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In addition to the other risk factors outlined in this document, the following additional factors should be considered. Collectively these factors could cause the results contemplated by the forward-looking statements contained in this document to materially differ from current expectations. The factors discussed below relate to BCE Inc.'s two principal operating units, namely Bell Canada and Nortel Networks. For a discussion of risk factors which could materially affect the results of operations and financial condition of certain other principal companies of the BCE group as well as for a more detailed discussion of the risk factors which could materially affect the results of operations and financial condition of Bell Canada and Nortel Networks, the reader is referred to BCE Inc.'s Annual Information Form for the year ended December 31, 1998. 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.
For a description of Bell Canada's and Nortel Networks' Year 2000 programs and risks associated with the Year 2000 issue which could have a material adverse effect on the financial condition and results of Bell Canada and Nortel Networks, see "Impact of Year 2000 issue (Year 2000 Readiness Disclosure)".
Bell Canada's and Nortel Networks' future operating results may be affected by various trends and factors which must be managed in order to achieve favourable operating results. In addition, there are trends and factors beyond Bell Canada's and Nortel Networks' control which affect their operations. Such trends and factors include adverse changes in the conditions in the specific markets for Bell Canada's and Nortel Networks' services and products, the conditions in the broader market for communications and the conditions in the domestic or global economy generally.
Bell Canada and Nortel Networks participate in a highly volatile and rapidly growing telecommunications industry which is characterized by vigorous competition for market share and rapid technological development. These factors could result in aggressive pricing practices and growing competition both from start-up and well capitalized companies.
Bell Canada
Increasing Competition
With the advent of competition in the local service market in 1998, all parts of Bell Canada's business are facing substantial and intensifying competition. Factors such as product pricing and service are under continued pressure while the necessity to reduce costs is ongoing. Bell Canada must not only try to anticipate, but must also respond promptly to, continuous and rapid developments in its businesses and their markets. In addition, the significant growth and size, as well as increasing global scope, of the telecommunications industry are attracting new entrants and encouraging parties other than existing participants to expand their services and their markets. Mergers and acquisitions, as well as alliances and joint ventures, are creating new or larger participants with broad skills and significant resources which will further impact the competitive landscape. Current and future competitors are coming not just from within Canada, but also globally, and will include not only major telecommunications companies, such as AT&T Canada and Sprint Canada, but also cable companies, Internet companies, wireless service providers and other companies that offer network services, such as providers of business information systems and system integrators, as well as an increasing number of other companies who deal with or have access to customers through various communications networks. Many of these companies are significant in size and resources and have a significant market presence with brand recognition and existing customer relationships.
Technology
The telecommunications industry, as with many others, is characterized by rapidly changing technology with the related changes in customer demands and the need for new products and services at competitive prices. Technological developments are also shortening product life cycles and facilitating convergence of different segments of the increasingly global information industry. Bell Canada's future success will be impacted by its ability to anticipate, invest in and implement new technologies with the levels of service and prices that consumers demand. Technological advances may also affect Bell Canada's level of earnings by shortening the useful life of some of its assets. Further, technological advances may well emerge that could reduce or replace the costs of plant and equipment and eliminate or reduce barriers that deter other companies from competing in particular market segments.
Decisions of the Canadian Radio-television and Telecommunications Commission (CRTC)
During 1997, the CRTC released several important decisions which set out the rules for the evolution to total competition in Canada's telecommunications industry. Included in these decisions were those related to the introduction of local service competition, the implementation of price cap regulation, and forbearance from long distance and private line service regulation. These decisions, which are described in BCE Inc.'s Annual Information Form for the year ended December 31, 1998, represent significant challenges and opportunities for Bell Canada and are expected, together with continued intense competition across all lines of business coupled with the rapid pace of technological change (as previously discussed), to have a significant impact on Bell Canada's results in the future.
Nortel Networks
Rapid Technological Change and Voice and Data Convergence
It is expected that data communications traffic will grow substantially in the future compared to the modest growth expected for voice traffic. The growth of data traffic is expected to have a significant impact on traditional voice networks and create market discontinuities which will drive the convergence of data and telephony and give rise to the demand for Internet Protocol ("IP")-optimized networks. Given the dynamic and evolving nature of the telecommunications business and the technology involved, there can be no assurance as to the rate of such convergence. Consequently, there is no assurance that the market discontinuities and the resulting demand for IP-optimized network equipment will continue to develop. In order to position Nortel Networks to take advantage of the anticipated growth in demand for IP-optimized network equipment, Nortel Networks has made a number of strategic acquisitions, including the acquisition of Bay Networks. Acquisitions, particularly an acquisition the size of the Bay Networks acquisition, involve significant risks and uncertainties. These risks and uncertainties include the risk that the industry does not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in the industry, the difficulty in integrating new businesses and the risks of entering new markets in which Nortel Networks has limited experience. The markets for Nortel Networks' products are characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and short product life cycles. Nortel Networks' success is expected to depend, in substantial part, on the timely and successful introduction of new products and upgrades of current products to comply with emerging industry standards and to address competing technological and product developments carried out by others.
Competition
Nortel Networks' principal competitors are large telecommunications equipment suppliers, such as Lucent Technologies Inc. (Lucent), Siemens AG, and L.M. Ericsson, and data networking companies such as Cisco Systems, Inc. and 3Com Corporation. Since the markets in which Nortel Networks competes are characterized by rapid growth and, in certain cases, low barriers to entry and rapid technological changes, smaller niche market companies and start-up ventures may become competitors in the future. The acquisition of Bay Networks was followed by Lucent's agreement to acquire Ascend Communications Inc. These acquisitions may have the effect of inducing certain of Nortel Networks' other competitors to enter into additional business combinations, to accelerate product development, or to engage in aggressive price reductions or other competitive practices thereby creating even more powerful or aggressive competitors.
International Growth, Foreign Exchange and Interest Rates
Nortel Networks intends to continue to pursue growth opportunities in international markets. In many international markets, long-standing relationships between Nortel Networks' potential customers and their local providers, and protective regulations, including local content requirements and type approvals, create barriers to entry. In addition, pursuit of such international growth opportunities may require significant investments for an extended period before returns on such investments, if any, are realized. Such projects and investments could be adversely affected by reversals or delays in the opening of foreign markets to new competitors, exchange controls, currency fluctuations, investment policies, repatriation of cash, nationalization, social and political risks, taxation, and other factors, depending on the country in which such opportunity arises. Difficulties in foreign financial markets and economies, and of foreign financial institutions, could adversely affect demand from customers in the affected countries.
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