Bell Canada Enterprises 2007 Annual Report management’s discussion notes to consolidated financial and analysis statements About Forward-Looking Statements . 2 Note 1 Significant Accounting Policies . 72 Privatization of BCE Inc. 3 Note 2 Going-Private Transaction . 80 About Our Business . 4 Note 3 Segmented Information . 80 2007 Operating Highlights . 9 Note 4 Restructuring and Other . 83 Business Outlook and Assumptions . 12 Note 5 Other Income (Expense) . 84 Selected Annual and Quarterly Information . 14 Note 6 Interest Expense . 84 Financial Results Analysis Note 7 Income Taxes . 85 Consolidated Analysis . 17 Note 8 Discontinued Operations . 86 Segmented Analysis . 23 Note 9 Earnings Per Share . 87 Financial and Capital Management . 32 Note 10 Accounts Receivable . 88 Our Competitive Environment . 40 Note 11 Inventory . 88 Our Regulatory Environment . 43 Note 12 Capital Assets . 89 Risks that Could Affect Our Business and Results . 50 Note 13 Other Long-Term Assets . 90 Our Accounting Policies . 58 Note 14 Goodwill . 90 Controls and Procedures . 63 Note 15 Accounts Payable and Accrued Liabilities . 92 Non-GAAP Financial Measures . 63 Note 16 Debt Due Within One Year . 93 Note 17 Long-Term Debt . 93 reports on internal control Note 18 Other Long-Term Liabilities . 94 Management’s Report on Internal Control Note 19 Non-Controlling Interest . 94 over Financial Reporting . 66 Note 20 Financial Instruments . 95 Report of Independent Registered Note 21 Share Capital . 96 Chartered Accountants . 67 Note 22 Stock-Based Compensation Plans . 99 Note 23 Accumulated Other Comprehensive consolidated financial statements Income (Loss) . 102 Note 24 Employee Benefit Plans . 103 Management’s Responsibility for Financial Reporting . 68 Note 25 Commitments and Contingencies . 106 Report of Independent Registered Note 26 Guarantees . 109 Chartered Accountants . 68 Note 27 Supplemental Disclosure for Consolidated Statements of Operations . 69 Statements of Cash Flows . 110 Consolidated Statements of Comprehensive Income . 69 Glossary . 111 Consolidated Statements of Deficit . 69 Board of Directors . 113 Consolidated Balance Sheets . 70 Executives . 114 Consolidated Statements of Cash Flows . 71 Shareholder Information – Tax Information . 115 Management’s Discussion and Analysis In this management’s discussion and analysis of financial Except as may be required by Canadian securities condition and results of operations (MD&A), we, us, our laws, we do not undertake to update or revise any and BCE mean BCE Inc., its subsidiaries and joint ventures. forward-looking statement, whether as a result of new Bell Canada is, unless otherwise indicated, referred to herein information, future events or otherwise. Forward-looking as Bell, and is comprised of our Bell Wireline and Bell statements, by their very nature, are subject to numerous Wireless segments. References to Bell Aliant include matters risks and uncertainties and are based on several assump- relating to, and actions taken by, both Aliant Inc. and its affi- tions which give rise to the possibility that actual results liated entities prior to July 7, 2006, and Bell Aliant Regional could differ materially from our expectations expressed Communications Income Fund and its affiliated entities on in or implied by such forward-looking statements and and after such date. that our objectives, strategic priorities and business All amounts in this MD&A are in millions of Canadian outlooks may not be achieved. As a result, we cannot dollars, except where noted. Please refer to our glossary on guarantee that any forward-looking statement will mate- pages 112–113 for a listof defined terms. rialize. Forward-looking statements are provided in this Please refer to BCE Inc.’s audited consolidated financial document for the purpose of allowing investors and statements for the year ended December 31, 2007 when reading others to get a better understanding of our operating this MD&A. In preparing this MD&A, we have taken into environment. However, readers are cautioned that it account information available to us up to March 5, 2008, the may not be appropriate to use such forward-looking dateof this MD&A, unless otherwise stated. statements for any other purpose. You will find more information about us, including BCE Forward-looking statements made in BCE’s 2007 Inc.’s audited consolidated financial statements for the year annual report, including in this MD&A, are based on ended December 31, 2007 and BCE Inc.’s annual information a number of assumptions that we believed were reason- form for the year ended December 31, 2007 dated March 5, able on the day we made the forward-looking state- 2008 (BCE 2007 AIF) and recent financial reports, on BCE ments. Refer, in particular, to the sections of this MD&A Inc.’s website at www.bce.ca, on SEDAR at www.sedar.com entitled Strategic Priorities and Business Outlook and and on EDGAR at www.sec.gov. Assumptions for a discussion of certain assumptions we This MD&A comments on our operations, per- have made in making forward-looking statements. formance and financial condition for the years ended Factors that could cause actual results to differ materi- December 31, 2007, 2006 and 2005. ally from our expectations expressed in or implied by our forward-looking statements include: general About Forward-Looking Statements economic conditions; failure to achieve our business objectives; the intensity of competitive activity and the BCE’s 2007 annual report, including this MD&A and in increase in wireless competitive activity that could result particular the sections of this MD&A entitled Strategic from Industry Canada’s decision to license additional Priorities and Business Outlook and Assumptions, contain wireless spectrum; our ability to respond to technologi- forward-looking statements concerning, among others, cal changes and rapidly offer new products and services; BCE’s objectives, plans, strategies, financial condition, events affecting the functionality of, and our ability results of operations and business outlooks. A statement to protect, maintain and replace, our networks, informa- we make is forward-looking when it uses what we know tion technology (IT) systems and softwares; labour and expect today to make a statement about the future. disruptions; the potential adverse effects on our Internet Forward-looking statements may include words such business of the significant increase in broadband as aim, anticipate, assumption, believe, could, expect, goal, demand; competitive risks related to potential changes guidance, intend, may, objective, outlook, plan, seek, should, in foreign ownership restrictions; events affecting the strategy, strive, target and will. All such forward-looking operations of our service providers operating outside statements are made pursuant to the ‘safe harbour’ Canada; our ability to raise the capital we need to imple- provisions of applicable Canadian securities laws and ment our business plan; the consummation of the of the United States Private Securities Litigation Reform Act Privatization (as defined immediately following this of 1995. section under Privatization of BCE Inc.) is still subject to Unless otherwise indicated by us, forward-looking a number of terms and conditions including the receipt statements in BCE’s 2007 annual report, including of regulatory approval, resolution of any appeal filed by this MD&A, describe our expectations at March 5, 2008. the debenture holders which affects the approval of the 2 Bell Canada Enterprises 2007 Annual Report Management’s Discussion and Analysis Arrangement (as defined immediately following this Privatization of BCE Inc. section under Privatization of BCE Inc.), and contractual On June 30, 2007, BCE Inc. announced that it entered termination rights; our ability to discontinue certain into a definitive agreement (Definitive Agreement) traditional services as necessary to improve capital and relating to its privatization through the proposed operating efficiencies; regulatory initiatives or pro- acquisition by a corporation (the Purchaser) owned ceedings, litigation and changes in laws or regulations; by an investor group led by Teachers’ Private Capital, the increased regulations banning the use of wireless private investment arm of the Ontario Teachers’ Pension devices while driving; launch and in-orbit risks of satel- Plan, Providence Equity Partners Inc. and Madison lites used by Bell ExpressVu Limited Partnership (Bell Dearborn Partners, LLC (collectively, the Investor Group) ExpressVu); increased pension fund contributions; and of all of BCE Inc.’s outstanding common and preferred health concerns about radio frequency emissions from shares (the Privatization). The all-cash transaction is wireless devices. These and other risk factors that could valued at $51.7 billion, including $16.9 billion of debt, cause actual results to differ materially from our expec- preferred equity and non-controlling interest. The trans- tations expressed in or implied by our forward-looking action is to be completed through a plan of arrangement statements are discussed throughout this MD&A and, (the Arrangement). Under the terms of the Privatization, in particular, under Our Competitive Environment, Our the Purchaser would acquire all of the common shares Regulatory Environment and Risks that Could Affect Our of BCE Inc. for an offer price of $42.75 per common Business and Results. share and all preferred shares (at various prices provided We caution readers that the risks described above are for in the Definitive Agreement).