Edited Transcript of QBR.B.TO earnings conference call or presentation 12-Mar-20 3:00pm GMT

On the regulatory front, we are happy with the ISED recent announcement of set-aside provision for regional players in the upcoming 3,500 megahertz auction. With wireless prices 35% to 40% lower in Québec than in the rest of Canada, Quebecor and Videotron are — have clearly demonstrated the impact and value created by regional players. The infrastructure-based model is working well, so we must stay the course and continue delivering value, performance and service for the consumer in Québec in Canada.

Our Media segment also delivered outstanding results in 2019, with the acquisition of Incendo production and distribution capabilities, the Evasion and Zeste specialty channels, along with continued tight cost management, the Media segment generated higher revenues and an impressive $15 million EBITDA growth in 2019, while Groupe TVA maintained its leading position as the most watched network in Québec, with a 38% market share. In this regard, as TVA has reduced almost all of its distribution agreement, with the notable exception of Bell, with everyone recognizing the fair market value of our channels. I will repeat that it is now imperative that Bell finally accepts the fair market value of TVA Sports and all our other specialty services.

Finally, our Sports and Entertainment segment continued to grow, with 97 cultural and sporting events presented at Le Centre Videotron in 2019, offering ever more diversified and profitable events. Successful and widely attended shows such as Seul Ensemble, produced in collaboration with the Cirque Eloize’s, which sold more than 75,000 tickets as well our partnership with Piknic electronik, Igloofest and other popular events in the Montreal area, are further positioning us as the hub for the creation, production and distribution of light events and entertainment content in Québec, thereby, feeding our multiple distribution platform within the Quebecor group.

I will now let Hugues review our consolidated financial results.

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Hugues Simard, Quebecor Inc. – CFO [4]

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Merci, Pierre Karl. For the fourth quarter, Quebecor’s revenues were up 5% to $1.14 billion, and revenues from our Telecom segment grew 5% to $909 million. Quebecor’s EBITDA was up more than 7% to $495 million. Our Telecom segment recorded a 6% EBITDA growth to $463 million, while our Media operations recorded EBITDA of $35 million, an improvement of $7 million over last year. Had we not decided to restate the impact of IFRS 16 retroactively, EBITDA growth for Quebecor and our Telecom segment would be 10% and 9%, respectively.

We reported a net income attributable to shareholders of $145 million in the quarter or $0.57 per share compared with a net income of $118 million or $0.46 per share reported in the same quarter last year. This increase is primarily explained by our 7% EBITDA growth. Adjusted income from continuing operations, excluding unusual items and gains or losses on valuation of financial instruments, came in at $160 million or $0.63 per share compared with $133 million or $0.52 per share reported in the same quarter last year. This 20% increase reflects the improvement in our operating profitability.

As of the end of the quarter and the year, our net debt-to-EBITDA ratio was 2.9x, down from 3.2x reported at the end of the fourth quarter of last year and similar to our telecom peers. For the full year, revenues were up 3% to $4.3 billion, and EBITDA was up 6% to $1.9 billion. Adjusted income from continuing operations, excluding unusual items and gains or losses on valuation of financial instruments, came in at $581 million or $2.27 per share compared with $470 million or $1.96 per share reported last year, a 24% improvement.

Our consolidated cash flow from operations for the year 2019 increased by $132 million or 13% to $1.144 billion, our best performance ever. Available liquidity of more than $1.7 billion as of the end of the year and our growing cash flows will be more than sufficient to fulfill our commitments and fuel our growth. In 2019, we purchased and canceled 3.1 million Class B shares. Since we initiated our normal course issuer bid program 9 years ago, approximately 34.2 million Class B shares have been purchased and canceled.

I will now let Jean-François review our Telecom segment operations.

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Jean-François Pruneau, Videotron Ltd. – President & CEO [5]

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Thank you, Hugues, and good morning, everyone. So before we start our operating review, I’d like to go over some of the significant events that I — were highlighted in 2019. It was truly a remarkable year for Videotron, filled with accomplishments, initiatives that strengthened our position as one of Canada’s leading telecom companies. As you know, during the year, we launched Helix, our new broadband, video and home connected technology platform that is based on the Comcast X1 platform. So far, we are pleased to count, as of today, more than 190,000 broadband and video RGUs on our next-generation platform in only 6 months of commercial service. In 2019, we have also partnered with Samsung Electronics, Co. for the deployment of our LTE advanced 5G radio access technologies in Québec and the Ottawa region that we will gradually roll out starting in 2020.

Finally, late in the year, we concluded an agreement to acquire Télédistribution Amos right after the CRTC ordered Cablevision Bell to provide us with wholesale Internet access in the Rouyn and Val-dOr. These 2 developments will allow us to expand our service offerings in the Abitibi region and further strengthen our leading position in the province of Québec.

Today, I’m very pleased to announce that we connected our first customer in Amos last week, clearly showing our commitment to compete in this region for the benefit of the Abitibi population. We continue to meet our strategic and financial performance objectives, all while focusing on delivering the best experience to our customers and employees.

Throughout the year, we received numerous distinctions, some of which we are pleased to share with you today. We are one of Canada’s Top 25 Employers according to MediaCorp Canada and the Best Employer in the province of Québec based on Indeed. We are also one of Canada’s Top 70 Greenest Employers, again, according to MediaCorp Canada. And finally, for a sixth consecutive year, we topped the Ipsos-Infopresse Index as the most influential brand in the Québec telecom industry.

Turning to our fourth quarter results. We’re pleased to report both solid operating and financial performance, with a 5% growth in revenues and a 6% EBITDA growth. Had we not retroactively applied IFRS 16 to our 2018 financials, our EBITDA growth would have been 9%. For the full year, we exhibited revenue growth of 3% and EBITDA growth of 5% or 8%, had we not retroactively applied IFRS 16.

Our performance in wireless services remains impressive. As of December 31, we powered 1.331 million mobile lines, fueled by a growth of 42,000 lines during the quarter, 9,000 or 27% higher than last year and a growth of 177,000 lines over the full calendar year. This year, we posted our best ever annual net add performance since the launch of our facility-based mobile services in 2010. We reported year-over-year service revenue growth of 13% in the fourth quarter, driven mainly by solid subscriber growth. For a third consecutive year, we led the market in terms of share of gross adds, fueled by the success of our new mobile service, Fizz. And overall, we captured just shy of 30% of gross adds in our market during the quarter. We have recently launched our mobile services in the Rimouski region, a very good news for the consumers in this region, who will now enjoy lower prices and the best customer experience.

Consolidated wireless ABPU decreased to $51.89 from $53.25 recorded in the fourth quarter of last year, resulting from the increasing proportion of Fizz customers in our total customer base. Overall, BYOD customers, including Fizz, represented nearly 2/3 of our new adds during the quarter. More importantly, ABPU and ARPU, for both Fizz and Videotron Mobile, actually increased year-over-year. And I talk about [India].

Finally, our churn rate continues to be well under control as it remains stable year-over-year at 1.3%, despite our constantly growing noncontractual customer base. Our marketing tactics continue to focus on the BYOD segment as we prefer its cash flow and lifetime value profile without having to compromise on churn, thanks to our content, customer experience and bundling competitive advantages.

Moving on to broadband. We recorded growth of 3,000 broadband customers during the quarter and 23,000 for the full year. As previously mentioned, Helix exhibits strong growth as we now serve more than 100,000 broadband customers in less than 6 months of commercial service. Video services declined 13,000 customers in the quarter, as consumer awareness for Helix and its advanced functionalities remains at an infant stage, but we are confident that the strategies and tools that our teams continue to develop on various communication channels will bear fruit over the future. We are, however, massively migrating customers from our legacy platform to Helix, which is clearly beneficial to churn statistics and cost reductions.

As of the end of the quarter, 459,000 customers subscribed to Club illico, our OTT video service. We recorded growth of 16,000 customers during the quarter and 38,000 over the last 12 months. In December, we launched La Faille, an original series shot in the far north of Québec, which broke viewing records in its first week and is already attracting interest from international markets.

On the financial front, consolidated revenues amounted to $909 million in the fourth quarter, up 5%, compared to the $866 million recorded in the same quarter of 2018. Our low margin equipment installment program for Helix contributed to this growth. For the full year, we recorded revenues of $3.5 billion. EBITDA amounted to $463 million in the quarter for a growth of more than 6%, while we recorded EBITDA of $1.8 billion for the year for a 5% growth. Again, had we not restated 2018’s financial for IFRS 16, EBITDA growth would have been 9% for the quarter and 8% for the full year. Our ability to maintain industry-leading EBITDA margins of 51% without compromising customer experience demonstrates our continued focus on costs and our ability to leverage operational efficiencies.

For the fourth quarter, we generated $282 million in cash flow from segment operations compared to $245 million during the same quarter last year. For the full year, excluding acquisition of wireless spectrum licenses, we generated more than $1.1 billion in cash flow from segment operations for a growth of more than $100 million. Not only are we focused on EBITDA growth, but our rigorous management of CapEx also proves to be supportive to our cash flow growth. Net capital expenditures, including acquisitions of intangible assets, but excluding wireless spectrum licenses, amounted to $180 million in the fourth quarter. For the full year, net CapEx amounted to $685 million, excluding the purchase of spectrum licenses, $13 million lower than last year. And the decline almost entirely realized in the fourth quarter as we prudently decided to put some CapEx on hold in light of regulatory uncertainties. Wireless CapEx amounted to $37 million in the fourth quarter and $112 million for the full year.

In 2020, reflecting the added potential pressure on our business model coming from ongoing uncertainties around the regulatory environment, we have further reduced our CapEx plans for the year. As a result, we now expect to spend from $625 million to $700 million in CapEx for the year, including our multiyear LTE advanced 5G-ready network investment program, but excluding wireless spectrum licenses from the 3,500 megahertz auction scheduled for the end of 2020.

I will now turn it over to France to review the Media segment performance.

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France Lauzière, Quebecor Inc. – President & CEO of TVA Group and Chief Content Officer of Quebecor Content [6]

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Merci, Jean-François. TVA Group recorded operating revenues of $164 million in the fourth quarter of 2019, a year-over-year increase of $13.7 million. Broadcasting revenues increased by 8%, essentially due to the addition of Evasion and Zeste channels since their acquisition on February ’19, a positive retroactive adjustment to subscription revenues, a 4% increase in the advertising revenues of the other specialty channels and a 1% increase in TVA network’s advertising revenue.

On the ratings front, TVA network held its #1 position with a 23.3% market share. The addition of the Evasion and Zeste channels offset the decrease in the combined market share of the existing specialty services and maintain the total market share of our specialty services at 13.5%. This acquisition continues to have a positive impacts on both our financial results and the range of our content offering.

LCN remained the most popular specialty channel in Québec, with a 4.8% audience share for the fourth quarter of 2019. Magazine publishing revenues declined 24% due to the decreases in advertising, subscription and newsstand revenues on a comparable basis and the sale of the publication of Elle Canada and Elle Quebec magazines, the last issue of which were released in May 2019.

Mels revenues increased by 24% due to the higher revenues from all segments’ activities, including a 12% revenue increase from soundstage mobile unit and equipment rental and a 82% increase in visual effects, a 17% increase in post-production.

Our new production and distribution segment, created following the acquisition of Incendo on April 1, 2019, added $6.8 million in revenue in the fourth quarter. TVA Group’s EBITDA reached $33.6 million for the fourth quarter, an increase of $7.7 million compared to the same quarter last year. Our broadcasting segment reported positive EBITDA of $21.3 million, a favorable variance of $4.7 million. Our magazine segment recorded EBITDA of $2 million, down $1.3 million, while Mels segment posted EBITDA of $7.8 million, $1.8 million higher than last year. Our new production and distribution segment made a positive contribution of $2.2 million to EBITDA for our quarterly financial results.

For the full year, TVA Group’s revenue amounted to $570 million, an $18 million or 3% increase year-over-year. Broadcasting revenues increased by 4% to $436 million, essentially due to a 12% revenue increase from our specialty channels. Magazine publishing revenues decreased by 17% to $64 million, due to a 25% decline in advertising revenue, a 16% decline in subscription revenues and a 10% decline on — in newsstands revenue.

Mels revenues increased by 4% to $71 million, and our new production and distribution segment added $13 million to TVA Group’s revenues. TVA Group recorded EBITDA of $72 million for the year, up $18 million or 33% from last year, as our broadcasting activity’s EBITDA grew 53% to $43 million.

Magazine’s EBITDA increased by 10% to $10 million, and new production and distribution segment added $3 million to EBITDA, while Mels’ EBITDA declined by 5% to $16 million.

Cash flow from segment operation was $28 million for the fourth quarter, an improvement of $5 million over last year. For the full year, cash flow from segment operation amounted to $54 million, $12 million higher than in 2018, mainly due to our EBITDA growth.

Let me turn the floor back to Pierre Karl now.

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [7]

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Merci beaucoup, France. So looking forward, our operations are well positioned to continue to deliver superior financial and operating performance in 2020, while pursuing investment in strategic initiatives that will support our long-term growth and success. As we have clearly demonstrated in Québec, by investing billions of dollars in network and services, we believe in competition, in a facility-based competition that produce true sustainable benefits for consumers. And we are counting on the CRTC to pursue targeted regulatory measures that enable such competition and lead to a stable and efficient regulatory environment, promoting investment and innovation.

On the coronavirus important issue, I would like to repeat what we stated in the press release. On Page 4, we mentioned that the corporation is monitoring the situation with the COVID-19 virus and taking necessary measures to prevent the spread of the virus to its employees and the public. This situation is not expected to have a material financial impact on the corporation, although our Sports and Entertainment segment could be impacted if the situation worsens in Québec, as I declare in the press release.

So I thank you for your attention, and we will now, operator, take — you can open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from Matthew Griffiths from Bank of America.

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Matthew Griffiths, BofA Merrill Lynch, Research Division – Associate [2]

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So I wanted to ask you on the 2020 CapEx guidance. I think last quarter, it was mentioned that some of the — that the delay in CapEx was going to be made up in the future. So is this current kind of reduction year-over-year something that you’re viewing as a delay in the spending and it will likely get spent in 2021? Or is this cuts reflecting kind of the regulatory environment? And kind of along with that, just curious if you could provide maybe a — some sort of split at a high level with wireless and the rest of the business?

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [3]

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Matthew, before sending the question to Jean-François, I think it would be important just to repeat or to reemphasize the fact that the last decision being taken by the CRTC regarding tariff to the TPIA have been certainly quite an event, quite a moment in the telecom industry. As you saw, all the companies, all the incumbent operators, while they’ve been investing billions of dollar in the network throughout the last decade, they’ve been able to offer the Canadians the best product and the best services. And this is certainly something very important for Canada. We’ve been seeing countries that lack investing in their network and providing not — the sufficient quality in terms of internet, hurting the productivity of their country. I hope this is something that the government will consider or will reconsider.

And as you know, there have been 3 consideration being taken. All the companies are in front of the court right now to argue regarding this bad decision. Let’s call it, a bad decision. There is also an appeal to the cabinet, and the CRTC is also regarding — reconsidering their own decision. So I’m not saying that all of this is related to this decision. But as Jean-François mentioned earlier, that creates uncertainty regulatory-wise, and then, therefore, we need to be prudent. Our expectation is that we’ll be back in a more rational environment and then therefore, considering what our CapEx expenses could be in the future.

Jean-François, I don’t know what to — do we have anything?

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Jean-François Pruneau, Videotron Ltd. – President & CEO [4]

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Well, the only thing, Matt, that I would add is, for us, we see all the regulatory measures being tied together. So we talked about the TPIA decision or the resellers’ decision, the tariffs. There’s the MVNO raise coming, the decision that is coming from the CRTC, which we don’t know where the CRTC is going to sit. There was this announcement last week about the 25% price reduction objective for the big 3s and what’s going to be the impact in our market. Although we don’t think it’s going to have a big impact, but it’s still up for speculation. So all that to say that as rational and prudent investors, we look at our investment program, and we think that we have to pull back on some investments. You’re probably aware that we’ve pulled our 1 gig service out of the market and obviously — because we cannot afford the investment that are associated to that kind of service. So that’s a reflection of the uncertainties. And if things stabilize in the future, yes, we might reconsider those investments. But at this stage, we’re not.

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Operator [5]

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Next question comes from David McFadgen from Cormark.

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David John McFadgen, Cormark Securities Inc., Research Division – Director of Institutional Equity Research [6]

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Yes. A couple of questions. So first of all, just on the wireless side, can you give us any sort of ideas to how the net adds are coming in? Are they — in terms of representation between Fizz and the Videotron brand? And then maybe also give us an idea on the EBITDA margin between Fizz and the primary brand, if you could.

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [7]

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Yes. Well, first of all, David, we will not disclose the split between the Fizz and the Videotron Mobile customers. For us, it’s different segment of the markets. It’s a different marketing strategy. But we see our pricing structures and whatnot in combination for one to the other. So there is no such 2 services. For us, it’s mobile services with 2 different brands and different pricing strategies. So we will not disclose the split between the 2.

What I would say though, in terms of EBITDA, I could say that spend is definitely now contributing to margin expansion on the wireless side and EBITDA growth on the wireless side. I told you a few quarters ago that Fizz is already EBITDA positive, and it grows at a very fast pace. And now we’re talking about close to double-digits percent in terms of EBITDA margin. So we’re in the teens, essentially. So it’s growing fastly and certainly contributing to margin expansion and EBITDA growth.

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David John McFadgen, Cormark Securities Inc., Research Division – Director of Institutional Equity Research [8]

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Okay. And then I know it’s early days for Helix, but I was kind of surprised that the cable TV sub-losses were as high as they were. I was just wondering, is that sort of in line with your expectations in terms of Helix delivering results there on the — for the subscribers?

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [9]

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Yes. A few things here, I would say. Well, first of all, we currently have close to 100,000 subs, video subs on the Helix platform. And most of them or the majority of them is coming from — migrating to — from the legacy platform to the new platform, which is — it’s a clear positive for us. Even though it doesn’t translate into net adds, it’s a clear, clear positive for us. First of all, once you try it, you don’t leave it. So in terms of churn, it’s pretty good on our churn statistics. And we’re already seeing that. Even though it’s only 6 months of commercial service, we already see that churn statistics are better for the Helix customers than the illico or the legacy platform customers. And it also helps on our cost structure. So migrating customers from one platform to the other or from the old platform to the new one is certainly a positive for us.

Second of all, I think that we still have — just to do with respect to the product awareness, the functionality’s awareness, we’re working very hard on different communication channels to make the public and the customers or the consumers aware of the product, what it brings to the table for them and what better functionalities we have with this product. And this is not something that you can accomplish in 3 months. I would be transparent. I probably underestimated the time period that is required to do that. But still, I think it’s more of a long-term exercise to make the public and the population aware of the product and the functionality.

That being said, it’s really going better than we expected, at — total RGUs of 190,000 as we speak. It’s better than we expected when we launched the service, so we’re very encouraged with the success so far, and we think that it’s going to improve with the product awareness.

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David John McFadgen, Cormark Securities Inc., Research Division – Director of Institutional Equity Research [10]

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Okay. And if I may, a question on the dividend. So obviously, a nice increase here in the dividend based on my model, and that’s obviously different than your model. But based on my model, it looks like the dividend will now represent about 30% of free cash flow. And I was just wondering, when do you think or how long do you think it will take you to get to the mid-range of, say, 40%? Are you targeting a year from now or a couple of years to get there?

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Hugues Simard, Quebecor Inc. – CFO [11]

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David, it’s — this — we’ve — we’re following our plan. We announced in 2018 we wanted to get between 30% and 50%. Now we’re barely reaching the 30%. So we’ll continue with our plan. But I mean it’s — I think it’s too early to give you some guidance as to what the next steps will be. But I think we’re delivering, and we’ll continue on the plan of being between that 30% and 50%. But you’re right. Basically, based on the numbers, we’re at 29% or something thereabout.

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David John McFadgen, Cormark Securities Inc., Research Division – Director of Institutional Equity Research [12]

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Okay. And then just lastly, if you could give us an update on TVA Sports. And obviously, we saw the CRTC decision about how that channel needs to be distributed on the tier. I know Bell filed an appeal in the Federal Court of Appeals. Just wondering if you can give us an update on that?

And then also, where do you stand with respect to getting a proper revenue per sub fee, similar to what the other distributors are paying?

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [13]

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David, so as you probably saw, we’ve been complaining against Bell. The CRTC rendered a decision, which was stating that Bell was favoring its own service and was provided undue disadvantage to Quebecor and TVA Sports. This is certainly a very strong message. And we continue to negotiate with Bell. Unfortunately, it’s not the only issue that we have with them. And I think that, basically, most of the time, if not all, we’re on the good side of the equation, and we look forward to have what we call just — fair market value because what we’re providing to our customers, to our auditors is clearly good products and then, therefore, we should be compensated properly for it.

I think it’s worth to emphasize the fact that we’ve been able to have agreements with all other distributors. And the only one that remained, what we consider being the proper price is Bell. They’re certainly in a position, in a conflict of interest position because they’re pushing for their own channels. And then, therefore, unfortunately, I think this is certainly not good for the broadcasting landscape in Canada. This is certainly something also that we made loud and clear in front of the CRTC recently during the audience that took place for the transfer of the V network to Bell Media. And we look forward to continuing to push with what we consider the proper position for the TVA shareholders and obviously, also for the Quebecor shareholders at the end of the day.

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David John McFadgen, Cormark Securities Inc., Research Division – Director of Institutional Equity Research [14]

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But can you give us an update on the Federal Court of Appeal, Bells’ files. Is there any news there? Or any resolution anytime soon?

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [15]

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Yes. We’re still waiting for hearing date.

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David John McFadgen, Cormark Securities Inc., Research Division – Director of Institutional Equity Research [16]

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Oh, they haven’t even — okay. Has the Federal Court of Appeal even decided to hear it?

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [17]

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What do you mean? I didn’t get what you added.

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Hugues Simard, Quebecor Inc. – CFO [18]

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If they decided to hear it. Yes.

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [19]

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Yes.

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Hugues Simard, Quebecor Inc. – CFO [20]

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We just don’t have a date. Yes.

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David John McFadgen, Cormark Securities Inc., Research Division – Director of Institutional Equity Research [21]

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Okay. So they have agreed to hear this? They haven’t thrown it out entirely.

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [22]

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I want to be sure that we talk about the right file here. Yes. Sorry, David. Just want to make sure that — it’s important. That’s the TPIA decision, which is in front of the court, that’s it. The TVA issue is in front of the CRTC. But am I right to say, no? It’s our result before the Federal Court, the (foreign language) decision. And the damage “the compensation” they’re asking for. As you know, we have several issues but also several litigation files going on with Bell.

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David John McFadgen, Cormark Securities Inc., Research Division – Director of Institutional Equity Research [23]

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Okay. And maybe I’ll follow up…

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Jean-François Pruneau, Videotron Ltd. – President & CEO [24]

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We just wanted to be sure that we were talking about the same thing here.

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Operator [25]

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Next question comes from Tim Casey from BMO.

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Tim Casey, BMO Capital Markets Equity Research – Equity Research Analyst [26]

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Could you talk a little bit about how wireless is performing? I know you don’t like giving CapEx or margins there because it’s so hard to allocate cost. But could you give us some color on how you’re seeing the progression therein? And then just a question on network capabilities, there is some concern out there that a lot of people are going to have to work from home and students are going to have to study at home. I’m just wondering if you could talk about how you engineer your network. My understanding is, usually, it’s done with a 6- to 12-month window, and you assume a significant increase in consumption. I’m just wondering if you’re doing anything extra or contemplating doing anything extra given what’s going on with COVID-19?

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [27]

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Just — Jean-François. Just to introduce before you answered your question. I want to make sure that everybody knows, and this is certainly something that, which we consider a significant concern. We’ve been meeting with all our higher management in the different operations from Jean-François to France to Martin, with the head office staff to make sure that we cover all those aspects of what the health issue are all about right now. This is something also that we addressed yesterday at the Board of Directors. And according to all the efforts that we’ve been doing, I think that we’re up in the proper situation to manage the issue. But all those questions are related other incidences and [indiscernible]. And therefore, I think that where Jean-François will be ready to ask the specific question that you’ve been asking.

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Jean-François Pruneau, Videotron Ltd. – President & CEO [28]

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In terms of the wireless performance, like I said, Fizz is clearly contributing to our EBITDA growth on the wireless services. In fact, EBITDA growth for the first quarter year-over-year was about 30% this year with wire — this quarter with wireless. So it’s clearly accelerating since the erosion or dilution impact is now behind us with Fizz. In terms of wireless CapEx for the quarter, $37 million was spent on wireless and total for the year was $112 million. And in our guidance for 2020, I would say that wireless CapEx would probably be in the same ballpark, the same area. So it’s — that’s what I would say for wireless services, unless you have other questions or specific question related to that. But with respect to network capacity, you’re right to mention that when we do our budgeting and our investment program, we usually make sure that we have 6 to 12 months of capacity for our network. I can tell you that for 2019, and so far in 2018 and 2020 as well, usage is below what we planned, expected and budgeted. So, so far, so good. And I’m not worried at all with the impact of the virus on consumption and network capacity.

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Operator [29]

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Next question comes from Maher Yaghi from Desjardins.

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Maher Yaghi, Desjardins Securities Inc., Research Division – VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [30]

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Jean-François, I wanted to ask you a question related to the cable business. When I looked at your TV subs last year in Q4, they were down 2.5% year-on-year, and that has expanded to minus 4%. Mind you, this is not specific to Quebecor. It’s a question more about the market in general. Are you seeing — well, from what we see in your subscribers, we’re seeing an acceleration of the decline. Have we reached some kind of a support level here? Or you expect the decline in TV subs to continue to expand knowing that in the states, it’s is even higher than that level right now?

The second question I had is on the wireless ARPU. You mentioned that your sales loading was strong. And I’m wondering if you’ve reached an equilibrium yet because you mentioned that last quarter, that as long as you have not reached that equilibrium between Fizz and Videotron, you could continue to see pressure on ARPU. Are we at that level where the pressure is going to subside? And if so, are you thinking that the decline in ARPU, which was 2.6% year-on-year, might stabilize next quarter? And I have a final question after.

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Jean-François Pruneau, Videotron Ltd. – President & CEO [31]

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Okay. Well, I can talk for 15 minutes on the first one. It’s — how to put that. I’d say that — obviously, Helix and our new service or our new platform will be of great help to mitigate subscriber declines. That being said, there’s some secular trends in the market. We all know about that. But the good news is with Helix, I can tell you that in Q4, our share of gross adds in Q4 has grown over last year. So even though we might see some secular trends impacting us, with Helix, we are driving more share of gross adds that we were last year. So I think that with better product awareness, functionalities awareness, that will improve. And combined with the reduction in churn that the Helix customers are showing, I think that over the mid to long term, it should be positive.

In terms of the ABPU and the equilibrium, no. I don’t think we’ve reached equilibrium yet. That being said, and it’s only because as we grow our subscriber base with Fizz and BYOD, 2/3 of our sub adds were BYODs, and they obviously come in a lower ARPU. But again, when I mentioned it again, and I will repeat it and repeat it and repeat it, and you see that in our financials, I love the free cash flow profile of the BYOD customers because obviously, we don’t have to subsidize the handset cost. But on top of that, we are able to limit or to improve or have churn stable, and it’s been improving over the — a few quarters. This quarter, it’s stable. But I think that it speaks to our strategy. And you see that in our financials, I think it’s pretty positive.

So I don’t think we’ve reached the equilibrium yet. That being said, some very, very positive signs. Fizz, the inbound ARPU, is up close to 30%. We’re out of this stabilization period with respect to our pricing, so it has improved like $8 over — year-over-year, which is obviously pretty positive, but still commanding a lower ARPU than the overall base. If you look at the Videotron mobile brand specifically, once again, year-over-year, inbound ABPU is up. So I think that once we will get this equilibrium, you’re going to see ARPU growth. But I will — that as well, I will repeat. I don’t care about ARPU. I’m looking for cash flows.

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [32]

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(inaudible)

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Maher Yaghi, Desjardins Securities Inc., Research Division – VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [33]

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I have one last question I wanted to ask you related to the minister — ISED minister talking about wanting the industry’s prices to decline by 25% in 2 years. You mentioned that — and it’s true that he did not stipulate for you guys to do that, and he was talking about the big 3. But even though Québec prices are below those of Ontario, let’s say, and BC, historically, Québec prices have always or have been lower than BC and Ontario. So if prices in those 2 provinces decline, why don’t you think that Québec prices will also decline in the same range?

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Jean-François Pruneau, Videotron Ltd. – President & CEO [34]

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Well, it’s purely speculation, obviously. And I don’t know. The thing I know is prices are already 35% to 40% lower than the rest of Canada or BC, Alberta and Ontario. And I think where the victories are making money or big money, I should say, because I suppose they’re making money in Québec as well because we do. So if we do this, they certainly do. But I think that it’s really in BC, Alberta and Ontario where a reduction is necessary. Being 35% to 40% lower than the rest of Canada, I don’t think that Québec is the target. That being said, I truly don’t know. In the past, we’ve led the market in terms of pricing. I don’t think it’s going to change. We will continue to lead the market in terms of pricing. So it all depends on the — how the victories going to react with respect to the province of Québec. And so far, obviously, I really don’t know.

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Operator [35]

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And the last question we currently have in the queue comes from Vince Valentini from TD Securities.

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Vince Valentini, TD Securities Equity Research – Analyst [36]

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I was maybe about to go on the record books as you’re the only company who raised their dividends 78% and every stock go down 5%. So anything to add on that? But congrats on that performance, by the way.

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [37]

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Thank you.

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Vince Valentini, TD Securities Equity Research – Analyst [38]

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The — I have couple of clarifications, if you don’t mind. So the — let’s start with COA. Jean-François, the — for the 1/3 of your gross adds that are not coming in on BYOD, can you give us any color on what’s going on with equipment subsidies and acquisition costs? Or are you able to keep those stable? Or is there any evidence recently they may even be starting to decline based on the actions of some of your competitors to try to do more EIP and lower subsidies?

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Jean-François Pruneau, Videotron Ltd. – President & CEO [39]

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Yes. I like this question. I will start by saying that I think that last year, Q4 and Q1 specifically, we somewhat lost control on COA. It was way too high, and we had to do an adjustment in the way that we were marketing our stuff and COA-related, obviously, things that we’ve done in the course of Q2 and we’ve continued to do. So on a year-over-year basis, it’s well under control. And I assume that Q1, we’re already 2 months out of Q1 now. Q1 is going to be as good as it was for Q4. So I really think that it’s well under control. Sequentially, I’m not seeing nothing that is overly detrimental. It’s seasonal, as you can imagine, Q4 is usually on a sequential basis, more active with respect to COA, more expensive with respect to COA because of the Black Friday and the Christmas and the holiday period and whatnot. So — but on a year-over-year basis, I can tell you it’s well under control. And even though we didn’t go into the EIP for mobile, you look at our share gross adds and market shares that are going up, I think that what we put on the table for the Québec consumers is the right thing. It doesn’t mean that we will not have to change in the future. But so far, I’m very, very positive with respect to our strategies and tactics.

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Vince Valentini, TD Securities Equity Research – Analyst [40]

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Sticking with that subset of ARPU, can you give us any color on your exposure to roaming? I would assume it’s less than the incumbents because you haven’t really cracked the business traveler market to the same extent they have yet to. But I mean are you willing to give us any flavor of how big that would be?

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Jean-François Pruneau, Videotron Ltd. – President & CEO [41]

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Yes. Obviously, our bucket, our data bucket has always been — have always been greater or bigger than our competitors. We’ve been, as you know, we’ve been the first to launch a 6 gig. 6 gig is nothing now, but we’ve been the first in Canada to launch a 6 gig data bucket, what was it? 6 years ago. So our bucket has always been greater or bigger than the others, so hence, lower overage revenues, obviously. So since we’ve launched our Zen package, which is some 100-gig per year, in extra of your current package, we haven’t seen a — just a significant negative impact on overage revenues because overage revenue has never been a big thing.

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Vince Valentini, TD Securities Equity Research – Analyst [42]

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Sorry, JF. Sorry if I confused the question. I wasn’t referring to data overage. I was referring to roaming when your customers are…

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Jean-François Pruneau, Videotron Ltd. – President & CEO [43]

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Roaming. Sorry. In terms of roaming, roaming is nothing for us. It’s even less than the overage.

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Vince Valentini, TD Securities Equity Research – Analyst [44]

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Okay. Just — yes. I thought so. Just wanted to sure. And a couple of just quick clarifications then on resale. You were going to resale in Amos, and then you’re buying it instead. Is there any reason that same concept wouldn’t work in Cogeco’s territories in Québec so that you could bundle wireless with fixed line services? Are you contemplating reselling their network, too?

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Jean-François Pruneau, Videotron Ltd. – President & CEO [45]

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I’m not sure I’m following. You think — you talk about mobile or?

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Vince Valentini, TD Securities Equity Research – Analyst [46]

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Well, if you can use the TPIA rules to resell their internet and video so that you could then bundle your wireless service with fixed line products in areas where you’re not actually the cable company?

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Jean-François Pruneau, Videotron Ltd. – President & CEO [47]

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Yes. Not in the card.

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Vince Valentini, TD Securities Equity Research – Analyst [48]

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Okay. And anything queued on either cash taxes, anything unusual to think about for 2020? And can you give us a reminder of your foreign exchange exposure on either handset or CapEx purchases and how much of that you might hedge?

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Jean-François Pruneau, Videotron Ltd. – President & CEO [49]

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Answer to the first question, nothing unusual, nothing different than 2020 than the 2019 on cash taxes. As far as foreign exchange is concerned, we hedge — so U.S., yes, we buy handsets, and we buy a number of components in U.S. dollars. And we’re following what we’ve traditionally done for many years now, which is we hedge 50% of our exposure. And we’ll continue to do so.

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Tim Casey, BMO Capital Markets Equity Research – Equity Research Analyst [50]

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Would you be able to share what the rate is for your average hedges? Would it be around the 1.3 level?

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Jean-François Pruneau, Videotron Ltd. – President & CEO [51]

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It’s — I wouldn’t want to share it. But you’re probably not far, which is we’re not going to share it. Yes. Which is not half share.

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Hugues Simard, Quebecor Inc. – CFO [52]

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You’re in the ballpark.

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Pierre Karl Péladeau, Quebecor Inc. – CEO & President [53]

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Good. So thank you. Thanks Vince, and thank you all attending this conference call. So we’ll talk to you next quarter and expecting that it will be in a better environment. So all of you, thank you very much, and have a nice day.