BCE Inc. (BCE:CA) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: positive growth in subscriber and digital video advertising revenues, but a decline in traditional advertising revenue. Free cash flow and capital expenditures have increased, but regulatory challenges and competition in DSL areas pose risks. The Q&A reveals confidence in AI solutions and fiber expansion, yet lacks clarity on regulatory impacts and financial specifics. The strategic plan suggests stable growth, but declining EPS guidance raises concerns. Overall, the positives and negatives balance each other, leading to a neutral sentiment.
Key Financial Performance
Consolidated Revenue Increased by 4% year-over-year. The growth was driven by contributions from Ziply Fiber and strong momentum in Bell Business Markets, particularly in AI-powered solutions.
Adjusted EBITDA Grew by 2.9% year-over-year. The increase was attributed to contributions from Ziply Fiber and higher product revenue. However, the margin declined by 40 basis points to 42.7% due to the evolving mix of growth in the business, with higher-growth services carrying a different margin profile than legacy businesses.
Internet Revenue (North American Fiber Platforms) Grew by 15% year-over-year. This growth was driven by strong demand for fiber services, including the addition of close to 50,000 residential fiber net subscribers.
Bell Business Markets Revenue Increased by 9.7% year-over-year. This was driven by a 113% growth in AI-powered solutions, including Ateko, Bell Cyber, and Bell AI Fabric.
Wireless Service Revenue Decreased by 0.6% year-over-year. The decline was attributed to a competitive pricing environment in Q1.
Wireless Product Revenue Decreased by 6.3% year-over-year. This was due to fewer device upgrades and a shift towards bring-your-own-device activations.
Video Net Subscriber Additions Improved by approximately 26,000 year-over-year, swinging to positive net additions of 10,103. This improvement was driven by strong uptake of streaming bundles launched in the second half of the previous year.
Subscriber Revenue (Bell Media) Grew by 11.8% year-over-year. The growth was driven by strength in Crave and Sports DTC streaming, as well as a retroactive adjustment related to a contract renewal with a Canadian TV distributor.
Advertising Revenue (Bell Media) Decreased by 12.8% year-over-year. The decline was due to softness in non-sports traditional advertising demand, lower audio revenue following radio station divestitures, and the absence of prior-year benefits from the federal election.
Digital Video Advertising Revenue Increased by 32% year-over-year. This growth reflects the momentum in Bell Media's digital strategy.
Free Cash Flow Increased by 0.8% year-over-year to $804 million. The increase was achieved despite higher capital expenditures and income taxes paid on significant divestitures.
Capital Expenditures Increased by 15.4% year-over-year. The increase was driven by Ziply Fiber's fiber build-out in the U.S. and investments in Bell AI Fabric data centers across Canada.
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Operating Highlights
Fiber Internet Expansion: Expanded Internet contracts in Ontario, scaling hardware-free Fibe TV, and launched Voice Virtual Assistant across Bell, Virgin Plus, and Lucky Mobile.
AI-Powered Solutions: Launched Bell AI Fabric with significant investments, including a 300-megawatt AI data center in Saskatchewan and other facilities in Merritt, B.C., Winnipeg, and Mission Flats. Partnerships with Coveo, Hypertec, SAP, and Celestica to deliver sovereign AI solutions.
Digital Media Content: Crave subscriber base grew 25% year-over-year to 4.7 million, with a target of 6 million by 2028. Expanded content library and partnerships, including SNL simulcast and sports broadcasting rights.
AI-Powered Solutions Revenue Growth: Bell Business Markets revenue grew 9.7%, driven by 113% growth in AI-powered solutions. Increased revenue target for AI-powered solutions from $1.5 billion to $2 billion by 2028.
Fiber Internet Revenue: Internet revenue across North American fiber platforms grew 15% year-over-year.
Operational Efficiencies: Simplified business through divestitures, including the sale of the land mobile radio business for $675 million. Reduced Canadian Telecom CapEx from $5.1 billion in 2022 to below $3 billion in 2026.
Customer Retention: Focused on customer-first initiatives, including price certainty contracts and streaming bundles, leading to improved customer retention and product intensity.
AI-Powered Solutions Expansion: Invested in AI infrastructure and partnerships to establish a competitive advantage in Canada. Monetizing approximately 800 megawatts of power with a pipeline of interest.
Capital Allocation Strategy: Focused on simplifying the business, strengthening the balance sheet, and investing in high-return opportunities like AI Fabric and U.S. Fiber platform.
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Risk or Challenges
Competitive Operating Environment: The wireless market experienced an unusually competitive quarter with aggressive pricing and promotional activities extending beyond typical seasonal windows. This led to challenges in maintaining postpaid churn and ARPU, which declined by 0.8%.
Regulatory and Market Adjustments: The CRTC's mandated fiber access decision impacted operational metrics, requiring adjustments in subscriber reporting and potentially affecting market dynamics.
Economic and Financial Pressures: Higher depreciation, amortization expenses, and interest costs negatively impacted adjusted EPS, which declined by $0.06. Additionally, the mix of growth in the business is evolving, with higher-growth services carrying a different margin profile than legacy businesses.
Capital Expenditure and Allocation: Increased capital expenditures, particularly for AI Fabric and Ziply Fiber build-outs, raised CapEx by 15.4%. This could strain financial resources if not managed effectively.
Advertising Revenue Decline: Bell Media experienced a 12.8% decline in advertising revenue due to softness in non-sports traditional advertising demand, lower audio revenue, and a shift of advertising dollars to other broadcasters.
Supply Chain and Construction Risks: The construction of new AI data centers, including the Saskatchewan facility, involves risks such as delays in permitting, equipment procurement, and contractor mobilization, which could impact timelines and financial outcomes.
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Guidance & Outlook
AI-powered solutions revenue objective: Increased from approximately $1.5 billion to approximately $2 billion by 2028, with potential beyond this target. The company has a pipeline to monetize approximately 800 megawatts of power over time.
Saskatchewan AI data center: Expected to contribute approximately $500 million of revenue, $400 million of EBITDA, and over $250 million of free cash flow at an IRR of approximately 20% at the data center level. The first phase is on track to come online in the first half of next year.
Bell Media subscriber growth: Targeting 6 million Crave subscribers by 2028, up from the current 4.7 million. The company is leveraging premium content, expanded libraries, and targeted marketing to achieve this goal.
Capital expenditures (CapEx): Canadian Telecom CapEx is expected to decrease from $5.1 billion in 2022 to below $3 billion in 2026, excluding AI Fabric investments. Wireless capital intensity is projected to remain at an industry low of 7%.
De-leveraging targets: Net debt leverage ratio is targeted to reach 3.5x by the end of 2027 and move below that level in 2028. The announced disposition of the Land Mobile Radio Network Services business is expected to improve the ratio by approximately 0.04x upon closing in Q4.
Revenue and EBITDA growth for Bell Media: The company remains on pace to deliver positive revenue and EBITDA growth for the full year 2026.
Ziply Fiber expansion: Plan to reach approximately 3 million fiber passings by the end of 2028 is on track. Operating and subscriber momentum is expected to accelerate as construction ramps up.
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Shareholder Return Plan
Dividend Program: BCE's capital allocation strategy includes returning capital to shareholders through a sustainable dividend. This is one of the three main priorities of their capital allocation framework, alongside strengthening the balance sheet and funding strategic priorities.
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Key Q&A
Q:What is BCE's view on the regulatory environment and its impact on investment?
A:BCE supports facilities-based competition and believes that a regulatory framework encouraging investment leads to sustainable competition. The current regulatory environment, including micro rules in wireless and fiber access policies, is discouraging investment, resulting in billions of dollars of annual CapEx no longer being invested. BCE has pivoted to high-growth, high-return segments that are not regulated.
Q:What is the status of the Saskatchewan investment, including prepayments and milestones?
A:BCE has spent less than $20 million in CapEx in Saskatchewan in Q1, with heavier spending expected in Q2 and Q3. No prepayments or refunds have been received yet. The project is under a take-or-pay contract, and milestones include permitting, site preparation, prefab work, and installing equipment. BCE will provide updates on progress.
Q:What is BCE's confidence in monetizing the 800 megawatts of AI-powered solutions and the demand environment?
A:BCE has a high degree of confidence in monetizing the 800 megawatts due to strong discussions with significant potential customers. They have already contracted 40% of the 73-megawatt target within one quarter. BCE is also exploring opportunities to secure additional power beyond 800 megawatts.
Q:What is BCE's outlook on pricing normalization in Wireless and Wireline?
A:Pricing has stabilized in Q2, and BCE expects pricing discipline to prevail in a low-growth environment. BCE focuses on the premium Bell brand, product intensity, and customer experience. They do not plan to lead on pricing but will adjust as needed.
Q:What is BCE's view on satellite broadband and its impact on rural markets?
A:Satellite broadband does not impact areas with fiber but affects areas with legacy copper DSL. BCE expects continued losses in DSL areas due to competition from satellite broadband and other technologies. BCE is excited about its partnership with AST for direct-to-device connectivity.
Q:What is the contribution of Ziply to BCE's revenue and EBITDA, and its growth outlook?
A:Ziply contributed $234 million in revenue and over $100 million in EBITDA in Q1. BCE expects double-digit revenue growth for Ziply, driven by fiber expansion and penetration gains. The focus is on long-term growth in revenue and EBITDA by 2027-2028.
Q:What is the revenue and EBITDA contribution from the Merritt, B.C. facility?
A:The Merritt facility contributed approximately $100 million in product revenue year-over-year. The EBITDA margin for this revenue is higher than 25%, consistent with the 73-megawatt portfolio.
Q:What is BCE's approach to AI-powered solutions revenue and its components?
A:AI-powered solutions revenue includes contributions from AI Fabric, Ateko, and Bell Cyber. The Merritt facility contributed $100 million in product revenue. Ateko and Bell Cyber collectively grew over 30% year-over-year. BCE expects most future AI Fabric contracts to have operating lease treatment.
Q:What is BCE's response to concerns about changing subscriber metrics and executive compensation?
A:BCE clarified that subscriber metrics changes aim to reflect bundled content delivery rather than technology. Executive compensation is not tied to subscriber metrics but focuses on free cash flow and leverage targets.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the regulatory environment's potential improvements and their direct impact on CapEx. They also did not disclose detailed contractual protections for Saskatchewan customers or specific IRRs for monetizing the remaining AI-powered solutions capacity. Additionally, BCE did not provide a clear breakdown of wholesale contributions to retail Internet adds or detailed financial impacts of satellite broadband competition.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Fabric
AI infrastructure
AI solution
BC
BCE
Bell AI
Bell Media
Canada
Curtis
Digital
Fabric center
Fiber
Internet
Investor Day
Saskatchewan
Solutions
Video
Winnipeg
agreement
allocation
cash flow
construction
content
de
debt
definition
development
discipline
facility
fiber
figure
line sight
megawatt
metric
partner
renewal
site
streaming service
subscriber
transparency
BCE Transcript
BCE Inc. (BCE:CA) Q1 2026 Earnings Call Transcript
Unknown5-8
The earnings call presents a mixed picture: positive growth in subscriber and digital video advertising revenues, but a decline in traditional advertising revenue. Free cash flow and capital expenditures have increased, but regulatory challenges and competition in DSL areas pose risks. The Q&A reveals confidence in AI solutions and fiber expansion, yet lacks clarity on regulatory impacts and financial specifics. The strategic plan suggests stable growth, but declining EPS guidance raises concerns. Overall, the positives and negatives balance each other, leading to a neutral sentiment.
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The earnings call highlights strong financial performance, including record net profit, improved CET1 ratio, and a commitment to shareholder returns. The Q&A section reveals management's focus on profitability, efficiency, and strategic acquisitions. While some uncertainties remain regarding the timeline for certain targets, the overall sentiment is positive, driven by strong earnings, dividend payouts, and strategic growth plans.
BCE Slides
BCE Report
Frequently Asked Questions
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