Bell Canada spends $1.2bn on fiber, 5G network roll-out

Bell Canada (BCE) today announced a digital infrastructure program to spend up to $1.2bn Canadian dollars ($940m USD) on its fiber and 5G wireless network roll-out, over the next 2 years. Indeed, this is initiative forms part of Bell Canada’s largest annual capital plan in the company’s history. Specifically, the $1.2bn investment into its fiber and wireless network is incremental to the company’s typical annual capital expenditures of ~$4bn Canadian dollars ($3.1bn USD).

Overall, Bell Canada’s enhanced capital plan will add up to 900k additional fiber and Fixed Wireless Access (which Bell Canada brands as Wireless Home Internet) locations. Simultaneously, the $1.2bn of investment will also double Bell’s 5G population coverage in 2021. Importantly, the company expects its $1.2bn investment will generate $2bn in new economic activity in Canada. Furthermore, it will create 5.3k additional direct and indirect Canadian jobs.

Fiber Network Roll-Out – Bell Canada Goals
Bell Canada will invest $700m of its additional capital in 2021 to accelerate both its wireless and wireline network roll-outs. Specifically, this includes an incremental increase of up to 400k more homes and business covered with broadband and Fixed Wireless Access services. However, Bell Canada notes that only 250k of these homes and businesses will have entirely fiber connections. Indeed, the remaining 150k of these homes and businesses will have access to Bell Canada’s Fixed Wireless Access services.

Overall, Bell Canada’s coverage goals for 2021, which are part of its total capital expenditure budget, will increase new locations covered in 2021 to 900k. In turn, Bell Canada’s total broadband footprint will rise from 6.0 million locations at the end of 2020, to 6.9 million locations by the end of 2021.

Fiber Network Roll-Out – Bell Canada Rationale
Bell Canada presents three areas of rationale for accelerating its fiber roll-out plans. Specifically, the company’s rationale includes increasing internet penetration, lowering churn rates, and reducing its cost to service customers.

Internet Penetration Accelerates with Fiber Roll-Out
Bell Canada notes that its internet penetration rate grows much faster after a roll-out of fiber and Fixed Wireless Access services. Specifically, the company can gain between 5% to 25% penetration in the first 12 months of deploying these services in a new market. In turn, this has driven steady market share growth and internet revenue acceleration for the company, over time.

Notably, Bell Canada’s internet subscriber base has increased by 33% since the start of the company’s fiber build, in 2010. Moreover, Bell Canada’s year-over-year internet revenue growth rate has tripled from 3% to 9% in 2020.

Churn Rates Improve with Fiber Roll-Out
Bell Canada highlights that churn rates are also lower when customers are on a better, fiber-based network. Importantly, customer retention is a critical factor in Bell Canada’s calculations of customer lifetime value (CLV). On average, the churn rate for fiber and Fixed Wireless Access subscribers is 30 to 35 basis points lower than those on Fiber-to-the-Node (FTTN) or DSL (Digital Subscriber Line) networks.

Overall, a fiber-based network extends the duration of the customer relationship with Bell Canada by 2 years. In turn, this leads to an improvement in the overall lifetime value of a fiber and Fixed Wireless Access customer by 50% and 35%, respectively.

Cost of Service with Fiber Roll-Out
Bell Canada emphasizes that the cost to serve a fiber customer is also lower. Specifically, annual service and support costs per customer are 40% lower on fiber-only lines versus copper. Over time, a greater proportion of Bell Canada’s footprint will transition to fiber. As this happens, the company will experience an even more meaningful reduction in its overall cost structure.

5G Network Roll-Out – Bell Canada Goals
In terms of 5G services, Bell Canada plans to double its national 5G population coverage, over the next 2 years. Notably, in June 2020, Bell Canada launched initial 5G services in Montreal, Toronto, Calgary, Edmonton, and Vancouver. Currently, Bell Canada offers 5G services to more than 150 communities across Canada.

Bell Canada is re-farming its existing low-band spectrum, in the 850 MHz frequency, for the purposes of 5G. Indeed, the company has 10 to 20 MHz of nationwide spectrum depth in the 850 MHz frequency.

From an execution standpoint, Bell Canada is using Original Equipment Manufacturer (OEM) providers Nokia and Ericsson as suppliers for its standalone 5G core network.

Funding for $1.2bn Fiber and 5G Wireless Network Roll-Out
Bell Canada plans to use proceeds from its recent divestment of its data center business, in order to fund this incremental $1.2bn fiber and wireless network roll-out. Specifically, in October 2020, Bell Canada completed the sale of 13 data centers in Canada to Equinix for $1.0bn Canadian dollars ($780m USD). Indeed, these data centers comprised a total of 1.2 million sqft and were sold at an EBITDA multiple of 15.0x. Dgtl Infra