Q Results Conference Call

Transcription

1 Q Results Conference Call George A. Cope President and Chief Executive Officer Glen LeBlanc Executive Vice-President and Chief Financial Officer June 30, 2015

2 BCE Second Quarter 2015 Results Conference Call Page 2 CAUTION CONCERNING FORWARD-LOOKING STATEMENTS Certain statements made by BCE s President and Chief Executive Officer and Executive Vice-President and Chief Financial Officer during BCE s Q Results Conference Call, as reflected in this transcript, are forward-looking statements. These forward-looking statements include, without limitation, statements relating to our 2015 financial guidance (including revenues, Adjusted EBITDA, capital intensity, Adjusted EPS and free cash flow), our business outlook, objectives, plans and strategic priorities, BCE s common share dividend policy, our network deployment plans, including, without limitation, the continued expansion of our 4G LTE wireless network and the Gigabit Fibe infrastructure buildout in Toronto, and certain other cities in Canada and the related planned capital investment, and other statements that are not historical facts. Forwardlooking statements are typically identified by the words assumption, goal, guidance, objective, outlook, project, strategy, target and other similar expressions or future or conditional verbs such as aim, anticipate, believe, could, expect, intend, may, plan, seek, should, strive and will. All such forward-looking statements are made pursuant to the safe harbour provisions of applicable Canadian securities laws and of the United States Private Securities Litigation Reform Act of Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties and are based on several assumptions, both general and specific, which give rise to the possibility that actual results or events could differ materially from our expectations expressed in or implied by such forward-looking statements and that our business outlook, objectives, plans and strategic priorities may not be achieved. As a result, we cannot guarantee that any forward-looking statement will materialize and we caution you against relying on any of these forward-looking statements. The forward-looking statements contained in this transcript describe our expectations as of August 6, 2015 and, accordingly, are subject to change after such date. Except as may be required by Canadian securities laws, we do not undertake any obligation to update or revise any forward-looking statements contained in this transcript, whether as a result of new information, future events or otherwise. Except as otherwise indicated by BCE, forward-looking statements do not reflect the potential impact of any special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after August 6, The financial impact of these transactions and special items can be complex and depends on the facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way or in the same way we present known risks affecting our business. Forward-looking statements were made during BCE s Q Results Conference Call for the purpose of assisting investors and others in understanding certain key elements of our expected financial results, as well as our objectives, strategic priorities and business outlook, and in obtaining a better understanding of our anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes. The value of capital investments expected to be made by Bell Canada assumes that capital investments will continue at current levels. However, there can be no assurance that such investment levels will be maintained with the result that the value of actual capital investments made by Bell Canada could materially differ from current expectations. Material Assumptions A number of economic, market, operational and financial assumptions were made by BCE in preparing certain forwardlooking statements contained in this transcript, including, but not limited to: Canadian Economic and Market Assumptions slow economic growth, given the Bank of Canada s most recent estimated growth in Canadian gross domestic product of 1.1% in 2015, representing a eighty basis point decrease from an earlier estimate of 1.9% weaker employment growth compared to 2014, as the overall level of business investment is expected to remain soft interest rates to remain stable through the remainder of 2015, following the recent decrease of twenty-five basis points by the Bank of Canada a sustained level of wireline and wireless competition in both consumer and business markets higher, but slowing, wireless industry penetration and smartphone adoption a relatively stable media advertising market and escalating costs to secure TV programming a higher expected number of subscriber renewals resulting from the expiry of 2 or 3 year service contracts due to the Wireless Code of Conduct implemented in 2013 Assumptions Concerning our Bell Wireless Segment higher, but slowing, Canadian wireless industry penetration and smartphone adoption sustained level of competition in both consumer and business markets maintain our market share momentum of incumbent wireless postpaid subscriber activations

3 BCE Second Quarter 2015 Results Conference Call Page 3 continued adoption of smartphone devices, tablets and data applications, as well as the introduction of more 4G LTE devices and new data services our ability to monetize increasing data usage and customer subscription to new data services higher subscriber acquisition and retention spending, driven by a greater number of year-over-year gross additions and customer device upgrades higher than industry-average blended ARPU and Adjusted EBITDA growth, driven by a greater mix of postpaid smartphone customers and accelerating data consumption on the 4G LTE network, and higher access rates on new two-year contracts completion of the LTE network expected to cover 98% of the Canadian population ongoing technological improvements by handset manufacturers and from faster data network speeds that allow customers to optimize the use of our services a higher expected number of subscriber renewals resulting from the expiry of 2 or 3 year service contracts due to the Wireless Code of Conduct implemented in 2013 no material financial, operational or competitive consequences of changes in regulations affecting our wireless business Assumptions Concerning our Bell Wireline Segment positive full-year Adjusted EBITDA growth IPTV contributing to TV and broadband Internet market share growth, as well as fewer residential NAS losses, resulting in fewer year-over-year total wireline residential net customer losses and higher penetration of threeproduct households increasing wireless and Internet-based technological substitution residential services household ARPU growth from increased penetration of three-product households, promotion expiries and price increases aggressive residential service bundle offers from cable TV competitors in our local wireline areas stable year-over-year rate of decline in Bell Business Markets Adjusted EBITDA continued large business customer migration to IP-based systems ongoing competitive reprice pressures in our business and wholesale markets continued competitive intensity in our small and mid-sized business segments as cable operators and other telecom competitors continue to intensify their focus on the business segment new broadband fibre deployment expected to be largely fibre-to-the-home (FTTH)/ fibre-to-the-premises (FTTP) growing consumption of OTT TV services and on-demand streaming video, projected growth in TV Everywhere as well as the proliferation of devices, such as tablets, that consume vast quantities of bandwidth, will require considerable ongoing capital investment no material financial, operational or competitive consequences of changes in regulations affecting our wireline business Assumptions Concerning our Bell Media Segment lower year-over-year Adjusted EBITDA and margin, due to escalating costs to secure TV programming, including rising sports-rights costs and market rates for specialty content, CraveTV investment, higher regulatory Canadian content spending, the expiry of certain CRTC benefits as well as the completion of the Local Programming Improvement Fund ability to successfully acquire highly rated programming and differentiated content building and maintaining strategic supply arrangements for content on all four screens successful scaling of CraveTV TV unbundling and growth in OTT viewing expected to result in moderately lower subscriber levels for many Bell Media TV properties no material financial, operational or competitive consequences of changes in regulations affecting our media business Financial Assumptions Concerning BCE The following constitute BCE s principal financial assumptions for 2015: total post-employment benefit plans cost to be approximately $370 million, based on an estimated accounting discount rate of 4%, comprised of an estimated above Adjusted EBITDA post-employment benefit plans service cost of approximately $260 million and an estimated below Adjusted EBITDA net post-employment benefit plans financing cost of approximately $110 million

4 BCE Second Quarter 2015 Results Conference Call Page 4 depreciation and amortization expense of approximately $3,425 million net interest expense of approximately $940 million tax adjustments (per share) of approximately $0.04, instead of $0.03 an effective tax rate of approximately 26% non-controlling interest of approximately $50 million total pension plan cash funding of approximately $400 million cash taxes of approximately $750 million net interest payments of approximately $925 million working capital changes, severance and other costs of approximately $125 million to $225 million average BCE common shares outstanding of approximately 845 million an annualized common share dividend rate of $2.60 per share The foregoing assumptions, although considered reasonable by BCE on August 6, 2015, may prove to be inaccurate. Accordingly, our actual results could differ materially from our expectations as set forth in this transcript. Material Risks Important risk factors that could cause our assumptions and estimates to be inaccurate and actual results or events to differ materially from those expressed in or implied by our forward- looking statements, including our 2015 financial guidance, are listed below. The realization of our forward-looking statements, including our ability to meet our 2015 financial guidance, essentially depends on our business performance which, in turn, is subject to many risks. Accordingly, readers are cautioned that any of the following risks could have a material adverse effect on our forward-looking statements. These risks include, but are not limited to: regulatory initiatives and proceedings, government consultations and government positions that affect us and influence our business the intensity of competitive activity, and the resulting impact on our ability to retain existing customers and attract new ones, as well as on our pricing strategies, financial results and operating metrics the level of technological substitution and the presence of alternative service providers contributing to reduced utilization of traditional wireline services the adverse effect of new technology and increasing fragmentation in Bell TV s TV distribution market and Bell Media s markets rising programming costs and Bell Media s inability to secure key content variability in subscriber acquisition and retention costs based on subscriber acquisitions, retention volumes, smartphone sales and handset discount levels economic and financial market conditions, the level of consumer confidence and spending, and the demand for, and prices of, our products and services Bell Media s significant dependence on continued demand for advertising, and the potential adverse effect thereon of economic conditions and ratings/audience levels our inability to protect our networks, systems, applications, data centres, electronic and physical records and the information stored therein against cyber attacks, unauthorized access or entry, and damage from fire, natural disasters and other events the complexity of our product offerings, pricing plans, promotions, technology platforms and billing systems our failure to satisfy customer expectations and build a simple and expeditious operational delivery model our failure to carry out network evolution activities or to meet network upgrade or deployment timelines within our capital intensity target our inability to discontinue certain services as necessary to improve capital and operating efficiencies our failure to anticipate and respond to technological change, upgrade our networks and rapidly offer new products and services our failure to implement or maintain, on a timely basis, effective IT systems, and the complexity and costs of our IT environment our failure to maintain optimal network operating performance in the context of significant increases in broadband demand and in the volume of wireless data-driven traffic employee retention and performance, and labour disruptions pension obligation volatility and increased contributions to post-employment benefit plans events affecting the functionality of, and our ability to protect, test, maintain and replace, our networks, equipment and other facilities in-orbit risks to satellites used by Bell TV

5 BCE Second Quarter 2015 Results Conference Call Page 5 events affecting the ability of third-party suppliers to provide to us, and our ability to purchase, critical products and services the quality of our network and customer equipment and the extent to which they may be subject to manufacturing defects unfavourable resolution of legal proceedings and, in particular, class actions unfavourable changes in applicable laws our capital and other expenditure levels, financing and debt requirements, and inability to access adequate sources of capital and generate sufficient cash flows from operations to meet our cash requirements and implement our business plan, as well as our inability to manage various credit, liquidity and market risks ineffective change management resulting from restructurings and other corporate initiatives, and the failure to successfully integrate business acquisitions and existing business units our failure to evolve practices to effectively monitor and control fraudulent activities copyright theft and other unauthorized use of our content the theft of our direct to the home (DTH) satellite TV services our failure to execute our strategic imperatives and business development plans in order to produce the expected benefits, including continuing to implement our targeted cost reduction initiatives, and our failure to develop a successful business strategy higher taxes due to new taxes, higher tax rates or changes to tax laws, and our inability to predict the outcome of government audits health concerns about radiofrequency emissions from wireless communications devices our inability to maintain customer service and our networks operational in the event of the occurrence of epidemics, pandemics and other health risks our failure to recognize and adequately respond to climate change concerns or public and governmental expectations on environmental matters BCE s dependence on the ability of its subsidiaries, joint arrangements and other entities in which it has an interest to pay dividends or otherwise make distributions to it uncertainty as to whether dividends will be declared by BCE s board of directors or BCE s dividend policy will be maintained stock market volatility We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. We encourage investors to also read BCE s 2014 Annual MD&A dated March 5, 2015 (included in the BCE 2014 Annual Report), and BCE s 2015 First and Second Quarter MD&As dated April 29, 2015 and August 5, 2015, respectively, and BCE s news release dated August 6, 2015 announcing its financial results for the second quarter of 2015 for additional information with respect to certain of these and other assumptions and risks, filed by BCE with the Canadian provincial securities regulatory authorities (available at Sedar.com) and with the U.S. Securities and Exchange Commission (available at SEC.gov). These documents are also available at BCE.ca. The terms Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, and Adjusted EPS used in this transcript are non-gaap financial measures and do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. Refer to the section Non-GAAP financial measures and key performance indicators (KPIs) in BCE s 2015 Second Quarter MD&A for more details..

6 BCE Second Quarter 2015 Results Conference Call Page 6 C O R P O R A T E P A R T I C I P A N TS George Cope President and CEO Glen LeBlanc Executive vice-president and CFO Thane Fotopoulos Vice-president - IR C O N F E R E N C E C A L L P A R T I C I P A N T S Tim Casey BMO Capital Markets Analyst Richard Choe J.P. Morgan Analyst Jeffrey Fan Scotiabank Analyst Aravinda Galappatthige Canaccord Genuity Analyst Philip Huang Barclays Analyst Greg MacDonald Macquarie Capital Markets Analyst David McFadgen Cormark Securities Analyst Drew McReynolds RBC Capital Markets Analyst Robert Peters Credit Suisse Analyst Maher Yaghi Desjardins Securities Analyst Christopher Schoell UBS Analyst

7 BCE Second Quarter 2015 Results Conference Call Page 7 P R E S E N T A T I O N Good morning, ladies and gentlemen. Welcome to BCE s Q Results conference call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead. Thane Fotopoulos Vice-president, IR Thank you, Paul, and good morning to all on the call this morning. With me here today are George Cope, BCE's President and CEO; and Glen LeBlanc, who is participating in his inaugural call as CFO of BCE. So a very warm welcome to Glen. As a reminder, our Q2 earnings release supplementary financial information and slide presentation are available on our corporate BCE website. A replay and transcript will also be available on our website later today or tomorrow. However, before we get started, I would like to draw your attention to our Safe Harbour statement on Slide 2. Information in this presentation and remarks made by Glen and George will contain statements about expected future events and financial results that are forward-looking and therefore subject to risks and uncertainties. The results may differ materially. These forward-looking statements represent our expectations as of today and, accordingly, are subject to change. We disclaim any obligation to update forward-looking statements except as required by law. A discussion of these factors that may affect future results is contained in BCE's filings with both the Canadian Securities Commissions and the SEC and are also available on our corporate website. So with that, over to George. Good morning, everyone. Thanks Thane. Good morning, everyone. Thank you for joining us this morning. I am on Slide 4 to begin the presentation. The Company produced a solid quarter across the board with all three divisions driving positive EBITDA growth for a combined EBITDA growth of 2.5% in the quarter. The excellent Wireless execution continued with 10% revenue growth year-over-year and 5.3% EBITDA growth. We completed our fourth consecutive quarter of positive Wireline Adjusted EBITDA growth and expect this will continue going forward. Our broadband market share grew for the sixth straight quarter with 69,000 Internet and IPTV net adds. Bell Media enjoyed excellent execution in what I would describe as a tricky environment producing 2.4% EBITDA growth in the quarter. As I think everyone knows, in late June we announced the build-out of Bell Gigabit Fibe to 1.1 million locations in Toronto, and today I am pleased to announce that Bell will launch Gigabit Fibe service to 1.3 million homes in Ontario and Québec this coming Monday, in the Atlantic region by the end of September and will be available to 2.2 million homes by the end of More on that in the presentation. I will turn to Wireless results, we had a strong quarter. Gross sales up in the quarter, driving 61,000 net adds. We again took market share from the largest wireless carrier in the country, so really pleased with the results given this is the first month we had a double cohort. Also we are able to do that and continue to be the value leader in the industry with an ARPU growth of 5.3% while growing market share in the segment. Cost of acquisition was up year-over-year, really for two reasons. A higher mix of postpaid gross adds versus prepaid and there is no doubt it was an aggressive last few weeks of the quarter as some of the marketing that took place in the last few weeks drove up some cost of acquisition. Retention spending increased to 12.9% as a result of investment in the double cohort and we saw that near the last part of June. Also just to highlight the quarter for us, a recent survey by JD Power, Bell was cited as the most improved on the national carriers from a full services perspective. I am particularly proud of our flanker brand, Virgin, which was ranked as number one service brand nationally in Canada ahead of both Telus and Koodo, Fido and Rogers. So great progress on our imperative of customer service improvements.

8 BCE Second Quarter 2015 Results Conference Call Page 8 Turning to Wireline, we added 19,000 Internet net adds, up 1,000 year-over-year, but importantly now that our competitors have reported about a 90% market share in the quarter, driven really through the continued growth of IPTV with 50,000 additional subs. I would remind investors we sell IPTV with an Internet subscription as well. Also importantly we are seeing about 75% of our IPTV activations taking a triple, which of course is still significant given the amount of wireless substitution we see. The triple ARPU that we are seeing off of that base I looked at it last night just in the quarter was north of $150. So, clearly when we get a triple customer base that is a pretty significant customer for us and really being pulled through through our strategy on IPTV. Turning to Slide 7, just a couple of comments on the Toronto announcement on June 25. We announced a $1.14 billion capital program. It will be an overlay of our FTTN network in Toronto to provide Gigabit Fibe service to 1.1 million homes and businesses. That will be completed by the end of So it is a two to threeyear project. What we did I think quite strategically is entered into a long-term agreement with Toronto Hydro for access to their poles and that took what would have been a 50/50 buried versus aerial project to be 70% aerial and probably saved us north of $200 million of capital and also increased the speed to market with the buildout. Turning to Slide 8, as I mentioned in my opening, we will actually launch Bell Gigabit Fibe service next Monday, 1.3 million homes in Ontario and Québec on August 10, in the Atlantic region by the end of September. You can see on the map where the footprint will be in terms of geographically by province and of course the Ontario footprint will grow dramatically over the next couple of years as we begin that buildout. Overall, when we end the year, about 30% of our footprint will have FTTP services, the remainder as you can see of the 7.9M will have FTTN and then of course we saw a footprint that we have not covered with either and footprint will continue to expand as well the overlay of our FTTN to be FTTP to the premises. On the Bell Media side, I mentioned we delivered positive EBITDA in the quarter. CTV did complete certainly its best season ever having 15 of the top 20 programs. TSN did, we think, quite well certainly given it is the first time we have not had the hockey playoffs and did very well with the FIFA Women s World Cup. I think the most strategic thing for us in the quarter is the announcement that we will be taking Crave direct-to-consumers on January 1. We currently market to about 3.5 million homes through ourselves and some other TV providers and after seven months we have approximately 730,000 customers, but by going over the top, of course we will be able to pursue 11 million households. Really that strategy is a result of a recent CRTC decision allowing us to have CraveTV offered exclusively in our IPTV footprint to Bell Fibe customers and then that nationally launching the product to OTT to everyone. So we get some product differentiation on Fibe TV and open up the CraveTV product on a national basis and of course CraveTV has the content of both HBO and SHOWTIME and we think is going to be and has been giving the subscribers they are seeing already a very competitive product and compelling for consumers. Turning to Slide 10, I think this quarter again just illustrates that our focus on our six strategic imperatives over the last eight years continues to pay off. Over 80% of our revenue now is from growth services. We have been able to maintain our overall EBITDA margin even with the decline over the years of the NAS base and the customer base. It is our 39th consecutive quarter of uninterrupted year-over-year EBITDA growth. Basically if you look at our year-to-date results and our outlook, we believe and I believe we are well-positioned to continue executing our dividend growth model in 2016 within our conservative free cash flow payout ratio of 65% to 75%. With that, let me turn it over to Glen. Siim, I hope you are not listening, I hope you are out golfing somewhere, but if not, anyway, over to Glen. Glen LeBlanc Executive Vice-President and CFO Thanks George, and good morning to everyone on the call. As Thane mentioned, this is my first BCE analyst call since taking over from Siim Vanaselja at the end of June, albeit I have worked with most of you before. It is a real privilege and an exciting time to assume the role of CFO of this great Company. I definitely have big shoes to fill but I look forward to living up to the high standards set by my predecessor, and to continue working with all of you.

9 BCE Second Quarter 2015 Results Conference Call Page 9 I will begin with a quick overview of Q2 consolidated financial results on Slide 12. We continue to execute well across the business, posting another sound quarter of revenue, Adjusted EBITDA growth and earnings profitability in line with our guidance targets for the year. We generated top line growth of 2% in Q2 driven by a healthy 2% year-over-year increase in service revenues. This performance was led by a strong double-digit increase at Bell Wireless and robust Wireline Residential revenue growth. As expected, Media revenues were lower year-over-year in line with industry trends. BCE's Adjusted EBITDA was up a solid 2.5% on positive growth across all Bell operating segments, all of which was organic. This yielded a higher year-over-year margin of 41.3%, reflecting growing broadband scale in our Wireless business and continued good spending and price discipline across customer segments and operating efficiencies throughout the organization. Higher EBITDA drove 6.1% growth in Adjusted EPS to $0.87 per share from $0.82 last year, and a strong 14.2% increase in free cash flow which grew to $931 million this quarter. Statutory EPS of $0.90 in Q2, which was up 15.4% year-over-year, included a $94 million cash gain related to the sale of our 50% ownership interest in Glentel to Rogers. Cash generated in the quarter supported significant capital expenditures of $914 million, which was in line with our plan. Spending was focused on connecting more homes and businesses directly to our fiber optic broadband network, including the deployment of Bell Gigabit Fibe in the City of Toronto and the continued expansion of our 4G LTE Wireless network and deployment of 700 MHz spectrum. I would like to add that all of this investment is being done while maintaining our capital intensity ratio outlook for the year below 17% of revenues. So, overall, it was a very good financial quarter with solid results across the board. As a new guy coming into Bell, when I take a step back, what impresses me greatly is the consistency of Bell's performance quarter after quarter. This shows the strength of the business model Bell has built focused around our six strategic imperatives. The telecom industry in Canada is marked by healthy competition and dynamic changes, and yet, we have leveraged our business model to produce results consistently within our guidance targets. This will be no different this year. I will turn to the results for each of Bell's operating segments, starting with Wireless on Slide 13. Revenue growth continued to accelerate in the quarter with 10% year-over-year increase driven by a higher proportion of postpaid subscribers in our customer base and strong data revenue growth of over 24%. Increased data usage, higher rate plan pricing under two-year contracts and price discipline drove an exceptional 5.3% increase in ARPU representing our 22nd consecutive quarter of year-over-year growth. This industry-leading ARPU growth continues to be driven by our strategic focus on high quality subscriber loadings and data growth. The quality and reliability of our network is essential in supporting this trend and in meeting the evolving needs of our customers. As you have seen, we continue to make significant investments in acquiring spectrum and expanding the coverage and speed of our LTE network to sustain this growth opportunity. From a profitability perspective, Wireless EBITDA increased a solid 5.3% in Q2, generating a very healthy service revenue margin of 46.6%. This result is even more impressive given that it was achieved while absorbing $64 million in higher retention and acquisition cost, driven by 20,000 more postpaid gross additions compared to last year, and increased spending to deal with the start of the double cohort at the beginning of June. Lastly, Wireless EBITDA less capex provided a healthy contribution to free cash flow, increasing 3.1% yearover-year. A solid result in the context of the higher retention and COA spending that drove operating cost growth of 13.7% in the quarter. As we head into the seasonally important third quarter, our Wireless market momentum and financial flexibility to manage through the double cohort impact remain strong. Turning to the Wireline segment on Slide 14, service revenue growth accelerated in Q2, increasing 1.1%, up from 0.7% last quarter. This sequential improvement was driven by the strong performance of our Residential services division, which delivered excellent year-over-year revenue growth of 4%, reflecting continued steady growth in Fibe TV and Internet scale together with higher revenue per household. TV and Internet combined generated 8.4% higher revenue year-over-year and Voice revenue erosion also continued to slow, reflecting fewer residential mass line losses compared to last year. However, overall Wireline revenue growth in the quarter was moderated by our Business Markets results, which continue to be impacted by the repricing pressure and reduced customer spending on service solutions and

10 BCE Second Quarter 2015 Results Conference Call Page 10 data products, the latter of which declined 16% year-over-year. This performance is reflective of the sluggish economy and slow employment growth we are experiencing in both central and Atlantic Canada. While our Business Markets unit continues to work through this tough economic cycle, it remains competitively wellpositioned and continues to invest in both growth and productivity measures to lower cost. Wireline Adjusted EBITDA increased a solid 1% this quarter, and as George said earlier, that represented our fourth consecutive quarter of positive growth. Our Wireline margin was up 50 basis points year-over-year to an industry best 41.6% supported by cost synergies from the Bell Aliant integration and ongoing customer service and operational efficiency improvements. Lastly, and perhaps most importantly, Bell Wireline delivered a strong contribution to the consolidated BCE free cash flow with a double-digit year-over-year growth of 10.3%. That provides good support to fund the continued investment in our strategic broadband fibre programs going forward. Shifting to Bell Media on Slide 15, consistent with the industry trends, Media revenue decreased 2.8%. Advertising revenues were down 4.4% in Q2, impacted by general softness in the TV advertising market, a shift in consumer spending to online services and the loss of the NHL Playoff broadcast rights on our sports specialty channels, TSN and RDS. This is partially offset by the revenue generated from our broadcast of the FIFA Women s World Cup Soccer, which saw record audiences, and the growth in our non-sports specialty services driven by Space and Discovery TV. Subscriber fee revenues increased 1.4% as a result of the growth in CraveTV and their expanding suite of TV Everywhere GO products. However the financial highlight of the quarter for Bell Media was Adjusted EBITDA, which increased 2.4% over last year. This was driven by a 4.7% decrease in operating cost despite the higher cost for sports broadcast rights and our investment in CraveTV programming. Slide 16 summarizes our Adjusted EPS for Q2, which was $0.87 per share or 6.1% higher than last year. A strong result reflecting healthy organic growth and Adjusted EBITDA across all of our operating segments, which contributed $0.05 year-over-year increase to EPS. Consistent with our guidance assumptions for 2015, depreciation and amortization expense was lower compared to last year due to an increase in the useful life of application software. Tax recoveries amounted to $0.01 per share this quarter, the result of favourable settlements with CRA, which brings year-to-date tax adjustments to $0.04 per share. This compares to tax recoveries in 2014 of $0.02 in Q2 and $0.05 per share for the full year. At this time, we do not expect any further material tax adjustments in the second half of Similar to the previous quarter, non-controlling interest, or NCI, was lower in Q2 due to BCE now owning 100% of Bell Aliant. This was offset of course by the dilutive impact from the issuance of BCE common shares on the Bell Aliant privatization. In the first half of 2015, Adjusted EPS of $1.71 per share is 4.9% higher year-over-year, positioning us well to achieve our full year 2015 guidance range of $3.28 to $3.38 per share. Turning to Slide 17, free cash flow in Q2 was $931 million or 14.2% higher compared to last year. This reflected higher Adjusted EBITDA driven by solid organic growth across our core businesses, an improvement in our working capital position and incremental contribution to free cash flow from the privatization of Bell Aliant. Cash interest payments in Q2 were higher year-over-year reflecting a higher level of outstanding long-term debt from Bell Aliant, and the year-over-year increases in BCE's current service pension funding and cash taxes were consistent with our full year 2015 guidance assumptions. With year-to-date free cash flow of some $1.2 billion on track with plan, we see accelerated free cash flow generation in the second half of the year, giving us substantial financial flexibility to support the execution of our strategic capital programs and higher dividend for To wrap up on Slide 18, we see good momentum to take us forward for the remainder of the year. With a strong set of financial results for Bell Wireless in the first half of 2015, and an outlook for continued Wireless profitability, we have headroom to absorb a sustained high level of retention spend in the second half of this year without impacting overall guidance targets for the year. Our Wireline segment is expected to continue delivering positive year-over-year EBITDA growth in the back half of the year, benefiting from further TV and Internet customer expansion, ARPU flow-through and cost savings. While we are pleased with Bell Media's overall performance in Q2, the second half of the year will continue to be challenging as a result of the higher

11 BCE Second Quarter 2015 Results Conference Call Page 11 sports rights and CraveTV content costs which have impacted results throughout the year. Given this outlook and a financial plan that is comfortably on track, I am reconfirming all of our 2015 guidance targets. On that, I will turn the call back over to Thane and the to begin the question-and-answer period. Thane Fotopoulos Vice-president, IR Thanks Glen. So before we start the Q&A period, just to keep the call as efficient as possible, I would ask on behalf of the team here today that you limit yourselves to one question and a brief follow-up and if we have extra time we will circle back and take more questions. So with that, Wayne, we are ready to take our first question. Q U E S T I O N A N D A N S W E R S E S S I O N Thank you. Please press star, one at this time if you have a question. You may at all times cancel your question by pressing the pound key. Our first question is from Richard Choe from J.P. Morgan. Please go ahead. Richard Choe J.P. Morgan Analyst Great, thank you. Just wanted to get an update on double cohort what you see high end in the start of August. Should we expect kind of a higher level of churn and retention spend but still kind of trying to focus on market share more than kind of artificially I guess benefiting margin to solid margins but more market share related? Well, I am not going to comment on the next couple of months, you know, that would be I would get myself in some hot water on that, but what I would simply say is that the double cohort started, certainly our retention spend on the second half of the year will be higher than it was in the first half of the year just because of the math but as Thane said and Glen said we are comfortable totally with the guidance. Our strategy continues to be to execute on a market share that we are getting higher than our proportion of postpaid and most importantly leading on the revenue growth side giving us the flexibility to compete in the marketplace. But yes, you will definitely see I think a little lift in the retention spend in the second half of the year and we will be able to absorb that within the revenue growth we are seeing on Wireless. Richard Choe J.P. Morgan Analyst Okay, thank you. Thanks for the question. I hope that helped answer it. Thank you. The following question is from Greg MacDonald from Macquarie. Please go ahead.

12 BCE Second Quarter 2015 Results Conference Call Page 12 Greg MacDonald Macquarie Capital Markets Analyst Thanks. Good morning guys. Hello to Glen. Nice to see you back in the saddle. Glen LeBlanc Executive Vice-President and CFO Thank you Greg. Greg MacDonald Macquarie Capital Markets Analyst I wanted to ask a question on the Wireline side. We saw a slight improvement in the year-over-year results for access for local and access but a relatively large year-over-year decline in the long distance trend. I wonder I am just assuming there is no re-categorization of revenue buckets or anything going on there. I wonder if you might comment on a) what is driving the long distance component of that? Is that related to the data services comment that you made earlier and vis-à-vis the economy? Then just an overall comment on the economic outlook. Are you seeing trends worsen, have they stabilized? We all know it is weak, but I think people are looking for some visuals on what is happening there. If you comment West Coast versus Ontario, Québec, that would be helpful. Thanks. Okay. So on the long distance there is certainly no change of anything of how we report. Secondly no real change in that business if there is anything in the quarter. Our wholesale international minutes do tend to flow in and out on a quarterly basis, so that does once a while, Greg, bump up and down the LD growth rates. So that is probably what took place in the quarter, but nothing other than beyond that. In terms of the economy, I think our consumer results would show, you know, we continue to be able to execute on that side and we are seeing it nationally, so on Wireless and on the Wireline side. I think we have been so transparent for probably investors are tired of hearing it from us, but where we see it the most clearly is on the B2B side and certainly year-over-year the quarter was better than the quarter before in terms of that unit with us but a lot of that is cost management as opposed to top line growth. So it is very hard for me to make a comment on the economy because it would be quite frankly not correct to say we saw an impact in the quarter. Greg MacDonald Macquarie Capital Markets Analyst Okay. George, trends east versus west, are you seeing anything change in the we all know the West is in some difficulty but anything affecting the East Coast customers at all? No, we have seen really I have no there is nothing in our numbers that would tell us it was the economics. Clearly it will be impacted by what happens in the economy but we have certainly seen no impact in these results. Greg MacDonald Macquarie Capital Markets Analyst Okay, that is helpful. Thanks a lot.

13 BCE Second Quarter 2015 Results Conference Call Page 13 Thank you. The following question is from Jeffrey Fan from Scotiabank. Please go ahead. Jeffrey Fan Scotiabank Analyst Hi, good morning everyone. Good morning. Jeffrey Fan Scotiabank Analyst My questions are on the Gigabit Fibe service. Obviously the return is important on this project, just wondering if you can help us understand a bit about the return, and I guess more specifically on the potential incremental revenue opportunity going from fibre to the node to Gigabit Fibe and maybe the penetration longer term. Maybe help us, maybe Glen could be talking a little bit about the Bell Aliant experience on penetration since those numbers are kind of buried in overall results now. Thanks. Yes, so, look, the first of all we are really excited about the launch of it in the marketplace on Monday in some of our footprint. It is very clear to us as we look out over the next five, 10 years the market is going to demand these type of speeds and so we have to start it now so that as broad a footprint as we possibly have when we complete it as those demands grow. So it is not a matter of market share, frankly it is a matter of table stakes from our perspective. That will be the business for broadband. One of the differences certainly we are seeing in North America is Canadian telco market share gains versus cable is different than other countries and we think that is because of the hard investment we are making and our peer competitor in Western Canada to make sure Canada has the leading broadband services in the country. In terms of what we expect and what do we see from Bell Aliant, we see lower churn and better market share. In every single market we have fibre versus where we have fibre to the node. So that makes the investment for us quite frankly quite easy. I view it as a move from going from HSPA to LTE. To me it is the next move in the wireline world. Clearly, it is going to take it a long time to execute all this footprint but there is no doubt in our minds it is the place we need to go and will provide a return to shareholders. Anybody who is invested with me for the last 25 years knows that is the focus of the Executive Team at BCE and so we will make sure that happens as we invest. Jeffrey Fan Scotiabank Analyst Okay. Thanks George. Thank you. The following question is from Aravinda Galappatthige from Canaccord Genuity. Please go ahead.

14 BCE Second Quarter 2015 Results Conference Call Page 14 Aravinda Galappatthige Canaccord Genuity Analyst Good morning. Thanks for taking my question. George, I was wondering if you want to comment a little bit on the recent CRTC wireline decision. Did that in any way affect your plans or perhaps the pacing around your FTTH roll-out? I just wanted to get your thoughts on that. Thanks. Yes, well people have seen the announcement this morning on our competitive launches in the marketplace. So I would say, you know, clearly we are disappointed with the decision but there is much more work that still needs to be done before the decision comes into effect and we understand all the the way the CRTC will view it. I will say we will adjust our business model and investments as we have always done based on the incentives or the barriers put in place by the CRTC's regulatory framework. So we will reflect on the decision but we need to understand a lot further as we go forward. But you have seen the announcements we made this morning to compete in the marketplace. Aravinda Galappatthige Canaccord Genuity Analyst Thank you. Thank you. The following question is from Maher Yaghi from Desjardins Securities. Please go ahead. Maher Yaghi Desjardins Securities Analyst Yes, thanks for taking my question. I want to follow up on the economics of the launch that you talked about this morning. So, in one of your recent CRTC hearings presentation you mentioned that in Québec City which is covered by fibre-to-the-home, 80% of your subscribers are still taking speeds of 50 Mbps or lower, i.e., speeds that you currently offer on fibre-to-the-node. I am wondering are these somewhat below or in line with your expectations in terms of the launch penetration rates? What type of penetrations do you need to have in terms of higher speeds for you to be able to get your money back and make the necessary return on that investment? Maybe just the second question. So I will try to make it clear. This investment will generate free cash flow and return for shareholders. It is undoubtable that Internet is where the Company has to go on a market share broadband basis the consumer demand to utilize higher speeds with new technologies coming and with 12, 14 devices attached to the home through WiFi. As we look out, and most importantly the compelling metrics from Québec City, from the Aliant footprint where the churn is lower, the ARPU is better, it is clearly where to go. Now there have been modem restrictions on speed capabilities, etc. In fact even when we launch the 1 gigabit service on Monday it will say 940 Mbps because we have to wait for the next modem that takes it over 100; so over the one. So it is the exact same technology that Google has launched in the United States. So we are definitely excited about what it is going to do for us in the future from a competitive perspective and that is why we are making the investment. There is no doubt the one thing I would say, depending on the geography in the country and subscriptions to OTT services, some markets are much heavier users of OTT services than ever, and so it may have higher demands for speeds than some of the other geographies. So we will have to see that as we go out, but clearly the reason where everywhere we have fibre we are just going to launch this product.

15 BCE Second Quarter 2015 Results Conference Call Page 15 Maher Yaghi Desjardins Securities Analyst Just a follow up in terms of the penetrate rates. From what we have seen so far in Atlantic Canada, have you reached on average penetration rates in the 50%, 55% which you said previously is needed to cover your returns on fibre-to-the-node? I do not know when I previously said anything. So first of all, in terms of our goal in a broadband market that has two methods of access into the home is with this type of investment I think we should be held accountable to get to that 50% market share and of course what we have seen in the last six quarters with the market share growth on broadband led by our IPTV strategy, that is where we are going to continue to make that investment. Maher Yaghi Desjardins Securities Analyst Okay. Just a quick question on the Wireless. We have seen an improvement from what and gross additions. Can you talk a little bit on what you are seeing in the marketplace in terms of Wireless demand for products and where is it coming from? Is it which provinces or maybe just maybe more colour on what is driving this improved gross additions numbers? Yes, well I think we have seen it for quarter after quarter now. People have seen that our market share has been strong. It is the execution we think on the distribution side, the brand and the continued improvement in our service metrics that is driving the market share. We clearly took additional share this quarter against our largest competitor on a year-over-year basis and we are just going to continue to execute on that basis as long as we can in this highly competitive marketplace. But we are really pleased with our quarter in terms of our gross and our net additions on the postpaid side and I think particularly because I think people can see we are doing it through assurance that our customers migrate to the LTE services and that migration is driving the incremental ARPU to underpin the investments we are making. Maher Yaghi Desjardins Securities Analyst Okay, thank you. Thank you. The following question is from Drew McReynolds from RBC. Please go ahead. Drew McReynolds RBC Capital Markets Analyst Yes, thanks very much. George, just back to the Wireline side, obviously a lot of moving parts on the revenue front. I want to focus in on the cost front. Can you just provide us an update on just again the customer service initiative efficiencies that you are seeing. Just as you roll-out fibre obviously there is a huge potential cost saving opportunity with fibre. Just wondering to what extent are you already seeing those types of efficiencies and how should those ramp as you build fibre out?

16 BCE Second Quarter 2015 Results Conference Call Page 16 Yes, it is a good question. We are in the quarter we clearly are on track for the $100 million of capex and operating synergies for Bell Aliant this year, so that is tracking as we talked about. We are seeing because of the tools we are putting in the marketplace on our smartphones and the demographics of the marketplace customers calling in much less the call centres and utilizing the tools we put in the market. So every quarter even as our customer base grows we are seeing a drop in call volume into the call centres, which of course ultimately is a cost reduction for the Company. We think that will continue. We think it is a core core to our strategy and it is fair to say where we have fibre our truck rolls drop in terms of the number of what we call assurance load customer service, experiences improve and over time that will also we believe lower our cost of operating the business with the roll. We have all those stats internally on our fibre investoment. Of course that is part of our rationale for the investment, but clearly on a call with our competitors we are not going to disclose those. But the amount of truck rolls just drops significantly because of fibre rate once in the home. Drew McReynolds RBC Capital Markets Analyst Sorry, just a follow up, George. Then in terms of the Wireline business, when you look at kind of those two or three big, chunky moving parts to the cost structure, as opposed to just eliminating people it sounds as if the overall business is moving to a more kind of cost efficient structure. Is that a fair comment and thus is your confidence on maintaining Wireline margins or growing Wireline EBITDA is that arguably getting greater with time or is it still a battle day-to-day? Well it is both, but we would absolutely concur with your comment. We believe that the cost to delivering these services through the technology evolution to fibre and through the work that the great work that John Watson's team is doing on the service metrics, will over time take cost out of our business in the competitive market that we are in and we clearly think that is where we have to go. That is, I do not want to make a forecast on margins but our results over the last eight years probably you know, is an example of our focus on margins. So we have the free cash flow to invest. We are unique in a wireline sense on a North American basis that we can take the capex we got and still generate the free cash flow on the Wireline business to make the investment in broadband. We think it gives a very unique opportunity to be one of the broadband leaders in our markets and that is relative to other players across the world there, our telco versus cable. It does not mean we are not going to be head-to-head with the cable guys but at least we know we will be playing head-to-head against them. Drew McReynolds RBC Capital Markets Analyst Yes, understood. Thanks very much. Thank you. The following question is from Phillip Huang from Barclays. Please go ahead. Phillip Huang Barclays Analyst Hi, thanks. Good morning guys. Maybe a longer term question for George. So, as mobile data users continue to grow, how do you see BCE's network infrastructure evolving? Do you see greater reliance on WiFi? Just given the scale of your Wireline network and your investment in fibre, is there more that you could do to leverage your Wireline footprint to gain a competitive edge for your Wireless business beyond what you are already doing?

17 BCE Second Quarter 2015 Results Conference Call Page 17 Well I think first of all there is no doubt and it is a competitive issue and I will be a little careful, but you see our competitors and us in the marketplace, modems in the home are a very, very important competitive element now because it is about WiFi in the home and the amount of devices on the WiFi services in the house. So that is why we just find it so clear and obvious to us that we are going to need a larger broadband pipe to service that. Then in terms of Wireless, we think being vertically integrated in a Wireline/Wireless business certainly helps us on our execution, particularly now as the owners of Bell Aliant. Best example as we have built and will and I think at the end of this year, early next year 95% of our cell sites will have fibre right to the cell sites and we need that so that the bottleneck does not become the backhaul for the speed on enhanced LTE. So, whether or not investors will have to view that as whether or not that is an advantage over those that do not have that vertical integration but clearly it is making a difference on our ability to make sure our network continues to lead. We have been doing that for a number to make sure we have fibre to literally every cell site. Phillip Huang Barclays Analyst I guess do you see any merits in like what MTS is doing with their Total Internet offering in Manitoba? Do you think that that is something that could also, given your footprint on the fixed line side, could potentially provide you a competitive edge on the Wireline side? No, I will not comment on products like that. We have obviously seen what Jay has done there and we will follow the developments in the marketplace, but at the moment I do not have anything on a product launch for sure. Phillip Huang Barclays Analyst Got it. Thanks very much. Thank you. The following question is from Batya Levi from UBS. Please go ahead. Christopher Schoell UBS Analyst Thanks. This is Chris for Batya. Could you talk a little bit about the sustainability of your ARPU growth? It is been over 5% for the past year. How should we think about this trajectory in the back half? What are the key puts and takes you are looking at? Thanks. Yes, again, you know, I come back and I apologize all the time to saying the guys kind of incorporates all of that so I do not mean to I know you want more than that. I think the one thing that we will continue to say is we are seeing customers as they migrate to LTE and every month more of our customer base migrates to LTE, customers use the product more and as a result we see an improvement and an increase in ARPU. So that is clearly one of the pieces that is driving the increase in ARPU. The second increase is simply because we moved to a two-year contract market versus three and the subsidy to be recovered in 24 months, not 36 months, air time prices have generally moved up in concert with that a couple of years, so there are customers now who are migrating across the industry and when they migrate from the three to two years they may see a different rate than they had before. So it is really those two things. I think both those are still working through

18 BCE Second Quarter 2015 Results Conference Call Page 18 the system. So we would anticipate, you know, strength in our revenue continues through the year but I do not want to give a specific forecast on ARPU because no matter what I tell you I will be wrong. Christopher Schoell UBS Analyst Got it. In terms of roaming, I mean the wireline carriers in the US have increasingly talked about creating a seamless network experience across North America where you can use your day allotments from the home markets while traveling rather than purchasing add-on packages. Can you provide your opinion on this trend and what implications these programs might have for Bell? Yes, on the competitive market on roaming. We have lowered our US roaming rates by 50% over the last year in all in many, many other markets we have lowered roaming rates and put them in packages, given notification to customers. So it is a competitive area and we have got to make sure we are competitive in the marketplace and we believe we are. We have not repriced to the significant levels some of our competitors have and that is probably evidenced in our financial results, and given our market share results clearly our customers think what we are doing now for roaming in the US is meeting their requirements. Christopher Schoell UBS Analyst Great. Thank you. Thank you. The following question is from David McFadgen from Cormark Securities. Please go ahead. David McFadgen Cormark Securities Analyst Just a question on your free cash flow. If you look at Slide 17 you have given an updated or at least given the free cash flow for Q2. You continue to benefit from working capital inflows. In 2014 you benefited from a fairly large working capital inflow, well over $300 million. I know this year you are looking for another fairly large working capital inflow to make your free cash flow guidance. I was just wondering, how sustainable is this? How much working capital can you keep pulling out of the business? So I think, you know, it is what I would say I will turn it over to Glen. Our cash flows is the guidance is very transparent around that. Management of receivables and inventory continue to be a core piece of what we have done in the last seven and eight years. We continue to see benefits. At some point obviously that runs its course and we have got to do it through the execution of EBITDA and cash flow growth and you will see that when we get everyone our 2016 guidance coming up in four or five, six months from now. But clearly we are running out of some of that space because we have just done so well on those management items. Glen LeBlanc Executive Vice-President and CFO Yes, as George says, you cannot do it forever, but we are very confident in the free cash flow targets we have out for The results and what we have done on AR in particular and consistently seeing our days sales outstanding come in has provided great opportunity on cash flow. We are very confident with the targets that

19 BCE Second Quarter 2015 Results Conference Call Page 19 are out there. Your observation is a good one. You certainly cannot do that forever but we are confident with the rest of 2015 that is for sure. David McFadgen Cormark Securities Analyst Okay. Can I squeeze in another question or? Glen LeBlanc Executive Vice-President and CFO Sure, go ahead. David McFadgen Cormark Securities Analyst Just on Wireless, I do not know if you can provide some colour, but just curious as to what percentage of your Wireless postpaid base are free agents now. Yes, we will not disclose that. My competitor would love to know. David McFadgen Cormark Securities Analyst Okay. So we will not disclose our base but we will continue to manage the base and hopefully the trackers in the Wireless business in the last number of years feel comfortable we will make the appropriate retention investment as required to deal with the issue in the market. David McFadgen Cormark Securities Analyst So just on Wireless, what percentage of your postpaid base would be on would have a tablet on a postpaid plan? Is it anything material? No, it is not material for us. It is very low. It is certainly quite different than the scale we have seen in the United States. David McFadgen Cormark Securities Analyst Okay. Right. Thank you. Thank you. The following question is from Robert Peters from Credit Suisse. Please go ahead.

20 BCE Second Quarter 2015 Results Conference Call Page 20 Robert Peters Credit Suisse Analyst Hi, thanks very much for taking my question. I am sorry if I missed this but I just wanted to go back to when you guys look at LTE subscribers, I think last quarter there were roughly 52% of your subscriber base. I was just wondering if there is an update on that number. Then kind of how do you think about that penetration rate going forward given that it seems to be you seem to be seeing a lot of increased data growth when people switch over from the HSPA to the LTE handset. Yes. So we went from 52% last quarter to 57% this quarter. So if that trend continue that is definitely as people migrate we will see an improvement in ARPU because they are using the product more and the speeds are just incredible and the service and as we widen the channel with aggregating our spectrum the speeds improve and that adds to the usage as well. So 5% this quarter. You do not have a forecast but it seems intuitively that is probably the pace we have been on. Where do I ultimately think we end up? I would assume I cannot think of why we would not end up with 100% of our base migrated ultimately to that. The prepaid base should be the slowest but it is not really in the numbers that we are talking about today anyway. Is that helpful? Robert Peters Credit Suisse Analyst Yes, thank you very much. Thank you. Thank you. There are no following questions registered at this time. Great. Thane Fotopoulos Vice-president, IR Okay. Great. Thanks everyone. Thane Fotopoulos Vice-president, IR So once again, thanks to all for participating on the call this morning. As usual, I will be available throughout the day for any follow-ups and clarifications. So thanks and have a good rest of the day.