BCE (TSX:BCE) Q1 2026 Earnings Call

0:01 Good morning, ladies and gentlemen. Welcome to the BCE Q1 twenty twenty six Results Conference Call. I would now like to turn the meeting over to Chris Summers. Please go ahead, Mr. Summers. Thank you, Matthew. Good morning, everyone, and thank you for joining our call. With me here today are Mirko Bibic, BCE's President and CEO and our CFO, Curtis Millen. You can find all our Q1 disclosure documents on the Investor Relations page of the bce.ca website, which we posted earlier this morning. Before we begin, I would like to draw your attention to our Safe Harbor statement on Slide two, reminding you that today's slide presentation and remarks made during the call will include forward looking information and therefore are subject to risks and uncertainties.

0:47 Results could differ materially. We disclaim any obligation to update forward looking statements except as required by law. Please refer to our publicly filed documents for more details on assumptions and risks. With that out of the way, I'll turn the call over to Mirko. Good morning, everyone. Thanks, Chris. Our Q1 results demonstrate continued disciplined execution across all four of our strategic priorities in what remains a competitive operating environment. Consolidated revenue was up 4% and adjusted EBITDA grew 2.9%. As we've outlined consistently, our capital allocation is organized around three priorities: to strengthen the balance sheet through disciplined deleveraging, fund our strategic priorities and of course, return capital to shareholders through a sustainable dividend.

1:35 We continue to execute against that framework in Q1. Most recently, we announced the divestiture of our land mobile radio business to Motorola Solutions for $675,000,000 and that's at an attractive valuation of approximately 10 times EBITDA. The latest in a series of actions to simplify the business and accelerate our path to our leverage targets. We're making significant progress across each of our four strategic priorities as well, and and I want to walk you through them, starting with putting the customer first. I'm on Slide three. You see that we continue to advance a number of initiatives to improve the overall value proposition and service experience for our customers, including the expansion of Internet contracts in Ontario, which give customers a greater price certainty, continued scaling of hardware free five TV, and the full launch of our voice virtual assistant across Bell, Virgin Plus, and Lucky Mobile.

2:30 Each of these supports longer term, more stable customer relationships at a lower cost to serve. Fiber continues to be a key growth driver for us. In Canada, we added close to 43,000 residential FTTH subscribers in the quarter with demand remaining solid across our footprint. Combined with the contribution from Ziply Fiber, total residential fiber net adds were close to 50,000 and Internet revenue across our North American fiber platforms grew 15% year over year. In Wireless now, Q1 was an unusually competitive quarter. Promotional activity across the industry extended well beyond typical seasonal windows. We were deliberate in how we responded. Staying out of the most aggressive pricing early in the quarter and participating selectively where we saw longer term value.

3:22 That discipline is reflected in our results. Strong postpaid net adds of close to 17,000, a 21% increase in gross activations and continued resilience in Bell branded performance. Early indicators suggest the market is normalizing and our focus remains on lifetime economics, not quarter to quarter volume. Video net subscriber additions swung to positive, improving approximately 26,000 year over year on strong uptake of the streaming bundles we launched in the second half of last year. That content pull through, together with growing adoption of subscriptions across our fiber base is driving meaningful momentum and product intensity, which is a key metric we're tracking against our Investor Day framework.

4:10 Turning now to our third strategic priority, which is to lead an enterprise with AI powered solutions. This is where I wanna spend a bit more time today with you because Bell dot ai Fabric is creating considerable value in a very short period of time, and I wanna make sure investors fully understand the story. Let start with a simple framing. Bell sits at the intersection of secure high performance networks, trusted enterprise relationships, access to significant power, and now purpose built AI infrastructure with a time to compute advantage. No other Canadian company has assembled this combination, and it's very difficult to replicate. That's our competitive advantage. Last year, we outlined our ambition to lead in this space, and we introduced three businesses, Ateco, Bell Cyber, and Bell AI Fabric.

4:58 Each is closely tied to our core strengths in connectivity, distribution, and trust. Since then, progress has only accelerated. I wanna begin with Saskatchewan because it's a landmark investment for Bell and for the country's AI future. Less than two months ago, we announced a fully contracted 300 megawatt purpose built AI data center in Saskatchewan. It's a transformational project that meaningfully improves our long term growth profile and is incremental to the financial framework we laid out at Investor Day. Our construction partners have mobilized on-site and preliminary work is underway. I'll walk you through what that looks like when we get to Slide five. At full run rate, as we've shared before, this facility alone is expected to contribute approximately $500,000,000 of revenue, 400,000,000 of EBITDA and over $250,000,000 of free cash flow at an IRR of approximately 20% at the data center level with additional upside from sovereign workloads and related services on top.

6:01 Beyond Saskatchewan, our broader AI fabric ecosystem continues to scale. In late March, we launched our Merit BC facility. Consistent with our model, Bell is providing the building power and cooling, The tenant supplies and funds all compute hardware. The facility uses a closed loop liquid cool design that does not draw from municipal water resources. The capacity at Merit is part of the approximately 73 megawatts of AI fabric capacity we referenced back in October. At this time, we have four fully contracted facilities, Mission Flats and Merit BC, which are both live, as you know. We have Winnipeg, which will go live early in the second half of this year, and that one is on an operating lease basis.

6:53 Those three constitute 29 megawatts of the 73 megawatts we guided to at Investor Day. And of course, we have Saskatchewan on top of that, which is under construction. We also continued to build out the Sovereign AI solutions ecosystem during the quarter. We announced strategic partnerships with Covio to deliver Sovereign AI powered digital services with Hypertech to deliver end to end Sovereign AI infrastructure built, hosted and operate in Canada and with SAP to strengthen Canada's digital sovereignty with cloud and AI infrastructure and post quarter with Celestica to advance the development of a Canadian sovereign AI infrastructure stack. Each of these partnerships reinforces a critical point.

7:39 Belle AI Fabric is not just about data centers. It's a full stack Canadian controlled AI platform with infrastructure, connectivity, security, integration, and services, working with best in class partners to meet the needs of governments, enterprises, and research institutions that require their AI workloads to remain here in Canada. And this brings me now to the financial results in enterprise. Bell business markets revenue, which we're disclosing for the first time this quarter, was up 9.7% in the quarter, driven by 113% growth in AI powered solutions. That's a powerful number and reflects the compounding momentum across all three of our AI powered businesses.

8:25 Again, I'll note that the Merit facility contributed to the quarter and Curtis will walk you through the financial details around that. We increased our AI powered solutions revenue objective from approximately $1,500,000,000 to approximately $2,000,000,000 by 2028 when we made the Saskatchewan announcement, and we're confident in that target. And frankly, I see potential beyond it. We have line of sight to monetizing approximately 800 megawatts of power over time, and our pipeline of interest remains deep and active. In short, AI powered solutions is creating significant differentiated value for this company. It's closely tied to our core business. It's disciplined, demand led and return driven, and it's a growth vector that no other Canadian telecom has.

9:14 Turning now to our fourth strategic priority, which is to build a digital media and content powerhouse. Our digital pivot in media is now well into its sixth year and the momentum is clear. When I became CEO in 2020, digital represented 19% of Bell Media's revenue, and today, it's 46%. That's up three points year over year, and it's still growing. It's a fundamental transformation of this business, and it's translating directly into subscriber growth, advertiser interest, interest, and new monetization streams. Q one was the most watched quarter in Crave history. Our subscriber base grew 25% year over year to more than 4,700,000 today, powered by 59% increase in direct to consumer streaming subscribers. That's exceptional growth in any market.

10:01 And with our target of 6,000,000 subscribers by 2028, we have a clear runway ahead. What's driving this is the combination of premium original content, a significantly expanded library, the streaming bundles we launched in the second half of last year, and continued improvements to the product experience, including targeted marketing offers, efforts, pardon me, in the French language market. Another recent addition is SNL, which will simulcast on Crave and CTV beginning this fall, one of the most watched shows on television and a strong signal of the content value we're building across both platforms. We also continue to solidify our long term sports content leadership. Over the last few months, we extended regional media rights with the senators, the Montreal Canadians, the Winnipeg Jets, and became the new Canadian home of the Toronto tempo and the WNBA.

10:56 We expect to announce additional major rights renewals in the near future. These are important long duration agreements that reinforce our position as Canada's leading sports broadcaster across TSN in English and RDS in French. Sports content is the single most powerful driver of live viewership, advertising premium, and subscriber retention, and we intend to maintain our leadership. And on that note and looking ahead, we're excited about the FIFA World Cup this summer. We have exclusivity on 104 games across our platforms, which presents a significant audience and monetization opportunity for Bell Media. The third element I wanna highlight is our growing ability to monetize original content international. Our Crave Original Series, Yaga and The Office Movers have been acquired by Sky for The UK and Ireland. And just last week, Yaga was acquired by AMC for The US market with additional territories expected to follow.

11:54 This builds on the global success of either rivalry, which continue to generate cultural impact through q one, earning a Peabody Award, multiple Canadian screen awards, and a second season renewal. The key here is that they aren't one offs. They reflect a deliberate strategy to invest in premium Canadian storytelling and then extend the value of that content across the full value chain, including through our majority ownership of Sphere Abacus, our global content distribution arm. As a reminder, our focus is for Bell Media to deliver consistent annual revenue and EBITDA growth while contributing meaningfully to free cash flow for BCE. We're on pace to do exactly that in 2026. I want to pause now on Slide five because I think it tells an important story.

12:43 So this is back to a BCE Inc. Fabric. In the spirit of transparently tracking and communicating our progress and our strategic initiatives, let me provide you some more detail on the construction progress here. On the left, you can see our Mission Flats facility. That's the one in Kamloops, BC, the very first one we opened last June. This is where Grox AI Inference Technology is live and serving workloads today. Our second facility is the one in Merritt, BC. That went from dirt to a fully operational AI data center in nine months. Together, these experiences gave us a proven reproducible playbook for everything that's followed. And on the right is Saskatchewan. This is what momentum looks like in real time. Our construction partners have mobilized on-site. You can see the earthworks are underway, site stripping, pilot testing heavy equipment on the ground. The development agreement has been approved by the rural municipality of Sherwood, our development permit application is currently under review.

13:41 We selected our early works contractors and over half a dozen additional trade contractors in the Regina Region. Long lead equipment, including generators and cooling systems have been ordered and on schedule. We expect all major permits in place by July, and we remain on track for the first phase to come online in the first half of next year. So let's take a step back and look at the trajectory. A year ago, Belly Eye Fabric was an idea in a single facility in Kamloops. Today, we have the data centers I summarized earlier and line of sight to monetizing approximately 800 megawatts of power. Now turning to Slide six. As you can see, we continue to track and measure ourselves against disciplined execution on the Investor Day targets we laid out last October.

14:31 You see a sample of those metrics on the slide and the progress. And before I turn it over to Curtis in a moment, I want to touch on two more things, capital allocation and capital investment. On capital allocation, we've been very consistent. In February 2025, we laid out a clear plan, simplify the business, strengthen the balance sheet, focus capital and higher return opportunities. And we reinforced all of that at Investor Day with significant transparency around everything we were going to do. We're committed to continue to share our progress transparently and regularly, and that's what we continue to do today. Since then, we've been executing one step at a time. We completed the sale of our interest in MLSC at a 10 time return.

15:17 We exited Bell Smart Home and most recently, of course, the Land Mobile Radio divestiture. The road map hasn't changed. We're gonna optimize the balance sheet. We're gonna fund the strategic priorities, which are high growth, and we're gonna return capital to shareholders through our sustainable dividend. And we're going to do that while maintaining the financial discipline and the flexibility to execute against our three year plan. And a reminder, we're only one quarter into that three year plan. On CapEx, as early as 2023, we saw where the environment was headed. We made deliberate choices back then to reduce spending on legacy segments and reallocate investment to growth segments. That's what we've done. That's what we're going to continue to do. Our Canadian telecom CapEx has decreased by over $2,000,000,000 from $5,100,000,000 in 2022 to below $3,000,000,000 in 2026.

16:12 That's putting aside the highly accretive AI fabric investments. Our underlying Canadian CapEx intensity is approximately 12% with wireless capital intensity at an industry low 7%. Our Canadian telecom CapEx will continue to decline. In the current environment, we've seen others in the industry recalibrate their capital spending. We totally understand that because it's what we've been doing. We laid out this discipline clearly at Investor Day, and we've been executing against it for three plus years. But what makes our story different is where we're investing the capital we do deploy. We have a significant growth vector in AI powered solutions that's intrinsically tied to our core business and that no one else in Canada has.

17:01 Our capital allocation is shifting toward higher return growth opportunities like AI Fabric and our U. S. Fiber platform as we maintain discipline on the core telecom side. Before I hand it over to Curtis, I wanna acknowledge our entire Bell team. The results we're sharing today reflect the dedication and focus of everyone who works for this company across the country and in The US, serving our customers, growing the business, and executing on the plan we've laid out. I'm proud of what the team has made. And Curtis, over to you now to take the team through the Q1 financial and operating results in detail. Thank you. Thank you, Mirko, good and morning, everyone. I'll begin on Slide eight with BCE's consolidated financial results. Total revenue grew 4% in the quarter, driven by the contribution from Zipply Fiber and continued strong momentum Markets, where AI powered solutions revenue more than doubled year over year.

18:00 Adjusted EBITDA was up 2.9%, driven by the contribution from Ziply Fiber and the flow through of higher product revenue. Margin declined 40 basis points to 42 dot 7%. As we previously indicated, the mix of growth in the business is evolving. Some of our higher growth services naturally carry a different margin profile than our legacy businesses, which tend to be higher margin. Our focus is on driving absolute EBITDA dollar growth and free cash flow growth. Adjusted EPS was down 6¢ compared to last year, reflecting higher depreciation and amort expense and interest costs, consistent with our 2026 guidance assumptions. On CapEx, total CapEx total capital expenditures were up 15.4%, reflecting Zipline's fiber buildout in The U. S.

18:52 And capital investments to support the growth of our Bell AI Fabric business as we build out data centers across Canada. Free cash flow increased 0.8% to $8.00 $4,000,000 I'll note that beginning this quarter, we updated our definition of free cash flow to exclude income taxes paid on significant divestitures, which improves comparability quarter over quarter, year over year and does not affect previously reported amounts. In q one, we paid $542,000,000 in income taxes related to the MLSC sale. That amount is excluded from the free cash flow figure I just referenced, but it does impact cash flows from operating activities, which analysts should keep in mind when reviewing the cash flow statement.

19:39 Turning to Bell CTS Canada on slide nine. I want to highlight a few disclosure enhancements this quarter that we believe will be helpful for investors. First, we've updated our Internet sub metrics to include wholesale subscribers. It is consistent with how we reported prior to 2019 and reflects the impacts of the CRTC's mandated fiber access decision on how we operate the business. We've also introduced an additional residential fiber to the home metric. Previously reported 2025 figures have been restated for comparability. Second, we brought in our IPTV subscriber definition to include bundled streaming service subscribers, customers who subscribe to a package that includes at least one third party streaming service and one BCE streaming service.

20:28 This is now reported under a new video subscriber metric, and, again, twenty twenty five figures have been restated. With that context, let me walk through the sub metrics, starting with wireless. Strength of our distribution network and the premium Bell brand helped deliver 16,947 postpaid mobile phone net adds in an unusually competitive quarter compared to a net loss of close to 10,000 in Q1 of last year. Postpaid churn was 1.34% After three consecutive quarters of year over year improvement through q four, the trend reversed in q one, reflecting a higher number of switchers driven by some of the most aggressive competitive offers we've seen in a seasonally low volume quarter.

21:15 As the competitive environment normalizes, we expect the improving trend to resume, percent, consistent with the Q4 decline and significantly improved from the 1.8% decline in Q1 of last year. ARPU The decrease reflects the flow through of the more aggressive pricing environment. We've been encouraged to see a return to more rational behavior in April and continue to focus on premium Bell branded subscribers and fiber led bundling to support the quality of our subscriber base. Moving to Internet. Residential fiber to home net adds, our new separately disclosed metric, totaled 42,750 in the quarter, a strong result.

22:03 Where we have fiber, demand remains solid, and our market share position continues to be strong. Turning to video. Video net adds totaled 10,103 in the quarter compared to a net loss of close to 16,000 in Q1 of last year, an improvement of approximately 25 26,000 year over year. This was driven by strong uptake of the streaming bundles we launched in the second half of last year, and it speaks directly to the product intensity moment momentum that Mirko referenced. Turning to the financial results for Bell CTS Canada. Bell Business Markets was a clear highlight this quarter. BBM revenue grew 9.7% in q one, driven by a 113% growth in AI powered solutions.

22:52 That's Ateco, Bell Cyber, and Bell AI Fabric combined. All three components contributed to this growth result. Beginning in q one, we're providing incremental transparency by disclosing DBM operating revenues with a service and product split, consistent with the transparency commitments we made at Investor Day. In late March, we launched our second Bella AI Fabric data center in Merit, BC. Revenue and EBITDA were recognized upon delivery under finance lease accounting. Going forward, we expect the majority of our AI Fabric agreements to be structured as operating leases, including our Winnipeg data center and our announced Saskatchewan business. The accounting treatment has no impact on the free cash flow we expect to capture over the term of the agreement.

23:44 Wireless service revenue was down 0.6%. The improving trajectory we saw through 2025 was disrupted by the competitive pricing environment in q one. Wireless product revenue was down 6.3%, reflecting fewer device upgrades and lower contracted sales as the market shifted toward bring your own device activations. Turning to Bell CTS U. S. On Slide 10. Zipline Fiber continues to perform in line with our expectations and the plan we shared at Investor. Q1 total revenue was $234,000,000. Adjusted EBITDA was a $102,000,000, representing a 43 dot 6% margin, an improvement from 43 dot 1% in q four.

24:31 Margin performance reflects continued operating discipline and efficiencies within the business. On the subscriber front, Zipline added nearly 7,000 net new fiber customers in the quarter, penetration across new and existing markets tracking consistent with historical cohort performance. Where we have fiber, we continue to win our share. The Dipley's plan to reach approximately 3,000,000 fiber passings by the end of twenty twenty eight is on track. As construction ramps through the balance of the year, we expect both operating and subscriber momentum to accelerate. Over to Bell Media on Slide 11. Total revenue was up dot 4% in the quarter. Subscriber revenue grew 11.8%, driven by continued strength in Crave and sports D2C streaming, as well as the benefit of a retroactive adjustment related to a contract renewal with a Canadian TV distributor.

25:31 Advertising revenue was down 12.8%, reflecting continued softness in nonsports traditional advertising demand. Lower audio revenue following last year's radio station divestitures, the absence of the prior year benefit from the federal election, and the shift of advertising dollars to the principal broadcaster of the twenty twenty six Olympic Winter Games. That said, our digital strategy continues to have significant momentum. Digital video advertising revenue grew 32% year over year, and total digital revenues now represent 46% of Bell Media revenue, up three points from a year ago. Operating costs were up 1.1% driven by contractual content cost increases for premium sports and entertainment programming, partly offset by lower labor costs and operating efficiencies, resulting in an EBITDA decline of 2.5%.

26:27 As Mirko noted, we remain on pace to deliver positive revenue and EBITDA growth for the full year. Turning to the balance sheet on Slide 12. We ended Q1 with $4,300,000,000 of total available liquidity, up from $2,500,000,000 at year end, supported by a 1,000,000,000 point dollars hybrid note issuance completed in February and a $750,000,000 public debt offering in late March. Our liquidity position is strong and provides significant financial flexibility. Our defined benefit pension plans remain in excellent shape with a solvency surplus of approximately $4,500,000,000 and a solvency ratio of approximately a 123%.

27:12 We continue to benefit from a full contribution holiday. Net debt leverage was approximately three dot eight times at the end of q one, essentially unchanged from year end. Couple of important items to unpack here. First, we paid $542,000,000 of cash taxes in q one related to the $4,700,000,000 sale of our MLSC stake. That's a onetime cash outflow that is excluded from our free cash flow definition, definition, but did reduce cash on hand in the quarter. Second, our reported leverage still reflects only eight months of Ziply Fiber EBITDA in the trailing twelve month calculation. On a pro form a basis, adjusted to include a full twelve months of Zwicky Fiber EBITDA, our net debt leverage ratio would be approximately three dot seven times.

28:01 Looking ahead, we have clear line of sight to further deleveraging. The announced disposition of our land mobile radio network services business to Motorola Solutions for $675,000,000 is expected to close in Q4 and upon closing, will improve our net debt leverage ratio by approximately 0.04 times. We remain firmly on track to achieve our target net debt leverage ratio of 3.5 times by the end of twenty twenty seven and to move below that level in 2028, while we continue to fund our strategic growth priorities. Turning to our 2026 financial targets on Slide 13. As a reminder, we updated our 2026 guidance on March 16, solely to reflect expected financial impact of the Saskatchewan AI data center.

28:52 Table on the slide shows both the original February guidance and the revised March guidance side by side, so you can see the impact of our build in 2026. We expect to begin recognizing revenue and EBITDA from Saskatchewan in 2027. We remain confident in our full year guidance ranges. We're delivering on the commitments we made on deleveraging, on capital discipline and on free cash flow growth. With that, I'll turn the call back over to Chris and the operator to begin Q and A. Thank you, Curtis. Before we start Q and A, I just want to remind everyone that due to time constraints this morning because of our AGM taking place after this call, please limit yourselves to just one question and a brief follow-up so that we can get to as many in the queue as possible.

29:41 With that, Matthew, we're ready to take our first question. Okay. Our first question is from Drew McReynolds from RBC. Just Mirko, on the regulatory environment, I think it's a little bit confusing on the wireless side. There's some kind of archaic kind of price control type things being implemented. On the wireline side, it looks like we've got a relatively constructive TPIA kind of final access rates on fiber. And then out of Ottawa, it looks like they want to build, but sometimes that's not obvious in telecom. So love to just to get a 30,000 foot updated view from you. And then in terms of the CapEx reduction across the space, just how could that evolve over time if the investment climate, I. E, regulatory environment improves? Thanks for the question, Drew.

30:44 I think the company's BCE's views on the regulatory environment writ large are pretty, you know, pretty well known. We've been staunch defenders of facilities based competition, but, you know, facilities based market competition off premise on an environment where companies are encouraged to invest in their networks, and that drives long term sustainable competition. So I'm not gonna kinda relitigate all of that. Also don't intend to relitigate the wholesale access decision for fiber. Our views are well known on that. And but when you put all these things together, whether or not it's the kind of more kind of micro rules that are coming out wireless that you referred to or or the, you know, the bigger kind of more policy oriented fundamental rules like fiber access, put all those together, And, clearly, it's having an impact on investment in the industry. And this is something that I personally have been talking about for as long as I've operated in the in the industry, which is January 2004. And a staunch believer that if you create a framework that encourages investment, investment will come. And if you create an environment that discourages investment, investment will suffer. And you just take a look at now I refer back to 2022 because that's when we started to pull back on core Canadian telecom CapEx. But if you just look at the capital investments over that short period of time in our industry on an annual basis, there's literally multiple

32:15 billions of dollars of annual CapEx that are no longer being invested. So, I mean, that's frankly unfortunate. Now look what we're doing. We are you know, we're being very, very disciplined in our core segment capital allocation, being very disciplined on legacy segments within, you know, the core business. Thankfully, you know, we saw this couple of years ago. Thankfully, we've developed some highly differentiated opportunities where we can deploy capital in high growth, high return segments that aren't regulated. So that's how we've pivoted. If the environment for the core businesses in in the country were to shift, I'm sure capital will flow back in.

33:13 I'll leave it there as well, just given time. Thank you. Thank you. Our next question is from Mayor Yaghi from Scotiabank. Please go ahead. Great. Thank you for taking my question. I just wanted to double down on the Saskatchewan investment. So you guys mentioned you disclosed that you're going to get $400,000,000 of prepayments and sort of fees. Have you received any of those in Q1? Or when should we expect to see those flow into your balance sheet? And will they show up in the cash flow statement, in working capital or deferred revenue is going to start showing those numbers? And the second question on that is, can you provide some of the contractual protections you have with those customers in Saskatchewan if there were delays, downsizing or exits from them in terms of termination fees, minimum payments, credit support, etcetera.

34:26 And again, finally, on that, with the schedule that you have to have full capacity run rate by late twenty twenty seven, what are the key building milestones that we should be thinking about in order to assess your advancement on that project? Thank you. I'll I'll jump in. Hi, Meyer. There's a a lot to unpack, so we'll circle back if we miss anything. So no. In terms of spend to date, we we have spent some CapEx in Saskatchewan, but it's less than $20,000,000 in quarter. So, again, some spending were off and running, but no no no payments that we've made that would then be refunded.

35:15 Again, that would reduce our our our net capital at risk, but that hasn't happened yet. I mean, ultimately, we're looking to spend more CapEx. I'd say q two and q three are gonna be the heavier CapEx spends where, purchase orders for equipment, as Mirko said, over 90% of our equipment we have purchase orders in. So when that equipment start coming in, CapEx will go up, and, and we'll make sure to disclose what is gross, what is net, and and what refunds have actually been credited along the way. To flip to your next question, you know, we do have standard protections. Won't list them all, but it is a take or pay contract. So it's not it's not a contract where, okay, they only need 60% along the way and then ramps up. It's a it's a take or pay contract.

36:04 Then in terms of milestones along the way, again, we'll be transparent. We'll provide information along the way. I I think there are a few different phases. One is permitting and getting the site ready, which you see is well underway, so the earthworks, the piling. The second is putting up the four walls, which eventually you'll see on-site. We're actually doing some prefab work off-site right now so that we, again, remain efficient in our timeline. So I would say prep work, prefab, start putting up walls, and then installing gensets, cooling, etcetera. So we'll we'll keep her abreast, but that's how I kind of bucket the different milestones. Thank you, Curtis. Thank you. Our next question is from Stephanie Price from CIBC World Markets. I'll stick with AI. And Mirko, think you mentioned upside that you see the $2,000,000,000.20 28 to AI powered solutions target.

37:07 Just curious if can give us any updates on line of sight deploying the additional, I think it's about 400 megawatts of power or any additional data points you have on the demand environment here? Well, I I I think I shouldn't be too too specific other than to say very high degree of of confidence in our ability to monetize the 800 megabytes for a reasonable period of time. And that that very high degree of confidence comes from the nature of the discussions we're having with a number of with a number of significant, you know, potential customers, very significant customers. So the conversations are are in great shape, and that would be both on AI fabric.

37:55 And, certainly, there's momentum in in the parts of the AI solutions business that that adds outside the data centers. So the ancillary services, a lot of a lot of momentum there. Again, if you take a look at AI powered solutions generally and even if you pull out the Merit facility, there's been a strong growth there across ATECCO and BCEBER. And just a a reminder, just back to your your your question, Stephanie. And we did say put put Saskatchewan aside because that was that was incremental. But if you go back to the the fairly conservative 73 megawatts that we said we would monetize over a three year period, we're we're already 40% of that 73 megawatts fully contracted, and we're only one quarter into a kinda, you know, basically a three year guide.

38:48 So, didn't think we'd be 40% of the way there at the end of q one when we outlined the plan back in October. So that's why expressing the high degree of confidence. Thank you very much. Thank you. Our next question is from Tim Casey from BMO Capital Markets. Please go ahead. Good morning. Marco, both you and Curtis in your comments talked about when pricing normalizes coming out of Q1. Can you just walk through why you think that? I mean, what's going to change in behavior given we're in a low growth environment and a high penetration environment?

39:34 What gives you confidence that that pricing environment in both wireless and wireline is going to improve going forward? Thanks for the question, Tim. So I mean the first data point is that so far in Q2, we're only a month in. Pricing has stabilized. So that's a positive sign. Now pretty second point is just generally as as we operate. When you're in a low growth environment, I and I I I subscribe to kinda what analysts, like, have been saying, which is in that low growth environment, pricing discipline should prevail over everything else. I don't plan to get into who did what in Q1 and when, but I will emphasize what our plan has been, and it's consistent.

40:21 Focus on the premium Bell brand where we have the the better ability to increase product intensity. And by the way, in product intensity, I'm obviously referring to both fiber and the streaming content bundles that we have, and and we will have to continue to differentiate ourselves on customer experience. So we going back, kind of first signs in q two positive in terms of price stability. Secondly, we don't plan to lead on pricing, and we're gonna focus on overall value prop. We're gonna optimize, lifetime economics. But, ultimately, it is a competitive, market, so we we we have to kinda check and adjust along the way every once in a while.

41:06 But so far, so good in q two. How about on the bundling side? Are you seeing any lessening or or moderation of intensity there? Yeah. Hi, Tim. No. On the on the fiber led bundling, it's actually up a little bit in q one versus our embedded base. So no no signs of slowing down. Again, we do have the biggest fiber footprint in Canada. So we're certainly leveraging that product advantage. Thank you. Our next question is from Sebastiano Petti from JPMorgan. A quick housekeeping question. If you could provide the, I guess, wholesale contribution to retail Internet ads in the first quarter because I think if you look at it on an adjusted basis, retail wholesale was a drag or a decline in 1Q of twenty twenty five. And so I wasn't sure if maybe you can provide us with the wholesale contribution in 1Q twenty twenty six. We kind of have a like for like as we kind of think about the subsequent quarters.

42:15 So that's the first question. And then second question, obviously lots of focus around satellite broadband and direct to device connectivity on the wireless side as well. I guess, you seeing any impact from satellite broadband in your maybe more rural non fiber markets? Obviously, fiber wins in the FTTH footprint. But above and beyond that, are you seeing any maybe incremental nibbling on the margins there? And then lots of headlines recently with a t ASTS Space Mobile. You guys maybe help us think about how you see that product evolving over time or what your kind of ambitions are there, obviously? And how do you kind of see it as table stakes going forward as you kind of think about your consumer led or try to meet your consumers where they are in terms of product demand? Thank you very much.

43:05 Thanks, Sebastien. I'll do the second second part and then, Curtis, you can handle the first question. So on the second part, look, we're really excited about our partnership with AST and the upcoming service that we'll be able to deliver to Canadian consumers to solidify the network experience they have with us, particularly on the direct to device side where, where we don't have coverage. So that's, going to be the principal, use case for us, but recognize that in, with AST, we'll be able to provide voice, broadband, streaming data, all of it. So quite excited about about the partnership with AST. In fact, our our we're in the cap table, so we're excited about that too. So that's on AST more broadly on satellite broadband and its impacts in rural.

43:55 Satellite broadband, generally speaking, like, now I'm gonna give you a macro answer. We're we're not we're not seeing it, have an impact where we have fiber, and you can see it in our strong fiber numbers. So, you know, nothing replaces fiber, frankly, for broadband. In rural areas, you know, we where we have know, legacy copper, low speed, DSL, and that's not competitive. So whether or not it's a tier one cable or fixed wireless or, satellite broadband, you can expect to continue to see losses where we have, where we have DSL. So, you know, that's just that's just the facts and and whether or not it's broadband satellite broadband or something else that's eating away at our at our customer base there kinda really doesn't doesn't matter which one it is.

44:46 So that's kinda my answers there for I hope that's helpful, Sebastiano, on satellite broadband and then on PST. And so, Sebastiano, on on the first part of your question, so we we did we did restate 2025. So it is apples to apples. And, you know, going forward, that is how we're gonna report. And we do think it's just how we we monetize the network in in this current reg environment, so we think it's more appropriate to to share it on a combined basis. But, again, it is it is apples to apples period over period. Yeah. So if we look at the new reporting versus the old reporting, you can see that there's a decline of, like, call it, you know, 6,000 in one q. Right? On your new reporting relative to your old reporting. So I wasn't sure if there is wholesale as a contributing factor to the 14, or is it so it would reported have been higher or lower without a wholesale is the question essentially.

45:38 Yeah. I would I would assume wholesale impact year over year has had a a bigger impact given the reg environment. But, again, it's it is still monetization of our network going forward. So, you know, it's everything is driving revenue. And the retail performance remains quite strong. I mean, retail, I mean, the the our own branded performance remains quite strong. That's helpful. Thank you, guys. Thank you. Our next question is from Jerome Dubey from Desjardins Securities. Please go ahead. Two on AI Fabric. The first one is a follow-up to Stephanie's question on the four twenty seven megawatt power that is not contracted yet.

46:25 You said you're pretty confident to be able to monetize that. Any chance you can talk about whether this could be made kind of similar IRRs and what you're talking about on the Saskatchewan side? And second the one on AI Fabric is, if you can kind of quantify or talk about your ability to be to secure additional power going forward in Canada? Thank you. Thanks, Jerome. Yes. So the first question is, yes, we're still we have our eyes set on or objective set on strong returns through monetization of the remaining power we have access to. Remember, I re reiterated this in my opening remarks. Our approach on all this is going to be, return led demand driven. So get the demand, sign the contracts, invest the capital, build, generate the returns. So return driven demand you know, return led demand driven.

47:29 And on you know, is there is there there's a possibility of having more than 800 megawatts to to monetize? Yes. That is possible. We keep looking at at opportunities. So, you know, we have nothing to announce in terms of, you know, access to power beyond 800 megawatts, but it's something we're looking at. You know, if the opportunities arise, we will definitely seize upon them. Thank you. Thank you. Our next question is from Vince Valentini from TD Securities. Please go ahead. Hey, thanks very much. Clarification first, Curtis, can you give us what the revenue and EBITDA was from the Merit BCE facility this quarter?

48:16 And then second, we're talking about these subs and the definition changes. Fine, it makes perfect sense to account wholesale and account streaming subs. Can I just like make sure you're not changing any executive compensation formulas to give yourselves bonuses based on subs given the change in in definition? It's just you're changing it because you think that's a more transparent way to show it to us? No. Sub sub growth, sub volumes, connections, none of that is baked into any of the metrics for our, our compensation. Our compensation is based certainly, the long term compensation, Vince, as you know, we've talked about this before, is based on driving free cash flow and hitting our leverage targets.

49:05 Then Vince, your question on the AI Fabric. If you look to the product revenue change year over year, it's about $100,000,000 you know, roughly, that's that's the impact of of of the finance lease facility. One more one more thing actually on the okay. Vince, why don't why don't just jump in here on the on the question around the sub metrics and and particularly around the the content ones. Because I think Curtis has handled already the fiber subs. But on the on the streaming bundles, I let me explain that kind of the philosophy behind the change. If you go all the way back to 1999 when we launched satellite TV, what Bell what the Bell consumer business has been offering to consumers is bundled content.

49:55 And that's what we offer. So that was satellite TV at first, and then we had five five TV gen one, gen two, gen three, and, you know, we're into hardware free TV, and now we're into streaming content bundles. All of those is just about providing bundles of content to consumers, so we shouldn't kinda measure ourselves based on the technology we use to deliver that. It's the fact that we're delivering bundled content. That's why we changed the subscriber metrics for for TV. No. Appreciate that, Marco. Just curious. Sorry. On on the 100,000,000 revenue, we could kind of derive that, I agree, from the product revenue. It's really the EBITDA and the margins. I mean, I assume this is positive margin product revenue, like 25% margin. Is ballpark? Yes. I'd say it's a little higher than that and in line with the numbers we provided for the entirety of the 73 megawatt portfolio.

50:54 Our next question is from Batya Levi from UBS. Can you talk a little bit about the trends that you're seeing in The U. S, maybe in terms of the competitive intensity and pricing you're seeing in the market? And a quick reminder of Zipline contribution for revenue and EBITDA would be helpful. I think you had mentioned that you would expect revenues to grow double digits. Is still the outlook? Thank you. Well, the first one I'll take the first one, Smirko Baccha. So the underlying fundamentals for Zipline are there. They remain there. The demand for fiber is very strong. Customers prefer fiber. There's no different in The US than it is in Canada, as you know. And particularly where we have fiber, the penetration gains, are are following the profile that, you know, Ziply's had since its inception and creation in 2020 and in line with what we see at Bell where we have fiber.

51:52 So all the, you know, the long term economics, all remain, very, very supportive on that front. And, oh, as far as the competitive dynamics are concerned, again, so when I'm telling you when I'm saying that our penetration gains where we have fiber remain as expected and in line with what we've seen in the past, that that includes includes in the more recent period where where some of the cable competitors, have been more aggressive on pricing. And more recently, we've seen, better stability or more stability on broadband pricing where we operate in The US from our major competitors compared to perhaps, the the the end of last year. And then in terms of the contribution, so in q one, Batya, it's Curtis. Right? It's 234,000,000 of revenue and and just over a 100,000,000 of EBITDA. So, you know, representing growth if you just multiply it by four versus the dot nine that we talked about in 2025 for for Ziply fiber. But, ultimately, the growth for us is continue to drive our footprint expansion, leverage our partnership with PSP to fund incremental footprint build. I would say q one of twenty six was the first time that Network Fiber Co actually deployed capital, so that will continue to ramp and continue to help Ziply drive penetration and subscriber growth. And the real growth

53:22 metric for us is by the time we get to 2028, right, drive way more subs and and significant revenue and EBITDA growth. So kinda short term percentages percent growth will be good, but, you know, we're looking for total dollars of contribution, as we continue to ramp and get through some of the initial ramps. So '27, '28 financials are, are what I'm focused on. Got it. Thank you. Thank you. Our next question is from Matthew Griffiths from Bank of America. Please go ahead. Hi. Thanks for taking the question. I just wanted to circle back again to the AI powered revenue. So just some clarifications, maybe just for my benefit. But for the AI Fabric, is all of that revenue going to get grouped into the product revenue as these facilities come online?

54:19 And then the growth in AI powered revenue overall seems to be and maybe you can give some color on the other, say, Ateco and Cyber's contribution to that growth because just it's partially because of the Merit facility being delivered. That was near the end of the quarter, and I can't imagine that was, at that stage, a really big driver of the year over year increase. Just maybe some details on on, like, the other part of the three legged stool that is driving that line would be helpful. Thanks. Sure. Hi, Matt. It's Curtis. So the Merit facility is recognized as a finance lease. So, yes, it does hit it benefits the product revenue, and that's the roughly a 100,000,000 year over year increase that you would see there.

55:06 The so the first two facilities, Mission Flask and Merit, both accounted for as finance leases. Again, the accounting the revenue and EBITDA accounting follows the contract. There is no difference at all in free cash flow. We capture free cash flow over the term of the contract. So we'll continue to to reap the free cash flow benefit over time. The Winnipeg facility is operating lease. That's why you don't see much of a benefit in in this quarter. But, again, free cash flow over time, revenue service revenue, and EBITDA over time as well as CapEx. So, again, for Winnipeg operating lease, you saw CapEx in q one we actually spent, but you haven't seen the impact or the benefit of revenue and EBITDA. And then when you look at Saskatchewan, again, that's operating lease. So you're seeing the the burden of CapEx hit our financials, but revenue will be service revenue over time and EBITDA would be captured over time as well. And we do expect the majority of our AI fabric contracts signed going forward to to have operating lease treatment.

56:20 Okay. Got it. And then the contribution of the, you know, the to the to the growth from Cyber or Ateco, or or are you just saying it it was all from Fabric? No. If you if you strip away AI Fabric from AI powered solutions, so ATTCo and Bell Cyber collectively are, a, both growing and collectively north of 30% year over year growth. Okay. Thanks. Well, I think that that was, our last question just given timing here. So thank you all again for your participation on the call this morning. Richard and I will be available throughout the day for follow-up questions or clarifications. Thank you to all, and have a great day. Thanks, everyone. Thanks.

57:10 Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.