BCE INC. 2009 ANNUAL REPORT Bell is a restructured and re-energized competitor dedicated to returning value to shareholders. Backed by a prudent capital markets strategy and a new culture of cost efficiency, the Bell team executed our service and investment focused strategy to make strong progress toward our goal in 2009. Bell’s goal: To be recognized by customers as Canada’s leading communications company. The 5 Strategic Imperatives we are executing to achieve it: 1 Improve customer service 2 Accelerate wireless 3 Leverage wireline momentum 4 Invest in broadband networks and services 5 Achieve a competitive cost structure Additional Highlights BCE Wireless Subscribers (millions) Annualized Common Dividend Per Share ($) 1.74 7.0 1.62 1.54 6.6 1.46 6.3 2007 2008 2009 Q4 2008 H1 2009 H2 2009 2010 BCE High-Speed Internet Subscribers (millions) Free Cash Flow ($ billions) Pension funding and spectrum purchases 2.9 2.4 2.8 2.7 2.0 2.0 1.7 1.5 2007 2008 2009 2007 2008 2009 BCE TV Subscribers (millions) Share Buybacks ($ billions) 2.0 1.9 1.0 1.8 ≤ 0.5 0.2 2007 2008 2009 2007 2008/2009 2010 Program Program Program The New Network Bell launched Canada’s Best Network in November, offering 93% of Canadians access to the country’s fastest and largest mobile network. Bell’s state-of- the-art HSPA/HSPA+ network covers more than a mil- lion square kilometres, offers roaming in more than 200 countries around the globe and supports the world’s most in-demand smartphones and turbo sticks. Financial and Operational Highlights BCE subscribers (in thousands) 2009 2008 2007 Wireless 6,954 6,611 6,311 High-speed Internet 2,867 2,811 2,693 TV 1,982 1,874 1,833 Local telephone 9,788 10,391 10,936 BCE operations Revenue (in millions) 17,735 17,661 17,707 EBITDA (1) (in millions) 7,089 7,004 6,991 Operating income (in millions) 3,191 2,869 3,479 Net earnings applicable to common shares (in millions) 1,631 819 3,926 Adjusted net earnings (1, 2) (in millions) 1,929 1,811 1,884 Net earnings per common share 2.11 1.02 4.88 Adjusted net earnings per common share (1, 2) 2.50 2.25 2.34 Dividends declared per common share 1.58 0.73 1.46 Adjusted common dividend payout ratio 65% 32% 61% Free cash flow (1) (in millions) – before voluntary pension funding and spectrum purchases 1,996 2,430 1,960 – after voluntary pension funding and spectrum purchases 1,456 1,689 1,960 Cash flows from operating activities (in millions) 4,884 5,909 5,730 Capital expenditures (in millions) 2,854 2,986 3,140 Capital intensity (as a percentage of revenue) 16.1% 16.9% 17.7% BCE financial position Total assets (in millions) 38,050 39,663 38,230 Common shareholders’ equity (in millions) 14,204 14,541 14,462 Preferred shares (in millions) 2,770 2,770 2,770 Total debt to total assets (times) 0.29 0.31 0.30 Long-term debt to total shareholders’ equity (times) 0.64 0.70 0.65 Market capitalization (in millions) 22,249 20,182 31,930 (1) The terms EBITDA, Adjusted net earnings and free cash flow are non-GAAP financial measures. Refer to the section entitled Non-GAAP Financial Measures in the Management’s Discussion and Analysis contained in this annual report for more details concerning such non-GAAP financial measures, including a reconciliation to the most comparable Canadian GAAP financial measures. (2) Net earnings before restructuring and other and net (gains) losses on investments. BCE INC. 2009 ANNUAL REPORT 1 2 BCE INC. 2009 ANNUAL REPORT THOMAS C. O’NEILL LETTER TO SHAREHOLDERS Dear Fellow Shareholders BCE entered 2009 with the uncertainty over our own- And it is supported by BCE’s strict adherence to the ership structure resolved and a firm commitment to most rigorous standards of corporate governance, compete as a high-performance operating company ethical business conduct and sustainable develop- focused on returning value to our shareholders. ment. Indeed, Bell is proud to be the first telecom- A revitalized Bell led by President and CEO George munications company in Canada to obtain ISO 14001 Cope is vigorously executing a straightforward market certification for our industry-leading environmental strategy in pursuit of a clear goal – for Bell to be rec- management systems. ognized by customers as Canada’s leading communi- I would like to personally thank two members of cations company. With strong execution of 5 Strategic the board of directors for the strong guidance they Imperatives across the business, Bell made solid oper- have given your company, Paul Tellier and Vic Young, ational progress in 2009 and met or exceeded all of who will be departing the board following the Annual its increased financial targets for the year. General Meeting. They have served you admirably as As you will see in the balance of this report, Bell directors and as members of the standing committees implemented its strategy and an ongoing series of of your board, and they have our sincere appreciation net work and other initiatives to achieve value creation for their distinguished service. in the midst of a tough global economic environment We are also proud to introduce Sophie Brochu, and within an increasingly competitive and evolving President and Chief Executive Officer of Gaz Métro, marketplace. who has been nominated for election to the board Bell’s accelerating business performance supports at the Annual General Meeting. I am confident our a capital markets strategy focused on maintaining a company will benefit greatly from the experience and strong credit profile with investment grade metrics, proven insight of such a seasoned leader. ample liquidity and sustainable free cash flow. A sound In 2009, Bell accomplished a great deal in a chal- balance sheet and ongoing operational progress sup- leng ing economy and increasingly competitive mar- porting growth in Adjusted EPS and free cash flow ketplace, and is well positioned to build on its market allow us to build on our new track record of consistent success in 2010 to deliver the benefit of improving and sustainable shareholder returns. results to you, our shareholders. BCE increased its common share dividend three times Thank you for your belief in and support of our since Q4 2008, for a total dividend increase of 19% company and its plan as we move forward together. in a year; completed a $1 billion normal course issuer With continued strong execution of this transforma- bid (NCIB) program in May 2009; and, in December, tional strategy, the Bell team will cement the reputa- announced a further common share buyback of up to tion of Canada’s largest communications company as $500 million to be executed over the course of 2010. Canada’s best. Clearly, Bell’s development is built on a straightfor- ward operating plan and prudent capital structure, a (signed) Thomas C. O’Neill motivated and committed senior leadership team, and Chair of the Board the hard work of the tens of thousands of Bell team BCE Inc. members dedicated to delivering a better customer experience every day. BCE INC. 2009 ANNUAL REPORT 3 4 BCE INC. 2009 ANNUAL REPORT GEORGE A. COPE LETTER TO SHAREHOLDERS Hello Everyone 2009 was truly a transformational year for Bell. It the household – building on our position as Canada’s was our first full year of execution of our 5 Strategic #1 Internet service provider and seeing Bell TV become Imperatives, supported by the restructuring and refo- the fastest-growing television service in the country. cus ing of the organization and our introduction of Bell Business Markets maintained its market share and multiple game-changing service, network and product won key new customer contracts even in a challeng- initiatives. ing business market. An intense focus on execution is delivering a better With capital intensity in line with our global telco Bell customer experience, increasing our competitive- peers, Bell is rapidly expanding our nation’s broadband ness in a relentless communications marketplace and infrastructure. Bell has already announced a bold new driving our ability to deliver sustainable returns to fibre-to-the-home (FTTH) deploy ment initia tive and our shareholders. Backed by our sound capital mar- new broadband product introductions, such as IPTV, kets approach, strong operational execution in 2009 for the coming year. Bell’s extensive network invest- moved us forward to achieving Bell’s goal: To be ments as the exclusive telecom partner to the 2010 recognized by customers as Canada’s leading com- Winter Olympics in Vancouver delivered Canada’s munications company. golden Games to the world, and leave a lasting legacy Bell made significant strides as a service provider in of enhanced broadband capability in British Columbia. 2009. Substantial investment in customer service and Bell’s acquisition initiatives in 2009 rapidly grew broadband networks supported the team’s improving wireless and residential product distribution with the execution of our Improve Customer Service imperative, purchase of The Source – making Bell the top commu- placing us on a positive service trajectory. nications retailer in Canada – while our Virgin Mobile Our Same Day Next Day service and Full Install pro- Canada acquisition boosts our competitiveness in the grams drove higher customer satisfaction with service mobile flanker-brand and youth segments. teams while reducing our overall costs. Investment in Executing our cost structure imperative, we reduced new IT and training programs improved call centre the cost of debt, cut discretionary spending at all and store service capabilities, and a new technology- levels, aggressively renegotiated supplier contracts loaded service fleet enhanced the productivity of our and undertook broad cost-efficiency initiatives, such field services team.