/SECOND AND FINAL ADD - MO084 - BCE INC. EARNINGS/

/SECOND AND FINAL ADD - MO084 - BCE INC. EARNINGS/


RISKS THAT COULD AFFECT 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 debt 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.

STOCK MARKET VOLATILITY

The stock markets have experienced significant volatility over the last few years, which has affected the market price and trading volumes of the shares of many telecommunications companies in particular. Differences between BCE Inc.'s actual or anticipated financial results and the published expectations of financial analysts may also contribute to volatility in BCE Inc.'s common shares. A major decline in the capital markets in general, or an adjustment in the market price or trading volumes of BCE Inc.'s common shares or other securities, may materially and negatively affect our ability to raise capital, issue debt, retain employees, make strategic acquisitions or enter into joint ventures.

RISKS THAT COULD AFFECT CERTAIN BCE GROUP COMPANIES

BELL CANADA COMPANIES

Contract with the Government of Alberta



In 2001, we entered into a contract with the Government of Alberta to build a next generation network to bring high-speed internet and broadband capabilities to rural communities in Alberta. During the second quarter of 2004, as part of our regular update of the estimated costs to complete construction of the network, potential cost overruns were identified. We recorded a provision of $110 million for this contract in the second quarter of 2004. Mechanical construction of the network was completed in December 2004 and an additional provision of $18 million was recorded in the fourth quarter of 2004. Acceptance of the network by the Government of Alberta was due by January 24, 2005. Bell Canada is currently in discussions with the Government of Alberta to extend acceptance until the end of the third quarter of 2005 by which time acceptance is now expected to be completed. There is a risk that we could incur higher than currently anticipated costs in completing the acceptance of the network by the Government of Alberta.

Changes to Wireline Regulations

Decision on Incumbent Affiliates



The business of the Bell Canada companies is affected by decisions made by various regulatory agencies, including the Canadian Radio-television and Telecommunications Commission (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.

Second Price Cap decision

In May 2002, the CRTC issued decisions relating to new price cap rules that will govern incumbent telephone companies for a four-year period starting in June 2002. These decisions:

- set a 3.5% productivity factor on many capped services. This may
require the Bell Canada companies to reduce prices for these
services

- extended price cap regulation to more services

- reduced the prices that incumbent telephone companies can charge
competitors for services

- set procedures for enforcing standards of service quality

- effectively froze rates for residential services.



The CRTC also established a deferral account and, on March 24, 2004, initiated a public proceeding inviting proposals on the disposition of the amounts accumulated in the accounts of the incumbent telephone companies during the first two years of the price cap period.

The balance in Bell Canada's deferral account at December 31, 2004 was estimated to total approximately $202 million.

On May 19, 2004, Bell Canada filed its proposal, as part of the public proceeding initiated by the CRTC on March 24, 2004, asking for approval to use some of the funds in its deferral account to implement the following initiatives:

- expand its broadband services to certain areas that are not
economically viable to serve under its commercial broadband program;

- reduce rates for some of its optional local services; and

- implement network upgrades required to support Bell Canada's High
Probability of Call Completion feature. This feature would give
designated calls on the Bell Canada network a higher probability of
completion under normal network loads and when the Public Switched
Telephone Network (PSTN) is busy and experiencing call blocking
conditions.
It is expected that this proceeding will close in the second half of
2005.



If the CRTC does not approve Bell Canada's proposals, there is a risk that the funds in the deferral account could be used in a way that could have a negative financial effect on Bell Canada.

Competitor Digital Network Access Service

In the second price cap decision, the CRTC also required Bell Canada and the other incumbent telephone companies to offer Digital Network Access (DNA) service to competitive telecommunications service providers (such digital network access service offered to competitive telecommunications service providers being referred to as CDNA service) at prices below their then current retail prices. The scope of the existing CDNA service required to be provided by Bell Canada and the other incumbent telephone companies is currently under review by the CRTC and a decision is expected in the first quarter of 2005. A decision to expand the scope of the CDNA service would result in a further decrease in the Bell Canada companies' CDNA service revenues and potentially a reduction in retail service rates.

Retail Quality of Service Indicators

Also, pursuant to the second price cap decision, incumbent telephone companies are subject to an interim penalty mechanism for retail quality of service under which 5% of annual revenues of total local retail business and residential services that are regulated are at risk. In the case of Bell Canada, the maximum potential penalty amount could represent up to approximately $262 million annually.

The interim penalty mechanism applies to 13 retail quality of service indicators, each of which is at risk for a maximum potential penalty of $20 million annually. If the CRTC standard for any indicator is not met on an annual average basis, the penalty payable with respect to that indicator could range from a minimum of $5 million up to $20 million. The penalty payable would depend on the amount by which actual results for the indicator deviated from the CRTC standard.

This interim regime is currently under review in the proceeding initiated by Public Notice 2003-3, Retail quality of service rate adjustment plan and related issues. A decision in that proceeding has not yet been rendered.

Based on actual results year-to-date, it is not expected that any penalties will be payable by Bell Canada for the penalty period starting on July 1, 2004 and ending on June 30, 2005.

Decision on incumbent affiliates

On December 12, 2002, the CRTC released its decision on incumbent affiliates, which requires Bell Canada and its carrier affiliates to receive CRTC approval on contracts that bundle tariffed and non-tariffed products and services. This means that:

- all existing contracts that bundle tariffed and non-tariffed
products and services must be filed with the CRTC for approval

- all new contracts that bundle tariffed and non-tariffed products and
services must receive CRTC approval before they are carried out

- carrier affiliates must meet the same approval requirements as Bell
Canada on products and services they offer in Bell Canada's
operating territory.



On September 23, 2003, the CRTC issued a decision that requires Bell Canada and its carrier affiliates to include a detailed description of the bundled services they provide to customers when they file tariffs with the CRTC. The customer's name will be kept confidential, but the pricing and service arrangements it has with the Bell Canada companies will be available on the public record.

This decision increased the regulatory burden for Bell Canada and its carrier affiliates at both the wholesale and retail levels. It could also cause some of their large customers to choose another preferred supplier, which could have a material and negative effect on their results of operations. Bell Canada's appeal of this decision to the Federal Court of Canada was dismissed on September 14, 2004. As a result, Bell Canada has submitted tariffs for CRTC approval for those contracts with bundles that have not yet expired in order to provide more detailed descriptions of the bundled services.

Allstream and Call-Net application concerning customer-specific
arrangements



On January 23, 2004, Allstream Corp. (Allstream) and Call-Net Enterprises Inc. (Call-Net) filed a joint application asking the CRTC to order Bell Canada to stop providing service under any customer-specific arrangements that are currently filed with the CRTC and are not yet approved.

Allstream and Call-Net have proposed that Bell Canada should only provide services to these customers under its general tariff.

Bell Canada provided its comments opposing all aspects of this application. If the CRTC grants it, Bell Canada will be required to cancel contracts with many of its enterprise customers and, in some cases, to reprice services. This could have a material and negative effect on Bell Canada's ability to offer new services to the large business customer market on competitive terms and conditions.

Public notice on changes to minimum prices

On October 23, 2003, the CRTC issued a public notice asking for comments on its preliminary view that revised rules may be needed for setting minimum prices for the regulated services of incumbent telephone companies and for how they price their services, service bundles and customer contracts. The CRTC sought comments on proposed pricing restrictions on volume or term contracts for retail tariffed services. It issued an amended public notice on December 8, 2003. The record of this proceeding was completed with the filing of arguments on June 11, 2004 and reply arguments on June 25, 2004.

If the CRTC determines the proposals are to be implemented as proposed, the Bell Canada companies will be required to increase the minimum prices they charge for regulated services. This would negatively limit their ability to compete.

Application seeking consistent regulation

On November 6, 2003, Bell Canada filed an application requesting that the CRTC start a public hearing to review how similar services offered by cable companies and telephone companies are regulated. This would allow consistent rules to be developed that recognize and support the growing competition between these sectors. Bell Canada also requested that this proceeding address any rules that might be needed to govern VoIP services provided by cable companies and others.

On April 7, 2004, the CRTC invited comments on its preliminary views on the regulation of VoIP services and invited interested parties to participate in a public consultation on the regulatory framework for VoIP. The CRTC's preliminary view is that VoIP services using telephone numbers that conform to the North American Numbering Plan (NANP) and allow subscribers to call or receive calls from any telephone with access to the Public Switched Telephone Network (PSTN) are functionally the same as switched telecommunications services. The CRTC's preliminary conclusion is that when incumbent telephone companies provide VoIP services in their incumbent territories, they should be required to respect their existing tariffs or to file proposed tariffs where required, to conform with the regulatory rules that apply. The CRTC also provided preliminary views on 9-1-1 services, message relay service and privacy safeguards provided by local VoIP service providers. Bell Canada provided its comments to the CRTC on June 18, 2004. The CRTC held the public consultation on the regulatory framework for VoIP from September 21 to 23, 2004. Bell Canada filed reply comments on October 13, 2004.

A decision is expected in the first quarter or early in the second quarter of 2005. There is a risk that the CRTC might decide to regulate VoIP services provided by the Bell Canada companies and other incumbent telephone companies but not the VoIP services provided by certain other competitors, including cable companies in particular. These proceedings could determine the rules for competition with other service providers and limit the ability of Bell Canada companies to compete in the future.

The CRTC has included a "Proceeding on Regulatory Symmetry" in its 2005-2006 Work Plan. If cable companies and the incumbent telephone companies are subject to different regulations for similar services, and specifically for similar bundles of services, the incumbent telephone companies would be at a competitive disadvantage which could have a material and negative effect on their revenues and profitability.

Licences for Broadcasting

On November 18, 2004, the CRTC issued Broadcasting Decision CRTC 2004-496, which approved Bell Canada's applications for licences to operate terrestrial broadcasting distribution undertakings, using its wireline facilities, to serve large cities in Southern Ontario and Quebec. Bell Canada will be licensed under the same terms and conditions that apply to major cable operators, without any delays or other conditions that would negatively affect its ability to compete with them. The licences will expire on August 31, 2011 and Bell Canada is required to have the terrestrial broadcasting distribution undertakings operational no later than November 18, 2006.

Licences and Changes to Wireless Regulation

Companies must have a spectrum licence to operate cellular, PCS and other radio-telecommunications systems in Canada. The Minister of Industry awards spectrum licences, through a variety of methods, at his or her discretion under the Radiocommunication Act.

As a result of a recent Industry Canada decision, Bell Mobility's and Aliant Telecom Inc. / MT&T Mobility Inc.'s cellular and PCS licences, which would have expired on March 31, 2006, will now expire in 2011. The PCS licences that were awarded in the 2001 PCS auction will expire on November 29, 2011. As a result, these Bell Canada companies' cellular and PCS licences are now classified as spectrum licences with a 10-year licence term. While we expect that they will be renewed at term, there is no assurance that this will happen. Industry Canada can revoke a company's licence at any time if the company does not comply with the licence's conditions. While we believe that we comply with the conditions of our licences, there is no assurance that Industry Canada will agree. Should there be a disagreement, this could have a material and negative effect on the Bell Canada companies.

In October 2001, the Minister of Industry announced plans for a national review of Industry Canada's procedures for approving and placing wireless and radio towers in Canada, including a review of the role of municipal authorities in the approval process. If the consultation process results in more municipal involvement in the approval process, there is a risk that it could significantly slow the expansion of wireless networks in Canada. This could have a material and negative effect on the operations of the Bell Canada companies. The final report from the National Antenna Tower Policy Review Committee was filed with Industry Canada in September 2004. Industry Canada is now reviewing the report and considering what next steps, if any, it will take, after which it may invite comments from interested parties, including the wireless carriers, on the report and its recommendations. It is not possible to predict at this time if or when any action might be taken on the findings of the report.

Increased Accidents From Using Cellphones

Some studies suggest that using handheld cellphones while driving may result in more accidents. It is possible that this could lead to new regulations or legislation banning the use of handheld cellphones while driving, as it has in Newfoundland and Labrador and in several U.S. states. If this happens, cellphone use in vehicles could decline, which would negatively affect the business of the Bell Canada companies.

Competition Bureau's Investigation Concerning System Access Fees

On December 9, 2004 Bell Canada was notified by the Competition Bureau that the Commissioner of Competition had initiated an inquiry under the misleading advertising provisions of the Competition Act concerning Bell Mobility Inc.'s ("Bell Mobility") description or representation of system access fees ("SAFs") and was served with a court order, under section 11 of the Competition Act, compelling Bell Mobility to produce certain records and other information that would be relevant to the Competition Bureau's investigation.

SAFs are charged on a monthly basis to Bell Mobility cellular subscribers to assist Bell Mobility to recover certain costs associated with its mobile communications network. These costs include maintenance costs, the installation of new equipment, retrofitting of new technologies and fees for spectrum licences. These costs also include the recovery of the Contribution Tax (charged by the CRTC to support telephone services in rural and remote areas of Canada).

Bell Mobility may be subjected to financial penalties (either by way of fines, administrative monetary penalties, and /or demands for restitution of a portion of the SAFs charged to cellular subscribers) if it is found to have contravened the misleading advertising provisions of the Competition Act.

Health Concerns About Radio Frequency Emissions

It has been suggested that some radio frequency emissions from cellphones may be linked to certain medical conditions. 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. This could lead to additional government regulation, which could have a material and negative effect on the business of the Bell Canada companies. In addition, 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 available to the wireless communications industry. Any of these would have a negative effect on the business of the Bell Canada companies.

BELL EXPRESSVU

Bell ExpressVu Limited Partnership (Bell ExpressVu) currently uses three satellites, Nimiq 1, Nimiq 2 and Nimiq 3 for its video services. Telesat Canada (Telesat) operates or directs the operation of these satellites. In order to restore the backup capacity for Bell ExpressVu, which was diminished by the partial failure of Nimiq 2, Telesat reached an agreement with DirecTV for an existing, spare in-orbit satellite. Telesat received approval from Industry Canada to relocate this satellite to the orbital slots currently occupied by Nimiq 1 or Nimiq 2. In July 2004, the CRTC granted final approval to the agreement between Bell ExpressVu and Telesat to lease the full capacity of Nimiq 3.

Satellites are subject to significant risks. Any loss, failure, manufacturing defects, damage or destruction of these satellites, of Bell ExpressVu's terrestrial broadcasting infrastructure, or of Telesat's tracking, telemetry and control facilities that operate the satellites, could have a material and negative effect on Bell ExpressVu's results of operations and financial condition. Please see Risks that could affect certain BCE group companies - Telesat for more information on the risks relating to Telesat's satellites.

Bell ExpressVu is subject to programming and carriage requirements under CRTC regulation. Changes to the regulations that govern broadcasting could negatively affect Bell ExpressVu's competitive position or the cost of providing its services. Bell ExpressVu's DTH satellite television distribution undertaking licence was renewed in March 2004 and expires on August 31, 2010.

Bell ExpressVu continues to face competition from unregulated U.S. DTH satellite television services that are illegally sold in Canada. In response, it is participating in legal actions that are challenging the sale of U.S. DTH satellite television 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.

On October 28, 2004, the Court of Quebec ruled in R. v. D'Argy and Theriault that the provisions in the Radiocommunication Act (Canada) which make it a criminal offence to manufacture, offer for sale or sell any device used to decode an encrypted subscription signal in connection with the unauthorized reception of satellite signals violate the freedom of expression rights enshrined in the Canadian Charter of Rights and Freedoms. The Canadian Department of Justice has launched an appeal of this decision to the Superior Court of Quebec. It remains a criminal offence throughout Canada to manufacture, offer for sale or sell any device used to engage in the unauthorized reception of satellite signals. If this decision is ultimately upheld by the courts and Parliament does not enact new provisions criminalizing the unauthorized reception of satellite signals, Bell ExpressVu may face increasing loss of revenue from the unauthorized reception of satellite signals.

Bell ExpressVu faces a loss of revenue resulting from the theft of its services. It is taking numerous actions to reduce these losses, including legal action, investigations, implementing electronic countermeasures targeted at illegal devices, leading information campaigns and developing new technology. Bell ExpressVu introduced a "smart" card swap for its authorized digital receivers beginning in 2004. The "smart" card swap is being introduced in phases and expected to be fully implemented by late 2005. The new security system is designed to block unauthorized reception of Bell ExpressVu signals. As with any technology-based security system, the possibility that security may be compromised at some point in the future can not be eliminated with absolute certainty.

BELL GLOBEMEDIA

Dependence on Advertising



A large part of Bell Globemedia's revenue from its television and print businesses comes from advertising revenues. Bell Globemedia's advertising revenues are affected by competitive pressures, including its ability to attract and retain viewers and readers. In addition, the amount advertisers spend is directly related to economic growth. An economic downturn tends to make it more difficult for Bell Globemedia to maintain or increase revenues. Advertisers have historically been sensitive to general economic cycles and, as a result, Bell Globemedia's business, financial condition and results of operations could be materially and negatively affected by a downturn in the economy. In addition, most of Bell Globemedia's advertising contracts are short-term contracts that the advertiser can cancel on short notice.

Increasing Fragmentation in Television Markets

Television advertising revenue largely 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 and this trend is expected to continue as new services and technologies 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 or retain viewers with attractive programming.

Revenues From Distributing Television Services

A significant portion of revenues from CTV's specialty television operations comes from contractual arrangements with distributors who are mainly cable and DTH operators. Competition has increased in the specialty television market. As a result, there is no assurance that contracts with distributors will be renewed on equally favourable terms.

Increased Competition for Fewer Print Customers

Print advertising revenue largely depends on circulation and readership. The existence of a competing national newspaper and commuter papers in Toronto has increased competition, while the total circulation and readership of Canadian newspapers has continued to decline. This has resulted in higher costs, more competition in advertising rates and lower profit margins at The Globe and Mail.

Broadcast Licences and CRTC Decisions

Each of CTV's conventional and specialty services operates under licences issued by the CRTC for a fixed term of up to seven years. These licences 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. While these are expected to be renewed at the appropriate times, there can be no assurance that any or all of CTV's licences will be renewed. Any renewals, changes or amendments to licences and any decisions by the CRTC from time to time that affect the industry as a whole or CTV may have a material and negative effect on Bell Globemedia.

TELESAT

Satellite risks



There is a risk that the delivery of Telesat's satellites under construction could be delayed as a result of delays in the construction of the satellites, a delay in the construction of the launch vehicle, the failure of a launch vehicle that is similar to the model which Telesat intends to use to launch a satellite, or the unavailability of a reliable launch opportunity. This delay in delivery could have an adverse effect on Telesat's ability to provide service and could result in additional costs. Telesat seeks to mitigate the impact of such a delay through various contractual measures including late delivery charges and by planning for contingency measures as required.

There is a risk that Telesat's satellites currently under construction, or satellites built in the future, may not be successfully launched and deployed. Once Telesat's satellites are in orbit, there is a risk that a failure could prevent them from completing their commercial mission of providing uninterruped service to customers. Telesat has a number of measures in place that seek to protect itself against continuity of service risk. These measures include engineering satellites with on-board redundancies by including spare equipment on the satellite, standard testing programs that provide high confidence of performance levels, or retaining and obtaining redundant capacity on either the same or another in-orbit satellite, and the purchase of insurance.

Where economically feasible, and where insurance coverage is available on commercially reasonable terms and conditions, Telesat seeks to protect itself against some of the consequences of launch and in-orbit failures by purchasing satellite insurance. However, there is no assurance that Telesat will be able to obtain or renew launch and in-orbit insurance coverage for its satellites for the full satellite value, nor is there any assurance that coverage will be obtained at a favourable premium rate.

Telesat currently maintains insurance on in-orbit satellites as follows:

- Nimiq 1 - insured until the second quarter of 2005 for approximately
its book value;

- Anik F2 - insured until the third quarter of 2007 for approximately
two thirds of its book value. In the event of a total failure of the
Anik F2 satellite, the after-tax accounting loss is estimated at
$110 million to $115 million.



In December 2004, Telesat ceased to insure its interest in the residual value of Nimiq 2, following the arrival on-orbit of the leased satellite Nimiq 3 (formerly DirecTV3) a satellite which complements the capacity of Nimiqs 1 and 2, and which, following operational changes, could be used to provide capacity and continuity of service in the event of either a Nimiq 1 or a Nimiq 2 failure.

In August 2001, the manufacturer of the Anik F1 satellite advised Telesat of a gradual decline in power on the satellite. Telesat believes some of the satellite's core services will be affected in mid-to-late 2005. Anik F1R is expected to replace Anik F1 in time to ensure that service to Anik F1's customers will not be interrupted. Telesat had insurance in place to cover the power loss on Anik F1 and filed a claim with its insurers in December 2002. In March 2004 Telesat and its insurers reached a final settlement agreement. The settlement calls for an initial payment in 2004 of US $136.2 million and an additional payment of US $49.1 million in 2007 if the power level on Anik F1 degrades as predicted by the manufacturer. In the event that the power level on Anik F1 is better than predicted, the amount of the payment(s) will be adjusted by applying a formula which is included in the settlement documentation and could result in either a pro-rated payment to Telesat of the additional US $49.1 million or a pro-rated repayment of up to a maximum of US $36.1 million to be made by Telesat to the insurers. The initial payment has been received. Power levels continue to degrade as predicted.

In December 2004, Telesat received commitments for launch and in-orbit insurance coverage, covering the launch and first year of in-orbit life, for the approximate book value of Anik F1R, subject to the completion of documentation.

Telesat has signed a contract with EADS Astrium, SAS, a European satellite manufacturer, for construction of the Anik F3 satellite. Anik F3 is expected to be available for service in the second half of 2006. During 2005, subject to insurance availability and market conditions, Telesat will review, and if appropriate, commence the placement of launch and in-orbit insurance coverage for Anik F3. However, there is no assurance that Telesat will be able to obtain launch and in-orbit insurance coverage for the full value of Anik F3, nor is there any assurance that coverage will be obtained at a favourable premium rate.

CGI

Long Sales Cycle for Major Outsourcing Contracts



The average sales cycle for large outsourcing contracts typically ranges from 6 to 18 months, with some extending over 24 months. If current market conditions prevail or worsen, the average sales cycle could become even longer and affect CGI Group Inc.'s (CGI) ability to meet its growth targets.

Foreign Currency Risks

CGI's increased international business volume could expose CGI to greater foreign currency exchange risks, which could adversely impact its operating results. CGI has a hedging strategy in place seeking to protect itself, to the extent possible, against foreign currency exposure.

Early Termination Risk

If CGI failed to deliver its services according to contractual agreements, some of its clients could elect to terminate their contracts before the agreed expiry date. This could have a material and negative effect on CGI's results of operations and business.

Our Accounting Policies

We have prepared our consolidated financial statements according to Canadian GAAP. See Note 1 to the consolidated financial statements for more information about the accounting principles we used to prepare our financial statements.

The key estimates and assumptions that management has made under these principles and their impact on the amounts reported in the financial statements and notes remain substantially unchanged from those described in the 2003 MD&A.

We have not had any changes in the accounting standards or our accounting policies other than those described in the 2003 MD&A.

<<
Supplementary Financial Information



The table below shows selected consolidated financial data for the eight most recently completed quarters.

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2004
Q4 Q3 Q2 Q1
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Operating revenues 4,989 4,781 4,782 4,641
Operating income 835 25 1,105 1,011
Earnings from continuing
operations 367 102 544 485
Discontinued operations (2) (2) 27 3
Extraordinary gain 69 - - -
Net earnings 434 100 571 488
Net earnings applicable to
common shares 417 82 554 470

Included in net earnings:
Net gains on investments
Continuing operations 64 325 - -
Discontinued operations (2) (2) 31 7
Restructuring and other items (62) (725) 16 (1)

Net earnings per common share:
Continuing operations - basic 0.38 0.09 0.57 0.51
Continuing operations
- diluted 0.38 0.09 0.57 0.51
Net earnings - basic 0.45 0.09 0.60 0.51
Net earnings - diluted 0.45 0.09 0.60 0.51
Average number of common shares
outstanding (millions) 925.3 924.6 924.3 924.1
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2003
Q4 Q3 Q2 Q1
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Operating revenues 4,818 4,627 4,673 4,619
Operating income 1,013 1,049 1,078 981
Earnings from continuing
operations 486 453 466 466
Discontinued operations (86) 11 12 7
Extraordinary gain - - - -
Net earnings 400 464 478 473
Net earnings applicable to
common shares 386 446 461 451

Included in net earnings:
Net gains on investments
Continuing operations 84 - - -
Discontinued operations (94) 8 - -
Restructuring and other items (9) 6 - -

Net earnings per common share:
Continuing operations - basic 0.50 0.48 0.49 0.49
Continuing operations
- diluted 0.50 0.47 0.49 0.49
Net earnings - basic 0.41 0.49 0.50 0.50
Net earnings - diluted 0.41 0.48 0.50 0.50
Average number of common shares
outstanding (millions) 923.4 921.5 919.3 917.1
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Consolidated Financial Statements
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Consolidated Statements of Operations

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For the period ended December 31 Three Twelve
(in $ millions, except months months
share amounts) (unaudited) 2004 2003 2004 2003
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Operating revenues 4,989 4,818 19,193 18,737
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Operating expenses (3,158) (2,971) (11,629) (11,327)
Amortization expense (803) (775) (3,108) (3,100)
Net benefit plans cost (Note 4) (67) (46) (256) (175)
Restructuring and other items
(Note 5) (126) (13) (1,224) (14)
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Total operating expenses (4,154) (3,805) (16,217) (14,616)
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Operating income 835 1,013 2,976 4,121
Other income (Note 6) 18 127 411 175
Interest expense (247) (266) (1,005) (1,105)
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Pre-tax earnings from continuing
operations 606 874 2,382 3,191
Income taxes (199) (331) (710) (1,119)
Non-controlling interest (40) (57) (174) (201)
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Earnings from continuing
operations 367 486 1,498 1,871
Discontinued operations (Note 7) (2) (86) 26 (56)
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Net earnings before extraordinary
gain 365 400 1,524 1,815
Extraordinary gain (Note 3) 69 - 69 -
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Net earnings 434 400 1,593 1,815
Dividends on preferred shares (17) (14) (70) (64)
Premium on redemption of
preferred shares - - - (7)
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Net earnings applicable to
common shares 417 386 1,523 1,744
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Net earnings per common
share - basic
Continuing operations 0.38 0.50 1.55 1.96
Discontinued operations - (0.09) 0.03 (0.06)
Extraordinary gain 0.07 - 0.07 -
Net earnings 0.45 0.41 1.65 1.90
Net earnings per common share
- diluted
Continuing operations 0.38 0.50 1.55 1.95
Discontinued operations - (0.09) 0.03 (0.06)
Extraordinary gain 0.07 - 0.07 -
Net earnings 0.45 0.41 1.65 1.89
Dividends per common share 0.30 0.30 1.20 1.20
Average number of common shares
outstanding - basic (millions) 925.3 923.4 924.6 920.3
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Consolidated Statements of Deficit

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For the period ended December 31 Three Twelve
(in $ millions) months months
(unaudited) 2004 2003 2004 2003
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Balance at beginning of period,
as previously reported (5,563) (5,937) (5,830) (6,435)
Accounting policy change for
asset retirement obligations
(Note 1) - (7) (7) (7)
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Balance at beginning of period,
as restated (5,563) (5,944) (5,837) (6,442)
Consolidation of variable
interest entity - - - (25)
Net earnings applicable to
common shares 417 386 1,523 1,744
Dividends declared on common
shares (278) (277) (1,110) (1,105)
Other - (2) - (9)
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Balance at end of period (5,424) (5,837) (5,424) (5,837)
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Consolidated Balance Sheets

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At December 31 (in $ millions) (unaudited) 2004 2003
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ASSETS
Current assets
Cash and cash equivalents 380 585
Accounts receivable 2,119 2,061
Other current assets 1,211 739
Current assets of discontinued operations - 280
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Total current assets 3,710 3,665
Capital assets 21,398 21,114
Other long-term assets 2,656 3,459
Indefinite-life intangible assets 2,916 2,910
Goodwill 8,413 7,761
Non-current assets of discontinued operations 50 511
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Total assets 39,143 39,420
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LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 3,700 3,046
Interest payable 183 194
Dividends payable 297 294
Debt due within one year 1,276 1,519
Current liabilities of discontinued operations - 285
-------------------------------------------------------------------------
Total current liabilities 5,456 5,338
Long-term debt 11,809 12,381
Other long-term liabilities 4,932 4,705
Non-current liabilities of discontinued operations - 20
-------------------------------------------------------------------------
Total liabilities 22,197 22,444
-------------------------------------------------------------------------
Non-controlling interest 2,914 3,403
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred shares 1,670 1,670
-------------------------------------------------------------------------
Common shareholders' equity
Common shares 16,781 16,749
Contributed surplus 1,061 1,037
Deficit (5,424) (5,837)
Currency translation adjustment (56) (46)
-------------------------------------------------------------------------
Total common shareholders' equity 12,362 11,903
-------------------------------------------------------------------------
Total shareholders' equity 14,032 13,573
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total liabilities and shareholders' equity 39,143 39,420
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Consolidated Statements of Cash Flows

-------------------------------------------------------------------------
For the period ended December 31 Three months Twelve months
(in $ millions) (unaudited) 2004 2003 2004 2003
-------------------------------------------------------------------------
Cash flows from operating
activities
Earnings from continuing
operations 367 486 1,498 1,871
Adjustments to reconcile earnings
from continuing operations to
cash flows from operating
activities:
Amortization expense 803 775 3,108 3,100
Net benefit plans cost 67 46 256 175
Restructuring and other items 126 13 1,224 14
Net (gains) losses on
investments 12 (76) (319) (76)
Future income taxes 62 207 (34) 418
Non-controlling interest 40 57 174 201
Contributions to employee
pension plans (24) (87) (112) (160)
Other employee future benefit
plan payments (22) (23) (81) (87)
Payments of restructuring and
other items (214) (27) (253) (124)
Change in operating assets
and liabilities 90 227 58 636
-------------------------------------------------------------------------
Cash from operating activities 1,307 1,598 5,519 5,968
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows from investing
activities
Capital expenditures (1,046) (1,079) (3,364) (3,167)
Business acquisitions (347) (42) (1,299) (115)
Business dispositions - - 20 55
Change in investments accounted
for under the cost and equity
methods (38) 156 655 163
Other investing activities (9) (7) 124 62
-------------------------------------------------------------------------
Cash used in investing
activities (1,440) (972) (3,864) (3,002)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows from financing
activities
Increase (decrease) in notes
payable and bank advances 7 (53) 130 (295)
Issue of long-term debt 111 105 1,521 1,986
Repayment of long-term debt (641) (1,532) (2,391) (3,472)
Issue of common shares 16 5 32 19
Issue of preferred shares - - - 510
Redemption of preferred shares - - - (357)
Issue of equity securities by
subsidiaries to non-controlling
interest 1 19 8 132
Redemption of equity securities
by subsidiaries from non-
controlling interest - (34) (58) (108)
Cash dividends paid on common
shares (277) (259) (1,108) (1,029)
Cash dividends paid on preferred
shares (21) (22) (85) (61)
Cash dividends paid by
subsidiaries to non-controlling
interest (49) (47) (188) (184)
Other financing activities (17) (41) (51) (46)
-------------------------------------------------------------------------
Cash used in financing
activities (870) (1,859) (2,190) (2,905)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash provided by (used in)
continuing operations (1,003) (1,233) (535) 61
Cash provided by (used in)
discontinued operations (3) 338 193 355
-------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (1,006) (895) (342) 416
Cash and cash equivalents at
beginning of period 1,386 1,617 722 306
-------------------------------------------------------------------------
Cash and cash equivalents at
end of period 380 722 380 722
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consists of:
Cash and cash equivalents of
continuing operations 380 585 380 585
Cash and cash equivalents of
discontinued operations - 137 - 137
-------------------------------------------------------------------------
Total 380 722 380 722
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

Notes to Consolidated Financial Statements
-------------------------------------------------------------------------

-----------------------------
The interim consolidated financial statements should be read in
conjunction with BCE Inc.'s annual consolidated financial statements
for the year ended December 31, 2003, on pages 64 to 101 of BCE Inc.'s
2003 annual report.

These notes are unaudited.

All amounts are in millions of Canadian dollars, except where noted.

We, us, our and BCE mean BCE Inc., its subsidiaries and joint ventures.
-----------------------------

NOTE 1 SIGNIFICANT ACCOUNTING POLICIES



We have prepared the consolidated financial statements in accordance with Canadian generally accepted accounting principles (GAAP) using the same basis of presentation and accounting policies as outlined in Note 1 to the annual consolidated financial statements for the year ended December 31, 2003, except as noted below.

Comparative figures

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

We have restated financial information for previous periods to reflect:

- the adoption of section 3110 of the CICA Handbook, Asset retirement
obligations, effective January 2004, as described below
- the change in classification to discontinued operations for BCE
Emergis Inc. (Emergis) and other minor business dispositions.

Change in accounting policy



Effective January 1, 2004, we retroactively adopted section 3110 of the CICA Handbook, Asset retirement obligations. The impact on our consolidated statements of operations for the three months and year ended December 31, 2004 and the comparative periods was negligible. At December 31, 2003 and 2002, this resulted in:

- an increase of $6 million in capital assets
- an increase of $17 million in other long-term liabilities
- a decrease of $4 million in future income tax liabilities
- an increase of $7 million in the deficit.

Stock-based compensation plans



Starting in 2004, we made a number of prospective changes to the key features in our stock-based compensation plans, which included transferring approximately 50% of the value of the long-term incentive plan, under which stock options are granted, into a new mid-term plan which uses restricted share units (RSUs). We record compensation expense for each RSU granted that equals the market value of a BCE Inc. common share at the date of grant prorated over the vesting period. The compensation expense is adjusted for future changes in the market value of BCE Inc. common shares until the vesting date. The cumulative effect of the change in value is recognized in the period of the change. Subject to compliance with minimum share ownership requirements for certain employees, vested RSUs will be paid in BCE Inc. common shares purchased on the open market or in cash, whichever the holder chooses.

NOTE 2 SEGMENTED INFORMATION

In the first quarter of 2004, we started reporting our results of operations under five segments: Consumer, Business, Aliant, Other Bell Canada and Other BCE. Our reporting structure reflects how we manage our business and how we classify our operations for planning and measuring performance.

The Consumer segment provides local telephone, long distance, wireless, Internet access, video and other services to Bell Canada's residential customers mainly in Ontario and Quebec. Wireless services are also offered in Western Canada and video services are provided nationwide.

The Business segment provides local telephone, long distance, wireless, data, including Internet access, and other services to Bell Canada's small and medium-sized businesses (SMB) and large enterprise customers in Ontario and Quebec, as well as business customers in Western Canada through Bell West Inc. (Bell West).

The Aliant segment provides local telephone, long distance, wireless, data, including Internet access, and other services to residential and business customers in Atlantic Canada and represents the operations of our subsidiary, Aliant Inc. (Aliant).

The Other Bell Canada segment includes Bell Canada's wholesale business, and the financial results of Telebec Limited Partnership (Telebec), NorthernTel Limited Partnership (NorthernTel) and Northwestel Inc. (Northwestel). Our wholesale business provides local telephone, long distance, data and other services to competitors who resell these services. Telebec, NorthernTel and Northwestel provide telecommunications services to less populated areas in Quebec, Ontario and Canada's northern territories.

The Other BCE segment includes the financial results of our media, satellite and information technology (IT) activities as well as the costs incurred by our corporate office. This segment includes Bell Globemedia Inc. (Bell Globemedia), Telesat Canada (Telesat) and CGI Group Inc. (CGI).

In classifying our operations for planning and measuring performance, all restructuring and other items at Bell Canada and its subsidiaries (excluding Aliant) are included in the Other Bell Canada segment and not allocated to the Consumer and Business segments.

-------------------------------------------------------------------------
Three months Twelve months
For period ended December 31 2004 2003 2004 2003
-------------------------------------------------------------------------
Operating revenues
Consumer External 1,888 1,846 7,440 7,142
Inter-segment 23 22 62 61
-------------------------------------------------------------------------
1,911 1,868 7,502 7,203
-------------------------------------------------------------------------
Business External 1,483 1,445 5,622 5,544
Inter-segment 52 71 229 283
-------------------------------------------------------------------------
1,535 1,516 5,851 5,827
-------------------------------------------------------------------------
Aliant External 473 487 1,894 1,909
Inter-segment 33 40 139 150
-------------------------------------------------------------------------
506 527 2,033 2,059
-------------------------------------------------------------------------
Other Bell
Canada External 442 429 1,736 1,868
Inter-segment 69 39 203 147
-------------------------------------------------------------------------
511 468 1,939 2,015
-------------------------------------------------------------------------
Inter-segment eliminations -
Bell Canada (160) (133) (538) (490)
-------------------------------------------------------------------------
Bell Canada 4,303 4,246 16,787 16,614
-------------------------------------------------------------------------
Other BCE External 703 611 2,501 2,274
Inter-segment 97 86 360 323
-------------------------------------------------------------------------
800 697 2,861 2,597
-------------------------------------------------------------------------
Inter-segment
eliminations - Other (114) (125) (455) (474)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total operating revenues 4,989 4,818 19,193 18,737
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating income
Consumer 464 471 2,119 2,019
Business 183 199 896 781
Aliant 23 108 268 415
Other Bell Canada 61 152 (588) 621
-------------------------------------------------------------------------
Bell Canada 731 930 2,695 3,836
Other BCE 104 83 281 285
-------------------------------------------------------------------------
Total operating income 835 1,013 2,976 4,121
Other income 18 127 411 175
Interest expense (247) (266) (1,005) (1,105)
Income taxes (199) (331) (710) (1,119)
Non-controlling interest (40) (57) (174) (201)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings from
continuing operations 367 486 1,498 1,871
-------------------------------------------------------------------------
-------------------------------------------------------------------------


NOTE 3 BUSINESS ACQUISITIONS

-----------------------------
The consolidated statements of operations include the results of acquired
businesses from the date they were acquired.
-----------------------------

We made a number of business acquisitions in 2004 including:

- Canadian operations of 360networks Corporation (360networks) - In
November 2004, Bell Canada acquired the Canadian operations of
360networks, a telecommunications service provider. The purchase
included the shares of 360networks' subsidiary GT Group Telecom
Services Corporation and certain related interconnected U.S. network
assets. Following the purchase, Bell Canada sold the retail customer
operations in central and eastern Canada to Call-Net Enterprises Inc.
(Call-Net) and, for a share of revenues, now provides to Call-Net
network facilities and other operations and support services to
allow Call-Net to service such customer base. The fair value of the
net assets acquired exceeded the purchase price. For accounting
purposes, the excess was eliminated by:
- reducing the amounts assigned to the acquired non-monetary assets
to nil
- recognizing the balance of $69 million as an extraordinary gain in
our consolidated statement of operations.
- Our 28.9% proportionate share of CGI's acquisition of AGTI Consulting
Services Inc. (AGTI) - In November 2004, CGI acquired 51% of AGTI. CGI
now owns 100% of AGTI. Prior to the acquisition, CGI proportionately
consolidated AGTI. AGTI provides business and IT consulting, project
and change management, and productivity improvement services.
- DownEast Mobility Limited (DownEast) - In October 2004, Aliant
acquired 100% of the outstanding shares of DownEast, a communication
solutions retailer.
- Bell West - In August 2004, Bell Canada acquired Manitoba Telecom
Services Inc.'s (MTS) 40% interest in Bell West. Bell Canada now owns
100% of Bell West.
- Infostream Technologies Inc. (Infostream) - In May 2004, Bell Canada
acquired 100% of the outstanding common shares of Infostream.
Infostream is a systems and storage technology firm that provides
networking solutions for Voice over Internet Protocol (VoIP), storage
area networks and network management.
- Charon Systems Inc. (Charon) - In May 2004, Bell Canada acquired 100%
of the assets of Charon. Charon is a full-service information
technology (IT) solutions provider that specializes in server-based
computing, systems integration, IT security, software development and
IT consulting.
- Our 28.9% proportionate share of CGI's acquisition of American
Management Systems Incorporated (AMS) - In May 2004, CGI acquired 100%
of the outstanding common shares of AMS. AMS is a business and
technology consulting firm to government and to the healthcare,
financial services and telecommunications industries.
- Elix Inc. (Elix) - In March 2004, Bell Canada acquired 75.8% of the
outstanding shares of Elix. Elix offers technology consulting,
integration and implementation of call routing and management systems,
IT application integration and design and implementation of electronic
voice-driven response systems.
- Accutel Conferencing Systems Inc. (Canada) and Accutel Conferencing
Systems Corp (U.S.) (collectively Accutel) - In February 2004, Bell
Canada acquired 100% of the outstanding common shares of Accutel,
which provides teleconferencing services.



The table below provides a summary of all business acquisitions made in 2004. The purchase price allocation for all 2004 acquisitions is based on estimates. The final purchase price allocation for each business acquisition is expected to be complete within 12 months of the acquisition date.

Of the goodwill acquired in 2004:
- $451 million relates to the Business segment, $166 million relates to
the Other BCE segment, $75 million relates to the Other Bell Canada
segment, $31 million relates to the Aliant segment and $4 million
relates to the Consumer segment.
- $18 million is deductible for tax purposes.

-------------------------------------------------------------------------

All
BCE's other
40% propor- busi-
interest tionate ness
in Bell share acquisi-
360networks West of AMS tions Total
-------------------------------------------------------------------------
Consideration received:
Non-cash working capital (9) - (59) 11 (57)
Capital assets - (15) 90 16 91
Other long-term assets 429 5 - 10 444
Goodwill - 395 161 171 727
Long-term debt - - - - -
Other long-term liabilities (58) - (21) - (79)
Non-controlling interest - 261 - - 261
-------------------------------------------------------------------------
362 646 171 208 1,387
Cash and cash equivalents (bank
indebtedness) at acquisition - - 13 (3) 10
-------------------------------------------------------------------------
Net assets acquired 362 646 184 205 1,397
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Extraordinary gain 69 - - - 69
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Consideration given:
Cash 283 645 178 185 1,291
Acquisition costs 10 1 6 1 18
Issuance of shares 15 15
Future cash payment - - - 4 4
-------------------------------------------------------------------------
293 646 184 205 1,328
-------------------------------------------------------------------------
-------------------------------------------------------------------------


NOTE 4 EMPLOYEE BENEFIT PLANS

The table below shows the components of the net benefit plans cost.

-------------------------------------------------------------------------
Three months Twelve months
Pension Other Pension Other
benefits benefits benefits benefits
For the period
ended December 31 2004 2003 2004 2003 2004 2003 2004 2003
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Current service cost 61 56 8 8 243 222 31 31
Interest cost on accrued
benefit obligation 202 189 26 27 806 757 104 105
Expected return on
plan assets (239) (234) (3) (2) (953) (935) (10) (9)
Amortization of past
service costs 3 2 - - 10 9 - -
Amortization of net
actuarial losses 9 6 - - 33 23 1 -
Amortization of
transitional (asset)
obligation (11) (11) 8 8 (44) (44) 30 30
Increase (decrease) in
valuation allowance 1 (3) - - 3 (12) - -
Other 2 - - - 2 (2) - -
-------------------------------------------------------------------------
Net benefit plans cost 28 5 39 41 100 18 156 157
-------------------------------------------------------------------------
-------------------------------------------------------------------------



The table below shows the amounts we contributed to the pension benefit plans and the payments made to beneficiaries under other employee future benefit plans.

-------------------------------------------------------------------------
Three months Twelve months
Pension Other Pension Other
benefits benefits benefits benefits
For the period
ended December 31 2004 2003 2004 2003 2004 2003 2004 2003
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Aliant 13 74 1 1 67 125 4 4
Bell Canada 6 8 21 22 20 17 77 83
Bell Globemedia 4 3 - - 17 11 - -
BCE Inc. 1 2 - - 8 7 - -
-------------------------------------------------------------------------
Total 24 87 22 23 112 160 81 87
-------------------------------------------------------------------------
-------------------------------------------------------------------------

NOTE 5 RESTRUCTURING AND OTHER ITEMS

-------------------------------------------------------------------------
Three months Twelve months
For period ended December 31 2004 2003 2004 2003
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Employee departure programs (78) - (1,063) -
Settlement with MTS - - 75 -
Provision for contract loss (18) - (128) -
Other charges (30) (13) (108) (14)
-------------------------------------------------------------------------
Restructuring and other items (126) (13) (1,224) (14)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Employee departure program - Bell Canada



During the third quarter of 2004, we recorded a pre-tax charge of $985 million ($647 million after taxes) related to the employee departure program, which was announced by Bell Canada in June 2004. The cost was included in the Other Bell Canada segment. The program consisted of two phases:

- the first phase was an early retirement plan and 3,965 employees chose
to receive a package that included a cash allowance, immediate pension
benefits, an additional guaranteed pension payable up to 65 years of
age, career transition services and post-employment benefits.
- the second phase was a departure plan and 1,087 employees elected to
receive a special cash allowance.



During the fourth quarter of 2004, we recorded a pre-tax charge of $11 million ($7 million after taxes) for the relocation of employees and closure of excess real estate facilities that are no longer needed as a result of the employee departure program. We expect to incur an additional amount of approximately $65 million in the future for similar costs that will be expensed as incurred.

Almost all of the employees who chose to take advantage of the program left Bell Canada in 2004. The rest will leave during 2005.

Employee departure program - Aliant

During the fourth quarter of 2004, Aliant recorded a pre-tax restructuring charge of $67 million ($24 million after taxes and non- controlling interest). Under the plan, 693 employees chose to receive a package that included a cash allowance. The program is expected to be complete by the end of 2005.

The table below provides a summary of the costs recognized in 2004, as well as the corresponding liability at December 31, 2004.

-------------------------------------------------------------------------
Consoli-
Bell Canada Aliant dated
-------------------------------------------------------------------------
Employee departure program costs 985 67 1,052
Less:
Cash payments (194) - (194)
Pension and other post-retirement
benefits applied to: -
Other long-term assets (660) - (660)
Other long-tem liabilities (11) - (11)
-------------------------------------------------------------------------
Balance in accounts payable and
accrued liabilities at
December 31, 2004 120 67 187
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Settlement with MTS



On May 20, 2004, Bell Canada filed a lawsuit against MTS after MTS announced it would purchase Allstream Inc. (Allstream). Bell Canada sought damages and an injunction that would prevent MTS from breaching the terms and conditions of the commercial agreements it had with Bell Canada. On June 3, 2004, Bell Canada also filed a lawsuit against Allstream seeking damages related to the same announcement.

On June 30, 2004, BCE Inc. reached an agreement with MTS to settle the lawsuits. The terms of the settlement included:

- a payment of $75 million by MTS to Bell Canada, for unwinding various
commercial agreements. This settlement was recorded in the second
quarter of 2004 and received on August 3, 2004
- the removal of contractual competitive restrictions to allow Bell
Canada and MTS to compete freely with each other, effective June 30,
2004
- the orderly disposition of our interest in MTS. Our voting rights in
MTS were waived after receiving the $75 million payment. We sold our
interest in MTS in September 2004. See Note 6, Other income, for more
information.
- a premium payment to us by MTS in the event there is a change in
control of MTS before 2006. The payment will equal the appreciation in
MTS's share price from the time of our divestiture to the time of any
takeover transaction
- the provision of wholesale services between Bell Canada and MTS on a
preferred supplier basis.

Provision for contract loss



In 2001, we entered into a contract with the Government of Alberta to build a next generation network to bring high-speed internet and broadband capabilities to rural communities in Alberta. During the second quarter of 2004, as part of our regular update of the estimated costs to complete construction of the network, potential cost overruns were identified. We recorded a provision of $110 million for this contract in the second quarter of 2004. Mechanical construction of the network was completed in December 2004 and an additional provision of $18 million was recorded in the fourth quarter of 2004.

Other charges

During the three months and year ended December 31, 2004, we recorded other pre-tax charges totalling $30 million and $108 million, respectively. These costs consisted mostly of future lease costs for excess facilities, asset write-downs and other provisions, net of a reversal of previously recorded restructuring charges that were no longer necessary because of the introduction of a new voluntary employee departure program.

NOTE 6 OTHER INCOME

-------------------------------------------------------------------------
Three months Twelve months
For the period ended December 31 2004 2003 2004 2003
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net gains (losses) on investments (12) 76 319 76
Interest income 10 22 32 69
Foreign currency gains 7 1 3 33
Other 13 28 57 (3)
-------------------------------------------------------------------------
Other income 18 127 411 175
-------------------------------------------------------------------------
-------------------------------------------------------------------------

In 2004, net gains on investments of $319 million included:
- a gain of $108 million from the sale of Bell Canada's remaining 3.24%
interest in YPG General Partner Inc. for net cash proceeds of
$123 million
- a gain of $217 million realized from the sale of BCE's 15.96% interest
in MTS for net cash proceeds of $584 million. On August 1, 2004, the
MTS shares were transferred from Bell Canada to BCE Inc. as part of a
corporate reorganization. The purpose of this reorganization was to
ensure that capital loss carryforwards at BCE Inc. would be available
to be utilized against the gain on the sale of the MTS shares.

Capital loss carryforwards were available to be utilized against the
taxes on these sales.
- other net losses on investments of $6 million.

NOTE 7 DISCONTINUED OPERATIONS

-------------------------------------------------------------------------
Three months Twelve months
For the period ended December 31 2004 2003 2004 2003
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Emergis (2) (178) 23 (154)
Other - 92 3 98
-------------------------------------------------------------------------
Net gain (loss) from
discontinued operations (2) (86) 26 (56)
-------------------------------------------------------------------------
-------------------------------------------------------------------------



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

-------------------------------------------------------------------------
Three months Twelve months
For the period ended December 31 2004 2003 2004 2003
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue - 197 128 962
-------------------------------------------------------------------------
Operating gain (loss) from
discontinued operations,
before tax - (9) (52) 67
Gain (loss) from discontinued
operations, before tax (2) (80) 70 (70)
Income tax expense on operating
gain (loss) - (7) (11) (30)
Income tax recovery (expense)
on gain (loss) - 18 (3) 17
Non-controlling interest - (8) 22 (40)
-------------------------------------------------------------------------
Net gain from discontinued
operations (2) (86) 26 (56)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Sale of Emergis

-----------------------------
Emergis provides eBusiness solutions to the financial services industry
in North America and the health industry in Canada. It automates
transactions between companies and allows them to interact and transact
electronically while its Security business provides organizations with
the related security services.



In May 2004, our board of directors approved the sale of our 63.9% interest in Emergis. In June 2004, BCE completed the sale of its interest in Emergis by way of a secondary public offering.

In June 2004, Bell Canada paid $49 million to Emergis for:
- the purchase of Emergis' Security business
- the early termination of the Bell Legacy Contract on June 30, 2004
rather than December 31, 2004
- the transfer of related intellectual property to Bell Canada.



These transactions were recorded on a net basis. The net proceeds from the sale of Emergis were $285 million (net of $22 million of selling costs and $49 million consideration given to Emergis). The gain on the transaction was $58 million, which was recorded in 2004.

The operating loss includes a future income tax asset impairment charge of $56 million ($36 million after non-controlling interest), which Emergis recorded before the sale as a result of the unwinding of tax loss utilization strategies between Emergis, 4122780 Canada Inc. (a wholly-owned subsidiary of Emergis) and Bell Canada.

Emergis was presented previously in the Other BCE segment.

NOTE 8 STOCK-BASED COMPENSATION PLANS

Restricted share units

The table below is a summary of the status of RSUs.

-------------------------------------------------------------------------
Number of
RSUs
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Outstanding, January 1, 2004 -
Granted 2,047,599
Expired/forfeited (51,077)
-------------------------------------------------------------------------
Outstanding, December 31, 2004 1,996,522
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exercisable, December 31, 2004 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------



For the three months and year ended December 31, 2004, we recorded compensation expense for RSUs of $8 million and $25 million, respectively.

BCE Inc. stock options

The table below is a summary of the status of BCE Inc.'s stock option programs.

-------------------------------------------------------------------------
Weighted
average
exercise
Number of shares price
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Outstanding, January 1, 2004 25,750,720 $32
Granted 5,911,576 $30
Exercised (1,946,864) $16
Expired/forfeited (1,233,753) $34
-------------------------------------------------------------------------
Outstanding, December 31, 2004 28,481,679 $32
-------------------------------------------------------------------------
Exercisable, December 31, 2004 14,633,433 $34
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Assumptions used in stock-option pricing model



The table below shows the assumptions used to determine the stock-based compensation expense based on the Black-Scholes option pricing model.

-------------------------------------------------------------------------
Three months Twelve months
For the period ended December 31 2004 2003 2004 2003
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Compensation expense
($ millions) 6 7 29 26
Number of stock
options granted 322,100 80,000 5,911,576 6,008,051
Weighted average fair value
per option granted ($) 3 7 4 6
Weighted average assumptions
Dividend yield 4.2% 3.7% 4.0% 3.6%
Expected volatility 25% 30% 27% 30%
Risk-free interest rate 3.3% 3.8% 3.1% 4.0%
Expected life (years) 3.5 4.5 3.5 4.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Starting in 2004, most of the stock options granted contain specific performance targets that must be met before the option can be exercised. This is reflected in the calculation of the weighted average fair value per option granted.

NOTE 9 COMMITMENTS AND CONTINGENCIES

Litigation

Teleglobe unsecured creditors lawsuit



On May 26, 2004, a lawsuit was filed in the United States Bankruptcy Court for the District of Delaware. The United States District Court for the District of Delaware subsequently withdrew the reference from the Bankruptcy Court and the matter is now pending in the District Court for the District of Delaware. The lawsuit is against BCE Inc. and ten former directors and officers of Teleglobe Inc. and certain of its subsidiaries. The plaintiffs are comprised of Teleglobe Communications Corporation, certain of its affiliated debtors and debtors in possession, and the Official Committee of Unsecured Creditors of these debtors. The lawsuit alleges breach of an alleged funding commitment of BCE Inc. towards the debtors, promissory estoppel, misrepresentation by BCE Inc. and breach and aiding and abetting breaches of fiduciary duty by the defendants. The plaintiffs seek an unspecified amount of damages against the defendants. While no one can 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.

NOTE 10 SUBSEQUENT EVENT

Acquisition of Nexxlink Technologies Inc. (Nexxlink)



On January 24, 2005, Bell Canada has taken up 9,488,489 common shares of Nexxlink, representing approximately 86.3% of the aggregate number of common shares outstanding (on a fully-diluted basis) for a total of $57 million in cash under a tender offer. On January 27, 2005, Bell Canada paid for all shares tendered. Bell Canada intends to acquire all of the outstanding common shares not tendered. Nexxlink is an IT solutions provider.

>>

END SECOND AND FINAL ADD


Source: BCE INC.

CONTACT: PRNewswire Feb.2


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Profile: intent