BCE Inc Third Quarter Shareholder Report

Transcription

1 3 BCE Inc Third Quarter Shareholder Report News release October 24, 2001 BCE Announces Third Quarter Results Revenue up 6% EBITDA up 7% Cash baseline earnings up 11% Montréal (Québec), October 24, 2001 BCE reported cash baseline earnings of $322 million, $0.40 per common share, in the third quarter ended September 30, 2001, an 11% increase compared with proforma (see note 1) cash baseline earnings for the same quarter last year. Total revenue was $5.4 billion, a 6% increase over proforma revenue last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $1.9 billion, up 7% compared with proforma EBITDA for the third quarter of BCE s results show solid growth in our key business drivers, despite a continued softening of the economy, said Jean C. Monty, Chairman and Chief Executive Officer of BCE Inc. By remaining committed to the execution of our plans, we delivered good performance both from a total company perspective and from core operations. Operational Highlights (Q vs Q unless indicated) High Speed Internet (DSL) subscribers grew 18% over last quarter to 625,000; Bell Canada s data revenue was up 17% to $881 million; Cellular and PCS subscribers grew 25% to 3.2 million; Bell ExpressVu subscribers grew 57% to 930,000; Bell Globemedia revenue was $246 million; Teleglobe s EBITDA reached $38 million; BCE Emergis revenue grew 29% to $173 million. Bell Canada made strong gains in the quarter by significantly increasing its subscriber base in wireless, High Speed Internet and satellite T.V., commented Mr. Monty. BCE Emergis was particularly successful in its penetration of the U.S. market, signing significant agreements with key players from the financial and health sectors. Bell Globemedia strengthened its national reach through its interest in TQS, a Québec-based television network. And as Teleglobe continues to build out its network, it is beginning to see the economic benefits of serving clients from its own network facilities. BCE also unveiled, as part of its convergence strategy, a series of value-added products that leverage BCE s connectivity, commerce and content capabilities. This first series of convergence products, which will be launched through the remainder of the year, will give our customers more choice, more control and more tools to personalize their information and entertainment services and e-enable their businesses. After baseline adjustments of $468 million, the net loss applicable to common shares was $146 million in the quarter. Third quarter baseline adjustments consisted mainly of losses at Bell Canada International, goodwill expense and restructuring and other charges at Teleglobe.

2 Outlook BCE s financial guidance provided in February has been adjusted to reflect the reclassification of Excel Communications as a discontinued operation, following the announcement, in the third quarter, of an agreement to sell Excel to VarTec. The accounting rules for discontinued operations require the exclusion of Excel s operations from BCE s consolidated results from continuing operations for all prior reporting periods as well as prospectively. As a result the revenue range of BCE s guidance is reduced by approximately $1.5 billion, which corresponds to Excel s planned 2001 contribution to BCE s revenue, to an adjusted range of $21.5 to $23.5 billion. This change has no material impact on the EBITDA guidance range of $7.5 to $8.0 billion and cash baseline earnings per share range of $1.57 to $1.62. BCE s management continues to believe it is on track to meet the lower end of this guidance. Results by Operating Group (unaudited) BCE s core activities include: Bell Canada (Canadian connectivity), Bell Globemedia (content), Teleglobe (global connectivity) and BCE Emergis (commerce). BCE Ventures consists of other BCE investments. (C$ in millions, except per share amounts) Third Quarter Nine Months For the period ended September (1) (1) Revenue Bell Canada 4,337 4,063 12,692 11,624 Bell Globemedia Teleglobe ,539 1,507 BCE Emergis BCE Ventures ,172 1,071 Corporate, Intercompany eliminations, and Other (280) (214) (764) (659) Total revenue 5,379 5,089 15,963 14,693 Cash baseline earnings (2) Bell Canada Bell Globemedia (16) (13) (7) (6) Teleglobe (3) (14) (42) (63) (137) BCE Emergis BCE Ventures (3) (4) Corporate, Intercompany eliminations, and Other Cash baseline earnings applicable to common shares Cash baseline earnings per common share (1) Proforma results for 2000 reflect BCE s new organizational structure and consolidate Teleglobe Inc., CTV (including NetStar), The Globe and Mail and Globe Interactive, and exclude Excel s results. (2) BCE is reporting on a cash baseline earnings basis which excludes baseline adjustments. (3) In 2001, cash baseline earnings of Teleglobe consist of the results of the Teleglobe Communications group. In 2000, however, cash baseline earnings also included Teleglobe Marine s results and interest expense on Excel s debt that will not be assumed by the purchaser, which in 2001, are presented in BCE Ventures. 2

3 Third Quarter Review (Q vs Q3 2000, unless indicated) Bell Canada (Canadian Connectivity) The Bell Canada segment includes Bell Canada, Aliant, Bell ExpressVu and Bell Canada s interests in other Canadian telcos. Revenue in the third quarter was up 7% to $4.3 billion due mainly to strong growth in data operations, local and access services, wireless services and Bell ExpressVu. Local and access services revenues were up 7% at $1.6 billion. Long distance services revenue decreased by 10% to $663 million mainly due to lower rates. Data revenue increased 17% to $881 million. DSL High Speed Internet net activations reached 96,000 in the third quarter compared with 81,000 for the same period in Wireless revenue was up 21% to $490 million due primarily to strong growth in cellular and PCS subscribers. There were 151,000 net additions in the quarter. Bell continued to maintain its industry leading churn reflecting its commitment to and focus on customer service and innovation. Bell ExpressVu had revenue of $117 million in the quarter, a 44% increase compared with the same period last year. Subscribers increased by 83,000 over the previous quarter to reach 930,000. Subscriber activations in urban areas accounted for 70% of total new activations in the quarter compared with 65% in the previous quarter. Bell Canada s EBITDA grew 4% in the third quarter to $1.8 billion. Excluding Bell ExpressVu, EBITDA was $1.9 billion, a 5% increase compared with the third quarter of Bell Globemedia (Content) Bell Globemedia includes CTV, The Globe and Mail and Bell Globemedia Interactive. Bell Globemedia revenue was $246 million in the quarter compared with proforma revenue of $251 million for the same period last year. Advertising revenue decreased by 3% to $163 million, mostly attributable to lower revenue in print as a result of a softening of the economy. Subscriber revenue was up 5% to $64 million. Television represented 75% of the total revenue, print 19% and Interactive 6%. The Interactive segment continued to expand, gaining a 2-percentage point compared with the previous quarter. EBITDA was $(6) million in the third quarter compared with $(4) million for the same period last year. Bell Globemedia launched its first convergence product: TSNMAX.ca. Teleglobe (Global Connectivity) Teleglobe refers to the Teleglobe Communications group. Teleglobe contributed revenue of $491 million to BCE compared with $518 million in the third quarter of last year and $542 million in the previous quarter. Both data and voice revenues were lower as a result of adverse market conditions. Data and hosting revenue was $139 million compared with $145 million in the third quarter of 2000 and $168 million in the previous quarter. Voice revenue was $352 million compared with $373 million in the third quarter of 2000 and $374 million in the previous quarter. EBITDA doubled over the third quarter of 2000 to $38 million and was up 58% compared with the previous quarter. The increase in EBITDA is mainly attributable to the stabilization of voice margins and the significant savings achieved in the quarter due to network migration and cost control initiatives. In the third quarter, Teleglobe continued its GlobeSystem network deployment increasing fibre capacity by 86% compared with the second quarter of BCE Emergis (Commerce) BCE Emergis revenue reached $173 million in the quarter, up 29% compared with the same period in 2000 with all three business units Canadian, U.S. and ehealth Solutions units achieving strong results. EBITDA was $35 million in the quarter, up 35% compared with the third quarter of BCE Emergis announced a series of significant agreements with key U.S. and Canadian partners including The Principal Financial Group, Canada Life and Bell Canada. In the quarter, 43% of BCE Emergis total revenue originated from its U.S. operations. 3

4 BCE Ventures (Non-core Investments) BCE Ventures includes the activities of BCI, CGI, Telesat and other investments. BCE Ventures revenue was $412 million in the quarter, up 22% compared with the same period of EBITDA was $100 million in the quarter compared with $50 million in the third quarter of Following the announcement of the sale of Excel s North American operations, subject to regulatory and other approvals, and the discontinuation of its U.K. operations, BCE reclassified the results of Excel as discontinued operations. Excel s results are therefore excluded from BCE Ventures revenue, EBITDA and cash baseline earnings. Other Bell Canada reported statutory revenue of $3.6 billion in the third quarter compared with $3.4 billion in the same quarter of Statutory net earnings applicable to common shares were $440 million in the quarter compared with $293 million for the same period last year. Teleglobe Inc. reported statutory revenue of US $311 million in the third quarter compared with US $330 million in the third quarter of Statutory net loss applicable to common shares was US $303 million in the quarter compared with US $367 million for the same period in BCE is Canada s largest communications company. It has close to 23 million customer connections through the wireline, wireless, data/internet and satellite services it provides, largely under the Bell brand. BCE leverages those connections with extensive content creation capabilities through Bell Globemedia which features some of the strongest brands in the industry CTV, Canada s leading private broadcaster, The Globe and Mail, Canada s National Newspaper and Sympatico-Lycos, the leading Canadian Internet portal. As well, BCE has extensive e-commerce capabilities provided under the BCE Emergis brand and serves international customers through Teleglobe, a global connectivity, content distribution and Internet hosting company. BCE shares are listed in Canada, the United States and Europe. CAUTION CONCERNING FORWARD-LOOKING STATEMENTS Certain statements made in the preceding press release, including, but not limited to, the financial guidance appearing under the Outlook section, are forward-looking and are subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Factors which could cause results or events to differ materially from current expectations are described in the Forward- Looking Statements section of the Management s Discussion and Analysis on pages 21 to 32 of this 2001 Third Quarter Shareholder Report. The forward-looking statements contained in the preceding press release represent BCE Inc. s expectations as of October 24, 2001 and, accordingly, are subject to change after such date. However, BCE Inc. disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. BCE s fourth quarter 2001 results will be announced on January 23, 2002 and the review will be made available via an audio webcast from our site on the Internet. For more information, see details on our site at after mid-january,

5 Management s Discussion and Analysis November 8, 2001 This management s discussion and analysis of financial condition and results of operations (MD&A) focuses on the results of operations and financial situation of BCE Inc., its subsidiaries, joint ventures and its investments in significantly influenced companies (collectively BCE) by principal operating groups of BCE and should be read in conjunction with the unaudited consolidated financial statements contained on pages 33 to 40. The following discussion and analysis applies to both the third quarter and the first nine months of the year 2001, except where otherwise noted. Certain sections of this MD&A contain forward-looking statements with respect to BCE. These forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations are discussed on pages 21 to 32 under Forward-Looking Statements. Highlights Disposal of Excel Communications group The Excel Communications group (Excel) provides retail telecommunications services such as long distance, paging and Internet services to residential and business customers in North America and the U.K. On August 26, 2001, Teleglobe Inc. and certain of its subsidiaries entered into definitive agreements for the sale of Excel s North American operations to an affiliate of VarTec Telecom, Inc. (VarTec). The U.K. operations, which are not part of the transaction, are planned to be discontinued before the end of the year. Consequently, the results of Excel have been reported as discontinued operations. The gross proceeds, estimated at approximately US $250 to $300 million, will be based on Excel s actual 2001 financial results and will be paid in the form of unsecured five-year interest-bearing promissory notes. After accounting for the discount provision on the notes receivable, closure costs of the U.K. operations, transaction costs, estimated operating losses up to the expected date of disposal and related items, it is estimated that the disposal of Excel will not result in any gain or loss beyond the impairment charge of $2,049 million that was recorded in the first quarter of The sale is subject to regulatory and other approvals and is expected to be completed by the end of the first quarter of Results by Operating Group Actual OVERVIEW Effective December 1, 2000, BCE centers its activities around four core operating segments, based on products and services, reflecting the way that management classifies its operations for purposes of planning and performance management. All non-core businesses are grouped in the BCE Ventures segment. As a result, prior year figures have been restated to conform to the current year s presentation. In 2001, the Bell Globemedia segment includes the results of CTV Inc. (CTV), The Globe and Mail, Globe Interactive and Sympatico-Lycos Inc. (Sympatico-Lycos). In the first nine months of 2000, the segment includes Sympatico-Lycos and other media interests, as well as the equity in net earnings of CTV as of April The results of CTV were consolidated effective December 1, In 2001, the Teleglobe segment consists of the results of the Teleglobe Communications group (Teleglobe). The results in the first nine months of 2000 reflect Bell Canada s 23% equity in net earnings of Teleglobe Inc. (comprised of Teleglobe, Teleglobe Marine (U.S.) Inc. (Teleglobe Marine) and other businesses). The results of Teleglobe Inc. were consolidated effective November 1,

6 Operating Revenues Three months Nine months ($ millions) Actual Actual Actual Actual For the period ended September % change % change Bell Canada 4,337 4, ,692 11,624 9 Bell Globemedia n.m n.m. Teleglobe 491 n.m. 1,539 n.m. BCE Emergis Corporate and other (including intercompany eliminations) (160) (123) (30) (512) (365) (40) Total core revenues 5,087 4, ,043 11, BCE Ventures ,172 1, Non-core intercompany eliminations (120) (20) (500) (252) (81) (211) Total revenues 5,379 4, ,963 12, n.m.: not meaningful The increase in BCE s total revenues was mainly due to higher revenues from the core operating segments, particularly: the inclusion of the results of Teleglobe and Bell Globemedia Inc. (Bell Globemedia) in 2001; improved results from the Bell Canada segment, primarily due to growth in the number of Internet subscribers, higher SmartTouch and network access services revenues from the local and access market, an increase in the cellular and PCS subscriber base and growth in the number of Bell ExpressVu Limited Partnership (Bell ExpressVu) subscribers, partially offset by a continuing decline in long distance revenues mainly attributable to pricing pressures from increased competition; and improved results from BCE Emergis Inc. (BCE Emergis), primarily due to an increase in sales of e-invoicing solutions. Cash Baseline Earnings Three months Nine months ($ millions, except per share amounts) Actual Actual Actual Actual For the period ended September % change % change Bell Canada (3) Bell Globemedia (16) (8) (100) (7) 5 (240) Teleglobe (14) (6) (133) (63) 1 n.m. BCE Emergis Corporate and other (including intercompany eliminations) Total core cash baseline earnings BCE Ventures (4) 13 (131) (67) Non-core intercompany eliminations (1) n.m. 3 (6) 150 Total cash baseline earnings (3) Earnings per common share Basic Cash baseline earnings core (18) (17) Cash baseline earnings total (22) (18) n.m.: not meaningful Cash baseline earnings represent net earnings applicable to common shares after baseline adjustments. Baseline adjustments include (on an after tax basis) BCE s share of: net gains on disposal of investments; discontinued operations; goodwill expense; results of Bell Canada International Inc. (BCI); restructuring and other charges; gains on reduction of ownership in subsidiary and significantly influenced companies; and amortization of purchased in-process research and development expense. SmartTouch is a trade-mark of Stentor Resource Centre Inc. 6

7 The decrease in BCE s cash baseline earnings for the third quarter of 2001 primarily reflects: a decrease from BCE Ventures mainly due to the inclusion of interest expense on Excel s debt; a decrease from Teleglobe due to the increase in ownership interest in Teleglobe Inc. effective November 1, 2000; a decrease from Bell Globemedia in which consolidation of results commenced in December 2000 for CTV and January 2001 for The Globe and Mail and Globe Interactive; and a decrease from the Bell Canada segment mainly due to a higher interest expense and depreciation expense, offset in part by a higher EBITDA (earnings before interest expense, income taxes, depreciation and amortization and excluding net benefit plans credit and restructuring and other charges); partially offset by: improved results from Corporate and other primarily due to lower interest expense partially offset by higher operating expenses; and improved results from BCE Emergis attributable to higher EBITDA and lower interest expense partially offset by higher depreciation expense and income taxes. The increase in BCE s cash baseline earnings on a year-to-date basis was mainly the result of higher contributions from Bell Canada, Corporate and other, and BCE Emergis, which more than offset the shortfalls in Teleglobe, Bell Globemedia and BCE Ventures. The provision for income taxes amounted to $305 million in the third quarter of 2001, reflecting an effective tax rate of 143%, primarily due to the impact of items that are not tax-effected, such as goodwill amortization, losses from certain BCI businesses and dilution gains. Net Earnings Three months Nine months ($ millions, except per share amounts) Actual Actual Actual Actual For the period ended September % change % change Bell Canada (1) Bell Globemedia (52) (42) (24) (125) (62) (102) Teleglobe (186) (39) (377) (449) (55) (716) BCE Emergis (70) (63) (11) (236) (145) (63) Corporate and other (including intercompany eliminations) , n.m. Core net earnings continuing operations (78) 2, BCE Ventures (106) (178) 40 (257) (348) 26 Non-core intercompany eliminations (1) n.m. 3 (6) 150 Net earnings (loss) continuing operations (66) 10 (760) 2, Discontinued operations (64) 649 (110) (1,896) 4,584 (141) Net earnings (loss) (130) 659 (120) 835 4,874 (83) Dividends on preferred shares (16) (19) 16 (50) (61) 18 Net earnings (loss) applicable to common shares (146) 640 (123) 785 4,813 (84) Earnings (loss) per common share Basic Continuing operations (0.10) (0.01) (900) Net earnings (loss) (0.18) 0.99 (118) (87) n.m.: not meaningful Included in BCE s net earnings were baseline adjustments of $468 million in the third quarter and $164 million in the first nine months of 2001, compared to $(308) million and $(3,890) million in the same periods in 2000, respectively. 7

8 Baseline adjustments in 2001 related mainly to the following: a loss from discontinued operations related to Excel of $2,115 million, on a year-to-date basis, which includes an impairment charge of $2,049 million, recorded in the first quarter, after completion of an assessment of the carrying value of BCE s investment in Excel; goodwill expense of $237 million in the third quarter ($737 million in the first nine months); restructuring and other charges of $77 million recorded by Teleglobe in the third quarter, resulting from a decision to restructure portions of its business due to changing international market conditions. On a year-to-date basis, restructuring and other charges of $191 million is further explained by a $114 million charge recorded in the first quarter by Bell Canada, resulting from a decision to streamline support functions; BCE s share of BCI s net loss of $289 million in the third quarter ($220 million on a year-to-date basis); and BCE s $20 million share of Teleglobe s asset write-downs and one-time charges, recorded in the first quarter, resulting from the finalization of the purchase price allocation relating to BCE s acquisition of Teleglobe Inc. in November 2000; partially offset by: a gain of $2,901 million on the sale of 47.9 million Nortel Networks Corporation (Nortel Networks) common shares and the settlement of short-term forward contracts on those shares which was recorded in the first quarter; and gains on reduction of ownership in subsidiary and significantly influenced companies which included a dilution gain of $131 million ($162 million in the first nine months) from the reduction of BCE s ownership interest in CGI Group Inc. (CGI) from 43% to 33% as a result of the acquisitions of IMRglobal Corp. in July 2001 and Star Data Systems Inc. in January 2001, as well as a $15 million dilution gain from the reduction of BCE s ownership interest in BCE Emergis, resulting from BCE Emergis acquisition, through the issuance of common shares, of the assets in the business-to-business electronic invoice presentment and payment business of Bank of America, N.A. On a year-to-date basis, gains on reduction of ownership in subsidiary and significantly influenced companies also included a $33 million gain from the transfer, by BCE Inc. to Bell Globemedia, of its 71% interest in Sympatico-Lycos as well as a $14 million dilution gain in Aliant Inc. (Aliant). Baseline adjustments in 2000 related mainly to the following: earnings from discontinued operations related to BCE s investment in Nortel Networks of $4,055 million (on a year-to-date basis), including a $4.2 billion dilution gain on the reduction of BCE s ownership interest in Nortel Networks; and BCE s share of BCI s earnings of $556 million in the third quarter ($282 million in the first nine months); partially offset by: goodwill expense of $124 million in the third quarter ($289 million on a year-to-date basis); and losses from discontinued operations related to Teleglobe Inc. s investment in ORBCOMM Global, L.P. (ORBCOMM) of $67 million in the third quarter ($80 million in the first nine months) and in Excel of $3 million in the third quarter ($13 million in the first nine months). 8

9 Results by Operating Group Pro-forma OVERVIEW For improved comparability, BCE also presents its results on a pro-forma basis. Pro-forma results primarily reflect, as of January 1, 2000, the full consolidation of Teleglobe Inc. and Bell Globemedia, specifically CTV (including NetStar Communications Inc.), The Globe and Mail and Globe Interactive. In 2001, the Teleglobe segment consists of the results of Teleglobe Communications group. However, in 2000, the cash baseline earnings contribution from the Teleglobe segment also includes interest expense on Excel s debt that will not be assumed by VarTec and Teleglobe Marine s results, which in 2001 are both presented in BCE Ventures. Operating Revenues Three months Nine months ($ millions) Actual Pro-forma Actual Pro-forma For the period ended September % change % change Bell Canada 4,337 4, ,692 11,624 9 Bell Globemedia (2) Teleglobe (5) 1,539 1,507 2 BCE Emergis Corporate and other (including intercompany eliminations) (160) (171) 6 (512) (511) Total core revenues 5,087 4, ,043 13,770 9 BCE Ventures ,172 1,071 9 Non-core intercompany eliminations (120) (43) (179) (252) (148) (70) Total revenues 5,379 5, ,963 14,693 9 The increase in BCE s total revenues was mainly due to: improved results from the Bell Canada segment, primarily due to growth in the number of Internet subscribers, higher SmartTouch and network access services revenues from the local and access market, an increase in the cellular and PCS subscriber base and growth in the number of Bell ExpressVu subscribers, partially offset by a continuing decline in long distance revenues mainly attributable to pricing pressures from increased competition; and improved results from BCE Emergis, primarily due to an increase in sales of e-invoicing solutions; partially offset by: a decrease in revenues in the third quarter from Teleglobe primarily due to lower voice revenues reflecting price declines. However, on a year-to-date basis, Teleglobe revenues were higher, driven largely by higher sales of Internet connectivity and partnership revenues associated with the build out of the GlobeSystem network. Cash Baseline Earnings Three months Nine months ($ millions, except per share amounts) Actual Pro-forma Actual Pro-forma For the period ended September % change % change Bell Canada (3) Bell Globemedia (16) (13) (23) (7) (6) (17) Teleglobe (14) (42) 67 (63) (137) 54 BCE Emergis Corporate and other (including intercompany eliminations) Total core cash baseline earnings BCE Ventures (4) 13 (131) (67) Non-core intercompany eliminations (1) n.m. 3 (6) 150 Total cash baseline earnings Earnings per common share Basic Cash baseline earnings core Cash baseline earnings total n.m.: not meaningful GlobeSystem is a trade-mark of Teleglobe Inc. 9

10 The increase in BCE s cash baseline earnings primarily reflected: an increased contribution from Teleglobe mainly due to a higher EBITDA, and the inclusion of interest expense on Excel s debt and Teleglobe Marine s operating loss in 2000, partially offset by a higher depreciation and interest expense; and improved results from Corporate and other primarily due to a lower interest expense partially offset by higher operating expenses; partially offset by: a decrease from BCE Ventures, primarily attributable to the inclusion of interest expense on Excel s debt and Teleglobe Marine s results in On a year-to-date basis, the increase in BCE s cash baseline earnings is further attributable to an increase from Bell Canada which reflected a higher EBITDA partially offset by a higher depreciation and interest expense. BELL CANADA SEGMENT This segment provides connectivity to residential and business customers through wired and wireless voice and data communications, high speed and wireless Internet access, IP-broadband services, e-business solutions, local and long distance phone and directory services. The results of the Bell Canada segment discussed in this MD&A represent the consolidation of Bell Canada Holdings Inc. (BCH) with Bell Canada and its subsidiaries (including Bell Mobility Inc. (Bell Mobility), BCE Nexxia Inc. (carrying on business in Canada under the name Bell Nexxia), Bell ActiMedia Inc., Bell Distribution Inc., Certen Inc., Northern Telephone Limited, Northwestel Inc. and Télébec ltée), and also its investments in significantly influenced companies (including Manitoba Telecom Services Inc. (MTS) and Bell Intrigna Inc.). BCE owns 80% of BCH and the remaining 20% ownership interest is held by SBC Communications Inc. In addition, the Bell Canada segment includes the consolidation of Aliant (approximately 39% held by Bell Canada and approximately 14% held by BCE Inc.) as well as BCE Inc. s 100% interest in Bell ExpressVu. Recent Developments On October 17, 2001, Bell Canada announced that Bell Mobility and Aliant Telecom Wireless (a business unit of Aliant) entered into an enhanced ten-year reciprocal agreement with Telus Mobility (a business unit of Telus Corporation) which is expected to significantly expand access to advanced digital voice and data services across Canada and to bring competition to rural areas. This agreement extended the current roaming and resale agreements between Bell Mobility and Telus Mobility. It is anticipated that this agreement will enhance the reach of Bell Mobility s digital PCS service across rural Alberta and British Columbia by providing access through the Telus Mobility network in the two provinces. Similarly, Telus Mobility customers will gain access through the Bell Mobility digital PCS network in rural Ontario and Quebec. As a result of this agreement, Bell Mobility is expected to be able to avoid capital expenditures of more than $500 million over the term of the agreement. Additionally, Bell Mobility officially launched its Western expansion on September 17, 2001 with its consumer marketing campaign in Alberta and British Columbia. On May 23, 2001, Glenayre Technologies Inc. (Glenayre), the paging network infrastructure supplier for major carriers, announced that it intended to exit the business in May Bell Mobility uses Glenayre s technology in its paging and ReFLEX 2-way messaging operations. As a result of this announcement, Bell Mobility had indicated that it was examining options for network infrastructure support past May Since that time, Glenayre has indicated that it intends to continue to provide paging network support to carriers. Consequently, on September 18, 2001, Glenayre and Bell Mobility signed a letter of intent to proceed to execute a renewable two-year maintenance contract for the supply of maintenance and support services to Bell Mobility s paging network infrastructure. Accordingly, this would enable Bell Mobility to continue to provide paging services. Analysis and Discussion of Bell Canada Segment s Results Three months Nine months ($ millions) Actual Pro-forma Actual Pro-forma For the period ended September % change % change Revenues Local and access 1,635 1, ,706 4,476 5 Long distance (10) 2,004 2,147 (7) Wireless ,346 1, Data ,569 2, DTH (Direct-to-home satellite services) Terminal sales, directory advertising and other (2) 1,726 1,634 6 Total revenues 4,337 4, ,692 11,624 9 EBITDA 1,818 1, ,172 4,879 6 Cash baseline earnings to BCE (3)

11 Operating revenues Local and access At September Network access services (thousands of lines in service) 13,384 13,328 Local market share (Bell Canada territory in Quebec and Ontario only) 96.1% 97.4% The increase in local and access revenues was mainly due to higher SmartTouch feature revenues and growth in network access service revenues. The growth in SmartTouch feature revenues of 14% in the third quarter and the first nine months of 2001 reflected higher average monthly revenues per customer mainly as a result of price increases (refer to Regulatory Decisions ) and a greater number of features in service. The increase in network access service revenues of 4% in the third quarter and 3% in the first nine months of 2001 was due to a price increase in monthly local residential rates (refer to Regulatory Decisions ) as well as a higher number of lines in service. However, growth in the number of lines in service was lower compared to the growth achieved in the same period last year. This decrease is consistent with competition from the competitive local exchange carriers (CLECs), which has resulted from the advent of competition in the local service market in Long distance For the period ended September 30 Three months Nine months (except where otherwise noted) Conversation minutes (millions) 4,400 4,372 13,396 13,264 Market share (% based on minutes, at September 30) (Bell Canada territory in Quebec and Ontario only) 61.0% 62.0% The decline in long distance revenues was primarily due to decreases in both long distance voice revenues and settlement revenues. The decrease in voice revenues reflected a 7% decrease in average long distance revenue per minute to 13.6 cents per minute, primarily due to continuing competitive pricing pressures, partially offset by higher services volumes, as measured in conversation minutes. The reduction in long distance settlement revenues resulted primarily from lower settlement rates across all streams (domestic, U.S. and overseas). Wireless For the period ended September 30 Three months Nine months (except where otherwise noted) % change % change Cellular and PCS Net activations (thousands) Prepaid Postpaid (13) Total Total subscribers (thousands, at September 30) Prepaid Postpaid 2,310 1, Total 3,186 2, Average revenue per subscriber ($/month) Prepaid Postpaid Total Usage per subscriber (minutes/month) Postpaid churn rate (average per month) 1.5% 1.3% n.m. 1.4% 1.6% n.m. n.m.: not meaningful The growth in wireless revenues was primarily driven by a 25% increase in the cellular and PCS subscriber base and an increase in minutes of usage per subscriber, partially offset by lower paging products and in-flight service revenues. The results reflect the continued focus on postpaid activations, which accounted for 68% and 62% of total net activations in the third quarter and the first nine months of 2001, respectively. Additionally, while postpaid churn increased slightly in the third quarter of 2001, the year-to-date churn declined in 2001 as a result of the wireless operations focus on enhanced customer offerings and strong customer support. 11

12 The average revenue per cellular and PCS subscriber remained relatively flat in the third quarter and the first nine months of 2001, reflecting the emphasis on the retention of high value customers with new products like the Small Business Rate Plan, minor price increases in system access fees and features, offset by increased competitive pressures. Data For the period ended September 30 Three months Nine months (except where otherwise noted) % change % change Data revenues ($ millions) Legacy (1) ,620 1, Non-legacy (2) Total ,569 2, Internet subscribers (thousands, at September 30) DSL High-speed (3) Dial-up (4) 1, Total 1, (1) Legacy data revenues include digital transmission services such as Megalink, network access for Integrated Services Digital Network (ISDN) and Data, as well as competitive network services and the sale of inter-networking equipment. (2) Non-legacy data revenues include national and regional IP/Broadband data and Internet services. (3) High-speed Internet subscribers include consumer, business and wholesale subscribers. (4) Dial-up subscribers include consumer and business subscribers. Dial up subscribers for 2000 have been restated to reflect dial-up access subscribers only. Previously reported amounts reflected both dial-up access and features subscribers. The increase in data revenues was primarily driven by the growth in the provision of IP/Broadband, competitive networks, Internet and e-commerce services, as well as increased sales of inter-networking equipment and cabling, partially offset by a decrease in digital transmission services, mainly in Megalink. Contributing to the increase in Internet related revenues was the 66% growth in Internet subscribers. Total Internet subscribers net additions of 130,000 in the third quarter of 2001, significantly improved compared to the 85,000 net additions in the second quarter of 2001 primarily due to an increase in the level of advertising and promotions since June Bell Canada s consumer high-speed market share in Ontario and Quebec grew to approximately 40% at September 30, 2001 compared to approximately 27% at September 30, The third quarter of 2001 growth in data revenues of 17% decreased compared to the 27% growth in the second quarter of This decrease in growth is consistent with the current slowdown in the economy. DTH For the period ended September 30 Three months Nine months (except where otherwise noted) % change % change Total DTH subscribers (thousands, at September 30) DTH net activations (thousands) Average revenue per subscriber ($) (4) (2) Churn rate (per quarter, year-to-date) 3.3% 3.1% n.m. 8.9% 10.2% n.m. n.m.: not meaningful The growth in DTH revenues was primarily driven by a significant growth in the subscriber base. Net activations in the third quarter of 2001 were strong due to increased advertising, including the marketing focus on Digital TV, with the launch of 40 new digital channels in September 2001 as well as the introduction of Bell ExpressVu s new PVR (Personal Video Recorder) receiver. The decrease in average revenue per subscriber was mainly due to a higher penetration in lower priced programming. Terminal sales, directory advertising and other Terminal sales, directory advertising and other revenues decreased by $10 million in the third quarter of 2001, while increasing by $92 million on a year-to-date basis. The decrease in the quarter is mainly explained by a slowdown in sales from Aliant s Emerging Business unit that was unfavourably impacted by the current economic softness, as well as lower directory advertising revenues resulting from the divestitures of certain international directory operations, partially offset by higher revenues from Aliant s Remote Communications operations (which reflected the acquisitions completed by Stratos Global Corporation (Stratos Global) in 2000 coupled with organic growth). On a year-to-date basis, higher revenues from Aliant s Remote Communications operations and Aliant s Information Technology services more than offset the lower directory advertising revenues. Megalink is a trade-mark of Stentor Resource Centre Inc. 12

13 EBITDA The growth in EBITDA was due to higher operating revenues, partially offset by higher cash operating expenses. The increase in cash operating expenses was principally due to: higher costs associated with the revenue growth that related mainly to the provision of IP/Broadband, Internet and wireless services, and the sale of business terminal equipment, partially offset by lower long distance settlement payments; higher subscriber acquisition costs at Bell ExpressVu, in response to growth and competition; higher expenses in relation to the growth from the acquisitions completed by Stratos Global in 2000; and the negative impact of the Canadian Radio-television and Telecommunications Commission (CRTC) contribution decision, effective January 1, The CRTC changed the contribution regime for local service subsidies in high cost areas from a company specific long distance per minute charge to a nationally averaged surcharge of 4.5% on all Canadian telecommunications revenues (refer to Regulatory Decisions ). Cash baseline earnings The decrease in cash baseline earnings in the third quarter of 2001 was mainly due to: a higher depreciation and amortization expense (excluding goodwill amortization), primarily due to higher plant in-service and the impact of the various acquisitions made by Aliant during 2000, partially offset by lower depreciation rates (effective January 2001) for certain central office equipment asset categories; and a higher interest expense, mainly explained by higher average debt levels at Bell Canada in 2001, as well as higher debt levels at Aliant due to the various acquisitions completed by Aliant s remote communications company during 2000; partially offset by: a higher EBITDA contribution. The increase in cash baseline earnings, on a year-to-date basis, can be explained by the fact that the higher EBITDA contribution more than offset the higher depreciation and amortization expense and interest expense. Regulatory Decisions Bell Canada and Aliant will complete, at the end of this year, a four-year price caps regime that commenced January 1, The price caps regime is being reviewed in 2001 and will be changed to establish the framework that will apply for 2002 and beyond. The terms of the price caps regime will govern the pricing flexibility for local services that these companies will have going forward. Bell Canada and Aliant believe that their proposals will provide the necessary foundation for the further evolution of local service competition and the achievement of the ultimate goal of full facilities-based competition in all telecommunications markets. However, there is no assurance that the CRTC will accept Bell Canada s and Aliant s proposals, and Bell Canada and Aliant cannot predict the final impact that the CRTC s decision will have on them. On June 29, 2001, the CRTC issued Decision varying Decision to reset the indicators to be used for measuring access to Bell Canada s business and repair bureau to their previous standard, as Bell Canada had objected to the proposed increase in the standard. The CRTC had on April 9, 2001, issued Decision , which, among other things, introduced new service indicators regarding customer complaint procedures, directory assistance and accuracy, and access to Bell Canada s repair bureau. Various new indicators were also created to specifically measure the quality of service provided to CLECs. On April 27, 2001, the CRTC issued Decision , revising the unbundled local loop rates that CLECs pay for the use of such loops. The loop prices paid to Bell Canada have been reduced on average by 28%. This aspect of Decision is not expected to have a material adverse effect on Bell Canada s financial results. This decision also addresses the costs to be used as the basis for establishing the subsidy requirement under the national subsidy mechanism that was recently approved in Decision Based on preliminary calculations, the revenue percentage charge is estimated to be 1.5% for the year 2002, compared to 4.5% for the year On March 30, 2001, the CRTC, in Order , approved monthly price increases, ranging from approximately $0.25 to $1.60 per residential customer per month, for local residential services. Local price increases were anticipated in Decision , which introduced changes to the contribution regime, and are therefore designed to recover from local customers a portion of Bell Canada s national subsidy requirements for high cost serving areas. On March 21, 2001, the CRTC issued Order reversing Orders and 1149 that denied Bell Canada s applications to increase the rates for various calling features. The rates originally proposed were approved effective March 21, The forecasted revenue impact of these increased rates is approximately $50 million annually. On March 15, 2001, the CRTC issued Order denying the application by Bell Canada and Bell Mobility to vary the terms, as it affects 2001, of Telecom Decision The CRTC held that a variance of the terms of its decision, as requested by Bell Canada, would have caused substantial local rate increases in other parts of Canada. Moreover, the CRTC held that Bell Mobility s request would have amounted to giving wireless services preferential treatment over wireline services. 13

14 As previously reported in the Annual Information Form, 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 the 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. The cities of Toronto, Ottawa, Halifax, Calgary and Vancouver and the Federation of Canadian Municipalities were granted leave to appeal the CRTC Decision on May 14, 2001 and have since filed their appeal with the Federal Court of Appeal. BELL GLOBEMEDIA Bell Globemedia is a Canadian multi-media company in the fields of broadcasting, print and the Internet, created on January 9, Bell Globemedia provides integrated information, communications and entertainment services to Canadian customers and access to distinctive Canadian content that allows the creation of unique destinations for Internet users through various portal properties. This segment is comprised of television operations from CTV, print operations from The Globe and Mail, and interactive operations from Globe Interactive and Sympatico-Lycos, as well as other media interests. BCE owns 70.1% of Bell Globemedia, while 20% is held by The Thomson Corporation (Thomson) and 9.9% is held by The Woodbridge Company Limited (Woodbridge). Recent Developments In November 2001, Bell Globemedia completed the previously announced transaction for the transfer of the 100% ownership interest in Report on Business Tv from affiliates of Thomson to Bell Globemedia Publishing Inc. (a wholly owned subsidiary of Bell Globemedia). Also in November 2001, Bell Globemedia completed the previously announced transaction for the sale of its 40% interest in Sportsnet for a total cash consideration of approximately $138 million. On October 18, 2001, CTV announced the restructuring of its operations, which will enable it to improve efficiency in the use of its resources in delivering services to viewers, through centralization and reorganization of administrative areas such as marketing, promotion, technical and management services. Approximately 150 positions will be eliminated, of which 20% are presently vacant. On September 18, 2001, COGECO Inc. (COGECO) and Bell Globemedia announced the conclusion of an agreement whereby they will jointly acquire an 86% interest in the TQS television network and create a new company regrouping the TQS network and other television stations. COGECO will transfer to the new company six television stations and its interest of approximately 13% in the TQS network for a total consideration valued at $104 million. Bell Globemedia will contribute approximately $74 million in cash, which will be used mainly to acquire the 86% interest in TQS. COGECO will hold a 60% ownership in the new company, and Bell Globemedia will hold 40%. COGECO and Bell Globemedia intend to extend an offer at the same equivalent price per share to the minority shareholders that hold 1% of TQS s shares. This transaction is subject to certain conditions, including approval by the CRTC. On September 1, 2001, CTV finalized the previously announced transactions to purchase CF Television Inc. (CFCF-TV) and CKY-TV, two CTV affiliated television stations in Montreal and Winnipeg, respectively, for a total aggregate cash consideration of approximately $182 million. Analysis and Discussion of Bell Globemedia s Results Three months Nine months ($ millions, except where otherwise noted) Actual Pro-forma Actual Pro-forma For the period ended September % change % change Revenues Advertising (3) Subscribers Production and Sundry (14) Total revenues (2) EBITDA (6) (4) (50) (17) Cash baseline earnings to BCE (16) (13) (23) (7) (6) (17) Operating statistics (millions) Bell Globemedia Interactive (1) Pageviews ,825 1, Unique visitors (for the month of September) 8.5 n/a n.m. (1) As of July 1, 2001, Bell Globemedia Interactive combines all interactive new media initiatives across the company, including Sympatico-Lycos and Globe Interactive. n/a: not available n.m.: not meaningful 14