BCE reports 2005 year-end and fourth quarter results


	BCE reports 2005 year-end and fourth quarter results Launch Webcast This news release contains forward-looking statements. For a description of the related risk factors and assumptions please see the section entitled "Caution Concerning Forward-Looking Statements" later in this release. - BCE revenues up 4.0% in 2005 - Met or exceeded 2005 guidance - Revenues from growth services reach 47% - surpassing 2005 target of 45% - Double-digit subscriber increases in growth services - Business segment revenue growth rate increases for 6th consecutive quarter MONTREAL, Feb. 1 2006 -- BCE Inc. (TSX, NYSE: BCE) reported fourth quarter and full year 2005 financial results and announced its financial guidance for 2006 this morning prior to the annual BCE Business Review Conference in Toronto. BCE met or exceeded its 2005 guidance for revenue growth, cost reductions, EPS, free cash flow and capital intensity. BCE also provided details of its business plan for 2006 and announced the use of proceeds from recent asset sales and further initiatives in the company's ongoing asset review. Further details on this can be found in BCE's Business Review Conference news release also issued this morning. For the full year 2005, BCE reported revenues of $19.1 billion, up 4.0% from the previous year as fourth quarter revenues increased by 4.6% to $5 billion. Operating income for the full year 2005 was $4 billion compared to $2.9 billion(1) the previous year, and operating income for the fourth quarter was $979 million, compared with $814 million in the same quarter last year. EBITDA(2) for the full year reached $7.6 billion, a 2.2% increase compared to 2004, and fourth quarter EBITDA was $1.9 billion, up $64 million or 3.6% over the same period last year. That performance translated into cash from operating activities of $5.6 billion in 2005, an increase of 2.1% over the previous year. Cash from operating activities in the quarter was $1.6 billion, an increase of 24% over the same period in 2004. Free Cash Flow(3) for the year was $662 million compared to $870 million for 2004, consistent with our revised guidance of $600 million to $800 million(4). Free cash flow in the quarter was $423 million, compared to the negative $121 million recorded in the fourth quarter of 2004. Earnings per share (EPS) were $2.04 for the full year 2005 compared to $1.65 for 2004, and were $0.44 in the fourth quarter compared to $0.45 for the same period in 2004. 2005 EPS before restructuring and other items and net gains on investments(5) were $2.05 compared to $2.02 reported for 2004; and in the fourth quarter were $0.46 compared to $0.45 in the fourth quarter of 2004. "As we expected, our performance bounced back in the fourth quarter and we ended 2005 on a strong footing from which to continue our progress in 2006," said Michael Sabia, President and Chief Executive Officer of BCE. "We delivered on the commitments that we made for 2005, and demonstrated Bell's ability to execute in the face of growing competition. Our guidance was met or exceeded, and importantly, revenue from our growth services more than outpaced the decline in our legacy business." Revenue growth from new services such as Internet Protocol (IP), Information and Communications Technology (ICT), wireless, Internet and video reached 47% of Bell's total revenues by the end of 2005, exceeding the company's target of 45%. In the Residential segment (formerly reported as the Consumer segment), growth services showed double-digit subscriber increases for the year. Revenues from these services surpassed the decline of the company's residential wireline business. The decrease in NAS of 324,000 for the year, or 2.5%, plus the higher costs of wireless acquisition, led to a decline in full year operating income of 5.6%. To further counter the increased competitive pressures, the company pursued its strategy of securing two-plus and three- plus multi-product households to both drive customer retention and higher revenues per household. By the end of 2005, almost 60% of the Bell households in Québec and Ontario subscribed to two or more services. In the Business segment, a year of accelerated growth was fuelled by strong sales of IP based connectivity and ICT solutions to our Enterprise and Small and Medium Business (SMB) customers. Bell has 143 of its largest Enterprise customers contracted to implement Internet Protocol-Virtual Private Network (IP-VPN) solutions. RBC Financial Group signed a five-year contract with Bell for fully managed IP solutions, converting 8,400 of the bank's head office telephone lines. At year end, 62% of Enterprise revenues were generated by growth services. The SMB group saw strong progress this year as Virtual Chief Information Officer (VCIO) revenues far outpaced the decline in legacy data. The successful integration of recent acquisitions - CSB Systems, Charon Systems and Nexxlink Technologies - under Bell Business Solutions (BBS) has generated considerable cross-selling opportunities. VCIO revenues recorded 60% organic growth in the fourth quarter of 2005 compared to the same period in 2004. Significant progress was made in 2005 as BCE stepped up its efforts to reset its cost structure. The company delivered $524 million in recurring cost savings during the year, meeting the 2005 target. In the fourth quarter cost savings totalled $171 million, creating a solid take-off point for 2006. Next year as cost-reduction programs accelerate and new initiatives come on line, the company anticipates reaching $1.3 -$1.4 billion in recurring annual savings by the end of 2006. In late 2005, BCE completed two important steps in the ongoing review and restructuring of its asset portfolio, resulting in a more focused and simple corporate structure. BCE disposed of a significant portion of its interest in CGI Group Inc. in early January 2006 and expects to dispose of its remaining interest during the course of the year. As well, BCE announced an agreement to reduce its interest in Bell Globemedia Inc. to 20% and also received a return of capital from Bell Globemedia in January 2006. These transactions are expected to return $2.4 billion in cash to BCE. These proceeds, and cash from operations, will be applied towards buying back 5% of BCE's outstanding common shares, repaying BCE's corporate-level debt and for pension contributions. (See BCE's Business Review Conference news release for more details.) "We have taken a balanced and responsible approach to the use of these proceeds, placing an emphasis on our commitment to shareholders while ensuring the company's financial health," said Mr. Sabia. "We now have a singular focus on our core business, Bell Canada, and on a strategy that we believe will deliver industry-leading service and product excellence to our customers and sustainable value to our shareholders." 2005 KEY OPERATIONAL ACHIEVEMENTS Residential Segment Highlights Bell continued to broaden its offerings to residential customers, introducing a wireless video streaming service, a mobile music download service, faster Internet access speeds and more high-definition channels to its ExpressVu customers. - The segment achieved positive revenue growth in the quarter and for the year, in the face of an increased rate of decline of Bell's legacy residential wireline business - Full year revenue increased by 1.3% to reach $7.6 billion - Fourth quarter revenue increased by 0.7% to $1.9 billion - Full year operating income for the residential segment was $2 billion, down 5.6% compared to 2004 - Operating income in the fourth quarter was $444 million, down 4.3% compared with the fourth quarter of 2004 - Launched IPTV technical trials in Toronto - 2.3 million customers now on new, simplified "One Bill" Business Segment Highlights The Business segment revenue growth rate continued to increase throughout the year. The services developed by both the SMB and Enterprise groups met with strong demand from customers. Solid growth in wireless and data revenues during the quarter was a major contributor to revenue growth in both SMB and Enterprise. - Full year revenue reached $6.1 billion, an increase of 4.6% over 2004 - Business segment revenues in the quarter increased by 6% to reach $1.6 billion - Full year operating income was $910 million compared to $896 million in 2004 - Operating income increased by 29% in the quarter to reach $236 million - Sale of ICT services to Enterprise customers increased by 36% during the year and a number of important contracts were signed with major customers including Kingston General Hospital, Aéroports de Montréal, Fédération des caisses Desjardins du Québec and Manulife Financial - At the end of 2005, 78% of the migratable traffic on Bell's core network was IP-based, which surpassed the year-end objective of 75% - 275,000 IP-enabled lines were sold on customer premise equipment by the end of the year, representing a 90% increase over 2004 - SMB launched Business IP Voice, a hosted IP telephony solution designed specifically for the small and medium size business market - Bell Business Solutions, formed in April 2005 by the SMB group, provided electronic ballot management solutions to 48 municipalities during last year's Québec municipal elections. Video: Bell's video group continued its performance as Canada's leading Direct- to-Home (DTH) provider in 2005 with strong revenue and subscriber growth. - Total video subscribers grew by 224,000 or 14.9% in 2005 and reached 1,727,000, compared to 1,503,000 at the end of 2004 - Net activations in the quarter grew by 16.3% to 50,000, compared to 43,000 for the same period in 2004 - ARPU in the quarter increased by $3 to $52, full year ARPU was $50 compared to $49 in 2004 - Video revenues were up 22.4% in the quarter and 14.8% for 2005 - Churn improved during the year to 0.9% compared to 1% for 2004, the lowest full year churn rate in the past five years Wireless: With record gross additions for the year and the introduction of new, innovative services (EVDO, 10-4, MobiTV, Seek & Find, MSN Messenger) Bell's wireless unit expanded both its customer base and its revenue base. - Total wireless customers grew to 5,441,000 compared to 4,925,000 at year-end 2004, a 10.5% increase - A record of 455,000 gross activations in the quarter as the company continues to secure new high value subscribers in both the residential and business markets - 74% of the customer base is on post-paid rate plans - Net activations totalled 210,000 in the quarter, compared to 217,000 in the fourth quarter of 2004 - Pre-paid ARPU for the year was $14, up 16.7% over 2004; post-paid ARPU for the year was $61, essentially unchanged from the previous year - In the fourth quarter, pre-paid ARPU was $14 per month, up from $13 the same quarter in 2004; fourth quarter post-paid ARPU was $64 per month, an increase of $3 over the fourth quarter of 2004 - Wireless revenues increased by 9.9% to $3.1 billion for the full year and by 9.5% to $812 million in the fourth quarter - Wireless EBITDA in the year was $1,307 million, up by 10.1% over 2004; and wireless EBITDA for the fourth quarter reached $311 million, an increase of 13.5% over the fourth quarter in 2004 - Overall churn for the year was 1.6% as compared to 1.3% for 2004 High-Speed Internet: High-Speed Internet had a solid year of subscriber growth adding 387,000 net new subscribers. - Total high-speed Internet customers of 2,195,000 compared to 1,808,000 at year-end 2004, a 21% increase - Net activations of 61,000 in the quarter compared to 91,000 for the same period last year - Sympatico.msn advertising revenues doubled over the previous year - VAS revenues went up 64% over the previous year - 34 million video streams over sympatico.msn in 2005, a five-fold increase over 2004 - In the quarter, 17.2 million unique visitors to sympatico.msn, reaching 87.4% of all on-line Canadians, and average time spent by visitors on the site increased by 25% - At year-end, Bell's High-Speed Internet access footprint in Québec and Ontario was 85% compared to 83% at year-end 2004 Telesat Canada Telesat continued to deliver robust financial performance with increased revenues from its acquisition of The SpaceConnection, Inc. and from the provision of network services in Brazil. - Full year revenues increased 31% to reach $475 million; revenue in the quarter was $118 million compared to $102 million for the same period last year, a 15.7% increase - Full year operating income was $157 million compared to $141 million in 2004, an increase of 11.3%; operating income in the fourth quarter was $34 million compared to $37 million reported for the same period last year Bell Globemedia Bell Globemedia's CTV remains the nation's top broadcaster with the most popular programming line up in the country. - Revenues for full year 2005 were up 9.5% to $1.6 billion; revenue in the quarter was $465 million, up 14.8% over the same period last year - Operating income for the full year was up 20.4% while operating income in the quarter was down 1.9% from the same period last year, mainly due to higher sports programming costs with the return of NHL Hockey. Bell Canada Statutory Results Bell Canada "statutory" includes Bell Canada, and Bell Canada's interests in Aliant, Bell ExpressVu (at 52%), and other Canadian telcos. In the fourth quarter of 2005, Bell Canada's reported statutory revenue was $4.5 billion, up 3.6% compared to the same period last year. Net earnings applicable to common shares were $502 million in the fourth quarter of 2005, compared to net earnings of $465 million for the same period last year. In the full year of 2005, Bell Canada's reported statutory revenue was $17.3 billion, up 2.8% compared to the same period last year. Net earnings applicable to common shares were $2,098 million in the full year of 2005, compared to net earnings applicable to common shares of $1,527 million for the same period last year, an increase of 37.4%. Notes (1) The employee reduction program at Bell Canada in 2004 resulted in a charge to earnings in the third quarter of 2004 of $985 million, which adversely affected operating income and EPS. (2) The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP). Please refer to the section of BCE Inc.'s Q4 2005 Investor Briefing dated January 31, 2006, entitled "Non-GAAP Financial Measures" included in this news release, for more details on EBITDA including a reconciliation of EBITDA to operating income. (3) We define free cash flow as cash from operating activities after capital expenditures, total dividends and other investing activities. Free cash flow does not have any standardized meaning prescribed by GAAP. Please refer to the section of BCE Inc.'s Q4 2005 Investor Briefing dated January 31, 2006, entitled "Non-GAAP Financial Measures" included in this news release for more details on free cash flow including a reconciliation of free cash flow to cash from operating activities. (4) BCE declared CGI a discontinued operation in December 2005 and consequently, it reduced its forecasted 2005 free cash flow target range accordingly from $700 million to $900 million to $600 million to $800 million. (5) Net earnings and EPS before restructuring and other items and net gains on investments do not have any standardized meaning prescribed by GAAP. Please refer to the section of BCE Inc.'s Q4 2005 Investor Briefing dated January 31, 2006, entitled "Non-GAAP Financial Measures" included in this news release for more details on net earnings and EPS before restructuring and other items and net gains on investments including a reconciliation to net earnings applicable to common shares on a total and per share basis. Caution Concerning Forward-Looking Statements Certain statements made in this press release, including, but not limited to, anticipated cost reductions, the expected disposition of BCE's remaining interest in CGI, the reduction of its interest in Bell Globemedia Inc. to 20% and the expected return in cash as a result of the CGI and Bell Globemedia Inc. transactions and other statements that are not historical facts, are forward-looking statements and are subject to important risks, uncertainties and assumptions. The results or events predicted in these forward-looking statements may differ materially from actual results or events. As a result, you are cautioned not to place undue reliance on these forward-looking statements. Except as otherwise indicated by BCE, these statements do not reflect the potential impact of any special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof. The expected closing of the Bell Globemedia Inc. transaction is subject to a number of approvals and closing conditions, including approval by the CRTC and the Competition Bureau, and other closing conditions that are customary in a transaction of this nature. There is no assurance that we will be able to complete the disposition of our remaining interest in CGI. Finally, there is no assurance that cost reduction initiatives that we may undertake will achieve their objectives. For additional information with respect to the assumptions underlying the forward-looking statements made in this release and the risk factors that could cause the results or events predicted in such forward-looking statements to differ materially from actual results or events, please refer to the Safe Harbor Notice Concerning Forward-Looking Statements dated February 1, 2006 filed by BCE Inc. with the U.S. Securities and Exchange Commission, under Form 6-K, and with the Canadian securities commissions. The forward-looking statements contained in this press release represent our expectations as of February 1, 2006 and, accordingly, are subject to change after such date. However, we disclaim any intention and assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For additional information, please refer to the presentations made at the Bell Canada Enterprises Business Review 2006 available on BCE's website at: http://www.bce.ca/en/news/eventscalendar/webcasts/2006/20060201/. About BCE Inc. BCE is Canada's largest communications company. Through its 28 million customer connections, BCE provides the most comprehensive and innovative suite of communication services to residential and business customers in Canada. Under the Bell brand, the Company's services include local, long distance and wireless phone services, high-speed and wireless Internet access, IP-broadband services, information and communications technology services (or value-added services) and direct-to-home satellite and VDSL television services. Other BCE businesses include Canada's premier media company, Bell Globemedia, and Telesat Canada, a pioneer and world leader in satellite operations and systems management. BCE shares are listed in Canada, the United States and Europe. The Year in Review The results for 2005 demonstrate solid progress on our strategic objectives. Although the pace of competition accelerated steadily throughout the year, particularly as a result of the emergence of cable telephony, we continued to execute on our plan to mitigate the impact of this new, more competitive telecommunications landscape. Accordingly, we focused further on profitably growing our wireless, video and high-speed Internet businesses, which helps lay an important foundation for the future growth of the company. We also continued to successfully execute on our multi-product household consumer strategy. By the end of 2005, nearly 60% of the households in our Ontario and Québec footprint subscribed to two or more products, and over 22% subscribed to three or more products. Our Business segment made steady progress throughout the year on its Internet Protocol (IP) strategy by leading Bell Canada in the shift towards new growth services, helping to drive its transition to an Information and Communications Technology (ICT) leader. In fact, revenues from growth services (composed mainly of wireless, video and data-related products such as high-speed Internet) accounted for 47% of total revenues at Bell Canada by the end of 2005, which exceeded our target of 45% for the year. Moreover, we also responded to the rising competitive challenges by proactively taking the lead to deliver unmatched features and reliability for our residential and business customers with the launch of next-generation services such as Bell Digital Voice. In order to alleviate the pressure on operating margins from the expected erosion in our legacy wireline business, we made significant strides in transforming our cost structure in 2005. Under our ongoing Galileo Program (Galileo), we continued to deliver significant cost savings by improving processes, reviewing procurement activities and eliminating work. Our various initiatives allowed us to reduce costs by $524 million, which was in line with our run-rate savings target of $500-$600 million for 2005. We also stepped up efforts to secure our customers and improve service. Although we faced a number of customer service challenges brought about by some residual impacts from our wireless billing system migration last year and a four-month labour dispute with Entourage Technology Solutions Inc. (Entourage) (renamed Bell Technical Solutions Inc. on October 25, 2005) technicians in Ontario, we substantially resolved these issues by the end of the third quarter and subsequently resolved order backlogs, improved efficiency and dealt with customer issues more promptly. In late 2005, we completed two important steps in our ongoing efforts to reshape the company's asset portfolio and bring greater focus to our core businesses by establishing the framework for the ultimate disposition of our entire interest in CGI Group Inc. (CGI) and the reduction of our interest in Bell Globemedia Inc. (Bell Globemedia) to 20%. In our Residential segment (formerly called the Consumer segment), revenue growth was fuelled by the strength of our growth services as we continued to execute on our strategy of securing multi-product households to drive customer loyalty and generate higher revenue per household. This growth reflected increased subscriber acquisition in our growth services and higher average revenue per user (ARPU), particularly for video, offset partly by an accelerated decline in legacy wireline revenues. In our Business segment, increased sales of IP based connectivity and ICT (or value-added services (VAS)) solutions to our Enterprise and small and medium-sized business (SMB) customers and improved wireless results drove revenue growth in 2005. This positive trend now has contributed to six consecutive quarters of improved revenue growth, despite increased competitive pressures and lower demand for legacy wireline services. In our Aliant segment, continued strong growth in wireless and Internet services, as well as a recovery from the 2004 labour disruption, offset declines in other areas due to the impact of competition, wireless and internet substitution, and regulatory restrictions related to customer win- backs and bundling of services. Within the Other Bell Canada segment, despite a challenging market for our wholesale business, revenues grew as a result of the acquisition of the operations of 360networks Corporation, including GT Group Telecom Inc. (collectively 360networks), in November 2004. In the other BCE segment, Bell Globemedia delivered better revenue and operating performance compared with last year, driven largely by higher television advertising revenue, reflecting strong television ratings and improved subscription revenues. Telesat Canada (Telesat) also had a strong year, reflecting growth in Ka-band revenues on its Anik F2 satellite, revenue gains from the installation and maintenance of an Interactive Distance Learning network and the positive impact from its acquisition of The Space- Connection, Inc. (SpaceConnection) in January 2005. << Customer Connections 2005 31 Dec. 05 Connections Net Connec- (in thousands) Activations tions ------------------------------------------------------------------------- Wireless 516 5,441 High-Speed Internet 387 2,195 Video 224 1,727 NAS (324) 12,581 ------------------------------------------------------------------------- ------------------------------------------------------------------------- - Wireless - Our total cellular and PCS subscriber base grew by 516,000 in 2005, or 10.5%, to 5,441,000, which was in line with guidance for the year. As a result of a record number of gross activations in the year, we acquired a similar level of net activations compared with 2004, despite a year-over-year increase in our overall churn rate to 1.6% from 1.3% in 2004. - High-Speed Internet - We added 387,000 net new high-speed Internet customers in 2005, increasing our customer base by 21% to 2,195,000, which was ahead of our target of 15% to 20% for the year. The net activations achieved in 2005 were 10.6% higher than the 350,000 subscribers acquired in 2004. Subscriber growth in 2005 was fuelled largely by the introduction of our Basic Lite product and higher net activations at Aliant. - Video - We gained significant momentum in our video business in 2005, growing the subscriber base by 14.9% to end the year with 1,727,000 customers. This was at the upper end of our guidance range of 10% to 15% for 2005. During the year, we activated service for 224,000 new subscribers, an almost two-fold increase over 2004. As a result of our continued focus on customer retention and a higher proportion of customers on long-term contracts, churn decreased to 0.9% from 1.0% in the previous year. - Network Access Services (NAS) - NAS in service declined by 324,000 in 2005, or 2.5%, representing a higher rate of decline compared with 1.1% experienced in the previous year. The accelerated rate of erosion reflects an increasingly competitive environment as the major cable operators in our Québec and Ontario markets began to offer low-priced cable telephony services, offset partly by our new Bell Digital Voice service and higher demand for access lines from Shaw Communications to deploy Voice-over-Internet Protocol (VoIP) services in western Canada. Operating Revenues Our revenues increased by 4.0% year-over-year to reach $19,105 million in 2005. This result, which reflected improved revenue performance across all our segments, surpassed our target growth rate of equal to or greater than GDP. At Bell Canada, revenues grew by 2.8%, driven primarily by the Business segment where continued wireless strength, growth of ICT (or VAS) solution sales arising from both business acquisitions and organic growth, as well as focused execution of our Virtual Chief Information Officer (VCIO) strategy in SMB led to improved top-line results. Our Residential segment delivered solid revenue growth as a result of the performance of its video, Internet and wireless services, despite continued decreases in legacy wireline services, while Aliant revenues also increased notably due in part to its recovery from a labour disruption in 2004. In addition to the Bell Canada contribution, overall growth was further enhanced by the performance in the Other BCE segment, where revenues grew 9.5% at Bell Globemedia and 31% at Telesat. Operating Income and EBITDA(1) Operating income at BCE for 2005 was $4,048 million, an increase of $1,154 million over the previous year, which included restructuring and other charges of $1,224 million related primarily to the employee departure program in 2004. The results for 2005 reflect restructuring and other items of $55 million associated with new restructuring initiatives for involuntary employee departures, as well as the relocation of employees and closing of real estate facilities related to last year's employee departure program. Operating income before restructuring and other items(1) decreased $15 million or 0.4% compared with the previous year. Despite an increase in revenues across all segments, Galileo cost savings and the recovery from the 2004 labour disruption at Aliant, operating income was negatively impacted by the increased cost of acquiring a substantially higher number of wireless subscribers, the Canadian Radio-television and Telecommunications Commission's (CRTC) decision with respect to Competitor Digital Network Services (CDN), continued margin pressure from the ongoing transformation of our product mix toward growth services, as well as the cost of restoring customer service levels following the settlement of the Entourage labour dispute in July. Also contributing to the decline in operating income was the impact of higher net benefit plans cost and amortization expense for the year. At Bell Canada, operating income for the year was $3,755 million, a $1,060 million increase over 2004 resulting from the charges recognized last year in consideration of the employee departure program. Operating income before restructuring and other items declined by $105 million in 2005 to $3,809 million, representing a 2.7% decrease from $3,914 million in the previous year due to the reasons referred to previously. Our 2005 EBITDA increased 2.2% or $167 million to $7,597 million compared with the previous year, reflecting improved performance at Bell Canada, Bell Globemedia and Telesat. EBITDA for Bell Canada was $7,187 million, representing a 1.1% increase over 2004, driven primarily by increases in our Business segment and at Aliant, which were partially offset by decreases in our Residential and Other Bell Canada segments. EBITDA margins for full-year 2005 were 39.8% at BCE and 41.7% at Bell Canada, both down 0.7 percentage points compared with 2004. The year-over-year declines reflected operating cost pressures, which included higher wireless acquisition costs, continued erosion of high-margin legacy voice and data services in all our segments, the CRTC's CDN decision as well as the costs to restore service levels subsequent to the resolution of the labour dispute at Entourage. The impact of these elements on EBITDA margin was largely offset by the operating cost savings achieved through Galileo. (1) EBITDA, operating income before restructuring and other items, net earnings before restructuring and other items and net gains on investments, and free cash flow do not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP) and are therefore unlikely to be comparable to similar measures presented by other companies. For more details on these measures, including a reconciliation to the most comparable GAAP measure, please refer to the section entitled Non-GAAP Financial Measures contained herein. Net Earnings / Earnings per Share (EPS) In 2005, net earnings applicable to common shares were $1,891 million, or $2.04 per common share, 24% higher than net earnings of $1,523 million, or $1.65 per common share, for the same period last year. Included in earnings this year was a net charge of $10 million from restructuring and other items and net gains on investments, compared with a net charge of $349 million for the same period last year. Net earnings before restructuring and other items and net gains on investments(1) of $1,901 million, or $2.05 per common share, were up $29 million, or $0.03 per share. This represents an increase of 1.5% over last year, which was in line with our expectations of single-digit growth for 2005. On a year-to-date basis, the improvement in EPS before gains on investments and restructuring and other items can be attributed to higher EBITDA combined with the impact from the income tax loss monetization program between Bell Canada and BCI and net income tax savings. This more than offset the increase in net benefit plans cost and amortization expense. (1) EBITDA, operating income before restructuring and other items, net earnings before restructuring and other items and net gains on investments, and free cash flow do not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP) and are therefore unlikely to be comparable to similar measures presented by other companies. For more details on these measures, including a reconciliation to the most comparable GAAP measure, please refer to the section entitled Non-GAAP Financial Measures contained herein. Capital Expenditures For the full year, capital expenditures of $3,428 million were $109 million, or 3.3%, higher than 2004. Similarly, at Bell Canada, capital expenditures increased by 3.2%, or $96 million, to $3,122 million. As a percentage of revenues, Bell Canada's capital expenditures increased slightly to 18.1% in 2005 from 18.0% last year, in line with our guidance range of 18% to 19% for 2005. Capital spending in 2005 reflected higher investment in the growth areas of the business and reduced expenditures in legacy areas. Our key strategic investments this year included the expansion of our fibre-to-the- node (FTTN) footprint to deliver higher-speed broadband access, our launch of Bell Digital Voice, the deployment of an Evolution, Data Optimized (EV-DO) wireless data network in certain of our markets, our Digital Subscriber Line (DSL) footprint expansion facilitated through the deployment of new high- density remotes, investment in our IP television (IPTV) platform and information technology (IT) efficiency projects to deliver cost savings. Higher spending also resulted from a return to more normal spending levels at Aliant after its labour disruption in 2004 and satellite builds at Telesat. Cash from operating activities and free cash flow(1) Cash from operating activities was $5,559 million in 2005, an increase of 2.1% compared to $5,443 million in 2004. Cash from operating activities was impacted positively by: - an improvement in cash earnings resulting from higher EBITDA - a significant improvement in accounts receivable collections, due to the resolution of issues associated with the implementation of our new wireless billing platform in 2004 - an increase of $134 million in proceeds from the sale of accounts receivable - a decrease of $77 million in restructuring payments relating to the restructuring initiatives of 2004 and 2005. These improvements were partly offset by: - higher pension and other benefit plan payments mainly at Aliant - an increase of $73 million in income taxes paid, primarily related to the final instalment for 2004 made in 2005 as instalments were not required at Bell Canada in 2004 - a $75 million settlement payment received from MTS in 2004. We generated $662 million of free cash flow for 2005, meeting our target of $600 million to $800 million for the year. On December 16, 2005, we adjusted our 2005 guidance for free cash flow from the range of $700 million to $900 million to $600 million to $800 million to reflect the pending sale of CGI. Free cash flow of $662 million for 2005 was $208 million lower than the $870 million achieved in the previous year. The decrease can be attributed to: - a decrease of $149 million in insurance proceeds received by Telesat - an increase of $109 million in capital expenditures related to our investment in next-generation service platforms - an $87 million increase in common dividends paid resulting from the $0.03 quarterly increase in dividend per common share. These items were offset in part by a $116 million increase in cash from operating activities. (1) EBITDA, operating income before restructuring and other items, net earnings before restructuring and other items and net gains on investments, and free cash flow do not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP) and are therefore unlikely to be comparable to similar measures presented by other companies. For more details on these measures, including a reconciliation to the most comparable GAAP measure, please refer to the section entitled Non-GAAP Financial Measures contained herein. The Quarter at a Glance In the fourth quarter, we regained momentum in the execution of our strategy as evidenced by our strong financial and operating performance. Our cost reduction program accelerated and we re-established consistent levels of customer service. Improved operating performance in the quarter was driven primarily by the results of our Business and Aliant segments, as well as by the continuing successful execution of our wireless and video subscriber growth strategies, which offset the pressure on operating income from the expected further erosion of our legacy voice and data business. This translated into overall revenue growth in Q4 2005 of 4.6% at BCE and 3.6% at Bell Canada. Revenues from our growth services continued to increase, accounting for 47% of total revenues at Bell Canada at the end of 2005. Operating income before restructuring and other items improved by 6.6% at BCE and 6.3% at Bell Canada this quarter, despite higher expected acquisition costs from an increased number of wireless gross activations and increasing wireline customer losses. Our Residential segment continued to experience solid subscriber acquisition in all its growth services (composed mainly of wireless, video and data-related products such as high-speed Internet), which helped to fully offset the impact on revenues resulting from continued local wireline and long- distance erosion. To counter the competitive pressure of cable telephony, we continued to focus on securing multi-product households and retaining our highest-value customers in order to enhance customer loyalty and drive higher revenue per household. In our Business segment, while competitive pricing pressures persisted and demand for legacy wireline business services lessened, we recorded a sixth consecutive quarter of improved revenue growth as a result of increased sales of our IP based connectivity and ICT (or VAS) solutions within the Enterprise and SMB markets, as well as continued wireless strength. In the Aliant segment, higher wireless and Internet service revenues, as well as the recovery from the 2004 labour disruption, offset declines in its wireline business resulting from the impacts of competition, technology substitution and regulatory restrictions. In the Other Bell Canada segment, the marketplace remained challenging for our wholesale business due to competitive market pressures, customers migrating services onto their own network facilities and the CRTC's CDN decision. The performance of this segment was positively influenced by the acquisition in November 2004 of the operations of 360networks. Within the Other BCE segment, Bell Globemedia delivered double-digit revenue growth as a result of strong advertising sales as well as higher subscription revenues. While strong television ratings and the end of the hockey lockout favourably impacted revenue growth, higher costs associated with NHL hockey broadcasts adversely affected operating income in Q4. Continued solid operating performance at Telesat was driven largely by its acquisition of SpaceConnection at the beginning of 2005 and higher telecommunication carrier revenues stemming from increased sales of services from its now retired Anik E2 satellite. Customer Connections Q4 2005 31 Dec. 05 Connections Net Connec- (in thousands) Activations tions ------------------------------------------------------------------------- Wireless 210 5,441 High-Speed Internet 61 2,195 Video 50 1,727 NAS (122) 12,581 ------------------------------------------------------------------------- ------------------------------------------------------------------------- - Wireless - We grew our wireless base by 210,000 customers this quarter, down from net activations of 217,000 in Q4 2004. Notwithstanding a record number of gross activations, the decrease in year-over-year net activations was due to slightly higher churn. In line with guidance for 2005, we expanded our customer base by 10.5% year-over-year to 5,441,000. - High-Speed Internet - We added 61,000 net new high-speed Internet customers this quarter, compared with net activations of 91,000 in Q4 2004, resulting in a 21% expansion of our subscriber base to reach an end-of-year count of 2,195,000. Subscriber growth during the quarter slowed primarily as a result of aggressive price competition in the entry-level segment of the market and increased emphasis by certain cable operators on selling multi-product bundles at discounted rates. This was offset partly by higher net additions at Aliant. - Video - Our video business had its best Q4 since 2002, activating 50,000 net new customers, an increase of 16.3% compared with Q4 2004. Our video subscriber base grew by 14.9% in 2005 to reach 1,727,000. Although churn increased by 0.2 percentage points year-over-year to 1.0%, reflecting aggressive price competition brought about by cable operators' emphasis on bundling cable service with other products, it remained unchanged compared with the previous quarter. - Network Access Services (NAS) - NAS in service declined by 122,000 or 1.0% during the quarter, reflecting competitive losses and lower demand for second lines, offset partly by higher demand for access lines from Shaw Communications to deploy Voice-over-Internet Protocol (VoIP) services in western Canada. The increase in the year-over-year NAS rate of decline can be attributed mainly to the ramp up in competition from the major cable operators in Ontario and Québec. Operating Revenues Our revenues increased by 4.6% year-over-year to reach $4,986 million in the quarter, reflecting improved revenue performance across most of our segments. At Bell Canada, revenues grew by 3.6%, driven primarily by the Business segment where higher data revenues from focused execution of our ICT and VCIO strategies and continued wireless strength positively impacted top- line results, and by Aliant where recovery from a labour disruption in 2004 and the solid performance of its wireless and Internet businesses translated into increased revenue growth. In our Residential segment, we delivered positive revenue growth in the quarter as the continued loss of legacy wireline business was more than offset by growth in video, Internet and wireless services. Higher revenues at our Other BCE segment, fuelled by stronger advertising and subscriber revenues at Bell Globemedia and higher carrier and broadcast revenue at Telesat combined with the positive impact from its acquisition of SpaceConnection, further contributed to overall revenue growth. Operating Income and EBITDA Operating income at BCE for the quarter was $979 million, compared with $814 million for Q4 2004, while Bell Canada operating income increased to $884 million from $731 million for the same respective period. The results for Q4 2004 included the recognition of $126 million of restructuring and other items related to last year's employee departure program at Aliant and costs related to the relocation of employees and the closure of excess real estate facilities at Bell Canada, compared with a charge of $23 million for Q4 2005 related to new restructuring initiatives for involuntary employee departures. Operating income before restructuring and other items for Q4 2005 increased by 6.6%, or $62 million, at BCE and by 6.3%, or $54 million, at Bell Canada, compared with the previous year. Higher revenues, cost savings from Galileo and lower cost of acquisition (COA) expense in our video unit more than offset continued margin pressure from the ongoing transformation of our product mix towards growth services, the expected higher COA expense from an increased number of wireless gross activations, the CRTC's CDN decision and higher amortization expense at BCE. Our EBITDA for the quarter improved $64 million, or 3.6%, to $1,858 million compared with last year, reflecting an increase at Bell Canada offset partly by a decrease at Bell Globemedia. At Bell Canada, EBITDA was $1,729 million this quarter, representing a 3.0% increase over last year, due primarily to improved performance at our Business, Aliant and Other Bell Canada segments, which was partly offset by a decrease at our Residential segment. EBITDA margin in the fourth quarter was 37.3% at BCE and 38.8% at Bell Canada, down 0.3 and 0.2 percentage points, respectively, compared with Q4 2004. The year-over-year declines reflected a number of expected impacts, including continued loss of higher-margin legacy voice and data customers in all our businesses, the ongoing transformation of our product mix towards growth services, higher wireless acquisition costs and the CRTC's CDN decision. Net Earnings / Earnings per Share Net earnings applicable to common shares for Q4 2005 were $413 million, or $0.44 per common share, compared to net earnings of $417 million, or $0.45 per common share, for the same period last year. Included in Q4 earnings this year was a net charge of $16 million for restructuring and other items, compared with no charge in Q4 2004. Net earnings before restructuring and other items and net gains on investments for Q4 2005 were $429 million, or $0.46 per common share, up $12 million, or $0.01 per share. This increase can be attributed to higher EBITDA, partly offset by lower other income stemming from unfavourable changes in foreign exchange rates. We also recorded a gain of $44 million in the quarter associated with the phase-out, over the next three years, of a discretionary allowance program, which substantially offset the increase in pension expense. Capital Expenditures Capital expenditures were $831 million this quarter, or 20% lower than the same period last year. As a percentage of revenues, capital expenditures decreased this quarter to 16.7% from 22% last year, reflecting a reduction at Bell Canada partly as a result of higher spending earlier in the year. Greater investment in IT systems and other efficiency-related processes to deliver future cost savings was more than offset by lower expenditures on network infrastructure and DSL footprint expansion, lower spending to support business customer contracts and the timing of spending on certain strategic initiatives such as our FTTN footprint expansion and IPTV platform development. Cash from operating activities and free cash flow In Q4 2005, cash from operating activities was $1,585 million, an increase of 24% compared with $1,279 million in Q4 2004. Cash from operating activities was impacted positively by: - an improvement in cash earnings from higher EBITDA - an increase of $84 million in proceeds from the sale of accounts receivable - a decrease of $191 million in restructuring payments relating to the restructuring initiatives of 2004 and 2005. These improvements were partly offset by lower accounts receivable collections in our wireless business during Q4 2005, compared with a higher- than-usual collection volume in Q4 2004 as a result of the implementation of our new wireless billing platform, notwithstanding a significant improvement year-over-year in days sales outstanding. Free cash flow of $423 million generated in Q4 2005 was $544 million better than the negative $121 million reported for Q4 2004. The improvement can be attributed to: - the $306 million increase in cash from operating activities - an improvement of $212 million in capital expenditures, as described previously - $30 million in insurance proceeds received by Telesat in Q4 2005. These items were offset in part by a $29 million increase in common dividends paid, resulting from the $0.03 quarterly increase in dividend per common share. Strategic Priorities Our strategy is to deliver unrivalled integrated communication services to customers and to take a leadership position in setting the standard in Internet Protocol (IP). During the quarter, we made significant progress on each of our three key strategic priorities. 1) Enhancing customer experience while targeting lower costs (our Galileo program) In our Residential segment: - We continued to execute on our multi-product household strategy. At the end of 2005, nearly 60% of the total households in our Ontario and Québec footprint subscribed to two or more products (a combination of local wireline, Internet, video and long distance services) and over 22% of total households subscribed to three or more products. - By the end of 2005, 2.3 million customers in Ontario and Québec were enjoying the benefits of a single bill for their wireline, Internet, and video services, representing more than a two-fold increase since the beginning of 2005. Simplification of the billing process not only improves the customer experience, but also lowers costs since we issue fewer invoices. During the fourth quarter, we initiated the process to migrate Bell Mobility customers who receive a single invoice for their other Bell Canada services to the one bill platform. - We expanded the scope of OrderMax, our order entry tool that enables customers to order any Bell Canada product from any channel, to include Bell ExpressVu. OrderMax is currently available to over 50% of our customer service agents. - We launched the 'beta' site of our new Bell.ca website to the general public. The new website enhances the customer experience through a simplified and consistent page layout, a single shopping process for all our products, an improved search engine and easy access to online bills. In our Business segment: - We continued making progress on moving our core traffic to a national IP multi-protocol label-switching (IP-MPLS) network. At the end of 2005, 78% of the migratable traffic on our core network was IP-based, which surpassed our year-end objective of 75%. - As part of our shift to IP, we continued the process of rationalizing legacy data services. In 2005, we stopped selling 28 legacy data services. Since we began this initiative in 2004, we have discontinued 47 legacy data services. - The move to IP continued this quarter with 12 large enterprise customers contracted to implement IP Virtual Private Networks (IPVPN), including Royal Bank Financial Group and Xerox. This brought the total number of Enterprise customers implementing IPVPN networks as of the end of 2005 to 143. - At the end of 2005, 656 Enterprise customers were enrolled on 'Service Promise', which is our commitment to provide customers with a clearly defined and consistent level of service in the delivery of connectivity services. Overall, our various Galileo initiatives led to cost reductions in Q4 of $171 million, bringing total savings for the year to $524 million, which were in line with our run-rate savings target of $500-$600 million for 2005. These cost savings resulted mainly from: - the employee departures that took place in 2004 - reduced procurement costs - call centre efficiencies and optimization - the elimination of network elements and standardization of core operating processes. As part of our commitment to transform our cost structure, we began a comprehensive program to review procurement spending and related processes during the fourth quarter with the goal of implementing improved spending controls and reducing our approximate $8.5 billion of annual external operating and capital expenditures. 2) Deliver abundant bandwidth to enable next-generation services We continued our FTTN rollout by deploying another 194 neighbourhood nodes in Q4, raising the total number to 2,048, which surpassed our objective to deploy more than 2,000 nodes by the end of 2005. During Q4, we extended the availability of our EV-DO wireless data network to western Canada. EV-DO technology is the third generation (3G) of wireless networks delivering average data download speeds of 400-700 kilobits per second (Kbps) with peaks of up to 2.4 Mbps. Given these speeds, EV-DO enables a new generation of sophisticated wireless data solutions, as well as fuels the speed and potential for current tools such as e-mail, file downloads, instant messaging, streaming video and games. 3) Create next-generation services to drive future growth We ended 2005 with approximately 81,000 wireless subscribers on our '10-4' push-to-talk service, which included a significant number of non- business consumers. In addition, our Residential segment: - Introduced our first GSM-compatible handset and launched Canada's first flat per-minute rate billing service for global roaming on GSM networks in up to 150 countries for Bell Mobility customers. - Announced the launch of the first mobile streaming video clip service in Canada. Bell Mobility customers who subscribe to the service can instantly view the latest in news, weather, sports and entertainment highlights. - Introduced a new full-track mobile music download service. Subscribers will have instant access to a music library allowing for the ability to browse, review, download and share music with others. - Announced the addition of more High Definition (HD) sports programming, offering Bell ExpressVu customers the most HD channels currently available in Canada. Our SMB unit: - Grew its VAS service offerings primarily through Enterprise Resource Planning (ERP), hosting and other managed services, which are important growth drivers given their ability to create incremental connectivity revenues and to solidify customer relationships. - Began to market and sell customized digital video surveillance solutions to Canadian businesses that are being developed at our newly opened innovation centre established to develop IP-based technology and applications for SMB customers and governmental bodies. Our Enterprise unit: - Sold 275,000 IP-enabled lines on customer premises equipment (CPE) by the end of the year, representing a 90% increase in 2005. - Continued its focus on developing productivity-enhancing solutions for the health sector by launching a fully integrated wireless communications solution for Kingston General Hospital that features a secure wireless medical record system, a point-of-care computer that accommodates various clinical procedures, and a new wireless phone system throughout the patient care areas. Other Corporate Developments Under our asset review program, we announced on December 2, 2005 an agreement to reduce our equity interest in Bell Globemedia from 68.5% to 20%. Following completion of all closing conditions and subject to receipt of the required regulatory approvals expected later in 2006, we will sell an 8.5% equity interest in Bell Globemedia to The Woodbridge Company Limited ("Woodbridge") and a 20% stake to each of Ontario Teachers' Pension Plan Board and Torstar Corporation for aggregate cash proceeds of $685 million. In conjunction with the agreement to make these ownership changes, Bell Globemedia has restructured its capital on a basis more appropriate to ongoing operations through additional borrowing and a return of capital to its existing shareholders. The recapitalization, which was completed in January 2006, resulted in a cash distribution of $607 million to us. By retaining a 20% equity interest in the company, we have maintained our strong relationship with Bell Globemedia, allowing us to continue participating in the growth of Canada's leading media property, and secured ongoing access to media content thereby enhancing our growth services platforms. On December 16, 2005, we announced our decision to sell our stake in CGI following a review of our investment determining that it was no longer strategically essential for BCE to hold an equity interest in CGI given our focus on providing network-centric managed services and applications. On the closing date of the transaction (January 12, 2006), we received cash proceeds of $859 million from CGI, reducing our ownership stake from 29.8% to 8.6%. We also extended our long-term commercial relationship with CGI. Our existing information systems and technology (IS/IT) outsourcing contract, commercial alliance agreement and network management agreement making Bell Canada CGI's preferred telecom services provider all have been extended by four years until June 2016. Financial Results Analysis Residential segment Residential revenues increased by 0.7% in the fourth quarter of 2005 to $1,924 million, reflecting the continued expansion of our wireless, video and high-speed Internet subscriber bases and an increase in video ARPU, offset almost entirely by lower wireline (local and access and long distance) revenues. Although overall Residential revenue growth slowed somewhat compared with previous quarters, this result was anticipated given increased competition from cable telephony, which adversely affected long distance and local and access service revenues. Local and access revenues, which represents the largest proportion of our Residential segment revenues, declined this quarter compared with the fourth quarter of 2004, due mainly to NAS declines which resulted in lower basic service and related SmartTouch feature revenues, offset partly by an increase in wireline maintenance plan revenues following price increases implemented in the previous quarter. NAS decreased this quarter primarily as a result of losses to competitive local exchange carriers (CLECs), cable telephony and continued pressure from growth in high-speed Internet access which reduces the need for second telephone lines, while the impact from other VoIP providers and customers substituting wireline with wireless telephone service remained minimal. The rate of year-over-year NAS losses increased this quarter as several major cable operators operating in our territory increased their marketing efforts and expanded the footprint of their low-priced local telephony offerings in certain of our Ontario and Québec markets. Long distance revenues this quarter decreased year-over-year as a result of lower average revenue per minute (ARPM) and lower international prepaid calling card revenue. Lower ARPM reflected increased competition from non- traditional long distance providers, the impact of our $5 Long Distance Bundle (which was discontinued in July 2005) and Block-of-Time (BOT) minute plans, as well as a lower volume of higher priced overseas minutes. Overall minutes also declined compared with the same quarter last year as usage gains stemming from our bundle product were more than offset by losses of domestic and overseas minutes to alternative, non-traditional long distance service providers. Residential data revenues grew this quarter, fuelled by further growth of our high-speed Internet subscriber base, an increase in revenues from our Sympatico.MSN.ca web portal and Bell Sympatico value-added services. Our Sympatico.MSN.ca portal revenues increased by 65% over the fourth quarter of 2004. The portal currently averages 17.2 million unique visitors per month, or 87% of online Canadians. Residential wireless revenues for the quarter increased year-over-year as a result of a higher average number of customers compared with last year, price increases for certain services and features implemented earlier in the year and increased adoption of feature and data services. Overall revenue growth was dampened by the loss of high-value customers in the early part of 2005 due to billing system conversion issues and a higher proportion of customers choosing prepaid service or postpaid monthly packages that include a large number of in-plan minutes and free unlimited local airtime usage for up to six months. Video revenues increased significantly in Q4 2005, driven by substantial year-over-year subscriber growth and higher ARPU reflecting the impact from price increases implemented during the year and the success of our strategy to upsell customers to higher priced programming packages. Our Residential segment reported operating income of $444 million this quarter, down 4.3% compared with the fourth quarter of 2004. This decrease was due primarily to a higher rate of decline in our high-margin residential NAS wireline customer base and higher wireless marketing costs related to an increased level of advertising and sales activity. These factors were offset partially by higher revenues, lower contact centre costs driven by an improvement in the first-call resolution rate and outsourcing, and cost savings associated with Galileo. Business segment Business segment revenues for the fourth quarter of 2005 increased by 6.0% over the same quarter last year to reach $1,627 million, reflecting higher revenues from our Enterprise and SMB units, and the positive impact from the acquisition of 360networks in November 2004 which increased our customer base and gave us an extensive fibre network across major cities in western Canada. This solid revenue performance was offset slightly by a decline in total revenues at Bell West, due mainly to revenues received in 2004 from the Government of Alberta (GOA) to build a next-generation broadband access network (Alberta SuperNet). Continued growth of higher-value wireless subscribers and increased data revenues drove solid revenue improvement at our Enterprise unit. Data delivered strong year-over-year performance, due to solid growth in IP-based connectivity and ICT (or VAS) revenues. ICT revenues grew by 28% in Q4 2005, compared with last year, mostly as a result of acquisitions, organic growth, and outsourcing. These increases in data and wireless revenues were partially offset by declines in long distance and local and access revenues, due to further erosion of our legacy voice and data business, the reprice of some existing wireline business in response to competitive market pressures and the continued migration of our voice and data traffic to IP-based systems. Our Enterprise unit also signed a five-year contract with RBC Financial Group, Canada's largest financial institution, to implement a fully managed IP solution, converting approximately 8,400 of the bank's phone lines at its head office in Toronto to VoIP. The SMB unit delivered its best quarter of the year, contributing significantly to the solid financial performance of our Business segment. Revenues generated from SMB customers increased this quarter as increases in data products and services and wireless revenues more than compensated for the decreases in long distance and local and access revenues and the sale of our conferencing solutions operations in the United States. Despite a highly competitive market environment, data revenue growth in Q4 2005 was driven by the continued strong adoption of our VCIO strategy and cross-selling opportunities with companies acquired in 2005 (including Nexxlink Technologies Inc., and CSB Systems, which are a part of Bell Business Solutions Inc.). This resulted in higher VAS and equipment sales year-over-year, which grew organically by 60% in the quarter, as well as an increase in the number of new DSL high-speed Internet access service connections. Long distance revenues decreased, due mainly to the combined impact of lower volumes and competitive pricing pressures, and a weakening of our pay-phone business that is directly attributable to wireless and Internet substitution. Similarly, local and access revenues were also lower due to pressure from our declining pay-phone business and NAS losses to alternative telephony providers. Bell West continued to grow its Enterprise and SMB customer bases during Q4 2005, leading to increases in local and access and long distance revenues, as well as the sale of services on the Alberta SuperNet completed and accepted by the GOA in the fourth quarter. These increases were more than offset by revenues earned in Q4 2004 for construction of the Alberta SuperNet. Business segment operating income for the fourth quarter of 2005 increased by 29% to $236 million, due largely to a year-over-year increase in revenues and the positive impact from our Galileo cost-reduction initiatives. This was mitigated by continued margin pressure from competitive pricing and lower demand, the loss of higher-margin legacy voice and data business, the ongoing shift of voice and data traffic to lower-margin IP-based growth services and a slight increase in net benefits plans cost. - In the Enterprise unit, operating income increased in the quarter, despite the negative margin impact from steady progress in transforming our product mix towards growth services, due mainly to solid revenue growth and focused cost management. - Similarly, our SMB unit also had higher fourth-quarter operating income year-over-year, due to strong revenue performance, lower selling, general and administrative costs and a decrease in amortization expense, offset partially by higher operating expenses stemming from recent business acquisitions and margin erosion related to the shift from legacy voice and data services to VCIO revenues. - Bell West recorded lower operating income in the fourth quarter of 2005, due primarily to lower data revenues and higher amortization expense. Aliant Aliant segment revenues were $535 million in the fourth quarter, reflecting an increase of $29 million, or 5.7%, compared with the same period last year. Continued strong growth in wireless and Internet services, as well as a recovery from the 2004 labour disruption, offset declines in other areas due to impacts of competition, wireless and Internet substitution, and regulatory restrictions. Aliant's wireless revenue increased in the fourth quarter, driven by an 11.9% year-over-year increase in its wireless customer base and higher ARPU. Subscriber results included a 23% increase in digital customers, reflecting Aliant's expanded service area coverage and digital wireless network, enhanced dealer network that improved market penetration and broad product selection. In addition, ARPU increased in the quarter, reflecting the impacts of a higher percentage of customers subscribing to digital service and an increase in average minutes of use. Data revenues increased in the fourth quarter as higher Internet revenues and recovery from the 2004 labour disruption were offset slightly by other data revenue declines from the continued rationalization of circuit networks by customers and the negative impact of the CRTC's CDN decision, which amounted to $1.9 million in the quarter. The growth in Internet revenues was attributable to year-over-year subscriber growth of 7.9%, reflecting a 42% growth in Aliant's high-speed Internet customer base. The expansion of the subscriber base reflected expansion of high-speed Internet service into new areas, the migration of dial-up customers to higher-speed products, successful marketing programs and an emphasis on bundling Internet service with other products. Long distance revenues declined in the fourth quarter, due to lower per- minute pricing and a decline in minutes of use arising from intense competition, substitution of long distance calling with Internet and wireless options, and the use of contact centre management tools (such as integrated voice response systems) that reduce the duration of calls. Local and access revenues also decreased on a year-over-year basis in the quarter. This resulted mainly from a 1.5% decline in the NAS customer base since Q4 2004, reflecting losses to the competition and technology substitution. In addition, the CRTC's regulatory restrictions continue to place pressure on Aliant's local and access revenue with respect to bundling and packaging of local services with other non-regulated services, and limitations imposed with respect to customer win-back promotions. Moreover, enhanced service features revenue also declined as a higher number of customers received bundling discounts. Terminal sales and other revenues increased for the fourth quarter, due mainly to higher product sales reflecting Aliant's recovery from its 2004 labour disruption. Operating income at Aliant in the fourth quarter was $105 million or $82 million higher compared with the same period last year. The full impact of growth and recovery from the 2004 labour disruption and the non-recurrence in 2005 of a $67 million restructuring charge related to the voluntary early retirement program in December 2004 was partially offset by the impact of the CDN decision and an increase in net benefit plans cost. Operating expense increases required to drive revenue growth were contained by sound expense management and reflected the cost savings from Aliant's 2004 voluntary early retirement program. Other Bell Canada segment Other Bell Canada segment revenues for the fourth quarter of 2005 were $494 million, representing a decrease of $17 million or 3.3% compared with the same period in 2004. The decline was due mainly to the performance of our wholesale unit that was affected by the impact of the CRTC's CDN decision (which reduced revenues by $15 million in the quarter), lower long distance revenues resulting from a decline in switched minute volumes and continued competitive pricing pressure, and weaker data revenues as a result of customers migrating services onto their own network facilities. This was offset partially by the contribution to revenues from the acquisition of 360networks late in the fourth quarter of 2004 and a contract to help restore telecommunications service to the areas affected in the United States by hurricane Katrina. Operating income for the Other Bell Canada segment was $99 million this quarter, up from $61 million in Q4 2004. The amount reported in Q4 2004 included restructuring and other charges of $56 million, relating to the relocation of employees and closure of excess real estate facilities associated with our employee departure program. Operating income before restructuring items increased 5.1% to $123 million this quarter compared with $117 million in the same period last year, reflecting lower costs due to fulfillment of our cross-border exchange traffic commitments for the year and the consequent purchase of termination minutes for southbound U.S. traffic at a lower rate. Lower revenues partly offset the positive impacts on operating income. Other BCE segment Other BCE segment revenues were $596 million this quarter or 13.3% higher than the same period in 2004, reflecting higher revenues at Bell Globemedia and Telesat. Bell Globemedia's revenues for the quarter were $465 million, up 14.8% from Q4 2004. Total advertising revenues grew by 15.7% in Q4 2005, reflecting the strength of CTV Television's schedule, which included 9 of the top 10 and 14 of the top 20 regularly scheduled programs during the fall season among all viewers, higher national and careers advertising at The Globe and Mail, as well as increased advertising from the resumption of hockey broadcasts on our sports specialty channels TSN and RDS following the end of the NHL players' lockout in Q3 2005. Bell Globemedia's subscriber revenues grew by 11.7% this quarter, due primarily to strong specialty channel growth and increased online subscription at The Globe and Mail, as well as a larger number of subscribers and an increase in the home delivery rate for The Globe and Mail implemented at the beginning of 2005. Telesat's revenues increased by 15.7% to $118 million this quarter, primarily as a result of higher revenues from its acquisition of SpaceConnection, increased sales of services from its Anik E2 satellite (which was retired in November 2005), and higher overall broadcast revenues. - SpaceConnection was acquired in January 2005 and is a provider of programming-related satellite transmission services to major U.S. television networks and cable programmers. - On October 1, 2005, Telesat's new Anik F1R satellite was placed into service and is now providing capacity for broadcasters, home satellite television services and telecommunications. - On January 17, 2006, Telesat announced plans to build and launch Nimiq 4, a new direct broadcast satellite that will carry a wide range of digital television services and enable Bell ExpressVu to continue to enhance advanced services such as HD television, specialty channels and foreign language programming. Operating income for the Other BCE segment increased by 14.5% this quarter to $95 million, despite lower operating income at both Bell Globemedia and Telesat, as a result of lower corporate expenses at BCE Inc. - Bell Globemedia's operating income decreased by 1.9% this quarter, despite solid revenue growth, primarily as a result of higher sports specialty programming costs due to the resumption of NHL hockey broadcasts, increased sales and circulation costs at The Globe and Mail and higher net benefit plans cost. - Telesat's operating income decreased by 8.1% this quarter, reflecting SpaceConnection's operating expenses, network equipment costs for Interactive Distance Learning services and higher amortization expense related to its newest satellites (Anik F2 and Anik F1R). Product Line Analysis Local and access Local and access revenues for the quarter decreased by 3.9% to $1,343 million, compared with the same period in 2004, as a result of accelerating NAS erosion and lower Smart-Touch feature revenues, offset partly by gains from wireline insurance and maintenance plans. NAS in service declined by 324,000 or 2.5% since the beginning of the year, as a result of losses to cable operators offering local telephone service, other VoIP providers and CLECs, wireline to wireless substitution, as well as continued pressure from growth in high-speed Internet access that reduces the need for second telephone lines. This decrease in 2005 reflected a higher level of NAS losses than the previous year, as several major cable operators in our incumbent territories increased their marketing efforts and expanded the footprint of their low-priced local telephony offerings in certain of our Ontario and Québec markets. This was offset partly by customers subscribing to our new Bell Digital Voice service and higher demand for access lines from Shaw Communications to offer VoIP services in western Canada. Long distance Long distance revenues were $478 million for the quarter, reflecting a year-over-year decrease of 14.6% compared with Q4 2004. Lower long distance revenues affected all Bell Canada segments, particularly our Residential and Business segments. Overall minute volumes for the fourth quarter of 2005 increased marginally year-over-year, by 0.2%, to 4,567 million conversation minutes. However, ARPM decreased by $0.013 during the same period to reach $0.096, reflecting competitive pricing pressures in our Residential, Business and Wholesale markets. Wireless Gross wireless activations increased by 9.9% this quarter to a record 455,000, up from 414,000 in Q4 2004. Although the percentage of total gross activations from postpaid rate plans in the fourth quarter decreased to 68% this year from 71% in 2004, due to the impact of Solo Mobile and Virgin Mobile performance on our prepaid gross activations, the absolute number of postpaid activations increased by 5.1% year-over-year to 308,000. Prepaid gross activations comprised the remaining 147,000, representing a 22% increase compared with Q4 2004. Postpaid growth was stimulated by the success of our of holiday-season advertising campaign and attractive promotions, new handsets, continued traction from innovative services such as our '10-4' service, our growing presence in western Canada, as well as continued success with the business market segments. Although prepaid activations are traditionally the highest in Q4 due to the commitment-free, gift-giving nature of the product, growth was also fuelled by the success of our two youth-oriented brands, Solo Mobile and Virgin Mobile. Our postpaid churn rate in Q4 increased on a year-over-year basis to 1.3% from 1.2%, but decreased when compared to the previous quarter's churn rate of 1.5% due primarily to the impact of various retention initiatives targeted mainly at our higher-value subscribers. The year-over-year increase reflected increased competitive pressures, price increases implemented at the beginning of Q3 and the enforcement of tighter policies on customer credits and upgrades. Prepaid churn increased to 2.2% for the fourth quarter of 2005 from 1.9% for the same period last year, representing the cancellation of a higher number of inactive, non-revenue-generating customer accounts. Accordingly, our blended churn rate for Q4 increased to 1.5% this year compared with 1.4% for the same quarter in 2004. As at December 31, 2005, our cellular and PCS subscriber base totalled 5,441,000, representing a 10.5% increase in 2005. Postpaid rate plans accounted for 74% of our total subscriber base at the end of the year. Net additions of 210,000 for the fourth quarter were lower than net additions of 217,000 in Q4 2004, despite solid year-over-year growth in gross activations, as a result of higher customer churn. For the quarter, 60% of the net additions were on postpaid rate plans, compared with 59% in Q4 2004 and 41% in the previous quarter, while the remaining 40% customers activated prepaid service. Wireless service revenues for the quarter increased to $812 million from $742 million for the same quarter in 2004, reflecting a higher average number of customers in our subscriber base in combination with higher ARPU. Postpaid ARPU increased by $3 year-over-year to $64 per month in Q4 2005, compared with the same quarter last year. This improvement was achieved primarily as a result of higher value-added service and data revenues, fuelled by the growing popularity of text messaging and our '10-4' service, increased penetration of Blackberry customers and other heavy users subscribing to higher-priced rate plans, the positive impact from price increases for certain features (including 911, 411, outbound text messaging), out-of-bundle minutes and other miscellaneous charges introduced earlier this year, and the continued strong wireless performance of our Business segment particularly in western Canada. This was offset by lower out-of-bundle airtime usage, resulting from the popularity of price plans offering a large number of bundled minutes or an unlimited local usage option. Prepaid ARPU increased to $14 per month this quarter, compared with $13 per month for Q4 2004, due to the growing presence of higher-than-average ARPU Solo and Virgin Mobile subscribers in our prepaid customer base and higher usage. As a result of both higher postpaid and prepaid ARPU and offset by a slight decrease in the percentage of total subscribers on postpaid rate plans, blended ARPU also increased in the quarter reaching $51 per month, up from $50 in Q4 2004. Wireless EBITDA increased by 13.5%, year-over-year, to $311 million in Q4 2005, reflecting wireless revenue growth of 9.5% and lower call centre expenses due to resolution of residual billing system conversion issues. These factors contributed to wireless EBITDA margin of 37.1% for the quarter, representing a 0.9 percentage point improvement in margin compared with the fourth quarter of 2004. Wireless COA increased 1.7% to $409 per gross activation in Q4 2005 from $402 per gross activation for the same quarter in 2004. Despite a larger number of gross activations, higher COA was driven primarily by an increase in advertising and marketing spend for the holiday period, an increase in sales of more expensive handsets to higher-ARPU generating customers and promotional incentives offered to acquire higher-value and longer-term contract customers. Data Our data revenues for Q4 2005 increased by 13.9% year-over-year to $1,097 million. The improvement was a result of growth in our high-speed Internet customers, increased penetration of IP-based connectivity and ICT (or VAS) solutions within our Enterprise and SMB business units, and the contribution from business acquisitions completed in the past year, which more than offset a decline in legacy data revenues, price competition, the continued rationalization of circuit networks by wholesale customers, lower construction revenues from the GOA contract and the CDN decision which adversely affected revenues by $17 million in Q4 2005. The number of high-speed Internet subscribers increased by 61,000 this quarter, compared with 91,000 in Q4 2004, bringing the total subscriber count at the end of the year to 2,195,000. Subscriber growth during the quarter was affected by aggressive price competition in both our Ontario and Québec markets arising from cable operators' increased emphasis on selling multi- product bundles at discounted rates. Moreover, a $5 price increase on our Basic high-speed service for new customers in Ontario implemented during the quarter was not matched by a major competitor until the end of the year. Although our Residential segment experienced slower high-speed Internet subscriber growth, we benefited from higher net additions at Aliant and in our SMB unit. The introduction of lower priced high-speed services, such as Basic Lite, that are tailored to the very price sensitive segments of the market has expanded the overall high-speed market, stimulating high-speed service growth and accelerating the rate of erosion of dial-up Internet service. Total dial- up customers decreased to 586,000 at the end of 2005 from 743,000 at the end of 2004. Our high-speed Internet access footprint in Ontario and Québec reached 85% of homes and business lines passed at the end of the fourth quarter, compared with 83% at the end of 2004. Video Our video revenues grew by 22% this quarter to $268 million from $219 million last year, driven by year-over-year growth in our subscriber base and higher ARPU. Our video business had its best Q4 since 2002 activating 50,000 new net customers, an increase of 16.3% compared with the 43,000 net activations recorded for the same period last year. At the end of 2005, we provided video services to 1,727,000 customers, representing a 14.9% year-over-year increase in our video customer base. The solid improvement in net activations this quarter was fuelled by the continued success of our set-top box (STB) rental program, which accounted for more than 70% of our new activations in the quarter. Our video churn rate increased by 0.2 percentage points, year-over- year, to 1.0% this quarter, reflecting aggressive price competition brought about by cable operators' emphasis on bundling cable service with other products. Our ARPU this quarter increased to $52 per month from $49 per month in Q4 2004 as a result of various price increases implemented during the year, a shift in the product mix towards higher priced programming packages and higher pay-per-view revenues, offset partly by bundle and retention discounts. In March 2005, we applied a $3 rate increase to our existing subscriber base and on October 1, 2005, we brought into effect $2 and $3 increases, respectively, on our basic and theme packages for all new customers. Video EBITDA for Q4 2005 increased to $23 million from negative $4 million for the same period in 2004, reflecting strong double-digit revenue growth and lower subscriber acquisition costs due to an increased number of new activations choosing our STB rental option, offset partly by higher costs incurred to handle increased call volumes at our contact centres. The COA for video services decreased by 52% to $258 per gross activation in Q4 2005 from $537 per gross activation in Q4 2004. The significant improvement resulted mainly from the capitalization of STB and installation costs associated with our new rental program and fewer promotional offers, partly offset by an increased number of new customers purchasing additional STBs. Terminal sales and other Terminal sales and other revenues were $459 million this quarter, or 8.8% higher than Q4 2004. The year-over-year improvement was attributable to higher wireless equipment revenues resulting from an increased volume of devices sold, which included the purchase by customers of a larger number of premium- priced handsets, higher product sales at Aliant reflecting its recovery from a labour disruption in 2004, the favourable impact from several acquisitions (including those of 360networks and Entourage), as well as incremental revenues from a contract secured by Expertech (a Bell Canada majority-owned provider of installation and network infrastructure services) to help restore telecommunications service to the areas affected in the United States by hurricane Katrina. This was offset partly by lower legacy voice equipment sales to business customers. Non-GAAP Financial Measures This section describes the non-GAAP financial measures we used in this Q4 2005 Investor Briefing to explain our financial results. It also provides reconciliations of the non-GAAP financial measures to the most comparable Canadian GAAP financial measures. ------------------------ EBITDA We define EBITDA (earnings before interest, taxes, depreciation and amortization) as operating revenues less operating expenses, which means it represents operating income before amortization expense, net benefit plans cost, and restructuring and other items. The term EBITDA does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP). It is therefore unlikely to be comparable to similar measures presented by other companies. EBITDA is presented on a consistent basis from period to period. We use EBITDA, among other measures, to assess the operating performance of our ongoing businesses without the effects of amortization expense, net benefit plans cost, and restructuring and other items. We exclude amortization expense and net benefit plans cost because they largely depend on the accounting methods and assumptions a company uses, as well as non-operating factors, such as the historical cost of capital assets and the fund performance of a company's pension plans. We exclude restructuring and other items because they are transitional in nature. EBITDA allows us to compare our operating performance on a consistent basis. We believe that certain investors and analysts use EBITDA to measure a company's ability to service debt and to meet other payment obligations, or as a common valuation measurement in the telecommunications industry. The most comparable Canadian GAAP financial measure is operating income. The tables below are reconciliations of EBITDA to operating income on a consolidated basis for BCE and Bell Canada. BCE Q4 2005 Q4 2004 2005 2004 ------------------------------------------------------------------------- EBITDA 1,858 1,794 7,597 7,430 Amortization expense (791) (787) (3,114) (3,056) Net benefit plans cost (65) (67) (380) (256) Restructuring and other items (23) (126) (55) (1,224) ------------------------------------------------------------------------- Operating income 979 814 4,048 2,894 ------------------------------------------------------------------------- ------------------------------------------------------------------------- BELL Q4 2005 Q4 2004 2005 2004 ------------------------------------------------------------------------- EBITDA 1,729 1,679 7,187 7,111 Amortization expense (755) (763) (2,989) (2,962) Net benefit plans cost (66) (62) (389) (235) Restructuring and other items (24) (123) (54) (1,219) ------------------------------------------------------------------------- Operating income 884 731 3,755 2,695 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating Income Before Restructuring and Other Items The term operating income before restructuring and other items does not have any standardized meaning prescribed by Canadian GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies. We use operating income before restructuring and other items, among other measures, to assess the operating performance of our ongoing business without the effects of restructuring and other items. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. The exclusion of these items does not imply they are non-recurring. The most comparable Canadian GAAP financial measure is operating income. The tables below are reconciliations of operating income to operating income before restructuring and other items on a consolidated basis for BCE and Bell Canada. BCE Q4 2005 Q4 2004 2005 2004 ------------------------------------------------------------------------- Operating Income 979 814 4,048 2,894 Restructuring and other items 23 126 55 1,224 ------------------------------------------------------------------------- Operating income before restructuring and other items 1,002 940 4,103 4,118 ------------------------------------------------------------------------- ------------------------------------------------------------------------- BELL Q4 2005 Q4 2004 2005 2004 ------------------------------------------------------------------------- Operating Income 884 731 3,755 2,695 Restructuring and other items 24 123 54 1,219 ------------------------------------------------------------------------- Operating income before restructuring and other items 908 854 3,809 3,914 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net Earnings Before Restructuring and Other Items and Net Gains on Investments The term net earnings before restructuring and other items and net gains on investments does not have any standardized meaning prescribed by Canadian GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies. We use net earnings before restructuring and other items and net gains on investments, among other measures, to assess the operating performance of our ongoing business without the effects of after-tax restructuring and other items and net gains on investments. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. The exclusion of these items does not imply they are non- recurring. The most comparable Canadian GAAP financial measure is net earnings applicable to common shares. The table below is a reconciliation of net earnings applicable to common shares to net earnings before restructuring and other items and net gains on investments on a consolidated basis and per common share. Q4 2005 Q4 2004 2005 2004 TOTAL PER TOTAL PER TOTAL PER TOTAL PER SHARE SHARE SHARE SHARE ------------------------------------------------------------------------- Net earnings applicable to common shares 413 0.44 417 0.45 1,891 2.04 1,523 1.65 Restructuring and other items 16 0.02 62 0.04 38 0.04 772 0.83 Net gains on investments - - (62) (0.04) (28) (0.03) (423) (0.46) ------------------------------------------------------------------------- Net earnings before restructuring and other items and net gains on investments 429 0.46 417 0.45 1,901 2.05 1,872 2.02 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------ Free Cash Flow We define free cash flow as cash from operating activities after capital expenditures, total dividends and other investing activities. The term free cash flow does not have any standardized meaning prescribed by Canadian GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies. Free cash flow is presented on a consistent basis from period to period. We consider free cash flow to be an important indicator of the financial strength and performance of our business because it shows how much cash is available to repay debt and to reinvest in our company. We believe that certain investors and analysts use free cash flow when valuing a business and its underlying assets. The most comparable Canadian GAAP financial measure is cash from operating activities. The table below is a reconciliation of free cash flow to cash from operating activities on a consolidated basis. Q4 2005 Q4 2004 2005 2004 ------------------------------------------------------------------------- Cash from operating activities 1,585 1,279 5,559 5,443 Capital expenditures (831) (1,043) (3,428) (3,319) Total dividends paid (363) (347) (1,473) (1,381) Other investing activities 32 (10) 4 127 ------------------------------------------------------------------------- Free cash flow 423 (121) 662 870 Restructuring and other items 23 126 55 1,224 ------------------------------------------------------------------------- Free cash flow before restructuring and other items 446 5 717 2,094 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplementary Financial Information BCE Consolidated (1) Consolidated Operational Data ($ millions, except per share Q4 Q4 $ % Total Total $ % amounts) 2005 2004 change change 2005 2004 change change ------------------------------------------------------------------------- Operating revenues 4,986 4,769 217 4.6% 19,105 18,368 737 4.0% Operating expenses (3,128) (2,975) (153) (5.1%) (11,508)(10,938) (570) (5.2%) ------------------------------------------------------------------------- EBITDA(2) 1,858 1,794 64 3.6% 7,597 7,430 167 2.2% EBITDA margin(3) 37.3% 37.6% (0.3)pts 39.8% 40.5% (0.7)pts Amortization expense (791) (787) (4) (0.5%) (3,114) (3,056) (58) (1.9%) Net benefit plans cost (65) (67) 2 3.0% (380) (256) (124) (48.4%) Restructuring and other items (23) (126) 103 81.7% (55) (1,224) 1,169 95.5% ------------------------------------------------------------------------- Operating income 979 814 165 20.3% 4,048 2,894 1,154 39.9% Other income (17) 17 (34) n.m. 8 407 (399) (98.0%) Interest expense (246) (244) (2) (0.8%) (981) (999) 18 1.8% ------------------------------------------------------------------------- Pre-tax earnings from continuing operations 716 587 129 22.0% 3,075 2,302 773 33.6% Income taxes (224) (193) (31)(16.1%) (893) (681) (212) (31.1%) Non-controlling interest (74) (40) (34)(85.0%) (267) (174) (93) (53.4%) ------------------------------------------------------------------------- Earnings from continuing operations 418 354 64 18.1% 1,915 1,447 468 32.3% Discontinued operations 12 11 1 9.1% 46 77 (31) (40.3%) ------------------------------------------------------------------------- Net earnings before extraordinary gain 430 365 65 17.8% 1,961 1,524 437 28.7% Extraordinary gain - 69 (69)(100.0%) - 69 (69)(100.0%) ------------------------------------------------------------------------- Net earnings 430 434 (4) (0.9%) 1,961 1,593 368 23.1% Dividends on preferred shares (17) (17) - 0.0% (70) (70) - 0.0% ------------------------------------------------------------------------- Net earnings applicable to common shares 413 417 (4) (1.0%) 1,891 1,523 368 24.2% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net earnings per common share - basic Continuing opera- tions $ 0.43 $ 0.37 $ 0.06 16.2% $ 1.99 $ 1.49 $ 0.50 33.6% Discon- tinued opera- tions $ 0.01 $ 0.01 $ - 0.0% $ 0.05 $ 0.09 $(0.04) (44.4%) Extraordinary gain $ - $ 0.07 $(0.07)(100.0%) $ - $ 0.07 $(0.07)(100.0%) Net earnings $ 0.44 $ 0.45 $(0.01) (2.2%) $ 2.04 $ 1.65 $ 0.39 23.6% Net earnings per common share - diluted Continuing opera- tions $ 0.43 $ 0.37 $ 0.06 16.2% $ 1.99 $ 1.49 $ 0.50 33.6% Discon- tinued opera- tions $ 0.01 $ 0.01 $ - 0.0% $ 0.05 $ 0.09 $(0.04) (44.4%) Extraordinary gain $ - $ 0.07 $(0.07)(100.0%) $ - $ 0.07 $(0.07)(100.0%) Net earnings $ 0.44 $ 0.45 $(0.01) (2.2%) $ 2.04 $ 1.65 $ 0.39 23.6% Dividends per common share $ 0.33 $ 0.30 $ 0.03 10.0% $ 1.32 $ 1.20 $ 0.12 10.0% Average number of common shares outstanding - basic (millions) 927.3 925.3 926.8 924.6 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The following items are included in net earnings: Net gains (losses) on investments Continuing opera- tions - 64 29 389 Discon- tinued opera- tions - (2) (1) 34 Restructuring and other items (16) (62) (38) (772) ------------------------------------------------------------------------- Total (16) - (10) (349) Impact on net earnings per share $(0.02) $ - $(0.01) $(0.37) ------------------------------------------------------------------------- EPS before net gains (losses) on investments and restructuring and other items(2) $ 0.46 $ 0.45 $ 0.01 2.2% $ 2.05 $ 2.02 $ 0.03 1.5% ------------------------------------------------------------------------- ------------------------------------------------------------------------- n.m.: not meaningful BCE Consolidated (1) Consolidated Operational Data - Historical Trend ($ millions, except Total per share amounts) 2005 Q4 05 Q3 05 Q2 05 Q1 05 ------------------------------------------------------------------------- Operating revenues 19,105 4,986 4,732 4,757 4,630 Operating expenses (11,508) (3,128) (2,868) (2,785) (2,727) ------------------------------------------------------------------------- EBITDA(2) 7,597 1,858 1,864 1,972 1,903 EBITDA margin(3) 39.8% 37.3% 39.4% 41.5% 41.1% Amortization expense (3,114) (791) (786) (776) (761) Net benefit plans cost (380) (65) (108) (104) (103) Restructuring and other items (55) (23) (31) (5) 4 ------------------------------------------------------------------------- Operating income 4,048 979 939 1,087 1,043 Other income 8 (17) (2) 19 8 Interest expense (981) (246) (245) (245) (245) ------------------------------------------------------------------------- Pre-tax earnings from continuing operations 3,075 716 692 861 806 Income taxes (893) (224) (187) (218) (264) Non-controlling interest (267) (74) (57) (73) (63) ------------------------------------------------------------------------- Earnings from continuing operations 1,915 418 448 570 479 Discontinued operations 46 12 11 11 12 ------------------------------------------------------------------------- Net earnings before extraordinary gain 1,961 430 459 581 491 Extraordinary gain - - - - - ------------------------------------------------------------------------- Net earnings 1,961 430 459 581 491 Dividends on preferred shares (70) (17) (18) (18) (17) ------------------------------------------------------------------------- Net earnings applicable to common shares 1,891 413 441 563 474 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net earnings per common share - basic Continuing operations $ 1.99 $ 0.43 $ 0.46 $ 0.60 $ 0.50 Discontinued operations $ 0.05 $ 0.01 $ 0.02 $ 0.01 $ 0.01 Extraordinary gain $ - $ - $ - $ - $ - Net earnings $ 2.04 $ 0.44 $ 0.48 $ 0.61 $ 0.51 Net earnings per common share - diluted Continuing operations $ 1.99 $ 0.43 $ 0.46 $ 0.60 $ 0.50 Discontinued operations $ 0.05 $ 0.01 $ 0.02 $ 0.01 $ 0.01 Extraordinary gain $ - $ - $ - $ - $ - Net earnings $ 2.04 $ 0.44 $ 0.48 $ 0.61 $ 0.51 Dividends per common share $ 1.32 $ 0.33 $ 0.33 $ 0.33 $ 0.33 Average number of common shares outstanding - basic (millions) 926.8 927.3 927.0 926.6 926.2 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The following items are included in net earnings: Net gains (losses) on investments Continuing operations 29 - - 28 1 Discontinued operations (1) - - - (1) Restructuring and other items (38) (16) (21) (3) 2 ------------------------------------------------------------------------- Total (10) (16) (21) 25 2 Impact on net earnings per share $(0.01) $(0.02) $(0.02) $0.03 $ - ------------------------------------------------------------------------- EPS before net gains (losses) on investments and restructuring and other items(2) $ 2.05 $ 0.46 $ 0.50 $ 0.58 $ 0.51 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ($ millions, except Total per share amounts) 2004 Q4 04 Q3 04 Q2 04 Q1 04 ------------------------------------------------------------------------- Operating revenues 18,368 4,769 4,556 4,577 4,466 Operating expenses (10,938) (2,975) (2,655) (2,657) (2,651) ------------------------------------------------------------------------- EBITDA(2) 7,430 1,794 1,901 1,920 1,815 EBITDA margin(3) 40.5% 37.6% 41.7% 41.9% 40.6% Amortization expense (3,056) (787) (754) (757) (758) Net benefit plans cost (256) (67) (61) (65) (63) Restructuring and other items (1,224) (126) (1,081) (14) (3) ------------------------------------------------------------------------- Operating income 2,894 814 5 1,084 991 Other income 407 17 332 23 35 Interest expense (999) (244) (252) (253) (250) ------------------------------------------------------------------------- Pre-tax earnings from continuing operations 2,302 587 85 854 776 Income taxes (681) (193) 52 (286) (254) Non-controlling interest (174) (40) (47) (39) (48) ------------------------------------------------------------------------- Earnings from continuing operations 1,447 354 90 529 474 Discontinued operations 77 11 10 42 14 ------------------------------------------------------------------------- Net earnings before extraordinary gain 1,524 365 100 571 488 Extraordinary gain 69 69 - - - ------------------------------------------------------------------------- Net earnings 1,593 434 100 571 488 Dividends on preferred shares (70) (17) (18) (17) (18) ------------------------------------------------------------------------- Net earnings applicable to common shares 1,523 417 82 554 470 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net earnings per common share - basic Continuing operations $ 1.49 $ 0.37 $ 0.08 $ 0.55 $ 0.49 Discontinued operations $ 0.09 $ 0.01 $ 0.01 $ 0.05 $ 0.02 Extraordinary gain $ 0.07 $ 0.07 $ - $ - $ - Net earnings $ 1.65 $ 0.45 $ 0.09 $ 0.60 $ 0.51 Net earnings per common share - diluted Continuing operations $ 1.49 $ 0.37 $ 0.08 $ 0.55 $ 0.49 Discontinued operations $ 0.09 $ 0.01 $ 0.01 $ 0.05 $ 0.02 Extraordinary gain $ 0.07 $ 0.07 $ - $ - $ - Net earnings $ 1.65 $ 0.45 $ 0.09 $ 0.60 $ 0.51 Dividends per common share $ 1.20 $ 0.30 $ 0.30 $ 0.30 $ 0.30 Average number of common shares outstanding - basic (millions) 924.6 925.3 924.6 924.3 924.1 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The following items are included in net earnings: Net gains (losses) on investments Continuing operations 389 64 325 - - Discontinued operations 34 (2) (2) 31 7 Restructuring and other items (772) (62) (725) 16 (1) ------------------------------------------------------------------------- Total (349) - (402) 47 6 Impact on net earnings per share $(0.37) $ - $(0.43) $ 0.05 $ 0.01 ------------------------------------------------------------------------- EPS before net gains (losses) on investments and restructuring and other items(2) $ 2.02 $ 0.45 $ 0.52 $ 0.55 $ 0.50 ------------------------------------------------------------------------- ------------------------------------------------------------------------- BCE Consolidated(1) Segmented Data ($ millions, except where otherwise Q4 Q4 $ % Total Total $ % indicated) 2005 2004 change change 2005 2004 change change ------------------------------------------------------------------------- Revenues Residential 1,924 1,911 13 0.7% 7,599 7,502 97 1.3% Business 1,627 1,535 92 6.0% 6,120 5,851 269 4.6% Aliant 535 506 29 5.7% 2,097 2,033 64 3.1% Other Bell Canada 494 511 (17) (3.3) 1,958 1,939 19 1.0% Inter- segment eliminations (123) (160) 37 23.1% (524) (538) 14 2.6% ------------------------------------------------------------------------- Total Bell Canada 4,457 4,303 154 3.6% 17,250 16,787 463 2.8% Other BCE Bell Globemedia 465 405 60 14.8% 1,555 1,420 135 9.5% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Advertising 354 306 48 15.7% 1,148 1,041 107 10.3% Subscriber 86 77 9 11.7% 320 298 22 7.4% Production and Sundry 25 22 3 13.6% 87 81 6 7.4% ------------------------------------------------------------------------- Telesat 118 102 16 15.7% 475 362 113 31.2% Other 13 19 (6) (31.6%) 63 60 3 5.0% ------------------------------------------------------------------------- Total Other BCE 596 526 70 13.3% 2,093 1,842 251 13.6% Inter-segment eliminations (67) (60) (7) (11.7%) (238) (261) 23 8.8% ------------------------------------------------------------------------- Total revenues 4,986 4,769 217 4.6% 19,105 18,368 737 4.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating income Residential 444 464 (20) (4.3%) 2,001 2,119 (118)(5.6%) Business 236 183 53 29.0% 910 896 14 1.6% Aliant 105 23 82 n.m. 396 268 128 47.8% Other Bell Canada 99 61 38 62.3% 448 (588) 1,036 n.m. ------------------------------------------------------------------------- Total Bell Canada 884 731 153 20.9% 3,755 2,695 1,060 39.3% Other BCE Bell Globemedia 101 103 (2) (1.9%) 289 240 49 20.4% Telesat 34 37 (3) (8.1%) 157 141 16 11.3% Other (40) (57) 17 29.8% (153) (182) 29 15.9% ------------------------------------------------------------------------- Total Other BCE 95 83 12 14.5% 293 199 94 47.2% ------------------------------------------------------------------------- Total operating income 979 814 165 20.3% 4,048 2,894 1,154 39.9% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Capital expenditures(4) Residential 350 418 68 16.3% 1,519 1,371 (148)(10.8%) Business 206 330 124 37.6% 897 1,008 111 11.0% Aliant 77 114 37 32.5% 363 295 (68)(23.1%) Other Bell Canada 103 123 20 16.3% 343 352 9 2.6% ------------------------------------------------------------------------- Total Bell Canada 736 985 249 25.3% 3,122 3,026 (96)(3.2%) Other BCE Telesat 62 40 (22) (55.0%) 260 257 (3)(1.2%) Other 33 18 (15) (83.3%) 46 36 (10)(27.8%) ------------------------------------------------------------------------- Total capital expenditures 831 1,043 212 20.3% 3,428 3,319 (109)(3.3%) ------------------------------------------------------------------------- ------------------------------------------------------------------------- n.m.: not meaningful BCE Consolidated(1) Segmented Data - Historical Trend ($ millions, except where otherwise Total indicated) 2005 Q4 05 Q3 05 Q2 05 Q1 05 ------------------------------------------------------------------------- Revenues Residential 7,599 1,924 1,929 1,890 1,856 Business 6,120 1,627 1,516 1,499 1,478 Aliant 2,097 535 520 518 524 Other Bell Canada 1,958 494 500 485 479 Inter-segment eliminations (524) (123) (139) (134) (128) ------------------------------------------------------------------------- Total Bell Canada 17,250 4,457 4,326 4,258 4,209 Other BCE Bell Globemedia 1,555 465 335 399 356 ------------------------------------------------------------------------- Advertising 1,148 354 233 300 261 Subscriber 320 86 79 78 77 Production and Sundry 87 25 23 21 18 ------------------------------------------------------------------------- Telesat 475 118 112 137 108 Other 63 13 15 24 11 ------------------------------------------------------------------------- Total Other BCE 2,093 596 462 560 475 Inter-segment eliminations (238) (67) (56) (61) (54) ------------------------------------------------------------------------- Total revenues 19,105 4,986 4,732 4,757 4,630 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating income Residential 2,001 444 479 552 526 Business 910 236 213 221 240 Aliant 396 105 105 99 87 Other Bell Canada 448 99 111 109 129 ------------------------------------------------------------------------- Total Bell Canada 3,755 884 908 981 982 Other BCE Bell Globemedia 289 101 29 95 64 Telesat 157 34 43 43 37 Other (153) (40) (41) (32) (40) ------------------------------------------------------------------------- Total Other BCE 293 95 31 106 61 ------------------------------------------------------------------------- Total operating income 4,048 979 939 1,087 1,043 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Capital expenditures(4) Residential 1,519 350 434 394 341 Business 897 206 249 246 196 Aliant 363 77 100 104 82 Other Bell Canada 343 103 90 103 47 ------------------------------------------------------------------------- Total Bell Canada 3,122 736 873 847 666 Other BCE Telesat 260 62 91 53 54 Other 46 33 4 5 4 ------------------------------------------------------------------------- Total capital expenditures 3,428 831 968 905 724 ------------------------------------------------------------------------- ------------------------------------------------------------------------- BCE Consolidated(1) Segmented Data - Historical Trend ($ millions, except where otherwise Total indicated) 2004 Q4 04 Q3 04 Q2 04 Q1 04 ------------------------------------------------------------------------- Revenues Residential 7,502 1,911 1,908 1,858 1,825 Business 5,851 1,535 1,440 1,441 1,435 Aliant 2,033 506 497 526 504 Other Bell Canada 1,939 511 486 468 474 Inter-segment eliminations (538) (160) (125) (121) (132) ------------------------------------------------------------------------- Total Bell Canada 16,787 4,303 4,206 4,172 4,106 Other BCE Bell Globemedia 1,420 405 302 371 342 ------------------------------------------------------------------------- Advertising 1,041 306 209 277 249 Subscriber 298 77 73 74 74 Production and Sundry 81 22 20 20 19 ------------------------------------------------------------------------- Telesat 362 102 91 85 84 Other 60 19 12 19 10 ------------------------------------------------------------------------- Total Other BCE 1,842 526 405 475 436 Inter-segment eliminations (261) (60) (55) (70) (76) ------------------------------------------------------------------------- Total revenues 18,368 4,769 4,556 4,577 4,466 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating income Residential 2,119 464 569 560 526 Business 896 183 245 227 241 Aliant 268 23 71 92 82 Other Bell Canada (588) 61 (898) 138 111 ------------------------------------------------------------------------- Total Bell Canada 2,695 731 (13) 1,017 960 Other BCE Bell Globemedia 240 103 23 74 40 Telesat 141 37 39 34 31 Other (182) (57) (44) (41) (40) ------------------------------------------------------------------------- Total Other BCE 199 83 18 67 31 ------------------------------------------------------------------------- Total operating income 2,894 814 5 1,084 991 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Capital expenditures(4) Residential 1,371 418 377 331 245 Business 1,008 330 183 281 214 Aliant 295 114 51 45 85 Other Bell Canada 352 123 125 58 46 ------------------------------------------------------------------------- Total Bell Canada 3,026 985 736 715 590 Other BCE Telesat 257 40 64 88 65 Other 36 18 5 9 4 ------------------------------------------------------------------------- Total capital expenditures 3,319 1,043 805 812 659 ------------------------------------------------------------------------- ------------------------------------------------------------------------- BCE Consolidated(1) Consolidated Balance Sheet Data ($ millions, except where December September June March December otherwise 31 30 30 31 31 indicated) 2005 2005 2005 2005 2004 ------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents 363 415 332 482 313 Accounts receivable 1,766 1,806 1,728 1,914 1,951 Other current assets 1,142 1,333 1,060 1,205 1,061 Current assets of discontinued operations 402 378 369 368 383 ------------------------------------------------------------------------- Total current assets 3,673 3,932 3,489 3,969 3,708 Capital assets 22,062 21,941 21,761 21,087 21,104 Other long-term assets 2,914 2,667 2,667 2,720 2,628 Indefinite-life intangible assets 3,031 2,973 2,973 2,951 2,916 Goodwill 7,887 7,900 7,854 7,814 7,756 Non-current assets of discontinued operations 1,063 1,073 1,070 1,034 1,028 ------------------------------------------------------------------------- Total assets 40,630 40,486 39,814 39,575 39,140 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Accounts payable and accrued liabilities 3,435 3,287 3,060 3,052 3,444 Interest payable 182 266 189 283 183 Dividends payable 343 325 325 325 297 Debt due within one year 1,373 1,260 1,494 1,423 1,272 Current liabilities of discontinued operations 281 279 280 272 271 ------------------------------------------------------------------------- Total current liabilities 5,614 5,417 5,348 5,355 5,467 Long-term debt 12,119 12,558 12,407 12,185 11,685 Other long-term liabilities 5,028 4,758 4,506 4,718 4,834 Non-current liabilities of discontinued operations 250 251 170 195 222 ------------------------------------------------------------------------- Total liabilities 23,011 22,984 22,431 22,453 22,208 ------------------------------------------------------------------------- Non-controlling interest 2,898 2,892 2,905 2,914 2,908 ------------------------------------------------------------------------- ------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Preferred shares 1,670 1,670 1,670 1,670 1,670 ------------------------------------------------------------------------- Common shareholders' equity Common shares 16,806 16,806 16,794 16,790 16,781 Contributed surplus 1,081 1,076 1,071 1,065 1,061 Deficit (4,763) (4,871) (5,005) (5,264) (5,432) Currency translation adjustment (73) (71) (52) (53) (56) ------------------------------------------------------------------------- Total common shareholders' equity 13,051 12,940 12,808 12,538 12,354 ------------------------------------------------------------------------- Total shareholders' equity 14,721 14,610 14,478 14,208 14,024 ------------------------------------------------------------------------- Total liabilities and shareholders' equity 40,630 40,486 39,814 39,575 39,140 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Number of common shares outstanding 927.3 927.3 926.7 926.4 925.9 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total Net Debt 13,129 13,403 13,569 13,126 12,644 Total Capitalization 30,748 30,905 30,952 30,248 29,576 Key ratios Net debt: Total Capitalization 42.7% 43.4% 43.8% 43.4% 42.8% Net debt: Trailing 12 month EBITDA 1.73 1.78 1.79 1.75 1.70 EBITDA: Interest (trailing 12 month) 7.74 7.69 7.68 7.56 7.44 BCE Consolidated Consolidated Cash Flow Data ($ millions, except where otherwise Q4 Q4 Total Total indicated) 2005 2004 $ change 2005 2004 $ change ------------------------------------------------------------------------- Cash flows from operating activities Earnings from continuing operations 418 354 64 1,915 1,447 468 Adjustments to reconcile earnings from continuing operations to cash flows from operating activities: Amortization expense 791 787 4 3,114 3,056 58 Net benefit plans cost 65 67 (2) 380 256 124 Restructuring and other items 23 126 (103) 55 1,224 (1,169) Net gains on investments 1 12 (11) (33) (320) 287 Future income taxes 465 62 403 746 (35) 781 Non-controlling interest 74 40 34 267 174 93 Contributions to employee pension plans (65) (24) (41) (226) (112) (114) Other employee future benefit plan payments (24) (22) (2) (93) (81) (12) Payments of restructuring and other items (23) (214) 191 (176) (253) 77 Operating assets and liabilities (140) 91 (231) (390) 87 (477) ------------------------------------------------------------------------- 1,585 1,279 306 5,559 5,443 116 ------------------------------------------------------------------------- Capital expenditures (831) (1,043) 212 (3,428) (3,319) (109) Other investing activities 32 (10) 42 4 127 (123) Cash dividends paid on preferred shares (22) (21) (1) (86) (85) (1) Cash dividends paid by subsidiaries to non-controlling interest (35) (49) 14 (192) (188) (4) ------------------------------------------------------------------------- Free Cash Flow from operations, before common dividends(2) 729 156 573 1,857 1,978 (121) Cash dividends paid on common shares (306) (277) (29) (1,195) (1,108) (87) ------------------------------------------------------------------------- Free Cash Flow from operations, after common dividends(2) 423 (121) 544 662 870 (208) Business acquisitions (50) (334) 284 (228) (1,118) 890 Business dispositions - - - - 20 (20) Increase in investments (17) (38) 21 (233) (58) (175) Decrease in investments 12 - 12 19 713 (694) ------------------------------------------------------------------------- Free Cash Flow after investments and divestitures 368 (493) 861 220 427 (207) ------------------------------------------------------------------------- Other financing activities Increase (decrease) in notes payable and bank advances (187) 7 (194) (66) 130 (196) Issue of long-term debt - 56 (56) 1,190 1,306 (116) Repayment of long-term debt (196) (580) 384 (1,178) (2,256) 1,078 Issue of common shares - 16 (16) 25 32 (7) Issue of equity securities by subsidiaries to non-controlling interest - 1 (1) 1 8 (7) Redemption of equity securities by subsidiaries from non-controlling interest (18) - (18) (78) (58) (20) Other financing activities (19) (18) (1) (64) (81) 17 ------------------------------------------------------------------------- (420) (518) 98 (170) (919) 749 ------------------------------------------------------------------------- Cash provided by (used in) continuing operations (52) (1,011) 959 50 (492) 542 Cash provided by (used in) discontinued operations 22 5 17 15 150 (135) ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (30) (1,006) 976 65 (342) 407 Cash and cash equivalents at beginning of period 475 1,386 (911) 380 722 (342) ------------------------------------------------------------------------- Cash and cash equivalents at end of period 445 380 65 445 380 65 ------------------------------------------------------------------------- Consists of: Cash and cash equivalents of continuing operations 363 313 50 363 313 50 Cash and cash equivalents of discontinued operations 82 67 15 82 67 15 ------------------------------------------------------------------------- Total 445 380 65 445 380 65 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Other information Capital expenditures as a percentage of revenues 16.7% 21.9% 5.2pts 17.9% 18.1% 0.2 pts Cash flow per share(5) $0.81 $0.26 $0.55 $2.30 $2.30 $0.00 Annualized cash flow yield(6) 11.3% 2.3% 9.0pts 7.2% 7.4% (0.2)pts Common dividend payout 74.1% 66.4% 7.7pts 63.2% 72.8% (9.6)pts BCE Consolidated Consolidated Cash Flow Data - Historical Trend ($ millions, except where Total otherwise indicated) 2005 Q4 05 Q3 05 Q2 05 Q1 05 ------------------------------------------------------------------------- Cash flows from operating activities Earnings from continuing operations 1,915 418 448 570 479 Adjustments to reconcile earnings from continuing operations to cash flows from operating activities: Amortization expense 3,114 791 786 776 761 Net benefit plans cost 380 65 108 104 103 Restructuring and other items 55 23 31 5 (4) Net (gains) losses on investments (33) 1 - (32) (2) Future income taxes 746 465 111 63 107 Non-controlling interest 267 74 57 73 63 Contributions to employee pension plans (226) (65) (33) (34) (94) Other employee future benefit plan payments (93) (24) (24) (22) (23) Payments of restructuring and other items (176) (23) (24) (28) (101) Operating assets and liabilities (390) (140) 195 (72) (373) ------------------------------------------------------------------------- 5,559 1,585 1,655 1,403 916 ------------------------------------------------------------------------- Capital expenditures (3,428) (831) (968) (905) (724) Other investing activities 4 32 (3) (10) (15) Cash dividends paid on preferred shares (86) (22) (21) (22) (21) Cash dividends paid by subsidiaries to non-controlling interest (192) (35) (47) (60) (50) ------------------------------------------------------------------------- Free Cash Flow from operations, before common dividends(2) 1,857 729 616 406 106 Cash dividends paid on common shares (1,195) (306) (306) (305) (278) ------------------------------------------------------------------------- Free Cash Flow from operations, after common dividends(2) 662 423 310 101 (172) Business acquisitions (228) (50) (56) (35) (87) Business dispositions - - - - - Increase in investments (233) (17) (75) (13) (128) Decrease in investments 19 12 - 5 2 ------------------------------------------------------------------------- Free Cash Flow after investments and divestitures 220 368 179 58 (385) ------------------------------------------------------------------------- Other financing activities Increase (decrease) in notes payable and bank advances (66) (187) (65) 341 (155) Issue of long-term debt 1,190 - 200 205 785 Repayment of long-term debt (1,178) (196) (209) (719) (54) Issue of common shares 25 - 12 4 9 Issue of equity securities and convertible debentures by subsidiaries to non-controlling interest 1 - 1 - - Redemption of equity securities by subsidiaries from non-controlling interest (78) (18) (22) (21) (17) Other financing activities (64) (19) (13) (18) (14) ------------------------------------------------------------------------- (170) (420) (96) (208) 554 ------------------------------------------------------------------------- Cash provided by (used in) continuing operations 50 (52) 83 (150) 169 Cash provided by (used in) discontinued operations 15 22 12 4 (23) ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 65 (30) 95 (146) 146 Cash and cash equivalents at beginning of period 380 475 380 526 380 ------------------------------------------------------------------------- Cash and cash equivalents at end of period 445 445 475 380 526 ------------------------------------------------------------------------- Consists of: Cash and cash equivalents of continuing operations 363 363 415 332 482 Cash and cash equivalents of discontinued operations 82 82 60 48 44 ------------------------------------------------------------------------- Total 445 445 475 380 526 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Other information Capital expenditures as a percentage of revenues 17.9% 16.7% 20.5% 19.0% 15.6% Cash flow per share(5) $2.30 $0.81 $0.74 $0.54 $0.21 Annualized cash flow yield(6) 7.2% 11.3% 8.3% 6.0% 1.5% Common dividend payout 63.2% 74.1% 69.4% 54.2% 58.6% ($ millions, except where Total otherwise indicated) 2004 Q4 04 Q3 04 Q2 04 Q1 04 ------------------------------------------------------------------------- Cash flows from operating activities Earnings from continuing operations 1,447 354 90 529 474 Adjustments to reconcile earnings from continuing operations to cash flows from operating activities: Amortization expense 3,056 787 754 757 758 Net benefit plans cost 256 67 61 65 63 Restructuring and other items 1,224 126 1,081 14 3 Net (gains) losses on investments (320) 12 (327) - (5) Future income taxes (35) 62 (184) 34 53 Non-controlling interest 174 40 47 39 48 Contributions to employee pension plans (112) (24) (32) (27) (29) Other employee future benefit plan payments (81) (22) (13) (22) (24) Payments of restructuring and other items (253) (214) (12) (8) (19) Operating assets and liabilities 87 91 368 (284) (88) ------------------------------------------------------------------------- 5,443 1,279 1,833 1,097 1,234 ------------------------------------------------------------------------- Capital expenditures (3,319) (1,043) (805) (812) (659) Other investing activities 127 (10) (2) 120 19 Cash dividends paid on preferred shares (85) (21) (21) (21) (22) Cash dividends paid by subsidiaries to non-controlling interest (188) (49) 44) (52) (43) ------------------------------------------------------------------------- Free Cash Flow from operations, before common dividends(2) 1,978 156 961 332 529 Cash dividends paid on common shares (1,108) (277) (277) (277) (277) ------------------------------------------------------------------------- Free Cash Flow from operations, after common dividends(2) 870 (121) 684 55 252 Business acquisitions (1,118) (334) (646) (79) (59) Business dispositions 20 - 4 - 16 Increase in investments (58) (38) (12) (8) - Decrease in investments 713 - 707 - 6 ------------------------------------------------------------------------- Free Cash Flow after investments and divestitures 427 (493) 737 (32) 215 ------------------------------------------------------------------------- Other financing activities Increase (decrease) in notes payable and bank advances 130 7 173 (69) 19 Issue of long-term debt 1,306 56 11 1 1,238 Repayment of long-term debt (2,256) (580) (98) (714) (864) Issue of common shares 32 16 8 4 4 Issue of equity securities and convertible debentures by subsidiaries to non-controlling interest 8 1 - - 7 Redemption of equity securities by subsidiaries from non-controlling interest (58) - (4) (12) (42) Other financing activities (81) (18) (18) 3 (48) ------------------------------------------------------------------------- (919) (518) 72 (787) 314 ------------------------------------------------------------------------- Cash provided by (used in) continuing operations (492) (1,011) 809 (819) 529 Cash provided by (used in) discontinued operations 150 5 - (115) 260 ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (342) (1,006) 809 (934) 789 Cash and cash equivalents at beginning of period 722 1,386 577 1,511 722 ------------------------------------------------------------------------- Cash and cash equivalents at end of period 380 380 1,386 577 1,511 ------------------------------------------------------------------------- Consists of: Cash and cash equivalents of continuing operations 313 313 1,327 521 1,085 Cash and cash equivalents of discontinued operations 67 67 59 56 426 ------------------------------------------------------------------------- Total 380 380 1,386 577 1,511 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Other information Capital expenditures as a percentage of revenues 18.1% 21.9% 17.7% 17.7% 14.8% Cash flow per share(5) $2.30 $0.26 $1.11 $0.31 $0.62 Annualized cash flow yield(6) 7.4% 2.3% 15.3% 5.4% 8.3% Common dividend payout 72.8% 66.4% 337.8% 50.0% 58.9% Proportionate Net Debt, Preferreds and EBITDA BCE Corporate and Bell Canada Net debt and preferreds At December 31, 2005 ($ millions, Bell Bell Inter- except where Canada Canada company Total BCE Inc. otherwise (excl. Statu- elimi- Bell Corpo- indicated) Aliant) Aliant tory nations Canada rate -------------------------------------------------------------- --------- Cash and cash equivalents (38) (195) (233) (233) 3 Long-term debt 9,279 898 10,177 (339) 9,838 1,700 Debt due within one year 818 18 836 (96) 740 300 Long-term note receivable from BCH (498) - (498) 498 - - PPA fair value increment(7) 99 - -------------------------------------------------------------- --------- Net debt 9,561 721 10,282 63 10,444 2,003 Preferred shares - Bell Canada(8) 1,100 1,100 1,100 - Preferred shares - Aliant(8) 172 172 172 - Perpetual Preferred shares - BCE - - - - 1,670 Nortel common shares at market - - - - (52) -------------------------------------------------------------- --------- Net debt and preferreds 10,661 893 11,554 63 11,716 3,621 -------------------------------------------------------------- --------- -------------------------------------------------------------- --------- Proportionate net debt and preferreds, Trailing EBITDA For the quarter ended December 31, 2005 Propor- ($ millions, tionate Total EBITDA except where net debt otherwise % and indicated) owned pre- Trai- by BCE ferreds Q4 05 Q3 05 Q2 05 Q1 05 ling ------------------------------------------------------------------------- Bell Canada (excluding Aliant) 100% 10,823() 1,504 1,578 1,618 1,605 6,305 Aliant 53.2% 475 225 226 221 210 882 ------------------------------------------------------------------------- Total Bell Canada Consolidated 11,298 1,729 1,804 1,839 1,815 7,187 Other BCE Bell Globemedia 68.5% 260 120 46 114 83 363 Telesat 100% 276 65 70 71 63 269 Corporate and other 100% 3,613 (36) (36) (39) (37) (148) ------------------------------------------------------------------------- Total Other BCE 4,149 149 80 146 109 484 Inter-segment eliminations (20) (20) (13) (21) (74) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total 15,447 1,858 1,864 1,972 1,903 7,597 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Propor- ($ millions, tionate Proportionate EBITDA except where net debt otherwise % and indicated) owned pre- Trai- by BCE ferreds Q4 05 Q3 05 Q2 05 Q1 05 ling ------------------------------------------------------------------------- Bell Canada (excluding Aliant) 100% 10,823() 1,504 1,578 1,618 1,605 6,305 Aliant 53.2% 475 120 120 117 112 469 ------------------------------------------------------------------------- Total Bell Canada Consolidated 11,298 1,624 1,698 1,735 1,717 6,774 Other BCE Bell Globemedia 68.5% 260 73 23 68 49 213 Telesat 100% 276 65 70 71 63 269 Corporate and other 100% 3,613 (36) (36) (39) (37) (148) ------------------------------------------------------------------------- Total Other BCE 102 57 100 75 334 Inter-segment eliminations (20) (20) (13) (21) (74) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total 15,447 1,706 1,735 1,822 1,771 7,034 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (*) Bell Canada (excl. Aliant) net debt and preferreds of $10,661 million plus $63 million of inter-company eliminations plus $99 million upon consolidation (PPA fair value increment). Bell Canada Consolidated (1) Operational Data ($ millions, Q4 Q4 Total Total except where otherwise $ % $ % indicated) 2005 2004 change change 2005 2004 change change ------------------------------------------------------------------------- Revenues Local and access 1,343 1,397 (54) (3.9%) 5,446 5,572 (126) (2.3%) Long distance 478 560 (82) (14.6%) 2,044 2,327 (283) (12.2%) Wireless 812 742 70 9.5% 3,097 2,818 279 9.9% Data 1,097 963 134 13.9% 4,015 3,640 375 10.3% Video 268 219 49 22.4% 976 850 126 14.8% Terminal sales and other 459 422 37 8.8% 1,672 1,580 92 5.8% ------------------------------------------------------------------------- Total operating revenues 4,457 4,303 154 3.6% 17,250 16,787 463 2.8% Operating expenses (2,728) (2,624) (104) (4.0%)(10,063) (9,676) (387) (4.0%) ------------------------------------------------------------------------- EBITDA(2) 1,729 1,679 50 3.0% 7,187 7,111 76 1.1% EBITDA margin (%) (3) 38.8% 39.0% (0.2)pts 41.7% 42.4% (0.7)pts Amortization expense (755) (763) 8 1.0% (2,989) (2,962) (27) (0.9%) Net benefit plans cost (66) (62) (4) (6.5%) (389) (235) (154) (65.5%) Restructuring and other items (24) (123) 99 80.5% (54) (1,219) 1,165 95.6% ------------------------------------------------------------------------- Operating income 884 731 153 20.9% 3,755 2,695 1,060 39.3% Other income - 20 (20)(100.0%) 39 183 (144) (78.7%) Interest expense (208) (212) 4 1.9% (827) (863) 36 4.2% ------------------------------------------------------------------------- Pre-tax earnings 676 539 137 25.4% 2,967 2,015 952 47.2% Income taxes (138) (140) 2 1.4% (743) (506) (237) (46.8%) Non-controlling interest (22) 8 (30) n.m. (71) 9 (80) n.m. ------------------------------------------------------------------------- Net earnings before extraordinary gain 516 407 109 26.8% 2,153 1,518 635 41.8% Extraordinary gain - 69 (69)(100.0%) - 69 (69)(100.0%) ------------------------------------------------------------------------- Net earnings 516 476 40 8.4% 2,153 1,587 566 35.7% Dividends on preferred shares (14) (11) (3) (27.3%) (55) (60) 5 8.3% ------------------------------------------------------------------------- Net earnings applicable to common shares 502 465 37 8.0% 2,098 1,527 571 37.4% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Other information Cash flow information Free Cash Flow (FCF)(2) Cash from operating activi- ties 1,630 1,293 337 26.1% 5,508 5,333 175 3.3% Capital expendi- tures (736) (985) 249 25.3% (3,122) (3,026) (96) (3.2%) Dividends and distribu- tions (404) (351) (53) (15.1%) (1,747) (1,736) (11) (0.6%) Other investing items 1 (8) 9 n.m. 5 (15) 20 n.m. ------------------------------------------------------------------------- Total 491 (51) 542 n.m. 644 556 88 15.8% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Capital expenditures as a percentage of revenues (%) 16.5% 22.9% 6.4 pts 18.1% 18.0% (0.1)pts Balance Sheet Information Dec. 31 Dec. 31 2005 2004 ------------------------------------------------------------------------- Net Debt Long-term debt 10,177 9,166 Debt due within one year 836 1,352 Less: Cash and cash equivalents (233) (32) ------------------------------------------------------------------------- Total Net Debt 10,780 10,486 Non-controlling interest 1,212 1,229 Total shareholders' equity 10,135 9,670 ------------------------------------------------------------------------- Total Capitalization 22,127 21,385 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net Debt: Total Capitalization 48.7% 49.0% Net Debt: Trailing 12 month EBITDA 1.50 1.47 EBITDA : Interest (trailing 12 month) 8.69 8.24 n.m.: not meaningful Bell Canada Consolidated (1) Operational Data - Historical Trend Total ($ millions, except where otherwise indicated) 2005 Q4 05 Q3 05 Q2 05 Q1 05 ------------------------------------------------------------------------- Revenues Local and access 5,446 1,343 1,367 1,368 1,368 Long distance 2,044 478 510 518 538 Wireless 3,097 812 801 771 713 Data 4,015 1,097 1,001 966 951 Video 976 268 251 236 221 Terminal sales and other 1,672 459 396 399 418 ------------------------------------------------------------------------- Total operating revenues 17,250 4,457 4,326 4,258 4,209 Operating expenses (10,063) (2,728) (2,522) (2,419) (2,394) ------------------------------------------------------------------------- EBITDA(2) 7,187 1,729 1,804 1,839 1,815 EBITDA margin (%)(3) 41.7% 38.8% 41.7% 43.2% 43.1% Amortization expense (2,989) (755) (756) (746) (732) Net benefit plans cost (389) (66) (110) (107) (106) Restructuring and other items (54) (24) (30) (5) 5 ------------------------------------------------------------------------- Operating income (loss) 3,755 884 908 981 982 Other income 39 - 15 13 11 Interest expense (827) (208) (207) (206) (206) ------------------------------------------------------------------------- Pre-tax earnings (loss) 2,967 676 716 788 787 Income taxes (743) (138) (198) (178) (229) Non-controlling interest (71) (22) (16) (17) (16) ------------------------------------------------------------------------- Net earnings (loss) before extraordinary gain 2,153 516 502 593 542 Extraordinary gain - - - - - ------------------------------------------------------------------------- Net earnings 2,153 516 502 593 542 Dividends on preferred shares (55) (14) (14) (13) (14) ------------------------------------------------------------------------- Net earnings applicable to common shares 2,098 502 488 580 528 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Other information ------------------------------------------------------------------------- Cash flow information Free Cash Flow (FCF)(2) Cash from operating activities 5,508 1,630 1,551 1,467 860 Capital expenditures (3,122) (736) (873) (847) (666) Dividends and distributions (1,747) (404) (468) (453) (422) Other investing items 5 1 4 4 (4) ------------------------------------------------------------------------- Total 644 491 214 171 (232) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Capital expenditures as a percentage of revenues (%) 18.1% 16.5% 20.2% 19.9% 15.8% Total ($ millions, except where otherwise indicated) 2004 Q4 04 Q3 04 Q2 04 Q1 04 ------------------------------------------------------------------------- Revenues Local and access 5,572 1,397 1,395 1,401 1,379 Long distance 2,327 560 589 572 606 Wireless 2,818 742 727 698 651 Data 3,640 963 915 870 892 Video 850 219 213 211 207 Terminal sales and other 1,580 422 367 420 371 ------------------------------------------------------------------------- Total operating revenues 16,787 4,303 4,206 4,172 4,106 Operating expenses (9,676) (2,624) (2,350) (2,351) (2,351) ------------------------------------------------------------------------- EBITDA(2) 7,111 1,679 1,856 1,821 1,755 EBITDA margin (%)(3) 42.4% 39.0% 44.1% 43.6% 42.7% Amortization expense (2,962) (763) (734) (733) (732) Net benefit plans cost (235) (62) (55) (58) (60) Restructuring and other items (1,219) (123) (1,080) (13) (3) ------------------------------------------------------------------------- Operating income (loss) 2,695 731 (13) 1,017 960 Other income 183 20 114 19 30 Interest expense (863) (212) (215) (216) (220) ------------------------------------------------------------------------- Pre-tax earnings (loss) 2,015 539 (114) 820 770 Income taxes (506) (140) 75 (245) (196) Non-controlling interest 9 8 2 9 (10) ------------------------------------------------------------------------- Net earnings (loss) before extraordinary gain 1,518 407 (37) 584 564 Extraordinary gain 69 69 - - - ------------------------------------------------------------------------- Net earnings 1,587 476 (37) 584 564 Dividends on preferred shares (60) (11) (16) (17) (16) ------------------------------------------------------------------------- Net earnings applicable to common shares 1,527 465 (53) 567 548 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Other information ------------------------------------------------------------------------- Cash flow information Free Cash Flow (FCF)(2) Cash from operating activities 5,333 1,293 1,756 1,089 1,195 Capital expenditures (3,026) (985) (736) (715) (590) Dividends and distributions (1,736) (351) (445) (437) (503) Other investing items (15) (8) 1 (1) (7) ------------------------------------------------------------------------- Total 556 (51) 576 (64) 95 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Capital expenditures as a percentage of revenues (%) 18.0% 22.9% 17.5% 17.1% 14.4% Balance Sheet Information Dec. 31 Sept. 30 June 30 March 31 Dec. 31 2005 2005 2005 2005 2004 ------------------------------------------------------------------------- Net Debt Long-term debt 10,177 10,171 10,023 9,657 9,166 Debt due within one year 836 1,365 1,500 1,634 1,352 Less: Cash and cash equivalents (233) (298) (169) (308) (32) ------------------------------------------------------------------------- Total Net Debt 10,780 11,238 11,354 10,983 10,486 Non-controlling interest 1,212 1,125 1,162 1,202 1,229 Total shareholders' equity 10,135 10,067 9,957 9,796 9,670 ------------------------------------------------------------------------- Total Capitalization 22,127 22,430 22,473 21,981 21,385 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net Debt: Total Capitalization 48.7% 50.1% 50.5% 50.0% 49.0% Net Debt : Trailing 12 month EBITDA 1.50 1.57 1.58 1.53 1.47 EBITDA : Interest (trailing 12 month) 8.69 8.59 8.57 8.45 8.24 Bell Canada Consolidated(1) Statistical Data Q4 Q4 % Total Total % 2005 2004 change 2005 2004 change ------------------------------------------------------------------------- Wireline Local Network access services (k) Residential 7,985 8,392 (4.8%) 7,985 8,392 (4.8%) Business 4,596 4,513 1.8% 4,596 4,513 1.8% ------------------------------------------------------------------------- Total 12,581 12,905 (2.5%) 12,581 12,905 (2.5%) SmartTouch feature revenues ($M) 217 233 (6.9%) 890 939 (5.2%) Long Distance (LD) Conversation minutes (M) 4,567 4,559 0.2% 18,306 18,070 1.3% Average revenue per minute ($) 0.096 0.109 (11.9%) 0.102 0.117 (12.8%) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Data Equivalent access lines(9) (k) - Ontario and Quebec Digital equivalent access lines (k) 5,034 4,335 16.1% 5,034 4,335 16.1% Internet subscribers(10) (k) High Speed Internet net activations (k) 61 91 (33.0%) 387 350 10.6% High Speed Internet subscribers (k) 2,195 1,808 21.4% 2,195 1,808 21.4% Dial-up Internet subscribers (k) 586 743 (21.1%) 586 743 (21.1%) ------------------------------------------------------------------------- 2,781 2,551 9.0% 2,781 2,551 9.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Wireless Cellular & PCS net activations (k) Pre-paid 83 88 (5.7%) 227 142 59.9% Post-paid 127 129 (1.6%) 289 371 (22.1%) ------------------------------------------------------------------------- 210 217 (3.2%) 516 513 0.6% Cellular & PCS subscribers (k) Pre-paid 1,428 1,201 18.9% 1,428 1,201 18.9% Post-paid 4,013 3,724 7.8% 4,013 3,724 7.8% ------------------------------------------------------------------------- 5,441 4,925 10.5% 5,441 4,925 10.5% Average revenue per unit (ARPU) ($/month) 51 50 2.0% 49 49 0.0% Pre-paid 14 13 7.7% 14 12 16.7% Post-paid 64 61 4.9% 61 61 0.0% Churn (%) (average per month) 1.5% 1.4% (0.1)pts 1.6% 1.3% (0.3)pts Pre-paid 2.2% 1.9% (0.3)pts 1.9% 1.9% 0.0 pts Post-paid 1.3% 1.2% (0.1)pts 1.4% 1.1% (0.3)pts Usage per subscriber (min/month) 261 252 3.6% 255 248 2.8% Cost of acquisition (COA)(11) ($/sub) 409 402 (1.7%) 406 411 1.2% Wireless EBITDA ($ millions) 311 274 13.5% 1,307 1,187 10.1% Wireless EBITDA margin(12) 37.1% 36.2% 0.9 pts 41.2% 41.5% (0.3)pts Wireless capital expenditures ($ millions) 58 125 53.6% 343 362 5.2% Wireless capital expenditures as a percentage of revenue 7.1% 16.8% 9.7 pts 11.1% 12.8% 1.7 pts Paging subscribers (k) 347 427 (18.7%) 347 427 (18.7%) Paging average revenue per unit ($/month) 10 9 11.1% 11 10 10.0% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Video (DTH and VDSL) Total subscribers (k) 1,727 1,503 14.9% 1,727 1,503 14.9% Net subscriber activations (k) 50 43 16.3% 224 116 93.1% ARPU ($/month) 52 49 6.1% 50 49 2.0% COA ($/sub) 258 537 52.0% 375 571 34.3% Video EBITDA ($ millions) 23 (4) n.m. 45 (19) n.m. Churn (%) (average per month) 1.0% 0.8% (0.2)pts 0.9% 1.0% 0.1 pts n.m.: not meaningful Bell Canada Consolidated(1) Statistical Data - Historical Trend Total 2005 Q4 05 Q3 05 Q2 05 Q1 05 ------------------------------------------------------------------------- Wireline Local Network access services (k) Residential 7,985 8,133 8,189 8,332 Business 4,596 4,570 4,538 4,518 ------------------------------------------------------------------------- Total 12,581 12,703 12,727 12,850 SmartTouch feature revenues ($M) 890 217 221 225 227 Long Distance (LD) Conversation minutes (M) 18,306 4,567 4,484 4,667 4,588 Average revenue per minute ($) 0.102 0.096 0.105 0.101 0.107 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Data Equivalent access lines(9) (k) - Ontario and Quebec Digital equivalent access lines (k) 5,034 4,847 4,634 4,469 Internet subscribers(10) (k) High Speed Internet net activations (k) 387 61 106 92 128 High Speed Internet subscribers (k) 2,195 2,134 2,028 1,936 Dial-up Internet subscribers (k) 586 621 666 696 ------------------------------------------------------------------------- 2,781 2,755 2,694 2,632 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Wireless Cellular & PCS net activations (k) Pre-paid 227 83 73 29 42 Post-paid 289 127 50 117 (5) ------------------------------------------------------------------------- 516 210 123 146 37 Cellular & PCS subscribers (k) Pre-paid 1,428 1,345 1,272 1,243 Post-paid 4,013 3,886 3,836 3,719 ------------------------------------------------------------------------- 5,441 5,231 5,108 4,962 Average revenue per unit (ARPU) ($/month) 49 51 51 50 46 Pre-paid 14 14 14 16 11 Post-paid 61 64 63 61 57 Churn (%) (average per month) 1.6% 1.5% 1.5% 1.6% 1.6% Pre-paid 1.9% 2.2% 1.6% 2.1% 1.8% Post-paid 1.4% 1.3% 1.5% 1.4% 1.6% Usage per subscriber (min/month) 255 261 265 262 232 Cost of acquisition (COA)(11) ($/sub) 406 409 432 401 373 Wireless EBITDA ($ millions) 1,307 311 363 333 300 Wireless EBITDA margin(12) 41.2% 37.1% 44.0% 42.4% 41.4% Wireless capital expenditures ($ millions) 343 58 103 118 64 Wireless capital expenditures as a percentage of revenue 11.1% 7.1% 12.9% 15.3% 9.0% Paging subscribers (k) 347 364 385 404 Paging average revenue per unit ($/month) 11 10 10 10 15 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Video (DTH and VDSL) Total subscribers (k) 1,727 1,677 1,595 1,532 Net subscriber activations (k) 224 50 82 63 29 ARPU ($/month) 50 52 51 50 48 COA ($/sub) 375 258 360 462 473 Video EBITDA ($ millions) 45 23 12 6 4 Churn (%) (average per month) 0.9% 1.0% 1.0% 0.9% 0.8% ------------------------------------------------------------------------- Total 2004 Q4 04 Q3 04 Q2 04 Q1 04 ------------------------------------------------------------------------- Wireline Local Network access services (k) Residential 8,392 8,427 8,390 8,476 Business 4,513 4,535 4,548 4,541 ------------------------------------------------------------------------- Total 12,905 12,962 12,938 13,017 SmartTouch feature revenues ($M) 939 233 234 235 237 Long Distance (LD) Conversation minutes (M) 18,070 4,559 4,435 4,498 4,578 Average revenue per minute ($) 0.117 0.109 0.120 0.118 0.120 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Data Equivalent access lines(9) (k) - Ontario and Quebec Digital equivalent access lines (k) 4,335 4,197 4,083 3,983 Internet subscribers(10) (k) High Speed Internet net activations (k) 350 91 84 65 110 High Speed Internet subscribers (k) 1,808 1,717 1,633 1,568 Dial-up Internet subscribers (k) 743 775 807 836 ------------------------------------------------------------------------- 2,551 2,492 2,440 2,404 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Wireless Cellular & PCS net activations (k) Pre-paid 142 88 14 17 23 Post-paid 371 129 95 78 69 ------------------------------------------------------------------------- 513 217 109 95 92 Cellular & PCS subscribers (k) Pre-paid 1,201 1,113 1,099 1,082 Post-paid 3,724 3,595 3,500 3,422 ------------------------------------------------------------------------- 4,925 4,708 4,599 4,504 Average revenue per unit (ARPU) ($/month) 49 50 50 50 47 Pre-paid 12 13 12 11 11 Post-paid 61 61 63 62 59 Churn (%) (average per month) 1.3% 1.4% 1.2% 1.3% 1.3% Pre-paid 1.9% 1.9% 1.9% 1.9% 1.7% Post-paid 1.1% 1.2% 1.0% 1.1% 1.1% Usage per subscriber (min/month) 248 252 258 257 224 Cost of acquisition (COA)(11) ($/sub) 411 402 381 413 455 Wireless EBITDA ($ millions) 1,187 274 334 317 262 Wireless EBITDA margin(12) 41.5% 36.2% 45.4% 44.9% 39.6% Wireless capital expenditures ($ millions) 362 125 95 77 65 Wireless capital expenditures as a percentage of revenue 12.8% 16.8% 13.1% 11.0% 10.0% Paging subscribers (k) 427 449 469 493 Paging average revenue per unit ($/month) 10 9 10 10 10 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Video (DTH and VDSL) Total subscribers (k) 1,503 1,460 1,427 1,403 Net subscriber activations (k) 116 43 33 24 16 ARPU ($/month) 49 49 48 49 48 COA ($/sub) 571 537 548 570 661 Video EBITDA ($ millions) (19) (4) (16) - 1 Churn (%) (average per month) 1.0% 0.8% 1.1% 1.0% 0.9% ------------------------------------------------------------------------- Accompanying Notes (1) We have reclassified some of the figures for the comparative period to make them consistent with the current period's presentation. On December 16, 2005, BCE announced its decision to sell its stake in CGI and that CGI would purchase 100 million of the class A shares held by BCE. As at December 31, 2005 BCE has accounted for CGI as a discontinued operation and no longer proportionally consolidates its financial results. (2) Non-GAAP Financial Measures EBITDA The term, EBITDA (earnings before interest, taxes, depreciation and amortization), does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP). It is therefore unlikely to be comparable to similar measures presented by other companies. EBITDA is presented on a consistent basis from period to period. We define EBITDA as operating revenues less operating expenses, which means it represents operating income before amortization expense, net benefit plans cost, and restructuring and other items. We use EBITDA, among other measures, to assess the operating performance of our ongoing businesses without the effects of amortization expense, net benefit plans cost, and restructuring and other items. We exclude amortization expense and net benefit plans cost because they largely depend on the accounting methods and assumptions a company uses, as well as non-operating factors, such as the historical cost of capital assets and the fund performance of a company's pension plans. We exclude restructuring and other items because they are transitional in nature. EBITDA allows us to compare our operating performance on a consistent basis. We believe that certain investors and analysts use EBITDA to measure a company's ability to service debt and to meet other payment obligations, or as a common valuation measurement in the telecommunications industry. EBITDA should not be confused with net cash flows from operating activities. The most comparable Canadian GAAP financial measure is operating income. EPS before net gains (losses) on investments and restructuring and other items The term, EPS (earnings per share) before net gains (losses) on investments and restructuring and other items, does not have any standardized meaning prescribed by GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies. We use EPS before net gains (losses) on investments and restructuring and other items, among other measures, to assess the operating performance of our ongoing businesses without the effects of after-tax restructuring and other items and net gains on investments. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. The exclusion of these items does not imply they are necessarily non-recurring. The most comparable Canadian GAAP financial measure is EPS. FREE CASH FLOW The term, free cash flow, does not have any standardized meaning prescribed by Canadian GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies. Free cash flow is presented on a consistent basis from period to period. We define free cash flow as cash from operating activities after capital expenditures, total dividends and other investing activities. We consider free cash flow to be an important indicator of the financial strength and performance of our business because it shows how much cash is available to repay debt and to reinvest in our company. We believe that certain investors and analysts use free cash flow when valuing a business and its underlying assets. The most comparable Canadian GAAP financial measure is cash from operating activities. (3) EBITDA margin is calculated as follows: EBITDA ------------------ Operating revenues (4) Effective Q2 2005 the total Wireless capital expenditures are segregated between the Residential and Business segments. Prior quarters have been restated accordingly. (5) Cash flow per share is calculated as follows: Cash flow from operations less capital expenditures ------------------------------------------------------------ Average number of common shares outstanding during the period (6) Annualized cash flow yield is calculated as follows: Free cash flow from operations before common dividends ------------------------------------------------------ Number of common shares outstanding at end of period multiplied by share price at end of period Note: to annualize, multiply the most recent quarter's resultant by 4. (7) Reflects an increase in the total Bell Canada debt as a result of the completion of the purchase price allocation (PPA) relating to the repurchase of SBC's 20% interest in Bell Canada, which resulted in an increase in long-term debt of $165 million. This increase in long-term debt will be applied against interest expense ($4 million in Q4 2005) over the remaining terms of the related long-term debt. (8) At the BCE Consolidated level, Third Party Preferred Shares reflected in the financial statements of subsidiaries are included in non-controlling interest on the balance sheet. (9) Digital equivalent access lines are derived by converting low capacity data lines (DS-3 and lower) to the equivalent number of voice grade access lines. Broadband equivalent access lines are derived by converting high capacity data lines (higher than DS-3) to the equivalent number of voice grade access lines. Conversion factors DS-0 1 Basic ISDN 2 Primary ISDN 23 DS-1, DEA 24 DS-3 672 OC-3 2,016 OC-12 8,064 OC-48 32,256 OC-192 129,024 10 Base T 155 100 Base T 1,554 Gigabit E 15,554 (10) High Speed Internet subscribers include Residential, Business and Wholesale. Dial-up Internet subscribers include Residential and Business. (11) Includes allocation of selling costs from Bell Canada and excludes costs of migrating from analog to digital. Cost of Acquisition (COA) per subscriber is reflected on a consolidated basis. (12) Wireless EBITDA margins are calculated based on total Wireless operating revenues (i.e. external revenues as shown on pages 10 and 11 plus inter-company revenues). >> For further information: Pierre Leclerc, Media Relations, (514) 391-2007, 1-877-391-2007, pierre.leclerc@bell.ca; Thane Fotopoulos, Investor Relations, (514) 870-4619, thane.fotopoulos@bell.ca; To request a free copy of this organization's annual report, please go to http://www.newswire.ca and click on reports@cnw.

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