BCE (BCE) Q Earnings Conference Call Transcript

BCE (BCE -0.15%)
Q Earnings Conference Call
Feb. 8, 2018 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to BCE Q4 2017 Results and 2018 Guidance Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos.

Please go ahead, Mr. Fotopoulos.

Thane Fotopoulos -- Vice President, Investor Relations

Thank you, Valerie, and good morning to everybody on the call today. Joining me here in the room as usual are BCE's president and CEO, George Cope, and our CFO, Glen LeBlanc. As a reminder, our Q4 results package, 2018 financial guidance target, and other disclosure documents, including today's slide presentation, are available on BCE's Investor Relations webpage. An audio replay and transcript of this call will also be made available on our website.

However, before we get started, I want to draw your attention to our safe harbor statement on Slide 2. Information in this presentation and remarks made by our speakers, George and Glen, today will contain certain forward-looking statements. Several assumptions were made by us in preparing these forward-looking statements, and there are risks that actual results will differ materially. For additional information on such risks and assumptions, please consult BCE's safe harbor notice concerning forward-looking statements dated February 8, 2018, which is filed with both the Canadian Securities Commission and the SEC, and which is also available on our website.

These forward-looking statements represent our expectations as of today and accordingly are subject to change. We do not undertake any obligation to update these forward-looking statements, except as required by law. So with that said, George, over to you.

George Cope -- President and Chief Executive Officer

Thank you, Thane. Good morning, everyone. I'm actually going to turn to the slide where you'd call Q4 overview. BCE had an excellent end to the year.

Importantly, we added 235,000 broadband additions, up 68,000, or approximately 41% year over year. The company achieved strong service revenue growth of 5.1%, driving 4.5% EBITDA growth, even with the significant marketing dollars invested to drive such strong year-over-year growth in net adds. As you all know now, we had an outstanding wireless quarter from a financial and net-add perspective. It was our strongest postpaid results in over 15 years, with net adds of 175,000, up approximately 56% year over year.

Despite the strong net-add growth, we were able to achieve 9.2% increase in EBITDA. I have reported wireless' financial results for our public company since 1994, or 96 times, and I cannot recall reporting results with this -- that were this strong from a growth and market share and financial perspective, all combined to one quarter. Importantly, we are looking for this momentum to continue into 2018. In early December, we launched Lucky Mobile, a new prepaid low-cost service designed to improve our share of that market segment in 2018.

We had a strong wireline quarter, with IPTV and Internet net adds up 9.6% year over year, to 60,000. Wireline margins increased to 40.7%, providing us ample room to continue the acceleration of our rapidly expanding fiber footprint. We ended the year with 3.7 million direct-fiber premises served and expect to grow that now to 4.5 million premises by year-end 2018. We completed the acquisition of AlarmForce early January, positioning us to execute on a Bell Connected Home strategy in the future.

Bell Media's Q4 results were impacted by the soft advertising market and higher content cost. But on balance, the results would appear to outperform all our peers in a challenging market. Overall, turning to the fifth slide, in 2017, we had an excellent year in terms of broadband subscriber growth, adding 1.26 million new subscribers to our base: 612,000 in the year, reporting organic growth of 10.2% year over year, and of course, 648,000 subscribers added through the acquisition of MTS. The overall increase in the base of 10% in 2017 generates an additional $1 billion in service revenue on an annualized basis.

Turning to wireless, as I just indicated, the 175,000 net adds is our best quarterly performance since Q4 2002. In the quarter, we had our strongest gross-add quarter ever, and we believe the strongest ever in the industry by anyone. There were 9,000 customers that did port on that new federal government contract to us in our net adds in the quarter of 175, although there are still about 200,000 to migrate over the next 24 months, and we'd expect to see anywhere from 25,000 to 30,000 those on a quarterly basis. And of course, at this point, that revenue and EBITDA is not with our company, it's with our competitor.

It was our third consecutive quarter of lower postpaid churn, I think a particular achievement given the widely reported promotions that took place in Q4. Our average revenue was up 2.4% year over year, driven specifically through the increased usage we continue to see on our broadband LTE network, where usage was up 22% year over year in Q4. Overall, 417,000 net adds were up 32% year over year, providing us also some excellent EBITDA growth in a highly competitive marketplace. We did launch the new wireless prepaid service, Lucky Mobile, early in Q4.

The strategic reason for launching that product is quite frankly, we were not capturing an acceptable share of the prepaid market and also, over time, one of the things we've clearly seen in the market is a number of subscribers or customers will migrate from postpaid to prepaid over time, so if you don't have those postpaid customers, of course, you don't get that opportunity for migration, so that is also part of our strategy here. And also allowed us to address the affordability segment in the marketplace, with a rate plan of $20 to make sure we're serving all segments of the market in Canada and allowing us to address some of the government concerns recently to make sure that our service provided price points across all possible -- price points in the market, addressing all segments. Of course, you have to deliver this with a low-service model, and we will, using technology and of course, very little handset subsidization going forward. From a network perspective in 2018, we expect to have our LTE Advanced footprint to reach 92% of Canadians by the end of 2018 and of course, 99% of Canadians now have access to LTE.

Particularly, with our continued work on spectrum aggregation, fiber backhaul, and the technologies that are available, we expect during the year, as we exit about 60% of Canadians will have access to speeds up to 750 in theory, but practically 25 to 220 megabits, and 40% of the population, so many of the urban markets, will see speeds of 950 megabits. Just incredible broadband speeds from a wireless perspective, and as you may have seen last week, in one of our markets, we're actually launching speeds that hit the 1-gig level. We expect to invest and add about 4,000 small-cell sites in the year, taking our total small-cell sites to over 10,000, setting us up for the speeds we're providing on LTE and positioning us for 5G going forward. Of course, all 4,000 small-cell sites will have fiber backhaul in place, and we expect to do all this while maintaining our capital intensity level at around 8% to 9%.

So if we continue with the outlook we believe we'll see from an EBITDA perspective and a capital intensity ratio of less than 9, it does position the company to possibly become the cash flow leader in the wireless industry in 2018. Turn to wireline. Again, I think a very strong quarter from a net-add perspective. Some nice momentum on the Internet, where year over year, we're up 46% to 27,000, in the quarter.

We also have now surpassed 1 million premises -- 1 million subscribers, sorry, on our fiber footprint, and we added 53,000 in the fourth quarter. So IPTV, I think was also -- I think will be viewed as strong, with 32,000 net adds and was our best quarter for satellite TV since Q2 2014, where we saw an improvement this year in losses up 30%. Overall, we added 11,000 new TV subscribers in our wireline footprint, and we also continue to see an acceleration in the rate of decline of NAS losses. So 34% less customers than last year left us and in fact, for another quarter, I think, that's four quarters in a row, in our fiber footprint, we've actually had positive NAS growth.

Now, again, we wouldn't expect that to continue, but certainly, any time that rate of decline slows, that's significant. It's very important for us obviously from a cash-flow perspective. And I think the economy is clearly started to help on the business side, where NAS losses were also improved versus last year about 10%. Turning to our footprint plans for 2018.

We would expect to expand our fiber footprint to about 800,000 homes and businesses, to 4.5 million locations by the end of the year. Sixty percent of Toronto is now complete and, of course, we're adding additional premises every week. Montréal, we've begun that build, 14% of it complete, and we expect that by the end of the year, outside of Montréal, all of our -- the province of Québec that we're covering will be over 56%. We're also this morning announcing the expansion of our fiber program in Ontario, with a plan to roll fiber-to-the-prem for businesses and consumer in the 905 GTA geographic footprint, with a plan for about 1.3 million additional locations going forward and that is where our capital program will principally go into southern Ontario market for fiber over the next couple of years.

We expect to maintain our capital intensity similar to what it was in '17 for 2018, and we expect that 50% of all of our fiber footprint builds will be completed by end of '18. Turning to Bell Media. Continuing leadership in terms of viewership in the fourth quarter, seven of the top 10 programs was CTV. Very proud to see TSN return as the No.

1 specialty network this fall, not just in the sports category, but in all specialty and particularly helped by some big events such as the Grey Cup, and the MLS Cup, and didn't hurt the shareholders of Bell either because, of course, they have ownership of both of those organizations. Crave strategy continues to work for us. Number of customers up 22% year over year, allowing us to have a product that you can view through traditional linear TV or in an over-the-top environment. Also, couple of important strategic relationships going forward.

We announced BNN Bloomberg will be launched in September of '18, leveraging our leadership with BNN in Canada and Bloomberg's global leadership as a provider of business information and news. We think that strengthens BNN's position, giving us access to some global -- excellent global company and obviously, strengthens Bloomberg's position here in Canada. And also, an entrant to a long-term agreement with Lionsgate to bring Starz to Canada. You combine Starz with HBO and Showtime, it's quite an incredible portfolio our media assets has.

And of course, this business in '18 will continue to generate cash flow for us, but there's no doubt the higher sports contents and some of the structural issues will have some impact as we go into 2018. Importantly, this morning, as you would have seen we're very pleased to announce, once again, a dividend increase this year, 5.2%. This is our 14th common share dividend increase since we began executing our dividend growth strategy. Also, as we go forward, we would expect to stay within that 65% to 75% payout ratio again going forward, with a capital intensity at approximately 17% and with our strategy to continue on this dividend story that we've been so effective delivering to the market for now, for a decade.

With that let me turn it over to Glen. Thank you.

Glen LeBlanc -- Chief Financial Officer

Thank you, George, and good morning, everyone. I'll begin on Slide 14 with a review of our consolidated results. The fourth quarter capped off a great finish to 2017, reflecting the Bell team's strong operational execution and financial discipline in a highly competitive marketplace. Service revenues up 5.1%, led by another quarter of strong wireless and wireline top-line growth, which included the financial contribution of Bell MTS.

This drove a very healthy 4.5% increase in adjusted EBITDA and stable year-over-year margin of 37.2%. Adjusted EPS remained unchanged at $0.76 per share, as the incremental below-EBITDA expense contribution and BCE share dilution resulting from the MTS acquisition was positively offset by the flow-through of higher EBITDA and the mark-to-market gain realized on our equity derivative hedged contracts in the quarter. However, Q4 statutory EPS was down $0.11 year over year, to $0.64 per share. The decrease was due to an $82 million noncash impairment charge at Bell Media related to our specialty music TV properties and certain radio stations to reflect revenue pressures from ongoing audience declines and the soft advertising market.

Lastly, we generated $652 million of free cash flow this quarter, bringing the total for 2017 to just over $3.4 billion, or 6% higher compared to the previous year. Although Q4 free cash flow was down year over year, this was a result -- this result was expected given our higher planned capital spending on accelerating broadband fiber deployment and further boosting wireless LTE network speeds, as well as a reversal in working capital between Q3 and Q4, driven by some timing of supplier payments. Let's turn to Slide 15. Bell Wireless reported another outstanding quarter of financial results.

Q4 was a record for absolute dollar growth in service revenue, which increased $181 million or, as George said, 10.6%. EBITDA was up a strong 9.2%, leading all incumbent periods in Q4. This result is even more impressive given $73 million in higher year-over-year costs absorbed, driven by the best quarterly postpaid growth additions ever in the Canadian industry and greater retention spending to upgrade more customers to premium smartphone devices. And wireless EBITDA less CAPEX, provided a strong contribution to BCE's consolidated free cash flow, delivering impressive year-over-year growth of 12.1% in '17.

This result is a direct reflection of our disciplined focus on postpaid-subscriber profitability and capital efficiency. Moving to Bell wireline financials, you'll find that on Slide 16. Similar performance trends to the previous quarter even without the incremental benefits of Q9 that we locked beginning in October. Service revenue up 3.6% on strong broadband Internet and IPTV growth, 3.3% higher household ARPU, and another full quarter of financial contribution from Bell MTS.

Product revenue decreased $16 million year over year due to continued soft telecom-related spending by business customers, which moderated the overall top-line growth in the quarter. In terms of operating profitability, wireline EBITDA increased a very healthy 4.1% this quarter, yielding a 60-basis-point improvement in margin to 40.7%. This North American industry-leading margin provides us with ample room for accelerated fiber investment to continue going forward. Turning to Bell Media, on Slide 17.

Revenue results were consistent with industry trends this quarter, reflecting an overall reduction in spending and a shift to online services by advertisers as well as continued audience decline for traditional linear TV. Total revenue was down 1.3 on a 4.6% year-over-year decline in advertising. This was partially offset by continued strong out-of-home growth at Astral and a 4.7% increase in subscriber revenue, driven by our CraveTV and our TV Everywhere GO products, contract renewals with TV distributors, and pay TV subscriber growth. Because of the lower year-over-year revenue as well as the higher programming and content cost, Bell Media fell 9% in the quarter.

That does it for quarterly results, so let's turn on to Slide 18 and I -- where I'd summarize BCE's overall financial performance for '17. Revenue and adjusted EBITDA growth of 4.6% and 4.4%, respectively, were solidly in line with our guidance targets, while our consolidated margin remained stable year over year at 40.4%. These results were achieved despite approximately $103 million in unfavorable regulatory impacts absorbed in calendar '17, higher year-over-year wireless and residential wireline customer acquisitions and retention expenses, and the content cost pressures I mentioned at Bell Media. Excluding the regulatory impacts, BCE's EBITDA was up 5.5% in '17.

We also finished the year with an adjusted EPS of $3.39 per share, which was at the high end of guidance, and a very healthy 6% increase in free cash flow. With strong operating cash generation, we had ample headroom to move our capital intensity above our 17% target to 17.8%, as we accelerated our fiber-to-the-prem build-out by more than 100,000 more locations in '17 compared to our original plan. This was the right strategic decision, given the tangible operating benefits we see in terms of improved internet and TV market share, lower customer churn, higher ARPU, and lower OPEX in areas where direct fiber has been deployed. Our financial guidance targets for 2018 are summarized on Slide 19.

These targets reflect the full year of Bell MTS results, compared to approximately nine months last year, and are being presented in accordance with the 2017 accounting standards, which do not reflect the financial impacts of IFRS 15. We intend to provide those preliminary high-level financial impacts in our 2017 annual report that will be published in March. Moreover, we will restate the 2017 financials to make them comparable with 2018 results that will be prepared on an IFRS 15 basis. As a result, there will be no impact on the guidance -- on any of the guidance growth percentage ranges we are presenting today.

The only change required will be to adjust -- will be to our adjusted EPS dollar range, which will -- we will update in our Q1 2018 results call in early May. Of course, free cash flow is not affected. Our 2018 outlook builds on strong operational progress made in 2017 and is underpinned by continued strong wireless profitability and postpaid subscriber growth, a fourth consecutive year of positive wireline EBITDA growth, and further Bell MTS integration synergies. All of this providing a strong and stable foundation for the 5.2% increase in BCE's common share dividend for 2018 and the significant network infrastructure investments we're making within a responsible capital intensity envelope of around 17% of revenue.

Turning to Slide 20, we are targeting consolidated revenues and EBITDA growth of 2% to 4% for 2018. This reflects one final quarter of incremental Bell MTS contribution and continued healthy wireless and wireline growth, partially offset by advertising revenue and content -cost pressures at Bell Media as well as $30 million to $40 million in higher pension expense compared to '17. With this outlook, we expect BCE's consolidated adjusted EBITDA margin to remain stable year over year. At Bell Wireless, we expect ARPU to rise, but at a slower pace compared to '17 as the market further matures and as more postpaid customers subscribe to rate plans with larger data buckets.

We also anticipate higher year-over-year net additions, driven by continued strong postpaid market momentum, reflecting Bell's network speed and technology leadership, the on-boarding of customers from our recently won government of Canada wireless contract, and a renewed focus on prepaid with the launch of Lucky Mobile, and incremental growth opportunities in Manitoba with the full integration of Bell MTS. For our wireline segment, we expect positive full-year revenue and EBITDA growth even without the favorable impact of MTS. This reflects a stronger broadband subscriber trajectory supported by our upcoming mass-market Fibe advertising launch in Toronto and TV leadership with our service offerings, such as Alt TV and innovative features enabled by our new media-first IPTV platform. With respect to the acquisition of AlarmForce, while helpful in advancing Bell's expansion in the fast-growing connected-home marketplace, it is too small financially to have any material impact on overall results and growth rates.

In the wireline businesses, the outlook is for improving year-over-year organic performance. However, with consensus expectations for modest GDP growth of around 2% in '18, we expect telecom spending by business customers to be variable and improve at a slow pace. Lastly, Bell Media, although revenue results in 2018 will continue to reflect the shift in media consumption toward OTT and digital platforms as well as the effects of further TV cord shaving, we expect revenue trends to stabilize, owing to our broadcast of the FIFA World Cup soccer and the continued CraveTV and outdoor advertising growth we're enjoying. And, although we have significantly tightened our cost structure going into 2018 to align with revenues, higher content cost for sports and broadcast rights and the premium content will continue to weigh on Bell Media's EBITDA this year.

Let's move over to Slide 21, on pensions. The funded status of Bell Canada's defined-benefit pension plan remains strong and continues to move in the right direction. With the return on planned assets of more than 8% in 2017 and a relatively stable year-over-year solvency discount rate, the average aggregate solvency ratio across all of BCE plans was 97% at the end of the year. Because of the strong position, BCE's regular cash funding for 2018 remains largely unchanged at around $400 million.

The Bell pension plan has significantly benefited from the rise in interest rates, and it's now essentially, in a fully funded position on a solvency basis. Just in the last two weeks, we have seen our funding ratios bounce between 99% and 100%. Should we achieve a surplus position above 105%, there would be an opportunity to reduce our annual cash pension funding by around $200 million as we would be not be obligated -- we would not be obligated to pay the annual current service costs of our plan. That would be -- add a meaningful upside to our free cash flow.

The $100 million voluntary contributions we made in December was completely unrelated to what we have done historically to manage the pension deficit. Rather we did so to take advantage of a new Ontario-led pension legislation that eliminates solvency-funding requirements for provincially regulated plans that are over 85% solvent. We believe this was an efficient use of cash as the contribution's tax deductibility generates a cash tax benefit of approximately $50 million in calendar '18. With respect to BCE's total above- and below-EBITDA pension expense for 2018, that is expected to increase by around $20 million to $40 million year over year.

The increase is due to a one-time gain realized in 2017 from the realignment of certain Bell Aliant subsidiary plan OPEB features with those of Bell Canada and the lower year-over-year accounting discount rate. Therefore, although the pension fund's performance was exceptional last year, the accounting discount rate lagged, resulting in a noncash EBITDA drag in '18 but this should reverse in '19. Tax outlook on Slide 22. The statutory tax rate for 2018 remains essentially unchanged at 27%.

Our effective tax rate for accounting purposes is also projected to be stable in 2018 at approximately 25%, reflecting a similar level of year-over-year tax adjustments of $0.07 per share. Cash taxes for 2018 are projected to increase to a range of $700 million to $750 million, up from the $675 million in 2017. This is being driven by higher taxable income for 2018 and a lower year-over-year benefit from voluntary pension contributions as only $100 million was contributed in '17, compared to the $400 million we did in the year previous. We will also intend on monetizing the remaining $230 million of MTS tax losses, which will help moderate the tax, the increase in cash taxes this year.

Slide 23 summarizes our adjusted EPS outlook for '18, which we project to be between $3.42 and $3.52 per share or 1% to 4% higher year over year. And just to remind everyone, the dollar guidance range is based on 2017 GAAP rather than the IFRS 15. IFRS 15 will have a positive noncash impact on earnings due to the higher EBITDA, as this new accounting standard requires the amortization of direct and incremental subscriber costs over the contract term rather than when incurred, while also recognizing higher upfront product revenue. EPS growth in '18 reflects a strong underlying EBITDA contribution from operations, despite a 2% to 3% per share drag from the higher year-over-year noncash pension expense, partially offset by increased depreciation due to a greater capital asset base, driven by our accelerated fiber network construction and a full year of MTS.

EPS also reflects approximately $0.03 of dilution from the issuance of shares for the MTS acquisition, which we will lap in March. Turning to Slide 24, BCE's free cash flow for 2018 is projected to be in the range of $3.5 billion to $5 billion and $3.65 billion. That represents year-over-year growth of 3% to 7%, reflecting a flow-through of higher EBITDA and the modest improvements in our working capital position. Our free cash flow generation provides us a strong foundation for the $0.15 per share increase in BCE's common dividends while maintaining our payout ratio within our target policy range of 65% to 75% for the 10th consecutive year.

However, we do expect the payout ratio to be toward the high end of the range due to the continued acceleration of our fiber-build-out plan. Taking all the various puts and takes into account, BCE should generate over $900 million in excess cash flow after the payment of dividends in 2018. The cash will be deployed in a balanced manner, directed toward repayment of short-term debt, financing recently announced strategic acquisitions such as AlarmForce, and funding $170 million -- $175 million share-buyback program to offset share dilutions from the exercise of stock options. Lastly, a few brief comments regarding BCE's balance sheet and liquidity position on Slide 25.

As we enter 2018, we have access to more than $1.5 billion of liquidity, with a capital structure that remains well-aligned with our investment-grade credit ratings, all of which have stable outlooks. Moreover, our leverage ratio is projected to improve modestly during the course of '18, with further deleveraging toward our target ratio over the next several years achieved through growth in EBITDA and using excess free cash flow to reduce debt. Also, highlighted on the slide in BCE's favorable long-term debt maturities schedule that has an average term of more than nine years and a low after-tax cost of debt of 3.2%, a very manageable near- to medium-term debt refinancing. Additionally, BCE's interest coverage ratio remains significantly above target policy, providing good predictability in our debt-service costs as well as protection from interest rate volatility going forward.

And as a reminder, should interest rates rise going forward, the favorable impact on our pension plan position and the resulting reduction in future cash funding requirements would outweigh the higher cost of refinancing in any maturing long-term MTM debt. Finally, I would like to add that BCE is more than $1 billion in annual U.S. dollar expenditures has now been substantially hedged through the end of '19, effectively insulating our free cash flow exposure until that time. To conclude, BCE's operating fundamentals, financial position, and competitive position are as strong as they've ever been, if not stronger.

In 2018, we intend to build on that progress, consistent with the financial guidance targets announced here today. And with that, I'll turn the call over to Thane and the operator to begin the Q&A period.

Thane Fotopoulos -- Vice President, Investor Relations

Thanks, Glen. So, before we start the Q&A period, to keep the calls efficient as possible, I ask that you please limit yourself to one question and a brief follow-up with the time we have left, given the longer-than-usual nature of prepared remarks this morning. So with that, Valerie, we're prepared to take our first question.

Questions and Answers:

Operator

Thank you. We will now take questions on the telephone lines. If you have a question and you're using a speakerphone, please lift the handset before making your selection. If you have a question, please press *1 on your telephone keypad.

If at any time you wish to cancel your question, please press the # sign. Please press *1 at this time if you have a question. There will be a brief follow-up for the participants registered for questions. Thank you for your participation.

Our first question is from Richard Choe with JP Morgan. Please go ahead.

Richard Choe -- JP Morgan -- Analyst

Great. Thank you. In terms of -- can we get a little bit more color on the wireless competitive environment from the fourth quarter and how that has rolled into the first quarter? And then, as a follow-up, it seems like given all the positive trends you're seeing in terms of loadings and ARPU, wireless, and some of the fiber build, the midpoint of 3% revenue growth seems more than -- particularly, one, is not low? Or is the offset of media in terms of other telecom spend makes that too hard?

George Cope -- President and Chief Executive Officer

So let me just -- first of all, target on the competitive environment. The real answer is, obviously, very competitive fourth quarter as we've historically seen. Clearly, some pretty aggressive promotions in the marketplace. Our view is very clearly, our network advantage over our largest competitor at about 2 times the speed of our wireless network compared to our largest competitor, of course, that's been widely acknowledged through independent research.

We think it's just making a significant difference for us in growth. And when we look in -- Q1 is always, or everyone knows, it's the quieter quarter, but it will be competitive as well. And as I mentioned, with the position we have in the marketplace, we're quite optimistic going forward on the wireless side in terms of our position because of the broadband investments we made for LTE. I mean, these speeds we're providing, as people know, are second to none in the world and Canadians clearly are accessing and utilizing the speed because we see that in continued usage.

In terms of our guidance, obviously, there's no one on the phone more than us on this side of management that wants to have things like revenue and EBITDA higher than the mid-range of our guidance. And the only thing I would say, for anyone on the dividend model, for the company, people have known historically, we need approximately about that 3% EBITDA growth to continue the free cash flow dividend growth story of an expectation of the Street of around 5% a year. And our capital intensity roughly in the range we are, and I think that's -- that is what I would say what the guidance reflects. And you do -- I think you made a point.

I mean, the media business will have some impact on that, although that's probably more EBITDA than revenue during the year. And unfortunately, we've got different competitive marketplaces. So if the Street views the guidance as conservative, let's hope they're right and our goal, of course, is to make sure it's on the positive side of that. So thank you for the question.

Richard Choe -- JP Morgan -- Analyst

Thank you.

Operator

Thank you. Our next question is from Greg MacDonald with Macquarie. Please go ahead.

Greg MacDonald -- Macquarie -- Analyst

Thanks. Good morning, guys. George, I wonder if you just might comment on the one top -- one or two key issues that could affect the difference between the top end and the bottom end of revenue and EBITDA guidance? What are like the key things that you guys are thinking about? It's probably competition, but wanted your view on that.

George Cope -- President and Chief Executive Officer

I think it would be, as we've said before, if you look at ARPU growth in the industry that we've seen historically of 3%. We've been very clear with the investment community. You probably would have expectations similar to CPI, would seem to us to be reasonable, so that's always been a variable and I think the last number of years more positive, and so we'll have to see as we go forward on the revenue side. And then on the EBITDA, as Glen drawed, it is just important to recognize just the way it works, I take a calendar picture on December 31 interest rates, hard to imagine actually, hurt us at that time at that measure and given what's happened in the last 60 days.

And so there is, what is the number about 30 or --

Thane Fotopoulos -- Vice President, Investor Relations

I think 45.

Greg MacDonald -- Macquarie -- Analyst

Above 40 basis points down on the discount rate from 4% at the end of 2016 to 3.6% accounting discount rate. So --

George Cope -- President and Chief Executive Officer

And the EBITDA impact --

Glen LeBlanc -- Chief Financial Officer

And that results in about $30 million to $40 million hit on EBITDA.

George Cope -- President and Chief Executive Officer

So for the -- that's a noncash number, but it's just -- we had to take the picture December 31. Course if you took it today, would be a different outcome completely. So that affects a little bit that two to four number. Might have been a little different if we hadn't had that impact.

Greg MacDonald -- Macquarie -- Analyst

Great. Thanks. And the quick follow-on, Glen, would be what interest rate change would we need to see for you to be able to get to 105% on your coverage for pension?

Glen LeBlanc -- Chief Financial Officer

Sure. Greg, it's just -- obviously, it's a product of the return on the investment, but if we were able to enjoy the type of returns like we had the last number of years, 50 basis points to 75 basis points change in rates would put us over that number. And the fact that we found ourselves moved so quickly from a 90% funded only a number of years ago to being on virtually a fully funded position today gives us confidence that, that can happen in relatively short order.

Greg MacDonald -- Macquarie -- Analyst

Right. And so just to doublecheck that gives you another -- more breathing room of around $200 million on cash?

Glen LeBlanc -- Chief Financial Officer

That's right, Greg. You would take contribution holidays on your current service costs to the tune of about $200 million.

George Cope -- President and Chief Executive Officer

No. We don't want to, as a company, forecast interest rates, but obviously, the buy side will do that. And if [Inaudible] on interest rates are X, then we should take that into account with our pension over time.

Greg MacDonald -- Macquarie -- Analyst

Great. That's all very helpful. Thanks, guys.

George Cope -- President and Chief Executive Officer

Thanks, Greg

Operator

Thank you. Our next question is from Philip Huang with Barclays. Please go ahead.

Phillip Huang -- Barclays -- Analyst

Hi. Thanks, good morning. Question on the broadband growth. I was wondering if you could provide some color on which regions of your footprints are driving the accelerating broadband growth.

I suspect it's coming from Toronto just given the correlation between the net adds acceleration in Q3 and when the fiber footprint in trial began to reach scale. But you -- really [Inaudible] the mass market here, so I was just wondering if you could provide some color on that. Thanks.

George Cope -- President and Chief Executive Officer

I think that's fair. I think, first of all, I don't want to be -- I don't want to simplify too much in respect of the question. But clearly, where we have the fiber's where we see the strong growth. We see it in the Aliant territory still, even these many years late.

Where we have it in any of our new markets that we launched is particularly helpful. And you're right, though. I mean, Toronto is where we put a lot of money, and that's a large footprint expansion and new footprint of fiber is where we see the growth and clearly, that's what we've gotta see this year as well. So I think you're on the track to where it is -- for investors, where we have the fiber, we just -- we see some pretty positive traction and pace of that investment.

We're going as quick as we possibly can. There's no doubt customers want access to that. And this unique issue that those customers tend to keep the three services with us, also that slows the decline in NAS. Even if there' some reprice on that NAS, but they stay with us, that's a pretty powerful cash number.

It's hard to forecast that would continue to happen, but we'll take it as it happens. And we did notice in the west, we saw a similar announcement by one of our peers this morning where they saw some of that improvement as well. So maybe that's -- that is a sign of the benefits of fiber across the country.

Phillip Huang -- Barclays -- Analyst

Right. No, that's very helpful. And a quick follow-on on the wireless side. I mean, it's obviously, a very strong quarter.

I think -- I guess, I wanted to dig a little deeper on what your assumptions are on wireless competition behind your 2018 guidance. On the one hand, we do see risk of heightened competition catalyzed by Shaw's growth ambitions, but on the other hand, it seems like, ironically, this quarter Shaw has been a bit of a catalyst for your outperformance. So I was just wondering what your thoughts are behind your assumptions for 2018.

George Cope -- President and Chief Executive Officer

Yes. Well, we -- as I said before, we hope to continue to see the type of momentum we've seen. We've been successful on the consumer and, clearly, on the enterprise side with some growth that we know will help us into this year. And frankly, we've been on a mission of wireline and wireless to have the best broadband networks on the planet, and we do now.

And we're going to continue to market that, and we think that makes a difference with customers on their ultimate decision against the largest player we compete with. And if that continues to make a difference with customers, then we should have a fairly positive outlook. It's a highly competitive marketplace. One of the reasons we've entered, we've been out of that prepaid segment in a significant way, as most investors know, for 10 years.

We're entering that segment because there has been some growth there. It's not huge, and we've not been in that segment. So if we can take some share there, that just helps to contribute and most importantly, in that segment historically, we have seen upgrades from pre to post. And that base, our base is not very large there.

So we got to grow that base and maybe that will give us some additional revenue as well as we go forward. So anyway, it's a competitive market. It was in the fourth quarter and, clearly, in a highly competitive market we did very well.

Thane Fotopoulos -- Vice President, Investor Relations

Next question?

Phillip Huang -- Barclays -- Analyst

That's helpful. Thanks, George.

Operator

Thank you. Our next question is from Aravinda Galappatthige with Canaccord Genuity Group. Please go ahead.

Aravinda Galappatthige -- Canaccord Genuity Group -- Analyst

Good morning. Thanks for taking my question. Just wanted to touch on competitive intensity in wireline. Obviously, there's still some fairly aggressive targeted promotions in the higher end of the tiers in terms of speeds.

But generally speaking, smaller promotional periods as well as we saw a recent price increase a couple of days ago from your competitor. George, just wanted to get your sense of where things stand in terms of wirelesscompetitive intensity and how you see that kind of playing out through the year, given sort of your progress in the GTA on the fiber front and obviously, the new television platform roll-outs from Rogers?

George Cope -- President and Chief Executive Officer

Yes, I mean, our focus on wireline from perspective's clearly a product differentiation on two fronts. One, the fastest internet you can possibly get. I mean if you put fiber in and the upgrade pass we have for speed and now what we've done on Wi-Fi, some recent technology announces on Wi-Fi that encourage investors to take a look and talk to Thane with about after the call. So that's all about product differentiation and IPTV.

It's very clear we have the superior products in the marketplace. It sounds like we have a number of months for some additional services we're going to bring to the market before we see some of the new competition on the cable operators. So that's -- those two are our differentiations as well as our Alt TV strategy, which is nonset-top box, television service virtually identical to our linear but available without a set-top box, passing that cost benefit on to the consumer. So that anything we save in not doing a truck roll and putting in place the equipment, we're taking that price off the TV service, if you will.

That combination with our broadband fiber, we think positions us with a very differentiated product in the marketplace. Some of the success in the U.S. we've seen on these products make us want to focus even further on that. And of course, it's a benefit to our media assets over time and other media assets, as I've said.

But of course, then we're distributing our content in the OTT world as well through that application. So we're -- we've done so many new things on the product front with Alt TV, with IPTV, with the Virgin internet product in the marketplace, with the Lucky Brand. We have a lot of new products in the market in 2018. And now, the fiber footprint is starting to build to make us feel that we'll be able to complete from a product differentiation standpoint in the marketplace.

Aravinda Galappatthige -- Canaccord Genuity Group -- Analyst

Great.

Thane Fotopoulos -- Vice President, Investor Relations

Next question?

Operator

Thank you. Our next question is from Simon Flannery with Morgan Stanley. Please go ahead.

Landon Park -- Morgan Stanley -- Analyst

This is Landon Park on for Simon. Just want to touch base on the wireless ARPU trends and how you expect to balance that versus net adds in '18? And maybe if you could also just tease out what potential negative impact there might be from the federal government as those come through?

George Cope -- President and Chief Executive Officer

Yes, I mean, it's a large enterprise client, but it's largely immaterial given our size and scale. And the thing about that customer that people have to understand, it's also a client that you get 0 churn off. So it's obviously, the economics of the client are quite different and very, very little subsidy on a handset perspective. So it had some impact, but frankly, to call it material would be the wrong thing to do.

We started, in the middle of 2017, as we would talk to investors and I think on some of these calls, that modeling reasonably as CPI seems to be something you might want to look at in terms of ARPU growth in the marketplace. And then frankly, we think we find it so driven by this increased usage, the video usage and consumption we're seeing on wireless. So maybe there's upside that beyond that CPI, but I think that's a safe way to model the industry, and I'll leave that to the analysts, but that -- these type of numbers you see in the last few years, it's been a function of this upgrade and people are using more. And if they continue to use more, then, of course, we'll all do better than that and within the context of the competitive environment, obviously.

Landon Park -- Morgan Stanley -- Analyst

And just on, I guess, on the wireline side for Internet. How are you thinking about ARPU growth there as well?

George Cope -- President and Chief Executive Officer

Well, our ARPU growth, there of course is less driven by the usage as it is to clients upgrading to the higher speeds. And so as customers move toward the 1-gig speeds, 500, 300, different meg speeds and they migrate up to higher price packages. That's where we see the ARPU growth there and that will be reflected in our wireline results this year.

Landon Park -- Morgan Stanley -- Analyst

All right. Thank you.

Operator

Thank you. Our next question is from Drew McReynolds with RBC. Please go ahead.

Drew McReynolds -- RBC -- Analyst

Thanks very much. Two questions. So George, just can you comment on the business market obviously, in your prepared remarks, talking about maybe a little bit of a stronger demand there. Just what's the delta on this business if you look out over the next couple of years, if the economy continues to improve? And then second question just on cord cutting, cord shaving trends overall, you're obviously doing quite well on Crave and Alt TV.

Wondering if you're seeing in the TV market a real structural acceleration, let's say, over the last six to 12 months? Or is it more of a steady kind of rate of cord cutting, cord shaving?

George Cope -- President and Chief Executive Officer

It seems steady. To be clear, we've not seen some acceleration, but we know it's a growing share, and we've gotta be in. We absolutely have to be in that space in the marketplace. So we actually saw some growth from a pace-up perspective.

But we haven't seen a sudden acceleration, and you can -- the industry will now take the total TV nets and be able to see that -- the decline and I don't think that rate has accelerated, but the analysts will have to take a look at that. And I apologize, the first part of the question?

Drew McReynolds -- RBC -- Analyst

Yes. Just the sales on the business market?

George Cope -- President and Chief Executive Officer

Yes. So there's two segments there for us. Obviously, on the small-business side, I think I mentioned on the last call, we are definitely beginning to see some pass-through of the improvement in the economy. Our RGU growth if you will TV and Internet, in some cases now we're seeing that positive against our NAS losses.

And so we -- that's been a little better over the last six to nine months. On the large enterprise side, probably not -- we haven't seen a significant change there. We have technology substitution and obviously, the productivity through technology-organized large corporates are implementing without significant additional job growth there has some impact on that. So not quite the change there that we may be starting to see some benefit in small and, of course, small is important for us because of our strong position in the marketplace.

And any of that, that helps contribute against the negative EBITDA growth in wireline, it's obviously, net contribution for us is pretty significant. So a little better on the small side.

Drew McReynolds -- RBC -- Analyst

Thank you.

Thane Fotopoulos -- Vice President, Investor Relations

Thank you. Next question?

Operator

Thank you. Our next question is from Vince Valentini with TD Securities. Please go ahead.

Vince Valentini -- TD Securities -- Analyst

Yeah. Thanks very much. Just an incredible quarter on postpaid adds, guys, congratulations. Can I just clarify on that and one other thing? The numbers we seem to get from Rogers suggested only maybe 10,000 of the government subs migrated during Q4, so it wasn't really that much of an impact on your gross or net adds.

Can you confirm that's approximately correct?

George Cope -- President and Chief Executive Officer

Yes. I think, we have on my slide -- first of all, thank you for your comment. But our slide actually calls out nine. [Inaudible] clarify that because there seemed to be a lot of discussion going on about -- we're not obviously going to report a particular customer every quarter, but we thought for this quarter important for the analysts and the Street to understand that the 175, there was nine that were ports in on that and the rest is clearly, all of it's organic growth, but the point is there's the difference.

Vince Valentini -- TD Securities -- Analyst

Excellent. The other thing, on the guidance, perfect, Glen. Did I hear correct that your -- the $3.42 to $3.52 range, that includes $0.07 of expected tax benefits in 2018?

Glen LeBlanc -- Chief Financial Officer

That's correct. It's same as the previous year. No change, Vince.

Vince Valentini -- TD Securities -- Analyst

OK. So the -- and I can just look at the low end of your guidance range on EBITDA, if I adjust for that $30 million to $40 million of pension and if I adjust for the extra quarter of MTS, I mean, correct me, if I'm wrong, but I'm getting somewhere in the range of 1% to 1.5% organic underlying EBITDA growth, and you've said in your prepared remarks that the wireline segment will be positive growth, media will be negative, but media is obviously a smaller segment, and wireless, given these sub adds and the flow-through of the profits from those, I've got to imagine you're going to be at least mid-single-digit growth there. How do you get as low as 1% to 1.5%? Is there something we're missing in terms of unusual costs, or are you just putting in some sort of huge buffer for equipment subsidy costs later in the year or something like that?

George Cope -- President and Chief Executive Officer

I don't think you're missing anything. First of all, I would say, we know we need the three for the story that [Inaudible] off for the Street. That's one, two. One of the tricks for us -- one of the things we're trying to make sure we're aware of, if we see accelerated growth on something like broadband internet and wireless, like we've seen, we just want to be obviously cautious that if that growth happens and the nets, as Glen indicated, we think will be strong.

We all know nets cause some EBITDA short-term grief for investors. So that's really what I think the guidance frankly reflects and let's say, as I've said, there's no one on this call more than this side of the phone that obviously wants to see that number at the high end of that EBITDA number within our mix. So let's see us operate it, is what I would say. See what happens.

Vince Valentini -- TD Securities -- Analyst

OK. Thanks, George.

Operator

Thank you. Our next question is from David Barden with Bank of America. Please go ahead.

David Barden -- Bank of America -- Analyst

Hey, guys, thanks for taking the question. I guess, two, if I could. First, George, you talked about Lucky Mobile launch was in response to an unacceptable share gain in the prepaid market. I was wondering if you could kind of size what you think the opportunity is and what that means to the run rate of the business in 2018.

And then just on the kind of quote, unquote mass-market launch of fiber in Toronto. Can you kind of tell us like what that's gonna to look like expensewise? What your goals are in terms of increased rate of broadband and TV pacings, just kind of what we're supposed to expect out of that exercise? Thank you.

George Cope -- President and Chief Executive Officer

Sure. So on the prepaid side, the analysts can take, I think, the net adds and the modeling the last number of years and -- see frankly, some significant growth from one of our peers in that space. And we obviously want to capture share that would be proportionate to our size and scale in this industry or even better. So we've got to pick that up.

So I'll let the analysts run that, and they'll be able to probably quantify that. It's not material for us as a result, but something that's a negative revenue growth for us or not growing, turning it positive can just help and also as I mentioned, I think it is upgrade from pre to post is what we're missing and so we've gotta do that. On the second question, in terms of the how the campaign's going to look and what will look, I think people and -- people just have to wait because we're going to launch it fairly soon. Are the costs reflected in the guidance? The one expense we have in Q1, but it will be in our guidance is, of course, this is an Olympic year, and we are one of the official brands and very proud to be that, but obviously, that means some extra marketing expense in Q1 than we typically have to absorb, but ultimately, I think that drives us forward, and we get an opportunity to leverage that position and maybe drive our broadband story further.

I don't think I can give specific guidance on our broadband nets other than to know that we're going to obviously have the focus on this marketplace with our long-term goal, as we said, is to grow our share in the market that we're in. We're not at 50% today of that market. And we've got to work ourselves to get there. We're the largest broadband provider in the country, but in the some of our markets, we're not at 50%.

And if it works out anything like it has on the East Coast with fiber, where -- this investment is going to hunt for our investors.

David Barden -- Bank of America -- Analyst

Great. And George, if I could follow up real quick. We've heard some other fiber deployers that once you get to 50% penetration, the CAPEX intensity starts to come down. Is that something that you guys are looking at as well?

George Cope -- President and Chief Executive Officer

No. Not -- well -- not for a while in our case. If you think about the 17, approximately 17 capital intensity is [Inaudible] to model that in. The help we're getting is, our wireless is a bigger proportion of our business and that cap intensity of nine, allows us quite frankly, to pile a little more into wireline and let's us accelerate this fiber footprint.

So I would again, as we have the last three to four years, I think the community's safe that approximately 17 number certainly over some type of modeling assurance, although I don't want to give guidance beyond one year because we're on a public call, obviously.

David Barden -- Bank of America -- Analyst

All right, guys. Thank you so much.

Operator

Thank you. Our next question is from Maher Yaghi with Desjardins Capital Markets. Please go ahead.

Maher Yaghi -- Desjardins Capital Markets -- Analyst

Thank you for taking my question. Good morning. And just so I -- congratulations on the wireless numbers, very, very strong. I wanted to -- if I step back and I look at your guidance last year around this time.

And if I look and I exclude internet wholesale, some subs etc., etc., you're guiding going into 2017 for EBITDA growth of 2.5% to 3.5%. Now if I look at your guidance for 2018 and I take out the Manitoba acquisition, your guidance is actually slightly lower in terms of growth and EBITDA for 2018 versus 2017. And the brackets are larger. And -- so are you including any kind of buffer here for some type of price competition in wireless that could impact results or -- because frankly, I mean when you look at your FTTH rollout, you've been adding subs throughout the period.

So it's not necessarily going to change significantly year on year to impact EBITDA that much. So I'm trying to figure out why the slightly lower EBITDA growth, especially seeing the growth in the wireless continuing like this?

George Cope -- President and Chief Executive Officer

Right. Well, we'll go at it a second time I guess, for everyone. There is the impact on the pension, we said, it's a mix in our portfolio. We've consistently guided the investment community, the 3% EBITDA growth is the dividend growth story we want, and all the other points you just raised are absolutely on in terms of market dynamics.

We saw significant growth in the fourth quarter. We saw growth anywhere close to that in RGU growth in the coming year, that has a drag on EBITDA, which is so accretive for our investors, right? So our guidance really reflects that. Do we want it to be four to five? Sure. Absolutely like it to have that happen, but the size and scale of organization, the guidance of two to four I think reflects the position if you look at our results here in the last few quarters.

I mean, look at the growth we're able to absorb in EBITDA, so hopefully, as people brought up on the call, we end up doing more than what we're saying. But we have new footprint from new competitors in wireless. We have a new TV product. So we're just trying to moderate that within our overall expectations.

We also know for the investment profile for our company, we know what the target EBITDA needs to be to drive the cash flow for the dividend and that's what's reflected in the guidance.

Maher Yaghi -- Desjardins Capital Markets -- Analyst

And what is your assumed ARPU growth in the wireless inside those guidance that's provided?

George Cope -- President and Chief Executive Officer

We're not going to go to the level of our ARPU forecasting. I think I've given some pretty strong guidance around how to think about the industry, which I did a few minutes ago.

Thane Fotopoulos -- Vice President, Investor Relations

Thank you. Next question. I think we can squeeze one more in, Valerie.

Operator

Certainly. Our last question is from Jeff Fan with Scotiabank. Please go ahead.

Jeff Fan -- Scotiabank -- Analyst

Good morning. Thanks for squeezing me in. My question is on the fiber expansion and the acceleration. When I hear companies accelerating their investment, obviously, it's a good sign.

It shows there's probably good return. So I know there was a question earlier about competitive pricing, but George, I wanted to see if you want to -- if you can allude to the thinking behind the acceleration? I guess, from a cost perspective whether you're seeing some efficiencies in deployment?And also, the pricing environment, I guess, the ARPU in places where you've got fiber -- are you getting more optimistic about how the kind of ARPU that you're generating from these households to kind of get the return that you need on these investments? And then I guess, the second part to that is, if that is the case, are you getting better returns, why not use some of that excess free cash flow that you have this year, especially with potentially a pension holiday, to accelerate that spend?

George Cope -- President and Chief Executive Officer

Yes. Well, first of all, to end on that, we are going -- with the now-800,000 extra we're going aggressively as we possibly go. We end 50% of all of our fiber footprint done. And as we've indicated on the call, one, it's clear fiber moves market share.

That's the first check in the box. There's no doubt where we have fiber, we know we're taking a lead market share. And secondly, we're doing that with additional speeds not with having the lower price in the market. And then, of course, as we said before, when we get someone on fiber and then take IPTV or Alt TV, that's a subscriber that goes well beyond $60 because then you get the TVs here in the 120, 130 and of course, within that, we purchase our content, but we buy 1/3 of that content cost from ourselves and that is really our vertically integrated strategy in the marketplace.

From a cost perspective, there's no doubt where we have fiber, the cost of providing the service is less over time because of the amount of truck rolls we need to do the home drops. And that's where the cost benefit will be, and I think we've talked in the past about that, which I'll let Thane take you through again in terms of what we're seeing. I don't top-of-head have it, but there are some operating cost benefits as well. And clearly, if we saw interest rates go up and there was additional cash flow within our targeted structure, and we see an acceleration and success of fiber, that's why -- I think we did 100,000 more last year than we said we would do and the 800,000's 100,000 with everything we get done.

So that is a pretty significant acceleration from our perspective. And we love when the investment community wants us to go faster on that. It means everybody is seeing the benefits.

Jeff Fan -- Scotiabank -- Analyst

OK. Thank you.

Thane Fotopoulos -- Vice President, Investor Relations

Great. So on that, thank you very much to everybody who participated this morning. Apologies to those we couldn't get to in the queue, but I'm available throughout the day for follow-ups and clarification. So on that, thank you again and have a good day.

George Cope -- President and Chief Executive Officer

Thanks, everyone.

Operator

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

Duration: 65 minutes

Call Participants:

Thane Fotopoulos -- Vice President, Investor Relations

George Cope -- President and Chief Executive Officer

Glen LeBlanc -- Chief Financial Officer

Richard Choe -- JP Morgan -- Analyst

Greg MacDonald -- Macquarie -- Analyst

Phillip Huang -- Barclays -- Analyst

Aravinda Galappatthige -- Canaccord Genuity Group -- Analyst

Landon Park -- Morgan Stanley -- Analyst

Drew McReynolds -- RBC -- Analyst

Vince Valentini -- TD Securities -- Analyst

David Barden -- Bank of America -- Analyst

Maher Yaghi -- Desjardins Capital Markets -- Analyst

Jeff Fan -- Scotiabank -- Analyst

More BCE analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.