Bell Canada Ups Q2 Earnings 645000

MONTREAL -- Bell Canada's focus on profitability in both its wireline and wireless segments led to steady EBITDA growth as BCE Inc. (TSX, NYSE: BCE - News News), Canada's largest communications company, today reported results for the second quarter of 2007.

BCE achieved two key objectives this quarter, concluding its review of strategic alternatives while continuing to deliver on its business plan, with a particular focus on improving its wireless segment, according to Michael Sabia, Chief Executive Officer of Bell Canada.

"We concluded our review of strategic alternatives with the signing of a Definitive Agreement for BCE to be taken private by an investor group led by Teachers' Private Capital, Providence Equity Partners Inc., and Madison Dearborn Partners, LLC. The transaction is valued at $51.7 billion and offers BCE common shareholders $42.75 per share, a 40% premium over the undisturbed average trading price in the first quarter of 2007," Mr. Sabia said.

"In addition, our wireless business regained momentum after two difficult quarters with strong gross activations," Mr. Sabia said. "With forbearance pending in a number of our key markets, an improving wireline business and the introduction of the Bell Bundle, the company is now moving forward into the second half of the year on a solid foundation."

The Bell wireless segment(1) had 389,000 gross activations this quarter, a 6.0% increase compared to the same period last year and its best ever second quarter result. Net activations this quarter were 63,000, significantly higher than the 13,000 experienced in Q1 of this year. However, as a result of higher churn, net activations were lower than the 97,000 in Q2 2006. Wireless network revenues grew by 8.9% due to subscriber growth and a $3 increase in ARPU. Wireless EBITDA increased by 14.9% to $401 million with EBITDA flow-through of 69%. EBITDA margins on network revenues increased to 43.6%.

"We are pleased with the progress made in wireless this quarter," said George Cope, President and Chief Operating Officer of Bell Canada. "We were able to get our subscriber base growing again while continuing to deliver solid ARPU and EBITDA growth. Going forward, we must maintain momentum in our sales channels, continue to improve our handset line-up, promote our SOLO brand and renew our focus on reducing churn."

"We are also encouraged by the continued solid performance of our wireline services against our business plan," Mr. Cope said. "We had another quarter with fewer NAS losses than the previous year, good growth in video and high-speed Internet service revenues, and steady levels of cost savings as all units continued to focus on profitability."

Bell's residential unit had a strong quarter for winbacks accelerated by the establishment by the Canadian government in early April of new criteria relating to forbearance of local exchange services and the elimination of winback restrictions. Local access line (NAS) losses decreased for the second quarter in a row as Bell had moderating local line losses in its residential and SMB units and higher wholesale demand. The company expects its residential local access line losses will continue to stabilize throughout the balance of 2007 after it receives positive regulatory decisions on its forbearance applications. Some of these decisions could be issued as early as August 2007 and will provide Bell with the flexibility, among other things, to bundle, package and price local telephone services with other non-regulated services in its major markets.

Bell's residential high-speed Internet revenues grew this quarter due to a growing subscriber base and pricing initiatives. ARPU increases led to video revenue growth of 12.6% this quarter. Bell's SMB unit had higher VAS/VCIO revenues along with higher revenues from IP Broadband and high-speed Internet services. The Enterprise unit had higher IP Broadband service revenue as it continued to manage the pace of customer migrations to IP and was also able to continue to improve its margins on customer deals won. However, ICT hardware sales declined this quarter as lower margin opportunities were not pursued.

Bell delivered $122 million of cost savings this quarter across its wireline and wireless segments, continuing its commitment to cost reduction.

Financial Highlights

Bell's revenues were $3,648 million this quarter, an increase of 1.4% compared to Q2 2006. BCE's revenues increased by 1.5% to $4,438 million due to higher revenues at Bell, Bell Aliant and Telesat.

Bell's operating income was $681 million, a decrease of 1.0% compared to the same period last year as higher amortization and restructuring expense offset higher EBITDA(2). BCE's operating income increased 0.4% to $898 million as higher EBITDA offset higher amortization and restructuring expenses.

Bell's EBITDA grew by 3.2% to $1,398 million due to ARPU growth, cost reductions and lower pension expenses, more than offsetting the continued erosion of higher margin legacy voice and data services. BCE's EBITDA grew by 2.5% to $1,777 million this quarter due to EBITDA growth at Bell and Telesat.

BCE reported cash from operating activities of $1,414 million this quarter, or 8.6% higher than last year. Free cash flow(3) (FCF) this quarter was $236 million compared to FCF of $66 million last year, due to an increase in cash from operating activities and lower capital expenditures partly offset by an increase in dividends paid by Bell Aliant.

BCE's net earnings per share (EPS) was $0.83 for the quarter compared to $0.53 for the same period last year. The increase relates to a gain from Bell Aliant's sale of Aliant Directory Services (ADS), a favourable tax settlement and a lower number of BCE common shares outstanding partly offset by higher restructuring and other charges.

EPS before restructuring and other items, net gains on investments and costs incurred to form Bell Aliant(4), the figure used for financial guidance purposes, was $0.56 in the quarter, compared to $0.54 in the same period last year reflecting a lower number of BCE common shares outstanding.

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