/FIRST AND FINAL ADD - MO287 - BCE INC. EARNINGS/ CASH FROM OPERATING ACTIVITIES Cash from operating activities increased 0.6% or $10 million to $1,828 million in Q3 2004, compared to Q3 2003, with the receipt of a $75 million settlement payment from MTS being almost entirely offset by unfavourable changes in working capital. Working capital in Q3 2004 has been impacted by the new billing platform which resulted in anticipated delays in invoicing at quarter-end. Working capital is expected to return to a more normalized level by year end. In the first nine months of 2004, cash from operating activities decreased 3.6% or $158 million to $4,212 million, compared to 2003, as the settlement payment from MTS and improved operating performance were more than offset by less favourable changes in working capital. CAPITAL EXPENDITURES We continue to make investments to expand and update our networks and to meet customer demand for new services. Capital expenditures were $811 million in Q3 2004, or 17.0% of revenues. This was relatively stable compared with capital expenditures of $791 million, or 17.1% of revenues, for the same period last year. In the first nine months of 2004, capital expenditures were $2.3 billion, or 16.3% of revenues, up from $2.1 billion, or 15.0% of revenues, for the same period last year. The increase reflects a mix of higher spending in the growth businesses and reduced spending in the legacy areas. In addition, the increase in capital expenditures for the quarter reflected construction of Telesat's new satellites, the main one being Anik F2. Declines in capital spending at Aliant resulted from the work disruption. Bell Canada's consolidated capital intensity ratio increased to 17.5% in Q3 2004 (16.3% in the first nine months of 2004), compared to 17.0% in Q3 2003 (15.4% in the first nine months of 2003). Bell Canada's consolidated capital expenditures accounted for over 85% of our consolidated capital expenditures in the first nine months of 2004 and over 90% of our consolidated capital expenditures in the first nine months of 2003. OTHER INVESTING ACTIVITIES Cash from other investing activities of $133 million in the first nine months of 2004 included $179 million of insurance proceeds that Telesat received for a malfunction on the Anik F1 satellite. Cash from other investing activities of $155 million in Q3 2003 included: - $83 million of proceeds from the settlement of dividend rate swaps. These swaps hedged dividend payments on some of BCE Inc.'s preferred shares. - $62 million of insurance proceeds that Telesat and ExpressVu received for a malfunction on the Nimiq 2 satellite. COMMON DIVIDENDS We paid a dividend of $0.30 per common share in Q3 2004. This was the same as the dividend we paid in Q3 2003. We realized a cash benefit of $16 million in Q3 2003 ($55 million in the first nine months of 2003) because we issued treasury shares to fund BCE Inc.'s dividend reinvestment plan instead of buying shares on the open market. Effective Q1 2004, we started buying all of the shares needed for the dividend reinvestment plan on the open market to avoid dilution. This removed any further cash benefits related to issuing treasury shares. As a result, total dividends paid on common shares increased 6.9% or $18 million to $277 million in Q3 2004, compared to Q3 2003 and 7.9% or $61 million to $831 million in the first nine months of 2004, compared to 2003. BUSINESS ACQUISITIONS We invested $646 million in business acquisitions in Q3 2004. This consisted entirely of Bell Canada's acquisition of MTS's 40% interest in Bell West. Bell Canada now owns 100% of Bell West. Investments of $306 million in the first half of 2004 consisted of: - business acquisitions at Bell Canada of $138 million, which included purchases in the Enterprise and SMB business units - our 28.9% proportionate share of the cash paid for CGI's acquisition of AMS of $168 million. We invested $73 million in business acquisitions during the first nine months of 2003. This consisted mainly of our proportionate share of the cash paid for CGI's acquisition of Cognicase Inc. BUSINESS DISPOSITIONS We received $55 million for business dispositions during the first nine months of 2003 for Bell Canada's sale of its 89.9% ownership interest in Certen Inc. (Certen). Bell Canada received $89 million in cash, which was reduced by $34 million of Certen's cash and cash equivalents at the time of sale. CHANGE IN INVESTMENTS ACCOUNTED FOR UNDER THE COST AND EQUITY METHODS In Q3 2004, we sold our remaining 3.24% interest in YPG General Partner Inc. for net cash proceeds of $123 million and our 15.96% interest in MTS for net cash proceeds of $584 million. EQUITY INSTRUMENTS During the first nine months of 2003, BCE Inc. issued 20 million Series AC preferred shares for $510 million and redeemed 14 million Series U preferred shares for $357 million, which included a $7 million premium on redemption. DEBT INSTRUMENTS We issued $85 million of debt (net of repayments) in Q3 2004. We made $217 million of debt repayments (net of issues) in the first nine months of 2004. The repayments were mainly at Bell Canada, BCE Inc. and Bell Globemedia. At Bell Canada, the repayments included the Series M-15 debentures for $500 million and the Series DU debentures for $126 million. In addition, in 2004, BCE Inc. redeemed all of its outstanding Series P retractable preferred shares for $351 million. The issuances were mainly at Bell Canada and Bell Globemedia. At Bell Canada, the issuances included the Series M-17 debentures for $450 million. At Bell Globemedia, the issuances included $300 million of senior notes. At September 30, 2004, BCE had approximately $1.4 billion of cash on hand. A portion of this cash will be used to repay $425 million of debt maturing at Bell Canada in Q4 2004, all of which was paid in October 2004. The remaining cash on hand will be used primarily for capital expenditures, dividend payments and the payment of contractual obligations in 2005. CASH RELATING TO DISCONTINUED OPERATIONS In the first nine months of 2004, cash provided by discontinued operations of $196 million consisted mainly of the net cash proceeds of $315 million from the sale of our investment in Emergis which were partly offset by the deconsolidation of Emergis' cash on hand of $137 million at December 31, 2003. CREDIT RATINGS In June 2004 Standard & Poor's (S&P) upgraded BCE Inc.'s preferred shares rating. The table below lists BCE Inc.'s and Bell Canada's key credit ratings at November 2, 2004. > LIQUIDITY Our ability to generate cash in the short term and in the long term, when needed, and to provide for planned growth and to fund development activities, depends on our sources of liquidity and on our cash requirements. Our sources of liquidity and cash requirements remain substantially unchanged from those described in the BCE 2003 MD&A, except for those listed below. Commitment under deferral account The deferral account is a new mechanism resulting from the CRTC's price cap decision of May 2002, which will be used to fund initiatives such as service improvements, reduced rates and/or rebates. We estimate our commitment relating to the deferral account to be approximately $195 million at September 30, 2004. Employee departure program Under both phases of the program, employees are entitled to receive a special cash allowance. This will result in total cash payments of approximately $314 million which we expect to pay in the coming months. The program will reduce Bell Canada's pension plan surpluses, which may, subject to plan returns and the next periodic actuarial valuation, affect future funding requirements. Provision for contract loss In 2001, we entered into a contract with the Government of Alberta to build a next generation network to bring high-speed internet and broadband capabilities to rural communities in Alberta. This contract is accounted for using the percentage of completion method. During the second quarter of 2004, as part of our regular update of the estimated costs to complete construction of the network, potential cost overruns were identified. Construction is to be complete in late 2004. The costs of this last phase of construction are higher than previously estimated, due to changes necessitated in construction methods to connect individual government buildings to the network and higher average costs of construction. We recorded a provision of $110 million for this contract in the second quarter of 2004. Our estimated costs to complete are unchanged at September 30, 2004. Agreement to purchase Canadian operations of 360networks Corporation In May 2004, Bell Canada announced an agreement to purchase the Canadian operations of 360networks Corporation for $275 million in cash. The purchase includes the shares of 360networks' subsidiary GT Group Telecom Services Corporation, and certain related U.S. interconnect assets. Bell Canada plans to retain all of 360networks' business, facilities and customer base in western Canada, and has an agreement to sell the retail customer operations and certain assets in central and eastern Canada to Call-Net Enterprises Inc. while continuing to provide network and other services to the central and eastern customer base for a share of future revenues. All regulatory approvals have been obtained and we expect to close the transaction in November 2004, subject to usual closing conditions. RECENT DEVELOPMENTS IN LEGAL PROCEEDINGS This section provides a description of new legal proceedings involving BCE and of recent developments in certain of the legal proceedings involving BCE described in the BCE 2003 AIF as subsequently updated in BCE Inc.'s 2004 First Quarter MD&A dated May 4, 2004 (BCE 2004 First Quarter MD&A) and BCE Inc.'s 2004 Second Quarter MD&A dated August 3, 2004 (BCE 2004 Second Quarter MD&A). LAWSUITS RELATED TO BELL CANADA Potential Class Action Concerning Wireless Access Charges On August 9, 2004, a statement of claim was filed under the Class Actions Act (Saskatchewan) in the Court of Queen's Bench, Judicial Centre of Regina, Saskatchewan by certain alleged customers or former customers of Bell Canada and other Canadian telecommunications providers ("Canadian Telcos") for wireless and cellular services. The lawsuit has not been certified as a class action and it is too early to determine whether it will qualify for certification. The statement of claim alleges breach of contract and duty to inform, breach of warranties and covenants, deceit, misrepresentation, negligence, wrongful acts and omissions, collusion, and breach of statutory duty or obligation under the Competition Act (Canada), in connection with certain "system access fees" and "system licensing charges" invoiced by Bell Canada and the other Canadian Telcos to their customers. The plaintiffs seek unspecified damages and punitive damages from Bell Canada and the other Canadian Telcos. While no one can predict the outcome of any legal proceeding, based on information currently available, we believe that we have strong defences and we intend to vigorously defend our position. Potential Class Action Concerning Bell Mobility Billing System On October 28, 2004, a motion seeking certification to proceed as a class action against Bell Mobility, a wholly-owned subsidiary of Bell Canada, was filed with the Quebec Superior Court. The lawsuit has not been certified to proceed as a class action and it is too early to determine whether it will qualify for certification. The lawsuit was filed on behalf of all physical persons residing in the Province of Quebec, who entered into a contract with Bell Mobility for the provision of wireless telephone services, and alleges that such persons have unjustly incurred expenses as a result of billing errors made by Bell Mobility or as a result of Bell Mobility wrongfully disconnecting service to such customers. In addition to the reimbursement of such expenses, the class action would, if authorized, also seek payment of damages by Bell Mobility in the amount of $100 per class member of inconvenience as well as punitive damages in the amount of $200 per class member. While no one can predict the outcome of any legal proceeding, based on information currently available, we believe that we have strong defences and we intend to vigorously defend our position. Bell Distribution Inc. lawsuit On September 1, 2004, Bell Distribution Inc.'s franchisees and Bell Canada entered into an agreement for the settlement of this action. LAWSUITS RELATED TO TELEGLOBE INC. (TELEGLOBE) Teleglobe lending syndicate lawsuit As indicated in the BCE 2003 AIF, a lawsuit was filed in the Ontario Superior Court of Justice on July 12, 2002 against BCE Inc. by certain of the members of the Teleglobe and Teleglobe Holdings (U.S.) Corporation lending syndicate. On November 2, 2004, two of the plaintiffs, Canadian Imperial Bank of Commerce and Canadian Imperial Bank of Commerce, N.Y. Agency, which had advanced approximately U.S.$104 million to Teleglobe and Teleglobe Holdings (U.S.) Corporation, filed a notice of discontinuance with the Court and are therefore no longer plaintiffs in this action. The damages sought by the remaining plaintiffs now amount to approximately U.S.$1.09 billion (down from approximately U.S.$1.19 billion), plus interest and costs, representing approximately 87% (down from approximately 95%) of the U.S.$1.25 billion that the members of that lending syndicate advanced to Teleglobe and Teleglobe Holdings (U.S.) Corporation. Teleglobe unsecured creditors lawsuit As indicated in the BCE 2004 Second Quarter MD&A, a lawsuit was filed in the United States Bankruptcy Court for the District of Delaware against BCE Inc. and ten former directors and officers of Teleglobe and certain of its subsidiaries on May 26, 2004. The plaintiffs are comprised of Teleglobe Communications Corporation, certain of its affiliated debtors and debtors in possession, and the Official Committee of Unsecured Creditors of these debtors. The lawsuit alleges breach of an alleged funding commitment of BCE Inc. towards the debtors, promissory estoppel, misrepresentation by BCE Inc., and breach and aiding and abetting breaches of fiduciary duty by the defendants. By order dated September 8, 2004, the automatic reference of this action to the Bankruptcy Court was withdrawn and the action is now pending in the District Court for the District of Delaware. On September 15, 2004, BCE Inc. and the other defendants filed a motion to dismiss the action for lack of standing and for failure to state a claim. BCE Inc. and the other defendants also contend that plaintiffs should not be allowed to transform a contract claim into tort claims. On October 14, 2004, the Court denied defendants' motion to stay discovery pending disposition of defendants' motion to dismiss. LAWSUITS RELATED TO BELL CANADA INTERNATIONAL INC. (BCI) BCI common shareholders lawsuits As indicated in the BCE 2003 AIF, an appeal to the Ontario Court of Appeal was filed in March 2004 by the plaintiffs in two lawsuits seeking damages from BCE Inc. and BCI in connection with the issue of BCI common shares under BCI's recapitalization plan and the implementation of BCI's plan of arrangement. These lawsuits had been dismissed on January 5, 2004 by the Ontario Superior Court of Justice as failing to disclose a reasonable cause of action against BCE Inc. or BCI, and abused the process of the court, and ordering that neither of the two plaintiffs may amend his statement of claim to bring these lawsuits before the court again. As indicated in the BCE 2004 Second Quarter MD&A, the appeal was heard on July 12, 2004, and on July 23, 2004 the Ontario Court of Appeal issued its decision and reasons, upholding the lower court's decision and dismissing the lawsuits as failing to disclose a reasonable cause of action. On September 29, 2004, the plaintiffs filed an application with the Supreme Court of Canada seeking leave to appeal the decision of the Court of Appeal for Ontario, and indicated, in their application, that if the appeal court decision is reversed, they intend to proceed with only one of the actions. The defendants have filed joint responding materials. LAWSUITS RELATED TO BELL GLOBEMEDIA As indicated in the BCE 2003 AIF, on February 5, 2001, Bell Globemedia Publishing Inc., a subsidiary of Bell Globemedia, was added as a defendant to a $100 million class action lawsuit relating to copyright infringement. The claim is that the defendants (which include The Globe and Mail newspaper and magazines it publishes) do not have the right to archive and publish certain freelanced and employee material from the newspaper or magazines in any format other than print. On October 3, 2001, the Ontario Superior Court of Justice rejected the plaintiff's motion for partial summary judgment (including the rejection of a requested injunction at this stage) on certain proposed common issues. The plaintiff appealed this decision, and the defendants cross- appealed some issues. The Ontario Court of Appeal provided its majority decision on October 6, 2004, and affirmed the initial refusal of summary judgement. Both the plaintiff and the defendants have 60 days from October 6, 2004 to apply for leave to appeal to the Supreme Court of Canada. Risks That Could Affect Our Business A risk is the possibility that an event might happen in the future that could have a negative effect on the financial condition, results of operations, cash flows or business of one or more BCE group companies. Part of managing our business is to understand what these potential risks could be and to minimize them where we can. Because no one can predict whether an event will happen or its consequences, the actual effect of any event on our business could be materially different from what we currently anticipate. In addition, the risks described below and elsewhere in this MD&A do not include all possible risks, and there may be other risks that we are currently not aware of. In the BCE 2004 First Quarter MD&A, we provided a detailed review of the risks that could affect our financial condition, results of operations, cash flows or business and that could cause actual results to differ materially from those expressed in our forward-looking statements. This detailed description of risks was updated in the BCE 2004 Second Quarter MD&A and is further updated in this MD&A. These risks include risks associated with: - our ability to complete within our targeted timeframe, and the impact on our financial results of, the migration of our multiple service- specific networks to a single IP-based network; - our ability to implement our strategies and plans in order to produce the expected benefits and growth prospects, including meeting targets for revenue, earnings per share, free cash flow and capital intensity; - general economic and market conditions and the level of consumer confidence and spending, and the demand for, and prices of, our products and services; - the intensity of competitive activity from both traditional and new competitors, Canadian or foreign, including cross-platform competition, which is increasing following the introduction of new technologies such as Voice over Internet Protocol (VoIP) which have reduced barriers to entry that existed in the industry, and its resulting impact on the ability to retain existing, and attract new, customers, and on pricing strategies and financial results; - the ability to improve productivity and contain capital intensity while maintaining quality of services; - the ability to anticipate, and respond to, changes in technology, industry standards and client needs and migrate to and deploy new technologies, including VoIP, and offer new products and services rapidly and achieve market acceptance thereof; - the availability and cost of capital required to implement our financing plans and fund capital and other expenditures; - our ability to retain major customers; - our ability to find suitable companies to acquire or to partner with; - the impact of pending or future litigation and of adverse changes in laws or regulations, including tax laws, or in how they are interpreted, or of adverse regulatory initiatives or proceedings, including decisions by the CRTC affecting our ability to compete effectively, including, more specifically, decisions concerning the regulation of VoIP services; - the risk of litigation should BCE stop funding a subsidiary or change the nature of its investment, or dispose of all or part of its interest, in a subsidiary; - the risk of increased pension plan contributions resulting from Bell Canada's recent early retirement program and from the risk of low returns on pension plan assets; - our ability to manage effectively labour relations, negotiate satisfactory labour agreements, including new agreements replacing expired labour agreements, while avoiding work stoppages, and maintain service to customers and minimize disruptions during strikes and other work stoppages; - events affecting the functionality of our networks or of the networks of other telecommunications carriers on which we rely to provide our services; - stock market volatility; - our ability to increase the number of customers who buy multiple products; - our ability to implement the significant changes in processes, in how we approach our markets, and in products and services, required by our strategic direction; - Canadian government action in respect of the foreign ownership restrictions that apply to telecommunications carriers and to broadcasting distribution undertakings; - the risk that the amount of the expected annual savings relating to Bell Canada's recent employee voluntary departure program will be lower than anticipated due to various factors including the incurrence of outsourcing, replacement and other costs; and - launch and in-orbit risks, including the ability to obtain appropriate insurance coverage at favourable rates, concerning Telesat's satellites, certain of which are used by Bell ExpressVu to provide services. For a more complete description of the risks that could affect our business, please see the BCE 2004 First Quarter MD&A, as updated in the BCE 2004 Second Quarter MD&A and this MD&A, filed by BCE Inc. with the Canadian securities commissions ( available on BCE Inc.'s site at http://www.bce.ca/ and on SEDAR at http://www.sedar.com/ ) and with the U.S. Securities and Exchange Commission (SEC) under Form 6-K ( available on EDGAR at http://www.sec.gov/ ). Please refer to the BCE 2003 AIF filed by BCE Inc. with the Canadian securities commissions and with the SEC under Form 40-F for a detailed description of: - the principal legal proceedings involving BCE; - certain regulatory initiatives and proceedings concerning the Bell Canada companies. Please see Recent Developments in Legal Proceedings in this MD&A, in the BCE 2004 First Quarter MD&A and in the BCE 2004 Second Quarter MD&A for a description of new legal proceedings involving us and of recent developments, since the BCE 2003 AIF, in the principal legal proceedings involving us. In addition, please see Updates to the Description of Risks below, Updates to the Description of Risks in the BCE 2004 Second Quarter MD&A and Risks that could affect certain BCE group companies - Bell Canada companies - Changes to wireline regulations in the BCE 2004 First Quarter MD&A, for a description of recent developments, since the BCE 2003 AIF, in the principal regulatory initiatives and proceedings concerning the Bell Canada companies. UPDATES TO THE DESCRIPTION OF RISKS The following are updates to the description of risks contained in the section entitled Risks That Could Affect Our Business set out on pages 18 to 31 of the BCE 2004 First Quarter MD&A as updated in the BCE 2004 Second Quarter MD&A. For ease of reference, the updates to the description of risks below have been presented under the same headings and in the same order contained in the section entitled Risks That Could Affect Our Business set out in the BCE 2004 First Quarter MD&A. RISKS THAT COULD AFFECT ALL BCE GROUP COMPANIES RENEGOTIATING LABOUR AGREEMENTS A new collective agreement between Bell Canada and the CEP, representing approximately 7,100 craft and services employees, was signed on August 19, 2004 and will expire in November 2007. As well, a collective agreement between Aliant Telecom Inc. (a wholly-owned subsidiary of Aliant) and the CATU, representing approximately 4,300 employees, was signed on September 16, 2004 and will expire on December 31, 2007. Accordingly, the actual or potential adverse effects of the events preceding the execution of these collective agreements have now ceased to exist. RISKS THAT COULD AFFECT CERTAIN BCE GROUP COMPANIES BELL CANADA COMPANIES Contract with the Government of Alberta In 2001, we entered into a contract with the Government of Alberta to build a next generation network to bring high-speed internet and broadband capabilities to rural communities in Alberta. Construction is to be completed in late 2004. However, the final costs to complete the network will not be known until completion of the network and final acceptance by the Government of Alberta which is expected to occur during 2005. Changes to Wireline Regulations Decision on Incumbent Affiliates On September 23, 2003, the CRTC issued a decision that requires Bell Canada and its carrier affiliates to include a detailed description of the bundled services they provide to customers when they file tariffs with the CRTC. Bell Canada's appeal of this decision to the Federal Court of Canada was dismissed on September 14, 2004. As a result, Bell Canada is now re-filing tariffs for those contracts with bundles that have not yet expired in order to provide more detailed descriptions of the bundled services. Application seeking consistent regulation On November 6, 2003, Bell Canada filed an application requesting that the CRTC start a public hearing to review how similar services offered by cable companies and telephone companies are regulated. On April 7, 2004, the CRTC invited comments on its preliminary views regarding the regulation of VoIP services and invited interested parties to participate in a public consultation relating to the regulatory framework for VoIP. Bell Canada provided its comments to the CRTC on June 18, 2004. Between September 21 and September 23, 2004, the CRTC held the public consultation relating to the regulatory framework for VoIP. Bell Canada filed reply comments on October 13, 2004. A decision is expected in the first quarter of 2005. There is a risk that the CRTC might decide to regulate VoIP services provided by the Bell Canada companies and other Incumbent Local Exchange Carriers but not by certain other competitors. Accordingly, these proceedings could determine the rules for competition with other service providers, could affect the flexibility of the Bell Canada companies when competing in the future and could result in delays for launching new services as well as restrictions on our marketing flexibility (such as pricing rules, bundling restrictions, etc.) for such services. Licences for Broadcasting As indicated in the BCE 2004 Second Quarter MD&A, Bell Canada has applied to the CRTC for licences to operate broadcasting distribution undertakings, using its wireline facilities, to serve large cities in Southern Ontario and Quebec. The CRTC held a public hearing, as required under the Broadcasting Act, in August 2004. Cable operators were seeking delays to the licensing and other conditions that would inhibit Bell Canada's ability to compete with them. A decision is expected in November 2004. TELESAT Anik F2 As indicated in the BCE 2004 Second Quarter MD&A, on July 17, 2004, Telesat launched the Anik F2 satellite. It successfully entered commercial service, following commissioning and testing, in October 2004. Accordingly, the risks described in the BCE 2004 Second Quarter MD&A relating to Anik F2's construction, launch and commissioning no longer apply. Our Accounting Policies We have prepared our consolidated financial statements according to Canadian GAAP. See Note 1 to the consolidated financial statements for more information about the accounting policies we used to prepare our financial statements. The key estimates and assumptions that management has made and their impact on the amounts reported in the financial statements and notes remain substantially unchanged from those described in the BCE 2003 MD&A. We have not changed our accounting policies other than those described in the BCE 2003 MD&A and in Note 1 to the consolidated financial statements. > END FIRST AND FINAL ADD DATASOURCE: BCE INC. CONTACT: PRNewswire - Nov. 3

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