Quebecor Inc.

Julie Tremblay - President & CEO, Media Group Pierre Dion - President & CEO Manon Brouillette - President & CEO, Videotron Jean-Francois Pruneau - SVP & CFO Martin Tremblay - VP, Public Affairs

Phillip Huang - Barclays Capital Maher Yaghi - Desjardins Securities Jeff Fan - Scotiabank Vince Valentini - TD Securities David McFadgen - Cormark Securities

[Technical Difficulty] president and chief executive officer Videotron and Julie Tremblay, president and chief executive officer of our Media Group. You will be able to listen to this conference call on tape until February 4, 2017 by dialing 877-293-8133, conference number 1205991 and passcode 72925.

This information is also available on Quebecor's website at www.quebecor.com. I also want to inform you that certain statements made on the call today may be considered forward-looking and we will refer you to the risk factors outlined in today's press release and reports filed by the corporation with regulatory authorities.

Let's now move on with our speaker, Pierre Dion.

Thank you, Martin and good morning everyone. In the quarter, our telecom segment continued to outperform, fueled by strong results from our mobile and Internet services, as well as from our business solutions segment.

Our mobile services posted an impressive 26% revenue growth, led by solid customer and ARPU growth. Our business solutions segment posted a 24% revenue growth driven by the good results from our recent acquisitions.

With initiatives such as the recent launch of our one gig Internet service, we're more than optimistic about our telecom segment's ongoing performance. Facing continuing challenging market conditions and in an effort to align our cost structure with revenue trends, yesterday we announced restructuring initiatives from our Media Group.

In order to remain leaders, we sometimes have to take difficult decisions. With the fragmentation of advertising markets and the explosion of choices to consumers resulting from digital product and services, improving productivity is key to maintaining quality of our products, such as television and newspaper content.

We obviously embrace the digital transformation of the media industry, as demonstrated last month by the launch of our TBA mobile application which provides on demand and live streaming access to TV as content. This new platform will allow us to reach viewers wherever and whenever they want and to provide additional opportunities to advertisers.

Now that year one has passed since the opening of the Videotron center, we can already conclude that our partnership with the City of Quebec is promising. Indeed, more than one million fans have crossed the gates in this first year, demonstrating that Quebec City can welcome diversified and best in class events from Celine Dion to Metallica or NHL games.

Our entertainment producing unit, Gestev, currently traces its own path in the industry, in the entertainment industry and we expect continued success. I will now let JF review our consolidated financial results.

Thank you, Pierre. Quebecor's revenues were up 2% in the quarter to CAD998 million.

Revenues from our telecom segment grew 5% to CAD794 million. Quebecor's EBITDA was relatively flat at CAD390 million in the quarter.

Our telecom segment recorded a 4% EBITDA growth to CAD364 million. Our stock price increase in the quarter resulted in an CAD11 million unfavorable variance in respect of stock option expenses.

Excluding stock option expenses, Quebecor's EBITDA increased 2% in the quarter. We reported net loss attributable to shareholders of CAD8 million in the quarter or CAD0.07 per share, compared to a net income of CAD85 million or CAD0.69 per share reported in the same quarter last year.

The decrease is mostly explained by an unfavorable variance in valuation of financial instrument, once again resulting from our stock price increase, as well as by an unfavorable variance resulting from the CAD140 million gain on our litigation with BCU recorded last year. In the quarter, we wrote off CAD40 million of goodwill assets related to our magazine segment and TVA group.

Adjusted income from continuing operations, excluding unusual items and gains or losses on valuation of financial instrument, came in at CAD83 million or CAD0.68 per share compared to CAD74 million or CAD0.60 per share reported in the same quarter last year. Quebecor media's consolidated free cash flow from continuing operating activities increased from CAD70 million in the third quarter of last year to CAD147 million this quarter, mainly as a result of a decrease in CapEx and favorable variance in working cap.

For the first nine months of the year, revenues were up 3% to CAD3 billion and EBITDA was up 2% to CAD1.1 billion. Excluding stock option expenses, EBITDA increased 4% year-over-year.

Adjusted income from continuing operations, excluding unusual items and gains or losses on valuation of financial instruments, came in at CAD221 million or CAD1.80 per share, compared to CAD182 million or CAD1.48 per share, reported last year. As of the end of the quarter, our net debt to EBITDA ratio was 3.3 times, down from 3.6 times reported as of the end of the third quarter last year.

Available liquidity of approximately CAD1.1 billion as of the end of the quarter, full access to capital market financing and free cash flow generated by our operations, are more than sufficient to cover near term debt maturities. In the quarter, we purchased and cancelled 124,000 Class B shares.

Since we initiated our NCIB program in 2011, approximately 6.7 million Class B shares have been purchased and cancelled. I will now let Manon review our telecom segments operations.

Thank you, Jean-Francois and good morning everyone. As expected, our wireline and wireless services bounced back in the third quarter following a second quarter impacted by the traditional moving season in Quebec.

We recorded a growth of 55,000 RGUs fueled by strong growth in wireless and Internet services. Over the last 12 months, we recorded growth of 97,000 RGU.

Wireless services continued to lead the way as we signed up 39,000 customers in the quarter, a similar growth to that of last year. In the quarter, we recorded our best quarterly growth as performance since commercial launch.

As of September 30, we counted 868,000 customers for an impressive growth of 125,000 customers over the last 12 months. Wireless ARPU grew CAD3.53 year-over-year or 7%, from CAD49.08 recorded in the third quarter of last year, to CAD52.61 recorded in this quarter.

Monthly churn rates remain stable year-over-year. In Internet services we posted growth of 24,000 customers in the quarter compared to 20,000 in the third quarter last year.

In September we made a few changes to our hybrid fiber Internet access structure in order to capitalize on our speed advantage across our full network which should contribute to further increase our market share and ARPU. Furthermore, results from a national study commissioned by the CRTC show that our HFC network more than meets its promises with respect to speed levels as actual download and upload speeds average 106% and 103% of contractual speed levels.

On the cable TV front, despite a challenging market, we managed to record a decline of less than 2,000 customers in the third quarter, flat from last year. In cable telephony we recorded a loss of 19,000 lines in the quarter compared to a loss of 8,000 lines last year.

We continue to maintain our market share lead in this challenging environment. Club illico, our over-the-top video service, now boasts 279,000 customers for an increase of 12,000 customers in the quarter and 50,000 year-over-year.

This success is driven by our premium content strategy, including the second season of our exclusive original series, Blue Moon which recorded more than 550,000 views in its first week view. The first season has recorded more than 2 million views.

Furthermore, we're proud to announce that Club illico is now available on mobile devices, both iOS and Android. Our mobile strategy continues to be successful.

As of September 30, 81% of our residential customers were bundling two services or more and 57% were bundling three or more services. Total ARPU grew from CAD136.94 in the third quarter of 2015 to CAD146.58 in this quarter for an increase of close to CAD10 or 7%, reflecting continued wireless ARPU growth and bundling success.

Revenues from our business segment grew 24% year-over-year, primarily due to our recent acquisitions, as well as ARPU and RGU growth. Our data centers in Montreal and Quebec City were both delivered on time and on budget.

The Montreal data center was officially inaugurated on September 13. Our actual sales and our sales promo are more than encouraging strengthening our investment thesis.

Finally, we launched our Giga speed Internet access which will allow us to maintain our market lead in Internet services. Videotron's customer satisfaction remains the best in the industry, as measured by the 2016 Forrester customer satisfaction index survey.

Results show that Videotron ranks first in customer experience in the Canadian telecom industry for TV, Internet and wireless services. Moreover, Videotron mobile ranks best in class from a customer experience perspective amongst 200 Canadian companies from various industries.

On the financial front, our telecom segment's revenue amounted to CAD794 million in the third quarter compared to CAD754 million in the same quarter of 2015, for a 5% growth, primarily driven by RGU and ARPU growth, mainly in mobile and Internet services. For the first nine months of the year, revenue grew 5% to CAD2.3 billion.

We recorded EBITDA of CAD364 million in the third quarter compared to CAD351 million last year, for a 4% increase. For the first nine months of the year EBITDA grew 5% to CAD1.1 billion.

Despite an unfavorable variance in respect to handset subsidies, primarily impacted by upgrades and increased take up of high end devices, wireless EBITDA maintained its growth pattern. [indiscernible] subsidies should however pave the way to increasing ARPU as ARPU from new customers exceeded CAD58 in the quarter compared to CAD55 in the third quarter of last year and despite growth in bring-your-own-device customers.

Overall, customer acquisition was stable sequentially at CAD404 as higher handset subsidies were offset by an increase in proportion bring-your-own-device customers. From a cash flow perspective, we generated CAD184 million in cash flow from segment operations, an increase of CAD33 million from the third quarter of 2015 due to lower CapEx and EBITDA growth.

Net capital expenditures, including acquisition of intangible assets, amounted to CAD180 million in the third quarter, CAD21 million lower than last year. We spent CAD23 million in the quarter on our mobile infrastructure, including CAD90 million invested in the continued expansion of our LTE network.

For the first nine months of the year, net CapEx amounted to CAD599 million, of which CAD98 million was spent on our mobile infrastructure, including CAD81 million invested in our LTE network. Thank you and now we turn to the Media Group with Julie.

Thank you, Manon. Consolidated revenues for the Media Group declined CAD17 million or 7% in the third quarter to CAD222 million, resulting from a 15% decline in newspaper publishing revenues, 26% decline in MELS revenue and a 14% decline in magazine.

Our broadcasting revenues increased 5% primarily due to higher advertising revenues from TVA Sports thanks to the 2016 World Cup of Hockey tournament and to higher commercial production revenues from TVA network. Advertising revenues from our broadcasting activities increased 2% in the quarter to reach CAD46 million in subscription revenues from our specialty channel, increased 3% to reach CAD29 million despite the shutdown of our business channel.

On the same store basis, subscription revenues increased 5% and TVA Sports exhibited subscription revenues from growth of 4%. The increase in advertising revenues is mostly attributable to TVA Sports.

The continuing downward trend in operating revenues in the magazines industry, particularly in advertising and newsstand revenue, led us to perform an impairment test on our magazines cash generating unit. We concluded that the recoverable amount was less than on carrying amount and we recorded a CAD48 million goodwill impairment charge without any tax consequences in this quarter.

Our newspaper publishing business reported revenues of CAD47 million in the third quarter of 2016, compared to CAD55 million reported last year, for a 15% decrease. Advertising revenues declined 17% while circulation revenues increased 1%.

Media Group's EBITDA amounted to CAD35 million in the quarter compared to CAD43 million reported last year. Our newspaper publishing business recorded EBITDA of CAD4 million, 16% better than last year, while our broadcasting business recorded EBITDA of CAD11 million, CAD8 million lower than last year.

This decline is mainly attributable to TVA Sport and TVA Network, primarily due to higher content costs, such as the cost incurred for the World Cup of Hockey. Our magazine business recorded EBITDA of CAD6 million compared to CAD4 million last year, mainly due to operating synergies realized in integrating the magazines acquired from Transcontinental in Q2 2015.

MELS recorded EBITDA of CAD4 million. For the nine month period ending September 30th, Media Group's revenues amounted to CAD672 million, a decrease of CAD34 million or 5% year-over-year, as advertising revenues from our broadcasting activities declined 4% to CAD174 million, partly offset by a 5% subscription revenue growth from our specialty channels to CAD87 million.

Our magazine business posted revenue growth of 7% for the first nine months of this year to CAD87 million and MELS recorded a 15% renew decline to CAD44 million. Our newspaper publishing business reported revenues of CAD149 million for the first nine months, a 16% decline as advertising revenues declined 16%, partly offset by a 2% circulation revenue growth.

Media Group's EBITDA amounted to CAD39 million for the first nine months of the year. Our newspaper publishing business recorded EBITDA of CAD8 million, while our broadcasting business recorded a CAD5 million EBITDA.

Our magazine recorded EBITDA of CAD12 million, while MELS recorded EBITDA of CAD7 million. Cash flow from segment operation was CAD22 million in the quarter and CAD2 million for the first nine months of the year.

Let me now turn the floor back to Pierre.

Thank you, Julie. In conclusion, we can affirm that our financial results in this quarter demonstrate that we stay the course.

Our telecom segment continues to lead the way with consistent growth from mobile, Internet and business solutions. However, in our Media Group, the challenging environment forced us to take rigorous actions that should mitigate its impact on our future results.

Those decisions are never easy to take, but it is our responsibility to adapt our business model to changing conditions. With that in mind, our management team and I are convinced that the company is well positioned to continue to deliver consistent superior results.

Thank you for your attention. Operator, please open the line for questions.

A quick question on, you know a strong wireless quarter. I just wanted to see if the momentum -- how is momentum extending through to Q4.

The momentum is very good in the fourth quarter, so I would expect that we keep delivering that type of performance.

And then a question on the cable side. Internet revenue seemed a bit soft in this quarter.

Is it mainly driven by the recent change in the pricing structure to leverage your speed advantage to gain some market share?

No. Actually if you dig a little more and you'll see that improving in the next few quarters because we revised our packaging structure.

And what we've seen so far is a huge impact on the ARPU and ARPU from the last quarter in Internet grew. So basically everything is in place to make sure that we will keep growing, not only in terms of customer base, but in terms of revenue from the Internet segment.

Got it. Okay.

I don't know, maybe you've seen -- actually, maybe you've seen that we've launched a new package at 120 megabits for something like CAD80 and it's unlimited. So we see the lift.

There's a lot of take up rate in the last few weeks on that particular package and it has a direct impact on the ARPU that we will deliver in the next quarter.

Got it. Okay.

So in terms of the impact on this quarter, what was driving -- I guess maybe my estimate was a little bit higher, but what was driving the -- was there any specific impact to point to in this particular quarter on the Internet revenue?

Yes, there's maybe one thing I could comment upon is, well first of all, we're very pleased with the result. Five percent growth in revenue and 4% growth in EBITDA is a pretty good flow through to [indiscernible].

But basically I guess you're referring to the fact that we had a 5% EBITDA growth last quarter, so what's the impact? It's mainly due to handset subsidy, but the renewed customer base that is very higher skewed in the third quarter.

Basically we're a one-stop shop call center, so historically, since we launched our mobile business, with the moving season happening in the third quarter, we had a lot of upsell of mobile onto the cable customer base. So you will see every third quarter a higher proportion of renewal of subscriber, mobile subscriber which comes with handset subsidy.

So there's an impact in that. But on the other end, what we see is that the renewal of the customer comes with a better ARPU.

When we report our mobile growth in ARPU, we report a 7% growth, but when we look at and we talk about mainly new [indiscernible] which brings CAD58 ARPU. But when we look at renewed customers, the ARPU actually grows by 20%.

So it's a pretty good investment to do.

Right. No, that's very helpful and I think that the wireless results, just to clarify, certainly I thought it was very solid.

I was actually more referring to the cable Internet revenues. I thought that came in a little bit lighter than what I would [indiscernible] and I was just wondering if there were any specific one-time thing that was causing that or whether it reflects maybe a new pricing structure that was put in place and whether we've already seen the full run rate on that, both in terms of subscribers and in terms of revenue.

No. The only thing I could tell you to maybe reassure you, I can send you my model [indiscernible].

No, I'm joking here. But the thing is we had a tremendous performance in the quarter and it's keeping up in the fourth quarter.

In terms of growth, market share of growth addition, we were ranking first head-to-head with one of the competitor in mobile. But we ranked first ahead of our main competitors in TV and in Internet.

And it's doing the same -- you know, the pattern is still keeping up in the fourth quarter, so I would assume that you'll see great results in that particular quarter. And we don't -- you know, it's not a fire sale, as I may say.

We maneuver our promotion properly to make sure that we still deliver strong financial results.

Could you remind us when the new -- because I think you referred to pricing structure on the broadband, cable broadband in order to leverage your speed, your current speed advantage.

Yes.

And drive a little bit of market share. Could you remind us when that was put in place and when should we expect to see the full impact of that in Q4, both in terms of subscribers and in terms of any sort of revenue lift or changes to the revenue trajectory?

Yes. I don't have the specific day, but it was early Q4.

I think it's been about three, four weeks.

Yes, early October.

Maybe just clarify. You said the ARPU you get from people renewing is 20% higher than the CAD58 average ARPU for new customers?

No, 20% more than the actual ARPU they had when they subscribed with us the first time.

Given that you have these increased number of upgrades and people are taking higher cost handsets, are you willing to start disclosing your retention costs as a percentage of revenue or just straight up number because a lot of the other carriers give us that number?

Yes, not at this stage.

Vince, it's JF. Not at this stage, but it is definitely something that we'll look at in the future.

And last, we're getting close to the end of this year, do you have any insights you can give us on your CapEx plans for 2017 at this point with the LTE falling off but potentially IPTV coming onstream where you're directionally going?

Well, I'll let Manon answer to the IPTV question. But with respect to the CapEx guidance, it's usually at our March call that we do that.

And as for IPTV, as mentioned in previous calls, we're still doing our homework. We know that at a certain point in time we'll have to go IP, the question is when.

So it's a matter of timing and we're still evaluating our options.

Given the strong results in wireless, I just wanted to maybe get an update from you regarding your spectrum position. And how do you see it in order to deliver continued growth in that business?

Is it getting to a point where you're getting limited in terms of data sales and your long term view on spectrum acquisitions maybe?

Well, when you look at our spectrum portfolio, we're very in pretty good position in terms of higher band from one gig and up. So I think it's not an issue.

As for operating now, we still have plenty of room to grow on the network. As for the lower spectrum band, lower than one gig, we will need more spectrum for sure and we will need help to do that for sure.

If we want to enter the 5G era which will be around the corner in 2020, we need lower band spectrum and we will put all our effort to acquire some of that in the next auction which might appear in end of 2017 but more so in 2018.

And just maybe if you can give us your view or early view on the application of the decision by the CRTC on wholesale rates, what kind of implication it could have on your results.

Yes, we were quite surprised first of all with that temporary decision. But keep in mind that it's a temporary rate card.

So we're right now putting our efforts and not only alone but with all our Canadian peers, to make sure that the final rate card is revised and take into account all stakeholders of the industry to make sure that we keep an LT telecom industry and the CRTC understands that they need to stimulate and incite a player to invest in technology. So we believe that the rate card should be revised.

So if in the case that it would stay like that, yes there will be an impact. We're still evaluating the financial impact of that rate card if it stays like that forever.

And the other aspect that we don't know about is how will the reseller react? Will they use that new rate card to improve their margin or will they -- you know, relay that rebate directly to the consumer to be more aggressive in the marketplace?

That I cannot answer today. We'll look at what will happen in the market in a few months.

So given you had some pretty strong wireless net adds and the ARPU is also up nicely, JF, can we assume that the wireless EBITDA was probably in that CAD28 million to CAD30 million range?

It was lower because of the handset subsidies.

Okay. Maybe CAD25 to CAD20?

It was about CAD20.

It was about CAD20?

Yes.

Okay. So, okay, I was wondering why the EBITDA in telecom might be a bit lighter.

So is that just kind of a one-time thing this quarter or?

Well no. What I would say and Manon touched on it before, upgrade and renewals are quite seasonal in our case because of the moving season and the bundle that we -- or the fact that we bundle all of our services.

So because people when they're moving, they will subscribe to the cable product and broadband product. You know, obviously our job is to upsell those.

And a lot of what as consumers or customers are subscribing with us in the third quarter, so there was a bit of seasonality in the handset subsidy.

So that seasonality would probably extend into Q4 as well, right, just given the Christmas season?

Well, we'll see.

We'll see.

Okay. I don't know if you can disclose this, but I'll ask.

Can you tell us how many or what percentage of your wireless [indiscernible] would have iPhone?

This is not a number we share, but it's still queuing pretty good, around -- you know, I don't know, can I share the number? It's around high 20, so.

Okay. And what do you think your main competitor would be at?

What? Sorry?

Like what do you think Bell's iPhone makeup would be?

I would assume it would be similar because at first we were skewing higher because it was new in the portfolio. Since we had the iPhone for a few years now, I would assume that it's quite similar to us.

But I could not say, it's just my two cents here.

Okay. I would have thought their iPhone penetration would have been a lot higher given they had iPhone for quite a longer time than you.

Yes, of course. Definitely.

If you look in terms of total customer base it's higher, but if you look at pickup rate activations mode and renewal mode, I would assume we're similar. But definitely when you compare base upon base, it's much bigger on their end.

A quick housekeeping question regarding your acquisition contribution in the quarter from Fibrenoire and I believe 4Degrees. Can you just give us a little bit of color how much revenue and EBITDA came from those acquisitions?

Yes, it's about, in terms of revenue and EBITDA from the B2B segment, it's about 50% of it. Of the growth, I think of the growth.

Be careful, not of the total revenue. But in terms of growth, 50% comes from 4Degrees and Fibrenoire altogether.

Okay. Got you.

And that 50% refers to the business segment line specifically?

Yes, specifically.

Okay. So a question around the overall margins of the telecom business.

I guess some of it is related to mix because your wireless margins are so low in your core cable and that this quarter you have some seasonality related to handset subsidies. But how do you look at margins going forward overall and taking into account the restructuring that you are doing as we look out?

Maybe just qualitatively give us some directional sense because this quarter we did see margins tick down a little bit year-over-year. Maybe that's all due to handset subsidy, but maybe we can [indiscernible] and see how you look at margins going forward.

Yes, of course. First of all, when we looked at the growth in wireline profitability, we improved our margins and EBITDA as well when you compare year-over-year.

So basically what we've done early this year, you remember we had a layoff of about 5% of our labor, labor forces. And then especially we did that in the primarily line of business because those lines that are declining, such as TV and landline telephony, needs to be readjusted.

So we maneuver our operation expense to make sure that we maximize the margin of every line of product. You are right, when you look at the mix from the mobile that is skewing more and more in the total business, of course it has an impact on the total margin, but the margin for the mobile improves as well.

So I think that we put everything in place to make sure that we will first maintain the best EBITDA margin in Canada, because we're still at 46 and so, so we're the best one in all the industry. But we need to maneuver that in silo lines of business, if I may explain it clearly like that.

So if the cable telephony is declining, we need to adjust our operating expense in that line of business and so on and so on.

So just to summarize it, are you saying that you try to maintain margins going forward on an overall basis? That's going to be the focus?

Definitely.

Okay. And maybe just for a last question.

Again, just drilling down on wireless and upgrades and acquisitions and churn. Can you remind us what the churn rate was for wireless this quarter?

It was stable. I don't have it in front--

1.6%, stable at 1.6%.

1.6%

Correct.

Okay. And in terms of the upgrades, I know Vince asked a question about the total cost.

But if you're not able to give the total cost, just in terms of the percentage of subscribers that are upgrading on wireless, obviously that's probably going up given you have more upgrades and a bigger base. Do you think that's peaked or do you think that's going to continue to go up?

I think it's going to continue to go up. Keep in mind that our sales force are trained to make sure that every time they have an interaction with a subscriber, of course they don't want [indiscernible] properly.

We want our customer to be happy and satisfied, but since we have so much good packages, that includes data and enable them to consume, to navigate on the Internet through their mobile, we make sure that every interaction we have with a subscriber, with a customer, we do all efforts to upgrade them. So it's part of the strategy, so we will continue that way.

And one final question. Of your wireless customers, what percentage of them are standalone wireless customers?

It's still low. It's very small, but we see it skewing a little more.

And what is good about that is basically -- we look at the metrics to two sides. First of all, we still have 50% of our landline customer base that doesn't subscribe mobile with us, so it's an upsell opportunity for us.

But on the other hand, we're very pleased when we acquire solo mobile subscribers because we can use that bundling strategy the other way around.

And you said 50% of your cable subscribers don't have wireless with you?

Yes. I think it's around that.

Okay.

You know, it's top of mind.

Yes, I just wanted to follow up with one of the answers you gave regarding the question about the pricing or the new rates the CRTC set on the wholesale Internet side. You said if the rates stay at that level, it could have an impact.

Do you mean that the impact would come from the independent ISDs or the Internet resellers being more aggressive now in the marketplace and passing on those savings to consumers? Is that what really what you're thinking, because I would imagine that you're generating much revenue from these guys right now?

Yes, that's what we meant.

Okay, thank you everybody.