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BCE profit up; Globemedia grows, too; Bell cable testing in '05


MONTREAL - While posting solid second quarter results, video is taking centre stage when talking about the future for Bell Canada Enterprises as the company moves towards a terrestrial digital television offering, which its CEO says will look to trial in 2005.

With Canadian cable companies committed to telephony launches in 2005, BCE has to make a bigger push into TV distribution, says the company's CEO, Michael Sabia.

"(Cable operators) want to have a presence in our core business, which is telephone. We want to have a presence in their core business, which is video," he said. And, "that video expansion is going very well. We're very satisfied with the progress."

For the second quarter of 2004, BCE reported revenue of $4.78 billion, up 2.3%, and earnings before interest, taxes, depreciation and amortization of $1.95 billion, up 3.1% when compared to the same period last year. Operating income reached $1.11 billion.

The company's earnings performance was predicated on two factors. First was growth in revenues and margins in areas such as wireless, DSL (digital subscriber line high speed Internet) and video. Second, Bell has laid the foundation to deliver profitable medium-term growth in enterprise IP connectivity and valued-added services and in the medium and small business market, said Sabia.

On what the company now terms its "video" business, which is nearly all Bell ExpressVu, with some VDSL-served multiple dwelling units (MDUs), Bell said revenues increased 11% in the quarter, ended June 30, 2004 - due to customer additions and rate increases - to $211 million. Bell added 24,000 subscribers in the quarter, a 33% higher activation rate compared to Q2 2003. The company also reported increased video digital subscriber lines (VDSL) sales. Bell counted 1,427,000 video customers at the end of the quarter.

Growth in the company's video division will come through a terrestrial option. As reported earlier this year, Bell has applied for cable licenses from Windsor to Quebec City (and will likely get them). In a conference call with reporters today, Sabia expanded on the timing and potential costs to implement the video over twisted pair television.

Terrestrial video is "another important piece in broadening the puzzle for us - being able to provide video to the home on a basis that is somewhat broader than just direct to home satellite," he said.

"There are technology issues here, where – one - we need to expand the bandwidth in our residential network and that's why we're installing this year, I think, 400 remote DSLAMs which will begin the process of expanding our bandwidth capabilities - and second - we are also working with a number of software firms, notably Microsoft, and also with equipment vendors with respect to the delivery of video and various compression technologies that are necessary to make the most efficient use of the bandwidth.

"As we work through those issues - if we're able to secure the (CRTC) license, and we'll have to see how the technology issues resolve themselves - hopefully we could be testing things, trialing things through the course of next year but decisions with respect to a commercial launch of that will depend on the kind of progress that we make with respect to the technology issues."

And the cost? "To date, other than on VDSL, it's been a pretty modest commitment of capital because we don't want to commit ourselves from a capital point of view until we're satisfied with the technologies," said Sabia. "But, once we are, we'll make a commitment to it and go forward and what with bandwidth and terrestrial TV service itself it would certainly be in the hundreds of millions."

On the Internet side, Sympatico DSL High-Speed Internet subscribers grew by 30% compared to the second quarter of 2003 to reach 1.7 million across Ontario and Quebec. Consumer DSL had the strongest second quarter ever. In total the company added 73,000 new customers. Subscriptions to value-added services, such as Desktop Anti-Virus and Desktop Firewall, increased by 86,000 in the quarter to reach 433,000.

"Momentum continues to build across the company as we work to expand our business and broaden and enhance our offerings to customers," said Mr. Sabia. "We are continuing to simplify our operations, partnering with world-class companies, adopting innovative approaches to reinventing our businesses, making strategic investments to augment our capabilities, and driving new technologies that enable us and our customers."

Bell's other media industry division, it's 70%-owned Bell Globemedia, revenues there were up 3.9%. Television and print advertising revenues improved by 8.3% and 2% respectively, said the release. Bell Globemedia owns such assets as CTV, TSN, Comedy Network, Animal Planet and the Globe and Mail.

In that conference call, Sabia said he was pleased with the performance of Globemedia, pointing to ratings wins at CTV which helped drive up revenue, as well as the fiscal prudence being shown by the division.

"A whole series of cost management initiatives that have been under way in Globemedia for some time… continue to pay significant dividends to us in terms of the cost performance of the company," he said.

However, Sabia would not be budged one way or the other on whether or not the Globemedia division is for sale or whether he's leaning towards keeping it. He said the division has "great assets, great brands in Canada," and BCE is looking at "how content and relationships with content – what role they'll play in the distribution relationships in the future," but then reiterated Globemedia's status has not changed.

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