In addition to building out BCE’s networks, Mirko Bibic’s quartet of tactics to improve results includes a greater focus on customer experience, an expansion of the company’s new tech-services arm, and a continued pivot of media revenue from traditional to digital sources. Mr. Bibic, President & CEO of BCE and Bell, poses for a portrait at the company's head office in Toronto, on Jan. 16.EDUARDO LIMA/The Globe and Mail
For a chief executive officer contending with stagnating industry growth, a downgraded credit rating and debt-heavy balance sheet, along with a stock price that dropped 36 per cent last year, Mirko Bibic is surprisingly upbeat.
It’s been a rough stretch for Canada’s biggest telecom company. Investor confidence in BCE Inc. BCE-T has been battered by lacklustre results, a pause on dividend growth and a recent controversial deal to acquire a U.S. telecom company.
Still, sitting in a sleek room in the company’s Toronto office, dressed in BCE’s signature blue without a tie, Mr. Bibic is optimistic about the telecom giant’s future.
He outlines a four-pronged strategy to win back investor faith. The heart of that plan, he says, is “fibre, fibre, fibre.”
Under his tenure, BCE’s Bell Canada has spent $23-billion building out fibre-optic networks in Canada – an area that he says still provides strong growth for telcos. BCE is now charting new territory with its deal to acquire U.S. internet provider Ziply Fiber. Over a 60-minute interview, Mr. Bibic utters the word “fibre” more than 50 times.
In addition to building out BCE’s networks, Mr. Bibic’s quartet of tactics to improve results includes a greater focus on customer experience, an expansion of the company’s new tech-services arm, and a continued pivot of media revenue from traditional to digital sources.
“We’re going to regain the confidence of investors, because this is the right plan,” Mr. Bibic says. “As we deliver for customers, we’re going to deliver for shareholders.”
But the optimism is tough to square with BCE’s uphill battles. A sluggish macro economy, fierce competition in both wireless and wireline services, and curtailed immigration into Canada – a major source of growth – are putting pressure on the company from the outside. BCE is also carrying more than $40-billion in total debt and paying a dividend that costs the company more than it has been earning in free cash flow.
Mr. Bibic, now five years into his role as CEO and 21 with the company over all, says he still has “a ton of energy and a ton of optimism” and a drive to see what he calls the company’s “rejuvenation” through.
This means leading his company through a mire of investor skepticism and headwinds that have brought the company’s stock back to 2010 levels.
“2024 was a difficult year for the industry, clearly, and a difficult year for Bell in terms of share price performance. If you look at it the other way, though, that provides a tremendous opportunity. We are in that rejuvenation process,” Mr. Bibic says.
When BCE Inc. announced in early November it was shelling out $5-billion to buy Ziply and pausing annual dividend growth for the first time in 16 years to do it, investors balked, sending the stock down nearly 10 per cent that day.
It wasn’t just that the deal was at odds with BCE’s previously signalled push to deleverage itself. (Less than two months prior, the company had said it intended to use the $4.7-billion of proceeds from its agreement to sell its stake Maple Leaf Sports & Entertainment to Rogers Communications Inc. to pay down debt.) The pause on increasing payouts was seen by many as a departure from the company’s tradition as a dividend stalwart.
In a meeting with bank analysts the morning of the announcement, one asked whether, in seemingly trading its dividend strategy to a “growth” approach, the company’s executives were changing what BCE represents.
It’s a suggestion Mr. Bibic rejects. “Fibre is not a shift,” he says, emphasizing that his strategy is serving shareholders by focusing on the business. “That’s going to deliver long-term sustainability for our investors.”
Mr. Bibic declined to answer any specific questions about the biggest factors fuelling investor concerns – BCE’s dividend and its heavy debt – saying that the company was in a quiet period before its upcoming earnings announcement. Some analysts and investors say the company should cut the payout to preserve cash. BCE’s current dividend yield is around 12 per cent, an uncommonly high level that suggests many investors see it as unsustainable.
The company will report Q4 2024 earnings and 2025 guidance on Feb. 6. Mr. Bibic says that there would be “more to come on all these things, when we are in a position to be able to talk about it.”
He says BCE’s fibre strategy is paying off. In Canada, BCE has gained “tremendous market share and tremendous subscriber growth where we have fibre,” he says. Ten years ago, cable companies dominated the market with at least a 65-per-cent share in most regions, but today, fibre has levelled the playing field, often splitting the market 50/50, he says.
“No matter where – U.S., Canada, elsewhere – cable companies are losing share where they face direct fibre competition.”
When it comes to today’s household data needs, he says, other internet offerings just don’t provide the speeds necessary, or the price point isn’t attractive. “Why are customers switching if what they have today is good enough? Well, it’s not good enough.”
But BCE’s fibre-building spree is moderating domestically. Retail high-speed internet net subscriber activations decreased by 46.5 per cent in the third quarter of 2024 compared with the same period last year, “mainly due to aggressive promotional offers by competitors, less new fibre footprint expansion and slowing market growth,” the company said in its financial statements.
Recently, the company has been forced to cut wireline broadband prices to put pressure on its competitors, leading to a price war in wireline at the same time the industry is facing price declines in wireless, Barclays plc. analyst Lauren Bonham said in a recent note. She downgraded Barclays’ stock target for BCE from $41 to $30.
Bell’s profit potential is also being challenged by the telecom regulator’s network-sharing policy, aimed at improving competition, which grants competitors – including, at present, rival Telus Corp. – access to Bell’s networks at mandated prices.
It’s unsurprising, then, that the company has turned to warmer climes for expansion.
Mr. Bibic insists BCE’s $5-billion acquisition of Ziply Fiber, which operates in four Pacific Northwest states, is a strategic win.
Ziply’s fibre network passes 1.3 million locations and has 325,000 active subscribers. It’s projected to generate $960-million in revenue in 2025, a small percentage of BCE’s revenue, Ms. Bonham says. Free cash flow from the deal won’t materialize until 2028, after Ziply completes its fibre buildout: At that point, the company is aiming to have three million fibre passings and 500,000 subscribers.
The acquisition, set to close in late 2025 pending regulatory approval, comes at a steep 14x earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple, but Mr. Bibic says Bell is “very, very comfortable with the price” paid, citing the opportunity of the untapped market.
In Ontario, Bell’s largest Canadian market, two-thirds of residents have access to fibre, while just one-third do in Ziply’s footprint, Mr. Bibic says. Ziply’s cost per passing is also much cheaper in the U.S. than the cost of Bell’s future buildouts in Canada, he says, given that Ziply has yet to fully build out in dense, urban areas.
According to Ziply CEO Harold Zeitz, demand for fibre is rising in tandem with household fibre needs. These include activities like video calling and gaming, streaming when there are multiple people in the house, and working from the cloud, all of which require fast upload as well as download speeds.
Still, entering the U.S. could be a challenge.
“In a market that is already highly competitive, it is difficult to see how a Canadian telco’s investment in the US will generate value, especially given there is no opportunity for BCE to bundle and cross-sell wireless in the Ziply footprint,” Barclays’ Ms. Bonham said.
Mr. Zeitz says Ziply doesn’t currently see the need to seek out a deal to resell mobile services as the company has been able to grow without bundling, but that could change if market dynamics shift.
Bell has indicated it is open to further U.S. expansion eventually. But Mr. Bibic says the company isn’t looking at other deals at the moment, instead focusing on closing the Ziply deal and seeing the company through its roll-out plans.
Ziply will require investment for years to come. This could “eat into resources that may be better deployed locally in Canada to deal with competition in that market,” Ms. Bonham said.
Still, Mr. Bibic insists the deal is good for investors. “The upside is tremendous, the competitive environment is very good, and the regulatory environment is very good,” he says. “This is going to pay off tremendously in the short, medium and long term.”
“Telco to Techco”: not only is it the title of the company’s 2023 annual report, it’s the mantra governing Mr. Bibic’s four-part plan that he says will rejuvenate the company.
Aside from its networks, the company plans to focus on the customer experience – which includes everything from call-centre service to the company’s mobile app and contact with technicians – and build up its relatively new technology services arm, serving enterprise customers with online services such as the Internet of Things and the cloud.
Bell also plans to continue to digitize its media content – in other words, make the company’s traditional media available online. Forty per cent of the company’s media revenues now come from digital, compared with 17 per cent in 2020, Mr. Bibic says.
Bell has, for years now, been undergoing the winnowing of its traditional media assets, cutting dozens of radio stations and broadcast networks and making the rest available through online services as it contends with declining advertising revenue. He says the company’s core brands are Crave, TSN, RDS, iHeart and the CTV App.
“The way to deal with that shift in the industry is to shift with it,” Mr. Bibic says.
For the coming year, analysts generally see another 12 months of low revenue growth in the telecom sector.
“We find it difficult to remain constructive on Canadian telecom companies and see potential for further downside despite the sell-off,” Ms. Bonham said.
Others, like Bank of Nova Scotia’s Maher Yaghi, remain optimistic about BCE’s longer-term prospects.
“The fear around dividend sustainability has created a significant discount on BCE shares, one that doesn’t reflect the true cash generation potential of its assets,” he said. “For patient investors, this could be an interesting opportunity.”