>BELL CANADA. >March 9, 2001

Transcription

1 >BELL CANADA >ANNUAL INFORMATION FORM >For the year ended December 31, 2000 >March 9, 2001

2 TABLE OF CONTENTS Annual Information Form for the year ended December 31, 2000 March 9, 2001 Documents incorporated by reference Trade-marks Item 1 Corporate Structure of Bell Canada Item 2 General Development of Bell Canada Item 3 Business of Bell Canada General Principal Service Area Subsidiaries and Associated Companies Regulation Competition Capital Expenditures Environment Employee Relations Certain Contracts Forward-Looking Statements Risk Factors Item 4 Selected Financial Information (consolidated) Item 5 Management s Discussion and Analysis Item 6 Market for the Securities of Bell Canada Item 7 Directors and Officers of Bell Canada Item 8 Additional Information Schedule 1 Corporate Structure Schedule 2 Directors and Officers Remuneration D OCUMENTS INCORPORATED BY REFERENCE Document Part of Annual Information Form in which incorporated by reference Portions of the Bell Canada 2000 Financial Information Item 5 T RADE-MARKS Owner Trademark Bell Canada Rings & Head Design (Bell Canada corporate logo) Bell Bell World, Espace Bell BellZinc.ca Bell ActiMedia Inc. Yellow Pages YellowPages.ca Sympatico Sympatico High Speed Edition Bell Mobility Cellular Inc. Mobile Browser Manitoba Telecom Services Inc. First Rate Stentor Resource Centre Inc. Advantage Advantage Optimum Advantage Toll-Free Megastream, Megaroute Megalink, Datapac, Dataroute SmartTouch AT&T Corp. MCI Communications Corporation Yahoo! Inc. AT&T Hyperstream Yahoo! Any other trade-marks, corporate, trade or domain names used in this Annual Information Form are properties of their respective owners Bell Canada Annual Information Form 1

3 ITEM 1 CORPORATE STRUCTURE OF BELL CANADA Bell Canada was incorporated by a special act of the Parliament of Canada in 1880, continued under the Canada Business Corporations Act effective April 21, 1982 and exists under a Certificate of Amendment dated December 23, Bell Canada may also be legally designated as The Bell Telephone Company of Canada or La Compagnie de Téléphone Bell du Canada and it has its registered office at 1050, côte du Beaver Hall, Montréal, Québec H2Z 1S4 and its principal executive offices at 1000, rue de la Gauchetière Ouest, Bureau 4100, Montréal, Québec H3B 5H8. Unless otherwise indicated, the information in this Annual Information Form is disclosed as at December 31, Schedule 1 hereto presents certain subsidiaries of Bell Canada, their respective jurisdictions of incorporation or continuance and the percentage of voting securities or partnership interests beneficially owned or over which control or direction is exercised directly or indirectly by Bell Canada. All non-voting securities of these subsidiaries, if any, are beneficially owned by Bell Canada. Certain subsidiaries, each of which represents not more than 10 per cent of consolidated assets and not more than 10 per cent of consolidated sales and operating revenues of Bell Canada, and all of which, in the aggregate, represent not more than 20 per cent of total consolidated assets and total consolidated sales and operating revenues of Bell Canada at December 31, 2000, have been omitted. ITEM 2 GENERAL DEVELOPMENT OF BELL CANADA Bell Canada provides a full range of communications services to customers, including wireline and wireless local and long distance telephone services, Internet access, high-speed data services and directories. Bell Canada and its telecom partners and subsidiaries provide services through 13.4 million access lines, including 11.7 million in Ontario and Québec. Bell Canada also serves more than three million wireless customers through its subsidiaries. BCE Inc. ( BCE ) indirectly owns 80 per cent of the outstanding voting shares of Bell Canada. SBC Communications Inc. indirectly owns 20 per cent of the outstanding voting shares of Bell Canada. BCE is Canada s largest communications company. BCE services are provided by a number of Canadian and international communications subsidiaries and associated companies, including Bell Canada. On February 7, 2001, Bell Canada, La Confédération des caisses populaires et d économie Desjardins du Québec ( Desjardins ) and Connexim, Limited Partnership ( Connexim ) announced a strategic telecommunications alliance. As part of the alliance, the parties have concluded a seven year agreement of an approximate value of $400 million under which Bell Canada will ensure the migration of the Desjardins telecommunications network to a new technology and Connexim will assume the management of Desjardins telecommunications operations. The alliance also formalizes Desjardins participation as a Connexim partner. Connexim is a limited partnership which is also owned by Bell Canada and Hydro-Québec. On February 5, 2001, BCE announced plans to develop new technology that will integrate high speed Internet access with satellite television and enhanced digital storage. This new technology, designated ComboBox, would combine Sympatico High Speed Edition TM digital subscriber line ( DSL ) Internet access service and Bell ExpressVu Limited Partnership s ( Bell ExpressVu ) satellite television service with content from Bell Globemedia Inc. ( Bell Globemedia ). Trials are expected later in 2001 with a commercial service launch anticipated in On February 1, 2001, Bell Mobility Inc. ( Bell Mobility ) announced that it had successfully bid on 20 new personal communications services ( PCS ) spectrum licenses in Industry Canada s auction for a total investment of approximately $720 million. These new licenses should enable Bell Mobility, together with its Bell Wireless Alliance ( BWA ) partners (Aliant Inc. ( Aliant ), Manitoba Telecom Services Inc. ( MTS ) and Saskatchewan Telecommunications Holding Corporation ( Sasktel )) to deliver third generation ( 3G ) wireless services. Furthermore, the licenses acquired in Alberta and British Columbia and the additional licenses acquired in Southern Ontario should permit Bell Mobility to deliver a full range of services on a national basis. The spectrum licenses have been won on a provisional basis until processed by Industry Canada as per the auction closure guidelines and procedures. Payment of the license fees is due on March 15, 2001 and final ownership of the new licenses is expected to be confirmed by Industry Canada shortly thereafter. On January 31, 2001, Bell Canada and Amdocs Limited ( Amdocs ), a company specializing in telecommunications customer care and billing solutions, announced the creation of a new company, Certen Inc. ( Certen ), in which Bell Canada holds a majority interest. Certen s initial focus will be on the deployment of an integrated billing platform for all of Bell Canada s services including local, long distance, wireless, broadband, and Internet services. Certen is expected to eventually broaden its scope to meet the billing needs of other companies inside and outside the Bell Canada and BCE group. Wireline and wireless integrated billing is expected to be available to all Bell Canada residential customers by the end of Bell Canada and Amdocs will invest approximately $200 million in Certen. On January 9, 2001, BCE, The Thomson Corporation and The Woodbridge Company Limited closed the transaction originally announced on September 15, 2000, which resulted in the creation of the Canadian multi-media company, Bell Globemedia. As part of this transaction, Bell Canada, through its subsidiary Bell ActiMedia Inc. ( Bell ActiMedia ), transferred its 71 per cent interest in Sympatico-Lycos Inc. ( Sympatico-Lycos ) to BCE. The transfer resulted in a $425 million reduction in the amount of outstanding intercompany liabilities owing by Bell Canada to its parent company, Bell Canada Holdings Inc. ( BCH ), and an equivalent reduction in the amount of outstanding intercompany liabilities owing by BCH to BCE. On November 2, 2000, the Government of Alberta announced the award of a $300 million contract to a consortium of global and provincial technology companies, headed by Bell Intrigna Inc. ( Bell Intrigna ) and including BCE Nexxia Inc. (carrying on business in Canada under the name Bell Nexxia) to build and implement a high speed, broadband Internet network. On September 27, 2000, Bell Canada, Canadian Imperial Bank of Commerce, The Bank of Nova Scotia, Desjardins and BCE Emergis Inc. ( BCE Emergis ) announced plans to launch a new e-procurement company, Procuron Inc. ( Procuron ). The new company, which began operating in November 2000, uses combined purchasing volumes, along with its strategic sourcing and e-commerce expertise, to provide Canadian businesses and emerging vertical exchanges with a national business-to-business ( B2B ) exchange to buy business products and services Bell Canada Annual Information Form

4 On March 27, 2000, Bell Canada announced plans to invest $1.5 billion over three years to rapidly expand and enhance high speed Internet availability for Bell Canada s residential and business customers. Bell Canada s high speed Internet services are enabled by both DSL and optical fibre technologies. The $1.5 billion investment has started and will continue to be used to upgrade and expand DSL as well as other technologies, and to upgrade Bell Canada s access network using optical fibre and to extend optical fibre into Bell Canada s residential access network in order to accelerate its high speed Internet connectivity to reach 70 per cent of its residential and business customers by the end of 2000 and over 85 per cent by the end of At the end of 2000, nearly 70 per cent of all residential and business lines within Bell Canada s territory (Ontario and Québec) were eligible for DSL service. During the course of 1999 and 1998, the following events have influenced the general development of Bell Canada s business: 1999 the acquisition by Ameritech Corporation, since purchased by SBC Communications Inc. (collectively, SBC ), of an indirect 20 per cent minority interest in Bell Canada for $5.1 billion; as part of the foregoing transaction, the acquisition at net book value of BCE s indirect interests in Bell Mobility, Teleglobe Inc. ( Teleglobe ) (a global telecommunications carrier since privatized by BCE) and in several provincial or regional telecommunications companies, namely Aliant, Northern Telephone Limited ( Northern Telephone ), Northwestel Inc. ( Northwestel ) and Télébec ltée ( Télébec ) and the transfer to BCE, also at net book value, of Bell Canada s interests in CGI Group Inc. ( CGI ), an information technology ( IT ) company, and BCE Emergis, a B2B e-commerce infrastructure provider; the privatization of Bell Mobility for $1.6 billion; the launch of Bell Nexxia, an Internet Protocol ( IP ) /Broadband company operating a network with over 100 points of presence throughout Canada and the United States; the acquisition of an approximate 20 per cent interest in MTS for $339 million; the launch by Bell Canada and MTS of Bell Intrigna, a provider of access facilities offering an extensive suite of telecommunications services to business customers in Alberta and British Columbia; the launch by Bell Canada and Bell Mobility of Bell Distribution Inc. ( Bell Distribution ), the company that operates Bell World TM stores in Ontario and Espace Bell TM in Québec; the creation of Connexim, in partnership with Hydro- Québec, to manage Hydro-Québec s and the Québec segment of Bell Canada s internal telecommunications; the creation of Nordia Inc., a majority-owned subsidiary of Bell Canada, to provide operator-assisted services for telephone companies in Canada and the United States the execution of a 10-year outsourcing agreement with CGI, pursuant to which CGI became the preferred provider of Bell Canada s required information systems ( IS ) and IT services. Certain of these companies and other subsidiaries and associated companies of Bell Canada are more fully described in Item 3 herein under the heading Subsidiaries and associated companies. Because of the nature of Bell Canada as a regulated telecommunications company, the discussion of some of the major events, which have influenced the general development of the business over the last three years, is contained in Item 3 herein under the headings Regulation and Competition ; reference is made to the discussion of such events for the purposes of this Item Telecommunications services (revenue distribution) ITEM 3 BUSINESS OF BELL CANADA General Bell Canada s revenues are reported along five lines of business: local and access; long distance; wireless; data and terminal sales, directory advertising and other. The revenue distribution by percentage of these lines of business is shown in Table 3.1. LOCAL AND ACCESS Local and access revenues are earned principally by connecting business and residential customers to Bell Canada s network and providing them with local area service. As at December 31, 2000, Bell Canada (including Northern Telephone, Northwestel and Télébec) provided about 11.8 million network access services to its business and residential customers, which consist primarily of basic exchange services (business and residential individual lines), private branch exchange ( PBX ) trunk lines and centrex lines. Local and access revenues also include revenues from the provision of optional SmartTouch TM services (for example, call waiting and call display) to business and residential customers as well as rental revenue related to single-line terminal equipment. All of the above services are provided to customers primarily on a monthly contract basis. Payments from competitors accessing Bell Canada s local network are also included in this revenue category. These payments include contribution payments intended to help offset the costs of providing local services and access charge payments associated with the interconnection of long distance competitors to Bell Canada s network. A summary of local and access services revenues and the number of network access services is shown in Table 3.2. Revenue distribution as a % of operating revenues (1) 1998 (2) Local and access Long distance Wireless Data n/a Terminal sales, directory advertising and other (1) Reclassified to conform to 2000 presentation. (2) Local and access, long distance, and terminal sales, directory advertising and other included certain data revenues in Effective as of 1999, data revenues were classified as a separate line item Bell Canada Annual Information Form 3

5 LONG DISTANCE Long distance revenues include long distance voice revenues, as well as long distance settlement payments. These services are provided through a variety of calling plans including residential discount calling plans such as Bell Canada s First Rate TM Savings Plans. Separate discount plans, including toll and toll-free calling, are available to business customers through the Advantage TM family of services including the Advantage Optimum TM service available for long distance and toll-free calling. National long distance and network services were formerly managed on a nationwide basis by Stentor Canadian Network Management ( SCNM ), a working association of provincial telephone companies. Effective January 3.2 Local and access revenues 3.5 Data revenues 1, 2000, Bell Canada began providing national network management and operations support services to Telus Communications Inc. ( Telus ) and to Bell Canada s partners Aliant, MTS and Sasktel. To ensure a seamless transition to customers, most of SCNM s employees and functions were transferred to Bell Canada and to the other former SCNM members, with many of the operating functions carried out by the same people, in the same locations, using the same assets. Accordingly, SCNM was wound up on December 31, Long distance revenues are derived from services originating and terminating within Bell Canada s service territory, and from services provided with other telecommunications For the years ended December Local and access revenues ($ millions) 5,450 5,180 5,364 (1) Number of network access services (2) (thousands) Business 4,113 3,957 3,749 (3) Residence 7,693 7,622 7,519 (3) (1) Included certain data revenues in (2) As at December 31. (3) Excludes Newtel. 3.3 Long distance revenues For the years ended December Long distance revenues ($ millions) 2,474 2,580 4,196 (1) Conversation minutes (2) (millions) 14,601 13,830 11,664 (1) Included certain data revenues in (2) Defined as minutes for calls originating in Bell Canada s territory for long distance services, as well as minutes for calls terminating in Bell Canada s territory for Advantage Toll-Free TM service. 3.4 Wireless revenues For the years ended December Wireless services revenues ($ millions) 1,299 1,151 1,047 (1) Wireless voice subscribers (2) (thousands) 2,340 1,797 1,475 (1) Wireless revenues for 1998 are for Bell Mobility only. (2) Cellular and PCS customers, as at December 31, for Bell Mobility only. 11,806 11,579 11,268 (3) For the years ended December Data revenues ($ millions) Legacy (1) 1,690 1,560 n/a Non-legacy (2) n/a 2,531 1,975 n/a companies. A summary of long distance services revenues and total conversation minutes is shown in Table 3.3. WIRELESS Wireless revenues are primarily derived from the provision of cellular, PCS, paging and wireless data communication services, as well as airline passenger communications and wireless consulting services offered by Bell Canada s subsidiaries, namely Bell Mobility, Northern Telephone, Northwestel and Télébec. Cellular and PCS revenues are derived from subscription fees, air time usage, prepaid services, long distance, data, wireless internet access, roaming and a variety of value added services, such as voice mail and text messaging. Bell Mobility also generates revenues through the provision of service to other service providers under resale agreements. This includes: the provision of analog cellular service to Microcell Connexions Inc, a subsidiary of Microcell Telecommunications Inc. ( Microcell ); the provision of cellular and PCS service to Telus Mobility Inc. ( Telus Mobility ), complimenting the coverage provided by Telus Mobility on its own facilities; the provision of cellular and PCS service to support General Motor s On-Star in-car communications service; and the provision of digital cellular service to Bell Canada to provide wireless local loop service as an alternative to fixed lines in high cost areas. A summary of Bell Canada s wireless services revenues, and the number of wireless voice subscribers, is shown in Table 3.4. DATA Data revenues are earned primarily from the provision of digital transmission services such as Megalink TM, network access for integrated services digital network ( ISDN ) and data, as well as asymmetric digital subscriber line ( ADSL ), competitive network services, national and regional IP data, inter-networking equipment and cabling, and Internet related services. Services such as Megastream TM and Megaroute TM provide customers with a high volume digital network for the transmission of voice, video and data messages. Bell Canada also provides access to public digital packet switched networks such as Datapac TM as well as private line data transmission services, such as Dataroute TM. A summary of Bell Canada s data revenues is shown in Table 3.5. (1) Legacy data revenues include digital transmission services such as: Megalink, network access for ISDN and Data, as well as ADSL, competitive network services and the sale of inter-networking equipment. (2) Non-legacy data revenues include national and regional IP data and Internet services Bell Canada Annual Information Form

6 TERMINAL SALES, DIRECTORY ADVERTISING AND OTHER Terminal sales, directory advertising and other revenues are primarily derived from the rental, sales and maintenance of business terminal equipment and from directory advertising, as well as network management. A summary of terminal sales, directory advertising and other revenues is shown in Table 3.6. PRINCIPAL SERVICE AREA Through Aliant in the Atlantic provinces, MTS in western Canada, the coast-to-coast IP/Broadband network of Bell Nexxia and the recent successful bid by Bell Mobility on PCS spectrum licences, Bell Canada can deliver a full range of telecommunications services to residential and business customers throughout Canada. Bell Canada s principal service area includes most of the two largest and most populous Canadian provinces, Ontario and Québec. Their combined population represented approximately 62 per cent of the total Canadian population at December 31, The estimated gross domestic product of Ontario and Québec in 1999 represented approximately 64 per cent of the Canadian gross domestic product, and combined Ontario and Québec business investment in 1999 represented approximately 55 per cent of total Canadian business investment in that year. Table 3.7 sets forth certain statistical information for the combined population and economic development of Ontario and Québec in recent years. SUBSIDIARIES AND ASSOCIATED COMPANIES Bell Canada s principal subsidiaries are: Bell Mobility; Bell Nexxia and Bell ActiMedia. Bell Canada also has an interest in Teleglobe and in Canadian telecommunications companies such as Aliant and MTS and Bell Intrigna. 3.6 Terminal sales, directory advertising and other revenues BELL MOBILITY Bell Mobility offers a full range of wireless communications services to more than three million Canadians, including PCS, one- and two-way paging, data and airline passenger communications services and also specializes in the sale of private radio system equipment. Bell Mobility operates through its wholly-owned subsidiaries Bell Mobility Cellular Inc. ( BMC ), Bell Mobility Paging Inc. ( BMP ), Bell Mobility Radio Inc. ( BMR ) and Skytel Communications Corporation ( Skytel ). BMC operates a cellular telecommunications system in Ontario and Québec and through resale arrangements, in British Columbia and Alberta. BMC also operates a digital PCS service in major urban areas within its service territory, including Toronto, Ottawa, Montréal and Québec City. BMC also operates a nationwide mobile data radio network. The coverage areas served by BMC had an estimated population of 17.5 million at December 31, BMC s cellular and PCS customers numbered approximately 2,340,000 at December 31, 2000, reflecting a 30 per cent increase from the corresponding 1999 figure of approximately 1,797,000. In May 1999, Bell Mobility launched a new service called Mobile Browser TM, making it the first wireless PCS company in North America to combine an Internet browser feature with a digital PCS handset. Users of Bell Mobility s Mobile Browser service are able to instantly log on to the Internet directly from their PCS handsets and view a number of Internet sites that are specially adapted for small display screens, including Sympatico.ca, Charles Schwab, i/money, TD Waterhouse, VeeV from Bank of Montreal, canada.com, canoe.ca, Web 411, MSN Hotmail and others. On February 9, 2000, Bell Mobility announced it was providing its customers with wireless access to more Internet sites and new.com-ready handsets through For the years ended December Terminal sales, directory advertising and other revenues ($ millions) 1,476 1,697 1,798 (1) (1) Included certain data revenues in Principal service area: Ontario and Québec (1) For the years ended December Population (2) (thousands) 18,842 18,859 18,551 Gross Domestic Product ($ billions) Dwelling Starts (units) 92,977 76,968 79,968 (1) Statistics Canada (2) As at December 31. its Mobile Browser service, including access to one of Canada s most popular Internet sites, the Yahoo! TM Canada Web site. Over sixty wireless consumer and business applications were in place at December 31, Bell Mobility has played a major role in the development of mobile cellular services in Canada and intends to duplicate its efforts in developing digital PCS for the Canadian market. As of December 31, 2000, Bell Mobility had invested approximately $780 million in its digital PCS network, including $180 million for the year ended December 31, Bell Mobility has rapidly expanded its digital coverage area which currently covers some 75 per cent of its service territory population in Ontario and Québec and should soon reach 95 per cent more than any other wireless service provider ( WSP ) today. Bell Mobility s digital PCS network currently accounts for approximately 49 per cent of its total wireless network traffic. BMP operates a one and two-way paging system in Ontario and Québec and is Canada s largest paging operator. BMP had approximately 685,000 pagers in service at December 31, 2000, an increase of 15 per cent from the approximately 598,000 pagers in service at December 31, BMR provides private and shared radio communications services in the transit, public security and utility markets. Skytel provides airline passenger communications services. In 1999, Bell Canada and Bell Mobility established Bell Distribution to manage a new customer-focused chain of communications stores providing one-stop shopping for a full range of communications products and services for the home and office. Combining the retail operations of both companies, the new stores Bell World in Ontario and Espace Bell in Québec were the first retail network in Canada to provide complete and integrated communications solutions including wireline, wireless, direct-to-home ( DTH ) satellite and home security services. This new retail network is made up of stores that are operated corporately and by dealer and franchise operators. BELL NEXXIA On April 22, 1998, Bell Canada announced plans to launch Bell Nexxia, a new IP-Broadband company. Bell Nexxia, which began commercial operations in the first quarter of 1999, directly and indirectly owns, controls and operates a new national IP-Broadband network with over 100 points of presence in key locations throughout Canada and the United 2000 Bell Canada Annual Information Form 5

7 States. Bell Nexxia offers Internet services including extranets, wide area networks ( WANs ), and managed networks packaged with traditional voice services. Effective February 12, 1999, Bell Nexxia has obtained from the United States Federal Communications Commission ( FCC ) section 214 authority to operate as a common carrier in the United States offering switched and private line services between the United States and the rest of the world. BELL ACTIMEDIA Bell ActiMedia is primarily engaged in the sale of telephone directory advertising representing approximately 57 per cent of the Canadian market, and in the publishing of alphabetical pages and Yellow Pages TM directories for Bell Canada. In addition, Bell ActiMedia publishes specialty products on media such as CD-ROM along with a range of other innovative advertising and marketing services that connect buyers and sellers. Bell ActiMedia has a 12.9 per cent partnership interest in, and is the managing partner of, Aliant ActiMedia to publish alphabetical pages and Yellow Pages in four Atlantic provinces. In 2000, the company also started to operate in Western Canada by publishing two new directories in Calgary and Edmonton. In May 2000, Bell ActiMedia started to develop its new B2B Web portal to give small- and medium-sized enterprises business owners and managers access to the on-line resources they need. On January 17, 2001, Bell Canada launched BellZinc.ca TM, its new B2B Web portal. As part of the launch of BellZinc.ca, Bell Canada also announced a partnership with AllBusiness, a leading Web portal for U.S. small businesses. The San Francisco-based company offers business content and services to more than two million businesses in the United States. Once the agreement is finalized, AllBusiness will take a minority equity interest in BellZinc.ca. Bell ActiMedia includes Bell Canada s Internet Service Provider business which provide High Speed Internet access as well as Dial-Up access. At the end of December 2000, Bell ActiMedia had approximately 270,000 High Speed Access customers and 555,000 Dial-Up customers. Bell ActiMedia and Aliant ActiMedia have over 300,000 business customers advertising in 115 directories and 246 Yellow Pages directory sections. On February 2, 2000, Bell Canada and Lycos Inc., a Web media company and owner of the Lycos Network, announced the creation of Sympatico-Lycos, a new Internet company which will provide Canadians with expanded Internet resources for the consumer marketplace. Through the Sympatico-Lycos portal, Canadians from coast to coast will enjoy a comprehensive Internet experience that combines world-class Internet technology and applications, including search, community, personalization, , city guides and a wealth of Canadian content. Under the terms of an agreement, Bell ActiMedia invested approximately $37 million and contributed its portfolio of consumer Internet properties to form Sympatico-Lycos, and became the majority owner. Separately, Bell ActiMedia and Lycos signed a $60 million multi-year distribution agreement, in which Bell ActiMedia products and services will be promoted to United States Lycos Network users accessing the network from Canada. On January 9, 2001, as part of the creation of Bell Globemedia, Bell ActiMedia transferred its interest in Sympatico-Lycos to Bell Globemedia. For more information on this transaction, see Item 2 General Development of Bell Canada. TELEGLOBE Teleglobe is a holding company with wholly-owned ownership interests in two principal business segments grouped under the Teleglobe Communications group (the Teleglobe Group ) and the Excel Communications group (the Excel Group ). The Teleglobe Group is a global communications and e-business group of companies providing a broad range of international and domestic services including Internet connectivity, high speed data transmission, broadband, broadcast, voice and other value-added services on a wholesale and retail basis. The Excel Group provides long distance and wireless telecommunications, Internet access and paging services to both residential and commercial customers in the United States, residential long distance, Internet access and home TV services in Canada and telecommunications and Internet services in the United Kingdom. Bell Canada indirectly owns approximately 23 per cent of the outstanding common shares of Teleglobe. On November 1, 2000, BCE acquired all of the outstanding common shares of Teleglobe that Bell Canada did not already indirectly own. As a result, BCE and Bell Canada now indirectly own all of the outstanding common shares of Teleglobe. ALIANT Aliant, held approximately 39 per cent by Bell Canada and approximately 14 per cent by BCE, delivers full service, integrated solutions through its core lines of business: wireline and wireless telecommunications, information technology, remote satellite communications and Internet-based solutions. On October 4, 1999, Bell Canada announced its decision to make a cash offer to purchase up to 15.8 million outstanding common shares of Aliant at $27 per share for a total consideration of up to $427 million. On December 20, 1999, the offer was increased to $27.50 per share and was made by BCE rather than by Bell Canada. On January 27, 2000, BCE announced that 30,580,538 common shares of Aliant were validly tendered under the offer and that it had taken up and accepted for purchase its previously announced allotment of 15.8 million shares, representing a proration factor of per cent. Certain put and call options have been put in place, which if exercised, will transfer the shares acquired by BCE to Bell Canada on agreed upon terms, thereby bringing Bell Canada s ownership of the common shares of Aliant to approximately 53 per cent. MTS AND BELL INTRIGNA MTS is a full service Manitoba telecommunications company providing local, long distance, wireless, directory and multimedia telecommunications services. Bell Intrigna, two thirds owned by MTS and one third owned by Bell Canada, offers in Alberta and British Columbia a complete portfolio of telecommunications products and services, including local and long distance services, data networking and business Internet services. Bell Intrigna also distributes Bell Nexxia s branded products and services in Alberta and British Columbia. OTHER Bell Canada also provides telecommunications services through regional companies, namely Northern Telephone, Northwestel and Télébec. REGULATION Bell Canada and several of its direct and indirect subsidiaries and associated companies, including Bell Mobility and its subsidiaries, are subject to the jurisdiction of the Canadian Radio-television and Telecommunications Commission ( CRTC ), an agency of the Government of Canada. Several Bell Canada Annual Information Form

8 laws of specific application also govern the businesses of Bell Canada and Bell Mobility. BELL CANADA ACT In addition to the Canada Business Corporations Act, Bell Canada is also subject to the provisions of the Bell Canada Act. The Bell Canada Act imposes on Bell Canada an obligation to provide service which is limited by the Bell Canada Act to those territories within which a general telephone service is provided. This legal obligation is further limited to premises which are located within a prescribed distance from Bell Canada s existing network facilities. Bell Canada provides a general telephone service to specific areas or regions within the provinces of Ontario and Québec which encompasses the vast majority of telephone customers in the two provinces. The Bell Canada Act also provides for prior approval of the CRTC of any sale or other disposal of Bell Canada voting shares held by BCE except if such sale or disposal would result in BCE retaining not less than 80 per cent of all such Bell Canada shares issued and outstanding. TELECOMMUNICATIONS ACT In 1993, the Government of Canada passed the Telecommunications Act (the Act ) which updated and revised previous legislation governing telecommunications in Canada. The Act applies to Bell Canada and several of its subsidiaries, including Bell Mobility, Bell Nexxia, Northern Telephone, Northwestel and Télébec. The Act defines the broad objectives of the Canadian telecommunications policy and empowers the government to issue to the CRTC directions of general application with respect to any of these objectives. Under the Act, all telecommunications common carriers are required to seek regulatory approval for all proposed tariffs for telecommunications services. The Act also requires that all rates be just and reasonable and prohibits a carrier from conferring an undue preference or advantage on any person. However, under the Act, the CRTC has the power to forbear from regulating, in whole or in part, particular services. The CRTC has in fact issued various forbearance orders which have resulted in Bell Mobility being largely forborne from regulation and Bell Canada partially forborne. The CRTC may also exempt an entire class of carriers from regulation under the Act, where the CRTC finds that exemption of the class of carriers is consistent with the objectives of Canadian telecommunications policy. The Act and accompanying regulations also provide that, in order for a company such as Bell Canada or Bell Mobility to operate as a telecommunications common carrier, it must be eligible to operate as a Canadian carrier. A Canadian carrier must be a Canadian-owned and controlled corporation, and must not otherwise be controlled by non-canadians. Specifically, a Canadian carrier is required to meet a minimum level of direct Canadian ownership of 80 per cent and a minimum level of indirect Canadian ownership of per cent. BCE indirectly owns 80 per cent of the outstanding voting shares of Bell Canada. To the best of BCE s knowledge, the level of Canadian ownership of BCE s common shares was approximately 86 per cent as at December 31, In addition to the foregoing foreign ownership constraints, the Act provides that not less than 80 per cent of the members of the Board of Directors of a Canadian carrier must be Canadian. BROADCASTING ACT In 1991, the Government of Canada amended the Broadcasting Act in recognition of the need to modernize and consolidate existing legislation. Key policy objectives of the Broadcasting Act include the safeguarding and strengthening of the cultural, political, social and economic fabric of Canada as well as encouraging the development of Canadian expression. The Broadcasting Act assigns the regulation and supervision of the broadcasting system to the CRTC. Most broadcasting activity requires a broadcasting licence. Licences are awarded by the CRTC and typically extend for a period of seven years at which time an application for a licence renewal must be made to the CRTC. There are two principal types of broadcasting licences, one is for broadcasting programming and the other is for broadcasting distribution, which includes terrestrial wireline, terrestrial wireless and satellite DTH distribution. Three subsidiaries or associated companies of BCH Aliant, Northwestel and Télébec have broadcasting distribution licences that permit them to offer terrestrial wireline, and to a lesser extent terrestrial wireless, broadcast distribution services in defined areas within Nova Scotia, New Brunswick, Québec, Ontario and Northwest Territories and Nunavut. The Broadcasting Act and its accompanying regulations require that for a company to obtain a broadcasting licence it must be a Canadian-owned and controlled corporation, and must not otherwise be controlled by non-canadians. A broadcasting licensee is required to meet a minimum level of direct Canadian ownership of 80 per cent of all outstanding and issued voting shares and 80 per cent of the votes. Similarly, indirect ownership in a broadcasting licensee requires that the parent corporations of a broadcasting licensee have a minimum level of Canadian ownership of two thirds of all outstanding and issued voting shares and two thirds of the votes. In addition to the foreign ownership constraints, not less than 80 per cent of the Board of Directors as well as the Chief Executive Officer of a broadcasting licensee must be Canadian. Parent corporations of broadcasting licensees which: have less than 80 per cent Canadian directors on the Board; have a non-canadian Chief Executive Officer or have a minimum level of Canadian ownership of less than 80 per cent, are required to demonstrate to the CRTC that neither such parent corporation nor its directors exercise control or influence over any programming decisions of the broadcasting licensee. RADIOCOMMUNICATION ACT The use of radio spectrum by Bell Mobility and other WSPs is subject to regulation and licensing by Industry Canada pursuant to the Radiocommunication Act. The Minister of Industry has the discretion to issue radio licenses, establish technical standards in relation to radio equipment and plan the allocation and use of the radio spectrum. The Radiocommunication Act provides the legislative authority to perform a number of functions with a view to ensuring the orderly development and efficient operation of radiocommunication in Canada and the orderly establishment and modification of radio stations. Pursuant to the Radiocommunication Regulations, persons who are eligible to be issued radio licenses, such as Bell Canada and Bell Mobility, must comply with the same foreign ownership restrictions as are applicable to Canadian carriers under the Act. WIRELINE FRAMEWORK (1) All of Bell Canada s services, including services which are subject to price regulation under the Act, are provided in an open and competitive environment. Bell Canada s utility segment services (comprised primarily of basic local service, competitor services, and options and (1) Discussion under this item refers to Bell Canada on a non-consolidated basis Bell Canada Annual Information Form 7

9 features), are subject to price cap regulation as set out in Telecom Decision Telecom Decision 97-9, issued on May 1, 1997, outlined the regulatory framework for the price cap regime implemented on January 1, 1998, including the principles and components of the price cap formula applicable to a basket of telephone companies local services over a four-year period. This basket does not include optional local services. During this period, price changes for this single basket of capped utility services will be limited to the rate of inflation minus an adjustment for productivity gains of 4.5 per cent, adjusted for limited exogenous factors arising from events which are beyond the telephone companies control. The single basket of capped services is divided into three sub-baskets (basic residential local services, single and multi-line local business services and residual capped services), each subject to additional pricing constraints. The remaining utility segment services, including optional services, are not subject to price cap constraints but are tariffed. Competitor services required by local and long distance competitors, while not included with capped services, are generally priced to recover incremental costs and make an appropriate contribution to fixed and common costs. The price cap plan will be reviewed in 2001 as this is the last year of the four-year price cap period. In contrast to Bell Canada s utility segment services, competitive segment services (comprised primarily of long distance, private line and data, and terminals) are largely forborne from regulation. Recent Regulatory Decisions On March 12, 1999, in Order , the CRTC established, on an interim basis, the manner in which Bell Canada can recover, over a three-year period, costs associated with local competition start-up and local number portability. The portion to be recovered from services subject to price cap regulation is to be reflected as an exogenous factor in the price cap formula. On February 23, 2000, in Order , the CRTC rendered its final decision allowing recovery of approximately $220 million of the estimated $250 million costs. On May 17, 1999, the CRTC announced, after an in-depth review, that it will not regulate new media services on the Internet and more particularly that new media services within the purview of the Broadcasting Act will not require a broadcasting license. The CRTC concluded that new media on the Internet are achieving the goals of the Broadcasting Act and that any attempt to regulate new media might put the Canadian industry at a competitive disadvantage in the global market place. In a letter decision dated March 9, 2000, the CRTC approved a proposal, filed December 13, 1999, by Bell Canada and other Incumbent Local Exchange Carriers ( ILECs ), to reduce Direct Connect (switching and aggregation) rates paid by competitors to interconnect with ILEC networks. However, the CRTC denied the ILECs request to offset reduced Direct Connect revenues with an exogenous adjustment to the price cap index. On March 17, 2000, the ILECs appealed the CRTC s decision asking that the CRTC review and vary that part of its decision that disallowed the exogenous factor adjustment. On May 16, 2000 the CRTC issued a decision that reversed its previous position by allowing the ILECs to partially recover the Direct Connect rate reductions. On June 19, 2000, approval of Bell Canada s third annual price cap filing was essentially completed with the CRTC s approval of Tariff Notices ( TN ) 6465 and 6465a. TN 6465 and TN 6465a, which became effective June 19, 2000, allowed Bell Canada to increase prices for single-line residential telephone service for most customers, representing the first such increase for residential customers in over two years. Also included as part of the price cap filings were price decreases, filed and approved earlier in the year, for single-line and PBX services (used by businesses of all sizes), as well as digital data services (used primarily by larger businesses). On June 28, 2000, the Governor In Council ( GIC ) announced that it had dismissed appeals of Telecom Decisions 99-15: Unbundled Local Loop Service Order Charges (filed by Call-Net Enterprises Inc. ( Call-Net )), 99-16: Telephone Service to High Cost Serving Areas (filed by the Governments of Manitoba and Saskatchewan and other parties) and 99-20: Review of Frozen Contribution Rate Policy (filed by AT&T Canada Corp. ( AT&T Canada ) and other parties). In addition to upholding the CRTC decisions, the GIC also required that the CRTC report annually over a five-year period on the status of telecommunications competition and deployment of advanced services at affordable rates across Canada. On November 30, 2000, the CRTC issued Telecom Decision changing the contribution regime from a company specific long-distance per minute charge to a nationally averaged surcharge of 4.5 per cent on Canadian Telecommunications revenues. This change effective January 1, 2001, will have a negative impact on the earnings before interest expense, income taxes, depreciation and amortization ( EBITDA ) of Bell Canada and its subsidiaries of approximately $100 million in Bell Canada and Bell Mobility have requested that the CRTC vary the terms of its decision as it affects The requested variance, if granted, would substantially reduce the negative financial impact for However, the CRTC has the discretion to reject the requested variance or accept it in whole or in part. On December 18, 2000, the CRTC in Orders and 1149 denied Bell Canada s applications to increase the rates for various calling features. This denial has a revenue impact on Bell Canada of approximately $50 million annually. On December 22, 2000, Bell Canada filed an application with the CRTC seeking to vary these Orders as Bell Canada believes these decisions are inconsistent with the parameters established for the current regulatory regime. Bell Canada has requested approval of the rates originally proposed. On January 25, 2001, the CRTC issued Telecom Decision regarding the terms and conditions of access by Canadian carriers to municipal property, as well as the entitlement of municipalities to compensation for allowing Canadian carriers to occupy municipal rights-of-way. While this decision was limited to Vancouver, it is of importance to all carriers requiring access to municipal rights-of-way. By limiting municipalities to recovery of incremental costs, the CRTC has significantly reduced the potential charges applicable to Bell Canada and other carriers. It is difficult to assess the financial implications of the decision at this time as it is expected that other parties will be carefully considering their option to appeal. On February 2, 2001, in Order , the CRTC ruled that savings realized by Bell Canada from recent reductions in the Ontario Gross Receipts Tax qualify for exogenous treatment in the price cap regime. Accordingly, downward price cap adjustments will be made in No adjustments will be made to reflect savings associated with uncapped revenues and no adjustments will be made to reflect any savings realized in For 2000, the CRTC has ordered that the savings associated with capped services should be amortized over two years beginning in The required price cap adjustment for 2001 will be in the order of 60 per cent of the total in year savings to be realized Bell Canada Annual Information Form

10 WIRELESS FRAMEWORK Licensing Requirements All of Bell Mobility s wireless communications services depend on the use of radio frequencies. Industry Canada plans and assigns the use of spectrum in Canada for various wireless communications systems and, where licensing is required, considers applications from prospective public and private operators of such systems for licenses to operate those systems. The Minister of Industry also has the authority to suspend or revoke radio spectrum licenses, if the license holder has contravened the Radiocommunication Act, regulations or terms and conditions of its license and after giving the holder of the license a reasonable opportunity to make representations. Such revocation is rare and licenses are usually renewed upon expiration. At this time, Bell Mobility knows of no reason why its current radio licenses will not be renewed as they expire. Industry Canada typically assigns portions of the radio spectrum on a first-come, first-served basis. However, in instances where the expressed demand for a given allocation of spectrum exceeds the amount available, a comparative selection process has been used to identify which of the various proposed systems will be authorized, based on relative merit. Bell Mobility was granted authority for its PCS network in December 1995, following such a comparative selection process. According to criteria announced by Industry Canada in June 1995, the successful applicants were to be judged according to, among other things, financial capability, service innovation, commitment to early and extensive deployment, technical, marketing and sales expertise and equipment availability. In February 1996, Industry Canada announced the results of its review of the radio licensing process. Industry Canada concluded that a more streamlined version of the current comparative process should be retained. At the same time, Industry Canada announced its intention to establish an alternative competitive selection process incorporating a bidding procedure in instances where reliance on market forces is appropriate. Industry Canada released its Auction Framework in August 1998 but reiterated that auctions were only one of many tools it might use to allocate spectrum. Cellular License The current term of Bell Mobility s cellular license will expire on March 31, The material terms and conditions of its cellular license include compliance with the Canadian ownership and control requirements established in the Radiocommunication Act and associated regulations, notification of the Minister of Industry prior to any material change in ownership or control in fact of Bell Mobility, and at least two per cent of adjusted gross revenues (excluding intercarrier payments, bad debts and third party commissions) of Bell Mobility for the period from April 1, 1996 to March 31, 2001 must be invested in research and development related to wireless telecommunications activities. Bell Mobility will be renewing its cellular licence effective April 1, PCS License In December 1995, following a competitive licensing process, the Minister of Industry granted Bell Mobility one of four licenses to provide PCS in the 1.9 gigahertz ( GHz ) band for its operating territory. The terms and conditions applicable to such PCS licenses include requirements related to Canadian ownership and control, the time frame for rolling out service across Canada, a restriction on cellular-affiliated PCS licensees commencing to provide PCS service in the 1.9 GHz band in each of the 25 major metropolitan areas prior to the commencement of service by at least one PCS provider that is not affiliated with a cellular licensee, resale of PCS and cellular services and facilities to other PCS licensees, and research and development expenditures. The current term of Bell Mobility s PCS license will expire on April 30, Bell Mobility will be renewing its PCS license effective May 1, Spectrum Cap In October 1998, Industry Canada issued Canada Gazette Notice DGTP soliciting public comment on whether to continue, modify or rescind the application of a limit on the aggregate amount of spectrum that may be held by PCS providers. At the time of the initial selection of PCS licensees in December 1995, Industry Canada adopted a Spectrum Cap Policy ( Policy ) which was set at 40 megahertz ( MHz ) and consists of frequency assignments for PCS at 2 GHz, cellular radiotelephony and similar public high mobility radiotelephony services. Bell Mobility currently has a license for 25 MHz of cellular spectrum and 10 MHz of PCS spectrum. The stated objective of the Policy was to provide a greater opportunity for competition. In November 1999, Industry Canada released its decision in its Policy Review, and increased the spectrum cap from 40 MHz to 55 MHz in any geographical area. In addition to the above frequency assignments, the new aggregation limit also applies to any future spectrum that may be identified for PCS in subsequent Industry Canada allocation proceedings. The same proceeding announced the timing of the release of a remaining 40 MHz of PCS spectrum which was held in reserve at the time of the awarding of PCS licenses in PCS Auction On June 28, 2000, Industry Canada released its policy and licensing procedures which governed the auction of the 40 MHz of PCS spectrum held in reserve. Industry Canada has determined that the spectrum will be subdivided into four blocks of 10 MHz to be authorized as regional licenses. The policy also determined that, subject to meeting Canadian ownership and control regulations and the provisions of the PCS spectrum cap, any entity would be permitted to participate in the auction. Existing competitors as well as new entrants participated in the auction which concluded on February 1, Bell Mobility, bidding on behalf of BWA partners paid approximately $720 million to acquire 20 licenses across Canada, including Alberta and British Columbia. This results in a $1.40/pop/Mhz of spectrum which compares to a price of C$6.28/pop/Mhz in the recent U.S auction. In the key Southern Ontario market, Bell Mobility acquired an additional 20 Mhz of PCS spectrum. Bell Mobility is now well positioned to begin the planning and deployment of its 3G wireless services. Forbearance In December 1996, the CRTC confirmed an earlier decision that it was appropriate to forbear from regulating the rates for interconnected switched mobile voice services (i.e., cellular, PCS and Enhanced Specialized Mobile Radio ( ESMR )), other than wireless services provided in-house by the telephone companies. The CRTC determined, however, that all interconnected mobile service providers should remain subject to the statutory requirement prohibiting them from discriminating unjustly between customers. The CRTC also retained its jurisdiction to impose conditions on the provision of any interconnected switched mobile voice service. Other services (i.e., paging, data radio network, airline passenger communications and private and shared radio services) are subject to unconditional forbearance from regulation. In October 1998, subsequent to an application from NB Tel Inc. ( NB Tel ), the CRTC forbore from the regulation of cellular and PCS services provided in-house by NB Tel and 2000 Bell Canada Annual Information Form 9