Bell Globemedia

BELL GLOBEMEDIA REVENUES GREW BY 7.4%

n  Bell Globemedia revenues for the first quarter rose to $335 million, 7.4% higher than the first quarter of 2002, stemming from a 12.9% increase in television advertising revenues. This increase is the result of CTV Inc.’s (CTV) stronger television schedule with 8 out of the top 10 primetime shows and the strengthening of the overall television advertising market. Revenues this quarter were slightly negatively impacted by the conflict in Iraq as regular programming was pre-empted and advertisers cancelled or delayed spending.

n  Print revenues declined by 3.2% year-over-year principally due to a weak newspaper advertising market which was amplified by scaled back spending due to the conflict in Iraq.

n  On March 29, NADbank released its newspaper readership data showing The Globe and Mail leading the national market with 950,100 readers each weekday. The Globe and Mail’s readership levels measured a 52% lead in the national newspaper market.

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BCE Emergis

BCE EMERGIS REVENUES DECLINE BY 6.1%

n  In Q1 2003, BCE Emergis had revenues of $124 million, a 6.1% decline from its revenues of $132 million achieved in Q1 2002 and a 5.3% decline from its Q4 2002 revenues of $131 million. In each case, the decline is due mainly to lower revenue from the distribution agreement with Bell Canada for legacy products and other non-core and exited products. Core revenues (excluding the revenue from the Bell legacy contract and other non-core and exited products) for the current period were $94.4 million compared with $89.6 million in the first quarter of 2002 and $96.9 million in the fourth quarter of 2002.

BCE Ventures

n  BCE Ventures’ revenues increased 17.1% to $308 million from $263 million in Q1 2002 driven by growth in CGI’s revenues.

n  CGI’s revenues increased 31% to $224 million this quarter, driven by its acquisition of Cognicase in January 2003.

n  Revenues increased by 2.6% at Telesat, reflecting the placement in service of the Nimiq 2 satellite in early 2003.

n  Other revenues were lower, reflecting the sale of the 1000 de la Gauchetière West building in February 2002.

EBITDA

BCE EBITDA increases 0.7% despite directories sale

n  BCE’s EBITDA increased by 0.7% to $1,820 million from $1,808 million in the first quarter of 2002. Our growth was driven by EBITDA gains at BCE Emergis, Bell Globemedia and BCE Ventures which offset EBITDA decreases at the Bell Canada Segment related to the sale of the directories business and the Price Cap decision. On a comparable basis, BCE’s EBITDA grew by 7.4%.

Bell Canada Segment

n  As expected, the sale of our directories business negatively impacted our EBITDA. The Price Cap decision also led to lower EBITDA this quarter. As a result of these factors, Bell Canada’s EBITDA declined 1.8% to $1,724 million this quarter from $1,755 million in the same period last year. In Q1 2002, the directories business contributed approximately $81 million to EBITDA. In Q1 2003, the Price Cap decision reduced EBITDA by approximately $34 million. On a comparable basis, the Bell Canada Segment’s EBITDA increased by 5.0%.

n  Despite the negative impacts of the directories sale and the Price Cap decision, the Bell Canada Segment’s EBITDA margin remained relatively stable at 40.5% compared to the 40.8% achieved in the first quarter of 2002. This stability reflects:      
     – the realization of productivity improvements of approximately $131 million. Productivity improvements came from numerous projects across the Bell Canada Segment.
     – lower overall subscriber acquisition costs this quarter reflecting lower levels of gross subscriber additions, particularly for DTH services.

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WIRELESS EBITDA INCREASES

n  Wireless EBITDA for the first quarter of 2003 was $219 million, up 23% over Q1 2002. This led to an improved wireless EBITDA margin of 38.4% this quarter compared to 35.3% in the first quarter of 2002. Wireless EBITDA this quarter reflects higher revenues from subscriber growth and the benefits of productivity initiatives which lowered costs of acquisition. The continued increase in postpaid customers as a percentage of our total subscriber base also contributed to the improvement.

n  Cost of acquisition (COA) improved by 4.9% to $387 per gross activation in Q1 2003 from $407 per gross activation in the first quarter of last year, mainly driven by lower handset costs, less reliance on handset subsidies for our popular Grab n’ Go product and channel efficiency gains.

BELL EXPRESSVU EBITDA IMPROVES

n  Bell ExpressVu’s EBITDA losses of $6 million for the first quarter of 2003 declined significantly compared to the first quarter of 2002 EBITDA losses of $50 million. This improvement was largely driven by lower subscriber acquisition costs related to lower gross activations this quarter and continued cost containment efforts reflecting reductions in sales and technology expenses.

n  COA per subscriber was $675 this quarter compared to $718 for Q1 2002 reflecting the accounting change effective June 1, 2002 of netting of programming credits against revenues. Without this change, COA would have risen slightly on a year over year basis to $749, primarily from the impact of a higher number of second receivers purchased by customers and the free installation offer reintroduced in the beginning of March 2003.

Bell Globemedia EBITDA increases

n  EBITDA for the quarter was $37 million, 12.1% higher than the first quarter of last year. The improvement is attributable to increased EBITDA from television operations as a result of an increasing revenue base and savings from a restructuring of Bell Globemedia’s interactive operations.

BCE Emergis EBITDA

n  BCE Emergis contributed EBITDA of $15 million in the first quarter of 2003, a significant increase from the negative $20 million of EBITDA in Q1 2002. These results include the compensation cost relating to stock options of $3 million in the first quarter of 2003 and nil in the first quarter of 2002. BCE Emergis’ cost reduction program and exiting of non-core products have enabled BCE Emergis to improve its EBITDA margins in 2002 and Q1 2003 despite lower revenues.

Below EBITDA Income and Expenses

The table below shows a reconciliation of EBITDA to net earnings applicable to common shares for the first quarters of 2003 and 2002.

AMORTIZATION EXPENSE

The overall capital asset base in the first quarter of 2003 increased slightly when compared to the same period last year, leading to a 0.5% increase in amortization expense.

NET BENEFIT PLANS EXPENSE (CREDIT)

In the first quarter of 2003, the net benefit plans expense of $42 million was $48 million unfavourable compared to the same period last year.

Due to poor capital market conditions, our pension plans had weak fund performance in 2002, leading to a rate of return that was significantly below our assumption of 8.3% for 2002. This created an actuarial loss, which led to approximately two-thirds of the unfavourable variance.

Also, after a review of market trends and our outlook, we reduced our assumption of expected long-term return on plan assets from 8.3% in 2002 to 7.5% in 2003, which led to the balance of the unfavourable variance.

OPERATING INCOME

In the first quarter of 2003, operating income of $1,002 million was 3.8% lower than the same period last year. The increase in EBITDA was more than offset by the unfavourable variance in the net benefit plans expense.

OTHER INCOME

In the first quarter of 2003, other income was $46 million higher than the same period last year, resulting mainly from foreign currency gains.

The Canadian dollar strengthened during the first quarter of 2003, resulting in a $33 million foreign currency gain. The foreign exchange rate remained relatively stable during the first quarter of 2002 and had no impact on our 2002 net earnings.

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     In April 2003, we entered into a forward contract to hedge U.S. $200 million of long-term debt at Bell Canada that had not been previously hedged, thereby removing the foreign currency exposure risk on that debt.

INTEREST EXPENSE

In the first quarter of 2003, interest expense was 8.8% higher than the same period last year, primarily due to increased debt levels.
      The higher average total debt reflects the impact of the additional debt incurred in 2002 to fund:

n  the repurchase price of SBC Communications Inc.’s (SBC) 20% indirect interest in Bell Canada

n   the negative free cash flows in 2002.

Some of the additional debt was repaid from the proceeds from the sale of the directories business in November 2002.

INCOME TAXES

In the first quarter of 2003, income taxes of $245 million represent a 16.1% reduction from the amount in the first quarter of 2002, mainly due to the reduction in the statutory income tax rate from 37.4% in 2002 to 35.4% in 2003 and the decrease in pre-tax earnings.

NON-CONTROLLING INTEREST

In the first quarter of 2003, the $88 million decrease in non-controlling interest when compared to the same period last year reflects the impact of BCE Inc.’s repurchase of SBC’s 20% indirect interest in Bell Canada.

DISCONTINUED OPERATIONS

The net loss of $45 million in the first quarter of 2002 relates to operating losses of Teleglobe Inc. (Teleglobe). The financial results of Teleglobe were reclassified as a discontinued operation effective April 24, 2002.

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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 the financial condition and cash flows of BCE.

Capital Structure

Summary of Cash Flows

The table below provides a summary of the flow of cash into and out of BCE for the first quarters of 2003 and 2002.

CASH FROM OPERATING ACTIVITIES

We generated a significant amount of productivity improvements during the first quarter of 2003 ($138 million pre-tax).These cost savings translated into additional cash from our operations. Please see Financial results analysis in this MD&A for more details.

     Excluding the impact of $237 million of tax refunds generated from capital losses received in the first quarter of 2003 and $288 million of taxes paid on capital gains in the first quarter of 2002, cash from operating activities was 12.2% higher in the first quarter of 2003 when compared to the same period last year.

CAPITAL EXPENDITURES

We continue to make investments to expand our networks, to meet customer demand and for replacement purposes.

     Having much of the significant capital expenditures relating to the build-out of our growth infrastructures behind us, we were able to reduce our capital expenditures by 30% in the first quarter of 2003 compared to the same period last year. A portion of the decrease can be explained by our capital spending programs being more heavily weighted towards subsequent quarters of 2003. This reduction in capital spending lowered our capital intensity ratio to 12.3% in the first quarter of 2003 from 17.7% in the same period last year. For the full year, we continue to expect capital expenditures to represent 17% - 18% or revenues.

     The Bell Canada Segment’s capital intensity ratio fell to 12.7% in the first quarter of 2003 from 18.0% in the same period last year. The Bell Canada Segment accounted for 90% of our total capital expenditures in the first quarter of 2003.

INVESTMENTS

Investments of $61 million were made in the first quarter of 2003, consisting mainly of our proportionate share of the cash consideration for CGI’s acquisition of Cognicase.

     Investments made in the first quarter of 2002 included Bell Globemedia’s purchase of a 40% interest in the TQS network and other television stations for $72 million.

DIVIDENDS

We declared a common share dividend of $0.30 per share in the first quarter of 2003, consistent with the same period in 2002. However, total dividends paid on common shares increased to $257 million in the first quarter of 2003 when compared to $243 million in the same period last year. This was due to the increase in the average number of common shares outstanding, from 809 million to 917 million mainly resulting from BCE Inc.’s equity offerings in 2002. We also realized a cash benefit of approximately $20 million in the first quarter of 2003 from an increased participation in BCEInc.’s dividend reinvestment plan.

     Dividends paid on preferred shares increased to $11 million in the first quarter of 2003 from the $7 million paid in the same period last year, due to the net increase in preferred shares. Please see Equity instruments, for more information.

     In 2002, BCE Inc. repurchased SBC’s 20% indirect interest in Bell Canada. Since then, Bell Canada Holdings Inc. (BCH) no longer pays a dividend to SBC, resulting in a $27 million decrease in dividends paid by subsidiaries to third parties in the first quarter of 2003, when compared to the same period last year.

     Divestitures in the first quarter of 2002 consisted mainly of the sale of the 1000 de La Gauchetière West building and Bell Globemedia ’s sale of its 12% interest in the History Channel.

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     In the first quarter of 2002, we issued 20 million Series AA preferred shares for $510 million and redeemed 12 million Series W preferred shares for $306 million.

     Under our stock option and employee savings plans, we raised $5 million from the issuance of common shares in the first quarter of 2003 and $2 million in the first quarter of 2002.

DEBT INSTRUMENTS

We use a combination of long-term and short-term debt to finance our operations. Our short-term debt consists primarily of bank facilities and notes payable under commercial paper programs. We usually pay fixed rates of interest on our long-term debt and market rates on our short-term debt.

     The combined debt of BCE Inc. and Bell Canada make up 92% of our total debt portfolio. The average annual interest rate on our total debt was 7.3% in the first quarter of 2003 and 7.5% in the first quarter of 2002.

     The interest rates we pay are based on the quality of our credit ratings. The table below lists our credit ratings at April 29, 2003, all of which are investment grade. Investment grade ratings usually mean that we qualify for better than average interest rates when we borrow money.

CREDIT RATINGS

Other Items

CONTRACTUAL OBLIGATIONS

The table below provides a summary of our contractual obligations at March 31, 2003 and for the full years ended thereafter.

(a) The imputed interest to be paid in connection with the capital leases amounts to $108 million.

     In addition, BCE Inc. and Bell Canada can issue Class E Notes which may be extended in certain circumstances and are not supported by committed lines of credit. The maximum principal amount of Class E Notes that BCE Inc. may issue is $360 million and that Bell Canada may issue is $400 million. At March 31, 2003, Bell Canada had $30 million Class E Notes outstanding and BCE Inc. had no Class E Notes outstanding. Included in the drawn portion of our commercial commitments are issued letters of credit of $192 million under our committed facilities and $80 million under our non-committed facilities.

      At March 31, 2003, BCE Inc. and Bell Canada had no amounts outstanding under their commercial paper programs.

ACCESS TO CAPITAL

For the remainder of 2003, we will primarily require cash to fund capital expenditures, dividend payments and the repayment of debt.

      Our plan is built on the assumption that we will be able to generate enough cash from our operating activities to pay for capital expenditures and dividends. Also, the remaining debt maturing in 2003 is expected to be repaid from cash on hand and cash generated from our operations.

      Although our plan does not reflect any cash shortfall in the short term, our lines of credit, bank facilities and commercial paper programs are available for contingency purposes.

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GUARANTEES

In the normal course of our operations, we execute agreements that provide for indemnification and guarantees to counterparties in transactions such as business dispositions, the sale of assets, the sale of services, securitization agreements and operating leases.

      These indemnification undertakings and guarantees may require us to compensate the counterparties for costs and losses incurred as a result of various events including breaches of representations and warranties, intellectual property right infringement, loss of or damages to property, environmental liabilities, changes in or in the interpretation of laws and regulations (including tax legislation), valuation differences, claims that may arise while providing services, or as a result of litigation that may be suffered by the counterparties. Also, in the context of the sale of all or a part of a business, we may from time to time agree to compensate the purchaser for certain costs that may result from certain future events such as the failure of the disposed business to reach certain operational thresholds (earn-out guarantees), the resolution of contingent liabilities of the disposed businesses or the reassessment of prior tax filings of the corporations carrying on the business.

Certain indemnification undertakings can extend for an unlimited period and generally do not provide for any limit on the maximum potential amount, although certain agreements do contain a specified maximum potential exposure representing a cumulative amount of approximately $4.3 billion. The nature of substantially all of the indemnification undertakings prevents us from making a reasonable estimate of the maximum potential amount we could be required to pay counterparties as the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, we have not made any significant payments under such indemnifications. As at March 31, 2003, an aggregate amount of $42 million has been accrued in the consolidated balance sheet with respect to these indemnification undertakings, relating mainly to environmental liabilities.

USE OF FINANCIAL INSTRUMENTS

We periodically use derivative instruments to manage our exposure to interest rate, foreign currency and share price movements. We do not use derivative instruments to speculate. Because we do not actively trade in derivative instruments, we are not exposed to any significant liquidity risks relating to such investments.

      The following derivative instruments were outstanding at March 31, 2003:

n  interest rate swaps that, in effect, convert the fixed-rate dividends on some of our preferred shares to floating-rate dividends. We pay less when the floating rates are below the fixed rates, which has been the case for the past several years

n  cross-currency swaps and forward contracts used to hedge foreign currency risk on our long-term debt

n  forward contracts on BCE Inc. common shares to hedge the fair value exposure related to stock compensation payments.

     In April 2003 we entered into a forward contract to hedge U.S. $200 million of long-term debt at Bell Canada that had not been previously hedged, thereby removing the foreign currency exposure risk on that debt.

     At March 31, 2003, the carrying value of these derivative instruments was a net liability of $72 million. Their fair value amounted to a net asset of $1 million.

     Please see Note 1 to the consolidated financial statements for the year ended December 31, 2002 for a description of the significant accounting policies relating to financial instruments.

USE OF OFF-BALANCE SHEET ARRANGEMENTS

This section describes outstanding arrangements at March 31, 2003 and how they could affect our results of operations and financial condition.

Sale of accounts receivable

Bell Canada sold accounts receivable to a securitization trust for a total of $900 million in cash, under an agreement that came into effect on December 12, 2001 and expires on December 12, 2006. Bell Canada carried a retained interest in the transferred accounts receivable of $124 million at March 31, 2003, which equalled the amount of overcollateralization in the receivables transferred.

     Aliant sold accounts receivable to a securitization trust for a total of $135 million in cash, under an agreement that came into effect on December 13, 2001 and expires on December 13, 2006. Aliant carried a retained interest in the transferred accounts receivable of $30 million at March 31, 2003.

     Bell Canada and Aliant continue to service the accounts receivable. The buyers’ interest in collections of these accounts receivable ranks ahead of the interest of Bell Canada and Aliant. Bell Canada and Aliant remain exposed to certain risks of default on the amount of receivables under securitization and have provided various credit enhancements in the form of overcollateralization and subordination of their retained interests.

     The buyers will reinvest the amounts collected by buying additional interests in the Bell Canada and Aliant accounts receivable until the agreements expire. The buyers and their investors have no claim on Bell Canada’s and Aliant’s other assets if customers fail to pay amounts owed on time.

Shared services agreement

Effective June 22, 2001, Bell Canada entered into a 10-year service contract with a special purpose entity. This contract will allow Bell Canada to reduce systems and administrative costs over time by streamlining and enhancing its systems and processes. Bell Canada is committed to paying approximately $150 million in service fees over the first three years of the agreement.

     In 2004, Bell Canada may:

n   exercise an option to buy the special purpose entity at fair market value, or

n   maintain the service contract for the remaining seven years and commit to paying at least $420 million more in service fees to the special purpose entity.

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     As at March 31, 2003, the special purpose entity had $113 million of total assets, of which $92 million are capital assets, and $127 million of total liabilities, of which $121 million is long-term debt.

Sale leaseback transactions

In our long-term debt balance at March 31, 2003, we had capital leases of $72 million net of loans receivable of $316 million. These obligations were from agreements that Bell Canada entered into in 1999 and 2001 to sell and lease back telecommunication equipment for total proceeds of $399 million. Some of the proceeds were invested in interest-bearing loans receivable.

CONTINGENCIES

Agreement with Manitoba Telecom Services Inc. (MTS)

The agreement between Bell Canada and MTS to create Bell West Inc. (Bell West) includes put and call options relating to MTS’ 40% ownership of Bell West.

     Under the terms of the put option, MTS can require Bell Canada to buy its interest in Bell West:

n  in February 2004 at a guaranteed floor value of $458 million plus ongoing incremental funding invested by MTS. The put price includes an 8% return on the incremental funding. The floor value was $574 million at March 31, 2003

n  in January 2007 at fair market value less 12.5%

n  at fair market value less 12.5%, under certain circumstances.

n  in March 2004 at the greater of the floor value described above and fair market value

n  in February 2007 at fair market value

n  at fair market value if control of MTS goes to a party other than Bell Canada or its affiliates.

     Bell Canada has not received any formal notice from MTS that it plans to exercise the put option.

Agreement with CGI

We entered into an agreement on July 1, 1998 with CGI’s three majority individual shareholders. The agreement includes put and call options, and rights of first refusal, on the CGI shares held by these shareholders.

      The put options initially gave these CGI shareholders the right to gradually sell a portion of their shares to us until January 4, 2004. The call option initially gave us the one-time right to buy all of their CGI shares that we would not have already bought, during the period from January 5, 2004 to January 4, 2006.

      The exercise price per share of any put or call option is 115% of the 20-day average market price of CGI shares before the exercise date, payable in BCE Inc. common shares. If the options are fully exercised, our equity ownership interest in CGI will increase to approximately 40%.

      In December 2002, we informed CGI that our prior publicly stated intention to dispose of the control block in CGI following the exercise of the put and call rights in 2003 and 2004 is no longer our preferred course of action.

      We began discussions with CGI about the future of our investment in CGI. No final decisions have been made, but we have started discussions to develop a plan to:

n  realize the maximum value of our investment in CGI

n  enhance the value of CGI by taking steps to retain CGI’s management and to ensure that the company continues to deliver high-quality services to its customers.

     In December 2002, in order to allow enough time for these discussions, CGI’s three majority individual shareholders had agreed to defer the exercise date of the put options until April 15, 2003.

      On April 15, 2003, BCE Inc. and CGI confirmed that their discussions are continuing and while no final decisions have been made, they are committed to reaching a final agreement by August 1, 2003. However, there can be no assurance as to the outcome of these discussions.

     To allow enough time to conclude these discussions:

n  CGI’s three majority individual shareholders have agreed to defer the exercise date of the put options until after August 1, 2003

n  BCE Inc. has agreed that its disposition rights will not be exercisable until after August 1, 2003

n  both parties have agreed to extend the termination date of the put options from January 4, 2004 to August 1, 2004, defer the commencement of BCE Inc.’s two-year call option period from January 6, 2004 to August 2, 2004, and defer the final termination date of the agreement from January 5, 2006 to August 1, 2006.

Litigation

Teleglobe lending syndicate lawsuit

On July 12, 2002, some members of the Teleglobe and Teleglobe Holdings (U.S.) Corporation lending syndicate (the plaintiffs) filed a lawsuit against BCE Inc. in the Ontario Superior Court of Justice.

      The claim makes several allegations, including that BCE Inc. and its management, in effect, made a legal commitment to repay the advances the plaintiffs made as members of the lending syndicate, and that the court should disregard Teleglobe as a corporate entity and hold BCE Inc. responsible to repay the advances as Teleglobe’s alter ego.

      The plaintiffs claim damages of US$1.19 billion, plus interest and costs, which they allege is equal to the amount they advanced. This represents approximately 95.2% of the total US$1.25 billion that the lending syndicate advanced.

      While we cannot predict the outcome of any legal proceeding, based on information currently available, BCE Inc. believes that it has strong defences, and it intends to vigorously defend its position.

      Please see Risk Assessment in this MD&A for more details.

Kroll Restructuring lawsuit

In February 2003, a lawsuit was filed in the Ontario Superior Court of Justice by Kroll Restructuring Ltd., in its capacity as interim receiver of Teleglobe, against five former directors of Teleglobe. This lawsuit was filed in connection with Teleglobe’s redemption of its third series preferred shares in April 2001 and the retraction of its fifth series preferred shares in March 2001.

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       The plaintiff is seeking a declaration that such redemption and retraction were prohibited under the Canada Business Corporations Act and that the five former directors should be held jointly and severally liable to restore to Teleglobe all amounts paid or distributed on such redemption and retraction, being an aggregate of approximately $661 million, plus interest.

       While BCE Inc. is not a defendant in this lawsuit, Teleglobe was at the relevant time a subsidiary of BCE Inc. Pursuant to standard policies and subject to applicable law, the five former Teleglobe directors are entitled to seek indemnification from BCE Inc. in connection with this lawsuit.

       While we cannot predict the outcome of any legal proceeding, based on information currently available, BCE Inc. believes that the defendants have strong defences and that the claims of the plaintiffs will be vigorously defended against.

Other litigation

We become involved in various other claims and litigation as a regular part of our business. While no one can predict the final outcome of claims and litigation that were pending at March 31, 2003, management believes that the resolution of these claims and litigation will not have a material and negative effect on our consolidated financial position or results of operations.

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Forward-Looking Statements

A statement we make is forward looking when it uses what we know today to make a statement about the future.

       Forward-looking statements may include words such as anticipate, believe, could, expect, goal, intend, may, objective, outlook, seek, strive, target and will.

      This MD&A contains forward-looking statements about BCE’s objectives, strategies, financial condition, results of operations and businesses.
      These statements are “forward-looking” because they are based on our current expectations about the markets we operate in and on various estimates and assumptions.

      It is important to know that:

n  forward-looking statements describe our expectations on the day they are made. For this MD&A, it is April 29, 2003

n  our actual results could be materially different from what we expect if known or unknown risks affect our business, or if our estimates or assumptions turn out to be inaccurate. As a result, we cannot guarantee that any forward-looking statement will materialize

n  forward-looking statements do not take into account the effect that transactions or non-recurring items announced or occurring after the statements are made may have on our business. For example, they do not include the effect of sales of assets, monetizations, mergers, acquisitions or other business combinations or transactions, nor do they include the effect of asset write-downs

n  we assume no obligation to update any forward-looking statement even if new information becomes available, as a result of future events or for any other reason.

     You will find a more detailed assessment of the risks that could cause our actual results to materially differ from our current expectations in the Risk Assessment section starting on the next page.

Risk Assessment

The following section describes general risks that could affect the BCE group of companies and specific risks that could affect BCE Inc. and each of our segments.

      A risk is the possibility that an event might happen in the future that could have a negative effect on the financial condition, results of operations or business of one or more BCE companies. Part of managing our business is to understand what these potential risks could be and working to minimize them where we can.

      Because no one can predict whether any risk will happen or its consequences, the actual effect of any risk on our business could be materially different from what we currently anticipate. In addition, this description of risks does not include all possible risks, and there may be other risks that we are currently unaware of.

BCE GROUP OF COMPANIES

OUR DEPENDENCE ON THE BELL CANADA SEGMENT

The Bell Canada Segment is our largest segment, which means our financial performance depends in large part on how well the Bell Canada Segment performs financially.

      For the three months ended March 31, 2003, the Bell Canada Segment accounted for 86% of our operating revenues, 95% of our EBITDA and 93% of net earnings applicable to common shares on a consolidated basis.

ECONOMIC AND MARKET CONDITIONS

Our business is affected by general economic conditions, consumer confidence and spending, and the demand for, and the prices of, our products and services. When there is a decline in economic growth, and retail and commercial activity, there tends to be a lower demand for our products and services.

      The slowdown and uncertainty in the global economy have reduced demand for our products and services, which recently negatively affected our financial performance and may negatively affect it in the future. In particular, weak economic conditions have led to:

n  lower than expected growth in data revenue for the Bell Canada Segment, because of softer demand from enterprises and wholesale customers

n  some reductions in the number of network access lines due to business failures, business contractions or competition

     Weak economic conditions may also negatively affect the financial condition and credit risk of our customers. This could increase uncertainty about our ability to collect receivables.

IMPROVING PRODUCTIVITY AND REDUCING CAPITAL INTENSITY

We recently implemented several cost reduction initiatives and we continue to implement productivity initiatives and further reduce our capital intensity.

      There could be a material and negative effect on our profitability if we do not continue to successfully implement productivity initiatives and reduce capital intensity while maintaining the quality of our service.

INCREASING COMPETITION

We face intense competition from traditional competitors, as well as from new entrants to the markets we operate in. We compete not only with other telecommunications, media, satellite television and e-commerce companies but also with other businesses and industries, such as cable, software and Internet companies, and a variety of companies that offer network services, such as providers of business information systems and system integrators, as well as other companies that deal with, or have access to, customers through various communications networks.

      Cable companies and independent Internet service providers have increased competition in the Internet access services business. Competition has led to Internet access pricing in Canada that is amongst the lowest in the world.

      The Canadian wireless telecommunications industry is also highly competitive. We compete directly with other wireless service providers with aggressive product and service introductions, pricing and marketing. We expect competition to intensify through the development of new technologies, products and services, and through consolidations in the industry.

      Many of our competitors have substantial financial, marketing, personnel and technological resources. We already have several domestic and foreign competitors, but the number of foreign competitors with a presence in Canada and large resources could increase in the future. New competitors may also appear as new technologies, products and services are developed, and for other reasons.

      Competition could affect our pricing strategies, and lower our revenues and net income. It could also affect our ability to retain existing customers and attract new ones. Competition puts us under constant pressure to improve customer service and be price-competitive. It forces us to keep reducing costs, managing expenses and increasing productivity. This means that we need to be able to anticipate and respond quickly to the constant changes in our businesses and markets.

ANTICIPATING TECHNOLOGICAL CHANGE

We operate in markets that are experiencing constant technological change, evolving industry standards, changing client needs, frequent new product and service introductions, and short product life cycles.

      Our success will depend in large part on how well we can anticipate and respond to changes in industry standards, introduce new and upgrade existing technologies, products and services.

      We may face additional financial risks as we develop new products, services and technologies and update our networks to stay competitive. Newer technologies, for example, may quickly become obsolete or may need more capital than expected. Development could be delayed for reasons beyond our control. Substantial investments usually need to be made before new technologies prove to be commercially viable.

There is no assurance that we will be successful in developing, implementing and marketing new technologies, products, services or enhancements within a reasonable time, or that they will have a market. New products or services that use new or evolving technologies could make our existing ones unmarketable or cause their prices to fall.

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STRATEGIES AND PLANS

We plan to reach our business objectives by implementing different plans and strategies, the most significant of which are described in BCE Inc.’s 2002 annual MD&A dated February 26, 2003. If our plans and strategies are unsuccessful, this could have a material and negative effect on our growth prospects and results of operations.

FINANCING OUR OPERATIONS

We require substantial amounts of capital to finance capital expenditures to provide our services and to refinance our outstanding debts. We finance our capital needs in three ways:

n  from cash generated by our operations

n  by borrowing from commercial banks

n  through debt and equity offerings in the capital markets

     Equity financings would dilute the holdings of existing equity investors. Increased debt financings could increase our borrowing costs, lower our credit ratings and give us less flexibility to take advantage of business opportunities.

      Our ability to finance operations and the cost of funding depends on our ability to access the capital markets and syndicated commercial loan market, and on market conditions. In addition, participants in the syndicated commercial loan market have internal policies limiting their ability to extend credit to any single borrower or group of borrowers or to a particular industry. Less capital has been available in the capital markets in general and to the telecommunications industry in particular for several reasons including:

n  worldwide political instability

n accounting scandals relating to major North American companies

n bandwidth overcapacity

n  a loss of investor confidence in the capital markets in general and in the telecommunications industry in particular.

If we cannot raise the capital we need, we may have to:

n  limit our ongoing capital expenditures

n  limit our investment in new businesses

n  try to raise additional capital by selling assets or through monetizing transactions.

     Any of these possibilities could have a material and negative effect on our growth prospects for the long term.

LITIGATION, REGULATORY PROCEEDINGS AND CHANGES IN LAWS

Pending or future litigation, regulatory initiatives or regulatory proceedings could have a material and negative effect on our business. Changes in laws or regulations or in their interpretation, or the adoption of new laws or regulations, could also have a material and negative effect on our businesses, operating results and financial condition.

      In November 2002, Industry Canada initiated a review by the House of Commons Standing Committee on Industry, Science and Technology of the current foreign investment restrictions included in the Telecommunications Act (Act). A similar process has been initiated by the Standing Committee on Canadian Heritage as it relates to the Broadcasting Act. On April 28, 2003, the Standing Committee on Industry, Science and Technology tabled its report in the House of Commons recommending:

n   that the Act be amended to allow for a mandatory 5-year parliamentary review of the Act

n   the removal of the existing minimum Canadian ownership and control requirements and that this change also apply to broadcasting distribution undertakings

n   that a special parliamentary committee conduct a comprehensive review of the governance structure of the telecommunications and broadcasting sectors in Canada in light of technological convergence.

     Since the Government’s response to the above-mentioned report has not yet been issued and the review by the Heritage Committee has not yet been completed, we are not currently in a position to assess the impact, if any, the above-mentioned developments may have on us.

      BCE Inc.’s Annual Information Form for the year ended December 31, 2002 contains a detailed description of:

n  the principal legal proceedings against us

n  certain regulatory initiatives and proceedings affecting the Bell Canada Segment.

     The following provides a description of recent material developments in the legal proceedings described in BCE Inc.’s Annual Information Form for the year ended December 31, 2002:

Teleglobe lending syndicate lawsuit

As indicated in BCE Inc.’s Annual Information Form for the year ended December 31, 2002, on November 28 and 29, 2002, the Ontario Superior Court of Justice heard the motions previously filed by BCE Inc. (i) to stay or dismiss the action on the basis that it does not have jurisdiction and that Québec is the convenient forum for the adjudication of the plaintiffs’ claims, and (ii) for a declaration that the plaintiffs’ legal counsel is in a position of conflict of interest acting as counsel to the plaintiffs and for an order removing the plaintiffs’ legal counsel as the solicitors of record for the plaintiffs in this lawsuit. The second motion was decided in favour of BCE Inc. on March 20, 2003 and the Court ordered the removal of the plaintiffs’ legal counsel as the solicitors of record for the plaintiffs. The Plaintiffs filed a Notice of Motion for Leave to Appeal this decision on March 28, 2003, which is scheduled to be heard on May 8, 2003. A decision in respect of the first motion has not yet been rendered by the Ontario Superior Court of Justice.

PENSION FUND CONTRIBUTIONS

As of our most recent actuarial valuation, most of our pension plans had pension fund surpluses. As a result, we have not had to make regular contributions to the pension funds in the past years. It also means that we have reported pension credits, which have had a positive effect on our net earnings.

      The recent decline in the capital markets, combined with historically low interest rates, however, has significantly reduced the pension fund surpluses and the pension credits. This has negatively affected our net earnings.

      If these conditions continue, the surpluses will be eroded, resulting in the requirement to commence making contributions to the pension funds. This could also result in a material and negative effect on our net earnings.

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FUNDING SUBSIDIARIES

BCE Inc. is currently funding and may continue to fund the operating losses of certain of its subsidiaries in the future, but is not obligated to do so. If BCE Inc. decides to stop funding any of its subsidiaries and a subsidiary does not have other sources of funding, this would have a material and negative effect on the subsidiary’s results of operations and financial condition.

      If BCE Inc. stopped funding a subsidiary, stakeholders or creditors of the subsidiary might decide to take legal action against BCE Inc. While we believe that this type of claim would have no legal foundation, it could negatively affect the market price of BCE Inc.’s securities. BCE Inc. would have to devote considerable management time and resources in responding to any claim.

ATTRACTING AND RETAINING SKILLED PEOPLE

Our success depends in large part on our ability to attract and retain highly skilled people. The loss of key people could materially hurt our businesses and operating results.

PROTECTING OUR NETWORKS

Network failures could materially hurt our business, including our customer relationships and operating results. Our operations depend on how well we protect our networks, our equipment and the information stored in our data centres against damage from fire, natural disaster, power loss, hacking, computer viruses, disabling devices, acts of war or terrorism, and other events. Any of these events could cause our operations to be shut down indefinitely.

RENEGOTIATING LABOUR AGREEMENTS

Many of our employees are represented by unions and are covered by collective bargaining agreements.

      Several of our collective bargaining agreements expire in 2003 or have already expired. These agreements, which cover approximately 15,480 employees, are the following:

n  the collective agreements between Bell Canada and the Communications, Energy and Paperworkers union of Canada representing approximately 400 operator services employees and approximately 7,000 craft and services employees which expire at the end of November 2003

n  the collective agreements between Bell Canada and the Canadian Telecommunications Employees’ Association representing approximately 1,100 communications sales employees which expire on December 31, 2003

n  several collective agreements between certain other companies of the Bell Canada Segment (including Aliant, Expertech Network Installation Inc. and Connexim L.P.) and their respective employees, representing approximately 6,400 employees.

n  several collective agreements between certain companies of the Bell Globemedia segment including CTV, and their respective employees, representing approximately 580 employees.

     Renegotiating collective agreements could result in higher labour costs or work disruptions. Difficulties in renegotiations or other la bour unrest could hurt our businesses, operating results and financial condition.

BCE Inc.

HOLDING COMPANY STRUCTURE

BCE Inc. is a holding company. That means it does not carry on any significant operations and has no major sources of income or assets of its own, other than the interests it has in its subsidiaries, joint ventures and significantly influenced companies. BCE Inc.’s cash flow and its ability to service its debts and to pay dividends on its shares all depend on dividends or other distributions it receives from its subsidiaries, joint ventures and significantly influenced companies and, in particular, from Bell Canada.

      BCE Inc.’s subsidiaries, joint ventures and significantly influenced companies are separate legal entities. They do not have to pay dividends or make any other distributions to BCE Inc. If any of these subsidiaries, joint ventures or significantly influenced companies are liquidated or reorganized, the rights of their creditors will rank ahead of any rights BCE Inc. has to receive assets.

STOCK MARKET VOLATILITY

In the past, the common shares of BCE Inc. have generally experienced price volatility when certain announcements concerning BCE have been made. Differences between BCE’s actual or anticipated financial results and the published expectations of financial analysts may also contribute to this volatility. All of these factors, as well as general economic and political conditions, could have a material and negative effect on the market price of BCE Inc.’s common shares.

Bell Canada Segment

CHANGING WIRELINE REGULATION

The Bell Canada Segment’s business is affected by changes in policies resulting from decisions made by various regulatory agencies, including the CRTC. Many of these decisions balance requests from competitors for access to facilities, such as the telecommunications networks, switching and transmission facilities, and other network infrastructure of incumbent telephone companies, with the rights of the incumbent telephone companies to compete reasonably freely.

CRTC Price Cap decision

The CRTC recently introduced new Price Cap rules that reduce some rates that incumbent telephone companies charge competitors for services provided to them.

      The new rules create certain risks for the Bell Canada Segment. For example, the CRTC has established a deferral account but has not yet determined how the account will be used. There is a risk that the account could be used in a way that could have a negative financial effect on the Bell Canada Segment.

CRTC decision on incumbent affiliates

On December 12, 2002, the CRTC released its decision on incumbent affiliates, which makes several important changes to the regulatory regime for the Bell Canada Segment.

      The decision provided that contracts offered by Bell Canada or its carrier affiliates that bundle tariffed and non-tariffed products and services must receive CRTC approval. This means that:

n  all contracts that currently bundle products and services must be filed with the CRTC for regulatory approval

n  all new contracts must receive CRTC approval before implementation

n  carrier affiliates must now meet the same requirements as Bell Canada for tariff approval on products and services they offer in Bell Canada’s operating territory.

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     While the decision increases the regulatory burden for the Bell Canada Segment at both the wholesale and retail levels in highly competitive markets, it is not currently possible to determine the financial effect of the decision or to separate it from the normal risk of loss of revenues resulting from competition.

LICENSES AND CHANGING WIRELESS REGULATION

Companies must have a spectrum license to operate cellular, PCS and other radio-telecommunications systems in Canada. The Minister of Industry issues spectrum licenses at his or her discretion under the Radiocommunication Act. Bell Mobility’s cellular and PCS licenses will expire on March 31, 2006. The PCS licenses that were awarded in an auction in 2001 will expire on November 29, 2011. Although we expect that licenses will be renewed when they expire, there is no assurance that this will happen. In addition, Industry Canada can revoke a company’s license at any time if the company does not comply with its terms.

      In December 2002, Industry Canada initiated a cellular and PCS licensing and fees consultation. Industry Canada has proposed a new cellular and PCS fee structure that, while implemented over several years, could significantly increase the Bell Canada Segment’s license fees if it is implemented as proposed.

      In October 2001, the Minister of Industry announced his intention to initiate a national review of Industry Canada’s procedures surrounding the approval and placement of wireless and radio towers throughout Canada. The review will include the role of municipal authorities in the approval process. There is a risk that if municipal involvement increases in the process for approval of new towers, it could significantly slow the expansion of wireless networks in Canada. This could have a material and negative effect on the operations of all of Canada’s wireless carriers, including the Bell Canada Segment.

BANKRUPTCY PROCEEDINGS AT TELEGLOBE

On September 19, 2002, Teleglobe, which had previously started bankruptcy proceedings to get protection from its creditors in Canada and in other jurisdictions, announced an agreement to sell its core telecommunications business.

Under court orders, contracts between Teleglobe and Bell Canada and some of its subsidiaries will be assigned on substantially the same terms to the buyers on the day the sale closes. If the sale is not completed, Teleglobe’s business could be shut down and its remaining assets liquidated. If this happens, Bell Canada will have to transfer its traffic to other carriers. While Bell Canada will do its best to protect its customers, they could experience temporary service disruptions or a lower quality of service if there are delays in completing the transfer.

INCREASED ACCIDENTS FROM USING CELL PHONES

Media reports have suggested that using handheld cell phones while driving may result in more accidents. It is possible that this could lead to new regulations or legislation banning the use of handheld cell phones while driving, as it has in Newfoundland and Labrador and several U.S. states. As a result, cell phone use in vehicles could decline, which would negatively affect the Bell Canada Segment and other wireless service providers.

HEALTH CONCERNS ABOUT RADIO FREQUENCY EMISSIONS

Media reports have suggested that some radio frequency emissions from cell phones may be linked to medical conditions, such as cancer. In addition, some interest groups have requested investigations into claims that digital transmissions from handsets used with digital wireless technologies pose health concerns and cause interference with hearing aids and other medical devices.

The findings of these kinds of studies could lead to government regulation, which could have a material and negative effect on the Bell Canada Segment’s business. Actual or perceived health risks of wireless communications devices could result in fewer new network subscribers, lower network usage per subscriber, higher churn rates, product liability lawsuits or less outside financing being available to the wireless communications industry. Any of these would have a negative effect on the Bell Canada Segment and other wireless service providers.

BELL EXPRESSVU

Bell ExpressVu continues to face competition from unregulated U.S. DTH services that are illegally sold in Canada. In response, it has initiated or is participating in several legal actions that are challenging the sale of U.S. DTH equipment in Canada. While Bell ExpressVu has been successful in increasing its share of the satellite television market despite this competition, there is no assurance that it will continue to do so.

      Bell ExpressVu currently uses two satellites for its DTH services, Nimiq 1 and Nimiq 2, which are operated by Telesat. Please see Risk Assessment – BCE Ventures – Telesat for a description of certain risks affecting satellites and, in particular, Nimiq 2.

      Satellites are subject to significant risks. Any loss, manufacturing defects, damage or destruction of the satellites used by Bell ExpressVu could have a material and negative effect on Bell ExpressVu’s results of operations and financial condition.

      Bell ExpressVu is subject to programming and carriage requirements under its CRTC license. Changes to the regulations that govern broadcasting or to its license could negatively affect Bell ExpressVu’s competitive position or its costs of providing services. Bell ExpressVu’s existing DTH Distribution Undertaking license is scheduled for renewal in August 2003. Although we expect that this license will be renewed when it expires, there is no assurance that this will happen or that the terms of such renewal will remain identical.

      Finally, Bell ExpressVu faces a loss of revenue resulting from the theft of its services. Bell ExpressVu may reduce these losses by taking numerous actions including legal action, investigations, implementing electronic countermeasures targeted at illegal devices, leading information campaigns and developing new technology. Implementing these measures, however, could increase its capital and operating expenses.

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Bell Globemedia

DEPENDENCE ON ADVERTISING

Bell Globemedia’s revenue from its television and print businesses depends in large part on advertising revenues. Bell Globemedia’s advertising revenues are affected by competitive pressures. In addition, the amount companies spend on advertising is directly related to economic growth. An economic downturn therefore tends to make it more difficult for Bell Globemedia to maintain or increase revenues.

INCREASING FRAGMENTATION IN TELEVISION MARKETS

Television advertising revenue depends on the number of viewers and the attractiveness of programming in a given market. The viewing market has become increasingly fragmented over the past decade because of the introduction of additional television services, the extended reach of existing signals and the launch of new digital broadcasting services in the fall of 2001.

      We expect fragmentation to continue as new web-based and other services increase the choices available to consumers. As a result, there is no assurance that Bell Globemedia will be able to maintain or increase its advertising revenues or its ability to reach viewers with attractive programming.

REVENUES FROM DISTRIBUTING TELEVISION SERVICES

A significant portion of revenues generated by CTV’s specialty television operations comes from contractual arrangements with distributors, primarily cable and DTH operators. Many of these contracts have expired. There is no assurance that the contracts will be renewed on equally favourable terms.

NEW PRINT COMPETITORS

The launch of a competing national newspaper and several commuter papers in the Toronto area in the past few years has increased competition in the print sector. While some of the commuter papers have recently stopped operating, the increased competition has resulted in higher circulation and other costs, more competition in advertising rates and lower profit margins at The Globe and Mail.

BROADCAST LICENSES

Each of CTV’s conventional and specialty services operates under licenses issued by the CRTC for a fixed term of up to seven years. These licenses are subject to the requirements of the Broadcasting Act, the policies and decisions of the CRTC and the conditions of each licensing or renewal decision, all of which may change.

      There is no assurance that any of CTV’s licenses will be renewed. Any renewals, changes or amendments may have a material and negative effect on Bell Globemedia.

BCE Emergis

ADOPTION OF eBUSINESS

The success of BCE Emergis depends on widespread use of the Internet as well as other electronic networks as a way to conduct business. Because eBusiness and its related business activities, such as online transactions, are relatively new and evolving, it is difficult to predict the size of this market and its sustainable rate of growth. Businesses and customers have not adopted eBusiness and its inherent applications as quickly as originally expected.

BCE Emergis must increase the number of transactions it processes to build recurring revenue. This increase will depend on the rate at which its solutions are adopted by its customers and its distributors’ customers. It will also depend on BCE Emergis’ ability to build an effective sales force as well as stimulate its distributors’ sales and influence their marketing plans for its solutions.

OPERATING RESULTS

BCE Emergis has announced plans to focus on key growth areas, drive core recurring revenue growth, streamline its service offerings and operating costs and expand its core product offerings and channels. BCE Emergis will also pursue a review of its various product lines and businesses to ensure they continue to meet its goals. If it fails to successfully carry out these plans, there could be a material and adverse effect on BCE Emergis’ results of operations.

      BCE Emergis has incurred losses in the past. Its revenue depends substantially on the amount of services that its customers purchase throughout the year. In addition, it has a number of major customers representing a significant portion of its revenue. If BCE Emergis loses a contract with a major client and cannot replace it or there is a significant decrease in the number of transactions BCEEmergis processes, it could have a material and adverse effect on it. Most of BCE Emergis’ contracts are for a term of three to five years, except those with its e-health U.S. operations which are renewable on an annual basis as is customary in that industry.

      The operating results of BCE Emergis have fluctuated in the past, mainly because of variability in non-recurring revenue and the effect of acquisitions and exited activities. BCE Emergis expects fluctuations to continue in the future. BCE Emergis’ operating results would also be affected by fluctuations in currency exchange rates between the Canadian and U.S. dollars. The strengthening of the Canadian dollar would have an unfavourable impact on BCE Emergis’ revenue and net earnings.

SUCCESS OF U.S.-BASED OPERATIONS

To be successful in the United States involves significant management and financial resources. If BCE Emergis is unsuccessful, this could have a material and adverse effect on its business and operating results.

CONTROL BY BCE INC.

BCE Inc., which owns approximately 65% of the outstanding common shares of BCE Emergis, can, subject to applicable law, exercise significant control and influence over the affairs of BCE Emergis, including virtually all matters submitted to a shareholder vote.

      BCE Inc. has no obligation to remain the majority shareholder of, or to maintain its current level of ownership in, BCE Emergis. The announcement of a decision by BCE Inc. to change the treatment of its investment in BCE Emergis, to sell all or a portion of its common shares of BCE Emergis, or any other decision to the same effect could materially and negatively affect BCE Emergis, its prospects and the market price of its common shares.

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ACQUISITIONS

BCE Emergis’ growth strategy includes making strategic internally funded acquisitions. There is no assurance that it will find suitable companies to acquire or that it will have enough resources to complete any acquisition. There could be difficulties with integrating the operations of recently acquired companies with its existing operations. In addition, the current state of capital markets has created a more challenging environment in which to realize acquisitions.

STRATEGIC RELATIONSHIPS

BCE Emergis relies on strategic relationships to increase its customer base, including its relationships with Bell Canada, Visa and Freddie Mac. If these relationships fail, there could be a material and adverse effect on its business and operating results.

DEPENDENCE ON CONTRACTING MEDICAL SERVICE PROVIDERS

The growth of BCE Emergis’ eHealth Solutions Group, North America, business unit depends on its ability to:

n  retain contracts with existing providers

n  attract new providers

n  retain or improve the discounts given by providers.

     In addition, the results of BCE Emergis could be materially and adversely affected if:

n  it loses a significant number of contracts with providers that have a large number of customers, and is unable to replace them with contracts with other providers

n  contracts with its providers are renegotiated with reduced discounts.

EXPOSURE TO PROFESSIONAL LIABILITY

BCE Emergis uses medical treatment guidelines in its utilization review and case management services. That means it could be subject to claims relating to:

n  adverse medical consequences because services were denied

n  the cost of services that were denied

n  errors or omissions of health care professionals.

     These claims could have a material adverse effect on the business and operating results of BCE Emergis.

DEFECTS IN SOFTWARE AND FAILURES IN THE PROCESSING OF TRANSACTIONS

Defects in BCE Emergis’ owned or licensed software products, delays in delivery, as well as failures or mistakes in its processing of electronic transactions, could materially harm its business, including its customer relationships and operating results.

SECURITY AND PRIVACY BREACHES

If BCE Emergis is unable to protect the physical and electronic security and privacy of applications, databases and transactions, its business, including customer relationships, could be materially and adversely affected.

PROTECTION OF INTELLECTUAL PROPERTY

BCE Emergis depends on its ability to develop and maintain the proprietary aspects of its technology. It may not be able to enforce its rights or prevent other parties from developing similar technology, duplicating its intellectual property or designing around its intellectual property and this could materially harm its business.

INTEGRITY OF CRYPTOGRAPHY TECHNOLOGY

BCE Emergis’ security solutions depend on key public cryptography technology. Any major advance in ways to attack cryptographic systems could make some or all of its security solutions obsolete or unmarketable. This could reduce revenues from its security solutions and could materially harm its business and operating results.

BCE Ventures

TELESAT

On February 20, 2003, Telesat’s Nimiq 2 satellite experienced a malfunction affecting the available power on the satellite. An investigation by Lockheed Martin, the Nimiq 2 satellite manufacturer, has determined that the malfunction cannot be corrected. Nimiq 2 has been configured such that 26 of the 32 transponders on the satellite are being operated at this time. Operating under this configuration, Telesat expects the number of operational transponders to decrease over time to approximately 20 by the end of the satellite’s life which will occur in approximately 12 and a half years. Telesat has insurance in place to cover the loss on Nimiq 2 and will file a claim for the loss in due course. Although Telesat believes that such a claim will be approved, there is no assurance that it will be. If the claim is approved, there is no assurance of how much Telesat will receive in the settlement or when it will receive it.

      In August 2001, Boeing Satellite Systems, the manufacturer of the Anik F1 satellite, advised Telesat of a gradual decline in available power on the satellite. It recently indicated that power levels on the Anik F1 satellite will continue to degrade at the rates observed to date. Telesat believes that this will result in some core services on the satellite being affected in mid-2005.

      Telesat has a satellite under construction, Anik F1R, which will replace Anik F1 in a timeframe that will ensure continuity of service for its customers. Telesat has insurance in place to cover the power loss on Anik F1, and in December 2002 it filed a claim with its insurers. Although Telesat believes that the claim will be approved, there is no assurance that it will be. If the claim is approved, there is no assurance of how much Telesat will receive in the settlement or when it will receive it.

      Telesat also has another satellite under construction, Anik F2. There is a risk that this, the Anik F1R or other satellites built in the future may not be launched successfully. Telesat already has part of the insurance coverage for Anik F2, but there is no assurance that it will be able to get launch coverage for the full value of the Anik F2 satellite, or of any other satellite proposed to be launched, at a favourable rate.

      Once Telesat’s satellites are in orbit, there is a risk that a failure could prevent them from completing their commercial mission. Telesat has put a number of measures in place to protect itself against this risk. These include engineering satellites with on-board redundancies by including spare equipment on the satellite and buying in-orbit insurance. There is no assurance that Telesat will be able to renew its in-orbit insurance coverage in sufficient amount at favourable terms.

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Our Accounting Policies

We have prepared our consolidated financial statements according to Canadian GAAP.

      This section discusses key estimates and assumptions that management has made under these principles and how they affect the amounts reported in the financial statements and notes.

      It also describes changes to accounting standards that affect how we account for and report certain items in our financial statements.

      Please see Note 1 to the consolidated financial statements for the year ended December 31, 2002 and Note 1 to the consolidated financial statements for the first quarter of 2003 for more information about the accounting principles we use to prepare our financial statements.

Key Estimates and Assumptions

Under Canadian GAAP, we are required to make estimates and assumptions when we account for and report assets, liabilities, revenue and expenses and disclose contingent assets and liabilities in our financial statements. We are also required to constantly evaluate the estimates and assumptions we use.

      We base our estimates and assumptions on past experience and other factors that we believe are reasonable under the circumstances. Because this involves varying degrees of judgment and uncertainty, the amounts currently reported in the financial statements could, in the future, prove to be inaccurate.

      We consider the estimates and assumptions described in this section to be an important part of understanding our financial statements because they rely heavily on management’s judgment and are based on factors that are inherently uncertain.

      Our senior management has discussed the development and selection of these key estimates and assumptions with the Audit Committee of the Board of Directors. The Audit Committee has reviewed the disclosures described in this section.

EMPLOYEE BENEFIT PLANS

We maintain defined benefit plans that provide pension, other retirement and post-employment benefits for most of our employees.

      The amounts reported in the financial statements relating to pension, other retirement and post-employment benefits are determined using actuarial calculations that are based on several assumptions.

      We perform a valuation at least every three years to determine the actuarial present value of the accrued pension and other retirement benefits. The valuation uses management’s assumptions for the discount rate, expected long-term rate of return on plan assets, rate of compensation increase, healthcare cost trend and expected average remaining years of service of employees.

      While we believe that these assumptions are appropriate, differences in actual results or changes in assumptions could affect employee benefit obligations and future credit or expense.

      We account for differences between actual and assumed results by recognizing differences in benefit obligations and plan performance over the working lives of the employees who benefit from the plans.

      The two most significant assumptions used to calculate the net employee benefit plans credit or expense are:

n  the discount rate

n  the expected long-term rate of return on plan assets.

Discount rate

The discount rate is the interest rate used to determine the present value of the future cash flows that we expect will be needed to settle employee benefit obligations. It is usually based on the yield on long-term high-quality corporate fixed income investments.

      We determine the appropriate discount rate at the end of every year. Our discount rate was 6.5% at December 31, 2002, unchanged from 2001. Changes in the discount rate do not have a significant effect on our earnings. They do, however, have a significant effect on the projected benefit obligation. A lower discount rate results in a higher obligation, which could at some level require us to make contributions to the plan.

Expected long-term rate of return

In 2002, we assumed an expected long-term rate of return on plan assets of 8.3%. The actual rate of return has been substantially more than 8.3% on average over the long term. In the past two years, however, it has been substantially less than 8.3%.

      We have lowered our assumption to a rate of return of 7.5% for 2003, because we expect lower long-term rates of return in the financial markets. We expect this change to reduce pre-tax earnings by about $80 million in 2003.

ALLOWANCES FOR DOUBTFUL ACCOUNTS

We maintain allowances for losses that we expect will result from customers who do not make their required payments.

      We estimate the allowances based on the likelihood of recovering our accounts receivable. This is based on past experience, taking into account current and expected collection trends.

      If economic conditions or specific industry trends become worse than we have anticipated, we will increase our allowances for doubtful accounts by recording an additional expense.

USEFUL LIFE OF LONG-LIVED ASSETS

      The estimated useful life of long-lived assets is used to determine amortization expense.

      We estimate an asset’s useful life when we acquire the asset. We base our estimate on past experience with similar assets, taking into account expected technological or other changes.

      If technological changes happen more quickly or in a different way than we have anticipated, we might have to shorten the asset’s estimated useful life. This could result in:

n  a higher amortization expense in future periods

n  an impairment charge to reflect the write-down in value of the asset.

IMPAIRMENT

We assess the impairment of long-lived assets when events or changes in circumstances indicate that we may not be able to recover their carrying value.

      We assess the impairment of goodwill and intangible assets with indefinite lives each year and when events or changes in circumstances indicate that goodwill might be impaired. We usually measure impairment using a projected discounted cash flow method. If the asset’s carrying value is more than its fair value, we record the difference as an impairment charge.

      We believe that our estimates of future cash flows and fair value are reasonable. The assumptions we have used are consistent with our internal planning and reflect our best estimates, but they have inherent uncertainties that management may not be able to control. As a result, the amounts reported for these items could be different if we used different assumptions or if conditions change in the future.

      We cannot predict whether an event that triggers an impairment will occur, when it will occur or how it will affect the asset values we have reported.

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LEGAL CONTINGENCIES

We become involved in various litigation and regulatory matters as a regular part of our business. Pending litigation, regulatory initiatives or regulatory proceedings represent potential financial loss to our business.

     We will accrue a potential loss if we believe the loss is probable and it can be reasonably estimated. We base our decision on then available information.

      We estimate the amount of the loss by consulting with the outside legal counsel who is handling our defence. This involves analyzing potential outcomes and assuming various litigation and settlement strategies.

      If the final resolution of a legal or regulatory matter results in a judgment against BCE or the payment of a large settlement by BCE, it could have a significant and adverse effect on our results of operations, cash flows and financial position in the period that the judgment or settlement occurs in.

RESTRUCTURING AND OTHER CHARGES

We are required to develop formal plans for exiting businesses and activities as part of the restructuring initiatives we have been carrying out for the past several years.

      These plans require significant estimates of the salvage value of assets that are made redundant or obsolete. We are also required to report estimated expenses for severance and other employee costs, lease cancellation and other exit costs.

      Because exiting a business or activity is a complex process that can take several months to complete, it involves periodically reassessing estimates that were made when the original decision to exit the business or activity was made. In addition, we constantly evaluate whether the estimates of the remaining liabilities under our restructuring program are adequate.

      As a result, we may have to change previously reported estimates when the payments are made or the activities are completed. There may also be additional charges for new restructuring initiatives.

ALTERNATIVE ACCEPTABLE ACCOUNTING POLICIES

Generally accepted accounting principles permit, in certain circumstances, alternative acceptable accounting policies. Two areas where we have made a choice are (1) the accounting for customer acquisition costs in our wireless and satellite television businesses and (2) the accounting for stock-based compensation cost. Please see Changes to accounting standards, for more information.

Changes to Accounting Standards

This section tells you about changes to the accounting standards and how they affect our financial statements.

STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

Effective January 1, 2002, we adopted the new recommendations in section 3870 of the CICA Handbook, Stock-based compensation and other stock-based payments, on a prospective basis as permitted by the standard. This section sets standards for recognizing, measuring and disclosing stock-based compensation and other stock-based payments made in exchange for goods and services.

     The standards require us to use a fair value-based method for:

n  all stock-based awards to non-employees

n  direct awards of stock and stock appreciation rights to employees

n  awards to employees that are settled in cash or other assets.

      The standards also encourage companies to use a fair value-based method for all other awards granted to employees.

     Awards that are settled in stock are recorded as equity. Awards that are required to be, or are usually, settled in cash are recorded as liabilities.

      In 2002, upon adoption of the standard, we accounted for employee stock options by measuring the compensation cost of the options. This is the amount that the quoted market price of BCE Inc.’s common shares on the date of the grant exceeds the exercise price an employee must pay to buy the common shares.

      Effective January 1, 2003, we account for employee stock options by measuring the compensation cost for options granted on or after January 1, 2002 under the fair value-based method of accounting using a Black-Scholes option pricing model.

      As a result of applying this change in accounting policy, we restated the comparative figures for 2002, and recorded a compensation expense of $2 million for the three months ended March 31, 2002. The effect as at January 1, 2003 was to increase the deficit by $27 million, decrease non-controlling interest by $3 million and increase contributed surplus by $30 million.

SUBSCRIBER ACQUISITION COSTS

Prior to 2003, we accounted for the costs of acquiring subscribers as follows:

n  we deferred and amortized the costs of acquiring Direct-to-Home (DTH) satellite service subscribers into earnings over three years

n  we deferred and amortized the costs of acquiring wireless subscribers into earnings over the terms of the contracts. The terms are normally up to 24 months

n  we expensed all other subscriber acquisition costs as they were incurred.

      The costs we deferred and amortized consisted mainly of hardware subsidies, net of revenues from the sale of wireless handsets.

     Effective January 1, 2003, we elected to change our accounting method as permitted by Canadian GAAP, and began expensing all subscriber acquisition costs as they are incurred and began presenting the revenues generated from the sale of wireless handsets.

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For the three months ended March 31, 2002, we:
n  increased operating revenues by $28 million
n  increased operating expenses by $30 million
n  decreased income taxes by $1 million
n  increased non-controlling interest by $1 million.

IMPAIRMENT OF LONG-LIVED ASSETS

The CICA recently issued a new section in the CICA Handbook, section 3063, Impairment of long-lived assets. It provides guidance on recognizing, measuring and disclosing the impairment of long-lived assets. It replaces the write-down provisions in section 3061 of the CICA Handbook, Property, plant and equipment.

      The new section requires us to recognize an impairment loss for a long-lived asset to be held and used when its carrying value exceeds the total undiscounted cash flows expected from its use and eventual disposition. The impairment loss is the amount by which the carrying value of the asset exceeds its fair value.

      This section comes into effect in 2004. We do not expect that adopting this standard in 2004 will affect our consolidated financial statements.

DISPOSAL OF LONG-LIVED ASSETS AND DISCONTINUED OPERATIONS

The CICA recently issued a new section in the CICA Handbook, section 3475, Disposal of long-lived assets and discontinued operations. It provides guidance on recognizing, measuring, presenting and disclosing long-lived assets to be disposed of. It replaces the disposal provisions in section 3061, Property, plant and equipment, and section 3475, Discontinued operations.

      The new section provides criteria for classifying assets as held for sale. It requires an asset classified as held for sale to be measured at fair value less disposal costs.

      It also provides criteria for classifying a disposal as a discontinued operation and specifies the presentation of and disclosures for discontinued operations and other disposals of long-lived assets.

      This section comes into effect for disposal activities started on or after May 1, 2003. We do not expect that adopting this standard on or after May 1, 2003 will affect our consolidated financial statements.

DISCLOSURE OF GUARANTEES

Effective January 1, 2003, we adopted Accounting Guideline 14 (AcG-14), Disclosure of guarantees. This guideline provides assistance regarding the identification of guarantees and requires a guarantor to disclose the significant details of guarantees that have been given regardless of whether it will have to make payments under the guarantees.

      Although the disclosure requirements of this guideline have been mostly harmonized with similar guidance in the United States, unlike the U.S. standard, this guideline does not require the fair value recognition of guarantees on the balance sheet and does not extend to product warranties.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In April 2003, the CICA approved a draft accounting guideline on the consolidation of special purpose entities. The guideline provides clarification on the consolidation of those entities defined as “Variable Interest Entities,” when equity investors are not considered to have a controlling financial interest or they have not invested enough equity to allow the entity to finance its activities without additional subordinated financial support from other parties. Variable interest entities are commonly referred to as special purpose entities. The guideline is consistent, in all material respects, with the recently issued U.S. standard.

      The guideline comes into effect in 2004. We currently conduct certain transactions through special purpose entities, which are discussed in the Use of off-balance sheet arrangements section of this MD&A, and are assessing the structure of these transactions against the criteria set out in the guideline.

ASSET RETIREMENT OBLIGATIONS

The CICA recently issued a new section in the CICA Handbook, section 3110, Asset retirement obligations. This standard focuses on the recognition and measurement of liabilities related to legal obligations associated with the retirement of property, plant and equipment.

      Under this standard, these obligations are initially measured at fair value and subsequently adjusted for the accretion of discount and any changes in the underlying cash flows. The asset retirement cost is to be capitalized to the related asset and amortized into earnings over time.

      This section comes into effect in 2004. We are currently evaluating the impact of this standard on our financial statements.

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(1) Refer to Note 1, Significant accounting policies, for changes in accounting policies.

Please read the notes starting on page 29. They are an important part of these consolidated financial statements.

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(1) Refer to Note 1, Significant accounting policies, for changes in accounting policies.

Please read the notes starting on page 29. They are an important part of these consolidated financial statements.

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Notes to Consolidated Financial Statements – BCE Inc.

The interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2002, as set out on pages 54 to 81 of BCE Inc.’s 2002 Annual Report. Figures in these notes are unaudited.

1. SIGNIFICANT ACCOUNTING POLICIES

We have prepared the consolidated financial statements in accordance with Canadian generally accepted accounting principles (GAAP) using the same accounting policies as outlined in Note 1 to the annual consolidated financial statements for the year ended December 31, 2002, except as noted below.

      We have reclassified some of the figures for previous periods in the consolidated financial statements to make them consistent with the presentation in the current period.

      We have restated financial information for 2002 to reflect:

n   the accounting treatment of BCE Inc.’s investment in Teleglobe Inc. (Teleglobe) as a discontinued operation

n   the adoption of the fair value-based method of accounting for employee stock options

n   the change in the method of accounting for subscriber acquisition costs from a deferral and amortization method to an expense as incurred method.

Stock-based compensation and other stock-based payments

Effective January 1, 2002, we adopted the new recommendations in section 3870 of the CICA Handbook, Stock-based compensation and other stock-based payments, on a prospective basis as permitted by the standard. This section sets standards for recognizing, measuring and disclosing stock-based compensation and other stock-based payments made in exchange for goods and services. The standards require us to use a fair value-based method for:

n   all stock-based awards to non-employees

n  direct awards of stock and stock appreciation rights to employees

n awards to employees that are settled in cash or other assets.

      The standards also encourage companies to use a fair value-based method for all other awards granted to employees.

      Awards that are settled in stock are recorded as equity. Awards that are required to be, or are usually, settled in cash are recorded as liabilities.

      In 2002, upon adoption of the standard, we accounted for employee stock options by measuring the compensation cost of the options. This is the amount that the quoted market price of BCE Inc.’s common shares on the date of the grant exceeds the exercise price an employee must pay to buy the common shares.

      Effective January 1, 2003, we account for employee stock options by measuring the compensation cost for options granted on or after January 1, 2002 under the fair value-based method of accounting using a Black-Scholes option pricing model.

      As a result of applying this change in accounting policy, we restated the comparative figures for 2002, and recorded a compensation expense of $2 million for the three months ended March 31, 2002. The effect as at January 1, 2003 was to increase the deficit by $27 million, decrease non-controlling interest by $3 million and increase contributed surplus by $30 million. Please see Note 11, Stock-based compensation plans, for the assumptions used under the fair value method.

Subscriber acquisition costs

Prior to 2003, we accounted for the costs of acquiring subscribers as follows:

n we deferred and amortized the costs of acquiring Direct-to-Home (DTH) satellite service subscribers into earnings over three years

n we deferred and amortized the costs of acquiring wireless subscribers into earnings over the terms of the contracts. The terms are normally up to 24 months

n we expensed all other subscriber acquisition costs as they were incurred.

      The costs we deferred and amortized consisted mainly of hardware subsidies, net of revenues from the sale of wireless handsets.

      Effective January 1, 2003, we changed our accounting method as permitted by Canadian GAAP, and began expensing all subscriber acquisition costs as they are incurred and began presenting the revenues generated from the sale of wireless handsets.

      As a result of applying this change in accounting policy, we restated the comparative figures for 2002.

        For the three months ended March 31, 2003, we:

n  increased operating revenues by $46 million

n  increased operating expenses by $34 million

n  increased income taxes by $5 million

n  decreased non-controlling interest by $1 million.

For the three months ended March 31, 2002, we:

n  increased operating revenues by $28 million

n  increased operating expenses by $30 million

n  decreased income taxes by $1 million

n  increased non-controlling interest by $1 million.

The effect as at December 31, 2002 was to:

n  decrease other current assets by $133 million

n  decrease other long-term assets by $339 million

n  increase goodwill by $15 million

n  decrease future income tax liability by $189 million

n  decrease non-controlling interest by $9 million

n   increase the deficit by $259 million.

Impairment of long-lived assets

The CICA recently issued a new section in the CICA Handbook, section 3063, Impairment of long-lived assets. It provides guidance on recognizing, measuring and disclosing the impairment of long-lived assets. It replaces the write-down provisions in section 3061 of the CICA Handbook, Property, plant and equipment.

      The new section requires us to recognize an impairment loss for a long-lived asset to be held and used when its carrying value exceeds the total undiscounted cash flows expected from its use and eventual disposition. The impairment loss is the amount by which the carrying value of the asset exceeds its fair value.

      This section comes into effect in 2004. We do not expect that adopting this standard in 2004 will affect our consolidated financial statements.

Disposal of long-lived assets and discontinued operations

The CICA recently issued a new section in the CICA Handbook, section 3475, Disposal of long-lived assets and discontinued operations. It provides guidance on recognizing, measuring, presenting and disclosing long-lived assets to be disposed of. It replaces the disposal provisions in section 3061, Property, plant and equipment, and section 3475, Discontinued operations.

      The new section provides criteria for classifying assets as held for sale. It requires an asset classified as held for sale to be measured at fair value less disposal costs.

      It also provides criteria for classifying a disposal as a discontinued operation and specifies the presentation of and disclosures for discontinued operations and other disposals of long-lived assets.

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1. SIGNIFICANT ACCOUNTING POLICIES (continued)

     This section comes into effect for disposal activities started on or after May 1, 2003. We do not expect that adopting this standard on or after May 1, 2003 will affect our consolidated financial statements.

Disclosure of guarantees

Effective January 1, 2003, we adopted Accounting Guideline 14 (AcG-14), Disclosure of guarantees. This guideline provides assistance regarding the identification of guarantees and requires a guarantor to disclose the significant details of guarantees that have been given regardless of whether it ill have to make payments under the guarantees. Please see Note 12, Contractual obligations, commercial commitments and contingencies, for more information.

      Although the disclosure requirements of this guideline have been mostly harmonized with similar guidance in the United States, unlike the U.S. standard, this guideline does not require the fair value recognition of guarantees on the balance sheet and does not extend to product warranties.

Consolidation of variable interest entities

In April 2003, the CICA approved a draft accounting guideline on the consolidation of special purpose entities. The guideline provides clarification on the consolidation of those entities defined as “Variable Interest Entities,” when equity investors are not considered to have a controlling financial interest or they have not invested enough equity to allow the entity to finance its activities without additional subordinated financial support from other parties. Variable interest entities are commonly referred to as special purpose entities. The guideline is consistent, in all material respects, with the recently issued U.S. standard.

      The guideline comes into effect in 2004. We currently conduct certain transactions through special purpose entities and are assessing the structure of these transactions against the criteria set out in the guideline.

Asset retirement obligations

The CICA recently issued a new section in the CICA Handbook, section 3110, Asset retirement obligations. This standard focuses on the recognition and measurement of liabilities related to legal obligations associated with the retirement of property, plant and equipment.

      Under this standard, these obligations are initially measured at fair value and subsequently adjusted for the accretion of discount and any changes in the underlying cash flows. The asset retirement cost is to be capitalized to the related asset and amortized into earnings over time.

      This section comes into effect in 2004. We are currently evaluating the impact of this standard on our financial statements.

2. SEGMENTED INFORMATION

We operate under four segments, the Bell Canada Segment, Bell Globemedia, BCE Emergis and BCE Ventures. Our segments are organized by products and services, and reflect how we classify our operations for planning and measuring performance.

      Effective January 1, 2003, the results of Bell Canada Holdings Inc., Bell Canada’s holding company, are now classified under Corporate and other, whereas previously they were classified under the Bell Canada Segment.

3. BUSINESS ACQUISITIONS AND DISPOSITIONS

CGI Group Inc. (CGI)’s acquisition of Cognicase Inc. (Cognicase)

During the first quarter of 2003, CGI acquired 100% of the outstanding common shares of Cognicase for $347 million, representing a total cash consideration of $206 million and a total share consideration of $141 million. As a result of the acquisition, BCE Inc.’s equity ownership interest in CGI was reduced from 31.5% to 29.9%, and a dilution gain of $5 million was recognized. Our proportionate share of the preliminary purchase price allocation was to tangible assets ($59 million), liabilities ($95 million) and goodwill and other intangible assets ($140 million).

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 6. DISCONTINUED OPERATIONS

The net loss of $45 million in the first quarter of 2002 relates to operating losses of Teleglobe. The financial results of Teleglobe were reclassified as a discontinued operation effective April 24, 2002.

The table below provides a summarized statement of operations for the discontinued operations.

As at March 31, 2003 and December 31, 2002, included in our balance sheet is an investment in Bell Canada International Inc. (BCI) of $50 million. The financial results of BCI were reclassified as a discontinued operation effective January 1, 2002.