Feb 9, 2012
Operator
Good morning, ladies and gentlemen. Welcome to BCE's Fourth Quarter Results and 2012 Guidance Conference Call.
I would now like to turn the meeting over to Mr. Thane Fotopoulos.
Mr. Fotopoulos, please go ahead.
Thane Fotopoulos
Thank you, and good morning, everybody. As Catherine mentioned, this is Thane Fotopoulos, the Head of Investor Relations for Bell Canada.
Joining me this morning, as usual, are George Cope, our CEO; and Siim Vanaselja, the company's CFO.
Thane Fotopoulos
Earlier this morning, we issued our news release announcing our fourth quarter and full year 2011 results. The released supplementary financial information package as well as a slide presentation for this call are available on the Investor Relations page of our BCE corporate website.
Siim will begin with a quick overview of the Q4 results before he moves to 2012 financial guidance, and George will give you brief comments on our key 2012 priorities before we take your questions as time permits.
Thane Fotopoulos
However, before we begin, I want to remind you that today's remarks will contain certain forward-looking statements with respect to items such as revenue, EBITDA, adjusted EPS, free cash flow and capital intensity. Several assumptions were made by us in preparing these forward-looking statements and there are risks that our actual results could differ materially from those contemplated by our forward-looking statements.
For additional information on such risks and assumptions, please consult BCE's Safe Harbour Notice concerning forward-looking statements dated February 9, 2012, filed with both the Canadian Securities Commission and with the SEC and which is also available on our corporate website. These are -- these forward-looking statements represent BCE's expectations as of today and accordingly are subject to change after such time.
Except that may be required by Canadian securities laws, we do not undertake any obligation to update any forward-looking statement whether as a result of new information, future events or otherwise. And I'm making this cautionary statement on behalf of both George and Siim, whose remarks today will certainly contain forward-looking statements.
Thane Fotopoulos
So with that over and dealt with, Siim, over to you.
Siim Vanaselja
Thanks, Thane, and hello, everyone. So I'll start with a quick review of our fourth quarter and full year 2011 financial highlights.
Those are summarized on Slide 7. With the fourth quarter, we've completed what I'd say was a solid year of earnings growth and free cash flow generation.
It was supported by increased revenue and EBITDA contribution from our growth services and meaningful Wireline cost reductions. Total revenue growth at Bell was 12.6%, and that reflects the revenue contribution from our acquisition of CTV, which, as you know, is recorded in the Bell Media segment as of the second quarter of 2011.
Excluding Media service, revenues were essentially unchanged year-over-year in the quarter.
Siim Vanaselja
This quarter saw stronger Wireless revenue growth and double-digit residential Internet revenue growth. TV service revenue growth of 1.6% reflects higher upfront promotional discounts and activation credits provided to new Fibe TV customers.
As we've seen throughout the year, Bell's overall revenue performance this quarter continued to be impacted by lower year-over-year data product sales and the repricing of connectivity services in our business markets unit.
Siim Vanaselja
EBITDA was up 10.3% for the quarter. Excluding Bell Media, EBITDA increased 1%, and that was driven by strong Wireless EBITDA growth of 9.6% and Wireline cost reductions.
And for the year, EBITDA, excluding Media, was up a healthy 2.9%.
Siim Vanaselja
Capital expenditures for the quarter and the year reflect continued investment in our IPTV footprint and broadband fiber expansion, spending on our Wireless LTE network buildout and inclusion of CapEx at Bell Media. Our capital intensity ratio was in line with guidance at just under 16% of revenues.
Siim Vanaselja
BCE statutory EPS in the fourth quarter was $0.62 per share, up from $0.42 per share last year. In addition to higher EBITDA, the increase also reflects lower year-over-year severance acquisition and other costs and a fair value loss of $0.08 per share in the fourth quarter of 2010, and that's on the publicly held units of Bell Aliant income fund, which you may recall was treated as debt under IFRS prior to Bell Aliant's conversion back to a corporation.
Siim Vanaselja
Adjusted EPS in the quarter was also $0.62 per share, which is an increase of 5.1%. That improvement is on higher EBITDA, on lower net pension financing costs and mark-to-market gains from economic hedge contracts.
Depreciation and net interest expense increased year-over-year due to the acquisition of CTV, which on a net basis was accretive overall to earnings for 2011. Adjusted EPS for the fourth quarter also reflects an effective tax rate of 30.1%, and that was driven by higher future income taxes.
For the full year, adjusted EPS growth was 12.2% or $3.13 per share, exceeding our original EPS guidance and reflecting higher tax recoveries year-over-year.
Siim Vanaselja
Free cash flow in the fourth quarter reflects the voluntary pension contribution of $750 million we made last December. And for the full year 2011, our free cash flow was over $1.5 billion, representing growth of 5.1% over the 2010 year.
Siim Vanaselja
So we achieved all of our increased guidance targets for 2011, and we made good progress operationally on our strategic comparatives, providing good revenue and EBITDA momentum as we enter 2012.
Siim Vanaselja
So with that, let me turn to each of our segments, beginning with Wireless on Slide 8. In Wireless, we're pleased with the level of postpaid subscriber acquisitions we achieved in the quarter.
We added 132,000 new net postpaid subs in line with expectations. That compares to a record in the fourth quarter of 2010, where we captured a 50% market share of incumbent postpaid net adds.
Siim Vanaselja
Postpaid Wireless performance was supported by a stable year-over-year churn rate of 1.5%, and I'd say while not at the level we want it to be, it's a reasonable result given the level of market competition. And improving customer retention certainly continues to be a key focus of ours in 2012.
Siim Vanaselja
Blended ARPU was up a strong 4.1% in the quarter. That is our best quarter of ARPU growth this year and reflects higher smartphone adoption and usage, as well as an improved penetration of the higher ARPU Western Canada market and enterprise market.
Data ARPU comprised 30% of total ARPU, an increase of close to 6% year-over-year, driven by significant growth in smartphone users, which now make up 48% of our total postpaid customer base. Our improving smartphone mix provides a good opportunity to continue growing blended ARPU and as well, those customers tend to have better-than-average churn rates.
Siim Vanaselja
Retention spending in the quarter increased to 11.4% of service revenues, reflecting richer handset upgrade offers and a higher mix of iPhones. Cost of acquisition also increased year-over-year, reflecting higher smartphone activations and higher handset subsidies, which, I think, are consistent with the market.
So strong overall Wireless metrics for the quarter, on track with our objective to drive higher-value postpaid acquisitions and to improve ARPU.
Siim Vanaselja
On the next slide, Wireless financial performance improved in the quarter with service revenues up 6.4% year-over-year on postpaid revenue growth of 8.7%. The strongest smartphone mix and higher ARPU drove a 32% increase in data revenues year-over-year in the quarter.
Average handset prices were lower across the market with heavy seasonal offers. Consequently, Wireless product revenues decreased 3.7% despite higher year-over-year smartphone sales.
Siim Vanaselja
Our Wireless EBITDA performance improved this quarter with growth of 9.6% and a year-over-year margin expansion of 1.1 points. This was achieved even with $24 million of incremental acquisition and retention spending year-over-year.
Our higher EBITDA growth rate compared to previous quarters reflects the revenue flow-through of postpaid subscriber gains throughout 2011. Wireless EBITDA, minus CapEx, provided a healthy contribution to free cash flow in the quarter, generating $233 million.
That's a 47% year-over-year increase and even while investing significant capital on the buildout of our 4G LTE network, which George will speak to.
Siim Vanaselja
Let me now turn to our Wireline segment. Fibe TV gained traction in the fourth quarter, driving pretty good TV subscriber growth with 28,000 net new additions.
Bell Satellite TV saw aggressive pricing and offers by competitors in response to the Bell Fibe TV product in Toronto and Montréal. And we also saw the expansion of competitors' IPTV footprint in Western Canada.
Siim Vanaselja
With promotional discounts and activation credits offered to new Fibe TV customers, TV ARPU declined 1.5% in the quarter, but I have to say that investment is going to support stronger revenue and EBITDA growth trajectories going forward, particularly with Fibe TV growth helping to drive 3 product households and better customer retention. And in fact, there was an 11% overall increase in 3 product households in 2011.
Siim Vanaselja
Our net Internet subscriber additions were modestly positive in the quarter. Our objective there is to improve Internet churn, which should benefit from bundling with an accelerated Fibe TV base.
With the growing mix of customers on premium Internet service tiers and higher bandwidth usage, we saw residential Internet ARPU increased 8.6% in the quarter. Residential NAS losses increased in the quarter with steeper price discounting on home service bundles by competitors and increasing wireless substitution.
Siim Vanaselja
Additionally, the wholesale NAS gains, which began in the fourth quarter of 2010, that was from the migration of residential customers to Bell from a third-party reseller. Those were completed in the second quarter and, therefore, we didn't see any upside to NAS in the second half of 2011 from that.
We did see fewer business NAS losses in the quarter, driven by targeted retention initiatives for our mass and midsize customers.
Siim Vanaselja
On Slide 11, our Wireline financial performance has benefited from an improving mix throughout the course of 2011, with TV and residential Internet becoming a larger percentage of our Wireline base, and voice revenue erosion slowing year-over-year from improved residential LD performance. However, business LD revenue erosion increased in the quarter, contributing to a higher sequential rate of overall voice revenue decline compared to the third quarter this year.
Siim Vanaselja
EBITDA margin improved by close to 1% in the Wireline segment, reflecting continued cost and labor reductions. And for the full 2011 year, Wireline EBITDA grew 1.5%, and margins expanded by 1.7 percentage points to 39.1%, and that reflects approximately $290 million in operating expense reductions year-over-year, which helped absorb the costs related to our IPTV rollout and lower contribution from our business markets.
Siim Vanaselja
And then turning to Media. Another overall good quarter of performance for Bell Media, with subscriber revenues growing 35% year-over-year.
That was driven by rate increases implemented on contract renewals with BDUs for our specialty sports channels TSN and RDS, and we also saw good growth in Mobile TV.
Siim Vanaselja
Advertising revenues in the fourth quarter were down 4% year-over-year on national ad markets that were softer at the local market level, though, advertising demand remained fairly steady and Bell Media maintained strong audience levels at CTV and higher viewership across non-sports specialty channels. Bell Media generated $130 million of EBITDA in the fourth quarter.
That included $33 million in noncash charge, which was to amortize the fair value increment of CTV's programming inventory that, as you know, is revalued as part of the purchase price accounting for CTV.
Siim Vanaselja
Overall, our Media division has performed significantly ahead of our expectations compared to the business plan that we had in place at the time of the acquisition. In fact, in the last 9 months of 2011, Bell Media has generated $397 million of cash EBITDA versus our guidance of $350 million, which excluded the purchase price amortization.
And clearly, we see the fit of Media and its overall strategic contribution to Bell as being validated.
Siim Vanaselja
Let me now turn to Slide 14 and a quick update on where we stand with our capital structure. So we entered 2012 in a strong financial position.
After the $280 million preferred share issue that closed on January 4, we have a cash balance of $420 million. In addition, we have access to about $2 billion of liquidity under our committed bank credit facilities and our accounts receivable securitization facilities.
In 2011, we pay -- we repaid $250 million of long-term debt and about $375 million of capital lease obligations. We repurchased $3.5 million common shares for $143 million under our new $250 million NCIB program, and we contributed $750 million voluntary funding to Bell's defined benefit pension plan.
Siim Vanaselja
And under favorable market conditions, last year, we raised $2 billion in proceeds from the issuance of Bell Canada long-term debt, which completed the permanent financing for CTV, and it also completed all of our 2012 debt refinancing requirements. Bell's overall average after-tax cost of debt improved to 3.75% and approximately 80% of our overall debt is now fixed, which puts us into a very low-risk position on interest rate escalations.
We also opportunistically issued $625 million of preferred shares in total, and that benefits from 50% equity treatment by the rating agencies, reflecting the equity nature of those perpetual preferred shares in our capital structure. We continue to maintain a strong investment-grade credit profile, consistent with all of our financial policies.
Siim Vanaselja
On Slide 15, I'll highlight that Bell is well positioned with an attractive long-term debt maturity schedule and minimal near- to medium-term debt repayments. At the same time, we're going to continue to monitor markets for opportunities where we can further reduce our cost of debt just as we've done in the past.
We also continue to proactively manage financial risk in terms of currency exposure to the U.S. dollar purchases we make and equity exposures under BCE's various long-term incentive plans.
Siim Vanaselja
Our credit ratings have been confirmed at A (low) and BBB+, all with stable outlooks. So with our strong balance sheet, our stable free cash flow generation and positive business outlook, I'd say we have significant incremental debt capacity within our current ratings category.
And with 7 dividend increases in the past 3 years, totaling 49%, as you see on the next slide, we've set a strong track record as a dividend-growth company. Our 5% dividend increase for 2012 that we announced in December maintains our payout ratio below the midpoint of our target range of adjusted EPS.
And our dividend coverage of close to 1.5x on both earnings and operating cash flow offers pretty strong support for our dividend, which currently yields over 5%.
Siim Vanaselja
We've also repurchased 61 million BCE common shares over the last 3 years at a total cost of close to $1.7 billion. The average price of those repurchases was $27 and 54% (sic) [$27.54], representing increased value for our shareholders.
In most recent -- in our most recent $250 million NCIB program that I spoke to, it's now about 77% completed.
Siim Vanaselja
So with that, let me turn to the third part of what I'll speak to, which is our 2012 outlook and financial guidance, and that's summarized on Slide 18. The guidance reflects the full year of Bell Media results versus 3 quarters of Media results for 2011.
With the incremental Bell Media contribution, as well as projected steady Wireless growth and an improving Wireline revenue trajectory, we are targeting total Bell revenue growth of 3% to 5% for 2012. We expect data product revenues in our business markets to stabilize during the course of the year.
And with consensus expectations of reasonably modest GDP growth of about 2% for 2012, we expect telecom spending by business customers to recover at a slow place. And similarly, we project demand in Media advertising to strengthen as the year progresses.
Siim Vanaselja
Our EBITDA expectation for Bell in 2012 is growth in the range of 2% to 4%. And driving that EBITDA growth will be higher revenue from all our growth services, including Media and cost reductions to counter the impacts of growing our Fibe TV customer base and ongoing voice erosion.
We expect to increase capital spending in absolute dollars year-over-year but to maintain Bell's capital intensity ratio at or below 16% of revenues.
Siim Vanaselja
And our 2012 program will focus on continued fiber investment, continued expansion of our IPTV footprint to 3.3 million homes and, further, the buildout of our LTE program in urban centers and, as well, meeting growth in demand obviously.
Siim Vanaselja
At the BCE consolidated level, our guidance is adjusted EPS of $3.13 to $3.18 per share and free cash flow in the range of $2.35 billion to $2.5 billion. And I will mention here that our pending investment in MLSE will be accounted for using the equity method.
So our proportionate share of MLSE's earnings will be reported in other income, but there'll be no revenue or EBITDA contribution from MLSE. And that acquisition is expected to close midyear.
Siim Vanaselja
On Slide 19, a bit more on our revenue outlook for 2012. Wireless revenue growth will benefit from the flow-through of strong postpaid subscriber growth in 2011 and a higher base of smartphone users.
We expect continuing Wireless voice ARPU erosion to be more than offset by data growth, as continued smartphone activations and an increased share of higher value postpaid customers in the West and in the enterprise markets drive overall blended ARPU growth. Bell Wireline, our -- for Bell Wireline, our revenue plan for 2012 assumes stabilizing residential NAS erosion as we leverage Fibe TV to drive 3 product household penetration and increase our MDU market share.
Stronger TV and Internet revenue growth in 2012 will help offset the expected year-over-year decline in Wireline voice revenues.
Siim Vanaselja
We see economic market -- economic and market challenges impacting business markets beginning to moderate through the course of 2012. And finally, we project Bell Media year-over-year upside coming from the rate increases on our sports specialty channels.
And just on that, I would say that we've concluded new agreements with many of the major players and plan to have additional contract renewals in place later this year.
Siim Vanaselja
Turning to Slide 20. Wireless and Media are the key EBITDA growth drivers this year.
Wireless EBITDA growth will be influenced by the pace of postpaid subscriber growth, ARPU and churn performance. The guidance on EBITDA also takes into account increased spending on Wireless customer retention, aligned with industry average, as well as COA that achieves our objective of capturing 1/3 market share of incumbent postpaid additions.
Siim Vanaselja
Also driving EBITDA improvement is further cost savings, particularly from manage -- the management workforce reductions that we undertook in the third quarter last year, which deliver approximately $100 million in annualized savings. And that, together with expected productivity gains in procurement, client care, field service operations and from the Bell Media integration, should preserve a relatively stable year-over-year EBITDA margin in 2012.
Siim Vanaselja
I'll cover pension next on Slide 21. In 2012, Bell's overall pension expense is expected to decrease approximately $30 million year-over-year from $123 million in 2011 to $90 million in 2012.
This improvement is attributable primarily to the $750 million voluntary contribution made in December to Bell's defined benefit plan. That lowers our pension expense in 2012, contributing approximately $0.03 to adjusted EPS and, as well, to the benefit from a lower accounting discount rate in 2012 that reduces net pension financing costs.
But I would say that at the EBITDA level, the lower discount rate, in fact, results in about a $10 million higher current service cost in 2012 compared to 2011. And as you see on the slide, Bell Aliant adds an additional $60 million in total consolidated BCE pension expense.
Siim Vanaselja
In terms of cash pension funding, the pre-funding of the pension plan that we made in December maintains Bell's solvency ratio at a strong level and generates healthy cash flow in 2012 through cash tax savings of $170 million or so. So for 2012, we expect our overall pension funding for Bell to decline by about $50 million to the $375 million level.
Siim Vanaselja
On Slide 22, we expect an increase in cash taxes for 2012 to approximately $300 million from $128 million in 2011. The 2011 cash tax is benefited from quite a high level of severance expenses and, as well, from the deductibility of the CRTC benefits that we incurred on the CTV acquisition.
The statutory tax rate in 2012 is being reduced to 26.4% from 28.2% in 2011, and that's going to the rate reductions at both the federal and Ontario level. Our projected effective accounting tax rate for 2012 is about 23%, which is slightly higher than our effective tax rate for 2011, which was 21.9%.
And that increase is due to the higher level of tax recoveries that we saw in 2011 of $0.26 per share versus our estimate today of about 10% to 15% (sic) [$0.10 to $0.15] for 2012. And we'll just have to monitor how we're doing with our settlements with the tax authorities as the year progresses.
Siim Vanaselja
We expect adjusted EPS to be in the range of $3.13 to $3.18 per share for 2012. So that represents modest growth over 2011 due to the higher level of favorable tax settlements realized last year.
Adjusted EPS for 2012, though, is supported by a strong underlying contribution from operations, driven by higher year-over-year EBITDA from our growth services, cost savings and the reduced net pension financing costs. Depreciation and amortization expense, however, moderates EPS growth in 2012, having a year-over-year impact of about $125 million pretax.
And this increase in depreciation is due to the incremental Wireless capital spending on LTE, some accelerated depreciation rates on elements of our HSPA+ network, a significant depreciation increase on the new IPTV set-top box rollout and, generally shorter life cycles on investment in new technology assets versus the past years.
Siim Vanaselja
And then on free cash flow, I've provided the details on Slide 24. Our guidance for free cash flow before common share dividends is in the range of $2.35 billion to $2.5 billion.
The year-over-year growth reflects higher EBITDA and a similar level of capital intensity in 2012 at around 16%. Normal course pension funding in cash severance costs are expected to be lower in 2012.
However, net interest payments will be higher due to the higher average level of debt outstanding from the CTV acquisition. We also expect an improvement in our working capital position given the approximate $200 million in CRTC-mandated rebates that we paid last year, offset partly by the mark-to-market gains realized in 2011 on our derivative contracts, as well as the higher cash taxes that I mentioned.
So overall, our 2012 free cash flow growth is solid support for the 5% dividend increase that we announced for this year.
Siim Vanaselja
Just moving quickly. You'll see on Slide 25, for further clarity, a breakdown of the key reconciling items between projected EBITDA and free cash flow.
Those are all line up pretty good. And in the Appendix in Slide 26 and Slide 27 are -- summarize the key economic market and operational assumptions that underlie our guidance, and those are for your reference.
Siim Vanaselja
So that's it for me. To conclude, I'd say that 2011 was a good year for BCE.
And in 2012, we would expect to build on Bell's financial and operating momentum, consistent with the guidance targets that we've provided you today.
Siim Vanaselja
So thank you, and with that, I will turn it over to George.
George Cope
Great. Thanks, Siim.
Good morning, everyone. Just turning to Slide 29.
And just a few quick comments before we open up to questions. The first point here is that as people all know we embarked on a path of a focus on strategic imperatives, of 5 strategic imperatives.
2012 will be the same strategy, the same focus. We have added a 6th strategic imperative, which is expanding our Media leadership, specifically focused there on moving our Media leadership to all 4 screens from the traditional business that CTV would have operated.
And I would also echo that I think in 2011, we made significant progress on all 6 of these imperatives and particularly pleased with Q4 in the Wireless side, where we've been able to absorb the incremental cost of very strong postpaid net adds consistent with our strategy and see EBITDA growth and margin expansion in a tricky quarter in terms of smartphone upgrades in the market with the new product in the market.
George Cope
Turning to Slide 30, this morning, we're pleased to announce the continuation of our LTE network rollout in Canada. We're expanding, as of tomorrow, to 4 -- or to 7 more urban centers, bringing 14 cities up and operating with LTE.
More to come this year. And also, rural Canada to come as quickly as we can once we have concluded the 700MHz auction assuming that Bell is successful, and the rules are put in place to allow for that type of great rural coverage in Canada, which we want to do as quickly as we possibly can.
George Cope
Turning to Slide 31, just a comment on a few of our priorities, and in one sense, Siim has covered some of these off. But on the Wireless side, we want to continue, quite frankly, executing on the strategy, which we have been pursuing in the last 3 years.
Particularly, a focus for us in Western Canada, where there's a stronger ARPU market. We had a positive view there in 2011.
And we will probably open up to an additional 100 new points of retail presence between Bell and the source in 2012, focused specifically in the West. I'm pleased in the quarter that we are able to get our cost of retention more in line with our competitors, absorb that cost and grow our EBITDA and margin.
And as Siim say, we expect to be more in line with our competitors this year and hope that benefit will flow through with some improvement in postpaid churn.
George Cope
We continue to focus on closing that ARPU gap with our competitors. We've seen that in this quarter in terms of our growth.
It will remain to be seen how our competitors have done. We'll look to -- for that to continue to improve in 2012, as we focus most of our efforts, literally all of our efforts in the postpaid market.
George Cope
On the Wireline side, I'm probably more optimistic that I've been in a number of years in terms of our ability to have a much stronger year from an RGU perspective. I believe it'll be our best RGU year that we've had in at least over 5 years, and that specifically will be driven as we begun to see the momentum through scaling Fibe TV.
And as Siim mentioned, we will end 2012 with about 3.3 million homes passed, and we are now at approximately 2 million homes passed today. Particularly, what we're seeing, and I think to be really important, is we need to step up in our Internet market share, and we think we will see that.
We are seeing on the consumer side from the pull-through of Fibe TV new subscribers. And we also think it is important that part of our Fibe TV rollout will take place in some of the conjugal territories, which should help us also insulate some of the Internet issues we've had there.
And that will continue to grow after '12 going forward.
George Cope
Important in the second quarter of 2012, we'll have a significant amount of Québec city covered with full fiber. That will obviously improve our competitive position there's significantly and continue to deploy fiber to the basement in MDUs and fiber to all new greenfields.
And we're doing all of that in LTE while maintaining our capital intensity at or below 16%, so quite frankly, taking the significant additional cash flow that we're generating off of Bell Media and having the luxury to invest that in the broadband strategies that we're trying to execute on, which was part of the financial investment and benefits of that acquisition for our shareholders.
George Cope
Improvement in business markets, as Siim said, is important. One of the challenges in that segment for us given our position and leadership position in Canada, GDP growth of anything less than 2% makes it tough on significant job growth and obviously, significant job growth drives our business market revenue growth.
And so, we think we're more optimistic going into 2012, but we think that will continue to be one of the softer areas for the organization.
George Cope
Turning to Page 32, looking to continue to expand the success of our Media strategy with a real focus on the 4-screen execution and now with the rollout of LTE, Mobile TV is just going to continue to grow to higher and better levels. And obviously, with the products starting to be integrated into the home, we expect content on many different screens, generating many different revenues for our Media assets.
The MLSE acquisition, obviously, is strategically aligning with our Media strategy.
George Cope
In terms of our focus on cost and customer service, that journey continues. We continue to find that as our service improves, our costs drop, and we've had significant improvement in customer service over the last 24 months.
I'm very optimistic about the investments we're making in 2012. And of course, we had done some significant cost reductions near the end of 2011.
George Cope
One of the other items for us that we were pursuing aggressively is try to get the regulatory agenda that's more market-based with new CRTC leadership expected this year, particularly trying to get the regulator away from being a price regulator and letting the market set commercial rates in the area of the Internet and the broadcast industry, so we'll be working on that as the new agenda unfolds at the CRTC.
George Cope
And finally, I think most importantly for our investors, the business plan in 2012 has a strategy of a midpoint in cash flow growth of 7%, which supports our ongoing strategy of a 5% dividend growth strategy for BCE, allowing us to provide the cash we need to our shareholders, and at the same time, make all of the key strategic investments we need to make, while maintaining a North American-aligned capital intensity of 16%, which is consistent with literally all other major telecom carriers in North America, and at the same time, keep our payout -- dividend payout ratio midpoint of our guidance just below 70%.
George Cope
So with that, I think a successful year for 2011. Challenges in front of us in 2012.
But personally, I don't think the company has ever been better positioned. Thank you.
Thane Fotopoulos
Great. [Operator Instructions] So with that, Catherine, we're ready to proceed.
Operator
[Operator Instructions] Our first question is from Simon Flannery of Morgan Stanley.
Simon Flannery
If I could just focus on the Internet adds for a minute. You did talk about the plans to improve the trends there with Fibe.
But the ARPU trend was very impressive. I think you said it was up 8.6%.
Can you just give us some more color on what's going on there? Is that people buying a fatter pipe, is that overage, and is this something you expect to continue in '12?
George Cope
First of all, strategically, our Internet adds, of course, include both business and consumer, so consumer was a little stronger than the total number. But quite frankly, it worked there and do, and I think we will see that improvement, as we're seeing it with Fibe TV already early this year.
In terms of the ARPU, what's really driving that is actually, in one sense almost the questions you've asked, the migration of customers through our FTTN rates, if you will, a network where the speed is so much improved and therefore, people are using more, and the rates are different, and the expansion in usage. Both those keys have been important to driving increased ARPU.
And we continue to see migrations up to FTTN, and we expect that to continue in 2012.
Operator
Our next question is from Jeff Fan of Scotiabank.
Jeffrey Fan
I just want to follow up on the Internet question with respect to the subscriber trends. George, you did mention that there is a good pull-through coming through the Fibe TV.
I guess, maybe digging down a little bit further, given the net adds of only 1,000, I'm just wondering, where are you seeing some migration out of your base, meaning losses? Are you seeing cable competitors sort of going after areas where you don't have fiber?
Is that where the losses are coming from?
George Cope
Yes, good questions. Yes, there's a number of things to be careful because of the competitive part of this answer.
But I would say, definitely some softening on the wholesale side. Clearly, as the markets move more and more to FTTN, so that's been one.
Secondly, it would be fair to say where we don't have FTTN, we think one of our competitors is seeing more success there than what we're seeing necessarily in the markets where we do. And thirdly, quite frankly, so there was a very, very aggressive 4 or 5 months of Internet by one of our cable competitors in one of core markets that, I think, did have an impact on that.
So we have to up our game there. I think the revenue, as everyone has mentioned, is positive, but now its -- the churn levels on the FTTN are actually down.
We can see the churn coming down. We see the pull-through with Fibe TV, where we've got to improve that.
I'm quite confident with what we're doing on Fibe TV. We going to be where we need to be.
Jeffrey Fan
And just a quick follow-up. As you look out to 2012 then, you mentioned that the pull-through is going to be better.
So is that going to be the driver to get your overall net numbers to increase while keeping the churn on the non-fiber areas stable?
George Cope
Yes. That's exactly what we're planning to do.
And I do want to mention because it's a consolidated number, I've mentioned the business market is soft, and it's soft in that area as well. And also people migrate up from traditional Internet services to more advanced technologies on the business side that aren't necessarily in our Internet numbers.
So we don't break out the consumer numbers versus the business, but it would be fair to say the consumer numbers weren't -- it wasn't just 1,000 on the consumer side.
Operator
Our next question is from Maher Yaghi of Desjardins Securities.
Maher Yaghi
I just wanted maybe talk a little bit about the Wireline margin. When you look at EBITDA in that business, it was increasing year-on-year up until this quarter, and it's declining now 2%.
And now you're continuing to do cost-cutting there, but can you talk a little bit about what you're hoping to achieve in 2012 in terms of EBITDA? Is there any growth you can get from the business in 2012?
And how much cost-cutting you can pull out of that business to keep holding steady the EBITDA in the face of continued debt pressure on the legacy business?
George Cope
Well, yes, thank you, and let me go back to a comment I make in every call. Sometimes, it's more about Wireless and Wireline, but I'll make it again.
We're running the business on a consolidated Wireline view, so cost management in one can be used to benefit another for market share. That's the first point to investors.
So you'll notice we had a very strong Wireless EBITDA. So obviously, we were a little less on the lever side.
On the Wirelines, we can make investments there in the quarter. As Siim has said, we expect the Wireline margins to be stable year-over-year, but we're not giving either Wireless or Wireline EBITDA guidance.
I think it's fair to say, and Siim talked about $100 million cost-benefit flowing through the Wireline this year from the work we did at the end of 2011, and that's really to give us the headroom for the ramp-up we're beginning and have begun to see in the fourth quarter in our Fibe TV investment as well. Hopefully, that's helpful.
I may not be as open as you wanted me to be, but that's as much as we're prepared to go into.
Operator
Our next question is from Peter Rhamey of BMO.
Peter Rhamey
With regards to your free cash flow guidance and you're talking on dividend, you seem to have disconnected the EPS from your payout ratio. You're now focusing more on free cash flow, so I was hoping you might be able to comment on that.
George Cope
Yes, well, I did Peter. I didn't mean to -- I hope I didn't -- certainly didn't mean to do that, so thank you for asking the question if I have not clarified it.
We talked about our payout ratio being below. If you take our guidance and the midpoint of our guidance with the proposed dividend payout that we now have, that would be just under a 70% payout of EPS.
That's what we're talking about. Now -- so both are important, obviously, cash payout and EPS guidance -- or payout.
Siim, anything you want to add to that?
Siim Vanaselja
No, no. Our dividend payout ratio is based off of an adjusted EPS metric.
As George said, we think the free cash flow payout is equally relevant, so we've just shown both metrics given their relevance. But there's certainly no change in our policy or how we think about dividend increase.
That's relative to earnings and free cash flow generation.
Peter Rhamey
That being said, EPS is not expected to grow that much this year according to your guidance. Free cash flow is going to be up 7% according to your commentary.
So when we're thinking about dividends, should we be looking at the EPS growth or should we be looking at the free cash flow growth?
George Cope
Well, let me answer the best we can. Our policy is 65% to 75%.
Our proposed midpoint of our guidance in our quarterly payout will be 69% of EPS, so there's no change there, Peter. But I think also for people to know what is the cash flow position of the company, and the cash flow growth is just as important, and so that's why both have always been there.
There's really no change here. As Siim has mentioned, some of the tax benefits, the one-time tax benefits in Q3, which had our EPS at the year end higher than we had anticipated this year has some flow-through impacts on next year.
And you and all the other folks on line will make those adjustments because the underlying cash is what ultimately generates our ability to pay out.
Operator
Our next question is from Dvai Ghose of Canaccord Genuity.
Dvai Ghose
George, can I go back to the question of the lack of Fibe flow-through so far, both in terms of DSL, which people really touched upon, but also NAS loss, which was pretty significant in 2011. As you know, you lost 9.2% of your residential lines, which I think is worse in North America.
So if I do the inevitable comparison with TELUS, in June 2010, they launched Optik and immediately, they saw the positive impact on ADSL, as well as reduced line loss. You launched Fibe in September 2010, and your numbers deteriorated significantly in 2011 on both those counts.
So what is the difference here? Is it your footprint, which is too small, in which case you need to accelerate it?
Is it an execution issue? Is it a competitive issue?
George Cope
Yes, I think the biggest issue year-over-year for us, Dvai, as Siim talked about with the wholesale subscriber additions that came through that migration, that's one. None of the other of your comments do I agree with.
The second point, probably more importantly, I think it will be fair to say that Toronto and Montréal, particularly Toronto, I think most people would agree that the new entrants on wireless had been much more aggressive and impactful in Toronto than anywhere else. So there's anything we've seen different that possibly other carriers in Canada haven't seen is the acceleration in wireless substitution on the NAS side, I think, has been more significant than maybe we've seen in other markets.
And having said that, I'm actually quite optimistic about -- I've said it, very optimistic about 2012 with the pull-through we're seeing at some of our products. And I do remind because it's the implication the TV never seems to go away.
Now we do have a $2 billion revenue-generating TV business. We are right in front of every telco in the world and TV with satellite.
And now we're leveraging the maturity of the Fibe TV platform with the strategy in the cities that we're quite frankly, really excited about, and that puts a growth prospect in front of us with our shareholders.
Dvai Ghose
That make sense. Can I ask you of a quick follow-up?
Just in terms of your guidance, you're talking 2% to 5% Bell Canada revenue and 2% to 4% EBITDA growth. If I pro forma for CTV for all of last year, I am calculating about 0% to 2% revenue and 0% to 2.5%.
Could you just confirm that?
Siim Vanaselja
Yes, I saw those comments. I'd have to -- were you talking about 2011?
Sorry.
Dvai Ghose
So I'm just saying if I add CTV back to Q1, and I think you've given us Q pro forma numbers for '11, it looks like 2012 guidance implies pro forma growth of 0% to 2% growth.
Siim Vanaselja
I'm not going to comment on 2012 because those numbers -- because CTV is now fully integrated into Bell Media and Bell, but I would comment on 2011 because our revenue growth and EBITDA growth, excluding Bell Media, in fact, was not flat to Fibe. We generated 1% revenue growth and 2.9% EBITDA growth for 2011, excluding all of Media, including the portal, which was transferred from Bell.
Dvai Ghose
Okay. Maybe we can take that offline.
Operator
Our next question is from Phillip Huang of UBS.
Phillip Huang
My question is on the LTE. As adoption of LTE increases given more coverage and handsets, do you think the industry can price LTE plans out of premium for 3G services?
And also what's your assumption in terms of LTE's help to Wireless ARPU in your guidance for 2012?
George Cope
Yes, the competitive marketplace, I guess, will ultimately determine the LTE pricing in the marketplace. I think LTE will drive the acceleration of services and ultimately, therefore, that will be a positive for industry growth on revenue.
We -- LTE takes Mobile TV to a new level, takes accessing the Internet to a new level from a wireless perspective, and those should generate revenue growth for investors because the products are just, quite frankly, out of this world on that network in terms of what we would have seen even as we launched HSPA and HSPA+. So I think the migration to smartphones will continue at a rapid pace, and the revenue trajectory from LTE should be positive.
How it's priced in the market will be subject to how all competitors approach LTE, not just how Bell does.
Phillip Huang
Now given your ownership of all sports content, and you obviously have strong media assets that you can leverage, I was wondering if -- you mentioned Mobile TV. Is there any way that you can price Mobile TV as an incremental service as opposed to just another app on your existing data plan?
George Cope
Yes, we're doing that. Actually, it's a very unique model in Canada.
We've seen subscribers subscribing every month to it. I mean, we --what we've done is that for television, the Mobile TV, it's outside your data bucket.
It's $5 for 10 hours or X number of hours of viewing. And our view is that those type of -- or $10, those type of access fee pricing outside the data bucket gives the user comfort that there's not a surprise video data bill coming.
So we actually have a third focus with the customer base and revenue stream, so people know exactly what they're going to pay for Mobile TV, and they're not worried about a data bill that they can't control. And that's how we've launched that in Canada.
That's how we're continuing to see traction on that. And we think it blends itself to a significant growth opportunity not just for Bell, but for the wireless industry.
And then we also think, from our content perspective, it gives us the opportunity to sell our content to the other wireless carriers in Canada as they grow that business, particularly through the technology benefits of LTE.
Operator
Our next question is from Glen Campbell of Merrill Lynch.
Glen Campbell
George, the Wireless margins were better than we thought, and you alluded to the smartphone pressure that you seem to have done very well in spite of. Can you give us a little bit of granularity on what happened there?
I mean, I know you're pushing the super phones, but some should -- would have been high subsidies there. iPhone sales, globally, more than doubled quarter-to-quarter.
Can you give us a bit of sense of what happened to Bell and why you did as well as you did?
George Cope
Yes, I think a couple of things. I think the -- Glen, you all know your own numbers.
I think the ARPU is maybe -- our service revenue might have been a little better than expectations of the Street, so the ARPU was a little better and that, of course, everyone would know would flow through. And secondly, our cost management on the distribution channel side and on our operations has really started, and we think it paid out well in the fourth quarter.
We got to continue that. The ownership of things like the source really, really paid off in the fourth quarter whereas everyone knows that's the quarter that retail matters, and our costs of running a source don't go up.
So some of those things, I think, really helped. And also when we did our cost restructuring in the fourth quarter, it wasn't just the Wireline business that had to do a little bit of work around it's costs.
It's how do we get our Wireless business in this environment with the new entrants at such low prices in our cost structure line, and I think some of that benefited us in Q4 as well.
Operator
Our next question is from Drew McReynolds of RBC Capital Markets.
Drew McReynolds
For you, George, just on Wireless again. Just can you comment just on the new Wireless meandering competition, whether you're seeing any change thus far in Q1 with some upward revision of price.
I know a lot of that is at the lower end. And also just in terms of COA pressure just relative to Q4, are you seeing that continue?
George Cope
Yes, I think the COA issue is clearly the upgrade and the strength we're seeing on smartphones, and particular brands are really strong. And it's hard to say -- there was a note put up by one of the analysts, and I might agree with them on 12, but it's hard to say if we're going to see a reduction in COA.
The actual cost of units are coming with the volume of smartphones as a percent of our sales continues to go up, and so that will be the challenge. In terms of pricing in the marketplace, it's a competitive marketplace.
The new entrants are one side. We obviously also pay a lot of attention to what's happening on the incumbent side.
And I would probably have to say it's been as usual. It's aggressive.
I certainly haven't seen a reduction in the competitive intensity in the market in the first quarter that I've noticed or that we've noted at Bell.
Operator
Our next question is from Greg MacDonald of Macquarie Capital.
Greg MacDonald
Quick follow-on actually relative to the last 2 questions on COA. George, I wonder if you might comment on a mix of Android versus iPhone.
This is a very big iPhone quarter, and I'm assuming that it was a higher load quarter relative to previous. Could you give us a little sense of Android versus iPhone mix and maybe an understanding of the impact of Android ASP coming down relative to stable iPhone subsidy?
George Cope
Yes, I have to be careful because these are supplier arrangements. I'd simply would say that those companies report publicly, so people can see the strong quarters they had that have been reported.
So proportionally, our sales of those -- of Android and iPhone were clearly up in Q4 other -- over other smartphone suppliers, and we continue to see that. I would say we're obviously -- as a distributor of hardware, we're really quite pleased to see the head-to-head battle between Android and Apple because that helps us on choice of handsets.
And we continue to see amazing handsets on the Android side to compete with the Apple side, and that gives our customers great choice and hopefully, over time, drives some cost for us.
Greg MacDonald
Can I just as a quick follow-on. If you assume stable mix between iPhone and Android phone, are you looking at stable margin this year on the COI -- the COA side?
Or are you assuming that there's a potential for uptick because on the margin with ASPs coming down for most phones, there should be a bit of an opportunity there, should it not?
George Cope
Yes, I don't want to go specifically, but it's so driven by a competitive intensity in mix and who has a great phone one quarter and the timing of the next product. It's a really tricky one.
I can simply say, and I don't mean to be so high level, but clearly, the COA that we're investing and the ARPU growth we're seeing is absolutely the right investment for our investors. And seeing our ability to improve that margin in a very strong fourth quarter, we're doing some really tough things on the cost side to try to keep in this competitive intensity and try to maintain this as best we can.
Thane Fotopoulos
Given that we're running out of time, this will be our last question.
Operator
Our last question is from Rob Goff of NCP.
Robert Goff
My question, George, would turn over to the business side of things. Can you address the pricing pressures and your leverage their versus your leverage to job growth as demand's been up?
George Cope
Yes, it's a good question. Pricing, it's a very competitive segment for sure.
So pricing power there, I think, as implied in your question, is really best taken to the customer when you're adding new services. So our business challenges to expand the share of wallet we have of the customer base and as people would know on the call, we have a very, very strong business there and the challenges that those companies are not growing significantly.
And as I used the number 2% because most economists will say employment growth really accelerates significantly once you get over 2%. And we've not had that.
And therefore, we think that's one of the structural challenge we have in that business. And where we're optimistic is at some point, as GDP growth accelerates, we think that business will see those benefits.
Secondly, we do need to make and improve our focus on the SMB, where it's been -- it's a very strong and profitable business for us, and we need to step our game up there a little bit on the product portfolio side, and we'll be doing some things this year there that our new management team there been focused on since they stepped in place 3 or 4 months ago.
Thane Fotopoulos
Great. So before we sign off, I want to thank everybody for their participation.
And I'm available throughout the day for follow-ups and for questions. George, are there any other comments?
George Cope
Yes, one last thing, I hope you all saved your text messages yesterday for Bell Let's Talk Day. I know it's money out, but it's money well spent.
Thank you.
Siim Vanaselja
Thank you.
Operator
The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.