49643 pgs 01-12 - bce inc. write-off of wireless capital assets (refer to restructuring and other...

B E L L C A N A D A

2 1FINANCIAL INFORMATION 00

Bell Canada, Canada’s national leader for communi-cations in the Internet world, provides connectivity toresidential and business customers through wired andwireless voice and data communications, high-speedand wireless Internet access, IP/Broadband services,e-business solutions, local and long distance phone anddirectory services.

Bell Canada is wholly-owned by Bell Canada HoldingsInc. In turn, Bell Canada Holdings Inc. is 80% owned byBCE Inc. of Montréal and 20% owned by SBC Communi-cations Inc. of San Antonio, Texas.

Please visit our web site at www.bell.ca for informationon our products and services.

This document contains Bell Canada’s Management’sDiscussion and Analysis of Financial Condition andResults of Operations as well as its Financial Statementsfor 2001.

To obtain a copy of BCE Inc.’s Annual Report, please visitBCE’s web site at www.bce.ca, call 1 888 932-6666or send a written request to:

Bell CanadaCorporate Communications1000, rue de La Gauchetière OuestBureau 3700Montréal, Québec H3B 4Y7(Canada)

2 0 0 1 B e l l C a n a d a F i n a n c i a l I n f o r m a t i o n 1

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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S

Factors which could cause actual results or events to differmaterially from current expectations are discussed on pages 9 to12 under “Forward-Looking Statements”.

Bell Canada’s comparative quarterly financial data for eachof the eight most recently completed quarters is presented onpage 31 of this Financial Information.

HIGHLIGHT S

Operational Highlights

• Total Internet subscribers grew to 1,514,000, of which689,000 were high-speed subscribers, representing a 130%growth in high-speed subscribers over 2000; and

• Cellular and PCS subscribers grew by 25% compared to last yearto 2,982,000. Net activations were 601,000 in 2001, of which65% were postpaid.

Financial Highlights

Bell Canada’s net earnings from continuing operations of$1,620 million increased by $68 million compared with 2000,primarily due to:

• higher operating revenues which increased by 8% and weremainly driven by a 27% increase in data revenues, a 22%increase in wireless revenues, and a 5% increase in local andaccess revenues; and

• after-tax gains on the sale of investments consisting prima-rily of a $373 million gain on the sale of Sympatico-LycosInc. (Sympatico-Lycos) to BCE Inc.

partially offset by:• a lower EBITDA margin (42.6% in 2001 compared to 43.6%

in 2000) which related mainly to an increased focus onservices and products which initially have lower margins butwhich are expected to drive the revenue growth of BellCanada in future years; and

• the impact of restructuring and other charges of $542 millionafter tax. These expenses include an after-tax fourth quarter2001 charge of $399 million which represents restructuringand other charges mainly relating to employee severance andthe write-off of wireless capital assets (refer to Restructuringand Other Charges).

This management’s discussion and analysis of financial condi-tion and results of operations (MD&A) for 2001 focuses on theresults of operations and financial situation of Bell Canada (theCorporation), its subsidiaries and its investments in significantlyinfluenced companies (collectively Bell Canada) and should beread in conjunction with the consolidated financial statementsfor 2001 contained on pages 14 to 30.

Bell Canada provides connectivity to residential and businesscustomers through wired and wireless voice and data commu-nications, high-speed and wireless Internet access,IP/Broadband services, e-business solutions, as well as local andlong distance phone and directory services. Bell Canada is awholly-owned subsidiary of Bell Canada Holdings Inc. (BCH).BCE Inc. owns 80% of BCH, while the remaining 20% is ownedby SBC Communications Inc.

The Corporation’s principal subsidiaries include:• Bell Mobility Inc. (Bell Mobility);• BCE Nexxia Inc. (carrying on business in Canada under the

name Bell Nexxia);• Bell ActiMedia Inc. (Bell ActiMedia);• Bell Distribution Inc. (BDI);• Certen Inc. (Certen); • Northern Telephone Limited; • Northwestel Inc.;• Télébec ltée (Télébec); and• Expertech Network Installations Inc.

The Corporation’s principal investments in significantly influ-enced companies include: • Aliant Inc. (Aliant);• Manitoba Telecom Services Inc. (MTS); • Bell Intrigna Inc.;• Entourage Inc.;• Nexxia Inc. (Nexxia U.S.); and• Fibreco Inc. (Fibreco U.S.)

Certain sections of this MD&A contain forward-looking state-ments with respect to Bell Canada. These forward-looking state-ments, by their nature, necessarily involve risks anduncertainties that could cause actual results to differ materiallyfrom those contemplated by the forward-looking statements.

2 2 0 0 1 B e l l C a n a d a F i n a n c i a l I n f o r m a t i o n

Revenues ($ billions)

12.3 12.412.6

13.2

14.3

1997 1998 1999 2000 2001

EBITDA ($ billions)

5.4 5.4 5.4

5.8

6.1

1997 1998 1999 2000 2001

Net Earnings Applicable toCommon Shares Before Extraordinary Items ($ billions)

0.9

1.1

1.2

1.3

1.5

1997 1998 1999 2000 2001

RESULT S OF OPERATIONS

Operating Revenues

LOC AL AND ACCESS

Local and access revenues are earned principally by connectingbusiness and residential customers to Bell Canada’s network andproviding them with local area service. Local and accessrevenues also include revenues from the provision of Smart-TouchTM services (for example, call waiting and call display) toresidential and business customers as well as payments fromcompetitors accessing Bell Canada’s local network, consumerterminal sales, and operator and directory assistance charges.

Local and access revenues increased by $281 million in 2001compared to 2000, mainly due to higher SmartTouch featurerevenues, growth in network access service revenues and higherconsumer terminal sales.

The growth in SmartTouch feature revenues of 13% reflectedhigher average monthly revenues per customer mainly as aresult of price increases (refer to “Regulatory Decisions”) and agreater number of features in service.

The increase in network access service revenues of 2% in2001 was mainly due to a price increase in monthly local resi-dential rates (refer to “Regulatory Decisions”) partially offset bya lower number of lines in service, particularly in the fourthquarter of 2001. This decrease of number of lines in service aswell as the decrease in both residential and business local marketshares, are consistent with competition from the competitivelocal exchange carriers (CLECs), which has resulted from theadvent of competition in the local service market in 1998. Aswell, the number of lines in service have been impacted bysecond line disconnects due mainly to wireless conversions aswell as Sympatico High-Speed Edition (DSL) new connections,which allow subscribers to carry on voice conversations whileusing the Internet.

Consumer terminal sales increased by 23% compared to2000, mainly due to higher Bell ExpressVu Limited Partnership(Bell ExpressVu) DTH (direct to home) unit sales to consumers in2001. BDI, through its Bell World locations, is a major distribu-tor of Bell ExpressVu products. Bell ExpressVu is a wholly-ownedentity of BCE.

LONG DIS TANCE

Long distance revenues include long distance voice revenues, aswell as long distance settlement payments from other carriers.

Long distance revenues declined by $146 million in 2001compared to 2000, primarily due to decreases in both longdistance voice revenues and settlement revenues.

The decrease in long distance voice revenues in 2001reflected a 7% decrease in average long distance revenues perminute to 14.2 cents per minute, primarily due to continuing

competitive pricing pressures, partially offset by higher servicevolumes, as measured in conversation minutes.


1 Results of OperationsFor the years ended December 31 ($ millions) 2001 2000 % change

Operating revenuesLocal and access 5,731 5,450 5Long distance 2,328 2,474 (6)Wireless 1,589 1,299 22Data 3,215 2,531 27Terminal sales, directory advertising and other 1,402 1,476 (5)

Total operating revenues 14,265 13,230 8Operating expenses 8,188 7,455 10

EBITDA(1) 6,077 5,775 5

Earnings from continuing operations 1,620 1,552 4Discontinued operations (net of tax) – (99) n.m.Extraordinary item (net of tax) (70) – n.m.

Net earnings 1,550 1,453 7

(1) Earnings before interest expense, income taxes, depreciation and amortization and excluding net benefit plans credit and restructuring and othercharges. EBITDA does not have a standardized meaning prescribed by Canadian generally accepted accounting principles and therefore may not becomparable to similar measures presented by other issuers. Bell Canada uses, as one of its measures, EBITDA to assess its operating performance.

n.m.: not meaningful

2 Local and AccessFor the years ended December 31 2001 2000

Number of network access services(1) (in thousands)Residential 7,695 7,693Business 4,094 4,113

Total 11,789 11,806

SmartTouch feature revenues (in $ millions) 838 742

Local market share(Bell Canada territory only)(2)

Residential 99.3% 99.6%Business 89.8% 92.8%Total 95.8% 97.1%

(1) Network access services represent, at December 31, approximately, the number of lines in service. (2) Bell Canada operating territory in Quebec and Ontario at December 31.

3 Long DistanceFor the years ended December 31 2001 2000

Conversation minutes (in millions) 14,704 14,601Average long distance revenue per minute (in cents) 14.2 15.2Market share (% based on revenues)(1) 63.6% 62.0%

(1) Bell Canada operating territory in Quebec and Ontario at December 31.

SmartTouch is a trademark of Stentor Resource Centre Inc.

The reduction in long distance settlement revenues in 2001resulted primarily from lower settlement rates across moststreams (domestic, U.S. and overseas).

WIRELESS

Wireless revenues are primarily derived from the provision ofcellular, PCS, paging and wireless data communications services,as well as airline passenger communications and wirelessconsulting services offered by Bell Canada’s subsidiaries, butprimarily by Bell Mobility.

The growth in wireless revenues of $290 million in 2001compared to last year was primarily driven by a 25% increase inthe cellular and PCS subscriber base and an increase in minutesper month of usage per subscriber, partially offset by lowerpaging products and in-flight services revenues. The resultsreflect the continued focus on postpaid activations, whichaccounted for 65% (up 2% from last year) of total net activationsfor 2001.

The average revenue per cellular and PCS subscriberremained relatively flat in 2001, reflecting the emphasis on theretention of high value customers with new products like the

Small Business Rate Plan and price increases in system access feesand features, a higher postpaid mix on high-end plans, andincreased roaming traffic, offset by increased competitive pres-sures, and the removal of activation fees for prepaid subscribers.

On October 17, 2001, Bell Canada announced that Bell Mobi-lity and Aliant Telecom Wireless (a business unit of Aliant)entered into an enhanced ten-year reciprocal agreement withTelus Mobility (a business unit of Telus Corporation) which isexpected to significantly expand access to advanced digitalvoice and data services across Canada and to bring competitionto rural areas. This agreement extended the current roaming andresale agreements between Bell Mobility and Telus Mobility. Itis anticipated that this agreement will enhance the reach ofBell Mobility’s digital PCS service across rural Alberta and BritishColumbia by providing access through the Telus Mobilitynetwork in the two provinces. As a result of this agreement,Bell Mobility is expected to be able to avoid capital expendituresof more than $500 million over the term of the agreement.Additionally, Bell Mobility, on September 17, 2001, officiallylaunched its Western expansion with its consumer marketingcampaign in Alberta and British Columbia.

On May 23, 2001, Glenayre Technologies Inc. (Glenayre), thepaging network infrastructure supplier for major carriers,announced that it intended to exit the business in May 2002.Bell Mobility uses Glenayre’s technology in its paging andReFLEX 2-way messaging operations. As a result of thisannouncement, Bell Mobility had indicated that it was exam-ining options for network infrastructure support past May 2002.Since that time, Glenayre has indicated that it intends tocontinue to provide paging network support to carriers. InFebruary 2002, Glenayre and Bell Mobility entered into a renew-able two-year maintenance contract for the supply of mainte-nance and support services to Bell Mobility’s paging networkinfrastructure. Accordingly, this will enable Bell Mobility tocontinue to provide paging services.

DATA

Data revenues are comprised of legacy data revenues and non-legacy data revenues. Legacy data revenues include digital trans-mission services such as MegalinkTM, network access forIntegrated Services Digital Network (ISDN) and Data, as well ascompetitive network services and the sale of inter-networking


4 WirelessFor the years ended December 31 2001 2000 % change

Cellular and PCSNet activations (in thousands)

Prepaid 210 185 14Postpaid 391 318 23

Total 601 503 19Total subscribers(1) (in thousands)

Prepaid 904 694 30Postpaid 2,078 1,687 23

Total 2,982 2,381 25Average revenue per subscriber ($/month)

Prepaid 13 14 (7)Postpaid 61 60 2

Total 46 46 –

Usage per subscriber (min/month) 180 156 15

Postpaid churn rate(2) 1.5% 1.5% n.m.

(1) At December 31(2) Average per monthn.m.: not meaningful

5 DataFor the years ended December 31 2001 2000 % change

Data revenues (in $ millions)Legacy 1,919 1,691 13Non-legacy 1,296 840 54

Total 3,215 2,531 27

Internet subscribers (in thousands)High-speed (DSL)(1) 689 300 130Dial-up(2) 825 671 23

Total 1,514 971 56

(1) High-speed Internet subscribers include consumer, business and wholesale subscribers, at December 31.(2) Dial-up subscribers include consumer and business subscribers, at December 31. Dial-up subscribers for 2000 have been restated to reflect dial-up

access subscribers only. Previously reported amounts reflected both dial-up access and features subscribers. Megalink is a trademark of Stentor Resource Centre Inc.

equipment. Non-legacy data revenues include national andregional IP/Broadband data, e-commerce and Internet services.

Data revenues increased by 27% in 2001 compared to 2000and reflected growth across most product lines. Specifically, theincrease in data revenues was primarily driven by the growth inthe provision of IP/Broadband, competitive networks, Internetand e-commerce services, as well as increased sales of inter-networking equipment and cabling, partially offset by a decreasein access and digital transmission services, mainly in Megalink.

Contributing to the increase in Internet related revenues wasthe 56% growth in Internet subscribers. Internet subscribers’ netadditions of approximately 543,000 were mainly due to anincrease in the level of advertising and promotions sinceJune 2001. Bell Canada’s consumer high-speed market share inOntario and Quebec grew to approximately 41.7% at December 31,2001, compared to approximately 33.5% at December 31, 2000.

TERMIN AL SALES, DIRECTORY ADVER TISING

AND OTHER

Terminal sales, directory advertising and other revenues areprimarily derived from the rental, sale and maintenance of busi-ness terminal equipment and from directory advertising, as wellas network management.

Terminal sales, directory advertising and other revenuesdecreased by $74 million in 2001 compared to 2000. The declinewas principally due to lower revenues from directory adver-tising, mainly as a result of the divestitures of certain interna-tional directory operations by Bell ActiMedia. Business terminalequipment sales in 2001 were comparable to sales last year.

EBITDA

EBITDA in 2001 increased by $302 million compared to 2000.The growth in EBITDA was partly attributable to higher wirelessand data operating revenues. There were, however, increasedcosts associated with such revenue growth. While these highergrowth services and product offerings have led to decreasedEBITDA margins, in the long term, it is expected that EBITDAmargins for such products and services will increase.

Bell Canada’s traditional products and services (local andaccess, long distance, as well as directory advertising and other)also contributed to the EBITDA increase. The increased local andaccess revenues were, however, negatively impacted by theCanadian Radio-television and Telecommunications Commis-sion’s (CRTC) contribution decision, effective January 1, 2001,which changed the contribution regime for local service

subsidies in high cost areas from a company specific longdistance per minute charge to a nationally averaged surchargeof 4.5% on all Canadian telecommunications revenues (refer to“Regulatory Decisions”). Additionally, the decreased longdistance revenues were partially offset by lower long distancesettlement payments.

Below EBITDA Expenses and Other Income

NET BENEFIT S PL AN CREDIT

The net benefits plan credit increased by $21 million in 2001 to$138 million. The increase reflected a higher than expected rateof return on Bell Canada’s pension plan assets in 2000, therebygiving rise to a higher gain in 2001.

DEPRECIATION AND AMOR TIZATION

Depreciation and amortization expense of $2,391 million in2001 increased by $45 million compared to 2000. The increasewas primarily due to higher levels of plant in-service (duemainly to increased capital expenditures), partially offset by theimpact of lower depreciation rates (effective January 2001) forcertain central office equipment asset categories.

RES TRUCTURING AND OTHER CHARGES

During the first quarter of 2001, Bell Canada recorded a pre-taxcharge of $239 million ($143 million after tax) representingrestructuring and other charges of $210 million and$29 million, respectively. The restructuring charge is related toemployee severance, including enhanced pension benefits andother directly related employee costs, for approximately1,900 employees, which resulted primarily from a decision tostreamline support functions. The restructuring program wassubstantially completed by December, 2001. As at December 31,2001, the remaining unpaid balance of this restructuring provi-sion relating to employee severance and other directly relatedemployee costs was $33 million. Other charges related mainlyto the write-off of certain assets.

During the fourth quarter of 2001, Bell Canada recorded apre-tax charge of $625 million ($399 million after tax) repre-senting restructuring and other charges of $260 million and$365 million, respectively. The restructuring charge is related toemployee severance, including enhanced pension benefits andother directly related employee costs, for approximately2,000 employees, which resulted primarily from a decision tostreamline certain management, clerical, line and other support

functions. The restructuring program is expected to besubstantially completed in 2002. As at December 31, 2001, theremaining unpaid balance of this restructuring provisionrelating to employee severance and other directly relatedemployee costs was $98 million. Other charges consistedprimarily of the write-off of wireless (Bell Mobility) capitalassets relating mainly to the analog and paging networks andPCS base stations.

INTERES T EXPENSE

Interest expense of $798 million in 2001 increased by $51 mil-lion compared with 2000. The increase was due to higheraverage debt levels in 2001 (refer to “Financing Activities”).

EQUIT Y IN NET EARNINGS OF S IGNIFIC ANTLY

INFLUENCED COMPANIES

Equity in net earnings of significantly influenced companies of$24 million in 2001 increased by $72 million compared to 2000.The higher equity earnings in 2001 were mainly due to theequity losses recognized in Teleglobe Inc. in 2000, partiallyoffset by lower equity earnings from Aliant in 2001. EffectiveNovember 2000, Bell Canada began accounting for its invest-ment in Teleglobe Inc. at cost and therefore no longer picks upequity losses from Teleglobe Inc.

Excluding the impact of Teleglobe Inc.’s equity losses in 2000,Bell Canada’s equity earnings decreased by $50 million comparedto last year, mainly due to lower equity earnings from Aliant.

OTHER INCOME

Other income of $346 million increased by $343 million,compared to 2000, primarily due to the recognition of gains ondisposal of investments in the first quarter of 2001. OnJanuary 9, 2001, Bell Canada sold, through its subsidiary BellActiMedia, its 71% interest in Sympatico-Lycos, a Canadian Webcommunications commerce and media company which oper-ates a business-to-consumer portal, to BCE for total proceeds of$425 million which resulted in a gain of $373 million. Addi-tionally, in the first quarter of 2001, Bell ActiMedia sold itsinterest in Telecom Directories Limited (TDL) of Hong Kongfor total proceeds of $63 million, resulting in a net of tax gainof $25 million.

INCOME TAXES

Income taxes of $898 million decreased by $301 millioncompared to 2000, due mainly to the decrease in earnings from


continuing operations before income taxes and non-controllinginterest and to the Sympatico-Lycos gain realized in 2001 whichhad a non-taxable treatment. Excluding the Sympatico-Lycosgain of $373 million, Bell Canada’s effective tax rate of 41.6%for 2001 decreased when compared to the 2000 effective tax rateof 43.5%, mainly due to the decrease in corporate tax rates bythe Federal and Ontario Provincial governments in 2001.

DISCONTINUED OPERATIONS

As a result of the discontinued operations recorded in 2000,relating to Teleglobe Inc.’s interest in ORBCOMM Global, L.P.(ORBCOMM), Bell Canada’s results for 2000 reflect a $75 millionafter-tax write-down (pre-tax write-down of $104 million)relating to its proportionate interest in ORBCOMM. Addition-ally, Bell Canada’s proportionate interest in ORBCOMM’s after-tax loss of $24 million (pre-tax loss of $33 million) has beenreclassified from Equity in net earnings (losses) of significantlyinfluenced companies to Discontinued operations.

EXTRAORDIN ARY ITEM (NET OF TAX)

Télébec determined that, as at December 31, 2001, it no longermet the criteria necessary for the continued application of regu-latory accounting provisions of generally accepted accountingprinciples (GAAP). As a result, Télébec recorded an extraordinarynon-cash pre-tax charge of $102 million ($70 million after tax).The operations of Télébec no longer met the criteria for applica-tion of regulatory accounting provisions due to significantchanges in regulation, including the implementation of pricecap regulation which replaced rate-of-return regulation effectiveJanuary 1, 2002, and the concurrent introduction of competitionin Télébec’s local exchange market. Accordingly, Télébecadjusted the carrying values of assets and liabilities as atDecember 31, 2001 to reflect values appropriate under GAAP forenterprises no longer subject to rate-of-return regulation.

Net Earnings

Net earnings increased by $97 million in 2001 to $1,550 million.The growth for 2001 was mainly attributable to higher EBITDA,equity earnings, and net benefit plans credit, partially offsetby higher depreciation and amortization and interest expenses.In addition, other income (mainly gains on the disposal ofSympatico-Lycos and TDL of Hong Kong) contributed signifi-cantly to the increase in net earnings. Results in 2001 were alsoimpacted by restructuring and other charges recorded in the firstand fourth quarters of 2001 and the extraordinary item,

partially offset by the ORBCOMM discontinued operationsrecorded in 2000. Excluding the net impact of the gains on thesale of Sympatico-Lycos and TDL of Hong Kong of $373 millionand $25 million after tax, respectively, the restructuring andother charges of $542 million after tax, as well as the after-taxdiscontinued operations in 2000 relating to ORBCOMM and theTélébec extraordinary item, net earnings for 2001 increased by$212 million or 14% compared to the same period last year.

Outlook – Operations

REVENUE

During 2002, Bell Canada will continue to pursue its growthstrategy of transitioning its revenue base from local and accessand long distance services to wireless, data and value-addedservices. It will also continue to build a convergence platformthrough integrated billing and advanced interactive services.Bell Canada will seek to drive revenue growth through focusedexecution of various initiatives, including new product devel-opment and enhancements, increased sales channel effective-ness, an expanded national presence and targeted priceincreases. It is anticipated, however, that the increase in localservice competition and continued price competition in thelong distance and wireless markets will exert downward pressureon revenues.

It is expected that Bell Canada’s revenue performance willcapitalize on the growth in demand for IP/Broadband services,as well as the increasing penetration of wireless services andhigh-speed Internet access. Beyond connectivity, Bell Canadawill also pursue the growing opportunities in managed networkservices, and, in convergence, in network-centric e-commerceservices for businesses and consumer content solutions.

Although growth in wireless and data revenues is anticipatedto continue due to the above mentioned initiatives in 2002,growth rates in the first half of 2002 are expected to be lowerthan those experienced in the first half of 2001. Bell Canada inits outlook assumptions expects the economy to recover in thesecond half of 2002, at which point in time higher wireless anddata growth rates are expected.

OPERATING EXPENSES

Bell Canada anticipates moderate increases in operatingexpenses for 2002, primarily related to revenue growth initia-tives, which are expected to be partially offset by productivityinitiatives, the effects of the 2001 streamlining efforts, closer

co-operation with Aliant, and lower settlement payments toother telecommunications companies.

The net benefits plan credit is expected to decrease signifi-cantly in 2002 mainly due to a decrease in the value of planassets as at December 31, 2001, due to negative returns experi-enced in 2001 as a result of the uncertainty in the markets, aswell as a decrease in the expected rate of return in 2002.

Depreciation and amortization expense is expected toincrease in 2002 compared to 2001 due mostly to increasedlevels of plant in service due to continued substantial capitalexpenditures to support growth strategies.

EBITDA

During 2002, Bell Canada will seek to achieve EBITDA growththrough improvements in its core business (achieved mainlythrough increased revenues and productivity improvements),and will seek continued EBITDA growth in its wireless andIP/Broadband, ISP (Internet service provider) and services busi-nesses. This EBITDA growth should be partially offset by thenegative EBITDA impact associated with investments in areas ofstrategic importance (such as the wireless Western Canadaexpansion), which, however, are expected to contribute signifi-cantly to EBITDA over the longer term.

LIQUIDIT Y AND C APITAL RESOURCES

The principal components of Bell Canada’s consolidated cashflows are shown below:

6 Bell Canada Cash FlowsFor the years ended December 31 2001 2000 ($ millions)

Cash flows from operating activities 4,022 3,100

Cash flows used in investing activities (3,855) (2,951)

Cash flows used in financing activities (189) (546)

Operating Activities

Cash flows generated from operating activities were$922 million higher in 2001 compared with 2000. The increasefor 2001 was due to higher earnings from continuing operationsas discussed under “Results of Operations” and lower workingcapital requirements.


Investing Activities

Cash flows used in investing activities for 2001 increased by$904 million compared with 2000. The change was mainlyattributable to a higher level of capital expenditures in 2001,partially offset by the sale of Sympatico-Lycos and TDL of HongKong, which generated aggregate proceeds of $488 million.

Capital expenditures increased by $1,247 million in 2001compared to 2000. The increase was mainly related to Bell Mobi-lity which, in the first quarter of 2001, acquired 20 new PCSspectrum licences for wireless operations for approximately$720 million. Bell Canada also continued to develop itsIP/Broadband telecommunication services and expand its high-speed access infrastructure reflecting the execution ofBell Canada’s growth strategy. Additionally, the expansion ofthe wireless footprint, in Bell Canada’s traditional territory andin Western Canada, and Bell Canada’s investment in billingmodernization infrastructure, also contributed to the increasedcapital expenditures.

Financing Activities

Cash flows used in financing activities were $189 millioncompared with cash flows used in financing activities of$546 million for 2000. The changes were explained by:

• higher proceeds from the net issuance of long-term debtin 2001;

• the redemption of retractable preferred shares in 2000 of$110 million; and

• increased proceeds from the net issuance of preferred sharesin 2001;partially offset by:

• greater dividend payments;• lower levels of notes payable and bank advances; • the receipt in 2000 of a $160 million capital contribution

from BCH; and• the partial repayment of equity-settled notes in the amount

of $425 million.

I s suance and repayment of long-term debt

During 2001, Bell Canada issued $1,800 million of MTNDebentures pursuant to its medium-term debenture program.The proceeds from the issuance of the MTN Debentures were mainly used to repay short-term debt. MTN issues arepresented in Table 7.

During 2001, Bell Canada repaid long-term debt totalling$754 million. Major debt repayments are presented in Table 8.

I s suance and redemp tion of preferred shares

Bell Canada generated cash flows of $360 million in 2001 fromthe net issuance of preferred shares (net of redemptions ofpreferred shares and share issue expenses) (refer to Table 9).


8 Long-Term Debt Maturities – 2001 ($ millions)Series Payment Date Interest rate % Principal

Series EY(1) June 13, 2001 7.25 150Series DP(2) June 15, 2001 10.875 125Note payable to BCH(3) 5.85 362

Total 637

(1) Repaid at maturity.(2) Repaid prior to maturity.(3) Payable on demand to BCH. Outstanding notes payable to BCH as at December 31, 2001 totalled $338 million; these notes were subsequently

repaid in full on January 11, 2002.

9 Preferred Shares Issued in 2001($ millions) Number Price

Date of Issue of shares per share Initial Yield Principal

Series 19 (Cumulative Redeemable Class A) June 18, 2001 14,000,000 $25.00 5.55% 350Series 17 (Cumulative Redeemable Class A) March 30, 2001 14,000,000 $25.00 5.25% 350

Total 700

9Preferred Shares Redeemed in 2001($ millions) Number Price

Date Redeemed of shares per share Principal

Series 12 (Perpetual Cumulative Reset Redeemable Class A)(1) (2) June 18, 2001 400 $500,000 200

Series 14 (Perpetual Cumulative Reset Redeemable Class A)(1) (3) March 30, 2001 270 $500,000 135

Total 335

(1) Redemption included accrued and unpaid dividends.(2) The holders of Series 12 Preferred Shares reinvested all of the proceeds of redemption of their shares into Series 19 Preferred Shares. (3) The holders of Series 14 Preferred Shares reinvested all of the proceeds of redemption of their shares into Series 17 Preferred Shares.

7 MTN Issues ($ millions)

Series Maturity Interest rate % Principal

Series M-2(1) June 15, 2009 6.15 250Series M-9(2) October 30, 2002 Floating 200Series M-10 January 18, 2008 6.25 700Series M-11(3) April 2, 2031 7.85 400Series M-12 December 15, 2011 6.90 250

Total 1,800

(1) $250 million of additional Series M-2 Debentures were issued on September 4, 2001. Series M-2 Debentures were initially issued on June 8, 1999 inthe amount of $450 million.

(2) Floating Rate Debentures, Series M-9 may be extended, at the holder’s option, for additional one-year terms on October 30 of each of 2002, 2003 and2004, up to a final maturity date of October 30, 2005.

(3) $200 million of additional Series M-11 Debentures were issued on October 30, 2001. Series M-11 Debentures were initially issued on April 2, 2001, inthe amount of $200 million.

Other f inancing act iv it ies

Bell Canada used the proceeds of $425 million received from thesale of Sympatico-Lycos, in January 2001, to repay a portion of8.22% equity-settled note (Junior Note 1) to BCH. Accordingly,the interest paid in 2001 on the equity-settled notes to BCH wasreduced compared with last year.

On June 12, 2001, Bell Canada filed, with all Canadianprovincial securities regulatory authorities, a prospectus supple-ment to a short form shelf prospectus dated June 11, 2001, inorder to offer up to $3 billion of MTN Debentures from time totime over a two-year period. The remaining unused portion ofthe shelf prospectus was $2.3 billion as at December 31, 2001.

As at December 31, 2001, outstanding third party commer-cial paper represented by Class A Notes totalled approximately$275 million. Class A Notes issuable under the Corporation’scommercial paper program are supported by committed lines ofcredit, extended by several banks, totalling approximately$1.0 billion. As well, as at December 31, 2001, Bell Canada hadapproximately $130 million of Class E Notes outstanding.Class E Notes are not supported by any committed lines of creditbut are instead extendable, at the Corporation’s option, incertain circumstances. The maximum principal amount ofClass E Notes that may be outstanding at any one time may notexceed $400 million.

On January 15, 2002, Bell Canada issued, pursuant to itsmedium-term debenture program, $500 million of 6.25% MTNDebentures, Series M-13, maturing on April 12, 2012. Further-more, on February 22, 2002, Bell Canada issued, pursuant to itsmedium-term debenture program, an additional $400 millionof 7.30% MTN debentures, Series M-14, maturing onFebruary 23, 2032. These two issuances have decreased to$1.4 billion the remaining unused portion of Bell Canada’s shelfprospectus. The proceeds from these offerings have been usedto fund general corporate operational activities.

Credit Ratings

10 Credit Ratings For 2001Moody’s(1) DBRS(2) S&P(3)

Unsecured Senior Debentures A-2 A (high) A+

Subordinated Debentures A-3 A (low) A

Commercial Paper P-1 R-1 (mid) A-1 (mid)Extendable

Commercial Notes – R-1 (mid) A-1 (mid)Preferred Shares – Pfd-2 (high) P-1 (low)

(1) Moody’s Investor service confirmed its ratings in December, 2001.(2) Dominion Bond Rating Service Limited (DBRS) confirmed its ratings in

August, 2001.(3) Standard & Poor’s (S&P) (a division of McGraw-Hill Companies Inc.)

confirmed its ratings in January, 2002.

Outlook – Liquidity and Capital Resources

During 2002 and beyond, Bell Canada’s cash requirements,including the financing of capital expenditures and invest-ments, are expected to be met by internally generated funds andby the issuance of debt or equity. In 2002, approximately$360 million of Bell Canada’s long-term debt will mature andBell Canada is contemplating, subject to prevailing economicconditions, the early redemption of $250 million of long-termdebt. An additional $500 million of long-term debt due in 2002is subject to an extension provision at the option of the holder.Furthermore, in 2002, Bell Canada intends to continue to issueMTN Debentures pursuant to its medium-term debentureprogram in order to repay its maturing debt and to financeinvestments and capital expenditures. In addition, Bell Canadaintends to continue to obtain financing through its commercialpaper program as well as explore various other financingoptions.

Despite anticipated revenue growth, capital expenditures for2002 are expected to be reduced to approximately $3.4 billion(as compared to the $4.1 billion in capital expenditures in 2001)due mainly to lower expenditures associated with the BellMobility Spectrum PCS licences. A significant portion of theexpenditures will be related to the growth initiatives such asIP/Broadband, increased digitalization of the wireless network,

national expansion, including, but not limited to WesternCanada, and continued deployment of high-speed access infra-structure. Capital spending is also expected to support, to alesser degree, convergent billing and productivity initiatives.The overall anticipated increase in capital expenditures forwireless services is expected to be mainly offset by reducedexpenditures for traditional wireline services.

Bell Canada’s financing and liquidity requirements for 2002have been determined on the basis of its proposals and its esti-mated impact of the CRTC’s price caps decision. However,should the actual decision rendered by the CRTC be signifi-cantly more adverse than currently anticipated by Bell Canada,it could have a material adverse impact on Bell Canada’sfinancing needs in 2002.

REGUL ATORY DECISIONS

The CRTC reviewed the current price caps regime in aproceeding which was completed in 2001. The CRTC’s decisionwhich is expected by the end of April 2002, will set the termsand conditions for the new price caps regime. The terms of theprice caps regime will govern the pricing flexibility for localexchange and wholesale services that the Corporation will havegoing forward. The Corporation believes that its proposalsprovide a proper balance between the interests of consumersand the interests of competitors by establishing the necessaryfoundation for the further evolution of local service competi-tion and the achievement of the ultimate goal of full facilities-based competition in all telecommunications markets.However, there is no assurance that the CRTC will accept theCorporation’s proposals and the Corporation cannot predict thefinal impact of the CRTC's decision on the Corporation.

On December 14, 2001, the CRTC issued Order 2001-876,which established the revenue-percent charge for the nationalsubsidy program, on an interim basis, at 1.4%. This reduction,while significant, was expected at the time Decision 2000-745was issued which set the charge at 4.5% for 2001.

On April 27, 2001, the CRTC issued Decision 2001-238,revising the unbundled local loop rates that CLECs pay for theuse of such loops. The loop prices paid to Bell Canada have been


reduced on average by 28%. This aspect of Decision 2001-238 isnot expected to have a material adverse effect on Bell Canada’sfinancial results. This decision also addresses the costs to be usedas the basis for establishing the subsidy requirement under thenational subsidy mechanism that was approved on November 30,2000 in Decision 2000-745, which introduced changes to thecontribution regime.

On March 30, 2001, the CRTC, in Order 2001-278, approvedmonthly price increases, ranging from approximately $0.25to $1.60 per residential customer per month, for local residentialservices. Local price increases were anticipated in Deci-sion 2000-745 and are designed to recover from local customersa portion of Bell Canada's national subsidy requirements forhigh cost serving areas.

On March 21, 2001, the CRTC issued Order 2001-253reversing Orders 2000-1148 and 1149 which denied Bell Canada'sapplications to increase the rates for various calling features.The rates originally proposed were approved effective March 21,2001. The annual revenue impact of these increased rates isapproximately $60 million.

On January 25, 2001, the CRTC issued Telecom Decision2001-23 regarding the terms and conditions of access by Cana-dian carriers to municipal property, as well as the entitlement ofmunicipalities to compensation for allowing Canadian carriersto occupy municipal rights-of-way. While the decision waslimited to Vancouver, it is of importance to all carriers requiringaccess to municipal rights-of-way. By limiting municipalities torecovery of incremental costs, the CRTC has significantlyreduced the potential charges applicable to Bell Canada andother carriers. The cities of Toronto, Ottawa, Halifax, Calgary,Vancouver and the Federation of Canadian Municipalities weregranted leave to appeal the CRTC Decision on May 14, 2001 andhave since filed their appeal with the Federal Court of Appeal.

FUTURE ACCOUNTING CHANGES

The Canadian Institute of Chartered Accountants (CICA)recently issued new Handbook Sections 1581, Business Combina-tions, and 3062, Goodwill and Other Intangible Assets. EffectiveJuly 1, 2001, the standards require that all business combina-tions be accounted for using the purchase method. Goodwill

resulting from business acquisitions on or after July 1, 2001, isnot being amortized. Additionally, effective January 1, 2002,goodwill and intangible assets with an indefinite life will nolonger be amortized to earnings and will be assessed for impair-ment on an annual basis in accordance with the new standards,including a transitional impairment test whereby any resultingimpairment will be charged to opening retained earnings. BellCanada is currently evaluating the impact of the adoption of thenew standards and has therefore not yet completed the assess-ment of the quantitative impact on its financial statements. BCEis also currently evaluating the impact of the adoption of thenew standards, and while it has not yet completed the assess-ment of the quantitative impact on its financial statements, ithas indicated that it is likely that the transitional impairmenttest will result in a significant impairment charge. In conjunc-tion with BCE’s evaluation, Bell Canada will review the carryingvalue of its goodwill and its investment in Teleglobe Inc.

In addition, the CICA recently issued amendments to Hand-book Section 1650, Foreign Currency Translation. EffectiveJanuary 1, 2002, the standards require that all unrealized trans-lation gains and losses on assets and liabilities denominated inforeign currencies be included in earnings for the year, includinggains and losses on long-term monetary assets and liabilities, such as long-term debt, which were previously deferred andamortized on a straight-line basis over the remaining lives of therelated items. These amendments will be applied retroactivelywith restatement of prior periods. At December 31, 2001,$128 million relating to unrealized foreign currency losses wasincluded in Deferred charges and other assets.

The CICA also recently issued new Handbook Section 3870,Stock-based compensation and other stock-based payments. ThisSection establishes standards for the recognition, measurementand disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services andapplies to transactions, including non-reciprocal transactions,in which an enterprise grants shares of common stock, stockoptions, or other equity instruments, or incurs liabilities basedon the price of common stock or other equity instruments. ThisSection sets out a fair value based method of accounting and isrequired for certain stock-based transactions, effective January 1,2002, and applied to awards granted on or after that date.Bell Canada does not expect the adoption of the new standardto have an impact on its financial statements.

FORWARD-LOOKING S TATEMENT S

Certain statements contained in this MD&A and in othersections of this Financial Information, and in particular thestatements contained in the various outlook sections of thisMD&A, constitute forward-looking statements. In addition,other written or oral statements which constitute forward-looking statements may be made from time to time by or onbehalf of one or more of the Corporation and its subsidiaries,and significantly influenced companies (the “Bell CanadaGroup companies”). These forward-looking statements relate tothe future financial condition, results of operations or businessof the Bell Canada Group companies. These statements may bebased on current expectations and estimates about the marketsin which the Bell Canada Group companies operate andmanagement’s beliefs and assumptions regarding these markets.In some cases forward-looking statements may be identified bywords such as “anticipate”, “could”, “expect”, “seek”, “may”,“intend”, “will”, and similar expressions. These statements aresubject to important risks and uncertainties which are difficultto predict and assumptions which may prove to be inaccurate.The results or events predicted in the forward-looking state-ments contained in this MD&A, in other sections of this Finan-cial Information, and in such other written or oral statementswhich may subsequently be made may differ materially fromactual results or events. Some of the factors which could causeresults or events to differ materially from current expectationsare discussed below under the heading “Risk Factors” and othercautionary factors are outlined elsewhere in this MD&A. TheCorporation disclaims any intention or obligation to update orrevise any forward-looking statements, whether as a result ofnew information, future events, or otherwise. In particular,forward-looking statements do not reflect the potential impactof any mergers, acquisitions, other business combinations ordivestitures that may be announced or completed after suchstatements are made.


Risk Factors

ECONOMIC AND MARKET CONDITIONS

The future operating results of the Bell Canada Group compa-nies may be affected by various trends and factors that must bemanaged in order to achieve favourable operating results. Inaddition, there are trends and factors beyond the control of theBell Canada Group companies that affect their operations. Suchtrends and factors include adverse changes in the conditions inthe specific markets for the Bell Canada Group companies’products and services, the conditions in the broader market forcommunications and the conditions in the domestic or globaleconomy generally. More specifically, the Bell Canada Groupcompanies’ financial performance is affected by the generaleconomic conditions as demand for services tends to declinewhen economic growth and retail and commercial activitydecline. Recently, the slowdown in global economic activity,including in Canada and the United States, has made the overallglobal and Canadian economic environment more uncertainand could, depending on the duration and extent of such slow-down and on the pace of an eventual economic recovery, havean important adverse impact on the demand for products andservices and on the financial performance of the Bell CanadaGroup companies. Such negative trends in global market andeconomic conditions could have an adverse effect onpurchasing patterns of subscribers and customers especially inthe case of products and services provided by the Bell CanadaGroup companies that are more subject to being affected byeconomic slowdowns. These negative trends could alsoadversely affect the financial condition and credit risk ofsubscribers and customers which would, in turn, increase uncer-tainties regarding the Bell Canada Group companies’ abilityto collect receivables. However, it is not possible for theBell Canada Group companies to accurately predict economicfluctuations and the impact of such fluctuations on theirperformance.

REGUL ATORY ENVIRONMENT

The Bell Canada Group companies are subject to evolving regu-latory policies in the form of decisions by various regulatoryagencies including the CRTC. Many of these decisions balancecompetitor requests for access to the incumbent local exchangecarriers’ (ILECs, such as Bell Canada and Aliant) essential facili-ties and other network infrastructure with the rights of theILECs to compete on a reasonably unencumbered basis. Also,Canadian Telecommunications Carriers and Broadcast Distri-bution Undertakings seeking physical access to customers’ facili-ties on reasonable terms have increasingly found themselves indisputes with property owners regarding access to privateproperty or with municipalities with respect to access to publicrights-of-way. As previously discussed under Regulatory Decisions,a CRTC decision regarding the conditions and price for accessto municipal rights-of-way is currently under appeal. At thispoint in time, it is impossible to assess the financial implicationsof any final judicial decision. In addition, and also as previouslydiscussed under Regulatory Decisions, the CRTC recentlycompleted its review of the price caps regime which has been inforce since January 1998 for the major incumbent telephonecompanies. The CRTC decision on the new price caps regime isexpected by the end of April 2002.

With the business of Bell Canada increasingly focusing oncontent, e-commerce and connectivity, assessment of regula-tory risks must increasingly take into account regulatory deci-sions in the areas of wireless spectrum auctions, programmingand carriage requirements under the Broadcasting Act, as well ascopyright, privacy and other content related issues particularlyover the Internet.

EXPENDITURES, C APITAL AND DEMAND FOR SERVICES

The financial condition and results of operations of the BellCanada Group companies could be materially affected by anumber of factors such as: the level of capital expendituresnecessary to expand operations, increase the number ofsubscribers, introduce new services, update or build networksand maintain or improve the quality of products and services;the availability and cost of capital required to fund such expen-ditures (especially in light of the current market conditions inthe telecommunications industry); and the extent of demand

for access lines, value-added services, basic long distanceservices, wireless services, Internet services and other new andemerging products and services in the markets served by theBell Canada Group companies as well as their ability to developa customer base with recurring service revenues. Demand levelsfor the Bell Canada Group companies’ products and services arealso affected by factors such as technology development andinnovation, socio-demographic trends, levels of business invest-ment and general macro-economic conditions.

The level of capital expenditures could materially increase asthe Bell Canada Group companies seek to expand the scope andscale of their businesses beyond traditional territories andservice offerings. To the extent that the Bell Canada Groupcompanies fail to make expenditures on new and existingcapital programs, they may cease to be competitive in themarkets in which they compete. However, if such capital expen-ditures are made, the Bell Canada Group companies may alsorisk incurring substantial expenditures to acquire assets withlittle commercial or economic value.

INCREASING COMPETITION

With the advent of competition in the local service market in1998, virtually all markets in which each of the Bell CanadaGroup companies carries on business are characterized byvigorous and intensifying competition, each company facingmany competitors with substantial financial, marketing,personnel and technological resources. In some cases, competi-tion does not only result from competitors within the samemarket segment, but also from other businesses and industries.

The significant size, growth and increasingly global scope ofthe telecommunications industry are attracting new entrantsand encouraging all participants to expand their service port-folios and addressable markets. Some industries in which theBell Canada Group companies compete are consolidating.


Mergers and acquisitions, as well as strategic alliances, partner-ships and joint ventures are creating new and larger partici-pants. Such transactions may result in stronger competitors withbroad skills and significant resources. Furthermore, newcompetitors of the Bell Canada Group companies may emergefrom time to time through the development of new technolo-gies, products and services, and other factors.

Factors such as product pricing and customer service areunder continued pressure, while the necessity to reduce costs,manage expenses and generate productivity savings is ongoing.Intensifying competition may impact the Bell Canada Groupcompanies’ ability to retain existing, and attract new customers,as well as affect revenues and network capacity. The Bell CanadaGroup companies must not only try to anticipate, but alsorespond promptly to continuous and rapid developments intheir businesses and markets.

The Bell Canada Group companies’ competitors includemajor telecommunications companies, cable companies,Internet companies, wireless service providers (WSPs), CLECsand a variety of other companies that offer network services,such as providers of business information systems and systemsintegrators, as well as an increasing number of other companiesthat deal with or have access to customers through variouscommunications networks.

Internet access services are especially competitive, with largecable television companies and a significant number of inde-pendent Internet service providers providing intense competition.Competitive pressure has led to Internet access pricing inCanada that is among the lowest in the world, and largely inde-pendent of usage patterns. Costs to Bell Canada, however, aredriven by the amount of network traffic a user generates and thelocation of the server that stores the web site the user visits. Suchcosts are largely beyond Bell Canada’s control and cannot beaccurately predicted.

The Canadian wireless telecommunications industry is alsohighly competitive. Bell Mobility competes directly with otherWSPs with aggressive product and service introductions, pricingand marketing. Bell Mobility expects competition to intensifythrough the development of new technologies, products andservices, and through consolidations in the Canadian telecom-munications industry.

Bell Mobility is a participant in Mobility Canada, owned bythe wireless affiliates or divisions of Canada’s major telephonecompanies. In May 1999, Mobility Canada announced a signifi-cant restructuring of its organization, creating two groups ofcarriers which can compete anywhere in Canada. The agree-ment, which was implemented in the first quarter of 2000, haschanged the wireless landscape in Canada by removing restric-tions that kept Mobility Canada members from competing ineach other’s territories. The groups are each able to offerCanada-wide wireless service, either by selling network servicesto each other or by competing directly. Although the arrange-ment permits Bell Mobility to expand its business territory, itwill also increase competition in the territory in which BellMobility currently operates. These factors could, in the future,have a material adverse effect on Bell Mobility’s results of oper-ations and financial condition.

Bell Mobility and certain of its competitors have successfullybid for additional spectrum licences in early 2001. Some of theawarded licences will enable Bell Mobility to rollout wirelessservices in British Columbia and Alberta. This rollout will resultin substantial capital expenditures for the construction of anetwork in these provinces. Furthermore, the expected level ofexpenditures associated with this network expansion couldincrease as Bell Mobility will seek to gain adequate networkcoverage and secure new customers. Some of Bell Mobility’scompetitors were awarded licences in Bell Mobility’s currentoperating regions thereby increasing the potential for competi-tion and market share losses in such areas. Although the newlicences awarded to Bell Mobility provide it with the possibilityto launch new technologies, services and applications and togeographically expand its operations, there can be no assurancethat such additional licences will result in the successful deploy-ment of such new technologies, services and applications, asuccessful geographical expansion and, in general, in animprovement in Bell Mobility’s financial condition and resultsof operations.

TECHNOLOGY

The business markets in which the Bell Canada Group compa-nies operate are characterized by rapid technological changes,evolving industry standards, changing client needs, frequent

new product and service introductions and short product lifecycles. The future success of each of the Bell Canada Groupcompanies will depend in significant part on its ability to antici-pate industry standards, successfully introduce new technolo-gies, initiatives, products and services and upgrade currentproducts and services, and to comply with emerging industrystandards. Furthermore, as the Bell Canada Group companiesseek to deploy new products, services and technologies andupdate their networks to remain competitive, they may beexposed to incremental financial risks associated with newertechnologies that are subject to accelerated obsolescence, ormay be required to inject more capital than anticipated. Theproposed deployment of new technologies and initiatives mayalso be delayed due to factors beyond the Bell Canada Groupcompanies’ control. In addition, new technological innovationsgenerally require a substantial financial investment before anyassurance is available as to their commercial viability. There canbe no assurance that the Bell Canada Group companies will besuccessful in developing and marketing new products andservices or enhancements that will respond to technologicalchange and achieve market acceptance. Furthermore, the intro-duction of new products or services employing new technolo-gies could render existing products or services unmarketable.

UNCER TAINTIES REL ATED TO THE INTERNET

An increasingly important driver for network and infrastructureinvestments is the growth of Internet traffic. This traffic is drivenby residential and business Internet usage and has overtaken thevolume of voice telephony traffic on many routes. It is uncer-tain to what extent this traffic will continue to exhibit highgrowth rates as high-speed access services are deployed andbandwidth intensive applications, such as video, are increas-ingly adopted by users. Significant upgrades to network capacitywill be required to sustain service levels if Internet growth ratesremain as high as they are today. Alternatively, the Bell CanadaGroup companies’ financial condition and results of operationscould be materially adversely affected should future levels ofInternet traffic be lower than currently anticipated.

In addition, new or modified laws or regulations governingthe Internet could decrease the demand for the Bell CanadaGroup companies’ Internet services and increase the costs ofselling such services.


DEFECT S IN SOFT WARE PRODUCT S AND

NET WORK FAILURES

Defects in software products owned or licenced by the BellCanada Group companies, as well as failures or mistakes in theprovision of services, could materially harm the business of anyof the Bell Canada Group companies, including customer rela-tionships and operating results. The operations of the BellCanada Group companies are dependent upon their ability toprotect their networks and equipment and the informationstored in their data centres against damages that may be causedby fire, natural disaster, power loss, unauthorized intrusion,computer viruses, disabling devices, acts of war or terrorism andother similar events. There can be no assurance that such eventswould not result in a prolonged outage of the operations of anyof the Bell Canada Group companies.

WIRELESS REGUL ATION

The operation of cellular, PCS and other radio-telecommunica-tions systems in Canada is subject to initial licensing require-ments and the oversight of Industry Canada. Operating licencesare issued at the discretion of the Minister of Industry pursuantto the Radiocommunication Act. Bell Mobility’s current cellularand PCS licences will expire on March 31, 2006. The recentlyawarded PCS spectrum auction licences will expire onNovember 29, 2011. Industry Canada has the authority at anytime to modify the licence conditions applicable to the provi-sion of such services in Canada to the extent necessary to ensurethe efficient and orderly development of radiocommunicationfacilities and services in Canada. Industry Canada can revoke alicence at any time for failure to comply with its terms. IndustryCanada has indicated that, with respect to licences other thanthose awarded through the spectrum auction process, it intendsto engage in a public consultation process on appropriatelicence term conditions and fees within the coming year. It isanticipated that Industry Canada will, at the end of this consul-tation period, give effect to its conclusions by making suitableamendments to existing licence conditions.

USE OF HANDSET S IN VEHICLES

Media reports have suggested that the use of hand held cellularunits by drivers in vehicles may, in certain circumstances, resultin an increased rate of accidents on the road. It is possible thatnew legislation or regulations may be adopted in order toaddress these concerns. Any such legislation or regulationscould adversely affect WSPs through reduced network usage bysubscribers in motor vehicles.

RADIO FREQUENCY EMISSION CONCERNS

Media reports have suggested that certain radio frequency emis-sions from cellular telephones may be linked to certain medicalconditions such as cancer. In addition, certain interest groupshave requested investigations into claims that digital transmis-sions from handsets used in connection with digital wirelesstechnologies pose health concerns and cause interference withhearing aids and other medical devices. There can be noassurance that the findings of such studies will not have a mate-rial adverse effect on the business of WSPs or will not lead toincreased governmental regulation. The actual or perceivedhealth risks of wireless communications devices could adverselyaffect WSPs through reduced subscriber growth, reducednetwork usage per subscriber, threat of product liability lawsuitsor reduced availability of external financing to the wirelesscommunications industry.

OTHER GENERAL FACTORS

The success of the Bell Canada Group companies is largelydependent upon their ability to attract and retain highly skilledpersonnel and the loss of the services of key persons could mate-rially harm their businesses and operating results.

In addition, changes in laws or regulations, or the adoptionof new laws or regulations, including with regards to non-regu-lated markets, could also have a material adverse effect on theBell Canada Group companies’ businesses, operating results andfinancial condition.

Finally, all Bell Canada Group companies are subject to therisks related to pending or future litigation or regulatory initia-tives or proceedings.


M A N A G E M E N T ’ S R E P O R T A U D I T O R S ’ R E P O R T


The accompanying consolidated financial statements of Bell Canada (the Corporation), and allinformation in this document are the responsibility of management and have been approved bythe Board of Directors.

The consolidated financial statements have been prepared by management in conformity withCanadian generally accepted accounting principles. The consolidated financial statementsinclude some amounts that are based on best estimates and judgements of management and intheir opinion present fairly Bell Canada’s financial position, results of operations and cash flows.Financial information presented elsewhere in this document is consistent with that in the consoli-dated financial statements.

Management of Bell Canada, in furtherance of the integrity and objectivity of the consolidatedfinancial statements, has developed and maintains a system of internal controls and supports anextensive program of internal audits. Management believes the internal controls provide reason-able assurance that financial records are reliable and form a proper basis for the preparation ofconsolidated financial statements and that Bell Canada’s assets are properly accounted for andsafeguarded. The internal control process includes management’s communication to employeesof policies which govern ethical business conduct.

The Board of Directors carries out its responsibility for the consolidated financial statements inthis document principally through its Audit Committee. The Audit Committee reviews theCorporation’s annual consolidated financial statements and other information in this document,and recommends their approval by the Board of Directors. The internal and the shareholders’auditors have free and independent access to the Audit Committee. The Audit Committee meetsperiodically with management and with internal and external auditors to discuss the results ofaudit examinations with respect to the adequacy of internal controls and to review and discussthe consolidated financial statements.

These consolidated financial statements have been audited by the shareholders’ auditors, Deloitte& Touche LLP, Chartered Accountants.

(signed) (signed) (signed)Jean C. Monty Jonathan P. Klug Heather A. GomesChairman and Chief Financial Officer Vice-President andChief Executive Officer Corporate Controller

February 27, 2002

To the Shareholders of Bell Canada

We have audited the consolidated balance sheets of Bell Canada as at December 31, 2001 and 2000and the consolidated statements of operations, retained earnings and cash flows for the years thenended as they appear on pages 14 to 30. These consolidated financial statements are theresponsibility of the Corporation’s management. Our responsibility is to express an opinion onthese consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards.These standards require that we plan and perform an audit to obtain reasonable assurance whetherthe consolidated financial statements are free of material misstatement. An audit includes exam-ining, on a test basis, evidence supporting the amounts and disclosures in the financial state-ments. An audit also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, thefinancial position of the Corporation as at December 31, 2001 and 2000 and the results of its oper-ations and its cash flows for the years then ended in accordance with Canadian generally acceptedaccounting principles.

(signed)DELOITTE & TOUCHE LLPChartered Accountants

Montréal (Québec)February 27, 2002


C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S – B E L L C A N A D A

CONSOLIDATED S TATEMENTS OF RETAINED EARNINGS Notes ($ millions)

For the years ended December 31 2001 2000

Balance at beginning of year, as previously reported 454 683Adjustment for changes in accounting policies (1) – (485)Balance at beginning of year, as restated 454 198

Net earnings 1,550 1,4532,004 1,651

DividendsPreferred shares (55) (40)Common shares (1,157) (1,085)

(1,212) (1,125)Interest on equity-settled notes (80) (99)Other (3) 27

(1,295) (1,197)Balance at end of year 709 454

The accompanying notes are an integral part of these financial statements.

CONSOLIDATED S TATEMENTS OF OPERATIONS Notes ($ millions)


Operating revenuesLocal and access 5,731 5,450Long distance 2,328 2,474Wireless 1,589 1,299Data 3,215 2,531Terminal sales, directory advertising and other 1,402 1,476

Total operating revenues 14,265 13,230Operating expenses

Operating expenses 8,188 7,455Net benefit plans credit (18) (138) (117)Depreciation and amortization 2,391 2,346Restructuring and other charges (3) 864 –

Total operating expenses 11,305 9,684Operating income 2,960 3,546Interest expense – long-term debt (725) (633)

– other debt (73) (114)Equity in net earnings (losses) of significantly influenced companies 24 (48)Other income (4) 346 3Earnings from continuing operations before income taxes and non-controlling interest 2,532 2,754Income taxes (5) (898) (1,199)Non-controlling interest (14) (3)Earnings from continuing operations 1,620 1,552Discontinued operations (6) – (99)Earnings before extraordinary item 1,620 1,453Extraordinary item, net of tax (7) (70) –Net earnings 1,550 1,453Dividends on preferred shares (55) (40)Interest on equity-settled notes (80) (99)Net earnings applicable to common shares 1,415 1,314



CONSOLIDATED BAL ANCE SHEETS Notes ($ millions)

At December 31 2001 2000

ASSETSCurrent assets

Accounts receivable 2,150 2,108Other current assets 590 645

Total current assets 2,740 2,753

Investments in significantly influenced companies (8) 1,182 1,016Investments at cost (9) 1,462 1,462Capital assets (10) 15,585 14,035Future income tax asset (5) 191 128Deferred charges and other assets (11) 2,221 2,123Goodwill 1,279 1,309

Total assets 24,660 22,826

LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities

Bank indebtedness 228 206Accounts payable and accrued liabilities 2,773 2,622Debt due within one year (11) 1,669 1,420

Total current liabilities 4,670 4,248Long-term debt (12) 9,041 8,039Future income tax liability (5) 106 151Other long-term liabilities 1,775 1,580

Total liabilities 15,592 14,018

Non-controlling interest 145 85

Shareholders' equityPreferred shares (14) 1,100 735Equity-settled notes (15) 2,068 2,493Common shares (16) 4,673 4,673Contributed surplus 367 367Retained earnings 709 454Currency translation adjustment 6 1

Total shareholders' equity 8,923 8,723

Commitments and contingent liabilities (20)Total liabilities and shareholders' equity 24,660 22,826


On behalf of the Board of Directors:

(signed) J. Edward Newall (signed) James W. CallawayDirector Director



CONSOLIDATED S TATEMENTS OF C ASH FLOWS ($ millions)


Cash flows from operating activitiesNet earnings 1,550 1,453Adjustments to reconcile net earnings to cash flows from operating activities:

Discontinued operations – 99Extraordinary item, net of tax 70 –Depreciation and amortization 2,391 2,346Restructuring and other charges 804 –Net gains on disposal of investments (406) –Future income taxes (108) 49Other items (282) (172)Change in non-cash working capital components 3 (675)

4,022 3,100

Cash flows from investing activitiesCapital expenditures (4,099) (2,852)Investments (230) (128)Proceeds from sale of investments 510 30Other items (36) (1)

(3,855) (2,951)

Cash flows from financing activitiesDividends paid on common and preferred shares (1,212) (1,125)Interest on equity-settled notes (80) (99)Increase (decrease) in notes payable and bank advances (30) 185Issue of long-term debt 1,864 1,793Repayment of long-term debt (754) (1,466)Redemption of retractable preferred shares – (110)Issue of preferred shares 695 399Redemption of preferred shares (335) (295)Repayment of equity-settled note (425) –Capital contribution – 160Other items 88 12

(189) (546)

Net decrease in cash and cash equivalents (22) (397)Cash and cash equivalents (bank indebtedness) at beginning of year (206) 191

Bank indebtedness at end of year (228) (206)


N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S (All tabular amounts are in millions of dollars, except where otherwise noted)


1. S IGNIFIC ANT ACCOUNTING POLICIES

Description of business

Bell Canada provides connectivity to residential and business customers through wired and wire-less voice and data communications, high-speed and wireless Internet access, IP/Broadbandservices, e-business solutions, as well as local and long distance phone and directory services. BellCanada is a wholly-owned subsidiary of Bell Canada Holdings Inc. (BCH). BCE Inc. (BCE) owns80% of BCH and the remaining 20% is owned by SBC Communications Inc.

Basis of presentation

The consolidated financial statements have been prepared in accordance with Canadian generallyaccepted accounting principles (GAAP) and all amounts are in Canadian dollars unless otherwiseindicated. Certain comparative figures in the consolidated financial statements have been reclas-sified to conform with the current year presentation.

With respect to the consolidated financial statements of Bell Canada (the Corporation) andits subsidiaries (collectively Bell Canada), the significant differences between earnings reportedunder Canadian and United States GAAP are described and reconciled in Note 21.

New accounting standards

On January 1, 2000, Bell Canada adopted the recommendations of the Canadian Institute ofChartered Accountants (CICA) Handbook Section 3465, Income Taxes, which replaces the deferralmethod with the liability method of tax allocation. Bell Canada applied the new recommenda-tions retroactively. The cumulative effect of adopting the new recommendations as at January 1,2000, was to increase Investments in significantly influenced companies by $26 million, increaseDeferred charges and other assets by $5 million, increase Future income tax liability by $15 millionand increase Retained earnings by $16 million.

On January 1, 2000, Bell Canada adopted the recommendations of the CICA HandbookSection 3461, Employee Future Benefits, which changes the accounting for pension and other typesof employee future benefits. Previously, the costs of postemployment and postretirement bene-fits other than pensions were charged to earnings in the period in which they were paid. The newHandbook section requires companies to accrue the costs over the working lives of employees ina manner similar to pension costs. Bell Canada applied the new recommendations retroactively,by reflecting recognized and unrecognized amounts for all its benefit plans, consistent withUnited States GAAP. The cumulative effect of adopting the new recommendations as at January 1,2000, was to decrease Deferred charges and other assets by $59 million, decrease Investments insignificantly influenced companies by $28 million, decrease Future income tax liability by$343 million, increase Other long-term liabilities by $757 million and decrease Retained earningsby $501 million.

Consolidation

The consolidated financial statements include the accounts and results of the Corporation and itssubsidiaries. All significant inter-company transactions and balances have been eliminated uponconsolidation. The principal entities that are controlled and consolidated by the Corporation are:

• Bell Mobility Inc. (Bell Mobility);• BCE Nexxia Inc. (carrying on business in Canada under the name Bell Nexxia);

• Bell ActiMedia Inc. (Bell ActiMedia);• Bell Distribution Inc. (BDI);• Certen Inc. (Certen);• Northern Telephone Limited (Northern Telephone);• Northwestel Inc. (Northwestel);• Télébec ltée (Télébec); and• Expertech Network Installations Inc.

The following investments are the principal entities in which the Corporation does not havecontrol, but has the ability to exercise significant influence over operating, investing and financialpolicies, and are accounted for under the equity method:

• Aliant Inc. (Aliant);• Manitoba Telecom Services Inc. (MTS);• Bell Intrigna Inc. (Bell Intrigna);• Entourage Inc. (Entourage);• Nexxia Inc. (Nexxia U.S.); and• Fibreco Inc. (Fibreco U.S.).

Investments in other companies in which the Corporation does not have the ability to exercisesignificant influence over operating, investing and financing policies, are accounted for using thecost method.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires manage-ment to make estimates and assumptions that affect the reported amounts of assets and liabili-ties and disclosure of contingent assets and liabilities at the date of the consolidated financialstatements and the reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.

Revenue recognition

• Local and access revenues are principally comprised of business and residential customerconnections to Bell Canada’s network, the provision of local area and SmartTouch services tothese customers, payments from competitive telecommunication carriers accessing BellCanada’s network, consumer terminal sales and operator and directory assistance charges.These revenues are earned as the services are rendered to the customer, except for consumerterminal sales, where revenue is recognized upon delivery and customer acceptance.

• Long distance revenues include long distance voice revenues and long distance settlementpayments from other national and international telecommunication carriers accessingBell Canada’s network in the servicing of their long distance voice customers. These revenuesare recognized as the service is rendered.

• Wireless revenues are primarily derived from the provision of cellular, PCS, paging and wire-less data communication services as well as airline passenger communications and wirelessconsulting services. These revenues are earned as the services are rendered to the customer orover the term of the related service contracts.


• Data revenues include digital transmission services, network access for Integrated ServicesDigital Network and Data, as well as competitive network services, national and regionalIP/Broadband data and Internet services. These revenues are earned as services are providedin accordance with terms and conditions agreed to between Bell Canada and the customer.Data revenues also include the sale of inter-networking equipment, where revenue is recog-nized upon product delivery and customer acceptance.

• Terminal sales, directory advertising and other revenues are primarily derived from the rental,sale and maintenance of business terminal equipment and from directory advertising, as wellas network management services. These revenues are recognized in accordance with the termsand conditions agreed to between Bell Canada and the customer, or over the term of thecontract, or upon product delivery and customer acceptance.

• Payments received in advance are deferred until services are rendered or upon product deliveryand customer acceptance.

Leases

Where Bell Canada is the lessor, rental revenue from operating leases is recognized as service isrendered to customers. For leases, which qualify as sales-type leases, the sales revenue is recog-nized at the inception of the lease. Where Bell Canada is the lessee, assets recorded under capitalleases are amortized on a straight-line basis using rates based on the estimated useful life of theasset or based on the lease term, as appropriate. Obligations recorded under capital leases arereduced by rental payments net of imputed interest. In addition, two lease obligations arepresented net of loans receivable (Note 12).

Translation of foreign currencies

Monetary assets and liabilities are translated at the rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are trans-lated at average rates prevailing during the year. Translation exchange gains and losses are reflectedin net earnings for the year except for unrealized translation exchange gains and losses on long-term monetary assets and liabilities, such as long-term debt, which are reported as deferredcharges or other long-term liabilities and amortized to earnings on a straight-line basis over theremaining lives of the related items.

Cash and cash equivalents

For purposes of the statement of cash flows, all highly liquid investments with short-term matu-rities are classified as cash and cash equivalents.

Sale of accounts receivable

Effective July 1, 2001, Bell Canada adopted the new CICA Accounting Guideline 12, Transfers ofReceivables, (AcG 12) which addresses the accounting requirements for the transfer and servicingof receivables. In accordance with the provisions of AcG 12, Bell Canada continued to accountfor its Receivables Purchase and Sale Agreement dated October 14, 1997, under the previousaccounting guidance. On December 12, 2001, this agreement was terminated and replaced by a

new agreement dated December 12, 2001, where upon Bell Canada sold a co-ownership interestin a pool of present and future eligible accounts receivable to a securitization trust that issuedsecurities to investors. The accounts receivable included in the pool are accounted for as a sale ofaccounts receivable as Bell Canada surrenders control over the transferred accounts receivableand receives the related proceeds from the trust, other than Bell Canada’s beneficial interest inthe sold accounts receivable. Losses or gains on these transactions are recognized as other expensesor income. Bell Canada determines fair value based on the present value of future expected cashflows using management’s best estimates of key assumptions such as discount rates, weightedaverage life of accounts receivable and credit loss ratios. The accounts receivable are transferredon a fully-serviced basis. As a result, Bell Canada recognizes a servicing liability on the date of thetransfer of accounts receivable to the trust and amortizes this liability to income over the expectedlife of the transferred accounts receivable.

Capital assets

Capital assets are carried at cost less accumulated depreciation, where applicable. Depreciationand amortization of capital assets are generally computed using the straight-line method, withrates based on the estimated useful lives of the assets. In 2001, the composite depreciation rates forplant was approximately 5.5% (6.0% in 2000). The expected useful lives of machinery and equip-ment are 2 to 20 years and buildings are 10 to 40 years. Capital assets under construction are notdepreciated until put into service. Land is not depreciated. When depreciable capital assets areretired, the carrying value of such assets is charged to accumulated depreciation. Intangible assets(including licences) with a definite life are amortized over their expected useful lives.

Wireless subscriber acquisition costs

Wireless subscriber acquisition costs are deferred and amortized over the terms of the contracts,which normally do not exceed twenty-four months.

Goodwill

Goodwill represents the excess, at the dates of acquisition, of the cost of investments over the fairvalue of the net identifiable assets acquired and is amortized on a straight-line basis, over its esti-mated useful life, up to a period of 40 years. The carrying value of goodwill is re-evaluated forpotential permanent impairment on an ongoing basis. In order to determine whether permanentimpairment exists, Bell Canada’s management considers the Corporation and its subsidiaries’financial condition, as well as expected pre-tax earnings, undiscounted cash flows or market-related values. Any permanent impairment in the value of goodwill is written off against earn-ings in the year the impairment is recognized. Total goodwill amortization charged to operations,including that in equity in net earnings (losses) of significantly influenced companies, amountedto $62 million in 2001 ($95 million in 2000).

Income taxes

Bell Canada uses the liability method of accounting for income taxes. Future income taxes areprovided for temporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for tax purposes, computed based on ratesand provisions of enacted and substantially enacted tax law.

1. S IGNIFIC ANT ACCOUNTING POLICIES (cont inued)


Employee benefit plans

The Corporation and most of its significant subsidiary companies maintain non-contributorydefined benefit plans that provide for pensions for substantially all their employees based onlength of service and rate of pay, as well as other retirement benefits such as certain health care andlife insurance benefits on retirement and various disability plans, workers’ compensation andmedical benefits to former or inactive employees, their beneficiaries and covered dependants,after employment but before retirement, under specified circumstances.

Bell Canada accrues its obligations under employee benefit plans and the related costs, net ofplan assets. Pension costs and other retirement benefits earned by employees are actuarially deter-mined using the projected benefit method pro-rated on service and based on management’s bestestimate of expected plan investment performance, salary escalation, retirement ages of employeesand expected health care costs. The fair value of employee benefit plan assets are valued at marketrelated values. The plan assets are also valued at market related values for the purpose of calcu-lating the expected return on plan assets. Past service costs arising from plan amendments areamortized on a straight-line basis over the average remaining service period of the employeesactive at the date of amendment. The excess of the net actuarial gain (loss) over 10% of the greaterof the benefit obligation and the market related value of plan assets is amortized over the averageremaining service period of active employees. When the restructuring of a benefit plan is signifi-cant and gives rise to both a curtailment and a settlement of obligations, the curtailment isaccounted for prior to the settlement. A valuation is performed at least every three years to deter-mine the actuarial present value of the accrued pension and other retirement benefits.

Derivative financial instruments and hedging activities

Bell Canada uses a combination of derivative financial instruments to manage its interest andforeign exchange risk exposures. In addition, Bell Canada uses a combination of derivative andnon-derivative instruments to manage its Special Compensation Payments (SCPs) exposure (Notes13 and 17). Bell Canada does not trade derivative financial instruments for speculative purposes.

Gains and losses on forward contracts and cross currency swaps used to manage exposure toforeign exchange rates and forward contracts used to manage SCP exposure are recognized on thesame basis as the gains and losses on the hedged item. Amounts receivable or payable underinterest rate swaps are accrued and recorded as adjustments to interest expense. Gains and lossesrelated to hedges of anticipated transactions are recognized in earnings or recorded as adjustmentsof carrying values when the hedged transaction occurs. Any premiums paid with respect to finan-cial instrument contracts are deferred and expensed to earnings over the contract period.

Stock-based compensation plans

Bell Canada’s stock-based compensation plans consist primarily of the Employees’ Savings Plan(ESP) and the BCE Long-Term Incentive (Stock Option) Programs, which, prior to 2000, may alsohave included SCPs which are fully described in Note 17. A compensation expense is recognizedfor Bell Canada’s portion of the contributions made under the ESP. The amount of the SCPs isaccrued over the vesting period. No compensation expense is recognized for these plans whenshares or stock options of BCE are issued to employees.

Future accounting changes

The CICA recently issued new Handbook Sections 1581, Business Combinations, and 3062, Good-will and Other Intangible Assets. Effective July 1, 2001, the standards require that all business combi-nations be accounted for using the purchase method. Goodwill resulting from businessacquisitions on or after July 1, 2001, is not being amortized. Additionally, effective January 1, 2002,goodwill and intangible assets with an indefinite life will no longer be amortized to earnings andwill be assessed for impairment on an annual basis in accordance with the new standards,including a transitional impairment test whereby any resulting impairment will be charged toopening retained earnings. Bell Canada is currently evaluating the impact of the adoption of thenew standards and has therefore not yet completed the assessment of the quantitative impact onits financial statements. BCE is also currently evaluating the impact of the adoption of the newstandards, and while it has not yet completed the assessment of the quantitative impact on itsfinancial statements, it has indicated that it is likely that the transitional impairment test willresult in a significant impairment charge. In conjunction with BCE’s evaluation, Bell Canada willreview the carrying value of its goodwill and its investment in Teleglobe Inc.

In addition, the CICA recently issued amendments to Handbook Section 1650, Foreign CurrencyTranslation. Effective January 1, 2002, the standards require that all unrealized translation gainsand losses on assets and liabilities denominated in foreign currencies be included in earnings forthe year, including gains and losses on long-term monetary assets and liabilities, such as long-term debt, which were previously deferred and amortized on a straight-line basisover the remaining lives of the related items. These amendments will be applied retroactively withrestatement of prior periods. At December 31, 2001, $128 million relating to unrealized foreigncurrency losses was included in Deferred charges and other assets.

The CICA also recently issued new Handbook Section 3870, Stock-based compensation and otherstock-based payments. This Section establishes standards for the recognition, measurement anddisclosure of stock-based compensation and other stock-based payments made in exchange forgoods and services and applies to transactions, including non-reciprocal transactions, in which anenterprise grants shares of common stock, stock options, or other equity instruments, or incursliabilities based on the price of common stock or other equity instruments. This Section sets outa fair value based method of accounting and is required for certain stock-based transactions, effec-tive January 1, 2002, and applied to awards granted on or after that date. Bell Canada does notexpect the adoption of the new standard to have an impact on its financial statements.

2. SEGMENTED INFORMATION

Bell Canada manages its operations under one segment, which is driven by its products andservices, in order to provide its customers with integrated communication services. This repre-sents the manner in which Bell Canada is organized and managed for assessing performance andmaking resource allocation decisions. Bell Canada’s operations, including substantially allrevenues from customers, capital assets and goodwill are concentrated in Canada.

1. S IGNIFIC ANT ACCOUNTING POLICIES (cont inued)


3. RES TRUCTURING AND OTHER CHARGES


First quarter of 2001 (a) 239 –Fourth quarter of 2001 (b) 625 –

Total restructuring and other charges 864 –

(a) During the first quarter of 2001, Bell Canada recorded a pre-tax charge of $239 million($143 million after tax) representing restructuring and other charges of $210 million and$29 million, respectively. The restructuring charge is related to employee severance, includingenhanced pension benefits and other directly related employee costs, for approximately1,900 employees, which resulted primarily from a decision to streamline support functions.The restructuring program was substantially completed by December, 2001. As at December 31,2001, the remaining unpaid balance of this restructuring provision relating to employee sever-ance and other directly related employee costs was $33 million. Other charges related mainlyto the write-off of certain assets.

(b) During the fourth quarter of 2001, Bell Canada recorded a pre-tax charge of $625 million($399 million after tax) representing restructuring and other charges of $260 million and$365 million, respectively. The restructuring charge is related to employee severance, includingenhanced pension benefits and other directly related employee costs, for approximately2,000 employees, which resulted primarily from a decision to streamline certain management,clerical, line and other support functions. The restructuring program is expected to be substan-tially completed in 2002. As at December 31, 2001, the remaining unpaid balance of thisrestructuring provision relating to employee severance and other directly related employeecosts was $98 million. Other charges consisted primarily of the write-off of wireless (Bell Mobility)capital assets relating mainly to the analog and paging networks and PCS base stations.

As at December 31, 2001, the remaining unpaid balance of pre-2000 restructuring provi-sions was $22 million ($47 million in 2000).

4. OTHER INCOME


Gain on disposal of investmentSympatico-Lycos Inc. (Sympatico-Lycos) (a) 373 –Telecom Directories Limited (TDL) (b) 37 –

Other income (expense) (64) 3

Total other income 346 3

(a) On January 9, 2001, Bell Canada sold, through its subsidiary Bell ActiMedia, its 71% interest inSympatico-Lycos to BCE for total proceeds, at fair market value, of $425 million which resultedin a gain of $373 million. The proceeds from this transaction were distributed to Bell Canadaand used to repay a portion of the equity-settled notes due to BCH (Note 15).

(b) On March 31, 2001, Bell Canada sold, through Bell ActiMedia, its 100% interest in TDL of HongKong, China, for total proceeds of $63 million which resulted in a gain of $37 million.

5. INCOME TAXES

A reconciliation of income taxes at Canadian statutory rates applicable to Bell Canada with thereported income taxes follows:


Earnings from continuing operations before income taxesand non-controlling interest 2,532 2,754

Statutory income tax rates in Canada applicable to Bell Canada 40.1% 41.9%Income taxes at Canadian statutory rates 1,015 1,154

Gain on disposal of investments (164) –Gain on reduction of ownership in a significantly

influenced company (4) (27)Equity in net earnings (losses)

of significantly influenced companies (9) (37)Large corporations tax 21 10Reduction in Canadian statutory rate – 32Goodwill amortization 17 14Other 22 53

Total income taxes expense 898 1,199

Effective tax rate – Bell Canada 35.5% 43.5%

Significant components of the provision for income tax expense attributable to continuing opera-tions were as follows:

2001 2000

Current income tax expense 966 1,104Future income taxes (benefits) expenses

Change in temporary differences (94) 169Recognition of loss carryforwards (5) (118)Tax rate changes 10 44Other 21 –

Total income tax expense 898 1,199

The tax effects of temporary differences which gave rise to future income tax assets and liabilitieswere as follows:


Employee benefit plans (277) (355)Net capital loss carryforwards 16 32Capital assets 61 (13)Investments 60 93Investment tax credits (63) (34)Non-capital loss carryforwards 199 176Other 89 78

Total future income taxes 85 (23)

Future income taxes are comprised of:Future income tax asset 191 128Future income tax liability (106) (151)

Total future income taxes 85 (23)


As of December 31, 2001, Bell Canada has non-capital tax loss carryforwards amounting toapproximately $486 million ($415 million in 2000), mainly expiring at various dates to the end of2008. In addition, Bell Canada has net capital loss carryforwards amounting to approximately$94 million ($68 million in 2000) that can be carried forward indefinitely. For financial reportingpurposes, the tax benefit of these loss carryforwards has been recognized as a future tax asset of$215 million ($208 million in 2000).

6. DISCONTINUED OPERATIONS

In the third quarter of 2000, Teleglobe Inc. classified its investment in ORBCOMM Global L.P.(ORBCOMM), a provider of a digital satellite telecommunications system, as a discontinued opera-tion. On September 15, 2000, ORBCOMM voluntarily filed a petition for protection underChapter 11 of the U.S. Bankruptcy Act. Consequently, Bell Canada’s results reflect a $75 millionafter-tax write-down (pre-tax write-down of $104 million) relating to its proportionate interest inORBCOMM as a discontinued operation. Bell Canada’s proportionate interest in ORBCOMM’safter-tax losses of $24 million (pre-tax losses of $33 million) has been reclassified from Equity innet earnings (losses) of significantly influenced companies to Discontinued operations.

7. EXTRAORDIN ARY ITEM

Télébec determined that, as at December 31, 2001, it no longer met the criteria necessary for thecontinued application of regulatory accounting provisions of GAAP. As a result, Télébec recordedan extraordinary non-cash pre-tax charge of $102 million ($70 million after tax). The operationsof Télébec no longer met the criteria for application of regulatory accounting provisions due tosignificant changes in regulation, including the implementation of price cap regulation whichreplaced rate-of-return regulation effective January 1, 2002, and the concurrent introduction ofcompetition in Télébec’s local exchange market. Accordingly, Télébec adjusted the carrying valuesof assets and liabilities as at December 31, 2001 to reflect values appropriate under GAAP for enter-prises no longer subject to rate-of-return regulation.

8. INVES TMENT S IN S IGNIFIC ANTLY INFLUENCED COMPANIES

Ownership Ownership(%) (%)

At December 31 2001 2000 2001 2000

Aliant (a) 39.1 39.1 570 526MTS 21.7 21.7 345 351Bell Intrigna 33.3 33.3 101 58Nexxia U.S. 49.0 49.0 112 40Fibreco U.S. 49.0 49.0 51 38Entourage 25.0 25.0 2 2Other – – 1 1

Total investments in significantly influenced companies (b) 1,182 1,016

(a) At December 31, 2001, BCE holds a 14% (14% in 2000) ownership interest in Aliant. Certainput and call options are in place which, if exercised, will transfer BCE’s ownership interest inAliant to Bell Canada on agreed upon terms.

(b) The goodwill implicit in significantly influenced companies amounted to $178 million atDecember 31, 2001 ($203 million in 2000).

9. INVES TMENT S AT COS T


Teleglobe Inc. (a) 1,354 1,354Nortel Networks Corporation (b) 60 60Other 48 48

Total investments at cost 1,462 1,462

(a) Effective November 2000, due to BCE’s acquisition of all the common shares that Bell Canadadid not already own of Teleglobe Inc., it was determined that Bell Canada no longer exercisedsignificant influence over Teleglobe Inc. Accordingly, Bell Canada accounts for its investmentin Teleglobe Inc. at cost.

(b) In the second quarter of 2000, Bell Canada acquired from BCH approximately 5 millioncommon shares of Nortel Networks Corporation (Nortel Networks), in exchange for commonshares of Bell Canada. BCH acquired the Nortel Networks common shares from BCE. Thistransaction was recorded based on BCE’s historical carrying value of its investment in NortelNetworks. As a result, Bell Canada recorded a $60 million increase in its Investments at cost, a$15 million increase in Common shares and a $45 million related party adjustment increase toRetained earnings.

5. INCOME TAXES (cont inued)


10. C APITAL ASSET S


Net NetAccum. book Accum. book

Cost Dep’n. value Cost Dep’n. value

Plant 27,984 17,835 10,149 25,600 16,494 9,106Machinery and

equipment 4,873 2,833 2,040 5,397 2,765 2,632Buildings 2,004 1,045 959 1,842 959 883Capital assets under

construction 1,562 – 1,562 1,227 – 1,227Land 65 – 65 65 – 65Spectrum licences (a) 738 – 738 – – –Other 119 47 72 153 31 122

Total capital assets 37,345 21,760 15,585 34,284 20,249 14,035

Included in the total capital assets are assets under capital leases amounting to $347 million($204 million in 2000) and a related accumulated depreciation of $65 million ($39 million in 2000).

Depreciation and amortization of capital assets for 2001 amounted to $2,339 million($2,296 million in 2000). Retirements charged to accumulated depreciation amounted to$828 million in 2001 ($1,275 million in 2000).

(a) Includes $23 million of capitalized interest in 2001.

11. SUPPLEMENTARY INFORMATION


Balance SheetDeferred charges and other assets

Accrued employee benefit plans asset (Note 18) 1,839 1,798Unrealized foreign currency losses, net of amortization 128 98Long-term notes receivable 42 37Other 212 190

Total deferred charges and other assets 2,221 2,123

Debt due within one yearBank advances and notes payable (a) 473 504Long-term debt due within one year (Note 12) 1,196 916

Total debt due within one year 1,669 1,420

Statement of Cash FlowsInterest paid 701 839Income taxes paid 651 1,000

(a) Includes $13 million in 2001 payable to BCE.

12. LONG-TERM DEBT


Maturity Series Interest Rate

Debentures 2001 EY 7.25% – 1502002 M-1 5.65% 150 150

EM 9.50% 150 150M-9(a) 2.70% 500 –

2003 M-6(b) 6.00% 300 300ER 8.50% 200 200M-8 6.25% 600 6006(c) 7.36% 319 300

2004 EB 10.88% 200 2002005 M-4 6.50% 600 600

M-9 6.25% – 300EW 8.80% 150 150

2006 M-5 6.65% 200 200EL(d) 7.75% 319 300

2007 DP 10.88% – 125M-7 6.70% 350 350E 7.30% 150 150

2008 M-10 6.25% 700 –F 6.55% 150 150

2009 M-2 6.15% 700 450DV(e) 10.50% 125 125DS(e) 9.65% 125 125EC 10.35% 150 150

2010 ED 11.45% 125 125ES(d) 9.50% 319 300

2011 M-12 6.90% 250 –DU(e) 9.45% 125 125DZ(e) 11.00% 125 125

2014 EA 10.00% 150 1502015 DW(e) 10.55% 125 1252021 EG 10.75% 125 1252027 EZ 7.00% 150 1502029 M-3 6.55% 200 2002031 M-11 7.85% 400 –2032 EJ 9.70% 125 1252041 EH 10.00% 400 4002053 EO 9.25% 150 1502054 EU 10.00% 150 150

9,057 7,475

Subordinated Debentures 2026 8.88% 125 1252031 7.65% 150 150

275 275Due to related parties(f) 338 700Other(g) 567 505Total long-term debt 10,237 8,955Less: debt due within

one year (Note 11) 1,196 916Long-term debt 9,041 8,039


(a) Floating Rate Debentures, Series M-9 may be extended at the holder’s option, for additionalone-year terms on October 30 of each of 2002, 2003 and 2004, up to a final maturing date ofOctober 30, 2005.

(b) Series M-6 MTN Debentures are exchangeable, at the option of the holder, into Series M-3MTN Debentures.

(c) Series 6 Debentures were originally issued for 300 million Swiss francs, and have been swappedinto US dollar obligations.

(d) Series EL and ES Debentures were originally issued for US $200 million each.(e) Series DV, DS, DU, DZ and DW Debentures are subject to call options permitting early repay-

ment of the principal amounts upon payment of certain premiums.(f) Due to related parties represents, in 2001 and 2000, senior unsecured notes, due to BCH, at an

interest rate of 5.85% maturing May 31, 2002. Bell Canada has the option to prepay, at anytime, all or any portion of the notes in cash without notice or penalty. Interest expense, for2001, from Bell Canada to BCH totalled $39 million ($62 million in 2000).

(g) Included in other are obligations under capital leases of $66 million ($49 million in 2000), netof loans receivable of $335 million ($256 million in 2000). These obligations resulted fromagreements entered into in 1999 and 2001, whereby Bell Canada sold and leased back telecom-munication equipment for aggregate proceeds of $399 million, portions of which wereinvested in interest bearing loans receivable. These capital leases net of a loan receivable wereoriginally issued for US $39 million and have been swapped to Canadian dollar obligations.

Long-term debt maturities during each of the next five years are summarized below:

Years ending December 31

2002 1,1962003 1,4982004 2982005 8122006 546Thereafter 5,887

Total 10,237

At December 31, 2001, unused bank lines of credit, for general corporate purposes and to supportcommercial paper borrowings, generally at the banks’ prime rate of interest, amounted to approxi-mately $1.0 billion ($1.2 billion in 2000).

On June 12, 2001, Bell Canada filed, with all Canadian provincial securities regulatory author-ities, a prospectus supplement to a short form shelf prospectus dated June 11, 2001, in order tooffer up to $3 billion of MTN Debentures from time to time over a two-year period. The remainingunused portion of the shelf prospectus was at $2.3 billion at December 31, 2001.

On January 15, 2002, Bell Canada issued, pursuant to its medium-term debenture program,$500 million of 6.25% MTN Debentures, Series M-13, maturing on April 12, 2012. Furthermore,on February 22, 2002, Bell Canada issued, pursuant to its medium-term debenture program,$400 million of 7.30% MTN Debentures, Series M-14, maturing on February 23, 2032. These twoissuances have decreased to $1.4 billion the unused portion of Bell Canada’s shelf prospectus.

13. F IN ANCIAL INS TRUMENT S

Risk management

Bell Canada uses cross currency swaps, forward contracts and interest rate swaps to manage itsforeign currency and interest rate positions associated with its debt instruments (Note 12) and todiversify Bell Canada’s access to capital markets. Bell Canada also uses forward equity contractsto manage expenses related to SCPs (Note 17).

Credit risk

Bell Canada is exposed to credit risk in the event of non-performance by counterparties to itsderivative financial instruments, but does not anticipate non-performance by any of the coun-terparties. Bell Canada deals only with highly rated financial institutions and monitors the creditrisk and credit standing of counterparties on a regular basis. Bell Canada manages its exposure sothat there is no substantial concentration of credit risk resulting from forward equity contracts,cross currency swaps, forward contracts and interest rate swaps.

In addition, Bell Canada is exposed to credit risk from customers. However, Bell Canada has alarge number of diverse customers which minimizes concentration of this risk. The introductionof competition in the local exchange market has, however, increased credit risk.

Currency exposures

At December 31, 2001, principal amounts to be received under cross currency contracts includeSF 300 million and US $39 million. At December 31, 2001, principal amounts owed under crosscurrency contracts include US $200 million and CDN $59 million. Additionally, as previouslydisclosed in Note 12, Bell Canada has a total of US $400 million long-term debt which is alsosubject to foreign currency exposure.

Interest rate exposures

Long-term debt is mainly issued at fixed interest rates except for Series M-9 Debentures whichwere issued for $200 million and $300 million at a floating rate of 2.70% and 6.25% in 2001 and2000, respectively. Series M-9 Debentures are due in 2002, but may be extended, at the holder’soption, up to a final maturity in 2005. Bell Canada has also entered into interest rate swaps toconvert fixed interest rate debt totaling $100 million to floating interest rate debt, due 2002 to2003. Additionally, as disclosed in Note 15, Bell Canada has an equity-settled note (Junior Note 2)issued for $1,570 million at a floating rate of 2.77% and 6.15% for 2001 and 2000, respectively,which is also subject to interest rate exposure.

Fair value

Fair values approximate amounts at which financial instruments could be exchanged betweenwilling parties, based on current markets for instruments of the same risk, principal and remainingmaturities. Fair values are based on estimates using present value and other valuation techniqueswhich are significantly affected by the assumptions used concerning the amount and timing ofestimated future cash flows and discount rates which reflect varying degrees of risk. Potentialincome taxes and other expenses that would be incurred on disposition of these financial instru-ments have not been reflected in the fair values. Therefore, due to the use of subjective judgement

12. LONG-TERM DEBT (cont inued)


and uncertainties, the aggregate fair value amount should not be interpreted as being realizable inan immediate settlement of the instruments.

At December 31, 2001 and 2000, the carrying value of all financial instruments approximatesfair value with the following exceptions:


Carrying Fair Carrying Fairvalue value value value

AssetsInvestment in Nortel Networks (a) 60 60 60 238Forward contracts hedge

of SCPs (Note 17) – – 7 13Cross currency contracts (b) 3 9 1 2Interest rate swaps – 2 – –

LiabilitiesForward contracts hedge

of SCPs (Note 17) 17 21 – –Long-term debt 10,237 11,104 8,955 9,538Cross currency contracts (b) 31 31 22 10

(a) The 5 million Nortel Networks common shares (Note 9) have been designated as a hedge ofBell Canada’s exposure to outstanding rights to SCPs (Note 17).

(b) Amounts receivable or payable under cross currency contracts are included in current assets,deferred charges or liabilities, as appropriate.

Sale of accounts receivable

Under an agreement effective October 14, 1997, Bell Canada sold accounts receivable for aggre-gate cash proceeds of $650 million. On December 12, 2001, this agreement was terminated andreplaced by a new agreement dated December 12, 2001, whereupon Bell Canada sold a co-owner-ship interest in a pool of present and future eligible accounts receivable to a securitization trustthat issued securities to investors for aggregate cash proceeds of $875 million. Pursuant to theagreement, Bell Canada continues to service the accounts receivable and its interest in collectionsof these accounts receivable is subordinated to the purchaser’s interest. The purchaser will re-invest the funds from collections in the purchase of additional interests in Bell Canada accountsreceivable until the expiration of the agreement on December 12, 2006. The purchaser and itsinvestors have no recourse to Bell Canada’s other assets for failure of the debtors to pay when due.As at December 31, 2001, Bell Canada is carrying a retained interest in the transferred accountsreceivable of $76 million.

In 2001, Bell Canada recognized a pre-tax loss of $4 million on this securitization transaction.Bell Canada estimates the fair value of retained interests and calculates the loss on sale using apresent value of estimated cash flows model. The key assumptions underlying this model are:

Cost of funds 2.5%Weighted average life in days 39Average credit loss ratio 0.8%Servicing fee liability 2.0%

The sensitivity of the current fair value of the retained interest or residual cash flows to an imme-diate 10 percent or 20 percent adverse change in each of the above assumptions is in each caseless than $500,000.

14. PREFERRED SHARES

Authorized

The articles of the Corporation provide for an unlimited number of Class A Preferred Shares andClass B Preferred Shares. The articles authorize the Directors of the Corporation to issue the Class APreferred Shares in one or more series and to fix the number of shares of each series, and the condi-tions attaching thereto, prior to their issue.

Authorized and outstanding

The following table provides a summary of the principal terms and conditions relating to theCorporation’s authorized and outstanding series of Class A Preferred Shares. The detailed termsand conditions of such shares are set forth in the articles of the Corporation.


Number Outstanding Number Outstandingof shares stated of shares stated

authorized capital authorized capital

Perpetual preferred shares (a)Series 12 (b) – – 400 (j) 200Series 14 (b) – – 270 (j) 135

– 335

Convertible preferred shares (a)Series 15 (c) 24,000,000(j) 400 24,000,000 (j) 400Series 16 (d) 24,000,000(i) – 24,000,000 (i) –Series 17 (e) 22,000,000(j) 350 – –Series 18 (f) 22,000,000(i) – – –Series 19 (g) 22,000,000(j) 350 – –Series 20 (h) 22,000,000(i) – – –

1,100 400

Preferred shares 1,100 735

(a) All preferred shares are non-voting and redeemable at the Corporation’s option.(b) Perpetual Cumulative Reset Redeemable Class A Preferred Shares Series 12 and 14 (Series 12

and 14 Preferred Shares) were redeemed on June 18, 2001 and March 30, 2001, respectively.The Series 12 and 14 Preferred Shares were redeemable at any time at $500,000 per sharetogether with accrued and unpaid dividends. The holders of the Series 12 and 14 PreferredShares were entitled to annual cumulative dividends at rates of 4.51% and 5.72% of the statedcapital of such shares until their date of redemption, respectively. The holders of the Series 12and 14 Preferred Shares reinvested all of the proceeds of redemption of their shares into Cumu-lative Redeemable Class A Preferred Shares Series 19 and 17, respectively.

13. F IN ANCIAL INS TRUMENT S (cont inued)


(c) The holders of Cumulative Redeemable Class A Preferred Shares Series 15 are entitled to annualcumulative dividends at a fixed rate of 5.50% until February 1, 2005. Starting February 1, 2005,holders of Series 15 Preferred Shares will be entitled to floating adjustable cumulative divi-dends. The Series 15 Preferred Shares are convertible, at the holder’s option, into CumulativeRedeemable Class A Preferred Shares Series 16, on a one-for-one basis, on February 1, 2005 andon February 1 in every fifth year thereafter. The Series 15 Preferred Shares are redeemable at$25.00 per share together with accrued and unpaid dividends on February 1, 2005 and at$25.50 per share together with accrued and unpaid dividends at any time thereafter. The Series 15Preferred Shares are not retractable at the option of the holders.

(d) The holders of Series 16 Preferred Shares, if issued, will be entitled, starting February 1, 2005,to fixed cumulative dividends to be reset every five years pursuant to their terms and condi-tions. Series 16 Preferred Shares will be convertible, at the holder’s option, into CumulativeRedeemable Class A Preferred Shares Series 15, on a one-for-one basis, on February 1, 2010 andon February 1 in every fifth year thereafter. Series 16 Preferred Shares will be redeemable at $25.00 per share together with accrued and unpaid dividends on February 1, 2010 and onFebruary 1 every fifth year thereafter. The Series 16 Preferred Shares are not retractable at theoption of the holders.

(e) The holders of Cumulative Redeemable Class A Preferred Shares Series 17 are entitled to annualcumulative dividends at a fixed rate of 5.25% until May 1, 2006 and starting May 1, 2006, tofixed cumulative dividends to be reset every five years pursuant to their terms and conditions.Series 17 Preferred Shares will be convertible, at the holder’s option, into CumulativeRedeemable Class A Preferred Shares Series 18, on a one-for-one basis, on May 1, 2006 and onMay 1 in every fifth year thereafter. Series 17 Preferred Shares will be redeemable at $25.00 pershare together with accrued and unpaid dividends on May 1, 2006 and on May 1 every fifthyear thereafter. The Series 17 Preferred Shares are not retractable at the option of the holders.

(f) The holders of Series 18 Preferred Shares, if issued, will be entitled to floating adjustable cumu-lative dividends. The Series 18 Preferred Shares will be convertible, at the holder’s option, intoCumulative Redeemable Class A Preferred Shares Series 17, on a one-for-one basis, on May 1,2011 and on May 1 in every fifth year thereafter. The Series 18 Preferred Shares will beredeemable at $25.50 per share together with accrued and unpaid dividends at any time. TheSeries 18 Preferred Shares are not retractable at the option of the holders.

(g) The holders of Cumulative Redeemable Class A Preferred Shares Series 19 are entitled to annualcumulative dividends at a fixed rate of 5.55% until August 1, 2006, and starting August 1, 2006,to fixed cumulative dividends to be reset every five years pursuant to their terms and condi-tions. Series 19 Preferred Shares will be convertible, at the holder’s option, into CumulativeRedeemable Class A Preferred Shares Series 20, on a one-for-one basis, on August 1, 2006, andon August 1, in every fifth year thereafter. Series 19 Preferred Shares will be redeemable at$25.00 per share together with accrued and unpaid dividends on August 1, 2006, and onAugust 1 every fifth year thereafter. The Series 19 Preferred Shares are not retractable at theoption of the holders.

(h) The holders of Series 20 Preferred Shares, if issued, will be entitled to floating adjustable cumu-lative dividends. The Series 20 Preferred Shares will be convertible, at the holder’s option, intoCumulative Redeemable Class A Preferred Shares Series 19, on a one-for-one basis, on August 1,2011, and on August 1 in every fifth year thereafter. The Series 20 Preferred Shares will beredeemable at $25.50 per share together with accrued and unpaid dividends at any time. TheSeries 20 Preferred Shares are not retractable at the option of the holders.

(i) Authorized but not issued.(j) Authorized and outstanding, except that only 16,000,000 Series 15 Preferred Shares,

14,000,000 Series 17 Preferred Shares and 14,000,000 Series 19 Preferred Shares are outstanding.

15. EQUIT Y-SETTLED NOTES


8.22% Junior Note 1 unsecured obligation due 2034 (a) 498 9232.77% Junior Note 2 unsecured obligation due on demand (b) 1,570 1,570

Total equity-settled notes 2,068 2,493

(a) Junior Note 1 is payable to BCH and ranks junior to all present and future indebtedness of BellCanada. Subject to certain conditions, Bell Canada has the option to prepay, at any time, all orany portion of the note in cash without notice or penalty and may elect, at any time, to satisfyits obligation by issuing to BCH common shares having an aggregate value equal to theamount otherwise payable to BCH on such date. In January 2001, Bell Canada used theproceeds of the $425 million received from the sale of Sympatico-Lycos (Note 4) to repay aportion of Junior Note 1.

(b) Junior Note 2 is payable to BCH and ranks junior to all present and future unsubordinatedindebtedness of Bell Canada. The interest rate on the note was 6.15% up to November 30, 2001,at which time, the interest rate was reset to 2.77%. The interest rate shall be reset annually onNovember 30 and shall be equal to the Canadian one-year treasury benchmark rate plus 0.40%.Subject to certain conditions, Bell Canada has the option to prepay, at any time, all or anyportion of the note in cash without notice or penalty and may elect, at any time, to satisfy itsobligation by issuing to BCH common shares having an aggregate value equal to the amountotherwise payable to BCH on such date.

14. PREFERRED SHARES (cont inued)


16. COMMON SHARES

Authorized

An unlimited number of common shares are authorized by the articles of the Corporation.

2001 2000

Number of Stated Number of StatedAt December 31 shares capital shares capital

Outstanding at beginning of year 348,316,829 4,673 343,220,418 4,498Capital contribution (a) – – – 160Shares issued in exchange for

Nortel Networks common shares (Note 9) – – 5,096,411 15

Outstanding at end of year 348,316,829 4,673 348,316,829 4,673

(a) In December 2000, BCH made a $160 million capital contribution to Bell Canada. No shareswere issued on the transaction.

17. S TOCK BASED COMPENSATION PL ANS

ESP

The ESP enables employees of the Corporation and its participating subsidiaries to acquire BCEcommon shares through regular payroll deductions plus employer contributions, if applicable.Under the terms of the ESP, employees can choose each year to have up to 10% of their annualearnings withheld to purchase BCE common shares. The Corporation and the participatingsubsidiaries contribute up to 2% of the employee’s annual earnings. The purpose of the ESP is toencourage employees to own shares of BCE. Compensation expense related to the ESP amountedto $35 million in 2001 ($36 million in 2000).

Stock options

Under the BCE Long-Term Incentive Stock Option Programs (Programs), options may be grantedto officers and other key employees of the Corporation and of its subsidiaries to purchase commonshares of BCE at a subscription price generally equal to 100% of market value on the last tradingday prior to the effective date of the grant. The right to exercise options generally accrues over aperiod of four years of continuous employment except when a special vesting period is granted.The options are exercisable during a period not to exceed ten years and are generally not exercis-able during the first 12 months after the date of the grant. However, if there is a change of controlof BCE, the options may, if an optionee’s employment is terminated under certain circumstances,become immediately exercisable. Furthermore, the same result may also occur if, under certaincircumstances, BCE ceases to hold a specific ownership interest in Bell Canada.

As a result of the distribution of Nortel Networks common shares in May 2000, each of thethen outstanding BCE stock options was cancelled and replaced by a new stock option giving theholder the right to acquire one BCE common share and, in addition, a new stock option givingthe holder the right to acquire approximately 1.57 post-split common shares of Nortel Networks(Nortel options) with exercise prices established so as to maintain the economic position of theholder. In order to ensure that the exercise of the Nortel options would not result in a dilution toNortel Networks shareholders, the aggregate number of BCE common shares issuable pursuantto options granted under the Programs immediately prior to the effective time of the distributionwas factored into the computation of the number of Nortel Networks common shares per BCEcommon share held to be distributed. Accordingly, the exercise price paid to Nortel Networks onthe exercise of the Nortel options is remitted to BCE shortly after the time of exercise. In addition,BCE also has the right to exercise all Nortel options that expire unexercised or are forfeited,with the exercise price being remitted to BCE by Nortel Networks and to hold such shares as aninvestment at cost.

SCPs

Prior to 2000, and simultaneously with the grant of an option, officers and key employees of theCorporation and its subsidiaries may also have been granted, by their employer, from time to time,accompanying rights to SCPs. In May 2000, BCE distributed to its common shareholders anapproximate 35% interest in Nortel Networks. As a result of this distribution of Nortel Networkscommon shares, the then outstanding options were divided into options to acquire BCE commonshares and Nortel Networks common shares, and the related SCPs were appropriately adjusted.As a result, SCP right holders now have, for each SCP right held prior to the distribution, SCPrights related to the increase in price of both the BCE and Nortel Networks common shares overthe exercise prices of the related options. The amount of any SCPs is equal to the increase inmarket value of the number of the BCE and Nortel Networks shares covered by the SCPs (whichmay not exceed the number of shares covered by the options to which it is related) from the dateof the grant of the SCPs to the date of exercise of the option to which the SCPs is related. Compen-sation expense related to the SCPs amounted to $48 million in 2001 ($56 million in 2000).

To manage SCP expense, Bell Canada has entered into forward equity contracts to hedge itsexposure to outstanding SCP rights related to options over BCE common shares and has desig-nated its Nortel Networks common shares as a hedge of Bell Canada’s exposure to outstandingSCP rights related to options over the Nortel Networks common shares.

18. EMPLOYEE BENEFIT PL ANS

The Corporation and most of its significant subsidiaries maintain non-contributory definedbenefit plans that provide for pension, other retirement and postemployment benefits for substan-tially all their employees based on length of service and rate of pay. Bell Canada’s funding policyis to make contributions to its pension funds based on various actuarial cost methods as permittedby pension regulatory bodies. Bell Canada and its subsidiaries are responsible to adequately fundthe plans. Contributions reflect actuarial assumptions concerning future investment returns,salary projections and future service benefits. Plan assets are represented primarily by Canadianand foreign equities, government and corporate bonds, debentures and secured mortgages.


The changes in the benefit obligations and in the market related value of assets and the fundedstatus of the defined benefit plans were as follows:

Pension Benefits Other Benefits

At December 31 2001 2000 2001 2000

Change in benefit obligationsBenefit obligation,

beginning of year 8,678 8,574 1,490 1,424Current service cost 168 163 27 26Interest cost 607 588 106 99Actuarial losses/(gains) 686 – (96) _Estimated benefit payments (549) (625) (71) (60)Employee contributions 2 2 – –Business combinations – – – 5Special termination costs 266 – – –Divestitures (26) (24) (4) (4)

Benefit obligation, end of year 9,832 8,678 1,452 1,490

Change in market related value of plan assetsMarket related value of plan assets,

beginning of year 12,061 11,493 361 333Return on plan assets 1,011 947 28 28Actuarial gains/(losses) (549) 265 (3) –Estimated benefit payments (549) (625) (71) (60)Employer contributions 6 3 70 59Employee contributions 2 2 – –Business combinations – – – 5Divestitures (41) (24) – (4)

Market related value of plan assets, end of year (a) 11,941 12,061 385 361

Funded status-plan surplus (deficit) 2,109 3,383 (1,067) (1,129)Unamortized net actuarial gain (219) (1,418) (285) (198)Unamortized past service costs 50 15 – –Unamortized transitional

(asset) obligation (198) (260) 430 475

Accrued benefit asset (liability) 1,742 1,720 (922) (852)

(a) Approximately 1% of the plan assets are held in BCE common shares.

The Accrued benefit asset for pension benefits is comprised of:


Accrued benefit asset (Note 11) 1,839 1,798Accrued benefit liability (97) (78)

Accrued benefit asset 1,742 1,720

The significant weighted-average assumptions adopted in measuring Bell Canada’s pension andother benefit obligations were as follows:


At December 31 2001 2000 2001 2000

Discount rate 6.50% 7.00% 6.50% 7.00%Expected long-term rate of return

on plan assets 8.75% 8.50% 8.75% 8.50%Rate of compensation increase 3.50% 4.00% 3.50% 4.00%

For measurement purposes, a 4.5% annual rate of increase in the per capita cost of covered healthcare benefits (the health care cost trend rate) was assumed for 2001 except for the cost of medica-tion which was assumed to increase at a 10.5% annual rate for 2001. This rate was assumed togradually decline to 4.5% by 2005 and remain at that level thereafter.

The net benefit plans (credit) expense included the following components:


For the years ended December 31 2001 2000 2001 2000

Current service cost 168 163 27 26Interest cost on projected

benefit obligations 607 588 106 99Expected return on plan assets (1,011) (947) (28) (28)Amortization of past service costs 11 3 – –Amortization of net actuarial gain (3) (6) (5) (5)Amortization of transitional

obligation – – 38 39Amortization of transitional asset (48) (49) – –

Net benefit plans (credit) expense (276) (248) 138 131

18. EMPLOYEE BENEFIT PL ANS (cont inued)


19. REL ATED PAR T Y TRANSACTIONS AND ACCOUNT S

Related Party Transactions:

Bell Canada concluded the following transactions at agreed upon amounts with related partiesin the normal course of business:


Purchase of equipment, supplies and servicesNortel Networks (a) – 221CGI Group Inc. (CGI) (b) 463 426BCE Emergis Inc. (BCE Emergis) (c) 223 122Teleglobe Inc. (d) 320 28Entourage 152 142Aliant 103 77Nexxia U.S. 65 57

Sale of equipment and servicesCGI (b) 214 111BCE Emergis (c) 156 110Teleglobe Inc. (d) 38 5Aliant 53 23Bell ExpressVu Partnership Limited (Bell ExpressVu) (e) 51 38Other 7 55

(a) Nortel Networks was a significantly influenced company of BCE up until May 2000. Subse-quent to this date, Nortel Networks is no longer considered a related party of Bell Canada.

(b) CGI is a joint venture of BCE.(c) BCE Emergis is a subsidiary of BCE.(d) As of November 2000, Teleglobe Inc. is a subsidiary of BCE.(e) Bell ExpressVu is wholly-owned by BCE.

Related Party Accounts:

Amounts owed to, or receivable from, related parties were as follows:

As at December 31 2001 2000

Accounts Receivable from related parties 181 101Accounts Payable due to related parties 550 382

20. COMMITMENT S AND CONTINGENT L IABILITIES

Lease commitments

Capital Leases:

At December 31, 2001, the future minimum lease payments under capital leases were $188 million($126 million in 2000).

Operating Leases:

At December 31, 2001, the future minimum lease payments under operating leases with initialnon-cancelable lease terms in excess of one year were:

Years ending December 31

2002 2212003 1992004 1792005 1692006 150Thereafter 1,072

Total 1,990

Rental expense applicable to operating leases for the year 2001 was $215 million ($313 million in 2000).

Purchase commitments

Effective July 1, 1998, under the terms of a ten-year outsourcing agreement, a wholly-ownedsubsidiary of CGI is the preferred provider of Bell Canada’s required information systems andinformation technology services.

Effective June 22, 2001, Bell Canada entered into a ten-year service contract with a third party.Bell Canada’s minimum commitments are approximately $150 million over the first three years of the agreement. In 2004, Bell Canada may either exercise an option to buy the assets of the thirdparty at fair market value, or maintain the service contract and therefore commit itself to an addi-tional minimum of $420 million in service fees to the third party over the remaining seven yearsof the contract.

Bell Canada has, as at December 31, 2001, other purchase commitments, which are in aggre-gate estimated to be at $1.6 billion.

Litigation

In the normal course of operations, Bell Canada becomes involved in various claims and litigation.While the final outcome with respect to claims and litigation pending at December 31, 2001 cannotbe predicted with certainty, it is the opinion of management that their resolution will not have amaterial adverse effect on Bell Canada’s consolidated financial position or results of operations.

Other

By virtue of a shareholders’ agreement between Bell Canada and Amdocs, Inc. (Amdocs) (Amdocsowns 10.1% of Certen), both Bell Canada and Amdocs hold a series of puts and calls on theirownership of Certen.


21. RECONCILIATION OF EARNINGS REPOR TED IN ACCORDANCEWITH C AN ADIAN G AAP WITH UNITED S TATES G AAP

The significant differences between Canadian and United States GAAP affecting Bell Canada’s netearnings and retained earnings are reconciled in the table below:


Canadian GAAP – Earnings from continuing operations 1,620 1,552Adjustments:

Employee future benefits (a) 66 49Foreign exchange (b) (27) (8)Gain on reduction of ownership in affiliated companies (c) – (24)Pre-operating expenses and subscriber acquisition costs (d) (46) (40)Income taxes (e) (28) 28Interest on equity-settled notes (f) (80) (99)Other (9) (17)

United States GAAP – Earnings from continuing operations 1,496 1,441Discontinued operations – U.S. GAAP (g) – (83)Extraordinary item, net of tax (h) (101) –

United States GAAP – Net earnings 1,395 1,358Dividends on preferred shares (55) (40)

United States GAAP – Net earnings applicable to common shares 1,340 1,318

Other comprehensive earnings (loss) item:Change in currency translation adjustment 5 (4)

United States GAAP – Comprehensive earnings 1,345 1,314


Retained earnings:Canadian GAAP 709 454Adjustments:

Employee future benefits (a) 115 49Foreign exchange (b) (99) (72)Gain on reduction of ownership in affiliated companies (c) (338) (338)Pre-operating expenses and subscriber acquisition costs (d) (86) (40)Income taxes (e) – 28Discontinued operations – U.S. GAAP (g) 16 16Extraordinary item, net of tax (h) (31) –Other 170 179

United States GAAP 456 276

(a) Employee future benefits

Under Canadian GAAP, prior to January 1, 2000, Bell Canada recognized the costs of postretire-ment benefits, other than pension costs and postemployment benefits, when paid. EffectiveJanuary 1, 2000, Bell Canada adopted the new accounting recommendations under CanadianGAAP (Note 1) which are now in all material respects consistent with United States GAAP, exceptfor the recognition of certain unrealized gains. Additionally, under Canadian GAAP, Bell Canadauses the “market related value” approach in determining the fair value of the net benefit plansassets. Under United States GAAP the “market value” approach is used to determine the fair valueof the net benefit plan.

(b) Foreign exchange

Under Canadian GAAP, unrealized foreign exchange translation gains and losses on long-term mone-tary assets and liabilities are deferred and amortized over the remaining lives of the related items.Under United States GAAP, the translation gains and losses are reported in earnings immediately.

(c) Gain on reduction of ownership in affiliated companies

Under Canadian and United States GAAP, a gain on reduction of ownership in a significantly influ-enced company is calculated in a similar manner. However, Canadian and United States GAAPdifferences will cause the underlying equity value of a significantly influenced company to bedifferent; therefore, the resulting gain will be different.

(d) Pre-operating expenses and subscriber acquisition costs

Under Canadian GAAP, pre-operating expenses, if they meet certain criteria, and subscriberacquisition costs can be deferred and amortized. Under Unites States GAAP, these costs areexpensed as incurred.

(e) Income taxes

Under Canadian GAAP, prior to January 1, 2000, Bell Canada accounted for income taxes underthe deferral method, which focused on the income statement. Effective January 1, 2000,Bell Canada adopted the new accounting recommendations under Canadian GAAP (Note 1)which are now in all material respects consistent with United States GAAP, with the exceptionthat under Canadian GAAP, income tax rates of enacted or substantially enacted tax law can beused to calculate deferred income tax assets and liabilities while under United Sates GAAP, onlyincome tax rates of enacted tax law can be used. In 2001, income tax rate changes were enacted inCanada and as a result all previous Canadian and U.S. GAAP differences were reversed.

(f) Interest on equity-settled notes

United States GAAP requires that the equity-settled notes (Note 15) of $2,068 million ($2,493 mil-lion in 2000) be presented as a liability. Under Canadian GAAP, the equity-settled notes arepresented as part of shareholders’ equity. Consequently, the related interest is treated as anexpense for United States GAAP purposes.


(g) Discontinued operations

Under Canadian GAAP, discontinued operations amounted to $99 million for the year endedDecember 31, 2000 (Note 6). The difference between Canadian and United States GAAP for discon-tinued operations related mainly to differences in the underlying equity value of Bell Canada’sinvestment in ORBCOMM.

(h) Extraordinary item, net of tax

In assessing capital asset impairment under Canadian GAAP, estimated future net cash flows arenot discounted in computing the net recoverable amount. Under U.S. GAAP, the determination onwhether or not the assets are impaired is made on a discounted basis. Consequently, under U.S.GAAP, the charge taken is higher.

(i) Accounting for derivative instruments and hedging activities

Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instrumentsand Hedging Activities (FAS 133) as amended by Financial Accounting Standards Board StatementNo. 138, is effective for fiscal years beginning after June 15, 2000. FAS 133 requires that all deriva-tives, including those embedded in other contracts, to be recorded in the balance sheet at fairvalue. Changes in fair value will be recorded in net earnings or, if the derivative is designated as acash flow hedge, in other comprehensive income. For fair value hedges, changes in the fair valueof the derivative instrument will generally be offset in net earnings by changes in fair value of thehedged item. For cash flow hedge transactions, the effective portion of the changes in the fairvalue of the derivative instrument will be reported in other comprehensive income and will bereclassified to net earnings in the periods in which net earnings are affected by the variabilitiesin cash flows of the hedged item.

Bell Canada has adopted FAS 133 effective January 1, 2001 and accordingly revalued all deriva-tives to fair value. The adoption of FAS 133 did not have a material impact on the consolidatedresults of operations or financial position of the Corporation.

(j) Recent pronouncements

The Financial Accounting Standards Board (FASB) recently issued new Standards No. 141, Busi-ness Combinations, and No. 142, Goodwill and Other Intangible Assets. Effective July 1, 2001,the standards require that all business combinations be accounted for using the purchase method.Additionally, effective January 1, 2002, goodwill and intangible assets with an indefinite life willno longer be amortized to earnings and will be assessed for impairment on an annual basis inaccordance with the new standards, including a transitional impairment test. Bell Canada iscurrently evaluating the impact of the adoption of the new standards and has therefore not yet

completed the assessment of the quantitative impact on its financial statements. BCE is alsocurrently evaluating the impact of the adoption of the new standards, and while it has not yetcompleted the assessment of the quantitative impact on its financial statements, it has indicatedthat it is likely that the transitional impairment test will result in a significant impairment charge.In conjunction with BCE’s evaluation, Bell Canada will review the carrying value of its goodwilland its investment in Teleglobe Inc.

The FASB recently issued new Standard No. 144, Accounting for the Impairment or Disposal ofLong-lived Assets, which is effective for fiscal years beginning after December 15, 2001 andaddresses how to account for and report impairments or disposals of long-lived assets. An impair-ment loss is to be recorded on long-lived assets being held or used when the carrying amount ofthe asset is not recoverable from its undiscounted cash flows. The impairment loss is equal to thedifference between the asset’s carrying amount and estimated fair value. Long-lived assets to bedisposed of, by other than a sale for cash, are to be accounted for and reported like assets beingheld or used except the impairment loss is recognized at the time of the disposition. Long-livedassets to be disposed of by a sale are to be recorded at the lower of their carrying amount or esti-mated fair value (less costs to sell) at the time the plan of disposition has been approved andcommitted to by the appropriate company management. In addition, depreciation is to cease atthe same time. Bell Canada’s management does not expect the adoption of this standard to havesignificant impact on its future consolidated financial results.

21. RECONCILIATION OF EARNINGS REPOR TED IN ACCORDANCEWITH C AN ADIAN G AAP WITH UNITED S TATES G AAP (cont inued)


S U P P L E M E N T A R Y D A T A

SELECTED CONSOLIDATED FIN ANCIAL AND OTHER DATA unaudited 2001 2000 1999 1998 1997 1996

Selected consolidated financial data ($ millions)Total operating revenues 14,265 13,230 12,583 12,405 12,309 10,314Operating income 2,960 3,546 2,896 2,498 2,677 2,310Earnings from continuing operations 1,620 1,552 1,309 1,089 917 734Discontinued operations (net of tax) – (99) – – – –Net earnings applicable to common shares before extraordinary item 1,485 1,314 1,242 1,056 881 694Extraordinary item (net of tax) (70) – – – (2,870) –Net earnings (loss) applicable to common shares 1,415 1,314 1,242 1,056 (1,989) 694Dividends on common shares 1,157 1,085 868 765 764 714EBITDA(i) 6,077 5,775 5,399 5,424 5,352 4,814EBIT(ii) 3,330 3,501 3,027 2,722 2,714 2,421Total assets 24,660 22,826 21,829 19,648 18,517 22,896Long-term debt (including current portion) 10,237 8,955 8,531 10,840 10,439 10,617Retractable preferred shares – 6 116 128 129 117Preferred shares 1,100 735 630 630 630 630Equity-settled notes 2,068 2,493 2,493 923 832 824Common shareholders’ equity 5,755 5,495 5,553 2,130 1,816 4,581Capital expenditures 4,099 2,852 2,499 2,629 2,252 2,105

Other dataNetwork access services(iii) (thousands) 11,789 11,806 11,579 11,556 11,221 10,869Conversation minutes (millions) 14,704 14,601 13,830 11,664 10,703 10,885Number of employees (as at December 31) 43,724 45,073 43,995 46,031 46,719 52,151Salaries and wages (excl. workforce reduction costs) ($ millions) 2,478 2,390 2,391 2,459 2,555 2,648

QUAR TERLY F IN ANCIAL DATA unaudited 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

($ millions) 2001 2000 2001 2000 2001 2000 2001 2000

Total operating revenues 3,798 3,471 3,620 3,415 3,487 3,242 3,360 3,102Operating income 328 905 1,036 966 917 840 679 835Earnings from continuing operations 7 357 476 410 460 427 677 358Discontinued operations (net of tax) – – – (83) – (9) – (7)Extraordinary item (net of tax) (70) – – – – – – –Net earnings (63) 357 476 327 460 418 677 351Net earnings applicable to common shares (96) 321 440 293 426 383 645 317EBITDA(i) 1,506 1,480 1,605 1,537 1,501 1,395 1,465 1,363EBIT(ii) 275 923 1,034 900 941 864 1,080 814

(i) Earnings before interest expense, income taxes, depreciation and amortization and excluding the net benefit plans credit and restructuring and other charges. EBITDA does not have a standard-ized meaning provided by Canadian GAAP and therefore may not be comparable to similar measures presented by other issuers. Bell Canada uses EBITDA as one of its measures to assess itsoperating performance.

(ii) Earnings from continuing operations and before interest expense, non-controlling interest and income taxes. EBIT does not have a standardized meaning provided by Canadian GAAP and there-fore may not be comparable to similar measures presented by other issuers. Bell Canada uses EBIT as one of its measures to assess its operating performance.

(iii) Network access services represents, at December 31, approximately the number of lines in service.

B O A R D O F D I R E C T O R S as of March 1, 2002


Jean C. Monty, C.M.Montréal, Québec

Chairman of the Board and Chief Executive Officer of BCE Inc., Bell Canada and Teleglobe Inc.Director since October 1997.Chairman of the Board of BCE Emergis Inc. and Bell Globemedia Inc. Director of Bell Canada International Inc.

Michael J. SabiaMontréal, Québec

President and Chief Operating Officer, BCE Inc.Chief Operating Officer, Bell CanadaDirector since July 2000 and member of theManagement Resources and Nominating Committee.Director of Teleglobe Inc.

John W. SheridanToronto, Ontario

PresidentDirector since January 2000 and member of the Audit Committee.

James W. CallawaySan Antonio, Texas

Group PresidentSBC Communications Inc.Director since October 2000 and member of the Audit Committee.

James S. KahanSan Antonio, Texas

Senior Vice-President – Corporate DevelopmentSBC Communications Inc. Director since October 1999 and member of the Management Resources and Nominating Committee.

Judith Maxwell, C.M.Ottawa, Ontario

PresidentCanadian Policy Research Networks Inc.Director since December 2000 and a member of the Audit Committee.Director of BCE Inc.

Peter J.M. NicholsonMontréal, Québec

Chief Strategy Officer, BCE Inc.Director since March 2001.Director of Bell Globemedia Inc.

J. Edward Newall, O.C.Calgary, Alberta

Chairman of the Board, Newall and AssociatesDirector since May 1998 and Chairman of the Audit Committee. Director of BCE Inc.

Guy Saint-Pierre, O.C.Montréal, Québec

Chairman of the Board, SNC-Lavalin Group Inc.Director since April 1999 and member of the Management Resources and Nominating Committee.Director of BCE Inc.

Paul M. Tellier, P.C., C.C., Q.C.Montréal, Québec

President and Chief Executive OfficerCanadian National Railway CompanyDirector since March 1996 and Chairman of the Management Resources and Nominating Committee. Director of BCE Inc.

C O M M I T T E E S O F T H E B O A R D

AUDIT COMMITTEEJ.E. Newall – J.W. CallawayChairman J. Maxwell

J.W. Sheridan

MANAGEMENT RESOURCES AND NOMINATING COMMITTEEP.M. Tellier – J.S. KahanChairman M.J. Sabia

G. Saint-Pierre

C O R P O R A T E O F F I C E R S as of March 1, 2002


Jean C. MontyChairman of the Board and Chief Executive Officer

Michael J. SabiaChief Operating Officer

Stephen G. WetmoreVice-Chairman – Corporate

John W. SheridanPresident

J. Trevor AndersonSenior Vice-President – Network Operations

Pierre J. BlouinChief Executive Officer – Bell Mobility

Michael T. BoychukVice-President and Treasurer

Charlotte BurkeSenior Vice-President – Convergence

Bernard A. CourtoisChief Strategy Officer

Isabelle CourvillePresident – Télébec

Renato J. DiscenzaSenior Vice-President – Supply Chain and Capital Management

Barry R. DixonSenior Vice-President – Carrier Services (Bell Nexxia)

Roch DubéSenior Vice-President – Bell Canada

Thomas J. GilletteSenior Vice-President – Sales

Heather A. GomesVice-President and Corporate Controller

Josée GouletPresident – Bell Québec

Tomasz S. HopeChief Technology Officer

Salvatore IaconoSenior Vice-President – Bell Canada

Jonathan P. KlugChief Financial Officer

Guy MarierExecutive Vice-President

Timothy E. McGeeChief Legal Officer and Corporate Secretary

David G. McLennanPresident – Bell ExpressVu

Robert T. MoseyPresident – Bell Ontario

Michael A. NeumanPresident and Chief Operating Officer – Bell Mobility

Barry W. PickfordVice-President – Taxation

Randall J. ReynoldsPresident – Bell Nexxia

Eugene RomanChief Information Officer

Anna M. SadoSenior Vice-President – BusinessProcesses & Operational Effectiveness

Sheridan E. ScottChief Regulatory Officer

Pierre ShedleurSenior Vice-President – Business Markets Québec

Karen H. SheriffChief Marketing Officer

David A. SouthwellPresident – Network Operations

Georgina Steinsky-SchwartzChief Human Resources Officer

Jean TaillonSenior Vice-President – Operations

Marc P. TellierPresident – Bell ActiMedia

Ida TeoliChief Communications Officer

Pamela A. WentSenior Vice-President – OperationsBell Nexxia

Garry M. WoodPresident – Bell Distribution Inc.

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