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BCE Inc (NYSE:BCE)
Q4 2019 Earnings Call
Feb 6, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to the BCE Q4 2019 Results and 2020 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, Investors Relations

Thank you, Alana, and good morning to everyone on the call. Joining me this morning for the first time officially as President and CEO of BCE is Mirko Bibic, and also here with me as usual is our CFO, Glen LeBlanc.

As a reminder, our Q4 results package, 2020 financial guidance targets and other disclosure documents, including today's slide presentation are available on BCE's Investor Relations webpage. 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 the speakers today will contain statements about expected future events and financial results that are forward-looking and therefore, subject to risks and uncertainties. For additional information on such risks and assumptions, please consult BCE's safe harbor notice concerning forward-looking statements dated February 6, 2020 filed with both the Canadian Securities Commission and with the SEC and which is also available on our website. These forward-looking statements represent our expectation as of today and therefore are subject to change. We disclaim any obligation to update forward-looking statements except as required by law.

So with that, hand it over to Mirko.

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

Thanks Thane, and good morning everyone. I'm very honored to be on the call with you all today in my new role as President and CEO of this amazing company. And I want to thank my predecessor George Cope for his leadership since 2008 and for putting in place such a foundation for Bell's future success. We have the right assets to lead the next wave of communications innovation in Canada. And as the world moves to increasingly rapid connections and the unlimited service potential of 5G, IoT, and artificial intelligence, Bell is well positioned to stay out -- out front.

As you know, we've updated our six strategic imperatives to frame every action we take to capture future growth opportunities in a converging wireless wireline world. In many ways, these imperatives are consistent with our winning strategy over the past 10 years, overseeing by a seasoned leadership team, but with an even stronger focus on the customer experience and recognizing the importance of all Bell team members in delivering our future success.

It all begins with building the best networks. With significant capital investment over the past decade, networks have again become Bell's critical competitive advantage. In 2020, we will continue to expand our all-fiber connections, we'll open up wireless home Internet to even more small communities and will build on our 4G LTE lead by launching the next generation of wireless with mobile 5G. These next-generation networks will be the launch pad to drive market share and revenue growth with new innovative, integrated services including IoT, smart home products as well as business solutions like virtual network services, all delivered over the fastest Internet, the best Wi-Fi, and the highest quality mobile networks. And we will continue to deliver the content consumers want on the platforms of their choice. We will support our network advantage innovation services and compelling content by simplifying, personalizing, and improving the end to end customer journey. Our mission, to make it easier for customers to do business with Bell.

As you know, cost discipline has become a core competency at Bell. We'll take it to the next level, enabled by the continued deployment of fiber, utilization of new technologies and incremental service improvement, which will deliver meaningful operational efficiencies and productivity gains across the organization. But none of what I just outlined can be accomplished without people. This is why we now have a new imperative to recognize how important our team is to Bell's success. Our company is recognized as a leading workplace and we're focused on making it even better going forward.

Before diving into our detailed Q4 review, I did want to take a step back to comment on our overall operational execution and how well positioned we are to win. I can confidently say, that we are managing the shift to unlimited wireless data plans, better than our peers, while still maintaining our competitiveness. This is evidenced by our subscriber and ABPU performance that reflects our distribution and brand strength, sharp focus on customer base management, and a strong growth in operating profitability. We grew wireless EBITDA 9.1% in 2019, while delivering a record number of gross activations. This combined with improved postpaid customer churn drove a 7.4% increase in total net subscriber additions to 515,000, our best annual result in 14 years.

With respect to fiber, the strategy is working. We delivered strong retail Internet and IPTV subscriber growth of 5% in 2019. Our 136,000 new net Internet subscribers, up 16.5% over last year are due to steady expansion of our direct fiber and wireless home Internet footprints. Our fiber build program is now 53% complete, with over 5.1 million homes and businesses, able to access the fastest Internet speed in the market today of 1.5 gigabits per second. With technology evolution like 10G-PON those speeds will just get faster over time. We also have 250,000 locations equipped with fixed wireless technology that is bringing high speed Internet speed to Canada's underserved communities that are two times faster than before. This positions us very well to keep growing broadband market share and Internet revenue, which you all know yields very attractive EBITDA and cash flow margins.

For 2020 we are targeting broadband capex spending, including demand capital, which is comparable to 2019 at around CAD2 billion. At Bell Media our market leading brands, content, and streaming services together with a sharp focus on cost control delivered strong financial performance in 2019 with cash flow growth that we redirected to capital investment in our broadband networks. And the landmark ruling by the Supreme Court this past December overturned the unfortunate CRTC decision banning simultaneous substitution during Super Bowl broadcast. We're very happy that advertisers once again had exclusive access to Canadian viewers this past weekend during one of the most watched sports events of the year.

I'd like to take you back to wireless for a moment, because we are laser focused on being Canada's 5G leader. With wireline infrastructure that includes high-speed fiber already deployed to 88% of our cell sites, central offices that become data centers for mobile edge computing in a 5G world, a rapidly growing small cell footprint in urban markets and network sharing arrangement and 30 megahertz of 3.5 gig flexible use spectrum, no one is structurally better positioned than Bell to deliver true 5G in the most timely and capital efficient manner possible and to capitalize on the revenue growth opportunities that await.

With the right regulatory environment supporting all facilities based operators, there is no reason why Canada cannot have the best most advanced 5G networks in the world, like we do today with LTE networks. As you read in our press release this morning Bell is ready to deliver initial 5G service in urban centers across Canada as next generation smartphones become available. And we will continue to be ready to launch true 5G service once flexible use 3.5-gigahertz spectrum becomes available after the Federal government's auction later this year. Partnering with us for 5G is Nokia, whom we have chosen as Bell's first 5G network equipment supplier. Nokia has quickly become a leading international vendor of 5G network solutions with more than 60 commercial 5G contracts with wireless carriers worldwide.

I think it's important to highlight that our wireless capital intensity during the 5G build cycle is only expected to increase to a range of 9% to 10% and can be comfortably accommodated within a stable consolidated capital intensity ratio of approximately 16.5. It bears emphasizing however how important it will be to have public policies and a regulatory framework that support continued investment and focus on value, speed, access and coverage. An environment that focuses instead on access to our mobile networks and grants below cost access to our wireline networks will inevitably lead to significant cuts in investments by Bell and by others in the industry. And this will harm Canadians and the Canadian economy going forward.

Now I will turn to Slide 5 for some quick highlights on Q4. Overall, we're quite pleased with our operating results. We grew our market share of wireless, Internet, and IPTV subscribers with 181,000 total net new customer additions in a seasonally busy and intensely competitive quarter. More impressively, this was achieved without sacrificing our consolidated EBITDA margin, which increased 1.2 percentage points to approximately 40%. We also generated wireless EBITDA growth of 7.4%, the best reported result among peers while also delivering our highest ever wireless gross adds in the fourth quarter. For Bell Media another great quarter to cap off an excellent year with strong revenue, adjusted EBITDA, and cash flow growth.

Turning to Slide 6, and some operating metrics by segment. I'll start with Bell Wireless. Continued healthy postpaid growth with 122,000 net adds, which were up 21% over Q4 of last year, when excluding the Federal government contract. This strong result was achieved despite higher number of switchers driven by aggressive holiday offers from our competitors, that we chose to match selectively. On the prepaid front, gross adds were up 43% on the strength of Lucky Mobile and our Dollarama distribution agreement, which drove 2000 net adds, a good result in an exceptionally strong year of subscriber growth, while some of our competitors are seeing substantive declines in that segment. And blended ABPU declined only 0.4% compared to last year despite the impact of unlimited plans on data overage and a growing mix of customers on installment plans. So really effective reprice management by the Bell Mobility team.

Moving to Bell Wireline. Continued good momentum on Internet with 36,000 retail net adds, which were 10% higher than last year and we added another 60,000 FTTH subscribers this quarter, bringing the total number of direct fiber customers at the end of 2019 to more than 1.4 million, that's up 20% over the previous year. On the TV side of things, we added 22,000 net new IPTV subscribers, a solid result given the already high rate of customer penetration in our current five markets, increasing maturity of Alt TV, steady rate of over-the-top substitution, and persistently aggressive cable offers. We also continue to see nice year-over-year improvement in retail satellite TV and retail NAS customer losses, which were down 7% and 3.2% respectively. And certainly anytime the rates have declined slow, that is important to us from a cash flow perspective.

And last but not least, Bell Media. We maintained ratings and audience leadership in Q4 and we're also really excited about Crave. The strategy continues to work with a number of subscribers, up 14% year-over-year. We think it is quite frankly one of the best SVOD services anywhere in terms of what's available from a content perspective. And just last week, we were proud to expand Crave to include French language content and we made our Super Ecran service available direct-to-consumer. So great operational execution and financial results delivered by the Bell team, not just in Q4 but throughout the year, which sets us up nicely going into 2020.

Finally, before turning it over to Glen, I'll turn to Slide 7, and dividend announcement this morning. Obviously, we are very pleased and proud to announce for the -- and I'm proud to announce for the first time as BCE CEO, a dividend increase for our shareholders of 5% to CAD3.33 per share for 2020. It's our 12th consecutive year of a 5% or higher dividend increase, done within a targeted payout ratio of 65% to 75%. This is being supported by strong free cash flow growth underpinned by stable absolute dollar capital spending in 2020, a pension plan that is fully funded as well as a continued focus on subscriber profitability and cost discipline. Our unmatched collection of assets, including the best networks and the most innovative products will serve as a springboard for continuing to deliver the kind of operating metrics and financial results that shareholders have expect to -- have come to expect from our team as you see reflected in 2020 guidance targets that Glen will now take you through.

Over to you Glenn.

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

Thank you Mirko. And good morning, everyone. I'm going to begin on Slide 9 with a review of our consolidated financial results. The fourth quarter capped off a successful year with revenue up 1.6%, this together with the favorable impact of IFRS 16, which we have now lapped and good overall cost management drove 4.8% higher adjusted EBITDA and 1.2% increase in margin.

Net earnings were up 12.6%, benefiting from the flow through of the strong EBITDA growth, as well as the lower year-over-year non-cash impairment charges at Bell Media. Nevertheless, adjusted EPS was down CAD0.01 compared to last year, due to the pickup of less equity income from our minority interest investments and the dilution from the higher number of common shares outstanding.

In terms of free cash flow, we generated close to CAD900 million of cash in Q4, bringing the total for 2019 to just over CAD3.8 billion or 7% higher compared to last year. Although Q4 free cash flow was down year-over-year, this result was expected given the step up in capex spending, consistent with our plan for the year and higher cash taxes due to the timing of installment payments.

Let's turn over to Slide 10, Bell Wireless. Continued strong financial performance despite the dilutive impact of unlimited data plans and what I would characterize as a relatively competitive -- more competitive and active market this year. Revenue was up a solid 3.6% and a continued strong postpaid subscriber growth, a higher year-over-year prepaid revenue contribution, and increased sales of higher valued smartphones. Despite the sequential step down in service revenue growth, quite pleased with our overall performance, demonstrating that we are managing decline in data overage at a more measured pace, as Mirko mentioned earlier. And as well, Mirko also pointed out, but it definitely bears repeating, adjusted EBITDA grew a strong 7.4%, yielding a 1.4 point increase in margin that reflected responsible spending during the promotional intense -- promotionally intense Black Friday and of course Boxing weekend sales period. So truly another set of standout financial results that we expect will lead the Canadian industry this quarter.

Let's move on to our Wireline segment on Slide 11. Similar performance trends to Q3 combined internet and TV where revenue were up a solid 2.4% year-over-year. However, growth was impacted by lower pay-per-view revenue due to a number of high profile UFC events last year as well as growing OTT competition. We also had to absorb some acceleration in residential service bundling discount and retention credits to match aggressive competitor promotions in the quarter. We also saw steep year-over-year decline in the rate of voice revenue erosion this quarter. As last year's results benefited from higher sales of international wholesale long distance minutes, which tend to be variable and have no real impact on Wireline margin or EBITDA.

In business wireline, a softer quarter as we lapped the revenue growth acceleration, we've enjoyed in the second half of 2018, which also included the acquisition of Axia, a decline in low margin data equipment that can be rather lumpy on a quarterly basis also moderated overall wireline revenue growth in Q4. Regarding adjusted EBITDA, steady and consistent performance with year-over-year growth of 1.5%. And in terms of cash generation, Bell Wireline provided a strong contribution to consolidated BCE free cash flow in '19, delivering growth in adjusted EBITDA less capex of 5%.

Over to Media on Slide 12. Another strong quarter capping off a great year, that saw Bell Media deliver positive revenue, adjusted EBITDA and cash flow growth. Revenue up 3.4%, this was driven by Crave subscriber growth over the past year, contract renewals with TV distributors, stronger year-over-year entertainment sports and new specialty TV advertising sales as well as higher revenue at Astral out of home. Adjusted EBITDA increased 16.5%, while operating costs were stable year-over-year as higher costs of sports broadcast rights and Crave content expansion were offset by the favorable impacts of IFRS 16.

And with that, I'll move on to 2020 financial targets. So let's turn to Slide 13. I believe the guidance we are providing builds on the favorable financial results, significant broadband investments and operating momentum we delivered in calendar '19. Our targets for 2020 are underpinned by a positive financial profile for all three Bell operating segments, that reflects our consistent and disciplined execution in a competitive marketplace. With healthy projected adjusted EBITDA growth contributing significantly to higher year-over-year free cash flow generation, our financial foundation remains stable and strong supporting a steady consolidated capital intensity ratio of around 16.5% for 2020 as well as the 5% dividend increase we announced this morning.

Turn to Slide 14, we are targeting consolidated revenue growth of 1% to 3%, this range is consistent with previous years, reflecting healthy wireless subscriber growth further Internet and TV market share gains and a favorable media outlook as we continue to responsibly manage the shift to unlimited wireless data plans and lap significant TV advertising revenue growth from 2019. From a consolidated adjusted EBITDA, we are targeting growth of 2% to 4%, which again is similar to our 2019 guidance range when normalizing for the favorable non-cash impact of IFRS 16. This also reflects about a CAD25 million in higher year-over-year non-cash pension expense, that's due to the unfavorable impact of the lower accounting discount rate at the end of 2019. Underpinning this steady growth is a strong contribution from Bell Wireless, where we will continue to balance subscriber growth with profitability, positive residential wireline financial profile and improving year-over-year rate of EBITDA decline in our Bell business markets unit and ongoing focus on cost reduction. Given this outlook, we expect BCE's consolidated adjusted EBITDA margin to remain stable year-over-year.

Let's turn to pension funding on Slide 15. The funding status of our defined benefit pension plan remains strong and continues to move in the right direction. Despite a decline in -- decline in discount rates in '19 and supported by a strong 16% return on planned assets, the average solvency ratio across the aggregate of all BCE plans was over 100% at the end of last year. Given the strong valuation position, BCE's regular cash funding for 2020 remains unchanged at CAD350 million to CAD375 million. To put this into perspective, from a free cash flows point of view, we have contributed close to CAD3 billion to our registered pension plans over the last five years, with the favorable plan funding status, which has continued to strengthen in January together with an attractive fixed income asset mix that serves as a natural hedge to lower interest rates, we can expect that the cumulative cash requirements to drop by more than CAD1 billion over the next five years, even with no material increase in interest rates.

Let's move on to -- our tax outlook on Slide 16. Statutory tax rate for 2020 remains unchanged at 27%. Our effective tax rate for accounting purposes is also projected to be approximately 27%, as no tax adjustments are currently anticipated for 2020 compared to CAD0.07 per share in '19. We also expect cash taxes this year to be stable to CAD100 million lower than 2019 at around CAD625 million to CAD725 million. This reflects the favorable year-over-year impact of MTS tax losses that are now fully utilized as well as cash tax savings enabled by the Federal government's investment incentive program that allows for accelerated expensing of capital.

Over on Slide 17, summarizing our adjusted EPS outlook for 2020, which we project to be CAD3.50 to CAD3.60 per share or zero to 3% higher year-over-year. This reflects a strong underlying contributions from operations, driven by EBITDA growth across all Bell segments together with a modest decrease in interest expense that reflects a lower cost of debt, partially offset by higher interest expense, excuse me, higher depreciation expense as more capital assets are put into service. Excluding tax adjustments, adjusted EPS is expected to grow a healthy 2% to 5% in 2020.

Over to Slide 18, free cash flow is expected to grow 3% to 7%, which is similar to the -- our 2019 guidance range, when you exclude the impact of IFRS 16. This growth reflects the strong flow through of higher EBITDA and modest step down in cash tax as well capital -- capex spending and pension funding expected to remain largely unchanged year-over-year. This cash flow generation, provides strong support for executing our business plan and our capital market -- capital market objectives for 2020 that should deliver over CAD1 billion of excess cash, after the dividend payments, which will be deployed in a balanced manner on uses that include repayment of short-term debt and financing of strategic investments such as wireless spectrum auction purchases.

And lastly a few brief comments on our balance sheet and liquidity position. As we begin the year, we have excess -- access to CAD2.6 billion of liquidity together with the capital structure that provides good financial flexibility. Our investment grade credit ratings all have stable outlooks and our net debt leverage ratio is projected to remain relatively stable year-over-year, notwithstanding the impact of any potential wireless spectrum auction purchases later this year. This ratio should begin to improve gradually toward the high end of our target range over the next several years, with steady growth in EBITDA and applying excess free cash flow to net debt reduction. Also highlighted on the slide is BCE's favorable public debt maturity schedule that has an average term of 11.5 years -- on historical low after-tax cost of public debt of just 3.1% and no maturities until the second quarter of '21. Finally, I'd like to add that BCE's approximate $1 billion annual expenditure has been fully hedged well into '21, effectively insulating our free cash flow exposure until that time.

To wrap up industry fundamentals remain sound and BCE's financial strength and competitive position are as good as they've ever been, if not better. In 2020, we intend to build on that progress and consistent with the financial guidance targets announced today.

And with that, Thane, I'll turn the call back over to you.

Thane Fotopoulos -- Vice President, Investors Relations

Great. Thanks, Glen. So before we start the Q&A period. Just to keep the call efficient as possible given the time we have left, please limit yourself to one question and a brief follow-up if you must, so we can get to everybody in the queue in the time we have left.

Alana, we're ready to take our first question.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from Jeff Fan with Scotiabank. Please go ahead.

Jeffrey Fan -- Scotiabank -- Analyst

Thanks and good morning. First question is just on wireless, there's a lot of moving pieces going on in the industry and wanted to get your comments Mirko, regarding just -- I understand you're managing better when it comes to the transition, but wondering if you can just comment a little bit on how -- what the level of unlimited planned migration has happened within the base, maybe a little bit on overage exposure and as well, as you look out to the rest of the year, how service revenue growth might look compared to what we saw last year? And then I have a quick follow-up on a broader picture question.

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

Okay, so thanks Jeff. I'll pick up where you where you started, which is we've shown another quarter where we've managed the base rather well and it's one of our core competencies, as you know so I mean we are showing that it's possible to deliver more service options to customers in this case, particularly unlimited plans while remaining competitive as you can see from our best ever Q4 gross adds and at the same time delivering financial results that investors have come to expect. So -- and that's because how we're managing the transition over to unlimited, not force migrating every single customer over to unlimited plan. We have various landing spots where they can land. So ultimately what that results in Jeff is a lower -- significantly fewer subscribers on unlimited than some of our peers because of how we're managing that base. And in terms of -- in terms of percentage of revenue, which is overage, we're not sharing that specifically for competitive reasons.

Jeffrey Fan -- Scotiabank -- Analyst

Okay. And then a follow-up, just regarding your Media. I know it's a relatively smaller segment, but with you in I guess at the leadership post, just wondering because your US -- some of the US peers have been using SVOD services in a way to differentiate their wireless or broadband offerings, given your position in Canada with media and particularly with Crave, what are your thoughts on that progressing as a potential tactic or even a strategy?

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

Great, so I like our assets and I like our integrated strategy, and right now I'll leave it at this. Being vertically integrated does allow us to segment customers and target each segment of the customer base with the right products. So whether that's Crave, which you referred to which caters obviously as you know at over the top viewers and linear viewers as well, whether it's Alt, which gives customers who might otherwise cut the cord, a nice landing spot or whether not its five, which is still the large majority of our TV subscriber base. Having that breadth of product mix allows us to target customers with the right product. So that's, that's why being vertically integrated gives us that flexibility.

Now in terms of how we are going to package various services with wireless and broadband that's for the future, but right now we're going to keep on our plan of using the vertically integrated strategies to continue to segment the base.

Jeffrey Fan -- Scotiabank -- Analyst

Okay. Thanks, Mirko.

Operator

Thank you. The next question is from Richard Choe with J.P. Morgan. Please go ahead.

Richard Choe -- J.P. Morgan -- Analyst

Great, thank you. With the pressure from service revenue and wireless competition, should we still expect wireless margin growth and how will you manage the margin versus the ads? And then as a follow-up to that, should we still expect growth in wireline EBITDA or maybe more of a contribution as wireless gets a little bit tougher?

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

Good morning, Richard, it's Glen. I think our 2020 guidance today is indicative of our performance in 2019 and actually 2018. And you're looking at complete stability. 1% to 3% revenue, 2% to 4% EBITDA, 3% to 7% on cash flow is in line, normalizing for IFRS 16 to what it was experienced this year. Without giving you specific guidance by our BUs, which we don't do, what I can tell you is as I said in my opening remarks, we expect positive contribution from all three Bell segments on revenue, EBITDA, and cash flow, ultimately feeding that -- that guidance, the consolidated guidance.

Margin, I said in my opening remarks, I expect margin to remain stable. So in conclusion, yes, we expect wireline to continue to drive positive EBITDA growth and margins and performance in wireless to be consistent to what you've seen this year.

Richard Choe -- J.P. Morgan -- Analyst

Great, thank you.

Operator

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

Aravinda Galappatthige -- Canaccord Genuity -- Analyst

Good morning, thanks for taking my question. I wanted to ask a question on the enterprise side of the business, you've alluded to strong business market profitability in Q4, Mirko can you just talk a little bit about how you see 2020 playing out and some of the dynamics, both up and down in that sector? And a quick follow-up on the wireless side, we saw -- did see ABPU declines in Q4, considering sort of the competitive environment in the market as well as the overage factor, do you see some sort of price stability as we get to the middle to latter part of the year? Thanks.

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

I'll jump in on the -- on the second part of the question and Mirko will handle the BBM part, but wireless ABPU declines as you mentioned in Q4 approximately 0.4%. Really the two factor driving that decline are the absorption of the -- the unlimited plans, which ultimately results in lower data overage. And of course, we expect that will continue through calendar 2020. And remember the success we're having on prepaid, it's been -- it's been phenomenal and we expect that similar success will continue through 2020. And obviously that mix is going to impact your ABPU. Final part, remind you is that the ABPU calculation doesn't include the equipment financing piece. So if I normalize for that in the quarter, we are very close to zero.

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

And just a final point on ABPU to what Glen has said as well is taking everything into consideration, I think it's really important for investors to focus on total wireless revenue growth and just look at our performance in that regard.

As it relates to the enterprise segment, overall, we're quite pleased we had a strong 18-month run now and we are lapping strong results from the back end of 2018 and we're continuing to see improvement in the rate of EBITDA declines, all very positive and the fiber investment really benefiting this segment as well. So that bodes well and look the transparency, the reprice continues to be a challenge, but we're managing it quite well.

Aravinda Galappatthige -- Canaccord Genuity -- Analyst

Thank you.

Operator

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

Vince Valentini -- TD Securities -- Analyst

Yeah, thanks very much. And welcome aboard Mirko and congratulations on the new role. Two questions for you if I could. Sorry, Thane you can beat me up later, but one just on this ARPU and ABPU thing and I know your regulatory history and I know there is a big -- a big hearing coming up soon, do you not agree with what was written in the [Indecipherable] recently that some of the inflation that, the policymakers seem to be worried about for consumers is driven by smartphone prices as opposed to actually what you and other carriers charge for service. And if that's the case, should we not focus on ARPU versus ABPU and I'm still not sure why you guys don't disclose that because it makes it difficult for the regulators and politicians to see the figure if you're not even giving it to us every quarter. So I'd like your thoughts around that.

And the second one, just your big picture thoughts on M&A, it's been a big portion of Bell's growth story during George Cope's tenure and curious if you still think that is possible or likely in the future. I'm not talking about small tuck-ins, but is there any sort of transformative stuff that you think could happen over the next two years or three years or is it more just an organic story? Thank you.

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

Thanks Vince. So I'll answer -- I'll address your question in a general sense and then turn it over to Glen for some more precise comments, but at the highest level, I 100% agree with you that you cannot ignore the increases in the cost of handsets and the impact that have on the consumer's pocket book. I mean you just can't because that is a big, big component of what the customer ultimately pays for wireless service. By the same token, I'm shifting gears a little bit, but you also can't ignore when you're looking at what consumers are paying, you can't ignore the fact that when you walk into a store, whether or not it's a back-to-school or Black Friday or Boxing Week or other times during the year, you're being offered CAD400 gift cards, or free Sonos players, or free tablets, those add tremendous value to the customer, but they're not calculated in all the analysis that you read about when it comes to pricing. So you got to factor in a complete and total value that the customer gets, both in terms of promotions, in terms of when the handset pricing that gets absorbed and also speed, access, coverage, latency, it's all part of the mix. Glenn, if you want to comment on ARPU versus ABPU.

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

Sure. Vince, I know you would appreciate my focus is always on cash generation and I think one thing you have to focus on looking at ARPU is ARPU is your closest metric for cash and we can't lose sight of that. All that said, I can assure you that government officials and regulatory bodies are well aware of our ARPU and we disclose that and have discussions completely in line with what you laid out here today. Over time as EIP becomes the majority of our loadings, we'll start to see a convergence of our ARPU and ABPU. So I think it fixes itself with time, but never lose sight of the flow of cash, I like to say Vince.

Vince Valentini -- TD Securities -- Analyst

And on the M&A, Mirko?

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

Vince on M&A, I'm not going to comment on M&A, until there is something to comment on.

Vince Valentini -- TD Securities -- Analyst

Thank you.

Operator

Thank you. The next question is from Maher Yaghi with Desjardins. Please go ahead.

Maher Yaghi -- Desjardins Securities -- Analyst

Thanks for taking my question. I wanted to ask you and -- like in terms of strategically positioning yourself in terms of capex for 5G, you're starting the rollout, your starting investment, and you've invested a lot in the backbone, but now you're getting ready to get onto your last less connections and the regulatory environment is still fluid and I wanted to ask you, how do you manage such large investment when the regulatory environment is influx like that? And when you talk about the reduction in capex, that could be a solution to overcome potential negative outcome and a possible regulatory decision, what are we talking about? Can you quantify how much you can pull on your capex to offset possible negative outcome and regulation?

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

Thanks for the question. So how we manage the investment given the uncertainty. So we take a step back and I have faith that the CRTC will base its decisions on the rec -- on the evidence on the record and the evidence that's on the public record is rather compelling that deciding in favor -- mandating MVNOs would be the wrong thing to do, that's the first thing. Two is the way you manage the risk is you actually -- you make judgment calls. So first build outs will be in urban areas, so what that means is you wait and see what the decision is going to be before you make any concrete plans to build out in the less dense areas and that has an impact on rural areas and that has an impact on suburban areas as well. I mean these are all the consequences of regulatory overhang, that's how you manage it. And I'm not going to quantify the potential impacts on cuts and investments from regulatory decisions because I need to see what the regulatory decision is going to be, but I can tell you that negative regulatory decisions will result in cuts and investment, we already saw it last summer and I hope we don't have to see it again, but it's -- well that's just the way it works.

Maher Yaghi -- Desjardins Securities -- Analyst

Okay. And just my follow-up question, when -- when you look at, I mean you're in charge now and you're looking at the company, have your new sets of priorities, when you look at the 5% dividend growth model that George had and positioned the company to deliver on what's your view on that 5% dividend growth model and how sustainable it is going forward?

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

I'm supportive and yes.

Maher Yaghi -- Desjardins Securities -- Analyst

Okay, thank you.

Operator

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

Simon Flannery -- Morgan Stanley -- Analyst

Thank you, good morning. Just staying on 5G, perhaps you could just talk a little bit about the Nokia deal today, and are you planning to use multiple suppliers and tie that in perhaps to the Huawei review and I think a lot of investors are just trying to understand what the timing of any decision from the government might be? And we saw a decision in the UK, perhaps you could just reflect on that and see if there is a similar decision in Canada, what the implications would be? Thank you.

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

Okay. So, my announcement today is that Nokia will be the first provider of 5G ran equipment in our network. And I stress the word, first. What I'm trying to signal here is that we need to be able to work with many equipment suppliers today and in the future. And today that includes Nokia, it includes Huawei, it includes Ericsson, it includes Cisco, and it's always prudent to have multiple supply sources and we're always looking for that flexibility. We're still waiting for the government's decision on the security review as you know, but as -- as we've shown this morning we're ready to deploy initial 5G service because we will always be competitive and we're going to be doing this within our normal overall capex envelope and normal capital intensity ratio. I don't know when the government is going to decide a couple of things, we do want clarity on that and we also are eagerly awaiting 3.5 spectrum auction. So that Canada frankly can get going on launching real 5G in 2021.

Simon Flannery -- Morgan Stanley -- Analyst

Okay. Any comments on the UK decision?

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

No, I mean it's -- no comment on the UK decision. We're focused on is what Canada decision is going to be.

Simon Flannery -- Morgan Stanley -- Analyst

Okay, thank you.

Operator

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

Drew McReynolds -- RBC Capital Markets -- Analyst

Yeah, thanks very much. Good morning. On the EBITDA growth guidance of 2% to 4%, Glen you're alluding to obviously that's been pretty consistent with prior years, Mirko you point to next level of cost efficiencies and certainly investors are used to a decade of some pretty impressive cost efficiency and cost reductions at BCE. So could you just flush out a little bit of what changes or what kind of incremental cost reductions and efficiencies are expected to flow through?

And then a follow-up, completely different here. Could you just comment on the wireless competitive environment here through Q1 -- through -- through the early part of February here? Thank you.

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

Good morning Drew, it's Glen. As you alluded to our EBITDA growth guidance is consistent to that of before and of course underpinning the EBITDA growth guidance is our success and our track record around cost efficiencies. I believe you will see that continue, certainly under Mirko's leadership much as it has in the past. When we look at the investments we're making and the opportunities to reduce the way we serve the customer, the cost and the manner in which we serve the customer. As you've heard me say before, good customer service is cheaper, as we roll out fiber we see cost efficiencies. And as we look at serving our customer better, eliminating challenges we have in our bill, eliminating troubles we have in our network, reduce calls to the contact center, all of that delivers efficiencies. And as we look at the investments we're making and we're ramping up to essentially rebuilding 140-year-old copper network and we're more than 50% done, as we look at more self-serve, more opportunities, I think the future is bright and cost efficiency and actually over time as we fix platforms and we fix billing stacks, you get to a point where I think we can see an acceleration in cost efficiency.

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

Yes, I agree with Glenn. It's -- cost efficiency remains one of our core strategic imperatives. So that's a very, very important signal and it comes down to, repeating a little bit what Glen said, but I'm going to reiterate it because it's important, more fiber means fewer truck rolls, it means fewer calls. Things like unlimited plans means fewer calls, we're going to be leveraging technology like artificial intelligence, we're going to be leveraging self serve platforms, we're modernizing the core of our network, we're making services more on-demand, more one-touch, all those things result in cost of goodness. So that's just to punctuate the point that Glen was making.

On the competitiveness in wireless, I think one of the things worth mentioning in early days of 2020 and particularly early days of February, I think we like the early results of installment plans that we've seen on the Bell brand with our smart pay program, that's ensuring upfront affordability for our customer, and it helps us manage what was -- what were ever increasing subsidy costs. So that's a win-win all around actually for the customer and for ourselves. We followed quite closely what of our peers has recently done with it's flanker brand and installments. And I got two comments on that, one is, you've heard us say this before, we will always remain competitive and you'll see some something soon on that. And two, much like I said in Q3 of last year I think, when we had to do some IT work to get -- to enable Bell, the Bell brand to be competitive on installments, we're going to be doing the same thing to enable the Virgin brand to be competitive on installment soon.

Drew McReynolds -- RBC Capital Markets -- Analyst

Okay. Thanks, Mirko.

Operator

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

David Barden -- Bank of America -- Analyst

Hey, guys. Thanks so much for taking the questions. And welcome and congrats Mirko. I guess my question is I guess would be related to the handset side of things, could you kind of talk about the subsidy expense profile that you absorbed in 2019 versus '18 and Glen, how you see that evolving in '20 from a competitive versus kind of an EIP standpoint? And then a related question if I could, which would be just -- there is a debate in [Indecipherable] about the potential for a handset super cycle and phones are getting older and customers are ready to make this big upgrade to the 5G iPhone, if that's what it turns out to be. What have you kind of assumed in your 2020 outlook for the handset upgrade rate and the velocity that comes with this next upgrade cycle? Thanks.

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

Hi David. I'll start off and then I'll leave the handset super cycle comments for Mirko, but look on the handset side of things, it's not news to anyone that as we watched more and more costly handsets enter the marketplace that we've seen continued cost pressure in the ever-increasing subsidy expense of our business. And I think that 2019 was no different and that in the first half of '19 we watched frothy promotions, which ultimately at certain periods throughout the year you see zero priced handsets. Once again, despite the landed cost for them, they still find their way to zero.

I think what gives me some confidence looking into 2020 and managing of that ever increasing subsidy cycle is EIP, and installment plans. And I think managed correctly, and what we're seeing is early days, but managed correctly, I think we have an opportunity here to provide customers choice to separate the airtime packages from the equipment packages and give customers the opportunity to choose the handsets that meets their needs and with zero dollars upfront, finance it, over a -- over 24-month period. And the win-win in that is while giving customers what they want, I think we have an opportunity to mitigate that ever increasing subsidy cost of our business and see a significant earnings and cash flow opportunity. Albeit it will slow transactions, which we -- Mirko said earlier, we have to focus on total revenue, because I think you will see the potential in EIP of transaction slowing, but that could lead to a significant opportunity in earnings and cash flow generation.

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

And on the handset cycle, look I think the initial 5G handsets are likely to cater more to early adopters and we've managed this before, we manage the cycle from 2G to 3G, from 3G to 4G, from 4G to LTE-Advanced, and I expect much the same here, certainly in the early days.

David Barden -- Bank of America -- Analyst

Okay, great guys. Thanks for the comments.

Operator

Thank you. The next question is from Batya Levi with UBS. Please go ahead.

Batya Levi -- UBS -- Analyst

Thank you. Two questions quickly. As you think about the competitive environment, do you think we can expect to see churn going back to year-over-year improvement this year? And a clarification on the wireless capital intensity, do you expect to reach 9% to 10% after the 3.5 auctions or is there enough spending right now as you -- as you prepare for the 5G network that we will see that level early on in the year. Thank you.

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

Well the 9% to 10% on wireless CDIs [Phonetic] throughout -- for the entirety of the 5G build cycle.

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

And then on your question on churn improvement, it goes to the comments I just made about EIP and I believe in a world where we see the installment plans starting to become a big portion, significant portion of our loadings, I believe you'll start to see a decline in churn, I mentioned that you'll see a slowing of transactions, which ultimately can slow service revenues and it's slows -- slows transactions, but managed properly can improve EBITDA, improved cash flow. Final point I'll make on churn improvement is don't lose sight of the fact that it did -- for BCE churn did improve in 2019, 3 basis points.

Batya Levi -- UBS -- Analyst

All right, thank you.

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

Thank you.

Thane Fotopoulos -- Vice President, Investors Relations

Okay. Last question in the time we have left.

Operator

Thank you. The last question will be from Tim Casey with BMO. Please go ahead.

Tim Casey -- BMO Capital Markets -- Analyst

Thanks. Glen, could you tie your comments on subsidies and your measured roll out of unlimited plans or balanced rolled out, I guess is better way into the assumptions you've made for guidance. In other words, have you assumed that you will ramp up the intensity of uptake of unlimited plans in your guidance? And do you expect some material relief in expenses on the subsidy side from EIPs in your guidance? Can you help us sort of square up some of the assumptions you're making for us?

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

I would say the short answer to your question Tim, in the short term, calendar year '20 is no. We're not expecting a substantive shift in the subsidy reductions. Do I think that in the longer run this creates a great opportunity for the industry? Yes. Highly dependent upon that to deliver on the guidance in '20? No. Do I think unlimited will ramp, Mirko has made numerous comments here today that -- that our job and what we've proven for a number of quarters here is that we will take a balanced and managed approach to the data overage decline or the shift to unlimited, while giving customers what they want. So I think a lot more of the same in 2020 of what you -- you saw from us in second half of '19.

Tim Casey -- BMO Capital Markets -- Analyst

Thank you.

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

Thank you, Tim.

Thane Fotopoulos -- Vice President, Investors Relations

Okay, so on that I want to thank everybody for their participation today on the call and I'll be available throughout the day as usually and for any follow-ups and clarification. So with that, have a good rest of the day.

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

Thank you, everyone.

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

Thank you.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Thane Fotopoulos -- Vice President, Investors Relations

Mirko Bibic -- President and Chief Executive Officer BCE and Bell Canada

Glen LeBlanc -- Chief Financial Officer and Vice Chair, Atlantic Canada

Jeffrey Fan -- Scotiabank -- Analyst

Richard Choe -- J.P. Morgan -- Analyst

Aravinda Galappatthige -- Canaccord Genuity -- Analyst

Vince Valentini -- TD Securities -- Analyst

Maher Yaghi -- Desjardins Securities -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Drew McReynolds -- RBC Capital Markets -- Analyst

David Barden -- Bank of America -- Analyst

Batya Levi -- UBS -- Analyst

Tim Casey -- BMO Capital Markets -- Analyst

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