SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 under

the Securities Exchange Act of 1934

 

For the month of: March 2020    Commission File Number: 1-8481

BCE Inc.

(Translation of Registrant’s name into English)

1, Carrefour Alexander-Graham-Bell, Verdun, Québec, Canada H3E 3B3,

(514) 870-8777

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F                        Form 40-F       X      

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): _____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): _____

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

          Yes                                        No       X      

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _____.

 

 

Notwithstanding any reference to BCE Inc.’s Web site on the World Wide Web in the documents attached hereto, the information contained in BCE Inc.’s site or any other site on the World Wide Web referred to in BCE Inc.’s site is not a part of this Form 6-K and, therefore, is not furnished to the Securities and Exchange Commission.

 

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

BCE Inc.

(signed) Glen LeBlanc

Glen LeBlanc

Executive Vice-President and Chief Financial Officer

March 11, 2020

 

 

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EXHIBIT INDEX

 

99.1

 

News Release

99.2

 

Annual Report of BCE Inc. for the year ended December 31, 2019

99.3

 

Code of Business Conduct

 

 

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NEWS RELEASE

Exhibit 99.1

 

       

For Immediate Release

BCE files 2019 annual report on Form 40-F

MONTRÉAL, March 11, 2020 – BCE Inc. (TSX, NYSE: BCE) today announced the filing of its 2019 annual report on Form 40-F with the U.S. Securities and Exchange Commission (SEC).

BCE’s Form 40-F includes audited financial statements for the year ended December 31, 2019, and is available on BCE’s website at BCE.ca in the Investors section and on the SEC’s website at SEC.gov.

Holders of BCE securities may receive a printed copy of BCE’s audited financial statements at no charge by contacting BCE Investor Relations by phone at 1-800-339-6353, by email at investor.relations@bce.ca or by mail at 1, carrefour Alexander-Graham-Bell, Building A, 8th Floor, Verdun, Québec H3E 3B3.

About BCE

BCE is Canada’s largest communications company, providing advanced Bell broadband wireless, TV, Internet and business communications services alongside Canada’s premier content creation and media assets from Bell Media. To learn more, please visit Bell.ca or BCE.ca.

The Bell Let’s Talk initiative promotes Canadian mental health with national awareness and anti-stigma campaigns like Bell Let’s Talk Day and significant Bell funding of community care and access, research and workplace leadership initiatives. To learn more, please visit Bell.ca/LetsTalk.

Media inquiries:

Marie-Eve Francoeur

514-391-5263

marie-eve.francoeur@bell.ca

Investor inquiries:

Thane Fotopoulos

514-870-4619

thane.fotopoulos@bell.ca

ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2019
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Exhibit 99.2

 

Building Better Experiences BCE Inc. 2019 Annual Report


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OUR GOAL AND STRATEGY

Our goal is to advance

how Canadians connect with

each other and the world

 

        

     

In a new world of communication possibilities, Bell is committed to bringing the best digital connections and next-generation services to Canadians, with customer experience at the centre of everything we do. Underscoring our strengths and opportunities, Bell’s 6 Strategic Imperatives position us to deliver continued success in a fast-changing communications marketplace.

 

  1. Build the best networks
  A critical competitive advantage as we continue to enhance Bell’s network leadership with the expansion of our fibre and wireless networks, including 5G.
      
  2. Drive growth with innovative services
  Leveraging our leading networks to provide truly differentiated communications services to Canadians and drive revenue growth.
      
  3. Deliver the most compelling content
  Taking a unified approach across our media and distribution assets to deliver the content Canadians want the most.
      
  4. Champion customer experience
  Making it easier for customers to do business with Bell at every level, from sales to installation to ongoing support.
      
  5. Operate with agility and cost efficiency
  Underscoring a focus on operational excellence and cost discipline throughout every part of our business.
      
  6. Engage and invest in our people
  Strengthening our leading workplace culture, recognizing that Bell’s success requires a dynamic and engaged team.

 

    

 

 

    

 

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Our 2019 results were in line with our financial guidance targets, and our 2020 guidance builds on this strong competitive momentum and positive financial and operational outlook for all our operating segments.

 

2019 financial performance

           
     

Actual

 

  

Target

 

           

Revenue growth

   2.1%    1%–3%        

Adjusted EBITDA (1) growth

   6.0%    5%–7%        

Capital intensity

   16.6%    ~16.5%        

Adjusted EPS (1)

   $3.50    $3.48–$3.58        

Free cash flow (1) growth

   7.0%    7%–12%        

Driving growth in shareholder value

 

 

    

(1)  Adjusted EBITDA, adjusted EPS, free cash flow and dividend payout ratio are non-GAAP financial measures and do not have any standardized meaning under International Financial Reporting Standards (IFRS). Therefore, they are unlikely to be comparable to similar measures presented by other issuers. For a full description of these measures, see section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) on pp. 105 to 108 of the MD&A.

 

(2)  The change in BCE’s common share price for a specified period plus BCE common share dividends reinvested, divided by BCE’s common share price at the beginning of the period.

  

 

        

 

 

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FINANCIAL AND OPERATIONAL HIGHLIGHTS

Network and service innovation

is driving customer growth

 

        

     

 

With the highest-performance networks and unmatched new services and content, Bell is building a better communications experience at home, in the workplace and on the go.

And customers are responding: In 2019, Bell welcomed the industry’s highest number of new subscribers across the growth services of retail Internet, IPTV and wireless and diligently managed the decline in traditional home phone and other legacy services.

The speed and quality of Canada’s Best National Mobile Network drove unparalleled gains in both postpaid and prepaid wireless, Internet growth accelerated with the fastest consumer home Internet service available, while Fibe TV and Alt TV are winning customers over with leading product and programing innovations.

BCE retail subscribers

(millions)

 

  

2019

 

  

2018

 

  

Change

 

Wireless    9.96    9.61    +3.6%
High-speed Internet (1)    3.56    3.41    +4.3%
Television (1)    2.77    2.77    +0.2%
Total growth services subscribers: retail Internet, IPTV and wireless    16.29    15.79    +3.2%
Local residential telephone services (1) (2)    2.70    2.96    (8.9%)
Total (2)    18.98    18.75    +1.3%
 

 

 

(1)   Excludes wholesale subscribers.

 

(2)   Excludes business telephone services.

  

 

    

 

    

 

 

    

  

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FINANCIAL AND OPERATIONAL HIGHLIGHTS

Marketplace momentum delivers

solid financial performance

 

        

     

With strong momentum in a highly competitive market environment, Bell’s wireless, wireline and media operating segments all contributed to increases in revenue and adjusted EBITDA, supporting growth in the free cash flow that fueled our capital investment program and dividend growth for shareholders.

 

 

 

(1)   Adjusted net earnings is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. For a full description of this measure, see section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) on p. 105 of the MD&A.  

For more information, please refer to section 7 on page 83 – Selected annual and quarterly information of the MD&A.

 

        

 

 

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MESSAGE FROM THE CHAIR OF THE BOARD

 

  

BCE ready for the new era of

communications opportunity

 

        

     

  

 

As Canada’s enduring communications leader, BCE delivers the networks, products and support that provide exceptional value to consumers, businesses and governments in every region, and the execution that delivers strong results and sustainable value to our shareholders. As the communications industry enters an exciting new phase of innovation and opportunity, the Bell group of companies will be ready to deliver the benefits to all stakeholders.

 

BCE is renowned for its strong management team, and we are pleased to welcome seasoned Bell executive Mirko Bibic as our new President and Chief Executive Officer. The 14th chief executive in the 140-year history of our great Canadian company, Mirko brings to the role the vision, skills and experience necessary to build on Bell’s proven strengths and embrace the new opportunities of the future.

 

Working closely with his predecessor George Cope, Mirko has been at the centre of Bell’s resurgence over the last decade as a formidable competitor in the marketplace and the industry’s innovation and investment leader. As our Chief Operating Officer, Mirko led the Bell business units in delivering outstanding growth in new customers and driving a strong financial performance for BCE in 2019.

 

A solid financial performer

 

Each of BCE’s wireless, wireline and media segments contributed to growth in revenue, adjusted EBITDA and free cash flow in 2019, and this steady financial and operating momentum is reflected in our growth targets for 2020. We have a positive business outlook and the foundation of an investment-grade balance sheet, substantial liquidity position and fully funded pension plan. Together with government and regulatory policies that support investment, BCE is well positioned to continue our ambitious network capital investment program and deliver consistent dividend growth to our shareholders.

 

Our latest 5% increase in the BCE common share dividend to $3.33 is effective with the Q1 2020 payment on April 15, 2020. This is the 12th consecutive year in which we have increased the dividend by 5% or more while maintaining our payout ratio within the target policy range of 65% to 75% of free cash flow. Our total shareholder return over that timeframe has been 324%.

 

    

 

 

    

  

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At the same time, Bell continued our industry-best investments in network deployment, service enhancement and communications research and development. The rollout of our world-leading all-fibre network across 7 provinces continues apace alongside our unprecedented deployment of broadband Internet service to rural Canada. And we continued to enhance Bell’s 4G wireless network as we laid the groundwork for the mobile 5G revolution.

Further strengthening our financial position, Bell Canada renewed its public debt program in 2019, enabling the company to offer up to $5 billion of debt securities. Bell Canada successfully accessed the capital markets to raise a total of approximately $1.95 billion in gross proceeds from the public issuance of debt securities, allowing us to maintain our after-tax cost of outstanding publicly issued debt securities at a historically low 3.1%.

Our strategy to reinforce the solvency position of our Defined Benefit (DB) pension plans through $3.6 billion in voluntary deficit funding over the last 10 years has resulted in all BCE DB plans now being fully funded. This strong position eliminated the need for any supplementary special pension deficit funding in 2019 while positively impacting our free cash flow.

A leading Canadian corporation

BCE is committed to the corporate responsibility leadership that has been the hallmark of the Bell brand since 1880. We abide by the highest levels of corporate governance, shareholder accountability and ethical business conduct, and we take our responsibility to the community seriously.

The Bell Let’s Talk mental health initiative has brought meaningful change to the lives of countless Canadians. As the program enters its second decade, we have renewed our support for the mental health cause with an enhanced total commitment of at least $150 million in funding for new research, workplace initiatives and access to care. Surpassing our original $100 million funding target on Bell Let’s Talk Day 2019, Bell has already committed more than $108 million in funding to Canadian mental health programs.

Workplace mental health has become core to Bell’s employment practices. With significant reductions in short term disability and relapse rates, taking care of mental health also offers a clear and significant return on investment.

Bell was again named one of Canada’s Top 100 Employers in 2019, and also honoured as a leading green employer for our consistent focus on environmental sustainability; one of Canada’s best workplaces for young people, reflecting our award-winning programs for new graduates; and an outstanding diversity employer.

We are committed to attracting top leadership talent, and we enable a pay-for-performance culture at Bell that aligns with the interests of our shareholders. We seek to reflect the communities we serve and focus on promoting diversity and inclusion at the board and operational levels. For example, BCE is a member of the 30% Club and a signatory to the Catalyst Accord 2022, which aims to increase the percentage of women on Canadian corporate boards to at least 30% or greater by 2022. Your director nominees this year include 4 women, representing 29% of non-executive director nominees.

As your chair, I would like to offer my gratitude to the members of the BCE board for their expert guidance and dedication to serving you. In anticipation of the retirements of directors Barry Allen, Robert Brown and Paul Weiss at the 2021 annual general shareholder meeting, we look forward to welcoming seasoned technology and telecom executive Thomas Richards to the board.

Our thanks to you

BCE is a company with momentum well prepared to take full advantage of the next generation of communications technologies and applications. It is an honour to serve as your chair, and on behalf of the board and the entire Bell team, I thank you for your support and confidence in us.

We look forward to continuing to deliver for you and all BCE stakeholders as we enter this new era of communications opportunity.

 

Gordon M. Nixon

Chair of the Board

BCE Inc.

 

 

 

    

     

                    

 

        

 

 

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MESSAGE FROM THE PRESIDENT AND CEO

Advancing how Canadians connect

with each other and the world

 

        

     

 

For 140 years, consumers, businesses and communities have relied on Bell to deliver the best networks and latest communications services, unlocking new social, economic and innovation opportunities for Canadians everywhere. As we move forward focused on our goal to advance how Canadians connect with each other and the world, I am pleased to report that Bell remained the nation’s top communications choice in 2019.

It is a true privilege to be appointed President and Chief Executive Officer of this great Canadian company, and an honour to assume the role following the highly successful tenure of George Cope. Having been fortunate to be part of BCE’s remarkable transformation in recent years, I am excited to lead the team forward in a time of new innovation and growth opportunities.

This next era of communications is defined by breakthrough network technologies, like mobile 5G and ubiquitous all-fibre connections, and the unlimited service potential of emerging opportunities such as artificial intelligence, virtual reality and connected cars, homes and cities.

Offering limitless new connectivity options for consumers and business, these are the technologies that will anchor our country’s economic growth opportunities for the future. With world-leading network infrastructure, the top brands in communications and the best team in the business, Bell is well positioned to keep Canada at the forefront of the dynamic communications sector.

Building on our momentum, Bell’s new Strategic Imperatives highlight our team, assets and growth opportunities – and how we’ll deliver by making it easier to do business with Bell:

6 Strategic Imperatives

1.  Build the best networks

2.  Drive growth with innovative services

3.  Deliver the most compelling content

4.  Champion customer experience

5.  Operate with agility and cost efficiency

6.  Engage and invest in our people

Building Canada’s best networks

Bell has been Canada’s primary network builder since 1880 and we continued to lead the way in 2019 in urban and rural regions alike. Our historic rollout of all-fibre connections across our wireline footprint reached over 5.1 million homes and businesses, 53% of target, by the end of 2019. Wireless Home Internet covered 250,000 locations in Ontario and Québec, while Bell and subsidiary Northwestel launched fixed wireless Internet and broadband wireless service in all 25 communities in the territory of Nunavut.

Canada’s wireless industry is the envy of the world for its coverage, speed and reliability which, combined with declining service prices, is delivering unprecedented value to Canadian consumers. Bell has been at the centre of this national accomplishment, reaching more than 99% of the national population with mobile 4G LTE and over 94% with the latest LTE Advanced service.

Bell is eager to embrace the potential of mobile 5G to accelerate the fastest connections across urban and rural locations alike. With the conditions in place to encourage the investment required to take Canadian wireless to the next level, Bell has the expertise, the fibre-connected infrastructure and the world-class partners to make it happen.

Service and content innovation

Bell’s best networks enable unmatched innovation in services, products and content across our business segments, which in turn drove growth in customer additions and key financial metrics in 2019.

In the home, Bell enhanced Wi-Fi speeds and coverage, delivered exclusive new Fibe TV, Alt TV and Satellite TV viewing features and introduced new security and monitoring solutions from Bell Smart Home. Bell Media, with its unmatched Canadian content creation, strategic partnerships with global media players and innovative platforms like Crave, continued to set the pace in Canadian multimedia.

Offering the most in-demand smartphones, tablets and industrial mobile devices across the industry’s largest national distribution network, Bell Mobility served every demand in the wireless marketplace, from the largest enterprises to the budget prepaid sector with our very popular Lucky Mobile service.

Our expanding range of enterprise IoT solutions from Bell Business Markets (BBM) supported new applications like asset tracking, fleet management and pilot Smart City programs. BBM also remains on the leading edge of unified communications

 

 

    

 

 

    

  

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with Bell Total Connect with Cisco Webex and on-demand network solutions with cloud-based Bell Virtual Network Services.

 

Customers are responding to the outstanding quality of Bell’s networks and services, with leading subscriber growth in the highest-demand communications services. Led by continued strong wireless growth and market share leadership, our total net customer additions in retail high-speed Internet, IPTV (including Fibe TV and Alt TV) and wireless were approximately 743,000 in 2019, the highest in the industry and a 5% increase over the year before. Bell Media’s Crave also grew year over year to reach 2.6 million subscribers.

 

Empowering our team to deliver for you

 

Championing the end-to-end customer experience is a strategic focus and rallying cry for our team as we focus on making it easier to do business with Bell. We’ve made clear and consistent progress in improving customer experience as evidenced by increased customer satisfaction and leading performance improvement among major carriers with the federal commission for consumer telecom and television complaints.

 

Bell is dedicated to taking the customer experience further, to deliver for both our customers and shareholders. Our champions are all of us – the more than 52,000 team members at work in every province and territory of the nation.

 

A highly motivated and well-equipped team is crucial to executing with agility and efficiency in our fast-changing sector, and to standing out in customer experience in a highly competitive marketplace. We’re equipping our front-line call centre, field and channel teams with new technologies, continually enhancing our leading mobile and online self-serve options, and investing directly in the team with flexible work programs, enhanced benefits – including unparalleled mental health support inspired by our Bell Let’s Talk commitment – and other leading workplace approaches.

 

Embracing the opportunities ahead

 

Our 2019 results underscore Bell’s momentum, and I am proud to be leading a team that is so successfully building on our company’s long legacy of investment, innovation and service for Canadians.

 

We thank you, our shareholders, for your ongoing support as we move forward to deliver on our goal: Advancing how Canadians connect with each other and the world.

 

 

Mirko Bibic

President and Chief Executive Officer

BCE Inc. and Bell Canada

  

 

        

 

 

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  STRATEGIC IMPERATIVE 1
  Build the best networks

 

                

 

        

     

 

 

By investing more in new network infrastructure and communications R&D than any other Canadian company, Bell continues to deliver unmatched speeds and the most innovative products and services for our consumer, business and government customers across the country.

With the most extensive fibre and mobile broadband infrastructure in Canada, Bell is the company best positioned to take advantage of converged wireline and wireless opportunities and provide Canadians with access to the fast and reliable connections they need in a new era of 5G, Internet of Things (IoT) and Smart Cities.

We maintained our position as Canada’s broadband provider of choice with networks built for the future, supported by industry-leading capital expenditures of approximately $4 billion in 2019, to continue our historic fibre optic network build and expand our super fast 4G LTE network, which now covers more than 99% of Canada’s population, while LTE-A reaches over 94%. And, with the rollout of 5G service as Canada’s first capable handsets come to market in 2020, we announced that Nokia will be our first 5G network equipment partner.

Bell increased our all-fibre footprint by 530,000 homes and businesses in 2019 to reach more than 5.1 million locations in major urban cities and smaller centres alike, approximately 53% of our long-term plan for direct fibre connections. With our Toronto fibre project largely completed in 2019, we continued our major fibre build throughout Montréal and announced the rollout of all-fibre links to more than 200,000 residential and business locations in Hamilton and 275,000 in Winnipeg.

Our advantage in network performance is reflected in our #1 ranking as the fastest Internet provider in Canada among major service providers by PCMag for the second year in a row. In its Canadian Fastest ISPs of 2019 report, PCMag noted that Bell’s fibre investments are responsible for Canada’s fastest Internet connections with home Internet speeds up to 1.5 Gbps.

Bell also continued to extend broadband communications to smaller towns and rural areas with our innovative 5G-capable Wireless Home Internet service, bringing high-speed Internet access to more than 250,000 locations in underserved smaller communities in Ontario and Québec by the end of 2019. Significant deployments included rural areas of Eastern Ontario, Niagara wine country and the Muskoka and Kawartha Lakes regions, as well as in the Eastern Townships and the Montérégie regions in Québec. The service is expected to ultimately reach 1 million rural households throughout Atlantic Canada, Québec, Ontario and Manitoba.

We’re also installing LTE wireless equipment on 14 new towers in Québec’s Saguenay–Lac-Saint-Jean region, making high-speed Internet available for the first time to residents and businesses in the region. With the completion of the project in 2020, 99% of the Saguenay–Lac-Saint-Jean population will have access to broadband services on Bell’s LTE network.

 

 

 

 

 

    

 

 

    

  

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In 2019, Bell and subsidiary Northwestel announced the availability of fixed wireless Internet and broadband wireless service in all 25 communities in Nunavut, providing up to 20 times more Internet capacity than previously available by harnessing Telesat Ka-Band satellite technology, and delivering mobile data speeds up to 100 Mbps. The complex project to connect Canada’s northernmost territory was completed in under 2 years.

 

As the first Canadian carrier to launch a 5G-ready LTE-M network in Canada, Bell is leading the way in the fast-growing IoT sector, supporting a broad range of large-scale IoT innovations including asset tracking, fleet management, smart sensors, Smart City applications and municipal water system management. In 2019, we announced a partnership with AT&T to provide our business customers with access to the carrier’s extensive LTE-M network throughout the US.

    

   

With public policies that support the capital investment required, Bell is ready to deliver the next generation of wireless to rural and urban centres alike.

    

 

    

     

 

 

 

 

Delivering the fastest consumer Internet available, Bell’s all-fibre connections expanded to more than 5.1 million home and business locations across 7 provinces. Bell’s fibre advantage also accelerates 5G wireless with the high speed and capacity of Bell’s fibre interconnections between cell sites.

 

Bell remains a trusted partner for emergency responders, reflected in our selection by the government of Ontario to modernize the province’s Public Safety Radio Network with a 15-year, $765 million contract. Bell will build and operate the core Land Mobile Radio Network and all of the antennas and data centre equipment needed to provide essential public safety radio coverage across the province.

 

In 2019, Bell also became the first Canadian carrier to offer a designated Mobile Broadband Service for First Responders across the country that provides police, fire and other first responders with priority access to wireless network service during emergency situations.

 

Bell MTS continues to expand our fibre network in communities throughout Manitoba, including to approximately 2,800 locations in the northern City of Flin Flon and 1,600 locations in the Town of Carman. Gigabit Fibe Internet service is now available in more than 20 communities across the province. Bell MTS is also working with the Opaskwayak Cree Nation to bring direct fibre connections and the latest telecommunications equipment to all public buildings in the Indigenous community located 600 kilometres north of Winnipeg.

 

Bell MTS was also chosen by the Manitoba government as the primary provider of wireless services and devices for all government departments and other public sector organizations. The contract, awarded in June 2019, is expected to save the provincial government up to $19 million over 5 years.

 

        

 

 

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  STRATEGIC IMPERATIVE 2
  Drive growth with innovative services

 

                

 

        

     

 

    Bell’s exclusive Wireless

    Home Internet service is

    bringing unprecedented

    Internet access

    to smaller towns and

    rural communities.

  

Bell’s leadership in broadband fibre and wireless networks enables the unparalleled service enhancements that continue to drive strong retail Internet and mobile customer growth. Bell continues to set the pace with innovations that are delivering the world’s best communications technologies for our customers.

 

With next-generation mobile networks, the most in-demand smartphones, the fastest Internet and superior Wi-Fi service, Bell remains Canada’s communications leader in a highly competitive marketplace. Our network of more than 3,500 retail locations, including Bell and The Source stores, WirelessWave, Wireless etc., Tbooth and other retail partners, as well as online sales across all of our brands, provides Canadians with the most access to the best products and services across the country.

 

Wireless leadership

 

Our advanced wireless network attracted 515,000 net new postpaid and prepaid wireless customers in 2019 – our best overall annual subscriber performance since 2005. Strong demand for our low-cost Lucky Mobile service and our exclusive national retail distribution at more than 1,200 Dollarama stores contributed to an outstanding 253% increase in prepaid net additions compared to 2018.

 

Wireless subscriber growth was also supported by even more choice in new service plans, including Unlimited Data options and Connect Everything plans that allow customers to share data between all of their connected devices like smartwatches, tablets, home security products and Bell Connected Car. We introduced Bell SmartPay, a new affordable way for customers to get the latest Bell smartphones with little upfront costs and zero-interest device payments over 24 months, separate from their monthly service plans.

 

We expanded Canada’s leading lineup of LTE and LTE-A devices with the addition of more than 40 advanced models including Samsung’s Galaxy S10 series, the Galaxy A series and the Galaxy Note10, as well as Google’s Pixel 4 and 4 XL, LG’s Q70 and G8 ThinQ and Apple’s iPhone 11 and the latest iPad models. We announced Bell will offer the Samsung Galaxy S20 5G series, the first 5G smartphones in Canada. Apple’s MacBook Air and MacBook Pro also became available at The Source.

 

        

 

 

    

  

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Bell Mobility and Virgin Mobile expanded their service offerings for customers with accessibility needs, introducing new GPS Navigation apps to help people who are blind or have low vision. BlindSquare Promo suggests detailed points of interest and intersections in response to voice commands to support safe travel, while Nearby Explorer Online provides audible descriptions of the customer’s location with details on road conditions, nearby retailers and other information.

 

Wireline residential and business growth

 

 

Bell’s investments to enhance our broadband fibre network quality and speeds were recognized by PCMag, which named Bell the fastest Internet provider in Canada in 2019 with home Internet speeds up to 1.5 Gbps.

 

Bell also launched the next generation of our Whole Home Wi-Fi pods in 2019, enabling faster speeds of up to 500 Mbps throughout the home with fewer pods. With the Bell Wi-Fi app, customers can manage their entire home network remotely.

 

Bell Business Markets (BBM) continues to strengthen our leadership in cloud solutions with the addition of managed database, application monitoring and security scanning to our extensive portfolio of Bell Cloud Managed Services for Microsoft Azure. Our Bell Cloud Connect service also offers Canadian businesses secure and reliable access to cloud solutions from Amazon, Google and IBM over our world-class broadband networks.

 

BBM also introduced Bell Total Connect with Cisco Webex in 2019, a new unified communications platform for business meetings and team collaboration, and expanded its Bell Total Connect service footprint to cover NorthernTel and Télébec territories in Ontario and Québec.

  

Bell Smart Home is transforming how Canadians

connect and protect their homes with new

self-serve monitoring and management services.

 

Smart Homes and Smart Cities

 

Our Bell Smart Home brand launched in Manitoba, bringing all of Bell’s connected home and security services previously offered under the AAA Security, Bell Aliant NextGen and AlarmForce banners under our national Smart Home brand.

 

Bell’s high-capacity wireless and fibre networks continue to support Smart City and IoT projects across the country, including a major Smart City Accelerator Research Program in partnership with IBM for the City of Markham to improve the efficiency of municipal operations and enhance services for residents.

  

 

 

        

 

 

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  STRATEGIC IMPERATIVE 3
  Deliver the most compelling content

 

  

        

  

 

Bell’s strategy to lead in a fast-changing television and media marketplace is to deliver the most compelling content across every screen. With the top brands, leading content creation abilities and most innovative TV and other viewing platforms, Bell is well positioned to embrace the opportunities ahead.

Bell is Canada’s largest TV provider, with Fibe TV, Alt TV and Satellite TV offering a full range of service and content options for every level of the TV marketplace alongside Bell Media’s popular Crave platform and other video streaming innovations like TSN Direct.

In 2019, we enhanced our award-winning Fibe TV app with the launch of a live pause and rewind feature, which joins Download & Go, Restart and Wireless TV in a growing list of exclusive Fibe features.

Alt TV, Bell’s innovative live TV streaming service, and Fibe TV continue to offer more choices for customers to watch TV on the screen of their choice with Google Chromecast joining other Android devices, Amazon Fire TV and Apple TV as Fibe TV and Alt TV platforms.

Crave has evolved into a bilingual TV and streaming service offering more than 6,000 hours of exclusive new French-language content. Crave became Canadian rights holder for HBO Max original programming from Warner Bros. International Television Distribution, which joins HBO, Showtime, Starz (launched across TV and streaming platforms by Bell Media in 2019) and other premium Crave content, including award-winning Canadian originals like international comedy hit Letterkenny.

Bell Media’s digital offerings expanded further in 2019 with the launch of Crave on Android platforms and CTV on Apple TV. We also introduced TSN and RDS Day Pass subscriptions, providing more streaming options for sports fans.

Bell Media’s top content brands

This year marked CTV’s 18th consecutive year as Canada’s top conventional network, led by the most-watched program in Canada The Good Doctor, the top national and local newscasts with CTV National News with Lisa LaFlamme and local brand CTV News, and the #1 new Canadian comedy Jann.

Leveraging CTV’s top name in entertainment television, Bell Media successfully rebranded specialty channels The Comedy Network, Space, Bravo and Gusto as CTV Comedy Channel, CTV Sci-Fi Channel, CTV Drama Channel and CTV Life Channel.

TSN was Canada’s most-watched specialty channel of any kind and the country’s #1 sports network, setting new audience records with the Toronto Raptors historic NBA Championship win, watched by 16.3 million viewers across TSN, CTV and RDS; record tennis viewership with an audience of over 3.4 million watching Bianca Andreescu’s historic US Open win; and the most-watched IIHF World Championship gold medal game ever broadcast from Europe.

RDS also maintained its position as Canada’s top French-language sports network, with the Super Bowl, Montreal Canadiens hockey, US Open final in tennis, Montreal Alouettes playoffs and the F1 Grand Prix du Canada its most-watched programs.

 

 

Bell Media is Canada’s

destination for news, sports

and entertainment across

every screen: top viewership

in conventional television,

pay TV and specialty

channels and continued

growth in digital platforms

like the bilingual Crave.

    

    

    

  

  

 

    

 

 

    

  

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Bell Media has the

scale and brands to

maintain its position

as Canada’s leading

content creation

company in

a dynamic

marketplace.

 
     
     
     
 

 

Pinewood Toronto partnered with Netflix to lease soundstages as part of their dedicated production hub and began construction on the studio’s expansion.

 

 
  For the 2019–2020 broadcast year, Bell Media is working with approximately 60 production companies across the country to create hundreds of hours of original content in both French and English. Bell Media and its partners received 227 nominations for the 2020 Canadian Screen Awards, including 142 television and digital nominations and 85 for Bell Media-supported films. Crave was recognized with the Industry Leadership Award and CTV’s Anton Koschany with the Gordon Sinclair Award for Broadcast Journalism.  
     
     
     
     
     

With 109 stations and the iHeartRadio Canada brand, Bell Media remains Canada’s top radio broadcaster. Audiences grew to 16.8 million listeners, up from 16.6 million in 2018, who spent approximately 77 million hours tuning into Bell Media radio stations every week during fall 2019, or 2.5 times the audience of our closest competitor.

 

     

Astral, Bell Media’s out-of-home advertising division, reached 18 million consumers weekly. Astral offers 6 innovative product lines accessible through programmatic platforms and more than 50,000 advertising locations in key urban markets across Canada.

 

     

Strategic investments and partnerships

 

     
In 2019, Bell Media announced an agreement with Groupe V Média to acquire French-language conventional network V and ad-supported video on demand service Noovo.ca, a transaction which remains subject to regulatory approval. TSN and RDS announced a multi-year media rights extension with the CFL, as well as a long-term media rights agreement with Hockey Canada that extends through the 2033–34 season.      
     

 

        

 

 

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STRATEGIC IMPERATIVE 4

 

  Champion customer experience

 

  

        

  

 

We continue to focus on making it easier than ever to do business with Bell – improving online service, sales and support tools and the resources our service teams employ to deliver a consistently faster and more efficient customer experience.

And our teams never stop working to improve the experience, from shopping and purchasing to installation and ongoing service delivery. We strive to provide a consistent user experience that matches the speed and quality of our networks and Internet, TV and wireless services.

We continued to make significant investments to enhance MyBell.ca, our award-winning app, and the tools we use to support our customer experience teams (for more on Bell’s award-winning self-serve apps, please see page 18).

For an impressive fourth time in the last five years, J.D. Power again named Virgin Mobile #1 in customer care satisfaction.

New tools support field services

In 2019, we launched additional mobile tools for our Field Services teams to improve training and coaching, troubleshooting and diagnostics, and communications and information sharing between technicians.

Technicians also leveraged existing technologies like the Manage Your Appointment web service that allows customers to manage their own appointments, communicate directly with technicians and provide valuable feedback. In 2019 alone, customers provided feedback 195,000 times, sent 240,000 messages to technicians and rescheduled 15,000 appointments themselves.

These improvements supported strong customer experience results last year: overall satisfaction with our field technicians was an impressive 96%.

 

 

Championing the

customer experience,

our team members are

focused on making it

easier to do business

with Bell.

 

 

    

 

 

    

 

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Our strategy is coming together

 

While these results reflect the hard work and passion of our Field teams, they also show how our overall strategy fits together. By giving customers the self-serve capability to make appointment updates directly in our calendar tool, we can offer more precise technician arrival times, which ultimately contributes to a better overall experience.

 

Our advanced all-fibre network is also driving decreases in repairs and technician truck rolls, which were down by 24%, while improvements to MyBell.ca, and our self-serve mobile apps have helped reduce calls to our contact centres by 7%.

 

In our contact centres, agents are receiving more personalized coaching to help our customers get the right outcome the first time – ensuring more customers connect to our services seamlessly.

 

At Bell, each improved service experience, whether it’s in person, online, on your mobile device or over your phone, is a building block that makes doing business with us that much easier. For some, like our Small Business Markets and Bell MTS sales teams, those building blocks helped deliver record setting sales results last year.

    

    

    

  

          

 

        

 

 

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STRATEGIC IMPERATIVE 5

 

Operate with agility and cost efficiency

 

  

        

  

 

 

A highly competitive industry requires a dedication to operational efficiency and the ability to be nimble and adaptable in a fast-changing marketplace. Bell is building on our industry-leading cost structure with initiatives including modernizing our network core and streamlining IT systems.

With ongoing productivity enhancements and a relentless focus on identifying efficiencies, the Bell team continues to improve cost performance across our business. This includes significant progress on the continued transformation of our networks to the software defined systems of the future and further technology investments in customer experience, to capturing increased efficiencies through our rapidly expanding all-fibre network footprint. Increasingly, systems automation and the application of machine learning and artificial intelligence are enhancing the customer experience.

In 2019, Bell began an artificial intelligence research project as part of Montréal’s scale.ai supercluster to optimize technician dispatch. Working with industry partners Exfo, VuPoint Systems and Ivado Labs, Bell is developing a system that uses Field Services, Network and Customer Operations data to analyze the complexity of tasks and increase the efficiency of technician dispatch.

Continued investments in technology to enhance customer experience, including new self-serve options like the Lucky Mobile My Account app that allows customers to easily manage prepaid accounts from their phones, resulted in 7% fewer calls to our contact centres in 2019. Customer-completed transactions through self-serve channels topped 19.5 million in 2019, an increase of 9% over the previous year.

 

 

 

 

 

  Making self-serve easy

 

        

 

         

For the second year in a row, a Bell product has been named the Top Telecom app by the MobileWebAwards.

 

Lucky Mobile’s My Account app, introduced in October 2019, followed up on the MyBell mobile app award win in 2018. Along with content, mobile functionality and improvements to MyBell.ca, our self-serve options helped grow customer online transactions by 9% and reduce customer calls by 7% year over year. By continuing to invest in top-end self-serve tools, Bell will continue to focus on making it easy for customers to serve themselves and gain more control over their own experiences.

 
 

    

 

 

 

    

 

 

      

 

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Ongoing efficiencies resulting from the integrations of Bell MTS and Axia NetMedia continued in 2019, along with cost savings and increased streamlining of operations with the integration of AAA Security in Manitoba, Bell Aliant NextGen and AlarmForce into the Bell Smart Home brand. Significant operating savings were also realized from workforce adjustments completed in 2018 including the continued effective management of attrition and retirements.

 

Bell raised approximately $1.95 billion in gross proceeds in the public debt capital markets in 2019. We maintained our after-tax cost of outstanding publicly issued debt securities at a historically low 3.1% and increased average term to maturity to 11.5 years, enhancing our liquidity position and financing flexibility for 2020 as no long-term debt matures until 2021.

 

Significant de-risking steps have been taken with our pension plans over the past 10 years, with voluntary deficit funding contributions of approximately $3.6 billion alone. At the end of 2019, the defined benefit pension plan was in a fully funded position, which is expected to reduce pension funding requirements significantly in coming years.

 

  

 

In a highly competitive and fast-changing

marketplace, our team executes with agility and

efficiency to deliver value to all Bell stakeholders.

A corporate responsibility leader

 

Bell is committed to innovation and investment that balances economic growth, social responsibility and environmental sustainability in order to drive our success. Bell’s ongoing success ensures our continued ability to support the advancement of Canada’s social, technological and economic prosperity. We actively seek suppliers who share our strong commitment to corporate responsibility when it comes to the environment, health and safety, labour and ethics.

 

  

Our environmental commitment is also delivering significant operational savings. In 2019, Bell continued migrating customers to e-billing and implemented customer onboarding solutions to make e-billing the default at point of sale, significantly reducing the costs associated with paper bills. Ongoing energy conservation efforts at Bell buildings and improved efficiencies of our networks also continued to drive significant savings, with electricity consumption reduced by more than 20,000 Megawatt hours in 2019.

 

Fuel consumption across the Bell service fleet decreased by more than 300,000 litres in 2019 through ongoing fleet modernization, including hybrid and electric vehicles. The updated My Fuel Receipts app used by Bell drivers to collect additional information about each fuel purchase provides the Fleet team with extra insights to help us better manage costs.

 

        

 

 

 


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STRATEGIC IMPERATIVE 6

 

Engage and invest in our people

 

  

        

  

 

The Bell team is critical to our company’s success, enabling our strategy of investment and innovation while also making a difference in communities across the country. Our 52,000+ team members are a key competitive differentiator for Bell in a dynamic and fast-changing marketplace.

 

 

Bell continues to build the next

generation of leaders with an

unmatched range of learning and

career development opportunities.

  

Bell is committed to the success of our team, in enhancing the customer experience, building the best networks, or innovating with great products and content to take Bell to the next level, and in career development. In 2019, new mobile tools for our Field Services teams improved processes for dispatching, troubleshooting, communications and coaching, while self serve and other enhancements are making it easier for our contact centre teams to provide faster, more personalized service. We’re also leveraging machine learning, artificial intelligence and Agile approaches to deliver more effective and efficient solutions.

 

A leading Canadian workplace

 

In 2019, Bell was named one of Canada’s Top 100 Employers for the 5th consecutive year, supported by our outstanding learning and career development opportunities, family-friendly benefits and commitment to mental health. Bell was named a Top Employer for Young People, a Montréal Top Employer, and was recognized as one of Canada’s Best Diversity Employers, Greenest Employers and Most Family-Friendly Employers.

 

Bell team members can access a broad range of learning opportunities, career resources and tools to support personal and professional development and grow their careers on our team. These include technical training, mentoring, leadership development, external educational assistance and access to more than 15,000 free, on-demand courses through our new LinkedIn Learning platform.

 

We actively recruit top young talent from across Canada, welcoming more than 1,000 students each year through university co-op programs, paid internships and other placements. Our award-winning Graduate Leadership Program offers young leaders the chance to explore careers in a variety of business areas, along with mentorship and networking opportunities with senior leaders across the country.

 

   Our commitment to a fair, inclusive and accessible workplace where everyone feels valued, respected and supported helps drive our success. Led by Bell’s Diversity Leadership Council, our initiatives include diversity and inclusion training, networking events and ongoing education. We are constantly working to promote employee health and well-being, with new initiatives like

 

    

 

 

     

 


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our Flexible Work Policy to help balance work, family and other life commitments, and a new online virtual health care program providing free, confidential access to health care professionals using a smartphone, tablet or laptop. A newly enhanced mobile hub provides employees with quick and easy access to Bell work apps for career management, learning opportunities, health and more, directly from their corporate mobile devices.

Engaged in our communities

In addition to delivering the most advanced broadband communications products and services to our customers, Bell team members make substantial contributions to the communities in which we live and work, in every province and territory. The Bell team donated a record-breaking $2.5 million to 1,500 community and charitable organizations in our 2019 Employee Giving Campaign, with Bell matching donations to the Canadian Mental Health Association, United Way Centraide and Canadian universities and colleges. To support and recognize team members who give their time to charitable causes of all kinds, Bell also launched a new Volunteer Initiative in 2019 to track volunteer time, communicate opportunities and help celebrate team member engagement in their communities.

Bell is consistently recognized as one of Canada’s

top employers for our comprehensive employee

support programs, including our leadership in

workplace mental health.

 

 

 

A leader in workplace mental health

 

Inspired by our Bell Let’s Talk commitment, Bell has been building a workplace culture that supports mental health at every level, including mental health training for more than 25,000 team members and expanded benefits coverage for mental health support services, as well as support and guidance for other Canadian companies building mental health workplace programs.

 

Since Bell launched our workplace mental health programs, we have seen a 20% decrease in our short-term mental health disability claims and a 50% reduction in relapse and recurrence rates after team members return to work. A 2019 study by Deloitte Canada of 10 major Canadian companies found organizations operating workplace mental health programs achieve a significant return on investment (ROI) with clear human resources and financial benefits. Deloitte’s The ROI in workplace mental health programs: Good for people, good for business found that corporate mental health programs delivered a median annual ROI of $1.62 for companies with programs in place up to 3 years and $2.18 for those with initiatives in place longer than 3 years. Bell’s ROI for its workplace mental health program was determined to be $4.10.

 

 

 

        

 

 

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COMMUNITY INVESTMENTS

 

10th anniversary Bell Let’s Talk Day celebrated from Pole to Pole

 

    

Every action counts in record-breaking show of support for mental health

 

When it comes to mental health, every action counts. With another record-breaking Bell Let’s Talk Day in the books, it’s clear that people across the country and around the world are ready to create positive change for mental health, with Bell Let’s Talk leading the way.

 

Bell Let’s Talk has ignited a transformative conversation about mental health, centred on its 4 action pillars – anti-stigma, care and access, research and workplace leadership. Building on the progress made over our first decade in destigmatizing mental illness, the 2020 Bell Let’s Talk Day awareness campaign theme – Mental Health: Every Action Counts – highlighted the ways Canadians and people around the globe can take action to make a real and lasting difference in mental health.

This year’s multimedia campaign featured 8 outstanding Canadian organizations that provide support on a daily basis for people experiencing mental health challenges: the Canadian Mental Health Association, Canadian Red Cross, Foundry, Jack.org, Kids Help Phone, Revivre, St. John Ambulance and Strongest Families Institute. The work of each of these institutions – from setting up one-stop shops for young people to access care, to providing mental health training in the workplace – stood alongside the actions of individuals, listening to a friend or advocating for a family member, even taking the time to care for their own mental health.

 

Record-breaking engagement continues

On Bell Let’s Talk Day, Bell donates 5 cents for every eligible call, text and social media interaction supporting mental health, at no cost to participants beyond what they would normally pay their provider for phone or online access. This year’s campaign saw millions of people share positive actions that can make a difference to individual and community mental health all year round, and resulted in a record 154,387,425 messages of support.

The results showed a strong shift in the conversation towards taking action, and also meant another $7,719,371.25 in new mental health funding from Bell. Combined with the results from 9 previous Bell Let’s Talk Days, Bell has now reached $108,415,135 in total mental health funding, including our $50-million anchor donation in 2010. In March 2020, Bell proudly announced its funding commitment for Bell Let’s Talk mental health programs would be at least $150 million.

 

 

 

    

 

 

    

  

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The Bell Let’s Talk national campus campaign grew to more than 550 events at 231 universities and colleges in every province and territory, reaching a student population of more than 1.7 million. And from the North Pole to the South Pole and over 100 communities in between, the Bell Let’s Talk flag flew high, inviting people from everywhere to join the conversation on mental health.

 

#BellLetsTalk – the most used Canadian Twitter hashtag of all time – once again soared to the top of Canadian and worldwide Twitter trends on Bell Let’s Talk Day. Across social media platforms, Canadian and international leaders highlighted the importance of the campaign’s call to action, including celebrities like Ellen DeGeneres, Ryan Reynolds and Céline Dion, political leaders, sports teams, educators, Canadian corporations and government departments, in addition to hundreds of Bell Let’s Talk partners throughout the country. All were united in their commitment to positive change for those living with mental illness.

     

        

  

 

Bell Let’s Talk in action

 

Bell Let’s Talk supports a wide range of programs throughout the year, having worked with over 1,000 partner organizations nationwide, supporting over 3.4 million Canadians to date. Every year, the $2 million Bell Let’s Talk Community Fund provides grants of up to $25,000 for grassroots mental health initiatives, with the program supporting more than 650 organizations since 2011.

 

Leading up to Bell Let’s Talk Day 2020, Bell announced more than $1.3 million in new funding for mental health projects across the country. We teamed up with the Government of the Northwest Territories and Northwestel to provide services for youth and families in the North through the Strongest Families Institute, a longstanding Bell Let’s Talk partner, with a joint donation of $500,000. The William Osler Health Foundation will use a $420,000 donation to support a new repetitive Transcranial Magnetic Stimulation (rTMS) clinic at Osler’s Brampton Civic Hospital, while a $300,000 donation to Fondation de ma vie will help refurbish psychiatric departments at 3 hospitals in Saguenay–Lac-Saint-Jean. And building on its commitment to Indigenous mental health in Manitoba, Bell Let’s Talk provided $110,000 in funding for a land-based traditional wellness program for at-risk youth in Peguis First Nation.

 

To learn more, please visit Bell.ca/LetsTalk.

 

We announced our Bell Let’s Talk

 

funding commitment will grow to

 

at least $150 million.

  
     

 

 


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BELL ARCHIVES 140 years of employee engagement and pride Charles Fleetford Sise, President from 1890 to 1915, recognized the Bell team’s extraordinary pride in our company and dedication to delivering for Canadians. When The Bell Telephone Company of Canada was incorporated on April 29, 1880, our workforce of 150 was poised to change how Canadians communicate. By the spring of 1881, they had already built a long-distance connection between Toronto and Hamilton, a first step in connecting our 2,100 customers and eventually all of Canada. Charles Fleetford Sise, President of Bell from 1890 to 1915, was as impressed by the pride and the loyalty of the company’s employees as he was with its early commercial success. Sise wrote that he took “pride in the answering loyalty of all our employees past and present, and also in the fact – or what I believe to be the fact – that the Company – or I personally – can at any time call upon any one of them for help in time of trouble.” His son Charles Fleetford Sise Jr, who would later serve as Vice President and General Manager, shared that sentiment in an open letter to the company in 1923, thanking operators for maintaining quality levels during an influenza outbreak that both reduced staffing and increased call volumes: “Probably never before has the operating staff been called upon to carry such heavy loads over such an extended period. That they did this willingly, in an endeavor to meet the crisis, shows a strong sense of loyalty to the community, the Company, and their fellow workers.” This inherent Bell pride has been a constant throughout the company’s history, with every cable repair and emergency service operation. From the start, Bell operators did so much more than connect subscribers. They were often the best sources for news or even the latest sports scores. Before the advent of innovations like 911 services and public safety radios, they also played important roles in tracking down local doctors or nurses and volunteer firefighters. They were even providing the earliest form of “tech support,” advising customers on how to maintain their phones. C.F. Sise Jr. Over the years, that company pride has also continued to evolve through volunteering efforts of team members and the company’s ambassador programs – like the Bell teams who showcased the latest telephone innovations and recruited prospective employees at the Canadian National Exhibition and Expo ’67.


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Team members in Winnipeg packing food hampers at a local foodbank. Today, our Bell Ambassadors continue to share pride with colleagues, supporting countless company events and initiatives, including Bell Let’s Talk Day, many work with college and university students to build the next generation of Bell leaders, while others volunteer in the community with charities of all kinds. At the same time, our employees share the service and innovation spirit of Bell’s first team members, leveraging today’s newest technologies to serve our customers better while advancing how they connect with each other and the world. From just 150 employees in 1880 to more than 52,000 today, the Bell team has always reflected a strong sense of responsibility to our communities – like these Montréal team members in 1932, who donated from their pay and helped raise funds to pack and deliver 150 Christmas hampers to families across the city, or today’s newest team members returning to their university campuses to support mental health programs on Bell Let’s Talk Day. Bell team members continue to share a strong commitment to the places where we live and work, supported by the company’s Giving Program that encourages donations and volunteering. Bell team members demonstrate the latest communications tech at the 1953 Canadian National Exhibition in Toronto. Bell Ambassadors on a goodwill tour of local neighbourhoods meet young trick-or-treaters on Halloween 1990.


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Today just got better


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Management’s discussion and analysis

     28  

1

   Overview      29  
   1.1    Introduction      29  
   1.2    About BCE      31  
   1.3    Key corporate developments      34  
   1.4    Capital markets strategy      35  
   1.5    Corporate governance and risk management      38  

2

   Strategic imperatives      41  
   2.1    Build the best networks      41  
   2.2    Drive growth with innovative services      42  
   2.3    Deliver the most compelling content      43  
   2.4    Champion customer experience      44  
   2.5    Operate with agility and cost efficiency      45  
   2.6    Engage and invest in our people      45  

3

   Performance targets, outlook, assumptions and risks      46  
   3.1    BCE 2019 performance vs. guidance targets      46  
   3.2    Business outlook and assumptions      46  
   3.3    Principal business risks      47  

4

   Consolidated financial analysis      50  
   4.1    Introduction      50  
   4.2    Customer connections      51  
   4.3    Operating revenues      52  
   4.4    Operating costs      52  
   4.5    Net earnings      53  
   4.6    Adjusted EBITDA      53  
   4.7    Severance, acquisition and other costs      54  
   4.8    Depreciation and amortization      54  
   4.9    Finance costs      55  
   4.10    Other expense      55  
   4.11    Income taxes      56  
   4.12    Net earnings attributable to common shareholders and EPS      56  
   4.13    Capital expenditures      57  
   4.14    Cash flows      57  

5

   Business segment analysis      58  
   5.1    Bell Wireless      58  
   5.2    Bell Wireline      63  
   5.3    Bell Media      70  

6

   Financial and capital management      75  
   6.1    Net debt      75  
   6.2    Outstanding share data      75  
   6.3    Cash flows      76  
   6.4    Post-employment benefit plans      78  
   6.5    Financial risk management      78  
   6.6    Credit ratings      80  
   6.7    Liquidity      81  

7

   Selected annual and quarterly information      83  
   7.1    Annual financial information      83  
   7.2    Quarterly financial information      85  

8

   Regulatory environment      88  

9

   Business risks      93  

10

   Financial measures, accounting policies and controls      100  
   10.1    Our accounting policies      100  
   10.2    Non-GAAP financial measures and key performance indicators (KPIs)      105  
   10.3    Effectiveness of internal controls      108  
Reports on internal controls      109  

Management’s report on internal control over financial reporting

     109  

Report of independent registered public accounting firm

     110  
Consolidated financial statements      111  

Management’s responsibility for financial reporting

     111  

Report of independent registered public accounting firm

     112  

Consolidated income statements

     114  

Consolidated statements of comprehensive income

     114  

Consolidated statements of financial position

     115  

Consolidated statements of changes in equity

     116  

Consolidated statements of cash flows

     117  
Notes to consolidated financial statements      118  

Note 1

  Corporate information      118  

Note 2

  Significant accounting policies      118  

Note 3

  Segmented information      127  

Note 4

  Operating costs      129  

Note 5

  Severance, acquisition and other costs      129  

Note 6

  Interest expense      129  

Note 7

  Other expense      130  

Note 8

  Income taxes      131  

Note 9

  Earnings per share      132  

Note 10

  Trade and other receivables      133  

Note 11

  Inventory      133  

Note 12

  Contract assets and liabilities      133  

Note 13

  Contract costs      133  

Note 14

  Property, plant and equipment      134  

Note 15

  Leases      135  

Note 16

  Intangible assets      136  

Note 17

  Investments in associates and joint ventures      137  

Note 18

  Other non-current assets      138  

Note 19

  Goodwill      138  

Note 20

  Trade payables and other liabilities      139  

Note 21

  Debt due within one year      139  

Note 22

  Long-term debt      140  

Note 23

  Provisions      142  

Note 24

  Post-employment benefit plans      142  

Note 25

  Other non-current liabilities      145  

Note 26

  Financial and capital management      146  

Note 27

  Share capital      150  

Note 28

  Share-based payments      151  

Note 29

  Additional cash flow information      154  

Note 30

  Remaining performance obligations      155  

Note 31

  Commitments and contingencies      156  

Note 32

  Related party transactions      156  

Note 33

  Significant partly-owned subsidiary      157  

Note 34

  Business acquisitions and dispositions      158  

Note 35

  Adoption of IFRS 16      159  
Board of directors      160  
Executives      161  
Investor information      162  
 

 

 

 

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Management’s discussion and analysis

 

In this management’s discussion and analysis (MD&A), we, us, our, BCE and the company mean, as the context may require, either BCE Inc. or, collectively, BCE Inc., Bell Canada, their subsidiaries, joint arrangements and associates. Bell means, as the context may require, either Bell Canada or, collectively, Bell Canada, its subsidiaries, joint arrangements and associates.

All amounts in this MD&A are in millions of Canadian dollars, except where noted. Please refer to section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) on pages 105 to 108 for a list of defined non-GAAP financial measures and key performance indicators.

Please refer to BCE’s audited consolidated financial statements for the year ended December 31, 2019 when reading this MD&A.

In preparing this MD&A, we have taken into account information available to us up to March 5, 2020, the date of this MD&A, unless otherwise stated.

You will find additional information relating to BCE, including BCE’s audited consolidated financial statements for the year ended December 31, 2019, BCE’s annual information form for the year ended December 31, 2019, dated March 5, 2020 (BCE 2019 AIF) and recent financial reports, on BCE’s website at BCE.ca, on SEDAR at sedar.com and on EDGAR at sec.gov.

Documents and other information contained in BCE’s website or in any other site referred to in BCE’s website or in this MD&A are not part of this MD&A and are not incorporated by reference herein.

This MD&A comments on our business operations, performance, financial position and other matters for the two years ended December 31, 2019 and 2018.

 

 

 

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

 

BCE’s 2019 annual report, including this MD&A and, in particular, but without limitation, section 1.3, Key corporate developments, section 1.4, Capital markets strategy, section 2, Strategic imperatives, section 3.2, Business outlook and assumptions, section 5, Business segment analysis and section 6.7, Liquidity of this MD&A, contains forward-looking statements. These forward-looking statements include, without limitation, statements relating to our projected financial performance for 2020, BCE’s dividend growth objective, common share dividend payout policy and 2020 annualized common share dividend, BCE’s financial policy targets and our intended progress towards meeting those targets, the sources of liquidity we expect to use to meet our anticipated 2020 cash requirements, our expected post-employment benefit plans funding, our network deployment and capital investment plans, the expected timing and completion of the proposed acquisition of conventional television (TV) network V and related digital assets, BCE’s business outlook, objectives, plans and strategic priorities, and other statements that do not refer to historical facts. A statement we make is forward-looking when it uses what we know and expect today to make a statement about the future. Forward-looking statements are typically identified by the words assumption, goal, guidance, objective, outlook, project, strategy, target and other similar expressions or future or conditional verbs such as aim, anticipate, believe, could, expect, intend, may, plan, seek, should, strive and will. All such forward-looking statements are made pursuant to the safe harbour provisions of applicable Canadian securities laws and of the United States (U.S.) Private Securities Litigation Reform Act of 1995.

Unless otherwise indicated by us, forward-looking statements in BCE’s 2019 annual report, including in this MD&A, describe our expectations as at March 5, 2020 and, accordingly, are subject to change after that date. Except as may be required by applicable securities laws, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties and are based on several assumptions, both general and specific, which give rise to the possibility that actual results or events could differ materially from our expectations expressed in, or implied by, such forward-looking statements and that our business outlook, objectives, plans and strategic priorities may not be achieved. These statements are not guarantees of future performance or events, and we caution you against relying on any of these forward-looking statements. Forward-looking statements are presented in BCE’s 2019 annual report,

including in this MD&A, for the purpose of assisting investors and others in understanding our objectives, strategic priorities and business outlook as well as our anticipated operating environment. Readers are cautioned, however, that such information may not be appropriate for other purposes.

We have made certain economic, market and operational assumptions in preparing the forward-looking statements contained in BCE’s 2019 annual report and, in particular, but without limitation, the forward-looking statements contained in the previously mentioned sections of this MD&A. These assumptions include, without limitation, the assumptions described in the various sections of this MD&A entitled Business outlook and assumptions, which sections are incorporated by reference in this cautionary statement. We believe that our assumptions were reasonable at March 5, 2020. If our assumptions turn out to be inaccurate, our actual results could be materially different from what we expect.

Important risk factors including, without limitation, regulatory, competitive, security, technological, operational, economic, financial and other risks that could cause actual results or events to differ materially from those expressed in, or implied by, the previously-mentioned forward-looking statements and other forward-looking statements contained in BCE’s 2019 annual report, and in particular in this MD&A, include, but are not limited to, the risks described or referred to in section 9, Business risks, which section is incorporated by reference in this cautionary statement.

Forward-looking statements contained in BCE’s 2019 annual report, including in this MD&A, for periods beyond 2020 assume, unless otherwise indicated, that the relevant assumptions and risks described in this MD&A will remain substantially unchanged during such periods.

We caution readers that the risks described in the previously mentioned section and in other sections of this MD&A are not the only ones that could affect us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our financial position, financial performance, cash flows, business or reputation. Except as otherwise indicated by us, forward-looking statements do not reflect the potential impact of any special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after March 5, 2020. The financial impact of these transactions and special items can be complex and depends on facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way, or in the same way we present known risks affecting our business.

 

 

    

 

 

       

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1   Overview

 

As required, we adopted International Financial Reporting Standard (IFRS) 16 – Leases effective January 1, 2019, as described in section 10.1, Our accounting policies. We adopted IFRS 16 using a modified retrospective approach whereby the financial statements of prior periods presented were not restated and continue to be reported under International Accounting Standard (IAS) 17 – Leases, as permitted by the specific transition provisions of IFRS 16. The cumulative effect of the initial adoption of IFRS 16 was reflected as an adjustment to the deficit at January 1, 2019.

Under IFRS 16, most leases are recognized on the statement of financial position as right-of-use assets within property, plant and equipment, with a corresponding lease liability within debt. Under IFRS 16, expenses related to these leases are recorded in depreciation and interest expense, whereas under IAS 17, operating lease expenses were recorded

in operating costs. Under IFRS 16, repayments of principal for these leases are recorded in repayment of long-term debt within cash flows from financing activities and the interest component is recorded in interest paid within cash flows from operating activities. The adoption of IFRS 16 did not have a significant impact on net earnings. Previously, under IAS 17, operating lease payments were recorded within cash flows from operating activities.

To align with changes in how we manage our business and assess performance, the operating results of The Source (Bell) Electronics Inc. (The Source) are now entirely included within our Wireless segment effective January 1, 2019, with prior periods restated for comparative purposes. Previously, The Source’s results were included within our Wireless and Wireline segments.

 

 

 

1.1   Introduction

AT A GLANCE

 

BCE is Canada’s largest communications company, providing residential, business and wholesale customers with a wide range of solutions for all their communications needs. BCE’s shares are publicly traded on the Toronto Stock Exchange and on the New York Stock Exchange (TSX, NYSE: BCE).

BCE is Canada’s largest communications company

BCE’s business segments

At December 31, 2019

 

Our results are reported in three segments: Bell Wireless, Bell Wireline and Bell Media.

Bell Wireless provides wireless voice and data communications products and services to our residential, small and medium-sized business and large enterprise customers across Canada.

Bell Wireline provides data, including Internet access and Internet protocol television (IPTV), local telephone, long distance, as well as other communications services and products to our residential, small and medium-sized business and large enterprise customers, primarily in Ontario, Québec, the Atlantic provinces and Manitoba, while satellite TV service and connectivity to business customers are available nationally across Canada. In addition, this segment includes our wholesale business, which buys and sells local telephone, long distance, data and other services from or to resellers and other carriers.

Bell Media provides conventional TV, specialty TV, pay TV, streaming services, digital media services, radio broadcasting services and out-of-home (OOH) advertising services to customers nationally across Canada.

We also hold investments in a number of other assets, including:

 

 

a 28% indirect equity interest in Maple Leaf Sports & Entertainment Ltd. (MLSE)

 

 

a 50% indirect equity interest in Glentel Inc. (Glentel)

 

 

an 18.4% indirect equity interest in entities that operate the Montreal Canadiens Hockey Club, evenko and the Bell Centre in Montréal, Québec, as well as Place Bell in Laval, Québec

 

 

 

 

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BCE 2019 CONSOLIDATED RESULTS

 

Operating revenues    Net earnings    Adjusted EBITDA (1)
$23,964    $3,253    $10,106
million    million    million
+2.1% vs. 2018    +9.4% vs. 2018    +6.0% vs. 2018

 

 

 

Net earnings attributable    Adjusted net earnings (1)     Cash flows from    Free cash flow (1)
to common shareholders       operating activities   
$3,040    $3,153    $7,958     $3,818
million    million    million    million
+9.2% vs. 2018    +0.1% vs. 2018    +7.8% vs. 2018    +7.0% vs. 2018

 

 

BCE CUSTOMER CONNECTIONS

 

Wireless (2) (3)    Retail high-speed    Retail TV (4)    Retail residential network
Total    Internet (2) (4)       access services (NAS) lines (4)
+3.6%    +4.3%    +0.2%    (8.9%)
10 million subscribers    3.6 million subscribers    2.8 million subscribers    2.7 million subscribers
at the end of 2019    at the end of 2019    at the end of 2019    at the end of 2019

 

 

OUR GOAL

BCE’s goal is to advance how Canadians connect with each other and the world. Our strategic imperatives frame our longstanding strengths in networks, service innovation and content creation, and position the company for continued growth and innovation leadership in a fast-changing communications marketplace. Our primary business objectives are to grow our subscriber base profitably and to maximize revenues, operating profit, free cash flow and return on invested capital by further enhancing our position as the foremost provider in Canada of comprehensive communications services to residential, business and wholesale customers, and as Canada’s premier content creation company. We seek to take advantage of opportunities to leverage our networks, infrastructure, sales channels, and brand and marketing resources across our various lines of business to create value for both our customers and other stakeholders.

To help support every action in pursuit of our goal, we updated our six strategic imperatives on January 6, 2020 to align our efforts company-wide.

 

1  Build

the best

networks

    

2  Drive

growth with

innovative

services

    

3  Deliver

the most

compelling

content

 

4  Champion

customer

experience

    

5  Operate

with agility

and cost

efficiency

    

6  Engage and

invest in

our people

 

 

(1)

Adjusted EBITDA, adjusted net earnings and free cash flow are non-GAAP financial measures and do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) – Adjusted EBITDA and adjusted EBITDA margin, Adjusted net earnings and adjusted EPS and Free cash flow and dividend payout ratio in this MD&A for more details, including reconciliations to the most comparable IFRS financial measure.

 

(2)

At the beginning of Q1 2019, we adjusted our wireless subscriber base to remove 167,929 subscribers (72,231 postpaid and 95,698 prepaid) as follows: (A) 65,798 subscribers (19,195 postpaid and 46,603 prepaid), due to the completion of the shutdown of the code division multiple access (CDMA) network on April 30, 2019, (B) 49,095 prepaid subscribers as a result of a change to our deactivation policy, mainly from 120 days for Bell/Virgin Mobile Canada (Virgin Mobile) and 150 days for Lucky Mobile to 90 days, (C) 43,670 postpaid subscribers relating to Internet of Things (IoT) due to the further refinement of our subscriber definition as a result of technology evolution, and (D) 9,366 postpaid fixed wireless Internet subscribers which were transferred to our retail high-speed Internet subscriber base.

 

(3)

At the beginning of Q4 2018, we adjusted our postpaid wireless subscriber base to remove 20,000 subscribers that we divested to Xplornet Communications Inc. (Xplornet) as a result of BCE’s acquisition of Manitoba Telecom Services Inc. (MTS) in 2017.

 

(4)

As of January 1, 2019, we are no longer reporting wholesale subscribers in our Internet, TV and residential NAS subscriber bases reflecting our focus on the retail market. Consequently, we restated previously reported 2018 subscribers for comparability.

 

    

 

 

       

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1.2   About BCE

We report the results of our operations in three segments: Bell Wireless, Bell Wireline and Bell Media. We describe our product lines by segment below, to provide further insight into our operations.

 

 

OUR PRODUCTS AND SERVICES

Bell Wireless

 

SEGMENT DESCRIPTION

 

 

Provides integrated digital wireless voice and data communications products and services to residential and business customers across Canada

 

 

Includes the results of operations of Bell Mobility Inc. (Bell Mobility) and our national consumer electronics retailer, The Source

OUR NETWORKS AND REACH

We hold wireless spectrum licences, with holdings across various spectrum bands and regions across Canada, totalling more than 4.8 billion megahertz per population (MHz-Pop), corresponding to an average of approximately 137 Megahertz (MHz) of spectrum per Canadian.

The vast majority of our cell towers are connected with fibre, the latest network infrastructure technology, for a more reliable connection.

Our Fourth Generation (4G) Long-term Evolution (LTE) and LTE Advanced (LTE-A) nationwide wireless broadband networks are compatible with global standards and deliver high-quality and reliable voice and high-speed data services to virtually all of the Canadian population.

 

 

LTE coverage of over 99% of the Canadian population coast to coast, with LTE-A covering approximately 94% of the Canadian population at December 31, 2019

 

 

Expansion of our LTE and LTE-A services is supported by continued repurposing of wireless spectrum to increase capacity and coverage

 

 

In-building coverage improvements deliver a stronger LTE signal

 

 

LTE-A provides peak theoretical mobile data access download speeds of up to 1.5 gigabit per second (Gbps) (1) (expected average download speeds of 25 to 245 megabits per second (Mbps)), while LTE offers speeds of up to 150 Mbps (expected average download speeds of 18 to 40 Mbps) (2)

 

 

Reverts to the high-speed packet access plus (HSPA+) network outside LTE coverage areas, with speeds of up to 42 Mbps (typical speeds of 3.5 to 14 Mbps)

 

 

Bell also operates a LTE-category M1 (LTE-M) network, which is a subset of our LTE network, supporting low-power IoT applications with enhanced coverage, longer battery life and lower costs for IoT devices connecting to Bell’s national network. Our LTE-M network is available in most Canadian provinces.

We have more than 3,500 retail points of distribution across Canada, including approximately 1,300 Bell, Virgin Mobile, Lucky Mobile and The Source locations, as well as Glentel-operated locations (WIRELESSWAVE, Tbooth wireless and WIRELESS etc.) and other third-party dealer and retail locations.

OUR PRODUCTS AND SERVICES

 

 

Data and voice plans: From plans focused on affordability to premium services, we have plans that cater to all customer segments, available on either postpaid or prepaid options, including unlimited data, shareable, Smartpay and Connect Everything plans. Our services provide fast Internet access for video, social networking, messaging and mobile applications, as well as a host of call features.

 

 

Specialized plans: for tablets, mobile Internet, smartwatches and Connected Car

 

 

Extensive selection of devices: leading 4G LTE and LTE-A smartphones and tablets, mobile Internet hubs and sticks, mobile Wi-Fi devices and connected things (smartwatches, Bell Connected Car, trackers, connected home, lifestyle products and virtual reality)

 

 

Mobile content: over 40 live and on-demand channels on smartphones and tablets

 

 

Travel: roaming services with other wireless service providers in more than 230 outbound destinations worldwide with LTE roaming in 196 outbound destinations, Roam Better feature and Travel Passes

 

 

Mobile business solutions: push-to-talk, field service management, worker safety and mobility management

 

 

IoT solutions: asset management, smart buildings, smart cities, fleet management and other IoT services

 

 

(1)

Peak theoretical download speeds of up to 1.5 Gbps are currently offered in select markets like Kingston.

 

(2)

Network speeds vary with location, signal and customer device. Compatible device required.

 

 

 

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Bell Wireline

 

SEGMENT DESCRIPTION

 

 

Provides data, including Internet access and IPTV, voice, comprising local telephone and long distance, as well as other communications services and products to residential, small and medium-sized business and large enterprise customers, primarily in Ontario, Québec, the Atlantic provinces and Manitoba, while satellite TV service and connectivity to business customers are available nationally across Canada. We also offer competitive local exchange carrier (CLEC) services in Alberta and British Columbia.

 

 

Includes the results of our wholesale business, which buys and sells local telephone, long distance, data and other services from or to resellers and other carriers, and the wireline operations of Northwestel Inc. (Northwestel), which provides telecommunications services in Canada’s Northern Territories

OUR NETWORKS AND REACH

 

 

Extensive local access network in Ontario, Québec, the Atlantic provinces and Manitoba, as well as in Canada’s Northern Territories

 

 

Broadband fibre network, consisting of fibre-to-the-node (FTTN) and fibre-to-the-premise (FTTP) locations, covering 9.7 million homes and businesses in Ontario, Québec, the Atlantic provinces and Manitoba. Our FTTP direct fibre footprint encompassed more than 5.1 million homes and commercial locations at the end of 2019, representing the largest FTTP footprint in Canada.

 

 

Wireless-to-the-premise (WTTP) footprint encompassing approximately 250,000 locations primarily in rural areas. WTTP is Fifth Generation (5G)-capable fixed wireless technology delivered over Bell’s LTE wireless network that provides broadband residential Internet access to smaller and underserved communities.

 

 

Largest Internet protocol (IP) multi-protocol label switching footprint of any Canadian provider, enabling us to offer business customers a virtual private network (VPN) service for IP traffic and to optimize bandwidth for real-time voice and TV

 

 

Largest data centre footprint in Canada with 30 facilities in eight provinces, enabling us to offer co-location, cloud and managed services to business customers across Canada

 

 

Approximately 800 Bell and Virgin Mobile locations

 

 

OUR PRODUCTS AND SERVICES

RESIDENTIAL

 

 

TV: IPTV services (Fibe TV and Alt TV) and satellite TV service. Bell Fibe TV provides extensive content options with full high-definition (HD) and 4K resolution (4K) Whole Home personal video recorder (PVR), 4K Ultra HD programming, on-demand content and innovative features including wireless receivers, the Fibe TV app, Restart and access to Crave, Netflix and YouTube. Alt TV app-based live TV streaming service offers live and on-demand programming on laptops, smartphones, tablets, Apple TV, Amazon Fire TV, Google Chromecast and other devices with no traditional TV set-top box (STB) required

 

 

Internet: high-speed Internet access through fibre optic broadband technology, 5G-capable WTTP technology or digital subscriber line (DSL) with a wide range of options, including Whole Home Wi-Fi, unlimited usage, security services and mobile Internet. Our Internet service, marketed as Fibe Internet, offers total download speeds of up to 1.5 Gbps with FTTP or 100 Mbps with FTTN, while our Wireless Home Internet fixed wireless service currently delivers broadband speeds of up to 25 Mbps. We also offer Internet service under the Virgin Mobile brand offering download speeds of up to 100 Mbps.

 

 

Home Phone: local telephone service, long distance and advanced calling features

 

 

Smart Home: home security, monitoring and automation services from Bell Smart Home

 

 

Bundles: multi-product bundles of TV, Internet and home phone services with monthly discounts

BUSINESS

 

 

Internet and private networks: business Internet, Ethernet, IP VPN, Wavelength, global network solutions, virtual network services, managed Wi-Fi

 

 

Communications: IP telephony, local and long distance, audio, video and web conferencing and webcasting, contact centre solutions

 

 

Cloud and data centre: cloud computing, cloud services, backup and disaster recovery, co-location hosting, virtual data centre

 

 

Other: security, managed services, professional services

 

 

    

 

 

       

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Bell Media

 

SEGMENT DESCRIPTION

 

 

Canada’s leading content creation company with premier assets in video, radio, OOH advertising and digital media

 

 

Revenues are derived primarily from advertising and subscriber fees

 

 

Conventional TV, radio, OOH and digital media revenues are derived from advertising

 

 

Specialty TV revenue is generated from subscription fees and advertising

 

 

Pay TV revenue is derived from subscription fees

OUR ASSETS AND REACH

VIDEO

 

 

30 conventional TV stations, including CTV, Canada’s #1 TV network for 18 consecutive years

 

 

29 specialty channels, including TSN, Canada’s most-watched specialty TV channel and RDS, the top French-language sports network

 

 

4 pay TV services and 3 direct-to-consumer (DTC) streaming services, including Crave, the exclusive home of HBO in Canada

RADIO

 

 

109 licensed radio stations in 58 markets across Canada

OOH ADVERTISING

 

 

Network of more than 50,000 advertising faces in key urban cities across Canada

DIGITAL MEDIA

 

 

More than 200 websites and more than 30 apps

BROADCAST RIGHTS

 

 

Sports: long-term media rights to key sports properties and official Canadian broadcaster of the Super Bowl, Grey Cup and International Ice Hockey Federation (IIHF) World Junior Championship. Live sports coverage includes the Toronto Maple Leafs, Montreal Canadiens, Winnipeg Jets and Ottawa Senators, Canadian Football League (CFL), National Football League (NFL), National Basketball Association (NBA), Major League Soccer, Fédération Internationale de Football Association (FIFA) World Cup events, Curling’s Season of Champions, Major League Baseball, Golf’s Majors, NASCAR Cup Series, Formula One, Grand Slam Tennis, Ultimate Fighting Championship, National Collegiate Athletic Association March Madness and more.

 

 

HBO: long-term agreement to deliver all current-season, past-season and library HBO programming in Canada exclusively on our linear, on-demand and over-the-top (OTT) platforms

 

 

HBO Max: long-term exclusive agreement to bring original programming from upcoming U.S. streaming service HBO Max to Canada

 

 

SHOWTIME: long-term content licensing and trademark agreement for past, present and future SHOWTIME-owned programming

 

 

STARZ: long-term agreement with Lionsgate to deliver U.S. premium pay TV platform STARZ in Canada

 

 

iHeartRadio: exclusive partnership for digital and streaming music services in Canada

OTHER ASSETS

 

 

Majority stake in Pinewood Toronto Studios, the largest purpose-built production studio in Canada

 

 

Partnership in Just for Laughs, the live comedy event and TV producer

 

 

Equity interest in Dome Productions Partnership, one of North America’s leading providers of sports and other event production and broadcast facilities

OUR PRODUCTS AND SERVICES

 

 

Varied and extensive array of TV programming to broadcast distributors across Canada

 

 

Advertising on our TV, radio, OOH, and digital media properties to both local and national advertisers across a wide range of industry sectors

 

 

Crave subscription on-demand TV streaming service offering a large collection of premium content in one place, including HBO, SHOWTIME and STARZ programming, on STBs, mobile devices, streaming devices and online. Crave is offered through a number of Canadian TV providers and is available directly to all Canadian Internet subscribers as an OTT service.

 

 

TSN Direct and RDS Direct streaming services offering live and on-demand TSN and RDS content directly to consumers through a monthly or single-day subscription on computers, tablets, mobile devices, Apple TV and other streaming devices

 

 

Mobile TV service with live and on-demand access to content from our conventional TV networks, CTV and CTV Two, BNN Bloomberg, TSN, RDS and other brands in news, sports and entertainment, offered on commercial terms to all Canadian wireless providers

 

 

 

 

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Other BCE investments

 

BCE also holds investments in a number of other assets, including:

 

  a 28% indirect equity interest in MLSE, a sports and entertainment company that owns several sports teams, including the Toronto Maple Leafs, the Toronto Raptors, Toronto FC and the Toronto Argonauts, as well as real estate and entertainment assets in Toronto

 

  a 50% indirect equity interest in Glentel, a Canadian-based dual-carrier, multi-brand mobile products distributor

 

  an 18.4% indirect equity interest in entities that operate the Montreal Canadiens Hockey Club, evenko (a promoter and producer of cultural and sports events) and the Bell Centre in Montréal as well as Place Bell in Laval, Québec

  

 

 

OUR PEOPLE

 

EMPLOYEES

 

At the end of 2019, our team comprised 52,100 employees, a decrease of 690 employees compared to the end of 2018, due primarily to natural attrition, retirements and workforce reductions, partly offset by call centre hiring.

 

Approximately 41% of total BCE employees were represented by labour unions at December 31, 2019.

  

 

BELL CODE OF BUSINESS CONDUCT

The ethical business conduct of our people is core to the integrity with which we operate our business. The Bell Code of Business Conduct sets out specific expectations and accountabilities, providing employees with practical guidelines to conduct business in an ethical manner.

 

 

Our commitment to the Code of Business Conduct is renewed by employees each year in an ongoing effort to ensure that all employees are aware of, and adhere to, Bell’s standards of conduct.

 

 

 

1.3   Key corporate developments

MIRKO BIBIC APPOINTED AS PRESIDENT AND CHIEF EXECUTIVE OFFICER

 

On January 6, 2020, Mirko Bibic became President and Chief Executive Officer (CEO) of BCE Inc. and Bell Canada following the retirement of George Cope on January 5, 2020. On the same day, Mr. Bibic was also appointed to the boards of directors of BCE and Bell Canada. A Bell executive since 2004, Mr. Bibic was most recently Bell’s Chief Operating Officer responsible for Bell Mobility, Bell Residential and Small Business,

and Bell Business Markets (BBM). In his prior roles, Mr. Bibic served as Executive Vice-President, Corporate Development and Chief Legal and Regulatory Officer, guiding a wide range of Bell acquisition and investment initiatives, including multiple wireless spectrum auctions and the consolidation of regional communications companies such as MTS and Bell Aliant Inc. (Bell Aliant).

 

 

 

NEW STRATEGIC IMPERATIVES AND EXECUTIVE PROMOTIONS

 

As new President and CEO, Mirko Bibic unveiled BCE’s updated strategic imperatives that support Bell’s goal to advance how Canadians connect with each other and the world. These strategic imperatives frame Bell’s longstanding strengths in networks, service innovation and content creation, and position the company for continued growth and innovation leadership in a fast-changing communications marketplace.

1. Build the best networks

2. Drive growth with innovative services

3. Deliver the most compelling content

4. Champion customer experience

5. Operate with agility and cost efficiency

6. Engage and invest in our people

 

 

    

 

 

       

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Mr. Bibic also announced a restructured Bell executive leadership team effective January 6, 2020:

 

 

Claire Gillies was promoted to President, Bell Mobility. Previously Senior Vice-President, Retail, and President of Bell subsidiary The Source, Ms. Gillies joined Bell in 2000 and served in progressively senior roles in marketing, sales and channel management.

 

 

Blaik Kirby became Group President, Mobility & Residential and Small Business. Previously President of Bell Mobility, Mr. Kirby held a range of senior marketing and executive positions since joining Bell in 2005 as Vice-President, Corporate Strategy.

 

Karine Moses was promoted to Vice Chair, Québec. Also continuing in her role as President, Bell Media Québec, Ms. Moses joined Bell in 1997 and held senior leadership positions across Bell’s Network, Field Services and Media groups. Ms. Moses succeeded retiring Vice Chair, Québec Martine Turcotte.

 

 

John Watson became Group President, Customer Experience, continuing to lead all customer service and support operations in the execution of Bell’s Champion Customer Experience imperative. Previously Executive Vice-President, Customer Operations, Mr. Watson joined Bell in 2010 as Senior Vice-President, Operations.

 

 

 

ACQUISITION OF V NETWORK AND NOOVO.CA

 

On July 24, 2019, Bell Media announced that it had entered into an agreement with the shareholders of Groupe V Média to acquire conventional TV network V along with related digital assets including the ad-supported video-on-demand (VOD) service Noovo.ca. The transaction will reinforce choice for French-language viewers and strengthen the Québec TV ecosystem, and highlights Bell Media’s commitment to providing engaging content in Québec on traditional and innovative platforms. With popular original programs such as Occupation double, L’amour est dans le pré, and Un souper presque parfait, Groupe V Média owns and operates TV stations in Montréal,

 

Québec City, Saguenay, Sherbrooke and Trois-Rivières, and has affiliate stations in Gatineau, Rivière-du-Loup and Val-d’Or. In addition to V and Noovo.ca, Groupe V Média currently operates specialty channels ELLE Fictions and MAX, which are not subject to the transaction. The Canadian Radio-television and Telecommunications Commission (CRTC) held a hearing in February 2020 to consider the transaction and we are awaiting a decision. The transaction is subject to customary closing conditions, including the receipt of required regulatory and other approvals, and is expected to close in mid 2020.

 

 

 

1.4   Capital markets strategy

We seek to deliver sustainable shareholder returns through consistent dividend growth. This objective is underpinned by continued growth in free cash flow and a strong balance sheet, supporting a healthy level of ongoing capital investment on advanced broadband networks and services that are essential to driving the long-term growth of our business.

 

 

DIVIDEND GROWTH AND PAYOUT POLICY

 

Dividend growth   2020 dividend increase   Dividend payout policy
+128%   +5%   65%–75%
Since 2009   to $3.33 per common share   of free cash flow

 

On February 6, 2020, we announced a 5%, or 16 cents, increase in the annualized dividend payable on BCE’s common shares for 2020 to $3.33 per share from $3.17 per share in 2019, starting with the quarterly dividend payable on April 15, 2020. This represents BCE’s 16th increase to its annual common share dividend since 2009, representing a total increase of 128%. This is BCE’s 12th consecutive year of 5% or better dividend growth.

Our objective is to seek to achieve dividend growth while maintaining our dividend payout ratio (1) within the target policy range of 65% to 75% of free cash flow and balancing our strategic business priorities. BCE’s dividend payout policy, increases in the common share dividend and the declaration of dividends are subject to the discretion of the BCE board of directors (BCE Board or Board) and, consequently, there can be no guarantee that BCE’s dividend policy will be maintained, that the dividend on common shares will be increased or that dividends will be declared.

 

 

 

(1)

Dividend payout ratio is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) - Free cash flow and dividend payout ratio for more details.

 

 

 

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We have a strong alignment of interest between shareholders and our management’s equity-based long-term incentive compensation plan. The vesting of performance share units depends on the realization of our dividend growth policy, while stock options reflect our objective to increase the share price for our shareholders.

 

  

  Stringent share ownership requirements

 

  Emphasis on pay at risk for executive compensation

 

  Double trigger change-in-control policy

 

  Anti-hedging policy on share ownership and incentive compensation

 

  Clawbacks for the President and CEO and all Executive Vice-Presidents as well as all option holders

 

  Caps on BCE supplemental executive retirement plans and annual bonus payouts, in addition to mid-term and long-term incentive grants

 

  Vesting criteria fully aligned to shareholder interests

 

 

USE OF LIQUIDITY

 

Our dividend payout policy allows BCE to retain a high level of free cash flow after payment of dividends on common shares. Consistent with our capital markets objective to deliver sustainable shareholder returns through dividend growth, while maintaining appropriate levels of capital investment, investment-grade credit ratings and considerable overall financial flexibility, we deploy remaining free cash flow, after payment of dividends on common shares, in a balanced manner and on uses that include, but are not limited to:

 

 

Funding of strategic acquisitions and investments (including wireless spectrum purchases) that support the growth of our business

 

 

Debt reduction

 

 

Voluntary contributions to BCE’s defined benefit (DB) pension plans to improve the funded position of the plans and reduce the use of letters of credit for funding deficits

 

 

Share buybacks through normal course issuer bid (NCIB) programs

In 2019, free cash flow, after payment of dividends on common shares, in the amount of $999 million, up from $888 million in 2018, was directed towards various small tuck-in acquisitions and strategic partnerships that support our strategic imperatives as well as the repayment of short-term debt.

 

 

 

TOTAL SHAREHOLDER RETURN PERFORMANCE

 

Five-year total   One-year total
shareholder return (1)   shareholder return (1)
+44.9%         +17.5%
2015–2019   2019

FIVE-YEAR CUMULATIVE TOTAL VALUE OF A $100 INVESTMENT (2)

DECEMBER 31, 2014 – DECEMBER 31, 2019

 

  

This graph compares the yearly change in the cumulative annual total shareholder return of BCE common shares against the cumulative annual total return of the S&P/TSX Composite Index (3), for the five-year period ending December 31, 2019, assuming an initial investment of $100 on December 31, 2014 and the quarterly reinvestment of all dividends.

 

 

 

(1)

The change in BCE’s common share price for a specified period plus BCE common share dividends reinvested, divided by BCE’s common share price at the beginning of the period.

 

(2)

Based on BCE’s common share price on the Toronto Stock Exchange (TSX) and assumes the reinvestment of dividends.

 

(3)

As the headline index for the Canadian equity market, the S&P/TSX Composite Index is the primary gauge against which to measure total shareholder return for Canadian-based, TSX-listed companies.

 

    

 

 

       

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STRONG CAPITAL STRUCTURE

 

BCE’s balance sheet is underpinned by a healthy liquidity position and an investment-grade credit profile, providing the company with a solid financial foundation and a high level of overall financial flexibility. BCE has an attractive long-term debt maturity profile with no maturities until the second quarter of 2021. We continue to monitor the capital markets for opportunities where we can further reduce our cost of debt

and optimize our cost of capital. We seek to proactively manage financial risk in terms of currency exposure of our U.S. dollar-denominated purchases, as well as equity risk exposure under BCE’s long-term equity-based incentive plans and interest rate and foreign currency exposure under our various debt instruments. We also seek to maintain investment-grade credit ratings with stable outlooks.

 

 

 

 

ATTRACTIVE LONG-TERM PUBLIC

DEBT MATURITY PROFILE (1)

 

  Average term of Bell Canada’s publicly issued debt securities: approximately 11.5 years

 

  Average after-tax cost of publicly issued debt securities: 3.1%

 

  No publicly issued debt securities maturing until Q2 2021

  

STRONG LIQUIDITY POSITION (1)

 

  $2,049 million available under our $4.0 billion multi-year committed credit facilities

 

  $400 million accounts receivable securitization available capacity

 

  $145 million cash and cash equivalents on hand

  

INVESTMENT GRADE CREDIT PROFILE (1) (2)

 

  Long-term debt credit rating of BBB (high) by DBRS Limited (DBRS), Baa 1 by Moody’s Investors Service, Inc. (Moody’s) and BBB+ S&P Global Ratings Canada (S&P), all with stable outlooks

 

We monitor our capital structure by utilizing a number of measures, including net debt leverage ratio (3), adjusted EBITDA to net interest expense ratio (3), and dividend payout ratio.

As a result of financing a number of strategic acquisitions made since 2010, including CTV Inc., Astral Media Inc. (Astral), MLSE, Bell Aliant, Q9 Networks Inc. (Q9) and MTS; voluntary pension plan funding contributions to reduce our pension solvency deficit; wireless spectrum purchases; as well as a one-time unfavourable impact in 2019 due to the adoption of IFRS 16 that added $2.3 billion of leases to net debt (3) on our balance sheet on January 1, 2019, our net debt leverage ratio has increased above the limit of our internal target range. At December 31, 2019, our net debt leverage ratio was 2.79 times adjusted EBITDA, which exceeded the limit of our internal target range by 0.29. This is not expected to affect our credit ratings or outlooks. Our net debt leverage ratio is expected to improve over time and return within the new net debt leverage ratio target range through growth in free cash flow and applying a portion of free cash flow, after payment of dividends on common shares, to the reduction of BCE’s indebtedness.

BCE’s adjusted EBITDA to net interest expense ratio remains significantly above our internal target range of greater than 7.5 times adjusted EBITDA at 8.54, providing good predictability in our debt service costs and protection from interest rate volatility for the foreseeable future.

 

                                                             
     
BCE CREDIT RATIOS    INTERNAL TARGET        DECEMBER 31, 2019       

Net debt leverage ratio

     2.0–2.5        2.79      

Adjusted EBITDA to net interest expense ratio

     >7.5        8.54      

Bell Canada successfully accessed the debt capital markets in May 2019 and September 2019, raising a total of $1.15 billion in gross proceeds from the issuance in Canada of medium-term note (MTN) debentures, and $600 million in U.S. dollars ($808 million in Canadian dollars) in gross proceeds from the issuance of notes in the U.S. Both the Canadian-dollar and U.S.-dollar issuances contributed to maintaining our after-tax cost of outstanding publicly issued debt securities at approximately 3.1% (4.3% on a pre-tax basis), and increasing the average term to maturity to about 11.5 years. The net proceeds of the 2019 offerings were used to fund the early redemption of $1.4 billion of Bell Canada MTN debentures maturing in 2020 and to repay short-term debt. Subsequent to year end, on February 13, 2020, Bell Canada issued 3.50% Series M-51 MTN debentures under its 1997 trust indenture, with a principal amount of $750 million, which mature on September 30, 2050. The net proceeds of the offering are intended to be used to fund, on March 16, 2020, the redemption, prior to maturity, of Bell Canada’s 4.95% Series M-24 MTN debentures, with early debt redemption charges of $17 million. The M-24 MTN debentures have an outstanding principal amount of $500 million and were due on May 19, 2021. The net proceeds are further intended to be used for the repayment of short-term debt.

In May 2019, Bell Canada renewed its short form base shelf prospectus, enabling Bell Canada to offer up to $5 billion of debt securities from time to time until June 29, 2021. The debt securities will be fully and unconditionally guaranteed by BCE. Consistent with past practice, the short form base shelf prospectus was renewed to continue to provide Bell Canada with financial flexibility and efficient access to the Canadian and U.S. debt capital markets. As at March 5, 2020, Bell Canada had issued $1.3 billion principal amount of debt securities under its new short form base shelf prospectus.

 

 

(1)

As at December 31, 2019

 

(2)

These credit ratings are not recommendations to buy, sell or hold any of the securities referred to, and they may be revised or withdrawn at any time by the assigning rating agency. Ratings are determined by the rating agencies based on criteria established from time to time by them, and they do not comment on market price or suitability for a particular investor. Each credit rating should be evaluated independently of any other credit rating.

 

(3)

Net debt, net debt leverage ratio and adjusted EBITDA to net interest expense ratio are non-GAAP financial measures and do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) Net debt, Net debt leverage ratio and Adjusted EBITDA to net interest expense ratio in this MD&A for more details.

 

 

 

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1.5   Corporate governance and risk management

CORPORATE GOVERNANCE PHILOSOPHY

The Board and management of BCE believe that strong corporate governance practices contribute to superior results in creating and maintaining shareholder value. That is why we continually seek to strengthen our leadership in corporate governance and ethical business conduct by adopting best practices, and providing full transparency and accountability to our shareholders. The Board is responsible for the supervision of the business and affairs of the company.

Below are our key Board information and governance best practices:

 

      Directors are All Independent (except CEO)

 

       

 

   Board Interlocks Guidelines

  99%  2019 Board and Committee Director Attendance Record

   

   Directors’ Tenure Guidelines

      Board Committees’ Members are All Independent

   

   Share Ownership Guidelines for Directors and Executives

      Board Diversity Policy and Target for Gender Representation

   

   Code of Business Conduct and Ethics Program

      Annual Election of All Directors

   

   Annual Advisory Vote on Executive Compensation

      Directors Elected Individually

   

   Formal Board Evaluation Process

      Majority Voting Policy for Directors

   

   Board Risk Oversight Practices

       Separate Chair and CEO

   

   Robust Succession Planning

For more information, please refer to BCE’s most recent notice of annual general shareholder meeting and management proxy circular (the Proxy Circular) filed with the Canadian provincial securities regulatory authorities (available at sedar.com) and furnished to the U.S. Securities and Exchange Commission (available at sec.gov), and available on BCE’s website at BCE.ca.

 

 

RISK GOVERNANCE FRAMEWORK

BOARD OVERSIGHT

 

BCE’s full Board is entrusted with the responsibility for identifying and overseeing the principal risks to which our business is exposed and seeking to ensure there are processes in place to effectively identify, monitor and manage them. These processes seek to mitigate rather than eliminate risk. A risk is the possibility that an event might happen in the future that could have a negative effect on our financial position, financial performance, cash flows, business or reputation. While the Board has overall responsibility for risk, the responsibility for certain elements of the risk oversight program is delegated to Board committees in order to ensure that they are treated with appropriate expertise, attention and diligence, with reporting to the Board in the ordinary course.

 

Risk information is reviewed by the Board or the relevant committee throughout the year, and business leaders present regular updates on the execution of business strategies, risks and mitigation activities.

 

 

The Audit Committee is responsible for overseeing financial reporting and disclosure as well as overseeing that appropriate risk management processes are in place across the organization. As part of its risk management activities, the Audit Committee reviews the organization’s risk reports and ensures that responsibility for each principal risk is formally assigned to a specific committee or the full Board, as appropriate. The Audit Committee also regularly considers risks relating to financial reporting, legal proceedings, the performance of critical infrastructure, information and physical security, journalistic independence, privacy and records management, business continuity and the environment.

 

 

The Management Resources and Compensation Committee (Compensation Committee) oversees risks relating to compensation, succession planning and workplace policies and practices (including health and safety policies, policies ensuring a respectful workplace free from harassment and policies ensuring a diverse and inclusive workplace)

 

 

The Corporate Governance Committee (Governance Committee) assists the Board in developing and implementing BCE’s corporate governance guidelines and determining the composition of the Board and its committees. The Governance Committee also oversees matters such as the organization’s policies concerning business conduct, ethics and public disclosure of material information.

 

 

The Pension Fund Committee (Pension Committee) has oversight responsibility for risks associated with the pension funds

 

 

    

 

 

       

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RISK MANAGEMENT CULTURE

There is a strong culture of risk management at BCE that is actively promoted by the Board and the company’s President and CEO at all levels within the organization. It has become a part of how the company operates on a day-to-day basis and is woven into its structure and operating principles, guiding the implementation of the organization’s strategic imperatives.

The President and CEO, selected by the Board, has set his strategic focus through the establishment of six strategic imperatives and focuses risk management around the factors that could impact the achievement of those strategic imperatives. While the constant state of change in the economic environment and the industry creates challenges that need to be managed, clarity around strategic objectives, performance expectations, risk management and integrity in execution ensures discipline and balance in all aspects of our business.

RISK MANAGEMENT FRAMEWORK

While the Board is responsible for BCE’s risk oversight program, operational business units are central to the proactive identification and management of risk. They are supported by a range of corporate support functions that provide independent expertise to reinforce implementation of risk management approaches in collaboration with the operational business units. The Internal Audit function provides a further element of expertise and assurance, working to provide insight and support to the operational business units and corporate support functions, while also providing the Audit Committee with an independent perspective on the state of risk and control within the organization. Collectively, these elements can be thought of as a “three lines of defence” approach to risk management. Although the risk management framework described in this section 1.5 is aligned with industry best practices and is endorsed by the Institute of Internal Auditors, there can be no assurance that it will be sufficient to prevent the occurrence of events that could have a material adverse effect on our financial position, financial performance, cash flows, business or reputation.

 

 

FIRST LINE OF DEFENCE – OPERATIONAL BUSINESS UNITS

The first line refers to management within our operational business segments (Bell Wireless, Bell Wireline and Bell Media), who are expected to understand their operations in great detail and the financial results that underpin them. There are regular reviews of operating performance involving the organization’s executive and senior management. The discipline and precision associated with this process, coupled with the alignment and focus around performance goals, create a high degree of accountability and transparency in support of our risk management practices.

As risks emerge in the business environment, they are discussed in a number of regular forums to share details and explore their relevance across the organization. Executive and senior management are integral to these activities in driving the identification, assessment, mitigation and reporting of risks at all levels. Formal risk reporting occurs through strategic planning sessions, management presentations to the Board and formal enterprise risk reporting, which is shared with the Board and the Audit Committee during the year.

Management is also responsible for maintaining effective internal controls and for executing risk and control procedures on a day-to-day basis. Each operational business unit develops its own operating controls and procedures that fit the needs of its unique environment.

SECOND LINE OF DEFENCE –

CORPORATE SUPPORT FUNCTIONS

BCE is a very large enterprise, with 52,100 employees as at December 31, 2019, multiple business units and a diverse portfolio of risks that is constantly evolving based on internal and external factors. In a large organization, it is common to manage certain functions centrally for efficiency, scale and consistency. While the first line of defence is often central to identification and management of business risks, in many instances operational management works collaboratively with, and also relies on, the corporate functions that make up the second line of defence for support in these areas. These corporate functions include Finance, Corporate Security, Corporate Risk Management, Legal, Regulatory, Corporate Responsibility, Human Resources, Real Estate and Procurement.

Finance function: BCE’s Finance function plays a pivotal role in seeking to identify, assess and manage risks through a number of activities, which include financial performance management, external reporting, pension management, capital management, and oversight and execution practices related to the U.S. Sarbanes-Oxley Act of 2002 and equivalent Canadian securities legislation, including the establishment and maintenance of appropriate internal control over financial reporting. BCE has also established and maintains disclosure controls and procedures to seek to ensure that the information it publicly discloses, including its business risks, is accurately recorded, processed, summarized and reported on a timely basis. For more details concerning BCE’s internal control over financial reporting and disclosure controls and procedures, refer to the Proxy Circular and section 10.3, Effectiveness of internal controls of this MD&A.

 

 

 

 

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Corporate Security function: This function is responsible for all aspects of security, which requires a deep understanding of the business, the risk environment and the external stakeholder environment. Based on this understanding, Corporate Security sets the standards of performance required across the organization through security policy definitions and monitors the organization’s performance against these policies. In high and emerging risk areas such as information security, Corporate Security leverages its experience and competence and, through collaboration with the operational business units, develops strategies intended to seek to mitigate the organization’s risks. For instance, we have implemented security awareness training and policies and procedures that seek to mitigate information security threats. We further rely on security assessments to identify risks, projects and implementation controls with the objective of ensuring that systems are deployed with the appropriate level of control based on risk and technical capabilities, including access management, vulnerability management, security monitoring and testing, to help identify and respond to attempts to gain unauthorized access to our information systems and networks. We evaluate and seek to adapt our security policies and procedures designed to protect our information and assets in light of the continuously evolving nature and sophistication of information security threats. However, given in particular the complexity and scale of our business, network infrastructure, technology and information technology (IT) supporting systems, there can be no assurance that the security policies and procedures that we implement will prevent the occurrence of all potential information security breaches. In addition, there can be no assurance that any insurance we may have will cover the costs, damages, liabilities or losses that could result from the occurrence of any information security breach.

Corporate Risk Management function: This function works across the company to gather information and report on the organization’s assessment of its principal risks and the related exposures. Annually, senior management participate in a risk survey that provides an important reference point in the overall risk assessment process.

In addition to the activities described above, the second line of defence is also critical in building and operating the oversight mechanisms that bring focus to relevant areas of risk and reinforce the bridges between the first and second lines of defence, thereby seeking to ensure that there is a clear understanding of emerging risks, their relevance to the organization and the proposed mitigation plans.

To further coordinate efforts between the first and second lines of defence, BCE has established a Health and Safety, Security, Environment and Compliance Oversight Committee (HSSEC Committee). A significant number of BCE’s most senior leaders are members of the HSSEC Committee, the purpose of which is to oversee BCE’s strategic security (including information security), compliance, and environmental, health and safety risks and opportunities. This cross-functional committee seeks to ensure that relevant risks are adequately recognized and mitigation activities are well integrated and aligned across the organization and are supported with sufficient resources. The HSSEC Committee also mandates the company’s Energy Board, a working group composed of business unit employees at the vice-president and director levels, to ensure oversight of our overall energy consumption and costs with the objective of minimizing financial and reputational risks while maximizing business opportunities.

THIRD LINE OF DEFENCE – INTERNAL AUDIT FUNCTION

Internal Audit is a part of the overall management information and control system and has the responsibility to act as an independent appraisal function. Its purpose is to provide the Audit Committee and management with objective evaluations of the company’s risk and control environment, to support management in fulfilling BCE’s strategic imperatives and to maintain an audit presence throughout BCE and its subsidiaries.

 

 

 

    

 

 

       

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2   Strategic imperatives

Our success is built on the BCE team’s dedicated execution of the six strategic imperatives that support our goal to advance how Canadians connect with each other and the world.

 

 

2.1  Build the best networks

 

 

Expand Bell’s next-generation network leadership with continued capital investment in all-fibre home and business connections in more places, enhanced rural connectivity with Wireless Home Internet and the upcoming launch of mobile 5G service.

 

2019 PROGRESS

 

 

Continued to expand our FTTP direct fibre footprint, reaching over 5.1 million homes and businesses in seven provinces. Approximately 53 percent of our long-term broadband fibre program was completed at the end of 2019. FTTP delivers broadband access speeds of up to 1.5 Gbps currently, with faster speeds expected in the future as equipment evolves to support these higher speeds.

 

 

Expanded our innovative Wireless Home Internet service to approximately 250,000 locations in 226 rural communities at the end of 2019. Wireless Home Internet is currently available in many small communities in Ontario, including in the Niagara Peninsula and the Muskoka and Kawartha Lakes regions, and in Québec in the Eastern Townships and the Montérégie region. Fully funded by Bell, Wireless Home Internet is projected to ultimately reach 1 million rural households throughout Ontario, Québec, Atlantic Canada and Manitoba. Delivered over Bell’s advanced LTE wireless network in the 3.5 Gigahertz (GHz) spectrum band, Wireless Home Internet is 5G-capable fixed wireless technology specifically designed to extend broadband Internet access to smaller towns, rural locations and other unserved or underserved communities.

 

 

Expanded our LTE-A wireless network to reach 94% of the Canadian population with theoretical mobile data peak download speeds of up to 1.5 Gbps in select markets (expected average download speeds of 25 to 245 Mbps)

 

 

In its Canada: State of Mobile Networks report, network analysis firm Tutela found that Bell LTE delivers the fastest upload and download speeds of any major mobile network in Canada

 

 

Made LTE wireless broadband service available to all 25 communities in Nunavut, Canada’s northernmost territory, delivering mobile data speeds of up to 100 Mbps to residents and businesses across the territory as well as providing fixed wireless Internet access to 21 Nunavut communities

 

Concluded an expanded reciprocal roaming partnership with AT&T Inc. (AT&T) to provide Canadian business customers access to AT&T’s LTE-M network across the U.S. The reciprocal agreement enables AT&T customers to roam on Bell’s national LTE-M network in Canada. LTE-M supports low-power IoT applications with enhanced coverage, longer battery life and lower costs for IoT devices connecting to Bell’s national network.

2020 FOCUS

 

 

Further deployment of direct fibre to more homes and businesses within our wireline footprint and fixed WTTP technology in rural communities

 

 

FTTP footprint expansion focused on the Montréal and the Greater Toronto Area/905 geographic areas

 

 

In January 2020, Bell announced a $400 million investment in the City of Hamilton’s digital infrastructure that is planned to bring direct fibre connections to more than 200,000 residential and business locations throughout the city over the next five years. In addition, the project includes the expansion of high-speed Bell Wireless Home Internet service to 8,000 homes in rural Hamilton.

 

 

On March 2, 2020, we announced an investment of approximately $400 million to bring FTTP technology to Winnipeg, with direct fibre connections to approximately 275,000 homes and businesses throughout the city

 

 

Expansion of the LTE-A network coverage to approximately 96% of the Canadian population

 

 

Further increase LTE-A speeds

 

 

Launch of initial 5G service in urban centres across Canada as compatible smartphones become available

 

 

In January 2020, Bell announced its first 5G network equipment supplier agreement with long-time partner Nokia Corporation

 

 

Continue to deploy mobile small cells and equip more cell sites with high-speed fibre backhaul

 

 

 

 

 

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2.2   Drive growth with innovative services

 

 

Leverage our network superiority to provide innovative, integrated communications services to Canadian consumers and businesses, including the fastest Internet and best Wi-Fi, the highest-quality mobile services and a growing range of next-generation IoT solutions, smart home products and business solutions like Virtual Network Services.

 

2019 PROGRESS

 

 

Added 515,409 total net postpaid and prepaid customers, our best annual subscriber performance since 2005

 

 

Grew prepaid market share with 113,454 net activations, driven by strong demand for our low-cost Lucky Mobile service

 

 

Expanded our device lineup with 43 new devices, including Apple’s iPhone 11, 11 Pro and 11 Pro Max and Apple Watch Series 5, the Samsung Galaxy S10 series and the Samsung Galaxy Note10 and Note10+, adding to our extensive selection of 4G LTE and LTE-A devices

 

 

Launched unlimited plans featuring unlimited data access with no overage charges. Customers can sign up for plans featuring 10 gigabits (GB) or 20 GB of data at maximum LTE speeds and unlimited data access at reduced speeds when these allotments are exceeded with no overage fees charged.

 

 

Launched Connect Everything plans that provide a way to link all of a customer’s Bell devices with a pool of data to share across smartphones, tablets, smartwatches and other devices, such as wireless trackers, security cameras and vehicles with Bell Connected Car

 

 

Introduced SmartPay device financing plans that let customers buy their new smartphones with 24 interest-free installments separate from their service plan

 

 

Partnered with Dollarama Inc. (Dollarama) to make Lucky Mobile and Virgin Mobile prepaid wireless service available at the value retailer’s more than 1,200 locations across Canada. The exclusive partnership enables budget-conscious Canadians to purchase a Lucky Mobile or Virgin Mobile prepaid SIM card at Dollarama and activate on their own mobile device with no activation fee.

 

 

Partnered with the City of Markham to launch the Smart City Accelerator Research Program, using Bell’s Smart City platform, an advanced solution of interconnected IoT applications, to improve the efficiency of municipal operations and enhance City services for residents

 

 

Built on our position as the leading Internet service provider (ISP) in Canada with a retail high-speed Internet subscriber base of 3,555,601 at December 31, 2019, up 4.3% over 2018, including over 1.4 million FTTP customers at December 31, 2019

 

 

Bell Canada and our operations in the Atlantic provinces, marketed under the Bell Aliant brand, were ranked the fastest Internet providers in the country in PCMag’s annual Fastest ISPs of 2019: Canada report. PCMag’s intensive testing found that our operations in the Atlantic provinces, marketed under the Bell Aliant brand, offer the fastest overall Internet in the country. Bell Canada, serving Ontario and Québec customers, topped the list for the second year in a row as the fastest major Internet provider.

 

 

Maintained our Internet leadership with the most advanced products in the home

 

 

Launched the next generation of our Whole Home Wi-Fi pods, enabling double the speeds available on the previous model and more devices to run simultaneously and provide a larger indoor and outdoor coverage radius. Whole Home Wi-Fi learns how households use the Internet and continually optimizes the network to ensure all devices receive the strongest signal and fastest speed available.

 

 

Bell partnered with Google to introduce new hybrid cloud connectivity for business customers to connect to the Google Cloud Platform globally via direct fibre connections on Bell’s private network. The new service joined the Bell Cloud Connect portfolio of cloud and data centre solutions with partners including Amazon Web Services, IBM and Microsoft.

 

 

Bell strengthened its leadership in cloud solutions by adding managed database, application monitoring and security scanning to its extensive portfolio of Bell Cloud Managed Services for Microsoft Azure

2020 FOCUS

 

 

Maintain our market share of national operators’ wireless postpaid net additions

 

 

Higher prepaid customer net additions

 

 

Introduce more 4G LTE and LTE-A devices and 5G devices, as well as new data services

 

 

Improve subscriber acquisition and retention spending, enabled by increasing adoption of installment payment plans

 

 

Grow retail Internet subscribers

 

 

Enhance Internet product superiority through new service offerings and innovation to provide an enhanced customer experience in the home

 

 

Invest in direct fibre expansion and new solutions in key portfolios such as Internet and private networks, data centre and cloud services, unified communications, security services and IoT to improve the business client experience and increase overall business customer spending on telecommunications products and services

 

 

 

    

 

 

       

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2.3   Deliver the most compelling content

 

 

Inform and engage Canadian audiences with a unified approach to delivering our top TV, media and entertainment assets, leveraging our trusted media brands and content creation leadership to bring Canadians the content they want the most on any platform they choose.

 

2019 PROGRESS

 

 

Maintained our position as Canada’s largest TV provider with 2,772,464 retail subscribers at December 31, 2019, and increased our total number of IPTV subscribers by 5.5% to 1,767,182

 

 

Maintained our TV leadership with the most advanced products in the home

 

 

Made the Fibe TV app available on Google Chromecast. Also available on Amazon Fire TV, Android TV and Apple TV, the Fibe TV app provides multiple options to bring Fibe TV and Alt TV to all screens.

 

 

Added the ability to pause and rewind live TV on the Fibe TV app, providing enhanced functionality on any device for Alt TV, Fibe TV and Satellite TV customers

 

 

Maintained CTV’s #1 ranking as the most-watched TV network in Canada for the 18th year in a row, and continued to lead with 12 of the top 20 programs nationally among total viewers

 

 

TSN remained Canada’s sports leader and most-watched specialty TV channel and RDS remained the top French-language sports network

 

 

Grew our Crave subscriber base to 2.6 million, up 14% over 2018

 

 

Launched STARZ in Canada, delivering a slate of the bold, diverse, and genre-bending programming that has established the channel as one of the leading pay TV services in the U.S. STARZ is the Canadian home of all new STARZ original programming, select library titles, and classic films from all eras. STARZ is available across two linear TV channels, the SVOD platforms of participating TV providers, and via the STARZ streaming service which is available directly to all Canadians with access to the Internet as an add-on to Crave.

 

 

Concluded a long-term exclusive deal with Warner Bros. International Television Distribution (Warner Bros.) to bring original programming from Warner Bros.’ HBO Max to Canada, beginning in 2020. The agreement extends Bell Media’s programming relationship with Warner Bros., making original series from the new HBO Max service available to Canadians via its SVOD service, Crave, and Bell Media’s suite of CTV-branded platforms, reinforcing Bell Media’s focus on delivering premium content. The deal also extends Bell Media’s existing relationship with Warner Bros. on conventional and specialty TV rights as well as on pay TV rights for Warner Bros.’ first-run feature films.

 

 

TSN and RDS extended their long-term broadcast partnership with the CFL, which includes exclusive Canadian TV and digital media rights for all CFL games, including the playoffs and the Grey Cup

 

 

Launched four newly-branded specialty TV channels, each leveraging Canada’s powerful CTV brand. The Comedy Network, Space, Bravo, and Gusto became CTV Comedy Channel, CTV Sci-Fi Channel, CTV Drama Channel, and CTV Life Channel, respectively.

 

 

TSN and RDS launched Day Pass subscriptions to their TSN Direct and RDS Direct streaming services. The single-day subscription option is the first of its kind in Canada, providing full access to TSN and RDS channels for 24 hours with no contract.

 

The Crave app became available on Android TV devices, delivering premium entertainment content like HBO, SHOWTIME, STARZ, Hollywood hit movies and more to Android TV users across Canada. With the addition of Android TV, Crave is now available directly to Canadians at Crave.ca, through participating TV providers, on iOS, Android, Apple TV, Samsung Smart TVs, Xbox and Amazon Fire TV, with additional platforms in development.

 

 

Partnered with Stingray Group Inc. (Stingray), a leading music, media, and technology company, to introduce AUDIO360, an advanced, multi-platform audio sales solution that brings together brands and consumers through the power of sound. AUDIO360 gives brands access to 22 million Canadian listeners weekly across a multi-platform audio offering. Designed to meet the needs of Canadian advertisers looking to connect with Canadian listeners, AUDIO360’s multi-platform approach connects brands with their target listeners on the right audio platform, across the right channels, at the right moment in time.

2020 FOCUS

 

 

Grow retail IPTV subscribers

 

 

Enhance TV product superiority through new service offerings and innovation to provide an enhanced customer experience in the home

 

 

Continue the scaling of Crave and launch Crave with French-language content

 

 

On January 28, 2020, Crave became a bilingual TV and streaming service offering more than 6,000 hours of exclusive new French-language content in addition to Crave’s exclusive English-language programming. As part of the change, Super Écran became available OTT for the first time as an add-on to Crave. The updated bilingual Crave is available through participating TV providers and streaming platforms.

 

 

Maintain strong audience levels and ratings across all TV and radio properties

 

 

Reinforce industry leadership in conventional TV, specialty TV, pay TV, streaming and sports services

 

 

In January 2020, TSN and RDS announced a long-term media rights extension with Hockey Canada through the 2033-34 season, ensuring that TSN and RDS will continue to hold the exclusive-multi-platform media rights to Hockey Canada events, including the annual IIHF World Junior Championship

 

 

Develop in-house production and content creation for distribution and use across all screens and platforms

 

 

Leverage cross-platform and integrated sales and sponsorship

 

 

Grow revenues through unique partnerships and strategic content investments

 

 

Build on our OOH leadership position in Canada

 

 

 

 

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2.4  Champion customer experience

 

 

Deliver a positive customer experience for consumers and business customers by making it easier to do business with Bell at every level, from shopping to buying to installation to after-sale support.

 

2019 PROGRESS

 

 

Virgin Mobile was ranked highest in overall customer care satisfaction in the J.D. Power 2019 Canada Wireless Customer Care Study for the third year in a row, cited for its strong performance in self-serve, reflecting high levels of customer satisfaction with the brand’s website, mobile app and social media presence

 

 

Updated Virgin Mobile’s My Account app with a new design, enabling Virgin customers to easily access their accounts to pay bills, monitor data usage and manage add-ons from anywhere

 

 

Improved wireless postpaid churn by 0.03 pts over 2018, driven by Bell’s network quality and focus on subscriber base management

 

 

Launched the Lucky Mobile My Account app, providing customers quick access to key features such as topping up their accounts, registering for Automatic Top-Up, managing Add-Ons, monitoring usage, checking their balance and resetting voicemail passwords

 

 

Lucky Mobile’s My Account app was selected as the Best Telecommunications Mobile Application of 2019 at the annual MobileWebAwards

 

 

Updated our support pages on Bell.ca to make it easier for customers to get the information they need about Bell products and services

 

 

Enhanced our innovative Manage Your Appointment web service to provide customers with more precise estimates of technician arrival times based on traffic, driving conditions and work schedules

 

 

Reduced the number of customer calls to our call centres by 7%

 

 

Improved customer First Call Resolution by 5% for residential services and 3% for wireless services

 

 

Reduced FTTP installation time by 10%, driven by our investments in technician tools

 

Reduced FTTP Internet repair truck rolls per customer by 24% from improved greater network performance and improved troubleshooting and diagnostic capabilities

 

 

Offered residential installation appointments 16% earlier, and repair appointments the same day or next day 88% of the time

 

 

Continued to automate our dispatch and appointment management systems, leading to 23% fewer late appointments

2020 FOCUS

 

 

Further improve customer satisfaction scores

 

 

Deliver a more convenient and personalized self-serve experience for customers

 

 

Further evolve our self-serve tools

 

 

Further reduce the total number of customer calls to our call centres as well as the number of truck rolls

 

 

Reduce FTTP installation times and improve service quality

 

 

Continue to invest in artificial intelligence and machine learning to resolve customer issues faster

 

 

Simplify the technician in-field experience through simplification and innovation of technician tools

 

 

Further evolve customer device diagnostic capabilities to support increasing customer and device complexity

 

 

    

 

 

       

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2.5   Operate with agility and cost efficiency

 

 

Enhance our operational excellence in a competitive marketplace and build on our industry-leading cost structure with a focus on efficiency and disciplined cost management across our business segments.

 

 

2019 PROGRESS

 

 

Improved BCE consolidated adjusted EBITDA margin (1) by 1.6 pts over 2018

 

 

Delivered productivity improvements and cost efficiencies resulting from the expansion of Bell’s all-fibre network footprint and service innovations enabled by new broadband technologies

 

 

Maintained Bell Canada’s average after-tax cost of publicly issued debt securities at 3.1%

 

 

Realized operating cost savings from workforce reductions completed in 2018

2020 FOCUS

 

 

Realize cost savings from:

 

 

lower contracted rates from our suppliers

 

 

operating efficiencies enabled by a growing direct fibre footprint

 

 

changes in consumer behaviour and product innovation

 

 

new call centre technology that is enabling self-serve capabilities

 

 

other improvements to the customer service experience

 

 

management workforce reductions including attrition and retirements

 

 

 

2.6   Engage and invest in our people

 

 

Recognize our team’s importance to Bell’s competitive success by strengthening our award-winning workplace culture with new technology and support resources and by offering enhanced development opportunities, enabling our diverse and dynamic team members to achieve their full potential.

 

 

2019 PROGRESS

 

 

Recognized as one of Canada’s Top 100 Employers for the fifth consecutive year in Mediacorp’s annual review of the best workplaces across the country, reflecting our outstanding learning and career development opportunities, family-friendly benefits and commitment to mental health

 

 

Named as one of Canada’s Top Employers for Young People for the second consecutive year by Mediacorp in recognition of our programs for students and team members just beginning their careers, including Bell’s Graduate Leadership Program

 

 

Named one of Canada’s Best Diversity Employers in Mediacorp’s 2019 report on workplace diversity and inclusion. The award recognizes Bell’s commitment to providing an inclusive and accessible workplace that reflects Canada’s diversity and highlights our wide range of programs to enable women, persons with disabilities, Indigenous Peoples, visible minorities and other groups in their career development, and also recognizes our workplace mental health leadership.

 

 

Bell’s support of gender equity in the workplace was recognized with Gold Parity Certification for the second year in a row by Women in Governance, a non-profit organization that evaluates Canadian companies for their gender parity strategies and presence of women in historically underrepresented roles

 

Enhanced maternity and parental leave options, making it easier for team members to balance work and family with a higher salary replacement amount over more weeks

 

 

Won two awards at the TalentEgg National Campus Recruitment Excellence Awards, selected by a panel of top students and recent graduates. The Campus Recruiting Program of the Year award recognizes Bell’s innovative strategy in recruiting top talent from Canadian universities, while the Special Award for Social Responsibility in Recruiting recognizes our commitment to socially responsible hiring practices and policies that encourage inclusion and diversity, community outreach and accessibility.

2020 FOCUS

 

 

In February 2020, we launched new initiatives that reflect Bell’s new strategic imperative to engage and invest in our people, recognizing how critically important our team is to Bell’s success

 

 

Introduced our Flexible Work Policy, offering Bell team members new ways to balance work, family and other life commitments

 

 

Launched a new online virtual health care program, providing team members and their families with free, confidential access to health care professionals through virtual consultation technology

 

 

 

(1)

Adjusted EBITDA margin is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) – Adjusted EBITDA and adjusted EBITDA margin in this MD&A for more details.

 

 

 

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3   Performance targets, outlook, assumptions and risks

This section provides information pertaining to our performance against 2019 targets, our consolidated business outlook and operating assumptions for 2020 and our principal business risks.

 

 

3.1  BCE 2019 performance vs. guidance targets

 

       
FINANCIAL
GUIDANCE
 

2019

TARGET

  

 2019

 PERFORMANCE AND RESULTS

   ACHIEVED

Revenue growth

  1%–3%         2.1%  

BCE revenues grew by 2.1% in 2019 compared to last year, driven by growth across all three of our segments, and reflected both higher service and product revenues of 1.4% and 6.6%, respectively.

 

  

Adjusted

EBITDA growth

  5%–7%         6.0%  

BCE adjusted EBITDA increased by 6.0% in 2019, compared to 2018, reflecting favourable contributions from all three of our segments. The growth was driven by higher revenues together with lower operating expenses, primarily reflecting the favourable impact from the adoption of IFRS 16 in 2019 and effective cost containment.

 

  

Capital intensity

  Approx. 16.5%         16.6%  

BCE capital investments totaled $3,988 million in 2019, up 0.4% compared to last year. This represented a capital intensity ratio of 16.6%, down from 16.9% achieved in 2018. We continued to focus our strategic investments on our networks with the ongoing roll-out of FTTP and fixed WTTP, the build-out of our LTE-A network, which reached 94% of the Canadian population at December 31, 2019, and the deployment of wireless small-cells to expand capacity to support subscriber growth and increase network speeds, coverage and signal quality, as well as to expand data fibre backhaul in preparation for 5G technology. Capital spending was also focused on the connection of fibre Internet and TV services to more homes and businesses, the execution of business customer contracts and investment in digital media platforms.

 

  

Adjusted net

earnings per share

(adjusted EPS) (1)

  $3.48–$3.58         $3.50  

Net earnings attributable to common shareholders in 2019 increased by $255 million, or $0.27 per common share, compared to 2018, due to higher adjusted EBITDA and lower other expense, partly offset by higher depreciation and amortization expense, income taxes and finance costs. The adoption of IFRS 16 did not have a significant impact on net earnings. Excluding the impact of severance, acquisition and other costs, net mark-to-market gains (losses) on derivatives used to economically hedge equity settled share-based compensation plans, net gains (losses) on investments, early debt redemption costs and impairment charges, adjusted net earnings in 2019 was $3,153 million, or $3.50 per common share, compared to $3,151 million, or $3.51 per common share, in 2018.

 

  

Free cash flow

growth

  7%–12%         7.0%  

Free cash flow increased by $251 million in 2019, compared to 2018, mainly due to higher cash flows from operating activities, excluding voluntary DB pension plan contributions and acquisition and other costs paid, partly offset by higher cash dividends paid by subsidiaries to non-controlling interest (NCI).

 

  

Annualized common

dividend per share

  $3.17         $3.17  

Annualized BCE common dividend per share for 2019 increased by 15 cents, or 5.0%, to $3.17 compared to $3.02 per share in 2018.

 

  

Dividend payout ratio

 

65%–75%

of free cash flow

 

        74%  

Dividend payout ratio decreased from 75% in 2018 to 74% in 2019.

  

 

 

 

3.2   Business outlook and assumptions

OUTLOOK

BCE’s 2020 outlook builds on the favourable financial results achieved in 2019 by all our operating segments highlighted by: higher wireless subscriber net additions and operating profitability; steady wireline adjusted EBITDA growth; retail broadband Internet and TV market share gains enabled by growth in our combined direct fibre and Wireless Home Internet footprint; industry-leading media operating performance; as well as disciplined cost management that together with the positive impact of IFRS 16 drove significant expansion in BCE’s adjusted EBITDA margin.

Our projected financial performance for 2020 is underpinned by executing on our updated six strategic imperatives in a highly competitive and dynamic market. Wireless, retail Internet and TV subscriber base

growth, together with pricing discipline and the flow-through of operating cost savings from a reduced workforce, fibre-related operating efficiencies and continued service improvement, is projected to drive revenue and adjusted EBITDA growth. This is expected to contribute to higher free cash flow, providing a strong foundation for the 5.0% increase in BCE’s common share dividend for 2020, as well as ongoing significant capital expenditures on broadband fibre and wireless network infrastructure to support future growth.

The key 2020 operational priorities for BCE are:

 

 

Maintain our market share of national operators’ wireless postpaid net additions

 

 

(1)

Adjusted EPS is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) – Adjusted net earnings and adjusted EPS in this MD&A for more details, including a reconciliation to the most comparable IFRS financial measure.

 

    

 

 

       

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Higher prepaid customer net additions

 

 

Continued adoption of smartphone devices, tablets and data applications, as well as the introduction of more 4G LTE and LTE-A devices and new data services

 

 

Expansion of the LTE-A network coverage to approximately 96% of the Canadian population, and launch of initial 5G service in urban centres across Canada as compatible smartphones become available

 

 

Improvement in subscriber acquisition and retention spending, enabled by increasing adoption of installment payment plans

 

 

Increased adoption of unlimited wireless data plans and installment payment plans

 

 

Continued growth in retail Internet and IPTV subscribers

 

 

Residential household average revenue per user (ARPU) growth from increased penetration of multi-product households

 

 

Further deployment of direct fibre to more homes and businesses within our wireline footprint and fixed WTTP technology in rural communities

 

 

Enhance Internet and TV product superiority through new service offerings and innovation to provide an enhanced customer experience in the home

 

 

Invest in direct fibre expansion and new solutions in key portfolios such as Internet and private networks, data centre and cloud services, 

   

unified communications, security services and IoT to improve the business client experience and increase overall business customer spending on telecommunications products and services

 

 

Realization of cost savings related to management workforce reductions including attrition and retirements, lower contracted rates from our suppliers, operating efficiencies enabled by a growing direct fibre footprint, changes in consumer behaviour and product innovation, new call centre technology that is enabling self-serve capabilities, and other improvements to the customer service experience

 

 

Revenue generation from broadcasting distribution undertaking (BDU) rate increases, strategic pricing on advertising sales, monetization of content rights on Bell Media properties across all platforms and digital advertising platforms, as well as simultaneous substitution of Canadian advertising during the Super Bowl, while controlling TV programming and premium content cost escalation

 

 

Continued scaling of Crave and launch of Crave with French-language content

Our projected financial performance for 2020 enabled us to increase the annualized BCE common share dividend for 2020 by 16 cents, or 5.0%, to $3.33 per share.

 

 

 

 

ASSUMPTIONS

 

ASSUMPTIONS ABOUT THE CANADIAN ECONOMY

 

 

Slowing economic growth, given the Bank of Canada’s weaker outlook for the Canadian economy as compared to its previously estimated growth in Canadian gross domestic product of 1.6% in 2020

 

 

Weaker employment growth, as the overall level of business investment is expected to soften

 

 

Interest rates expected to remain at or near current levels

 

 

Canadian dollar expected to remain at or near current levels. Further movements may be impacted by the degree of strength of the U.S. dollar, interest rates and changes in commodity prices.

MARKET ASSUMPTIONS

 

 

A consistently high level of wireline and wireless competition in consumer, business and wholesale markets

 

Higher, but slowing, wireless industry penetration

 

 

Increased adoption of unlimited data plans and Smartpay installment payment plans

 

 

A shrinking data and voice connectivity market as business customers migrate to lower-priced traditional telecommunications solutions or alternative OTT competitors

 

 

Advertising market expected to be impacted by audience declines

 

 

Continued escalation of media content costs to secure quality programming

 

 

Declines in BDU subscribers and increasing competition from the entrance of more subscription video on demand (SVOD) streaming services in the OTT market

 

 

Retail TV subscriber net additions moderated by growing cord-cutter and cord-never customer segments

 

 

 

3.3   Principal business risks

Provided below is a summary description of certain of our principal business risks that could have a material adverse effect on all of our segments. Certain additional business segment-specific risks are reported in section 5, Business segment analysis. For a detailed description of the principal risks relating to our regulatory environment and a description of the other principal business risks that could have a material adverse effect on our financial position, financial performance, cash flows, business or reputation, refer to section 8, Regulatory environment and section 9, Business risks, respectively.

 

 

REGULATORY ENVIRONMENT

 

Although most of our retail services are not price-regulated, government agencies and departments such as the CRTC, Innovation, Science and Economic Development Canada (ISED), Canadian Heritage and the Competition Bureau continue to play a significant role in regulatory matters such as mandatory access to networks, spectrum auctions, the imposition of consumer-related codes of conduct, approval of acquisitions, broadcast and spectrum licensing, foreign ownership requirements and control of copyright piracy. As with all regulated organizations, planned strategies are contingent upon regulatory

decisions. Adverse decisions by governments or regulatory agencies, increased regulation or lack of effective anti-piracy remedies could have negative financial, operational, reputational or competitive consequences for our business. For a discussion of our regulatory environment and the principal risks related thereto, refer to section 8, Regulatory environment as well as the applicable segmented risk discussions under Competitive landscape and industry trends and Principal business risks in section 5, Business segment analysis.

 

 

 

 

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COMPETITIVE ENVIRONMENT

 

As the scope of our businesses increases and evolving technologies drive new services, delivery models and strategic partnerships, our competitive landscape intensifies and expands to include new and emerging competitors, certain of which were historically our partners or suppliers, as well as global-scale competitors including, in particular, OTT service providers, IoT hardware and software providers, voice over IP (VoIP) providers and other web-based players that are penetrating the telecommunications space with significant resources and a large customer base over which to amortize costs. Certain of these competitors are changing the competitive landscape by establishing material positions. Greater customer adoption of data services, including mobile TV, international data roaming, mobile commerce and mobile banking, as well as other IoT applications in the areas of retail (e.g., home automation), business (e.g., remote monitoring), transportation (e.g., connected car and asset tracking) and urban city optimization (smart cities), is expected to accelerate growth opportunities as well as competition in these areas. If we are unable to develop and deploy new solutions through a more agile service model in advance of or concurrently with our competitors, our business and financial results could be adversely affected.

Technology substitution, IP networks and recent regulatory decisions, in particular, continue to reduce barriers to entry in our industry. In addition, the effects of government policies regarding the set-aside of spectrum at favourable pricing for regional facilities-based wireless service providers continue to impact market dynamics. Together, these factors have changed industry economics and allowed competitors to launch new products and services and gain market share with far less investment in financial, marketing, human, technological and network resources than has historically been required. In particular, some competitors deliver their services over our networks, leveraging regulatory obligations applicable to us, therefore limiting their need to invest in building their own networks and impacting our network-based differentiation of our services. Such lower required investment challenges the monetization of our networks and our operating model. Moreover, foreign OTT players such as Netflix are currently not subject to the same taxation and Canadian content investment obligations as those imposed on Canadian domestic digital suppliers, which provides them with a competitive advantage over us.

We expect these trends to continue in the future and the increased competition we face as a result could negatively impact our business including, without limitation, in the following ways:

 

 

The acceleration of disruptions and disintermediation in each of our business segments could adversely affect our business and financial results

 

 

Competitors’ aggressive market offers, combined with heightened customer sensitivity around pricing, could result in pricing pressures, lower margins and increased costs of customer acquisition and retention, and our market share and sales volumes could decrease if we do not match competitors’ pricing levels or increase customer acquisition and retention spending

 

 

The convergence of wireline and wireless services is impacting product purchase choice by customers and could accelerate product substitution in favour of lower-margin products as well as accelerate churn

 

 

Regulatory decisions regarding wholesale access to our wireless and fibre networks could bring new competitors, including OTT players, or strengthen the market position of current competitors, which may negatively impact our retail subscriber base in favour of lower margin

 

 

wholesale subscribers and thus could negatively impact our capacity to invest in our networks at the same levels as we have in the past

 

 

Higher Canadian wireless penetration could slow opportunities for new customer acquisition

 

 

The continued OTT-based substitution and market expansion of lower-cost VoIP and software-defined networking in a wide area network (SD WAN) solutions offered by global competitors, such as traditional software players, are changing our approach to service offers and pricing and could have an adverse effect on our business

 

 

Spending rationalization by business customers could lead to higher declines in traditional connectivity value-added services sold and margin erosion, driven by technology substitution, economic factors and customers’ operational efficiencies

 

 

Multinational business consumers’ desire to consolidate global network service supply with one supplier could accelerate the disruptions in our wireline segment

 

 

The pressure from simpler, lower cost, agile service models is driving in-sourcing trends, which could have an adverse impact on our managed services business

 

 

Subscriber and viewer growth is challenged by changing viewer habits, the expansion and market penetration of low-cost OTT TV providers and other alternative service providers, some of which may offer content as loss leaders to support their core business, as well as piracy, CRTC arbitration and a fragmentation of audience with an abundance of choices

 

 

Competition with global competitors such as Netflix and Amazon, in addition to traditional Canadian TV competitors, for programming content could drive significant increases in content acquisition costs as these competitors, along with other global-scale entities such as Google, gain a significant presence in local markets as a result of innovative and flexible global market strategies

 

 

The proliferation of content piracy could negatively impact our ability to monetize products and services beyond our current expectations, while creating bandwidth pressure without corresponding revenue growth in the context of regulated wholesale high-speed Internet access rates

 

 

Traditional radio faces accelerated substitution from alternative streaming services such as those offered by global audio streaming players and those made available by new technologies, including smart car services

 

 

The timely rollout of 5G mobile service may be adversely impacted by government decisions, constraints on access to network equipment suppliers, the availability of 5G compatible handsets and potential operational challenges in delivering new technology

 

 

Adverse economic conditions, such as economic downturns or recessions, adverse conditions in the financial markets or a declining level of retail and commercial activity, could have a negative impact on the demand for, and prices of, our wireline, wireless and media products and services, as well as drive an increase in bad debts as the creditworthiness of some customers declines

For a further discussion of our competitive environment and competition risk, as well as a list of our main competitors, on a segmented basis, refer to Competitive landscape and industry trends and Principal business risks in section 5, Business segment analysis.

 

 

    

 

 

       

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SECURITY MANAGEMENT

 

Our operations, service performance, reputation and business continuity depend on how well we protect our physical and non-physical assets, including networks, IT systems, offices, corporate stores and sensitive information, from events such as information security attacks, unauthorized access or entry, fire, natural disaster (including, without limitation, seismic and severe weather-related events such as ice, snow and wind storms, wildfires, flooding, extended heat waves, hurricanes, tornadoes and tsunamis), power loss, building cooling loss, acts of war or terrorism, sabotage, vandalism, actions of neighbours and other events. The protection and effective organization of our systems, applications and information repositories are central to the secure and continuous operation of our networks and business, as electronic and physical records of proprietary business and personal data, such as confidential customer and employee information, are all sensitive from a market and privacy perspective. As our operations involve receiving, processing and storing such proprietary business and personal data, effective policies, procedures and controls must be implemented to protect information systems and underlying data.

Information security breaches can result from deliberate or unintended actions by a growing number of sophisticated actors, including hackers, organized criminals, state-sponsored organizations and other parties. Information security attacks have grown in complexity, magnitude and frequency in recent years and the potential for damage is increasing. Information security attacks may be perpetrated using a complex array of ever evolving and changing means including, without limitation, the use of stolen credentials, social engineering, computer viruses and malicious software, phishing and other attacks on network and information systems. Information security attacks aim to achieve various malicious objectives including unauthorized access to, and theft of, confidential, proprietary, sensitive or personal information, extortion and business disruptions. Information security policies, procedures and controls must continuously adapt and evolve in order to seek to mitigate risk and, consequently, require constant monitoring to ensure effectiveness. There is, however, no certainty that our information security policies, procedures and controls will be effective against all information security attacks.

We are also exposed to information security threats as a result of actions that may be taken by our customers, suppliers, outsourcers, business partners, employees or independent third parties, whether malicious or not, including as a result of the use of social media, cloud-based solutions and IT consumerization. Our use of third-party suppliers and outsourcers and reliance on business partners, which may also be subject to information security threats, also exposes us to risks as we have less immediate oversight over their IT domains. Furthermore, the proliferation of data services, including mobile TV, mobile commerce, mobile banking and IoT applications, as well as increased digitization and the use of emerging technologies such as artificial intelligence and robotics, have significantly increased the threat surface of our network and systems, resulting in higher complexity that needs to be carefully monitored and managed to minimize security threats. Failure to implement an information security program that efficiently considers relationships and interactions with business partners, suppliers, customers, employees and other third parties across all methods of communication including social media and cloud-based solutions, as well as emerging technologies like robotics, artificial intelligence and machine-to-machine communication, could adversely affect our ability to successfully defend against information security attacks.

 

If information security threats were to become successful attacks resulting in information security breaches, they could harm our brand, reputation and competitiveness, decrease customer and investor confidence and adversely affect our business, financial results, stock price and long-term shareholder value, given that they could lead to:

 

 

Network operating failures and business disruptions, which could negatively impact our ability to sell products and services to our customers and adversely affect their ability to maintain normal business operations and deliver critical services, and/or the ability of third-party suppliers to deliver critical services to us

 

 

Unauthorized access to proprietary or sensitive information about our business, which could result in diminished competitive advantages and loss of future business opportunities

 

 

Theft, loss, unauthorized disclosure, destruction or corruption of data and confidential information, including personal information about our customers or employees, that could result in financial loss, exposure to claims for damages by customers, employees and others, and difficulty in accessing materials to defend legal actions

 

 

Lost revenue resulting from the unauthorized use of proprietary information or the failure to retain or attract customers after an incident

 

 

Physical damage to network assets impacting service continuity

 

 

Litigation, investigations, fines and liability for failure to comply with privacy and information security laws, including via mandatory flow-through of privacy-related obligations by our customers, as well as increased audit and regulatory scrutiny that could divert resources from project delivery

 

 

Fines and sanctions from credit card providers for failing to comply with payment card industry data security standards for protection of cardholder data

 

 

Increased fraud as criminals leverage stolen information against us, our employees or our customers

 

 

Remediation costs such as liability for stolen information, equipment repairs and incentives to customers or business partners in an effort to maintain relationships after an incident

 

 

Increased information security protection costs, including the costs of deploying additional personnel and protection technologies, training and monitoring employees, and engaging third-party security experts and auditors

 

 

Higher insurance premiums

We evaluate and seek to adapt our security policies and procedures designed to protect our information and assets in light of the continuously evolving nature and sophistication of information security threats. However, given in particular the complexity and scale of our business, network infrastructure, technology and IT supporting systems, there can be no assurance that the security policies and procedures that we implement will prevent the occurrence of all potential information security breaches. In addition, there can be no assurance that any insurance we may have will cover all or part of the costs, damages, liabilities or losses that could result from the occurrence of any information security breach.

 

 

 

 

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4    Consolidated financial analysis

This section provides detailed information and analysis about BCE’s performance in 2019 compared with 2018. It focuses on BCE’s consolidated operating results and provides financial information for our Bell Wireless, Bell Wireline and Bell Media business segments. For further discussion and analysis of our business segments, refer to section 5, Business segment analysis.

 

 

4.1   Introduction

BCE CONSOLIDATED INCOME STATEMENTS

 

                                                                                                                           
         
      2019     2018     $ CHANGE     % CHANGE  

Operating revenues

        

Service

     20,737       20,441       296       1.4 %     

Product

     3,227       3,027       200       6.6

Total operating revenues

     23,964       23,468       496       2.1

Operating costs

     (13,858     (13,933     75       0.5

Adjusted EBITDA

     10,106       9,535       571       6.0

Adjusted EBITDA margin

     42.2     40.6       1.6  pts 

Severance, acquisition and other costs

     (114     (136     22       16.2

Depreciation

     (3,496     (3,145     (351     (11.2 %) 

Amortization

     (902     (869     (33     (3.8 %) 

Finance costs

        

Interest expense

     (1,132     (1,000     (132     (13.2 %) 

Interest on post-employment benefit obligations

     (63     (69     6       8.7

Other expense

     (13     (348     335       96.3

Income taxes

     (1,133     (995     (138     (13.9 %) 

Net earnings

     3,253       2,973       280       9.4

Net earnings attributable to:

        

Common shareholders

     3,040       2,785       255       9.2

Preferred shareholders

     151       144       7       4.9

Non-controlling interest

     62       44       18       40.9

Net earnings

     3,253       2,973       280       9.4

Adjusted net earnings

     3,153       3,151       2       0.1

Net earnings per common share (EPS)

     3.37       3.10       0.27       8.7

Adjusted EPS

     3.50       3.51       (0.01     (0.3 %) 
        
     

BCE STATEMENTS OF CASH FLOWS – SELECTED INFORMATION

 

   
         
      2019     2018     $ CHANGE     % CHANGE  

Cash flows from operating activities

     7,958       7,384       574       7.8

Capital expenditures

     (3,988     (3,971     (17     (0.4 %) 

Free cash flow

     3,818       3,567       251       7.0

 

BCE delivered revenue growth of 2.1% in 2019, compared to last year, attributable to both higher service and product revenues of 1.4% and 6.6%, respectively, reflecting growth across all three of our segments. The year-over-year increase in service revenues was driven by the ongoing expansion of our postpaid and prepaid wireless, retail Internet, and IPTV subscriber bases, higher residential household ARPU, greater Bell Media subscriber and advertising revenues, as well as improved business market performance, including the contribution from the acquisition of Axia NetMedia Corporation (Axia) at the end of August 2018. This was moderated by the continued erosion in our voice, satellite TV

and legacy data revenues. The growth in product revenues was driven by higher sales of premium wireless handsets and greater demand for equipment by large enterprise customers in our business markets.

In 2019, net earnings increased by 9.4%, compared to 2018, mainly due to higher adjusted EBITDA and lower other expense, partly offset by higher depreciation and amortization expense, income taxes and finance costs. The adoption of IFRS 16 did not have a significant impact on net earnings.

 

 

    

 

 

       

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BCE’s adjusted EBITDA grew by 6.0% in 2019, compared to 2018, with contributions from all three of our segments. Higher revenues coupled with reduced operating expenses, reflecting the benefit from the adoption of IFRS 16 in 2019, and effective cost containment drove the year-over-year growth in adjusted EBITDA. This resulted in an adjusted EBITDA margin of 42.2% in 2019, up 1.6 pts compared to the 40.6% achieved last year.

In 2019, BCE’s cash flows from operating activities increased by $574 million, compared to 2018, mainly due to higher adjusted EBITDA, which reflects the favourable impact from the adoption of IFRS 16, and

a voluntary DB pension plan contribution of nil in 2019 compared to $240 million paid in 2018. This was partly offset by a decrease in operating assets and liabilities, higher interest paid which reflects the unfavourable impact from the adoption of IFRS 16 and higher income taxes paid.

Free cash flow increased by $251 million in 2019, compared to 2018, mainly due to higher cash flows from operating activities, excluding voluntary DB pension plan contributions and acquisition and other costs paid, partly offset by higher cash dividends paid by subsidiaries to NCI.

 

 

 

4.2   Customer connections

BCE NET ACTIVATIONS (LOSSES)

 

                                                                                            
       
      2019      2018     % CHANGE  

Wireless subscribers net activations

     515,409            479,811       7.4 %     

Postpaid

     401,955        447,682       (10.2 %) 

Prepaid

     113,454        32,129       253.1

Retail high-speed Internet subscribers net activations (1)

     135,861        116,599       16.5

Retail TV subscribers net activations (losses) (1)

     6,053        21,559       (71.9 %) 

IPTV

     91,476        110,790       (17.4 %) 

Satellite

     (85,423      (89,231     4.3

Total growth services net activations

     657,323        617,969       6.4

Wireline retail residential NAS lines net losses (1)

     (263,325      (258,881     (1.7 %) 

Total services net activations

     393,998        359,088       9.7

 

(1)

As of January 1, 2019, we are no longer reporting wholesale subscribers in our Internet, TV and residential NAS subscriber bases reflecting our focus on the retail market. Consequently, we restated previously reported 2018 subscribers for comparability.

TOTAL BCE CUSTOMER CONNECTIONS

 

                                                                                            
       
      2019      2018      % CHANGE  

Wireless subscribers (1) (2)

     9,957,962            9,610,482        3.6 %     

Postpaid (1) (2)

     9,159,940        8,830,216        3.7

Prepaid (1)

     798,022        780,266        2.3

Retail high-speed Internet subscribers (1) (3)

     3,555,601        3,410,374        4.3

Retail TV subscribers (3)

     2,772,464        2,766,411        0.2

IPTV

     1,767,182        1,675,706        5.5

Satellite

     1,005,282        1,090,705        (7.8 %) 

Total growth services subscribers

     16,286,027        15,787,267        3.2

Wireline retail residential NAS lines (3)

     2,697,483        2,960,808        (8.9 %) 

Total services subscribers

     18,983,510        18,748,075        1.3

 

(1)

At the beginning of Q1 2019, we adjusted our wireless subscriber base to remove 167,929 subscribers (72,231 postpaid and 95,698 prepaid) as follows: (A) 65,798 subscribers (19,195 postpaid and 46,603 prepaid), due to the completion of the shutdown of the CDMA network on April 30, 2019, (B) 49,095 prepaid subscribers as a result of a change to our deactivation policy, mainly from 120 days for Bell/Virgin Mobile and 150 days for Lucky Mobile to 90 days, (C) 43,670 postpaid subscribers relating to IoT due to the further refinement of our subscriber definition as a result of technology evolution, and (D) 9,366 postpaid fixed wireless Internet subscribers which were transferred to our retail high-speed Internet subscriber base.

 

(2)

At the beginning of Q4 2018, we adjusted our postpaid wireless subscriber base to remove 20,000 subscribers that we divested to Xplornet as a result of BCE’s acquisition of MTS in 2017.

 

(3)

As of January 1, 2019, we are no longer reporting wholesale subscribers in our Internet, TV and residential NAS subscriber bases reflecting our focus on the retail market. Consequently, we restated previously reported 2018 subscribers for comparability.

 

BCE added 657,323 net new retail customer connections to its retail growth services in 2019, representing a 6.4% increase over 2018. This consisted of:

 

 

401,955 postpaid wireless customers, and 113,454 prepaid wireless customers

 

 

135,861 retail high-speed Internet customers

 

 

6,053 retail TV customers comprised of 91,476 retail IPTV net customer additions and 85,423 retail satellite TV net customer losses

Retail residential NAS net losses were 263,325 in 2019, increasing by 1.7% over 2018.

Total BCE retail customer connections across all retail services grew by 1.3% in 2019, compared to last year, driven by an increase in our retail growth services customer base, offset in part by continued erosion in traditional retail residential NAS lines.

 

 

 

 

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At the end of 2019, BCE retail customer connections totaled 18,983,510, and were comprised of the following:

 

 

9,957,962 wireless subscribers, up 3.6% compared to 2018, comprised of 9,159,940 postpaid subscribers, an increase of 3.7% over last year, and 798,022 prepaid subscribers, up 2.3% year over year

 

 

3,555,601 retail high-speed Internet subscribers, 4.3% higher than last year

 

2,772,464 total retail TV subscribers, up 0.2% compared to 2018, comprised of 1,767,182 retail IPTV customers, up 5.5% year over year, and 1,005,282 retail satellite TV subscribers, down 7.8% year over year

 

 

2,697,483 retail residential NAS lines, a decline of 8.9% compared to 2018

 

 

 

4.3  Operating revenues

BCE

Revenues

(in $ millions)

 

               
               
               
               
                         2019      2018      $ CHANGE      % CHANGE  
   

Bell Wireless

     9,142        8,818        324        3.7
   

Bell Wireline

     12,356            12,267        89        0.7
   

Bell Media

     3,217        3,121        96        3.1 %     
   

Inter-segment eliminations

     (751      (738      (13      (1.8 %) 
 

    

 

Total BCE operating revenues

     23,964        23,468        496        2.1
               

BCE

BCE operating revenues grew by 2.1% in 2019, compared to last year, driven by growth across all three of our segments. Total operating revenues consisted of service revenues of $20,737 million and product revenues of $3,227 million in 2019, up 1.4% and 6.6%, respectively, year over year. Wireless operating revenues grew by 3.7% in 2019, driven by product revenue growth of 6.6% and service revenue growth of

2.5%. Wireline operating revenues grew by 0.7% in 2019 attributable to service revenue growth of 0.4% from higher data revenue, moderated by lower voice revenue, and also reflected higher product revenue of 7.2%. Bell Media revenues increased by 3.1% in 2019 reflecting both higher subscriber and advertising revenues.

 

 

 

4.4  Operating costs

 

BCE    BCE    BCE
Operating costs    Operating cost profile    Operating cost profile
(in $ millions)    2018    2019

     

 

                                                                                                                           
         
      2019     2018     $ CHANGE     % CHANGE  

Bell Wireless

     (5,300     (5,297     (3     (0.1%)  

Bell Wireline

     (6,942     (6,946     4       0.1%      

Bell Media

     (2,367     (2,428     61       2.5%  

Inter-segment eliminations

     751           738       13       1.8%  

Total BCE operating costs

     (13,858     (13,933     75       0.5%  

 

(1)

Cost of revenues includes costs of wireless devices and other equipment sold, network and content costs, and payments to other carriers.

 

(2)

Labour costs (net of capitalized costs) include wages, salaries and related taxes and benefits, post-employment benefit plans service cost, and other labour costs, including contractor and outsourcing costs.

 

(3)

Other operating costs include marketing, advertising and sales commission costs, bad debt expense, taxes other than income taxes, IT costs, professional service fees and rent.

 

    

 

 

       

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BCE

Total BCE operating costs declined by 0.5% in 2019, compared to last year, driven by reduced costs in Bell Media of 2.5%, while costs in Bell Wireless and Bell Wireline remained relatively stable year over year. These results reflected the benefit from the adoption of IFRS 16 in 2019.

 

 

4.5   Net earnings

 

BCE

Net earnings

(in $ millions)

  

In 2019, net earnings increased by 9.4%, compared to 2018, mainly due to higher adjusted EBITDA and lower other expense, partly offset by higher depreciation and amortization expense, income taxes and finance costs. The adoption of IFRS 16 did not have a significant impact on net earnings.

  

 

 

4.6   Adjusted EBITDA

 

BCE

Adjusted EBITDA

(in $ millions)

  

BCE

Adjusted EBITDA

(in $ millions)

(% adjusted EBITDA margin)

  

 

 

                                                                                                                           
         
      2019     2018      $ CHANGE      % CHANGE  

Bell Wireless

     3,842           3,521        321        9.1%      

Bell Wireline

     5,414       5,321        93        1.7%  

Bell Media

     850       693        157        22.7%  

Total BCE adjusted EBITDA

     10,106       9,535        571        6.0%  

BCE

 

BCE’s adjusted EBITDA grew by 6.0% in 2019, compared to 2018, attributable to growth from all three of our segments. Higher revenues coupled with reduced operating expenses drove the year-over-year growth in adjusted EBITDA. This corresponded to an adjusted EBITDA margin of

42.2% in 2019, up 1.6 pts over last year, mainly driven by the favourable impact from the adoption of IFRS 16 in 2019, and greater service revenue flow-through, moderated by greater low-margin product sales in our total revenue base.

 

 

 

 

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4.7   Severance, acquisition and other costs

This category includes various income and expenses that are not related directly to the operating revenues generated during the year. This includes severance costs consisting of charges related to involuntary and voluntary employee terminations, as well as transaction costs, such as legal and financial advisory fees, related to completed or potential acquisitions, employee severance costs related to the purchase of a business, the costs to integrate acquired companies into our operations and litigation costs, when they are significant.

 

BCE

Severance, acquisition

and other costs

(in $ millions)

 

  

2019

 

Severance, acquisition and other costs included:

 

  Severance costs of $63 million for workforce reduction initiatives

 

  Acquisition and other costs of $51 million

 

2018

 

Severance, acquisition and other costs included:

 

  Severance costs of $92 million for workforce reduction initiatives, which included a 4% reduction in management workforce across BCE

 

  Acquisition and other costs of $44 million

 

 

4.8   Depreciation and amortization

 

The amount of our depreciation and amortization in any year is affected by:

 

  How much we invested in new property, plant and equipment and intangible assets in previous years

 

  How many assets we retired during the year

 

  Estimates of the useful lives of assets

  

        

  

BCE

Depreciation

(in $ millions)

 

  

BCE

Amortization

(in $ millions)

 

 

DEPRECIATION

Depreciation in 2019 increased by $351 million, compared to 2018, mainly due to the adoption of IFRS 16 and a higher asset base as we continued to invest in our broadband and wireless networks as well as our IPTV services.

AMORTIZATION

Amortization in 2019 increased by $33 million, compared to 2018, mainly due to a higher asset base.

 

 

    

 

 

       

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4.9   Finance costs

 

BCE

Interest expense

(in $ millions)

 

  

BCE

Interest on

post-employment

benefit obligations

(in $ millions)

 

 

INTEREST EXPENSE

 

Interest expense in 2019 increased by $132 million, compared to 2018, mainly due to the adoption of IFRS 16, higher average debt levels and higher interest rates on notes payable under commercial paper programs and loans securitized by trade receivables.

 

INTEREST ON POST-EMPLOYMENT BENEFIT OBLIGATIONS

 

Interest on our post-employment benefit obligations is based on market conditions that existed at the beginning of the year. On January 1, 2019, the discount rate was 3.8% compared to 3.6% on January 1, 2018.

 

In 2019, interest expense on post-employment benefit obligations decreased by $6 million, compared to last year, due to a lower post-employment benefit obligation at the beginning of the year, partly offset by a higher discount rate.

 

The impacts of changes in market conditions during the year are recognized in other comprehensive income (OCI).

 

 

4.10 Other expense

 

Other expense includes income and expense items, such as:

 

  Impairment of assets

 

  Equity income or losses from investments in associates and joint ventures

 

  Early debt redemption costs

 

  Gains or losses on disposal and retirement of property, plant and equipment and intangible assets

 

  Net mark-to-market gains or losses on derivatives used to economically hedge equity settled share-based compensation plans

 

  Net gains or losses on investments, including gains or losses when we dispose of, write down or reduce our ownership in investments

 

    

 

BCE

Other expense

(in $ millions)

 

 

2019

Other expense of $13 million included impairment charges of $102 million mainly related to broadcast licences and certain assets for various radio markets within our Bell Media segment. Other expense also included losses from our equity investments of $72 million, which included BCE’s obligation to repurchase at fair value the minority interest in one of BCE’s joint ventures, and early debt redemption costs of $18 million, partly offset by net mark-to-market gains on derivatives used to economically hedge equity settled share-based compensation plans of $138 million and gains on investments of $13 million which included BCE’s obligation to repurchase at fair value the minority interest in one of BCE’s subsidiaries.

2018

Other expense of $348 million included impairment charges of $200 million mainly related to our French TV channels and a brand within our Bell Media segment, and net mark-to-market losses on derivatives used to economically hedge equity settled share-based compensation plans of $80 million. Other expense also included losses from our equity investments of $35 million and losses on investments of $34 million, which included BCE’s obligations to repurchase at fair value the minority interest in one of BCE’s joint ventures and the minority interest in one of our subsidiaries, respectively.

 

 

 

 

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4.11   Income taxes

 

                                   

BCE

Income taxes

(in $ millions)

 

        

The following table reconciles the amount of reported income taxes in the income statements with income taxes calculated at a statutory income tax rate of 27.0% for both 2019 and 2018.

 

 

  FOR THE YEAR ENDED DECEMBER 31    2019     2018  
 

Net earnings

     3,253       2,973  
 

Add back income taxes

     1,133       995  
 

Earnings before income taxes

     4,386       3,968  
 

Applicable statutory tax rate

     27.0     27.0
 

Income taxes computed at applicable statutory rates

     (1,184     (1,071
 

Non-taxable portion of gains (losses) on investments

     4       (9
 

Uncertain tax positions

     15       68  
 

Effect of change in provincial corporate tax rate

     27        
 

Change in estimate relating to prior periods

     14       20  
 

Non-taxable portion of equity losses

     (20     (10
 

Previously unrecognized tax benefits

     9        
 

Other

     2       7  
 

Total income taxes

     (1,133     (995
 

Average effective tax rate

     25.8     25.1
   

Income taxes in 2019 increased by $138 million, compared to 2018, mainly due to higher taxable income and a lower value of uncertain tax positions favourably resolved in 2019 compared to 2018, partly offset by a favourable change in the corporate income tax rate in Alberta in Q2 2019.

 

 

 

4.12  Net earnings attributable to common shareholders and EPS

 

BCE   BCE   BCE   BCE
Net earnings attributable   EPS   Adjusted net earnings   Adjusted EPS

to common shareholders

(in $ millions)

  (in $)   (in $ millions)   (in $)

 

 

 

 

 

Net earnings attributable to common shareholders in 2019 increased by $255 million, or $0.27 per common share, compared to 2018, due to higher adjusted EBITDA and lower other expense, partly offset by higher depreciation and amortization expense, income taxes and finance costs. The adoption of IFRS 16 did not have a significant impact on net earnings.

Excluding the impact of severance, acquisition and other costs, net mark-to-market gains (losses) on derivatives used to economically hedge equity settled share-based compensation plans, net gains (losses) on investments, early debt redemption costs and impairment charges, adjusted net earnings in 2019 was $3,153 million, or $3.50 per common share, compared to $3,151 million, or $3.51 per common share, in 2018.

 

 

    

 

 

       

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4.13 Capital expenditures

 

BCE

Capital expenditures

(in $ millions)

Capital intensity

(%)

 

  

BCE capital expenditures totalled $3,988 million in 2019, up 0.4% compared to last year, mainly driven by higher spending in Bell Wireless, moderated by reduced spending in Bell Wireline and Bell Media. This represented a capital intensity ratio of 16.6%, down from 16.9% in 2018. We continued to focus our strategic investments on our networks with the ongoing roll-out of FTTP and fixed WTTP, the build-out of our LTE-A network and the continued deployment of wireless small-cells to expand capacity to support subscriber growth and increase network speeds, coverage and signal quality, as well as to expand data fibre backhaul in preparation for 5G technology. Capital spending was also focused on the connection of fibre Internet and TV services to more homes and businesses, the execution of business customer contracts and investment in digital media platforms.

 

 

4.14 Cash flows

 

In 2019, BCE’s cash flows from operating activities increased by $574 million, compared to 2018, mainly due to higher adjusted EBITDA, which reflects the favourable impact from the adoption of IFRS 16, and a voluntary DB pension plan contribution of nil in 2019 compared to $240 million paid in 2018. This was partly offset by a decrease in operating assets and liabilities, higher interest paid which reflects the unfavourable impact from the adoption of IFRS 16 and higher income taxes paid.

 

Free cash flow increased by $251 million in 2019, compared to 2018, mainly due to higher cash flows from operating activities, excluding voluntary DB pension plan contributions and acquisition and other costs paid, partly offset by higher cash dividends paid by subsidiaries to NCI.

 

    

  

BCE

Cash flows from

operating activities

(in $ millions)

 

  

BCE

Free cash flow

(in $ millions)

 

 

 

 

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5    Business segment analysis

 

 

5.1   Bell Wireless

We gained more net new wireless subscribers in 2019 than in any year since 2005, while maintaining a sharp focus on operating profitability as wireless adjusted EBITDA grew by a strong 9.1%.

 

 

FINANCIAL PERFORMANCE ANALYSIS

2019 PERFORMANCE HIGHLIGHTS

 

Bell Wireless    Bell Wireless
Revenues    Adjusted EBITDA
(in $ millions)    (in $ millions)
   (% adjusted EBITDA margin)

  

 

 

 

Total   Postpaid   Prepaid   Postpaid   Blended billing
subscriber   net activations   net activations   churn   per user (ABPU) (3)
growth (1) (2)   in 2019   in 2019   in 2019   per month
+3.6%    401,955    113,454    1.13%    +0.8%
       
in 2019   Declined 10.2%   Improved 253.1%   Improved 0.03 pts   2019: $ 68.32
    vs. 2018   vs. 2018   vs. 2018   2018: $ 67.76

 

(1)

At the beginning of Q1 2019, we adjusted our wireless subscriber base to remove 167,929 subscribers (72,231 postpaid and 95,698 prepaid) as follows: (A) 65,798 subscribers (19,195 postpaid and 46,603 prepaid), due to the completion of the shutdown of the CDMA network on April 30, 2019, (B) 49,095 prepaid subscribers as a result of a change to our deactivation policy, mainly from 120 days for Bell/Virgin Mobile and 150 days for Lucky Mobile to 90 days, (C) 43,670 postpaid subscribers relating to IoT due to the further refinement of our subscriber definition as a result of technology evolution, and (D) 9,366 postpaid fixed wireless Internet subscribers which were transferred to our retail high-speed Internet subscriber base.

 

(2)

At the beginning of Q4 2018, we adjusted our postpaid wireless subscriber base to remove 20,000 subscribers that we divested to Xplornet as a result of BCE’s acquisition of MTS in 2017.

 

(3)

Our Q1 2018 blended ABPU was adjusted to exclude the unfavourable retroactive impact of the CRTC decision on wireless domestic wholesale roaming rates of $14 million.

BELL WIRELESS RESULTS

REVENUES

 

                                                                                                                           
         
       2019        2018        $ CHANGE        % CHANGE  

External service revenues

     6,427        6,269        158        2.5%  

Inter-segment service revenues

     49        48        1        2.1%  
         

Total operating service revenues

     6,476        6,317        159        2.5%  

External product revenues

     2,660        2,497        163        6.5%  

Inter-segment product revenues

     6        4        2        50.0%  
         

Total operating product revenues

     2,666        2,501        165        6.6%  
         

Total Bell Wireless revenues

     9,142        8,818        324        3.7%    

 

    

 

 

       

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Bell Wireless operating revenues increased by 3.7% in 2019, compared to 2018, driven by greater postpaid and prepaid service revenues and higher product revenues.

Service revenues increased by 2.5% in 2019, compared to last year, driven by:

 

Continued growth in our postpaid and prepaid subscriber base coupled with rate increases

 

A greater mix of customers subscribing to higher-value monthly plans including unlimited data plans launched in June 2019

The favourable year-over-year impact from the 2018 CRTC retroactive decision on wireless domestic wholesale roaming rates

These factors were partly offset by:

 

Greater sales of premium handsets and more customers subscribing to higher-value monthly plans

 

Lower data and voice overages driven by increased customer adoption of monthly plans with higher data allotments and richer voice plans

Product revenues increased by 6.6% in 2019, compared to last year, driven by greater sales of premium handsets and the impact of higher-value rate plans in our sales mix.

 

 

OPERATING COSTS AND ADJUSTED EBITDA

 

         
                                   2019                              2018                              $ CHANGE                              % CHANGE   

Operating costs

     (5,300     (5,297     (3     (0.1%)  

Adjusted EBITDA

            3,842              3,521            321           9.1%   

Total adjusted EBITDA margin

     42.0     39.9             2.1 pt s  

 

Bell Wireless operating costs were relatively stable in 2019, increasing by 0.1%, compared to 2018, due to:

 

Higher product cost of goods sold driven by increased handset costs and greater mix of premium devices

 

Increased network operating costs relating to greater cell site builds and the expansion of network capacity to support growth in subscribers and data consumption

 

Higher bad debt expense driven by the revenue growth

These factors were partly offset by:

 

The favourable impact from the adoption of IFRS 16 in 2019

 

Continued effective cost containment

Bell Wireless adjusted EBITDA increased by 9.1% in 2019, compared to last year, driven by the growth in revenues. Adjusted EBITDA margin, based on wireless operating revenues, increased by 2.1 pts to 42.0% in 2019, from 39.9% in 2018, due to the favourable impact from the adoption of IFRS 16 in 2019 and higher flow-through of the service revenue growth, moderated by an increased proportion of low-margin product sales in our total revenue base.

 

 

BELL WIRELESS OPERATING METRICS

 

         
                                    2019                                2018                                CHANGE                                % CHAN GE 

Blended ABPU ($/month) (1)

     68.32       67.76       0.56       0.8

Gross activations

     2,117,517       1,954,792       162,725       8.3

Postpaid

     1,568,729       1,615,764       (47,035     (2.9 %) 

Prepaid

     548,788       339,028       209,760       61.9

Net activations (losses)

     515,409       479,811       35,598       7.4

Postpaid

     401,955       447,682       (45,727     (10.2 %) 

Prepaid

     113,454       32,129       81,325       253.1

Blended churn % (average per month)

     1.39     1.32       (0.07 ) pts 

Postpaid

     1.13     1.16       0.03  pts 

Prepaid

     4.44     3.17       (1.27 ) pts 

Subscribers (2) (3)

     9,957,962       9,610,482       347,480       3.6

Postpaid (2) (3)

     9,159,940       8,830,216       329,724       3.7

Prepaid (2)

     798,022       780,266       17,756       2.3

 

(1)

Our Q1 2018 blended ABPU was adjusted to exclude the unfavourable retroactive impact of the CRTC decision on wireless domestic wholesale roaming rates of $14 million.

 

(2)

At the beginning of Q1 2019, we adjusted our wireless subscriber base to remove 167,929 subscribers (72,231 postpaid and 95,698 prepaid) as follows: (A) 65,798 subscribers (19,195 postpaid and 46,603 prepaid), due to the completion of the shutdown of the CDMA network on April 30, 2019, (B) 49,095 prepaid subscribers as a result of a change to our deactivation policy, mainly from 120 days for Bell/Virgin Mobile and 150 days for Lucky Mobile to 90 days, (C) 43,670 postpaid subscribers relating to IoT due to the further refinement of our subscriber definition as a result of technology evolution, and (D) 9,366 postpaid fixed wireless Internet subscribers which were transferred to our retail high-speed Internet subscriber base.

 

(3)

At the beginning of Q4 2018, we adjusted our postpaid wireless subscriber base to remove 20,000 subscribers that we divested to Xplornet as a result of BCE’s acquisition of MTS in 2017.

 

Blended ABPU of $68.32 increased by 0.8% in 2019, compared to 2018, driven by:

 

A greater mix of customers subscribing to higher-value monthly plans including unlimited data plans

 

The flow-through of rate increases

 

The favourable impact from the subscriber base adjustments performed in Q1 2019

These factors were partly offset by:

 

Lower data and voice overages driven by increased customer adoption of monthly plans with higher data allotments and richer voice plans

 

Lower ABPU generated from our long-term mobile services contract with Shared Services Canada (SSC)

 

The dilutive impact from the continued growth in prepaid customers driven by Lucky Mobile, our low-cost prepaid mobile service

 

 

 

 

BCE Inc. 2019 Annual Report                


Table of Contents

Total gross wireless activations increased by 8.3% in 2019, compared to last year, due to higher prepaid gross activations, offset in part by lower postpaid gross activations.

 

Postpaid gross activations decreased by 2.9% in 2019, compared to 2018, mainly due to fewer year-over-year customer additions from our contract with SSC as the migration process is essentially complete. Excluding the impact of the SSC contract, postpaid gross activations were higher year over year, driven by our mobile network quality, strong sales execution and focus on subscriber base management.

 

Prepaid gross activations increased by 61.9% in 2019, compared to last year, driven by the continued growth from Lucky Mobile along with the benefit from the national retail distribution of Lucky Mobile and Virgin Mobile prepaid services at Dollarama stores

Blended wireless churn of 1.39% increased by 0.07 pts in 2019, compared to 2018.

 

Postpaid churn of 1.13% improved by 0.03 pts in 2019, compared to last year, driven by the favourable impact from our ongoing investments in customer retention and network speeds

 

Prepaid churn of 4.44% increased by 1.27 pts in 2019, compared to the prior year, due to greater competitive intensity in the discount mobile market and the impact from the harmonization of our prepaid deactivation policy across all Bell Wireless brands from 120 days for Bell and Virgin Mobile and 150 days for Lucky Mobile to 90 days

Net activations grew by 7.4% in 2019, compared to 2018, due to higher prepaid net activations, moderated by lower postpaid net activations.

Postpaid net activations decreased by 10.2% in 2019, compared to 2018, driven by lower gross activations

 

Prepaid net activations increased by 81,325 in 2019, compared to last year, due to higher gross activations, offset in part by greater customer deactivations

Wireless subscribers at December 31, 2019 totaled 9,957,962, an increase of 3.6% from 9,610,482 subscribers reported at the end of 2018. This was comprised of 9,159,940 postpaid subscribers and 798,022 prepaid subscribers, an increase of 3.7% and 2.3%, respectively, year over year. At the end of 2019, the proportion of Bell Wireless customers subscribing to our postpaid service was stable at 92%, compared to last year.

At the beginning of Q1 2019, we adjusted our wireless subscriber base to remove 167,929 subscribers (72,231 postpaid and 95,698 prepaid) as follows:

 

65,798 subscribers (19,195 postpaid and 46,603 prepaid), due to the completion of the shutdown of the CDMA network on April 30, 2019

 

49,095 prepaid subscribers as a result of a change to our deactivation policy, mainly from 120 days for Bell/Virgin Mobile and 150 days for Lucky Mobile to 90 days

 

43,670 postpaid subscribers relating to IoT due to the further refinement of our subscriber definition as a result of the technology evolution

 

9,366 postpaid fixed wireless Internet subscribers which were transferred to our retail high-speed Internet subscriber base

 

 

 

COMPETITIVE LANDSCAPE AND INDUSTRY TRENDS

COMPETITIVE LANDSCAPE

 

The Canadian wireless industry has experienced strong subscriber growth in recent years, supported by immigration and population growth; the trend toward multiple devices, including tablets; the expanding functionality of data and related applications; and the adoption of mobile devices and services by both younger and older generations. The wireless penetration rate increased to approximately 92% in Canada in 2019, with further increases in penetration expected in 2020. By comparison, the wireless penetration rate in the U.S. is well over 100%, and even higher in Europe and Asia.

The Canadian wireless market continues to be characterized by high levels of acquisition and retention activities and the associated high costs of device subsidies on two-year contracts, heightened competitive intensity, and the continued adoption of higher-value, data-centric smartphones. Growth in ABPU has moderated, due to declines in chargeable usage and larger allotments of data driven by competitive pressures, in addition to other moderating factors, such as the launch of unlimited wireless data plans and device financing options, the popularity of data sharing plans, and an evolving shift in the customer mix towards non-traditional wireless devices. These factors are being partly offset by continuing robust customer growth and growing overall data usage, including customers selecting plans with larger data buckets

on high-value smartphones, and a larger proportion of postpaid customers in the subscriber mix.

The Canadian wireless industry continues to be highly competitive and capital-intensive, with carriers continuing to expand and enhance their broadband wireless networks, including material investments in spectrum.

Competitors

 

Large facilities-based national wireless service providers Rogers Communications Inc. (Rogers) and the Telus Corporation group of companies (Telus)

 

Smaller facilities-based wireless service provider Freedom Mobile, which currently provides service in Toronto, Calgary, Vancouver, Edmonton and Ottawa, as well as in several communities in southwestern Ontario

 

Regional facilities-based wireless service providers Vidéotron Ltée (Vidéotron), which provides service in Montréal and other parts of Québec; Saskatchewan Telecommunications Holding Corporation, which provides service in Saskatchewan; Eastlink, which provides service in Nova Scotia and Prince Edward Island; and Xplornet, which provides service in Manitoba

 

 

    

 

 

       

   BCE Inc. 2019 Annual Report


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INDUSTRY TRENDS

ADOPTION OF UNLIMITED DATA PLANS AND EQUIPMENT INSTALLMENT PLANS

The introduction of unlimited wireless data plans and new device financing options is a natural evolution of competition in the wireless market that is expected to have a near-term unfavourable financial impact, due to potential revenue and ABPU pressure as customers with high overage charges or higher priced plans look to optimize their bills. Longer term, these new customer options are expected to encourage greater data consumption, particularly as the industry shifts to 5G over the next several years; drive lower costs as a result of lower device discounting compared to traditional subsidy plans, e-billing and reduced call centre activity. In addition, unlimited data plans and equipment financing options address the need to make wireless data and the latest smartphone devices more affordable to Canadians.

ACCELERATING DATA CONSUMPTION

The demand for wireless data services is expected to continue to grow, due to ongoing investment in faster network technologies, such as LTE, LTE-A and 5G, that provide a richer user experience and lower network latency; a larger appetite for mobile connectivity, social networking and other applications; increasing adoption of shared plans with multiple devices by families; and the introduction of unlimited data plans. Greater customer adoption of data services, including mobile TV, data roaming for travel, mobile commerce, mobile banking, and other IoT applications in the areas of retail and transportation (connected car, asset tracking, and remote monitoring) should also contribute to the demand for data services. In the consumer market, IoT represents a growth area for the industry as wireless connectivity on everyday devices, from home automation to cameras, becomes ubiquitous. Data overage revenue will continue to be negatively impacted as customers continue to migrate to unlimited data plans.

 

SIGNIFICANT INVESTMENTS IN WIRELESS NETWORKS

Fast growth in mobile data traffic is increasingly putting a strain on wireless carriers’ networks and their ability to manage and service this traffic. Industry Canada’s 600 MHz, 700 MHz, advanced wireless services-3 (AWS-3), and 2500 MHz spectrum auctions that occurred since 2014 provided wireless carriers with prime spectrum to roll out faster next-generation wireless networks and build greater capacity. Carrier aggregation is a technology currently being employed by Canadian wireless carriers that allows for multiple channels of spectrum to be used together, thereby significantly increasing network capacity and data transfer rates. Investments in fibre backhaul to cell sites and the deployment of small-cell technology further increase the efficient utilization of carriers’ spectrum holdings and will also pave the way for mobile 5G service. Early 5G wireless networks are expected to be deployed by the national operators in 2020 utilizing low-band and mid-band spectrum. Early 5G speeds are anticipated to be similar to peak speeds enabled by LTE-A mobile networks. The real benefit of 5G will come from the ability to offer consumers higher speeds, lower latency and the ability to support the massive deployment of devices connected to the Internet as well as the faster delivery of data services. To bring Canada into this true 5G world will require higher band spectrum, including in the 3.5 GHz band, which is expected to become available by the end of 2020 through the federal government’s spectrum auction process. We expect 5G technology to provide a significant opportunity for future growth in the industry.

 

 

 

BUSINESS OUTLOOK AND ASSUMPTIONS

2020 OUTLOOK

 

We expect revenue growth to be driven primarily by postpaid and prepaid subscriber base expansion. We expect ABPU to continue to be impacted negatively by reductions in data and voice overage revenue resulting from larger data allotments and talk minutes in monthly rate plans, as well as Lucky Mobile prepaid customer growth. We will seek to achieve higher revenues from the flow-through of pricing changes, as well as nascent services including mobile commerce and other IoT applications. Our intention is to introduce new services to the market in a way that balances innovation with profitability.

We also remain focused on sustaining our market share of national operators’ postpaid net additions in a disciplined and cost-conscious manner, while also growing our share of new industry prepaid net additions.

We plan to deliver adjusted EBITDA growth in 2020 from flow-through of higher revenue, which should be partly offset by increased operating costs reflecting increased customer support costs due to growth in the subscriber base and increased network operating expenses.

 

 

 

 

BCE Inc. 2019 Annual Report               


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ASSUMPTIONS

 

Maintain our market share of national operators’ wireless postpaid net additions

 

Higher prepaid customer net additions

 

Continued adoption of smartphone devices, tablets and data applications, as well as the introduction of more 4G LTE and LTE-A devices and new data services

 

Expansion of the LTE-A network coverage to approximately 96% of the Canadian population, and launch of initial 5G service in urban centres across Canada as compatible smartphones become available

 

 

 

Improvement in subscriber acquisition and retention spending, enabled by increasing adoption of installment payment plans

 

Unfavourable impact on blended ABPU, driven by reduced data overage revenue due to the introduction of unlimited plans in 2019, and the impact of a higher prepaid mix in our overall subscriber base

 

Increased adoption of unlimited data plans and installment payment plans

 

No material financial, operational or competitive consequences of changes in regulations affecting our wireless business

 

 

 

KEY GROWTH DRIVERS

 

Increasing Canadian wireless industry penetration

 

A greater number of customers on our 4G LTE, LTE-A and 5G networks

A higher market share of prepaid customers

 

Customer adoption and usage of new data applications and services

 

 

 

PRINCIPAL BUSINESS RISKS

This section discusses certain principal business risks specifically related to the Bell Wireless segment. For a detailed description of the principal risks that could have a material adverse effect on our business, refer to section 9, Business risks.

 

REGULATORY ENVIRONMENT

 

RISK

 

  Greater regulation of wireless services, pricing and infrastructure (e.g., additional mandated access to wireless networks and limitations placed on future spectrum bidding)

 

POTENTIAL IMPACT

 

  Greater regulation could influence network investment and the market structure, limit our flexibility, improve the business position of our competitors, limit network-based differentiation of our services, and negatively impact the financial performance of our wireless business

  

AGGRESSIVE COMPETITION

 

RISK

 

  The intensity of competitive activity from national wireless operators, regional facilities-based wireless service providers, non-traditional players and resellers

 

POTENTIAL IMPACT

 

  Pressure on our revenue, adjusted EBITDA, ABPU and churn would likely result if competitors continue to aggressively pursue new types of price plans, such as the recently launched unlimited data plans with no data overage and handset installment plans, increase discounts, offer shared plans based on sophisticated pricing requirements or offer other incentives, such as multi-product bundles, to attract new customers

  

MARKET MATURITY AND INCREASED DEVICE COSTS

 

RISK

 

  Slower subscriber growth due to high Canadian smartphone penetration and increased device costs

 

POTENTIAL IMPACT

 

  A maturing wireless market and higher device costs could challenge subscriber growth and cost of acquisition and retention, putting pressure on the financial performance of our wireless business

 

 

    

 

 

       

   BCE Inc. 2019 Annual Report


Table of Contents

    

 

5.2   Bell Wireline

Our rapidly expanding FTTP and WTTP service footprints, leading Internet and TV products and large business-to-business franchise, together with focused execution and disciplined cost management, delivered positive financial results in 2019 in a highly competitive marketplace.

 

 

FINANCIAL PERFORMANCE ANALYSIS

2019 PERFORMANCE HIGHLIGHTS

 

Bell Wireline    Bell Wireline
Revenues    Adjusted EBITDA
(in $ millions)    (in $ millions)
  

(% adjusted EBITDA margin)

 

  

 

 

 

Retail high-speed Internet (1) (2)    Retail high-speed Internet (1)    Fibre and WTTP footprint
+4.3%    135,861    10 million
Subscriber growth    Total net subscriber activations    Homes and businesses
in 2019    in 2019    at the end of 2019
     
           
Retail TV (1)    Retail IPTV    Retail residential NAS lines (1)
+0.2%    91,476    (8.9%)
Subscriber growth    Total net subscriber activations    Subscriber decline
in 2019    in 2019    in 2019

 

(1)

As of January 1, 2019, we are no longer reporting wholesale subscribers in our Internet, TV and residential NAS subscriber bases reflecting our focus on the retail market. Consequently, we restated previously reported 2018 subscribers for comparability.

 

(2)

At the beginning of Q1 2019, our retail high-speed Internet subscriber base was increased by 9,366 subscribers due to the transfer of fixed wireless Internet subscribers from our wireless segment.

 

 

 

BCE Inc. 2019 Annual Report               


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BELL WIRELINE RESULTS

REVENUES

 

                                                                                                                           
         
       2019        2018        $ CHANGE       % CHANGE  

Data

     7,684        7,466        218       2.9%  

Voice

     3,564        3,782        (218     (5.8%

Other services

     251        247        4       1.6%  

Total external service revenues

     11,499        11,495        4        

Inter-segment service revenues

     289        242        47       19.4%  

Total operating service revenues

     11,788        11,737        51       0.4%  

Data

     519        466        53       11.4%    

Equipment and other

     48        64        (16     (25.0%

Total external product revenues

     567        530        37       7.0%  

Inter-segment product revenues

     1               1       n.m.  

Total operating product revenues

     568        530        38       7.2%  

Total Bell Wireline revenues

     12,356        12,267        89       0.7%  

n.m.: not meaningful

 

Bell Wireline operating revenues increased by 0.7% in 2019, compared to last year, driven by higher data services and product revenues, offset in part by the ongoing erosion in voice revenues.

Bell Wireline operating service revenues grew by 0.4% in 2019, compared to 2018.

 

Data revenues up 2.9% in 2019, compared to last year, attributable to:

 

 

Growth in retail Internet and IPTV subscribers combined with the flow-through of 2018 and 2019 pricing changes

 

 

Higher IP connectivity and business solutions services sales to enterprise customers including the contribution from the acquisition of Axia at the end of August 2018

These factors were partly offset by:

 

 

Higher acquisition, retention and bundle discounts on residential services

 

 

The ongoing decline in our satellite TV subscriber base

 

 

Continued legacy data erosion due in part to migrations to IP-based services

 

The contribution from the G7 summit and the Ontario general election in Q2 2018

 

Voice revenues declined by 5.8% in the year, compared to 2018, resulting from:

 

 

Continued NAS line erosion from technological substitution to wireless and Internet-based services

 

 

Large business customer conversions to IP-based data services

 

 

Reduced usage of traditional long distance services by residential and business customers

 

 

Competitive pricing pressures within our business markets

These factors were partly offset by:

 

 

The flow-through of 2018 and 2019 pricing changes

 

 

Higher sales of international wholesale long distance minutes

 

 

Contribution from the Federal general election in Q4 2019

Bell Wireline operating product revenues grew by 7.2% in 2019, compared to 2018, driven by greater demand for equipment by large enterprise business customers in the first half of the year, mainly in the government, banking and retail sectors.

 

OPERATING COSTS AND ADJUSTED EBITDA

 

                                                                                                               
         
       2019       2018       $ CHANGE        % CHANGE      

Operating costs

     (6,942     (6,946     4        0.1%    

Adjusted EBITDA

     5,414       5,321       93        1.7%    

Adjusted EBITDA margin

     43.8     43.4              0.4 pts  

 

Bell Wireline operating costs were essentially stable year over year, decreasing by 0.1% in 2019, compared to 2018, resulting from:

 

The favourable impact from the adoption of IFRS 16 in 2019

 

Continued effective cost containment

 

Lower pension expenses reflecting reduced DB costs

These factors were partly offset by:

 

Higher cost of goods sold related to the growth in product sales

 

Increased costs from the acquisition of Axia

 

Greater payments to other carriers from increased sales of international wholesale long distance minutes

Bell Wireline adjusted EBITDA grew by 1.7% in 2019, compared to last year, reflecting the growth in revenues as operating expenses were relatively stable year over year. Adjusted EBITDA margin increased to 43.8% in 2019, compared to the 43.4% achieved last year, resulting from the favourable impact of the adoption of IFRS 16 in 2019 and the flow-through of the service revenue growth, offset in part by higher low-margin product sales in our total revenue base.

 

 

    

 

 

       

   BCE Inc. 2019 Annual Report


Table of Contents

    

BELL WIRELINE OPERATING METRICS

DATA

                                                                                                                                   

Retail high-speed Internet

           
         
      2019               2018      CHANGE      % CHANGE  

Retail net activations (1)

     135,861             116,599        19,262        16.5%      

Retail subscribers (1) (2)

     3,555,601             3,410,374        145,227        4.3%  

 

(1)

As of January 1, 2019, we are no longer reporting wholesale subscribers in our Internet subscriber base reflecting our focus on the retail market. Consequently, we restated previously reported 2018 subscribers for comparability.

 

(2)

At the beginning of Q1 2019, our retail high-speed Internet subscriber base was increased by 9,366 subscribers due to the transfer of fixed wireless Internet subscribers from our wireless segment.

 

Retail high-speed Internet subscriber net activations grew by 16.5% in 2019, compared to last year, due to greater activations in our expanding fixed WTTP and FTTP footprints, combined with higher pull-through from Alt TV, our application-based live TV service. This was offset in part by increased deactivations resulting from aggressive offers from cable competitors, coupled with a higher number of customers coming off promotional offers.

Retail high-speed Internet subscribers totaled 3,555,601 at December 31, 2019, up 4.3% from the end of 2018. At the beginning of Q1 2019, our retail high-speed Internet subscriber base was increased by 9,366 subscribers due to the transfer of fixed wireless Internet subscribers from our wireless segment.

 

 

                                                                                                                           

Retail TV

        
         
      2019     2018     CHANGE     % CHANGE  

Retail net subscriber activations (losses) (1)

     6,053       21,559       (15,506     (71.9%

IPTV

     91,476       110,790       (19,314     (17.4% )     

Satellite

     (85,423 )          (89,231     3,808       4.3%  

Total retail subscribers (1)

     2,772,464       2,766,411       6,053       0.2%  

IPTV

     1,767,182       1,675,706       91,476       5.5%  

Satellite

     1,005,282       1,090,705       (85,423     (7.8%

 

(1)

As of January 1, 2019, we are no longer reporting wholesale subscribers in our TV subscriber base reflecting our focus on the retail market. Consequently, we restated previously reported 2018 subscribers for comparability.

 

Retail IPTV net subscriber activations decreased by 17.4% in 2019, compared to last year, resulting from the impact of a maturing Fibe TV market, slower new service footprint growth and greater substitution of traditional TV services with OTT services, partly offset by higher Alt TV activations.

Retail satellite TV net customer losses improved by 4.3% compared to 2018, attributable to lower deactivations, reflecting a more mature subscriber base geographically better-suited for satellite TV service.

Total retail TV net subscriber activations (IPTV and satellite TV combined) decreased by 71.9% in 2019, compared to last year, due to lower IPTV net activations, moderated by fewer satellite TV net losses.

Retail IPTV subscribers at December 31, 2019 totaled 1,767,182, up 5.5% from 1,675,706 subscribers reported at the end of 2018.

Retail satellite TV subscribers at December 31, 2019 totaled 1,005,282, down 7.8% from 1,090,705 subscribers at the end of last year.

Total retail TV subscribers (IPTV and satellite TV combined) at December 31, 2019 were 2,772,464, representing a 0.2% increase since the end of 2018.

 

 

                                                                                                                           

VOICE

 

        
         
      2019     2018     CHANGE     % CHANGE  

Retail residential NAS lines net losses (1)

     (263,325 )          (258,881     (4,444     (1.7% )     

Retail residential NAS lines (1)

     2,697,483       2,960,808       (263,325     (8.9%

 

(1)

As of January 1, 2019, we are no longer reporting wholesale subscribers in our residential NAS subscriber base reflecting our focus on the retail market. Consequently, we restated previously reported 2018 subscribers for comparability.

 

Retail residential NAS net losses increased by 1.7% in 2019, compared to 2018, resulting from lower activations, driven by a market shift from three-product to two-product Internet and TV service bundles, which moderated in the second half of 2019, as well as ongoing substitution to wireless and Internet-based technologies. This was partially offset by fewer customer deactivations, reflecting a reduced number of customers coming off promotional offers.

Retail residential NAS subscribers at December 31, 2019 of 2,697,483 declined by 8.9%, compared to the end of 2018. This represented an increase compared to the 7.4% rate of erosion experienced in 2018, driven mainly by higher wireless and Internet-based technological substitution.

 

 

 

 

BCE Inc. 2019 Annual Report               


Table of Contents

 

COMPETITIVE LANDSCAPE AND INDUSTRY TRENDS

COMPETITIVE LANDSCAPE

 

Although the residential high-speed Internet market is maturing, with a penetration rate of approximately 87% across Canada, subscriber growth is expected to continue over the coming years. An estimated 7.2 million Internet subscribers received their service over the networks of the four largest cable companies at the end of 2019, up 3% from approximately 7.0 million at the end of 2018. An estimated 6.3 million Internet subscribers received their service over the networks of incumbent local exchange carriers (ILECs) like Bell at the end of 2019, up 4% from approximately 6.1 million at the end of 2018. Bell continues to make gains in market share as a result of the expansion of our FTTP direct fibre network and our build-out of Wireless Home Internet in rural markets.

While Canadians still watch traditional TV, digital platforms are playing an increasingly important role in the broadcasting industry and in respect of content. Popular online video services are providing Canadians with more choice about what, where, when and how to access their video content. In 2019, ILECs offering IPTV service grew their subscriber base by an estimated 5% to reach 3.0 million customers, driven by expanded network coverage, enhanced differentiated service offerings, and marketing and promotions focused on IPTV. Despite this IPTV growth, the combined cable TV and satellite TV subscriber penetration rate declined. Canada’s four largest cable companies have an estimated 5.3 million TV subscribers, or a 53% market share, a decrease from 54% at the end of 2018. The balance of industry subscribers were served by satellite TV and regional providers.

In recent years, including in 2019, three of the largest Canadian cable TV companies have launched new TV services based on the Comcast X1 video platform, including Shaw Communications Inc. (Shaw), Rogers and most recently Quebecor’s Vidéotron brand. Our IPTV platform (Fibe TV and Alt TV) continues to offer numerous service advantages over this cable platform.

The financial performance of the overall Canadian wireline telecommunications market continues to be impacted by the ongoing declines in legacy voice service revenues resulting from technological substitution to wireless and OTT services, as well as by ongoing conversion to IP-based data services and networks by large business customers. Sustained competition from cable companies is also continuing to erode traditional telephone providers’ market share of residential local telephony. Canada’s four largest cable companies had approximately 3.6 million telephony subscribers at the end of 2019, representing a national residential market share of approximately 46%. Other non-facilities-based competitors also offer local and long distance VoIP services and resell high-speed Internet services.

Competitors

 

Cable TV providers offering cable TV, Internet and cable telephony services, including:

 

 

Rogers in Ontario, New Brunswick, Newfoundland and Labrador

 

 

Vidéotron in Québec

 

 

Cogeco Cable Inc. (a subsidiary of Cogeco Inc.) (Cogeco) in Ontario and Québec

 

 

Shaw in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario

 

 

Shaw Direct, providing satellite TV service nationwide

 

 

Eastlink in every province except Saskatchewan, where it does not provide cable TV and Internet service

 

Telus provides residential voice, Internet and IPTV services in British Columbia, Alberta and Eastern Québec

 

Telus and Allstream Inc. provide wholesale products and business services across Canada

 

Various others (such as TekSawy Solutions, Distributel, VMedia, and Vonage Canada (a division of Vonage Holdings Corp.) (Vonage) offer resale or VoIP-based local, long distance and Internet services

 

OTT voice and/or video services, such as Skype, Netflix, Amazon Prime Video, Disney+, CBS All Access and YouTube

 

Digital media streaming devices such as Apple TV, Roku and Google Chromecast

 

Other Canadian ILECs and cable TV operators

 

Substitution to wireless services, including those offered by Bell

 

Customized managed outsourcing solutions competitors, such as systems integrators CGI, IBM and EDS (a division of HP Enterprise Services)

 

Wholesale competitors include cable operators, domestic CLECs, U.S. or other international carriers for certain services, and electrical utility-based telecommunications providers

 

Competitors for home security range from local to national companies, such as Telus, Rogers, Chubb-Edwards, Stanley Security and Brinks Home Security

 

 

    

 

 

       

   BCE Inc. 2019 Annual Report


Table of Contents

    

INDUSTRY TRENDS

 

INVESTMENT IN BROADBAND FIBRE DEPLOYMENT

The Canadian ILECs continue to make substantial investments in deploying broadband fibre within their territories, with a focus on direct FTTP access to maintain and enhance their ability to support enhanced IP-based services and higher broadband speeds. Cable TV companies continue to evolve their cable networks with the rollout of the DOCSIS 3.1 platform. Although this platform increases download speeds in the near term and is cost-efficient, it does not offer the same advanced capabilities as FTTP over the longer term in terms of reduced latency or upload speed potential. FTTP delivers broadband speeds of up to 1.5 Gbps currently, with faster speeds expected in the future as network and in-home equipment evolves to support these higher speeds. Increasing speeds beyond 1.5 Gbps in the home would not require any changes to the fibre.

ALTERNATIVE TV AND OTT SERVICES

The growing popularity of watching TV and on-demand content anywhere, particularly on handheld devices, is expected to continue as customers adopt services that enable them to view content on multiple screens. Streaming media providers, such as Netflix and Disney+, continue to enhance OTT streaming services in order to compete for share of viewership in response to evolving viewing habits and consumer demand. TV providers are monitoring OTT developments and evolving their content and market strategy to compete with these non-traditional offerings. We view OTT as an opportunity to add increased capabilities to our linear and on-demand assets, provide customers with flexible options to choose the content they want and drive greater usage of Bell’s high-speed Internet and wireless networks. We continue to enhance our Fibe TV service with additional content and capabilities, including the ability to watch recorded content on the go and access Netflix and YouTube on STBs. We also launched Alt TV in 2017, Canada’s first widely available app-based live TV service, to

address the growing cord-cutting and cord-shaving markets, providing users with the ability to consume live and on-demand content on laptops, smartphones, tablets, Apple TV, Chromecast and Firestick without the need for a traditional TV STB.

TECHNOLOGY SUBSTITUTION

Technology substitution, enabled by the broad deployment of higher speed Internet; the pervasive use of e-mail, messaging and social media as alternatives to voice services; and the growth of wireless and VoIP services, continues to drive legacy voice revenue declines for telecommunications companies. Wireless-only households were estimated to represent approximately 51% of households in our wireline footprint at the end of 2019, compared to approximately 46% at the end of 2018, while the disconnection of and reduction in spending for traditional TV (cord-cutting and cord-shaving) continues to rise. Although Bell is a key provider of these substitution services, the decline in this legacy business continues as anticipated.

ADOPTION OF IP-BASED SERVICES

The convergence of IT and telecommunications, facilitated by the ubiquity of IP, continues to shape competitive investments for business customers. Telecommunications companies are providing professional and managed services, as well as other IT services and support, while IT service providers are bundling network connectivity with their software as service offerings. In addition, manufacturers continue to bring all-IP and converged (IP plus legacy) equipment to market, enabling ongoing migration to IP-based solutions. The development of IP-based platforms, which provide combined IP voice, data and video solutions, creates potential cost efficiencies that compensate, in part, for reduced margins resulting from the continuing shift from legacy to IP-based services. The evolution of IT has created significant opportunities for our business markets services, such as cloud services and data hosting, that can have a greater business impact than traditional telecommunications services.

 

 

 

BUSINESS OUTLOOK AND ASSUMPTIONS

2020 OUTLOOK

 

We expect to generate positive revenue and adjusted EBITDA growth in 2020. This is predicated on continued expansion of our retail broadband Internet and TV subscriber bases supported by a broader FTTP service footprint; further deployment of fixed wireless WTTP technology in more rural communities; scaling of Alt TV; the introduction of new TV products and features; improving year-over-year organic business markets operating profitability; and cost reductions to offset competitive pricing pressures and the ongoing decline in voice revenue.

Retail TV subscriber growth within our wireline footprint is expected to be driven by increasing Fibe TV penetration of existing IPTV-enabled neighbourhoods. We also intend to seek greater penetration within the multiple-dwelling units market and to combat the competitive impact of OTT video streaming services and a growing cord-cutter market with our Alt TV service. Although retail satellite TV net customer losses are expected to continue in 2020, due mainly to aggressive residential promotional offers from cable competitors, they are expected to moderate as a result of fewer residential customer deactivations and migrations to IPTV reflecting a more mature and stable subscriber base that is geographically better-suited for satellite TV service.

 

 

 

 

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Retail Internet subscriber base growth in 2020 is expected to be driven by a growing FTTP service footprint together with higher household penetration; the ongoing rollout of fixed wireless broadband Internet service in rural markets enabled by our WTTP deployment; the pull-through of IPTV customer activations, including from Bell’s app-based live TV streaming service Alt TV; and leveraging Bell’s Smart Home automation leadership with services such as Whole Home Wi-Fi and home security.

In business wireline, even when the economy is growing, customers continue to look for opportunities to lower costs. As a result, telecom spending by large enterprise customers is expected to be variable. This, combined with ongoing customer migration to IP-based systems and demand for cheaper bandwidth alternatives with faster speeds, will likely continue to negatively impact overall business markets results in 2020. We intend on seeking to minimize the overall revenue decline from traditional legacy telecommunications services by developing unique services and value enhancements, which further improve client experience by providing more features with improved flexibility to support client needs on demand. We intend to use marketing initiatives to slow NAS erosion, while investing in direct fibre expansion and new solutions in key portfolios such as Internet and private networks, data centre and cloud services, unified communications, security services and IoT. We will continue to deliver network-centric managed and professional services solutions to large and mid-sized businesses that increase the value of connectivity services.

We also expect to experience sustained competitive intensity in our small and mid-sized business markets as cable operators and other telecom competitors look to these customer segments as potential growth opportunities. We also intend to introduce service offerings that help drive innovative solutions and value for our small and mid-sized customers by leveraging Bell’s network assets, broadband fibre expansion and service capabilities to expand our relationships with them. We will maintain a focus on overall profitability by seeking to increase revenue per customer and customer retention, as well as through improving our processes to achieve further operating efficiencies and productivity gains.

Operating cost reduction will continue to be a key focus for our Bell Wireline segment, helping to offset costs related to the growth and retention of IPTV, Internet, IP broadband and hosted IP voice subscribers, the ongoing erosion of high-margin wireline voice and other legacy revenues, as well as competitive repricing pressures in our residential, business and wholesale markets. This, combined with further operating efficiencies driven by factors including a growing FTTP footprint and changes in consumer behaviour driven by product and customer service innovation, is expected to support our objective of maintaining our adjusted EBITDA margin relatively stable year over year.

ASSUMPTIONS

 

 

Positive full-year adjusted EBITDA growth

 

 

Continued growth in retail IPTV subscribers

 

 

Increasing wireless and Internet-based technological substitution

 

 

Residential household ARPU growth from increased penetration of multi-product households

 

 

Continued aggressive residential service bundle offers from cable TV competitors in our local wireline areas

 

 

Moderating level of promotional activity to acquire new subscribers

 

 

Continued large business customer migration to IP-based systems

 

 

Ongoing competitive repricing pressures in our business and wholesale markets

 

 

Continued competitive intensity in our small and mid-sized business markets as cable operators and other telecommunications competitors continue to intensify their focus on business customers

 

 

Traditional high-margin product categories challenged by large global cloud and OTT providers of business voice and data solutions expanding into Canada with on-demand services

 

 

Accelerating customer adoption of OTT services resulting in downsizing of TV packages

 

 

Further deployment of direct fibre to more homes and businesses within our wireline footprint and fixed WTTP technology in rural communities

 

 

Growing consumption of OTT TV services and on-demand streaming video, as well as the proliferation of devices, such as tablets, that consume large quantities of bandwidth, will require ongoing capital investment

 

 

Realization of cost savings related to management workforce reductions including attrition and retirements, lower contracted rates from our suppliers, operating efficiencies enabled by a growing direct fibre footprint, changes in consumer behaviour and product innovation, new call centre technology that is enabling self-serve capabilities, and other improvements to the customer service experience

 

 

No material financial, operational or competitive consequences of changes in regulations affecting our wireline business

 

 

 

 

KEY GROWTH DRIVERS

 

 

Expansion of FTTP and WTTP footprints

 

 

Increasing FTTP and WTTP customer penetration

 

 

Higher market share of industry retail Internet and IPTV subscribers

 

Increased business customer spending on connectivity services and managed and professional services solutions

 

 

Expansion of our business customer relationships to drive higher revenue per customer

 

 

Ongoing service innovation and product value enhancements

 

 

    

 

 

       

   BCE Inc. 2019 Annual Report


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PRINCIPAL BUSINESS RISKS

This section discusses certain principal business risks specifically related to the Bell Wireline segment. For a detailed description of the principal risks that could have a material adverse effect on our business, refer to section 9, Business risks.

 

REGULATORY ENVIRONMENT

 

RISK

 

  The CRTC mandates rates for the new disaggregated wholesale high-speed access service available on FTTP facilities that are materially different from the rates we proposed, and which do not sufficiently account for the investment required in these facilities

 

  None of the Federal Court of Appeal, Federal Cabinet or CRTC agrees to materially revise the rates for aggregated wholesale high-speed access service (available on FTTN facilities and the cable facilities of large cable carriers), which rates the CRTC substantially reduced in August 2019 although this reduction is currently stayed by the Federal Court of Appeal

 

POTENTIAL IMPACT

 

  The mandating of rates for the new disaggregated wholesale high-speed access service available on FTTP facilities that are materially different from the rates we proposed, or the implementation of the rates reduced by the CRTC in August 2019 for aggregated wholesale high-speed access services, could change our investment strategy, especially in relation to investment in next-generation wireline networks in smaller communities and rural areas, improve the business position of our competitors, further accelerate penetration and disintermediation by OTT players, and negatively impact the financial performance of our wireline business

  

AGGRESSIVE COMPETITION

 

RISK

 

  The intensity of competitive activity coupled with new product launches for retail customers (e.g., IoT, smart home systems and devices, innovative TV platforms, etc.) and business customers (e.g., OTT VoIP and SD WAN) from national operators, non-traditional players and wholesalers

 

POTENTIAL IMPACT

 

  An increase in the intensity level of competitive activity could result in lost revenue, higher churn and increased acquisition and retention expenses, all of which would put pressure on Bell Wireline’s adjusted EBITDA

  

TECHNOLOGICAL ADVANCEMENT AND CHANGING CUSTOMER BEHAVIOUR

 

RISK

 

  With technological advancement, the traditional TV viewing model (i.e., the subscription for bundled channels) is challenged by an increasing number of legal and illegal viewing options available in the market offered by traditional, non-traditional and global players, as well as increasing cord-cutting and cord-shaving trends

 

  The proliferation of network technologies impacts business customers’ decision to migrate to OTT, VoIP and/or leverage SD WAN architecture

 

  Changing customer habits further contribute to the erosion of NAS lines

 

POTENTIAL IMPACT

 

  Our market penetration and number of TV subscribers could decline as a result of offerings by BDUs and an increasing number of domestic and global unregulated OTT providers, as well as a significant volume of content piracy

 

  The proliferation of IP-based products, including OTT TV content and OTT software offerings directly to consumers, may accelerate the disconnection of TV services or the reduction of TV spending, as well as the reduction in business IT investments by customers

 

  The ongoing loss of NAS lines from technological substitution challenges our traditional voice revenues and compel us to develop other service offerings

       
       
       

 

 

 

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5.3   Bell Media

Our market-leading brands, content and streaming services, together with a sharp focus on cost control, delivered industry-leading financial performance in 2019 with cash flow generation that we redirected to capital investment in our leading wireless and wireline broadband networks.

 

 

FINANCIAL PERFORMANCE ANALYSIS

2019 PERFORMANCE HIGHLIGHTS

 

Bell Media

 

Revenues

(in $ millions)

 

  

Bell Media

 

Adjusted EBITDA

(in $ millions)

  

CTV is the most-watched

Canadian TV network

 

12 of top 20 programs

 

Nationally among total viewers

2018–2019 broadcast year

  

 

Bell Media

Revenue mix

(product)

     

Bell Media

 

Revenue mix

(line of business)

  

  

  

  

 

                                                                                                                           
BELL MEDIA RESULTS            

REVENUES

 

           
                                                                                                                           
         
       2019        2018        $ CHANGE       % CHANG

Total external revenues

     2,811        2,677        134       5.0

Inter-segment revenues

     406        444        (38     (8.6 %) 

Total Bell Media revenues

     3,217        3,121        96       3.1

 

    

 

 

      

   BCE Inc. 2019 Annual Report


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Bell Media operating revenues increased by 3.1% in 2019, compared to last year, driven by growth in both subscriber and advertising revenues.

 

 

Subscriber revenues were up in 2019, compared to last year, mainly due to continued growth in Crave, our pay TV and streaming service, driven by higher subscribers, partly due to the broadcast of the Game of Thrones final season, combined with rate increases following the launch of our enhanced Crave service in November 2018. The favourable impact from contract renewals with BDUs also contributed to the growth in subscriber revenues.

 

 

Advertising revenues increased in 2019, compared to 2018, mainly due to:

 

 

Higher advertising revenues from specialty TV due to strong audience levels, greater demand and rate increases

Continued growth in OOH advertising revenues

 

The broadcast of the Toronto Raptors in the NBA playoffs and finals

 

The recapture of advertising dollars following the shift last year to the principal broadcaster of the PyeongChang 2018 Winter Olympics

These factors were partly offset by:

 

Lower conventional TV advertising revenues from reduced audience levels and the ongoing shift in customer spending to OTT and digital platforms

 

Continued softness in the radio advertising market

 

The benefit to specialty TV advertising revenues in 2018 from the broadcast of the 2018 men’s FIFA World Cup

 

 

OPERATING COSTS AND ADJUSTED EBITDA

 

                                                                                                                           
         
      2019     2018     $ CHANGE      % CHANGE      

Operating costs

     (2,367     (2,428     61        2.5%    

Adjusted EBITDA

     850       693       157        22.7%    

Adjusted EBITDA margin

     26.4     22.2              4.2 pts  

 

Bell Media operating costs decreased by 2.5% in 2019, compared to last year, mainly driven by:

 

 

The favourable impact from the adoption of IFRS 16 in 2019

 

 

Higher 2018 costs for the men’s FIFA World Cup broadcast rights

These factors were partly offset by:

 

 

Greater costs for sports broadcast rights and continued investment in content for our Crave services

 

 

Higher labour costs to support the growth in revenues

Bell Media adjusted EBITDA increased by 22.7% in 2019, compared to last year, driven by higher operating revenues coupled with lower operating costs.

BELL MEDIA OPERATING METRICS

 

 

CTV maintained its #1 ranking as the most-watched network in Canada for the 18th year in a row among total viewers in primetime, with 12 of the top 20 programs nationally among total viewers

 

 

Bell Media maintained its leadership position in the specialty and pay TV market, with its English specialty and pay TV properties reaching

 

83% of all Canadian English specialty and pay TV viewers and with its French specialty and pay TV properties reaching 82% of Québec French specialty and pay TV viewers in an average week

 

 

Bell Media continued to rank first in unique visitors, total page views and total page minutes in digital media among Canadian broadcast and video network competitors. Bell Media also ranked sixth among online properties in the country in terms of unique visitors and reach, with 22.2 million unique visitors per month, reaching 70% of the digital audience.

 

 

Bell Media remained Canada’s top radio broadcaster, reaching 16.8 million listeners who spent approximately 77 million hours tuned in each week during Fall 2019

 

 

Astral is one of Canada’s leading OOH advertising providers, reaching 18 million consumers weekly, with an offering of six innovative product lines (comprised of outdoor advertising, street furniture, airport, digital large format, transit and lifestyle) and owning more than 50,000 advertising faces, strategically located in key urban cities across the country

 

 

 

COMPETITIVE LANDSCAPE AND INDUSTRY TRENDS

COMPETITIVE LANDSCAPE

Competition in the Canadian media industry has changed in recent years as content is increasingly being controlled by a small number of global competitors with significant scale and financial resources. Technology has allowed new entrants to become media players in their own right. Some players have become more vertically integrated across both traditional and emerging platforms to better enable the acquisition and monetization of premium content. Global aggregators have also emerged and are competing for both content and viewers.

Bell Media competes in the video, radio, OOH advertising and digital media markets:

 

 

Video: The TV market has become increasingly fragmented and this trend is expected to continue as new services and technologies increase the diversity of information and entertainment outlets available to consumers

 

Radio: Competition within the radio broadcasting industry occurs primarily in discrete local market areas among individual stations

 

 

OOH: The Canadian OOH advertising industry is fragmented, consisting of a few large companies as well as numerous smaller and local companies operating in a few local markets

 

 

Digital media: Consumers continue to shift their media consumption towards digital and online media, mobile devices and on-demand content, requiring industry players to increase their efforts in digital content and capabilities in order to compete. This trend is also causing advertisers to direct more of their spending to digital and online rather than traditional media. In addition, the number of competitors has increased as more digital and online media companies, including large global companies, enter the market.

 

 

 

 

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Competitors

TV

 

 

Conventional Canadian TV stations (local and distant signals) and specialty and pay channels, such as those owned by Corus Entertainment Inc. (Corus), Rogers, Québecor, Canadian Broadcasting Corporation (CBC)/Société Radio-Canada and Groupe V

 

 

U.S. conventional TV stations and specialty channels

 

 

OTT streaming providers such as Netflix, Amazon Prime Video, Disney+, CBS All Access and DAZN

 

 

Video-sharing websites such as YouTube

RADIO

 

 

Large radio operators, such as Rogers, Corus, Cogeco and Stingray that also own and operate radio station clusters in various local markets

 

 

Radio stations in specific local markets

 

 

Satellite radio provider SiriusXM

 

 

Music streaming services such as Spotify and Apple Music

 

 

Music downloading services such as Apple’s iTunes Store

 

 

Other media such as newspapers, local weeklies, TV, magazines, outdoor advertising and the Internet

OOH ADVERTISING

 

 

Large outdoor advertisers, such as Jim Pattison Broadcast Group, Outfront Media, Québecor, Dynamic and Clear Channel Outdoor

 

 

Numerous smaller and local companies operating a limited number of display faces in a few local markets

 

 

Other media such as TV, radio, print media and the Internet

INDUSTRY TRENDS

TECHNOLOGY AND CONSUMER HABITS TRANSFORMING THE WAY TV IS DELIVERED

Technology used in the media industry continues to evolve rapidly, which has led to alternative methods for the distribution, storage and consumption of content. These technological developments have driven and reinforced changes in consumer behaviour as consumers seek more control over when, where and how they consume content. Consumers now have the ability to watch content from a variety of media services on the screen of their choice, including TVs, computers, and mobile devices. The number of Canadian users who are connected to the Internet through their TVs is growing as connection becomes easier and more affordable. Changes in technology and consumer behaviour have resulted in a number of challenges for content aggregators and

 

distributors. Ubiquitous access to content enabled by connected devices introduces risk to traditional distribution platforms by enabling content owners to provide content directly to distributors and consumers, thus bypassing traditional content aggregators.

GROWTH OF ALTERNATIVES TO TRADITIONAL LINEAR TV

Consumers continue to have access to an array of online entertainment and information alternatives that did not previously exist. While traditional linear TV has historically been the only way to access entertainment programming, the increase in alternative entertainment options has led to a fragmentation in consumption habits. Traditional linear TV still remains the most common form of video consumption, but people are increasingly consuming content on their own terms from an assortment of services and in a variety of formats. In particular, today’s viewers are consuming more content online, watching less scheduled programming live, time-shifting original broadcasts through PVRs, viewing more video on mobile devices, and catching up on an expanded library of past programming on-demand. While the majority of households use pure OTT services, like Netflix, Amazon Prime Video and Disney+, to complement linear TV consumption, an increasing number are using these services as alternatives to a traditional linear package.

ESCALATING CONTENT COSTS

Premium video content has become increasingly important to media companies in attracting and retaining viewers and advertisers. This content, including live sports and special events, should continue to draw audiences and advertisers moving forward. Heightened competition for these rights from global competitors, including Netflix, Amazon, and DAZN, has already resulted in higher program rights costs, which is a trend that is expected to continue into the future.

MEDIA COMPANIES ARE EVOLVING TO REMAIN COMPETITIVE

In recognition of changing consumer behaviour, media companies are evolving their content and launching their own solutions with the objective of better competing with non-traditional offerings through DTC products such as Bell Media’s bilingual Crave service, Super Écran, TSN and RDS, as well as authenticated TV Everywhere services featuring a series of apps including CTV, Discovery and CTV Drama. Access to live sports and other premium content has become even more important for acquiring and retaining audiences that in turn attract advertisers and subscriber revenue. Therefore, ownership of content and/or long-term agreements with content owners has also become increasingly important to media companies. In the future, short-form video content is expected to represent an area of focus for media companies seeking to connect with a different segment of the market.

 

 

    

 

 

       

     BCE Inc. 2019 Annual Report


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BUSINESS OUTLOOK AND ASSUMPTIONS

2020 OUTLOOK

Subscriber revenue performance is projected to reflect the benefits from BDU carriage renewals, and continued scaling of DTC products, including Crave. However, the effects of shifting media consumption towards competing OTT and digital platforms, further TV cord-shaving and cord-cutting, as well as higher content costs for video, are expected to impact adjusted EBITDA negatively in 2020. While we anticipate the advertising market to continue to be negatively impacted by audience declines, we expect that successful completion of the acquisition of conventional French-language TV network V, as well as our pricing and strategic initiatives, should more than offset this financial pressure.

We also intend to continue controlling costs by achieving productivity gains and pursuing operational efficiencies across all of our media properties, while continuing to invest in premium content across all screens and platforms.

Across our media properties, particularly in video, we intend to leverage the strength of our market position combined with enhanced audience targeting to continue offering advertisers, both nationally and locally, premium opportunities to reach their target audiences. Success in this area requires that we focus on a number of factors, including: successfully acquiring highly rated programming and differentiated content; building and maintaining strategic supply arrangements for content across all screens and platforms; producing and commissioning high-quality Canadian content, including market-leading news; and further leveraging Bell Media’s smart data Strategic Audience Management tool with the addition of new features and functionalities such as best-in-class proprietary data, an improved user experience and a larger pool of available inventory.

Our sports video offerings are expected to continue to deliver premium content and exceptional viewing experiences to our TV and DTC audiences. Our NFL and NHL offerings, including the return of simultaneous substitution of Canadian advertising during the Super Bowl, combined with the integration of our digital platforms, are integral parts of our strategy to enhance viewership and engagement. We will also continue to focus on creating innovative high-quality productions in the areas of sports news and editorial coverage.

In non-sports specialty TV, audiences and advertising revenues are expected to be driven by investment in quality programming and production. As part of our objective to drive revenue growth, we intend to capitalize on our competitive position in key specialty services to improve both channel strength and channel selection.

Through Crave, which recently evolved into a bilingual TV and streaming service, we will continue to leverage our investments in premium content (including HBO, HBO Max, SHOWTIME and STARZ) in order to attract pay TV and DTC subscribers.

In our French-language TV services, we will continue to optimize our programming with a view to increasing our appeal to audiences, supported in particular by the pending acquisition of V as well as Super Écran, which is now available as a Crave add-on.

In radio, we intend to leverage the strength of our market position to continue offering advertisers, both nationally and locally, premium opportunities to reach their target audiences. Additionally, in conjunction with our local TV properties, we will continue to pursue opportunities that leverage our promotional capabilities, provide an expanded platform for content sharing, and offer other synergistic efficiencies.

In our OOH operations, we plan to leverage the strength of our products to provide advertisers with premium opportunities in key Canadian markets. We will also continue to seek new opportunities in digital markets, including converting certain premium outdoor structures to digital.

ASSUMPTIONS

 

 

Revenue performance expected to reflect BDU rate increases, strategic pricing on advertising sales and simultaneous substitution of Canadian advertising during the Super Bowl allowed by the Supreme Court ruling of December 2019 that overturned the CRTC’s 2016 decision

 

 

Operating cost growth driven by higher programming costs, mainly due to continued investment in Crave content and sports broadcast rights

 

 

Continued scaling of Crave and launch of Crave with French-language content

 

 

Ability to successfully acquire and produce highly rated programming and differentiated content

 

 

Building and maintaining strategic supply arrangements for content across all screens and platforms

 

 

Monetization of content rights and Bell Media properties across all platforms

 

 

Growth in OTT viewing expected to result in lower subscriber levels for many Bell Media video properties

 

 

Acquisition of conventional network V along with related digital assets, including the ad-supported VOD service Noovo.ca, subject to regulatory approvals

 

 

No material financial, operational or competitive consequences of changes in regulations affecting our media business

 

 

 

 

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KEY GROWTH DRIVERS

 

Strategic pricing on advertising sales

 

 

Further integrate the use of our data across our media properties to better inform media planning, activation, and measurement, combined with an improved buying experience for advertisers

 

 

Ongoing growth in BDU rates

 

Optimizing unique partnerships and strategic content investments

 

 

Enhancing digital strategy, including scaling of DTC products

 

 

Converting premium OOH structures to digital and adding new boards

 

 

 

 

PRINCIPAL BUSINESS RISKS

This section discusses certain principal business risks specifically related to the Bell Media segment. For a detailed description of the principal risks that could have a material adverse effect on our business, refer to section 9, Business risks.

 

AGGRESSIVE COMPETITION AND REGULATORY CONSTRAINTS

 

RISK

 

  The intensity of competitive activity from traditional TV services, as well as from new technologies and alternative distribution platforms such as unregulated OTT content offerings, VOD, personal video platforms and pirated content, in combination with regulations that require all BDUs to make TV services available à la carte

 

  Acceleration among non-traditional global players developing more aggressive product and sales strategies in creating and distributing video and the increase in DTC sales

 

POTENTIAL IMPACT

 

  Adverse impact on the level of subscriptions and/or viewership for Bell Media’s TV services and on Bell Media’s revenue streams

 

  

ADVERTISING AND SUBSCRIPTION REVENUE UNCERTAINTY

 

RISK

 

  Advertising is heavily dependent on economic conditions and viewership, as well as on our ability to grow alternative advertising media such as digital and OOH platforms, in the context of a changing and fragmented advertising market. Conventional media is under increasing pressure for advertising spend against dominant non-traditional/global digital services.

 

  Bell Media has contracts with a variety of BDUs, under which monthly subscription fees for specialty and pay TV services are earned, that expire on a specific date

 

POTENTIAL IMPACT

 

  Economic uncertainty could reduce advertisers’ spending. Our failure to increase or maintain viewership or capture our share of the changing and fragmented advertising market could result in the loss of advertising revenue

 

  If we are not successful in obtaining favourable agreements with BDUs, it could result in the loss of subscription revenue

 

RISING CONTENT COSTS AND ABILITY TO SECURE KEY CONTENT

 

RISK

 

  Rising content costs, as an increasing number of domestic and global competitors seek to acquire the same content, and the ability to acquire or develop key content to drive revenues and subscriber growth

 

POTENTIAL IMPACT

 

  Rising programming costs could require us to incur unplanned expenses, which could result in negative pressure on adjusted EBITDA

 

  Our inability to acquire or develop popular programming content could adversely affect Bell Media’s viewership and subscription levels and, consequently, advertising and subscription revenues

 

    

 

 

       

   BCE Inc. 2019 Annual Report


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6    Financial and capital management

This section tells you how we manage our cash and capital resources to carry out our strategy and deliver financial results. It provides an analysis of our financial condition, cash flows and liquidity on a consolidated basis.

 

 

6.1   Net debt

 

                                                                                                                           
         
       2019       2018       $ CHANGE       % CHANGE  

Debt due within one year

     3,881       4,645       (764     (16.4% )     

Long-term debt

     22,415       19,760       2,655       13.4%  

Preferred shares (1)

     2,002       2,002              

Cash and cash equivalents

     (145 )       (425     280       65.9%  
         

Net debt

     28,153       25,982       2,171       8.4%  

 

(1)

50% of outstanding preferred shares of $4,004 million in 2019 and 2018 are classified as debt consistent with the treatment by some credit rating agencies.

 

The increase of $1,891 million in total debt, comprised of debt due within one year and long-term debt, was due to:

 

an increase in our lease liabilities of $2,304 million as a result of the adoption of IFRS 16 on January 1, 2019

 

the issuance by Bell Canada of Series M-49 and Series M-50 MTN debentures with total principal amounts of $600 million and $550 million in Canadian dollars, respectively, and Series US-2 Notes with a total principal amount of $600 million in U.S. dollars ($808 million in Canadian dollars)

 

an increase in our securitized trade receivables of $131 million

Partly offset by:

 

the early redemption of Series M-27 MTN debentures and Series M-37 debentures with total principal amounts of $1 billion and $400 million, respectively

a decrease in our notes payable (net of issuances) of $1,073 million

 

a net decrease of $29 million in our lease liabilities and other debt

The decrease in cash and cash equivalents of $280 million was due mainly to:

 

$2,819 million of dividends paid on BCE common shares

 

$1,216 million of debt repayments (net of issuances)

 

$142 million paid for the purchase on the open market of BCE common shares for the settlement of share-based payments

 

$60 million acquisition and other costs paid

Partly offset by:

 

$3,818 million of free cash flow

 

$240 million issuance of common shares from the exercise of stock options

 

 

 

6.2   Outstanding share data

 

                              
   
COMMON SHARES OUTSTANDING   

NUMBER

OF SHARES

 

Outstanding, January 1, 2019

     898,200,415  

Shares issued under employee stock option plan

     4,459,559  

Shares issued under employee savings plan (ESP)

     1,231,479  

Shares issued under deferred share plan (DSP)

     16,729  
   

Outstanding, December 31, 2019

     903,908,182      
                                                             
     
STOCK OPTIONS OUTSTANDING    NUMBER
OF OPTIONS
    WEIGHTED AVERAGE
EXERCISE PRICE ($)
 

Outstanding, January 1, 2019

     14,072,332       56      

Granted

     3,357,303       58  

Exercised (1)

     (4,459,559     54  

Forfeited

     (144,535     58  
     

Outstanding, December 31, 2019

     12,825,541       57  
     

Exercisable, December 31, 2019

     2,786,043       56  

 

(1)

The weighted average market share price for options exercised in 2019 was $62.

At March 5, 2020, 904,327,728 common shares and 15,803,075 stock options were outstanding.

 

 

 

 

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6.3   Cash flows

 

                                                                                                                           
         
      2019     2018     $ CHANGE     % CHANGE  

Cash flows from operating activities

     7,958       7,384       574       7.8%  

Capital expenditures

     (3,988     (3,971     (17     (0.4%

Cash dividends paid on preferred shares

     (147     (149     2       1.3%  

Cash dividends paid by subsidiaries to NCI

     (65     (16     (49     n.m.  

Acquisition and other costs paid

     60       79       (19     (24.1%

Voluntary DB pension plan contribution

           240       (240     (100.0%

Free cash flow

     3,818       3,567       251       7.0%  

Business acquisitions

     (51     (395     344       87.1%  

Acquisition and other costs paid

     (60     (79     19       24.1%  

Voluntary DB pension plan contribution

           (240     240       100.0%  

Acquisition of spectrum licences

           (56     56       100.0%  

Disposition of intangibles and other assets

           68       (68     (100.0%

Other investing activities

     3       (32     35       n.m.  

Net (repayment) issuance of debt instruments

     (1,216     158       (1,374     n.m.  

Issue of common shares

     240       11       229       n.m.  

Repurchase of common shares

           (175     175       100.0%  

Purchase of shares for settlement of share-based payments

     (142     (222     80       36.0%  

Cash dividends paid on common shares

     (2,819     (2,679     (140     (5.2%

Return of capital to non-controlling interest

           (51     51       100.0%  

Other financing activities

     (53     (75     22       29.3%  
         

Net decrease in cash and cash equivalents

     (280     (200     (80     (40.0% )     

n.m.: not meaningful

 

 

CASH FLOWS FROM OPERATING ACTIVITIES AND FREE CASH FLOW

 

In 2019, BCE’s cash flows from operating activities increased by $574 million, compared to 2018, mainly due to higher adjusted EBITDA, which reflects the favourable impact from the adoption of IFRS 16, and a voluntary DB pension plan contribution of nil in 2019 compared to $240 million paid in 2018. This was partly offset by a decrease in operating assets and liabilities, higher interest paid which reflects the unfavourable impact from the adoption of IFRS 16 and higher income taxes paid.

Free cash flow increased by $251 million in 2019, compared to 2018, mainly due to higher cash flows from operating activities, excluding voluntary DB pension plan contributions and acquisition and other costs paid, partly offset by higher cash dividends paid by subsidiaries to NCI.

 

 

 

CAPITAL EXPENDITURES

 

                                                                                                               
         
       2019       2018       $ CHANGE       % CHANG

Bell Wireless

     697       664       (33     (5.0 %) 

Capital intensity ratio

     7.6     7.5       (0.1 ) pts   

Bell Wireline

     3,183       3,193       10       0.3

Capital intensity ratio

     25.8     26.0       0.2  pts 

Bell Media

     108       114       6       5.3

Capital intensity ratio

     3.4     3.7             0.3  pts 

BCE

     3,988       3,971       (17     (0.4 %) 

Capital intensity ratio

     16.6     16.9             0.3  pts 

 

BCE capital expenditures totaled $3,988 million for the year, up $17 million over 2018. This corresponded to a capital intensity ratio of 16.6%, down 0.3 pts compared to last year. Capital spending in the year reflected the following:

Greater capital investments in our wireless segment of $33 million in 2019, compared to 2018, as we advanced the build-out of our LTE-A network, continued to deploy wireless small-cells to expand capacity to support subscriber growth and increase network speeds, coverage and signal quality, as well as to expand data fibre backhaul in preparation for 5G technology

 

 

    

 

 

       

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A modest reduction in capital spending in our wireline segment of $10 million in 2019, compared to last year, as we continued to focus our investments on the ongoing deployment of FTTP to more homes and businesses, the roll-out of fixed WTTP to rural locations

in Ontario and Québec, the connection of fibre Internet and TV services to more homes and businesses and the execution of business customer contracts

 

Lower capital expenditures at Bell Media of $6 million in 2019, compared to 2018, mainly due to production equipment and IT upgrades in 2018

 

 

 

BUSINESS ACQUISITIONS

 

On August 31, 2018, BCE completed the acquisition of all of the issued and outstanding common shares of Axia for a total cash consideration of $154 million.

On January 5, 2018, BCE acquired all of the issued and outstanding shares of AlarmForce Industries Inc. (AlarmForce) for a total consideration of $182 million, of which $181 million was paid in cash and the remaining $1 million through the issuance of 22,531 BCE common shares.

 

 

 

VOLUNTARY DB PENSION PLAN CONTRIBUTION

In 2018, we made a voluntary contribution of $240 million to fund our post-employment benefit obligation. The voluntary contribution was funded from cash on hand at the end of 2018. This reduced the amount of BCE’s future pension funding obligations and the use of letters of credit for funding deficits.

 

 

DISPOSITION OF INTANGIBLE AND OTHER ASSETS

During Q1 2018, BCE sold AlarmForce’s approximate 39,000 customer accounts in British Columbia, Alberta and Saskatchewan to Telus for total proceeds of approximately $68 million.

 

 

DEBT INSTRUMENTS

We use a combination of short-term and long-term debt to finance our operations. Our short-term debt consists mostly of notes payable under commercial paper programs, loans securitized by trade receivables and bank facilities. We usually pay fixed rates of interest on our long-term debt and floating rates on our short-term debt. As at December 31, 2019, all of our debt was denominated in Canadian dollars with the exception of our commercial paper, and Series US-1 and Series US-2 Notes, which are denominated in U.S. dollars and have been hedged for foreign currency fluctuations through forward currency contracts and cross currency interest rate swaps.

 

2019

We repaid $1,216 million of debt, net of issuances. This included the early redemption of Series M-27 MTN debentures and Series M-37 debentures in the principal amounts of $1 billion and $400 million, respectively, the repayments (net of issuances) of $1,073 million of notes payable, and net payments of lease liabilities and other debt of $832 million. These repayments were partly offset by the issuances of Series M-49 and Series M-50 MTN debentures with total principal amounts of $600 million and $550 million in Canadian dollars, respectively, Series US-2 Notes with a total principal amount of $600 million in U.S. dollars ($808 million in Canadian dollars), and an increase in securitized trade receivables of $131 million.

2018

We issued $158 million of debt, net of repayments. This included the issuances at Bell Canada of Series M-47 and M-48 MTN debentures with total principal amounts of $500 million and $1 billion, respectively, and the issuances of Series US-1 Notes with a total principal amount of $1,150 million in U.S. dollars ($1,493 million in Canadian dollars). These issuances were partly offset by the early redemption of Series M-25 and M-28 MTN debentures, Series M-33 debentures, Series 9 notes and Series 8 notes in the principal amounts of $1 billion, $400 million, $300 million, $200 million and $200 million, respectively, payments of finance leases and other debt of $612 million and net repayments of $123 million of notes payable.

 

 

 

ISSUANCE OF COMMON SHARES

The issuance of common shares in 2019 increased by $229 million, compared to 2018, due to a higher number of exercised stock options.

 

 

REPURCHASE OF COMMON SHARES

In Q1 2018, BCE repurchased and cancelled 3,085,697 common shares for a total cost of $175 million through a NCIB. Of the total cost, $69 million represented stated capital and $3 million represented the reduction of the contributed surplus attributable to these common shares. The remaining $103 million was charged to the deficit.

 

 

 

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CASH DIVIDENDS PAID ON COMMON SHARES

In 2019, cash dividends paid on common shares of $2,819 million increased by $140 million, compared to 2018, due to a higher dividend paid in 2019 of $3.1325 per common share compared to $2.9825 per common share in 2018.

 

 

6.4   Post-employment benefit plans

 

For the year ended December 31, 2019, we recorded a decrease in our post-employment benefit obligations and a gain, before taxes, in OCI of $191 million. This was due to a higher-than-expected return on plan assets, partly offset by a lower actual discount rate of 3.1% at December 31, 2019, compared to 3.8% at December 31, 2018.

For the year ended December 31, 2018, we recorded a decrease in our post-employment benefit obligations and a gain, before taxes, in OCI of $92 million. This was due to a higher actual discount rate of 3.8% at December 31, 2018, compared to 3.6% at December 31, 2017. The gain was partly offset by a lower-than-expected return on plan assets.

 

 

 

6.5   Financial risk management

Management’s objectives are to protect BCE and its subsidiaries on a consolidated basis against material economic exposures and variability of results from various financial risks that include credit risk, liquidity risk, foreign currency risk, interest rate risk, equity price risk and longevity risk. These risks are further described in Note 2, Significant accounting policies, Note 7, Other expense, Note 24, Post-employment benefit plans and Note 26, Financial and capital management in BCE’s 2019 consolidated financial statements.

The following table outlines our financial risks, how we manage these risks and their financial statement classification.

 

FINANCIAL    DESCRIPTION    MANAGEMENT OF RISK AND
RISK    OF RISK    FINANCIAL STATEMENT CLASSIFICATION
Credit risk    We are exposed to credit risk from operating activities and certain financing activities, the maximum exposure of which is represented by the carrying amounts reported in the statements of financial position. We are exposed to credit risk if counterparties to our trade receivables and derivative instruments are unable to meet their obligations.   

  Large and diverse customer base

 

  Deal with institutions with investment-grade credit ratings

 

  Regularly monitor our credit risk and exposure

 

  Our trade receivables and allowance for doubtful accounts balances at December 31, 2019 were $2,981 million and $62 million, respectively

 

  Our contract assets and allowance for doubtful accounts balances at December 31, 2019 were $1,712 million and $68 million, respectively

Liquidity risk    We are exposed to liquidity risk for financial liabilities.   

  Sufficient cash from operating activities, possible capital markets financing and committed bank facilities to fund our operations and fulfill our obligations as they become due

 

  Refer to section 6.7, Liquidity – Contractual obligations, for a maturity analysis of our recognized financial liabilities

Foreign currency risk   

We are exposed to foreign currency risk related to anticipated transactions and certain foreign currency debt.

 

A 10% depreciation (appreciation) in the value of the Canadian dollar relative to the U.S. dollar would result in a gain (loss) of $13 million ($27 million) recognized in net earnings at December 31, 2019 and a gain (loss) of $189 million ($178 million) recognized in OCI at December 31, 2019, with all other variables held constant.

 

A 10% depreciation (appreciation) in the value of the Canadian dollar relative to the Philippine peso would result in a gain (loss) of $4 million recognized in OCI at December 31, 2019, with all other variables held constant.

 

Refer to the following Fair value section for details on our derivative financial instruments.

  

  Foreign currency forward contracts and options on our anticipated transactions and commercial paper maturing in 2020 to 2021 of $3.3 billion in U.S. dollars ($4.3 billion in Canadian dollars) and $1.9 billion in Philippine pesos ($49 million in Canadian dollars) at December 31, 2019, to manage foreign currency risk related to anticipated transactions and certain foreign currency debt

 

•  For cash flow hedges, changes in the fair value are recognized in OCI, except for any ineffective portion, which is recognized immediately in earnings in Other expense. Realized gains and losses in Accumulated OCI are reclassified to the income statements or to the initial cost of the non-financial asset in the same periods as the corresponding hedged transactions are recognized.

 

•  For economic hedges, changes in the fair value are recognized in Other expense

 

  At December 31, 2019, we had outstanding cross currency interest rate swaps with notional amounts of $1,150 million and $600 million in U.S. dollars ($1,493 million and $808 million in Canadian dollars, respectively). These cross currency interest rate swaps are used to hedge the U.S. currency exposure of our Series US-1 Notes maturing in 2048 and Series US-2 Notes maturing in 2049, respectively.

 

•  For cross currency interest rate swaps, changes in the fair value of these derivatives and the related debt are recognized in Other expense in the income statements and offset, unless a portion of the hedging relationship is ineffective

 

    

 

 

       

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FINANCIAL    DESCRIPTION    MANAGEMENT OF RISK AND
RISK    OF RISK    FINANCIAL STATEMENT CLASSIFICATION
Interest rate risk   

We are exposed to risk on the interest rates of our debt, our post-employment benefit plans and on dividend rate resets on our preferred shares.

 

A 1% increase (decrease) in interest rates would result in a decrease (increase) of $29 million in net earnings at December 31, 2019.

 

Refer to the following Fair value section for details on our derivative financial instruments.

  

  We use interest rate swaps to economically hedge dividend rate resets on preferred shares. We also use interest rate locks to hedge the interest rates on future debt issuances.

 

  In 2019, we entered into interest rate swaps with a notional amount of $275 million to hedge the dividend rate reset on BCE preferred shares in 2020.

 

•  For interest rate swaps, changes in the fair value of these derivatives are recognized immediately in Other expense in the income statements

 

  There were no interest rate locks outstanding as of December 31, 2019

 

  For our post-employment benefit plans, the interest rate risk is managed using a liability matching approach which reduces the exposure of the DB pension plans to a mismatch between investment growth and obligation growth

Equity price risk   

We are exposed to risk on our cash flow related to the settlement of equity settled share-based compensation plans and the equity price risk related to a cash-settled share-based payment plan.

 

A 5% increase (decrease) in the market price of BCE’s common shares at December 31, 2019 would result in a gain (loss) of $38 million recognized in net earnings for 2019, with all other variables held constant.

 

Refer to the following Fair value section for details on our derivative financial instruments.

  

  Equity forward contracts with a fair value of $40 million at December 31, 2019 on BCE’s common shares to economically hedge the cash flow exposure related to the settlement of equity settled share-based compensation plans and the equity price risk related to a cash-settled share-based payment plan

 

•  Changes in the fair value of these derivatives are recorded in the income statements in Operating costs for derivatives used to hedge a cash-settled share-based payment plan and Other expense for derivatives used to hedge equity settled share-based payment plans

Longevity risk    We are exposed to life expectancy risk on our post-employment benefit plans.   

  The Bell Canada pension plan has an investment arrangement to hedge part of its exposure to potential increases in longevity which covers approximately $4 billion of post-employment benefit obligations

 

 

FAIR VALUE

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Certain fair value estimates are affected by assumptions we make about the amount and timing of future cash flows and discount rates, all of which reflect varying degrees of risk. Income taxes and other expenses that would be incurred on disposition of financial instruments

 

are not reflected in the fair values. As a result, the fair values are not the net amounts that would be realized if these instruments were settled.

The carrying values of our cash and cash equivalents, trade and other receivables, dividends payable, trade payables and accruals, compensation payable, severance and other costs payable, interest payable, notes payable and loans secured by trade receivables approximate fair value as they are short-term.

 

 

The following table provides the fair value details of financial instruments measured at amortized cost in the statements of financial position.

 

         
               DECEMBER 31, 2019      DECEMBER 31, 2018  
                   CARRYING      FAIR      CARRYING      FAIR  
      CLASSIFICATION    FAIR VALUE METHODOLOGY    VALUE      VALUE      VALUE      VALUE  
CRTC tangible benefits obligation    Trade payables and other liabilities and other     non-current liabilities    Present value of estimated future cash flows discounted using observable market interest rates      29        29        61        61  
CRTC deferral account obligation    Trade payables and other liabilities and other non-current liabilities    Present value of estimated future cash flows discounted using observable market interest rates      82        85        108        112  
Debt securities and other debt    Debt due within one year and long-term debt    Quoted market price of debt      18,653              20,905        18,188        19,178  
Finance leases (1)    Debt due within one year and long-term debt    Present value of future cash flows discounted using observable market interest rates                    2,097              2,304      

 

(1)

Upon adoption of IFRS 16 on January 1, 2019, fair value disclosures are no longer required for leases.

 

 

 

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The following table provides the fair value details of financial instruments measured at fair value in the statements of financial position.

 

                                                                                                                                                          
     
          FAIR VALUE  
     CLASSIFICATION     
CARRYING VALUE OF
ASSET (LIABILITY)
 
 
   


QUOTED PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS (LEVEL 1)
 
 
 
 
    

OBSERVABLE

MARKET DATA

(LEVEL 2)

 

 

 (1) 

   

NON-OBSERVABLE

MARKET INPUTS

(LEVEL 3)

 

 

 (2) 

December 31, 2019                                       
Publicly-traded and privately-held investments (3)    Other non-current assets      129       2              127  
Derivative financial instruments   

Other current assets, trade payables and other liabilities, other non-current assets and liabilities

     165              165        
MLSE financial liability (4)   

Trade payables and other liabilities

     (135                  (135 )     
Other   

Other non-current assets and liabilities

     71       1        128       (58
           
December 31, 2018                                       
Publicly-traded and privately-held investments (3)   

Other non-current assets

     110       1              109  
Derivative financial instruments   

Other current assets, trade payables and other liabilities, other non-current assets and liabilities

     181              181        
MLSE financial liability (4)   

Trade payables and other liabilities

     (135                  (135
Other   

Other non-current assets and liabilities

     43              114       (71

 

(1)

Observable market data such as equity prices, interest rates, swap rate curves and foreign currency exchange rates.

 

(2)

Non-observable market inputs such as discounted cash flows and earnings multiples. A reasonable change in our assumptions would not result in a significant increase (decrease) to our level 3 financial instruments.

 

(3)

Unrealized gains and losses are recorded in OCI and impairment charges are recorded in Other expense in the income statements.

 

(4)

Represents BCE’s obligation to repurchase the BCE Master Trust Fund’s (Master Trust) 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust exercise its put option. The obligation to repurchase is marked to market each reporting period and the gain or loss is recorded in Other expense in the income statements. The option has been exercisable since 2017.

 

 

6.6   Credit ratings

 

Credit ratings generally address the ability of a company to repay principal and pay interest on debt or dividends on issued and outstanding preferred shares.

Our ability to raise financing depends on our ability to access the public equity and debt capital markets as well as the bank credit market. Our ability to access such markets and the cost and amount of funding

available partly depend on our assigned credit ratings at the time capital is raised. Investment-grade credit ratings usually mean that when we borrow money, we qualify for lower interest rates than companies that have ratings lower than investment-grade. A ratings downgrade could result in adverse consequences for our funding capacity or ability to access the capital markets.

 

 

The following table provides BCE’s and Bell Canada’s credit ratings, which are considered investment grade, as at March 5, 2020 from DBRS, Moody’s and S&P.

 

 

KEY CREDIT RATINGS

 

                                                                                            
   
     BELL CANADA (1)  
MARCH 5, 2020    DBRS      MOODY’S      S&P  

Commercial paper

     R-2 (high)        P-2        A-1 (Low) (Canadian scale)      
           A-2 (Global scale)  

Long-term debt

     BBB (high)        Baa1        BBB+  

Subordinated long-term debt

     BBB (low)        Baa2        BBB  
   
     BCE (1)  
      DBRS      MOODY’S      S&P  

Preferred shares

     Pfd-3               P-2 (Low) (Canadian scale)  
                         BBB- (Global scale)  

 

(1)

These credit ratings are not recommendations to buy, sell or hold any of the securities referred to, and they may be revised or withdrawn at any time by the assigning rating agency. Ratings are determined by the rating agencies based on criteria established from time to time by them, and they do not comment on market price or suitability for a particular investor. Each credit rating should be evaluated independently of any other credit rating.

As of March 5, 2020, BCE and Bell Canada’s credit ratings have stable outlooks from DBRS, Moody’s and S&P.

 

    

 

 

       

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6.7   Liquidity

SOURCES OF LIQUIDITY

 

Our cash and cash equivalents balance at the end of 2019 was $145 million. We expect that this balance, our 2020 estimated cash flows from operations and capital markets financing, including commercial paper, will permit us to meet our cash requirements in 2020 for capital expenditures, post-employment benefit plans funding, dividend payments, the payment of contractual obligations, maturing debt, ongoing operations and other cash requirements.

Should our 2020 cash requirements exceed our cash and cash equivalents balance, cash generated from our operations and capital markets financing, we would expect to cover such a shortfall by drawing under committed credit facilities that are currently in place or through new facilities to the extent available.

In 2020, our cash flows from operations, cash and cash equivalents balance, capital markets financings, securitized trade receivable programs and credit facilities should give us flexibility in carrying out our plans for business growth, including business acquisitions and spectrum auctions, as well as for the payment of contingencies.

Subsequent to year end, on February 13, 2020, Bell Canada issued 3.50% Series M-51 MTN debentures under its 1997 trust indenture, with a principal amount of $750 million, which mature on September 30, 2050. The net proceeds of the offering are intended to be used to fund, on March 16, 2020, the redemption, prior to maturity, of Bell Canada’s 4.95% Series M-24 MTN debentures, with early debt redemption charges of $17 million. The M-24 MTN debentures have an outstanding principal amount of $500 million and were due on May 19, 2021. The net proceeds are further intended to be used for the repayment of short-term debt.

 

 

The table below is a summary of our total bank credit facilities at December 31, 2019.

 

                                                                                                                                                          
           
DECEMBER 31, 2019    TOTAL
AVAILABLE
     DRAWN      LETTERS
OF CREDIT
     COMMERCIAL
PAPER
OUTSTANDING
     NET
AVAILABLE
 

Committed credit facilities

              

Unsecured revolving and expansion facilities (1) (2)

     4,000                      1,951        2,049      

Other

     106               106                
           

Total committed credit facilities

     4,106               106        1,951        2,049  

Total non-committed credit facilities

     1,939               1,059               880  
           

Total committed and non-committed credit facilities

     6,045               1,165        1,951        2,929  

 

(1)

Bell Canada’s $2.5 billion and additional $500 million committed revolving credit facilities expire in November 2024 and November 2020, respectively, and its $1 billion committed expansion credit facility expires in November 2022. Bell Canada has the option, subject to certain conditions, to convert advances outstanding under the additional $500 million revolving credit facility into a term loan with a maximum one-year term.

 

(2)

As of December 31, 2019, Bell Canada’s outstanding commercial paper included $1,502 million in U.S. dollars ($1,951 million in Canadian dollars). All of Bell Canada’s commercial paper outstanding is included in debt due within one year.

 

Bell Canada may issue notes under its Canadian and U.S. commercial paper programs up to the maximum aggregate principal amount of $3 billion in either Canadian or U.S. currency provided that at no time shall such maximum amount of notes exceed $4 billion in Canadian currency which equals the aggregate amount available under Bell Canada’s committed supporting revolving and expansion credit facilities as at December 31, 2019. The total amount of the net available committed revolving and expansion credit facilities may be drawn at any time.

Some of our credit agreements require us to meet specific financial ratios and to offer to repay and cancel the credit agreements upon a change of control of BCE or Bell Canada. In addition, some of our debt agreements require us to offer to repurchase certain series of debt securities upon the occurrence of a change of control event as defined in the relevant debt agreements. We are in compliance with all conditions and restrictions under such agreements.

 

 

 

CASH REQUIREMENTS

 

CAPITAL EXPENDITURES

In 2020, our planned capital spending will be focused on our strategic imperatives, reflecting an appropriate level of investment in our networks and services.

POST-EMPLOYMENT BENEFIT PLANS FUNDING

Our post-employment benefit plans include DB pension and defined contribution (DC) pension plans, as well as other post-employment benefits (OPEBs) plans. The funding requirements of our post-employment benefit plans, resulting from valuations of our plan assets and liabilities, depend on a number of factors, including actual returns on post-employment benefit plan assets, long-term interest

 

rates, plan demographics, and applicable regulations and actuarial standards. Our expected funding for 2020 is detailed in the following table and is subject to actuarial valuations that will be completed in mid-2020. Actuarial valuations were last performed for our significant post-employment benefit plans as at December 31, 2018.

 

                              
   
2020 EXPECTED FUNDING    TOTAL  

DB pension plans

     170      

DC pension plans

     120  

OPEBs

     75  
   

Total net post-employment benefit plans

     365  
 

 

 

 

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DIVIDEND PAYMENTS

 

In 2020, the cash dividends to be paid on BCE’s common shares are expected to be higher than in 2019 as BCE’s annual common share dividend increased by 5.0% to $3.33 per common share from $3.17 per common share effective with the dividend payable on April 15, 2020.

This increase is consistent with BCE’s common share dividend payout policy of a target payout between 65% and 75% of free cash flow. BCE’s dividend policy and the declaration of dividends are subject to the discretion of the BCE Board.

 

 

CONTRACTUAL OBLIGATIONS

The following table is a summary of our contractual obligations at December 31, 2019 that are due in each of the next five years and thereafter.

 

                                                                                                                                                         
               
      2020     2021     2022     2023     2024    

THERE-

AFTER

    TOTAL  

Recognized financial liabilities

              

Long-term debt

     62       2,302       1,762       1,637       1,250       11,688       18,701  

Notes payable

     1,994                                     1,994  

Lease liabilities

     960       858       629       530       418       2,338       5,733  

Loan secured by trade receivables

     1,050                                     1,050  

Interest payable on long-term debt, notes payable and loan secured by trade receivables

     862       772       711       643       580       6,869       10,437  

Net interest receipts on cross currency basis swaps

     (3     (2     (2     (2     (2     (57     (68

MLSE financial liability

     (135                                   (135

Commitments (off-balance sheet)

              

Commitments for property, plant and equipment and intangible assets

     1,050       796       656       521       381       589       3,993  

Purchase obligations

     593       510       460       297       180       370       2,410  

Leases committed not yet commenced

     10       4       3       3       2       5       27  

Total

     6,443       5,240       4,219       3,629       2,809       21,802       44,142  

 

Our commitments for property, plant and equipment and intangible assets include program and feature film rights and investments to expand and update our networks to meet customer demand.

Purchase obligations consist of contractual obligations under service and product contracts for operating expenditures and other purchase obligations.

Our commitments for leases not yet commenced include OOH advertising spaces and real estate with lease terms ranging from 4 to 20 years. These leases are non-cancellable.

INDEMNIFICATIONS AND GUARANTEES

(OFF-BALANCE SHEET)

As a regular part of our business, we enter into agreements that provide for indemnifications and guarantees to counterparties in transactions involving business dispositions, sales of assets, sales of services, purchases and development of assets, securitization agreements and leases. While some of the agreements specify a maximum potential exposure, many do not specify a maximum amount or termination date.

We cannot reasonably estimate the maximum potential amount we could be required to pay counterparties because of the nature of almost all of these indemnifications and guarantees. As a result, we cannot determine how they could affect our future liquidity, capital resources or credit risk profile. We have not made any significant payments under indemnifications or guarantees in the past.

 

 

 

 

LITIGATION

 

In the ordinary course of our business, we become involved in various claims and legal proceedings seeking monetary damages and other relief. In particular, because of the nature of our consumer-facing business, we are exposed to class actions pursuant to which substantial monetary damages may be claimed. Due to the inherent risks and uncertainties of the litigation process, we cannot predict the final outcome or timing of claims and legal proceedings. Subject to the foregoing, and based on information currently available and management’s assessment of the

merits of the claims and legal proceedings pending at March 5, 2020, management believes that the ultimate resolution of these claims and legal proceedings is unlikely to have a material and negative effect on our financial statements or operations. We believe that we have strong defences and we intend to vigorously defend our positions.

For a description of important legal proceedings pending at March 5, 2020, please see the section entitled Legal proceedings contained in the BCE 2019 AIF.

 

 

    

 

 

       

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7   Selected annual and quarterly information

 

 

7.1  Annual financial information

The following table shows selected consolidated financial data of BCE for 2019, 2018 and 2017 based on the annual consolidated financial statements, which are prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB). We discuss the factors that caused our results to vary over the past two years throughout this MD&A.

As required, we adopted IFRS 16 – Leases effective January 1, 2019, as described in section 10.1, Our accounting policies. We adopted IFRS 16 using a modified retrospective approach whereby the financial statements of prior periods presented were not restated and continue to be reported under IAS 17 – Leases, as permitted by the specific transition provisions of IFRS 16. The cumulative effect of the initial adoption of IFRS 16 was reflected as an adjustment to the deficit at January 1, 2019.

Effective January 1, 2018, we applied IFRS 15 – Revenue from Contracts with Customers, retrospectively to each period in 2017 previously reported. In 2018, we also reclassified some 2017 amounts to make them consistent with the 2018 presentation.

 

                                                                                            
       
      2019     2018     2017  

CONSOLIDATED INCOME STATEMENTS

                        

Operating revenues

      

Service

     20,737           20,441       20,095  

Product

     3,227       3,027       2,662  

Total operating revenues

     23,964       23,468       22,757  

Operating costs

     (13,858     (13,933     (13,475

Adjusted EBITDA

     10,106       9,535       9,282  

Severance, acquisition and other costs

     (114     (136     (190

Depreciation

     (3,496     (3,145     (3,034

Amortization

     (902     (869     (810

Finance costs

      

Interest expense

     (1,132     (1,000     (955

Interest on post-employment benefit obligations

     (63     (69     (72

Other expense

     (13     (348     (102

Income taxes

     (1,133     (995     (1,069

Net earnings

     3,253       2,973       3,050  

Net earnings attributable to:

      

Common shareholders

     3,040       2,785       2,866  

Preferred shareholders

     151       144       128  

Non-controlling interest

     62       44       56  

Net earnings

     3,253       2,973       3,050  

Net earnings per common share

      

Basic and diluted

     3.37       3.10       3.20  

RATIOS

                        

Adjusted EBITDA margin (%)

     42.2     40.6     40.8

Return on equity (%) (1)

     18.2     17.1     18.6

 

(1)

Net earnings attributable to common shareholders divided by total average equity attributable to BCE shareholders excluding preferred shares.

 

 

 

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      2019     2018     2017  

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

                        

Total assets

     60,146       57,100       55,802  

Cash and cash equivalents

     145       425       625  

Debt due within one year (including notes payable and loans secured by trade receivables)

     3,881       4,645       5,178  

Long-term debt

     22,415       19,760       18,215  

Total non-current liabilities

     28,961       25,982       24,445  

Equity attributable to BCE shareholders

     21,074           20,363       20,302  

Total equity

     21,408       20,689       20,625  

CONSOLIDATED STATEMENTS OF CASH FLOWS

                        

Cash flows from operating activities

     7,958       7,384       7,358  

Cash flows used in investing activities

     (4,036     (4,386     (5,437

Capital expenditures

     (3,988     (3,971     (4,034

Business acquisitions

     (51     (395     (1,649

Disposition of intangibles and other assets

           68       323  

Cash flows used in financing activities

     (4,202     (3,198     (2,149

Issue of common shares

     240       11       117  

Net (repayment) issuance of debt instruments

     (1,216     158       691  

Cash dividends paid on common shares

     (2,819     (2,679     (2,512

Cash dividends paid on preferred shares

     (147     (149     (127

Cash dividends paid by subsidiaries to non-controlling interest

     (65     (16     (34

Free cash flow

     3,818       3,567       3,418  

SHARE INFORMATION

                        

Average number of common shares (millions)

     900.8       898.6       894.3  

Common shares outstanding at end of year (millions)

     903.9       898.2       901.0  

Market capitalization (1)

     54,379       48,440       54,402  

Dividends declared per common share (dollars)

     3.17       3.02       2.87  

Dividends declared on common shares

     (2,857     (2,712     (2,564

Dividends declared on preferred shares

     (151     (144     (128

Closing market price per common share (dollars)

     60.16       53.93       60.38  

Total shareholder return

     17.5     (5.6 %)      8.9

RATIOS

                        

Capital intensity (%)

     16.6     16.9     17.7

Price to earnings ratio (times) (2)

     17.85       17.40       18.87  

OTHER DATA

      

Number of employees (thousands)

     52       53       52  

 

(1)

BCE’s common share price at the end of the year multiplied by the number of common shares outstanding at the end of the year.

 

(2)

BCE’s common share price at the end of the year divided by EPS.

 

    

 

 

       

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7.2   Quarterly financial information

The following table shows selected BCE consolidated financial data by quarter for 2019 and 2018. This quarterly information is unaudited but has been prepared on the same basis as the annual consolidated financial statements. We discuss the factors that caused our results to vary over the past eight quarters throughout this MD&A.

 

                                                                                                                                                       
     
     2019     2018  
      Q4     Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Operating revenues

                

Service

     5,276       5,185       5,231       5,045       5,231       5,117       5,129       4,964  

Product

     1,040       799       699       689       984       760       657       626  

Total operating revenues

     6,316       5,984       5,930       5,734       6,215       5,877       5,786       5,590  

Adjusted EBITDA

     2,508       2,594       2,595       2,409           2,394       2,457       2,430       2,254  

Severance, acquisition and other costs

     (28     (23     (39     (24     (58     (54     (24      

Depreciation

     (865     (861     (888     (882     (799     (779     (787     (780

Amortization

     (228     (230     (223     (221     (216     (220     (221     (212

Finance costs

                

Interest expense

     (286     (282     (281     (283     (259     (255     (246     (240

Interest on post-employment benefit obligations

     (16     (16     (15     (16     (18     (17     (17     (17

Other (expense) income

     (119     61       (56     101       (158     (41     (88     (61

Income taxes

     (243     (321     (276     (293     (244     (224     (292     (235

Net earnings

     723       922       817       791       642       867       755       709  

Net earnings attributable to common shareholders

     672       867       761       740       606       814       704       661  

Net earnings per common share

                

Basic and diluted

     0.74       0.96       0.85       0.82       0.68       0.90       0.79       0.73  

Average number of common shares outstanding – basic (millions)

     903.8       901.4       899.5       898.4       898.1       898.0       898.0       900.2  

OTHER INFORMATION

                

Cash flows from operating activities

     2,091       2,258       2,093       1,516       1,788       2,043       2,057       1,496  

Free cash flow

     894       1,189       1,093       642       1,022       1,014       994       537  

Capital expenditures

     (1,153     (1,013     (972     (850     (974     (1,010     (1,056     (931

 

 

 

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FOURTH QUARTER HIGHLIGHTS

 

                                                                                                                           
         
OPERATING REVENUES    Q4 2019     Q4 2018     $ CHANGE     % CHANGE        

Bell Wireless

     2,493       2,407       86     3.6%   

Bell Wireline

     3,138       3,137       1     –      

Bell Media

     879       850       29     3.4%   

Inter-segment eliminations

     (194     (179     (15   (8.4%)  

Total BCE operating revenues

     6,316       6,215       101     1.6%   
        
         
ADJUSTED EBITDA    Q4 2019     Q4 2018     $ CHANGE     % CHANGE        

Bell Wireless

     944       879       65     7.4%   

Bell Wireline

     1,359       1,339       20     1.5%   

Bell Media

     205       176       29     16.5%   

Total BCE adjusted EBITDA

     2,508       2,394       114     4.8%   

 

BCE operating revenues grew by 1.6% in Q4 2019, compared to Q4 2018, driven by growth in Bell Wireless and Bell Media, while Bell Wireline remained stable year over year. The year-over-year increase reflected both higher service and product revenues of 0.9% and 5.7%, respectively.

BCE net earnings increased by 12.6% in Q4 2019, compared to Q4 2018, mainly due to higher adjusted EBITDA, lower other expense and lower severance, acquisition and other costs. This was partly offset by higher depreciation and amortization expense and finance costs. The adoption of IFRS 16 did not have a significant impact on net earnings.

BCE adjusted EBITDA increased by 4.8% in Q4 2019, compared to Q4 2018, driven by growth across all three of our segments. This resulted in an adjusted EBITDA margin of 39.7% in the quarter, up 1.2 pts over Q4 2018, primarily due to the favourable impact from the adoption of IFRS 16 in 2019.

Bell Wireless operating revenues increased by 3.6% in Q4 2019, compared to Q4 2018, driven by higher service and product revenues. Service revenues grew by 1.6% year over year due to continued growth in both our postpaid and prepaid subscriber base along with rate increases and a greater mix of customers subscribing to higher-value monthly plans including unlimited data plans. This was moderated by greater sales of premium handsets along with the impact of higher-value monthly plans, and lower data overage driven by increased customer adoption of unlimited data plans. Product revenues grew by 7.4% year over year, driven by increased sales of premium handsets and the impact of higher-value monthly plans in our sales mix.

Bell Wireless adjusted EBITDA increased by 7.4% in Q4 2019, compared to the same period last year, mainly driven by the flow-through of higher revenues, partially offset by higher operating expenses of 1.4% year over year. The increase in operating expenses was primarily due to higher product cost of goods sold from greater mix of premium handsets and increased handset costs, higher network operating costs to support the growth in our subscriber base and data consumption and higher bad debt expense driven by the growth in revenues. This was offset in part by the favourable impact from the adoption of IFRS 16 in 2019. Adjusted EBITDA margin, based on wireless operating revenues, of 37.9% increased by 1.4 pts over Q4 2018, mainly due to the impact from the adoption of IFRS 16, greater service revenue flow-through and promotional spending discipline during the holiday season, moderated by higher low-margin product sales in our total revenue base.

Bell Wireline operating revenues remained unchanged in Q4 2019, compared to Q4 2018, resulting from stable year-over-year service revenue which increased 0.1%, as the continued expansion of our retail Internet and IPTV subscriber bases, residential rate increases, contribution from the federal election and higher business solution services revenue were offset by ongoing subscriber erosion in voice and satellite TV, greater acquisition, retention and bundle discounts on residential services to match competitor promotions, lower TV pay-per-view revenues and a decline in IP connectivity revenues due in part to migration to Internet based services. Product revenues were relatively stable year over year, declining 0.6% or $1 million.

Bell Wireline adjusted EBITDA grew by 1.5% in Q4 2019, compared to Q4 2018, mainly due to lower operating costs of 1.1%, driven by the favourable impact from the adoption of IFRS 16 in 2019 and continued effective cost containment. Adjusted EBITDA margin increased 0.6 pts to 43.3% in Q4 2019, compared to Q4 2018, mainly due to the favourable impact from the adoption of IFRS 16 in 2019.

Bell Media operating revenues increased by 3.4% in Q4 2019, compared to the same period last year, driven by increased subscriber revenues from the continued growth in Crave due to higher subscribers along with rate increases following the launch of our enhanced Crave service in November 2018 and also reflected the favourability from BDU contract renewals. Advertising revenues declined modestly in Q4 2019, compared to Q4 2018, from lower conventional TV advertising revenues and ongoing market softness in radio, partially offset by continued growth in specialty TV and OOH advertising revenues.

Bell Media adjusted EBITDA increased by 16.5% in Q4 2019, compared to the same period last year, driven by higher operating revenues coupled with stable operating expenses as the favourable impact from the adoption of IFRS 16 in 2019 was offset by the growth in programming and content costs related to higher sports broadcast rights costs and ongoing Crave content expansion.

BCE capital expenditures of $1,153 million in Q4 2019 increased by $179 million over Q4 2018 and corresponded to a capital intensity ratio of 18.3% compared to 15.7% last year. The growth in capital investments was driven by increases across all three of our segments. Wireline capital spending was $96 million higher year over year, mainly due to the timing of our spending, driven by the roll-out of fixed WTTP to rural locations in Ontario and Québec. Capital spending at Bell Wireless was

 

 

    

 

 

       

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up $78 million in Q4 2019 over Q4 2018, due to the timing of our spending compared to Q4 2018 as we continue to invest in wireless small cells to expand capacity to support subscriber growth, and increase speeds, coverage and signal quality, as well as to expand data fibre backhaul in preparation for 5G technology. Bell Media capital investments increased $5 million compared to Q4 2018 mainly related to continued investment in digital platforms.

BCE severance, acquisition and other costs of $28 million in Q4 2019 decreased by $30 million, compared to Q4 2018, mainly due to lower acquisition and other costs.

BCE depreciation of $865 million in Q4 2019 increased by $66 million, year over year, mainly due to the adoption of IFRS 16.

BCE amortization was $228 million in Q4 2019, up from $216 million in Q4 2018, mainly due to a higher asset base.

BCE interest expense was $286 million in Q4 2019, up from $259 million in Q4 2018, mainly as a result of the adoption of IFRS 16 and higher average debt levels.

BCE other expense of $119 million in Q4 2019 decreased by $39 million, year over year, mainly due to lower impairment charges at our Bell Media segment and higher gains on investments which included BCE’s obligation to repurchase at fair value the minority interest in one of BCE’s subsidiaries, partly offset by higher net mark-to-market losses on derivatives used to economically hedge equity settled share-based compensation plans.

BCE income taxes of $243 million in Q4 2019 decreased by $1 million, compared to Q4 2018, mainly as a result of a higher value of uncertain tax positions favourably resolved in Q4 2019, partly offset by higher taxable income.

BCE net earnings attributable to common shareholders of $672 million in Q4 2019, or $0.74 per share, were higher than the $606 million, or $0.68 per share, reported in Q4 2018. The year-over-year increase was mainly due to higher adjusted EBITDA, lower other expense and lower severance, acquisition and other costs. This was partly offset by higher depreciation and amortization expense and finance costs. The adoption of IFRS 16 did not have a significant impact on net earnings. Adjusted net earnings remained stable at $794 million in Q4 2019, compared to Q4 2018, and adjusted EPS decreased to $0.88, from $0.89 in Q4 2018.

BCE cash flows from operating activities was $2,091 million in Q4 2019 compared to $1,788 million in Q4 2018. The increase is mainly attributable to higher adjusted EBITDA, which reflects the favourable impact from the adoption of IFRS 16, a voluntary DB pension plan contribution of nil in 2019 compared to $240 million paid in 2018, an increase in operating assets and liabilities, and lower interest paid, partly offset by higher income taxes paid.

BCE free cash flow generated in Q4 2019 was $894 million, compared to $1,022 million in Q4 2018. The decrease was mainly attributable to higher capital expenditures, partly offset by higher cash flows from operating activities, excluding voluntary DB pension plan contributions and acquisition and other costs paid.

 

 

 

SEASONALITY CONSIDERATIONS

 

Some of our segments’ revenues and expenses vary slightly by season, which may impact quarter-to-quarter operating results.

Bell Wireless operating results are influenced by the timing of new mobile device launches and seasonal promotional periods, such as back-to-school, Black Friday and the Christmas holiday period, as well as the level of overall competitive intensity. Because of these seasonal effects, subscriber additions and retention costs due to device upgrades related to contract renewals are typically higher in the third and fourth quarters. Accordingly, adjusted EBITDA tends to be lower in the third and fourth quarters, due to the costs associated with higher seasonal loading volumes. With respect to ABPU, historically we have experienced seasonal sequential increases in the second and third quarters, due to higher levels of usage and roaming in the spring and summer months, followed by historical seasonal sequential declines in the fourth and first quarters. However, this seasonal effect on ABPU has moderated, as unlimited voice and data options have become more prevalent, resulting in less variability in chargeable data usage.

Bell Wireline revenue tends to be higher in the fourth quarter because of historically higher data and equipment product sales to business customers. However, this may vary from year to year depending on the strength of the economy and the presence of targeted sales initiatives, which can influence customer spending. Home Phone, TV and Internet subscriber activity is subject to modest seasonal fluctuations, attributable largely to residential moves during the summer months and the back-to-school period in the third quarter. Targeted marketing efforts conducted during various times of the year to coincide with special events or broad-based marketing campaigns also may have an impact on overall wireline operating results.

Bell Media revenue and related expenses from TV and radio broadcasting are largely derived from the sale of advertising, the demand for which is affected by prevailing economic conditions as well as cyclical and seasonal variations. Seasonal variations are driven by the strength of TV ratings, particularly during the fall programming season, major sports league seasons and other special sporting events such as the Olympic Games, NHL and NBA playoffs and World Cup soccer, as well as fluctuations in consumer retail activity during the year.

 

 

 

 

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8   Regulatory environment

 

 

8.1  Introduction

 

This section describes certain legislation that governs our business and provides highlights of recent regulatory initiatives and proceedings, government consultations and government positions that affect us, influence our business and may continue to affect our ability to compete in the marketplace. Bell Canada and several of its direct and indirect subsidiaries, including Bell Mobility, Bell ExpressVu Limited Partnership (ExpressVu), Bell Media, NorthernTel, Limited Partnership (NorthernTel), Télébec, Limited Partnership (Télébec) and Northwestel, are governed by the Telecommunications Act, the Broadcasting Act, the Radiocommunication Act and/or the Bell Canada Act. Our business is affected by regulations, policies and decisions made by various regulatory agencies, including the CRTC, a quasi-judicial agency of the Government of Canada responsible for regulating Canada’s telecommunications and broadcasting industries, and other federal government departments, in particular ISED and the Competition Bureau, as well as by prime minister mandate letters such as the mandate letters issued on December 13, 2019, announcing the government’s intention to reduce the average cost of cellular phone bills in Canada by 25 percent.

In particular, the CRTC regulates the prices we can charge for retail telecommunications services when it determines there is not enough competition to protect the interests of consumers. The CRTC has determined that competition is sufficient to grant forbearance from retail price regulation under the Telecommunications Act for the vast majority of our retail wireline and wireless telecommunications services. The CRTC can also mandate the provision of access by competitors to our wireline and wireless networks and the rates we can charge them. Notably, it currently mandates wholesale high-speed access for wireline broadband as well as domestic wireless roaming services. Additional mandated services, as well as lower mandated wholesale rates, could undermine our incentives to invest in network improvements and extensions, limit our flexibility, influence the market structure, improve the business position of our competitors, limit network-based differentiation of our services and negatively impact the financial performance of our businesses. Our TV distribution and our TV and radio broadcasting businesses are subject to the Broadcasting Act and are, for the most part, not subject to retail price regulation.

Although most of our retail services are not price-regulated, government agencies and departments such as the CRTC, ISED, Canadian Heritage and the Competition Bureau continue to play a significant role in regulatory matters such as mandatory access to networks, spectrum auctions, the imposition of consumer-related codes of conduct, approval of acquisitions, broadcast and spectrum licensing, foreign ownership requirements, and control of copyright piracy. Adverse decisions by governments or regulatory agencies, increasing regulation or a lack of effective anti-piracy remedies could have negative financial, operational, reputational or competitive consequences for our business.

REVIEW OF KEY LEGISLATION

On June 5, 2018, the Minister of Innovation, Science and Industry and the Minister of Canadian Heritage announced the launch of a review of the Broadcasting Act, the Radiocommunication Act and the Telecommunications Act (the Acts). The legislative review is intended to modernize the Acts to better address new realities impacting the broadcasting and telecommunications industries. The review was led by a panel of external experts tasked with consulting industry members and Canadian consumers. On January 29, 2020, the review panel issued a report that included 97 recommendations. Reforms of these key pieces of legislation could have material impacts for our broadcasting, telecommunications and wireless businesses. It is unclear which of the panel’s recommendations, if any, may be adopted by the government, and when any adopted reforms would come into force. Therefore, the impact, if any, of these recommendations on our business and financial results is unclear at this time.

 

 

    

 

 

      

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8.2   Telecommunications Act

 

The Telecommunications Act governs telecommunications in Canada. It defines the broad objectives of Canada’s telecommunications policy and provides the Government of Canada with the power to give general direction to the CRTC on any of its policy objectives. It applies to several of the BCE group of companies and partnerships, including Bell Canada, Bell Mobility, NorthernTel, Télébec and Northwestel.

Under the Telecommunications Act, all facilities-based telecommunications service providers in Canada, known as telecommunications common carriers (TCCs), must seek regulatory approval for all telecommunications services, unless the services are exempt or forborne from regulation. The CRTC may exempt an entire class of carriers from regulation under the Telecommunications Act if the exemption meets the objectives of Canada’s telecommunications policy. In addition, a few large TCCs, including those in the BCE group, must also meet certain Canadian ownership requirements. BCE monitors and periodically reports on the level of non-Canadian ownership of its common shares.

REVIEW OF MOBILE WIRELESS SERVICES

On February 28, 2019, the CRTC launched its planned review of the regulatory framework for mobile wireless services. The purpose of the proceeding is to consider changes to the wireless regulatory framework developed in 2015. The main issues in the CRTC’s consultation include (i) competition in the retail market; (ii) the current wholesale mobile wireless service regulatory framework, with a focus on wholesale MVNO access; and (iii) the future of mobile wireless services in Canada, with a focus on reducing barriers to infrastructure deployment. With respect to MVNOs, the CRTC expressed the preliminary view that it would be appropriate for the national wireless carriers to provide wholesale MVNO access. The CRTC held a public hearing in February 2020 and a decision is expected later in 2020. It is unclear what impact, if any, the results of this consultation could have on our business and financial results. However, a decision by the CRTC mandating MVNO access will negatively impact our capacity to make investments at the same levels as we have in the past and, accordingly, it will put at risk our ability to invest in next-generation networks.

MANDATED DISAGGREGATED WHOLESALE ACCESS TO FTTP NETWORKS

On July 22, 2015, in Telecom Regulatory Policy CRTC 2015-326, the CRTC mandated the introduction of a new disaggregated wholesale high-speed access service, including over FTTP facilities. The first stage of its implementation is to take place only in Ontario and Québec, our two largest markets. This adverse regulatory decision may impact the specific nature, magnitude, location and timing of our future FTTP investment decisions. In particular, the introduction by the CRTC of mandated wholesale services over FTTP undermines the incentives for facilities-based digital infrastructure providers to invest in next-generation wireline networks, particularly in smaller communities and rural areas.

On August 29, 2017, in Telecom Order CRTC 2017-312, the CRTC set interim rates for the new disaggregated wholesale high-speed access service. The final rates remain to be determined. The mandating of final rates that are materially different from the rates we proposed could further impact our investment strategy, improve the business position of our competitors and adversely impact our financial results.

PROPOSED EXPANSION OF

AGGREGATED WHOLESALE ACCESS

REGIME TO FTTP NETWORKS

On November 7, 2018, the Canadian Network Operators Consortium Inc. (CNOC) (which represents wholesale ISPs) applied to the CRTC to obtain mandated access via aggregated services to FTTP facilities. In addition, CNOC is requesting the introduction of a third wholesale high-speed access service, which would feature some level of aggregation between that of the already well-established mandated aggregated wholesale high-speed access service and the newer disaggregated wholesale high-speed access service referred to under Mandated disaggregated wholesale access to FTTP networks above. The inclusion of FTTP facilities in the aggregated regime and the introduction of yet another mandated wholesale high-speed service could further undermine the incentives for facilities-based digital infrastructure providers to invest in next-generation wireline networks, improve the business position of our competitors and adversely impact our financial results.

REVIEW OF WHOLESALE FTTN HIGH-SPEED ACCESS SERVICE RATES

As part of its ongoing review of wholesale Internet rates, on October 6, 2016, the CRTC significantly reduced, on an interim basis, some of the wholesale rates that Bell Canada and other major providers charge for access by third-party Internet resellers to FTTN or cable networks, as applicable. On August 15, 2019, the CRTC further reduced the wholesale rates that Internet resellers pay to access network infrastructure built by facilities-based providers like Bell Canada, with retroactive effect back to March 2016 (the Decision). The estimated cost impact to Bell Canada of the Decision could be in excess of $100 million, if not overturned or otherwise modified, and will reduce the scope of Bell Canada’s broadband wireless Internet build-out plan for smaller towns and rural communities by approximately 200,000 households, to a total revised plan of 1 million households.

Bell Canada and five major cable carriers (Cogeco Communications Inc., Bragg Communications Incorporated (Eastlink), Rogers, Shaw and Vidéotron) (together, the Applicants) have obtained leave to appeal the Decision from the Federal Court of Appeal. The Federal Court of Appeal has also granted a stay of the Decision until it makes its final ruling. The Applicants and TELUS Communications Inc. further appealed the Decision to the Federal Cabinet and have filed review and vary applications of the Decision with the CRTC.

 

 

 

 

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REVIEW OF BASIC

TELECOMMUNICATIONS SERVICES

On December 21, 2016, the CRTC issued Telecom Regulatory Policy CRTC 2016-496, in which it created a $750 million new fund to expand access to broadband Internet as well as access to the latest generally deployed wireless technology across Canada (Fund). The Fund will collect and distribute $750 million over five years to support the CRTC’s universal service objective that all Canadians have access to Internet speeds of at least 50 Mbps download and access to the latest generally deployed mobile wireless technology. Contributions to the Fund will be collected from telecommunications service providers, like those of the BCE group, and distributed through a competitive bidding process. The Fund will start at $100 million in its first year and grow by $25 million each year until it caps out at $200 million in the fifth year. On June 3, 2019, the CRTC launched a first call for applications to receive funds from the Fund, that was due October 3, 2019, for projects in the North and for satellite-dependent communities. On November 13, 2019, the CRTC launched its second call for applications, due March 27, 2020, for all eligible projects to improve broadband access across Canada, including in areas covered by the first call. While we will be required to contribute to the Fund based on our percentage of industry revenues for voice, data and Internet services, the extent of the impact of the Fund on our business is not yet known, as funds contributed may be offset by any funds received should we seek and be awarded funds to deploy broadband services.

On June 26, 2018, in Telecom Regulatory Policy CRTC 2018-213, the CRTC decided to phase out the local service subsidy over three years, from January 1, 2019 to December 31, 2021, through semi-annual reductions. This subsidy, collected from the industry, is remitted to national telephone providers, such as Bell Canada, to support residential local phone service in high-cost areas. BCE group entities both contribute to and draw from this subsidy fund, with BCE group entities currently in a small net beneficiary position. On the same date, the CRTC launched Telecom Notice of Consultation CRTC 2018-214 (the Consultation) to review certain elements of the local service regime, including whether additional pricing flexibility or some form of compensation is required for national telephone providers, given that the local service subsidy will be eliminated. The Consultation also reviewed the existing forbearance regimes for local residential and business services. In its decision resulting from this Consultation issued on February 4, 2020 (Telecom

Regulatory Policy 2020-40), the CRTC did not provide any additional pricing flexibility or other form of compensation to the national telephone providers for the elimination of the local service subsidy, maintained the obligation to serve and did not provide additional technological flexibility to the national telephone providers to meet that obligation in regulated areas.

NATIONAL WIRELESS SERVICES CONSUMER CODE

On June 3, 2013, the CRTC issued Telecom Regulatory Policy CRTC 2013-271, which established the Wireless Code. The Wireless Code applies to all wireless services provided to individual and small business consumers (i.e., businesses that on average spend less than $2,500 per month on telecommunications services) in all provinces and territories.

The Wireless Code regulates certain aspects of the provision of wireless services. Most notably, the Wireless Code prevents wireless service providers from charging an early cancellation fee after a customer has been under contract for 24 months and requires providers to recover any handset subsidies in two years or less. These requirements have effectively removed contracts with terms greater than two years from the marketplace.

On June 15, 2017, the CRTC issued Telecom Regulatory Policy CRTC 2017-200, making targeted changes to the Wireless Code, effective December 1, 2017, and clarifying existing rules. The revisions to the Wireless Code prevent service providers from selling locked devices, increase voice, text and data usage allowances for customers to try out their services during the mandatory 15-day buyer’s trial period for purchased devices, and establish additional controls related to data overage and data roaming charges, among other things.

CANADA’S TELECOMMUNICATIONS FOREIGN OWNERSHIP RULES

Under the Telecommunications Act, there are no foreign investment restrictions applicable to TCCs that have less than a 10% share of the total Canadian telecommunications market as measured by annual revenues. However, foreign investment in telecommunications companies can still be refused by the government under the Investment Canada Act. The absence of foreign ownership restrictions on such small or new entrant TCCs could result in more foreign companies entering the Canadian market, including by acquiring spectrum licences or Canadian TCCs.

 

 

 

8.3   Broadcasting Act

 

The Broadcasting Act outlines the broad objectives of Canada’s broadcasting policy and assigns the regulation and supervision of the broadcasting system to the CRTC. Key policy objectives of the Broadcasting Act are to protect and strengthen the cultural, political, social and economic fabric of Canada and to encourage the development of Canadian expression.

Most broadcasting activities require a programming or broadcasting distribution licence from the CRTC. The CRTC may exempt broadcasting undertakings from complying with certain licensing and regulatory requirements if it is satisfied that non-compliance will not materially affect the implementation of Canadian broadcasting policy. A corporation

must also meet certain Canadian ownership and control requirements to obtain a broadcasting or broadcasting distribution licence, and corporations must have the CRTC’s approval before they can transfer effective control of a broadcasting licensee.

Our TV distribution operations and our TV and radio broadcasting operations are subject to the requirements of the Broadcasting Act, the policies and decisions of the CRTC and their respective broadcasting licences. Any changes in the Broadcasting Act, amendments to regulations or the adoption of new ones, or amendments to licences, could negatively affect our competitive position or the cost of providing services.

 

 

    

 

 

       

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CHANGES TO SIMULTANEOUS SUBSTITUTION

In Broadcasting Regulatory Policy CRTC 2015-25, the CRTC announced its intention to eliminate simultaneous substitution for the Super Bowl starting in 2017. This decision was implemented in Broadcasting Regulatory Policy CRTC 2016-334 and Broadcasting Order CRTC 2016-335 (the Order).

Bell Canada and Bell Media appealed the application of the Order to the Federal Court of Appeal, as did the NFL. Bell Canada and Bell Media argued that the CRTC does not have jurisdiction under the Broadcasting Act to ban simultaneous substitution for the Super Bowl and that doing so constitutes unauthorized retrospective regulation and interference with Bell Media’s vested economic rights. The appeal was denied on December 18, 2017. On May 10, 2018, the Supreme Court of Canada granted leave for Bell Canada, Bell Media and the NFL to appeal the decision of the Federal Court of Appeal.

In a decision issued on December 20, 2019, the Supreme Court of Canada overturned the Federal Court of Appeal’s decision and concluded that the CRTC could not use the Broadcasting Act provision in question to ban simultaneous substitution for the Super Bowl program. As a result, starting with the 2020 Super Bowl, the simultaneous substitution regime applies again to the Super Bowl, as it does now with other programs whose rights have been acquired by Canadian conventional TV stations.

The CRTC’s decision to eliminate simultaneous substitution for the Super Bowl has had an adverse impact on Bell Media’s conventional TV business and financial results, as a result of a reduction in viewership and advertising revenues. With simultaneous substitution now being reinstated, advertisements sold by Bell Media can again be substituted over those sold by U.S. stations for their U.S. signals during the Super Bowl program, thereby maximizing advertising revenues for the total Canadian audience watching the Super Bowl program.

TELEVISION SERVICE PROVIDER CODE

On January 7, 2016, the CRTC issued Broadcasting Regulatory Policy CRTC 2016-1, which established the Television Service Provider Code (the TV Code). The TV Code came into force on September 1, 2017 and requires all regulated TV service providers, as well as exempt TV service providers that are affiliated with a regulated service provider, to observe certain rules concerning their consumer agreements for TV services. The TV Code does not apply to other exempt providers, such as OTT providers not affiliated with a regulated service provider.

The TV Code specifically imposes requirements relating to the clarity of offers, the content of contracts, trial periods for persons with disabilities, how consumers can change their programming options, and when services may be disconnected, among other things.

As part of Broadcasting Regulatory Policy CRTC 2016-1, the CRTC also expanded the mandate of the Commissioner for Complaints for Telecommunications Services, now the Commission for Complaints for Telecom-Television Services (CCTS), to include the administration of the TV Code and to enable the CCTS to accept consumer complaints about TV services.

 

 

 

 

8.4  Radiocommunication Act

 

ISED regulates the use of radio spectrum under the Radiocommunication Act to ensure that radiocommunication in Canada is developed and operated efficiently. All companies wishing to operate a wireless system in Canada must hold a spectrum licence to do so. Under the Radiocommunication Regulations, companies that are eligible for radio licences, such as Bell Canada and Bell Mobility, must meet the same ownership requirements that apply to companies under the Telecommunications Act.

ISED DECISION AND CONSULTATION ON 3500 MHZ AND OTHER SPECTRUM

On June 5, 2019, ISED released its Decision on Revisions to the 3500 MHz Band to Accommodate Flexible Use and Preliminary Decisions on Changes to the 3800 MHz Band. ISED decided that it will allow flexible use (which allows spectrum to be used for both fixed and mobile services) in the 3450–3650 MHz band. This allows ISED to issue flexible use licences in this frequency range. ISED will require existing licensees,

such as Inukshuk Wireless Partnership (a Bell Canada and Rogers Communications Inc. partnership), to return a portion of their existing licences in return for a flexible use licence following the auction. Existing licensees that currently hold 75 MHz of spectrum or more of fixed use licences in a given area will be eligible to apply for a new flexible use licence of 60 MHz in the related area; those with 50 MHz of spectrum will be eligible to apply for 50 MHz; and all other licensees will be eligible to apply for 20 MHz. Existing licensees will be allowed to continue operating where they do not prevent the deployment of new licences. If they are required to transition, they will be subject to a protection period of six months to three years, depending on the size of the population centre in the service area in which they operate. ISED will launch a future consultation to determine the amount of spectrum that will be assigned for flexible use in the 3700–4200 MHz band. It is unclear what impact the results of this decision and future related processes could have on our business and financial results.

 

 

 

 

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3500 MHZ SPECTRUM AUCTION

On March 5, 2020, ISED released its Policy and Licensing Framework for Spectrum in the 3500 MHz Band, which will govern the auction of spectrum licences in the 3500 MHz band. ISED will set aside 50 MHz of spectrum for regional service providers in all areas where at least 50 MHz will be available for auction or all available spectrum in areas with a large population centre where less than 50 MHz is available. The auctioned licences will have a 20-year term and set-aside licences will not be transferable to set-aside ineligible entities for the first 5 to 7 years of the licence term. In addition, licensees will need to meet general network coverage targets in each licence area at 5, 10 and 20 years following licence issuance. Licensees with existing LTE networks will be subject to additional deployment requirements based on their existing LTE coverage. While the adoption of set-aside provisions limits the amount of spectrum that Bell Mobility can bid on, ISED will not apply a spectrum cap on licensees. Bidding in the auction will begin on December 15, 2020.

DECISION ON RELEASING MILLIMETRE WAVE SPECTRUM TO SUPPORT 5G

On June 5, 2019, ISED issued its Decision on Releasing Millimetre Wave Spectrum to Support 5G. In this decision, ISED announced that spectrum in the 26 GHz, 28 GHz, and 37–40 GHz bands will transition from satellite use to flexible use (i.e., mobile or fixed use). ISED will designate the 64–71 GHz band for licence-exempt operations on a no-interference, no-protection basis. ISED indicated that the licensing of this spectrum will occur in 2021 and it will establish the details and specific rules through one or more future consultations. It is unclear what impact the results of this decision and future related processes could have on our business and financial results.

 

 

 

8.5   Bell Canada Act

 

Among other things, the Bell Canada Act limits how Bell Canada voting shares and Bell Canada facilities may be sold or transferred. Specifically, under the Bell Canada Act, the CRTC must approve any sale or other disposal of Bell Canada voting shares that are held by BCE, unless the sale or disposal would result in BCE retaining at least 80% of all of the

 

issued and outstanding voting shares of Bell Canada. Except in the ordinary course of business, the sale or other disposal of facilities integral to Bell Canada’s telecommunications activities must also receive CRTC approval.

 

 

 

8.6   Other

COPYRIGHT ACT REVIEW

On December 13, 2017, the federal government passed a motion in Parliament to formally launch a review of the Copyright Act. This review is mandated by the Copyright Act itself, which requires that the legislation be examined every five years. The Standing Committee on Industry, Science and Technology, working in collaboration with the Standing Committee on Canadian Heritage, led the process, which began in February 2018. The Standing Committee on Canadian Heritage released

its report on May 15, 2019 and the Standing Committee on Industry, Science and Technology released its report on June 3, 2019. Each Committee made a series of recommendations in respect of the rights of Canadian copyright holders and users and the effectiveness of Canadian copyright law. At this time, it is not known whether these reports will lead to amendments to the Copyright Act and the impact of any potential amendments on our business and financial results is unknown.

 

 

    

 

 

       

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9   Business risks

A risk is the possibility that an event might happen in the future that could have a negative effect on our financial position, financial performance, cash flows, business or reputation. The actual effect of any event could be materially different from what we currently anticipate. The risks described in this MD&A are not the only ones that could affect us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our financial position, financial performance, cash flows, business or reputation.

This section describes the principal business risks that could have a material adverse effect on our financial position, financial performance, cash flows, business or reputation, and cause actual results or events to differ materially from our expectations expressed in, or implied by, our forward-looking statements. As indicated in the table below, certain of these principal business risks have already been discussed in other sections of this MD&A, and we refer the reader to those sections for a discussion of such risks. All of the risk discussions set out in the sections referred to in the table below are incorporated by reference in this section 9.

 

RISKS DISCUSSED IN OTHER

SECTIONS OF THIS MD&A

   SECTION REFERENCES

Regulatory environment

  

Section 3.3, Principal business risks

Section 8, Regulatory environment

Competitive environment

  

Section 3.3, Principal business risks

Section 5, Business segment analysis (Competitive landscape and industry trends section for each segment)

Security management

   Section 3.3, Principal business risks

Risks specifically relating to our Bell Wireless,                 

Bell Wireline and Bell Media segments

   Section 5, Business segment analysis (Principal business risks section for each segment)

The other principal business risks that could also have a material adverse effect on our financial position, financial performance, cash flows, business or reputation are discussed below.

 

 

TECHNOLOGY/INFRASTRUCTURE TRANSFORMATION

 

The failure to transform our operations, enabling a truly customer-centric service experience across a constantly evolving profile of world-class products and services at all points of interaction, while lowering our cost structure, could have an adverse impact on our business and financial results

Globalization, increased competition and ongoing technological advances are driving customer expectations of faster market responses, enhanced user experiences and cost-effective delivery. Meeting these expectations requires the deployment of new service and product technologies that are network-neutral and based on a more collaborative and integrated development environment. The availability of improved networks and software technologies provides the foundation for better and faster connections, which have in turn led to a significant growth in IoT applications. Change can be difficult and may present unforeseen obstacles that might impact successful execution, and this transition is made more challenging by the complexity of our multi-product environment, combined with the complexity of our network and IT infrastructure. The failure to accurately assess the potential of new technologies, or to invest and evolve in the appropriate direction in an environment of changing business models, could have an adverse impact on our business and financial results.

In particular, our network and IT evolution activities seek to use new as well as evolving and developing technologies, including network functions virtualization, software-defined networks, cloud technologies, artificial intelligence and machine learning. They also seek to transform our network and systems through consolidation, virtualization and automation to achieve our objectives of becoming more agile in our service delivery and operations as well as providing omni-channel

 

capabilities for our customers, ensuring best quality and customer experience, and developing a new network infrastructure that enables a competitive cost structure and rapidly growing capacity. These evolution activities require an operational and cultural shift. Alignment across technology, product development and operations is increasingly critical to ensure appropriate trade-offs and optimization of capital allocation. Failure to transform our operations, enabling a truly customer-centric service experience across a constantly evolving profile of world-class products and services at all points of interaction, while lowering our cost structure, could hinder our ability to compete on footprint, service experience and cost structure and have an adverse impact on our business and financial results.

If this cannot be achieved in accordance with our deployment schedules while maintaining network availability and performance through the migration process, we may lose customers as a result of poor service performance, which could adversely affect our ability to achieve our operational and financial objectives. Failure to maximize adaptable infrastructures, processes and technologies to quickly and efficiently respond to evolving customer patterns and behaviours and leverage IP across all facets of our network and product and service portfolio could inhibit a fully customer-centric approach, limiting or preventing comprehensive self-serve convenience, real-time provisioning, cost savings and flexibility in delivery and consumption, leading to negative business and financial outcomes.

Parallel to our focus on next-generation investment, adverse regulatory decisions may impact the specific nature, magnitude, location and timing of investment decisions. In particular, the lowering of rates by the CRTC of mandated wholesale services over FTTN or FTTP, the

 

 

 

 

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potential for additional mandated access to our networks or the imposition of wholesale obligations on wireless networks will undermine the incentives for facilities-based digital infrastructure providers to invest in next-generation wireline and wireless networks. Failure to continue investment in next-generation capabilities in a disciplined and strategic manner could limit our ability to compete effectively and achieve desired business and financial results.

Other examples of risks affecting the achievement of our desired technology/infrastructure transformation include the following:

 

 

We, and other telecommunications carriers we rely on to provide services, must be able to purchase high-quality network equipment and services from third-party suppliers on a timely basis and at a reasonable cost (refer to Dependence on third-party suppliers below for more details)

 

 

Network construction and deployment on municipal or private property requires the issuance of municipal or property owner consents, respectively, for the installation of network equipment, which could increase the cost of, and cause delays in, FTTP and wireless rollouts

 

 

Suboptimal capital deployment in network build, infrastructure and process upgrade, and customer service improvement, could hinder our ability to compete effectively

 

 

The successful deployment of WTTP and 5G mobile services could be impacted by various factors, including environmental factors, affecting coverage and costs

 

The increasing dependence on apps for content delivery, sales, customer engagement and service experience drives the need for new and scarce capabilities (sourced internally or externally), which may not be available, as well as the need for associated operating processes integrated into ongoing operations

 

 

New products, services or apps could reduce demand for our existing, more profitable service offerings or cause prices for those services to decline, and could result in shorter estimated useful lives for existing technologies, which could increase depreciation and amortization expense

 

 

As content consumption habits evolve and viewing options increase, our ability to develop alternative delivery vehicles in order to seek to compete in new markets and increase customer engagement and revenue streams may be hindered by the significant software development and network investment required

 

 

Successfully managing the development and deployment on a timely basis of relevant product solutions to match the speed of adoption of IoT in the areas of retail, business and government could be challenging

 

 

We must be able to take advantage of new opportunities, in order to meet our business objectives, such as those introduced by “big data” which is subject to many challenges including evolving customer perceptions as well as legal and regulatory developments. If we cannot build market-leading competencies in this field across sales, service and operational platforms that respect societal values and legal and regulatory requirements, we may miss important opportunities to grow our business through enhanced market intelligence and a more proactive customer service model.

 

 

 

CUSTOMER EXPERIENCE

 

Driving a positive customer experience in all aspects of our engagement with customers is important to avoid brand degradation and other adverse impacts on our business and financial performance

As the bar continues to be raised based on customers’ evolving expectations of service and value, failure to get ahead of such expectations and build a more robust and consistent service experience could hinder product and service differentiation and customer loyalty. The foundation of effective customer service stems from our ability to deliver high-quality, consistent and simple solutions to customers in an expeditious manner and on mutually agreeable terms. However, complexity in our operations resulting from multiple technology platforms, billing systems, sales channels, marketing databases and a myriad of rate plans, promotions and product offerings, in the context of a large customer base and workforce that continuously requires to be trained, monitored and replaced, may limit our ability to respond quickly to market changes and reduce costs, and may lead to customer confusion or billing, service or other errors, which could adversely affect customer satisfaction, acquisition and retention. These challenges may

be exacerbated as services become more complex. Media attention to customer complaints could also erode our brand and reputation and adversely affect customer acquisition and retention.

With the proliferation of connectivity services, apps and devices, customers are accustomed to doing things when, how and where they want through websites, self-serve options, web chat, call centres, Facebook, Twitter and other social media forums. Failure to develop true omni-channel capabilities and embrace these new media in a positive way could adversely affect our business, financial results, reputation and brand value.

Understanding the customer relationship as a whole and delivering a simple, seamless experience at a fair price is increasingly central to an evolving competitive dynamic. Failure to improve our customer experience by digitizing and developing a consistent, fast and on-demand experience before, during and after sales using new technologies such as artificial intelligence and machine learning, in parallel to our network evolution, could also adversely affect our business, financial results, reputation and brand value.

 

 

 

OPERATIONAL PERFORMANCE

 

Our networks, IT systems and data centre assets are the foundation of high-quality consistent services, which are critical to meeting service expectations

Our ability to provide consistent wireless, wireline and media services to customers in a complex and constantly changing operating environment is crucial for sustained success. In particular, network capacity demands for TV and other bandwidth-intensive applications on our Internet and wireless networks have been growing at unprecedented rates.

Unexpected capacity pressures on our networks may negatively affect our network performance and our ability to provide services. Issues relating to network availability, speed, consistency and traffic management on our more current as well as our aging networks could have an adverse impact on our business and financial performance. Furthermore, as we move to more software-defined networks, we will need to manage the possibility of some instability during the transition.

 

 

    

 

 

       

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In addition, we currently use a very large number of interconnected operational and business support systems for provisioning, networking, distribution, broadcast management, billing and accounting, which may hinder our operational efficiency. If we fail to implement or maintain highly effective IT systems supported by an effective governance and operating framework, this may lead to inconsistent performance and dissatisfied customers, which over time could result in higher churn.

Further examples of risks to operational performance that could impact our reputation, business operations and financial performance include the following:

 

 

We may need to incur significant capital expenditures beyond those already anticipated by our capital intensity target in order to provide additional capacity and reduce network congestion on our wireline and wireless networks, and we may not be able to generate sufficient cash flows or raise the capital we need to fund such capital expenditures, which may result in service degradation

 

 

Corporate restructurings, system replacements and upgrades, process redesigns, staff reductions and the integration of business acquisitions may not deliver the benefits contemplated and could adversely impact our ongoing operations

 

 

If we fail to streamline our significant IT legacy system portfolio and proactively improve operating performance, this could adversely affect our business and financial results

 

 

We may experience more service interruptions or outages due to aging legacy infrastructure. In some cases, vendor support is no longer available or legacy vendor operations have ceased.

 

 

There may be a lack of competent and cost-effective resources to perform the life-cycle management and upgrades necessary to maintain the operational status of legacy networks

Our operations and business continuity depend on how well we protect, test, maintain, replace and upgrade our networks, IT systems, equipment and other facilities

Our operations, service performance, reputation and business continuity depend on how well we and our contracted product and service providers, as well as other telecommunications carriers on which we rely to provide services, protect networks and IT systems, as well as other infrastructure and facilities, from events such as information security attacks, unauthorized access or entry, fire, natural disaster (including, without limitation, seismic and severe weather-related events such as

ice, snow and wind storms, wildfires, flooding, extended heat waves, hurricanes, tornadoes and tsunamis), power loss, building cooling loss, acts of war or terrorism, sabotage, vandalism, actions of neighbours and other events. As discussed in more detail in Environmental and health concerns – Climate change and other environmental concerns could have an adverse effect on our business below, climate change, especially in areas of greater environmental sensitivity, could heighten the occurrence of the above-mentioned environmental risks. Establishing response strategies and business continuity protocols to maintain service consistency if any disruptive event materializes is critical to the achievement of effective customer service. Any of the above-mentioned events, as well as the failure by us, or by other telecommunications carriers on which we rely to provide services, to complete planned and sufficient testing, maintenance, replacement or upgrade of our or their networks, equipment and other facilities, which is, amongst others, dependent on our or their ability to purchase equipment and services from third-party suppliers, could disrupt our operations (including through disruptions such as network failures, billing errors or delays in customer service), require significant resources and result in significant remediation costs, which in turn could have an adverse effect on our business and financial performance, or impair our ability to keep existing subscribers or attract new ones.

Satellites used to provide our satellite TV services are subject to significant operational risks that could have an adverse effect on our business and financial performance

Pursuant to a set of commercial arrangements between ExpressVu and Telesat Canada (Telesat), we currently have satellites under contract with Telesat. Telesat operates or directs the operation of these satellites, which utilize highly complex technology and operate in the harsh environment of space and are therefore subject to significant operational risks while in orbit. These risks include in-orbit equipment failures, malfunctions and other problems, commonly referred to as anomalies, that could reduce the commercial usefulness of a satellite used to provide our satellite TV services. Acts of war or terrorism, magnetic, electrostatic or solar storms, or space debris or meteoroids could also damage such satellites. Any loss, failure, manufacturing defect, damage or destruction of these satellites, of our terrestrial broadcasting infrastructure or of Telesat’s tracking, telemetry and control facilities to operate the satellites could have an adverse effect on our business and financial performance and could result in customers terminating their subscriptions to our satellite TV service.

 

 

 

PEOPLE

 

Our employees and contractors are key resources and there is a broad and complex range of risks that must be managed effectively to drive a winning corporate culture and outstanding performance

Our business depends on the efforts, engagement and expertise of our management and non-management employees and contractors, who must be able to operate efficiently and safely based on the tasks they are completing and the environment in which they are functioning. Failure to achieve these basic expectations could adversely affect our organizational culture, reputation, business and financial results, as well as our ability to attract high-performing team members. Competition for highly skilled team members is intense, which makes essential the development of a comprehensive human resources strategy to adequately compete for talent and to identify and secure high-performing candidates for a broad range of job functions, roles and responsibilities. Failure to appropriately train, motivate, remunerate or

deploy employees on initiatives that further our strategic imperatives, or to efficiently replace retiring employees, could have an adverse impact on our ability to attract and retain talent and drive performance across the organization. The positive engagement of members of our team represented by unions is contingent on negotiating collective agreements that deliver competitive labour conditions and uninterrupted service, both of which are critical to achieving our business objectives. In addition, if the skill sets, diversity and size of the workforce do not match the operational requirements of the business and foster a winning culture, we will likely not be able to sustain our performance.

Other examples of people-related risks include the following:

 

 

The increasing technical and operational complexity of our businesses and the high demand in the market for skilled resources in strategic areas create a challenging environment for hiring, retaining and developing such skilled resources

 

 

 

 

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Failure to establish a complete and effective succession plan, including preparation of internal talent and identification of potential external candidates, where relevant, for key roles, could impair our business until qualified replacements are found

 

 

Renewal of collective agreements could result in higher labour costs and be challenging in the context of a declining workload due to transformation, a maturing footprint and improved efficiencies. During the bargaining process there may be project delays and work disruptions, including work stoppages or work slowdowns, which could adversely affect service to our customers and, in turn, our customer relationships and financial performance.

 

Ensuring the safety of our workforce operating in different environments, including manholes, telephone poles, cell towers, vehicles, foreign news bureaus and war zones, requires focus, effective processes and flexibility to avoid injury, service interruption, fines and reputational impact

 

 

Deterioration in employee morale and engagement resulting from staff reductions, ongoing cost reductions or reorganizations could adversely affect our business and financial results

 

 

 

DEPENDENCE ON THIRD-PARTY SUPPLIERS

 

We depend on third-party suppliers, outsourcers and consultants, some of which are critical, to provide an uninterrupted supply of the products and services we need to operate our business, deploy new network and other technologies and offer new products and services, as well as comply with various obligations

We depend on key third-party suppliers and outsourcers, over which we have no operational or financial control, for products and services, some of which are critical to our operations. If there are gaps in our vendor selection, governance and oversight processes established to seek to ensure full risk transparency at point of purchase and throughout the relationship, including any contract renegotiations, there is the potential for a breakdown in supply, which could impact our ability to make sales, service customers and achieve our business and financial objectives. In addition, any such gaps could result in suboptimal management of our vendor base, increased costs and missed opportunities. Some of our third-party suppliers and outsourcers are located in foreign countries, which increases the potential for a breakdown in supply due to the risks of operating in foreign jurisdictions with different laws, geo-political environments and cultures, as well as the potential for localized natural disasters.

We may have to select different third-party suppliers of equipment and other products and services, as well as outsourcers, in order to meet evolving internal company policies and guidelines as well as regulatory requirements. Should we decide, or be required by a governmental authority or otherwise, to terminate our relationship with an existing supplier or outsourcer, this would decrease the number of available suppliers or outsourcers and could result in increased costs, transitional, support, service, quality or continuity issues; delay our ability to deploy new network and other technologies and offer new products and services; and adversely affect our business and financial results.

The outsourcing of services generally involves transfer of risk, and we must take appropriate steps to ensure that the outsourcers’ approach to risk management is aligned with our own standards in order to maintain continuity of supply and brand strength. Further, as cloud-based supplier models continue to evolve, our procurement and vendor management practices must also continue to evolve to fully address associated risk exposures.

In addition, certain company initiatives rely heavily on professional consulting services provided by third parties, and a failure of such third parties may not be reasonably evident until their work is delivered or delayed. Difficulties in implementing remedial strategies in respect of professional consulting services provided by third parties that are not

performed in a proper or timely fashion could result in an adverse effect on our ability to comply with various obligations, including applicable legal and accounting requirements.

Other examples of risks associated with our dependence on third-party suppliers include the following:

 

 

Demand for products and services available from only a limited number of suppliers, some of which dominate their global market, may lead to decreased availability, increased costs or delays in the delivery of such products and services, since suppliers may choose to favour global competitors that are larger than we are and, accordingly, purchase a larger volume of products and services. In addition, production issues affecting any such suppliers, or other suppliers, could result in decreased quantities or a total lack of supply of products or services. Any of these events could adversely impact our ability to meet customer commitments and demand.

 

 

Cloud-based solutions may increase the risk of security and data leakage exposure if security control protocols affecting our suppliers are bypassed

 

 

Failure to maintain strong discipline around vendor administration (especially around initial account setup) may mask potential financial or operational risks and complicate future problem resolutions

 

 

The insolvency of one or more of our suppliers could cause a break-down in supply and have an adverse effect on our operations, including our ability to make sales or service customers, as well as on our financial results

 

 

If products and services important to our operations have manufacturing defects or do not comply with applicable government regulations and standards (including product safety practices), our ability to sell products and provide services on a timely basis may be negatively impacted. We work with our suppliers to identify serious product defects (including safety incidents) and develop appropriate remedial strategies, which may include a recall of products. To the extent that a supplier does not actively participate in, and/or bear primary financial responsibility for, a recall of its products, our ability to perform such recall programs at a reasonable cost and/or in a timely fashion may be negatively impacted. Any of the events referred to above could have an adverse effect on our operations and financial results.

 

 

Products (including software) and services supplied to us may contain security issues including, but not limited to, latent security issues that would not be apparent upon an inspection. Should we or a supplier fail to correct a security issue in a timely fashion, there could be an adverse effect on our business and financial results.

 

 

    

 

 

       

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We rely on other telecommunications carriers from time to time to deliver services. Should these carriers fail to roll out new networks or fail to upgrade existing networks, or should their networks be affected by operational failures or service interruptions, such issues could adversely affect our ability to provide services using such carriers’ networks and could, consequently, have an adverse effect on our business, financial results and reputation.

 

 

BCE depends on call centre and technical support services provided by a number of external suppliers and outsourcers, some of which are located in foreign countries. These vendors have access to customer and internal BCE information necessary for the support services that they provide. Information access and service delivery issues that are not managed appropriately may have an adverse impact on our reputation, the quality and speed of services provided to customers, and our ability to address technical issues.

 

 

 

FINANCIAL MANAGEMENT

 

If we are unable to raise the capital we need or generate sufficient cash flows from operating activities, we may need to limit our capital expenditures or our investments in new businesses, or try to raise capital by disposing of assets

Our ability to meet our cash requirements, fund capital expenditures and provide for planned growth depends on having access to adequate sources of capital and on our ability to generate cash flows from operating activities, which is subject to various risks, including those described in this MD&A.

Our ability to raise financing depends on our ability to access the public equity, debt capital and money markets, as well as the bank credit market. Our ability to access such markets and the cost and amount of funding available depend largely on prevailing market conditions and the outlook for our business and credit ratings at the time capital is raised.

Risk factors such as capital market disruptions, political, economic and financial market instability in Canada or abroad, government policies, central bank monetary policies, changes to bank capitalization or other regulations, reduced bank lending in general or fewer banks as a result of reduced activity or consolidation, could reduce capital available or increase the cost of such capital. In addition, an increased level of debt borrowings could result in lower credit ratings, increased borrowing costs and a reduction in the amount of funding available to us, including through equity offerings. Business acquisitions could also adversely affect our outlook and credit ratings and have similar adverse consequences. In addition, participants in the public capital and bank credit markets have internal policies limiting their ability to invest in, or extend credit to, any single entity or entity group or a particular industry.

Our bank credit facilities, including credit facilities supporting our commercial paper program, are provided by various financial institutions. While it is our intention to renew certain of such credit facilities from time to time, there are no assurances that these facilities will be renewed on favourable terms or in similar amounts.

Differences between BCE’s actual or anticipated financial results and the published expectations of financial analysts, as well as events affecting our business or operating environment, may contribute to volatility in BCE’s securities. A major decline in the capital markets in general, or an adjustment in the market price or trading volumes of BCE’s securities, may negatively affect our ability to raise debt or equity capital, retain senior executives and other key employees, make strategic acquisitions or enter into joint ventures.

If we cannot access the capital we need or generate cash flows to implement our business plan or meet our financial obligations on acceptable terms, we may have to limit our ongoing capital expenditures

and our investment in new businesses or try to raise additional capital by selling or otherwise disposing of assets. Any of these could have an adverse effect on our cash flows from operating activities and on our growth prospects.

We cannot guarantee that BCE’s dividend payout policy will be maintained or that dividends will be increased or declared

From time to time, the BCE Board reviews the adequacy of BCE’s dividend payout policy with the objective of allowing sufficient financial flexibility to continue investing in our business while growing returns to shareholders. Under the current dividend payout policy, increases in the common share dividend are directly linked to growth in BCE’s free cash flow. BCE’s dividend payout policy, increases in the common share dividend and the declaration of dividends on any of BCE’s outstanding shares are subject to the discretion of the BCE Board and, consequently, there can be no guarantee that BCE’s dividend payout policy will be maintained, that the dividend on common shares will be increased or that dividends will be declared. BCE’s dividend payout policy, dividend increases and the declaration of dividends by the BCE Board are ultimately dependent on BCE’s operations and financial results which are, in turn, subject to various assumptions and risks, including those set out in this MD&A.

We are exposed to various credit, liquidity and market risks

Our exposure to credit, liquidity and market risks, including equity price, interest rate and currency fluctuations, is discussed in section 6.5, Financial risk management of this MD&A and in Note 26 to BCE’s 2019 consolidated financial statements.

Our failure to identify and manage our exposure to changes in interest rates, foreign exchange rates, BCE’s share price and other market conditions could lead to missed opportunities, reduced profit margins, cash flow shortages, inability to complete planned capital expenditures, reputational damage, equity and debt securities devaluations, and challenges in raising capital on market-competitive terms.

The economic environment, pension rules or ineffective governance could have an adverse effect on our pension obligations, liquidity and financial performance, and we may be required to increase contributions to our post-employment benefit plans in the future

With a large pension plan membership and DB pension plans that are subject to the pressures of the global economic environment and changing regulatory and reporting requirements, our pension obligations are exposed to potential volatility. Failure to recognize and manage economic exposure and pension rule changes, or to ensure that effective governance is in place for management and funding of pension plan assets and obligations, could have an adverse impact on our liquidity and financial performance.

 

 

 

 

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The funding requirements of our post-employment benefit plans, based on valuations of plan assets and obligations, depend on a number of factors, including actual returns on post-employment benefit plan assets, long-term interest rates, plan demographics, and applicable regulations and actuarial standards. Changes in these factors could cause future contributions to significantly differ from our current estimates, require us to increase contributions to our post-employment benefit plans in the future and, therefore, have a negative effect on our liquidity and financial performance.

There is no assurance that the assets of our post-employment benefit plans will earn their assumed rate of return. A substantial portion of our post-employment benefit plans’ assets is invested in public equity and debt securities. As a result, the ability of our post-employment benefit plans’ assets to earn the rate of return that we have assumed depends significantly on the performance of capital markets. Market conditions also impact the discount rate used to calculate our pension plan solvency obligations and could therefore also significantly affect our cash funding requirements.

Income and commodity tax amounts may materially differ from the expected amounts

Our complex business operations are subject to various tax laws. The adoption of new tax laws, or regulations or rules thereunder, or changes thereto or in the interpretation thereof, could result in higher tax rates, new taxes or other adverse tax implications. In addition, while we believe that we have adequately provided for all income and commodity taxes based on all of the information that is currently available, the calculation of income taxes and the applicability of commodity taxes in many cases require significant judgment in interpreting tax rules and regulations. Our tax filings are subject to government audits that could result in material changes to the amount of current and deferred income tax assets and liabilities and other liabilities and could, in certain circumstances, result in an assessment of interest and penalties.

The failure to reduce costs as well as unexpected increases in costs could adversely affect our ability to achieve our strategic imperatives and financial guidance

Our objectives for targeted cost reductions continue to be aggressive but there is no assurance that we will be successful in reducing costs, especially since incremental cost savings are more difficult to achieve on an ongoing basis. Examples of risks to our ability to reduce costs or limit potential cost increases include the following:

 

 

Our cost reduction objectives require aggressive negotiations with our suppliers and there can be no assurance that such negotiations will be successful or that replacement products or services provided will not lead to operational issues

 

Achieving timely cost reductions while moving to an IP-based network is dependent on disciplined network decommissioning, which can be delayed by customer contractual commitments, regulatory considerations and other unforeseen obstacles

 

 

Failure to contain growing operational costs related to network sites, footprint expansion, spectrum licences and content and equipment acquisition could have a negative effect on our financial performance

 

 

Fluctuations in energy prices are partly influenced by government policies to address climate change such as carbon pricing which, combined with growing data demand that increases our energy requirements, could increase our energy costs beyond our current expectations

 

 

Failure to successfully deliver on our contractual commitments, whether due to security events, operational challenges or other reasons, may result in financial penalties and loss of revenues

The failure to evolve practices to effectively monitor and control fraudulent activities could result in financial loss and brand degradation

As a public company with a range of desirable and valuable products and services and a large number of employees, BCE requires a disciplined program covering governance, exposure identification and assessment, prevention, detection and reporting that considers corruption, misappropriation of assets and intentional manipulation of financial statements by employees and/or external parties. Fraud events can result in financial loss and brand degradation.

Specific examples relevant to us include:

 

 

Subscription fraud on accounts established with a false identity or paid with a stolen credit card

 

 

Fraudulent (unauthorized) access and manipulation of customer accounts, including through sim-swap and port out fraud

 

 

Network usage fraud such as call/sell operations using our wireline or wireless networks

 

 

Copyright theft and other forms of unauthorized use that undermine the exclusivity of Bell Media’s content offerings, which could potentially divert users to unlicensed or otherwise illegitimate platforms, thus impacting our ability to derive distribution and advertising revenues

 

 

Ongoing efforts to steal the services of TV distributors, including Bell Canada and ExpressVu, through compromise or circumvention of signal security systems, causing revenue loss

 

 

 

LITIGATION AND LEGAL OBLIGATIONS

 

Legal proceedings, changes in applicable laws and the failure to proactively address our legal and regulatory obligations could have an adverse effect on our business and financial performance

We become involved in various claims and legal proceedings as part of our business. Plaintiffs are able to launch and obtain certification of class actions on behalf of a large group of people with increasing ease, and securities laws facilitate the introduction of class action lawsuits by secondary market investors against public companies for alleged misrepresentations in public disclosure documents and oral statements.

Changes in laws or regulations, or in how they are interpreted, and the adoption of new laws or regulations, as well as pending or future litigation, including an increase in certified class actions which, by their nature, could result in sizeable damage awards and costs relating to litigation, could have an adverse effect on our business and financial performance. In addition, the increase in laws and regulations around customer interactions and the technological evolution of our business create an environment of complex compliance requirements which must be adequately managed.

 

 

    

 

 

       

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Examples of legal and regulatory obligations that we must comply with include those resulting from:

 

 

As discussed in more detail in section 8, Regulatory environment, decisions, policies and other initiatives of the CRTC, ISED, the Competition Bureau and other governmental agencies, as well as laws of a regulatory nature

 

 

Consumer protection legislation

 

 

Privacy legislation, such as Canada’s anti-spam legislation (CASL) and the Personal Information Protection and Electronic Documents Act, as well as other privacy legislation we may become subject to via mandatory flow-through of privacy-related obligations by our customers

 

 

Tax legislation

 

 

Corporate and securities legislation

 

 

IFRS requirements

 

Environmental protection and health and safety laws

 

 

Payment card industry standards for protection against customer credit card infractions

The failure to comply with any of the above or other legal or regulatory obligations could expose us to litigation, including pursuant to class actions, and significant fines and penalties, as well as result in reputational harm.

For a description of important legal proceedings involving us, please see the section entitled Legal proceedings contained in the BCE 2019 AIF.

Finally, the failure of our employees, suppliers or other business partners to comply with applicable legal and ethical standards including, without limitation, anti-bribery laws, as well as our policies and contractual obligations, could also expose us to litigation and significant fines and penalties, and result in reputational harm or being disqualified from bidding on contracts.

 

 

 

ENVIRONMENTAL AND HEALTH CONCERNS

 

Climate change and other environmental concerns could have an adverse effect on our business

Global climate change could exacerbate certain of the threats facing our business, including the frequency and severity of weather-related events referred to in Operational performance – Our operations and business continuity depend on how well we protect, test, maintain, replace and upgrade our networks, IT systems, equipment and other facilities in this section 9. Given that some of our third-party suppliers and outsourcers are located in foreign countries, localized natural disasters in such countries could further negatively impact our business. In addition, rising mean temperatures and extended heat waves could increase the need for cooling capacity in our data centres and network infrastructure, thus increasing our energy consumption and associated costs. Several areas of our operations also raise environmental considerations, such as fuel storage, greenhouse gas emissions, disposal of hazardous residual materials, and recovery and recycling of end-of-life electronic products we sell or lease. Failure to recognize and adequately respond to changing governmental and public expectations on environmental matters could result in fines, missed opportunities, additional regulatory scrutiny or harm our brand and reputation.

Health concerns about radiofrequency emissions from wireless communication devices and equipment, as well as pandemics, epidemics and other health risks, could have an adverse effect on our business

Many studies have been performed or are ongoing to assess whether wireless phones, networks and towers pose a potential health risk. While some studies suggest links to certain conditions, others conclude there is no established causation between mobile phone usage and adverse health effects. In 2011, the International Agency for Research on Cancer (IARC) of the World Health Organization classified radiofrequency electromagnetic fields from wireless phones as possibly carcinogenic to humans, but also indicated that chance, bias or confounding could not be ruled out with reasonable confidence. The IARC also called for additional research into long-term heavy use of mobile phones.

ISED is responsible for approving radiofrequency equipment and performing compliance assessments and has chosen Health Canada’s Safety Code 6, which sets the limits for safe exposure to radiofrequency emissions at home or at work, as its exposure standard. This code also outlines safety requirements for the installation and operation of devices that emit radiofrequency fields such as mobile phones, Wi-Fi technologies and base station antennas. ISED has made compliance to Safety Code 6 mandatory for all proponents and operators of radio installations.

Our business is heavily dependent on radiofrequency technologies, which could present significant challenges to our business and financial performance, such as the following:

 

 

We may face lawsuits relating to alleged adverse health effects on customers, as well as relating to our marketing and disclosure practices in connection therewith, and the likely outcome of such potential lawsuits would be unpredictable and could change over time

 

 

Changes in scientific evidence and/or public perceptions could lead to additional government regulations and costs for retrofitting infrastructure and handsets to achieve compliance

 

 

Public concerns could result in a slower deployment of, or in our inability to deploy, infrastructure necessary to maintain and/or expand our wireless network as required by market evolution

In addition, pandemics, epidemics and other health risks could occur, which could adversely affect our ability to maintain operational networks and provide products and services to our customers, as well as the ability of our suppliers to provide us with products and services we need to operate our business. Pandemics, epidemics and other health risks could also have an adverse effect on the economy and financial markets resulting in a declining level of retail and commercial activity, which could have a negative impact on the demand for, and prices of, our products and services.

Any of these events could have an adverse effect on our business and financial performance.

 

 

 

 

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10   Financial measures, accounting policies and controls

 

 

10.1  Our accounting policies

This section discusses key estimates and assumptions that management has made and how they affect the amounts reported in the financial statements and notes. It also describes key changes in accounting standards and our accounting policies, and how they affect our financial statements.

We have prepared our consolidated financial statements using IFRS. Other significant accounting policies, not involving the same level of measurement uncertainty as those discussed in this section, are nevertheless important to an understanding of our financial statements. See Note 2, Significant accounting policies, in BCE’s 2019 consolidated financial statements for more information about the accounting principles we used to prepare our consolidated financial statements.

 

 

CRITICAL ACCOUNTING ESTIMATES AND KEY JUDGMENTS

 

When preparing financial statements, management makes estimates and judgments relating to:

 

 

reported amounts of revenues and expenses

 

 

reported amounts of assets and liabilities

 

 

disclosure of contingent assets and liabilities

We base our estimates on a number of factors, including historical experience, current events and actions that the company may undertake in the future, and other assumptions that we believe are reasonable under the circumstances. By their nature, these estimates and judgments are subject to measurement uncertainty and actual results could differ.

We consider the estimates and judgments described in this section to be an important part of understanding our financial statements because they require management to make assumptions about matters that were highly uncertain at the time the estimates and judgments were made, and changes to these estimates and judgments could have a material impact on our financial statements and our segments.

Our senior management has reviewed the development and selection of the critical accounting estimates and judgments described in this section with the Audit Committee of the BCE Board.

Any sensitivity analysis included in this section should be used with caution as the changes are hypothetical and the impact of changes in each key assumption may not be linear.

Our more significant estimates and judgments are described below.

ESTIMATES

USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT AND FINITE-LIFE INTANGIBLE ASSETS

We review our estimates of the useful lives of property, plant and equipment and finite-life intangible assets on an annual basis and adjust depreciation or amortization on a prospective basis, as required.

Property, plant and equipment represent a significant proportion of our total assets. Changes in technology or our intended use of these assets, as well as changes in business prospects or economic and industry factors, may cause the estimated useful lives of these assets to change.

The estimated useful lives of property, plant and equipment and finite-life intangible assets are determined by internal asset life studies, which take into account actual and expected future usage, physical wear and tear, replacement history and assumptions about technology evolution. When factors indicate that assets’ useful lives are different from the prior assessment, we depreciate or amortize the remaining carrying value prospectively over the adjusted estimated useful lives.

POST-EMPLOYMENT BENEFIT PLANS

The amounts reported in the financial statements relating to DB pension plans and OPEBs are determined using actuarial calculations that are based on several assumptions.

Our actuaries perform a valuation at least every three years to determine the actuarial present value of the accrued DB pension plan and OPEB obligations. The actuarial valuation uses management’s assumptions for, among other things, the discount rate, life expectancy, the rate of compensation increase, trends in healthcare costs and expected average remaining years of service of employees.

While we believe that these assumptions are reasonable, differences in actual results or changes in assumptions could materially affect post-employment benefit obligations and future net post-employment benefit plans cost.

We account for differences between actual and expected results in benefit obligations and plan performance in OCI, which are then recognized immediately in the deficit.

The most significant assumptions used to calculate the net post-employment benefit plans cost are the discount rate and life expectancy.

A discount rate is used to determine the present value of the future cash flows that we expect will be needed to settle post-employment benefit obligations.

The discount rate is based on the yield on long-term, high-quality corporate fixed income investments, with maturities matching the estimated cash flows of the post-employment benefit plans. Life expectancy is based on publicly available Canadian mortality tables and is adjusted for the company’s specific experience.

A lower discount rate and a higher life expectancy result in a higher net post-employment benefit obligation and a higher current service cost.

 

 

    

 

 

       

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SENSITIVITY ANALYSIS

The following table shows a sensitivity analysis of key assumptions used to measure the net post-employment benefit obligations and the net post-employment benefit plans cost for our DB pension plans and OPEB plans.

 

                                                                                                                                                          
       
            

IMPACT ON NET POST-EMPLOYMENT

BENEFIT PLANS COST FOR 2019 –

INCREASE/(DECREASE)

   

IMPACT ON POST-EMPLOYMENT BENEFIT

OBLIGATIONS AT DECEMBER 31, 2019 –

INCREASE/(DECREASE)

 
      CHANGE IN
ASSUMPTION
     INCREASE IN
ASSUMPTION
    DECREASE IN
ASSUMPTION
    INCREASE IN
ASSUMPTION
    DECREASE IN
ASSUMPTION
 

Discount rate

     0.5%        (75     69       (1,728     1,944  

Life expectancy at age 65

     1 year        38       (39     945       (972

 

REVENUE FROM CONTRACTS WITH CUSTOMERS

We are required to make estimates that affect the amount of revenue from contracts with customers, including estimating the stand-alone selling prices of products and services.

For bundled arrangements, we account for individual products and services when they are separately identifiable and the customer can benefit from the product or service on its own or with other readily available resources. The total arrangement consideration is allocated to each product or service included in the contract with the customer based on its stand-alone selling price. We generally determine stand-alone selling prices based on the observable prices at which we sell products separately without a service contract and prices for non-bundled service offers with the same range of services, adjusted for market conditions and other factors, as appropriate. When similar products and services are not sold separately, we use the expected cost plus margin approach to determine stand-alone selling prices. Products and services purchased by a customer in excess of those included in the bundled arrangement are accounted for separately.

IMPAIRMENT OF NON-FINANCIAL ASSETS

Goodwill and indefinite-life intangible assets are tested for impairment annually or when there is an indication that the asset may be impaired. Property, plant and equipment and finite-life intangible assets are tested for impairment if events or changes in circumstances, assessed at each reporting period, indicate that their carrying amount may not be recoverable. For the purpose of impairment testing, assets other than goodwill are grouped at the lowest level for which there are separately identifiable cash inflows.

Impairment losses are recognized and measured as the excess of the carrying value of the assets over their recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs of disposal and its value in use. Previously recognized impairment losses, other than those attributable to goodwill, are reviewed for possible reversal at each reporting date and, if the asset’s recoverable amount has increased, all or a portion of the impairment is reversed.

We make a number of estimates when calculating recoverable amounts using discounted future cash flows or other valuation methods to test for impairment. These estimates include the assumed growth rates for future cash flows, the number of years used in the cash flow model and the discount rate. When impairment charges occur they are recorded in Other expense.

Impairment charges in 2019 included $85 million allocated to indefinite-life intangible assets, and $8 million allocated primarily to property, plant and equipment. These impairment charges relate to broadcast licences and certain assets for various radio markets within our Bell Media segment. The impairment charges were a result of continued advertising demand and ratings pressures in the industry resulting from audience declines, as well as competitive pressure from streaming services. The charges were determined by comparing the carrying value of the cash generating units (CGUs) to their fair value less cost of disposal. We estimated the fair value of the CGUs using both discounted cash flows and market-based valuation models, which include five-year cash flow projections derived from business plans reviewed by senior management for the period of January 1, 2020 to December 31, 2024, using a discount rate of 7.5% and a perpetuity growth rate of nil as well as market multiple data from public companies and market transactions. The carrying value of these CGUs was $464 million at December 31, 2019.

Impairment charges in 2018 included $145 million allocated to indefinite-life intangible assets, and $14 million allocated to finite-life intangible assets. These impairment charges primarily relate to our French TV channels within our Bell Media segment. These impairments were the result of revenue and profitability declines from lower audience levels and subscriber erosion. The charges were determined by comparing the carrying value of the CGUs to their fair value less costs of disposal. We estimated the fair value of the CGUs using both discounted cash flows and market-based valuation models, which include five-year cash flow projections derived from business plans reviewed by senior management for the period of January 1, 2019 to December 31, 2023, using a discount rate of 8.0% to 8.5% and a perpetuity growth rate of nil, as well as market multiple data from public companies and market transactions. The carrying value of these CGUs was $515 million at December 31, 2018. In the previous year’s impairment analysis, the company’s French Pay and French Specialty TV channels were tested for recoverability separately. In 2018, the CGUs were grouped to form one French CGU which reflects the evolution of the cash flows from our content strategies as well as the CRTC beginning to regulate Canadian broadcasters under a group licence approach based on language. Additionally, in 2018, we recorded an indefinite-life intangible asset impairment charge of $31 million within our Bell Media segment as a result of a strategic decision to retire a brand.

 

 

 

 

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GOODWILL IMPAIRMENT TESTING

We perform an annual test for goodwill impairment in the fourth quarter for each of our CGUs or groups of CGUs to which goodwill is allocated, and whenever there is an indication that goodwill might be impaired.

A CGU is the smallest identifiable group of assets that generates cash inflows that are independent of the cash inflows from other assets or groups of assets.

We identify any potential impairment by comparing the carrying value of a CGU or group of CGUs to its recoverable amount. The recoverable amount of a CGU or group of CGUs is the higher of its fair value less costs of disposal and its value in use. Both fair value less costs of disposal and value in use are based on estimates of discounted future cash flows or other valuation methods. Cash flows are projected based on past experience, actual operating results and business plans. When the recoverable amount of a CGU or group of CGUs is less than its carrying value, the recoverable amount is determined for its identifiable assets and liabilities. The excess of the recoverable amount of the CGU or group of CGUs over the total of the amounts assigned to its assets and liabilities is the recoverable amount of goodwill.

An impairment charge is recognized in Other expense in the income statements for any excess of the carrying value of goodwill over its recoverable amount. For purposes of impairment testing of goodwill, our CGUs or groups of CGUs correspond to our reporting segments as disclosed in Note 3, Segmented information, in BCE’s 2019 consolidated financial statements.

Any significant change in each of the estimates used could have a material impact on the calculation of the recoverable amount and resulting impairment charge. As a result, we are unable to reasonably quantify the changes in our overall financial performance if we had used different assumptions.

We cannot predict whether an event that triggers impairment will occur, when it will occur or how it will affect the asset values we have reported.

We believe that any reasonable possible change in the key assumptions on which the estimate of recoverable amounts of the Bell Wireless or Bell Wireline groups of CGUs is based would not cause their carrying amounts to exceed their recoverable amounts.

For the Bell Media group of CGUs, a decrease of (1.1%) in the perpetuity growth rate or an increase of 0.8% in the discount rate would have resulted in its recoverable amount being equal to its carrying value.

There were no goodwill impairment charges in 2019 or 2018.

DEFERRED TAXES

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply when the asset or liability is recovered or settled. Both our current and deferred tax assets and liabilities are calculated using tax rates that have been enacted or substantively enacted at the reporting date.

Deferred taxes are provided on temporary differences arising from investments in subsidiaries, joint arrangements and associates, except where we control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The amounts of deferred tax assets and liabilities are estimated with consideration given to the timing, sources and amounts of future taxable income.

LEASES

The application of IFRS 16 requires us to make estimates that affect the measurement of right-of-use assets and liabilities, including determining the appropriate discount rate used to measure lease liabilities. Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using our incremental borrowing rate, unless the rate implicit in the lease is readily determinable. Our incremental borrowing rate is derived from publicly available risk-free interest rates, adjusted for applicable credit spreads and lease terms. We apply a single incremental borrowing rate to a portfolio of leases with similar characteristics.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Certain financial instruments, such as investments in equity securities, derivative financial instruments and certain elements of borrowings, are carried in the statements of financial position at fair value, with changes in fair value reflected in the income statements and the statements of comprehensive income. Fair values are estimated by reference to published price quotations or by using other valuation techniques that may include inputs that are not based on observable market data, such as discounted cash flows and earnings multiples.

CONTINGENCIES

In the ordinary course of business, we become involved in various claims and legal proceedings seeking monetary damages and other relief. Pending claims and legal proceedings represent a potential cost to our business. We estimate the amount of a loss by analyzing potential outcomes and assuming various litigation and settlement strategies, based on information that is available at the time.

If the final resolution of a legal or regulatory matter results in a judgment against us or requires us to pay a large settlement, it could have a material adverse effect on our consolidated financial statements in the period in which the judgment or settlement occurs.

ONEROUS CONTRACTS

A provision for onerous contracts is recognized when the unavoidable costs of meeting our obligations under a contract exceed the expected benefits to be received under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of completing the contract.

 

 

    

 

 

       

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JUDGMENTS

POST-EMPLOYMENT BENEFIT PLANS

The determination of the discount rate used to value our post-employment benefit obligations requires judgment. The rate is set by reference to market yields of long-term, high-quality corporate fixed income investments at the beginning of each fiscal year. Significant judgment is required when setting the criteria for fixed income investments to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of investments include the size of the issue and credit quality, along with the identification of outliers, which are excluded.

INCOME TAXES

The calculation of income taxes requires judgment in interpreting tax rules and regulations. There are transactions and calculations for which the ultimate tax determination is uncertain. Our tax filings are also subject to audits, the outcome of which could change the amount of current and deferred tax assets and liabilities. Management believes that it has sufficient amounts accrued for outstanding tax matters based on information that currently is available.

Management judgment is used to determine the amounts of deferred tax assets and liabilities to be recognized. In particular, judgment is required when assessing the timing of the reversal of temporary differences to which future income tax rates are applied.

LEASES

The application of IFRS 16 requires us to make judgments that affect the measurement of right-of-use assets and liabilities. A lease contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At inception of the contract, we assess whether the contract contains an identified asset, whether we have the right to obtain substantially all of the economic benefits from use of the asset and whether we have the right to direct how and for what purpose the asset is used. In determining the lease term, we include periods covered by renewal options when we are reasonably certain to exercise those options. Similarly, we include periods covered by termination options when we are reasonably certain not to exercise those options. To assess if we are reasonably certain to exercise an option, we consider all facts and circumstances that create an economic incentive to exercise renewal options (or not exercise termination options). Economic incentives include the costs related to the termination of the lease, the significance of any leasehold improvements and the importance of the underlying assets to our operations.

 

 

REVENUE FROM CONTRACTS WITH CUSTOMERS

The identification of performance obligations within a contract and the timing of satisfaction of performance obligations under long-term contracts requires judgment. For bundled arrangements, we account for individual products and services when they are separately identifiable and the customer can benefit from the product or service on its own or with other readily available resources. When our right to consideration from a customer corresponds directly with the value to the customer of the products and services transferred to date, we recognize revenue in the amount to which we have a right to invoice. We recognize product revenues from the sale of wireless handsets and devices and wireline equipment when a customer takes possession of the product. We recognize service revenues over time, as the services are provided. Revenues on certain long-term contracts are recognized using output methods based on products delivered, performance completed to date, time elapsed or milestones met.

Additionally, the determination of costs to obtain a contract, including the identification of incremental costs, also requires judgment. Incremental costs of obtaining a contract with a customer, principally comprised of sales commissions and prepaid contract fulfillment costs, are included in contract costs in the statements of financial position, except where the amortization period is one year or less, in which case costs of obtaining a contract are immediately expensed. Capitalized costs are amortized on a systematic basis that is consistent with the period and pattern of transfer to the customer of the related products or services.

CGUs

The determination of CGUs or groups of CGUs for the purpose of impairment testing requires judgment.

CONTINGENCIES

The determination of whether a loss is probable from claims and legal proceedings and whether an outflow of resources is likely requires judgment.

We accrue a potential loss if we believe a loss is probable and an outflow of resources is likely and can be reasonably estimated, based on information that is available at the time. Any accrual would be charged to earnings and included in Trade payables and other liabilities or Other non-current liabilities. Any payment as a result of a judgment or cash settlement would be deducted from cash from operating activities. We estimate the amount of a loss by analyzing potential outcomes and assuming various litigation and settlement strategies.

 

 

 

 

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ADOPTION OF NEW OR AMENDED ACCOUNTING STANDARDS

As required, effective January 1, 2019, we adopted the following new or amended accounting standards.

 

STANDARD    DESCRIPTION    IMPACT
IFRS 16 – Leases   

Eliminates the distinction between operating and finance leases for lessees, requiring instead that leases be capitalized by recognizing the present value of the lease payments and showing them either as lease assets (right-of-use assets) or together with property, plant and equipment. If lease payments are made over time, an entity recognizes a financial liability representing its obligation to make future lease payments. A depreciation charge for the lease asset is recorded within operating costs and an interest expense on the lease liability is recorded within finance costs.

 

IFRS 16 does not substantially change lease accounting for lessors.

  

We adopted IFRS 16 using a modified retrospective approach whereby the financial statements of prior periods presented were not restated and continue to be reported under IAS 17 – Leases, as permitted by the specific transition provisions of IFRS 16. The cumulative effect of the initial adoption of IFRS 16 was reflected as an adjustment to the deficit at January 1, 2019. Further details on the impacts of adopting IFRS 16 on our January 1, 2019 consolidated statement of financial position are provided in Note 35, Adoption of IFRS 16, in BCE’s 2019 consolidated financial statements. We are currently assessing the impacts of the International Financial Reporting Interpretations Committee (IFRIC) agenda decision published in December 2019 in regards to determination of the lease term for cancellable or renewable leases under IFRS 16. As permitted by the IASB, implementation of the decision is expected in the first quarter of 2020.

 

Under IAS 17, leases of property, plant and equipment were recognized as finance leases when we obtained substantially all the risks and rewards of ownership of the underlying assets. All other leases were classified as operating leases. IFRS 16 eliminates the distinction between operating and finance leases for lessees, requiring instead that we recognize a right-of-use asset and a lease liability at lease commencement for all leases, with certain exceptions permitted through elections and practical expedients. Accounting for leases previously classified as finance leases and lessor accounting remains largely unchanged under IFRS 16.

 

We recognized lease liabilities at January 1, 2019 for leases previously classified as operating leases, measured at the present value of lease payments using our incremental borrowing rate at that date. Property, plant and equipment includes the corresponding right-of-use assets also recognized at January 1, 2019. The right-of-use assets were generally measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the balance sheet as at December 31, 2018. In certain cases, the right-of-use assets were measured as though IFRS 16 had been applied since the lease commencement date. A depreciation charge for right-of-use assets is recorded in Depreciation and an interest expense on lease liabilities is recorded in Finance costs in the income statement.

 

As permitted by IFRS 16, we elected not to recognize lease liabilities and right-of-use assets for short-term leases and leases of low value assets, which will continue to be expensed on a straight-line basis over the lease term. We have also applied certain practical expedients to facilitate the initial adoption and ongoing application of IFRS 16:

 

 We generally do not separate non-lease components from related lease components. Each lease component and any associated non-lease components are accounted for as a single lease component

 

 We apply a single incremental borrowing rate to a portfolio of leases with similar characteristics

 

 As an alternative to performing an impairment review, we adjusted right-of-use assets for any onerous lease provisions recognized in the balance sheet at December 31, 2018

 

 We applied the exemption not to recognize right-of-use assets and liabilities for certain leases with a remaining term of 12 months or less as of January 1, 2019

 

 We used hindsight when determining the lease term when the lease contracts contain options to extend or terminate the lease

 

IFRIC 23 – Uncertainty over Income Tax Treatments    Provides guidance on the application of IAS 12 – Income Taxes when there is uncertainty over income tax treatments. It specifically addresses whether an entity considers uncertain tax treatments separately or as a group, the examination of tax treatments by taxation authorities, the recognition and measurement of the effect of tax uncertainties and how an entity considers changes in facts and circumstances.    IFRIC 23 did not have a significant impact on our financial statements.

 

    

 

 

       

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ADOPTION OF IFRS 16

 

Upon adoption of IFRS 16 on January 1, 2019, we recognized right-of-use assets of $2,257 million within property, plant and equipment, and lease liabilities of $2,304 million within debt, with an increase to our deficit of $19 million. These amounts were recognized in addition to assets under finance leases of $1,947 million and the corresponding finance lease

liabilities of $2,097 million at December 31, 2018 under IAS 17. As a result, on January 1, 2019, our total right-of-use assets and lease liabilities amounted to $4,204 million and $4,401 million, respectively. The table below shows the impacts of adopting IFRS 16 on our January 1, 2019 consolidated statement of financial position.

 
                                                                                            
       
     

DECEMBER 31, 2018

AS REPORTED

   

IFRS 16

IMPACTS

   

JANUARY 1, 2019

UPON ADOPTION

OF IFRS 16

 

Prepaid expenses

     244       (55     189       

Other current assets

     329       9       338  

Property, plant and equipment

     24,844       2,257       27,101  

Other non-current assets

     847       17       864  

Trade payables and other liabilities

     3,941       (10     3,931  

Debt due within one year

     4,645       293       4,938  

Long-term debt

     19,760       2,011       21,771  

Deferred tax liabilities

     3,163       (7     3,156  

Other non-current liabilities

     997       (39     958  

Deficit

     (4,937     (19     (4,956

Non-controlling interest

     326       (1     325  

 

BCE’s operating lease commitments at December 31, 2018 were $1,612 million. The difference between operating lease commitments at December 31, 2018 and lease liabilities of $2,304 million upon adoption of IFRS 16 at January 1, 2019, is due mainly to an increase of $1,122 million related to renewal options reasonably certain to be exercised, an

 

increase of $112 million mainly related to non-monetary transactions and a decrease of ($542) million as a result of discounting applied to future lease payments, which was determined using a weighted average incremental borrowing rate of 3.49% at January 1, 2019.

 

 

 

FUTURE CHANGES TO ACCOUNTING STANDARDS   

 

The following amended standard issued by the IASB has an effective date after December 31, 2019 and has not yet been adopted by BCE.

 

       
STANDARD    DESCRIPTION    IMPACT    EFFECTIVE DATE

Amendments to IFRS 3 –

Business Combinations

   These amendments to the implementation guidance of IFRS 3 clarify the definition of a business to assist entities to determine whether a transaction should be accounted for as a business combination or an asset acquisition.    The amendments to IFRS 3 – Business Combinations may affect whether future acquisitions are accounted for as business combinations or asset acquisitions, along with the resulting allocation of the purchase price between the net identifiable assets acquired and goodwill.    Prospectively for acquisitions occurring on or after January 1, 2020.

 

 

10.2 Non-GAAP financial measures and key performance indicators (KPIs)

This section describes the non-GAAP financial measures and KPIs we use in this MD&A to explain our financial results. It also provides reconciliations of the non-GAAP financial measures to the most comparable IFRS financial measures.

 

 

ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

 

The terms adjusted EBITDA and adjusted EBITDA margin do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.

We define adjusted EBITDA as operating revenues less operating costs as shown in BCE’s consolidated income statements. Adjusted EBITDA for BCE’s segments is the same as segment profit as reported in Note 3, Segmented information, in BCE’s 2019 consolidated financial statements. We define adjusted EBITDA margin as adjusted EBITDA divided by operating revenues.

We use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses as they reflect their ongoing profitability. We believe that certain investors and analysts use adjusted EBITDA to measure a company’s ability to service debt and to meet other payment obligations or as a common measurement to value companies in the telecommunications industry. We believe that certain investors and analysts also use adjusted EBITDA and adjusted EBITDA margin to evaluate the performance of our businesses. Adjusted EBITDA is also one component in the determination of short-term incentive compensation for all management employees.

 

 

 

 

 

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Adjusted EBITDA and adjusted EBITDA margin have no directly comparable IFRS financial measure. Alternatively, the following table provides a reconciliation of net earnings to adjusted EBITDA.

 

                                                             
     
      2019     2018  

Net earnings

     3,253           2,973  

Severance, acquisition and other costs

     114       136  

Depreciation

     3,496       3,145  

Amortization

     902       869  

Finance costs

    

Interest expense

     1,132       1,000  

Interest on post-employment benefit obligations

     63       69  

Other expense

     13       348  

Income taxes

     1,133       995  

Adjusted EBITDA

     10,106       9,535  

BCE operating revenues

     23,964       23,468  

Adjusted EBITDA margin

     42.2     40.6

 

 

ADJUSTED NET EARNINGS AND ADJUSTED EPS

 

The terms adjusted net earnings and adjusted EPS do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.

We define adjusted net earnings as net earnings attributable to common shareholders before severance, acquisition and other costs, net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans, net losses (gains) on investments, early debt redemption costs and impairment charges, net of tax and NCI. We define adjusted EPS as adjusted net earnings per BCE common share.

We use adjusted net earnings and adjusted EPS, and we believe that certain investors and analysts use these measures, among other ones, to assess the performance of our businesses without the effects of severance, acquisition and other costs, net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans, net losses (gains) on investments, early debt redemption costs and impairment charges, net of tax and NCI. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring.

The most comparable IFRS financial measures are net earnings attributable to common shareholders and EPS.

 

 

The following table is a reconciliation of net earnings attributable to common shareholders and EPS to adjusted net earnings on a consolidated basis and per BCE common share (adjusted EPS), respectively.

 

                                                                                                                           
     
     2019     2018  
      TOTAL     PER SHARE     TOTAL      PER SHARE  

Net earnings attributable to common shareholders

     3,040       3.37         2,785        3.10      

Severance, acquisition and other costs

     83       0.10       100        0.11  

Net mark-to-market losses (gains) on derivatives used to economically hedge equity settled share-based compensation plans

     (101     (0.11     58        0.07  

Net (gains) losses on investments

     44       0.05       47        0.05  

Early debt redemption costs

     13       0.01       15        0.02  

Impairment charges

     74       0.08       146        0.16  

Adjusted net earnings

     3,153       3.50       3,151        3.51  

 

    

 

 

       

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FREE CASH FLOW AND DIVIDEND PAYOUT RATIO

 

The terms free cash flow and dividend payout ratio do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.

We define free cash flow as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, less capital expenditures, preferred share dividends and dividends paid by subsidiaries to NCI. We exclude acquisition and other costs paid and voluntary pension funding because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring.

We consider free cash flow to be an important indicator of the financial strength and performance of our businesses because it shows how much cash is available to pay dividends on common shares, repay debt and reinvest in our company. We believe that certain investors and analysts use free cash flow to value a business and its underlying assets and to evaluate the financial strength and performance of our businesses. The most comparable IFRS financial measure is cash flows from operating activities.

We define dividend payout ratio as dividends paid on common shares divided by free cash flow. We consider dividend payout ratio to be an important indicator of the financial strength and performance of our businesses because it shows the sustainability of the company’s dividend payments.

The following table is a reconciliation of cash flows from operating activities to free cash flow on a consolidated basis.

 

                                                             
     
      2019     2018  

Cash flows from operating activities

     7,958         7,384  

Capital expenditures

     (3,988     (3,971

Cash dividends paid on preferred shares

     (147     (149

Cash dividends paid by subsidiaries to NCI

     (65     (16

Acquisition and other costs paid

     60       79  

Voluntary DB pension plan contribution

           240  

Free cash flow

     3,818       3,567  
 

 

 

NET DEBT

 

The term net debt does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers.

We define net debt as debt due within one year plus long-term debt and 50% of preferred shares, less cash and cash equivalents, as shown in BCE’s consolidated statements of financial position. We include 50% of outstanding preferred shares in our net debt as it is consistent with the treatment by certain credit rating agencies.

We consider net debt to be an important indicator of the company’s financial leverage because it represents the amount of debt that is not covered by available cash and cash equivalents. We believe that certain investors and analysts use net debt to determine a company’s financial leverage.

Net debt has no directly comparable IFRS financial measure, but rather is calculated using several asset and liability categories from the statements of financial position, as shown in the following table.

 

                                                             
     
      2019     2018  

Debt due within one year

     3,881         4,645  

Long-term debt

     22,415       19,760  

50% of outstanding preferred shares

     2,002       2,002  

Cash and cash equivalents

     (145     (425

Net debt

     28,153       25,982  
 

 

 

NET DEBT LEVERAGE RATIO

 

The net debt leverage ratio does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. We use, and believe that certain investors and analysts use, the net debt leverage ratio as a measure of financial leverage.

 

The net debt leverage ratio represents net debt divided by adjusted EBITDA. For the purposes of calculating our net debt leverage ratio, adjusted EBITDA is twelve-month trailing adjusted EBITDA.

 

 

 

ADJUSTED EBITDA TO NET INTEREST EXPENSE RATIO

 

The ratio of adjusted EBITDA to net interest expense does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other issuers. We use, and believe that certain investors and analysts use, the adjusted EBITDA to net interest expense ratio as a measure of financial health of the company.

The adjusted EBITDA to net interest expense ratio represents adjusted EBITDA divided by net interest expense. For the purposes of calculating our adjusted EBITDA to net interest expense ratio, adjusted EBITDA is twelve-month trailing adjusted EBITDA. Net interest expense is twelve-month trailing net interest expense as shown in our statements of cash flows, plus 50% of declared preferred share dividends as shown in our income statements.

 

 

 

 

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KPIs

In addition to the non-GAAP financial measures described previously, we use a number of KPIs to measure the success of our strategic imperatives. These KPIs are not accounting measures and may not be comparable to similar measures presented by other issuers.

 

KPI    DEFINITION

ABPU

  

Average billing per user (ABPU) or subscriber approximates the average amount billed to customers on a monthly basis, which is used to track our recurring billing streams. Wireless blended ABPU is calculated by dividing certain customer billings by the average subscriber base for the specified period and is expressed as a dollar unit per month.

Capital intensity                     

   Capital expenditures divided by operating revenues.

Churn

  

Churn is the rate at which existing subscribers cancel their services. It is a measure of our ability to retain our customers. Wireless churn is calculated by dividing the number of deactivations during a given period by the average number of subscribers in the base for the specified period and is expressed as a percentage per month.

Subscriber unit

  

Wireless subscriber unit is comprised of an active revenue-generating unit (e.g. mobile device, tablet or wireless Internet products), with a unique identifier (typically International Mobile Equipment Identity (IMEI) number), that has access to our wireless networks. We report wireless subscriber units in two categories: postpaid and prepaid. Prepaid subscriber units are considered active for a period of 90 days (previously 120 to 150 days) following the expiry of the subscriber’s prepaid balance.

  

Wireline subscriber unit consists of an active revenue-generating unit with access to our services, including retail Internet, satellite TV, IPTV, and/or NAS. A subscriber is included in our subscriber base when the service has been installed and is operational at the customer premise and a billing relationship has been established.

  

  Retail Internet, IPTV and satellite TV subscribers have access to stand-alone services, and are primarily represented by a dwelling unit

    

  Retail NAS subscribers are based on a line count and are represented by a unique telephone number

 

 

10.3 Effectiveness of internal controls

DISCLOSURE CONTROLS AND PROCEDURES

 

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under Canadian and U.S. securities laws is recorded, processed, summarized and reported within the time periods specified under those laws, and include controls and procedures that are designed to ensure that the information is accumulated and communicated to management, including BCE’s President and CEO and Executive Vice-President and Chief Financial Officer (CFO), to allow timely decisions regarding required disclosure.

As at December 31, 2019, management evaluated, under the supervision of and with the participation of the CEO and the CFO, the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as amended, and under National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings.

Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as at December 31, 2019.

 

 

 

INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the U.S. Securities Exchange Act of 1934, as amended, and under National Instrument 52-109. Our internal control over financial reporting is a process designed under the supervision of the CEO and CFO, and effected by the Board, management and other personnel of BCE, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis.

Management evaluated, under the supervision of and with the participation of the CEO and the CFO, the effectiveness of our internal control over financial reporting as at December 31, 2019, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on that evaluation, the CEO and CFO concluded that our internal control over financial reporting was effective as at December 31, 2019.

 

 

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

No changes were made in our internal control over financial reporting during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The adoption of IFRS 16 – Leases, effective January 1, 2019, required the implementation of new accounting

systems, processes and controls, which changed the company’s internal controls over lease accounting. No significant changes were made to our internal control over financial reporting due to the adoption of the new standard in 2019.

 

 

    

 

 

       

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Reports on internal controls

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

The management of BCE Inc. (BCE) is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer and effected by the board of directors, management and other personnel of BCE, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management evaluated, under the supervision of and with the participation of the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer, the effectiveness of our internal control over financial reporting as at December 31, 2019, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on that evaluation, the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer concluded that our internal control over financial reporting was effective as at December 31, 2019. There were no material weaknesses that have been identified by BCE’s management in internal control over financial reporting as at December 31, 2019.

Our internal control over financial reporting as at December 31, 2019 has been audited by Deloitte LLP, independent registered public accounting firm, who also audited our consolidated financial statements for the year ended December 31, 2019. Deloitte LLP issued an unqualified opinion on the effectiveness of our internal control over financial reporting as at December 31, 2019.

(signed) Mirko Bibic

President and Chief Executive Officer

(signed) Glen LeBlanc

Executive Vice-President and Chief Financial Officer

(signed) Thierry Chaumont

Senior Vice-President, Controller and Tax

March 5, 2020

 

 

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of BCE Inc.

 

OPINION ON INTERNAL CONTROL OVER FINANCIAL REPORTING

We have audited the internal control over financial reporting of BCE Inc. and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as at and for the year ended December 31, 2019, of the Company and our report dated March 5, 2020, expressed an unqualified opinion on those financial statements, and included an explanatory paragraph regarding the Company’s change in the method of accounting for leases due to the adoption of IFRS 16 - Leases.

BASIS FOR OPINION

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

DEFINITION AND LIMITATIONS OF INTERNAL

CONTROL OVER FINANCIAL REPORTING

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Deloitte LLP 1

Chartered Professional Accountants

Montréal, Canada

March 5, 2020

1    CPA auditor, CA, public accountancy permit No. A124391

 

 

    

 

 

       

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Consolidated financial statements

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

 

These financial statements form the basis for all of the financial information that appears in this annual report.

The financial statements and all of the information in this annual report are the responsibility of the management of BCE Inc. (BCE) and have been reviewed and approved by the board of directors. The board of directors is responsible for ensuring that management fulfills its financial reporting responsibilities. Deloitte LLP, Independent Registered Public Accounting Firm, have audited the financial statements.

Management has prepared the financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Under these principles, management has made certain estimates and assumptions that are reflected in the financial statements and notes. Management believes that these financial statements fairly present BCE’s consolidated financial position, results of operations and cash flows.

Management has a system of internal controls designed to provide reasonable assurance that the financial statements are accurate and complete in all material respects. This is supported by an internal audit group that reports to the Audit Committee, and includes communication with employees about policies for ethical business conduct. Management believes that the internal controls provide reasonable assurance that our financial records are reliable and form a proper basis for preparing the financial statements, and that our assets are properly accounted for and safeguarded.

The board of directors has appointed an Audit Committee, which is made up of unrelated and independent directors. The Audit Committee’s responsibilities include reviewing the financial statements and other information in this annual report, and recommending them to the board of directors for approval. You will find a description of the Audit Committee’s other responsibilities on page 160 of this annual report. The internal auditors and the shareholders’ auditors have free and independent access to the Audit Committee.

(signed) Mirko Bibic

President and Chief Executive Officer

(signed) Glen LeBlanc

Executive Vice-President and Chief Financial Officer

(signed) Thierry Chaumont

Senior Vice-President, Controller and Tax

March 5, 2020

 

 

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of BCE Inc.

 

OPINION ON THE FINANCIAL STATEMENTS

We have audited the accompanying consolidated statements of financial position of BCE Inc. and subsidiaries (the “Company”) as at December 31, 2019 and 2018, the related consolidated income statements, statements of comprehensive income, changes in equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2019 and 2018, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 5, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.

CHANGE IN ACCOUNTING PRINCIPLE

As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company has changed its method of accounting for leases due to adoption of IFRS 16 - Leases.

BASIS FOR OPINION

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

    

 

 

          

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CRITICAL AUDIT MATTER

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill and Intangible Assets – Bell Media Group – Refer to Notes 7, 16 and 19 to the financial statements

CRITICAL AUDIT MATTER DESCRIPTION

The Company performs an annual assessment of impairment for goodwill and indefinite lived intangible assets (specifically broadcast licenses) for the Bell Media group of cash generating units (“Bell Media”). As a result of the annual assessment of impairment of goodwill and intangible assets for Bell Media, management has determined that there is no impairment of goodwill and there is an impairment for intangible assets.

While there are several assumptions that are required to determine the recoverable amounts of Bell Media, the judgments with the highest degree of subjectivity and impact on the recoverable amounts for the testing of goodwill are forecasts of future operating performance, discount rates and terminal growth rates. The judgments with the highest degree of subjectivity and impact on the recoverable amounts for the testing of intangible assets are forecasts of future operating performance, determination of EBITDA multiples, discount rates and terminal growth rates. Changes in these assumptions could have a significant impact on the recoverable amount of Bell Media, resulting in an impairment charge to goodwill or intangible assets as required.

Given the significant judgments made by management, regarding the forecasts of future operating performance, determination of EBITDA multiples, discount rates and terminal growth rates, a high degree of auditor judgment was required and resulted in an increased extent of audit effort, which included the need to involve fair value specialists.

HOW THE CRITICAL AUDIT MATTER WAS ADDRESSED IN THE AUDIT

Our audit procedures related to forecasts of future operating performance, determination of EBITDA multiples, discount rates, and terminal growth rates used by management to determine the recoverable amounts for Bell Media included the following, among others:

 

 

Evaluated the effectiveness of controls over goodwill and intangible assets, including those over the forecasts of future operating performance, and the determination of the EBITDA multiples, discount rates and terminal growth rates.

 

 

Evaluated management’s ability to accurately forecast future operating performance by comparing actual results to management’s historical forecasts.

 

 

Evaluated the reasonableness of management’s forecasts of future operating performance by comparing the forecasts to:

 

   

Analyst and industry reports for the Company and certain of its peer companies, and other relevant publicly available information;

 

   

Known changes in Bell Media’s operations or the industry in which they operate, which are expected to impact future operating performance;

 

   

Historical operating performance;

 

   

Internal communications to management and the Board of Directors.

 

 

With the assistance of fair value specialists, we evaluated the reasonableness of the (1) EBITDA multiples, (2) discount rates, and (3) terminal growth rates by:

 

   

Testing the source information underlying the determination of the discount rates;

 

   

Reviewing relevant internal and external information, including analyst and industry reports, to assess the reasonability of the selected EBITDA multiples, discount rates, and terminal growth rates;

 

   

Developing a range of independent estimates and comparing those to the EBITDA multiples, discount rates, and terminal growth rates selected by management.

/s/ Deloitte LLP 1

Chartered Professional Accountants

Montréal, Canada

March 5, 2020

We have served as the Company’s auditor since 1880.

 

1

CPA auditor, CA, public accountancy permit No. A124391

 

 

 

 

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CONSOLIDATED INCOME STATEMENTS

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT SHARE AMOUNTS)
   NOTE      2019     2018  

Operating revenues

     3          23,964           23,468  

Operating costs

     3, 4        (13,858     (13,933

Severance, acquisition and other costs

     5        (114     (136

Depreciation

     14        (3,496     (3,145

Amortization

     16        (902     (869

Finance costs

       

Interest expense

     6        (1,132     (1,000

Interest on post-employment benefit obligations

     24        (63     (69

Other expense

     7        (13     (348

Income taxes

     8        (1,133     (995

Net earnings

              3,253       2,973  

Net earnings attributable to:

       

Common shareholders

        3,040       2,785  

Preferred shareholders

        151       144  

Non-controlling interest

     33        62       44  

Net earnings

              3,253       2,973  

Net earnings per common share

     9       

Basic and diluted

        3.37       3.10  

Average number of common shares outstanding – basic (millions)

              900.8       898.6  

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS)
   NOTE     2019     2018  

Net earnings

       3,253           2,973  

Other comprehensive income, net of income taxes

      

Items that will be subsequently reclassified to net earnings

      

Net change in value of publicly-traded and privately-held investments, net of income taxes of nil for 2019 and 2018

       6       6  

Net change in value of derivatives designated as cash flow hedges, net of income taxes of ($45) million and ($15) million for 2019 and 2018, respectively

       112       43  

Items that will not be reclassified to net earnings

      

Actuarial gains on post-employment benefit plans, net of income taxes of ($51) million and ($25) million for 2019 and 2018, respectively

     24         140       67  

Net change in value of derivatives designated as cash flow hedges, net of income taxes of $9 million and ($23) million for 2019 and 2018, respectively

             (25     61  

Other comprehensive income

             233       177  

Total comprehensive income

             3,486       3,150  

Total comprehensive income attributable to:

      

Common shareholders

       3,277       2,957  

Preferred shareholders

       151       144  

Non-controlling interest

     33       58       49  

Total comprehensive income

             3,486       3,150  

 

    

 

 

        

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

                                                                                            
       
(IN MILLIONS OF CANADIAN DOLLARS)    NOTE     DECEMBER 31, 2019     DECEMBER 31, 2018  

ASSETS

      

Current assets

      

Cash

       141           425  

Cash equivalents

       4        

Trade and other receivables

     10         3,038       3,006  

Inventory

     11       427       432  

Contract assets

     12       1,111       987  

Contract costs

     13       415       370  

Prepaid expenses

       194       244  

Other current assets

             190       329  

Total current assets

             5,520       5,793  

Non-current assets

      

Contract assets

     12       533       506  

Contract costs

     13       368       337  

Property, plant and equipment

     14, 35       27,636       24,844  

Intangible assets

     16       13,352       13,205  

Deferred tax assets

     8       98       112  

Investments in associates and joint ventures

     17       698       798  

Other non-current assets

     18       1,274       847  

Goodwill

     19       10,667       10,658  

Total non-current assets

             54,626       51,307  

Total assets

             60,146       57,100  

LIABILITIES

      

Current liabilities

      

Trade payables and other liabilities

     20       3,954       3,941  

Contract liabilities

     12       683       703  

Interest payable

       227       196  

Dividends payable

       729       691  

Current tax liabilities

       303       253  

Debt due within one year

     21       3,881       4,645  

Total current liabilities

             9,777       10,429  

Non-current liabilities

      

Contract liabilities

     12       207       196  

Long-term debt

     22       22,415       19,760  

Deferred tax liabilities

     8       3,561       3,163  

Post-employment benefit obligations

     24       1,907       1,866  

Other non-current liabilities

     25       871       997  

Total non-current liabilities

             28,961       25,982  

Total liabilities

             38,738       36,411  

Commitments and contingencies

     31      

EQUITY

      

Equity attributable to BCE shareholders

      

Preferred shares

     27       4,004       4,004  

Common shares

     27       20,363       20,036  

Contributed surplus

     27       1,178       1,170  

Accumulated other comprehensive income

       161       90  

Deficit

             (4,632     (4,937

Total equity attributable to BCE shareholders

       21,074       20,363  

Non-controlling interest

     33       334       326  

Total equity

             21,408       20,689  

Total liabilities and equity

             60,146       57,100  

 

 

 

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

                                                                                                                    
         
          

 

ATTRIBUTABLE TO BCE SHAREHOLDERS

             
   
FOR THE YEAR ENDED DECEMBER 31, 2019
(IN MILLIONS OF CANADIAN DOLLARS)
   NOTE     PREFERRED
SHARES
    COMMON
SHARES
    CONTRI-
BUTED
SURPLUS
    ACCUM-
ULATED
OTHER
COMPRE-
HENSIVE
INCOME
    DEFICIT     TOTAL     NON-
CONTROL-
LING
INTEREST
    TOTAL
EQUITY
 
   

Balance at December 31, 2018

       4,004          20,036          1,170          90          (4,937 )        20,363       326       20,689  
   

Adoption of IFRS 16

     2, 35                                 (19     (19 )        (1 )        (20 )   
   

Balance at January 1, 2019

             4,004       20,036       1,170       90       (4,956     20,344       325       20,669  
   

Net earnings

                               3,191       3,191       62       3,253  
   

Other comprehensive income (loss)

                               97       140       237       (4     233  
   

Total comprehensive income

                               97       3,331       3,428       58       3,486  
   

Common shares issued under employee stock option plan

     27             251       (11                 240             240  
   

Common shares issued under employee savings plan (ESP)

     27             75                         75             75  
   

Other share-based compensation

     27             1       19             1       21             21  
   

Dividends declared on BCE common and preferred shares

                               (3,008     (3,008           (3,008
   

Dividends declared by subsidiaries to non-controlling interest

                                           (64     (64
   

Settlement of cash flow hedges transferred to the cost basis of hedged items

                         (26           (26           (26
   

Other

                                                 15       15  
   

Balance at December 31, 2019

             4,004       20,363       1,178       161       (4,632     21,074       334       21,408  

 

                                                                                                                    
            

 

ATTRIBUTABLE TO BCE SHAREHOLDERS

               
 
FOR THE YEAR ENDED DECEMBER 31, 2018
(IN MILLIONS OF CANADIAN DOLLARS)
   NOTE     PREFERRED
SHARES
    COMMON
SHARES
    CONTRI-
BUTED
SURPLUS
    ACCUM-
ULATED
OTHER
COMPRE-
HENSIVE
INCOME
    DEFICIT     TOTAL     NON-
CONTROL-
LING
INTEREST
    TOTAL
EQUITY
 
   

Balance at December 31, 2017

       4,004          20,091          1,162          (17 )       (4,938 )        20,302          323       20,625  
   

Adoption of IFRS 9

                                     (4     (4           (4
   

Balance at January 1, 2018

             4,004       20,091       1,162       (17     (4,942     20,298       323       20,621  
   

Net earnings

                               2,929       2,929       44       2,973  
   

Other comprehensive income

                               106       66       172       5       177  
   

Total comprehensive income

                               106       2,995       3,101       49       3,150  
   

Common shares issued under employee stock option plan

     27               13       (1                 12             12  
   

Other share-based compensation

                   12             (24     (12           (12
   

Repurchase of common shares

     27             (69     (3           (103     (175           (175
   

Common shares issued for the acquisition of AlarmForce Industries Inc. (AlarmForce)

     34, 27             1                         1             1  
   

Dividends declared on BCE common and preferred shares

                               (2,856     (2,856           (2,856
   

Dividends declared by subsidiaries to non-controlling interest

                                           (5 )        (5 )   
   

Settlement of cash flow hedges transferred to the cost basis of hedged items

                         1             1             1  
   

Return of capital to non-controlling interest

                               (7     (7     (44     (51
 

Other

                                                 3       3  
 

Balance at December 31, 2018

             4,004       20,036       1,170       90       (4,937     20,363       326       20,689  

 

    

 

 

        

   BCE Inc. 2019 Annual Report


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CONSOLIDATED STATEMENTS OF CASH FLOWS

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS)
   NOTE     2019     2018  

Cash flows from operating activities

      

Net earnings

       3,253           2,973  

Adjustments to reconcile net earnings to cash flows from operating activities

      

Severance, acquisition and other costs

     5       114       136  

Depreciation and amortization

     14, 16         4,398       4,014  

Post-employment benefit plans cost

     24       310       335  

Net interest expense

       1,108       987  

Losses on investments

     7       (13     34  

Income taxes

     8       1,133       995  

Contributions to post-employment benefit plans

     24       (290     (539

Payments under other post-employment benefit plans

     24       (72     (75

Severance and other costs paid

       (168     (138

Interest paid

       (1,087     (990

Income taxes paid (net of refunds)

       (725     (650

Acquisition and other costs paid

       (60     (79

Net change in operating assets and liabilities

             57       381  

Cash flows from operating activities

             7,958       7,384  

Cash flows used in investing activities

      

Capital expenditures

     3       (3,988     (3,971

Business acquisitions

     34       (51     (395

Disposition of intangibles and other assets

     34             68  

Acquisition of spectrum licences

             (56

Other investing activities

             3       (32

Cash flows used in investing activities

             (4,036     (4,386

Cash flows used in financing activities

      

Decrease in notes payable

       (1,073     (123

Increase (decrease) in securitized trade receivables

       131       (2

Issue of long-term debt

     22       1,954       2,996  

Repayment of long-term debt

     22       (2,228     (2,713

Issue of common shares

     27       240       11  

Purchase of shares for settlement of share-based payments

     28       (142     (222

Repurchase of common shares

     27             (175

Cash dividends paid on common shares

       (2,819     (2,679

Cash dividends paid on preferred shares

       (147     (149

Cash dividends paid by subsidiaries to non-controlling interest

       (65     (16

Return of capital to non-controlling interest

             (51

Other financing activities

             (53     (75

Cash flows used in financing activities

             (4,202     (3,198

Net decrease in cash

       (284     (17

Cash at beginning of year

             425       442  

Cash at end of year

             141       425  

Net increase (decrease) in cash equivalents

       4       (183

Cash equivalents at beginning of year

                   183  

Cash equivalents at end of year

             4        

 

 

 

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Notes to consolidated financial statements

We, us, our, BCE and the company mean, as the context may require, either BCE Inc. or, collectively, BCE Inc., Bell Canada, their subsidiaries, joint arrangements and associates.

 

 

Note 1    Corporate information

 

BCE is incorporated and domiciled in Canada. BCE’s head office is located at 1, Carrefour Alexander-Graham-Bell, Verdun, Québec, Canada. BCE is a telecommunications and media company providing wireless, wireline, Internet and television (TV) services to residential, business and wholesale customers in Canada. Our Bell Media segment provides

 

conventional TV, specialty TV, pay TV, streaming services, digital media services, radio broadcasting services and out-of-home (OOH) advertising services to customers in Canada. The consolidated financial statements (financial statements) were approved by BCE’s board of directors on March 5, 2020.

 

 

 

Note 2    Significant accounting policies

A) BASIS OF PRESENTATION

 

The financial statements were prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). The financial statements have been prepared on a historical cost basis, except for certain financial instruments that are measured at fair value as described in our accounting policies.

As required, we adopted IFRS 16 – Leases effective January 1, 2019. We adopted IFRS 16 using a modified retrospective approach whereby the financial statements of prior periods presented were not restated and continue to be reported under IAS 17 – Leases, as permitted by the specific transition provisions of IFRS 16. The cumulative effect of the

initial adoption of IFRS 16 was reflected as an adjustment to the deficit at January 1, 2019. Further details on the impacts of adopting IFRS 16 on our January 1, 2019 consolidated statement of financial position are provided below under T) Adoption of new or amended accounting standards and in Note 35, Adoption of IFRS 16.

All amounts are in millions of Canadian dollars, except where noted.

FUNCTIONAL CURRENCY

The financial statements are presented in Canadian dollars, the company’s functional currency.

 

 

 

B) BASIS OF CONSOLIDATION

 

We consolidate the financial statements of all of our subsidiaries. Subsidiaries are entities we control, where control is achieved when the company is exposed or has the right to variable returns from its involvement with the investee and has the current ability to direct the activities of the investee that significantly affect the investee’s returns.

The results of subsidiaries acquired during the year are consolidated from the date of acquisition and the results of subsidiaries sold during the year are deconsolidated from the date of disposal. Where necessary,

 

adjustments are made to the financial statements of acquired subsidiaries to conform their accounting policies to ours. All intercompany transactions, balances, income and expenses are eliminated on consolidation.

Changes in BCE’s ownership interest in a subsidiary that do not result in a change of control are accounted for as equity transactions, with no effect on net earnings or on Other comprehensive income.

 

 

 

C) REVENUE FROM CONTRACTS WITH CUSTOMERS

 

Revenue is measured based on the value of the expected consideration in a contract with a customer and excludes sales taxes and other amounts we collect on behalf of third parties. We recognize revenue when control of a product or service is transferred to a customer. When our right to consideration from a customer corresponds directly with the value to the customer of the products and services transferred to date, we recognize revenue in the amount to which we have a right to invoice.

For bundled arrangements, we account for individual products and services when they are separately identifiable and the customer can benefit from the product or service on its own or with other readily available resources. The total arrangement consideration is allocated to each product or service included in the contract with the customer based on its stand-alone selling price. We generally determine

stand-alone selling prices based on the observable prices at which we sell products separately without a service contract and prices for non-bundled service offers with the same range of services, adjusted for market conditions and other factors, as appropriate. When similar products and services are not sold separately, we use the expected cost plus margin approach to determine stand-alone selling prices. Products and services purchased by a customer in excess of those included in the bundled arrangement are accounted for separately.

We may enter into arrangements with subcontractors and others who provide services to our customers. When we act as the principal in these arrangements, we recognize revenues based on the amounts billed to our customers. Otherwise, we recognize the net amount that we retain as revenues.

 

 

    

 

 

        

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A contract asset is recognized in the consolidated statements of financial position (statements of financial position) when our right to consideration from the transfer of products or services to a customer is conditional on our obligation to transfer other products or services. Contract assets are transferred to trade receivables when our right to consideration becomes conditional only as to the passage of time. A contract liability is recognized in the statements of financial position when we receive consideration in advance of the transfer of products or services to the customer. Contract assets and liabilities relating to the same contract are presented on a net basis.

Incremental costs of obtaining a contract with a customer, principally comprised of sales commissions and prepaid contract fulfillment costs, are included in contract costs in the statements of financial position, except where the amortization period is one year or less, in which case costs of obtaining a contract are immediately expensed. Capitalized costs are amortized on a systematic basis that is consistent with the period and pattern of transfer to the customer of the related products or services.

WIRELESS SEGMENT REVENUES

Our Wireless segment principally generates revenue from providing integrated digital wireless voice and data communications products and services to residential and business customers.

We recognize product revenues from the sale of wireless handsets and devices when a customer takes possession of the product. We recognize wireless service revenues over time, as the services are provided. For bundled arrangements, stand-alone selling prices are determined using observable prices adjusted for market conditions and other factors, as appropriate.

For wireless products and services that are sold separately, customers usually pay in full at the point of sale for products and on a monthly basis for services. For wireless products and services sold in bundled arrangements, customers pay monthly over a contract term of up to 24 months for residential customers and up to 36 months for business customers.

WIRELINE SEGMENT REVENUES

Our Wireline segment principally generates revenue from providing data, including Internet access and Internet protocol television (IPTV), local telephone, long distance, satellite TV service and connectivity, as well as other communications services and products to residential and business customers. Our Wireline segment also includes revenues from our wholesale business, which buys and sells local telephone, long distance, data and other services from or to resellers and other carriers.

We recognize product revenues from the sale of wireline equipment when a customer takes possession of the product. We recognize service revenues over time, as the services are provided. Revenues on certain long-term contracts are recognized using output methods based on products delivered, performance completed to date, time elapsed or milestones met. For bundled arrangements, stand-alone selling prices are determined using observable prices adjusted for market conditions and other factors, as appropriate, or the expected cost plus margin approach for customized business arrangements.

For wireline customers, products are usually paid in full at the point of sale. Services are paid for on a monthly basis except where a billing schedule has been established with certain business customers under long-term contracts that can generally extend up to seven years.

MEDIA SEGMENT REVENUES

Our Media segment principally generates revenue from conventional TV, specialty TV, digital media, radio broadcasting and OOH advertising and subscriber fees from specialty TV, pay TV and streaming services.

We recognize advertising revenue when advertisements are aired on the radio or TV, posted on our websites or appear on our advertising panels and street furniture. Revenues relating to subscriber fees are recorded on a monthly basis as the services are provided. Customer payments are due monthly as the services are provided.

 

 

 

D) SHARE-BASED PAYMENTS

 

Our share-based payment arrangements include stock options, restricted share units and performance share units (RSUs/PSUs), deferred share units (DSUs), an employee savings plan (ESP) and a deferred share plan (DSP).

STOCK OPTIONS

We use a fair value-based method to measure the cost of our employee stock options, based on the number of stock options that are expected to vest. We recognize compensation expense in Operating costs in the consolidated income statements (income statements). Compensation expense is adjusted for subsequent changes in management’s estimate of the number of stock options that are expected to vest.

We credit contributed surplus for stock option expense recognized over the vesting period. When stock options are exercised, we credit share capital for the amount received and the amounts previously credited to contributed surplus.

RSUs/PSUs

For each RSU/PSU granted, we recognize compensation expense in Operating costs in the income statements, equal to the market value of a BCE common share at the date of grant and based on the number of RSUs/PSUs expected to vest, recognized over the term of the

vesting period, with a corresponding credit to contributed surplus. Additional RSUs/PSUs are issued to reflect dividends declared on the common shares.

Compensation expense is adjusted for subsequent changes in management’s estimate of the number of RSUs/PSUs that are expected to vest. The effect of these changes is recognized in the period of the change. Upon settlement of the RSUs/PSUs, any difference between the cost of shares purchased on the open market and the amount credited to contributed surplus is reflected in the deficit. Vested RSUs/ PSUs are settled in BCE common shares, DSUs, or a combination thereof.

DSUs

If compensation is elected to be taken in DSUs, we issue DSUs equal to the fair value of the services received. Additional DSUs are issued to reflect dividends declared on the common shares. DSUs are settled in BCE common shares purchased on the open market following the cessation of employment or when a director leaves the board. We credit contributed surplus for the fair value of DSUs at the issue date. Upon settlement of the DSUs, any difference between the cost of shares purchased on the open market and the amount credited to contributed surplus is reflected in the deficit.

 

 

 

 

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ESP

We recognize our ESP contributions as compensation expense in Operating costs in the income statements. We credit contributed surplus for the ESP expense recognized over the two-year vesting period, based on management’s estimate of the accrued contributions that are expected to vest. Upon settlement of shares under the ESP, any difference between the cost of shares purchased on the open market and the amount credited to contributed surplus is reflected in the deficit.

DSP

For each deferred share granted under the DSP, we recognize compensation expense in Operating costs in the income statements equal to the market value of a BCE common share. Deferred shares are no longer granted except those issued to reflect dividends declared on common shares.

Compensation expense is adjusted for subsequent changes in the market value of BCE common shares. The cumulative effect of any change in value is recognized in the period of the change. Participants have the option to receive either BCE common shares or a cash equivalent for each vested deferred share upon qualifying for payout under the terms of the grant.

 

 

 

E) INCOME AND OTHER TAXES

 

Current and deferred income tax expense is recognized in the income statements, except to the extent that the expense relates to items recognized in Other comprehensive income or directly in equity.

A current or non-current tax asset (liability) is the estimated tax receivable (payable) on taxable earnings (loss) for the current or past periods.

We use the liability method to account for deferred tax assets and liabilities, which arise from:

 

 

temporary differences between the carrying amount of assets and liabilities recognized in the statements of financial position and their corresponding tax bases

 

 

the carryforward of unused tax losses and credits, to the extent they can be used in the future

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply when the asset or liability is recovered or settled. Both our current and deferred tax assets and liabilities are calculated using tax rates that have been enacted or substantively enacted at the reporting date.

Deferred taxes are provided on temporary differences arising from investments in subsidiaries, joint arrangements and associates, except where we control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Tax liabilities are, where permitted, offset against tax assets within the same taxable entity and tax jurisdiction.

INVESTMENT TAX CREDITS (ITCs), OTHER TAX CREDITS AND GOVERNMENT GRANTS

We recognize ITCs, other tax credits and government grants given on eligible expenditures when it is reasonably assured that they will be realized. They are presented as part of Trade and other receivables in the statements of financial position when they are expected to be utilized in the next year. We use the cost reduction method to account for ITCs and government grants, under which the credits are applied against the expense or asset to which the ITC or government grant relates.

 

 

 

F) CASH EQUIVALENTS

Cash equivalents are comprised of highly liquid investments with original maturities of three months or less from the date of purchase.

 

 

G) SECURITIZATION OF TRADE RECEIVABLES

Proceeds on the securitization of trade receivables are recognized as a collateralized borrowing as we do not transfer control and substantially all the risks and rewards of ownership to another entity.

 

 

H) INVENTORY

 

We measure inventory at the lower of cost and net realizable value. Inventory includes all costs to purchase, convert and bring the inventories to their present location and condition. We determine cost using specific identification for major equipment held for resale and the weighted

average cost formula for all other inventory. We maintain inventory valuation reserves for inventory that is slow-moving or potentially obsolete, calculated using an inventory aging analysis.

 

 

 

I) PROPERTY, PLANT AND EQUIPMENT

 

We record property, plant and equipment at historical cost. Historical cost includes expenditures that are attributable directly to the acquisition or construction of the asset, including the purchase cost, and labour.

Borrowing costs are capitalized for qualifying assets, if the time to build or develop is in excess of one year, at a rate that is based on our weighted average interest rate on our outstanding long-term debt. Gains or losses on the sale or retirement of property, plant and equipment are recorded in Other expense in the income statements.

 

 

    

 

 

        

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LEASES

We enter into leases for network infrastructure and equipment, land and buildings in the normal course of business. Lease contracts are typically made for fixed periods but may include purchase, renewal or termination options. Leases are negotiated on an individual basis and contain a wide range of different terms and conditions.

We adopted IFRS 16 as of January 1, 2019. For periods prior to January 1, 2019, we continue to apply IAS 17, as permitted by the specific transition provisions of IFRS 16. We are currently assessing the impacts of the International Financial Reporting Interpretations Committee (IFRIC) agenda decision published in December 2019 in regards to determination of the lease term for cancellable or renewable leases under IFRS 16. As permitted by the IASB, implementation of the decision is expected in the first quarter of 2020.

IFRS 16

We assess whether a contract contains a lease at inception of the contract. A lease contract conveys the right to control the use of an identified asset for a period in exchange for consideration. We recognize lease liabilities with corresponding right-of-use assets for all lease agreements, except for short-term leases and leases of low value assets, which are expensed on a straight-line basis over the lease term. Consideration in a contract is allocated to lease and non-lease components on a relative stand-alone value basis. We generally account for lease components and any associated non-lease components as a single lease component.

Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using our incremental borrowing rate, unless the rate implicit in the lease is readily determinable. We apply a single incremental borrowing rate to a portfolio of leases with similar characteristics. Lease payments included in the measurement of the lease liability comprise:

 

 

fixed (and in-substance fixed) lease payments, less any lease incentives

 

 

variable lease payments that depend on an index or rate

 

 

payments expected under residual value guarantees and payments relating to purchase options and renewal option periods that are reasonably certain to be exercised (or periods subject to termination options that are not reasonably certain to be exercised)

Lease liabilities are subsequently measured at amortized cost using the effective interest method. Lease liabilities are remeasured, with a corresponding adjustment to the related right-of-use assets, when there is a change in variable lease payments arising from a change in

an index or rate, or when we change our assessment of whether purchase, renewal or termination options will be exercised.

Right-of-use assets are measured at cost, and are comprised of the initial measurement of the corresponding lease liabilities, lease payments made at or before the commencement date and any initial direct costs. They are subsequently depreciated on a straight-line basis and reduced by impairment losses, if any. Right-of-use assets may also be adjusted to reflect the remeasurement of related lease liabilities. If we obtain ownership of the leased asset by the end of the lease term or the cost of the right-of-use asset reflects the exercise of a purchase option, we depreciate the right-of-use asset from the lease commencement date to the end of the useful life of the underlying asset. Otherwise, we depreciate the right-of-use asset from the commencement date to the earlier of the end of the useful life of the underlying asset or the end of the lease term.

Variable lease payments that do not depend on an index or rate are not included in the measurement of lease liabilities and right-of-use assets. The related payments are expensed in Operating costs in the period in which the event or condition that triggers those payments occurs.

IAS 17

Under IAS 17, leases of property, plant and equipment are recognized as finance leases when we obtain substantially all the risks and rewards of ownership of the underlying assets. At the inception of the lease, we record an asset together with a corresponding long-term lease liability, at the lower of the fair value of the leased asset or the present value of the minimum future lease payments. If there is reasonable certainty that the lease transfers ownership of the asset to us by the end of the lease term, the asset is amortized over its useful life. Otherwise, the asset is amortized over the shorter of its useful life and the lease term. The long-term lease liability is measured at amortized cost using the effective interest method.

All other leases are classified as operating leases. We recognize operating lease expense in Operating costs in the income statements on a straight-line basis over the term of the lease.

ASSET RETIREMENT OBLIGATIONS (AROs)

We initially measure and record AROs at management’s best estimate using a present value methodology, adjusted subsequently for any changes in the timing or amount of cash flows and changes in discount rates. We capitalize asset retirement costs as part of the related assets and amortize them into earnings over time. We also increase the ARO and record a corresponding amount in interest expense to reflect the passage of time.

 

 

 

J) INTANGIBLE ASSETS

 

FINITE-LIFE INTANGIBLE ASSETS

Finite-life intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses, if any.

SOFTWARE

We record internal-use software at historical cost. Cost includes expenditures that are attributable directly to the acquisition or development of the software, including the purchase cost and labour.

Software development costs are capitalized when all the following conditions are met:

 

 

technical feasibility can be demonstrated

 

 

management has the intent and the ability to complete the asset for use or sale

 

it is probable that economic benefits will be generated

 

 

costs attributable to the asset can be measured reliably

CUSTOMER RELATIONSHIPS

Customer relationship assets are acquired through business combinations and are recorded at fair value at the date of acquisition.

PROGRAM AND FEATURE FILM RIGHTS

We account for program and feature film rights as intangible assets when these assets are acquired for the purpose of broadcasting. Program and feature film rights, which include producer advances and licence fees paid in advance of receipt of the program or film, are stated at acquisition cost less accumulated amortization, and accumulated

 

 

 

 

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impairment losses, if any. Programs and feature films under licence agreements are recorded as assets for rights acquired and Iiabilities for obligations incurred when:

 

 

we receive a broadcast master and the cost is known or reasonably determinable for new program and feature film licences; or

 

 

the licence term commences for licence period extensions or syndicated programs

Related liabilities of programs and feature films are classified as current or non-current, based on the payment terms. Amortization of program and feature film rights is recorded in Operating costs in the income statements.

INDEFINITE-LIFE INTANGIBLE ASSETS

Brand assets, mainly comprised of the Bell, Bell Media and Bell MTS brands, and broadcast licences are acquired through business combinations and are recorded at fair value at the date of acquisition, less accumulated impairment losses, if any. Wireless spectrum licences are recorded at acquisition cost, including borrowing costs when the time to build or develop the related network is in excess of one year. Borrowing costs are calculated at a rate that is based on our weighted average interest rate on our outstanding long-term debt.

Currently there are no legal, regulatory, competitive or other factors that limit the useful lives of our brands or spectrum licences.

 

 

 

K) DEPRECIATION AND AMORTIZATION

 

We depreciate property, plant and equipment and amortize finite-life intangible assets on a straight-line basis over their estimated useful lives. We review our estimates of useful lives on an annual basis and adjust depreciation and amortization on a prospective basis, as required. Land and assets under construction or development are not depreciated.

                              
   
      ESTIMATED USEFUL LIFE       

Property, plant and equipment

  

Network infrastructure and equipment

     2 to 50 years      

Buildings

     5 to 50 years      

Finite-life intangible assets

  

Software

     2 to 12 years      

Customer relationships

     2 to 26 years      

Program and feature film rights

     Up to 5 years      
 

 

 

L) INVESTMENTS IN ASSOCIATES AND JOINT ARRANGEMENTS

 

Our financial statements incorporate our share of the results of our associates and joint ventures using the equity method of accounting, except when the investment is classified as held for sale. Equity income from investments is recorded in Other expense in the income statements.

Investments in associates and joint ventures are recognized initially at cost and adjusted thereafter to include the company’s share of income or loss and comprehensive income or loss on an after-tax basis.

Investments are reviewed for impairment at each reporting period and we compare their recoverable amount to their carrying amount when there is an indication of impairment.

We recognize our share of the assets, liabilities, revenues and expenses of joint operations in accordance with the related contractual agreements.

 

 

 

M) BUSINESS COMBINATIONS AND GOODWILL

 

Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value at the date of acquisition. Acquisition-related transaction costs are expensed as incurred and recorded in Severance, acquisition and other costs in the income statements.

Identifiable assets and liabilities, including intangible assets, of acquired businesses are recorded at their fair values at the date of acquisition. When we acquire control of a business, any previously-held equity interest is remeasured to fair value and any gain or loss on remeasurement is recognized in Other expense in the income statements. The excess of the purchase consideration and any previously-held

equity interest over the fair value of identifiable net assets acquired is recorded as Goodwill in the statements of financial position. If the fair value of identifiable net assets acquired exceeds the purchase consideration and any previously-held equity interest, the difference is recognized in Other expense in the income statements immediately as a bargain purchase gain.

Changes in our ownership interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions. Any difference between the change in the carrying amount of non-controlling interest (NCI) and the consideration paid or received is attributed to owner’s equity.

 

 

 

N) IMPAIRMENT OF NON-FINANCIAL ASSETS

 

Goodwill and indefinite-life intangible assets are tested for impairment annually or when there is an indication that the asset may be impaired. Property, plant and equipment and finite-life intangible assets are tested for impairment if events or changes in circumstances, assessed at each reporting period, indicate that their carrying amount may not be recoverable. For the purpose of impairment testing, assets other than goodwill are grouped at the lowest level for which there are separately identifiable cash inflows.

Impairment losses are recognized and measured as the excess of the carrying value of the assets over their recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs of disposal and its value in use. Previously recognized impairment losses, other than those attributable to goodwill, are reviewed for possible reversal at each reporting date and, if the asset’s recoverable amount has increased, all or a portion of the impairment is reversed.

 

 

    

 

 

        

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GOODWILL IMPAIRMENT TESTING

We perform an annual test for goodwill impairment in the fourth quarter for each of our cash generating units (CGUs) or groups of CGUs to which goodwill is allocated, and whenever there is an indication that goodwill might be impaired.

A CGU is the smallest identifiable group of assets that generates cash inflows that are independent of the cash inflows from other assets or groups of assets.

We identify any potential impairment by comparing the carrying value of a CGU or group of CGUs to its recoverable amount. The recoverable amount of a CGU or group of CGUs is the higher of its fair value less costs of disposal and its value in use. Both fair value less costs of disposal

and value in use are based on estimates of discounted future cash flows or other valuation methods. Cash flows are projected based on past experience, actual operating results and business plans. When the recoverable amount of a CGU or group of CGUs is less than its carrying value, the recoverable amount is determined for its identifiable assets and liabilities. The excess of the recoverable amount of the CGU or group of CGUs over the total of the amounts assigned to its assets and liabilities is the recoverable amount of goodwill.

An impairment charge is recognized in Other expense in the income statements for any excess of the carrying value of goodwill over its recoverable amount. For purposes of impairment testing of goodwill, our CGUs or groups of CGUs correspond to our reporting segments as disclosed in Note 3, Segmented information.

 

 

 

O) FINANCIAL INSTRUMENTS AND CONTRACT ASSETS

 

We measure trade and other receivables at amortized cost using the effective interest method, net of any allowance for doubtful accounts.

Our portfolio investments in equity securities are classified as fair value through other comprehensive income (FVOCI) and are presented in our statements of financial position as Other non-current assets. These securities are recorded at fair value on the date of acquisition, including related transaction costs, and are adjusted to fair value at each reporting date. The corresponding unrealized gains and losses are recorded in Other comprehensive income in the consolidated statements of comprehensive income (statements of comprehensive income) and are reclassified from Accumulated other comprehensive income to Deficit in the statements of financial position when realized.

Other financial liabilities, which include trade payables and accruals, compensation payable, obligations imposed by the Canadian

 

Radio-television and Telecommunications Commission (CRTC), interest payable and long-term debt, are recorded at amortized cost using the effective interest method.

We measure the allowance for doubtful accounts and impairment of contract assets based on an expected credit loss (ECL) model, which takes into account current economic conditions, historical information, and forward-looking information. We use the simplified approach for measuring losses based on the lifetime ECL for trade and other receivables and contract assets. Amounts considered uncollectible are written off and recognized in Operating costs in the income statements.

The cost of issuing debt is included as part of long-term debt and is accounted for at amortized cost using the effective interest method. The cost of issuing equity is reflected in the consolidated statements of changes in equity as a charge to the deficit.

 

 

 

P) DERIVATIVE FINANCIAL INSTRUMENTS

 

We use derivative financial instruments to manage interest rate risk, foreign currency risk and cash flow exposures related to share-based payment plans, capital expenditures, long-term debt instruments and operating revenues and expenses. We do not use derivative financial instruments for speculative or trading purposes.

Derivatives that mature within one year are included in Other current assets or Trade payables and other liabilities in the statements of financial position, whereas derivatives that have a maturity of more than one year are included in Other non-current assets or Other non-current liabilities.

HEDGE ACCOUNTING

To qualify for hedge accounting, we document the relationship between the derivative and the related identified risk exposure, and our risk management objective and strategy. This includes associating each derivative to a specific asset or liability, commitment, or anticipated transaction.

We assess the effectiveness of a derivative in managing an identified risk exposure when hedge accounting is initially applied, and on an ongoing basis thereafter. If a hedging relationship ceases to meet the qualifying criteria, we discontinue hedge accounting prospectively.

CASH FLOW HEDGES

We enter into cash flow hedges to mitigate foreign currency risk on certain debt instruments and anticipated purchases and sales, as well as interest rate risk related to anticipated debt issuances.

We use foreign currency forward contracts to manage the foreign currency exposure relating to anticipated purchases and sales denominated in foreign currencies. Changes in the fair value of these foreign currency forward contracts are recognized in our statements of comprehensive income, except for any ineffective portion, which is recognized immediately in Other expense in the income statements. Realized gains and losses in Accumulated other comprehensive income are reclassified to the income statements or to the initial cost of the non-financial asset in the same periods as the corresponding hedged transactions are recognized.

We use foreign currency forward contracts and cross currency interest rate swaps to manage our U.S. dollar debt under our U.S. commercial paper program and our U.S. dollar long-term debt. Changes in the fair value of these derivatives and the related debt are recognized in Other expense in the income statements and offset, unless a portion of the hedging relationship is ineffective.

DERIVATIVES USED AS ECONOMIC HEDGES

We use derivatives to manage cash flow exposures related to equity-settled share-based payment plans and anticipated purchases, equity price risk related to a cash-settled share-based payment plan and interest rate risk related to preferred share dividend rate resets. As these derivatives do not qualify for hedge accounting, the changes in their fair value are recorded in the income statements in Operating costs for derivatives used to hedge cash-settled share-based payments and in Other expense for other derivatives.

 

 

 

 

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Q) POST-EMPLOYMENT BENEFIT PLANS

 

DEFINED BENEFIT (DB) AND OTHER POST-EMPLOYMENT BENEFIT (OPEB) PLANS

We maintain DB pension plans that provide pension benefits for certain employees and retirees. Benefits are based on the employee’s length of service and average rate of pay during the highest paid consecutive five years of service. Most employees are not required to contribute to the plans. Certain plans provide cost of living adjustments to help protect the income of retired employees against inflation.

We are responsible for adequately funding our DB pension plans. We make contributions to them based on various actuarial cost methods permitted by pension regulatory bodies. Contributions reflect actuarial assumptions about future investment returns, salary projections, future service and life expectancy.

We provide OPEBs to some of our employees, including:

 

 

healthcare and life insurance benefits during retirement, which were phased out for new retirees since December 31, 2016. Most of these OPEB plans are unfunded and benefits are paid when incurred.

 

 

other benefits, including workers’ compensation and medical benefits to former or inactive employees, their beneficiaries and dependants, from the time their employment ends until their retirement starts, under certain circumstances

We accrue our obligations and related costs under post-employment benefit plans, net of the fair value of the benefit plan assets. Pension and OPEB costs are determined using:

 

 

the projected unit credit method, prorated on years of service, which takes into account future pay levels

 

 

a discount rate based on market interest rates of high-quality corporate fixed income investments with maturities that match the timing of benefits expected to be paid under the plans

 

 

management’s best estimate of pay increases, retirement ages of employees, expected healthcare costs and life expectancy

We value post-employment benefit plan assets at fair value using current market values.

Post-employment benefit plans current service cost is included in Operating costs in the income statements. Interest on our post-employment benefit plan assets and obligations is recognized in Finance costs in the income statements and represents the accretion of interest on the assets and obligations under our post-employment benefit plans. The interest rate is based on market conditions that existed at the beginning of the year. Actuarial gains and losses for all post-employment benefit plans are recorded in Other comprehensive income in the statements of comprehensive income in the period in which they occur and are recognized immediately in the deficit.

December 31 is the measurement date for our significant post-employment benefit plans. Our actuaries perform a valuation based on management’s assumptions at least every three years to determine the actuarial present value of the accrued DB pension plans and OPEB obligations. The most recent actuarial valuation of our significant pension plans was as at December 31, 2018.

DEFINED CONTRIBUTION (DC) PENSION PLANS

We maintain DC pension plans that provide certain employees with benefits. Under these plans, we are responsible for contributing a predetermined amount to an employee’s retirement savings, based on a percentage of the employee’s salary.

We recognize a post-employment benefit plans service cost for DC pension plans when the employee provides service to the company, essentially coinciding with our cash contributions.

Generally, new employees can only participate in the DC pension plans.

 

 

 

R) PROVISIONS

 

Provisions are recognized when all the following conditions are met:

 

 

the company has a present legal or constructive obligation based on past events

 

 

it is probable that an outflow of economic resources will be required to settle the obligation

 

 

the amount can be reasonably estimated

Provisions are measured at the present value of the estimated expenditures expected to settle the obligation, if the effect of the time value of money is material. The present value is determined using current market assessments of the discount rate and risks specific to the obligation. The obligation increases as a result of the passage of time, resulting in interest expense which is recognized in Finance costs in the income statements.

 

 

 

S) ESTIMATES AND KEY JUDGMENTS

 

When preparing the financial statements, management makes estimates and judgments relating to:

 

 

reported amounts of revenues and expenses

 

 

reported amounts of assets and liabilities

 

 

disclosure of contingent assets and liabilities

We base our estimates on a number of factors, including historical experience, current events and actions that the company may undertake in the future, and other assumptions that we believe are reasonable under the circumstances. By their nature, these estimates and judgments are subject to measurement uncertainty and actual results could differ. Our more significant estimates and judgments are described below.

ESTIMATES

USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT AND FINITE-LIFE INTANGIBLE ASSETS

Property, plant and equipment represent a significant proportion of our total assets. Changes in technology or our intended use of these assets, as well as changes in business prospects or economic and industry factors, may cause the estimated useful lives of these assets to change.

 

 

    

 

 

        

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POST-EMPLOYMENT BENEFIT PLANS

The amounts reported in the financial statements relating to DB pension plans and OPEBs are determined using actuarial calculations that are based on several assumptions.

The actuarial valuation uses management’s assumptions for, among other things, the discount rate, life expectancy, the rate of compensation increase, trends in healthcare costs and expected average remaining years of service of employees.

The most significant assumptions used to calculate the net post-employment benefit plans cost are the discount rate and life expectancy.

The discount rate is based on the yield on long-term, high-quality corporate fixed income investments, with maturities matching the estimated cash flows of the post-employment benefit plans. Life expectancy is based on publicly available Canadian mortality tables and is adjusted for the company’s specific experience.

REVENUE FROM CONTRACTS WITH CUSTOMERS

We are required to make estimates that affect the amount of revenue from contracts with customers, including estimating the stand-alone selling prices of products and services.

IMPAIRMENT OF NON-FINANCIAL ASSETS

We make a number of estimates when calculating recoverable amounts using discounted future cash flows or other valuation methods to test for impairment. These estimates include the assumed growth rates for future cash flows, the number of years used in the cash flow model and the discount rate.

DEFERRED TAXES

The amounts of deferred tax assets and liabilities are estimated with consideration given to the timing, sources and amounts of future taxable income.

LEASES

The application of IFRS 16 requires us to make estimates that affect the measurement of right-of-use assets and liabilities, including determining the appropriate discount rate used to measure lease liabilities. Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using our incremental borrowing rate, unless the rate implicit in the lease is readily determinable. Our incremental borrowing rate is derived from publicly available risk-free interest rates, adjusted for applicable credit spreads and lease terms. We apply a single incremental borrowing rate to a portfolio of leases with similar characteristics.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Certain financial instruments, such as investments in equity securities, derivative financial instruments and certain elements of borrowings, are carried in the statements of financial position at fair value, with changes in fair value reflected in the income statements and the statements of comprehensive income. Fair values are estimated by reference to published price quotations or by using other valuation techniques that may include inputs that are not based on observable market data, such as discounted cash flows and earnings multiples.

CONTINGENCIES

In the ordinary course of business, we become involved in various claims and legal proceedings seeking monetary damages and other relief. Pending claims and legal proceedings represent a potential cost to our business. We estimate the amount of a loss by analyzing potential outcomes and assuming various litigation and settlement strategies, based on information that is available at the time.

ONEROUS CONTRACTS

A provision for onerous contracts is recognized when the unavoidable costs of meeting our obligations under a contract exceed the expected benefits to be received under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of completing the contract.

JUDGMENTS

POST-EMPLOYMENT BENEFIT PLANS

The determination of the discount rate used to value our post-employment benefit obligations requires judgment. The rate is set by reference to market yields of long-term, high-quality corporate fixed income investments at the beginning of each fiscal year. Significant judgment is required when setting the criteria for fixed income investments to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of investments include the size of the issue and credit quality, along with the identification of outliers, which are excluded.

INCOME TAXES

The calculation of income taxes requires judgment in interpreting tax rules and regulations. There are transactions and calculations for which the ultimate tax determination is uncertain. Our tax filings are also subject to audits, the outcome of which could change the amount of current and deferred tax assets and liabilities.

Management judgment is used to determine the amounts of deferred tax assets and liabilities to be recognized. In particular, judgment is required when assessing the timing of the reversal of temporary differences to which future income tax rates are applied.

LEASES

The application of IFRS 16 requires us to make judgments that affect the measurement of right-of-use assets and liabilities. A lease contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At inception of the contract, we assess whether the contract contains an identified asset, whether we have the right to obtain substantially all of the economic benefits from use of the asset and whether we have the right to direct how and for what purpose the asset is used. In determining the lease term, we include periods covered by renewal options when we are reasonably certain to exercise those options. Similarly, we include periods covered by termination options when we are reasonably certain not to exercise those options. To assess if we are reasonably certain to exercise an option, we consider all facts and circumstances that create an economic incentive to exercise renewal options (or not exercise termination options). Economic incentives include the costs related to the termination of the lease, the significance of any leasehold improvements and the importance of the underlying assets to our operations.

 

 

 

 

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REVENUE FROM CONTRACTS WITH CUSTOMERS

The identification of performance obligations within a contract and the timing of satisfaction of performance obligations under long-term contracts requires judgment. Additionally, the determination of costs to obtain a contract, including the identification of incremental costs, also requires judgment.

CGUs

The determination of CGUs or groups of CGUs for the purpose of impairment testing requires judgment.

CONTINGENCIES

The determination of whether a loss is probable from claims and legal proceedings and whether an outflow of resources is likely requires judgment.

 

 

 

T) ADOPTION OF NEW OR AMENDED ACCOUNTING STANDARDS

As required, effective January 1, 2019, we adopted the following new or amended accounting standards.

 

     
STANDARD   DESCRIPTION   IMPACT
IFRS 16 – Leases  

Eliminates the distinction between operating and finance leases for lessees, requiring instead that leases be capitalized by recognizing the present value of the lease payments and showing them either as lease assets (right-of-use assets) or together with property, plant and equipment. If lease payments are made over time, an entity recognizes a financial liability representing its obligation to make future lease payments. A depreciation charge for the lease asset is recorded within operating costs and an interest expense on the lease liability is recorded within finance costs.

 

IFRS 16 does not substantially change lease accounting for lessors.

 

We adopted IFRS 16 using a modified retrospective approach whereby the financial statements of prior periods presented were not restated and continue to be reported under IAS 17 – Leases, as permitted by the specific transition provisions of IFRS 16. The cumulative effect of the initial adoption of IFRS 16 was reflected as an adjustment to the deficit at January 1, 2019. Further details on the impacts of adopting IFRS 16 on our January 1, 2019 consolidated statement of financial position are provided in Note 35, Adoption of IFRS 16. We are currently assessing the impacts of the IFRIC agenda decision published in December 2019 in regards to determination of the lease term for cancellable or renewable leases under IFRS 16. As permitted by the IASB, implementation of the decision is expected in the first quarter of 2020.

 

Under IAS 17, leases of property, plant and equipment were recognized as finance leases when we obtained substantially all the risks and rewards of ownership of the underlying assets. All other leases were classified as operating leases. IFRS 16 eliminates the distinction between operating and finance leases for lessees, requiring instead that we recognize a right-of-use asset and a lease liability at lease commencement for all leases, with certain exceptions permitted through elections and practical expedients. Accounting for leases previously classified as finance leases and lessor accounting remains largely unchanged under IFRS 16.

 

We recognized lease liabilities at January 1, 2019 for leases previously classified as operating leases, measured at the present value of lease payments using our incremental borrowing rate at that date. Property, plant and equipment includes the corresponding right-of-use assets also recognized at January 1, 2019. The right-of-use assets were generally measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the balance sheet as at December 31, 2018. In certain cases, the right-of-use assets were measured as though IFRS 16 had been applied since the lease commencement date. A depreciation charge for right-of-use assets is recorded in Depreciation and an interest expense on lease liabilities is recorded in Finance costs in the income statement.

 

As permitted by IFRS 16, we elected not to recognize lease liabilities and right-of-use assets for short-term leases and leases of low value assets, which will continue to be expensed on a straight-line basis over the lease term. We have also applied certain practical expedients to facilitate the initial adoption and ongoing application of IFRS 16:

 

 We generally do not separate non-lease components from related lease components. Each lease component and any associated non-lease components are accounted for as a single lease component

 

 We apply a single incremental borrowing rate to a portfolio of leases with similar characteristics

 

 As an alternative to performing an impairment review, we adjusted right-of-use assets for any onerous lease provisions recognized in the balance sheet at December 31, 2018

 

 We applied the exemption not to recognize right-of-use assets and liabilities for certain leases with a remaining term of 12 months or less as of January 1, 2019

 

 We used hindsight when determining the lease term when the lease contracts contain options to extend or terminate the lease

 

IFRIC 23 – Uncertainty over Income Tax Treatments  

Provides guidance on the application of IAS 12 – Income Taxes when there is uncertainty over income tax treatments. It specifically addresses whether an entity considers uncertain tax treatments separately or as a group, the examination of tax treatments by taxation authorities, the recognition and measurement of the effect of tax uncertainties and how an entity considers changes in facts and circumstances.

 

  IFRIC 23 did not have a significant impact on our financial statements.

 

    

 

 

        

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U) FUTURE CHANGES TO ACCOUNTING STANDARDS

The following amended standard issued by the IASB has an effective date after December 31, 2019 and has not yet been adopted by BCE.

 

       
STANDARD    DESCRIPTION    IMPACT    EFFECTIVE DATE
Amendments to IFRS 3 – Business Combinations   

These amendments to the implementation guidance of IFRS 3 clarify the definition of a business to assist entities to determine whether a transaction should be accounted for as a business combination or an asset acquisition.

 

   The amendments to IFRS 3 – Business Combinations may affect whether future acquisitions are accounted for as business combinations or asset acquisitions, along with the resulting allocation of the purchase price between the net identifiable assets acquired and goodwill.    Prospectively for acquisitions occurring on or after January 1, 2020.

 

 

Note 3    Segmented information

 

The accounting policies used in our segment reporting are the same as those we describe in Note 2, Significant accounting policies. Our results are reported in three segments: Bell Wireless, Bell Wireline and Bell Media. Our segments reflect how we manage our business and how we classify our operations for planning and measuring performance. Accordingly, we operate and manage our segments as strategic business units organized by products and services. Segments negotiate sales with each other as if they were unrelated parties.

To align with changes in how we manage our business and assess performance, the operating results of The Source (Bell) Electronics Inc. (The Source) are now entirely included within our Wireless segment effective January 1, 2019, with prior periods restated for comparative purposes. Previously, The Source’s results were included within our Wireless and Wireline segments.

We measure the performance of each segment based on segment profit, which is equal to operating revenues less operating costs for the segment. Substantially all of our severance, acquisition and other costs, depreciation and amortization, finance costs and other expense

are managed on a corporate basis and, accordingly, are not reflected in segment results.

Substantially all of our operations and assets are located in Canada.

Our Bell Wireless segment provides wireless voice and data communication products and services to our residential, small and medium-sized business and large enterprise customers across Canada.

Our Bell Wireline segment provides data, including Internet access and IPTV, local telephone, long distance, as well as other communications services and products to our residential, small and medium-sized business and large enterprise customers primarily in Ontario, Québec, the Atlantic provinces and Manitoba, while satellite TV service and connectivity to business customers are available nationally across Canada. In addition, this segment includes our wholesale business, which buys and sells local telephone, long distance, data and other services from or to resellers and other carriers.

Our Bell Media segment provides conventional TV, specialty TV, pay TV, streaming services, digital media services, radio broadcasting services and OOH advertising services to customers nationally across Canada.

 

 

 

SEGMENTED INFORMATION

 

                                                                                                                                                                                         
             
FOR THE YEAR ENDED DECEMBER 31, 2019    NOTE       BELL
WIRELESS
    BELL
WIRELINE
    BELL
MEDIA
    INTER-SEGMENT
ELIMINATIONS
    BCE  

Operating revenues

             

External customers

        9,087       12,066       2,811             23,964  

Inter-segment

              55       290       406       (751      

Total operating revenues

        9,142       12,356       3,217       (751     23,964  

Operating costs

            (5,300     (6,942     (2,367     751       (13,858 )   

Segment profit (1)

        3,842       5,414       850             10,106  

Severance, acquisition and other costs

                    (114

Depreciation and amortization

     14, 16                 (4,398

Finance costs

             

Interest expense

                    (1,132

Interest on post-employment benefit obligations

     24                 (63

Other expense

                    (13

Income taxes

                                            (1,133

Net earnings

                3,253  

Goodwill

     19         3,048       4,673       2,946             10,667  

Indefinite-life intangible assets

     16         3,948       1,692       2,381             8,021  

Capital expenditures

              697       3,183       108             3,988  

 

(1)

The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being operating revenues less operating costs.

 

 

 

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FOR THE YEAR ENDED DECEMBER 31, 2018    NOTE      BELL
WIRELESS
    BELL
WIRELINE
    BELL
MEDIA
    INTER-SEGMENT
ELIMINATIONS
    BCE  

Operating revenues

             

External customers

        8,766       12,025       2,677             23,468  

Inter-segment

              52       242       444       (738      

Total operating revenues

        8,818       12,267       3,121       (738     23,468  

Operating costs

     4        (5,297     (6,946     (2,428     738       (13,933 )   

Segment profit (1)

        3,521       5,321       693             9,535  

Severance, acquisition and other costs

     5                (136

Depreciation and amortization

     14, 16                (4,014

Finance costs

             

Interest expense

     6                (1,000

Interest on post-employment benefit obligations

     24                (69

Other expense

     7                (348

Income taxes

     8                                        (995

Net earnings

                2,973  

Goodwill

     19        3,048       4,679       2,931             10,658  

Indefinite-life intangible assets

     16        3,948       1,692       2,467             8,107  

Capital expenditures

              664       3,193       114             3,971  

 

(1)

The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being operating revenues less operating costs.

 

 

REVENUES BY SERVICES AND PRODUCTS

The following table presents our revenues disaggregated by type of services and products.

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019      2018  

Services (1)

     

Wireless

     6,427        6,269  

Wireline data

     7,684        7,466  

Wireline voice

     3,564        3,782  

Media

     2,811        2,677  

Other wireline services

     251        247    

Total services

     20,737        20,441  

Products (2)

     

Wireless

     2,660        2,497  

Wireline data

     519        466  

Wireline equipment and other

     48        64  

Total products

     3,227        3,027  

Total operating revenues

     23,964        23,468  

 

(1)

Our service revenues are generally recognized over time.

 

(2)

Our product revenues are generally recognized at a point in time.

 

    

 

 

        

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Note 4    Operating costs

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31    NOTE       2019     2018  

Labour costs

       

Wages, salaries and related taxes and benefits (1)

        (4,303     (4,284

Post-employment benefit plans service cost (net of capitalized amounts)

     24         (247     (266

Other labour costs (1) (2)

        (1,005     (1,042

Less:

       

Capitalized labour (1)

              1,032       1,052  

Total labour costs

              (4,523     (4,540 )   

Cost of revenues (1) (3)

        (7,380     (7,349

Other operating costs (1) (4)

              (1,955     (2,044

Total operating costs

              (13,858     (13,933

 

(1)

We have reclassified amounts from the previous period to make them consistent with the presentation for the current period.

 

(2)

Other labour costs include contractor and outsourcing costs.

 

(3)

Cost of revenues includes costs of wireless devices and other equipment sold, network and content costs, and payments to other carriers.

 

(4)

Other operating costs include marketing, advertising and sales commission costs, bad debt expense, taxes other than income taxes, information technology costs, professional service fees and rent.

Research and development expenses of $109 million and $106 million are included in operating costs for 2019 and 2018, respectively.

 

 

Note 5    Severance, acquisition and other costs

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Severance

     (63     (92 )   

Acquisition and other

     (51     (44

Total severance, acquisition and other costs

     (114     (136

 

 

SEVERANCE COSTS

Severance costs consist of charges related to involuntary and voluntary employee terminations. In 2018, severance costs include a 4% reduction in management workforce across BCE.

 

 

ACQUISITION AND OTHER COSTS

Acquisition and other costs consist of transaction costs, such as legal and financial advisory fees, related to completed or potential acquisitions, employee severance costs related to the purchase of a business, the costs to integrate acquired companies into our operations and litigation costs, when they are significant.

 

 

Note 6    Interest expense

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Interest expense on long-term debt

     (1,024     (918

Interest expense on other debt

     (153     (133 )   

Capitalized interest

     45       51  

Total interest expense

     (1,132     (1,000

 

Included in interest expense on long-term debt is interest on lease liabilities of $220 million for 2019 and interest on finance leases of $142 million for 2018.

Capitalized interest was calculated using an average rate of 3.96% and 3.88% for 2019 and 2018, respectively, which represents the weighted average interest rate on our outstanding long-term debt.

 

 

 

 

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Note 7    Other expense

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31    NOTE       2019     2018  

Impairment of assets

     14, 16         (102     (200

Equity losses from investments in associates and joint ventures

     17        

Losses on investments

        (53     (20 )   

Operations

        (19     (15

Early debt redemption costs

     22         (18     (20

(Losses) gains on retirements and disposals of property, plant and equipment and intangible assets

        (9     11  

Net mark-to-market gains (losses) on derivatives used to economically hedge equity settled share-based compensation plans

        138       (80

Gains (losses) on investments

        13       (34

Other

              37       10  

Total other expense

              (13     (348

 

 

IMPAIRMENT OF ASSETS

 

2019

Impairment charges in 2019 included $85 million allocated to indefinite-life intangible assets, and $8 million allocated primarily to property, plant and equipment. These impairment charges relate to broadcast licences and certain assets for various radio markets within our Bell Media segment. The impairment charges were a result of continued advertising demand and ratings pressures in the industry resulting from audience declines, as well as competitive pressure from streaming services. The charges were determined by comparing the carrying value of the CGUs to their fair value less cost of disposal. We estimated the fair value of the CGUs using both discounted cash flows and market-based valuation models, which include five-year cash flow projections derived from business plans reviewed by senior management for the period of January 1, 2020 to December 31, 2024, using a discount rate of 7.5% and a perpetuity growth rate of nil as well as market multiple data from public companies and market transactions. The carrying value of these CGUs was $464 million at December 31, 2019.

2018

Impairment charges in 2018 included $145 million allocated to indefinite-life intangible assets, and $14 million allocated to finite-life intangible assets. These impairment charges primarily relate to our French TV channels within our Bell Media segment. These impairments were the result of revenue and profitability declines from lower audience levels and subscriber erosion. The charges were determined by comparing the carrying value of the CGUs to their fair value less costs of disposal. We estimated the fair value of the CGUs using both discounted cash flows and market-based valuation models, which include five-year cash flow projections derived from business plans reviewed by senior management for the period of January 1, 2019 to December 31, 2023, using a discount rate of 8.0% to 8.5% and a perpetuity growth rate of nil, as well as market multiple data from public companies and market transactions. The carrying value of these CGUs was $515 million at December 31, 2018. In the previous year’s impairment analysis, the company’s French Pay and French Specialty TV channels were tested for recoverability separately. In 2018, the CGUs were grouped to form one French CGU which reflects the evolution of the cash flows from our content strategies as well as the CRTC beginning to regulate Canadian broadcasters under a group licence approach based on language.

Additionally, in 2018, we recorded an indefinite-life intangible asset impairment charge of $31 million within our Bell Media segment as a result of a strategic decision to retire a brand.

 

 

 

EQUITY LOSSES FROM INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

 

We recorded a loss on investment of $53 million and $20 million in 2019 and 2018, respectively, related to equity losses on our share of an obligation to repurchase at fair value the minority interest in one of

BCE’s joint ventures. The obligation is marked to market each reporting period and the gain or loss on investment is recorded as equity gains or losses from investments in associates and joint ventures.

 

 

 

GAINS (LOSSES) ON INVESTMENTS

 

In 2019 we recorded gains of $13 million which included a gain on an obligation to repurchase at fair value the minority interest in one of our subsidiaries.

In 2018, we recorded losses of $34 million which included a loss on an obligation to repurchase at fair value the minority interest in one of our subsidiaries.

 

 

    

 

 

        

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Note 8    Income taxes

The following table shows the significant components of income taxes deducted from net earnings.

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Current taxes

    

Current taxes

     (761     (775

Uncertain tax positions

     6       8  

Change in estimate relating to prior periods

     22       12  

Deferred taxes

    

Deferred taxes relating to the origination and reversal of temporary differences

     (322     (352 )   

Change in estimate relating to prior periods

     (8     8  

Recognition and utilization of loss carryforwards

     (106     44  

Effect of change in provincial corporate tax rate

     27        

Uncertain tax positions

     9       60  

Total income taxes

     (1,133     (995

The following table reconciles the amount of reported income taxes in the income statements with income taxes calculated at a statutory income tax rate of 27.0% for both 2019 and 2018.

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Net earnings

     3,253       2,973  

Add back income taxes

     1,133       995  

Earnings before income taxes

     4,386       3,968  

Applicable statutory tax rate

     27.0     27.0

Income taxes computed at applicable statutory rates

     (1,184     (1,071 )   

Non-taxable portion of gains (losses) on investments

     4       (9

Uncertain tax positions

     15       68  

Effect of change in provincial corporate tax rate

     27        

Change in estimate relating to prior periods

     14       20  

Non-taxable portion of equity losses

     (20     (10

Previously unrecognized tax benefits

     9        

Other

     2       7  

Total income taxes

     (1,133     (995

Average effective tax rate

     25.8     25.1

The following table shows aggregate current and deferred taxes relating to items recognized outside the income statements.

 

                                                                                                                           
     
     2019      2018  
FOR THE YEAR ENDED DECEMBER 31    OTHER
COMPREHENSIVE
INCOME
    DEFICIT        OTHER
COMPREHENSIVE
INCOME
    DEFICIT  

Current taxes

     3       4          41       5  

Deferred taxes

     (90     13          (104     (11 )  

Total income taxes (expense) recovery

     (87     17          (63     (6

 

 

 

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The following table shows deferred taxes resulting from temporary differences between the carrying amounts of assets and liabilities recognized in the statements of financial position and their corresponding tax basis, as well as tax loss carryforwards.

 

                                                                                                                                                                              
               
NET DEFERRED TAX LIABILITY    NON-
CAPITAL
LOSS
CARRY-
FORWARDS
    POST-
EMPLOYMENT
BENEFIT
PLANS
    INDEFINITE-
LIFE
INTANGIBLE
ASSETS
    PROPERTY
PLANT AND
EQUIPMENT
AND
FINITE-LIFE
INTANGIBLE
ASSETS
    CRTC
TANGIBLE
BENEFITS
    OTHER     TOTAL  

January 1, 2018

     17       494       (1,761     (1,400     30       (106     (2,726

Income statement

     109       (14     (2     (248     (14     (71     (240

Business acquisitions

     3                   (16           1       (12

Other comprehensive income

           (65                       (39     (104

Deficit

                                   (11     (11

Other

                       15             27       42  

December 31, 2018

     129       415       (1,763     (1,649     16       (199     (3,051

Adoption of IFRS 16

                       7                   7  

January 1, 2019

     129       415       (1,763     (1,642     16       (199     (3,044 )   

Income statement

     (105     3             (177     (9     (112     (400

Business acquisitions

     5                   (6           (1     (2

Other comprehensive income

           (54                       (36     (90

Deficit

                                   13       13  

Other

     2                   46             12       60  

December 31, 2019

     31       364       (1,763     (1,779     7       (323     (3,463

 

At December 31, 2019, BCE had $215 million of non-capital loss carryforwards. We:

 

 

recognized a deferred tax asset of $31 million for $122 million of the non-capital loss carryforwards. These non-capital loss carryforwards expire in varying annual amounts from 2024 to 2039.

 

 

did not recognize a deferred tax asset for $93 million of non-capital loss carryforwards. This balance expires in varying annual amounts from 2023 to 2037.

At December 31, 2019, BCE had $734 million of unrecognized capital loss carryforwards which can be carried forward indefinitely.

At December 31, 2018, BCE had $645 million of non-capital loss carryforwards. We:

 

 

recognized a deferred tax asset of $129 million for $478 million of the non-capital loss carryforwards. These non-capital loss carryforwards expire in varying annual amounts from 2024 to 2038.

 

 

did not recognize a deferred tax asset for $167 million of non-capital loss carryforwards. This balance expires in varying annual amounts from 2023 to 2038.

At December 31, 2018, BCE had $806 million of unrecognized capital loss carryforwards which can be carried forward indefinitely.

 

 

 

Note 9    Earnings per share

The following table shows the components used in the calculation of basic and diluted earnings per common share for earnings attributable to common shareholders.

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Net earnings attributable to common shareholders – basic

     3,040         2,785    

Dividends declared per common share (in dollars)

     3.17       3.02  

Weighted average number of common shares outstanding (in millions)

    

Weighted average number of common shares outstanding – basic

     900.8       898.6  

Assumed exercise of stock options (1)

     0.6       0.3  

Weighted average number of common shares outstanding – diluted (in millions)

     901.4       898.9  

 

(1)

The calculation of the assumed exercise of stock options includes the effect of the average unrecognized future compensation cost of dilutive options. It excludes options for which the exercise price is higher than the average market value of a BCE common share. The number of excluded options was 61,170 in 2019 and 12,252,594 in 2018.

 

    

 

 

        

   BCE Inc. 2019 Annual Report


Table of Contents

    

 

Note 10    Trade and other receivables

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31    NOTE        2019     2018  

Trade receivables (1)

        2,981       3,026  

Allowance for revenue adjustments

        (104     (106

Allowance for doubtful accounts

     26          (62     (51 )   

Current tax receivable

        23       14  

Other accounts receivable

              200       123  

Total trade and other receivables

              3,038       3,006  

(1) The details of securitized trade receivables are set out in Note 21, Debt due within one year.

 

 

Note 11    Inventory

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019      2018  

Wireless devices and accessories

     199        202  

Merchandise and other

     228        230  

Total inventory

     427        432    

The total amount of inventory subsequently recognized as an expense in cost of revenues was $3,141 million and $2,971 million for 2019 and 2018, respectively.

 

 

Note 12    Contract assets and liabilities

The table below provides a reconciliation of the significant changes in the contract assets and the contract liabilities balances.

 

                                                                                                                           
     
     CONTRACT ASSETS  (1)     CONTRACT LIABILITIES  
 
FOR THE YEAR ENDED DECEMBER 31    2019     2018     2019     2018  
 

Opening balance, January 1

     1,493       1,263       899       894  
 

Revenue recognized included in contract liabilities at the beginning of the year

                 (666     (625
 

Revenue recognized from contract liabilities included in contract assets at the beginning of the year

     131       154              
 

Increase in contract liabilities during the year

                 644       628  
 

Increase in contract liabilities included in contract assets during the year

     (175     (168 )               
 

Increase in contract assets from revenue recognized during the year

     1,915       1,770              
 

Contract assets transferred to trade receivables

     (1,461     (1,321     47        
 

Acquisitions

                 (4     13  
 

Contract terminations transferred to trade receivables

     (205     (219     24       (4 )   
 

Other

     (54     14       (54     (7
 

Ending balance, December 31

     1,644       1,493       890       899  

 

(1)

Net of allowance for doubtful accounts of $68 million and $73 million at December 31, 2019 and December 31, 2018, respectively. We have updated amounts for the prior year to make them consistent with the presentation for the current year. See Note 26, Financial and capital management, for additional details.

 

 

Note 13    Contract costs

The table below provides a reconciliation of the contract costs balance.

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Opening balance, January 1

     707       636  

Incremental costs of obtaining a contract and contract fulfillment costs

     602       567  

Amortization included in operating costs

     (523     (477 )   

Impairment charges included in operating costs

     (3     (19

Ending balance, December 31

     783       707  

Contract costs are amortized over a period ranging from 12 to 84 months.

 

 

 

BCE Inc. 2019 Annual Report           


Table of Contents

 

Note 14    Property, plant and equipment

 

                                                                                                                                                          
           

FOR THE YEAR ENDED DECEMBER 31, 2019

     NOTE      

NETWORK
INFRASTRUCTURE
AND EQUIPMENT 
 
 
(1) 
   
LAND AND
BUILDINGS 
 
(1) 
   
ASSETS UNDER
CONSTRUCTION
 
 
    TOTAL  

COST

          

December 31, 2018

       64,248       6,071       1,764       72,083  

Adoption of IFRS 16

     2, 35         800       1,457             2,257  

January 1, 2019

             65,048       7,528       1,764       74,340  

Additions

       2,510       569       1,705       4,784  

Acquired through business combinations

       3       38             41  

Transfers

       1,132       (9     (1,782     (659

Retirements and disposals

       (1,085     (43           (1,128

Impairment losses recognized in earnings

     7       (11     (4           (15 )   

December 31, 2019

             67,597       8,079       1,687       77,363  

ACCUMULATED DEPRECIATION

          

January 1, 2019

       43,834       3,405             47,239  

Depreciation

       3,030       466             3,496  

Retirements and disposals

       (1,003     (27           (1,030

Other

             53       (31           22  

December 31, 2019

             45,914       3,813             49,727  

NET CARRYING AMOUNT

          

January 1, 2019

       21,214       4,123       1,764       27,101  

December 31, 2019

             21,683       4,266       1,687       27,636  

 

(1)

Includes right-of-use assets. See Note 15, Leases, for additional details.

 

                                                                                                                                                          
           

FOR THE YEAR ENDED DECEMBER 31, 2018

     NOTE      

NETWORK
INFRASTRUCTURE
AND EQUIPMENT
 
 
 
   
LAND AND
BUILDINGS
 
 
   
ASSETS UNDER
CONSTRUCTION
 
 
    TOTAL  (1) 

COST

          

January 1, 2018

       61,484       5,961       1,774       69,219  

Additions

       2,699       72       1,437       4,208  

Acquired through business combinations

       144       49             193  

Transfers

       898       43       (1,447     (506

Retirements and disposals

       (969     (54           (1,023

Impairment losses recognized in earnings

     7           (8                 (8 )   

December 31, 2018

             64,248       6,071       1,764       72,083  

ACCUMULATED DEPRECIATION

          

January 1, 2018

       41,949       3,241             45,190  

Depreciation

       2,923       222             3,145  

Retirements and disposals

       (931     (52           (983

Other

             (107     (6           (113

December 31, 2018

             43,834       3,405             47,239  

NET CARRYING AMOUNT

          

January 1, 2018

       19,535       2,720       1,774       24,029  

December 31, 2018

             20,414       2,666       1,764       24,844  

 

(1)

Includes assets under finance lease. See Note 15, Leases, for additional details

 

    

 

 

        

   BCE Inc. 2019 Annual Report


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Note 15    Leases

RIGHT-OF-USE ASSETS

BCE’s significant right-of-use assets under leases are satellites, office premises, land, cellular tower sites, retail outlets and OOH advertising spaces. Right-of-use assets are presented in Property, plant and equipment in the statement of financial position.

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31, 2019    NETWORK
INFRASTRUCTURE
AND EQUIPMENT
    LAND AND
BUILDINGS
    TOTAL  

COST

      

January 1, 2019

     3,329       2,453       5,782  

Additions

     527       513       1,040  

Transfers

     (233           (233

Acquired through business combinations

           8       8  

Lease terminations

     (12     (38     (50

Impairment losses recognized in earnings

     (2     (3     (5

December 31, 2019

     3,609       2,933       6,542  

ACCUMULATED DEPRECIATION

      

January 1, 2019

     1,042       536       1,578  

Depreciation

     373       303       676  

Transfers

     (111           (111 )   

Lease terminations

     (3     (22     (25

December 31, 2019

     1,301       817       2,118  

NET CARRYING AMOUNT

      

January 1, 2019

     2,287       1,917       4,204  

December 31, 2019

     2,308       2,116       4,424  

 

 

LEASES IN THE INCOME STATEMENT

The following table provides the expenses related to leases recognized in the income statement.

 

                              
   
FOR THE YEAR ENDED DECEMBER 31    2019  

Interest expense on lease liabilities

     220    

Variable lease payment expenses not included in the measurement of lease liabilities

     161  

Expenses for leases of low value assets

     58  

Expenses for short-term leases

     30  

Rental expense relating to operating leases was $352 million in 2018.

 

 

LEASES IN THE STATEMENT OF CASH FLOWS

Total cash outflow related to leases was $1,239 million for the period ended December 31, 2019.

 

 

 

BCE Inc. 2019 Annual Report           


Table of Contents

 

FINANCE LEASES UNDER IAS 17

The following table shows the net carrying amount and additions to assets under finance leases for the year ended December 31, 2018.

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31, 2018    ADDITIONS      NET CARRYING
AMOUNT
 

Network infrastructure and equipment

     405        1,487    

Land and buildings

     1        460  

Total

     406        1,947  

 

 

ADDITIONAL DISCLOSURES

 

See Note 2, Significant accounting policies, and Note 35, Adoption of IFRS 16, for the impacts upon adoption of IFRS 16 as at January 1, 2019.

See Note 21, Debt due within one year, and Note 22, Long-term debt, for lease liabilities balances included in the statement of financial position.

See Note 26, Financial and capital management, for a maturity analysis of lease liabilities.

See Note 31, Commitments and contingencies, for leases committed but not yet commenced as at December 31, 2019.

 

 

 

Note 16    Intangible assets

 

                                                                                                                                                                               
         
          FINITE-LIFE     INDEFINITE-LIFE         
   
FOR THE YEAR ENDED
DECEMBER 31, 2019
  NOTE     SOFTWARE     CUSTOMER
RELATION-
SHIPS
    PROGRAM
AND FEATURE
FILM RIGHTS
    OTHER     TOTAL     BRANDS     SPECTRUM
AND OTHER
LICENCES
    BROADCAST
LICENCES
    TOTAL     TOTAL
INTANGIBLE
ASSETS
 
   

COST

                       
   

January 1, 2019

      9,525       2,014       704       500       12,743       2,409       3,587       2,111       8,107       20,850  
   

Additions

      389             1,004       4       1,397                               1,397  
   

Acquired through business combinations

            6                   6                               6  
   

Transfers

      660                         660                               660      
   

Retirements and disposals

      (52     (3           (14     (69 )                                (69
   

Impairment losses recognized in earnings

    7                         (1     (1           (1     (85     (86     (87
   

Amortization included in operating costs

                        (992           (992                             (992
   

December 31, 2019

            10,522       2,017       716       489       13,744       2,409       3,586       2,026       8,021       21,765  
   

ACCUMULATED AMORTIZATION

                       
   

January 1, 2019

      6,720       727             198       7,645                               7,645  
   

Amortization

      745       112             45       902                               902  
   

Retirements and disposals

      (51                 (14     (65                             (65
   

Other

            (69                       (69                             (69
   

December 31, 2019

            7,345       839             229       8,413                               8,413  
   

NET CARRYING AMOUNT

                       
   

January 1, 2019

      2,805       1,287       704       302       5,098       2,409       3,587       2,111       8,107       13,205  
   

December 31, 2019    

            3,177       1,178       716       260       5,331       2,409       3,586       2,026       8,021       13,352  

 

    

 

 

         

   BCE Inc. 2019 Annual Report


Table of Contents

    

                                                                                                                                                                               
         
          FINITE-LIFE     INDEFINITE-LIFE         
   
FOR THE YEAR ENDED
DECEMBER 31, 2018
  NOTE     SOFTWARE     CUSTOMER
RELATION-
SHIPS
    PROGRAM
AND FEATURE
FILM RIGHTS
    OTHER     TOTAL     BRANDS     SPECTRUM
AND OTHER
LICENCES
    BROADCAST
LICENCES
    TOTAL     TOTAL
INTANGIBLE
ASSETS
 
   

COST

                       
   

January 1, 2018

      8,689       1,950       741       393       11,773       2,443       3,534       2,251       8,228       20,001  
   

Additions

      362       13       967       106       1,448             56             56       1,504  
   

Acquired through business combinations

      9       51             1       61       1             5       6       67  
   

Transfers

      506                   4       510       (4                 (4     506  
   

Retirements and disposals

      (41                 (4     (45           (1           (1     (46 )   
   

Impairment losses recognized in earnings

    7                   (14           (14     (31     (2     (145     (178     (192
   

Amortization included in operating costs

                        (990           (990                             (990
   

December 31, 2018

            9,525       2,014       704       500       12,743       2,409       3,587       2,111       8,107       20,850  
   

ACCUMULATED AMORTIZATION

                       
   

January 1, 2018

      5,976       612             155       6,743                               6,743  
   

Amortization

      707       115             47       869                               869  
   

Retirements and disposals

      (39                 (4     (43                             (43
   

Other

            76                         76                               76  
   

December 31, 2018

            6,720       727             198       7,645                               7,645  
   

NET CARRYING AMOUNT

                       
   

January 1, 2018

      2,713       1,338       741       238       5,030       2,443       3,534       2,251       8,228       13,258  
   

December 31, 2018

            2,805       1,287       704       302       5,098       2,409       3,587       2,111       8,107       13,205  

 

 

Note 17    Investments in associates and joint ventures

The following tables provide summarized financial information with respect to BCE’s associates and joint ventures. For more details on our associates and joint ventures see Note 32, Related party transactions.

 

 

STATEMENTS OF FINANCIAL POSITION

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Assets

     4,045       3,819  

Liabilities

     (2,689 )        (2,253 )   

Total net assets

     1,356       1,566  

BCE’s share of net assets

     698       798  

 

 

INCOME STATEMENTS

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31    NOTE       2019     2018  

Revenues

        2,398       2,128  

Expenses

              (2,545 )        (2,191 )   

Total net losses

              (147     (63

BCE’s share of net losses

            (72     (35

 

 

 

BCE Inc. 2019 Annual Report           


Table of Contents

 

Note 18    Other non-current assets

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31    NOTE     2019     2018  

Net assets of post-employment benefit plans

     24       558         331   

Long-term notes and other receivables

       142       89  

Derivative assets

     26         200       68  

Publicly-traded and privately-held investments

     26       129       110  

Investments (1)

       128       114  

Other

             117       135  

Total other non-current assets

             1,274       847  

(1) These amounts have been pledged as security related to obligations for certain employee benefits and are not available for general use.

 

 

Note 19    Goodwill

The following table provides details about the changes in the carrying amounts of goodwill for the years ended December 31, 2019 and 2018. BCE’s groups of CGUs correspond to our reporting segments.

 

                                                                                                                           
         
     BELL      BELL     BELL         
      WIRELESS      WIRELINE     MEDIA      BCE  

Balance at January 1, 2018

     3,032        4,497       2,899        10,428  

Acquisitions and other

     16        182       32        230    

Balance at December 31, 2018

     3,048        4,679       2,931        10,658  

Acquisitions and other

            (6     15        9  

Balance at December 31, 2019

     3,048        4,673       2,946        10,667  

 

 

IMPAIRMENT TESTING

As described in Note 2, Significant accounting policies, goodwill is tested annually for impairment by comparing the carrying value of a CGU or group of CGUs to the recoverable amount, where the recoverable amount is the higher of fair value less costs of disposal or value in use.

VALUE IN USE

The value in use for a CGU or group of CGUs is determined by discounting five-year cash flow projections derived from business plans reviewed by senior management. The projections reflect management’s expectations of revenue, segment profit, capital expenditures, working capital and operating cash flows, based on past experience and future expectations of operating performance.

Cash flows beyond the five-year period are extrapolated using perpetuity growth rates. None of the perpetuity growth rates exceed the long-term historical growth rates for the markets in which we operate.

The discount rates are applied to the cash flow projections and are derived from the weighted average cost of capital for each CGU or group of CGUs.

The following table shows the key assumptions used to estimate the recoverable amounts of the groups of CGUs.

 

                                                             
   
     ASSUMPTIONS USED  
GROUPS OF CGUs    PERPETUITY
GROWTH RATE
     DISCOUNT
RATE
 

Bell Wireless

     0.8%        9.1%  

Bell Wireline

     1.0%        6.0%    

Bell Media

     1.0%        8.0%  

The recoverable amounts determined in a prior year for the Bell Wireless and Bell Wireline groups of CGUs exceed their corresponding current carrying values by a substantial margin and have been carried forward and used in the impairment test for the current year. We believe that any reasonable possible change in the key assumptions on which the estimate of recoverable amounts of the Bell Wireless or Bell Wireline groups of CGUs is based would not cause their carrying amounts to exceed their recoverable amounts.

For the Bell Media group of CGUs, a decrease of (1.1%) in the perpetuity growth rate or an increase of 0.8% in the discount rate would have resulted in its recoverable amount being equal to its carrying value.

 

 

    

 

 

        

   BCE Inc. 2019 Annual Report


Table of Contents

    

 

Note 20  Trade payables and other liabilities

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31    NOTE     2019     2018  

Trade payables and accruals

       2,604       2,535  

Compensation payable

       589       589  

Maple Leaf Sports and Entertainment Ltd. (MLSE) financial liability (1)

     26       135       135  

Taxes payable

       101       129  

Derivative liabilities

     26         49         27    

Severance and other costs payable

       35       63  

Provisions

     23       33       66  

CRTC tangible benefits obligation

     26       28       38  

CRTC deferral account obligation

     26       13       16  

Other current liabilities

             367       343  

Total trade payables and other liabilities

             3,954       3,941  

 

(1)

Represents BCE’s obligation to repurchase the BCE Master Trust Fund’s (Master Trust Fund) 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust Fund exercise its put option. The obligation to repurchase is marked to market each reporting period and the gain or loss is recorded in Other expense in the income statements.

 

 

Note 21  Debt due within one year

 

                                                                                                                           
         
FOR THE YEAR ENDED DECEMBER 31    NOTE      WEIGHTED
AVERAGE
INTEREST RATE AT
DECEMBER 31, 2019
    2019     2018  

Notes payable (1)

     26        2.03%       1,994       3,201  

Loans secured by trade receivables

     26        2.71%       1,050       919    

Long-term debt due within one year (2)

     22        4.77%         837         525  

Total debt due within one year

                      3,881       4,645  

 

(1)

Includes commercial paper of $1,502 million in U.S. dollars ($1,951 million in Canadian dollars) and $2,314 million in U.S. dollars ($3,156 million in Canadian dollars) as at December 31, 2019 and December 31, 2018, respectively, which were issued under our U.S. commercial paper program and have been hedged for foreign currency fluctuations through forward currency contracts. See Note 26, Financial and capital management, for additional details.

 

(2)

Included in long-term debt due within one year is the current portion of lease liabilities of $775 million as at December 31, 2019 and the current portion of finance leases of $466 million as at December 31, 2018.

 

 

SECURITIZED TRADE RECEIVABLES

 

Our securitized trade receivables programs are recorded as floating rate revolving loans secured by certain trade receivables and expire on December 31, 2020 and December 1, 2022.

The following table provides further details on our securitized trade receivables programs.

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Average interest rate throughout the year

     2.79 %        2.41 %   

Securitized trade receivables

     2,185       1,998  

We continue to service these trade receivables. The buyers’ interest in the collection of these trade receivables ranks ahead of our interests, which means that we are exposed to certain risks of default on the amounts securitized.

We have provided various credit enhancements in the form of overcollateralization and subordination of our retained interests.

The buyers will reinvest the amounts collected by buying additional interests in our trade receivables until the securitized trade receivables agreements expire or are terminated. The buyers and their investors have no further claim on our other assets if customers do not pay the amounts owed.

 

 

 

 

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CREDIT FACILITIES

 

Bell Canada may issue notes under its Canadian and U.S. commercial paper programs up to the maximum aggregate principal amount of $3 billion in either Canadian or U.S. currency provided that at no time shall such maximum amount of notes exceed $4 billion in Canadian

currency which equals the aggregate amount available under Bell Canada’s committed supporting revolving and expansion credit facilities as at December 31, 2019. The total amount of the net available committed revolving and expansion credit facilities may be drawn at any time.

 

 

The table below is a summary of our total bank credit facilities at December 31, 2019.

 

                                                                                                                                                          
           
      TOTAL
AVAILABLE
     DRAWN      LETTERS OF
CREDIT
     COMMERCIAL
PAPER
OUTSTANDING
     NET
AVAILABLE
 

Committed credit facilities

              

Unsecured revolving and expansion credit facilities (1) (2)

     4,000                      1,951        2,049    

Other

     106               106                

Total committed credit facilities

     4,106               106        1,951        2,049  

Total non-committed credit facilities

     1,939               1,059               880  

Total committed and non-committed credit facilities

     6,045               1,165        1,951        2,929  

 

(1)

Bell Canada’s $2.5 billion and additional $500 million committed revolving credit facilities expire in November 2024 and November 2020, respectively, and its $1 billion committed expansion credit facility expires in November 2022. Bell Canada has the option, subject to certain conditions, to convert advances outstanding under the additional $500 million revolving credit facility into a term loan with a maximum one-year term.

 

(2)

As of December 31, 2019, Bell Canada’s outstanding commercial paper included $1,502 million in U.S. dollars ($1,951 million in Canadian dollars). All of Bell Canada’s commercial paper outstanding is included in debt due within one year.

 

 

RESTRICTIONS

Some of our credit agreements:

 

 

require us to meet specific financial ratios

 

 

require us to offer to repay and cancel the credit agreement upon a change of control of BCE or Bell Canada

We are in compliance with all conditions and restrictions under such credit agreements.

 

 

Note 22  Long-term debt

 

                                                                                                                                                          
           
FOR THE YEAR ENDED DECEMBER 31    NOTE      WEIGHTED
AVERAGE
INTEREST RATE AT
DECEMBER 31, 2019
     MATURITY     2019     2018  

Debt securities

            

1997 trust indenture

        3.82%        2021–2047       14,500       14,750  

1976 trust indenture

        9.54%        2021–2054       1,100       1,100  

2011 trust indenture

        4.00%        2024         225       225  

2016 U.S. trust indenture (1)

        4.41%        2048–2049       2,273       1,569  

1996 trust indenture (subordinated)

        8.21%        2026–2031       275       275  

Lease liabilities

        5.11%        2020–2065       4,599        

Finance leases

           2019–2047             2,097  

Other

                               328       308  

Total debt

                               23,300       20,324  

Net unamortized premium

             15       21  

Unamortized debt issuance costs

             (63     (60

Less:

            

Amount due within one year

     21                         (837 )        (525 )   

Total long-term debt

                               22,415       19,760  

 

(1)

At December 31, 2019 and 2018, notes issued under the 2016 U.S. trust indenture totaled $1,750 million and $1,150 million in U.S. dollars, respectively, and have been hedged for foreign currency fluctuations through cross currency interest rate swaps. See Note 26, Financial and capital management, for additional details.

Bell Canada’s debt securities have been issued in Canadian dollars with the exception of debt securities issued under the 2016 U.S. trust indenture, which have been issued in U.S. dollars. All debt securities bear a fixed interest rate.

 

    

 

 

        

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RESTRICTIONS

Some of our debt agreements:

 

 

impose covenants and new issue tests

 

 

require us to make an offer to repurchase certain series of debt securities upon the occurrence of a change of control event as defined in the relevant debt agreements

We are in compliance with all conditions and restrictions under such debt agreements.

 

 

All outstanding debt securities have been issued under trust indentures and are unsecured. All debt securities have been issued in series and certain series are redeemable at Bell Canada’s option prior to maturity at the prices, times and conditions specified for each series.

2019

 

On September 10, 2019, Bell Canada issued 2.90% Series M-50 medium term note (MTN) debentures under its 1997 trust indenture, with a principal amount of $550 million, which mature on September 10, 2029.

On June 13, 2019, Bell Canada redeemed, prior to maturity, its 3.25% Series M-27 MTN debentures, having an outstanding principal amount of $1 billion, which were due June 17, 2020.

On May 24, 2019, Bell Canada redeemed, prior to maturity, its 3.54% Series M-37 debentures, having an outstanding principal amount of $400 million, which were due on June 12, 2020.

On May 13, 2019, Bell Canada issued 2.75% Series M-49 MTN debentures under its 1997 trust indenture, with a principal amount of $600 million, which mature on January 29, 2025. In addition, on the same date, Bell Canada issued 4.30% Series US-2 Notes under its 2016 trust indenture,

with a principal amount of $600 million in U.S. dollars ($808 million in Canadian dollars), which mature on July 29, 2049.

For the year ended December 31, 2019, we incurred early debt redemption charges of $18 million which were recorded in Other expense in the income statement.

Subsequent to year end, on February 13, 2020, Bell Canada issued 3.50% Series M-51 MTN debentures under its 1997 trust indenture, with a principal amount of $750 million, which mature on September 30, 2050. The net proceeds of the offering are intended to be used to fund, on March 16, 2020, the redemption, prior to maturity, of Bell Canada’s 4.95% Series M-24 MTN debentures, with early debt redemption charges of $17 million. The M-24 MTN debentures have an outstanding principal amount of $500 million and were due on May 19, 2021. The net proceeds are further intended to be used for the repayment of short-term debt.

 

 

2018

 

On October 15, 2018, Bell Canada redeemed, prior to maturity, its 5.625% Series 8 notes, having an outstanding principal amount of $200 million, which were due on December 16, 2019.

On September 21, 2018, Bell Canada redeemed, prior to maturity, its 3.35% Series M-25 MTN debentures, having an outstanding principal amount of $1 billion, which were due on June 18, 2019.

On September 14, 2018, and March 29, 2018, Bell Canada issued 4.464% Series US-1 Notes under its 2016 U.S. trust indenture, with a principal amount of $400 million in U.S. dollars ($526 million in Canadian dollars) and $750 million in U.S. dollars ($967 million in Canadian dollars), respectively, which mature on April 1, 2048.

On August 21, 2018, Bell Canada issued 3.80% Series M-48 MTN debentures under its 1997 trust indenture, with a principal amount of $1 billion, which mature on August 21, 2028.

 

 

On May 4, 2018, Bell Canada redeemed, prior to maturity, its 3.50% Series M-28 MTN debentures, having an outstanding principal amount of $400 million, which were due on September 10, 2018.

On April 16, 2018, Bell Canada redeemed, prior to maturity, its 4.59% Series 9 notes, having an outstanding principal amount of $200 million, which were due on October 1, 2018. In addition, on the same date, Bell Canada redeemed, prior to maturity, its 5.52% Series M-33 debentures, having an outstanding principal amount of $300 million, which were due on February 26, 2019.

On March 12, 2018, Bell Canada issued 3.35% Series M-47 MTN debentures under its 1997 trust indenture, with a principal amount of $500 million, which mature on March 12, 2025.

For the year ended December 31, 2018, we incurred early debt redemption charges of $20 million, which were recorded in Other expense in the income statement.

 

 

 

 

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Note 23  Provisions

 

                                                                                                                           
         
FOR THE YEAR ENDED DECEMBER 31    NOTE     AROs     OTHER  (1)      TOTAL  

January 1, 2019

       199       172           371      

Additions

       21       24           45  

Usage

       (4     (52)          (56

Reversals

       (17     (1)          (18

Adoption of IFRS 16

                   (11)          (11

December 31, 2019

             199       132           331  

Current

     20           16       17           33  

Non-current

     25       183       115           298  

December 31, 2019

             199       132           331  

 

(1)

Other includes environmental, vacant space and legal provisions.

AROs reflect management’s best estimates of expected future costs to restore current leased premises to their original condition prior to lease inception. Cash outflows associated with our ARO liabilities are generally expected to occur at the restoration dates of the assets to which they relate, which are long-term in nature. The timing and extent of restoration work that will be ultimately required for these sites is uncertain.

 

 

Note 24  Post-employment benefit plans

POST-EMPLOYMENT BENEFIT PLANS COST

 

We provide pension and other benefits for most of our employees. These include DB pension plans, DC pension plans and OPEBs.

We operate our DB and DC pension plans under applicable Canadian and provincial pension legislation, which prescribes minimum and maximum DB funding requirements. Plan assets are held in trust, and the oversight of governance of the plans, including investment decisions, contributions to DB plans and the selection of the DC plans investment

options offered to plan participants, lies with the Pension Fund Committee, a committee of our board of directors.

The interest rate risk is managed using a liability matching approach, which reduces the exposure of the DB plans to a mismatch between investment growth and obligation growth.

The longevity risk is managed using a longevity swap, which reduces the exposure of the DB plans to an increase in life expectancy.

 

 

COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS SERVICE COST

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

DB pension

     (193     (213

DC pension

     (110     (106

OPEBs

     (3     (3

Less:

    

Capitalized benefit plans cost

     59           56      

Total post-employment benefit plans service cost included in operating costs

     (247     (266

Other costs recognized in severance, acquisition and other costs

           (4

Total post-employment benefit plans service cost

     (247     (270

COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS FINANCING COST

 

 

     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

DB pension

     (19     (23

OPEBs

     (44     (46

Total interest on post-employment benefit obligations

     (63     (69

 

    

 

 

         

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The statements of comprehensive income include the following amounts before income taxes.

 

                                                             
     
      2019     2018  

Cumulative losses recognized directly in equity, January 1

     (2,892     (2,984

Actuarial gains in other comprehensive income (1)

     191           79      

Decrease in the effect of the asset limit (2)

           13  

Cumulative losses recognized directly in equity, December 31

     (2,701     (2,892

 

(1)

The cumulative actuarial losses recognized in the statements of comprehensive income are $2,947 million in 2019.

 

(2)

The cumulative decrease in the effect of the asset limit recognized in the statements of comprehensive income is $246 million in 2019.

COMPONENTS OF POST-EMPLOYMENT BENEFIT (OBLIGATIONS) ASSETS

The following table shows the change in post-employment benefit obligations and the fair value of plan assets.

 

                                                                                                                                   
       
     DB PENSION PLANS     OPEB PLANS     TOTAL  
   
      2019     2018     2019     2018     2019     2018  
   

Post-employment benefit obligations, January 1

     (23,404     (24,404     (1,469     (1,653     (24,873     (26,057
   

Current service cost

     (193     (213     (3     (3     (196     (216
   

Interest on obligations

     (872     (864     (55     (56     (927     (920
   

Actuarial (losses) gains (1)

     (2,498     750       (80     163       (2,578     913  
   

Net curtailment losses

           (4                       (4
   

Benefit payments

     1,326       1,342       77       80       1,403       1,422  
   

Employee contributions

     (10     (11                 (10     (11
   

Other

     1             1             2        
   

Post-employment benefit obligations, December 31

     (25,650     (23,404     (1,529     (1,469     (27,179     (24,873
   

Fair value of plan assets, January 1

     23,071       23,945       287       299       23,358       24,244  
   

Expected return on plan assets (2)

     853           841           11           10           864           851      
   

Actuarial gains (losses) (1)

     2,742       (817     27       (17     2,769       (834
   

Benefit payments

     (1,326     (1,342     (77     (80     (1,403     (1,422
   

Employer contributions

     180       433       72       75       252       508  
   

Employee contributions

     10       11                   10       11  
   

Fair value of plan assets, December 31

     25,530       23,071       320       287       25,850       23,358  
   

Plan deficit

     (120     (333     (1,209     (1,182     (1,329     (1,515
   

Effect of asset limit

     (20     (20                 (20     (20
   

Post-employment benefit liability, December 31

     (140     (353     (1,209     (1,182     (1,349     (1,535
   

Post-employment benefit assets included in other non-current assets

     558       331                   558       331  
   

Post-employment benefit obligations

     (698     (684     (1,209     (1,182     (1,907     (1,866

 

(1)

Actuarial gains (losses) include experience gains (losses) of $2,525 million in 2019 and ($693 million) in 2018.

 

(2)

The actual return on plan assets was $3,633 million or 16.0% in 2019 and $17 million or 0.2% in 2018.

FUNDED STATUS OF POST-EMPLOYMENT BENEFIT PLANS COST

The following table shows the funded status of our post-employment benefit obligations.

 

                                                                                                                                       
         
     FUNDED     PARTIALLY FUNDED  (1)     UNFUNDED (2)     TOTAL  
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018     2019     2018     2019     2018     2019     2018  
     

Present value of post-employment benefit obligations

     (24,961     (22,765     (1,918     (1,816     (300     (292     (27,179     (24,873
     

Fair value of plan assets

     25,474           23,018           376           340                               25,850           23,358      
     

Plan surplus (deficit)

     513       253       (1,542     (1,476     (300     (292     (1,329     (1,515

 

(1)

The partially funded plans consist of supplementary executive retirement plans (SERPs) for eligible employees and certain OPEBs. The company partially funds the SERPs through letters of credit and a retirement compensation arrangement account with Canada Revenue Agency. Certain paid-up life insurance benefits are funded through life insurance contracts.

 

(2)

Our unfunded plans consist of certain OPEBs, which are paid as claims are incurred.

 

 

 

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SIGNIFICANT ASSUMPTIONS

We used the following key assumptions to measure the post-employment benefit obligations and the net benefit plans cost for the DB pension plans and OPEB plans. These assumptions are long-term, which is consistent with the nature of post-employment benefit plans.

 

                                                             
   
     DB PENSION PLANS AND OPEB PLANS  
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Post-employment benefit obligations

    

Discount rate

     3.1     3.8

Rate of compensation increase

     2.25     2.25

Cost of living indexation rate (1)

     1.6     1.6

Life expectancy at age 65 (years)

     23.2             23.1        

 

(1) Cost of living indexation rate is only applicable to DB pension plans.

 

    
   
     DB PENSION PLANS AND OPEB PLANS  
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Net post-employment benefit plans cost

    

Discount rate

     4.0     3.7

Rate of compensation increase

     2.25     2.25

Cost of living indexation rate (1)

     1.6     1.6

Life expectancy at age 65 (years)

     23.1             23.2        

(1) Cost of living indexation rate is only applicable to DB pension plans.

 

The weighted average duration of the post-employment benefit obligation is 14 years.

We assumed the following trend rates in healthcare costs:

 

an annual increase in the cost of medication of 6.5% for 2019 decreasing to 4.0% over 20 years

 

an annual increase in the cost of covered dental benefits of 4%

 

an annual increase in the cost of covered hospital benefits of 3.7%

 

an annual increase in the cost of other covered healthcare benefits of 4%

Assumed trend rates in healthcare costs have a significant effect on the amounts reported for the healthcare plans.

The following table shows the effect of a 1% change in the assumed trend rates in healthcare costs.

 

                                                             
     
EFFECT ON POST-EMPLOYMENT
BENEFITS – INCREASE/(DECREASE)
   1% INCREASE           1% DECREASE         

Total service and interest cost

     4        (3)      

Post-employment benefit obligations

     110        (95)      
 

SENSITIVITY ANALYSIS

The following table shows a sensitivity analysis of key assumptions used to measure the net post-employment benefit obligations and the net post-employment benefit plans cost for our DB pension plans and OPEB plans.

 

                                                                                                                                                          
       
            IMPACT ON NET  POST-EMPLOYMENT
BENEFIT PLANS COST FOR 2019 –
INCREASE/(DECREASE)
    IMPACT ON POST-EMPLOYMENT  BENEFIT
OBLIGATIONS AT DECEMBER 31, 2019 –
INCREASE/(DECREASE)
 
   
      CHANGE IN
ASSUMPTION
    INCREASE IN
ASSUMPTION
    DECREASE IN
ASSUMPTION
    INCREASE IN
ASSUMPTION
    DECREASE IN
ASSUMPTION
 
   

Discount rate

     0.5     (75     69       (1,728     1,944  
   

Life expectancy at age 65

 

    

 

1 year

 

 

 

   

 

38

 

 

 

   

 

(39

 

 

   

 

945

 

 

 

   

 

(972

 

 

POST-EMPLOYMENT BENEFIT PLAN ASSETS

The investment strategy for the post-employment benefit plan assets is to maintain a diversified portfolio of assets invested in a prudent manner to maintain the security of benefits.

The following table shows the target allocations for 2019 and the allocation of our post-employment benefit plan assets at December 31, 2019 and 2018.

 

                                                                                            
     
    

WEIGHTED AVERAGE      

TARGET ALLOCATION      

     TOTAL PLAN ASSETS FAIR VALUE  
 
ASSET CATEGORY    2019            DECEMBER 31, 2019            DECEMBER 31, 2018        
 

Equity securities

     0%–40%            22%            20%      
 

Debt securities

     60%–100%            62%            64%      
 

Alternative investments

 

    

 

0%–50%    

 

 

 

    

 

16%    

 

 

 

    

 

16%    

 

 

 

 

Total

 

             

 

100%    

 

 

 

    

 

100%    

 

 

 

 

    

 

 

       

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The following table shows the fair value of the DB pension plan assets for each category.

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31                     2019                      2018  

Observable markets data

    

Equity securities

    

Canadian

     1,017           844      

Foreign

     4,534       3,770  

Debt securities

    

Canadian

     13,216       12,457  

Foreign

     2,385       2,004  

Money market

     219       327  

Non-observable markets inputs

    

Alternative investments

    

Private equities

     2,119       1,804  

Hedge funds

     1,001       1,014  

Real estate

     948       758  

Other

     91       93  

Total

     25,530       23,071  

 

Equity securities included approximately $15 million of BCE common shares, or 0.06% of total plan assets, at December 31, 2019 and approximately $8 million of BCE common shares, or 0.03% of total plan assets, at December 31, 2018.

Debt securities included approximately $53 million of Bell Canada debentures, or 0.21% of total plan assets, at December 31, 2019 and approximately $68 million of Bell Canada debentures, or 0.30% of total plan assets, at December 31, 2018.

Alternative investments included an investment in MLSE of $135 million, or 0.53% of total plan assets, at December 31, 2019 and $135 million, or 0.59% of total plan assets, at December 31, 2018.

The Bell Canada pension plan has an investment arrangement which hedges part of its exposure to potential increases in longevity, which covers approximately $4 billion of post-employment benefit obligations.

The fair value of the arrangement is included within other alternative investments. As a hedging arrangement of the pension plan, the transaction requires no cash contributions from BCE.

CASH FLOWS

We are responsible for adequately funding our DB pension plans. We make contributions to them based on various actuarial cost methods that are permitted by pension regulatory authorities. Contributions reflect actuarial assumptions about future investment returns, salary projections and future service benefits. Changes in these factors could cause actual future contributions to differ from our current estimates and could require us to increase contributions to our post-employment benefit plans in the future, which could have a negative effect on our liquidity and financial performance.

We contribute to the DC pension plans as employees provide service.

 

 

The following table shows the amounts we contributed to the DB and DC pension plans and the payments made to beneficiaries under OPEB plans.

 

                                                                                                                                                                                         
       
     DB PLANS (1)     DC PLANS     OPEB PLANS  
   
FOR THE YEAR ENDED DECEMBER 31    2019      2018      2019      2018      2019      2018   
   

Contributions/payments

           (180)                 (433)                 (110)                 (106)                 (72)                 (75)      

(1) Includes voluntary contributions of nil in 2019 and $240 million in 2018.

We expect to contribute approximately $170 million to our DB pension plans in 2020, subject to actuarial valuations being completed. We expect to contribute approximately $120 million to the DC pension plans and to pay approximately $75 million to beneficiaries under OPEB plans in 2020.

 

 

Note 25  Other non-current liabilities

 

                                                                                            
       
FOR THE YEAR ENDED DECEMBER 31    NOTE     2019     2018  

Long-term disability benefits obligation

       305       288  

Provisions

     23           298           305      

CRTC deferral account obligation

     26       69       92  

CRTC tangible benefits obligation

     26       1       23  

Other

             198       289  

Total other non-current liabilities

             871       997  

 

 

 

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Note 26  Financial and capital management

FINANCIAL MANAGEMENT

 

Management’s objectives are to protect BCE and its subsidiaries on a consolidated basis against material economic exposures and variability of results from various financial risks that include credit risk, liquidity risk, foreign currency risk, interest rate risk and equity price risk.

DERIVATIVES

We use derivative instruments to manage our exposure to foreign currency risk, interest rate risk and changes in the price of BCE common shares under our share-based payment plans.

The following derivative instruments were outstanding during 2019 and/ or 2018:

 

foreign currency forward contracts and options that manage the foreign currency risk of certain anticipated purchases and sales and U.S. commercial paper

 

cross currency interest rate swaps that hedge foreign currency risk on a portion of our debt due within one year and long-term debt

 

forward contracts on BCE common shares that mitigate the cash flow exposure and equity price risk related to share-based payment plans

 

interest rate swaps that hedge future dividend rate resets on preferred shares

FAIR VALUE

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Certain fair value estimates are affected by assumptions we make about the amount and timing of future cash flows and discount rates, all of which reflect varying degrees of risk. Income taxes and other expenses that would be incurred on disposition of financial instruments are not reflected in the fair values. As a result, the fair values are not the net amounts that would be realized if these instruments were settled.

The carrying values of our cash and cash equivalents, trade and other receivables, dividends payable, trade payables and accruals, compensation payable, severance and other costs payable, interest payable, notes payable and loans secured by trade receivables approximate fair value as they are short-term.

 

 

The following table provides the fair value details of financial instruments measured at amortized cost in the statements of financial position.

 

           
                      DECEMBER 31, 2019      DECEMBER 31, 2018  
      CLASSIFICATION    FAIR VALUE METHODOLOGY    NOTE      CARRYING
VALUE
     FAIR
VALUE
     CARRYING
VALUE
     FAIR
VALUE
 
CRTC tangible benefits obligation    Trade payables and other liabilities and other non-current liabilities    Present value of estimated future cash flows discounted using observable market interest rates      20, 25        29        29        61        61  
CRTC deferral account obligation    Trade payables and other liabilities and other non-current liabilities    Present value of estimated future cash flows discounted using observable market interest rates      20, 25        82        85        108        112  
Debt securities and other debt    Debt due within one year and long-term debt    Quoted market price of debt      21, 22        18,653        20,905        18,188        19,178  
Finance leases (1)    Debt due within one year and long-term debt   

Present value of future cash flows discounted using observable market interest rates

 

     22                      2,097        2,304  

(1) Upon adoption of IFRS 16 on January 1, 2019, fair value disclosures are no longer required for leases.

 

    

 

 

         

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The following table provides the fair value details of financial instruments measured at fair value in the statements of financial position.

 

         
                      FAIR VALUE  
      CLASSIFICATION    NOTE        CARRYING VALUE OF
ASSET (LIABILITY)
    

QUOTED PRICES IN
ACTIVE MARKETS FOR
IDENTICAL ASSETS

(LEVEL 1)

  

OBSERVABLE    

MARKET DATA    

(LEVEL 2) (1)

  

NON-OBSERVABLE    

MARKET INPUTS    

(LEVEL 3) (2)

 

December 31, 2019

                                     
Publicly-traded and privately-held investments    Other non-current assets    18          129      2    –          127       
Derivative financial instruments    Other current assets, trade payables and other liabilities, other non-current assets and liabilities         165         165          –       
MLSE financial liability (3)    Trade payables and other liabilities    20          (135       –          (135)      
Other   

Other non-current assets and liabilities

 

          71      1    128          (58)      

December 31, 2018

                                     
Publicly-traded and privately-held investments    Other non-current assets    18          110      1    –          109       
Derivative financial instruments    Other current assets, trade payables and other liabilities, other non-current assets and liabilities         181         181          –       
MLSE financial liability (3)    Trade payables and other liabilities    20          (135       –          (135)      
Other    Other non-current assets and liabilities           43         114          (71)      

 

(1)

Observable market data such as equity prices, interest rates, swap rate curves and foreign currency exchange rates.

 

(2)

Non-observable market inputs such as discounted cash flows and earnings multiples. A reasonable change in our assumptions would not result in a significant increase (decrease) to our level 3 financial instruments.

 

(3)

Represents BCE’s obligation to repurchase the Master Trust Fund’s 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust Fund exercise its put option. The obligation to repurchase is marked to market each reporting period and the gain or loss is recorded in Other expense in the income statements. The option has been exercisable since 2017.

 

CREDIT RISK

We are exposed to credit risk from operating activities and certain financing activities, the maximum exposure of which is represented by the carrying amounts reported in the statements of financial position.

We are exposed to credit risk if counterparties to our trade receivables and derivative instruments are unable to meet their obligations. The concentration of credit risk from our customers is minimized because we have a large and diverse customer base. There was minimal credit risk relating to derivative instruments at December 31, 2019 and 2018. We deal with institutions that have investment-grade credit ratings, and as such we expect that they will be able to meet their obligations. We regularly monitor our credit risk and credit exposure.

The following table provides the change in allowance for doubtful accounts for trade receivables.

 

                                                                          
       
      NOTE          2019            2018        

Balance, January 1

        (51)            (54)      

Adoption of IFRS 9

        –            (4)      

Additions

        (114)            (84)      

Usage

              103            91       

Balance, December 31

     10            (62)            (51)      

In many instances, trade receivables are written off directly to bad debt expense if the account has not been collected after a predetermined period of time.

 

 

The following table provides further details on trade receivables, net of allowance for doubtful accounts.

 

                                                                          
       
AT DECEMBER 31                      2019            2018        

Trade receivables not past due

        2,082            2,091      

Trade receivables past due, net of allowance for doubtful accounts

                 

    Under 60 days

        541            508      

    60 to 120 days

        232            304      

    Over 120 days

              64            72      

Trade receivables, net of allowance for doubtful accounts

              2,919            2,975      

 

 

 

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The following table provides the change in allowance for doubtful accounts for contract assets.

 

                                                                                            
       
      NOTE          2019              2018 (1)       

Balance, January 1

        (73)            (90)       

Additions

        (28)            (19)       

Usage and reversals

              33             36        

Balance, December 31

              (68)            (73)       

Current

        (32)            (35)       

Non-current

              (36)            (38)       

Balance, December 31

     12            (68)            (73)       

(1) We have updated amounts for the prior year to make them consistent with the presentation for the current year.

LIQUIDITY RISK

Our cash and cash equivalents, cash flows from operations and possible capital markets financing are expected to be sufficient to fund our operations and fulfill our obligations as they become due. Should our cash requirements exceed the above sources of cash, we would expect to cover such a shortfall by drawing on existing committed bank facilities and new ones, to the extent available.

The following table is a maturity analysis for recognized financial liabilities at December 31, 2019 for each of the next five years and thereafter.

 

                                                                                                                                                       
                 
AT DECEMBER 31, 2019    NOTE     2020     2021     2022     2023     2024     THERE-
AFTER
    TOTAL  

Long-term debt

     22         62       2,302       1,762       1,637       1,250       11,688       18,701  

Notes payable

     21       1,994                                     1,994  

Lease liabilities

       960       858       629       530       418       2,338       5,733      

Loan secured by trade receivables

     21       1,050                                     1,050  

Interest payable on long-term debt, notes payable and loan secured by trade receivables

       862       772       711       643       580       6,869       10,437  

Net interest receipts on cross currency basis swaps

       (3     (2     (2     (2     (2     (57     (68

MLSE financial liability

     20       (135                                   (135

Total

             4,790       3,930       3,100       2,808       2,246       20,838       37,712  

We are also exposed to liquidity risk for financial liabilities due within one year as shown in the statements of financial position.

MARKET RISK

 

CURRENCY EXPOSURES

We use forward contracts, options and cross currency interest rate swaps to manage foreign currency risk related to anticipated purchases and sales and certain foreign currency debt.

In 2019, we entered into a cross currency interest rate swap with a notional amount of $600 million in U.S. dollars ($808 million in Canadian dollars), to hedge the U.S. currency exposure of our Series US-2 Notes maturing in 2049. See Note 22, Long-term debt, for additional details.

In 2018, we entered into cross currency interest rate swaps with a notional amount of $1,150 million in U.S. dollars ($1,493 million in Canadian dollars), to hedge the U.S. currency exposure of our Series US-1 Notes maturing in 2048. See Note 22, Long-term debt, for additional details.

A 10% depreciation (appreciation) in the value of the Canadian dollar relative to the U.S. dollar would result in a gain (loss) of $13 million

($27 million) recognized in net earnings at December 31, 2019 and a gain (loss) of $189 million ($178 million) recognized in Other comprehensive income at December 31, 2019, with all other variables held constant.

A 10% depreciation (appreciation) in the value of the Canadian dollar relative to the Philippine peso would result in a gain (loss) of $4 million recognized in Other comprehensive income at December 31, 2019, with all other variables held constant.

 

 

    

 

 

         

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The following table provides further details on our outstanding foreign currency forward contracts and options as at December 31, 2019.

 

                                                                                                                                                                                         
             
TYPE OF HEDGE    BUY
CURRENCY
     AMOUNT
TO RECEIVE
     SELL
CURRENCY
     AMOUNT
TO PAY
     MATURITY      HEDGED ITEM        

Cash flow

     USD        1,512        CAD        1,999        2020        Commercial paper      

Cash flow

     USD        704        CAD        915        2020        Anticipated transactions      

Cash flow

     PHP        1,944        CAD        49        2020        Anticipated transactions      

Cash flow

     USD        491        CAD        637        2021        Anticipated transactions      

Economic – put options

     USD        261        CAD        340        2020        Anticipated transactions      

Economic – call options

     USD        228        CAD        299        2020        Anticipated transactions      

Economic – options (1)

     USD        120        CAD        154        2021        Anticipated transactions      

(1) In 2019, we entered into a series of foreign currency options having a leverage provision and a profit cap limitation.

 

INTEREST RATE EXPOSURES

A 1% increase (decrease) in interest rates would result in a decrease (increase) of $29 million in net earnings at December 31, 2019.

In 2019, we entered into interest rate swaps with a notional amount of $275 million to hedge the dividend rate reset on BCE preferred shares in 2020.

EQUITY PRICE EXPOSURES

We use equity forward contracts on BCE’s common shares to economically hedge the cash flow exposure related to the settlement

 

of equity settled share-based compensation plans and the equity price risk related to a cash-settled share-based payment plan. See Note 28, Share-based payments, for details on our share-based payment arrangements. The fair value of our equity forward contracts at December 31, 2019 was an asset of $40 million (December 31, 2018 – a liability of $73 million).

A 5% increase (decrease) in the market price of BCE’s common shares at December 31, 2019 would result in a gain (loss) of $38 million recognized in net earnings for 2019, with all other variables held constant.

 

 

 

CAPITAL MANAGEMENT

 

We have various capital policies, procedures and processes which are utilized to achieve our objectives for capital management. These include optimizing our cost of capital and maximizing shareholder return while balancing the interests of our stakeholders.

Our definition of capital includes equity attributable to BCE shareholders, debt, and cash and cash equivalents.

The key ratios that we use to monitor and manage our capital structure are a net debt leverage ratio (1) and an adjusted EBITDA to net interest expense ratio (2). In 2019, we increased our net debt leverage ratio target range to 2.00 to 2.50 times adjusted EBITDA from 1.75 to 2.25 times adjusted EBITDA in 2018. This increase reflects the one-time impact from the adoption of IFRS 16 which increased net debt by $2,304 million on January 1, 2019. See Note 35, Adoption of IFRS 16, for further details on the impacts of adopting IFRS 16 on our January 1, 2019 consolidated statement of financial position. At December 31, 2019, we had exceeded the limit of our internal net debt leverage ratio target range by 0.29. In 2019 and 2018, our adjusted EBITDA to net interest expense ratio target was greater than 7.5 times. The adoption of IFRS 16 did not have an impact on our adjusted EBITDA to net interest expense ratio target.

These ratios do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers. We use, and believe that certain investors and analysts use, our net debt leverage ratio and adjusted EBITDA to net interest expense ratio as measures of financial leverage and health of the company.

The following table provides a summary of our key ratios.

 

                                                             
     
AT DECEMBER 31    2019            2018  

Net debt leverage ratio

     2.79            2.72  

Adjusted EBITDA to net interest expense ratio

     8.54            9.00  

On February 5, 2020 the board of directors of BCE approved an increase of 5.0% in the annual dividend on BCE’s common shares, from $3.17 to $3.33 per common share. In addition, the board of directors of BCE declared a quarterly dividend of $0.8325 per common share payable on April 15, 2020 to the shareholders of record at March 16, 2020.

On February 6, 2019, the board of directors of BCE approved an increase of 5.0% in the annual dividend on BCE’s common shares, from $3.02 to $3.17 per common share.

In Q1 2018, BCE completed a normal course issuer bid program (NCIB). See Note 27, Share capital, for additional details.

 

 

 

(1)

Our net debt leverage ratio represents net debt divided by adjusted EBITDA. We define net debt as debt due within one year plus long-term debt and 50% of preferred shares less cash and cash equivalents as shown in our statements of financial position. Adjusted EBITDA is defined as operating revenues less operating costs as shown in our income statements.

 

(2)

Our adjusted EBITDA to net interest expense ratio represents adjusted EBITDA divided by net interest expense. Adjusted EBITDA is defined as operating revenues less operating costs as shown in our income statements. Net interest expense is net interest expense as shown in our statements of cash flows plus 50% of declared preferred share dividends as shown in our income statements.

 

 

 

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Note 27  Share capital

PREFERRED SHARES

BCE’s articles of amalgamation, as amended, provide for an unlimited number of First Preferred Shares and Second Preferred Shares, all without par value. The terms set out in the articles authorize BCE’s directors to issue the shares in one or more series and to set the number of shares and the conditions for each series.

The following table provides a summary of the principal terms of BCE’s First Preferred Shares as at December 31, 2019. There were no Second Preferred Shares issued and outstanding at December 31, 2019. BCE’s articles of amalgamation, as amended, describe the terms and conditions of these shares in detail.

 

                                                                                                                                                                                                                                
               
   

ANNUAL

DIVIDEND
RATE

                        NUMBER OF SHARES     STATED CAPITAL  
SERIES   CONVERTIBLE
INTO
    CONVERSION DATE   REDEMPTION DATE   REDEMPTION
PRICE
    AUTHORIZED     ISSUED AND
OUTSTANDING
    DECEMBER 31,
2019
   

DECEMBER 31,     

2018     

 
   

Q

    floating       Series R     December 1, 2025       $25.50         8,000,000                   –      
   

R (1)

    4.13%       Series Q     December 1, 2020   December 1, 2020     $25.00       8,000,000       8,000,000         200           200      
   

S

    floating       Series T     November 1, 2021   At any time     $25.50       8,000,000       3,513,448       88       88      
   

T (1)

    3.019%       Series S     November 1, 2021   November 1, 2021     $25.00       8,000,000       4,486,552       112       112      
   

Y

    floating       Series Z     December 1, 2022   At any time     $25.50       10,000,000       8,081,491       202       202      
   

Z (1)

    3.904%       Series Y     December 1, 2022   December 1, 2022     $25.00       10,000,000       1,918,509       48       48      
   

AA (1)

    3.61%       Series AB     September 1, 2022   September 1, 2022     $25.00       20,000,000       11,398,396       291       291      
   

AB

    floating       Series AA     September 1, 2022   At any time     $25.50       20,000,000       8,601,604       219       219      
   

AC (1)

    4.38%       Series AD     March 1, 2023   March 1, 2023     $25.00       20,000,000       10,029,691       256       256      
   

AD

    floating       Series AC     March 1, 2023   At any time     $25.50       20,000,000       9,970,309       254       254      
   

AE

    floating       Series AF     February 1, 2020   At any time     $25.50       24,000,000       9,292,133       232       232      
   

AF (1)

    3.11%       Series AE     February 1, 2020   February 1, 2020     $25.00       24,000,000       6,707,867       168       168      
   

AG (1)

    2.80%       Series AH     May 1, 2021   May 1, 2021     $25.00       22,000,000       4,985,351       125       125      
   

AH

    floating       Series AG     May 1, 2021   At any time     $25.50       22,000,000       9,014,649       225       225      
   

AI (1)

    2.75%       Series AJ     August 1, 2021   August 1, 2021     $25.00       22,000,000       5,949,884       149       149      
   

AJ

    floating       Series AI     August 1, 2021   At any time     $25.50       22,000,000       8,050,116       201       201      
   

AK (1)

    2.954%       Series AL     December 31, 2021   December 31, 2021     $25.00       25,000,000       22,745,921       569       569      
   

AL (2)

    floating       Series AK     December 31, 2021   At any time       25,000,000       2,254,079       56       56      
   

AM (1)

    2.764%       Series AN     March 31, 2021   March 31, 2021     $25.00       30,000,000       9,546,615       218       218      
   

AN (2)

    floating       Series AM     March 31, 2021   At any time       30,000,000       1,953,385       45       45      
   

AO (1)

    4.26%       Series AP     March 31, 2022   March 31, 2022     $25.00       30,000,000       4,600,000       118       118      
   

AP (3)

    floating       Series AO     March 31, 2027         30,000,000                   –      
   

AQ (1)

    4.812%       Series AR     September 30, 2023   September 30, 2023     $25.00       30,000,000       9,200,000       228       228      
   

AR (3)

 

   

 

floating

 

 

 

   

 

Series AQ

 

 

 

 

September 30, 2028

 

               

 

30,000,000

 

 

 

   

 

 

 

 

   

 

 

 

 

   

 

–    

 

 

 

   
                                                      4,004       4,004      

 

(1)

BCE may redeem each of these series of First Preferred Shares on the applicable redemption date and every five years after that date.

 

(2)

BCE may redeem Series AL and AN First Preferred Shares at $25.00 per share on December 31, 2021 and March 31, 2021, respectively, and every five years thereafter (each, a Series conversion date). Alternatively, BCE may redeem Series AL or AN First Preferred Shares at $25.50 per share on any date which is not a Series conversion date for the applicable series of First Preferred Shares.

 

(3)

If Series AP or AR First Preferred Shares are issued on March 31, 2022 and September 30, 2023, respectively, BCE may redeem such shares at $25.00 per share on March 31, 2027 and September 30, 2028, respectively, and every five years thereafter (each, a Series conversion date). Alternatively, BCE may redeem Series AP or AR First Preferred Shares at $25.50 per share on any date which is not a Series conversion date for the applicable series of First Preferred Shares.

 

VOTING RIGHTS

All of the issued and outstanding First Preferred Shares at December 31, 2019 are non-voting, except under special circumstances when the holders are entitled to one vote per share.

PRIORITY AND ENTITLEMENT TO DIVIDENDS

The First Preferred Shares of all series rank at parity with each other and in priority to all other shares of BCE with respect to payment of dividends and with respect to distribution of assets in the event of liquidation, dissolution or winding up of BCE.

Holders of Series R, T, Z, AA, AC, AF, AG, AI, AK, AM, AO and AQ First Preferred Shares are entitled to fixed cumulative quarterly dividends. The dividend rate on these shares is reset every five years, as set out in BCE’s articles of amalgamation, as amended.

Holders of Series S, Y, AB, AD, AE, AH and AJ First Preferred Shares are entitled to floating adjustable cumulative monthly dividends. The floating dividend rate on these shares is calculated every month, as set out in BCE’s articles of amalgamation, as amended.

 

 

    

 

 

         

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Holders of Series AL and AN First Preferred Shares are entitled to floating cumulative quarterly dividends. The floating dividend rate on these shares is calculated every quarter, as set out in BCE’s articles of amalgamation, as amended.

Dividends on all series of First Preferred Shares are paid as and when declared by the board of directors of BCE.

CONVERSION FEATURES

All of the issued and outstanding First Preferred Shares at December 31, 2019 are convertible at the holder’s option into another associated series of First Preferred Shares on a one-for-one basis according to the terms set out in BCE’s articles of amalgamation, as amended.

CONVERSION AND DIVIDEND RATE RESET OF FIRST PREFERRED SHARES

Subsequent to year end, on February 1, 2020 3,283,795 of BCE’s 9,292,133 floating rate Cumulative Redeemable First Preferred Shares, Series AE (Series AE Preferred Shares) were converted, on a one-for-one basis, into fixed-rate Cumulative Redeemable First Preferred Shares, Series AF (Series AF Preferred Shares). In addition, on February 1, 2020, 506,975 of BCE’s 6,707,867 Series AF Preferred Shares were converted, on a one-for-one basis, into Series AE Preferred Shares.

The annual fixed dividend rate on BCE’s Series AF Preferred Shares was reset for the next five years, effective February 1, 2020, at 3.865%. The Series AE Preferred Shares continue to pay a monthly cash dividend.

 

 

 

COMMON SHARES AND CLASS B SHARES

BCE’s articles of amalgamation provide for an unlimited number of voting common shares and non-voting Class B shares, all without par value. The common shares and the Class B shares rank equally in the payment of dividends and in the distribution of assets if BCE is liquidated, dissolved or wound up, after payments due to the holders of preferred shares. No Class B shares were outstanding at December 31, 2019 and 2018.

The following table provides details about the outstanding common shares of BCE.

 

                                                                                                                                                          
       
           2019     2018  
      NOTE     NUMBER OF
SHARES
     STATED
CAPITAL
    NUMBER OF
SHARES
    STATED
CAPITAL
 

Outstanding, January 1

       898,200,415        20,036           900,996,640       20,091      

Shares issued for the acquisition of AlarmForce

     34                    22,531       1  

Shares issued under employee stock option plan

     28           4,459,559        251       266,941       13  

Repurchase of common shares

                    (3,085,697     (69

Shares issued under ESP

       1,231,479        75              

Shares issued under DSP

             16,729        1              

Outstanding, December 31

             903,908,182        20,363       898,200,415       20,036  

 

In Q1 2018, BCE repurchased and canceled 3,085,697 common shares for a total cost of $175 million through a NCIB. Of the total cost, $69 million represents stated capital and $3 million represents the reduction of the contributed surplus attributable to these common shares. The remaining $103 million was charged to the deficit.

CONTRIBUTED SURPLUS

Contributed surplus in 2019 and 2018 includes premiums in excess of par value upon the issuance of BCE common shares and share-based compensation expense net of settlements.

 

 

 

Note 28  Share-based payments

The following share-based payment amounts are included in the income statements as operating costs.

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

ESP

     (29 )          (29 )     

RSUs/PSUs

     (54     (50

Other (1)

     (10     (10

Total share-based payments

     (93     (89

 

(1)

Includes DSP, DSUs and stock options.

 

 

 

BCE Inc. 2019 Annual Report           


Table of Contents

 

DESCRIPTION OF THE PLANS

ESP

 

The ESP is designed to encourage employees of BCE and its participating subsidiaries to own shares of BCE. Each year, employees can choose to have a certain percentage of their eligible annual earnings withheld through regular payroll deductions for the purchase of BCE common shares. In some cases, the employer also will contribute a percentage of the employee’s eligible annual earnings to the plan, up to a specified maximum. Dividends are credited to the participant’s account on each dividend payment date and are equivalent in value to the dividends paid on BCE common shares.

The ESP allows employees to contribute up to 12% of their annual earnings with a maximum employer contribution of 2%.

Employer contributions to the ESP and related dividends are subject to employees holding their shares for a two-year vesting period.

The trustee of the ESP buys BCE common shares for the participants on the open market, by private purchase or from treasury. BCE determines the method the trustee uses to buy the shares.

At December 31, 2019, 4,360,087 common shares were authorized for issuance from treasury under the ESP.

 

 

The following table summarizes the status of unvested employer contributions at December 31, 2019 and 2018.

 

                                                             
     
NUMBER OF ESP SHARES    2019     2018  

Unvested contributions, January 1

     1,120,426       1,039,030  

Contributions (1)

     623,705       671,911  

Dividends credited

     57,083       56,926  

Vested

     (523,359 )          (501,089 )     

Forfeited

     (153,657     (146,352
     

Unvested contributions, December 31

     1,124,198       1,120,426  

 

(1)

The weighted average fair value of the shares contributed was $60 in 2019 and $55 in 2018.

RSUs/PSUs

 

RSUs/PSUs are granted to executives and other eligible employees. The value of an RSU/PSU at the grant date is equal to the value of one BCE common share. Dividends in the form of additional RSUs/PSUs are credited to the participant’s account on each dividend payment date and are equivalent in value to the dividend paid on BCE common shares. Executives and other eligible employees are granted a specific

number of RSUs/PSUs for a given performance period based on their position and level of contribution. RSUs/PSUs vest fully after three years of continuous employment from the date of grant and, in certain cases, if performance objectives are met, as determined by the board of directors.

 

 

The following table summarizes outstanding RSUs/PSUs at December 31, 2019 and 2018.

 

                                                             
     
NUMBER OF RSUs/PSUs    2019     2018  

Outstanding, January 1

     2,812,697       2,740,392  

Granted (1)

     975,348       1,006,586  

Dividends credited

     149,648       149,258  

Settled

     (932,133 )          (1,027,321 )     

Forfeited

     (90,442     (56,218

Outstanding, December 31

     2,915,118       2,812,697  

Vested, December 31 (2)

     904,266       880,903  

 

(1)

The weighted average fair value of the RSUs/PSUs granted was $58 in 2019 and $57 in 2018.

 

(2)

The RSUs/PSUs vested on December 31, 2019 were fully settled in February 2020 with BCE common shares and/or DSUs.

 

    

 

 

         

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DSP

The value of a deferred share is equal to the value of one BCE common share. Dividends in the form of additional deferred shares are credited to the participant’s account on each dividend payment date and are equivalent in value to the dividend paid on BCE common shares. The liability related to the DSP is recorded in Trade payables and other liabilities in the statements of financial position and was $22 million and $26 million at December 31, 2019 and 2018, respectively.

DSUs

Eligible bonuses and RSUs/PSUs may be paid in the form of DSUs when executives or other eligible employees elect to or are required to participate in the plan. The value of a DSU at the issuance date is equal to the value of one BCE common share. For non-management directors, compensation is paid in DSUs until the minimum share ownership requirement is met; thereafter, at least 50% of their compensation is paid in DSUs. There are no vesting requirements relating to DSUs. Dividends in the form of additional DSUs are credited to the participant’s account on each dividend payment date and are equivalent in value to the dividends paid on BCE common shares. DSUs are settled when the holder leaves the company.

 

 

The following table summarizes the status of outstanding DSUs at December 31, 2019 and 2018.

 

                                                             
     
NUMBER OF DSUs    2019     2018  

Outstanding, January 1

     4,391,997       4,309,528  

Issued (1)

     84,588       94,580  

Settlement of RSUs/PSUs

     146,960       112,675  

Dividends credited

     236,079       240,879  

Settled

     (236,525 )        (365,665 )     
     

Outstanding, December 31

     4,623,099       4,391,997  

 

(1)

The weighted average fair value of the DSUs issued was $59 in 2019 and $55 in 2018.

STOCK OPTIONS

 

Under BCE’s long-term incentive plans, BCE may grant options to executives to buy BCE common shares. The subscription price of a grant is based on the higher of:

 

the volume-weighted average of the trading price on the trading day immediately prior to the effective date of the grant

 

the volume-weighted average of the trading price for the last five consecutive trading days ending on the trading day immediately prior to the effective date of the grant

At December 31, 2019, 7,524,891 common shares were authorized for issuance under these plans. Options vest fully after three years of continuous employment from the date of grant. All options become exercisable when they vest and can be exercised for a period of seven years from the date of grant for options granted prior to 2019 and ten years from the date of grant for options granted in 2019.

 

 

The following table summarizes BCE’s outstanding stock options at December 31, 2019 and 2018.

 

                                                                                                                                                          
       
            2019     2018  
      NOTE      NUMBER OF
OPTIONS
    WEIGHTED AVERAGE
EXERCISE PRICE ($)
    NUMBER OF
OPTIONS
    WEIGHTED AVERAGE
EXERCISE PRICE ($)
 

Outstanding, January 1

        14,072,332       56       10,490,249       55      

Granted

        3,357,303       58           3,888,693       56  

Exercised (1)

     27        (4,459,559     54       (266,941     42  

Forfeited

        (144,535     58       (39,669     58  
           

Outstanding, December 31

              12,825,541       57       14,072,332       56  

Exercisable, December 31

              2,786,043       56       4,399,588       52  

 

(1)

The weighted average market share price for options exercised was $62 in 2019 and $55 in 2018.

The following table provides additional information about BCE’s stock option plans at December 31, 2019 and 2018.

 

                                                                                                                                                                                         
   
     STOCK OPTIONS OUTSTANDING  
     2019     2018  
RANGE OF EXERCISE PRICES    NUMBER      WEIGHTED AVERAGE
REMAINING LIFE
(YEARS)
     WEIGHTED AVERAGE
EXERCISE PRICE ($)
    NUMBER      WEIGHTED AVERAGE
REMAINING LIFE
(YEARS)
     WEIGHTED AVERAGE
EXERCISE PRICE ($)
 

$40–$49

     449,216        1        47           1,747,042        2        46      

$50–$59

     12,271,003        6        58       12,232,011        5        57  

$60 & above

     105,322        4        61       93,279        5        61  
             
       12,825,541        5        57       14,072,332        4        56  

 

 

 

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ASSUMPTIONS USED IN STOCK OPTION PRICING MODEL

The fair value of options granted was determined using a variation of a binomial option pricing model that takes into account factors specific to the share incentive plans, such as the vesting period. The following table shows the principal assumptions used in the valuation.

 

                                                             
     
      2019     2018  

Weighted average fair value per option granted

     $2.34       $2.13  

Weighted average share price

     $58       $57  

Weighted average exercise price

     $58       $56  

Expected dividend growth

     5 %       5 %   

Expected volatility

     14     12

Risk-free interest rate

     2     2

Expected life (years)

     4       4  

Expected dividend growth is commensurate with BCE’s dividend growth strategy. Expected volatility is based on the historical volatility of BCE’s share price. The risk-free rate used is equal to the yield available on Government of Canada bonds at the date of grant with a term equal to the expected life of the options.

 

 

Note 29  Additional cash flow information

The following table provides a reconciliation of changes in liabilities arising from financing activities.

 

                                                                                                                                                                                         
             
       NOTE       

DEBT DUE WITHIN
ONE YEAR AND
LONG-TERM DEBT
 
 
 
   


DERIVATIVE TO
HEDGE FOREIGN
CURRENCY ON
DEBT
 
 
 
  (1) 
   
DIVIDENDS
PAYABLE
 
 
   
OTHER
LIABILITIES
 
 
    TOTAL  

December 31, 2018

        24,405       (169     691             24,927  

Adoption of IFRS 16

        2,304                         2,304  
             

January 1, 2019

              26,709       (169     691             27,231  

Cash flows from (used in) financing activities

             

Decrease in notes payable

        (1,045     (28                 (1,073 )     

Issue of long-term debt

        1,954                         1,954  

Repayment of long-term debt

        (2,228                       (2,228

Increase in securitized trade receivables

        131                         131  

Cash dividends paid on common and preferred shares

                    (2,966           (2,966

Cash dividends paid by subsidiaries to non-controlling interests

     33                    (65           (65

Other financing activities

              (33                 (20     (53

Total cash flows used in financing activities excluding equity

              (1,221     (28     (3,031     (20     (4,300

Non-cash changes arising from

             

Increase in lease liabilities

        1,006                         1,006  

Dividends declared on common and preferred shares

                    3,008             3,008  

Dividends declared by subsidiaries to non-controlling interests

                    64             64  

Effect of changes in foreign exchange rates

        (261     261                    

Other

        63       (8     (3     20       72  
             

Total non-cash changes

              808       253       3,069       20       4,150  
             

December 31, 2019

              26,296       56       729             27,081  

 

(1)

Included in Other current assets, Other non-current assets and Trade payables and other liabilities in the statements of financial position.

 

    

 

 

         

   BCE Inc. 2019 Annual Report


Table of Contents

    

                                                                                                                                                                                         
             
       NOTE       

DEBT DUE WITHIN
ONE YEAR AND
LONG-TERM DEBT
 
 
 
   


DERIVATIVE TO
HEDGE FOREIGN
CURRENCY ON
DEBT
 
 
 
 (1) 
   
DIVIDENDS
PAYABLE
 
 
   
OTHER
LIABILITIES
 
 
    TOTAL  

January 1, 2018

              23,393       54       678             24,125  

Cash flows from (used in) financing activities

             

Decrease in notes payable

        (241     118                   (123

Issue of long-term debt

        2,996                         2,996  

Repayment of long-term debt

        (2,713                       (2,713

Decrease in securitized trade receivables

        (2                       (2

Cash dividends paid on common and preferred shares

                    (2,828           (2,828

Cash dividends paid by subsidiaries to non-controlling interests

     33                    (16           (16 )     

Other financing activities

              (40                 (35     (75

Total cash flows from (used in) financing activities excluding equity

                    118       (2,844     (35     (2,761

Non-cash changes arising from

             

Finance lease additions

        414                         414  

Dividends declared on common and preferred shares

                    2,856             2,856  

Dividends declared by subsidiaries to non-controlling interests

                    5             5  

Effect of changes in foreign exchange rates

        341       (341                  

Business acquisitions

        96                         96  

Other

              161             (4     35       192  

Total non-cash changes

              1,012       (341     2,857       35       3,563  

December 31, 2018

              24,405       (169     691             24,927  

 

(1)

Included in Other current assets and Other non-current assets in the statements of financial position.

 

 

Note 30  Remaining performance obligations

The following table shows revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as at December 31, 2019.

 

                                                                                                                                                         
               
      2020      2021      2022      2023      2024      THERE-
AFTER
     TOTAL  

Wireline

     1,213        789        473        253        114        59        2,901  

Wireless

     1,907        1,060        389        113        80        563        4,112  
               

Total

     3,120        1,849        862        366        194        622        7,013      

When estimating minimum transaction prices allocated to the remaining unfulfilled, or partially unfulfilled, performance obligations, BCE applied the practical expedient to not disclose information about remaining performance obligations that have an original expected duration of one year or less and for those contracts where we bill the same value as that which is transferred to the customer.

 

 

 

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Note 31  Commitments and contingencies

COMMITMENTS

The following table is a summary of our contractual obligations at December 31, 2019 that are due in each of the next five years and thereafter.

 

                                                                                                                                                         
               
      2020      2021      2022      2023      2024      THERE-
AFTER
     TOTAL  

Commitments for property, plant and equipment and intangible assets

     1,050        796        656        521        381        589        3,993      

Purchase obligations

     593        510        460        297        180        370        2,410  

Leases committed not yet commenced

 

    

 

10

 

 

 

    

 

4

 

 

 

    

 

3

 

 

 

    

 

3

 

 

 

    

 

2

 

 

 

    

 

5

 

 

 

    

 

27

 

 

 

               

Total

 

    

 

1,653

 

 

 

    

 

1,310

 

 

 

    

 

1,119

 

 

 

    

 

821

 

 

 

    

 

563

 

 

 

    

 

964

 

 

 

    

 

6,430

 

 

 

 

Our commitments for property, plant and equipment and intangible assets include program and feature film rights and investments to expand and update our networks to meet customer demand.

Purchase obligations consist of contractual obligations under service and product contracts for operating expenditures and other purchase obligations.

Our commitments for leases not yet commenced include OOH advertising spaces and real estate with lease terms ranging from 4 to 20 years. These leases are non-cancellable.

 

 

 

CONTINGENCIES

 

As part of its ongoing review of wholesale Internet rates, on October 6, 2016, the CRTC significantly reduced, on an interim basis, some of the wholesale rates that Bell Canada and other major providers charge for access by third-party Internet resellers to fibre-to-the-node (FTTN) or cable networks, as applicable. On August 15, 2019, the CRTC further reduced the wholesale rates that Internet resellers pay to access network infrastructure built by facilities-based providers like Bell Canada, with retroactive effect back to March 2016 (the Decision). The estimated cost impact to Bell Canada of the Decision could be in excess of $100 million, if not overturned or otherwise modified. Bell Canada and five major cable carriers (the Applicants) have obtained leave to appeal the Decision from the Federal Court of Appeal. The Federal Court of Appeal has also granted stay of the Decision until it makes its final ruling. The Applicants and TELUS Communications Inc. (Telus) further appealed the Decision to the Federal Cabinet and have filed review and vary applications of the Decision with the CRTC. As a result of the stay, the impact of the Decision has not been recorded in our 2019 financial statements.

In the ordinary course of business, we become involved in various claims and legal proceedings seeking monetary damages and other relief. In particular, because of the nature of our consumer-facing business, we are exposed to class actions pursuant to which substantial monetary damages may be claimed. Due to the inherent risks and uncertainties of the litigation process, we cannot predict the final outcome or timing of claims and legal proceedings. Subject to the foregoing, and based on information currently available and management’s assessment of the merits of the claims and legal proceedings pending at March 5, 2020, management believes that the ultimate resolution of these claims and legal proceedings is unlikely to have a material and negative effect on our financial statements. We believe that we have strong defences and we intend to vigorously defend our positions.

 

 

 

Note 32  Related party transactions

SUBSIDIARIES

The following table shows BCE’s significant subsidiaries at December 31, 2019. BCE has other subsidiaries which have not been included in the table as each represents less than 10% individually and less than 20% in aggregate of total consolidated revenues.

All of these significant subsidiaries are incorporated in Canada and provide services to each other in the normal course of operations. The value of these transactions is eliminated on consolidation.

 

                                                             
   
     OWNERSHIP PERCENTAGE  
SUBSIDIARY    2019     2018  

Bell Canada

     100%           100%      

Bell Mobility

     100%       100%  

Bell Media

 

    

 

100%

 

 

 

   

 

100%

 

 

 

 

    

 

 

         

   BCE Inc. 2019 Annual Report


Table of Contents

    

 

TRANSACTIONS WITH JOINT ARRANGEMENTS AND ASSOCIATES

During 2019 and 2018, BCE provided communication services and received programming content and other services in the normal course of business on an arm’s length basis to and from its joint arrangements and associates. Our joint arrangements and associates include MLSE, Glentel Inc. and Dome Productions Partnership. From time to time, BCE may be required to make capital contributions in its investments.

In 2019, BCE recognized revenues and incurred expenses with our joint arrangements and associates of $17 million (2018 – $17 million) and $200 million (2018 – $187 million), respectively.

 

 

BCE MASTER TRUST FUND

Bimcor Inc. (Bimcor), a wholly-owned subsidiary of Bell Canada, is the administrator of the Master Trust Fund. Bimcor recognized management fees of $12 million from the Master Trust Fund for 2019 and $11 million for 2018. The details of BCE’s post-employment benefit plans are set out in Note 24, Post-employment benefit plans.

 

 

COMPENSATION OF KEY MANAGEMENT PERSONNEL AND BOARD OF DIRECTORS

The following table includes compensation of key management personnel and the board of directors for the years ended December 31, 2019 and 2018 included in our income statements. Key management personnel included the company’s Chief Executive Officer, Chief Operating Officer, Group President and the executives who reported directly to them.

 

                                                             
     
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Wages, salaries, fees and related taxes and benefits

     (24 )          (27 )     

Post-employment benefit plans and OPEBs cost

     (3     (4

Share-based compensation

     (29     (23
     

Key management personnel and board of directors compensation expense

     (56     (54

 

 

Note 33  Significant partly-owned subsidiary

The following tables show summarized financial information for our subsidiary with significant non-controlling interest (NCI).

 

 

SUMMARIZED STATEMENTS OF FINANCIAL POSITION

 

                                                             
   
     CTV SPECIALTY (1)  (2)  
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Current assets

     314       337  

Non-current assets

     994       993  

Total assets

     1,308           1,330      

Current liabilities

     151       142  

Non-current liabilities

     192       201  

Total liabilities

     343       343  

Total equity attributable to BCE shareholders

     671       685  

NCI

     294       302  

 

(1)

At December 31, 2019 and 2018, the ownership interest held by NCI in CTV Specialty Television Inc. (CTV Specialty) was 29.9%. CTV Specialty was incorporated and operated in Canada as at such dates.

 

(2)

CTV Specialty’s net assets at December 31, 2019 and 2018 include $8 million and $10 million, respectively, directly attributable to NCI.

 

 

 

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Table of Contents

 

SELECTED INCOME AND CASH FLOW INFORMATION

 

                                                             
   
     CTV SPECIALTY  (1)  
FOR THE YEAR ENDED DECEMBER 31    2019     2018  

Operating revenues

     878           857      

Net earnings

     193       131  

Net earnings attributable to NCI

     61       42  

Total comprehensive income

     181       149  

Total comprehensive income attributable to NCI

     58       47  

Cash dividends paid to NCI

     65       16  

 

(1)

CTV Specialty’s net earnings and total comprehensive income include $5 million directly attributable to NCI for 2019 and $4 million for 2018.

 

 

Note 34  Business acquisitions and dispositions

2018

 

 

ACQUISITION OF AXIA NETMEDIA CORPORATION (AXIA)

On August 31, 2018, BCE completed the acquisition of all of the issued and outstanding common shares of Axia for a total cash consideration of $154 million.

Axia provides broadband network services to commercial and government accounts throughout the province of Alberta. The acquisition of Axia expands BCE’s broadband operations in Alberta and will add approximately 10,000 kilometres of fibre capacity to our footprint.

Axia is included in our Bell Wireline segment in our consolidated financial statements.

The following table summarizes the fair value of the consideration paid and the fair value assigned to each major class of assets and liabilities.

 

                              
   
      TOTAL  

Cash consideration

     154  

Total cost to be allocated

     154  

Trade and other receivables

     5  

Other non-cash working capital

     (13

Property, plant and equipment

     64  

Finite-life intangible assets

     20  

Other non-current liabilities

     (5 )     
     71  

Cash and cash equivalents

     3  

Fair value of net assets acquired

     74  

Goodwill (1)

     80  

 

(1)

Goodwill arises principally from expected synergies and is not deductible for tax purposes. Goodwill arising from the transaction was allocated to our Bell Wireline group of CGUs.

The transaction did not have a significant impact on our consolidated operating revenues and net earnings for the year ended December 31, 2018.

 

 

ACQUISITION OF ALARMFORCE

 

On January 5, 2018, BCE acquired all of the issued and outstanding shares of AlarmForce for a total consideration of $182 million, of which $181 million was paid in cash and the remaining $1 million through the issuance of 22,531 BCE common shares.

Subsequent to the acquisition of AlarmForce, on January 5, 2018, BCE sold AlarmForce’s approximate 39,000 customer accounts in British Columbia, Alberta and Saskatchewan to Telus for total proceeds of approximately $68 million.

AlarmForce provides security alarm monitoring, personal emergency response monitoring, video surveillance and related services to residential and commercial subscribers. The acquisition of AlarmForce supports our strategic expansion in the Smart Home marketplace.

AlarmForce is included in our Bell Wireline segment in our consolidated financial statements.

 

 

    

 

 

         

   BCE Inc. 2019 Annual Report


Table of Contents

    

The following table summarizes the fair value of the consideration paid and the fair value assigned to each major class of assets and liabilities.

 

                              
   
      TOTAL  

Cash consideration

     181  

Issuance of 22,531 BCE common shares (1)

     1  

Total cost to be allocated

     182  

Assets held for sale (2)

     68  

Other non-cash working capital

     (5

Property, plant and equipment

     8  

Finite-life intangible assets (3)

     34  

Indefinite-life intangible assets

     1  

Other non-current assets

     1  

Deferred tax liabilities

 

    

 

(7

 

)     

 

     100  

Cash and cash equivalents

 

    

 

4

 

 

 

Fair value of net assets acquired

 

    

 

104

 

 

 

Goodwill (4)

 

    

 

78

 

 

 

 

(1)

Recorded at fair value based on the market price of BCE common shares on the acquisition date.

 

(2)

Consists mainly of customer relationships recorded at fair value less costs to sell.

 

(3)

Consists mainly of customer relationships.

 

(4)

Goodwill arises principally from expected synergies and future growth and is not deductible for tax purposes. Goodwill arising from the transaction was allocated to our Bell Wireline group of CGUs.

For the year ended December 31, 2018, operating revenues of $43 million from AlarmForce are included in the consolidated income statements from the date of acquisition. The transaction did not have a significant impact on our consolidated net earnings for the year ended December 31, 2018. These amounts reflect the amortization of certain elements of the purchase price allocation and related tax adjustments.

 

 

Note 35  Adoption of IFRS 16

 

Upon adoption of IFRS 16 on January 1, 2019, we recognized right-of-use assets of $2,257 million within property, plant and equipment, and lease liabilities of $2,304 million within debt, with an increase to our deficit of $19 million. These amounts were recognized in addition to assets under finance leases of $1,947 million and the corresponding finance

lease liabilities of $2,097 million at December 31, 2018 under IAS 17. As a result, on January 1, 2019, our total right-of-use assets and lease liabilities amounted to $4,204 million and $4,401 million, respectively. The table below shows the impacts of adopting IFRS 16 on our January 1, 2019 consolidated statement of financial position.

 

 

                                                                                            
       
      DECEMBER 31, 2018
AS REPORTED
    IFRS 16
IMPACTS
    JANUARY 1, 2019
UPON ADOPTION
OF IFRS 16
 

Prepaid expenses

     244       (55 )        189  

Other current assets

     329       9       338  

Property, plant and equipment

     24,844       2,257       27,101  

Other non-current assets

     847       17       864  

Trade payables and other liabilities

     3,941       (10     3,931  

Debt due within one year

     4,645       293       4,938  

Long-term debt

     19,760       2,011       21,771  

Deferred tax liabilities

     3,163       (7     3,156  

Other non-current liabilities

     997       (39     958  

Deficit

     (4,937     (19     (4,956 )     

Non-controlling interest

 

    

 

326

 

 

 

   

 

(1

 

 

   

 

325

 

 

 

 

BCE’s operating lease commitments at December 31, 2018 were $1,612 million. The difference between operating lease commitments at December 31, 2018 and lease liabilities of $2,304 million upon adoption of IFRS 16 at January 1, 2019, is due mainly to an increase of $1,122 million related to renewal options reasonably certain to be exercised,

 

an increase of $112 million mainly related to non-monetary transactions and a decrease of ($542) million as a result of discounting applied to future lease payments, which was determined using a weighted average incremental borrowing rate of 3.49% at January 1, 2019.

 

 

 

 

BCE Inc. 2019 Annual Report           


Table of Contents

 

Board of directors

AS OF MARCH 5, 2020

 

Gordon M. Nixon

ONTARIO, CANADA

Corporate Director

Chair of the Board,

BCE Inc. and Bell Canada

Director since November 2014

 

Barry K. Allen

FLORIDA, UNITED STATES

Operating Partner,

Providence Equity Partners LLC

Director since May 2009

 

Mirko Bibic

ONTARIO, CANADA

President and

Chief Executive Officer,

BCE Inc. and Bell Canada

Director since January 2020

  

Sophie Brochu

QUÉBEC, CANADA

Corporate Director

Director since May 2010

 

Robert E. Brown

QUÉBEC, CANADA

Corporate Director

Director since May 2009

 

David F. Denison,

FCPA, FCA

ONTARIO, CANADA

Corporate Director

Director since October 2012

 

Robert P. Dexter

NOVA SCOTIA, CANADA

Chair and

Chief Executive Officer,

Maritime Travel Inc.

Director since November 2014

 

 

  

Ian Greenberg

QUÉBEC, CANADA

Corporate Director

Director since July 2013

 

Katherine Lee

ONTARIO, CANADA

Corporate Director

Director since August 2015

 

Monique F. Leroux,

C.M., O.Q., FCPA, FCA

QUÉBEC, CANADA

Corporate Director

Director since April 2016

 

Calin Rovinescu

QUÉBEC, CANADA

President and

Chief Executive Officer,

Air Canada

Director since April 2016

  

Karen Sheriff

TORONTO, ONTARIO

Corporate Director

Director since April 2017

 

Robert C. Simmonds

ONTARIO, CANADA

Chair,

Lenbrook Corporation

Director since May 2011

 

Paul R. Weiss,

FCPA, FCA

ONTARIO, CANADA

Corporate Director

Director since May 2009

 

COMMITTEES OF THE BOARD

AUDIT

COMMITTEE

 

P.R. Weiss (Chair),

D.F. Denison, R.P. Dexter,

I. Greenberg, K. Lee,

M.F. Leroux, R.C. Simmonds

 

The audit committee assists the board in the oversight of:

 

  the integrity of BCE Inc.’s financial statements and related information

 

  BCE Inc.’s compliance with applicable legal and regulatory requirements

 

  the independence, qualifications and appointment of the external auditors

 

  the performance of both the external and internal auditors

 

  management’s responsibility for assessing and reporting on the effectiveness of internal controls

 

  BCE Inc.’s enterprise risk management processes.

  

MANAGEMENT

RESOURCES AND

COMPENSATION

COMMITTEE

 

R.E. Brown (Chair),

B.K. Allen, S. Brochu,

I. Greenberg, C. Rovinescu

 

The MRCC assists the board in the oversight of:

 

  the compensation, nomination, evaluation and succession of officers and other management personnel

 

  BCE’s workplace policies and practices (including health and safety policies, policies ensuring a respectful workplace free from harassment and policies ensuring a diverse and inclusive workplace).

  

CORPORATE

GOVERNANCE

COMMITTEE

 

B.K. Allen (Chair),

S. Brochu, R.E. Brown,

M.F. Leroux, R.C. Simmonds

 

The CGC assists the board to:

 

  develop and implement BCE Inc.’s corporate governance policies and guidelines

 

  identify individuals qualified to become members of the board

 

  determine the composition of the board and its committees

 

  determine the directors’ remuneration for board and committee service

 

  develop and oversee a process to assess the Chair of the board, the board, committees of the board, Chairs of committees and individual directors

 

  review and recommend for board approval BCE Inc.’s policies concerning business conduct, ethics, public disclosure of material information and other matters.

  

PENSION FUND

COMMITTEE

 

D.F. Denison (Chair),

R.P. Dexter, K. Lee,

C. Rovinescu, K. Sheriff,

P.R. Weiss

 

The PFC assists the board

in the oversight of:

 

  the administration, funding and investment of BCE Inc.’s pension plans and funds

 

  the unitized pooled funds sponsored by BCE Inc. for the collective investment of the funds and the participant subsidiaries’ pension funds.

 

    

 

 

        

  

        BCE Inc. 2019 Annual Report


Table of Contents

    

 

Executives

AS OF MARCH 5, 2020

 

Mirko Bibic

 

President and Chief Executive Officer,

BCE Inc. and Bell Canada

 

Michael Cole

 

Executive Vice-President and Chief Information Officer,

Bell Canada

 

Stephen Howe

 

Executive Vice-President and Chief Technology Officer,

Bell Canada

 

Rizwan Jamal

 

President, Bell Residential & Small Business,

Bell Canada

 

Claire Gillies

 

President, Bell Mobility,

Bell Canada

 

Blaik Kirby

 

Group President, Bell Mobility and

Bell Residential & Small Business,

Bell Canada

 

Glen LeBlanc

 

Executive Vice-President and Chief Financial Officer,

BCE Inc. and Bell Canada

 

Bernard le Duc

 

Chief Human Resources Officer and

Executive Vice-President, Corporate Services,

BCE Inc. and Bell Canada

 

Randy Lennox

 

President, Bell Media,

Bell Canada

 

Thomas Little

 

President, Bell Business Markets,

Bell Canada

 

Karine Moses

 

Vice Chair, Québec and President, Bell Media Québec,

Bell Canada

 

Wade Oosterman

 

Vice Chair and Group President,

BCE Inc. and Bell Canada

 

John Watson

 

Group President, Customer Experience,

Bell Canada

 

 

 

BCE Inc. 2019 Annual Report

      


Table of Contents

 

Investor information

 

 

 

SHARE FACTS

 

SYMBOL

BCE

 

 

LISTINGS

 

TSX and NYSE stock exchanges

 

You will find a summary of the differences between our governance practices and the NYSE corporate governance rules in the Governance section of our website at BCE.ca.

 

 

COMMON SHARES OUTSTANDING

 

December 31, 2019 – 903,908,182

 

 

QUARTERLY DIVIDEND*

$0.8325 per common share

 

  

 

 

TAX ASPECTS

 

Shareholders are required to pay tax on dividends received as well as on capital gains they realize, if any, when they sell their shares or are deemed to have sold them.

 

THE SALE OR DISPOSITION OF YOUR SHARES COULD

TRIGGER A CAPITAL GAIN

 

IMPORTANT: If you received Nortel Networks common shares in May 2000 and/or Bell Aliant Regional Communications Income Fund units in July 2006, you should contact the Investor Relations group to learn more about the tax implications of these plans of arrangement and the impact on the calculation of your cost, or visit BCE.ca.

 

 

DIVIDENDS

 

Since January 1, 2006 and unless stated otherwise, dividends paid by BCE Inc. to Canadian residents are eligible dividends as per the Canadian Income Tax Act. Since March 24, 2006 and unless stated otherwise, dividends paid by BCE Inc. to Québec residents also qualify as eligible dividends.

 

NON-RESIDENTS OF CANADA

 

Dividends paid or credited to non-residents of Canada are subject to a 25% withholding tax unless reduced by a tax treaty. Under current tax treaties, U.S. and U.K. residents are subject to a 15% withholding tax.

 

Beginning in 2012, the Canada Revenue Agency introduced new rules requiring residents of any country with which Canada has a tax treaty to certify that they reside in that country and are eligible to have Canadian non-resident tax withheld on the payment of their dividends at the tax treaty rate. Registered shareholders should have completed the Declaration of Eligibility for Benefits under a Tax Treaty for a Non-Resident Taxpayer and returned it to the transfer agent.

 

U.S. RESIDENTS

 

In addition to the Declaration of Eligibility for Benefits under a Tax Treaty for a Non-Resident Taxpayer mentioned above, we are required to solicit taxpayer identification numbers and Internal Revenue Service (IRS) Form W-9 certifications of residency from certain U.S. residents. If these have not been received, we may be required to deduct the IRS’s specified backup withholding tax. For more information, please contact the transfer agent or the Investor Relations group.

2020 DIVIDEND SCHEDULE*

 

Record date    Payment date**
March 16, 2020    April 15, 2020
June 15, 2020    July 15, 2020
September 15, 2020    October 15, 2020
December 15, 2020    January 15, 2021

 

*  Subject to dividends being declared by the board of directors

** When a dividend payment date falls on a weekend, the payment is made on the following business day

 

 

2020 QUARTERLY EARNINGS

RELEASE DATES

 

First quarter    May 7, 2020
Second quarter    August 6, 2020
Third quarter    November 5, 2020
Fourth quarter    February 4, 2021

 

Quarterly and annual reports as well as other corporate documents can be found on our website. Copies can be requested from the Investor Relations group.

 

 

 

       

   BCE Inc. 2019 Annual Report


Table of Contents

        

    

 

SHAREHOLDER SERVICES

 

 

 

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

A convenient method for eligible shareholders to reinvest their dividends and make optional cash contributions to purchase additional common shares without brokerage costs.

 

 

 

DIVIDEND DIRECT DEPOSIT SERVICE

Avoid postal delays and trips to the bank by subscribing to the dividend direct deposit service.

 

 

DIRECT REGISTRATION (DRS)

HOLDING YOUR SHARES ELECTRONICALLY IN LIEU OF

SHARE CERTIFICATES

Holdings are represented by a statement issued when establishing or subsequently modifying your DRS balance. This option removes the risks of holding share certificates, including their safekeeping, and, most importantly, eases the replacement process. Note that there is a cost to replace lost or stolen certificates as well as certificates mailed and never received by the shareholder (if claimed two years after mailing). Generally, this cost is a percentage of the value of the shares represented.

 

 

E-DELIVERY SERVICE

Enrol in the e-delivery service to receive the proxy material, the annual report and/ or quarterly reports by e-mail. By doing so, you will receive your documents faster and in an environmentally friendly manner while helping your company reduce its costs.

 

 

DUPLICATE MAILINGS

Eliminate duplicate mailings by consolidating your accounts.

 

 

MANAGE YOUR SHAREHOLDER ACCOUNT

Enrol in Investor Central at www.astfinancial.com and benefit from a wide variety of self-service tools to help track and manage your shares.

 

 

For more details on any of these services, registered shareholders (shares are registered under your name) must contact the transfer agent. Non-registered shareholders must contact their brokers.

 

Trademarks in this annual report which are owned or used under license by BCE Inc., Bell Canada or their subsidiaries include, without limitation, BCE, BELL Design, BELL MOBILITY and BELL MEDIA. This annual report also includes trademarks of other parties. The trademarks referred to in this annual report may be listed without the ® and symbols.

© BCE Inc., 2020. All rights reserved.

 

 

CONTACT INFORMATION

 

 

TRANSFER AGENT AND REGISTRAR

For information on shareholder services or any other inquiries regarding your account (including stock transfer, address change, lost certificates and tax forms), contact:

AST Trust Company (Canada)

1 Toronto Street, Suite 1200

Toronto, Ontario M5C 2V6

 

e-mail        bce@astfinancial.com
tel    416 682-3861 or 1 800 561-0934
   (toll free in Canada and the U.S.)
fax    514 985-8843 or 1 888 249-6189
   (toll free in Canada and the U.S.)
website    www.astfinancial.com

 

 

INVESTOR RELATIONS

For financial inquiries:

Building A, 8th Floor

1 Carrefour Alexander-Graham-Bell

Verdun, Québec H3E 3B3

 

e-mail    

  

investor.relations@bce.ca

tel

  

1 800 339-6353

fax

  

514 786-3970

   or visit the Investors section of our website at BCE.ca

 

 

        

 

 


Table of Contents

 

 

 

bce.ca

CODE OF BUSINESS CONDUCT

Exhibit 99.3

 

Code of Business Conduct

What we do is who we are

 

Our Moral Compass

Policy Contact: corporate.secretariat@bell.ca

© Bell Canada 2020. All Rights Reserved.


Code of Business Conduct

 

What’s Inside

 

1  

INTRODUCTION

     1  
 

1.1

  Scope: Who Does the Code Apply To?      1  
 

1.2

  Objectives      1  
 

1.3

  Reporting a Misconduct or Violation of the Code – The Business Conduct Help Line      1  
 

1.4

  Responsibilities of Managers & Executives      2  
 

1.5

  Penalties for Violations      2  
 

1.6

  Annual Review and Sign Off      2  
2  

OUR PRINCIPLES OF ETHICAL CONDUCT

     3  
 

2.1

  Personal Integrity      3  
 

2.2

  Conflicts of Interest      3  
 

2.3

  Loans, Gifts and Entertainment      7  
 

2.4

  Political Activities      8  
 

2.5

  Improper Influence on the Conduct of Audits      8  
 

2.6

  Trading in Securities      8  
 

2.7

  Public Disclosure of Information      10  
 

2.8

  Confidentiality of Customer and Employee Information      10  
 

2.9

  Information Classification and Records Management      12  
 

2.10

  Dealing with Customers      14  
 

2.11

  Dealing with Suppliers and Competitors      14  
 

2.12

  Safeguarding Bell Assets      16  
 

2.13

  Social Media      20  
 

2.14

  Work Environment      21  
 

2.15

  Journalistic Independence      26  
 

2.16

  Protecting the Environment      27  
3  

ROLES AND RESPONSIBILITIES

     28  
 

3.1

  Business Unit Responsibility      28  
 

3.2

  Board of Directors, Corporate Governance Committee and Audit Committee      28  
 

3.3

  Corporate Secretary’s Office      28  
APPENDICES      29  
 

Supporting Procedures

     29  
 

Attachments

     29  
POLICY OR PRACTICE DETAILS      34  
    
          

If you have any question regarding this Code of Business Conduct, please e-mail corporate.secretariat@bell.ca or contact the Business Conduct Help Line available at clearviewconnects.com on a 24/7 basis or by calling 1 866 298 2942 (toll free).

 

  

Our goal:

Advancing how Canadians connect with each other and the world

Our 6 strategic imperatives:

 

 

 

 

 

 

 

 

 

© Bell Canada 2020. All Rights Reserved.    P a g e  | i


Code of Business Conduct

 

A Message from our President and Chief Executive Officer

 

Since our company’s founding in 1880, Bell’s leadership in communications investment and innovation has been central to the growth and prosperity of our country. A trusted Canadian brand that delivers value to our customers, communities, shareholders and team members, Bell’s goal is advancing how Canadians connect with each other and the world.

Building on our legacy of service and achieving our goal comes with tremendous responsibility to our stakeholders. We must all achieve the highest standards of ethical and professional conduct in our work, including understanding and abiding by the values and requirements set out in the Bell Code of Business Conduct.

The Bell Code of Business Conduct explains the laws and regulations that apply to our business and provides clear guidelines for ethical conduct related to interactions with customers,

fellow team members, partners and the public; confidentiality and safeguarding of information and assets; stock trading and other public company regulations; engaging on social media; and more.

All team members are required to complete training in the Code of Business Conduct when they join the company, affirm that they have reviewed the Code annually, and refresh their training in the Code every 2 years.

We understand that our company’s continued leadership depends on the trust and support of all our stakeholders. Our Code of Conduct is a key part of that commitment, and I thank you for making it part of the way you work.

 

 

Mirko Bibic

President and Chief Executive Officer

BCE Inc. and Bell Canada

 

© Bell Canada 2020. All Rights Reserved.    P a g e  | ii


Code of Business Conduct

 

 

1

INTRODUCTION

 

The Bell Canada Code of Business Conduct explains the fundamental values and standards of behaviour that are expected from us in all aspects of our business.

In our daily activities, we have a fundamental responsibility to address a broad spectrum of issues. These include: preventing conflicts of interest, protecting company assets, safeguarding privacy and confidentiality, treating customers and the broader public, shareholders, suppliers, our fellow team members and competitors with respect and honesty, fostering a diverse, safe and healthy workplace and protecting the environment.

Acting responsibly is central to achieving sustainable business success and essential to the pursuit of our corporate goal: advancing how Canadians connect with each other and the world.

The Code provides various rules and guidelines for ethical behaviour based on Bell values, as well as applicable laws and regulations.

These values and standards reinforce our commitment to the highest levels of customer service, a working environment in which performance is recognized and people are respected and sensitivity to the needs of the community that Bell serves.

 

 

1.1

Scope: Who Does the Code Apply To?

The Code applies to everyone at Bell, including all directors, executives and employees of BCE Inc., Bell Canada and their subsidiaries. Throughout the Code, we will refer to these companies as Bell.

 

1.2

Objectives

 

Collectively, we undertake to:

  perform our work duties and conduct our business relationships with integrity and in a dynamic, straightforward, honest and fair manner
  comply with laws that apply to us as well as with Bell policies and procedures
  avoid conflicts of interest
  foster a work environment based on mutual trust and respect and that encourages open communication
  maintain a safe, healthy and secure workplace
  protect the environment
  support a culture in which ethical conduct is recognized, valued and exemplified
  promptly report issues relating to the Code and potential violations, non-compliance with applicable laws, regulations or company policies or procedures and any other emergencies.
 

 

1.3

Reporting a Misconduct or Violation of the Code – The Business Conduct Help Line

 

Individual responsibility does not mean you are on your own when facing an ethical issue. Don’t be reluctant to ask any questions you might have on the Code or raise issues.

As part of Bell’s commitment to the highest standards of ethics, employees are encouraged to promptly report any actual or potential misconduct, Code or other company policy violations, malpractice, fraud, misappropriation of business property or any other illegal or unethical act or behaviour, including accounting, internal accounting controls or auditing matters by an employee of Bell or by any business unit of Bell.

Any submission made by an employee regarding an unethical behaviour will be treated on a confidential and anonymous basis, unless specifically permitted to be disclosed by the employee or unless required by law. Submissions will only be disclosed to those persons who have a need to know in order to properly carry out an investigation of the potential unethical behaviour.

Any employee who in good faith reports an unethical behaviour will be protected from threats of retaliation, discharge or other types of sanctions that are directly related to the disclosure of such unethical behaviour.

 

 

© Bell Canada 2020. All Rights Reserved.    P a g e  | 1


Code of Business Conduct

 

No employee will be penalized for inquiring, in good faith, about apparently unethical behaviour or for obtaining guidance on how

to handle suspected illegal acts or policy violations. Further, Bell will not allow retaliation for reports made in good faith.

 

 

An unethical behaviour may be reported to your immediate manager. If this won’t meet your needs, is inappropriate, does not provide the necessary level of confidentiality or if you otherwise prefer, you can contact our confidential and anonymous Business Conduct Help Line at clearviewconnects.com on a 24/7 basis or by calling 1-866-298-2942 (toll free). You may also contact the Chief Legal Officer and Corporate Secretary or the Chair of the Audit Committee.

You can also consult the Complaint Procedures for Accounting and Auditing Matters on the Corporate Policies & Ethics Program intranet site.

 

1.4

Responsibilities of Managers & Executives

 

We are all expected to perform our jobs with integrity and in a dynamic, straightforward, honest and fair manner. However, managers and executives have an enhanced role. This means:

 

  setting an example by complying with the Code and all Bell policies at all times
  ensuring that all employees have access to the Code (on-line or in paper format), that they know, understand and comply with its provisions and that they complete the annual review and sign off process
  complying with security policies and the associated directives, procedures and standards
  fostering an environment that encourages open communication and upholds sustainable development, health & safety, labour and ethics principles in every business decision and actions
  immediately reporting violations of the Code or breaches of Bell policies and taking prompt and decisive disciplinary action when it has been established that the Code has been violated.
 

 

1.5

Penalties for Violations

Disciplinary action up to and including dismissal will be taken should an employee, manager or executive:

 

 

violate the Code or a Bell policy, disregard proper procedures or ask others to violate the Code or a Bell policy

 

deliberately fail to promptly report a violation or withhold relevant information concerning a violation

 

fail to cooperate in the investigation of a known or suspected violation or

 

take action against an employee who reports a violation or breach of the Code or other policy.

 

1.6

Annual Review and Sign Off

To demonstrate our commitment to the shared values and standards described in the Code, all employees, managers, executives and members of the Board of Directors must certify annually that they have reviewed and follow the Code. A copy of these certifications can be found at Attachments 1A and 2A. All employees must also take the on-line course on the Code at least every two years.

 

© Bell Canada 2020. All Rights Reserved.    P a g e  | 2


Code of Business Conduct

 

 

2

OUR PRINCIPLES OF ETHICAL CONDUCT

 

2.1

Personal Integrity

 

Ethical behaviour is an essential part of our job and is a personal responsibility we all share. It means performing our job fully and competently. It also means being accountable for our behaviour and for supporting the values, principles and standards upon which our reputation rests.

Many aspects of our business are governed by laws and regulations and compliance with such laws and regulations is basic to ethical conduct. Bell and its directors, executives, managers and other employees are expected to comply with the laws, rules and regulations of all countries in which we operate, as well as the expectations and requirements of our various regulators. These laws include, but are not limited to, telecommunications and broadcasting laws, securities laws, laws prohibiting the corruption of government officials, in Canada and abroad, as well as lobbying, competition, environmental, health and safety and employment legislation.

Ethical behaviour, however, goes beyond mere compliance with the law. It involves thinking through the possible impact of our decisions on all interested parties - customers, employees, unions, business partners, suppliers, investors, government as well as the communities and environment in which we live and work.

Although the Code lays out the fundamental principles of ethical and legal conduct, it cannot anticipate every ethical dilemma or situation we may encounter as we perform our jobs. This would be impossible given the rapid evolution of the communications industry.

Consequently, we may often find ourselves caught in a situation or facing an ethical problem not explicitly covered in the Code. In this case, we must rely on our internal sense of

what is right – our moral compass – to guide us in making the right decision.

 

When faced with a difficult or unclear situation, it may help to ask questions such as:

 

    how would I feel if, rather than initiating this action, I was on the receiving end?  
    how would my customer react if he/she knew I was breaking the rules or distorting the facts to make a sale?  
    if I do this, how will I feel afterwards? Would I want my co-workers, friends or family to find out?  
    if my actions became public, how would they be reported in the media?  

 

Assuming personal responsibility for our actions means we can’t blame someone else for our behaviour. Conversely, no one - not even a manager - can force us to commit an illegal or unethical act that may damage Bell’s reputation, or our own.

 

We have a duty to report illegal acts or violations of the Code or Bell policies. Turning a blind eye to wrongdoing - in effect condoning such behaviour - is itself unethical. See section 1.3 for ways that are available to you to report unethical conducts.

Any breach of the Code or Bell policies or evidence of illegal behaviour will be taken very seriously. Depending on the nature and severity of the case, employees who breach the Code, violate Bell policy or commit an illegal act will face immediate discipline, up to and including dismissal, as well as possible civil or criminal prosecution.

 

 

2.2

Conflicts of Interest

As employees, managers and executives, our business loyalty rests in placing Bell’s interests – including those of its customers and shareholders – before our personal interests and relationships.

 

© Bell Canada 2020. All Rights Reserved.    P a g e  | 3


Code of Business Conduct

 

A conflict of interest arises whenever we allow, or appear to allow, personal interests or relationships to impair our judgment and ability to make decisions with integrity and honesty. By thinking of ourselves or our relationships first, we may act in a way that is damaging, or potentially damaging, to Bell. We may also harm our personal reputation.

We must not use our position to influence or bypass Bell procedures for personal gain nor for the benefit of our family, friends, colleagues or anyone else.

 

How Can I Tell If I Am In a Conflict of Interest?

If you are not sure about a particular situation, obtain the guidance you need. Start by asking yourself the following questions:

 

   

Am I following proper Bell procedures?

 
   

Do I stand to potentially gain personally from my actions?

 
   

Can my actions potentially result in a financial or other advantage for myself, a near relative (which would include a spouse, sibling, parent, child, or in-law), friend or other relationship?

 
   

Am I uncomfortable discussing this with my manager or fellow employees?

 
   

Would I act differently if a friend or near relative or relationship weren’t involved?

 

 

If you have any doubts about a possible conflict, raise the matter with your manager or contact the Business Conduct Help Line at www.clearviewconnects.com or by calling 1-866-298-2942 (toll free).

If there is an actual or potential conflict of interest, you must disclose it immediately to your leader and as part of the annual online review process.

 

2.2.1

Conflicts of Interest Relating to Family and Personal Relationships

 

Each of us has a variety of personal relationships involving family and friends and sometimes our work and personal lives intersect.

We must disclose this relationship if it compromises, or threatens to compromise, our ability to act in Bell’s best interest. Speak to your manager or contact the Business Conduct Help Line for further guidance. We should also be aware that bridging our personal and business lives may cause our competitors or suppliers – as well as colleagues within Bell – to believe we are in a conflict of interest. To avoid a conflict of interest, or prevent a situation from developing into a conflict of interest, you must inform your manager if, for example:

  you are considering hiring a near relative, friend or relationship
  you transact business on behalf of Bell with a near relative, friend or relationship
  you have been employed by a competitor within the last two years
  a near relative, friend or relationship works for a supplier or competitor or has a financial interest in or is a major shareholder of a supplier or competitor.

If you are concerned that you may be in a conflict of interest, speak to your manager. You must also disclose the conflict at your next online annual review of the Code.

 

 

My partner has just become an executive sales manager for a company that services the computers in my department. Do I need to tell anyone about this?

 

   

Yes. Someone could claim that Bell is giving your partner business because you are a Bell employee. You should notify your manager and make sure you are not involved in any decisions regarding your partner’s company. This relationship should be disclosed in your annual online review of the Code.

 

 

 

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2.2.2

Conflicts of Interest Relating to Supplier-Funded Incentive Programs

Supplier-funded incentive programs, often offered to sales employees by suppliers seeking to sell their products, may only be arranged through an authorized program administrator who does not work with the eligible employees.

It’s up to the program administrator to ensure there is no conflict between Bell’s marketing strategy and the supplier’s incentive program. For further information, please refer to the Incentive & Recognition Programs Guidelines on the Human Resources intranet site.

 

2.2.3

Conflicts of Interest Arising from Outside Employment and Similar Activities

 

We all have a right to do what we want during our non-working hours. This could include holding another job in which we use the skills and experience acquired through our work at Bell. However, we must ensure that our outside employment or other activities do not conflict, or appear to conflict, with Bell’s business or with our ability to fulfill our duties as employees.

To avoid a conflict of interest, or even the appearance of such a conflict, you should discuss any planned outside business activities with your manager. As a general guideline, you may not:

 

  work for an organization that competes with Bell or operate a business or promote a third party’s line of products or services that compete with those offered by Bell
  use Bell’s time, materials and facilities in paid or unpaid work for other organizations

(for example, to support a charitable community project), unless specifically authorized by senior management (CP4 or higher). Where such authorization has been obtained, as per the Bell Community Investment policy, no company products or services (such as wireline telecommunication services, Internet services, handsets, etc.) may be provided in-kind

  accept outside employment or engage in any activity that may prevent you from performing your job at Bell fully and competently
  contribute to or support any political group or political activity on behalf of Bell, unless specifically authorized by the appropriate Bell department responsible for government relations.
 

 

I am a Bell technician who installs circuitry for small and medium-sized business customers. With the growth of the Internet and other communications services, demand for my expertise is booming. Can I take advantage of this opportunity and start up an installation business on my own time?

 

   

No. You cannot engage in any outside activity that might take business away from Bell or any of its subsidiaries. Furthermore, as an employee, you are expected to contribute your energy and ideas to your job as an installer for Bell.

 

 

 

As a customer service representative I happen to respond to my brother’s telephone call inquiring about a charge on his account for TV services. Can I respond to this call and make adjustments, if any, to his account?

 

   

No. Employees are not allowed to access or make changes to the billing accounts of their families and friends, including accessing their own or invoicing themselves.

 

 

 

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2.2.4

Conflict of Interest Guidelines for Executives and External Directorships

 

In addition to the conflict of interest guidelines and procedures noted above, in respect to all persons who are executives (i.e. Vice-President and above), a conflict of interest may also arise:

  when there is an outside interest which materially encroaches on time or attention which should be devoted to Bell’s affairs or so affects the executive’s energies as to prevent him/her from devoting his/her full abilities to the performance of duties
  where an executive or any of his/her near relatives, friends or relationships has a direct or indirect interest in or relationship with any outsider, such as a supplier (whether of goods or services), customer, agent or competitor of Bell or its subsidiary and associated corporations, or with a person in a position to influence the actions of an outsider, which is inherently unethical or which might be implied or construed to:
    give rise to a possible personal gain or favour to the executive involved, or any of his/her near relatives, friends or relationships due to the executive’s actual or potential power to influence dealings between Bell and the outsider
    render the executive partial toward the outsider for personal reasons, or otherwise inhibit the impartiality of the executive’s business judgement or his/her desire to serve only Bell’s best interests in the performance of his/her functions as an executive
    place the executive or Bell in an equivocal, embarrassing or ethically
   

questionable position in the eyes of the public or any external monitoring body

    reflect unfavourably on the integrity of the executive or Bell.
  where an executive or any of his/her near relatives, friends or relationships makes use of any non-public information, such as information for internal use, or of a confidential nature, proprietary, insider, privileged or government classified nature or customer information, entrusted to or obtained by the executive in the conduct of Bell’s business to benefit himself/herself or any of his/her near relatives, by selling or making available such information to interests outside Bell, or uses the information in any other manner to further his/her interest(s), or the interest(s) of any of his/her near relatives
  where an executive or any of his/her near relatives, friends or relationships has any direct or indirect interest or relationship which is actually or potentially harmful or detrimental to Bell’s best interests.

Executives are required to disclose any actual or potential conflicts of interest by providing written notice to the Corporate Secretary at corporate.secretariat@bell.ca. The Corporate Secretary is responsible for administering the Code and the Conflict of Interest Guidelines. If the Corporate Secretary is unable to resolve an existing or potential conflict of interest with the person involved, the matter will be discussed with the Executive Vice President, Corporate Services.

 

 

External Directorships

 

As a general rule, executives are allowed to be appointed to the board of directors of a company other than a Bell company provided that such appointment:

  will not create conflicts of interest either for the executive or for any Bell company
  will contribute to the development of the executive or will benefit Bell either directly or indirectly
  will not be at the expense of the executive’s corporate responsibilities and will not impose an undue burden on the executive.

Provided the above criteria are met, before accepting an external directorship appointment, an executive shall, through his/her superior, seek and obtain clearance from the President and Chief Executive Officer. If appointed, the executive must then disclose such fact to the Corporate Secretary’s Office promptly.

Executives should however understand that the BCE group companies’ D&O Insurance policy will not be applicable unless the executive’s appointment is made at the request of Bell.

 

 

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2.3

Loans, Gifts and Entertainment

 

2.3.1

Loans from Bell

We do not accept, whether directly or indirectly, any loan or guarantee of obligations from Bell that are for our personal benefit.

 

2.3.2

Business Gifts & Entertainment

 

Do not solicit, accept or give gifts, gratuities, favours or unusual hospitality from or to suppliers or customers, which may compromise - or appear to compromise - our ability to make fair, objective, business decisions or may unfairly influence a business interaction.

Do not solicit or encourage gifts, hospitality, entertainment or any other thing for personal use.

Do not accept gifts having a monetary value; for example, gift certificates, cash, services, discounts or loans.

Notwithstanding any other provision of this section, do not offer gifts, gratuities, favours or hospitality to public sector recipients or sponsor public sector events/activities without the express prior consent of the Legal, Regulatory and Government Affairs Team.

These guidelines do not change during traditional gift giving season.

We recognize, however, that building relationships with customers and suppliers is an integral part of doing business.

You may offer and accept reasonable hospitality in certain cases. If to or from public sector third parties, you must first obtain the express prior consent of the Legal, Regulatory and Government Affairs Team. If to or from other third parties, you should consult your manager or contact the Business Conduct Help

Line when in doubt about the appropriateness of a particular situation.

You may participate in unsolicited business entertainment depending on the function or services you perform for Bell and if the entertainment is clearly intended to facilitate business goals. If for example, tickets to a sporting or cultural event are offered, then the person offering the tickets should plan to attend the event as well.

You may sponsor events/activities for customers or potential customers where the purpose is to strengthen business relationships; however it is your responsibility to know and be sensitive to the customer’s own code of conduct on these issues and, for public sector events/activities, you must first obtain the express prior consent of the Legal, Regulatory and Government Affairs Team. Solicitation of modest gifts or prizes for Bell sponsored events which provide clear benefits to the sponsor and/or charitable organization is permitted upon approval by your manager and, in the case of the public sector, the Legal, Regulatory and Government Affairs Team.

You may accept unsolicited, nominal value hospitality, gifts or mementos that are customary or business related.

You may accept business entertainment in the form of meals as long as it is modest, infrequent, and as far as possible on a reciprocal basis.

 

 

Factors which you and your manager should consider when assessing the proper course of action include:

 

   

Is Bell potentially involved in a major procurement activity with the company offering the gift or entertainment?

 

 

   

Would the gift or entertainment be considered appropriate or customary, taking into account the nature of the function or services you perform for Bell?

 

 

   

Would it be perceived as insulting or damaging to the business relationship to return the gift or decline the hospitality?

 

 

   

Can the gift or hospitality be applied to benefit all team members rather than certain individuals?

 

 

   

Is the public sector involved? If so, consult the Legal, Regulatory and Government Affairs Team

 

 

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2.4

Political Activities

 

2.4.1

Political Contributions

 

Political Contributions refer to any payment or donation, including provision of services at favourable rates, irrespective of format or location, made on behalf of Bell to a recipient involved in federal, provincial, territorial or municipal political process, such as a political party, an election or leadership candidate, a riding association or an elected official. Bell’s corporate policy prohibits political contributions without the express prior consent of the Chief Regulatory Officer. This policy does not apply to political contributions made by individuals within Bell on their own behalf. However, funds or assets being contributed must originate with

or belong to the individual making the contribution, and individuals making political contributions should be prepared to demonstrate ownership.

For further information, consult the Political Contributions Policy available from the Corporate Policies & Ethics intranet site.

Beyond standard penalties for non-compliance with the Code which were previously outlined, Bell may refer the matter to the appropriate regulatory and legal authorities, which could lead to penalties, fines or imprisonment.

 
2.4.2

Lobbying on behalf of Bell

 

Broadly speaking, lobbying involves reaching out to a public office holder in order to further Bell’s objectives, whether at the federal, provincial, municipal or other level of government. It is each employee’s own responsibility to know and ensure compliance with the rules and guidelines applicable to the jurisdiction of the public office holder he or she is meeting with. Lobbying does not, however, include formal legal or regulatory submissions, communications in a public forum or responses to government Request for Proposals.

Lobbying public office holders is a legitimate activity but the law sets certain boundaries

around lobbying, as well as establishes some disclosure requirements, to ensure that lobbying activities are transparent and ethical. The Legal, Regulatory and Government Affairs Team must be consulted before making representations to public office holders. If you have any questions, you may consult the Legal, Regulatory and Government Affairs Team prior to the meeting.

Beyond standard penalties for non-compliance with the Code which were previously outlined, Bell may refer the matter to the appropriate regulatory and legal authorities, which could lead to penalties, fines or imprisonment.

 

 

2.5

Improper Influence on the Conduct of Audits

Employees are prohibited from coercing, manipulating, misleading or fraudulently influencing Bell’s internal or external auditors at any time and especially when the employee knows or should know that his/her action, if successful, could result in rendering Bell’s financial statements misleading in any way.

 

2.6

Trading in Securities

 

2.6.1

Insider Trading

 

As a director or employee, you may become aware of undisclosed material information about Bell or any other company. Unless you are certain that the entirety of this information has been officially publicly disclosed, it is illegal for you to:

 

trade in securities of BCE Inc., Bell Canada or any company to which the information relates (securities include, without limitation, common and preferred shares, debt securities, options, share units as well as any related financial instruments) disclose such information (otherwise than in

 

 

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the necessary course of business and on a confidential basis) to another person – also known as “tipping” - even if the other person, the tippee, is related to you or is a friend. Trading or tipping by the tippee is also illegal.

Undisclosed material information refers to information that, if disclosed, could have a significant effect on the market price of a company’s securities or is likely to be considered important by a reasonable investor in determining whether to buy, sell or hold such securities. Some examples of what could constitute undisclosed material information are financial results, key operating metrics, financial guidance and business plans before they are publicly announced, material planned business acquisitions or dispositions, significant new products and services before they are launched and cybersecurity incidents.

At law, severe penalties may be imposed against you personally as a result of unlawful trading and tipping.

Assuming you are not otherwise aware of undisclosed material information, the recommended time to purchase or sell BCE Inc. and Bell Canada securities is during the period beginning on the second business day following the day of announcement of BCE Inc.’s and Bell Canada’s quarterly financial results and ending

 

on the last day of the quarter during which the announcement is made. This will help minimize the risk of an unintentional violation of these prohibitions, and the appearance of a violation (intentional or not). All employees are required to keep accurate records of their securities transactions and may be asked to report to Bell their holdings and investment transactions.

Even after Bell has officially publicly released material information, it is important to be sure that sufficient time has elapsed to enable the information to be disseminated to investors. As a rule of thumb, you should not trade securities until the second business day following the public announcement. An employee must not attempt to “beat the market” by trading simultaneously with, or shortly after, the official release of public information.

Should you have any doubt regarding your ability to legally trade in securities or whether any information can be disclosed, you must consult the Legal, Regulatory and Government Affairs Team before trading or disclosing any information.

Members of the board of directors and executives should consult the BCE Inc. and Bell Canada Insider Trading and Reporting Guidelines for additional information. A copy of these guidelines can be obtained from the Corporate Secretary’s Office.

 

 

Can I use information I obtain by accident or overheard?

 

   

No. Even when you obtain undisclosed material information by accident, such as by overhearing a discussion of a planned acquisition, you are prohibited by law from trading in securities of BCE Inc., Bell Canada or the target company. In addition, you cannot suggest to a spouse, near relative or friend that they trade in shares of BCE Inc., Bell Canada or the target company while in possession of such information as this would be considered tantamount to divulging that information to someone outside Bell for personal gain or the gain of someone else. Such securities could only be traded on the second business day after Bell or the company being acquired issues a press release publicly announcing the planned acquisition.

 

 

 

2.6.2

Short Sales, Calls and Puts

 

As a director or employee of Bell, you may not engage in the following activities with respect to BCE Inc.’s securities or the securities of any of its affiliates (such as Bell Canada): (a) short sale; (b) sale of a call option and (c) purchase of a put option.

“Short selling” means selling securities you do not currently own and borrowing a third party’s securities in order to make delivery, the whole in expectation that the securities will decrease in value when you will buy back the securities and return them to the owner. Such process

 

 

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may lead to undue speculation and abuse and is therefore prohibited.

Puts and calls may also lead to the same abuse and therefore similar restrictions apply to the sales of call options and purchases of put options in respect of securities of BCE Inc.

and its affiliates. For the purposes hereof, a “call” can be defined as an option to demand delivery of a specified number or amount of securities at a fixed price within a specified time but does not include an option or right to acquire securities of BCE Inc. or its affiliates

where such were granted by BCE Inc. or its affiliates (such as pursuant to BCE Inc.’s Long-Term Incentive (stock option) Programs). A “put” can be defined as an option to deliver a specified number or amount of securities at a fixed price within a specified time.

In summary, you cannot sell short securities of BCE Inc. or its affiliates, and you may not sell call options or buy put options over the same securities. You must exercise great caution in your trading in order to avoid inadvertent breaches of these restrictions.

 
2.7

Public Disclosure of Information

 

Only authorized executives can decide the timing and content of public disclosures regarding Bell, such as the issuance of news releases and the public filing of continuous disclosure documents with securities regulatory authorities.

If you are not an authorized designated spokesperson, you must not respond under any circumstances (including on a “no-name” or “off the record” basis) to inquiries from, or

voluntarily provide information to, the investment community or the media, unless specifically asked to do so by an authorized designated spokesperson.

Any inquiries need to be immediately referred to Bell’s Communications Department or Investor Relations Department. The list of authorized designated spokespersons can be found in Bell’s Disclosure Policy available on the Corporate Policies & Ethics intranet site.

 
2.8

Confidentiality of Customer and Employee Information

 

2.8.1

Customer Privacy

 

Bell has long been committed to maintaining the accuracy, confidentiality, security and privacy of customer information. It is essential that we protect the confidentiality of all non-public information entrusted to us by Bell or its customers, except when disclosure is authorized or legally mandated. Even seemingly mundane information might be of use to competitors, or harmful to Bell or its customers, if disclosed. Even unintentional disclosure can lead to identity theft or financial gain by third parties. Therefore, the best way to protect customer information is to limit access on a need-to-know basis. In addition, we must comply with the laws and regulations related to privacy that apply to Bell, including the Personal Information Protection and Electronic Documents Act and restrictions imposed by the CRTC.

Unless a customer provides explicit consent or disclosure is pursuant to a legal power such as a search warrant, all information kept by Bell about its customers is confidential and cannot be disclosed or used, directly or indirectly, except for business purposes. We may only use this information for the purposes for which it was collected and that the customer would reasonably expect.

Recording, releasing or disclosing private customer information for personal gain or the benefit of another will result in immediate discipline up to and including dismissal, and may include civil or criminal prosecution. This may also expose Bell to substantive reputational harm and financial liability.

 

 

Interception of Private Communications

Communications between Bell and a customer may be monitored for quality assurance purposes, with an appropriate advisory to the customer.

 

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The unlawful interception of a private communication is prohibited under the Criminal Code. The content of a customer’s transmissions (including telephone and email) may not be monitored, nor may the content, nature and existence of telephone calls and data transmissions be released to third parties except as explicitly authorized by law.

Unintentional interceptions of a call may occur when providing service, doing repairs or when conducting quality control checks. In these instances, the employee must advise the persons on the call of the unintended interception and immediately disconnect from that call.

Business Customer or Supplier Information

 

Maintaining customer and supplier privacy is also crucial when dealing with contracts, proposals and quotations. We must be vigilant to not share business customer or supplier information - such as business plans, names of representatives or information of a sensitive nature - with other employees servicing a similar market segment (for example, the banking industry). By doing so, we may inadvertently divulge information about a business customer or supplier to that

customer’s or supplier competitor. Also, unless a business customer or supplier provides explicit consent, we do not share information about business customers or suppliers with other affiliates or partners, agents or subsidiaries of our group, except with those affiliate or partners or agents or subsidiaries of a group, who are directly involved in the specific contract, proposals or quotations or a related transaction.

 

 

I am a customer service representative for the residential market. A caller identifying himself as the spouse of a wireless customer requests billing details for the spouse’s account, indicating that he looks after bill payments for the family. Should I provide the information?

 

   

If the caller is not explicitly listed on the account as an authorized co-user, the information should not be provided. Account details, particularly for wireless accounts, can be very sensitive information and is often sought in the context of matrimonial disputes. Advise the caller to have the account holder of record contact Bell to have the spouse added to the account as an authorized co-user. This approach applies equally to all customer accounts, in all business units.

 

 

 

2.8.2

Employee Privacy

 

Bell has also long been committed to protecting the personal information of its employees which is collected only for purposes relevant to managing the employment relationship. The obligations described in the Personal Information Protection and Electronic Documents Act also apply to the collection, use, disclosure and protection of personal employee information.

Personal information means information, in any format, about an identifiable individual, but does not include the name, title or business address or telephone number of an employee. Employee personal information refers to those records like the personnel files and other documents collected and used to provide services or support such as pay or benefits information. Personal health information is

held separately by the Disability Management Group.

All personal information is protected by security safeguards appropriate to the sensitivity of the information and may only be used for reasonable purposes relating to the management of the employment relationship or for other purposes as may be required by law. All employees holding personal employee information must handle it in accordance with privacy principles. Aside from applying normal safeguards (i.e. locked cabinets and desks), employees should avoid discussing personal employee information in public areas.

Notwithstanding the notion of employee personal information, there shall be no expectation of privacy for communications made through the use of Bell equipment or using

 

 

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Bell paid services or products (for example, e-mail, internet/intranet activities, voice mail, computer files, network), as well as workspaces (for example, desks, lockers, and vehicles).

Bell reserves the right to monitor or search any and all Bell property at any time, where it determines on reasonable grounds that this is required; for example:

 

  to evaluate and measure service quality in the interests of the safety and protection of employees or Bell
  to search for specific business information
  to comply with legal warrants or other obligations
  to conduct security investigations such as in the event Bell suspects an employee of fraud, theft, undeclared conflict of interest, violation of this code or other situation which may cause prejudice to an employee or Bell or its reputation.

Additional information is available through the Employee Privacy section of the Human Resources intranet site as well as in the Acceptable Use of Information Technology Resources Policy.

 

 

2.8.3

Bell Privacy Policies

To support our commitment to privacy we have developed policies and a formal privacy code - the Bell Privacy Policy and the Bell Employee Privacy Policy - which spell out the commitments of Bell, its employees and agents and the rights of customers and employees regarding personal information.

The Bell Privacy Ombudsman oversees compliance with these privacy policies and may be contacted at privacy@bell.ca.

The Bell Privacy Policy, the Bell Employee Privacy Policy and other privacy-related documents are available by following the “privacy” link on www.bell.ca or on the Bellnet policies page Corporate Policies & Ethics.

 

2.9

Information Classification and Records Management

 

The purpose of the Information Management Policy and the Records Retention Schedule is to ensure that Bell’s information is properly classified so records are adequately protected, stored and shared to comply with legal requirements and business needs. The policy applies to all forms of records regardless of who has prepared them, regardless of the medium used (paper, electronic or other) and whether or not they reside on Bell’s premises, servers and infrastructure.

Employees are responsible for:

 

  ensuring compliance with business, legal and regulatory requirements with respect to record retention
  improving operational efficiencies, reducing space requirements and costs by eliminating unnecessary records
  ensuring the preservation and accessibility of relevant records to satisfy specific operating needs and in the event of potential or actual litigation or internal or external (including governmental) investigation
  ensuring information is kept for as long as required according to the Records Retention Schedule.

Confidential information is information about our business that must not be made publicly available. Confidential information includes information classified as Internal Use or Confidential, as well as information that has not been explicitly classified as Public. Some examples of information which must be safeguarded from disclosure include:

 

  marketing strategies, pricing, bids and proposals
  training material
  employee or customer personal information
  passwords and encryption keys
  undisclosed financial results
  pictures or recordings of confidential information or discussions
  any video, picture or recording taken on work premise or of Bell premises, which are permitted only with director level management approval. Furthermore, it is strictly prohibited to record any identifiable
 

 

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individual without the person’s knowledge and consent, except if such recording is for investigation purposes and authorized by Corporate Security.

Employees must also:

 

  not send confidential information to personal email accounts
  not store confidential information on portable storage devices including USB keys or external hard drives
  ensure confidential information is securely stored at all times
  not store confidential information, including pictures, on personal devices that have not
   

been registered through the BYOD (bring your own device) process

  avoid discussing such information in public places (including by phone in taxis, trains and airplanes), with family members or friends or with business colleagues when conversations might be overheard
  report immediately unauthorized disclosure, transmission, misappropriation or misuse of confidential information to Bell’s National Incident Centre (NIC) at 1-866-714-0911 or at cni-nic@bell.ca
 

 

Post Employment Obligations

Your obligation to protect Bell’s confidential information continues after the employment relationship ends. Upon termination of employment or contract, or reassignment, all employees must:

 

 

return all copies of confidential information and documents, including electronic records, and all third party information entrusted to Bell

 

return any equipment entrusted to them including mobile devices, laptops and external storage devices

 

continue to uphold the confidentiality of Bell confidential information and not use or disseminate any such information. This continuing obligation is particularly important in the case of a departing employee who subsequently works for one of Bell’s competitors or suppliers.

Preservation of Records under Legal Hold

 

Records subject to preservation under a “legal hold” must not be disposed of until the hold is lifted. Where a “legal hold” is in place, all owners of records that are subject to it must take positive steps to ensure the preservation of such records. Those record owners must also, prior to taking any steps that might affect the disposal of such records, such as re-imaging their computers or being “evergreened” to a new device, contact the Legal, Regulatory and Government Affairs Team (ediscovery.legal@bell.ca) to verify whether they can dispose of the records. Any

employee unsure whether records are subject to a legal hold or unsure of the hold’s scope should contact the Legal, Regulatory and Government Affairs Team at ediscovery.legal@bell.ca.

When an employee, who owns records that are subject to a legal hold leaves Bell, the employee’s manager and Human Resources Consultant must ensure that these records are preserved.

 

How do I tell if a document (paper or electronic) is confidential if it is not marked as such?

 

   

You must begin by asking the person who issued the document (if known), as the originator is the person who must determine the security classification. If you can’t find the source of the information and the nature of the document does not make the classification obvious (such as information that has been made public), the document must be treated as confidential until the proper classification is determined.

 

 

 

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2.10

Dealing with Customers

 

We achieve an ongoing competitive advantage and long-term relationships with our customers by ensuring that our reputation for quality service, ethical behaviour and integrity remains intact. We compete vigorously but fairly, while complying with our legal and ethical obligations.

Customers and customer service are at the core of our business. To succeed, we have to be honest, courteous, and respectful when dealing with our customers and their property whether visiting their homes or place of business, or interacting in-store, or on the phone.

There is never a situation where ethical or legal obligations should be compromised to meet sales objectives. No one - not even a manager - can force us to commit an illegal or unethical act that may damage Bell’s reputation, or our own.

Our customers expect us to be ethical in our practices, to provide quality products and services, and to be truthful when discussing our advantages and benefits. To maintain that trust we must:

 

  offer customers only those services which they need or want
  promote our products, services, packages and pricing accurately even when up-selling and providing retention discounts
  ensure customers understand what they are ordering
  give customers the straight facts about their competitive choices
  not offer to waive charges, cut special deals or grant discounts that are not authorized
  never mislead customers or misrepresent facts or allow our judgment to be compromised
  report any unethical behaviour we witness
  serve our Québec clients in the official language of their choice (French or English).
 

 

You are trying to close a sale with a customer. There are conditions applicable to the offer you’ve described that may make the customer reluctant to subscribe. You know those conditions will be described in the confirmation email the customer will receive and in the contract. Can you leave those details out and let the customer read about them?

 

   

It is your responsibility to communicate our offers and prices accurately. You must advise the customer of all applicable conditions so that they can make an informed choice prior to purchasing.

 

 

 

2.11

Dealing with Suppliers and Competitors

 

2.11.1

Supplier Relations - Reciprocity

 

Like many corporations, we purchase goods and services from thousands of suppliers, many of whom are also our customers.

While we quite naturally want to do business with our customers, and will take advantage of every opportunity to do so, we must keep in mind that this should not be done at the expense of price, quality and service. These criteria, rather than the simple fact a supplier is or is not our customer, should guide our purchasing decisions.

Reciprocity is an arrangement where a purchaser gives business to a supplier because that supplier is its customer for other products, in preference to another supplier. Reciprocity,

 

whether it originates with the buyer or the seller, should be handled with utmost care for a number of financial, ethical and legal reasons.

For example, we may lose the opportunity to save money on our purchases if we choose suppliers solely because they are Bell customers and we may be accused of anti-competitive behaviour.

Under certain circumstances, we may, for strategic marketing reasons, develop and contract services exclusively with a given supplier. The Law Department must be consulted before such arrangements are established.

 

 

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Our department is organizing a meeting at a hotel. Due to the large size of our group, and the fact we don’t want to travel far, we’ve chosen a nearby hotel serviced by a competitor. Is this okay, or should we find a hotel that uses Bell services?

 

   

It is not Bell policy to prohibit employees on company business from dealing with organizations that do not use Bell’s services. While we actively encourage everyone at Bell to do business with our customers, we must ensure that this is not done at the expense of price, quality and service.

 

 

   

Although the hotel you’ve chosen is not a Bell customer, you were right to choose it if, in your judgment, it best meets the price-quality-service criteria you are looking for: the hotel is located close to your office, it can easily accommodate all the members of your department and, as a result, will enable your group to save both time and traveling expenses.

 

 

 

2.11.2

Treating Competitors with Respect

 

We welcome and encourage fair and open competition and we are committed to treating competitors with due respect. By doing so, we honour the competitive spirit that motivates us to perform at our best.

Behaving competitively means that we:

 

  do not portray a competitor to the public or to a customer in an inaccurate, misleading, disparaging or unfair manner or in a way contrary to laws that govern competitive business practices
  do not state as a fact our understanding of a competitor’s price information as
   

that information may be out of date and incomplete

  exercise care when commenting publicly on such topics as a competitor’s financial situation, business practices, management, reliability or foreign ownership
  do not behave disrespectfully toward a customer who has decided to purchase a competitor’s products or services; rather we rigorously promote and provide high-quality service for any other product we may supply to this customer.
 

 

2.11.3

Obtaining Information about our Competitors

 

We have every right to gather information about the marketplace in which we operate through legal and ethical means. This includes information about our competitors, their products and services, technology, prices, advertising, and so on.

However, we do not engage in industrial espionage, buy proprietary information or induce employees or former employees of our

competitors to disclose proprietary or confidential information of his/her current or former employer.

If you become aware that confidential or proprietary information about a competitor is circulating through Bell, you must not use such information and must immediately report it as indicated below.

 

 

Our business unit recently hired someone who was employed with a competing radio station. This person has confidential information which would be very valuable to us. Can we ask him to disclose this confidential information?

 

   

Absolutely not. The new employee has an obligation to protect his/her former company’s confidential or proprietary information, just as you would be obliged to protect Bell’s confidential or proprietary information if you were to leave Bell. You must respect the employee’s personal integrity as well as his/her obligation to his/her former employer. Inducing an employee to disclose such confidential information is a violation of the Code.

 

 

 

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If I become aware that this person is disclosing a competitor’s confidential information to Bell employees, should I report it?

 

   

Yes you must report this fact to your immediate supervisor or through the Business Conduct Help Line at clearviewconnects.com or by calling 1-866-298-2942 – and you must not use such confidential information. Bell’s reputation could be significantly harmed by such disclosure and taking immediate steps to contain the confidential information is critical. Failure to report is a violation of the Code.

 

 

 

2.11.4

Agreements with Competitors

 

In many cases, agreements between competitors that restrict i) the price at which competitors can sell their products or services to customers, ii) the customers to whom competitors can sell, or iii) quantities that competitors will produce or market, are criminal offences and thus prohibited. To be clear, this prohibition does not address cases where two competitors are simply entering into an agreement as buyer and seller of each other, as is for instance common in our wholesale division.

The law provides certain exceptions and we may, for strategic reasons, sometimes take advantage of these exceptions and enter into specific agreements with competitors. For instance, the rules allow, under certain conditions, the submission of joint bids with competitors in response to requests for proposal, something which otherwise would appear to be a prohibited agreement on price. The Legal, Regulatory and Government Affairs Team must be consulted before arrangements with competitors are established.

 

 

2.11.5

When a Competitor is a Customer

When providing competitors with network facilities, broadcasting, access or other services, we cannot use information obtained as a result of that process in any manner which would give us an undue competitive advantage. This includes ensuring that this information is not made available to those within Bell or its affiliates who develop competitive service strategies. It also means that we must not disclose a customer’s choice of competitive carrier to anyone who does not clearly require the information to provide service to the customer.

 

2.12

Safeguarding Bell Assets

 

We all have a responsibility to be accountable for and safeguard Bell assets from loss, damage, theft, fraud, vandalism, sabotage or unauthorized use, copying, disclosure or disposal. The improper use and/or reporting of assets could seriously undermine Bell’s integrity, adversely affect our business strategies and decisions and weaken investor confidence. It may lead to disciplinary action up to and including dismissal. It could also constitute a criminal offence.

Bell’s assets include but are not limited to, offices and office equipment, inventory, computers, art, telephone and video equipment, vehicles, tools, materials, buildings, people, property, information, funds, communication networks, information systems, and intellectual property. The vehicle related policy and practice can be found on the Corporate Services intranet site and covers both the use

of Bell-owned vehicles and the use of employee’s vehicle for Bell purposes.

Access to and use of these assets must be authorized, adequately controlled and based on business needs. We should not use Bell assets for personal purposes, except where this use has been authorized by your leader. Each of us must also take appropriate measures to prevent losses due to willful action by others, both outside and within Bell, which may result in personal injury, property damage, theft, fraud, loss, abuse or unauthorized access to physical or logical assets, and intellectual property (including data).

Employees are expected to safeguard Bell assets and comply with Bell policies, including the Policy on Authorizations.

 

 

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Bell policies, including the Policy on Authorizations, are available in the Corporate Policies & Ethics intranet site.

To best safeguard the tools and equipment used as part of their functions, employees must consult the Bell Corporate Security policies,

available on the Corporate Policies & Ethics intranet site.

Loss or theft of Bell assets, property damage and malfunctioning doors and locks are to be reported to Bell’s National Incident Centre (NIC) at 1-866-714-0911 or at cni-nic@bell.ca.

 

 

2.12.1

Visible ID

All employees, consultants and contractors must wear a visible, valid, designated ID card at all times while on Bell premises. An ID card can only be used by the employee to whom it is issued. It cannot be shared or lent. Visitors must wear a visible, valid, designated visitor’s card while on Bell premises and must be accompanied by a Bell team member at all times. Employees should question anyone on Bell premises not wearing a visible Bell ID or visitor’s card.

 

2.12.2

Prevention of Fraud

 

What is Fraud?

 

   

Fraud is defined as an intentional deception, falsification or misrepresentation made for personal gain, or to damage or create loss for the organization, customers or individuals. This can include the misuse or misapplication of the organization’s resources or assets to conduct internal fraud. This can also include actions taken towards business partners such as clients and service providers as well as false or inflated insurance claims presented to Manulife or any other insurance provider.

 

 

Successfully preventing fraud requires an ongoing commitment from all of us. This includes actively participating in the prevention, detection, and reporting of suspected fraud, whether committed by an internal or external party. As employees we will not engage, directly or indirectly, in bribery, kick-backs, account falsification, false claims, time fraud or any other fraudulent or corrupt business practices.

Fraudulent actions are not only unethical, but may also be a violation of law, Bell has a “zero tolerance” stance with regards to all confirmed fraud situations. If you are approached by anyone with an opportunity to engage in fraudulent activities, you must report the incident to your manager and Corporate Security or through the confidential Employee Help Line available at clearviewconnects.com or by calling 1-866-298-2942 (toll free).

 

2.12.3

Corporate Credit Cards and Bell Funds

We are personally responsible for funds, cash, cheques, postage, etc., over which we have control. Corporate credit cards are not to be used for personal cash withdrawals or purchases and other charge cards are to be used only for business purposes. We must also ensure that all expense vouchers, benefit claims and invoices are accurate and properly authorized.

Corporate policy regarding the use of corporate credit cards and corporate travel is detailed on the Travel and Expenses Management intranet site. We should, unless unavailable, use the services of suppliers with whom Bell has negotiated agreements (e.g. travel agents, airlines, car-rental agencies, taxi companies, hotels).

 

2.12.4

Hiring Consultants or Contractors

Hiring of contractors, consultants or other external resources must follow the rules as outlined on the Contractors and Consultants Procurement intranet site and hiring of external resources must also comply with the principles and procedures of the Contractor Program Policy-and the requirements of the relevant Bell Policies available on the Corporate Policies & Ethics intranet site,

 

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including the Personnel Security Policy. In addition, all contractors performing high-risk work must be pre-qualified to ensure all workers are competent, trained and compliant with the health and safety requirements of Bell, prior to conducting any work for Bell, as outlined in the Directive on contractor safety and high-risk services.

 

2.12.5

Electronic Procurement and Electronic Processing of Expense Reports

Bell electronically processes much of its procurement needs including employee expense reports and accounting for corporate credit card payments. All employee expense reports and credit card payments must be approved by a leader one level above the employee submitting the reports.

 

2.12.6

Business Books and Records

 

Bell’s books and records contain information essential to effective and efficient operations. They form the basis upon which key decisions about Bell are made by our executives, financial analysts, shareholders, investors, and regulators.

Because they are so crucial to Bell meeting its legal, regulatory and financial obligations, we must ensure that all documents, reports, plans and records falling under our responsibility are accurate and complete. We must also ensure that all transactions are properly authorized.

In preparing and maintaining our books and records, we must:

 

  adhere to all accepted accounting standards and practices, rules, regulations and controls applicable to us
  ensure that all entries are recorded accurately, on time, in the proper accounts, and are properly documented
  record all funds, assets and transactions; we may not establish any undisclosed or unrecorded fund or assets for any purpose
  keep books and records which reflect fairly, accurately and in reasonable detail Bell’s transactions, acquisitions and disposal of assets and other relevant activities
  sign only those documents we believe to be accurate and truthful
  restrict access to sensitive or confidential information (such as financial records and customer information) to ensure the information is not accidentally or intentionally disclosed, modified, misused or destroyed
  maintain internal control processes to ensure that Bell meets its book and record keeping obligations.
 
2.12.7

Standard Contracts and Agreements

If you are in a position to develop or sign contracts, you must take necessary steps to protect the interests of Bell by ensuring that only Bell standard form template contracts are used and, in the case of purchase agreements, the Procurement Policy is followed. All contracts must be reviewed by appropriate departments such as, Legal, Regulatory and Government Affairs, Procurement, Corporate Security, Corporate Responsibility & Environment, Health, Safety and Workplace, Risk Advisory Services and Insurance. Standard contracts must not be modified without prior approval of the Legal, Regulatory and Government Affairs Team.

 

2.12.8

Information Security

 

Computers and computer networks form the backbone of our business and operations infrastructure. For this reason, every effort must be made to protect Bell’s computer systems and associated software from the various threats to their security, such as accidental or deliberate destruction of data and equipment, interruption of service,

disclosure of confidential information, theft and corruption.

To maintain security:

 

  access to computer systems must only be granted to authorized users
  access codes and passwords must be kept confidential and cannot be shared with
 

 

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 anyone including leaders, co-workers and support teams,

  when traveling with mobile devices that access or contain company data, you must comply with applicable Bell policies
  comply with all Information Security Policies and Directives
  follow Bell rules regarding the purchase and use of computer software
  guard against computer viruses that may damage Bell’s computer systems
  report computer security incidents, virus or worms to the Bell Customer Service Desk at 1-888-920-8888.
  pay close attention to emails containing the (EXT) tag in the subject line and the warning
   

banner against external emails to protect against malicious attachments and links

  report phishing emails sent to your Bell office account as follows:

1. From your email inbox, select the phishing email

2. Press the Ctrl + Alt + F or for Mac Ctrl + Cmd + J keys and forward the email to phish@bell.ca

3. Permanently delete the original and sent messages from Outlook.

For further information and references, visit the Corporate Security intranet site.

 
2.12.9

Intellectual Property

 

Intellectual property such as patents, inventions, copyrights, trade-marks, domain names, industrial designs and trade secrets are strategic assets of Bell and must not be disclosed to or used by others without first ensuring that appropriate legal safeguards are in place. Failure to do so could result in Bell losing rights in its intellectual property.

Intellectual property rights also reside in and protect know-how, business methods and processes, computer software, written materials (including paper or electronic form), graphics, photographs and audiovisual works, whether developed internally within Bell or obtained from others.

Every employee has a responsibility to preserve, protect and enhance the value of these assets.

Trade-marks, including Bell’s logo and its various trade names, are among Bell’s most valuable assets. When using them, employees must follow the Brand guidelines, and must immediately report any infringement or misuse of such trade-marks

or trade names to the Brand and Identity team by sending an email to info.branding@bell.ca. In addition to protecting Bell’s intellectual property, we also have a responsibility to avoid infringing intellectual property rights of others, as detailed in the Intellectual Property Policy referred to below.

All intellectual property conceived or made in the course of our employment with Bell or which are within the scope of Bell’s business interests, are rightly the exclusive property of Bell. Each employee assigns to Bell the ownership of all such intellectual property and also waives in favour of Bell any moral rights they may have in such intellectual property. Employees are prohibited from applying for patents or other intellectual property registrations in regards to intellectual property that belongs to Bell, nor can Bell’s intellectual property be used for personal purposes or gain.

For additional information, please consult the Intellectual Property Policy.

 
2.12.10

Proper Use of Bell-Provided Internet Access and Other IT Resources

 

Access to the Internet is primarily provided for business purposes. However, accommodating employees’ development and awareness through personal use of Bell-provided Internet access is also encouraged.

Personal use of the Internet and e-mail must be reasonable, i.e. it must not impede or reduce an

employee’s ability to perform his/her duties, diminish productivity or effectiveness at work or negatively impact Bell in any way. Abuse of Bell-provided Internet or e-mail may result in disciplinary action up to and including dismissal. The use of Internet and e-mail to conduct illegal activities is strictly prohibited and will lead to dismissal.

 

 

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The law strictly prohibits the unlicensed use of software on computers (including tablets and smart phones). To obtain software licensed by Bell for business use visit the software page in My Telecom Warehouse. You must also verify and respect the manufacturer’s conditions of license or agreement under which the software was acquired. Copying software onto your Bell or personal computer may be a violation of the

software company’s licensing agreement as well as copyright laws, and placing Bell at risk of prosecution for copyright infringement.

For further details, consult the Acceptable Use of Information Technology Resources Policy.

Any evidence of child pornography is to be immediately reported through the Internet child pornography reporting form.

 

 

My daughter has asked me if she can use my company laptop to do some research on the internet for a school project. Should I lend her my laptop?

No. To protect our networks, we can’t let anyone, even family members, use Bell equipment.

 

 

2.13

Social Media

 

Social networking sites like Facebook, Instagram, LinkedIn, Snapchat, Twitter and YouTube have all become increasingly effective channels for Bell to strengthen our brand and our connection with customers and the public. All team members are required to follow Bell’s Social Media Guidelines (available from the Corporate Policies and Ethics intranet site) to ensure we can maximize the value of social media while protecting and enhancing the reputation of Bell and our team. We expect our team members to respect the principles and values outlined in the Code while navigating the social media world.

As a general rule, always remember that you are responsible for what you say or post online. Never assume that anything you say or post is private on social media and other public websites. Any statement you make online may be perceived as representative of Bell company policy and may create unnecessary liability for you and the company.

No Bell team member is authorized to speak on behalf of Bell and its affiliates without prior approval. If you believe it is necessary for you to engage in social media on behalf of Bell, please contact the Social Media team (social.info@bell.ca), which will coordinate all requests for approval with Bell’s executive leadership team. For individuals authorized to participate in social media on behalf of Bell, any business records created by this activity will be managed in accordance with the Information Classification and Records Management Policy.

  Protecting confidential information: whether you are posting as an approved Bell spokesperson or for personal reasons, you can only disclose information that is in the public domain. You have an obligation to continue to protect Bell’s Confidential and Internal Use information as defined in the Information Management Policy. You have an obligation to protect confidential and personal information and may not post any comment that would include confidential information concerning our company, customers, suppliers or team members.
  Do not post online reviews of Bell products and services: “Astroturfing” is the term for online reviews of products and services that give the impression they have been made by independent consumers when in fact the person making them has a business interest in the product or service being reviewed. Employee discussion of our products or services online could be perceived as providing a biased or unrealistic opinion. This conduct may also raise legal issues and can have serious repercussions for you and for Bell. For all these reasons, Bell’s policy is that team members cannot rate or review any product or service owned by or associated with Bell or its affiliates on any public online service or site, including all social media platforms. That means, for example, that we cannot rate or review Bell products, services or apps on online review sites or Apple, Android, BlackBerry, or other app
 

 

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stores. It also means that we cannot comment on Bell products or services on social media sites such as Facebook, Twitter, LinkedIn Snapchat, YouTube or Instagram.

  Respect for our company and reputation: upholding Bell’s reputation is in the best interests of our entire team. Misleading, disparaging or untruthful comments about our company, products, services or team members can seriously undermine our brand and ability to support customers. We must also have respect for our competitors and must not portray a competitor to the public or to a customer in an inaccurate, misleading, disparaging or unfair manner. Don’t post comments or participate in

online campaigns that could potentially jeopardize our reputation, including posting comments, reviews or ratings online about competitors’ products and services.

As with any company policy, violations may be serious and require a disciplinary action, up to and including termination of employment.

A complete copy of the Bell’s Social Media Guidelines is available from the Corporate Policies and Ethics intranet site. Additional related corporate policies, such as Bell’s Acceptable Use of Information Technology Resources Policy and Bell Media’s Social Media Policy for CTV News and on-air talent are available from the Corporate Policies and Ethics intranet site.

 

 

2.14

Work Environment

 

2.14.1

Mental Health

 

At Bell, we believe that the mental health of our team members is essential to achieving personal and organizational success and we are committed to leading by example in our own workplace by promoting mental health and supporting team members with a mental illness.

We expect every member of the Bell organization to take primary responsibility for their own health. Every employee also has a responsibility to contribute towards a workplace that promotes mental wellbeing.

Bell is committed to:

 

  supporting employees experiencing mental illness through our workplace practices
  understanding what factors contribute towards mental wellbeing at work by reviewing Bell’s mental health policy, employee feedback, government and legal requirements, and current best practices
  setting objectives that drive continuous improvement of our workplace mental
   

health strategy and regularly evaluating our approach

  implementing or adapting policies and practices that support mental health in the workplace within the context of our corporate priorities and the evolution of our industry
  providing resources and training to educate all team members about mental health
  encouraging employees to take part in activities that contribute to their own mental health in the workplace.

To view the full policy statement, consult the Corporate Ethics and Policy intranet site at the following link: Corporate Policies and Ethics

Additional information on Mental Health in the Workplace, training and resources is available on the Human Resources intranet site at Mental Health and Wellness.

You can also contact the Workplace Health team for more information at workplacehealth@bell.ca.

 

 

2.14.2

Respect and Professionalism in the Workplace

Upholding respect and professionalism in the workplace enables us to build and cultivate more meaningful, richer relationships with fellow team members, customers and the broader public, suppliers and shareholders. For this reason, we expect all our employees to respect their colleagues, team members and leaders.

We are committed to fostering a workplace which encourages respect, collaboration, openness and effective communication and which recognizes the intrinsic dignity and worth of all employees and values the diversity of team members, customers, suppliers and shareholders.

 

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Bell supports prevention by equipping employees and leaders with practical resources (Civility guide, Leader’s guide to managing conflict) available on the Respectful workplace ethics website.

 

2.14.3

Diversity, Inclusion and Employment Equity

 

Diversity is an unwavering respect for each other’s uniqueness including, but not limited to: culture, ethnicity, gender, gender identity/expression, age, religion, disability, sexual orientation, education and experiences.

By valuing our differences and eliminating discrimination, we can create an inclusive and accessible work environment based on merit and fairness where all employees feel valued, respected and supported to achieve their full potential.

At Bell, we prohibit all types of unlawful discrimination, including harassment, whether directed against an individual or group, including employees, customers, suppliers and shareholders. This specifically includes discrimination based on race, national or ethnic origin, aboriginal or indigenous status, language spoken, religion, age, sex (including pregnancy or childbirth), gender identity/expression, sexual orientation, marital status, family status, veteran status, physical or mental disability and conviction for which a pardon has been granted.

As part of our commitment to supporting human rights and creating an inclusive workplace, we support people’s rights to reasonable accommodation. An accommodation is considered reasonable, if it does not result in undue hardship, such as: significant impact on business operations, or risk to the health and safety of the employee concerned or any other person. Examples of accommodation can include physical or technical alterations to an employee’s workspace (workstation height, non-standard computer monitor, telephone with amplifier or headset) and modification of work duties or conditions.

To make an accommodation request or to obtain information on the request process, visit the Human rights website.

This website also houses our Diversity, Human Rights and Accommodation policies, which provide the framework for supporting a diverse and inclusive workplace.

Employment equity is also an important aspect

of our diversity and inclusion strategy. While diversity encompasses many different factors that make each of us unique, legislated employment equity programs focus on four designated and underrepresented groups: women, visible minorities, Indigenous Peoples and persons with disabilities. Bell is required to comply with the Employment Equity Act through workforce practices that are free of barriers to recruiting, retaining and promoting members of these designated groups. Ensuring equity in the workplace is not about hiring unqualified individuals but rather ensuring that the qualified members of the designated groups are given equal employment opportunities.

Employment equity and diversity & inclusion programs also make business sense. Building a workforce that reflects the diversity of the communities in which we live and serve brings Bell closer to its customers. By including diverse suppliers into our sourcing processes, Bell also gains access to competitive offerings, greater innovation, and culturally diverse business interactions.

Collecting self-identification data from our online employment diversity questionnaire helps us to ensure Bell’s hiring practices are fair and we have equitable representation in our workforce compared to the Canadian labour market availability. All Bell employees are asked to complete the diversity questionnaire, available in the Employment equity section of the Diversity and inclusion intranet site.

In 2016, Bell expanded the scope of the internal diversity questionnaire to include 12 distinct demographic components:

 

Gender Identity    Ancestral group
Sexual Orientation    Caregiver
Visible Minority status    Language
Ethnicity    Newcomer status
Disability    Religion and belief
Indigenous People status    Veteran Status

This knowledge gives us a baseline to measure and track our diversity performance and allows for appropriate strategies and action plans to

 

 

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be developed in order to address any gaps and foster an inclusive environment for our team members. The information collected in the employment diversity questionnaire is confidential.

In addition, Diversity training and Respect and Professionalism in the Workplace training are available to help support a diverse and inclusive work environment. Information is available at the following link: Human Rights.

Bell operates in both official languages, English and French, and complies with Québec laws requiring French to be the primary language used in workplaces in that province. Our Language Diversity Program provides training, tools and a language pairing program to support bilingualism throughout the organization. For more details, please see the Bell Language Policy.

 

 

2.14.4

Preventing Workplace Violence and Harassment

 

Our culture promotes a respectful, safe, healthy and violence-free workplace and as part of our commitment to keeping all employees safe, we take a zero-tolerance approach to workplace violence at Bell. This applies to all team members including vendors, contractors and third-party service providers, and is explained in detail in our Workplace Violence and Harassment Prevention Policy. Any violation of this policy can be grounds for disciplinary measures up to and including dismissal.

Workplace violence is defined as any action, conduct, threat or gesture of a person towards an employee in their workplace that can reasonably be expected to cause harm, injury or illness to that employee.

Examples of workplace violence include:

 

  Written or verbal threats /verbal assaults – profanity, insults or abusive language confirming or describing a future act or potential harm
  Threatening behaviour – for example, a gesture using a fist, destruction of material/equipment, throwing objects
  Harassment – which is vexatious behaviour that is repetitive and hostile or unwanted that degrades, humiliates, embarrasses, affects or insults a team members’ dignity or integrity and that results in a harmful work environment for the team member
  Sexual harassment/sexual assault – inappropriate comments, direct sexual threat, repeated sexual comments, sharing of inappropriate photos, aggression, unwanted touching
  Bullying/cyberbullying/mobbing – A form of psychological (verbal, physical or social) harassment, done by one person (bullying) or a group (mobbing), consisting of negative
   

remarks aimed at isolating and tormenting an individual

  Physical aggression/assault – unwanted physical contact, brandishing a weapon or an object, to hit, punch, push or shove and other types of violent behaviours
  Repetitive unwanted attempts at customer contact – any situations where an employee or agent uses, or attempts to use, customer (or potential customer) contact information, such as their home or work address, home or wireless telephone number or fax machine number, email, SMS or other electronic address or social media contact information, to contact the customer or potential customer for a social or other purpose that is unrelated to providing the company’s products or services.

Acts of violence may occur as a single incident or as an event resulting from a series of exposures to risk factors outlined above. The conduct may be intentional or unintentional. If these actions occur outside the workplace, but result from workplace relationships or conflicts, they can also be considered workplace violence.

Every Bell team member plays a role in maintaining a safe and healthy workplace and is expected to:

 

  Abide by the Workplace Violence and Harassment Prevention Policy and follow mandatory training – Respect in the Workplace – Prevention of Harassment and Violence in the Workplace (Career Zone course L1027)
  Maintain professional behaviour based on respect, collaboration, openness and effective communication (see Civility Guide, available on the Respectful workplace ethics website)
 

 

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  Act responsibly by collaborating and de-escalating situations of conflict
  When advised of inappropriate behavior, follow directives
  Recognize warning signs and seek support when required to resolve a conflict
  Report any act or threatened act of violence to a manager, Human Resources (HR) or Corporate Security. In situations of imminent danger, first call 911. When it is safe to do so, contact the National Incident Center (1 866-714-0911) or cni-nic@bell.ca)
  Document facts and provide all available evidence using the appropriate complaint form
  Cooperate during an investigation and the resolution of matters involving workplace violence by following appropriate de-escalation directives and respecting the privacy and confidentiality of all parties involved.

Please refer to Bellnet’s Respectful workplace ethics website for additional useful information.

 
2.14.5

Health and Safety

 

At Bell, the health and safety of our team members and external stakeholders is integral to the success of our strategic imperatives, and as such, Bell embraces this commitment.

Our Obligations

 

  To provide a safe and healthy workplace which is essential to achieving success in all areas of our business
  Under the law, employees and leaders at all levels of the company are personally accountable to ensure proper health and safety practices are in place.

Your Role

As a Bell team member, you assume the primary responsibility for your own health and safety and to uphold safe work practices at all times to prevent injuries. You have a role to play in supporting our Health and Safety Policy by:

 

  Upholding safe work practices at all times to prevent injuries
  Identifying and reporting health & safety hazards and incidents via the established reporting processes and participating in associated investigations when required
  Actively participating in health and safety training
  Cooperating as required to meet or exceed health & safety laws and regulations that apply to us.

Our Health & Safety Policy Statement

 

At Bell, the health and safety of our team members and external stakeholders, including

contractors, customers, and the general public, is an absolute priority. We also believe that a safe and healthy workplace is essential to achieving organization success, in all areas of our business. To support our commitment to team members, Bell will:

 

  ensure due diligence in its approach to meet or exceed all applicable workplace health & safety laws and regulations

 

  identify, analyze and address health & safety hazards

 

  establish processes and practices to support a safe workplace and prevent injuries

 

  investigate health & safety incidents

 

  provide employee training to ensure adequate health & safety knowledge and competency

 

  work in consultation with joint health & safety committees to uphold and evolve safe work practices and resolve any issues

 

  set objectives to continuously improve our safety performance

 

  regularly evaluate, monitor and report health & safety performance.

In support of our commitment to external partners and stakeholders, Bell will:

 

  require contractors, sub-contractors and third parties that access Bell sites to demonstrate due diligence at all times by having appropriate training, following contractual requirements, working safely and not exposing themselves or Bell employees to health & safety risks.
 

 

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  cooperate with government and other stakeholders on health & safety matters.

Additional information on Health and safety programs and procedures is available on the Health and Safety intranet site under Human Resources, Workplace and Safety.

You can also contact the Corporate Health and Safety team for more information at Info.ss-hs@bell.ca.

 
2.14.6

Emergency Management

 

Employees may encounter various emergency situations that can directly affect them or Bell. To this end, Bell is committed to a level of preparedness and planning that is designed to “protect life and property” and to ensure a rapid return to providing service to our customers. Through the development and implementation of emergency response procedures and the “Be Ready” training modules, employees and business units will be ready to respond during emergencies. All employees must follow the “Be Ready” on line training every two years.

In the event of a life-threatening emergency first make sure you are safe, then call 911 (or local emergency service). All emergencies and emergency conditions including unplanned evacuations, or situations significantly impairing or potentially impacting service

(such as but not limited to floods, major fires, power outages, health and safety emergencies) occurring on or in proximity to Bell facilities are to be reported to Bell’s National Incident Centre (NIC) at 1-866-714-0911 or cni-nic@bell.ca. For information on Bell’s Emergency Management procedures, consult the Corporate Security intranet site.

Evidence of serious criminal activity such as terrorism, found on Bell or customer premises or Bell systems, are to be reported to Bell’s National Incident Centre (NIC) at 1-866-714-0911, unless involving an imminent threat where 911 must be called.

Significant facility or utility interruptions, surveillance, control systems or any service failures that impact our network are to be reported to the National Network Operations Centre (NNOC) at 1-888-570-1091.

 
2.14.7

Business Continuity

Bell recognizes the importance of its infrastructure and services for its employees and customers. To that end, all business unit leaders and team members must ensure they have appropriate business continuity plans and disaster recovery plans in order to be ready to react to any type of events that may impair our activities.

 

2.14.8

Alcohol, Drugs and Other Substances

 

All employees are required to be fit for work and must not be impaired by the use of illicit drugs, recreational cannabis or alcohol in the workplace.

Use, possession and trafficking of illicit drugs, recreational cannabis or alcohol is strictly prohibited in the workplace.

Employees must not be impaired by medication or medical cannabis in the workplace. Employees are responsible for determining through their physician or pharmacist whether

the use of medication might have an adverse effect on performance. If the use of medication and/or medical cannabis can impair their ability to perform their job safely, efficiently or otherwise affect performance, the employee must proactively inform their leader. Intentional misuse of prescribed or over-the-counter medications or medical cannabis is strictly prohibited.

To review the full Drug and Alcohol Policy, consult the Human Resources intranet site.

 
2.14.9

Involvement in a Legal Matter

 

If you are involved in a legal matter or police case you must immediately inform your manager if this involvement has the potential to affect your ability to perform your job fully and

competently. Loss of a driver’s license, for example, must be reported immediately if the affected employee is required to drive a Bell vehicle.

 

 

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2.15

Journalistic Independence

 

Bell is committed to upholding principles of journalistic independence. The Journalistic Independence Policy governs CTV News editorial decision making. CTV News refers to all applicable news divisions owned by Bell, including radio. CTV News is solely responsible for all news reporting decisions and for ensuring the integrity of its news operations. Compliance with the Journalistic Independence Policy is mandatory for all Bell employees. Failure to comply with the policy will be considered a breach of the Code of Conduct and may result in disciplinary action up to and including termination of employment.

An appropriate framework of independence between CTV News and Bell is a fundamental safeguard to ensure that news is covered in a fair, accurate, balanced and unbiased manner. Any interference, whether direct or indirect, actual or perceived, undermines the principles of news independence and can erode the credibility of CTV News which is critical to maintaining the trust of audiences.

Bell fully endorses the independence of CTV News and requires that all employees execute their day-to-day job responsibilities in a manner that respects this core value.

From time to time, news stories directly or indirectly concerning Bell, or of commercial interest to Bell, will be reported by CTV News. The appropriate CTV News editorial team is solely responsible for determining how to cover any such story, with full discretion and control, and without interference. No Bell employee will take any action that will impact the standards of fairness, accuracy, balance and independence that must be applied to any such news story.

In the normal course of business, representatives of Bell may offer ideas for news coverage to the CTV News team, as they would with any other news organization. In any such instances, Bell representatives must recognize that the material offered must be considered newsworthy and relevant to the audience by the applicable CTV News division’s editorial team before receiving coverage. The news team will decide whether to proceed with a story, how it will be

covered, and the extent of any coverage, with full and absolute discretion and control, and without direct or indirect interference in the decision making process.

At all times, this Code and other relevant BCE policies apply to Bell Media, including CTV News management and staff. As a result, in accordance with this Code and BCE’s Disclosure Policy, BCE’s communications department is responsible for addressing all queries from other media outlets regarding Bell Media and its divisions and properties, including CTV News. Furthermore, (i) non-public BCE information of which CTV News management or staff have knowledge in a capacity other than CTV News reporting or (ii) information in the possession of Bell Media in its capacity as an employer, must remain confidential and be treated in accordance with the Code and Bell’s Information Management Policy.

All news editorial decision making resides with the CTV News team with absolute and final privilege belonging to the President, CTV News. The CTV News teams will be responsible for the development of applicable editorial and reporting policies, including news policies on attribution, sources, and disclosure of conflicts.

If at any time the President, CTV News has any concerns about journalistic independence or compliance with the Policy that cannot be resolved through normal functional reporting channels in line with the principles of the Policy, the President, CTV News can address said matters with BCE’s Chief Executive Officer and/or the Chair of the BCE Audit Committee.

If you have any concerns regarding compliance with the Journalistic Independence Policy, such concerns shall be communicated to your immediate manager and/or the President, CTV News. However, if such reporting is either inappropriate, does not provide the necessary level of confidentiality, or as you otherwise prefer, the reportable activity should be reported to the Business Conduct Help Line or to the BCE

 

 

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Chief Legal Officer and Corporate Secretary or equivalent position.

To view the full Journalistic Independence Policy, consult the Corporate Ethics and

Policy intranet site at the following link: Corporate Policies and Ethics.

 

You are a member of the CTV News team and you receive a request from the Bell Residential Services team to profile an item they believe is newsworthy on CP24. What should you do?

 

   

Remember that it is acceptable for Bell employees to suggest story ideas, with respect for the CTV News team’s full authority to decide on news coverage

 

 

   

If you decide the item is not newsworthy, but they persist or escalate the matter, you should discuss it with your supervisor to confirm your position and obtain support

 

 

   

Ultimately, you can engage the President of CTV News, who is the final arbiter in matters relating to independent news reporting and has the authority to take steps to ensure the situation is resolved in an appropriate manner in accordance with the Policy on Journalistic Independence

 

 

   

Should you consider that the matter is not handled in accordance with the policy, you can report your concerns through the Business Conduct Help Line

 

The Business Conduct Help Line may be reached 24/7 by calling 1-866-298-2942 or by visiting clearviewconnects.com.

Members of the public should call Bell Canada’s Complaint and Concerns Line at 1-866-317-3382 with any concerns about Bell activities.

 

 

2.16

Protecting the Environment

 

Bell believes that environmental protection is an integral part of doing business. We strive to minimize, through a continuous improvement process, the impact that some of our activities, products or services may have on the environment. To that end, every employee is responsible to comply with our policies.

In support of this commitment, we will:

 

  exercise due diligence in its approach to meet or exceed the requirements of all applicable legislation and other requirements to which it subscribes
  prevent, control and reduce releases into the environment and correct in a timely manner problem situations which could not be prevented
  promote and support cost-effective resource use and waste minimization initiatives
  deal with suppliers who seek to minimize their environmental impacts
  develop and market services providing people and organizations with innovative
   

solutions that take into account their environmental challenges

  participate with governments, businesses, the public and relevant interest groups to advance environmental protection
  communicate our environmental initiatives and performance to stakeholders on a regular basis
  ensure that employees adhere to the Environmental policy and understand their responsibilities in putting it into practice.

The Corporate Responsibility & Environment (CR&E) group has developed a series of policies, programs, directives, management frameworks and procedures to support employees in their environmental duties. These documents are available through the Environmental Management section of Bellnet

Environmental training is mandatory for all employees directly involved in managing any of the following environmental issues: incidents, manhole effluents, network impacts, residual materials (hazardous and non-hazardous), treated wood poles, petroleum products or

 

 

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ozone depleting substances. Training must be completed before the employee is assigned to operational duties.

All environmental incidents must be reported without delay to the Enviro-Line at 1-877-235-

5368, available on a 24/7 basis, or at enviroline@bell.ca.

For inquiries, concerns or for information about environmental training, contact your Environmental Coordinator, the appropriate CR&E team member or send an email at responsibility@bell.ca.

 

 

3

ROLES AND RESPONSIBILITIES

 

3.1

Business Unit Responsibility

Managers are required to ensure that all employees have access to the Code either on-line or in a paper format if required, and that they know, understand and comply with its provisions. To this end, they should ensure that all employees review the Code annually and comply with the annual review process outlined in this Code.

 

3.2

Board of Directors, Corporate Governance Committee and Audit Committee

The Board of Directors, with the recommendation of the Corporate Governance Committee, has the authority to approve this policy. In addition, the Corporate Secretary’s Office in conjunction with Internal Audit, report quarterly to the Audit Committee on the number and scope of issues brought via the Business Conduct Help Line.

 

3.3

Corporate Secretary’s Office

The Corporate Secretary’s Office has the responsibility of administering the Code and managing the Business Conduct Help Line, securing annual certification of all executives and members of the Board of Directors under the Code, addressing conflict of interest issues and ensuring compliance by all Business Units.

 

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APPENDICES

Supporting Procedures

The Code of Business Conduct annual review is included in the annual performance process. These procedures are located in the Career Zone intranet site under Objective Performance.

Attachments

 

   

Attachment 1A

   Certification of Directors and Executives under the Code of Business Conduct
   

Attachment 2A

   Form BC 3684 – Employee Annual Record of Review
   

Attachment 2B

   Form BC 3684A – Disclosure of Conflict of Interest or Potential Conflict of Interest
   

Attachment 3

   Additional Resources

 

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Attachment 1A

CERTIFICATION OF DIRECTORS AND EXECUTIVES

UNDER THE CODE OF BUSINESS CONDUCT

 

 

The Boards of Directors of BCE Inc. and Bell Canada (in each case, the “Company”) and our shareholders, expect all Directors and executives of the Company to follow the highest possible standards of honest and ethical conduct and to encourage and promote a culture in which ethical business conduct is recognized, valued and exemplified.

Certification

I certify that I have reviewed, understand and follow the Bell Canada Code of Business Conduct (the “Code”).

In addition, I support the setting of standards needed to discourage wrongdoing and to promote:

 

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships,

 

full, fair, accurate and timely disclosure in reports and documents that the Company files with, or submits to, securities regulators and in other public communications made by the Company, in accordance with the Disclosure Policy,

 

compliance with laws, rules and regulations of federal, provincial, state or local governments, and other relevant private and public regulatory agencies in all jurisdictions in which the Company operates,

 

prompt reporting of all material violations of the Code to the Chair of the Audit Committee of the Board of Directors of the Company.

To the best of my knowledge and ability, I will act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing my independent judgment to be compromised.

I acknowledge that I am accountable for following the Code and the responsibilities I have under it. I also acknowledge that complying with the Code is a condition of my employment. If I do not comply with it or applicable laws, rules or regulations, I may be subject to disciplinary measures, which could include dismissal from the Company.

 

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Attachment 2A    Form BC 3684

EMPLOYEE ANNUAL RECORD OF REVIEW

 

 

Note to immediate manager:     If this form is completed in paper format, please file original in employee’s personnel file.

Policy on conflict of interest

Employees owe their first business allegiance to Bell, and therefore they must remain free of interests or relationships which are harmful or detrimental to Bell’s best interests. Employees should avoid not only a real conflict of interest, but also the appearance of one which could tarnish their own or Bell’s image. Even though it is not always possible to avoid relationships that could place you in a position of potential conflict, it is important to inform your manager and avoid actions or decisions that would conflict with Bell’s interests.

Conflict of interest can lead to disciplinary action, even to dismissal and/or prosecution. If you are in doubt, you should discuss your specific situation with your manager, who will then advise you as to the position of Bell with respect to the matter.

Annual certification

I have reviewed, fully understand and follow Bell Canada’s “Code of Business Conduct” including the section on Conflict of Interest. I have reported immediately to my manager and through the annual review process any relationship or other circumstances that do or could place me in conflict with the interests of Bell. Any new situations will be reported as they occur. I hereby certify that I have no real or potential conflict of interest, except what is disclosed through the annual review process.

 

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Attachment 2B    Form BC 3684A

DISCLOSURE OF CONFLICT OF INTEREST

OR POTENTIAL CONFLICT OF INTEREST

 

 

Note to immediate manager: If this form is completed in paper format, please file original in employee’s personnel file. A copy should also be sent to the Corporate Secretary’s Office at corporate.secretariat@bell.ca.

 

Employee          
Family name      Given names      Employee number

 

    

 

    

 

I am directly or indirectly involved in other business or employment, which may give rise to or is at present in conflict with, or potential conflict with, the best interests of Bell:

 

 

 

 

I have direct or indirect investment, business involvements or relationships, which may give rise to or is at present in conflict with, or potential conflict with, the best interests of Bell:

 

 

 

 

I have, in the past 2 years, been employed or otherwise commercially involved in endeavours or companies which are in competition with Bell Canada and its affiliated companies (e.g.: Rogers, Telus, Videotron, Cogeco, etc.):

 

 

 

 

I am currently or was recently bound by restrictive covenants such as non-competition or non-solicitation restrictions:

 

 

 

 

Other:

 

 

 

 

For employees who declare a conflict due to past employment by a competitor: I understand that in my previous employment or commercial involvement with a competitor of Bell Canada and its affiliated companies I may have become aware of or given access to undisclosed confidential or proprietary information of my previous employer. As such, unless this information has been publicly disclosed or otherwise available in the marketplace, I am not to share such information. I also acknowledge that I have returned to my previous employer all property belonging to my previous employer including any confidential or proprietary information and documents provided to me including any third party information that was entrusted to me.

 

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Attachment 3

ADDITIONAL RESOURCES

 

 

If you have any questions regarding the issues raised in this document or any questions on the Code, speak to your manager or use the Business Conduct Help Line at clearviewconnects.com or by calling 1-866-298-2942 (toll free).

If you wish to report any unethical or illegal behaviour such as corporate fraud, or to raise any concerns regarding Bell’s accounting, internal accounting controls or auditing matters, you may report the matter to your manager or use the Business Conduct Help Line at clearviewconnects.com or by calling 1-866-298-2942 (toll free).

You may also use the following resources:

 

 

Human resources intranet site

 

Corporate Security intranet site:

   

life-threatening emergencies: call 911

   

loss or theft of Bell assets, internal fraud, criminal activity, property damage, unauthorized disclosure of confidential information, known failures in security safeguards, malfunctioning doors and locks, emergency response system (non-life threatening emergencies), emergency conditions and service impacting situations are to be reported to Bell’s National Incident Centre (NIC) at 1-866-714-0911 or at cni-nic@bell.ca

   

computer security incidents, virus, worms, spam or phishing using Bell’s name, any other computer or data network attacks, weaknesses in security systems, and unexplained systems changes are to be reported to 1-888-920-8888

   

significant facility or utility interruptions, surveillance, control systems or any service failures that impact our telecommunications networks are to be reported to 1-888-570-1091

 

Corporate Responsibility at 1-877-235-5368 or at responsibility@bell.ca.

 

Enviro-Line Bell (environmental issues) at 1-877-235-5368

 

Branding at info.branding@bell.ca

 

Corporate Secretary’s Office intranet site or at (514) 786-8424

 

Occupational Health, Safety and Workplace at (514) 870-5848 or at Info.ss-hs@bell.ca

 

Bell Privacy Office for customer related privacy issues at privacy@bell.ca or for additional privacy related information, visit bell.ca

 

Information on privacy in the workplace for employees is available on the Privacy intranet site or at:

   

English: privacy.coordinator@bell.ca

   

French: coord.rens.pers@bell.ca

 

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POLICY OR PRACTICE DETAILS

   

Issuing BU

  Law & Regulatory Department
   

Policy sponsor

  Chief Legal Officer and Corporate Secretary
   

Policy owner

  Corporate Secretary’s Office
   

Primary contact

  Corporate Secretary’s Office
   

Required approvals

  Board of Directors, Corporate Governance Committee, Corporate Secretary
   

First Release

  1995
   

Review cycle

  Annually

Required Policy or Practice management elements checklist

 

   

Monitoring compliance processes defined

  Yes
   

Communication plan complete

  Yes
   

Communication materials complete

  Yes
   

Training plan complete

  Yes

Revision history

 

       

Date

  Change owner    Changed by    Description
       

August 2014

  Michel Lalande    Michel Lalande    Annual update
       

June 2015

  Mirko Bibic    Mirko Bibic    Update
       

August 2015

  Michel Lalande    Michel Lalande    Annual update
       

August 2016

  Michel Lalande    Michel Lalande    Annual update
       

August 2017

  Michel Lalande    Michel Lalande    Annual Update
       

August 2018

  Michel Lalande    Miguel Baz    Annual Update
       

October 2018

  Michel Lalande    Miguel Baz    Update
       

August 2019

  Michel Lalande    Miguel Baz    Annual Review
       

January 2020

  Michel Lalande    Miguel Baz    Update

 

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