Case

Bell Canada Entreprises Inc. (BCE)

Case outline

Bell Canada Entreprises Inc. is a former regulated monopoly that still provides the bulk of telecommunication services in Canada. Bell Canada Entreprises includes several companies that can be grouped in domestic (94% of revenues) and international (6% of revenues). Among domestic operations, local access represents 80% of revenues and cellular 10%. Bell Canada Entreprises also includes a number of affiliates involved in technology, services and production. The most important one in Nortel Networks which manufactures switching equipment used in most modern telecommunication.

Nortel has been growing much faster (i.e. over 20% revenue growth per year) than Bell Canada (1% annual sales growth) over the past five years. In 1998, Nortel's revenues were C$ 26,270 millions, or almost twice those of Bell Canada C$ 14,030 millions. Nortel's growth is fueled by rapid change in the industry and a large number of upstarts seeking to enter the field. To maintain its dominant position, Nortel has followed an aggressive acquisition strategy that led it to purchase Bay Networks in 1998 for C$ 6,900 millions for 159 million shares of Nortel Networks. One consequence of the acquisition was to reduce the ownership of Nortel Networks by Bell Canada from 51% to 41%. Thus, Bell Canada not longer combines Nortel Networks in its consolidated statements, but shows its interest in Nortel Networks as a one line investment in affiliates.

The accounting change makes the balance sheets and income statements for 1998 and 1997 presented in the 1998 Annual Report of Bell Canada not comparable (as can be verified in the attached statements). Fortunately, the notes to financial statements are very thorough and allow piecing together comparable amounts in most cases. But in some that is not possible.

Bell Canada recognizes that, as a result of 1997 decision by the Canadian Radio-television and Telecommunications Commission setting rules of evolution to total competition, competition is likely to intensify from cable, internet providers, wireless, communication networks and information service providers in its core business of local access services. Competition will force Bell Canada to trim its prices and costs. Some of its affiliates in non-regulated sectors, such as BCE Mobile and BC International, already experience losses in 1998.

Financial data:

Condensed financial statements without notes are presented for selected years in following tables:

Table T-BCE.1 - Bell Canada Entreprises Balance Sheets

Table T-BCE.2 - Bell Canada Entreprises Income Statements

Normalized statements and selected ratios based on above financial statements are presented in

Table T-BCE.3 - Bell Canada Entreprises Normalized Balance Sheets

Table T-BCE.4 - Bell Canada Entreprises Normalized Income Statements

Table T-BCE.5 - Bell Canada Entreprises Ratios

Information sources:

Visit web site at http://www.bell.ca/

SEC 10-K file available at http://www.sec.gov/cgi-bin/srch-edgar or http://www.edgar-online.com/

BCE stock is listed and traded in Toronto, Montreal, Vancouver, London, the Swiss exchange and NYSE exchange under the symbol BCE. Find stock quotes and recent news from http://finance.yahoo.com/ or http://www.quote.com or from the exchanges. ÿÿÿ