MONTREAL -- Bell Canada's focus on profitable growth and improved cost reductions produced a quarter of continuing progress as BCE Inc. (TSX, NYSE: BCE - News News), Canada's largest communications company, today reported operating and financial results for the third quarter of 2006.

"A focus on profitable growth combined with ongoing cost reductions are important building blocks of our strategy," said Michael Sabia, President and Chief Executive Officer of BCE and Chief Executive Officer of Bell Canada. "Improvement in Bell's EBITDA(1) and EBITDA margin, as well as a solid increase in free cash flow, reflects the progress being made in setting the foundation for 2007."

Bell Canada reported revenues of $4,339 million in the third quarter, up 0.4% from the same quarter last year, driven by higher average revenues per user (ARPU) in residential growth services (wireless, video and high-speed Internet), as well as an expanding subscriber base in those services, improved revenue performance from the Bell Aliant Regional Communications Income Fund (Bell Aliant) and growth in revenues from wireless and Information, Communication and Technology (ICT) solutions in the Business segment. These results contributed to total BCE revenues of $4,422 million for the quarter ended September 30, 2006, an increase of 0.3% over last year.

Bell Canada reported operating income of $827 million in the quarter, which is $78 million lower than the same quarter last year, mainly as a result of charges associated to previously announced workforce reductions and the related closure of real estate facilities and employee relocations as well as the formation of Bell Aliant. These same factors resulted in operating income of $810 million for BCE in the third quarter, compared to $909 million for the same period last year.

Bell Canada EBITDA of $1,835 million is up 1.8% in the quarter, driven by higher ARPU in residential growth services, subscriber acquisitions and the achievement of efficiencies, such as lower total labour costs following workforce reductions, increased cost savings from supply chain and process- related efficiency initiatives and lower costs for wireless and video customer acquisitions. This contributed to BCE EBITDA of $1,840 million, an increase of $23 million over the same period last year. This represents the third quarter of sequential EBITDA growth.

Bell Canada EBITDA margin improved in the quarter to 42.3% from 41.7% in the third quarter of 2005. This is an important performance achievement for Bell in light of the continued transformation of its revenue mix in an open and competitive market.

BCE cash from operating activities rose to $1,602 million in the quarter compared to $1,569 million for the same period last year. Combined with improved discipline in capital spending, this contributed to Free Cash Flow(2) of $449 million in the quarter, an increase of $207 million from the same period last year.

BCE earnings per share (EPS) were $0.36 for the quarter, compared to $0.48 for the same period last year, reflecting higher restructuring costs and other costs related mainly to the formation of Bell Aliant. EPS before restructuring and other items, net gains on investments and costs incurred to form Bell Aliant(3), which is the figure used for financial guidance purposes, reached $0.48 in the quarter, compared to $0.50 in the same period last year. Improved EBITDA performance helped offset the previously announced increase in pension cost, post-employment benefits cost and amortization expense, which was $0.03 higher this quarter compared to the third quarter of 2005.

"Progress was made on each of the fundamental drivers of our business strategy in the quarter," added Mr. Sabia. "We are focused on customer service performance and continue to strengthen installation and repair services and provide specialized training to our customer-facing employees. Our strategy is to combine customer service improvements with leading-edge products running on the most advanced networks in the market to build a company that delivers a differentiated customer experience."

BCE Inc. (Bell Canada) (NYSE/Toronto: BCE)