| Dear Fellow Shareholders,
Early in February, I sat down for a thirty-minute meeting with a group of Bell Canada employees. Two and a half hours later, we adjourned. But I could have stayed all day.
These were exceptional people—the kind who are leading the charge in building a new Bell.
Drawn from across the company. From across divisions and locations. From across job titles and responsibilities. A wide cross-section of our nearly 40,000 people.
To know a company, to really know a company, you have to know its people. So I seized the opportunity. And asked these front-line people to tell me how they thought we were doing.
I didn’t need to ask twice. They told me about the very real challenges they have faced as we change Bell, as we tighten our focus on a strategy that will take us into the future. They told me about their hard work. How their teams are striving to meet the call for simplicity and service. How it isn’t easy to be on the front lines in a time of great change.
But they also told me how proud they are to work at Bell. To represent Bell in their communities. They spoke of the pride they feel as we embrace the technological promise of Internet Protocol, IP television and next-generation wireless. They talked about the competition, and how we are ready to fight. To win.
I wanted to know what the mood of the company was. To know where our people stand. How they think we are doing.
The short answer they gave me: it’s tough, but we are on the right track.
2004 was a watershed year in the 125-year history of Bell Canada. A challenging year, a year in which many of our achievements were internal, not external. And while we were generally satisfied with our performance, we recognize how much we have left to accomplish.
For example, we added one million new subscribers for our products and services last year—but we need to add more, and we will. We negotiated an important labour agreement with our Bell technicians, but we did experience the disruption of a work stoppage at Aliant. We reduced the number of product lines, offers and service codes. But this too is just one step in our ongoing effort to be simpler.
Other achievements will have a lasting impact. In October, for instance, we took a bold step forward in our national strategy. The Vancouver Organizing Committee named Bell a Premier National Partner for the 2010 Olympic Winter Games. We strengthened that relationship when CTV earned the exclusive Canadian broadcast rights to the Games. This is an opportunity to showcase Bell’s technology, reliability and service on the highest-profile stage in the world. And it reinforces our position as the one truly national player in telecommunications.
In 2004 we got serious about getting simple.
For Bell, “Making it Simple” is much more than a tag line. It is our strategic direction, our rallying cry, and how we are building a new Bell Canada.
To support simplicity, in 2004, we launched a company-wide program called Galileo—a coordinated effort to re-examine every facet of our business. The goal: make operations, products and procedures radically simpler, both internally and externally and as a result lower our cost base.
Galileo is based on a simple equation:
Simplicity = Service = Savings = Growth.
This requires some explanation. First because it is fundamentally important. And second because it may not be intuitive how savings can co-exist with higher levels of service. Or how simplicity can pave the way for next-generation products.
We will be able to deliver better, more sustainable levels of customer service as we make our internal operations simpler and our products easier to choose and use. Through simplicity, we will cut unnecessary steps and redundant functions. We will reduce re-work. And generate significant savings. Galileo is expected to contribute an estimated $1 billion to $1.5 billion in cost savings by the end of 2006. Savings that will improve shareholder returns and buy us freedom to invest in and grow new areas of our business.
But reducing our costs is only the start. Galileo focuses everyone at Bell on our strategy. It forces our disparate parts to move as one towards our common goals. Perhaps most importantly, it gives employees the opportunity to innovate—to change the way we do business.
Steady performance, increased confidence
With our financial performance in 2004, BCE has demonstrated that we can deliver steady progress even as we continue to build a more productive and more responsive business model. Total revenue for 2004 was $19.2 billion, a 2.4 per cent increase over 2003. Our EBITDA increased by 2.1 per cent to $7.6 billion. Among our most positive results was return on equity, which was 15.2 per cent. Earnings per share, excluding restructuring charges, were $2.02 , an increase of more than 6 per cent.
The most significant restructuring charge taken in 2004 was $985 million associated with our Voluntary Employee Departure Program. We expect the voluntary departures—which reduced our workforce by approximately 10 per cent—to produce annual savings of approximately $390 million.
We are successfully executing our plan to reshape Bell Canada. In 2004, we defined the path for the future and laid the foundations. In 2005, we will execute our strategy and deliver improved operating results. By 2006, the company will be focused on service innovation, steady growth and increasing returns to shareholders.
Because of our progress, I recommended that the Board increase the common annual share dividend by 10 per cent, or 12 cents a share. The Board did so in December. The dividend increase is important for two reasons. First, it increases our yield and provides our shareholders with a greater return on their investment. Second and more importantly, it sends a strong signal to our shareholders, to our employees and to our customers that we are confident in our forward momentum; our plan has traction.
A clear strategic plan
Our confidence is based on the very real progress we made in 2004. While Galileo paves the way for better performance, we also developed a clear strategic framework for making the world’s first “new telecom.” Our plan rests on three strategic pillars. These foundations are not new. They are a clear expression of the strategy we set out two years ago. And against which we have already made significant progress. We will accelerate our progress over the next year as all of us at Bell drive the implementation of this plan.
1. Customer Experience
Providing our customers superior product and service experiences that build loyalty and save time and expense. For them and for us.
Our job is to take the power of the most advanced technology and make it simple for our customers to use. So they can be better informed and entertained. So their businesses can be more productive and globally competitive. Our customers want our products and services to be easy to use, to work all the time. If there’s a problem they want us there to support them.
Our response is an approach we call smart contact. This means we will help our customers adapt and use the latest technology without adding to the complexity of their lives. We will face them as one company. Provide them with the level of service that is at the core of our brand.
Easy to say, harder to do. Like all organizations, sometimes we fall short. And sometimes, as with our recent migration to a new billing system for Bell Mobility, we do not execute as well as we should: we take a few steps back before moving forward. But we will move forward. Superior customer service will be the centrepiece of our competitive advantage in the marketplace. We will succeed.
2. Reliable Bandwidth
Providing our customers with ever-more-capable broadband connectivity that they can count on.
In last year’s letter, I wrote at length about the promise of Internet Protocol (IP) connectivity and how it would usher in a new world of communications. A year later, I can say: it has.
Last year, we successfully moved 60 per cent of our core network traffic onto an IP platform. We also completed IP migration plans for our entire Enterprise customer group — our 1,000 largest customers. For our small business and consumer customers, we began our pioneering rollout of Fibre-to-the-Node (FTTN). This will eventually allow Bell to deliver all our services—voice, data, video —over a single high-speed broadband network eight times faster than today’s current DSL connections. A network that will reach almost 85 per cent of all households in the Québec City to Windsor corridor.
Put simply, we are committed to the IP revolution and its potential. Let me be absolutely clear: IP is not about delivering cut-rate voice connectivity over a DSL line or cable connection. IP is about delivering the promise of true, high-speed bandwidth over a reliable network that our customers can trust.
Across this network will flow voice, video, music, business data, interactive gaming, the Internet and anything else that can be put into digital form. This is an area where we must lead. And we will.
3. Next-Generation Services
Providing our customers with the information, entertainment, connection and productivity that are the true purpose of our network.
The same new technology that represents such a promising future for Bell also hastens the decline of our legacy telephone business. Rather than resist this decline, we are embracing it.
An example; in 2004, we introduced virtually unlimited long distance for $5 to promote our consumer product bundle. It was a signal that we are prepared to lever our existing legacy business to attract new customers and drive new value-added growth.
Some observers think this approach is too aggressive. Some would like us to play defence. We disagree. We think being bold is the best defence.
Our growth will come from new products delivered over our new IP network. In 2004, fully 40 per cent of our revenue was generated by such “growth services.” In just two years, we expect this to increase to 55 per cent.
A case in point: our IPTV partnership with Microsoft announced last year. Building on our Sympatico-MSN relationship, we are now working with Microsoft to begin trials of television over existing copper-wire telephone connections—in 2005.
These services, and many others like them, are the long-term growth story for the company. We are moving aggressively to bring new technologies and new services to market—in ways that our customers can use and will value. Technology is not an end in itself. It is a means to build a high-value relationship with each and every customer.
A cultural transformation
To reach these ambitious goals, we will draw fully on the great talents of all of our people. My meeting in February with employees was just one of many. In thousands of conversations I have had with people at Bell, one thing is clear: all of us want and expect to deliver what our customers need and want— great experiences, reliable bandwidth, next-generation services.
We know that, too often, the very processes, procedures, and systems we have put in place in the past to run our business stand in the way. So now our challenge—perhaps the toughest and most important one we face—is to get out of the way of our people so they can do what they know they need to do. What they want to do.
That means changing our culture—not just what we do, but how we do it. How we work, how we do business. Today, we are still too hierarchical. We tie up good ideas with red tape.
Where we are headed
But every day we are working to get in step with the future. We are doing what it takes to instill a culture of confidence: an environment that promotes accountability, personal initiative and merit. A place that cultivates the creativity and the leadership of our people.
We have a clear long-term strategy. Our business results tell us it’s the right direction.
But perhaps what matters most is what I heard from the employees I met with that February morning. In their words, in their stories, and in their dedication, I see the clearest path to building a company that inspires our people and that offers our shareholders a future of increasing returns.
Michael J. Sabia
President and Chief Executive Officer |
