BCE Inc

NYSE:BCE

Earnings Call Analysis

Revenue dips, strategic focus and profitability highlighted

In a competitive environment, BCE's Q2 saw a 1% revenue dip, largely from an 8.7% reduction in low-margin product sales. However, adjusted EBITDA rose by 2% with a margin improvement of 1.3 points, thanks to a 3.3% reduction in operating costs. Wireless service revenue increased by 1.2%, and internet revenue grew 3%. Net earnings surged by 52% due to noncash loss recovery. Free cash flow was robust, climbing 8%, and planned capital expenses saw significant reductions. Key growth in cloud-based business solutions (up 22%) and digital media (up 23%) was noted. BCE remains committed to its 2024 guidance amidst intense market competition.

Strong Performance Amidst Competitive Market

Bell demonstrated robust performance in Q2, navigating a competitive market with strategic discipline. They balanced subscriber growth with profitability, evident in the 2% EBITDA growth and a margin increase of 1.3 points to 44.9%. This focus on cost efficiency and effective execution led to an 8% rise in free cash flow to $1.1 billion.

Revenue and Subscriber Trends

While total revenue dipped by 1% due to an 8.7% decrease in low-margin wireless and wireline product sales, Bell saw positive service revenue growth following declines in the prior two quarters. Internet revenue rose approximately 3%, and wireless service revenue increased by 1.2%. This recovery is attributed to the company's successful fiber strategy and its appeal to premium wireless subscribers.

Media Sector Revival

Bell Media achieved revenue and EBITDA growth for the first time in two years. The 1% revenue increase was driven by a 1.9% rise in advertising revenue, thanks to strong TV sports specialty performance and digital advertising growth. The acquisition of OUTFRONT Media and increased international sales also contributed.

Guidance and Cost Management

Bell confirmed its financial guidance for 2024. They reported adjusted EBITDA growth, supported by a 3.3% reduction in operating costs. Capital expenditures were down $329 million in Q2, bringing year-to-date savings to $413 million, aligning with plans to reduce capital spending by at least $500 million in 2024.

Subscriber Growth and Strategy

Bell noted a significant increase in new customer subscriptions to mobility and Internet bundles, up 23% from the prior year. This now comprises 48% of total residential households. The company also saw a 10.5% increase in connected device net additions, driven by strong momentum in 5G and IoT B2B solutions.

Financial Position and Debt Management

Bell ended Q2 with $5 billion in available liquidity and completed a $1.5 billion public debt issuance. With no refinancing needs for the rest of the year, their debt maturity schedule is well-structured, having an average term to maturity of approximately 13 years and an after-tax cost of debt at 3.2%. They aim to reduce leverage through free cash flow generation and asset sales.

Business Solutions and Digital Transformation

Revenue from business solutions grew by 22%, driven by sales in cloud-based computing, managed automation, and security services. The acquisition of FX Innovation and the company's focus on digital transformation, including their expanded partnership with ServiceNow, are expected to streamline operations and enhance customer service.

Challenges and Competition

Despite positive results, Bell faces ongoing competitive pressure. Wireless ARPU was down 1.9% year-over-year, yet there was improvement in June. They continue to manage promotional offers prudently to maintain subscriber growth while ensuring profitability, reflecting the aggressive market environment.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to the BCE Q2 2024 Results Conference Call. I would now like to turn the meeting over to Mr. Thane Fotopoulos. Please go ahead, Mr. Fotopoulos.

[Thane Fotopoulos, executive]

Thank you, Matthew. Good morning, everyone, and thank you for joining our call. With me here today are Mirko Bibic, President and CEO of BCE; and our CFO, Curtis Millen. You can find our Q2 disclosure documents on the Investor Relations page of the bce.ca website, which we posted earlier this morning.

Before we begin, I want to draw your attention to our safe harbor statement on Slide 2 of the analyst presentation, reminding you that today's presentation and remarks made during the call will include forward-looking information, and therefore, are subject to risks and uncertainties. Results could differ materially. We disclaim any obligation to update forward-looking statements, except as required by law. Please refer to BCE's publicly filed documents for more details on our assumptions and risks.

With that, I'll turn it over to Mirko.

[Mirko Bibic, executive]

Thank you, Thane, and good morning, everyone. So looking at our overall second quarter operating results, the Bell team managed well, and we executed with financial discipline against the backdrop of a highly competitive marketplace. We have a clear vision for how we're competing now and into the future, combined with our proven trademark consistent execution.

While consolidated top line growth continued to be impacted by sustained competitive pricing pressures and expected revenue loss from the Source, we remain laser-focused on profitable margin-accretive subscriber growth and driving costs out of the organization, as you can see by 2% EBITDA growth in Q2 and a 1.3 point increase in BCE's margin to 44.9%. Both of these results were higher than forecasted, demonstrating our success in driving efficiencies and reducing costs to offset near-term competitive and economic pressures.

This contributed to $1.1 billion of free cash flow being delivered in Q2, which represents an increase of 8% over last year and aligns with the expectations we shared with you on our Q1 conference call in May for higher free cash flow generation as profiled in our quarterly budget at the start of the year.

As for operating results, our CTS segment subscriber metrics continue to be underpinned by leading broadband fiber network that is consistently recognized by third parties for its best-in-class performance and customer experience by mobile 5G speed that are being further enhanced with deployment of 3800 megahertz spectrum as well as increased customer bundling of mobility and Internet that serves as an important churn management and value driver tool.

In wireless, we were arguably the most disciplined in striking the right balance between volume growth and economics in a heightened competitive pricing environment. We managed our promotional offers prudently to deliver a healthy step-up in new subscriber activations that focused on higher-quality main brand loadings. In fact, Bell has led the charge on more rational pricing behavior, increasing the rates on a number of Bell Mobility and Virgins Plus plans at the beginning of July, while continuing to deliver exceptional value to our customers.

Collectively, total postpaid and prepaid mobile phone net adds in Q2 were up 4.4% to 131,043. And with robust Canadian population growth projections and even greater focus on bundling wireless and consumer Internet service, we see good runway for continued growth. Mobile subscriber growth also included connected device net adds of approximately 88,000. That's up 10.5% over the prior year and reflects continued strong momentum for our 5G and IoT B2B solutions.

In Residential Wireline, we continue to gain a significant share of new Internet subscriber growth, and that's fueled by our fiber network's superior symmetrical speeds and overall customer experience, which drove our highest Q2 consumer retail Internet net adds in 17 years and an 18% increase in households subscribing to mobility and Internet service bundles, and that's where we have fiber.

Notably, 41% of our new Internet customers this quarter subscribed to a service bundle with wireless, which should help drive better subscriber lifetime value and improved retention longer term.

Turning now to media. Bell Media continues to transform from a traditional broadcaster to a digital media and content leader. And a prime example of that is the advanced advertising solutions for clients, powered by Bell first-party data, including Bell Analytics, the SAM TV sales tool, Bell DSP, Addressable TV and Crave with ads, which collectively drove a 35% increase in digital advertising revenues this quarter.

And investments to sustain the strategic shift to digital will continue. We announced a number of new partnerships and additions to our ad offerings at our Upfront presentation in June. These included a new self-serve buying platform for advertisers looking to reach local audiences; strategic sales partnerships with TikTok's premium advertising product, Pulse Premiere; as well as Dotdash Meredith, the largest digital and print publisher in the U.S.; and expanded distribution for our 10 new fast channels, which we launched in April.

Our momentum also continues to build in the business enterprise space as our expanding capabilities and cloudification, security and managed automation have led to increasing customer wins and the expansion of existing relationships, all of which drove strong business solutions services revenue growth of 22% this quarter. Building on this growth strategy, we recently acquired leading technical services companies at Stratejm and CloudKettle.

These acquisitions complement our acquisition of FX innovation last year by immediately strengthening Bell's cybersecurity and sales force workflow automation know-how for enterprises and enriching the range of capabilities available to manage customers' public and hybrid cloud environments with the world's leading cloud providers. We can now deliver customer solutions across the 2 leading platform software companies, ServiceNow and Salesforce, in addition to our new advanced managed security solution.

And regarding ServiceNow, we recently entered into an expanded partnership with them to accelerate Bell's digital transformation and importantly, the digital transformation of our enterprise customers. ServiceNow's applications will streamline several areas of our business, including network, customer and field service operations resulting in a more efficient experience for technicians, leveraging AI-driven insights to automate scheduling, improved customer service and reduce drive time, also to enhance customer support with powerful automation capabilities to streamline case handling and drive faster service deliveries using solutions that ensure customers get the services they want and require in a matter of hours or days.

While these investments in partnerships and technology and automation will enable us to unlock even greater operational efficiencies going forward, we're already benefiting from advanced AI and machine learning capabilities to improve the Bell customer experience and, importantly, take costs out of our business, which contributed to $20 million in labor cost savings across our customer operations this quarter. Here are some examples of how our AI leadership is setting us apart.

We pioneered a self-serve virtual repair tool for technical troubleshooting of Internet and TV issues, and that eliminated call wait times and technician visits. We launched the first Google AI-powered infobot in Canada, offering instant answers to customer questions and directing them to self-serve options and links. Our implementation of the full Google Call Center AI platform is a world-first for a contact center of this scale.

The virtual assistant we've implemented first for Lucky Mobile chat and now for our Bell and Virgin brands, has resulted in over 1.1 million virtual assistant interactions year-to-date across the 3 brands. We've also implemented AI-powered agent support models that leverage real-time transcription. We analyze calls in our contact centers through our Speech AI solution, and that enables us to identify cross-sell opportunities where appropriate.

We also use AI-enabled dynamic call routing to pair incoming customer calls with the agent who has the right skill set to optimize that customer's experience. And we're also using Generative AI for call quality assurance, monitoring aspects like time on hold and manager escalations and to automatically generate retention offers in real time, all of which is designed to vastly improve the customer experience, drive operating efficiencies, lower churn and generate higher customer lifetime value.

And against the backdrop of these accelerating investments in key growth areas, we entered into a transaction to sell Northwestel to a consortium of indigenous communities for up to $1 billion in cash. This was a unique opportunity that emerged to surface good value for a stand-alone BCE asset at a fair valuation and to use those proceeds to proactively manage our balance sheet and to pay down debt.

And consistent with our strategy to reduce focus on noncore businesses, we took the next step in the transition of 167 The Source stores to Best Buy Express with the opening of our first store in June. That marks the beginning of a phased rollout with all stores expected to be opened by the end of this year. All remaining 107 The Source stores are now closed, and they're no longer in operation.

I'm going to turn now to Slide 5 for a brief review of some of the operating metrics by segment, and I'll start with wireless, of course. We added 131,043 new net mobile phone subscribers in Q2. That's up 4.4% from last year, and that was a function of a 14.4% increase in gross activations, which outpaced peers who have already reported by a wide margin and a second consecutive quarter of deceleration in the year-over-year rate of churn increase. Now the churn does remain elevated, and it's clearly not at a level that I'm satisfied with, but it's down sequentially from Q1, both in absolute terms and in the magnitude of increase when compared to the prior year.

Although postpaid net adds of 78,500 were down versus Q2 of last year on what was a relatively strong prior year, importantly and quite deliberately, the vast majority of our new customers continue to be in our main premium brand, which is fundamental to our operating strategy. This result reflects our focus on better quality, profitable and margin-accretive subscriber acquisition. We plan to continue with this consistent and disciplined approach, which balances subscriber growth with financial performance rather than just buying loads as we progress through the balance of 2024 and beyond.

Prepaid net additions were up meaningfully over last year, growing to 52,543 as we benefited from the launch of No Name Mobile and Lucky Mobile marketing initiatives. This represents our best quarterly prepaid result in almost 2 years. Having led the market in prepaid growth this quarter, it shows that we've made the massive strides in breaking into the Canadian newcomer market in a relatively short period of time.

To close off on wireless, ARPU was down 1.9% year-over-year. This result doesn't come as a surprise, given that we've been facing the lowest pricing environment in the history of wireless in Canada for much of the past year. However, we did see an improvement in June. And although encouraging, given the current dynamic pricing environment that's influxed as we enter the back-to-school period, it's still too early to make a call on the direction of ARPU for the balance of this year.

I'm going to turn over to wireline now. We had 23,841 new retail Internet additions. We delivered our second best Q2 results since 2007 after Q2 2023, which was an exceptional year. Moreover, where we have fiber, our bundled sales continue to grow. In Q2 alone, new customers subscribing to mobility and Internet service bundles increased 23% compared to last year and now comprise 48% of our total residential households. And we had another solid quarter for our Bell branded IPTV service, which added 3% more new net subscribers in Q2 2023.

However, gross activations on our 5TV app streaming service were down considerably this quarter, and that was due to a $5 rate increase in May for new subscribers, and it resulted in a 12,800 year-over-year decrease in total IPTV net additions.

Lastly, I'm going to turn over to media. Total advertising revenue was up on the strength of digital and live sports. And although this result represents our second consecutive quarter of growth, the ad market improvement is expected to be uneven for the balance of this year. Digital and direct-to-consumer continued to grow strongly, helping to offset the secular pressures from traditional media platforms. Digital revenues were up 23% over last year, and they now comprise 41% of media revenue compared to 33% last year.

Driving this performance was Crave, which grew direct streaming subscribers by 21% in Q2 on the back of market-leading content as well as strong growth in usage of our programmatic ad marketplace, including our SAM TV advertising tool, which increased sales revenue by 43% this quarter. TSN and RDS direct-to-consumer streaming subscribers more than doubled over last year, and that was on the back of Euro Cup soccer and record-breaking audiences for the Copa America tournament.

For the current broadcast season to date, CTV remains Canada's most watched network for a 23rd consecutive year. On the French language side, Bell Media led all competitors in the Entertainment and Pay Specialty market and Noovo was the conventional TV market network with the largest growth in full day audiences, increasing 8% over Q2 of last year.

In summary, our performance for Q2 reflects the team's consistent execution in a highly competitive and evolving marketplace with financial results that demonstrated a prudent balancing of subscriber growth with profitability and a continued sharp focus on cost efficiency and effectiveness. I'll now turn the call over to Curtis, who's going to provide more details on our financial results.

[Curtis Millen, executive]

Thanks, Mirko, and good morning, everyone. As you can see on Slide 7, our consolidated financial results for Q2 demonstrate the Bell team's consistent and responsible execution in an intensely competitive marketplace. We returned to positive service revenue growth in Q2 following declines in the 2 previous quarters. This is the direct result of our successful fiber strategy, our ability to attract premium wireless subscribers and drive greater cross-sell penetration of ability and Internet households, our expanded business tech services capabilities and continued strong digital media growth.

Total revenue was down 1%. This can be attributed to an 8.7% decrease in low-margin wireless and wireline product sales, which included the loss of revenue from the store closures. Adjusted EBITDA grew 2% and delivering a notable margin improvement of 1.3 points on the back of a 3.3% reduction in operating costs. Net earnings were up 52% in Q2. While helped by EBITDA, the increase was due mainly to a large noncash loss recorded in Q2 of 2023 and BCE's share of an obligation to repurchase the minority interest in a joint venture equity investment at fair value.

Nothing notable on adjusted EPS, consistent with our 2024 guidance assumptions for interest and depreciation expense, it was down $0.01 compared to last year. As for free cash flow, it grew a strong 8% this quarter, benefiting from the flow-through of higher EBITDA and lower CapEx. In line with our plan to reduce capital spending by at least $500 million in 2024, CapEx was down $329 million in Q2. This brought year-to-date CapEx savings to $413 million. So well on track to achieve our planned reduction for the year.

Turning to Bell CTS financial results on Slide 8. Top line story here is all about low-margin product revenue, which was down $66 million in Q2, accounting for 93% of the 1.3% decline in total revenue. The decrease was the result of lower mobile phone sales as 70% of new customer activations in Q2 were BYOD subs, the Source store closures that I referenced earlier, and reduced wireline telecom equipment sales as levels normalize following an exceptional year in 2023 due to the global supply chain recovery. Importantly, the EBITDA impact was negligible as these product revenues are very low margin.

Internet revenue was up approximately 3%, while wireless service revenue grew by 1.2%. Although both are solid results, they continue to be impacted by overly aggressive rate plan pricing and bundled discounting, reflecting a more intense competitive market environment compared to last year. This, together with ongoing legacy erosion moderated service revenue growth this quarter.

We also continue to see good business solution strength, a key growth factor going forward, where revenue grew 22% over last year. This was driven by higher sales of cloud-based computing, managed automation and security services as well as our acquisition of FX innovation that we lapped in June. However, the financial highlight of the quarter was EBITDA, which strengthened over Q1, growing by 2% to yield a strong margin of 46.9%. That's a 150 point increase over last year and a direct result of our focus on cost management as evidenced by a 4.1% reduction in Q2 operating costs and margin accretive subscriber growth.

Turning over to Bell Media on Slide 9. Good overall financial performance in Q2. In fact, this marks Bell Media's first quarter of revenue and EBITDA growth in 2 years, a positive result under the circumstances, which is a testament to the team's strong execution, our diversified asset mix, premium content and success of our digital-first media strategy.

Total Q2 revenue was up approximately 1%. This result was driven by a 1.9% increase in advertising revenue on the back of our strong TV sports specialty performance, continued robust digital advertising growth and the acquisition of OUTFRONT Media that was completed in June. The F1 Canadian Grand Prix and higher international sales of Bell Media programming also contributed to higher revenue this quarter.

The media team also did a great job managing costs, which is a recurring theme, which increased only marginally despite higher TV programming costs as much of this pressure was effectively offset by cost-saving initiatives. This, together with the benefit of higher revenue, enabled us to deliver EBITDA growth of nearly 2% this quarter.

Turning to the balance sheet on Slide 10. We ended Q2 with $5 billion of available liquidity, which includes the proceeds of a $1.5 billion public debt issuance we completed in May. Our debt maturity schedule is also prudently structured with an average term to maturity of approximately 13 years and an after-tax cost of debt below prevailing interest rates at 3.2%. This, together with no outstanding refinancing requirements for the balance of the year, maturities in 2025 totaling $2.1 billion that have already been largely prefunded. Using interest rates and a sizable pension solvency surplus, we remain in a good financial position.

We made a final payment of $414 million in Q2 for 3800 megahertz spectrum that we won at an auction late last year. This led to a slight increase in our leverage ratio from Q1 to 3.7x adjusted EBITDA. We're mindful of our elevated debt position and we remain highly focused on reducing our leverage ratio over time. This will be achieved through positive free cash flow generation after dividend payments and using the proceeds from asset sales such as Northwestel to pay down debt. In fact, the announced $1 billion Northwestel transaction is expected to improve our leverage ratio by up to approximately 5 basis points.

To finish off on Slide 11. You can see from our performance in the first half of 2024 that we are effectively navigating a dynamic, competitive and economic environment to achieve financial results largely in line with our expectations. Going forward, we'll continue to execute on the same consistent and disciplined manner, focusing on cost efficiencies and balanced growth. Accordingly, we remain confident in our ability to deliver on all of our financial guidance targets for 2024. I'll now hand the call back to Thane and the operator to begin Q&A.

[Thane Fotopoulos, executive]

[Operator Instructions] With that, Matthew, we're ready to take our first question.

[Operator]

The first question is from Maher Yaghi from Scotiabank.

[Maher Yaghi, analyst]

Great. So I wanted to ask you -- I won't ask you about wireless. I'll ask you about wireline actually. So we are seeing significant promotional and retention activities in the market with some -- like lifetime price locks, guarantees, [indiscernible], which the Canadian market hasn't seen before, but also aggressive signing promotions by Bell with prices as low as $55 or 1.5 gigs. We are waiting for the decision by the CRTC, but I would say the market is quite competitive, but that's just me. We'll see what they have in mind.

But my question on this topic is the following. When first -- when BCE first embarked on its fiber-to-the-home deployment, I remember quite clearly -- quite like 10 years ago, the expectation was that broadband ARPU was going to be in the $90 to $100 range. And now we're sitting at $55 to $60 range. Are we still seeing positive NPVs on fiber to the home. When you look at your models and you look at the pricing currently in the marketplace, what's your view on that investment and its potential positive return for shareholders?

[Mirko Bibic, executive]

Thank you, Maher, for the question. Look, fiber continues to be the growth engine of Bell on the wireline side. And frankly, if you look at the communications segments pretty much everywhere, the area of growth in wireline is actually fiber. So still quite positive on the fiber strategy. Obviously, it remains the bedrock of our wireline strategy and the investments were much needed, critical and will serve us well for years and years to come.

I'm quite pleased with our Internet performance over time. But including Q2 of this year, it was our second best Q2 since 2007 after last year, which was a standout quarter a year ago. So I already said that in my opening remarks. We're seeing very, very good bundling success, and that's adding to the lifetime value of customers, Maher.

Now, there is room for ARPU growth. In some markets, though, I'd say we've seen promotional intensity stabilize as the bill of credits lowered. You're giving an example of a particular offer that's maybe in market in particular areas, but that really cater to higher-value customers, which remains part of our overall strategy. Look, we're in an intense pricing environment in wireless and wireline. Everybody knows this, but we're going to continue to focus on generating lifetime value for customers who choose the very best and who want a premium product, and that's Bell 5, and we're doing a very good job standing out in the marketplace.

I would say, to end the answer to your question. As you see, we're going to adjust to circumstances as they arise, right, whether it's pricing environment, macroeconomic pressures, regulatory pressures, we're just going to adjust. And you've seen a major adjustment over the last 12 months in terms of the pace of our fiber build as we get closer and closer to reaching our near-term build-out targets. And we'll continue to adjust very quickly in the face of pressures and that's one of the hallmarks of how Bell operates.

[Operator]

Our next question is from Stephanie Price from CIBC World Markets.

[Stephanie Price, analyst]

I was hoping to understand more around the opportunities with ServiceNow and AI and automation. Are these initiatives kind of included in your original cost savings initiatives? Or should we think about them as additive? And if so, how do we think about the magnitude and timing around automation digitization?

[Mirko Bibic, executive]

Thanks for the question. So on ServiceNow, we are kind of embedding ServiceNow into our own environment in order to increase efficiency, both in how we operate, and of course, driving costs out of the business. But I'm particularly I'm particularly energized in terms of that partnership with our ability to go to market with some of the -- in conjunction with ServiceNow and to serve our enterprise customers and their own digital transformation journeys. And that's across cloud, security and managed automation and integrating ServiceNow into the environments of our customers and co-creating with ServiceNow so that we can jointly go to market.

So that's where, for me, it's equally positive initiative is on the go-to-market side, including kind of embedding it into our own environment. So that's going to continue to drive costs out of our business, combined with more robotic process automation and more use of AI, Stephanie. So I gave a list of examples in my opening remarks of how we're going to use AI to improve the customer experience, attract more customers and importantly, drive costs out of the business, and I share the $20 million figure.

So I can't give you a precise figure as to how we're going to continue or the quantum of cost efficiencies quarter-by-quarter that are going to come from deploying AI and ServiceNow, but we're going to continue to do that in the business, and you can count on us to do it.

[Curtis Millen, executive]

And Stephanie, the only thing I'll add, just the second part of your question, we've been looking at those types of opportunities for years, and we do see the results stand out. These are part of them. But to answer the other part of your question, we would look at this as incremental to the workforce restructuring benefits that we talked about in February. And just on that, we do remain on track in terms of hitting those targets. We continue to see a way through to $150 million to $200 million of in-year savings.

As you can appreciate, it's a pretty big workforce restructuring. So it will continue to scale throughout the year, but we see those as 2 different opportunities.

[Operator]

Our next question is from Sebastiano Petti from JPMorgan.

[Sebastiano Petti, analyst]

Just a quick follow-up there, Curtis. On the $150 million to $200 million of cost savings, can you maybe tell us where we're at in terms of the run rate exiting the second quarter? And I think how should we anticipate that perhaps tracking and phasing over the balance of the year, would be helpful. And then I think we talked about, to Mirko, I guess, to Curtis as well. In terms of just thinking about prepaid and the new to Canada market, strong results there, part of that obviously driven by the No Name Mobile, Lucky initiatives you talked about, but this has been building for some time.

Can you help us think about how your -- how the team is evaluating maybe the prepaid versus postpaid mix given the emphasis and the focus on premium loadings on the Bell brand. Should we think about above and beyond perhaps some of your initiatives with No Name Mobile and Lucky, and the new-to-Canada markets continue to be robust. Should we think about maybe a higher mix towards the prepaid loadings over the coming quarters and maybe over the next -- over the foreseeable future, rather as a way to perhaps combat [indiscernible] brand competition? Just maybe your thoughts on that would be great.

[Curtis Millen, executive]

Sebastiano, thanks for the question. I'll answer the first question I had and then hand it over to Mirko. So we don't -- we're not going to report that information on a quarterly basis. But I would say, as we reiterate our confidence in capturing those savings in-year that we expect and continue to expect to reach our run rate benefit by the end of Q4. So it will continue to ramp up through the year and we'll hit our in-year target and we'll be at full run rate by end of the calendar year.

[Mirko Bibic, executive]

Thanks, Curtis. So I'm glad you asked the question on prepaid because I would -- it allows me to kind of emphasize the very strong growth you see in prepaid. Actually is, in my mind, very well aligned with the premium loading strategy actually. So if you think through how we're trying to segment customers, we need to better align base pricing with in-market pricing or better align in-market pricing with base pricing, number one.

We need to better align the pricing differential between bring your own device and contract pricing. And on -- at the same time, we need to differentiate between prepaid and value-based postpaid plans. And we did a much better job in Q2, making prepaid the true entry point for those looking to enter wireless at the lower price point, and that includes a portion of newcomers and other customers. And then what you do is you work on migrating your prepaid customers. Those who are seeking an entry price point, you seek to migrate them up to postpaid plans.

So if you do that properly, what you're going to do as you're going to attract a bigger portion of those newcomers in Canada or those newcomers into the segment into the prepaid rather than into postpaid, which was a problem on how we were pricing as an industry, let's say, a year ago. And so I think what we did there is we saw, as we better align that pricing and as we better segmented customers, we saw very strong growth in premium postpaid loadings and strong growth in prepaid, particularly adept at attracting newcomers to Canada in that segment.

So the success you see there is completely aligned, premium postpaid, better growth on newcomers, which is a category that continues to grow. And that's because we did a better job at differentiating the pricing across the various brands.

[Operator]

Our next question is from David Barden from Bank of America.

[David Barden, analyst]

I guess my first question would be, Mirko, at the very beginning of the year, there was a hope that we might see decelerating ARPU growth last quarter. There was a change in expectations that we would maybe, see declining ARPU for the year. Your comments just now maybe to express some cautious optimism that the second half is yet to be written. Could you maybe, map out for us the good base and bad case scenarios and how you see those unfolding in the back part of the year for Bell Canada in the wireless ARPU front?

And then as a follow-up, could you share with us any traction that you think Bell Canada has achieved through your decisions to cut CapEx, cut employment in response to some of the regulatory decisions that have been made. Do you think that, that's borne any fruit or may bear fruit yet?

[Mirko Bibic, executive]

Thank you. Well, I'd say, kind of in wireless and on pricing, we are facing the most intense competitive pressure in the history of our industry in Canada. I said that in my opening comments, but we -- I don't repeat the lengthy answer I gave to Sebastiano, but I'll say that -- I'll add to that, that we did take steps in early July to reset pricing to what we feel is more sustainable while continuing, and this is really important, while continuing to deliver exceptional value to our customers.

So too early to call what that might bring for the balance of the year. But we did take those steps in early July, and it's in keeping with that kind of customer segmentation strategy that I described a few minutes ago.

On the second part of your question, David, I -- our views on the overall environment are very well known. So I won't repeat them. What I will say, though, is we're going to continue to focus on our strategy, which is, I hope, is crystal clear, which is continue to capitalize on our fiber momentum. It's the product of choice for customers, continue to focus on the premium loadings in wireless, continue to focus on mobility and Internet bundles. We're going to use our advantage, our lead in AI to continue to improve the customer experience and lower costs.

And maybe a little bit more pertinent to your direct question, we're focused on investments in our core business and in growth segments. So whether or not that's -- things like the acquisition of OUTFRONT, our ServiceNow partnership, the acquisitions of Stratejm, the shift from The Source to Best Buy, No Name Mobile. Those are very important investments in growth areas. And so those are the elements of the strategy.

[Operator]

Our next question is from Vince Valentini from TD Securities.

[Vince Valentini, analyst]

First, can I just clarify the 70% BYOD, Curtis. Would that be on total activations or just postpaid? And then just a follow-up question on a different topic. I mean, a couple of your peers used dividend sort of DRIP discount programs to help alleviate the increase in their debt as they pay their dividends. I'm wondering is that not something that BCE is considered. It seems to be a very eloquent way to match the interest of equity shareholders plus credit rating agencies and bondholders?

[Curtis Millen, executive]

Vince, thanks for the questions. On the first one, just a clarification, the 70% BYOD is on postdates.

[Mirko Bibic, executive]

Gross.

[Curtis Millen, executive]

Gross -- yes, postpaid gross. And in terms of the discounted DRIP, we certainly considered it. It's not in our plan at this point. We believe we have a path to getting our payout ratio below 100%, driving free cash flow through all of the levers that Mirko and I have mentioned. Obviously, going forward, it is a tactic that we would have, but it's not in the cards right now.

[Operator]

Our next question is from Simon Flannery from Morgan Stanley.

[Simon Flannery, analyst]

Great. So thank you for the data on convergence and bundles, very interesting. A number of the U.S. companies and also Rogers are looking at fixed wireless to help provide essentially a national bundle. How are you thinking about whether you -- how you address maybe areas where you don't have fiber either in footprint or out of footprint with either a fixed wireless or a resale-type bundle?

[Mirko Bibic, executive]

Our strategy remains primarily focused on generating growth through our fiber superiority, and that's where the focus is. In other areas, we have the ability to combine TV product with -- or content rather with wireless. But in 75% of the country where we have network overlap between fixed and wireless, really, the emphasis is fiber. And we're seeing -- as you mentioned, we're seeing very good results on bundling, wireless and Internet in fiber territory.

[Operator]

[Operator Instructions]

With that, our next question is from Jerome Dubreuil from Desjardins Securities.

[Jerome Dubreuil, analyst]

The first one, it seems like we're transitioning a bit higher percentage of the subscriber base on wireless towards prepaid. If you can discuss what's the dollar margin profile on prepaid versus postpaid and we're talking about something that is similar across both types of services?

And second question is on capital allocation -- on the wireless, again, where you have a government that's making it more difficult to earn returns on required wireless investments. We've talked a lot about the OpEx side of the equation. But what about wireless CapEx. Excluding the new generation, the new spectrum onboarding, how do you see wireless CapEx evolving directionally in the future versus what it has been in the last decade or so?

[Mirko Bibic, executive]

Well, on the CapEx question, whether or not it's wireless or wireline, overall, you're going to -- I mean you've already seen a step down in our CapEx year-over-year, and we're going to continue to lower the overall CapEx spend. So next year will be lower than this year. And I think we can run this company at a capital intensity below 15%, which is a level where Bell operated historically for a long time, and I think we can do that while continuing to invest in the key strategic areas. And that's not the long term. I'm talking about the short- to medium term there. I'll leave it at that on CapEx.

[Curtis Millen, executive]

And then, Jerome, [indiscernible] on your first question. So ultimately, we manage EBITDA margins on a consolidated basis, and we don't provide prepaid only reporting. I'd say ultimately, we manage, as you've seen in our results quarter-after-quarter, we manage cost diligently, whether it's prepaid or postpaid. And we're looking to lower our cost to serve while providing the same great service to customers, again, whether they're prepaid customers or postpaid customers.

[Operator]

Our next question is from Batya Levi from UBS.

[Batya Levi, analyst]

On the revenue guidance, you're tracking below your guidance so far. I think it's mostly due to lower margin equipment revenues. But what are some drivers to get back to growth in the back -- in the second half of the year? And also, if you could remind us revenue and EBITDA contribution from OUTFRONT Media, that would be helpful.

[Curtis Millen, executive]

Yes. Batya, thanks for the question. So as we said in our prepared remarks, we are reconfirming all of our guidance targets for 2024. I won't go through the laundry list of our revenue-generating tactics. But I would remind everyone that the majority of the revenue declines here have been driven by a decrease in very low-margin product sales, which is consistent with our strategy of not chasing low-value subscriber loadings.

[Batya Levi, analyst]

And on OUTFRONT Media?

[Curtis Millen, executive]

Yes. OUTFRONT Media closed midway through June. So the contribution on revenue is single digits. I mean it's an immaterial number given the time line of when that transaction closed.

[Operator]

There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Fotopoulos.

[Thane Fotopoulos, executive]

Okay. Great. Thank you, Matthew, and thanks again to everybody who participated on the call this morning. I'll give you back your 15 minutes, so you can enjoy the nice summer day. As usual, the IR team will be available throughout the day for any follow-ups and clarifications on that. Have a good day, everybody.

[Mirko Bibic, executive]

Thank you.

[Curtis Millen, executive]

Thanks, everyone.