BCE INC. 2016 ANNUAL REPORT
It’s all about
the networks
BCE INC. 2016 ANNUAL REPORT
OUR GOAL
For Bell to be recognized by
customers as Canada’s leading
communications company
OUR STRATEGIC IMPERATIVES
Invest in broadband networks and services
Accelerate wireless
Leverage wireline momentum
Expand media leadership
Improve customer service
Achieve a competitive cost structure
TABLE OF CONTENTS
Financial and operational highlights
Letters to shareholders
Strategic imperatives
Community investment
Bell archives
Management’s discussion and analysis (MD&A)
Reports on internal control
Consolidated financial statements
Notes to consolidated financial statements
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10
12
14
16
18
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4
8
20
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26
110
112
118
BCE INC. 2016 ANNUAL REPORT
A commitment to lead broadband network investment
and innovation in Canada, and the consistent execution
of our competitive strategy, enabled Bell to grow
the business, achieve all financial objectives,
and extend our record of exceptional value creation
for shareholders.
DRIVING GROWTH IN SHAREHOLDER VALUE
2016 FINANCIAL PERFORMANCE
13.7%
251%
TOTAL SHAREHOLDER
RETURN IN 2016 (1)
TOTAL SHAREHOLDER
RETURN SINCE THE END
OF 2008 (1)(2)
ACTUAL
TARGET RESULT
Revenue growth
1.0%
1%–3%
Adjusted
EBITDA (3) growth
2.8%
2%–4%
Capital intensity
17.4%
~17%
Adjusted EPS (3)
$3.46
$3.45–$3.55
Free cash flow (3)
growth
7.6%
4%–12%
5.1%
97%
COMPARATIVE TOTAL RETURN (1)(2)
BCE
SINCE THE
END OF
2008
2016
13.7%
251%
INCREASE IN DIVIDEND
PER COMMON
SHARE FOR 2017
INCREASE IN DIVIDEND
PER COMMON SHARE
SINCE THE END OF 2008
S&P/TSX Composite Index
21.1%
116%
S&P/TSX Telecom Index
18.3%
181%
(1) Assumes the reinvestment of dividends.
(2) Total return since the end of 2008, the year Bell implemented its transformational strategy.
(3) Adjusted EBITDA, adjusted EPS and free cash flow are non-GAAP financial measures and do not have any
standardized meaning under International Financial Reporting Standards (IFRS). Therefore, they are unlikely to be
comparable to similar measures presented by other issuers. For a full description of these measures, see section 10.2,
Non-GAAP financial measures and key performance indicators (KPIs) on pp. 106 to 109 of the MD&A.
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BCE INC. 2016 ANNUAL REPORT
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Leading network investments
drive Bell growth services
The enduring builder of Canada’s
communications infrastructure since
1880, Bell is now investing in the
next generation of high-capacity
broadband networks that power
the growth services of today:
wireless, Internet, TV and media.
BCE SUBSCRIBERS (MILLIONS)*
Wireless
High-speed Internet
Television
Total growth services
Local telephone services
Total subscribers
2016
2015
GROWTH
8.5
3.5
2.7
14.7
6.3
20.9
8.2
3.4
2.7
14.4
6.7
21.1
+2.7%
+1.9%
+0.2%
+2.0%
-6.4%
-0.7%
20.9M
Total subscribers
in 2016
2.0%
Increase in growth
services subscribers
in 2016
2.7%
Increase in wireless
subscribers in 2016
14.7M
Total growth services
subscribers in 2016
* Rounding in numbers may affect total figures presented.
2
BELL’S ONGOING TRANSFORMATION: 2008–2016
Advanced networks have transformed Bell into Canada’s broadband
communications leader, now setting the pace in wireless, Internet, TV and
media growth. Together, these high-demand growth services accounted for 82%
of Bell revenue in 2016, up from 81% a year earlier and just 64% in 2008.
2008 Operating Revenues
2016 Operating Revenues
$17.7B
$21.7B
Media 0%
Wireless 25%
Wireline
Broadband & TV 39%
Wireline Voice 36%
Growth
services
64%
of total
operating
revenue
12%
33%
37%
18%
Growth
services
82%
of total
operating
revenue
+1.0%
+2.8%
+13.1%
2016 $21.719
2016 $8.788
2016 $3.087
2015 $21.154
2015 $8.551
2015 $2.730
BCE OPERATING REVENUES
($ BILLIONS)
BCE ADJUSTED EBITDA
($ BILLIONS)
BCE NET EARNINGS
($ BILLIONS)
+5.9%
+7.6%
+4.0%
2016 $6.643
2016 $3.226
2016 $3.771
2015 $6.274
2015 $2.999
2015 $3.626
CASH FLOWS FROM
OPERATING ACTIVITIES
($ BILLIONS)
FREE CASH FLOW
($ BILLIONS)
BCE CAPITAL EXPENDITURES
($ BILLIONS)
For more information, please refer to section 7 of the MD&A – Selected Annual and Quarterly information, pp. 85 to 89.
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BCE INC. 2016 ANNUAL REPORT
MESSAGE FROM THE CHAIR OF THE BOARD
Broadband leadership
driving growth today,
and into the future
As BCE reports on a year
of strong operational and
financial progress in 2016,
it is clear that our industry
landscape has evolved in new
and challenging ways since the
beginning of Bell’s broadband
transformation 8 years ago.
New technologies, changing
consumer tastes and growing
competition in wireless, TV,
Internet and media services are
revolutionizing the ways we
communicate with each other, and
how companies large and small
interact with their customers,
partners and supply chains.
The demand for faster Internet access
continues to accelerate and wireless
usage grows by leaps and bounds,
as consumers and business users take
full advantage of broadband video
across platforms, and the power of
social media in personal, public and
professional realms. The growth in
online commerce is driving new
business models in every part of the
economy, while the emerging Internet
of Things (IoT) is creating a machine-
to-machine world of communication.
Bell’s next-generation
networks lead the way
Bell is clearly ready to lead the
way with a broadband growth and
innovation strategy that has
re-energized both our company
and industry. Bell has the scale to
deliver world-class communications
networks and services across
our vast country, and a skilled and
seasoned team fully dedicated
to delivering the benefits of our
leadership strategy to all
stakeholders.
Building on a legacy of technological
leadership and service innovation
since 1880, Bell’s advanced fibre and
wireless networks continued to be
the foundation of our success in
2016. And as we continue to outpace
our competitors in capital
investment in infrastructure, R&D
and exclusive new services, our
award-winning networks will
continue to be the driver of our
competitive leadership going
forward as the world of digital
communication continues to evolve.
Financial strength,
shareholder value
Bell achieved all its financial guidance
targets in 2016, with solid revenue
and adjusted EBITDA growth and
strong free cash flow generation, all
of which support Bell’s capital
investment objectives and our ability
to return value to you.
We announced a 5.1% increase in the
BCE annualized common share
dividend in February 2017, to $2.87 per
share from the $2.73 announced the
year before. This is the 13th such
dividend increase since the end of
2008 and the 9th consecutive year in
which BCE has declared a dividend
increase of at least 5%. Our objective
4
Consistent execution
The Bell team’s execution of our
broadband leadership strategy has
delivered a total shareholder return
of 251% since the end of 2008. (1)
(1) Assumes the reinvestment of dividends.
251%
to deliver sustainable dividend growth
is a core focus for our company.
BCE’s total shareholder return
of 251% since 2008 has outperformed
competitive peers here and across
North America and significantly
outpaced the S&P/TSX
Composite Index.
The highest levels of corporate
governance and financial prudence
underpin BCE’s capital markets
strategy. Our healthy balance sheet is
supported by investment-grade
credit metrics and strong liquidity,
and our defined benefit pension plans
are well funded and attractively
positioned should interest rates rise.
In 2016, we raised a combined total
of $2.25 billion in gross proceeds
from the issuance of 10-year
and 5-year medium-term note
(MTN) debentures, achieving the
lowest-ever financing rate on any
MTN issuance by Bell Canada and
significantly reducing our after-tax
cost of outstanding MTN debenture
debt. We also made a voluntary
$400 million contribution to
BCE’s defined benefit pension
plans, reducing our future pension
obligations and enhancing our
financial flexibility to invest in our
broadband growth strategy.
Changes to your Board
I have been honoured to lead the
BCE Board as Chair since April 2016,
and am grateful for the support and
insight of my predecessor, Thomas
O’Neill, and my fellow Directors.
This includes Ronald Brenneman, a
distinguished member of the Board
who will be retiring at our Annual
General Meeting. On behalf of the
Board and all shareholders, I thank Ron
for his wise counsel and dedication to
our company as a Director since 2003,
Chair of the Management Resources
and Compensation Committee, and a
member of the Pension Fund
Committee.
I am also pleased to announce the
nomination of Karen Sheriff to
the Board. A highly successful leader
who will add deep experience in the
Canadian communications industry to
our Board, Karen served as CEO of
Bell Aliant and most recently
Q9 Networks. Recognized numerous
times as an exemplary executive and
one of Canada’s most influential
women leaders, Karen will be an
outstanding addition to your Board.
On behalf of the Board and
shareholders, I would like to thank our
President and CEO George Cope and
the Bell team for successfully
navigating our complex and
fast-changing sector with a winning
strategy and unparalleled execution
in the marketplace. We look forward
to welcoming Manitoba Telecom
Services (MTS) and implementing the
Bell strategy in a province poised for
growth and ready for the significant
enhancement of its broadband
communications infrastructure that
Bell MTS will bring.
As Chair of the Board, it is my
privilege to serve you as Bell moves
forward as Canada’s broadband
leader. We are committed to
remaining at the forefront of
communications innovation and
growth, transforming our business to
stay ahead while continuing to deliver
for our shareholders, customers,
employees and communities.
I am honoured to be part of the
team writing the next chapters in
Bell’s long and distinguished history.
Thank you for your support.
Gordon M. Nixon
Chair of the Board
BCE Inc.
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BCE INC. 2016 ANNUAL REPORT
MESSAGE FROM THE PRESIDENT & CEO
Bell in the vanguard
of Canada’s broadband
communications revolution
Bell continued to build on our position as Canada’s broadband
communications leader in 2016. We are investing in the most
advanced networks and service innovations to lead in the
marketplace and ensure Canada’s competitiveness in a global digital
economy, while delivering consistent dividend growth to you,
the shareholders who have invested in Bell’s broadband strategy.
Each day and around the clock,
the Bell team works to deliver
world-class network performance,
exclusive new products and
an enhanced service experience to
Canadians in every province and
territory. In a highly competitive and
fast changing communications sector,
Bell continues to set the pace through
our dedication to a clear goal – for
Bell to be recognized by customers as
Canada’s leading communications
company.
To achieve our goal, Bell executes
a strategy focused on delivering
the best wireless, TV, Internet and
media growth services in the
most timely and efficient manner
possible, an approach framed
by our 6 Strategic Imperatives:
Invest in broadband
networks and services
Accelerate wireless
Leverage wireline momentum
Expand media leadership
Improve customer service
Achieve a competitive
cost structure
Ours is a strategy that reflects both
the challenges of our dynamic
industry and the clear opportunities
for innovation and growth in
Canadian communications.
And the Bell team is delivering.
Innovation first with Bell
A growing Gigabit Internet footprint
delivering the fastest access speeds
to consumers and businesses, and an
LTE wireless network ranked as the
fastest in Canada and significantly
faster than US networks. Exclusive
Fibe TV features like Restart and
Trending, and innovations like the first
wireless Whole Home PVR, the Fibe TV
app and Apple TV connectivity.
Compelling Canadian content and the
most-loved TV and radio channels.
A network of all-Canadian data
hosting centres able to take on global
heavyweights like Microsoft and
Google, further strengthened in 2016
with the addition of Q9 Networks.
These are the kinds of leading
innovations delivered by Bell’s
broadband investment strategy.
In 2016, we achieved outstanding
usage growth in Internet and
wireless data, driven in large part by
the surging use of video across our
networks on multiple consumer and
business platforms. Our significant
lead in IPTV technology versus our
cable competitors continued to
propel our revolutionary Fibe TV
service in the marketplace, while
the popularity of Canada’s video
streaming service, CraveTV from
Bell Media, further accelerated.
556K
Canada’s broadband leader
Bell welcomed 555,563 net new
broadband TV, Internet and postpaid
wireless customers in 2016, more
than any Canadian provider.
Behind these millions of glowing
screens lie the high-speed, high-
capacity Bell networks that are on
par with the best in the world.
With access to the latest technology
available from around the globe and
a commitment to be in the vanguard
of broadband product development
in Canada, our capital expenditures
in network infrastructure and R&D
reached $3.77 billion in 2016. Bell is
connecting communities at speeds
never experienced before, fuelling
Canadian innovation, and creating
jobs in the digital economy.
Backed by continuous improvement
in service and support, including
high levels of satisfaction with our
technician teams, Bell’s network
leadership enabled us to outperform
in the marketplace with
unprecedented broadband growth.
More than 240,000 net new Fibe TV
and Internet customers and over
315,000 net postpaid wireless
subscribers joined Bell in 2016.
Coupled with accelerating usage
across our segments and a careful
eye on operating costs, especially
in slower-growth traditional lines of
business, this leadership in the
marketplace is enabling Bell to deliver
the financial performance necessary
to fuel our broadband infrastructure
plans, return value to shareholders
and invest in the community.
We look forward to rolling out our Fibe
and LTE services in Manitoba now that
our acquisition of MTS is set to close
in March 2017 following the receipt
of final federal regulatory approvals.
It’s an acquisition that gains Bell more
than 700,000 broadband wireless,
Internet and IPTV customers in
Manitoba, and we look forward
to welcoming many more as Bell MTS
delivers the best in broadband to a
province poised for growth.
Bell MTS plans to invest $1 billion
over the next 5 years to bring Gigabit
Fibe Internet, Fibe TV and our
award-winning LTE wireless network
to major centres like Winnipeg and
Brandon, to traffic corridors and small
towns throughout the province,
and to remote locations such as the
burgeoning eco-tourism destination
of Churchill, also known as the
Polar Bear Capital of the World.
The Bell Let’s Talk initiative
Bell is renowned for our corporate
responsibility leadership, including our
commitments to environmental
sustainability, diversity and community
investment. Our high-profile mental
health initiative Bell Let’s Talk continues
to break new ground in the fight
against the stigma around mental
illness while supporting better care and
access, new research and leadership
in workplace mental health.
Our 7th Bell Let’s Talk Day in
January 2017 set all-new records for
engagement across communications
platforms in Canada and worldwide
this year. New social media options
helped to increase this year’s
total messages of support to almost
132 million, further stimulating the
national conversation about mental
health while driving unprecedented
new Bell funding for Canadian mental
health programs.
Thank you
I would like to extend my thanks to
Bell’s talented national team for their
commitment to our customers,
shareholders and communities, and
to our Chair Gordon Nixon and the
BCE Board of Directors for their
invaluable support and guidance.
Thank you to our customers and
shareholders for believing in Bell and
the straightforward strategy of
network, service and operational
leadership that has transformed
your company into Canada’s fastest
growing broadband communications
provider.
As we celebrate Canada’s 150th
anniversary, and Bell’s role in our
nation’s growth and prosperity as
we mark our 137th, we will continue
to focus on creating value for all
stakeholders. We’re building a solid
foundation for ongoing progress as
we bring the next generation of
communications to Canadians
everywhere. We greatly appreciate
your support.
George A. Cope
President and
Chief Executive Officer
BCE Inc. and Bell Canada
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BCE INC. 2016 ANNUAL REPORT
STRATEGIC IMPERATIVE
Invest in
broadband networks
and services
It’s all about the networks, the
essential links that connect
Canadians to each other and
the world. Fast broadband fibre
and wireless networks are the
core of Bell’s leadership in the
marketplace, enabling growing
customer usage and
satisfaction across our services.
On any given day, Bell networks will
connect 39 million wireless calls,
deliver 10 million hours of CTV
programming, 2 million iHeartRadio
streams, 213 million visits to Google,
Bell operates 27 highly secure Canadian
data centres, more than any competitor.
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13 million videos on YouTube,
79 million emails, 151 million text
messages, and 35 million tweets.
On that same day, 96 of the
100 largest Canadian enterprises will
rely on Bell’s networks for the fast,
safe and secure communications
they need to compete, including
access to co-location and other
managed and professional services
through Bell’s industry-leading
roster of 27 data centres.
To meet the astounding growth
in demand for bandwidth, Bell is
driving broadband network
innovation and investment with
capital expenditures of $3.77 billion
in 2016, far more than any
communications company
in Canada and on par with major
investors in Canada’s oil and
gas sector.
Growth accelerates wherever Bell
lays fibre, and we are quickly
expanding our broadband Fibe
network, including our Gigabit Fibe
Internet footprint in Ontario, Québec,
Atlantic Canada and, soon, Manitoba.
We are bringing our 4G LTE and LTE
Advanced (LTE-A) mobile networks to
more Canadians across the country,
increasing capacity to meet the
growing demand for data
and enabling speeds up to
335 Megabits per second (Mbps) with
typical speeds up to 100 Mbps.
Bell is also implementing
four-carrier spectrum aggregation
that will enable mobile speeds
in select areas of up to 560 Mbps
(typically up to 166 Mbps), and
laying the groundwork for the next
generation of wireless connectivity
as Bell partnered with Nokia in 2016
to complete the first trial of
5G mobile technology in Canada.
Independent testing highlights
benefits of Bell networks
In wireless, independent analyst
PCMag ranked Bell’s 4G LTE
network the fastest in Canada
and significantly faster than US
carriers in 2016. Our national
4G LTE network reached 97% of
Canadians by the end of the year.
Two reports by the CRTC in 2016
showed Bell’s rapidly expanding
broadband fibre network stood out
for delivering the highest-quality
Internet service in the country.
Based on data collected from more
than 3,000 Canadian Internet
users, the reports confirmed that
Bell’s networks are evolving to
support emerging opportunities like
virtual reality and connected homes.
Bell’s direct fibre links exceeded
advertised Internet download
speeds by a greater margin than
other Canadian providers, and that
Fibre to the Home (FTTH) services
like Fibe offer the best browsing
and streaming experience.
Bell’s broadband Fibe service is
available now to 8.3 million homes
and businesses, including 2.9 million
direct fibre connections. By the end
of 2017, approximately one-third of
homes and businesses inside Bell’s
wireline footprint will be capable
of accessing Gigabit Fibe service,
the fastest Internet available,
with download speeds of 1 Gigabit
per second and more.
Accelerating our
investment momentum
With the acquisition of MTS
approved to move forward in 2017,
Bell plans to invest $1 billion in
broadband network infrastructure
projects throughout Manitoba over
the next 5 years.
Bell’s investments will bring major
wireline and wireless expansions to
Winnipeg’s Innovation Alley;
to the remote but burgeoning
ecotourism destination of
Churchill, the Polar Bear Capital of
the World; continuous broadband
wireless coverage along Highway
75 in southern Manitoba; and the
expansion of mobile and wireline
broadband networks in northern
Manitoba, including along Highway
6 to Thompson, in Flin Flon and in
5 small indigenous communities.
As part of our network innovation
strategy, we announced a
partnership with AT&T and Orange
in 2016 to develop software-driven
networks that transcend the
need for specialized hardware such
as switches and routers.
These networks of the future will
accelerate the IoT and support
emerging services such as virtual
reality, self-driving vehicles,
connected homes and smart cities.
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BCE INC. 2016 ANNUAL REPORT
STRATEGIC IMPERATIVE
Accelerate
wireless
The fastest-ranked LTE network
in the country took Bell wireless
to the top of an intensely
competitive mobile marketplace
in 2016, leading the industry in net
new postpaid customers, average
revenue per customer, and
growth in service revenue
and adjusted EBITDA.
Top networks, product innovation
and a focus on service are
all critical to Bell’s leadership in
the Canadian wireless marketplace.
Distribution strength is also key
to growth and Bell operates
approximately 1,400 Bell-branded
stores and The Source locations
across every province and
territory, significantly more than
our competitors.
At Bell, Virgin Mobile and
The Source stores, plus hundreds of
WIRELESSWAVE, WIRELESS etc. and
Tbooth wireless locations operated
by Glentel, customers have their
choice of the latest generation of
smartphones from Apple, Samsung,
HTC, ZTE, Motorola, Google,
BlackBerry, Novatel, Sony, Sonim,
LG and Alcatel. Our customers can
also access a wide variety of
tablets and other devices designed
for data services, including
machine-to-machine (M2M)
communications for business
applications.
This sales and support network is
backed up by a national customer
care team enabled in 2016 by
significant investments in IT support
systems, training, simplified billing
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and our increasingly popular
MyBell mobile self-serve app –
which recorded more than
2.7 million transactions in 2016.
As the digital world becomes
increasingly interconnected, our
mobile customers are depending
on their devices more than ever,
and wherever they may travel.
In 2015, we introduced the popular
Roam Better feature, which
includes unlimited talk and text plus
100 MB of data per day for just
$5 a day when in the US.
In 2016, we made Roam Better
available for only $10 a day in 110
of the most popular destinations
across Europe, the Caribbean,
Bahamas, Bermuda, Mexico,
Central and South America, Asia,
Oceania, South Africa and the
Middle East. Bell has our customers
covered in more locations than
any other Canadian competitor.
81%
Percentage of
postpaid wireless
customers taking
advantage of our
fastest-ranked
4G LTE network,
up from just 68%
a year earlier.
AVERAGE REVENUE PER USER (ARPU)
2016 $6546
2015 $6309
2014 $5992
83%
DATA DEMAND
Bell’s award-winning 4G LTE network
supports rising usage of mobile data
services. With 83% of Bell postpaid
customers now using smartphones,
we see continued growth ahead.
For example, we successfully tested
5G wireless technology with Nokia
in 2016, a first in Canada, achieving
speeds more than 6 times faster than
those available today. Expected to be
commercially available in 4 to 6 years,
5G provides more capacity for mobile
broadcast video and IoT applications,
including connected vehicles and
city-wide IoT solutions.
Bell Wireless delivered very
strong financial results based on
significant growth in new
subscribers and ever-increasing
mobile data usage as Canadians
turn to their smartphones to
manage their social interactions,
finances, work and entertainment.
In 2016, we won the leading market
share of net new postpaid
subscribers among the top 3
competitors. For the full year,
we added 315,311 net new postpaid
customers, an 18.8% increase over
the previous year. At the end of
2016, we served 7,690,727 postpaid
customers, up 4.3% over 2015,
and 8,468,872 including
prepaid services.
At year end, 83% of our postpaid
subscribers were using
smartphones, up from 78% at the
start of the year. Similarly,
81% were taking advantage of the
faster speeds of our expanding
4G LTE networks, up from just 68%
a year earlier.
With the outstanding speeds of
our 4G LTE and LTE-A networks,
Bell customers can unlock the full
potential of their smartphones.
This has propelled wireless data
use – up 37% in 2016 – for everything
from texting, gaming and Web
browsing to watching live
programming on more than 40
channels offered by Bell Mobile TV.
As recently as 5 years ago, Bell’s
blended ARPU (combining both
prepaid and postpaid customers)
was approximately $5 a month
lower than that of our nearest large
competitor. By the end of 2016,
we were generating higher usage
and consequently more revenue
per subscriber than either of our
largest competitors.
Overall in 2016, Bell’s wireless
revenue growth of 4.1% and
adjusted EBITDA growth of
6.2%, even in the face of
intense competitive
discounting and promotional
efforts, led the Canadian
industry.
As wireless continues to be
the primary driver of growth
in communications in Canada
and globally, Bell is staying
well ahead with ongoing
network development and
innovation.
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BCE INC. 2016 ANNUAL REPORT
STRATEGIC IMPERATIVE
Leverage
wireline
momentum
Bell continues to provide
Canadians with the newest TV
and Internet innovations and
the exclusive business services
that make Bell #1 in broadband
wireline communications
in Canada.
Fibe TV remained Canada’s fastest-
growing TV service in 2016 as more
subscribers embraced the unmatched
quality and exclusive services of the
country’s best television experience,
enhancing Bell’s lead as Canada’s #1
television provider.
wireless IPTV service with Fibe TV.
The Fibe Wireless 4K personal video
recorder (PVR) enables faster install
times and gives customers the
flexibility to place their TVs
anywhere in the home without
extra wires or cables.
Bell continued to unveil more of the
exclusive television features that have
made Fibe TV so popular, including the
availability of the powerful Fibe TV
app on Apple TV.
Bell continued to prove itself as an
innovator on a global scale by
announcing the world’s first fully
Offering the largest recording
capacity despite its small size, the
Fibe Wireless 4K PVR offers up to
150 hours of 4K recording capacity,
integrated 4K Netflix, and is ready
for high dynamic range (HDR),
the next evolution in broadcast
technology. Customers also gained
the opportunity to Own with Fibe,
enabling them to purchase
On Demand movies and enjoy them
as many times as they want on Fibe.
Available to TV subscribers across
the country and to any Canadian with
an Internet connection, Bell Media’s
unique CraveTV streaming service
surpassed 1 million subscribers in 2016.
Offering original Canadian content like
the hit comedy series LETTERKENNY
and thousands of hours of critically
acclaimed programming from HBO,
SHOWTIME and more of the biggest
names in entertainment, CraveTV
was growing as fast by the end
of 2016 as it did after its launch
in December 2014.
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Small business advantage
Bell supports Canada’s entrepreneurs
and innovators with exclusive products,
including Bell Total Connect, and a
better customer experience.
In 2016, the Internet outpaced TV
to become the #1 connection
for Canadians, with 50% of users
streaming video at least once a day.
To support fast-growing Internet
usage and an explosion in the
number of connected devices, Bell’s
broadband fibre footprint expanded
to reach approximately 8.3 million
homes and businesses in 2016,
providing the fastest broadband
speeds and reliable technology
necessary to support customer
demands and the needs of Canada’s
growing digital economy.
With 2016 Internet net additions of
85,099, Bell continues to lead the
way in Internet services with
3,476,562 high-speed subscribers,
the most of any provider in Canada.
Bell continued to provide unique
value to Internet customers with the
Home Hub 3000 residential
gateway, Canada’s most powerful
home Wi-Fi service with 12 antennas
and exclusive tri-band technology,
supporting multiple devices
simultaneously and total throughput
of up to 1 Gigabit. The average
number of connected devices per
home has more than doubled since
2013 and data usage by Bell Internet
customers continues to climb –
by 30% in 2016.
Virgin Mobile also introduced Home
Internet in Ontario and Québec as a
competitively priced high-speed
option for youth and value-oriented
customers, providing download
speeds up to 25 Mbps and upload
speeds up to 10 Mbps.
Canada’s business
communications leader
#1 TV
The superior
Fibe TV
experience has
transformed Bell
into Canada’s
largest provider
of television
services.
2016 brought the expansion of Bell
Total Connect to the small business
sector, reflecting Bell’s commitment
to enable the success of Canadian
entrepreneurs and innovators.
Small businesses in Québec and
Ontario can now benefit from the
full suite of next-generation
business communications services
used by the largest enterprises,
including seamless switching
between mobile devices and desk
phones, making it easy to work
remotely and still maintain your
business identity for outgoing calls.
Bell Business Markets closed 2016
with all 7 major Canadian banks
running critical communications
services on Bell’s unparalleled
networks.
We also expanded Canada’s
largest network of data centres by
acquiring all remaining equity in
Q9 Networks, further enabling
Bell Business Markets’ leadership
in data hosting services and
cloud solutions.
Bell became the first Canadian
provider to offer businesses access
to Microsoft Azure ExpressRoute
through Bell’s secure cloud
connection, providing faster access,
better reliability and unmatched
security to enterprise customers.
Bell also entered an exclusive
partnership with IBM as the only
Canadian carrier to offer IBM
MobileFirst for iOS apps, boosting the
efficiency and productivity of mobile
iOS devices for business users.
13
BCE INC. 2016 ANNUAL REPORT
STRATEGIC IMPERATIVE
Expand
media
leadership
Media platform innovation Bell Media’s CraveTV and TV Everywhere
options offer all-new ways to watch television wherever you go.
Bell Media is leveraging
the scale of its cross-country
media assets, innovation in
emerging media platforms,
and the best content from
Canada and around the world
to break new ground in
multimedia communications.
The largest media company in
Canada and an important part of
communities nationwide, Bell Media
operates the country’s widest
range of broadcasting and other
media assets: Canada’s largest
private TV broadcaster with 30
conventional stations including
CTV, the most-watched network
in the country; 34 specialty and
pay TV channels; 105 radio stations
in 54 markets across the nation,
tuned in by 17.1 million listeners for
77 million hours a week; the leading
Canadian digital media properties,
including TSN.ca and CTV.ca;
and Astral Out of Home, with more
than 30,000 advertising faces in
strategic locations across Canada.
For the 13th straight fall season,
CTV was the #1 network among
total viewers and all key adult
demographics with 10 of the
top 20 programs, more than
all other competing networks
combined, and Canada’s top
newscast: CTV National News with
Lisa LaFlamme.
Bell Media’s specialty and pay TV
properties were reaching 83% of
English specialty and pay TV
viewers in the average week at
year end, with 12 of the top
20 programs among key adult
viewers. TSN, Discovery
(the top entertainment specialty
channel in primetime), Space and
Bravo all ranked in the top 10
English-language specialty
channels. Bell Media also launched
Gusto in 2016, its first food and
lifestyle specialty channel featuring
an exclusive portfolio of original
Canadian programming.
Committed to delivering the pay TV
programming Canadians want the
most, Bell Media became the sole
provider of HBO Canada in 2016 and
expanded the reach of The Movie
Network (TMN) pay TV service
nationally. We also partnered with
20th Century Fox to deliver first-run
theatrical movies for TMN
subscribers, and with Warner
Brothers to stream many of the year’s
most-popular shows on CraveTV.
With a strong Québec presence,
we also remain the leader in
French-language specialty and
pay TV, reaching 78% of all
French-language TV viewers in the
average week. We operate 5 of the
top 10 French specialty and pay
channels among key viewers:
the RDS sports network, Canal D,
Super Écran, Canal Vie and Z.
Sports programming continues to
outperform across Bell Media’s
conventional and specialty TV, radio
and digital platforms. In the last
quarter of 2016, total primetime
viewership for TSN was up 11% over
last year as more viewers tuned in
Toronto Raptors, NFL and CFL games.
The Major League Soccer (MLS)
playoffs featuring Toronto FC
produced the 3 most-watched MLS
games in Canadian TV history, with
1.3 million viewers for the final game.
TSN extended its broadcast deal
with MLS in 2016 for another 5 years.
The annual IIHF World Junior
Championship is a traditional
Canadian favourite on TSN
and RDS, and 17.2 million individual
Canadians – nearly 50% of the
population – tuned in to watch
coverage during the international
hockey tournament’s 11 days.
14
Sports programming outperforms
across Bell Media’s conventional and
specialty TV, radio and digital platforms.
As with many segments of Canada’s
communications industry, the media
landscape is changing dramatically
as evolving technologies enable
consumers to explore new viewing
and listening options.
Bell Media has embraced the
innovation opportunity
with Canada’s fast-growing video
streaming service, CraveTV,
and our TV Everywhere options,
including CTV GO, TSN GO,
RDS GO, Discovery GO and TMN
GO, providing live and on-demand
television content on smartphones,
tablets and computers.
CraveTV’s mix of much-loved shows
from major studios and original
Canadian content such as the
hugely popular LETTERKENNY series
is continuing to accelerate growth of
the streaming service. Initially
launched through multiple TV
providers in 2014, CraveTV became
available to all Canadians with an
Internet connection in 2016, driving
the subscriber base to more than
one million during the year. We also
made CraveTV available as an app
for Apple TV viewers.
iHeartRadio Canada
In October 2016, Bell Media brought
the highly successful iHeartRadio
brand to Canada. Our digital
iHeartRadio Canada service offers
instant access to all of Bell Media’s
105 radio stations across
the country.
The free iHeartRadio Canada
digital app adds more than 100
exclusive streaming channels
featuring every musical genre as
well as news/talk, sports and
comedy offerings. By year end, the
iOS and Android apps had been
downloaded more than
600,000 times.
Astral Out of Home expansion
Astral Out of Home continued to
expand its reach in 2016, beginning
with the acquisition in January of
Métromédia, which specializes in
outdoor and digital advertising in
Montréal subway stations, on city
buses and in parking lots. The Astral
team also won the exclusive rights to
digital advertising at Toronto Pearson
Airport, giving Bell a significant
presence in 6 of Canada’s largest
international airports.
And in early 2017, Bell Media
acquired Cieslok Media,
a Canadian heavyweight in
large-format outdoor advertising
with 120 high-profile displays –
including the country’s biggest
multimedia billboards at
Yonge-Dundas Square in Toronto.
Bell Media excellence recognized
Bell Media’s commitment to
excellence in programming earned
Bell Media and its partners
37 Canadian Screen Awards,
alongside Bell Media’s role in
19 film category wins.
Our ongoing leadership in creating
and developing original Canadian
content was reflected in awards
for CTV National News with
Lisa LaFlamme (best national news),
CTV Vancouver (best local news),
19-2 (best drama), The Amazing Race
Canada (best reality/competition
series), Degrassi (best children’s or
youth series) and The Marilyn Denis
Show (best talk).
TSN received more awards than any
sports broadcaster, including best live
sports event for the FIFA Women’s
World Cup.
15
BCE INC. 2016 ANNUAL REPORT
STRATEGIC IMPERATIVE
Improve
customer
service
Bell is transforming the service
experience by simplifying the
way we interact with our
customers across a full range
of communications services.
tools and training for our call centre
representatives and field
technicians, improving our online
self-serve tools and processes, and
helping to ensure customers are
connected faster.
With close to 21 million customer
connections – more than any other
communications company in
Canada – our strategy to improve
satisfaction includes investing
$850 million since 2012 in better
Simplifying the
customer experience
We appreciate that every customer’s
time is valuable. That’s why Bell
developed innovative new tools like
Manage Your Appointment in 2016
that not only lets customers confirm
their service call, but also provides
key information including the
technician’s name and approximate
arrival time. In addition, technicians
can now access a customer’s account
history directly on their mobile device,
further reducing the time it takes to
connect to our services.
In 2016 Bell technicians arrived right
on time for 97% of appointments,
helping to drive a record 95%
customer satisfaction rate.
Our investments in service, along
with process improvements in
installation, mean we can reach
customers faster with most service
appointments now scheduled within
2 days of placing an order.
34%
Increase in
customer usage
of the powerful
MyBell mobile
self-serve app.
Business customers also benefited
from service enhancements. By
improving dispatch processes,
we were able to deliver same day
service for small businesses 73% of
the time by the end of 2016, a 98%
improvement since 2014. Because it’s
crucial for our business customers to
get up and running quickly, Bell has
dedicated pages on Bell.ca for small
business and enterprise clients,
connecting customers directly to
one of Bell’s specially trained
business experts.
A simpler self-serve experience
As Canadians increasingly manage
their services and pay their bills
over a mobile device, our enhanced
self-serve options give our
customers more control over their
accounts than ever before.
Users of the MyBell app can access a
redesigned and simplified bill any
time, track their data use, pay a bill or
change account features, including
travel add-ons like Roam Better.
For Mobility customers, Bell revamped
our entire welcome strategy from
the time of sale to beyond the first bill
in order to make sure customers
have the easiest way to get the right
information at the right time.
16
Bell technicians arrived on time
for 97% of appointments, achieving a
record customer satisfaction of 95%.
This covers everything from an
in-store checklist to the Bell Mobility
Interactive tour – a customized video
for new wireless customers explaining
their first bill, how to check usage, and
how to add new features.
These innovations are generating
positive results. Transactions on
our MyBell app increased 34%
compared to last year while the
volume of calls to our service
centres fell by 4 million.
This not only reduces the costs of
serving a growing customer base,
it also enables our representatives
to spend more time with the
customers who call in.
A further measure of our progress
is a reduction of complaints lodged
with the federal Commissioner for
Complaints for Telecommunications
Services (CCTS). After a steady
decline in complaints in each of the
last 3 years, in 2016, complaints to
CCTS about Bell fell 18%.
Meeting the needs of
all our customers
Bell has taken steps over the past
several years to make it easier for
Canadians with physical, speech,
cognitive, hearing, and vision-related
challenges to access our advanced
communications products and
services. In 2016, we upgraded our
Accessibility Services Centre on
Bell.ca, with improved navigation
when using screen readers and
keyboards. The site meets
internationally recognized Web
Content Accessibility Guidelines and
also features a new mobile device
selector, making it easier to find
devices with specific accessibility
features such as hearing aid
compatibility and screen magnification.
There’s also the Mobile Accessibility
app, a screen reader app to assist
low-vision and blind users that’s
complimentary for all Bell Mobility
customers with an Android device.
To support Canadians who are
deaf or hard of hearing, Bell
introduced a dedicated wireless
rate plan that eliminates
unnecessary voice minutes.
Bell has invested approximately
$25 million in accessibility initiatives
such as Text with 9-1-1 service,
enabling customers with speech or
hearing impairment to communicate
with emergency services, and
Video Relay Service (VRS), which
facilitates real-time sign-language
interpretation of telephone
conversations.
Expanding our reach
Bell is continuing to expand and
enhance our network of retail
outlets which includes about
1,400 Bell-branded stores and
The Source locations across the
country, plus several hundred
locations of Glentel, 50% owned
by Bell, operating under such
brands as WIRELESSWAVE and
WAVE SANS FIL.
With highly trained front-line retail
staff and ongoing enhancements to
store design, including a recent
upgrade to the accessories section at
Bell’s flagship store at the Toronto
Eaton Centre, our retail customer
experience is unparalleled.
Improving customer service is
critical to achieving Bell’s goal of
being recognized by customers as
Canada’s leading communications
company. Our results show that
customers are embracing our
online self-serve and mobile apps,
making fewer calls to our service
centres and are more satisfied than
ever before. We’re committed to
building on our strong service
momentum in 2017.
17
BCE INC. 2016 ANNUAL REPORT
STRATEGIC IMPERATIVE
Achieve a
competitive
cost structure
2.7%
Further
reduction in
costs in the
Bell wireline
segment
in 2016.
Focused on achieving best-
in-class operating efficiencies,
Bell puts a high priority on
controlling costs in order to
enhance our ability to invest
in growth-generating
infrastructure and innovation,
and maximize value to our
customers in a competitive
marketplace.
Sophie Boisvert
Technician, Bell Technical Solutions.
18
With a close eye on any discretionary
spending, we minimize business
travel whenever possible by
employing the same teleconferencing
and videoconferencing productivity
tools we offer to other companies.
It’s a strategy that helps improve
productivity as team members
reduce time on the road between
Bell’s many locations across the
country and gain time in the office
and at home.
In 2016, we continued to find
savings from the integration
of Bell Aliant and from adjusting
our workforce as our business
evolves, expanding in high-growth
broadband services and reducing
in declining traditional lines
of business.
Our wireline segment reduced
costs by 2.7% in 2016, supporting
the second straight year of growth
in adjusted EBITDA and continued
improvement in Bell’s North
American-leading wireline
EBITDA margin.
Customer operations also delivered
significant productivity savings.
By investing heavily in online and
mobile customer self-serve options,
we have reduced higher-cost calls
to our service centres significantly,
by 4 million in 2016.
We have also invested in
productivity technology for our
installation and service technicians,
enabling significant gains in their
ability to get the job done right
on the first visit – cutting truck rolls
by 100,000 in 2016 while achieving
record customer satisfaction
scores. The new Appointment
Manager tool has reduced
the number of times our technicians
find no one home at the appointed
time by 27%.
In 2016 we significantly reduced
our cost of borrowing, obtaining
the lowest-ever financing rate
on MTN debentures that will be
used to repay debt and fund
investments.
Everyone at Bell is involved in
driving a more competitive cost
structure at our company, reducing
waste and expenses while
maximizing productivity and
strategic investment. It’s a critical
imperative as Bell leads the way
in investing in Canada’s broadband
communications future.
CORPORATE RESPONSIBILITY
Bell’s corporate responsibility
focus considers the community,
environmental and broad
economic impact of all our
business operations. We work
to safeguard privacy, foster a
diverse workplace and ensure
environmental sustainability,
participating in respected
Canadian and international
bodies that benchmark our
performance against peer
companies here and around
the world.
This includes community investment
leadership with Bell Let’s Talk and
other initiatives such as United Way
Centraide and the Canadian Centre
for Child Protection. Our employees
and retirees also contributed
$2.2 million in charitable gifts
through the Bell Employee Giving
Program and more than 336,000
hours of personal volunteer time.
Bell was again recognized as
Canada’s top communications
company in corporate sustainability
and environmental performance
in Newsweek’s 2016 international
ranking of the world’s Top
Green Companies.
Bell was named one of the Top 50
Socially Responsible Corporations
by Maclean’s and L’Actualité, and
one of the Best 50 Corporate
Citizens in Canada by Corporate
Knights. Workforce diversity was
a key factor in Bell being recognized
as one of Canada’s Top 100
Employers in 2016.
To learn more about these initiatives,
please see the Bell Corporate
Responsibility Report at BCE.ca.
$2.2M
In donations to
charity by the
Bell team as
part of the
Bell Employee
Giving Program.
The Bell team is committed to serving
our customers and the community.
From left to right: Venel Joseph, Iris Wong,
Bruce Singer, Tania Sarkissian.
19
BCE INC. 2016 ANNUAL REPORT
COMMUNITY INVESTMENT
Bell Let’s Talk:
Record engagement in
Canada’s mental health cause
Bell Let’s Talk fights the stigma
around mental illness while
funding mental healthcare,
research and workplace
initiatives across Canada.
Bell’s initiative is having a direct
and positive impact on perceptions
of mental illness, reflected in recent
data from Nielsen outlining that
most Canadians are more aware of
mental health issues than 6 years
ago and think that progress is
being made.
Significantly, 82% of Canadians
(and 88% of young people) believe
attitudes towards mental illness
have changed for the better,
up from 70% last year. At the same
time, 72% (76% of young people)
believe stigma has been reduced,
up from just 57% the year before.
Canadians everywhere join
the fight against the stigma
Reducing the stigma around mental
illness is critical to making progress in
mental health, because too many
who struggle won’t seek the help
they need because of fear or
embarrassment. Bell Let’s Talk Day
has played a key role in growing both
awareness and action by sparking a
renewed cross-Canada mental health
conversation each year.
Bell Let’s Talk Day 2017 on January 25
achieved all-new records for
engagement in the national mental
health discussion – 131,705,010 social
media interactions and texts, mobile
calls and long distance calls by
Bell customers.
Because Bell donates 5 cents for each
interaction on Bell Let’s Talk Day at no
extra charge to participants, our
funding for Canadian mental health
grew by $6,585,250.50. Added to the
results of the previous 6 Bell Let’s Talk
Days plus Bell’s original $50-million
anchor donation, Bell’s total funding
commitment is now $86,504,429.05 –
well on the way to our target of at
least $100 million in 2020.
Social media interaction on Bell Let’s
Talk Day almost tripled in 2017 thanks
to the addition of Snapchat and
Instagram support, on top of Twitter
and Facebook. #BellLetsTalk was
once again the top Twitter trend in
Canada and worldwide, and the
new Bell Let’s Talk Snapchat geofilter
was the social media platform’s
most-used filter ever in Canada
for one day.
Again on Bell Let’s Talk Day,
political leaders, royalty, sports
heroes, corporations and
competitors, entertainers and other
celebrities embraced the cause,
driving unprecedented social media
engagement from millions of fans in
Canada and around the world.
More than 20,000 student-athletes
at 54 universities helped lead
the Bell Let’s Talk Day conversation
on campuses, and more than
100 university sports games across
the country were part of the
campaign.
Student-athletes also led the
charge on Canada’s largest-ever
Thunderclap, the social media
crowdspeaking platform that
allows a single message to be
shared en masse. With 5,479 people
registered and a social reach of
6,003,469, the Bell Let’s Talk Day
Thunderclap was the biggest ever
for mental health worldwide.
$6.6M
131,705,010
messages of
support on Bell
Let’s Talk Day
sparked
$6,585,250.50
more in Bell
funding for
mental health.
20
Clara Hughes
Michael Landsberg
Mary Walsh
Howie Mandel
Serena Ryder
The Bell Let’s Talk team thanks
the hundreds of Canadian
corporations, hospitals and
universities, governments,
the Canadian Armed Forces,
professional sports teams
and associations, community and
mental health partners, chambers
of commerce, and schools, colleges
and universities that joined the
conversation on Bell Let’s Talk Day
through events, promotions
and advertising, social media,
newsletters and websites.
Bell Let’s Talk funding at work
While Bell Let’s Talk Day is the
highest-profile part of the initiative,
Bell’s funding helps move Canada’s
mental health forward every day
of the year.
Bell Let’s Talk has supported
hundreds of organizations in every
region of the country since 2010,
which have in turn provided direct
mental health assistance to at least
1.5 million Canadians.
This includes front-line organizations
supporting mental health at the
community level. The Bell Let’s Talk
Community Fund announced grants
of $5,000 to $25,000 for 72 more
community groups all around Canada
in 2016, bringing the total number of
groups supported by the Fund since it
was launched in 2011 to 345.
Bell extended its $1 million partnership
with the True Patriot Love Foundation
in 2016 for another 4 years, supporting
mental health services for Canadian
Armed Forces members, their families
and veterans.
Bell Let’s Talk supports research
projects and improved access to care
at major healthcare institutions and
universities. In 2016, Bell donated
$1 million to renew the Bell Canada
Mental Health and Anti-Stigma
Research Chair at Queen’s University,
including the re-appointment of
Dr. Heather Stuart, inaugural holder
of the world’s first anti-stigma
research chair, for another 5 years.
A new $250,000 donation to McGill
University’s Montréal Neurological
Institute and Hospital is funding the
development of online resources
focused on the mental health needs
of multicultural communities.
Funding from Bell Let’s Talk is
accelerating government support
for mental health initiatives.
A $1 million gift to Strongest
Families Institute is being matched
by all 4 Atlantic provinces to
improve mental health services
for about 2,000 children.
A $300,000 Bell Let’s Talk donation
to improve access to care at
2 health foundations in Québec’s
Lanaudière region is being
matched by the government of
Québec.
As part of its multi-year, $1 million
fund for Canada’s Northern
territories, Bell Let’s Talk has also
committed $250,000 for a
counter-suicide safeTALK program
to be delivered by Nunavut’s
Embrace Life Council.
Bell Let’s Talk is supporting the
integration of mental health
training in standard and
emergency first aid courses with a
$150,000 donation to St. John
Ambulance. Available nationally
next year, the courses will be
offered in workplaces, hospitals,
schools and communities and teach
participants what to do in an
emergency, including how to
recognize high-risk situations and
when to escalate a mental health
situation to professionals.
21
BCE INC. 2016 ANNUAL REPORT
BELL ARCHIVES
Celebrating Canada 150
and Bell’s role in our
nation’s development
Canada was barely a teenager,
just 13 years old, when
Bell Canada was founded in 1880
in Montréal. Ever since, the
growth of the country and our
company has been entwined as
Bell’s networks, communications
services and media properties
have woven Canadians and their
stories together.
As Canada marks 150 years of
Confederation, and Montréal
celebrates its own 375th anniversary,
we took a look through Bell’s archives
for some interesting history…
First coast-to-coast
radio broadcast
To mark the 1927 Diamond Jubilee
of Confederation, Bell led the
engineering for the first-ever
coast-to-coast radio broadcast,
from Halifax to Vancouver.
This involved connecting 23 radio
stations nationally as well as the
installation of loudspeakers
in stadiums, parks and other public
places so that people without
radios could listen in to the
broadcast by Prime Minister
William Lyon Mackenzie King and
hear the inaugural ringing of the
Peace Tower Carillion on
Parliament Hill.
The radio stations involved included
2 that are part of Bell Media’s
network of 105 news, sports and
music radio properties nationwide:
CFRB, now Bell Media’s Newstalk
1010 in Toronto, and CKOC in
Hamilton, Ontario, Canada’s oldest
continuously operating radio
station and now TSN Hamilton 1150.
Bell helps Expo 67
welcome the world
Canada marked its Centennial
40 years later, and Bell was the
lead player in the creation of one
of the most popular attractions
at Expo 67: the Telephone
Association of Canada pavilion.
Crowds waited in long lines to see
the ground breaking Circle-Vision
360° film called Canada 67,
and try “picturephones” to see
who they were talking to.
Canada 150
Bell is sponsoring celebrations in the
nation’s capital as our broadband
networks and media properties
provide unprecedented access to
Canada 150 festivities across
multiple platforms and screens.
Bell is powering the Ottawa 2017
travelling kiosk and experiential
mobile app, and creating a special
multimedia experience in the capital
city’s underground LRT system.
Bell Media’s national reach ensures
Canadians everywhere can join in
the nation’s big birthday party.
Bell’s Annual General Meeting of
Shareholders will also take place on
April 26 at Ottawa’s National Gallery
of Canada to mark Canada 150.
22
Bell Media will also employ
its television, radio, outdoor and
digital properties to promote the
country’s anniversary throughout
the year – which includes Canada
In A Day, a CTV special this summer
that was created entirely from
videos made by people nationwide
in a single day.
Hello, Montréal! runs until
January 2018. To mark its
own 25th anniversary, the
Pointe-à-Callière Museum
will offer free admission to
the exhibition from May 19
to June 20.
Showcasing Bell history
To highlight Bell’s important role in
Montréal as the city celebrates its
375th anniversary in 2017, we’re
mounting a year-long exhibition of
our history at the Pointe-à-Callière
Montréal Archaeology and
History Complex.
Detailing the impact of Alexander
Graham Bell’s invention on
our country’s growth and cultural
development, Hello Montréal! features
250 artifacts from the Bell archives
presented in a fun and compelling
way for people of all ages.
At the Expo 67
Telephone Pavilion,
Bell demonstrated the
latest communications
innovations and
products of the future
like telephone banking.
23
Table of contents
Management’s discussion and analysis
1 Overview
Introduction
1.1
1.2 About BCE
1.3
1.4 Capital markets strategy
1.5 Corporate governance and risk management
Key corporate developments
2 Strategic imperatives
2.1 Accelerate wireless
2.2
2.3
2.4
2.5
2.6 Achieve a competitive cost structure
Leverage wireline momentum
Invest in broadband networks and services
Expand media leadership
Improve customer service
3 Performance targets, outlook, assumptions and risks
2016 performance vs. guidance targets
Business outlook and assumptions
Principal business risks
3.1
3.2
3.3
4 Consolidated financial analysis
Introduction
Severance, acquisition and other costs
4.1
4.2 Customer connections
4.3 Operating revenues
4.4 Operating costs
4.5 Net earnings
4.6 Adjusted EBITDA
4.7
4.8 Depreciation and amortization
4.9
4.10 Other income (expense)
4.11
4.12 Net earnings attributable to common shareholders and EPS
4.13 Capital expenditures
4.14 Cash flows
Finance costs
Income taxes
5 Business segment analysis
Bell Wireless
Bell Wireline
Bell Media
5.1
5.2
5.3
6 Financial and capital management
6.1 Net debt
6.2 Outstanding share data
6.3 Cash flows
6.4
6.5
6.6 Credit ratings
Liquidity
6.7
Post-employment benefit plans
Financial risk management
7 Selected annual and quarterly information
7.1 Annual financial information
7.2 Quarterly financial information
8 Regulatory environment
9 Business risks
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Reports on internal control
Management’s report on internal control over financial reporting
Report of independent registered public accounting firm
Consolidated financial statements
Management’s responsibility for financial reporting
Report of independent registered public accounting firm
Consolidated income statements
Consolidated statements of comprehensive income
Consolidated statements of financial position
Consolidated statements of changes in equity
Consolidated statements of cash flows
Inventory
Notes to consolidated financial statements
Corporate information
Significant accounting policies
Business acquisitions and dispositions
Segmented information
Operating costs
Severance, acquisition and other costs
Interest expense
Other income (expense)
Income taxes
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10 Earnings per share
Note 11 Trade and other receivables
Note 12
Note 13 Property, plant and equipment
Note 14
Note 15
Note 16 Other non-current assets
Note 17 Goodwill
Note 18 Trade payables and other liabilities
Note 19 Debt due within one year
Note 20 Long-term debt
Note 21 Provisions
Note 22 Post-employment benefit plans
Note 23 Other non-current liabilities
Note 24 Financial and capital management
Note 25 Share capital
Note 26 Share-based payments
Note 27 Commitments and contingencies
Note 28 Related party transactions
Note 29 Significant partly-owned subsidiaries
Intangible assets
Investments in associates and joint ventures
Board of directors
Executives
Investor information
s
t
n
e
t
n
o
c
f
o
e
b
a
T
l
110
110
111
112
112
113
114
114
115
116
117
118
118
118
127
129
131
131
132
132
133
134
135
135
135
137
138
138
138
139
139
140
141
142
146
146
150
151
154
154
155
156
157
158
10 Financial measures, accounting policies and controls
10.1 Our accounting policies
10.2
Non-GAAP financial measures and key performance
indicators (KPIs)
10.3 Effectiveness of internal controls
102
102
106
109
BCE Inc.
2016 AnnuAl RepoRt
25
Management’s discussion and analysis
A
&
D
M
In this management’s discussion and analysis of financial condition
and results of operations (MD&A), we, us, our, BCE and the company
mean, as the context may require, either BCE Inc. or, collectively,
BCE Inc., Bell Canada, their subsidiaries, joint arrangements and
associates. Bell means, as the context may require, either Bell Canada
or, collectively, Bell Canada, its subsidiaries, joint arrangements
and associates.
All amounts in this MD&A are in millions of Canadian dollars, except
where noted. Please refer to section 10.2, Non-GAAP financial measures
and key performance indicators (KPIs) on pages 106 to 109 for a list of
defined non-GAAP financial measures and key performance indicators.
Please refer to BCE’s audited consolidated financial statements for
the year ended December 31, 2016 when reading this MD&A.
In preparing this MD&A, we have taken into account information
available to us up to March 2, 2017, the date of this MD&A, unless
otherwise stated.
You will find additional information relating to BCE, including BCE’s
audited consolidated financial statements for the year ended
December 31, 2016, BCE’s annual information form for the year ended
December 31, 2016, dated March 2, 2017 (BCE 2016 AIF) and recent
financial reports, on BCE’s website at BCE.ca, on SEDAR at sedar.com
and on EDGAR at sec.gov.
This MD&A comments on our business operations, performance,
financial position and other matters for the two years ended
December 31, 2016 and 2015.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
BCE’s 2016 annual report, including this MD&A and, in particular, but
without limitation, section 1.3, Key corporate developments, section 1.4,
Capital markets strategy, section 2, Strategic imperatives, section 3.2,
Business outlook and assumptions, section 5, Business segment analysis
and section 6.7, Liquidity of this MD&A, contains forward-looking
statements. These forward-looking statements include, but are not
limited to, statements relating to BCE’s 2017 annualized common share
dividend and common share dividend payout policy, the expected
improvement of BCE’s net debt leverage ratio and return thereof within
BCE’s target range, the sources of liquidity we expect to use to meet our
anticipated 2017 cash requirements, our expected 2017 post-employment
benefit plans funding, our network deployment and capital investment
plans, the expected timing and completion of the proposed acquisition
of Manitoba Telecom Services Inc. (MTS) and of the proposed divestitures
to TELUS Corporation through one or more of its subsidiaries (collectively,
the TELUS Group) and Xplornet Communications Inc. (Xplornet) of certain
assets, certain synergies and other benefits expected to result from
the proposed acquisition of MTS, and BCE’s business outlook, objectives,
plans and strategic priorities. Forward-looking statements also include
any other statements that do not refer to historical facts. A statement
we make is forward-looking when it uses what we know and expect
today to make a statement about the future. Forward-looking statements
are typically identified by the words assumption, goal, guidance, objective,
outlook, project, strategy, target and other similar expressions or future
or conditional verbs such as aim, anticipate, believe, could, expect, intend,
may, plan, seek, should, strive and will. All such forward-looking
statements are made pursuant to the safe harbour provisions of
applicable Canadian securities laws and of the United States Private
Securities Litigation Reform Act of 1995.
Unless otherwise indicated by us, forward-looking statements in
BCE’s 2016 annual report, including in this MD&A, describe our expectations
as at March 2, 2017 and, accordingly, are subject to change after that
date. Except as may be required by Canadian securities laws, we do
not undertake any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
Forward-looking statements, by their very nature, are subject to inherent
risks and uncertainties and are based on several assumptions, both
general and specific, which give rise to the possibility that actual results
or events could differ materially from our expectations expressed in, or
implied by, such forward-looking statements and that our business
outlook, objectives, plans and strategic priorities may not be achieved.
As a result, we cannot guarantee that any forward-looking statement
will materialize and we caution you against relying on any of these
forward-looking statements. Forward-looking statements are presented
in BCE’s 2016 annual report, including in this MD&A, for the purpose of
assisting investors and others in understanding our objectives, strategic
priorities and business outlook as well as our anticipated operating
environment. Readers are cautioned, however, that such information
may not be appropriate for other purposes.
We have made certain economic, market and operational assumptions
in preparing the forward-looking statements contained in BCE’s 2016
annual report and, in particular, but without limitation, the forward-
looking statements contained in the previously-mentioned sections of
this MD&A. These assumptions include, without limitation, the assumptions
described in the various sections of this MD&A entitled Business outlook
and assumptions, which sections are incorporated by reference in this
cautionary statement. We believe that our assumptions were reasonable
at March 2, 2017. If our assumptions turn out to be inaccurate, our actual
results could be materially different from what we expect.
Important risk factors including, without limitation, regulatory, competitive,
economic, financial, operational, technological and other risks that could
cause actual results or events to differ materially from those expressed
in, or implied by, the previously-mentioned forward-looking statements
and other forward-looking statements contained in BCE’s 2016 annual
report, and in particular in this MD&A, include, but are not limited to, the
risks described or referred to in section 9, Business risks, which section
is incorporated by reference in this cautionary statement.
We caution readers that the risks described in the previously-mentioned
section and in other sections of this MD&A are not the only ones that
could affect us. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial may also have a
material adverse effect on our financial position, financial performance,
cash flows, business or reputation. Except as otherwise indicated by us,
forward-looking statements do not reflect the potential impact of any
special items or of any dispositions, monetizations, mergers, acquisitions,
other business combinations or other transactions that may be
announced or that may occur after March 2, 2017. The financial impact
of these transactions and special items can be complex and depends
on facts particular to each of them. We therefore cannot describe the
expected impact in a meaningful way, or in the same way we present
known risks affecting our business.
26
BCE Inc.
2016 AnnuAl RepoRt
1 Overview
1.1
Introduction
At a glance
BCE is Canada’s largest communications company, providing residential,
business and wholesale customers with a wide range of solutions for
all their communications needs. BCE’s shares are publicly traded on
the Toronto Stock Exchange and on the New York Stock Exchange
(TSX, NYSE: BCE).
Our results are reported in three segments: Bell Wireless, Bell Wireline
and Bell Media.
Bell Wireless provides wireless voice and data communications
products and services to our residential, small and medium-sized
business and large enterprise customers across Canada.
Bell Wireline provides data, including Internet access and Internet
protocol television (IPTV), local telephone, long distance, as well as
other communications services and products to our residential, small
and medium-sized business and large enterprise customers, primarily
in Ontario, Québec and the Atlantic provinces, while satellite television
(TV) service and connectivity to business customers are available
nationally across Canada. In addition, this segment includes our
wholesale business, which buys and sells local telephone, long distance,
data and other services from or to resellers and other carriers.
Bell Media provides conventional, specialty and pay TV, digital media,
radio broadcasting services and out-of-home (OOH) advertising
services to customers nationally across Canada.
BCE is Canada’s
largest communications company
BCE’s business segments
At December 31, 2016
BCE
Bell
Wireless
Bell
Wireline
Bell
Media
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We also hold investments in a number of other assets, including:
• a 28% indirect equity interest in Maple Leaf Sports & Entertainment Ltd. (MLSE)
• a 50% indirect equity interest in Glentel Inc. (Glentel)
• an 18.4% indirect equity interest in entities that operate the Montréal Canadiens Hockey Club and the Bell Centre in Montréal
• a 50% indirect equity interest in the Toronto Argonauts Football Club (Argos)
BCE Inc.
2016 AnnuAl RepoRt
27
MD&A BCE consolidated results
BCE 2016
Operating revenues
$21,719
million
+1.0% vs. 2015
BCE 2016
Net earnings
$3,087
million
+13.1% vs. 2015
BCE 2016
Adjusted EBITDA (1)
$8,788
million
+2.8% vs. 2015
BCE 2016
Net earnings attributable
to common shareholders
BCE 2016
Adjusted net earnings (1)
$2,894
million
+14.6% vs. 2015
$3,009
million
+5.8% vs. 2015
BCE 2016
Cash flows from
operating activities
$6,643
million
+5.9% vs. 2015
BCE 2016
Free cash flow (1)
$3,226
million
+7.6% vs. 2015
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BCE customer connections
Wireless
Total
Wireless
Postpaid
High-speed
Internet
TV
+2.7%
8.5 million subscribers
at the end of 2016
+4.3%
7.7 million subscribers
at the end of 2016
+1.9%
3.5 million subscribers
at the end of 2016
+0.2%
2.7 million subscribers
at the end of 2016
Network access
services (NAS) lines
(6.4%)
6.3 million subscribers
at the end of 2016
Our goal
Our goal is to be recognized by customers as Canada’s leading communications company. Our primary business objectives are to grow our
subscribers profitably and to maximize revenues, operating profit, free cash flow and return on invested capital by further enhancing our position
as the foremost provider in Canada of comprehensive communications services to residential, business and wholesale customers and as
Canada’s premier content creation company. We seek to take advantage of opportunities to leverage our networks, infrastructure, sales
channels, and brand and marketing resources across our various lines of business to create value for both our customers and other stakeholders.
Our strategy is centred on our disciplined focus and execution of six strategic imperatives. The six strategic imperatives that underlie BCE’s
business plan are:
1
Accelerate
wireless
2
Leverage
wireline
momentum
4
Expand
media
leadership
5
Improve
customer
service
3
Invest in
broadband
networks
and
services
6
Achieve a
competitive
cost
structure
(1) Adjusted EBITDA, adjusted net earnings and free cash flow are non-GAAP financial measures and do not have any standardized meaning under International Financial Reporting
Standards (IFRS). Therefore, they are unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key
performance indicators (KPIs) – Adjusted EBITDA and adjusted EBITDA margin, Adjusted net earnings and adjusted EPS and Free cash flow and dividend payout ratio for more
details, including reconciliations to the most comparable IFRS financial measure.
28
BCE Inc.
2016 AnnuAl RepoRt
MD&A 1.2 About BCE
We report the results of our operations in three segments: Bell Wireless, Bell Wireline and Bell Media. We describe our product lines by segment
below, to provide further insight into our operations.
Our products and services
Bell Wireless
SEGMENT DESCRIPTION
• Provides integrated digital wireless voice and data
communications products and services to residential and
business customers across Canada
• Includes the results of operations of Bell Mobility Inc.
(Bell Mobility) and wireless-related product sales from our
wholly-owned subsidiary, national consumer electronics retailer,
The Source (Bell) Electronics Inc. (The Source)
OUR BRANDS INCLUDE
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OUR NETWORKS AND REACH
We hold licensed national wireless spectrum, with holdings across
various spectrum bands, totalling more than 4,500 million Megahertz
(Mhz) per Population (MHz-pop), corresponding to a weighted-average
of approximately 135 MHz-pop of spectrum across Canada.
The vast majority of our cell towers are connected by fibre, the latest
in network infrastructure technology, for a more reliable connection.
We have deployed and operate a number of leading nationwide
wireless broadband networks compatible with global standards that
deliver high-quality and reliable voice and high-speed data services
to virtually all of the Canadian population.
• Fourth Generation (4G) Long-term Evolution (LTE) network
launched in September 2011:
• Provides mobile Internet data access speeds as fast as
150 megabits per second (Mbps) (typical speeds of 12 to 40 Mbps)
• National third generation (3G) code division multiple access
(CDMA) network, which we began decommissioning in 2014.
The decommissioning is expected to be substantially completed
in 2018.
• Largest wireless fidelity (Wi-Fi) network across Canada:
• Approximately 4,000 public Wi-Fi hotspots at participating
McDonald’s, Tim Hortons and Chapters/Indigo retail outlets
across Canada, in addition to thousands of Wi-Fi networks
managed through our business markets team at enterprise
customer locations.
• Approximately 2,500 retail points of distribution across Canada,
including approximately 1,400 Bell-branded stores and The
Source locations, Glentel-operated stores (WIRELESSWAVE, Tbooth
wireless and WIRELESS etc.) as well as other third-party dealer
and retail locations.
• Covered 97% of the Canadian population coast to coast at
OUR PRODUCTS AND SERVICES
December 31, 2016
• Expansion of our LTE services supported by continued re-purposing
of wireless spectrum to increase capacity and coverage
• In-building coverage improvements to deliver a stronger
LTE signal
• Voice and data plans: available on either postpaid or prepaid
options, providing fast web access, social networking, messaging
(text, picture and video), the latest mobile applications and a host
of call features
• Extensive selection of devices: including leading 4G LTE and
• Reverts to the High-speed packet access plus (HSPA+) network
LTE-A smartphones and tablets
outside LTE coverage area, ensuring continuity of service
• Mobile Internet: Turbo Stick, Turbo Hub and mobile Wifi (MiFi) devices
• Supports international roaming in more than 100 destinations
• Mobile TV: over 40 live and on-demand channels on smartphones
• LTE Advanced (LTE-A) network service launched in February 2015:
and tablets
• Dual-band LTE-A provides mobile Internet data access speeds
as fast as 260 Mbps (expected average download speeds of
18 to 74 Mbps)
• Tri-band LTE-A delivers speeds of up to 335 Mbps when using
compatible devices (expected average download speeds of 25 to
100 Mbps)
• Covered 73% of the Canadian population at December 31, 2016
• HSPA+ network launched in November 2009:
• Provides high-speed mobile access of up to 21 Mbps in most
areas (typical speeds of 3.5 to 8 Mbps), and as high as 42 Mbps
in areas with dual cell capability when using compatible
devices (typical speeds of 7 to 14 Mbps)
• Covered over 98% of the Canadian population coast to coast at
December 31, 2016
• Supports international roaming in more than 230 destinations
• Travel: roaming services with other wireless service providers in
more than 230 destinations worldwide, LTE roaming in over
100 destinations, Travel Passes and Roam Better International
feature
• Voice and Video over LTE (VoLTE): next generation of voice and
video calling with faster call set up times, high-definition (HD) voice
quality and ability to switch seamlessly between voice and video
during calls
• Internet of Things (IoT) solutions: fleet management, asset
management, digital signage, wireless point-of-sale, remote
monitoring, telematics
• Mobile business solutions: push-to-talk, workforce management,
worker safety, dispatch solutions, mobile device management
BCE Inc.
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MD&A w
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Bell Wireline
SEGMENT DESCRIPTION
• Provides data, including Internet access and IPTV, local telephone, long distance,
as well as other communications services and products to residential, small
and medium-sized business and large enterprise customers, primarily in Ontario,
Québec and the Atlantic provinces, while satellite TV service and connectivity
to business customers are available nationally across Canada. We also offer
competitive local exchange carrier (CLEC) services in Alberta and British Columbia
• Includes the results of our wholesale business, which buys and sells local
telephone, long distance, data and other services from or to resellers and other
carriers, and the wireline operations of Northwestel Inc. (Northwestel),
which provides telecommunications services in Canada’s Northern Territories
• Includes wireline-related product sales from The Source
OUR BRANDS INCLUDE
OUR NETWORKS AND REACH
OUR PRODUCTS AND SERVICES
• Extensive local access network in Ontario, Québec and the
Atlantic provinces, as well as in Canada’s Northern Territories
RESIDENTIAL
• TV: Bell Fibe TV (our IPTV service) and direct-to-home (DTH)
• Largest fibre network in Canada, spanning over
196,000 Kilometres (km)
• Broadband fibre network, consisting of fibre-to-the-node (FTTN)
and fibre-to-the-premise (FTTP) locations, covering 8.3 million
homes and businesses in Ontario, Québec and the Atlantic provinces
• Largest Internet protocol (IP) multi-protocol label switching
footprint of any Canadian provider, enabling us to offer business
customers a virtual private network (VPN) service for IP traffic and
to optimize bandwidth for real-time voice and TV
• Largest data centre footprint in Canada with 27 locations in
seven provinces, enabling us to offer data centre co-location
and hosted services to business customers across Canada
• Approximately 1,400 Bell-branded stores and The Source
locations across Canada
satellite TV provide extensive content options with HD and 4K
Resolution (4K) Whole Home personal video recorder (PVR), 4K
Ultra HD programming and on-demand content. Our IPTV service
also offers consumers innovative features, including the Fibe TV
app, Fibe TV on Apple TV, Restart, Trending, access to CraveTV and
Netflix and complete wireless set-up
• Internet: high-speed Internet access through fibre optic
broadband technology or digital subscriber line (DSL) with
a wide range of options, including Home Hub all-in-one modem
and Wi-Fi router, unlimited usage, a comprehensive suite of
security solutions and mobile Internet. Our fibre optic Internet
service, marketed as Fibe Internet, offers speeds up to 50 Mbps
with FTTN or 1 Gigabit per second (Gbps) with FTTP.
• Home Phone: local telephone service, long distance and advanced
calling features
• NextGen Home Security: a digital Internet-based service available
in select locations in Atlantic Canada, providing home security
and monitoring with next-generation automation capabilities,
including remote management via web portal and mobile devices,
appliance controls, and secure video monitoring
• Bundles: multi-product bundles of TV, Internet and voice services
with monthly discounts
BUSINESS
• IP-based services: business Internet, IP VPN, point-to-point data
networks and global network solutions
• Business service solutions: hosting and cloud services, managed
services, professional services and infrastructure services that
support and complement our data connectivity services
• Voice and unified communications: IP telephony, local and long
distance, web and audio conferencing and e-mail solutions
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BCE Inc.
2016 AnnuAl RepoRt
MD&A Bell Media
SEGMENT DESCRIPTION
• Canada’s premier content creation company with leading
assets in TV, radio, OOH advertising and digital media
• Revenues are derived primarily from advertising and
subscriber fees
• Conventional TV revenue is derived from advertising
• Specialty TV revenue is generated from subscription fees
and advertising
• Pay TV revenue is received from subscription fees
• Radio revenue is generated from advertising aired over
our stations
• OOH revenues are generated from advertising
• Digital media revenues are generated from advertising
OUR ASSETS AND REACH
TV
• 30 conventional TV stations, including CTV, Canada’s highest-
rated TV network based on viewership
• 30 specialty TV channels, including TSN, RDS, Canada’s leading
French-language specialty channel based on viewers aged 25-54,
and Discovery, Canada’s leading entertainment specialty channel
based on viewers aged 25-54
• Four national pay TV services, including The Movie Network (TMN)
and Super Écran
RADIO
• 105 licensed radio stations in 54 markets across Canada
OOH ADVERTISING
• Network of more than 30,000 advertising faces in British
Columbia, Alberta, Ontario, Québec and Nova Scotia
DIGITAL MEDIA
• More than 200 websites and over 30 apps
BROADCAST RIGHTS
• Sports: Bell Media has secured long-term media rights to many of
the key sports properties that are most important to Canadians,
and is the official Canadian broadcaster of the Super Bowl, Grey
Cup and International Ice Hockey Federation (IIHF) World Junior
Championship. Bell Media’s slate of live sports coverage also
includes the Toronto Maple Leafs, Montréal Canadiens, Winnipeg
Jets and Ottawa Senators, Canadian Football League (CFL),
National Football League (NFL), National Basketball League (NBA),
Major League Soccer (MLS), Fédération Internationale de Football
Association (FIFA) World Cup events through to 2026, Season of
Champions Curling, Major League Baseball (MLB), Premier League,
Union of European Football Associations (UEFA) Champions League,
UEFA Europa League, golf’s major championships, Monster Energy
NASCAR Cup Series, Formula 1, Formula E, Grand Slam Tennis,
Ultimate Fighting Championship (UFC), National Collegiate Athletic
Association (NCAA) March Madness and more.
OUR BRANDS INCLUDE
• HBO: long-term agreement to deliver all current-season, past-
season and library HBO programming in Canada exclusively on
our linear, on-demand and over-the-top (OTT) platforms
• SHOWTIME: long-term content licensing and trademark
agreement for past, present and future SHOWTIME-owned
programming
• iHeartRadio: exclusive partnership for digital and streaming music
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services in Canada
OTHER ASSETS
• 50% interest in Dome Productions Partnership, one of North
America’s leading providers of sports and other event production
and broadcast facilities
OUR PRODUCTS AND SERVICES
• Varied and extensive array of TV programming to broadcast
distributors across Canada
• Advertising on our TV, radio, OOH, and digital media properties
to both local and national advertisers across a wide range of
industry sectors
• CraveTV subscription on-demand TV streaming service offering
a large collection of premium content in one place, including HBO
and SHOWTIME programming, on set-top boxes (STBs), mobile
devices and online. CraveTV is offered through a number of
Canadian TV providers and is available directly to all Canadian
Internet subscribers as an OTT service.
• TV Everywhere services, including CTV GO, Discovery GO, TMN GO,
TSN GO, and RDS GO which provide live and on-demand content
delivered over mobile and Wi-Fi networks to smartphones, tablets
and computers
• Mobile TV service with live and on-demand access to content from
our conventional TV networks, CTV and CTV Two, BNN, TSN, RDS,
Comedy and other brands in news, sports and entertainment. This
mobile content is offered on commercial terms to all Canadian
wireless providers.
BCE Inc.
2016 AnnuAl RepoRt
31
MD&A Other BCE investments
BCE also holds investments in a number of other assets, including:
• a 28% indirect equity interest in MLSE, a sports and entertainment company
that owns several sports teams as well as real estate and entertainment
assets in Toronto
• a 50% indirect equity interest in Glentel, a Canadian-based dual-carrier,
multi-brand mobile products distributor
• an 18.4% indirect equity interest in entities that operate the Montréal
Canadiens Hockey Club and the Bell Centre in Montréal
• a 50% indirect equity interest in the Argos
Our people
EMPLOYEES
At the end of 2016, our team included 48,090 employees dedicated to driving shareholder return and improving customer service.
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BCE
2015 employees
BCE
2016 employees
13%
13%
14%
13%
49,968
74%
Bell Wireless
Bell Wireline
Bell Media
48,090
73%
Bell Wireless
Bell Wireline
Bell Media
The total number of BCE employees at the end of 2016 decreased by
1,878 employees compared to the end of 2015, due primarily to
workforce reductions across our Bell Wireline and Bell Wireless
segments attributable to normal attrition, retirements and productivity
improvements.
Approximately 44% of total BCE employees are represented by labour
unions.
BELL CODE OF BUSINESS CONDUCT
The ethical business conduct of our people is core to the integrity with
which we operate our business. The Bell Code of Business Conduct
sets out specific expectations and accountabilities, providing
employees with practical guidelines to conduct business in an ethical
manner. Our commitment to the Code of Business Conduct is renewed
by employees each year in an ongoing effort to ensure that all
employees are aware of, and adhere to, Bell’s standards of conduct.
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MD&A 1.3 Key corporate developments
MTS acquisition expected to close on March 17
On February 15, 2017, Innovation, Science and Economic Development
Canada (ISED) and the Competition Bureau approved BCE’s $3.9 billion
acquisition of MTS originally announced on May 2, 2016. The combined
companies’ Manitoba operations will be known as Bell MTS. These
approvals, together with the Canadian Radio-television and
Telecommunications Commission’s (CRTC) approval on
December 20, 2016, under the Broadcasting Act, of the transfer of the
broadcasting distribution undertaking (BDU) licence held by MTS to
BCE, completed all regulatory approvals required to close the
transaction. MTS shareholders approved BCE’s acquisition of MTS at
a special shareholders meeting held on June 23, 2016 and the Manitoba
Court of Queen’s Bench issued a final order approving the acquisition
on June 29, 2016. Subject to certain closing conditions and termination
rights, this transaction is expected to close on March 17, 2017.
The acquisition of MTS, which is expected to be accretive to BCE’s
revenue, adjusted EBITDA and free cash flow, will allow us to reach
more Canadians through the expansion of our wireless and wireline
broadband networks while supporting our goal of being recognized
by customers as Canada’s leading communications company.
As part of a consent agreement with the Competition Bureau, BCE has
agreed to divest approximately one-quarter of MTS’ postpaid wireless
subscribers and 13 retail locations to the TELUS Group for total proceeds
of approximately $300 million, subject to final adjustments. Subject
to certain closing conditions and termination rights, this transaction
is expected to close on April 1, 2017. The $75 million break fee that was
payable by BCE to the TELUS Group if the transaction with the TELUS
Group did not close under certain circumstances is no longer applicable
given the receipt of all regulatory approvals.
The transaction will be completed through a plan of arrangement under
which BCE will acquire all of the issued and outstanding common shares
of MTS for $40 per share, which will be paid 55% through the issuance
of BCE common shares and 45% in cash. The cash component will be
funded through debt financing (Refer to section 6.7, Liquidity, for more
details) and BCE will issue approximately 28 million common shares
for the equity portion of the transaction. If the transaction does not
close under certain circumstances BCE may be liable to pay a break
fee of $200 million to MTS.
As part of the previously mentioned consent agreement, BCE has also
agreed to transfer to Xplornet a total of 40 MHz of 700 MHz, Advanced
Wireless Services-1 (AWS-1) and 2500 MHz wireless spectrum currently
held by MTS, which has also been approved by ISED; 24,700 wireless
customers once Xplornet launches its mobile wireless service; and
five retail outlets in Winnipeg and one in Brandon. Xplornet will receive
transitional remedy network access from Bell MTS in urban areas of
Manitoba for three years and other operational benefits as Xplornet
builds out its own wireless network in Manitoba. Subject to certain
closing conditions and termination rights, this transaction is expected
to close on March 17, 2017.
Acquisition of Q9 Networks Inc. (Q9)
On October 3, 2016, BCE acquired all equity it did not already own in
Q9, a Toronto-based data centre operator providing outsourced
hosting and other data solutions to Canadian business and government
customers. Q9 had previously been acquired in October 2012 by an
investor group comprised of BCE, Ontario Teachers’ Pension Plan
Board, Providence Equity Partners LLC and funds managed by
Madison Dearborn Partners LLC. BCE held a 35.4% stake in Q9 and
has acquired the remaining 64.6% equity interest from its fellow
investors. The transaction was valued at approximately $680 million,
including Q9 net debt but excluding BCE’s prior ownership interest.
The acquisition supports BCE’s ability to compete against domestic
and international providers in the growing outsourced data services
sector.
Recognition of Bell’s environmental leadership
United States magazine Newsweek once again recognized Bell’s
environmental leadership by naming it on its annual list of the top green
companies in the world. Bell placed 110th on the newsmagazine’s 2016
list of 500 publicly traded international companies and is the only
Canadian communications provider on the list. Bell ranked sixth out
of the 16 Canadian companies recognized for 2016. The first
telecommunications company in Canada to achieve the highest level
certification for its environmental management system (ISO 14001),
Bell continuously seeks to reduce the environmental impact of
its operations across its networks, Information Technology (IT)
infrastructure, buildings and service fleet. In 2016, we made progress
in a number of areas, reducing electricity by about 26 gigawatt hours
and generating about 450,000 kilowatt hours (kWh) of renewable
energy from solar and wind power sources. We also reduced fuel
consumption by about 3 million litres due in part to our investment in
more than 1,000 new fuel-efficient replacement vehicles and the
continuous efforts of team members to reduce idling.
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MD&A 1.4 Capital markets strategy
We seek to deliver sustainable shareholder returns through consistent dividend growth. That objective is underpinned by continued growth
in free cash flow, a healthy level of ongoing capital investment in the business, a strong balance sheet and an investment-grade credit profile.
Dividend growth and payout policy
Dividend growth
+97%
Since Q4 2008
2017 dividend increase
Dividend payout policy
+5.1%
65%-75%
to $2.87 per common share
of free cash flow
On February 2, 2017, we announced a 5.1%, or 14 cent, increase in the
annualized dividend payable on BCE’s common shares for 2017 to
$2.87 per share from $2.73 per share in 2016, starting with the quarterly
dividend payable on April 15, 2017. This represents BCE’s 13th increase
to its annual common share dividend, representing a 97% increase,
since the fourth quarter of 2008.
The dividend increase for 2017 is consistent with BCE’s common share
dividend policy of a target payout between 65% and 75% of free cash
flow. Our objective is to seek to achieve dividend growth while
maintaining our dividend payout ratio (1) within the target range and
balancing our strategic business priorities. BCE’s dividend payout
policy and the declaration of dividends are subject to the discretion
of the BCE board of directors (BCE Board or Board) and, consequently,
there can be no guarantee that BCE’s dividend policy will be maintained
or that dividends will be increased or declared.
We have a strong alignment of interest between shareholders and
our management’s equity-based long-term incentive compensation
plan. The vesting of performance share units depends on the realization
of our dividend growth policy, while stock options reflect our objective
to increase the share price for our shareholders.
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Best practices
adopted by
BCE
for executive
compensation
• Stringent share ownership requirements
• Emphasis on pay-at-risk for executive compensation
• Double trigger change-in-control policy
• Anti-hedging policy on share ownership and incentive compensation
• Clawbacks for the President and CEO and all Executive Vice-Presidents
as well as all option holders
• Caps on all supplemental executive retirement plans (SERPs) and annual
bonus payouts, in addition to mid-term and long-term incentive grants
• Vesting criteria fully aligned to shareholder interests
Use of excess cash (2)
Our dividend payout policy allows BCE to retain a high level of excess
cash. Consistent with our capital markets objective to deliver
sustainable shareholder returns through dividend growth while
maintaining appropriate levels of capital investment, investment-grade
credit ratings and considerable overall financial flexibility, we deploy
excess cash in a balanced manner.
Uses of excess cash include, but are not limited to:
• Voluntary contributions to BCE’s defined benefit (DB) pension
plans to improve the funded position of the plans and help
minimize volatility of future funding requirements
• Financing of strategic acquisitions and investments (including
wireless spectrum purchases) that support the growth of
our business
• Debt reduction
• Share buybacks through normal course issuer bid
(NCIB) programs
In 2016, BCE’s excess cash of $921 million, up 11.0% from $830 million
in 2015, was directed towards a voluntary contribution to BCE’s DB
pension plans, the national expansion of TMN at Bell Media, and various
acquisitions that support our strategic imperatives, including Q9.
(1) Dividend payout ratio is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures
presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) – Free cash flow and dividend payout ratio for more details.
(2) Free cash flow less dividends paid on common shares.
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MD&A Total shareholder return performance
Five-year total
shareholder return (1)
+75.2%
2012–2016
One-year total
shareholder return (1)
+13.7%
2016
Five-year cumulative total value of a $100 investment (2)
DECEMBER 31, 2011 – DECEMBER 31, 2016
$200
$175
$150
$125
$100
$75
2011
2012
2013
2014
2015
2016
This graph compares the yearly change in the cumulative annual total
shareholder return of BCE common shares against the cumulative
annual total return of the S&P/TSX Composite Index (3), for the five-year
period ending December 31, 2016, assuming an initial investment
of $100 on December 31, 2011 and the quarterly reinvestment of
all dividends.
BCE common shares
S&P/TSX Composite Index
(1) The change in BCE’s common share price for a specified period plus BCE common share dividends reinvested, divided by BCE’s common share price at the beginning of the period.
(2) Based on BCE’s common share price on the TSX and assumes the reinvestment of dividends.
(3) As the headline index for the Canadian equity market, the S&P/TSX Composite Index is the primary gauge against which to measure total shareholder return for Canadian-based,
TSX-listed companies.
Strong capital structure
BCE’s balance sheet is underpinned by considerable liquidity and an
investment-grade credit profile, providing the company with a solid
financial foundation and a high level of overall financial flexibility. BCE
is well-positioned with an attractive long-term debt maturity profile
and minimal near-term requirements to repay medium-term note
(MTN) debentures. We continue to monitor the capital markets for
opportunities where we can further reduce our cost of debt and our
cost of capital. We seek to proactively manage financial risk in terms
of currency exposure of our U.S. dollar-denominated purchases, as
well as equity risk exposure under BCE’s long-term equity-based
incentive plans and interest rate and foreign currency exposure under
our various debt instruments. We also seek to maintain investment-
grade credit ratings with stable outlooks.
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ATTRACTIVE LONG-TERM DEBT
MATURITY PROFILE
• Average term of Bell Canada’s MTN
debentures: 9.4 years
• Average after-tax cost of MTN
debentures: 3.33%
STRONG LIQUIDITY POSITION
FAVOURABLE CREDIT PROFILE
• $0.9 billion available under our
• Long-term debt credit rating of BBB
$3.5 billion multi-year committed
credit facilities
• $500 million accounts receivable
securitization available capacity
(high) by DBRS Limited (DBRS), Baa 1 by
Moody’s Investors Services Inc. (Moody’s)
and BBB+ by Standard & Poor’s Ratings
Services (Canada) (S&P), all with stable
outlooks
• $350 million to $2,225 million of MTN
• $853 million cash and cash equivalents
debentures maturing annually
over the next five years
on hand at the end of 2016
The committed amount under Bell Canada’s unsecured committed
credit facilities was increased from $3.0 billion to $3.5 billion in
December 2016, providing us with additional financing flexibility.
proceeds of the 2016 offerings were used for the repayment of MTN
debentures, to fund the acquisition of Q9 and for general corporate
purposes.
Bell Canada successfully accessed the capital markets in February 2016
and August 2016, raising a combined total of $2.25 billion in gross
proceeds from the issuance 10-year and five-year MTN debentures.
The August 2016 issuance of 10-year and five-year MTN debentures,
which carry annual interest rates of 2.9% and 2.0%, respectively,
represented the lowest coupon rates ever achieved by Bell Canada
on any MTN issuance, reducing our after-tax cost of outstanding
public debenture debt to 3.33% (4.56% on a pre-tax basis). The net
In September 2016, Bell Canada renewed its MTN program, enabling
it to offer up to $4 billion of MTN debentures from time to time until
October 20, 2018. The MTN debentures will be fully and unconditionally
guaranteed by BCE. Consistent with past practice, the MTN program
was renewed to continue to provide Bell Canada with financial
flexibility and efficient access to the Canadian and United States (U.S.)
capital markets.
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MD&A
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As a result of financing a number of strategic acquisitions made since
2010, including CTV Inc., Astral Media Inc. (Astral), MLSE, Bell Aliant Inc.
and Q9, Bell Media’s move to expand TMN into a national pay TV
service and become the sole operator of HBO Canada, voluntary
pension plan funding contributions to reduce our pension solvency
deficit, wireless spectrum purchases, and the incremental debt that
was assumed as a result of the privatization of Bell Aliant Inc., our net
debt (1) leverage ratio (1) has, as shown in the table below, increased
above the limit of our internal target range of 1.75 to 2.25 times adjusted
EBITDA. That ratio is expected to improve over time and return within
the net debt leverage ratio target range through growth in free
cash flow and applying a portion of excess cash to the reduction of
BCE’s indebtedness.
As a result of a low after-tax cost of debt, owing to the consistent
decline in interest rates over the past several years, our adjusted
EBITDA to net interest expense ratio (1) has risen to its best level
since 2010 at 9.31 times adjusted EBITDA. This is significantly above
our internal target range of greater than 7.5 times adjusted EBITDA,
providing good predictability in our debt service costs and protection
from interest rate volatility for the foreseeable future.
BCE CREDIT RATIOS
INTERNAL TARGET
DECEMBER 31, 2016
Net debt leverage ratio
1.75–2.25
Adjusted EBITDA to net interest
expense ratio
>7.5
2.57
9.31
(1) Net debt, net debt leverage ratio and adjusted EBITDA to net interest expense ratio are non-GAAP financial measures and do not have any standardized meaning under IFRS.
Therefore, they are unlikely to be comparable to similar measures presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators
(KPIs) – Net debt, Net debt leverage ratio and Adjusted EBITDA to net interest expense ratio for more details.
1.5 Corporate governance and risk management
Corporate governance philosophy
The BCE Board and management believe that strong corporate
governance practices contribute to superior results in creating and
maintaining shareholder value. That is why we continually seek to
strengthen our leadership in corporate governance and ethical
business conduct by adopting best practices, and providing full
transparency and accountability to our shareholders.
Key governance strengths and actions in support of our governance
philosophy include:
• Separation of the Board Chair and Chief Executive Officer
(CEO) roles
• Director independence standards
• Audit Committee, Management Resources and Compensation
Committee (Compensation Committee) and Corporate
Governance Committee (Governance Committee) of the Board
composed of independent directors
Risk governance framework
BOARD OVERSIGHT
BCE’s full Board is entrusted with the responsibility for identifying and
overseeing the principal risks to which our business is exposed and
seeking to ensure there are processes in place to effectively identify,
monitor and manage them. These processes seek to mitigate rather
than eliminate risk. A risk is the possibility that an event might happen
in the future that could have a negative effect on our financial position,
financial performance, cash flows, business or reputation. While the
Board has overall responsibility for risk, the responsibility for certain
elements of the risk oversight program is delegated to Board
committees in order to ensure that they are treated with appropriate
expertise, attention and diligence, with reporting to the Board in the
ordinary course.
Risk information is reviewed by the Board or the relevant committee
throughout the year, and business leaders present regular updates
on the execution of business strategies, risks and mitigation activities.
• Annual director effectiveness and performance assessments
• Ongoing reporting to Board committees regarding ethics
programs and the oversight of corporate policies across BCE
• Share ownership guidelines for directors and executives
• Executive compensation programs tied to BCE’s ability to grow
its common share dividend
For more information, please refer to BCE’s most recent notice of
annual general shareholder meeting and management proxy circular
(the Proxy Circular) filed with the Canadian provincial securities
regulatory authorities (available at sedar.com) and with the United
States Securities and Exchange Commission (available at sec.gov),
and available on BCE’s website at BCE.ca.
Board
of Directors
Audit
Committee
Compensation
Committee
Pension
Committee
Governance
Committee
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MD&A • The Audit Committee is responsible for overseeing financial
reporting and disclosure as well as overseeing that appropriate
risk management processes are in place across the organization.
As part of its risk management activities, the Audit Committee
reviews the organization’s risk reports and ensures that
responsibility for each principal risk is formally assigned to a
specific committee or the full Board, as appropriate. The Audit
Committee also regularly considers risks relating to financial
reporting, legal proceedings, the performance of critical
infrastructure, information, cyber and physical security,
journalistic independence, privacy and records management,
business continuity and the environment.
• The Compensation Committee oversees risks relating to
compensation, succession planning, and health and safety
practices.
• The Governance Committee assists the Board in developing and
implementing BCE’s corporate governance guidelines and
determining the composition of the Board and its committees. In
addition, the Governance Committee oversees matters such as
the organization’s policies concerning business conduct, ethics
and public disclosure of material information.
• The Pension Fund Committee (Pension Committee) has oversight
responsibility for risks associated with the pension fund.
RISK MANAGEMENT CULTURE
There is a strong culture of risk management at BCE that is actively
promoted by the Board and the company’s President and CEO at all
levels within the organization. It has become a part of how the company
operates on a day-to-day basis and is woven into its structure and
operating principles, guiding the implementation of the organization’s
strategic imperatives.
The President and CEO, selected by the Board, has set his strategic
focus through the establishment of six strategic imperatives, and
focuses risk management around the factors that could impact the
achievement of those strategic imperatives. While the constant state
of change in the economic environment and the industry creates
challenges to be managed, the clarity around strategic objectives,
performance expectations, risk management and integrity in execution
ensures discipline and balance in all aspects of our business.
RISK MANAGEMENT FRAMEWORK
While the Board is responsible for BCE’s risk oversight program,
operational business units are central to the proactive identification
and management of risk. They are supported by a range of corporate
support functions that provide independent expertise to reinforce
implementation of risk management approaches in collaboration with
the operational business units. The Internal Audit function provides a
further element of expertise and assurance, working to provide insight
and support to the operational business units and corporate support
functions, while also providing the Audit Committee with an independent
perspective on the state of risk and control within the organization.
Collectively, these elements can be thought of as a “Three Lines of
Defence” approach to risk management, that is aligned with industry
best practices and is endorsed by the Institute of Internal Auditors.
Board and
Committees
Oversight
Operational
Business Units
1st line
of defence
RISK AND CONTROL
ENVIRONMENT
Internal
Audit Group
3rd line
of defence
Corporate
Support Groups
2nd line
of defence
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FIRST LINE OF DEFENCE – OPERATIONAL MANAGEMENT
The first line refers to management within our operational business
segments (Bell Wireless, Bell Wireline and Bell Media), who are expected
to understand their operations in great detail and the financial results
that underpin them. There are regular reviews of operating
performance involving the organization’s executive and senior
management. The discipline and precision associated with this process,
coupled with the alignment and focus around performance goals,
create a high degree of accountability and transparency in support
of our risk management practices.
As risks emerge in the business environment, they are discussed in a
number of regular forums to share details and explore their relevance
across the organization. Executive and senior management are
integral to these activities in driving the identification, assessment,
mitigation and reporting of risks at all levels. Formal risk reporting
occurs through strategic planning sessions, management presentations
to the Board and formal enterprise risk reporting, which is shared
with the Board and the Audit Committee during the year.
Management is also responsible for maintaining effective internal
controls and for executing risk and control procedures on a day-to-
day basis. Each operational business unit develops its own operating
controls and procedures that fit the needs of its unique environment.
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MD&A SECOND LINE OF DEFENCE –
CORPORATE SUPPORT FUNCTIONS
BCE is a very large enterprise with approximately 48,000 employees,
multiple business units and a diverse portfolio of risks that is constantly
evolving based on internal and external factors. In a large organization,
it is common to manage certain functions centrally for efficiency,
scale and consistency. While the first line of defence is often central
to identification and management of business risks, in many instances
operational management works both collaboratively with, and also
relies on, the corporate functions that make up the second line of
defence for support in these areas. These corporate functions include
Finance, Corporate Security and Corporate Risk Management, as well
as others such as Legal and Regulatory, Corporate Responsibility,
Human Resources, Real Estate and Procurement.
Finance function: BCE’s Finance function plays a pivotal role in seeking
to identify, assess and manage risks through a number of different
activities, which include financial performance management, external
reporting, pension management, capital management, and oversight
and execution practices related to the United States Sarbanes-Oxley
Act of 2002 and equivalent Canadian securities legislation, including
the establishment and maintenance of appropriate internal control
over financial reporting. BCE has established and maintains disclosure
controls and procedures to ensure that the information it publicly
discloses, including its business risks, is accurately recorded,
processed, summarized and reported on a timely basis. For more
details concerning BCE’s internal control over financial reporting
and disclosure controls and procedures, refer to the Proxy Circular
and section 10.3, Effectiveness of internal controls of this MD&A.
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Corporate Security function: This function is responsible for all aspects
of security, which requires a deep understanding of the business, the
risk environment and the external stakeholder environment. Based
on this understanding, Corporate Security sets the standards of
performance required across the organization through security policy
definitions and monitors the organization’s performance against these
policies. In high and emerging risk areas such as cybersecurity,
Corporate Security leverages its experience and competence and,
through collaboration with the operational business units, develops
strategies intended to mitigate the organization’s risks.
Corporate Risk Management function: This function works across the
company to gather information and report on the organization’s
assessment of its principal risks and the related exposures. Annually,
senior management participates in a risk survey that provides an
important reference point in the overall risk assessment process.
In addition to the activities described above, the second line of defence
is also critical in building and operating the oversight mechanisms
that bring focus to relevant areas of risk and reinforce the bridges
between the first and second lines of defence, thereby seeking to
ensure that there is a clear understanding of emerging risks, their
relevance to the organization and the proposed mitigation plans. To
further coordinate efforts between the first and second lines of defence,
BCE has established a Security, Environment and Health & Safety
(SEHS) Oversight Committee. A significant number of BCE’s most senior
leaders are members of this committee, whose purpose is to oversee
BCE’s strategic security (including cybersecurity), environmental,
health and safety risks and opportunities. This cross-functional
committee seeks to ensure that relevant risks are adequately
recognized and mitigation activities are well-integrated and aligned
across the organization and are supported with sufficient resources.
THIRD LINE OF DEFENCE – INTERNAL AUDIT FUNCTION
Internal Audit is a part of the overall management information and
control system and has the responsibility to act as an independent
appraisal function. Its purpose is to provide the Audit Committee and
management with objective evaluations of the company’s risk and
control environment, to support management in delivering against
BCE’s strategic imperatives and to maintain an audit presence
throughout BCE and its subsidiaries.
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MD&A 2 Strategic imperatives
Our success is built on the BCE team’s dedicated execution of the six strategic
imperatives that support our goal to be recognized by customers as Canada’s leading
communications company.
2.1 Accelerate wireless
Our objective is to grow our Bell Wireless business profitably by focusing on postpaid subscriber acquisition and retention, maximizing
average revenue per user (ARPU) by targeting premium smartphone subscribers in all geographic markets we operate in, leveraging
our wireless networks, and maintaining device and mobile content leadership to drive greater wireless data penetration and usage.
2016 PROGRESS
• Acquired 35% and 37% of total new postpaid gross and net
activations, respectively, among the three national wireless
carriers, while achieving leading service revenue, ARPU and
adjusted EBITDA growth of 5.7%, 3.8% and 6.2%, respectively
• Expanded the number of smartphone users at the end of 2016
to 83% of our total postpaid subscribers, up from 78% at the
end of 2015
• Increased the number of postpaid subscribers on our LTE network
to 81% of our total postpaid subscribers, up from 68% at the end
of 2015
• Expanded our smartphone and tablet lineup with 30 new devices,
including the iPhone 7 and 7 Plus from Apple, the Samsung Galaxy
S7 and S7 edge, Google’s Pixel and Pixel XL and the LG G5, adding
to our extensive selection of 4G LTE and LTE-A capable devices
• Launched VoLTE technology in Ontario, Atlantic Canada, parts of
Québec and British Columbia, Yellowknife and Whitehorse for Bell
customers with compatible smartphones. VoLTE enables faster
call set up times, HD voice quality and the ability to switch
seamlessly between voice and video during calls
• Launched Roam Better International roaming feature that gives
customers access to specialized rates while traveling, providing
unlimited voice and text messages and an additional dedicated
100 megabytes (MB) of data usage for $10 a day in over
110 destinations across Europe, the Americas, Asia and the
Middle East, Australia and South Africa
2.2 Leverage wireline momentum
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• Launched a new portfolio of products and support services to
make mobile communications more accessible for customers with
speech, cognitive, physical, hearing and vision related disabilities,
including the Doro 824 and 824C smartphones for customers with
moderate visual needs, the Mobile Accessibility screen reader
app to assist blind and low vision users, and Tecla by Komodo,
a portable and hands free device that enables customers with
physical upper body limitations to easily use smartphones and
tablets without touching the screen
2017 FOCUS
• Profitably grow our wireless postpaid subscriber base, while
maintaining market share momentum of incumbent postpaid
subscriber activations
• Continue to increase ARPU
• Offer the latest handsets and devices in a timely manner
to enable customers to benefit from ongoing technological
improvements by manufacturers and from faster data speeds
to optimize the use of our services
• Continue to increase the number of postpaid smartphone
subscribers using our 4G LTE and LTE-A networks
• Expand VoLTE technology coverage areas and broaden rollout
to more supported devices
• Accelerate new revenue streams by continuing to drive
the commercialization of IoT services and applications
We focus on leveraging our fibre-based TV and Internet services to develop attractive residential offers that drive higher multi-product
bundle sales and improve customer satisfaction and retention. These new services contribute to the ongoing shift of our operating
mix away from legacy wireline voice services.
In our business markets, we remain focused on expanding our broadband network and strengthening our delivery of integrated
solutions to Canadian businesses, while continuing to manage the transformation of our business from legacy network services to a
fully-integrated data hosting, cloud computing and managed services provider.
2016 PROGRESS
• Maintained our position as Canada’s largest TV provider with
2,744,909 subscribers, and increased our total number of IPTV
subscribers by 13.1% to 1,337,944
• Built on our position as the leading Internet service provider (ISP)
in Canada with a high-speed Internet subscriber base of 3,476,562,
up 1.9% over 2015
• Increased the number of multi-product households – those that
buy TV, Internet and Home Phone – by 4% over 2015, fuelled by
our IPTV service, which drove higher pull-through attach rates for
Home Phone and Internet services, with 74% of all new IPTV
customers taking three products
• Maintained our leadership position in Canadian broadband
communications with the most advanced products in the home
and continuous IPTV and Internet service innovation
• Launched Home Hub 3000 residential gateway, offering the
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MD&A
most powerful home Wi-Fi service with 12 antennas, total
throughput capability of up to 1 Gigabit (Gb), automatic channel
switching for reduced interference, tri-band technology
supporting multiple connected devices and battery back-up that
enables customers to use Fibe Internet during a power outage
for up to four hours
• Launched Wireless 4K Whole Home PVR, enabling the world’s
first fully wireless IPTV service with the flexibility to easily locate
Fibe TV anywhere in the home, and featuring 4K quality with
four times the detail of Full HD, up to 150 hours of 4K recording
capacity and Bluetooth remote that enables out-of-sight
positioning of the PVR
• Became the first TV provider in Canada to integrate access to
Netflix in 4K Whole Home PVR
• Became the first Canadian TV service provider to offer TV
service on Apple TV, providing access to up to 450 channels live
or on demand and unique Fibe TV features like top trending
shows, with recordings and pause and rewind live TV coming
later in 2017
ability to compete against domestic and international providers
in the growing outsourced data services sector
• Launched Bell Total Connect for small business customers across
Ontario and Québec, delivering a suite of advanced messaging
and unified communications services on both broadband fibre
and mobile LTE networks
• Formed a partnership with IBM Canada Limited (IBM) to expand
the cloud computing services available through our Bell Business
Cloud service, giving businesses across Canada access to the
IBM Cloud via a secure, high-speed private connection from Bell,
simplifying the way customers adopt and build out their
hybrid clouds
2017 FOCUS
• Continue to enhance our IPTV service with more advanced
features
• Make Bell Fibe TV available as a standalone TV service
• Expand our total base and market share of TV and Internet
subscribers profitably
• Bell Fibe TV was ranked as the most advanced TV service
• Reduce total wireline residential net losses
in Canada (1)
• Increase residential household ARPU through greater
• Bell’s fibre-to-the-home (FTTH) Fibe Internet service led
multi-product household penetration
Canadian Internet providers, exceeding advertised download
speeds by a greater margin than the competition (2)
• Launched Virgin Home Internet service in Ontario and Québec
• Increase share of wallet of large enterprise customers
through greater focus on business service solutions and
connectivity growth
• Acquired Q9 Networks, a Toronto-based data centre operator
• Increase the number of net new customer relationships in both
providing outsourced hosting and other data solutions to
Canadian business and government customers, supporting our
large and mid-sized businesses and reduce small business
customer losses
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2.3
Invest in broadband networks and services
We invest in wireline and wireless broadband platforms to deliver the most advanced wireless, TV, Internet and other IP-based services
available, to support continued subscriber and data growth across all our residential product lines as well as the needs of our business
market customers.
2016 PROGRESS
• Expanded our 4G LTE wireless network to reach 97% of the
Canadian population coast to coast
• Continued the rollout of our Dual-band LTE-A wireless network,
providing service to 73% of the Canadian population at data
speeds of up to 260 Mbps (expected average download speeds of
18 to 74 Mbps). In addition, Tri-band LTE-A wireless service,
enabled by aggregating Personal Communications Services (PCS),
AWS-1 and 700 MHz spectrum, that delivers mobile data speeds of
up to 335 Mbps (expected average download speeds of 25 to
100 Mbps), was launched in a number of cities and areas, including
in Halifax, Fredericton, Moncton, Saint John, Sydney, St. John’s,
Toronto, Hamilton, Oakville, London, Kitchener-Waterloo, Niagara
Falls, Muskoka Lakes, Sudbury, Sarnia, Trois-Rivières and
Chicoutimi
• Conducted the first Canadian trials of fifth generation (5G) mobile
technology in collaboration with Nokia Corporation, leveraging
spectrum in the 73 Gigahertz (GHz) range to achieve sustained
data speeds more than 6 times faster than top 4G mobile speeds
now available in Canada
• Continued to expand our FTTP broadband fibre footprint in
communities across Ontario, Québec and Atlantic Canada, reaching
approximately 2.9 million homes and businesses. FTTP enables
Internet speeds of up to 1 Gbps.
2017 FOCUS
• Expand FTTP broadband fibre footprint to approximately
3.5 million locations passed
• Complete our 4G LTE wireless network build to 99% of the
Canadian population and manage wireless network capacity
• Bell’s 4G LTE wireless network was ranked as the fastest mobile
• Expand LTE-A coverage to reach approximately 83% of the
LTE network in Canada by PCMag
Canadian population
• According to Nielsen Consumer Insights, more Canadians chose
Bell as having the best mobile network in Canada
• Increase LTE-A speeds up to 560 Mbps in select areas through
four-carrier aggregation (expected average download speeds
of 41 to 166 Mbps)
• Increase small cell deployment and in-building coverage to
increase urban densification
(1) Nielsen Consumer Insights (June 2016)
(2) CRTC Internet Performance Report (September 2016)
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2.4 Expand media leadership
We strive to deliver leading sports, news, entertainment and business content across all screens and platforms to grow audiences.
We are also creating more of our own content, ensuring that Canadian attitudes, opinions, values and artistic creativity are reflected
in our programming and in our coverage of events in Canada and around the world, and to introduce new services in support of new
revenue streams.
2016 PROGRESS
• Maintained CTV’s #1 ranking as the most-watched network
in Canada for the 15th year in a row, and continued to lead
with a majority of the top 20 programs nationally in all
key demographics
• Launched TMN as a national pay TV service and became the sole
operator of HBO Canada
• Concluded a multi-title, multi-year exclusive streaming deal with
Warner Bros. International Television for the Canadian market
that delivers some of the most-watched shows to CraveTV
• Expanded a licensing agreement with Viacom International Media
Networks to make Comedy Central original programming and
library of scripted and unscripted series and specials available
across multiple platforms in Canada, including CraveTV
• Launched CraveTV direct to consumers as a standalone product
• Concluded a licensing agreement with CBS Studios International
available to all Canadians with an Internet subscription. We
continued to grow the viewership and scale of our streaming
video service, surpassing one million subscribers in 2016
to be the exclusive home for the new STAR TREK series in Canada.
The series will premiere on CTV and then move to Space for the
duration of its run, and will also become available on CraveTV.
• As of October 24, 2016, both new and returning SHOWTIME
programs debut on CraveTV at the same time as their U.S.
broadcast premieres, bolstering the amount of exclusive,
first-run programming on CraveTV
• Streamed CraveTV’s first ever original series, LETTERKENNY,
which had the biggest debut of any series on CraveTV since the
service launched in 2014 and has eclipsed its own Season 1
record with the launch of Season 2 on Christmas Day
• Concluded a deal with MGM to license the iconic James Bond
Catalogue, spanning more than 50 years and every 007 actor
• Made CraveTV available for in-app purchase on Apple TV,
enabling customers to subscribe directly from their iTunes
account
• Launched a food and lifestyle specialty channel featuring the
established Gusto brand and its exclusive portfolio of original
Canadian programming, all in 4K. Gusto features cooking, home
design, fashion, travel and lifestyle programming.
• Acquired Métromédia CMR Plus Inc. (Métromédia), Cogeco Inc.’s
OOH advertising subsidiary, allowing Astral OOH to expand its
advertising assets in the public transit market
• Astral OOH secured advertising rights for both in-terminal and
non-terminal concessions across Toronto Pearson International
Airport, becoming Canada’s airport advertising leader with a
presence in six Canadian international airports, including Halifax
Stanfield, Montréal-Pierre Elliott Trudeau, Québec City Jean
Lesage, Ottawa Macdonald-Cartier and Vancouver International
• Launched iHeartRadio, North America’s fastest growing digital
audio service, to the public, providing Canadians with instant
access to all of Bell Media’s 105 radio stations across the country
plus more than 100 additional exclusive, digital streaming
channels featuring every musical genre as well as news/talk,
sports and comedy
• Accelerated 4K ultra-high definition (Ultra HD) production and
broadcasting with a growing number of live event and sports
broadcasts in 4K
• TSN became the first broadcaster to produce a live 4K Ultra HD
broadcast in North America with the Toronto Raptors vs. Boston
Celtics basketball game on January 20, 2016
• CTV’s broadcast of the 2016 Juno Awards was the first live
awards show in North America to be produced in 4K
• TSN’s five national feeds featured several Toronto Raptors,
Toronto Maple Leafs and Ottawa Senators games in 4K, as well
as The Masters and the UEFA Champions League Final
• The iHeartRadio MuchMusic Video Awards was filmed and
broadcast in 4K
• Discovery Canada’s premium video streaming service Discovery
GO offered a growing inventory of titles available in 4K
• All new TV series commissioned for Bell Media’s networks are
produced in 4K
• Extended a broadcast agreement with the IIHF to 2023. TSN
and RDS hold exclusive multimedia rights for the IIHF Ice Hockey
World Championship
2017 FOCUS
• Maintain strong audience levels and ratings across all TV and
radio properties
• Reinforce industry leadership in conventional TV, pay TV, sports
media and radio
• In January 2017, we concluded a multi-year media rights
extension with MLS, making Bell Media Canada’s exclusive
English-language broadcaster of MLS
• Grow viewership and scale of CraveTV on-demand TV streaming
service
• Develop in-house production and content creation for distribution
and use across all platforms and screens
• Expand live and on-demand content through TV Everywhere
services
• Build on our OOH leadership position in Canada
• In January 2017, we acquired Cieslok Media Ltd. (Cieslok Media),
which specializes in large-format outdoor advertising in key
urban areas, allowing Astral OOH to expand its digital presence
with 120 high-profile displays in Vancouver, Edmonton, Calgary,
Montréal and Toronto, including Canada’s largest multimedia
billboards at Yonge-Dundas Square
• Grow French media properties
• Leverage cross-platform and integrated sales and sponsorship
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2.5
Improve customer service
Our objective is to enhance customers’ overall experience by delivering call centre efficiency, meeting commitments for the installation
and timely repair of services, increasing network quality, and implementing process improvements to simplify customer transactions
and interactions with our front-line employees and self-serve tools. All of these will help differentiate us from our competitors and
gain long-term customer loyalty. We intend to achieve this by making the investments we need to improve our front-line service
capabilities, our networks, our products and our distribution channels to win and keep customers.
2016 PROGRESS
• The Commissioner of Complaints for Telecommunications
Services (CCTS) received 18% fewer complaints about Bell and
Virgin Mobile Canada (Virgin Mobile) between August 1, 2015 and
July 31, 2016 than during the equivalent period of the previous
year, continuing the steady decline in Bell and Virgin Mobile
complaints since July 2013
• Launched Manage Your Appointment feature, offering residential
customers an easy way to confirm and check the status of their
service appointments online
• Reduced customer calls to our service centres by 4 million
in 2016 due to more self-serve online transactions by customers
and overall operational improvements. Online self-serve
visits, infoviews and transactions totalled more than 190 million,
an increase of 30 million over 2015.
• Offered installation appointments within two days of placing an
order to 76% of residential customers, an increase of almost two
times since 2014
• Offered Same Day repair to 73% of small business customers,
who are now able to schedule appointments until 4:00 p.m. for
Same Day repair
• Improved skill set of customer service agents to allow them
to resolve more technical issues, eliminating 30% of transfers to
second-level support
2017 FOCUS
• Continue to invest in customer service initiatives to simplify
complexity for all customers, including billing
• Further reduce the total volume of wireline and wireless customer
calls to our residential and wireless services call centres
• Reduced Fibe TV installation time for FTTP customers by 9%
• Further improve customer satisfaction scores
in 2016 and 43% since the beginning of 2012
• Achieve better consistency in customer experience
• Achieved Same Day Next Day service completion rate of 88% for
• Continue to improve customer personalization
repairing service issues with Home Phone, TV and Internet
• Improved customer satisfaction with technicians to 95% for
installations and repairs
• Reduce FTTP installation times and improve service quality
• Deploy new diagnostic technology enabling enhanced
troubleshooting and service monitoring for our customers
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2.6 Achieve a competitive cost structure
Cost containment is a core element of our financial performance. It remains a key factor in our objective to preserve steady margins
as we continue to experience revenue declines in our legacy wireline voice and data services and further shift our product mix towards
growth services. We aim to accomplish this through operating our business in the most cost-effective way possible to extract maximum
operational efficiency and productivity gains.
2016 PROGRESS
• Improved BCE consolidated adjusted EBITDA margin (1) by 0.8 pts
2017 FOCUS
• Capture operating cost and capital expenditure synergies from
over 2015
• Reduced wireline operating costs by 2.7%, contributing to
Bell Wireline adjusted EBITDA margin improvement of 0.9 pts
over 2015
• Executed on labour savings from workforce reductions
undertaken in 2015 at Bell Media and Bell Wireline
• Delivered cost savings from ongoing service improvements and
savings related to the deployment of FTTP
• Lowered Bell Canada’s average after-tax cost of MTN debenture
debt to 3.33%
the integration of MTS following the completion of the acquisition
by BCE
• Deliver cost savings from workforce reductions, ongoing service
improvements, and savings related to the deployment of FTTP to
support a stable consolidated adjusted EBITDA margin
(1) Adjusted EBITDA margin is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures
presented by other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) – Adjusted EBITDA and adjusted EBITDA margin for more details.
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3 Performance targets, outlook, assumptions and risks
This section provides information pertaining to our performance against 2016 targets, our consolidated business outlook and operating
assumptions for 2017 and our principal business risks.
3.1 2016 performance vs. guidance targets
FINANCIAL
GUIDANCE
Revenue growth
2016
TARGET
1%–3%
2016
PERFORMANCE AND RESULTS
ACHIEVED
1.0%
Led by solid revenue growth from our Bell Wireless and Bell Media segments of
4.1% and 3.6%, respectively, moderated by a decline in Bell Wireline revenue of 1.3%.
Adjusted
EBITDA growth
2%–4%
2.8%
Capital intensity
Approx. 17%
17.4%
E
C
B
Adjusted net
earnings per share
(adjusted EPS) (1)
$3.45–$3.55
$3.46
Free cash
flow growth
Approx. 4%–12% 7.6%
Reflected adjusted EBITDA growth across all three of our segments driven by
strong wireless service revenue flow-through of 49.2%, and growth from Internet,
IPTV and media revenues, which more than offset the continued revenue erosion
in wireline voice and legacy data services. This, combined with ongoing effective
cost management, drove an expansion in adjusted EBITDA margin to 40.5% from
39.7% experienced in 2015.
BCE continued its strategic investment in broadband wireline and wireless
infrastructure with capital expenditures of $3,771 million in 2016, up 4.0% over
last year. This drove an increase in the capital intensity ratio to 17.4% in 2016
from 16.9% in 2015. Capital spending in 2016 was focused on the continued
deployment of our broadband fibre directly to more homes and businesses,
including the build-out of Gigabit Fibe infrastructure, the ongoing rollout of our
4G LTE and LTE-A wireless networks, as well as the expansion of wireless and
Internet network capacity to support greater speeds, subscriber growth, and
higher data consumption.
Adjusted net earnings in 2016 increased by $164 million, or $0.10 per common
share, driven by higher operating revenues and lower operating costs, which
resulted in higher adjusted EBITDA, lower finance costs and higher other income,
partly offset by higher amortization expense and higher income taxes. The
average number of BCE common shares outstanding increased, mostly as a
result of shares issued under a bought deal offering in December 2015, which
moderated the increase in adjusted EPS.
Increase in free cash flow of $227 million in 2016 was driven by an increase in
cash flows from operating activities, partly offset by higher capital expenditures.
Cash flows from operating activities increased due to higher adjusted EBITDA,
lower acquisition and other costs paid and lower income taxes paid, partly
offset by a higher voluntary DB pension plan contribution made in 2016.
Annualized common
dividend per share
$2.73
Dividend payout ratio
65%–75% of
free cash flow
$2.73
Annualized BCE common dividend per share for 2016 increased by 13 cents,
or 5.0%, to $2.73 compared to $2.60 per share in 2015.
71.5% Dividend payout ratio in 2016 decreased by 0.8% to 71.5% from 72.3%.
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3.2 Business outlook and assumptions
Outlook
Our 2017 outlook builds on the positive financial results and operating
momentum we delivered in 2016 that reflected strong wireless
profitability and postpaid subscriber activations, increasing broadband
Internet and TV scale, improved media financial performance, as well
as effective operating cost control and price discipline across all our
operating segments and products. Our projected financial performance
for 2017 is underpinned by continued progress in the execution of our
six strategic imperatives and a favourable financial profile for all three
Bell operating segments, which is expected to be further enhanced
following the completion of the acquisition of MTS by BCE, with higher
free cash flow generation providing a strong and stable foundation
for a higher BCE common share dividend for 2017, as well as continued
significant capital investment in wireline and wireless network
infrastructures to support future growth. Our outlook also reflects the
confidence we have in continuing to successfully manage our wireless,
wireline and media businesses within the context of a highly competitive
and dynamic market.
(1) Adjusted EPS is a non-GAAP financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by
other issuers. See section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) – Adjusted net earnings and adjusted EPS for more details, including a
reconciliation to the most comparable IFRS financial measure.
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The key 2017 operational priorities for BCE are to:
• Maintain market share of incumbent wireless postpaid subscriber
activations
• Drive continued adoption of mobile smartphone handsets,
tablets and data applications, as well as the introduction of more
4G LTE devices and new data services
• Increase residential services household ARPU from increased
penetration of multi-product households and price increases
• Limit downsizing of current TV packages by our customers as
a result of TV channel unbundling
• Continue scaling Bell Media’s CraveTV on-demand streaming
service
• Achieve higher wireless adjusted EBITDA through wireless
• Realize operating cost savings from workforce attrition and
postpaid subscriber base expansion and higher blended ARPU,
driven by a higher postpaid smartphone mix, increased data
consumption on 4G LTE and LTE-A networks, and higher access
rates from price increases
• Complete our 4G LTE network build and further expand our
LTE-A network coverage
• Continue broadband fibre deployment with a focus on expanding
our FTTP footprint
• Further grow our residential IPTV and Internet subscriber bases
retirements, lower contracted rates from our suppliers, reduction
in traffic that is not on our wireline network, broader deployment
of FTTP, customer service improvements, and operating cost
synergies from the planned integration of MTS into our Bell
Wireline and Bell Wireless operating segments following the
completion of the acquisition by BCE
Our projected financial performance for 2017 enabled us to increase
the annualized BCE common share dividend for 2017 by 14 cents, or
5.1%, to $2.87 per share, maintaining our dividend payout ratio within
our target policy range of 65% to 75% of free cash flow.
Assumptions
ASSUMPTIONS ABOUT THE CANADIAN ECONOMY
MARKET ASSUMPTIONS
• Gradual improvement in economic growth, given the Bank of
Canada’s most recent estimated growth in Canadian gross
domestic product of 2.1% in 2017
• A higher level of wireline and wireless competition in consumer,
business and wholesale markets
• Higher, but slowing, wireless industry penetration and smartphone
• Modest employment growth, as the overall level of business
adoption
investment is expected to remain soft
• Wireless industry pricing discipline maintained
• Canadian dollar expected to remain at or around near current
levels. Further movements may be impacted by the degree of
strength of the U.S. dollar, interest rates and changes in
commodity prices.
• Soft media advertising market expected, due to variable demand,
and escalating costs to secure TV programming
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3.3 Principal business risks
Provided below is a summary description of certain of our principal business risks that could have a material adverse effect on all of our
segments. Certain additional business segment-specific risks are reported in section 5, Business segment analysis. For a detailed description
of the principal risks relating to our regulatory environment and a description of the other principal business risks that could have a material
adverse effect on our financial position, financial performance, cash flows, business or reputation, refer to section 8, Regulatory environment,
and section 9, Business risks, respectively.
Regulatory environment
Although most of our retail services are not price-regulated,
government agencies and departments such as the CRTC, ISED,
Canadian Heritage and the Competition Bureau continue to play a
significant role in regulatory matters such as mandatory access to
networks, net neutrality, spectrum auctions, approval of acquisitions,
broadcast licensing and foreign ownership requirements. As with all
regulated organizations, planned strategies are contingent upon
regulatory decisions. Adverse decisions by regulatory agencies or
increased regulation could have negative financial, operational,
reputational or competitive consequences for our business. For a
discussion of our regulatory environment and the principal risks
related thereto, refer to section 8, Regulatory environment.
Competitive environment
As the scope of our businesses increases and evolving technologies
drive new services, new delivery models and creative strategic
partnerships, our competitive landscape expands to include new and
emerging competitors, certain of which were historically our partners
or suppliers, as well as other global scale competitors, including, in
particular, OTT TV service and voice over Internet protocol (VoIP)
providers and other web-based and OTT players that are penetrating
the telecommunications space. Pricing and investment decisions of
market participants are based on many factors, such as strategy,
market position, technology evolution, customer confidence and
economic climate, and collectively these could adversely affect our
market shares, service volumes and pricing strategies and,
consequently, our financial results. Technology substitution, IP networks
and recent regulatory decisions, in particular, continue to reduce
barriers to entry in our industry. This has allowed competitors to
launch new products and services and gain market share with far less
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2016 AnnuAl RepoRt
MD&A
investment in financial, marketing, human, technological and network
resources than has historically been required. In particular, some
competitors sell their services through the use of our networks, without
the need to invest to build their own networks. Such lower necessary
investment has enabled some competitors to be very disruptive in
their pricing. We expect these trends to continue in the future, which
could negatively impact our business including, without limitation, in
the following ways:
• Competitors’ aggressive market offers could result in pricing
pressures and increased costs of customer acquisition
and retention
• Higher Canadian wireless penetration could slow opportunities
for new customer acquisition
• Product substitutions and spending rationalization by business
customers could result in an acceleration of NAS erosion beyond
our current expectations
• The continued OTT-based substitution and market expansion of
VoIP service providers and traditional software players delivering
low-cost voice line alternatives, which is changing our approach
to service offers and pricing, could have an adverse effect on
our business
• A fundamental separation of content and connectivity has
emerged, allowing the expansion and market penetration of
low-cost OTT TV providers and other alternative service providers,
some of which may offer content as loss leaders to support their
core business, which is changing our TV and media ecosystems
and could affect our business negatively
• Competition with global competitors such as Netflix and Amazon,
in addition to traditional Canadian competitors, for programming
content could drive significant increases in content acquisition
costs as these competitors, along with other global-scale entities
such as Google, disrupt local market dynamics as a result of
innovative and flexible global market strategies
• Adverse economic conditions, such as economic downturns or
recessions, adverse conditions in the financial markets, or a
declining level of retail and commercial activity, could have a
negative impact on the demand for, and prices of, our wireline,
wireless and media products and services, as well as drive an
increase in bad debts as the creditworthiness of some customers
declines
• Regulatory decisions regarding wholesale access to our wireless
and fibre networks could bring new competitors, or strengthen
the market position of current competitors; in addition, such
decisions may enable foreign entrants to deliver broadband
services as loss leaders, thus disrupting the local market dynamics
• Increasing number of off-contract customers could increase
customer acquisition activity and churn in the Canadian wireless
market
• Foreign competitors could enter the Canadian market and
leverage their global scale advantage
For a further discussion of our competitive environment and
competition risk, as well as a list of our main competitors, on a
segmented basis, refer to Competitive landscape and industry trends
and Principal business risks in section 5, Business segment analysis.
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Security management
Our operations, service performance and reputation depend on how
well we protect our assets, including networks, IT systems, offices and
sensitive information, from events and attacks such as those referred
to in section 9, Business risks – Operational performance – Our
operations and business continuity depend on how well we protect,
test, maintain and replace our networks, IT systems, equipment and
other facilities. The protection and effective organization of our
systems, applications and information repositories are central to the
secure and continuous operation of our networks and business as
electronic and physical records of proprietary business and personal
data, such as confidential customer and employee information, are
all sensitive from a market and privacy perspective. In particular,
cyber threats, which include cyber attacks such as, but not limited to,
hacking, computer viruses, denial of service attacks, industrial
espionage, unauthorized access to confidential, proprietary or sensitive
information, or other breaches of network or IT security, are constantly
evolving and our IT defences need to be constantly monitored and
adapted. We are also exposed to cyber threats as a result of actions
that may be taken by our customers, our suppliers, our employees or
independent third parties, whether malicious or not, including as a
result of the use of social media, cloud-based solutions and IT
consumerization. Vulnerabilities could harm our brand and reputation
as well as our customer relationships, and could adversely affect our
financial results, given that they may lead to:
• Network operating failures and service disruptions, which could
directly impact our customers’ ability to maintain normal business
operations and deliver critical services and/or the ability of
third-party suppliers to deliver critical services to us
• The theft, loss or leakage of confidential information, including
customer or employee information, that could result in financial
loss, exposure to claims for damages by customers and
employees, and difficulty in accessing materials to defend
legal cases
• Physical damage to network assets impacting service continuity
as well as destruction or corruption of data
• Litigation, fines and liability for failure to comply with privacy and
information security laws
• Fines and sanctions from credit card providers for failing to
comply with payment card industry data security standards for
protection of cardholder data
• Regulatory investigations and increased audit and regulatory
scrutiny that could divert resources from project delivery
• Increased fraud as criminals leverage stolen information against
us, our employees or our customers
• The potential for loss of subscribers or impairment of our ability
to attract new ones
• Lost revenues due to service disruptions and the incurrence
of remediation costs
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4 Consolidated financial analysis
This section provides detailed information and analysis about BCE’s performance in 2016 compared with 2015. It focuses on BCE’s consolidated
operating results and provides financial information for our Bell Wireless, Bell Wireline and Bell Media business segments. For further discussion
and analysis of our business segments, refer to section 5, Business segment analysis.
4.1
Introduction
BCE consolidated income statements
Operating revenues
Operating costs
Adjusted EBITDA
Adjusted EBITDA margin
Severance, acquisition and other costs
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Amortization
Finance costs
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Interest expense
Interest on post-employment benefit obligations
Other income (expense)
Income taxes
Net earnings
Net earnings attributable to:
Common shareholders
Preferred shareholders
Non-controlling interest
Net earnings
Adjusted net earnings
Net earnings per common share (EPS)
Adjusted EPS
n.m.: not meaningful
2016
21,719
(12,931)
8,788
40.5%
(135)
(2,877)
(631)
(888)
(81)
21
(1,110)
3,087
2,894
137
56
3,087
3,009
3.33
3.46
2015
21,514
(12,963)
8,551
39.7%
(446)
(2,890)
(530)
(909)
(110)
(12)
(924)
2,730
2,526
152
52
2,730
2,845
2.98
3.36
$ CHANGE
% CHANGE
205
32
237
311
13
(101)
21
29
33
(186)
357
368
(15)
4
357
164
0.35
0.10
1.0%
0.2%
2.8%
0.8%
69.7%
0.4%
(19.1%)
2.3%
26.4%
n.m.
(20.1%)
13.1%
14.6%
(9.9%)
7.7%
13.1%
5.8%
11.7%
3.0%
BCE delivered solid financial results in 2016 with revenue growth of
1.0%, compared to last year, driven by higher service revenues of 1.7%,
resulting from ongoing growth in our Bell Wireless and Bell Media
segments, moderated by a decline in our Bell Wireline segment. Net
earnings in 2016 increased 13.1% compared to 2015, reflecting higher
operating revenues and lower operating costs, which resulted in higher
adjusted EBITDA, lower severance, acquisition and other costs, lower
finance costs and higher other income, partly offset by higher
amortization expense and higher income taxes. Adjusted EBITDA grew
by 2.8%, in 2016, resulting from year-over-year increases across all
three of our segments. This led to an expansion in BCE adjusted EBITDA
margin to 40.5%, up 0.8% compared to 2015.
The year-over-year increase in BCE net earnings and adjusted EBITDA
in 2016 reflected strong wireless service revenue flow-through and
continued revenue growth from Internet, IPTV and media services,
together with ongoing effective cost containment. This was moderated
by the ongoing erosion of voice and legacy data revenues, in part
reflecting the impact of continued slow economic growth in our
business markets resulting in reduced customer spending on core
connectivity services and data products, as well as lower contribution
from our wholesale market. The higher customer acquisition and
subscriber retention spending at Bell Wireless and escalating content
costs at Bell Media also moderated the year-over-year growth in BCE
adjusted EBITDA.
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BCE statements of cash flows – selected information
Cash flows from operating activities
Capital expenditures
Free cash flow
2016
6,643
(3,771)
3,226
2015
6,274
(3,626)
2,999
$ CHANGE
% CHANGE
369
(145)
227
5.9%
(4.0%)
7.6%
In 2016, BCE’s cash flows from operating activities increased $369 million, compared to 2015, due mainly to higher adjusted EBITDA, lower
acquisition and other costs paid and lower income taxes paid, partly offset by a higher voluntary DB pension plan contribution made in 2016.
Free cash flow increased $227 million in 2016, compared to 2015, due to higher cash flows from operating activities, partly offset by higher
capital expenditures.
4.2 Customer connections
TOTAL BCE CONNECTIONS
Wireless subscribers
Postpaid
High-speed Internet subscribers (1)
TV (Satellite and IPTV subscribers)
IPTV
Total growth services
Wireline NAS lines (1)
Total services
2016
2015
% CHANGE
8,468,872
7,690,727
3,476,562
2,744,909
1,337,944
8,245,831
7,375,416
3,413,147
2,738,496
1,182,791
14,690,343
14,397,474
6,257,732
6,688,666
20,948,075
21,086,140
2.7%
4.3%
1.9%
0.2%
13.1%
2.0%
(6.4%)
(0.7%)
(1) Our 2016 business Internet and business NAS subscriber bases reflect a beginning of period adjustment to reduce the number of subscribers by 21,684 and 15,526, respectively,
in order to align practices as a result of the integration of our former Bell Aliant segment (Bell Aliant).
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BCE NET ACTIVATIONS
Wireless subscribers
Postpaid
High-speed Internet subscribers
TV (Satellite and IPTV subscribers)
IPTV
Total growth services
Wireline NAS lines
Total services
BCE added 314,553 net new customer connections to its growth services
in 2016, down 19.3% compared to last year. This was comprised of:
• 315,311 postpaid wireless customers, partly offset by the loss of
92,270 prepaid wireless customers
• 85,099 high-speed Internet customers
• 155,153 IPTV customers, partly offset by the loss of 148,740 satellite
TV customers
NAS net losses of 415,408 in 2016 improved by 5.3% compared to 2015.
2016
223,041
315,311
85,099
6,413
155,153
314,553
(415,408)
(100,855)
2015
% CHANGE
127,203
265,369
155,052
107,380
253,329
389,635
(438,434)
(48,799)
75.3%
18.8%
(45.1%)
(94.0%)
(38.8%)
(19.3%)
5.3%
(106.7%)
Total BCE customer connections across all services declined by 0.7%
in 2016, compared to last year, as the continued erosion in traditional
wireline NAS lines was moderated by the increase in subscribers from
growth services.
At the end of 2016, BCE customer connections totalled 20,948,075 and
were comprised of the following:
• 8,468,872 wireless subscribers, up 2.7% compared to 2015, which
included 7,690,727 postpaid wireless subscribers, an increase
of 4.3% since the end of last year
• 3,476,562 high-speed Internet subscribers, 1.9% higher year
over year
• 2,744,909 total TV subscribers, up 0.2%, compared to 2015, which
included 1,337,944 IPTV customers, up 13.1% year over year
• 6,257,732 total NAS lines, a decline of 6.4% compared to last year
BCE Inc.
2016 AnnuAl RepoRt
47
MD&A
Bell Wireless
Bell Wireline
Bell Media
+1.0%
Inter-segment eliminations
Total BCE operating revenues
2015
$ CHANGE
% CHANGE
2016
7,159
6,876
12,104
12,258
3,081
2,974
(625)
(594)
21,719
21,514
283
(154)
107
(31)
205
4.1%
(1.3%)
3.6%
(5.2%)
1.0%
BELL WIRELINE
Bell Wireline operating revenues decreased by 1.3% in 2016, compared
to last year, attributable to the ongoing erosion in our traditional voice
and legacy data revenues in part reflecting the impact of continued
slow economic growth in our business markets, the sale of a call centre
subsidiary in September 2015, as well as lower revenues in our
wholesale market, driven by significantly lower revised interim rates
set by the CRTC for aggregated wholesale high-speed Internet access
services. Higher acquisition and retention discounts in our residential
market resulting from intense competitive pressures from cable
operators, along with subscriber base declines in satellite TV, also
contributed to the decrease in operating revenues. This was mitigated
in part by the continued growth of Internet and IPTV subscribers, along
with higher retail household ARPU, as well as the acquisition of Q9 in
the fourth quarter of 2016.
BELL MEDIA
Bell Media operating revenues increased by 3.6% in 2016, compared
to last year, due to higher subscriber revenues driven by Bell Media’s
expansion of TMN into a national pay TV service in March 2016,
combined with increased revenues from CraveTV, our streaming
service, and our TV Everywhere Go products. The growth in operating
revenues was moderated by lower advertising revenues due to market
softness in TV and radio, the non-recurrence of revenues generated
in the second half of last year from the 2015 federal election, and the
shift in advertising dollars to the principal broadcaster of the Rio 2016
Summer Olympic Games. The year-over-year decrease in advertising
revenues was moderated by higher OOH advertising revenues
primarily due to the Métromédia acquisition in January 2016 and new
contract wins in 2016.
4.3 Operating revenues
BCE
Revenues
(in $ millions)
$21,514
$21,719
2015
2016
BCE
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Total operating revenues for BCE grew by 1.0% in 2016, compared to
last year, as a result of solid growth from both our Bell Wireless and
Bell Media segments, offset in part by a decline in our Bell Wireline
segment. This was comprised of service revenues of $20,090 million,
an increase of 1.7% compared to 2015, and product revenues of
$1,629 million, a decline of 7.2% year over year.
BELL WIRELESS
Bell Wireless operating revenues were up 4.1% in 2016, compared to
2015, primarily due to service revenue growth of 5.7%, driven by a larger
postpaid customer base coupled with the growth in blended ARPU.
The year-over-year increase in blended ARPU was driven by the
adoption of higher rate plans as customers continued to shift from
three-year to two-year contracts, increased data usage from greater
smartphone penetration and a growing base of postpaid LTE and
LTE-A customers, which was moderated in part by the continued
decline in voice revenues. Product revenues decreased by 12.7% in
2016, mainly as a result of greater promotional offers in a highly
competitive marketplace, as well as a fewer number of device upgrades,
moderated by a higher number of postpaid gross activations and a
greater proportion of premium smartphone devices in our activation
and upgrade mix.
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4.4 Operating costs
BCE
Operating costs
(in $ millions)
BCE
Operating cost profile
(2015)
BCE
Operating cost profile
(2016)
$12,963
in 2015
$12,931
in 2016
Bell Wireless
Bell Wireline
Bell Media
Inter-segment eliminations
Total BCE operating costs
14%
35%
15%
51%
52%
33%
Cost of revenues (1)
Labour (2)
Other (3)
2016
(4,156)
(7,062)
(2,338)
625
2015
(4,048)
(7,258)
(2,251)
594
(12,931)
(12,963)
$ CHANGE
% CHANGE
(108)
196
(87)
31
32
(2.7%)
2.7%
(3.9%)
5.2%
0.2%
(1) Cost of revenues includes costs of wireless devices and other equipment sold, network and content costs, and payments to other carriers.
(2) Labour costs (net of capitalized costs) include wages, salaries, and related taxes and benefits, post-employment benefit plans service cost, and other labour costs,
including contractor and outsourcing costs.
(3) Other operating costs include marketing, advertising and sales commission costs, bad debt expense, taxes other than income taxes, IT costs, professional service fees and rent.
BCE
Total BCE operating costs decreased by 0.2% in 2016, compared to
2015, as cost savings realized in our Bell Wireline segment more than
offset increases in Bell Wireless and Bell Media.
BELL WIRELESS
Bell Wireless operating costs increased by 2.7% in 2016 compared to
last year. The year-over-year increase in operating costs reflected:
• Higher customer retention spending mainly attributable to
greater promotional pricing in a very competitive market coupled
with a greater proportion of premium smartphone devices in
our upgrade mix. This increase was partially offset by lower
year-over-year subsidized upgrade volumes as a result of the
convergence of three-year and two-year contract expiries
(referred to as “double cohort” in the wireless industry) following
the final application of the mandatory code of conduct on
June 3, 2015 for providers of retail mobile wireless voice and
data services in Canada (Wireless Code), which drove greater
activity in the marketplace in 2015.
• Increased subscriber acquisition costs driven by higher year-
over-year gross activations, higher sales of more expensive
smartphones, greater promotional pricing due to a competitive
marketplace and a larger proportion of postpaid gross activations
in our activation mix
• Higher bad debt expense generated by increased revenues
• Higher network operating costs driven by LTE and LTE-A network
expansion and increased usage
• Increased payments to other carriers resulting from higher data
usage volume
These factors were offset partly by lower labour costs driven by reduced
call volumes to customer service centres.
BELL WIRELINE
Bell Wireline’s operating costs declined by 2.7% in 2016, compared to
last year, as a result of:
• Lower labour costs attributable to workforce reductions, declining call
volumes to customer service centres and vendor contract savings
• Reduced post-employment benefit expense resulting from a
higher year-over-year discount rate. Additionally, a gain
recorded on an alignment of certain Bell Aliant DB pension plans
with those of Bell Canada in the first quarter of 2016 also
contributed to the year-over-year reduction.
• Lower cost of goods sold consistent with lower product sales
• Decreased payments to other carriers driven by reduced volumes
The decline in operating costs was offset in part by increased
programming costs for TV services attributable to a greater number
of total TV subscribers and programming rate increases, combined
with higher costs associated with the acquisition of Q9 in the fourth
quarter of 2016.
BELL MEDIA
Operating costs increased by 3.9% in 2016, compared to last year, due
to higher content costs related to sports broadcast rights, the TMN
national expansion and continued ramp-up in CraveTV content, as
well as an increase in expenses associated with the Métromédia
acquisition and outdoor advertising contract wins. This was mitigated
in part by lower labour costs as a result of a 2015 workforce reduction
initiative.
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4.5 Net earnings
BCE
Net earnings
(in $ millions)
$3,087
$2,730
+13.1%
2015
2016
4.6 Adjusted EBITDA
BCE
Adjusted EBITDA
(in $ millions)
$8,551
$8,788
$2,828
$3,003
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Bell Wireless
Bell Wireline
Bell Media
$5,000
$723
2015
$5,042
$743
2016
BCE
Adjusted EBITDA
(in $ millions)
(% adjusted EBITDA margin)
$8,551
in 2015
39.7%
$8,788
in 2016
40.5%
+2.8%
BCE
BCE’s adjusted EBITDA was 2.8% higher in 2016, compared to prior
year, driven by favourable year-over-year contributions from all
three of our segments.
BCE’s adjusted EBITDA margin increased by 0.8% to 40.5% in 2016,
compared to 2015, resulting from growth in wireless, Internet, TV and
media services revenue, disciplined cost containment at Bell Wireline,
and savings from workforce reductions at Bell Media. This was
moderated by the ongoing erosion in our traditional voice and legacy
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In 2016, net earnings increased by 13.1%, compared to 2015, due mainly to higher operating
revenues and lower operating costs, which resulted in higher adjusted EBITDA, lower
severance, acquisition and other costs, lower finance costs and higher other income, partly
offset by higher amortization expense and higher income taxes.
Bell Wireless
Bell Wireline
Bell Media
Total BCE adjusted EBITDA
2016
3,003
5,042
743
8,788
2015
$ CHANGE
% CHANGE
2,828
5,000
723
8,551
175
42
20
237
6.2%
0.8%
2.8%
2.8%
data services, greater wireless subscriber acquisition and customer
retention spending and higher content and programming costs in our
Bell Media and Bell Wireline segments.
BELL WIRELESS
Bell Wireless adjusted EBITDA grew by 6.2% in 2016, compared to 2015,
reflecting growth in service revenues driven by a larger postpaid
customer base and higher blended ARPU, partly offset by increased
operating costs. This resulted in slightly higher year-over-year adjusted
EBITDA margin, based on service revenues, of 45.5% in 2016 compared
to 45.3% achieved in 2015.
BELL WIRELINE
Bell Wireline adjusted EBITDA increased by 0.8% in 2016, compared
to last year, led by revenue growth from our Internet and TV businesses,
disciplined cost containment, and lower post-employment benefit
expense, tempered by the ongoing loss of higher-margin voice and
legacy data service revenues, and the continued, but moderating,
pressure in our business markets revenues.
BELL MEDIA
Bell Media adjusted EBITDA increased by 2.8% in 2016, compared to
last year, as higher revenues along with labour reduction initiatives
more than offset the increase in content and programming costs.
MD&A
4.7 Severance, acquisition and other costs
This category includes various
income and expenses that are not
related directly to the operating
revenues generated during the year.
BCE
Severance, acquisition
and other costs
(in $ millions)
$446
in 2015
$135
in 2016
2016
Severance, acquisition and other costs included:
• Severance costs related to voluntary and involuntary workforce reduction initiatives
of $87 million
• Acquisition and other costs of $48 million, which included transaction costs, such as legal
and financial advisory fees, related to completed or potential acquisitions, as well as
severance and integration costs relating to the privatization of Bell Aliant Inc.
2015
Severance, acquisition and other costs included:
• Severance costs related to involuntary and voluntary workforce reduction initiatives
of $197 million incurred mainly in our Bell Media and Bell Wireline segments to address
increasing competition, media industry regulation, a soft business market and declines
in home phone subscribers
• Acquisition and other costs of $249 million related mainly to a charge of $142 million
incurred for the payment in full satisfaction of the judgment rendered in a litigation claim
for Satellite TV signal piracy, severance and integration costs relating to the privatization
of Bell Aliant Inc., as well as transaction costs, such as legal and financial advisory fees,
related to completed or potential acquisitions.
4.8 Depreciation and amortization
The amount of our depreciation and
amortization in any year is affected by:
• How much we invested in new property,
plant and equipment and intangible
assets in previous years
• How many assets we retired during
the year
• Estimates of the useful lives of assets
BCE
Depreciation
(in $ millions)
$2,890
$2,877
BCE
Amortization
(in $ millions)
$631
$530
DEPRECIATION
AMORTIZATION
2015
2016
2015
2016
Depreciation in 2016 decreased by $13 million, compared to 2015, due
to an increase in the estimate of useful lives of certain assets as a
result of our ongoing annual review process, partly offset by a higher
depreciable asset base as we continued to invest in our broadband
and wireless networks as well as our IPTV service. The changes to
useful lives have been applied prospectively, effective January 1, 2016,
as described in section 10.1, Our accounting policies – Critical accounting
estimates and key judgments.
Amortization in 2016 increased by $101 million compared to 2015 due
mainly to a higher asset base.
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4.9 Finance costs
BCE
Interest expense
(in $ millions)
$909
$888
BCE
Interest on
post-employment
benefit obligations
(in $ millions)
$110
$81
INTEREST EXPENSE
Interest expense in 2016 decreased by $21 million, compared to 2015,
as a result of lower average interest rates, partly offset by higher
average debt levels.
INTEREST ON POST-EMPLOYMENT BENEFIT OBLIGATIONS
Interest on our post-employment benefit obligations is based on market
conditions that existed at the beginning of the year. On January 1,
2016, the discount rate was 4.2% compared to 4.0% on January 1, 2015.
In 2016, interest expense decreased by $29 million, compared to last
year, due to a lower post-employment benefit obligation.
The impacts of changes in market conditions during the year are
recognized in other comprehensive (loss) income (OCI).
2015
2016
2015
2016
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Other income (expense) includes income and expense items, such as:
• Net mark-to-market gains or losses on derivatives used as economic hedges
• Net gains or losses on investments, including gains or losses when we dispose of,
write down or reduce our ownership in investments
• Equity (loss) income from investments in associates and joint ventures
• Losses on disposal and retirement of software, plant and equipment
4
• Early debt redemption costs
• Impairment of assets
BCE
Other income (expense)
(in $ millions)
$21
($12)
2015
2016
2016
2015
Other income of $21 million included net mark-to-market gains of
$67 million on derivatives used as economic hedges of share-based
compensation and U.S. dollar purchases and gains on investments of
$58 million which included a gain related to one of our equity
investments of $34 million, as well as a gain of $12 million due to the
remeasurement of BCE’s previously held equity interest in Q9 to its
fair value. These were partly offset by losses of $89 million on equity
investments which included BCE’s share of the loss recorded by one
of our equity investments on the sale of a portion of their operations
of $46 million and $11 million equity losses on our share of an obligation
to repurchase at fair value the minority interest in one of BCE’s joint
ventures. Additionally, BCE recorded losses of $28 million on disposal
of software, plant and equipment.
Other expense included losses on disposal of software, plant and
equipment of $55 million, a net impairment charge of $49 million
mainly related to Bell Media’s music properties resulting from revenue
and profitability declines from lower viewership and higher TV content
costs, and losses totalling $49 million from our equity investments
which included a loss on investments of $54 million representing our
share of an obligation to repurchase at fair value the minority interest
in one of BCE’s joint ventures. These factors were partly offset by a
gain on investments of $72 million mainly due to a $94 million gain
on the sale of our 50% ownership interest in Glentel to Rogers
Communications Inc. (Rogers), and net mark-to-market gains of
$54 million on derivatives used as economic hedges of share-based
compensation and U.S. dollar purchases.
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4.11 Income taxes
BCE
Income taxes
(in $ millions)
$924
in 2015
$1,110
in 2016
The following table provides information and reconciles the amount of reported income taxes
in the income statements with income taxes calculated at a statutory income tax rate of 27.1%
and 26.9% for 2016 and 2015, respectively.
FOR THE YEAR ENDED DECEMBER 31
Net earnings
Add back income taxes
Earnings before income taxes
Applicable statutory tax rate
Income taxes computed at applicable statutory rates
Non-taxable portion of gains on investments
Uncertain tax positions
Utilization of previously unrecognized tax credits
Effect of change in provincial corporate tax rate
Change in estimate relating to prior periods
Non-taxable portion of equity losses
Other
Total income taxes
Average effective tax rate
2016
3,087
1,110
4,197
27.1%
(1,137)
11
(9)
–
4
46
(23)
(2)
(1,110)
26.4%
2015
2,730
924
3,654
26.9%
(983)
26
41
5
(6)
8
(14)
(1)
(924)
25.3%
4.12 Net earnings attributable to common shareholders and EPS
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Net earnings attributable
to common shareholders
(in $ millions)
BCE
EPS
(in $)
BCE
Adjusted
net earnings
(in $ millions)
BCE
Adjusted EPS
(in $)
4
$2,894
$2,526
$3.33
$2.98
$2,845
$3,009
$3.36
$3.46
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2016
2015
2016
2015
2016
2015
2016
Net earnings attributable to common shareholders in 2016 increased
by $368 million, compared to 2015, due mainly to higher operating
revenues and lower operating costs, which resulted in higher adjusted
EBITDA, lower severance, acquisition and other costs, lower finance
costs and higher other income, partly offset by higher amortization
expense and higher income taxes.
BCE’s EPS of $3.33 in 2016 increased by $0.35 compared to 2015. The
increase in EPS was partly offset by an increase in the average number
of BCE common shares outstanding, mostly as a result of shares issued
under a bought deal offering in December 2015.
Excluding the impact of severance, acquisition and other costs, net
gains (losses) on investments and early debt redemption costs, adjusted
net earnings in 2016 was $3,009 million, or $3.46 per common share,
compared to $2,845 million, or $3.36 per common share in 2015.
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4.13 Capital expenditures
BCE
Capital expenditures
(in $ millions)
Capital intensity
(%)
$3,626
16.9%
$716
10.4%
$2,809
22.9%
$3,771
17.4%
$733
10.2%
$2,936
24.3%
Bell Wireless
Bell Wireline
Bell Media
$101
3.4%
2015
$102
3.3%
2016
4.14 Cash flows
In 2016, BCE’s cash flows from operating
activities increased by $369 million, compared
to 2015, due mainly to higher adjusted EBITDA,
lower acquisition and other costs paid and
lower income taxes paid, partly offset by a
higher voluntary DB pension plan contribution
made in 2016.
Free cash flow increased by $227 million in
2016, compared to 2015, due to higher cash
flows from operating activities, partly offset
by higher capital expenditures.
BCE capital expenditures were up $145 million, or 4.0%, in 2016, compared to 2015, driven by
greater spending in our Bell Wireline and Bell Wireless segments. As a percentage of revenue,
capital expenditures for BCE were 17.4% in 2016 compared to 16.9% last year. Our capital
investments supported the continued rollout of broadband fibre, including the build-out of
Gigabit Fibe in the city of Toronto and other urban locations, the ongoing deployment of our
4G LTE and LTE-A mobile networks, and expansion of wireless and internet network capacity
to support subscriber growth and accelerating data consumption.
BCE
Cash flows from
operating activities
(in $ millions)
$6,274
$6,643
BCE
Free cash flow
(in $ millions)
$2,999
$3,226
2015
2016
2015
2016
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5 Business segment analysis
5.1 Bell Wireless
In 2016, we delivered industry-leading financial performance through disciplined
postpaid customer acquisition and retention, while achieving higher ARPU through
increased smartphone adoption that drove accelerated mobile data usage.
Key elements of relevant strategic imperatives
Accelerate
wireless
2016 PROGRESS
• Acquired 35% and 37% of total new postpaid gross and net
activations, respectively, among the three national wireless carriers,
while achieving leading service revenue, ARPU and adjusted EBITDA
growth of 5.7%, 3.8% and 6.2%, respectively
• Expanded the number of smartphone users at the end of 2016
to 83% of our total postpaid subscribers, up from 78% at the end
of 2015
• Increased the number of postpaid subscribers on our LTE network
to 81% of our total postpaid subscribers, up from 68% at the end
of 2015
• Expanded our smartphone and tablet lineup with 30 new devices,
including the iPhone 7 and 7 Plus from Apple, the Samsung Galaxy
S7 and S7 edge, Google’s Pixel and Pixel XL and the LG G5, adding
to our extensive selection of 4G LTE and LTE-A capable devices
• Launched VoLTE technology in Ontario, Atlantic Canada, parts of
Québec and British Columbia, Yellowknife and Whitehorse for Bell
customers with compatible smartphones. VoLTE enables faster call
set up times, HD voice quality and the ability to switch seamlessly
between voice and video during calls
• Launched Roam Better International roaming feature that gives
customers access to specialized rates while traveling, providing
unlimited voice and text messages and an additional dedicated
100 MB of data usage for $10 a day in over 110 destinations across
Europe, the Americas, Asia and the Middle East, Australia and
South Africa
• Launched a new portfolio of products and support services to
make mobile communications more accessible for customers with
speech, cognitive, physical, hearing and vision related disabilities,
including the Doro 824 and 824C smartphones for customers with
moderate visual needs, the Mobile Accessibility screen reader
app to assist blind and low vision users, and Tecla by Komodo,
a portable and hands free device that enables customers with
physical upper body limitations to easily use smartphones
and tablets without touching the screen
• Continue to increase the number of postpaid smartphone
subscribers using our 4G LTE and LTE-A networks
• Expand VoLTE technology coverage areas and broaden rollout
to more supported devices
• Accelerate new revenue streams by continuing to drive the
commercialization of IoT services and applications
Invest in broadband
networks and services
2016 PROGRESS
• Expanded our 4G LTE wireless network to reach 97% of the
Canadian population coast to coast
• Continued the rollout of our Dual-band LTE-A wireless network,
providing service to 73% of the Canadian population at data speeds
of up to 260 Mbps (expected average download speeds of 18 to
74 Mbps). In addition, Tri-band LTE-A wireless service, enabled by
aggregating PCS, AWS-1 and 700 MHz spectrum, that delivers
mobile data speeds of up to 335 Mbps (expected average download
speeds of 25 to 100 Mbps), was launched in a number of cities and
areas, including in Halifax, Fredericton, Moncton, Saint John,
Sydney, St. John’s, Toronto, Hamilton, Oakville, London, Kitchener-
Waterloo, Niagara Falls, Muskoka Lakes, Sudbury, Sarnia,
Trois-Rivières and Chicoutimi
• Bell’s 4G LTE wireless network was ranked as the fastest mobile
LTE network in Canada by PCMag
• According to Nielsen Consumer Insights, more Canadians chose
Bell as having the best mobile network in Canada
• Conducted the first Canadian trials of 5G mobile technology in
collaboration with Nokia Corporation, leveraging spectrum in the
73 GHz range to achieve sustained data speeds more than six
times faster than top 4G mobile speeds now available in Canada
2017 FOCUS
• Complete our 4G LTE wireless network build to 99% of the
Canadian population and manage wireless network capacity
• Expand LTE-A coverage to reach approximately 83% of the
Canadian population
2017 FOCUS
• Profitably grow our wireless postpaid subscriber base, while
maintaining market share momentum of incumbent postpaid
subscriber activations
• Increase LTE-A speeds up to 560 Mbps in select areas through
four-carrier aggregation (expected average download speeds
of 41 to 166 Mbps)
• Increase small cell deployment and in-building coverage
• Continue to increase ARPU
to increase urban densification
• Offer the latest handsets and devices in a timely manner to enable
customers to benefit from ongoing technological improvements
by manufacturers and from faster data speeds to optimize the use
of our services
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BCE Inc.
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55
MD&A
Improve
customer service
2016 PROGRESS
• The CCTS received 18% fewer complaints about Bell and Virgin
Mobile between August 1, 2015 and July 31, 2016 than during the
equivalent period of the previous year, continuing the steady
decline in Bell and Virgin Mobile complaints since July 2013
• Reduced customer calls to our service centres by 4 million
in 2016 due to more self-serve online transactions by customers
and overall operational improvements. Online self-serve
visits, infoviews and transactions totalled more than 190 million,
an increase of 30 million over 2015.
2017 FOCUS
• Continue to invest in customer service initiatives to simplify
complexity for all customers, including billing
• Further reduce the total volume of customer calls to our
call centres
• Further improve customer satisfaction scores
• Achieve better consistency in customer experience
• Continue to improve customer personalization
Achieve a competitive
cost structure
2016 PROGRESS
• Delivered cost savings from ongoing service improvements
2017 FOCUS
• Capture operating cost and capital expenditure synergies
from the integration of MTS following the completion of the
acquisition by BCE
• Deliver cost savings from ongoing service improvements
Financial performance analysis
2016 PERFORMANCE HIGHLIGHTS
Bell Wireless
Revenues
(in $ millions)
$6,876
$7,159
Bell Wireless
Adjusted EBITDA
(in $ millions)
(adjusted EBITDA as a percentage of service revenue)
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$2,828
in 2015
45.3%
$3,003
in 2016
45.5%
Postpaid
net activations
315,311
in 2016
+6.2%
Postpaid
churn in 2016
1.25%
Improved 0.03% vs. 2015
Smartphone penetration
of postpaid subscribers
2016: 83%
2015: 78%
+5 pts
5
Service
Product
+4.1%
91%
9%
2015
93%
7%
2016
Postpaid
subscriber growth
+4.3%
in 2016
Blended ARPU
per month
2016: $65.46
2015: $63.09 +3.8%
56
BCE Inc.
2016 AnnuAl RepoRt
MD&A
BELL WIRELESS RESULTS
REVENUES
Service
Product
Total external revenues
Inter-segment revenues
Total Bell Wireless revenues
2016
6,602
515
7,117
42
7,159
2015
6,246
590
6,836
40
6,876
$ CHANGE
% CHANGE
356
(75)
281
2
283
5.7%
(12.7%)
4.1%
5.0%
4.1%
Bell Wireless operating revenues grew by 4.1% in 2016, compared to
last year, as a result of higher service revenues, partly offset by lower
product revenues.
• Service revenues grew by 5.7% in 2016, compared to last year,
to drive growth in data consumption. The year-over-year growth
in service revenues was moderated by lower wireless voice
revenues, due mainly to increased adoption of all-inclusive rate
plans, and the ongoing substitution for data applications.
driven by a larger postpaid subscriber base along with blended
ARPU growth. The increase in blended ARPU reflected higher
average monthly access rates due to the continued shift by
customers from three-year plans to two-year plans, as well as
greater smartphone penetration and a growing base of postpaid
LTE and LTE-A customers in our subscriber mix which continued
• Product revenues decreased by 12.7% in 2016, compared to last
year, primarily due to greater promotional offers as a result of
a very competitive marketplace, as well as a fewer number
of device upgrades, moderated in part by higher gross activations
and a greater proportion of more expensive smartphone devices
in our sales mix
2016
(4,156)
3,003
41.9%
45.5%
2015
(4,048)
2,828
41.1%
45.3%
$ CHANGE
% CHANGE
(108)
175
(2.7%)
6.2%
0.8%
0.2%
Bell Wireless adjusted EBITDA was up 6.2% in 2016, compared to last
year, as the growth in operating revenues more than offset the greater
investment in customer retention and higher subscriber acquisition
costs. This resulted in a modest increase to adjusted EBITDA margin,
based on wireless service revenues, of 45.5% in 2016 compared to
45.3% achieved last year.
OPERATING COSTS AND ADJUSTED EBITDA
Operating costs
Adjusted EBITDA
Total adjusted EBITDA margin
Adjusted EBITDA margin (service revenues)
Bell Wireless operating costs increased 2.7% in 2016, compared to last
year, as a result of:
• Higher customer retention spending mainly attributable to
greater promotional pricing in a very competitive marketplace
coupled with a greater proportion of more expensive premium
smartphone devices in our upgrade mix. This increase was
partially offset by lower year-over-year subsidized upgrade
volumes as 2015 was impacted by the double cohort which
drove greater activity in the marketplace.
• Increased subscriber acquisition costs driven by higher year-
over-year gross activations, higher sales of more expensive
smartphones, greater promotional pricing due to a very
competitive marketplace and a larger proportion of postpaid
gross activations in our activation mix
• Higher bad debt expense generated by increased revenues
• Higher network operating costs driven by LTE and LTE-A network
expansion and increased usage
• Increased payments to other carriers resulting from higher data
usage volume
These factors were offset partly by labour savings driven by lower
call volumes to customer service centres.
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MD&A
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BELL WIRELESS OPERATING METRICS
Blended ARPU ($/month)
Gross activations
Postpaid
Prepaid
Net activations
Postpaid
Prepaid
Blended churn % (average per month)
Postpaid
Prepaid
Subscribers
Postpaid
Prepaid
Cost of acquisition (COA) ($/subscriber)
Blended ARPU of $65.46 increased by 3.8% in 2016 compared to last
year. The increase was driven by growth in postpaid ARPU as a result
of a greater percentage of customers on higher-rate two year plans,
along with a greater mix of postpaid customers with smartphones
and other data devices in our total subscriber base, resulting in greater
data consumption from e-mail, web browsing, social networking, text
messaging, mobile TV, picture and video messaging, as well as
entertainment services such as video streaming, music downloads
and gaming. The higher speeds enabled by the continued expansion
of our 4G LTE and LTE-A networks also drove greater data consumption
which further contributed to the growth in blended ARPU. This was
moderated by the impact of richer plans with higher data usage
thresholds, unlimited local and long distance calling and a greater mix
of shared plans.
Total gross wireless activations increased by 3.4% in 2016, compared
to last year, reflecting a higher number of postpaid gross activations,
while prepaid gross activations declined year over year.
• Postpaid gross activations increased by 5.2% in 2016, compared
to last year, reflecting the continued effectiveness of our
promotional activities despite ongoing competitive pressures
and a maturing wireless market
• Prepaid gross activations decreased by 5.8% in 2016, compared
to last year, due to our continued focus on postpaid customer
acquisitions
Smartphones as a percentage of postpaid subscribers was 83% at
December 31, 2016 compared to 78% at the end of the same period
last year.
2016
65.46
1,654,882
1,408,030
246,852
223,041
315,311
2015
63.09
1,600,147
1,338,141
262,006
127,203
265,369
(92,270)
(138,166)
1.44%
1.25%
3.13%
8,468,872
7,690,727
778,145
494
1.51%
1.28%
3.32%
8,245,831
7,375,416
870,415
467
CHANGE
2.37
54,735
69,889
(15,154)
95,838
49,942
45,896
223,041
315,311
(92,270)
(27)
% CHANGE
3.8%
3.4%
5.2%
(5.8%)
75.3%
18.8%
33.2%
0.07%
0.03%
0.19%
2.7%
4.3%
(10.6%)
(5.8%)
Blended wireless churn improved by 0.07% in 2016, compared to the
prior year, driven by both lower postpaid and prepaid churn. The
improvement was mainly attributable to a greater percentage of
postpaid subscribers in our total subscriber base compared to last
year, as postpaid customers typically have a lower churn rate than
prepaid customers, and also reflected the favourable impact of our
ongoing investment in customer retention.
• Postpaid churn improved by 0.03% in 2016 to 1.25%, compared to
2015, due to greater activity in the marketplace last year as a
result of the double cohort that began in June 2015. Our ongoing
investment in customer retention and improved customer service
also contributed to the improvement in churn.
• Prepaid churn improved by 0.19% in 2016, compared to last year, to
3.13%, as a result of fewer customer deactivations compared to 2015
Postpaid net activations increased by 18.8% in 2016, compared to last
year, due to higher gross activations offset partly by higher customer
deactivations.
Prepaid net customer losses improved by 33.2% in 2016, compared to
last year, driven by fewer customer deactivations, partially offset by
lower gross activations.
Wireless subscribers totalled 8,468,872 at December 31, 2016,
representing an increase of 2.7% since the end of 2015. The proportion
of Bell Wireless customers subscribing to postpaid service increased
to 91% in 2016 from 89% in 2015.
COA per gross activation increased year over year by $27 to $494 in
2016, reflecting the impact of a higher proportion of postpaid customers
in our activation mix, combined with higher handset prices due to the
sale of more expensive premium smartphones and a weak Canadian
dollar, as well as greater promotional offers driven by a highly
competitive market.
Retention costs as a percentage of service revenue increased to 13.2%
in 2016 compared to 12.6% in 2015. The increase in retention costs
in 2016 was mainly attributable to the ongoing shift to more expensive
smartphone models in our upgrade mix and greater promotional
pricing driven by a very competitive market, offset in part by a lower
number of subsidized upgrades in 2016 given that 2015 was impacted
by the double cohort which drove greater activity in the marketplace.
58
BCE Inc.
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MD&A
Competitive landscape and industry trends
COMPETITIVE LANDSCAPE
The wireless market is the largest sector of the Canadian telecom-
munications industry, representing 49% of total revenues, and is
currently growing at a mid-single digit rate annually.
There are over 30 million wireless subscribers in Canada. The market
is highly competitive among three well-established national
competitors as well as a number of regional competitors. Rogers holds
the largest share by virtue of its legacy global system for mobile
communications (GSM) network. However, Bell has had significant
success winning subscribers as well as the largest proportion of
industry revenue and adjusted EBITDA growth since 2009, helped by
the launch of our HSPA+, 4G LTE and LTE-A networks, expanded retail
distribution, the purchase of Virgin Mobile, a refreshed brand and
improved customer service.
In March 2016, the Western Canada-based cable TV company, Shaw
Communications Inc. (Shaw), completed its previously announced
acquisition of WIND Mobile, effectively making Shaw the fourth wireless
carrier in British Columbia, Alberta and Ontario. Shaw rebranded
WIND Mobile as Freedom Mobile in November 2016. Vidéotron Ltée
(Vidéotron) continues to operate as a regional facilities-based wireless
service provider in Québec, and Eastlink in Atlantic Canada. These
cable TV-based wireless providers, in addition to provincial carriers
in Manitoba and Saskatchewan, represent fourth carriers in their
respective markets.
Canada’s wireless penetration was approximately 83% at the end of
2016, compared to 116% for the U.S. and as high as 180% in certain
countries in Europe. Canada’s wireless sector is expected to continue
growing at a steady pace for the foreseeable future, driven by the
increasing usage of data services, the ongoing adoption of more
capable smartphones and tablets and the further expansion of LTE-A
network service enabled by the aggregation of multiple channels of
wireless spectrum.
Competitors
• Large facilities-based national wireless service providers Rogers
and TELUS Corporation (TELUS)
• Smaller facilities-based wireless service provider Freedom
Mobile (1), which currently provides service in Toronto, Calgary,
Vancouver, Edmonton and Ottawa, as well as in several
communities in southwestern Ontario
• Regional facilities-based wireless service providers Vidéotron,
which provides service in Montréal and other parts of Québec;
Saskatchewan Telecommunications Holding Corporation (SaskTel),
which provides service in Saskatchewan; MTS Mobility (2), which
provides service in Manitoba; and Eastlink, which launched service
in Nova Scotia and Prince Edward Island in February 2013
• Mobile virtual network operators (MVNOs), who resell competitors’
wireless networks, such as PC Mobile
Canadian wireless market share
Subscribers
7%
3%
28%
30 million subscribers
at December 31, 2016
34%
Bell
TELUS
Rogers
28%
Freedom Mobile
Regional
Revenues
7%
33%
30%
Total industry revenues
of $24 billion in 2016
Bell
TELUS
Rogers
Other
30%
(1) Shaw completed its acquisition of WIND Mobile on March 1, 2016 and rebranded
the service as Freedom Mobile in November 2016.
(2) BCE expects to complete the acquisition of MTS on March 17, 2017.
See section 1.3, Key corporate developments, for more details.
(3) Percentages may not add to 100 due to rounding.
(4) Bell metrics shown include Bell Aliant Inc. as of 2015.
(5) TELUS metrics shown include Public Mobile Inc. as of 2015.
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KEY WIRELESS METRICS –
SHARE FOR NATIONAL CARRIERS (3)
POSTPAID NET ADDITIONS (%)
60%
40%
20%
0%
Bell (4)
TELUS (5)
Rogers
2008
2009
2010
2011
2012
2013
2014
2015
2016
24%
27%
40%
38%
40%
38%
46%
43%
37%
36%
30%
34%
38%
36%
38%
54%
40%
29%
40%
43%
26%
24%
24%
23%
0%
17%
34%
REPORTED EBITDA GROWTH (%)
200%
100%
0%
(
100%)
(
200%)
Bell (4)
TELUS (5)
Rogers
2008
2009
2010
2011
2012
2013
2014
2015
2016
31%
19% (81%)
80%
49%
47%
51%
62%
52%
18% (28%)
68% 124%
47%
34%
28%
40%
34%
51% 108% 113% (104%)
4%
19%
20%
(2%)
14%
SERVICE REVENUE GROWTH (%)
100%
80%
60%
40%
20%
0%
20%)
(
Bell (4)
TELUS (5)
Rogers
2008
2009
2010
2011
2012
2013
2014
2015
2016
21%
27%
9%
5%
42%
39%
40%
48%
49%
50%
37%
25%
51%
45%
47%
52%
33%
25%
52%
86%
33%
10%
15%
5%
(1%)
18%
37%
BCE Inc.
2016 AnnuAl RepoRt
59
MD&A
INDUSTRY TRENDS
ACCELERATING DATA CONSUMPTION
Wireless data growth continues to be driven by the ongoing adoption
of smartphones and tablets, and associated data plans. The demand
for wireless data services is expected to continue to grow, due to
ongoing investment in faster network technologies, such as 4G LTE
and LTE-A, that provide a richer user experience, a larger appetite
for mobile connectivity and social networking, greater selection of
smartphones and tablets, as well as increasing adoption of shared
plans with multiple devices by families. Greater customer adoption
of data services, including mobile TV, data roaming for travel, mobile
commerce, mobile banking, and other IoT applications in the areas of
retail and transportation (connected car, asset tracking, and remote
monitoring) should also contribute to the growth. In the consumer
market, IoT is projected to be a future growth area for the industry
as wireless connectivity on everyday devices, from home automation
to cameras, becomes ubiquitous.
NEED FOR MORE WIRELESS SPECTRUM
AND CARRIER AGGREGATION
Fast growth in mobile data traffic is increasingly putting a strain on
wireless carriers’ networks and their ability to manage and service
this traffic. Industry Canada’s 700 MHz, Advanced Wireless Services-3
Business outlook and assumptions
2017 OUTLOOK
We expect continued revenue growth driven by a greater number of
postpaid subscribers and higher ARPU. We expect ARPU to continue
to increase, but at a slower pace, as the market continues to mature,
driven by the flow-through of access rate increases implemented in
January 2016, higher-rate plan pricing for bring-your-own-device
(BYOD) plans, a larger proportion of higher-rate plans in the revenue
mix reflecting increased customer adoption of larger data buckets,
accelerated data usage, and further growth in the proportion of
postpaid subscribers in our overall customer base as we focus on
maintaining our incumbent net additions market share in a disciplined
and cost-conscious manner.
We will seek to achieve higher revenues from data growth, through
the use of our HSPA+, 4G LTE and LTE-A networks, higher demand for
services such as web browsing, music and video streaming and
community portals such as Facebook and YouTube, as well as nascent
services including mobile commerce and other IoT applications. Our
intention is to introduce these new services to the market in a way
that balances innovation with profitability.
We plan to deliver adjusted EBITDA growth in 2017 from continued
solid revenue growth, which should be partly offset by higher subscriber
acquisition and retention spending consistent with a sustained high
level of competitive market activity.
(AWS-3), and 2500 MHz spectrum auctions that concluded in 2014
and 2015 provided wireless carriers with prime spectrum to roll out
faster next-generation wireless networks and build greater capacity.
Furthermore, carrier aggregation is a technology currently being
employed by Canadian wireless carriers (and which is expected to
be used more extensively in the future) that allows for multiple
spectrum channels to be used together, thereby significantly increasing
capacity and data transfer rates.
GREATER SPENDING ON CUSTOMER RETENTION
As wireless penetration in Canada increases further, together with a
growing number of off-contract subscribers and a continued high level
of competitive intensity, even greater focus will be required to improve
customer service, enhance existing service offerings and spend on
upgrading more customers to new devices. In particular, as a result of
the Wireless Code, which has limited wireless contract terms to two
years from three years previously, a higher level of transactional
market activity is expected as a result of a growing number of customers
who will be eligible to renew their plans or change carriers. However,
as the number of customer contract migrations from three-year to
two-year contracts slows down, ARPU growth is expected to moderate.
ASSUMPTIONS
• Maintain our market share of incumbent wireless postpaid
subscriber activations
• Continued adoption of smartphone devices, tablets and data
applications, as well as the introduction of more 4G LTE devices
and new data services
• Higher subscriber acquisition and retention spending, driven
by higher handset costs and more customer device upgrades,
reflecting a higher number of off-contract subscribers due
to earlier expiries under two-year contracts
• Higher blended ARPU, driven by a higher postpaid smartphone
mix, increased data consumption on 4G LTE and LTE-A networks,
and higher access rates from price increases
• Completion of the LTE network buildout to 99% of the Canadian
population and expansion of the LTE-A network coverage to
approximately 83% of the Canadian population
• Ability to monetize increasing data usage and customer
subscriptions to new data services
• Ongoing technological improvements by handset manufacturers
and from faster data network speeds that allow customers to
optimize the use of our services
• No material financial, operational or competitive consequences
of changes in regulations affecting our wireless business
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BCE Inc.
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MD&A
Key growth drivers
• Increasing Canadian wireless industry penetration
• Greater number of postpaid customers on our 4G LTE and
• Increasing customer adoption of smartphones, tablets and other
LTE-A networks
4G LTE devices to increase mobile data usage
• Customer usage of new data applications and services
Principal business risks
This section discusses certain principal business risks specifically related to the Bell Wireless segment. For a detailed description of the principal
risks that could have a material adverse effect on our business, refer to section 9, Business risks.
REGULATORY ENVIRONMENT
AGGRESSIVE COMPETITION
MARKET MATURITY
RISK
• Greater regulation of wireless services
(e.g. more stringent regulation of
wholesale roaming rates, additional
mandated access to wireless networks,
limitations placed on future spectrum
bidding, and a more stringent Wireless
Code for retail services)
POTENTIAL IMPACT
• Greater regulation could limit
our flexibility, influence the market
structure, improve the business
positions of our competitors and
negatively impact the financial
performance of our wireless business
RISK
• The intensity of competitive activity
from incumbent wireless operators,
newer wireless entrants, non-traditional
players and resellers
POTENTIAL IMPACT
• Pressure on our adjusted EBITDA,
ARPU, churn, COA and retention
would likely result if competitors
aggressively increase discounts for
handsets and price plans, offer shared
plans based on sophisticated pricing
requirements or offer other incentives,
such as new data plans or multi-
product bundles, to attract new
customers
RISK
• Slower subscriber growth and
smartphone penetration due to higher
Canadian wireless penetration
POTENTIAL IMPACT
• A maturing wireless market could
challenge subscriber growth and put
pressure on the financial performance
of our wireless business
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BCE Inc.
2016 AnnuAl RepoRt
61
MD&A
5.2 Bell Wireline
Our Bell Wireline segment achieved positive adjusted EBITDA growth for a second
consecutive year in 2016, supported by continued Internet and IPTV subscriber growth,
higher household ARPU and lower operating costs, which drove a 0.9 percentage-point
improvement in our North American industry-leading margin of 41.7%.
Key elements of relevant strategic imperatives
Leverage
wireline momentum
2016 PROGRESS
• Maintained our position as Canada’s largest TV provider with
2,744,909 subscribers, and increased our total number of IPTV
subscribers by 13.1% to 1,337,944
• Built on our position as the leading ISP in Canada with a high-
speed Internet subscriber base of 3,476,562, up 1.9% over 2015
• Increased the number of multi-product households – those that
buy TV, Internet and Home Phone – by 4% over 2015, fuelled
by our IPTV service, which drove higher pull-through attach rates
for Home Phone and Internet services, with 74% of all new IPTV
customers taking three products
• Maintained our leadership position in Canadian broadband
communications with the most advanced products in the home
and continuous IPTV and Internet service innovation
• Launched Home Hub 3000 residential gateway, offering the
most powerful home Wi-Fi service with 12 antennas, total
throughput capability of up to 1 Gb, automatic channel
switching for reduced interference, tri-band technology
supporting multiple connected devices and battery back-up
that enables customers to use Fibe Internet during a power
outage for up to four hours
• Bell Fibe TV was ranked as the most advanced TV service
in Canada
• Bell’s FTTH Fibe Internet service led Canadian Internet providers,
exceeding advertised download speeds by a greater margin than
the competition
• Launched Virgin Home Internet service in Ontario and Québec
• Acquired Q9, a Toronto-based data centre operator providing
outsourced hosting and other data solutions to Canadian business
and government customers, supporting our ability to compete
against domestic and international providers in the growing
outsourced data services sector
• Launched Bell Total Connect for small business customers across
Ontario and Québec, delivering a suite of advanced messaging
and unified communications services on both broadband fibre
and mobile LTE networks
• Formed a partnership with IBM to expand the cloud computing
services available through our Bell Business Cloud service, giving
businesses across Canada access to the IBM Cloud via a secure,
high-speed private connection from Bell, simplifying the way
customers adopt and build out their hybrid clouds
2017 FOCUS
• Continue to enhance our IPTV service with more advanced
features
• Launched Wireless 4K Whole Home PVR, enabling the world’s
first fully wireless IPTV service with the flexibility to easily locate
Fibe TV anywhere in the home, and featuring 4K quality with
four times the detail of Full HD, up to 150 hours of 4K recording
capacity and Bluetooth remote that enables out-of-sight
positioning of the PVR
• Make Bell Fibe TV available as a standalone TV service
• Expand our total base and market share of TV and Internet
subscribers profitably
• Reduce total wireline residential net losses
• Increase residential household ARPU through greater
• Became the first TV provider in Canada to integrate access
multi-product household penetration
to Netflix in 4K Whole Home PVR
• Became the first Canadian TV service provider to offer TV
service on Apple TV, providing access to up to 450 channels live
or on demand and unique Fibe TV features like top trending
shows, with recordings and pause and rewind live TV coming
later in 2017
• Increase share of wallet of large enterprise customers through
greater focus on business service solutions and connectivity
growth
• Increase the number of net new customer relationships in both
large and mid-sized businesses and reduce small business
customer losses
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BCE Inc.
2016 AnnuAl RepoRt
MD&A
Invest in broadband
networks and services
2016 PROGRESS
• Continued to expand our FTTP broadband fibre footprint in
communities across Ontario, Québec and Atlantic Canada,
reaching approximately 2.9 million homes and businesses. FTTP
enables Internet speeds of up to 1 Gbps.
2017 FOCUS
• Expand FTTP broadband fibre footprint to approximately
3.5 million locations passed
Improve
customer service
2016 PROGRESS
• The CCTS received 18% fewer complaints about Bell and Virgin
Mobile between August 1, 2015 and July 31, 2016 than during the
equivalent period of the previous year, continuing the steady
decline in Bell and Virgin Mobile complaints since July 2013
• Launched Manage Your Appointment feature, offering residential
customers an easy way to confirm and check the status of their
service appointments online
• Reduced customer calls to our service centres by 4 million in 2016
due to more self-serve online transactions by customers
and overall operational improvements. Online self-serve visits,
infoviews and transactions totalled more than 190 million,
an increase of 30 million over 2015.
• Reduced Fibe TV installation time for FTTP customers by 9%
in 2016 and 43% since the beginning of 2012
• Achieved Same Day Next Day service completion rate of 88%
for repairing service issues with Home Phone, TV and Internet
• Improved customer satisfaction with technicians to 95%
for installations and repairs
• Offered installation appointments within two days of placing
an order to 76% of residential customers, an increase of almost
two times since 2014
• Offered Same Day repair to 73% of small business customers,
who are now able to schedule appointments until 4:00 p.m. for
Same Day repair
• Improved skill set of customer service agents to allow them
to resolve more technical issues, eliminating 30% of transfers to
second-level support
2017 FOCUS
• Continue to invest in customer service initiatives to simplify
complexity for all customers, including billing
• Further reduce the total volume of customer calls to our
call centres
• Further improve customer satisfaction scores
• Achieve better consistency in customer experience
• Continue to improve customer personalization
• Reduce FTTP installation times and improve service quality
• Deploy new diagnostic technology enabling enhanced
troubleshooting and service monitoring for our customers
Achieve a competitive
cost structure
2016 PROGRESS
• Reduced wireline operating costs by 2.7%, contributing to
Bell Wireline adjusted EBITDA margin improvement of 0.9 pts
over 2015
• Executed on labour savings from workforce reductions
undertaken in 2015 at Bell Wireline
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• Delivered cost savings from ongoing service improvements and
savings related to the deployment of FTTP
5
2017 FOCUS
• Capture operating cost and capital expenditure synergies
from the integration of MTS following the completion of the
acquisition by BCE
• Deliver cost savings from workforce reductions, ongoing service
improvements, and savings related to the deployment of FTTP to
support a stable consolidated adjusted EBITDA margin
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Financial performance analysis
2016 PERFORMANCE HIGHLIGHTS
Bell Wireline
Revenues
(in $ millions)
$12,258
$12,104
Data
Local and access
Long distance
62%
Equipment and other
(1.3%)
26%
6%
6%
2016
59%
27%
7%
7%
2015
TV
+0.2%
Subscriber growth
in 2016
High-speed Internet
+1.9%
Subscriber growth
in 2016
BELL WIRELINE RESULTS
REVENUES
Data
Local and access
Long distance
Other services
Total external service revenues
Inter-segment service revenues
Total operating service revenues
Data
Equipment and other
Total external product revenues
Inter-segment product revenues
Total operating product revenues
Total Bell Wireline revenues
Bell Wireline
Adjusted EBITDA
(in $ millions)
(% adjusted EBITDA margin)
$5,000
in 2015
40.8%
$5,042
in 2016
41.7%
+0.8%
IPTV
155,153
Fibre footprint
8.3 million
Total net subscriber activations
in 2016
Homes and businesses
at the end of 2016
High-speed Internet
85,099
Total net subscriber activations
in 2016
NAS lines
(6.4%)
Subscriber decline
in 2016
2016
6,791
3,089
741
182
10,803
177
10,980
559
555
1,114
10
1,124
12,104
2015
6,590
3,271
831
186
10,878
204
11,082
573
592
1,165
11
1,176
12,258
$ CHANGE
% CHANGE
201
(182)
(90)
(4)
(75)
(27)
(102)
(14)
(37)
(51)
(1)
(52)
(154)
3.1%
(5.6%)
(10.8%)
(2.2%)
(0.7%)
(13.2%)
(0.9%)
(2.4%)
(6.3%)
(4.4%)
(9.1%)
(4.4%)
(1.3%)
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Bell Wireline operating revenues decreased by 1.3% in 2016, compared
to last year, due to declines in local and access, long distance and
product revenues. Bell Wireline year-over-year revenues were also
unfavourably impacted by the sale of a call centre subsidiary in
September 2015. The decrease in operating revenues was partly
mitigated by the growth in data service revenue.
Bell Wireline delivered growth from residential services revenue in
2016, despite the unfavourable impact of the sale of a call centre
subsidiary, mainly attributable to higher Internet and IPTV subscriber
bases along with growth in household ARPU, partially offset by higher
customer acquisition and retention discounts resulting from aggressive
cable competition, the impact of service optimization by customers
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and ongoing NAS and satellite TV subscriber base erosion. Slow
economic growth and competitive pricing pressures continued to
unfavourably impact our business markets revenues although the
rate of erosion improved compared to last year. Bell Wireline operating
revenues were further negatively impacted by a decrease in our
wholesale market, driven by an unfavourable CRTC rate revision for
aggregated wholesale high-speed Internet access services.
• Data service revenues increased by 3.1% in 2016, compared to
2015, driven by higher Internet and IPTV revenues, due to growth
in the subscriber bases and rate increases, as well as higher
business solutions services revenue mainly reflecting the
acquisition of Q9 in the fourth quarter of 2016. This was partly
offset by lower satellite TV revenues primarily driven by a lower
subscriber base, the continued erosion in legacy data revenues,
as well as significantly lower revised interim rates set by the CRTC,
effective October 2016, for aggregated wholesale high-speed
Internet access services.
OPERATING COSTS AND ADJUSTED EBITDA
• Local and access revenues decreased by 5.6% in 2016, compared
to last year, as a result of the continued loss of NAS lines due to
aggressive offers from cable TV providers, technological
substitution to wireless and Internet-based services and large
business customer conversions to IP-based data services,
moderated in part by rate increases on our residential services
• Long distance revenues declined by 10.8% in 2016, compared to
2015, reflecting fewer minutes of use by residential and business
customers, resulting from NAS line losses, technology substitution
to wireless and OTT Internet-based services, continued rate
pressures in our residential market from customer adoption of
premium rate plans, and lower sales of international long distance
minutes in our wholesale market
• Product revenues declined by 4.4% in 2016, compared to 2015,
driven by ongoing slow economic growth in our business market
resulting in lower demand for equipment
Operating costs
Adjusted EBITDA
Adjusted EBITDA margin
2016
(7,062)
5,042
41.7%
2015
(7,258)
5,000
40.8%
$ CHANGE
% CHANGE
196
42
2.7%
0.8%
0.9%
Bell Wireline operating costs decreased by 2.7% in 2016, compared
to last year, as a result of:
• Labour cost savings attributable to workforce reductions,
a decline in call volumes to customer service centres and vendor
contract savings
• Decreased post-employment benefit expense resulting from
a higher discount rate year over year and a gain recorded on an
alignment of certain Bell Aliant DB pension plans with those of
Bell Canada in the first quarter of 2016
• Lower cost of goods sold associated with lower product sales
• Reduced payments to other carriers driven by reduced volumes
The decline in operating expenses was partly offset by increased
programming costs for TV services resulting from a higher number of
total TV subscribers and programming rate increases, as well as higher
costs associated with the acquisition of Q9 in the fourth quarter of 2016.
Bell Wireline adjusted EBITDA increased by 0.8% in 2016, compared to
2015, with a corresponding adjusted EBITDA margin expansion to 41.7%
from 40.8% in 2015. The year-over-year growth in adjusted EBITDA
was driven by higher revenues from our Internet and TV businesses,
ongoing effective cost management and lower post-employment
benefit expense which more than offset the continued loss of higher-
margin voice and legacy data service revenues and the continued,
but moderating, pressure in our business markets revenues.
BELL WIRELINE OPERATING METRICS
Data
High-speed Internet
High-speed Internet net activations
High-speed Internet subscribers (1)
2016
85,099
2015
155,052
3,476,562
3,413,147
CHANGE
(69,953)
63,415
% CHANGE
(45.1%)
1.9%
(1) Our 2016 business Internet subscriber base reflects a beginning of period adjustment to reduce the number of subscribers by 21,684 in order to align practices as a result
of the integration of Bell Aliant.
High-speed Internet subscriber net activations decreased by 45.1% in
2016, compared to 2015, as a result of lower retail and wholesale
residential net activations, driven by increasingly aggressive offers
from cable competitors, a greater number of retail customers coming
off promotional offers which increased deactivations and lower pull-
through due to the reduction in IPTV activations. This was partly
mitigated by increased activations from the launch of Home Internet
service in the second half of 2016 by Virgin Mobile, higher retail
activations in our FTTH footprint, as well as modest growth in our
business market.
High-speed Internet subscribers at December 31, 2016 totalled 3,476,562,
up 1.9% from the end of 2015.
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TV
Net subscriber activations
IPTV
Total subscribers
IPTV
2016
6,413
155,153
2,744,909
1,337,944
2015
CHANGE
% CHANGE
107,380
253,329
2,738,496
1,182,791
(100,967)
(98,176)
6,413
155,153
(94.0%)
(38.8%)
0.2%
13.1%
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IPTV net subscriber activations decreased by 38.8% in 2016, compared
to last year, driven by a higher number of retail customers coming
off promotional offers, aggressive offers from the cable competitors
for service bundles, the impact of maturing Fibe TV markets, slower
IPTV footprint expansion in 2016, and fewer customer migrations from
satellite TV.
Satellite TV net customer losses increased by 1.9% in 2016, compared
to 2015, attributable to lower activations, driven by increased
promotional offers from cable competitors, which was moderated by
fewer customer deactivations and lower retail migrations to IPTV.
Total TV net subscriber activations (IPTV and satellite TV combined)
declined by 100,967 in 2016, compared to last year, due to lower IPTV
net activations and higher satellite TV net losses, as described above.
IPTV subscribers at December 31, 2016 totalled 1,337,944, up 13.1% from
1,182,791 subscribers reported at the end of 2015.
Satellite TV subscribers at December 31, 2016 totalled 1,406,965, down
9.6% from 1,555,705 subscribers at the end of last year.
Total TV subscribers (IPTV and satellite TV combined) at
December 31, 2016 were 2,744,909, representing a 0.2% increase since
the end of 2015.
Local and access
NAS LINES
Residential
Business (1)
Total
NAS NET LOSSES
Residential
Business (1)
Total
2016
2015
CHANGE
% CHANGE
3,249,739
3,007,993
6,257,732
(283,993)
(131,415)
(415,408)
3,533,732
3,154,934
6,688,666
(278,124)
(160,310)
(438,434)
(283,993)
(146,941)
(430,934)
(5,869)
28,895
23,026
(8.0%)
(4.7%)
(6.4%)
(2.1%)
18.0%
5.3%
(1) Our 2016 business NAS subscriber base reflects a beginning of period adjustment to reduce the number of subscribers by 15,526 in order to align practices as a result
of the integration of Bell Aliant.
NAS net losses decreased by 5.3% in 2016, compared to last year,
resulting from lower business net losses, partially offset by higher
residential net losses.
Residential NAS net losses grew by 2.1% in 2016, compared to 2015, as
a result of aggressive competitive offers from cable TV providers,
reduced pull-through due to fewer year-over-year IPTV activations
and ongoing wireless and Internet-based technology substitution,
partially offset by greater customer retention through the acquisition
of three-product households.
Business NAS net losses improved by 18.0% in 2016, compared to last
year, driven by fewer competitive losses in our large business market
and lower customer deactivations in our small business market. This
was offset in part by greater customer migrations to IP-based services,
and reduced demand for new access lines in our large business market
resulting from slow economic growth.
The annualized rate of NAS erosion in our customer base increased
modestly from 6.2% in 2015 to 6.4% in 2016. At December 31, 2016, we
had 6,257,732 NAS lines, compared to 6,688,666 NAS lines at the end
of last year.
Competitive landscape and industry trends
COMPETITIVE LANDSCAPE
The financial performance of the overall Canadian wireline
telecommunications market continues to be impacted by the ongoing
declines in legacy voice service revenues resulting from technological
substitution to wireless and OTT services, as well as by ongoing
conversion to IP-based data services and networks by large business
customers. Sustained aggressive competition from cable companies
also continues to erode traditional telephone providers’ market share
of residential local telephony. Canada’s four largest cable companies
had over 4 million telephony subscribers at the end of 2016, representing
a national residential market share of 43%. Other non-facilities-based
competitors also offer local and long distance VoIP services and resell
high-speed Internet services.
Competition for residential local and long distance services comes
primarily from substitution to wireless services, including our own Bell
Mobility and Virgin Mobile offerings. Approximately 33% of households
in Ontario and Québec are estimated to be wireless only.
In 2016, cable companies continued to increase the speeds of their
Internet offerings, while promoting aggressive customer acquisition
offers. At the end of 2016, the four largest cable companies had
approximately 6.5 million Internet subscribers, representing 54% of
the total Internet market based on publicly reported data (1), while
incumbent local exchange carriers (ILECs) held the remaining 46% or
5.6 million subscribers. Although the residential Internet market is
maturing, with over 88% penetration across Canada, subscriber growth
is expected to continue over the next several years. In addition, Bell
continues to make market share gains due to the expansion of our
fibre-optic network, as well as the pull-through of subscribers from
our IP-based Fibe TV service.
ILECs offering IPTV service grew their subscriber base by 10% in 2016
to reach 2.5 million customers, driven by enhanced service offerings,
expanded network coverage and marketing and promotions focused
on IPTV. This growth came at the expense of cable TV and DTH satellite
TV subscriber losses. At the end of the year, Canada’s four largest
cable companies had approximately 6 million TV subscribers, or a 55%
market share, down two percentage points from 2015.
(1) Internet services provided by resellers are included as wholesale Internet subscribers for cable companies and ILECs.
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Competitors
• Cable TV providers offering cable TV, Internet and cable telephony services, including:
Canadian market share
Residential telephony
• Rogers in Ontario, New Brunswick, Newfoundland and Labrador
• Vidéotron in Québec
• Cogeco Cable Inc. (a subsidiary of Cogeco Inc.) (Cogeco) in Ontario and Québec
43%
• Shaw in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario
• Shaw Direct, providing DTH satellite TV service nationwide
• Eastlink in every province except Saskatchewan, where it does not provide cable TV
and Internet service
• ILECs TELUS and MTS (1) provide local, long distance and IPTV services in various regions
Internet
57%
9 million
total subscribers
ILECs
Cable
• TELUS and Allstream Inc. provide wholesale products and services across Canada
• Various others (such as TekSavvy Solutions, Distributel, VMedia, and Vonage Canada
(a division of Vonage Holdings Corp.) (Vonage)) offer resale or VoIP-based local, long
distance and Internet services
• OTT voice and video services such as Skype, Netflix and Amazon Prime Video
• Digital media streaming devices such as Apple TV, Roku and Google Chromecast
• Other Canadian ILECs and cable TV operators
• Substitution to wireless services, including those offered by Bell
• Business service solutions:
• Systems integrators such as CGI Group Inc., EDS (a division of HP Enterprise Services)
and IBM
• Outsourcers and professional service firms
• Wholesale competitors include cable operators, domestic CLECs, U.S. or other
international carriers for certain services, and electrical utility-based
telecommunications providers
54%
46%
12 million
total subscribers (2)
ILECs
Cable
TV
55%
23%
22%
11 million
total subscribers
IPTV
DTH satellite
Cable
INDUSTRY TRENDS
INVESTMENT IN BROADBAND FIBRE DEPLOYMENT
The Canadian ILECs have made substantial investments in deploying
broadband fibre within their territories. These investments have enabled
the delivery of IPTV and high-speed Internet service in order to better
compete with cable TV offerings in urban areas. IPTV is considered a
superior video product to traditional cable TV, given innovative features
that Bell has introduced, such as: a completely wireless installation in
the home; wireless PVRs and receivers; Restart, which enables customers
to rewind and watch TV shows already in progress from the beginning;
Trending, which highlights in real time the five most-watched shows
in the country and lets the user switch to watch them live or Restart
from the beginning; as well as the integration of OTT services such as
CraveTV and Netflix as apps directly on the PVR. FTTN enables speeds
of up to 50 Mbps, while FTTP delivers broadband speeds of up to 1 Gbps
(higher than any other technology) or faster in 2017 as equipment
evolves to support these speeds. Going forward, ILECs are expected
to maintain high levels of capital spending, primarily for the ongoing
expansion of their broadband fibre networks, with an increasing
emphasis on upgrading current FTTN networks to FTTP.
ALTERNATIVE TV AND OTT SERVICES
The growing popularity of watching TV anywhere is expected to
continue as customers adopt services that enable them to view content
on multiple screens, including computers, smartphones and tablets,
as well as on their TVs. OTT content providers are competing for share
of viewership and spending although, to date, these OTT services have
not generally replaced existing TV services. However, to mitigate the
threat of video substitution, TV and ISPs have launched customer-
authenticated on-demand streaming services that provide
programming content over mobile and Wi-Fi networks to smartphones,
tablets and computers. Additionally, sports and live event programming
are important differentiators for traditional TV providers as they face
increasing competition from OTT content providers. As OTT offers
become more compelling and consumers demand greater flexibility
in choosing the content most relevant to them, the disconnection of
and reduction in spending for traditional TV continues to rise. While
this trend is increasing, it is anticipated that growth in Internet
subscriptions and Internet-only households, as well as the introduction
of direct-to-consumer on-demand streaming services by the incumbent
wireline telecommunications and cable companies, will help to offset
the decline in TV as OTT video increases the value of broadband
Internet.
WIRELESS SUBSTITUTION
Wireless substitution is the most significant driver of residential NAS
losses and wireline voice revenue declines for telecommunications
companies. Wireless-only households were estimated to represent
approximately 33% of households in Ontario and Québec at the end
of 2016, compared to approximately 29% at the end of 2015. To mitigate
the impact of wireless substitution, wireline service providers have
been packaging voice services with Internet and TV and offering
discounted triple-play bundles. Wireless substitution is expected to
continue to steadily increase in 2017.
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(1) BCE expects to complete the acquisition of MTS on March 17, 2017. See section 1.3, Key corporate developments, for more details.
(2) Internet services provided by resellers are included as wholesale Internet subscribers for cable companies and ILECs.
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ADOPTION OF IP-BASED SERVICES
The convergence of IT and telecommunications, facilitated by the
ubiquity of IP, continues to shape competitive investments for business
customers. Telecommunications companies are providing professional
and managed services, as well as other IT services and support, while
IT service providers are bundling network connectivity with their
software as service offerings. In addition, manufacturers continue to
bring all-IP and converged (IP plus legacy) equipment to market,
enabling ongoing migration to IP-based solutions. The development
of IP-based platforms, which provide combined IP voice, data and
video solutions, creates potential cost efficiencies that compensate,
in part, for reduced margins resulting from the continuing shift from
legacy to IP-based services. The evolution of IT has created significant
opportunities for our business markets services, such as cloud services
and data hosting, that can have a greater business impact than
traditional telecommunications services.
Business outlook and assumptions
2017 OUTLOOK
We expect a third consecutive year of positive wireline adjusted
EBITDA growth in 2017, despite the negative financial impact of
regulatory rulings from 2016 regarding Internet tariffs for aggregated
wholesale high-speed access services and customer refunds for
cancelled services. This is being enabled by a stronger projected
revenue performance trajectory that reflects continued broadband
Internet and IPTV subscriber growth as we continue to expand our
FTTH service footprint, annual residential price increases, improvement
in our overall business markets performance supported by the
acquisition of Q9, cost reductions to counter competitive re-pricing
pressures, the ongoing decline in voice revenues and reduced telecom
spending by large enterprise customers in a slow economy, as well
as the incremental financial contribution from the completion of the
acquisition of MTS by BCE.
TV subscriber growth within our wireline footprint is expected to be
driven by continued strong customer adoption of Fibe TV as we
increase penetration of existing IPTV-enabled neighbourhoods and
drive ongoing innovation in IPTV services. We also intend to seek
greater penetration within the multiple-dwelling units (MDU) market,
capitalize on our extensive retail distribution network, and leverage
our market leadership position in HD and 4K programming and
on-demand streaming services to drive incremental subscriber growth
and higher revenue per household. However, we expect satellite TV
net customer losses to continue in 2017, due to cable competitors’
targeted acquisition offers in areas where Fibe TV service is not
available and lower wholesale net activations driven by the roll-out
of IPTV services by other competing providers in Western Canada.
Planned Internet subscriber growth in 2017 is expected to be driven
by IPTV product superiority and resulting Internet pull-through,
increased FTTP coverage as we leverage the speed and reliability of
our broadband Internet network and Internet product innovation. This
is expected to have an associated positive impact on ARPU growth
and customer churn.
In wireline business, the ongoing economy-related and competitive
market challenges, together with continued customer migration to
IP-based systems, will likely continue to negatively impact our overall
business markets results in 2017. We intend on seeking to minimize
the overall revenue decline from legacy services by leveraging our
market position to develop unique services and value enhancements.
We intend to use marketing initiatives seeking to slow NAS erosion,
while investing in new solutions in key portfolios such as Internet and
private networks, data centre and cloud services, unified
communications, and security services. We will continue to deliver
network-centric managed and professional services solutions to large
and mid-sized businesses that increase the value of connectivity
services. Moreover, our acquisition of Q9 in October 2016 strengthens
our national leadership in data hosting, managed services and cloud
computing solutions, allowing us to capture full financial benefits, while
enhancing our ability to achieve a higher pull-through of connectivity
revenues.
We also expect to experience sustained competitive intensity in our
mass and mid-sized business markets as cable operators and other
telecom competitors maintain their focus on these customer segments.
We also intend to introduce service offerings that help drive innovative
solutions and value for our mass and mid-sized customers by leveraging
Bell’s network assets, broadband fibre expansion and service capabilities
to expand our relationships with them. We will maintain a focus on
overall profitability by seeking to increase revenue per customer and
customer retention, as well as through improving our processes to
achieve further operating efficiencies and productivity gains.
Operating cost reduction will continue to be a key focus for our Bell
Wireline segment, helping to offset costs related to the growth and
retention of IPTV, Internet, IP broadband and hosted IP voice subscribers,
the ongoing erosion of high-margin wireline voice and other legacy
revenues, competitive repricing pressures in our business and
wholesale markets, as well as the negative financial impact of
regulatory rulings from 2016. This, combined with further service-level
improvements and operating synergies from the integration of MTS
following the completion of the acquisition by BCE, is expected to
support our objective of maintaining our consolidated adjusted EBITDA
margin relatively stable year over year.
We also plan to maintain significant capital investment in broadband
infrastructure, fibre expansion and upgrades to support our IPTV and
residential Internet services, as well as new business solutions in key
portfolios such as Internet and private networks, data centre and
cloud services, unified communications and security services. We
intend to pursue pricing methods that will assist us in covering the
capital costs of upgrading our networks, providing new services and
expanding capacity to meet growing data consumption.
ASSUMPTIONS
• Positive full-year adjusted EBITDA growth
• Continued growth in residential IPTV and Internet subscribers
• Increasing wireless and Internet-based technological substitution
• Residential services household ARPU growth from increased
penetration of multi-product households and price increases
• Aggressive residential service bundle offers from cable TV
competitors in our local wireline areas
• Continued large business customer migration to IP-based systems
• Ongoing competitive repricing pressures in our business and
wholesale markets
• Continued competitive intensity in our small and mid-sized
business markets as cable operators and other telecom
competitors continue to intensify their focus on business
customers
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• Growing consumption of OTT TV services and on-demand
streaming video, as well as the proliferation of devices, such as
tablets, that consume vast quantities of bandwidth, will require
considerable ongoing capital investment
• Softer wholesale financial performance due to a CRTC decision in
October 2016 that significantly lowered capacity-based billing
rates for aggregated wholesale high-speed Internet access
services
• TV unbundling will not materially accelerate the downsizing of TV
• No other changes in regulations affecting our wireline business
packages by customers
• Realization of cost savings related to management workforce
attrition and retirements, lower contracted rates from our
suppliers, reduction of traffic that is not on our network and
operating synergies from the planned integration of MTS
following the completion of the acquisition by BCE
Key growth drivers
• Expanding FTTP footprint
• Increasing IPTV penetration of households
• Higher market share of industry TV and Internet subscribers
• Greater penetration of multi-product households
• Improved residential customer retention
having material financial, operational or competitive
consequences
• Increased business customer spending on connectivity services
and managed and professional services solutions, as well as
greater new business formation as the economy strengthens and
employment rates improve
• Expansion of our business customer relationships to drive higher
revenue per customer
• Ongoing service innovation and product value enhancements
Principal business risks
This section discusses certain principal business risks which specifically affect the Bell Wireline segment. For a detailed description of the
principal risks that could have a material adverse effect on our business, refer to section 9, Business risks.
AGGRESSIVE COMPETITION
REGULATORY ENVIRONMENT
CHANGING CUSTOMER BEHAVIOUR
RISK
• The intensity of competitive activity
from incumbent operators, cable
companies, non-traditional players
and wholesalers
POTENTIAL IMPACT
• Higher churn, increased acquisition
and retention expenses and use
of promotional competitive offers
to acquire and keep customers,
all of which would put pressure on
Bell Wireline’s adjusted EBITDA
RISK
• The CRTC mandates rates for the new
disaggregated wholesale high-speed
access service available on FTTP
facilities that are materially different
from the rates we proposed and that do
not sufficiently account for the
investment required in these facilities
POTENTIAL IMPACT
• The mandating of rates for the new
disaggregated wholesale high-speed
access service available on FTTP
facilities that are materially different
from the rates we proposed could
improve the business position of our
competitors and change our investment
strategy, especially in relation to
investment in next-generation wireline
networks in smaller communities and
rural areas
RISK
• The traditional TV viewing model (i.e. the
subscription for bundled channels) is
challenged by an increasing number of
viewing options available in the market
offered by traditional, non-traditional
and global players, as well as
developing cord cutting and cord
shaving trends
• Changing customer habits further
contribute to the erosion of NAS lines
POTENTIAL IMPACT
• Our market penetration and number
of TV subscribers could decline as a
result of BDUs’ offerings and an
increasing number of domestic and
global unregulated OTT providers.
The proliferation of IP-based products,
including OTT content offerings, may
accelerate the disconnection of TV
services or the reduction of TV spending
• The ongoing loss of NAS lines from
technological substitution to wireless
and Internet-based services and large
business customer conversions to
IP-based data services challenge our
traditional voice revenues and compel
us to develop other service offerings
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5.3 Bell Media
Bell Media generated revenue and adjusted EBITDA growth in 2016, driven by the
national expansion of TMN, continued growth in CraveTV and growth in outdoor
advertising, even as operating costs grew due to increased costs for sports broadcast
rights and content investments that support TV and on-demand programming.
Key elements of relevant strategic imperatives
Expand
media leadership
2016 PROGRESS
• Maintained CTV’s #1 ranking as the most-watched network
• Discovery Canada’s premium video streaming service Discovery
GO offered a growing inventory of titles available in 4K
• All new TV series commissioned for Bell Media’s networks are
produced in 4K
in Canada for the 15th year in a row, and continued to lead with
a majority of the top 20 programs nationally in all key
demographics
• Extended a broadcast agreement with the IIHF to 2023. TSN and
RDS hold exclusive multimedia rights for the IIHF Ice Hockey World
Championship.
• Launched TMN as a national pay TV service and became the sole
operator of HBO Canada
• Launched CraveTV direct to consumers as a standalone product
available to all Canadians with an Internet subscription. We
continued to grow the viewership and scale of our streaming
video service, surpassing one million subscribers in 2016
• As of October 24, 2016, both new and returning SHOWTIME
programs debut on CraveTV at the same time as their U.S.
broadcast premieres, bolstering the amount of exclusive,
first-run programming on CraveTV
• Streamed CraveTV’s first ever original series, LETTERKENNY,
which had the biggest debut of any series on CraveTV since the
service launched in 2014 and has eclipsed its own Season 1
record with the launch of Season 2 on Christmas Day
• Concluded a deal with MGM to license the iconic James Bond
Catalogue, spanning more than 50 years and every 007 actor
• Made CraveTV available for in-app purchase on Apple TV,
enabling customers to subscribe directly from their iTunes
account
• Launched iHeartRadio, North America’s fastest growing digital
audio service, to the public, providing Canadians with instant
access to all of Bell Media’s 105 radio stations across the country
plus more than 100 additional exclusive, digital streaming
channels featuring every musical genre as well as news/talk,
sports and comedy
• Accelerated 4K Ultra HD production and broadcasting with a
growing number of live event and sports broadcasts in 4K
• TSN became the first broadcaster to produce a live 4K Ultra HD
broadcast in North America with the Toronto Raptors vs. Boston
Celtics basketball game on January 20, 2016.
• CTV’s broadcast of the 2016 Juno Awards was the first live
awards show in North America to be produced in 4K
• TSN’s five national feeds featured several Toronto Raptors,
Toronto Maple Leafs and Ottawa Senators games in 4K, as well
as The Masters and the UEFA Champions League Final
• The iHeartRadio MuchMusic Video Awards was filmed and
broadcast in 4K
• Concluded a multi-title, multi-year exclusive streaming deal with
Warner Bros. International Television for the Canadian market
that delivers some of the most-watched shows to CraveTV
• Expanded a licensing agreement with Viacom International Media
Networks to make Comedy Central original programming and
library of scripted and unscripted series and specials available
across multiple platforms in Canada, including CraveTV
• Concluded a licensing agreement with CBS Studios International
to be the exclusive home for the new STAR TREK series in Canada.
The series will premiere on CTV and then move to Space for the
duration of its run, and will also become available on CraveTV
• Launched a food and lifestyle specialty channel featuring the
established Gusto brand and its exclusive portfolio of original
Canadian programming, all in 4K. Gusto features cooking, home
design, fashion, travel and lifestyle programming
• Acquired Métromédia, allowing Astral OOH to expand its
advertising assets in the public transit market
• Astral OOH secured advertising rights for both in-terminal and
non-terminal concessions across Toronto Pearson International
Airport, becoming Canada’s airport advertising leader with a
presence in six Canadian international airports, including Halifax
Stanfield, Montréal-Pierre Elliott Trudeau, Québec City Jean
Lesage, Ottawa Macdonald-Cartier and Vancouver International.
2017 FOCUS
• Maintain strong audience levels and ratings across all TV and
radio properties
• Reinforce industry leadership in conventional TV, pay TV, sports
media and radio
• In January 2017, we concluded a multi-year media rights
extension with Major League Soccer, making Bell Media
Canada’s exclusive English-language broadcaster of MLS
• Grow viewership and scale of CraveTV on-demand TV streaming
service
• Develop in-house production and content creation for distribution
and use across all platforms and screens
• Expand live and on-demand content through TV Everywhere
services
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• Build on our OOH leadership position in Canada
• In January 2017, we acquired Cieslok Media, which specializes
in large-format outdoor advertising in key urban areas, allowing
Astral OOH to expand its digital presence with 120 high-profile
displays in Vancouver, Edmonton, Calgary, Montréal and
Toronto, including Canada’s largest multimedia billboards
at Yonge-Dundas Square
• Grow French media properties
• Leverage cross-platform and integrated sales and sponsorship
Achieve a competitive
cost structure
2016 PROGRESS
• Executed on labour savings from workforce reductions
undertaken in 2015
2017 FOCUS
• Continue to execute on labour savings from workforce reductions
Financial performance analysis
2016 PERFORMANCE HIGHLIGHTS
Bell Media
Revenues
(in $ millions)
$2,974
$3,081
Bell Media
Adjusted EBITDA
(in $ millions)
$723
$743
+3.6%
2015
2016
2015
2016
Bell Media
Revenue mix
(product)
30%
3%
2015
4%
2016
31%
67%
65%
CTV is the most-watched
Canadian TV network
14 of top
20 programs
Nationally among total viewers
2015-2016 broadcast year
+2.8%
Bell Media
Revenue mix
(line of business)
5%
16%
6%
15%
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Advertising
Subscriber
Other
Advertising
Subscriber
Other
BELL MEDIA RESULTS
REVENUES
Total external revenues
Inter-segment revenues
Total Bell Media revenues
TV
Radio
OOH
2016
2,685
396
3,081
2015
2016
79%
79%
TV
Radio
OOH
2015
2,635
339
2,974
$ CHANGE
% CHANGE
50
57
107
1.9%
16.8%
3.6%
Bell Media operating revenues increased by 3.6% in 2016, compared
to the previous year, driven by higher subscriber revenues, offset in
part by lower advertising revenues.
Subscriber revenues were up in 2016, compared to last year, mainly
due to Bell Media’s expansion of TMN into a national pay TV service
in March 2016, higher revenues from CraveTV driven by rate increases
combined with the favourable impact of our direct-to-consumer
launch in January 2016 and the growth from our TV Everywhere GO
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Advertising revenues decreased in 2016, compared to 2015, reflecting:
This was partly offset by:
• Lower conventional TV advertising revenues due to a soft
• An increase in OOH advertising revenues as a result of the
advertising market, the non-recurrence of revenues generated in
the second half of last year from the 2015 Federal Election and the
shift in advertising dollars to the principal broadcaster of the
Rio 2016 Summer Olympic Games
• A decline in radio advertising revenues driven by market softness
OPERATING COSTS AND ADJUSTED EBITDA
Operating costs
Adjusted EBITDA
Adjusted EBITDA margin
Bell Media operating costs increased by 3.9% in 2016, compared to
last year, driven by higher content costs related to sports broadcast
rights, the TMN national expansion and continued ramp-up in CraveTV
content, as well as by an increase in expenses associated with the
Métromédia acquisition and newly awarded contracts in OOH. This
was mitigated in part by lower labour costs as a result of the 2015
workforce reduction initiative.
Bell Media adjusted EBITDA increased by 2.8% in 2016, compared to
the previous year, as a result of higher revenues and lower labour
costs, partially offset by higher content and programming costs.
BELL MEDIA OPERATING METRICS
• CTV maintained its #1 ranking as the most-watched network
in Canada for the 15th year in a row, and continued to lead with
a majority of the top 20 programs nationally in all key
demographics
• Bell Media’s English specialty and pay TV properties reached
83% of all Canadian English specialty and pay TV viewers on an
average weekly basis in 2016. Discovery channel continued to
have the top entertainment specialty position in full day audience
levels, among the key viewers aged 25 to 54.
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Métromédia acquisition in January 2016 and the favourable
impact of new contract wins in 2016
2016
(2,338)
743
24.1%
2015
(2,251)
723
24.3%
$ CHANGE
% CHANGE
(87)
20
(3.9%)
2.8%
(0.2%)
• In Québec, Bell Media maintained its leadership position in the
French specialty market, reaching 78% of French-language TV
viewers in the average week. Three of the top five specialty
channels among the key viewers aged 25 to 54 were Bell Media
properties (RDS, Super Écran and Canal D).
• Bell Media continued to rank first in digital media among Canadian
broadcast and video network competitors, with 18.2 million unique
visitors per month, reaching 60% of the digital audience
• Bell Media remained Canada’s top radio broadcaster, reaching
17.1 million listeners who spent 77 million hours tuned in each week
during 2016
• Astral AOOH is a key player in the market with an offering of
five innovative product lines and more than 30,000 advertising
faces located coast to coast, from Halifax to Vancouver, and
strategic sites in Montréal, Ottawa, Toronto, Vancouver, Calgary
and Edmonton
Competitive landscape and industry trends
COMPETITIVE LANDSCAPE
The Canadian media industry is highly competitive, with competitors
having significant scale and financial resources. In recent years, there
has been increased consolidation of traditional media assets across
the Canadian media landscape. The majority of players have become
more vertically integrated to better enable the acquisition and
monetization of premium content. Global aggregators have also
emerged and are competing for both content and viewers.
Bell Media competes in the TV, radio and OOH advertising markets:
• TV: The TV market has become increasingly fragmented and this
trend is expected to continue as new services and technologies
increase the diversity of information and entertainment outlets
available to consumers
• Radio: Competition within the radio broadcasting industry occurs
primarily in discrete local market areas among individual stations
• OOH: The Canadian OOH advertising industry is fragmented,
consisting of a few large companies as well as numerous smaller
and local companies operating in a few local markets
Consumers continue to shift their media consumption towards digital
and online media, mobile devices and on-demand content. This has
caused new business models to emerge and advertisers to shift more
of their spending to digital and online rather than traditional media.
In addition, the number of competitors has increased as more digital
and online media companies, as well as large global companies, enter
the market.
Access to live sports and other premium content has become even
more important for acquiring and retaining audiences that in turn
attract advertisers and subscribers. Ownership of content and/or
long-term agreements with content owners has, therefore, also become
increasingly important to media companies.
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Competitors
TV
• Conventional Canadian TV stations (local and distant signals) and specialty and pay
Canadian market share
TV viewership (1)
English language TV
channels, such as those owned by Corus Entertainment Inc. (Corus), Rogers, Québecor
Media Inc. (Québecor), Canadian Broadcasting Corporation (CBC)/Société Radio-
Canada (SRC) and Groupe V
• U.S. conventional TV stations and specialty channels
• OTT streaming providers such as Netflix and Amazon Prime Video
• Video-sharing websites such as YouTube
8%
7%
10%
13%
32%
30%
Bell Media
Corus
U.S.
Rogers
CBC
Other
RADIO
• Large radio operators, such as Rogers, Corus, Cogeco and Newcap Inc. (Newcap)
that also own and operate radio station clusters in various local markets
TV viewership (1)
French language TV
• Radio stations in specific local markets
• Satellite radio provider SiriusXM
• Music streaming services such as Spotify, Apple Music and Google Play Music
• Music downloading services such as Apple’s iTunes Store
• Other media such as newspapers, local weeklies, TV, magazines, outdoor advertising
and the Internet
OOH ADVERTISING
• Large outdoor advertisers, such as Jim Pattison Broadcast Group (Pattison),
Outfront Media, Québecor, Dynamic and Clear Channel Outdoor
• Numerous smaller and local companies operating a limited number of display faces
in a few local markets
• Other media such as TV, radio, print media and the Internet
37%
8%
9%
9%
19%
18%
Québecor
Bell Media
SRC
Groupe V
Corus
Other
Radio (1)
Broadcaster hours tuned
13%
15%
17%
18%
37%
Bell Media
Rogers
Corus
Cogeco
Newcap
(1) Broadcast year-end at August 31, 2016,
2+ age category, Fall 2016 for radio
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INDUSTRY TRENDS
TECHNOLOGY AND CONSUMER HABITS TRANSFORMING
THE WAY TV IS DELIVERED
Technology used in the media industry continues to evolve rapidly,
which has led to alternative methods for the distribution, storage and
consumption of content. These technological developments have
driven and reinforced changes in consumer behaviour as consumers
seek more control over when, where and how they consume content.
For example, consumer electronics innovations have enabled
consumers to view content on TVs, computers, tablets, smartphones
and other mobile electronic devices. The number of Canadian users
who are connected to the Internet through their TVs is growing as
connection becomes easier and more affordable. Changes in
technology and consumer behaviour have resulted in a number of
challenges for content aggregators and distributors. These
technological developments may disrupt traditional distribution
platforms by enabling content owners to provide content directly to
distributors and consumers, thus bypassing traditional content
aggregators.
GROWTH OF ALTERNATIVES TO TRADITIONAL LINEAR TV
Consumers have improved access to online entertainment and
information alternatives that did not exist a few years ago. While
traditional linear TV was the only way to access entertainment
programming in the past, many consumers now watch TV in non-
traditional ways for at least a portion of their viewing. In particular,
today’s viewers are consuming more content online, watching less
scheduled programming live, time-shifting original broadcasts through
PVRs, viewing more TV on mobile devices, and catching up on past
programming on-demand. In addition, many consumers are spending
considerable time viewing online alternatives to traditional TV. This
is evident in the growing number and popularity of OTT video services
like Netflix and Amazon Prime. To date, these OTT services have largely
complemented existing TV services. Media companies are evolving
their content and launching their own solutions to better compete
with these non-traditional offerings through services such as Bell
Media’s CraveTV on-demand TV streaming service and authenticated
TV Everywhere services such as CTV GO, TSN GO, RDS GO, Discovery
GO and TMN GO.
ESCALATING CONTENT COSTS AND SHIFTS
IN ADVERTISING
Viewership and usage trends suggest that online and mobile Internet
video consumption is increasing rapidly. Changing content consumption
patterns and growth of alternative content providers could exert
downward pressure on advertising revenues for traditional media
broadcasters. However, premier content, live sports and special events
should continue to draw audiences and advertisers, which is expected
to result in pricing pressure on future broadcasting rights. Growing
interest in 4K content could also drive additional programming
acquisition and production costs. Additionally, while access to premium
content has become increasingly important to media companies in
attracting viewers and advertisers, there is now increased competition
for these rights from global competitors, including Netflix and Amazon
Prime Video. This has resulted in higher TV program rights costs, which
is a trend that is expected to continue into the future.
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Business outlook and assumptions
2017 OUTLOOK
Bell Media’s financial results in 2017 are expected to be positively
impacted by the incremental contribution from the national expansion
of our English-language pay TV service (TMN) in the first quarter of
2016, further growth in CraveTV and higher outdoor advertising revenue
at Astral OOH from contract wins and the acquisition of Cieslok Media
in January 2017. These factors are anticipated to offset higher content
costs to secure TV programming, continued CraveTV investment and
the financial impact of TV cord shaving and cord cutting. We also
intend to continue carefully managing costs by leveraging assets,
achieving productivity gains and pursuing operational efficiencies
across all of our media properties, while continuing to invest in premium
content across all screens and platforms.
While the advertising market is expected to remain soft in 2017, we
anticipate that the strength of our programming, strong outdoor
advertising growth supported by numerous contract wins in 2016 and
the acquisition of Cieslok Media, as well as the recapture of advertising
revenue following a shift in Q3 2016 to the main broadcaster of the
Rio 2016 Summer Olympic Games, will offset some advertising pressure
including the impact of the CRTC’s decision to eliminate simultaneous
substitution for the NFL Super Bowl. Subscriber fee revenues are
projected to increase, driven by CraveTV subscriber growth and a
full-year contribution from the national expansion of TMN, which
should help moderate potential declines in specialty TV due to the
industry-wide introduction of TV unbundling in 2016.
In conventional TV, we intend to leverage the strength of our market
position to continue offering advertisers, both nationally and locally,
premium opportunities to reach their target audiences. Success in
this area requires that we focus on a number of factors, including:
successfully acquiring highly-rated programming and differentiated
content; building and maintaining strategic supply arrangements for
content across all screens and platforms; and producing and
commissioning high-quality Canadian content, including market-
leading news.
Our sports specialty TV offerings are expected to continue to deliver
premium content and exceptional viewing experiences to our viewers.
Investment in 4K content, combined with the integration of our digital
platforms, are integral parts of our strategy to enhance viewership
and engagement. Contractual price increases for strategic sports
properties, along with planned new investments, are the principal
factors driving continued increases in sports rights costs. We will also
continue to focus on creating innovative high-quality productions in
the areas of sports news and editorial coverage.
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In non-sports specialty TV, audiences and advertising revenues are
expected to be driven by investment in quality programming and
production, including the recent launch of our new food and lifestyle
channel, Gusto. As part of our objective to drive revenue growth, we
intend to capitalize on our leading position in key specialty services
to improve both channel strength and channel selection.
In pay TV, we will continue to leverage our investments in premium
content (including HBO and SHOWTIME) in order to attract subscribers.
In our French-language pay and specialty services, we will continue
to optimize our programming to increase our appeal to audiences.
In radio, we intend to leverage the strength of our market position to
continue offering advertisers, both nationally and locally, premium
opportunities to reach their target audiences. We also plan to leverage
our recently-launched iHeartRadio digital service in Canada to
showcase content from our 105 licensed radio stations and more than
100 curated music streams. Additionally, in conjunction with our local
TV properties, we will continue to pursue opportunities that leverage
our promotional capabilities, provide an expanded platform for content
sharing, and offer synergistic co-location and efficiencies.
In our OOH operations, we plan to leverage the strength of our products
and recent contract wins to provide advertisers with premium
opportunities in key Canadian markets. We will also continue to seek
new opportunities in digital markets, including integrating and
leveraging our recent Cieslok Media acquisition.
ASSUMPTIONS
• Higher year-over-year revenue, reflecting further CraveTV
subscriber growth, TMN’s national expansion that began in
March 2016, and growth in outdoor advertising supported by
acquisitions and new contract wins
• Operating cost growth driven by higher TV programming and
sports broadcast rights costs, as well as continued investment
in CraveTV content
• Continued scaling of CraveTV
• Ability to successfully acquire and produce highly rated
programming and differentiated content
• Building and maintaining strategic supply arrangements for
content across all screens and platforms
• Increased revenue generation from monetization of content rights
and Bell Media properties across all platforms
• TV unbundling and growth in OTT viewing expected to result
in moderately lower subscriber levels for many Bell Media
TV properties
• No material financial, operational or competitive consequences
of changes in regulations affecting our media business
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Key growth drivers
• Stronger economic growth that drives increased advertiser
demand and spending, particularly in the key automotive,
entertainment equipment, telecommunications and consumer
goods sectors
• Higher audience levels from strong ratings being maintained
across all TV and radio properties, as well as from securing
multi-platform rights
• Investing in the best content, including more in-house productions
Principal business risks
This section discusses certain principal business risks specifically related to the Bell Media segment. For a detailed description of the principal
risks that could have a material adverse effect on our business, refer to section 9, Business risks.
AGGRESSIVE COMPETITION
AND REGULATORY CHANGES
ADVERTISING REVENUE
UNCERTAINTY
RISING CONTENT COSTS AND ABILITY
TO SECURE KEY CONTENT
RISK
• The intensity of competitive activity
from traditional TV services, as well
as from new technologies and
alternative distribution platforms such
as unregulated OTT content offerings,
video on demand, personal video
platforms and video services over
mobile devices and the Internet, in
combination with regulations that
require all BDUs to make TV services
available à la carte
POTENTIAL IMPACT
• Adverse impact on the level of audience
acceptance for Bell Media’s TV services
and on Bell Media’s revenue streams
RISK
• Advertising is heavily dependent on
RISK
• Rising content costs, as an increasing
economic conditions and viewership, as
well as on our ability to grow alternative
advertising media such as digital and
OOH platforms in the context of a
changing and fragmented advertising
market
POTENTIAL IMPACT
• Economic uncertainty reduces
advertisers’ spending
• Loss of advertising revenue as a result
of the failure to capture our share of the
changing and fragmented advertising
market
number of domestic and global
competitors compete for the same
content, and the ability to secure
key content to drive revenues and
subscriber growth
POTENTIAL IMPACT
• Rising programming costs could require
us to incur unplanned expenses, which
could result in negative pressure on
adjusted EBITDA
• Our inability to acquire popular
programming content could adversely
affect Bell Media’s viewership and
subscription levels and, consequently,
advertising and subscription revenues
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6 Financial and capital management
This section tells you how we manage our cash and capital resources to carry out our strategy and deliver financial results. It provides an
analysis of our financial condition, cash flows and liquidity on a consolidated basis.
6.1 Net debt
Debt due within one year
Long-term debt
Preferred shares (1)
Cash and cash equivalents
Net debt
DECEMBER 31, 2016
DECEMBER 31, 2015
$ CHANGE
% CHANGE
4,887
16,572
2,002
(853)
22,608
4,895
15,390
2,002
(613)
21,674
(8)
1,182
–
(240)
934
(0.2%)
7.7%
–
(39.2%)
4.3%
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(1) 50% of outstanding preferred shares of $4,004 million in 2016 and 2015 are classified as debt consistent with the treatment by some credit rating agencies.
The increase of $1,174 million in debt due within one year and long-term
debt was due to:
The increase in cash and cash equivalents of $240 million was due
mainly to:
• the issuances of Series M-41 MTN, M-42 MTN and M-43 MTN
• $3,226 million of free cash flow
debentures at Bell Canada with total principal amounts
of $750 million, $850 million and $650 million, respectively
• an increase in our notes payable (net of repayments)
of $991 million
Partly offset by:
• the early debt redemption of Series M-18 MTN, M-19 MTN,
M-23 MTN and M-32 debentures in the principal amounts of
$700 million, $200 million, $500 million and $500 million,
respectively
• the repayment of Series M-38 debentures in the principal
amount of $150 million at Bell Canada
• a net decrease of $17 million in our finance lease obligations
and other debt
• $719 million of debt issuances (net of repayments)
• $107 million decrease in investments which includes proceeds
received from one of our equity investments from the sale
of a portion of its operations
Partly offset by:
• $2,305 million of dividends paid on BCE common shares
• $517 million loan to Q9, a related party
• $404 million paid for business acquisitions mainly related to the
national expansion of HBO Canada and TMN ($197 million, net
of $21 million paid in 2015) and $170 million ($158 million, net of cash
on hand) consideration paid for the acquisition of Q9 Networks Inc.
• $400 million voluntary DB pension plan contribution
• $126 million acquisition and other costs paid
• $106 million for the purchase on the open market of shares
for the settlement of share-based payments
6.2 Outstanding share data
COMMON SHARES OUTSTANDING
NUMBER OF SHARES
STOCK OPTIONS OUTSTANDING
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE ($)
Outstanding, January 1, 2016
865,614,188
Outstanding, January 1, 2016
Shares issued under employee stock option plan
2,236,891
Granted
Shares issued under dividend reinvestment plan
688,839
Exercised (1)
Shares issued under employee savings plan (ESP)
2,166,414
Forfeited
9,666,904
2,968,062
(2,236,891)
(155,913)
Outstanding, December 31, 2016
870,706,332
Outstanding, December 31, 2016
10,242,162
Exercisable, December 31, 2016
1,786,251
(1) The weighted average share price for options exercised in 2016 was $59.
$48
$58
$44
$52
$52
$42
At March 2, 2017, 871,068,816 common shares and 12,887,915 stock options were outstanding.
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6.3 Cash flows
Cash flows from operating activities
Capital expenditures
Cash dividends paid on preferred shares
Cash dividends paid by subsidiaries to non-controlling interest
Acquisition and other costs paid
Voluntary DB pension plan contribution
Free cash flow
Business acquisitions
Acquisition and other costs paid
Voluntary DB pension plan contribution
Business dispositions
Decrease in investments
Acquisition of spectrum licences
Loan to related party
Other investing activities
Net issuance (repayment) of debt instruments
Issue of common shares
Common shares issuance cost
Repurchase of shares for settlement of share-based payments
Cash dividends paid on common shares
Other financing activities
Net increase in cash and cash equivalents
n.m.: not meaningful
2016
6,643
(3,771)
(126)
(46)
126
400
3,226
(404)
(126)
(400)
18
107
(1)
(517)
(16)
719
99
–
(106)
(2,305)
(54)
240
2015
6,274
(3,626)
(150)
(41)
292
250
2,999
(311)
(292)
(250)
409
11
(535)
–
(62)
(510)
952
(35)
(138)
(2,169)
(22)
47
$ CHANGE
% CHANGE
369
(145)
24
(5)
(166)
150
227
(93)
166
(150)
(391)
96
534
(517)
46
1,229
(853)
35
32
(136)
(32)
193
5.9%
(4.0%)
16.0%
(12.2%)
(56.8%)
60.0%
7.6%
(29.9%)
56.8%
(60.0%)
(95.6%)
n.m.
99.8%
–
74.2%
n.m.
(89.6%)
100.0%
23.2%
(6.3%)
n.m.
n.m.
Cash flows from operating activities and free cash flow
In 2016, BCE’s cash flows from operating activities increased
$369 million, compared to 2015, due mainly to higher adjusted EBITDA,
lower acquisition and other costs paid and lower income taxes paid,
partly offset by a higher voluntary DB pension plan contribution made
in 2016.
Free cash flow available to BCE’s common shareholders increased
$227 million in 2016 due to higher cash flows from operating activities,
partly offset by higher capital expenditures.
Capital expenditures
Bell Wireless
Capital intensity ratio
Bell Wireline
Capital intensity ratio
Bell Media
Capital intensity ratio
BCE
Capital intensity ratio
2016
733
10.2%
2,936
24.3%
102
3.3%
3,771
17.4%
2015
716
10.4%
2,809
22.9%
101
3.4%
3,626
16.9%
$ CHANGE
% CHANGE
(17)
(127)
(1)
(145)
(2.4%)
0.2%
(4.5%)
(1.4%)
(1.0%)
0.1%
(4.0%)
(0.5%)
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BCE capital expenditures totalled $3,771 million for 2016 representing
an increase of 4.0%, compared to last year, driven by greater spending
in our Bell Wireline and Bell Wireless segments. Capital expenditures
as a percentage of revenue (capital intensity ratio) was 17.4% in 2016,
compared to 16.9% in 2015. The year-over-year increase in capital
expenditures reflected:
• Higher wireline capital investment of $127 million compared to last
year, due to our ongoing rollout of broadband fibre directly to
more homes and businesses, including the build-out of Gigabit
Fibe infrastructure in the city of Toronto and other urban areas.
This was moderated by the slower pace of expansion of our IPTV
service footprint in Québec and Ontario.
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• Higher wireless capital spending of $17 million compared to 2015,
reflecting our continued investment in the expansion of our 4G
LTE mobile network as well as our LTE-A network which reached
73% of the Canadian population at December 31, 2016. The ongoing
investment to increase network capacity to support our growing
customer base and accommodate higher speeds and greater
data consumption also contributed to the increased spending.
Voluntary DB pension plan contribution
In 2016, we made a voluntary contribution of $400 million, compared to a voluntary contribution of $250 million in 2015, to fund our post-
employment benefit obligation. The voluntary contributions were funded from cash on hand at the end of 2016 and 2015 and will reduce the
amount of BCE’s future pension funding obligations.
Business acquisitions
On October 3, 2016, BCE acquired the remaining 64.6% of the issued
and outstanding shares of Q9 that it did not already own for a total
cash consideration of approximately $170 million ($158 million, net of
cash on hand).
In Q1 2016, BCE completed a transaction with Corus under which Corus
waived its HBO content rights in Canada and ceased operations of
its Movie Central and Encore Avenue pay TV services in Western and
Northern Canada, thereby allowing Bell Media to become the sole
operator of HBO Canada nationally across all platforms and to expand
TMN into a national pay TV service. TMN was successfully launched
nationally on March 1, 2016. BCE paid to Corus a total consideration
of $218 million, of which $21 million was paid in 2015.
Subsequent to year end, on January 3, 2017, BCE acquired all of the
issued and outstanding common shares of Cieslok Media for a total
cash consideration of $161 million.
On May 20, 2015, BCE completed the acquisition of all of Glentel’s
issued and outstanding common shares for a total consideration of
$592 million, of which $296 million ($284 million net of cash on hand)
was paid in cash and the balance through the issuance of 5,548,908 BCE
common shares.
Acquisition and other costs paid
Acquisition and other costs of $292 million in 2015 related mainly to a charge of $142 million incurred for the payment in full satisfaction of
the judgment rendered in a litigation claim for Satellite TV signal piracy.
Business dispositions
Business dispositions of $409 million in 2015 reflected BCE’s divestiture of 50% of its ownership interest in Glentel to Rogers for a total cash
consideration of approximately $473 million ($407 million net of divested cash and transaction costs).
Decrease in investments
Decrease in investments of $107 million in 2016 included proceeds received from one of our equity investments from the sale of a portion of
its operations.
Acquisition of spectrum licences
On April 21, 2015, Bell Mobility acquired AWS-3 wireless spectrum
in key urban and rural markets as part of ISED’s AWS-3 spectrum
auction. Bell Mobility acquired 13 licences for 169 million MHz-pop of
AWS-3 spectrum for $500 million.
On May 12, 2015, Bell Mobility acquired an additional 243 million MHz-
pop of 2500 MHz wireless spectrum for $29 million. This acquisition
increased Bell Mobility’s 2500 MHz spectrum holdings in a number of
urban and rural markets.
Loan to a related party
In 2016, prior to closing the acquisition of Q9 on October 3, 2016, Bell Canada provided a loan of $517 million to Q9 for the repayment of certain
of its debt.
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Debt instruments
We use a combination of short-term and long-term debt to finance
our operations. Our short-term debt consists mostly of notes payable
under commercial paper programs, loans securitized by trade
receivables and bank facilities. We usually pay fixed rates of interest
on our long-term debt and floating rates on our short-term debt. As
at December 31, 2016, all of our debt was denominated in Canadian
dollars with the exception of one of our credit facilities and our
commercial paper, which are denominated in U.S. dollars, all of which
have been hedged for foreign currency fluctuations through forward
currency contracts.
2016
We issued $719 million of debt, net of repayments. This included the
issuance of Series M-41 MTN, M-42 MTN and M-43 MTN debentures
at Bell Canada with principal amounts of $750 million, $850 million
and $650 million, respectively, and the issuance (net of repayments)
of $991 million of notes payable. These issuances were partly offset
by the early debt redemption of Series M-18 MTN, M-19 MTN, M-23 MTN
and M-32 debentures, with principal amounts of $700 million,
$200 million, $500 million and $500 million, respectively, the repayment
of Series M-38 debentures of $150 million and payments of finance
leases and other debt of $472 million.
2015
We repaid $510 million of debt, net of issuances. This included the
repayment of approximately $500 million of our unsecured committed
term credit facility, redemption of Series M-21 MTN debentures at Bell
Canada with a principal amount of $1 billion, a $474 million repayment
of finance leases and other debt, and a $112 million repayment of
Glentel’s outstanding debt. These repayments were partly offset by
the issuance of Series M-39 and M-40 MTN debentures at Bell Canada
with principal amounts of $500 million and $1 billion, respectively, and
the issuance, net of repayments, of $76 million of notes payable.
Issue of common shares
In 2015, we issued 15,111,000 BCE common shares for $863 million under a public bought deal offering.
Cash dividends paid on common shares
In 2016, cash dividends paid on common shares increased by $136 million compared to 2015, due to a higher dividend paid in 2016 of $2.6975 per
common share compared to $2.5675 per common share in 2015 and a higher number of outstanding common shares, partly offset by lower
cash dividend payments as a result of common shares issued in Q1 2016 under BCE’s dividend reinvestment plan.
6.4 Post-employment benefit plans
For the year ended December 31, 2016, we recorded an increase in
our post-employment benefit obligations and a loss, before taxes and
non-controlling interest (NCI), in OCI of $262 million. This was due to
a lower actual discount rate of 4.0% at December 31, 2016, compared
to 4.2% at December 31, 2015. The loss was partly offset by a higher-
than-expected return on plan assets.
For the year ended December 31, 2015, we recorded a decrease in our
post-employment benefit obligations and a gain, before taxes and
NCI, in OCI of $590 million. This was due to a higher actual discount
rate of 4.2% at December 31, 2015, compared to 4.0% at December 31,
2014, and a higher-than-expected return on plan assets.
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6.5 Financial risk management
Management’s objectives are to protect BCE and its subsidiaries on a consolidated basis against material economic exposures and variability
of results from various financial risks that include credit risk, liquidity risk, foreign currency risk, interest rate risk, equity price risk and longevity
risk. These risks are further described in Note 2, Significant accounting policies, Note 8, Other income (expense), Note 22, Post-employment
benefit plans and Note 24, Financial and capital management in BCE’s 2016 consolidated financial statements.
The following table outlines our financial risks, how we manage these risks and their financial statement classification.
FINANCIAL RISK
DESCRIPTION OF RISK
Credit risk
We are exposed to credit risk from
operating activities and certain financing
activities, the maximum exposure of which
is represented by the carrying amounts
reported in the statements of financial
position. We are exposed to credit risk if
counterparties to our trade receivables
and derivative instruments are unable to
meet their obligations.
MANAGEMENT OF RISK AND
FINANCIAL STATEMENT CLASSIFICATION
• Large and diverse customer base
• Deal with institutions with investment-grade credit ratings
• Regularly monitor our credit risk and exposure
• Our trade receivables and allowance for doubtful accounts balances
at December 31, 2016 were $2,967 million and $60 million, respectively
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FINANCIAL RISK
DESCRIPTION OF RISK
Liquidity risk
We are exposed to liquidity risk for
financial liabilities.
Foreign currency risk
Interest rate risk
We are exposed to foreign currency risk
related to anticipated transactions and
certain foreign currency debt.
A 10% depreciation (appreciation) in
the value of the Canadian dollar relative
to the U.S. dollar would result in a gain
(loss) of $30 million recognized in net
earnings at December 31, 2016 and a gain
(loss) of $84 million recognized in OCI at
December 31, 2016, with all other
variables held constant.
Refer to the following Fair value section
for details on our derivative financial
instruments.
We are exposed to risk on the interest rates
of our debt, our post-employment benefit
plans and on dividend rate resets on our
preferred shares.
A 1% increase (decrease) in interest rates
would result in a decrease of $25 million
(increase of $20 million) in net earnings at
December 31, 2016.
Refer to the following Fair value section
for details on our derivative financial
instruments.
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Equity price risk
We are exposed to risk on our cash flow
related to share-based payment plans.
A 5% increase (decrease) in the market
price of BCE’s common shares at
December 31, 2016 would result in a gain
(loss) of $36 million recognized in net
earnings for 2016, all other variables held
constant.
Refer to the following Fair value section
for details on our derivative financial
instruments.
MANAGEMENT OF RISK AND
FINANCIAL STATEMENT CLASSIFICATION
• Sufficient cash from operating activities, possible capital markets financing
and committed bank facilities to fund our operations and fulfill our obligations
as they become due
• Refer to section 6.7, Liquidity – Contractual obligations, for a maturity analysis
of our recognized financial liabilities
• Foreign currency forward contracts on our purchase commitments and
commercial paper maturing in 2017 to 2018 of $3.2 billion U.S. ($4.2 billion
Canadian) at December 31, 2016, to manage foreign currency risk related to
anticipated transactions and foreign currency debt
• For cash flow hedges, changes in the fair value are recognized in OCI, except
for any ineffective portion, which is recognized immediately in earnings in
Other income (expense). Realized gains and losses in Accumulated OCI are
reclassified to Operating costs in the income statements in the same periods
as the corresponding hedged items are recognized in earnings
• For economic hedges, changes in the fair value are recognized in Other
income (expense)
• Cross currency basis swaps on one of our credit facilities maturing in 2017 of
$357 million U.S. ($474 million Canadian) at December 31, 2016, to hedge foreign
currency risk on a portion of our long-term debt due within one year
• Changes in the fair value of these derivatives and the related credit facility
are recognized in Other income (expense) in the income statements and
offset, unless a portion of the hedging relationship is ineffective
• In 2016, we redeemed prior to maturity long-term debt maturing in
February 2017 and settled the interest rate swap used to hedge the interest rate
exposure on the redeemed debt, having a notional amount of $700 million
• Changes in the fair value of these derivatives and the related long-term debt
were recognized in Other income (expense) in the income statements and offset
• In 2016, we settled interest rate locks with a notional amount of $500 million
which hedged the interest rates on long-term debt
• Changes in the fair value of these derivatives were recognized in OCI, except
for any ineffective portion, which was recognized immediately in earnings in
Other income (expense). Realized gains and losses in Accumulated OCI were
reclassified to Interest expense in the income statements in the same periods
as the interest expense on the debt was recognized in earnings
• In 2016, we settled interest rate locks with a notional amount of $350 million
which hedged the interest rate risk on preferred share rate resets
• Changes in the fair value of these derivatives were recognized immediately
in earnings in Other income (expense)
• As a result of the settlements, there were no interest rate swaps and locks
outstanding as of December 31, 2016
• For our post-employment benefit plans, the interest rate risk is managed using
a liability matching approach which reduces the exposure of the DB pension
plans to a mismatch between investment growth and obligation growth
• Equity forward contracts with a fair value of $111 million at December 31, 2016 on
BCE’s common shares to economically hedge the cash flow exposure related to
share-based payment plans
• Changes in the fair value are recorded in the income statement in Operating
costs for derivatives used to hedge a cash-settled share based payment plan
and Other income (expense) for derivatives used to hedge equity settled
share-based payment plans
Longevity risk
We are exposed to life expectancy risk on
our post-employment benefit plans.
• The Bell Canada pension plan entered into an investment arrangement to
hedge part of its exposure to potential increases in longevity which covers
approximately $5 billion of post-employment benefit obligations
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Fair value
Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date.
Certain fair value estimates are affected by assumptions we make
about the amount and timing of future cash flows and discount rates,
all of which reflect varying degrees of risk. Income taxes and other
expenses that would be incurred on disposition of financial instruments
are not reflected in the fair values. As a result, the fair values are not
the net amounts that would be realized if these instruments were settled.
The carrying values of our cash and cash equivalents, trade and other
receivables, dividends payable, trade payables and accruals,
compensation payable, severance and other costs payable, interest
payable, notes payable and loans secured by trade receivables
approximate fair value as they are short-term.
The following table provides the fair value details of financial instruments measured at amortized cost in the statements of financial position.
CLASSIFICATION
FAIR VALUE METHODOLOGY
CRTC tangible benefits
Trade payables and
obligation
other liabilities and
non-current liabilities
CRTC deferral account
Trade payables and
obligation
other liabilities and
non-current liabilities
Debentures, finance
leases and other debt
Debt due within one year
and long-term debt
Present value of estimated future cash flows
discounted using observable market interest rates
Present value of estimated future cash flows
discounted using observable market interest rates
Quoted market price of debt or present value of
future cash flows discounted using observable
market interest rates
DECEMBER 31, 2016
DECEMBER 31, 2015
CARRYING
VALUE
FAIR
VALUE
CARRYING
VALUE
FAIR
VALUE
166
169
227
234
136
145
154
163
17,879
20,093
17,688
19,764
The following table provides the fair value details of financial instruments measured at fair value in the statements of financial position.
2016
Available-for-sale (AFS)
publicly-traded and
privately-held investments (3)
CLASSIFICATION
Other non-current assets
Derivative financial instruments
Other current assets, trade
payables and other liabilities,
other non-current assets
and liabilities
MLSE financial liability (4)
Trade payables and other liabilities
Other
2015
Other non-current assets
and liabilities
AFS publicly-traded and
Other non-current assets
privately-held investments (3)
Derivative financial instruments
Other current assets, trade payables
and other liabilities, other
non-current assets and liabilities
MLSE financial liability (4)
Other non-current liabilities
Other
Other non-current assets
and liabilities
CARRYING VALUE OF
ASSET (LIABILITY) AT
DECEMBER 31
QUOTED PRICES IN
ACTIVE MARKETS FOR
IDENTICAL ASSETS
(LEVEL 1)
OBSERVABLE
MARKET DATA
(LEVEL 2) (1)
NON-OBSERVABLE
MARKET INPUTS
(LEVEL 3) (2)
FAIR VALUE AT DECEMBER 31
103
166
(135)
35
128
256
(135)
30
1
–
–
–
16
–
–
–
–
102
166
–
88
–
256
–
56
–
(135)
(53)
112
–
(135)
(26)
(1) Observable market data such as equity prices, interest rates, swap rate curves and foreign currency exchange rates.
(2) Non-observable market inputs such as discounted cash flows and earnings multiples. A reasonable change in our assumptions would not result in a significant increase (decrease)
to our level 3 financial instruments.
(3) Unrealized gains and losses on AFS financial assets are recorded in OCI and are reclassified to Other income (expense) in the income statements when realized or when an
impairment is determined.
(4) Represents BCE’s obligation to repurchase the BCE Master Trust Fund’s (Master Trust) 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust
exercise its put option. The obligation to repurchase is marked to market each reporting period and the gain or loss is recorded in Other income (expense) in the income statements.
The option is exercisable in 2017 and thereafter.
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6.6 Credit ratings
Credit ratings generally address the ability of a company to repay
principal and pay interest on debt or dividends on issued and
outstanding preferred shares.
Our ability to raise financing depends on our ability to access the
public equity and debt capital markets as well as the bank credit
market. Our ability to access such markets and the cost and amount
of funding available partly depends on the quality of our credit ratings
at the time capital is raised. Investment-grade credit ratings usually
mean that when we borrow money, we qualify for lower interest rates
than companies that have ratings lower than investment-grade. A
ratings downgrade could result in adverse consequences for our
funding capacity or ability to access the capital markets.
The following table provides BCE’s and Bell Canada’s credit ratings,
which are considered investment grade, as at March 2, 2017 from
DBRS, Moody’s and S&P.
Key credit ratings
MARCH 2, 2017
Commercial paper
Long-term debt
Subordinated long-term debt
Preferred shares
BELL CANADA (1)
DBRS
MOODY'S
S&P
R-2 (high)
P-2
A-1 (Low) (Canadian scale)
BBB (high)
BBB (low)
DBRS
Pfd-3
Baa1
Baa2
BCE (1)
MOODY'S
A-2 (Global scale)
BBB+
BBB
S&P
–
P-2 (Low) (Canadian scale)
BBB- (Global scale)
(1) These credit ratings are not recommendations to buy, sell or hold any of the securities referred to above, and they may be revised or withdrawn at any time by the assigning rating
organization. Each credit rating should be evaluated independently of any other credit rating.
Following the announcement of the proposed acquisition of Q9, on August 8, 2016, DBRS downgraded Bell Canada’s debentures and MTN
debentures rating to BBB (high) from A (low), subordinated debentures rating to BBB (low) from BBB and commercial paper rating to R-2 (high)
from R-1 (low). DBRS also downgraded BCE Inc.’s preferred shares rating to Pfd-3 from Pfd-3 (high).
As of March 2, 2017, BCE and Bell Canada’s credit ratings have stable outlooks from DBRS, Moody’s and S&P.
6.7 Liquidity
Sources of liquidity
Our cash and cash equivalents balance at the end of 2016 was
$853 million. We expect that this balance, our 2017 estimated cash
flows from operations, and capital markets financing, including
commercial paper, will permit us to meet our cash requirements in 2017
for capital expenditures, post-employment benefit plans funding,
dividend payments, the payment of contractual obligations, maturing
debt, ongoing operations, and other cash requirements.
Should our 2017 cash requirements exceed our cash and cash
equivalents balance, cash generated from our operations, and capital
markets financing, we would expect to cover such a shortfall by
drawing under committed credit facilities that are currently in place
or through new facilities to the extent available.
Our cash flows from operations, cash and cash equivalents balance,
capital markets financing and credit facilities should give us flexibility
in carrying out our plans for future growth, including business
acquisitions and contingencies.
The approximate $3.1 billion consideration (excluding the assumption
of $0.8 billion of outstanding MTS debt) for the proposed acquisition
of MTS will be paid 45% in cash and 55% through the issuance of
approximately 28 million BCE common shares. BCE will fund the cash
component of the transaction through the debt financing referred
to below. The approximate $300 million proceeds, subject to final
adjustments, to be received from the proposed divestiture to the
TELUS Group of approximately one-quarter of MTS’ postpaid wireless
subscribers and of 13 retail locations in Manitoba will reduce the
aggregate amount of debt financing required for the acquisition of MTS.
Subsequent to year end, on February 27, 2017, Bell Canada completed a
public offering of $1.5 billion of MTN debentures in two series pursuant
to its MTN program. The $1 billion Series M-44 MTN debentures will
mature on February 27, 2024 and carry an annual interest rate of 2.70%.
The $500 million Series M-45 MTN debentures will mature on February
27, 2047 and carry an annual interest rate of 4.45%. The MTN debentures
are fully and unconditionally guaranteed by BCE. The net proceeds of the
offering are intended to be used principally to fund the cash component
of the proposed acquisition of MTS, and to repay short-term debt.
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The table below is a summary of our total bank credit facilities at December 31, 2016.
DECEMBER 31, 2016
Committed credit facilities
Unsecured revolving and expansion
credit facilities (1) (2)
Unsecured committed term credit facility (3)
Other
Total committed credit facilities
Total non-committed credit facilities
Total committed and non-committed credit facilities
TOTAL
AVAILABLE
DRAWN
LETTERS
OF CREDIT
COMMERCIAL
PAPER
OUTSTANDING
NET
AVAILABLE
3,500
479
134
4,113
1,472
5,585
–
479
–
479
–
479
–
–
130
130
741
871
2,612
–
–
2,612
–
2,612
888
–
4
892
731
1,623
(1) Bell Canada’s $2.5 billion revolving credit facility expires in November 2021 and its $1 billion expansion credit facility expires in November 2019.
(2) As of December 31, 2016, Bell Canada’s outstanding commercial paper consisted of $1,945 million in U.S. dollars ($2,612 million in Canadian dollars). All of Bell Canada’s commercial
paper outstanding is included in debt due within one year and has been hedged using forward currency contracts.
(3) The outstanding balance at December 31, 2016 was $357 million in U.S. dollars ($479 million in Canadian dollars) which is included in debt due within one year and has been hedged
using cross currency basis swaps.
Bell Canada may issue notes under its Canadian and U.S. commercial
paper programs up to the maximum aggregate principal amount of
$2.5 billion in either Canadian or U.S. currency provided that at no
time shall such maximum amount of notes exceed $3.5 billion in
Canadian currency which equals the aggregate amount available
under Bell Canada’s supporting committed revolving and expansion
credit facilities as at December 31, 2016. The maximum amounts of
the commercial paper programs and the committed expansion credit
facility both reflect an increase of $500 million effective on
December 20, 2016 as compared to December 31, 2015. The total
amount of the committed revolving and expansion credit facilities
may be drawn at any time. Some of our credit agreements require
us to meet specific financial ratios and to offer to repay and cancel
the credit agreement upon a change of control of BCE or Bell Canada.
We are in compliance with all conditions and restrictions under such
agreements.
BCE closed the membership of its DB pension plans to new employees
in January 2005 to reduce the impact of pension volatility on earnings
over time. Generally, new employees now enrol in the DC pension
plans. In 2006, we announced the phase-out, over a 10-year period,
of OPEBs for new retirees, which will result in OPEBs funding being
phased out gradually after 2016.
DIVIDEND PAYMENTS
In 2017, the cash dividends to be paid on BCE’s common shares are
expected to be higher than in 2016 as BCE’s annual common share
dividend increased by 5.1% to $2.87 per common share from $2.73 per
common share effective with the dividend payable on April 15, 2017.
This increase is consistent with BCE’s common share dividend payout
policy of a target payout between 65% and 75% of free cash flow.
BCE’s dividend policy and the declaration of dividends are subject to
the discretion of the BCE Board.
Cash requirements
CAPITAL EXPENDITURES
In 2017, our planned capital spending will be focused on our strategic
imperatives, reflecting an appropriate level of investment in our
networks and services.
POST-EMPLOYMENT BENEFIT PLANS FUNDING
Our post-employment benefit plans include DB pension and defined
contribution (DC) pension plans, as well as other post-employment
benefits (OPEBs) plans. The funding requirements of our post-
employment benefit plans, resulting from valuations of our plan assets
and liabilities, depend on a number of factors, including actual returns
on post-employment benefit plan assets, long-term interest rates,
plan demographics, and applicable regulations and actuarial standards.
Our expected funding for 2017 is detailed in the following table and
is subject to actuarial valuations that will be completed in mid-2017.
Actuarial valuations were last performed for our significant post-
employment benefit plans as at December 31, 2015.
2017 EXPECTED FUNDING
DB pension plans – service cost
DB pension plans – deficit
DB pension plans
OPEBs
DC pension plans
Total net post-employment benefit plans
TOTAL
210
15
225
80
105
410
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A
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CONTRACTUAL OBLIGATIONS
The following table is a summary of our contractual obligations at December 31, 2016 that are due in each of the next five years and thereafter.
Recognized financial liabilities
Long-term debt
Notes payable
Minimum future lease payments under finance leases
Loans secured by trade receivables
Interest payable on long-term debt, notes payable
and loan secured by trade receivables
MLSE financial liability
Commitments (off-balance sheet)
Operating leases
Commitments for property, plant and equipment
and intangible assets
Purchase obligations
Proposed acquisition of MTS (1)
Acquisition of Cieslok Media (2)
2017
2018
2019
2020
2021
THERE-
AFTER
TOTAL
880
2,649
568
931
720
135
297
994
828
3,068
161
1,753
1,326
1,411
2,235
8,037
15,642
–
514
–
638
–
242
745
585
–
–
–
328
–
568
–
195
608
551
–
–
–
265
–
520
–
157
460
460
–
–
–
253
–
477
–
123
385
444
–
–
–
1,050
–
4,875
–
2,649
2,978
931
7,798
135
363
1,377
1,122
1,129
–
–
4,314
3,997
3,068
161
Total
11,231
4,477
3,576
3,273
3,917
16,576
43,050
(1) Subject to certain closing conditions and termination rights, the proposed acquisition of MTS is expected to close on March 17, 2017. If the transaction does not close under certain
circumstances, BCE may be liable to pay a break fee of $200 million to MTS.
(2) This commitment was settled on January 3, 2017 upon completion of the acquisition of Cieslok Media.
BCE’s significant finance leases are for satellites and office premises.
The office leases have a typical lease term of 23 years. The leases for
satellites, used to provide programming to our Bell TV customers, have
a term of 15 years. These satellite leases are non-cancellable. Minimum
future lease payments under finance leases include future finance
costs of $718 million.
BCE’s significant operating leases are for office premises, cellular
tower sites, retail outlets, and out-of-home advertising spaces with
lease terms ranging from 1 to 50 years. These leases are non-
cancellable. Rental expense relating to operating leases was
$353 million in 2016 and $340 million in 2015.
Our commitments for property, plant and equipment and intangible
assets include program and feature film rights and investments to
expand and update our networks to meet customer demand.
Purchase obligations consist of contractual obligations under service
and product contracts for operating expenditures and other purchase
obligations.
Litigation
In the ordinary course of our business, we become involved in various
claims and legal proceedings seeking monetary damages and other
relief. In particular, because of the nature of our consumer-facing
business, we are exposed to class actions pursuant to which substantial
monetary damages may be claimed. Due to the inherent risks and
uncertainties of the litigation process, we cannot predict the final outcome
or timing of claims and legal proceedings. Subject to the foregoing, and
based on information currently available and management’s assessment
of the merits of the claims and legal proceedings pending at March 2,
2017, management believes that the ultimate resolution of these claims
INDEMNIFICATIONS AND GUARANTEES
(OFF-BALANCE SHEET)
As a regular part of our business, we enter into agreements that
provide for indemnifications and guarantees to counterparties in
transactions involving business dispositions, sales of assets, sales of
services, purchases and development of assets, securitization
agreements and operating leases. While some of the agreements
specify a maximum potential exposure, many do not specify a
maximum amount or termination date.
We cannot reasonably estimate the maximum potential amount we
could be required to pay counterparties because of the nature of
almost all of these indemnifications and guarantees. As a result, we
cannot determine how they could affect our future liquidity, capital
resources or credit risk profile. We have not made any significant
payments under indemnifications or guarantees in the past.
and legal proceedings is unlikely to have a material and negative effect
on our financial statements or operations. We believe that we have
strong defences and we intend to vigorously defend our positions.
You will find a description of the principal legal proceedings pending
at March 2, 2017 in the BCE 2016 AIF.
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7 Selected annual and quarterly information
7.1 Annual financial information
The following table shows selected consolidated financial data of BCE for 2016, 2015 and 2014, prepared in accordance with IFRS as issued
by the International Accounting Standards Board (IASB). We discuss the factors that caused our results to vary over the past two years
throughout this MD&A.
2016
2015
2014 (1)
CONSOLIDATED INCOME STATEMENTS
Operating revenues
Operating costs
Adjusted EBITDA
Severance, acquisition and other costs
Depreciation
Amortization
Finance costs
Interest expense
Interest on post-employment benefit obligations
Other income (expense)
Income taxes
Net earnings
Net earnings attributable to:
Common shareholders
Preferred shareholders
Non-controlling interest
Net earnings
Net earnings per common share
Basic
Diluted
Included in net earnings attributable to common shareholders:
Severance, acquisition and other costs
Net (losses) gains on investments
Early debt redemption costs
Adjusted net earnings
Adjusted EPS
RATIOS
Adjusted EBITDA margin (%)
Return on equity (%) (2)
21,719
(12,931)
8,788
(135)
(2,877)
(631)
(888)
(81)
21
(1,110)
3,087
2,894
137
56
3,087
3.33
3.33
(104)
(3)
(8)
3,009
3.46
21,514
(12,963)
8,551
(446)
(2,890)
(530)
(909)
(110)
(12)
(924)
2,730
2,526
152
52
2,730
2.98
2.98
(327)
21
(13)
2,845
3.36
21,042
(12,739)
8,303
(216)
(2,880)
(572)
(929)
(101)
42
(929)
2,718
2,363
137
218
2,718
2.98
2.97
(148)
8
(21)
2,524
3.18
40.5%
21.8%
39.7%
21.1%
39.5%
21.0%
(1) On October 31, 2014, BCE completed its acquisition of all the issued and outstanding common shares of Bell Aliant Inc. that it did not already own.
(2) Net earnings attributable to common shareholders divided by total average equity attributable to BCE shareholders excluding preferred shares.
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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Total assets
Cash and cash equivalents
Debt due within one year (including notes payable
and loans secured by trade receivables)
Long-term debt
Total non-current liabilities
Equity attributable to BCE shareholders
Total equity
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Cash flows used in investing activities
Capital expenditures
Business acquisitions
Business dispositions
Acquisition of spectrum licences
Loan to related party
Cash flows used in financing activities
Issue of common shares
Net issuance (repayment) of debt instruments
Common shares issuance cost
Cash dividends paid on common shares
Privatization of Bell Aliant
Cash dividends paid on preferred shares
Cash dividends paid by subsidiaries to non-controlling interest
Free cash flow
SHARE INFORMATION
Average number of common shares (millions)
Common shares outstanding at end of year (millions)
Market capitalization (1)
Dividends declared per common share (dollars)
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Dividends declared on common shares
Dividends declared on preferred shares
Closing market price per common share (dollars)
Total shareholder return
RATIOS
Capital intensity (%)
Price to earnings ratio (times) (2)
OTHER DATA
Number of employees (thousands)
2016
2015
2014
50,108
853
4,887
16,572
22,146
17,540
17,854
6,643
(4,584)
(3,771)
(404)
18
(1)
(517)
(1,819)
99
719
–
(2,305)
–
(126)
(46)
3,226
869.1
870.7
50,527
2.73
(2,374)
(137)
58.03
47,993
613
4,895
15,390
20,672
17,023
17,329
6,274
(4,114)
(3,626)
(311)
409
(535)
–
(2,113)
952
(510)
(35)
(2,169)
–
(150)
(41)
2,999
847.1
865.6
46,275
2.60
(2,213)
(152)
53.46
46,297
566
3,743
16,355
21,969
14,946
15,239
6,241
(3,570)
(3,717)
(18)
720
(566)
–
(2,440)
49
784
–
(1,893)
(989)
(134)
(145)
2,744
793.7
840.3
44,771
2.47
(1,960)
(138)
53.28
13.7%
5.3%
21.7%
17.4%
17.43
16.9%
17.94
17.7%
17.88
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(1) BCE’s common share price at the end of the year multiplied by the number of common shares outstanding at the end of the year.
(2) BCE’s common share price at the end of the year divided by EPS.
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MD&A
7.2 Quarterly financial information
The following table shows selected BCE consolidated financial data by quarter for 2016 and 2015. This quarterly information is unaudited but
has been prepared on the same basis as the annual consolidated financial statements. We discuss the factors that caused our results to vary
over the past eight quarters throughout this MD&A.
Operating revenues
Adjusted EBITDA
Severance, acquisition and other costs
Depreciation
Amortization
Net earnings
Net earnings attributable to common shareholders
Net earnings per common share
Basic
Diluted
Included in net earnings attributable to
common shareholders:
Severance, acquisition and other costs
Net (losses) gains on investments
Early debt redemption costs
Adjusted net earnings
Adjusted EPS
Average number of common shares
outstanding – basic (millions)
OTHER INFORMATION
2016
2015
Q4
5,702
2,121
Q3
5,407
2,236
Q2
5,340
2,268
Q1
5,270
2,163
Q4
5,603
2,073
Q3
5,345
2,187
Q2
5,326
2,197
Q1
5,240
2,094
(11)
(719)
(165)
699
657
0.75
0.75
(9)
(1)
–
667
0.76
(25)
(706)
(161)
800
752
0.87
0.87
(20)
(12)
–
784
0.91
(57)
(713)
(156)
830
778
0.89
0.89
(44)
(2)
–
824
0.94
(42)
(739)
(149)
758
707
0.82
0.82
(31)
12
(8)
734
0.85
(152)
(731)
(136)
542
496
0.58
0.58
(112)
(1)
(6)
615
0.72
(46)
(727)
(133)
791
739
0.87
0.87
(35)
(16)
–
790
0.93
(24)
(720)
(134)
814
759
0.90
0.90
(16)
40
–
735
0.87
(224)
(712)
(127)
583
532
0.63
0.63
(164)
(2)
(7)
705
0.84
870.5
869.9
869.1
867.1
853.5
848.9
844.9
841.0
Cash flows from operating activities
1,520
1,943
1,890
1,290
1,510
1,878
1,841
1,045
Free cash flow
Capital expenditures
923
(993)
951
(976)
934
(950)
418
(852)
916
(958)
921
(927)
931
(914)
231
(827)
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OPERATING REVENUES
Bell Wireless
Bell Wireline
Bell Media
Inter-segment eliminations
Total BCE operating revenues
ADJUSTED EBITDA
Bell Wireless
Bell Wireline
Bell Media
Total BCE adjusted EBITDA
Q4 2016
1,883
3,137
845
(163)
5,702
Q4 2016
674
1,259
188
2,121
Q4 2015
1,770
3,161
816
(144)
5,603
Q4 2015
641
1,248
184
2,073
$ CHANGE
% CHANGE
7
113
(24)
29
(19)
99
6.4%
(0.8%)
3.6%
(13.2%)
1.8%
$ CHANGE
% CHANGE
33
11
4
48
5.1%
0.9%
2.2%
2.3%
BCE Inc.
2016 AnnuAl RepoRt
87
MD&A
BCE operating revenues were up by 1.8% in Q4 2016, compared to
Q4 2015, as a result of solid revenue growth from both our Bell Wireless
and Bell Media segments, moderated by a decline in our Bell Wireline
segment.
BCE adjusted EBITDA grew by 2.3% in Q4 2016, compared to last year,
reflecting year-over-year growth across all three of our segments.
BCE adjusted EBITDA margin increased to 37.2% compared to 37.0%
in Q4 2015.
Bell Wireless operating revenues were 6.4% higher in Q4 2016, compared
to last year, reflecting service revenue growth of 7.2% driven by a
larger postpaid subscriber base together with blended ARPU growth
of 4.7%, resulting from increased postpaid ARPU due to higher average
monthly rates driven by rate increases and the ongoing migration
by customers from three-year to two-year rate plans, as well as
reflecting the favourable impact from higher smartphone penetration
and a growing base of 4G LTE and LTE-A customers in our subscriber
mix, which drove greater data consumption. Wireless product sales
were essentially stable year over year as greater promotional pricing
in a highly competitive market was mitigated by a higher number of
postpaid gross additions in Q4 2016 compared to last year.
Bell Wireless adjusted EBITDA was up 5.1%, year over year, with adjusted
EBITDA margin based on service revenues of 39.6%, a 0.8% decline
over last year. The year-over-year growth in adjusted EBITDA reflected
higher postpaid service revenues, from an increased mix of higher-
value postpaid subscribers in our overall customer base and price
discipline. This growth was mitigated by higher customer retention
spending and subscriber acquisition costs, attributable to greater
promotional pricing driven by a highly competitive market during the
holiday season, along with more expensive smartphones in our upgrade
and activation mix and greater postpaid gross additions.
Bell Wireline operating revenues in Q4 2016 declined by 0.8%, year
over year, attributable to lower wholesale revenues as a result of
downward revisions to wholesale internet tariffs by the CRTC and
lower sales of international minutes, as well as slow economic growth
in our business markets, which drove lower customer spending on
connectivity services and equipment, combined with competitive
pricing pressures. Additionally, the ongoing erosion in residential voice
and satellite TV further reduced operating revenues. This decline was
moderated by growth in Internet and IPTV subscriber bases coupled
with higher residential household ARPU, and growth in business
solutions services revenue driven primarily by the acquisition of Q9.
Bell Wireline adjusted EBITDA in Q4 2016 increased by 0.9%, year over
year, with a corresponding adjusted EBITDA margin improvement to
40.1% from 39.5% in Q4 2015, resulting from the growth in our Internet
and IPTV businesses, the favourable impact from the acquisition of
Q9, lower post-employment benefit expense driven by a higher
discount rate and ongoing effective cost containment, which more
than offset the continued erosion in our voice and legacy data services
and the unfavourable impact from the CRTC’s revision of interim rates
for aggregated wholesale high-speed Internet access services.
Bell Media operating revenues grew by 3.6% in Q4 2016, compared to
the same period last year, due to higher subscriber revenues driven
by Bell Media’s expansion of TMN into a national pay TV service in
March 2016 coupled with the continued growth from CraveTV and TV
Everywhere GO products. Advertising revenue was essentially
unchanged compared to last year as declines in conventional TV, mainly
due to the non-recurrence of revenues generated last year from
the 2015 federal election and a soft radio advertising market, were
offset by OOH advertising revenue growth from the Métromédia
acquisition and new contract wins in 2016, as well as higher year-over-
year revenues from specialty entertainment and news channel services.
Bell Media adjusted EBITDA increased by 2.2% in Q4 2016, compared
to the same period last year, driven by the growth in revenues, partially
offset by higher content costs related to the TMN expansion and
CraveTV combined with additional costs associated with the
Métromédia acquisition and new contract wins in OOH.
BCE capital expenditures increased by $35 million year over year in
Q4 2016 to $993 million, corresponding to a capital intensity ratio of
17.4%, which increased 0.3% compared to the same period last year.
The higher year-over-year capital investment was driven by our
Bell Wireline segment with increased spending of $37 million, compared
to Q4 2015, attributable to our continued deployment of broadband
fibre directly to more homes and businesses, including the build-out
of Gigabit Fibe infrastructure in the city of Toronto and other urban
locations. Greater spending to support the execution of business
customer contracts also contributed to the year-over-year growth
in capital expenditures.
BCE severance, acquisition and other costs of $11 million in Q4 2016
decreased by $141 million, compared to Q4 2015, mainly due to higher
workforce reduction initiatives in our Bell Wireline and Bell Media
segments in Q4 2015 to address increasing competition, media industry
regulation, a soft business market and declines in home phone
subscribers.
BCE depreciation of $719 million in Q4 2016 decreased by $12 million,
year over year, due to an increase in the estimate of useful lives of
certain assets as a result of our ongoing annual review process, partly
offset by a higher depreciable asset base as we continued to invest
in our broadband and wireless networks as well as our IPTV service.
The changes to useful lives have been applied prospectively, effective
January 1, 2016, as described in section 10.1, Our accounting policies –
Critical accounting estimates and key judgments.
BCE amortization was $165 million in Q4 2016, up from $136 million in
Q4 2015, due mainly to a higher asset base.
BCE net earnings attributable to common shareholders of $657 million
in Q4 2016, or $0.75 per share, were higher than the $496 million, or
$0.58 per share, reported in Q4 2015. The year-over-year increase
was due mainly to growth in operating revenues that drove a higher
adjusted EBITDA, lower severance, acquisition and other costs and
lower other expense, partly offset by higher income taxes and
increased amortization expense. Adjusted net earnings increased to
$667 million, from $615 million in Q4 2015, and adjusted EPS increased
to $0.76 from $0.72 in Q4 2015.
BCE cash flows from operating activities was $1,520 million in
Q4 2016 compared to $1,510 million in Q4 2015. The increase is mainly
attributable to higher adjusted EBITDA, lower acquisition and other
costs paid and lower income taxes paid, partly offset by a higher
voluntary DB pension plan contribution made in Q4 2016 and reduced
working capital.
BCE free cash flow generated in Q4 2016 was $923 million, or 0.8%
higher than in Q4 2015. This was due to an increase in cash flows from
operating activities and lower cash dividends paid on preferred shares
as a result of timing of payments, partly offset by higher capital
expenditures.
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Seasonality considerations
Some of our segments’ revenues and expenses vary slightly by season,
which may impact quarter-to-quarter operating results.
Bell Wireless operating results are influenced by the timing of our
marketing and promotional expenditures and higher levels of subscriber
additions and handset discounts, resulting in higher subscriber
acquisition and activation-related expenses in certain quarters. In
particular, subscriber activations are typically lowest in the first
quarter, while adjusted EBITDA tends to be lower in the third and fourth
quarters, due to higher subscriber acquisition and retention costs
associated with a higher number of new subscriber activations and
upgrades during the back-to-school, Black Friday and Christmas
holiday periods. Additionally, wireless ARPU historically has experienced
a seasonal sequential increase in the third quarter, reflecting higher
levels of usage and roaming in the summer.
Bell Wireline revenues tend to be higher in the fourth quarter because
of higher data and equipment product sales to business customers
and higher consumer electronics equipment sales during the
Q4 Christmas holiday period. However, this may vary from year to
year depending on the strength of the economy and the presence of
targeted sales initiatives, which can influence customer spending.
Home Phone, TV and Internet subscriber activity is subject to modest
seasonal fluctuations, attributable largely to residential moves during
the summer months and the back-to-school period in the third quarter.
Targeted marketing efforts conducted during various times of the year
to coincide with special events or broad-based marketing campaigns
also may have an impact on overall wireline operating results.
Bell Media revenues and related expenses from TV and radio
broadcasting are largely derived from the sale of advertising, the
demand for which is affected by prevailing economic conditions, as
well as cyclical and seasonal variations. Seasonal variations are driven
by the strength of TV ratings, particularly during the fall programming
season, major sports league seasons and other special sporting events
such as the Olympic Games, NHL playoffs and World Cup soccer, as
well as fluctuations in consumer retail activity during the year.
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8 Regulatory environment
Introduction
8.1
This section describes certain legislation that governs our business
and provides highlights of recent regulatory initiatives and
proceedings, government consultations and government positions
that affect us, influence our business and may continue to affect our
flexibility to compete in the marketplace. Bell Canada and several of
its direct and indirect subsidiaries, including Bell Mobility, Bell
ExpressVu Limited Partnership (Bell ExpressVu), Bell Media, NorthernTel,
Limited Partnership (NorthernTel), Télébec, Limited Partnership
(Télébec) and Northwestel, are governed by the Telecommunications
Act, the Broadcasting Act, the Radiocommunication Act and/or the
Bell Canada Act. They are also subject to regulations and policies
enforced by the CRTC. Our business is affected by decisions made
by various regulatory agencies, including the CRTC, a quasi-judicial
agency of the Government of Canada responsible for regulating
Canada’s telecommunications and broadcasting industries. Other
aspects of the business of these entities are regulated in various
ways by federal government departments, in particular ISED.
The CRTC regulates the prices we can charge for telecommunications
services in areas where it determines there is not enough competition
to protect the interests of consumers. The CRTC has determined that
competition was sufficient to grant forbearance from retail price
regulation under the Telecommunications Act for the vast majority of
our residential and business telephone services, as well as for our
wireless (except our domestic wholesale wireless roaming service)
and Internet services (except in certain parts of Northwestel’s territory,
where the CRTC re-regulated Internet services in 2013). Our TV
distribution and our TV and radio broadcasting businesses are subject
to the Broadcasting Act and are, for the most part, not subject to retail
price regulation.
Although most of our retail services are not price-regulated,
government agencies and departments such as the CRTC, ISED,
Canadian Heritage and the Competition Bureau continue to play a
significant role in regulatory matters such as mandatory access to
networks, net neutrality, spectrum auctions, approval of acquisitions,
broadcast licensing and foreign ownership requirements. Adverse
decisions by regulatory agencies or increasing regulation could have
negative financial, operational, reputational or competitive
consequences for our business.
8.2 Telecommunications Act
The Telecommunications Act governs telecommunications in Canada.
It defines the broad objectives of Canada’s telecommunications policy
and provides the Government of Canada with the power to give
general direction to the CRTC on any of its policy objectives. It applies
to several of the BCE group of companies and partnerships, including
Bell Canada, Bell Mobility, NorthernTel, Télébec and Northwestel.
Under the Telecommunications Act, all facilities-based telecommunications
service providers in Canada, known as telecommunications common
carriers (TCCs), must seek regulatory approval for all proposed tariffs
for telecommunications services, unless the services are exempt from
regulation or forborne from regulation. The CRTC may exempt an entire
class of carriers from regulation under the Telecommunications Act if
the exemption meets the objectives of Canada’s telecommunications
policy. In addition, a few large TCCs, including the BCE group TCCs, must
also meet certain Canadian ownership requirements. BCE monitors and
periodically reports on the level of non-Canadian ownership of its
common shares.
Review of basic telecommunications services
On December 21, 2016, the CRTC issued Telecom Regulatory Policy
CRTC 2016-496, Modern telecommunications services – The path
forward for Canada’s digital economy. In this decision, the CRTC
determined broadband Internet to be a basic service and created a
new fund designed to complement government investments in
expanding access to broadband Internet across Canada. The new
fund will collect and distribute $750 million over a five-year period
to support an aspirational goal of bringing broadband Internet with
speeds of 50 Mbps to 90% of Canadian households by the end of 2021.
The contributions to the new fund will be collected from
telecommunications service providers, like those of the BCE group,
and distributed through a competitive bidding process to support
broadband deployment initiatives. The details of the competitive
bidding process are to be determined through a follow-up proceeding.
The fund is to start at $100 million in its first year and grow by
$25 million each year until it caps out at $200 million in the fifth year.
While the timing of the new fund’s implementation is unclear at this
time, it will not be implemented in 2017. While we will be required to
contribute to the new broadband fund based on our percentage of
industry revenues for voice, data and Internet services, the extent of
the impact of this new fund on our business is not yet known, as funds
contributed may be offset by any funds received should we seek and
be awarded funds to deploy broadband services as part of the CRTC’s
program.
In this same decision, the CRTC also indicated its intention to reduce
the size of its existing fund used to support the delivery of voice
services in certain rural and remote areas (currently approximately
$100 million per year). Through an additional follow-up proceeding,
the CRTC will consider the extent to which support for rural and remote
voice services will be phased out. There are no changes to the CRTC’s
fund to support video relay services (maximum $30 million per year),
to which we also contribute.
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Complaint regarding pricing of broadcasting content accessed via mobile devices
On January 29, 2015, the CRTC issued a decision (Mobile TV decision)
concerning a complaint against Bell Mobility about the pricing of our
Bell Mobile TV service compared with the rates applicable when
consumers access programming content received via mobile devices
over the Internet. The CRTC found that we were conferring an “undue
preference” on our Mobile TV service by not subjecting it to the
standard data charges. In accordance with the CRTC’s Mobile TV
decision, we have ceased exempting our Mobile TV service from data
charges as of April 29, 2015.
On February 20, 2015, Bell Canada filed a motion seeking leave to
appeal the CRTC’s Mobile TV decision in the Federal Court of Appeal,
which was granted on April 2, 2015. On June 20, 2016, the Federal Court
of Appeal dismissed our appeal of the CRTC’s Mobile TV decision.
Consistent with this decision, our Mobile TV service will continue to
be subject to standard data charges, as it has been since April 29, 2015.
Proceedings regarding wholesale domestic wireless services
On May 5, 2015, the CRTC released Telecom Regulatory Policy CRTC
2015-177 (TRP 2015-177), which concluded its investigation into the
competitiveness of wholesale wireless markets in Canada. TRP 2015-177
requires Bell Mobility, Rogers Communications Partnership (now
Rogers Communications Canada Inc.) (Rogers Canada) and Telus
Communications Company to issue tariffs for domestic wholesale
roaming services based on the GSM standard, which are provided to
all other Canadian wireless carriers but not to each other. As a condition
of offering GSM-based wholesale roaming services, Bell Mobility, Rogers
Canada and Telus Communications Company must provide domestic
roaming service to all subscribers served by their wholesale roaming
customers, including the subscribers of any mobile virtual network
operators (MVNOs) operating on their roaming customers’ networks.
On March 1, 2017, the CRTC issued Telecom Decision CRTC 2017-56, in
which it generally approved the terms of our tariff, with minor
modifications. Final approval of Bell Mobility’s, Rogers Canada’s and
Telus Communications Company’s proposed wholesale roaming rates
remains pending.
Mandated wholesale access to FTTP networks
On July 22, 2015, the CRTC mandated the introduction of a new
disaggregated wholesale high-speed access service, including over
FTTP facilities, which had so far been exempt from mandated wholesale
high-speed access. While this new service is mandated for all major
incumbent telephone companies and cable carriers, the first stage of
its implementation is to take place only in Ontario and Québec, our
two largest markets. This adverse regulatory decision may impact
the specific nature, magnitude, location and timing of our future FTTP
investment decisions. In particular, the introduction by the CRTC of
mandated wholesale services over FTTP will undermine the incentives
for facilities-based digital infrastructure providers to invest in next-
generation wireline networks, particularly in smaller communities and
rural areas.
On September 20, 2016, the CRTC issued Telecom Decision CRTC 2016-
379, in which it largely adopted our proposals concerning the technical
design of our future disaggregated wholesale high-speed access
service. The rates and roll-out schedule of our new service remain to
be determined by the CRTC. The mandating of rates for the new
disaggregated wholesale high-speed access service that are materially
different from the rates we proposed could improve the business
position of our competitors and further impact our investment strategy.
Review of wholesale FTTN high-speed access service rates
As part of its ongoing review of wholesale Internet rates, on
October 6, 2016 the CRTC significantly reduced, on an interim basis,
some of the wholesale rates that Bell Canada and other major providers
charge for access by ISPs to FTTN or cable networks, as applicable.
Should such substantially lowered wholesale rates remain in place in
the long-term and, in addition, should the interim rates be made
retroactive, the business position of some of our competitors could
improve, adversely affecting our financial performance, and our
investment strategy could change, especially in relation to investment
in next-generation wireline networks, particularly in smaller
communities and rural areas.
National wireless services consumer code
On June 3, 2013, the CRTC issued Telecom Regulatory Policy CRTC
2013-271, which established the Wireless Code. The Wireless Code
applies to all wireless services provided to individual and small business
consumers (i.e. businesses that on average spend less than $2,500 per
month on telecom services) in all provinces and territories.
The Wireless Code establishes regulations related to unlocking mobile
phones, limiting the amount of early cancellation fees, price changes
for different categories of services, and setting default caps for data
roaming charges and data overage charges, among other measures.
The Wireless Code also stipulates that wireless service providers may
not charge an early cancellation fee after a customer has been under
contract for 24 months and that handset subsidies must be recovered
in two years or less. These requirements reduce the incentive for
wireless service providers to offer contracts with terms greater than
two years.
The CRTC began a scheduled review of the provisions of the Wireless
Code on September 26, 2016. A public hearing was held in February 2017
and a decision is expected later this year.
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Canada’s telecommunications foreign ownership rules
Under the Telecommunications Act, there are no foreign investment
restrictions applicable to TCCs that have less than a 10% share of the
total Canadian telecommunications market as measured by annual
revenues. However, foreign investment in telecommunications
companies can still be refused by the government under the Investment
Canada Act. The absence of foreign ownership restrictions on such
small or new entrant TCCs could result in more foreign companies
entering the Canadian market, including by acquiring spectrum licences
or Canadian TCCs. Under the Broadcasting Act, foreign ownership
restrictions continue to apply to BDUs, such as licensed cable and
satellite TV service providers, and programming undertaking licensees
such as Bell Media.
8.3 Broadcasting Act
The Broadcasting Act outlines the broad objectives of Canada’s
broadcasting policy and assigns the regulation and supervision of the
broadcasting system to the CRTC. Key policy objectives of the
Broadcasting Act are to protect and strengthen the cultural, political,
social and economic fabric of Canada and to encourage the
development of Canadian expression.
Most broadcasting activities require a programming or broadcasting
distribution licence from the CRTC. The CRTC may exempt broadcasting
undertakings from complying with certain licensing and regulatory
requirements if it is satisfied that non-compliance will not materially
affect the implementation of Canadian broadcasting policy.
Changes to simultaneous substitution
On January 29, 2015, the CRTC announced in Broadcasting Regulatory
Policy 2015-25 that it would eliminate simultaneous substitution for
the Super Bowl starting in 2017. On August 19, 2016, the CRTC issued
Broadcasting Order CRTC 2016-335 (the Order) implementing its
decision with respect to simultaneous substitution for the Super Bowl.
On September 19, 2016, Bell Canada and Bell Media filed a motion with
the Federal Court of Appeal seeking leave to appeal the Order, a stay
of the Order, and expedited proceedings. Bell Canada and Bell Media
are challenging the legal validity of the Order on the basis that the
CRTC does not have jurisdiction under section 9(1)(h) of the Broadcasting
Act to make an order banning simultaneous substitution for the Super
Bowl, and that doing so constitutes unauthorized retrospective
regulation and interference with Bell Media’s vested economic rights.
Unbundling of TV services
On March 19, 2015, the CRTC released Broadcasting Regulatory Policy
2015-96, which deals primarily with issues related to the distribution
of TV services. In it, the CRTC mandates that all TV providers offer a
“small entry-level” package consisting of only Canadian conventional
TV services, certain public-interest services and, if the TV provider
chooses to include them, one set of American over-the-air (OTA)
stations. The price of this package cannot exceed $25 per month
exclusive of equipment. The small entry-level offer had to be introduced
by March 1, 2016. The decision also requires all TV providers to offer
every channel not included in a small entry-level package on both a
standalone (à la carte) basis and in either build-your-own packages
(e.g. “pick 10”) or small theme packs of no more than 10 channels. The
CRTC did not regulate the price at which such packages can be sold.
A corporation must also meet certain Canadian ownership and control
requirements to obtain a broadcasting or broadcasting distribution
licence, and corporations must have the CRTC’s approval before they
can transfer effective control of a broadcasting licensee.
Our TV distribution operations and our TV and radio broadcasting
operations are subject to the requirements of the Broadcasting Act,
the policies and decisions of the CRTC and their respective broadcasting
licences. Any changes to the Broadcasting Act, amendments to
regulations or the adoption of new ones, or amendments to licences
could negatively affect our competitive position or the cost of
providing services.
On October 31, 2016, leave to appeal the Order was granted by the
Federal Court of Appeal but a stay of the Order pending the appeal
was denied. Bell Canada and Bell Media filed a Notice of Appeal on
December 28, 2016. The NFL was separately granted leave to appeal
the Order on October 31, 2016 and filed a Notice of Appeal on January 3,
2017. A decision on the appeals remains pending.
The CRTC’s decision to eliminate simultaneous substitution for the
Super Bowl has had an adverse impact on Bell Media’s conventional
TV business and financial results, as a result of a reduction in viewership
and advertising revenues and that impact will continue through the
contract term unless the appeal of Bell Canada, Bell Media and the NFL
is successful.
Either a standalone, build-your-own package, or small theme pack
option was required to be offered by March 1, 2016, and both standalone
and one of build-your-own package or small theme pack options was
required to be offered by December 1, 2016. TV providers could continue
to offer TV services in other packages, including their existing package
options, as long as they also offer the mandated alternatives. The
CRTC also decided that, with the exception of mainstream national
news services, TV channels that previously had “access rights”, in that
TV providers were required to carry them, will lose those rights when
they renew their licences beginning in September 2017. A TV provider
will, therefore, be able to cease to offer any of these services that it
does not wish to carry. While the impact of the decision on Bell Media
is potentially negative, the extent of the impact on Bell Media’s business
and financial results is unclear at this time.
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Wholesale code
On September 24, 2015, the CRTC released Broadcasting Regulatory
Policy 2015-438, announcing a new Wholesale Code. The Wholesale
Code governs the commercial arrangements between BDUs,
programming services and digital media services, including imposing
additional restrictions on the sale of TV channels at wholesale and
the carriage of TV channels by BDUs. On October 23, 2015, Bell Canada
and Bell Media filed with the Federal Court of Appeal an application
for leave to appeal the CRTC’s decision to implement the Wholesale
Code, which application was granted on December 22, 2015. We allege
that the CRTC’s implementation of the Wholesale Code conflicts with
the Copyright Act and is outside the CRTC’s jurisdiction under the
Broadcasting Act. A decision on the appeal remains pending.
Licence renewals
On February 8, 2016, the CRTC released Broadcasting Notice of
Consultation CRTC 2016-44, in which it initiated the renewal process
for TV broadcasting licences owned by Bell Media and its subsidiaries
Learning and Skills Television of Alberta Limited, The Sports Network Inc.,
Le Réseau des sports (RDS) inc., Discovery Science Canada Company,
2953285 Canada Inc., and Animal Planet Canada Company, which are
part of our licensed ownership group as described in the Notice of
Consultation. The existing licences were last renewed in 2011 and 2012,
in Broadcasting Decision CRTC 2011-444 and Broadcasting Decision
8.4 Radiocommunication Act
ISED regulates the use of radio spectrum under the Radiocommunication
Act. Under the Radiocommunication Act, ISED ensures that
radiocommunication in Canada is developed and operated efficiently.
Under the Radiocommunication Regulations, companies that are
eligible for radio licences, such as Bell Canada and Bell Mobility, must
meet the same ownership requirements that apply to companies under
the Telecommunications Act.
600 MHz spectrum consultation
ISED held a consultation in December 2014 seeking comments on
various questions related to repurposing the 600 MHz broadcasting
band for mobile use. This spectrum is currently used primarily by OTA
TV broadcasters for local TV transmissions. This was the first step of
a multistep process on the matter. The two key questions related to
whether ISED should repurpose the band to include commercial mobile
broadband and whether to participate in a joint spectrum repacking
process with the United States (U.S.). In addition, ISED also sought
comments regarding the anticipated future spectrum requirements
for OTA TV broadcasting, taking into consideration the overall changes
in the broadcasting industry.
CRTC 2012-241, and are set to expire on August 31, 2017. In accordance
with the CRTC’s group-based licensing policy, effectively all of the
licences of all of the large ownership groups, including BCE, are
renewed and expire at the same time. Should the CRTC impose adverse
conditions of licence as a result of the renewal process, this could
have a negative effect on our business and financial performance. A
decision on the licence renewal is expected in 2017 prior to the expiry
of the existing licences.
Companies must have a spectrum licence to operate a wireless system
in Canada. While we anticipate that the licences under which we
provide wireless services will be renewed upon expiry, there is no
assurance that this will happen, or of the terms under which renewal
will be granted. ISED can revoke a company’s licence at any time if
the licensee does not comply with the licence’s conditions. While we
believe that we comply with the conditions of our licences, there is
no assurance that ISED will agree. Should there be a disagreement,
this could have a negative effect on our business and financial
performance.
On August 14, 2015, ISED announced its decision on the results of the
consultation. ISED determined it would proceed with the repacking
initiative for the 600 MHz band to include commercial mobile use and
that it would jointly establish a new digital TV (DTV) allotment plan in
collaboration with the U.S. ISED has indicated that it is waiting for the
results of the U.S. auction, which began on March 29, 2016, before
proceeding with further consultation concerning the final 600 MHz
band plan to be adopted and its auction process, as ISED’s auction
parameters will be coordinated with the band plan that results from
the auction in the U.S. The repurposing of 600 MHz spectrum will have
an impact on existing Bell Media TV broadcasting stations, which will
need to transition to alternative spectrum. The extent of such impact
is not yet known.
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8.5 Bell Canada Act
Under the Bell Canada Act, the CRTC must approve any sale or other
disposal of Bell Canada voting shares that are held by BCE, unless
the sale or disposal would result in BCE retaining at least 80% of all
of the issued and outstanding voting shares of Bell Canada. Except
8.6 Other key legislation
in the ordinary course of business, the sale or other disposal of facilities
integral to Bell Canada’s telecommunications activities must also
receive CRTC approval.
Personal Information Protection and Electronic Documents Act
The Digital Privacy Act amending the Personal Information Protection
and Electronic Documents Act (PIPEDA) received Royal Assent on
June 18, 2015. The amendments introduce mandatory notification
requirements that must be followed in relation to the loss or
unauthorized disclosure of personal information held by an
organization resulting from a breach of the organization’s security
safeguards. Failure to comply with these notification requirements,
or to log security breaches, may result in a fine of up to $100,000 per
occurrence. These provisions dealing with notification requirements
will come into force when related regulations are brought into force.
On June 30, 2016, the Office of the Privacy Commissioner of Canada
invited comments from interested parties with respect to its
consultation on consent and privacy. Issue areas to be addressed in
the consultation include enhancements to the consent process,
alternatives to express consent, evolving information governance
and changes to enforcement processes and powers. The outcome of
this consultation could have a significant impact on the ability of
companies like Bell Canada to use personal information.
Canada’s anti-spam legislation
Federal legislation referred to as Canada’s anti-spam legislation
(CASL) came into force on July 1, 2014. Pursuant to CASL, commercial
electronic messages (CEMs) can be sent only if the recipient has
provided prior consent and the message complies with certain
formalities, including the ability to unsubscribe easily from subsequent
messages. As of January 15, 2015, CASL also requires that an
organization have prior informed consent before downloading
software to an end-user’s computer. Penalties for non-compliance
include administrative monetary penalties of up to $10 million and a
private right of action is scheduled to come into force on July 1, 2017.
CASL limits the ability of the various BCE group companies to contact
prospective customers, and imposes additional costs and processes
with respect to communicating with existing and prospective customers.
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9 Business risks
A risk is the possibility that an event might happen in the future that could have a negative effect on our financial position, financial performance,
cash flows, business or reputation. The actual effect of any event could be materially different from what we currently anticipate. The risks
described in this MD&A are not the only ones that could affect us. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial may also materially and adversely affect our financial position, financial performance, cash flows, business
or reputation.
This section describes the principal business risks that could have a material adverse effect on our financial position, financial performance,
cash flows, business or reputation, and cause actual results or events to differ materially from our expectations expressed in, or implied by,
our forward-looking statements. As indicated in the table below, certain of these principal business risks have already been discussed in other
sections of this MD&A, and we refer the reader to those sections for a discussion of such risks. All of the risk discussions set out in the sections
referred to in the table below are incorporated by reference in this section 9.
RISKS DISCUSSED IN OTHER
SECTIONS OF THIS MD&A
Regulatory environment
Competitive environment
SECTION REFERENCES
Section 3.3, Principal business risks
Section 8, Regulatory environment
Section 3.3, Principal business risks
Section 5, Business segment analysis (Competitive landscape and industry trends section
for each segment)
Security management
Section 3.3, Principal business risks
Risks specifically relating to our Bell Wireless,
Bell Wireline and Bell Media segments
Section 5, Business segment analysis (Principal business risks section for each segment)
The other principal business risks that could also have a material adverse effect on our financial position, financial performance, cash flows,
business or reputation are discussed below.
Technology/infrastructure transformation
The failure to optimize network and IT deployment and upgrading
timelines, accurately assess the potential of new technologies,
and invest and evolve in the appropriate direction, could have an
adverse impact on our business and financial results
Globalization, increased competition and ongoing technological
advances are driving customer expectations of faster market
responses, enhanced user experiences and cost-effective delivery.
Meeting these expectations requires the deployment of new service
and product technologies that are network-neutral and based on a
more collaborative and integrated development environment. Change
can be difficult and may present unforeseen obstacles that might
impact successful execution, and this transition is made more
challenging by the complexity of our multi-product environment,
combined with the complexity of our network and IT structures. In
addition, new technologies may quickly become obsolete or their
launch may be delayed. The failure to optimize network and IT
deployment and upgrading timelines, in light of customer demand
and competitor activities, to accurately assess the potential of new
technologies, and to invest and evolve in the appropriate direction in
an environment of changing business models could have an adverse
impact on our business and financial results.
In particular, our network and IT evolution activities seek to leverage
new as well as evolving and developing technologies, including network
functions virtualization, software-defined networks and cloud
technologies, and transform our network and systems to achieve our
objectives of becoming more agile in our service delivery and
operations as well as providing self-serve and instant-on capabilities
for our customers, ensuring best quality and customer experience,
and developing a new network infrastructure that enables a
competitive cost structure with rapidly growing capacity needs. These
evolution activities require an operational and cultural shift. Alignment
across technology, product development and operations is increasingly
critical to ensure appropriate trade-offs and optimization of capital
allocation.
If this cannot be achieved in accordance with our deployment
schedules while maintaining network availability and performance
through the migration process, we may lose customers as a result of
poor service performance, which could adversely affect our ability
to achieve our operational and financial objectives. Failure to leverage
IP across all facets of our network and product and service portfolio
could inhibit a fully customer-centric approach, limiting or preventing
comprehensive self-serve convenience, real-time provisioning, cost
savings and flexibility in delivery and consumption, leading to negative
business and financial outcomes.
Parallel to our focus on next-generation investment, adverse regulatory
decisions may impact the specific nature, magnitude, location and
timing of investment decisions. In particular, the introduction by the
CRTC of mandated wholesale services over FTTP or wireless networks
will undermine the incentives for facilities-based digital infrastructure
providers to invest in next-generation wireline and wireless networks,
particularly in smaller communities and rural areas. Failure to continue
investment in a disciplined and strategic manner in next-generation
capabilities, including real-time information-based customer service
strategies, could limit our ability to compete effectively and achieve
desired business and financial results.
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Other examples of risks to achieving our desired technology/
infrastructure transformation include:
• Network construction and deployment on municipal or private
property requires the issuance of municipal or property owner
consents, respectively, for the installation of network equipment,
which could cause delays in FTTP rollout
• The increasing dependence on apps for content delivery, sales,
customer engagement and service experience drives the need for
new and scarce capabilities (sourced internally or externally),
which may not be available, as well as the need for associated
operating processes integrated into ongoing operations
• New products, services or apps could reduce demand for our
existing more profitable service offerings or cause prices for
those services to decline, and could result in shorter estimated
useful lives for existing technologies, which could increase
depreciation and amortization expense
Customer experience
Driving a positive customer experience in all aspects of our
engagement with customers by embracing new approaches and
challenging operational limitations is important to avoid adverse
impacts on our business and financial performance
As the bar continues to be raised based on customers’ evolving
expectations of service and value, failure to get ahead of such
expectations and build a more robust service experience could hinder
product and service differentiation and customer loyalty. With the
proliferation of connectivity services, apps and devices, customers
are accustomed to doing things when, how and where they want
through websites, self-serve options, web chat, call centres, Facebook,
Twitter and other social media forums. Failure to embrace these new
media in a positive way, incorporate them into multiple elements of
Operational performance
Our networks, IT systems and data centre assets are the foundation
of high-quality consistent services which are critical to meeting
service expectations
Our ability to provide consistent wireless, wireline, media broadcasting,
satellite and data centre services to customers in a complex and
constantly changing operating environment is crucial for sustained
success. In particular, network capacity demands for TV and other
bandwidth-intensive applications on our Internet and wireless networks
have been growing at unprecedented rates. Unexpected capacity
pressures on our networks may negatively affect our network
performance and our ability to provide services. Issues relating to
network availability, speed, consistency and traffic management on
our more current as well as aging networks could have an adverse
impact on our business and financial performance.
In addition, we currently use a very large number of interconnected
operational and business support systems including for provisioning,
networking, distribution, broadcast management, billing and
accounting, which may restrain our operational efficiency. If we fail
to implement or maintain highly effective customer-facing IT systems
supported by an effective governance and operating framework, this
may lead to inconsistent performance and dissatisfied customers,
which over time could result in higher churn.
• As consumption habits evolve and TV viewing alternatives expand,
our ability to develop alternative delivery vehicles, which may
require significant software development and network investment,
in order to compete in new markets is essential to maintaining
customer engagement and revenue streams
• Our ability to leverage new opportunities, such as those
introduced by Big Data, which is subject to many challenges,
including evolving customer perceptions as well as legal and
regulatory developments. If we cannot build market-leading
competencies in this field across sales, service and operational
platforms that respect societal values and legal and regulatory
requirements, we may miss important opportunities to grow our
business through enhanced market intelligence and a more
proactive customer service model.
our service delivery and ensure that we understand their potential
impact on customer perceptions could adversely affect our reputation
and brand value. As the foundation of effective customer service
stems from our ability to deliver simple solutions to customers in an
expeditious manner, on mutually agreeable terms, complexity in our
operations resulting from multiple technology platforms, billing systems,
marketing databases and a myriad of rate plans, promotions and
product offerings may limit our ability to respond quickly to market
changes and reduce costs, and may lead to customer confusion or
billing errors, which could adversely affect customer satisfaction,
acquisition and retention. While speed of service evolution is critical
to competitive differentiation, it must not be achieved at the expense
of the quality of our service offerings or of our brand.
Further examples of risks to operational performance that could
impact our reputation, business operations and financial performance
include the following:
• We may need to incur significant capital expenditures beyond
those already anticipated by our capital intensity target in
order to provide additional capacity and reduce network
congestion on our wireline and wireless networks, and we may
not be able to generate sufficient cash flows or raise the capital
we need to fund such capital expenditures, which may result
in service degradation
• Corporate restructurings, system replacements and upgrades,
process redesigns and the integration of business acquisitions
may not deliver the benefits contemplated and could adversely
impact our ongoing operations
• If we fail to streamline our significant IT legacy system portfolio
and proactively improve operating performance, this could
adversely affect our business and financial outcomes
• There may be a lack of competent and cost-effective resources
to perform the life-cycle management and upgrades necessary
to maintain the operational status of legacy networks
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Our operations and business continuity depend on how well
we protect, test, maintain and replace our networks, IT systems,
equipment and other facilities
Satellites used to provide our satellite TV services are subject to
significant operational risks that could have an adverse effect on
our business and financial performance
Our operations depend on how well we and our contracted service
providers protect our networks and IT systems, as well as other
infrastructure and facilities, against damage from fire, natural disaster
(including, without limitation, seismic and severe weather-related
events such as ice, snow and wind storms, flooding, hurricanes,
tornadoes and tsunamis), power loss, building cooling loss, unauthorized
access or entry, cyber threats, disabling devices, acts of war or
terrorism, sabotage, vandalism, actions of neighbours and other events.
Establishing response strategies and business continuity protocols to
maintain service consistency if any disruptive event materializes is
critical to the achievement of effective customer service. Any of the
above-mentioned events, as well as the failure to complete the planned
testing, maintenance or replacement of our networks, equipment and
other facilities due to factors beyond our control, could disrupt our
operations (including through disruptions such as network failures,
billing errors or delays in customer service), require significant
resources and result in significant remediation costs, which in turn
could have an adverse effect on our business and financial performance,
or impair our ability to keep existing subscribers or attract new ones.
People
Our employees and contractors are key resources, and there
is a broad and complex range of risks that must be managed
effectively to drive a winning corporate culture and
outstanding performance
Our business depends on the efforts, engagement and expertise of
our management and non-management employees and contractors,
who must be able to operate safely and securely based on the tasks
they are completing and the environment in which they are functioning.
If we fail to achieve this basic expectation, this could adversely affect
our organizational culture, reputation and financial results as well as
our ability to attract high-performing team members. Competition
for highly skilled team members is intense, which makes the
development of approaches to identify and secure high-performing
candidates for a broad range of job functions, roles and responsibilities
essential. Failure to appropriately train, motivate, remunerate or
deploy employees on initiatives that further our strategic imperatives,
or to efficiently replace retiring employees, could have an adverse
impact on our ability to attract and retain talent and drive performance
across the organization. The positive engagement of members of our
team represented by unions is contingent on negotiating collective
agreements that deliver competitive labour conditions and
uninterrupted service, both of which are critical to achieving our
business objectives. In addition, if the skill sets, diversity and size of
the workforce do not match the operational requirements of the
business and foster a winning culture, we will likely not be able to
sustain our performance.
Pursuant to a set of commercial arrangements between Bell ExpressVu
and Telesat Canada (Telesat), we currently have two satellites under
contract with Telesat. Telesat operates or directs the operation of
these satellites, which utilize highly complex technology and operate
in the harsh environment of space and are therefore subject to
significant operational risks while in orbit. These risks include in-orbit
equipment failures, malfunctions and other problems, commonly
referred to as anomalies, that could reduce the commercial usefulness
of a satellite used to provide our satellite TV services. Acts of war or
terrorism, magnetic, electrostatic or solar storms, and space debris
or meteoroids could also damage such satellites. Any loss, failure,
manufacturing defect, damage or destruction of these satellites, of
our terrestrial broadcasting infrastructure or of Telesat’s tracking,
telemetry and control facilities to operate the satellites could have
an adverse effect on our business and financial performance and
could result in customers terminating their subscriptions to our DTH
satellite TV service.
Other examples of people-related risks include the following:
• The increasing technical and operational complexity of our
businesses creates a challenging environment for hiring, retaining
and developing skilled technical resources
• Failure to establish a complete and effective succession plan,
including preparation of internal talent and identification of
potential external candidates where relevant for key roles, could
impair our business until qualified replacements are found
• Approximately 45% of our employees are represented by unions
and are covered by collective bargaining agreements.
Renegotiating collective bargaining agreements could result in
higher labour costs, project delays and work disruptions, including
work stoppages or work slowdowns, which could adversely affect
service to our customers and, in turn, our customer relationships
and financial performance.
• Ensuring the safety and security of our workforce operating in
different environments, including manholes, telephone poles, cell
towers, vehicles, foreign news bureaus and war zones, requires
focus, effective processes and flexibility to avoid injury, service
interruption, fines and reputational impact
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Financial management
If we are unable to raise the capital we need or generate sufficient
cash flows from operations, we may need to limit our capital
expenditures or our investments in new businesses, or try to raise
capital by disposing of assets
Our ability to meet our cash requirements, fund capital expenditures
and provide for planned growth depends on having access to adequate
sources of capital and on our ability to generate cash flows from
operations, which is subject to various risks, including those described
in this MD&A.
Our ability to raise financing depends on our ability to access the
public equity, debt capital and money markets, as well as the bank
credit market. Our ability to access such markets and the cost and
amount of funding available depend largely on prevailing market
conditions and the outlook for our business and credit ratings at the
time capital is raised. Risk factors such as capital market disruptions,
Brexit, political, economic and financial market instability in the
European Union, policies of the new U.S. administration, central bank
monetary policies, changes to bank capitalization or other regulations,
reduced bank lending in general or fewer banks as a result of reduced
activity or consolidation could reduce capital available or increase
the cost of such capital. In addition, an increased level of debt
borrowings could result in lower credit ratings, increased borrowing
costs and a reduction in the amount of funding available to us, including
through equity offerings. Business acquisitions could also adversely
affect our outlook and credit ratings and have similar adverse
consequences. In addition, participants in the public capital and bank
credit markets have internal policies limiting their ability to invest in,
or extend credit to, any single entity or entity group or a particular
industry.
Our bank credit facilities, including credit facilities supporting our
commercial paper program, are provided by various financial
institutions. While it is our intention to renew certain of such credit
facilities from time to time, there are no assurances that these facilities
will be renewed on favourable terms or in similar amounts.
Differences between BCE’s actual or anticipated financial results and
the published expectations of financial analysts, as well as events
affecting our business or operating environment, may contribute to
volatility in BCE’s securities. A major decline in the capital markets in
general, or an adjustment in the market price or trading volumes of
BCE’s securities, may negatively affect our ability to raise debt or
equity capital, retain senior executives and other key employees,
make strategic acquisitions or enter into joint arrangements.
If we cannot access the capital we need or generate cash flows to
implement our business plan or meet our financial obligations on
acceptable terms, we may have to limit our ongoing capital
expenditures and our investment in new businesses or try to raise
additional capital by selling or otherwise disposing of assets. Any of
these could have an adverse effect on our cash flows from operations
and on our growth prospects.
We cannot guarantee that BCE’s dividend policy will be maintained
or that dividends will be declared
The BCE Board reviews from time to time the adequacy of BCE’s
dividend policy with the objective of allowing sufficient financial
flexibility to continue investing in our business while growing returns
to shareholders. Under the current dividend policy, increases in the
common share dividend are directly linked to growth in BCE’s free
cash flow. BCE’s dividend policy and the declaration of dividends on
any of its outstanding shares are subject to the discretion of the BCE
Board and, consequently, there can be no guarantee that BCE’s
dividend policy will be maintained or that dividends will be declared.
The declaration of dividends by the BCE Board is ultimately dependent
on BCE’s operations and financial results, which are, in turn, subject
to various assumptions and risks, including those set out in this MD&A.
We are exposed to various credit, liquidity and market risks
Our exposure to credit, liquidity and market risks, including equity
price, interest rate and currency fluctuations, is discussed in section 6.5,
Financial risk management in this MD&A and in Note 24 in BCE’s 2016
consolidated financial statements.
Our failure to identify and manage our exposure to changes in interest
rates, foreign exchange rates (especially a weakening Canadian
dollar), BCE’s share price and other market conditions could lead to
missed opportunities, reduced profit margins, cash flow shortages,
inability to complete planned capital expenditures, reputational
damage, stock and debenture devaluations and challenges in raising
capital on market-competitive terms.
The economic environment, pension rules or ineffective governance
could have an adverse effect on our pension obligations, liquidity
and financial performance, and we may be required to increase
contributions to our post-employment benefit plans in the future
With a large pension plan membership and DB pension plans that are
subject to the pressures of the global economic environment and
changing regulatory and reporting requirements, our pension
obligations are exposed to potential volatility. Failure to recognize
and manage economic exposure and pension rule changes, or to
ensure that effective governance is in place for management and
funding of pension plan assets and obligations, could have an adverse
impact on our liquidity and financial performance.
The funding requirements of our post-employment benefit plans, based
on valuations of plan assets and obligations, depend on a number of
factors, including actual returns on post-employment benefit plan
assets, long-term interest rates, plan demographics, and applicable
regulations and actuarial standards. Changes in these factors could
cause future contributions to significantly differ from our current
estimates and could require us to increase contributions to our post-
employment benefit plans in the future and, therefore, could have a
negative effect on our liquidity and financial performance.
There is no assurance that the assets of our post-employment benefit
plans will earn their assumed rate of return. A substantial portion of
our post-employment benefit plans’ assets is invested in public equity
and debt securities. As a result, the ability of our post-employment
benefit plans’ assets to earn the rate of return that we have assumed
significantly depends on the performance of capital markets. Market
conditions also impact the discount rate used to calculate our solvency
obligations and could therefore also significantly affect our cash
funding requirements.
Our expected funding for 2017 is in accordance with the latest post-
employment benefit plan valuations as of December 31, 2015, filed in
June 2016, and takes into account voluntary contributions of
$400 million in 2016.
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Income and commodity tax amounts may materially differ
from the expected amounts
Our complex business operations are subject to various tax laws, and
the adoption of new tax laws, or regulations or rules thereunder, or
changes thereto or in the interpretation thereof, could result in higher
tax rates, new taxes or other adverse tax implications. In addition,
while we believe that we have adequately provided for all income
and commodity taxes based on all of the information that is currently
available, the calculation of income taxes and the applicability of
commodity taxes in many cases require significant judgment in
interpreting tax rules and regulations. Our tax filings are subject to
government audits that could result in material changes to the amount
of current and deferred income tax assets and liabilities and other
liabilities and could, in certain circumstances, result in an assessment
of interest and penalties.
The failure to reduce costs as well as unexpected increases
in costs could adversely affect our ability to achieve our strategic
imperatives and our financial results
Our objectives for targeted cost reductions continue to be aggressive
but there is no assurance that we will be successful in reducing costs,
especially since incremental cost savings are more difficult to achieve
on an ongoing basis. Our cost reduction objectives require aggressive
negotiations with our suppliers and there can be no assurance that
such negotiations will be successful or that replacement products or
services provided will not lead to operational issues.
Examples of risks to our ability to reduce costs or of potential cost
increases include:
• Achieving timely cost reductions while moving to an IP-based
network is dependent on disciplined network decommissioning,
which can be delayed by customer contractual commitments,
regulatory considerations and other unforeseen obstacles
• Fluctuations in energy prices are partly influenced by government
policies to address climate change which, combined with growing
data demand that increases our energy requirements, could
increase our energy costs beyond our current expectations
• Failure to successfully deliver on our contractual commitments,
whether due to security events, operational challenges or other
reasons, may result in financial penalties and loss of revenues
The failure to evolve practices to effectively monitor and control
fraudulent activities could result in financial loss and brand degradation
As a public company with a range of desirable and valuable products
and services and approximately 48,000 employees, the risk of fraud
requires a disciplined program covering governance, exposure
identification and assessment, prevention, detection and reporting
that considers corruption, misappropriation of assets and intentional
manipulation of financial statements by employees and/or external
parties. Fraud events can result in financial loss and brand degradation.
Specific examples relevant to us include:
• Subscription fraud on accounts established with a false identity
or paid with a stolen credit card
• Network usage fraud such as call/sell operations using our
wireline or wireless networks
• Copyright theft and other forms of unauthorized use that
undermine the exclusivity of Bell Media’s content offerings
and could potentially divert users to unlicensed or otherwise
illegitimate platforms, thus impacting our ability to derive
distribution and advertising revenues
• TV distributors including Bell Canada and Bell ExpressVu
are subject to ongoing efforts to steal their services through
compromise or circumvention of signal security systems,
causing revenue loss
Vendor oversight
We depend on third-party suppliers and outsourcers, some of which
are critical, to provide an uninterrupted supply of the products and
services we need to operate our business
We depend on key third-party suppliers and outsourcers, over which
we have no operational or financial control, for products and services,
some of which are critical to our operations. If there are gaps in our
supplier governance and oversight models established to ensure full
risk transparency at point of purchase and throughout the relationship,
including any contract renegotiations, there is the potential for a
breakdown in supply, which could impact our ability to make sales,
service customers and achieve our business and financial objectives.
The outsourcing of services generally involves transfer of risk, and
we must take appropriate steps to ensure that the outsourcers’
approach to risk management is aligned with our own standards in
order to maintain continuity of supply and brand strength. Further,
as cloud-based supplier models continue to evolve, our procurement
and vendor management practices must also continue to evolve to
fully address associated risk exposures.
Other examples of risks associated with vendor oversight include
the following:
• Demand for products and services available from only a limited
number of suppliers, some of which dominate their global market,
may lead to decreased availability, increased costs or delays in
the delivery of such products and services, since suppliers may
choose to favour global competitors that are larger than we are
and, accordingly, purchase a larger volume of products and
services. In addition, production issues affecting any such
suppliers, or other suppliers, could result in decreased quantities,
or a total lack of supply of products or services. Any of these
events could adversely impact our ability to meet customer
commitments and demand.
• Cloud-based solutions may increase the risk of security and
data leakage exposure if security control protocols affecting our
suppliers are bypassed
• Failure to maintain strong discipline around vendor administration
(especially around initial account setup) may mask potential financial
or operational risks and complicate future problem resolution
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• If products and services important to our operations have
manufacturing defects or do not comply with applicable
government regulations and standards (including product safety
practices), our ability to sell products and provide services on
a timely basis may be negatively impacted. We work with our
suppliers to identify serious product defects (including safety
incidents) and develop appropriate remedial strategies. Remedial
strategies may include a recall of products. To the extent that
a supplier does not actively participate in, and/or bear primary
financial responsibility for, a recall of its products, our ability
to perform such recall program at a reasonable cost and/or in
a timely fashion may be negatively impacted. Any of the events
referred to above could have an adverse effect on our operations
and financial results.
• Products supplied to us may contain latent security issues, including
but not limited to software security issues, that would not be
apparent upon a diligent inspection of the products prior to their sale
to our customers. To the extent that any such latent security issue is
discovered, we work with our suppliers to identify and develop
remedial strategies. Should a supplier not actively (or be unable to)
correct such latent security issue in a timely fashion, there could be
an adverse effect on our operations and financial performance.
• Temporary or permanent operational failures or service
interruptions of the networks of other telecommunications
carriers and suppliers on which we rely to deliver services could
adversely affect our ability to provide services using such carriers’
and suppliers’ networks and could, consequently, have an adverse
effect on our business and financial performance
Litigation and legal obligations
Legal proceedings, changes in applicable laws and the failure to
proactively address our legal and regulatory obligations could have
an adverse effect on our business and financial performance
We become involved in various claims and legal proceedings as part
of our business. Plaintiffs within Canada are able to launch and
obtain certification of class actions on behalf of a large group of
people with increasing ease, and Canadian provincial securities laws
facilitate the introduction in Canada of class action lawsuits by
secondary market investors against public companies for alleged
misrepresentations in public disclosure documents and oral state-
ments. Changes in laws or regulations, or in how they are interpreted,
and the adoption of new laws or regulations, as well as pending or
future litigation, including an increase in certified class actions which,
by their nature, could result in sizeable damage awards and costs
relating to litigation, could have an adverse effect on our business
and financial performance.
Examples of legal and regulatory obligations that we must comply
with include those resulting from:
• As discussed in more detail in section 8, Regulatory environment,
decisions, policies and other initiatives of the CRTC, ISED, the
Competition Bureau and other governmental agencies, as well as
laws of a regulatory nature
• Consumer protection and privacy legislation
• Tax legislation
• Corporate and securities legislation
• IFRS requirements
• Environmental protection and health and safety laws
• Payment card industry standards for the protection against
customer credit card infractions
For a description of the principal legal proceedings involving us, please
see the section entitled Legal proceedings contained in the BCE 2016 AIF.
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9
Health and environmental concerns
Health concerns about radiofrequency emissions from wireless
communication devices, as well as epidemics and other health risks,
could have an adverse effect on our business
Many studies have been performed or are ongoing to assess whether
wireless phones, networks and towers pose a potential health risk.
While some studies suggest links to certain conditions, others conclude
there is no established causation between mobile phone usage and
adverse health effects. In 2011, the International Agency for Research
on Cancer (IARC) of the World Health Organization (WHO) classified
radiofrequency electromagnetic fields from wireless phones as
possibly carcinogenic to humans, but also indicated that chance, bias
or confounding could not be ruled out with reasonable confidence.
The IARC also called for additional research into long-term heavy use
of mobile phones.
ISED is responsible for approving radiofrequency equipment and
performing compliance assessments and has chosen Health Canada’s
Safety Code 6, which sets the limits for safe exposure to radiofrequency
emissions at home or at work, as its exposure standard. This code
also outlines safety requirements for the installation and operation
of devices that emit radiofrequency fields such as mobile phones,
Wi-Fi technologies and base station antennas. ISED has made
compliance to Safety Code 6 mandatory for all proponents and
operators of radio installations.
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Our business is heavily dependent on radiofrequency technologies,
which could present significant challenges to our business and financial
performance, such as the following:
• We face current and potential lawsuits relating to alleged adverse
health effects on customers, as well as to our marketing and
disclosure practices in connection therewith, and the likely
outcome of such lawsuits is unpredictable and may change
over time
• Changes in scientific evidence and/or public perceptions could
lead to additional government regulations and costs for
retrofitting infrastructure and handsets to achieve compliance
• Public concerns could result in a slower deployment of, or in our
inability to deploy, infrastructure necessary to maintain and/or
expand our wireless network as required by market evolution
In addition, epidemics, pandemics and other health risks could occur,
which could adversely affect our ability to maintain operational
networks and provide services to our customers. Any of these events
could have an adverse effect on our business and financial performance.
Climate change and other environmental concerns could have
an adverse effect on our business
Global climate change could exacerbate certain of the threats facing
our business, including the frequency and severity of weather-related
events referred to in Operational performance – Our operations and
business continuity depend on how well we protect, test, maintain
and replace our networks, IT systems, equipment and other facilities
in this section 9. Several areas of our operations further raise
environmental considerations, such as fuel storage, greenhouse gas
emissions, disposal of hazardous residual materials, and recovery
and recycling of end-of-life electronic products we sell or lease. Failure
to recognize and adequately respond to changing governmental and
public expectations on environmental matters could result in fines,
missed opportunities, additional regulatory scrutiny or harm our brand
and reputation.
Proposed MTS acquisition
The expected timing and completion of the proposed acquisition
of MTS and of the proposed divestitures to the TELUS Group and
Xplornet of certain assets are subject to certain closing conditions,
termination rights and other risks and uncertainties
The expected timing and completion of the proposed acquisition by
BCE of all of the issued and outstanding shares of MTS (the MTS
Transaction), the proposed divestiture to the TELUS Group of a portion
of MTS’ postpaid wireless subscribers and retail locations (the TELUS
Transaction), and the proposed divestiture to Xplornet of certain
wireless spectrum, wireless subscribers and retail locations and the
receipt by Xplornet of certain operational benefits (the Xplornet
Transaction and, together with the TELUS Transaction and the MTS
Transaction, the Proposed Transactions) are each subject to certain
closing conditions, termination rights and other risks and uncertainties.
There can be no assurance that the Proposed Transactions will occur,
or that they will occur on the timetable or on the terms and conditions
currently contemplated. The Proposed Transactions could be modified,
restructured or terminated. There can also be no assurance that the
synergies or other benefits expected to result from the MTS Transaction,
as well as our network deployment and capital investment plans in
Manitoba, will be fully realized. The nature and value of capital
investments planned to be made in Manitoba assume completion of
the MTS Transaction as well as our ability to access or generate the
necessary sources of capital. However, there can be no assurance
that the MTS Transaction will be completed or that the required sources
of capital will be available with the result that actual capital investments
made by us in Manitoba could materially differ from current
expectations.
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10 Financial measures, accounting policies and controls
10.1 Our accounting policies
This section discusses key estimates and assumptions that management has made and how they affect the amounts reported in the financial
statements and notes. It also describes key changes in accounting standards and our accounting policies, and how they affect our
financial statements.
We have prepared our consolidated financial statements using IFRS. Other significant accounting policies, not involving the same level of
measurement uncertainty as those discussed in this section, are nevertheless important to an understanding of our financial statements. See
Note 2, Significant accounting policies, in BCE’s 2016 consolidated financial statements for more information about the accounting principles
we used to prepare our consolidated financial statements.
Critical accounting estimates and key judgments
When preparing financial statements, management makes estimates
and judgments relating to:
• reported amounts of revenues and expenses
• reported amounts of assets and liabilities
• disclosure of contingent assets and liabilities
We base our estimates on a number of factors, including historical
experience, current events and actions that the company may
undertake in the future, and other assumptions that we believe are
reasonable under the circumstances. By their nature, these estimates
and judgments are subject to measurement uncertainty and actual
results could differ.
We consider the estimates and judgments described in this section
to be an important part of understanding our financial statements
because they require management to make assumptions about matters
that were highly uncertain at the time the estimates and judgments
were made, and changes to these estimates and judgments could
have a material impact on our financial statements and our segments.
Our senior management has reviewed the development and selection
of the critical accounting estimates and judgments described in this
section with the Audit Committee of the BCE Board.
Any sensitivity analysis included in this section should be used with
caution as the changes are hypothetical and the impact of changes
in each key assumption may not be linear.
Our more significant estimates and judgments are described below.
ESTIMATES
USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT
AND FINITE-LIFE INTANGIBLE ASSETS
We review our estimates of the useful lives of property, plant and
equipment and finite-life intangible assets on an annual basis
and adjust depreciation or amortization on a prospective basis,
if needed.
Property, plant and equipment represent a significant proportion of
our total assets. Changes in technology or our intended use of these
assets, as well as changes in business prospects or economic and
industry factors, may cause the estimated useful lives of these assets
to change.
The estimated useful lives of property, plant and equipment and finite-
life intangible assets are determined by internal asset life studies,
which take into account actual and expected future usage, physical
wear and tear, replacement history and assumptions about technology
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evolution. When factors indicate that assets’ useful lives are different
from the prior assessment, we depreciate or amortize the remaining
carrying value prospectively over the adjusted estimated useful lives.
Change in accounting estimate
In 2016, as part of our ongoing annual review of property, plant and
equipment and finite-life intangible assets, and to better reflect their
useful lives, we increased the estimate of useful lives of certain assets.
The changes have been applied prospectively effective January 1, 2016
and did not have a significant impact on our financial statements.
POST-EMPLOYMENT BENEFIT PLANS
The amounts reported in the financial statements relating to DB pension
plans and OPEBs are determined using actuarial calculations that are
based on several assumptions.
Our actuaries perform a valuation at least every three years to
determine the actuarial present value of the accrued DB pension plan
and OPEB obligations. The actuarial valuation uses management’s
assumptions for, among other things, the discount rate, life expectancy,
the rate of compensation increase, trends in healthcare costs and
expected average remaining years of service of employees.
While we believe that these assumptions are reasonable, differences
in actual results or changes in assumptions could materially affect
post-employment benefit obligations and future net post-employment
benefit plans cost.
We account for differences between actual and expected results in
benefit obligations and plan performance in OCI, which are then
recognized immediately in the deficit.
The most significant assumptions used to calculate the net post-
employment benefit plans cost are the discount rate and life
expectancy.
A discount rate is used to determine the present value of the future
cash flows that we expect will be needed to settle post-employment
benefit obligations.
The discount rate is based on the yield on long-term, high-quality
corporate fixed income investments, with maturities matching the
estimated cash flows of the post-employment benefit plans. Life
expectancy is based on publicly available Canadian mortality tables
and is adjusted for the company’s specific experience.
A lower discount rate and a higher life expectancy result in a higher
net post-employment benefit obligation and a higher current
service cost.
MD&A
Sensitivity analysis
The following table shows a sensitivity analysis of key assumptions used to measure the net post-employment benefit obligations and the
net post-employment benefit plans cost for our DB pension plans and OPEB plans.
Discount rate
Life expectancy at age 65
IMPACT ON NET POST-EMPLOYMENT
BENEFIT PLANS COST FOR 2016 –
INCREASE (DECREASE)
IMPACT ON POST-EMPLOYMENT BENEFIT
OBLIGATIONS AT DECEMBER 31, 2016 –
INCREASE (DECREASE)
CHANGE IN
ASSUMPTION
INCREASE IN
ASSUMPTION
DECREASE IN
ASSUMPTION
INCREASE IN
ASSUMPTION
DECREASE IN
ASSUMPTION
0.5%
1 year
(77)
34
66
(33)
(1,435)
699
1,533
(678)
IMPAIRMENT OF NON-FINANCIAL ASSETS
Goodwill and indefinite-life intangible assets are tested for impairment
annually or when there is an indication that the asset may be impaired.
Property, plant and equipment and finite-life intangible assets are
tested for impairment if events or changes in circumstances, assessed
at each reporting period, indicate that their carrying amount may not
be recoverable. For the purpose of impairment testing, assets other
than goodwill are grouped at the lowest level for which there are
separately identifiable cash inflows.
Impairment losses are recognized and measured as the excess of the
carrying value of the assets over their recoverable amount. An asset’s
recoverable amount is the higher of its fair value less costs of disposal
and its value in use. Previously recognized impairment losses, other
than those attributable to goodwill, are reviewed for possible reversal
at each reporting date and, if the asset’s recoverable amount has
increased, all or a portion of the impairment is reversed.
We make a number of estimates when calculating recoverable amounts
using discounted future cash flows or other valuation methods to test
for impairment. These estimates include the assumed growth rates
for future cash flows, the number of years used in the cash flow model,
and the discount rate. When impairment charges occur they are
recorded in Other income (expense).
In 2015, we recorded an impairment charge of $49 million, of which
$38 million was allocated to indefinite-life intangible assets, $9 million
to finite-life intangible assets and $2 million to property, plant and
equipment. The impairment charge related mainly to our music cash
generating unit (CGU) within our Bell Media segment and resulted
from revenue and profitability declines from lower viewership and
higher TV content costs. The charge was determined by comparing
the carrying value of the CGU to its fair value less costs of disposal.
We estimated the fair value of the CGU using both discounted cash
flows and market-based valuation models which include five-year
cash flow projections derived from business plans reviewed by senior
management for the period of January 1, 2016 to December 31, 2020,
using a discount rate of 9.0% and a perpetuity growth rate of nil, as
well as market multiple data from public companies and market
transactions. The carrying value of our music CGU was $171 million at
December 31, 2015.
We identify any potential impairment by comparing the carrying
value of a CGU or group of CGUs to its recoverable amount. The
recoverable amount of a CGU or group of CGUs is the higher of its
fair value less costs of disposal and its value in use. Both fair value
less costs of disposal and value in use are based on estimates of
discounted future cash flows or other valuation methods. Cash flows
are projected based on past experience, actual operating results and
business plans. When the recoverable amount of a CGU or group of
CGUs is less than its carrying value, the recoverable amount is
determined for its identifiable assets and liabilities. The excess of the
recoverable amount of the CGU or group of CGUs over the total of
the amounts assigned to its assets and liabilities is the recoverable
amount of goodwill.
An impairment charge is recognized in Other income (expense) in the
income statements for any excess of the carrying value of goodwill
over its recoverable amount. For purposes of impairment testing of
goodwill, BCE’s CGUs or groups of CGUs correspond to our reporting
segments as disclosed in Note 4, Segmented information, in BCE’s 2016
consolidated financial statements.
Any significant change in each of the estimates used could have a
material impact on the calculation of the recoverable amount and
resulting impairment charge. As a result, we are unable to reasonably
quantify the changes in our overall financial performance if we had
used different assumptions.
We cannot predict whether an event that triggers impairment will
occur, when it will occur or how it will affect the asset values we have
reported.
For the Bell Media group of CGUs, a decrease of (0.4%) in the perpetuity
growth rate or an increase of 0.3% in the discount rate, would have
resulted in its recoverable amount being equal to its carrying value.
There were no goodwill impairment charges in 2016 or 2015.
DEFERRED TAXES
Deferred tax assets and liabilities are calculated at the tax rates that
are expected to apply when the asset or liability is recovered or settled.
Both our current and deferred tax assets and liabilities are calculated
using tax rates that have been enacted or substantively enacted at
the reporting date.
Goodwill impairment testing
We perform an annual test for goodwill impairment in the fourth
quarter for each of our CGUs or groups of CGUs to which goodwill is
allocated and whenever there is an indication that goodwill might
be impaired.
Deferred taxes are provided on temporary differences arising from
investments in subsidiaries, joint arrangements and associates, except
where we control the timing of the reversal of the temporary difference
and it is probable that the temporary difference will not reverse in
the foreseeable future.
A CGU is the smallest identifiable group of assets that generates cash
inflows that are independent of the cash inflows from other assets or
groups of assets.
The amount of deferred tax assets is estimated with consideration
given to the timing, sources and amounts of future taxable income.
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FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain financial instruments, such as investments in equity securities,
derivative financial instruments and certain elements of borrowings,
are carried in the statements of financial position at fair value, with
changes in fair value reflected in the income statements and the
statements of comprehensive income. Fair values are estimated by
reference to published price quotations or by using other valuation
techniques that may include inputs that are not based on observable
market data, such as discounted cash flows and earnings multiples.
CONTINGENCIES
In the ordinary course of business, we become involved in various
claims and legal proceedings seeking monetary damages and other
relief. Pending claims and legal proceedings represent a potential
cost to our business. We estimate the amount of a loss by analyzing
potential outcomes and assuming various litigation and settlement
strategies, based on information that is available at the time.
If the final resolution of a legal or regulatory matter results in a judgment
against us or requires us to pay a large settlement, it could have a
material adverse effect on our consolidated financial statements in
the period in which the judgment or settlement occurs.
ONEROUS CONTRACTS
A provision for onerous contracts is recognized when the unavoidable
costs of meeting our obligations under a contract exceed the expected
benefits to be received under the contract. The provision is measured
at the present value of the lower of the expected cost of terminating
the contract and the expected net cost of completing the contract.
JUDGMENTS
POST-EMPLOYMENT BENEFIT PLANS
The determination of the discount rate used to value our post-
employment benefit obligations requires judgment. The rate is set by
reference to market yields of high-quality corporate fixed income
investments at the beginning of each fiscal year. Significant judgment
is required when setting the criteria for fixed income investments to
be included in the population from which the yield curve is derived.
The most significant criteria considered for the selection of investments
include the size of the issue and credit quality, along with the
identification of outliers, which are excluded.
INCOME TAXES
The calculation of income taxes requires judgment in interpreting tax
rules and regulations. There are transactions and calculations for
which the ultimate tax determination is uncertain. Our tax filings are
also subject to audits, the outcome of which could change the amount
of current and deferred tax assets and liabilities. Management believes
that it has sufficient amounts accrued for outstanding tax matters
based on information that currently is available.
Management judgment is used to determine the amounts of deferred
tax assets and liabilities and future tax liabilities to be recognized. In
particular, judgment is required when assessing the timing of the
reversal of temporary differences to which future income tax rates
are applied.
MULTIPLE ELEMENT ARRANGEMENTS
Determining the amounts of revenue to be recognized for multiple
element arrangements requires judgment to establish the separately
identifiable components and the allocation of the total price between
those components.
CGUs
The determination of CGUs or groups of CGUs for the purpose of
annual impairment testing requires judgment.
CONTINGENCIES
We accrue a potential loss if we believe a loss is probable and an
outflow of resources is likely and can be reasonably estimated, based
on information that is available at the time. Any accrual would be
charged to earnings and included in Trade payables and other liabilities
or Other non-current liabilities. Any payment as a result of a judgment
or cash settlement would be deducted from cash from operating
activities. We estimate the amount of a loss by analyzing potential
outcomes and assuming various litigation and settlement strategies.
The determination of whether a loss is probable from claims and legal
proceedings and whether an outflow of resources is likely requires
judgment.
Adoption of amended accounting standards
As required, effective January 1, 2016, we adopted the following amended accounting standards on a prospective basis, none of which had
a significant impact on our consolidated financial statements.
STANDARD
DESCRIPTION
IMPACT
Amendments to International
Accounting Standard (IAS) 16 –
Property, Plant and Equipment
and IAS 38 – Intangible Assets
Amendments to IFRS 11 –
Joint Arrangements
Clarifies that a revenue-based approach to calculate depreciation and
amortization generally is not appropriate as it does not reflect the
consumption of the economic benefits embodied in the related asset.
This amendment did not have a significant
impact on our financial statements.
Provides guidance on the accounting for acquisitions of interests in
joint operations in which the activity constitutes a business, as defined
in IFRS 3 – Business Combinations. The amended standard requires
the acquirer to apply all of the principles on accounting for business
combinations in IFRS 3 and other IFRSs except for any principles
that conflict with IFRS 11.
This amendment did not have a significant
impact on our financial statements.
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Future changes to accounting standards
The following new or amended standards issued by the IASB have an effective date after December 31, 2016 and have not yet been adopted
by BCE.
STANDARD
DESCRIPTION
IMPACT
Amendments to IAS 7 –
Statement of Cash Flows
IFRS 15 – Revenue from
Contracts with Customers
Requires enhanced disclosures about changes
in liabilities arising from financing activities,
including changes from financing cash flows,
changes arising from obtaining or losing
control of subsidiaries or other businesses, the
effect of changes in foreign exchange rates
and changes in fair values.
Establishes principles to record revenues from
contracts for the sale of goods or services,
unless the contracts are in the scope of
IAS 17 – Leases or other IFRSs. Under IFRS 15,
revenue is recognized at an amount that
reflects the expected consideration receivable
in exchange for transferring goods or services
to a customer, applying the following five steps:
1. Identify the contract with a customer
2. Identify the performance obligations
in the contract
3. Determine the transaction price
4. Allocate the transaction price to the
performance obligations in the contract
5. Recognize revenue when (or as) the entity
satisfies a performance obligation
The new standard also provides guidance
relating to principal versus agent relationships,
licences of intellectual property, contract costs
and the measurement and recognition of gains
and losses on the sale of certain non-financial
assets such as property and equipment.
Additional disclosures will also be required
under the new standard.
Amendments to IFRS 2 –
Share-based Payment
Clarifies the classification and measurement
of cash-settled share-based payment
transactions that include a performance
condition, share-based payment transactions
with a net settlement feature for withholding
tax obligations, and modifications of a
share-based payment transaction from
cash-settled to equity-settled.
Additional disclosures will be provided in the
notes to our financial statements if required.
IFRS 15 will principally affect the timing of
revenue recognition, how we classify revenues
between product and service and how we
account for costs to obtain and fulfill a contract.
Under multiple-element arrangements,
although the total revenue recognized
during the term of a contract will be largely
unaffected, the revenue allocated to
a delivered item will no longer be limited to
the non-contingent amount. This may
accelerate the recognition of revenue ahead
of the associated cash inflows and result
in a corresponding contract asset recorded
on the balance sheet, to be realized over
the term of the customer contract.
We continue to make progress towards
adoption of IFRS 15 according to our detailed
implementation plan. Changes and
enhancements to our existing IT systems,
business processes, and systems of internal
control are being designed, tested and
implemented. A dedicated project team that
leverages key resources throughout the
company is also in place to effect the
necessary changes.
Throughout 2017, systems and processes will
be put in place to collect and compile the new
data required to reflect the impact of IFRS 15
on our 2018 financial statements and key
operating metrics and determine the impact
to our historical comparative information.
Accordingly, it is not yet possible to make
a reliable estimate of the impact of the new
standard on our financial statements. We
expect that the impact of the new standard
will be most pronounced in our Bell Wireless
segment. While total revenue recognized
over the term of a customer contract is
not expected to change significantly,
revenue recognition will be accelerated
for certain customer contracts and a greater
proportion of revenue will be classified
to product revenue.
The amendments to IFRS 2 are not expected
to have a significant impact on our financial
statements.
EFFECTIVE DATE
Annual periods beginning
on or after January 1, 2017,
applied prospectively.
Annual periods beginning
on or after January 1, 2018,
using either a full
retrospective approach
for all periods presented
in the period of adoption
or a modified
retrospective approach.
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Annual periods beginning
on or after January 1, 2018.
BCE Inc.
2016 AnnuAl RepoRt 105
MD&A
STANDARD
IFRS 9 – Financial
Instruments
IFRS 16 – Leases
DESCRIPTION
IMPACT
EFFECTIVE DATE
We are currently evaluating the impact of
IFRS 9 on our financial statements.
Annual periods beginning
on or after January 1, 2018.
We are currently evaluating the impact of
IFRS 16 on our financial statements.
Annual periods beginning
on or after January 1, 2019,
using either a full
retrospective approach
for all periods presented
in the period of adoption
or a modified
retrospective approach,
with early adoption
permitted if an entity has
adopted IFRS 15.
Sets out the requirements for recognizing
and measuring financial assets, financial
liabilities and some contracts to buy and
sell non-financial items. IFRS 9 replaces
IAS 39 – Financial Instruments: Recognition
and Measurement. The new standard
establishes a single classification and
measurement approach for financial assets
that reflects the business model in which
they are managed and their cash flow
characteristics. It also provides guidance on
an entity’s own credit risk relating to financial
liabilities and has modified the hedge
accounting model to better link the economics
of risk management with its accounting
treatment. Additional disclosures will also
be required under the new standard.
Eliminates the distinction between operating
and finance leases for lessees, requiring
instead that leases be capitalized by
recognizing the present value of the lease
payments and showing them either as lease
assets (right-of-use assets) or together with
property, plant and equipment. If lease
payments are made over time, an entity
recognizes a financial liability representing
its obligation to make future lease payments.
A depreciation charge for the lease asset is
recorded within operating costs and an interest
expense on the lease liability is recorded within
finance costs.
IFRS 16 does not require a lessee to recognize
assets and liabilities for short-term leases and
leases of low-value assets, nor does it
substantially change lease accounting
for lessors.
10.2 Non-GAAP financial measures
and key performance indicators (KPIs)
This section describes the non-GAAP financial measures and KPIs we use in this MD&A to explain our financial results. It also provides
reconciliations of the non-GAAP financial measures to the most comparable IFRS financial measures.
Adjusted EBITDA and adjusted EBITDA margin
The terms adjusted EBITDA and adjusted EBITDA margin do not have
any standardized meaning under IFRS. Therefore, they are unlikely
to be comparable to similar measures presented by other issuers.
We define adjusted EBITDA as operating revenues less operating costs,
as shown in BCE’s consolidated income statements. Adjusted EBITDA
for BCE’s segments is the same as segment profit as reported in Note 4,
Segmented information, in BCE’s 2016 consolidated financial statements.
We define adjusted EBITDA margin as adjusted EBITDA divided by
operating revenues.
We use adjusted EBITDA and adjusted EBITDA margin to evaluate the
performance of our businesses as they reflect their ongoing
profitability. We believe that certain investors and analysts use
adjusted EBITDA to measure a company’s ability to service debt and
to meet other payment obligations or as a common measurement to
value companies in the telecommunications industry. We believe that
certain investors and analysts also use adjusted EBITDA and adjusted
EBITDA margin to evaluate the performance of our businesses. Adjusted
EBITDA is also one component in the determination of short-term
incentive compensation for all management employees.
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Adjusted EBITDA and adjusted EBITDA margin have no directly comparable IFRS financial measure. Alternatively, the following table provides
a reconciliation of net earnings to adjusted EBITDA.
Net earnings
Severance, acquisition and other costs
Depreciation
Amortization
Finance costs
Interest expense
Interest on post-employment benefit obligations
Other (income) expense
Income taxes
Adjusted EBITDA
BCE operating revenues
Adjusted EBITDA margin
2016
3,087
135
2,877
631
888
81
(21)
1,110
8,788
21,719
40.5%
2015
2,730
446
2,890
530
909
110
12
924
8,551
21,514
39.7%
Adjusted net earnings and adjusted EPS
The terms adjusted net earnings and adjusted EPS do not have any
standardized meaning under IFRS. Therefore, they are unlikely to be
comparable to similar measures presented by other issuers.
We define adjusted net earnings as net earnings attributable to
common shareholders before severance, acquisition and other costs,
net losses (gains) on investments, and early debt redemption costs.
We define adjusted EPS as adjusted net earnings per BCE common share.
We use adjusted net earnings and adjusted EPS, and we believe that
certain investors and analysts use these measures, among other ones,
to assess the performance of our businesses without the effects of
severance, acquisition and other costs, net losses (gains) on investments,
and early debt redemption costs, net of tax and NCI. We exclude these
items because they affect the comparability of our financial results
and could potentially distort the analysis of trends in business
performance. Excluding these items does not imply they are non-
recurring.
The most comparable IFRS financial measures are net earnings attributable to common shareholders and EPS. The following table is a
reconciliation of net earnings attributable to common shareholders and EPS to adjusted net earnings on a consolidated basis and per BCE
common share (adjusted EPS), respectively.
Net earnings attributable to common shareholders
Severance, acquisition and other costs
Net losses (gains) on investments
Early debt redemption costs
Adjusted net earnings
2016
2015
TOTAL
2,894
104
3
8
3,009
PER SHARE
3.33
0.12
–
0.01
3.46
TOTAL
2,526
327
(21)
13
2,845
PER SHARE
2.98
0.38
(0.02)
0.02
3.36
Free cash flow and dividend payout ratio
The terms free cash flow and dividend payout ratio do not have any
standardized meaning under IFRS. Therefore, they are unlikely to be
comparable to similar measures presented by other issuers.
We define free cash flow as cash flows from operating activities,
excluding acquisition and other costs paid (which include significant
litigation costs) and voluntary pension funding, less capital
expenditures, preferred share dividends and dividends paid by
subsidiaries to NCI. We exclude acquisition and other costs paid and
voluntary pension funding because they affect the comparability of
our financial results and could potentially distort the analysis of trends
in business performance. Excluding these items does not imply they
are non-recurring.
We consider free cash flow to be an important indicator of the financial
strength and performance of our businesses because it shows how
much cash is available to pay dividends, repay debt and reinvest in
our company. We believe that certain investors and analysts use free
cash flow to value a business and its underlying assets and to evaluate
the financial strength and performance of our businesses. The most
comparable IFRS financial measure is cash flows from operating
activities.
We define dividend payout ratio as dividends paid on common shares
divided by free cash flow. We consider dividend payout ratio to be
an important indicator of the financial strength and performance of
our businesses because it shows the sustainability of the company’s
dividend payments.
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The following table is a reconciliation of cash flows from operating activities to free cash flow on a consolidated basis.
Cash flows from operating activities
Capital expenditures
Cash dividends paid on preferred shares
Cash dividends paid by subsidiaries to NCI
Acquisition and other costs paid
Voluntary defined benefit pension plan contribution
Free cash flow
2016
6,643
(3,771)
(126)
(46)
126
400
3,226
2015
6,274
(3,626)
(150)
(41)
292
250
2,999
Net debt
The term net debt does not have any standardized meaning under
IFRS. Therefore, it is unlikely to be comparable to similar measures
presented by other issuers.
We define net debt as debt due within one year plus long-term debt
and 50% of preferred shares, less cash and cash equivalents, as shown
in BCE’s consolidated statements of financial position. We include 50%
of outstanding preferred shares in our net debt as it is consistent with
the treatment by certain credit rating agencies.
We consider net debt to be an important indicator of the company’s
financial leverage because it represents the amount of debt that is
not covered by available cash and cash equivalents. We believe that
certain investors and analysts use net debt to determine a company’s
financial leverage.
Net debt has no directly comparable IFRS financial measure, but rather
is calculated using several asset and liability categories from the
statements of financial position, as shown in the following table.
Debt due within one year
Long-term debt
50% of outstanding preferred shares
Cash and cash equivalents
Net debt
2016
4,887
16,572
2,002
(853)
22,608
2015
4,895
15,390
2,002
(613)
21,674
Net debt leverage ratio
The net debt leverage ratio does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures
presented by other issuers. We use, and believe that certain investors and analysts use, the net debt leverage ratio as a measure of financial
leverage.
The net debt leverage ratio represents net debt divided by adjusted EBITDA. For the purposes of calculating our net debt leverage ratio,
adjusted EBITDA is twelve-month trailing adjusted EBITDA.
Adjusted EBITDA to net interest expense ratio
The ratio of adjusted EBITDA to net interest expense does not have
any standardized meaning under IFRS. Therefore, it is unlikely to be
comparable to similar measures presented by other issuers. We use,
and believe that certain investors and analysts use, the adjusted
EBITDA to net interest expense ratio as a measure of financial health
of the company.
The adjusted EBITDA to net interest expense ratio represents adjusted
EBITDA divided by net interest expense. For the purposes of calculating
our adjusted EBITDA to net interest expense ratio, adjusted EBITDA is
twelve-month trailing adjusted EBITDA. Net interest expense is twelve-
month trailing net interest expense as shown in our statements of
cash flows, plus 50% of declared preferred share dividends as shown
in our income statements.
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KPIs
In addition to the non-GAAP financial measures described previously, we use a number of KPIs to measure the success of our strategic
imperatives. These KPIs are not accounting measures and may not be comparable to similar measures presented by other issuers.
KPI
ARPU
DEFINITION
Average revenue per user (ARPU) or subscriber is a measure used to track our recurring revenue streams. Wireless
blended ARPU is calculated by dividing certain service revenue by the average subscriber base for the specified period
and is expressed as a dollar unit per month.
Capital intensity
Capital expenditures divided by operating revenues.
Churn
COA
Subscriber unit
Churn is the rate at which existing subscribers cancel their services. It is a measure of our ability to retain our
customers. Wireless churn is calculated by dividing the number of deactivations during a given period by the average
number of subscribers in the base for the specified period and is expressed as a percentage per month.
COA is also referred to as subscriber acquisition costs. COA represents the total cost associated with acquiring a
customer and includes costs such as hardware discounts, marketing and distribution costs. This measure is expressed
per gross activation during the period.
Wireless subscriber unit is comprised of an active revenue-generating unit (e.g. mobile device, tablet or wireless
Internet products), with a unique identifier (typically International Mobile Equipment Identity (IMEI) number), that has
access to our wireless networks. We report wireless subscriber units in two categories: postpaid and prepaid. Prepaid
subscriber units are considered active for a period of 120 days following the expiry of the subscriber’s prepaid balance.
Wireline subscriber unit consists of an active revenue-generating unit with access to our services, including Internet,
satellite TV, IPTV, and/or NAS. A subscriber is included in our subscriber base when the service has been installed and is
operational at the customer premise and a billing relationship has been established.
•
Internet, IPTV and satellite TV subscribers have access to stand-alone services, and are primarily represented by
a dwelling unit
• NAS subscribers are based on a line count and are represented by a unique telephone number
10.3 Effectiveness of internal controls
Disclosure controls and procedures
Our disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed by
us in reports filed or submitted under Canadian and U.S. securities
laws is recorded, processed, summarized and reported within the time
periods specified under those laws, and include controls and procedures
that are designed to ensure that the information is accumulated and
communicated to management, including BCE’s President and CEO
and Executive Vice-President and Chief Financial Officer (CFO), to allow
timely decisions regarding required disclosure.
Internal control over financial reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rule 13(a)-15(f)
under the U.S. Securities Exchange Act of 1934, as amended, and under
National Instrument 52-109. Our internal control over financial
reporting is a process designed under the supervision of the CEO and
CFO, and effected by the Board, management and other personnel
of BCE, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with IFRS. However, because of its
inherent limitations, internal control over financial reporting may not
prevent or detect misstatements on a timely basis.
As at December 31, 2016, management evaluated, under the supervision
of and with the participation of the CEO and the CFO, the effectiveness
of our disclosure controls and procedures, as defined in Rule 13a-15(e)
under the U.S. Securities Exchange Act of 1934, as amended, and under
National Instrument 52-109 – Certification of Disclosure in Issuers’
Annual and Interim Filings.
Based on that evaluation, the CEO and CFO concluded that our disclosure
controls and procedures were effective as at December 31, 2016.
Management evaluated, under the supervision of and with the
participation of the CEO and the CFO, the effectiveness of our internal
control over financial reporting as at December 31, 2016, based on
the criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Based on that evaluation, the CEO and CFO concluded that our internal
control over financial reporting was effective as at December 31, 2016.
There have been no changes during the year ended December 31, 2016
in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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Reports on internal control
Management’s report on internal control over financial reporting
The management of BCE Inc. (BCE) is responsible for establishing and
maintaining adequate internal control over financial reporting. Our
internal control over financial reporting is a process designed under
the supervision of the President and Chief Executive Officer and the
Executive Vice-President and Chief Financial Officer and effected by
the Board of Directors, management and other personnel of BCE, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards
Board (IASB).
Based on that evaluation, the President and Chief Executive Officer
and the Executive Vice-President and Chief Financial Officer concluded
that our internal control over financial reporting was effective as at
December 31, 2016. There were no material weaknesses that have
been identified by BCE’s management in internal control over financial
reporting as at December 31, 2016.
Our internal control over financial reporting as at December 31, 2016
has been audited by Deloitte LLP, Independent Registered Public
Accounting Firm, who also audited our consolidated financial
statements for the year ended December 31, 2016. Deloitte LLP issued
an unqualified opinion on the effectiveness of our internal control
over financial reporting as at December 31, 2016.
(signed) George A. Cope
President and Chief Executive Officer
(signed) Glen LeBlanc
Executive Vice-President and Chief Financial Officer
(signed) Thierry Chaumont
Senior Vice-President and Controller
March 2, 2017
Due to its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements on a timely basis. Also,
projections of any evaluation of the effectiveness of internal control
over financial reporting to future periods are subject to the risk that
the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Management evaluated, under the supervision of and with the
participation of the President and Chief Executive Officer and the
Executive Vice-President and Chief Financial Officer, the effectiveness
of our internal control over financial reporting as at December 31,
2016, based on the criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
110
BCE Inc.
2016 AnnuAl RepoRt
Reports on internal control Report of independent registered public accounting firm
To the Board of Directors and Shareholders of BCE Inc.
We have audited the internal control over financial reporting of BCE Inc.
and subsidiaries (the “Company”) as of December 31, 2016, based on
the criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible
for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures
as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process
designed by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons performing similar
functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
International Financial Reporting Standards as issued by the
International Accounting Standards Board. A company’s internal
control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud
may not be prevented or detected on a timely basis. Also, projections
of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31,
2016, based on the criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission.
We have also audited, in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements as of and for the year ended December 31, 2016 of the
Company and our report dated March 2, 2017 expressed an unmodified/
unqualified opinion on those financial statements.
/s/ Deloitte LLP (1)
Montréal, Canada
March 2, 2017
(1) CPA auditor, CA, public accountancy permit No. A104630
BCE Inc.
2016 AnnuAl RepoRt 111
Reports on internal control The board of directors has appointed an Audit Committee, which is
made up of unrelated and independent directors. The Audit Committee’s
responsibilities include reviewing the financial statements and other
information in this annual report, and recommending them to the
board of directors for approval. You will find a description of the Audit
Committee’s other responsibilities on page 156 of this annual report.
The internal auditors and the shareholders’ auditors have free and
independent access to the Audit Committee.
(signed) George A. Cope
President and Chief Executive Officer
(signed) Glen LeBlanc
Executive Vice-President and Chief Financial Officer
(signed) Thierry Chaumont
Senior Vice-President and Controller
March 2, 2017
Consolidated financial statements
Management’s responsibility for financial reporting
These financial statements form the basis for all of the financial
information that appears in this annual report.
The financial statements and all of the information in this annual report
are the responsibility of the management of BCE Inc. (BCE) and have
been reviewed and approved by the board of directors. The board of
directors is responsible for ensuring that management fulfills its
financial reporting responsibilities. Deloitte LLP, Independent Registered
Public Accounting Firm, have audited the financial statements.
Management has prepared the financial statements according to
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board. Under these principles,
management has made certain estimates and assumptions that are
reflected in the financial statements and notes. Management believes
that these financial statements fairly present BCE’s consolidated
financial position, results of operations and cash flows.
Management has a system of internal controls designed to provide
reasonable assurance that the financial statements are accurate and
complete in all material respects. This is supported by an internal audit
group that reports to the Audit Committee, and includes communication
with employees about policies for ethical business conduct.
Management believes that the internal controls provide reasonable
assurance that our financial records are reliable and form a proper
basis for preparing the financial statements, and that our assets are
properly accounted for and safeguarded.
112
BCE Inc.
2016 AnnuAl RepoRt
Consolidated financial statements Report of independent registered public accounting firm
To the Board of Directors and Shareholders of BCE Inc.
OPINION
In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of BCE Inc. and subsidiaries
as at December 31, 2016 and December 31, 2015, and their financial
performance and their cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
OTHER MATTER
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the Company’s
internal control over financial reporting as of December 31, 2016, based
on the criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 2, 2017 expressed
an unqualified opinion on the Company’s internal control over financial
reporting.
/s/ Deloitte LLP (1)
Montréal, Canada
March 2, 2017
(1) CPA auditor, CA, public accountancy permit No. A104630
We have audited the accompanying consolidated financial statements
of BCE Inc. and subsidiaries (the “Company”), which comprise the
consolidated statements of financial position as at December 31, 2016
and December 31, 2015, and the consolidated income statements,
consolidated statements of comprehensive income, consolidated
statements of changes in equity, and consolidated statements of cash
flows for the years then ended, and a summary of significant
accounting policies and other explanatory information.
MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED
FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the
International Accounting Standards Board, and for such internal
control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In
making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinion.
BCE Inc.
2016 AnnuAl RepoRt 113
Consolidated financial statements Consolidated income statements
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT SHARE AMOUNTS)
Operating revenues
Operating costs
Severance, acquisition and other costs
Depreciation
Amortization
Finance costs
Interest expense
Interest on post-employment benefit obligations
Other income (expense)
Income taxes
Net earnings
Net earnings attributable to:
Common shareholders
Preferred shareholders
Non-controlling interest
Net earnings
Net earnings per common share – basic and diluted
Average number of common shares outstanding – basic (millions)
Consolidated statements of comprehensive income
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS)
Net earnings
Other comprehensive (loss) income, net of income taxes
Items that will be subsequently reclassified to net earnings
Net change in value of available-for-sale (AFS) financial assets, net of income taxes
of nil for 2016 and 2015
Net change in value of derivatives designated as cash flow hedges, net of income taxes
of $24 million and ($2) million for 2016 and 2015, respectively
Items that will not be reclassified to net earnings
Actuarial (losses) gains on post-employment benefit plans, net of income taxes
of $71 million and ($161) million for 2016 and 2015, respectively
Other comprehensive (loss) income
Total comprehensive income
Total comprehensive income attributable to:
Common shareholders
Preferred shareholders
Non-controlling interest
Total comprehensive income
NOTE
4
4, 5
4, 6
4, 13
4, 14
7
22
8
9
29
10
NOTE
22
29
2016
21,719
(12,931)
(135)
(2,877)
(631)
(888)
(81)
21
(1,110)
3,087
2,894
137
56
3,087
3.33
869.1
2016
3,087
(7)
(68)
(191)
(266)
2,821
2,630
137
54
2,821
2015
21,514
(12,963)
(446)
(2,890)
(530)
(909)
(110)
(12)
(924)
2,730
2,526
152
52
2,730
2.98
847.1
2015
2,730
23
1
429
453
3,183
2,977
152
54
3,183
114
BCE Inc.
2016 AnnuAl RepoRt
Consolidated financial statements Consolidated statements of financial position
(IN MILLIONS OF CANADIAN DOLLARS)
NOTE
DECEMBER 31, 2016
DECEMBER 31, 2015
ASSETS
Current assets
Cash
Cash equivalents
Trade and other receivables
Inventory
Prepaid expenses
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Investments in associates and joint ventures
Other non-current assets
Goodwill
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade payables and other liabilities
Interest payable
Dividends payable
Current tax liabilities
Debt due within one year
Total current liabilities
Non-current liabilities
Long-term debt
Deferred tax liabilities
Post-employment benefit obligations
Other non-current liabilities
Total non-current liabilities
Total liabilities
Commitments and contingencies
EQUITY
Equity attributable to BCE shareholders
Preferred shares
Common shares
Contributed surplus
Accumulated other comprehensive income
Deficit
Total equity attributable to BCE shareholders
Non-controlling interest
Total equity
Total liabilities and equity
11
12
13
14
9
3, 15
16
17
18
19
20
9
22
23
27
25
25
25
29
603
250
2,979
403
420
200
4,855
22,346
11,998
89
852
1,010
8,958
45,253
50,108
4,326
156
617
122
4,887
10,108
16,572
2,192
2,105
1,277
22,146
32,254
4,004
18,370
1,160
46
(6,040)
17,540
314
17,854
50,108
100
513
3,009
416
393
377
4,808
21,630
11,176
89
1,119
794
8,377
43,185
47,993
4,287
148
576
86
4,895
9,992
15,390
1,824
2,038
1,420
20,672
30,664
4,004
18,100
1,150
119
(6,350)
17,023
306
17,329
47,993
BCE Inc.
2016 AnnuAl RepoRt 115
Consolidated financial statements Consolidated statements of changes in equity
FOR THE YEAR ENDED DECEMBER 31, 2016
(IN MILLIONS OF CANADIAN DOLLARS)
NOTE
PREFERRED
SHARES
COMMON
SHARES
ATTRIBUTABLE TO BCE SHAREHOLDERS
ACCUMU-
LATED
OTHER
COMPRE-
HENSIVE
(LOSS)
INCOME
CONTRI-
BUTED
SURPLUS
DEFICIT
TOTAL
NON-
CONTROL-
LING
INTEREST
TOTAL
EQUITY
Balance at January 1, 2016
4,004
18,100
1,150
119
(6,350)
17,023
306
17,329
Net earnings
Other comprehensive loss
Total comprehensive (loss) income
Common shares issued under employee
stock option plan
Common shares issued under dividend
reinvestment plan
Common shares issued under employee
savings plan
Other share-based compensation
Dividends declared on BCE common
and preferred shares
Dividends declared by subsidiaries
to non-controlling interest
25
25
25
–
–
–
–
–
–
–
–
–
–
–
–
104
38
128
–
–
–
–
–
–
(6)
–
–
16
–
–
–
(73)
(73)
3,031
3,031
(191)
(264)
2,840
2,767
–
–
–
–
–
–
–
–
–
(19)
98
38
128
(3)
(2,511)
(2,511)
–
–
Balance at December 31, 2016
4,004
18,370
1,160
46
(6,040)
17,540
56
(2)
54
–
–
–
–
–
3,087
(266)
2,821
98
38
128
(3)
(2,511)
(46)
314
(46)
17,854
FOR THE YEAR ENDED DECEMBER 31, 2015
(IN MILLIONS OF CANADIAN DOLLARS)
NOTE
PREFERRED
SHARES
COMMON
SHARES
ATTRIBUTABLE TO BCE SHAREHOLDERS
ACCUMU-
LATED
OTHER
COMPRE-
HENSIVE
INCOME
CONTRI-
BUTED
SURPLUS
Balance at January 1, 2015
4,004
16,717
1,141
Net earnings
Other comprehensive income
Total comprehensive income
Common shares issued under employee
stock option plan
Common shares issued under employee
savings plan
Other share-based compensation
Dividends declared on BCE common
and preferred shares
Dividends declared by subsidiaries
to non-controlling interest
Common shares issued under bought
deal offering
Common shares issued for the acquisition
of Glentel Inc.
25
25
25
3, 25
–
–
–
–
–
–
–
–
–
–
–
–
–
96
128
–
–
–
863
296
–
–
–
(7)
–
16
–
–
–
–
97
–
22
22
–
–
–
–
–
–
–
DEFICIT
TOTAL
NON-
CONTROL-
LING
INTEREST
TOTAL
EQUITY
(7,013)
14,946
293
15,239
2,678
429
3,107
–
–
(53)
2,678
451
3,129
89
128
(37)
(2,365)
(2,365)
52
2
54
–
–
–
–
2,730
453
3,183
89
128
(37)
(2,365)
–
–
(41)
(41)
(26)
837
–
296
–
–
837
296
Balance at December 31, 2015
4,004
18,100
1,150
119
(6,350)
17,023
306
17,329
116
BCE Inc.
2016 AnnuAl RepoRt
Consolidated financial statements Consolidated statements of cash flows
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS)
Cash flows from operating activities
Net earnings
Adjustments to reconcile net earnings to cash flows from operating activities
NOTE
2016
2015
3,087
2,730
Severance, acquisition and other costs
Depreciation and amortization
Post-employment benefit plans cost
Net interest expense
Gains on investments
Income taxes
Contributions to post-employment benefit plans
Payments under other post-employment benefit plans
Severance and other costs paid
Interest paid
Income taxes paid (net of refunds)
Acquisition and other costs paid
Net change in operating assets and liabilities
Cash flows from operating activities
Cash flows used in investing activities
Capital expenditures
Business acquisitions
Business dispositions
Decrease in investments
Acquisition of spectrum licences
Loan to related party
Other investing activities
Cash flows used in investing activities
Cash flows used in financing activities
Increase in notes payable
Issue of long-term debt
Repayment of long-term debt
Issue of common shares
Common shares issuance cost
Repurchase of shares for settlement of share-based payments
Cash dividends paid on common shares
Cash dividends paid on preferred shares
Cash dividends paid by subsidiaries to non-controlling interest
Other financing activities
Cash flows used in financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Net (decrease) increase in cash equivalents
Cash equivalents at beginning of year
Cash equivalents at end of year
6
13, 14
22
8
9
22
22
4
3
3
14
3
20
20
25
25
26
135
3,508
305
875
(58)
1,110
(725)
(76)
(231)
(882)
(565)
(126)
286
446
3,420
391
900
(72)
924
(566)
(75)
(190)
(911)
(672)
(292)
241
6,643
6,274
(3,771)
(404)
18
107
(1)
(517)
(16)
(3,626)
(311)
409
11
(535)
–
(62)
(4,584)
(4,114)
991
2,244
(2,516)
99
–
(106)
(2,305)
(126)
(46)
(54)
(1,819)
503
100
603
(263)
513
250
76
1,498
(2,084)
952
(35)
(138)
(2,169)
(150)
(41)
(22)
(2,113)
(42)
142
100
89
424
513
BCE Inc.
2016 AnnuAl RepoRt 117
Consolidated financial statements Notes to consolidated financial statements
We, us, our, BCE and the company mean, as the context may require, either BCE Inc. or, collectively, BCE Inc., Bell Canada, their subsidiaries,
joint arrangements and associates.
Note 1 Corporate information
BCE is incorporated and domiciled in Canada. BCE’s head office is
located at 1, Carrefour Alexander-Graham-Bell, Verdun, Québec,
Canada. BCE is a telecommunications and media company providing
wireless, wireline, Internet and television (TV) services to residential,
business and wholesale customers in Canada. Our Bell Media segment
provides conventional, specialty and pay TV, digital media, radio
broadcasting services and out-of-home (OOH) advertising services
to customers nationally across Canada. The consolidated financial
statements (financial statements) were approved by BCE’s board of
directors on March 2, 2017.
Note 2 Significant accounting policies
a) Basis of presentation
The financial statements were prepared in accordance with
International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB). The financial
statements have been prepared on a historical cost basis, except for
certain financial instruments that are measured at fair value as
described in our accounting policies.
b) Basis of consolidation
We consolidate the financial statements of all of our subsidiaries.
Subsidiaries are entities we control, where control is achieved when
the company is exposed or has the right to variable returns from its
involvement with the investee and has the current ability to direct the
activities of the investee that significantly affect the investee’s returns.
The results of subsidiaries acquired during the year are consolidated
from the date of acquisition and the results of subsidiaries sold during
the year are deconsolidated from the date of disposal. Where
c) Revenue recognition
We recognize revenues from the sale of products or the rendering of
services when they are earned; specifically when all the following
conditions are met:
• the significant risks and rewards of ownership are transferred to
customers and we retain neither continuing managerial
involvement nor effective control
• there is clear evidence that an arrangement exists
• the amount of revenues and related costs can be
measured reliably
• it is probable that the economic benefits associated with the
transaction will flow to the company
In particular, we recognize:
• fees for local, long distance and wireless services when we
provide the services
• other fees, such as network access fees, licence fees, hosting fees,
maintenance fees and standby fees over the term of the contract
• subscriber revenues when customers receive the service
All amounts are in millions of Canadian dollars, except where noted.
FUNCTIONAL CURRENCY
The financial statements are presented in Canadian dollars, the
company’s functional currency.
necessary, adjustments are made to the financial statements of
acquired subsidiaries to conform their accounting policies to ours. All
intercompany transactions, balances, income and expenses are
eliminated on consolidation.
Changes in BCE’s ownership interest in a subsidiary that do not result
in a change of control are accounted for as equity transactions, with
no effect on net earnings or on other comprehensive (loss) income.
• revenues from the sale of equipment when the equipment is
delivered and accepted by customers
• revenues on long-term contracts as services are provided,
equipment is delivered and accepted, and contract milestones
are met
• advertising revenue, net of agency commissions, when
advertisements are aired on radio or TV, posted on our website or
appear on the company’s advertising panels and street furniture
We measure revenues at the fair value of the arrangement
consideration. We record payments we receive in advance, including
upfront non-refundable payments, as deferred revenues until we
provide the service or deliver the product to customers. Deferred
revenues are presented in Trade payables and other liabilities or in
Other non-current liabilities in the consolidated statements of financial
position (statements of financial position).
Revenues are reduced for customer rebates and allowances and
exclude sales and other taxes we collect from our customers.
We expense subscriber acquisition costs when the related services
are activated.
118
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements MULTIPLE-ELEMENT ARRANGEMENTS
We enter into arrangements that may include the sale of a number
of products and services together, primarily to our wireless and
business customers. When two or more products or services have
value to our customers on a stand-alone basis, we separately account
for each product or service according to the methods previously
described. The total price to the customer is allocated to each product
or service based on its relative fair value. When an amount allocated
to a delivered item is contingent upon the delivery of additional items
or meeting specified performance conditions, the amount allocated
to that delivered item is limited to the non-contingent amount.
If the conditions to account for each product or service separately
are not met, we recognize revenues proportionately over the term of
the sale agreement.
SUBCONTRACTED SERVICES
We may enter into arrangements with subcontractors and others who
provide services to our customers. When we act as the principal in
these arrangements, we recognize revenues based on the amounts
billed to our customers. Otherwise, we recognize the net amount that
we retain as revenues.
d) Share-based payments
Our share-based payment arrangements include stock options,
restricted share units and performance share units (RSUs/PSUs),
deferred share units (DSUs), an employee savings plan (ESP) and a
deferred share plan (DSP).
STOCK OPTIONS
We use a fair value-based method to measure the cost of our employee
stock options, based on the number of stock options that are expected
to vest. We recognize compensation expense in Operating costs in
the consolidated income statements (income statements).
Compensation expense is adjusted for subsequent changes in
management’s estimate of the number of stock options that are
expected to vest.
We credit contributed surplus for stock option expense recognized
over the vesting period. When stock options are exercised, we credit
share capital for the amount received and the amounts previously
credited to contributed surplus.
RSUs/PSUs
For each RSU/PSU granted, we recognize compensation expense in
Operating costs in the income statements, equal to the market value
of a BCE common share at the date of grant and based on the number
of RSUs/PSUs expected to vest, recognized over the term of the vesting
period, with a corresponding credit to contributed surplus. Additional
RSUs/PSUs are issued to reflect dividends declared on the
common shares.
Compensation expense is adjusted for subsequent changes in
management’s estimate of the number of RSUs/PSUs that are expected
to vest. The effect of these changes is recognized in the period of the
change. Upon settlement of the RSUs/PSUs, any difference between
the cost of shares purchased on the open market and the amount
credited to contributed surplus is reflected in the deficit. Vested RSUs/
PSUs are settled in BCE common shares, DSUs, or a combination thereof.
DSUs
If compensation is elected to be taken in DSUs, we issue DSUs equal
to the fair value of the services received. Additional DSUs are issued
to reflect dividends declared on the common shares. DSUs are settled
in BCE common shares purchased on the open market following the
cessation of employment or when a director leaves the board. We
credit contributed surplus for the fair value of DSUs at the issue date.
Upon settlement of the DSUs, any difference between the cost of
shares purchased on the open market and the amount credited to
contributed surplus is reflected in the deficit.
ESP
We recognize our contributions to our ESP as compensation expense
in Operating costs in the income statements. Employer ESP contributions
accrue over a two-year vesting period. We credit contributed surplus
for the ESP expense recognized over the vesting period, based on
management’s estimate of the accrued contributions that are expected
to vest. Upon settlement of shares under the ESP, any difference
between the cost of shares purchased on the open market and the
amount credited to contributed surplus is reflected in the deficit.
DSP
For each deferred share granted under the DSP, we recognize
compensation expense in Operating costs in the income statements
equal to the market value of a BCE common share and based on the
number of deferred shares expected to vest, recognized over the
term of the vesting period. Additional deferred shares are issued to
reflect dividends declared on the common shares.
Compensation expense is adjusted for subsequent changes in the
market value of BCE common shares and any change in management’s
estimate of the number of deferred shares that are expected to vest.
The cumulative effect of any change in value is recognized in the
period of the change. Participants have the option to receive either
BCE common shares or a cash equivalent for each vested deferred
share upon qualifying for payout under the terms of the grant.
e) Income and other taxes
Current and deferred income tax expense is recognized in the income
statements, except to the extent that the expense relates to items
recognized in other comprehensive (loss) income or directly in equity.
A current or non-current tax asset (liability) is the estimated tax
receivable (payable) on taxable earnings for the current or past
periods. We also record future tax liabilities, which are included in
Other non-current liabilities in the statements of financial position.
We use the liability method to account for deferred tax assets and
liabilities, which arise from:
• temporary differences between the carrying amount of assets
and liabilities recognized in the statements of financial position
and their corresponding tax bases
• the carryforward of unused tax losses and credits, to the extent
they can be used in the future
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2016 AnnuAl RepoRt 119
Notes to consolidated financial statements Deferred tax assets and liabilities are calculated at the tax rates that
are expected to apply when the asset or liability is recovered or settled.
Both our current and deferred tax assets and liabilities are calculated
using tax rates that have been enacted or substantively enacted at
the reporting date.
Deferred taxes are provided on temporary differences arising from
investments in subsidiaries, joint arrangements and associates, except
where we control the timing of the reversal of the temporary difference
and it is probable that the temporary difference will not reverse in
the foreseeable future.
Tax liabilities are, where permitted, offset against tax assets within
the same taxable entity and tax jurisdiction.
INVESTMENT TAX CREDITS (ITCs), OTHER TAX CREDITS
AND GOVERNMENT GRANTS
We recognize ITCs, other tax credits and government grants given on
eligible expenditures when it is reasonably assured that they will be
realized. They are presented as part of Trade and other receivables
when they are expected to be utilized in the next year. We use the
cost reduction method to account for ITCs and government grants,
under which the credits are applied against the expense or asset to
which the ITC or government grant relates.
f) Cash equivalents
Cash equivalents are comprised of highly liquid investments with original maturities of three months or less from the date of purchase.
g) Securitization of trade receivables
Proceeds on the securitization of trade receivables are recognized as a collateralized borrowing as we do not transfer control and substantially
all the risks and rewards of ownership to another entity.
h) Inventory
We measure inventory at the lower of cost and net realizable value.
Inventory includes all costs to purchase, convert and bring the
inventories to their present location and condition. We determine cost
using specific identification for major equipment held for resale and
i) Property, plant and equipment
We record property, plant and equipment at historical cost. Historical
cost includes expenditures that are attributable directly to the
acquisition or construction of the asset, including the purchase cost,
and labour.
Borrowing costs are capitalized for qualifying assets if the time to
build or develop is in excess of one year at a rate that is based on our
weighted average interest rate on our outstanding long-term debt.
Gains or losses on the sale or retirement of property, plant and
equipment are recorded in Other income (expense) in the
income statements.
LEASES
Leases of property, plant and equipment are recognized as finance
leases when we obtain substantially all the risks and rewards of
ownership of the underlying assets. At the inception of the lease, we
record an asset together with a corresponding long-term lease liability,
at the lower of the fair value of the leased asset or the present value
of the minimum future lease payments. If there is reasonable certainty
the weighted average cost formula for all other inventory. We maintain
inventory valuation reserves for inventory that is slow-moving or
potentially obsolete, calculated using an inventory aging analysis.
that the lease transfers ownership of the asset to us by the end of the
lease term, the asset is amortized over its useful life. Otherwise, the
asset is amortized over the shorter of its useful life and the lease term.
The long-term lease liability is measured at amortized cost using the
effective interest method.
All other leases are classified as operating leases. We recognize
operating lease expense in Operating costs in the income statements
on a straight-line basis over the term of the lease.
ASSET RETIREMENT OBLIGATIONS (AROs)
We initially measure and record AROs at management’s best estimate
using a present value methodology, adjusted subsequently for any
changes in the timing or amount of the cash flows and changes in
discount rates. We capitalize asset retirement costs as part of the
related assets and amortize them into earnings over time. We also
increase the ARO and record a corresponding amount in interest
expense to reflect the passage of time.
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2016 AnnuAl RepoRt
Notes to consolidated financial statements Intangible assets
j)
FINITE-LIFE INTANGIBLE ASSETS
Finite-life intangible assets are recorded at cost less accumulated
amortization, and accumulated impairment losses if any.
SOFTWARE
We record internal-use software at historical cost. Cost includes
expenditures that are attributable directly to the acquisition or
development of the software, including the purchase cost and labour.
Software development costs are capitalized when all the following
conditions are met:
• technical feasibility can be demonstrated
• management has the intent and the ability to complete the asset
for use or sale
• it is probable that economic benefits will be generated
• costs attributable to the asset can be measured reliably
CUSTOMER RELATIONSHIPS
Customer relationship assets are acquired through business
combinations and are recorded at fair value at the date of acquisition.
PROGRAM AND FEATURE FILM RIGHTS
We account for program and feature film rights as intangible assets
when these assets are acquired for the purpose of broadcasting.
Program and feature film rights, which include producer advances
and licence fees paid in advance of receipt of the program or film,
k) Depreciation and amortization
We depreciate property, plant and equipment and amortize finite-life
intangible assets on a straight-line basis over their estimated useful
lives. We review our estimates of useful lives on an annual basis and
adjust depreciation and amortization on a prospective basis, as
required. Land and assets under construction or development are
not depreciated.
are stated at acquisition cost less accumulated amortization, and
accumulated impairment losses if any. Programs and feature films
under licence agreements are recorded as assets for rights acquired
and Iiabilities for obligations incurred when:
• the company receives a broadcast master and the cost is known
or reasonably determinable for new program and feature
film licences
• the licence term commences for licence period extensions or
syndicated programs
Programs and feature films are classified as non-current assets with
related liabilities classified as current or non-current, based on the
payment terms. Amortization of program and feature film rights is
recorded in Operating costs in the income statements.
INDEFINITE-LIFE INTANGIBLE ASSETS
Brand assets, mainly comprised of the Bell and Bell Media brands, and
broadcast licences are acquired through business combinations and
are recorded at fair value at the date of acquisition, less accumulated
impairment losses, if any. Wireless spectrum licences are recorded at
acquisition cost, including borrowing costs when the time to build or
develop the related network is in excess of one year. Borrowing costs
are calculated at a rate that is based on our weighted average interest
rate on our outstanding long-term debt.
Currently there are no legal, regulatory, competitive or other factors
that limit the useful lives of our brands or spectrum licences.
Property, plant and equipment
Network infrastructure and equipment
Buildings
Finite-life intangible assets
Software
Customer relationships
Program and feature film rights
ESTIMATED USEFUL LIFE
2 to 40 years
3 to 50 years
2 to 12 years
3 to 26 years
Up to 5 years
Investments in associates and joint arrangements
l)
Our financial statements incorporate our share of the results of our
associates and joint ventures using the equity method of accounting,
except when the investment is classified as held for sale. Equity income
from investments is recorded in Other income (expense) in the
income statements.
Investments in associates and joint ventures are recognized initially
at cost and adjusted thereafter to include the company’s share of
income or loss and comprehensive income on an after-tax basis.
Investments are reviewed for impairment at each reporting period
and we compare their recoverable amount to their carrying amount
when there is an indication of impairment.
We recognize our share of the assets, liabilities, revenues and expenses
of joint operations in accordance with the related contractual
agreements.
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2016 AnnuAl RepoRt 121
Notes to consolidated financial statements m) Business combinations and goodwill
Business combinations are accounted for using the acquisition method.
The consideration transferred in a business combination is measured
at fair value at the date of acquisition. Acquisition-related transaction
costs are expensed as incurred and recorded in Severance, acquisition
and other costs in the income statements.
Identifiable assets and liabilities, including intangible assets, of acquired
businesses are recorded at their fair values at the date of acquisition.
When we acquire control of a business, any previously-held equity
interest is remeasured to fair value and any gain or loss on
remeasurement is recognized in Other income (expense) in the income
statements. The excess of the purchase consideration and any
n) Impairment of non-financial assets
Goodwill and indefinite-life intangible assets are tested for impairment
annually or when there is an indication that the asset may be impaired.
Property, plant and equipment and finite-life intangible assets are
tested for impairment if events or changes in circumstances, assessed
at each reporting period, indicate that their carrying amount may not
be recoverable. For the purpose of impairment testing, assets other
than goodwill are grouped at the lowest level for which there are
separately identifiable cash inflows.
Impairment losses are recognized and measured as the excess of the
carrying value of the assets over their recoverable amount. An asset’s
recoverable amount is the higher of its fair value less costs of disposal
and its value in use. Previously recognized impairment losses, other
than those attributable to goodwill, are reviewed for possible reversal
at each reporting date and, if the asset’s recoverable amount has
increased, all or a portion of the impairment is reversed.
GOODWILL IMPAIRMENT TESTING
We perform an annual test for goodwill impairment in the fourth
quarter for each of our cash generating units (CGUs) or groups of
CGUs to which goodwill is allocated, and whenever there is an
indication that goodwill might be impaired.
o) Financial instruments
TRADE AND OTHER RECEIVABLES
Trade and other receivables, which include trade receivables and
other short-term receivables, are measured at amortized cost using
the effective interest method, net of any allowance for doubtful
accounts. An allowance for doubtful accounts is established based
on individually significant exposures or on historical trends. Factors
considered when establishing an allowance include current economic
conditions, historical information and the reason for the delay in
payment. Amounts considered uncollectible are written off and
recognized in Operating costs in the income statements.
AVAILABLE-FOR-SALE (AFS) FINANCIAL ASSETS
Our portfolio investments in equity securities are classified as AFS
and are presented in our statements of financial position as Other
non-current assets. They have been designated as such based on
management’s intentions or because they are not classified in any
other categories. These securities are recorded at fair value on the
date of acquisition, including related transaction costs, and are
previously-held equity interest over the fair value of identifiable net
assets acquired is recorded as Goodwill in the statements of financial
position. If the fair value of identifiable net assets acquired exceeds
the purchase consideration and any previously-held equity interest,
the difference is recognized in Other income (expense) in the income
statements immediately as a bargain purchase gain.
Changes in our ownership interest in subsidiaries that do not result
in a loss of control are accounted for as equity transactions. Any
difference between the change in the carrying amount of non-
controlling interest (NCI) and the consideration paid or received is
attributed to owner’s equity.
A CGU is the smallest identifiable group of assets that generates cash
inflows that are independent of the cash inflows from other assets or
groups of assets.
We identify any potential impairment by comparing the carrying
value of a CGU or group of CGUs to its recoverable amount. The
recoverable amount of a CGU or group of CGUs is the higher of its
fair value less costs of disposal and its value in use. Both fair value
less costs of disposal and value in use are based on estimates of
discounted future cash flows or other valuation methods. Cash flows
are projected based on past experience, actual operating results and
business plans. When the recoverable amount of a CGU or group of
CGUs is less than its carrying value, the recoverable amount is
determined for its identifiable assets and liabilities. The excess of the
recoverable amount of the CGU or group of CGUs over the total of
the amounts assigned to its assets and liabilities is the recoverable
amount of goodwill.
An impairment charge is recognized in Other income (expense) in the
income statements for any excess of the carrying value of goodwill
over its recoverable amount. For purposes of impairment testing of
goodwill, BCE’s CGUs or groups of CGUs correspond to our reporting
segments as disclosed in Note 4, Segmented information.
adjusted to fair value at each reporting date. The corresponding
unrealized gains and losses are recorded in other comprehensive
(loss) income and are reclassified to Other income (expense) in the
income statements when realized or when an impairment is determined.
OTHER FINANCIAL LIABILITIES
Other financial liabilities, which include trade payables and accruals,
compensation payable, obligations imposed by the Canadian Radio-
television and Telecommunications Commission (CRTC), interest
payable and long-term debt, are recorded at amortized cost using
the effective interest method.
COSTS OF ISSUING DEBT AND EQUITY
The cost of issuing debt is included as part of long-term debt and is
accounted for at amortized cost using the effective interest method.
The cost of issuing equity is reflected in the consolidated statements
of changes in equity as a charge to the deficit.
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Notes to consolidated financial statements p) Derivative financial instruments
We use derivative financial instruments to manage interest rate risk,
foreign currency risk and cash flow exposures related to share-based
payment plans, capital expenditures, long-term debt instruments and
purchase commitments. We do not use derivative financial instruments
for speculative or trading purposes.
HEDGE ACCOUNTING
To qualify for hedge accounting, we document the relationship between
the derivative and the related identified risk exposure, and our risk
management objective and strategy. This includes associating each
derivative to a specific asset or liability, a specific firm commitment
or a specific anticipated transaction.
We assess the effectiveness of a derivative in managing an identified
risk exposure when hedge accounting is initially applied, and on an
ongoing basis thereafter. If a hedge becomes ineffective, we stop
using hedge accounting.
FAIR VALUE HEDGES
We enter into interest rate swaps to manage the effect of changes in
interest rates relating to fixed-rate long-term debt. These swaps
involve exchanging interest payments without exchanging the notional
amount on which the payments are based. We record the exchange
of payments as an adjustment to interest expense on the hedged
debt. We include the related net receivable or payable from
counterparties in Other current assets or Trade payables and other
liabilities for swaps due within one year and in Other non-current
assets or Other non-current liabilities for swaps that have a maturity
of more than one year. Changes in the fair value of these derivatives
and the related long-term debt are recognized in Other income
(expense) in the income statements and offset, unless a portion of the
hedging relationship is ineffective.
q) Post-employment benefit plans
DEFINED BENEFIT (DB) AND OTHER
POST-EMPLOYMENT BENEFIT (OPEB) PLANS
We maintain DB pension plans that provide pension benefits for certain
employees. Benefits are based on the employee’s length of service
and average rate of pay during the highest paid consecutive five
years of service. Most employees are not required to contribute to
the plans. Certain plans provide cost of living adjustments to help
protect the income of retired employees against inflation.
We are responsible for adequately funding our DB pension plans. We
make contributions to them based on various actuarial cost methods
permitted by pension regulatory bodies. Contributions reflect actuarial
assumptions about future investment returns, salary projections, future
service and life expectancy.
CASH FLOW HEDGES
We enter into cash flow hedges to mitigate foreign currency risk on
certain debt instruments and purchase commitments, as well as interest
rate risk related to future debt issuances. We use foreign currency
forward contracts to manage the exposure to anticipated transactions
denominated in foreign currencies.
Changes in the fair value of foreign currency forward contracts on
purchase commitments are recognized in our consolidated statements
of comprehensive income (statements of comprehensive income),
except for any ineffective portion, which is recognized immediately
in Other income (expense) in the income statements. Realized gains
and losses in Accumulated other comprehensive income are reclassified
to the income statements in the same periods as the corresponding
hedged items are recognized in earnings. Cash flow hedges that
mature within one year are included in Other current assets or Trade
payables and other liabilities, whereas hedges that have a maturity
of more than one year are included in Other non-current assets or
Other non-current liabilities.
We use cross currency basis swaps and foreign currency forward
contracts to manage our U.S. dollar borrowings under our unsecured
committed term credit facility and U.S. commercial paper program.
Changes in the fair value of these derivatives and the related
borrowings are recognized in Other income (expense) in the income
statements and offset, unless a portion of the hedging relationship
is ineffective.
DERIVATIVES USED AS ECONOMIC HEDGES
We use derivatives to manage cash flow exposures related to equity-
settled share-based payment plans and capital expenditures, equity
price risk related to a cash-settled share-based payment plan, and
interest rate risk related to preferred share dividend rate resets. As
these derivatives do not qualify for hedge accounting, the changes
in their fair value are recorded in the income statements in Operating
costs for derivatives used to hedge cash-settled share-based payments
and in Other income (expense) for other derivatives.
We provide OPEBs to some of our employees, including:
• healthcare and life insurance benefits during retirement, which
were phased out for new retirees over a ten-year period ending
on December 31, 2016. We do not fund most of these OPEB plans.
• other benefits, including workers’ compensation and medical
benefits to former or inactive employees, their beneficiaries and
dependants, from the time their employment ends until their
retirement starts, under certain circumstances
We accrue our obligations and related costs under post-employment
benefit plans, net of the fair value of the benefit plan assets. Pension
and OPEB costs are determined using:
• the projected unit credit method, prorated on years of service,
which takes into account future pay levels
• a discount rate based on market interest rates of high-quality
corporate fixed income investments with maturities that match
the timing of benefits expected to be paid under the plans
• management’s best estimate of pay increases, retirement ages of
employees, expected healthcare costs and life expectancy
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2016 AnnuAl RepoRt 123
Notes to consolidated financial statements We value post-employment benefit plan assets at fair value using
current market values.
Post-employment benefit plans current service cost is included in
Operating costs in the income statements. Interest on our post-
employment benefit assets and obligations is recognized in Finance
costs in the income statements and represents the accretion of interest
on the assets and obligations under our post-employment benefit
plans. The interest rate is based on market conditions that existed at
the beginning of the year. Actuarial gains and losses for all post-
employment benefit plans are recorded in other comprehensive (loss)
income in the period in which they occur and are recognized
immediately in the deficit.
December 31 is the measurement date for our significant post-
employment benefit plans. Our actuaries perform a valuation at least
every three years to determine the actuarial present value of the
accrued DB pension plan and OPEB obligations. The most recent
actuarial valuation of our significant pension plans was as at
December 31, 2015.
DEFINED CONTRIBUTION (DC) PENSION PLANS
We maintain DC pension plans that provide certain employees with
benefits. Under these plans, we are responsible for contributing a
predetermined amount to an employee’s retirement savings, based
on a percentage of the employee’s salary.
We recognize a post-employment benefit plans service cost for DC
pension plans when the employee provides service to the company,
essentially coinciding with our cash contributions.
Generally, new employees can participate only in the DC pension plans.
r) Provisions
Provisions are recognized when all the following conditions are met:
• the company has a present legal or constructive obligation
based on past events
• it is probable that an outflow of economic resources will be
required to settle the obligation
• the amount can be reasonably estimated
Provisions are measured at the present value of the estimated
expenditures expected to settle the obligation, if the effect of the time
value of money is material. The present value is determined using
current market assessments of the discount rate and risks specific to
the obligation. The obligation increases as a result of the passage of
time, resulting in interest expense which is recognized in Finance costs
in the income statements.
s) Estimates and key judgments
When preparing the financial statements, management makes
estimates and judgments relating to:
• reported amounts of revenues and expenses
• reported amounts of assets and liabilities
• disclosure of contingent assets and liabilities
We base our estimates on a number of factors, including historical
experience, current events and actions that the company may
undertake in the future, and other assumptions that we believe are
reasonable under the circumstances. By their nature, these estimates
and judgments are subject to measurement uncertainty and actual
results could differ. Our more significant estimates and judgments
are described below.
ESTIMATES
USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT
AND FINITE-LIFE INTANGIBLE ASSETS
Property, plant and equipment represent a significant proportion of
our total assets. Changes in technology or our intended use of these
assets, as well as changes in business prospects or economic and
industry factors, may cause the estimated useful lives of these assets
to change.
POST-EMPLOYMENT BENEFIT PLANS
The amounts reported in the financial statements relating to DB pension
plans and OPEBs are determined using actuarial calculations that are
based on several assumptions.
The actuarial valuation uses management’s assumptions for, among
other things, the discount rate, life expectancy, the rate of compensation
increase, trends in healthcare costs and expected average remaining
years of service of employees.
The most significant assumptions used to calculate the net post-
employment benefit plans cost are the discount rate and life expectancy.
The discount rate is based on the yield on long-term, high-quality
corporate fixed income investments, with maturities matching the
estimated cash flows of the post-employment benefit plans. Life
expectancy is based on publicly available Canadian mortality tables
and is adjusted for the company’s specific experience.
IMPAIRMENT OF NON-FINANCIAL ASSETS
We make a number of estimates when calculating recoverable amounts
using discounted future cash flows or other valuation methods to test
for impairment. These estimates include the assumed growth rates
for future cash flows, the number of years used in the cash flow model
and the discount rate.
DEFERRED TAXES
The amount of deferred tax assets is estimated with consideration
given to the timing, sources and amounts of future taxable income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain financial instruments, such as investments in equity securities,
derivative financial instruments and certain elements of borrowings,
are carried in the statements of financial position at fair value, with
changes in fair value reflected in the income statements and the
statements of comprehensive income. Fair values are estimated by
reference to published price quotations or by using other valuation
techniques that may include inputs that are not based on observable
market data, such as discounted cash flows and earnings multiples.
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Notes to consolidated financial statements CONTINGENCIES
In the ordinary course of business, we become involved in various
claims and legal proceedings seeking monetary damages and other
relief. Pending claims and legal proceedings represent a potential
cost to our business. We estimate the amount of a loss by analyzing
potential outcomes and assuming various litigation and settlement
strategies, based on information that is available at the time.
ONEROUS CONTRACTS
A provision for onerous contracts is recognized when the unavoidable
costs of meeting our obligations under a contract exceed the expected
benefits to be received under the contract. The provision is measured
at the present value of the lower of the expected cost of terminating
the contract and the expected net cost of completing the contract.
JUDGMENTS
POST-EMPLOYMENT BENEFIT PLANS
The determination of the discount rate used to value our post-
employment benefit obligations requires judgment. The rate is set by
reference to market yields of high-quality corporate fixed income
investments at the beginning of each fiscal year. Significant judgment
is required when setting the criteria for fixed income investments to
be included in the population from which the yield curve is derived.
The most significant criteria considered for the selection of investments
include the size of the issue and credit quality, along with the
identification of outliers, which are excluded.
INCOME TAXES
The calculation of income taxes requires judgment in interpreting tax
rules and regulations. There are transactions and calculations for
which the ultimate tax determination is uncertain. Our tax filings are
also subject to audits, the outcome of which could change the amount
of current and deferred tax assets and liabilities.
Management judgment is used to determine the amounts of deferred
tax assets and liabilities and future tax liabilities to be recognized. In
particular, judgment is required when assessing the timing of the
reversal of temporary differences to which future income tax rates
are applied.
MULTIPLE ELEMENT ARRANGEMENTS
Determining the amounts of revenue to be recognized for multiple
element arrangements requires judgment to establish the separately
identifiable components and the allocation of the total price between
those components.
CGUs
The determination of CGUs or groups of CGUs for the purpose of
annual impairment testing requires judgment.
CONTINGENCIES
The determination of whether a loss is probable from claims and legal
proceedings and whether an outflow of resources is likely
requires judgment.
t) Change in accounting estimate
In 2016, as part of our ongoing annual review of property, plant and equipment and finite-life intangible assets, and to better reflect their
useful lives, we increased the estimate of useful lives of certain assets. The changes have been applied prospectively effective January 1, 2016
and did not have a significant impact on our financial statements.
u) Adoption of amended accounting standards
As required, effective January 1, 2016, we adopted the following amended accounting standards on a prospective basis, none of which had
a significant impact on our financial statements.
Clarifies that a revenue-based approach to calculate depreciation and amortization generally is not
appropriate as it does not reflect the consumption of the economic benefits embodied in the related asset.
IMPACT
This amendment did
not have a significant
impact on our
financial statements.
STANDARD
DESCRIPTION
Amendments to
International Accounting
Standard (IAS) 16 –
Property, Plant and
Equipment and
IAS 38 – Intangible Assets
Amendments to
IFRS 11 – Joint
Arrangements
Provides guidance on the accounting for acquisitions of interests in joint operations in which the activity
constitutes a business, as defined in IFRS 3 – Business Combinations. The amended standard requires the
acquirer to apply all of the principles on accounting for business combinations in IFRS 3 and other IFRSs
except for any principles that conflict with IFRS 11.
This amendment did
not have a significant
impact on our
financial statements.
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2016 AnnuAl RepoRt 125
Notes to consolidated financial statements v) Future changes to accounting standards
The following new or amended standards issued by the IASB have an effective date after December 31, 2016 and have not yet been adopted
by BCE.
STANDARD
DESCRIPTION
IMPACT
Additional disclosures will be provided in the notes
to our financial statements if required.
IFRS 15 will principally affect the timing of revenue
recognition, how we classify revenues between
product and service and how we account for costs
to obtain and fulfill a contract.
Under multiple-element arrangements, although the
total revenue recognized during the term of a
contract will be largely unaffected, the revenue
allocated to a delivered item will no longer be limited
to the non-contingent amount. This may accelerate
the recognition of revenue ahead of the associated
cash inflows and result in a corresponding contract
asset recorded on the balance sheet, to be realized
over the term of the customer contract.
We continue to make progress towards adoption
of IFRS 15 according to our detailed implementation
plan. Changes and enhancements to our existing
information technology systems, business processes,
and systems of internal control are being designed,
tested and implemented. A dedicated project team
that leverages key resources throughout the
company is also in place to effect the necessary
changes.
Throughout 2017, systems and processes will be put
in place to collect and compile the new data required
to reflect the impact of IFRS 15 on our 2018 financial
statements and key operating metrics and
determine the impact to our historical comparative
information. Accordingly, it is not yet possible to
make a reliable estimate of the impact of the new
standard on our financial statements. We expect that
the impact of the new standard will be most
pronounced in our Bell Wireless segment. While total
revenue recognized over the term of a customer
contract is not expected to change significantly,
revenue recognition will be accelerated for certain
customer contracts and a greater proportion of
revenue will be classified to product revenue.
The amendments to IFRS 2 are not expected to have
a significant impact on our financial statements.
EFFECTIVE DATE
Annual periods
beginning on or after
January 1, 2017,
applied prospectively.
Annual periods
beginning on or after
January 1, 2018,
using either a full
retrospective
approach for all
periods presented
in the period
of adoption or
a modified
retrospective
approach.
Annual periods
beginning on or after
January 1, 2018.
We are currently evaluating the impact of IFRS 9 on
our financial statements.
Annual periods
beginning on or after
January 1, 2018.
Amendments to
IAS 7 – Statement
of Cash Flows
IFRS 15 –
Revenue from Contracts
with Customers
Requires enhanced disclosures about changes in
liabilities arising from financing activities, including
changes from financing cash flows, changes arising
from obtaining or losing control of subsidiaries or
other businesses, the effect of changes in foreign
exchange rates and changes in fair values.
Establishes principles to record revenues from
contracts for the sale of goods or services, unless
the contracts are in the scope of IAS 17 – Leases or
other IFRSs. Under IFRS 15, revenue is recognized at
an amount that reflects the expected consideration
receivable in exchange for transferring goods
or services to a customer, applying the following
five steps:
1. Identify the contract with a customer
2. Identify the performance obligations in the
contract
3. Determine the transaction price
4. Allocate the transaction price to the performance
obligations in the contract
5. Recognize revenue when (or as) the entity
satisfies a performance obligation
The new standard also provides guidance relating
to principal versus agent relationships, licences
of intellectual property, contract costs and the
measurement and recognition of gains and losses
on the sale of certain non-financial assets such as
property and equipment. Additional disclosures will
also be required under the new standard.
Amendments to
IFRS 2 – Share-based
Payment
IFRS 9 –
Financial Instruments
Clarifies the classification and measurement of
cash-settled share-based payment transactions
that include a performance condition, share-based
payment transactions with a net settlement
feature for withholding tax obligations,
and modifications of a share-based payment
transaction from cash-settled to equity-settled.
Sets out the requirements for recognizing and
measuring financial assets, financial liabilities and
some contracts to buy and sell non-financial items.
IFRS 9 replaces IAS 39 – Financial Instruments:
Recognition and Measurement. The new standard
establishes a single classification and measurement
approach for financial assets that reflects the
business model in which they are managed and their
cash flow characteristics. It also provides guidance
on an entity’s own credit risk relating to financial
liabilities and has modified the hedge accounting
model to better link the economics of risk
management with its accounting treatment.
Additional disclosures will also be required under
the new standard.
126
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements STANDARD
DESCRIPTION
IMPACT
We are currently evaluating the impact of IFRS 16 on
our financial statements.
IFRS 16 – Leases
Eliminates the distinction between operating and
finance leases for lessees, requiring instead that
leases be capitalized by recognizing the present
value of the lease payments and showing them either
as lease assets (right-of-use assets) or together with
property, plant and equipment. If lease payments are
made over time, an entity recognizes a financial
liability representing its obligation to make future
lease payments. A depreciation charge for the lease
asset is recorded within operating costs and an
interest expense on the lease liability is recorded
within finance costs.
IFRS 16 does not require a lessee to recognize assets
and liabilities for short-term leases and leases of
low-value assets, nor does it substantially change
lease accounting for lessors.
EFFECTIVE DATE
Annual periods
beginning on or after
January 1, 2019,
using either a full
retrospective
approach for all
periods presented in
the period of adoption
or a modified
retrospective
approach, with early
adoption permitted
if an entity has
adopted IFRS 15.
Note 3 Business acquisitions and dispositions
2016
Acquisition of Q9 Networks Inc. (Q9)
On October 3, 2016, BCE acquired the remaining 64.6% of the issued
and outstanding shares of Q9 that it did not already own for a total
cash consideration of approximately $170 million.
Q9 is a Toronto-based data centre operator providing outsourced
hosting and other data solutions to Canadian business and government
customers. The acquisition supports BCE’s ability to compete against
domestic and international providers in the growing outsourced data
Cash consideration
Fair value of previously held interest in Q9 and favourable purchase option
Note receivable from Q9
Total cost to be allocated
Trade and other receivables
Other non-cash working capital
Property, plant and equipment
Finite-life intangible assets
Long-term debt
Deferred tax liabilities
Other non-current liabilities
Cash and cash equivalents
Fair value of net assets acquired
Goodwill (1)
services sector. Q9 is included in our Bell Wireline segment in our
financial statements.
The purchase price allocation includes certain provisional estimates,
in particular for property, plant and equipment and finite-life intangible
assets. The following table summarizes the fair value of the
consideration paid and the fair value assigned to each major class of
assets and liabilities.
TOTAL
170
131
517
818
19
(39)
311
267
(7)
(69)
(16)
466
12
478
340
(1) Goodwill arises principally from the assembled workforce, expected synergies and future growth. Goodwill is not deductible for tax purposes. The goodwill arising from the
transaction was allocated to our Bell Wireline group of CGUs.
In 2016, prior to the acquisition of Q9, BCE provided a loan of $517 million
to Q9 mainly for the repayment of certain of its debt.
A gain on investment of $12 million was recognized in Other income
(expense) in the income statements from remeasuring BCE’s previously
held equity interest in Q9 to its fair value.
Revenues of $29 million and net earnings of $2 million are included in
the income statements from the date of acquisition.
BCE’s consolidated operating revenues and net earnings for the year
ended December 31, 2016 would have been $21,801 million and
$3,038 million, respectively, had the Q9 acquisition occurred on
January 1, 2016. These proforma amounts reflect the elimination of
intercompany transactions and earnings related to our previously
held interest, the amortization of certain elements of the purchase
price allocation and related tax adjustments.
BCE Inc.
2016 AnnuAl RepoRt 127
Notes to consolidated financial statements National expansion of HBO and The Movie Network (TMN)
In Q1 2016, BCE completed a transaction with Corus Entertainment Inc.
(Corus) under which Corus waived its HBO content rights in Canada
and ceased operations of its Movie Central and Encore Avenue pay
TV services in Western and Northern Canada, thereby allowing Bell
Media to become the sole operator of HBO Canada nationally across
all platforms and to expand TMN into a national pay TV service. TMN
was successfully launched nationally on March 1, 2016. BCE paid to
Corus a total cash consideration of $218 million, of which $21 million
was paid in 2015.
The following table summarizes the fair value of the consideration paid and the fair value assigned to each major class of assets and liabilities.
Cash consideration
Finite-life intangible assets
Non-current assets
Current liabilities
Non-current liabilities
Fair value of net assets acquired
Goodwill (1)
TOTAL
218
8
1
(3)
(8)
(2)
220
(1) Goodwill arises principally from the ability to leverage media content and expected future growth. The amount of goodwill deductible for tax purposes is $163 million at a 7% annual
rate declining balance. The goodwill arising from the transaction was allocated to our Bell Media group of CGUs.
The transaction is part of our strategy to create, negotiate and deliver
premium TV programming to Canadian consumers across more
platforms on a national basis.
This transaction did not have a significant impact on our conso-
lidated operating revenues and net earnings for the year ended
December 31, 2016.
Acquisition of Cieslok Media Ltd. (Cieslok Media)
Subsequent to year end, on January 3, 2017, BCE acquired all of the
issued and outstanding common shares of Cieslok Media for a total
cash consideration of $161 million.
Cieslok Media specializes in large-format outdoor advertising in
key urban areas across Canada. This acquisition will contribute to
growing and strengthening our digital presence in OOH advertising.
Cieslok Media will be included in our Bell Media segment in our
financial statements.
The fair values of Cieslok Media’s assets and liabilities have not yet
been determined.
Proposed acquisition of Manitoba Telecom Services Inc. (MTS)
On May 2, 2016, BCE announced that it intends to acquire all of the
issued and outstanding common shares of MTS for a total consideration
of $3.1 billion, of which 45% will be paid in cash and the remaining 55%
through the issuance of approximately 28 million BCE common shares.
The transaction is valued at approximately $3.9 billion, including net
debt of approximately $0.8 billion. BCE will fund the cash component
of the transaction through debt financing. MTS shareholder approval
was obtained at a special meeting of shareholders held on June 23,
2016, and final court approval was obtained on June 29, 2016. On
December 20, 2016, the CRTC approved under the Broadcasting Act
the transfer of the broadcasting distribution undertaking licence held
by MTS to BCE. On February 15, 2017, Innovation, Science and Economic
Development Canada (ISED) and the Competition Bureau approved
the proposed acquisition of MTS with the result that BCE has now
obtained all necessary regulatory approvals to complete the
transaction. Subject to certain closing conditions and termination
rights, the transaction is expected to close on March 17, 2017. If the
transaction does not close under certain circumstances, BCE may be
liable to pay a break fee of $200 million to MTS.
The acquisition of MTS will allow us to reach more Canadians through
the expansion of our wireless and wireline broadband network while
supporting our goal of being recognized by customers as Canada’s
leading communications company.
BCE has agreed to divest approximately one-quarter of MTS’ post-
paid subscribers and 13 retail locations to TELUS Corporation through
one or more of its subsidiaries (TELUS) following the completion of the
acquisition of MTS for total proceeds of approximately $300 million,
subject to final adjustments. Subject to certain closing conditions
and termination rights, this transaction is expected to close on April 1,
2017. The $75 million break fee that was payable by BCE to TELUS if
the transaction with TELUS did not close under certain circumstances
is no longer applicable given the receipt of all regulatory approvals.
BCE has also agreed to transfer to Xplornet Communications Inc.
(Xplornet) a total of 40 Megahertz (MHz) of 700 MHz, advanced wireless
services-1 and 2500 MHz wireless spectrum currently held by MTS,
which has also been approved by ISED, 24,700 wireless customers
once Xplornet launches its mobile wireless service, and 6 retail outlets.
Xplornet will receive transitional remedy network access from BCE
and MTS in urban areas of Manitoba for three years and other
operational benefits as Xplornet builds out its own network in Manitoba.
Subject to certain closing conditions and termination rights, this
transaction is expected to close on March 17, 2017.
MTS is an information and communications technology provider
offering wireless, Internet, TV, phone services, security systems and
information solutions including unified cloud and managed services
to residential and business customers in Manitoba.
128
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements 2015
Glentel
On May 20, 2015, BCE completed the acquisition of all of Glentel Inc.’s
(Glentel) issued and outstanding common shares for a total
consideration of $592 million, of which $296 million ($284 million, net
of cash on hand) was paid in cash and the balance through the issuance
of 5,548,908 BCE common shares. Immediately following the closing
of the acquisition, BCE repaid Glentel’s outstanding debt in the amount
of approximately $112 million and contributed $53 million in exchange
for additional Glentel common shares.
Subsequently, also on May 20, 2015 and further to an agreement dated
December 24, 2014, BCE divested 50% of its ownership interest in
Note 4 Segmented information
The accounting policies used in our segment reporting are the same
as those we describe in Note 2, Significant accounting policies. Our
results are reported in three segments: Bell Wireless, Bell Wireline and
Bell Media. Our segments reflect how we manage our business and
how we classify our operations for planning and measuring
performance. Accordingly, we operate and manage our segments as
strategic business units organized by products and services. Segments
negotiate sales with each other as if they were unrelated parties.
We measure the performance of each segment based on segment
profit, which is equal to operating revenues less operating costs for
the segment. We report severance, acquisition and other costs and
depreciation and amortization by segment for external reporting
purposes. Substantially all of our finance costs and other income
(expense) are managed on a corporate basis and, accordingly, are
not reflected in segment results.
Our operations and virtually all of our assets are located in Canada.
Segmented information
Glentel to Rogers Communications Inc. for a total cash consideration
of approximately $473 million ($407 million, net of divested cash and
transaction costs). The resulting gain of $94 million was recorded in
Other income (expense) in 2015, at which time our remaining investment
in Glentel was $379 million and was recorded in Investments in
associates and joint ventures.
Glentel is a Canadian-based dual-carrier, multi-brand mobile products
distributor. The transaction is part of our strategy to accelerate
wireless and improve customer service. BCE accounts for its investment
in Glentel as a joint venture using the equity method.
Our Bell Wireless segment provides wireless voice and data
communication products and services to our residential, small and
medium-sized business and large enterprise customers across Canada.
Our Bell Wireline segment provides data, including Internet access
and Internet protocol television, local telephone, long distance, as well
as other communications services and products to our residential,
small and medium-sized business and large enterprise customers
primarily in Ontario, Québec and the Atlantic provinces, while Satellite
TV service and connectivity to business customers are available
nationally across Canada. In addition, this segment includes our
wholesale business, which buys and sells local telephone, long distance,
data and other services from or to resellers and other carriers.
Our Bell Media segment provides conventional, specialty and pay TV,
digital media, radio broadcasting services and OOH advertising
services to customers nationally across Canada.
FOR THE YEAR ENDED DECEMBER 31, 2016
NOTE
BELL
WIRELESS
BELL
WIRELINE
BELL
MEDIA
INTER–SEGMENT
ELIMINATIONS
Operating revenues
External customers
Inter-segment
Total operating revenues
Operating costs
Segment profit (1)
Severance, acquisition and other costs
5
6
Depreciation and amortization
13, 14
Finance costs
Interest expense
Interest on post-employment
benefit obligations
Other income
Income taxes
Net earnings
Goodwill
Indefinite-life intangible assets
Capital expenditures
7
22
8
9
17
14
7,117
42
7,159
(4,156)
3,003
(6)
(555)
11,917
187
12,104
(7,062)
5,042
(130)
(2,816)
2,685
396
3,081
(2,338)
743
1
(137)
2,304
3,663
733
3,831
1,640
2,936
2,823
2,640
102
–
(625)
(625)
625
–
–
–
–
–
–
BCE
21,719
–
21,719
(12,931)
8,788
(135)
(3,508)
(888)
(81)
21
(1,110)
3,087
8,958
7,943
3,771
(1) The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being operating revenues less operating costs.
BCE Inc.
2016 AnnuAl RepoRt 129
Notes to consolidated financial statements FOR THE YEAR ENDED DECEMBER 31, 2015
NOTE
BELL
WIRELESS
BELL
WIRELINE
BELL
MEDIA
INTER–SEGMENT
ELIMINATIONS
Operating revenues
External customers
Inter-segment
Total operating revenues
Operating costs
Segment profit (1)
Severance, acquisition and other costs
5
6
Depreciation and amortization
13, 14
Finance costs
Interest expense
Interest on post-employment
benefit obligations
Other expense
Income taxes
Net earnings
Goodwill
Indefinite-life intangible assets
Capital expenditures
7
22
8
9
17
14
6,836
40
6,876
(4,048)
2,828
(16)
(503)
12,043
215
12,258
(7,258)
5,000
(363)
(2,785)
2,635
339
2,974
(2,251)
723
(67)
(132)
2,303
3,597
716
3,491
1,685
2,809
2,583
2,652
101
–
(594)
(594)
594
–
–
–
–
–
–
BCE
21,514
–
21,514
(12,963)
8,551
(446)
(3,420)
(909)
(110)
(12)
(924)
2,730
8,377
7,934
3,626
(1) The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being operating revenues less operating costs.
Revenues by services and products
FOR THE YEAR ENDED DECEMBER 31
2016
2015
6,602
6,791
3,089
741
2,685
182
6,246
6,590
3,271
831
2,635
186
20,090
19,759
515
559
555
1,629
21,719
590
573
592
1,755
21,514
Services
Wireless
Data
Local and access
Long distance
Media
Other services
Total Services
Products
Wireless
Data
Equipment and other
Total Products
Total operating revenues
130
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements Note 5 Operating costs
FOR THE YEAR ENDED DECEMBER 31
Labour costs
Wages, salaries and related taxes and benefits
Post-employment benefit plans service cost (net of capitalized amounts)
22
Other labour costs (1)
Less:
Capitalized labour
Total labour costs
Cost of revenues (2)
Other operating costs (3)
Total operating costs
NOTE
2016
2015
(4,016)
(224)
(1,036)
967
(4,309)
(6,705)
(1,917)
(4,224)
(281)
(949)
954
(4,500)
(6,598)
(1,865)
(12,931)
(12,963)
(1) Other labour costs include contractor and outsourcing costs.
(2) Cost of revenues includes costs of wireless devices and other equipment sold, network and content costs, and payments to other carriers.
(3) Other operating costs include marketing, advertising and sales commission costs, bad debt expense, taxes other than income taxes, information technology costs, professional
service fees and rent.
Research and development expenses of $147 million and $134 million are included in operating costs for 2016 and 2015, respectively.
Note 6 Severance, acquisition and other costs
FOR THE YEAR ENDED DECEMBER 31
Severance
Acquisition and other
Total severance, acquisition and other costs
2016
(87)
(48)
(135)
2015
(197)
(249)
(446)
Severance costs
Severance costs consist of charges related to involuntary and
voluntary employee terminations. Severance in 2015 includes
incremental costs related to workforce reduction initiatives incurred
in our Bell Media and Bell Wireline segments to confront changing
consumer preferences, new TV unbundling rules, a soft business market
as a result of the economy and declines in home phone subscribers.
Acquisition and other costs
Acquisition and other costs consist of transaction costs, such as legal
and financial advisory fees, related to completed or potential
acquisitions, employee severance costs related to the purchase of a
business, the costs to integrate acquired companies into our operations
2015
Signal piracy litigation
On August 31, 2005, a motion to institute legal proceedings was filed
in the Québec Superior Court against Bell ExpressVu Limited Partnership
(Bell ExpressVu) by Vidéotron ltée, Vidéotron (Régional) ltée and CF
Cable TV Inc. In the statement of claim, the plaintiffs alleged that Bell
ExpressVu had failed to adequately protect its system against satellite
signal piracy, thereby depriving the plaintiffs of subscribers who, but
for their alleged ability to pirate Bell ExpressVu’s signal, would have
subscribed to the plaintiffs’ services. On March 6, 2015, the Québec
Court of Appeal reversed the judgment of the lower court regarding
the quantum of damages awarded by such court, granting plaintiffs
and litigation costs, when they are significant. Acquisition costs also
include severance and integration costs relating to the privatization
of Bell Aliant Inc.
damages of $82 million, plus interest and costs. A charge of $137 million
was recorded in Q1 2015 and was included in Acquisition and other costs.
On October 15, 2015, the Supreme Court of Canada dismissed Bell
ExpressVu’s application for leave to appeal the Québec Court of
Appeal’s judgment. Accordingly, the aggregate amount of $141.6 million,
including interest and costs, was paid by Bell ExpressVu on
October 19, 2015 in full satisfaction of the judgment as rendered by
the Québec Court of Appeal and was recorded in Acquisition and other
costs paid in the statements of cash flows.
BCE Inc.
2016 AnnuAl RepoRt 131
Notes to consolidated financial statements Note 7
Interest expense
FOR THE YEAR ENDED DECEMBER 31
Interest expense on long-term debt
Interest expense on other debt
Capitalized interest
Total interest expense
2016
(852)
(86)
50
(888)
2015
(875)
(84)
50
(909)
Interest expense on long-term debt includes interest on finance leases
of $153 million and $161 million for 2016 and 2015, respectively.
Capitalized interest was calculated using an average rate of 3.95%
and 4.08% for 2016 and 2015, respectively, which represents the
weighted average interest rate on our outstanding long-term debt.
Note 8 Other income (expense)
FOR THE YEAR ENDED DECEMBER 31
Net mark-to-market gains on derivatives used as economic hedges
Gains on investments
Equity (losses) income from investments in associates and joint ventures
Loss on investment
Operations
Losses on disposal/retirement of software, plant and equipment
Early debt redemption costs
Impairment of assets
Other
Total other income (expense)
NOTE
3
15
20
13, 14
2016
67
58
(57)
(32)
(28)
(11)
(9)
33
21
2015
54
72
(54)
5
(55)
(18)
(49)
33
(12)
Equity (losses) income from investments in associates and joint ventures
In 2016, we recorded a loss on investment of $46 million representing
BCE’s share of the loss recorded by one of our equity investments on
the sale of a portion of its operations. Additionally, we recorded a loss
on investment of $11 million, representing equity losses on our share
of an obligation to repurchase at fair value the minority interest in
one of BCE’s joint ventures. The obligation is marked to market each
In 2015, we recorded a loss on investment of $54 million, representing
equity losses on our share of an obligation to repurchase at fair value
the minority interest in one of BCE’s joint ventures.
reporting period and the gain or loss on investment is recorded as
equity gains or losses from investments in associates and joint ventures.
Gains on investments
In 2016, BCE recorded gains on investments of $58 million which
included a gain related to one of our equity investments of $34 million,
as well as a gain on investment of $12 million due to the remeasurement
of BCE’s previously held equity interest in Q9 to its fair value. See
Note 3, Business acquisitions and dispositions for additional details.
In 2015, BCE recognized a gain of $94 million as a result of its divestiture
of its 50% ownership in Glentel to Rogers Communications Inc. Refer
to Note 3, Business acquisitions and dispositions. Additionally, BCE
recognized a $22 million loss on investments, which includes a loss on
the sale of a call centre subsidiary, as well as a write down of the fair
value of a financial asset related to one of our equity investments.
Impairment of assets
In 2015, we recorded an impairment charge of $49 million, of which
$38 million was allocated to indefinite-life intangible assets, $9 million
to finite-life intangible assets and $2 million to property, plant and
equipment. The impairment charge related mainly to our music CGU
within our Bell Media segment and resulted from revenue and
profitability declines from lower viewership and higher TV content
costs. The charge was determined by comparing the carrying value
of the CGU to its fair value less costs of disposal. We estimated the
fair value of the CGU using both discounted cash flows and market-
132
BCE Inc.
2016 AnnuAl RepoRt
based valuation models which include five-year cash flow projections
derived from business plans reviewed by senior management for the
period of January 1, 2016 to December 31, 2020, using a discount rate
of 9.0% and a perpetuity growth rate of nil, as well as market multiple
data from public companies and market transactions. The carrying
value of our music CGU was $171 million at December 31, 2015.
Notes to consolidated financial statements Note 9
The following table shows the significant components of income taxes deducted from net earnings.
Income taxes
FOR THE YEAR ENDED DECEMBER 31
Current taxes
Current taxes
Uncertain tax positions
Change in estimate relating to prior periods
Utilization of previously unrecognized tax credits
Other
Deferred taxes
Deferred taxes relating to the origination and reversal of temporary differences
Change in estimate relating to prior periods
Recognition and utilization of loss carryforwards
Effect of change in provincial corporate tax rate
Resolution of uncertain tax positions
Total income taxes
2016
2015
(850)
(14)
14
–
(1)
(299)
32
(1)
4
5
(1,110)
(687)
27
114
5
–
(271)
(106)
(14)
(6)
14
(924)
The following table reconciles the amount of reported income taxes in the income statements with income taxes calculated at a statutory
income tax rate of 27.1.% and 26.9% for 2016 and 2015, respectively.
FOR THE YEAR ENDED DECEMBER 31
Net earnings
Add back income taxes
Earnings before income taxes
Applicable statutory tax rate
Income taxes computed at applicable statutory rates
Non-taxable portion of gains on investments
Uncertain tax positions
Utilization of previously unrecognized tax credits
Effect of change in provincial corporate tax rate
Change in estimate relating to prior periods
Non-taxable portion of equity losses
Other
Total income taxes
Average effective tax rate
2016
3,087
1,110
4,197
27.1%
(1,137)
11
(9)
–
4
46
(23)
(2)
(1,110)
26.4%
The following table shows aggregate current and deferred taxes relating to items recognized outside the income statements.
FOR THE YEAR ENDED DECEMBER 31
2016
2015
Current taxes
Deferred taxes
Total income tax recovery (expense)
OTHER
COMPREHENSIVE
LOSS
127
(32)
95
DEFICIT
11
6
17
OTHER
COMPREHENSIVE
INCOME
29
(192)
(163)
2015
2,730
924
3,654
26.9%
(983)
26
41
5
(6)
8
(14)
(1)
(924)
25.3%
DEFICIT
19
(3)
16
BCE Inc.
2016 AnnuAl RepoRt 133
Notes to consolidated financial statements The following table shows deferred taxes resulting from temporary differences between the carrying amounts of assets and liabilities
recognized in the statements of financial position and their corresponding tax basis, as well as tax loss carryforwards.
NET DEFERRED TAX LIABILITY
January 1, 2015
Income statement
Business acquisition
Business disposition
Other comprehensive income
Deficit
Other
December 31, 2015
Income statement
Business acquisition
Other comprehensive income
Deficit
Other
NON–
CAPITAL
LOSS
CARRY–
FORWARD
26
(14)
–
–
–
–
–
12
(1)
10
–
–
–
POST
EMPLOY–
MENT
BENEFIT
PLANS
INDEFINITE–
LIFE
INTANGIBLE
ASSETS
714
(1,554)
(4)
–
–
(190)
–
–
520
(28)
–
(38)
–
–
(64)
(1)
–
–
–
–
(1,619)
(61)
–
–
–
–
PROPERTY,
PLANT AND
EQUIPMENT
AND
FINITE-LIFE
INTANGIBLE
ASSETS
(699)
(268)
–
(1)
–
–
–
(968)
(152)
(79)
–
–
–
INVESTMENT
TAX CREDITS
(7)
1
–
–
–
–
–
(6)
(3)
–
–
–
–
CRTC
TANGIBLE
BENEFITS
75
(14)
–
–
–
–
–
61
(17)
–
–
–
–
OTHER
286
TOTAL
(1,159)
(20)
(383)
–
–
(2)
(3)
4
(1)
(1)
(192)
(3)
4
265
(1,735)
3
(6)
6
6
(8)
(259)
(75)
(32)
6
(8)
December 31, 2016
21
454
(1,680)
(1,199)
(9)
44
266
(2,103)
At December 31, 2016, BCE had $221 million of non-capital loss
carryforwards. We:
At December 31, 2015, BCE had $197 million of non-capital loss
carryforwards. We:
• recognized a deferred tax asset of $21 million, of which $11 million
• recognized a deferred tax asset of $12 million, of which $4 million
related to Q9, for $77 million of the non-capital loss carryforwards.
These non-capital loss carryforwards expire in varying annual
amounts from 2029 to 2036.
related to Bell Media, for $44 million of the non-capital loss
carryforwards. These non-capital loss carryforwards expire in
varying annual amounts from 2030 to 2035.
• did not recognize a deferred tax asset for $144 million of non-
• did not recognize a deferred tax asset for $153 million of
capital loss carryforwards. This balance expires in varying annual
amounts from 2023 to 2035.
non-capital loss carryforwards. This balance expires in varying
annual amounts from 2023 to 2034.
At December 31, 2016, BCE had $765 million of unrecognized capital
loss carryforwards which can be carried forward indefinitely.
At December 31, 2015, BCE had $783 million of unrecognized capital
loss carryforwards which can be carried forward indefinitely.
Note 10 Earnings per share
The following table shows the components used in the calculation of basic and diluted earnings per common share for earnings attributable
to common shareholders.
FOR THE YEAR ENDED DECEMBER 31
Net earnings attributable to common shareholders – basic
Dividends declared per common share (in dollars)
Weighted average number of common shares outstanding (in millions)
Weighted average number of common shares outstanding – basic
Assumed exercise of stock options (1)
Weighted average number of common shares outstanding – diluted (in millions)
2016
2,894
2.73
869.1
1.2
870.3
2015
2,526
2.60
847.1
1.2
848.3
(1) The calculation of the assumed exercise of stock options includes the effect of the average unrecognized future compensation cost of dilutive options. It excludes options for which
the exercise price is higher than the average market value of a BCE common share. The number of excluded options was 2,936,091 in 2016 and 2,779,299 in 2015.
134
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements Note 11 Trade and other receivables
FOR THE YEAR ENDED DECEMBER 31
Trade receivables (1)
Allowance for doubtful accounts
Allowance for revenue adjustments
Current tax receivable
Other accounts receivable
Total trade and other receivables
(1) The details of securitized trade receivables are set out in Note 19, Debt due within one year.
Note 12 Inventory
FOR THE YEAR ENDED DECEMBER 31
Finished goods
Work in progress
Provision
Total inventory
NOTE
24
2016
2,967
(60)
(85)
35
122
2,979
2016
333
85
(15)
403
2015
2,969
(64)
(75)
90
89
3,009
2015
368
66
(18)
416
The total amount of inventory subsequently recognized as an expense in cost of revenues was $2,689 million for 2016 and 2015.
Note 13 Property, plant and equipment
FOR THE YEAR ENDED DECEMBER 31, 2016
NOTE
NETWORK
INFRASTRUCTURE
AND EQUIPMENT
LAND AND
BUILDINGS
ASSETS UNDER
CONSTRUCTION
TOTAL (1)
COST
January 1, 2016
Additions
Acquisition through business combinations
Transfers
Retirements and disposals
Impairment losses recognized in earnings
8
December 31, 2016
ACCUMULATED DEPRECIATION
January 1, 2016
Depreciation
Retirements and disposals
Other
December 31, 2016
NET CARRYING AMOUNT
January 1, 2016
December 31, 2016
(1) Includes assets under finance leases.
57,233
2,361
32
692
(1,637)
(1)
58,680
39,183
2,672
(1,591)
(31)
40,233
18,050
18,447
5,174
120
282
35
(39)
–
1,287
1,415
1
(1,325)
(4)
–
5,572
1,374
2,881
205
(35)
(4)
3,047
2,293
2,525
–
–
–
–
–
1,287
1,374
63,694
3,896
315
(598)
(1,680)
(1)
65,626
42,064
2,877
(1,626)
(35)
43,280
21,630
22,346
BCE Inc.
2016 AnnuAl RepoRt 135
Notes to consolidated financial statements FOR THE YEAR ENDED DECEMBER 31, 2015
NOTE
NETWORK
INFRASTRUCTURE
AND EQUIPMENT
LAND AND
BUILDINGS
ASSETS UNDER
CONSTRUCTION
TOTAL (1)
COST
January 1, 2015
Additions
Acquisition through business combinations
Transfers
Retirements and disposals
Impairment losses recognized in earnings
8
December 31, 2015
ACCUMULATED DEPRECIATION
January 1, 2015
Depreciation
Retirements and disposals
Other
December 31, 2015
NET CARRYING AMOUNT
January 1, 2015
December 31, 2015
(1) Includes assets under finance leases.
54,968
2,145
1
1,112
(991)
(2)
57,233
37,461
2,698
(937)
(39)
39,183
17,507
18,050
5,100
68
–
44
(38)
–
1,427
1,525
–
(1,661)
(4)
–
5,174
1,287
2,707
192
(24)
6
2,881
2,393
2,293
–
–
–
–
–
1,427
1,287
61,495
3,738
1
(505)
(1,033)
(2)
63,694
40,168
2,890
(961)
(33)
42,064
21,327
21,630
Finance leases
BCE’s significant finance leases are for satellites and office premises. The office leases have a typical lease term of 23 years. The leases for
satellites, used to provide programming to our Bell TV customers, have a term of 15 years.
The following table shows additions to and the net carrying amount of assets under finance leases.
FOR THE YEAR ENDED DECEMBER 31
Network infrastructure and equipment
Land and buildings
Total
ADDITIONS
NET CARRYING AMOUNT
2016
375
72
447
2015
418
8
426
2016
1,580
506
2,086
2015
1,677
484
2,161
The following table provides a reconciliation of our minimum future lease payments to the present value of our finance lease obligations.
AT DECEMBER 31, 2016
Minimum future lease payments
Less:
Future finance costs
Present value of future lease obligations
NOTE
24
2017
568
(133)
435
2018
514
(117)
397
2019
328
(104)
224
2020
265
(90)
175
2021
253
(76)
177
THERE-
AFTER
1,050
(198)
852
TOTAL
2,978
(718)
2,260
136
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements Note 14 Intangible assets
FOR THE YEAR
ENDED DECEMBER 31, 2016
NOTE
SOFTWARE
FINITE-LIFE
CUSTOMER
RELATION-
SHIPS
PROGRAM
AND FEATURE
FILM RIGHTS
OTHER
TOTAL
BRAND
INDEFINITE-LIFE
SPECTRUM
AND OTHER
LICENCES
BROADCAST
LICENCES
TOTAL
TOTAL
INTANGIBLE
ASSETS
6,906
412
–
615
(72)
–
–
–
866
–
293
–
–
–
–
–
577
973
–
–
–
–
–
(868)
325
8,674
2,333
3,267
2,334
7,934
16,608
17
1,402
8
–
–
–
–
–
301
615
(72)
–
–
(868)
–
–
–
–
–
–
–
21
–
–
–
–
–
–
–
–
–
–
(4)
(8)
–
21
1,423
–
–
–
(4)
(8)
–
301
615
(72)
(4)
(8)
(868)
7,861
1,159
682
350
10,052
2,333
3,288
2,322
7,943
17,995
COST
January 1, 2016
Additions
Acquired through
business combinations
Transfers
Retirements and disposals
Business dispositions
Impairment losses
recognized in earnings
8
Amortization included
in operating costs
December 31, 2016
ACCUMULATED AMORTIZATION
January 1, 2016
Amortization
Retirements and disposals
Other
4,824
558
(69)
3
466
47
–
–
–
–
–
–
–
142
5,432
26
–
–
631
(69)
3
168
5,997
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,432
631
(69)
3
5,997
December 31, 2016
5,316
513
NET CARRYING AMOUNT
January 1, 2016
December 31, 2016
2,082
2,545
400
646
577
682
183
182
3,242
4,055
2,333
2,333
3,267
3,288
2,334
7,934
11,176
2,322
7,943
11,998
FOR THE YEAR
ENDED DECEMBER 31, 2015
NOTE
SOFTWARE
FINITE-LIFE
CUSTOMER
RELATION-
SHIPS
PROGRAM
AND FEATURE
FILM RIGHTS
OTHER
TOTAL
BRAND
LICENCES (1)
SPECTRUM
AND OTHER
BROADCAST
LICENCES
TOTAL
TOTAL
INTANGIBLE
ASSETS
INDEFINITE-LIFE
COST
January 1, 2015
Additions (1)
Acquired through
business combinations
Transfers
Retirements and disposals
Impairment losses
recognized in earnings
8
Amortization included
in operating costs
December 31, 2015
ACCUMULATED AMORTIZATION
January 1, 2015
Amortization
Retirements and disposals
Other
6,298
345
–
519
(256)
–
–
865
–
–
–
1
–
–
4,606
460
(245)
3
419
46
1
–
December 31, 2015
4,824
466
287
7,974
2,333
524
917
–
–
–
–
52
1,314
–
–
–
519
(5)
(260)
(9)
(9)
(864)
–
(864)
2,693
566
10
–
(2)
–
–
2,372
7,398
15,372
–
–
–
–
566
1,880
10
–
(2)
10
519
(262)
(38)
(38)
(47)
–
–
(864)
–
–
–
–
–
–
–
–
–
–
–
123
5,148
24
(5)
–
530
(249)
3
142
5,432
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,148
530
(249)
3
5,432
6,906
866
577
325
8,674
2,333
3,267
2,334
7,934
16,608
NET CARRYING AMOUNT
January 1, 2015
December 31, 2015
1,692
2,082
446
400
524
577
164
183
2,826
3,242
2,333
2,333
2,693
3,267
2,372
7,398
10,224
2,334
7,934
11,176
(1) On April 21, 2015, Bell Mobility Inc. (Bell Mobility) acquired advanced wireless services – 3 (AWS-3) wireless spectrum in key urban and rural markets comprised of 13 licences for
169 million Megahertz per Population (MHz-POP) of AWS-3 spectrum for $500 million. On May 12, 2015, Bell Mobility acquired an additional 243 million MHz-POP of 2500 MHz wireless
spectrum for $29 million.
BCE Inc.
2016 AnnuAl RepoRt 137
Notes to consolidated financial statements Note 15 Investments in associates and joint ventures
The following table provides summarized financial information in respect to BCE’s associates and joint ventures. For a list of associates and
joint ventures please see Note 28, Related party transactions.
FOR THE YEAR ENDED DECEMBER 31
NOTE
Assets
Liabilities
Total net assets
BCE’s share of net assets
Revenues
Expenses
Total net losses
BCE’s share of net losses
Note 16 Other non-current assets
FOR THE YEAR ENDED DECEMBER 31
Net assets of post-employment benefit plans
Derivative assets
AFS publicly-traded and privately-held investments
Long-term notes and other receivables
Other
Total other non-current assets
8
NOTE
22
24
2016
3,856
(2,119)
1,737
852
2,511
(2,720)
(209)
(89)
2016
403
126
103
63
315
1,010
2015
5,067
(2,699)
2,368
1,119
2,125
(2,261)
(136)
(49)
2015
158
131
128
55
322
794
Note 17 Goodwill
The following table provides details about the changes in the carrying amounts of goodwill for the years ended December 31, 2016 and 2015.
BCE’s groups of CGUs correspond to our reporting segments.
Balance at January 1, 2015
Acquisitions and other
Balance at December 31, 2015
Acquisitions and other
Balance at December 31, 2016
Impairment testing
As described in Note 2, Significant accounting policies, goodwill is
tested annually for impairment by comparing the carrying value of
a CGU or group of CGUs to the recoverable amount, where the
recoverable amount is the higher of fair value less costs of disposal
or value in use.
VALUE IN USE
The value in use for a CGU or group of CGUs is determined by
discounting five-year cash flow projections derived from business
plans reviewed by senior management. The projections reflect
management’s expectations of revenue, segment profit, capital
expenditures, working capital and operating cash flows, based on
past experience and future expectations of operating performance.
Cash flows beyond the five-year period are extrapolated using
perpetuity growth rates. None of the perpetuity growth rates exceed
138
BCE Inc.
2016 AnnuAl RepoRt
BELL
WIRELESS
2,302
1
2,303
1
2,304
BELL
WIRELINE
3,491
–
3,491
340
3,831
BELL
MEDIA
2,592
(9)
2,583
240
2,823
BCE
8,385
(8)
8,377
581
8,958
the long-term historical growth rates for the markets in which
we operate.
The discount rates are applied to the cash flow projections and are
derived from the weighted average cost of capital for each CGU or
group of CGUs.
The following table shows the key assumptions used to estimate the
recoverable amounts of the groups of CGUs.
GROUPS OF CGUs
Bell Wireless
Bell Wireline
Bell Media
ASSUMPTIONS USED
PERPETUITY
GROWTH RATE
DISCOUNT RATE
0.8%
1.0%
1.0%
9.1%
6.0%
8.5%
Notes to consolidated financial statements We believe that any reasonable possible change in the key assumptions
on which the estimate of recoverable amounts of the Bell Wireless or
Bell Wireline groups of CGUs is based would not cause their carrying
amounts to exceed their recoverable amounts.
For the Bell Media group of CGUs, a decrease of (0.4%) in the perpetuity
growth rate or an increase of 0.3% in the discount rate, would have
resulted in its recoverable amount being equal to its carrying value.
Note 18 Trade payables and other liabilities
FOR THE YEAR ENDED DECEMBER 31
Trade payables and accruals
Deferred revenues
Compensation payable
Taxes payable
Maple Leaf Sports and Entertainment Ltd. (MLSE) financial liability (2)
CRTC tangible benefits obligation
Provisions
Severance and other costs payable
CRTC deferral account obligation
Other current liabilities
Total trade payables and other liabilities
NOTE
23, 24
24
21
24
2016
2,319
819
531
137
135
51
39
30
32
233
4,326
2015 (1)
2,246
812
512
123
–
61
119
93
16
305
4,287
(1) We have reclassified amounts for the prior year to make them consistent with the presentation for the current year.
(2) Represents BCE’s obligation to repurchase the BCE Master Trust Fund’s (Master Trust) 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust
exercise its put option. The obligation to repurchase is marked to market each reporting period and the gain or loss is recorded in Other income (expense). In 2016, the obligation
was reclassified from Other non-current liabilities as the option is exercisable in 2017 and thereafter.
Note 19 Debt due within one year
FOR THE YEAR ENDED DECEMBER 31
Notes payable (1)
Loans secured by trade receivables
Long-term debt due within one year (2)
Unsecured committed term credit facility (3)
Net unamortized discount
Unamortized debt issuance costs
Total long-term debt due within one year
Total debt due within one year
WEIGHTED AVERAGE
INTEREST RATE
0.70%
1.68%
4.71%
1.49%
NOTE
24
24
20
2016
2,649
931
835
479
(1)
(6)
1,307
4,887
2015
1,666
931
1,778
526
–
(6)
2,298
4,895
(1) Includes commercial paper of $1,945 million in U.S. dollars ($2,612 million in Canadian dollars) and $856 million in U.S. dollars ($1,185 million in Canadian dollars) as at
December 31, 2016 and 2015, respectively, which were issued under our U.S. commercial paper program and have been hedged for foreign currency fluctuations through forward
currency contracts. See Note 24, Financial and capital management for additional details.
(2) Included in long-term debt due within one year is the current portion of finance leases of $435 million and $405 million as at December 31, 2016 and 2015, respectively.
(3) The outstanding balance at December 31, 2016 was $357 million in U.S. dollars ($479 million in Canadian dollars), which is included in debt due within one year and has been hedged
using cross currency basis swaps. See Note 24, Financial and capital management for additional details.
Securitized trade receivables
Our securitized trade receivable programs are recorded as floating
rate revolving loans secured by certain trade receivables and expire
on July 1, 2018 and December 31, 2018.
The following table provides further details on our securitized trade
receivables programs.
FOR THE YEAR ENDED DECEMBER 31
2016
2015
Average interest rate
throughout the year
Securitized trade receivables
1.51%
1,904
1.59%
2,056
We continue to service these trade receivables. The buyers’ interest
in the collection of these trade receivables ranks ahead of our interests,
which means that we are exposed to certain risks of default on the
amounts securitized.
We have provided various credit enhancements in the form of
overcollateralization and subordination of our retained interests.
The buyers will reinvest the amounts collected by buying additional
interests in our trade receivables until the securitized trade receivables
agreements expire or are terminated. The buyers and their investors
have no further claim on our other assets if customers do not pay the
amounts owed.
BCE Inc.
2016 AnnuAl RepoRt 139
Notes to consolidated financial statements Credit facilities
Bell Canada may issue notes under its Canadian and U.S. commercial
paper programs up to the maximum aggregate principal amount of
$2.5 billion in either Canadian or U.S. currency provided that at no
time shall such maximum amount of notes exceed $3.5 billion in
Canadian currency which equals the aggregate amount available
under Bell Canada’s supporting revolving and expansion credit facilities
as at December 31, 2016. The maximum amounts of the commercial
paper programs and the committed expansion credit facility both
reflect an increase of $500 million effective on December 20, 2016 as
compared to December 31, 2015. The total amount of the committed
revolving and expansion credit facilities may be drawn at any time.
The table below is a summary of our total bank credit facilities at December 31, 2016.
TOTAL
AVAILABLE
DRAWN
LETTERS OF CREDIT
COMMERCIAL
PAPER
OUTSTANDING
NET AVAILABLE
Committed credit facilities
Unsecured revolving and expansion
credit facilities (1) (2)
Unsecured committed term credit facility (3)
Other
Total committed credit facilities
Total non-committed credit facilities
Total committed and non-committed credit facilities
3,500
479
134
4,113
1,472
5,585
–
479
–
479
–
479
–
–
130
130
741
871
2,612
–
–
2,612
–
2,612
888
–
4
892
731
1,623
(1) Bell Canada’s $2.5 billion revolving credit facility expires in November 2021 and its $1 billion expansion credit facility expires in November 2019.
(2) As of December 31, 2016, Bell Canada’s outstanding commercial paper consisted of $1,945 million in U.S. dollars ($2,612 million in Canadian dollars). All of Bell Canada’s commercial
paper outstanding is included in debt due within one year.
(3) The outstanding balance at December 31, 2016 was $357 million in U.S. dollars ($479 million in Canadian dollars), which is included in debt due within one year and has been hedged
using cross currency basis swaps. See Note 24, Financial and capital management for additional details.
Restrictions
Some of our credit agreements:
• require us to meet specific financial ratios
• require us to offer to repay and cancel the credit agreement upon a change of control of BCE or Bell Canada
We are in compliance with all conditions and restrictions under such credit agreements.
Note 20 Long-term debt
FOR THE YEAR ENDED DECEMBER 31
Debentures
1997 trust indenture
1976 trust indenture
Subordinated debentures
Finance leases
Unsecured committed term credit facility (1)
Other
Total debt
Net unamortized premium
Unamortized debt issuance costs
Less:
Amount due within one year
19
Total long-term debt
NOTE
WEIGHTED AVERAGE
INTEREST RATE
MATURITY
2016
2015
4.06%
9.54%
8.21%
6.63%
1.49%
2017 – 2045
2021 – 2054
2026 – 2031
2017 – 2047
2017
13,600
13,400
1,100
275
2,260
479
188
1,100
275
2,260
526
141
17,902
17,702
18
(41)
(1,307)
16,572
24
(38)
(2,298)
15,390
(1) Represents $479 million in Canadian dollars ($357 million in U.S. dollars) which was drawn under Bell Canada’s unsecured committed credit facility and has been hedged using cross
currency basis swaps ($526 million in Canadian dollars or $380 million in U.S. dollars in 2015). Refer to Note 24, Financial and capital management for additional details.
Bell Canada’s debentures and subordinated debentures have been issued in Canadian dollars and the majority bear a fixed rate of interest.
Interest payments on debt for a principal amount of $700 million were swapped from fixed to floating. The debt and swap were settled in
2016. See Note 24, Financial and capital management for additional details.
140
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements Restrictions
Some of our debt agreements:
• require us to meet specific financial ratios
• impose covenants, maintenance tests and new issue tests
• require us to make an offer to repurchase certain series of debentures upon the occurrence of a change of control event as defined in
the relevant debt agreements
We are in compliance with all conditions and restrictions under such debt agreements.
All outstanding debentures are issued under trust indentures and are unsecured. All debentures are issued in series and certain series are
redeemable at Bell Canada’s option prior to maturity at the prices, times and conditions specified for each series.
2016
On September 16, 2016, Bell Canada redeemed, prior to maturity, its
5.00% Series M-18 medium-term notes (MTN) debentures, having an
outstanding principal amount of $700 million which were due on
February 15, 2017. The interest rate swap which was used to hedge
the interest rate exposure was also settled in 2016. See Note 24,
Financial and capital management for additional details.
On August 12, 2016, Bell Canada issued 2.00% Series M-42 MTN
debentures under its 1997 trust indenture, with a principal amount of
$850 million, which mature on October 1, 2021. In addition, on the same
date, Bell Canada issued 2.90% Series M-43 MTN debentures under
its 1997 trust indenture, with a principal amount of $650 million, which
mature on August 12, 2026.
On March 31, 2016, Bell Canada redeemed, prior to maturity, its 5.41%
Series M-32 debentures, having an outstanding principal amount of
$500 million which were due on September 26, 2016. We incurred an
$11 million charge for the early debt redemption costs which was
2015
In 2015, Bell Canada repaid approximately $500 million ($395 million
U.S. dollars) of the borrowings under its unsecured committed term
credit facility that was used to fund part of the acquisition of Astral
Media Inc.
On November 2, 2015, Bell Canada redeemed, prior to maturity, its
3.60% Series M-21 MTN debentures, issued under its 1997 trust indenture,
having an outstanding principal amount of $1 billion which were due
on December 2, 2015.
recorded in Other income (expense) in Q1 2016 in the income statement.
On February 29, 2016, Bell Canada issued 3.55% Series M-41 MTN
debentures under its 1997 trust indenture, with a principal amount of
$750 million, which mature on March 2, 2026.
On January 11, 2016, Bell Canada redeemed, prior to maturity, its 4.64%
Series M-19 MTN debentures, having an outstanding principal amount
of $200 million which were due on February 22, 2016, as well as its
3.65% Series M-23 MTN debentures, having an outstanding principal
amount of $500 million which were due on May 19, 2016.
Subsequent to year end, on February 27, 2017, Bell Canada issued
2.70% Series M-44 MTN debentures under its 1997 trust indenture, with
a principal amount of $1 billion, which mature on February 27, 2024.
In addition, on the same date, Bell Canada issued 4.45% Series M-45
MTN debentures under its 1997 trust indenture, with a principal amount
of $500 million, which mature on February 27, 2047.
On October 1, 2015, Bell Canada issued 3.00% Series M-40 MTN
debentures under its 1997 trust indenture, with a principal amount of
$1 billion, which mature on October 3, 2022.
On March 30, 2015, Bell Canada issued 4.35% Series M-39 MTN
debentures under its 1997 trust indenture, with a principal amount of
$500 million, which mature on December 18, 2045.
Note 21 Provisions
FOR THE YEAR ENDED DECEMBER 31
January 1, 2016
Additions
Usage
Reversals
Acquired through business combination
December 31, 2016
Current
Non-current
December 31, 2016
NOTE
ASSET RETIREMENT
OBLIGATIONS (AROs)
157
31
(19)
(6)
12
175
5
170
175
18
23
OTHER (1)
161
31
(36)
(19)
–
137
34
103
137
TOTAL
318
62
(55)
(25)
12
312
39
273
312
(1) Other includes environmental, legal, regulatory and vacant space provisions.
BCE Inc.
2016 AnnuAl RepoRt 141
Notes to consolidated financial statements AROs reflect management’s best estimates of expected future costs to restore current leased premises to their original condition prior to lease
inception. Cash outflows associated with our ARO liabilities are generally expected to occur at the restoration dates of the assets to which
they relate, which are long-term in nature. The timing and extent of restoration work that will be ultimately required for these sites is uncertain.
Note 22 Post-employment benefit plans
Post-employment benefit plans cost
We provide pension and other benefits for most of our employees.
These include DB pension plans, DC pension plans and OPEB plans.
investment options offered to plan participants, lies with the Pension
Fund Committee, a committee of our board of directors.
We operate our DB and DC pension plans under applicable Canadian
and provincial pension legislation, which prescribes minimum and
maximum DB funding requirements. Plan assets are held in trust, and
the oversight of governance of the plans, including investment
decisions, contributions to DB plans and the selection of the DC plans
The interest rate risk is managed using a liability matching approach,
which reduces the exposure of the DB plans to a mismatch between
investment growth and obligation growth.
The longevity risk is managed using a longevity swap, which reduces
the exposure of the DB plan to an increase in life expectancy.
COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS SERVICE COST
FOR THE YEAR ENDED DECEMBER 31
DB pension
DC pension
OPEBs
Plan amendment gain on DB pension and OPEBs
Less:
Capitalized benefit plans cost
Total post-employment benefit plans service cost included in operating costs
Other costs recognized in severance, acquisition and other costs
Total post-employment benefit plans service cost
COMPONENTS OF POST-EMPLOYMENT BENEFIT PLANS FINANCING COST
FOR THE YEAR ENDED DECEMBER 31
DB pension
OPEBs
Total interest on post-employment benefit obligations
The statements of comprehensive income include the following amounts before income taxes.
Cumulative losses recognized directly in equity, January 1
Actuarial (losses) gains in other comprehensive income (1)
Increase in the effect of the asset limit (2)
Cumulative losses recognized directly in equity, December 31
(1) The cumulative actuarial losses recognized in the statements of comprehensive income are $2,904 million in 2016.
(2) The cumulative decrease in the effect of the asset limit recognized in the statements of comprehensive income is $258 million in 2016.
2016
(203)
(100)
(7)
27
59
(224)
5
(219)
2016
(24)
(57)
(81)
2016
(2,384)
(264)
2
(2,646)
2015
(232)
(96)
(8)
–
55
(281)
(44)
(325)
2015
(53)
(57)
(110)
2015
(2,974)
594
(4)
(2,384)
142
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements COMPONENTS OF POST-EMPLOYMENT BENEFIT (OBLIGATIONS) ASSETS
The following table shows the change in post-employment benefit obligations and the fair value of plan assets.
Post-employment benefit obligations, January 1
(20,675)
(20,988)
(1,705)
(1,707)
(22,380)
(22,695)
DB PENSION PLANS
OPEB PLANS
TOTAL
2016
2015
2016
2015
2016
2015
Current service cost
Interest on obligations
Actuarial (losses) gains (1)
Net curtailment gains (losses)
Benefit payments
Employee contributions
Other
(203)
(852)
(311)
27
(232)
(825)
291
(39)
1,169
1,122
(5)
(3)
(5)
1
(7)
(68)
12
5
79
–
–
(8)
(67)
5
(5)
77
–
–
(210)
(920)
(299)
32
(240)
(892)
296
(44)
1,248
1,199
(5)
(3)
(5)
1
Post-employment benefit obligations, December 31
(20,853)
(20,675)
(1,684)
(1,705)
(22,537)
(22,380)
Fair value of plan assets, January 1
Expected return on plan assets (2)
Actuarial gains (losses)
Benefit payments
Employer contributions
Employee contributions
20,244
19,819
266
261
20,510
20,080
828
29
772
301
(1,169)
(1,122)
626
5
469
5
11
6
(79)
76
–
10
(3)
(77)
75
–
839
35
782
298
(1,248)
(1,199)
702
5
544
5
Fair value of plan assets, December 31
20,563
20,244
280
266
20,843
20,510
Plan deficit
Effect of asset limit
Post-employment benefit liability, December 31
Post-employment benefit assets included in other non-current assets
Post-employment benefit obligations
(290)
(8)
(298)
403
(701)
(431)
(10)
(441)
158
(599)
(1,404)
(1,439)
(1,694)
(1,870)
–
–
(8)
(10)
(1,404)
(1,439)
(1,702)
(1,880)
–
–
403
158
(1,404)
(1,439)
(2,105)
(2,038)
(1) Actuarial gains include experience gains of $157 million in 2016 and $123 million in 2015.
(2) The actual return on plan assets was $874 million, or 4.7%, in 2016 and $1,080 million, or 5.25%, in 2015.
FUNDED STATUS OF POST-EMPLOYMENT BENEFIT PLANS COST
The following table shows the funded status of our post-employment benefit obligations.
FUNDED
PARTIALLY FUNDED (1)
UNFUNDED (2)
TOTAL
FOR THE YEAR ENDED DECEMBER 31
2016
2015
2016
2015
Present value of post-employment benefit obligations
(20,249)
(20,064)
(1,995)
(2,061)
2016
(293)
–
2015
2016
2015
(255)
(22,537)
(22,380)
–
20,843
20,510
Fair value of plan assets
Plan surplus (deficit)
20,520
20,204
323
306
271
140
(1,672)
(1,755)
(293)
(255)
(1,694)
(1,870)
(1) The partially funded plans consist of supplementary executive retirement plans (SERPs) for eligible employees and OPEBs. The company partially funds the SERPs through letters of
credit and a retirement compensation arrangement account with Canada Revenue Agency. Certain paid-up life insurance benefits are funded through life insurance contracts.
(2) Our unfunded plans consist of OPEBs, which are pay-as-you-go.
BCE Inc.
2016 AnnuAl RepoRt 143
Notes to consolidated financial statements SIGNIFICANT ASSUMPTIONS
We used the following key assumptions to measure the post-employment benefit obligations and the net benefit plans cost for the DB pension
plans and OPEB plans. These assumptions are long-term, which is consistent with the nature of post-employment benefit plans.
At December 31
Post-employment benefit obligations
Discount rate
Rate of compensation increase
Cost of living indexation rate (1)
Life expectancy at age 65 (years)
For the year ended December 31
Net post-employment benefit plans cost
Discount rate
Rate of compensation increase
Cost of living indexation rate (1)
Life expectancy at age 65 (years)
DB PENSION PLANS AND OPEB PLANS
2016
2015
4.0%
2.25%
1.6%
23.1
4.3%
2.5%
1.6%
23.0
4.2%
2.5%
1.6%
23.0
4.0%
2.5%
1.6%
23.0
(1) Cost of living indexation rate is only applicable to DB pension plans.
The weighted average duration of the post-employment benefit
obligation is 15 years.
Assumed trend rates in healthcare costs have a significant effect on
the amounts reported for the healthcare plans.
We assumed the following trend rates in healthcare costs:
• an annual increase in the cost of medication of 8.0% for 2016
The following table shows the effect of a 1% change in the assumed
trend rates in healthcare costs.
decreasing to 4.5% over 20 years
• an annual increase in the cost of covered dental benefits of 4.0%
• an annual increase in the cost of covered hospital benefits of 3.2%
• an annual increase in the cost of other covered healthcare
benefits of 3.0%
EFFECT ON POST-EMPLOYMENT
BENEFITS – INCREASE/(DECREASE)
Total service and interest cost
Post-employment
benefit obligations
1% INCREASE
1% DECREASE
7
142
(6)
(120)
SENSITIVITY ANALYSIS
The following table shows a sensitivity analysis of key assumptions used to measure the net post-employment benefit obligations and the
net post-employment benefit plans cost for our DB pension plans and OPEB plans.
IMPACT ON NET POST-EMPLOYMENT
BENEFIT PLANS COST FOR 2016 –
INCREASE/(DECREASE)
IMPACT ON POST-EMPLOYMENT BENEFIT
OBLIGATIONS AT DECEMBER 31, 2016 –
INCREASE/(DECREASE)
CHANGE IN
ASSUMPTION
INCREASE IN
ASSUMPTION
DECREASE IN
ASSUMPTION
INCREASE IN
ASSUMPTION
DECREASE IN
ASSUMPTION
0.5%
1 year
(77)
34
66
(33)
(1,435)
699
1,533
(678)
Discount rate
Life expectancy at age 65
POST-EMPLOYMENT BENEFIT PLAN ASSETS
The investment strategy for the post-employment benefit plan assets is to maintain a diversified portfolio of assets invested in a prudent
manner to maintain the security of funds.
The following table shows the target allocations for 2016 and the allocation of our post-employment benefit plan assets at December 31, 2016
and 2015.
ASSET CATEGORY
Equity securities
Debt securities
Alternative investments
Total
144
BCE Inc.
2016 AnnuAl RepoRt
WEIGHTED AVERAGE
TARGET ALLOCATION
TOTAL PLAN ASSETS FAIR VALUE
AT DECEMBER 31 (%)
2016
20% – 35%
55% – 80%
0% – 25%
2016
22%
68%
10%
100%
2015
26%
65%
9%
100%
Notes to consolidated financial statements The following table shows the fair value of the DB pension plan assets at the end of the year for each category.
FOR THE YEAR ENDED DECEMBER 31
Observable market data
Equity securities
Canadian
Foreign
Debt securities
Canadian
Foreign
Money market
Non-observable market inputs
Alternative investments
Private equities
Hedge funds
Other
Total
2016
2015
901
3,682
12,469
1,068
387
1,219
726
111
20,563
910
4,263
12,038
718
431
1,124
687
73
20,244
Equity securities included approximately $17 million of BCE common
shares, or 0.08% of total plan assets, at December 31, 2016 and
approximately $12 million of BCE common shares, or 0.06% of total
plan assets, at December 31, 2015.
Debt securities included approximately $15 million of Bell Canada
debentures, or 0.07% of total plan assets, at December 31, 2016 and
approximately $32 million of Bell Canada debentures, or 0.16% of total
plan assets, at December 31, 2015.
Alternative investments included the pension plan’s investment in
MLSE of $135 million, or 0.66% of total plan assets, at December 31, 2016
and $135 million, or 0.67% of total plan assets at December 31, 2015.
On February 23, 2015, the Bell Canada pension plan entered into an
investment arrangement to hedge part of its exposure to potential
increases in longevity, which covers approximately $5 billion of post-
employment benefit obligations. The fair value of the arrangement is
included within other alternative investments. As a hedging
arrangement of the pension plan, the transaction requires no cash
contributions from BCE.
CASH FLOWS
We are responsible for adequately funding our DB pension plans. We
make contributions to them based on various actuarial cost methods
that are permitted by pension regulatory bodies. Contributions reflect
actuarial assumptions about future investment returns, salary
projections and future service benefits. Changes in these factors could
cause actual future contributions to differ from our current estimates
and could require us to increase contributions to our post-employment
benefit plans in the future, which could have a negative effect on our
liquidity and financial performance.
We contribute to the DC pension plans as employees provide service.
The following table shows the amounts we contributed to the DB and DC pension plans and the payments made to beneficiaries under
OPEB plans.
FOR THE YEAR ENDED DECEMBER 31
Contributions
2016
(626)
2015
(469)
2016
(99)
2015
(97)
2016
(76)
2015
(75)
DB PLANS (1)
DC PLANS
OPEB PLANS
(1) Includes voluntary contributions of $400 million in 2016 and $250 million in 2015.
We expect to contribute approximately $225 million to our DB pension plans in 2017, subject to actuarial valuations being completed. We
expect to pay approximately $80 million to beneficiaries under OPEB plans and to contribute approximately $105 million to the DC pension
plans in 2017.
BCE Inc.
2016 AnnuAl RepoRt 145
Notes to consolidated financial statements Note 23 Other non-current liabilities
FOR THE YEAR ENDED DECEMBER 31
Long-term disability benefits obligation
Provisions
CRTC tangible benefits obligation
Deferred revenue on long-term contracts
CRTC deferral account obligation
Future tax liabilities
MLSE financial liability (2)
Other
Total other non-current liabilities
NOTE
21
24
24
18, 24
2016
302
273
115
105
104
73
–
305
1,277
2015 (1)
294
199
166
85
138
47
135
356
1,420
(1) We have reclassified amounts for the prior year to make them consistent with the presentation for the current year.
(2) Represents BCE’s obligation to repurchase the Master Trust’s 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust exercise its put option.
The obligation to repurchase is marked to market each reporting period and the gain or loss is recorded in Other income (expense). In 2016, the obligation was reclassified to Trade
payables and other liabilities as the option is exercisable in 2017 and thereafter.
Note 24 Financial and capital management
Financial management
Management’s objectives are to protect BCE and its subsidiaries on
a consolidated basis against material economic exposures and
variability of results from various financial risks that include credit
risk, liquidity risk, foreign currency risk, interest rate risk and equity
price risk.
DERIVATIVES
We use derivative instruments to manage our exposure to foreign
currency risk, interest rate risk and changes in the price of BCE common
shares under our share-based payment plans.
The following derivative instruments were outstanding during 2016
and/or 2015:
• foreign currency forward contracts and options that manage the
foreign currency risk of certain purchase commitments
• cross currency basis swaps that hedge foreign currency risk on a
portion of our long-term debt and debt due within one year
• interest rate swaps that hedge interest rate risk on a portion of
our long-term debt
• interest rate locks on future debt issuances and dividend rate
resets on preferred shares
• forward contracts on BCE common shares that mitigate the cash
flow exposure related to share-based payment plans
FAIR VALUE
Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date.
Certain fair value estimates are affected by assumptions we make
about the amount and timing of future cash flows and discount rates,
all of which reflect varying degrees of risk. Income taxes and other
expenses that would be incurred on disposition of financial instruments
are not reflected in the fair values. As a result, the fair values are not
the net amounts that would be realized if these instruments were settled.
The carrying values of our cash and cash equivalents, trade and other
receivables, dividends payable, trade payables and accruals,
compensation payable, severance and other costs payable, interest
payable, notes payable and loans secured by trade receivables
approximate fair value as they are short-term.
146
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements The following table provides the fair value details of financial instruments measured at amortized cost in the statements of financial position.
CLASSIFICATION
FAIR VALUE METHODOLOGY
CRTC tangible benefits
obligation
CRTC deferral account
obligation
Trade payables and other
liabilities and non-current
liabilities
Trade payables and other
liabilities and non-current
liabilities
Debentures, finance leases
and other debt
Debt due within one year and
long-term debt
Present value of estimated
future cash flows discounted
using observable market
interest rates
Present value of estimated
future cash flows discounted
using observable market
interest rates
Quoted market price of debt
or present value of future cash
flows discounted using
observable market
interest rates
DECEMBER 31, 2016
DECEMBER 31, 2015
NOTE
18, 23
CARRYING
VALUE
166
FAIR
VALUE
169
CARRYING
VALUE
227
FAIR
VALUE
234
18, 23
136
145
154
163
19, 20
17,879
20,093
17,688
19,764
The following table provides the fair value details of financial instruments measured at fair value in the statements of financial position.
CLASSIFICATION
NOTE
2016
AFS publicly-traded and
Other non-current assets
16
privately-held investments
Derivative financial instruments Other current assets, trade
payables and other liabilities,
other non-current assets and
liabilities
MLSE financial liability (3)
Trade payables and other
liabilities
18
Other
2015
Other non-current assets
and liabilities
AFS publicly-traded and
Other non-current assets
16
privately-held investments
Derivative financial instruments Other current assets, trade
payables and other liabilities,
other non-current assets and
liabilities
MLSE financial liability (3)
Other non-current liabilities
23
Other
Other non-current assets
and liabilities
CARRYING VALUE OF
ASSET (LIABILITY) AT
DECEMBER 31
QUOTED PRICES IN
ACTIVE MARKETS FOR
IDENTICAL ASSETS
(LEVEL 1)
OBSERVABLE MARKET
DATA (LEVEL 2) (1)
NON-OBSERVABLE
MARKET INPUTS
(LEVEL 3) (2)
FAIR VALUE AT DECEMBER 31
103
166
(135)
35
128
256
(135)
30
1
–
–
–
16
–
–
–
–
166
–
88
–
256
–
56
102
–
(135)
(53)
112
–
(135)
(26)
(1) Observable market data such as equity prices, interest rates, swap rate curves and foreign currency exchange rates.
(2) Non-observable market inputs such as discounted cash flows and earnings multiples. A reasonable change in our assumptions would not result in a significant increase (decrease)
to our level 3 financial instruments.
(3) Represents BCE’s obligation to repurchase the Master Trust’s 9% interest in MLSE at a price not less than an agreed minimum price should the Master Trust exercise its put option.
The obligation to repurchase is marked to market each reporting period and the gain or loss is recorded in Other income (expense) in the income statements.
BCE Inc.
2016 AnnuAl RepoRt 147
Notes to consolidated financial statements CREDIT RISK
We are exposed to credit risk from operating activities and certain financing activities, the maximum exposure of which is represented by
the carrying amounts reported in the statements of financial position.
We are exposed to credit risk if counterparties to our trade receivables and derivative instruments are unable to meet their obligations. The
concentration of credit risk from our customers is minimized because we have a large and diverse customer base. There was minimal credit
risk relating to derivative instruments at December 31, 2016 and 2015. We deal with institutions that have investment-grade credit ratings,
and as such we expect that they will be able to meet their obligations. We regularly monitor our credit risk and credit exposure.
The following table provides the change in allowance for doubtful
accounts for trade receivables.
The following table provides further details on trade receivables
not impaired.
Balance, January 1
Additions
Use
Balance, December 31
2016
(64)
(102)
106
(60)
2015
(69)
(86)
91
(64)
In many instances, trade receivables are written off directly to bad
debt expense if the account has not been collected after a
predetermined period of time.
AT DECEMBER 31
Trade receivables not past due
Trade receivables past due
and not impaired
Under 60 days
60 to 120 days
Over 120 days
2016
2,187
286
359
75
2015
2,205
289
339
72
Trade receivables, net of allow-
ance for doubtful accounts
2,907
2,905
LIQUIDITY RISK
Our cash and cash equivalents, cash flows from operations and possible capital markets financing are expected to be sufficient to fund our
operations and fulfill our obligations as they become due. Should our cash requirements exceed the above sources of cash, we would expect
to cover such a shortfall by drawing on existing committed bank facilities and new ones, to the extent available.
The following table is a maturity analysis for recognized financial liabilities at December 31, 2016 for each of the next five years and thereafter.
AT DECEMBER 31, 2016
Long-term debt
Notes payable
Minimum future lease payments under finance leases
Loan secured by trade receivables
Interest payable on long-term debt, notes payable
and loan secured by trade receivables
MLSE financial liability
Total
NOTE
20
19
13
19
18
2017
880
2,649
568
931
720
135
2018
1,753
2019
1,326
2020
1,411
2021
2,235
THERE–
AFTER
TOTAL
8,037
15,642
–
514
–
638
–
–
328
–
568
–
–
265
–
520
–
–
253
–
477
–
–
1,050
–
4,875
–
2,649
2,978
931
7,798
135
5,883
2,905
2,222
2,196
2,965
13,962
30,133
We are also exposed to liquidity risk for financial liabilities due within one year as shown in the statements of financial position.
MARKET RISK
CURRENCY EXPOSURES
We use forward contracts, options and cross currency basis swaps to manage foreign currency risk related to anticipated transactions and
certain foreign currency debt.
A 10% depreciation (appreciation) in the value of the Canadian dollar relative to the U.S. dollar would result in a gain (loss) of $30 million
recognized in net earnings at December 31, 2016 and a gain (loss) of $84 million recognized in other comprehensive (loss) income at December 31,
2016, with all other variables held constant.
The following table provides further details on our outstanding foreign currency forward contracts, options and cross currency basis swaps
as at December 31, 2016.
TYPE OF HEDGE
Cash flow
Cash flow
Cash flow
Cash flow
Economic
BUY
CURRENCY
USD
USD
USD
USD
USD
AMOUNT
TO RECEIVE
1,949
357
447
422
359
SELL CURRENCY
CAD
CAD
CAD
CAD
CAD
AMOUNT
TO PAY
2,591
474
585
551
486
MATURITY
HEDGED ITEM
2017
2017
2017
2018
2017
Commercial paper
Credit facility
Purchase commitments
Purchase commitments
Purchase commitments
148
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements INTEREST RATE EXPOSURES
We use interest rate swaps to manage the mix of fixed and floating
interest rates of our debt. We also use interest rate locks to hedge
the interest rates on future debt issuances and to economically hedge
dividend rate resets on preferred shares.
In 2016, we settled interest rate locks which hedged long-term debt
and dividend rate resets on preferred shares with a notional amount
of $500 million and $350 million respectively. In 2016, we redeemed,
prior to maturity, long-term debt maturing on February 15, 2017 and
settled the interest rate swap used to hedge the interest rate exposure
on the redeemed debt, having a notional amount of $700 million. In
2016, we recognized a loss of $15 million (2015 – $18 million) on an
interest rate swap used as a fair value hedge of long-term debt and
an offsetting gain of $16 million (2015 – $18 million) on the corresponding
long-term debt in Other income (expense) in the income statements.
A 1% increase (decrease) in interest rates would result in a decrease
of $25 million (increase of $20 million) in net earnings at
December 31, 2016.
EQUITY PRICE EXPOSURES
We use equity forward contracts on BCE’s common shares to
economically hedge the cash flow exposure related to the settlement
of share-based payment plans. See Note 26, Share-based payments
for details on our share-based payment arrangements. The fair value
of our equity forward contracts at December 31, 2016 was $111 million
(2015 – $86 million).
A 5% increase (decrease) in the market price of BCE’s common shares
at December 31, 2016 would result in a gain (loss) of $36 million
recognized in net earnings for 2016, all other variables held constant.
Capital management
We have various capital policies, procedures and processes which
are utilized to achieve our objectives for capital management. These
include optimizing our cost of capital and maximizing shareholder
return while balancing the interests of our stakeholders.
Our definition of capital includes equity attributable to BCE shareholders,
debt, and cash and cash equivalents.
The key ratios that we use to monitor and manage our capital structure
are a net debt leverage ratio (1) and an adjusted EBITDA to net interest
expense ratio (2). Our net debt leverage ratio target range is 1.75 to
2.25 times adjusted EBITDA and our adjusted EBITDA to net interest
expense ratio target is greater than 7.5 times. We monitor our capital
The following table provides a summary of our key ratios.
AT DECEMBER 31
Net debt leverage ratio
Adjusted EBITDA to net interest expense ratio
On February 1, 2017, the board of directors of BCE approved an increase
of 5.1% in the annual dividend on BCE’s common shares, from $2.73 to
$2.87 per common share. In addition, the board of directors of BCE
declared a quarterly dividend of $0.7175 per common share, payable
on April 15, 2017 to shareholders of record at March 15, 2017.
structure and make adjustments, including to our dividend policy, as
required. At December 31, 2016, we had exceeded the limit of our
internal net debt leverage ratio target range by 0.32. This excess over
the limit of our internal ratio target range does not create risk to our
investment-grade credit rating.
These ratios do not have any standardized meaning under IFRS.
Therefore, they are unlikely to be comparable to similar measures
presented by other issuers. We use, and believe that certain investors
and analysts use, our net debt leverage ratio and adjusted EBITDA to
net interest expense ratio as measures of financial leverage and
health of the company.
2016
2.57
9.31
2015
2.53
8.76
On February 3, 2016, the board of directors of BCE approved an
increase of 5.0% in the annual dividend on BCE’s common shares, from
$2.60 to $2.73 per common share.
(1) Our net debt leverage ratio represents net debt divided by adjusted EBITDA. We define net debt as debt due within one year plus long-term debt and 50% of preferred shares less
cash and cash equivalents as shown in our statements of financial position. Adjusted EBITDA is defined as operating revenues less operating costs as shown in our
income statements.
(2) Our adjusted EBITDA to net interest expense ratio represents adjusted EBITDA divided by net interest expense. Adjusted EBITDA is defined as operating revenues less operating
costs as shown in our income statements. Net interest expense is net interest expense as shown in our statements of cash flows and 50% of declared preferred share dividends
as shown in our income statements.
BCE Inc.
2016 AnnuAl RepoRt 149
Notes to consolidated financial statements SERIES
Q (1)
R (2)
S
T (2)
Y
Z (2)
AA (2)
AB
AC (2)
AD
AE
AF (2)
AG (2)
AH
AI (2)
AJ
AK (2)
AL (3)
AN (3)
AO (2)
AP (4)
AQ (2)
AR (4)
Note 25 Share capital
Preferred shares
BCE’s articles of amalgamation provide for an unlimited number of First Preferred Shares and Second Preferred Shares, all without par value.
The terms set out in the articles authorize BCE’s directors to issue the shares in one or more series and to set the number of shares and the
conditions for each series.
The following table is a summary of the principal terms of BCE’s First Preferred Shares. There were no Second Preferred Shares issued and
outstanding at December 31, 2016. BCE’s articles of amalgamation, as amended, describe the terms and conditions of these shares in detail.
ANNUAL
DIVIDEND
RATE
floating
CONVERTIBLE
INTO
CONVERSION DATE
REDEMPTION DATE
REDEMPTION
PRICE
Series R
December 1, 2025
AUTHORIZED
8,000,000
–
NUMBER OF SHARES
STATED CAPITAL
ISSUED AND
OUTSTANDING
DEC. 31,
2016
DEC. 31,
2015
4.13%
Series Q
December 1, 2020
December 1, 2020
floating
Series T
November 1, 2021
At any time
3.019%
Series S
November 1, 2021
November 1, 2021
$25.00
$25.50
$25.00
8,000,000
8,000,000
8,000,000
3,513,448
8,000,000
4,486,552
floating
3.152%
3.45%
Series Z
Series Y
December 1, 2017
At any time
$25.50
10,000,000
8,772,468
December 1, 2017
December 1, 2017
$25.00
10,000,000
1,227,532
Series AB
September 1, 2017
September 1, 2017
$25.00
20,000,000
10,144,302
floating
Series AA
September 1, 2017
At any time
$25.50
20,000,000
9,855,698
3.55%
Series AD
March 1, 2018
March 1, 2018
$25.00
20,000,000
5,069,935
floating
Series AC
March 1, 2018
At any time
$25.50
20,000,000
14,930,065
floating
Series AF
February 1, 2020
At any time
$25.50
24,000,000
9,292,133
3.11%
Series AE
February 1, 2020
February 1, 2020
$25.00
24,000,000
6,707,867
2.80%
Series AH
floating
Series AG
May 1, 2021
May 1, 2021
May 1, 2021
$25.00
22,000,000
4,985,351
At any time
$25.50
22,000,000
9,014,649
2.75%
Series AJ
August 1, 2021
August 1, 2021
$25.00
22,000,000
5,949,884
floating
Series AI
August 1, 2021
At any time
$25.50
22,000,000
8,050,116
2.954%
Series AL
December 31, 2021
December 31, 2021
$25.00
25,000,000
22,745,921
floating
Series AK
December 31, 2021
At any time
25,000,000
2,254,079
–
200
88
112
219
31
259
251
129
381
232
168
125
225
149
201
569
56
218
45
118
–
–
200
90
110
219
31
259
251
129
381
232
168
271
79
269
81
625
–
263
–
118
–
AM (2)
2.764%
Series AN
March 31, 2021
March 31, 2021
$25.00
30,000,000
9,546,615
floating
Series AM
March 31, 2021
At any time
30,000,000
1,953,385
4.55%
Series AP
March 31, 2017
March 31, 2017
$25.00
30,000,000
4,600,000
floating
Series AO
March 31, 2022
30,000,000
–
4.25%
Series AR
September 30, 2018
September 30, 2018
$25.00
30,000,000
9,200,000
228
228
floating
Series AQ
September 30, 2023
30,000,000
–
–
–
4,004
4,004
(1) If Series Q First Preferred Shares are issued on December 1, 2020, BCE may redeem such shares at $25.50 per share on any date after December 1, 2020 which is not a Series
conversion date.
(2) BCE may redeem each of these series of First Preferred Shares on the applicable redemption date and every five years after that date.
(3) BCE may redeem Series AL and AN First Preferred Shares at $25.00 per share on December 31, 2021 and March 31, 2021, respectively, and every five years thereafter (each, a Series
conversion date). Alternatively, BCE may redeem Series AL or AN First Preferred Shares at $25.50 per share on any date which is not a Series conversion date for such series of First
Preferred Shares.
(4) If Series AP or AR First Preferred Shares are issued on March 31, 2017 and September 30, 2018, respectively, BCE may redeem such shares at $25.00 per share on March 31, 2022 and
September 30, 2023, respectively, and every five years thereafter (each, a Series conversion date). Alternatively, BCE may redeem Series AP or AR First Preferred Shares at
$25.50 per share on any date after March 31, 2017 and September 30, 2018, respectively, which is not a Series conversion date for such series of First Preferred Shares.
VOTING RIGHTS
All of the issued and outstanding First Preferred Shares at
December 31, 2016 are non-voting, except under special circumstances,
when the holders are entitled to one vote per share.
PRIORITY AND ENTITLEMENT TO DIVIDENDS
The First Preferred Shares of all series rank on a parity with each other
and in priority to all other shares of BCE with respect to payment of
dividends and with respect to distribution of assets in the event of
liquidation, dissolution or winding up of BCE.
Holders of Series R, T, Z, AA, AC, AF, AG, AI, AK, AM, AO and AQ First
Preferred Shares are entitled to fixed cumulative quarterly dividends.
The dividend rate on these shares is reset every five years, as set out
in BCE’s articles of amalgamation, as amended.
Holders of Series S, Y, AB, AD, AE, AH and AJ First Preferred Shares are
entitled to floating adjustable cumulative monthly dividends. The
floating dividend rate on these shares is calculated every month, as
set out in BCE’s articles of amalgamation, as amended.
150
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements Holders of Series AL and AN First Preferred Shares are entitled to
floating cumulative quarterly dividends. The floating dividend rate on
these shares is calculated every quarter, as set out in BCE’s articles
of amalgamation, as amended.
Redeemable First Preferred Shares, Series S (Series S Preferred Shares).
In addition, on November 1, 2016, 548,079 of BCE’s 3,606,225 Series S
Preferred Shares were converted, on a one-for-one basis, into Series T
Preferred Shares.
Dividends on all series of First Preferred Shares are paid as and when
declared by the board of directors of BCE.
CONVERSION FEATURES
All of the issued and outstanding First Preferred Shares at
December 31, 2016 are convertible at the holder’s option into another
associated series of First Preferred Shares on a one-for-one basis
according to the terms set out in BCE’s articles of amalgamation,
as amended.
CONVERSION OF FIRST PREFERRED SHARES
On December 31, 2016, 2,254,079 of BCE’s 25,000,000 fixed-rate
Cumulative Redeemable First Preferred Shares, Series AK (Series AK
Preferred Shares) were converted, on a one-for-one basis, into
floating-rate Cumulative Redeemable First Preferred Shares, Series AL
(Series AL Preferred Shares).
On November 1, 2016, 455,302 of BCE’s 4,393,775 fixed-rate Cumulative
Redeemable First Preferred Shares, Series T (Series T Preferred Shares)
were converted, on a one-for-one basis, into floating-rate Cumulative
On August 1, 2016, 5,081,951 of BCE’s 10,754,990 fixed-rate Cumulative
Redeemable First Preferred Shares, Series AI (Series AI Preferred
Shares) were converted, on a one-for-one basis, into floating-rate
Cumulative Redeemable First Preferred Shares, Series AJ (Series AJ
Preferred Shares). In addition, on August 1, 2016, 276,845 of BCE’s
3,245,010 Series AJ Preferred Shares were converted, on a one-for-
one basis, into Series AI Preferred Shares.
On May 1, 2016, 5,884,470 of BCE’s 10,841,056 fixed-rate Cumulative
Redeemable First Preferred Shares, Series AG (Series AG Preferred
Shares) were converted, on a one-for-one basis, into floating-rate
Cumulative Redeemable First Preferred Shares, Series AH (Series AH
Preferred Shares). In addition, on May 1, 2016, 28,765 of BCE’s
3,158,944 Series AH Preferred Shares were converted, on a one-for-
one basis, into Series AG Preferred Shares.
On March 31, 2016, 1,953,385 of BCE’s 11,500,000 fixed-rate Cumulative
Redeemable First Preferred Shares, Series AM (Series AM Preferred
Shares) were converted, on a one-for-one basis, into floating-rate
Cumulative Redeemable First Preferred Shares, Series AN (Series AN
Preferred Shares).
Common shares and Class B shares
BCE’s articles of amalgamation provide for an unlimited number of voting common shares and non-voting Class B shares, all without par
value. The common shares and the Class B shares rank equally in the payment of dividends and in the distribution of assets if BCE is liquidated,
dissolved or wound up, after payments due to the holders of preferred shares. No Class B shares were outstanding at December 31, 2016
and 2015.
The following table provides details about the outstanding common shares of BCE.
Outstanding, January 1
865,614,188
18,100
840,330,353
NOTE
NUMBER OF
SHARES
STATED
CAPITAL
NUMBER OF
SHARES
2016
2015
Shares issued under bought deal offering
Shares issued for the acquisition of Glentel
Shares issued under employee stock option plan
Shares issued under dividend reinvestment plan
Shares issued under ESP
Outstanding, December 31
3
26
–
–
2,236,891
688,839
2,166,414
–
–
104
38
128
15,111,000
5,548,908
2,289,677
–
2,334,250
870,706,332
18,370
865,614,188
18,100
STATED
CAPITAL
16,717
863
296
96
–
128
On December 11, 2015, BCE issued 15,111,000 common shares to a
syndicate of underwriters at a price of $57.10 per common share,
representing a discount of $0.90 or 1.6% to the November 23, 2015
announcement date closing price. We incurred $35 million ($26 million
net of tax) of issuance costs which were charged to the deficit.
CONTRIBUTED SURPLUS
Contributed surplus in 2016 and 2015 include premiums in excess of
par value upon the issuance of BCE common shares and share-based
compensation expense net of settlements.
Note 26 Share-based payments
The following share-based payment amounts are included in the income statements as operating costs.
FOR THE YEAR ENDED DECEMBER 31
ESP
RSUs/PSUs
Other (1)
Total share-based payments
(1) Includes DSP, DSUs and stock options.
2016
(29)
(49)
(12)
(90)
2015
(28)
(51)
(15)
(94)
BCE Inc.
2016 AnnuAl RepoRt 151
Notes to consolidated financial statements Description of the plans
ESP
The ESP is designed to encourage employees of BCE and its participating
subsidiaries to own shares of BCE. Each year, employees can choose
to have a certain percentage of their eligible annual earnings withheld
through regular payroll deductions for the purchase of BCE common
shares. In some cases, the employer also will contribute a percentage
of the employee’s eligible annual earnings to the plan, up to a specified
maximum. Dividends are credited to the participant’s account on each
dividend payment date and are equivalent in value to the dividends
paid on BCE common shares.
The BCE ESP allows employees to contribute up to 12% of their annual
earnings with a maximum employer contribution of 2%.
Employer contributions to the BCE ESP plan are subject to employees
holding their shares for a two-year vesting period. Dividends related
to employer contributions are also subject to the two-year
vesting period.
The trustee of the ESP buys BCE common shares for the participants
on the open market, by private purchase or from treasury. BCE
determines the method the trustee uses to buy the shares.
At December 31, 2016, 5,673,948 common shares were authorized for
issuance from treasury under the BCE ESP.
The following table summarizes the status of unvested employer
contributions at December 31, 2016 and 2015.
NUMBER OF ESP SHARES
2016
2015
The following table summarizes outstanding RSUs/PSUs at
December 31, 2016 and 2015.
NUMBER OF RSUs/PSUs
Oustanding, January 1
Granted (1)
Dividends credited
Settled
Forfeited
Outstanding, December 31
Vested, December 31 (2)
2016
3,333,583
874,888
137,583
2015
3,616,967
1,005,062
157,485
(1,321,846)
(1,342,514)
(95,510)
(103,417)
2,928,698
1,058,200
3,333,583
1,138,861
(1) The weighted average fair value of the RSUs/PSUs granted was $58 and $55 in 2016
and 2015, respectively.
(2) The RSUs/PSUs vested on December 31, 2016 were fully settled in February 2017 with
BCE common shares and/or DSUs.
DSP
The value of a deferred share is equal to the value of one BCE common
share. Dividends in the form of additional deferred shares are credited
to the participant’s account on each dividend payment date and are
equivalent in value to the dividend paid on BCE common shares.
Deferred shares vest fully after three years of continuous employment
from the date of grant. The liability recorded in Trade payables and
other liabilities and Other non-current liabilities in the statements of
financial position and related to the deferred share plan was $37 million
and $38 million at December 31, 2016 and December 31, 2015, respectively.
Unvested contributions,
January 1
Contributions (1)
Dividends credited
Vested
Forfeited
Unvested contributions,
December 31
1,146,046
1,153,653
STOCK OPTIONS
600,808
49,988
(586,309)
(137,321)
645,633
53,283
(600,815)
(105,708)
1,073,212
1,146,046
Under BCE’s long-term incentive plans, BCE may grant options to
executives to buy BCE common shares. The subscription price of a
grant is based on the higher of:
• the volume-weighted average of the trading price on the trading
day immediately prior to the effective date of the grant
• the volume-weighted average of the trading price for the last five
consecutive trading days ending on the trading day immediately
prior to the effective date of the grant
At December 31, 2016, 17,390,633 common shares were authorized for
issuance under these plans. Options vest fully after three years of
continuous employment from the date of grant. All options become
exercisable when they vest and can be exercised for a period of seven
years from the date of grant. Special vesting provisions may apply if:
• there is a change in control of BCE and the option holder’s
employment ends
• the option holder is employed by a designated subsidiary of BCE
and BCE’s ownership interest in that subsidiary falls below the
percentage set out in the plan
(1) The weighted average fair value of the shares contributed was $59 and $55 in 2016
and 2015, respectively.
RSUs/PSUs
RSUs/PSUs are granted to executives and other eligible employees.
The value of an RSU/PSU at the grant date is equal to the value of one
BCE common share. Dividends in the form of additional RSUs/PSUs
are credited to the participant’s account on each dividend payment
date and are equivalent in value to the dividend paid on BCE common
shares. Executives and other eligible employees are granted a specific
number of RSUs/PSUs for a given performance period based on their
position and level of contribution. RSUs/PSUs vest fully after three
years of continuous employment from the date of grant and, in certain
cases, if performance objectives are met, as determined by the board
of directors.
152
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements The following table summarizes BCE’s outstanding stock options at December 31, 2016 and 2015.
Outstanding, January 1
Granted
Exercised (1)
Forfeited
Outstanding, December 31
Exercisable, December 31
NOTE
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE ($)
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE ($)
2016
2015
9,666,904
2,968,062
25
(2,236,891)
(155,913)
10,242,162
1,786,251
$48
$58
$44
$52
$52
$42
9,278,190
2,835,667
(2,289,677)
(157,276)
9,666,904
1,174,191
$43
$56
$39
$49
$48
$38
(1) The weighted average share price for options exercised was $59 and $56 in 2016 and 2015, respectively.
The following table provides additional information about BCE’s stock option plans at December 31, 2016.
RANGE OF EXERCISE PRICES
$30 – $39
$40-$49
$50 or more
STOCK OPTIONS OUTSTANDING
WEIGHTED AVERAGE
REMAINING LIFE
WEIGHTED AVERAGE
EXERCISE PRICE ($)
1.14
3.70
5.67
4.70
$36
$46
$57
$52
NUMBER
353,374
4,216,472
5,672,316
10,242,162
ASSUMPTIONS USED IN STOCK OPTION PRICING MODEL
The fair value of options granted was determined using a variation of a binomial option pricing model that takes into account factors specific
to the share incentive plans, such as the vesting period. The following table shows the principal assumptions used in the valuation.
Weighted average fair value per option granted
Weighted average share price
Weighted average exercise price
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (years)
2016
$2.57
$58
$58
4.7%
15%
0.6%
4.5
Expected volatilities are based on the historical volatility of BCE’s share price. The risk-free rate used is equal to the yield available on
Government of Canada bonds at the date of grant with a term equal to the expected life of the options.
DSUs
Eligible bonuses and RSUs/PSUs may be paid in the form of DSUs when
executives or other eligible employees elect to or are required to
participate in the plan. The value of a DSU at the issuance date is equal
to the value of one BCE common share. For non-management directors,
compensation is paid in DSUs until the minimum share ownership
requirement is met; thereafter, at least 50% of their compensation is
paid in DSUs. There are no vesting requirements relating to DSUs.
Dividends in the form of additional DSUs are credited to the participant’s
account on each dividend payment date and are equivalent in value
to the dividends paid on BCE common shares. DSUs are settled when
the holder leaves the company.
The following table summarizes the status of outstanding DSUs at December 31, 2016 and 2015.
NUMBER OF DSUs
Outstanding, January 1
Issued (1)
Settlement of RSUs/PSUs
Dividends credited
Settled
Outstanding, December 31
(1) The weighted average fair value of the DSUs issued was $59 and $55 in 2016 and 2015, respectively.
2016
2015
3,796,051
4,116,527
87,665
323,428
183,852
(259,767)
4,131,229
174,672
216,500
201,721
(913,369)
3,796,051
BCE Inc.
2016 AnnuAl RepoRt 153
Notes to consolidated financial statements Note 27 Commitments and contingencies
Commitments
The following table is a summary of our contractual obligations at December 31, 2016 that are due in each of the next five years and thereafter.
Operating leases
Commitments for property, plant and equipment and
intangible assets
Purchase obligations
Proposed acquisition of MTS (1)
Acquisition of Cieslok Media (2)
Total
NOTE
3
3
2017
297
994
828
3,068
161
5,348
2018
242
745
585
–
–
2019
195
608
551
–
–
2020
157
460
460
–
–
2021
123
385
444
–
–
THERE-
AFTER
363
1,122
1,129
–
–
TOTAL
1,377
4,314
3,997
3,068
161
1,572
1,354
1,077
952
2,614
12,917
(1) Subject to certain closing conditions and termination rights, the proposed acquisition of MTS is expected to close on March 17, 2017. If the transaction does not close under certain
circumstances, BCE may be liable to pay a break fee of $200 million to MTS.
(2) This commitment was settled on January 3, 2017 upon completion of the acquisition of Cieslok Media. See Note 3, Business acquisitions and dispositions for additional details.
BCE’s significant operating leases are for office premises, cellular
tower sites, retail outlets, and OOH advertising spaces with lease
terms ranging from 1 to 50 years. These leases are non-cancellable.
Rental expense relating to operating leases was $353 million in 2016
and $340 million in 2015.
Our commitments for property, plant and equipment and intangible
assets include program and feature film rights and investments to
expand and update our networks to meet customer demand.
Purchase obligations consist of contractual obligations under service
and product contracts for operating expenditures and other
purchase obligations.
Contingencies
In the ordinary course of business, we become involved in various
claims and legal proceedings seeking monetary damages and other
relief. In particular, because of the nature of our consumer-facing
business, we are exposed to class actions pursuant to which substantial
monetary damages may be claimed. Due to the inherent risks and
uncertainties of the litigation process, we cannot predict the final
outcome or timing of claims and legal proceedings. Subject to the
foregoing, and based on information currently available and
management’s assessment of the merits of the claims and legal
proceedings pending at March 2, 2017, management believes that the
ultimate resolution of these claims and legal proceedings is unlikely
to have a material and negative effect on our financial statements.
We believe that we have strong defences and we intend to vigorously
defend our positions.
Note 28 Related party transactions
Subsidiaries
The following table shows BCE’s significant subsidiaries at December 31,
2016. BCE has other subsidiaries which have not been included in the
table as each represents less than 10% individually and less than 20%
in aggregate of total consolidated revenues.
SUBSIDIARY
Bell Canada
Bell Mobility
Bell Media
All of these significant subsidiaries are incorporated in Canada and
provide services to each other in the normal course of operations. The
value of these transactions is eliminated on consolidation.
OWNERSHIP PERCENTAGE
2016
100%
100%
100%
2015
100%
100%
100%
Transactions with joint arrangements and associates
During 2016 and 2015, BCE provided communication services and
received programming content and other services in the normal course
of business on an arm’s length basis to and from its joint arrangements
and associates. Our joint arrangements and associates include MLSE,
Glentel, and Dome Productions Partnership. From time to time, BCE
may be required to make capital contributions in its investments.
In 2016, BCE recognized revenues and incurred expenses with our joint
arrangements and associates of $16 million (2015 – $8 million) and
$180 million (2015 – $104 million), respectively.
154
BCE Inc.
2016 AnnuAl RepoRt
Notes to consolidated financial statements BCE Master Trust Fund
Bimcor Inc. (Bimcor), a wholly-owned subsidiary of Bell Canada, is the administrator of the Master Trust. Bimcor recognized management
fees of $10 million from the Master Trust for 2016 and $13 million for 2015. The details of BCE’s post-employment benefit plans are set out in
Note 22, Post-employment benefit plans.
Compensation of key management personnel and board of directors
The following table includes compensation of the key management personnel and board of directors for the years ended December 31, 2016
and 2015 included in our income statements. Key management personnel include the company’s Chief Executive Officer (CEO), Group President
and the executives who report directly to them.
FOR THE YEAR ENDED DECEMBER 31
Wages, salaries, fees and related taxes and benefits
Post-employment benefit plans and OPEBs cost
Share-based compensation
Key management personnel and board of directors compensation expense
2016
(24)
(4)
(27)
(55)
Note 29 Significant partly-owned subsidiaries
The following tables show summarized financial information for our subsidiaries with significant non-controlling interest (NCI).
Summarized statements of financial position
FOR THE YEAR ENDED DECEMBER 31
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total equity attributable to BCE shareholders
NCI
CTV SPECIALTY (1)
2016
293
1,013
1,306
130
195
325
687
294
(1) At December 31, 2016 and 2015, the ownership interest held by NCI in CTV Specialty was 29.9%. CTV Specialty was incorporated and operated in Canada as at such dates.
Selected income and cash flow information
FOR THE YEAR ENDED DECEMBER 31
Operating revenues
Net earnings
Net earnings attributable to NCI
Total comprehensive income
Total comprehensive income attributable to NCI
Cash dividends paid to NCI
(1) CTV Specialty net earnings and total comprehensive income includes $3 million directly attributable to NCI for 2016 and 2015.
CTV SPECIALTY (1)
2016
824
182
56
173
54
46
2015
(32)
(3)
(27)
(62)
2015
272
1,030
1,302
142
200
342
673
287
2015
805
166
52
174
54
41
BCE Inc.
2016 AnnuAl RepoRt 155
Notes to consolidated financial statements Board of directors
as of March 2, 2017
Gordon M. Nixon
ONTARIO, CANADA
Corporate Director
Chair of the Board,
BCE Inc. and Bell Canada
Director since November 2014
Barry K. Allen
FLORIDA, UNITED STATES
Operating Partner,
Providence Equity Partners LLC
Director since May 2009
Ronald A. Brenneman
ALBERTA, CANADA
Corporate Director
Director since November 2003
Sophie Brochu
QUÉBEC, CANADA
President and
Chief Executive Officer,
Gaz Métro Inc.
Director since May 2010
Robert E. Brown
QUÉBEC, CANADA
Corporate Director
Director since May 2009
George A. Cope
ONTARIO, CANADA
President and
Chief Executive Officer,
BCE Inc. and Bell Canada
Director since July 2008
David F. Denison,
FCPA, FCA
ONTARIO, CANADA
Corporate Director
Director since October 2012
Robert P. Dexter
NOVA SCOTIA, CANADA
Chair and
Chief Executive Officer,
Maritime Travel Inc.
Director since November 2014
Committees of the board
AUDIT
COMMITTEE
PENSION FUND
COMMITTEE
D.F. Denison (Chair),
R.A. Brenneman, R.P. Dexter,
K. Lee, C. Rovinescu, P.R. Weiss
The PFC assists the board
in the oversight of:
• the administration, funding
and investment of BCE Inc.’s
pension plans and funds
• the unitized pooled funds
sponsored by BCE Inc. for the
collective investment of the
funds and the participant
subsidiaries’ pension funds.
P.R. Weiss (Chair),
D.F. Denison, R.P. Dexter,
I. Greenberg, K. Lee,
M.F. Leroux, R.C. Simmonds
The audit committee assists the
board in the oversight of:
• the integrity of BCE Inc.’s
financial statements and
related information
• BCE Inc.’s compliance with
applicable legal and
regulatory requirements
• the independence,
qualifications and appointment
of the external auditors
• the performance of both the
external and internal auditors
• management’s responsibility
for assessing and reporting
on the effectiveness of
internal controls
• BCE Inc.’s enterprise risk
management processes.
Ian Greenberg
QUÉBEC, CANADA
Corporate Director
Director since July 2013
Katherine Lee
ONTARIO, CANADA
Chief Executive Officer,
3 Angels Holdings Limited
Director since August 2015
Monique F. Leroux,
C.M., O.Q., FCPA, FCA
QUÉBEC, CANADA
Corporate Director
Director since April 2016
Calin Rovinescu
QUÉBEC, CANADA
President and
Chief Executive Officer,
Air Canada
Director since April 2016
Robert C. Simmonds
ONTARIO, CANADA
Chair,
Lenbrook Corporation
Director since May 2011
Paul R. Weiss,
FCPA, FCA
ONTARIO, CANADA
Corporate Director
Director since May 2009
MANAGEMENT
RESOURCES AND
COMPENSATION
COMMITTEE
R.A. Brenneman (Chair),
B.K. Allen, S. Brochu, R.E. Brown,
I. Greenberg, C. Rovinescu
The MRCC assists the board
in the oversight of:
• the compensation, nomination,
evaluation and succession
of officers and other
management personnel
• the health and safety policies
and practices.
CORPORATE
GOVERNANCE
COMMITTEE
R.E. Brown (Chair),
B.K. Allen, S. Brochu, M.F. Leroux,
R.C. Simmonds
The CGC assists the board in:
• developing and implementing
BCE Inc.’s corporate
governance guidelines
• identifying individuals
qualified to become members
of the board
• determining the composition of
the board and its committees
• determining the directors’
remuneration for board and
committee service
• developing and overseeing
a process to assess the
Chair of the board, the board,
committees of the board,
Chairs of committees and
individual directors
• reviewing and recommending
for board approval BCE Inc.’s
policies concerning business
conduct, ethics, public
disclosure of material
information and other matters.
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Board of directors / Executives Executives
as of March 2, 2017
George A. Cope
President and Chief Executive Officer,
BCE Inc. and Bell Canada
Mirko Bibic
Chief Legal & Regulatory Officer and
Executive Vice-President – Corporate Development,
BCE Inc. and Bell Canada
Charles Brown
President – The Source,
Bell Canada
Michael Cole
Executive Vice-President and Chief Information Officer,
Bell Canada
Stephen Howe
Executive Vice-President and Chief Technology Officer,
Bell Canada
Rizwan Jamal
President – Bell Residential & Small Business,
Bell Canada
Blaik Kirby
President – Bell Mobility,
Bell Canada
Glen LeBlanc
Executive Vice-President and Chief Financial Officer,
BCE Inc. and Bell Canada
Bernard le Duc
Executive Vice-President – Corporate Services,
BCE Inc. and Bell Canada
Randy Lennox
President – Bell Media,
Bell Canada
Thomas Little
President – Bell Business Markets,
Bell Canada
Wade Oosterman
Group President,
BCE Inc. and Bell Canada
Martine Turcotte
Vice Chair – Québec,
BCE Inc. and Bell Canada
John Watson
Executive Vice-President – Customer Experience,
Bell Canada
BCE Inc.
2016 AnnuAl RepoRt 157
Board of directors / Executives Investor information
Tax aspects
CAPITAL GAINS ON YOUR SHARES
Shareholders are required to pay tax on dividends as well as any capital gains they realize
when they sell their shares or are deemed to have sold them.
If you received Nortel Networks common shares in May 2000 and/or Bell Aliant Regional
Communications Income Fund units in July 2006, you should contact the Investor Relations
group to learn more about the tax implications on your cost, or visit BCE.ca.
DIVIDENDS
Since January 1, 2006 and unless stated otherwise, dividends paid by BCE Inc. to Canadian
residents are eligible dividends as per the Canadian Income Tax Act. Since March 24, 2006
and unless stated otherwise, dividends paid by BCE Inc. to Québec residents also qualify
as eligible dividends.
NON-RESIDENTS OF CANADA
Dividends paid or credited to non-residents of Canada are subject to a 25% withholding
tax unless reduced by a tax treaty. Under current tax treaties, U.S. and U.K. residents are
subject to a 15% withholding tax.
Beginning in 2012, the Canada Revenue Agency introduced new rules requiring residents
of any country with which Canada has a tax treaty to certify that they reside in that
country and are eligible to have Canadian non-resident tax withheld on the payment of
their dividends at the tax treaty rate. Registered shareholders should have completed the
Declaration of Eligibility for Benefits under a Tax Treaty for a Non-Resident Taxpayer and
returned it to the transfer agent.
U.S. RESIDENTS
In addition to the Declaration of Eligibility for Benefits under a Tax Treaty for a Non-Resident
Taxpayer mentioned above, we are required to solicit taxpayer identification numbers
and Internal Revenue Service (IRS) Form W-9 certifications of residency from certain
U.S. residents. If these have not been received, we may be required to deduct the IRS’s
specified backup withholding tax. For more information, please contact the transfer agent
or the Investor Relations group.
Share facts
SYMBOL
BCe
LISTINGS
TSX and NYSE stock exchanges
You will find a summary of the differences
between our governance practices and the
NYSE corporate governance rules in the
Governance section of our website at BCE.ca.
COMMON SHARES OUTSTANDING
December 31, 2016 – 870,706,332
QUARTERLY DIVIDEND*
$0.7175 per common share
2017 DIVIDEND SCHEDULE*
Record date
March 15, 2017
June 15, 2017
September 15, 2017
December 15, 2017
Payment date**
April 15, 2017
July 15, 2017
October 15, 2017
January 15, 2018
* Subject to dividends being declared by the board
of directors
** When a dividend payment date falls on a weekend,
the payment is made on the following business day
2017 QUARTERLY EARNINGS
RELEASE DATES
First quarter
Second quarter
Third quarter
Fourth quarter
April 26, 2017
August 3, 2017
November 2, 2017
February 8, 2018
Quarterly and annual reports as well as
other corporate documents can be found
on our website. Copies can be requested
from the Investor Relations group.
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BCE Inc.
2016 AnnuAl RepoRt
Investor information Shareholder services
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
A convenient method for eligible shareholders to reinvest their dividends and make optional
cash contributions to purchase additional common shares without brokerage costs.
DIVIDEND DIRECT DEPOSIT SERVICE
Avoid postal delays and trips to the bank by joining the dividend direct deposit service.
DIRECT REGISTRATION (DRS)
HOLDING YOUR SHARES ELECTRONICALLY IN LIEU OF SHARE CERTIFICATES
Holdings are represented by a statement issued when establishing or subsequently
modifying your DRS balance. This option removes the risks of holding share certificates,
including their safekeeping, and, most importantly, eases the replacement process. Note
that there is a cost to replace lost or stolen certificates as well as certificates mailed and
never received by the shareholder (if claimed two years after mailing). Generally this cost
is a percentage of the value of the shares represented.
E-DELIVERY SERVICE
Enrol to the e-delivery service to receive the proxy material, the annual report and/or
quarterly reports by e-mail. By doing so, you will receive your documents faster and in
an environmentally friendly manner while helping your company reduce its costs.
DUPLICATE MAILINGS
Eliminate duplicate mailings by consolidating your accounts.
MANAGE YOUR SHAREHOLDER ACCOUNT
Enrol to AnswerLine at www.canstockta.com and benefit from a wide variety of self-service
tools to help track and manage your shares.
For more details on any of these services, registered shareholders (shares are registered
under your name) must contact the transfer agent. Non-registered shareholders must
contact their brokers.
Contact information
TRANSFER AGENT AND REGISTRAR
For information on shareholder services or
any other inquiries regarding your account
(including stock transfer, address change,
lost certificates and tax forms), contact:
CST Trust Company
320 Bay Street, 3rd Floor
Toronto, Ontario M5H 4A6
e-mail bce@canstockta.com
tel
416 682-3861 or 1 800 561-0934
(toll free in Canada and the U.S.)
514 985-8843 or 1 888 249-6189
(toll free in Canada and the U.S.)
fax
website www.canstockta.com
INVESTOR RELATIONS
For financial inquiries:
Building A, 8th Floor
1 Carrefour Alexander-Graham-Bell
Verdun, Québec H3E 3B3
e-mail
tel
fax
investor.relations@bce.ca
1 800 339-6353
514 786-3970
or visit the Investors section of
our website at BCE.ca
Trade-marks: The following are trade-marks referred to and used as such in this annual report that BCE Inc., its subsidiaries, joint arrangements, associates or other entities in which
we hold an equity interest own or use under licence. BCE is a trade-mark of BCE Inc.; Aliant, Bell, Bell Canada, Bell Centre, Bell Internet, Bell Media, Bell Mobility, Bell TV, Fibe, FibreOP,
Let’s Talk, Q9, Q9 Networks, Roam Better and TV Everywhere are trade-marks of Bell Canada; Astral, Astral Media, Astral Out-of-Home, BNN, Canal D, Canal Vie, CP24, CraveTV, CTV,
CTV GO, CTV News, CTV Two, Gusto, Daily Planet, eTalk, Learning and Skills Television of Alberta, Space, Super Écran, The Comedy Network, The Movie Network, TMN, TMN Encore,
TMN GO and Z are trade-marks of Bell Media Inc.; Bravo is a trade-mark of Bravo Media LLC; Cablevision is a trade-mark of Cablevision du Nord de Québec Inc.; Animal Planet,
Discovery, Discovery Science and Discovery GO are trade-marks of Discovery Communications, LLC; Dome Productions is a trade-mark of Dome Productions Partnership; ExpressVu
is a trade-mark of Bell ExpressVu Limited Partnership; EZ Rock is a trade-mark of Bell Media Radio G.P.; Glentel, Tbooth wireless, Wirelesswave, Wave sans fil and Wireless etc. are
trade-marks of Glentel Inc.; HBO Canada is a trade-mark of Home Box Office Inc.; iHeartRadio is a trade-mark of iHM Identity, Inc.; Métromédia CMR Plus is a trade-mark of
Métromédia CMR Plus Inc.; MLSE is a trade-mark of Maple Leaf Sports & Entertainment Ltd.; Toronto Maple Leafs, Toronto Marlies and Toronto Raptors are trade-marks of Maple Leaf
Sports & Entertainment Partnership; Montreal Canadiens is a trade-mark of Club de Hockey Canadien, Inc.; NorthernTel is a trade-mark of Nortel Networks Limited; Northwestel
and N-NorthwesTel Design are trade-marks of Northwestel Inc.; Showtime is a trade-mark of Showtime Networks Inc.; Télébec is a trade-mark of Télébec, Limited Partnership;
The Source is a trade-mark of The Source (Bell) Electronics Inc.; Toronto Argonauts and Argos are trade-marks of Argonauts Holdings Limited Partnership; Toronto FC is a trade-mark
of MLS Canada LP; TSN, TSN GO, RDS and RDS GO are trade-marks of The Sports Network Inc.; Virgin Mobile and Virgin Mobile Canada are trade-marks of Virgin Enterprises Limited.
We believe that our trade-marks are very important to our success and take appropriate measures to protect, renew and
defend them. Any other trade-marks used in this annual report are the property of their respective owners.
Photography credit:
Page 23 Hello, Montréal, photo by Mikaël Theimer
© BCE Inc., 2017. All rights reserved.
bce.ca