Aug 6, 2015
Executives
Thane Fotopoulos - IR George Cope - President and CEO Glen LeBlanc - EVP and CFO
Analysts
Richard Choe - JPMorgan Greg MacDonald - Macquarie Capital Jeff Fan - Scotiabank Aravinda Galappatthige - Canaccord Genuity Maher Yaghi - Desjardins Capital Drew McReynolds - RBC Capital Markets Phillip Huang - Barclays Capital Chris Pearson - UBS Securities David McFadgen - Cormark Securities Rob Peters - Credit Suisse
Operator
Good morning, ladies and gentlemen. Welcome to BCE's Second Quarter 2015 Results Conference Call.
I would now like to turn the meeting over to Mr. Thane Fotopoulos.
Please go ahead.
Thane Fotopoulos
Thank you, Wayne and good morning to all on the call this morning. With me here today are George Cope, Bell's President and CEO and Glen LeBlanc who is participating in his inaugural call as CFO BCE, so a very warm welcome to Glen.
As a reminder our Q2 earnings release supplementary financial information and slide presentation are available on our corporate BCE Web site a replay and transcript will also be available on our Web site later today or tomorrow. However, before we get started I'd like to draw your attention to our Safe Harbor statement on Slide 2.
Information in this presentation and remarks made by both Glen and George will contain statements about expected future events and financial results that are forward-looking and therefore are subject to risks and uncertainties. Results may differ materially.
These forward-looking statements represent our expectations as of today, and accordingly are subject to change, we disclaimed any obligation to update forward-looking statement expect as required by law. A discussion of these factors that may affect future results is contained in BCE’s filings of those with the Canadian Securities Commission and the SEC and are also available on our corporate Web site.
So with that, over to George.
George Cope
Great. Good morning everyone.
Thanks Thane, good morning everyone thank you for joining us this morning. I'm on Slide 4 to begin the presentation the Company produced a solid quarter across the board with all three divisions driving positive EBITDA growth or a combined EBITDA growth of 2.5% in the quarter.
The excellent wireless execution continued with 10% revenue growth year-over-year and 5.3% EBITDA growth. We completed our fourth consecutive quarter of positive wireline adjusted EBITDA growth and expect this will continue going forward.
Our broadband market share grew for the sixth straight quarter with 69,000 Internet and IPTV net adds. Bell Media enjoyed excellent execution and what I would describe as a tricky environment producing 2.4% EBITDA growth in the quarter.
And I think everyone knows in late June we announced the build out of Bell Gigabit Fibe to 1.1 million locations in Toronto. And today I am pleased to announce that Bell will launch Gigabit Fibe service to 1.3 million homes in Ontario and Quebec this coming Monday.
In the Atlantic region by the end of September and will be available to 2.2 million homes by the end of 2015 more on that in the presentation. We turn now to wireless results, we had a strong quarter of gross sales up in the quarter driving 61,000 net adds.
We again took market share from the largest wireless carrier in the country, so really pleased with the results given this is the first part or first month we had a double cohort. Also we are able to do that and continue to be the value leader in the industry with an ARPU growth of 5.3% well growing market share in the segment.
Cost of acquisition was up year-over-year, really for two reasons; higher mix of postpaid gross adds versus prepaid and there is no doubt it was an aggressive last few weeks of the quarter as some of the marketing that took place in the last few weeks drove up some cost of acquisition. Retention spending increased to 12.9% as a result of investment in the double cohort and we saw that near the last part of June.
And also just to highlight the quarter for us recent survey by J.D. Power, Bell was sighted as the most improved on the national carriers from a full service perspective and particularly proud of our flanker-brand Virgin which was ranked as number one service brand nationally in Canada ahead of both TELUS, Koodo, Fido and Rogers, so great progress on our imperative of customer service improvements.
Turning to wireline, we had a 19,000 Internet net add, up 1,000 year-over-year but importantly now that our competitors have reported about 90% market-share in the quarter driven really through the continued growth of IPTV with 50,000 additional subs and to remind investors we sell IPTV with an Internet subscription as well. And also importantly we’re seeing about 75% of our IPTV activations taking a triple which of course is still significant given the amount of wireless substitution we see and the triple ARPU that we’re seeing off of that base, I have looked at it last time just when the quarter was north of $150.
So clearly when we get a triple customer base that’s a pretty significant customer for us and really being pulled through our strategy on IPTV. Turning to Slide 7 just a couple of comments on the Toronto announcement on June 25th, we announced a 1.14 billion capital program that will be an overlay of our FTTN network in Toronto to provide Gigabit Fibe service, so 1.1 million homes and businesses, that will be completed by the end of ’17.
So it's a two to three year project. What we did I think quite strategically we went into a long-term agreement with Toronto Hydro for access to their poles and that triple would have been a 50-50 buried versus aerial project to be 70% aerial, probably saved us north of $200 million of capital and also increased the speed to market with the build-out.
Turning to Slide 8, as I mentioned in my opening, we will actually launch Bell Gigabit Fibe service on next Monday, 1.3 million homes in Ontario and Quebec on August 10th, in the Atlantic region by the end of September. You can see on the map where the footprint will be in terms of geographic by province and of course Ontario footprint will grow dramatically over the next couple of years as we begin that build-out.
Overall when we end the year about 30% of our footprint will have FTTP services, the remaining as you can see on the 7.9 FTTN and then of course we saw our footprint that we’ve not covered with either and footprint will continue to expand as well the overlay of our FTTN to be FTT to the premises. On the Bell Media side, I mentioned we delivered positive EBITDA in the quarter, CTV did complete certainly its best season ever having 15 of the top 20 programs.
TSN did we think quite well, certainly given it is the first time we’ve not had the hockey playoffs and did very well with the FIFA Women’s World Cup. But I think the most strategic thing for us in the quarter is the announcement that we will be taking Crave direct to consumers on January 1st.
We currently market through about 3.5 million homes through ourselves and some other TV providers and after seven months we have 700 -- approximately 730,000 customers. Well by going over the top of course we’ll be able to pursue 11 million households and really that strategy falls a result of our recent CRTC decision allowing us to have CraveTV offered exclusively in our IPTV footprint to Bell Fibe customers and then nationally launching the product to OTT to everyone.
So we get some product differentiation on Fibe TV and open up the CraveTV product on a national basis and of course CraveTV has the content of both HBO and SHOWTIME and we think it is going to be and has been given the subscribers we’re seeing already a very competitive product and compelling for consumers. Turning to Slide 10 I think this quarter again just illustrates that our focus on our six strategic imperatives over the last 8 years continues to pay off.
Over 80% of our revenue now from gross services we've been able to maintain our overall EBITDA margin even with the decline over the years of the NAS base and the customer base. It's our 39th consecutive of uninterrupted year-over-year EBITDA growth.
And basically if you look at our year to date results and our outlook we believe and I believe we are well positioned to continue executive our dividend growth model in 2016 within our conservative free cash flow payout ratio of 65% to 75%. With that let me turn it over to Glen.
Siim I hope you're not listening hope you're golfing somewhere but if not anywhere over to Glen.
Glen LeBlanc
Thanks George and good morning to everyone on the call. As Thane mentioned this is my first BCE analyst call since taking over from Siim Vanaselja at the end of June, albeit I have worked with most of you before.
It is a real privilege and exciting time to assume the role of CFO of this great company. I definitely have big shoes to fill but I look forward to living up to the high standard step by my predecessor and to continue working with all of you.
I will begin with a quick overview of Q2 consolidated financial results on Slide 12. We continue to execute well across the business posting another sound quarter of revenue, adjusted EBITDA growth and earnings profitability in line with our guidance targets for the year.
We generated top-line growth of 2% in Q2 driven by a healthy 2% year-over-year increase in service revenues. This performance is led by a strong double-digit increase at Bell wireless and robust wireline residential revenue growth.
As expected media revenues were lower year-over-year in line with industry trends. BCE’s adjusted EBITDA was up a solid 2.5% on positive growth across all Bell operating segments all of which was organic.
This yielded a higher year-over-year margin of 41.3% reflecting growing broadband scale and our wireline business and continued good spending and price discipline across customer segments and operating efficiencies throughout the organization. Higher EBITDA drove 6.1% growth in adjusted EPS to $0.87 per share from $0.82 last year and a strong 14.2% increase in free cash flow which grew to 931 million this quarter.
Statutory EPS of $0.90 in Q2 which was up 15.4% year-over-year included a $94 million cash gain related to the sale of our 50% ownership interest in GLENTEL to Rogers. Cash generated in the quarter supported significant capital expenditures of 914 million which was in line with our plan.
Spending was focused on connecting more homes and businesses directly to our fibre optic broadband network including the deployment of Bell Giga Fibe in the city of Toronto and the continued expansion of our 4G LTE wireless networks and deployment of 700 megahertz spectrum. And I would like to add that all of this investment is being done while maintaining our capital intensity ratio outlook for the year below 17% of revenues.
So overall it was a very good financial quarter with solid results across the board. As the new guy coming into Bell I want take a step back what impresses me greatly is the consistency of Bell’s performance quarter after quarter.
This shows the strength of the business model Bell has built focused around our six strategic imperatives. The telecom industry in Canada is marked by healthy competition and dynamic changes and yet we have leveraged our business model to produce results consistently within our guidance targets and this will be no different this year, and I will turn into the results for each of Bell’s operating segment starting with wireless on Slide 13.
Revenue growth continued to accelerate in the quarter with 10% year-over-year increase driven by higher proportion of postpaid subscribers in our customer base and strong data revenue growth of over 24%. Increased data usage higher rate plan pricing under two year contracts and price discipline drove an exceptional 5.3% increase in ARPU representing our 22nd consecutive quarter of year-over-year growth.
This industry leading ARPU growth continues to be driven by our strategic focus on high quality subscriber loadings and data growth. The quality and reliability of our network is essential in supporting this trend and then meeting the evolving needs of our customers.
And as you’ve seen, we continue to make significant investments in acquiring spectrum and expanding the coverage and speed of our LTE network to sustain this growth opportunity. From a profitability perspective, wireless EBITDA increase a solid 5.3% in Q2 generating a very healthy service revenue margin of 46.6%.
This result is even more impressive, given that it was achieved well absorbing 64 million in higher retention and acquisition cost driven by 20,000 more postpaid gross additions compared to last year and increased spending to deal with the start of the double cohort at the beginning of June. Lastly, wireless EBITDA less CapEx provided a healthy contribution to free cash flow increasing 3.1% year-over-year.
A solid result in the context of the higher retention and COA spending that drove operating cost growth of 13.7% in the quarter. As we head into the seasonally important third quarter, our wireless market momentum and financial flexibility to manage through the double cohort impact remains strong.
Turning to the wireline segment on Slide 14, service revenue growth accelerated in Q2 increasing 1.1% up from 0.7 last quarter. This sequential improvement was driven by the strong performance of our residential services addition which delivered excellent year-over-year revenue growth of 4% reflecting continued steady growth in fibre TV and Internet scale together with higher revenue for households.
TV and Internet combined generated 8.4% higher year-over-year and voice revenue erosion also continued to slow reflecting fewer residential mass line losses compared to last year. However, overall wireline revenue growth in the quarter was moderated by our business markets results which continue to be impacted by the re-pricing pressure and reduced structure spending on service solutions and data products the latter of which declined 16% year-over-year.
This performance is reflective of the sluggish economy and slower employment growth we are experiencing in both Central and Atlantic Canada. While our business markets units continues to work through this top economic cycle it remains competitively well positioned and continues to invest in both growth and productivity measures to lower cost.
Wireline adjusted EBITDA increased a solid 1% this quarter and as George said earlier, that represented our fourth consecutive quarter of positive growth. And our wireline merging was up 50 basis points year-over-year to an industry best 41.6% supported by cost synergies from the Bell Aliant integration and ongoing customer service and operational efficiency improvements.
And lastly and perhaps most importantly, Bell Wireline delivered a strong contribution to the consolidated BCE free cash flow with a double-digit year-over-year growth of 10.3% that provides good support to fund the continued investment in our strategic broadband fibre programs going forward. Shifting to Bell Media on Slide 15, consistent with the industry trends, media revenue decreased 2.8%, advertising revenues were down 4.4% in Q2 impacted by general softness in the TV advertising market, a shift in consumer spending to online services and the loss of the NHL play-off broadcast rights on our sports specially channels TSN and RDS.
This was partially offset by the revenue generated from our broadcast of the FIFA Women’s World Cup Soccer which saw record audiences and the growth in our non-sport specialty services driven by space and discovery TV. Subscriber fee revenues increased 1.4% as a result of the growth in CraveTV and their expanding suite of TV Everywhere GO Products.
However, the financial highlight of the quarter for Bell Media was adjusted EBITDA which increased 2.4% over last year. This was driven a 4.7% decrease in operating cost, despite the higher cost for sports broadcast rights and our investment in CraveTV programming.
Slide 16 summarizes our adjusted EPS for Q2 which was $0.87 per share or 6.1% higher than last year, a strong result reflecting healthy organic growth in adjusted EBITDA across all of our operating segments which contributed $0.05 year-over-year increase to EPS. And consistent with our guidance assumptions for 2015 depreciation and amortization expense was lower compared to last year due to an increase in the useful for life of application software.
Tax recoveries amounted to $0.01 per share this quarter the result of favourable settlements with CRA which brings year to date tax adjustments to $0.04 per share this compares to tax recoveries in 2014 of $0.02 in Q2 and $0.05 per share for the full year. At this time we do not expect any further material tax adjustments in the second half of '15.
Similar to the previous quarter non-controlling interest or NCI was lower in Q2 due to BCE now owning 100% of Bell Aliant. This was offset of course by the dilutive impact from the issuances of BCE common shares on the Bell Aliant privatization.
In the first half of 2015 adjusted EPS of $1.71 per share is 4.9% higher year-over-year positioning us well to achieve our full year 2015 guidance range of $3.28 to $3.38 per share. Turning to Slide 17, free cash flow in Q2 was 931 million or 14.2% higher compared to last year.
This reflected higher adjusted EBITDA driven by solid organic growth across our core businesses and improvement in our working capital position an incremental contribution to free cash flow from the privatization of Bell Aliant. Cash interest payments in Q2 were higher year-over-year reflecting a higher level of outstanding long-term debt for Bell Aliant and the year-over-year increases in BCE’s current service pension funding and cash taxes were consistent with our full year 2015 guidance assumptions.
With year to date free cash flow of some 1.2 billion on track with plan we see accelerated free cash flow generation in the second half of the year, giving us substantial financial flexibility to support the execution of our strategic capital programs and higher dividend for 2015. To wrap up on Slide 18 we see good momentum to take us forward for the reminder of the year with a strong set of financial results for Bell wireless in the first half of 2015 and an outlook for continued wireless profitability, we have headroom to absorb a sustained high level of retention spend in the second half of this year without impacting overall guidance targets for the year.
Our wireline segment is expected to continue delivering positive year-over-year EBITDA growth in the back half of the year benefiting from further TV and Internet customer expansion, APRPU flow through and cost savings. And while we're pleased with Bell Media’s overall performance in Q2 the second half of the year will continue to be challenging as a result of the higher sports rights in CraveTV content cost which have impacted results throughout the year.
Given this outlook and our financial plan that is comfortably on track I am reconfirming all of our 2015 guidance targets. On that I'll turn the call back over to Thane and the operator to begin the question-and-answer period.
Thane Fotopoulos
Thanks Glen. So before we start the Q&A period just to keep the call as efficient as possible I’d ask on behalf of our team here today that you limit yourself to one question and a brief follow-up.
And to the extent we have extra time we will circle back and take more questions, so that with that Wayne we're ready to take our first question.
Operator
Thank you. [Operator Instruction] Our first question is from Richard Choe from JPMorgan.
Please go ahead.
Richard Choe
Just wanted to get an update on the double cohort what you are seeing in July and start of August. Should we expect kind of the higher level of churn and retention spend it's still kind of trying to focus on market share more than kind of artificially I guess benefiting margin so solid margin but more market share related?
George Cope
Yes, well I'm not going to comment on the next couple of months that would be I’d give myself some hot water on that. But what I would simply say is the double cohort started certainly our retention spend in the second half of the year will be higher than it was in the first half for the year just because of the map.
But as Thane said and Glen said we're comfortable totally with the guidance. Our strategy continues to be to execute on our market share that we're getting higher than our proportion of postpaid and most importantly leading on the revenue growth side giving us the flexibility to compete in the marketplace.
But we will definitely see a I think a little lift in the retention spend in the second half of the year and we'll be able to absorb that within in the revenue growth we're seeing on wireless. Thanks for the question I hope that helped to answer it?
Operator
Thank you. The following question is from Greg MacDonald from Macquarie.
Please go ahead.
Greg MacDonald
Wanted to ask a question on the wireline side, we saw a slight improvement in the year-over-year results for local and access, but a relatively large year-over-year decline in the long distance trend, I wonder -- I am just assuming there is no re-categorization of revenue buckets or anything going on there. I wonder if you might comment on a; what’s driving the long distance component of that, is that related to the data services comment that you made earlier and vis-à-vis the economy.
And then just an overall comment on the economic outlook, are you seeing trends worsened, have they stabilized that, we all know it's weak but I think people are looking for some visuals on what’s happening there and if you can comment West Coast versus Ontario, Quebec that would be helpful? Thanks.
George Cope
So on the long distance there is certainly no change if anything we will have you report; secondly, no real change in that business. If there is anything in the quarter, our wholesale international minutes do tend to flow in and out on a quarterly basis, so that does once in a while Greg bump up and down the LV growth rates.
So that’s probably what is replacing the quarter, but nothing other than beyond that. Turning to the economy, I think our consumer results would show, we are continuing to be able to execute on that side and we’re seeing it nationally, so on the wireless and on the wireline side, I think we’ve been so transparent from investors are tired of hearing it from us, but where we see it the most clarity is on the B2B side and certainly year-over-year the quarter was better than the quarter before in terms of that unit with us, but a lot of that is cost management as opposed to top-line growth.
So it's very hard for me to make a comment on the economy because it would be quite frankly not correct to say we saw an impact in the quarter.
Greg MacDonald
And George trends east versus west, are you seeing anything change in -- we all know the west is in some difficulty but anything affecting the East Coast customers at all?
George Cope
No, no we’ve seen -- really have no -- there is nothing in our numbers to tell us it was the economics clearly we will be impacted by what happens in the economy, but we have certainly seen no impact in these results.
Operator
The following question is from Jeff Fan from Scotiabank. Please go ahead.
Jeff Fan
My questions are on the Gigabit Fibe service obviously the return is important on this project. Just wondering if you can help us understand a bit about the return and I guess more specifically on the potential incremental revenue opportunity going from fibre to the node to Gigabit Fibe and maybe the penetration longer-term and maybe help us by -- maybe Glen talking a little bit about the Bell Aliant experience on penetration since those numbers are kind of buried in your overall results now?
Thanks.
George Cope
Yes so look the -- first of all, we’re really excited about the launch of it in the marketplace on Monday in some of our footprints. It's very clear to us as we look out over the next five, 10 years the market is going to demand these type of speeds and so we have to start it now, so that it has broader footprint as we possibly have what we completed as those demands grow.
So it's not a matter of market-share, I think it's a matter of table stakes from our perspective that will be the business for broadband. One of the differences certainly we’re seeing in North America is Canadian Telco market-share gains cable is different than other countries and we think that’s because of the hard investment we’re making in our peer competitor in Western Canada to make sure Canada has the leading broadband services in the country.
In terms of what we expect and what do we see from Bell Aliant, we see lower churn and better market-share and every single market we have fibre versus where we have fibre to the node, so that makes the investment for us quite frankly, quite easy. I view it as move from, going from HSPA to LTE to me is the next move in the wireline world clearly it is going to take it a long time to execute all this footprint, but there is no doubt in our minds to the place we need to go.
And we’ll provide a return to shareholders anybody who has invested with me for the last 25 years knows that’s the focus of the executive team at BCE and so we’ll make sure that happens as we invest.
Operator
The following question is from Aravinda Galappatthige from Canaccord Genuity. Please go ahead.
Aravinda Galappatthige
George just wondering if you want to comment a little bit on the recent CRTC wire line decision did that in anyway affect your plans or perhaps the pacings around your FTTA sold out, just wanted to get your thoughts on that? Thanks.
George Cope
Well people have seen we've -- the announcement this morning on our competitive launches in the marketplace. So I would say we clearly are disappointed with the decision but there is much work that still needs to be done before the decision comes into a fact and we understand all the way the CRTC will view it.
I will say we'll adjust our business model and investments as we have always done based on the incentives or the barriers put in place by the CRTCs regulatory framework. And so we'll reflect on the decision but we need to understand a lot further as we go forward.
But you're seeing the announcements we made this morning to compete in the marketplace.
Operator
The following question is from Maher Yaghi from Desjardins. Please go ahead.
Maher Yaghi
I want to follow-up on economics of the launch that you talked about this morning. So in one of your recent CRTC hearings presentation you mentioned that in Quebec City which is covered by fibre to the home 80% of your subscribers are still taking speeds of 50 megabytes or lower i.e.
speeds that you currently offer on fibre to the node. I'm wondering are these somewhat below or in line with your expectations in terms of the launch penetration rates and what type of penetrations you need to have in terms of higher speeds for you to be able get your money back and make the necessary return on that investment.
George Cope
May be the second question so I'll try to make it clear, this investment will generate free cash flow and a return for shareholders it's un-doubtable that Internet is where the company has to go on a market share broadband basis a consumer demand to utilize higher speeds with new technologies coming and with 12-14 devices attached to the home through Wi-Fi. As we look out makes it just so clear and most importantly the compelling metrics from Quebec City from the aligned footprint where the churn is lower the ARPU is better it's clearly where to go now there have been modem restrictions on speed capabilities et cetera.
In fact even when we launch the 1 Gigabit service on Monday it will say 940, because we have to wait for the next modem that takes over 100 so over the one. So it's the exact same technology that Google's launched in the United States and so we definitely stick tight to what it is going to do for us in the future from a competitive perspective and that’s why we're making the investment.
There is no doubt the one thing I would say depending on the geography in the country and subscriptions to OTT services some markets are much heavier users of OTT services than other and so may have higher demands for speeds than some of the other geographies. So we'll have to see that as we go out but clearly the reason -- everywhere we have fibre we're just going to launch this product.
Maher Yaghi
And just a follow-up in terms of the penetration rates from what we have seen so far and accounted Canada have you reached on average penetration in the 50% to 55% which you said previously is needed to cover your returns [Multiple Speakers]?
George Cope
I don’t know when I previously said anything so let's first of all on that. But in terms of our goal in a broadband market that has two methods of access into the home is with this type of payment investment I think we should be held accountable to get to that 50% market share and of course what we've seen in the last six quarters with the market share growth on broadband led by IPTV strategy that’s where we're going to continue to make that investment.
Maher Yaghi
And just a quick question on the wireless we have seen an improvement somewhat in gross additions. Can you talk a little bit on what you're seeing in the market place in terms of wireless demand for products and where is it coming from.
Is it which province or maybe just more color on what's driving this improved gross addition numbers?
George Cope
Yes well I think we've seen it for quarter after quarter and our people have seen that our market share has been strong. It is the execution we think on the distribution side the brand and the continued improvement in our service metrics that is driving the market share.
We clearly took additional share this quarter against our largest competitor on a year-over-year basis and we’re just going to continue to execute on that basis as long as we can in this highly competitive marketplace, but we’re really pleased with our quarter in terms of gross and our net additions on the postpaid side. And I think particularly because I think people can see we’re doing it through assurance that our customers migrate to the LTE services and that migration is driving the incremental ARPU to underpin the investments we’re making.
Operator
The following question is from Drew McReynolds from RBC. Please go ahead.
Drew McReynolds
George just back to the wireline side, obviously a lot of moving parts on the revenue front, I want to focus in on the cost front and can you just provide us an update on just again the customer service initiative efficiency that you're seeing? And just as you roll-out fibre obviously there is a huge potential for cost saving opportunity with fibre just wondering to what extent are you already seeing those types of efficiencies and how should those ramp as you build fibre out?
George Cope
Yes it's a good question we are in the quarter we clearly are on track for the $100 million of CapEx and operating synergies for Bell Aliant this year. So that’s tracking as we have talked about.
We are seeing because of the tools we’re putting in the marketplace on our smartphones and the demographics of the marketplace, our customers calling in much less to call centers and utilizing the tools we put in the market so every quarter, even as our customer base grows we’re seeing a drop in call volume into the call centers which of course ultimately is a cost reduction for the company. And we think that will continue we think it's core to our strategy and it is fair to say where we have fibre, our truck rolls dropped in terms of the number of what we call assurance load customer service, experiences improve and overtime that will also we believe lower our cost of operating the business with the roll.
And we have all those stats internally on our fibre investment of course that’s part of our rationale for the investment, but clearly on our call with our competitors we’re not going to disclose those. But the amount of truck rolls just drops significantly because of fibre rate when it is in the home.
Drew McReynolds
So just a follow-up George, then in terms of the wireline business when you look at kind of those two or three big chunky moving parts to the cost structure as opposed to just eliminating people, it sounds if the overall business is moving to a more kind of cost efficient structure is that a fair comment and thus is your confidence on maintaining wireline margins are growing, wireline EBITDA is that arguably getting greater with time or is it still a battle day-to-day?
George Cope
Well, it's both, but we would absolutely concur with your comment. We believe that the cost to delivering these services through the technology evolution to fibre and through the great work that John Watson’s team is doing on the service metrics will overtime take cost out of our business in the competitive market that we’re in and we clearly think that’s where we have to go and that is, I don’t want to give forecast on margins, but our results over the last eight years probably is an example of our focus on margin.
So we have the free cash flow to invest. We are unique in a wireline center on North American basis that we can take the CapEx we have got and have still generate the free cash flow on the wireline business to make the investment in broadband and we think gives us a very unique opportunity to be one of the broadband leaders in our markets and that’s why other players across the world are Telco versus Cable.
It doesn’t mean we’re going to be head-to-head with the cable guys, but at least we know when we’re playing head-to-head against them.
Operator
The following question is from Phillip Huang from Barclays. Please go ahead.
Phillip Huang
A longer-term question for George, so as mobile data usage continues to grow, how do you see DC network infrastructure evolving do you see greater reliance on Wi-Fi and just given the scale of your wireline network and your investment in fibre is there more that you can do to leverage your wireline footprint to gain a competitive edge for your wireless business beyond what you're already doing?
George Cope
Well I think first of all there is no doubt and it's a competitive issue I’d be a little careful, but you see our competitor and us in the marketplace, modems in the home they are very, very important competitive element now because it is by Wi-Fi in the home and the amount of devices on the Wi-Fi services in the house. So that’s why we just find it so clear and obvious to us that we’re going to need a larger broadband pipe to service that and then in terms of wireless we think being vertically integrated wireline wireless business certainly helps us on our execution particular now with the ownership of Bell Aliant.
Best example is we've have built and I think at the end of this year or early next year 95% of our cell sites will have fiber rate to the cell sites and we need that so that the bottom neck doesn’t become the backhaul for the speed on enhanced LTE. So whether or not investors love to view that as whether or not that’s an advantage over those who don’t have that vertical integration but clearly it's making a difference on our ability to make sure our network continues to lead.
And we've been doing that for a number of years make sure we have fibre to literally every cell site.
Phillip Huang
I guess do you see any mirrors in like what MTS is doing with their total Internet offering and that so what do you think about something like that also you’ve given your footprint on the fixed line side to potentially provide you a competitive edge on the wireless side?
George Cope
I won't comment on products like that we are obviously seeing what Jay's done there and we'll fall the developments in the marketplace. But at the moment I don’t have anything on the product launch for sure.
Operator
The following question is from Batya Levi from UBS Securities. Please go ahead.
Chris Pearson
This is Chris for Batya could you talk a little bit about the sustainability of your ARPU growth it has been over 5% for the past year. How should we think about this trajectory in the back half and what are the key puts and takes you are looking at?
Thanks.
George Cope
Again you heard I can back and I apologize all the time in saying the guidance kind of incorporates all that so I don’t mean to I know you want more than that I think the one thing we will continue to say we are seeing customers as they migrate to LTE. And every month more of our customer base migrates to LTE customers use the product more and as a result we've seen improvement and increase in ARPU.
So that is clearly one of the pieces as it is driving the increase in ARPU. The second increase is simply because we move to a two year contract market versus three and the subsidy has to be recovered in 24 months not 36 months.
Air time prices have generally moved up in concert with that a couple of years ago. So there are customers now who are migrating across the industry and when they migrate from the three to two years they may see a different rate than they had before.
So it's really those two things and I think both those are still working through this system. So we would anticipate strengthen our revenue continued through the year but I don’t want to give a specific forecast on ARPU because no matter what I tell you I'll be wrong.
Chris Pearson
And in terms of roaming the wireless carriers in the U.S. have increasingly talked about creating a seamless network experience across North America breaking news or data allotments from the home markets while travelling rather than purchasing add on packages.
Can you provide your opinion on this trend and what implications these programs might have for Bell?
George Cope
Yes look it is a competitive market in our roaming we've lowered our U.S. roaming rates by 50% over the last year in all and many, many other markets we've lowered roaming rates.
And put them in packages given notification to customers so it's a competitive area and we've got to make sure we're competitive in the marketplace and we believe we are. We've not re-priced to the significant levels some of our competitors have and that’s probably evidenced in our financial results and given our market share results clearly our customers think what we're doing now for roaming in U.S.
is meeting their requirements.
Operator
The following question is from David McFadgen from Cormark Securities. Please go ahead.
David McFadgen
Just a question on your free cash flow if you look at Slide 17 and you give an updated or you have given a free cash flow for Q2, you continue to benefit from working capital inflows in 2014 you benefited from a fairly large working capital inflow well over 300 million. I know that you're looking for another kind of large working capital inflow to make your free cash flow guidance.
I was just wondering how sustainable is this how much working capital can you keep pulling out of the business?
George Cope
I think what I would say I am turning over to Glen. Our cash flow is with the guidance is very transparent around that.
Management of receivables and inventory continue to be a core piece of what we've done the last 7-8 years we continue to see benefits at some point obviously that runs its course and we've got to do through the execution in EBITDA and cash flow growth and you'll see that when we get everyone our '16 guidance coming up in four or five to six months from now. But clearly we're running out of some of that space because we have just done so well on those management items.
Glen LeBlanc
Yes as George said you can't do it forever but we're very confident that free cash flow targets we have out for 2015. The results and what we've done on AR in particular are consistently seeing our days sales outstanding come in has provided great opportunity on cash flow and we’re very confident with the targets that are out there, your observations are good one you certainly can’t do that forever, but we’re confident with the rest of ’15 that’s for sure.
David McFadgen
Okay, can I squeeze in another or?
Glen LeBlanc
Sure, go ahead.
David McFadgen
Just on wireless, I don’t know if you can provide some color, but just curious as to what percentage of your wireless postpaid base are free agents now?
George Cope
Yes, we won’t disclose that by competitor, we love the no. So we won’t disclose our base, but we’ll continue to manage the base and hopefully the track rate in the wireless business the last some of years people feel comfortable, we’ll make the appropriate retention in investment as required to deal with the issue in the market.
David McFadgen
So just on wireless what percentage of your postpaid base beyond, would have a tablet on a postpaid plan, is anything material?
George Cope
No it's not material for us, it's very low. It's certainly quite different than the scale we’ve seen in United States.
Operator
The following question is from Rob Peters from Credit Suisse. Please go ahead.
Rob Peters
Sorry if I missed this, but I just want to go back to when you guys look at LTE subscribers, I think last quarter they were roughly 52% of your subscriber base, I was just wondering if there was an update on that number. And then kind of how do you think about that penetration rate going forward given that it seems to be -- you’ve seem to be seeing a lot of increased data growth when people switch over from the HSPA to the LTE and such?
George Cope
Yes, so we went from 52 last quarter to 57 this quarter. So if that were a trend that will continue that is definitely as people migrate we see an improvement in ARPU because they are using the product more and the speeds are just incredible on this service center and as we widen the channel with aggregating our spectrum the speeds improve and that adds to the usage as well.
So 5% this quarter we don’t have a forecast but seems through to that’s probably the pace we’ve been on, where do I ultimately think we end up, I would assume, I can’t think of why we went up with 100% of our base migrated ultimately to that and the prepaid base should be the slower start really in the numbers that we’re talking about today anyway.
Operator
There are no following questions registered at this time.
George Cope
So once again thanks to all for participating on the call this morning as usual. I’ll be available throughout the day for any follow-ups and clarifications.
So thanks and have a good rest of the day.
Operator
Thank you. That concludes today’s conference call.
Please disconnect your lines at this time. And we thank you for your participation.