how we intend to keep that up going forward. We are happy to have this opportunity here this morning to give you an in-depth update on our strategies and plans for 2013.
However, before we get started, I would like to remind you that today's event will be webcast. Links to the webcast along with all supporting materials are on BCE’s Investor Relations web page. And of course, I also need to cover the Safe Harbor notice which is up behind me on the screen. Today's presentation and comments will certain forward-looking statements that represent our expectations as of today and accordingly are subject to change. We do not undertake any obligation to update any forward-looking statements except as maybe required by Canadian Securities laws. A number of assumptions were made by us in preparing these forward-looking statements which are subject to risk. Results may differ materially. Details on these risks and assumptions are in our filings with the Canadian Securities Commission and with the SEC which are all found on our website.
We have a great agenda for you today as you can see here. So let me quickly cover that with you before we begin. We will start off with an overview from our CFO Siim Vanaselja on our Q4 results that were just released this morning as well as our 2013 financial guidance targets. Siim will be followed by our President and CEO, George Cope who will give you a strategic overview and update of our key business initiatives including a wireline comprehensive overview. Then Mary Ann Turcke and John Watson our respective EVPs of Field Services and Customer Operations will cover our service agenda and the strides we've made in that space in positioning Bell rather the leader in customer service. We will then take a short 15 minute break and after the break Wade Oosterman, our President of Bell Mobility & Bell Residential Services will come on and discuss the growth opportunities that are available to Bell in the wireless sector. Next, our Chief Technology Officer Stephen Howe will talk to you about our wireline and wireless platforms and how we are leveraging those networks to support the overall growth of the business. And last but not least, Kevin Crull, our President of Bell Media will provide an overview of the Media segment, our newest segment in the company and he will tell you the value that that asset has brought to us since we acquired CTV back in 2011. We will then wrap it up with all the presenters in a Q&A session at the end of the morning.
So as you can see quite a busy agenda and I hope you will find the day very informative and useful and on that note, I'll invite Siim to come up on stage and start off the presentations for us. So thanks again.
Thanks Thane. Good morning everyone. We are really happy to have this opportunity today to share our strategic plans and our financial outlook with you this morning. What I am going to do is start with our fourth quarter financial highlights which we released this morning. I would say our operations delivered on a steady course with quite a strong contribution from both Wireless and Media.
Total service revenue growth in the quarter is 0.3% represented healthy revenue growth across our growth businesses across Wireless, TV, Internet and Media and that was offset by lower business data product sales and ongoing voice decline. Bell’s EBITDA grew nicely, 2.2% in the fourth quarter and that increase was driven by our Wireless segment which posted great EBITDA performance. Wireline’s EBITDA decline was pretty much in line with what we saw in the third quarter of this year.
Our consolidated margin at Bell expanded 80 basis points. That was on improved service margins, both in Wireless and in Media. At the EPS level, BCE statutory EPS in the fourth quarter with $0.91 per share; that’s up from $0.62 per share a year ago and that increase reflects in addition to higher EBITDA, lower year-over-year severance costs and as well we had in the quarter a one-time non-cash gain that we realized on the transfer of spectrum from Inukshuk out to it's respective shareholders.
We look at adjusted EPS in the quarter, increased 4.8% to $0.65 per share. And I will highlight that our effective tax rate this quarter was just below the statutory rate and that's because the Inukshuk spectrum gain that we realized was non-taxable. I will also say that there were no tax provision adjustments this quarter.
On free cash flow, our operations generated over $600 million in the quarter, representing growth of 7.3%. I think that supports the high level of capital investment we have in our businesses and at the same time it further strengthens our balance sheet and our financial position as we move into 2013.
So let me turn to our operating results beginning with Wireless. Postpaid subscriber growth was certainly again one of the highlights in the quarter. Postpaid net adds of 144,000, up 9% year-over-year; we believe Bell Mobility again captured an attractive market share of net postpaids in the marketplace. Our year-over-year postpaid gross adds were led by strong sales of Apple’s iPhone 5 as well as the wide line-up of Android devices that the Bell stores carry. Smartphone subscribers now account for about 64% of our postpaid base; that’s up significantly since the end of 2011, where we stood at about 48% and as you know these are premium customers with higher ARPU and lower churn. Wireless ARPU increased 4.1% in the quarter and with that we have now had three consecutive years of ARPU growth.
In this intensely competitive fourth quarter of sales, we are also pleased to report that we saw 20 basis points improvement in postpaid churn to 1.3% and wireless retention spending in the quarter increased to 12% of service revenues as we match some of the richer acquisition offers that were in the marketplace.
On the financial side, Wireless Service revenue growth accelerated to 7.4% that was driven by data revenues which were up 28% in the quarter and data revenues now account for close to 40% of our wireless ARPU. Wireless EBITDA was another highlight in the quarter growing 13.8% year-over-year and that’s our best fourth quarter wireless growth in six years; a good result I think having given that we have spent an incremental $26 million or so on acquisition and retention in the quarter.
The quarter’s performance brought Bell’s Wireless EBITDA growth for 2012 to 15.7% and our Wireless service margin for the year expanded 3.3 points to 41.5%. Wireless EBITDA less CapEx also provided a strong contribution to free cash flow both in the quarter and for the full year. So overall our Wireless position is very well positioned as we head into 2013 and you’ll hear more about that from Wade and George.
Let's move now to our Wireline operations. On the residential side, the quarter was really about Fibe TV I’d say and the strong attach rates that we are seeing with other Bell services. Fibe TV posted a record 48,000 net customers additions in the quarter and we closed 2012 with 248,000 total Fibe TV customers; that gives us an 8% penetration rate of IPTV homes passed. I think we are really pleased with that performance, the steady gain and penetration we are seeing and recognizing and this is all still at a very early stage.
Fibe and IPTV net adds continue to be impacted by the expansion of competitors’ IPTV networks in Western Canada and in Atlantic Canada and as well we are seeing Bell customer migrations from satellite TV to Fibe TV that are running at about 15% of Fibe TV gross adds. We are also seeing great three product total penetration with about 84% of Bell’s Fibe TV customer base also taking Internet and home phone.
Internet net adds overall I would say were soft throughout 2012; I do want to say however that we expect that to pick-up particularly as our fiber footprint and our IPTV penetration increase. In the quarter residential NAS erosion showed improvement and we are definitely seeing a significant reduction in NAS losses in our IPTV footprint compared to areas outside of that footprint and therefore our strategy remains very squarely focused on continuing to grow that footprint and drive higher levels of penetration.
On the business side of Wireline, I want to highlight that about half of the NAS losses that we've seen overall for 2012 were due to wholesale customer deactivations with one particular reseller. So if we look at Bell branded NAS losses in fact those have remained relatively stable throughout the year.
Looking at the financials for Wireline, the pace of revenue decline in the quarter improved. It was driven by TV revenue growth of 5.2% and a slowing voice erosion. Data revenue performance in the quarter was really similar to what we've seen throughout the year with TV growth being offset by lower data product sales and repricing pressures that we've seen in the business markets.
So Wireline’s EBITDA decline in the quarter was 6.6%. However, we did incur a $9 million charge relating to the CRTC’s decision to reduce rates on local loops and they introduced that decision to lower rates on a retroactive basis back to December of 2009, so that whole $9 million charge came through this quarter. Excluding that charge, Bell’s year-over-year Wireline EBITDA decline in fact improved by about 50 basis points over the third quarter.
For 2012 overall, Bell’s Wireline EBITDA margin was relatively stable at 38.4%. We saw good operating expense reductions and good productivity performance particularly in our call centers and in our field center operations. In 2013, we expect growth services to become a larger component of our wireline mix with a stronger contribution from TV and Internet and a gradual improvement in business markets.
Bell Media you know has become such an integral part of Bell’s overall operations and financial performance. For the quarter, subscriber revenue growth at Bell Media was up 7% year-over-year led by higher specialty programming rates and I will add that we do expect to see some more modest rate increases on specialty rate programming throughout the course of 2013 consistent with the new broadcast rate agreements that we've entered into.
Advertising revenue in the quarter however decreased by about 1% that was expected and it was due to the NHL hockey lockout which impacted advertising revenues both at TSN and RDS. That pressure however was offset pretty much by quite a good shift in advertising demand both to our conventional networks and to our non-sports specialty networks.
With a flow-through of higher subscriber revenues and lower programming costs because of the hockey lockout Bell Media’s EBITDA grew quite significantly by 32% and EBITDA, on free cash flow if we exclude the non-cash purchase price adjustment amortization, we saw Bell’s EBITDA of $199 million in the quarter and EBITDA of $610 million for the full-year. You know, remarkably, that’s about 75% higher than the EBITDA of CTV at the time of our acquisition back in April of 2011. So that's it on the quarter.
2012 as a full-year, altogether I would say it was very successful for Bell. We achieved on our full year revenue guidance and surpassed our EBITDA guidance with 4.4% growth. We saw an increase in contribution from our growth services. We were successful in reducing costs and with that we expanded Bell’s consolidated EBITDA margin to 37.4%.
We increased our EPS guidance during the course of the year and we achieved that increased guidance. And we finished the year with a strong 7% overall growth in free cash flow, which totaled more than $2.4 billion. All of that gives Bell strong operating cash flow and enables us to move up our capital intensity during the year to 16.6% increasing our spending on strategic priorities. So all-in-all, 2012 had a good performance and I think puts us in to a really good starting position for 2013.
So with that, let me move to our capital markets model and I have to say it really is pretty simple. We are looking to deliver sustainable shareholder returns through reliable dividend growth and that objective is underpinned all the while by maintaining healthy levels of growth in investment in our capital investment programs and maintaining a strong balance sheet with solid investment grade credit metrics.
Importantly, as well, we have strong alignment of interest now between our shareholders and our management long-term incentive plan. That plan has best in criteria which is tied to the company’s ability to execute on its dividend growth model. So simply put, as we grow our free cash flow, we are able to grow our dividend, our common dividend, and therefore we create value for shareholders and management alike.
Now we have had a successful track record as a dividend growth company. This morning we announced a further $0.06 common share dividend increase which is our ninth consecutive dividend increase since the fourth quarter of 2008. So in total, we have grown our common dividend 60% over that period and we have one of the best yields on the TSX today. Together with the $0.10 dividend increase that we announced this past August, BCE’s common dividend for 2013 is up 7.5% or $0.16 per share and I think that’s a strong reflection of the confidence that we have in our business performance and our free cash flow generation.
With this dividend we expect to maintain BCE’s payout ratio just below the midpoint of our target range of 65% to 75% of free cash flow. And you all know that we have been presenting BCE’s dividend payout ratio on the basis of both free cash flow and EPS and those payouts have always been very comparable. So I want to draw to your attention today that beginning in 2013 we will start expressing our dividend payouts solely on the basis of our free cash flow payout. And this change is necessary because of the non-cash impact that results from the new IFRS pension accounting standard which comes into effect in 2013 and I will talk about that standard in a moment.
On a free cash flow basis our common dividend payout policy will continue to be maintained at the range of 65% to 75% and I would say that because our pension accounting change is entirely a non-cash change, we think that our free cash flow dividend payout policy is a much better economic measure to use.
Importantly, our dividend payout preserves the very high level of cash generation for the company to deploy giving us excellent overall financial flexibility. Surplus cash amounts to about $800 million a year for us, and I think we have always been pretty balanced in how we have directed that surplus cash and how we have deployed it. Over the last four year we have made $2.75 billion in voluntary contributions to our pension plan; that ensures that our pension plans has maintained a very high funded status and really minimizes that the ongoing volatility of our pension funding requirements.
We have also returned $1.7 billion in value to our shareholders through share buyback programs, and we’ve enjoyed a remarkable payback on that investment. And we have made strategic acquisitions that you know of particularly CTV, The Source, Virgin, MLSE, the Montreal Canadiens and Q9, and we have executed all of those actions while maintaining an overall credit profile that’s consistent with our credit objectives.
For 2013, talking about excess cash, our plans will be to deploy that cash towards the purchase of wireless spectrum in the upcoming 700 megahertz spectrum auctions that are slated for the fourth quarter of this year. Our capital structure I think provides us with quite a solid foundation and a very high level of overall financial flexibility.
Our credit ratings have all have stable outlooks and we expect our credit ratios to improve over time as we grow our EBITDA and as we grow our free cash flow. I also want to say that I think Bell is very well positioned with an attractive long-term debt maturity schedule.
As you see on the slide, our average term of debt is approximately 10 years. Over the past four years, we've taken advantage of low interest rates to reduce our cost of debt by about 200 basis points with our average after tax cost of debt today being about 3.9%, and I think you should expect us to continue being opportunistic in pursuing those type of refinancing actions as we see opportunities for them. We also maintain committed lines of credit giving us access to over $3 billion of liquidity should we need it.
And finally, you will know that our history of financial management has always been a prudent one and that's not going to change.
So let me turn to our financial guidance for 2013. First, I would say that with the transformation of our operating mix more and more towards growth services and away from Wireline voice, we expect Bell revenue growth of up to 2% in 2013.
Our consolidated operating margin should be stable resulting in Bell EBITDA growth of 1.3% and that should then translate to growth in free cash flow of 5% to 9%. We are looking to manage Bell’s capital intensity in 2013 at around 16% to 17% of revenues and that will allow increased spending to expand our IPTV footprint to begin implementing pair bonding, to extend our urban LTE build out and to meet growth and demand.
At the BCE consolidated level, our guidance is for adjusted EPS of $2.97 to $3.03 per share and that reflects the new accounting for pensions. Lastly, I want to be clear that our financial targets that we are presenting today do not include the pending acquisition of Astral, what we will do is come back and refresh our 2013 once Astral is closed which we expect to happen around the end of the second quarter of this year.
So a couple of comments on revenue. First, our plan continues to be built around strong growth at wireless. Bell wireless revenues in ’13 will benefit from the flow through of strong postpaid subscriber acquisitions in 2012, growth in smartphone penetration and an increasing share of high value customers in the west and in business markets.
Wireless voice ARPU is expected to continue declining but will be more than offset by data ARPU growth as higher smartphone penetration, LTE devices and emerging revenue opportunities like mobile commerce all contribute to growth in overall ARPU.
In wireline, we expect improvement in residential mass erosion as we leverage our growing Fibe TV footprint to drive both three product households as well as driving greater levels of growth in the in the MDU market. Stronger TV and internet revenue growth should support total Wireline revenues in 2013 being essentially stable on a year-over-year basis.
Wireline revenues will also benefit from the residential customers who are coming off significant promotional discounts of last year and as well from price increases on residential services that we introduced in January of this year.
In the business markets, I have to say we don’t have any great crystal balls on the economic front, but we're very positive about the new product and service bundles that we're rolling out for the SNB market and as well the commercial relationship that we now have with Q9 and with those we anticipate overall improving business market trends for 2013.
Finally in the Bell Media segment, revenues should remain stable year-over-year, given the significant sales lift we got from the London Olympics last year.
On EBITDA, the main driver for 2013 will also be wireless. In addition, we expect Wireline to gradually improve over the course of the year benefiting from improving revenue performance and additional cost savings.
Media EBITDA will be impacted by the retroactive specialty rate increases that we benefited from in 2012 and with all of that, we expect Bell’s consolidated EBITDA margin for 2013 to be stable at about 37% to 38%.
So, I would like now to specifically address our pension accounting for 2013. As I mentioned, our reporting will be impacted by the new IFRS standard which requires that the expected rate of return on pension assets has to be reduced to the accounting discount rate.
Under the new standard, we will be restating our 2012 pension expense and EPS that will result in a non-cash reduction of adjusted EPS in the amount of $0.22 for 2012 on a restated basis.
Then as we look at 2013, the new standard together with a lower accounting discount rate that we will be applying and that new rate will be 4.4%, all of that will result in about a further $0.06 year-over-year with non-cash impact on adjusted EPS.
At the EBITDA level, we will see about a $50 million year-over-year increase in pension current service cost that comes from applying new lower discount rates and also from the fact that in 2012 we had a one-time $24 million curtailment gain related to some of our post employment benefit plans.
Less pension expense, on the funding side, Bell’s normal cash funding for 2013 and for future years for that matter will be maintained at a stable annual level of about $350 million. I want to be very clear that there is no letters of credit that we are using or that we would be planning to use towards the funding of our pension plan.
The funding of our plan is at a very high status level right now. In fact, our pension solvency deficit could be eliminated if the discount rate should decline by about 1% and should that happen it will reduce Bell’s ongoing level of cash funding in future years and I say in fact, we have already seen about a 25 basis point increase in the discount rate that would be applied to Bell just in the first month of 2013, so we are up to the right start.
Our history in managing the pension plan I think has always been a very prudent one. I think we have state well ahead of that and I think that’s going to benefit us for years to come.
So moving onto taxes, statutory rate is the same in 2013, 26.6%. Our accounting effective tax rate should be just slightly lower than that at 26%. We had a high level of tax adjustments in 2012 of about $0.18 per share. For 2013, we anticipate a lower level of tax recoveries of about $0.07 per share.
Lastly, we expect overall cash taxes to be maintained at about the same level about $300 million in 2013 equal to what we have paid in 2012 and our taxes are going to benefit from the tax deductibility of that special pension contribution that we made at the end of last year and we will also enjoy higher depreciation, tax depreciation claims and investment tax credit claims from the increased level of capital spending that we have made over the past few years. So, overall a stable outlook.
Turning to EPS, with the new pension accounting standard, our 2012 EPS on a restated basis will be $2.96 and with the higher expected pension expense and lower tax adjustments that I spoke of; we are projecting 2013 adjusted EPS to grow modestly to $2.97 to $3.03 per share. Before tax adjustment that represents growth of about 4% to 6%.
And lastly on our free cash flow generation for 2013, I think that's going to be quite strong. We expect it to grow to a range of $2.55 billion to $2.65 billion before common dividends. That's a growth target of 5% to 9%.
Cash interest payments will be slightly higher in 2013 given the slightly higher level of overall debt that we have from the acquisitions of MLSE and Q9.
Our 2013 cash generation I think provides solid support both for the higher level of capital investment we are making into the business and for the $0.06 dividend increase that we announced this morning. So in this side, this is really a slide, it’s for your reference it’s a breakdown of main reconciling items between EBITDA and free cash flow and all of that is in line with our guidance.
So to conclude, I think I would like to say that our 2013 plan is a very solid one and a very achievable one in the eyes of our management. We expect good growth in consolidated revenue in EBITDA, EPS and free cash flow.
Wireless will lead the way with continued double-digit EBITDA growth and some margin expansion. And Wireline will reach an important point of progress in its business transformation where it will show improved performance with a more reliable broadband growth mix and improving business markets.
All of this will ensure a stable consolidated margin at Bell. So, Bell’s fundamentals are strong. I think we are well positioned to sustain continued growth for the longer term and continued healthy dividend growth for our shareholders.
So thank you, and before I hand it over to George, we would like to share a short video with you that which we think captures nicely some of the milestones that Bell has delivered over the past four years. So let's show that and then George will be up. Thank you.
Well, good morning. And it seems that thank you for taking the time this morning to give us an opportunity to give you a much deeper understanding of what we are planning to do in ‘13 and what we have been doing. As the video hopefully reminds everyone we have accomplished a significant amount over the past four years as a company and for the investment community, but as the video says I actually truly believe we are now just getting started.
The focus of today’s agenda is really around 2013 operationally and strategically, but probably more importantly I felt it was really an opportunity to give the investors a unique time with some of our senior executive. The executive team that we have built in this company over the last five years, I am convinced would stand up to any Telco or cable leadership team on the globe and we want to give you that opportunity here from those leaders today as investors in Bell.
And then Siim talked about you know, we have accomplished a lot in 2012 and I will just quickly add a few comments to the year if you go back to ‘08 and you look at where we are today, you know operationally in 2012 leading and we believe we will lead the industry this year in postpaid net adds, wireless ARPU growth and EBITDA when all the numbers are in for the year.
Increasing our consolidated Bell EBITDA margin year-over-year in that declining voice challenge we have on the local access side. Again reducing our OpEx cost this time a $166 million, bringing our cost reduction since 2008 to well over a $1 billion and that excludes the working capital improvements of well over $500 million.
Quarter million, 250,000 Fibe TVs under Kevin leadership not easy because sometimes we compete with this people and sometimes the customers in terms of the distributors but we settled agreements with all of the [BD] used in Canada and most importantly significant improvement in our service which drives lower churn.
We are going to spend a lot of time on the strategic stuff this morning, but strategically expanding our, what we call FTTH which will be fibre-to-the-node or fibre-to-the-home ending near $5 million in homes pass and $3.3 million as we’ve said we will achieve in terms of Fibe TV.
Launching the largest city in Canada with fibre with Quebec City a 100% fibre and absolutely thrilled with those results. Wireless as we mentioned LTE at 67% of the population acquiring the ownership in MLSE, securing us access and price going forward on to the most important content in the media business in Canada and that being sports and also something we are seeing on a global basis. Acquiring ownership of Q9, positioning ourselves in the fastest area of growth in the enterprise space and that's the data hosting and Cloud computing market and we are hoping to have a check mark there as everyone knows but still pending the Astral acquisition which as Siim said we are very confident we will close in the middle of this year. This slide to me is very important for the investors. We've had a dramatic change in our revenue mix in the last five years. I think I share a few numbers we wouldn’t normally share just to make sure the investment community can see what's really happening underneath our revenue.
Over 80% of our revenue in 2013 will be driven from our growth portfolio and 20% will be from voice. Importantly, of course business voice is much more stable than consumer voice, because consumer substitution we are continuing to see on the wireless side. So we will actually exit 2013 pro forma the Astral transaction with consumer voice revenue representing less than 7% of our revenue. And that is significant as of course the analysts know if you look at what our mix was a few years ago because a 10% decline on a 7% a year base is a heck of a lot different from where we were four or five years ago. So absolutely critical transition in our revenue stream is going, if you will through time through our revenue and also our mix with all the growth in our growth portfolios.
You saw on the video, we are a little boring, six strategic imperatives, same story, same story going forward. We execute successfully in the marketplace on these six strategic imperatives, we continue to generate a free cash flow that we are building the company on the basis of the capital markets on, which as an improving free cash flow allows us to continue to do what this asset should best do which is generate dividend growth, steady dividend growth over time for shareholders. So we take a look at our broadband network strategy for next year. You will notice we creeped up our capital intensity from that 16% to a 16% to 17% range next year. We did not want to cut our capital back because the Astral transaction did not close, so we creeped it up a little bit, right investment and also you can see with our free cash flow guidance we have lots of room to do that.
From a wireless perspective, we will end 2013 with 75% of the population covered, getting to 98% ultimately. After the 700 auction is completed we will cover rural Canada with LTE and we expect that rural coverage to happen obviously in 2014, as we now expect the auction to take place late in 2013. And it is worth mentioning also over the last four or five years, Canada has become the global leader in wireless technology, but there is no other country in the world that has three LTE networks like we have in Canada. It’s incredible how the industry has changed in Canada and we lead. Go to Europe, your handset will go back three levels of technology, the concept that other places in the world are ahead of Canada in wireless technology are quite frankly wrong, we are ahead of the world in wireless technology.
Turning to our wireline acceleration, its all about broadband and fiber, getting fiber is close to business and as close to the home as we possibly can and extending our IPTV footprint, and we will extend our IPTV footprint this year and Stephen Howe will share a little better detail than I can, but we will do part of that through the introduction of pair bonding which will increase the distance that will allow us to actually extend our IPTV footprint and overtime speed, and Steven will talk about that. We do fiber-to-the-home now in every greenfield. Any new neighborhood that’s built, we built fiber right to the house, all condominiums, we built fiber to the buildings, it's been going back all the condominiums in Toronto and across all of our footprint, and also from a business perspective, we're building fiber to many more buildings this year and anywhere we have aerial plants that does not have fiber-to-the-node, we are putting it in using fiber because aerial plant with fiber is quite frankly at this point it’s economical for us or very close versus doing fiber-to-the-node.
Thirdly, continual capital program and customer service [Technical Difficulty] and importantly for you drives our cost down going forward. At the end of the year 2012, we launched a number of services, John will talk about this as well, but a real focus on self service functionality. On the Wireless side, we’ve launched a new app, customers can track their wireless usage, check their balances, make payments, all of this online and we have seen millions of users already and we just launched that in the fourth quarter, and on the online side from our TV business where customers can go in and upgrade or lower the package that they want, select the programs they want, and track their internet usage real-time from a billing perspective. All of these areas what the customer wants to see and from our perspective again drive significant cost opportunities for us going forward. And I think one of the issues always for investors with our store is how much cost, what can you continue to achieve? And let me just step back and remind investors we have a $10 billion cost structure. So 1% productivity in cost for us remember is a $100 million. We expect in 2013 to further reduce costs another $170 million and that will come through the call center efficiencies and field service productivity tools I just talked about, work force reductions through normal attrition and retirements. As our employee base ages and we put in place the productivity tools we don’t need a necessarily replace employees who decide to leave the company or actually meet retirement and that drives our cost structure down.
Over 50% of our wireless customers today do not get a paper bill, they choose to get their bill online and so that is obviously dropping cost and quite frankly is why we have been recognized globally as the most green company in Canada. Further reductions have been negotiated with all of our major supplier for 2013 on both billing, software licenses, set top box and logistics. There is no Olympics in 2013, not great if you are a sports fan but if you are in Bell that’s a good thing this year and if you are looking at our cost side because our cost will be less to execute this year. And this does not include any of the significant synergies we expect. Kevin will be able to sort through when we integrate Astral with Bell Media. And most importantly a satisfied customer from our end cost us less the support and that's been key to what we have done. I think the mix slide is really important, I think this is probably from what Siim and I have seen and talking to our major shareholders are really important slide, because there is the perception that our wireline margins some how going to our other wireline margins are in north America and that is not going to happen.
People forget that we already have a $2 billion TV business in our revenue stream. Yes our wireline is challenged, but we think 2013 starts to be bit of a term in that. So not really guidance but to give you a sense, we expect our wire line EBITDA growth which was negative 5 to 6 this year will be in the 2 to 4 range as we go into 2013. Why will that happen, well we are coming out of the J curve on Fibe TV. We’ve already seen that we bottom on the negative EBITDA of Fibe TV. We are going to some of those promotions that we did the launch of the initial service, and the customers are now seeing those rates come off those discounts. The market has absorbed some price increases both from the cable operators from ourselves.
Our business performance B2B has improved and we expect to improve this year as of the Ontario Quebec economy shows some signs of job growth, and I mentioned rather the further cost savings. We expect our EBITDA margin to come around 37%, interestingly enough higher than our EBITDA margin was in wire line in ‘08 and ’09 when over 30% of our revenue was from voice, and if you take the non-cash charge in our pension, it actually is relatively flat year-over-year, and so that I think is a real stake in the ground for us and one that so many of you brought to our attention and we want to make sure, we had some clarity around that as investors in what we are planning to do in 2013.
Also on the wireline side of course Siim talked about; for us its about Fibe TV. Fibe TV is growing 250,000 subs at the end of ’12, 85% of our TV subs are coming from cable operators on new growth, 15 is migrating from our satellite business. We expect that to continue to happen to migration from part of our satellite portfolio. Obviously our satellite portfolio lent itself perfect in some markets and that's where we have to focus to move our market share. 3.3 million homes covered, 84% of the customers with Fibe TV take all three services, and importantly a 100% customers of Fibe TV take internet and that's fundamental to what we need to do going forward to grow our internet market share.
This slide probably best shows what's happening, where we have IPTV and where we do not. We are actually positive RGU growth in the footprint where we have IPTV. So our internet and IPTV growth is more than our NAS losses. So strategy and more IPTV footprint, and so you can see in 2013 we think we will be right on the cusp as many clients left if you will in the other footprint added if you will where we expand IPTV footprint, so very close to breakeven and that's obviously very important to the revenue stream of our consumer wireline business and the lower revenue from voice as we go forward into ’14, ’15 and ’16.
So we are going to expand footprint and there are significant markets we are not in today; Ottawa being the largest. So we will go into the Ottawa market with Fibe TV with the same type of marketing that we did in Quebec City and we expect to move the needle for market share for us and away from our competitors in the TV business and so we will end the year with 4.3 million. You can see we will launch Markham, Laval in north shore, south shore Montreal, all these markets and what's really important for our marketing team that gives us the ability to market this product in a much broader way through many more distribution channels because when its available if you will and a footprint that large the marketing is much more effective.
So we are really excited about it. 4.3 million homes covered of our 7 million homes at the end of 2013. Bonding will expand our IPTV footprint and current footprint. It takes a distance where right now you need to be 900 meters from the home where the fiber starts to 1400 meters when we go to bonding, and we will introduce bonding in the middle of this year. And later this year into the mid part we will actually roll out a wireless set top box, which means you will have multiple boxes in the home that are wireless for IPTV and that will take installation time down dramatically for [Maryann], make us much more competitive than we already are where Fibe already has an advantage, customers can view the box, you can actually sit outside, whatever you want to do and turn to the box being wireless, takes install times down cost times and quite frankly we think its going to be a game changer for us with Fibe TV.
On the business market side, as Siim said, I mean clearly that is so economically driven for us. Yes there's substitution and there's competition, but clearly job growth is what drives our business growth, and because we are so focused on Ontario and Quebec, we have a $4 billion business unit and that's wireline, that excludes our wireless B2B. You add a $1 billion for wholesale, we have a $5 billion business there, and quite frankly job growth will have that asset growing better than we have historically and we are cautiously as always optimistic the job growth in the US will drive some job growth in Ontario and Quebec.
Our investment in Q9 and our own data centers gives us 19 data hosting centers, sets us up perfectly for our customer base. We see about a 30% connectivity and tax rate to data hosting. So now we have the number one data hosting partnership and our own locations in Canada, absolutely in the sweet spot of our customer base, 96 of the top 100 companies in Canada use Bell today and we obviously want to manage their hosting and data services going forward.
Turning to wireless, I would say probably that the items that the management team of Bell is most proud of and that is the turnaround of our wireless business to go from where we were to back in to a leadership position. Yes, head to head with two really good competitors, but we were in the game and we are competing aggressively.
And a number of things have taken place to do that, so many investors ask so what exactly, what's the one thing you did, it's not one thing, it's all of these items that have been important under Wade’s leadership, launching the new network, making the strategic acquisitions, leading the industry in distribution and I have to give Wade Oosterman credit here. Wade said three years ago, retail was going small screen and he said by the source, and he was absolutely dead on and having small retail trend in to a competitive advantage because the products have got smaller. 80 million Canadian go through the source a year and we have a store within five kilometers of every Canadian. So I mean it's a powerful distribution. Refresh the brand, improving customer service and Wade Oosterman, John Watson and Stephen Howe have a more experience than any Executive team in Canada in wireless. So we have a great team leading that base with a proven track record.
And this slide probably tells the story the best. The real, internal goal at Bell is not 33% of postpaid market share, it’s 32% postpaid market share but more than that of incremental revenue and EBITDA share. So you want to punch above your way, you want to be reasonable in market share, but execute on revenue and EBITDA and you can see in the previous 12 months, yes 39% of the net adds but 43% of the revenue and 54% of the incremental value. So 54% of the industry’s growth and EBITDA we captured of the incumbents over the last (inaudible) but a whole of our competitors had vertically integrated. So just to step back and say has it been a growth opportunity? Yes. Has this accelerated our positioning from a four screen perspective? Absolutely, the market is moving to TV Everywhere and Kevin’s going to talk about that.
We’ve had some differentiation in the market with mobile, TV leadership, in an industry that’s so competitive having differentiation is really valuable. It’s been a great hedge against our programming cost which are now we spend more than $600 million a year on content and now we are going to end up buying roughly a third of that from ourselves, and we level the playing field against the cable operators. People have to (inaudible), it’s important for investors to remember Rogers was vertically integrated, Quebec Core was vertically integrated and (inaudible) was vertically integrated, and all of a sudden people weren’t given us access to the contents so we bought content to make sure that no one would ever deny us access to the contents and that’s working very well and most importantly for you it’s been very shareholder value accretive as Siim has talked about.
Kevin will touch on this, but clearly 2012 an important year because for us the first full year of ownership of the asset great financial results, great new contracts with the BDUs, global leadership from an Olympic perspective and tremendous therefore for the brand and ‘13 is all about maintaining that viewership leadership, containing our programming cost both in Canada and US, leveraging our investment in MLSC and the Montreal Canadians because we have access to that content and obviously many new product introductions and most importantly from a corporate development perspective getting that astral transaction closed. In terms of our regulatory agenda for ‘13 for the investors, I think there’s really three key files, excuse me, the first one being the Astral transaction. We expect the hearing to be in the spring, we anticipate that we know already we will need CRTC in competition for your approval and we will make sure we have those in that timeframe, and we would expect closing to be in the summer time period subject to the hearing happening in spring and then getting the approval.
Our application will meet the requirements that the CRTC wants to see, there is no doubt of the rules changed from the first proposal to what the CRTC now wants to see and so the assets that we will put forward to meet those requirements will become clear to the investment community at the time the files comes out, but even so we believe we can meet all of our strategic objectives with that acquisition and it will still be accretive and Kevin will make a few comments in a moment.
Turning to the spectrum auction, 700 MHz is strategic for Bell. We will participate in that auction and we will secure spectrum to make sure we can execute our strategy in the marketplace going forward for Canadians and rural markets, because 700 is tremendous for rural Canada and allows us to continue the leadership that Canada has globally by getting LTE into all those rural markets as quickly as we can.
The policy does encourage investment nationally. We think it’s the right policy in terms of what's been put forward. I think the auction, we expected now in the fourth quarter, I think the rurals continue to come out a little slower than we anticipated and one of the issues for us we want to make sure is that there is some set aside spectrum which we are fine with, but we want to make sure there are actual companies who are going to bid for that spectrum and if they are not we are really pushing hard that if they are not able to bid or someone decides not to that spectrum shouldn't just be candid to someone in someway should be reentered into another auction. So if people are not prepared to step up and acquire that spectrum we want to see that put back in and so you will hear us voicing that.
Having said that, if everyone’s prepared to participate, we are comfortable where the rules are today. we just don't want to have spectrum; not going anywhere and not deployed and we've just seen that happen already. Spectrum that was auctioned four years ago is now been sold through a process with an option audit and there was no deployment of that spectrum, a complete waste of spectrum in this country, you need to deploy in the country for the wireless industry.
And then the wireless code of conduct, that's as important hearing, its one of the three wireless carriers, the major carriers have asked the CRTC to do, because what we are running into was each of the provinces wanted to see certain different codes in each province. We thought to be consistent with the country’s productivity agenda and for our company's and for the shareholders, one code would be much better than having code by province; especially from an IT perspective which takes productivity out of the Canadian economy if we all have different programs for every store and every province.
So we would like to see one national code. We are encouraged by what we've seen this year CRTC announcing we think a number of those things were the right steps, a number of those are being done some or all looking to do so I think its going to be, it should be a very positive outcome. The only caution I would have and we are going to push very hard on this, we can't have a code and then say but each province will then have a code as well. otherwise we totally defeated the purpose of having a national code and so that's paramount for us, its paramount I think for our investors and for Canada to have one national wireless code that we all follow and go through and as I said already, Canada leads the world in wireless technology and we want to continue to do that after this of course.
So 2013, keep the wireless momentum, improve the wireline trajectory that I showed you how we plan to do that, accelerate IPTV footprint, execute the cost reductions, transformation of revenue mix and growing our free cash flow 5% to 9% and that excludes the Astral transaction which as you know is also cash flow accretive as we go forward.
Siim showed you this slide, I just want to give you a sense of how I think about it as well and once how the Board of Directors thinks about this. We want to continue to see that excess cash flow which you see of about $800 million a year where we can deploy it on strategic agendas via pension or acquisition or spectrum and the reason we increased the dividend today, if you look at our guidance, we are right in the midpoint at 69% free cash flow with the dividend that we announced and so that's why we are able to raise the dividend based on our confidence and our free cash flow going forward next year.
So that’s a quick overview of where we are. We're going to get into a little more detail now than normal. I would like to call up Mary Ann Turcke, who is our Executive Vice President of Field Services. She is going to give you a sense of how we're able to improve service while at the same time drive cost out of the business. So Mary Ann over to you. Thank you.
Mary Ann Turcke
Great, well thanks George and hello everyone. I’ll take a little time to take you through a little bit of journey we’ve been on and while I believe are unconcerned gains in productivity and service at the Field Operations has made about Canada, but more importantly what I think are some outstanding opportunities still yet to come.
Before I took over the Operations in 2008, I was worried and lots of debt from lots of bankers and lots of consultants around the continent about $150 million or so. Cash, opportunity that was in this business. So now we're approaching the end of 2013 at the end of this year and that number should be about $250 million.
So we've done some really good work. And these are not the results of one timers; what these are fundamental, efficient and smart practices that we’ve developed over the last four years that really make this operation different and really make it, we have a sustainable operating advantage going forward. From what I’ve seen, I believe that one of the best operating teams in the world and we're going to get into a little bit now and I want to show you what we've done and I want to show you some of the opportunities we have going forward.
Who are we? So we're the force that services every single business and residential customer at Bell Canada. We build every meter of fiber that is out there; we have three broad themes you can see there, Bell Canada technicians, Bell Technical Solutions and also Expertech. They are governed by eight different collective agreements in the CP and that’s not nearly as scary as it seems.
Our technicians are really, really good. We want them to do the work and the CP wants them to do the work too and over the last five years we have made historical gains in working with our labor relations partners in getting unprecedented flexibility and unbelievable productivity from these agreements. This is really hard painful work, but I believe that it’s put us in an advantage over some of our competitors as we move forward. It’s a structural advantage and I will explain to you why I believe that in a couple of minutes.
And as for scale, well we do about 1.6 million repair tickets every year, about 2.5 million orders every year, about 4.5 million trunk calls every year and last year alone we build 3,300 kilometers of fiber mostly in Quebec.
So George mentioned, our mantra and my mantra from the beginning has really been that simply put doing things well is going to cost us less; period. Let me give you a few examples, how about we train the technicians on Internet so they can do the job that’s how we started, 4.5 years ago, how about we give them laptop and test sets so that they can tests the lines properly and get it done right at the first time, how about instead of shipping modems all over the place, we actually show up with the technician, install the modem, activate it and explain to the customer how a fantastic Internet product works, you saw in the video for install that’s what we did, how about we commit to 95% of the time being there same day or next day for every single repair call that we make, not the same day, next day promise. This same day, next day promise saves us money; it saves us money because it shortens the sunk capacity in the system. In operations the closer the time between the order being placed and that capacity being deployed, your operation by definition becomes the whole lot more efficient and you will see we have done in provisioning, we have done that in repairs all in the same next day.
How about as we go forward, we figure out a way to optimize our load, our work in day, throughout the day so that we can play real-time with our capacity, and what if we have mobile devices integrated with GPS with our load, so we not only know where the tech but we know where he is adding his work, and so that play as capacity as we move through the day, shortening our right time, right phase and shortening our on waiting on what time, every minute counts.
I said before that materiality matters in this business, in large scale operations materiality really matters and in this operations if we do the math about five minutes of savings, if we save five minutes on every single job we do it’s worth about $25 million to $30 million a cash year, so we swap the details in operations and I will show you a little bit about what we can do now.
Customer service simply is better in the field, same day, next day repair I talked about, on time, this for me was the cost the admission, if we say we are going to be there between eight and 12, we are going to be there between eight and 12, I expect it of my teenagers and I expect it of my technicians, technicians are more compliant.
Fill orders faster; go from eight days to two days on internet; I talked about the nature of the math behind the operation, the sort of the difference of time between needing capacity and deploying capacity, the better off you are, we double down on that benefit with provisioning, because slippage is also profoundly better when you install after two days of the order intake and as opposed to waiting for eight.
Inside support wait time, this is really important, a technician is in the home and he is having problems, he had to wait 45 minutes to get someone on my team to pick up the phone. So how about when you are in the house and you are having problems somebody somewhere pickup the phone because as soon as we pay the money to rue the truck everyone’s job becomes helping that job get done, everybody’s job, my job and every single person that works for me, because of how you deploy the resources and that's the most valuable thing we have. So we got a lot better there.
Branded trucks and clothing, we did a great job on helping us with that. Our guys are so proud to wear the Bell Blue everyday and our customers are more confident in what we stand for and what we are going to do every time we walk in a house and simply put our customer satisfaction with our tech’s is unbelievably high at 92%, of that satisfaction of 92%, 80% of those customers will give us a perfect score of five on five and we ask every single one of them.
So moving forward, there are three facts of wireline operations and it’s the same anywhere. The product mix is constantly changing, George talked about that. Field load is innately volatile and you must have the right person, at the right place with the right time. Managing all these three things together under tighter and tighter service constraints without adding buffer resources is what makes a good operation a great operation. Lots of people run operations with too many people, but those operators frankly just aren't part of the wireline operation and is consistently posted 10 point margin advantage over the competitors.
When we think about a product mix constantly changing, so we basically are transitioning a voice workforce into a TV work force from a copper tackle install jacks in the house to a variable in-home consultant. Pick your best guys and make them better. They have to apply, they have to meet our standards and they must work when and where the work is.
I referred earlier to our labor relations gains. When we first started going to TV, a TV installers two to three times that of a voice install so it shouldn't have surprised anyone and it didn't surprised me that a lot of customers are expecting Saturday and Sunday appointments, only our collective agreements didn't allow for that, our scheduling didn't allow for that.
We simply, we basically went to the end and said you want the work, we are going to open a collective agreement, we have six weeks open it close it and the work is yours, let's go and we did it and that was the first time in history that we did it with our Bell Technical Solutions work force and we took our very best internet technicians and we put them on TV because with their most important products and now we have some of the best technicians in the business in North America doing this work.
Control the customer experience; what I mean by this, scale where you can and incubate where you need to; launching IPTV is a very scary, scary process, we talked to a lot of people before we did it and we chose very, very wisely to scale where we needed to. We had a scalable operation in the field. I talked about how we trained the internet technicians. But we also built a super caliber insight technician so that when our new technicians were right on the field they had somewhere to call a safe place to call where they could get help, was it scalable, no; was it expensive, sort of; was it worth it? it was worth every single penny.
Today, our repair dispatch rate for average in-service subscriber at a few hundred thousand sub is better than those that are a few million subs. So we climb the learning curve way faster, way steeper than a lot of others that have gone before us and it saved us millions in the process.
And finally now, as we look forward, we're going to start to deal with productivity in IPTV. From my perspective, there was just no use in rushing through an install for not to be done right. So we took the time and we learned what we needed to learn. Now, as we move forward, there is a new level of maturity in the IPTV operation and we will start to turn our attention to productivity.
The single biggest factor for IPTV productivity is technician tenure. As a tech climbs the learning curve, which lasts about 12 months, we see the single biggest gain in time per job and in quality and just to give you an idea of the numbers, in 2011, 80% of our technicians working on IPTV have less than 12 months of experience. In 2012, that number was 60% and this year it's going to be 35%. Technicians average install time decreases by about 15 minute, that’s average, decreases by about 15 minutes between the first and second year, but more importantly the standard deviation over which our technicians perform shrink. So when you are managing an operation, the lower the standard deviation in each level unit of work, the much more efficient you can be and we’ve had huge gains from that and that will move forward as well.
George talked about the Wireless set top box. About 30% of the time in our installed, we had to rewire the entire house. We use the existing co-apps if we can but 30% of the time we have to rewire and this isn’t the rewiring a decade ago where you staple gun the telephone wire at the top of the base board. This is fishing wires through big homes so that we can get our product working and it can take our guys anywhere between 60 to 120 minutes to do it. It puts a massive tail on the backend of install time and when George talked about this being a big impact for us this year it will be huge.
Finally, the customer tutorial may not seem like a big thing, but we do spend a lot of time at the end and install taking our customers through the product, through the features how to work it, if we don’t it just ends up in a call coming back through John’s shop which costs us more money, so this year we are putting that customer tutorial online. It is a tool that we have in our tool box, but I have made it clear, if that customer wants us to stay and hold their hand through that tutorial we will stay and we will spend the time to do so, but it’s another tool in our productivity tool boxes we move forward into next year.
Well, I’ll talk about field load, our field load can fluctuate as much as 20% to 30% on any given day depending on weather and depending on outages and other elements. In addition, it does fluctuate between 30% to 40% depending on the season, with the July move in Quebec and the student enrolling in the universities being our two peaks.
If you overlay the geographical nature of our business you, end up with a pretty complex algorithm in terms of resource allocation. You overlay that again with the fact our same day next day promise means every morning when I wake up I only know about 40% of the work I have to do that day. This is where we spent a lot of time, how many resources do I need on each day; it’s where I spend my money, it’s where I write my check, the only way I spend less money is to have less resources on the load, but how many do I need.
This is a big question and this is where I personally and our team spend a lot of time developing some of the best mathematical minds in the business around the algorithm for predicting how many people we need and where so that we don’t have buffer resources out there and we are able to escape the fine line of the optimization of service and cost every single day.
Our labor force again gives us a structural advantage here, at Bell Technical Solutions 40% of my technicians are part time, that's unprecedented in a Telco space, it means I have unbelievable flexibility from rearranging eight week schedules to due date minus one calls to frantic phone calls in morning hours when my load is coming in too high, no other Telco has that kind of flexibility with the workforce of their own.
Finally, the right person and the right place, I spoke about our seasonal load, obviously if load fluctuates up 30% to 40% in summer time you are going to need to hire a whole bunch of people every summer, we hire between 600 to 800 technicians every single summer to meet peak load last between four and five months. It became very clear to me very quickly that I simply have to become the best in the world of hiring and training, because I can afford to have a technician come on the load for that shorter term and not be really good at what he does.
Part of the problem is wireline networks are very complicated and when you are hire new people you can't put them on the load because new fingers in a network create problems and repair problems cost you a lot of money. We are going to be the first in the world around our dispatch model, we are going to be the first in the world to integrate advanced in day optimization with a mobile technician device that puts us ahead on every measure in terms of productivity compliance, scheduling, tracking you can pretty much name it.
We’re having it a field trial right now and our techs are loving it and in the land and materiality I want you can think about this. Today, our technicians have laptops, it takes them about five minutes to log into the VPN, just to get their work. Tomorrow with the mobile device, they’ll hit the screen of the device. Every five minutes count and every five minutes means a lot and driving that through the field is what we are going to be doing here in the next couple of years.
Let's talk a little bit about managing here while I finish off. We have a database of every job, every technician does and how long it takes them to do it. We measure every technician on his time versus a standard time we set and we raise the level of that standard every single year. Each manager is stack rank at the end of every quarter based on the total results of his crew. The difference between the time it takes its crew to do average work versus the standard that we have set.
This is reviewed all thousand managers by me, the top performers provided they meet quality gates that we set are rewarded and it’s the only productivity based incentive compensation program that we've seen in the Telco space and it works, its comprehensive, its rigorous, its repeatable and it has motivated my folks to do what's right for the business.
Finally, our sustainable competitive operating advantage that we've built over the last five years, we work hard at being the smartest around optimizing the equation of cost of service everyday. We execute and we execute well. I say to my folks we standardize and measure, we adjust, we repeat, we do it all over again. It’s what we do every month and every quarter. We are a world class field operations but the most important point on the page is the last one.
Thank you very much. And I would like to invite John now.
Great. Welcome and thank you. I would like to build on some of the great work that Mary Ann has been doing to give you a window into what we call customer operations. So bit of history and a little over two years ago, my role was nearly created.
It was a focus on improving customer experience within mobility as well as the residential part of the business. I think it is important milestone of having an executive responsible for customer experience at Bell, essentially Wade and I split the P&L; it’s a structure that he and I have proven to be successful in the past.
At the time, Bell lagged in the area of customer experience on a number of levels and our costs were significantly higher and on the increase at that point in time and the two tend to go hand-in-hand. I'm pleased to report that we've made very significant gains, I'm through that over time and this slide gives you an example of what I'm responsible for. So Mary Ann owning field if you look at the bottom of this slide, I pick up the areas of customer service, also look at churn and loyalty management, all facets of that, experience transformation projects, the CapEx projects that George showed that my team drives as well as business intelligence and much of the remainder of my presentation will cover all these topics.
Similar to slide of Mary Ann, it's very simple but succinctly sums up what we want to do the difference between her’s and mine is that I add in the churn component. Looking after the churn element is a huge win for our business but also one that's very integral to operations.
It’s a different point of structure for us and our competitors most don't have that lined up within an operating construct but we find it works better. It helps us learn faster than the competition by knowing what's going on at every point in the feedback loop and then driving that back through with Wade.
We also believe that our focus here is really one of quality as you have summed it up what you’ll hear throughout my presentation and see on my slides is that quality versus cost focus. Quality always comes first, cost is the secondary benefit that comes and it’s sustainable at that point and drives competitive advantage. The two years have been busy in integrating the residential and mobility teams create a lot of benefits for us as we roll through. Our branded teams together was one that was a lot of work but one that has created more powerful group at the end of the day.
I think again the structure allows us to learn faster, scaled efficiencies that accrue to that, normally by bringing groups together. Also ownership for the household, the key component for us and looking at a triple of the future, many at times as a wireless phone not a wired one now within that construct and the overlap between what is internet between Wi-Fi through to being on our 4G network and the seamless experience the customers need to have through that is the core focus for (inaudible)
Also lined up there on CapEx exploits, we talked about, we got some greater details into that but very significant investments in that space and ones that are really delivering some great ROIs for the business. Our results, how we're doing? You see much of this with the financials that Siim brought about but things are certainly moving in the right direction.
And these are two components of what we look out; one is the satisfaction score, similar to Mary Ann that shows tremendous progress improvement. The other looks at net promoter score for anyone who is not familiar. With net promoter, NPS is just simply a measure of your customers recommending your products and services to friends and family.
And when you look at that jump, not only does that represent a great benefit from an experience perspective, churn perspective but anyone who is close to the tenants of NPS realize that's your best salesperson, that’s your best sales efficacy that really helps on the other side of the equation. I think especially in [mobility] business, this is working very well and willingness to recommend is helping us on the growth add side.
Our results also were confirmed by a lot of the benchmark external surveys that are out there. In this case, I am referencing Forrester with a 48% bump. Everyone takes a look at this and your progress essentially is quite important and then sequentially year after year, we're seeing nice, sustainable gains and we think that has lots of runaway into the future on that side as well.
It’s pretty simple equation, satisfied customers, they don’t churn and they don’t call you as often. So on this slide really pleased with the results we have created on the churn side, the benefits to the financials is very, very significant, probably one of the most accretive things that we can bring on deck is a better churn level.
I am Very, very happy that our results now are eclipsing probably numbers at four or five years ago and also we moved into the number two spot. Now moving to number two spot, we also did that while spending less, not an easy thing to do, very proud of those results for the team.
Now also with that, I am identifying the kind of cold volume reductions we have experienced. So more subscribers, more subscribers on smartphones generally in the past as your base grows, the smartphone subs grow, your cost go up. We have shown absolutely the inverse here, so quite pleased with the progress on both of those sides and the results surround it.
Little bit of detail in churn improvements, none of these are things that you wouldn’t know or seen before but what’s magical about this is how they work in sync. George had a slide that framed up all the goodness created on wireless, double clicking on the churn one, these are the key drivers and all of them sustainable, all of them ones that are getting better and better each quarters we drive along.
Operating expenses, so great improvement, it’s clear when you are executing while you got the right strategy, the right team on deck really good things happen in terms of your cost to support each subscriber, and what they don’t show on the slide is what was happening between ‘09 and ’10, and ‘09 and ‘10 we had double-digit increases in cost.
So the framing of this from double-digit increases to significant benefits and you also see quite a bit of transparency in 2013 don’t usually show this, but we see continued success and progress through 2013 as part of this program.
A little bit about our roadmap, so we have got four key drivers of our roadmap and down below you see some things that I would call our purpose within my team. So make it right, make it personal, make it better.
Simple language but very powerful when it becomes and grind into the culture of thousands of people providing service and every touch point and every experience that we have. We have also worked really hard to create a much more competitive leadership team, many for our folks, many stronger folks in terms what we do there, and as Mary Ann said, I think that we truly have a world class leadership team on deck within my shop at this point.
The four items here I’ll cover those upfront individual slides going forward. First one about capital, George mentioned the kind of capital investment that we bring into Bell, with the transformation and strategy that we have got on deck, we certainly needed to invest, a scenario that historically had not seen, the kind of investment that we would have had within our wired networks and this really has helped us to move forward.
Also to let you know, I have got a granular plan for the next 24 months that can use every dollar of capital that we can put into the space. And lastly, here the return that we get from this capital is amongst the very best for many investment opportunities for our business as we go through.
Little bit about execution, the key point here as I mentioned at the beginning of the presentation was there was a real cost focus historically manage the cost, what can we do for little bit less, where can we put things to manage that and we’ve really turned it upside down, quality is the key driver now. And the questions always will this help our quality, what can it drive for us? Great yield, some terrific operating efficiencies that come true otherwise.
Literally, as well there is probably thousands of things we've improved over the last two years as we've driven this agenda and I am very good at understanding what's going on. We see continued opportunity here. You saw that in the OpEx slide as well.
Complexity, complexity is a real challenge for our business. This is one example around the billing side so a double click on the $140 million of that about $50 million goes into billing simplification annually. And in doing so, there are tremendous opportunities there. One of the great things about having a company that's been around for 132 years is the strength, the brand, the quality, the challenges, we have some legacy systems and this kind of investment is one that yields great returns for us and has been our Achilles Heel over the time. So you can see the kind of investment, we see that as a terrific ROI for us and one that will sustain for the next little while.
Ecosystems, probably a term that most don't use and I find it to be a much more interesting term to describe what most others call self-service. And I'll tell you why I use this term. I find self-service really lacks the creativity and breadth of what we want to accomplish in this space. This is an unlimited canvas for us to create amazing experiences at a lower cost than before and it’s a huge point of focus for us.
George showed you a little bit about the mobility and care in mobile care plant and this was launched last year. We are very proud of this. The kind of results we created were terrific and the learning we get in terms of how customers want to interact with us. Its not as if we need a delayed sequence to figure out is it working or not.
You know within minutes and hours as to what you deliver, what works well and then you have a learning loop to improve that as well. Be it the-care, mobile care, care via Fibe TV which is an advantage of that platform that we will certainly leverage, you know, care via chat interactions in a multimedia space, there's nothing that we can't do within this ecosystem to deliver great experience as more cost effectively.
One additional point building on which George mentioned regarding the CRTC’s draft code of conduct for the wireless business. We've already been driving most of the agenda items that they have identified and we've been driving them proactively because they just make sense.
Bottom line is that millions of customers today over millions of times have been able to check their data usage, adjust it, buy additional packages, buy roaming packages, change their rate plant on the device they carry around on their hip since the middle of last year and we think that truly is a customer friendly agenda.
Business intelligence, it’s a bit of a fun slide, so the Harvard Business Review had some fun with this kind of topics, they are not usually known for humor by calling data science as the sexiest job of the 21st Century. So, you know, essentially the math and composite data clients are referred to as sexy.
Big data will likely become one of the most over used and misunderstood terms of this decade. You can count on that. For me the core benefit in this space is allowing our business to learn faster than the competition, simple as that. And that's one customer at a time we are able to do that. This is something I've dreamed about for about 15 years and it’s now a reality based on the software and hardware that's out there.
It comes down to inside math, we measure absolutely everything. Massive amounts of activity the challenge was always to know how to make sense of what's the cause and effect relationship when you have billions of bits of data roaming around and we've done a really good job driving into the space and creating understanding very quickly.
And on to my last slide, having a little bit fun with an ad that Wade recently ran to launch our unlimited internet offering. If you ask Mary Ann and I, what the future looks like? We would say that our opportunity to improve cost and quality is almost unlimited. On my side a little over two years, we traded a wonderful result, wonderful improvements in all operating costs, improvements in churn, improvement on quality metrics and we're two years in to a five-year plan. There has been awful lot of goodness yet to come and you can see that in the CAGR for ‘13.
I think with Mary Ann, delivered greater improvements in any Telco over the last two years, none. There was a recent article that stated your brand is nothing more than a promise consistently kept and we think about that every day. How do we ensure 200 million interactions across every channel, every service, every product or as close to perfect to the brand promise that Wade is making? And I think we're well on our way to making that happen based on this.
So thank you. That brings my presentation to a close. I believe you got a 15 minute break and thanks for joining the presentation.
If you can find your seats. (Inaudible) get started in a minute. Are we good to go? Good to go.
Good morning, everybody thank you for staying through the break. My name is Wade Oosterman and then the slide says these are the things I manage for Bell, and really my job is to manage our picker screen, fill it with goodness trademark kind of approach to the market as the whole. And the pieces of the business that I manage each play a role in delivering that promise to the market and you should ask why we have that view on the market and its because we can see very clearly a change in the market where people are becoming less focused on product centric attributes and care more about the ability to complete the activity they are interested in.
So, I want to watch whatever it is, I want to watch on the screen of my choice and that's one of the reasons why we are restructured to where we are to enable that. So as I said, my role is to make that happen, of course it's my role and the role of every presenter that is in front of you today to kind of deliver that to the market.
Today however, our focus is primarily on the wireless aspect of that puzzle. And then George and Siim have already walked you through the Q4 results that are released and the 2012 results give you some insight into our thinking on 2013, although I will give some more detail.
And you all have seen from those results that really the wireless team and the teams that enable the wireless group are all delivering at world class levels and we certainly incredibly pleased with the performance in 2012 and certainly since that ‘08 management and then since ‘09 of the large part of our new network.
So we have seen very positive performance improvement and so I what thought I will do is talk about what do we think for 2013 and beyond and do we see a path to continue that. And I think it’s important to know towards this six key strategic imperatives and you will note on wireless that continues to say accelerate wireless which certainly does not imply a lack of confidence in our plans there.
So let me begin with the industry as a whole and I think we are a fairly fortunate in Canada we have some outstanding industry fundamentals, you know our penetration rate has lots and lots of runway as you can see from the slide above, our data as a percent of ARPU, again lots of runway and then in fact if you look at it carefully you might even say there should be some pricing power there to come, and then I think very important for us and all of you in the room the percent of smartphones in our post paid base, which is ahead of markets that are much older than Canada’s market, Europe and the US. That high percent is reflective of the incredible networks that we enjoy in this country, and those networks make no mistake drive an ecosystem that favors us because the more smartphones there are, which device manufacturers make to take advantage of the great networks, the more you get the approximately ecosystem chugging along the more you get usage the more you get ARPU growth.
So all of those fundamentals are very positive piece of the puzzle for us as we go forward. So good industry fundamentals what about Bell; Bell even better and there are some things in here that are not specific to wireless help us achieve the results we do in wireless. So we are the only national wireless and TV provider and that's important, because video really drives a lot of utilization and utility in the wireless space. So the fact that we get that halo impact is important to us. We have, as you all know, a fairly significant cost advantage due to our network sharing agreement, but if I take a look at our network total, so wire line plus wireless our purchasing power gives us some cost advantages.
The high visibility of our other products in the residential space of Fiber roll out on both internet and TV delivers the same kind of halo effect. George talked about the source and we have the largest small box retail footprint in the country and again that is an important thing for us. We have the largest B2B or business to business sales force in wireless in Canada and our results and business continue to grow year-over-year, quarter-over-quarter. We are really doing a good job there. And of course the very unusual I would say we are probably the only one of the big three that can say this. We have new geographic markets ahead of us and that is an advantage for us. And how all those pieces fit together is probably best demonstrated how we leverage the totality of Bell and really make the whole greater than the sum of the parts can probably be demonstrated nicely by telling a little bit about target.
Our target is a large retailer. They have an ambition and are coming to Canada, and as part of that they of course want to be in wireless and their goal coming in was to carry all carriers, all products, the new entrants, existing established players all of them in their locations and for those who don't know 125 stores coming up. So we thought well that's not as good for us if they, you know our goal would be to have you only chose Bell obviously. So we used every element of the total Bell family to kind of talk to them about what they should do from a distribution perspective in Canada. And you take something like beyond the source, you would think that would be a disadvantage, but we went to them and said look our training program has been tailored for organizations that are multi skew organizations that have product outside of just wireless and how do you make all that work. So our ownership of the source where we have to develop the same kind of training programs helped us.
We went with Bell Media, people are you know sometime ask, how do all this pieces sit together. We went with Bell Media and said we can help you get established in Canada to our rent and reach on the Bell Media side. We talked about, from our enterprise group, the connectivity solutions we provide. So we put together a total value proposition for them. They ended up selecting Glentel as their distribution manager for Wireless in Canada. You all know that Glentel only carries us and Rogers. So a real, real win for us in Wireless, but leveraging the total Bell assets to make that happen. So some great advantage to us as an organization. But I know you are all familiar with the sort of four metrics that drive value in wireless and we deploy the assets, I just mentioned, to really make positive progress on each of this four. I know you know what they all are. So what I thought I would do is dive a little bit deeper on each of them and tell you why we're confident that we will be able to hit and achieve the financial targets set out by Siim and George.
So let me begin with ARPU. You know, ultimately we drive superior ARPU performance by changing our mix, and that’s actually a pretty important point. We do not need to use premium pricing to achieve superior ARPU results. Be it superior premium pricing, it would call in to question perhaps the competitiveness of our value proposition. We do not need to do that. We simply have to go improve our performance in the naturally higher ARPU segments. And they are fairly obvious, the West, not our historical strength, business, given that we were not a GSM organization several years ago. Tougher to get at those business clients and the roaming revenues that would come with that. All those things, we were – I restricted from - tougher for us to compete in those segments.
So simply having the right solutions and simply having the focus and improving our distribution in the west for example allow us to gain share in segments that have higher ARPUs and certainly our plan is to continue that as we go forward. A good example of what’s happening in that space is what’s happening on data ARPU. All carriers are experiencing wireless data growth, we are no exception. The factors that drive data ARPU are consistent, but they are ecosystem drivers. It’s nothing that we particularly have to do, it’s happening naturally we just have to execute better than our competitors to perform better in that space and again adding that to our mixed profile change we see really positive outcomes.
We do see as I said the smartphone acceleration continuing for next year. We expect to end 2013 at about 75% level. The only way we grow the total embedded bases of course a number higher than that of new sales we are taking smartphones we see that taking place, and all of that is driving as I said that data ecosystem more apps, more functionality, more usage, more ARPU and that’s continuing. A perfect example of that is mobile TV where Bell is an unquestioned leader in this space, with now 30 plus live TV channels, and you see the San Francisco 49ers in the middle of the screen there and that’s of course representing this year as Super Bowl, and I thought that would be kind of fun talking about some of the stats that came out of that to show you the kind of size and scope of the opportunity.
But our Super Bowl viewership this year was up a 100% over the Super Bowl viewership last year. It’s pretty cool number was up 80% over the London Olympics just this past August. Was up 50% so that's the kind of growth rates we are seeing since they breakup at the end of November. So incredible growth in adoption by consumers. And quite frankly remains that our competitors keep letting us run the ball up the field on them uncontested in the space, but I am thankful they do, because we are going to be at a million mobile TV subs by the end of 2013, and they contribute to our ARPU performance.
So some very positives and I would say relatively risk free attributes that make me very comfortable we are going to achieved continued ARPU growth as we go forward. Next subs for share of postpaid nets and we are targeting 33% and how do we see that, well it begins with distribution. We talk a lot of about, but we already have a great significant distribution advantage, and we just reached that deal with Target which will again is now a two player games instead of a nine player game in that channel. So we are far and away number one in distribution strength in the country. Our brands sits most powerful brand in Canada, the only non-bank in the top five, number one in that space. Handsets, we have the number one handset lineup in the country and you can just go to one of our retail stores and the competitors and prove that to yourself.
The way we get that lead is again the leverage the Bell assets but not obvious. But if you think about who the handset suppliers are, they have other electronics products that they make TVs, laptops, digital cameras you name it, and so when we can go to them and say look we can help you with those other lines with our group called the source, their interest in working with us on the handset side goes out. So we leverage those relationships, we leverage the Bell assets to gain a competitive advantage in wireless on the handset side.
Network we talked about that a lot, but we obviously have the number one network in the organization. We do support all this with the superior level of end user support and John talked about the 310% increase in net promoter score and that drives sales, make no mistake about it. So we see that as a positive contributor and then last on my list the Fibe, the new geographic markets, you know interestingly we just launched in Manitoba in the second half of 2012, that's the market Bell had never sold Bell branded products before. And it’s a pretty good market, 1.3 million [tops], 900,000 subs, 0.5 million or so of those with MTS.
Now you know our appetite, a third, you know our asset portfolio, pretty tough to compete with that as a player there. So will we be successful in our ambition, a 100%. We will use the totality of the Bell asset mix to achieve the goals we set out for ourselves in each and every market in which we compete. But for you the important point is it’s the market we've never competed in. So what is our ability and you judge for yourself what's our ability to drive positive results on the sale side in that market. Lower churn; well our investment in retention is absolutely showing results and John made the point that our churn levels are down.
Our churn levels though are not just down; they dropped more than any other competitor we compete with and they did that while we spent less than any other competitor we compete with. So very significant efficiency at work there. But because of the ability to leverage the other elements of Bell, because of our brand strength of our handset line up, our distribution strength and therefore the ability to service people in more locations closer to where they live, we are entirely comfortable that targeting that sort of COM levels 10% to 11% will allow us to achieve the goals we have in place for our efforts on churn. So we are very comfortable with that number, as we are on the capital side.
I did talk about the cost advantage we gained because we have the network sharing agreement. LTE is a lower cost infrastructure, lower cost to operate and carry traffic than alternatives and as we keep ruling out LTE that is a positive thing for us. It helps us manage the increase in data consumption, right because we can clearly see that happening and Steven Howe will touch more on that. We do continue to benefit from our backhaul facilities through our landline part of the house, and so in total we think when we look at it, that sort of 10% to 13% the medium and beyond 2013 is going to be just fine for us to support all the things we need to do to continue to be a superior player in the market.
Now of course this is wireless and so I would be completely remiss if I didn't talk about some of the more exciting things that are happening in our space. But it begins with, if we execute and I have every confidence that we will. It’s very clear to me that we will be able to achieve the financials we set out and that drives to improved margin performance and that happens through that ability to drive revenue growth, which I talked about and of course the continued focus on cost control. And that comes through being really disciplined. It's just that simple.
Our strategy is not to be the leader on price reductions though it’s good to know with our structure if that were to happen, we’d be okay. But it's not our goal to lead down pricing. So we're very disciplined about what we follow and what we don’t follow in the market. Because of our leverage with handset suppliers, we're able to secure devices that we don’t need to compete on price [con] because they are exclusive of that. So all those things let us really manage the cost side finding. So that increase margin lets us then invest as I said in things that make wireless a pretty exciting place to be.
You know, you would have seen for example that Facebook announced last week that more people now access Facebook through a wireless device than not. It's pretty remarkable thing to happen. That speaks to you know, what you all have to have in place to make that happen. Networks, the handsets, the rate plans, everything has to sort of enable end users to do that. But if you need orientation has to do precisely that. And John talked about the importance of everything and what I think gets lost perhaps is the structural advantage we have in getting all the benefits of an E enabled ecosystem. Most organizations have to spend, not an inconsiderable amount of money to get people’s digital addresses. We have it. It's their phone number. It cost us nothing to get it. We get it when they sign up. It's their internet IP address when they sign up, its their television IP address when they sign up.
So a huge structural advantage and just having data available to leverage all the cost efficiencies of the call it E everything world and that’s something that we push hard every single day for years ago now I think when we went to eBill as our default. The results we’ve seen in that space are just phenomenal. It’s taken out huge, huge amounts of cost and allowed us to generate some additional revenues. Wi-Fi VOIP or VOLTE voice-over-LTE, unlimited pricing all those things do important work for us. They lower costs and drive appeal of our product set, they shelter us from exposure in some cases. So, all of that drives positive fundamentals for the business.
Mobile commerce, we just find our first financial institution and this is through EnStream, EnStream is of course the joint venture Bell, TELUS and Rogers and that component we are working with every bank trying to put in place an ecosystem again that will regardless of handset we carry, regardless of financial institution you do business with and regardless of carrier you do business with will be a common new eye, a common way to interact and a common way to complete a financial transaction that commonality will drive adoption at a much greater rate than if every time you switched bank’s handsets or carriers you had to learn a new way to do it. So we are very excited about that and as I said EnStream just signed its first financial institution to enable. There was a lot of work ahead of us and lots of things still have to happen, but it’s all coming together. So that’s a really nice upside for the business.
Big Data just such amount of opportunity and particularly for an organization like us. We just signed an agreement with an insurance company so little bit Big Data, little bit machine to machine, where the insurance company will offer discounts to drive not based on a predicted model, but based on actual driving experience. So yes you will have the widget in your car and yes it will noticed whether or not you stop completely at the stop sign, like you were suppose to or you were speeding. It’s all voluntary don’t worry, I know I won't let it near my cars, but think of what that does. That insurance benefits because their mix and now moves towards the lower risk profile clients that’s good for their ambition and of course for us it drives data traffic on our network, machine to machine connectivity and all those things. So there is the small example that all coming together.
So it has a tremendous amount of positive energy in the space, we are exited about our ability in it. We are very comfortable that our brand promise which is today just got better will in fact turn out to be correct, and it gives us comfort as we look out that and that the inevitability of this multi screen environment coming together that we have the right momentum going forward into 2013, not just the right momentum, the right assets in place to achieve the financial objectives we have. Frankly I have the same sense of excitement, the same sense of optimism on the landline set of house, when I think about all the positive steps we are taking there.
So all of this will be an achievement of our goal and that goal of course is to be count as leading Canada’s leading communications company. Now the person who has to make all this happen and make all the technology work is up next. So Stephen if you can come up. Thank you.
Thanks Wade. My name is Stephen Howe, I am responsible for the operations strategy and implementation of various networks at Bell. Bell’s networks are really the foundation of everything we do at the company, a bit of a biased opinion perhaps, but unless I believe its true and I do apologize in advance if I use a few acronyms I will try to keep it to a minimum for you today.
As far as network strategy this is really an aspirational view our the types of things we are trying to do, really we have one core world-class core network that's the cloud you see and around axis here we have all our connections into that network whether its fiber, WiFi, copper, LTE, or HSPA. And so convergence is really happening. We've already and my team converged and consolidated wireless and wireline operations team, the team that manages that core and of course all of our cell sites where possible we actually backhaul using our fiber assets.
So really anywhere anytime seamless network experience is what we are driving towards and let me give you one kind of simple example and something that's actually inter-laps today and I have experienced it myself so you are watching Fibe TV and this will happen this year, you are watching Fibe TV and Saturday morning you need to eat brunch at the mother-in-laws and right when you need to be to get into the car, right you are right in the middle of the Sports Center Top 10, alright you don't want to miss it and so the great thing you can do is you pause right there in your Fibe TV, you pause that feed, you get in the minivan, put the kids in the minivan, you slap up an iPad, you press play on that iPad and right from where you pressed pause you will be able to watch the rest of Sports Center Top 10. Pretty powerful stuff and that's all done by the core networks, the intelligence within our context, content and our applications and in our core.
Now how are we executing on this strategy? We really have a three prong approach, on the Wireline side we are continuing to drive FTTX which stands for fiber to the X, whether its to the node or the home or to the suite and of course IPTV deployment that George talked about earlier. On Wireless further expanding our LTE network in fact we will have coverage to 98% of our population in Canada by the end of 2015 and all the while keeping up with demand and I will take you through some of the demand charts. And we do this by keeping within the 16% to 17% CI that Siim and George both talked about.
Canada absolutely runs on Bell, you can see 96 of the top 100 companies in Canada, but really in particular our business customers count on us 24x7, 365 days a year to keep the networks up and running for their customers. And you really kind of pause and take you through this chart because it’s a little busy, but we are really driving across four key elements of fiber to the homes and businesses strategy.
Fiber to the neighborhood as we call it FTTN, fiber to the node and we are continuing to bring that to as close to the customers as possible, the closer you have the node in that neighborhood the better your performance and speeds are. Do pair bonding which George talked a little bit about what pair bonding is, it’s taking two copper pairs and putting them together to essentially double the speeds. That doubles the speed for the user and also increases our footprint like George mentioned from 900 meters from that node to 1.4 kilometers of that node and so we will get a 150,000 additional IPTV capable homes in our footprint by implementing this technology. We have it in the field today in test and it will be available to our customers later this year.
Fiber to home, we of course launched Quebec City with the biggest implementation in all of Canada with Fiber to home. Also all new greenfields, any new sub division that’s being built today is being built directly with fiber to the home and any aerial plant, so we have access to telephone polls. We're putting fiber to the home as well and those areas like the North Shore, South shore of Montreal, Laval and so on and today and by the end of the year, we will have actually more than 10% of our coverage done with Fiber to the home.
Similarly fiber to the condo, we're driving 1,200, we have 1,200 MDUs right now with fiber either directly in to the basement or in some cases there is a new condo we're actually building fiber directly to the suite. And fiber to the business absolutely of course we’re big into the business. We have 135,000 locations available today with fiber directly to those locations and we have an ongoing proactive of fiber build for any major businesses, datacenters and so on.
So what does it look from like a footprint perspective? So 71% of our homes will have access to high speed FTTX internet and 60% of our homes in footprint will have an access to IPTV. That’s roughly about 5 million, a little more than 5 million homes and 4.3 million homes respectively. And of course we have Wireless broadband right across the country, I will talk about Wireless in a minute and satellite TV, of course, they are available in our footprint, that's 40% of the footprint, plus the rest, coast-to-coast-to-coast, we have the best performing satellite fleet in the industry. So altogether, there is a combination of our network assets. We're driving the best speeds and services to Canadians.
There is a lot of hype about feeds and speeds and you always get these larger and larger and larger numbers, but let me really kind of bake it a little bit in reality for you a little bit today. First off, these are all dedicated speeds, not shared speeds absolutely dedicated speeds directly to the home or directly to the business. Second, you’ll notice, the average home usage is pretty low compared to what we can deliver, in fact nearly a 100% of our customers use less than 10 megabits per second on peak and so you can see at today’s technology at 35 megabits per second a lot of headroom and we are bonding doubling the speed and we will be able to grow that even more of course. Fiber to home on the right side of the slide is really a future proof of patent quotes, technology we are offering speeds up to 175 megabits per second in Quebec City and Greenfields today and that will grow to well over a gig in the future.
So this is what it looks like from a driving capacity perspective, a huge growth. We are growing on our wireline network about 40% year-over-year, you can see this chart. This actually shows a seasonal effective we see of course people surf the internet more in the winter, watch more things in the winter than they do in the summer and that’s the spikes you can see as they grow through the years. We have absolutely Canada’s largest 100 gig backbone network; it is future proof with fiber and our team manages tens of thousands of circuits on every 15 minute implement that we understand where capacity hits are happening; we have a proactive 18 month plan on how we manage that growth, very similar on the wireless side because of the same type proactive management program.
And turning to Wireless, you have heard a couple of times today and yeah I am a little bias, but it’s absolutely one of the most advanced networks in the world, are none. It actually writes the course on our core networks, gain back that aspiration slide I showed earlier, all of our sites, 75% of our sites excuse me, run on the fiber back bone and that really held and ultimately hits our core.
We have speeds and 98% of the population has access to speeds to 21 megabits per second, about 85% of the population has access to speeds to 42 megabits per second on HSPA; and LTE which provides speeds up to 75 megabits per second is going to be available to 75% of the population by the end of the year; it’s available to 68% of the population today, and that's really focusing on urban and suburban environments we’re waiting the 700 megahertz auction as has been discussed earlier to really deploy to rest the country in a real kind of setting; why 700 megahertz of real, we want to propagate further, seeking further distances, but the other great thing about 700 megahertz spectrum is also penetrate the buildings much better, so we are in building penetration for those on Blackberry’s and iPhone’s and all that in the conference today, we get even better at penetration. And of course we share this network with Telus; initial upfront capital savings, but ongoing capital and OpEx savings as well. We have roaming to 225 countries across the world, that is the largest of any Canadian provider today.
Some of the innovative things we are doing on the Wireless side, we continue to build cell sites, why do we continue to build cell sites, to keep up to add coverage quality into the network and capacity improvements. This slide shows an example of one of our very innovative for sensitive areas like Muskoka, anybody that’s been up in Muskoka, quite a sensitive area, big cottages, big lakes, we actually deployed a number of these Muskoka pine trees. This is an actual fig tree with our infrastructure in it, the core is about this big, its about a 100 foot tall tree, its well hidden, this has taken from one of the roads that we actually built to the tree and so its well hidden from the 400 or the 69 series of highways depending on which way you go out to Muskoka, but our technicians actually go with in the trunk of the tree, there's a ladder in order to add antennas and check on cable and things of that nature.
We continue to complement the cell sites build with a number of cost effective strategies. You probably heard other carries talk about that particularly AT&T. You know small cell sites, we are implementing, this is an actual picture of one of our cell sites in the port private area and we have public and private in building systems that we are driving deeper and deeper penetration to significant buildings as well as a big strategic WiFi deployment that I will talk about and we absolutely plan to deliver with 700 MHz spectrum broadband wireless to all Canadians by 2015.
On WiFi, really we are in a unique position, Wade talked a little bit about it, but we are in a absolutely unique position with WiFi and with all of our WiFi assets whether that's in the home, in businesses or some of these examples here. We do have a managed WiFi service that we provide to McDonald’s, Tim Horton’s and Chapters, Indigo among others. We also do public deployments, I've listed a few here. We do have the largest WiFi networks across Canada, Wasaga Beach, Boulevard St. Laurent, and for those bikers in the crowd Friday the 13th, Port Dover and we actually have WiFi in the center of town to offload it in the traffic that happens on various Friday the 13th celebration.
And all of this is managed through our core networks. You can recall back to the cloud slide, everything is managed in context, so if you are in Port Dover on Friday the 13th and we are experiencing a high level of traffic, you naturally migrate from an LTE network or HSPA network on to the WiFi network. You don't have to register, you don't even know you are on it, you are still getting access to the internet and content applications very seamlessly.
On the enterprise side, we build and operate thousands of private networks and as you can imagine one day walking into I don’t know BMO branch and handing off from the LTE network or HSPA network again in a seamless fashion on to that local WiFi hotspot, those are the things we are working on as we speak.
As far as speeds, you know pretty incredible development, we follow the global ecosystem. That’s similar to any other chart that you would see there's nothing new, but we do have even LTE advanced in our labs as we speak. LTE 10 MHz that's what we are offering today, speeds up to 75 megabits per second, I have experienced over 100 megabits per second myself and we have demonstrated it.
LTE Advanced really brings further improvement in quality of the connection in the cost per bit so we think as we drive that kind of traffic we are trying to improve our cost per bit trajectory on delivering services. It also does something called carry aggregation which allows us to use the full spectrum suite that we have which I will talk about shortly. And self optimizing network which really allows us to gain more efficiency in my RF engineering field force. All of this will be really fully realized in 2015. So we absolutely have the spectrum, the vendor partnerships and the global ecosystem are in place for us take advantage of things much like LTE advanced.
So I’ll tell you the speeds and how is the network keeping up? We experienced a 100% year-over-year growth, and I am sure you guys all wish this was a revenue growth chart, but it is a traffic growth chart. We deliver about a billion text messages a week which is an incredible number when you think about it. In fact, New Year’s Eve is one of our biggest. It is in fact our biggest text messaging. We sent about 8,200 text messages a second over New Year’s timeframe. That’s sort of three hour window from 11 pm to 2 am and like we mentioned, the Wireline side, we're absolutely very, very tight on our 18 month proactive rolling capacity plan. We track thousands of nodes across our network. We are driving more and more traffic to LTE which is a fundamental game changer as far as cost per bit is concerned. So I am very confident in our ability to manage on an ongoing basis the Wireless business between 10% to 13% CI.
Spectrum, as mentioned previously, we absolutely participate in the 700 megahertz auction. Why is that important? It's important for rural and internet use; it’s also important for the in building like I mentioned and when you look at our spectrum position relative to any other major players in North America, we're at par or better than them with our asset pool. More spectrum of course means higher speeds, more capacity and significant broadband benefit for all Canadians.
And I would be remiss if I didn’t have a cost structure chart, and last but certainly not least, we absolutely on the network team have a culture of driving out costs and improving productivity and much like Mary Ann and both John said, there is no silver bullet here. Just a lot of blocks and tackle. We have a multi-vendor strategy where we use those vendors against each other to drive costs out. We are putting more and more bits on our newer technologies whether that’s FTTH, FTTN or LTE and the more we increase our fiber footprint of course, the better our cost structure gets because it's a passive technology. There is no electronics in the field and fiber is coated for future proof.
Our labor strategy, we have driven about 650 folks out of the team over the last five years; synergies and team consolidation, a lot of systems and processes and productivity tools that we put in place to manage the growth while overall reducing our costs.
So in summary, I believe we are absolutely successful executing our network strategy; you can see it there and we are absolutely staying within the 16% to 17% that both George and Siim mentioned. Thank you. And with that we are going to run a short video just before Kevin gets on stage. Thanks.
Well, good morning all, and coming up here last this morning, I think you can probably see why it is such a privilege to be a part of this management team, and at a little bit of personal risk I will take exception with one thing that George said, we are not all boring, boring has been great for shareholders so far, but I am here to tell you this morning why not boring is also great for shareholders.
Our job is on media is to entertain, inform and inspire Canadians better than anyone else in this business. That way Canadians will spend more and more time on our properties like you just saw in that video. I think that's a great illustration of how we do that today. But looking-forward, one thing is clear, this business is changing fast, we think the media business have an outstanding future and we think that we are very well positioned.
Every week Canadians spent 28 hours in front of their television, four hours with online video and a half an hour with mobile video, that's five hours a day consuming video. The way I see it even if you allow for eight hours of sleep every night, we still have a long way to grow. It’s been a privilege to be a part of our media leadership team for the last two and a half years and I am excited to talk today about the amazing people, the great assets and mostly about our progress and our vision.
Prior to the acquisition, CTV had assembled some of the best media assets in Canada, and since then we've made them better. CTV the conventional network has been number one for a record breaking 11 years and CTV the brand is the highest value television brand in the country.
Sports programming given its live event nature and its ability to draw huge and passionate audiences, makes it a sweet spot in the industry. PSN and RDS are synonymous with sports television across Canada in both English and French.
Non-sports specialty delivers targeted demographics that advertisers crave. For example, a passionate youth audience has made MuchMusic, the number one liked brand in Canada with more than 1.4 million likes. With 33 radio stations in 14 markets across Canada, the industry’s best sports radio portfolio. Our radio asset is delivering revenue and cash flow growth while completing the rest of our assets with great content and great talent.
In digital media, our strength provides evidence that great content wins on any screen. As technology enhances the content experience by making it available on beautiful screens of any size, anywhere and on-demand. The value and the competitive advantage of great content have never mattered more and we can't ignore social.
Thanks to social media, we are witnessing a revival of appointment viewing where the water cooler is real time and it’s global. It reinforces the need for everybody to keep up with popular programs. Bell Media will continue to innovate, invest and lead in social and co-viewing execution.
Now, it may sound cliché but our real competitive advantage is our people, both behind the scenes and in front of the camera or the mic. We are blessed to have award winning talent across the portfolio. We have three Order of Canada recipients currently on air with Lloyd Robertson, Craig Oliver and Brian Williams.
Our talent show versatility and range and we have a number of rising stars like Omar Sachedina on National News and Michelle Dubé on CFTO right here in Toronto. In fact, since Michelle joined Ken Shaw on the anchor desk, our ratings on CFTO’s evening news are up 42%.
No doubt, this audience is familiar with Howard Greene and Catherine Murray who are key parts of a refreshed and a revitalized BNN. In sports, Jay Onrait and Dan O'Toole have become widely popular bringing humor and irreverence to their late night sport center show.
Leah Miller, Ben Mulroney and of course Marilyn Denis shared their talent across several programs and on several properties everyday on Bell Media. The Bell Media star system is something that we cultivate, we cherish and we will continue to invest in.
Our objectives are pretty straightforward. We are here to make these assets even stronger and to create a great and lasting media business in the new media environment. To do this, we will build and grow our audiences. We will monetize those audiences and importantly, we will create known more of our own content ensuring the Canadian attitude, opinions, values and our immense artistic creativity are reflected in our programming and in our coverage of events at home and around the world.
The audience that we deliver for advertisers is truly unmatched in this country. Advertisers’ value and they continue to pay for reach or the ability to instantly get a message out to millions and millions of Canadians in a way that engages the audience and complements their brand value with great quality content. As you can see here across our portfolio, we're able to deliver an impressive number of Canadians many times every day. Frequency is another important metrics for advertisers, and since the average Canadians spends almost two hours a day with Bell Media, we don’t just deliver reach but we also deliver frequency.
Our advertisers find their audience whether during the family room, in their car, on the go with a smartphone or a tablet or whether they are on their computer, whether they are watching or listening to sports, news or entertainment. Integrated multi-platform campaigns can really make one plus one equal three for our advertisers and we will continue to innovate and serve our clients in that way.
But it's not just about quantity; it's also about the quality of our audience that matters. Thanks to the breadth of our portfolio, we can deliver the industry’s largest audience across all demographic segments. Advertisers can reach men and women of any age. They can reach the affluent, the educated and decision makers in both business and residential households. We know that targeting, measurability and efficiency are critical to advertisers and we're driving this business to deliver on their needs today as well as tomorrow.
It's this attitude and our execution that are allowing us to monetize these huge audiences. Here you can see that even in a tough macro environment for advertising, we've been able to drive solid top line growth. Revenue was up 7% to $2.2 billion in 2012, with the Olympics delivering just under a $100 million of that.
We would anticipate that with the size and the quality of the audience that I just talked about and equally important with the strength of our sales team, that we're very well positioned for the inevitable cyclical recovery in advertising.
Moving over to EBITDA performance, what you see here is the effect of two key things. First, great execution by a team who remain immensely focused on creating shareholder value with these assets. But second, integration with Bell and really the bringing the Bell mindset of cost control and productivity to our operations.
We have fully integrated engineering and network IT under all of our corporate functions with Bell. This along with internal synergies of reorganization has reduced our senior management team by 30% since the acquisition. Here you can see the trailing 12 months before we announced the acquisition in 2010, this business at that time ran at a 17% EBITDA margin. We have been able to take that up to 28% and as Siim said earlier almost double the absolute EBITDA dollars. All well running at a very low (inaudible) or capital intensity and more significantly all well investing for our future.
Speaking of execution, here is a clear illustration that even when we enjoy a leading position in the market, we were able to further grow our revenue share in 2012. This is also illustrated in our advertising revenue-to-audience ratio. Here, we are well above a 100% in both television and radio. This means that our share of revenue exceeds our share of audience in each of those categories. It also means that our sales teams are adding value to advertisers through integrated campaigns and brand partnerships, and that our programming and production teams are delivering content that attract not just huge audiences but also the right audience.
And now to our third objective, creating and owning more of our content is good for our business. We had a great success with recent in-house productions as well as independently produced programs as some of the following examples illustrate. Just this last Sunday following the Super Bowl, we premiered Motive, a breakthrough twist on the police procedure. This show delivered a record break at audience even tough a 35 minute power outage cost it to not until 11:00 PM.
Our tribute to the Canadian football league through an eight part documentary series called Engraved on a Nation was both a critical and an audience success drawing more than 8 million viewers in Canada. Discovery Canada generates international revenue from selling Daily Planet which is our daily science program along with other shows like Mighty Ships and Alien Mysteries.
In-house produced events like the MMVAs, the MuchMusic Video Awards have become a real core competency of our team. This one of a kind ultra urban outdoor blockbuster concert is deeply embraced by sponsors and by audiences alike. We are able to attract the very best pop talent in the world and it’s also a big win for Bell Media financially.
Recognizing the strength of putting on these events, we created another one called The Big Jingle which aired its premier year in December of last year. We expect this to be an annual event. This delighted a live audience at the ACC; it drew over 2 million viewers and six fantastic sponsors that got behind it including Virgin Mobile.
Brand partnerships it’s our sales teams who work with ad clients to create highly customized campaign that include product placement, creative integration and programming as well as program relevant messaging in the ad itself. This is really the future of advertising. But demand for that kind of brand partnership far exceeds the supply.
When we create and own more of our content where we control the writing and the production that's how we grow supply. This kind of integration has already made Amazing Race Canada, a financial success even before we go to air.
Now, I would like to turn to performance highlights for each of our operating segment. Our flagship CTV is really a power house in network television. We air 13 of the top 20 programs in Canada. We are the biggest comedy, the biggest reality show, the number one Canadian drama, the number one news, both nationally and in nine of the top 12 local markets across Canada.
Here you can see how we have successfully executed truly a once in a generation transition on our national news anchor desk with Lisa LaFlamme performing spectacularly. Plus, thanks to our carriage of big events like the Super Bowl, like the Oscars and the Golden Globe Awards, in 2012 we aired 39 telecasts that delivered over 3 million viewers. The rest of the industry had seven.
Our focus in 2013 is of course to maintain this ratings leadership but we also intend to lead the industry in resolving structural challenges like distant signals and non-simultaneous substitutions. Both of these will help us to better monetize our audiences. In a little bit I'm going to talk about TV Everywhere. This is a key strategic pillar across all of our portfolio and I will get to that in a minute.
Let me turn to sports. Sports are an important component of any media portfolio. Sports draw huge and attractive audiences. Sports broadcasting tells stories of courage, commitment and achievement, something that brands all want to be associated with and as it's frequently reported its real time and PVR proof. It’s also perfect content for today's broadband mobile, networks and devices. We are very proud of and we are very committed to the people who run our sports properties and to these assets themselves.
Here you can see the strength of both TSN and RDS and while the NHL season didn't get started right about when we expected or we wanted it to, thanks to the balanced strength of our schedule our sales team was able to retain 87% of the Hockey money that we missed during the Lockout.
In the last 14 months, we've added several key properties to our roster like Premier League Soccer, Masters Golf, The Fifa World Cup, with the Women’s World Cup here in 2015. Also in 2015, we are beginning a much stronger lease schedule thanks to our MLSE investment but we don't have to wait for TFC. This season TSN will air 23 of their 34 games.
Over to non-sports specialty, this is really a sweet spot in the industry and it’s been a key area of focus for our programming investment and its paying off. Our aggregate audience on non-sports specialty grew by 5% in 2012, that's faster than any ownership group in Canada other than Corus.
We grew even faster with the coveted women 25 to 54 demographics. This was led by Bravo where we totally revitalized the channel and we drove audience growth of 40% making it the fastest growing specialty channel in Canada, and on March 6 Bravo will premier season one of Homeland, the multi-award winning show time thriller. Even before this blockbuster airs, four out of the top five non-sports specialty programs air on Bell Media properties, five of the five, four of them on Discovery and the fifth in the top five is on our very own space channel.
Let me turn to radio, our radio portfolio had a great year in 2012. We grew revenue for the full year and we took revenue market share in about half of our markets. Our program directors are expert at knowing their target audience and capturing them as we're number one or number two for delivering the female audience in 10 out of the 14 markets where we operate. Radio is a stable and steady cash flow contributor with the portfolio of synergies across our television properties.
On Bell Media Radio, you will hear TSN sports update, BNN business update, and (inaudible) will regularly preview that evening’s news on your channels.
And finally over to digital. Great content wins on any screen, on any platform and in any time dimension. All the strength that I outlined on our linear platforms has translated into strength in digital viewing as well. Here you can see that in 2012, we delivered 1.7 billion videos. That’s a video a week for each and every Canadian citizen and it's more than every other media company in the country combined. This takes place on ctv.ca, on [much.ca], on our other branded websites; it takes place on our mobile applications as well as our mobile video platforms that Wade talked about.
We drive traffic to these digital platforms on our linear broadcasts and through innovative use of social media, loyalty programs and bonus content. In addition, this year we rebranded and reprogrammed our general interest portal which was called Sympatico to be a life style originated, multimedia rich and women’s focus portal called The Loop. The first few months of execution with The Loop have exceeded our expectations and this fall, we're going to launch a companion television show called The Loop into an early afternoon time slot on CTV.
Many of our new shows have extension online companion content. For example, Saving Hope, the number one Canadian drama of 2012 developed a large and engaged online following with extensive bonus content linked into the program and to the talent. Earlier, I talked about the strength of our talent, in fact the social footprint of our brands and our personalities has hit 7.5 million unique followers and that’s up 30% in the last year.
Our digital focus for 2013 is very much about TV everywhere. The explosion of viewing on tablets and smartphones have been well documented. With TV everywhere, now cable and Telco distributors will be able to offer their consumers the very best content in Canada to satisfy this demand.
It’s important to note that this strategy supports the current television ecosystem providing distributors with tremendous value enhancement to improve upsell and reduce churn on their BDU products. Our offering is comprehensive in fact it’s the most comprehensive TV Everywhere, anywhere in North America. We provide live streaming, catch up current season content and prior season library content to any device over any network.
We will monetize this at Bell Media through three avenues. First, through advertising revenue and eventually through dynamically inserted targeted advertising. Second, we will monetize through penetration support for our specialty services and third, from additional fees that we will charge to the distributors for these rights.
We think that this TV Everywhere strategy complemented by other broadcaster initiatives like HBO Go provide an excellent response to OTT competition. There is no question that the industry dynamic has changed with OTT. Competition from huge global technology providers that you see here is already having an impact on our content availability and cost. These players have introduced fantastic user interfaces, ease of access and they are growing the viewing market by facilitating new consumption habits like bench viewing.
The great news is that the vast majority of this viewing has so far been complimentary to the existing system, but we know we must respond and we are. As I said at the opening, it’s the content that matters no matter what screen. So, we will continue building on our strength of producing and procuring the content that Canadians want and we will introduce an authenticated TV Everywhere service which leverages the customer base of our distribution partners and the promotional power of our CTV megaphone.
And we will make sure that the content available is more comprehensive than any OTT provider can offer. Thanks in part to our Astral acquisition. Astral’s specialty portfolio compliments RDS in Quebec and significantly enhances our competitive position in French language programming.
With these assets, we will improve the stability of our revenue mix by reducing our reliance on cyclical advertising revenue and especially on the conventional television segment. But as I suggested earlier, there is also a significant enhancement to our TV Everywhere strategy. You see we believe that we can deliver a far superior package of content with TV Everywhere compared to what Netflix and others will deliver.
With Astral, we will have primetime hits, past season and long tail content, kids, sports, movies, news and will be bilingual. Provided the customers still value their linear subscription which is absolutely proving to be the case today, the incremental cost to the consumer of our four screen live catch up and library will be less than OTT. Better product, lower cost, a win for the consumer a win for the distributor and a win for Bell Media. So in conclusion build and grow audience, monetize the audience and create known more of our own content, that's our winning strategies for the media business.
And now I would like to ask my colleagues to join we are going to turn to Q&A session.
Okay so as the folks settle in why don't we take questions for about 20 minutes or so and if you have a question we go to the microphone and we will try to answer questions as best we can.
A question I have is on the dividend. So if you look at your 69% payout ratio that includes the free cash guidance number and that itself concludes $200 million benefit from the [overseas] pension funding that you did last year. If you don't include that, let's assume that that's not a recurring item then that payout ratio moves up into the high end of the range. So the question I want to ask and George you made reference to this earlier is you have a lot of comfort you feel for the free cash flow profile. I'm asking kind of post 2013, you know if you can comment on a couple of things. Number one, give us some context on what that comfort level is and presumably that includes CapEx directions and presumably that includes possibilities for pension solvency funding decreases, and then number two if you can give us some guidance on your willingness to see the payout ratio go into that high end of the range whether that's for a small period of time while you are making these outsized investments and things like IPTV and LTE.
I'm going to ask Stephen Howe the head of our technology to answer last one. Anyway so first of all it’s a I'm going to ask the same question for five years the first answer is look at our results. We are generating free cash flow growth of 5% to 9% and that's what's giving us the headroom to grow the dividend. The guidance is around 2013. So again I'm always a little careful to talk as always everyone knows about going forward. But I would say there are some, there are always headwinds and there are tailwinds that help do that growth, right. One is I think we continue to show the street I think its one of the biggest disconnects, not so much on the buy side but on the sell side which is our ability to cost out. I think that's where not so much I'd say on the buy side, but where I think number of the sell side analysts have said I mean such a hard one to get our head around, they don't know how to model that capability.
So part of today's purpose is to say to you there is runway on cost, through productivity and so we are not going to give the 2014 productivity number here today, but that's where the headroom comes to answer some of your questions. Secondly it seems that if we are fortunate enough to have interest rates move up under the basis of our fixed financing done for Astral, then obviously the pension funding capability, the amount of funding for pension comes back our way. Ultimately the success of earning significant profits means our tax cash bill will go up and we have to obviously stay within our guidance to do all that and the last question is we have a range for a reason and it is to stay within that range. We've been fortunate enough to be in the mid or low point, but we have a range for a reason. Not every single year is going to be the way the year before us and we're committed to a dividend growth model that the streets are pretty clear on. Hopefully that helps it.
(Inaudible) still you said steady today is 5%ish still kind of a lose goal.
Actually, we have never said 5% dividend increase but it's become the norm. What is evident though as we said in our circular is our equity does invest. We're not seeing close to 5% dividend increases. So we're pretty in line with that but there is no public target, never has been. And I think we’ve exceeded the 5% as everyone knows over the last four years, with some hardware. Glen, go ahead.
I had a couple of questions on revenue. So on the wire line side, the presentation makes the point, you are going to see less discounting on TV and new products going forward. There is obviously the rate as well for those things help. On the other side, there is competitive environment, there’s discounting, safer retention and acquisitions of customers. Can you talk a little bit about what the overall trend is on discounting and wire line and whether 2013 will give, say a better wire line ARPU performance than 2012?
Yeah, well Wade do you want to start with that and then I will (inaudible).
It's a very good question. We have seen a meaningful decrease in sort of discounts following office earlier, aggressive promotions have now turned out, and we don’t see the same aggressiveness of discount levels on a go forward basis. I would say our focus is much more on winning the household than the ARPU won on individual product segment. So take for example our new unlimited Internet add-on that we provide on a triple if somebody takes TV with us they can get that. I know you could make an argument that lowers Internet ARPU, and it doesn’t. But you could come to that conclusion, but for sure it drives household revenue for us and that’s really our core focus. So, we feel pretty good about the ability to generate the right revenue levels at household level on a go forward basis.
I had a follow up on the wireless so got the big bucket smartphone plans that there were the gig of data or three gigs. You got your LTE network, can you give us a sense of how much take there is on the bigger than one gig plans, are you surprised possibly to able to give any sense and how much overture you are seeing now that people have got these (inaudible) in their hands?
It’s funny I have a different perspective on it. Anything that drives data consumption lets us highlight our network superiority, and so we are fans of that. The reason our ARPU grows is because our mix improves, so we get more of the very heavy consumers come to us or heavy users both on business and consumer come to us. In total they spend more, so even if the rate per kilobyte or megabyte is slightly less, we still see a very positive impact on ARPU, and as Steven talked about our cost structure now on the network side allows the leverage gain efficiencies of scale. So it’s a winning formula for us. So we are happy with the way things are going.
The only thing Glen I mentioned, we’ve mentioned in the presentation but it’s not just the external market it’s also we are going through that first year of those first five customers who got the immediate discount with no revenue, and that starts to normalize not always easiest thing to go through in the market but it’s certainly that’s giving us some of the a little better sense of okay revenues always challenged on the wire line side but may a little bit of room there. And secondly as everyone saw the competitive market moved on pricing in the cable industry and there is only a few provider so that is obviously helpful.
We had exceptional wireless results last year, just following on from Glen comments but adding another one. So when are getting so well, new entrance look is very badly position for the auction etcetera, the government perhaps looking embarrassed and people like Rogers preempting changes of Spectrum ownership. Are you still concerned about regulatory back flash maybe not from this here CRTC code of conduct but future regulation of the industry including forcing of MVNOs and the like, and on a similar vein to what Glen was speaking about, so there are all these new price there, there seems to be lower cost going forward for both subsidies, LT efficiencies and the like. To what extent are your EBITDA and margin projections based on cost versus ARPU growth going forward, because the cost side looks better than the ARPU side going into 2013 would you agree?
Why don’t you guys get ready to answer the second question Wade, John and whoever else wants to jump in. And on the first question, first of all obviously we are regulator industry in total and deregulated in wireless, it is an issue on global basis, the profile of the wireless industry every G20 nations is pretty significant. I personally believe if Canada has a very unique situation. We are one of the only countries in the world with three strong competitors. Just look at what happened in the fourth quarter in the US in market share and look what happened in Canada and we have the leading wireless technology in the world.
So I think we are sometimes trying to find the problem that doesn't exist. Actually most of the countries would probably give their right arm to have our industry structure with three strong players. In terms of what happens to the new entrance, we will have to see how that plays out for them, our business model is $28, ARPU after 27 years in the industry is never worked it is not going to work for anybody, so they are going to have to sort that out, not us and I think the government has left the market. It’s an open market, we are seeing what happens, the company that came from outside of Canada said they were going to destroy us, let's see what happens, they got access to capital and we will just compete in the market. So I think the government’s view should be there's a wide open competition, let's see who is standing when that's all finished.
You know there were 29 price reductions in the fourth quarter; it’s a competitive industry, 29 and then matched times seven carriers, okay. I don't know what is, I honestly don't know, I'm not in your industry, I don't know if there's another industry in the fourth quarter that had 29 price changes. So I don't know what competition issue we are looking for actually.
And so did you want the second half.
Yes the second half of my question, we almost got out of that.
Yes. Yes. We anticipate growing ARPUs and I presume you are asking about wireless. Yes we absolutely see ARPU growth in 2013 for all the reasons I articulated. Handsets keep getting better, our network keeps getting better, that drives more usage, that drives more ARPU, our lead in mobile TV and the growth we are seeing that driving tremendous opportunity there, some of the new things I talked about, our change in mix is continuing. We opened 100 locations in the west last year, that's driving our performance in that market which is a higher ARPU market. So all the fundamental building blocks are in place to continue to drive ARPU and revenue growth and on the cost side we just see a lot of elements that let us be more efficient. It’s funny we talk about 29 rate plan changes and price changes, unless you have a good digital infrastructure, it gets tough to manage all that and I think we really have a significant lead in that space. So the ability to change quickly through to a very significant investment on the part of John and enabling an E environment has been very helpful to us. So we continue to see an opportunity to drive out costs.
But only I would add one of the reasons Mary Ann and John took such time to go through is to try to say, the fact that core volume in wireless went down with that growth last year is where we are picking up and I think John can comment, but I think you said you had slide John I think around that right.
No question, I go down 2.2 million to (inaudible), you know the CAGER moving into this year’s 13% on a really good trend line. When folks tend to call you tend to be resolving issues, so the credits you would hand out are dilutive on the ARPU side and that's declined dramatically. Wade had a lot of them. There are folks even moving from smartphone to smartphone. The rich browser smartphone they now have is much more enabled for video and you think of the usage that's occurring then you ask how many gigs are being used, the one gig plan remember that we have a million folks using TV on top of that 1 gig. So we are really priming the pump for extra ARPU and revenue usage with video. In fact we are doubling down in terms of the investment for folks to do that and lastly as Steven’s productivity on the cost per gig delivered is terrific on LTE based on all the good things he’s created and invested in that space. So we are very optimistic in terms of driving the margins in both revenue right now and last one will be our smartphone penetration, that's the greatest upside. So I think that really points upwards.
My question would be for Wade. You highlighted the 30 points of device penetration gap between Canada and the US, can you talk to your expectations of narrowing that gap and perhaps within that discuss where you are now on multiple device penetration and where that is going; also vis-à-vis the US on that.
So, the penetration difference between us and the United States, if you plot penetration since Europe inception, Canada and the US, you see a much narrower GAAP. So a lot if it seems to be ready to time sense market was launched and then there are some structural differences between the US and Canada that lead to some small difference, but ultimately we see an outcome that is not that dissimilar to other markets. Certainly in Europe for example, where you have the very high roaming cost back and forth and so people acquire multiple Sims to deal with the expense side drives penetration. We don’t have quite the same environment here. So that would be something I would say, not quite at that level, but the US market and the Canadian market are not dissimilar and we have every expectation that we continue to see penetration grow as we go forward.
I think for us, the most important driver that is, the advantage we have over the US market and over the European market in driving functionality. So our network quality and George has made the point several times and I will again too, it's unbelievable. We have spectacular network strength and functionality in this country and it drives more than other things. This upgrade move to smartphones and then just the increased penetration as people find out, hey I can really watch TV while I am at my kids’ soccer practice or I can pay my bills through a mobile commerce initiatives or whatever it might be. I can get a lower insurance rate if I deploy solutions. So, we see lots of structural reasons driving increase penetration as we go forward, not worried at all that we are anywhere close to our peak.
And we think we go well over a 100 (inaudible).
Yeah thanks very much just a couple of extras on wireless. Wade can you just speak to the machine-to-machine opportunity. We obviously hear Rogers talk a lot about it, curious your thoughts on that opportunity. Then on postpaid churn the whole industry is seeing improvement there attributed to a bunch of factors like smartphones and shared plans will contribute going forward. How low do you think this could go for Bell? And then lastly just a big picture one may be whoever up there wants to take a crack at it. If churn is certainly a delta in the cost equation, just wondering when you look at consumer loyalty where are the telcos and specifically BC which stand on joining or starting loyalty program?
I will take the first one machine-to-machine and then I will let John touch on churn and then loyalty program I will try and cover off. On machine-to-machine I know Rogers has made a lot of public comments about the potential for that market, and I think everybody in the room would recognize that it’s a large volume in terms of units and very low ARPU per unit industry. I believe that Bell is a leader in this space at the moment, and we have ambition to keep in the leadership role in that space. It is a very integrated solution set typically where you delivered to end users who are interested in that. So our wire line assets and our wire line business relationships help us a lot in driving performance in machine-to-machine. I gave the example of the insurance company that we just did a deal with, so that’s an example of machine-to-machine. But we are a strong player in machine-to-machine I am not going get into specific numbers because that’s competitive, but we are happy with our performance in machine-to-machine and we do agree with Rogers that with very meaningful upsides still in this days particularly so in wireless. So we are pertain on the space, and John I will let you touch churn and then I will get back on loyalty.
I won't give you detail guidance on where churn may or may not go on wireless. So I would say the following: understanding what a dissatisfier is for you today, knowing that proactively and then deciding what we can do about that either on a passive or proactive bases is very, very powerful. In the past it was always done more on mass, more into big segments, big lumpiness but for now you can do at the level of one, so I think the potential for improvement is absolutely there and I think those improvements can be driven at the level of one and that can be driven at the P&L at the level of one is very, very different and so on. So enabling that and I think this is across the industry, it’s the one that folks are focused on, and I see further opportunities going forward. But once said we don't drive churn down and spend at a level that creates negative consequences for the business, it will be one that maximize profitability of the business to drive forward.
So we do have the loyalty program and actually let John talk about that as well. But I would say that our orientation is slightly different. Our entire focus always is how do we leverage the assets that Bell has the benefits of our clients. So one other program we just launch or something called the Bell business advantage program and what that does, its not a loyalty program, but what that does, and it was launched in our business group obviously. But it gives small and meaning size businesses access to Bell’s purchasing power. So the discounts we negotiate with suppliers we make available to our small and medium business clients; that then generates loyalty to us because they in fact can save more money on other elements and other products they might for their business than they actually spend with us, so they make money coming to Bell photon activity services as they take full advantage of it. So those are the kinds of programs we use to drive increased retention within our subscriber base and that’s an example of one in the business area and its taking an asset behalf, our purchasing power and deploying it to the benefit of our consumers. And then John just launched a kind of a super elite program, if you want to call it, and I’ll let John touch on that.
I have never been a fan of loyalty programs that aren’t core to our products and service offering and we found that when you deliver a great service that is the core length towards loyalty. We have recently launched a program last fall that addresses the needs of our most valuable customers and we have seen just unbelievable ourselves with that and its an example of what you can do; we didn’t bring a bunch at Bell’s and whistles, they aren’t a bunch of points you can earn, its just damn good service. Every day, 7x24 with 100% fall open satisfaction. So if you ask what the loyalty program is, that’s it and we measure that and we know and loyalty is measured by folks recommending our products and services and the MPS scores correlate to that as well. So we’re very much focused on it, but its not a lair or program or an adjunct to what we do, it is core to what we do and its focused on our core service and products.
I think just to add to that, traditional loyalty programs can create some longer term exposure as the above points out there that need to be redeemed and that’s an obligation and a liability for the organization and I hope people are picking up our loyalty efforts, do you want to do things or either make us better or they are funded by a third party and not us. And so in both cases they in general as I said sticking us within our end user community that you can see the results kind of there flip.
And the last I would say is the more loyal you are to us, the less you pay; that’s pretty well.
Thanks. And Wade, on the hand set subsidy issue, do you think there is an opportunity for the industry to take this down; we are seeing a lot of high performance Androids coming out at pretty low price points we are seeing BlackBerry with some new products out there, we’re seeing Windows 8 as well. So how do you think there is the opportunity to grab what’s been a tough challenge for the industry as a move to the smartphone era; is that something where we could see progress and get multiple access and maybe beyond those HTML5 things like that?
Again a great question and again structural reason that favors us and Bell and the carrier community. The improvement in say the new BlackBerry devices and the intense competitive dynamics in the Android space and then Microsoft trying to get in and Apple trying to keep a fleet, all of that leads to much greater competition on the handsets side and you know that where there is greater competition there is some benefit to the buyer of the goods and services being sold and in our case we see pricing that could end up being more favorable for us as we go forward as a result of that competition.
I think more importantly we see the rate at which people want to upgrade their handsets is increasing because, wow, that’s a really new feature, I want to get one of those and yet I am finished my existing term yet and so though and I believe other have introduced lower cost, that’s lower cost to us, greater flexibility, that’s greater flexibility to the end user upgrade programs, so you can take a new device by buying out your older ones and that allows us to recover some COA that we would have invested previously as people upgrade their handsets.
So those two factors, I think make us comfortable that we don’t have a runaway COA or COM exposure in front of us. That's why we feel comfortable. We're going to stick at that 10% to 11% range on COM and you know we see COA; it is a fiercely competitive market out there. So it's not entirely our call but certainly there are some good structural reasons why we feel comfortable with as I said our financial forecast for the coming year.
That's clearly on the subsidy side, first of all, as a Canadian, we want to see Blackberry successfully and then selflessly from a business perspective, a successful Blackberry is very important to us and early signs are quite positive because leveling that supplier playing field creates the right tension amongst the suppliers and if you are buyer from a supplier, you want them to have tension not us. And so that’s exactly what we think, an early signs on the Blackberry are encouraging and we're really looking forward. That may turn out to be a Canadian phenomenon in terms of the amount of loyalty to that brand. Let’s hope it’s global but that will only help Canadian wireless carriers for sure and hopefully help Blackberry.
Thanks. You gave some great presentations on your best-in-class capabilities in field ops and customer service and first of all, kudos for that for the turnaround over the past few years. But I noticed in the past three years, most of your acquisition dollars have gone into media and content. Is there any way to maybe leverage those best-in-class skills? You don’t have been making acquisitions where they could be big synergies, taking your skills in buying other (inaudible) and related to that, with Bell Aliant, do share all of that capability you have or if Bell ever own a 100% of that would be some incremental synergy that could float BCE shareholders?
Yeah, it’s couple of questions. First of all, on the acquisition front, every acquisition we have made has been to drive the imperatives and how we see the industry evolving overtime, alright? So clearly, you mentioned the media acquisition we think Q9 is absolutely right in the sweet spot of our traditional business. We think Virgin was right in the sweet part of our business. The source the (inaudible) of Bell went down when we bought into the (inaudible) the source and Q9. We lower our cost to capital in those acquisitions for the overall entity if you step back and think about how we derisk the organization.
Turns to Bell Aliant, Karen is just an excellent operator she has done a fantastic job with that asset, I know that's what the street view is and we obviously, I am Chair of the board, John sits on the board, so absolutely best practices are shared between both companies where we are significant shareholder, we want that Bell Aliant organization to do well. So there is no secrets in terms of trying to help them out and likewise on the other way. And there aren’t many (inaudible) but I know in Canada that we would add to that portfolio. So we are pretty focused on executing what we have got.
Thank you. I just wanted to ask a technological question on the Wireline side, you mentioned on the slide that the usage on from customers is still well below your bandwidth of 35 or 75 coming through with the [pair] bonding but I assume customers needs are higher you won’t catch them in average, there will be outliers and they will go to somebody else, can you may be talk a little bit about how far the pair bonding is going to take you out in terms of years before we see Ultra High Definition TVs coming on to the market and expanding the needs of customers and the wireless is, we have seen transactions in the US where we have seen AT&T, Verizon separate things somehow in terms of bandwidth use with the transactions they have done between themselves. Do you expect in Canada to see some kind of separation going forward in terms of the bandwidth 700 megahertz and AWSN which companies using different technologies on their bandwidth?
Unidentified Company Representative
Sure, and I will take that one. So a couple of things one Ultra HD so we do follow all the [CASE] announcements and everything at that period closely of course and there is couple of hard things happening in the HD space. One as we currently encode our network with MPEG-4 is the latest and greatest by the time Ultra HD comes out which we believe is really more in that kind of 2015ish timeframe and maybe beyond, because that's really only for 54 inch TVs and above, they will take advantage plus you need the content and everything else.
But there is a newer codec called the HEVC codec and not to get to complicated but we believe they will reduce by both two-thirds demand and so we will be able to ride those codec roughly at the same time as HDTV, 4K-TVs are coming on to the market plus I will leave it your call you know, there is hike around 3D TV last year and years before and that really hasn't taken off, so we will see what happens with 4Ks
I think there is a lot of room left particularly with pair bonding and as we do more and more fibre each and every year of course that is sort of the future proof technology like I mentioned before.
On the spectrum side on wireless, we also follow global ecosystems and we are very active in understanding the 700 ecosystem what Verizon is doing versus what AT&T is doing, and so we are very tight in understating that and just rest assured that we’ll follow the most global ecosystem we possibly can as it relates to the 700 megahertz option.
The only thing I would add is where we have built out FTTN; we are 100% comfortable we are exceeding any demand of any customers for speed. We have no issue in the marketplace with any customers that yesterday issue for our company and all we do is pick that up with bonding because what bonding does is extend our footprint and the real issue we have is you see how fast can we get that FTTN or FTTH footprint out beyond the five million and just keep pushing that and pushing out the IPTV.
So even with the use of IPTV on our bandwidth, we are not seeing any issue at all and we have some marketing analysis which we are not going to make here in the coming few weeks from Wade shop to take that up even another step, particularly in the condo market where its probably one of the great areas as you are in a condo you know, traditionally you had to be only with the cable guys and we've now broken through that log jam and now we are putting fibre into the condos. I mean that's a great market share opportunity for us for internet and TV and we are going to be all over that as all these buildings finally fill up outside this room. We hope.
Thanks. Couple of questions first on the wireless side, just a bigger picture on smartphone penetration. You guys talked about Canada being a leader there, wondering where do you think smartphone penetration could go in Canada specifically where that ceiling could be and also gives some context as to where do you think whether that ceiling you think has actually gone up over the last couple of years as you see more device come to the markets.
The second question is more on the wireline side. IPTV numbers has been phenomenal but on the (inaudible) side, we are still seeing some losses I am wondering if you guys are going to be doing something there to try to change the trend there to try to see some improvement or (inaudible) the losses on family. Thanks.
On smartphones I think there's a balance between consumer demand and honestly a 100% of people want a smartphone. So what is the cap? A 100%, because everybody wants one. And what's counter to that is how much of an investment are we willing to make in COA for a particular subscriber who might be less credit worthy than you would hope for. So I think at the end of the day, given the cost benefits we will see as competition in smartphones heats up and that insatiable appetite for a device that lets you do anything and everything. The only thing that's the counter push against that is the credit worthiness frankly of the subscriber and not much of an investment are we willing to make.
And there is increasing sophistication in our credit supporting systems as well, so we are able to go deeper and deeper. Next year we are targeting (inaudible) about 75% I think if I recall, and we don't see kind of a limit to where that might go on the smartphone side. On the satellite side if you want me to take that George mentioned that we have about 15% of our IPTV subs come from our satellite subscriber base, but of course we are faced with IPTV or Fibe TV competition and most markets now TELUS is doing in the [west], Manitoba you know in that territory, (inaudible) territories. So satellite is getting that pressure from Fibe TV technology on a national basis. Having said that we think we can make some improvements in our performance in satellite and we are certainly working hard at doing that.
But we will see cannibalization there.
Right in that and then executing as Wade said where not as aggressive from Karen or from the TELUS folks is we can probably be a little stronger on the satellite side and the service on that has been top rate. (inaudible) but it's not going to grow close to the Fibe TV per share.
Could you talk a little bit about the trends you expect to see in your ability to low the network with five subscribers, and obviously any targets you have, if you wanted to share those with us. You mentioned you’d see some promos falling off and you are not renewing them. So how do you see the trends in loading and are you suggesting that a lot of the incremental loading will come out of the condo gain as oppose to the single family home. And second question would be on NLSC. I know you just got control of it, but what's the ultimate end game there. It just seems unsustainable that you and Rogers would stamp at the ownership levels you have given, as you’ve articulated, sports is the most important content and everything suggest it's going to be continue to be a very valuable content. So, any comments on how that relationship would develop?
Yeah, I am glad that you asked the question on Fibe TV because we're confused. So I apologize if we have. What we said is those customers who came on promotions last year for the first time are coming off because it's only our first full-year in the business. We will be just as aggressive in attracting new customers this year. In fact we have to see accelerated growth on Fibe TV subs this year to justify the extended footprint that we put in place. The end goal, one out two TV subs. How fast we get there, that’s over to the marketing folks. But its one out of two that’s the way it is. There is two ways in to the home and we want 50% of the TVs. It's just the pace and how we get there and that’s where we are going to play out. On the [Maple Leafs] sports and entertainment and the same as we have invested in the Montreal, Canadian, I mean that is clearly really Kevin’s space and I think Kev if you are going to make a couple of comments feel free and I will talk on the partnership issue myself.
We talked about the importance of sports the positions that we have taken have definitely helped us in negotiating what is still market value rates, but these are complex and tense negotiations, so that ability and that open door has helped us very much to secure like I said from MLSE we will wind up with a much better leased package than what we have today whenever the current one expires and to George for the future.
Yeah I think it’s important for investors the 20 year arrangement on content has been arranged for us going forward in the acquisition of MLSE. So the TSN franchise knows it has access to half of all these games, rapture games and soccer games for the next 20 years, on all four screens that’s the core to that and we are paying ourselves in that ownership model. So that’s the model and if you read there are some reports, there is no one with that integrated solution globally to lower your cost to capital in your media business which is really what I think we have done if you really follow through and there is no better content on the planet then those two assets that involvement of the Montreal Canadians and the Toronto sport franchises.
Turning to the Rogers relationship in that particular area, it could not be better. We have proven strategically on a [nutshell], we can kill each other in the market and work strategically when we need to with our competitor in the west on a network sharing agreement where quite frankly it’s a never ending war as everybody knows, but we do think that is intelligent for our shareholders. So I have absolutely I think we will go on I think it will be years and years that partnership with them in that particular asset and I think if they would then want to speak to them I think they strategic benefits for them we see strategic benefits for us. I guess if someone moved out of the media business or did something completely different you’ll look at different partners. But I think people should relax that that’s going to be, I know it will be a very good sustainable model and winning franchises will drive revenue for Kevin, that’s the name we gain there.
Let me just finish with just quickly hopefully it was helpful for the community to get some insights to know what we are trying to do. The focus is clear, it’s on cash flow. In the end I will leave you with one comment. I used to say for years and years when I competed with Bell that what would you do if Bell ever woke up. Well we woke up, thanks very much.
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