BCE Inc. 2012 Annual Report Today just got better. BCE INC. 2012 ANNUAL REPORT Our goal To be recognized by customers as Canada’s leading communications company. Our 6 strategic imperatives 1. Accelerate wireless p. 8 2. Leverage wireline momentum p. 11 3. Expand media leadership p. 12 4. Invest in broadband networks and services p. 14 5. Achieve a competitive cost structure p. 15 6. Improve customer service p. 17 With leading investments in advanced broadband networks and next-generation growth services, Canada’s best content, and improved customer service, Bell is a re-energized and efficient challenger in the Canadian communications marketplace. We further sharpened our competitive edge in 2012, accelerating marketplace performance, achieving all financial targets, and creating outstanding value for shareholders. The Bell team enters 2013 with strong momentum and a renewed commitment to achieving our goal: For Bell to be recognized by customers as Canada’s leading communications company. 2 Financial and 22 Management’s discussion operational highlights and analysis (MD&A) 4 Letters to shareholders 80 Reports on internal control 8 Strategic imperatives 84 Consolidated financial statements 18 Community investment 88 Notes to consolidated 20 Bell archives financial statements Bell’s strategic focus and strong operational execution are delivering growth in results and shareholder value. 2012 Financial Performance ACTUAL TARGETS RESULT Bell Revenue growth 3% 3% - 5% EBITDA* growth 4.4% 2% - 4% Capital intensity 16.6% ˜16% BCE Adjusted EPS* $3.18 $3.15 - $3.20 Free cash flow* $1.7B $1.6B - $1.75B Net Earnings per Free Cash Flow* Share Growth Growth 17.7 % 10.5% Dividend per Share Total Shareholder Growth** Return*** 60% 112% * EBITDA, Adjusted EPS and Free cash flow are non-GAAP financial measures and do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other companies. For a full description of these measures, see the section Non-GAAP Financial Measures on pp. 78 and 79 of the MD&A. ** Since December 2008 *** From December 31, 2008 to December 31, 2012, assumes the reinvestment of dividends BCE Inc. 2012 Annual Report 1 FINANCIAL AND OPERATIONAL HIGHLIGHTS Growth services are driving Bell forward BCE Subscribers (millions) Bell’s customer mix is 2012 2008 transforming rapidly 7.8 Wireless 6.6 as we shift to next- 3.0 High-speed Internet 2.8 2.3 TV 1.9 generation fibre and 13.1 Total growth services 11.3 mobile services from 8.1 Local telephone 10.4 traditional wireline 21.2 Total subscribers 21.7 voice, enhancing our competitiveness and financial performance. BCE Total BCE Subscribers to Subscribers Growth Services 2012 2008 to 2012 21.2 million +15.9% Bell Operating Revenue $17.6B $14.9B 32% In 2012, 80% of 30% % Wireless Bell revenues were Wireless 12% 10% 80 Media generated by Wireless, TV 11% 29% TV TV, Internet and Media 25% growth services Internet/Wireline Data 31% Internet/Wireline Data for consumers and 20% business customers. Wireline Voice Wireline Voice 2008 2012 2 BCE Inc. 2012 Annual Report Delivering strong financial performance in 2012 +2.5% +3.3% +18.1% +7.9 % +6.2% +6.6% 19.98 7.88 19.50 2.62 7.63 2.22 7.19 18.07 2.08 2010 2 011 2012 2010 2 011 2012 2010 2 011 2012 BCE Operating BCE EBITDA BCE Net Earnings Revenue ($ billions) Attributable to ($ billions) Common Shareholders ($ billions) +17.7 % +14.0% +8.0% +5.1% +11.5% +8.6% 3.39 5.55 3.52 4.87 3.26 4.37 2.88 3.00 2.74 2010 2 011 2012 2010 2 011 2012 2010 2 011 2012 Net Earnings Cash Flows from BCE Capital per Share Operating Activities Expenditures ($) ($ billions) ($ billions) BCE Inc. 2012 Annual Report 3 MESSAGE FROM THE CHAIR OF THE BOARD Growing shareholder value as we invest in the future Dear fellow shareholders, earnings per share, and strong free bringing the annual common share Thank you for your support of cash flow growth. dividend to $2.33. Since the fourth BCE as we continued our rapid Our strong liquidity position and quarter of 2008, the dividend has transformation of this great investment-grade credit ratings with grown 9 times, 60% overall, compared company in 2012. Our strategy to stable outlooks provide the financial to just 2 increases in the previous grow Bell’s competitiveness and flexibility required to finance such 8 years. performance in the marketplace, strategic investments as Astral Media, BCE shareholders have enjoyed with industry-leading investments Maple Leaf Sports and Entertainment a total return of 112% since the end in networks, services and content, (MLSE) and Q9 Networks, while we of 2008, during which time the is delivering on our commitment accelerate investments in high- company’s market capitalization to return value to you. speed fibre and wireless broadband increased by almost $13 billion. With a clear set of Strategic networks across Canada. Bell is Our positive financial outlook Imperatives, a strong financial the primary builder of the nation’s also enabled BCE to make another foundation and a prudent capital communications infrastructure, and $750 million voluntary contribution markets strategy, BCE made significant we are delivering the best the world to Bell’s defined benefit pension plan progress in 2012. Providing consumers has to offer to increase consumer in December, reducing the amount and business customers with the most choice and competition in the of Bell’s future pension obligation advanced communications networks marketplace. and generating substantial cash and services, Bell has positive Our robust financial position tax savings. The stronger valuation operating momentum in the market – enabled us to again increase the position of the plan is also expected especially in growth services like common share dividend. In addition to contribute to higher annual net wireless and media. to the $0.10 per common share earnings in 2013. BCE met or exceeded all our increase announced in August 2012, As we work to lead in the financial guidance targets, led by BCE announced a further $0.06 marketplace in order to deliver solid growth in EBITDA, substantial dividend increase in February 2013, value to you, Bell continues to be Since the fourth quarter of 2008, BCE has raised the common % share dividend 9 times for a 60% +60 overall increase. 4 BCE Inc. 2012 Annual Report | Letter to shareholders at the forefront in supporting our execution in moving Bell forward communities and the environment. to the benefit of our shareholders, The groundbreaking Bell Let’s Talk customers and Bell team members initiative has grown awareness and across Canada. action in mental health beyond all We thank you for your confidence expectations. And our exceptional and support as we continue Bell’s environmental efforts led to Bell transformation into a strong, being named by Newsweek magazine customer-focused competitor ready as the greenest public company in and able to lead in all our markets. Canada in its 2012 Green Rankings, It is our honour and privilege to guide and 13th in the world. this proud, 133-year-old Canadian In November, the BCE Board of corporation into a bright future as Directors welcomed our newest the nation’s communications leader. member, David F. Denison, former President and CEO of the Canada Pension Plan Investment Board, a Director noted for his overall business acumen and corporate governance experience. I am grateful to my fellow Board Thomas C. O’Neill members for their good counsel and Chair of the Board dedication to delivering value to you, BCE Inc. our shareholders. We thank George Cope and his leadership team for their strategic focus and unparalleled 5 MESSAGE FROM THE PRESIDENT & CEO Executing a strategy of growth, innovation and competition Hello everyone, innovation. As we’ve transformed, • Now available to more than 2012 was a year of substantial Bell has delivered new choices 3.3 million households in Québec progress for Bell. Our strategy to consumers and stimulated and Ontario, Bell Fibe TV has of investment in world-class competition across the Canadian quickly become a preferred mobile and fibre networks, and communications landscape: television option as we grew our the efficient delivery of next- • We are building world-leading Fibe TV subscriber base by 187% generation services across them to broadband infrastructure, year over year. Offering a superior consumer and business customers, including extensive new fibre viewing and interactive online supported strong operational and rollouts supporting our superior experience, Fibe has brought financial performance. Fibe TV and Fibe Internet products, real choice and competition to Our move forward is built on the and world-leading LTE wireless television and Internet markets Bell team’s dedicated execution technology that gives Bell once dominated by cable. of the 6 Strategic Imperatives customers access to the largest • LTE is driving fast growth in that enable us to achieve a clear mobile 4G network in the country. smartphones and data services, goal: For Bell to be recognized by • Data hosting and cloud computing customers as Canada’s leading services are key to business communications company. communications in the new 1. Accelerate wireless information age, and Bell has 2. Leverage wireline momentum invested extensively in data centre 3. Expand media leadership capacity – including our strategic 4. Invest in broadband networks alliance with Q9 Networks. and services As Canada’s leading B2B provider, 5. Achieve a competitive Bell enables business in the cost structure cloud with Canada’s largest data 6. Improve customer service centre footprint and supporting Bell is a re-energized competitor broadband connectivity. focused on growth and broadband 6 BCE Inc. 2012 Annual Report | Letter to shareholders like the unique Bell Mobile commitment to deliver the best and Bell is proud of the extraordinary TV service.