May 10, 1999

1 First Quarter 1999 – BCE Inc.

Management’s Discussion and Analysis

This document has been filed by BCE with Canadian securities commissions and the U.S. Securities and Exchange Commission. It can also be found on BCE’s web site at: http://www.bce.ca or is available upon request from:

BCE Inc. Investor Relations 1000, rue de La Gauchetière Ouest Bureau 3700 Montreal (Quebec) H3B 4Y7 Tel.: 1 800 339-6353 Fax: (514) 786-3970 E-mail: [email protected] Management’s Discussion and Analysis

HIGHLIGHTS

On March 24, 1999, BCE Inc. and Ameritech Corporation (Ameritech) announced a strategic partnership. Under the terms of the partnership, Ameritech will acquire an indirect 20% minority stake in Bell Canada for approximately $5.1 billion. Bell Canada is being reorganized to hold certain telecommunications assets previously held by BCE. Bell Canada will acquire at net book value from BCE, BCE’s indirect interest in BCE Mobile Communications Inc. (Bell Mobility), Teleglobe Inc. and six regional Canadian telecommunications companies, three of which plan to combine under a single entity known as AtlanticCo. Furthermore, Bell Canada will transfer to BCE, at net book value, its investments in BCE Emergis Inc. (BCE Emergis) and CGI Group Inc. (CGI). The binding agreement is expected to close by the end of May 1999, pending customary regulatory approvals.

In the first quarter of 1999, BCE organized its activities around five business groups: Bell Canada, CGI and BCE Emergis, BCE Media, Nortel Networks and Bell Canada International, to better reflect the scope of its operations.

BCE’s earnings, excluding special items (baseline earnings), increased by $52 million (17%) to $367 million in the first quarter of 1999 compared with the same period last year. The improved results for the first quarter of 1999 primarily reflected:

· increased operating earnings at Nortel Networks Corporation (Nortel Networks) (increased earnings contribution of $36 million); · improved results at Corporate and Other of $19 million resulting mainly from lower interest expense; and, · lower intercompany eliminations resulting from BCE’s decreased ownership in Nortel Networks and lower volume of intercompany sales; partially offset by: · decreased contribution at BCE Media of $23 million.

BCE’s net loss applicable to common shares was $115 million for the first quarter of 1999 compared with net earnings applicable to common shares of $174 million for the same period last year. Included in BCE’s first quarter net loss were net special items totaling $482 million. This compares with special items of $141 million for the same period last year. The special items in both years relate mainly to BCE’s share of Nortel Networks’ acquisition related costs (the amortization of the Bay Networks, Inc. (Bay Networks) and Cambrian Systems Corporation (Cambrian) intangible assets and purchased in-process research and development (R&D) expense from other acquisitions). The acquisition related costs will continue to negatively impact BCE’s net earnings applicable to common shares over the next several years.

Excluding Nortel Networks, revenues increased $239 million (7%) in the first quarter of 1999 compared with the first quarter of 1998 mainly due to increased revenues at CGI, BCE Emergis, BCE Media and Other Bell Canada Group, partially offset by lower revenues at Bell Canada. BCE’s reported revenues decreased $4,552 million in the first quarter of 1999 compared with the first quarter of 1998 mainly due to BCE changing, prospectively, its accounting for Nortel Networks from consolidation to equity accounting effective September 1, 1998.

- 2 - RESULTS BY OPERATING GROUP

Contribution to net earnings (loss) applicable ($ millions, except per share amounts) Revenues1 to common shares1

For the three months ended March 31 1999 1998 Change 1999 1998 Change Bell Canada Group Bell Canada 2,530 2,577 (47) 288 281 7 Bell Mobility 294 297 (3) (3) 2 (5) Other 255 192 63 38 30 8 3,079 3,066 13 323 313 10 CGI and BCE Emergis 187 6 181 (30) (7) (23) BCE Media 85 2 83 (19) 4 (23) Nortel Networks2 - 5,025 (5,025) (290) (31) (259) Bell Canada Internatonal 195 161 34 (54) (13) (41) Corporate and Other 8 9 (1) (7) (44) 37 Intercompany eliminations (96) (259) 163 (15) (26) 11 Total revenues 3,458 8,010 (4,552) Net earnings (loss) (92) 196 (288) Dividends on preferred shares (23) (22) (1) Net earnings (loss) applicable to common shares (115) 174 (289) Net special items3 482 141 341 Earnings excluding special items (baseline earnings) 367 315 52 Net earnings (loss) per common share (0.18) 0.27 (0.45) Baseline earnings per common share 0.57 0.50 0.07

1Effective March 31, 1999, BCE’s business segments have been modified and now include two new segments: (1) CGI and BCE Emergis, and (2) BCE Media (which includes Bell ExpressVu and Telesat Canada). These companies were previously included in the Bell Canada Group segment. In addition, Corporate and Other now includes BCE’s equity investment in Cable & Wireless Communications plc (CWC) (which was sold in June 1998) and Jones Intercable, Inc. (Jones) (which was sold in April 1999). These companies were previously included in the International Telecommunications segment which comprised Bell Canada International (BCI) and Other International Telecom. BCI is now reported as a separate segment. Previously reported amounts have been reclassified to conform with the current presentation.

2Effective September 1, 1998, BCE equity accounts for its investment in Nortel Networks.

3Net special items include amortization of purchased in-process research and development expense, amortization of Bay Networks and Cambrian intangibles, gains on disposal of investments, restructuring and other charges and BCI’s results.

BELL CANADA GROUP

The Bell Canada Group includes Bell Canada (excluding BCE Emergis), Bell Mobility and Other (which includes NewTel Enterprises Limited, Northern Telephone Limited, Northwestel Inc., Télébec ltée and Bell ActiMedia Services Inc. as well as the associated companies, Bruncor Inc., Maritime Telegraph and Telephone Company, Limited (MT&T) and Teleglobe Inc.). NewTel Enterprises Limited, Bruncor Inc. and MT&T plan to combine under a single entity known as AtlanticCo of which Bell Canada will hold approximately a 42% interest. These entities provide a full range of domestic and international communications services to Canadian customers.

The contribution of the Bell Canada Group to BCE’s net earnings increased by $10 million or 3% in the first quarter of 1999 compared with the first quarter of 1998 reflecting increases in earnings at Bell Canada and Other Bell Canada Group companies, partially offset by decreased earnings contribution at Bell Mobility.

Bell Canada

Bell Canada’s results for the first quarter of 1999 compared with the first quarter of 1998 reflected lower operating revenues due to the impact of intense competition on long distance revenues and lower depreciation and amortization.

- 3 - Operating Revenues

Bell Canada ($ millions) For the three months ended March 31 1999 1998 % Change

Local and access services 1,247 1,231 1 Long distance and network services 908 1,003 (9) Other 375 343 9 Total 2,530 2,577 (2)

Local and access services revenues for the first quarter of 1999 increased $16 million compared with the first quarter of 1998 mainly due to:

· network access services growth primarily in business lines; · increased revenues from SmartTouchTM services; and, · increased revenues from competitors accessing the local network; partially offset by: · the impact of a local business rate decrease which became effective May 1, 1998; and, · lower single line terminal sales.

Long distance and network services revenues decreased $95 million for the first quarter of 1999 compared with the first quarter of 1998. Long distance revenues for the first quarter of 1999 decreased due to lower average prices of approximately 30%. The lower average prices were primarily due to increased penetration of discount calling plans for the consumer market such as First Rate+. The increased penetration of these discount calling plans has led to an increase in long distance services volumes, as measured in conversation minutes, of 669 million (26%) to 3,198 million for the first quarter of 1999 compared with the first quarter of 1998. Bell Canada’s share of the long distance market as at March 31, 1999, increased by 1.5%, compared with March 31, 1998, to an estimated market share of 63.4%. The decrease in long distance services revenues was partially offset by an increase in network services revenues. Network services revenues increased for the first quarter of 1999 compared with the first quarter of 1998 due mainly to growth in digital data services.

Other revenues increased $32 million during the first quarter of 1999 compared with the first quarter of 1998 due mainly to increased terminal equipment sales partially offset by lower revenues due to the disposition of Bell Sygma’s Telecom Solutions and International divisions to CGI on July 1, 1998.

On March 3, 1999, Bell Canada and MCI WorldCom announced a strategic alliance to provide seamless North American and global voice and data services to customers. This new alliance will replace the existing arrangements between MCI WorldCom and Stentor and will make Bell Canada the exclusive provider in Canada of MCI WorldCom’s On-Net’s enhanced set of voice and data products including managed international private line, frame relay, ATM, virtual voice, and toll free services. BCE Nexxia Inc. (Bell Nexxia) and its partners will be the vehicle for meeting customer requirements on a national basis. MCI WorldCom will source its customers’ requirements in Canada through Bell Canada. Bell Canada, in turn, will source its Canadian customers’ requirements outside of Canada through MCI WorldCom.

Regulatory Decisions

On March 12, 1999, in Order 99-239, the Canadian Radio-television and Telecommunications Commission (CRTC) established on an interim basis the manner in which Bell Canada can recover over a three year period, costs associated with local competition start-up and local number portability. The portion to be recovered from services subject to price cap regulation is to be reflected as an exogenous factor in the Price Cap Index. Pending a final decision this

SmartTouch is a trademark of Stentor Resource Centre Inc., Bell Canada is a licensed user. +First Rate is a trademark of MTS NetCom Inc., Bell Canada is a licensed user. - 4 - amount is to be used only to mitigate price decreases that would otherwise be required.

On March 17, 1999, after an extensive investigation under the Competition Act, the Bureau of Competition Policy (Bureau) announced that Bell Canada’s Asymmetric Digital Subscriber Line (ADSL) service offering is not anti-competitive. The Bureau launched an investigation of the Canadian Internet industry on August 20, 1998, after receiving complaints from Independent Service Providers (ISPs) operating in Ontario and Québec. The complainants sought an order from the Bureau prohibiting Bell Canada from further reducing the retail margins of the ISPs.

Operating Expenses

Bell Canada ($ millions) For the three months ended March 31 1999 1998 % Change

Operating expenses 1,328 1,331 - Depreciation and amortization 508 555 (8) Total 1,836 1,886 (3)

Operating expenses (excluding depreciation and amortization) were essentially flat compared with the first quarter of 1998 as reduced pension credits, increased rental expense related to the sale of real estate properties to TrizecHahn in 1998 and increased costs of goods sold were offset by lower long distance settlement payments, and the non-recurring expenditures recorded in 1998 relating to the January 1998 ice storm.

EBITDA (earnings before interest expense, income taxes, depreciation and amortization and excluding pension credits) was $1,152 million for the first quarter of 1999, representing a decrease of $15 million compared with the first quarter of 1998. The decrease was due primarily to lower long distance services revenues, increased costs of goods sold and increased rental expense, partially offset by the impact of the non-recurring expenditures related to the January 1998 ice storm and lower long distance settlement payments.

The depreciation and amortization expense decrease of $47 million for the first quarter of 1999 compared with the first quarter of 1998 was primarily due to lower net capital assets, in part due to the sale of real estate properties at the end of the first quarter of 1998.

At March 31, 1999, the total number of employees was 38,374, down 1,437 or 4% from March 31, 1998 mainly as a result of the sale of Bell Sygma’s Telecom Solutions and International divisions to CGI and the transfer of employees to BCE Emergis, partially offset by the repatriation of employees from Stentor. Total salaries and wages (including capitalized amounts) were $491 million, down $36 million compared with the first quarter of 1998 reflecting the continued benefits from cost- containment programs.

Bell Canada and its Operator Services employees and Craft and Services employees, represented by the Communications, Energy and Paperworkers’ Union (CEP), started negotiations on October 15, 1998 for the renewal of the collective agreements which expired on November 24, 1998 and November 30, 1998, respectively. On January 11, 1999, Bell Canada tabled a comprehensive offer of settlement in resolution of all outstanding issues with the Craft and Services employees. On the same day, Bell Canada also informed the Operator Services employees of plans to partner with Excell Global Services Inc., an international operator services provider, to create a new company to provide operator assisted functions to Bell Canada and other companies. On January 14, 1999, Bell Canada and the CEP both requested the appointment of a federal government conciliator to facilitate contract negotiations. The conciliation process began on February 1, 1999 but ended on February 4, 1999, after both parties agreed that they had reached an impasse in conciliation and therefore requested that the conciliators file their report with the federal Minister of Labour (Minister). On February 19, 1999, the Minister informed Bell Canada and the CEP of her decision not to extend the conciliation process in contract negotiations and appointed two mediators to assist the parties in reaching an agreement. The right to strike or lock-out was acquired on

- 5 - February 27, 1999. However, on March 1, 1999, Bell Canada and the CEP signed a Memorandum of Agreement which the CEP agreed to submit to its members for a ratification vote by April 6, 1999. On April 6, 1999, Bell Canada was informed by the CEP of the rejection of the Memorandum of Agreement by its members and their intention to proceed with a general strike on April 9, 1999. On April 9, 1999, as the CEP members proceeded with a general strike, Bell Canada implemented its Emergency Operations Plan using approximately 5,500 management staff and work reassignment in order to ensure minimal disruption of service. Negotiations between Bell Canada and the CEP resumed on May 3, 1999 at the request of the federally appointed mediators. A Memorandum of Agreement setting out Bell Canada’s offer to the CEP’s members was signed by the CEP and Bell Canada on May 10, 1999. The CEP will recommend acceptance of Bell Canada’s offer to its members. The employees will vote on the offer between May 11 and May 14, 1999. The results will be counted and shared with Bell Canada on May 15, 1999. If Bell Canada’s offer is ratified, employees could start returning to work as early as May 16, 1999. To date, the strike has not had a material financial impact on Bell Canada’s results.

Interest expense

Interest expense for the first quarter of 1999 of $134 million was $16 million lower compared with the first quarter of 1998 mainly due to the repayment of short-term debt funded by the sale of the real estate properties at the end of the first quarter of 1998.

Wage Practices Investigation

On April 26, 1999, the Human Rights Tribunal (Tribunal) appointed to hear the complaints filed by the two unions representing Bell Canada employees (as well as by individual employees) alleging discriminatory wage practices on the part of Bell Canada, rendered its decision to continue with hearings into the pay equity complaints. The Canadian Human Rights Commission (CHRC) and the unions had asked the Tribunal to start hearing the case on the merits after the Federal Court of Appeal had quashed, on November 17, 1998, the Federal Court’s decision granting Bell Canada’s motion to quash the CHRC’s decision to refer the complaints to the Tribunal. Bell Canada opposed this request, arguing that the Tribunal should not go forward because it was still not impartial and independent and because Bell Canada had filed for permission to appeal to the Supreme Court. The Tribunal rejected Bell Canada’s arguments. On April 26, 1999, it decided that, given recent legislative amendments to the Canada Human Rights Act, it was indeed independent and impartial. Moreover, it decided that, in the circumstances, it did not need to wait for the outcome of Bell Canada’s application to the Supreme Court. Bell Canada has 30 days to file for judicial review of this decision with the Federal Court.

Bell Mobility

Revenues at Bell Mobility for the first quarter of 1999 decreased $3 million (1%) compared with the same period last year as increases in wireless voice service and other revenues were more than offset by decreased revenues from equipment sales. The increase in cellular and PCS service operations reflected growth in the subscriber base (24%) partially offset by lower revenue per subscriber (17%). The decrease in revenue per subscriber was driven by the combined impacts of lower pricing, the changing mix of subscribers, and to a loss of revenue due to billing platform problems, now rectified, associated with pre-paid services. The decline in revenues from equipment sales was due to changes in Bell Mobility’s dealer compensation plan related to hardware pricing introduced in mid 1998, partially offset by a higher volume of handset sales.

Bell Mobility’s contribution to the earnings of BCE in the first quarter of 1999 decreased by $5 million from the first quarter of 1998 mainly due to lower revenues and higher depreciation expense.

- 6 - At March 31, 1999, there were 1,541,000 wireless voice customers, reflecting net additions of 66,000 or a 4% increase over December 31, 1998 and an increase of 300,000 or 24% from March 31, 1998.

Other Bell Canada Group companies

The increase of $63 million in revenues compared with the first quarter of 1998 was mainly due to revenue growth at NewTel Enterprises Limited primarily relating to its acquisitions of Stratos Global Corporation and Xwave Solutions Inc., in 1998.

CGI AND BCE EMERGIS

CGI, an information technology (IT) services company, provides outsourcing, systems integration, consulting and business solutions to customers worldwide. BCE Emergis, an electronic commerce services provider, delivers network-centric e-commerce solutions to customers throughout North America, Europe, Asia, Africa and South America.

The $181 million increase in revenues and additional losses of $23 million were mainly due to the acquisitions of CGI and BCE Emergis, on July 1, 1998 and on August 31, 1998, respectively. CGI was accounted for as an investment at cost up to June 1998. The 1998 results represent the Electronic Business Solutions (EBS) unit of Bell Canada which was exchanged as part of the acquisition of BCE Emergis.

BCE MEDIA

BCE Media includes Telesat Canada (Telesat), Bell ExpressVu (ExpressVu), TMI Communications and Company Limited Partnership as well as other media interests. These entities provide the delivery of satellite entertainment and business services.

Revenues at BCE Media increased $83 million in the first quarter of 1999 compared with the same period last year. The increase was mainly due to the acquisition of 100% of Telesat in May 1998 (Telesat was accounted for as an investment at equity up to April 30, 1998) and to the operations of ExpressVu. Revenues and expenses of ExpressVu for the first quarter of 1998 were capitalized as part of the pre-operating period.

This group contributed a loss of $19 million to the earnings of BCE for the first quarter of 1999 compared with an earnings contribution of $4 million in 1998. The loss in 1999 was mainly due to the costs associated with ExpressVu’s increasing customer base. At March 31, 1999, ExpressVu had approximately 210,000 subscribers, up from 180,000 at year-end. On April 21, 1999, ExpressVu announced that it had been granted by the CRTC, a pay-per-view license to distribute feature films, sporting and other special events.

NORTEL NETWORKS

The following discussion of Nortel Networks’ results is based on results for the three months ended March 31, 1999. BCE’s consolidated financial statements for the first quarter of 1999 reflect BCE’s share of these results in equity in net earnings (losses) of associated companies, while Nortel Networks’ results for the first quarter of 1998 are reflected in BCE’s 1998 consolidated financial statements on a line-by-line basis. While Nortel Networks reports its results in U.S. dollars, all amounts presented here are in Canadian dollars, except where otherwise noted.

Excluding the impact of BCE’s share of Nortel Networks’ acquisition related costs (the amortization of the Bay Networks and Cambrian intangible assets and purchased in-process R&D expense from other acquisitions), Nortel Networks contributed $133 million to BCE’s earnings for the first quarter of 1999, representing an improvement of $36 million compared with the same period last year reflecting a substantial increase in operating earnings. BCE’s share of Nortel Networks’ acquisition related costs was $423 million for the first quarter of 1999 compared with $128 million

- 7 - for the same period in 1998. The increase was mainly due to the acquisition related costs for the Bay Networks (acquired August 31, 1998) and Cambrian (acquired December 15, 1998) acquisitions.

On April 16, 1999, Nortel Networks acquired Shasta Networks, Inc. (Shasta), a privately-held company based in Sunnyvale, CA, which has developed a new class of gateways and systems for value-added services for Internet Protocol (IP) public data networks. Nortel Networks acquired 100% of the share capital of Shasta for an aggregate purchase price of up to approximately US $340 million, comprised of approximately 4.6 million common shares of Nortel Networks and up to approximately US $22 million in cash.

Product line and geographic revenues

The $1,652 million or 33% increase in revenues for the first quarter of 1999 compared with the same period last year was attributable to an increase in sales volume of approximately 30% and a weaker Canadian dollar of approximately 7% (Nortel Networks’ revenues are translated from US dollars to Canadian dollars; therefore, a weakening Canadian dollar positively impacts revenues), marginally offset by price reductions of approximately 1% and divestitures of approximately 3%. Revenues increased due to a substantial increase in Enterprise revenues and a significant increase in Carrier revenues, partially offset by a decrease in Other revenues.

The following tables show details of Nortel Networks’ revenues by principal product lines and by geographic areas.

Nortel Networks - Product line revenues1 ($ millions) For the three months ended March 31 1999 1998 % Change Carrier 4,767 3,918 22 Enterprise 1,874 971 93 Other 36 136 (74) Total 6,677 5,025 33 1 Revenues by segment for the first quarter of 1998 have been restated to reflect the evolution of certain businesses within the management structure. The primary effect of this reclassification was to move certain businesses from Enterprise and Other to Carrier to more closely align the businesses with their primary customers.

Nortel Networks - Geographic revenues 1 ($ millions) For the three months ended March 31 1999 1998 % Change United States 3,893 2,688 45 Canada 475 436 9 Other Countries 2,309 1,901 21 Total 6,677 5,025 33 1 Revenues are based on the location of the customer rather than the location of the selling organization.

Carrier revenue growth of $849 million for the first quarter of 1999 compared with the first quarter of 1998 was attributable to a sales volume increase of approximately 16 % and approximately 7% was attributable to a weaker Canadian dollar, marginally offset by price reductions of approximately 1%. This increase was largely driven by the substantial revenue growth of optical networking systems in the United States, Europe and Asia Pacific. This growth in Carrier was also attributed to a considerable increase in carrier data sales across all geographic regions and higher sales of core switching systems in the United States and Europe. The growth in Carrier revenues for the first quarter of 1999 compared with the first quarter of 1998 was partially offset by a decline in sales of mobility systems, largely due to a substantial decrease in sales to the Caribbean and Latin America region (CALA). Overall, Carrier sales were substantially higher in the United States and Asia Pacific and declined substantially in CALA in the first quarter of 1999 compared with the same period in 1998.

- 8 - Revenues from Enterprise were up by $903 million for the first quarter of 1999 compared with the same period in 1998 attributable to a sales volume increase of approximately 85% and approximately 10% was attributable to a weaker Canadian dollar, marginally offset by price reductions of 2%. This growth was primarily attributable to the acquisition of Bay Networks, leading to substantially higher revenues from the sale of data networking products, including local area networks and switching products, primarily in the United States and Europe. Substantially increased sales of enterprise voice applications, including enterprise messaging and speech recognition products, primarily in the United States and Europe also contributed to the growth in Enterprise revenues for the first quarter of 1999 compared with the same period last year. Overall, Enterprise revenues were substantially higher in the United States, Europe and Asia Pacific for the first quarter of 1999 compared with the same period in 1998.

The Asia Pacific region has been, and may continue to be, affected by unstable economies and the volatility of certain currencies. Although revenues for the first quarter of 1999 increased substantially compared with the first quarter of 1998, the economic instability in this region may impact the demand for Nortel Networks’ products in future periods. In addition, the economic instability has spread to other countries, including countries in CALA, and this, together with global financial market uncertainty, may also impact demand generally for Nortel Networks’ products.

The recent devaluation of the Brazilian real is expected to slow economic growth in 1999 for the CALA region. Although demand for Nortel Networks’ products has been and is expected to continue to be impacted in the short-term, Nortel Networks anticipates that the long-term growth prospects for the region remain strong.

Gross margin

Gross margin for the first quarter of 1999 was 43.5% of revenues compared with 41.7% of revenues for the first quarter of 1998 representing an increase of 1.8% reflecting a favourable shift in sales mix. Improved first quarter 1999 gross margins were realized in Enterprise, particularly in the United States and Europe, as a result of a more favourable product mix compared with the same period in 1998. Improved Enterprise gross margins were partially offset by moderately lower gross margins in Carrier for the first quarter of 1999 compared with the first quarter of 1998, caused by unfavourable competitive pricing pressures.

Although competitive pricing pressures continue, particularly with respect to mobility systems, overall Nortel Networks has been able to mitigate such pricing pressures with the increased sales of higher-margin products and manufacturing and other cost-reduction programs. Gross margin can be negatively affected by the introduction of new products, continued expansion into new markets, and increases in products manufactured by other suppliers in network solutions offered by Nortel Networks.

Selling, general and administrative (SG&A) expense

During the first quarter of 1999, SG&A expense increased by $417 million to $1,294 million compared with the same period in 1998. As a percentage of sales, SG&A increased to 19.4% for the first quarter of 1999 from 17.5% for the first quarter of 1998. The increased SG&A expense as a percentage of sales primarily reflected the higher SG&A expense in Enterprise, largely as a result of the merger of Bay Networks, whose businesses traditionally have had higher SG&A expenses when expressed as a percentage of sales. A modest increase in SG&A in Carrier also contributed to the percentage increase, while lower SG&A expense in Other was the result of divestitures in 1998. In absolute dollars, the increase during the first quarter of 1999 reflected the continued funding of North American and international market investments across Carrier and Enterprise, as well as increased investments supporting Nortel Networks’ global marketing programs and operations systems to simplify and streamline Nortel Networks’ business processes, ongoing investment in computer systems infrastructure related to the global supply chain management system and a weaker Canadian dollar.

- 9 - Research and development (R&D) expense

Nortel Networks’ R&D expense for the first quarter of 1999 increased by $185 million to $1,007 million compared with the first quarter of 1998. This increased investment in R&D reflected increases in support of data products as well as ongoing programs across Carrier and Enterprise for new products, process development, advanced capabilities, and services for a broad array of applications. As a percentage of revenues, R&D expense for the first quarter of 1999 declined by 1.3% to 15.1%, primarily due to the significant growth in revenues for the first quarter of 1999 compared with the first quarter of 1998.

Investment and other income – net

Total investment and other income-net was $24 million in 1999. The increase of $3 million in investment and other income – net, including equity in net earnings of associated companies during the first quarter of 1999 compared with the first quarter of 1998, was primarily the result of increases in interest income, minority interest, and royalty income which were partially offset by an increase in foreign exchange losses and losses in equity investments. The increase in interest income was primarily a result of higher cash balances following the acquisition of Bay Networks and higher cash flows from United States operations.

Nortel Networks continues to expand its business globally and, as such, an increasing proportion of its business will be denominated in currencies other than U.S. dollars. As a result, fluctuations in foreign currencies may have an impact on Nortel Networks’ business and financial results. Nortel Networks endeavours to minimize the impact of such currency fluctuations through its ongoing commercial practices and by attempting to hedge its exposures to major currencies. In attempting to manage this foreign exchange risk, Nortel Networks identifies operations and transactions that may have foreign exchange exposure, based upon, among other factors, the excess or deficiency of foreign currency receipts over foreign currency expenditures in each of Nortel Networks’ significant foreign currencies. Nortel Networks’ significant currency flows for the quarter ended March 31, 1999 were in United States dollars, Canadian dollars, United Kingdom pounds and French francs. For the quarter ended March 31, 1999, the net impact of foreign exchange fluctuations was a loss of $56 million compared with losses of $26 million for the same period of 1998. Given the devaluation of the Brazilian real and its continued volatility, and Nortel Networks’ exposure to this market and other international markets, Nortel Networks continuously monitors all of its foreign currency exposures. As Nortel Networks cannot predict whether foreign exchange losses relating to Brazil and other countries will continue to increase in the future, significant foreign exchange fluctuations may have a material adverse impact on Nortel Networks’ results of operations.

Legal proceedings

On October 14, 1998, a class action complaint was filed in the United States District Court for the Southern District of New York purportedly on behalf of all persons whose Bay Networks common shares or stock options were exchanged for Nortel Networks’ common shares in connection with the merger of Bay Networks with a subsidiary of Nortel Networks (the Bay Networks Merger). The complaint alleged that Nortel Networks and certain named officers violated the Securities Act of 1933 and the Securities Exchange Act of 1934 because the proxy statement/prospectus and registration statement for the Bay Networks Merger and the related issuance of common shares of Nortel Networks (the Bay Networks Proxy Statement), as well as certain public statements made by Nortel Networks contained materially false and misleading statements and omissions concerning Nortel Networks’ financial condition. Two additional class action complaints were filed in the same court on November 16, 1998, and December 11, 1998, alleging substantially similar claims. The complaints sought relief in the form of compensatory damages and recission rights. The court granted the plaintiffs’ motion to consolidate all three actions on February 1, 1999. On April 21, 1999, the plaintiffs filed a Consolidated Amended Class Action Complaint. Nortel Networks has not yet responded to this complaint.

- 10 - In June 1993, certain holders of Nortel Networks’ securities commenced three class actions in the United States District Court for the Southern District of New York alleging that Nortel Networks and certain of its officers violated the Securities Exchange Act of 1934 and common law by making material misstatements of or omitting to state material facts relating to the business operations and prospects and financial condition of Nortel Networks. Compensatory and punitive damages were sought in each of the class actions. All three actions were subsequently consolidated and the plaintiffs were permitted to file a Second Consolidated Amended Complaint after the first Consolidated Amended Complaint had been dismissed without prejudice. A defense motion challenging the sufficiency of the Second Consolidated Amended Complaint was denied in part and granted in part on August 19, 1994. An Answer to this Complaint was filed on September 22, 1994. On February 24, 1995, the consolidated action was certified as a class action and on April 10, 1996, a stipulation and Order of Dismissal was granted permitting one of the named officers to be dismissed from the suit. On May 2, 1996, the plaintiffs filed a motion to file a Third Consolidated Amended Complaint. A defense motion challenging the sufficiency of the Third Consolidated Amended Complaint was denied in part and granted in part on March 24, 1999. Expert discovery will now commence and is expected to be completed by the end of June 1999.

BELL CANADA INTERNATIONAL

Revenues at BCI increased to $195 million for the first quarter of 1999, an increase of $34 million compared with the same period last year. This increase was primarily due to increased revenues related to BCI’s investment in September 1998, in Hansol PCS Co., Ltd. of Korea (Hansol). EBITDA was $32 million for the first quarter of 1999, compared with $34 million for the first quarter of 1998. The decrease was mainly due to the severe economic downturn and currency devaluations in Colombia and Brazil.

The total number of subscribers in companies in which BCI has an interest was 3,667,000 at March 31, 1999 representing increases of 2,943,000 and 800,000 over March 31, 1998 and December 31, 1998, respectively. The majority of the increase was mainly due to BCI’s investment in Hansol which had approximately 2 million subscribers at March 31, 1999 compared with 1.4 million at December 31, 1998. BCI’s operations in Colombia had close to 725,000 subscribers at March 31,1999, an increase of 27,000 from December 31, 1998. KG Telecommunications Co., Ltd. of Taiwan, which is presently accounted for at cost, added 471,000 and 144,000 subscribers compared with March 31, 1998 and December 31, 1998, respectively.

BCE’s share of BCI’s loss for the first quarter of 1999 was $54 million compared with a loss of $13 million for the same period in 1998. The increased loss was mainly due to higher losses in Colombia due to lower revenues and higher interest expense, losses associated with the acquisitions of Hansol and Occidente y Caribe Celular S.A. (OCCEL) and higher interest expense at the BCI corporate level.

CORPORATE AND OTHER

Corporate and other expenses - net of $7 million for the first quarter of 1999, which include interest expense, administrative expenses and related income taxes, were $37 million lower compared with the first quarter of 1998. The decrease was primarily due to an after-tax gain of $18 million on the sale of BCE Inc.’s investment in Sun Media Corporation and to lower interest expense mainly due to the repayment of debt funded by the sale of Cable & Wireless Communications plc in June 1998.

On April 7, 1999, BCE sold its interest in Jones Intercable Inc. (Jones) to Comcast Corporation (Comcast) for proceeds of US $508 million. This was pursuant to an agreement reached in May 1998 in which Comcast agreed to purchase BCE’s interest in Jones. An after-tax gain of approximately $240 million will be recorded in the second quarter of 1999.

- 11 - LIQUIDITY AND CAPITAL RESOURCES

BCE CONSOLIDATED

BCE’s consolidated cash flows from operating activities for the first quarter of 1999 increased by $73 million compared with the first quarter of 1998, primarily as a result of the change in accounting, by BCE, for Nortel Networks (in 1998, Nortel Networks’ cash used in operating activities was $327 million), partially offset by higher working capital requirements at Bell Canada. Consolidated cash flows used in investing activities for the first quarter of 1999 were $1,338 million, compared with $1,050 million in the first quarter of last year. The change was primarily related to Bell Canada’s sale of the real estate properties at the end of the first quarter of 1998 partially offset by a lower level of investments in 1999. BCE’s consolidated cash flows from financing activities were $1,528 million compared with cash flows used in financing activities of $41 million for the first quarter of 1998. The change resulted mainly from the increase in notes payable by Bell Canada and the issue of convertible debentures by BCI.

A discussion of the liquidity and capital resources of the Bell Canada Group, Nortel Networks, Bell Canada International and Corporate and Other is outlined below.

BELL CANADA GROUP

Bell Canada

The principal components of Bell Canada's cash flows include:

($ millions) For the three months ended March 31 1999 1998 Net earnings before preferred dividends 297 290 Depreciation and amortization 508 555 Other items (36) (105) Changes in working capital (686) (460) Cash flows from operating activities 83 280 Capital expenditures (486) (424) Proceeds from disposition of capital assets - 753 Investments (434) (7) Other items (6) 39 Cash flows from investing activities (926) 361 Dividends on common and preferred shares (214) (214) Increase (decrease) in notes payable and bank advances 1,035 (253) Repayment of long-term debt (9) (159) Other items 10 9 Cash flows from financing activities 822 (617)

Cash flows from operating activities for the first quarter of 1999 were $83 million, $197 million lower compared with the first quarter of 1998 due mainly to increased working capital requirements. Cash flows used in investing activities were $926 million for the first quarter of 1999 compared with cash flows from investing activities of $361 million for the first quarter of 1998. This change was mainly as a result of the sale of certain real estate properties for $753 million in 1998, Bell Canada’s $339 million investment in Manitoba Telecom Services Inc. in 1999, Bell Canada’s $49 million investment in BCE Emergis in 1999, and increased capital expenditures of $62 million. The increased capital expenditures related mainly to Bell Nexxia’s national broadband fibre optics network and the information systems and information technology modernization program. Cash flows from financing activities were $822 million for the first quarter of 1999 compared with cash flows used in financing

- 12 - activities for the first quarter of 1998 of $617 million. The change was due mainly to an increase in notes payable to finance the capital expenditures and investments referred to above.

Bell Canada’s cash requirements during the first quarter of 1999, including the financing of capital expenditures and investments, were mainly met by external financing. Long-term debt totaling approximately $630 million will mature during the remainder of 1999. Bell Canada’s cash requirements during 1999, including the financing of capital expenditures and investments, are expected to be met by internally generated funds and by the issuance of debt.

On March 31, 1999, outstanding commercial paper totaled $750 million. The commercial paper program is supported by lines of credit, extended by several banks, totaling $1.1 billion.

Following BCE Inc.’s announcement, on March 24, 1999, of a strategic partnership with Ameritech, the major rating agencies (which include Canadian Bond Rating ServiceTM (CBRS), Dominion Bond Rating ServiceTM (DBRS), Moody’s Investors Service (Moody’s), and Standard & Poor’sTM Ratings Group (S&P)) have placed Bell Canada’s credit ratings under review. CBRS has indicated that it expects recent developments to strengthen Bell Canada’s operating position and growth potential. Moody’s placed Bell Canada’s credit ratings under review for possible downgrade while S&P has indicated that the transactions relating to the partnership with Ameritech may result in an improvement to Bell Canada’s credit quality. DBRS has not indicated what implications, if any, Bell Canada’s recent developments will have on its credit ratings.

NORTEL NETWORKS

The following discussion of Nortel Networks’ liquidity and capital resources is based on the full three months ending March 31, 1999. BCE’s consolidated statement of cash flows, as of September 1, 1998, no longer reflects the cash flows related to Nortel Networks on a line-by-line basis.

Cash flows used in operating activities for the three months ended March 31, 1999 were $721 million compared with $327 million for the same period last year. The increase in cash flows used in operating activities was primarily due to increases in inventory and accounts receivable and decreases in income taxes payable and accounts payable and accrued liabilities. Nortel Networks continues to focus on working capital as a key component of cash management.

Cash flows used in investing activities were essentially flat at $425 million for the three months ended March 31, 1999 compared with the same period in 1998. In the first quarter of 1999, Nortel Networks sold certain investments that generated cash proceeds of $154 million; however, this was offset by $174 million in acquisitions of various strategic investments, including the purchase on February 17, 1999, of $150 million 6.5% convertible unsecured subordinated debentures issued by BCI.

Cash flows used in financing activities for the three months ended March 31, 1999 were $2 million compared with $464 million for the same period last year. The decrease resulted from a lower level of long-term debt repayment and from significantly lower repurchases of Nortel Networks’ common shares for cancellation.

On April 15, 1999, Nortel Networks amended its 364-day syndicated credit agreements which permit borrowings in an aggregate amount not to exceed US $500 million, to, among other things, extend the agreements for an additional 364 days, decrease the interest rates and increase the facility fee rate. Nortel Networks did not extend or otherwise amend its five-year syndicated credit agreements which permit borrowings in an aggregate amount not to exceed US $1.0 billion, and, accordingly, these agreements will terminate on April 26, 2003. The entire amount of all of these committed facilities remains available. Nortel Networks expects to meet its cash requirements from operations and conventional sources of external financing.

Canadian Bond Rating Service is a trademark of C.B.R.S. Inc. Dominion Bond Rating Service is a trademark of Dominion Bond Rating Service Ltd. Standard & Poor’s is a trademark of Standard & Poor’s Corp. - 13 - The competitive environment requires Nortel Networks and many of its principal competitors to provide significant amounts of medium-term and long-term customer financing in connection with the sale of products and services. While Nortel Networks has traditionally been able to place a large portion of its customer financings with third-party lenders, Nortel Networks anticipates that, due to the amount of financing it expects to provide and the higher risks typically associated with such financings (particularly when provided to start-up operations or to customers in developing countries), the amount of such financings required to be supported directly by Nortel Networks for at least the initial portion of their term is expected to continue to increase significantly in the future.

At March 31, 1999, Nortel Networks had entered into certain financing agreements for the future provision of up to approximately US $916 million of customer financing and had outstanding offers or commitments in connection with awarded supply contracts, subject to fulfillment of certain conditions, to provide up to approximately US $1.39 billion of additional customer financings (not all of these offers or commitments are expected to be drawn upon). Nortel Networks expects to continue to arrange for third-party lenders to assume customer financing obligations agreed to by Nortel Networks and to fund other customer financings directly supported by Nortel Networks from working capital and conventional sources of external financing in the normal course. In light of recent economic uncertainty and reduced demand for financings in capital and bank markets, Nortel Networks may be required to continue to hold certain customer financing obligations for longer periods prior to placement with third-party lenders.

BELL CANADA INTERNATIONAL

During the first quarter of 1999, BCI’s cash flows provided by operating activities increased to $64 million up $57 million from the same period last year mainly due to lower working capital requirements, partially offset by increased operating losses. Cash flows used for investing activities were $193 million for the first quarter of 1999 compared with $322 million for the same period last year mainly due to the acquisition of OCCEL at March 31, 1998 partially offset by the repayment of notes receivable by related parties in 1998. Cash flows provided by financing activities for the first quarter of 1999 totaled $467 million compared with $205 million for the first quarter of 1998. The increase is mainly due to the issuance of $400 million of convertible debentures ($150 million to Nortel Networks) in February 1999, partially offset by lower short-term bank financing in 1999 (short- term financing in 1998 mainly related to the OCCEL acquisition).

On April 8, 1999, Hansol completed local currency financings in the amount of KRW 595 billion (approximately $760 million). Part of the amount was used to repay a high interest vendor financing and the balance will be used to improve network capacity and coverage for other working capital requirements.

On April 23, 1999, a BCI-led consortium, of which BCI holds a 35.3% interest, won the bid for the operating license to provide competitive local exchange services in the key Brazilian State of Sao Paulo. The winning bid contained a license fee of R$70 million (approximately $60 million) and a network plan to cover the major cities of the Sao Paulo State. Sao Paulo State is the most populous and economically advanced state of Brazil, with a population of 35 million and a 1997 GDP per capita in excess of US $8,000. The State economy and population constitute the single largest market in South America, similar to that of Argentina.

CORPORATE AND OTHER

Investments during the first quarter of 1999 totaled $389 million including:

· the acquisition of 4,163,902 shares of Teleglobe for $185 million, 4,000,000 of which were acquired through a private purchase and the balance through the exercise of a pre-emptive right to purchase additional shares. This additional investment brought BCE’s ownership of Teleglobe to approximately 22%; · the acquisition of 1,977,365 Class B Multiple Voting Shares of CGI, resulting from the exercise, in part, of a put option by the three largest shareholders of CGI, for a

- 14 - total of $78 million. This additional investment increased BCE’s equity ownership in CGI to 44.6%; and, · an additional investment of $66 million in ExpressVu.

The additional investments in Teleglobe and ExpressVu were financed mainly through the issuance of commercial paper. The shares in CGI were acquired through the issuance of BCE Inc. common shares.

During the first quarter of 1999, BCE Inc. sold its investment in Sun Media Corporation generating net proceeds of $36 million.

Dividends to shareholders totaled $242 million for the first quarter of 1999 compared with $238 million for the first quarter of 1998.

During the first quarter of 1999, 963,895 common shares were issued for $58 million through BCE Inc.’s shareholder dividend reinvestment and stock purchase plan, employee savings plan and stock option plan. In addition, 1,250,304 common shares were issued in exchange for the 1,977,365 CGI Class B Multiple Voting Shares.

At March 31, 1999, BCE Inc. had committed credit facilities totaling $1.25 billion available as back-up for its commercial paper program and general corporate purposes. The entire amount of these facilities remains available for use by BCE Inc.

Following BCE Inc.’s announcement, on March 24, 1999, of a strategic partnership with Ameritech, the major rating agencies have placed BCE Inc.’s credit ratings under review. Moody’s has, pending completion of its review, raised BCE Inc.’s senior debt rating to A2 from A3 and BCE Inc.’s commercial paper rating to Prime–1 from Prime–2. CBRS has, pending completion of its review, reaffirmed BCE Inc.’s credit ratings. S&P has indicated that the transactions relating to the partnership with Ameritech may significantly strengthen BCE Inc.’s financial position. DBRS has not indicated what implications, if any, the strategic partnership will have on BCE Inc.’s credit ratings.

FORWARD-LOOKING STATEMENTS

This Management’s Discussion and Analysis contains forward-looking statements with respect to either BCE Inc. or certain of its subsidiary or associated companies (the “BCE Group companies”). These forward-looking statements, by their nature, necessarily involve known and unknown risks, uncertainties and other factors that could cause actual results or events to differ materially from those contemplated by the forward-looking statements.

In addition to the factors set forth in this Management’s Discussion and Analysis, certain other factors which could cause results or events to differ materially from current expectations are discussed under the headings “Forward-looking statements” and “Risk Factors” on pages 39 to 43 of BCE Inc.’s Annual Information Form, dated March 11, 1999, for the year ended December 31, 1998 (“AIF”). The reader is referred to such portion of the AIF which portion is incorporated herein by reference and is filed with the Canadian securities regulatory authorities and the United States Securities and Exchange Commission with this Management’s Discussion and Analysis. For a description of the risk factors relating to the Year 2000 issue, the reader is referred to the following section entitled “Impact of Year 2000 Issue (Year 2000 Readiness Disclosure)” which reviews the impact of the Year 2000 issue on BCE’s two principal business segments, namely, the Bell Canada Group and Nortel Networks. BCE Inc. disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

- 15 - IMPACT OF YEAR 2000 ISSUE (YEAR 2000 READINESS DISCLOSURE)

The Year 2000 issue relates to the way dates have traditionally been stored and used in computing systems. To conserve expensive memory space, years were stored as two digits, so that the year 2000 will appear in many computing systems as “00”. Many systems and computers will interpret “00” as the year 1900 instead of the year 2000. This could create difficulties in performing certain computing functions or potentially cause system failures. This in turn could result in miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in other normal business activities. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. The effects of the Year 2000 issue may be experienced before, on, or after January 1, 2000.

BCE Inc.’s subsidiary and associated companies (the “BCE Group companies”) have established Year 2000 programs with the objective of seeking to ensure that all aspects of their operations are being addressed to meet the Year 2000 issue. The following discussion reviews the impact of the Year 2000 issue on BCE’s two principal business segments, namely, the Bell Canada Group and Nortel Networks.

BELL CANADA GROUP

The practical consequences of the Year 2000 issue are a significant risk and challenge to BCE’s Canadian telecommunications companies such as Bell Canada because the nature of their business is highly dependent on complex systems and technology which have date-sensitive aspects and a significant portion of their software must be modified or replaced. The Year 2000 issue could impact across most of their operations including the network (both the Bell Canada Group companies’ network and that shared with their business partners), the products and services provided to customers and their own internal systems and support activities. For example, network switching equipment is highly dependent on date-sensitive software programs that assist with the routing, reporting and management of telephone calls. A wide range of network management systems is also highly dependent on date-related functions. Bell Canada has several hundred information systems (e.g. call centre management systems, ordering and provisioning systems, repair reporting and management systems, and billing systems) which depend on date functionality to properly transact business affairs. Many products and services, as well as their supporting elements (e.g. voice mail) are also dependent on date-related functionality.

Bell Canada

A Year 2000 Program Management Office (PMO) was established in 1997 with the mandate to minimize the impact of the Year 2000 issue on Bell Canada’s operations. The Year 2000 PMO has the responsibility to ensure that all aspects of Bell Canada’s operations are being addressed to meet the Year 2000 issue. Bell Canada and the other Stentor Operating Companies have also set up a National Year 2000 Program Management Office (PMO). The Stentor Year 2000 PMO has developed a Year 2000 action plan to address the continued functionality of nationally delivered services up to, through, and beyond the year 2000.

A comprehensive governance process has been established to oversee Bell Canada’s Year 2000 program. The Year 2000 program is reviewed monthly with the President of Bell Canada and other senior officers of the company. Updates are provided on a quarterly basis to the Bell Canada Board of Directors. In addition and in collaboration with the Stentor Year 2000 PMO, the Stentor National Year 2000 program is reviewed monthly with the Board of Directors of Stentor Canadian Network Management (“SCNM”).

At the outset of Bell Canada’s Year 2000 program, Bell Canada identified the following requirements in order to get ready for Year 2000: of approximately 125 million lines of software code in Bell Canada’s support systems, it was determined that 83 million lines of code required detailed review and conversion; in addition, Bell Canada’s business critical and customer affecting systems, applications and network elements (consisting of hardware, software and other components in over

- 16 - 300 central offices) required conversion or upgrading in order to make them Year 2000 ready. Progress towards Year 2000 readiness has been made as disclosed below.

As of March 31, 1999, Bell Canada had completed approximately 99.8% of the effort required to convert or upgrade, test and deploy (i.e., put back into service) the network elements required to be Year 2000 compliant. All of the network elements comprising the Public Switched Telephone Network (PSTN) had been converted or upgraded, tested and put back into service as of December 31, 1998. As part of Bell Canada’s ongoing Year 2000 test program, further testing of the PSTN and other network elements will occur in the remainder of 1999. Bell Canada anticipates that it will substantially complete the deployment of the remaining network elements by approximately the end of June 1999. Similarly, as of March 31, 1999, Bell Canada had completed the renovation, upgrade and code conversion of over 96% of Bell Canada’s information systems and information technology (IS/IT), with the mission critical components of these systems being in excess of 99% completed as of March 31, 1999. Bell Canada now anticipates that the remaining mission critical applications will be substantially complete by approximately the end of June 1999; the national mission critical applications that Bell Canada uses in collaboration with its business partners will also be substantially complete by approximately the end of June 1999. As of March 31, 1999, approximately 94% of the products and services Bell Canada offers its customers, including those national products and services which Bell Canada offers in collaboration with its business partners, were Year 2000 “service ready”. A product or service is "service ready" when all of the network components and operating systems required for basic functionality of the product or service are Year 2000 ready; basic functionality means that the product or service itself performs normally for the customer. As of March 31, 1999, approximately 78% of these products were “customer ready”. A product or service is “customer ready” when all network components and operating systems which materially affect the customer’s experience of the product or service are Year 2000 ready; this includes everything necessary to be “service ready” and also usually includes ordering, service assurance and billing components and systems. Bell Canada further expects that substantially all products and services will be “customer ready” by approximately June 30, 1999.

Bell Canada has undertaken a detailed testing and internal certification program which seeks to ensure that each Bell Canada Year 2000 IS/IT project is reviewed and approved by the appropriate officers or other employees of Bell Canada. Before it is put back into service, each IS/IT application and network element is subjected to a series of date-related tests that seek to ensure that it will continue to work before and beyond the Year 2000. In addition, Bell Canada, in cooperation with the other Stentor Operating Companies, is currently conducting national interoperability tests and will continue to do so in the remainder of 1999. Bell Canada is also taking steps which seek to ensure that its mission critical and priority building systems, as well as the IS/IT systems that support the physical environment, are being prepared for the Year 2000. Bell Canada anticipates that its building systems will substantially be Year 2000 ready by July 1999, coincident with the completion of certain modernization programs.

The Year 2000 program is integrated with Bell Canada’s IS/IT modernization program, network evolution planning and product line simplification, the implementation of which is a dynamic process and therefore is likely to be modified or adjusted prior to Year 2000. Bell Canada estimates that it will spend approximately $350 million on the Year 2000 program. Of such amount, approximately half is related to network elements and new systems platforms which will be expensed or capitalized in accordance with Bell Canada’s existing practice. The other half is related to the analysis, conversion and redeployment of compliant programming code, which will be expensed. As these cost projections are based on management’s best estimates, actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. Bell Canada has and will continue to use both internal and external resources to reprogram, or replace, and test its software for Year 2000 modifications. Total investment as of March 31, 1999 in Bell Canada’s Year 2000 program was approximately $290 million, which was financed through operating cash flow. Of such amount, approximately $175 million has been capitalized and approximately $115 million has been expensed.

Bell Canada performs reviews of its Year 2000 program on a regular basis. In addition, three

- 17 - specific reviews have been conducted by an independent third party, and further independent reviews of key aspects of Bell Canada’s Year 2000 program may be conducted in the future. Although there are significant risks and uncertainties associated with a program of this magnitude, Bell Canada believes it will meet its overall schedule. However, a delay in any critical element of Bell Canada’s Year 2000 program could materially impact Bell Canada’s ability to meet its projected target dates and its ability to be ready by January 1, 2000. Some of these critical elements include the delivery of compliant products and services from Bell Canada’s suppliers, delays in the conversion and deployment of critical network elements or critical IS/IT components, and cross- impacts of Bell Canada’s modernization program delays. Business continuity plans (contingency plans) would be invoked should any delay or failure be deemed to significantly jeopardize Bell Canada’s operations.

Bell Canada’s Year 2000 business continuity plans will address the following objectives in the context of a Year 2000 disruption: a) safeguarding public and employee health and safety; b) minimizing impact on customer service; c) minimizing financial impact to Bell Canada; d) meeting regulatory requirements. Bell Canada’s plans will align with those of key business partners, including Stentor and the other members of the Year 2000 Canadian Telecommunications Industry Forum. Bell Canada has secured external resources with expertise and experience in business continuity planning to assist in the preparation and completion of its business continuity plans. Bell Canada’s business continuity plans are divided into 6 phases: 1) Organizational and Strategic Alignment, 2) Business Assessment, 3) Risk Assessment, 4) Plan Development, 5) Implementation and Exercising, and 6) Readiness and Activation. As of March 31, 1999, Bell Canada had completed the Organizational and Strategic Alignment phase of its business continuity plans as well as the Business Assessment phase for all business units. By March 31, 1999, the majority of its business units had completed the Risk Assessment phase of the plans. A significant number of business units had also completed the preliminary development of their individual business continuity plans. Bell Canada anticipates that all business units will have substantially completed their individual business continuity plans, and that these plans will have been incorporated into Corporate-wide business continuity plans, by approximately the end of June 1999. Bell Canada further anticipates that it will enter the Implementation and Exercising phase of its plans in June 1999 and expects to complete this phase by approximately the end of September 1999. It expects to enter the Readiness and Activation phase in September 1999. This phase will remain active until Bell Canada is satisfied that its Year 2000 business continuity plans are no longer required. This is expected to occur on or about March 3, 2000. As part of the Readiness and Activation phase, Bell Canada intends to activate its Emergency Operations Centres during certain critical periods, such as the roll-over from 1999 to 2000, so that it can respond in a timely fashion to any unexpected event which may occur. Bell Canada already exercised a business continuity plan in respect of the rollover from 1998 to 1999 when it activated its Emergency Operations Centres. The exercise proved successful and no Year 2000 issues were identified from that rollover.

The risk and challenge of Bell Canada’s Year 2000 program is amplified by the fact that many of Bell Canada’s applications and systems interact with those of customers and other third parties which are beyond the control of Bell Canada but whose failure to make their systems Year 2000 compliant could materially impact Bell Canada. Bell Canada is highly dependent on many suppliers who provide Bell Canada with an extensive array of products and services critical to its operations.

Since January 1997, Bell Canada has instituted a comprehensive vendor management program, which seeks to ensure that the products and services it receives from its suppliers are or will be Year 2000 compliant. As of December 31, 1998, Bell Canada had completed its due diligence process with most of its suppliers and intends to continue its monitoring of its suppliers to seek to ensure that products and services will be Year 2000 compliant and that Year 2000 ready products will be delivered when promised. However, there can be no assurance that the products or systems of other companies which Bell Canada or its customers utilize or rely upon will be converted in a timely and effective manner, or that a failure to convert by another company or a conversion that is incompatible with Bell Canada’s systems, would not have material adverse effects on Bell Canada or its customers. Bell Canada also believes that the restructuring of the Stentor alliance will not materially affect its Year 2000 program. The Stentor alliance is evolving, but it is envisaged that SCNM will

- 18 - continue to be responsible for the Stentor National Year 2000 program.

While Bell Canada believes it has an appropriate plan in place, the Year 2000 issue is a unique event, which raises unprecedented challenges and risks. Bell Canada presently believes that with modifications to existing software and conversions to new software, the Year 2000 issue can be mitigated. However, if such modifications and conversions are not completed on a timely basis, if any of Bell Canada’s mission critical suppliers fail to deliver Year 2000 ready products and services, if products or systems of other companies which Bell Canada or its customers utilize or rely on are not converted in a timely and effective manner, or if there is a failure to convert by another company or a conversion that is incompatible with Bell Canada’s systems, and if Bell Canada’s business continuity plans are ineffective, the Year 2000 issue could have a material adverse effect on the financial condition and results of Bell Canada.

Beginning on April 9, 1999, Bell Canada is experiencing a work stoppage by some of its unionized employees. At the present time, the Year 2000 program is generally tracking to plan and Bell Canada does not anticipate any significant delays in its program as a result of the work stoppage. However, Bell Canada will continue to monitor the situation closely.

NORTEL NETWORKS

The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Computer systems and products that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Nortel Networks’ business operations, including, for example, its finance, human resources, manufacturing, and customer order management functions, make extensive use of information technology ("IT") and, as such, are exposed to significant risk from the Year 2000 issue.

In 1994, Nortel Networks began a long-term program to deploy an enterprise backbone architecture to establish a common suite of business applications throughout Nortel Networks and its subsidiaries. The new applications are being deployed as Year 2000 ready, and for those business units relying on replacement of certain legacy applications as part of their Year 2000 strategy, they are expected to replace a number of legacy applications by the end of the second quarter of 1999. All business system applications not addressed by the enterprise backbone deployment, including vendor supplied applications, are expected to be made Year 2000 ready through Nortel Networks' Year 2000 Program.

In 1996, Nortel Networks initiated its Year 2000 Program and subsequently determined that it would be necessary to modify or replace significant portions of software so that business applications, computing environments and products would properly utilize Year 2000 dates before and beyond December 31, 1999. Nortel Networks' Year 2000 Program consists of a product program (the "Product Program"), an information services program (the "IS Program") and a facilities program (the "Facilities Program").

In September 1998, following the acquisition of Bay Networks, Nortel Networks commenced the integration of Bay Networks' Year 2000 Program into Nortel Networks' overall Year 2000 Program. This integration is now complete.

The Product Program focuses on identifying and resolving Year 2000 issues relating to Nortel Networks’ products and deploying solutions to customers. Through this program Nortel Networks has made or will make its current product offerings Year 2000 ready. In addition, Nortel Networks is providing an upgrade or migration path and other information to customers and distributors who have non-Year 2000 ready products. The Product Program consists of the following three major phases: Phase I (analysis, remediation, and verification), Phase II (deployment), and Phase III (business continuity planning).

Nortel Networks estimates that Phase I of the Product Program was approximately 98 percent complete as at March 31, 1999 and the remaining activities are expected to be completed

- 19 - by the end of June 1999. Nortel Networks is also working with outside agencies, such as Bellcore, the United States government (GSA), the Telco Year 2000 Forum in the United States, Alliance for Telecommunications Industry Solutions, and the Canadian Year 2000 Telecom Industry Forum, to support independent verification and interoperability testing of selected products. Phase II, deployment of Year 2000 ready products and product upgrades, was commenced in 1998 and is expected to continue throughout 1999. Nortel Networks estimates that this phase will be substantially complete by mid -1999 excluding those customers who elect not to deploy Year 2000 ready products or product upgrades and excluding Enterprise customers who have purchased Nortel Networks’ products through distributors. Nortel Networks has initiated formal communications with its customers (except where Nortel Networks sells its products through distributors, in which case formal communications have been initiated primarily with such distributors). Customers and/or distributors are being notified of known risk areas and the availability of Year 2000 ready products and product upgrades and migration paths. Customers are being encouraged to arrange for deployment of Year 2000 ready products and product upgrades promptly to ensure that they will be deployed prior to the year 2000. Although Nortel Networks currently believes that it has the resources to provide timely support to its customers seeking to deploy Year 2000 ready products and product upgrades, increased orders of Year 2000 ready products and product upgrades towards the end of 1999 may overburden available installation resources.

The IS Program addresses business applications primarily used internally within Nortel Networks and includes third-party supplier assessment and joint venture activities related to Year 2000 readiness. The IS Program consists of the following three major phases: Phase I (assessment and validation - inventory of Year 2000 affected items, assessment of Year 2000 readiness, and prioritization of items determined to be material to Nortel Networks); Phase II (implementation and deployment – repair, retirement or replacement of items determined not to be Year 2000 ready, testing of all items that have been repaired or replaced or have been identified as Year 2000 ready but are considered to be material to Nortel Networks, and redeployment of tested items into Year 2000 ready operating environments); and Phase III (business continuity planning – planning to reduce the risk of business interruption to Nortel Networks resulting from potential Year 2000 issues).

Business applications have undergone and are undergoing an assessment and are being remedied, retired, or replaced, as appropriate. Third-party supplied software is similarly being assessed, and has been or will be upgraded or replaced. Nortel Networks estimates that in respect of its business applications, Phases I and II activities were approximately 91 percent complete at March 31, 1999, and the remaining Phases I and II activities are on schedule to be completed by the end of the second quarter of 1999. Most of the Phase I and II activities carried over into 1999 are related to the deployment of applications which have been determined to be Year 2000 ready, and were not deployed in 1998 for various business reasons. None of the Nortel Networks' IT projects have been delayed due to the implementation of the Year 2000 Program.

Third-party suppliers are being assessed to determine the potential for Year 2000 impact. These relationships include third-party suppliers that provide manufacturing materials, software applications, tools, outsourced services, telecommunications, and other infrastructure-related products and services required by Nortel Networks. Assessment activities include the identification and prioritization of critical suppliers, direct communications with suppliers regarding their plans and progress in addressing the Year 2000 issue relating to products and services supplied to Nortel Networks and/or their own internal operations, and specific assessment of direct interfaces between third party suppliers and Nortel Networks. Formal communications between Nortel Networks and significant third party suppliers are focused to determine the extent to which Nortel Networks is vulnerable to these third parties' potential failure to remedy their own Year 2000 issue. Where appropriate, Nortel Networks has or plans to execute Year 2000 compliance agreements with such parties. Detailed evaluations of the most critical third parties and their products or services are underway and are expected to be complete by the end of the second quarter of 1999. Where appropriate, the results of such evaluations have been and continue to be assessed in the developing Year 2000 business continuity plans.

Nortel Networks is monitoring its joint ventures and working closely with the Year 2000 teams at its joint ventures. Nortel Networks' joint ventures have Year 2000 programs in place, however, the target completion dates for joint venture Year 2000 programs are generally later than that of

- 20 - Nortel Networks' overall Year 2000 Program, particularly in respect of joint ventures located outside of North America. Progress has been made by the joint ventures in pulling forward their completion dates and all components of the joint venture Year 2000 programs are expected to be complete by the end of 1999 with each such component expected to be substantially complete by the end of the third quarter of 1999.

The Facilities Program encompasses the building infrastructure including environmental controls, security systems, life safety systems, and associated embedded systems that are used in the control or operation of all facilities operated by Nortel Networks. Also addressed under the Facilities Program are factory-based embedded systems used in the manufacture and testing of Nortel Networks' products. The Facilities Program is on schedule, and it is expected that the repair or replacement and testing of equipment and systems determined not to be Year 2000 ready will be substantially completed by the end of the second quarter of 1999.

Business continuity planning, which commenced in the Product Program, IS Program, and Facilities Program during the third and fourth quarters of 1998, is being coordinated under a Corporate Business Continuity Planning Program (the "BCP Program"). The governing objective of the BCP Program is to protect corporate resources in the face of a potential Year 2000 event, to continue the delivery of essential services to both internal and external customers, and to minimize the effects of the disruption on the operations of Nortel Networks' business. The Corporate BCP planning process is based on an industry-accepted, process-focused approach. BCP Program activities include joint implementation of business continuity plans with customers where appropriate, and development of business continuity actions to address potential exposures from critical product and service providers. BCP Program activities also address such issues as the anticipated increase in demand by customers for product deployment towards the end of 1999. BCP Program activities have a scheduled completion date of the end of the third quarter 1999, with implementation, monitoring and execution of business continuity plans occurring during the fourth quarter. Interim planning milestones have been established and the progress of the BCP Program is monitored on a regular basis. Some BCP Program activities will be completed prior to the end of the third quarter in order to prepare for potential Year 2000-related events that could occur prior to such time.

Nortel Networks is utilizing both internal and external resources to reprogram, or replace, and test for Year 2000 modifications. The total cost associated with Nortel Networks' Year 2000 Program is being funded through operating cash flows and is not expected to be material to Nortel Networks’ financial position. The estimated total cost of the Year 2000 Program is approximately US $155 million. This amount does not include costs to upgrade products or product software as these costs have been absorbed indirectly through normal product upgrades. As well, this amount does not include Nortel Networks' potential share of Year 2000 costs that may be incurred by partnerships and joint ventures in which Nortel Networks participates but is not the operator. The total amount expended on the Program through March 31, 1999, was approximately US $130 million. The estimated future cost of completing the Year 2000 Program is approximately US $25 million.

The costs of the Year 2000 Program and the date on which Nortel Networks plans to complete the Year 2000 Program are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, the completion of third-party year 2000 programs, timely customer ordering of Year 2000 ready products and product upgrades and other factors. However, there can be no assurance that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences and which may impact the success of Nortel Networks' Year 2000 Program in mitigating the impact of Year 2000 issues on its business include, but are not limited to, timely actions by customers, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, the timely completion of third- party remediation plans, and similar uncertainties.

Nortel Networks presently believes that with the replacement of certain legacy applications, modifications to existing software, and conversions to new software, the Year 2000 issue can be mitigated. However, if such replacement, modifications, and conversions are not made, or are not completed on a timely basis and if Nortel Networks' business continuity plans are ineffective, the Year 2000 issue could have a material adverse effect on the business, results of operations, and

- 21 - financial condition of Nortel Networks. Although Nortel Networks expects that a number of legacy applications used by certain lines of business will be replaced by the end of the second quarter of 1999 through the enterprise backbone program, failure to replace such applications by the beginning of the year 2000 could have a material adverse effect on the business, results of operations, and financial condition of Nortel Networks. Nortel Networks' total Year 2000 Program cost through March 31, 1999 and estimates of remaining costs to be incurred include the estimated costs and time associated with the impact of third parties' Year 2000 issues on Nortel Networks' internal systems, and are based on presently available information. However, there can be no assurance that the systems of other companies on which Nortel Networks' systems rely will be converted in a timely manner, or that a failure to convert by a third party, or a conversion that is incompatible with Nortel Networks' systems, would not have a material adverse effect on Nortel Networks. Nortel Networks' Year 2000 Program should limit its exposure to contingencies related to the Year 2000 issue for the products it has sold.

In planning for the most reasonably likely worst-case scenarios, Nortel Networks has addressed all three programs which comprise its Year 2000 Program. Nortel Networks expects that its products will be ready for the Year 2000, and that its exposure lies with customers who are not aware or not willing to complete the required upgrades to make their Nortel Networks products Year 2000 ready or that delay their decision to deploy Year 2000 ready products or upgrades until it is too late to complete the deployment. Nortel Networks' Product Program includes advertising in trade journals, conducting seminars, and maintaining a dedicated website of Year 2000 ready Nortel Networks product information to inform all possible customers that may possess non-Year 2000 ready products. Nortel Networks expects that its IT systems will be ready for the Year 2000, but that it may experience isolated incidences of non-compliance and potential outages with respect to IT infrastructure. Nortel Networks plans to allocate internal resources and retain dedicated consultants and vendor representatives to be ready to take action should these events occur. Business continuity planning for facilities is currently in process, and Nortel Networks is simultaneously putting the required resources in place to carry out those plans for key facilities. Critical business partners have been contacted to assess their Year 2000 readiness and appropriate Year 2000 business continuity plans will be developed by the end of the second quarter of 1999 to address potential business interruptions that may be experienced by such parties. It is a reasonably likely worst-case scenario that some of Nortel Networks' suppliers will experience business interruptions due to the Year 2000 issue. Although Nortel Networks values its established relationships with key suppliers, alternative products and/or services will be considered in situations where timely confirmation of Year 2000 readiness of existing suppliers cannot be established. If certain suppliers are unable to deliver products and/or services on a timely basis due to their own Year 2000 issues, business continuity plans should assure a timely transition to an alternate supplier to provide the required products and/or services. Nortel Networks also recognizes the risks to its business if other key suppliers in utilities, communications, transportation, banking, and government are not ready for the year 2000, and continues to develop business continuity plans to minimize the potential adverse impacts of these risks.

COSTS ASSOCIATED WITH THE YEAR 2000 ISSUE

The BCE Group companies have used and will continue to use both internal and external resources to reprogram, or replace, and test their software for Year 2000 modifications. BCE’s share of the BCE Group companies’ total costs for the various Year 2000 projects are estimated at approximately $550 million. These costs include amounts related to network elements and new systems platforms which will be expensed or capitalized in accordance with BCE’s practices. Costs related to the analysis, conversion and redeployment of compliant programming code will be expensed as incurred. These costs are being funded through operating cash flows and are not expected to be material to BCE’s financial position. As these cost projections are based on management’s best estimates, actual results could differ materially. Specific factors that might cause such material differences include, but are not limited to, the continued availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, the timely completion of third party Year 2000 programs and other factors.

BCE’s share of the BCE Group companies’ costs incurred in connection with their various Year 2000 programs was approximately $440 million as of March 31, 1999, of which, approximately

- 22 - $230 million was expensed and the balance capitalized.

YEAR 2000 ISSUE OUTLOOK

While BCE Inc. believes that the BCE Group companies have appropriate plans in place, the Year 2000 issue is a unique event which raises unprecedented challenges and risks. BCE Inc. presently believes that with modifications to existing software and conversions to new software, the Year 2000 issue can be mitigated. However, if such modifications and conversions are not completed on a timely basis, if any of the BCE Group companies’ mission critical suppliers fails to deliver Year 2000 ready products and services, if products or systems of other companies which the BCE Group companies or their customers utilize or rely on are not converted in a timely and effective manner, or if there is a failure to convert by another company or a conversion that is incompatible with the BCE Group companies’ systems, products and services, and if the BCE Group companies’ contingency plans are ineffective, the Year 2000 issue could have a material adverse effect on the financial condition and results of the BCE Group companies.

- 23 -

Condensed Consolidated Statement of Operations (unaudited)

($ millions, except per share amounts) For the three months ended March 31 1999 1998 Revenues 3,458 8,010 Operating expenses 2,789 6,994 Purchased in-process research and development expense - 248 Operating profit 669 768 Equity in net earnings (losses) of associated companies (288) 25 Other income 11 10 Operating earnings 392 803 Interest expense 282 322 Earnings before income taxes and non-controlling interest 110 481 Income taxes (239) (303) Non-controlling interest 37 18 Net earnings (loss) (92) 196 Dividends on preferred shares (23) (22) Net earnings (loss) applicable to common shares (115) 174 Net earnings (loss) per common share (0.18) 0.27 Dividends declared per common share 0.34 0.34 Average number of common shares outstanding (millions) 641.1 636.2

- 24 -

Condensed Consolidated Balance Sheet (unaudited)

($ millions) March 31 December 31 1999 1998 Assets Current assets Cash and cash equivalents 548 370 Accounts receivable 1,923 1,922 Other current assets 660 488 Total current assets 3,131 2,780 Investments in associated and other companies 9,598 9,536 Capital assets, net 16,771 16,745 Deferred charges 2,196 2,159 Goodwill and other assets 938 852 Total assets 32,634 32,072 Liabilities and shareholders' equity Current liabilities Accounts payable and other accrued liabilities 3,039 3,727 Debt due within one year 3,312 2,075 Total current liabilities 6,351 5,802 Long-term debt 9,267 9,260 Deferred income taxes and other long-term liabilities 2,042 2,007 Total liabilities 17,660 17,069 Non-controlling interest 1,756 1,358 Preferred shares 1,700 1,700 Common shareholders' equity 11,518 11,945 Total liabilities and shareholders' equity 32,634 32,072

- 25 -

Condensed Consolidated Statement of Cash Flows (unaudited)

($ millions) For the three months ended March 31 1999 1998 Cash flows from operating activities Net earnings (loss) (92) 196 Adjustments to reconcile net earnings (loss) to cash flows from operating activities: Depreciation and amortization 736 888 Purchased in-process research and development expense - 248 Deferred income taxes 27 (135) Dividends received in excess of (lower than) equity in net losses (earnings) of associated companies 330 (9) Other items (154) (108) Increase in working capital (854) (1,160) (7) (80) Cash flows from investing activities Capital expenditures (707) (642) Investments (649) (1,138) Proceeds from disposition of capital assets - 756 Other items 18 (26) (1,338) (1,050) Cash flows from financing activities Dividends paid on common and preferred shares (242) (238) Dividends paid by subsidiaries to non-controlling interest (12) (49) Net proceeds from issuance of (repayment of): Notes payable and bank advances 1,265 674 Long-term debt 52 (611) Issue of common shares and convertible debentures by subsidiaries to non-controlling interest 396 172 Issue of common shares 58 33 Purchase of common shares for cancellation - (31) Other items 11 9 1,528 (41) Effect of exchange rate changes on cash and cash equivalents (5) (1) Net increase (decrease) in cash and cash equivalents 178 (1,172) Cash and cash equivalents at beginning of period 370 2,249 Cash and cash equivalents at end of period 548 1,077

- 26 - Segmented Information (unaudited)

($ millions, except per share amounts) For the three months ended March 31 1999 1998 Revenues 1 Bell Canada Group - Bell 2,530 2,577 - Bell Mobility 294 297 - Other 255 192 3,079 3,066 CGI and BCE Emergis 187 6 BCE Media 85 2 Nortel Networks - 5,025 Bell Canada International 195 161 Corporate and Other 8 9 Intercompany eliminations (96) (259) Total revenues 3,458 8,010 Net earnings 1 Bell Canada Group - Bell 288 281 - Bell Mobility (3) 2 - Other 38 30 323 313 CGI and BCE Emergis (30) (7) BCE Media (19) 4 Nortel Networks (290) (31) Bell Canada International (54) (13) Corporate and Other (7) (44) Intercompany eliminations (15) (26) Net earnings (loss) (92) 196 Dividends on preferred shares (23) (22) Net earnings (loss) applicable to common shares (115) 174 Net earnings (loss) per common share (0.18) 0.27

1 Effective March 31, 1999, BCE’s business segments have been modified and now include two new segments: (1) CGI Group Inc. and BCE Emergis Inc. and (2) BCE Media (which includes Bell ExpressVu and Telesat Canada). These companies were previously included in the Bell Canada Group segment. In addition, Corporate and Other now includes BCE’s equity investment in Cable & Wireless Communications plc (which was sold in June 1998) and Jones Intercable, Inc. (which was sold in April 1999). These companies were previously included in the International Telecommunications segment which comprised Bell Canada International (BCI) and Other International Telecom. BCI is now reported as a separate segment. Previously reported amounts have been reclassified to conform with the current presentation.

- 27 - Notes to the Condensed Consolidated Financial Statements

Note 1. Accounting policies For a full description of accounting policies, refer to BCE’s 1998 Annual Report. All amounts are in Canadian dollars unless otherwise indicated. Certain previously reported amounts have been restated to conform with the current presentation.

In the fourth quarter of 1998, Nortel Networks Corporation (Nortel Networks) revised its valuation methodology of acquired in-process research and development in light of guidance provided by the United States Securities and Exchange Commission. For a full description, reference is made to BCE’s 1998 Annual Report. The net effect, on BCE’s Consolidated Statement of Operations, for the three months ended March 31, 1998, was an increase of $22 million in net earnings applicable to common shares.

Following the acquisition of Bay Networks, Inc. by Nortel Networks on August 31, 1998, BCE’s ownership in Nortel Networks decreased, from approximately 51% to 41%, resulting in BCE changing, prospectively, its accounting for Nortel Networks from consolidation to equity accounting effective September 1, 1998. Accordingly, BCE’s Consolidated Balance Sheets of March 31, 1999 and December 31, 1998 do not include Nortel Networks’ assets and liabilities on a line-by-line basis. Furthermore, BCE's Consolidated Statement of Operations for the three months ended March 31, 1999 no longer includes Nortel Networks’ Statement of Operations on a line-by-line basis but reflects only BCE’s share of Nortel Networks’ net earnings in the line equity in net earnings (losses) of associated companies.

The Consolidated Statement of Cash Flows for the three months ended March 31, 1998, has been restated to reflect the new requirements under Section 1540 of the Canadian Institute of Chartered Accountants Handbook, “Cash Flow Statements”. For purposes of the cash flow statement, all highly liquid investments with short-term maturities are classified as cash and cash equivalents.

Note 2. Strategic partnership with Ameritech On March 24, 1999, BCE Inc. and Ameritech Corporation announced a strategic partnership. Under the terms of the partnership, Ameritech will acquire an indirect 20% minority stake in Bell Canada for approximately $5.1 billion. Bell Canada is being reorganized to hold certain telecommunications assets previously held by BCE. Bell Canada will acquire at net book value from BCE, BCE’s indirect interest in BCE Mobile Communications Inc., Teleglobe Inc. and six regional Canadian telecommunications companies, three of which plan to combine under a single entity known as AtlanticCo. Furthermore, Bell Canada will transfer to BCE, at net book value, its investments in BCE Emergis and CGI. The binding agreement is expected to close by the end of May 1999, pending customary regulatory approvals.

Note 3. Sale of investment in Jones Intercable, Inc. (Jones) In April 1999, BCE sold its investment in Jones for proceeds of US $508 million. An after-tax gain of approximately $240 million will be recorded in the second quarter.

- 28 -