Aliant strike, billing costs, reduce BCE profit

2/2/2005

 
MONTREAL - Fourth-quarter profit rose seven percent at BCE Inc. but results were dampened by the fallout from a strike at its Aliant Inc. unit in Atlantic Canada, and a new billing system for its wireless business, reports Canada's number one telecommunications group on Wednesday.

The owner of Bell Canada, the country's largest telephone company, reported net income of $417 million ($339 million), in the quarter ended Dec. 31, in line with analysts' consensus estimates. That was up from a profit of $386 million in the year earlier period.

The latest fourth-quarter profit figure included a $69 million gain on the purchase of the Canadian operations of 360networks, offset by costs of $69 million, mainly for the employee departure program at 54-percent-owned Aliant and other restructuring items.

Fourth-quarter revenue was $5 billion, up 3.5 percent from $4.8 billion.

For the full year 2004, BCE reported revenue of $19.2 billion, up 2.4 per cent and EBITDA of $7.6 billion, an increase of 2.1 per cent over the full year 2003.

"The past year was important for BCE as we laid the foundation to position Bell Canada for a new era of communications," said Michael Sabia, president and Chief Executive Officer of BCE Inc. "We delivered on our key strategic initiatives and met our guidance for financial performance in 2004. Overall, our progress in the year gives us confidence in the forward momentum of the company as outlined at our annual investor conference in mid-December."

The company's performance in 2004 and the outlook for 2005 and beyond were among the factors that led BCE in December to increase its common share annual dividend by $0.12, or 10 per cent.

In the fourth quarter, the company's revenue growth rate continued to improve. The quarter saw continued subscriber growth in wireless, video and DSL. In the year, the company added nearly one million new subscribers for its digital services. The growth in sales of bundles to consumers and value-added solutions to business customers continued during the quarter. Bell's voluntary separation program, which saw a staff reduction of over 5,000, was largely completed during the quarter. This says BCE will contribute to improving the company's competitiveness going forward.

"Reflecting on 2004, our challenge was to continue transitioning Bell to a new business model while at the same time delivering financial performance and operational progress," said Mr. Sabia. "Through the course of 2004 we believe we met that goal."

BCE's progress in 2004 included:

- BCE's rate of revenue growth during the year increased in each
consecutive quarter
- Bell's Galileo program began to have a growing impact across the
company, simplifying operations. Galileo is targeted to produce $1 to
$1.5 billion in annual savings by the end of 2006.
- Bell began the rollout of its Fibre-to-the-Node program to bring
abundant bandwidth to customers in the Quebec City to Windsor corridor.
- Bell Bundles continue to be well received by customers: 368,000 bundles
were sold in 2004, and 430,000 have been sold since the inception of
the offer.
- In the business sector, value-added solutions (VAS), many based on
Internet Protocol, are helping build strong relationships with
customers beyond the standard "connectivity" Bell traditionally
provides.

"We set out a clear plan of action for 2004 and the metrics by which we would measure our progress." said Mr. Sabia. "Throughout the year, we made progress despite operating challenges and an industry and market that continues to change rapidly. In 2005, we will continue to execute on that plan. We are satisfied that our progress in 2004 has established the underlying trajectory of the business that will lead to profitable growth going forward," concluded Mr. Sabia.

BCE Financial Performance

On a full year basis, excluding restructuring items as well as net gains on investments(4), operating income reached $4.2 billion. Earnings per share (EPS) was $2.02, an increase of 6.3 per cent over the previous year. On the same basis for the quarter, BCE's operating income was $961 million, and EPS was $0.45, representing an EPS increase of 7.1 per cent over the fourth quarter of 2003.
The most significant of the one-time restructuring items taken during the year was a charge of $985 million ($647 million after tax) in the third quarter, reflecting the cost of Bell's Voluntary Employee Departure Program. The departures, representing 10 per cent of Bell's workforce, are expected to provide annual savings of approximately $390 million going forward.
On a full-year basis including the restructuring items and net gains on investments, operating income decreased by 27.8 per cent to $3.0 billion. EPS was $1.65, a decrease of 13.2 per cent. On the same basis operating income in the fourth quarter was $835 million and EPS was $0.45, representing an EPS increase of 9.8 per cent from the same period last year.

Key Operational Achievements

Wireless

Despite challenges presented by the migration to a new billing platform, the company's wireless subscriber base grew by 513,000 subscribers in 2004, matching the growth recorded in 2003. We added 217,000 subscribers in the quarter, exceeding last year's fourth quarter level of net activations by 15 per cent.
Revenue for the full year was $2.8 billion, a 14.5 per cent increase over the previous year, driven by subscriber growth. Revenue in the quarter reached $742 million, an increase of 13 per cent over the fourth quarter of 2003.

EBITDA performance rose 29 per cent on a full year basis and by 20 per cent in the fourth quarter over the same periods last year. EBITDA margin increased to 41.5 per cent for the full year, up 5 points from 2003.

Wireless churn for the full year was 1.3 per cent, reflecting a 0.1 percentage point improvement compared to full year 2003. Churn for the fourth quarter was 1.4 per cent, unchanged from the same period last year.

The wireless unit is past the peak of the billing challenge. Bills are currently being sent on time, call volumes are substantially reduced and efforts are being made to return service to the high levels that Bell customers have come to expect.

Also during the quarter, Bell announced plans for the launch of a next- generation wireless data network that will feature speeds six times that which is currently available. Known as Evolution, Data Optimized (EVDO) the network will enable wireless services such as video mail, gaming, videoconference and digital streaming and telematics.

Video

Bell reached a significant milestone at the end of 2004, signing on its 1.5 millionth video customer.

For the full year, 116,000 new video customers were added, an increase of 40 per cent over 2003. Bell added 43,000 new video customers in the fourth quarter, 23 per cent better than the growth achieved in the fourth quarter in 2003.
For the full year, the increase in customers drove double-digit revenue growth for video, augmented by stronger marketing programs, solid churn at 1 per cent (0.8 per cent for the fourth quarter) and a $3 improvement in average revenue per user (ARPU). Bell has also seen a quarter-over-quarter downward trend in its video cost of acquisition.

Bell ended the year having signed access agreements with 335 multi- dwelling unit (MDU) buildings for its very high-speed DSL (VDSL) service, well ahead of its target for the year of 300 buildings. More than half of new VDSL customers are also signing up for Sympatico High Speed service.

High-Speed Internet (DSL)

The company's digital subscriber line (DSL) high-speed Internet business ended 2004 with 1.8 million customers, an increase of 24 per cent over the previous year. On a full year basis, 350,000 new customers were added slightly less than in 2003. During the fourth quarter, 91,000 new customers were added, slightly above last year.

Growth of value added services (VAS) sold to Sympatico DSL customers increased significantly during the full year and the fourth quarter. The year ended with a total of 624,000 subscriptions, more than double year end 2003 and there were 337,000 net VAS additions in the fourth quarter alone. Nearly one out of every four DSL customers takes at least one VAS.

The Sympatico.msn.ca site continues to be a leading portal in the country with 16 million unique visitors every month. Revenue from the portal increased by nearly 50 per cent in 2004 compared to the previous year. Demonstrating that the way customers are using the feature-rich site is changing, there has been a three-fold increase (2004 vs. 2003) in the use of video streaming. In 2004, customers downloaded 7.4 million video streams, compared to just 2.4 million in 2003.

Consumer

The consumer segment achieved profitable growth, revenues were up 4.2 per cent and operating income increased 5 per cent for the year. The segment focused on establishing and deepening long-term relationships with customers across all its product lines.

Adoption of the Bell "Digital Bundle" (a combination of video, wireless and high-speed Internet services) continued to accelerate through 2004 and in the fourth quarter. For the full year, customers purchased 368,000 new bundles. In the fourth quarter, customers purchased 118,000 new bundles and 49 per cent of these customers added at least one new service.

Since the inception of the offering, the company has sold 430,000 Bell Bundles. In the coming months, Bell will continue to drive Bell Bundle growth levels toward its target of 1 million bundles sold by the end of 2005.

Also driving the growth in bundle sales is a special long distance offer introduced by Bell in June of 2004. The offer is a $5/month long distance calling plan for 1,000 minutes of calling anywhere in Canada and the United States, exclusively available to Bell Bundle customers. By the end of 2004, 229,000 customers had signed up for the long distance offer.

Business

In the Business Segment, the company continued to make progress in the adoption of its VAS and Internet Protocol (IP)-based services. Operating income in the Business Segment increased by 15 per cent in 2004, compared to 2003.

Enterprise

The migration of Bell customers to IP accelerated throughout the year. The Group doubled the data and VAS revenue delivered over IP as a percentage of total data revenues from 22 per cent in 2003 to 43 per cent in 2004.

Since the beginning of the New Year, Bell has joined with several leading Canadian organizations to announce large-scale IP implementation projects. A significant sales achievement for the quarter is the agreement signed with IBM Canada Ltd. through which Bell will restructure and upgrade the bandwidth of IBM's IP VPN (Virtual Private Network) Network. The network will continue to link IBM's various processing centres in Canada and the United States but with 600 Mbps of bandwidth. Bell also won a five-year $5.8 million contract with La Senza Inc for an IP VPN network with 280 sites.

Last week, Bell announced an $84 million contract with BMO Financial Group for the implementation of a national IP network that will see 1100 branches convert to the new technology. Several days earlier, the Universite du Quebec a Montreal (UQAM) launched its Bell-provided "Convergence Network", the province's largest University IP Network with 4000 lines.

These contracts represent major sales for Bell and signal growing customer adoption of IP-based solutions. They closely follow another major IP contract signed with Manulife Financial in December 2004. The company now has 145,000 voice IP lines in service.

The Value Added Solutions portfolio continues to experience significant growth and 65 per cent of Bell's large Enterprise customers now use at least one element of the VAS portfolio.

Significant VAS contract sales in the fourth quarter included a three- year $66 million contract with the Federation des Caisses Desjardins du Quebec for a managed point of sale solution supporting debit/credit transactions on a national basis.

Bell West

In 2004, Bell in the west has focused on providing a full suite of wireline, wireless and satellite solutions to business customers throughout British Columbia and Alberta. The company has adopted an integrated sales model where wireline and wireless sales are offered and managed through a single point of contact, something not currently offered by its primary competitor in this market.

Mechanical construction of the Supernet was completed in December and Bell is developing advanced IP applications that will run over this state-of- the-art network.

The closing of Bell's purchase of 360networks Corporation was completed in November, greatly augmenting the company's on-net capabilities in the two provinces and significantly expanding its customer base.

Telesat Canada

Revenue at Telesat for the full year reached $362 million, an increase of 4.9 per cent over 2003. Full year operating income of $141 million was up 13.7 per cent over 2003. In the fourth quarter, revenue totaled $102 million, representing a 3 per cent increase versus the comparable quarter in 2003. Operating income for the quarter reached $37 million, an increase of 12.1 per cent.

Telesat's Anik F2 satellite began commercial operation and became the world's first satellite to commercialize the Ka band. This frequency band delivers two-way broadband services enabling high-speed satellite service to consumers and businesses in Canada and the United States.

Telesat also has two satellites pending launch. The Anik F1-R has been constructed and is now in testing phase with launch planned for this summer and commercial service to begin in the fall. Anik F3 is currently under construction for a planned launch in the latter half of 2006.

Bell Globemedia

Revenue at Bell Globemedia for the full year reached $1.4 billion, an increase of 4.2 per cent over 2003. Full year operating income of $240 million was up 43.7 per cent over 2003. In the quarter, revenue increased by 8 per cent to reach $405 million and operating income in the quarter reached $103 million, an increase of 56.1 per cent.

With 16 of the top 20 regularly-scheduled programs in the country last fall, CTV saw its television advertising revenue grow by 8 per cent for the full year. Another contributing factor was the NHL lockout, which led hockey sponsors to seek alternate advertising opportunities on CTV.

At The Globe and Mail, print revenue was solid in the quarter with national advertising up 27 per cent over the same period in 2003. There was also double-digit growth in revenues from the newspaper's on-line properties. The latest NADBank release shows solid increases in readership in the core target audience and The Globe and Mail now has double The National Post's weekday readership.




Back to headlines  |  Email this article to a friend  |  Comment on this article